<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
REGISTRATION NO. 2-10699
Post-Effective Amendment No. 79
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
REGISTRATION NO. 811-51
Amendment No. 27
SELECTED AMERICAN SHARES, INC.
------------------------------
124 East Marcy Street
Santa Fe, New Mexico 87501
Registrant's Telephone Number, Including Area Code
1-800-243-1575
Agent for Service:
Sheldon R. Stein
D'Ancona & Pflaum
30 North LaSalle Street
Chicago, Illinois 60602
(312) 580-2014
<PAGE>
It is proposed that this filing will become effective:
[ ] Immediately upon filing pursuant to paragraph (b)
[X] on May 1, 1998, pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on _____________, pursuant to paragraph (a) of Rule 485
Title of securities being registered: Selected American Shares Fund,
common stock
FORM N-1A
SELECTED AMERICAN SHARES, INC.
POST-EFFECTIVE AMENDMENT NO. 79 TO REGISTRATION STATEMENT NO. 2-10699 UNDER THE
SECURITIES ACT OF 1933 AND AMENDMENT NO. 27 UNDER THE INVESTMENT COMPANY ACT OF
1940 TO REGISTRATION STATEMENT NO. 811-51.
CROSS REFERENCE
N-1A
Item No. Prospectus Caption or Placement
- -------- -------------------------------
1 Front Cover
2 Fund Expenses, Selected Funds - Summary
3 Financial Highlights; Fund Performance
4 Selected Funds - Summary; Investment Objectives
5 Manager, Sub-Advisers, Distributor and Portfolio Managers
5a Management's Discussion of Fund Performance
(contained in 1997 Annual Report)
6 Organization of the Funds; Selected Funds - Summary; Dividends;
Taxes; How to Reach Us
7 Buying Shares; Determining the Price of Shares - Net Asset
Value; Exchanging Shares Manager, Sub-Adviser and Distributor
8 Selling Shares; Exchanging Shares;
9 (Not Applicable)
Part B Caption or Placement
---------------------------
10 Cover Page
11 Table of Contents
<PAGE>
12 (Not Applicable)
13 Investment Restrictions; Lending Portfolio Securities and Writing
Cover Call Options
14 Directors and Officers; Directors' Compensation Table
15 Major Shareholders
16 Manager and Sub-Adviser; Custodian; Independent Auditors;
Distribution Plan
17 Portfolio Brokerage
18 *
19 Net Asset Value
20 Taxes
21 Distribution Plan
22 Performance Data
23 **
- ------------------------
* Included in Prospectus
** Financial Statements appearing in the December 31, 1997 Annual Report are
incorporated by reference.
<PAGE>
PROSPECTUS MAY 1, 1998
THE SELECTED FUNDS
124 EAST MARCY STREET
SANTA FE, NEW MEXICO 87501
1-800-243-1575
Welcome to the Selected Funds, a family of diversified noload mutual
funds offering a variety of investment opportunities. The Funds pay
distribution fees pursuant to distribution plans adopted in accordance with
Rule 12b1.
STOCKORIENTED FUNDS
Selected American Shares, Inc. a Growth and Income Fund.
Selected Special Shares, Inc. a Growth Fund.
BONDORIENTED FUND
Selected U.S. Government Income Fund an Income Fund.
MONEY MARKET FUND
Selected Daily Government Fund a U.S. Government Money Market Fund.
Selected Daily Government Fund and Selected U.S. Government Income
Fund are part of Selected Capital Preservation Trust.
This Prospectus concisely sets forth information about the Selected
Funds that you should know before investing. Please keep it handy for future
reference. Additional information is included in the Statements of Additional
Information of the Selected Funds dated May 1, 1998, and filed with the
Securities and Exchange Commission. The Statements of Additional Information
are incorporated herein by reference. You may obtain copies of the Statements
of Additional Information without charge by writing or calling us at the above
address or phone number.
AN INVESTMENT IN THE SELECTED U.S. GOVERNMENT INCOME FUND OR SELECTED
DAILY GOVERNMENT FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.
THERE CAN BE NO ASSURANCE THAT SELECTED DAILY GOVERNMENT FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. SHARES IN THE SELECTED
FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
SUMMARY
STOCKORIENTED FUNDS
Selected American Shares, Inc. ("Selected American") and Selected
Special Shares, Inc. ("Selected Special") are diversified, professionally
managed stockoriented funds. Selected American seeks a combination of capital
growth and income and invests primarily in common stocks and other equity
securities. Selected Special seeks capital growth and invests primarily in
common stocks and securities convertible into common stocks. See "Investment
Objectives."
BONDORIENTED FUND
Selected U.S. Government Income Fund ("Selected Government Income")
seeks to obtain current income consistent with preservation of capital by
investing primarily in debt obligations of the U.S. Government, its agencies or
instrumentalities ("U.S. Government Securities").
MONEY MARKET FUND
Selected Daily Government Fund ("Selected Daily Government") seeks to
provide a high level of current income from shortterm money market securities
consistent with prudent investment management, preservation of capital and
maintenance of liquidity. It invests in U.S. Government Securities and
repurchase agreements in respect thereto.
MANAGER, SUBADVISERS AND DISTRIBUTOR
Davis Selected Advisers, L.P. (the "Manager") serves as the investment
manager for Selected American, Selected Special, Selected Government Income and
Selected Daily Government (individually a "Fund" or together the "Funds" or the
"Selected Funds"). Davis Distributors, LLC (the "Distributor") serves as the
principal underwriter for the Funds. The Manager has hired Bramwell Capital
Management, Inc. (the "SubAdvisor") to provide day to day management of the
portfolio of Selected Special. The Manager has entered into a SubAdvisory
Agreement with its whollyowned subsidiary, Davis Selected AdvisersNY, Inc.
("DSANY"). DSANY performs research and other services for the Funds on behalf
of the Manager. There are management and Rule 12b1 distribution fees payable by
each Fund. For more information see "Fund Expenses" and "Manager, SubAdvisers
and Distributor."
PURCHASES AND REDEMPTIONS
Shares of the Funds are sold and redeemed at net asset value without
any sales or redemption charge. The minimum initial investment in any of the
Selected Funds is $1,000 and subsequent investments are $25 or more. Please see
"Buying Shares" for more information on how easy it is to invest. Please see
"Selling Shares" for details on how to redeem shares.
FACTORS TO CONSIDER
An investment in any of our Funds, as with any mutual fund, includes
risks that vary depending upon the Fund's investment objectives and policies.
There is no assurance that the investment objective of any Fund will be
achieved. A Fund's return and net asset value will fluctuate, although Selected
Daily Government seeks to maintain a net asset value of $1.00 per share.
2
<PAGE>
FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------
Sales Load on Purchases................................................ None
Redemption Fee......................................................... None*
Sales Load on Reinvested Dividends..................................... None
Exchange Fee........................................................... None
Deferred Sales Load.................................................... None
* A service fee of $5 is charged for each wire redemption.
Annual fund operating expenses after any expense reimbursements, as a
percentage of average net assets:
<TABLE>
<CAPTION>
SELECTED SELECTED SELECTED GOV'T SELECTED DAILY
AMERICAN SPECIAL INCOME*** GOVERNMENT
-------- ------- --------- ----------
<S> <C> <C> <C> <C>
Management fees .................... 0.59% 0.69% 0.50% 0.30%
12b1 Fees** ........................ 0.25% 0.25% 0.25% 0.25%
Other Expenses ..................... 0.12% 0.34% 0.75% 0.15%
---- ---- ---- ----
Total Operating Expenses ........... 0.96% 1.28% 1.50% 0.70%
---- ---- ---- ----
</TABLE>
- --------------
** The effect of a 12b1 plan is that longterm shareholders may pay more than
the economic equivalent of the maximum frontend sales charge permitted
under applicable rules of the National Association of Securities Dealers,
Inc.
*** After contractual expense reimbursements.
The Manager agreed to absorb certain expenses for Selected Government
Income as reflected above. If the Manager had not done so, "Other Expenses" for
Selected Government Income in the table above would be 0.85%, and "Total
Operating Expenses" would be 1.60%. Please see "Manager, SubAdvisers and
Distributor" and the Statements of Additional Information for more information
on fees.
We can illustrate these expenses with the examples below. You would
pay the following expenses on a $1,000 investment (assuming a 5% annual return
and redemption at the end of each period):
<TABLE>
<CAPTION>
SELECTED SELECTED SELECTED GOV'T SELECTED DAILY
AMERICAN SPECIAL INCOME*** GOVERNMENT
-------- ------- --------- ----------
<S> <C> <C> <C> <C>
One Year ................... $ 10 $ 13 $ 15 $ 7
Three Years ................ $ 31 $ 41 $ 47 $ 22
Five Years ................. $ 53 $ 70 $ 82 $ 39
Ten Years .................. $118 $155 $179 $ 87
</TABLE>
The tables are here to help you understand the various expenses that
you as an investor in a Fund will bear and are based on the Funds' expenses for
the year ended December 31, 1997, which reflect expense reimbursements in
respect to Selected Government Income as described above. The 5% rate used in
the example is only for illustration and is not intended to be indicative of
the future performance of the Funds, which may be more or less than the assumed
rate. Actual expenses may be greater or lesser than those shown.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide you with information about the history of
the Funds' shares, including periods prior to May 1, 1993 when Davis Selected
Advisers, L.P. became the Funds' Manager. The tables present the financial
highlights for a share outstanding throughout each respective period. Such
tables are included as supplementary information to the Funds' financial
statements which are included in the December 31, 1997 Annual Report to
Shareholders which may be obtained by writing or calling the Fund. The Funds'
1997 financial statements including the financial highlights for each of the
five years in the period ended December 31, 1997, have been audited by Tait,
Weller & Baker serving as the Funds' independent certified public accountants,
whose unqualified opinion thereon is contained in the Annual Report.
SELECTED AMERICAN
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1997 1996 1995 1994 1993(2)
---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ........ $21.53 $17.68 $13.09 $14.59 $17.13
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ...... 0.16 0.18 0.22 0.20 0.24
Net Gains or Losses on
Securities (both realized
and unrealized)........... 7.72 5.15 4.74 (0.66) 0.70
------ ------ ------ ------ ------
Total From Investment
Operations
7.88 5.33 4.96 (0.46) 0.94
------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends (from net
investment income....... (0.17) (0.17) (0.22) (0.20) (0.24)
Distributions (from
capital gains).......... (2.05) (1.31) (0.15) (0.83) (3.24)
Distributions in Excess
of Net Investment
Income................... (0.01) - - (0.01) -
------ ------ ------ ------ ------
Total Distributions...... (2.23) (1.48) (0.37) (1.04) (3.48)
------ ------ ------ ------ ------
Net Asset Value, End
of Period................... $27.18 $21.53 $17.68 $13.09 $14.59
====== ====== ====== ====== ======
TOTAL RETURN .................. 37.25% 30.74% 38.09% (3.20)% 5.42%
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of
Period (000 omitted)..... $2,221,655 $1,376,466 $925,512 $529,404 $451,392
Ratio of Expenses to
Average Net Assets........ .96% 1.03% 1.09% 1.26% 1.01%(1)
Ratio of Net Income to
Average Net Assets........ .62% .87% 1.42% 1.42% 1.37%
Portfolio Turnover
Rate...................... 26% 29% 27% 23% 79%
Average Commission
Rate Per Share............ $.0600 $.0580 - - -
</TABLE>
[TABLE RESTUBBED FROM ABOVE]
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ........ $18.43 $12.79 $13.81 $13.67 $11.43
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ...... 0.19 0.23 0.26 0.48 0.26
Net Gains or Losses on
Securities (both realized
and unrealized)........... 0.89 5.65 (0.81) 2.21 2.24
------ ------ ------ ------ ------
Total From Investment
Operations
1.08 5.88 (0.55) 2.69 2.50
------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends (from net
investment income....... (0.19) (0.23) (0.35) (0.45) (0.26)
Distributions (from
capital gains).......... (2.19) - (0.04) (2.10) -
Distributions in Excess
of Net Investment
Income................... - (0.01) (0.08) - -
------ ------ ------ ------ ------
Total Distributions...... (2.38) (0.24) (0.47) (2.55) (0.26)
------ ------ ------ ------ ------
Net Asset Value, End
of Period................... $17.13 $18.43 $12.79 $13.81 $13.67
====== ====== ====== ====== ======
TOTAL RETURN .................. 5.78% 46.37% (3.90)% 20.08% 21.95%
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of
Period (000 omitted)..... $580,889 $711,905 $400,597 $360,366 $284,719
Ratio of Expenses to
Average Net Assets........ 1.17% 1.19% 1.35% 1.08% 1.11%
Ratio of Net Income to
Average Net Assets........ .95% 1.41% 2.04% 3.06% 2.07%
Portfolio Turnover
Rate...................... 50% 21% 48% 46% 35%
Average Commission
Rate Per Share............ - - - - -
</TABLE>
(1) Had the former manager not absorbed certain expenses, the ratio of
expenses for the year ended December 31, 1993 would have been 1.22%.
(2) Effective May 1, 1993, Davis Selected Advisers, L.P. became the
investment adviser. Until May 1, 1993, Selected Financial Services, Inc.
was the investment adviser.
4
<PAGE>
SELECTED SPECIAL
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1997 1996 1995 1994 (2,3) 1993(3)
---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $10.89 $10.80 $9.02 $10.20 $10.40
------ ------ ----- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment
Income.......................... (0.07) - - (0.03) -
Net Gains or Losses
on Securities (both realized
and unrealized)................. 2.83 1.27 3.04 (0.22) 1.10
------ ------ ----- ------ ------
Total From Investment
Operations................. 2.76 1.27 3.04 (0.25) 1.10
------ ------ ----- ------ ------
LESS DISTRIBUTIONS
Dividends (from net
investment income).............. - - - - -
Distributions (from
capital gains).................. (0.62) (1.18) (1.26) (0.93) (1.30)
------ ------ ----- ------ ------
Total Distributions.......... (0.62) (1.18) (1.26) (0.93) (1.30)
------ ------ ----- ------ ------
Net Asset Value, End
of Period.......................... $ 13.03 $ 10.89 $10.80 $9.02 $ 10.20
======= ======= ====== ===== ========
TOTAL RETURN ......................... 26.91% 11.86% 34.24% (2.56)% 10.81%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (000 omitted)............. $74,930 $62,435 $58,975 $47,275 $53,257
Ratio of Expenses to
Average Net Assets............... 1.28% 1.33% 1.48% 1.41% 1.24%(1)
Ratio of Net Income to
Average Net Assets.............. (.60)% (.66)% (.58)% (.27)% (.07)%
Portfolio Turnover
Rate............................ 51% 98% 127% 99% 100%
Average Commission
Rate Per Share.................. $.0600 $.0600 - - -
</TABLE>
[TABLE RESTUBBED FROM ABOVE]
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1992(3) 1991(3) 1990(3) 19893 1988(3)
------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $10.16 $9.04 $9.95 $8.52 $7.96
------ ----- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS
Net Investment
Income.......................... 0.07 0.12 0.17 0.21 0.10
Net Gains or Losses
on Securities (both realized
and unrealized)................. 0.78 2.11 (0.85) 2.23 1.44
------ ----- ----- ----- -----
Total From Investment
Operations................. 0.85 2.23 (0.68) 2.44 1.54
------ ----- ----- ----- -----
LESS DISTRIBUTIONS
Dividends (from net
investment income).............. (0.07) (0.13) (0.20) (0.18) (0.10)
Distributions (from
capital gains).................. (0.54) (0.98) (0.03) (0.83) (0.88)
------ ----- ----- ----- -----
Total Distributions.......... (0.61) (1.11) (0.23) (1.01) (0.98)
------ ----- ----- ----- -----
Net Asset Value, End
of Period.......................... $ 10.40 $ 10.16 $9.04 $9.95 $8.52
======= ======= ===== ===== =====
TOTAL RETURN ......................... 8.43% 25.53% (6.87)% 28.91% 19.51%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (000 omitted)............. $57,605 $60,216 $50,474 $49,887 $34,903
Ratio of Expenses to
Average Net Assets............... 1.41%(1) 1.39% 1.41% 1.22% 1.24%
Ratio of Net Income to
Average Net Assets.............. .56% 1.11% 1.81% 2.11% 1.09%
Portfolio Turnover
Rate............................ 41% 74% 87% 45% 71%
Average Commission
Rate Per Share.................. - - - - -
</TABLE>
1 Had the Manager not absorbed certain expenses, the ratio of expenses for
the years ended December 31, 1994 and 1993 would have been 1.62% and
1.51%, respectively. Had the former manager not absorbed certain
expenses, the ratio of expenses for the year ended December 31, 1992
would have been 1.47%.
2 Effective May 1, 1993, Davis Selected Advisers, L.P. became the
investment adviser. Until May 1, 1993, Selected Financial Services, Inc.
was the investment adviser.
3 Per share data has been restated to give effect to a 2 for 1 stock split
to shareholders of record as of the close of January 4, 1994.
5
<PAGE>
SELECTED GOVERNMENT INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993(2)
---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period .......................... $8.90 $9.20 $8.45 $9.20 $9.31
----- ----- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS
Net Investment
Income ....................... .51 .53 .54 .50 .56
Net Gains or Losses
on Securities (both realized
and unrealized)............... .11 (.28) .78 (.75) .21
----- ----- ----- ----- -----
Total From Investment
Operations................. .62 .25 1.32 (.25) .77
----- ----- ----- ----- -----
LESS DISTRIBUTIONS
Dividends (from net
investment
income)....................... (.51) (.53) (.54) (.50) (.56)
Distributions (from
capital gains)................ - (.02) (.03) - (.32)
Distributions in Excess of Net
Investment Income............ - - - - -
----- ----- ----- ----- -----
Total Distributions......... (.51) (.55) (.57) (.50) (.88)
----- ----- ----- ----- -----
Net Asset Value, End
of Period........................ $9.01 $8.90 $9.20 $8.45 $9.20
===== ===== ===== ===== =====
TOTAL RETURN ....................... 7.32% 2.85% 15.97% (2.71)% 7.99%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (000
omitted)...................... $5,962 $6,934 $7,811 $10,263 $10,336
Ratio of Expenses to
Average Net Assets............ 1.5% 1.44%(1) 1.44%(1) 1.42%(1) 1.34%(1)
Ratio of Net Income to
Average Net Assets........... 5.79% 5.96% 6.09% 5.70% 5.85%
Portfolio Turnover
Rate.......................... 16% 26% 76% 65% 29%
</TABLE>
[TABLE RESTUBBED FROM ABOVE]
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period .......................... $9.70 $9.22 $9.20 $9.34 $10.01
----- ----- ----- ----- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment
Income ....................... .61 .60 .63 .64 .63
Net Gains or Losses
on Securities (both realized
and unrealized)............... (.13) .58 .11 .21 (.32)
----- ----- ----- ----- ------
Total From Investment
Operations................. .48 1.18 .74 .85 .31
----- ----- ----- ----- ------
LESS DISTRIBUTIONS
Dividends (from net
investment
income)....................... (.61) (.60) (.63) (.64) (.63)
Distributions (from
capital gains)................ (.26) - - - -
Distributions in Excess of Net
Investment Income............ - (.10) (.09) (.35) (.35)
----- ----- ----- ----- ------
Total Distributions......... (.87) (.70) (.72) (.99) (.98)
----- ----- ----- ----- ------
Net Asset Value, End
of Period........................ $9.31 $9.70 $9.22 $9.20 $9.34
===== ===== ===== ===== =====
TOTAL RETURN ....................... 5.11% 13.46% 8.53% 8.47% 2.94%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (000
omitted)...................... $13,945 $22,019 $21,153 $27,594 $14,611
Ratio of Expenses to
Average Net Assets............ 1.44%(1) 1.41% 1.44% 1.50%(1) 1.50%(1)
Ratio of Net Income to
Average Net Assets........... 6.26% 6.51% 6.95% 6.70% 6.30%
Portfolio Turnover
Rate.......................... 53% 36% 29% 75% 76%
</TABLE>
1 Had the Manager not absorbed certain expenses, the ratio of expenses for
the years ended December 31, 1997, 1996, 1995, 1994 and 1993 would have
been 1.60%, 1.67%, 1.58%, 1.69% and 1.88%, respectively. Had the former
manager not absorbed certain expenses, the ratio of expenses for the
years ended December 31, 1992, 1989 and 1988 would have been 1.72%, 1.59%
and 1.63%, respectively.
2 Effective May 1, 1993, Davis Selected Advisers, L.P. became the
investment adviser. Until May 1, 1993, Selected Financial Services, Inc.
was the investment adviser.
6
<PAGE>
SELECTED DAILY GOVERNMENT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1997 1996 1995 1994 1993(2)
---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment
Income .............. .048 .046 .051 .034 .023
LESS DISTRIBUTIONS
Dividends (from net
investment
income).............. (.048) (.046) (.051) (.034) (.023)
------ ------ ------ ------ ------
Net Asset Value, End
of Period............... $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ======
TOTAL RETURN .............. 4.91% 4.70% 5.23% 3.51% 2.34%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (000
omitted)............. $117,471 $112,674 $184,603 $121,886 $8,732
Ratio of Expenses to
Average Net.......... .70% .75% .75%(1) .75%(1) .75%(1)
Ratio of Net Income
Net Assets ......... 4.80% 4.62% 5.13% 3.44% 2.31%
</TABLE>
[TABLE RESTUBBED FROM ABOVE]
<TABLE>
<CAPTION>
MAY 9, 1988
(COMMENCEMENT
OF OPERATIONS)
THROUGH
YEAR ENDED DECEMBER 31, DECEMBER 31,
------------------------------------------------------------
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Period.... $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment
Income .............. .030 .054 .074 .083 .051
LESS DISTRIBUTIONS
Dividends (from net
investment
income).............. (.030) (.054) (.074) (.083) (.051)
------ ------ ------ ------ ------
Net Asset Value, End
of Period............... $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ======
TOTAL RETURN .............. 3.07% 5.51% 7.66% 8.63% 8.17%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (000
omitted)............. $6,626 $30,706 $174,914 $100,517 $53,173
Ratio of Expenses to
Average Net.......... .75%(1) .68% .63% .74% .70%(1)
Ratio of Net Income
Net Assets ......... 3.02% 5.37% 7.39% 8.28% 7.86%
</TABLE>
1 Had the Manager not absorbed certain expenses, the ratio of expenses for
the years ended December 31, 1995, 1994 and 1993 would have been 0.78%,
1.07% and 2.29%, respectively. Had the former manager not absorbed
certain expenses, the ratio of expenses for the year ended December 31,
1992 would have been 1.23% and for the period May 9, 1988 through
December 31, 1988 would have been 0.78% (annualized).
2 Effective May 1, 1993, Davis Selected Advisers, L.P. became the
investment adviser. Until May 1, 1993, Selected Financial Services, Inc.
was the investment adviser.
7
<PAGE>
INVESTMENT OBJECTIVES
You probably have a variety of goals you want to reach, and these
goals will likely change over time. For that reason we offer a variety of Funds
with different objectives. In this way, you can balance your mix of investments
within one family of Funds. Of course, no mutual fund offered by us, or by
anyone else, can guarantee that its objective will be met or that you will
reach all of your goals.
STOCKORIENTED FUNDS
SELECTED AMERICAN A GROWTH AND INCOME FUND
Selected American seeks to provide its shareholders with both capital
growth and income. It invests primarily in common stocks and other equity
securities (including securities convertible into equity securities). The Fund
will normally invest at least 65% of its total assets in securities of U.S.
companies. The Fund diversifies its holdings among many companies and
industries, and although not required to do so, usually emphasizes "blue chip"
firms (companies that have market capitalizations of more than $1 billion and
long records of earnings growth and dividends). The Fund may also invest in
fixedincome securities for income or as a defensive strategy when the Manager
believes that existing economic or market conditions dictate such strategies.
Increases in interest rates tend to reduce the market value of fixedincome
securities and declines in interest rates tend to increase their value.
The Fund may invest in real estate investment trusts ("REITs"). Equity
REITs invest directly in real property while mortgage REITs invest in mortgages
on real property. REITs may be subject to certain risks associated with the
direct ownership of real estate including declines in the value of real estate,
risks related to general and local economic conditions, overbuilding and
increased competition, increases in property taxes and operating expenses, and
variations in rental income. REITs pay dividends to their shareholders based
upon available funds from operations. It is quite common for these dividends to
exceed the REIT's taxable earnings and profits resulting in the excess portion
of such dividends being designated as a return of capital. The Fund intends to
include the gross dividends from such REITs in its distribution to its
shareholders and, accordingly, a portion of the Fund's distributions may also
be designated as a return of capital.
The Fund may invest in high yield, high risk debt securities
(including convertible securities) rated BB or lower by Standard & Poor's
Corporation ("S&P") or Ba or lower by Moody's Investor Services ("Moody's") or
unrated securities deemed by the Manager to be of an equivalent rating.
Securities rated BB or lower by S&P and Ba or lower by Moody's are referred to
in the financial community as "junk bonds" and are considered speculative. The
Fund does not intend to purchase securities rated BB or Ba or lower if after
such purchase more than 30% of the Fund's net assets would be invested in such
securities (including downgraded securities). As of December 31, 1997, none of
the Fund's net assets were invested in high yield high risk securities. See the
Statement of Additional Information for more information regarding such
investments.
There is no other limitation on the percentage of assets that may be
invested in any particular type of security. Since Selected American invests in
common stocks and other securities that fluctuate in value, the price of its
shares will fluctuate.
SELECTED SPECIAL A GROWTH FUND
Selected Special seeks to provide capital growth. The Fund invests in
companies which the SubAdviser believes have capital growth potential because
of factors such as rapid growth of demand within their existing
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markets, expansion into new markets, new products and opportunities for
improving returns on sales and investments.
The Fund invests primarily in common stocks and other equity
securities (including convertible securities). Normally at least 65% of its
total assets are invested in equity securities. Investment income is only
incidental. The Fund invests primarily in securities of domestic companies.
However, the Fund may invest in the securities of foreign companies directly or
through registered closedend investment companies that invest primarily in
foreign securities. An investment company invests primarily in foreign
securities if normally more than 50% of such company's assets are invested in
foreign securities. No such investment in other investment companies may be
made if it would cause more than 10% of Selected Special's total assets to be
invested in such companies. Such other investment companies usually have their
own expenses including management costs or fees and the Fund's Manager earns
its regular fee on such assets.
Generally, the Fund's holdings in equity securities are diversified in
a variety of industries and with companies of varying sizes, although the
investment emphasis is on companies with small and medium market
capitalizations (approximating $1 billion). The Fund may also invest in the
same types of high yield, high risk convertible securities as Selected
American; however, Selected Special will not invest in securities rated below
investment grade if such investment would cause more than 5% of net assets to
be so invested.
The price of the Fund's shares fluctuates because the value of the
securities in which the Fund invests also fluctuates. When the SubAdviser
believes that economic or investment conditions indicate the need for a
defensive strategy, the Fund may, to protect the interests of its shareholders,
temporarily and without limitation, hold assets other than equity securities,
including cash, U.S. Government Securities and other liquid highgrade debt
securities.
BOTH STOCK ORIENTED FUNDS
Both Selected American and Selected Special may invest in foreign
securities. Selected American will not make such an investment if it would
cause more than 35% of its total assets to be invested in foreign securities.
Selected Special does not currently have any investment restriction relative to
foreign securities. However, Selected Special's SubAdviser intends to limit
investments in foreign securities to 25% or less of the Fund's total assets. As
of December 31, 1997, Selected Special Shares did not have any investments in
foreign securities. Selected American Shares had 0.24% of net assets invested
in foreign securities.
The Funds will generally invest in securities of foreign companies
directly through trades of individual securities on recognized exchanges and
developed overthecounter markets and through American Depository Receipts
("ADRs") covering such securities. In addition, Selected Special may invest in
foreign securities indirectly through registered closedend investment companies
primarily investing in foreign securities.
Investments in foreign securities may involve a higher degree of risk
than investments in domestic issuers. Foreign securities are often denominated
in foreign currencies, which means that their value will be affected by changes
in exchange rates, as well as other factors that affect securities prices.
There generally is less publicly available information about foreign securities
and securities markets, and there may be less governmental regulation and
supervision of foreign issuers and securities markets. Foreign securities and
markets are also affected by political and economic instabilities in such
countries, and may be more volatile and less liquid than domestic securities
and markets. The risks of investment may include expropriation or
nationalization of assets, confiscatory taxation, exchange controls and
limitations on the use or transfer of assets, and significant withholding
taxes. Foreign economies may differ from the United States favorably or
unfavorably with respect
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to inflation rates, balance of payments, capital reinvestment, gross national
product expansion, and other relevant economic issues. When there are
significant foreign investments, the operating expense ratio of a Fund may be
higher than that of investment companies investing exclusively in U.S.
securities, since the management, custodial and certain other expenses are
expected to be higher.
The Funds may lend securities to broker/dealers or institutional
investors for their use in connection with short sales, arbitrages and other
securities transactions. The Funds may earn interest on cash collateral or
receive a fee from broker/dealers for lending its portfolio securities. The
Funds will not lend portfolio securities unless the loan is secured by
collateral (consisting of any combination of cash, United States Government
securities or irrevocable letters of credit) in an amount at least equal (on a
daily market-to market basis) to the current market value of the securities
loaned. In the event of a bankruptcy or breach of agreement by the borrower of
the securities, the Funds could experience delays and costs in recovering the
securities loaned. Neither Fund may lend securities with an aggregate market
value of more than 10% of each Fund's total assets.
For income purposes (which is only incidental with respect to Selected
Special) the Funds may write covered call options on portfolio securities.
Selected American may not write covered call options if more than 20% of its
net assets would be subject to covered call options. Selected Special may not
write covered call options if more than 10% of its net assets would be subject
to covered call options.
The Funds may not invest in commodities or futures contracts. Until
this restriction is changed by shareholder vote, the Funds will not enter into
currency exchange contracts (agreements to buy or sell foreign currency
transactions at a future date) or other hedging transactions designed to reduce
overall investment risks, including the risks of currency fluctuation with
respect to foreign investments. Such techniques depend upon a portfolio
manager's ability to predict future foreign currency values, interest rates and
other relevant investment measures. The Manager and the SubAdviser believe that
the use of such techniques, which are not assured to work, involves certain
risks and costs. However, the failure to use such hedging procedures may result
in greater volatility, particularly with respect to foreign currency
fluctuations, than if such procedures were successfully employed. Nevertheless,
to the extent that the Funds' foreign investments are globally diversified,
fluctuations in one particular currency may be offset by fluctuations in other
currencies in which the Funds' investments are denominated.
Selected American and Selected Special do not usually trade actively
for shortterm profits. However, when the investment manager believes that it
would benefit the Funds, shortterm profits may be taken.
SELECTED GOVERNMENT INCOME
The investment objective of Selected Government Income is to obtain
current income consistent with preservation of capital by investing primarily
in U.S. Government Securities. A shareholder's investment in the Fund is not
insured or guaranteed by the U.S. Government, its agencies or
instrumentalities. The net asset value of the Fund will fluctuate. A material
factor in such fluctuations is the fact that increases in interest rates tend
to reduce the market value of U.S. Government Securities owned by the Fund and
declines in interest rates tend to increase their value.
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INVESTMENTS
The Fund invests primarily in U.S. Government Securities, without
limitation on their maturities, and repurchase agreements secured by U.S.
Government Securities. Under normal market circumstances, at least 65% of the
Fund's total assets will be invested in U.S. Government Securities or
repurchase agreements related thereto.
Some U.S. Government Securities are supported by the full faith and
credit of the United States, such as Government National Mortgage Association
("GNMA") Certificates and obligations of the Farmers Home Administration and
the ExportImport Bank. Others are supported solely by the credit of the issuing
agency or instrumentality with limited rights to borrow from the U.S. Treasury,
such as obligations of the Federal National Mortgage Association ("FNMA") and
Federal Home Loan Mortgage Corporation ("FHLMC"). With respect to securities
supported only by the credit of the issuing agency or instrumentality or by an
additional line of credit with the U.S. Treasury, there is no guarantee that
the U.S. Government will provide financial support to such agencies or
instrumentalities. The government guarantee of the securities owned by the Fund
does not guarantee the yield to the Fund, the market value of the securities
owned by the Fund or the net asset value of the Fund's shares.
The Fund may purchase collateralized mortgage obligations ("CMOs"),
including residual interests. A CMO is a debt security issued by a trust,
corporation or a U.S. Government instrumentality that is backed
("collateralized") by a portfolio of mortgages, mortgagebacked securities or
U.S. Government Securities. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of securities or
mortgages. The Fund may invest only in CMOs issued by FHLMC, FNMA, or GNMA and
privatelyissued CMOs that are (i) fully collateralized by mortgagebacked
securities issued by GNMA, FNMA or FHLMC and (ii) rated AAA by S&P or Aaa by
Moody's or are unrated but in the opinion of the Manager, are of comparable
quality. "Fully collateralized" means that the collateral will generate cash
flows sufficient to meet obligations to holders of the collateralized
obligations under even the most conservative prepayment and interest rate
scenario. CMOs issued by FHLMC, FNMA and GNMA are considered U.S. Government
Securities for purposes of the above described 65% test; privately issued CMOs
are not.
In the case of CMOs, payments of principal and interest on the
underlying collateral securities are not passed through directly and equally to
all the holders of the collateralized obligations. Collateralized obligations
are often issued in two or more classes with varying maturities and stated
rates of interest. The payments are directed to different classes of the CMO at
unequal rates. This results in varying maturities among the classes. This also
may in effect "strip" the interest payments from principal payments of the
underlying securities and allow for the separate purchase of either the
interest or the principal payments (sometimes called "interest only" and
"principal only" securities). Such "stripped" CMOs are currently considered by
the staff of the Securities and Exchange Commission to constitute illiquid
securities and as such are to be included in the calculation of the Fund's 10%
limitation on illiquid securities. See "All Funds Restricted or Illiquid
Securities."
Mortgage prepayments at rates which are more rapid than those rates
projected at the time mortgage related U.S. Government Securities are purchased
at a premium can be expected to result in a decline in the value of mortgage
related securities because prepayments reduce the yield to maturity on such
securities. Conversely, the value of mortgage related securities purchased at a
discount can be expected to increase under the same circumstances. Prepayments
typically increase during periods of rapidly declining interest rates.
Investment in such securities could also subject the Fund to "maturity
extension risk" which is the possibility that rising interest rates may cause
prepayments to occur at a slower than expected rate. This particular risk may
effectively change a security which was considered a short or intermediateterm
security at the time of purchase
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into a long term security. Longterm securities generally fluctuate more widely
in response to changes in interest rates than short or intermediateterm.
Since the collateralized obligations may be issued in classes with
varying maturities and interest rates, the investor may obtain varying degrees
of predictability of maturity as opposed to direct investments in
mortgagebacked securities. With respect to the interest only securities and the
principal only securities, an investor has the option to select from the pool
of underlying collateral the portion of the cash flows that most closely
corresponds to the investor's forecast of interest rate movements. These
instruments tend to be highly sensitive to prepayment rates on the underlying
collateral and thus place a premium on accurate prepayment projections by the
investor.
The Fund may invest in FHLMC, FNMA and GNMA certificates, which are
mortgagebacked securities representing part ownership in a pool of mortgage
loans. These mortgages are assembled by financial institutions and, after being
approved by the government agency, are guaranteed by that agency and some are
backed by the full faith and credit of the U.S. Government. These certificates
are called "passthrough" securities, because both interest and principal
payments are passed through to the holder. As with CMOs, the Fund's ability to
maintain a portfolio of highyielding securities will be adversely affected to
the extent that prepayments of mortgages must be reinvested in securities which
have lower yields than the mortgages. These securities may also be subject to
maturity extension risk, described above.
INVESTMENT POLICIES
Selected Government Income is managed with a view to obtaining current
income while seeking to preserve capital. Consistent with its investment
objective and policies, the Fund may invest in the full range of maturities of
U.S. Government Securities. The Manager may adjust the average maturity of the
Fund's portfolio from time to time, depending on its assessment of the relative
yields available on securities of different maturities and its assessment of
future interest rate patterns and market risk. Thus, at various times the
average maturity of the portfolio may be relatively short (from one year to
five years, for example) and at other times may be relatively long (over 10
years, for example). Fluctuations in portfolio values and therefore
fluctuations in the net asset value of the Fund's shares are more likely to be
greater when the portfolio average maturity is longer. At times, for defensive
purposes, the portfolio may be comprised substantially of securities maturing
in one year or less.
The Fund may sell portfolio securities without regard to the length of
time they have been held in order to take advantage of new investment
opportunities or yield differentials or to preserve gains or limit losses due
to changing economic conditions. This may cause the Fund to incur a relatively
high annual rate of portfolio turnover in some years. However, there are
usually no brokerage commissions paid in connection with transactions in U.S.
Government Securities.
The Fund may from time to time make commitments to purchase securities
on a "whenissued" or delayed delivery basis; that is, delivery and payment for
the securities normally takes place in the future. The Fund will not invest in
excess of 50% of its assets, determined at the time of investment, in
"whenissued" securities. Sometimes the purchase price of the securities is not
fixed until the date such securities are issued. The securities so purchased
are subject to market fluctuation and no interest accrues to the Fund until
delivery and payment take place. The Fund intends to make commitments to
purchase securities with the intention of actually acquiring such securities,
but it may sell the securities before the settlement date if it is advisable or
necessary as a matter of investment strategy. At the time the Fund first makes
a commitment to purchase a security, it will record the transaction and reflect
the value of the obligation in determining its net asset value. The Custodian
will maintain on a daily basis a separate Fund account consisting of cash, U.S.
Government Securities or other high grade debt securities with a
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value at least equal to the amount of the commitments to purchase "whenissued"
securities. When payment is made for "whenissued" securities, the Fund will
meet its obligations from then available cash flow, sale of securities held in
the separate account, sale of other securities or, although it would normally
not expect to do so, sale of the "whenissued" securities themselves (which may
have a market value greater or lesser than the Fund's obligation). If the Fund
chooses to dispose of the right to acquire a "whenissued" security prior to its
acquisition, it could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation.
SELECTED DAILY GOVERNMENT A U.S. GOVERNMENT MONEY MARKET FUND
Selected Daily Government seeks to provide as high a level of current
income as possible from the type of shortterm investments (i.e., with
maturities of one year or less) in which it invests, consistent with prudent
investment management, stability of principal and maintenance of liquidity.
Although there can be no guarantee, Selected Daily Government seeks to maintain
a share price of $1.00 per share and has done so since inception.
Selected Daily Government may invest in U.S. Government Securities and
repurchase agreements fully collateralized by such securities. See "Selected
Government IncomeInvestments" for a more detailed description of U.S.
Government Securities.
Selected Daily Government may invest in securities that have interest
rates that are adjusted periodically or that float continuously in relation to
an index such as the prime rate ("variable or floating rate securities"), and
in participation interests of such securities. The value of such securities may
change when interest rates change, although the variable or floating rate
nature of these securities should reduce the degree of fluctuation in the value
of portfolio investments.
Selected Daily Government limits its investments to securities that
meet the quality and diversification requirements of Rule 2a7 under the
Investment Company Act of 1940. See "Determining the Price of Shares Net Asset
Value" for more information. For more information on Selected Daily
Government's investments, please see the Statement of Additional Information.
ALL FUNDS
BORROWING. The Funds may borrow money from banks for temporary or
emergency purposes in an amount not exceeding 10% of the value of a Fund's
total assets, and may pledge an amount not exceeding 15% of total assets to
secure such borrowing. No Fund will purchase portfolio securities while any
outstanding borrowing exceeds 5% of such Fund's total assets.
INDUSTRY CONCENTRATION. No Fund will make any investment (other than
U.S. Government Securities) which would cause 25% or more of its total assets
to be invested in any one industry.
REPURCHASE AGREEMENTS. The Funds may enter into repurchase agreements,
but normally do not enter into repurchase agreements maturing in more than
seven days, and may make repurchase agreement transactions through a joint
account with other funds managed by the Manager. A repurchase agreement
involves a sale of securities to the Funds, with the concurrent agreement of
the seller (a member bank of the Federal Reserve System, or securities dealer,
which the Manager or SubAdviser 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 agreedupon 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
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underlying securities. In the event of a bankruptcy or other default of a
seller of a repurchase agreement, the Funds could experience both delays in
liquidating the underlying securities and losses, including possible decline in
the value of the collateral during the period while the Funds seek to enforce
their rights, possible loss of all or a part of the income during such period
and expenses of enforcing their rights.
RESTRICTED OR ILLIQUID SECURITIES. The Funds may invest in restricted
securities, i.e. securities which, if sold, would cause the Funds to be deemed
"underwriters" under the Securities Act of 1933 (the "1933 Act") or which are
subject to contractual restrictions on resale. No investment will be made in
illiquid securities (which may include restricted securities that are illiquid)
if such investment would cause more than 15% of the net assets of Selected
American or Selected Special or more than 10% of the net assets of Selected
Government Income or Selected Daily Government, to be so invested. In the event
that market fluctuations cause a Fund to be invested in illiquid securities
exceeding 15% of net assets, steps will be taken as soon as practicable to
reduce the amount of illiquid securities held by such Fund.
The restricted securities which the Funds may purchase include
securities which have not been registered under the 1933 Act but are eligible
for purchase and sale pursuant to Rule 144A ("Rule 144A Securities"). This Rule
permits certain qualified institutional buyers, such as the Funds, to trade in
privately placed securities even though such securities are not registered
under the 1933 Act. The Manager or SubAdviser will consider whether Rule 144A
Securities being purchased or held by a Fund are illiquid and thus subject to
that Fund's policies limiting investments in illiquid securities. In making
this determination, the Manager or SubAdviser will consider the frequency of
trades and quotes, the number of dealers and potential purchasers, dealer
undertakings to make a market, and the nature of the security and the market
place trades (for example, the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer). The liquidity of
Rule 144A Securities will also be monitored by the Manager or SubAdviser and,
if as a result of changed conditions, it is determined that a Rule 144A
Security is no longer liquid, a Fund's holding of illiquid securities will be
reviewed to determine what, if any, action is appropriate in light of the
policy limiting investments in such securities. There is no limitation on the
percentage of a Fund's assets that can be invested in liquid Rule 144A
Securities. Investing in Rule 144A Securities could have the effect of
increasing the amount of investments in illiquid securities if qualified
institutional buyers are unwilling to purchase such securities.
PORTFOLIO TRANSACTIONS. Subject to an overall policy to place
portfolio transactions as efficiently as possible and at favorable prices,
research services and sales of Fund shares may be considered as factors in
placing portfolio transactions for a Fund. Usually the portfolio transactions
of Selected Government Income and Selected Daily Government are principal
transactions without brokerage commissions, although a profit or loss to a
dealer may be incurred. In principal transactions the sole consideration in
determining the amount paid is efficient execution at a favorable price. The
Adviser and Sub-Advisers 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. Due to differences in the investment
objectives of the Funds, portfolio turnover rates may vary. At times it could
be high, which, for Selected Special and Selected American, would require the
payment of larger amounts in brokerage commissions. Each Fund's portfolio
turnover rates are set forth in "Financial Highlights."
FUNDAMENTAL POLICIES. The investment objectives of the Funds and the
restrictions set forth in the Statements of Additional Information, including
those set forth in respect to borrowing and diversification as discussed above,
are fundamental policies. The policies with respect to permissible investments
are fundamental policies of Selected Government Income and Selected Daily
Government. All other investment objectives and policies of the Selected Funds
are not fundamental and may be changed without shareholder approval.
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Any percentage restrictions set forth in this Prospectus or in the
Statements of Additional Information, other than the restriction with respect
to illiquid securities, apply as of the time of investment without regard to
later increases or decreases in the values of securities or total net assets.
MANAGER, SUBADVISERS AND DISTRIBUTOR
Davis Selected Advisers, L.P., whose principal office is at 124 E.
Marcy Street, Santa Fe, New Mexico 87501, (the "Manager") serves as the manager
for the Selected Funds. The sole general partner of the Manager is Venture
Advisers, Inc. (the "General Partner"). Shelby M.C. Davis is the controlling
shareholder of the General Partner. Subject to the direction and supervision of
the Board of Directors/Trustees, the Manager is responsible for investment
management and administration activities for the Selected Funds. Davis
Distributors, LLC (the "Distributor") a subsidiary of the Manager, serves as
the distributor or principal underwriter of the Funds' shares. As discussed
below, the Manager has hired Bramwell Capital Management, Inc. as the
SubAdviser for Selected Special. Davis Selected AdvisersNY, Inc. ("DSANY"), a
whollyowned subsidiary of the Manager, performs research and other services for
the Funds on behalf of the Manager under a subAdvisory Agreement with the
Manager. This Agreement does not affect the services provided by Bramwell
Capital Management. The Manager also acts as investment adviser of Davis New
York Venture Fund, Inc., Davis High Income Fund, Inc., Davis Tax Free High
Income Fund, Inc., Davis Series, Inc. and Davis International Series, Inc.
(collectively the "Davis Funds"). The Distributor also serves as the principal
underwriter for the Davis and Selected Funds.
The Manager receives advisory fees monthly based upon each Fund's
average daily net assets at the following annual rates: Selected American 0.65%
on the first $500 million, 0.60% on the next $500 million, and 0.5% on amounts
over $1 billion; Selected Special 0.70% on the first $50 million, 0.675% on the
next $100 million, 0.65% on the next $100 million and 0.60% on amounts over
$250 million; Selected Government Income 0.50% on all amounts; Selected Daily
Government 0.30% on all amounts. Under the SubAdvisory Agreement with DSANY,
the Manager pays all of DSANY's direct and indirect costs of operations. All
the fees paid to DSANY are paid by the Manager and not the Funds.
The Manager has agreed to absorb Fund operating expenses during 1998
to the extent that the ratio of expenses to average net assets exceeds 1.50%
for Selected Government Income.
Bramwell Capital Management, Inc. (the "SubAdviser"), is the
SubAdviser for Selected Special. The SubAdviser is employed by the Manager to
manage the day to day investment operations for Selected Special subject to the
Manager's responsibility to monitor the performance and effectiveness of the
SubAdviser. Selected Special pays no fees directly to the SubAdviser. The
SubAdviser receives from the Manager a fee in an amount equal to 50% of the
advisory fees received by the Manager from Selected Special less 50% of any
trail commissions paid to dealers by the Manager in excess of 0.25% of the
Fund's net assets per annum, with a minimum annual fee of $150,000. The
SubAdviser also provides investment advisory services to individuals and
institutional investors as well as the Bramwell Funds, Inc. The SubAdviser's
offices are located at 745 Fifth Avenue, New York, New York 10151. Elizabeth R.
Bramwell is the controlling shareholder of the SubAdviser.
The shares of the Selected Funds are distributed by the Distributor.
The Distributor is paid a fee provided by Distribution Plans adopted and
approved by the Funds' Boards and shareholders in accordance with Rule 12b1
under the Investment Company Act of 1940. This Rule regulates the manner in
which a mutual fund may assume the costs of distributing and promoting the sale
of its shares. The Distributor provides office space and equipment, personnel,
literature distribution and advertising to promote the sale of the Funds'
shares. Each Fund pays a monthly distribution fee at the annual rate of 0.25%
of average daily net assets. In addition, the Plans provide that
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the Manager, in its sole discretion, may utilize its own resources for
distributing and promoting sales of Fund shares, including any profits from its
management fees.
The Distributor has agreements with securities dealers for
distributing shares of the Funds and providing services to shareholders. The
Manager may pay such firms service fees of up to 0.55% of the average net asset
value of the shares of Selected American and Selected Special and up to 0.25%
of the average net asset value of the shares of Selected Government Income and
Selected Daily Government in accounts for which representatives of the dealers
are responsible and provide services.
Shares of the Selected Funds may be sold through banks or
bankaffiliated dealers. If it is determined that the GlassSteagall 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.
PORTFOLIO MANAGERS
Effective May 1, 1998, Christopher C. Davis is a co-portfolio manager
for Selected American. He was portfolio manager of Selected American from
February 19, 1997 through April 30, 1998. He was co-portfolio manager of
Selected American, with Shelby M.C. Davis, from December, 1994 until February
19, 1997. Prior thereto, Christopher C. Davis worked closely with Shelby M.C.
Davis as an assistant portfolio manager and research analyst beginning in
September, 1989. Christopher C. Davis also co-manages other equity funds
managed by the Adviser.
Effective May 1, 1998, Kenneth Charles Feinberg is a co-portfolio
manager for Selected American. He also co-manages other equity funds managed by
the Adviser. He has been associated with the Adviser since December, 1994 as a
research analyst. He previously served as Assistant Vice President of Investor
Relations for the Continental Corporation from 1988 to 1994.
Shelby M.C. Davis is Chief Investment Officer of the Manager. As Chief
Investment Officer, he is active in providing investment themes, strategies and
individual stock selection to Selected American. He was the primary portfolio
manager for Selected American from May 1, 1993 until February 19, 1997. He is
an officer of all investment companies managed by the Manager and was the
portfolio manager of a growth fund from its inception in 1969 until February
19, 1997. He has been a director of the Manager's general partner since 1969.
Elizabeth R. Bramwell is the primary portfolio manager of Selected
Special. Since February, 1994, Ms. Bramwell has been the Chief Executive
Officer and sole director of the SubAdviser. Prior to February, 1994, Ms.
Bramwell was President, Chief Investment Officer, Portfolio Manager and a
Trustee of The Gabelli Growth Fund from its inception, April 10, 1987.
Carolyn H. Spolidoro is the primary portfolio manager of Selected
Government Income and Selected Daily Government. She has been employed by the
Adviser since August, 1985. She is a Vice President of the Manager's General
Partner and Vice President of all of the investment companies managed by the
Manager, except the Selected Funds. She is also portfolio manager of the Davis
Series, Inc., Davis Government Bond Fund and Davis Government Money Market
Fund.
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BUYING SHARES
Shares of the Funds may be purchased through a securities dealer
having a sales agreement with the Manager (a "Qualified Dealer") or directly
from the Funds. No matter how you purchase your shares, you pay no sales load.
You buy shares at the net asset value computed after receipt of your investment
in proper form. This procedure is described below. Shares purchased through a
Qualified Dealer may be subject to administrative charges or transaction fees
imposed by the Dealer.
INITIAL INVESTMENT ($1,000 MINIMUM)
You may make an initial investment in any of the Selected Funds for
$1,000 or more.
DIRECTLY BY WIRE. Opening an account directly by wire means that your
money is invested earlier than if you mail a check and will go to work for you
sooner.
Shares may be purchased at any time by wiring federal funds directly
to State Street. Prior to an initial investment by wire, the shareholder should
telephone Davis Distributors, LLC at 1-800-243-1575 to advise them of the
investment and class of shares and to obtain an account number and
instructions. A completed Application Form should be mailed to State Street
after the initial wire purchase. To assure proper credit, the wire instructions
should be made as follows:
State Street Bank & Trust Co.
Boston, MA 02210
Attn: Mutual Fund Services
Fund Name
Shareholder Name
Shareholder Selected Account Number
Federal Routing Number 011000028
DDA 9905-325-8
We accept wires at no charge. However, your bank may charge you for
this service.
DIRECTLY BY MAIL. All it takes to open an account is a check and the
enclosed application. Once you've completed the application, mail it along with
your check to:
State Street Bank & Trust Co.
c/o Selected Funds
P.O. Box 8243
Boston, MA 02266-8243
For overnight delivery:
State Street Bank & Trust Co.
c/o Selected Funds
2 Heritage Drive 5th Floor
North Quincy, MA 02171
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Please make your check payable to the Selected Funds, and do not
forget to indicate on the application the Fund(s) and amount(s) you are
investing. An investment in Selected American, Selected Special or Selected
Government Income will be effected at the next net asset value computed after
your order is received in good form. Your investment in Selected Daily
Government will be effected when your check is converted to federal funds
(money credited to a financial institution's account at a Federal Reserve
Bank), which usually takes at least two business days.
SUBSEQUENT INVESTMENTS ($25 MINIMUM)
DIRECTLY BY WIRE. Follow the instructions above for initial
investments directly by wire. There is no need to call us first. Just contact
your financial institution.
DIRECTLY BY MAIL. To add to your account by mail, please send your
check or money order with the detachable stub which you'll find at the bottom
of your most recent account statement, or you may drop us a note that includes
the registered account name, name of the Fund, account number, and amount you
wish to invest. Please remember that purchases should be sent to:
State Street Bank & Trust Co.
c/o Selected Funds
P.O. Box 8243
Boston, MA 02266-8243
For overnight delivery:
State Street Bank & Trust Co.
c/o Selected Funds
2 Heritage Drive 5th Floor
North Quincy, MA 02171
AUTOMATIC INVESTING THROUGH YOUR BANK
Whether you purchase through a Qualified Dealer or directly, you may
arrange for automatic monthly investing by authorizing State Street Bank &
Trust Co. to initiate a debit to your bank account of a specific amount
(minimum $25) each month to be used to purchase Fund shares. 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. After each automatic investment, you will receive a
transaction confirmation and the debit should be reflected on your next bank
statement. You may terminate the plan at any time, and we may modify or
terminate the plan at any time. If you desire to utilize this investment
option, complete the Automatic Investment Plan portion of the Application form
enclosed with this Prospectus.
PROTOTYPE RETIREMENT PLANS
The Manager has available various types of prototype 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 the
plans and charges the participant $10 to establish each
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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.
GENERAL
Selected American, Selected Special and Selected Government Income do
not issue share certificates unless you specifically request one each time you
make a purchase. We do not issue certificates for Selected Daily Government
shares, for fractional shares, or to shareholders who have elected the
Automatic Withdrawals plan. Also, shares represented by certificates may not be
redeemed by wire or by telephone. See "Selling Shares" for information on how
to sell shares.
Because clearance of foreign checks generally takes longer than checks
drawn on domestic banks, shares will not be purchased until the Funds have
collected funds from checks drawn on foreign banks. Therefore, all purchases
made by check should preferably be in U.S. dollars and made payable to the
Selected Funds. Any fees involved in collecting on foreign checks will be
charged to the shareholder. THIRD PARTY CHECKS WILL NOT BE ACCEPTED. When
purchases are made by check or periodic automatic investment, redemption will
not be allowed until the investment being redeemed has been in the account for
15 business days.
SELLING SHARES
With any of our Funds, you can access all or part of your account by
selling (redeeming) your shares through your securities dealer (who may charge
you a fee for this service) or directly by using one of the methods described
below. You can sell shares at the net asset value computed after receipt of
your redemption request in proper form. Please refer to "Dividends" and
"Determining the Price of Shares Net Asset Value" for information on dividends
and redemptions and the price you will receive for your shares upon redemption.
Redemptions are ordinarily paid to you in cash. However, the Funds'
Boards of Directors are authorized to decide that conditions exist making cash
payments undesirable, although the Boards have never reached such a decision.
If the Boards should decide to make payment in other than 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. The Funds must, however, redeem shares solely
in cash up to the lesser of $250,000 or 1% of a Fund's net asset value,
whichever is smaller, during any 90-day period for any one shareholder.
To keep expenses low, we reserve the right to redeem any single Fund
account that falls below $750. Because we value you as a shareholder, before
your account is redeemed, you will be notified in writing and we will allow you
30 days to make additional share purchases to bring your account value up to
the minimum level.
You may not sell shares by wire or through the Automatic Withdrawals
plan or write checks against a Selected Daily Government account until the
shares have been on the Fund's books for at least 15 days, although there is no
delay for selling shares which have been purchased by wire.
BY WIRE OR ELECTRONIC FUNDS TRANSFER
You can sell shares by wire or electronically through the Automated
Clearing House system (ACH), if you have selected this option in your
application, have named a commercial bank or savings institution and have
attached a voided check or encoded deposit slip to which we can send your
money. You will be charged a service fee of $5 for each wire redemption. There
is a $25,000 maximum for all the Funds if you utilize ACH.
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Once you elect this redemption privilege, you or any other person can
make a request to use this privilege by calling 1-800-243-1575. You may also
use your privilege by mailing to the Funds a signed request that includes the
Fund name, account number and amount you wish to have wired. The proceeds will
be sent only to the financial institution you have designated on your
application. You may terminate this redemption privilege by notifying us in
writing. See "Please Note" following "By Telephone," as the conditions set
forth in the note also apply to wire and ACH redemptions.
Changes in your bank account ownership or bank account number
(including the name of the financial institution) may be made by written notice
to us with your signature and those of the new owner(s) signature guaranteed.
See "By Mail" for signature guarantee instructions. Additional documents may be
required when shares are held by a corporation, partnership, executor,
administrator, trustee or guardian.
Requests for wire redemptions are normally paid by the next business
day. However, in the event that the Manager determines that such redemptions
would adversely affect the Funds by requiring untimely disposition of portfolio
securities, such payment may be delayed for up to seven calendar days.
AUTOMATIC WITHDRAWALS PLAN
This Plan may be appropriate if you have special income needs or
recurring major expenses and your account balance is $10,000 or more. Under the
Automatic Withdrawals Plan, you may choose to have your shares redeemed from
your account monthly, quarterly or semiannually and a check will be sent to you
or to anyone you choose. Just let us know what the amount of the check should
be, although there is a $25 minimum for the Plan. Withdrawals can also be
processed electronically as described in the preceding section. Any income and
capital gains dividends will be automatically reinvested in your account on the
dividend reinvestment date. Shares are redeemed and checks are issued at the
end of the month of the time period selected. Therefore, you should receive
your check during the first week of the next month.
As these withdrawals involve redemption of shares, they may result in
a gain or loss for income tax purposes (although generally no gain or loss
results from redemption of shares of Selected Daily Government). Purchases of
Selected American, Selected Special or Selected Government Income shares at the
same time you are selling shares may not be advantageous because of tax
consequences. In addition, depending upon the size of the requested payment and
fluctuations in the share price, you may exhaust your account.
BY TELEPHONE
You can sell shares by calling 1-800-243-1575 (see "How to Reach Us")
and receive a check by mail, but please keep in mind:
The check can be issued only in amounts up to a maximum $25,000; The
check can be issued only to the registered owner (who must be an
individual); The check can be sent only to the address of record; and
Your current address of record must have been on file for 30 days.
PLEASE NOTE:
UNLESS YOU HAVE PROVIDED IN YOUR APPLICATION THAT THE TELEPHONE
PRIVILEGE IS NOT TO BE AVAILABLE, THE TELEPHONE PRIVILEGE IS AUTOMATICALLY
AVAILABLE FOR SELLING OR EXCHANGING SHARES. By exercising the telephone
privilege to sell or exchange shares, you agree that the Fund will not be
liable for following telephone instructions
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reasonably believed to be genuine. Reasonable procedures will be employed to
confirm that such instructions are genuine and if not employed, the Fund may be
liable for unauthorized instructions. Such procedures will include a request
for personal identification (account or social security number) and tape
recording of the instructions. You should be aware that during unusual market
conditions we may experience difficulty accepting telephone requests, in which
case you should mail your redemption request. See "By Mail" below.
BY MAIL
Simply send your written request to redeem your shares as follows:
State Street Bank & Trust Co.
c/o Selected Funds
P.O. Box 8243
Boston, MA 02266-8243
For overnight delivery:
State Street Bank & Trust Co.
c/o Selected Funds
2 Heritage Drive 5th Floor
North Quincy, MA 02171
This written request must: (1) be signed by all account owners exactly
as the account is registered (both parties must sign in the case of joint
accounts); (2) state the dollar amount or number of shares to be redeemed; and
(3) specify the Fund and account number from which shares are to be redeemed.
Please remember that you cannot place any conditions on your request. If any
share certificates were issued, they must also be returned duly endorsed or
accompanied by a separate stock assignment. For your protection, you should
send your share certificates by registered mail.
If the redemption proceeds are $50,000 or less and are to be paid to
an individual shareholder of record at the address of record, a signature
guarantee is not required (unless there has been an address change within 30
days). All other redemption requests must have signatures guaranteed.
Signatures may be guaranteed by a commercial bank, trust company, savings and
loan association, federal savings bank, a member firm of a national stock
exchange, credit union or other eligible financial institution. An
acknowledgment by a notary public is not acceptable. Certain shareholders, such
as corporations, trusts and estates, may be required to submit additional
documents.
Normally, payment by check is made within seven days after the
redemption request is received with all required documents in proper form.
However, if you bought your shares by check, a Fund will delay sending
redemption proceeds until it has determined that your check has cleared, which
is generally within 15 days.
BY CHECK SELECTED DAILY GOVERNMENT ONLY
If you are a shareholder in Selected Daily Government, you can also
redeem shares by check. If you choose this free check writing privilege in your
account application (or request it later), you will be provided with a supply
of checks. These checks will be imprinted with your name, the Fund name and
your account number, and can be made payable to any person with a $100 minimum.
You may not sell shares by writing checks against your Selected Daily
Government account until the shares have been on the Fund's books for at least
15 days.
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When a check is presented for payment, a sufficient number of shares
in your account will be redeemed to cover the amount of the redemption check.
You will continue to earn dividends on these shares until the check clears. All
checks must be signed exactly as the account is registered so that, unless only
one signer is authorized on the account application, these redemption checks
must be signed by all account owners. You should not write a check to close
your account because the amount in your account varies daily (due to the daily
declaration of dividends). If you wish to close your account, you should do so
by the other redemption procedures described above.
IRA or other retirement plan accounts and certain accounts established
through brokers may not use the check redemption feature.
The Fund will not honor checks when the right to redeem shares has
been suspended or postponed, or whenever the account has been otherwise
restricted.
PLEASE NOTE:
The Funds reserve the right to terminate, suspend or modify the
Automatic Withdrawals plan, checkwriting privilege or telephone redemption
privilege. A Fund may suspend the right of redemption or delay payment (1)
during any period when the New York Stock Exchange is closed (other than
customary weekend and holiday closings), (2) when trading in the markets that a
Fund normally utilizes is restricted, or an emergency exists, as determined by
the Securities and Exchange Commission, so that the disposal of any of a Fund's
investments or the determination of its net asset value is not reasonably
practicable, or (3) for such other periods as the Securities and Exchange
Commission by order may permit for protection of a Fund's shareholders. In case
of suspension of the right of redemption, you may either withdraw your request
for redemption or, if your request is not withdrawn, receive payment based on
the next net asset value computed after termination of the suspension.
EXCHANGING SHARES
You may exchange your shares in one Selected Fund for shares of
another Selected Fund. Please remember that you cannot place any conditions on
your request. Simply send us a written request that includes:
Your name;
Your account number;
The name of the Fund you currently own; The name of the
Fund you wish to exchange into; and The dollar amount
or number of shares you wish to exchange.
If you have any share certificates, you must include them with your
request. A signature guarantee is not required except in cases where shares are
also redeemed for cash at the same time. For certificate delivery and signature
guarantee instructions, please see "Selling Shares By Mail."
You may also make exchanges by calling 1-800-243-1575 (see "How to
Reach Us"). Please remember that during unusual market conditions, we may
experience difficulty accepting telephone requests, in which case you should
mail your request. In addition, exchanges may also be made through securities
dealers who may charge you a fee for effecting an exchange. See "Please Note"
following "Selling SharesBy Telephone," as the conditions set forth in the note
also apply to exchanges.
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An exchange of shares is considered a sale for federal income tax
purposes. A shareholder may realize a gain or loss depending upon whether the
value of the shares being exchanged is more or less than the adjusted cost
basis. This is usually the case except when exchanging shares of Selected Daily
Government for shares of another Selected Fund.
Since excessive trading may hurt Fund performance, disrupt portfolio
management and increase transaction costs, the Funds have decided to limit
excessive exchange activity. EXCHANGES OUT OF A FUND ARE LIMITED TO FOUR PER
CALENDAR YEAR. This exchange limitation may be terminated or amended at any
time upon such notice as is required by applicable regulatory authorities.
Exchanges are available only in states where shares of a particular
Fund being acquired may legally be sold. The Funds reserve the right to
suspend, terminate or modify the exchange privilege at any time, but will
normally give you advance notice.
FUND PERFORMANCE
The Funds may quote information from publications including, but not
limited to, The Wall Street Journal, Money Magazine, Forbes, Barron's,
Newsweek, Chicago Tribune, The New York Times, U.S. News and World Report, USA
Today, Fortune, Investors Business Daily, Financial World, Smart Money, NoLoad
Fund Investor and Kiplinger's and may cite information from Morningstar, Value
Line or the Investment Company Institute. Selected American, Selected Special
and Selected Government Income may compare their performance to the Consumer
Price Index, Dow Jones Industrial Average, Standard & Poor's 500 Stock Index,
the Russell 2,000 Index or Wilshire 5,000 and to the performance of mutual fund
indexes as reported by Lipper Analytical Services, Inc. or CDA Investment
Technologies, Inc., two widely recognized independent mutual fund reporting
services. We invite you to compare the performance of the Selected Funds to the
historical returns of various investments, performance indexes or economic
indicators such as stocks, bonds, certificates of deposit, money market funds
and U.S. Treasury Bills. Some of these investments may offer fixed rates of
return and guaranteed principal and may be insured. For more information on the
Funds' performance, and performance advertising see "Performance Data" in the
Statements of Additional Information. Please remember that performance
information is based upon historical results and is not necessarily indicative
of future performance.
The Funds' Annual Report contains additional performance information.
Such Annual Report will be made available upon request and without charge.
STOCKORIENTED FUNDS
We may advertise the performance of Selected American or Selected
Special expressed in terms of "total return" or "average annual total return."
Average annual total return (which is standardized in accordance with
Securities and Exchange Commission regulations) and total return reflect the
change in the value of an investment in a Fund over a stated period. Total
return and average annual total return measure both the net investment income
from, and any realized or unrealized appreciation of, a Fund's holdings for a
stated time period and assume that all dividends were reinvested. The average
annual total return calculation is annualized and is shown as a percentage
change over the time period. Total return represents the aggregate percentage
or dollar value change over the stated period. Performance data will generally
be stated for one, five and ten year periods, but may also be quoted for other
longer or shorter periods.
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SELECTED GOVERNMENT INCOME
In addition to advertising "total return" or "average annual total
return" (see discussion under "Fund PerformanceStockOriented Funds"), we may
also advertise Selected Government Income's "yield." "Yield" with respect to
Selected Government Income refers to the net investment income generated by a
hypothetical investment in the Fund during a thirty day or one month period.
The income is then annualized by assuming the same income was generated each
month for a twelve month period, and is shown as a percentage of the
investment.
SELECTED DAILY GOVERNMENT
We may, from time to time, advertise Selected Daily Government's
"yield," and "compounded yield."
"Yield" with respect to Selected Daily Government refers to the net
investment income generated by a hypothetical investment in the Fund during a
sevenday period. The income is then annualized by assuming the same income was
generated each week during a 52week period, and is shown as a percentage of the
investment. "Compounded yield" is determined similarly but, when annualized,
the income earned by an investment is assumed to be compounded weekly.
Compounded yield will be slightly higher than the yield because of the effects
of compounding.
The performance of Selected Daily Government may be compared to that
of other money market mutual funds tracked by Lipper or rated by Donaghue's
Money Fund Report, a money market fund reporting service. Investors may want to
compare the Fund's performance to that of various bank products as reported by
BANK RATE MONITOR -->, a financial reporting service that publishes each week
average rates of bank and thrift institution money market deposit accounts,
Super N.O.W. accounts and certificates of deposit.
DETERMINING THE PRICE OF SHARES NET ASSET VALUE
The price you pay when you buy shares in a Fund and the price you
receive if you redeem is the next net asset value computed after we receive
your order to buy or redeem in proper form.
NET ASSET VALUE. The net asset value per share of each Fund 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
the 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 normally is such 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 a
Qualified Dealer (your broker-dealer or other financial institution), such
Qualified Dealer must (i) receive your order before 4:00 p.m. Eastern time and
(ii) promptly transmit the order to State Street. The Qualified Dealer 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 shares represented by outstanding certificates, State
Street may require additional documents to effect the redemption and the
applicable price will be that next determined following the receipt of the
required documentation or outstanding certificates. See "Redemption of Shares."
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VALUATION OF PORTFOLIO SECURITIES
Selected American, Selected Special and Selected Government Income
each value their security holdings on the basis of market value. 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 closing bid
price on such exchange. Over-the-counter securities are valued at the closing
bid price. Fixedincome securities may be based on prices provided by a pricing
service. Debt securities maturing in 60 days or less are usually valued at
amortized cost and longer term debt securities may be valued by an independent
pricing service. Securities for which market quotations are not readily
available and other assets will be valued at fair value as determined by or at
the direction of the Board of Directors.
Selected Daily Government investments are normally valued at amortized
cost, which means that they are valued at acquisition cost (and adjusted for
amortization of premium or discount) rather than current market value. This
enables Selected Daily Government to maintain a stable net asset value or share
price of $1.00, although there can be no assurance that a stable price of $1.00
will always be maintained.
If a deviation of 1/2 of 1% or more were to occur between Selected
Daily Government's net asset value per share calculated at current market
values and amortized cost, or if there were any other deviations that the Board
of Trustees believed would result in a material dilution to shareholders, the
Board of Trustees would promptly consider what action, if any, should be taken.
Please see "Net Asset Value" in the Statement of Additional Information for
further discussion.
DIVIDENDS
To help keep your account growing, income and capital gains dividends
from any Fund are automatically reinvested on the payment date for you as
additional shares of that Fund, unless you request that dividends be paid by
check. You may make such an election on your account application or make such a
request later by writing to the Funds. Your request will be effective for the
current dividend or distribution if it is received before the record date.
Requests received after that time will be effective beginning with the next
dividend or distribution.
If you elect to have dividends and/or distributions paid in cash, and
the U.S. Postal Service cannot deliver the check, or if it remains uncashed for
six months, it, as well as future dividends and distributions, will be
reinvested in additional shares.
STOCKORIENTED FUNDS
Selected American pays any income dividends quarterly and any capital
gains dividends at least annually. Selected Special pays any income and capital
gains dividends at least annually.
SELECTED GOVERNMENT INCOME
Net income dividends are accrued daily and paid monthly. Shares earn
dividends as of the day after the effective purchase date up to, but not
including, the date of redemption. Capital gains dividends, if any, are paid at
least annually.
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SELECTED DAILY GOVERNMENT
Dividends from the net income of Selected Daily Government are accrued
daily and paid monthly. Shares earn dividends as of the first business day
after the effective purchase date up through the date of redemption.
ALL FUNDS
As a protection, if two of your dividend checks are returned as
undeliverable, those undelivered dividends will be invested in additional
shares at the then current net asset value, and the account will be
redesignated as a dividend reinvestment account.
TAXES
The Funds intend to continue qualifying as "regulated investment
companies" under the Internal Revenue Code (the "Code"). The Funds distribute
all of their taxable net income and net realized capital gains to shareholders
so that the Funds themselves do not pay any income taxes. You should consult
your tax adviser about the effects of federal, state and local tax laws on
investments in the Funds.
Distributions of net investment income from a Fund are taxable to
shareholders as ordinary income. A portion of the income dividends received by
the Funds from U.S. corporations may qualify for the "dividends received"
deduction available to corporate shareholders. Distributions from net longterm
capital gains are taxable as longterm capital gains regardless of how long Fund
shares are owned. Distributions from net shortterm capital gains are taxable as
ordinary income. Shareholders are informed annually of the amount and nature of
any income or gain. Distributions are taxable whether received in cash or
reinvested in additional shares.
If for any reason you do not provide us with your correct Social
Security or Tax I.D. number (or certify that you are not subject to backup
withholding), we are required by the Code to withhold a portion of taxable
dividends and proceeds of certain exchanges and redemptions.
If a Fund distributes less than the amount it is required to
distribute during any year, a 4% excise tax will be imposed on the
undistributed amount. The Funds intend to declare and distribute dividends
during each year sufficient to prevent imposition of the excise tax.
RETIREMENT PLANS
The Selected Funds offer prototype retirement plans (e.g. 401(k),
profit sharing, money purchase, Simplified Employee Pension ("SEP") plans,
model "SEP" plans, model 403(b) and 457 plans for charitable, educational and
governmental entities) for corporations and self-employed individuals and
prototype Individual Retirement Account ("IRA") plans and SIMPLE IRA plans for
both individuals and employers. These plans utilize the shares of the Selected
Funds as their investment vehicle. State Street acts as custodian or trustee
for the plans and charges the participant $10 to establish each account and an
annual maintenance fee of $10 per Social Security number. Such fees will be
redeemed automatically at year end from your account, unless you elect to pay
the fee directly.
The Funds' custodian, State Street Bank and Trust Co., acts as the
trustee or custodian under the IRA, SEP and 403(b) plans and may act as trustee
or custodian under the other plans. For information, please call 1-800-243-1575,
or write us at Selected Funds, P.O. Box 8243, Boston, MA 02266-8243.
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Please do not use the application included with this prospectus to
open your retirement plan account. Instead, call 1-800-243-1575 for a
retirement plan account application. Please consult your tax adviser to
determine the effect of any of the plans on your financial picture.
ORGANIZATION OF THE FUNDS
STOCKORIENTED FUNDS
Selected American, organized in 1933, and Selected Special, organized
in 1939, are Maryland corporations and are both diversified, openend management
investment companies. Selected American and Selected Special each issue one
series of common stock. Shares when issued are fully paid, nonassessable, and
freely transferable. Shares of each Fund have equal noncumulative voting rights
and equal rights with respect to dividends, assets and liquidation.
SELECTED GOVERNMENT INCOME AND SELECTED DAILY GOVERNMENT
Selected Government Income and Selected Daily Government are each
separate series of Selected Capital Preservation Trust. The Trust is a
diversified openend management investment company organized as a business trust
under the laws of Ohio in 1987. Shares of the Trust when issued are fully paid,
nonassessable and freely transferable.
Shares of each series have equal voting rights with other shares of
that series and each share is entitled to one vote at a shareholder meeting. On
certain matters, such as election of the Board of Trustees and ratification of
the selection of independent auditors, all series vote together. However, on
certain matters affecting a particular series, such as changes in investment
restrictions, the shares of that series vote separately.
ALL FUNDS
The Funds do not have annual shareholder meetings but do have special
shareholder meetings when the Boards believe it is necessary or when required
by law. A Fund will have a special meeting when requested in writing by the
holders of at least 10% of the shares entitled to vote at a meeting.
In the opinion of the staff of the Securities and Exchange Commission,
the use of this combined Prospectus may make each Fund liable for any
misstatement or omission in this Prospectus regardless of the particular Fund
to which it pertains.
DIRECTORS AND TRUSTEES
The management and affairs of the Funds are under the direction and
supervision of the Boards of Directors and Trustees.
The following persons serve as Directors and Trustees of the Selected
Funds:
William P. Barr Katherine L. MacWilliams
Floyd A. Brown James J. McMonagle
Andrew A. Davis Richard C. O'Brien
Christopher C. Davis Larry Robinson
Jerome E. Hass Marsha Williams
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More information concerning the Directors and Trustees is contained in
the Statements of Additional Information.
HOW TO REACH US
You can have your questions answered about any of the Selected Funds
or the status of your account simply by calling 1-800-243-1575 Monday through
Friday from 7:00 a.m. to 4:00 p.m. Mountain time. The Funds are closed on days
on which the New York Stock Exchange is closed. Whenever you want to contact us
by mail, please write to us at:
State Street Bank & Trust Co.
c/o Selected Funds
P.O. Box 8243
Boston, MA 02266-8243
For overnight delivery:
State Street Bank & Trust Co.
c/o Selected Funds
2 Heritage Drive 5th Floor
North Quincy, MA 02171
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Selected Daily INFORMATION CONCERNING THE DRAFTS USED FOR
Government Check CHECK WRITING PRIVILEGE:
Writing Privilege:
[ ] If you wish to use this privilege please check the box to the left and
complete the signature card below.
1. Your Selected Daily Government Fund drafts are paid from an account
at State Street Bank & Trust Company ("State Street").
2. In connection with this account, you will have the same rights and
duties with respect to stop payment orders, "stale" drafts,
unauthorized signatures, alterations, and unauthorized endorsements as
bank checking account customers do under the Massachusetts Uniform
Commercial Code. All notices with regard to those rights and duties
must be given to State Street.
3. Stop payment instructions must be given to State Street by calling
their service telephone number for the Selected Funds, (800) 2431575.
State Street Bank & Trust Company, c/o The Selected Funds.
4. These rules may be amended from time to time.
THE SELECTED DAILY GOVERNMENT FUND SIGNATURE CARD (TYPE OR PRINT)
Account number________________________________________________________
Shareholder Name______________________________________________________
CoShareholder Name____________________________________________________
BY SIGNING THIS SIGNATURE CARD THE UNDERSIGNED AGREE(S) TO BE SUBJECT
TO THE INSTRUCTIONS AND RULES, AS NOW IN EFFECT AND AS AMENDED FROM
TIME TO TIME, OF THE SELECTED DAILY GOVERNMENT FUND, THAT PERTAIN TO
THE USE OF REDEMPTION CHECKS. (SOME OF THE CURRENT RULES APPEAR
ABOVE.) EACH SIGNATORY GUARANTEES THE OTHER'S SIGNATURE.
(Signature)___________________________________________________________
(Signature of CoShareholder)__________________________________________
[ ] Check here if both signatures are required on checks.
[ ] Check here if only one signature is required on checks.
If neither box is checked, all checks will require both signatures.
29
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DAVIS SELECTED ADVISERS, L.P.
GROUP OF FUNDS
Selected American Shares
Selected Special Shares
Selected U.S. Government Income Fund
Selected Daily Government Fund
INVESTMENT ADVISER
Davis Selected Advisers, L.P.
124 E Marcy Street
Santa Fe, NM 87501
DISTRIBUTOR
Davis Distributors LLC
124 East Marcy Street
Santa Fe, NM 87501
LEGAL COUNSEL
D'Ancona & Pflaum
30 North LaSalle Street
Chicago, IL 60202-2502
AUDITORS
KPMG Peat Marwick
1707 17th St., Suite 2300
Denver, Colorado 80202
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TABLE OF CONTENTS
PAGE
Summary................................................................... 2
Fund Expenses............................................................. 3
Financial Highlights...................................................... 4
Investment Objectives..................................................... 8
Manager, Sub-Advisers and Distributor..................................... 15
Portfolio Managers........................................................ 16
Buying Shares............................................................. 17
Selling Shares............................................................ 19
Exchanging Shares......................................................... 22
Fund Performance.......................................................... 23
Determining the Price of Shares-Net Asset Value........................... 24
Dividends................................................................. 25
Taxes..................................................................... 26
Retirement Plans.......................................................... 26
Organization of the Funds................................................. 27
Directors and Trustees.................................................... 27
How to Reach Us........................................................... 28
31
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STATEMENT OF ADDITIONAL INFORMATION MAY 1, 1998
SELECTED AMERICAN SHARES, INC.
124 East Marcy Street
Santa Fe, New Mexico 87501
Call Toll-Free l-800-243-1575
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS DATED MAY 1, 1998. THE PROSPECTUS MAY BE
OBTAINED FROM THE FUND.
THE DECEMBER 31, 1997 ANNUAL REPORT ACCOMPANIES THIS STATEMENT OF ADDITIONAL
INFORMATION. THE FINANCIAL STATEMENTS APPEARING IN THIS REPORT ARE INCORPORATED
HEREIN BY REFERENCE.
<PAGE>
TABLE OF CONTENTS
TOPIC PAGE
Investment Restrictions.................................................... 3
Lending Portfolio Securities and Writing Covered Call Options.............. 4
High Yield, High Risk Debt Securities...................................... 5
Net Asset Value............................................................ 7
Directors and Officers..................................................... 7
Directors' Compensation Schedule........................................... 9
Manager and Sub-Adviser.................................................... 10
Custodian.................................................................. 10
Independent Auditors....................................................... 11
Distribution Plan.......................................................... 11
Portfolio Transactions..................................................... 11
Taxes...................................................................... 12
Major Shareholders......................................................... 12
Shareholder Meetings....................................................... 12
Performance Data........................................................... 13
Quality Ratings of Bonds................................................... 14
<PAGE>
INVESTMENT RESTRICTIONS
Selected American Shares, Inc. (the "Fund") has adopted as fundamental
policies its investment objective as described in the Prospectus under
"Investment Objectives" and the investment restrictions enumerated below. These
cannot be changed unless authorized by vote of the holders of a majority of the
Fund's outstanding shares, as defined in the Investment Company Act of 1940
(the "1940 Act"). The Fund will not:
1. 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. 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.
3. 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.
4. 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.
5. 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.
6. Underwrite securities of other issuers (although the Fund may technically be
considered an underwriter if it sells restricted securities).
7. 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.
8. 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.
9. Concentrate more than 25% of its assets in securities of any one industry.
10. 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.
3
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11. 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.
12. 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.
LENDING PORTFOLIO SECURITIES AND WRITING COVERED CALL OPTIONS
LENDING PORTFOLIO SECURITIES
The Fund's investment restrictions provide that the Fund may loan
portfolio securities so long as no more than 10% of the value of the Fund's
total assets would be subject to such loans. Income may be earned on collateral
received to secure the loans. Cash collateral would be invested in money market
instruments or in a pooled account investing in money market instruments. U.S.
Government Securities collateral would yield interest or earn discount. Part of
this income might be shared with the borrower. Alternatively, the Fund could
allow the borrower to receive the income from the collateral an charge the
borrower a fee. In either event, the Fund would receive the amount of dividends
or interest paid on the loaned securities.
Usually these loans would be made to brokers, dealers or financial
institutions. Loans would be fully secured by collateral deposited with the
Fund's custodian in the form of cash and/or U.S. Government Securities. This
collateral must be increased within one business day in the event that its
value shall become less than the market value of the loaned securities.
The borrower, upon notice, must redeliver the loaned securities within
5 business days. In the event that voting rights with respect to the loaned
securities pass to the borrower and a material proposal affecting the
securities arises, the loan may be called or the Fund will otherwise secure or
be granted a valid proxy in time for it to vote on the proposal.
In making such loans, the Fund may utilize the services of a loan
broker and pay a fee therefor. The Fund may incur additional custodian fees for
services in connection with lending of securities.
WRITING COVERED CALL OPTIONS
The Fund may write covered call options on a portion of its portfolio
securities and purchase call options in closing transactions. The Fund's
investment restrictions provide that such an option may not be written if
thereafter the market value of all securities subject to options would exceed
20% of the value of the Fund's net assets. However, the Fund does not intend to
write an option if it would cause more than 5% of its net assets to be subject
to such options. The Fund would only write options on securities in its
portfolio and would not write options on loaned securities.
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 3 to 9 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, the
4
<PAGE>
Fund forgoes, in exchange for the premium, the opportunity to profit from any
increase in the market value of the underlying security above the exercise
price.
The obligation of the Fund is terminated upon exercise of the call
option, its expiration 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 the
payment of a brokerage commission by the Fund. During the remaining term of the
option, if the Fund cannot enter into a closing purchase transaction, it 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, the
Fund would continue to experience such decline.
HIGH YIELD, HIGH RISK DEBT SECURITIES
As stated in the Prospectus, the Fund may invest up to 30% of its net
assets in high yield, high risk debt securities rated BBB or lower by Standard
& Poor's Corporation ("S & P") or Baa or lower by Moody's Investor Services
("Moody's"). Securities rated BBB by S & P or Baa by Moody's have speculative
characteristics; changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than is the case for higher grade bonds. 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 securities of issuers in default. The Fund intends not
to purchase securities rated BB or Ba or lower if after such purchase more than
30% of the Fund's net assets determined at the time of investment, would be
invested in such securities (including downgraded securities). Such securities
are considered speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation and generally will
involve more credit risk than securities in the higher rating categories. The
Manager considers the ratings assigned by S & P and Moody's as one of several
factors in its independent credit analysis of issuers. Ratings assigned by
credit agencies do not evaluate market risks.
The market values of such securities tend to reflect individual
corporate developments to a greater extent than do higher rated securities,
which react partly 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 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, the
portfolio's 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. 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
5
<PAGE>
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.
The Fund 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 Fund
anticipates 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 for the Fund to obtain accurate market
quotations or valuations for purposes of valuing the Fund's 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 Fund purchases 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 redemptions or call provisions. If an issuer
exercises these provisions when investment rates are declining, the Fund may
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 maturity, the Fund will realize no cash until the cash
payment date unless a portion of such securities are sold. The Fund has no
assurance of the value or the liquidity of securities received from pay-in-kind
bonds. If the issuer defaults, the Fund may obtain no return at all on its
investment. To the extent that the Fund invests in bonds that are original
issue discount, zero coupon, pay-in-kind or deferred interest bonds, the Fund
may have taxable interest income in excess of the cash actually received on
these issues. In order to avoid taxation to the Fund, the Fund may have to sell
portfolio securities to meet its taxable distribution requirements under
potentially adverse circumstances.
The debt securities (including convertible securities) in which the
Fund may invest include securities rated BB or lower by S&P or Ba or lower by
Moody's or, if unrated, deemed by management to be comparable to such ratings.
Securities rated BB or Ba or lower are referred to in the financial community
as "junk bonds." While likely to have some quality and protective
characteristics, such securities, whether or not convertible into common stock,
usually involve increased risk as to payment of principal and interest. Such
securities are subject to greater price volatility than higher rated
securities, tend to decline in price more steeply than higher rated securities
in periods of economic difficulty or accelerating interest rates and are
subject to greater risk of nonpayment 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 Fund to dispose of particular issues and
may cause the Fund to incur special securities registration responsibilities,
liabilities and costs and liquidity and valuation difficulties. Unexpected net
redemptions may force the Fund 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,
6
<PAGE>
could result in the replacement of such securities with lower yielding
securities, resulting in a decreased return. To the extent that the Fund invest
in bonds that are original issue discount, zero coupon, payinkind or deferred
interest bonds, the Fund may have taxable interest income in excess of the cash
actually received on these issues. In order to avoid taxation to the Fund, the
Fund may have to sell portfolio securities to meet taxable distribution
requirements.
NET ASSET VALUE
The Fund does not price its shares or accept orders for purchases or
redemptions on days when the New York Stock Exchange (the "Exchange") is
closed. Such days include the following holidays: 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.
Net asset value per share is determined by calculating the total value
of the Fund's assets, deducting total liabilities, and dividing the result by
the number of shares outstanding. Portfolio securities traded on a securities
exchange or securities listed on the NASDAQ National Market are valued at the
last sale price on the exchange or market where primarily traded or listed or,
if there is no recent sale price available, at the last current bid quotation.
Securities not so traded or listed are valued at the last current bid quotation
if market quotations are available. Fixed income securities are valued by using
market quotations or independent pricing services that use prices provided by
market makers or estimates of market values obtained from yield data relating
to instruments or securities with similar characteristics. Equity options are
valued at the last sale price unless the bid price is higher or the asked price
is lower, in which event such higher bid or lower asked price is used.
Exchange-traded fixed income options are valued at the last sale price unless
there is no sale price, in which event current prices provided by market makers
are used. Fixed-income options traded over-the-counter are valued based upon
current prices provided by market makers. Other securities, including
restricted securities, and other assets are valued at fair value as determined
in good faith by the Board of Directors. On each day the Exchange is open for
trading, the net asset value is determined as of the earlier of 4:00 p.m. New
York time or the close of the Exchange.
DIRECTORS AND OFFICERS
Information about the directors and officers, including principal
occupations during the past 5 years, is shown below. Each of the Fund's
directors is also a director of Selected Special Shares, Inc. and a trustee of
Selected Capital Preservation Trust (collectively with the Fund, the "Selected
Funds"). As indicated below, certain directors and officers of the Fund hold
similar positions with the following funds that are also managed by the
Manager: Davis New York Venture Fund, Inc., Davis High Income Fund, Inc., Davis
Tax-Free High Income Fund, Inc., Davis Series, Inc. and Davis International
Series, Inc. (collectively the "Davis Funds").
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.
Andrew A. Davis (6/25/63),* 124 East Marcy Street, Santa Fe, NM 87501.
Director. Director and Vice President of each of the Davis Funds (except Davis
International Series, Inc.), Director and President, Venture Advisers, Inc.;
7
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Director and Vice President Davis Selected Advisers-NY, Inc.; Consultant to
Shelby Cullom Davis & Co.; Consultant to Capital Ideas, a private financial
consultant. Former Vice President and head of convertible security research,
PaineWebber, Incorporated.
Christopher C. Davis (7/13/65),* 609 Fifth Ave, New York, NY 10017. 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.
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.
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.
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.
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. 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.
**Kenneth C. Eich (8/14/53), 124 East Marcy Street, Santa Fe, NM 87501. 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.
**Eileen R. Street (3/11/62), 124 East Marcy Street, Santa Fe, NM 87501. Vice
President, Treasurer and Assistant Secretary. Vice President, Treasurer and
Assistant Secretary of each of the Davis Funds, Senior Vice President and Chief
Financial Officer, Venture Advisers, Inc.; Vice President and Treasurer, Davis
Selected Advisers-NY, Inc.; Senior Vice President and Treasurer, Davis
Distributors, L.L.C.
8
<PAGE>
**Sharra L. Reed (9/25/66), 124 East Marcy Street, Santa Fe NM 87501. Assistant
Treasurer and Assistant Secretary. Assistant Treasurer and Assistant Secretary
of each of the Davis Funds, Vice President of Venture Advisers, Inc. Former
Unit Manager with Investors Fiduciary Trust Company.
**Thomas D. Tays (3/7/57), 124 East Marcy Street, Santa Fe NM 87501. Vice
President and Secretary. Vice President and Secretary of the Company and 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.
**Arthur Don (9/24/53) - Assistant Secretary of each of the Selected Funds.
Assistant Secretary of each of the Davis Funds. Partner, D'Ancona & Pflaum,
Fund Legal Counsel. His address is 30 North LaSalle Street, Suite 2900,
Chicago, Illinois 60602.
**Sheldon R. Stein (11/29/28) - Assistant Secretary of each of the Selected
Funds. Assistant Secretary of each of the Davis Funds. Partner, D'Ancona &
Pflaum, Fund Legal Counsel. His address is 30 North LaSalle Street, Suite 2900,
Chicago, Illinois 60602.
As of March 31, 1998, the directors and officers of the Fund as a
group owned 0.084% of the Fund's outstanding shares.
* A Director who is an "interested person" of the Fund (as defined in
the 1940 Act).
**Holds same office(s) with Selected Special Shares, Inc. and Selected
Capital Preservation Trust.
DIRECTORS' COMPENSATION SCHEDULE
During the fiscal year ended December 31, 1997 the compensation paid
to directors who are not considered to be interested persons of the Fund was as
follows:
Name Aggregate Fund Total Complex
Compensation Compensation*
William P. Barr 21,115 23,000
Floyd A Brown 29,377 32,000
William G. Cole** 29,377 32,000
Robert J. Greenebaum** 43,148 47,000
Jerome E. Hass 23,410 25,500
Katerine L. MacWilliams 25,705 28,000
James J. McMonagle 32,590 35,500
Richard C. O'Brien 25,705 28,000
Larry Robinson 21,115 23,000
Marsha Williams 23,410 25,500
* Complex compensation is the aggregate compensation paid, for services as
a Director, by all mutual funds with the same investment adviser.
** Mr. William G. Cole and Mr. Robert J. Greenebaum retired from the Board
of Directors effective December 31, 1997.
9
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MANAGER AND SUB-ADVISER
Davis Selected Advisers, L.P., 124 East Marcy Street, Santa Fe, New
Mexico 87501, a Colorado limited partnership, has served as the Manager since
May 1, 1993. The Manager's sole general partner is Venture Advisers, Inc. (the
"General Partner"), 124 East Marcy Street, Santa Fe, New Mexico 87501, a New
York corporation. Shelby M.C. Davis is the controlling shareholder of the
General Partner.
The Manager, subject to the general supervision of the Fund's Board of
Directors, provides the Fund with investment advice and management. It
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 are requested by the Board of Directors
of the Fund. The Manager pays all salaries of officers and fees and expenses of
directors who are directors, officers or employees of the Manager or any of its
affiliates. The Fund pays all other Fund expenses.
Davis Selected AdvisersNY, Inc. ("DSANY"), a whollyowned subsidiary of
the Manager, performs research and other services for the Funds on behalf of
the Manager under a SubAdvisory Agreement with the Manager.
Under the Investment Management Agreement between the Fund and the
Manager, in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its duties, the Manager will not be liable for any act or
omission in the cause of, or connected with, rendering service under the
Agreement or for any losses that may be sustained in the purchase, holding or
sale of any security.
The Fund pays the Manager monthly an investment advisory fee computed
at the following annual rates: 0.65% of the first $500 million of average daily
net assets, 0.60% of the next $500 million of average daily net assets and
0.55% of average daily net assets over $1 billion. All the fees paid to DSANY
are paid by the Manager and not the Fund.
During the years ended December 31, 1997, 1996 and 1995 the Fund paid
management fees of $10,823,019, $6,770,841 and $4,719,283, respectively.
The Manager has adopted a Code of Ethics which regulates the personal
securities transactions of the Manager's investment personnel and other
employees and affiliates with access to information regarding securities
transactions of the Fund. The Code of Ethics requires investment personnel to
disclose personal securities holdings upon commencement of employment and all
subsequent trading activity to the Manager'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.
CUSTODIAN
The Custodian of the Fund's assets is State Street Bank and Trust
Company, One Heritage Drive, North Quincy, Massachusetts 02171. The Custodian
maintains all of the instruments representing the investments of the Fund and
all cash. The Custodian delivers securities against
10
<PAGE>
payment upon sale and pays for securities against delivery upon purchase. The
Custodian also remits Fund assets in payment of Fund expenses, pursuant to
instructions of officers or resolutions of the Board of Directors.
INDEPENDENT AUDITORS
The Fund's auditors are KPMG Peat Marwick, 707 17th St. Suite 2300,
Denver, Colorado 80202. The services of KPMG Peat Marwick include an audit of
annual financial statements included in the annual reports to shareholders,
amendments to the registration statement filed with the Securities and Exchange
Commission, consultation on financial accounting and reporting matters, and
meeting with the Audit Committee of the Board of Directors. In addition, the
auditors normally provide assistance in preparation of federal and state income
tax returns and related forms.
DISTRIBUTION PLAN
Davis Distributors, LLC (the "Distributor") is the principal
underwriter of the Fund's shares. The Fund has adopted a Distribution Plan (the
"Plan") under Rule l2b-l of the 1940 Act. Rule 12b-1 permits an investment
company to finance, directly or indirectly, any activity which is primarily
intended to result in the sale of its shares only if it does so in accordance
with the provisions of the Rule. Under the Plan, the Fund pays the Distributor
an annual compensatory fee of 0.25% of average daily net assets for
distributing the Fund's shares. The Distributor pays all the costs of
distribution except for the cost of prospectuses and reports sent to current
shareholders. The Board of Directors has determined that there is a reasonable
likelihood that the Plan will benefit the Fund and its shareholders.
The Board of Directors has been informed by the Distributor that the
expenses of distribution currently exceed, and for the foreseeable future are
expected to exceed, the amounts paid by the Fund under the Plan. Such excess is
and will be paid out of the Distributor"s own resources and not by the Fund.
During the year ended December 31, 1997 the Fund's distribution fees
were $4,578,350. The Distributor reported that the following amounts were spent
on the indicated items: $1,900,502 on advertising; $454,862 on printing and
mailing prospectuses and sales literature to other than current shareholders;
$1,925,234 on fees to brokers.
PORTFOLIO TRANSACTIONS
The Manager makes investment decisions and decisions as the execution
of portfolio transactions for the Fund, subject to the general supervision of
the Board of Directors. The Fund's policy is to seek to place portfolio
transactions with those brokers or dealers who will execute transactions as
efficiently as possible and at favorable prices. Many of these transactions
involve the payment of brokerage commissions by the Fund. In some cases,
transactions are with firms that act as principal for their own account. In
effecting transactions in over-the-counter securities, the Fund deals with
market makers unless it appears that better prices and execution are available
elsewhere.
Subject to the policy of seeking favorable price and execution for the
transaction size and risk involved, in selecting brokers or dealers or
negotiating the commissions to be paid, the Manager considers the firm's
financial responsibility and reputation, range and quality of services made
available to the Fund, and the professional services provided, 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 staff of the Manager. In
accordance with this policy, the Fund does not execute brokerage transactions
solely on the basis of the
11
<PAGE>
lowest commission rate available for a particular transaction. Subject to the
requirements of favorable price and efficient execution, placement of orders by
securities firms for the purchase of shares of the Fund may be taken into
account as a factor in the allocation of portfolio transactions.
On occasions when the Manager deems the purchase or sale of a security
to be in the best interests of the Fund as well as other fiduciary accounts,
the Manager may aggregate the securities to be sold or purchased for the 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 Manager in the manner considered to be most equitable and
consistent with its fiduciary obligations to all such fiduciary accounts,
including the Fund. In some instances, this procedure could adversely effect
the Fund but the Fund deems that any disadvantage in the procedure would be
outweighed by the increased selection available and the increased opportunity
to engage in volume transactions.
Research services furnished by brokers used by the Fund for portfolio
transactions may be utilized by the Manager in connection with its investment
services for other accounts and, likewise, research services provided by
brokers used for transactions in other accounts may be utilized by the Manager
in performing its services for the Fund. The Manager determines the
reasonableness of the commissions paid in relation to its view of the value of
the brokerage and research services provided, considered in terms of the
particular transaction and its overall responsibilities with respect to all
accounts as to which it exercises investment discretion.
During the years ended December 31, $1997, 1996, and 1995, the Fund
paid total brokerage commissions of $1,061,947, $800,020 and $883,133,
respectively. Of this amount, 93%, 97%, and 95% respectively was paid to
brokers providing research services to the Fund.
During the years ended December 31, 1997 and 1996 the Fund paid
brokerage commissions to Shelby Cullom Davis & Co. (an affiliated person of the
Adviser) of $64,872 and $12,000, respectively. During the year ended December
31, 1997 these commission represented 6.11% of total commissions paid and
10.24% of the Fund's aggregate dollar amount of transactions involving the
payment of commissions.
TAXES
A dividend received shortly after the purchase of shares reduces the
net asset value of the shares by the amount of the dividend, and although in
effect a return of capital, such dividend will be taxable to the shareholder.
If a shareholder realizes a loss on the sale or exchange of any shares held for
six months or less and if the shareholder received a capital gain distribution
during such six-month period, then the loss is treated as a long-term capital
loss to the extent of the capital gain distribution.
MAJOR SHAREHOLDERS
As of March 31, 1998, Shelby Cullom Davis & Co., 609 5th Avenue, 11th
Floor, New York, NY 10017-1021, owned of record 21,786,416.530 shares of the
Fund's common stock, constituting 24.92% of the outstanding shares of such
stock. Charles Schwab & Co., Inc., 101 Montgomery Street, San Francisco, CA
94104, owned of record 20,616,102.046 shares of the Fund's common stock,
constituting 23.58% of the outstanding shares of such stock. (See attachment
1.)
SHAREHOLDER MEETINGS
The Fund does not hold annual meetings of shareholders, but will hold
special meetings of shareholders as required by the 1940 Act, such as to elect
directors or when called by the directors for any other purpose they deem
12
<PAGE>
appropriate. The Secretary is required to call a special meeting of
shareholders upon written request of the holders of at least 10% of the shares
entitled to be cast as votes as at the meeting.
Directors may be removed from office by a vote of the holders of a
majority of the outstanding shares at a shareholders meeting called for that
purpose, which meeting shall be held upon the written request of the holders of
not less than 10% of the outstanding shares. Upon the written request of ten or
more shareholders who have been shareholders for at least six months and who
hold shares constituting at least 1% of the outstanding shares of the Fund
stating that such shareholders wish to communicate with the other shareholders
for the purpose of obtaining the signatures necessary to demand a meeting to
consider removal of a director, the Fund has undertaken to disseminate
appropriate materials at the expense of the requesting shareholders.
PERFORMANCE DATA
The Fund's average annual total return (as defined below) is as
follows:
One year ended December 31, 1997 37.25%
Five years ended December 31, 1997 20.39%
Ten years ended December 31, 1997 18.60%
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 investment portfolio.
The Fund's average annual total return figures are computed in accordance with
the standardized method prescribed by the Securities and Exchange Commission by
determining the average annual compounded rates of return over 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 = a 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 (1) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectus and (2) deducts all recurring fees, such as advisory fees, charged
as expenses to all shareholder accounts.
Total return is the cumulative rate of investment growth which assumes
that income dividends and capital gains are reinvested. It is determined by
assuming a hypothetical investment at the net asset value 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, subtracting the amount of the original
investment, and dividing this amount by the amount of the original investment.
This calculated amount is then expressed as a percentage by multiplying by 100.
The Fund's total return for the one, five and ten year periods ended December
31, 1997, was 37.25%, 152.86% and 450.83%, respectively.
13
<PAGE>
The Fund may also quote average annual total return and total return
performance data, including annualized or actual rates of return, for various
specified time periods other than one, five and ten years, including periods of
less than one year.
In reports or other communications to shareholders and in advertising
material, the Fund may compare its performance to the Consumer Price Index, the
Dow Jones Industrial Average, the Standard & Poor's 500 Stock Index and to the
performance of mutual fund indexes as reported by Lipper Analytical Services,
Inc. ("Lipper") or CDA Investment Technologies, Inc. ("CDA"), two widely
recognized independent mutual fund reporting services. Lipper and CDA
performance calculations include reinvestment of all capital gain and income
dividends for the periods covered by the calculations. The Consumer Price Index
is generally considered to be a measure of inflation. The Dow Jones Industrial
Average and the Standard & Poor's 500 Stock Index are unmanaged indices of
common stocks which are considered to be generally representative of the United
States stock market. The market prices and yields of these stocks will
fluctuate.
The Fund may also use evaluations of the Fund published by nationally
recognized ranking services and financial publications, including, but not
limited to, Business Week, Forbes, Institutional Investor and Money Magazine.
Any given performance comparison should not be considered representative of the
Fund's performance for any future period.
QUALITY RATINGS OF BONDS
PORTFOLIO QUALITY RATINGS
The table on the following page reflects the Fund's portfolio quality
ratings at December 31, 1997 calculated on the basis of the average weighted
ratings of all bonds held at year end. The table reflects the percentage of
total assets represented by fixedincome securities rated by Moody's or S&P, by
unrated fixedincome securities and by other assets. The percentages shown
reflect the higher of the Moody's or S&P rating. U.S. Government Securities,
whether or not rated, are reflected as Aaa and AAA (highest quality). Other
assets may include money market instruments, repurchase agreements, equity
securities, net payables and receivables and cash. The allocations in the table
are not necessarily representative of portfolio composition at other times.
Portfolio quality ratings will change over time.
The description of each bond quality category set forth below is
intended to be a general guide and not a definitive statement as to how Moody's
and S&P define such rating category. A more complete description of the rating
categories is set forth following the table. The ratings of Moody's and S&P
represent their opinions as to the quality of the securities that they
undertake to rate. It should be emphasized, however, that ratings are relative
and subjective and are not absolute standards of quality. There is no assurance
that a rating assigned initially will not change. Selected American may retain
a security whose rating has changed or has become unrated.
As of December 31, 1997, the Fund did not own any fixed-income
securities rated below investment grade.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk. Interest payments are
protected by a large or an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such changes as can
be visualized are unlikely to impair the fundamentally strong position of such
issues.
14
<PAGE>
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat greater than Aaa
securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e. they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics, as
well.
Ba -- Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any longer period of time may
be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative to a high degree. Such issues are often in default or have other
marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
STANDARD & POOR'S CORPORATION CORPORATE BOND RATINGS
AAA -- Debt rated AAA has the highest rating assigned by Standard and
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
15
<PAGE>
BB -- Debt rated BB has less nearterm 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 BBBrating.
B -- Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB_ rating.
CCC -- CC -- C -- is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. C
indicates the highest degree of speculation. While such debt will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions.
D -- This rating indicates that the issue is either in default as to
payment of interest and/or repayment of principal or is expected to be in
default upon maturity.
16
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial statements:
Included in Part A:
Financial Highlights.
Included in Part B by incorporation from
the December 31, 1997 Annual Report:
(i) Schedule of Investments.
(ii) Statement of Assets and Liabilities.
(iii) Statement of Operations.
(iv) Statement of Changes in Net Assets
(v) Notes to Financial Statements.
(vi) Report of Tait, Weller & Baker.
(b) Exhibits:
(1) 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.
(2) Amended and Restated Bylaws as of January 27, 1994,
incorporated by reference to Exhibit (2) to
Post-Effective Amendment No. 74 to Registrant's
Registration Statement on Form N-1A, File No. 2-10699.
(3) Not applicable.
(4) Not applicable.
<PAGE>
(5)(a) 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.
(5)(b) 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.
(6) 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.
(7) Not applicable.
(8) (a) 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.
(8) (b) Agency 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.
(9) Not Applicable
(10)* Opinion and Consent of Counsel (D'Ancona & Pflaum).
(11)* Consent of Tait, Weller & Baker.
(12) Financial Statements, included in Statement of
Additional Information.
(13) Not applicable.
(14)(a) Individual Retirement Account Plan Documents,
incorporated by reference to Exhibit (14) (a) to
Post-Effective Amendment No. 70 to Registrant's
Registration Statement on Form N-1A, File No. 2-10699.
(14)(b) Money Purchase Pension and Profit Sharing Plan Basic
Document, incorporated by reference to Exhibit (14) (b)
to Post-Effective
<PAGE>
Amendment No. 71 to Registrant's Registration Statement
on Form N-1A, File No. 2-10699.
(14)(c) Money Purchase Pension Adoption Agreement, incorporated
by reference to Exhibit (14) (c) to Post-Effective
Amendment No. 71 to Registrant's Registration Statement
on Form N-1A, File No. 2-10699.
(14)(d) Profit-Sharing Adoption Agreement, incorporated by
reference to Exhibit (14) (d) to Post-Effective
Amendment No. 71 to Registrant's Registration Statement
on Form N-1A, File No. 2-10699.
(14)(e) Profit-Sharing 401(k) Plan, incorporated by reference
to Exhibit (14) (e) to Post-Effective Amendment No. 71
to Registrant's Registration Statement on Form N-1A,
File No. 2-10699.
(14)(f) 403 (b) Plan Documents, incorporated by reference to
Exhibit (14) (f) to Post-Effective Amendment No. 68 to
Registrant's Registration Statement on Form N-1A, File
No. 2-10699.
(14)(g) Prototype Simplified Employee Pension Plan Documents,
incorporated by reference to Exhibit (14) (f) to
Post-Effective Amendment No. 68 to Registrant's
Registration Statement on Form N-1A, File No. 2-10699.
(14)(h) Deferred Compensation Section 457 Savings Plan,
incorporated by reference to Exhibit (14) (f) to
Post-Effective Amendment No. 68 to Registrant's
Registration Statement on Form N-1A, File No. 2-10699.
(14)(i) Defined Contribution Trust, incorporated by reference
to Exhibit (14) (i) to Post-Effective Amendment No. 71
to Registrant's Registration Statement on Form N-1A,
File No. 2-10699.
(15) 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.
(16) Sample Computation of Performance Data, incorporated by
reference to Exhibit (14) (f) to Post-Effective
Amendment No. 68 to Registrant's Registration Statement
on Form N-1A, File No. 2-10699.
<PAGE>
(17)(a) Powers of Attorney, incorporated by reference to
Exhibit (17) to Post-Effective Amendment No. 76;
Exhibit 17(b) to Post-Effective Amendment No. 77; and
Exhibit 17(b) to Post-Effective Amendment No. 78 to
Registrant's Registration Statement on Form N-1A, File
No. 2-10699.
(17)(b)* Power of attorney for Andrew A. Davis and Christopher
C. Davis.
(17)(c)* Power of attorney for Shelby M.C. Davis and Eileen R.
Street..
* Filed herein
Item 25. Persons Controlled by or under Common Control with Registrant
Not applicable.
<PAGE>
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of March 31, 1998
-------------- --------------------
Common Stock 36,968
Item 27. Indemnification
Information concerning indemnification is incorporated by reference
herein from Item 4, Part II of Registrant's Post-Effective Amendment No. 55,
and from Item 27 of Post-Effective Amendment No. 64 under the Securities Act of
1933. Officers and Directors of Registrant are insured against liability by
reason of acts, errors or omissions in such capacities.
Item 28. Business and Other Connections of Investment Adviser
Information pertaining to business and other connections of
Registrant's investment adviser is incorporated by reference to the Prospectus
and Statement of Additional Information contained in Parts A and B of this
Registration Statement at the sections entitled "Adviser, Su-Advisers, and
Distributor" in the Prospectus and "Investment Advisory Services" in the
Statement of Additional Information.
Item 29. Principal Underwriters
(a) Davis Distributors, L.L.C., a wholly owned subsidiary of the
Adviser, located at 124 East Marcy Street, Santa Fe, NM 87501, is the principal
underwriter for the Registrant and also acts as principal underwriter for Davis
New York Venture Fund, Inc., Davis Tax-Free High Income Fund, Inc., Davis
Series, Inc., Davis High Income Fund, Inc., Davis International Series, Inc.,
Selected Special Shares, Inc. and Selected Capital Preservation Trust.
(b) Management of the Principal Underwriter:
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS UNDERWRITER WITH REGISTRANT
Kenneth C. Eich President Vice President
124 East Marcy Street
Santa Fe, NM 87501
Eileen R. Street Senior Vice President, Vice President, Treasurer
124 East Marcy Street Treasurer and Assistant and Assistant Secretary
Santa Fe, NM 87501 Secretary
Thomas D. Tays Vice President and Vice President and
124 East Marcy Street Secretary Secretary
<PAGE>
Santa Fe, NM 87501
Russell O. Wiese Senior Vice President None
124 East Marcy Street
Santa Fe, NM 87501
Sharra Reed Assistant Treasurer Assistant Treasurer and
124 East Marcy Street Assistant Secretary
Santa Fe, NM 87501
Item 30. 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
officers of the Registrant's custodian, State Street Bank and Trust Company,
One Heritage Drive, North Quincy, Massachusetts 02171, and the Registrant's
transfer agent State Street Bank and Trust Company, c/o Service Agent, BFDS,
Two Heritage Drive, 7th Floor, North Quincy, Massachusetts 02171.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Registrant undertakes to furnish to each person to whom a prospectus
is delivered a copy of Registrant's latest annual report to shareholders upon
request and without charge.
<PAGE>
SELECTED AMERICAN SHARES, INC.
SIGNATURES
Registrant certifies that this Amendment meets all of the requirements
for effectiveness pursuant to Rule 485(b).
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago and State of Illinois on the 27th day of
April, 1998
SELECTED AMERICAN SHARES, INC.
*By: /s/ Sheldon R. Stein
-------------------------------
Sheldon R. Stein,
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
Signature Title Date
Shelby M.C. Davis* President, April 27, 1998
- ------------------- Chief Executive
Shelby M.C. Davis Officer
Eileen R. Street* Vice President, April 27, 1998
- ------------------- principal accounting
Eileen R. Street officer
*By: /s/ Sheldon R. Stein
-------------------------------
Sheldon R. Stein,
Attorney-in-Fact
*Sheldon R. Stein signs this document on behalf of the Registrant and
the foregoing officers pursuant to the powers of attorney filed as Exhibit(17)
to Post-Effective Amendment No. 76 to Registrant's Registration Statement on
Form N-1A and Exhibit 17(c) to this Registration Statement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed on
April 27, 1998 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
*By: /s/ Sheldon R. Stein
-------------------------------
Sheldon R. Stein,
Attorney-in-Fact
*Sheldon R. Stein signs this document on behalf of the foregoing
persons pursuant to the powers of attorney filed as Exhibit 17 to
Post-Effective Amendment No. 76; Exhibit 17(b) to Post-Effective Amendment No.
77; Exhibit 17(b) to Post-Effective Amendment No. 78 to Registrant's
Registration Statement on Form N-1A and Exhibit 17(b) to this Registration
Statement.
<PAGE>
EXHIBIT 10
[LETTERHEAD OF D'ANCONA & PFLAUM]
April 22, 1998
Selected American Shares, Inc.
124 East Marcy Street
Santa Fe, New Mexico 87501
Ladies and Gentlemen:
We have acted as counsel for Selected American Shares, Inc. (the
"Fund") in connection with the registration under the Securities Act of 1933
(the "Act") of an indefinite number of shares of beneficial interest of the
series of the Fund designated Selected American Shares (the "Shares") in
registration statement No. 2-10699 on Form N-1A (the "Registration Statement").
In this connection we have examined originals, or copies certified
or otherwise identified to our satisfaction, of such documents, corporate and
other records, certificates and other papers as we deemed it necessary to
examine for the purpose of this opinion, including the Articles of
Incorporation and bylaws of the Fund, actions of the Board of Directors of the
Fund authorizing the issuance of shares of the Fund and the Registration
Statement.
Based on the foregoing examination, we are of the opinion that upon
the issuance and delivery of the Shares of the Fund in accordance with the
Articles of Incorporation and the actions of the Board of Directors authorizing
the issuance of the Shares, and the receipt by the Fund of the authorized
consideration therefor, the Shares so issued will be validly issued, fully paid
and nonassessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not admit that we are in
the category of persons whose consent is required under section 7 of the Act.
Very truly yours,
/s/ D'ANCONA & PFLAUM
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm in the Registration Statement, (Form
N-1A), and related Statement of Additional Information of Selected American
Shares, Inc. and to the inclusion of our report dated February 13, 1998 to the
Shareholders and Board of Directors/Trustees of Selected American Shares, Inc.,
Selected Special Shares, Inc. and Selected Capital Preservation Trust.
TAIT, WELLER & BAKER
PHILADELPHIA, PENNSYLVANIA
APRIL 27, 1998
<PAGE>
SELECTED AMERICAN SHARES, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
constitutes and appoints James J. McMonagle, Sheldon R. Stein, and Arthur Don,
and each of them, his or her 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
appropriate 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 __th day of April, 1998.
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Andrew A. Davis, Director
- -------------------------------
Christopher C. Davis, Director
<PAGE>
SELECTED AMERICAN SHARES, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
constitutes and appoints James J. McMonagle, Sheldon R. Stein, and Arthur Don,
and each of them, his or her 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
appropriate 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 __th day of April, 1998.
- -----------------------------
Shelby M.C. Davis, President
- -----------------------------
Eileen R. Street, Chief Accounting Officer
