497 1 file001.htm FORM 497

Filed Pursuant to Rule 497(e)
Registration File No. 2-27514

STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2005
AS AMENDED FEBRUARY 14, 2006

SELECTED AMERICAN SHARES, INC.
SELECTED SPECIAL SHARES, INC.
SELECTED DAILY GOVERNMENT FUND

2949 EAST ELVIRA ROAD, SUITE 101
TUCSON, ARIZONA 85706
1-800-243-1575

SELECTED DAILY GOVERNMENT FUND IS A SERIES OF SELECTED CAPITAL PRESERVATION
TRUST.

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS DATED MAY 1, 2005. THIS STATEMENT OF
ADDITIONAL INFORMATION INCORPORATES THE PROSPECTUS BY REFERENCE. THE PROSPECTUS
MAY BE OBTAINED FROM THE SELECTED FUNDS.

THE FUNDS' MOST RECENT ANNUAL REPORT AND SEMI-ANNUAL REPORT TO SHAREHOLDERS ARE
SEPARATE DOCUMENTS THAT ARE AVAILABLE ON REQUEST AND WITHOUT CHARGE BY CALLING
SHAREHOLDER SERVICES. THE ANNUAL REPORT, ACCOMPANYING NOTES AND REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM APPEARING IN THE ANNUAL REPORT ARE
INCORPORATED BY REFERENCE IN THIS STATEMENT OF ADDITIONAL INFORMATION.

Selected Funds Statement of Additional Information 1

TABLE OF CONTENTS

PAGE
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SECTION I: INVESTMENT STRATEGIES, RISKS AND RESTRICTIONS............... 3

Additional Information About the Funds' Investment Strategies and
Risks............................................................ 3
Portfolio Transactions.............................................. 23
Investment Restrictions............................................. 27

SECTION II: KEY PERSONS................................................ 30

Organization of the Funds........................................... 30
Directors and Officers.............................................. 31
Directors........................................................... 31
Independent Directors' Compensation................................. 35
Officers............................................................ 35
Standing Committees of the Board of Directors....................... 36
Directors' Fund Holdings............................................ 37
Independent Directors' Affiliations and Transactions................ 38
Certain Shareholders of the Fund.................................... 38
Investment Advisory Services........................................ 40
Portfolio Managers.................................................. 43
Disclosure of Portfolio Holdings.................................... 46
Distribution of Fund Shares......................................... 47
Other Important Service Providers................................... 50

SECTION III: CLASSES OF SHARES, PURCHASES, EXCHANGES AND REDEMPTIONS... 50

Selecting the Appropriate Class of Shares........................... 50
How to Purchase Shares.............................................. 50
Special Services.................................................... 50
Exchange of Shares.................................................. 51
Redemption of Shares................................................ 52

SECTION IV: GENERAL INFORMATION........................................ 53

Determining the Price of Shares..................................... 53
Dividends and Distributions......................................... 53
Federal Income Taxes................................................ 54
Performance Data.................................................... 54

APPENDIX A: QUALITY RATINGS OF DEBT SECURITIES......................... 60

APPENDIX B: SUMMARY OF PROXY VOTING PROCEDURES AND POLICIES ........... 64

Selected Funds Statement of Additional Information 2

SECTION I: INVESTMENT STRATEGIES, RISKS AND RESTRICTIONS

This Statement of Additional Information should be read in conjunction with the
prospectuses. This Statement of Additional Information supplements the
information available in the prospectus.

ADDITIONAL INFORMATION ABOUT THE FUNDS'
INVESTMENT STRATEGIES AND RISKS

THE ADVISER. Selected American Shares, Selected Special Shares, and Selected
Daily Government Fund (each a "Fund") are managed by Davis Selected Advisers,
L.P. ("Adviser").

PRINCIPAL INVESTMENT STRATEGIES AND ADDITIONAL INVESTMENT STRATEGIES. The
investment objectives, principal investment strategies and the main risks of
each Fund are described in the Funds' prospectus. The Funds are not limited to
investing in the securities and using the principal investment strategies
described in the prospectus. The Funds may invest in other securities and use
additional investment strategies if, in the Adviser's professional judgment, the
securities or investment strategies are appropriate. Factors which the Adviser
considers include whether: (i) purchasing such securities would be consistent
with shareholders' reasonable expectations; (ii) they may assist the Fund in
pursuing its investment objective; (iii) they are consistent with the Fund's
investment strategy; (iv) they will cause the Fund to violate any of its
investment restrictions; or (v) they will materially change the Fund's risk
profile as described in the Fund's prospectus and Statement of Additional
Information, as amended from time to time. This section of the Statement of
Additional Information contains supplemental information about the Funds'
principal investment strategies and also describes additional investment
strategies that the Adviser and/or Davis Selected Advisers - NY, Inc.
("Sub-Adviser") may use to try to achieve the Funds' objectives. The composition
of the Funds' portfolios and the strategies that the Adviser may use to try to
achieve the Funds' investment objectives may vary depending on market conditions
and available investment opportunities. The Funds are not required to use any of
the investment strategies described below in pursuing their investment
objectives. The Funds may use some of the investment strategies rarely or not at
all. Whether the Funds use a given investment strategy at a given time depends
on the professional judgment of the Adviser.

There is no assurance that the Funds will achieve their investment objectives.
An investment in the Funds may not be appropriate for all investors, and
short-term investing is discouraged.

In the discussions that follow, "Fund" applies equally to Selected American
Shares, Selected Special Shares, and Selected Daily Government Fund unless the
context indicates otherwise.

EQUITY SECURITIES. Equity securities represent an ownership position in a
company. These securities may include, without limitation, common stocks,
preferred stocks and securities with equity conversion or purchase rights. The
prices of equity securities fluctuate based on changes in the financial
condition of their issuers and on market and economic conditions. Events that
have a negative impact on a business probably will be reflected in a decline in
their equity securities. Furthermore, when the stock market declines, most
equity securities, even those issued by strong companies, likely will decline in
value.

RIGHTS AND WARRANTS. Rights and warrants are forms of equity securities.
Warrants basically are options to purchase equity securities at specific prices
valid for a specific period of time. Their prices do not necessarily move
parallel to the prices of the underlying securities. Rights are similar to
warrants, but normally have a shorter maturity and are distributed directly by
the issuer to its shareholders. Rights and warrants have no voting rights,
receive no dividends and have no rights with respect to the assets of the
issuer.

INITIAL PUBLIC OFFERINGS ("IPOS"). IPOs are a form of equity security. IPOs can
have a dramatic impact on Fund performance and assumptions about future
performance based on that impact may not be warranted. Investing in IPOs
involves risks. Many, but not all, of the companies issuing IPOs are small,
unseasoned companies. These are companies that have been in operation for a
short period of time. Small company securities, including IPOs, are subject to
greater volatility in their prices than are securities issued by more
established companies. If the Fund does not intend to make a long-term
investment in the IPO (it is

Selected Funds Statement of Additional Information 3

sometimes possible to immediately sell an IPO at a profit) the Adviser may not
perform the same detailed research on the company that it does for core
holdings.

SMALL- AND MID-CAPITALIZATION COMPANIES. Companies with less than $10 billion in
market capitalization are considered by the Adviser to be mid- or
small-capitalization companies. Investing in mid- and small-capitalization
companies may be more risky than investing in large-capitalization companies.
Smaller companies typically have more limited product lines, markets and
financial resources than larger companies, and their securities may trade less
frequently and in more limited volume than those of larger, more mature
companies. Securities of these companies may be subject to volatility in their
prices. They may have a limited trading market, which may adversely affect the
Fund's ability to dispose of them and can reduce the price the Fund might be
able to obtain for them. Other investors that own a security issued by a mid- or
small-capitalization company for whom there is limited liquidity might trade the
security when the Fund is attempting to dispose of its holdings in that
security. In that case the Fund might receive a lower price for its holdings
than otherwise might be obtained. Small-capitalization companies also may be
unseasoned. These include companies that have been in operation for less than
three years, including the operations of any predecessors.

FINANCIAL SERVICES SECTOR. The Adviser has developed a special expertise in
financial services companies and the equity funds may, from time to time, invest
a significant portion of it's assets in the financial services sector, if the
Adviser believes that such investments are consistent with the Fund's investment
strategy; may contribute to the Fund achieving its investment objectives; and
will not cause the Fund to violate any of its investment restrictions.

A company is "principally engaged" in financial services if it owns financial
services related assets constituting at least 50% of the total value of its
assets, or if at least 50% of its revenues are derived from its provision of
financial services. The financial services sector consists of several different
industries that behave differently in different economic and market
environments; for example, banking, insurance and securities brokerage houses.
Companies in the financial services sector include commercial banks, industrial
banks, savings institutions, finance companies, diversified financial services
companies, investment banking firms, securities brokerage houses, investment
advisory companies, leasing companies, insurance companies and companies
providing similar services.

Due to the wide variety of companies in the financial services sector, they may
react in different ways to changes in economic and market conditions.

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

Insurance. Insurance companies are particularly subject to government regulation
and rate setting, potential anti-trust and tax law changes, and industry-wide
pricing and competition cycles. Property and casualty insurance companies also
may be affected by weather, terrorism and other catastrophes. Life and health
insurance companies may be affected by mortality and morbidity rates, including
the effects of epidemics. Individual insurance companies may be exposed to
reserve inadequacies, problems in investment portfolios (for example, due to
real estate or "junk" bond holdings) and failures of reinsurance carriers.

Other Financial Services Companies. Many of the investment considerations
discussed in connection with banks and insurance companies also apply to other
financial services companies. These companies are all subject to extensive
regulation, rapid business changes, and volatile performance dependent on the
availability and cost of capital and prevailing interest rates and significant
competition. General economic

Selected Funds Statement of Additional Information 4

conditions significantly affect these companies. Credit and other losses
resulting from the financial difficulty of borrowers or other third parties have
a potentially adverse effect on companies in this industry. Investment banking,
securities brokerage and investment advisory companies are particularly subject
to government regulation and the risks inherent in securities trading and
underwriting activities.

Other Considerations. Regulations of the Securities and Exchange Commission
("SEC") impose limits on: (1) investments in the securities of companies that
derive more than 15% of their gross revenues from the securities or investment
management business. Although there are exceptions, a Fund is prohibited from
investing more than 5% of its total assets in a single company that derives more
than 15% of its gross revenues from the securities or investment management
business, and (2) investments in insurance companies. A Fund generally is
prohibited from owning more than 10% of the outstanding voting securities of an
insurance company.

REAL ESTATE SECURITIES, INCLUDING REITS. Real estate securities are a form of
equity security. Real estate securities are issued by companies that have at
least 50% of the value of their assets, gross income or net profits attributable
to ownership, financing, construction, management or sale of real estate, or to
products or services that are related to real estate or the real estate
industry. Selected Funds do not invest directly in real estate. Real estate
companies include real estate investment trusts ("REITs") or other securitized
real estate investments, brokers, developers, lenders and companies with
substantial real estate holdings such as paper, lumber, hotel and entertainment
companies. REITs pool investors' funds for investment primarily in
income-producing real estate or real estate-related loans or interests. A REIT
is not taxed on income distributed to shareholders if it complies with various
requirements relating to its organization, ownership, assets and income, and
with the requirement that it distribute to its shareholders at least 95% of its
taxable income (other than net capital gains) each taxable year. REITs generally
can be classified as Equity REITs, Mortgage REITs and Hybrid REITs. Equity REITs
invest the majority of their assets directly in real property and derive their
income primarily from rents. Equity REITs also can realize capital gains by
selling property that has appreciated in value. Mortgage REITs invest the
majority of their assets in real estate mortgages and derive their income
primarily from interest payments. Hybrid REITs combine the characteristics of
both Equity REITs and Mortgage REITs. To the extent that the management fees
paid to a REIT are for the same or similar services as the management fees paid
to the Fund, there will be a layering of fees, which would increase expenses and
decrease returns.

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

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

CONVERTIBLE SECURITIES. Convertible Securities are a form of equity security.
Generally, convertible securities are bonds, debentures, notes, preferred
stocks, warrants or other securities that convert or are exchangeable into
shares of the underlying common stock at a stated exchange ratio. Usually, the
conversion or exchange is solely at the option of the holder. However, some
convertible securities may be convertible or exchangeable at the option of the
issuer or are automatically converted or exchanged at a certain time, or on the
occurrence of

Selected Funds Statement of Additional Information 5

certain events, or have a combination of these characteristics. Usually a
convertible security provides a long-term call on the issuer's common stock and
therefore tends to appreciate in value as the underlying common stock
appreciates in value. A convertible security also may be subject to redemption
by the issuer after a certain date and under certain circumstances (including a
specified price) established on issue. If a convertible security held by the
Fund is called for redemption, the Fund could be required to tender it for
redemption, convert it into the underlying common stock or sell it.

Convertible bonds, debentures and notes are varieties of debt securities, and as
such are subject to many of the same risks, including interest rate sensitivity,
changes in debt rating and credit risk. In addition, convertible securities are
often viewed by the issuer as future common stock subordinated to other debt and
carry a lower rating than the issuer's non-convertible debt obligations. Thus,
convertible securities are subject to many of the same risks as high-yield,
high-risk securities. A more complete discussion of these risks is provided
below in the sections titled "Bonds and Other Debt Securities" and "High-Yield,
High-Risk Debt Securities."

Due to its conversion feature, the price of a convertible security normally will
vary in some proportion to changes in the price of the underlying common stock.
A convertible security will also normally provide a higher yield than the
underlying common stock (but generally lower than comparable non-convertible
securities). Due to their higher yield, convertible securities generally sell
above their "conversion value," which is the current market value of the stock
to be received on conversion. The difference between this conversion value and
the price of convertible securities will vary over time depending on the value
of the underlying common stocks and interest rates. When the underlying common
stocks decline in value, convertible securities will tend not to decline to the
same extent because the yield acts as a price support. When the underlying
common stocks rise in value, the value of convertible securities also may be
expected to increase, but generally will not increase to the same extent as the
underlying common stocks.

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

FOREIGN SECURITIES. Equity securities are issued by both domestic and foreign
companies. Sometimes a company may be classified as either "domestic" or
"foreign" depending upon which factors are considered most important for a given
company. Factors which the Adviser considers include: (1) was the company
organized under the laws of the United States or a foreign country; (2) are the
company's securities principally traded in securities markets outside of the
United States; (3) where does the company earn the majority of its revenues or
profits; and (4) where does the company have the majority of its assets.

Foreign securities include, but are not limited to, equity securities, real
estate securities, convertible securities and bonds. Investments in foreign
securities may be made through the purchase of individual securities on
recognized exchanges and developed over-the-counter markets, through American
Depository Receipts ("ADRs") or Global Depository Receipts ("GDRs") covering
such securities, and through U.S.-registered investment companies investing
primarily in foreign securities. To the extent that the management fees paid to
an investment company are for the same or similar services as the management
fees paid to the Fund, there would be a layering of fees that would increase
expenses and decrease returns. When the Fund invests in foreign securities,
their operating expenses are likely to be higher than that of an investment
company investing exclusively in U.S. securities, since the custodial and
certain other expenses are expected to be higher.

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 information publicly available about foreign securities and
securities markets, and there may be less government regulation and supervision
of foreign issuers and securities markets. Foreign securities and markets also
may be affected by political and economic instabilities and may be more volatile
and less

Selected Funds Statement of Additional Information 6

liquid than domestic securities and markets. Investment risks may include
expropriation or nationalization of assets, confiscatory taxation, exchange
controls and limitations on the use or transfer of assets and significant
withholding taxes. Foreign economies may differ from the United States favorably
or unfavorably with respect to inflation rates, balance of payments, capital
reinvestment, gross national product expansion and other relevant indicators.
The Fund may attempt to reduce exposure to market and currency fluctuations by
trading in currency futures contracts or options on futures contracts for
hedging purposes only.

SPECIAL RISKS OF EMERGING MARKETS. Emerging and developing markets abroad may
offer special opportunities for growth investing but have greater risks than
more developed foreign markets, such as those in Europe, Canada, Australia, New
Zealand and Japan. Securities in emerging market countries may be more difficult
to sell at an acceptable price and their prices may be more volatile than
securities of companies in more developed markets. There may be even less
liquidity in their securities markets, and settlements of trades may be subject
to greater delays so that the Fund may not receive the proceeds of a sale of a
security on a timely basis. They are subject to greater risks of limitations on
the repatriation of income and profits because of currency restrictions imposed
by local governments. Those countries also may be subject to the risk of greater
political and economic instability, which can greatly affect the volatility of
prices of securities in those countries. Emerging countries may have less
developed trading markets and exchanges. They may have less developed legal and
accounting systems.

BONDS AND OTHER DEBT SECURITIES. Bonds and other debt securities may be
purchased by the Fund if the Adviser believes that they are consistent with the
Fund's investment strategies may contribute to the Fund's investment objective
and will not cause the Fund to violate any of its investment restrictions. The
U.S. government, corporations and other issuers sell bonds and other debt
securities to borrow money. Issuers pay investors interest and generally must
repay the amount borrowed at maturity. Some debt securities, such as zero-coupon
bonds, do not pay current interest, but are purchased at a discount from their
face values. The prices of debt securities fluctuate, depending on such factors
as interest rates, credit quality and maturity.

Bonds and other debt securities generally are subject to credit risk and
interest rate risk. While debt securities issued by the U.S. Treasury generally
are considered free of credit risk, debt issued by agencies and corporations all
entail some level of credit risk. Investment grade debt securities have less
credit risk than do high-yield, high-risk debt securities. Credit risk is
described more fully in the section titled "High-Yield, High-Risk Debt
Securities."

Bonds and other debt securities generally are interest rate-sensitive. During
periods of falling interest rates, the value of debt securities held by the Fund
generally rises. Conversely, during periods of rising interest rates, the value
of such securities generally declines. Changes by recognized rating services in
their ratings of debt securities and changes in the ability of an issuer to make
payments of interest and principal also will affect the value of these
investments.

SELECTED DAILY GOVERNMENT FUND AVERAGE MATURITY. Selected Daily Government Fund
limits the average maturity of its investment portfolio to 90 days or less. The
Adviser may adjust the average maturity of Selected Daily Government Fund's
portfolio from time to time, depending on the Adviser's assessment of the
relative yields available on securities of different maturities, and its
assessment of future interest rate patterns and market risk. Thus, at various
times, the average maturity of the portfolio may be relatively short (as short
as one day), and at other times may be relatively long (up to 90 days). Selected
Daily Government Fund strives to maintain a constant net asset value per share
of $1. There is no guarantee that the Fund will be successful.

GOVERNMENT SECURITIES. U.S. Government Securities are debt securities that are
obligations of or guaranteed by the U.S. government, its agencies or
instrumentalities. There are two basic types of U.S. Government Securities: (1)
direct obligations of the U.S. Treasury, and (2) obligations issued or
guaranteed by an agency or instrumentality of the U.S. government. Agencies and
instrumentalities include the Federal Farm Credit System ("FFCS"), Student Loan
Marketing Association ("SLMA"), Federal Home Loan Mortgage Corporation
("FHLMC"), Federal Home Loan Banks ("FHLB"), Federal National Mortgage

Selected Funds Statement of Additional Information 7

Association ("FNMA") and Government National Mortgage Association ("GNMA"). Some
obligations issued or guaranteed by agencies or instrumentalities, such as those
issued by GNMA, are fully guaranteed by the U.S. government. Others, such as
FNMA bonds, rely on the assets and credit of the instrumentality with limited
rights to borrow from the U.S. Treasury. Still other securities, such as
obligations of the FHLB, are supported by more extensive rights to borrow from
the U.S. Treasury.

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

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

A collateralized mortgage obligation ("CMO") is a debt security issued by a
corporation, trust or custodian, or by a U.S. government agency or
instrumentality that is collateralized by a portfolio or pool of mortgages,
mortgage-backed securities, U.S. Government Securities or corporate debt
obligations. The issuer's obligation to make interest and principal payments is
secured by the underlying pool or portfolio of securities. CMOs are most often
issued in two or more classes (each of which is a separate security) with
varying maturities and stated rates of interest. Interest and principal payments
from the underlying collateral (generally a pool of mortgages) are not
necessarily passed directly through to the holders of the CMOs; these payments
typically are used to pay interest on all CMO classes and to retire successive
class maturities in a sequence. Thus, the issuance of CMO classes with varying
maturities and interest rates may result in greater predictability of maturity
with one class and less predictability of maturity with another class than a
direct investment in a mortgage-backed pass-through security (such as a GNMA
Certificate). Classes with shorter maturities typically have lower volatility
and yield while those with longer maturities typically have higher volatility
and yield. Thus, investments in CMOs provide greater or lesser control over the
investment characteristics than mortgage pass-through securities and offer more
defensive or aggressive investment alternatives.

Investments in mortgage-related U.S. Government Securities, such as GNMA
Certificates and CMOs, also involve other risks. The yield on a pass-through
security typically is quoted based on the maturity of the underlying instruments
and the associated average life assumption. Actual prepayment experience may
cause the yield to differ from the assumed average life yield. Accelerated
prepayments adversely impact yields for pass-throughs purchased at a premium;
the opposite is true for pass-throughs purchased at a discount. During periods
of declining interest rates, prepayment of mortgages underlying pass-through
certificates can be expected to accelerate. When the mortgage obligations are
prepaid, the Fund reinvests the prepaid amounts in securities, the yields of
which reflect interest rates prevailing at that time. Therefore, the Fund's
ability to maintain a portfolio of high-yielding, mortgage-backed securities
will be adversely affected to the extent that prepayments of mortgages must be
reinvested in securities that have lower yields than the prepaid mortgages.
Moreover, prepayments of mortgages that underlie securities purchased at a
premium could result in capital losses. Investment in such securities also could
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 that was considered
a

Selected Funds Statement of Additional Information 8

short or intermediate-term security at the time of purchase into a long-term
security. Long-term securities generally fluctuate more widely in response to
changes in interest rates than short or intermediate-term securities.

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

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

HIGH-YIELD, HIGH-RISK DEBT SECURITIES. The real estate securities, convertible
securities, bonds and other debt securities in which Selected American Shares
and Selected Special Shares may invest may include high-yield, high-risk debt
securities rated BB or lower by Standard & Poor's Corporation ("S&P") or Ba or
lower by Moody's Investors Service ("Moody's") or unrated securities. Securities
rated BB or lower by S&P and Ba or lower by Moody's are referred to in the
financial community as "junk bonds" and may include D-rated securities of
issuers in default. See Appendix A for a more detailed description of the rating
system. Ratings assigned by credit agencies do not evaluate market risks. The
Adviser considers the ratings assigned by S&P or Moody's as one of several
factors in its independent credit analysis of issuers. A brief description of
the quality ratings of these two services is contained in the section titled
"Quality Ratings of Debt Securities."

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

High-yield, high-risk debt securities are subject to greater price volatility
than higher-rated securities, tend to decline in price more steeply than
higher-rated securities in periods of economic difficulty or accelerating
interest rates and are subject to greater risk of non-payment in adverse
economic times. There may be a thin trading market for such securities. This may
have an adverse impact on market price and the ability of the 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, could result in the replacement of such securities with
lower-yielding securities, resulting in a decreased return. 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 greater than 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.

Selected Funds Statement of Additional Information 9

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

The 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 also may make it more difficult 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 redemption or call provisions. If an issuer exercises
these provisions when investment rates are declining, the Fund will be likely to
replace such bonds with lower-yielding bonds, resulting in a decreased return.
Zero-coupon, pay-in-kind and deferred interest bonds involve additional special
considerations. Zero-coupon bonds are debt obligations that do not entitle the
holder to any periodic payments of interest prior to maturity or a specified
cash payment date when the securities begin paying current interest (the "cash
payment date") and therefore are issued and traded at a discount from their face
amount or par value. The market prices of zero-coupon securities generally are
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 that 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. There is 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 greater than the cash actually received on these issues. In
order to distribute such income to avoid taxation, the Fund may have to sell
portfolio securities to meet its taxable distribution requirements under
circumstances that could be adverse.

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

A description of each bond quality category is set forth in Appendix A. 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. The Fund
may retain a security whose rating has changed or has become unrated.

CASH MANAGEMENT. For defensive purposes or to accommodate inflows of cash
awaiting more permanent investment, the Fund may temporarily and without
limitation hold high-grade short-term money market instruments, cash and cash
equivalents, including repurchase agreements. The Fund also may invest in other
investment companies (or companies exempted under Section 3(c)(7) of the 1940
Act) that themselves primarily invest in temporary defensive investments,
including commercial paper. To the extent

Selected Funds Statement of Additional Information 10

that the management fees paid to the other investment companies are for the same
or similar services as the management fees paid to the Fund, there will be a
layering of fees that would increase expenses and decrease returns. Investments
in other investment companies are limited by the 1940 Act.

REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements. Repurchase
agreements involve an agreement to purchase a security and to sell that security
back to the original owner at an agreed-on price. The resale price reflects the
purchase price plus an agreed-on incremental amount, which is unrelated to the
coupon rate or maturity of the purchased security. The repurchase obligation of
the seller is, in effect, secured by the underlying securities. In the event of
a bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and
losses, including: (a) possible decline in the value of the collateral during
the period while the Fund seeks to enforce its rights thereto, (b) possible loss
of all or a part of the income during this period, and (c) expenses of enforcing
its rights.

The Fund will enter into repurchase agreements only when the seller agrees that
the value of the underlying securities, including accrued interest (if any),
will at all times be equal to or exceed the value of the repurchase agreement.
The Fund may enter into tri-party repurchase agreements in which a third-party
custodian bank ensures the timely and accurate exchange of cash and collateral.
The majority of these transactions run from day to day, and delivery pursuant to
the resale typically occurs within one to seven days of the purchase. The Fund
normally will not enter into repurchase agreements maturing in more than seven
days.

BORROWING. The Fund may borrow from banks and enter into reverse repurchase
agreements in an amount up to 33 1/3% of its total assets, taken at market
value. The Fund also may borrow up to an additional 5% of its total assets from
banks or others. The Fund may purchase additional securities so long as
borrowings do not exceed 5% of its total assets. The Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities. In the event that market fluctuations cause borrowing
to exceed the limits stated above, the Adviser would act to remedy the situation
as promptly as possible (normally within three business days), although it is
not required to dispose of portfolio holdings immediately if the Fund would
suffer losses as a result. Borrowing money to meet redemptions or other purposes
would have the effect of temporarily leveraging the Fund's assets and
potentially exposing the Fund to leveraged losses.

LENDING PORTFOLIO SECURITIES. The Fund may lend its portfolio securities to
certain types of eligible borrowers approved by the Board of Directors. The Fund
may engage in securities lending to earn additional income or to raise cash for
liquidity purposes. The Fund must receive collateral for a loan. Under current
applicable regulatory requirements (which are subject to change), on each
business day the loan collateral must be at least equal to the value of the
loaned securities. The collateral must consist of cash, bank letters of credit,
securities of the U.S. government or its agencies or instrumentalities, or other
cash equivalents in which the Fund is permitted to invest.

Lending activities are strictly limited as described in the section titled
"Investment Restrictions." Lending money or securities involves the risk that
the Fund may suffer a loss if a borrower does not repay a loan when due. To
manage this risk the Fund deals only with counterparties it believes to be
creditworthy and requires that the counterparty deposit collateral with the
Fund.

When it loans securities, the Fund still owns the securities, receives amounts
equal to the dividends or interest on loaned securities and is subject to gains
or losses on those securities. The Fund also receives one or more of: (a)
negotiated loan fees, (b) interest on securities used as collateral, and/or (c)
interest on any short-term debt instruments purchased with such loan collateral.
Either type of interest may be shared with the borrower. The Fund also may pay
reasonable finder's, custodian and administrative fees in connection with these
loans. The terms of the Fund's loans must meet applicable tests under the
Internal Revenue Code and must permit the Fund to reacquire loaned securities on
five days' notice or in time to vote on any important matter.

Selected Funds Statement of Additional Information 11

HEADLINE RISK. We seek to acquire companies with expanding earnings at value
prices. We may make such investments when a company becomes the center of
controversy after receiving adverse media attention. The company may be involved
in litigation, the company's financial reports or corporate governance may be
challenged, the company's annual report may disclose a weakness in internal
controls, investors may question the company's published financial reports,
greater government regulation may be contemplated, or other adverse events may
threaten the company's future. While we research companies subject to such
contingencies, we cannot be correct every time, and the company's stock may
never recover.

SHORT SALES. When the Fund believes that a security is overvalued, it may sell
the security short and borrow the same security from a broker or other
institution to complete the sale. If the price of the security decreases in
value, the Fund may make a profit and, conversely, if the security increases in
value, the Fund will incur a loss because it will have to replace the borrowed
security by purchasing it at a higher price. There can be no assurance that the
Fund will be able to close out the short position at any particular time or at
an acceptable price. Although the Fund's gain is limited to the amount at which
it sold a security short, its potential loss is not limited. A lender may
request that the borrowed securities be returned on short notice; if that occurs
at a time when other short sellers of the subject security are receiving similar
requests, a "short squeeze" can occur. This means that the Fund might be
compelled, at the most disadvantageous time, to replace borrowed securities
previously sold short with purchases on the open market at prices significantly
greater than those at which the securities were sold short. Short selling also
may produce higher than normal portfolio turnover and result in increased
transaction costs to the Fund. If the Fund sells a security short it will either
own an off-setting "long position" (an economically equivalent security which is
owned) or establish a "Segregated Account" as described in this Statement of
Additional Information.

The Fund also may make short sales "against-the-box," in which it sells short
securities it owns. The Fund will incur transaction costs, including interest
expenses, in connection with opening, maintaining and closing short sales
against-the-box, which result in a "constructive sale," requiring the Fund to
recognize any taxable gain from the transaction.

The Fund has adopted a non-fundamental investment limitation that prevents it
from selling any security short if it would cause more than 5% of its total
assets, taken at market value, to be sold short. This limitation does not apply
to selling short against the box.

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

The restricted securities that the Fund may purchase include securities that
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 Fund; to trade in privately placed
securities even though such securities are not registered under the 1933 Act.
The Adviser, under criteria established by the Fund's Board of Directors, will
consider whether Rule 144A Securities being purchased or held by the Fund are
illiquid and thus subject to the Fund's policy limiting investments in illiquid
securities. In making this determination, the Adviser will consider the
frequency of trades and quotes, the number of dealers and potential purchasers,
dealer undertakings to make a market and the nature of the security and the
marketplace 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 also will be monitored by the Adviser and, if as a result
of changed conditions it is determined that a Rule 144A Security is no longer
liquid, the Fund's holding of illiquid securities will be reviewed to determine
what, if any, action is required in light of the policy limiting investments in
such securities. Investing in Rule 144A Securities could have the effect of
increasing the amount of investments in illiquid securities if qualified
institutional buyers are unwilling to purchase such securities.

WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. The Fund can invest in securities
on a "when-issued" basis and can purchase or sell securities on a
"delayed-delivery" basis. When-issued and delayed-delivery are terms that refer
to securities whose terms and indenture are available and for which a market
exists but that are not available for immediate delivery.

Selected Funds Statement of Additional Information 12

When such transactions are negotiated, the price (which generally is expressed
in yield terms) is fixed at the time the commitment is made. Delivery and
payment for the securities take place at a later date (generally within 45 days
of the date the offer is accepted). The securities are subject to change in
value from market fluctuations during the period until settlement. The value at
delivery may be less than the purchase price. For example, changes in interest
rates in a direction other than that expected by the Adviser before settlement
will affect the value of such securities and may cause a loss to the Fund.
During the period between purchase and settlement, no payment is made by the
Fund to the issuer and no interest accrues to the Fund from the investment.

The Fund may engage in when-issued transactions to secure what the Adviser
considers to be an advantageous price and yield at the time of entering into the
obligation. When the Fund enters into a when-issued or delayed-delivery
transaction, it relies on the other party to complete the transaction. Its
failure to do so may cause the Fund to lose the opportunity to obtain the
security at a price and yield the Adviser considers to be advantageous. When the
Fund engages in when-issued and delayed-delivery transactions, it does so for
the purpose of acquiring or selling securities consistent with its investment
objective and strategies or for delivery pursuant to options contracts it has
entered into, and not for the purpose of investment leverage. Although the Fund
will enter into delayed-delivery or when-issued purchase transactions to acquire
securities, it can dispose of a commitment before settlement. If the Fund
chooses to dispose of the right to acquire a when-issued security before its
acquisition or to dispose of its right to delivery or receive against a forward
commitment, it may incur a gain or loss.

At the time the Fund makes the commitment to purchase or sell a security on a
when-issued or delayed-delivery basis, it records the transaction on its books
and reflects the value of the security purchased in determining the Fund's net
asset value. In a sale transaction, it records the proceeds to be received. The
Fund will identify on its books liquid securities of any type at least equal in
value to the value of the Fund's purchase commitments until the Fund pays for
the investment.

When issued and delayed-delivery transactions can be used by the Fund as a
defensive technique to hedge against anticipated changes in interest rates and
prices. For instance, in periods of rising interest rates and falling prices,
the Fund might sell securities in its portfolio on a forward commitment basis to
attempt to limit its exposure to anticipated falling prices. In periods of
falling interest rates and rising prices, the Fund might sell portfolio
securities and purchase the same or similar securities on a when-issued or
delayed-delivery basis to obtain the benefit of currently higher cash yields.

A segregated account is not required when the Fund holds securities, options or
futures positions whose values are expected to offset its obligations that would
otherwise require a segregated account.

SEGREGATED ACCOUNTS. A number of the Fund's investment strategies require it to
establish segregated accounts. When the Fund enters into an investment strategy
that would result in a "senior security" as that term is defined in the 1940
Act, the Fund will either: (i) own an offsetting position in securities, options
or futures positions; or (ii) set aside liquid securities in a segregated
account with its custodian bank (or designated in the Fund's books and records)
in the amount prescribed. The Fund will maintain the value of such segregated
account equal to the prescribed amount by adding or removing additional liquid
securities to account for fluctuations in the value of securities held in such
account. Securities held in a segregated account cannot be sold while the senior
security is outstanding, unless they are replaced with similar securities.

DERIVATIVES. The Fund can invest in a variety of derivative investments to
pursue its investment objective or for hedging purposes. Some derivative
investments the Fund can use are the hedging instruments described below.

Hedging. The Fund can use hedging to attempt to protect against declines in the
market value of the Fund's portfolio, to permit the Fund to retain unrealized
gains in the value of portfolio securities that have appreciated or to
facilitate selling securities for investment reasons. To do so, the Fund could:

Selected Funds Statement of Additional Information 13

o sell futures contracts;

o buy puts on such futures or on securities; or

o write covered calls on securities or futures.

The Fund can use hedging to establish a position in the securities market as a
temporary substitute for purchasing particular securities. In that case, the
Fund would normally seek to purchase the securities and then terminate that
hedging position. The Fund might also use this type of hedge to attempt to
protect against the possibility that its portfolio securities would not be fully
included in a rise in value of the market. To do so the Fund could:

o buy futures;

o buy calls on such futures or on securities; or

o sell puts on such futures or on securities.

The Fund is not obligated to use hedging instruments, even though it is
permitted to use them in the Adviser's discretion, as described below. The
Fund's strategy of hedging with futures and options on futures will be
incidental to the Fund's activities in the underlying cash market. The
particular hedging instruments the Fund can use are described below. The Fund
can employ new hedging instruments and strategies when they are developed, if
those investment methods are consistent with the Fund's investment objective and
are permissible under applicable regulations governing the Fund.

Futures. The Fund can buy and sell futures contracts that relate to: (1)
broad-based stock indices ("stock index futures"), (2) debt securities (these
are referred to as "interest rate futures"), (3) other broad-based securities
indices (these are referred to as "financial futures"), (4) foreign currencies
(these are referred to as "forward contracts"), or (5) commodities (these are
referred to as "commodity futures").

A broad-based stock index is used as the basis for trading stock index futures.
They may in some cases be based on stocks of issuers in a particular industry or
group of industries. A stock index assigns relative values to the common stocks
included in the index and its value fluctuates in response to the changes in
value of the underlying stocks. A stock index cannot be purchased or sold
directly. Financial futures are similar contracts based on the future value of
the basket of securities that comprise the index. These contracts obligate the
seller to deliver, and the purchaser to take, cash to settle the futures
transaction. There is no delivery made of the underlying securities to settle
the futures obligation. Either party also may settle the transaction by entering
into an offsetting contract.

An interest rate future obligates the seller to deliver (and the purchaser to
take) cash or a specified type of debt security to settle the futures
transaction. Either party also could enter into an offsetting contract to close
out the position.

No money is paid or received by the Fund on the purchase or sale of a future. On
entering into a futures transaction, the Fund will be required to deposit an
initial margin payment with the futures commission merchant (the "futures
broker"). Initial margin payments will be deposited with the Fund's custodian
bank in an account registered in the futures broker's name. However, the futures
broker can gain access to that account only under specified conditions. As the
future is marked to market (that is, its value on the Fund's books is changed)
to reflect changes in its market value, subsequent margin payments, called
variation margin, will be paid to or by the futures broker daily.

At any time before expiration of the future, the Fund can elect to close out its
position by taking an opposite position, at which time a final determination of
variation margin is made and any additional cash must be paid by or released to
the Fund. Any loss or gain on the future is then realized by the Fund for tax
purposes. All futures transactions, except forward contracts, are effected
through a clearinghouse associated with the exchange on which the contracts are
traded.

Selected Funds Statement of Additional Information 14

Put and Call Options. The Fund can buy and sell (and sell short) certain kinds
of put options ("puts") and call options ("calls"). The Fund can buy and sell
exchange-traded and over-the-counter put and call options, including index
options, securities options, currency options, commodities options and options
on the other types of futures described above.

Writing Covered Call Options. The Fund can write (that is, sell) covered calls.
If the Fund sells a call option, it must be covered. That means the Fund must
own the security subject to the call while the call is outstanding or, for
certain types of calls, the call can be covered by identifying liquid assets on
the Fund's books to enable the Fund to satisfy its obligations if the call is
exercised.

When the Fund writes a call on a security, it receives cash (a premium). The
Fund agrees to sell the underlying security to a purchaser of a corresponding
call on the same security during the call period at a fixed exercise price
regardless of market price changes during the call period. The call period is
usually not more than nine months. The exercise price may differ from the market
price of the underlying security. The Fund has the risk of loss that the price
of the underlying security may decline during the call period. That risk may be
offset to some extent by the premium the Fund receives. If the value of the
investment does not rise above the call price, it is likely that the call will
lapse without being exercised. In that case, the Fund would keep the cash
premium and the investment.

When the Fund writes a call on an index, it receives cash (a premium). If the
buyer of the call exercises it, the Fund will pay an amount of cash equal to the
difference between the closing price of the call and the exercise price,
multiplied by a specified multiple that determines the total value of the call
for each point of difference. If the value of the underlying investment does not
rise above the call price, it is likely that the call will lapse without being
exercised. In that case the Fund would keep the cash premium.

The Fund's custodian bank, or a securities depository acting for the custodian
bank, will act as the Fund's escrow agent, through the facilities of the Options
Clearing Corporation ("OCC"), as to the investments on which the Fund has
written calls traded on exchanges or as to other acceptable escrow securities.
In that way, no margin will be required for such transactions. OCC will release
the securities on the expiration of the option or when the Fund enters into a
closing transaction.

When the Fund writes an over-the-counter ("OTC") option, it will treat as
illiquid (for purposes of its restriction on holding illiquid securities) the
marked-to-market value of any OTC option it holds, unless the option is subject
to a buy-back agreement by the executing broker. To terminate its obligation on
a call it has written, the Fund can purchase a corresponding call in a "closing
purchase transaction." The Fund will then realize a profit or loss, depending on
whether the net of the amount of the option transaction costs and the premium
received on the call the Fund wrote is more or less than the price of the call
the Fund purchases to close out the transaction. The Fund may realize a profit
if the call expires unexercised, because the Fund will retain the underlying
security and the premium it received when it wrote the call. Any such profits
are considered short-term capital gains for federal income tax purposes, as are
the premiums on lapsed calls. When distributed by the Fund, they are taxable as
ordinary income. If the Fund cannot effect a closing purchase transaction due to
the lack of a market, it will have to hold the callable securities until the
call expires or is exercised.

The Fund also can write calls on a futures contract without owning the futures
contract or securities deliverable under the contract. To do so, at the time the
call is written, the Fund must cover the call by identifying an equivalent
dollar amount of liquid assets on the Fund's books. The Fund will identify
additional liquid assets on its books if the value of the segregated assets
drops below 100% of the current value of the future. Because of this segregation
requirement, in no circumstances would the Fund's receipt of an exercise notice
as to that future require the Fund to deliver a futures contract. It would
simply put the Fund in a short futures position, which is permitted by the
Fund's hedging policies.

Writing Put Options. The Fund can write/sell put options. A put option on
securities gives the purchaser the right to sell, and the writer the obligation
to buy, the underlying investment at the exercise price during the option
period.

Selected Funds Statement of Additional Information 15

If the Fund writes a put, the put must be covered by liquid assets identified on
the Fund's books. The premium the Fund receives from writing a put represents a
profit, as long as the price of the underlying investment remains equal to or
above the exercise price of the put. However, the Fund also assumes the
obligation during the option period to buy the underlying investment from the
buyer of the put at the exercise price, even if the value of the investment
falls below the exercise price. If a put the Fund has written expires
unexercised, the Fund realizes a gain in the amount of the premium less the
transaction costs incurred. If the put is exercised, the Fund must fulfill its
obligation to purchase the underlying investment at the exercise price. The
price usually will exceed the market value of the investment at that time. In
that case, the Fund may incur a loss if it sells the underlying investment. That
loss will be equal to the sum of the sale price of the underlying investment and
the premium received minus the sum of the exercise price and any transaction
costs the Fund incurred.

When writing a put option on a security, to secure its obligation to pay for the
underlying security the Fund will deposit in escrow liquid assets with a value
equal to or greater than the exercise price of the underlying securities. The
Fund therefore foregoes the opportunity of investing the segregated assets or
writing calls against those assets.

As long as the Fund's obligation as the put writer continues, it may be assigned
an exercise notice by the broker-dealer through which the put was sold. That
notice will require the Fund to take delivery of the underlying security and pay
the exercise price. The Fund has no control over when it may be required to
purchase the underlying security, since it may be assigned an exercise notice at
any time prior to the termination of its obligation as the writer of the put.
That obligation terminates on expiration of the put. It also may terminate if,
before it receives an exercise notice, the Fund effects a closing purchase
transaction by purchasing a put of the same series as it sold. Once the Fund has
been assigned an exercise notice, it cannot effect a closing purchase
transaction.

The Fund can decide to effect a closing purchase transaction to realize a profit
on an outstanding put option it has written or to prevent the underlying
security from being exercised. Effecting a closing purchase transaction also
will permit the Fund to write another put option on the security or to sell the
security and use the proceeds from the sale for other investments. The Fund will
realize a profit or loss from a closing purchase transaction depending on
whether the cost of the transaction is less or more than the premium received
from writing the put option. Any profits from writing puts are considered
short-term capital gains for federal tax purposes and, when distributed by the
Fund, are taxable as ordinary income.

Purchasing Calls and Puts. The Fund can purchase calls to protect against the
possibility that the Fund's portfolio will not participate in an anticipated
rise in the securities market. When the Fund buys a call (other than in a
closing purchase transaction), it pays a premium. The Fund then has the right to
buy the underlying investment from a seller of a corresponding call on the same
investment during the call period at a fixed exercise price. The Fund benefits
only if it sells the call at a profit or if, during the call period, the market
price of the underlying investment is above the sum of the call price plus the
transaction costs and the premium paid for the call and the Fund exercises the
call. If the Fund does not exercise the call or sell it (whether or not at a
profit), the call will become worthless at its expiration date. In that case the
Fund will have paid the premium but lost the right to purchase the underlying
investment.

The Fund can buy puts whether it holds the underlying investment in its
portfolio. When the Fund purchases a put, it pays a premium and, except as to
puts on indices, has the right to sell the underlying investment to a seller of
a put on a corresponding investment during the put period at a fixed exercise
price. Buying a put on securities or futures the Fund owns enables the Fund to
attempt to protect itself during the put period against a decline in the value
of the underlying investment below the exercise price by selling the underlying
investment at the exercise price to a seller of a corresponding put. If the
market price of the underlying investment is equal to or above the exercise
price and, as a result, the put is not exercised or resold, the put will become
worthless at its expiration date. In that case the Fund will have paid the
premium but lost the right to sell the underlying investment. However, the Fund
can sell the put prior to its expiration. That sale may or may not be at a
profit.

Selected Funds Statement of Additional Information 16

When the Fund purchases a call or put on an index or future, it pays a premium,
but settlement is in cash rather than by delivery of the underlying investment
to the Fund. Gain or loss depends on changes in the index in question (and thus
on price movements in the securities market generally) rather than on price
movements in individual securities or futures contracts.

Forward Contracts. Forward contracts are foreign currency exchange contracts.
They are used to buy or sell foreign currency for future delivery at a fixed
price. The Fund uses them to "lock in" the U.S. dollar price of a security
denominated in a foreign currency that the Fund has bought or sold, or to
protect against possible losses from changes in the relative values of the U.S.
dollar and a foreign currency. The Fund limits its exposure in foreign currency
exchange contracts in a particular foreign currency to the amount of its assets
denominated in that currency or a closely correlated currency. The Fund also can
use "cross-hedging" where the Fund hedges against changes in currencies other
than the currency in which a security it holds is denominated.

Under a forward contract, one party agrees to purchase, and another party agrees
to sell, a specific currency at a future date. That date may be any fixed number
of days from the date of the contract agreed on by the parties. The transaction
price is set at the time the contract is entered into. These contracts are
traded in the inter-bank market conducted directly among currency traders
(usually large commercial banks) and their customers.

The Fund can use forward contracts to protect against uncertainty in the level
of future exchange rates. The use of forward contracts does not eliminate the
risk of fluctuations in the prices of the underlying securities the Fund owns or
intends to acquire, but it does fix a rate of exchange in advance. Although
forward contracts may reduce the risk of loss from a decline in the value of the
hedged currency, at the same time they limit any potential gain if the value of
the hedged currency increases.

When the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, or when it anticipates receiving dividend
payments in a foreign currency, the Fund might desire to "lock in" the U.S.
dollar price of the security or the U.S. dollar equivalent of the dividend
payments. To do so, the Fund might enter into a forward contract for the
purchase or sale of the amount of foreign currency involved in the underlying
transaction, in a fixed amount of U.S. dollars per unit of the foreign currency.
This is called a "transaction hedge." The transaction hedge will protect the
Fund against a loss from an adverse change in the currency exchange rates during
the period between the date on which the security is purchased or sold or on
which the payment is declared and the date on which the payments are made or
received.

The Fund also could use forward contracts to lock in the U.S. dollar value of
portfolio positions. This is called a "position hedge." When the Fund believes
that foreign currency might suffer a substantial decline against the U.S.
dollar, it could enter into a forward contract to sell an amount of that foreign
currency approximating the value of some or all of the Fund's portfolio
securities denominated in that foreign currency. When the Fund believes that the
U.S. dollar may suffer a substantial decline against a foreign currency, it
could enter into a forward contract to buy that foreign currency for a fixed
dollar amount. Alternatively, the Fund could enter into a forward contract to
sell a different foreign currency for a fixed U.S. dollar amount if the Fund
believes that the U.S. dollar value of the foreign currency to be sold pursuant
to its forward contract will fall whenever there is a decline in the U.S. dollar
value of the currency in which portfolio securities of the Fund are denominated.
That is referred to as a "cross hedge."

The Fund will cover its short positions in these cases by identifying to its
custodian bank assets having a value equal to the aggregate amount of the Fund's
commitment under forward contracts. The Fund will not enter into forward
contracts or maintain a net exposure to such contracts if the consummation of
the contracts would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Fund's portfolio securities or other assets
denominated in that currency or another currency that is the subject of the
hedge. However, to avoid excess transactions and transaction costs, the Fund can
maintain a net exposure to forward contracts in excess of the value of the
Fund's portfolio securities or other assets denominated in foreign currencies if
the excess amount is "covered" by liquid securities denominated in any currency.
The cover must be at least equal at all times to the amount of that excess. As
one alternative,

Selected Funds Statement of Additional Information 17

the Fund can purchase a call option permitting the Fund to purchase the amount
of foreign currency being hedged by a forward sale contract at a price no higher
than the forward contract price. As another alternative, the Fund can purchase a
put option permitting the Fund to sell the amount of foreign currency subject to
a forward purchase contract at a price as high as or higher than the forward
contact price.

The precise matching of the amounts under forward contracts and the value of the
securities involved generally will not be possible because the future value of
securities denominated in foreign currencies will change as a consequence of
market movements between the date the forward contract is entered into and the
date it is sold. In some cases the Adviser might decide to sell the security and
deliver foreign currency to settle the original purchase obligation. If the
market value of the security is less than the amount of foreign currency that
the Fund is obligated to deliver, the Fund might have to purchase additional
foreign currency on the "spot" (that is, cash) market to settle the security
trade. If the market value of the security instead exceeds the amount of foreign
currency the Fund is obligated to deliver to settle the trade, the Fund might
have to sell on the spot market some of the foreign currency received on the
sale of the security. There will be additional transaction costs on the spot
market in those cases.

The projection of short-term currency market movements is extremely difficult,
and the successful execution of a short-term hedging strategy is highly
uncertain. Forward contracts involve the risk that anticipated currency
movements would not be accurately predicted, causing the Fund to sustain losses
on these contracts and to pay additional transactions costs. The use of forward
contracts in this manner might reduce the Fund's performance if there are
unanticipated changes in currency prices to a greater degree than if the Fund
had not entered into such contracts.

At or before the maturity of a forward contract requiring the Fund to sell a
currency, the Fund might sell a portfolio security and use the sale proceeds to
make delivery of the currency. In the alternative, the Fund might retain the
security and offset its contractual obligation to deliver the currency by
purchasing a second contract. Under that contract the Fund will obtain, on the
same maturity date, the same amount of the currency that it is obligated to
deliver. Similarly, the Fund might close out a forward contract requiring it to
purchase a specified currency by entering into a second contract entitling it to
sell the same amount of the same currency on the maturity date of the first
contract. The Fund would realize a gain or loss as a result of entering into
such an offsetting forward contract under either circumstance. The gain or loss
will depend on the extent to which the exchange rate or rates between the
currencies involved moved between the execution dates of the first and
offsetting contracts.

The cost to the Fund of engaging in forward contracts varies with factors such
as the currencies involved, the length of the contract period and the market
conditions then prevailing. Because forward contracts usually are entered into
on a principal basis, no brokerage fees or commissions are involved. Because
these contracts are not traded on an exchange, the Fund must evaluate the credit
and performance risk of the counterparty under each forward contract.

Although the Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. The Fund can convert foreign currency from time to time and will
incur costs in doing so. Foreign exchange dealers do not charge a fee for
conversion, but they do seek to realize a profit based on the difference between
the prices at which they buy and sell various currencies. Thus, a dealer might
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange if the Fund desires to resell that currency to the
dealer.

Index-Linked Notes. Principal and/or interest payments on these notes depend on
the performance of an underlying index. Currency-indexed securities are another
derivative the Fund can use. Typically these are short-term or intermediate-term
debt securities. Their value at maturity or the rates at which they pay income
are determined by the change in value of the U.S. dollar against one or more
foreign currencies or an index. In some cases, these securities may pay an
amount at maturity based on a multiple of the amount of the relative currency
movements. This type of index security offers the potential for increased income
or principal payments but at a greater risk of loss than a typical debt security
of the same maturity and credit quality.

Selected Funds Statement of Additional Information 18

Debt Exchangeable for Common Stock of an Issuer or "Equity-Linked Debt
Securities" of an Issuer. At maturity, the debt security is exchanged for common
stock of the issuer or it is payable in an amount based on the price of the
issuer's common stock at the time of maturity. Both alternatives present a risk
that the amount payable at maturity will be less than the principal amount of
the debt because the price of the issuer's common stock might not be as high as
the Adviser expected.

Interest Rate Swap Transactions. The Fund can enter into interest rate swap
agreements. In an interest rate swap, the Fund and another party exchange their
right to receive or their obligation to pay interest on a security. For example,
they might swap the right to receive floating rate payments for fixed rate
payments. The Fund can enter into swaps only on securities that it owns. Also,
the Fund will identify liquid assets on its books (such as cash or U.S.
government securities) to cover any amounts it could owe under swaps that exceed
the amounts it is entitled to receive, and it will adjust that amount daily as
needed.

Swap agreements entail both interest rate risk and credit risk. There is a risk
that based on movements of interest rates in the future; the payments made by
the Fund under a swap agreement will be greater than the payments it received.
Credit risk arises from the possibility that the counterparty will default. If
the counterparty defaults, the Fund's loss will consist of the net amount of
contractual interest payments that the Fund has not yet received. The Adviser
will monitor the creditworthiness of counterparties to the Fund's interest rate
swap transactions on an ongoing basis.

The Fund can enter into swap transactions with certain counterparties pursuant
to master netting agreements. A master netting agreement provides that all swaps
done between the Fund and that counterparty shall be regarded as parts of an
integral agreement. If amounts are payable on a particular date in the same
currency in respect of one or more swap transactions, the amount payable on that
date in that currency shall be the net amount. In addition, the master netting
agreement may provide that if one party defaults generally or on one swap, the
counterparty can terminate all of the swaps with that party. Under these
agreements, if a default results in a loss to one party, the measure of that
party's damages is calculated by reference to the average cost of a replacement
swap for each swap. It is measured by the mark-to-market value at the time of
the termination of each swap. The gains and losses on all swaps are then netted,
and the result is the counterparty's gain or loss on termination. The
termination of all swaps and the netting of gains and losses on termination
generally is referred to as "aggregation."

Hedging Foreign Currency. To attempt to reduce exposure to currency
fluctuations, the Fund may trade in forward foreign currency exchange contracts
(forward contracts), currency futures contracts and options thereon and
securities indexed to foreign securities. These techniques are not always
effective and their use may expose the Fund to other risks, such as liquidity
and counterparty risk. The Adviser exercises its professional judgment as to
whether the reduction in currency risk justifies the expense and exposure to
liquidity and counterparty risk. These techniques may be used to lock in an
exchange rate in connection with transactions in securities denominated or
traded in foreign currencies, to hedge the currency risk in foreign securities
held by the Fund and to hedge a currency risk involved in an anticipated
purchase of foreign securities. Cross-hedging also may be utilized; that is,
entering into a hedge transaction with respect to a foreign currency different
from the one in which a trade is to be made or in which a portfolio security is
principally traded. There is no limitation on the amount of assets that may be
committed to currency hedging. However, the currency hedging transactions may be
utilized as a tool to reduce currency fluctuation risks due to a current or
anticipated position in foreign securities. The successful use of currency
hedging transactions usually depends on the Adviser's ability to forecast
interest rate and currency exchange rate movements. Should interest or exchange
rates move in an unexpected manner, the anticipated benefits of futures
contracts, options or forward contracts may not be achieved or losses may be
realized and thus the Fund could be in a worse position than if such strategies
had not been used. Unlike many exchange-traded futures contracts, there are no
daily price fluctuation limits with respect to options on currencies and forward
contracts, and adverse market movements therefore could continue to an unlimited
extent over a period of time. In addition, the correlation between movements in
the prices of such instruments and movements in the prices of the securities and
currencies hedged or used for cover will not be perfect and could produce
unanticipated losses. Unanticipated changes in currency prices may result in
poorer overall performance for the Fund than if it had not entered into such
contracts. When taking a position in an anticipatory hedge (when the Fund
purchases a futures contract or other similar instrument to

Selected Funds Statement of Additional Information 19

gain market exposure in anticipation of purchasing the underlying securities at
a later date), the Fund is required to set aside cash or high-grade liquid
securities to fully secure the obligation.

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

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

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

The Fund also may purchase securities (debt securities or deposits) that have
their coupon rate or value at maturity determined by reference to the value of
one or more foreign currencies. These strategies will be used for hedging
purposes only. The Fund will hold securities or other options or futures
positions whose values are expected to offset its obligations under the hedge
strategies. The Fund will not enter into a currency hedging position that
exposes the Fund to an obligation to another party unless it follows its
segregated account procedures.

The Fund's ability to dispose of its positions in futures contracts, options and
forward contracts will depend on the availability of liquid markets in such
instruments. Markets in options and futures with respect to currencies are still
developing. It is impossible to predict the amount of trading interest that may
exist in various types of futures contracts, options and forward contracts. If a
secondary market does not exist with respect to an option purchased or written
by the Fund over-the-counter, it might not be possible to effect a

Selected Funds Statement of Additional Information 20

closing transaction in the option (i.e., dispose of the option) with the result
that: (i) an option purchased by the Fund would have to be exercised in order
for the Fund to realize any profit; and (ii) the Fund may not be able to sell
currencies covering an option written by the Fund until the option expires or it
delivers the underlying futures currency on exercise. Therefore, no assurance
can be given that the Fund will be able to utilize these instruments effectively
for the purposes set forth above. The Fund's ability to engage in currency
hedging transactions may be limited by tax considerations.

Risks of Hedging With Options and Futures. The use of hedging instruments
requires special skills and knowledge of investment techniques that are
different than what is required for normal portfolio management. If the Adviser
uses a hedging instrument at the wrong time or judges market conditions
incorrectly, hedging strategies may reduce the Fund's return. The Fund also
could experience losses if the prices of its futures and options positions were
not correlated with its other investments.

The Fund's option activities could affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Fund might cause the
Fund to sell related portfolio securities, thus increasing its turnover rate.
The exercise by the Fund of puts on securities will cause the sale of underlying
investments, increasing portfolio turnover. Although the decision whether to
exercise a put it holds is within the Fund's control, holding a put might cause
the Fund to sell the related investments for reasons that would not exist in the
absence of the put.

The Fund could pay a brokerage commission each time it buys a call or put, sells
a call or put, or buys or sells an underlying investment in connection with the
exercise of a call or put. Those commissions could be higher on a relative basis
than the commissions for direct purchases or sales of the underlying
investments. Premiums paid for options are small in relation to the market value
of the underlying investments. Consequently, put and call options offer large
amounts of leverage. The leverage offered by trading in options could result in
the Fund's net asset value being more sensitive to changes in the value of the
underlying investment.

If a covered call written by the Fund is exercised on an investment that has
increased in value, the Fund will be required to sell the investment at the call
price. It will not be able to realize any profit if the investment has increased
in value above the call price.

An option position may be closed out only on a market that provides secondary
trading for options of the same series, and there is no assurance that a liquid
secondary market will exist for any particular option. The Fund might experience
a loss if it could not close out a position because of an illiquid market for
the future or option.

There is a risk in using short hedging by selling futures or purchasing puts on
broad-based indices or futures to attempt to protect against declines in the
value of the Fund's portfolio securities. The risk is that the prices of the
futures or the applicable index will correlate imperfectly with the behavior of
the cash prices of the Fund's securities. For example, it is possible that while
the Fund has used hedging instruments in a short hedge, the market might advance
and the value of the securities held in the Fund's portfolio might decline. If
that occurred, the Fund would lose money on the hedging instruments and also
experience a decline in the value of its portfolio securities. However, while
this could occur for a very brief period or to a very small degree, over time
the value of a diversified portfolio of securities will tend to move in the same
direction as the indices on which the hedging instruments are based. The risk of
imperfect correlation increases as the composition of the Fund's portfolio
diverges from the securities included in the applicable index. To compensate for
the imperfect correlation of movements in the price of the portfolio securities
being hedged and movements in the price of the hedging instruments, the Fund
might use hedging instruments in a greater dollar amount than the dollar amount
of portfolio securities being hedged. It might do so if the historical
volatility of the prices of the portfolio securities being hedged is more than
the historical volatility of the applicable index.

The ordinary spreads between prices in the cash and futures markets are subject
to distortions, due to differences in the nature of those markets. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,

Selected Funds Statement of Additional Information 21

investors may close futures contracts through offsetting transactions that could
distort the normal relationship between the cash and futures markets. Second,
the liquidity of the futures market depends on participants entering into
offsetting transactions rather than making or taking delivery. To the extent
participants decide to make or take delivery, liquidity in the futures market
could be reduced, thus producing distortion. Third, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities markets. Therefore, increased
participation by speculators in the futures market may cause temporary price
distortions.

The Fund can use hedging instruments to establish a position in the securities
markets as a temporary substitute for the purchase of individual securities
(long hedging) by buying futures and/or calls on such futures, broad-based
indices or on securities. It is possible that when the Fund does so, the market
might decline. If the Fund then concludes not to invest in securities because of
concerns that the market might decline further or for other reasons, the Fund
will realize a loss on the hedging instruments that is not offset by a reduction
in the price of the securities purchased.

Regulatory Aspects of Hedging Instruments. When using futures and options on
futures, the Fund is required to operate within certain guidelines and
restrictions with respect to the use of futures as established by the
Commodities Futures Trading Commission (the "CFTC"). In particular, the Fund is
exempted from registration with the CFTC as a "commodity pool operator" if the
Fund complies with the requirements of Rule 4.5 adopted by the CFTC. The Rule
does not limit the percentage of the Fund's assets that may be used for futures
margin and related options premiums for a bona fide hedging position. However,
under the Rule, the Fund must limit its aggregate initial futures margin and
related options premiums to not more than 5% of the Fund's net assets for
hedging strategies that are not considered bona fide hedging strategies under
the Rule. Under the Rule, the Fund also must use short futures and options on
futures solely for bona fide hedging purposes within the meaning and intent of
the applicable provisions of the Commodity Exchange Act.

Transactions in options by the Fund are subject to limitations established by
the option exchanges. The exchanges limit the maximum number of options that may
be written or held by a single investor or group of investors acting in concert.
Those limits apply regardless of whether the options were written or purchased
on the same or different exchanges or are held in one or more accounts or
through one or more different exchanges or through one or more brokers. Thus,
the number of options that the Fund can write or hold may be affected by options
written or held by other entities, including other investment companies having
the same adviser as the Fund (or an adviser that is an affiliate of the Fund's
adviser). The exchanges also impose position limits on futures transactions. An
exchange may order the liquidation of positions found to be in violation of
those limits and may impose certain other sanctions.

Under the Investment Company Act, when the Fund purchases a future, it must
maintain cash or readily marketable short-term debt instruments in an amount
equal to the market value of the securities underlying the future, less the
margin deposit applicable to it.

Tax Aspects of Certain Hedging Instruments. Certain foreign currency exchange
contracts in which the Fund can invest are treated as "Section 1256 contracts"
under the Internal Revenue Code. In general, gains or losses relating to Section
1256 contracts are characterized as 60% long-term and 40% short-term capital
gains or losses under the Code. However, foreign currency gains or losses
arising from Section 1256 contracts that are forward contracts generally are
treated as ordinary income or loss. In addition, Section 1256 contracts held by
the Fund at the end of each taxable year are "marked-to-market," and unrealized
gains or losses are treated as though they were realized. These contracts also
may be marked-to-market for purposes of determining the excise tax applicable to
investment company distributions and for other purposes under rules prescribed
pursuant to the Internal Revenue Code. An election can be made by the Fund to
exempt those transactions from this marked-to-market treatment.

Certain forward contracts the Fund enters into may result in "straddles" for
federal income tax purposes. The straddle rules may affect the character and
timing of gains (or losses) recognized by the Fund on straddle positions.
Generally, a loss sustained on the disposition of a position making up a
straddle is allowed only to the extent that the loss exceeds any unrecognized
gain in the offsetting positions making up

Selected Funds Statement of Additional Information 22

the straddle. A previously disallowed loss generally is allowed at the point
when there is no unrecognized gain in the offsetting positions making up the
straddle or the offsetting position is disposed of.

Under the Internal Revenue Code, the following gains or losses are treated as
ordinary income or loss: (1) gains or losses attributable to fluctuations in
exchange rates that occur between the time the Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities, and (2) gains or losses attributable to fluctuations in the value
of a foreign currency between the date of acquisition of a debt security
denominated in a foreign currency or foreign currency forward contracts and the
date of disposition.

Currency gains and losses are offset against market gains and losses on each
trade before determining a net "Section 988" gain or loss under the Internal
Revenue Code for that trade, which may increase or decrease the amount of the
Fund's investment income available for distribution to its shareholders.

PORTFOLIO TRANSACTIONS

The Adviser is responsible for the placement of portfolio transactions, subject
to the supervision of the Board of Directors. Following is a summary of the
Adviser's trading policies, which are, described in Part II of its Form ADV. The
Adviser is a discretionary investment adviser. Accordingly, the Adviser
determines the securities and quantities to be bought and sold for each client's
account.

BEST EXECUTION. The Adviser follows procedures intended to provide reasonable
assurance of best execution. However, there can be no assurance that best
execution will in fact be achieved in any given transaction. Best execution can
only be verified after the fact. The Adviser seeks to place portfolio
transactions with brokers or dealers who will execute transactions as
efficiently as possible and at the most favorable net price. In placing
executions and paying brokerage commissions or dealer markups, the Adviser
considers, among other factors, price, commission, timing, aggregated trades,
capable floor brokers or traders, competent block trading coverage, ability to
position, capital strength and stability, reliable and accurate communication
and settlement processing, use of automation, knowledge of other buyers or
sellers, arbitrage skills, administrative ability, underwriting and provision of
information on the particular security or market in which the transaction is to
occur, research, the range and quality of the services made available to
clients, and the payment of bona fide client expenses. To the extent that
Clients direct brokerage, the Adviser cannot be responsible for achieving best
execution. The applicability of specific criteria will vary depending on the
nature of the transaction, the market in which it is executed and the extent to
which it is possible to select from among multiple broker-dealers.

CROSS TRADES. When the Adviser deems it to be advantageous, one fund may
purchase securities directly from another fund, which is also managed by the
Adviser. This may happen due to a variety of circumstances, including situations
when one fund must purchase securities due to holding excess cash and, at the
same time, a different fund must sell securities in order to increase its cash
position. Cross trades are only executed when deemed beneficial to both funds.
The Adviser has adopted written procedures to ensure fairness to both funds.

INVESTMENT ALLOCATIONS. The Adviser considers many factors when allocating
securities among clients, including but not limited to the client's investment
style, applicable restrictions, availability of securities, available cash and
other current holdings. The Adviser employs several portfolio managers, each of
whom performs independent research and develops different levels of conviction
concerning potential investments. Clients managed by the portfolio manager
performing the research may receive priority allocations of limited investment
opportunities that are in short supply, including initial public offerings
("IPOs").

Clients are not assured of participating equally or at all in particular
investment allocations. The nature of a client's investment style may exclude it
from participating in many investment opportunities, even if the client is not
strictly precluded from participation based on written investment restrictions.
For example: (i) large cap equity clients are unlikely to participate in initial
public offerings of small-capitalization

Selected Funds Statement of Additional Information 23

companies; (ii) the Adviser is likely to allocate short-term trading
opportunities to clients pursuing active trading strategies rather than clients
pursing long-term buy-and-hold strategies; and (iii) private accounts generally
do not participate in purchases of foreign securities.

The Adviser attempts to allocate limited investment opportunities, including
IPOs, among clients in a manner that is fair and equitable when viewed over a
considerable period of time and involving many allocations. When the Adviser is
limited in the amount of a particular security it can purchase, due to a limited
supply, limited liquidity, or other reason, the Adviser may allocate the limited
investment opportunity to a subset of eligible clients. The Adviser would then
allocate the next limited investment opportunity to a different subset of
eligible clients, rotating among subsets as limited investment opportunities are
identified.

The Adviser serves as investment adviser for a number of clients and may deal
with conflicts of interest when allocating investment opportunities among its
various clients. For example: (i) the Adviser receives different advisory fees
from different clients; (ii) the performance records of some clients are more
public than the performance records of other clients; and (iii) the Adviser and
its affiliates, owners, officers and employees have invested substantial amounts
of their own capital in some client accounts (notably the Davis Funds and
Selected Funds), but do not invest their own capital in every client's account.
The majority of the Adviser's clients pursue specific investment strategies,
many of which are similar. The Adviser expects that, over long periods of time,
most clients pursuing similar investment strategies should experience similar,
but not identical, investment performance. Many factors affect investment
performance, including but not limited to: (i) the timing of cash deposits and
withdrawals to and from an account; (ii) the fact that the Adviser may not
purchase or sell a given security on behalf of all clients pursuing similar
strategies; (iii) price and timing differences when buying or selling
securities; and (iv) the clients' own investment restrictions. The Adviser's
trading policies are designed to minimize possible conflicts of interest in
trading for its clients.

ORDER PRIORITY. The Adviser's trading desk prioritizes incoming orders of
similar purchases and sales of securities between institutional and managed
accounts/wrap orders. The Adviser's trading desk typically executes orders for
institutional clients, including investment companies, institutional private
accounts, sub-advised accounts and others. Managed account/wrap program sponsors
typically execute orders for managed account/wrap clients. The Adviser's trading
desk attempts to coordinate the timing of orders to prevent the Adviser from
"bidding against itself" on such orders.

PATTERN ACCOUNTS. The Adviser serves as investment adviser for a number of
clients, which are patterned after model portfolios or designated mutual funds
managed by the Adviser. For example, a client pursuing Davis Large Cap Value
investment strategy may be patterned after Selected American Shares. The client
portfolio would be expected to own many, but not all, of the same portfolio
securities as Selected American Shares. Selected American Shares usually owns
more securities positions than the Adviser's typical Large Cap Value client. New
portfolio holdings are not usually added to a client account pursuing a Large
Cap Value strategy until the Adviser makes it a significant holding in Selected
American Shares. The Adviser may not purchase or sell a given security on behalf
of all clients (even clients managed in a similar style), and it may not execute
a purchase of securities or a sale of securities for all participating clients
at the same time.

The Adviser generally attempts to aggregate trades for accounts that are
purchasing or selling the same security at approximately the same time. However,
at times the Adviser executes trades for patterned client accounts after the
trade has been executed for the designated mutual fund or the model portfolio
that the client account is patterned after. Since most of the Adviser's
transactions are in large capitalization exchange-traded equities, the Adviser
believes that this does not usually impact the long-term performance of these
clients.

Orders for accounts which are not patterned after model portfolios or designated
mutual funds are generally executed in the order received by the trading desk,
with the following exceptions: (i) the execution of orders for clients that have
directed that particular brokers be used may be delayed until the orders which
do not direct a particular broker have been filled; (ii) the execution of orders
may be delayed when the

Selected Funds Statement of Additional Information 24

client (or responsible portfolio manager) requests such delay due to market
conditions in the security to be purchased or sold; and (iii) the execution of
orders which are to be bunched or aggregated.

AGGREGATED TRADES. The Adviser frequently follows the practice of aggregating
orders of various institutional clients for execution, if the Adviser believes
that this will result in the best net price and most favorable execution. In
some instances, aggregating trades could adversely affect a given client.
However, the Adviser believes that aggregating trades generally benefits clients
because larger orders tend to have lower execution costs, and the Adviser
clients do not compete with one another trading in the market. Directed
brokerage trades in a particular security are typically executed separately
from, and possibly after, the Adviser's other client trades.

In general, all the Adviser clients (excluding clients who are directing
brokerage and managed money/wrap accounts) seeking to purchase or sell a given
security at approximately the same time will be aggregated into a single order.
When that order is filled, all participating clients receive the price at which
the order was executed. If, at a later time, the participating clients wish to
purchase or sell additional shares of the same security, or if additional
clients seek to purchase or sell the same security, then the Adviser will issue
a new order and the clients participating in the new order will receive the
price at which the new order was executed.

In the event that an aggregated order is not entirely filled, the Adviser will
allocate the purchases or sales among participating clients in the manner it
considers to be most equitable and consistent with its fiduciary obligations to
all such clients. Generally, partially-filled orders are allocated pro rata
based on the initial order submitted by each participating client.

In accordance with the various managed account/wrap programs in which the
Adviser participates, the Adviser typically directs all trading to the
applicable program sponsor unless, in the Adviser's reasonable discretion, doing
so would adversely affect the client. Clients typically pay no commissions on
trades executed through program sponsors. In the event that an order to the
sponsor of a managed account/wrap program is not entirely filled, the Adviser
will allocate the purchases or sales among the clients of that sponsor in the
manner it considers to be most equitable and consistent with its fiduciary
obligations to all such clients. Generally, partially-filled orders are
allocated among the particular sponsor's participating clients on a random basis
that is anticipated to be equitable over time.

RESEARCH PAID FOR WITH COMMISSIONS, "SOFT DOLLARS". The Adviser does not use
client commissions, "soft dollars", to pay for (i) computer hardware or
software, or other electronic communications facilities; (ii) publications, both
paper based or electronic that are available to the general public; and (iii)
third-party research services. If the Adviser determines to purchase such
services, it pays for them using its own resources.

The Adviser's portfolio managers may take into account the research resources,
as well as the execution capacity, of a brokerage firm in selecting brokers.
Thus, transactions may be directed to a brokerage firm which provides: (i)
important information concerning a company; (ii) introductions to key company
officers; (iii) industry and company conferences; and (iv) other value added
research services.

The Adviser follows the concepts of Section 28(e) of the Securities Exchange Act
of 1934. Subject to the criteria of Section 28(e), the Adviser may pay a broker
a brokerage commission in excess of that which another broker might have charged
for effecting the same transactions, in recognition of the value of the
brokerage and research services provided by or through the broker. The Adviser
believes it is important to its investment decision-making to have access to
independent research.

EXCEPTIONS. There are occasions when the Adviser varies the trading procedures
and considerations described above. The Adviser exercises its best judgment in
determining whether clients should execute portfolio transactions simultaneously
with, prior to, or subsequent to the model portfolio or designated mutual fund
that they are patterned after. The factors that the Adviser considers in
exercising its judgment include, but are not limited to, the need for
confidentiality of the purchase or sale, market liquidity of the securities in
issue, the particular events or circumstances that prompt the purchase or sale
of the securities,

Selected Funds Statement of Additional Information 25

and operational efficiencies. Even when transactions are executed on the same
day, clients may not receive the same prices as the model portfolios or
designated mutual funds they are patterned after. If the transactions are not
aggregated, such prices may be better or worse.

Portfolio Turnover. Because the equity Funds' portfolios are managed using the
Davis Investment Discipline, portfolio turnover is expected to be low. The Funds
anticipate that, during normal market conditions, their annual portfolio
turnover rate will be less than 100%. However, depending upon market conditions,
portfolio turnover rate will vary. At times it could be high, which could
require the payment of larger amounts in brokerage commissions and possibly more
taxable distributions.

When the Adviser deems it to be appropriate, a Fund may engage in active and
frequent trading to achieve its investment objective. Active trading may include
participation in initial public offerings. Active trading may result in the
realization and distribution to shareholders of higher capital gains compared
with a fund with less active trading strategies, which would increase
shareholder tax liability. Frequent trading also increases transaction costs,
which could detract from the Fund's performance.

Portfolio Commissions

The Funds paid the following brokerage commissions:

2004 2003 2002
---------- ---------- ----------
SELECTED AMERICAN SHARES
Brokerage Commissions Paid $1,358,929 $1,143,805 $2,713,146
Amount Paid to Brokers Providing
Portfolio Research 1% 8% 7%
Amount Paid to Brokers Providing
Services to the Funds 18% 21% 29%

SELECTED SPECIAL SHARES
Brokerage Commissions Paid $ 102,065 $ 125,557 $ 134,355
Amount Paid to Brokers Providing
Portfolio Research 1% 12% 2%
Amount Paid to Brokers Providing
Services to the Funds N/A N/A N/A

In 2003 the Adviser reimbursed Selected American Shares and Selected Special
Shares for commissions paid to certain broker-dealers, which received brokerage,
which was directed for sale of fund shares from January 1, 2000 to July 31,
2003. The amount paid to the Funds was: Selected American Shares $119,713 and
Selected Special Shares $255.

Investments in Certain Broker-Dealers. As of December 31, 2004, the Funds owned
the following securities (excluding repurchase agreements) issued by any of the
10 broker-dealers with whom it transacted the most business during the fiscal
year ended December 31, 2004:

Selected Funds Statement of Additional Information 26

FUND $ VALUE
------------------------ ------------
SELECTED AMERICAN SHARES
Morgan Stanley $ 57,733,249
Citigroup Inc. $226,647,826

SELECTED SPECIAL SHARES
None

INVESTMENT RESTRICTIONS

The Funds follow investment strategies developed in accordance with the
investment objective, policies and restrictions described in their prospectus
and this Statement of Additional Information.

The Funds have adopted the fundamental investment policies set forth below,
which may not be changed without a shareholder vote. Where necessary, an
explanation beneath a fundamental policy describes the Funds' practices with
respect to that policy, as allowed by current law. If the law governing a policy
changes, the Funds' practices may change accordingly without a shareholder vote.

The fundamental investment restrictions set forth below may not be changed
without the approval of the holders of the lesser of: (i) 67% of the eligible
votes, if the holders of more than 50% of the eligible votes are represented; or
(ii) more than 50% of the eligible votes.

Except for the fundamental investment policies regarding illiquid securities and
borrowing, all percentage restrictions apply as of the time of an investment
without regard to any later fluctuations in the value of portfolio securities or
other assets. All references to the assets of a Fund are in terms of current
market value.

(1) DIVERSIFICATION. The Fund may not make any investment that is inconsistent
with its classification as a diversified investment company under the 1940
Act.

Further Explanation of Diversification Policy. To remain classified as a
diversified investment company under the 1940 Act, the Fund must conform with
the following: With respect to 75% of its total assets, a diversified investment
company may not invest more than 5% of its total assets, determined at market or
other fair value at the time of purchase, in the securities of any one issuer,
or invest in more than 10% of the outstanding voting securities of any one
issuer, determined at the time of purchase. These limitations do not apply to
investments in securities issued or guaranteed by the United States ("U.S.")
government or its agencies or instrumentalities.

(2) CONCENTRATION. The Fund may not concentrate its investments in the
securities of issuers primarily engaged in any particular industry.

Further Explanation of Concentration Policy. The Fund may not invest 25% or more
of its total assets, taken at market value, in the securities of issuers
primarily engaged in any particular industry (other than securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities). The
Fund generally uses BLP Equity Economic Sectors ("BLP Code") as published by
Bloomberg L.P. to determine industry classification. The Adviser may reclassify
a company if it believes that the BLP Code on a specific company does not
accurately describe the company.

(3) ISSUING SENIOR SECURITIES. The Fund may not issue senior securities, except
as permitted under applicable law, including the 1940 Act and published SEC
staff positions.

Further Explanation of Issuing Senior Securities. The Fund may not issue senior
securities, except as provided by the 1940 Act and any rules, regulations,
orders or letters issued thereunder. This limitation

Selected Funds Statement of Additional Information 27

does not apply to selling short against the box. The 1940 Act defines a "Senior
Security" as any bond, debenture, note or similar obligation constituting a
security and evidencing indebtedness.

(4) BORROWING. The Fund may not borrow money, except to the extent permitted by
applicable law; including the 1940 Act and published SEC staff positions.

Further Explanation of Borrowing Policy. The Fund may borrow from banks provided
that, immediately thereafter the Fund has 300% asset coverage for all
borrowings. The Fund may purchase additional securities so long as borrowings do
not exceed 5% of its total assets. The Fund may obtain such short-term credit as
may be necessary for the clearance of purchases and sales of portfolio
securities. In the event that market fluctuations cause borrowing to exceed the
limits stated above, the Adviser would act to remedy the situation as promptly
as possible (normally within three business days), although it is not required
to dispose of portfolio holdings immediately if the Fund would suffer losses as
a result.

(5) UNDERWRITING. The Fund may not underwrite securities of other issuers
except to the extent permitted by applicable law, including the 1940 Act
and published SEC staff positions.

Further Explanation of Underwriting Policy. The Fund may not underwrite
securities of other issuers, except insofar as the Fund may be deemed to be an
underwriter in connection with the disposition of its portfolio securities.

(6) INVESTMENTS IN COMMODITIES AND REAL ESTATE. The Fund may not purchase or
sell commodities or real estate, except to the extent permitted by
applicable law, including the 1940 Act and published SEC staff positions.

Further Explanation of Policy Restricting Investments in Commodities and Real
Estate. The Fund may purchase or sell financial futures contracts, options on
financial futures contracts, currency contracts and options on currency
contracts as described in its prospectus and Statement of Additional
Information. The Fund may not purchase or sell real estate, except that the Fund
may invest in securities that are directly or indirectly secured by real estate
or issued by issuers that invest in real estate.

(7) MAKING LOANS. The Fund may not make loans to other persons, except as
allowed by applicable law; including the 1940 Act and published SEC staff
positions.

Further Explanation of Lending Policy. The acquisition of investment securities
or other investment instruments, entering into repurchase agreements, leaving
cash on deposit with the Fund's custodian, and similar actions are not deemed to
be the making of a loan.

To generate income and offset expenses, the Fund may lend portfolio securities
to broker-dealers and other financial institutions that the Adviser believes to
be creditworthy in an amount up to 33 1/3% of its total assets, taken at market
value. While securities are on loan, the borrower will pay the Fund any income
accruing on the security. The Fund may invest any collateral it receives in
additional portfolio securities, such as U.S. Treasury notes, certificates of
deposit, other high-grade, short-term obligations or interest-bearing cash
equivalents. The Fund is still subject to gains or losses due to changes in the
market value of securities that it has lent.

When the Fund lends its securities, it will require the borrower to give the
Fund collateral in cash or government securities. The Fund will require
collateral in an amount equal to at least 100% of the current market value of
the securities lent, including accrued interest. The Fund has the right to call
a loan and obtain the securities lent any time on notice of not more than five
business days. The Fund may pay reasonable fees in connection with such loans.

(8) INVESTMENT OBJECTIVES. Selected American Shares investment objective is to
achieve both capital growth and income. Selected Special Shares' investment
objective is capital growth. Selected Daily Government Fund's investment
objective is to provide as high a level of current income as possible

Selected Funds Statement of Additional Information 28

from the type of short-term investments in which it invests, consistent
with prudent investment management, stability of principal and maintenance
of liquidity.

NON-FUNDAMENTAL RESTRICTIONS

In addition to the foregoing restrictions, the Funds each have adopted the
following non-fundamental policies that may be changed without shareholder
approval:

1. Illiquid Securities. The Fund may not purchase illiquid securities if more
than 15% of the value of the Fund's net assets would be invested in such
securities. Selected Daily Government Fund may not purchase illiquid
securities if more than 10% of the value of the Fund's net assets would be
invested in such securities.

2. High-Yield, High-Risk Securities. The Fund will not purchase debt
securities rated BB or Ba or lower if the securities are in default at the
time of purchase or if such purchase would then cause more than 35% of the
Fund's net assets to be invested in such lower-rated securities.

3. Options. The Fund will not purchase an option if the purchase would cause
the total premiums (at market) of all options then owned to exceed 5% of
the Fund's total assets. The Fund will not sell covered calls if the
transaction would cause the total premiums (at market) of all covered calls
then written to exceed 25% of the Fund's total assets. For additional
information concerning option strategies and their risks, see the section
entitled "Derivatives."

4. Futures Contracts. The Fund will not engage in a futures transaction if the
transaction would cause the nominal value of futures contracts then
purchased or sold to exceed 25% of the Fund's total assets.

5. Borrowing. The Fund will not borrow in excess of 35% of net assets. The
Board of Directors will be notified in the event borrowings exceed 10% of
the Fund's total assets.

6. Short Selling. The Fund will not sell any security short if it would cause
more than 5% of its total assets, taken at market value, to be sold short.
This limitation does not apply to selling short against the box.

7. Investing For Control. The Fund does not invest for the purpose of
exercising control or management of other companies.

8. Name Policy (All Funds Except Selected Special Shares). Under normal
circumstances Selected American Shares will invest at least 80% of net
assets plus any borrowing for investment purposes in securities issued by
American companies. Selected American Shares will comply with the Name
Policy as of the time an investment is made. In the event that market
fluctuations or shareholder actions cause the Fund's investments to fall
below the Name policy limits, the Fund would act to remedy the situation as
promptly as possible, normally within three business days. The Fund will
not be required to dispose of portfolio holdings or purchase additional
investments immediately if the Adviser believes such action would subject
the Fund to losses or unreasonable risks of loss.

Under normal circumstances Selected Daily Government Fund invests exclusively in
U.S. Government Securities and repurchase agreements collateralized by U.S.
Government Securities. The Fund also owns other assets that are not investments,
such as cash and receivables.

The Funds comply with the Name Policy under normal circumstances. However, each
Fund may depart from the Name Policy from time to time. For example, a Fund may
depart from the Name Policy in response to unusually large cash inflows or
redemptions, or to avoid losses in response to adverse market, economic,
political, or other conditions.

Selected American Shares and Selected Daily Government Fund will provide the
Fund's shareholders with at least 60 days' prior notice before changing their
Name Policy such that they would invest, under normal

Selected Funds Statement of Additional Information 29

circumstances less than 80% of their net assets plus any borrowing for
investment purposes in American companies or U.S. Government Securities and
repurchase agreements collateralized with U.S. Government Securities,
respectively.

SECTION II: KEY PERSONS

This Statement of Additional Information should be read in conjunction with the
prospectus. This Statement of Additional Information supplements the information
available in the prospectus.

ORGANIZATION OF THE FUNDS

THE FUNDS. Each Selected Fund is an open-end, diversified management investment
company registered under the 1940 Act. Selected American Shares, Inc., organized
in 1933, and Selected Special Shares, Inc., organized in 1939; is a Maryland
corporations, which issue common stock. Selected Daily Government Fund is a
series of Selected Capital Preservation Trust. The Trust was organized as a
business trust under the laws of Ohio in 1987 and issues shares of beneficial
interest. Each of these legal entities are series investment companies, which
may issue multiple series, each of which would represent an interest in its
separate portfolio. The Board of Directors may increase the number of Selected
Funds in the future and may, at any time, discontinue offering shares of any
Fund to the public.

FUND SHARES. Each Fund may issue shares in different classes. The Fund's shares
currently are divided into two classes of shares: S and D. The Board of
Directors may offer additional series or classes in the future and may at any
time discontinue the offering of any series or class of shares. Each share, when
issued and paid for in accordance with the terms of the offering, is fully paid
and non-assessable. Shares have no preemptive or subscriptions rights and are
freely transferable. Each of the Funds' shares represent an interest in the
assets of the series issuing the share and have identical voting, dividend,
liquidation and other rights and the same terms and conditions as any other
shares except that: (i) the expenses related to a particular class, such as
those related to the distribution of each class and the transfer agency expenses
of each class are borne solely by each such class; (ii) each class of shares
votes separately with respect to provisions of the Rule 12b-1 Distribution Plan
that pertain to a particular class; and (iii) other matters for which separate
class voting is appropriate under applicable law. Each fractional share has the
same rights, in proportion, as a full share. Due to the differing expenses of
the classes, dividends are likely to be lower for Class S shares than for Class
D shares.

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

In accordance with applicable law (Maryland law for Selected American Shares and
Selected Special Shares, Ohio law for Selected Capital Preservation Trust) and
the Funds' bylaws, the Funds do not hold regular annual shareholder meetings.
Shareholder meetings are held when they are required under the 1940 Act or when
otherwise called for special purposes. Special shareholder meetings may be
called for Selected American Shares or Selected Special Shares on the written
request of shareholders of at least 25% of the outstanding vote that could be
cast at the meeting. Special shareholder meetings may be called for Selected
Capital Preservation Trust on the written request of shareholders of at least
10% of the outstanding vote that could be cast at the meeting. The Funds will
provide assistance in calling and holding such special meeting, in accordance
with State law and SEC rules and regulations then in effect.

Selected Funds Statement of Additional Information 30

DIRECTORS AND OFFICERS

Each of the directors and officers holds identical offices with each of the
Selected Funds (three registrants, a total of three separate series): Selected
American Shares, Inc., Selected Special Shares, Inc., and Selected Capital
Preservation Trust (offering Selected Daily Government Fund). As indicated
below, certain directors and officers also may hold similar positions with Davis
New York Venture Fund, Inc., Davis Series, Inc., and Davis Variable Account
Fund, Inc. (collectively the "Davis Funds"), mutual funds that are managed by
the Adviser.

The Board of Directors supervises the business and management of the Selected
Funds. The Board approves all significant agreements between the Selected Funds
and those companies that furnish services to the Selected Funds. The names and
addresses of the directors and officers are set forth below, together with their
principal business affiliations and occupations for the last five years.

DIRECTORS

For the purposes of their service as directors to the Selected Funds, the
business address for each of the directors is 2949 E. Elvira Road, Suite 101,
Tucson, Arizona 85706. Each Director serves until retirement, resignation, death
or removal. Directors must retire from the Board of Directors and cease being a
Director at the close of business on the last day of the calendar year in which
the Director attains age 75.

NO. OF
PORTFOLIOS
IN FUND
POSITION(S) TERM OF OFFICE AND COMPLEX
NAME HELD WITH LENGTH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY
(birthdate) FUND SERVED DURING PAST FIVE YEARS DIRECTOR
------------------------ ----------- ------------------- ------------------------------ -----------

INDEPENDENT DIRECTORS:

WILLIAM P. BARR Director Director since 1994 Executive Vice President and 3
(5/23/50) General Counsel, Verizon
(formerly GTE Corporation
before it merged with Bell
Atlantic) 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.

OTHER DIRECTORSHIPS CURRENTLY SERVING: None

Selected Funds Statement of Additional Information 31

FLOYD A. BROWN Director Director since 1975 Retired staff announcer and 3
(11/5/30) retired December program host for WGN Radio and
2006. Television, Chicago, Illinois;
sole proprietor of The Floyd
Brown Co., Elgin, Illinois
(advertising, media production
and mass media marketing).

OTHER DIRECTORSHIPS CURRENTLY SERVED: None

JEROME E. HASS Director Director since 1997 Professor of Finance and 3
(6/1/40) Business Strategy, Johnson
Graduate School of Management,
Cornell University;
Consultant, National Economic
Research Associates; former
Chief of Division of Economic
Research of the Federal Power
Commission and Special
Assistant to James R.
Schlesinger at the Executive
Office of the President of the
United States.

OTHER DIRECTORSHIPS CURRENTLY SERVING: None

KATHERINE L. MACWILLIAMS Director Director since 1997 Chief Financial Officer, Coors 3
(1/19/56) Brewers Limited, former Vice
President, International
Finance, Coors Brewing
Company; former Vice President
& Treasurer, Coors Brewing
Company and Adolph Coors
Company; former Vice President
of Capital Markets for UBS
Securities in New York; former
member of the Board of
International Swaps and
Derivatives Association, Inc.

OTHER DIRECTORSHIPS CURRENTLY SERVING: None

Selected Funds Statement of Additional Information 32

JAMES J. MCMONAGLE Director/ Director since 1990 Chairman of the Selected Funds 3
(10/1/44) Chairman Board of Directors; Of Counsel
to Vorys, Sater, Seymour and
Pease LLP (law firm); Formerly
Senior Vice President and
General Counsel of University
Hospitals Health System, Inc.
and University Hospitals of
Cleveland from 1990 to 2002;
Judge of the Court of Common
Pleas, Cuyahoga County, Ohio,
from 1976 to 1990.

OTHER DIRECTORSHIPS CURRENTLY SERVING: None

RICHARD O'BRIEN Director Director since 1996 Retired Corporate Economist 3
(9/12/45) for Hewlett-Packard Company;
former Chairman of the
Economic Advisory Council of
the California Chamber of
Commerce.

OTHER DIRECTORSHIPS CURRENTLY SERVING: Director and past President, Silicon
Valley Roundtable; Director, Family Services Agency of San Francisco.

MARSHA WILLIAMS Director Director since 1996 Chief Financial Officer of 14
(3/28/51) Equity Office Properties Trust
(a real estate investment
trust); former Chief
Administrative Officer of
Crate & Barrel (home
furnishings retailer); former
Vice President and Treasurer,
Amoco Corporation (oil & gas
company).

OTHER DIRECTORSHIPS CURRENTLY SERVING: Director of the Davis Funds (consisting of 12 portfolios);
Director, Modine Manufacturing, Inc: (heat transfer technology). Director, Chicago Bridge &
Iron Company, N.V (industrial construction and engineering).

INSIDE DIRECTORS:*

Selected Funds Statement of Additional Information 33

ANDREW A. DAVIS Director Director since 1998 President or Vice President of 14
(6/25/63) each Selected Fund and Davis
Fund; President, Davis
Selected Advisers, L.P., and
also serves as an executive
officer in certain companies
affiliated with the Adviser.

OTHER DIRECTORSHIPS CURRENTLY SERVED: Director of the Davis Funds (consisting of 12 portfolios).

CHRISTOPHER C. DAVIS Director Director since 1998 Chief Executive Officer, 14
(7/13/65) President or Vice President of
each Selected Fund and Davis
Fund; Chairman and Chief
Executive Officer, Davis
Selected Advisers, L.P., and
also serves as an executive
officer in certain companies
affiliated with the Adviser,
including sole member of the
Adviser's general partner,
Davis Investments, LLC;
Employee of Shelby Cullom
Davis & Co., a registered
broker/dealer.

OTHER DIRECTORSHIPS CURRENTLY SERVED: Director of the Davis Funds (consisting of 12 portfolios).

* Andrew A. Davis and Christopher C. Davis own partnership units (directly,
indirectly or both) of the Adviser and are considered to be "interested
persons" of the Funds as defined in the Investment Company Act of 1940.
Andrew A. Davis and Christopher C. Davis are brothers.

Selected Funds Statement of Additional Information 34

INDEPENDENT DIRECTORS' COMPENSATION

During the fiscal year ended December 31, 2004, the compensation paid to the
Directors who are not considered to be interested persons of the Funds was as
follows:

SELECTED SELECTED AGGREGATE SELECTED
AMERICAN SPECIAL SELECTED DAILY FUND TOTAL COMPLEX
NAME SHARES SHARES GOVERNMENT FUND COMPENSATION (1) COMPENSATION(2)
--------------------- -------- -------- --------------- ------------------ ---------------

William Barr 46,398 720 820 47,945 47,945
Floyd Brown(3) 50,577 785 893 52,263 52,263
Jerome Hass 47,912 746 847 49,513 49,513
Katherine MacWilliams 53,274 828 940 55,050 55,050
James McMonagle 92,414 1,437 1,634 95,500 95,500
Richard O'Brien 50,577 785 893 52,263 52,263
Marsha Williams 42,229 654 747 43,638 126,238

(1) "Aggregate Fund compensation" is the aggregate compensation paid for
service as a director by each of the Selected Funds, i.e., Selected
American Shares, Selected Special Shares, and Selected Daily Government
Fund. Aggregate compensation for 2004 also includes payments for Selected
U.S. Government Income Fund, which was liquidated on March 16, 2004.

(2) "Total complex compensation" is the aggregate compensation paid for service
as a director by all mutual funds with the same investment adviser. There
are six registered investment companies in the complex.

(3) Floyd Brown retired December 31, 2005.

OFFICERS

All Selected Funds officers (including some Inside Directors) hold positions as
executive officers with the Adviser and its affiliates, including Davis Selected
Advisers, L.P. (the Adviser), Davis Selected Advisers - NY, Inc. (a
sub-adviser), Davis Distributors, LLC (the principal underwriter), Davis
Investments, LLC (the sole general partner of the Adviser), and other affiliated
companies. The Selected Funds do not pay salaries to any of their officers. Each
of the Selected Funds' officers serves for one year and until his or her
successor is chosen and qualifies.

CHRISTOPHER C. DAVIS (BORN 7/13/65, SELECTED FUNDS OFFICER SINCE 1998). See
description in the section on Inside Directors.

ANDREW A. DAVIS (BORN 6/25/63, SELECTED FUNDS OFFICER SINCE 1998). See
description in the section on Inside Directors.

KENNETH C. EICH (BORN 8/14/53, SELECTED FUNDS OFFICER SINCE 1997). Executive
Vice President and Principal Executive Officer of each of the Davis Funds
(consisting of 12 portfolios) and Selected Funds (consisting of three
portfolios); Chief Operating Officer, Davis Selected Advisers, L.P.; and also
serves as an executive officer in certain companies affiliated with the Adviser.

DOUGLAS A. HAINES, CPA, (BORN 3/4/71, SELECTED FUNDS OFFICER SINCE 2004). Vice
President, Treasurer, Chief Financial Officer, Principal Financial Officer, and
Principal Accounting Officer of each of the Davis Funds (consisting of 12
portfolios) and Selected Funds (consisting of three portfolios). Mr. Haines has
been employed by the Adviser since 1995.

Selected Funds Statement of Additional Information 35

SHARRA L. REED (BORN 9/25/66, SELECTED FUNDS OFFICER SINCE 1998). Vice
President, Chief Compliance Officer of the Davis Funds (consisting of 12
portfolios) and Selected Funds (consisting of three portfolios); Vice President
Davis Selected Advisers, L.P.; and also serves as an executive officer in
certain companies affiliated with the Adviser.

THOMAS D. TAYS, CPA, CFA (BORN 3/7/57, SELECTED FUNDS OFFICER SINCE 1998). Vice
President and Secretary of each of the Davis Funds (consisting of 12 portfolios)
and Selected Funds (consisting of three portfolios); Vice President, Chief Legal
Officer and Secretary, Davis Selected Advisers, L.P.; and also serves as an
executive officer in certain companies affiliated with the Adviser.

ARTHUR DON (BORN 9/24/53, SELECTED FUNDS OFFICER SINCE 1991). Assistant
Secretary (for clerical purposes only) of each of the Davis Funds and Selected
Funds; Partner, Seyfarth Shaw, LLP (a law firm); counsel to the Independent
Directors and the Davis Funds.

STANDING COMMITTEES OF THE BOARD OF DIRECTORS

EXECUTIVE COMMITTEE. The Selected Funds have an Executive Committee, which is
comprised entirely of Independent Directors (James McMonagle, Chair, William
Barr, and Marsha Williams). The Executive Committee may exercise all of the
authority of the Board of Directors in management of the Selected Funds, subject
to limitations imposed by the 1940 Act. The Executive Committee meets as often
as deemed appropriate by the Executive Committee. The Executive Committee did
not meet during calendar year 2004.

AUDIT COMMITTEE. The Selected Funds have an Audit Committee, which is comprised
entirely of Independent Directors (Katherine MacWilliams, Chairperson; William
Barr, Jerome Hass, Richard O'Brien, and James McMonagle). The Fiduciary and
Audit Committee reviews financial statements and other audit-related matters for
the Selected Funds. The Fiduciary and Audit Committee also holds discussions
with management and with the Independent Accountants concerning the scope of the
audit and the Auditor's independence. The Fiduciary and Audit Committee meets as
often as deemed appropriate by the Committee. The Fiduciary and Audit Committee
met four times during calendar year 2004.

The Board of Directors has determined that Katherine MacWilliams is an
independent Audit Committee Financial Expert pursuant to Section 407 of the
Sarbanes-Oxley Act and as defined by Item 3 of Form N-CSR of the Investment
Company Act of 1940. In their deliberations, the Board of Directors considered
Ms. MacWilliams' (1) professional experience (ii) independence as defined in
Item 3 of Form N-CSR, and (iii) integrity and absence of disciplinary history.

NOMINATING & GOVERNANCE COMMITTEE. The Selected Funds have a Nominating &
Governance Committee, which is comprised entirely of Independent Directors
(William Barr, Chair; Katherine MacWilliams, and James McMonagle), which meets
as often as deemed appropriate by the Nominating & Governance Committee. The
Funds do not elect directors annually. Each Director serves until retirement,
resignation, death or removal. Directors must retire from the Board of Directors
and cease being a Director at the close of business on the last day of the
calendar year in which the Director attains age 75. The Nominating & Governance
Committee did not meet during calendar year 2004.

The Nominating & Governance Committee reviews and nominates persons to serve as
members of the Board of Directors, reviews and makes recommendations concerning
the compensation of the Independent Directors. The Nominating & Governance
Committee does not have a charter. When the Board of Directors is seeking a
candidate to become a Director, qualified candidates will be men or women of
proven character and talent who have achieved notable success in their
professional careers. The specific talents, which the Nominating & Governance
Committee seeks in a candidate, depends upon the board of directors' needs at
the time a vacancy occurs. When the Board of Directors is seeking a candidate to
become a Director, it considers qualified candidates received from a variety of
sources, including the having authority to retain third parties that may receive
compensation related to identifying and evaluating candidates.

Selected Funds Statement of Additional Information 36

Shareholders may propose nominees by writing to the Nominating Committee, in
care of Thomas Tays, secretary of the Selected Funds, 2949 East Elvira, Suite
101, Tucson, Arizona 85706.

The Nominating & Governance Committee oversees corporate governance functions,
including (1) review compliance with fund governance standards and other
government-related rules under the 1940 Act, (2) review the committee structure
and make recommendations on changes in committees and committee powers, (3)
generally review "best practices" for fund governance and adherence by the Funds
with such practices.

INVESTMENT COMMITTEE. The Selected Funds have an Investment Committee (Richard
O'Brien, Independent Chair, Andrew Davis (inside director), Christopher Davis
(inside director), Jerome Hass (Independent Director), and James McMonagle
(independent Director)). The Investment Committee reviews the Selected Fund's
investment performance, and investment strategies, both on an absolute basis and
relative to each Fund's peer group. The Investment Committee meets as often as
deemed appropriate by the Committee. The Investment Committee met four times
during calendar year 2004.

PRICING COMMITTEE. The Selected Funds have a Pricing Committee (Marsha Williams
(Independent Chair), James McMonagle (independent Director) Kenneth Eich (an
officer of the Funds), and Douglas Haines(an officer of the Funds)) that meets
as often as deemed appropriate by the Pricing Committee. The Pricing Committee
met more than 25 times during calendar year 2004. The Pricing Committee reviews
and makes recommendations concerning pricing of the Fund's portfolio securities,
including the Selected Fund's procedures under Rule 2a-7 of the 1940 Act that
are designed to ensure that money market funds maintain a net asset value of
$1.00 per share.

DIRECTORS' FUND HOLDINGS

As of December 31, 2004, the Directors had invested the following amounts in all
Funds managed by the Adviser. Investments are listed in the following ranges:
none, $1-10,000, $10,001-50,000, $50,001-100,000 and over $100,000:

SELECTED AMERICAN SELECTED SPECIAL SELECTED DAILY TOTAL INVESTED
SHARES SHARES GOVERNMENT FUND IN ALL FUNDS*
----------------- ---------------- --------------- --------------

INDEPENDENT DIRECTORS
William Barr over $100,000 None None over $100,000
Floyd Brown1 over $100,000 $50,001-100,000 $10,001-50,000 over $100,000
Jerome Hass over $100,000 $50,001-100,000 over $100,000 over $100,000
Katherine MacWilliams over $100,000 $10,001-50,000 $10,001-50,000 over $100,000
James McMonagle over $100,000 over $100,000 over $100,000 over $100,000
Richard O'Brien over $100,000 $10,001-50,000 None over $100,000
Marsha Williams over $100,000 over $100,000 $10,001-50,000 over $100,000
INSIDE DIRECTORS
Andrew Davis** $10,001-50,000 $1-10,000 None over $100,000
Christopher Davis** over $100,000 None None over $100,000

* Total Invested in All Funds is the aggregate dollar range of investments in
all Funds overseen by the individual director and managed by Davis Selected
Advisers, L.P. This includes the Selected Funds for all directors and also
includes the Davis Funds for Andrew Davis, Christopher Davis and Marsha
Williams.

** Andrew Davis and Christopher Davis are employed by the Adviser and are
considered to be "interested persons" of the Funds as defined in the
Investment Company Act of 1940.

(1) Floyd Brown retired December 31, 2005.

Selected Funds Statement of Additional Information 37

The Directors consider ownership of the Selected Funds by Directors to be of
utmost importance, and believe that such ownership enhances the commitment of
the Directors to the Selected Funds' future and aligns the Directors' interests
with those of Funds' shareholders. Therefore, the Directors adopted minimum
director stock ownership guidelines. These guidelines require that each Director
shall beneficially own and maintain ownership of shares of the Selected Funds
with an aggregate value, measured as of December 31, of each year, of at least
three times their respective annual retainer (not including any meeting fees or
non-recurring compensation) for such year. Inside Directors do not receive
directors fees, but maintain stock ownership positions in the Selected Funds of
at least three times the base annual retainer for an Independent Director.

INDEPENDENT DIRECTORS' AFFILIATIONS AND TRANSACTIONS

None of the Independent Directors (or their immediate family members) owns any
securities issued by the Selected Funds' investment adviser, sub-adviser,
principal underwriter or any company (other than a registered investment
company) directly or indirectly controlling, controlled by or under common
control with the above listed companies (hereafter referred to as the "Adviser
and its affiliates"). Andrew A. Davis and Christopher C. Davis own partnership
units (directly, indirectly, or both) in the Adviser and are considered Inside
Directors.

None of the Independent Directors (or their immediate family members) have had
any direct or indirect interest, the value of which exceeds $60,000, during the
last two calendar years in the Adviser and its affiliates.

None of the Independent Directors (or their immediate family members) have had
any material interest in any transaction, or series of transactions, during the
last two years, in which the amount involved exceeds $60,000 and to which any of
the following persons was a party: any Selected Fund, an officer of the Selected
Funds, or any fund managed by the Adviser, or the Adviser and its affiliates.

None of the Independent Directors (or their immediate family members) have had
any direct or indirect relationships during the last two years, in which the
amount involved exceeds $60,000 and to which any of the following persons was a
party: any Selected Fund, an officer of the Selected Funds, or any fund managed
by the Adviser, or the Adviser and its affiliates.

None of the officers of the Adviser and its affiliates have served during the
last two years on the board of directors of a company where an Independent
Director (or their immediate family members) served as an officer.

CERTAIN SHAREHOLDERS OF THE FUNDS

As of March 31, 2005, officers and directors owned the following percentages of
each of the Funds:

Percentage of
Outstanding Shares Owned
------------------------
Class S Class D
------- -------
Selected American Shares * *
Selected Special Shares * 2%
Selected Daily Government Fund * *

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

The following table sets forth as of March 31, 2005, the name and holdings of
each person known by the Funds to be a record owner of more than 5% of the
outstanding shares of any of the Funds. Other than as indicated below, the Funds
are not aware of any shareholder who beneficially owns more than 25% of the
Funds' total outstanding shares. Selected Funds:

Selected Funds Statement of Additional Information 38

PERCENT OF
SHARES
NAME OF FUND NAME AND ADDRESS OUTSTANDING
------------------------------ ----------------------------- -----------
SELECTED AMERICAN SHARES Charles Schwab and Co. Inc. 28.18%
CLASS S SHARES San Francisco, CA

FBSICO 24.64%
New York, NY

Shelby Cullom Davis & Co. 17.62%
New York, NY

SELECTED AMERICAN SHARES Charles Schwab 25.56%
CLASS D SHARES San Francisco, CA

FBSICO 5.55%
New York, NY

National Investor Services 5.12%
New York, NY

SELECTED SPECIAL SHARES Shelby Cullom Davis & Co. 22.05%
CLASS S SHARES New York, NY

Charles Schwab and Co. Inc. 12.76%
San Francisco, CA

National Financial Service 10.88%
New York, NY

SELECTED SPECIAL Charles Schwab 5.34%
CLASS D SHARES San Francisco, CA

Selected Funds Statement of Additional Information 39

PERCENT OF
SHARES
NAME OF FUND NAME AND ADDRESS OUTSTANDING
------------------------------ ----------------------------- -----------
SELECTED DAILY GOVERNMENT FUND Shelby Cullom Davis & Co. 87.53%
CLASS S SHARES New York, NY

SELECTED DAILY GOVERNMENT FUND
CLASS D SHARES

Tamar Rita Frolichstein-Appel 7.08%
Evanston, IL

State Street Bank & Trust Co. 6.63%
IRA R/O FBO, Regan
Ventura, CA

Sally M. Knox 5.31%
Sally Moot Knox Trust
Dallas, TX

State Street Bank & Trust Co. 5.24%
IRA A/C Alfred M. Palfi
Michiana Shores, IN

INVESTMENT ADVISORY SERVICES

DAVIS SELECTED ADVISERS, L.P. AND DAVIS SELECTED ADVISERS-NY, INC. Davis
Selected Advisers, L.P. (the "Adviser"), whose principal office is at 2949 East
Elvira Road, Suite 101, Tucson, Arizona 85706, serves as investment adviser for
Davis New York Venture Fund, Inc., Davis Series, Inc., Davis Variable Account
Fund, Inc. (collectively the "Davis Funds"), Selected American Shares, Inc.,
Selected Special Shares, Inc., and Selected Capital Preservation Trust
(collectively the "Selected Funds"). The Adviser also provides advisory or
sub-advisory services to other parties including other registered investment
companies, private accounts, offshore funds, and managed money/wrap accounts.
Davis Investments, LLC, an entity controlled by Christopher C. Davis is the
Adviser's sole general partner. Christopher C. Davis is Chief Executive Officer
of the Adviser and, as the sole member of the general partner, controls the
Adviser. Davis Distributors, LLC (the "Distributor"), a subsidiary of the
Adviser, serves as the distributor or principal underwriter of the funds that
the Adviser administers, including Davis Funds, Selected Funds, and offshore
funds. Davis Selected Advisers - NY, Inc. ("Sub-Adviser") a wholly owned
subsidiary of the Adviser, performs investment management, research and other
services for the Selected Funds on behalf of the Adviser under sub-advisory
agreements with the Adviser.

ADVISORY AGREEMENT WITH DAVIS SELECTED ADVISERS, L.P. AND SUB-ADVISORY AGREEMENT
WITH DAVIS SELECTED ADVISERS-NY, INC. Pursuant to Advisory Agreements, each
Selected Fund pays the Adviser a fee according to the following fee schedule.

Selected Funds Statement of Additional Information 40

Selected American Shares Adviser Fee Schedule

Assets Cum. Assets
(millions) (millions) Fee*
---------- ------------ -----
$ 500 $ 500 0.65%
$ 500 $ 1,000 0.60%
$2,000 $ 3,000 0.55%
$1,000 $ 4,000 0.54%
$1,000 $ 5,000 0.53%
$1,000 $ 6,000 0.52%
$1,000 $ 7,000 0.51%
$3,000 $ 10,000 0.50%
Excess Over $10,000 0.485%

*fee expressed as a percentage of average net assets.

Selected Special Shares Adviser Fee Schedule

Assets Cum. Assets
(millions) (millions) Fee*
---------- ----------- -----
$ 50 $ 50 0.70%
$100 $150 0.675%
$100 $250 0.65%
Excess $250 0.60%

*fee expressed as a percentage of average net assets.

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

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

FISCAL YEAR ENDED DECEMBER 31,
---------------------------------------
NAME 2004 2003 2002
------------------------------ ----------- ----------- -----------
SELECTED AMERICAN SHARES $36,126,515 $27,228,113 $27,266,379
SELECTED SPECIAL SHARES $ 690,416 $ 506,345 $ 463,622
SELECTED DAILY GOVERNMENT FUND $ 336,876 $ 344,997 $ 339,547

The Adviser agreed to temporarily reduce the advisory fee for Selected Special
Shares from June 1, 2001 through December 31, 2002. The reduction in advisory
fee amounted to $47,474.

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

Selected Funds Statement of Additional Information 41

party. The Advisory Agreement also makes provisions for portfolio transactions
and brokerage policies of the Fund, which are discussed above under "Portfolio
Transactions."

The Adviser has entered into a Sub-Advisory Agreement with its wholly owned
subsidiary, Davis Selected Advisers - NY, Inc., where the Sub-Adviser performs
research and other services on behalf of the Adviser. Under the Agreement, the
Adviser pays all of the Sub-Adviser's direct and indirect costs of operation.
All of the fees paid to the Sub-Adviser are paid by the Adviser and not the
Funds.

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

Such reimbursements are detailed below:

FISCAL YEAR ENDED DECEMBER 31,
------------------------------
NAME 2004 2003 2002
------------------------------ -------- -------- --------
SELECTED AMERICAN SHARES $192,876 $176,828 $194,432
SELECTED SPECIAL SHARES $ 11,435 $ 10,974 $ 12,203
SELECTED DAILY GOVERNMENT FUND $ 3,504 $ 3,842 $ 4,408

APPROVAL OF THE ADVISORY AND SUB-ADVISORY AGREEMENTS. The Board of Directors is
scheduled to meet four times a year. The Directors, including the Independent
Directors, believe that matters bearing on the Advisory and Sub-Advisory
Agreements are considered at most, if not all, of their meetings. The
Independent Directors are advised by independent legal counsel selected by the
Independent Directors. A discussion of the Directors considerations is included
in the June 2005 semi-annual report.

UNIQUE NATURE OF EACH FUND. The Adviser may serve as the investment adviser or
sub-adviser to other funds that have investment objectives and principal
investment strategies similar to those of the Selected Funds. While the Selected
Funds may have many similarities to these other funds, the investment
performance of each fund will be different due to a number of differences
between the funds, including differences in sales charges, expense ratios and
cash flows.

CODE OF ETHICS. The Adviser, Sub-Adviser, Distributor and the Selected Funds
have adopted a Code of Ethics meeting the requirements of Rule 17j-1 that
regulate the personal securities transactions of the Adviser's investment
personnel, other employees and affiliates with access to information regarding
securities transactions of the Selected Funds. Such employees may invest in
securities, including securities that may be purchased or held by the Selected
Funds. A copy of the Code of Ethics is on public file with, and available from,
the Securities and Exchange Commission.

CONTINUING REGULATION. Davis Advisors, like most other asset managers, is
subject to ongoing inquiries from the SEC and/or NASD regarding industry
practices.

LITIGATION. In June 2004, a proposed class action lawsuit was filed in the
United States District Court for the Southern District of New York on behalf of
investors in certain mutual funds ("Funds") managed by Davis Selected Advisers
L.P. ("Davis Advisors") including the Davis Funds. The plaintiffs claim that
Davis Advisors and its affiliates, and the individual directors of the Funds
(collectively the "Defendants") used Fund assets to pay brokers to market the
Funds and that the Defendants disguised such payments as brokerage commissions
and further failed to disclose such payments in public filings or elsewhere. The
lawsuit seeks damages of unspecified amounts. Three substantially identical
proposed class action lawsuits

Selected Funds Statement of Additional Information 42

were filed against the Defendants later in June and July 2004 in the United
States District Court for the Southern District of New York. All four suits were
consolidated into a single action. In October 2005 the District Court issued an
order dismissing the consolidated amended class action complaint. The plaintiffs
subsequently sought a motion for reconsideration which was denied in November
2005. In December 2005 the plaintiffs filed an appeal with the United States
Court of Appeals for the Second Circuit. Davis Advisors believes the actions are
without merit and the Defendants intend to vigorously defend the proceedings.
Although no determination can be made at this time, the Funds do not expect this
lawsuit to have a material adverse effect on the assets or results of the Funds.

PROXY VOTING POLICIES. The Board has directed the Adviser to vote the Fund's
portfolio securities in conformance with the Adviser's Proxy Voting Policies and
Procedures. These procedures are summarized in Appendix B.

PORTFOLIO MANAGERS

SELECTED AMERICAN SHARES

The Portfolio Managers of Selected American Shares are Christopher Davis and
Kenneth Feinberg. They are the persons primarily responsible for investing the
Fund's assets on a daily basis.

Other Accounts Managed As of December 31, 2004 Christopher Davis served as
portfolio manager for: (i) 23 registered investment companies with approximately
$42 billion in total net assets; (ii) 6 other pooled investment vehicles with
approximately $717 million in total net assets; and (iii) approximately 30
thousand other accounts (primarily managed money/wrap accounts) with
approximately $7.3 billion in total net assets.

As of December 31, 2004 Kenneth Feinberg served as portfolio manager for (i) 21
registered investment companies with approximately $42 billion in total net
assets; (ii) 6 other pooled investment vehicles with approximately $717 million
in total net assets; and (iii) approximately 30 thousand other accounts
(primarily managed money/wrap accounts) with approximately $7.3 billion in total
net assets.

Structure of Compensation

Kenneth Feinberg's compensation for servicess provided to the Adviser consists
of (i) a base salary; (ii) an annual bonus equal to a percentage of growth in
the Adviser's profits; (iii) awards of equity ("Units") in the Adviser including
Units, options on Units, and/or phantom Units; and (iv) an incentive plan
whereby the Adviser purchases shares in selected funds managed by the Adviser.
At the end of specified periods, generally five-years following the date of
purchase, some, all, or none of the fund shares will be registered in the
employee's name based on fund performance after expenses on a pre-tax basis,
versus the S&P 500 Index, and versus peer groups as defined by Morningstar or
Lipper. The Adviser's portfolio managers are provided benefits packages
including life insurance, health insurance, and participation in the company
401(k) plan comparable to that received by other company employees.

Christopher Davis' compensation for services provided to the Adviser consists of
a base salary. The Adviser's portfolio managers are provided benefits packages
including life insurance, health insurance, and participation in company 401(k)
plan comparable to that received by other company employees.

Ownership of Fund Shares

As of December 31, 2004, the Portfolio Managers of Selected American Shares had
invested the following amounts in the Fund:

$1 $10K $50K $100K $500K
TO TO TO TO TO OVER
SELECTED AMERICAN SHARES NONE $10K $50K $100K $500K $1 MILL $1 MILL
------------------------ ---- ---- ---- ----- ----- ------- -------
C. DAVIS X

Selected Funds Statement of Additional Information 43

K. FEINBERG X

SELECTED SPECIAL SHARES

The Portfolio Managers of Selected Special Shares are Christopher Davis (who
serves as research adviser), Kenneth Feinberg, Chip Tucker, CFA, Danton Goei,
Jae Chung, Tania Poushine, and Dwight Blazin. They are the persons primarily
responsible for investing the Fund's assets on a daily basis.

Other Accounts Managed as of December 31, 2004

Christopher Davis and Kenneth Feinberg

See description above for Selected American Shares.

Chip Tucker, CFA, Danton Goei, Jae Chung, and Tania Poushine

Served as portfolio managers for (i) four registered investment companies with
approximately $602 million in total net assets; (ii) one other pooled investment
vehicles with approximately $21 million in total net assets; and (iii)
approximately 330 other accounts with approximately $42 million in total net
assets.

Dwight Blazin

Served as portfolio manager for (i) two registered investment companies with
approximately $571 million in total net assets; (ii) one other pooled investment
vehicles with approximately $21 million in total net assets; and (iii)
approximately 330 other accounts with approximately $42 million in total net
assets.

Selected Funds Statement of Additional Information 44

Structure of Compensation

Christopher Davis and Kenneth Feinberg

See description above for Selected American Shares.

Chip Tucker,CFA, Danton Goei, Jae Chung, Tania Poushine, and Dwight Blazin
Compensation for services provided to the Adviser consists of (i) a base salary;
(ii) an annual discretionary bonus; (iii) awards of equity ("Units") in the
Adviser including options on Units, and/or phantom Units; and (iv) an incentive
plan whereby the Adviser purchases shares in selected funds managed by the
Adviser. At the end of specified periods, generally five-years following the
date of purchase, some, all, or none of the fund shares will be registered in
the employee's name based on fund performance after expenses on a pre-tax basis,
versus an appropriate index, and versus peer groups as defined by Morningstar or
Lipper. The Adviser's portfolio managers are provided benefits packages
including life insurance, health insurance, and participation in the company
401(k) plan comparable to that received by other company employees.

Ownership of Fund Shares

As of December 31, 2004, the Portfolio Managers of Selected Special Shares had
invested the following amounts in the Fund.

$1 $10K $50K $100K $500K
TO TO TO TO TO OVER
SELECTED SPECIAL SHARES NONE $10K $50K $100K $500K $1 MILL $1 MILL
----------------------- ---- ---- ---- ----- ----- ------- -------
C. DAVIS X
K. FEINBERG X
C. TUCKER X
D. GOEI X
J. CHUNG X
T. POUSHINE X
D. BLAZIN X

SELECTED DAILY GOVERNMENT FUND

The Portfolio Manager of Selected Daily Government Fund is Creston King, CFA.
Mr. King is the person primarily responsible for investing the Fund's assets on
a daily basis.

Other Accounts Managed as of December 31, 2004

Served as portfolio manager for (i) three registered investment companies (two
of which are money market funds) with approximately $791 million in total net
assets; (ii) no other pooled investment vehicles; and (iii) no other accounts.
In addition, Mr. King managed the cash positions of other registered investment
companies and pooled investment vehicles managed or sub-advised by the Adviser.

Structure of Compensation

Mr. King's compensation for services provided to the Adviser consists of (i) a
base salary; (ii) an annual bonus based principally upon short- and long-term
fund performance relative to similar funds; and (iii) awards of equity ("Units")
in the Adviser including options on Units, and/or phantom Units.

Ownership of Fund Shares

As of December 31, 2004, the Portfolio Manager of Selected Daily Government Fund
had invested the following amounts in the Fund.

$1 $10K $50K $100K $500K
TO TO TO TO TO OVER
SELECTED DAILY GOVERNMENT FUND NONE $10K $50K $100K $500K $1 MILL $1 MILL
------------------------------ ---- ---- ---- ----- ----- ------- -------
C. KING X

Selected Funds Statement of Additional Information 45

POTENTIAL CONFLICTS OF INTEREST. Actual or apparent conflicts of interest may
arise when a portfolio manager has day-to-day management responsibilities with
respect to more than one portfolio or other account. More specifically,
portfolio managers who manage multiple portfolios and /or other accounts are
presented with the following potential conflicts:

The management of multiple portfolios and/or other accounts may result in a
portfolio manager devoting unequal time and attention to the management of each
portfolio and/or other account. The Adviser seeks to manage such competing
interests for the time and attention of portfolio managers by having portfolio
managers focus on a particular investment discipline. Most other accounts
managed by a portfolio manager are managed using the same investment models that
are used in connection with the management of the portfolios.

If a portfolio manager identifies a limited investment opportunity which may be
suitable for more than one portfolio or other account, a portfolio may not be
able to take full advantage of that opportunity due to an allocation of filled
purchase or sale orders across all eligible portfolios and other accounts. To
deal with these situations, the Adviser has adopted procedures for allocating
portfolio transactions across multiple accounts.

With respect to securities transactions for the portfolios, the Adviser
determines which broker to use to execute each order, consistent with its duty
to seek best execution of the transaction. However, with respect to certain
other accounts (such as mutual funds, other pooled investment vehicles that are
not registered mutual funds, and other accounts managed for organizations and
individuals), the Adviser may be limited by the client with respect to the
selection of brokers or may be instructed to direct trades through a particular
broker. In these cases, the Adviser may place separate, non-simultaneous,
transactions for a portfolio and another account which may temporarily affect
the market price of the security or the execution of the transaction, or both,
to the detriment of the portfolio or the other account.

Finally, substantial investment of the Adviser or Davis Family assets in certain
mutual funds may lead to conflicts of interest. To mitigate these potential
conflicts of interest, the Adviser has adopted policies and procedures intended
to ensure that all clients are treated fairly overtime. The Adviser does not
receive an incentive based fee on any account.

DISCLOSURE OF PORTFOLIO HOLDINGS

PORTFOLIO HOLDINGS INFORMATION IS PROTECTED. Selected Funds' portfolio holdings
are proprietary information, which the Adviser is committed to protecting.
Selected Funds have adopted procedures reasonably designed to ensure that
portfolio holdings are not released on a selective basis except to qualified
persons rendering services to the Funds, which require that they receive
information concerning portfolio holdings. Neither the Funds, nor the Adviser
receive compensation with respect to the disclosure of portfolio holdings.

HOW PORTFOLIO HOLDINGS INFORMATION IS RELEASED. Selected Funds may disclose
portfolio holdings to outside persons in a number of situations, including the
following: (1) disclosure to a broker-dealer of one or more securities in
connection with the purchase or sale by a Fund of such securities; (2) requests
for price quotations on individual securities from a broker-dealer for the
purpose of calculating the Fund's net asset value; (3) requests for bids on one
or more securities; (4) disclosures in connection with litigation involving Fund
portfolio securities; (5)disclosure to regulatory authorities; (6) Selected
Funds' portfolio managers may from time to time make statements to the press
about a Fund's portfolio and the securities subject to these statements may or
may not have been previously disclosed; and (7) employees of the Adviser may
attend due diligence meetings with existing or potential investors in which
specific Fund holdings are discussed and other information which the employee
reasonably believes cannot be used in a manner which would be harmful to the
Funds; and the Adviser may provide a wide variety of information about Selected
Funds (other than portfolio holdings) to existing and potential investors and
intermediaries working on behalf of such investors. Such information may not be
available from publicly available information and may consist of statistical and
analytical information concerning the portfolio as a whole and how it has
performed, without naming specific portfolio securities.

Selected Funds Statement of Additional Information 46

Selected Funds' portfolio holdings procedures prohibit release of information
concerning portfolio holdings which have not previously been made public to
individual investors, institutional investors, intermediaries which distribute
the Funds' shares and other parties which are not employed by the Adviser or its
affiliates. Portfolio holdings may be reviewed by third parties for legitimate
business purposes, but only if: (1) the Chief Operating Officer, or his
designee, currently the Funds' Chief Compliance Officer, considers the
application for review and, in his or her business judgment, the requesting
third party (i) has a legitimate business purpose for reviewing the portfolio
holdings; and (ii) does not pose a material risk to the client(s) whose
portfolios will be reviewed; and (2) the third party enters into an acceptable
Confidentiality Agreement (including a duty not to trade). Selected Funds' Board
of Directors are notified of the addition of new third parties at the next
scheduled quarterly meeting of the Board of Directors. The Directors review the
addition of new third parties, considering whether or not the release of
information to the third parties is in the best interest of the Funds and
shareholders.

PUBLIC DISCLOSURE OF PORTFOLIO HOLDINGS. Information about portfolio holdings
which has previously been made public may be freely shared. Information about
portfolio holdings may become "public" by (1) publication on the Selected Funds'
website; (2) filing with the SEC on Form N-CSR or Form N-Q (only quarterly
filings, not voluntary filings); or (3) other publication determined by the
Adviser's Chief Legal Officer or his designee, in writing stating his rational,
to be public.

Selected Funds generally publish their portfolio holdings at the end of each
fiscal quarters with a 60-day lag. Selected Funds' Executive Vice President, or
his designee, currently the Funds' Chief Compliance Officer, may authorize
publication portfolio holdings on a more frequent basis. Portfolio holdings will
then be published on the Selected Funds' website.

THIRD PARTIES RECEIVING PORTFOLIO HOLDINGS INFORMATION. As of December 1, 2004,
each of the below listed third party service providers have been approved to
receive information concerning Selected Funds' portfolio holdings: (1) KPMG LLP,
Independent Registered Public Accounting Firm; (2) Glass Lewis, Proxy Voting;
(3) UBS, Securities Lending; (4) Wilshire Associates, Attribution Reports; and
(5) State Street Bank and Trust, Custodian.

ADMINISTRATION. The Fund's Chief Compliance Officer oversees the release of
portfolio holdings information, including authorizing the release of portfolio
holdings.

DISTRIBUTION OF FUND SHARES

DISTRIBUTION PLANS. Each of the Selected Funds' Class S shares use distribution
plans to pay asset-based sales charges or distribution and/or services fees of
0.25% of average daily net assets in connection with the distribution of shares,
including payments to financial intermediaries for providing distribution
assistance. Financial intermediaries that receive these fees may pay some or all
of them to their investment professionals. Because these fees are paid out of
Class S assets on an on-going basis, over time these fees will increase the cost
of an investment and may cost more than other types of sales and marketing
charges.

The Distribution Plans were approved by the Board of Directors of each Selected
Fund in accordance with Rule 12b-1 under the 1940 Act. Rule 12b-1 regulates the
manner in which a mutual fund may assume costs of distributing and promoting the
sale of its shares. Payments pursuant to a Distribution Plan are included in the
operating expenses of the Class.

Class D shares have not adopted distribution plans.

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

Selected Funds Statement of Additional Information 47

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

THE DISTRIBUTOR. Davis Distributors, LLC ("the Distributor"), 2949 East Elvira
Road, Suite 101, Tucson, Arizona 85706, is a wholly owned subsidiary of the
Adviser and pursuant to a Distributing Agreement acts as principal underwriter
of the Funds' shares on a continuing basis. By the terms of the Distributing
Agreement, the Distributor pays for all expenses in connection with the
preparation, printing and distribution of advertising and sales literature for
use in offering the Funds' shares to the public, including reports to
shareholders to the extent they are used as sales literature. The Distributor
also pays for the preparation and printing of prospectuses other than those
forwarded to existing shareholders. The continuance and assignment provisions of
the Distributing Agreement are the same as those of the Advisory Agreement.

The Distributor has agreements with securities dealers and other persons (such
as financial planners) for distributing shares of the Funds and/or providing
services to shareholders. The Distributor may pay such firms' service fees for
accounts for which representatives of the dealers are responsible and provide
services. The sources for these payments include the distribution fees paid by
Class S shares and the Distributor or Adviser may also use their own resources.

Selected Funds have marketed Class S shares through financial intermediaries,
primarily fee-only financial planners and mutual fund supermarkets. Both
financial planners and mutual fund supermarkets require a fee for their
services. Class S shares pay financial planners a service fee at an annual rate
of 25 basis points on assets their clients have invested in Class S shares. In
addition, Class S shares pay a service fee at an annual rate of 55 basis points
to approximately 15 financial planners who were "grandfathered in" as of May 1,
2000. Mutual fund supermarkets currently require 30 to 40 basis points for
marketing and shareholder services.

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

The Distributor received the following amounts as compensation under the
Distribution Plans:

FISCAL YEAR ENDED DECEMBER 31,
---------------------------------------
NAME 2004 2003 2002
------------------------------ ----------- ----------- -----------
SELECTED AMERICAN SHARES $15,768,451 $12,166,768 $12,185,899
SELECTED SPECIAL SHARES $ 229,881 $ 182,906 $ 167,082
SELECTED DAILY GOVERNMENT FUND $ 274,547 $ 287,497 $ 282,956

* All amounts are for Class S shares. Class D shares have not adopted
distribution plans.

OTHER COMPENSATION PAID TO DEALERS AND OTHER FINANCIAL INTERMEDIARIES

The Distributor for the Selected Funds, Davis Distributors, LLC (the
"Distributor"), makes substantial payments to qualifying dealers and other
financial intermediaries who sell Selected Funds' shares. Qualifying dealers may
receive: (i) distribution and service fees from the Funds' 12b-1 distribution
plans; (ii) shareholder servicing fees from the Funds for servicing investors
who hold Selected Funds shares through dealer-controlled omnibus accounts; and
(iii) other compensation, described below, paid by the Distributor from its own
resources, which may include management fees paid to the Advisor by the Selected
Funds and other clients.

Selected Funds Statement of Additional Information 48

Other compensation paid by the Distributor from its own resources may include
(i) marketing support payments including business planning assistance, educating
personnel about the Selected Funds, and shareholder financial planning needs,
placement on the dealer's list of offered funds, and access to sales meetings,
sales representatives and management representatives of the dealer; and (ii)
financial assistance paid to dealers that enable the Distributor to participate
in and/or present at conferences or seminars, sales or training programs for
invited registered representatives and other employees, client and investor
events and other dealer-sponsored events. A number of factors are considered in
determining payments, including the dealer's sales and assets, and the quality
of the dealer's relationship with the Distributor.

The Distributor routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Selected Funds and
are afforded the opportunity to speak with portfolio managers. Invitation to
these meetings is not conditioned on selling a specific number of shares. Those
who have shown an interest in Selected Funds, however, are more likely to be
considered. To the extent permitted by their firm's policies and procedures,
registered representatives' expenses in attending these meetings may be covered
by the Distributor.

The Distributor may offer other compensation to the extent not prohibited by
state or federal laws, the Securities and Exchange Commission, or any
self-regulatory agency, such as the NASD. Investors should consult their
financial intermediary regarding the details of the payments they may receive in
connection with the sale of Selected Fund shares.

The Adviser and the Distributor, in their sole discretion, from time to time,
may use their own resources (at no direct cost to the Funds) to make payments to
brokers, dealers or other financial institutions for distribution and
administrative services they perform. The Adviser may use its profits from the
advisory fee it receives from the Fund. In their sole discretion, the
Distributor and the Adviser may increase or decrease the amount of payments they
make from their own resources to plan recipients.

In 2004 the Adviser and Distributor made payments from their own resources to
the following firms. These firms may provide the Selected Funds enhanced sales
and marketing support and financial advisers employed by the firms may recommend
the Selected Funds rather than other funds: Charles Schwab & Co., Inc., Fidelity
Brokerage Services, Inc., Putnam Fiduciary Trust Company, and Citistreet.

TRAINING AND EDUCATION. Davis Distributors, LLC may, from time to time, pay
additional cash or other incentives to financial intermediaries in connection
with the sale of shares of a Fund and may also defray certain expenses of
intermediaries incurred in connection with seminars and other educational
efforts subject to Davis Distributors, LLC's policies and procedures governing
payments for such seminars. Such cash or other incentives may include sharing
expenses with financial intermediaries that distribute the Selected Funds for
costs incurred in conducting training and educational meetings about various
aspects of the Funds for the employees of financial intermediaries. In addition,
Davis Distributors, LLC may share expenses with financial intermediaries that
distribute the Funds' shares for costs incurred in hosting client seminars where
the Fund is discussed.

RECORDKEEPING FEES. Certain financial institutions have chosen to maintain
omnibus accounts with the Selected Funds. In an "omnibus account" the Fund
maintains a single account in the name of the dealer and the dealer maintains
all of the individual shareholder accounts. Likewise, for many retirement plans,
a third party administrator may open an omnibus account with the Selected Funds
and the administrator will then maintain all of the participant accounts. The
Adviser, on behalf of the Funds, enters into agreements whereby the Funds
compensate the dealer or administrator for recordkeeping services.

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

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

Selected Funds Statement of Additional Information 49

A portion of the supermarket sponsor's fee (that portion related to shareholder
services such as new account set-up, shareholder accounting, shareholder
inquires, transaction processing and shareholder confirmations and reporting) is
paid as a shareholder-servicing fee of the Funds. The Funds would typically be
paying these shareholder servicing fees directly, were it not that the
supermarket sponsor holds all customer accounts in a single omnibus account with
the Funds.

OTHER IMPORTANT SERVICE PROVIDERS

CUSTODIAN. State Street Bank and Trust Company ("State Street" or "Custodian"),
P.O Box 8406,

Boston, MA 02266-8406, serves as custodian of each Selected Fund's assets. The
Custodian maintains all of the instruments representing the Selected Fund's
investments and all cash. The Custodian delivers securities against payment on
sale and pays for securities against delivery on purchase. The Custodian also
remits the Selected Fund's assets in payment of their expenses, pursuant to
instructions of officers or resolutions of the Board of Directors. The Custodian
also provides certain fund accounting and transfer agent services.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. KPMG LLP ("KPMG"), 707 17th
Street, Suite 2700, Denver, CO 80202, serves as independent registered public
accountants for each of the Selected Funds. KPMG consults on financial
accounting and reporting matters and meet with the Audit Committee of the Board
of Directors. In addition, KPMG reviews federal and state income tax returns and
related forms.

COUNSEL. Seyfarth Shaw LLP, 55 E. Monroe St., Suite 4200, Chicago, IL
60603-5803, serves as counsel to the Selected Funds and also serves as counsel
for the Independent Directors.

SECTION III: CLASSES OF SHARES, PURCHASES, EXCHANGES AND REDEMPTIONS

SELECTING THE APPROPRIATE CLASS OF SHARES

Each of the Selected Funds offers both Class S and D shares. The prospectus
provides full directions on how to select the appropriate Class of shares.

HOW TO PURCHASE SHARES

Selected Funds and the Distributor reserve the right to reject any purchase
order for any reason. The Selected Funds prospectus provides full directions on
how to purchase shares.

SPECIAL SERVICES

Selected Funds' prospectus describes a number of special services offered by the
Selected Funds. This Statement of Additional Information supplements that
discussion.

PROTOTYPE RETIREMENT PLANS. The Distributor and certain qualified dealers have
available prototype retirement plans (e.g., profit sharing, money purchase,
Simplified Employee Pension ("SEP") plans, model 403(b) and 457 plans for
charitable, educational and governmental entities) sponsored by the Selected
Funds for corporations and self-employed individuals. The Distributor and
certain qualified dealers also have prototype Individual Retirement Account
("IRA") plans (deductible IRAs; and non-deductible IRAs, including "Roth IRAs"),
Coverdel Education Savings Accounts and SIMPLE IRA plans for both individuals
and employers. These plans utilize the shares of the Selected Funds as their
investment vehicle. State Street Bank and Trust acts as custodian or trustee for
certain retirement plans and charges the participant an annual maintenance fee
of $15 per Social Security Number regardless of the number of plans established.
The maintenance fee will be redeemed automatically at year-end from your
account, unless you elect to pay the fee directly prior to that time. The
maintenance fee will be waived for accounts sharing the same Social Security
Number if the accounts total at least $50,000 in cumulative assets (including
taxable accounts). If an IRA account is closed, a $15 fee will be assessed.

Selected Funds Statement of Additional Information 50

IN-KIND PURCHASES. Shares of the Selected Funds are continuously offered at
their public offering price next determined after an order is accepted. The
methods available for purchasing shares of a fund are described in the fund's
Prospectus. In addition, shares of the Selected Funds may be purchased using
securities if the Adviser determines that doing so is in the best interest of
the applicable fund and its shareholders. The Adviser must review the securities
that are offered in exchange for the "in-kind" purchase to determine that the
securities delivered to the fund: (i) meet the investment objective, strategy
and policies of the fund; (ii) do not cause the violation of any investment
restrictions at the time of acceptance; (iii) are readily marketable; (iv) may
be accurately and objectively valued on a daily basis; and (v) represent
securities that are desirable for the fund to own given the fund's investment
strategy and the Adviser's view of market conditions. The Adviser reserves the
right to reject all or any part of the securities offered in exchange for shares
of the fund. On any such in-kind purchase, the following conditions will apply:

(1) The securities offered by the investor in exchange for shares of a fund
must not be in any way restricted as to resale or otherwise be illiquid;

(2) The securities must have a value that is readily ascertainable (and not
established only by evaluation procedures) as evidenced by a listing on the
NYSE, AMEX or NASDAQ or other appropriate method; and

(3) The transaction involves a net purchase of $1 million or more in fund
shares.

Selected Funds believe that this ability to purchase shares of a fund using
securities provides a means by which holders of certain securities may obtain
diversification and continuous professional management of their investments
without the expense of selling those securities in the public market. Benefits
to the fund include the ability to purchase desirable securities without
brokerage commissions.

An investor who wishes to make an in-kind purchase must provide the Adviser with
a full and exact written description of each security that he or she proposes to
deliver to the applicable Selected Fund. The fund will advise the investor as to
those securities that it is prepared to accept and will provide the forms
required to be completed and signed by the investor. The investor should then
send the securities, in proper form for transfer and with the necessary forms,
to the Adviser and certify that there are no legal or contractual restrictions
on the free transfer and sale of the securities. The securities will be valued
as of the close of business on the day of receipt by the fund in the same manner
as portfolio securities of the fund are valued. The number of shares of the
fund, having a net asset value as of the close of business on the day of receipt
equal to the value of the securities delivered by the investor, will be issued
to the investor, less applicable stock transfer taxes, if any.

The exchange of securities by the investor pursuant to this in-kind offer will
constitute a taxable transaction and may result in a gain or loss for federal
income tax purposes. Each investor should consult his tax adviser to determine
the tax consequences under Federal and state law of making such an in-kind
purchase. This service may be discontinued at any time without prior notice.

EXCHANGE OF SHARES

The prospectus describes exchange procedures. This Statement of Additional
Information supplements that discussion.

MARKET TIMING. Selected Funds have not entered into any arrangements, which
permit organizations or individuals to market time the Funds. Although the
Selected Funds will not knowingly permit investors to excessively trade the
Funds, shareholders seeking to engage in market timing may employ a variety of
strategies to avoid detection, and, there can be no guarantee that all market
timing will be prevented, despite the Funds' best efforts. The Funds receive
purchase and sales order through financial intermediaries and cannot always know
or reasonably detect excessive trading which may be facilitated by these
intermediaries or by the use of omnibus accounts by intermediaries. Selected
Funds reserve the right to terminate or amend the exchange privilege at any time
by filing amended registration statements.

Selected Funds Statement of Additional Information 51

REDEMPTION OF SHARES

The prospectus describes redemption procedures. This Statement of Additional
Information supplements that discussion.

CERTIFICATES. In the past the Selected Funds issued share certificates, and some
are still outstanding. If shares to be redeemed are represented by a
certificate, the certificate must be sent to State Street Bank and Trust with a
letter of instruction signed by all account owner(s).

REDEMPTION PROCEEDS. Redemption proceeds normally are paid to you within seven
days after State Street Bank and Trust receives your proper redemption request.
Payment for redemptions can be suspended under certain emergency conditions
determined by the SEC, or if the New York Stock Exchange is closed for other
than customary or holiday closings. You may redeem shares on any business day.
Redemption proceeds may be withheld until a sufficient period of time has passed
for State Street Bank and Trust to be reasonably sure that all checks or drafts
(including certified or cashiers checks) for shares purchased have cleared,
normally not exceeding fifteen calendar days. You can avoid any redemption delay
by paying for your shares with a bank wire or federal funds.

Redemptions are ordinarily paid to you in cash. However, the Board of Directors
is authorized to decide if conditions exist making cash payments undesirable
(although the Board has never reached such a decision). If the Board of
Directors should decide to make payments other than in cash, redemptions could
be paid in securities, valued at the value used in computing a Fund's net asset
value. There would be brokerage costs incurred by the shareholder in selling
such redemption proceeds. We must, however, redeem shares solely in cash up to
the lesser of $250,000 or 1% of the Fund's net asset value, whichever is
smaller, during any 90-day period for any one shareholder.

FEDERAL FUNDS WIRE. You may be eligible to have your redemption proceeds
electronically transferred to a commercial bank account by federal funds wire.
There is a $5 charge by State Street Bank and Trust for wire service (State
Street Bank and Trust charges $50 for wiring money internationally), and
receiving banks also may charge for this service. Redemption by federal funds
wire is usually credited to your bank account on the next business day after the
sale. Alternatively, redemption through Automated Clearing House usually will
arrive at your bank two banking days after the sale. To have redemption proceeds
sent by federal funds wire to your bank, you must first fill out the "Banking
Instruction" section on the account application form and attach a voided check
or deposit slip. If the account has already been established, an Account Service
Form or letter of instruction must be submitted with a medallion guarantee and a
copy of a voided check or deposit slip.

SELECTED DAILY GOVERNMENT FUND CHECK WRITING PRIVILEGE. A shareholder may issue
a "Stop Payment" on any draft by calling State Street Bank and Trust at (617)
985-8704. The "Stop Payment" order will become effective if it is given on a
timely basis pursuant to the "Stop Payment" rules in effect at State Street Bank
and Trust with respect to their regular checking accounts.

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

Selected Funds Statement of Additional Information 52

SECTION IV: GENERAL INFORMATION

This Statement of Additional Information should be read in conjunction with the
prospectus. This Statement of Additional Information supplements the information
available in the prospectus.

DETERMINING THE PRICE OF SHARES

The prospectus describes procedures used to determine the price of shares. This
Statement of Additional Information supplements that discussion.

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

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

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

VALUATION OF PORTFOLIO SECURITIES. The valuation of each Fund's portfolio
securities is described in the Fund's prospectus and annual report.

DIVIDENDS AND DISTRIBUTIONS

The prospectus describes the Funds' dividend and distribution policies. This
Statement of Additional Information supplements that discussion.

There are two sources of income, net income and realized capital gains, paid to
you by a fund. You will receive confirmation statements for dividends declared
and shares purchased through reinvestment of dividends. You also will receive
confirmations after each purchase or redemption. Different classes of shares may
be expected to have different expense ratios due to differing distribution
services fees and certain other expenses. Classes with higher expense ratios
will pay correspondingly lower dividends than classes with lower expense ratios.
For tax purposes, information concerning distributions will be mailed annually
to shareholders. Shareholders have the option of receiving all dividends and
distributions in cash, of having all dividends and distributions reinvested, or
of having income dividends paid in cash and capital gain distributions
reinvested. Reinvestment of all dividends and distributions is automatic for
accounts utilizing the Automatic Withdrawal Plan. The reinvestment of dividends
and distributions is made at net asset value (without any initial or contingent
deferred sales charge) on the payment date.

RETURNED CHECK POLICY. For the protection of the shareholder, on receipt of the
second dividend check that has been returned to State Street Bank and Trust as
undeliverable, undelivered dividends will be invested in

Selected Funds Statement of Additional Information 53

additional shares at the current net asset value and the account designated as a
dividend reinvestment account.

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

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

DIVIDENDS AND DISTRIBUTIONS MAY CHANGE. Usually dividends and capital gains
distributions are paid as discussed above. However, the Board of Directors
reserves the right to suspend payments or to make additional payments.

FEDERAL INCOME TAXES

The prospectus provides an introduction to federal income taxes. This Statement
of Additional Information supplements that discussion. This discussion is not
intended to be a full discussion of all the aspects of the federal income tax
law and its effects on the Funds and their shareholders. Shareholders may be
subject to state and local taxes on distributions. Each investor should consult
his or her own tax adviser regarding the effect of federal, state and local
taxes on any investment in the Selected Funds.

Each of the Selected Funds intend to continue to qualify as a regulated
investment company under the Internal Revenue Code (the "Code") and, if so
qualified, will not be liable for federal income tax to the extent its earnings
are distributed. If, for any calendar year, the distribution of earnings
required under the Code exceeds the amount distributed, an excise tax, equal to
4% of the excess, will be imposed on the applicable Fund. Each Selected Fund
intends to make distributions during each calendar year sufficient to prevent
imposition of the excise tax.

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

We recommend that you consult with a tax advisor about dividends and capital
gains that may be received from the Selected Funds.

PERFORMANCE DATA

From time to time, the Funds may advertise information regarding their
performance. Such information will be calculated separately for each class of
shares. These performance figures are based on historical results and are not
intended to indicate future performance.

AVERAGE ANNUAL TOTAL RETURNS (REFLECTING THE EFFECTS OF FEDERAL INCOME TAX) The
Fund may advertise its investment performance on an after-tax basis.

Selected Funds Statement of Additional Information 54

SELECTED AMERICAN SHARES: CLASS S SHARES

PERIOD FROM
for the periods ended December 31, 2004 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS 05/01/93*
--------------------------------------- ----------- ------------ ------------- -----------

RETURN BEFORE TAXES 11.97% 3.38% 15.13% 13.29%
RETURN AFTER TAXES ON DISTRIBUTIONS 11.85% 2.70% 14.01% 11.54%
RETURN AFTER TAXES ON DISTRIBUTIONS 7.94% 2.59% 13.04% 10.84%
AND SALE OF FUND SHARES

*Period from 05/01/93 (when the Adviser assumed management).

SELECTED SPECIAL SHARES: CLASS S SHARES

PERIOD FROM
for the periods ended December 31, 2004 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS 05/01/93*
--------------------------------------- ----------- ------------ ------------- -----------

RETURN BEFORE TAXES 11.34% 1.89% 11.77% 10.98%
RETURN AFTER TAXES ON DISTRIBUTIONS 10.59% 0.52% 9.79% 8.71%
RETURN AFTER TAXES ON DISTRIBUTIONS 8.33% 1.17% 9.52% 8.54%
AND SALE OF FUND SHARES

*Period from 05/01/93 (when the Adviser assumed management).

NOTES FOR CALCULATING RETURNS

After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes.

Actual after-tax returns depend on an investor's tax situation and may differ
from those shown, and after-tax returns shown are not relevant to investors who
hold their Fund shares through tax-deferred arrangements, such as 401(k) plans
or individual retirement accounts.

If returns are negative, returns after taxes on distributions and sale of fund
shares may be higher than returns before taxes as the resulting capital losses
from the sale of fund shares would be available to offset capital gains from
other investments.

"Average Annual Total Return" represents the average annual compounded rate of
return for the periods presented. Periods of less than one year are not
annualized. Average annual total return measures both the net investment income
generated by, and the effect of any realized or unrealized appreciation or
depreciation of, the underlying investments in the fund's portfolio. Average
annual total return is calculated separately for each Fund in accordance with
the standardized method prescribed by the SEC 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 = hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value at the end of the 1, 5, and 10 year
periods of a hypothetical $1,000 payment made at the
beginning of such period

This calculation: (i) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates, (ii) assumes a
hypothetical initial $1,000 investment; and (iii) deducts all recurring fees,
such as advisory fees, charged as expenses to all shareholder accounts.

Selected Funds Statement of Additional Information 55

"Average Annual Total Return After-Taxes on Distributions" adjusts the before
taxes quotation for the effects of paying the highest individual marginal
federal income tax rate on distributions paid by the Fund. Average annual total
return after-taxes on distributions is calculated separately for each Fund in
accordance with the standardized method prescribed by the SEC 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) = ATV(D)

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

T = average annual total return (after taxes on distributions)

n = number of years

ATV(D) = ending redeemable value, after taxes on fund distributions
but not after taxes on sale of fund shares, at the end of
the 1, 5, and 10 year periods of a hypothetical $1,000
payment made at the beginning of such period

"Average Annual Total Return After -Taxes on Distributions and Sale of Fund
Shares" adjusts the after-taxes quotation for the effects of paying the highest
individual marginal federal income tax rate on the sale of Fund shares. Average
annual total return after-taxes on distributions and sale of Fund shares is
calculated separately for each Fund in accordance with the standardized method
prescribed by the SEC 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) = ATV(DR)

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

T = average annual total return (after taxes on distributions
and sale of Fund shares)

n = number of years

ATV(DR) = ending redeemable value, after taxes on fund distributions
and sale of fund shares, at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period

Selected Funds Statement of Additional Information 56

OTHER PERFORMANCE MEASURES

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

30-DAY SEC YIELD

The 30-Day SEC Yield (defined below) for the period ended December 31, 2004
Selected American Shares:

Class S Shares 0.74%
Class D Shares 1.01%

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

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

Where: a = dividends and interest earned during the period

b = expenses accrued for the period

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

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

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

CURRENT AND EFFECTIVE YIELDS

The current and effective yields (defined below) for the seven-day period ended
December 31, 2004 Selected Daily Government Fund:

Class S Shares:
Current Yield: 1.40%
Effective Yield: 1.41%

Class D Shares:
Current Yield: 1.65%
Effective Yield: 1.66%

Selected Funds Statement of Additional Information 57

Yield quotations are calculated in accordance with the following formulas:

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

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

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

D = Deductions charged to hypothetical account.

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

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

PERFORMANCE RANKINGS

Lipper Rankings. From time to time the Fund may publish the ranking of the
performance of its Classes of shares by Lipper Analytical Services, Inc. Lipper
is a widely recognized independent mutual fund monitoring service. Lipper
monitors the performance of regulated investment companies, including the Fund,
and ranks their performance for various periods in categories based on
investment style. The Lipper performance rankings are based on total returns
that include the reinvestment of capital gain distributions and income dividends
but do not take taxes into consideration. Lipper also publishes "peer-group"
indices of the performance of all mutual funds in a category that it monitors
and averages of the performance of the funds in particular categories.

Morningstar Ratings and Rankings. From time to time each Fund may publish the
ranking and/or star rating of the performance of its Classes of shares by
Morningstar, Inc., an independent mutual fund monitoring service. Morningstar
rates and ranks mutual funds in broad investment categories: domestic stock
funds, international stock funds, taxable bond funds and municipal bond funds.

Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is
proprietary to Morningstar and/or its content providers, (2) may not be copied
or distributed; and (3) is not warranted to be accurate complete or timely.
Neither Morningstar nor its content providers are responsible for any damages or
losses arising from any use of this information. Past performance is no
guarantee of future result.

For each fund with at least a three-year history, Morningstar calculates a
Morningstar Rating(TM) metric each month by subtracting the return on a 90-day
U.S. Treasury Bill from the fund's load-adjusted return for the same period, and
then adjusting this excess return for risk. The top 10% of funds in each broad
asset class receive five stars, the next 22.5% receive four stars, the next 35%
receive three stars, the next 22.5% receive two stars and the bottom 10% receive
one star. The Overall Morningstar Rating for a fund is derived from a weighted
average of the performance figures associated with its three-, five- and 10-year
(if applicable) Morningstar Rating metrics. Past performance is no guarantee of
future results.

Each Fund also may compare its total return ranking to that of other funds in
its Morningstar category, in addition to its star ratings. Those total return
rankings are percentages from one percent to one hundred percent and are not
risk-adjusted. For example, if a fund is in the 94th percentile, that means that
94% of the funds in the same category performed better than it did.

Selected Funds Statement of Additional Information 58

Performance Rankings and Comparisons by Other Entities and Publications. From
time to time the Fund may include in its advertisements and sales literature
performance information about the Fund cited in newspapers and other periodicals
such as The New York Times, The Wall Street Journal, Barron's or similar
publications. That information may include performance quotations from other
sources, including Lipper and Morningstar. The performance of the Funds' Classes
of shares may be compared in publications to the performance of various market
indices or other investments and averages, performance rankings or other
benchmarks prepared by recognized mutual fund statistical services.

Investors also may wish to compare the returns on each Selected Fund's Class of
shares to the return on fixed-income investments available from banks and thrift
institutions. Those include certificates of deposit, ordinary interest-paying
checking and savings accounts and other forms of fixed- or variable-time
deposits and various other instruments such as Treasury bills. However, none of
the Selected Funds' returns or share prices are guaranteed or insured by the
FDIC or any other agency and will fluctuate daily, while bank depository
obligations may be insured by the FDIC and may provide fixed rates of return.
Repayment of principal and payment of interest on Treasury securities is backed
by the full faith and credit of the U.S. government.

From time to time, the Fund may publish rankings or ratings of the Adviser or
Transfer Agent, and of the investor services provided by them to shareholders of
the Selected Funds, other than performance rankings of the Selected Funds
themselves. Those ratings or rankings of shareholder and investor services by
third parties may include comparisons of their services to those provided by
other mutual fund families selected by the rating or ranking services. They may
be based on the opinions of the rating or ranking service itself, using its
research or judgment, or based on surveys of investors, brokers, shareholders or
others.

OTHER PERFORMANCE STATISTICS

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

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

The performance of the Funds may be compared in publications to the performance
of various indices and investments for which reliable performance data is
available and to averages, performance rankings or other information prepared by
recognized mutual fund statistical services. The Fund's Annual Report and
Semi-Annual Report contain additional performance information and will be made
available on request and without charge by calling Selected Funds toll-free at
1-800-243-1575, Monday through Friday, 9 a.m. to 6 p.m. Eastern Standard Time.

APPENDIX A: QUALITY RATINGS OF DEBT SECURITIES

APPENDIX B: SUMMARY OF PROXY VOTING PROCEDURES AND POLICIES

APPENDIXES UNCHANGED FROM FORM OF SAI DECLARED EFFECTIVE MAY 1, 2005.

Selected Funds Statement of Additional Information 59