UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-01550
Selected Special Shares, Inc.
(Exact name of registrant as specified in charter)
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
(Address of principal executive offices)
Thomas D. Tays
Davis Selected Advisers, LP
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
(Name and address of agent for service)
Registrant's telephone number, including area code: (520) 806-7600
Date of fiscal year end: December 31
Date of reporting period: December 31, 2003
ITEM 1. REPORTS TO STOCKHOLDERS
SELECTED FUNDS
ANNUAL REPORT
DECEMBER 31, 2003
SELECTING QUALITY COMPANIES FOR THE LONG TERM(TM)
Selected American Shares
Selected Special Shares [SELECTED FUNDS
LOGO OMITTED]
Selected U.S. Government Income Fund
Selected Daily Government Fund
Table of Contents
Shareholder Letter.............................................................2
Management's Discussion and Analysis:
Selected American Shares..................................................3
Selected Special Shares...................................................3
Selected U.S. Government Income Fund......................................4
Fund Performance and Supplementary Information:
Selected American Shares..................................................6
Selected Special Shares..................................................10
Selected U.S. Government Income Fund.....................................14
Schedule of Investments:
Selected American Shares.................................................15
Selected Special Shares..................................................19
Selected U.S. Government Income Fund.....................................23
Selected Daily Government Fund...........................................25
Statements of Assets and Liabilities..........................................28
Statements of Operations......................................................29
Statements of Changes in Net Assets...........................................30
Notes to Financial Statements.................................................32
Financial Highlights:
Selected American Shares.................................................39
Selected Special Shares..................................................40
Selected U.S. Government Income Fund.....................................41
Selected Daily Government Fund...........................................42
Independent Auditors' Report..................................................43
Income Tax Information........................................................44
Directors and Officers........................................................45
SELECTED FUNDS
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
Dear Fellow Shareholder,
As stewards of our customers' savings, the management team and Directors of the
Selected Funds recognize the importance of candid, thorough and regular
communication with our shareholders. In our annual and semi-annual reports, we
include all of the required quantitative information, such as audited financial
statements, detailed footnotes, performance reports, fund holdings and
performance attribution. Also included is a list of positions opened and closed.
In addition we produce a semi-annual Research Report. In this report, we give a
more qualitative perspective on fund performance, discuss our thoughts on
individual holdings, and share our investment outlook. You may obtain a copy of
the current Research Report either at our website, SelectedFunds.com, or by
calling 1-800-243-1575.
Sincerely,
/s/ James J. McMonagle /s/ Christopher C. Davis
James J. McMonagle Christopher C. Davis
Chairman President
February 6, 2004
2
SELECTED FUNDS
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
MARKET ENVIRONMENT
During the year-ended December 31, 2003, the stock market, as measured by the
Standard & Poor's 500(R) Index(1), returned 28.69%. U.S. economic activity, as
measured by the gross domestic product trended down over the first six months of
the year but improved sharply in the third quarter. Interest rates, as measured
by the 10-year Treasury bond, declined steadily over the first six months and
then rebounded sharply in the third quarter. Interest rates held steady in the
fourth quarter. This combination provided a favorable background for stocks as
they advanced strongly in the fourth quarter.
SELECTED AMERICAN SHARES
PERFORMANCE OVERVIEW
Selected American Shares returned 30.90% for the year ended December 31,
2003(2), compared with a return of 28.69% for the Standard & Poor's 500(R)
Index.(1) The Fund's investment strategy is to seek out companies with expanding
earnings that can be purchased at value prices and held for the long-term.
Typically, the Fund invests the majority of its assets in equity securities
issued by large companies with market capitalizations of at least $10 billion.
The Fund's largest sector weightings were in banks and savings & loan
associations and financial services. The Fund's holdings in both these sectors
outperformed the S&P 500(R) Index. The Fund's cash position reduced relative
performance during the period.
The principal holdings contributing to performance were: American Express(3), a
financial services company, Altria Group, a consumer products company and
Progressive Corporation, a property/casualty insurance company. The Fund held
substantial positions in all three companies and all three did well over the
one-year period. American Express increased by 37.66%, Altria Group increased by
42.74% and Progressive Corporation increased by 68.68%.
The principal detractors from performance were: Safeway, Kraft Foods and
Takefuji Corporation. Safeway, a retailing company, decreased by 14.43%, Kraft
Foods, a food/beverage company, decreased by 15.42% and Takefuji Corporation, a
financial services company, decreased by 17.79%. The Fund no longer owns
Safeway.
SELECTED SPECIAL SHARES
PERFORMANCE OVERVIEW
Selected Special Shares returned 41.40% for the year ended December 31, 2003(2),
compared with a return of 31.64% for the Wilshire 5000 Index.(1) The Fund's
investment strategy is to seek out companies with expanding earnings that can be
purchased at value prices and held for the long-term. Under normal
circumstances, the Fund invests the majority of its assets in equity securities
issued by companies with market capitalizations less than $20 billion.
The Fund's largest sector weightings were in retailing, media and electronics.
The Fund's holdings in each of the three sectors outperformed the Wilshire 5000
Index and contributed to the Fund's strong performance.
3
SELECTED FUNDS
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
SELECTED SPECIAL SHARES - CONTINUED
The principal holdings contributing to performance were: Monster Worldwide(3), a
media company, Tiffany & Co., a retailing company, and Applied Materials, an
electronic company. Monster Worldwide increased by 86.19%, Tiffany & Co.
increased by 90.08% and Applied Materials increased by 72.29%. The Fund no
longer owns Monster Worldwide.
The principal detractors from performance were: DST Systems, an information/
information processing company, Duane Reade, a retailing company and Speedway
Motorsports, a racetrack company. DST Systems decreased by 12.15%, Duane Reade
decreased by 26.35% and Speedway Motorsports decreased by 15.24%. The Fund no
longer owns any of these three companies.
SELECTED U.S. GOVERNMENT INCOME FUND
PERFORMANCE OVERVIEW
Selected U.S. Government Income Fund returned 0.51% for the year ended December
31, 2003(2), compared with a return of 2.11% for the Lehman Brothers
Intermediate Term U.S. Treasury Securities Index.(1) The Fund's investment
strategy, under normal circumstances, is to invest exclusively in U.S.
Government Securities and repurchase agreements collateralized by U.S.
Government Securities.
The Fund's largest sector weighting was mortgaged-backed securities, with lesser
investments in agency bonds and direct treasury bonds. This large commitment to
mortgage-backed securities benefited the Fund's relative performance as
mortgaged-backed securities outperformed both the agency bond market and direct
treasury bond market; but it was not enough to make up for the Fund's relative
underperformance in treasury bonds.
- ----------------------------------------
This Annual Report is authorized for use by existing shareholders. Prospective
shareholders must receive a current Selected Funds prospectus, which contains
more information about investment strategies, risks, fees and expenses. Please
read the prospectus carefully before investing or sending money.
Selected American Shares' investment objective is to achieve both capital growth
and income. In the current market environment, we expect that income will be
low. There can be no assurance that the Fund will achieve its objective. The
primary risks of an investment in Selected American Shares are: (1) market risk,
(2) company risk, (3) headline risk and (4) selection risk. See the prospectus
for a full description of each risk.
Selected Special Shares' investment objective is capital growth. There can be no
assurance that the Fund will achieve its objective. The primary risks of an
investment in Selected Special Shares are: (1) market risk, (2) company risk,
(3) small and medium capitalization risk, (4) headline risk and (5) selection
risk. See the prospectus for a full description of each risk.
4
SELECTED FUNDS
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
Selected U.S. Government Income Fund's investment objective is to obtain current
income consistent with preservation of capital by investing principally in U.S.
Government Securities. There can be no assurance that the Fund will achieve its
objective. The primary risks of an investment in Selected U.S. Government Income
Fund is interest rate risk, consisting of both (1) price volatility risk and (2)
extension and prepayment risk. See the prospectus for a full description of each
risk.
(1) The definitions of indices quoted in this report appear below. Investments
cannot be made directly in the indices.
I. The S&P 500(R) Index is an unmanaged index of 500 selected common stocks,
most of which are listed on the New York Stock Exchange. The index is adjusted
for dividends, weighted towards stocks with large market capitalizations, and
represents approximately two-thirds of the total market value of all domestic
common stocks.
II. The Wilshire 5000 Index measures the performance of all U.S. headquartered
equity securities with readily available price data. Over 6,500 capitalization
weighted security returns are used to adjust the index. The Wilshire 5000 is a
broad measure of the entire U.S. stock market.
III. The Lehman Brothers Intermediate Term U.S. Treasury Securities Index is a
recognized unmanaged index of U.S. Government Securities performance.
(2) Total return assumes reinvestment of dividends and capital gain
distributions. Past performance is not a guarantee of future results. Investment
return and principal value will vary so that, when redeemed, an investor's
shares may be worth more or less than when purchased. The following table lists
the average annual total returns for the periods ended December 31, 2003.
- --------------------------------------------------------------------------------
FUND NAME 1 YEAR 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Selected American Shares 30.90% 4.87% 13.47%
- --------------------------------------------------------------------------------
Selected Special Shares 41.40% 2.87% 10.29%
- --------------------------------------------------------------------------------
Selected U.S. Government Income 0.51% 4.29% 4.99%
- --------------------------------------------------------------------------------
Fund performance changes over time and current performance may be higher or
lower than stated. For more current information please call Selected Funds
Shareholder Services at 1-800-243-1575.
(3) This Management Discussion & Analysis discusses a number of individual
companies. The information provided in this report does not provide information
reasonably sufficient upon which to base an investment decision and should not
be considered a recommendation to purchase or sell any particular security. The
schedule of investments lists each Fund's holdings of each company discussed.
Shares of the Selected Funds are not deposits or obligations of any bank, are
not guaranteed by any bank, are not insured by the FDIC or any other agency, and
involve investment risks, including possible loss of the principal amount
invested.
5
SELECTED AMERICAN SHARES, INC.
PORTFOLIO HOLDINGS - AT DECEMBER 31, 2003
================================================================================
[GRAPHIC OMITTED]
PORTFOLIO MAKEUP (% OF FUND NET ASSETS)
---------------------------------------
Short Term Investments, Other Assets & Liabilities 6.0%
Common Stocks 94.0%
[GRAPHIC OMITTED]
SECTOR WEIGHTINGS
(% OF STOCK HOLDINGS)
---------------------
Food & Restaurants 3.6%
Energy 6.4%
Insurance 17.9%
Diversified Manufacturing 4.3%
Technology 2.9%
Retailing 3.7%
Pharmaceutical and Health Care 4.4%
Financial Services 19.9%
Real Estate 2.0%
Other 7.5%
Consumer Products 6.1%
Industrial 3.6%
Banks and Savings & Loans 17.7%
TOP 10 HOLDINGS
STOCK SECTOR % OF FUND NET ASSETS
- --------------------------------------------------------------------------------------------------------------
American Express Co. Financial Services 7.11%
Altria Group, Inc. Consumer Products 5.74%
American International Group, Inc. Multi-Line Insurance 5.48%
Berkshire Hathaway Inc., Class A Property/Casualty Insurance 4.09%
Tyco International Ltd. Diversified Manufacturing 4.05%
HSBC Holdings PLC Banks and Savings & Loan Associations 4.04%
Citigroup Inc. Financial Services 3.82%
Wells Fargo & Co. Banks and Savings & Loan Associations 3.64%
Progressive Corp. (Ohio) Property/Casualty Insurance 3.57%
Sealed Air Corp. Industrial 3.43%
6
SELECTED AMERICAN SHARES, INC.
PORTFOLIO ACTIVITY - JANUARY 1, 2003 THROUGH DECEMBER 31, 2003
================================================================================
NEW POSITIONS ADDED (1/1/03-12/31/03)
(Highlighted Positions are those greater than 0.75% of Net Assets)
DATE OF 1ST % OF 12/31/03
SECURITY SECTOR PURCHASE FUND NET ASSETS
- -----------------------------------------------------------------------------------------------------------------
Applied Materials, Inc. Electronics 02/13/03 -
AutoZone, Inc. Retailing 12/10/03 0.48%
Fifth Third Bancorp Banks and Savings & Loan
Associations 08/13/03 1.26%
H&R Block, Inc. Financial Services 07/16/03 1.11%
HCA Inc. Pharmaceutical and Health Care 10/28/03 0.96%
Heineken Holding NV, Class A Food/Beverage & Restaurant 07/08/03 0.44%
Novartis AG, Registered Pharmaceutical and Health Care 12/02/03 0.51%
Occidental Petroleum Corp. Energy 08/01/03 0.94%
State Street Corp. Banks and Savings & Loan
Associations 03/21/03 0.29%
POSITIONS CLOSED (1/1/03-12/31/03)
(Gains and losses greater than $1 million are highlighted)
SECURITY SECTOR DATE OF FINAL SALE GAIN/(LOSS)
- -------------------------------------------------------------------------------------------------------------------
Albertson's, Inc. Retailing 02/18/03 $ (7,262,799)
American Standard Cos. Inc. Building Materials 04/03/03 (400,105)
Applied Materials, Inc. Electronics 11/21/03 13,656,125
Avalonbay Communities, Inc. Real Estate 07/18/03 1,646,777
BMC Software, Inc. Technology 12/04/03 (38,437,816)
Dover Corp. Diversified Manufacturing 12/22/03 4,539,698
Household International, Inc., 8.875%,
2/15/06, Adjustable Conversion-Rate
Equity Security, Cum. Conv. Pfd. Financial Services 03/26/03 774,188
J. C. Penney Co., Inc. Retailing 02/13/03 (1,907,565)
Level 3 Communications, Inc., 11.00%,
3/15/08 Telecommunications 01/30/03 (34,129)
Level 3 Communications, Inc., 9.125%,
5/1/08 Telecommunications 01/09/03 223,820
Level 3 Communications, Inc., 11.25%,
3/15/10 Telecommunications 01/30/03 4,770
M&T Bank Corp. Banks and Savings & Loan
Associations 02/21/03 (75,636)
Medco Health Solutions, Inc. Pharmaceutical and Health Care 10/01/03 134,278
RadioShack Corp. Retailing 08/25/03 (2,993,607)
Safeway Inc. Retailing 12/05/03 (41,291,794)
Tellabs, Inc. Telecommunications 04/16/03 (89,549,746)
Travelers Property Casualty Corp., Class A Property/Casualty Insurance 09/16/03 2,264,648
Travelers Property Casualty Corp., Class B Property/Casualty Insurance 09/18/03 4,555,655
Tyco International Group, SA, 6.25%,
6/15/03 Diversified Manufacturing 02/11/03 60,370
7
SELECTED AMERICAN SHARES, INC.
PORTFOLIO ACTIVITY - JANUARY 1, 2003 THROUGH DECEMBER 31, 2003
================================================================================
POSITIONS CLOSED (1/1/03-12/31/03) - CONTINUED
(Gains and losses greater than $1 million are highlighted)
SECURITY SECTOR DATE OF FINAL SALE GAIN/(LOSS)
- -------------------------------------------------------------------------------------------------------------------
Tyco International Group, SA, 4.95%,
8/1/03 Diversified Manufacturing 02/11/03 $ 238,602
Tyco International Group, SA, 5.875%,
11/1/04 Diversified Manufacturing 02/28/03 493,365
Tyco International Group, SA, 6.375%,
6/15/05 Diversified Manufacturing 02/11/03 231,638
Tyco International Group, SA, 6.375%,
2/15/06 Diversified Manufacturing 03/31/03 909,048
Tyco International Group, SA, Conv.
Notes, Zero Cpn., 2/12/21 Diversified Manufacturing 02/12/03 375,385
Tyco International Ltd., Conv. Notes,
Zero Cpn., 11/17/20 Diversified Manufacturing 02/14/03 1,507,827
8
SELECTED AMERICAN SHARES, INC.
COMPARISON OF SELECTED AMERICAN SHARES, INC. AND STANDARD & POOR'S 500
STOCK INDEX
================================================================================
Average Annual Total Return for the Periods ended December 31, 2003.
One Year .......................... 30.90%
Five Years......................... 4.87%
Ten Years.......................... 13.47%
$10,000 INVESTED OVER TEN YEARS. Let's say you invested $10,000 in Selected
American Shares ("SAS") on December 31, 1993. As the chart below shows, by
December 31, 2003 the value of your investment would have grown to $35,376 - a
253.76% increase on your initial investment. For comparison, look at how the
Standard & Poor's 500 Stock Index did over the same period. With dividends
reinvested, the same $10,000 investment would have grown to $28,526 - a 185.26%
increase.
[GRAPHIC OMITTED]
S & P 500 SAS
1993 10,000.00 10,000.00
1994 10,136.00 9,680.00
1995 13,931.00 13,368.00
1996 17,121.00 17,477.00
1997 22,825.00 23,985.00
1998 29,335.00 27,887.00
1999 35,500.00 33,553.00
2000 32,266.00 36,684.00
2001 28,448.00 32,585.00
2002 22,176.00 27,026.00
2003 28,526.00 35,376.00
The Standard & Poor's 500 Stock Index is an unmanaged index of 500 selected
common stocks, most of which are listed on the New York Stock Exchange. The
index is adjusted for dividends, weighted towards stocks with large market
capitalizations, and represents approximately two-thirds of the total market
value of all domestic common stocks.
The performance data for Selected American Shares contained in this report
represents past performance and assumes that all distributions were reinvested,
and should not be considered as an indication of future performance from an
investment in the Fund today. The investment return and principal value will
fluctuate so that shares may be worth more or less than their original cost when
redeemed.
9
SELECTED SPECIAL SHARES, INC.
PORTFOLIO HOLDINGS - AT DECEMBER 31, 2003
================================================================================
[GRAPHIC OMITTED]
PORTFOLIO MAKEUP (% OF FUND NET ASSETS)
---------------------------------------
Common Stocks 98.5%
Short Term Investments, Other Assets & Liabilities 1.5%
[GRAPHIC OMITTED]
SECTOR WEIGHTINGS (% OF STOCK HOLDINGS)
Pharmaceutical and Health Care 3.6%
Electronics 9.4%
Consumer Products 2.9%
Retailing 16.0%
Chemicals 3.2%
Other 4.4%
Energy 6.4%
Financial Services/Banking 8.5%
Media 8.2%
Diversified 6.2%
Information/Information Processing 4.6%
Telecommunications 5.6%
Insurance 6.6%
Distributors 4.8%
Food/Beverage & Restaurant 3.9%
Technology 5.7%
TOP 10 HOLDINGS
STOCK SECTOR % OF FUND NET ASSETS
- --------------------------------------------------------------------------------------------------------------
Tiffany & Co. Retailing 4.73%
AutoNation, Inc. Retailing 4.36%
Lagardere S.C.A. Media 4.09%
AutoZone, Inc. Retailing 3.84%
Agilent Technologies, Inc. Electronics 3.58%
Golden West Financial Corp. Banks and Savings & Loan Associations 3.29%
Groupe Bruxelles Lambert S.A. Diversified 3.27%
Sigma-Aldrich Corp, Chemicals 3.11%
Tyco International Ltd. Diversified Manufacturing 2.85%
Altria Group, Inc. Consumer Products 2.84%
10
SELECTED SPECIAL SHARES, INC.
PORTFOLIO ACTIVITY - JANUARY 1, 2003 THROUGH DECEMBER 31, 2003
================================================================================
NEW POSITIONS ADDED (1/1/03-12/31/03)
(Highlighted Positions are those greater than 1.50% of Net Assets)
DATE OF 1ST % OF 12/31/03
SECURITY SECTOR PURCHASE FUND NET ASSETS
- -------------------------------------------------------------------------------------------------------------
Altria Group, Inc. Consumer Products 05/12/03 2.84%
AmerisourceBergen Corp. Pharmaceutical and Health Care 08/28/03 1.60%
Automatic Data Processing, Inc. Information/Information Processing 06/02/03 0.81%
AutoNation, Inc. Retailing 04/21/03 4.36%
AutoZone, Inc. Retailing 01/28/03 3.84%
Berkshire Hathaway Inc., Class A Property/Casualty Insurance 03/28/03 1.32%
Commerce Bancorp, Inc. Banks and Savings & Loans
Associations 07/22/03 0.99%
Compal Electronics, Inc. Technology 08/19/03 0.74%
Electrolux AB, Series B Manufacturing 07/30/03 0.80%
Garmin Ltd. Electronics 07/30/03 1.57%
Heineken Holding NV, Class A Food/Beverage & Restaurant 07/08/03 0.92%
Hughes Supply, Inc. Distributors 08/26/03 2.18%
McDonald's Corp. Food/Beverage & Restaurant 03/19/03 1.35%
Nokia Oyj Telecommunications 10/01/03 1.73%
Nokia Oyj, ADR Telecommunications 09/30/03 0.87%
Papa John's International, Inc. Food/Beverage & Restaurant 06/06/03 0.92%
PetroChina Co. Ltd., ADR Energy 04/29/03 1.60%
Reynolds & Reynolds Co., Class A Information/Information Processing 11/21/03 2.76%
Rockwell Automation, Inc. Industrial 01/09/03 -
Sempra Energy Energy 12/19/03 1.84%
Takefuji Corp. Financial Services 08/21/03 0.45%
11
SELECTED SPECIAL SHARES, INC.
PORTFOLIO ACTIVITY - JANUARY 1, 2003 THROUGH DECEMBER 31, 2003
================================================================================
POSITIONS CLOSED (1/1/03-12/31/03)
(Gains and losses greater than $250,000 are highlighted)
SECURITY SECTOR DATE OF FINAL SALE GAIN/(LOSS)
- -------------------------------------------------------------------------------------------------------------------
Advent Software, Inc. Technology 10/29/03 $ (366,731)
American Standard Cos. Inc. Building Materials 04/03/03 20,997
Apple Computer, Inc. Technology 01/30/03 (46,180)
BlackRock, Inc. Financial Services 07/09/03 1,447,487
DST Systems, Inc. Information/Information Processing 02/04/03 555,016
Duane Reade Inc. Retailing 03/05/03 (986,708)
EOG Resources, Inc. Energy 08/26/03 (53,197)
HSBC Holdings PLC Banks and Savings & Loan
Associations 12/22/03 (343,897)
IDT Corp. Telecommunications 05/29/03 86,235
International Speedway Corp., Class A Race Tracks 02/03/03 (60,171)
Janus Capital Group Inc. Investment Firms 05/27/03 (29,740)
LIN TV Corp., Class A Media 09/16/03 12,088
Metro-Goldwyn-Mayer Inc. Entertainment 05/15/03 (141,208)
Molex Inc., Class A Electronics 10/29/03 128,884
Monster Worldwide, Inc. Media 06/27/03 1,585,972
Paychex, Inc. Information/Information Processing 06/12/03 465,478
Pfizer Inc. Pharmaceutical and Health Care 06/17/03 414,103
Rockwell Automation, Inc. Industrial 04/29/03 14,396
SAP AG, ADR Technology 10/29/03 974,792
Speedway Motorsports, Inc. Race Tracks 02/20/03 (76,268)
Symantec Corp. Technology 10/29/03 814,019
Tellabs, Inc. Telecommunications 05/29/03 (891,768)
Wm. Wrigley Jr. Co. Consumer Products 05/29/03 168,107
12
SELECTED SPECIAL SHARES, INC.
COMPARISON OF SELECTED SPECIAL SHARES, INC., STANDARD & POOR'S 500 STOCK INDEX
AND WILSHIRE 5000 STOCK INDEX
================================================================================
Average Annual Total Return for the Periods ended December 31, 2003.
One Year .......................... 41.40%
Five Years......................... 2.87%
Ten Years.......................... 10.29%
$10,000 INVESTED OVER TEN YEARS. Let's say you invested $10,000 in Selected
Special Shares ("SSS") on December 31, 1993. As the chart below shows, by
December 31, 2003 the value of your investment would have grown to $26,636 - a
166.36% increase on your initial investment. For comparison, the Standard &
Poor's 500 Stock Index and Wilshire 5000 Stock Index are also presented on the
chart below.
[GRAPHIC OMITTED]
S & P 500 Wilshire 5000 SSS
1993 10,000.00 10,000.00 10,000.00
1994 10,136.00 9,994.00 9,744.00
1995 13,931.00 13,636.81 13,080.00
1996 17,121.00 16,529.18 14,632.00
1997 22,825.00 21,701.16 18,569.00
1998 29,335.00 26,785.74 23,121.00
1999 35,500.00 33,096.47 27,012.00
2000 32,266.00 29,492.26 26,716.00
2001 28,448.00 26,256.96 22,866.00
2002 22,176.00 20,779.76 18,838.00
2003 28,526.00 27,354.47 26,636.00
The Standard & Poor's 500 Stock Index is an unmanaged index of 500 selected
common stocks, most of which are listed on the New York Stock Exchange. The
index is adjusted for dividends, weighted towards stocks with large market
capitalizations, and represents approximately two-thirds of the total market
value of all domestic common stocks.
The Wilshire 5000 Stock Index measures the performance of all U.S. headquartered
equity securities with readily available price data. Over 6,500 capitalization
weighted security returns are used to adjust the index. The Wilshire 5000 is a
broad measure of the entire U.S. stock market.
The performance data for Selected Special Shares contained in this report
represents past performance and assumes that all distributions were reinvested,
and should not be considered as an indication of future performance from an
investment in the Fund today. The investment return and principal value will
fluctuate so that shares may be worth more or less than their original cost when
redeemed.
13
SELECTED U.S. GOVERNMENT INCOME FUND
COMPARISON OF U.S. GOVERNMENT INCOME FUND AND THE LEHMAN BROTHERS INTERMEDIATE
TERM U.S. TREASURY SECURITIES INDEX
================================================================================
Average Annual Total Return for the Periods ended December 31, 2003.
One Year .......................... 0.51%
Five Years......................... 4.29%
Ten Years.......................... 4.99%
$10,000 INVESTED OVER TEN YEARS. Let's say you invested $10,000 in Selected U.S.
Government Income Fund ("SUSGIF") on December 31, 1993. As the chart below
shows, by December 31, 2003 the value of your investment would have grown to
$16,277 - a 62.77% increase on your initial investment. For comparison, the
Lehman Brothers Intermediate Term U.S. Treasury Securities Index is also
presented on the chart below.
[GRAPHIC OMITTED]
Lehman Index SUSGIF
1993 10,000.00 10,000.00
1994 9,824.00 9,729.00
1995 11,240.62 11,287.00
1996 11,688.00 11,608.00
1997 12,586.80 12,457.00
1998 13,671.79 13,192.00
1999 13,727.84 12,933.00
2000 15,135.94 14,274.00
2001 16,370.49 15,090.00
2002 17,890.44 16,194.00
2003 18,268.45 16,277.00
The Lehman Brothers Intermediate Term U.S. Treasury Securities Index is an
unmanaged index which has no specific investment objective. Investments cannot
be made directly in the index.
The performance data for Selected U.S. Government Income Fund contained in this
report represents past performance and assumes that all distributions were
reinvested, and should not be considered as an indication of future performance
from an investment in the Fund today. The investment return and principal value
will fluctuate so that shares may be worth more or less than their original cost
when redeemed.
14
SELECTED FUNDS
SCHEDULE OF INVESTMENTS
SELECTED AMERICAN SHARES, INC.
DECEMBER 31, 2003
VALUE
SHARES SECURITY (NOTE 1)
=======================================================================================================================
COMMON STOCK - (94.02%)
BANKS AND SAVINGS & LOAN ASSOCIATIONS - (16.61%)
4,407,000 Bank One Corp. ..................................................................... $ 200,915,130
1,279,000 Fifth Third Bancorp................................................................. 75,576,110
1,819,800 Golden West Financial Corp. ........................................................ 187,785,162
15,427,496 HSBC Holdings PLC................................................................... 241,791,290
6,509,852 Lloyds TSB Group PLC................................................................ 52,059,480
330,000 State Street Corp. ................................................................. 17,186,400
3,696,560 Wells Fargo & Co. .................................................................. 217,690,418
--------------
993,003,990
--------------
BUILDING MATERIALS - (1.47%)
930,600 Martin Marietta Materials, Inc. .................................................... 43,710,282
924,100 Vulcan Materials Co. ............................................................... 43,959,437
--------------
87,669,719
--------------
BUSINESS SERVICES - (1.05%)
1,241,000 D&B Corp.*.......................................................................... 62,931,110
--------------
CONSUMER PRODUCTS - (5.74%)
6,307,500 Altria Group, Inc. ................................................................. 343,254,150
--------------
DIVERSIFIED MANUFACTURING - (4.05%)
9,139,764 Tyco International Ltd. ............................................................ 242,203,746
--------------
ELECTRONICS - (0.52%)
10,192,500 Agere Systems Inc., Class A*........................................................ 31,087,125
--------------
ENERGY - (6.00%)
2,070,080 ConocoPhillips...................................................................... 135,735,146
1,860,421 Devon Energy Corp. ................................................................. 106,527,706
1,313,100 EOG Resources, Inc. ................................................................ 60,625,827
1,325,800 Occidental Petroleum Corp. ......................................................... 56,001,792
--------------
358,890,471
--------------
FINANCIAL SERVICES - (15.73%)
8,807,800 American Express Co. ............................................................... 424,800,194
4,704,189 Citigroup Inc. ..................................................................... 228,341,334
1,203,000 H&R Block, Inc. .................................................................... 66,610,110
1,958,000 Loews Corp. ........................................................................ 96,823,100
1,132,800 Moody's Corp. ...................................................................... 68,591,040
1,957,400 Providian Financial Corp.* ......................................................... 22,784,136
691,860 Takefuji Corp. ..................................................................... 32,353,746
--------------
940,303,660
--------------
FOOD/BEVERAGE & RESTAURANT - (3.36%)
7,030,748 Diageo PLC.......................................................................... 92,244,305
771,900 Heineken Holding NV, Class A ....................................................... 26,385,438
652,400 Hershey Foods Corp. ................................................................ 50,228,276
15
SELECTED FUNDS
SCHEDULE OF INVESTMENTS
SELECTED AMERICAN SHARES, INC. - CONTINUED
DECEMBER 31, 2003
VALUE
SHARES SECURITY (NOTE 1)
=======================================================================================================================
COMMON STOCK - CONTINUED
FOOD/BEVERAGE & RESTAURANT - CONTINUED
1,000,000 Kraft Foods Inc., Class A........................................................... $ 32,220,000
--------------
201,078,019
--------------
HOTELS & MOTELS - (0.77%)
988,700 Marriott International, Inc., Class A............................................... 45,677,940
--------------
INDUSTRIAL - (3.43%)
3,786,700 Sealed Air Corp.*................................................................... 205,011,938
--------------
INSURANCE BROKERS - (0.85%)
2,112,700 Aon Corp. .......................................................................... 50,578,038
--------------
INVESTMENT FIRMS - (3.03%)
890,300 Janus Capital Group Inc. ........................................................... 14,609,823
315,099 Julius Baer Holding, Ltd. AG........................................................ 106,195,977
1,039,864 Morgan Stanley...................................................................... 60,176,930
--------------
180,982,730
--------------
LIFE INSURANCE - (0.53%)
658,000 Principal Financial Group, Inc. .................................................... 21,760,060
400,000 Sun Life Financial Inc. ............................................................ 10,008,000
--------------
31,768,060
--------------
MEDIA - (1.60%)
1,282,459 Lagardere S.C.A. ................................................................... 73,956,759
2,235,400 WPP Group PLC....................................................................... 21,886,815
--------------
95,843,574
--------------
MULTI-LINE INSURANCE - (5.48%)
4,939,325 American International Group, Inc. ................................................. 327,378,461
--------------
PHARMACEUTICAL AND HEALTH CARE - (4.12%)
1,180,000 Eli Lilly and Co. .................................................................. 82,989,400
1,341,500 HCA Inc. ........................................................................... 57,630,840
427,600 Merck & Co., Inc. .................................................................. 19,755,120
670,000 Novartis AG, Registered............................................................. 30,405,318
1,569,460 Pfizer Inc. ........................................................................ 55,449,022
--------------
246,229,700
--------------
PROPERTY/CASUALTY INSURANCE - (8.37%)
2,900 Berkshire Hathaway Inc., Class A*................................................... 244,325,000
6,366 Berkshire Hathaway Inc., Class B*................................................... 17,920,290
288,400 Chubb Corp. ........................................................................ 19,640,040
20,000 Markel Corp.*....................................................................... 5,070,200
2,553,200 Progressive Corp. (Ohio)............................................................ 213,421,988
--------------
500,377,518
--------------
PUBLISHING - (0.72%)
483,300 Gannett Co., Inc. .................................................................. 43,091,028
--------------
16
SELECTED FUNDS
SCHEDULE OF INVESTMENTS
SELECTED AMERICAN SHARES, INC. - CONTINUED
DECEMBER 31, 2003
VALUE
SHARES SECURITY (NOTE 1)
=======================================================================================================================
COMMON STOCK - CONTINUED
REAL ESTATE - (1.84%)
1,469,194 Centerpoint Properties Trust (b).................................................... $ 110,042,631
--------------
REINSURANCE - (1.60%)
1,185,500 Transatlantic Holdings, Inc. ....................................................... 95,788,400
--------------
RETAILING - (3.48%)
338,500 AutoZone, Inc.*..................................................................... 28,843,585
4,817,000 Costco Wholesale Corp.*............................................................. 179,096,060
--------------
207,939,645
--------------
TECHNOLOGY - (2.75%)
1,428,600 Lexmark International, Inc.*........................................................ 112,345,104
1,880,000 Microsoft Corp. .................................................................... 51,700,000
--------------
164,045,104
--------------
TRANSPORTATION - (0.92%)
740,500 United Parcel Service, Inc., Class B................................................ 55,204,275
--------------
Total Common Stock - (identified cost $3,989,390,967)...................... 5,620,381,032
--------------
17
SELECTED FUNDS
SCHEDULE OF INVESTMENTS
SELECTED AMERICAN SHARES, INC. - CONTINUED
DECEMBER 31, 2003
VALUE
PRINCIPAL SECURITY (NOTE 1)
=======================================================================================================================
SHORT TERM INVESTMENTS - (5.86%)
$ 98,521,000 Goldman, Sachs & Co. Joint Repurchase Agreement, 0.99%,
01/02/04, dated 12/31/03, repurchase value of $98,526,419
(collateralized by: U.S. Government obligations in a pooled cash account,
total market value $100,491,420)............................................ $ 98,521,000
153,411,000 Nomura Securities International, Inc. Joint Repurchase Agreement, 1.03%,
01/02/04, dated 12/31/03, repurchase value of $153,419,779
(collateralized by: U.S. Government obligations in a pooled cash account,
total market value $156,479,220)............................................ 153,411,000
98,521,000 UBS Financial Services Inc. Joint Repurchase Agreement, 1.00%,
01/02/04, dated 12/31/03, repurchase value of $98,526,473
(collateralized by: U.S. Government obligations in a pooled cash account,
total market value $100,491,420)............................................ 98,521,000
----------------
Total Short Term Investments - (identified cost $350,453,000)........... 350,453,000
----------------
Total Investments - (99.88%) - (identified cost $4,339,843,967) - (a)........ 5,970,834,032
Other Assets Less Liabilities - (0.12%)...................................... 7,050,798
----------------
Net Assets - (100%)..................................................... $ 5,977,884,830
================
*Non-Income Producing Security.
(a) Aggregate cost for Federal Income Tax purposes is $4,344,044,409. At
December 31, 2003, unrealized appreciation (depreciation) of securities for
Federal Income Tax purposes is as follows:
Unrealized appreciation...................................................... $ 1,799,454,468
Unrealized depreciation...................................................... (172,664,845)
----------------
Net unrealized appreciation ............................................ $ 1,626,789,623
================
(b) Affiliated company. Represents ownership of at least 5% of the voting
securities of the issuer and is an affiliate, as defined in the Investment
Company Act of 1940, at or during the year ended December 31, 2003. The
aggregate fair value of the securities of affiliated companies held by the Fund
as of December 31, 2003 amounts to $110,042,631. Transactions during the period
in which the issuers were affiliates are as follows:
Shares Gross Gross Shares Dividend
Security December 31, 2002 Additions Reductions December 31, 2003 Income
- -------- ----------------- --------- ---------- ----------------- ------
Centerpoint Properties
Trust 1,521,194 - 52,000 1,469,194 $3,664,911
SEE NOTES TO FINANCIAL STATEMENTS
18
SELECTED FUNDS
SCHEDULE OF INVESTMENTS
SELECTED SPECIAL SHARES, INC.
DECEMBER 31, 2003
VALUE
SHARES SECURITY (NOTE 1)
=======================================================================================================================
COMMON STOCK - (98.53%)
BANKS AND SAVINGS & LOAN ASSOCIATIONS - (6.06%)
37,500 Bank One Corp. ..................................................................... $ 1,709,625
17,900 Commerce Bancorp, Inc. ............................................................. 942,972
30,500 Golden West Financial Corp. ........................................................ 3,147,295
-------------
5,799,892
-------------
BUSINESS SERVICES - (0.66%)
12,500 D&B Corp.*.......................................................................... 633,875
-------------
CHEMICALS - (3.11%)
52,100 Sigma-Aldrich Corp. ................................................................ 2,975,952
-------------
CONSUMER PRODUCTS - (2.84%)
49,900 Altria Group, Inc. ................................................................. 2,715,558
-------------
DISTRIBUTORS - (4.75%)
89,700 Aramark Corp., Class B.............................................................. 2,459,574
42,000 Hughes Supply, Inc. ................................................................ 2,084,040
-------------
4,543,614
-------------
DIVERSIFIED - (3.27%)
55,612 Groupe Bruxelles Lambert S.A. ...................................................... 3,129,954
-------------
DIVERSIFIED MANUFACTURING - (2.85%)
103,000 Tyco International Ltd. ............................................................ 2,729,500
-------------
ELECTRONICS - (9.29%)
402,900 Agere Systems Inc., Class A*........................................................ 1,228,845
117,100 Agilent Technologies, Inc.*......................................................... 3,424,004
37,300 Applied Materials, Inc.*............................................................ 837,012
27,600 Garmin Ltd.......................................................................... 1,502,268
185,060 Taiwan Semiconductor Manufacturing Co. Ltd., ADR*................................... 1,895,014
-------------
8,887,143
-------------
EMPLOYEE STAFFING - (0.43%)
17,260 Hudson Highland Group, Inc.*........................................................ 409,235
-------------
ENERGY - (6.29%)
89,700 Calpine Corp.*...................................................................... 431,457
26,900 PetroChina Co. Ltd., ADR............................................................ 1,534,645
88,000 Premcor Inc.*....................................................................... 2,288,000
58,700 Sempra Energy....................................................................... 1,764,522
-------------
6,018,624
-------------
FINANCIAL SERVICES - (1.91%)
30,000 Northern Trust Corp. ............................................................... 1,392,600
9,300 Takefuji Corp. ..................................................................... 434,900
-------------
1,827,500
-------------
19
SELECTED FUNDS
SCHEDULE OF INVESTMENTS
SELECTED SPECIAL SHARES, INC. - CONTINUED
DECEMBER 31, 2003
VALUE
SHARES SECURITY (NOTE 1)
=======================================================================================================================
COMMON STOCK - CONTINUED
FOOD/BEVERAGE & RESTAURANT - (3.82%)
11,200 Diageo PLC, ADR..................................................................... $ 592,032
25,700 Heineken Holding NV, Class A........................................................ 878,489
52,100 McDonald's Corp. ................................................................... 1,293,643
26,500 Papa John's International, Inc.*.................................................... 884,570
-------------
3,648,734
-------------
HOTELS & MOTELS - (1.02%)
21,000 Marriott International, Inc., Class A............................................... 970,200
-------------
INDUSTRIAL - (1.48%)
26,200 Sealed Air Corp.*................................................................... 1,418,468
-------------
INFORMATION/INFORMATION PROCESSING - (4.52%)
19,600 Automatic Data Processing, Inc. .................................................... 776,356
36,900 Equifax Inc. ....................................................................... 904,050
90,900 Reynolds & Reynolds Co., Class A.................................................... 2,640,645
-------------
4,321,051
-------------
INVESTMENT FIRMS - (0.39%)
1,100 Julius Baer Holding, Ltd. AG........................................................ 370,727
-------------
LIFE INSURANCE - (0.88%)
23,300 AFLAC Inc. ......................................................................... 842,994
-------------
MANUFACTURING - (0.80%)
34,600 Electrolux AB, Series B............................................................. 760,038
-------------
MEDIA - (8.12%)
55,100 Belo Corp., Class A................................................................. 1,561,534
67,800 Lagardere S.C.A. ................................................................... 3,909,886
46,700 WPP Group PLC, ADR.................................................................. 2,297,173
-------------
7,768,593
-------------
MEDICAL INSTRUMENTS - (1.95%)
81,000 Apogent Technologies Inc.*.......................................................... 1,866,240
-------------
PHARMACEUTICAL AND HEALTH CARE - (1.60%)
27,200 AmerisourceBergen Corp. ............................................................ 1,527,280
-------------
PROPERTY/CASUALTY INSURANCE - (2.43%)
15 Berkshire Hathaway Inc., Class A*................................................... 1,263,750
15,700 Cincinnati Financial Corp. ......................................................... 654,376
1,600 Markel Corp.*....................................................................... 405,616
-------------
2,323,742
-------------
REINSURANCE - (3.16%)
11,000 Everest Re Group, Ltd. ............................................................. 930,600
25,900 Transatlantic Holdings, Inc. ....................................................... 2,092,720
-------------
3,023,320
-------------
20
SELECTED FUNDS
SCHEDULE OF INVESTMENTS
SELECTED SPECIAL SHARES, INC. - CONTINUED
DECEMBER 31, 2003
VALUE
SHARES SECURITY (NOTE 1)
=======================================================================================================================
COMMON STOCK - CONTINUED
RETAILING - (15.79%)
227,000 AutoNation, Inc.*................................................................... $ 4,169,990
43,100 AutoZone, Inc.*..................................................................... 3,672,551
33,600 Costco Wholesale Corp.*............................................................. 1,249,248
42,000 Home Depot, Inc. ................................................................... 1,490,580
100,000 Tiffany & Co. ...................................................................... 4,520,000
-------------
15,102,369
-------------
TECHNOLOGY - (5.64%)
116,600 BMC Software, Inc.*................................................................. 2,174,590
519,000 Compal Electronics, Inc. ........................................................... 710,854
9,700 Lexmark International, Inc.*........................................................ 762,808
47,100 Microsoft Corp. .................................................................... 1,295,250
101,700 Sun Microsystems, Inc.*............................................................. 451,548
-------------
5,395,050
-------------
TELECOMMUNICATIONS - (5.47%)
89,700 AT&T Wireless Services Inc.*........................................................ 716,703
234,600 Covad Communications Group, Inc.*................................................... 842,214
84,300 Motorola, Inc. ..................................................................... 1,186,101
96,000 Nokia Oyj........................................................................... 1,658,296
49,000 Nokia Oyj, ADR...................................................................... 833,000
-------------
5,236,314
-------------
Total Common Stock - (identified cost $71,971,186)........................ 94,245,967
-------------
21
SELECTED FUNDS
SCHEDULE OF INVESTMENTS
SELECTED SPECIAL SHARES, INC. - CONTINUED
DECEMBER 31, 2003
VALUE
PRINCIPAL SECURITY (NOTE 1)
=======================================================================================================================
SHORT TERM INVESTMENTS - (2.70%)
$ 727,000 Goldman, Sachs & Co. Joint Repurchase Agreement, 0.99%,
01/02/04, dated 12/31/03, repurchase value of $727,040
(collateralized by: U.S. Government obligations in a pooled cash account,
total market value $741,540).................................................... $ 727,000
1,133,000 Nomura Securities International, Inc. Joint Repurchase Agreement, 1.03%,
01/02/04, dated 12/31/03, repurchase value of $1,133,065
(collateralized by: U.S. Government obligations in a pooled cash account,
total market value $1,155,660)................................................. 1,133,000
727,000 UBS Financial Services Inc. Joint Repurchase Agreement, 1.00%,
01/02/04, dated 12/31/03, repurchase value of $727,040
(collateralized by: U.S. Government obligations in a pooled cash account,
total market value $741,540)................................................... 727,000
-------------
Total Short Term Investments - (identified cost $2,587,000).............. 2,587,000
-------------
Total Investments - (101.23%) - (identified cost $74,558,186) - (a)............ 96,832,967
Liabilities Less Other Assets - (1.23%)......................................... (1,179,819)
-------------
Net Assets - (100%)...................................................... $ 95,653,148
=============
*Non-Income Producing Security.
(a) Aggregate cost for Federal Income Tax purposes is $75,095,767. At December
31, 2003, unrealized appreciation (depreciation) of securities for Federal
Income Tax purposes is as follows:
Unrealized appreciation......................................................... $ 23,036,775
Unrealized depreciation......................................................... (1,299,575)
-------------
Net unrealized appreciation ............................................. $ 21,737,200
=============
SEE NOTES TO FINANCIAL STATEMENTS
22
SELECTED FUNDS
SCHEDULE OF INVESTMENTS
SELECTED CAPITAL PRESERVATION TRUST -
SELECTED U.S. GOVERNMENT INCOME FUND
DECEMBER 31, 2003
VALUE
PRINCIPAL SECURITY (NOTE 1)
=======================================================================================================================
MORTGAGES - (25.90%)
FANNIE MAE POOLS - (9.54%)
$ 42,004 6.00%, 10/01/16, Pool No. 615235.................................................... $ 44,352
95,557 6.50%, 06/01/31, Pool No. 589340.................................................... 100,060
109,500 7.50%, 03/01/32, Pool No. 545546.................................................... 117,007
149,502 6.00%, 11/01/32, Pool No. 545998.................................................... 154,754
-------------
Total FANNIE MAE - (identified cost $411,578)................................ 416,173
-------------
FREDDIE MAC POOLS - (9.06%)
71,700 6.00%, 10/01/16, Pool No. E01054.................................................... 75,571
122,989 6.00%, 11/01/16, Pool No. E86208.................................................... 129,631
91,937 5.00%, 10/01/17, Pool No. E91955.................................................... 94,076
90,749 7.00%, 06/01/32, Pool No. C68162.................................................... 96,075
-------------
Total FREDDIE MAC - (identified cost $391,120)............................... 395,353
-------------
GINNIE MAE POOLS - (7.30%)
178,671 6.00%, 02/15/33, Pool No. 607650.................................................... 186,107
127,001 6.00%, 03/15/33, Pool No. 553126.................................................... 132,287
-------------
Total GINNIE MAE - (identified cost $319,687)................................ 318,394
-------------
Total Mortgages - (identified cost $1,122,385)............................... 1,129,920
-------------
U.S. TREASURY BONDS - (17.48%)
500,000 7.50%, 11/15/16..................................................................... 636,875
15,000 6.00%, 02/15/26..................................................................... 16,645
90,000 6.75%, 08/15/26..................................................................... 108,998
-------------
Total U.S. Treasury Bonds - (identified cost $765,106)....................... 762,518
-------------
U.S. TREASURY NOTES - (26.11%)
400,000 1.875%, 12/31/05.................................................................... 400,266
200,000 6.875%, 05/15/06.................................................................... 222,376
160,000 7.00%, 07/15/06..................................................................... 179,275
80,000 6.50%, 10/15/06..................................................................... 89,138
150,000 4.75%, 11/15/08..................................................................... 160,641
75,000 6.50%, 02/15/10..................................................................... 87,187
-------------
Total U.S. Treasury Notes - (identified cost $1,140,813)..................... 1,138,883
-------------
GOVERNMENT AGENCY NOTES - (25.02%)
160,000 Fannie Mae, 4.375%, 10/15/06........................................................ 167,925
150,000 Fannie Mae, 5.00%, 01/20/07......................................................... 150,262
100,000 Fannie Mae, 6.375%, 06/15/09........................................................ 112,922
250,000 Federal Home Loan Bank, 3.875%, 08/22/08 ........................................... 251,365
23
SELECTED FUNDS
SCHEDULE OF INVESTMENTS
SELECTED CAPITAL PRESERVATION TRUST -
SELECTED U.S. GOVERNMENT INCOME FUND - CONTINUED
DECEMBER 31, 2003
VALUE
PRINCIPAL SECURITY (NOTE 1)
=======================================================================================================================
GOVERNMENT AGENCY NOTES - CONTINUED
$ 250,000 Freddie Mac, 5.75%, 04/15/08........................................................ $ 274,140
135,000 Freddie Mac, 4.375%, 02/04/10....................................................... 134,980
-------------
Total Government Agency Notes - (identified cost $1,098,647)................. 1,091,594
-------------
SHORT TERM INVESTMENTS - (4.75%)
58,000 Goldman, Sachs & Co. Joint Repurchase Agreement, 0.99%,
01/02/04, dated 12/31/03, repurchase value of $58,003
(collateralized by: U.S. Government obligations in a pooled cash account,
total market value $59,160)..................................................... 58,000
91,000 Nomura Securities International, Inc. Joint Repurchase Agreement, 1.03%,
01/02/04, dated 12/31/03, repurchase value of $91,005
(collateralized by: U.S. Government obligations in a pooled cash account,
total market value $92,820).................................................... 91,000
58,000 UBS Financial Services Inc. Joint Repurchase Agreement, 1.00%,
01/02/04, dated 12/31/03, repurchase value of $58,003
(collateralized by: U.S. Government obligations in a pooled cash account,
total market value $59,160).................................................... 58,000
-------------
Total Short Term Investments - (identified cost $207,000).................. 207,000
-------------
Total Investments - (99.26%) - (identified cost $4,333,951) - (a)............... 4,329,915
Other Assets Less Liabilities - (0.74%)......................................... 32,323
-------------
Net Assets - (100%)........................................................ $ 4,362,238
=============
(a) Aggregate cost for Federal Income Tax purposes is $4,333,951. At December
31, 2003, unrealized appreciation (depreciation) of securities for Federal
Income Tax purposes is as follows:
Unrealized appreciation......................................................... $ 17,428
Unrealized depreciation......................................................... (21,464)
-------------
Net unrealized depreciation................................................ $ (4,036)
=============
SEE NOTES TO FINANCIAL STATEMENTS
24
SELECTED FUNDS
SCHEDULE OF INVESTMENTS
SELECTED CAPITAL PRESERVATION TRUST -
SELECTED DAILY GOVERNMENT FUND
DECEMBER 31, 2003
VALUE
PRINCIPAL (NOTE 1)
=======================================================================================================================
FANNIE MAE - (35.58%)
$ 92,000 Principal-Only Strip, 1.286%, 05/19/04.............................................. $ 91,553
5,000,000 1.016%, 01/20/04 (b)................................................................ 4,999,848
900,000 1.08%, 01/28/04 .................................................................... 899,271
8,000,000 0.955%, 01/29/04 (b)................................................................ 7,999,909
100,000 1.10%, 02/04/04 .................................................................... 99,896
970,000 5.125%, 02/13/04.................................................................... 974,463
7,000,000 1.023%, 03/11/04 (b)................................................................ 7,000,074
75,000 5.91%, 03/19/04..................................................................... 75,754
4,455,000 1.01%, 03/22/04 (b)................................................................. 4,454,263
10,000 6.85%, 04/05/04..................................................................... 10,144
5,000,000 0.965%, 04/29/04 (b)................................................................ 4,999,890
47,000 5.625%, 05/14/04.................................................................... 47,741
500,000 1.031%, 08/13/04 (b)................................................................ 500,094
2,000,000 1.111%, 09/10/04 (b)................................................................ 2,000,000
2,000,000 1.63%, 12/15/04..................................................................... 2,000,000
2,000,000 1.50%, 12/21/04..................................................................... 2,000,000
2,000,000 1.52%, 01/19/05..................................................................... 2,000,000
--------------
Total FANNIE MAE - (identified cost $40,152,900) ................................. 40,152,900
--------------
FEDERAL FARM CREDIT BANK - (0.65%)
250,000 5.15%, 03/05/04..................................................................... 251,720
470,000 5.10%, 04/26/04..................................................................... 475,830
--------------
Total Federal Farm Credit Bank - (identified cost $727,550)....................... 727,550
--------------
FEDERAL HOME LOAN BANK - (15.37%)
5,000,000 1.023%, 01/02/04 (b)................................................................ 4,999,990
25,000 5.06%, 01/05/04..................................................................... 25,010
1,820,000 5.375%, 01/05/04.................................................................... 1,820,841
25,000 5.28%, 01/06/04..................................................................... 25,014
250,000 5.17%, 01/08/04..................................................................... 250,191
40,000 6.06%, 01/12/04..................................................................... 40,059
50,000 5.50%, 01/26/04..................................................................... 50,149
25,000 5.195%, 01/29/04.................................................................... 25,071
85,000 5.25%, 01/29/04..................................................................... 85,253
25,000 6.00%, 02/04/04..................................................................... 25,105
100,000 5.10%, 02/05/04..................................................................... 100,365
15,000 6.688%, 02/11/04.................................................................... 15,092
500,000 3.270%, 02/12/04.................................................................... 501,217
250,000 5.25%, 02/13/04..................................................................... 251,177
25
SELECTED FUNDS
SCHEDULE OF INVESTMENTS
SELECTED CAPITAL PRESERVATION TRUST -
SELECTED DAILY GOVERNMENT FUND - CONTINUED
DECEMBER 31, 2003
VALUE
PRINCIPAL (NOTE 1)
=======================================================================================================================
FEDERAL HOME LOAN BANK - CONTINUED
$ 400,000 5.435%, 02/23/04.................................................................... $ 402,457
100,000 5.62%, 02/25/04..................................................................... 100,659
150,000 9.50%, 02/25/04..................................................................... 151,867
70,000 5.485%, 03/23/04.................................................................... 70,674
50,000 6.05%, 03/26/04..................................................................... 50,564
350,000 4.875%, 05/14/04.................................................................... 354,590
1,000,000 1.25%/1.75%, 11/26/04 (c)........................................................... 1,000,000
5,000,000 0.991%, 12/17/04 (b)................................................................ 4,999,526
2,000,000 1.082%, 01/05/05 (b)................................................................ 1,999,899
--------------
Total Federal Home Loan Bank - (identified cost $17,344,770)...................... 17,344,770
--------------
FREDDIE MAC - (28.30%)
7,850,000 3.25%, 01/15/04..................................................................... 7,856,373
3,500,000 5.00%, 01/15/04..................................................................... 3,505,170
5,000,000 1.07%, 01/21/04..................................................................... 4,997,028
3,000,000 1.085%, 02/05/04.................................................................... 2,996,835
775,000 5.25%, 02/15/04..................................................................... 778,881
5,100,000 1.08%, 02/19/04..................................................................... 5,092,503
25,000 3.50%, 02/20/04..................................................................... 25,070
150,000 6.313%, 02/26/04.................................................................... 151,154
1,500,000 5.00%, 05/15/04..................................................................... 1,520,658
20,000 6.25%, 07/15/04..................................................................... 20,458
5,000,000 1.45%, 11/16/04..................................................................... 4,998,054
--------------
Total FREDDIE MAC - (identified cost $31,942,184)................................. 31,942,184
--------------
SALLIE MAE - (0.63%)
200,000 0.991%, 01/15/04 (b)................................................................ 199,980
500,000 5.00%, 06/30/04..................................................................... 509,315
--------------
Total SALLIE MAE - (identified cost $709,295)..................................... 709,295
--------------
26
SELECTED FUNDS
SCHEDULE OF INVESTMENTS
SELECTED CAPITAL PRESERVATION TRUST -
SELECTED DAILY GOVERNMENT FUND - CONTINUED
DECEMBER 31, 2003
VALUE
PRINCIPAL (NOTE 1)
=======================================================================================================================
REPURCHASE AGREEMENTS - (21.01%)
$ 6,667,000 Goldman, Sachs & Co. Joint Repurchase Agreement, 0.99%,
01/02/04, dated 12/31/03, repurchase value of $6,667,367
(collateralized by: U.S. Government obligations in a pooled cash account,
total market value $6,800,340).................................................. $ 6,667,000
10,381,000 Nomura Securities International, Inc. Joint Repurchase Agreement, 1.03%,
01/02/04, dated 12/31/03, repurchase value of $10,381,594
(collateralized by: U.S. Government obligations in a pooled cash account,
total market value $10,588,620)................................................ 10,381,000
6,667,000 UBS Financial Services Inc. Joint Repurchase Agreement, 1.00%,
01/02/04, dated 12/31/03, repurchase value of $6,667,370
(collateralized by: U.S. Government obligations in a pooled cash account,
total market value $6,800,340)................................................. 6,667,000
--------------
Total Repurchase Agreements - (identified cost $23,715,000)............... 23,715,000
--------------
Total Investments - (101.54%) - (identified cost $114,591,699) - (a)........... 114,591,699
Liabilities Less Other Assets - (1.54%)........................................ (1,739,173)
--------------
Net Assets - (100%)........................................................ $ 112,852,526
==============
(a) Aggregate cost for Federal Income Tax purposes is $114,591,699.
(b) The interest rates on floating rate securities, shown as of December 31,
2003, may change daily or less frequently and are based on indices of market
rates. For purposes of amortized cost valuation, the maturity dates of these
securities are considered to be the effective maturities, based on the reset
dates of the securities' variable rates.
(c) Represents a step-up bond: a bond that pays one coupon rate for an initial
period followed by a higher coupon rate.
SEE NOTES TO FINANCIAL STATEMENTS
27
SELECTED FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 2003
================================================================================
U.S.
SELECTED SELECTED GOVERNMENT DAILY
AMERICAN SPECIAL INCOME GOVERNMENT
SHARES SHARES FUND FUND
------ ------ ---- ----
ASSETS:
Investments in securities, at value * (see
accompanying Schedules of Investments)
Unaffiliated companies...................... $ 5,860,791,401 $ 96,832,967 $ 4,329,915 $ 114,591,699
Affiliated companies........................ 110,042,631 - - -
Cash.......................................... 160,663 3,073 2,331 3,231
Receivables:
Dividends and interest...................... 10,387,601 79,105 37,929 410,044
Capital stock sold.......................... 13,110,378 371,816 266 24,560
Due from adviser............................ - - 786 -
Prepaid expenses............................ 63,861 5,070 654 4,093
--------------- -------------- -------------- --------------
Total assets............................ 5,994,556,535 97,292,031 4,371,881 115,033,627
--------------- -------------- -------------- --------------
LIABILITIES:
Payables:
Capital stock reacquired.................... 5,220,290 717,979 237 64,588
Investment securities purchased............. 5,330,940 787,804 - 1,999,899
Accrued expenses.............................. 2,027,290 52,469 4,573 41,922
Accrued management fees....................... 2,994,654 60,025 1,302 31,456
Distributions payable......................... - - 3,043 34,144
Other liabilities............................. 1,098,531 20,606 488 9,092
--------------- -------------- -------------- --------------
Total liabilities....................... 16,671,705 1,638,883 9,643 2,181,101
--------------- -------------- -------------- --------------
NET ASSETS ...................................... $ 5,977,884,830 $ 95,653,148 $ 4,362,238 $ 112,852,526
=============== ============== ============== ==============
SHARES OUTSTANDING (NOTE 5)...................... 180,203,897 8,174,281 492,206 112,852,526
=============== ============== ============== ==============
NET ASSET VALUE, offering and
redemption price per share (Net
Assets [divided by] Shares Outstanding)..... $ 33.17 $ 11.70 $ 8.86 $ 1.00
=========== ========== ========== ==========
NET ASSETS CONSIST OF:
Par value of shares of capital stock.......... $ 225,254,871 $ 2,043,570 $ 49,221 $ 11,285,253
Additional paid-in capital.................... 4,639,733,025 72,071,221 4,373,012 101,567,273
Overdistributed net investment income......... (1,300,146) (24,039) (146) -
Accumulated net realized losses from
investments and foreign currency
transactions................................ (516,808,966) (707,785) (55,813) -
Net unrealized appreciation (depreciation) on
investments and foreign currency
transactions................................ 1,631,006,046 22,270,181 (4,036) -
--------------- -------------- -------------- --------------
$ 5,977,884,830 $ 95,653,148 $ 4,362,238 $ 112,852,526
=============== ============== ============== ==============
* Including repurchase agreements of $350,453,000, $2,587,000, $207,000 and
$23,715,000 for Selected American Shares, Selected Special Shares, Selected U.S.
Government Income Fund and Selected Daily Government Fund, respectively, and
cost of $74,558,186, $4,333,951 and $114,591,699 for Selected Special Shares,
Selected U.S. Government Income Fund and Selected Daily Government Fund,
respectively. For Selected American Shares, the cost for Unaffiliated and
Affiliated companies is $4,309,748,945 and $30,095,022, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
28
SELECTED FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003
================================================================================
U.S.
SELECTED SELECTED GOVERNMENT DAILY
AMERICAN SPECIAL INCOME GOVERNMENT
SHARES SHARES FUND FUND
------ ------ ---- ----
INVESTMENT INCOME (LOSS):
Income:
Dividends
Unaffiliated companies*...................... $ 76,951,620 $ 563,755 $ - $ -
Affiliated companies......................... 3,664,911 - - -
Interest....................................... 3,700,663 37,037 150,685 1,392,108
Security lending fees.......................... 25,807 - - -
--------------- --------------- --------------- ------------
Total income............................... 84,343,001 600,792 150,685 1,392,108
--------------- --------------- --------------- ------------
Expenses:
Management fees (Note 2)....................... 27,228,113 506,345 15,415 344,997
Custodian fees................................. 880,492 30,006 13,606 21,397
Transfer agent fees............................ 3,825,267 93,983 12,717 45,747
Audit fees..................................... 45,600 14,400 7,200 12,000
Legal fees..................................... 68,253 4,409 170 3,900
Reports to shareholders........................ 588,657 8,121 1,253 10,034
Directors' fees and expenses................... 614,122 10,142 511 11,008
Registration and filing fees................... 57,233 24,249 12,564 22,344
Miscellaneous.................................. 33,134 10,047 7,128 6,917
Payments under distribution plan (Note 3)...... 12,166,768 182,906 12,846 287,497
--------------- --------------- --------------- ------------
Total expenses............................. 45,507,639 884,608 83,410 765,841
Expenses paid indirectly (Note 6).......... (136,685) (17) (57) (11)
Reimbursement/waiver of expenses by
adviser (Note 2)......................... - - (16,532) -
--------------- --------------- --------------- ------------
Net expenses............................... 45,370,954 884,591 66,821 765,830
--------------- --------------- --------------- ------------
Net investment income (loss)............... 38,972,047 (283,799) 83,864 626,278
--------------- --------------- --------------- ------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Investment transactions:
Unaffiliated companies..................... (140,811,460) 4,765,105 14,290 -
Affiliated companies....................... 1,742,262 - - -
Foreign currency transactions................ (158,574) (28,483) - -
Payments by affiliates (Note 8).............. 119,713 - - -
Net change in unrealized appreciation
(depreciation) of investments during the
period .................................... 1,469,948,314 21,631,485 (86,753) -
--------------- --------------- --------------- ------------
Net realized and unrealized gain (loss) on
investments, foreign currency and
payments by affiliates....................... 1,330,840,255 26,368,107 (72,463) -
--------------- --------------- --------------- ------------
Net increase in net assets resulting
from operations............................ $ 1,369,812,302 $ 26,084,308 $ 11,401 $ 626,278
=============== =============== =============== ============
* Net of foreign taxes withheld as follows..... $ 1,714,134 $ 15,240 - -
SEE NOTES TO FINANCIAL STATEMENTS
29
SELECTED FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31, 2003
================================================================================
U.S.
SELECTED SELECTED GOVERNMENT DAILY
AMERICAN SPECIAL INCOME GOVERNMENT
SHARES SHARES FUND FUND
------ ------ ---- ----
OPERATIONS:
Net investment income (loss)................ $ 38,972,047 $ (283,799) $ 83,864 $ 626,278
Net realized gain (loss) from investments,
foreign currency transactions and
payments by affiliates.................... (139,108,059) 4,736,622 14,290 -
Net change in unrealized appreciation
(depreciation) of investments............. 1,469,948,314 21,631,485 (86,753) -
---------------- --------------- ---------------- ---------------
Net increase in net assets resulting
from operations........................... 1,369,812,302 26,084,308 11,401 626,278
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income....................... (35,901,174) - (146,284) (626,278)
Realized gains from investment transactions. - (3,656,693) - -
Return of capital........................... (2,024,047) - - -
CAPITAL SHARE TRANSACTIONS
(NOTE 5).................................... 300,352,365 13,463,555 (848,550) (3,333,974)
---------------- --------------- ---------------- ---------------
Total increase (decrease) in net assets......... 1,632,239,446 35,891,170 (983,433) (3,333,974)
NET ASSETS:
Beginning of year........................... 4,345,645,384 59,761,978 5,345,671 116,186,500
---------------- --------------- ---------------- ---------------
End of year (including overdistributed net
investment income of $1,300,146,
$24,039 and $146 for Selected
American Shares, Selected Special Shares
and Selected U.S. Government Income
Fund, respectively)....................... $ 5,977,884,830 $ 95,653,148 $ 4,362,238 $ 112,852,526
================ =============== ================ ===============
SEE NOTES TO FINANCIAL STATEMENTS
30
SELECTED FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31, 2002
================================================================================
U.S.
SELECTED SELECTED GOVERNMENT DAILY
AMERICAN SPECIAL INCOME GOVERNMENT
SHARES SHARES FUND FUND
------ ------ ---- ----
OPERATIONS:
Net investment income (loss).............. $ 29,532,405 $ (309,343) $ 168,632 $ 1,476,610
Net realized gain (loss) from
investments and foreign currency
transactions............................ (308,403,528) (1,567,663) 129,053 -
Net increase (decrease) in unrealized
appreciation of investments............. (658,252,830) (11,458,544) 15,448 -
---------------- ------------- ------------ -------------
Net increase (decrease) in net
assets resulting from operations........ (937,123,953) (13,335,550) 313,133 1,476,610
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income..................... (32,858,762) - (168,632) (1,476,610)
Realized gains from investment
transactions .......................... - (301,935) (49,411) -
Return of capital......................... (1,389,403) - - -
CAPITAL SHARE TRANSACTIONS
(NOTE 5).................................. (247,964,073) 307,866 1,273,794 3,806,489
---------------- ------------- ------------ -------------
Total increase (decrease) in net assets....... (1,219,336,191) (13,329,619) 1,368,884 3,806,489
NET ASSETS:
Beginning of year......................... 5,564,981,575 73,091,597 3,976,787 112,380,011
---------------- ------------- ------------ -------------
End of year (including overdistributed
net investment income of $4,212,445,
$14,940 and $146 for Selected American
Shares, Selected Special Shares and
Selected U.S. Government Income Fund,
respectively) ......................... $ 4,345,645,384 $ 59,761,978 $ 5,345,671 $ 116,186,500
================ ============= ============ =============
SEE NOTES TO FINANCIAL STATEMENTS
31
SELECTED FUNDS
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Selected Funds (the Funds) consist of Selected American Shares, Inc.,
(American Shares, Inc.), Selected Special Shares, Inc., (Special Shares, Inc.)
and the Selected Capital Preservation Trust (the Trust). The Trust operates as a
series fund, consisting of the U.S. Government Income Fund and Daily Government
Fund. The Funds and Trust are registered under the Investment Company Act of
1940, as amended, as diversified, open-end management investment companies. The
Trust accounts separately for the assets, liabilities and operations of each
series. The following is a summary of significant accounting policies followed
by the Funds in the preparation of financial statements.
American Shares, Inc. and Special Shares, Inc. are diversified,
professionally managed stock-oriented funds.
Selected U.S. Government Income Fund (U.S. Government Income) seeks to
obtain current income consistent with preservation of capital by investing
primarily in debt obligations of the U.S. Government, its agencies or
instrumentalities. The Board of Trustees of U.S. Government Income has approved
the liquidation of U.S. Government Income to take effect on or about March 16,
2004.
Selected Daily Government Fund (Daily Government) seeks to provide a high
level of current income from short-term money market securities consistent with
prudent investment management, preservation of capital and maintenance of
liquidity. It invests in U.S. Government Securities and repurchase agreements in
respect thereto.
An investment in any of the Funds, as with any mutual fund, includes risks
that vary depending upon the fund's investment objectives and policies. There is
no assurance that the investment objective of any fund will be achieved. A
fund's return and net asset value will fluctuate, although Daily Government
seeks to maintain a net asset value of $1.00 per share.
A. VALUATION OF SECURITIES - Securities listed on national securities exchanges
are valued at the last reported sales price on the day of valuation. Securities
traded in the over the counter market and listed securities for which no sale
was reported on that date are stated at the last quoted bid price. Securities
for which market quotations are not readily available, or whose values have been
affected by a significant event occurring after the close of their primary
markets, are valued at fair value as determined in good faith by the Board of
Directors/Trustees. Daily Government uses the amortized cost method of valuing
investment securities, which represents fair value. These valuation procedures
are reviewed and subject to approval by the Board of Directors/Trustees.
B. MASTER REPURCHASE AGREEMENTS - The Funds, along with other affiliated funds,
may transfer uninvested cash balances into one or more master repurchase
agreement accounts. These balances are invested in one or more repurchase
agreements, secured by U.S. government securities. Securities pledged as
collateral for repurchase agreements are held by a custodian bank until the
agreements mature. Each agreement requires that the market value of the
collateral be sufficient to cover payments of interest and principal; however,
in the event of default by the other party to the agreement, retention of the
collateral may be subject to legal proceedings.
C. CURRENCY TRANSLATION - The market values of all assets and liabilities
denominated in foreign currencies are recorded in the financial statements after
translation to the U.S. dollar based upon the mean between the bid and offered
quotations of the currencies against U.S. dollars on the date of valuation. The
cost basis of such assets and liabilities is determined based upon historical
exchange rates. Income and expenses are translated at average exchange rates in
effect as accrued or incurred.
32
SELECTED FUNDS
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 2003
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
D. FOREIGN CURRENCY - The Funds may enter into forward purchases or sales of
foreign currencies to hedge certain foreign currency denominated assets and
liabilities against declines in market value relative to the U.S. dollar.
Forward currency contracts are marked-to-market daily and the change in market
value is recorded by the Funds as an unrealized gain or loss. When the forward
currency contract is closed, the Funds record a realized gain or loss equal to
the difference between the value of the forward currency contract at the time it
was opened and value at the time it was closed. Investments in forward currency
contracts may expose the Funds to risks resulting from unanticipated movements
in foreign currency exchange rates or failure of the counter-party to the
agreement to perform in accordance with the terms of the contract.
Reported net realized foreign exchange gains or losses arise from the sales
and maturities of investments, sales of foreign currencies, currency gains or
losses realized between the trade and settlement dates on securities
transactions, the difference between the amounts of dividends, interest and
foreign withholding taxes recorded on the Funds' books, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in the exchange rate. The Funds include foreign currency gains and
losses realized on the sale of investments together with market gains and losses
on such investments in the statement of operations.
E. FEDERAL INCOME TAXES - It is each Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income, including
any net realized gains on investments not offset by loss carryovers, to
shareholders. Therefore, no provision for federal income or excise tax is
required. At December 31, 2003, American Shares, Inc. had post October 2003
losses of approximately $39,179,000 available to offset future capital gains, if
any, which expire in 2012. Additionally, American Shares, Inc. had $110,000 of
post October 2003 foreign currency losses which were deferred. At December 31,
2003, Special Shares, Inc. had post October 2003 losses of approximately
$170,000 available to offset future capital gains, if any, which expire in 2012.
Additionally, Special Shares, Inc. had $3,000 of post October 2003 foreign
currency losses which were deferred. At December 31, 2003, U.S. Government
Income had post October 2003 losses of approximately $4,100 available to offset
future capital gains, if any, which expire in 2012. At December 31, 2003, the
Funds had available for federal income tax purposes unused capital loss
carryforwards as follows:
AMERICAN U.S. GOVERNMENT
SHARES, INC. INCOME
------------ ------
EXPIRING
--------
12/31/2009 $ 67,867,000 $ -
12/31/2010 296,227,000 -
12/31/2011 109,428,000 51,700
--------------- -------------
TOTAL $ 473,522,000 $ 51,700
F. USE OF ESTIMATES IN FINANCIAL STATEMENTS - In preparing financial statements
in conformity with accounting principles generally accepted in the United States
of America, management makes estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, as well as the reported
amounts of income and expenses during the reporting period. Actual results may
differ from these estimates.
33
SELECTED FUNDS
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 2003
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
G. SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME - Securities
transactions are accounted for on the trade date (date the order to buy or sell
is executed) with realized gain or loss on the sale of securities being
determined based upon identified cost. Dividend income is recorded on the
ex-dividend date. Interest income, which includes accretion of discount and
amortization of premium, is accrued as earned.
H. DIRECTORS/TRUSTEES FEES AND EXPENSES - The Funds have adopted a non-funded
deferred compensation plan for independent Directors/Trustees that enables
Directors/Trustees to elect to defer receipt of all or a portion of annual fees
they are entitled to receive. The value of an eligible Director's/Trustee's
deferral account is based upon years of service and fees paid to each
Director/Trustee during the years of service. Under the plan, the compensation
deferred is periodically adjusted as though an equivalent amount had been
invested for the Director/Trustee in shares of one or more Selected Funds
selected by the Director/Trustee. The amount paid to the Director/Trustee under
the plan will be determined based upon the performance of the Selected Funds.
Deferral of Director/Trustees' fees under the plan will not affect the net
assets of the Funds, and will not materially affect the Fund's assets,
liabilities, or net income per share.
On December 31, 2003, the Funds set up a Rabbi Trust to provide for the
deferred compensation plan. The Funds will make contributions to the Trust to
assist in meeting of the liabilities under the Plan. During the year ended
December 31, 2003, for American Shares, Inc., Special Shares, Inc., U.S.
Government Income and Daily Government credits of $441,129, $7,175, $103 and
$1,991, respectively were made for these obligations. These amounts along with
the previously accrued liability were transferred into the Trust. The amount of
shares to be purchased by the Trust of American Shares, Inc., Special Shares,
Inc., U.S. Government Income and Daily Government were $1,098,531, $20,606, $488
and $9,092, respectively.
I. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions to
shareholders are recorded on the ex-dividend date. Net investment income (loss),
net realized gains (losses) and net unrealized appreciation (depreciation) of
investments may differ for financial statement and tax purposes primarily
because of the recognition of certain foreign currency gains (losses) as
ordinary income (loss) for tax purposes, the tax deferral of losses on "wash
sale" transactions and the tax treatment of paydowns on fixed income securities.
The character of dividends and distributions made during the fiscal year from
net investment income and net realized securities gains may differ from their
ultimate characterization for federal income tax purposes. Also, due to the
timing of dividends and distributions, the fiscal year in which amounts are
distributed may differ from the fiscal year in which income or realized gain was
recorded by the Funds. The Funds adjust the classification of distributions to
shareholders to reflect the differences between financial statement amounts and
distributions determined in accordance with income tax regulations. Accordingly,
during the year ended December 31, 2003, for Selected American Shares, amounts
have been reclassified to reflect a decrease in undistributed net investment
loss of $1,865,473, a decrease in accumulated net realized loss of $158,574 and
a decrease in paid in capital of $2,024,047; for Selected Special Shares,
amounts have been reclassified to reflect a decrease in undistributed net
investment loss of $274,700, an increase in accumulated net realized loss of
$227,260 and a decrease in paid in capital of $47,440; for U.S. Government
Income, amounts have been reclassified to reflect a decrease in undistributed
net investment loss of $62,420 and a corresponding decrease to accumulated
realized gain.
34
SELECTED FUNDS
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 2003
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
The tax character of distributions paid during the years ended December 31, 2003
and 2002, was as follows:
Ordinary Long-Term Return of
Income Capital Gain Capital Total
------ ------------ ------- -----
Selected American Shares
2003 ......................... $35,901,174 $ - $ 2,024,047 $37,925,221
2002 ......................... 32,858,762 - 1,389,403 34,248,165
Selected Special Shares
2003 ......................... 1,898,668 1,758,025 - 3,656,693
2002 ......................... - 301,935 - 301,935
Selected US Government Income Fund
2003 ......................... 146,284 - - 146,284
2002 ......................... 168,632 49,411 - 218,043
Selected Daily Government Fund
2003 ......................... 626,278 - - 626,278
2002 ......................... 1,476,610 - - 1,476,610
As of December 31, 2003 the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
U.S.
SELECTED SELECTED GOVERNMENT
AMERICAN SPECIAL INCOME
SHARES SHARES FUND
------ ------ ----
Undistributed net investment income.............. $ - $ - $ 342
Accumulated net realized losses from
investments and foreign currency
transactions ................................. (512,810,139) (173,638) (55,813)
Net unrealized appreciation (depreciation)
on investments.............................. 1,626,805,604 21,732,601 (4,036)
--------------- -------------- --------------
Total....................................... $ 1,113,995,465 $ 21,558,963 $ (59,507)
=============== ============== ==============
35
SELECTED FUNDS
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 2003
================================================================================
NOTE 2 - INVESTMENT ADVISORY FEES
Advisory fees are paid monthly to Davis Selected Advisers, L.P. (the
"Adviser"), the Fund's investment adviser. The rate for American Shares, Inc. is
0.65% on the first $500 million of average net assets, 0.60% of the average net
assets on the next $500 million, 0.55% of the average net assets on the next $2
billion, 0.54% of the average net assets on the next $1 billion, 0.53% of the
average net assets on the next $1 billion, 0.52% of the average net assets on
the next $1 billion, 0.51% of the average net assets on the next $1 billion and
0.50% of the average net assets in excess of $7 billion. The rate for Special
Shares, Inc. is 0.70% on the first $50 million of average net assets, 0.675% on
the next $100 million, 0.65% on the next $100 million and 0.60% of average net
assets in excess of $250 million. Advisory fees paid during the year ended
December 31, 2003, approximated 0.56% and 0.69% of average net assets for
American Shares, Inc. and Special Shares, Inc., respectively. The rate for both
U.S. Government Income and Daily Government is 0.30% of average net assets.
State Street Bank and Trust Company ("State Street Bank") is the Funds'
primary transfer agent. The Adviser is also paid for certain transfer agent
services. The fee paid to the Adviser for the year ended December 31, 2003 was
$176,828, $10,974, $968 and $3,842 for American Shares, Inc., Special Shares,
Inc., U.S. Government Income and Daily Government, respectively. Certain
Directors/Trustees and officers of the Funds are also Directors/Trustees and
officers of the general partner of the Adviser.
The Adviser has voluntarily agreed to waive certain expenses incurred in
the current fiscal year which exceed 1.30% of average net assets for U.S.
Government Income. During the year ended December 31, 2003, the Adviser
voluntarily agreed to waive $16,532 in expenses for U.S. Government Income. This
undertaking may be amended or withdrawn at any time.
Davis Selected Advisers - NY, Inc. ("DSA-NY"), a wholly-owned subsidiary of
the Adviser, acts as sub-adviser to the Funds. The Funds pay no fees directly to
DSA-NY.
NOTE 3 - DISTRIBUTION
For services under the distribution agreement, the Funds pay a fee of 0.25%
of average daily net assets. For the year ended December 31, 2003, American
Shares, Inc., Special Shares, Inc., U.S. Government Income and Daily Government
incurred distribution services fees totaling $12,166,768, $182,906, $12,846 and
$287,497, respectively.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities (excluding short-term
securities) during the year ended December 31, 2003 were as follows:
AMERICAN SPECIAL U.S. GOVERNMENT
SHARES, INC. SHARES, INC. INCOME
------------ ------------ ------
Cost of purchases........... $ 650,887,660 $ 43,168,611 $ 6,639,484
Proceeds of sales........... $ 383,134,243 $ 32,593,861 $ 5,020,823
36
SELECTED FUNDS
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 2003
================================================================================
Note 5 - Capital Stock
At December 31, 2003, there were 300 million shares of capital stock of
American Shares, Inc. ($1.25 par value per share) authorized. At December 31,
2003, there were 50 million shares of capital stock of Special Shares, Inc.
($0.25 par value per share) authorized. At December 31, 2003, there were
unlimited shares of capital stock of Selected Capital Preservation Trust ($0.10
par value per share) authorized. Transactions in capital stock were as follows:
YEAR ENDED
DECEMBER 31, 2003
----------------------------------------------------------------
AMERICAN SPECIAL U.S.
SHARES SHARES GOVERNMENT DAILY
INC. INC. INCOME GOVERNMENT
---- ---- ------ ----------
Shares sold ..................................... 34,874,537 2,003,231 117,387 10,583,488
Shares issued in reinvestment of distributions .. 1,117,524 298,010 15,179 640,691
--------- ------- ------ -------
35,992,061 2,301,241 132,566 11,224,179
Shares redeemed ................................. (26,149,475) (1,067,330) (229,472) (14,558,153)
----------- ---------- -------- -----------
Net increase (decrease) ................... 9,842,586 1,233,911 (96,906) (3,333,974)
========= ========= ======= ==========
Proceeds from shares sold ....................... $985,458,597 $20,328,439 $ 1,064,586 $10,583,488
Proceeds from shares issued in
reinvestment of distributions ............... 35,661,013 3,439,034 136,368 640,691
---------- --------- ------- -------
1,021,119,610 23,767,473 1,200,954 11,224,179
Cost of shares redeemed ......................... (720,767,245) (10,303,918) (2,049,504) (14,558,153)
------------ ----------- ---------- -----------
Net increase (decrease) ................... $300,352,365 $13,463,555 $ (848,550) $(3,333,974)
============ =========== =========== ===========
YEAR ENDED
DECEMBER 31, 2002
-------------------------------------------------------------------
AMERICAN SPECIAL U.S.
SHARES SHARES GOVERNMENT DAILY
INC. INC. INCOME GOVERNMENT
---- ---- ------ ----------
Shares sold ..................................... 37,405,530 2,426,855 375,506 14,742,743
Shares issued in reinvestment of distributions .. 1,234,100 30,503 21,723 1,507,431
--------- ------ ------ ---------
38,639,630 2,457,358 397,229 16,250,174
Shares redeemed ................................. (47,855,930) (2,481,408) (256,805) (12,443,685)
----------- ---------- -------- -----------
Net increase (decrease) ................... (9,216,300) (24,040) 140,424 3,806,489
========== ======= ======= =========
Proceeds from shares sold ....................... $1,036,812,994 $23,340,084 $3,375,643 $14,742,743
Proceeds from shares issued in
reinvestment of distributions ............... 32,656,579 280,018 195,087 1,507,431
---------- ------- ------- ---------
1,069,469,573 23,620,102 3,570,730 16,250,174
Cost of shares redeemed ......................... (1,317,433,646) (2,296,936) (12,443,685) (12,443,685)
-------------- ---------- ----------- ----------
Net increase (decrease) ................... $(247,964,073) $307,866 $1,273,794 $3,806,489
============= ======== ========== ==========
NOTE 6 - EXPENSES PAID INDIRECTLY
Under an agreement with the custodian bank, each Fund's custodian fees are
reduced for earnings on cash balances maintained at the custodian by the Funds.
During the year ended December 31, 2003, such reductions amounted to $213, $17,
$57 and $11 for American Shares, Inc., Special Shares, Inc., U.S. Government
Income and Daily Government, respectively.
37
SELECTED FUNDS
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 2003
================================================================================
Note 6 - EXPENSES PAID INDIRECTLY - (Continued)
American Shares, Inc. has entered into agreements with certain brokers
whereby the Fund's operating expenses are reduced by a portion of the
commissions paid to such brokers. Portfolio transactions are allocated to these
brokers only when the Fund's traders make a good faith determination that such
brokers can achieve best execution, not withstanding the operating expense
reductions. During the year ended December 31, 2003 the reduction amounted to
$136,472.
Note 7 - SECURITIES LOANED
American Shares, Inc. (the "Fund") has entered into a securities lending
arrangement with UBS Financial Services Inc. Under the terms of the agreement,
the Fund receives fee income from lending transactions; in exchange for such
fees, UBS Financial Services Inc. is authorized to loan securities on behalf of
the Fund, against receipt of collateral at least equal to the value of the
securities loaned. Cash collateral is invested by the Adviser in money market
instruments. As of December 31, 2003, the Fund did not have any loaned
securities. The Fund bears the risk of any deficiency in the amount of the
collateral available for return to a borrower due to a loss in an approved
investment.
Note 8 - PAYMENTS BY AFFILIATES
Davis Selected Advisers, L.P. reimbursed each fund 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 Selected
American Shares, Inc. was $119,713.
38
SELECTED FUNDS
FINANCIAL HIGHLIGHTS
SELECTED AMERICAN SHARES, INC.
================================================================================
The following financial information represents selected data for each share of
capital stock outstanding throughout each period:
Year ended December 31,
-----------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Net Asset Value, Beginning of Period.... $ 25.51 $ 30.99 $ 35.33 $ 35.80 $ 31.16
---------- ---------- ---------- ---------- ----------
Income (Loss) From Investment Operations
Net Investment Income.................. .22 .17 .14 .15 .15
Net Realized and Unrealized
Gains (Losses)...................... 7.65 (5.45) (4.10) 2.98 6.08
---------- ---------- ---------- ---------- ----------
Total From Investment Operations.... 7.87 (5.28) (3.96) 3.13 6.23
Dividends and Distributions
Dividends from Net Investment Income... (.20) (.17) (.14) (.14) (.15)
Distributions from Realized Gains...... - - (.24) (3.46) (1.44)
Dividends in Excess of Net
Investment Income................... - - -(4) - -
Return of Capital..................... (.01) (.03) - - -
---------- ---------- ---------- ---------- ----------
Total Dividends and Distributions... (.21) (.20) (.38) (3.60) (1.59)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period.......... $ 33.17 $ 25.51 $ 30.99 $ 35.33 $ 35.80
========== ========== ========== ========== ==========
Total Return(1)......................... 30.90% (17.06)% (11.17)% 9.33% 20.32%
Ratios/Supplemental Data
Net Assets, End of Period
(000,000 omitted)................... $5,978 $4,346 $5,565 $5,707 $3,704
Ratio of Expenses to Average Net Assets .94%(3) .94%(3) .94%(3) .92% .93%
Ratio of Net Investment Income to
Average Net Assets.................. .80% .61% .45% .52% .24%
Portfolio Turnover Rate(2)............. 8% 19% 20% 22% 21%
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period.
(2) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio
securities owned during the period. Securities with a maturity or
expiration date at the time of acquisition of one year or less are
excluded from the calculation.
(3) Ratio of expenses to average net assets after the reduction of expenses
paid indirectly .93% for 2003, 2002 and 2001.
(4) Less than $0.005 per share.
SEE NOTES TO FINANCIAL STATEMENTS
39
SELECTED FUNDS
FINANCIAL HIGHLIGHTS
SELECTED SPECIAL SHARES, INC.
================================================================================
The following financial information represents selected data for each share of
capital stock outstanding throughout each period:
Year ended December 31,
--------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Net Asset Value, Beginning of Period..... $ 8.61 $ 10.50 $ 13.68 $ 16.17 $ 14.76
--------- --------- --------- --------- ---------
Income (Loss) From Investment Operations
Net Investment Loss.................... (.04) (.04) (.02) - (.09)
Net Realized and Unrealized
Gains (Losses)..................... 3.60 (1.81) (1.95) (.25) 2.47
--------- --------- --------- --------- ---------
Total From Investment Operations..... 3.56 (1.85) (1.97) (.25) 2.38
Dividends and Distributions
Distributions from Realized Gains....... (0.47) (0.04) (1.21) (2.24) (.97)
Return of Capital....................... - - - - - (4)
-------- -------- -------- -------- ---------
Total Dividends and Distributions.... (0.47) (0.04) (1.21) (2.24) (.97)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period........... $ 11.70 $ 8.61 $ 10.50 $ 13.68 $ 16.17
========= ========= ========= ========= =========
Total Return(1).......................... 41.40% (17.62)% (14.41)% (1.10)% 16.83%
Net Assets, End of Period (000 omitted). $95,653 $59,762 $73,092 $95,222 $107,592
Ratio of Expenses to Average Net Assets. 1.21% 1.17%(3) 1.15%(3) 1.15% 1.17%
Ratio of Net Investment Loss to
Average Net Assets .................. (.39)% (.46)% (.20)% (.25)% (.59)%
Portfolio Turnover Rate(2).............. 46% 46% 117% 35% 44%
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period.
(2) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio
securities owned during the period. Securities with a maturity or
expiration date at the time of acquisition of one year or less are
excluded from the calculation.
(3) Had the Adviser not absorbed certain expenses, the ratio of expenses to
average net assets for 2002 and 2001 would have been 1.21% and 1.18%,
respectively.
(4) Less than $0.005 per share.
SEE NOTES TO FINANCIAL STATEMENTS
40
SELECTED FUNDS
FINANCIAL HIGHLIGHTS
SELECTED U.S. GOVERNMENT INCOME FUND
================================================================================
The following financial information represents selected data for each share of
capital stock outstanding throughout each period:
Year ended December 31,
---------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Net Asset Value, Beginning of Period.... $ 9.07 $ 8.86 $ 8.77 $ 8.37 $ 9.04
---------- ---------- ---------- ---------- ----------
Income (Loss) From Investment Operations
Net Investment Income................. .12 .34 .40 .44 .45
Net Realized and Unrealized
Gains (Losses).................... (.08) .30 .09 .40 (.62)
---------- ---------- ---------- ---------- ----------
Total From Investment Operations.... .04 .64 .49 .84 (.17)
Dividends and Distributions
Dividends from Net Investment Income... (.25) (.34) (.40) (.44) (.45)
Distributions from Realized Gains...... - (.09) - - (.05)
---------- ---------- ---------- ---------- ----------
Total Dividends and Distributions... (.25) (.43) (.40) (.44) (.50)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period.......... $ 8.86 $ 9.07 $ 8.86 $ 8.77 $ 8.37
========== ========== ========== ========== ==========
Total Return(1)......................... 0.51% 7.32% 5.71% 10.37% (1.97)%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) $4,362 $5,346 $3,977 $3,728 $4,413
Ratio of Expenses to Average Net Assets 1.30%(3) 1.30%(3) 1.30%(3) 1.21%(3) 1.28%(3)
Ratio of Net Investment Income to
Average Net Assets.................. 1.63% 3.71% 4.49% 5.21% 5.15%
Portfolio Turnover Rate(2)............. 111% 126% 67% 85% 134%
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period.
(2) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio
securities owned during the period. Securities with a maturity or
expiration date at the time of acquisition of one year or less are
excluded from the calculation.
(3) Had the Adviser not absorbed certain expenses, the ratio of expenses to
average net assets for 2003, 2002, 2001, 2000 and 1999 would have been
1.62%, 1.67%, 1.84%, 2.04% and 1.61%, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
41
SELECTED FUNDS
FINANCIAL HIGHLIGHTS
SELECTED DAILY GOVERNMENT FUND
================================================================================
The following financial information represents selected data for each share of
capital stock outstanding throughout each period:
Year ended December 31,
----------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Net Asset Value, Beginning of Period.... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income.................. .005 .013 .037 .056 .044
Dividends and Distributions
Dividends from Net Investment Income... (.005) (.013) (.037) (.056) (.044)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period.......... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
========== ========== ========== ========== ==========
Total Return(1)......................... 0.54% 1.32% 3.73% 5.80% 4.48%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) $ 112,853 $ 116,187 $ 112,380 $ 130,126 $ 131,342
Ratio of Expenses to Average Net Assets .67% .67% .66% .67% .68%
Ratio of Net Investment Income
to Average Net Assets............... .54% 1.30% 3.73% 5.68% 4.44%
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period.
SEE NOTES TO FINANCIAL STATEMENTS
42
SELECTED FUNDS
INDEPENDENT AUDITORS' REPORT
================================================================================
To the Shareholders and Board of Directors/Trustees
of Selected American Shares, Inc., Selected Special Shares, Inc. and Selected
Capital Preservation Trust:
We have audited the accompanying statements of assets and liabilities
of Selected American Shares, Inc., Selected Special Shares, Inc., U.S.
Government Income Fund (a series of Selected Capital Preservation Trust) and
Daily Government Fund (a series of Selected Capital Preservation Trust),
including the schedules of investments, as of December 31, 2003 and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Selected American Shares, Inc., Selected Special Shares, Inc., U.S.
Government Income Fund and Daily Government Fund as of December 31, 2003, and
the results of their operations for the year then ended, the changes in their
net assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended, in conformity
with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
Denver, Colorado
February 6, 2004
43
SELECTED FUNDS
INCOME TAX INFORMATION (Unaudited)
December 31, 2003
================================================================================
In early 2004, shareholders will receive information regarding all
dividends and distributions paid to them by the Funds during calendar year 2003.
Regulations of the U.S. Treasury Department require the Funds to report this
information to the Internal Revenue Service.
The information and distributions reported herein may differ from the
information reported as distributions taxable to certain shareholders for the
calendar year ended 2003 with their 2003 Form 1099-DIV.
SELECTED AMERICAN SHARES, INC.
Income dividends paid by the Fund during the calendar year ended 2003
should be multiplied by 100% to arrive at the net amount eligible for the
corporate dividend-received deduction.
For the calendar year ended 2003 certain dividends paid by the Fund
constitute qualified dividend income for Federal Income Tax purposes. The Fund
designates $35,901,173 as qualified dividend income.
SELECTED SPECIAL SHARES, INC.
Income dividends paid by the Fund during the calendar year ended 2003
should be multiplied by 32% to arrive at the net amount eligible for the
corporate dividend-received deduction.
For the calendar year ended 2003 certain dividends paid by the Fund
constitute qualified dividend income for Federal Income Tax purposes. The Fund
designates $587,079 as qualified dividend income.
SELECTED U.S. GOVERNMENT INCOME FUND
Distributions of $0.256 per share were paid to shareholders during the
calendar year 2003.
None of the dividends paid by the Fund during the calendar year ended 2003
are eligible for the corporate dividend-received deduction.
For the calendar year ended 2003 none of the dividends paid by the Fund
constitute qualified dividend income for Federal Income Tax purposes.
The foregoing information is presented to assist shareholders in reporting
distributions received from the Fund to the Internal Revenue Service. Because of
the complexity of the federal regulations which may affect your individual tax
return and the many variations in state and local regulations, we recommend that
you consult your tax adviser for specific guidance.
44
SELECTED FUNDS
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
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, AZ 85706. Each Director serves until the age of 75, or until his or her
resignation, death or removal.
Number of
Term of Portfolios in
Position(s) Office and Fund Complex Other
Held With Length of Principal Occupation(s) During Overseen by Directorships
Name and Age Fund Time Served Past Five Years Director Held by Director
- ------------------ --------------- ------------ -------------------------------- --------------- ------------------
INDEPENDENT DIRECTORS
WILLIAM P. BARR Director director Executive Vice President and 4 None
(born 5/23/50) since 1994 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.
FLOYD A. BROWN Director director Retired staff announcer and 4 None
(born 11/5/30) since 1975 program host for WGN Radio and
Television, Chicago, Illinois;
sole proprietor of The Floyd
Brown Co., Elgin, Illinois
(advertising, media production
and mass media marketing).
JEROME E. HASS Director director Professor of Finance and 4 None
(born 6/1/40) since 1997 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.
KATHERINE L. Director director Finance Director, Chief 4 None
MACWILLIAMS since 1997 Financial Officer and member
(born of the board of directors for
1/19/56) Coors Brewing Limited (U.K.);
former Vice President,
International Finance, Coors
Brewing Company; former
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.
45
SELECTED FUNDS
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
DIRECTORS - CONTINUED
Number of
Term of Portfolios in
Position(s) Office and Fund Complex Other
Held With Length of Principal Occupation(s) During Overseen by Directorships
Name and Age Fund Time Served Past Five Years Director Held by Director
- ------------------ --------------- ------------ -------------------------------- --------------- ------------------------
Independent Directors - Continued
JAMES J. MCMONAGLE Director/ director Chairman of the Selected Funds 4 None
(born 10/1/44) Chairman since 1990 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.
RICHARD O'BRIEN Director director Retired Corporate Economist 4 Director and past
(born 9/12/45) since 1996 for Hewlett-Packard Company; President, Silicon
former Chairman of the Valley Roundtable;
Economic Advisory Council of former Director,
the California Chamber of National
Commerce. Association of
Business Economists.
MARSHA WILLIAMS Director director Executive Vice President and 15 Director of the
(born 3/28/51) since 1996 Chief Financial Officer of Davis Funds
Equity Office Properties Trust (consisting of 11
(a real estate investment portfolios);
trust); former Chief Director, Modine
Administrative Officer of Manufacturing,
Crate & Barrel (home Inc.(heat transfer
furnishings retailer); former technology);
Vice President and Treasurer, Director, Chicago
Amoco Corporation (oil & gas Bridge & Iron
company). Company, N.V.
(industrial
construction and
engineering)
INSIDE DIRECTORS*
ANDREW A. DAVIS Director director President or Vice President of 15 Director of the Davis
(born 6/25/63) since 1998 each Selected Fund and Davis Funds (consisting of
Fund; President, Davis 11 portfolios).
Selected Advisers, L.P., and
also serves as an executive
officer in certain companies
affiliated with the Adviser.
46
SELECTED FUNDS
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
DIRECTORS - CONTINUED
Number of
Term of Portfolios in
Position(s) Office and Fund Complex Other
Held With Length of Principal Occupation(s) During Overseen by Directorships
Name and Age Fund Time Served Past Five Years Director Held by Director
- ------------------ --------------- ------------ -------------------------------- --------------- ------------------------
INSIDE DIRECTORS* - CONTINUED
CHRISTOPHER C. Director director Chief Executive Officer, 15 Director of the
DAVIS since 1998 President or Vice President of Davis Funds
(born 7/13/65) each Selected Fund and Davis (consisting of 11
Fund; Chairman and Chief portfolios).
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.
* 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.
47
[THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.]
[THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.]
SELECTED
FUNDS
2949 East Elvira Road, Tucson, Arizona 85706
================================================================================
DIRECTORS OFFICERS
William P. Barr James J. McMonagle
Floyd A. Brown Chairman
Andrew A. Davis Christopher C. Davis
Christopher C. Davis President
Jerome Hass Andrew A. Davis
James J. McMonagle Vice President
Katherine L. MacWilliams Kenneth C. Eich
Richard O'Brien Executive Vice President &
Marsha Williams Principal Executive Officer
Sharra L. Reed
Vice President, Treasurer
& Prinicpal Accounting Officer
Thomas D. Tays
Vice President
& Secretary
Arthur Don
Assistant Secretary
INVESTMENT ADVISER
Davis Selected Advisers, L.P
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
(800) 243-1575
DISTRIBUTOR
Davis Distributors, LLC
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
TRANSFER AGENT & CUSTODIAN
State Street Bank and Trust Company
c/o Selected Funds
P.O. Box 8243
Boston, Massachusetts 02266-8243
AUDITORS
KPMG LLP
707 Seventeenth Street, Suite 2700
Denver, Colorado 80202
COUNSEL
Seyfarth Shaw LLP
55 East Monroe Street, Suite 4200
Chicago, Illinois 60603-5803
================================================================================
FOR MORE INFORMATION ABOUT THE SELECTED FUNDS, INCLUDING MANAGEMENT FEE, CHARGES
AND EXPENSES, SEE THE CURRENT PROSPECTUS WHICH MUST PRECEDE OR ACCOMPANY THIS
REPORT. THE FUNDS' STATEMENT OF ADDITIONAL INFORMATION CONTAINS ADDITIONAL
INFORMATION ABOUT THE FUNDS' DIRECTORS AND IS AVAILABLE WITHOUT CHARGE UPON
REQUEST BY CALLING 1-800-243-1575. A COPY OF THE FUNDS' PROXY VOTING POLICIES
AND PROCEDURES IS AVAILABLE WITHOUT CHARGE UPON REQUEST BY CALLING
1-800-243-1575 OR ON THE FUNDS' WEBSITE AT WWW.SELECTEDFUNDS.COM OR ON THE SEC
WEBSITE AT WWW.SEC.GOV.
================================================================================
INVESTMENT ADVISER
Davis Selected Advisers, L.P.
2949 East Elvira Road, Suite 101
Tucson, AZ 85706
DISTRIBUTOR
Davis Distributors, LLC
2949 East Elvira Road, Suite 101
Tucson, AZ 85706
TRANSFER AGENT AND CUSTODIAN
State Street Bank & Trust Company
c/o Selected Funds
P.O. Box 8243
Boston, MA 02266-8243
LEGAL COUNSEL
Seyfarth Shaw LLP
55 East Monroe Street, Suite 4200
Chicago, IL 60603-5803
AUDITORS
KPMG, LLP
707 Seventeenth Street, Suite 2700
Denver, CO 80202
800-243-1575
www.selectedfunds.com
Item 2. Code of Ethics
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similiar functions.
The code of ethics was amended effective November 1, 2003. Items
amended include notifying the Chief Legal Officer of any violations to
the code. The other amended item is maintaining each version of the
code for a period of six years.
A copy of the code of ethics is filed as an exhibit to this form N-CSR.
Item 3. Audit Committee Financial Expert
The registrant's board of directors has determined that independant
trustees Katherine MacWilliams and Marsha Williams qualify as "audit
committee financial experts", as defined in Item 3 of form N-CSR.
Item 4. Principal Accountant Fees and Services
(a) Audit Fees. The aggregate Audit Fees billed by KPMG LLP ("KPMG")
for professional services rendered for the audits of the financial
statements, or services that are normally provided in connection
with statutory and regulatory filings or engagements for the
fiscal year ends December 31, 2003 and December 31, 2002 were
$12,957 and $16,400, respectively.
(b) Audit-Related Fees. The aggregate Audit-Related Fees billed by
KPMG for services rendered for assurance and related services that
are not reasonably related to the performance of the audit or
review of the fund financial statements, but not reported as Audit
Fees for the fiscal year ends December 31, 2003 and
December 31, 2002 were $0 and $0, respectively.
(c) Tax Fees. The aggregate Tax Fees billed by KPMG for professional
services rendered for tax compliance, tax advise and tax planning
for the fiscal year ends December 31, 2003 and December 31, 2002
were $5,280 and $6,980, respectively.
Fees included in the Tax Fee category comprise all services
performed by professional staff in the independent accountant's
tax division except those services related to the audit. These
services include preparation of tax returns, tax advice related
to mergers and a review of the fund income and capital gain
distributions.
(d) All Other Fees. The aggregate Other Fees billed by KPMG for all
other non-audit services rendered to the fund for the fiscal year
ends December 31, 2003 and December 31, 2002 were $0 and $66,
respectively.
Fees included in the Other Fee category include a Sarbanes-Oxley
Act and SAS 70 Report presentation for the Board of Directors.
(e)(1) Audit Committee Pre-Approval Policies and Procedures.
The fund Audit Committee must pre-approve all audit and non-audit
services provided by the independent accountant relating to the
operations or financial reporting of the funds. Prior to the
commencement of any audit or non-audit services to a fund, the
Audit Committee reviews the services to determine whether they are
appropriate and permissible under applicable law.
The fund Audit Committee has adopted a policy whereby audit and
non-audit services performed by the fund independent accountant
require pre-approval in advance at regularly scheduled Audit
Committee meetings. If such a service is required between
regularly scheduled Audit Committee meetings, pre-approval may be
authorized by the Audit Committee Chairperson with ratification at
the next scheduled audit committee meeting.
(2) No services included in (b) - (d) above were approved pursuant
to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable
(g) The Funds' independent accountant did not provide any services to
the investment advisor or any affiliate for the fiscal years ended
December 31, 2003 and December 31, 2002. The fund has not paid any
fees for non-audit not previously disclosed in items 4 (b)-(d).
(h) Not applicable
Item 5. Audit Committee of Listed Registrants - Not Applicable
Item 6. Reserved
Item 7. Disclosure of Proxy Voting Polices and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8. Reserved
Item 9. Sumbission of Matters to a Vote of Security Holders - Not Applicable
Item 10. Controls and Procedures
(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and
procedures (as defined in Rule 30a-2(c) under the Investment Company
Act of 1940, as amended) are effective as of a date within 90 days
of the filing date of this report.
(b) There have been no significant changes in the registrant's internal
controls or in other factors that could significantly affect these
controls.
Item 11. Exhibits
EX-99.CODE ETH - Code of Ethics
EX-99.CERT - Section 302 Certification
EX-99.906 CERT - Section 906 Certification
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SELECTED SPECIAL SHARES, INC.
By /s/ Kenneth C. Eich
Kenneth C. Eich
Principal Executive Officer
Date: March 9, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ Kenneth C. Eich
Kenneth C. Eich
Principal Executive Officer
Date: March 9, 2004
By /s/ Sharra L. Reed
Sharra L. Reed
Principal Financial officer
Date: March 9, 2004