As filed with the Securities and Exchange Commission on April 30, 1996.
File No 2-88543
File No. 811-3931
=====================================================================
===========
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
Registration Statement Under The Securities Act of 1933 [X]
Pre-Effective Amendment No._____
Post-Effective Amendment No. 14
----
AND
Registration Statement Under The Investment Company Act of 1940 [X]
Amendment No. 14
----
______________________
CLIPPER FUND, INC
(Exact Name of Registrant as Specified in Charter)
9601 Wilshire Boulevard, Suite 800, Beverly Hills, California 90210
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number including Area Code: (800) 776-5033
JAMES H. GIPSON
9601 Wilshire Boulevard, Suite 800
Beverly Hills, California 90210
(Name and Address of Agent for Service)
______________________________
It is proposed that this filing become effective
(check as appropriate)
___ immediately upon filing pursuant to paragraph (b)
X on April 30, 1996 pursuant to paragraph (b) of rule 485
---
___ 60 days after filing pursuant to paragraph (a)
___ on _____ on pursuant to paragraph (a) of rule 485
______________________________
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has previously registered shares under the Securities Act of 1933. Registrant
filed a Rule 24f-2 Notice for its fiscal year ended December 31, 1995 on or
before February 28, 1996.
______________________________
Please Send Copy of Communications to:
Julie Allecta, Esq.
c/o Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, California 94104
(415) 772-6000
<PAGE>
CLIPPER FUND, INC.
CROSS REFERENCE SHEET
(as required by Rule 404)
<TABLE>
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N-1A
ITEM NO. ITEM LOCATION
- -------- ---- --------
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PART A: INFORMATION REQUIRED IN THE PROSPECTUS
Item 1. Cover Page................................................ Cover Page
Item 2. Synopsis.................................................. Synopsis; Expense Table
Item 3. Condensed Financial Information........................... Financial Highlights
Item 4. General Description of Registrant......................... Synopsis;
Investment Advisory
and Other Services;
Investment Objective
and Policies; Additional
Information
Item 5. Management of the Registrant.............................. Management;
Investment Advisory
and Other Services;
Back Cover Page
Item 5A. Management's Discussion of Fund Performance............... Not Applicable (contained
in the Fund's Annual Report)
Item 6. Capital Stock and Other Securities........................ Description of
Capital Stock;
Dividends, Distributions
and Taxes;
Additional Information
Item 7. Purchase of Securities Being Offered...................... Purchase of Shares;
Determination of
Net Asset Value;
Purchase of Shares
Item 8. Redemption or Repurchase.................................. Redemption of Shares:
Telephone Redemptions
Item 9. Pending Legal Proceedings................................. Not Applicable
PART B: INFORMATION REQUIRED IN THE STATEMENT OF
ADDITIONAL INFORMATION
Item 10. Cover Page................................................ Cover Page
Item 11. Table of Contents......................................... Table of Contents
</TABLE>
<PAGE>
<TABLE>
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N-1A
ITEM NO. ITEM LOCATION
- -------- ---- --------
<S> <C> <C>
Item 12. General Information and History........................... Not Applicable
Item 13. Investment Objectives and Policies........................ Investment Objective
and Policies
Item 14. Management of the Registrant.............................. Prospectus-Management
of the Fund
Item 15. Control Persons and Principal Holders of Securities....... Principal Holders
of Securities
Item 16. Investment Advisory and Other Services.................... Prospectus-Investment
Advisory and Other Services;
Statement of Additional
Information-Back Cover
Page; Investment Advisory
and Other Services;
Item 17. Brokerage Allocation and Other Practices.................. Brokerage Allocation
and Other Practices
Item 18. Capital Stock and Other Securities........................ Prospectus-
Redemption of Shares;
Telephone Redemptions
Statement of Additional
Information Capital Stock
and Other Securities
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered............................... Prospectus-
Purchase of Shares
Statement of Additonal
Information-Purchases,
Redemption
and Pricing of Shares
being Offered
Item 20. Tax Status................................................ Prospectus-
Dividends, Distributions
and Taxes
Statement of Additional
Information-Tax Status
Item 21. Underwriters.............................................. Not Applicable
Item 22. Calculation of Performance Data........................... Performance Information
Item 23. Financial Statements...................................... Financial Statements
</TABLE>
<PAGE>
PART C: OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
<PAGE>
[CLIPPER FUND(TM) LOGO APPEARS HERE]
P R O S P E C T U S
A P R I L 3 0, 1 9 9 6
SYNOPSIS
Clipper Fund(TM) (the "Fund") is a non-diversified, open-end management
investment company whose investment objective is long-term growth of capital.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Please retain it for future
reference. Additional information about the Fund has been filed with the
Securities and Exchange Commission and is available upon request from the Fund
at its principal offices without charge. Such information includes the Fund's
Statement of Additional Information dated April 30, 1996, which is incorporated
by reference into this Prospectus.
As an open-end management investment company, the Fund offers its shares on
a continuous basis and redeems its shares upon the demand of a shareholder.
Sales and redemptions are effected at the next determined net asset value per
share after receipt of a transaction. The investor pays no sales charge to
purchase or sell shares.
The initial minimum investment for the Clipper Fund(TM) is $5,000 [$2,000
for Individual Retirement Accounts ("IRA's")]. Subsequent investments into the
Fund must be at least $1,000 ($200 for IRA's). Please see "Purchase of Shares"
in this Prospectus for additional information.
The Fund's investment objective and policies, pursuant to which its
operations are conducted, are directed toward long-term growth of capital. See
"Investment Objective and Policies." Certain Fund policies permit the Fund to
invest portions of its total assets in securities that entail special risks,
such as foreign securities, high yield, high risk bonds, restricted securities,
securities that represent special situations, and securities of issuers with
less than three years of continuous operation. Please see "Investment Objective
and Policies" in this Prospectus for additional information.
Pacific Financial Research ("PFR") serves as the Investment Adviser (the
"Investment Adviser") to the Fund. See "Investment Advisory Contract." PFR is a
value-oriented investment adviser. When investing the Fund's assets, PFR looks
beyond conventional wisdom, invests as a long-term partner, and focuses on
research. PFR was founded in 1980. Its clients include corporate pension funds,
college endowments, individuals and another investment company.
Shares of the Fund are not deposits or obligations of, or insured,
guaranteed, or endorsed by, the U.S. Government, any bank, the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency, entity or
person.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
Expense Table.................................................... 2
Financial Highlights............................................. 3
Investment Objective and Policies................................ 4
Special Considerations Relating to Fixed-Income Securities....... 6
Risk Factors.................................................. 6
Special Situations............................................ 6
Fundamental Investment Policies.................................. 7
Other Investment Policies........................................ 8
Determination of Net Asset Value................................. 10
Purchase of Shares............................................... 10
Automatic Investing & Dollar Cost Averaging................... 11
Individual Retirement Accounts................................ 11
403(b) Plans.................................................. 12
Redemption of Shares............................................. 12
Telephone Redemptions......................................... 13
Shareholder Inquiries......................................... 13
Management....................................................... 14
Investment Advisory and Other Services........................... 15
Investment Adviser............................................ 15
Investment Adviser's Fee...................................... 15
Performance Information.......................................... 15
Dividends, Distributions and Taxes............................... 16
Additional Information........................................... 18
Appendix......................................................... 19
</TABLE>
______________________________________________________________________________
__
EXPENSE TABLE
The purpose of the expense table below is to assist investors in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly:
<TABLE>
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SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption and Exchange Fee None
------
Total Shareholder Transaction Expenses None
======
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net assets):
Management Fee 1.00%
12b-1 Fees None
Other Expenses:
Custodian and Accounting 0.03%
Transfer Agent and Insurance 0.03%
Other Expenses 0.05% 0.11%
------ ------
Total Fund Operating Expenses 1.11%
======
</TABLE>
EXAMPLE:
The following example demonstrates the projected dollar amount of total
cumulative expenses (based on historical data) using the following assumptions:
<TABLE>
<CAPTION>
You would pay the following expenses ONE THREE FIVE TEN
on a $1,000 investment, assuming: YEAR YEARS YEARS YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
(1) 5% annual return, and
(2) redemption at the end of each period: $11 $35 $61 $135
</TABLE>
This example should not be considered a representation of past or future
expenses which may be greater or less than those shown. Moreover, the example
assumes a 5% annual return which may be more or less than the Fund's actual
return. (See "Investment Advisory and Other Services" for a description of the
Fund's expenses.)
______________________________________________________________________________
__
2
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights have been audited by Ernst & Young LLP, independent
auditors, whose report covering the most recent five years is incorporated by
reference in the Statement of Additional Information. The financial highlights
should be read in conjunction with the Fund's latest annual financial
statements, including the related notes, which are also incorporated by
reference in the Statement of Additional Information.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1995 1994 1993 1992 1991 1990
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value,
beginning of period ............... $46.09 $50.02 $51.74 $48.10 $38.80 $43.45
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income.............. 0.76 0.71 0.76 0.95 1.18 1.09
Net realized and unrealized
gain (loss) on securities.......... 20.07 (1.93) 5.00 6.66 11.27 (4.39)
------ ------ ------ ------ ------ ------
Total from investment operations..... 20.83 (1.22) 5.76 7.61 12.45 (3.30)
Less Distributions:
Dividends from net
investment income.................. (0.76) (0.71) (0.75) (0.95) (1.18) (1.14)
Distributions from net
realized gain on securities........ (5.42) (2.00) (6.73) (3.02) (1.91) (0.21)
Return of capital.................. - - - - (0.06) -
------ ------ ------ ------ ------ ------
Net asset value, end of period....... $60.74 $46.09 $50.02 $51.74 $48.10
$38.80
====== ====== ====== ====== ====== ======
TOTAL RETURN......................... 45.2% (2.4%) 11.1% 15.8% 32.1%
(7.6%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets ($000's),
end of period...................... $403,526 $247,057 $271,863 $209,878 $161,348
$125,149
Ratio of expenses
to average net assets.............. 1.11% 1.11% 1.11% 1.12% 1.15% 1.15%
Ratio of net investment income
to average net assets.............. 1.39% 1.41% 1.41% 2.02% 2.67% 2.71%
Portfolio turnover rate.............. 31% 45% 64% 46% 42% 23%
Number of shares outstanding
at end of period (000's)........... 6,643 5,360 5,435 4,057 3,354 3,225
Average commission rate
(cents per share)................. $0.0498 N/A N/A N/A N/A N/A
<CAPTION>
---------------------------------------------------
1989 1988 1987 1986
---------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value,
beginning of period................ $37.74 $33.76 $41.55 $36.16
------ ------ ------ ------
Income from investment operations:
Net investment income.............. 1.00 0.95 1.82 1.39
Net realized and unrealized
gain (loss) on securities.......... 7.26 5.66 (0.45) 5.41
------ ------ ------ ------
Total from investment operations..... 8.26 6.61 1.37 6.80
Less Distributions:
Dividends from net
investment income.................. (1.00) (0.95) (3.28) -
Distributions from net
realized gain on securities........ (1.55) (1.68) (5.75) (1.41)
Return of capital.................. - - (0.13) -
------ ------ ------ ------
Net asset value, end of period....... $43.45 $37.74 $33.76 $41.55
====== ====== ====== ======
TOTAL RETURN......................... 21.9% 19.6% 3.1% 18.8%
RATIOS AND SUPPLEMENTAL DATA:
Net assets ($000's),
end of period...................... $128,443 $85,469 $75,613 $73,474
Ratio of expenses
to average net assets.............. 1.17% 1.24% 1.25% 1.28%
Ratio of net investment income
to average net assets.............. 2.54% 2.44% 4.00% 4.26%
Portfolio turnover rate.............. 26% 33% 140% 40%
Number of shares outstanding
at end of period (000's)........... 2,956 2,265 2,239 1,768
Average commission rate
(cents per share).................. N/A N/A N/A N/A
</TABLE>
3
<PAGE>
C L I P P E R F U N D(TM) _____________________________________________________
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long-term growth of capital. This objective
is fundamental to the Fund and cannot be changed without shareholder approval.
The Fund will seek to meet its investment objective by investing primarily
in securities that are considered by Fund management and the Investment Adviser
to have long-term capital appreciation possibilities. Among such investments,
the Fund will emphasize the purchase of common stock, convertible long-term
corporate debt obligations, convertible preferred stock, and warrants that the
Investment Adviser believes are undervalued and appear to offer the potential of
furthering the Fund's goal of long-term capital growth.
As to any specific investment, the Investment Adviser's analysis will focus
on evaluating the fundamental worth of an enterprise, as determined by the
Investment Adviser, and purchasing shares when the market price appears to be
less than that value. Fundamental worth is a reflection of the value of an
enterprise's assets and its earning power, and will be determined by use of (a)
a dividend and cash flow discounting model, (b) price-earnings ratios, and (c)
comparison with sales of comparable assets to independent third party buyers
pursuant to an arm's length transaction. Applicable price-earnings ratios depend
on the earnings potential of an enterprise as determined by the Investment
Adviser. For example, an enterprise that is a relatively high growth company
would normally command a higher price-earnings ratio than lower growth
companies. (The foregoing analysis, however, is not applicable in assessing
special situations in which the Fund may invest. See "Investment Objective and
Policies--Special Situations" which describes the applicable investment criteria
employed in such situations.)
The common stocks selected will typically be traded on a national
securities exchange or over-the-counter in the NASDAQ system, except for
restricted securities, and may include securities of both large well-known
companies as well as smaller, less well-known companies.
Investments may also include debt obligations of corporate issuers, the
U.S. Government, states, municipalities or state or municipal government
agencies that in the opinion of the Investment Adviser offer long-term capital
appreciation possibilities because of the timing of such investment. The timing
of investment decisions in such debt obligations may result in long-term capital
appreciation because the value of debt obligations varies inversely with
prevailing interest rates. Thus, an investment in debt obligations that is sold
when prevailing interest rates are lower than they were at the time of
investment will normally result in capital appreciation. However, the reverse is
true so that if an investment in debt obligations is sold at a time when
prevailing interest rates are higher than they were at the time of investment, a
loss will normally be realized. Applying these principles, investments in the
debt obligations described above would be made during times when the Investment
Adviser expects that prevailing interest rates will be falling and ultimately
sold when the Investment Adviser expects interest rates to rise. However, there
can be no assurance that the judgment of the Investment Adviser as
4
<PAGE>
___________________________________________________________ P R O S P E C T U S
to interest rate trends will be correct. It is expected that many of the
securities in which the Fund invests will pay interest or dividends; however,
such payments by the issuer will be incidental to the selection of securities by
the Investment Adviser.
Balance sheet strength and the ability to generate earnings are the major
factors in appraising an investment, and little weight is given to current
dividend income. Investors should understand that market risks are inherent in
all securities in varying degrees. Therefore, there can be no assurance that the
Fund will be successful in meeting its investment objective.
Notwithstanding its investment objective of long-term capital growth, the
Fund may on occasion, for temporary defensive purposes to protect against the
erosion of capital, hold part or all of its assets in cash and/or invest in the
following securities that will generally have less than a year to maturity: (1)
securities of the U.S. Government and certain of its agencies and
instrumentalities, including U.S. Treasury bills, notes and bonds, and
securities of the Government National Mortgage Association and other agencies
which are supported by the full faith and credit of the United States; (2)
obligations issued or guaranteed by other U.S. Government agencies or
instrumentalities, some of which are supported by the right of the issuer to
borrow from the U.S. Government (e.g., obligations of a Federal Home Loan Bank)
and some of which are backed by the credit of the issuer itself (e.g.,
obligations of the Student Loan Marketing Association); (3) bank obligations,
including negotiable or non-negotiable certificates of deposit (subject to the
10% aggregate limit on the Fund's investment in illiquid securities), letters of
credit and bankers' acceptances, or instruments secured by such obligations,
issued by banks and savings institutions which are subject to regulation by the
U.S. Government or its agencies and which have assets of over one billion
dollars, unless such obligations are guaranteed by a parent bank which has total
assets in excess of five billion dollars; (4) commercial paper considered by the
Investment Adviser to be of high quality, which must be rated within the two
highest grades by Standard & Poor's Corporation ("S&P") or Moody's Investors
Service ("Moody's"), or, if not rated, issued by a company having an outstanding
debt issue rated at least AA by S&P or Aa by Moody's; (5) corporate obligations
including, but not limited to, corporate notes, bonds, debentures and non-
convertible preferred stocks considered by the Investment Adviser to be high
grade or which are rated within the two highest rating categories by S&P and
Moody's (see Appendix in this Prospectus); (6) repurchase agreements; and (7)
obligations of states, municipalities or state or municipal government agencies
and instrumentalities. A repurchase agreement involves the purchase by the Fund
of a short-term instrument, usually a U.S. Treasury bill, from a seller with the
condition that after a stated period of time, the original seller will buy back
the same instrument at a predetermined price, which is higher than the Fund's
purchase price. To the extent that the Fund adopts a temporary defensive
position, the investment objective may not be achieved. The Fund may also use
repurchase agreements, as well as other short-term instruments, as a cash
management tool.
5
<PAGE>
C L I P P E R F U N D(TM) _____________________________________________________
SPECIAL CONSIDERATIONS
RELATING TO
FIXED-INCOME SECURITIES
RISK FACTORS
An investment in shares of the Fund may involve certain speculative
considerations. All securities in which the Fund may invest are inherently
subject to market risk and the market value of the Fund's investments will
fluctuate. The Fund may invest up to 25% of its assets (as measured at the time
of such investments) in (i) securities of an issuer in default with respect to
such debt and equity securities and/or (ii) high-yielding, high risk, fixed-
income securities with limited market liquidity. Such securities, which are
commonly referred to as "junk bonds," are subject to the risk that the issuer
will be unable to pay interest or repay principal and are sensitive to
fluctuations in interest rates. The Fund also may invest in other securities,
including fixed-income and convertible securities of an issuer in default with
respect to such securities, that the Investment Adviser believes represent
intrinsic values not reflected in the current market prices of such securities.
These securities may be non-rated debt and/or debt rated D, the lowest rating
category by S&P and Moody's. Debt rated D is in default, and payment of interest
and/or repayment of principal is in arrears. Such debt obligations are rated
below investment grade and are regarded as extremely speculative investments
with respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation. Such securities are also generally considered to be
subject to greater risk than securities with higher ratings with regard to a
deterioration of general economic conditions. Further information concerning the
ratings of debt obligations, including the rating categories of S&P and Moody's,
is provided in the Appendix to this Prospectus.
The Fund may periodically invest in special situations that the Investment
Adviser and Fund management believe present opportunities for capital growth.
Such investments, however, will not exceed 10% of the Fund's total assets.
SPECIAL SITUATIONS
A special situation arises when, in the opinion of the Investment Adviser, the
securities of a particular company will, within a reasonably estimated period of
time, be accorded market recognition at an appreciated value solely by reason of
a development particularly or uniquely applicable to that company and regardless
of general business conditions or movements of the market as a whole.
Developments creating special situations might include the following:
liquidations, reorganizations, recapitalizations, mergers or temporary financial
liquidity restraints, material litigation, technological breakthroughs or
temporary production or product introduction problems, natural disaster,
sabotage or employee error, new management or management policies, or any other
events that could change or temporarily hamper the ongoing operations of a
company. Although large and well-known companies may be involved, special
situations often involve much greater risk than is inherent in ordinary
investment securities.
Of course, there can be no assurance that the Fund will achieve its goal of
long-term growth of capital with respect to such investments because any
perceived intrinsic values may never be reflected in the market price for such
securities.
6
<PAGE>
___________________________________________________________ P R O S P E C T U S
The market values of fixed-income and convertible securities of an issuer in
default with respect to such securities tend to reflect the particular economic
circumstances of the issuer to a greater extent than securities of other issuers
and, therefore, the risks associated with acquiring such securities may be
greater than would be the case with other securities. Moreover, the risks and
special considerations described in this section with respect to high-yielding,
high risk, fixed-income securities are also applicable to the fixed-income and
convertible securities of an issuer in default.
To the extent that the Fund invests in a smaller number of issuers, it will
be subject to greater risks because changes in financial condition or market
assessment of a single issuer may cause greater fluctuations in the Fund's net
asset value.
The Fund also may, consistent with its investment objective of seeking
long-term growth of capital, invest its assets in fixed-income and convertible
securities that also offer high current income (subject to the 25% of total
assets limitation previously noted under this heading). The market values of
such securities tend to reflect individual corporate developments to a greater
extent than do higher rated securities, which react primarily to fluctuations in
the general level of interest rates, and tend to be more sensitive to economic
conditions and generally have more volatile prices than higher rated securities.
Companies that issue high-yielding, high risk, fixed-income securities are often
highly leveraged and may not have available to them more traditional methods of
financing. In addition, the relative youth and accelerated growth of the high-
yielding, high risk, fixed-income securities market during favorable economic
conditions without weathering a major economic recession, the potential for
legislative proposals to limit the use of certain high-yielding, high risk
securities, the lack of a liquid secondary market and the attendant difficulty
of valuing certain securities, and the potential that the credit ratings of
high-yielding, high risk securities may not change on a timely basis to reflect
subsequent developments, present special risks with respect to the Fund's
investment in such securities. Therefore, the risk associated with acquiring the
securities of such issuers generally is greater than is the case with higher
rated securities. The Fund may retain a security which subsequent to the Fund's
investment in such security has its rating lowered if, under the circumstances,
the Investment Adviser determines such continued investment is consistent with
the Fund's investment objective. (See the Appendix in this Prospectus and the
Statement of Additional Information for further information relating to fixed-
income securities.)
FUNDAMENTAL INVESTMENT
POLICIES
The Fund has adopted and will follow certain investment policies set forth
below, which are fundamental and may not be changed without shareholder
approval. In addition to those stated here, see "Other Investment Restrictions"
in the Statement of Additional Information, which is available upon request.
(a) Concentration of Investments
The Fund will not invest more than 25% of its total assets in the
securities of issuers in any one industry. This restriction does not apply to
7
<PAGE>
C L I P P E R F U N D(TM) _____________________________________________________
investments by the Fund in securities of the U.S. Government or its agencies or
instrumentalities.
(b) Restricted and Not Readily Marketable Securities
The Fund will not invest in any restricted securities, including repurchase
agreements maturing in over seven (7) days and securities which do not have
readily available market quotations, if such investment will cause the then
aggregate value of all of such securities to exceed 10% of the value of the
Fund's total assets (at time of investment, giving effect thereto). In this
connection, see also "Other Investment Policies."
OTHER INVESTMENT POLICIES
The Fund proposes to follow certain other investment policies set forth below
which are not matters of fundamental policy and may be changed at the discretion
of the management of the Fund.
(a) Diversification of Investments
The Fund is a "non-diversified" Fund and as such is not required to meet
any diversification requirements under the Investment Company Act of 1940, as
amended. The Fund nevertheless intends to comply with the diversification
standards applicable to regulated investment companies under the Internal
Revenue Code of 1986, as amended ("the Code").
The Code requires that at the close of each quarter of the Fund's taxable
year at least 50% of the value of the Fund's total assets must be represented by
one or more of the following: (i) cash and cash items, including receivables;
(ii) U.S. Government securities; (iii) securities of other regulated investment
companies; and (iv) securities [other than those in items (ii) and (iii) above]
of any one or more issuers which meet the following limitations: (a) the Fund
will not invest more than 5% of its total assets in the securities of any such
issuer, and (b) the entire amount of the securities of such issuer owned by the
Fund will not represent more than 10% of the outstanding voting securities of
such issuer.
The Code also requires that at the end of each quarter of the Fund's
taxable year the Fund not have more than 25% of its total assets invested in the
securities of any one issuer (other than U.S. Government Securities or
securities of other regulated investment companies).
(b) Foreign Securities
The Fund may only purchase foreign securities that are listed on a
principal foreign securities exchange or over-the-counter market, represented by
American Depository Receipts (ADR's) listed on a domestic securities exchange,
or traded in the United States over-the-counter market. The Fund will not hold
foreign currency as an investment or invest in forward foreign currency
contracts.
Investments in foreign securities offer potential benefits not available
from investments solely in securities of domestic issuers. Such benefits include
the opportunity to invest in foreign issuers that appear to offer greater
potential for long-term capital appreciation than investments in domestic
securities, and to reduce fluctuations in portfolio value by taking advantage of
foreign stock markets that do not move in a manner parallel to U.S. markets.
Investors should recognize that investments in foreign companies involve
certain considerations that are not typically associated with in-
8
<PAGE>
___________________________________________________________ P R O S P E C T U S
vesting in domestic companies. An investment may be affected by changes in
currency rates and in exchange control regulations (e.g., currency blockage).
There may be less publicly available information about a foreign company than
about a domestic company. Foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic companies. Some foreign stock markets may have
substantially less volume than the New York Stock Exchange and securities of
some foreign companies may be less liquid than securities of comparable domestic
companies. The Fund may have difficulties in obtaining and enforcing a legal
judgment to protect its interests. There is a possibility that the Fund's
investment in foreign companies may be subject to expropriation, nationalization
or confiscation.
(c) Companies With Less Than Three Years of Continuous Operations
The Fund will not purchase securities of any company with a record of less
than three years continuous operation (including that of predecessors) if such
purchase would cause the Fund's investments in all such companies to exceed 25%
of the value of the Fund's total assets at the time, giving effect to the
purchase. The Fund presently intends not to invest more than 5% of the value of
its total assets in such companies in accordance with investment restrictions of
certain state securities laws.
(d) Portfolio Turnover and Other Investment Policies
The Fund will not seek to realize profits by anticipating short-term market
movements and intends to purchase securities for long-term capital appreciation.
Under ordinary circumstances, securities will be held for more than one year.
While the rate of portfolio turnover will not be a limiting factor when
management deems changes appropriate, it is anticipated that given the Fund's
investment objective, its annual portfolio turnover should not generally exceed
75%. For the fiscal years ended December 31, 1994 and 1995, the Fund's portfolio
turnover rate was 45% and 31%, respectively.
While the Fund currently does not lend its portfolio securities, and has no
present intention to lend in excess of 10% of its portfolio securities, it
reserves the right to lend up to 30% of its portfolio securities to broker-
dealers, major banks or other recognized domestic institutional borrowers of
securities who are not affiliated with the Fund's Investment Adviser and whose
creditworthiness is acceptable to the Investment Adviser, in order to generate
additional income. The borrower must deliver to the Fund cash or cash equivalent
collateral equal in value to at least 100% of the value of the securities loaned
at all times during the loan. During the time the portfolio securities are on
loan, the borrower pays the Fund any interest or dividends paid on such
securities. The Fund may invest the cash collateral and earn additional income,
or it may receive an agreed-upon amount of interest income if the borrower has
delivered equivalent collateral.
The Fund does not intend to purchase or sell warrants, valued at the lower
of cost or market, which exceed 5% of the Fund's net assets. Included within
that amount but not to exceed 2% of the Fund's net assets, may be warrants which
are not listed on the New York or American
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C L I P P E R F U N D(TM) _____________________________________________________
Stock Exchange. Additionally, the Fund will not enter into oil, gas and other
mineral leases or certain arbitrage transactions.
Neither the Fund nor the Investment Adviser engages or relies upon
technical market studies and the Fund will not engage in short sales or hedging.
However, the Fund may borrow from banks for temporary or emergency purposes in
an aggregate amount not to exceed 5% of the Fund's total assets.
In addition to the restrictions and policies described above, the Fund may
from time to time agree to additional investment restrictions for purposes of
compliance with the securities laws of those states where the Fund intends to
sell or offer its shares for sale. Any such additional restrictions that would
have a material bearing on the Fund's operations will be reflected in the Fund's
Prospectus or Statement of Additional Information and may require shareholder
approval.
DETERMINATION OF NET ASSET VALUE
Shares of the Fund may be purchased or redeemed on any day that the New York
Stock Exchange is open. See "Purchase of Shares" and "Redemption of Shares." The
subscription price or redemption price, as the case may be, is based upon the
next determined net asset value per share of the Fund, which is determined daily
following the close of regular trading on the New York Stock Exchange, which
currently is 4:00 p.m., Eastern Time, or on any other day on which there is a
sufficient degree of trading in the Fund's portfolio securities that the current
net asset value of the Fund's shares might be materially affected by changes in
the value of the portfolio securities. The net asset value per share is
calculated by dividing the market value of the Fund's investments and other
assets (including dividends and interest, received or accrued), less all
liabilities (including expenses payable or accrued but excluding capital stock
and surplus), by the number of outstanding shares of the Fund.
In valuing the Fund's assets for purposes of this computation, readily
marketable portfolio securities are valued at market value and all other assets
are valued in such manner as the Board of Directors of the Fund in good faith
deems appropriate to reflect their fair value. The fair value of debt securities
with remaining maturities of 60 days or less shall be their amortized cost
value, as reflecting fair value, unless conditions indicate otherwise.
PURCHASE OF SHARES
Shares of the Fund are offered at net asset value, on a continuous basis,
without any sales or other charge, by the Fund. Purchases of the Fund's shares
may be effected through broker-dealers and plan administrators for employee
benefit plans. Broker-dealers or plan administrators may charge investors a
service fee, none of which will be received by the Fund.
The initial investment by an investor must be in an amount of $5,000 or
more, except that the minimum investment for an IRA is $2,000. Each additional
investment by a shareholder must be at least $1,000 ($200 for IRA's), except
through dividend reinvestment. The Automatic Investment Plan has a minimum
monthly investment of $150; however, the initial minimum investment is not
waived. Subscriptions should be forwarded directly to the Fund's Transfer
10
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___________________________________________________________ P R O S P E C T U S
Agent accompanied by payment. The price at which a purchase will be effected is
the net asset value next calculated after a subscription and related payment is
received by the Fund's Transfer Agent. Subscriptions will be accepted for
fractional shares. The Fund reserves the right to suspend the offering of shares
or reject any subscription in its sole discretion. The Fund will not accept
third party checks for the purpose of establishing a new account. In its
discretion, however, the Fund may accept such checks for subsequent investments.
The Fund may, in its discretion, occasionally accept oral subscriptions
from persons known to the Fund's management. The Investment Adviser has agreed
to reimburse the Fund for any loss due to a person's failure to honor an
accepted oral subscription request.
No certificates for shares are issued except upon written request.
A continuing permanent record of each Shareholder's Open Account is
maintained, and whenever there is a transaction in the account, the shareholder
receives a written statement of the transaction including information concerning
the status of the account. These statements, called "Cumulative Statements,"
provide an annual record of the shareholder's investments in shares of the Fund.
Due to the fixed expenses incurred by the Fund in maintaining individual
accounts, the Fund reserves the right to redeem accounts that fall below the
$5,000 ($2,000 IRA) minimum required investment due to shareholder redemptions
(but not solely to a decrease in the net asset value of the Fund.) In order to
exercise this right, the Fund will give advance written notice of at least 30
days to each account below the minimum, during which period the account may be
increased to or above the minimum.
For further information, please refer to "Purchase, Redemption, and Pricing
of Securities Being Offered" in the Statement of Additional Information.
AUTOMATIC INVESTING AND DOLLAR COST AVERAGING
Special services are available that enable investors to take advantage of dollar
cost averaging through automatic periodic investments. Dollar cost averaging
involves the investment of a fixed dollar amount in investment vehicles such as
the Fund at pre-set intervals. This practice will result in more shares being
purchased when the Fund's net asset value per share is relatively low and fewer
shares being purchased when the Fund's net asset value is relatively high.
Therefore, the investor's overall cost of shares is generally lower than it
would be if the investor purchased a fixed number of shares at pre-set
intervals. In evaluating such a plan, investors should consider their ability to
continue purchasing shares through periods of low price levels. Investors may
purchase shares of the Fund by using pre-authorized checks drawn on the
investor's bank account.
INDIVIDUAL RETIREMENT ACCOUNTS
IRA plans are available to individuals whether or not they participate in other
qualified retirement plans. An individual under age 701/2 generally may
contribute into an IRA each year the lesser of $2,000 or 100% of compensation.
The contribution may or may not be tax deductible depending on the individual's
adjusted gross income and other factors. If the contribution is
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C L I P P E R F U N D(TM) _____________________________________________________
deductible, it is not taxed until it is later distributed. Whether or not the
contribution is deductible, earnings from such contributions generally will
still be tax-deferred. There is generally a 10% penalty tax on early
distributions other than for death or disability before age 59 1/2.
An investor should contact the Fund for further information concerning IRA
plan investments. A brochure describing the above plan and materials for
establishing an IRA account are available upon request. A required disclosure
statement describing relevant tax and other information will be provided with
the appropriate forms and instructions, all of which should be read carefully.
The investor's tax adviser should be consulted as well. State Street Bank and
Trust Company has agreed to act as trustee for plans that invest in the Fund for
a fee of $10 a year per participant account.
403(B) PLANS
The Fund also offers a 403(b) plan for those who are eligible. State Street Bank
and Trust Company has agreed to act as trustee for plans that invest in the Fund
for a fee of $10 a year per participant account. A brochure is available which
describes the plan in full.
REDEMPTION OF SHARES
The Fund will redeem all or any portion of a shareholder's shares of the Fund
when requested in accordance with the procedures set forth below. The
redemption price will be the Fund's net asset value per share next computed
following receipt of the redemption request in proper form by the Fund's
Transfer Agent. See "Determination of Net Asset Value." A redemption of Fund
shares may result in a taxable gain or loss to the shareholder.
A shareholder may redeem shares of the Fund by sending a written request
for redemption to the Fund's Transfer Agent, accompanied by the outstanding
certificates, if any, representing such shares together with a standard form of
stock power signed by the registered owner or owners of such shares. If such
shares are represented by a Shareholder's Open Account, such written request
must include a signature guaranteed by an appropriate financial institution. If
such shares are represented by stock certificates, the signature on the stock
power must be signed and must also be guaranteed as above. Signature guarantees
may be obtained from among others, banks, savings institutions, credit unions
and brokers. Corporations, organizations, trusts and other fiduciaries may be
required to furnish further documentation such as certified copies of trust
documents, corporate resolutions, tax waivers and the like for redemption
purposes. For clarification of the redemption requirements for such accounts,
please contact the Fund. Shareholders who own shares through a brokerage account
or employee benefit plan should contact their broker or plan administrator for
information on how to redeem shares.
The value of the shares redeemed or repurchased may be more or less than
the shareholder's cost, depending in part on portfolio performance during the
period the shareholder owned the shares. Payment for redeemed shares will be
sent to the shareholder within three days after receipt of a request in proper
form. For shares recently purchased via check, the Fund may delay the mailing of
the redemption check, or a portion thereof, until the Fund's depository bank has
cleared the check used to purchase Fund shares, which may take up to 15 days or
more.
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___________________________________________________________ P R O S P E C T U S
For information about the unusual circumstances in which the Fund may
suspend the right of redemption or redeem in portfolio securities, please refer
to "Purchase, Redemption and Pricing of Securities Being Offered" in the Fund's
Statement of Additional Information.
TELEPHONE REDEMPTIONS
Fund shares may be redeemed by telephone at the number on the back page of this
Prospectus only if the shareholder elects telephone redemptions on the New
Account Application or Optional Shareholder Services Form. A properly completed
request with a signature guarantee is required if the election is made or
changed after the account is opened. Telephone redemption is not available for
Fund shares held in a Fund-sponsored retirement account (IRA Accounts, self-
directed or Fund sponsored) or accounts for which shares have been issued in
certificate form. Redemptions must be made before the close of business of the
New York Stock Exchange. All redemptions are mailed to the current address of
record or alternate address or wired to a predesignated bank account the
shareholder designates when establishing this privilege. Payment will normally
be transmitted on the business day following receipt of your instructions to the
address or bank account at a member bank of the Federal Reserve System you have
designated. Heavy wire traffic, however, may delay its arrival until after
public hours at your bank. During periods of significant economic or market
changes, telephone redemptions may be difficult to implement. If an investor is
unable to contact the Transfer Agent by telephone at (800) 432-2504, an investor
may deliver the redemption request to the Fund at the address set forth on the
back page of this Prospectus.
The Transfer Agent will employ reasonable procedures, including a recorded
line, to confirm that instructions communicated by telephone are genuine and, if
it does not do so, the Transfer Agent and the Fund may be liable for any losses
due to unauthorized or fraudulent instructions. The procedures employed by the
Transfer Agent include requiring personal identification by account number and
social security number, tape recording of telephone instructions, and providing
written confirmation of transactions. Provided reasonable safeguards are
followed neither the Fund nor the Transfer Agent will be liable for following
telephone instructions that reasonably appear to be genuine. As a result of this
policy, shareholders bear the risk of loss. The Fund can change or discontinue
this privilege without notice. Shareholders can terminate this privilege (once
elected) by written notice to the Transfer Agent.
SHAREHOLDER INQUIRIES
Shareholder inquiries concerning purchases, redemptions, price, dividend/capital
gain distributions, total return, share balance, last transaction, telephone
redemptions, duplicate statements and changes to their personal identification
number (PIN), generally should be directed to National Financial Data Services,
the Fund's Transfer Agent, at (800) 432-2504. While a representative will be
available, a touch tone phone will be required to access the "audio response"
options.
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C L I P P E R F U N D(TM) _____________________________________________________
MANAGEMENT
The Fund's Board of Directors manages the business and affairs of the Fund and
exercises all corporate powers. The Board may delegate the management of the
day-to-day operation of the Fund to its officers. The directors and officers of
the Fund and their principal occupations during the recent past are shown below.
NAME AND ADDRESS PRINCIPAL OCCUPATION(S)
---------------- -----------------------
James H. Gipson* (53) Mr. Gipson has been President of PFR, an
Director, Chairman and President investment management firm and the
9601 Wilshire Boulevard Investment Adviser, since he founded it
Beverly Hills, California 90210 in 1980, and holds a similar position
with and is a Trustee of the Schooner
Fund(R), another investment company
advised by the Investment Adviser. Prior
to 1980, he was a portfolio manager with
Batterymarch Financial Company and with
other investment firms.
Michael C. Sandler* (41) Mr. Sandler has been with PFR since
Director and Vice President 1984. He currently serves as Vice
9601 Wilshire Boulevard President and Portfolio Manager of PFR.
Beverly Hills, California 90210 Prior to that, he was a Vice President
with Enterprise Systems and a Manager of
Asset Redeployment for International
Harvester.
Michael Kromm (50) Mr. Kromm has been with PFR since 1990
Harvester. and is presently its Operations Manager
Secretary/Treasurer and is Secretary/Treasurer to the
9601 Wilshire Boulevard Schooner Fund(R). From 1987 to 1990,
Beverly Hills, California 90210 he worked for the RNC Mutual Group as
Chief Financial Officer and Secretary.
Prior to that, he worked in industry, as
a controller, and for a CPA firm.
Susan McLane Bernfeld (40) Ms. Bernfeld was in charge of operations
Director for pfr from 1981 to 1994. She is a
9601 Wilshire Boulevard Trustee of the Schooner Fund(R). Prior
Beverly Hills, California 90210 to that, she worked for Kendall and
Warner, independent certified public
accountants.
Norman B. Williamson (63) Mr. Williamson had been a Vice President
Director and Portfolio Manager with PFR since
1245 Rosalind 1983 prior to his retirement December
San Marino, California 91108 31, 1990, and is currently a Trustee of
the Schooner Fund(R). From 1980 to
1983, he was self-employed as an
investment manager. Prior to that, he
was Assistant Treasurer and Manager of
Pension Trust Administration for FMC
Corporation.
Lawrence P. McNamee (61) Professor McNamee has been a Professor
Director of Computer Science at UCLA since 1966,
3531 Boelter Hall, ucla and is currently a Trustee of the
Los Angeles, California 90024 Schooner Fund(R).
F. Otis Booth, Jr. (72) Mr. Booth has been a private investor
Director and rancher from 1973 to the present,
10877 Wilshire Blvd., Suite 1407 and is currently a Trustee of the
Los Angeles, California 90024 Schooner Fund/(R)/.
Principal Occupation(s)
____________________________
*Director who is an interested person, as defined in the Investment Company Act
of 1940, as amended, by virtue of an affiliation with the Investment Adviser.
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___________________________________________________________ P R O S P E C T U S
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
The Fund retains PFR as its investment adviser. The Investment Adviser has been
in the investment management business since 1980 providing investment advice to
corporate pension funds, college endowments, individuals and another investment
company. The Investment Adviser is a private investment firm whose stock is
controlled by James H. Gipson, its President. Mr. Gipson also serves as
President and a Director of the Fund.
The persons who are primarily responsible for the day-to-day management of
the Fund's portfolio are Mr. James Gipson, Mr. Michael Sandler and Mr. Bruce
Veaco. Mr. Gipson and Mr. Sandler have been managing the Fund since inception,
and Mr. Veaco, since 1986.
Under the Investment Advisory Contract (the "Contract") between the Fund
and the Investment Adviser, the Investment Adviser furnishes advice and
recommendations with respect to the Fund's portfolio of securities and
investments and provides persons satisfactory to the Fund's Board of Directors
to act as officers and employees of the Fund responsible for the overall
management and administration of the Fund, subject to the approval of the Fund's
Board of Directors. Such officers and employees, as well as certain directors of
the Fund, may be directors, officers or employees of the Investment Adviser or
its affiliates.
The Investment Adviser is responsible for certain expenses otherwise
payable by the Fund. The Fund is responsible for payment of all its expenses
under the Contract (including the advisory fee), which totalled 1.11% of the
Fund's average monthly net assets in the year ended December 31, 1995. Please
refer to "Investment Advisory and Other Services" in the Statement of Additional
Information.
INVESTMENT ADVISER'S FEE
For the services provided by the Investment Adviser under the Contract, the
Investment Adviser receives from the Fund a management fee equal to 1% per annum
of the Fund's average daily net asset values. Such fee is higher than that
charged by most other investment management companies. The management fee is
accrued daily in computing the net asset value of a share for the purpose of
determining the offering and redemption price per share, and is paid to the
Investment Adviser at the end of each month.
PERFORMANCE INFORMATION
The Fund may, from time to time, include figures indicating its total return, or
yield and total return in advertisements or reports to shareholders or
prospective investors. Any quotations of yield will be based on all investment
income per share earned during a given 30-day period (including dividends and
interest), less expenses accrued during the period ("net investment income"),
and will be computed by dividing net investment income by the maximum public
offering price per share on the last day of the period. Quotations of the Fund's
average annual total return will be expressed in terms of the average annual
compounded rate of return on a
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C L I P P E R F U N D(TM) _____________________________________________________
hypothetical investment in the Fund over a period of 1, 5 and 10 years, will
reflect the deduction of a proportional share of Fund expenses (on an annual
basis), and will assume that all dividends and distributions are reinvested when
paid.
Performance information for the Fund may be compared to various indices.
See the Statement of Additional Information for further discussion and the
Financial Highlights section of this Prospectus.
Performance information for the Fund reflects only the performance of a
hypothetical investment in the Fund during the particular time period on which
the calculations are based. Performance information should be considered in
light of the Fund's investment objective and policies, the types and quality of
the Fund's portfolio investments, market conditions during the particular time
period and operating expenses. Such information should not be considered as a
representation of the Fund's future performance. For a description of the
methods used to determine the Fund's average annual total return and yield,
please refer to "Performance Information" in the Statement of Additional
Information.
DIVIDENDS, DISTRIBUTIONS AND
TAXES
The Fund intends to distribute substantially all of its net investment income
and realized net capital gains, if any, to shareholders once each year. In
determining amounts of capital gains to be distributed, any capital loss
carryovers from prior years will be offset against capital gains. Each
shareholder may elect either to be paid in cash or to have the distribution
reinvested in additional whole or fractional shares of Capital Stock of the
Fund. Election to receive dividends and distributions in cash or shares is made
at the time of the original subscription order. A shareholder electing to
receive dividends and distributions in cash may choose to receive them in check
form or to have them wired to the shareholder's prearranged bank account by
selecting the Automatic Clearing House option on the New Account Application or
Supplemental Account Application. A shareholder may change such election at
any time prior to the record date for a particular dividend or distribution by
written request to the Fund. Dividends declared by the Fund in October,
November, or December of any calendar year to shareholders of record as of a
record date in such a month will be treated for federal income tax purposes as
having been received by shareholders on December 31 of that year, even though
they may be paid during January of the following year.
The Fund has elected, and qualified and intends to continue to qualify, to
be treated as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), by distributing annually
substantially all of its net investment income and net capital gains in
dividends to its shareholders in accordance with certain timing requirements and
by meeting certain other requirements related to the sources of its income and
the diversification of its assets. By so qualifying, the Fund will not be
subject to federal or state income tax
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___________________________________________________________ P R O S P E C T U S
or excise tax based on that part of its net ordinary taxable income and net
realized short-term and long-term capital gain which it distributes to its
shareholders in accordance with the Code's requirements.
The following discussion relates solely to the federal income tax treatment
of dividends and distributions by the Fund, is general in nature and assumes the
Fund qualifies as a regulated investment company. Investors should consult their
own tax advisers for further details and for the application of state, local,
and foreign tax laws to their particular situations.
Dividends and distributions paid to shareholders are generally subject to
federal income tax, and may be subject to state and local income tax. Dividends
from net investment income and distributions from any excess of net realized
short-term capital gains over net realized long-term capital losses are
currently taxable to shareholders as ordinary income.
In view of the Fund's investment policies, it is expected that dividends
received from domestic corporations and certain foreign corporations will be
part of the Fund's gross income. Distributions by the Fund from such dividends
to corporate shareholders may be eligible for the 70% dividends received
deduction, subject to the holding period and debt-financing limitations of the
Code. However, the portion of the Fund's gross income attributable to dividends
received from qualifying corporations is largely dependent on the Fund's
investment activities for a particular year and therefore cannot be predicted
with certainty.
Distributions of net capital gain (i.e., the excess of net long-term
capital gain over net short-term capital loss) by the Fund to its shareholders
are taxable to the recipient shareholders as long-term capital gain, without
regard to the length of time a shareholder has held the Fund's shares.
To avoid a 31% federal backup withholding tax requirement on dividends,
distributions and redemption proceeds, individuals and other non-exempt
shareholders must certify their taxpayer identification number to the Fund on
the investment application and provide certain other certifications. A
shareholder may also be subject to backup withholding if the IRS or a broker
notifies the Fund that the number furnished by the shareholder is subject to
backup withholding for previous under-reporting of interest or dividend income.
Reports containing appropriate federal income tax information (relating to
the tax status of dividends and capital gain distributions by the Fund) will be
furnished to each shareholder not later than 30 days following the close of the
calendar year during which the payments are made.
The Fund anticipates that it may invest as much as 15% of its net assets in
securities of foreign companies and may therefore be liable for foreign
withholding taxes.
Any dividend or distribution received by a shareholder on shares of the
Fund shortly after the purchase of such shares will have the effect of reducing
the net asset value of such shares by the amount of such dividend or
distribution as adjusted for daily fluctuations related to market values of the
investment portfolio. Furthermore, such dividend or distribution, although in
effect a return of capital, is subject to applicable taxes to the extent that
the shareholder is subject to such taxes.
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C L I P P E R F U N D(TM) ____________________________________________________
The above discussion concerning the taxation of dividends and distributions
received by shareholders is applicable whether a shareholder receives such
payment in cash or reinvests such amount in additional shares of the Fund. Thus,
dividends and distributions which are taxable as ordinary income or long-term
capital gain are so taxable whether received in cash or reinvested in additional
shares of the Fund.
ADDITIONAL INFORMATION
The Fund was incorporated in California on December 1, 1983.
Each of the Fund's capital shares is redeemable and has equal dividend,
distribution, liquidation, and voting rights. The Fund currently intends to have
annual shareholder meetings. Shareholders are entitled to one vote per share on
all matters voted on by Fund shareholders, except that cumulative voting rights
apply if properly asserted in the election of directors. Please refer to
"Capital Stock and Other Securities" in the Statement of Additional Information.
No person has been authorized to give any information or to make any
representation with respect to the Fund other than those contained in the
Prospectus, and information or representations not herein contained, if given or
made, must not be relied upon as having been authorized by the Fund. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy in any jurisdiction to any person to whom it is unlawful to make such offer
or solicitation in such jurisdiction.
The Fund's Annual Report for the fiscal year ended December 31, 1995
contains additional performance information. This Annual Report is available
without charge upon request.
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___________________________________________________________ P R O S P E C T U S
APPENDIX
STANDARD & POOR'S CORPORATION
LONG-TERM DEBT
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in the higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C: Debt rated BB, B, CCC, CC, and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
COMMERCIAL PAPER
A: Standard & Poor's commercial paper rating of A is a current assessment of
the likelihood of timely payment of debt having an original maturity of no more
than 365 days.
Ratings are graded into four categories, ranging from A for the highest quality
obligations to D for the lowest. The top two categories are as follows:
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
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C L I P P E R F U N D(TM) ____________________________________________________
A-1: This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
NOTES
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes. Notes due in 3 years or less will likely receive
a note rating. Notes maturing beyond 3 years will most likely receive a long-
term debt rating. The following criteria will be used in making that assessment:
- - Amortization schedule (the final maturity relative to other maturities the
more likely it will be treated as a note).
- - Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
SP-3 Speculative capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE
LONG-TERM DEBT
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations or protective elements
may be of greater amplitude or there may be other elements present which make
long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
20
<PAGE>
___________________________________________________________ P R O S P E C T U S
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Nonrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as
a matter of policy.
3. There is a lack of essential data pertaining to the issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonably up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
NOTE: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believe
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1 and B1.
21
<PAGE>
C L I P P E R F U N D(TM) _____________________________________________________
SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations which have an original maturity not exceeding
one year.
Among the obligations covered are commercial paper, Eurocommerical paper, bank
deposits, bankers' acceptances and obligation to deliver foreign exchange.
Obligations relying upon support mechanisms such as letters-of-credit and bonds
of indemnity are excluded unless explicitly rated.
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
- - Leading market positions in well-established industries.
- - High rates of return of funds employed.
- - Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- - Broad margins in earnings coverage of fixed financial charges and high
internal-cash generation.
- - Well-established access to a range of financial markets and assured sources
of alternate liquidity.
22
<PAGE>
______________________________________________________________________________
__
BACKUP WITHHOLDING INFORMATION--INSTRUCTIONS
GENERAL. Backup withholding is not an additional tax. Rather, the tax liability
of persons subject to backup withholding will be reduced by the amount of tax
withheld, and a refund of any overpayment may be obtained.
IRS PENALTIES. If you fail to furnish us your correct social security or other
taxpayer identification number (tin), you are subject to an IRS $50 penalty (and
could be subject to a $500 penalty.) In addition, if you fail to report certain
income on your federal income tax return, you will be subject to a 20%
negligence penalty (and, possibly a 75% fraud penalty) on any resulting
underpayment of tax. These penalties may be excused in certain circumstances. If
you falsify information on this form or make any other false statement without a
reasonable basis and as a result required backup withholding is not imposed, you
are subject to an IRS $500 penalty and, if the falsification is willful, to
criminal penalties including fines and imprisonment.
Please make sure that the tin which appears on the Investment Application on the
previous page complies with the following guidelines:
<TABLE>
<CAPTION>
Account Give Social Security Account Give Employer I.D.
Type Number of: Type Number of:
- ----------------- -------------------- ------------------ --------------------------
<S> <C> <C> <C>
Individual Individual Trust, Estate, Trust, Estate,
Pension Plan Trust Pension Plan Trust and not
personal TIN of Fiduciary
Joint Individual Owner who will be paying tax
(should be named first above)
Unif. Gifts to Minors Minor Corporation, Corporation,
Partnership, Other Partnership, Other
Organization Organization
Legal Guardian Ward, Minor or Incompetent
Sole Proprietor Owner of Business Broker/Nominee
Broker/Nominee
</TABLE>
If you do not have a TIN or you do not know your TIN, you must obtain Form SS-5
(Application for Social Security Number) or Form SS-4 (Application for Employer
Identification Number) from your local Social Security or IRS office and apply
for one. Write "Applied For" in the space on the application.
If you are one of the entities listed below, you are exempt from backup
withholding and should check the box "I am an exempt entity not subject to
backup withholding" on the Investment Application on the previous page.
. A corporation
. Financial institution
. IRC section 501 (a) exempt organization (IRA, Corporate Retirement Plan,
403b, Keogh)
. United States or any agency or instrumentality thereof
. A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof
. A foreign government, international organization or any agency or
instrumentality thereof
. Registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
. Real estate investment trust
. Common trust fund operated by a bank under IRC section 584 (a)
. An exempt charitable remainder trust, or a nonexempt trust described in
IRC section 4947 (a) (l)
Certain other entities are also exempt. If you are in doubt as to whether you
are exempt, please contact the Internal Revenue Service.
If you are neither a citizen nor a resident of the United States and are not
engaged in a U.S. trade or business related to your Fund investment, you should
check the box marked "I am an exempt foreign person" and furnish to the Fund an
IRS Form W-8 to avoid backup withholding on certain payments. You may, however,
be subject to 30% withholding (or such lower amount as provided by treaty) on
fund distributions.
______________________________________________________________________________
__
<PAGE>
=====================================================================
===========
=====================================================================
===========
CLIPPER FUND(TM)
9601 Wilshire Boulevard
Beverly Hills, California 90210
Telephone (800) 776-5033
Shareholder Services (800) 432-2504
INVESTMENT ADVISER
Pacific Financial Research
DIRECTORS
James H. Gipson
Michael C. Sandler
Susan McLane Bernfeld
Norman B. Williamson
Professor Lawrence P. McNamee [CLIPPER FUND(TM) LOGO
F. Otis Booth, Jr. APPEARS HERE]
TRANSFER & DIVIDEND PAYING AGENT
National Financial Data Services
Post Office Box 419152
Kansas City, Missouri 64141-6152
(800) 432-2504 P R O S P E C T U S
Overnight Address:
1004 Baltimore, 6th Fl. APRIL 30, 1996
Kansas City, Missouri 64105
CUSTODIAN
State Street Bank and Trust Company
COUNSEL
Heller, Ehrman, White & McAuliffe
INDEPENDENT AUDITORS
Ernst & Young LLP
=====================================================================
===========
=====================================================================
===========
<PAGE>
[LOGO OF CLIPPER FUND(TM) APPEARS HERE]
S T A T E M E N T O F A D D I T I O N A L I N F O R M A T I O N
A P R I L 3 0, 1 9 9 6
T A B L E O F C O N T E N T S
<TABLE>
<CAPTION>
PAGE
<S> <C>
INVESTMENT OBJECTIVE AND POLICIES.......................................... 2
OTHER INVESTMENT RESTRICTIONS.............................................. 4
MANAGEMENT OF THE REGISTRANT............................................... 6
PRINCIPAL SHAREHOLDERS OF SECURITIES....................................... 7
INVESTMENT ADVISORY AND OTHER SERVICES..................................... 8
BROKERAGE ALLOCATION AND OTHER PRACTICES................................... 10
CAPITAL STOCK AND OTHER SECURITIES......................................... 11
PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED...............
11
PERFORMANCE INFORMATION.................................................... 13
TAX STATUS................................................................. 14
FINANCIAL STATEMENTS....................................................... 15
MISCELLANEOUS INFORMATION.................................................. 15
</TABLE>
--------------------------------------------------------------------------
This Statement of Additional Information is not a Prospectus but is
to be read in conjunction with the Prospectus for Clipper
Fund(TM)("Fund") dated April 30, 1996. A copy of the Prospectus may
be obtained from Clipper Fund(TM), 9601 Wilshire Boulevard, Beverly
Hills, California 90210.
--------------------------------------------------------------------------
<PAGE>
C L I P P E R F U N D(TM)______________________________________________________
INVESTMENT OBJECTIVE AND POLICIES
Information regarding the Fund's investment objective and policies is contained
under the caption "Investment Objective and Policies" of the Prospectus dated
April 30, 1996 (the "Prospectus").
As noted in the Prospectus, the Fund may lend up to 30% of its portfolio
securities in order to generate additional income. The Fund may pay reasonable
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the income earned on the cash or cash equivalents to the
borrower or placing broker. Loans are subject to termination at the option of
the Fund or the borrower at any time.
The Fund will not have the right to vote any securities having voting
rights during the existence of a loan, but the Fund may call the loan in
anticipation of an important vote to be taken among holders of the securities or
of the giving or withholding of its consent on a material matter affecting the
investment. As with other extensions of credit, there are risks of delay in
recovery or even losses of rights in the securities loaned should the borrower
of the securities fail financially. However, the loans will be made only to
firms deemed by the Investment Adviser to be of good standing, and when, in the
judgment of the Investment Adviser the income which can be earned currently from
the loans justifies the attendant risk.
ADDITIONAL CONSIDERATIONS RELATING TO FIXED-INCOME SECURITIES
The Fund also may invest up to 25% of its total assets in fixed-income and
convertible securities offering high current income. Such high-yielding, high
risk, fixed-income securities will ordinarily be in the lower rating categories
of recognized rating agencies or will be non-rated, which are commonly referred
to as "junk bonds." These lower-rated fixed-income securities are considered by
S&P and Moody's, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of the
obligation and will generally involve more credit risk than securities in the
higher rating categories. Even securities rated BBB or Baa by S&P and Moody's,
ratings which are considered investment grade, possess some speculative
characteristics.
Companies that issue high-yielding, high risk, fixed-income securities are
often highly leveraged and may not have available to them more traditional
methods of financing. Therefore, the risk associated with acquiring the
securities of such issuers generally is greater than is the case with higher
rated securities. For example, during an economic downturn or a sustained period
of rising interest rates, highly leveraged issuers of high-yielding, high risk
securities may experience financial stress. During such periods, such issuers
may not have sufficient revenues or cash flows to meet their interest payment
obligations. The issuer's ability to service its debt obligations may also be
adversely affected by specific corporate developments, or the issuer's inability
to meet specific projected business forecasts, or the unavailability of
additional financing. The risk of loss due to default by the issuer is
significantly greater for the holders of high-yielding, high risk securities
because such securities are generally unsecured and are often subordinated to
other creditors of the issuer.
High-yielding, high risk, fixed-income securities frequently have call or
buy-back fea-
2
<PAGE>
_____________ S T A T E M E N T O F A D D I T I O N A L I N F O R M A T I O N
tures which would permit an issuer to call or repurchase the security from the
Fund. If a call were exercised by the issuer during periods of declining
interest rates, the Fund would likely have to replace such called security with
a lower-yielding security, thus decreasing the net investment income to the Fund
and dividends to shareholders.
The Fund may have difficulty disposing of such high-yielding, high risk
securities because there may be a thin trading market for such securities.
Because not all dealers maintain markets in all high-yielding, high risk, fixed-
income securities, there is no established retail secondary market for many of
these securities, and the Fund anticipates that such securities could be sold
only to a limited number of dealers or institutional investors. To the extent a
secondary trading market for high-yielding, high risk, fixed-income securities
does exist, it is generally not as liquid as the secondary market for higher
rated securities. The lack of a liquid secondary market may also have an adverse
impact on market price and the Fund's ability to dispose of particular issues
when necessary to meet the Fund's liquidity needs or in response to a specific
economic event such as a deterioration in the creditworthiness of the issuer.
The lack of a liquid secondary market for certain securities may also make it
more difficult for the Fund to obtain accurate market quotations for purposes of
valuing the Fund's portfolio. Market quotations are generally available on many
high-yielding, high risk issues only from a limited number of dealers and may
not necessarily represent firm bids of such dealers or prices for actual sales.
In addition, the market for high-yielding, high risk, fixed-income
securities has not weathered a major economic recession, and it is unknown what
effect such a recession might have on such securities. It is likely, however,
that any such recession could severely disrupt the market for such securities
and may have an adverse impact on the value of such securities. In addition, it
is likely that any such economic downturn could adversely affect the ability of
the issuers of such securities to repay principal and to pay interest thereon.
The Fund is authorized to acquire high-yielding, high risk, fixed-income
securities that are sold without registration under the federal securities laws
and which therefore carry restrictions on resale. While many recent high-
yielding, high risk securities have been sold with registration rights,
covenants and penalty provisions for delayed registration, if the Fund is
required to sell such restricted securities before the securities have been
registered, it may be deemed an underwriter of such securities as defined in the
Securities Act of 1933, which entails special responsibilities and liabilities.
The Fund may incur special costs in disposing of such securities; however, the
Fund will generally incur no costs when the issuer is responsible for
registering the securities.
The Fund may also acquire high-yielding, high risk, fixed-income securities
during an initial underwriting. Such securities involve special risks because
they are new issues. The Fund has no arrangement with any person concerning the
acquisition of such securities, and the Investment Adviser will carefully review
the credit and other characteristics pertinent to such new issues.
From time to time, proposals have been discussed regarding new legislation
designed to limit the use of certain high-yielding, high risk securities by
issuers in connection with leveraged buy-outs, mergers and acquisitions,
3
<PAGE>
C L I P P E R F U N D(TM)______________________________________________________
or to limit the deductibility of interest payments on such securities. Such
proposals, if enacted into law, could reduce the market for such securities
generally, could negatively affect the financial condition of issuers of high-
yield securities by removing or reducing a source of future financing, and could
negatively affect the value of specific high-yield issues and the high-yield
market in general. However, the likelihood of any such legislation or the effect
thereof is uncertain. The liquidity of high-yielding securities may be
negatively affected by provisions of The Financial Institutions Reform, Recovery
and Enforcement Act of 1989 that prohibit savings associations from acquiring or
retaining any corporate debt security that is not investment grade.
Factors adversely impacting the market value of high-yielding, high risk
securities will, to the extent the Fund has invested in such securities,
adversely impact the Fund's net asset value. In addition, the Fund may incur
additional expenses to the extent it is required to seek recovery upon a default
in the payment of principal or interest on its portfolio holdings. The Fund will
rely on the Investment Adviser's judgment, analysis and experience in evaluating
the creditworthiness of an issuer. In this evaluation, the Investment Adviser
will take into consideration, among other things, the issuer's financial
resources, its sensitivity to economic conditions and trends, its operating
history, the quality of the issuer's management, and regulatory matters.
Adverse publicity regarding lower-rated bonds may depress the prices for
such securities to some extent. Whether investor perceptions will continue to
have a negative effect on the price of such securities is uncertain.
OTHER INVESTMENT RESTRICTIONS
The Fund has adopted the following additional restrictions as matters of
fundamental investment policy, which may not be changed without the approval of
the lesser of (i) 2/3 or more of the voting securities present at a duly held
meeting at which a quorum (50%) is present, or (ii) more than 1/2 of the
outstanding voting securities of the Fund. The Fund may not:
1. Underwrite the securities of other issuers, except that the Fund may, as
indicated in the Prospectus (see "Fundamental Investment Policies") acquire
restricted securities under circumstances where, if such securities are
sold, the Fund might be deemed to be an underwriter for purposes of the
Securities Act of 1933.
2. Purchase or sell real estate or interests in real estate, but the Fund may
purchase marketable securities of companies holding real estate or
interests in real estate.
3. Purchase or sell commodities or commodity contracts, including futures
contracts.
4. Make loans to other persons except by (i) the purchase of a portion of an
issue of publicly distributed bonds, debentures or other debt securities or
privately sold bonds, debentures or other debt securities immediately
convertible into equity securities, such purchases of privately sold debt
securities not to exceed 5% of the Fund's total assets, and (ii) the entry
into portfolio lending agreements pro-
4
<PAGE>
_____________ S T A T E M E N T O F A D D I T I O N A L I N F O R M A T I O N
vided that the value of securities subject to such lending agreements may
not exceed 30% of the value of the Fund's total assets. See Prospectus,
"Investment Objective and Policies." However, the Fund may not make loans
or invest in any restricted securities including privately sold bonds,
debentures or other debt securities or other illiquid assets, including
repurchase agreements maturing in over seven (7) days and securities which
do not have readily available market quotations, which will cause the then
aggregate value of all such securities to exceed 10% of the value of the
Fund's total assets (at the time of investment, giving effect thereto).
5. Purchase securities on margin, but it may obtain such short-term credits as
may be necessary for the clearance of purchases and sales of securities.
6. Borrow money from banks except for temporary or emergency (not leveraging)
purposes, including the meeting of redemption requests that might otherwise
require the untimely disposition of securities, in an aggregate amount not
exceeding 5% of the value of the Fund's total assets at the time any
borrowing is made.
7. Make short sales of securities.
8. Purchase or sell puts and calls on securities.
9. Participate on a joint or joint and several basis in any securities trading
account.
10. Purchase the securities of any other investment company except (1) in the
open market or in privately negotiated transactions where (in either case)
to the best information of the Fund no commission, profit or sales charge
to a sponsor or dealer (other than the customary broker's commission or
dealer discount) results from such purchase but neither open market nor
privately negotiated purchases of such securities shall exceed 5% of the
Fund's total assets in either category (not in the aggregate), or (2) if
such purchase is part of a merger, consolidation or acquisition of assets.
The Fund may incur duplicate management and service fees due to this
arrangement some of which is required to be rebated under California law.
11. Invest in or hold securities of any issuer if, to the knowledge of the
Fund, those officers and directors of the Fund or the Investment Adviser
owning individually more than 1/2 of 1% of the securities of such issuer
together own more than 5% of the securities of such issuer.
5
<PAGE>
C L I P P E R F U N D(TM)______________________________________________________
MANAGEMENT OF THE REGISTRANT
Information about the management of the Fund is contained in the Prospectus
under "Management." Compensation paid to the Management was as follows for the
year ended December 31, 1995:
COMPENSATION TABLE
<TABLE>
<CAPTION>
=====================================================================
===========================================
(1) (2) (3) (4) (5)
Pension or Total
Retirement Compensation
Aggregate Benefits Accrued Estimated Annual from Registrant and
Name of Person, Compensation as Part of the Fund Benefits Upon Fund
Complex
Position from Registrant Expenses Retirement Paid to Directors (a)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James H. Gipson
Director, Chairman,
and President None None None None
Michael C. Sandler
Director
and Vice President None None None None
Michael Kromm
Secretary
and Treasurer None None None None
Susan M. Bernfeld
Director $5,000 None None $10,000
Norman B. Williamson
Director $5,000 None None $10,000
Lawrence P. McNamee
Director $5,000 None None $10,000
F. Otis Booth, Jr.
Director $5,000 None None $10,000
</TABLE>
(a) Total 1995 Compensation from the Registrant and the Fund Complex consists
of compensation paid to directors and trustees by both of the Pacific
Financial Research Funds: Clipper Fund, Inc. and Schooner Fund(R).
6
<PAGE>
_____________ S T A T E M E N T O F A D D I T I O N A L I N F O R M A T I O N
PRINCIPAL SHAREHOLDERS OF SECURITIES
The following is information about persons known to the Fund to be record owners
of five percent or more of the outstanding shares of the capital stock of the
Fund as of March 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OWNED PERCENT
NAME AND ADDRESS OF RECORD OF CLASS
------------------------------------- ---------------- ----------
<S> <C> <C>
Charles Schwab & Co. Inc. (1) 962,191 13.0%
Attention: Mutual Fund Department
101 Montgomery Street
San Francisco, California 94104
Hewitt Associates (2) 622,623 8.4%
100 Half Day Road
Lincolnshire, Illinois 60069
Long Term Investment Pool 464,844 6.3%
State University of Iowa Foundation
Alumni Center
P.O. Box 4550
Iowa City, Iowa 52244-4550
FMC Corporation (3) 456,892 6.2%
Attn: Elaine P. Stallworth
200 East Randolph Street, 51st Floor
Chicago, IL 60601
</TABLE>
_____________________________
1. Charles Schwab & Co. Inc. is the nominee account for many individual
shareholder accounts; the Fund is not aware of the size or identity of
any of the individual accounts.
2. Hewitt Associates is the trustee for four company sponsored retirement
plans. The Hewitt Associates plans are: Money Purchase Plan, Deferred
Compensation Trust, HR10 Trust and Pension Plan. All four plans have the
same address.
3. FMC Corporation is the trustee for four company sponsored retirement
plans. The plans are: Thrift & Stock Purchase Plan, Master Retirement
Trust Defense Retiree Medical 401 (h) - Salaried, Service Corporation
Defense Retired Medical Trust - Hourly and Benefit Trust. All four plans
have the same address.
7
<PAGE>
C L I P P E R F U N D(TM)______________________________________________________
All directors and officers of the Fund as a group (7 persons) owned beneficially
190,966 shares of the Fund's capital stock on January 31, 1996, approximating
2.8% of the outstanding shares. That number consists of an aggregate of 69,142
shares held by the Pacific Financial Research, Inc. Money Purchase Plan and
Trust; 3,260 shares held by the Pacific Financial Research, Employees Savings
Plan; 41,723 shares held by Mr. and Mrs. F. Otis Booth, Jr.; 51,820 shares held
by Mr. Gipson; 2,928 shares held by Ms. McLane Bernfeld in IRA plans; 1,615
shares held by Mr. Sandler in IRA plans; 12,256 shares held by Mr. Williamson in
an IRA plan; 1,570 shares held by Mr. Kromm, of which 1,298 are in an IRA plan
and 6,652 shares held by Mr. McNamee, of which 3,776 shares are held in IRA
plans, 2,001 shares are held in trust with Mrs. McNamee and 875 shares are held
in IRA plans for Mrs. McNamee. Messrs. Gipson, Booth, Sandler, Williamson,
McNamee and Ms. McLane Bernfeld are Directors of the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
Certain information regarding investment advisory and other services is in the
Fund's Prospectus. Additional information follows:
THE INVESTMENT ADVISER
PFR (the "Investment Adviser") is a registered investment adviser with the
Securities and Exchange Commission under the Investment Advisers Act of 1940.
Registration as a registered investment adviser does not involve supervision of
management or investment practices and policies by the Securities and Exchange
Commission. James H. Gipson, President and a Director of the Fund, retains
control of the outstanding common stock of the Investment Adviser.
THE INVESTMENT ADVISORY CONTRACT
The Investment Advisory Contract (the "Contract") between the Fund and the
Investment Adviser has been approved by the Board of Directors of the Fund,
including a majority of the Fund's directors who were not a party to the
Contract or interested persons of a party to the Contract, and by the vote of a
majority of the outstanding voting shares of the Fund.
Under the Contract, the Investment Adviser (i) manages the investment
operations of the Fund and the composition of its portfolio, including the
purchase, retention and disposition of securities, in accordance with the Fund's
investment objective, (ii) provides all statistical, economic and financial
information reasonably required by the Fund and reasonably available to the
Investment Adviser, (iii) maintains all required books and records with respect
to the Fund's securities transactions and provides such periodic and special
reports as reasonably requested by the Fund's Board of Directors, (iv) provides
the custodian of the Fund's securities on each business day with a list of
trades for that day, and (v) provides persons satisfactory to the Fund's Board
of Directors to act as officers and employees of the Fund.
Also under the Contract, the Investment Adviser is responsible for (i) the
compensation of any of the Fund's directors, officers and employees who are
interested persons of the Investment Adviser or its affiliates (other than by
reason of being directors, officers or employees of the Fund), (ii) expenses of
printing and distributing the Fund's Prospectus and sales and advertising
materials to prospective clients. The Fund is responsible and has assumed the
obligation for payment of all of its other expenses including (a) brokerage and
commission expenses, (b) federal, state or local taxes, including issue and
transfer taxes, incurred by or levied on the Fund, (c) interest charges on
borrowings,
8
<PAGE>
_____________ S T A T E M E N T O F A D D I T I O N A L I N F O R M A T I O N
(d) compensation of any of the Fund's directors, officers or employees who are
not interested persons of the Investment Adviser or its affiliates, (e) charges
and expenses of the Fund's custodian, transfer and dividend paying agent and
registrar, (f) all costs associated with shareholders meetings and the
preparation and dissemination of proxy solicitation materials except for
meetings called solely for the Investment Adviser's benefit, (g) legal and
auditing expenses, (h) printing and distribution of the Fund's Prospectus and
other shareholder information to existing shareholders, (i) payment of all
investment advisory fees, (j) fees and expenses of registering the Fund's shares
under the appropriate federal securities laws and of qualifying its shares under
applicable state Blue Sky laws, including expenses attendant upon renewing and
increasing such registrations and qualifications, (k) insurance premiums on the
Fund's property and personnel, including the fidelity bond and liability
insurance for officers and directors, (l) accounting and bookkeeping costs and
expenses necessary to maintain the Fund's books and records as required by the
1940 Act, including the pricing of the Fund's portfolio securities and the
calculation of its daily net asset value, and (m) any extraordinary and non-
recurring expenses, except as otherwise prescribed herein.
The Contract, as continued, is effective through March 31, 1997.
Thereafter, it may be continued for successive periods not to exceed one year,
provided that such continuance is specifically approved annually by vote of a
majority of the Fund's outstanding voting securities or by the Fund's Board of
Directors; and by a majority of the Fund's Board of Directors who are not
parties to the Contract or interested persons of any such party, in person at a
meeting called for the purpose of voting on such approval.
The Investment Adviser's fees payable to it by the Fund will be reduced by
the amount, if any, by which the Fund's annual operating expenses, expressed as
a percentage of average daily net assets, exceed the most restrictive limitation
imposed by any state in which the Fund's shares are then qualified for sale.
Computation of this limitation is made monthly during the Fund's fiscal year on
the basis of the average daily net asset values and operating expenses to that
point during such year, and the amount of the excess, if any, over the prorated
amount of the expense limitation is deducted from such monthly payment of the
management fee, after taking into account, however, any previous monthly
payments under the operating expense limitation during such fiscal year. In
addition, in the event that the Fund does not generate sufficient income to
cover its expenses, the Investment Adviser may at its discretion pay from the
Investment Adviser's own funds more than required of it by the most restrictive
applicable state limitation. Currently the most restrictive limitation among
these states is 2 1/2% of the first $30,000,000 of average daily net assets,
plus 2% of the next $70,000,000, plus 1 1/2% of average daily net assets in
excess of $100,000,000. Operating expenses for the purposes of the Contract
include the Investment Adviser's management fee but do not include (a) brokerage
and commission expenses, (b) federal, state and local taxes, including issue and
transfer taxes, incurred by or levied on the Fund and (c) interest charges on
borrowings.
The Contract is terminable on 60 days written notice by vote of a majority
of the Fund's outstanding shares or by vote of a majority of the Fund's entire
Board of Directors, or by the Investment Adviser on 60 days written notice, and
automatically terminates in the event of its assignment. The Contract provides
that in the absence of willful misfeasance, bad faith or gross
9
<PAGE>
C L I P P E R F U N D(TM)______________________________________________________
negligence on the part of the Investment Adviser, or of reckless disregard of
its obligations thereunder, the Investment Adviser is not liable for any action
or failure to act in accordance with its duties thereunder.
The Investment Adviser may act as an investment adviser to other persons,
firms or corporations (including investment companies), and has numerous
advisory clients besides the Fund, one of which is a registered investment
company.
The Fund's investment advisory fee to the Investment Adviser was
$3,299,458, $2,543,259 and $2,557,474 for the years ended December 31, 1995,
1994, and 1993, respectively. This fee equals 1% of the average daily net assets
of the Fund for the year.
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Investment Adviser will furnish advice and recommendations with respect to
the Fund's portfolio decisions and, subject to the instructions of the Board of
Directors of the Fund, will determine the broker to be used in each specific
transaction. In executing the Fund's portfolio transactions, the Investment
Adviser seeks to obtain the best net results for the Fund, taking into account
such factors as the overall net economic result to the Fund (involving both
price paid or received and any commissions and other costs paid), the efficiency
with which the specific transaction is effected, the ability to effect the
transaction where a large block is involved, the known practices of brokers and
their availability to execute possibly difficult transactions in the future and
the financial strength and stability of the broker. While the Investment Adviser
generally seeks reasonably competitive commission rates, the Fund does not
necessarily pay the lowest commission or spread available.
The Fund and the Investment Adviser may direct the Fund's portfolio
transactions to persons or firms because of research and investment services
provided by such person or firm if the amount of commissions for effecting the
transactions is reasonable in relation to the value of the investment
information provided by those persons or firms. Such research and investment
services are those which brokerage houses customarily provide to institutional
investors and include statistical and economic data and research reports on
particular companies and industries. These services may be used by the
Investment Adviser in connection with all of its investment activities, and some
of the services obtained in connection with the execution of transactions for
the Fund may be used in managing the Investment Adviser's other investment
accounts.
The Fund may deal in some instances in securities which are not listed on a
national securities exchange but are traded in the over-the-counter market. It
may also purchase listed securities through the "third market" (i.e., otherwise
than on the exchanges on which the securities are listed). When transactions are
executed in the over-the-counter market or the third market, the Investment
Adviser will seek to deal with primary market makers and to execute transactions
on the Fund's own behalf, except in those circumstances where, in the opinion of
the Investment Adviser, better prices and executions may be available elsewhere.
The Fund does not allocate brokerage business in return for sales of the Fund's
shares.
Neither the Investment Adviser nor any affiliated person thereof will
participate in commissions paid by the Fund to brokers or dealers or will
receive any reciprocal business, directly or indirectly, as a result of such
commissions.
10
<PAGE>
_____________ S T A T E M E N T O F A D D I T I O N A L I N F O R M A T I O N
The Board of Directors reviews periodically the allocation of brokerage
orders to monitor the operation of these policies.
The aggregate amounts of brokerage commissions paid by the Fund were
$253,527, $284,215, and $309,379, for the years ended December 31, 1995, 1994,
and 1993, respectively. During the year ended December 31, 1995, the total
amount of transactions and related commissions with respect to which the Fund
directed brokerage transactions was $33,778,130 and $47,358, respectively. The
amount of these directed commissions that was applied as credit against custody
bills by the Fund's custodian, and accounted for on the accrual basis, amounted
to $31,935, to the benefit of the Fund only. All trades are placed with brokers
on a best execution basis.
CAPITAL STOCK AND OTHER SECURITIES
The authorized capital stock of the Fund consists solely of 200,000,000 shares
of capital stock having no par value. Each of the Fund's shares has equal
dividend, distribution, liquidation and voting rights. Holders of the Fund's
shares have no conversion or pre-emptive rights. All shares of the Fund when
duly issued will be fully paid and non-assessable. The rights of the holders of
shares of capital stock may not be modified except by vote of the holders of a
majority of the outstanding shares.
The Articles of Incorporation of the Fund give the Fund the right to redeem
shares of capital stock evidenced by any stock certificate presented for
transfer at the aggregate net asset value per share. Holders of Capital stock
are entitled to one vote per share on all matters voted upon by the Fund's
shareholders. In addition, the Fund's shares have cumulative voting rights in
the election of directors. This means that a shareholder may cumulate votes by
multiplying the number of shares which the shareholder holds by the number of
directors to be elected and casting all such votes for one candidate or
distributing them among any two or more candidates. In order to cumulate votes,
a shareholder must give notice of the shareholder's intention to cumulate votes
at the meeting and prior to the voting, and the candidates' names must have been
placed in nomination prior to the commencement of voting. If any one shareholder
has given notice as described above, then all shareholders may cumulate their
votes for candidates in nomination.
PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED
Certain information regarding the purchase and redemption of the Fund's capital
shares is contained under the captions "Purchase of Shares," "Redemption of
Shares," and "Determination of Net Asset Value" in the Prospectus. Additional
information follows:
DETERMINATION OF NET ASSET VALUE
The federal holidays on which net asset value will not be determined are: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
VALUATION OF ASSETS IN DETERMINING
NET ASSET VALUE
In valuing the Fund's assets for the purpose of determining net asset value,
readily marketable portfolio securities listed on the New York Stock Exchange
are valued at the last sale price on such Exchange on the business day as of
which such value is being determined. If there has been no sale on such Exchange
on such day, the security is valued at the closing bid price on such day. If no
bid price is quoted on such Exchange on such
11
<PAGE>
C L I P P E R F U N D(TM)______________________________________________________
day, then the security is valued by such method as the Board of Directors of the
Fund shall determine in good faith to reflect its fair value. Readily marketable
securities not listed on the New York Stock Exchange but listed on other
national securities exchanges are valued in like manner. Readily marketable
securities traded only in the over-the-counter market are valued at the current
bid price. If no bid price is quoted on such day, then the security is valued by
such method as the Board of Directors of the Fund shall determine in good faith
to reflect its fair value. All other assets of the Fund, including restricted
and not readily marketable securities, are valued in such manner as the Board of
Directors of the Fund in good faith deems appropriate to reflect their fair
value.
PURCHASE OF SHARES
Orders for shares received by the Fund prior to the close of business on the New
York Stock Exchange on each day during such periods that the Exchange is open
for trading are priced at net asset value per share computed as of the close of
the Exchange on that day. Orders received after the close of the New York Stock
Exchange or on a day it is not open for trading are priced at the close of such
Exchange on the next day on which it is open for trading at the next determined
net asset value per share.
The initial investment by an investor must be in an amount of $5,000 or
more, except that the minimum investment in an Individual Retirement Account
("IRA") is $2,000. Each additional investment by a shareholder must be at least
$1,000 ($200 for IRA accounts) except through dividend reinvestment. The
automatic Investment Plan has a minimum monthly investment of $150; however the
initial minimum investment is not lowered. The minimum may be waived for other
investors at the Investment Adviser's discretion.
REDEMPTION OF SHARES: SUSPENSION AND REDEMPTIONS IN PORTFOLIO
SECURITIES
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than three calendar days after a shareholder's
redemption request made in accordance with the procedures set forth above,
except for any period during which the New York Stock Exchange is closed (other
than customary weekend and holiday closings) or during which the Securities and
Exchange Commission determines that trading thereon is restricted, or for any
period during which an emergency (as determined by the Securities and Exchange
Commission) exists as a result of which disposal by the Fund of securities owned
by it is not reasonably practicable or as a result of which it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or for
such other period as the Securities and Exchange Commission may by order permit
for the protection of shareholders of the Fund.
Payment of the net redemption proceeds may be made either in cash or in
portfolio securities (selected at the discretion of the Board of Directors of
the Fund and taken at their value used in determining the net asset value), or
partly in cash and partly in portfolio securities. However, payments will be
made wholly in cash unless the Board of Directors believes that economic
conditions exist which would make such a practice detrimental to the best
interests of the Fund. If payment for shares redeemed is made wholly or partly
in portfolio securities, brokerage costs may be incurred by the investor in
converting the securities to cash. The Fund has filed a formal election with the
Securities and Exchange Commission pursuant to which the Fund can effect a
redemption in portfolio securities only if the particular shareholder of record
is redeeming more than $250,000 or 1% of the Fund's total net assets, whichever
is less, during
12
<PAGE>
_____________ S T A T E M E N T O F A D D I T I O N A L I N F O R M A T I O N
any 90-day period. The Fund expects, however, that the amount of a redemption
request would have to be significantly greater than $250,000 or 1% of total net
assets before a redemption wholly or partly in portfolio securities would be
made.
PERFORMANCE INFORMATION
A description explaining the methodology and relevance of certain historical
performance presentations is contained in the Prospectus under "Performance
Information."
Performance information for the Fund may be compared, to: (i) the Dow Jones
Industrial Average (the "DJIA"), an unmanaged weighted average of 30 large
industrial corporations, (ii) the Standard & Poor's 500 Stock Index (the "S&P
500"), an unmanaged index of 500 industrial, transportation, utility and
financial companies, and (iii) the Consumer Price Index (the "CPI"), a
statistical measure of change, over time, in the price of goods and services in
major expenditure groups (such as food, housing, apparel, transportation,
medical care, entertainment, and other goods and services) typically purchased
by urban consumers. Neither the DJIA nor the S&P 500 is necessarily typical of
the type of investments made by the Fund. Further, the cpi essentially measures
the purchasing power of consumers' dollars by comparing the costs of goods and
services today with the costs of the same goods and services at an earlier date.
Additionally, the Fund's total returns are based on the overall dollar or
percentage change in value of a hypothetical investment in the Fund, assuming
all dividends and distributions are reinvested. A cumulative total return
reflects the Fund's performance over a stated period of time or since its
inception. An average annual compounding rate reflects the hypothetical annually
compounded return that would have produced the same cumulative total return if
the Fund's performance had been constant over the entire period presented.
Because average annual compounded returns tend to smooth out variations in the
Fund's returns, investors should recognize that they are not the same as actual
year-by-year returns.
For the purposes of quoting and comparing the performance of the Fund to
that of other mutual funds and to other relevant market indices in
advertisements, performance may be stated in terms of total return. Under
regulations adopted by the Securities and Exchange Commission ("SEC"), funds
that intend to advertise performance must include total return quotations
calculated according to the following formula:
P (1+T)/n/ = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5, or 10)
ERV = ending redeemable value of hypothetical $1,000 payment made at the
beginning of the 1, 5, or 10 year periods, at the end of such period (or
fractional portion thereof.)
Under the foregoing formula, the time periods used in advertising will be based
on rolling calendar quarters, updated to the last day of the most recent quarter
prior to submission of the advertising for publication, and will cover 1, 5, and
10 year periods of the Fund's existence. In calculating the ending redeemable
value, all dividends and distributions by the Fund are assumed to have been
reinvested at net asset value as described in the Prospectus on the reinvestment
dates during the period. Total return, or "T" in the formula above, is computed
by finding the average annual compounded rates of return over the 1, 5, or 10
year periods (or
13
<PAGE>
C L I P P E R F U N D(TM)______________________________________________________
fractional portion thereof) that would equate the initial amount invested to the
ending redeemable value. Additionally, redemption of shares is assumed to occur
at the end of each applicable time period.
The Fund's average annual total returns (calculated in accordance with the
SEC regulations described above) for the 1, 5 and 10 year periods ended December
31, 1995 and for the period since inception (February 29, 1984), were 45.2%,
19.2%, 14.8%, and 16.5%, respectively. These results are based on historical
earnings and asset value fluctuations and are not intended to indicate future
performance.
The foregoing information should be considered in light of the Fund's
investment objective and policies, as well as the risk incurred in the Fund's
investment practices. Future results will be affected by the future composition
of the Fund's portfolio, as well as by changes in the general level of interest
rates, and general economic and other market conditions.
TAX STATUS
Information about the tax status of the Fund and certain federal income tax
consequences to Fund shareholders is contained in the Prospectus under
"Dividends, Distributions, and Taxes."
Corporate shareholders should also be aware that availability of the
dividends received deduction for a portion of the Fund's distributions is
subject to certain restrictions. For example, the deduction is not available if
Fund shares are deemed to have been held for less than 46 days and is reduced to
the extent such shares are treated as debt-financed under the Internal Revenue
Code of 1986, as amended, (the "Code"). Dividends, including the portions
thereof qualifying for the dividends received deduction, are includible in the
tax base on which the federal alternative minimum tax is computed. Dividends of
sufficient aggregate amount received during a prescribed period of time and
qualifying for the dividends received deduction may be treated as "extraordinary
dividends" under the Code, resulting in a reduction in a corporate shareholder's
federal tax basis in its Fund shares.
A foreign tax credit or deduction is generally allowed for foreign taxes
paid or deemed to be paid. A regulated investment company may elect to have the
foreign tax credit or deduction claimed by the shareholders rather than the
company if certain requirements are met, including the requirement that more
than 50% of the value of the company's total assets at the end of the taxable
year consists of securities in foreign corporations. Since the Fund does not
anticipate investment in securities of foreign corporations to this extent, the
Fund will likely not be able to make this election and foreign tax credits will
be allowed only to reduce the Fund's tax liability, if any.
Shareholders who are not U.S. persons under the Code should consult their
advisers regarding the applicability of U.S. withholding taxes to Fund
distributions and the effect of foreign tax laws.
Generally, the Code's rules regarding the determination and character of
gain or loss on the sale of a capital asset apply to a sale, redemption or
repurchase of shares of the Fund that are held by the shareholder as capital
assets. A loss on the sale of shares of the Fund held for six months or less is
treated as a long-term capital loss to the extent that distributions on such
shares were treated as long-term capital gains.
Provided that the Fund qualifies as a regulated investment company under
the Code, it will not be liable for California corporate taxes, other than a
minimum franchise tax, if substantially all of its income is distributed to
shareholders for each taxable year.
14
<PAGE>
_____________ S T A T E M E N T O F A D D I T I O N A L I N F O R M A T I O N
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency dominated securities are subject
to Section 988 of the Code, which may cause gains and losses to be treated as
ordinary income and losses rather than capital gains and losses and may affect
the amount, timing and character of distributions to shareholders.
The discussions herein and in the Prospectus have been prepared by the
management of the Fund, are general in nature and do not purport to be a
complete description of all tax implications on an investment in the fund;
counsel to the Fund has expressed no opinion in respect therein. Investors
should consult their own tax advisers for further details and for the
application of federal, state and local tax laws to their particular situations.
FINANCIAL STATEMENTS
The audited financial statement of the Fund as contained in the Annual Report to
Shareholders for the year ended December 31, 1995 (the "Report") are
incorporated herein by reference to the Report which has been filed with the
Securities and Exchange Commission. Any person not receiving a copy of the
Report with this Statement should call or write the Fund to obtain a free copy.
MISCELLANEOUS INFORMATION
State Street Bank and Trust Company, Post Office Box 1713, Mutual Funds
Operations-P2N, Boston, Massachusetts, 02105, acts as the custodian of the
securities and other assets of the Fund.
Ernst & Young LLP, 515 South Flower Street, Los Angeles, California, 90071,
are the Fund's independent auditors.
The validity of shares offered by the prospectus are passed on by Heller,
Ehrman, White & McAuliffe, 333 Bush Street, San Francisco, California 94104-
2878.
15
<PAGE>
=====================================================================
===========
CLIPPER FUND(TM)
9601 Wilshire Boulevard
Beverly Hills, California 90210
Telephone (800) 776-5033
Shareholder Services (800) 432-2504
INVESTMENT ADVISER
Pacific Financial Research
DIRECTORS
James H. Gipson
Michael C. Sandler
Susan McLane Bernfeld
Norman B. Williamson
Professor Lawrence P. McNamee
F. Otis Booth, Jr.
TRANSFER & DIVIDEND PAYING AGENT
National Financial Data Services
Post Office Box 419152
Kansas City, Missouri 64141-6152
(800) 432-2504
CUSTODIAN
State Street Bank and Trust Company
COUNSEL
Heller, Ehrman, White & McAuliffe
INDEPENDENT AUDITORS
Ernst & Young LLP
[LOGO OF CLIPPER FUND(TM) APPEARS HERE]
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1996
=====================================================================
===========
16
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Statement of Assets and Liabilities as of December 31, 1995;
Investment Portfolio as of December 31, 1995; Statement of
Operations for the year ended December 31, 1995; Statement
of Changes in Net Assets for the two year period ended
December 31, 1995; and related notes, are incorporated by
reference to the Annual Report to Shareholders for the fiscal
year ended December 31, 1995 for the Fund.
(b) Exhibits:
(1) Articles of Incorporation of the Fund, as amended.
Filing: Registration Statement
File No.: 811-3931
Filing Date: December 21, 1983
(2) By-Laws of the Fund.
Filing: Registration Statement
File No.: 811-3931
Filing Date: December 21, 1983
(3) Not applicable
(4) Not applicable
(5) Investment Advisory Contract between Fund and
Pacific Financial Research, Inc.
Filing: Registration Statement
File No.: 811-3931
Filing Date: December 21, 1983
(6) Not applicable
(7) Not applicable
(8) Not applicable
(9) Transfer Agency and Service Agreement between
Clipper Fund and State Street Bank and Trust Company,
with amendments thereto.
Filing: Registration Statement
File No.: 811-3931
Filing Date: December 21, 1983
<PAGE>
(10) Opinion and Consent of Counsel.
Filing: Registration Statement
File No.: 811-3931
Filing Date: December 21, 1983
(11) Consent of Independent Auditors.*
(14.1) Model Individual Retirement Account.
Filing: Registration Statement
File No.: 811-3931
Approximate file date: April 30, 1996
(16) Schedule of Computation of Performance
Quotations.
Filing: Registration Statement
File No.: 811-3931
Filing Date: April 30, 1995
(27) Financial Data Schedule*
*Filed Herewith
ITEM 25. PERSONS CONTROLLED BY OR UNDER
COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS
<TABLE>
<CAPTION>
Title of Class Number of Record Holders**
<S> <C>
Capital Stock 5,130
_______________________
**As of February 29, 1996
</TABLE>
ITEM 27. INDEMNIFICATION
Reference is made to Article VI of the Registrant's By-Laws (filed previously
with the Securities and Exchange Commission) and Section 317 of the
California General Corporation Law.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws in a manner consistent with Release No. 11330 and
Release No. 7221 of the Securities and Exchange Commission under the
Investment Company Act of 1940 so long as the interpretation of Section
17(h) and 17(i) of such act remain in effect.
Insofar as indemnification for liability arising under the Securities Act of
1933
may be permitted to trustees, officers and controlling persons of the
Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
<PAGE>
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore, unenforceable. In the event that a claim for indemnification
against
such liabilities (other than payment by the Registrant of expenses incurred or
paid by a trustee, officer or controlling person of the Registrant in the
successful
defense of an action, suit or proceeding) is securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question
of whether such indemnification by it is against public policy as expressed
in the
Act and will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT
ADVISER.
See Investment Advisory and Other Services in the Prospectus and "Investment
Advisory and Other Services" in the Statement of Additional Information.
The officers of the Investment Adviser are Mr. Gipson and Mr. Sandler. Their
businesses and other connections are listed under the caption "Management" in
the Prospectus constituting Part A of this Registration Statement.
ITEM 29. PRINCIPAL UNDERWRITERS
Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the rules thereunder are maintained at the offices of
Clipper Fund, 9601 Wilshire Boulevard, Beverly Hills, California 90210.
ITEM 31. MANAGEMENT SERVICES
Other than as set forth under the caption "Investment Advisory and Other
Services" in the Prospectus, on the back cover of the Prospectus, and under
the caption "Investment Advisory and Other Services" in the Statement of
Additional Information, registrant is not a party to any management-related
service contracts.
ITEM 32. UNDERTAKINGS
Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Fund's latest annual report to shareholders upon
request and without charge.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Amendment to
Registration Statement to be signed on it behalf by the undersigned, thereto
duly authorized, in the City of Beverly Hills, State of California, on the 29th
Day of April, 1996. The registrant certifies that it meets all of the
requirements for effectiveness of the Amendment pursuant to Rule 485(b)
under the Securities Act of 1933.
CLIPPER FUND, INC.
s/ James H. Gipson
James H. Gipson
Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed below by the following in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
s/ James H. Gipson Chairman of the Board April 29, 1996
James H. Gipson President and Director
(Principal Executive Officer)
s/ Michael C. Sandler Vice President, Director April 29, 1996
Michael C. Sandler
s/ Michael Kromm Secretary, Treasurer April 29 , 1996
Michael Kromm (Principal Accounting Officer)
s/ Susan M. Bernfeld Director April 29 , 1996
Susan M. Bernfeld
s/ F. Otis Booth Director April 29, 1996
F. Otis Booth
s/ Norman B. Williamson Director April 29, 1996
Norman B. Williamson
s/ Lawrence P. McNamnee Director April 29, 1996
Lawrence P. McNamee
</TABLE>
<PAGE>
Exhibit List to the
Registration Statement of
Clipper Fund
Form N-1A April 30, 1996
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
11 Consent of Independent Auditors.
27 Financial Data Schedule.
</TABLE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT
AUDITORS
CLIPPER FUND
BEVERLY HILLS, CALIFORNIA
We consent to the incorporation by reference in the Statement of Additional
Information constituting part of the Post-Effective Amendment No. 14 to the
Registration Statement on Form N-1A of our report dated January 26, 1996,
with respect to the financial statements of Clipper Fund included in the 1995
Annual Report to Shareholders. We also consent to the reference to our Firm
in the Statement under the heading "Miscellaneous Information" and in the
related Prospectus under the heading "Financial Highlights."
s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Los Angeles, California
April 25, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 307,819,141
<INVESTMENTS-AT-VALUE> 404,829,822
<RECEIVABLES> 2,307,984
<ASSETS-OTHER> 560
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 407,138,366
<PAYABLE-FOR-SECURITIES> 3,212,860
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 399,602
<TOTAL-LIABILITIES> 3,612,462
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 306,715,322
<SHARES-COMMON-STOCK> 6,643,130
<SHARES-COMMON-PRIOR> 5,360,079
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 194,428
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 5,671
<ACCUM-APPREC-OR-DEPREC> 97,010,681
<NET-ASSETS> 403,525,904
<DIVIDEND-INCOME> 5,923,267
<INTEREST-INCOME> 2,308,044
<OTHER-INCOME> 0
<EXPENSES-NET> 3,653,112
<NET-INVESTMENT-INCOME> 4,578,199
<REALIZED-GAINS-CURRENT> 32,883,410
<APPREC-INCREASE-CURRENT> 81,467,756
<NET-CHANGE-FROM-OPS> 118,929,365
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,583,674
<DISTRIBUTIONS-OF-GAINS> 32,881,930
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,335,012
<NUMBER-OF-SHARES-REDEEMED> 1,601,093
<SHARES-REINVESTED> 549,018
<NET-CHANGE-IN-ASSETS> 156,469,174
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 188,953
<OVERDIST-NET-GAINS-PRIOR> 7,151
<GROSS-ADVISORY-FEES> 3,299,458
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,685,047
<AVERAGE-NET-ASSETS> 403,525,904
<PER-SHARE-NAV-BEGIN> 46.09
<PER-SHARE-NII> 0.76
<PER-SHARE-GAIN-APPREC> 20.07
<PER-SHARE-DIVIDEND> 0.76
<PER-SHARE-DISTRIBUTIONS> 5.42
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 60.74
<EXPENSE-RATIO> 1.11
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
