CLIPPER FUND(TM)
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 23, 1997
To Our Shareholders:
Clipper Fund(TM)'s investment adviser, Pacific Financial Research,
Inc. (PFR), has agreed to join United Asset Management Corporation
("UAM"), a publicly held financial services holding company. PFR's
affiliation with UAM brings to 48 the number of investment
management firms held by UAM with assets in excess of 180 billion
dollars. Under the terms of this affiliation, PFR will retain
complete independence of operation with no change in investment
philosophy or personnel. All of the key personnel of PFR have
signed long-term employment contracts with UAM and retain a
significant economic interest in the performance of the Clipper
Fund.(TM)
Approval of a new advisory agreement, identical in all terms
to the present one, is a legal requirement for the "new" PFR to
manage Clipper Fund(TM) with the same people and investment philosophy
as in the past. Your approval of that new agreement will be
appreciated. A Special Meeting of Shareholders of the Fund will be
held, on May 23, 1997, at 10:00 a.m., Pacific Time, at its
principal offices, 9601 Wilshire Boulevard, Suite 800, Beverly
Hills, California 90210, for you to consider and vote upon this
matter, which is more fully described in the accompanying Proxy
Statement and is incorporated into this notice by reference.
The Board of Directors has fixed the close of business on
March 21, 1997 as the record date for the determination of
shareholders entitled to vote at the Special Meeting and to receive
notice thereof. If you can not be present at the meeting, we urge
you to fill in, date, sign, and promptly return the enclosed proxy
in order that the meeting can be held and a maximum number of
shares can be voted.
The Board of Directors recommends that you vote in favor of
the proposal.
By Order of the Board of Directors
/s/
James H. Gipson
Chairman & President
April 20, 1997
- ------------------------------------------------------------------------
IMPORTANT--WE NEED YOUR PROXY VOTE IMMEDIATELY.
PLEASE FILL IN, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN
THE ENCLOSED ENVELOPE. NO POSTAGE NEED BE AFFIXED IF MAILED WITHIN
THE UNITED STATES. WE APPRECIATE YOUR COOPERATION.
- -----------------------------------------------------------------------
CLIPPER FUND(TM)
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 23, 1997
This Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Directors of Clipper Fund(TM)
(the "Fund") for use at the Special Meeting of Shareholders of the
Fund, to be held on Friday, May 23, 1997, at 10:00 a.m., Pacific
Time, at its principal offices, at 9601 Wilshire Boulevard, Suite
800, Beverly Hills, California 90210, for the purpose set forth in
the accompanying Notice of Special Meeting of Shareholders.
Shareholders of record at the close of business on March 21, 1997
will be entitled to receive notice thereof and to vote at the
Special Meeting. This proxy statement will be mailed to
shareholders on or about April 20, 1997. At the meeting,
shareholders will be asked:
1. To approve or disapprove a new investment advisory agreement
between the Clipper Fund(TM) and PF Newco, Inc. DBA Pacific
Financial Research pursuant to which PF Newco, Inc. will act as
adviser with respect to the assets of the Fund, to become effective
upon the acquisition of the assets of Pacific Financial Research, Inc.
("PFR") by United Asset Management Corporation, ("UAM"), the terms
of which are exactly the same as the existing advisory contract; and
2. To transact such other business as may properly come before
the meeting.
Each share of capital stock is entitled to one vote. The
required quorum for the transaction of business at the meeting is
the presence in person or by proxy of a majority of the shares
entitled to vote at the meeting of shareholders.
Shares represented by executed and unrevoked proxies will be
voted in accordance with the specifications made thereon, if no
specification is made, then according to the recommendation of the
Board of Directors in this Proxy Statement. Even if the enclosed
form of proxy is executed and returned, it nevertheless may be
revoked by giving another proxy or by a writing delivered to the
Fund. This revocation must show the shareholder's name and account
number and must be received prior to the voting at the meeting to
be effective. In addition, a shareholder attending the meeting in
person, who wishes to do so, may vote by ballot, at the meeting,
thereby canceling any proxy previously given. The Fund had
8,312,058 shares of capital stock outstanding as of March 21, 1997.
The Fund will request broker-dealer firms, custodians,
nominees, and fiduciaries to forward the proxy materials to the
beneficial owners of record of the Fund. PFR has agreed to
reimburse such entities for their reasonable expenses incurred with
such proxy solicitation. In addition to the solicitation of
proxies by mail, officers of the Fund may solicit proxies in person
or by telephone. The costs associated with such solicitation and
the meeting will also be borne by PFR.
Copies of the Fund's most recent annual report and/or
quarterly report may be obtained from the Fund at no charge by
writing or telephoning the Fund at its principal executive offices
at 9601 Wilshire Boulevard, Suite 800, Beverly Hills, CA 90210,
telephone (800) 776-5033, attention: Michele Smith.
PRINCIPAL SHAREHOLDERS
The following is information known to the Fund regarding
shareholders who own beneficially five percent or more of the
outstanding shares of capital stock of the Fund as of March 21,
1997:
Number of
Shares Owned Percent
Name and Address of Record of Class
---------------- -------------- ------------
Charles Schwab & Co. Inc. (1) 1,215,846 14.6%
Attention: Mutual Fund Dept.
101 Montgomery Street
San Francisco, CA 94104-4122
Hewitt Associates (2) 695,172 8.4%
100 Half Day Road
Lincolnshire, IL 60069-3258
FMC Corporation (3) 556,347 6.7%
200 E. Randolph Street
Chicago, IL 60601-6436
Long-Term Investment Pool 479,577 5.8%
State University of Iowa Foundation
P.O. Box 4550
Iowa City, IA 52244-4550
- -----------------------
(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: Money Purchase Pension Plan; Deferred
Compensation Plan; HR10 Trust and a Pension Plan. All four
plans have the same address.
(3) FMC Corporation has four company sponsored retirement plans:
Salary Employee Master Trust; Defense Retiree Medical 401(H)
Trust; Employee Services Corp. Benefit Trust; and Defense
Retiree Medical 401(H) Trust, Hourly.
PROPOSAL 1. APPROVAL OR DISAPPROVAL OF A NEW INVESTMENT
ADVISORY AGREEMENT
General.
The Meeting has been called for the purpose of considering a
new advisory agreement for the Fund as a result of a proposed
transaction (the "Proposed Transaction") whereby UAM would acquire
substantially all of the assets of PFR, the current investment
adviser of the Fund. UAM would then contribute such assets to a
wholly owned subsidiary of UAM, PF Newco, Inc., which would carry
on the business of PFR under PFR's current name. (PFR and PF
Newco, Inc. are hereinafter sometimes collectively referred to
herein as the "Adviser"). The Proposed Transaction represents an
ownership change and, as such, has the effect of terminating the
existing advisory agreement. Accordingly, shareholders are being
asked to approve a new advisory agreement (the "New Advisory
Agreement") embodying exactly the same terms and fees with PFR
under its new ownership. The Fund's Board of Directors has
approved the New Advisory Agreement, subject to approval by the
shareholders of the Fund, to become effective on the consummation
of the Proposed Transaction.
Existing Advisory Agreement.
PFR currently serves as adviser for the Fund under an
investment advisory agreement (the "Existing Advisory Agreement")
dated March 21, 1997. The Existing Advisory Agreement provides for
its automatic termination in the event of a legal assignment. A
change in ownership of PFR, as the Adviser to the Fund, would
constitute a legal assignment for this purpose. The Board of
Directors of the Fund, including a majority of the "non-interested"
Directors, most recently approved the continuation of the Existing
Advisory Agreement on March 21, 1997. Under the Existing Advisory
Agreement, PFR is entitled to receive from the Fund fees at an
annual rate of 1% of the Fund's average daily net assets.
New Advisory Agreement.
Except for different effective and termination dates, the
terms of the New Advisory Agreement are identical in all aspects to
the terms of the Existing Advisory Agreement. A form of the New
Advisory Agreement is attached to this Proxy Statement, as Exhibit
A, and the description set forth in this Proxy Statement of the New
Advisory Agreement is qualified in its entirety by reference to
Exhibit A.
Under the New Advisory Agreement, the Adviser will provide
certain investment advisory services to the Fund, including
deciding which securities will be purchased and sold by the Fund,
when such purchases and sales are to be made, and arranging for
such purchases and sales, all in accordance with the provisions of
the Investment Company Act of 1940, as amended (the "1940 Act") and
any rules thereunder, the governing documents of the Fund, the
fundamental policies of the Fund, as reflected in its registration
statement, and any policies and determinations of the Board of
Directors of the Fund.
As compensation for its services to the Fund under the New
Advisory Agreement, the Adviser will be entitled to receive from
the Fund fees calculated at the same rate as those charged under
the Existing Advisory Agreement described above. The New Advisory
Agreement will continue in effect for two years from its effective
date, and will continue in effect thereafter for successive annual
periods, provided its continuance is specifically approved at least
annually by (1) a majority vote, cast in person at a meeting called
for that purpose, of the Fund's Board of Directors or (2) a vote of
the holders of a majority of the outstanding voting securities (as
defined in the 1940 Act and the rules thereunder) of the Fund, and
(3) in either event by a majority of the Directors who are not
parties to the New Advisory Agreement or interested persons of the
Fund or any such party. The New Advisory Agreement provides that
it may be terminated at any time, without penalty, by either party
upon 60 days written notice, provided that such termination by the
Fund shall be directed or approved by a majority vote of the Board
of Directors of the Fund, including a majority of the disinterested
directors, or by a vote of holders of a majority of the shares of
the Fund.
The Adviser will provide, at its expense, personnel to serve
as officers of the Fund who are affiliated persons of the Adviser,
and office space, facilities and equipment for carrying out its
duties under the New Advisory Agreement. The Adviser will continue
to be responsible for the following expenses incurred by the Fund:
(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), and (ii) expenses of printing and
distributing the Fund's Prospectus, Statement of Additional
Information and periodic financial reports to persons other than
current shareholders of the Fund, and sales and advertising materials.
The Fund is responsible for payment of all of its other
expenses including (i) brokerage and commission expenses, (ii)
Federal, state or local taxes, including issue and transfer taxes,
incurred by or levied on the Fund, (iii) interest charges on
borrowings, (iv) compensation of any of the Fund's directors,
officers or employees who are not interested persons of the Adviser
or its affiliates (other than by reason of being directors,
officers or employees of the Fund), (v) charges and expenses of the
Fund's custodian, transfer agent and registrar, (vi) all costs
associated with shareholders meetings and the preparation and
dissemination of proxy solicitation materials, except for meetings
called solely for the Adviser's benefit, (vii) legal and auditing
expenses, (viii) payment of all investment advisory fees (including
the fee payable to the Adviser under this Contract), (ix) insurance
premiums on the Fund's property and personnel, including the
fidelity bond and liability insurance for officers and directors,
(x) printing and mailing of all reports, including semi-annual and
annual reports, prospectuses and statements of additional
information to existing shareholders, (xi) fees and expenses of
registering the Fund's shares under the Federal securities laws and
of qualifying its shares under applicable state securities laws,
including expenses attendant upon renewing and increasing such
registrations and qualifications, (xii) 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, (xiii) organizational expenses, and (xiv) any
extraordinary and non-recurring expenses, except as otherwise
prescribed herein.
UAM Acquisition.
UAM, PFR, and the shareholders of PFR have entered into an
acquisition agreement which contemplates that UAM will purchase
substantially all of the assets of PFR, including advisory
contracts, client lists, prospect lists, books, records, all good-
will associated with the assets being sold, and the exclusive right
to use the name Pacific Financial Research, Inc., as all or part of
a trade or corporate name. The total purchase price is
approximately $127 million, payable in a combination of cash,
promissory notes, and warrants to purchase UAM stock, and is
subject to certain pre-closing adjustments and conditions.
In connection with the proposed UAM affiliation, the
acquisition agreement contemplates that key personnel of PFR will
enter into long-term employment agreements with PF Newco, Inc.,
thus assuring that PF Newco, Inc. will continue to operate with its
same investment personnel and officers. No change in PFR's
investment style, method of operation, or the location where it
conducts its business are contemplated as a result of the UAM
merger. In addition, the former shareholders of PFR have entered
into an agreement with PF Newco, Inc. and UAM giving such persons
a substantial stake in PF Newco, Inc. and granting them complete
autonomy in the investment management process and its operations.
UAM, PF Newco, Inc. and the principals of the Adviser have
also agreed to enter into a revenue sharing agreement under which
UAM and PF Newco, Inc. will share in the Adviser's revenues. That
agreement is intended to allow the key personnel of PF Newco, Inc.
to participate in its growth in a substantial manner and make
operating decisions freely within the limits of PF Newco, Inc.'s
share of revenues. The revenue sharing agreement recites that PF
Newco, Inc. key personnel will continue to have authority over the
investment process and is intended to ensure that the Adviser will
continue to operate with the same investment personnel and officers.
Section 15(f) of the 1940 Act provides that when a change in
control of an investment adviser occurs, the investment adviser or
any of its affiliated persons may receive any amount or benefit in
connection therewith provided two conditions are satisfied. First,
no "unfair burden" may be imposed on the investment company as a
result of the transaction relating to the change of control, or any
express or implied terms, conditions or understandings applicable
thereto. The term "unfair burden," as defined in the 1940 Act,
includes any arrangement during the two-year period after the
change in control whereby the investment adviser (or predecessor or
successor adviser), or any interested person of any such adviser,
receives or is entitled to receive any compensation, directly or
indirectly, from the investment company or its security holders
(other than fees for bona fide investment advisory or other
services) or from any person in connection with the purchase or
sale of securities or other property to, from, or on behalf of the
investment company (other than fees for bona fide principal
underwriting services). No such compensation arrangements are
contemplated in the Proposed Transaction. In the Acquisition
Agreement, PFR and PF Newco, Inc. have agreed to use their best
efforts to ensure that the Proposed Transaction will not cause the
imposition of an unfair burden on the Fund. The second condition
is that, during the three year period immediately following the
consummation of the transaction, at least 75% of the investment
company's board of directors must not be "interested persons" of
the investment adviser or predecessor investment adviser within the
meaning of the 1940 Act. In the Acquisition Agreement PFR and PF
Newco, Inc. have agreed to use their best efforts to ensure that
the second condition is met.
There are a number of conditions precedent to the closing of
the Proposed Transaction. Such conditions include, among other
things, that all regulatory filings, applications and notifications
and all third-party consents will have been duly and properly made
or obtained, and that consents will have been obtained from a
specified percentage of PFR's current clients, including the Fund
among others, as required by applicable law. If the conditions for
the Proposed Transaction are not met and the acquisition is not
completed, the Existing Advisory Agreement will remain in effect.
In the event the acquisition is completed but the New Advisory
Agreement is not approved by the Fund's Shareholders, the Directors
will promptly seek to enter into a New Advisory Agreement for the
Fund, subject to approval by the Fund's shareholders.
During the fiscal year ended December 31, 1996, the Fund paid
PFR $4,745,682 in Advisory fees under the Existing Advisory Agreement.
Additional Information.
PFR, a California corporation, whose principal executive
offices are at 9601 Wilshire Boulevard, Suite 800, Beverly Hills,
CA 90210, is registered as an investment adviser with the
Securities and Exchange Commission, under the Investment Advisers
Act of 1940 (the "Advisers Act"). After the acquisition, PF Newco,
Inc., a wholly owned subsidiary of UAM, will be registered as an
investment adviser under the Adviser's Act, have the same address
as and employ the same the same key personnel as PFR did
previously. UAM is a New York Stock Exchange listed holding
company principally engaged, through affiliated firms, in providing
investment management services and acquiring investment management
firms such as PFR. As of March 1997, the UAM group had
collectively more than $180 billion of assets under management.
The investment management firms that comprise the UAM group are
located throughout the United States. UAM strives for
diversification in the variety of asset classes with regard to
which its investment advisory subsidiaries provide investment
management services. UAM's corporate headquarters is located at
One International Place, Boston, Massachusetts 02110.
PFR's principal executive officers and directors are shown below.
The address of each, as it relates to their duties at PFR, is the
same as that of PFR.
Name and Position with PFR Principal Occupation
- ---------------------------- ----------------------
James H. Gipson Principal and Portfolio Manager
Chairman, President, & Portfolio Manager
Michael C. Sandler Principal and Portfolio Manager
Director, Vice President, & Portfolio Manager
Douglas W. Grey Principal and Portfolio Manager
Director, Vice President, & Portfolio Manager
Bruce G. Veaco Principal and Portfolio Manager
Director, Vice President, Chief Financial Officer,
Secretary & Portfolio Manager
Peter J. Quinn Principal and Portfolio Manager
Vice President & Portfolio Manager
Mssrs. Gipson and Sandler are also Directors of the Fund. All of
the above may be reached c/o Pacific Financial Research, 9601
Wilshire Boulevard, Suite 800, Beverly Hills, CA 90210.
Directors' Consideration.
The Board of Directors of the Fund believes that the terms of
the New Advisory Agreement are fair to, and in the best interest
of, the Fund and its shareholders. The Board of Directors,
including all of the non-interested Directors, recommend approval
by the shareholders of the New Advisory Agreement between PF Newco,
Inc. and the Fund. In making this recommendation, the Directors
carefully have evaluated the experience of the Adviser s key
personnel in institutional investing, the quality of services the
Adviser is expected to provide to the Fund, and the compensation
proposed to be paid to the Adviser, and have given careful
consideration to all factors deemed to be relevant to the Fund,
including, but not limited to: (1) the fee and expense rations of
comparable mutual funds; (2) the performance of the Fund since
commencement of operations; (3) the nature and quality of the
services expected to rendered to the Fund by the Adviser; (4) the
distinct investment objective and policies of the Fund; (5) that
the proposed New Advisory Agreement will be at the same rate as the
compensation now payable by such Fund to PFR under the Existing
Advisory Agreement; (6) that the terms of the Existing Advisory
Agreement will be unchanged under the New Advisory Agreement except
for different effective and termination dates; (7) the history,
reputation, qualification and background of the Adviser and UAM, as
the qualifications of their personnel and their respective
financial conditions; (8) the commitment of the parties to the
Acquisition Agreement to pay or reimburse the Fund for expenses it
incurred in connection with the Proposed Transaction; (9) PFR s
investment performance record; (10) the amount, significance and
nature of the soft dollar benefits, such as research, received by
PFR and expected to be received by PF Newco, Inc. from brokers as
a result of the Adviser s relationship with the Fund; (11) the
benefits expected to be realized as a result of the Adviser s
affiliation with UAM, including the resources of UAM that would be
available to the Adviser; and (12) other factors deemed relevant.
The Adviser has advised the Board of Directors that it expects
that there will be no diminution in the scope and quality of
advisory services provided to the Fund as a result of the Proposed
Transaction. Accordingly, the Board of Directors believe the
services under the New Advisory Agreement will be equal or superior
to those it currently receives under the Existing Advisory
Agreement, at the same fee levels.
Recommendation and Required Vote.
At the meeting, shareholders of the Fund will vote on the
proposed New Advisory Agreement. The Board of Directors of the
Fund recommend that the shareholders approve the New Advisory
Agreement. The affirmative vote of the holders of a majority of
the outstanding shares is required to approve the New Advisory
Agreement. "Majority" for this purpose under the 1940 Act means
the lesser of (i) 67% of the shares represented at the meeting if
more than 50% of such outstanding shares are represented, or (ii)
more than 50% of such outstanding shares. Abstentions will count
as votes present at the meeting. Broker non-votes, however, will
not count as votes present.
THE BOARD OF DIRECTORS OF THE FUND RECOMMEND THAT SHAREHOLDERS OF
THE FUND APPROVE THE NEW ADVISORY AGREEMENT AND THAT PF NEWCO,
INC. BE NAMED AS ADVISER.
Additional Information on the Fund and PF Newco, Inc.
James H. Gipson is the Chairman and President of the Fund, and
holds the same positions with PFR. Mr. Gipson will hold the same
positions with the Adviser after the acquisition. Michael C.
Sandler is a Director and Vice President of the Fund and holds the
same positions with PFR. Mr. Sandler will hold the same positions
with the Adviser after acquisition, but will resign as a Director
of the Fund, upon the acquisition of PFR by UAM, to satisfy the
requirement that after the proposed transaction at least 75% of the
Directors be independent. Michael Kromm is the Secretary and
Treasurer of the Fund, and is the Operations Manager for PFR. Mr.
Kromm will hold the same positions with the Adviser and the Fund
after the acquisition.
Proposal 2 OTHER MATTERS
No other business than the matters described above is expected
to come before the meeting, but should any other matter requiring
a vote of the shareholders arise, including any question as to
adjournment of the meeting, the person named in the enclosed proxy
will vote there on according to their best judgement in the
interest of the Fund.
Dated: April 20, 1997
IN ORDER THAT THE PRESENCE OF A QUORUM AT THE MEETING MAY BE
ASSURED, PLEASE PROMPTLY EXECUTE AND RETURN THE ENCLOSED PROXY. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE. THANK YOU FOR YOUR COOPERATION.
EXHIBIT LIST
Exhibit A Form of New Advisory Agreement
EXHIBIT A
INVESTMENT ADVISORY CONTRACT
INVESTMENT ADVISORY CONTRACT, made as of this 29th day of May,
1997 between the CLIPPER FUND, INC, a California corporation
(hereinafter called the "Fund"), and PF Newco, Inc., DBA PACIFIC
FINANCIAL RESEARCH (hereinafter called the "Investment Adviser"),
a Massachusetts Corporation, a wholly owned subsidiary of United
Asset Management Corporation.
WHEREAS, the Fund is organized as an open-end, non-
diversified management company, registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), for the purpose
of investing its assets in securities, and
WHEREAS, the Fund desires to retain the Investment Adviser
to render various investment advisory, operational, statistical,
accounting and clerical services to the Fund, and the Investment
Adviser is willing to render such services.
NOW, THEREFORE, in consideration of the mutual promises
herein contained, the parties hereto, intending to be legally
bound, mutually covenant and agree as follows:
1. Appointment of Investment Adviser. Effective immediately,
the Fund hereby appoints the Investment Adviser to act as
investment adviser to the Fund for the period and on the
terms set forth herein. The Investment Adviser accepts such
appointment and agrees to render the services set forth herein,
for the compensation provided herein.
2. Duties of the Fund. The Fund shall at all times keep
the Investment Adviser fully informed of the securities owned,
the funds available and to become available for investment, and
generally as to the condition of its affairs. The Fund shall
furnish the Investment Adviser with a signed copy of each report
prepared by the Fund's independent public accountants and with
such other documents and information as the Investment Adviser
may from time to time reasonably request.
3. Duties of Investment Adviser. Subject to the supervision
of the Board of Directors of the Fund, the Investment Adviser
shall manage 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 objectives and policies as stated in the Fund's
Prospectus and Statement of Additional Information (as amended or
supplemented from time to time) and subject to the following
understandings:
(a) The Investment Adviser shall provide supervision of the
Fund's investments, furnish a continuous investment program
for the Fund, determine from time to time what securities will be
purchased, retained or sold by the Fund and what portion of the
assets will be invested or held uninvested as cash.
(b) The Investment Adviser shall use the same skill and
care in the management of the portfolio of the Fund as it uses
in the administration of other portfolios for which it has
investment responsibility.
(c) The Investment Adviser, in the performance of its
duties and obligations under this Contract, shall act in
conformity with the Fund's Articles of Incorporation, By-Laws,
Prospectus and Statement of Additional Information and shall
conform to and comply with the requirements of the 1940 Act and
all other applicable Federal and state laws and regulations.
(d) The Investment Adviser, its officers and employees shall
not make loans for the purpose of purchasing or carrying shares
of capital stock of the Fund or make loans to the Fund.
(e) The Investment Adviser shall place orders for the purchase or
sale of securities either directly with the issuer or with any
broker or dealer who specializes in the securities owned
by the Fund. In providing the Fund with investment supervision,
it is recognized that the Investment Adviser will give primary
consideration to securing the most favorable price and efficient
execution. Within the framework of this policy, the Investment
Adviser may consider the financial responsibility, research and
investment information and other services provided by brokers or
dealers who may effect or be a party to any such transaction or
other transactions to which other clients of the Investment
Adviser may be a party. It is understood that it is desirable for
the Fund that the Investment Adviser have access to supplemental
investment and market research and security and economic analysis
provided by brokers, and that the allocation of Fund brokerage to
such brokers in exchange for access to such research and analysis
may result in higher brokerage costs to the Fund than would be
the case if brokerage were allocated exclusively on the basis of
seeking the most favorable price and efficient execution.
Therefore, the Investment Adviser is authorized to pay higher
brokerage commissions for the purchase and sale of securities for
the Fund to brokers who provide such research and analysis,
subject to review by the Fund's Board of Directors from time to
time with respect to the extent and continuation of this
practice. It is understood that the services provided by such
brokers may be useful to the Investment Adviser in connection
with its services to other clients.
On occasions when the Investment Adviser deems the purchase
or sale of a security to be in the best interest of the Fund as
well as other clients, the Investment Adviser, to the extent
permitted by applicable laws and regulations, may aggregate the
securities to be so purchased or sold in order to obtain the most
favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Investment Adviser in the manner
it considers to be the most equitable and consistent with its
fiduciary obligations to the Fund and to such other clients.
(f) The Investment Adviser shall provide all statistical,
economic and financial information reasonably required by the
Fund and reasonably available to the Investment Adviser; and
shall provide persons satisfactory to the Fund's Board of
Directors to act as officers and employees of the Fund. Such
officers and employees, as well as certain directors of the Fund,
may be directors, officers or employees of the Investment Adviser.
(g) The Investment Adviser shall maintain all books and
records required by paragraph (b) (5), (6), (7), (9), (10) and
(11) and paragraph (f) of Rule 31a-1 under the 1940 Act with
respect to the Fund's securities transactions and shall render to
the Fund's Board of Directors such periodic and special reports
as the Board may reasonably request.
(h) The Investment Adviser shall provide the Custodian of
the Fund's securities on each business day with a list of trades
for that day.
(i) 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.
4. Expenses.
(a) The Investment Adviser is responsible for the
following expenses incurred by the Fund: (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), and (ii) expenses of printing and distributing the
Fund's Prospectus, Statement of Additional Information and
periodic financial reports to persons other than current
shareholders of the Fund, and sales and advertising materials.
(b) The Fund is responsible and has assumed the obligation
for payment of all of its other expenses including (i) brokerage
and commission expenses, (ii) Federal, state or local taxes,
including issue and transfer taxes, incurred by or levied on the
Fund, (iii) interest charges on borrowings, (iv) compensation of
any of the Fund's directors, officers or employees who are not
interested persons of the Investment Adviser or its affiliates
(other than by reason of being directors, officers or employees
of the Fund), (v) charges and expenses of the Fund's custodian,
transfer agent and registrar, (vi) 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, (vii) legal and auditing
expenses, (viii) payment of all investment Advisory fees
(including the fee payable to the Investment Adviser under this
Contract), (ix) insurance premiums on the Fund's property and
personnel, including the fidelity bond and liability insurance
for officers and directors, (x) printing and mailing of all
reports, including semi-annual and annual reports, prospectuses
and statements of additional information to existing shareholders,
(xi) fees and expenses of registering the Fund's shares under the
Federal securities laws and of qualifying its shares under
applicable state securities laws, including expenses attendant
upon renewing and increasing such registrations and
qualifications, (xii) 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, (xiii) organizational expenses and (xiv) any extraordinary
and non-recurring expenses, except as otherwise prescribed herein.
(c) To the extent the Investment Adviser incurs any costs
or performs any services which are an obligation of the Fund, as
set forth herein, the Fund shall promptly reimburse the
Investment Adviser for such costs and expenses. To the extent the
services for which the Fund is obligated to pay are performed by
the Investment Adviser, the Investment Adviser shall be entitled
to recover from the Fund only to the extent of the Investment
Adviser's actual costs for such services, including the costs of
personnel, office space, and other facilities applicable to the
furnishing of such services.
5. Books and Records. The Investment Adviser agrees that
all records which it maintains for the Fund are the property of
the Fund, and it will surrender promptly to the Fund any such
records upon the Fund's request. The Investment Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2 under
the 1940 Act any such records as are required to be maintained
by Rule 31a-1 under the 1940 Act.
6. Investment Adviser's Fee. For the services provided by
the Investment Adviser under the Contract, the Investment Adviser
shall receive from the Fund a management fee equal to 1% per
annum of the Fund's average daily net asset values. The
management fee shall be accrued daily in computing the net asset
value of a share for the purpose of determining the offering and
redemption price per share, and shall be paid to the Investment
Adviser at the end of each month. The Investment Adviser shall
reduce the fees payable to it under this Contract to the extent
required under the most stringent expense limitation applicable
to the Fund imposed by any state in which shares of beneficial
interest of the Fund are qualified for sale. The Investment
Adviser may reduce any portion of the compensation or
reimbursement of expenses due to it pursuant to this Contract and
may agree to pay expenses which are the responsibility of the
Fund under this Contract. Any such reduction or payment shall be
applicable only to such specific reduction or payment and shall
not constitute an agreement to reduce any future compensation or
reimbursement due to the Investment Adviser hereunder or to
continue future payments.
7. Limitation of Liability. The Investment Adviser shall
not be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund in connection with the matter to
which this Contract relates, except for liability resulting from
willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it
of its obligations and duties under this Contract. The Fund shall
indemnify the Investment Adviser from and against liability,
including, but not limited to, expenses incurred in defending
against the same, except for liability to which the Investment
Adviser is subject pursuant to the preceding sentence, to the
extent permitted by applicable law.
The obligations of the Fund are not binding upon any of the
Directors, officers or shareholders of the Fund individually, but
are binding only upon the assets and property of the Fund, and
no resort shall be had to the private property of any such
Director, officer or shareholder for the satisfaction of any
obligation or claim hereunder.
8. Duration and Termination. This Contract, unless sooner
terminated as provided herein, shall continue in effect until
March 31, 1998. This Contract shall continue in effect thereafter
for successive periods not exceeding one year, provided that such
continuance is specifically approved at least annually (i) by the
Fund's Board of Directors or by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the 1940
Act) and (ii) by a majority of the Fund's Board of Directors who
are not parties to the Contract or interested persons of any such
party, by vote cast in person at a meeting called for the purpose
of voting on such approval.
The Contract is terminable on 60 days' written notice by
vote of a majority of the Fund's outstanding shares (as defined
in the 1940 Act) 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 shall automatically terminate in the event of
its assignment (as defined in the 1940 Act.)
9. Amendment of Contract. This Contract constitutes the
entire agreement between the parties hereto. This Contract may be
amended only with the approval of the holders of a majority of
the outstanding shares of the Fund, as defined in the 1940 Act.
10. Governing Law. This Contract shall be governed by and
construed in accordance with the laws of the State of California,
without reference to principles of conflicts of law; provided,
however, that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Investment Advisers Act of
1940, or any rule or regulation of the Securities and Exchange
Commission thereunder.
11. Miscellaneous. The captions in this Contract are
included for convenience of reference only and in no way define
or delimit any of the provisions hereof or otherwise affect their
construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as
of the day and year above written.
CLIPPER FUND, INC.
By:/s/ James H. Gipson
Chairman and President
ATTEST:/s/ Michael Kromm
Secretary/Treasurer
PF NEWCO, INC., DBA
PACIFIC FINANCIAL RESEARCH
(CORPORATE SEAL) By:/s/ James H. Gipson
President
ATTEST:/s/ Bruce G. Veaco
Secretary/Chief Financial Officer
