As filed with the Securities and Exchange Commission on April 16, 1998.
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 Ammendment No. [ ]
Post-Effective Amendment No. 17 [X]
Registration Statement Under The Investment Company Act of 1940 [X]
Amendment No. 17 [X]
______________________
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 will become effective
(check as appropriate)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on April 30, 98 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
______________________________
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
Title of Securities Being Registered ____________________
Omit from the facing sheet reference to the other Act if the
Registration Statement or amendment is filed under only one
of the Acts. Include the "Approximate Date of Proposed Public
Offering" and "Title of Securities Being Registered" only
where securities are being registered under the Securities
Act of 1933.
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, 1997 on or before February 28, 1998.
______________________________
Please Send Copy of Communications to:
Julie Allecta, Esq.
c/o Paul Hastings, Janofsky & Walker LLP
333 Bush Street
San Francisco, California 94104 (415) 772-6000
CLIPPER FUND, INC.
CROSS REFERENCE SHEET
(as required by Rule 404)
N-1A
ITEM NO. ITEM LOCATION
- - -------- ---- --------
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 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
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
-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-Additional
Information
Capital Stock and
Other Securities
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered. . . . . . . . . Prospectus-
Purchase of Shares
Statement-Purchases,
Redemption and Pricing
of Shares being Offered
Item 20. Tax Status . . . . . . . . . . . . . . . . . Prospectus-Dividends,
Distributions and Taxes
Statement-Tax Status
Item 21. Underwriters. . . . . . . . . . . . . . . . . Not Applicable
Item 22. Calculation of Performance Data. . . . . . . Performance Information
Item 23. Financial Statements. . . . . . . . . . . . . Financial Statements
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.
[CLIPPER FUND(TM) LOGO APPREARS HERE]
P R O S P E C T U S
April 30, 1998
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, 1998, 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 has been in business since 1980. Its clients include corporate
pension funds, endowments, foundations, and individuals.
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.
TABLE OF CONTENTS
Page
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
- - ---------------------------------------------------------------------------
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:
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:
Transfer Agent and Insurance 0.04%
Registration Fees 0.01%
Postage 0.01%
Other Expenses 0.02% 0.08%
----- -----
Total Fund Operating Expenses 1.08%
=====
Example:
The following example demonstrates the projected dollar amount of
total cumulative expenses (based on historical data) using the
following assumptions:
One Three Five Ten
year years years years
----- ----- ----- -----
You would pay the following expenses
on a $1,000 investment, assuming:
(1) 5% annual return, and
(2) redemption at the end of each period: $11 $34 $60 $132
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.)
- - -------------------------------------------------------------------------------
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,
--------------------------------------------
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Data:
Net asset value,
beginning of period $48.10 $38.80 $43.45 $37.74 $33.76
------ ------ ------ ------ ------
Income from investment operations:
Net investment income 0.95 1.18 1.09 1.00 0.95
Net realized and unrealized
gain (loss) on securities 6.66 11.27 (4.39) 7.26 5.66
------ ----- ----- ----- -----
Total from investment operations 7.61 12.45 (3.30) 8.26 6.61
Less distributions:
Dividends from net
investment income (0.95) (1.18) (1.14) (1.00) (0.95)
Distributions from net
realized gain on securities (3.02) (1.91) (0.21) (1.55) (1.68)
Return of capital - (0.06) - - -
------ ------ ------ ------ ------
Net asset value, end of period $51.74 $48.10 $38.80 $43.45 $37.74
====== ====== ====== ====== ======
Total Return 15.8% 32.1% (7.6%) 21.9% 19.6%
Ratios and Supplemental Data:
Net assets ($000's),
end of period $209,878 $161,348 $125,149 $128,443 $85,469
Ratio of expenses
to average net assets 1.12% 1.15% 1.15% 1.17% 1.24%
Ratio of net investment income
to average net assets 2.02% 2.67% 2.71% 2.54% 2.44%
Portfolio turnover rate 46% 42% 23% 26% 33%
Number of shares outstanding
at end of period (000's) 4,057 3,354 3,225 2,956 2,265
Average commission rate
(cents per share) N/A N/A N/A N/A N/A
<CAPTION>
Year Ended December 31,
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Data:
Net asset value,
beginning of period $67.57 $60.74 $46.09 $50.02 $51.74
------ ------ ------ ------ ------
Income from investment operations:
Net investment income 1.36 0.83 0.76 0.71 0.76
Net realized and unrealized
gain (loss) on securities 19.12 11.10 20.07 (1.93) 5.00
------ ------ ----- ----- -----
Total from investment operations 20.48 11.93 20.83 (1.22) 5.76
Less distributions:
Dividends from net
investment income (1.36) (0.83) (0.76) (0.71) (0.75)
Distributions from net
realized gain on securities (9.83) (4.27) (5.42) (2.00) (6.73)
Return of capital - - - - -
------ ------ ------ ------ ------
Net asset value, end of period $76.86 $67.57 $60.74 $46.09 $50.02
====== ====== ====== ====== ======
Total Return 30.2% 19.4% 45.2% (2.4%) 11.1%
Ratios and Supplemental Data:
Net assets ($000's),
end of period $824,083 $542,753 $403,526 $247,057 $271,863
Ratio of expenses
to average net assets 1.08% 1.08% 1.11% 1.11% 1.11%
Ratio of net investment income
to average net assets 1.84% 1.32% 1.39% 1.41% 1.41%
Portfolio turnover rate 31% 24% 31% 45% 64%
Number of shares outstanding
at end of period (000's) 10,721 8,033 6,643 5,360 5,435
Average commission rate
(cents per share) $0.0480 $0.049 $0.0498 N/A N/A
</TABLE>
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 investment
approach is very research intensive and includes meeting with management,
competitors and customers and preparing detailed valuation models for each
company followed. The valuation models calculate the intrinsic value which
is based on private market transactions and discounted cash flow valuations.
The Investment Adviser focuses on dominant companies generating excess
cash flow with good management in industries that are often "out-of-favor"
in the investment community. However, there can be no assurance that the
judgment of the Investment Adviser as to intrinsic value is correct.
Companies are only added to the portfolio when their share price trades
at less than 70 percent of intrinsic value. This discipline forces the
Investment Adviser to focus on capital preservation for several reasons.
Companies are only added to the portfolio if there is a margin of safety
(where the share price sells at a significant discount to its intrinsic
value). Companies are sold when their share price reaches intrinsic value.
This emphasis on capital preservation is no guarantee by the Investment
Adviser against a loss of capital in a bear market. All share prices
generally decline in a bear market and so will stocks in the portfolio.
The Investment Adviser believes that concentrated portfolios produce
superior long-term performance. The Investment Adviser concentrates on its
best ideas subject to reasonable portfolio diversification. The Fund is
defined as a "non-diversified" Fund. (See "Other Investment Policies -
(a) Diversification of Investments".) The Fund's portfolio generally
contains between 15 to 35 stocks. These positions are generally held
for extended periods of time resulting in low portfolio turnover.
(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 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
and free cash flow 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.
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. 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%, at cost, of its total assets in
the securities of issuers in any one industry. The Fund will not invest
more than 10%, at cost, of its total assets in the securities of any one
issuer. This restriction does not apply to 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 investing 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,
1995 and 1996, the Fund's portfolio turnover rate was 31% and
24%, 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 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 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
Traditional IRA plans are available to individuals whether or not they
participate in other qualified retirement plans. An individual
under age 70 1/2 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
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 package describing both the
traditional IRA and ROTH IRA are available upon request.
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.
Beginning January 1, 1998, the ROTH IRA is now available. A ROTH IRA
can be used instead of a Regular IRA, to replace an existing Regular IRA,
or complement a Regular IRA. Please consult with your tax professional to
determine which IRA is right for you. Please note that we require a $2,000
minimum to open an IRA.
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. However, the Fund does not provide plan administration services.
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.
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
Supplemental Account Application. 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.
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
- - ----------------
James H. Gipson* (55)
Director, Chairman and President
9601 Wilshire Boulevard, Suite 800
Beverly Hills, California 90210
Michael Sandler (43)
Vice President
9601 Wilshire Boulevard, Suite 800
Beverly Hills, California 90210
Michael Kromm (52)
Secretary/Treasurer
9601 Wilshire Boulevard, Suite 800
Beverly Hills, California 90210
Norman B. Williamson (66)
Director
1245 Rosalind
San Marino, California 91108
Lawrence P. McNamee (63)
Director
3531 Boelter Hall, UCLA
Los Angeles, California 90024
F. Otis Booth, Jr. (74)
Director
10877 Wilshire Blvd., Suite 1407
Los Angeles, California 90024
Principal Occupation(s)
- - -----------------------
Mr. Gipson has been President of PFR, an investment management
firm and the Investment Adviser, since 1980. (See "Investment
Advisory Contract") Prior to 1980, he was a portfolio manager with
Batterymarch Financial Company and with other investment firms.
Mr. Sandler has been with PFR since 1984. He currently serves as
Vice President and Portfolio Manager of PFR. Prior to that, he was
a Vice President with Enterprise Systems and a Manager of Asset
Redeployment for International Harvester.
Mr. Kromm has been with PFR since 1990 and is presently its
Operations Manager. From 1987 to 1990, he worked for the RNC
Mutual Fund Group as Chief Financial Officer and Secretary. Prior
to that, he worked in industry, as a controller, and for a CPA
firm.
Mr. Williamson had been a Vice President and Portfolio Manager
with PFR since 1983 prior to his retirement December 31, 1990.
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.
Professor McNamee has been a Professor of Computer Science at
UCLA since 1966.
Mr. Booth has been a private investor and rancher from 1973 to
the present.
- - ------------------
*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.
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Adviser
The Fund retains Pacific Financial Research, a wholly owned
subsidiary of United Asset Management Corporation, as its investment adviser.
The investment adviser has been in the investment management
business since 1980 providing investment advice to corporate pension funds,
endowments, foundations, and individuals. James H. Gipson is the
President of the investment adviser and is also the President and
Chairman of the Board of Directors 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 1.08% of the Fund's average monthly
net assets in the year ended December 31, 1997. 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 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 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.
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, 1997 contains additional performance information. This Annual
Report is available without charge upon request.
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.
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 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.
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.
- - -------------------------------------------------------------------------------
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:
Account Give Social Security Account Give Employer I.D.
Type Number of: Type Number of:
- - ------------- -------------------- ----------------- ---------------------
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
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.
- - ------------------------------------------------------------------------------
==============================================================================
CLIPPER FUND(TM)
9601 Wilshire Boulevard
Beverly Hills, California 90210
Telephone (800) 776-5033
Shareholder Services
& Audio Response (800) 432-2504
Internet: www.clipperfund.com
SEC File No. 811-3931 CLIPPER FUND(TM)
INVESTMENT ADVISER
Pacific Financial Research
DIRECTORS
James H. Gipson
Norman B. Williamson
Professor Lawrence P. McNamee
F. Otis Booth, Jr.
[CLIPPER FUND(TM) LOGO APPEARS HERE]
TRANSFER & DIVIDEND PAYING AGENT
National Financial Data Services
Post Office Box 419152
Kansas City, Missouri 64141-6152
(800) 432-2504
Overnight Address:
1004 Baltimore, 6th Fl.
Kansas City, Missouri 64105
P R O S P E C T U S
CUSTODIAN
State Street Bank and Trust Company
April 30, 1998
COUNSEL
Paul Hastings, Janofsky & Walker LLP
INDEPENDENT AUDITORS
Ernst & Young LLP
==============================================================================
[CLIPPER FUND(TM) LOGO APPEARS HERE]
STATEMENT OF ADDITIONAL INFORMATION
April 30, 1998
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVE AND POLICIES...............................2
OTHER INVESTMENT RESTRICTIONS...................................4
PRINCIPAL SHAREHOLDERS OF SECURITIES............................6
MANAGEMENT OF THE REGISTRANT....................................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
- - -----------------------------------------------------------------------
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, 1998. A copy of the Prospectus
may be obtained from Clipper Fund,(TM) 9601 Wilshire Boulevard,
Beverly Hills, California 90210.
- - -----------------------------------------------------------------------
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, 1998 (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 features 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, 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 provided 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.
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 January 31, 1998:
Number of
Shares Owned Percent
Name and Address of Record of Class
--------------------------------- -------------- ----------
Charles Schwab & Co. Inc. (1) 2,023,303 18.3%
Attention: Mutual Fund Department
101 Montgomery Street
San Francisco, California 94104
Hewitt Associates (2) 622,736 5.6%
100 Half Day Road
Lincolnshire, Illinois 60069
------------------------
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.
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, 1997:
<TABLE>
<CAPTION>
COMPENSATION TABLE
==================================================================================================
(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> <S> <S> <C>
James H. Gipson
Director, Chairman,
and President None None None None
Susan M. Bernfeld
Director $5,000 None None $7,500
Norman B. Williamson
Director $5,000 None None $7,500
Lawrence P. McNamee
Director $5,000 None None $7,500
F. Otis Booth, Jr.
Director $5,000 None None $7,500
Michael C. Sandler
Vice President None None None None
Michael Kromm
Secretary
and Treasurer None None None None
(a) Total 1997 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)
</TABLE>
All directors and officers of the Fund as a group (6 persons)
owned beneficially 209,497 shares of the Capital stock on
January 31, 1998, approximating 1.8% of the outstanding shares.
That number consists of an aggregate of 87,326 shares held by the
Pacific Financial Research, Inc. Money Purchase Plan and Trust;
7,696 shares held by the Pacific Financial Research, Employees
Savings Plan, 20,097 shares held by Mr. F. Otis Booth,
Jr., 158,815 shares held by Mr. Gipson, 15,088 shares held by Mr. Williamson
in an IRA plan, 2,065 shares held by Mr. & Mrs. Kromm, of which 1,716 are
held in an IRA plan and 9,186 shares held by Professor McNamee, of which
1,077 shares are held in IRA plans, 8,109 shares are held in trust.
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, is
President of the Investment Adviser, a wholly owned subsidiary of United
Asset Management Corporation. See "Investment Advisory Contract" in
the prospectus dated April 30, 1998.
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, (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 May 31, 1999.
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. 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
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 $6,891,228, $4,745,682 and $3,299,458 for the years ended
December 31, 1997, 1996, and 1995, 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.
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 $316,753, $254,824, and $253,527, for the years ended
December 31, 1997, 1996, and 1995, respectively. During the year
ended December 31, 1997, the total amount of transactions and
related commissions with respect to which the Fund directed
brokerage transactions was $92,439,799 and $94,200, 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 $59,627, 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 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
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 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, 1997 and for the period since
inception (February 29, 1984), were 30.2%, 19.6%, 17.6%, and
17.6%, 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.
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,
1997 (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 Paul Hastings, Janofsky & Walker LLP, 345 California Street, 29th Floor,
San Francisco, California 94104-2635.
===============================================================================
CLIPPER FUND(TM)
9601 Wilshire Boulevard
Beverly Hills, California 90210
Telephone (800) 776-5033 CLIPPER FUND(TM)
Shareholder Services
& Audio Response (800) 432-2504
Internet: www.clipperfund.com
SEC File No. 811-3931
INVESTMENT ADVISER
Pacific Financial Research
[CLIPPER FUND(TM) LOGO APPEARS HERE]
DIRECTORS
James H. Gipson
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
STATEMENT OF
CUSTODIAN ADDITIONAL INFORMATION
State Street Bank and Trust Company
April 30, 1998
COUNSEL
Paul Hasting, Janofsky & Walker LLP
INDEPENDENT AUDITORS
Ernst & Young LLP
===============================================================================
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Statement of Assets and Liabilities as of December 31,
1997; Investment Portfolio as of December 31, 1997;
Statement of Operations for the year ended December
31, 1997; Statement of Changes in Net Assets for the
two year period ended December 31, 1997; the Financial
Highlights for each of the five years then ended; and
related notes, are incorporated by reference to the
Annual Report to Shareholders for the fiscal year
ended December 31, 1997 for the Fund, filed separately.
Filing Date: February 4, 1998
(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.*
Filing: Registration Statement
File No.: 811-3931
Filing Date: April 16, 1998
(6) Not applicable
(7) Not applicable
(8) Not applicable
(9) Transfer Agency and Service Agreement between
Clipper Fund(TM) and State Street Bank and Trust
Company, with amendments thereto.
Filing: Registration Statement
File No.: 811-3931
Filing Date: December 21, 1983
(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, 1993
(16) Schedule of Computation of Performance Quotations.
Filing: Registration Statement
File No.: 811-3931
Filing Date: April 16, 1998
(27) Financial Data Schedule*
- - ----------------------------
*Filed Herewith
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS
Title of Class Number of Record Holders**
Capital Stock 8,780
_______________________
**As of January 31, 1998
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
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 asserted by such trustee, officer or
controlling person in connection with the 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(TM),
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
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.
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 16th Day of April, 1998.
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.
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.
NAME TITLE DATE
------------------- ------------------------------ -----------------
/s/ Chairman of the Board April 16, 1998
James H. Gipson President and Director
(Principal Executive Officer)
Vice President April 16, 1998
/s/
Michael C. Sandler
/s/ Secretary, Treasurer April 16, 1998
Michael Kromm (Principal Accounting Officer)
/s/ Director April 16, 1998
F. Otis Booth
/s/ Director April 16, 1998
Norman B. Williamson
/s/ Director April 16, 1998
Lawrence P. McNamee
Exhibit List to the
Registration Statement
of Clipper Fund(TM)
Form N-1A--April 16, 98
Exhibit No. Description
5 Form of New Advisory Agreement
11 Consent of Independent Auditors
EXHIBIT A
INVESTMENT ADVISORY CONTRACT
INVESTMENT ADVISORY CONTRACT, made as of this 27th day of March,
1998 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, 1999. 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
PACIFIC FINANCIAL RESEARCH
(CORPORATE SEAL) By:/s/ James H. Gipson
President
ATTEST:/s/ Bruce G. Veaco
Secretary/Chief Financial Officer
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Miscellaneous Information" in Post-Effective Amendment No.
17 under the Securities Act of 1933 and Amendment No. 17 under
the Investment Company Act of 1940 to the Registration Statement
(Form N-1A No. 2-88543, 811-3931) and related Prospectus and Statement
of Additional Information of Clipper Fund, Inc., and to the incorporation
by reference therein of our report dated January 16, 1998 with respect to
the financial statements and financial highlights of Clipper Fund, Inc.
included in its Annual Report for the year ended December 31, 1997 filed
with the Securities and Exchange Commission.
/s/
ERNST & YOUNG LLP
Los Angeles, California
April 15, 1998
<TABLE>
<CAPTION>
Shareholder Transaction Expenses: Annual Fund Operating Expenses:
- - -------------------------------- ------------------------------
<S> <C> <S> <C>
Maximum Sales Load 0.0% %
---- -----
Management Fees 1.00%
Maximum Sales Load on Rein 0.0% 12b-1 Fees 0.00%
---- Other:
Deferred Sales Load 0.0% Transfer Agent
---- and Insurance 0.04%
Registration 0.01%
Redemption Fee $0.00 Postage 0.01%
----- Other Expenses 0.02%
-----
Exchange Fee N/A
----- Total Fund Operating Expenses 1.08%
-----
Assumed Annual Return: 5.00%
--------------------- -----
<CAPTION>
Computation of Performance Quotations:
Total Return Formula = P(1 + T)n = Ending Redeemable Value of Investment
(T)
Avg Annual
Initial Investment: $1,000.00 Total Return
--------- ------------
<S> <C> <C>
One Year (n): $1,302 30.2%
------ -----
Three Year (n): $2,258 31.2%
------ -----
Five Year (n): $2,447 19.6%
------ -----
Seven Year (n): $3,754 20.8%
------ -----
Ten Year (n): $5,059 17.6%
------ -----
Since Inception (n): $9,438 17.6%
------ -----
12/31/97
02/29/84
Inception Date of the Fund: February 29, 1984 Years: ---> 13.85
<CAPTION>
AMOUNT SALES BEGINNING NET INV ENDING AVERAGE ANNUAL AGGREGATE
INVESTED LOAD VALUE INCOME VALUE VALUE EXPENSES EXPENSES
YEAR (1) (2)=(1)X0 (3)=(1)-(2) (4)=(3)X(5%-1.08)% (5)=(3)+(4) (6)=(3)+(5)/2 (7)=(6)(1.08%) (8)
- - ----
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $1,000.00 $0.00 $1,000.00 $39.20 $1,039.20 $1,019.60 $11.01 $11.01
2 $1,039.20 $40.74 $1,079.94 $1,059.57 $11.44 $22.46
3 $1,079.94 $42.33 $1,122.27 $1,101.10 $11.89 $34.35
4 $1,122.27 $43.99 $1,166.26 $1,144.27 $12.36 $46.71
5 $1,166.26 $45.72 $1,211.98 $1,189.12 $12.84 $59.55
6 $1,211.98 $47.51 $1,259.49 $1,235.74 $13.35 $72.89
7 $1,259.49 $49.37 $1,308.86 $1,284.18 $13.87 $86.76
8 $1,308.86 $51.31 $1,360.17 $1,334.52 $14.41 $101.18
9 $1,360.17 $53.32 $1,413.49 $1,386.83 $14.98 $116.15
10 $1,413.49 $55.41 $1,468.90 $1,441.19 $15.56 $131.72
</TABLE>
