As filed with the Securities and Exchange Commission on March 26, 1999.
File No. 2-88543
File No. 811-3931
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
Registration Statement Under The Securities Act of 1933 [X]
Pre-Effective Ammendment No. [ ]
Post-Effective Amendment No. 18 [X]
and/or
Registration Statement Under The Investment Company Act of 1940 [X]
Amendment No. 18 [X]
(Check appropriate box or boxes.)
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CLIPPER FUND, INC.
(Exact Name of Registrant as Specified in Charter)
9601 Wilshire Boulevard, Suite 800, Beverly Hills, California 90210
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (800) 776-5033
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JAMES H. GIPSON
9601 Wilshire Boulevard, Suite 800
Beverly Hills, California 90210
(Name and Address of Agent for Service)
Copy to:
Julie Allecta, Esq.
c/o Paul Hastings, Janofsky & Walker LLP
333 Bush Street
San Francisco, California 94104
(415) 772-6000
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Approximate Date of Proposed Public Offering:
Not applicable
It is proposed that this filing will become effective
(check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 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.
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" only when sharess are being registered under
the Securities Act of 1933.
Form N-1A is to be used by open-end management investment
companies, except insurance company separate accounts and
small business investment companies licensed under the
United States Small Business Administration, to register
under the Investment Company Act of 1940 and to offer their
shares under the Securities Act of 1933. The Commission has
designed Form N-1A to provide investors with information
that will assist them in making a decision about investing
in an investment company eligible to use this Form. The
Commission also may use the information provided on Form
N-1A in its regulatory, disclosure review, inspection, and
policy making roles.
A Registrant is required to disclose the information
specified by Form N-1A, and the Commission will make this
informtion public. A Registrant is not required to respond
to the collection of information contained in Form N-1A
unless the Form displays a currently valid Office of
Management and Budget ("OMB") control number. Please direct
comments concerning the accuracy of the information
collection burden estimate and any suggestions for reducing
the burden to Secretary, Securities and Exchange Commission,
450 5th Street, N.W., information under the clearnace
requirements of 44 U.S.C.
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CLIPPER FUND(TM)
CROSS REFERENCE SHEET
N-1A ITEM NO. PROSPECTUS CAPTION
- ------------- ------------------
PART A
Item 1. Front and Back Cover Pages. . . . . . . .Front and Back Cover Pages
Item 2. Risk/Return Summary . . . . . . . . . . .Risk/Return Summary
Item 3. Risk/Return Summary: Fee Table. . . . . .Fund Expenses
Item 4. Investment Objectives, Principal Investment
Strategies and Related Risks. . . . . . .Investment Objectives,
Principal Investment
Strategies and Related Risks
Item 5. Management's Discussion of Performance. .Incorporated in the Quarterly,
Semi-Annual and Annual Reports
to Shareholders
Item 6. Management, Organization and Capital
Structure. . . . . . . . . . . . . . . . Management, Organization and
Capital Structure
Item 7. Shareholder Information. . . . . . . . . Pricing, Purchase and Sale
of Shares
Item 8. Distribution Arrangements. . . . . . . . Fees and Expenses
Item 9. Financial Highlights . . . . . . . . . . Financial Highlights
PART B STATEMENT OF ADDITIONAL
- ------ INFORMATION CAPTION
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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.
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[CLIPPER FUND(TM) LOGO APPEARS HERE]
CLIPPER FUND(TM)
P R O S P E C T U S
April 30, 1999
Clipper Fund (the "Fund") is a non-diversified, open-end management
investment company known as a "mutual fund." The objective of the Fund
is to provide long-term growth of capital. The Fund seeks to achieve its
objective by investing in a concentrated portfolio of stocks that, in the
opinion of the Adviser, as significantly undervalued.
This Prospectus outlines information you should know before purchasing
fund shares. You should read and retain this Prospectus for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- -----------------------------------------------------------------------------
CLIPPER FUND(TM)
9601 Wilshire Boulevard, Suite 800
Beverly Hills, California 90210
Telephone (800) 776-5033 CLIPPER FUND(TM)
Shareholder Services
& Audio Response (800) 432-2504
Internet: www.clipperfund.com
You can request other information, including
a Statement of Additional Information, Annual
Report or Semiannual Report, free of charge,
by contacting Clipper Fund(TM) at
1-800-776-5033 or visiting our Web site at
clipperfund.com. In the Funds' Annual Reports, [CLIPPER FUND(TM) LOGO
you will find a discussion of the market APPEARS HERE]
conditions and investment strategies that
significantly affected the Fund's performance
during their last fiscal year.
The Statement of Additional Information is dated
April 30, 1999 and has been incorporated by
reference into this Prospectus.
SEC File No: 811-3931
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
The Goal of Clipper Fund
Principal Investments and Policies
Other Investment Policies
Investment Limitations
The Investment Selection Process
The Principal Risk of Investing in the Fund
Returns
Fees and Expenses of the Fund
Management, Organization, and Capital Structure
Shareholder Information
Financial Highlights
Goal of the Clipper Fund.
The goal of the Fund is long-term growth of capital.
Principal Investments and Policies.
The Fund seeks to achieve its objective by investing
in a concentrated portfolio of stocks that, in the
opinion of the Adviser, are significantly
undervalued. The Fund is a "non-diversified" Fund,
which means it, can invest in fewer securities at
any one time than diversified portfolios. The Fund
generally contains between 15 and 35 stocks. These
positions are generally held for extended periods in
time. The Adviser expects that a majority of
investments in the Fund will be in U.S.-based
companies; however, from time to time shares of
foreign based companies may be purchased if they
meet the Fund's investment criteria.
Other Investment Policies.
In order to earn a return on uninvested assets, or to meet
anticipated redemptions, or for temporary defensive purposes,
the Fund may invest a portion of its assets in
domestic and foreign money market instruments that
include certificates of deposit, bankers'
acceptances, time deposits, U.S. Government
obligations, U.S. Government agency securities,
short-term corporate debt securities, and commercial
paper rated A-1 or A-2 by Standard & Poor's Ratings
Services or Prime-1 or Prime-2 by Moody's Investors
Service or if unrated, determined by the Advisor to
be of comparable quality.Time deposits maturing in
more than seven days will not be purchased by the
Fund, and time deposits maturing from two business
days through seven calendar days will not exceed 10%
of the total assets of the Fund. The Fund will not
invest in any security issued by a commercial bank
unless:
(i) the bank has total assets of at least $1 billion, or the
equivalent in other currencies.
(ii) in the case of U.S. banks, it is a member of the Federal
Deposit Insurance Corporation.
(iii) in the case of foreign branches of U.S. banks, the
security is, in the opinion of the Adviser, of
an investment quality comparable with other debt
securities that may be purchased by each Fund.
The Fund may invest in repurchase agreements collateralized
by U.S. Government securities, certificates of
deposit, and certain bankers' acceptances and
other securities. In a repurchase agreement, the
Fund buys a security and simultaneously commits to
sell that security back at an agreed upon price
plus an agreed upon market rate of interest.
Under a repurchase agreement, the seller is
required to maintain the value of securities,
subject to the agreement, at 100% of the
repurchase price. The value of the securities
will be evaluated daily, and the Adviser will, if
necessary, require the seller to maintain
additional securities to ensure that the value is
in compliance with the previous sentence. The use
of repurchase agreements involves certain risks. A
default by the seller of the agreement may cause
the Fund to experience a loss or delay in the
liquidation of the collateral securing the
repurchase agreement. The Fund might also incur
disposition costs in liquidating the collateral.
LENDING OF SECURITIES. 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 secu rities. The
Adviser may lend to broker-dealers, major banks or
other recognized domestic institutional borrowers
of securities who are not affiliated with the
Adviser and whose creditworthiness is acceptable
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.
WHEN-ISSUED, FORWARD DELIVERY AND DELAYED SETTLEMENT SECURITIES
The Fund may purchase and sell securities on a "when-issued,"
"delayed settlement," or "forward delivery" basis.
When-issued or forward delivery refers to securities
whose terms and indenture are available and for
which a market exists, but which are not available
for immediate delivery. When-issued and forward
delivery transactions may be expected to occur a
month or more before delivery is due. Delayed
settlement is a term used to describe settlement
of a securities transaction in the secondary
market that will occur sometime in the future.
No payment or delivery is made by the Fund until it
receives payment or delivery from the other party
to any of the above transactions. It is possible
that the market price of the securities at the
time of delivery may be higher or lower than the
purchase price. The Fund will maintain a separate
account of cash or liquid securities at least
equal to the value of purchase commitments until
payment is made. Such segregated securities will
either mature or, if necessary, be sold on or
before the settlement date. Typically, no income
accrues on securities purchased on a delayed
delivery basis prior to the time delivery is made
although the Fund may earn income on securities it
has deposited in a segregated account.
The Fund engages in these types of purchases in order to
buy securities that fit with its investment
objectives at attractive prices - not to increase
its investment leverage.
FUND TURNOVER
The Fund turnover rate is not expected to exceed 75%.
In addition to trading costs, higher rates of Fund
turnover may result in the realization of capital gains.
The Fund will not normally engage in short-term trading,
but reserves the right to do so.
INVESTMENT COMPANIES The Fund reserves the right
to invest up to 10% of its total assets,
calculated at the time of investment, in the
securities of other open-end or closedend
investment companies. No more than 5% of the
investing Fund's total assets may be invested in
the securities of any one investment company nor
may it acquire more than 3% of the voting
securities of any other investment company. The
Fund will indirectly bear its proportionate share
of any management fee paid by the Fund.
INVESTMENT LIMITATIONS
The Fund will not:
(a) invest more than 5% of its assets at the time of
purchase in the securities of companies that have (with
predecessors) a continuous operating history of less than 3 years;
(b) invest more than 25% of its assets within a single
industry; however, there are no limitations on
investments issued or guaranteed by the U.S.
Government and its agencies when the Fund adopts
a temporary defensive position;
(c) make loans except by purchasing debt securities
in accordance with its investment objective and
policies or entering into repurchase agreements
or by lending its Fund securities to banks,
brokers, dealers and other financial institutions
so long as loans are made in compliance with the
1940 Act, as amended, or the rules and
regulations or interpretations of the SEC;
(d) (1) borrow, except from banks and as a temporary measure
for extraordinary or emergency purposes and then, in
no event, in excess of 33 1/3% of the Fund's gross
assets valued at the lower market or cost, and (2)
the Fund may not purchase additional securities when
borrowings exceed 5% of total assets; or
(e) pledge, mortgage or hypothecate any of its assets to an
extent greater than 33 1/3% of its total assets at
fair market value.
The Investment Selection Process
The Adviser will seek to meet the investment objective of
the Fund by investing primarily in securities that are
considered by the Adviser to have potential for long-
term capital appreciation and are considered
undervalued. The Fund will purchase common stock,
convertible long-term corporate debt obligations,
convertible preferred stock, and warrants. 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.
The Adviser's investment approach is very research
intensive and includes meeting with management,
competitors and customers, and preparing detailed
valuation models for each company researched. The
valuation models attempt to calculate a company's
intrinsic value based on private market transactions
and discounted cash flow valuations. The Adviser
buys companies that are market dominators with
strong management. The Adviser focuses on companies
generating excess cash flow with good management in
industries that are often "out-of-favor." Companies
are only bought (sold) when their share price trades
below (above) the Adviser's estimate of intrinsic
value. The Fund may invest in companies undergoing
significant changes such as liquidations,
reorganizations, mergers, temporary financial
liquidity restraints, material litigation,
technological breakthroughs or any other events that
could change or temporarily impede the ongoing
operations of a company. These special situations
often involve much greater risk than is common in
ordinary conditions.
PRINCIPAL RISK OF INVESTING IN THE FUND.
General Risks. The value of a Fund's shares will
fluctuate in response to changes in market and
economic conditions. There can be no assurance that
the judgement of the Adviser as to intrinsic value
is correct. The investment discipline is no
guarantee by the Adviser against a loss of capital.
There is no guarantee that investing in companies
subject to special situations will help the Fund
achieve its objective since the market price of such
securities may never reflect any perceived intrinsic
values.
Foreign Investment Risks. The Fund may invest
in securities of foreign issuers, which will be
subject to additional risk factors not applicable to
securities of domestic issuers. An
investment may be affected by changes in currency
rates and in exchange control regulations. Foreign
companies are not generally subject to the same
accounting, auditing and financial reporting
standards as domestic issuers. 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.
Risks of Non Diversification. The Fund is a non-
diversified portfolio, which means that, at any
given time, it may hold fewer securities than other
mutual funds. This increases the risk that the
value of the Fund could go down because of the poor
performance of a single investment.
RETURNS
The bar chart and table below provide an indication of the risks of
investing in the Clipper Fund(TM) by showing changes in the Fund's
performance from year to year over a 14.8 year period and by showing
how the Fund's average annual returns for one, five, and ten years
compare to those of a broad-based securities market index. How the
Fund performed in the past is not necessarily an indication of how
the Fund will perform in the future.
[BAR CHART]
Clipper Fund(TM)
Inception: 2/29/84
1984* 21.28%
1985 26.41%
1986 18.76%
1987 3.14%
1988 19.57%
1989 21.88%
1990 -7.60%
1991 32.09%
1992 15.83%
1993 11.13%
1994 -2.40%
1995 45.19%
1996 19.40%
1997 30.17%
1998 19.20%
During the 14.8 year period shown in the bar chart, the highest return for a
quarter was 17.2% (quarter ending March 1986) and the lowest return for a
quarter was -15.6% (quarter ending September 1990)
PERFORMANCE TABLE
Average Annual Total Returns
(for the period ending
December 31, 1998)
One Year 3 Years 5 Years 10 Years Inception
-------- ------- ------- -------- ---------
Clipper Fund(TM) 19.2% 22.9% 21.3% 17.5% 17.8%
S&P 500* 28.6% 28.2% 24.1% 19.2% 18.4%
*The S&P 500 Index is an unmanaged index of 500 companies widely recognized
as representative of the equity market in general.
FEES AND EXPENSES OF THE FUND
The Fund does not charge shareholder transaction fees. However, the following
table illustrates expenses and fees that a shareholder of the Fund would
incur. Transaction fees may be charged if a broker-dealer or other financial
intermediary deals with the Fund on your behalf. (See "PURCHASE OF SHARES.")
Shareholder Transaction Expenses
Sales Load Imposed on Purchases NONE
Sales Load Imposed on Reinvested Dividends NONE
Deferred Sales Load NONE
Redemption Fees NONE
Exchange Fee NONE
Annual Fund Operation Expenses (As a % of Average Net Assets)
Investment Advisory Fees 1.00%
12b-1 Fees NONE
Other Expenses 0.06%
----
Total Operating Expenses 1.06%
====
Example
The following example illustrates expenses a shareholder would pay on a
$1,000 investment over various time periods assuming a 5% annual rate of
return and redemption at the end of each time period. The Fund charges
no redemption fees of any kind.
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Clipper Fund $11 $34 $58 $129
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or lesser than
those shown.
Year 2000. The Fund could be adversely affected if
the computer systems used by them, their service
providers, or companies in which they invest do not
properly process and calculate information that
relates to dates beginning January 1, 2000, and
beyond. We expect to have our systems ready for the
Year 2000 by mid-1999. In addition, we are actively
assessing the Year 2000 readiness of our service
providers, partners, and companies in whose
securities we invest. It is not possible for us to
say that you will experience no effect from this
situation, but we can say that we are making a large
effort to avoid any ill effects upon our
shareholders. We do believe you are entitled to
know with certainty that we will stand behind your
share balance as of the close of business in 1999.
When the market reopens in 2000, should any computer
problems cause a change in the number of shares in
your account, we will return your account to its
proper share balance.
MANAGEMENT, ORGANIZATION, AND CAPITAL STRUCTURE
INVESTMENT ADVISER
Pacific Financial Research, Inc., ("PFR") (the
"Adviser"), a Massachusetts corporation, is located
at 9601 Wilshire Boulevard, Suite 800, Beverly
Hills, California 90210. The Adviser is a wholly
owned subsidiary of United Asset Management
Corporation ("UAM") and has been providing
investment management services to corporations,
pension funds, endowments, foundations, individuals
and institutions since 1981. As of the date of this
Prospectus, the Adviser had over $6.5 billion in
assets under management.
PORTFOLIO MANAGERS
James Gipson - Jim received his B.A. and M.A.
degrees in Economics with honors from the University
of California, Los Angeles, and his M.B.A. degree
with honors from Harvard Business School. Before
entering the investment industry, he served as an
officer in the U.S. Navy and as a consultant for
McKinsey & Co. Before founding PFR in 1980, he was
a Fund manager at Source Capital Co. and at
Batterymarch Financial. He authored Winning the
Investment Game: A Guide for All Seasons. He
currently serves as President and Portfolio Manager
and is a principal of PFR.
Michael Sandler - Michael received his B.B.A. with
distinction, M.B.A. and J.D. degrees from the
University of Iowa. He spent two years with
International Harvester as a Manager of Asset
Redeployment and one year with Enterprise Systems,
Inc. as Vice President of Business Development. He joined
PFR as an analyst in 1984. He currently serves as Vice
President and Portfolio Manager and is a principal of PFR.
Bruce Veaco - Bruce graduated summa cum laude from
the University of California, Los Angeles with a
B.A. degree in economics. He spent five years as a
certified public accountant in the Los Angeles
office of Price Waterhouse where he was an Audit
Manager. Bruce received his M.B.A. degree from
Harvard Business School before joining PFR in 1986
as an analyst. He currently serves as Vice
President and Portfolio Manager and is a principal of PFR.
Douglas Grey - Doug received his B.E. cum laude in
Mechanical/Materials Engineering and Economics from
Vanderbilt University, and his M.B.A. from the
University of Chicago. Doug joined PFR as an analyst
in 1986. He currently serves as Vice President and
Portfolio Manager and is a principal of PFR.
Peter Quinn - Peter received his B.S. degree in
Finance from Boston College and his M.B.A. degree
from the Peter F. Drucker School of Management. He
joined PFR as Research Associate in 1987. He
currently serves as Vice President and Portfolio
Manager and is a principal of PFR.
Under an Investment Advisory Agreement (the
"Agreement") with the Fund, the Adviser manages the
investment and reinvestment of the assets of the
Fund. The Adviser must adhere to the stated
investment objectives and policies of the Fund, and
is subject to the control and supervision of the
Fund's Board of Directors.
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
The net asset value of the Fund is determined by
dividing the value of the Fund's assets, less any
liabilities, by the number of shares outstanding.
The net asset value per share of the Fund is
determined as of the close of the New York Stock
Exchange (NYSE) on each day that the NYSE is open
for business. Equity securities listed on a
securities exchange for which market quotations are
readily available are valued at the last quoted sale
price of the day. Price information on listed
securities is taken from the exchange where the
security is primarily traded. Unlisted equity
securities and listed securities not traded on the
valuation date for which market quotations are
readily available are valued neither exceeding the
current asked prices nor less than the current bid
prices. Quotations of foreign securities in a
foreign currency are converted to U.S. dollar
equivalents. The converted value is based upon the
bid price of the foreign currency against U.S.
dollars quoted by any major bank or by a broker.
Bonds and other fixed income securities are valued
according to the broadest and most representative
market, which will ordinarily be the over-the-
counter market. Bonds and other fixed income
securities may be valued on the basis of prices
provided by a pricing service when such prices are
believed to reflect the fair market value of such
securities. Securities purchased with remaining
maturities of 60 days or less are valued at
amortized cost when the Board of Directors
determines the amortized cost reflects fair value.
The value of other assets and securities for which
no quotations are readily available (including
restricted securities) is determined in good faith
at fair value using method determined by the Directors.
TO BUY SHARES
Shares of the Fund are offered, without charge, at
the net asset value per share next determined after
an order is received by the Fund. The minimum
initial investment is $5,000; subsequent investments
are $1,000. The minimum initial investment for all
types of IRA accounts is $2,000; subsequent
investments are $200. The officers of the Fund may
permit exceptions.
Shares of the Funds may be purchased by customers of
brokersdealers or other financial intermediaries
("Service Agents") who have established a
shareholder servicing relationship with the Fund on
behalf of their customers. Service Agents may
impose additional or different conditions on
purchases or redemptions of Fund shares and may
charge transaction or other account fees.
Shareholders who are customers of Service Agents
should consult their Service Agent for information
regarding these fees and conditions. Service Agents
may receive compensation from the Fund for
shareholder recordkeeping and similar services.
Certain Service Agents may enter into agreements
with the Fund that permits them to confirm orders
for their customers by phone with payment to follow
in accordance with the Transfer Agent's procedures.
If the Transfer Agent does not receive payment, the
transaction may be cancelled and the Service Agent
could be held liable for resulting fees or losses.
Paying for Shares
When buying shares of the Clipper Fund, your request
will be processed at the next NAV calculated after
your order is received and accepted at the Transfer
Agent.
Cash, Credit Cards, and Third party checks will
not be accepted.
Purchases must be in U.S. dollars.
Checks must be drawn on U.S. banks and be made
payable to the Clipper Fund, Inc.
BY MAIL
Complete and sign an Account Application and mail it
together with a check made payable to "Clipper Fund, Inc." to:
Clipper Fund, Inc.
C/O National Financial Data Services, Inc.
P.O. Box 419152
Kansas City, MO 64141-6152
Or via overnight
330 W 9th Street, 4th Floor
Kansas City, MO 64105
BY WIRE
Purchases may also be made by wiring money from your
bank account to your Clipper Fund, Inc. account.
Call 1 (800) 4322504 to receive wiring instructions.
OTHER PURCHASE INFORMATION
Investments received by the close of regular trading
on the NYSE (generally 4:00 p.m. Eastern Time) will be
invested at the share price calculated after the NYSE closes
on that day. Investments received after the close
of the NYSE will be executed at the price computed
on the next day the NYSE is open. The Fund reserves
the right to suspend the offering of shares of the
Fund or to reject purchase orders when, in the
judgement of management, such suspension or
rejection is in the best interest of the Fund. The
Fund is intended to be a long-term investment
vehicle and is not designed to provide investors
with a means of speculation on short-term market
movements. A pattern of frequent purchases can be
disruptive to efficient Fund management and,
consequently, can be detrimental to a Fund's
performance and its shareholders. Accordingly, if
the Fund's management determines that an investor is
engaged in excessive trading, the Fund, with or
without prior notice, may reject in whole or part
any purchase request with respect to such investor's
account.
Purchases of shares will be made in full and
fractional shares of the Fund calculated to three
decimal places. Certificates for fractional shares
will not be issued. Certificates for whole shares
will only be issued upon written request from the shareholder.
TYPES OF ACCOUNTS
REGULAR
Individual or Joint Ownership
One person owns individual accounts. Joint accounts have two or more owners.
A Gift or Transfer to Minor (UGMA or UTMA)
An UGMA/UTMA account is a custodial account managed
for the benefit of a minor. To open an UGMA or UTMA
account, you must include the minor's Social
Security number on the application.
Trust
An established trust can open an account. The names
of each trustee, the name of the trust and the date
of the trust agreement must be included on the application.
Business Accounts
Corporations or Partnerships may also open an
account. An authorized office of the corporation or
a general partner of the partnership must sign the application.
RETIREMENT
Traditional or Roth IRA:
Retirement plans protect investment income and
capital gains from current taxes. Contributions to
these accounts may be tax deductible. Retirement
accounts require special applications. Please refer
to the Fund's Information Kit on IRA's.
Simplified Employee Pension Plan (SEP):
This plan allows small business owners (including
sole proprietors) to make tax-deductible
contributions for themselves and any other eligible
employee(s). Please refer to the Fund's Information Kit on IRA's.
MINIMUM INVESTMENTS
Initial Additional
Regular $5,000 $ 1,000
IRA's $2,000 $ 200
TO SELL SHARES
You may redeem shares at any time. If shares are
held in certificate form, the certificate must be
returned in order to redeem. When selling shares of
the Clipper Fund, your request will be processed at
the next NAV calculated after your order is received
and accepted at the Transfer Agent.
BY MAIL
Send requests to sell shares directly to the
Transfer Agent. Requests to redeem shares must
include:
(a) share certificates, if issued;
(b) a letter of instruction specifying the number of
shares or dollar amounts to be redeemed,
signed by all registered owners of the
shares in the exact names in which they
are registered;
(c) a signature guarantee (see "SIGNATURE GUARANTEES");
(d) any other necessary legal documents, if required, in
the case of estates, trusts, guardianships, custodians,
corporations, pension and profit sharing plans and other
organizations.
BY TELEPHONE
To sell shares by telephone the following is required:
(a) pre-establishment of the telephone redemption
privilege and wiring instructions (if
applicable) by completing the appropriate
section of the Account Application;
(b) call the Fund's Transfer Agent at (800) 432-2404 by
the close of the regular trading session
of the New York Stock Exchange ("NYSE")
normally 4:00 PM Eastern time.
The Transfer Agent will employ reasonable procedures
to confirm that instructions received by telephone
are valid. The Fund and the Transfer Agent will not
be responsible for any losses resulting from
unauthorized transactions when procedures designed
to verify the identity of the caller are followed.
Note this option is not available for IRA accounts.
ADDITIONAL REDEMPTION INFORMATION
Redemption proceeds may be delayed up to fifteen
(15) days after their purchase, pending verification
that the check has cleared. Payment will normally be
made on the next business day after redemption, but no
later than SEVEN (7)1 days after the transaction. The
Transfer Agent will wire redemption proceeds only to the
pre-established bank account. 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, the redemption request may be delivered to the
Transfer Agent at the address set forth on the back
page of this Prospectus.
The Fund may pay redemption proceeds in whole or in
part by a distribution in-kind of liquid securities
held by the Fund in lieu of cash in conformity with
applicable rules of the SEC. Investors may incur
brokerage charges on the sale of Fund securities
received in payment of redemptions.
An account may be closed after 60-days' written
notice if the account value falls below the minimum
initial investment. You may purchase shares to bring
your account balance above the minimum during the 60-
day grace period. The right of redemption by the
Fund will not apply if the value of your account
drops below the minimum initial investment because
of market performance.
SIGNATURE GUARANTEES
Signature guarantees are required for the following redemptions:
(a) All written redemptions.
(b) All redemptions where the proceeds are to be
sent to someplace or someone other than the registered
owner's address.
(c) All redemptions that are to be sent via federal wire to a
bank other than your bank of record.
Signature guarantees can be obtained from most banks, credit
unions or savings associations, or from
broker/dealers, national securities exchanges,
registered securities exchanges, registered
securities associations or clearing agencies. Notary
publics cannot provide signature guarantees.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Fund will normally distribute substantially all
of its net investment income and any realized net
capital gains, on an annual basis. All dividends
and capital gains distributions will automatically
be reinvested in additional shares unless the Fund
is notified that the shareholder elects to receive
the distributions in cash. Reinvested distributions
receive the same tax treatment as those paid in cash.
SOCIAL SECURITY NUMBER / TAXPAYER IDENTIFICATION NUMBER
To avoid a 31% backup withholding on dividends,
distributions and redemption proceeds, individuals
and other non-exempt share holders must certify
their taxpayer identification number on the
application. If you are subject to backup
withholding or you do not certify your TIN the IRS
requires the Fund to withhold 31% of any redemption
proceeds and any dividends paid.
OPTIONAL SHAREHOLDER SERVICES
AUTOMATIC INVESTMENT PLAN ("AIP")
Shareholders may choose to participate in the Fund's
Automatic Investment Plan. Once the minimum initial
investments have been made, ($5,000 Regular; $2,000
IRA) the shareholder my elect to purchase shares
automatically ($150 minimum monthly investment) at
regular intervals. To establish the AIP, a
shareholder must complete the corresponding section
on the account application. A shareholder may cancel
his/her participation or change the amount of
purchase at any time by calling the Transfer Agent
at (800) 432-2504 or by written notification. The
Fund may modify or terminate this option at any
time, or may charge a service fee.
SYSTEMATIC WITHDRAWAL PLAN ("SWP")
Shareholders with a balance of $10,000 may choose to
participate in the Fund's Systematic Withdrawal
Plan. This option allows you to make regular
automatic withdrawals from your account. Withdrawals
are processed on the 10th day of each month. To
establish the SWP, a shareholder must complete the
corresponding section on the account application. A
shareholder may cancel his/her participation or
change the amount of withdrawal at any time by
calling the Transfer Agent at (800) 432-2504 or by
written notification. The Fund may modify or
terminate this option at any time, or may charge a
service fee.
STATEMENTS AND REPORTS
Confirmation statements are sent from the Transfer
Agent after each transaction effecting your share
balance and/or account registration. An annual
statement is sent detailing any dividends or
distributions. The Fund also sends a quarterly
report detailing a list of the Fund's portfolio
holdings.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past ten years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned or lost on an
investment in the Fund assuming reinvestment of all dividends and
distributions. This information has been audited by Ernst & Young LLP,
independent auditors, whose report, along with the Fund's financial
statements, are included in the Statement of Additional Information,
which is available upon request.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Data:
Net asset value,
beginning of period $51.74 $48.10 $38.80 $43.45 $37.74
------ ------ ------ ------ ------
Income from investment operations:
Net investment income 0.76 0.95 1.18 1.09 1.00
Net realized and unrealized
gain (loss) on securities 5.00 6.66 11.27 (4.39) 7.26
------ ----- ----- ----- -----
Total from investment operations 5.76 7.61 12.45 (3.30) 8.26
Less distributions:
Dividends from net
investment income (0.75) (0.95) (1.18) (1.14) (1.00)
Distributions from net
realized gain on securities (6.73) (3.02) (1.91) (0.21) (1.55)
Return of capital - - (0.06) - -
------ ------ ------ ------ ------
Net asset value, end of period $50.02 $51.74 $48.10 $38.80 $43.45
====== ====== ====== ====== ======
Total Return 11.1% 15.8% 32.1% (7.6%) 21.9%
Ratios and Supplemental Data:
Net assets ($000's),
end of period $271,863 $209,878 $161,348 $125,149 $128,443
Ratio of expenses
to average net assets 1.11% 1.12% 1.15% 1.15% 1.17%
Ratio of net investment income
to average net assets 1.41% 2.02% 2.67% 2.71% 2.51%
Portfolio turnover rate 64% 46% 42% 23% 26%
Number of shares outstanding
at end of period (000's) 5,435 4,057 3,354 3,225 2,956
<CAPTION>
Year Ended December 31,
--------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Data:
Net asset value,
beginning of period $76.86 $67.57 $60.74 $46.09 $50.02
------ ------ ------ ------ ------
Income from investment operations:
Net investment income 1.64 1.36 0.83 0.76 0.71
Net realized and unrealized
gain (loss) on securities 11.36 19.12 11.10 20.07 (1.93)
------ ------ ----- ----- -----
Total from investment operations 13.00 20.48 11.93 20.83 (1.22)
Less distributions:
Dividends from net
investment income (1.63) (1.36) (0.83) (0.76) (0.71)
Distributions from net
realized gain on securities (12.86) (9.83) (4.27) (5.42) (2.00)
Return of capital - - - - -
------ ------ ------ ------ ------
Net asset value, end of period $75.37 $76.86 $67.57 $60.74 $46.09
====== ====== ====== ====== ======
Total Return 19.2% 30.2% 19.4% 45.2% (2.4%)
Ratios and Supplemental Data:
Net assets ($000's),
end of period $1,232,319 $824,083 $542,753 $403,526 $247,057
Ratio of expenses
to average net assets 1.06% 1.08% 1.08% 1.11% 1.11%
Ratio of net investment income
to average net assets 2.13% 1.84% 1.32% 1.39% 1.41%
Portfolio turnover rate 65% 31% 24% 31% 45%
Number of shares outstanding
at end of period (000's) 16,350 10,721 8,033 6,643 5,360
</TABLE>
===============================================================================
[CLIPPER FUND(TM) LOGO APPEARS HERE]
STATEMENT OF ADDITIONAL INFORMATION
April 30, 1999
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, 1999. 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, 1999 (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, 1999:
Number of
Shares Owned Percent
Name and Address of Record of Class
--------------------------------- -------------- ----------
Charles Schwab & Co. Inc. (1) 3,699,992 22.4%
Attention: Mutual Fund Department
101 Montgomery Street
San Francisco, California 94104
National Financial Service Corp. (2) 873,941 5.3%
P.O. Box 3908
Church Street Station
New York, N.Y. 10008
Merrill Lynch Group Employee Services (3) 846,998 5.1%
Merrill Lynch Trust Co. TTEF
FBO Qualified Retirement Plans
U/A 01/01/97
265 Davidson Ave. 4th Floor
Somerset, NJ 08873-4120
------------------------
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. National Financial Services Corp. is the nominee for many individual
shareholder accounts; the Fund is not aware of the size or identity
of any of the individual accounts.
3. Merrill Lynch is the trustee for a company sponsored retirement plan.
The plan is the Bozell, Jacobs, Kenyon & Eckhardt, Inc. Profit Sharing
Retirement Plan, 800 Blackstone Centre, 302 South 36th Street, Omaha,
Nebraska 68131.
MANAGEMENT OF THE FUND
The Fund's Board of Directors manages the business and affairs of the Fund
and exercises all corporate powers, except what it delegates to the
management of the Fund. However, the Board retains the power to hold
management accountable for all its actions. Each director is expected to
carry out specific duties under the Investment Company Act of 1940 and
State Statutes, as applicable. The Board may delegate the management
of the day-to-day operation of the Fund to its officers.
Each director owes the corporation a duty of care. The duty of care requires
that a director act with that degree of diligence, care, and skill that a
person of ordinary prudence would exercise under similar circumstances in a
like position and in a manner he or she reasonably believes is in the best
interests of the corporation.
Each director owes a duty of loyalty. The duty of loyalty requires that the
director act in good faith, avoid unfair dealing, and resolve conflicts of
interest in favor of the company and its shareholders.
In addition to these broad duties, these include the selection of the
company's principal officers, the declaration of dividends, the setting of
dates for shareholder meetings, and the setting of record dates for
shareholders entitled to receive dividends or to vote at shareholder meetings.
The directors and officers of the Fund and their principal occupations during
the recent past are shown below.
Principal Occupation(s)
Name, Address, Age Position(s) Held with Fund During Past 5 Years
- ---------------- -------------------------- ------------------------
James H. Gipson* (56) Director, Chairman Mr. Gipson has been
9601 Wilshire Blvd. and President President of PFR, an
Suite 800 investment management
Beverly Hills, CA 90210 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.
Michael Kromm (53) Secretary/Treasurer Mr. Kromm has been with PFR
9601 Wilshire Blvd. since 1990 and is presently
Suite 800 its Operations Manager.
Beverly Hills, CA 90210 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.
Norman B. Williamson (67) Director Mr. Wiliamson had been a
1245 Rosalind Vice President and
San Marino, CA 91108 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 Corp
Lawrence P. McNamee (64) Director Professor McNamee has been
3531 Boelter Hall, UCLA a Professor of Computer
Los Angeles, CA 90024 Science at UCLA since 1966.
F. Otis Booth, Jr. (75) Director Mr. Booth has been a
10877 Wilshire Blvd. private investor and
Suite 1407 rancher from 1973 to the
Los Angeles, CA 90024 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.
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, 1998:
<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
Norman B. Williamson
Director $5,000 None None $5,000
Lawrence P. McNamee
Director $5,000 None None $5,000
F. Otis Booth, Jr.
Director $5,000 None None $5,000
Michael C. Sandler
Vice President None None None None
Michael Kromm
Secretary
and Treasurer None None None None
(a) Total 1998 Compensation from the Registrant and the Fund
Complex consists of compensation paid to directors and trustees
by Clipper Fund, Inc.
</TABLE>
All directors and officers of the Fund as a group (6 persons)
owned beneficially 252,238 shares of the Capital stock on
January 31, 1999, approximating 1.5% of the outstanding shares.
That number consists of an aggregate of 104,325 shares held by the
Pacific Financial Research, Inc. Money Purchase Plan and Trust;
8,876 shares held by the Pacific Financial Research, Employees
Savings Plan, 23,927 shares held by Mr. F. Otis Booth, Jr., 77,544 shares
held by Mr. Gipson, 18,341 shares held by Mr. Williamson in an IRA plan,
2,510 shares held by Mr. & Mrs. Kromm, of which 2,086 are held in an IRA
plan and 11,555 shares held by Professor McNamee, of which 1,309 shares
are held in IRA plans and 10,246 shares are held in Trust, and 5,161
shares are held by Mr. Sandler, of which 1,526 shares are held in IRA plans.
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, 1999.
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 $9,994,778, $6,891,228 and $4,745,682 for the years ended
December 31, 1998, 1997, and 1996, 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 $1,359,729, $316,753, and $254,824, for the years ended
December 31, 1998, 1997, and 1996, respectively. During the year
ended December 31, 1998, the total amount of transactions and
related commissions with respect to which the Fund directed
brokerage transactions was $234,766,071 and $152,378, 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 $152,378, 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, 1998 and for the period since
inception (February 29, 1984), were 19.2%, 21.3%, 17.5%, and
17.8%, 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, 725 South Figueroa Street, Los Angeles,
California, 90017-5418, 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, 1999
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,
1998; Investment Portfolio as of December 31, 1998;
Statement of Operations for the year ended December
31, 1998; Statement of Changes in Net Assets for the
two year period ended December 31, 1998; 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, 1998 for the Fund, filed separately.
Filing Date: March 26, 1999
(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: March 26, 1999
(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: March 26, 1999
(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 10,336
_______________________
**As of January 31, 1999
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 26th Day of March, 1999.
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 March 26, 1999
James H. Gipson President and Director
(Principal Executive Officer)
/s/ Vice President March 26, 1999
Michael C. Sandler
/s/ Secretary, Treasurer March 26, 1999
Michael Kromm (Principal Accounting Officer)
/s/ Director March 26, 1999
F. Otis Booth
/s/ Director March 26, 1999
Norman B. Williamson
/s/ Director March 26, 1999
Lawrence P. McNamee
Exhibit List to the
Registration Statement
of Clipper Fund(TM)
Form N-1A--March 26, 1999
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 26th day of March,
1999 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, 2000. 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.
18 under the Securities Act of 1933 and Amendment No. 18 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 22, 1999 with respect to
the financial statements and financial highlights of Clipper Fund, Inc.
included in its Annual Report for the year ended December 31, 1998 filed
with the Securities and Exchange Commission.
/s/
ERNST & YOUNG LLP
Los Angeles, California
February 26, 1999
<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 Custody 0.04%
Registration 0.00%
Redemption Fee $0.00 Postage 0.00%
----- Other Expenses 0.02%
-----
Exchange Fee N/A
----- Total Fund Operating Expenses 1.06%
-----
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): $1,192 19.2%
------ -----
Three Year (n): $1,856 22.9%
------ -----
Five Year (n): $2,626 21.3%
------ -----
Seven Year (n): $3,379 19.0%
------ -----
Ten Year (n): $5,016 17.5%
------ -----
Since Inception (n): $11,383 17.8%
------ -----
12/31/98
02/29/84
Inception Date of the Fund: February 29, 1984 Years: ---> 14.85
<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%-1.06)% (5)=(3)+(4) (6)=(3)+(5)/2 (7)=(6)(1.06%) (8)
- ----
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $1,000.00 $0.00 $1,000.00 $39.40 $1,039.40 $1,019.70 $10.81 $10.81
2 $1,039.40 $40.95 $1,080.35 $1,059.88 $11.23 $22.04
3 $1,080.35 $42.57 $1,122.92 $1,101.64 $11.68 $33.72
4 $1,122.92 $44.24 $1,167.16 $1,145.04 $12.14 $45.86
5 $1,167.16 $45.99 $1,213.15 $1,190.15 $12.62 $58.47
6 $1,213.15 $47.80 $1,260.95 $1,237.05 $13.11 $71.59
7 $1,260.95 $49.68 $1,310.63 $1,285.79 $13.63 $85.22
8 $1,310.63 $51.64 $1,362.27 $1,336.45 $14.17 $99.38
9 $1,362.27 $53.67 $1,415.94 $1,389.10 $14.72 $114.11
10 $1,415.94 $55.79 $1,471.73 $1,443.83 $15.30 $129.41
</TABLE>
