As filed with the Securities and Exchange Commission on March 2, 1999.
File No. 2-88543
File No. 811-3931
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
Registration Statement Under The Securities Act of 1933 [X]
Pre-Effective Ammendment No. [ ]
Post-Effective Amendment No. 18 [X]
Registration Statement Under The Investment Company Act of 1940 [X]
Amendment No. 18 [X]
______________________
CLIPPER FUND, INC.
(Exact Name of Registrant as Specified in Charter)
9601 Wilshire Boulevard, Suite 800, Beverly Hills, California 90210
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number including Area Code: (800) 776-5033
JAMES H. GIPSON
9601 Wilshire Boulevard, Suite 800
Beverly Hills, California 90210
(Name and Address of Agent for Service)
______________________________
It is proposed that this filing will become effective
(check as appropriate)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on ________, 19__ 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.
Title of Securities Being Registered ____________________
Omit from the facing sheet reference to the other Act if the
Registration Statement or amendment is filed under only one
of the Acts. Include the "Approximate Date of Proposed Public
Offering" and "Title of Securities Being Registered" only
where securities are being registered under the Securities
Act of 1933.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
the Registrant has previously registered shares under the
Securities Act of 1933. Registrant filed a Rule 24f-2 Notice for
its fiscal year ended December 31, 1998 on or before February 28, 1999.
______________________________
Please Send Copy of Communications to:
Julie Allecta, Esq.
c/o Paul Hastings, Janofsky & Walker LLP
333 Bush Street
San Francisco, California 94104 (415) 772-6000
CLIPPER FUND, INC.
CROSS REFERENCE SHEET
(as required by Rule 404)
N-1A
ITEM NO. ITEM LOCATION
- -------- ---- --------
PART A: INFORMATION REQUIRED IN THE PROSPECTUS
Item 1. Cover Page. . . . . . . . . . . . . . . . . Cover Page
Item 2. Synopsis. . . . . . . . . . . . . . . . . .. Synopsis; Expense Table
Item 3. Condensed Financial Information. . . . . . . Financial Highlights
Item 4. General Description of Registrant. . . . . . Synopsis;
Investment Advisory
and Other Services;
Investment Objective
and Policies;
Additional Information
Item 5. Management of the Registrant. . . . . . . . . Management; Investment
Advisory and
Other Services;
Back Cover Page
Item 6. Capital Stock and Other Securities. . . . . . Description of
Capital Stock;
Dividends, Distributions
and Taxes;
Additional Information
Item 7. Purchase of Securities Being Offered. . . . . Purchase of Shares;
Determination of
Net Asset Value;
Purchase of Shares
Item 8. Redemption or Repurchase. . . . . . . . . . . Redemption of Shares:
Telephone Redemptions
Item 9. Pending Legal Proceedings . . . . . . . . . . Not Applicable
PART B: INFORMATION REQUIRED IN THE STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page . . . . . . . . . . . . . . . . . Cover Page
Item 11. Table of Contents. . . . . . . . . . . . . . Table of Contents
Item 12. General Information and History . . . . . . . Not Applicable
Item 13. Investment Objectives and Policies. . . . . . Investment Objective
and Policies
Item 14. Management of the Registrant. . . . . . . . . Prospectus-
Management of the Fund
Item 15. Control Persons and
Principal Holders of Securities . . . . . . . Principal Holders
of Securities
Item 16. Investment Advisory and Other Services. . . . Prospectus-Investment
Advisory and Other
Services; Statement
-Back Cover Page;
Investment Advisory
and Other Services;
Item 17. Brokerage Allocation and Other Practices. . . Brokerage Allocation
and Other Practices
Item 18. Capital Stock and Other Securities. . . . . . Prospectus-
Redemption of Shares;
Telephone Redemptions
Statement-Additional
Information
Capital Stock and
Other Securities
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered. . . . . . . . . Prospectus-
Purchase of Shares
Statement-Purchases,
Redemption and Pricing
of Shares being Offered
Item 20. Tax Status . . . . . . . . . . . . . . . . . Prospectus-Dividends,
Distributions and Taxes
Statement-Tax Status
Item 21. Underwriters. . . . . . . . . . . . . . . . . Not Applicable
Item 22. Calculation of Performance Data. . . . . . . Performance Information
Item 23. Financial Statements. . . . . . . . . . . . . Financial Statements
PART C: OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
[CLIPPER FUND(TM) LOGO APPEARS HERE]
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, are significantly undervalued.
There can be no assurance the Fund will achieve its stated objective.
Keep this Prospectus for future reference. It contains information that you
should know before you invest. A "Statement of Additional Information" (SAI)
containing additional information about the Clipper Fund has been filed with
the Securities and Exchange Commission. The SAI is dated April 30, 1999 and
has been incorporated by reference into this Prospectus. For a free copy of
the SAI contact Pacific Financial Research, Inc. at 1-800-776-5033.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISION, 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.
FUND EXPENSES
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 "PURCHASES 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.
PROSPECTUS SUMMARY
Please read the complete Prospectus carefully before investing. If you have
any questions after reading the Prospectus, please contact Pacific Financial
Research, Inc. at 1-800-776-5033.
INVESTMENT ADVISER
Pacific Financial Research, Inc., the investment adviser to the Fund (the
"Adviser"), has been in the investment management business since 1980. The
Adviser provides investment advice to corporate pension funds, endowments,
foundations, and individuals. The Adviser currently manages over $5.5 billion
in assets (see "INVESTMENT ADVISER").
PURCHASE OF SHARES
Shares of the Fund are offered by the Fund to investors at net asset value
without a sales commission. Share purchases may be made by sending investments
directly to the fund. The minimum initial investment is $5,000. The minimum
for subsequent investments is $1000. The minimum initial investment for IRA
accounts is $2,000. The minimum initial investment for spousal IRA accounts
is $200. Certain exceptions to the initial or minimum investment amounts may
be permitted by the officers of the Fund. (See "PURCHASE OF SHARES")
DIVIDENDS AND DISTRIBUTIONS
The Fund will normally distribute substantially all of its net investment
income and any realized net capital gains annually. Distributions will be
reinvested in Fund shares automatically unless an investor elects to receive
cash distributions. (See "DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES.")
REDEMPTIONS
Shares of the Fund may be redeemed at any time, without cost, at the net
asset value of the Fund next determined after receipt of the redemption
request. The redemption price may be more or less than the purchase price
(See "REDEMPTION OF SHARES").
RISK FACTORS
The value of a Fund's shares will fluctuate in response to changes in market
and economic conditions as well as the financial conditions and prospects of
the issuers in which a Fund invests. Prossective investors should consider
the following:
(1) the Fund may invest in securities of foreign issuers,
which will be subject to additional risk factors not
applicable to securities of U.S. issuers (See INVESTMENT
POLICIES - FOREIGN INVESTMENTS").
(2) in general, the Fund will not trade for short-term
profits, but when circumstances warrant, investments may
be sold without regard to the length of time held. High
rates of Fund turnover may result in additional transaction
costs and the realization of capital gains (See "FUND TURNOVER").
(3) the Fund may use various investment practlces, including
investing in repurchase agreements, when issued, forward
delivery and delayed settlement securities and lending of
securities (See "OTHER INVESTMENT POLICIES").
(4) since the Fund is non-diversified and may invest in a
smaller number of issuers, the value of the Fund's shares
may fluctuate more than other mutual funds because of changes
in financial condition or market assessment of a single issuer.
INVESTMENT OBJECTIVE
The objective of the Fund is to provide long-term capital growth.
The Fund seeks to achieve its objective by investing in a concentrated
portfolio of stocks that, in the opinion of the Adviser, are undervalued.
There can be no assurance that the Fund will achieve its stated objective.
INVESTMENT POLICIES
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. Among such investments,
the Fund will emphasize the purchase of common stock, convertible long-term
corporate debt obligations, convertible preferred stock, and warrants that
the Adviser believes are undervalued and appear to offer the potential of
furthering the Fund's goal of long-term capital growth.
Balance sheet strength and the ability to generate earnings and free cash
flow are the major factors in appraising an investment, and little weight
is given to current dividend income. Investors should understand that market
risks are inherent in all securities in varying degrees. Therefore, there
can be no assurance that the Adviser will be successful in meeting the
investment objective of the Fund.
As to any specific investment, 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 transaction and discounted cash flow valuations.
The Adviser focuses on dominant companies generating excess cash flow with
good management in industries that are often "out-of-favor" in the investment
community. However, there can be no assurance that the judgement of the
Adviser as to intrinsic value is correct.
Companies are only added to the Fund when their share price trades below
the Adviser's estimate of intrinsic value. Companies are sold when their
share price reaches the Adviser's estimate of intrinsic value. The
investment discipline is no guarantee by the Adviser against a loss of capital.
The Adviser believes that concentrated portfolios produce superior long-term
performance. The Adviser concentrates on its best investment ideas; therefore,
the Fund will be more concentrated than the average equity fund. The Fund is
defined as a "non-diversified" mutual fund. (See "INVESTMENT LIMITATIONS".)
The Fund generally contains between 15 and 35 stocks. These positions are
generally held for extended periods in time.
The Fund may invest in special situations in which the Adviser believes the
value of the securities of the particular company will appreciate within a
reasonable period because of unique circumstances applicable to that company.
Special situations affect companies of all sizes and generally occur regardless
of general business conditions or movements of the market as a whole. Special
situations might include liquidations, reorganizations, recapitalizations,
mergers or temporary financial liquidity restraints, material litigation,
technological breakthroughs or temporary production or product introduction
problems, natural disaster, sabotage or employee error, new management or
management policies, or any other events that could change or temporarily
hamper the ongoing operations of a company. Special situations often involve
much greater risk than is inherent in ordinary investment securities. Of
course, 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.
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
SHORT-TERM INVESTMENTS
In order to earn a return on uninvested assets, meet anticipated redemptions,
or for temporary defensive purposes, the Fund may invest a portion of its
assets in domestic and foreign money market instruments including 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-l 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 a Fund. Each 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.
REPURCHASE AGREEMENT
The Fund may invest in repurchase agreements collateralized by U.S.
Government securities, certificates of deposit, and certain bankers'
acceptances and other securities outlined above under "SHORT-TERM
INVESTMENTS." 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. For example, a default by the seller of the agreement may
cause the Fund to experience a loss or delay in the liauidation of the
collateral securing the repurchase agreement. The Fund might also incur
disposition costs in liauidating the collateral. While the Fund's management
acknowledges these risks, it is expected that they can be controlled through
stringent security selection criteria and careful monitoring procedures.
LENDING OF SECURITIES
The Fund may lend its investment securities to qualified institutional
investors as a means of earning income. The Fund will not loan securities
to the extent that greater than one-third of its total assets at fair
market value would be committed to loans. During the term of a loan, the
Fund is subject to a gain or loss depending on any increase or decrease
in the market price of the securities loaned. Lending of securities is
subject to review by the Fund's Board of Trustees. All relevant facts
and circumstances, including the creditworthiness of the broker, dealer
or institution, will be considered by the Adviser in making decisions
about securities lending.
An investment company may pay reasonable negotiated fees in connection
with loaned securities so long as such fees are set forth in a written
contract and approved by its Board of Trustees. The Fund will continue to
retain any voting rights with respect to loaned securities. If a material
event occurs affecting an investment on loan, the loan must be called and
the securities voted.
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. (See "DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES" for more
information on taxation.) 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 closed-end 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.
FOREIGN SECURITIES
Investing in foreign securities, including ADR's, may involve additional
risks and considerations which are not typically associated with investing
in securities issued by U.S. companies. Since stocks of foreign companies
are normally denominated in foreign currencies, the Fund may be affected
favorably or unfavorably by changes in currency rates and exchange control
regulations, and may incur costs in connection with conversions between
various currencies.
As non-U.S. companies are not generally subject to uniform accounting,
auditing and financial reporting standards and practices comparable to
those applicable to U.S. companies, comparable information may not be
readily available about certain foreign companies. Securities of some non-U.S.
companies may be less liquid and more volatile than securities of comparable
U.S. companies. There is generally less government supervision and
regulation of stock exchanges, brokers and listed companies than in the U.S.
In addition, in certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability,
or diplomatic developments that could affect U.S. investments in those
countries. Additionally, there may be difficulty in obtaining and enforcing
judgements against foreign issuers.
ADR's are securities, typically issued by a U.S. financial institution
(a "depositary"), that evidence ownership interests in a security or pool of
securities by a foreign issuer (the "underlying issuer~) and deposited with
the depositary. While ADR's are U.S. dollar-denominated, the underlying
companies are still subject to the risks above.
ADR's may be "sponsored" or "unsponsored." Sponsored ADR's are established
jointly by a depositary and the underlying issuer, whereas unsponsored ADR's
may be established by a depositary without participation by the underlying
issuer. Holders of an unsponsored ADR generally bear all the costs associated
with establishing the unsponsored ADR. The depositary of an unsponsored ADR
is under no obligation to distribute shareholder communications received
from the underlying issuer or to pass through to the holders of the
unsponsored ADR voting rights with respect to the deposited security or
pool of securities.
Except as specified above and as described under "INVESTMENT LIMITATIONS,"
the foregoing investment policies are non-fundamental and the Trustees may
change such policies without an affirmative vote of a majority of the
outstanding voting securities of the Fund, as defined in the Investment
Company Act of 1940 ("1940 Act").
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 objectives of the Fund are non-fundamental and may be changed
without shareholder approval. Except for limitations (b), (c) and (d)(1),
the Fund's investment limitations and policies described in this Prospectus
and in the SAI are non-fundamental and my be changed by the Fund's Board of
Trustees upon reasonable notice to investors. All other investment
limitations described in here and in the SAI are fundamental policies
and may be changed only with the approval of the holders of a majority of
the outstanding shares of the Fund. If a percentage limitation on investment
or utilization of assets as set forth above is adhered to at the time
an investment is made, a later change in percentage resulting from changes
in the value or total cost of the Fund's assets will not be considered a
violation of the restriction.
The Fund is a "non-diversified" mutual fund and therefore is not required to
meet any diversification requirements under the Investment Company Act of
1940, as amended. The Fund nevertheless intends to comply with the
diversification standards applicable to regulated investment companies under
the Internal Revenue Code of 1986, as amended ("the Code").
PURCHASE OF SHARES
Shares of the Fund are offered directly from the Fund, without a sales
commission at the net asset value per share next determined after an order is
received by the Fund and payment is received by the Custodian. (See
"VALUATION OF SHARES.") The minimum initial investment required is $5,000.
The minimum initial investment for IRA accounts is $2,000. Certain exceptions
may be permitted by the officers of the Fund.
Shares of the Funds may be purchased by customers of brokers-dealers or
other financial intermediaries ("Service Agents") which 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. Each Service Agent is responsible for transmitting to its
customers a schedule of any such fees and information regarding additional
or different purchase or redemption conditions. Shareholders who are
customers of Service Agents should consult their Service Agent for
information regarding these fees and conditions. Amounts paid to Service
Agents may include transaction fees and/or service fees paid by the fund
from the Fund assets attributable to the Service Agent, which would not be
imposed if shares of the Fund were purchased directly from the Fund or the
Distributor. Service Agents may provide shareholder services to their
customers that are not available to a shareholder dealing directly with the
Fund. A salesperson and any other person entitled to receive compensation for
selling or servicing Fund shares may receive different compensation with
respect to one particular class of shares over another in the Fund.
Service Agents, or if applicable, their designees, that have entered into
agreements with the Fund or its agent may enter confirmed purchase or
redemption orders on behalf of clients and customers, with payment to
follow no later than the Fund's pricing on the following business day. If
payment is not received by National Financial Data Services, Inc. by such
time, the Service Agent could be held liable for resulting fees or losses.
The Fund may be deemed to have received a purchase or redemption order when a
Service Agent, or, if applicable, its authorized designee, accepts the order.
Orders received in proper form will be priced at the Fund's net asset value
next computed after they are accepted by the Service Agent or its
authorized designee. Service Agents are responsible to their customers and
the Fund for timely transmission of all subscription and redemption requests,
investment information, documentation and money.
INITIAL INVESTMENTS
BY MAIL
Complete and sign an Account Registration Form and mail it together with a
check made payable to "Clipper Fund" to:
The Clipper Fund
C/O National Financial Data Services, Inc.
P.O. Box 419152
Kansas City, MO 64141-6152
Payment for purchases of shares received by mail will be credited to an
account at the next share price calculated for the Fund after receipt. The
Fund will not accept third-party checks to purchase shares. If you purchase
shares by check, please be sure that your check is made payable to
"Clipper Fund."
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, in its sole discretion, 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 interests 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
determine 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 not be issued except at the written request of the
shareholder.
REDEMPTION OF SHARES
Shares may be redeemed by mail or telephone at any time, at the net asset
value of the Fund next determined after receipt of the redemption request.
Any redemption may be more or less than the purchase price of the shares
depending on the market value of investment securities held by the Fund.
BY MAIL
Address requests for redemption to the Clipper Fund(TM), c/o National
Financial Data Services, Inc. Requests to redeem shares must include:
(a) share certificates, if issued;
(b) a letter of instruction or an assignment 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) any required signature guarantees (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
A redemption request by telephone requires the following:
(a) establish the telephone redemption privilege by
completing appropriate sections of the Account
Registration Form;
(b) call the Fund and instruct that the redemption proceeds
be mailed to your bank.
The following tasks cannot be accomplished by telephone:
(a) changing the name of the commercial bank or the account
designated to receive redemption proceeds (this can be
accomplished only by a written request signed by each
shareholder, with each signature guaranteed);
(b) redemption of certificated shares.
The Fund and its transfer and servicing agent, (NFDS), will employ reasonable
procedures to confirm that instructions communicated by telephone are
genuine, and they may be liable for any losses if they fail to do so. These
procedures include requiring the investor to provide certain personal
identification at the time an account is opened, as well as prior to
effecting each transaction requested by telephone. In addition, all telephone
transaction requests will be recorded and investors may be required to
provide additional telecopied written instructions of such transaction
requests. The Fund or NFDS may be liable for any losses due to unauthorized
or fraudulent telephone instructions if the Fund or NFDS do not employ the
procedures described above. Neither the Fund nor NFDS will be responsible for
any loss, liability, cost or expense for following instructions received by
telephone that it reasonably believes to be genuine.
SIGNATURE GUARANTEES
Signature guarantees are required for redemptions:
Signature guarantees will be accepted from any eligible guarantor institution
which participates in a signature guarantee program. Eligible guarantor
institutions include banks, brokers, dealers, credit unions, national
securities exchanges, registered securities exchanges, registered securities
associations, clearing agencies and savings associations. Broker-dealers
guaranteeing signatures must be a member of a clearing corporation or
maintain net capital of at least $100,000. Credit unions must be authorized
to issue signature guarantees.
OTHER REDEMPTION INFORMATION
The Fund ordinarily will make payment for all shares redeemed within seven
days after receipt by National Financial Data Services, Inc. or a redemption
request in proper form. Although the Fund will redeem shares purchased by
check before the check clears, payment of the redemption proceeds may be
delayed for a period of up to fifteen days after their purchase, pending
determination that the check has cleared. Investors should consider
purchasing shares using a certified or bank check or money order if they
anticipate an immediate need for redemption proceeds. The Fund may suspend
the right of redemption or postpone the date at times when either the NYSE
and Custodian Bank are closed, or under any emergency circumstances determined
by the SEC.
If the Board of Directors determines that it would be detrimental to the best
interests of remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay redemption proceeds in whole or in part by a
distribution in-kind of liquid securities held by a 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.
The Fund reserves the right to liquidate any account that is below the
required minimum initial investment amount as set forth in the Prospectus
where the reduction in value has occurred due to a redemption out of the
account. If at any time your total investment does not have a value of at
least the required minimum initial investment amount, you may be notified
that the value of your account is below the Fund's minimum account balance
requirement. You would then be allowed 60 days to make an additional
investment before the account is liquidated. Retirement accounts and certain
other accounts will not be subject to automatic liquidation. Reductions in
value that result solely from market activity will not trigger an involuntary
redemption.
SHAREHOLDER SERVICES
AUTOMATIC INVESTMENT PLAN
An Automatic Investment Plan permits shareholders of the Fund with a minimum
value of $5,000 or more to purchase shares automatically ($150 minimum
monthly investment) at regular intervals selected by the shareholder.
Provided the shareholder's bank or other financial institution allows automatic
withdrawals, shares are purchased by transferring funds via the Automated
Clearing House ("ACH"). Investment made through ACH will be automatically
transferred from a shareholder's checking, bank money market or NOW account
designated by the shareholder. Such withdrawals are made electronically, if
the shareholder's bank or financial institution so permits, or by pre-
authorized checks or drafts drawn on the shareholder's bank or other account.
The bank or financial institution must be a member of ACH. At the
shareholder's option, the account designated will be debited in the specified
amount, and shares will be purchased monthly or quarterly.
To establish an Automatic Investment Plan, a shareholder must complete the
Optional Services Form available from the National Financial Data Services,
Inc. at 1-800-432-2504 and mail it to Clipper Fund(TM) c/o National Financial
Data Services, Inc. A shareholder may cancel his/her participation or change
the amount of purchase at any time by mailing written notification to Clipper
Fund(TM) c/o National Financial Data Services, Inc., P.O. Box 419152, Kansas
City, MO 64179-9836. Notification generally will be effective three business
days following receipt. The Fund may modify or terminate this privilege at
any time, or may charge a service fee, although no such fee is contemplated.
SYSTEMATIC WITHDRAWAL PLAN
Any shareholder whose account balance totals at least $10,000 may establish
a Systematic Withdrawal Plan under which an amount pre-determined by the
shareholder ($150 minimum monthly withdrawal) is automatically redeemed from
the shareholder's account either monthly, quarterly, semi annually or
annually. A shareholder may participate in the Systematic Withdrawal Plan
by using ACH. Redemption made through ACH will be automatically transferred to
the shareholder's bank or other similar financial institution account or a
properly designated third party. The bank or financial institution must be a
member of ACH. Redemptions ordinarily are made on the third business day of
the month and payments ordinarily will be transmitted within five business
days after the redemption date. Because the prices of Fund shares fluctuate,
the number of shares redeemed to finance systematic withdrawal payments of a
given amount will vary from payment to payment. A Systematic Withdrawal Plan
may be terminated or suspended at any time by the Fund. A shareholder may
elect at any time, in writing, to terminate participation in the Systematic
Withdrawal Plan. Such written election must be sent to and received by the Fund
before a termination becomes effective. There is currently no charge to the
shareholder for a Systematic Withdrawal Plan.
INDIVIDUAL RETIREMENT ACCOUNTS (IRA)
Traditional IRA plans are available to individuals whether or not they
participate in other qualified reetirement plans. An individual under age
70 1/2 generally may contribute into an IRA each year the lesser of $2,000
or 100% of compensation. The contribution may or may not be tax deductible
depending on the individual's adjusted gross income and other factors. If the
contribution is deductible, it is not taxed until it is later distributed.
Whether or not the contribution is deductible, earnings from such contributions
generally will still be tax-deferred. There is generally a 10% penalty tax on
early distributions other than for death or disability before age 59 1/2.
An investor should contact the Fund for further information concerning IRA
plan investments. A package describing both the traditional IRA and ROTH IRA
are available upon request. A brochure describing the above plan and materials
for establishing an IRA account are available upon request. A required
disclosure statement describing relevant tax and other information will be
provided with the appropriate forms and instructions, all of which should be
read carefully. The investor's tax adviser should be consulted as well.
State Street Bank and Trust Company has agreed to act as trustee for plans
that invest in the Fund for a fee of $10 a year per participant account.
Beginning January 1, 1998, the ROTH IRA is now available. A ROTH IRA can be
used instead of a Regular IRA, to replace an existing Regular IRA, or
complement a Regular IRA. Please consult with your tax professional to
determine which IRA is right for you. Please note that we require a $2,000
minimum to open an IRA.
VALUATION OF 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
attributable to the Fund. The net asset value per share of the Fund is
determined daily following the close of regular trading on the New York
Stock Exchange (NYSE), which currently is 4:00 p.m., Eastern Time, or
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
Trustees 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 Trustees.
PERFORMANCE CALCULATIONS
The Fund measures performance by calculating yield and total return. Both
yield and total return figures are based on historical earnings and are not
intended to indicate future performance. Yield and total return are calculated
separately for each class of a Fund.
Yield refers to the income generated by an investment in the Fund over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all funds. As this
differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.
Total return is the change in value of an investment in the Fund over a
given period, assuming reinvestment of any dividends and capital gains.
A cumulative or aggregate total return reflects actual performance over
a stated period of time. An average annual total return is a hypothetical
rate of return that, if achieved annually, would have produced the same
cumulative total return if performance had been constant over the entire
period.
The Fund's performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data
reported in financial and industry publications, and various indices as
further described in the Fund's SAI. This information may also be included
in sales literature and advertising.
The Fund's Annual Report to Shareholders for the most recent fiscal year
end contains additional performance information that includes comparisons
with appropriate indices. The Annual Report is available without charge.
Contact National Financial Data Services, Inc. at the address or telephone
number on the cover of this Prospectus.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Fund will normally distribute substantially all of its net investment
income and any realized net capital gains, to shareholders annually.
All dividends and capital gains distributions will be automatically reinvested
in additional shares unless the Fund is notified in writing that the
shareholder elects to receive the distributions in cash.
FEDERAL TAXES
The Fund intends to qualify as a "regulated investment company" under
subchapter M of the Internal Revenue Code of 1986, as amended, for federal
income tax purposes and to meet all other requirements that are necessary
for it (but not its shareholders) to be exempt from federal taxes on income
and gains paid to shareholders in the form of dividends. To do this, the
Fund must, among other things, distribute substantially all of its
ordinary income and net capital gains on a current basis and maintain a
portfolio of investments which satisfies certain diversification criteria.
Dividends paid by the Fund from net investment income, whether in cash or
reinvested in shares, are taxable to shareholders as ordinary income.
Short-term capital gains will be taxed as ordinary income. Long-term capital
gains distributions are taxed as long-term capital gains. Shareholders will
be notified annually of dividend income earned for tax purposes.
The Fund is required by federal law to withhold 31% of reportable payments
paid to shareholders who have not yet complied with IRS regulations. In order
to avoid this withholding requirement, you must certify that your Social
Security or Taxpayer Identification Number you have provided is correct and
that either you are not currently subject to backup withholding or you are
exempt from backup withholding. This certification must be made on the
Account Registration Form or on a separate form supplied by the Fund.
Dividends and interest received by the Fund may give rise to withholding and
other taxes imposed by foreign countries. These taxes reduce dividends but
are included in the taxable income reported on your tax statement if the
Fund qualifies for this tax treatment and elects to pass it through to you.
Consult a tax adviser for more information regarding deductions and credits
for foreign taxes.
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 $6.6 billion in assets under management.
The Fund is managed by a team of investment professionals. This team is
primarily responsible for the day-to-day management of the Fund and a
description of their academic background and business experience follows:
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". Jim is President 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. Michael is a member
of the Iowa Bar. He joined PFR as an analyst in 1984. He currently
serves as Vice President and Fund 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 Fund 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. He was a General Motors Scholar and worked for
General Motors as a design analysis engineer. Doug joined PFR as an analyst
in 1986. He currently serves as Vice President and Fund 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 Management Center at the
Claremont Graduate School. He joined PFR as Research Associate in 1987.
He currently serves as Vice President and Fund 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 Trustees.
As compensation for its services as an Adviser, the Fund pays the Adviser an
annual fee in monthly installments of 1% of the Fund's average daily net
assets.
ADVISER'S HISTORICAL PERFORMANCE
Below are financial highlights of the Fund's performance provided by the
Adviser. The Financial highlights have been audited by Ernst & Young LLP,
independent auditors, whose report covering the most recent five years is
incorporated by reference in the Statement of Additional Information.
FINANCIAL HIGHLIGHTS
The financial highlights have been audited by Ernst & Young LLP, independent
auditors, whose report covering the most recent five years is incorporated by
reference in the Statement of Additional Information. The financial highlights
should be read in conjunction with the Fund's latest annual financial
statements, including the related notes, which are also incorporated by
reference in the Statement of Additional Information.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
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
Average commission rate
(cents per share) N/A N/A N/A N/A N/A
<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
Average commission rate
(cents per share) $0.046 $0.048 $0.049 $0.050 -
</TABLE>
FUND TRANSACTIONS
The Advisory Agreement authorizes the Adviser to select the brokers or
dealers that will execute the purchases and sales of investment securities
for the Fund. The Agreement directs the Adviser to use its best efforts to
obtain the best available price and most favorable execution for all
transactions of the Fund. If consistent with the interests of the Fund, the
Adviser may select brokers on the basis of research, statistical and
pricing services these brokers provide to the Fund in addition to required
Adviser services. Such brokers may be paid a higher commission than that
which another qualified broker would have charged for effecting the same
transaction. These commissions will be paid by the Fund in compliance with
the Securities Exchange Act of 1934, as amended. The Adviser will determine,
in good faith, that the commission is reasonable in terms either of the
transaction or the overall responsibility of the Adviser to the Fund and the
Adviser's other clients. Although not a typical practice, the Adviser may
place Fund orders with qualified broker-dealers who refer clients to the
Adviser.
If a purchase or sale of securities with the investment policies of the Fund
and one or more other clients served by the Adviser are considering a purchase
at or about the same time, transactions in such securities will be allocated
among the Fund and clients in a manner deemed fair and reasonable by the
Adviser. Although there is no specified formula for allocating such
transactions, allocations are subject to periodic review by the Fund's
Trustees.
ADDITIONAL INFORMATION
The Fund was incorporated in California on December 1, 1983.
Each of the Fund's capital shares is redeemable and has equal dividend,
distribution, liquidation, and voting rights. The Fund currently intends to
have annual shareholder meetings. Shareholders are entitled to one vote per
share on all matters voted on by Fund shareholders, except that cumulative
voting rights apply if properly asserted in the election of directors.
Please refer to "Capital Stock and Other Securities" in the Statement of
Additional Information.
No person has been authorized to give any information or to make any
representation with respect to the Fund other than those contained in the
Prospectus, and information or representations not herein contained, if
given or made, must not be relied upon as having been authorized by the Fund.
This Prospectus does not constitute an offer to sell or a solicitation of
an offer to buy in any jurisdiction to any person to whom it is unlawful to
make such offer or solicitation in such jurisdiction.
The Fund's Annual Report for tthe fiscal year ended December 31, 1998
contains additional performance information. This Annual Report is available
without charge upon request.
CUSTODIAN
State Street Bank and Trust Company serves as Custodian of the Fund's assets.
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP serves as the independent auditor for the Fund.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be made by contacting the Funds transfer and
shareholder servicing agent, National Financial Data Services, Inc.
at the address or telephone number on the cover of this Prospectus.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus, or in the Fund's
Statement of Additional Information, in connection with the offering made
by this Prospectus and, if given or made, such information or representations
must not be relied upon as having been authorized by the Fund. This Prospectus
does not constitute an offering by the Fund in any jurisdiction in which such
offering may not lawfully be made.
==============================================================================
CLIPPER FUND(TM)
9601 Wilshire Boulevard
Beverly Hills, California 90210 CLIPPER FUND(TM)
Telephone (800) 776-5033
Shareholder Services
& Audio Response (800) 432-2504
Internet: www.clipperfund.com
SEC File No. 811-3931
INVESTMENT ADVISER [CLIPPER FUND(TM) LOGO APPEARS HERE]
Pacific Financial Research
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
Overnight Address:
330 W. 9th Street, 4th Fl.
Kansas City, MO 64105
CUSTODIAN P R O S P E C T U S
State Street Bank and Trust Company
April 30, 1999
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
INDEPENDENT AUDITORS
Ernst & Young LLP
===============================================================================
[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 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 2, 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 2, 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 2, 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 2nd 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 2, 1999
James H. Gipson President and Director
(Principal Executive Officer)
/s/ Vice President March 2, 1999
Michael C. Sandler
/s/ Secretary, Treasurer March 2, 1999
Michael Kromm (Principal Accounting Officer)
/s/ Director March 2, 1999
F. Otis Booth
/s/ Director March 2, 1999
Norman B. Williamson
/s/ Director March 2, 1999
Lawrence P. McNamee
Exhibit List to the
Registration Statement
of Clipper Fund(TM)
Form N-1A--March 2, 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>
