As filed with the Securities and Exchange Commission on May 1, 2000.
File No. 2-88543
File No. 811-3931
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
Registration Statement Under The Securities Act of 1933 [X]
Pre-Effective Ammendment No. [ ]
Post-Effective Amendment No. 19 [X]
and/or
Registration Statement Under The Investment Company Act of 1940 [X]
Amendment No. 19 [X]
(Check appropriate box or boxes.)
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CLIPPER FUND, INC.
(Exact Name of Registrant as Specified in Charter)
9601 Wilshire Boulevard, Suite 800, Beverly Hills, California 90210
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (800)776-5033
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JAMES H. GIPSON
9601 Wilshire Boulevard, Suite 800
Beverly Hills, California 90210
(Name and Address of Agent for Service)
Copy to:
Julie Allecta, Esq.
c/o Paul Hastings, Janofsky & Walker LLP
345 California St. 29th Floor
San Francisco, California 94104-2635
(415) 835-1606
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Approximate Date of Proposed Public Offering:
Not applicable
It is proposed that this filing will become effective
(check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on (May 1, 2000) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
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[CLIPPER FUND(SM) LOGO APPEARS HERE]
CLIPPER FUND(SM)
P R O S P E C T U S
May 1, 2000
This Prospectus outlines information you should know before purchasing
fund shares. You should read and retain this Prospectus for future reference.
The Securities and Exchange Commission has not approved or disapproved
of these securities or passed on the accuracy or adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
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TABLE OF CONTENTS
Risk/Return Summary
Investment Objective/Goals
Principal Investment Strategies
Principal Risks of Investing
Fees and Expenses
Investment Objectives, Principal Investment Strategies and Related Risks
Investment Objectives
Principal Investment Strategies
Investment Philosophy and Process
Related Risks
Management and Organizational
Investment Adviser to the Fund
Portfolio Managers of the Fund
Shareholder Information
Pricing of Fund Shares
Types of Accounts
Purchase of Fund Shares
Redemption of Fund Shares
Dividends and Distributions
Optional Shareholder Services
Financial Highlights
Investment Objective/Goals
Clipper Fund (the "Fund") is a non-diversified, open-end
management investment company. The objective of the fund is to
provide long-term growth of capital and capital preservation.
This objective is fundamental to the Fund and cannot be changed
without shareholder approval.
Principal Investment Strategies
The Fund seeks to achieve its objectives by concentrating
investments in securities that, in the opinion of the Adviser, are
significantly undervalued. Among such investments, the Fund will
emphasize the purchase of common stock, convertible long-term
corporate debt obligations, convertible preferred stock, and
warrants that the Investment Adviser believes are undervalued and
appear to offer the potential of furthering the Fund's goal of
long-term capital growth.
The Fund may invest in special situations that the Adviser
believes present opportunities for capital growth. A special
situation arises, when in the opinion of the Adviser, the
securities of a particular company will, within a reasonable
estimated period of time, be accorded market recognition at an
appreciated value solely by reason of a development particularly
or uniquely applicable to that company and regardless of general
business conditions or movements of markets as a whole.
If the Adviser is unable to find investments selling at a discount
to their intrinsic value, a significant portion of the Fund's
assets may be invested in cash, similar investments, and bonds. In
the past, the Fund has held as little as 39% of its assets in
equities.
Principal Risks of Investing
The biggest risk is that the Fund's returns may vary, and you
could lose money. If you are considering investing in the Fund,
remember that it is designed for long-term investors who can
accept risks of investing in a concentrated portfolio of
significantly undervalued securities. Common stocks tend to be
more volatile than other investment choices.
The value of the Fund's portfolio may decrease if the share price
of one or more individual companies in the portfolio decreases.
The value of the Fund's portfolio could also decrease if the stock
market goes down. If the value of the Fund's portfolio decreases,
the Fund's net asset value (NAV) may also decrease, which means if
you sell your shares in the Fund you would get back less money
than you originally invested.
The Fund concentrates its investments in securities of companies
that are significantly undervalued relative to the long-term
intrinsic value of the enterprise itself, or in special
situations. Because of this, companies in its portfolio may share
common characteristics and react similarly to market developments.
All securities in which the Fund may invest are inherently subject
to market risk, and the market value of the Fund's investments
will fluctuate. Accordingly, there can be no assurance that the
Fund will achieve its goal of long-term growth of capital with
respect to such investments because any perceived intrinsic values
may never be reflected in the market price of such securities.
Because the Fund from time to time may have a large cash and cash
Equivalent position, it may not do as well as a more fully
invested
Fund.
An investment in the Fund is not a bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
The following information illustrates how the Fund's performance
has varied over time. The bar chart depicts the change in
performance from year-to-year during the period indicated. The
table compares the Fund's average annual returns for the periods
indicated to a broad-based securities index market.
RETURNS
The bar chart and table below provide an indication of the risks
of investing in the Fund by showing changes in the Fund's
performance from year to year over a 10 year period and by showing
how the Fund's average annual returns for one, five, and ten years
compare to those of a broad-based securities market index. How the
Fund performed in the past is not necessarily an indication of how
the Fund will perform in the future.
[BAR CHART]
Clipper Fund(SM)
1990 -7.60%
1991 32.09%
1992 15.83%
1993 11.13%
1994 -2.40%
1995 45.19%
1996 19.40%
1997 30.17%
1998 19.20%
1999 -2.02%
During the 10 year period shown in the bar chart, the highest
return for a quarter was 14.2% (quarter ending June 1997) and the
lowest return for a quarter was -15.6% (quarter ending September
1990)
PERFORMANCE TABLE
Average Annual Total Returns
(for the period ending December 31, 1999)
One Year 5 Years 10 Years Inception**
-------- ------- ------- ---------
Clipper Fund(SM) -2.02% 21.4% 15.0% 16.5%
S&P 500* 21.0% 28.6% 18.2% 18.6%
*The S&P 500 Index is an unmanaged index of 500 companies widely
recognized as representative of the equity market in general.
**Inception Date: 2/29/84
Fees and 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 "PURCHASE OF FUND SHARES.")
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
Management Fees 1.00%
Other Expenses 0.10%
----
Total Annual Fund Operating Expenses 1.10%
====
Example
This example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the
time periods indicated and then redeem all of your shares at the
end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund's operating
expenses remain the same. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Clipper Fund $112 $350 $606 $1,340
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.
Investment Objectives, Principal Investment Strategies, and Related Risks
This section takes a closer look at the investment objectives of
the Fund, the principal investment strategies and certain risks of
investing in the Fund. Strategies and policies that are noted as
"fundamental" cannot be changed without a shareholder vote.
Please carefully review the "RELATED RISKS" section of this prospectus
on page 9 for a discussion of risks associated with certain
investment techniques.
Investment Objectives
The Fund is a non-diversified, open-end management investment
company. The objective of the fund is to provide long-term growth
of capital and preservation of capital. It pursues this objective
by concentrating investments in securities that, in the opinion of
the Adviser, are significantly undervalued. This objective is
fundamental to the Fund and cannot be changed without shareholder
approval. Although the Fund can invest in companies of any size,
it generally invests in larger, more established companies.
The Fund has adopted and will follow certain investment policies
as set forth below, which are fundamental and may not be changed
without shareholder approval. In addition to those stated here,
see "Other Investment Restrictions" in the Statement of Additional
Information, which is available upon request.
1. Concentration of Investments. The Fund will not invest more
than 25%, at time of purchase, of its total assets in the
securities of issuers in any one industry. The Fund will not
invest more than 10%, at time of purchase, of its total
assets in the securities of any one issuer. This restriction
does not apply to investments by the Fund in securities of the U.S.
Government or its agencies or instrumentalities.
2. Restricted and Non Readily Marketable Securities. The Fund
will not invest in restricted securities, including repurchase
agreements maturing in over seven (7) days and securities
that do not have readily available market quotations, if such
investment 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).
Principal Investment Strategies
The Fund seeks to achieve its objective by concentrating
investments in securities that, in the opinion of the Adviser, are
significantly undervalued. The Fund looks for companies whose
current price does not reflect the long-term intrinsic value of
the business enterprise itself. 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. The fixed income and convertible securities may
be non-rated debt and/or debt rated D, the lowest rating category
by S&P and Moody's. Debt rated D is in default, and payment of
interest and/or repayment of principal is in arrears. Such debt
obligations are rated below investment grade and are regarded as
extremely speculative investments with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation, such securities are also generally considered to be
subject to greater risk than securities with higher ratings with
regard to deterioration of general economic conditions.
The following is designed to help you better understand the Fund's
principal investment philosophy, process, and strategies.
Investment Philosophy and Process
The Adviser will seek to meet the investment objective of the Fund
by investing primarily in securities that are considered by the
Adviser to have potential for long term capital appreciation.
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
transactions and discounted cash flow valuations. The Adviser
focuses on dominant companies generating excess cash flow with
good management in industries that are "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. This 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. The Fund generally contains 15 to 35
stocks; however, it may contain fewer than 15 stocks or more than
35 stocks if considered prudent by the Adviser. These positions
are generally held for extended periods of time.
Trading
The Adviser uses a disciplined trading strategy for purchasing and
selling securities for the Fund. Price limits for purchasing and
selling securities are established by the Adviser. These price
limits are determined through reference to the intrinsic value of
a security as estimated by the Adviser. Brokerage commissions are
limited to five cents per share or less on any transaction.
Special Situations. The Fund may invest in special situations that
the Adviser believes present opportunities for capital growth. A
special situation arises, when in the opinion of the Adviser, the
securities of a particular company will, within a reasonable
estimated period of time, be accorded market recognition at an
appreciated value solely by reason of a development particularly
or uniquely applicable to that company and regardless of general
business conditions or movements of markets as a whole.
Foreign Securities. The Fund reserves the right to invest in
foreign securities and may only purchase foreign securities that are
listed on a principal foreign securities exchange or over-
the-counter market, or are represented by American Depositary
Receipts (ADR's) listed on a domestic securities exchange, or
traded in the United States over-the-counter market. A small
investment in foreign securities can have a large impact on investment
performance. The Fund will not hold foreign currency as an investment
or invest in foreign currency contracts.
Diversification of Investments. The Fund is a "non-diversified"
Fund and as such is not required to meet the 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").
Cash Positions. If the Adviser is unable to find investments
selling at a discount to their intrinsic value or believes that
market conditions are unfavorable for profitable investing, a
significant portion of the Fund's assets may be invested in cash
or similar investments. In other words, the Fund does not always
stay fully invested in stocks or bonds.
When the Fund's investments in cash or similar investments
increase, the Fund may not participate in market advances or
declines to the same extent that it would if the Fund remained
more fully invested in stocks or bonds.
Other Types of Investments. The Fund may also invest to a lesser
degree in other types of securities and may include:
-- debt securities;
-- high-yield/high-risk securities (junk bonds)(up to 25% of the Fund's
assets);
-- and/or securities of an issuer in default, including fixed income
and convertible securities (within the same asset limitation).
Related Risks
Because the Fund may invest substantially all of its assets in
common stocks, the main risk is the risk that the value of the
stocks held might decrease in response to activities of an
individual company or in response to general market and/or
economic conditions. If this occurs, the Fund's share price may
also decrease. The Fund's performance may also be affected by risks
specific to certain types of investments, such as foreign
securities.
The biggest risk is that the Fund's returns may vary, and you
could lose money. If you are considering investing in the Fund,
remember that it is designed for long-term investors who can
accept risks of investing in a concentrated portfolio of
significantly undervalued securities. Common stocks tend to be
more volatile than other investment choices.
The value of the Fund's portfolio may decrease if the share price
of one or more individual companies in the portfolio decreases.
The value of the Fund's portfolio could also decrease if the stock
market goes down. If the value of the Fund's portfolio decreases,
the Fund's net asset value (NAV) may also decrease, which means if
you sell your shares in the Fund you would get back less money.
The Fund concentrates its investments in securities of companies
that are significantly undervalued relative to the long-term
intrinsic value of the enterprise itself, or in special
situations. Because of this, companies in the Fund's portfolio may
share common characteristics and react similarly to market
developments. All securities in which the Fund may invest are
inherently subject to market risk, and the market value of the
Fund's investments will fluctuate. Accordingly, there can be no
assurance that the Fund will achieve its goal of long-term growth
of capital with respect to such investments because any perceived
intrinsic values may never be reflected in the market price of
such securities.
The following is designed to help you better understand some of
the risks of investing in the Fund.
Investments in Smaller or Newer Companies. The Fund may invest in
small or newer companies, which may suffer more significant losses
as well as realize more substantial growth than larger more
established issuers because these smaller or newer companies may
lack depth in management, be unable to generate funds necessary
for growth or potential development, or be developing or marketing
new products or services for which markets may never become
established. In addition, such companies may be insignificant
factors in their industries and may become subject to intense
competition from larger more established companies. Securities of
smaller or newer companies may have more limited trading markets
than the markets for securities of larger, more established
issuers, and may be subject to wide price fluctuations. Investment
in such companies tends to be more volatile and speculative.
Diversification. Diversification is a way to reduce risk by
investing in a broad range of stocks or other securities. The Fund
is a "non-diversified" Fund. A "non-diversified" fund has the
ability to take larger positions in a smaller number of issuers.
Because the appreciation or depreciation of a single stock may
have a greater impact on the NAV of a non-diversified fund, its
share price can be expected to fluctuate more than a comparable
diversified fund. This fluctuation, if significant, may affect the
performance of the Fund.
Industry. Industry risk is the possibility that a group of
related stocks will decline in price due to industry-specific
developments. Companies in the same or similar industries may
share common characteristics and are more likely to react
similarly to industry-specific market or economic developments.
The Fund may at times have significant exposure to companies in a
single industry.
Foreign Securities. Investors should recognize that
investments in foreign companies involve certain considerations
that are not typically associated with investing in domestic
companies. An investment in a foreign security may be affected by
changes in the following:
Currency Rates. As long as the Fund invests in a foreign
security, its value may be affected by the value of the
local currency relative to the U.S. Dollar. When the Fund
sells a foreign denominated security, the security's value
may be worth less in U.S. Dollars even if the security
increases in value in its home country. U.S. dollar
denominated securities of foreign issuers may also is
affected by currency risks. Accordingly, the Fund will not
hold foreign currency as an investment or invest in foreign
currency contracts.
Political and Economic. Foreign investments may be subject
to heightened political and economic risks, particularly in
emerging markets which may have unstable governments,
immature economic structures, and national policies
restricting investments by foreigners, different legal
systems, and economies based on only a few industries. In
some countries, there is the risk that the government may
take over the assets or operations of a company or that the
government may impose taxes or limits on the removal of a
Fund's assets from that country.
Regulatory. There may be less government supervision of
foreign markets. As a result, foreign issuers may not be
subject to uniform accounting, auditing, and financial
reporting standards and practices applicable to domestic
issuers and there may be less publicly available information
about foreign issuers.
Market. Foreign securities markets, particularly those of
emerging market countries, may be less liquid and more
volatile than domestic markets. Certain markets may require
payment before delivery and delays may be encountered in
settling securities transactions. In some foreign markets,
there may not be protection against failure by other parties
to complete transactions.
Transaction Cost. Costs of buying, selling and holding
foreign securities, including brokerage, tax and custody
costs, may be higher than those involved in domestic
transactions.
High-Yield/High-Risk Securities (junk bonds). High-yield/high-risk
securities(or junk bonds)are securities rated below investment grade
by the primary rating agencies such as Standard & Poor's and Moody's.
The value of lower quality securities generally is more dependent
on credit risks, or the ability of the issuer to meet interest and
principal payments, than investment grade debt securities.
Issuers of high-yield securities may not be as strong financially
as those issuing bonds with higher credit ratings and are more
vulnerable to real or perceived economic changes, political
changes or adverse developments specific to the issuer.
Portfolio Volatility. The Fund seeks to provide a lower level of
volatility than the stock market, as measured by the S&P 500
Index. The lower volatility sought by the Fund is expected to
result from investments in dividend-paying common stocks and other
equity securities characterized by relatively greater price
stability. The greater price stability sought may be
characteristic of companies that generate above average free cash
flows. A company may use free cash flows for a number of purposes
including commencing or increasing dividend payments, repurchasing
its own stock or retiring outstanding debt. The Fund also
considers growth potential in selecting securities and may hold
securities selected solely for their growth potential.
Please refer to the Statement of Additional Information for a
description of bond rating categories.
Reducing Risk. The Fund attempts to reduce risk principally
through diligent research into the operational and financial risks
of the companies whose stock it holds. A significant discouunt
from intrinisic value is required before purchasing a stock to
achieve a margin of safety. The Fund also will employ significant
positions in cash or bonds when stocks appear to be overvalued.
There is no assurance these attempts to reduce risk to the
portfolio will be successful.
Year 2000. Like other mutual funds and business organizations and
individuals around the world, the Fund could be adversely affected
if the computer systems used by the adviser/administrator and other
service providers do not properly process and calculate date-related
information and data from and after January 1, 2000. This is commonly
referred to as the "Year 2000 Issue." The adviser/administrator has
taken steps that it believes are reasonably designed to address the
"Year 2000 Issue" with respect to computer systems that it uses and has
obtained reasonable assurances that comparable steps are being taken
by each of the Fund's other service providers. At this time, we have
no reason to believe that there will be a material problem related to
the "Year 2000 Issue."
MANAGEMENT AND ORGANIZATION
INVESTMENT ADVISER TO THE FUND
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 $5.5 billion in
assets under management. Under an investment advisory agreement
with the Fund, the Adviser manages the
investment and reinvestment of the assets of the
Fund. The Adviser must adhere to the stated
investment objectives and policies of the Fund, and
is subject to the control and supervision of the
Fund's Board of Directors.
INVESTMENT ADVISER'S FEE
For its services the Adviser receives from the Fund a
management fee equal to 1% per annum of the Fund's average daily
net asset values. Such fee is higher than that charged by most
other investment management companies. The management fee is
accrued daily in computing the net asset value of a share for the
purpose of determining the offering and redemption price per
share, and is paid to the Adviser at the end of each
month.
PORTFOLIO MANAGERS OF THE FUND
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. He authored Winning the
Investment Game: A Guide for All Seasons. He founded PFR in 1980,
and he currently serves as President and Chairman of the Fund
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 joined PFR as an analyst in 1984,
and he currently serves as Vice President of the Fund and is a
Vice President and a principal of PFR.
Bruce Veaco, CPA - Bruce graduated summa cum laude from
the University of California, Los Angeles with a
B.A. degree in economics. Bruce received his M.B.A. degree from
Harvard Business School before joining PFR as an analyst in 1986.
He currently serves as Vice President and a principal of PFR.
Douglas Grey - Doug received his B.E. cum laude in
Mechanical/Materials Engineering and Economics from
Vanderbilt University, and his M.B.A. from the
University of Chicago. Doug joined PFR as an analyst
in 1986. He currently serves as Vice President and a
principal of PFR.
Peter Quinn - Peter received his B.S. degree in
Finance from Boston College and his M.B.A. degree
from the Peter F. Drucker School of Management. He
joined PFR as Research Associate in 1987. He
currently serves as Vice President and
a principal of PFR.
SHAREHOLDER INFORMATION
This section will help you become familiar with the different
types of accounts you can establish with the Clipper Fund(SM). It
also explains in detail the services and features you can
establish on your account, as well as account fees and policies
that may apply to your account. Account policies (including fees),
services and features may be modified or discontinued
without shareholder approval or prior notice.
PRICING OF FUND SHARES
All purchases and redemption's will be processed at the NAV next
calculated after your request is received and accepted by the
Fund's Transfer and Servicing Agent, National Financial Data
Services ("NFDS"). The Fund's NAV is calculated at the close of
the regular trading session of the ("NYSE") (normally 4:00 p.m.
New York time) each day that the NYSE is open. The NAV of Fund
shares is not determined on days that the NYSE is closed
(generally New Year's Day, Martin Luther King Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving, and Christmas). In order to receive a day's price,
your order must be received by the close of the regular trading
session of the NYSE. Securities are valued at market value, or, if
market quotation is not readily available, at their fair value
determined in good faith under procedures established by the Board
of Directors. Short term instruments maturing within 60 days are
valued at amortized cost, which approximate market value. See the
SAI for more detailed information.
TYPES OF ACCOUNTS
REGULAR
Individual or Joint Ownership
One person owns individual accounts. Joint accounts have two or
more owners.
A Gift or Transfer to Minor (UGMA/UTMA)
An UGMA/UTMA account is a custodial account managed
for the benefit of a minor. To open an UGMA or UTMA
account, you must include the minor's Social
Security number on the application.
Trust
An established trust can open an account. The names
of each trustee, the name of the trust and the date
of the trust agreement must be included on the application.
Business Accounts
Corporations or Partnerships may also open an
account. An authorized officer of the corporation or
a general partner of the partnership must sign the application.
RETIREMENT
Traditional or Roth IRA:
Retirement plans protect investment income and
capital gains from current taxes. Contributions to
these accounts may be tax deductible. Retirement
accounts require special applications. Please refer
to the Fund's Information Kit on IRA's.
Simplified Employee Pension Plan (SEP):
This plan allows small business owners (including
sole proprietors) to make tax-deductible
contributions for themselves and any other eligible
employee(s). Please refer to the Fund's Information Kit on IRA's.
MINIMUM INVESTMENTS
Initial Additional
Regular $5,000 $ 1,000
IRA's $2,000 $ 200
TO BUY SHARES
Shares of the Fund are offered, without charge, at
the NAV per share next determined after
an order is received by the Fund. The minimum
initial investment is $5,000; subsequent investments
are $1,000. The minimum initial investment for all
types of IRA accounts is $2,000; subsequent
investments are $200. The officers of the Fund may
permit exceptions.
Shares of the Funds may be purchased by customers of
brokers-dealers or other financial intermediaries
("Service Agents") who have established a
shareholder servicing relationship with the Fund on
behalf of their customers. Service Agents may
impose additional or different conditions on
purchases or redemptions of Fund shares and may
charge transaction or other account fees.
Shareholders who are customers of Service Agents
should consult their Service Agent for information
regarding these fees and conditions. Service Agents
may receive compensation from the Fund for
shareholder recordkeeping and similar services.
Certain Service Agents may enter into agreements
with the Fund that permit them to confirm orders
for their customers by phone with payment to follow
in accordance with the Transfer Agent's procedures.
If the Transfer Agent does not receive payment, the
transaction may be cancelled and the Service Agent
could be held liable for resulting fees or losses.
Paying for Shares
When buying shares of the Fund, your request
will be processed at the next NAV calculated after
your order is received and accepted at the Transfer
Agent.
Cash, credit cards, and third party checks will not be accepted.
Purchases must be in U.S. dollars.
Checks must be drawn on U.S. banks and be made
payable to the Clipper Fund, Inc.
BY MAIL
Complete and sign an Account Application and mail it
together with a check made payable to "Clipper Fund, Inc." to:
Clipper Fund, Inc.
C/O National Financial Data Services, Inc.
P.O. Box 219152
Kansas City, MO 64121-9152
Or via overnight
330 W 9th Street, 4th Floor
Kansas City, MO 64105
BY WIRE
Purchases may also be made by wiring money from your
bank account to your Clipper Fund, Inc. account.
Call 1 (800) 432-2504 to receive wiring instructions.
ADDITIONAL PURCHASE INFORMATION
Investments received by the close of regular trading
on the NYSE (generally 4:00 p.m. Eastern Time) will be
invested at the share price calculated after the NYSE closes
on that day. Investments received after the close
of the NYSE will be executed at the price computed
on the next day the NYSE is open. The Fund reserves
the right to suspend the offering of shares of the
Fund or to reject purchase orders when, in the
judgement of management, such suspension or
rejection is in the best interest of the Fund. The
Fund is intended to be a long-term investment
vehicle and is not designed to provide investors
with a means of speculation on short-term market
movements. A pattern of frequent purchases can be
disruptive to efficient Fund management and,
consequently, can be detrimental to the Fund's
performance and its shareholders. Accordingly, if
the Fund's management determines that an investor is
engaged in excessive trading, the Fund, with or
without prior notice, may reject in whole or part
any purchase request with respect to such investor's
account.
Purchases of shares will be made in full and
fractional shares of the Fund calculated to three
decimal places. Certificates for fractional shares
will not be issued. Certificates for whole shares
will only be issued upon written request from the shareholder.
REDEMPTION OF FUND SHARES
You may redeem shares at any time. If shares are
held in certificate form, the certificate must be
returned in order to redeem. When selling shares of
the Fund, your request will be processed at
the next NAV calculated after your order is received
and accepted at the Transfer Agent.
BY MAIL
Send requests to sell shares directly to the
Transfer Agent. Requests to redeem shares must
include:
(a) share certificates, if issued;
(b) a letter of instruction specifying the number of
shares or dollar amounts to be redeemed,
signed by all registered owners of the
shares in the exact names in which they
are registered;
(c) a signature guarantee (see "SIGNATURE GUARANTEES");
(d) any other necessary legal documents, if required, in
the case of estates, trusts, guardianships, custodians,
corporations, pension and profit sharing plans and other
organizations.
BY TELEPHONE
To sell shares by telephone the following is required:
(a) pre-establishment of the telephone redemption
privilege and wiring instructions (if
applicable) by completing the appropriate
section of the Account Application;
(b) call the Fund's Transfer Agent at (800) 432-2504 by
the close of the regular trading session
of the New York Stock Exchange ("NYSE")
normally 4:00 PM Eastern time.
The Transfer Agent will employ reasonable procedures
to confirm that instructions received by telephone
are valid. The Fund and the Transfer Agent will not
be responsible for any losses resulting from
unauthorized transactions when procedures designed
to verify the identity of the caller are followed.
Note this option is not available for IRA accounts.
ADDITIONAL REDEMPTION INFORMATION
Redemption proceeds may be delayed up to fifteen
(15) days after their purchase, pending verification
that the check has cleared. Payment will normally be
made on the next business day after redemption, but no
later than SEVEN (7)days after the transaction. The
Transfer Agent will wire redemption proceeds only to the
pre-established bank account. During periods of significant
economic or market changes, telephone redemptions may be
difficult to implement. If an investor is unable to
contact the Transfer Agent by telephone at (800) 432-
2504, the redemption request may be delivered to the
Transfer Agent at the address set forth on the back
page of this Prospectus.
The Fund may pay redemption proceeds in whole or in
part by a distribution in-kind of liquid securities
held by the Fund in lieu of cash in conformity with
applicable rules of the SEC. Investors may incur
brokerage charges on the sale of Fund securities
received in payment of redemptions.
An account may be closed after 60-days' written
notice if the account value falls below the minimum
initial investment. You may purchase shares to bring
your account balance above the minimum during the 60-
day grace period. The right of redemption by the
Fund will not apply if the value of your account
drops below the minimum initial investment because
of market performance.
SIGNATURE GUARANTEES
Signature guarantees are required for the following redemptions:
(a) All written redemptions.
(b) All redemptions where the proceeds are to be
sent to someplace or someone other than the registered
owner's address.
(c) All redemptions that are to be sent via federal wire to a
bank other than your bank of record.
Signature guarantees can be obtained from most banks, credit
unions or savings associations, or from
broker/dealers, national securities exchanges,
registered securities exchanges, registered
securities associations or clearing agencies. Notary
publics cannot provide signature guarantees.
DIVIDENDS AND DISTRIBUTIONS
The Fund will normally distribute substantially all
of its net investment income and any realized net
capital gains, on an annual basis. All dividends
and capital gains distributions will automatically
be reinvested in additional shares unless the Fund
is notified that the shareholder elects to receive
the distributions in cash. Reinvested distributions
receive the same tax treatment as those paid in cash.
SOCIAL SECURITY NUMBER/TAXPAYER IDENTIFICATION NUMBER
To avoid a 31% backup withholding on dividends,
distributions and redemption proceeds, individuals
and other non-exempt share holders must certify
their taxpayer identification number on the
application. If you are subject to backup
withholding or you do not certify your TIN the IRS
requires the Fund to withhold 31% of any redemption
proceeds and any dividends paid.
OPTIONAL SHAREHOLDER SERVICES
AUTOMATIC INVESTMENT PLAN ("AIP")
Shareholders may choose to participate in the Fund's
Automatic Investment Plan. Once the minimum initial
investments have been made, ($5,000 Regular; $2,000
IRA) the shareholder may elect to purchase shares
automatically ($150 minimum monthly investment) at
regular intervals. To establish the AIP, a
shareholder must complete the corresponding section
on the account application. A shareholder may cancel
his/her participation or change the amount of
purchase at any time by calling the Transfer Agent
at (800) 432-2504 or by written notification. The
Fund may modify or terminate this option at any
time, or may charge a service fee.
SYSTEMATIC WITHDRAWAL PLAN ("SWP")
Shareholders with a balance of $10,000 may choose to
participate in the Fund's Systematic Withdrawal
Plan. This option allows you to make regular
automatic withdrawals from your account. Withdrawals
are processed on the 10th day of each month. To
establish the SWP, a shareholder must complete the
corresponding section on the account application. A
shareholder may cancel his/her participation or
change the amount of withdrawal at any time by
calling the Transfer Agent at (800) 432-2504 or by
written notification. The Fund may modify or
terminate this option at any time, or may charge a
service fee.
STATEMENTS AND REPORTS
Confirmation statements are sent from the Transfer
Agent after each transaction effecting your share
balance and/or account registration. An annual
statement is sent detailing any dividends or
distributions. The Fund also sends a quarterly
report detailing a list of the Fund's portfolio
holdings.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand
the Fund's financial performance for the past five years. Certain
information reflects financial results for a single Fund share.
The total returns in the table represent the rate that an investor
would have earned or lost on an investment in the Fund assuming
reinvestment of all dividends and distributions. This information has been
audited by Ernst & Young LLP, independent auditors, whose report, along with
the Fund's financial statements, are included in the Statement of Additional
Information, which is available upon request.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1999 1998 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Per Share Data:
Net asset value,
beginning of period $75.37 $76.86 $67.57 $60.74 $46.09
----- ----- ----- ----- ------
Income from investment operations:
Net investment income 2.27 1.64 1.36 0.83 0.76
Net realized and unrealized
gain (loss) on securities (3.96) 11.36 19.12 11.10 20.07
----- ----- ----- ----- -----
Total from investment
operations (1.69) 13.00 20.48 11.93 20.83
Less distributions:
Dividends from net
investment income (2.25) (1.63) (1.36) (0.83) (0.76)
Distributions from
net realized gain
on securities (6.15) (12.86) (9.83) (4.27) (5.42)
Return of capital - - - - -
----- ----- ----- ----- -----
Net asset value, end
of period $65.28 $75.37 $76.86 $67.57 $60.74
====== ====== ====== ====== ======
Total Return -2.0% 19.2% 30.2% 19.4% 45.2%
====== ====== ====== ====== ======
Ratios and Supplemental Data:
Net assets ($000's),
end of period $960,722 $1,232,319 $824,083 $542,753 $403,526
Ratio of expenses
to average net assets 1.10% 1.06% 1.08% 1.08% 1.11%
Ratio of net investment income
to average net assets 2.54% 2.13% 1.84% 1.32% 1.39%
Portfolio turnover rate 63% 65% 31% 24% 31%
Number of shares outstanding
at end of period (000's) 14,716 16,350 10,721 8,033 6,643
</TABLE>
- -----------------------------------------------------------------------------
CLIPPER FUND(SM)
9601 Wilshire Boulevard, Suite 800
Beverly Hills, California 90210
Telephone (800) 776-5033
CLIPPER FUND(SM)
Shareholder Services
& Audio Response (800) 432-2504
Internet: www.clipperfund.com
You can request other information about the Fund
including a Statement of Additional Information,
Annual and Semi-Annual Report, free of charge,
by contacting the Clipper Fund(SM) at 1-800-776-5033.
The Fund's annual report will contain a [CLIPPER FUND(SM) LOGO
discussion of the market conditions and investment APPEARS HERE]
strategies that significantly affected the Fund's
performance during its last fiscal year.
Information about the Fund including the Statement of Additional
Information can be reviewed and copied at the Commission's Public
Reference Room in Washington, D.C. Also, information on the
operation of the Public Reference Room may be obtained by calling
the Commission at 1-202-942-8090. The Fund's reports and other
information are available on the Edgar Database on the
Commission's Internet site athttp://www.sec.gov and copies of this
information may be obtained, upon payment of only a duplicating fee, by
electronic request at the following E-mail address: [email protected] or
by writing the Commission's Public Reference Section, Washington, D.C. 20549
- -0102.
Investment Company File No: 811-3931
- ------------------------------------------------------------------------------
===============================================================================
[CLIPPER FUND(SM) LOGO APPEARS HERE]
STATEMENT OF ADDITIONAL INFORMATION
- -----------------------------------------------------------------------------
This Statement of Additional Information is not a Prospectus but is to be
read in conjunction with the Prospectus for Clipper Fund(SM) ("Fund")
dated May 1, 2000. A copy of the Prospectus may be obtained from
Clipper Fund(SM), 9601 Wilshire Boulevard,Suite 800, Beverly Hills,
California 90210.
- -----------------------------------------------------------------------------
May 1, 2000
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVE AND POLICIES...............................2
OTHER INVESTMENT RESTRICTIONS...................................4
MANAGEMENT OF THE FUND..........................................5
PRINCIPAL SHAREHOLDERS OF SECURITIES............................7
INVESTMENT ADVISORY AND OTHER SERVICES..........................9
MISCELLANEOUS INFORMATION.......................................11
BROKERAGE ALLOCATION AND OTHER PRACTICES........................11
CAPITAL STOCK AND OTHER SECURITIES..............................12
PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED....13
TAX STATUS......................................................15
PERFORMANCE INFORMATION.........................................16
FINANCIAL STATEMENTS............................................17
Investment Objective and Policies.
SHORT TERM INVESTMENTS
In order to earn a return on uninvested assets, or to meet anticipated
redemptions, or for temporary defensive purposes,the Fund may invest a
portion of its assets in domestic and foreign money market instruments
that include certificates of deposit, bankers'acceptances, time deposits,
U.S. Government obligations, U.S. Government agency securities, short-
term corporate debt securities, and commercial paper rated A-1 or A-2 by
Standard & Poor's Ratings Services or Prime-1 or Prime-2 by Moody's
Investors Service or if unrated, determined by the Adviser to be of comparable
quality. Time deposits maturing in more than seven days will not be purchased
by the Fund, and time deposits maturing from two business days through seven
calendar days will not exceed 10% of the total assets of the Fund. The
Fund will not invest in any security issued by a commercial bank
unless:
(i) the bank has total assets of at least $1 billion, or the
equivalent in other currencies.
(ii) in the case of U.S. banks, it is a member of the Federal
Deposit Insurance Corporation.
(iii) in the case of foreign branches of U.S. banks, the security
is, in the opinion of the Adviser, of an investment quality
comparable with other debt securities that may be purchased
by the Fund.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements collateralized by U.S.
Government securities, certificates of deposit, and certain
bankers' acceptances and other securities. In a repurchase agreement, the
Fund buys a security and simultaneously commits to sell that security
back at an agreed upon price plus an agreed upon market rate of interest.
Under a repurchase agreement, the seller is required to maintain the value of
securities, subject to the agreement, at 100% of the repurchase price.
The value of the securities will be evaluated daily, and the
Adviser will, if necessary, require the seller to maintain additional securities
to ensure that the value is in compliance with the previous sentence. The
use of repurchase agreements involves certain risks. A default by the
seller of the agreement may cause the Fund to experience a loss or delay in the
liquidation of the collateral securing the repurchase agreement. The Fund
might also incur disposition costs in liquidating the collateral.
LENDING OF SECURITIES. While the Fund currently does not lend its
portfolio securities, and has no present intention to lend in
excess of 10% of its portfolio securities, it reserves the right to
lend up to 30% of its portfolio securities. The Adviser may lend to
broker-dealers, major banks or other recognized domestic institutional
borrowers of securities who are not affiliated with the Adviser and whose
creditworthiness is acceptable in order to generate additional income.
The borrower must deliver to the Fund cash or cash equivalent collateral
equal in value to at least 100% of the value of the securities loaned at all
times during the loan. During the time the portfolio securities are on loan,
the borrower pays the Fund any interest or dividends paid on such securities.
The Fund may invest the cash collateral and earn additional income, or it may
receive an agreed-upon amount of interest income if the borrower has delivered
equivalent collateral.
WHEN-ISSUED, FORWARD DELIVERY AND DELAYED SETTLEMENT SECURITIES
The Fund may purchase and sell securities on a "when-issued,"
"delayed settlement," or "forward delivery" basis. When-issued or forward
delivery refers to securities whose terms and indenture are
available and for which a market exists, but which are not available for
immediate delivery. When issued and forward delivery transactions may be
expected to occur a month or more before delivery is due. Delayed settlement
is a term used to describe settlement of a securities transaction in the
secondary market that will occur sometime in the future. No payment or
delivery is made by the Fund until it receives payment or delivery from the
other party to any of the above transactions. It is possible that the market
price of the securities at the time of delivery may be higher or lower than
the purchase price. The Fund will maintain a separate account of cash or liquid
securities at least equal to the value of purchase commitments until payment
is made. Such segregated securities will either mature or, if necessary, be sold
on or before the settlement date. Typically, no income accrues on securities
purchased on a delayed delivery basis prior to the time delivery is made
although the Fund may earn income on securities it has deposited in a segregated
account. The Fund engages in these types of purchases in order to buy
securities that fit with its investment objectives at attractive prices - not to
increase its investment leverage.
FUND TURNOVER
The Fund turnover rate is not expected to exceed 75%. In addition
to trading costs, higher rates of Fund turnover may result in the
realization of capital gains. The Fund will not normally engage in
short-term trading, but reserves the right to do so.
INVESTMENT COMPANIES The Fund reserves the right to invest up to
10% of its total assets, calculated at the time of investment, in the
securities of other open-end or closed-end investment companies. No more
than 5% of the 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 investment company in
which the Fund has invested.
OTHER INVESTMENT RESTRICTIONS
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.
MANAGEMENT OF THE FUND
The Fund's Board of Directors manages the business and affairs of
the Fund and exercises all corporate powers, except what it delegates
to the management of the Fund. However, the Board retains the power to
hold management accountable for all its actions. Each director is
expected to carry out specific duties under the Investment Company Act of
1940 and State Statutes, as applicable. The Board may delegate the
management of the day-to-day operation of the Fund to its officers.
Each director owes the Fund a duty of care. The duty of care
requires that a director act with that degree of diligence, care, and skill
that a person of ordinary prudence would exercise under similar
circumstances in a like position and in a manner he or she reasonably believes
is in the best interests of the Fund.
Each director owes a duty of loyalty. The duty of loyalty requires
that the director act in good faith, avoid unfair dealing, and resolve
conflicts of interest in favor of the Fund and its shareholders.
In addition to these broad duties, the Board of Directors is
responsible for the selection of the company's principal officers,
the declaration of dividends, the setting of dates for shareholder
meetings, and the setting of record dates for shareholders entitled to receive
dividends or to vote at shareholder meetings.
The directors and officers of the Fund and their principal
occupations during the recent past are shown below.
Principal Occupation(s)
Name, Address, Age Position(s) Held with Fund During Past 5 Years
- ---------------- -------------------------- -------------
- -----------
James H. Gipson* (57) Director, Chairman Mr. Gipson has been
9601 Wilshire Blvd. and President President of PFR, an
Suite 800 investment management
Beverly Hills, CA 90210 firm and the Investment
Adviser, since 1980.
(See "Investment Advisory
Contract") Prior to 1980,
he was a portfolio manager
with Batterymarch Financial
Company and Source Capital
Co.
Michael Kromm (54) Secretary/Treasurer Mr. Kromm has been with
9601 Wilshire Blvd. PFR since 1990 and is
Suite 800 presently its Operations
Beverly Hills, CA 90210 Manager. From 1987 to
1990, he worked for the
RNC Mutual Fund Group as
Chief Financial Officer
and Secretary. Prior to
that, he worked in
industry, as a controller,
and for a CPA firm.
Norman B. Williamson (68) Director Mr. Wiliamson had been a
1245 Rosalind Vice President and
San Marino, CA 91108 Portfolio Manager with PFR
since 1983 prior to his
retirement December 31,
1990. From 1980 to 1983,
he was self-employed as an
investment manager. Prior
to that, he was Assistant
Treasurer and Manager of
Pension Trust
Administration for FMC
Corp.
Lawrence P. McNamee (65) Director Professor McNamee has been
3531 Boelter Hall, UCLA a Professor of Computer
Los Angeles, CA 90024 Science at UCLA since 1966.
F. Otis Booth, Jr. (76) Director Mr. Booth has been a
10877 Wilshire Blvd. private investor and
Suite 1407 rancher from 1973 to the
Los Angeles, CA 90024 present.
*Director who is an interested person, as defined in the Investment Company Act
of 1940, as amended, by virtue of an affiliation with the Investment Adviser.
Information about the management of the Fund is contained in the
Prospectus under "Management and Organizational." Compensation paid to the
Management was as follows for the year ended December 31, 1999:
<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> <C> <C> <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 1999 Compensation from the Registrant and the Fund
Complex consists of compensation paid to directors by Clipper Fund, Inc.
</TABLE>
Clipper and the Fund's advisers have adopted Codes of Ethics
designed to prevent employees who may have access to nonpublic
information about the trading activities of the Fund (access
persons) from profiting from that information. The Codes permit
access persons to invest in securities for their own accounts,
including securities that may be held by the Fund, but place
substantive and procedural restrictions on their trading
activities. For example, the Codes require that access persons
receive advance approval for every securities trade to ensure that
there is no conflict with the trading activities of the Fund.
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 February 29, 2000:
Number of
Shares Owned Percent
Name and Address of Record of Class
- --------------------------------- -------------- ----------
Charles Schwab & Co. Inc. (1) 2,146,142 16.0%
Attention: Mutual Fund Department
101 Montgomery Street
San Francisco, California 94104
Fidelity Investments Institutional (2) 2,007,654 14.9%
Operations Co (FIIOC)
As Agent for Certain Emp Ben Plans
100 Magellan Way #KW1C
Covington, KY 41015-1999
- ------------------------
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. Fidelity Investments Institutional Operations Co is the trustee
for several company sponsored retirement plans; the Fund is not
aware of the size or identity of these plans.
All directors and officers of the Fund as a group (6 persons)
owned beneficially 283,232 shares of the Capital stock on February 29,
2000 approximating 1.5% of the outstanding shares. That number consists
of an aggregate of 116,210 shares held by the Pacific Financial Research,
Inc. Money Purchase Plan and Trust; 9,971 shares held by the
Pacific Financial Research, Employees Savings Plan, 26,227 shares held by Mr. F.
Otis Booth, Jr., 87,721 shares held by Mr. Gipson, 20,747 shares held by Mr.
Williamson in an IRA plan, 2,920 shares held by Mr. & Mrs. Kromm, of which 2,421
are held in an IRA plan and 13,070 shares held by Professor McNamee, of
which 1,480 shares are held in IRA plans and 11,590 shares are held in Trust,
and 6,365 shares are held by Mr. Sandler, of which 2,683 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
Adviser to the Fund" in the prospectus dated May 1, 2000.
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 March 31,2000.
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 andtransfer taxes, incurred by or levied on the Fund and (c) interest
charges onborrowings. 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 Adviseron 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 $11,750,208, $9,994,778 and $6,891,228 for the years ended
December 31, 1999, 1998 and 1997, respectively. This fee equals 1% of the
average daily net assets of the Fund for the year.
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.
National Financial Data Services, 330 W. 9th St. 4th Floor Kansas
City, MO 64105 acts as the transfer agent for the Fund.
Paul, Hastings, Janofsky & Walker LLP, 345 California Street, 29th
Floor, San Francisco, California, 94104-2635 acts as legal counsel to
the Fund.
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 $1,308,611, $1,359,729, and $316,753, for the years ended
December 31, 1999, 1998 and 1997, respectively. During the year ended December
31, 1999, the total amount of transactions and related commissions with respect
to which the Fund directed brokerage transactions was $ 130,355,423 and $
207,161, 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 $144,363, to the benefit of the
Fund only. All trades are placed with brokers on a best execution basis.
CAPITAL STOCK AND
OTHER SECURITIES
The Fund was organized as a California corporation on December 1,
1983. 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, Martin Luther King 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 at 4:00 p.m. Eastern
time. 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.
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 and Distributions"
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.
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 $10,000
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, 1999 and for the period since inception (February 29,
1984), were -2.02%, 19.2%, 21.3%, and 17.5%, respectively. These results
are based on historical earnings and asset value fluctuations and are not
intended to indicate future performance.
The foregoing information should be considered in light of the
Fund's investment objective and policies, as well as the risk incurred in
the Fund's investment practices. Future results will be affected by the
future composition of the Fund's portfolio, as well as by changes in the
general level of interest rates, and general economic and other market
conditions.
FINANCIAL STATEMENTS
The audited financial statement of the Fund as contained in the
Annual Report to Shareholders for the year ended December 31, 1999 (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.
===============================================================================
CLIPPER FUND(SM)
9601 Wilshire Boulevard
Beverly Hills, California 90210
Telephone (800) 776-5033 CLIPPER FUND(SM)
Shareholder Services
& Audio Response (800) 432-2504
Internet: www.clipperfund.com
INVESTMENT ADVISER
Pacific Financial Research
[CLIPPER FUND(SM) 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 219152
Kansas City, Missouri 64141-9152
(800) 432-2504
STATEMENT OF
CUSTODIAN ADDITIONAL INFORMATION
State Street Bank and Trust Company
May 1, 2000
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
INDEPENDENT AUDITORS
Ernst & Young LLP
Investment Company File No. 811-3931
===============================================================================
PART C. OTHER INFORMATION
Item 22. FINANCIAL STATEMENTS
(a) Financial Statements:
Statement of Assets and Liabilities as of December 31, 1999;
Investment Portfolio as of December 31, 1999; Statement of
Operations for the year ended December 31, 1999; Statement of
Changes in Net Assets for the two year period ended December 31,
1999; 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, 1999 for the Fund, filed separately.
Filing Date: February 16, 2000
Item 23. EXHIBITS
(a) Articles of Incorporation of the Fund, as amended.
Filing: Registration Statement
File No.: 811-3931
Filing Date: April 30, 1999
(b) By-Laws of the Fund.
Filing: Registration Statement
File No.: 811-3931
Filing Date: April 30, 1999
(c) Not applicable
(d) Investment Advisory Contract between Fund and
Pacific Financial Research.*
Filing: Registration Statement
File No.: 811-3931
Filing Date: May 1, 2000
(e) Not applicable
(f) Not applicable
(g) Custodian Agreements
Transfer Agency and Service Agreement between Clipper Fund(SM)
and State Street Bank and Trust Company, with amendments
thereto.
Filing: Registration Statement
File No.: 811-3931
Filing Date: April 30, 1999
(h) Not applicable
(i) Consent of Counsel.
Filing: Registration Statement
File No.: 811-3931
Filing Date: May 1, 2000
(j) Consent of Independent Auditors.*
(k) Not applicable
(l) Not applicable
(m) Not applicable
(n) Financial Data Schedule*
(o) Not applicable
- ---------------
*Filed Herewith
Item 24. Persons controlled by or under common control with registrant.
None.
Item 25. 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 26. 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 27. Principal Underwriters
Not applicable.
Item 28. 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(SM),
9601 Wilshire Boulevard, Beverly Hills, California 90210.
Item 29. Management Services
Other than as set forth under the caption "Investment Advisory
and Other Services" in the Prospectus, on the back cover of
the Prospectus, and under the caption "Investment Advisory and
Other Services" in the Statement of Additional Information,
registrant is not a party to any management-related service
contracts.
Item 30. 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 15th Day of March, 2000. 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 15, 2000
James H. Gipson President and Director
(Principal Executive Officer)
/s/ Vice President March 15, 2000
Michael C. Sandler
/s/ Secretary, Treasurer March 15, 2000
Michael Kromm (Principal Accounting Officer)
/s/ Director March 15, 2000
F. Otis Booth
/s/ Director March 15, 2000
Norman B. Williamson
/s/ Director March 15, 2000
Lawrence P. McNamee
Exhibit List to the
Registration Statement
of Clipper Fund(SM)
Form N-1A May 1, 2000
Exhibit No. Description
d Form of New Advisory Agreement
i Consent of Counsel
j Consent of Independent Auditors
n Financial Data Schedule
INVESTMENT ADVISORY CONTRACT
INVESTMENT ADVISORY CONTRACT, made as of this 23rd Day of March, 2000
between the CLIPPER FUND, INC, a California corporation
(hereinafter called the "Fund"), and PACIFIC FINANCIAL RESEARCH, INC.
(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 orotherwise
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 Counsel
PAUL, HASTINGS, JANOFSKY & WALKER LLP
555 South Flower Street
Los Angeles, California 90071
Telephone (213) 683-6000
March 15, 2000
Clipper Fund, Inc.
9601 Wilshire Boulevard, Suite 800
Beverly Hills, California 90210
Ladies and Gentlemen:
We have acted as counsel to Clipper Fund, Inc., a
California corporation (the "Company"), with respect to certain legal matters
in connection with the capital shares of the Company offered pursuant
to a Registration Statement on Form N-1A (Registration Statement No.
2-88453, 811-3931), as amended, filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Registration Statement").
We hereby consent to the reference to Paul, Hastings,
Janofsky & Walker LLP under the captions "Miscellaneous Information"
and "Counsel" in the Statement of Additional Information which forms
part of the Registration Statement.
Very truly yours,
PAUL, HASTINGS, JANOFSKY & WALKER LLP
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. 19 under the Securities Act of 1933 and Amendment
No. 19 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 21,
2000 with respect to the financial statements and financial highlights
of Clipper Fund, Inc. included in its Annual Report for the year ended
December 31, 1999 filed with the Securities and Exchange Commission.
/s/
ERNST & YOUNG LLP
Los Angeles, California
March 8, 2000
<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 0.06%
Registration 0.02%
Redemption Fee $0.00 Postage 0.01%
----- Other Expenses 0.01%
- -----
Exchange Fee N/A
----- Total Fund Operating Expenses 1.10%
-----
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: $10,000.00 Total Return
--------- ------------
<S> <C> <C>
One Year (n): $9,798 -2.0%
------ -----
Three Year (n): $15,205 15.0%
------ -----
Five Year (n): $26,358 21.4%
------ -----
Seven Year (n): $28,571 16.2%
------ -----
Ten Year (n): $40,385 15.0%
------ -----
Since Inception (n): $112,318 16.5%
------ -----
12/31/99
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)X5% (5)=(3)+(4) (6)=(3)+(5)/2 (7)=(6)(1.10%) (8)
- ---- -1.10)%
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $10,000.00 $0.00 $10,000.00 $390.00 $10,390.00 $10,195.00 $112.15 $112.15
2 $10,390.00 $405.21 $10795.21 $10592.61 $116.52 $228.66
3 $10,795.21 $421.01 $11,216.22 $11,005.72 $121.06 $349.73
4 $11,216.22 $437.43 $11,653.66 $11,434.94 $125.78 $475.51
5 $11,653.66 $454.49 $12,108.15 $11,880.90 $130.69 $606.20
6 $12,108.15 $472.22 $12,580.37 $12,344.24 $135.79 $741.99
7 $12,580.37 $490.63 $13,071.00 $12,825.68 $141.08 $883.07
8 $13,071.00 $509.77 $13,580.77 $13,325.89 $146.58 $1,029.65
9 $13,580.77 $529.65 $14,110.42 $13,845.59 $152.30 $1,181.96
10 $14,110.42 $550.31 $14,660.73 $14,385.57 $158.24 $1,340.20
</TABLE>
