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[CLIPPER FUND(SM) LOGO APPEARS HERE]
CLIPPER FUND(SM)
P E R F O R M A N C E
RETURN
Morningstar
CLIPPER Large Value S&P 500
--------- --------- ------------
Compounded Annual Returns:
One year (1999) (2.0%) 6.6% 21.0%
Three Years (1997-1999) 15.0 14.7 27.6
Five Years (1995-1999) 21.4 19.3 28.6
Ten Years (1990-1999) 15.0 13.9 18.2
Since Inception (February 29, 1984) 16.5 15.6 18.6
Annual Returns:
1984* 21.3% 9.9% 10.8%
1985 26.4 28.3 31.7
1986 18.8 17.4 18.7
1987 3.1 2.4 5.3
1988 19.6 17.5 16.6
1989 21.9 23.5 31.7
1990 (7.6) (6.4) (3.1)
1991 32.1 29.0 30.5
1992 15.8 10.4 7.6
1993 11.1 13.5 10.1
1994 (2.4) (0.4) 1.3
1995 45.2 32.5 37.6
1996 19.4 20.8 23.0
1997 30.2 26.8 33.4
1998 19.2 12.3 28.6
1999 (2.0) 6.6 21.0
------ ------ ------
Inception-to-Date
Cumulative Return 1005.9% 898.2% 1390.8%
====== ====== ======
RISK
Third Quarter, 1998 (1.7%) (12.6%) (10.0%)
Fourth Quarter, 1987 (7.5%) (19.2%) (22.5%)
Cumulative Decline During
Down Quarters (44.6%) (55.3%) (55.5%)
Beta Since Inception
(February 29, 1984) 0.64 0.87 1.00
1. All returns are historical and include changes in share price and
reinvestment of dividends and capital gains. Past performance is no
guarantee of future results. Investment return and principal value of
investments fluctuate. Investor's shares, when redeemed, may be worth
more or less than their original cost.
2. Clipper Fund(SM)'s performance is compared with that of the S&P 500 Index,
an unmanaged index of 500 companies widely recognized as representative of
the equity market in general and the Morningstar Large Value Funds Index,
an index of 614 managed large value mutual funds monitored by Morningstar.
*1984 results for Clipper Fund(SM), S&P 500 and the Morningstar Large Value
Funds Index are for the period February 29, 1984 (inception date) through
December 31, 1984.
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Dear Shareholder:
The 20th century ended with the most speculative stock market in American
history. The S&P 500 surpassed every metric of value as it rose 21.0%, and
some technology shares soared by multiples of that amount. Value stocks did
not enjoy such gains, and at first glance it appears that we slept through
1999 with a return of -2.0%. In fact we concentrated on avoiding the (currently
large) potential for permanent loss of your capital. To our pleasant surprise
in this aggressively valued stock market, we found some cheap stocks to buy too.
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"The End Was At Hand But Was Not In Sight"
J.K. Galbraith's description of the stock market's peak in 1929 probably will
apply this time too. No one can predict the end of a speculative market, but
it is less difficult to predict those groups of stocks most vulnerable when
the end arrives. The vulnerable groups tend to be those favored by investor
enthusiasm and remarkable prices. The two groups of vulnerable stocks we
avoided last year were technology and the largest 25 of the S&P 500.
Technology stocks did particularly well in 1999, especially those with a
"dot com" in their names. There simply are no adequate adjectives to describe
a market where companies with minimal sales and no profits are valued in
billions of dollars. Hope and fantasy, not rational valuation with a margin
of safety, seem to be the basis for pricing these securities. When rationality
finally does come to these stocks, the losses will not be felt in your
portfolio.
The 25 largest stocks in the S&P 500 are fine companies, but even fine
companies can be priced at excessive levels. Some of these stocks such as
Wal-Mart once were a significant part of our portfolio, but we sold them as
their share prices rose above our estimates of their intrinsic values. The
current stock market is one of remarkable extremes, and we have chosen to
avoid those richly priced extremes as shown by the following numbers:
NASDAQ Top 25 of S&P Your
100 S&P 500 500 Portfolio
1999 Price/Earnings Ratio 112-175* 51 32 14
*Bloomberg's estimate is 175 times. Our estimate using different methodology
is 112.
A Tale of Two Stocks
Fannie Mae and Freddie Mac are our two largest holdings. Their performance
last year is typical of the companies in your portfolio. Viewed as businesses,
Fannie and Freddie had a great year. They continued to do an efficient job of
guaranteeing and holding mortgages. Both companies earned slightly more profit
than investors expected as the year began. They also have done a good job of
insulating their profits from interest rate movements such as the recent
increases by the Federal Reserve. If there were no stock market, investors
would be very happy about the conduct of Fannie's and Freddie's businesses
last year.
There is a stock market, however, and both stocks were down in 1999. The
reason for the decline have less to do with the companies' good business
fundamentals than with current market sentiment (neither company's name ends
in "dot com"). There is one valid concern, however, which explains part of
their weak stock performance-long term treasury bond rates rose from 5.1% to
6.4% last year. A large rise in the risk free rate of return implies a large
decline in the value of all long-term assets, especially ones with low dividend
yields and high growth expectations.
A Tale of Two More Stocks
General Nutrition and Mattel both were smaller positions in your portfolio
last year. They produced very different outcomes which illustrate what we hope
to achieve and how we react if that hope is not realized.
We try to buy stocks in good businesses at a discount to the price a rational
private buyer would pay for the entire company. When we purchased shares in
General Nutrition at about $12 a year ago, we valued it at $25 per share. Last
summer the entire company was purchased for $25. We can only wish there were
more examples of such instant gratification in our stock selections.
Mattel provided an example of the opposite experience. We purchased the stock
at a large discount from our estimate of its intrinsic value. Then both stock
price and intrinsic value declined. There were moderate problems in the basic
toy business, but more serious ones in management turnover and an unfortunate
acquisition. We maintain a devil's advocate process (i.e. one analyst
concentrates on negative issues) to anticipate problems and to react quickly
when they occur. In this case we concluded that our investment was a mistake
and we have eliminated our position from the portfolio.
Our Most Controversial Stock
The least comfortable stock is often the most profitable stock. Philip Morris
is clearly the least comfortable position in your portfolio and very possibly
one of the cheapest stocks in the country.
As an operating business, Philip Morris is well managed, remarkably profitable
and cash generating. About $3 billion of that cash was used to repurchase its
own stock last year. As a stock, it is statistically one of the cheapest
available with a price/earnings ratio of seven times and a yield of over 8%.
(By contrast, the S&P 500 yields a record low of 1.2%.)
The concern driving down the share price is litigation. "Normal litigation"
is a fact of life for tobacco companies, and they have been remarkably
successful in virtually all trials to date. The real fear is that the current
Engle Class Action lawsuit in Florida will, on the basis of a trial with as
few as two plaintiffs and six jurors, render a punitive judgement for massive
damages. To some investors, tobacco companies look like crippled wildebeests
confronting a pride of hungry lions.
We are modest about our ability (or anyone else's) to predict the consequences
of the American legal system. We can note, however, that a successful suit
requiring massive payments by the tobacco companies also requires a large
number of unlikely events to take place. The collection of smokers into a
single class must be upheld on all appeals, despite consistent rejection by
almost all courts because of individual differences in smokers' knowledge,
behavior, and outcomes. More than 100 other grounds for appeal are present
already, suggesting that the legal proceedings will reach far into the new
millennium. The issue is as much political as legal; a massive legal judgement
is unlikely to be allowed to shut down an industry which serves 45 million
customers and provides over $27 billion in annual government revenue. Even if
all domestic tobacco operations ceased tomorrow, the food and international
tobacco operations of Philip Morris are worth nearly twice its current
stock price.
Combining many unlikely events produces a very low risk of a significant
negative outcome. An investor is being very well paid to take that low risk,
and we added to our position in Philip Morris at current prices.
Something To Buy Too
If Internet stocks are the epitome of sex appeal to investors today, then the
opposite of sex appeal is a real estate investment trust (REIT). Despite
(because of) their lack of popular acclaim, we found them very appealing.
They are understandable businesses. They have very conservative balance sheets.
They sell at large discounts to the private market values of their properties.
They have safe and growing yields of 7-9%. Many of the REITs and their
executives are buying their own shares because they believe those shares are
very cheap. We share that belief and last year we made them a significant part
of your portfolio.
Our purchase of REITs demonstrates one of the remarkable anomalies of today's
stock market: astounding overvaluation coexists with I-don't-care-about-it
cheapness. We added a few other sound but neglected stocks last year and hope
to add more this year too.
No Fear
Greed and fear, those pesky and permanent motivators, are alive and selectively
active in the minds of investors today. The record level of speculation in many
stocks is not just a function of normal greed, but of an attitude expressed by a
young investor quoted in the New York Times, "My generation knows no fear of the
stock market." A significant number of investors today, particularly newer ones,
are functioning with normal genes for caution deleted. The absence of any
significant bear market for many years encourages the comfortable and confident
belief that losses are a quaint relic of extinct financial civilizations, not
a reasonable prospect for the (possibly immediate) future. To a rational
investor who considers the potential for both gain and loss, the total absence
of fear creates both the astonishing level of stock prices today and the
potential for astonishing loss tomorrow.
"Markets can remain irrational longer than you can remain solvent." Substitute
"patient" for "solvent" in J.M. Keynes's observation and you have a good
description of the challenge facing a rational value investor today. The start
of the new millennium also marks the start of the fourth year of what Federal
Reserve Chairman Alan Greenspan called "irrational exuberance." That is a
long time to be patient and no one can know how much more patience will be
required. We intend, however, to remain patient and rational in a market
which currently is not rewarding those qualities. In the long run, that is the
best way to preserve and increase the capital you have entrusted to us.
Sincerely,
/s/
James Gipson
Chairman & President
January 21, 2000
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Investment Portfolio
December 31, 1999
Market
Shares Cost Value
---------- ------------- -----------
COMMON STOCKS (73.0%)
AEROSPACE & DEFENSE (2.3%)
Lockheed Martin Corporation 989,000 $ 19,756,570 $ 21,634,375
------------- -----------
FOOD & TOBACCO (10.2%)
Philip Morris Companies, Inc. 2,925,800 106,383,291 67,841,988
UST, Inc. 1,199,000 33,306,554 30,199,813
------------- -----------
139,689,845 98,041,801
------------- -----------
HEALTH CARE (10.0%)
Columbia/HCA Healthcare Corporation 1,885,500 34,933,962 55,268,719
Tenet Healthcare Corp* 1,381,300 23,330,633 32,460,550
Hillenbrand Industries, Inc. 261,300 7,166,916 8,279,944
------------- -----------
65,431,511 96,009,213
------------- -----------
INSURANCE (0.7%)
Old Republic International Corporation 475,840 6,602,970 6,483,320
------------- -----------
MORTGAGE FINANCE (19.3%)
Freddie Mac 1,836,000 66,126,232 86,406,750
Fannie Mae 1,265,500 69,282,313 79,014,656
Golden West Financial Corporation 587,400 14,634,012 19,677,900
------------- ------------
150,042,557 185,099,306
------------- ------------
REAL ESTATE INVESTMENT (11.9%)
Equity Residential Properties Trust 899,600 37,290,303 38,401,675
Equity Office Properties Trust 920,700 22,894,330 22,672,238
Archstone Communities Trust 819,900 16,847,659 16,807,950
Apartment Investment & Management Co. 286,200 10,752,668 11,394,338
Mack-Cali Realty Corporation 427,900 10,775,855 11,152,144
General Growth Properties, Inc. 222,600 6,881,272 6,232,800
Security Capital Group Inc./Class B* 383,205 9,527,724 8,255,849
------------- ------------
114,969,811 114,916,994
------------- ------------
SECURITIES INDUSTRY (2.7%)
Bear Stearns Companies, Inc. 616,791 17,127,763 26,367,815
------------- ------------
SPECIAL SITUATIONS & OTHER (15.9%)
De Beers Consolidated Mines Ltd. 1,377,000 19,537,071 39,846,938
Manpower, Inc. 1,011,600 26,505,503 38,061,450
Stanley Works 855,100 22,811,353 25,759,888
International Game Technology* 674,300 11,271,506 13,696,719
Sigma Aldrich 440,100 12,012,142 13,230,506
Airgas, Inc.* 960,700 12,314,217 9,126,650
Great Lakes Chemical Corp. 81,400 3,120,736 3,108,463
Other 370,500 9,000,482 9,512,410
------------- -------------
116,573,010 152,343,024
------------- -------------
TOTAL COMMON STOCKS 630,194,037 700,895,848
------------- -------------
Par Value
-----------
BONDS (24.9%)
LONG TERM
US TREASURY OBLIGATIONS (7.2%)
US Stripped Int Pmt - 0%, due 5/15/18 149,203,000 47,359,249 43,116,683
US Stripped Int Pmt - 0%, due 2/15/18 90,962,000 29,254,308 26,544,531
------------- -------------
76,613,557 69,661,214
------------- -------------
SHORT TERM NOTES (17.7%)
Federal Home Loan Bank Agency Notes
5.500%, due 8/13/01 109,345,000 108,741,279 107,722,320
Federal Home Loan Bank Agency Notes
5.865%, due 6/29/01 62,690,000 62,671,772 62,082,534
------------- -------------
171,413,051 169,804,854
------------- -------------
TOTAL BONDS 248,026,608 239,466,068
------------- -------------
TOTAL INVESTMENT SECURITIES (97.9%) 878,220,645 940,361,916
SHORT TERM INVESTMENTS (0.6%)
REPURCHASE AGREEMENT (0.6%) (Note 6)
State Street Bank and Trust Co., 4.5%,
due 1/03/00 collateralized by U.S. Treasury
Obligations, due 09/30/00
valued at $5,695,000, expected proceeds,
including interest, of $5,580,162 5,579,000 5,579,000
------------- -------------
TOTAL INVESTMENT PORTFOLIO (98.5%) $ 883,799,645 945,940,916
=============
Cash and Receivables less Liabilities (1.5%) 14,781,100
-------------
NET ASSETS (100.0%) $ 960,722,016
=============
________________________
See notes to financial statements.
*Non-income producing securities.
Statement of Assets and Liabilities
December 31, 1999
ASSETS:
Investment Portfolio:
Investment securities, at market value
(identified cost: $878,220,645) $ 940,361,916
Short-term investments, at cost, which is
equivalent to market (Note 6) 5,579,000
-------------
945,940,916
Cash 467
-------------
Receivable for:
Fund shares sold 15,888,111
Dividends & Interest 4,161,679
Directed Commission Recapture (Note 5) 101,600
-------------
20,151,390
-------------
966,092,773
-------------
LIABILITIES:
Payable for:
Fund shares repurchased 4,397,525
Accrued expenses (including $847,665 due adviser) 960,084
Distribution 13,148
-------------
5,370,757
-------------
NET ASSETS: (equivalent to $65.28 per share on 14,716,008
shares of Capital Stock outstanding--
200,000,000 shares authorized) $ 960,722,016
=============
SUMMARY OF SHAREHOLDERS' EQUITY:
Paid-in Capital $ 898,223,753
Unrealized appreciation of investments (Note 4) 62,141,271
Distributions in excess of realized capital gains (Note 4) (14,035)
Undistributed net investment Income 371,027
-------------
Net assets at December 31, 1999 $ 960,722,016
=============
______________________________________
See notes to financial statements.
Statement of Operations
Year Ended December 31, 1999
INVESTMENT INCOME:
Interest $ 23,731,126
Dividends 19,030,968
-------------
Total Investment Income 42,762,094
EXPENSES:
Management fee (Note 2) 11,750,208
Transfer agent 586,969
Custodian and accounting (Note 5) 219,318
Registration fees 180,067
Postage & other 127,830
Printing 49,435
Insurance 26,317
Auditing 19,400
Legal 19,205
ICI Dues 18,999
Directors' fees (Note 2) 15,000
Taxes 800
Miscellaneous 3,965
----------
13,017,513
Reduction of Expenses (Note 5) (144,363)
----------
Total Expenses 12,873,150
-----------
Net Investment Income 29,888,944
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain on investments
(excluding short-term investments):
Proceeds from investments sold 656,486,514
Cost of investments sold 575,685,557
-----------
Net realized gain on investments (Note 3 and 4) 80,800,957
Unrealized appreciation of investments:
Beginning of year 207,241,593
End of year (Note 4) 62,141,271
-----------
Decrease in unrealized appreciation of investments (145,100,322)
-----------
Net realized and unrealized gain on investments (64,299,365)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (34,410,421)
===========
________________________________________
See notes to financial statements.
Statements of Changes in Net Assets
Year Ended December 31,
1999 1998
------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 29,888,944 $ 21,482,653
Net realized gain on investments (Note 4) 80,800,957 158,467,481
Net unrealized depreciation of investments (145,100,322) (1,146,004)
------------- -------------
Net (decrease) increase in net assets
resulting from operations (34,410,421) 178,804,130
------------- -------------
Distributions to shareholders from:
Net investment income
($2.25 and $1.63 per share, respectively (29,527,935) (21,356,677)
Net realized capital gain
($6.15 and $12.86 per share, respectively (80,811,350) (158,471,123)
------------- -------------
Decrease in net assets resulting from
distributions (110,339,285) (179,827,800)
------------- -------------
Capital Stock Transactions:
Proceeds from Capital Stock sold (4,464,043
and 6,722,616 shares, respectively) 330,569,514 516,533,933
Proceeds from Capital Stock purchased by
reinvestment of dividends and
distributions (1,569,355 and 2,415,186
shares, respectively) 100,485,802 168,461,418
Cost of Capital stock redeemed
(7,667,158 and 3,509,366
shares, respectively) (557,902,383) (275,735,555)
------------- -------------
(Decrease) increase in net assets resulting
from Captial Stock transactions (126,847,067) 409,259,796
------------- -------------
Total increase in net assets (271,596,773) 408,236,126
NET ASSETS:
Beginning of year (includes $10,018 of
undistributed net nvestment income)
at December 31, 1998 1,232,318,789 824,082,663
------------- -------------
End of year (includes undistributed
net investment of $371,027 and
$10,018, respectively $ 960,722,016 $1,232,318,789
============= =============
______________________________________
See notes to financial statements.
<TABLE>
<CAPTION>
Financial Highlights
Year Ended December 31,
----------------------------------------------------
1999 1998 1997 1996 1994
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Per Share Data:
Net asset value,
beginning of year $ 75.37 $ 76.86 $ 67.57 $ 60.74 $ 46.09
------ ------ ------ ------ ------
Income (loss) from
investment operations:
Net investment income 2.27 1.64 1.36 0.83 0.76
Net realized and unrealized
gain (loss) on investments (3.96) 11.36 19.12 11.10 20.07
------ ------ ------ ------ ------
Total Income (loss) 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 investments (6.15) (12.86) (9.83) (4.27) (5.42)
------ ------ ------ ------ ------
Net asset value, end of year $ 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 at end of period (000's) $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>
_____________________________________
See notes to financial statements.
Notes to Financial Highlights
December 31, 1999
Note 1 - The Clipper Fund(SM) ("Fund") is registered under the Investment
Company Act of 1940, as amended, as a non-diversified open-end investment
company. The investment objective of the Fund is long-term growth of capital
consisting primarily of equity and equity substitute securities that are
considered by Fund management and the Investment Adviser to have long-term
capital appreciation potential. Bonds may be used when they are judged to offer
higher potential long-term returns than stocks. The following is a
summary of significant accounting policies consistently followed by the
Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles:
(a) Security Valuation - Investments in securities traded on a national
securities exchange are valued at the last sale price on such exchange
on the business day as of which such value is being determined. Securities
traded in the over-the-counter market and listed securities for which no
sale was reported on that date are valued at the last reported 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.
(b) Federal Income Taxes - The Fund intends to comply with the
requirements of the Internal Revenue Code, as amended, applicable
to regulated investment companies and to distribute all of its
taxable income to its shareholders. Therefore, no Federal income
tax provision is required.
(c) Use of Estimates - The preparation of the financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the
financial statements. Actual results could differ from those estimates.
(d) Other - As is common in the industry, security transactions
are recorded on the trade date. Dividend income and distributions
to shareholders are recorded on the ex-dividend date. Interest
income is recorded on the accrual basis.
Note 2 - The Investment Adviser's management fee is equal to 1% per annum of
the Fund's average daily net asset value. The management fee is accrued daily
in computing the net asset value per share.
Each Director who is not an interested person of the Investment Adviser is
compensated by the Fund at the rate of $1,250 per quarter.
Note 3 - The cost of securities purchased (excluding short-term investments)
for the year ended December 31, 1999, was $694,090,801. The cost of securities
held is the same for Federal income tax and financial reporting purposes.
Realized gains or losses are based on the specific identification method.
Note 4 - During the year ended December 31, 1999, the Fund realized net
capital gains of $80,800,957 from securities transactions for Federal
income tax and financial reporting purposes. As of December 31, 1999,
unrealized appreciation of investment securities for tax and financial
reporting purposes aggregated $62,141,271, of which $116,833,534 related to
appreciated securities and $54,692,263 related to depreciated securities.
Note 5 - During the year ended December 31, 1999, the total amount of
transactions and related commissions with respect to which the Fund directed
brokerage transactions to brokers, in order to reduce custody expenses, was
$130,355,423 and $207,161, respectively.
Note 6 - The Fund requires the custodian to take possession, to have
legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral
for repurchase agreements. The market value of the underlying securities is
required to be at least 102% of the resale price at the time of purchase.
If the seller (State Street Bank & Trust Co.) of the agreement defaults and
the value of the collateral declines, or if the seller enters an insolvency
proceeding, realization of the value of the collateral by the Fund may be
delayed or limited.
Note 7 - (Unaudited) 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 to obtain 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".
Report of Independent Auditors
To the Shareholders and Board of Directors of Clipper Fund(SM):
We have audited the accompanying statement of assets and liabilities of
Clipper Fund(SM), including the investment portfolio, as of December 31, 1999,
the related statement of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended
and the financial highlights for each of the five years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation
of securities owned at December 31, 1999, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Clipper Fund(SM) at December 31, 1999, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five
years in the period then ended in conformity with accounting principles
generally accepted in the United States.
Ernst & Young LLP
Los Angeles, California
January 21, 2000
Change in Value of $10,000 Initial Investment
Clipper S&P 500 Morningstar
Large Value
'84 10000 10000 10000
10172 10173 9898
10301 9912 10710
11536 10872 10986
'85 12128 11076 11890
13013 12093 12767
14000 12980 12292
13681 12447 14096
'86 15330 14588 16085
17970 16647 16764
17944 17627 15889
17596 16397 16543
'87 18206 17310 19417
20414 21006 19962
20354 22061 20963
20300 23516 16935
'88 18778 18218 18213
20473 19255 19337
21423 20537 19483
22452 20607 19897
'89 22452 21244 21219
24052 22750 22732
26544 24759 24687
28388 27410 24570
'90 27365 27975 23858
25324 27133 24753
26785 28840 21286
22597 24877 23006
'91 25285 27106 26350
28510 31045 26337
28380 30973 27808
30236 32630 29686
'92 33399 35365 29839
32975 34470 30255
34448 35125 30939
35954 36231 32763
'93 38685 38056 34576
40299 39715 35067
40150 39909 36478
40741 40940 37191
'94 42981 41882 36074
40945 40302 36251
41041 40472 37696
41924 42455 37041
'95 41938 42448 40192
46979 46581 43462
52967 51027 46666
56934 55086 49069
'96 60891 58402 51904
64089 61537 53247
67467 64299 54826
72855 71821 59264
'97 75098 73750 60205
85754 86608 68396
89559 93097 74602
94651 95771 75116
'98 101387 109130 83513
102225 112731 82863
100441 101524 72412
112815 123148 84334
'99
109047 129281 84967
117084 138395 93285
112037 129759 84348
110536 149067 89797
Past performance is no guarantee of future results. These returns assume
redemption at the end of each period. For comparison purposes, the S&P 500
Index is an unmanaged index of 500 companies widely recognized as
representative of the equity market in general. The Morningstar Large Value
Funds Index is an index of 614 managed large value mutual funds monitored by
Morningstar. Data presented from inception of Fund (February 29, 1984)
through December 31, 1999.
==============================================================================
CLIPPER FUND(SM)
9601 Wilshire Boulevard
Beverly Hills, California 90210
Telephone (800) 776-5033
Shareholder Services
& Audio Response (800) 432-2504
Internet: www.clipperfund.com
INVESTMENT ADVISER
Pacific Financial Research
DIRECTORS
James H. Gipson
Norman B. Williamson
Professor Lawrence P. McNamee
F. Otis Booth, Jr.
TRANSFER & DIVIDEND PAYING AGENT [CLIPPER FUND(SM) LOGO GOES HERE]
National Financial Data Services
Post Office Box 219152
Kansas City, Missouri 64121-9152
(800) 432-2504
Overnight Address:
330 W. 9th Street, 4th Fl.
Kansas City, MO 64105
CUSTODIAN
State Street Bank and Trust Company A N N U A L R E P O R T
COUNSEL DECEMBER 31, 1999
Paul, Hastings, Janofsky & Walker LLP
INDEPENDENT AUDITORS
Ernst & Young LLP
This report is not authorized for
distribution to prospective investors
unless accompanied by a current prospectus.
==============================================================================
CF 4QTR 1299
