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 ▇▇▇▇ ▇▇▇) 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 ▇▇▇▇ ▇▇▇) 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/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chairman and President
ATTEST:/s/
▇▇▇▇▇▇▇ ▇▇▇▇▇
Secretary/Treasurer
PACIFIC FINANCIAL RESEARCH
(CORPORATE SEAL) By:/s/ ▇▇▇▇▇ ▇.▇▇▇▇▇▇
President
ATTEST:/s/
▇▇▇▇▇ ▇. ▇▇▇▇▇
Secretary/Chief Financial Officer
