485BPOS 1 file1.htm



                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                            ------------------------

                                    FORM N-1A

                        REGISTRATION STATEMENT UNDER THE
                             SECURITIES ACT OF 1933
                           REGISTRATION NO. 002-88543
                         POST-EFFECTIVE AMENDMENT NO. 26

                                       AND

                        REGISTRATION STATEMENT UNDER THE
                         INVESTMENT COMPANY ACT OF 1940
                           REGISTRATION NO. 811-03931
                         POST-EFFECTIVE AMENDMENT NO. 26

                                CLIPPER FUND, INC
                      On behalf of its series CLIPPER FUND
               (Exact Name of Registrant as Specified in Charter)

             2949 East Elvira Road, Suite 101, Tucson, Arizona 85706
                    (Address of Principal Executive Offices)
                                  520-434-3771
                         (Registrant's Telephone Number)

                              Thomas D. Tays, Esq.
                        Vice President & General Counsel
                          Davis Selected Advisers, L.P.
             2949 East Elvira Road, Suite 101, Tucson, Arizona 85706
                     (Name and Address of Agent for Service)

                                 with copies to:

                              Michael Glazer, Esq.
                     Paul, Hastings, Janofsky & Walker, LLP
                             515 South Flower Street
                          Los Angeles, California 90071

It is proposed that this filing will become effective:




-----  Immediately upon filing pursuant to paragraph (b)
  X    On _05/01/06_ pursuant to paragraph (b)
-----  60 days after filing pursuant to paragraph (a)
-----  On _, pursuant to paragraph (a) of Rule 485
-----  75 days after filing pursuant to paragraph (a)(2) of Rule 485
-----  On___, pursuant to paragraph (a)(2) of Rule 485


  Title of Securities being Registered Shares of Beneficial Interest of:

       Clipper Fund

EXPLANATORY NOTES

This Post-Effective Amendment No. 26 to the Registration Statement contains:
               Clipper Fund Prospectus
               Clipper Fund SAI
               Part C  and Signature Pages
               Exhibits:

[LOGO]
CLIPPER
FUND(TM)

PROSPECTUS

May 1, 2006

This prospectus contains important information about the Fund. Before you
invest, please read the prospectus carefully, paying particular attention to the
risks involved. Keep the prospectus for future reference.

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
STATEMENT TO THE CONTRARY IS A CRIMINAL OFFENSE.

Shares of the Fund:

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Are Not a Bank Deposit | Are Not FDIC Insured | May Lose Value
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TABLE OF CONTENTS

RISK/RETURN SUMMARY............................................................1

Investment Objective....................................................1

Principal Investment Strategies.........................................1

Principal Risks.........................................................2

Reducing Risk...........................................................3

Who Should Invest.......................................................3

Historical Performance..................................................3

Average Annual Total Returns............................................4

FEES AND EXPENSES..............................................................5

INVESTMENT OBJECTIVE AND STRATEGIES............................................6

Investment Objective....................................................6

Investment Strategies...................................................6

Davis Investment Discipline.............................................7

Other Types of Investments..............................................7

MANAGEMENT.....................................................................8

Adviser.................................................................8

Adviser's Fee...........................................................9

Portfolio Managers of the Fund..........................................9

Other Service Providers................................................10

SHAREHOLDER INFORMATION.......................................................10

Investment Minimums....................................................10

Types of Accounts......................................................11

Purchasing Shares Directly from the Fund...............................12

Purchasing (and Redeeming) Shares Through Third Parties................13

Automatic Investment Plan ("AIP")......................................13

Customer Identification and Anti-Money Laundering......................13

Selling (Redeeming) Shares.............................................14

Systematic Withdrawal Plan ("SWP").....................................15

Medallion Guarantees...................................................15

Involuntary Redemption.................................................16

Redemptions-In-Kind....................................................16

TABLE OF CONTENTS
(continued)

PAGE

Additional Redemption Information......................................16

How Fund Shares are Priced.............................................17

Frequent Purchases and Redemptions of Fund Shares......................18

DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES...............................18

Dividends..............................................................18

Capital Gains..........................................................19

Buying a Dividend......................................................19

Reinvestment of Dividends and Capital Gain Distributions...............19

Taxes..................................................................19

OTHER SHAREHOLDER INFORMATION.................................................20

Social Security Number/Taxpayer Identification Number..................20

STATEMENTS AND REPORTS........................................................20

Household Mailings.....................................................20

Disclosure of Portfolio Holdings.......................................20

Emergency Circumstances................................................21

Statement of Additional Information (SAI)..............................21

FINANCIAL HIGHLIGHTS..........................................................22

SHAREHOLDER PRIVACY NOTICE....................................................23

RISK/RETURN SUMMARY

The following is a summary of certain key information about Clipper Fund
(the "Fund"). The Fund is an open-end management investment company. You will
find additional information about the Fund, including a more detailed
description of the principal risks of an investment in the Fund, after this
summary. Davis Selected Advisers, L.P. ("Davis" or the "Adviser") is the Fund's
investment adviser.

INVESTMENT OBJECTIVE

The Fund seeks long-term capital growth and capital preservation.

PRINCIPAL INVESTMENT STRATEGIES

VALUE INVESTING. The Adviser seeks to invest the Fund's assets primarily
in common stocks of large companies (generally, companies with market
capitalizations of $5 billion or more at the time of initial purchase) that are
trading at prices below the Adviser's estimate of their intrinsic values. The
Adviser conducts extensive research to identify companies with durable business
models that can be purchased at attractive valuations relative to their
intrinsic value. See "The Davis Investment Discipline."

NON-DIVERSIFICATION. The Fund is non-diversified, which means the
securities laws do not limit the percentage of its assets that it may invest in
any one company. The Adviser believes that concentrating the Fund's portfolio in
a select, limited number of securities allows the Adviser's best ideas to have a
meaningful impact on the Fund's performance. Therefore, the Fund's portfolio
generally contains between 15 and 35 securities rather than hundreds of
securities; however, it may contain fewer than 15 securities or more than 35
securities if considered prudent and desirable by the Adviser.

CASH POSITION. If the Adviser is unable to find investments it believes
are selling at discounts to their intrinsic values, then, consistent with the
Fund's objective of capital preservation, a portion of the Fund's assets may be
invested in cash or cash equivalents. In other words, the Fund may not always
stay fully invested in stocks. As discussed further in "Fixed Income" below, the
Adviser may invest some or all of the Fund's cash position in fixed income
securities.

FIXED INCOME. During periods when the Adviser is unable to find stocks
that meet its investment criteria, the Adviser may invest some or all of the
Fund's cash position in fixed income securities. These fixed income securities
may range in maturity from very short term (12 months or less) to much longer
term (30 years or more). A more complete description of the types of fixed
income securities that the Fund may hold is included in the Fund's Statement of
Additional Information ("SAI"). You may request a copy of the SAI, free of
charge, by calling (800) 432-2504 or visiting WWW.CLIPPERFUND.COM.

PRINCIPAL RISKS

Although the Fund makes every effort to achieve its investment objective,
there is no guarantee that it will do so, and you could lose money by investing
in the Fund. The following are the principal risks of investing in the Fund.

MARKET RISK. The market value of shares of common stock can change rapidly
and unpredictably as a result of political or economic events having little or
nothing to do with the performance of the companies in which we invest.

COMPANY RISK. The market values of common stock vary with the success or
failure of the company issuing the stock. Many factors can negatively affect a
particular company's stock price, such as poor earnings reports, loss of major
customers, major litigation against the company or changes in government
regulations affecting the company or its industry. The success of the companies
in which the Fund invests largely determines the Fund's long-term performance.

NON-DIVERSIFICATION RISK. While the Fund's strategy of concentrating its
investments in a limited number of securities has the potential to generate
attractive returns over time, it may increase the volatility of the Fund's
investment performance as compared to funds that invest in a larger numbers of
securities. If the securities in which the Fund invests perform poorly, the Fund
could incur greater losses than if it had invested in a larger number of
securities.

NON-EQUITY RISK. When the Fund's investments in cash or other non-equity
securities 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.

FIXED INCOME RISK. Fixed income securities are subject to interest rate
and credit risk. Interest rate risk is the potential for a decline in bond
prices due to rising interest rates. Credit risk is the possibility that the
issuer of a fixed income security will fail to make timely payments of interest
or principal, or that the security will have its credit rating downgraded. The
Fund could lose money if the issuers cannot meet their financial obligations or
go bankrupt.

INDUSTRY RISK. The Fund may invest in a group of related securities which
decline in price due to industry-specific developments. Companies in the same or
similar industries may share common characteristics and are 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. For example,
the Fund may invest a significant portion of its assets in the financial
services sector. Risks of investing in the financial services sector include:
(i) Regulatory actions: financial services companies may suffer a setback if
regulators change the rules under which they operate; (ii) Changes in interest
rates: unstable interest rates, and/or rising interest rates, may have a
disproportionate effect on the financial services sector; (iii) Non-diversified
loan portfolios: financial services companies whose securities the Fund
purchases may themselves have concentrated portfolios, such as a high level of
loans to real estate developers, which makes them vulnerable to economic
conditions that affect that industry; and (iv) Competition: the financial
services sector has become increasingly competitive.

FOREIGN COUNTRY RISK. The Fund may invest up to 15% of its assets in
companies operating, incorporated, or principally traded in foreign countries.
Investing in foreign countries involves risks that may cause the Fund's
performance to be more volatile than it would be if we invested solely in the
United States. Foreign economies may not be as strong or as diversified, foreign
political systems may not be as stable, and foreign financial reporting
standards may not be as rigorous as they are in the United States. In addition,
foreign capital markets may not be as well developed, so securities may be less
liquid, transaction costs may be higher, and investments may be subject to
government regulation. Securities issued by foreign companies are frequently
denominated in foreign currencies. The change in value of a foreign currency
against the U.S. dollar will result in a change in the U.S. dollar value of
securities denominated in that foreign currency. The Fund generally does not
hedge its currency risk. When the value of a foreign currency declines against
the U.S. dollar, the value of the Fund's shares will tend to decline.

HEADLINE RISK. We conduct extensive research to identify companies with
durable business models that can be purchased at attractive valuations relative
to their intrinsic value. We may make such investments when a company becomes
the center of controversy after receiving adverse media attention. The company
may be involved in litigation, the company's financial reports or corporate
governance may be challenged, the company's annual report may disclose a
weakness in internal controls, investors may question the company's published
financial reports, greater government regulation may be contemplated, or other
adverse events may threaten the company's future. While we research companies
subject to such contingencies, we cannot be correct every time, and the
company's stock may never recover.

REDUCING RISK

The Adviser attempts to reduce risk principally through diligent research
into the operational and financial risks of the companies whose stock is held by
the Fund. There is no assurance these attempts to reduce risk to the Fund's
portfolio will be successful.

WHO SHOULD INVEST

The Fund's value strategy emphasizes investing for the long-term.
Therefore, the Fund is intended for investors with a long-term investment
horizon. The Fund is not managed for short-term results and is not appropriate
for short-term investors or those trying to "time" the market.

HISTORICAL PERFORMANCE

The following tables provide an indication of the historical risk of an
investment 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 total
returns for 1, 5, and 10 years compare to the returns of a broad-based
securities market index. Pacific Financial Research served as manager of the
Fund from inception through December 31, 2005. Davis became the manager of the
Fund on January 1, 2006. The Fund's past performance does not indicate how it
will perform in the future.

CLIPPER FUND ANNUAL TOTAL RETURNS (1996-2005)

YEAR BY YEAR TOTAL RETURNS

---------------------------------------------
YEAR RETURN
---------------------------------------------
1996 19.43%
---------------------------------------------
1997 30.44%
---------------------------------------------
1998 19.20%
---------------------------------------------
1999 (2.02)%
---------------------------------------------
2000 37.40%
---------------------------------------------
2001 10.26%
---------------------------------------------
2002 (5.50)%
---------------------------------------------
2003 19.35%
---------------------------------------------
2004 5.87%
---------------------------------------------
2005 (0.24)%
---------------------------------------------

BEST AND WORST QUARTERLY RETURNS

During the period shown in the bar chart, the highest quarterly return was
17.32% for the quarter ended June 30, 2003, and the lowest quarterly return was
(12.34)% for the quarter ended September 30, 2002. Total return for the three
months ended March 31, 2006, (not annualized) was 1.44%.

AVERAGE ANNUAL TOTAL RETURNS - (FOR THE PERIODS ENDED DECEMBER 31, 2005)

1 YEAR 5 YEARS 10 YEARS
-----------------------------------------------------------------------------------------------

CLIPPER FUND(SM)

Return Before Taxes (0.24)% 5.60% 12.62%

Return After Taxes on Distributions (0.46)% 4.66% 10.32%

Return After Taxes on Distributions and Sale of Fund Shares (0.30)% 4.36% 9.92%

S&P 500 INDEX 4.91% 0.54% 9.07%

After-tax returns are calculated using the historical highest individual federal
marginal income tax rates, and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on the investor's tax situation and may
differ from those shown. The after-tax returns are not relevant to investors who
hold Fund shares through tax-deferred arrangements such as 401(k) plans or
individual retirement accounts.

Average annual total return measures annualized change while total return
measures aggregate change.

The S&P 500 Index is an unmanaged total return index of 500 companies widely
recognized as representative of the equity market in general. Index returns do
not reflect deductions for fees, expenses or taxes. You cannot invest directly
in an index.

FEES AND EXPENSES

The following tables describe the fees and expenses you may pay if you
buy, sell or hold shares of the Fund.

SHAREHOLDER FEES (paid directly from your investment)
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
and Other Distributions None
Redemption Fee None

ANNUAL FUND OPERATING EXPENSES (deducted from the Fund's assets)
--------------------------------------------------------------------------------
Management Fee 0.50%(1)
Distribution (12b-1) Fees None
Other Expenses 0.20%(2)
Total Annual Fund Operating Expenses 0.70%(2)

1. THE ADVISER HAS AGREED TO WAIVE MANAGEMENT FEES IN EXCESS OF 0.50% THROUGH
DECEMBER 31, 2006. THEREAFTER THE FUND WILL PAY MANAGEMENT FEES BASED UPON
A SCHEDULE. SEE "ADVISERS FEE."

2. EXPENSES HAVE BEEN ESTIMATED AS A RESULT OF CHANGES IN THE LEVEL OF
AVERAGE NET ASSETS AND MAY VARY FROM THE AMOUNT PRESENTED IN THIS TABLE.

COST 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 (as a percentage of net assets) remain
the same as shown above. 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(SM) $72 $224 $390 $871

The above example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than those
shown.

INVESTMENT OBJECTIVE AND STRATEGIES

This section takes a closer look at the Fund's investment objective and
principal strategies. There can, of course, be no assurance that the Fund will
achieve its investment objective.

INVESTMENT OBJECTIVE

The Fund's investment objective is long-term capital growth and capital
preservation. This objective is fundamental and may not be changed without
shareholder approval. Certain of the Fund's investment strategies or policies
are also fundamental and may not be changed without shareholder approval. The
Fund's Board of Directors (the "Board"), which oversees management of the Fund,
may change the Fund's non-fundamental investment strategies or policies in the
interest of shareholders without shareholder approval. The Fund's SAI contains
further information on these policies. You may request a copy of the SAI, free
of charge, by calling (800) 432-2504. The SAI is also available on the Fund's
website at WWW.CLIPPERFUND.COM.

INVESTMENT STRATEGIES

The Adviser uses the Davis Investment Discipline to invest the Fund's
assets primarily in common stocks of large companies (generally, companies with
market capitalizations of $5 billion or more at the time of initial purchase)
that are trading at prices below the Adviser's estimate of their intrinsic
values.

The Fund has the flexibility to invest a limited portion of its assets in
companies of any size, to invest in companies whose shares may be subject to
controversy, to invest in foreign securities, and to invest in non-equity
securities. See "Other Types of Investments."

THE DAVIS INVESTMENT DISCIPLINE

The Adviser manages equity funds using the Davis Investment Discipline.
The Adviser conducts extensive research to identify companies with durable
business models that can be purchased at attractive valuations relative to their
intrinsic value. The Adviser emphasizes individual stock selection and believes
that the ability to evaluate management is critical. The Adviser routinely
visits managers at their places of business in order to gain insight into the
relative value of different businesses. Such research, however rigorous,
involves predictions and forecasts that are inherently uncertain.

Over the years, the Adviser has developed a list of characteristics that
it believes help companies to create shareholder value over the long term and
manage risk. While few companies possess all of these characteristics at any
given time, the Adviser searches for companies that demonstrate a majority or an
appropriate mix of these characteristics.

FIRST CLASS MANAGEMENT

o Proven track record

o Significant personal ownership in business

o Intelligent allocation of capital

o Smart application of technology to improve business and lower
costs

STRONG FINANCIAL CONDITION AND SATISFACTORY PROFITABILITY

o Strong balance sheet

o Low cost structure

o High after-tax returns on capital

o High quality of earnings

STRONG COMPETITIVE POSITIONING

o Non-obsolescent products / services

o Dominant or growing market share

o Participation in a growing market

o Global presence and brand names

After determining which companies it wishes to own, the Adviser then turns
its analysis to determining the intrinsic value of those companies' common
stock. The Adviser seeks common stock which can be purchased at attractive
valuations relative to their intrinsic value. The Adviser's goal is to invest in
companies for the long term. The Adviser considers selling a company if it
believe the stock's market price exceeds the Adviser's estimates of intrinsic
value, or if the ratio of the risks and rewards of continuing to own the company
is no longer attractive.

OTHER TYPES OF INVESTMENTS

Although the Fund invests primarily in equity securities, such as stocks
and securities convertible into stocks, the Fund may also purchase other kinds
of securities; engage in active

trading (which would increase portfolio turnover and commission expenses and may
increase taxable distributions); or employ other investment strategies that are
not principal investment strategies if, in the Adviser's professional judgment,
the securities or investment strategies are appropriate. Factors that the
Adviser considers in pursuing these other strategies include whether (i)
purchasing such securities would be consistent with shareholders' reasonable
expectations; (ii) they may assist a Fund in pursuing its investment objective;
(iii) they are consistent with the Fund's investment strategy; (iv) they will
cause the Fund to violate any of its investment restrictions; or (v) they will
materially change the Fund's risk profile as described in the Fund's prospectus
and Statement of Additional Information, as amended from time to time. The
Statement of Additional Information discusses these securities and investment
strategies.

MANAGEMENT

ADVISER

Effective January 1, 2006, the Fund's Board of Directors appointed Davis
Selected Advisers, L.P. to serve as investment adviser to the Fund. Shareholders
approved Davis' appointment at a shareholder meeting held April 21, 2006. Davis
is located at 2949 East Elvira Road, Suite 101, Tucson Arizona 85706. It is an
independent employee-owned firm founded in 1969 that provides investment
advisory services to other mutual funds and institutional and individual
clients. As of December 31, 2005, Davis managed approximately $72 billion in
assets.

Davis Selected Advisers-NY, Inc., serves as the sub-adviser for the Fund.
Davis Selected Advisers-NY, Inc.'s offices are located at 609 Fifth Avenue, New
York, New York 10017. Davis Selected Advisers-NY, Inc., provides investment
management and research services for the Fund and other institutional clients,
and is a wholly owned subsidiary of Davis Selected Advisers, L.P. Davis Selected
Advisers-NY, Inc.'s fee is paid by Davis Selected Advisers, L.P., not the Fund.

As the Fund's investment adviser, Davis is responsible for investing and
reinvesting the Fund's assets, placing orders to buy and sell securities and
negotiating brokerage commissions on portfolio transactions. In choosing
broker-dealers to handle portfolio securities transactions, Davis seeks to
obtain the best price and most favorable execution available. Davis does not use
Fund commissions ("soft dollars") to pay for (i) computer hardware or software,
or other electronic communications facilities; (ii) publications, both paper
based or electronic that are available to the general public; and (iii)
third-party research services. If Davis determines to purchase such services, it
pays for them using its own resources. Davis' portfolio managers may take into
account the research resources, as well as the execution capacity, of a
brokerage firm in selecting brokers. Thus, transactions may be directed to a
brokerage firm which provides (i) important information concerning a company;
(ii) introductions to key company officers; (iii) industry and company
conferences; and (iv) other value added research services.

Davis must adhere to the stated investment objective and policies of the
Fund, and is subject to supervision by the Fund's Board. See the SAI for more
detailed information about the Board and the Adviser.

ADVISER'S FEE

For its services Davis receives from the Fund a management fee as follows
(expressed as a percentage of the Fund's average daily net assets): 0.65% of
assets up to $500 million, 0.60% of assets greater than $500 million and up to
$1 billion, 0.55% of assets greater than $1 billion and up to $3 billion, 0.54%
of assets greater than $3 billion and up to $4 billion, 0.53% of assets greater
than $4 billion and up to $5 billion, 0.52% of assets greater than $5 billion
and up to $6 billion, 0.51% of assets greater than $6 billion and up to $7
billion, 0.50% of assets greater than $7 billion and up to $10 billion, and
0.485% of assets greater than $10 billion. For the 12 month period ending
December 31, 2006, Davis has agreed to waive management fees in excess of 0.50%.

From the Fund's inception through December 31, 2005, Pacific Financial
Research, Inc. ("PFR") served as investment adviser to the Fund. For its
services PFR received from the Fund a management fee at an annual rate of 1.00%
of the Fund's average daily net assets.

A discussion regarding the basis for the Board of Directors approving the
investment advisory contract with Davis is available in the Fund's annual report
to shareholders for the period ended December 31, 2005.

PORTFOLIO MANAGERS OF THE FUND

The portfolio managers responsible for overseeing the Fund's investments
are Christopher C. Davis and Kenneth C. Feinberg.

CHRISTOPHER C. DAVIS has served as portfolio manager of the Fund since
January 1, 2006. Mr. Davis has over 16 years experience in investment management
and securities research. Mr. Davis joined the Adviser in 1989 after working as a
securities analyst, and now leads the portfolio management of the Advisers'
large cap value and financial stock portfolios along with Kenneth C. Feinberg.
He received his M.A. from the University of St. Andrews in Scotland.

KENNETH C. FEINBERG has served as portfolio manager of the Fund since
January 1, 2006. Mr. Feinberg is a portfolio manager of the Advisers' large cap
value and financial stock portfolios along with Christopher C. Davis. He joined
the Adviser in 1994. Previously, he was a Vice President at the Continental
Corporation and a Capital and Business Analyst for the General Foods
Corporation. Mr. Feinberg received his M.B.A. from Columbia University and his
B.A. from Johns Hopkins University.

The SAI provides additional information about the portfolio managers'
compensation, other accounts managed by the portfolio managers, and the
portfolio managers' ownership of Fund shares.

OTHER SERVICE PROVIDERS

State Street Bank and Trust Company ("State Street") is custodian of the
Fund's assets and provides accounting services to the Fund. Its address is Post
Office Box 1713, Mutual Funds Operations-P2N, Boston, Massachusetts 02105.

Boston Financial Data Services (the "Transfer Agent") is the Fund's
transfer agent. Its address is 66 Brooks Drive, Braintree, MA 02184.

Davis Distributors, LLC is the Fund's distributor. Its address is 2949
East Elvira Road, Suite 101, Tucson Arizona, 85706.

The SAI has more information about the Fund's service providers.

SHAREHOLDER INFORMATION

This section explains how Fund shares are priced, how to buy and sell
shares, the different types of accounts you can establish with the Fund, the
services and features you can establish on your account, and 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.

As discussed in detail below in connection with requests to purchase and
redeem Fund shares, the phrase GOOD ORDER means that the request must include:

o Share certificates, if issued;

o 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;

o A medallion guarantee under the circumstances described in "Medallion
Guarantees" below; and

o Any other necessary legal documents, if required, in the case of
estates, trusts, guardianships, custodians, corporations, pension and
profit sharing plans and other organizations.

See also "Customer Identification and Anti-Money Laundering" below.

INVESTMENT MINIMUMS

MINIMUMS REGULAR ACCOUNT IRA ACCOUNT
-------------------------------------------------------
To Open an Account $25,000 $4,000
To Add to an Account $1,000 $500

The Fund may waive its minimum purchase requirement if it considers such
waiver to be in the best interests of the Fund and its shareholders. For
example, the minimums to open or add to an account are waived for (i) employee
benefit plans making purchases through a single account; and (ii) wrap accounts
offered by securities firms, fee-based investment advisers or financial
planners. Accounts opened through third parties such as broker-dealers or banks
may be subject to different minimums for initial and subsequent purchases.

TYPES OF ACCOUNTS

REGULAR ACCOUNTS

o Individual or Joint Ownership. You must include the name, birth date
and Social Security number of each owner on the Account Application.

o Gift or Transfer to Minor (UGMA/UTMA). An UGMA/UTMA account is a
custodial account managed for the benefit of a minor. To open this
type of an account, you must include the custodian's and minor's
names, birth dates, and Social Security numbers on the Account
Application.

o Trust. An established trust can open an account. You must include the
name, birth date, and Social Security number of each trustee, together
with the name of the trust, and the date of the trust agreement. You
must also include a copy of the first, last and signature pages of the
trust agreement.

o Business Accounts. Corporations or partnerships may also open an
account. You must include the name, birth date, and Social Security
number of each officer on the Account Application. An authorized
officer of the corporation or a general partner of the partnership
must sign the Application. If you are opening an account for a
corporation, a copy of its certified articles of incorporation or its
business license must be attached to the Application. If you are
opening an account for a partnership, a copy of its partnership
agreement must be attached.

RETIREMENT ACCOUNTS

o 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 account
applications. Please refer to the Fund's Information Kit on IRAs. You
can obtain an IRA Information Kit, along with the Account Application
and the prospectus, by calling Shareholder Services at 1-800-432-2504
or visiting the Fund's website at WWW.CLIPPERFUND.COM.

o Simplified Employee Pension Plan (SEP). SEPs allow small business
owners (including sole proprietors) to make tax-deductible
contributions for themselves and any other eligible employees. Please
refer to the Fund's Information Kit on IRAs.

PURCHASING SHARES DIRECTLY FROM THE FUND

o There are no sales charges to purchase shares of the Fund. You do not
pay sales commissions or 12b-1 marketing fees.

o Your purchase request will be processed at the net asset value per
share ("NAV") next calculated after your order is received in GOOD
ORDER (as defined in "Shareholder Information" above) and accepted by
the Fund. In other words, purchase orders received by the close of the
regular trading session of the NYSE (4:00 p.m. Eastern Time) will be
invested at the NAV calculated after the NYSE closes on that day;
purchase orders received after the close of the NYSE will be executed
at the NAV computed on the next day the NYSE is open.

o Purchases must be in U.S. dollars.

o You may pay for shares of the Fund by check or by wire transfer.

o The Fund does not accept cash, credit cards, money orders, starter
checks, third-party checks, travelers checks, checks drawn on banks
outside the U.S., or other checks deemed to be high risk by the Fund.

PURCHASING SHARES BY MAIL

Complete and sign an Account Application and mail it with a check made
payable to "CLIPPER FUND" to the following address:

Clipper Fund Inc.
c/o Boston Financial Data Services, Inc.
P.O. Box 55468
Boston, MA 02205-5468

Or via overnight mail:

Clipper Fund, Inc.
c/o Boston Financial Data Services, Inc.
66 Brooks Drive, Braintree, MA 02184

You can obtain an Account Application along with the prospectus by calling
Shareholder Services at 1-800-432-2504 or visiting the Fund's website at
WWW.CLIPPERFUND.COM.

PURCHASING SHARES BY WIRE

You may also purchase shares of the Fund by wiring money from your bank
account to your Fund account. Call the Fund at (800) 432-2504 to receive wiring
instructions.

PURCHASING (AND REDEEMING) SHARES THROUGH THIRD PARTIES

o Shares of the Fund may be purchased through a broker-dealer, bank or
other financial intermediary, or an organization that provides
recordkeeping and consulting services to 401(k) plans or other
employee benefit plans (collectively, "Service Agents") which have
established shareholder servicing relationships 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 AND/OR THE ADVISER FOR SHAREHOLDER
RECORDKEEPING AND SIMILAR SERVICES IN AMOUNTS BASED ON THE TOTAL
ASSETS OF SUCH FIRMS' CUSTOMERS INVESTED IN THE FUND.

o 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 procedures of the Fund. If
the Fund does not receive payment, the transaction may be cancelled
and the Service Agent could be held liable for resulting fees or
losses.

o Once you have established an account through a Service Agent, any
subsequent transactions or inquiries with respect to the account must
be made through such Service Agent.

o If one mutual fund sponsor provides greater financial assistance than
another, your Service Agent may have an incentive to recommend one
mutual fund complex over another. Please speak with your financial
adviser at your Service Agent to learn more about the total amounts
paid to your financial adviser and his or her firm by the Fund and/or
the Adviser and by sponsors of other mutual funds he or she may
recommend to you. You should also review disclosures made by your
financial adviser at the time of purchase.

AUTOMATIC INVESTMENT PLAN ("AIP")

Shareholders may choose to participate in the Fund's Automatic Investment
Plan. Once the minimum initial investment has been made ($25,000 Regular; $4,000
IRA), you may elect to purchase shares automatically at regular intervals,
subject to a $200 minimum monthly investment. To establish an AIP, you must
complete the corresponding section on the Account Application. You may cancel
your participation or change the amount of your purchase at any time by calling
the Fund 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.

CUSTOMER IDENTIFICATION AND ANTI-MONEY LAUNDERING

To help the U.S. Government fight the funding of terrorism and money
laundering activities, the USA PATRIOT Act of 2001 (the "PATRIOT Act") and
federal regulations require financial institutions, including mutual funds, to
obtain, verify and record information that

identifies each person who opens a new account, and to determine, among other
things, whether such person's name appears on U.S. Government lists of known or
suspected terrorists and terrorist organizations. Accordingly, the following
information is required to open an account, whether directly with the Fund or
through a Service Agent:

o Name;

o Date of birth;

o Permanent street address (a mailing address containing a P.O. Box will
not be accepted for purposes of opening an account); and

o Social Security number, taxpayer identification number, or other
identifying number.

ACCOUNTS OPENED DIRECTLY WITH THE FUND

In order to comply with the PATRIOT Act, the Fund will verify certain
information on your Account Application. As requested on the Application, be
sure to provide the information listed above. You may be asked to provide
certain other documentation (such as a driver's license or a passport) in order
to verify your identity. Additional information may be required to open accounts
for corporations and other non-natural persons.

If you do not supply the necessary information, the Fund may not be able
to open your account. Please contact the Fund if you need additional assistance
when completing your Application. If the Fund is unable to verify your identity
or that of another person authorized to act on your behalf, or if it believes it
has identified potentially criminal activity, the Fund reserves the right to
close your account or take any other action it deems reasonable or required by
law.

ACCOUNTS OPENED THROUGH SERVICE AGENTS

When you open an account through a Service Agent, you will have to provide
the same information listed above and any additional information as may be
required by your Service Agent. This information is subject to verification by
the Service Agent to ensure the identity of all persons opening accounts.

The ability of the Fund to verify customer identification information
through omnibus accounts is limited, and there is no guarantee that the Fund
will be able to identify shareholders who may be engaging in money laundering
activities through omnibus accounts or to curtail such activities.

SELLING (REDEEMING) SHARES

o You may redeem all or a portion of your Fund shares at any time.

o Your redemption request will be processed at the NAV next calculated
after the Fund receives all required documents in GOOD ORDER (as
defined in "Shareholder Information" above).

o If shares are held in certificate form, the certificate must be
returned in order to redeem.

SELLING SHARES BY MAIL

Send requests to sell shares directly to the Fund at the address
referenced above under "Purchasing Shares by Mail." Redemption requests made by
fax are not acceptable. The sale price of your shares will be the Fund's NAV
next calculated after the Fund receives all required documents in GOOD ORDER.

SELLING SHARES BY TELEPHONE

To sell shares by telephone you must:

o Pre-establish the telephone redemption privilege and wiring
instructions (if applicable) by completing the appropriate section of
the Account Application; and

o Call the Fund at (800) 432-2504 by the close of the regular trading
session of the NYSE (normally 4:00 PM Eastern time).

The Fund will employ reasonable procedures to confirm that instructions
received by telephone are valid. The Fund will not be responsible for any losses
resulting from unauthorized transactions when procedures reasonably designed to
verify the identity of the caller are followed.

SYSTEMATIC WITHDRAWAL PLAN ("SWP")

Shareholders with a balance of $25,000 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 a SWP, you must complete the corresponding
section on the Account Application. You may cancel your participation or change
the amount of withdrawal at any time by calling the Fund 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.

MEDALLION GUARANTEES

A medallion guarantee assures that a signature is genuine and protects
shareholders from unauthorized account transfers and is REQUIRED if any of the
following is applicable:

o You request a redemption by check that exceeds $100,000.

o You would like a check made payable to anyone other than the
shareholder(s) of record.

o You would like a check mailed to an address which has been changed
within 30 days of the redemption request.

o You would like a check mailed to an address other than the address of
record.

o Establishing certain services after the account is opened.

The Fund reserves the right to require a medallion guarantee under other
circumstances or to reject or delay a redemption on certain legal grounds. See
"Emergency Circumstances" below.

Medallion guarantees can be obtained from most domestic banks, credit
unions or savings associations, or from broker-dealers, national securities
exchanges, registered securities exchanges, registered securities associations,
clearing agencies, or other financial institutions that participate in a
Medallion program recognized by the Securities Transfer Association. If you live
outside the United States, a foreign bank properly authorized to do business in
your country of residence or a U.S. consulate may be able to authenticate your
signature.

NOTARY PUBLICS CANNOT PROVIDE MEDALLION GUARANTEES.

INVOLUNTARY REDEMPTION

The Fund reserves the right to redeem the shares held in any account if
the account balance falls below the minimum initial investment requirement. Your
account will not be closed if the drop below the minimum initial investment
requirement is due to share price fluctuations. You will be given at least 60
days' written notice before involuntary redemptions are made. You may purchase
shares to bring your account balance above the minimum during the 60-day grace
period.

REDEMPTIONS-IN-KIND

The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption by making payment in whole or
in part in readily marketable securities chosen by the Fund and valued as they
are for purposes of calculating the Fund's NAV. If a payment is made in
securities, a shareholder may incur transaction expenses in converting these
securities to cash.

ADDITIONAL REDEMPTION INFORMATION

Payment for redeemed shares will normally be made on the next business day
after redemption, but no later than seven days after the transaction. However,
redemption proceeds for newly purchased shares may be delayed up to fifteen days
after the purchase of the shares, pending verification that your check has
cleared. Please note that the Fund seeks to prohibit short-term trading, as
described under "Frequent Purchases and Redemptions of Fund Shares" below, and
if you redeem newly purchased shares, the Fund reserves the right to reject any
further purchase orders from you.

The Transfer Agent will wire redemption proceeds only to a pre-established
bank account. During periods of significant economic or market changes,
telephone redemptions may be difficult to implement. If you are unable to
contact the Fund by telephone at (800) 432-2504,

the redemption request may be delivered to the Fund at the address referenced
above under "Purchasing Shares by Mail."

HOW FUND SHARES ARE PRICED

o The Fund's share price, or NAV, changes daily. The price of shares you
wish to purchase or redeem will be determined the next time the Fund's
share price is calculated after the Fund receives your request in GOOD
ORDER (as defined in "Shareholder Information" above).

o The Fund's share price is calculated by dividing the value of all
securities and other assets owned by the Fund, less the liabilities of
the Fund, by the number of Fund shares outstanding.

o The Fund's share price is calculated as of the close of trading on the
New York Stock Exchange ("NYSE") (generally 4:00 p.m. Eastern Time)
every day the NYSE is open.

o The Fund's share price will not be calculated on holidays the NYSE
observes, including New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. NYSE holiday schedules are
subject to change without notice. The NYSE may close early on the day
before each of these holidays and the day after Thanksgiving and
Christmas.

o The Fund's investments are primarily valued using market quotations.
Debt securities (other than short-term instruments) are valued at
prices furnished by a pricing service, subject to review and possible
revision by the Adviser. Short term instruments maturing within 60
days are valued at either original cost or amortized cost, both of
which approximate current market value.

o If market prices are not readily available for any securities in which
the Fund has invested, those securities will be valued at fair value
by or under the supervision of the Fund's Board of Directors and in
accordance with Board-approved Pricing Policies and Procedures. These
circumstances include, among others, the lack of available quotations
for restricted or illiquid securities; trading halts in securities;
and the Adviser's determination that a significant event has occurred
after the close of a security's primary exchange or market (for
example, a foreign exchange or market), but before the time the Fund's
share price is calculated, which will have a material effect on the
value of the security.

o Despite the Fund's best efforts, there is an inherent risk that the
fair value price of an investment may be higher or lower than the
price the Fund would have received if it had sold the investment.

See the SAI for more detailed information.

FREQUENT PURCHASES AND REDEMPTIONS OF FUND SHARES

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. Short-term trading ("market timing") involves frequent purchases and
redemptions of Fund shares and may harm long-term shareholders of the Fund by
diluting the value of Fund shares held by long-term shareholders, interfering in
the efficient management of the Fund's portfolio, and increasing brokerage and
administrative costs. Accordingly, the Fund's Board has adopted a policy
pursuant to which the Fund seeks to prohibit market timing. The Fund or its
agents may reject, without any prior notice, any purchase orders by any investor
or group of investors, including purchase orders that the Fund or its agents
believe are attributable to market timers or are otherwise excessive or
potentially disruptive to the Fund. Orders placed by investors in violation of
the excessive trading policies may be revoked or cancelled, without prior
notice, by the Fund on the next business day after receipt of the order.
Transactions placed by shareholders through omnibus accounts held by financial
intermediaries may be rejected, without prior notice, in whole or in part by the
Fund.

Steps that the Fund has taken to identify and discourage frequent trading
include periodically reviewing individual shareholder trading activity to
identify shareholders who are making excessive transactions or otherwise trading
inappropriately. However, due to the complexity and subjectivity involved in
identifying market timing or excessive trading activity, the variety of
strategies to avoid detection, and the volume of Fund shareholder transactions,
there can be no guarantee that the Fund will be able to identify and restrict
shareholders engaged in such activity. Additionally, the Fund may be unable to
monitor the trading activity of beneficial owners of Fund shares who hold those
shares through third-party 401(k) and other group retirement plans and other
omnibus arrangements maintained by broker-dealers and other financial
intermediaries. Omnibus account arrangements permit multiple investors to
aggregate their respective share ownership positions and purchase and redeem
Fund shares without the identities of the individual shareholders being known to
the Fund. Accordingly, the ability of the Fund to monitor and detect excessive
trading activity through omnibus accounts is very limited, and there is no
guarantee that the Fund will be able to identify shareholders who may be
engaging in such activity through omnibus accounts or to curtail such trading.

DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES

In addition to any increase in the value of shares which the Fund may
achieve, you may receive dividends and capital gain distributions from the Fund.

DIVIDENDS

Dividends from stocks and interest earned from other investments are the
Fund's main sources of investment income. The Fund intends to distribute
substantially all of its income, less expenses, at least annually as dividends
to shareholders.

CAPITAL GAINS

When the Fund sells portfolio securities it may realize a capital gain or
loss, depending on whether the security is sold for more or less than its
adjusted cost basis. Net realized capital gains, if any, will be distributed at
least annually.

BUYING A DIVIDEND

Purchasing shares of the Fund shortly before it makes dividends or capital
gain distributions will have the effect of reducing the share price by the
amount of the distribution. This is sometimes referred to as "buying a dividend"
because although the distribution is in effect a return of a portion of the
purchase price, it is taxable.

Unless you are investing in a tax-deferred account such as an IRA, you may
want to consider waiting to invest until after the Fund makes a distribution.

REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS

Dividends and capital gain distributions made by the Fund are
automatically applied to purchase additional shares of the Fund at the share
price on the payable date unless you elect to have distributions paid to you in
cash. You may change whether distributions are reinvested or paid in cash at any
time by contacting the Fund. Changes will be effective for distributions with a
record date on or after the date the Fund receives your request.

TAXES

Dividends paid from the Fund's net investment income and net short-term
capital gains generally will be taxable as ordinary income, whether paid in cash
or reinvested as additional shares. A portion of the dividends paid from the net
investment income of the Fund may constitute "qualified dividends" eligible for
the maximum federal income tax rate of 15%. The Fund will inform shareholders of
any portion of its dividends that constitutes "qualified dividends."

Distributions paid from the Fund's long-term capital gains and designated
as capital gain distributions generally are taxable as long-term capital gains,
regardless of the length of time you held your shares.

Gain or loss upon the sale of the Fund's shares will be treated as a
capital gain or loss, provided that (as is usually the case) the shares
represented a capital asset of the shareholder. The gain or loss will be
considered long-term if you have held the shares for more than one year. The
gain or loss on shares held for one year or less will be considered short-term
and taxed at the same rates as ordinary income.

In January, you will be sent Form 1099-DIV, which includes information
about the tax status of any dividend and capital gain distributions made to you
during the previous year. This information is also reported to the Internal
Revenue Service ("IRS").

To the extent the Fund invests in foreign securities, it may be required
to pay withholding and other taxes imposed by foreign countries.

THIS PROSPECTUS GIVES ONLY GENERAL TAX INFORMATION. BEFORE YOU INVEST,
CONSULT YOUR TAX ADVISER ON FEDERAL, STATE AND LOCAL TAX CONSIDERATIONS FOR YOUR
SPECIFIC SITUATION.

OTHER SHAREHOLDER INFORMATION

SOCIAL SECURITY NUMBER/TAXPAYER IDENTIFICATION NUMBER

The Fund is required to withhold and remit to the U.S. Treasury a
percentage of dividend payments, capital gain distributions, and redemption
proceeds at a rate set forth in applicable IRS rules and regulations for certain
shareholders who have not certified that the Social Security number or taxpayer
identification number ("TIN") they have supplied is correct and that they are
not subject to backup withholding because of previous underreporting to the IRS.
This backup withholding requirement generally does not apply to shareholders
that are corporations or certain tax-exempt organizations.

To avoid backup withholding you must certify on the Account Application
that your Social Security number or TIN is correct and that you are not subject
to backup withholding.

STATEMENTS AND REPORTS

Transactions in the account, such as additional investments, will be
reflected on regular confirmation statements from the Transfer Agent. Dividend
and capital gain distributions, purchases through automatic investment plans and
certain retirement plans, and systematic withdrawals will be confirmed at least
quarterly.

HOUSEHOLD MAILINGS

To reduce Fund expenses, the Fund attempts to identify related
shareholders within a household and to send only one copy of a shareholder
report or prospectus per household.

If you do not want the mailing of shareholder reports and prospectuses
combined with other members in your household, contact the Fund at
1-800-432-2504 and your request will become effective within 30 days.

DISCLOSURE OF PORTFOLIO HOLDINGS

The Fund's portfolio holdings are published and mailed to shareholders
twice a year in the annual and semi-annual reports which are mailed
approximately 60 days after the end of the Fund's second and fourth fiscal
quarters. In addition, the Fund publishes its portfolio holdings on its website
(and the SEC website) approximately sixty days after the end of each fiscal
quarter. Other information concerning the Funds' portfolio holdings may also be
published on the Clipper Funds' website from time to time.

EMERGENCY CIRCUMSTANCES

The Fund may, in case of emergency, temporarily suspend telephone
transactions and other shareholder services. It may be difficult to reach the
Fund by telephone during periods of substantial economic or market change or in
emergency situations. Under these circumstances, you may wish to consider
purchasing or redeeming shares by mail or overnight express delivery. The Fund
can suspend redemptions and/or delay payments of redemption proceeds when the
New York Stock Exchange is closed due to financial conditions or during
emergency circumstances, as determined by the Securities and Exchange Commission
("SEC").

STATEMENT OF ADDITIONAL INFORMATION (SAI)

The Fund's SAI has been filed with the SEC and is incorporated in this
prospectus by reference, which means it is legally considered part of this
prospectus. It contains more details on all aspects of the Fund. You may request
a copy of the SAI, free of charge, by calling Shareholder Services at
1-800-432-2504. The SAI is also available on the Fund's website at
WWW.CLIPPERFUND.COM.

FINANCIAL HIGHLIGHTS

The following 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, for the years ended December 31, 2003 through
December 31, 2005, has been audited by PricewaterhouseCoopers, LLP, independent
registered public accounting firm, whose report, along with the Fund's financial
statements, is included in the Fund's Annual Report to Shareholders, and is
incorporated by reference in the SAI. The financial highlights for the years
preceding 2003 were audited by another independent registered public accounting
firm whose reports expressed unqualified opinions on those statements.

The Audit Committee, consisting solely of Independent Directors, has
appointed KPMG LLP an independent registered public accounting firm, to serve as
auditor for the Fund's 2006 financial statements.

The Annual Report and the Semi-Annual Report to Shareholders and the
Fund's financial statements are available, free of charge, by contacting the
Fund at 1-800-432-2504.

YEAR ENDED DECEMBER 31,

2005 2004 2003 2002 2001
--------------------------------------------------------------------------------------------------------------------

PER SHARE DATA:
Net asset value, beginning of year $ 89.68 $ 87.97 $ 75.73 $ 83.53 $ 79.25

Income from investment operations:
Net investment income .............................. 1.31 0.58 0.72 1.05 1.08
Net realized and unrealized gain/(loss) on
investments ...................................... (1.52) 4.51 13.87 (5.65) 7.03
-------- -------- -------- -------- --------
Total income (loss) from investment operations ........ (0.21) 5.09 14.59 (4.60) 8.11

Less distributions:
Dividends from net investment income ............... (1.29) (0.57) (0.73) (1.05) (1.08)
Distributions from net realized gain on
investments ....................................... -- (2.81) (1.62) (2.15) (2.75)
-------- -------- -------- -------- --------

Net asset value, end of year $ 88.18 $ 89.68 $ 87.97 $ 75.73 $ 83.53

TOTAL RETURN .......................................... (0.2%) 5.9% 19.3% (5.5%) 10.3%

RATIOS AND SUPPLEMENTAL DATA:
Net Assets, ($000,000's) end of year ............... $ 4,005 $ 7,208 $ 6,963 $ 5,002 $ 2,685
Ratio of expenses to average net assets:
Gross of expense reduction ......................... 1.12% 1.12% 1.13% 1.12% 1.12%
Net of expense reductions .......................... 1.11% 1.12% 1.12% 1.07% 1.08%
Ratio of net investment income to average net assets 0.97% 0.65% 0.98% 1.60% 1.72%
Portfolio turnover rate ............................ 13% 16% 25% 48% 23%
Number of shares outstanding at end of year (000's) 45,431 80,374 79,162 66,050 32,144

SHAREHOLDER PRIVACY NOTICE

Clipper Fund(SM) (the "Fund") collects nonpublic personal information about its
shareholders in the ordinary course of establishing and servicing their
accounts. Nonpublic personal information means personally identifiable financial
information which is not publicly available and any list, description, or other
grouping of shareholders that is derived using such information. For example, it
includes your address, social security number, account balance, income,
investment activity, and bank account information. We collect this information
from the following sources:

o Information we receive from you on applications or other forms;

o Information about your transactions with others, such as your
financial adviser and other such intermediaries.

We do not disclose nonpublic personal information about you or your
account(s) to anyone unless one of the following conditions is met:

o We receive your prior written consent;

o We believe the recipient is your authorized representative;

o We are permitted by law to disclose the information to the recipient
in order to service your account(s); or

o We are required by law to disclose information to the recipient.

If you decide to close your account(s), we will continue to adhere to the
privacy policies and practices as described in this notice.

If you hold shares of the Fund through a financial intermediary, such as a
broker-dealer, bank or trust company, the privacy policy of your financial
intermediary will also govern how your nonpublic personal information will be
shared with other parties.

We restrict access to your personal and account information to those
employees who need to know that information to service your account(s). The Fund
maintains physical, electronic, and procedural safeguards to protect your
nonpublic personal information.

FOR MORE INFORMATION

For investors who want more information about the Fund, the following documents
are available free upon request:

ANNUAL/SEMI-ANNUAL/QUARTERLY REPORTS

Additional information about the Fund's investments is available in the Fund's
Annual, Semi-Annual and Quarterly Reports to shareholders. The Fund's Annual
Report will contain a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

STATEMENT OF ADDITIONAL INFORMATION (SAI) AND CODE OF ETHICS

The SAI provides more detailed information about the Fund and is incorporated
into (and thus is legally a part of) this prospectus. The Code of Ethics
describes the personal investing policies adopted by the Fund and the Adviser.

You can get free copies of the Fund's shareholder reports and the SAI and
request other information about the Fund by contacting the Fund at:

Clipper Fund(SM)

2949 East Elvira Road, Suite 101

Tucson Arizona, 85706

Telephone: 1-800-432-2504

Internet: www.clipperfund.com

The Fund's shareholder reports, SAI, Code of Ethics, and other information are
available at the SEC's Public Reference Room in Washington D.C. (1-202-942-8090)
or on the EDGAR database on the SEC's Internet site at www.sec.gov. You may also
obtain copies of this information, after paying a duplicating fee, by sending an
e-mail request to publicinfo@sec.gov or by writing to the SEC's Public Reference
Section, Washington, D.C. 20549-0102.

Investment Company File No. 811-3931

[LOGO]
CLIPPER
FUND(TM)

PROSPECTUS
May 1, 2006

CLIPPER FUND, INC.

STATEMENT OF ADDITIONAL INFORMATION

MAY 1, 2006

2949 East Elvira Road, Suite 101
Tucson, Arizona 85706

Clipper Fund Inc., ("Fund") is an open-end management investment company issuing
shares which are publicly offered.

This statement of additional information ("SAI") is not a prospectus but
contains information in addition to, and more detailed than, that set forth in
the Fund's prospectus (the "Prospectus") and should be read in conjunction with
the Prospectus. A Prospectus may be obtained without charge by calling
Shareholder Services at 1-800-432-2504. This SAI and the Prospectus are both
dated May 1, 2006. Capitalized terms used herein and not defined have the same
meanings as in the Prospectus.

Shareholders may obtain a copy of the Prospectus, Annual or Semi-Annual Report,
or Proxy Statement/Prospectus without charge, by calling Shareholder Services at
1-800-432-2504 or by downloading it from the Fund's website at
www.clipperfund.com.

TABLE OF CONTENTS

PAGE

GENERAL INFORMATION AND HISTORY................................................1

INVESTMENT RESTRICTIONS AND POLICIES...........................................1

ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND RISKS........................4

DISCLOSURE OF PORTFOLIO HOLDINGS..............................................12

MANAGEMENT OF THE FUND........................................................13

INVESTMENT ADVISORY AND OTHER SERVICES........................................16

CODES OF ETHICS...............................................................22

PROXY VOTING POLICIES.........................................................23

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...........................23

PORTFOLIO TRANSACTION PRACTICES...............................................24

CAPITAL STOCK AND OTHER SECURITIES............................................28

PURCHASE, REDEMPTION AND PRICING OF SHARES....................................28

TAX STATUS....................................................................29

CALCULATION OF PERFORMANCE DATA...............................................32

APPENDIX A SECURITIES RATINGS.................................................35

APPENDIX B SUMMARY OF PROXY VOTING POLICIES...................................40

- i -

GENERAL INFORMATION AND HISTORY

The Fund is a California corporation and was incorporated under the General
Corporation Law of California on December 1, 1983. For operational purposes, its
inception date is February 29, 1984.The Fund is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as a non-diversified open-end
management investment company.

The Fund is classified as a "non-diversified" fund under the 1940 Act, which
means that it is permitted to invest its assets in a more limited number of
issuers than "diversified" investment companies. A diversified investment
company may not, with respect to 75% of its total assets, invest more than 5% of
its total assets in the securities of any one issuer and may not own more than
10% of the outstanding voting securities of any one issuer. While the Fund is a
non-diversified investment company and therefore is not subject to the statutory
diversification requirements discussed above, the Fund intends to diversify its
assets to the extent necessary to qualify for tax treatment as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code").

The primary investment objective of the Fund is long-term capital growth and
capital preservation. This primary investment objective is fundamental and
cannot be changed without shareholder approval. See the prospectus for a
description of the Fund's principal investment strategies.

INVESTMENT RESTRICTIONS AND POLICIES

The restrictions designated as fundamental policies in the Fund's Prospectus or
SAI may not be changed without approval by the holders of a majority of the
Fund's outstanding shares (as defined in the 1940 Act). If the Fund's Board of
Directors determines, however, that the Fund's investment objective can best be
achieved by a substantive change in a non-fundamental investment policy or
strategy, the Fund's Board may make such change without shareholder approval and
will disclose any such material change in the then current prospectus. Any
policy that is not specified in the Fund's Prospectus or in the SAI as being
fundamental is non-fundamental.

FUNDAMENTAL INVESTMENT POLICIES

The Fund has adopted and will follow the fundamental investment policies set
forth below, which may not be changed without the approval of the lesser of (i)
2/3 or more of the voting securities present at a duly held meeting of Fund
shareholders at which a quorum (more than 50% of outstanding shares) is present,
or (ii) more than 1/2 of the outstanding voting securities of the Fund.

The Fund may not:

1. Invest more than 25% of its total assets in the securities of issuers in
any one industry.

2. Invest in the securities of foreign issuers and obligors if, as a result
more than 15% of the Fund's total assets would be invested in such
securities.

3. Invest in foreign currency or in forward foreign currency contracts.
However, the Fund may convert U.S. dollars into foreign currency in order
to effect securities transactions on foreign securities exchanges.

4. Invest in any restricted securities, including privately sold bonds,
debentures or other debt securities or other illiquid assets, including
repurchase agreements maturing in over seven days and securities which do
not have readily available market quotations if, as a result, more than
10% of the Fund's total assets would be invested in such securities.

5. Invest more than 10% of the Fund's total assets in securities of special
situation companies. A special situation is a company, which has
experienced an event such as a liquidation, reorganization,
recapitalization, or merger; material litigation; a technological
breakthrough; or new management or adoption of new management policies,
but that the Adviser believes will appreciate in value.

6. Invest in securities of any company with a record of less than three
years' continuous operation (including that of predecessors) if, as a
result more than 25% of the Fund's total assets would be invested in such
securities.

7. Underwrite the securities of other issuers, except that the Fund may
acquire restricted securities under circumstances where, if such
securities are sold, the Fund might be deemed to be an underwriter for the
purposes of the Securities Act of 1933, as amended (the "Securities Act").

8. Purchase or sell real estate or interests in real estate, except that the
Fund may purchase marketable securities of companies holding real estate
or interests in real estate.

9. Purchase or sell commodities or commodity contracts, including futures
contracts.

10. Make loans, except that the Fund may purchase issues of (i) publicly
distributed bonds, debentures or other debt securities or (ii) privately
sold bonds, debentures or other debt securities immediately convertible
into equity securities, provided that such purchases of privately sold
debt securities do not to exceed 5% of the Fund's total assets.

11. Purchase securities on margin, except that the Fund may obtain such
short-term credits as necessary for the clearance of purchases and sales
of securities.

12. Borrow money from banks except for temporary or emergency purposes (i.e.,
not for leverage), including the meeting of redemption requests that might
otherwise require the untimely disposition of securities, in an aggregate
amount not exceeding 5% of the value of the Fund's total assets at the
time any such borrowing is made.

13. Sell securities short.

14. Purchase or sell options on securities.

15. Participate in a joint or joint and several basis in any securities
trading account.

16. Purchase the securities of any other investment company except (1) in the
open market or in privately negotiated transactions where (in either case)
to the best information of the

Fund no commission, profit or sales charge to a sponsor or dealer (other
than the customary broker's commission) results from such purchase but
neither open market nor privately negotiated purchases of such securities
shall exceed 5% of the Fund's total assets in either category (not in the
aggregate), or (2) if such purchase is part of a merger, consolidation or
acquisition of assets.

17. Invest in or hold securities of any issuer if, to the knowledge of the
Fund, those officers and Directors of the Fund or officers or Directors of
the Adviser owning individually more than 1/2 of 1% of the securities of
such issuer own in the aggregate more than 5% of the securities of such
issuer.

NON-FUNDAMENTAL INVESTMENT POLICIES

The Fund has adopted and will follow the non-fundamental investment policies set
forth below, which may be changed by the Fund Board of Directors without the
approval of the Fund's shareholders.

The Fund may not:

1. Make investments for the purposes of exercising control or management.

2. Invest more than 10% of its net assets in all forms of illiquid
investments, as determined pursuant to applicable Securities and Exchange
Commission ("SEC") rules and regulations.

3. Purchase or sell interests in oil, gas or other mineral exploration or
development programs, although it may invest in the securities of issuers
that invest in or sponsor such programs.

DIVERSIFICATION OF INVESTMENTS

The Fund intends to comply with the diversification standards applicable to
regulated investment companies under the Code, which requires that the Fund
diversify its holdings so that, at the end of each fiscal quarter, (a) at least
50% of the market value of the Fund's assets is represented by cash, U.S.
Government securities, securities of other regulated investment companies and
other securities limited with respect to any one issuer to an amount not greater
than 5% of the Fund's assets and 10% of the outstanding voting securities of
such issuer, and (b) not more than 25% of the value of the Fund's assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies), or of
two or more issuers which the Fund controls (i.e., owns, directly or indirectly,
20% of the voting stock) and which are determined to be engaged in the same or
similar trades or businesses or related trades or businesses.

CONCENTRATION OF INVESTMENTS

The Fund may not invest greater than 25% of its net assets in the securities of
issuers conducting their principal business activities in the same industry.
While the Fund's strategy of concentrating its investments in a limited number
of securities and at times within certain industries has the potential to
generate attractive returns over time, it may increase the volatility of the
Fund's investment performance as compared to funds that invest in larger numbers
of

securities. If the securities in which the Fund invests perform poorly, the
Fund could incur greater losses than if it had invested in a larger number of
securities.

INVESTMENT RESTRICTIONS GENERALLY

Any investment restriction or limitation, fundamental or otherwise, appearing in
the Prospectus or SAI which involves a maximum percentage of securities or
assets will not be considered to be violated unless the percentage limit is
exceeded immediately after and as a result of the specified acquisition of
securities or utilization of assets.

ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND RISKS

The Fund's principal investment strategies and the risks associated with those
strategies are described in the Prospectus. The following section describes in
greater detail certain of the Fund's investment strategies and the associated
risks.

COMMON STOCK

The Fund mainly invests in common stock. Common stock represents an equity or
ownership interest in an issuer. It typically entitles the owner to vote on the
election of directors and other important matters as well as to receive
dividends on such stock. If an issuer is liquidated or declares bankruptcy, the
claims of owners of bonds, other debt holders, and owners of preferred stock
take precedence over the claims of those who own common stock. Common stock is
subject to the market and other risks described in the Prospectus.

PREFERRED STOCK

The Fund may invest in preferred stock, which is a class of capital stock that
pays dividends at a specified rate and that has preference over common stock in
the payment of dividends and the liquidation of assets. Preferred stock
dividends may be cumulative (requiring all or a portion of prior unpaid
dividends to be paid before dividends are paid on the issuer's common stock),
non-cumulative, participating or auction rate. If interest rates rise, the fixed
dividend on preferred stocks may be less attractive, causing the price of
preferred stocks to decline. Preferred stock may have mandatory sinking fund
provisions, as well as call/redemption provisions prior to maturity, a negative
feature when interest rates decline. Preferred stock does not ordinarily carry
voting rights. The rights of preferred stock on the distribution of a
corporation's assets in the event of a liquidation are generally subordinate to
the rights associated with the corporation's debt securities. For a description
of preferred stock ratings see Appendix A.

CONVERTIBLE SECURITIES

The Fund may invest in convertible securities. These are bonds or preferred
stocks that are convertible into a corporation's common stock. Convertible
securities entitle the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible securities mature or are
redeemed, converted or exchanged. Prior to conversion, convertible securities
have characteristics similar to ordinary debt securities or preferred stocks in
that they normally provide a stable stream of income with generally higher
yields than those of common stock of the same or similar issuers. Convertible
securities rank senior to common stock

in a corporation's capital structure and therefore generally entail less risk of
loss of principal than the corporation's common stock.

The value of convertible securities is a function of their investment value
(determined by yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and
their conversion value (their worth, at market value, if converted into the
underlying common stock). The investment value of convertible securities is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline, and by the
credit standing of the issuer and other factors. The conversion value of
convertible securities is determined by the market price of the underlying
common stock. If the conversion value is low relative to the investment value,
the price of the convertible securities is governed principally by their
investment value. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
securities will be increasingly influenced by their conversion value. In
addition, convertible securities generally sell at a premium over their
conversion value determined by the extent to which investors place value on the
right to acquire the underlying common stock while holding fixed income
securities.

WARRANTS

The Fund may invest in warrants. A warrant entitles the holder to buy a stated
number of shares of a security at a fixed price by a specified date. The Fund
may invest in a warrant to participate in an anticipated increase in the market
value of the underlying security. If the market value of such security
increases, the warrant may be exercised and sold at a gain. A loss will be
incurred if the market value decreases or if the term of the warrant expires
before it is exercised. Warrants convey no rights to dividends or voting. The
prices of warrants do not necessarily correlate with the prices of the
underlying securities. The Fund may only purchase warrants on securities in
which the Fund may invest directly.

DEBT SECURITIES

The Fund may invest in debt obligations of corporate issuers, the U.S.
Government, states, municipalities, or state or municipal government agencies
that, in the opinion of the Adviser, offer long-term capital appreciation
possibilities. Investments in such debt obligations may result in long-term
capital appreciation because the value of debt obligations varies inversely with
prevailing interest rates. Thus, an investment in debt obligations that is sold
at a time when prevailing interest rates are lower than they were at the time of
investment will typically result in capital appreciation. However, the reverse
is also true, so that if an investment in debt obligations is sold at a time
when prevailing interest rates are higher than they were at the time of
investment, a capital loss will typically be realized. Accordingly, if the Fund
invests in the debt obligations described above, such investments will generally
be made when the Adviser expects that prevailing interest rates will be falling,
and will generally be sold when the Adviser expects interest rates to rise,
unless the Adviser nonetheless expects the potential for capital gains (because,
for example, the debt obligations are convertible into equity securities).

The Fund's investments in debt securities will generally consist of investment
grade securities rated BBB or higher by Standard & Poor's Ratings Service, a
division of McGraw-Hill Companies, Inc. ("S&P") or Baa or higher by Moody's
Investors Service, Inc. ("Moody's"), as

well as unrated securities which the Adviser believes have similar
characteristics. For a description of debt security ratings see Appendix A.

NON-INVESTMENT GRADE SECURITIES

The Fund may invest in non-investment grade securities. Such securities may
include high yield (junk) bonds, convertible bonds, preferred stocks, and
convertible preferred stocks. Below-investment grade securities have speculative
characteristics, and changes in economic conditions or other circumstances are
likely to lead to a weakened capacity to pay principal and interest compared to
higher-grade securities. The fixed income and convertible securities may be
non-rated debt and/or debt rated as low as D, the lowest rating category of 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 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. For
a description of non-investment grade security ratings see Appendix A.

SHORT-TERM INVESTMENTS

In order to earn a return on uninvested assets, 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, which include certificates of
deposit, bankers' acceptances, time deposits, U.S. Government obligations, U.S.
Government agency securities, repurchase agreements collateralized by U.S.
Government securities, short-term corporate debt securities, and commercial
paper as described below. 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 non-U.S.
currencies; (ii) in the case of a U.S. bank, it is a member of the Federal
Deposit Insurance Corporation; and (iii) in the case of foreign branches of a
U.S. bank, 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.

The Fund may invest in U.S. Government agency obligations. Various agencies of
the U.S. Government issue obligations, including but not limited to the Federal
Home Loan Bank ("FHLB"), the Student Loan Marketing Association, the
Export/Import Bank of the United States, Farmers Home Administration, Federal
Farm Credit Bank, Federal Housing Administration, Government National Mortgage
Association ("GNMA"), Maritime Administration, Small Business Administration,
and the Tennessee Valley Authority. The Fund may purchase securities guaranteed
by GNMA, which represents participation in Veterans Administration and Federal
Housing Administration backed mortgage pools. Obligations of instrumentalities
of the U.S. Government include securities issued by, among others, FHLB, Federal
Home Loan Mortgage Company, Federal Intermediate Credit Banks, Federal Land
Banks, Federal National Mortgage Association, and the U.S. Postal Service. Some
of these securities are supported by the full faith and credit of the U.S.
Treasury (i.e., GNMA), and others are supported by the right of the issuer to
borrow from the Treasury. A guarantee of principal by an agency or
instrumentality of the U.S. Government may be a guarantee of payment at the

maturity of the obligation; in the event of a default prior to maturity there
might not be a market and thus no means of realizing the value of the obligation
prior to maturity.

COMMERCIAL PAPER

Commercial paper consists of short-term (usually from one to 270 days) unsecured
promissory notes issued by corporations to finance their current operations. The
Fund will only invest in commercial paper rated A-1 or A-2 by S&P, or Prime-1 or
Prime-2 by Moody's or if unrated, determined by the Adviser to be of comparable
quality. Refer to Appendix A for a description of commercial paper ratings.
Certain notes may have floating or variable rates. A variable or floating rate
note with a demand notice period exceeding seven days will be subject to the
Fund's policy with respect to illiquid investments unless, in the judgment of
the Adviser, based on procedures adopted by the Board of Directors, such note is
liquid.

BANK DEBT INSTRUMENTS

Bank debt instruments in which the Fund may invest consist of certificates of
deposit, bankers' acceptances, and time deposits issued by national banks and
state banks, trust companies and mutual savings banks, or by banks or
institutions the accounts of which are insured by the Federal Deposit Insurance
Corporation or the Federal Savings and Loan Insurance Corporation. Certificates
of deposit are negotiable certificates evidencing the indebtedness of a
commercial bank to repay funds deposited with it for a definite period of time
(usually from 14 days to one year) at a stated or variable interest rate.
Bankers' acceptances are credit instruments evidencing the obligation of a bank
to pay a draft that has been drawn on it by a customer, and these instruments
reflect the obligation both of the bank and of the drawer to pay the face amount
of the instrument upon maturity. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a stated
interest rate. The Fund will not invest in time deposits maturing in more than
seven days if, as a result thereof, more than 10% of the value of its net assets
would be invested in such securities and other illiquid securities.

REPURCHASE AGREEMENTS

The Fund may invest in repurchase agreements collateralized by U.S. Government
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. The period of maturity is usually quite
short, often overnight or a few days, although it may extend over a number of
months. Under a repurchase agreement, the seller is required to maintain the
value of securities, subject to the agreement, at a minimum of 102% 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 such requirement.

Repurchase agreements may be considered loans by the Fund to the seller,
collateralized by the underlying securities. The use of repurchase agreements
involves certain risks. The risk to the Fund is limited to the ability of the
seller to pay the agreed upon sum on the repurchase date; in the event of
default, the repurchase agreement provides that the Fund is entitled to sell the
underlying collateral. If the value of the collateral declines after the
agreement is entered into, however, and if the seller defaults under a
repurchase agreement when the value of the underlying collateral is less than
the repurchase price, the Fund could incur a loss of both principal and
interest. The Adviser monitors the value of the collateral at the time the
agreement

is entered into and at all times thereafter during the term of the agreement. If
the seller were to be subject to a federal bankruptcy proceeding, the ability of
the Fund to liquidate the collateral could be delayed or impaired because of
certain provisions of the bankruptcy laws.

FOREIGN SECURITIES

The Fund may invest in foreign securities that are listed on a principal foreign
securities exchange or over-the-counter market, are represented by American
Depositary Receipts ("ADRs") listed on a domestic securities exchange, or are
traded in the U.S. over-the-counter market. The Fund does not hold foreign
currency as an investment and will not invest in foreign currency contracts.

AMERICAN DEPOSITARY RECEIPTS. ADRs are publicly traded on exchanges or
over-the-counter in the United States. ADRs may be "sponsored" or "unsponsored."
In a sponsored arrangement, the foreign issuer assumes the obligation to pay
some or all of the depositary's transaction fees. In an unsponsored arrangement,
the foreign issuer assumes no obligation and the depositary's transaction fees
are paid by the holders of the ADRs. Foreign issuers whose securities underlie
unsponsored ADRs are not necessarily obligated to disclose material information
in the markets in which the unsponsored ADRs are traded, and the market value of
the ADRs may not be correlated with such information.

GENERAL RISKS OF INVESTING IN FOREIGN SECURITIES. Investing on an international
basis involves certain risks not involved in domestic investments, including
fluctuations in foreign exchange rates, future political and economic
developments, and the possible imposition of exchange controls or other foreign
governmental laws or restrictions. In addition, with respect to certain foreign
countries there is the possibility of expropriation of assets, confiscatory
taxation, political or social instability, or diplomatic developments that could
affect investments in those countries. Moreover, individual foreign economies
may differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross national product, rates of inflation, capital reinvestment,
resources, self sufficiency, and balance of payments position. Certain foreign
investments may also be subject to foreign withholding taxes.

FOREIGN SECURITIES MARKETS. Trading volume on foreign markets is
substantially less than on the New York Stock Exchange ("NYSE"). Further,
securities of some foreign companies are less liquid and more volatile than
securities of comparable U.S. companies. Fixed commissions on foreign exchanges
are generally higher than negotiated commissions on U.S. exchanges. The Fund
endeavors to achieve the most favorable net results on its portfolio
transactions and may be able to purchase securities on other stock exchanges
where commissions are negotiable. Foreign stock exchanges, brokers and listed
companies may be subject to less government supervision and regulation than in
the United States. The customary settlement time for foreign securities may be
longer than the customary settlement time for U.S. securities. Certain markets
may require payment for securities 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, and there
may be limited legal recourse against an issuer in the event of a default on a
debt instrument.

CURRENCY RISK. The value of foreign securities held by the Fund as
measured in U.S. dollars may be affected favorably or unfavorably by changes in
foreign currency exchange rates

and exchange control regulations. A change in the value of any foreign currency
relative to the U.S. dollar may cause a corresponding change in the dollar value
of the Fund's assets that are denominated in that currency or traded in that
country. In addition, the Fund may incur costs in connection with conversion
between various currencies.

POLITICAL AND ECONOMIC RISK. Foreign investments may be subject to
heightened political and economic risks, particularly in underdeveloped or
developing countries, which may have relatively unstable governments and
economies, based on only a few industries. In some countries, there is the risk
that the government could seize or nationalize companies, impose additional
withholding taxes on dividends or interest income payable on securities, impose
exchange controls or adopt other restrictions that could affect the Fund's
investments.

REGULATORY RISK. Foreign companies not publicly traded in the U.S. are not
subject to the regulatory requirements of U.S. companies. Some of the foreign
securities held by the Funds may not be registered with the SEC, nor will the
issuers thereof be subject to the SEC's reporting requirements. Consequently,
there may be less publicly available information about a foreign company than
about a U.S. company. Foreign companies are not subject to the same accounting,
auditing and financial reporting standards and requirements as U.S. companies.

FOREIGN TAX RISK. The Fund's income from foreign issuers may be subject to
non-U.S. withholding taxes. The Fund may also be subject to taxes on trading
profits or on transfers of securities in some countries. However, to the extent
foreign income taxes are paid by the Fund, shareholders may be entitled to a
credit or deduction for U.S. tax purposes.

TRANSACTION COSTS. Transaction costs of buying and selling foreign
securities, including brokerage, tax and custody charges, are generally higher
than those of domestic transactions.

ILLIQUID SECURITIES

The Fund may invest up to 15% of its net assets in illiquid securities,
including without limitation securities subject to contractual or legal
restrictions on resale because they have not been registered under the
Securities Act of 1933, as amended, and securities such as repurchase agreements
having a maturity of longer than seven days. Under SEC rules, an investment in a
security is generally deemed to be "illiquid" if it cannot be disposed of within
seven days in the ordinary course of business at approximately the amount at
which such security is valued by the Fund.

The Board of Directors has authorized the Adviser to make liquidity
determinations with respect to certain securities, including Rule 144A
securities. A foreign security that may be freely traded on or through the
facilities of an offshore exchange or other established offshore securities
market is not deemed to be an illiquid security.

The fair value of these securities will be determined by or under the
supervision of the Board of Directors in accordance with Board-approved Pricing
Policies and Procedures. Given the inherent uncertainties of estimating fair
market value, there can be no assurance that the value placed on such a security
will reflect its ultimate value on the public market. These securities may never
be publicly traded and the Fund may not be able to easily liquidate positions in
these securities.

If illiquid securities exceed 10% of the Fund's net assets after the time of
purchase, the Fund will take steps to reduce its holdings of illiquid securities
in an orderly fashion. Because illiquid securities may not be readily
marketable, the Adviser may not be able to dispose of them in a timely manner.
As a result, the Fund may be forced to hold illiquid securities while their
prices depreciate, which may cause the Fund's net asset value to decline.

BORROWING

The Fund may borrow from banks up to 15% of the current value of its net assets
for temporary purposes only in order to meet redemptions, and these borrowings
may be secured by the pledge of up to 15% of the current value of its net assets
(but investments may not be purchased while such outstanding borrowings in
excess of 5% of its net assets exist). If the Fund's asset coverage for
borrowings falls below 300%, the Fund will take prompt action to reduce its
borrowings. If the 300% asset coverage should decline as a result of market
fluctuations or other reasons, the Fund may be required to sell portfolio
securities to reduce the debt and restore the 300% asset coverage, even though
it may be disadvantageous from an investment standpoint to sell securities at
that time. The Fund will not borrow for leverage purposes, purchase securities,
or make investments while borrowings are outstanding.

LOANS OF PORTFOLIO SECURITIES

The Fund may lend securities from its portfolio to brokers, dealers, and
financial institutions (but not individuals) if liquid assets equal to the
current market value of the securities loaned (including accrued interest
thereon) plus the interest payable to the Fund with respect to the loan are
maintained with the Fund. In determining whether to lend a security to a
particular broker, dealer, or financial institution, the Adviser will consider
all relevant facts and circumstances, including the creditworthiness of the
broker, dealer, or financial institution. The Fund does not currently lend its
portfolio securities nor does it have any present intention to lend portfolio
securities having an aggregate value in excess of 10% of the current value of
the Fund's total assets. However, the Fund reserves the right to lend portfolio
securities having an aggregate value of up to 33 1/3% of the current value of
the Fund's total assets. Any loans of portfolio securities will be fully
collateralized based on values that are marked to market daily. Any securities
that the Fund may receive as collateral will not become part of the Fund's
portfolio at the time of the loan and, in the event of a default by the
borrower, the Fund will, if permitted by law, dispose of such collateral except
for such part thereof that is a security in which the Fund may invest. During
the time securities are on loan, the borrower will pay the Fund any accrued
income on those securities, and the Fund may invest the cash collateral and earn
additional income or receive an agreed upon fee from a borrower that had
delivered cash-equivalent collateral. Loans of securities by the Fund will be
subject to termination at the Fund's or the borrower's option. The Fund may pay
reasonable administrative and custodial fees in connection with a securities
loan and may pay a negotiated portion of the interest or fee earned with respect
to the collateral to the borrower or the placing broker. Borrowers and placing
brokers may not be affiliated, directly or indirectly, with the Fund or the
Adviser.

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
securities refer 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 transactions described above. 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 either will mature or, if necessary, be sold on or before
the settlement date. The value of the securities underlying a when-issued or a
forward delivery purchase of securities, and any subsequent fluctuations in
their value, is taken into account when determining the net asset value of the
Fund starting on the date the Fund agrees to purchase the securities. 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, and not to increase its investment leverage.

PORTFOLIO TURNOVER

A change in the securities held by the Fund is known as "portfolio turnover." In
addition to trading costs, higher rates of portfolio 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. The portfolio turnover rate for the
Fund is calculated by dividing the lesser of purchases or sales of portfolio
investments for the reporting period by the monthly average value of the
portfolio investments owned during the reporting period. The calculation
excludes all securities, including options, whose maturities or expiration dates
at the time of acquisition are one year or less.

The Fund's portfolio turnover may temporarily increase due to increased
shareholder activity or due to the Adviser repositioning the investment
portfolio. A higher turnover rate may increase portfolio transaction expenses,
including brokerage commissions, and may result in higher taxes being owed by
shareholders if net capital gains are recognized.

INVESTMENT COMPANIES

In connection with the management of its daily cash position, the Fund may
invest in securities issued by other investment companies. The Fund may also
invest in securities issued by other investment companies by purchasing the
securities of certain foreign investment funds or trusts called passive foreign
investment companies.

Securities of other investment companies will be acquired by the Fund within the
limits prescribed by the 1940 Act. The Fund intends to limit its investments so
that, as determined immediately after a securities purchase is made, not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund.

As a shareholder of another investment company, the Fund would bear, along with
other shareholders, its pro rata portion of the other investment company's
expenses, including advisory

fees. Accordingly, in addition to bearing their proportionate share of the
Fund's expenses (i.e., management fees and operating expenses), shareholders
will also indirectly bear similar expenses of such other investment companies.

DISCLOSURE OF PORTFOLIO HOLDINGS

PORTFOLIO HOLDINGS INFORMATION IS PROTECTED. Clipper Fund's portfolio holdings
are proprietary information which the Adviser is committed to protecting. The
Fund has adopted procedures reasonably designed to ensure that portfolio
holdings are not released on a selective basis except to qualified persons
rendering services to the Funds which require that they receive information
concerning portfolio holdings. Neither the Fund, nor the Adviser receives
compensation with respect to the disclosure of portfolio holdings.

HOW PORTFOLIO HOLDINGS INFORMATION IS RELEASED. The Fund may disclose portfolio
holdings to outside persons in a number of situations, including the following:
(1) disclosure to a broker-dealer of one or more securities in connection with
the purchase or sale by a Fund of such securities; (2) requests for price
quotations on individual securities from a broker-dealer for the purpose of
calculating the Fund's net asset value; (3) requests for bids on one or more
securities; (4) disclosures in connection with litigation involving Fund
portfolio securities; (5) disclosure to regulatory authorities; (6) The Fund's
portfolio managers may from time to time make statements to the press about a
Fund's portfolio and the securities subject to these statements may or may not
have been previously disclosed; (7) employees of the Adviser may attend due
diligence meetings with existing or potential investors in which specific Fund
holdings are discussed and other information which the employee reasonably
believes cannot be used in a manner which would be harmful to the Funds; and the
Adviser may provide a wide variety of information about the Fund (other than
portfolio holdings) to existing and potential investors and intermediaries
working on behalf of such investors. Such information may not be available from
publicly available information and may consist of statistical and analytical
information concerning the portfolio as a whole and how it has performed,
without naming specific portfolio securities.

PUBLIC DISCLOSURE OF PORTFOLIO HOLDINGS. Information about portfolio holdings,
which has previously been made public, may be freely shared. Information about
portfolio holdings may become "public" by (1) publication on the Fund's website,
(2) filing with the SEC on Form N-CSR or Form N-Q (only quarterly filings, not
voluntary filings), or (3) other publication determined by the Adviser's Chief
Legal Officer or his designee, in writing stating his rational, to be public.

Clipper Fund generally publishes its portfolio holdings on fiscal quarters with
a 60-day lag. Clipper Fund's Executive Vice President, or his designee, may
authorize publication portfolio holdings on a more frequent basis. Portfolio
holdings will then be published on the Clipper Fund website.

Clipper Fund's portfolio holdings procedures prohibit release of information
concerning portfolio holdings which have not previously been made public to
individual investors, institutional investors, intermediaries which distribute
the Funds' shares and other parties which are not employed by the Adviser or its
affiliates. Portfolio holdings may be reviewed by third parties for legitimate
business purposes, but only if: (1) the Chief Operating Officer, or his

designee, considers the application for review and, in his or her business
judgment, the requesting third party (i) has a legitimate business purpose for
reviewing the portfolio holdings and (ii) does not pose a material risk to the
client(s) whose portfolios will be reviewed; and (2) the third party enters into
an acceptable Confidentiality Agreement (including a duty not to trade). Clipper
Fund's Board of Directors are notified of the addition of new third parties at
the next scheduled quarterly meeting of the Board of Directors. The Directors
review the addition of new third parties, considering whether or not the release
of information to the third parties is in the best interest of the Funds and
shareholders.

THIRD PARTIES RECEIVING PORTFOLIO HOLDINGS INFORMATION. As of May 1, 2006, each
of the below listed third party service providers have been approved to receive
information concerning Selected Funds' portfolio holdings: (1) KPMG LLP, (serves
the as the Fund's Independent Registered Public Accounting Firm); (2) IRRC
(provides proxy voting services); (3) UBS (provides securities lending
services); (4) Wilshire Associates (provides investment performance attribution
reports); and (5) State Street Bank and Trust (serves as the Funds' custodian
bank).

MANAGEMENT OF THE FUND

Its Board of Directors supervises the business of the Fund. The Board
establishes the Fund's policies and meets regularly to review the activities of
the officers, who are responsible for day-to-day operations of the Fund, the
Adviser, and other service providers. The Board currently consists of five
Directors, who are elected and serve until their successors are elected and
qualified. Information about the Directors, including their business addresses,
ages, principal occupations during the past five years, and other current
Directorships of publicly traded companies or funds, are set forth in the table
below. A Director is considered "independent" to the extent the Director is not
an "interested person" of the Fund ("Independent Directors"), as that term is
defined in Section 2(a)(19) of the 1940 Act.

NUMBER OF
PORTFOLIOS
TERM OF PRINCIPAL IN FUND
NAME, POSITION(S) OFFICE AND OCCUPATION(S) COMPLEX OTHER
ADDRESS, HELD WITH LENGTH OF DURING PAST 5 OVERSEEN BY DIRECTORSHIPS HELD
AND AGE THE FUND TIME SERVED YEARS DIRECTOR(1) BY DIRECTORS
----------------------------------------------------------------------------------------------------------------------

INDEPENDENT DIRECTORS(2)

F. Otis Booth, Jr. Director Indefinite Private investor 2 Clipper Funds Trust
2949 E. Elvira Road, Suite 101 and since
Tucson, Arizona 85706. inception
Born 09/28/1923

Lawrence P. McNamee Director Indefinite Retired educator 2 Clipper Funds Trust
2949 E. Elvira Road, Suite 101 and since
Tucson, Arizona 85706. inception
Born 09/12/1934

----------------------------------------------------------------------------------------------------------------------

______________________________

(1) The two portfolios are the Clipper Fund portfolio of Clipper Fund, Inc.
and the Clipper Fund series of the Clipper Funds Trust.

(2) All of the Directors qualify as Independent Directors who are not
"interested" persons of the Fund, as defined in the 1940 Act.

Norman B. Williamson Director Indefinite Private investor 2 Clipper Funds Trust
2949 E. Elvira Road, Suite 101 and since
Tucson, Arizona 85706. inception
Born 05/18/1932
----------------------------------------------------------------------------------------------------------------------

Lawrence E. Harris Director Indefinite Professor of 2 Clipper Funds Trust
2949 E. Elvira Road, Suite 101 and since Finance and
Tucson, Arizona 85706. April 2006 Business
Born 09/16/1956 Economics,
Marshall School
of Business,
University of
Southern
California, Los
Angeles, CA
----------------------------------------------------------------------------------------------------------------------

Steven N. Kearsley Director Indefinite Private Investor, 2 Clipper Funds Trust
2949 E. Elvira Road, Suite 101 and since Real Estate
Tucson, Arizona 85706. April 2006 Development
Born 09/29/1941 Professor of
Finance and
Business
Economics,
Marshall School
of Business,
University of
Southern
California, Los
Angeles, CA
----------------------------------------------------------------------------------------------------------------------

A Special Meeting of Shareholders was held on April 21, 2006, at which meeting
each Director was elected or re-elected.

During the fiscal year ended December 31, 2005, the Board of Directors of the
Fund met 16 times. It is expected that the Board will meet at least quarterly at
regularly scheduled meetings. Each Director of the Fund (who qualified as
directors in 2005) attended at least 75% of the meetings of the Fund's board
held during the year ended December 31, 2005, including the meetings of the
Board's standing committees on which such Director was a member.

STANDING COMMITTEES

The Board has an Audit Committee comprised solely of the Independent Directors
Messrs. Booth, McNamee and Williamson are the current members of the Committee.
The Board has adopted a written Audit Committee Charter. The Committee makes
recommendations to the Board of Directors with respect to the engagement of the
Fund's independent registered public accounting firm (the "Accounting Firm"),
approves all auditing and other services provided to the Fund by the Accounting
Firm, and reviews with the Accounting Firm the plan and results of the audit
engagement and matters having a material effect on the Fund's financial
statements. During the fiscal year ended December 31, 2005, the Audit Committee
held one meeting

The Board has a Nominating Committee, comprised solely of Independent Directors
Messrs. Booth, McNamee and Williamson are the current members of the Committee.
The Fund has adopted a written Nominating Committee Charter. The Nominating
Committee periodically reviews such issues as the Board's composition,
responsibilities, committees, compensation and other relevant issues, and
recommends any appropriate changes to the Board of Directors. During the fiscal
year ended December 31, 2005, the Nominating Committee of the Fund held one
meeting.

Shareholders may communicate with the Board by writing to Thomas Tays, Secretary
of the Clipper Funds, 2949 East Elvira Road, Suite 101, Tucson, Arizona 85706.

FUND SECURITIES OWNED BY DIRECTORS

The following table sets forth the aggregate dollar range of equity securities
owned by each Director the Fund as of December 31, 2005. The information as to
beneficial ownership is based on statements furnished by each Director.

-------------------------------------------------------------------------
DOLLAR RANGE OF EQUITY
SECURITIES IN THE FUND
-------------------------------------------------------------------------
INDEPENDENT DIRECTORS
-------------------------------------------------------------------------
F. Otis Booth Jr. Over $100,000
-------------------------------------------------------------------------
Lawrence P. McNamee Over $100,000
-------------------------------------------------------------------------
Norman B. Williamson Over $100,000
-------------------------------------------------------------------------
Lawrence E. Harris None
-------------------------------------------------------------------------
Steven N. Kearsley None
-------------------------------------------------------------------------

DIRECTOR COMPENSATION

Directors of the Fund who are not employees of the Adviser or any of its
affiliates ("Independent Directors") receive an aggregate annual retainer of
$20,000 from the Fund for service on the Fund's Board. Directors are reimbursed
for all out-of-pocket expenses relating to attendance at such meetings.

The following table sets forth Director compensation for the fiscal year ending
December 31, 2005 for services as Directors of Clipper Fund, Inc.

----------------------------------------------------------------------------------------------------------------------
AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL TOTAL COMPENSATION
COMPENSATION FROM BENEFITS ACCRUED AS BENEFITS UPON FROM FUND COMPLEX
DIRECTOR THE FUND PART OF FUND EXPENSES RETIREMENT PAID TO DIRECTORS
----------------------------------------------------------------------------------------------------------------------

INDEPENDENT DIRECTORS
----------------------------------------------------------------------------------------------------------------------
F. Otis Booth, Jr.,
Director $10,000 $0 $0 $10,000
----------------------------------------------------------------------------------------------------------------------
Lawrence P. McNamee,
Director $10,000 $0 $0 $10,000
----------------------------------------------------------------------------------------------------------------------
Norman B. Williamson,
Director $10,000 $0 $0 $10,000
----------------------------------------------------------------------------------------------------------------------

* Lawrence E. Harris and Steven N. Kearsley were not yet elected Directors
in 2005.

EXECUTIVE OFFICERS

Officers of the Fund are elected by the Board of Directors to oversee the
day-to-day activities of the Fund.

All Fund officers hold positions as executive officers with the Adviser and its
affiliates, including Davis Selected Advisers, L.P. (the Adviser), Davis
Selected Advisers - NY, Inc. (the sub-adviser), Davis Distributors, LLC
(principal underwriter), and other affiliated companies. Clipper Fund does not
pay salaries to any of their officers. The principal occupation for the last
five years for each executive officer is described below:

CHRISTOPHER C. DAVIS (BORN 7/13/65, PRESIDENT OF CLIPPER FUND SINCE 12/19/05).
Chairman and Chief Executive Officer, Davis Selected Advisers, L.P., and also
serves as an executive officer in certain companies affiliated with the Adviser,
including sole member of the Adviser's general partner, Davis Investments, LLC;
Chief Executive Officer, President or Vice President of each of the Davis Funds
(consisting of 12 portfolios), Selected Funds (consisting of three portfolios),
and Clipper Funds Trust (consisting of one portfolio); Employee of Shelby Cullom
Davis & Co. (registered broker/dealer). Director of the Washington Post (media
and publishing company).

KENNETH C. EICH (BORN 8/14/53, PRINCIPAL EXECUTIVE OFFICER OF CLIPPER FUND SINCE
12/19/05). Chief Operating Officer, Davis Selected Advisers, L.P.; and also
serves as an executive officer in certain companies affiliated with the Adviser.
Executive Vice President and Principal Executive Officer of each of the Davis
Funds (consisting of 12 portfolios), Selected Funds (consisting of three
portfolios), and Clipper Funds Trust (consisting of one portfolio).

DOUGLAS A. HAINES, CPA, (BORN 3/4/71, PRINCIPAL EXECUTIVE OFFICER OF CLIPPER
FUND SINCE 12/19/05). Director of Fund Accounting, Davis Selected Advisers, L.P.
Vice President, Treasurer, Chief Financial Officer, Principal Financial Officer,
and Principal Accounting Officer of each of the Davis Funds (consisting of 12
portfolios), Selected Funds (consisting of three portfolios), and Clipper Funds
Trust (consisting of one portfolio).

SHARRA L. REED (BORN 9/25/66, CHIEF COMPLIANCE OFFICER OF CLIPPER FUND SINCE
12/19/05). Vice President, Chief Compliance Officer each of the Davis Funds
(consisting of 12 portfolios), Selected Funds (consisting of three portfolios),
and Clipper Funds Trust (consisting of one portfolio).

THOMAS D. TAYS, CPA, CFA, (BORN 3/7/57, SECRETARY OF CLIPPER FUND SINCE
12/19/05). Chief Legal Officer and Secretary, Davis Selected Advisers, L.P.; and
also serves as an executive officer in certain companies affiliated with the
Adviser. Vice President and Secretary each of the Davis Funds (consisting of 12
portfolios), Selected Funds (consisting of three portfolios), and Clipper Funds
Trust (consisting of one portfolio).

INVESTMENT ADVISORY AND OTHER SERVICES

Certain information regarding investment advisory and other services is in the
Fund's Prospectus.

On September 30, 2005, the Fund's previous investment adviser, Pacific Financial
Research, Inc. ("PFR"), announced its intention to reorganize with an affiliated
company Barrow, Hanley, Mewhinney & Strauss, Inc. on or about January 1, 2006.
The reorganization is part of a succession planning process to address the
decision of three of the six principals of PFR and portfolio managers of the
Fund, James H. Gipson, Michael C. Sandler and Bruce G. Veaco, to leave PFR on
December 31, 2005 and resign their positions with the Fund.

On December 19, 2005, the Board terminated the investment advisory contract with
PFR, effective December 31, 2005. On December 19, 2005, the Board approved an
investment advisory and sub-advisory contract with the Adviser, which was later,
approved by shareholders at a meeting held on April 21, 2006. This investment
advisory and sub-advisory contract will

continue until January 1, 2008, and into the future so long as it is approved by
the Board annually in accordance with legal requirements.

THE ADVISER

Davis Selected Advisers, L.P. serves as the investment adviser for the Clipper
Fund. The Adviser's head quarters are located at 2949 East Elvira Road, Suite
101, Tucson, Arizona 85706. Davis Selected Advisers, L.P. provides investment
advice for the Fund, manages its business affairs and provides day-to-day
administrative services. Davis Selected Advisers, L.P. also serves as investment
adviser for other mutual funds and institutional and individual clients. Davis
Selected Advisers, L.P. activities are devoted to investment research and the
supervision of investment accounts for individuals and institutions.

Davis Selected Advisers-NY, Inc., serves as the sub-adviser for the Fund. Davis
Selected Advisers-NY, Inc.'s offices are located at 609 Fifth Avenue, New York,
New York 10017. Davis Selected Advisers-NY, Inc., provides investment management
and research services for other mutual funds and institutional clients. Davis
Selected Advisers-NY, Inc. is a wholly owned subsidiary of Davis Selected
Advisers, L.P. Davis Selected Advisers-NY, Inc.'s fee is paid by Davis Selected
Advisers, L.P., not the Fund.

THE ADVISORY AND SUB-ADVISORY CONTRACTS

As of January 1, 2006, the Fund entered into an investment advisory and
sub-advisory contract ("Advisory and Sub-Advisory Contract") with the Adviser.
The Advisory and Sub-Advisory Contract will continue until January 1, 2008, and
into the future so long as it is approved by the Board annually in accordance
with legal requirements.

Under the Advisory and Sub-Advisory Contract, the Adviser is entitled to receive
for its services a management fee as follows (expressed as a percentage of the
Fund's average daily net assets): 0.65% of assets up to $500 million, 0.60% of
assets greater than $500 million and up to $1 billion, 0.55% of assets greater
than $1 billion and up to $3 billion, 0.54% of assets greater than $3 billion
and up to $4 billion, 0.53% of assets greater than $4 billion and up to $5
billion, 0.52% of assets greater than $5 billion and up to $6 billion, 0.51% of
assets greater than $6 billion and up to $7 billion, 0.50% of assets greater
than $7 billion and up to $10 billion, and 0.485% of assets greater than $10
billion. For calendar year 2006, Davis Selected Advisers, L.P. has agreed to
voluntarily waive all management fees in excess of 0.50%.

The Fund paid investment advisory fees to its former Adviser, Pacific Financial
Research, Inc., at an annual rate of 1.00%. These fees amounted to $62,434,656,
$69,420,087, and $56,928,901 for the years ended December 31, 2005, 2004, and
2003, respectively.

The Advisory and Sub-Advisory Contract is terminable on 60 days' written notice
by vote of a majority of the outstanding shares, or by vote of a majority of the
Fund's Board, or by the Adviser on 60 days written notice, and automatically
terminated in the event of its assignment (as defined in the 1940 Act).

As the Fund's investment adviser, Davis is responsible for investing and
reinvesting the Fund's assets, placing orders to buy and sell securities and
negotiating brokerage commissions on

portfolio transactions. In choosing broker-dealers to handle portfolio
securities transactions, Davis seeks to obtain the best price and most favorable
execution available.

Under the Fund's investment advisory agreement with the Adviser (the "Advisory
Agreement"), the 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 Adviser, (iii) maintains
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 of the
Fund. The Adviser is also responsible for (i) the compensation of any of the
Fund's Directors and officers who are interested persons of the 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
and sales and advertising materials to prospective investors.

The Fund is responsible and has assumed the obligation for payment of all of its
other expenses, including without limitation (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 Fund, (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, (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 and Fund
administration 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 securities laws, including expenses of 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 Advisory and Sub-Advisory Contract provides that in the absence of willful
misfeasance, bad faith, or gross negligence on the part of the Adviser, or of
reckless disregard of its obligations thereunder, the Adviser is not liable for
any action or failure to act in accordance with its duties thereunder. The Fund
agrees to indemnify and hold harmless the Adviser (and related persons) against
any loss (including reasonable attorneys fees) to which such persons may become
subject, insofar as such loss arises out of or is based upon any claims relating
to actions or omission by the Fund's former investment adviser.

The Advisory and Sub-Advisory Contract was approved by the Board (including a
majority of the Independent Directors) on December 19, 2005 and by shareholders
on April 21, 2006.

UNDERWRITER. Davis Distributors, LLC (the "Underwriter"), 2949 East Elvira Road,
Suite 101, Tucson, Arizona 85706, is a wholly owned subsidiary of the Adviser
and, pursuant to an Underwriting Agreement, acts as principal underwriter of the
Fund's shares on a continuing basis. By the terms of the Underwriting Agreement,
the Underwriter pays for all expenses in connection with the preparation,
printing and distribution of advertising and sales literature for use in
offering the Fund's shares to the public, including reports to shareholders to
the extent they are used as sales literature. The Underwriter also pays for the
preparation and printing of prospectuses other than those forwarded to existing
shareholders. The continuance and assignment provisions of the Underwriting
Agreement are the same as those of the Advisory Agreement.

The Underwriter has agreements with securities dealers and other persons (such
as financial planners) for distributing shares of the Fund and/or providing
services to shareholders. The Underwriter may pay such firms' service fees for
accounts for which representatives of the dealers are responsible and provide
services.

As Clipper Fund is sold without imposing front- or back-end sales charges, the
Underwriter does not collect sales charges on the sale of Fund shares. As the
Clipper Fund has not adopted a distribution plan under Rule 12b-1, the
Underwriter does not receive fees from the Fund to pay for distribution.

OTHER COMPENSATION PAID TO DEALERS AND OTHER FINANCIAL INTERMEDIARIES

The Underwriter for the Fund, Davis Distributors, LLC ("Underwriter"), makes
substantial payments to qualifying dealers and other financial intermediaries
who sell Clipper Fund's shares. Qualifying dealers may receive:(i) shareholder
servicing fees from the Fund for servicing investors who hold Fund shares
through dealer-controlled omnibus accounts; and (ii) other compensation,
described below, paid by the Underwriter from its own resources, which may
include management fees paid to the Advisor by the Fund and other clients.

Other compensation paid by the Underwriter from its own resources may include
(i) marketing support payments including business planning assistance, educating
personnel about the Selected Funds, and shareholder financial planning needs,
placement on the dealer's list of offered funds, and access to sales meetings,
sales representatives and management representatives of the dealer; and (ii)
financial assistance paid to dealers that enable the Underwriter to participate
in and/or present at conferences or seminars, sales or training programs for
invited registered representatives and other employees, client and investor
events and other dealer-sponsored events. A number of factors are considered in
determining payments, including the dealer's sales and assets, and the quality
of the dealer's relationship with the Underwriter.

The Underwriter routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various fund managed by the
Adviser and are afforded the opportunity to speak with portfolio managers.
Invitation to these meetings is not conditioned on selling a specific number of
shares. Those who have shown an interest in funds managed by the Adviser,
however, are more likely to be considered. To the extent permitted by their
firm's policies and procedures, registered representatives' expenses in
attending these meetings may be covered by the Underwriter.

The Underwriter may offer other compensation to the extent not prohibited by
state or federal laws, the Securities and Exchange Commission, or any
self-regulatory agency, such as the NASD. Investors should consult their
financial intermediary regarding the details of the payments they may receive in
connection with the sale of Fund shares.

The Adviser and the Underwriter, in their sole discretion, from time to time,
may use their own resources (at no direct cost to the Fund) to make payments to
brokers, dealers, or other financial institutions for distribution and
administrative services they perform. The Adviser may use its profits from the
advisory fee it receives from the Fund. In their sole discretion, the
Underwriter and the Adviser may increase or decrease the amount of payments they
make from their own resources to plan recipients.

TRAINING AND EDUCATION. Davis Distributors, LLC may, from time to time, pay
additional cash or other incentives to financial intermediaries in connection
with the sale of shares of a Fund and may also defray certain expenses of
intermediaries incurred in connection with seminars and other educational
efforts subject to Davis Distributors, LLC's policies and procedures governing
payments for such seminars. Such cash or other incentives may include sharing
expenses with financial intermediaries that distribute the Fund for costs
incurred in conducting training and educational meetings about various aspects
of the Fund for the employees of financial intermediaries. In addition, Davis
Distributors, LLC may share expenses with financial intermediaries that
distribute the Funds' shares for costs incurred in hosting client seminars where
the Fund is discussed.

RECORDKEEPING FEES. Certain financial institutions have chosen to maintain
omnibus accounts with the Fund. In an "omnibus account", the Fund maintains a
single account in the name of the dealer and the dealer maintains all of the
individual shareholder accounts. Likewise, for many retirement plans, a third
party administrator may open an omnibus account with the Fund and the
administrator will then maintain all of the participant accounts. The Adviser,
on behalf of the Fund, enters into agreements whereby the Fund compensates the
dealer or administrator for recordkeeping services.

FUND SUPERMARKETS. The Fund participates in various "Fund Supermarkets" in which
a supermarket sponsor (usually a broker-dealer) offers many mutual funds to the
sponsor's clients without charging the clients a sales charge. The Fund pays the
supermarket sponsor a negotiated fee for distributing the Funds' shares and for
continuing services provided to their shareholders.

A portion of the supermarket sponsor's fee (that portion related to sales,
marketing or distribution of shares) is paid with fees authorized under the
Distribution Plans.

A portion of the supermarket sponsor's fee (that portion related to shareholder
services such as new account set-up, shareholder accounting, shareholder
inquires, transaction processing and shareholder confirmations and reporting) is
paid as a shareholder-servicing fee of the Fund. The Fund would typically be
paying these shareholder servicing fees directly, were it not that the
supermarket sponsor holds all customer accounts in a single omnibus account with
the Funds.

BOARD DETERMINATIONS

The Boards considerations in connection with approving the Advisory and
Sub-Advisory Agreement is summarized in the Fund's Annual Report dated December
31, 2005.

PORTFOLIO MANAGERS

The Portfolio Managers of the Fund are Christopher Davis and Kenneth Feinberg.
They are the persons primarily responsible for investing the Fund's assets on a
daily basis.

OTHER ACCOUNTS MANAGED. As of December 31, 2005 Christopher Davis and Kenneth
Feinberg served as portfolio managers for (i) 24 registered investment companies
with approximately $57 billion in total net assets, (ii) 10 other pooled
investment vehicles with approximately $1 billion in total net assets, and (iii)
approximately 38 thousand other accounts (primarily managed money/wrap accounts)
with approximately $11 billion in total net assets. None of these accounts pays
Davis a performance fee.

STRUCTURE OF COMPENSATION. Kenneth Feinberg's compensation for services provided
to the Adviser consists of (i) a base salary, (ii) an annual bonus equal to a
percentage of growth in the Adviser's profits, (iii) awards of equity ("Units")
in the Adviser including Units, options on Units, and/or phantom Units, and (iv)
an incentive plan whereby the Adviser purchases shares in selected funds managed
by the Adviser. At the end of specified periods, generally five-years following
the date of purchase, some, all, or none of the fund shares will be registered
in the employee's name based on fund performance, after expenses on a pre-tax
basis, versus the S&P 500 Index, and versus peer groups as defined by
Morningstar or Lipper. The Adviser's portfolio managers are provided benefits
packages including life insurance, health insurance, and participation in
company 401(k) plan comparable to that received by other company employees.

Christopher Davis' compensation for services provided to the Adviser consists of
a base salary. The Adviser's portfolio managers are provided benefits packages
including life insurance, health insurance, and participation in company 401(k)
plan comparable to that received by other company employees.

OWNERSHIP OF FUND SHARES. As of December 31, 2005 the Adviser had not yet become
the investment adviser to the Fund Neither Portfolio Manager had made an
investment in the Fund. As of the date of this Statement of Additional
Information, the Adviser, affiliates of the Adviser, and members of the Davis
Family had invested in excess of $50 million in the Fund.

POTENTIAL CONFLICTS OF INTEREST. Actual or apparent conflicts of interest may
arise when a portfolio manager has day-to-day management responsibilities with
respect to more than one portfolio or other account. More specifically,
portfolio managers who manage multiple portfolios and /or other accounts are
presented with the following potential conflicts:

The management of multiple portfolios and/or other accounts may result in a
portfolio manager devoting unequal time and attention to the management of each
portfolio and/or other account. The Adviser seeks to manage such competing
interests for the time and attention of portfolio managers by having portfolio
managers focus on a particular investment discipline. Most other

accounts managed by a portfolio manager are managed using the same investment
weightings that are used in connection with the management of the portfolios.

If a portfolio manager identifies a limited investment opportunity which may be
suitable for more than one portfolio or other account, a portfolio may not be
able to take full advantage of that opportunity due to an allocation of filled
purchase or sale orders across all eligible portfolios and other accounts. To
deal with these situations, the Adviser has adopted procedures for allocating
portfolio transactions across multiple accounts.

With respect to securities transactions for the portfolios, the Adviser
determines which broker to use to execute each order, consistent with its duty
to seek best execution of the transaction. However, with respect to certain
other accounts (such as mutual funds, other pooled investment vehicles that are
not registered mutual funds, and other accounts managed for organizations and
individuals), the Adviser may be limited by the client with respect to the
selection of brokers or may be instructed to direct trades through a particular
broker. In these cases, the Adviser may place separate, non-simultaneous,
transactions for a portfolio and another account which may temporarily affect
the market price of the security or the execution of the transaction, or both,
to the detriment of the portfolio or the other account.

Finally, substantial investment of the Adviser or Davis Family assets in certain
mutual funds may lead to conflicts of interest. To mitigate these potential
conflicts of interest, the Adviser has adopted policies and procedures intended
to ensure that all clients are treated fairly over time. The Adviser does not
receive an incentive based fee on any account.

OTHER SERVICE PROVIDERS

State Street Bank and Trust Company, ("State Street") is custodian of the Fund's
assets and provides accounting services to the Fund. Its address is Post Office
Box 1713, Mutual Funds Operations-P2N, Boston, Massachusetts 02105.

Boston Financial Data Services (the "Transfer Agent") is the Fund's transfer
agent. Its address is 66 Brooks Drive, Braintree, MA 02184.

Paul, Hastings, Janofsky & Walker, LLP, 515 South Flower Street, Los Angeles, CA
90071, acts as legal counsel to the Fund.

CODES OF ETHICS

The Adviser, Sub-Adviser, Underwriter and the Clipper Fund have adopted a Code
of Ethics, meeting the requirements of Rule 17j-1 that regulate the personal
securities transactions of the Adviser's investment personnel, other employees
and affiliates with access to information regarding securities transactions of
the Clipper Fund. Such employees may invest in securities, including securities
that may be purchased or held by the Clipper Fund. A copy of the Code of Ethics
is on public file with, and available from, the Securities and Exchange
Commission.

CONTINUING REGULATION. Davis Advisors, like most other asset managers, is
subject to ongoing inquiries from the SEC and/or NASD regarding industry
practices.

LITIGATION. In June 2004, a proposed class action lawsuit was filed in the
United States District Court for the Southern District of New York on behalf of
investors in certain mutual funds ("Funds") managed by Davis Selected Advisers
L.P. ("Davis Advisors") including the Davis Funds and Selected Fund, but not the
Clipper Fund. The plaintiffs claim that Davis Advisors and its affiliates, and
the individual directors of the Funds (collectively the "Defendants") used Fund
assets to pay brokers to market the Funds and that the Defendants disguised such
payments as brokerage commissions and further failed to disclose such payments
in public filings or elsewhere. The lawsuit seeks damages of unspecified
amounts. Three substantially identical proposed class action lawsuits were filed
against the Defendants later in June and July 2004 in the United States Court
for the Southern District of New York. In October 2005, the District court
issued an order dismissing the lawsuits. In December 2005, the Plaintiffs filed
an appeal. The Adviser believes the actions are without merit and the Defendants
intend to vigorously defend the proceedings.

PROXY VOTING POLICIES

The Board has directed the Adviser to vote the Fund's portfolio securities in
conformance with the Adviser's Proxy Voting Policies and Procedures. These
procedures are summarized in Appendix B.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

As of March 31, 2006, the Fund was aware that the following persons or entities
owned a controlling interest (ownership of greater than 25%) or owned of record
5% or more of the outstanding shares of the Fund. Shareholders with a
controlling interest could affect the outcome of proxy voting or the direction
of management of the Fund.

NUMBER OF SHARES PERCENT
NAME AND ADDRESS OWNED OF RECORD OF FUND
--------------------------------------------------------------------------------
National Financial Services Corp.
For Exclusive Benefit of Customers
New York, NY 10,346,841 26.54%
Fidelity Investments Institutional
Operations Co.
As agent for certain employee benefits plans 6,755,580 17.33%
Covington, KY
Charles Schwab & Co.
SPL custody A/C for Excl Benefit Trust 5,426,794.252 13.92%
San Francisco, CA
Pershing, LLC. 2,117,426 5.43%
Jersey City, NJ
--------------------------------------------------------------------------------

As March 31, 2005, the Fund's Directors and officers as a group owned less than
1% of the outstanding shares of the Fund. The Adviser, its officers and
affiliates, and Davis family members have invested in excess of $50 million in
Clipper Fund, Inc.

PORTFOLIO TRANSACTION PRACTICES

The Adviser is responsible for the placement of portfolio transactions, subject
to the supervision of the Board of Directors. Following is a summary of the
Adviser's trading policies which are described in Part II of its Form ADV. The
Adviser is a discretionary investment adviser. Accordingly, The Adviser
determines the securities and quantities to be bought and sold for each client's
account.

BEST EXECUTION. The Adviser follows procedures intended to provide reasonable
assurance of best execution. However, there can be no assurance that best
execution will in fact be achieved in any given transaction. Best execution can
only be verified after the fact. The Adviser seeks to place portfolio
transactions with brokers or dealers who will execute transactions as
efficiently as possible and at the most favorable net price. In placing
executions and paying brokerage commissions or dealer markups, the Adviser
considers, among other factors, price, commission, timing, aggregated trades,
capable floor brokers or traders, competent block trading coverage, ability to
position, capital strength and stability, reliable and accurate communication
and settlement processing, use of automation, knowledge of other buyers or
sellers, arbitrage skills, administrative ability, underwriting and provision of
information on the particular security or market in which the transaction is to
occur, research, the range and quality of the services made available to
clients, and the payment of bona fide client expenses. To the extent that
Clients direct brokerage, the Adviser cannot be responsible for achieving best
execution. The applicability of specific criteria will vary depending on the
nature of the transaction, the market in which it is executed and the extent to
which it is possible to select from among multiple broker-dealers.

CROSS TRADES. When the Adviser deems it to be advantageous, one fund may
purchase or sell securities directly from or to another client account which is
managed by the Adviser. This may happen due to a variety of circumstances,
including situations when one fund must purchase securities due to holding
excess cash and, at the same time, a different fund must sell securities in
order to increase its cash position. Cross trades are only executed when deemed
beneficial to both funds. The Adviser has adopted written procedures to ensure
fairness to both funds.

INVESTMENT ALLOCATIONS. The Adviser considers many factors when allocating
securities among clients, including but not limited to the client's investment
style, applicable restrictions, availability of securities, available cash and
other current holdings. The Adviser employs several portfolio managers, each of
whom performs independent research and develops different levels of conviction
concerning potential investments. Clients managed by the portfolio manager
performing the research may receive priority allocations of limited investment
opportunities that are in short supply, including initial public offerings
("IPOs").

Clients are not assured of participating equally or at all in particular
investment allocations. The nature of a client's investment style may exclude it
from participating in many investment opportunities, even if the client is not
strictly precluded from participation based on written investment restrictions.
For example, (i) large cap equity clients are unlikely to participate in initial
public offerings of small-capitalization companies, (ii) the Adviser is likely
to allocate short-term trading opportunities to clients pursuing active trading
strategies rather than clients pursing long-term buy-and-hold strategies, and
(iii) private accounts generally do not participate in purchases of foreign
securities.

The Adviser attempts to allocate limited investment opportunities, including
IPOs, among clients in a manner that is fair and equitable when viewed over a
considerable period of time and involving many allocations. When the Adviser is
limited in the amount of a particular security it can purchase, due to a limited
supply, limited liquidity, or other reason, the Adviser may allocate the limited
investment opportunity to a subset of eligible clients. The Adviser would then
allocate the next limited investment opportunity to a different subset of
eligible clients, rotating among subsets as limited investment opportunities are
identified.

The Adviser serves as investment adviser for a number of clients and may deal
with conflicts of interest when allocating investment opportunities among its
various clients. For example, (i) the Adviser receives different advisory fees
from different clients; (ii) the performance records of some clients are more
public than the performance records of other clients; and (iii) the Adviser and
its affiliates, owners, officers and employees have invested substantial amounts
of their own capital in some client accounts (notably the Davis Funds, Selected
Funds, and Clipper Fund), but do not invest their own capital in every client's
account. The majority of the Adviser's clients pursue specific investment
strategies, many of which are similar. The Adviser expects that, over long
periods of time, most clients pursuing similar investment strategies should
experience similar, but not identical, investment performance. Many factors
affect investment performance, including but not limited to: (i) the timing of
cash deposits and withdrawals to and from an account, (ii) the fact that the
Adviser may not purchase or sell a given security on behalf of all clients
pursuing similar strategies, (iii) price and timing differences when buying or
selling securities, and (iv) the clients' own different investment restrictions.
The Adviser's trading policies are designed to minimize possible conflicts of
interest in trading for its clients.

ORDER PRIORITY. The Adviser's trading desk prioritizes incoming orders of
similar purchases and sales of securities between institutional and managed
accounts/wrap orders. The Adviser's trading desk typically executes orders for
institutional clients, including investment companies, institutional private
accounts, sub-advised accounts and others. Managed account/wrap program sponsors
typically execute orders for managed account/wrap clients. The Adviser's trading
desk attempts to coordinate the timing of orders to prevent the Adviser from
"bidding against itself" on such orders.

PATTERN ACCOUNTS. The Adviser serves as investment adviser for a number of
clients which are patterned after model portfolios or designated mutual funds
managed by the Adviser. For example, a client pursuing Davis Large Cap Value
investment strategy may be patterned after Davis New York Venture Fund. The
client portfolio would be expected to own many, but not all, of the same
portfolio securities as Davis New York Venture Fund. Davis New York Venture Fund
usually owns more securities positions than the Adviser's typical Large Cap
Value client. New portfolio holdings are not usually added to a client account
pursuing a Large Cap Value strategy until the Adviser makes it a significant
holding in Davis New York Venture Fund. The Adviser may not purchase or sell a
given security on behalf of all clients (even clients managed in a similar
style), and it may not execute a purchase of securities or a sale of securities
for all participating clients at the same time.

The Adviser generally attempts to aggregate trades for accounts that are
purchasing or selling the same security at approximately the same time. However,
at times the Adviser executes trades for patterned client accounts after the
trade has been executed for the designated mutual fund or the

model portfolio that the client account is patterned after. Since most of the
Adviser's transactions are in large capitalization exchange-traded equities, the
Adviser believes that this does not usually impact the long-term performance of
these clients.

Orders for accounts which are not patterned after model portfolios or designated
mutual funds are generally executed in the order received by the trading desk,
with the following exceptions: (i) the execution of orders for clients that have
directed that particular brokers be used may be delayed until the orders which
do not direct a particular broker have been filled; (ii) the execution of orders
may be delayed when the client (or responsible portfolio manager) requests such
delay due to market conditions in the security to be purchased or sold; and
(iii) the execution of orders which are to be bunched or aggregated.

AGGREGATED TRADES. The Adviser frequently follows the practice of aggregating
orders of various institutional clients for execution, if the Adviser believes
that this will result in the best net price and most favorable execution. In
some instances, aggregating trades could adversely affect a given client.
However, the Adviser believes that aggregating trades generally benefits clients
because larger orders tend to have lower execution costs, and the Adviser
clients do not compete with one another trading in the market. Directed
brokerage trades in a particular security are typically executed separately
from, and possibly after the Adviser's other client trades.

In general, all the Adviser clients (excluding clients who are directing
brokerage and managed money/wrap accounts) seeking to purchase or sell a given
security at approximately the same time will be aggregated into a single order.
When that order is filled, all participating clients receive the price at which
the order was executed. If, at a later time, the participating clients wish to
purchase or sell additional shares of the same security, or if additional
clients seek to purchase or sell the same security, then the Adviser will issue
a new order and the clients participating in the new order will receive the
price at which the new order was executed.

In the event that an aggregated order is not entirely filled, the Adviser will
allocate the purchases or sales among participating clients in the manner it
considers to be most equitable and consistent with its fiduciary obligations to
all such clients. Generally, partially-filled orders are allocated pro rata
based on the initial order submitted by each participating client.

In accordance with the various managed account/wrap programs in which the
Adviser participates, the Adviser typically directs all trading to the
applicable program sponsor unless, in the Adviser's reasonable discretion, doing
so would adversely affect the client. Clients typically pay no commissions on
trades executed through program sponsors. In the event that an order to the
sponsor of a managed account/wrap program is not entirely filled, the Adviser
will allocate the purchases or sales among the clients of that sponsor in the
manner it considers to be most equitable and consistent with its fiduciary
obligations to all such clients. Generally, partially-filled orders are
allocated among the particular sponsor's participating clients on a random basis
that is anticipated to be equitable over time.

TRADING ERROR CORRECTION. In the course of managing client accounts, it is
possible that trading errors will occur from time to time. The Adviser has
adopted Trading Error Correction Policies & Procedures which, when the Adviser
is at fault, seeks to place a client's account in the same position it would
have been had there been no error. The Adviser retains flexibility in attempting

to place a client's account in the same position it would have been had there
been no error. The Adviser attempts to treat all material errors uniformly,
regardless of whether they would result in a profit or loss to the client. For
example, The Adviser may purchase securities from a client account at cost if
they were acquired due to a trading error. If more than one trading error, or a
series of trading errors, is discovered in a client account, then gains and
losses on the erroneous trades may be netted.

RESEARCH PAID FOR WITH COMMISSIONS, "SOFT DOLLARS." The Adviser does not use
client commissions, "soft dollars", to pay for (i) computer hardware or
software, or other electronic communications facilities; (ii) publications, both
paper based or electronic that are available to the general public; and (iii)
third-party research services. If the Adviser determines to purchase such
services, it pays for them using its own resources.

The Adviser's portfolio managers may take into account the research resources,
as well as the execution capacity, of a brokerage firm in selecting brokers.
Thus, transactions may be directed to a brokerage firm which provides (i)
important information concerning a company, (ii) introductions to key company
officers, (iii) industry and company conferences, and (iv) other value added
research services.

The Adviser follows the concepts of Section 28(e) of the Securities Exchange Act
of 1934. Subject to the criteria of Section 28(e), the Adviser may pay a broker
a brokerage commission in excess of that which another broker might have charged
for effecting the same transactions, in recognition of the value of the
brokerage and research services provided by or through the broker. The Adviser
believes it is important to its investment decision-making to have access to
independent research.

EXCEPTIONS. There are occasions when the Adviser varies the trading procedures
and considerations described above. The Adviser exercises its best judgment in
determining whether clients should execute portfolio transactions simultaneously
with, prior to, or subsequent to the model portfolio or designated mutual fund
that they are patterned after. The factors that the Adviser considers in
exercising its judgment include, but are not limited to, the need for
confidentiality of the purchase or sale, market liquidity of the securities in
issue, the particular events or circumstances that prompt the purchase or sale
of the securities, and operational efficiencies. Even when transactions are
executed on the same day, clients may not receive the same prices as the model
portfolios or designated mutual funds they are patterned after. If the
transactions are not aggregated, such prices may be better or worse.

BROKERAGE COMMISSIONS

The Adviser began managing the Fund on January 1, 2006. The following
information relates to the Fund while it was managed by the former investment
adviser. The Fund paid $3,773,043, $1,809,757, and $4,271,440 in aggregate
brokerage commissions in the fiscal years ended December 31, 2005, 2004, and
2003, respectively. During the year ended December 31, 2005, the Adviser
directed on behalf of the Fund $1,339,726,435 in transactions with related
commissions of $1,992,733 to brokers which provided research services as well as
execution. Of that amount, $1,974,021 was paid to full-service broker-dealers
which provided proprietary research (i.e., bundled research/execution) and
$18,712 was paid to broker-dealers which provided third-party research. During
the same year, the former adviser directed on behalf of the

Fund $788,393 in commissions to certain brokers which had agreed to credit
portions of their brokerage commissions to offset certain Fund expenses.
Pursuant to such agreements, $560,288 of this amount was credited to the Fund.
All trades are placed with brokers on a best execution basis.

CAPITAL STOCK AND OTHER SECURITIES

The Fund was incorporated under the General Corporation Law of California, on
December 1, 1983. The beneficial interest of each series is divided into an
unlimited number of shares, with no par value. The Fund's shares have 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.

The Fund communicates important information to shareholders through Annual,
Semi-Annual and Quarterly Reports, newsletters, special mailings and other
events throughout the year. For further information, please refer to the
registration statement and exhibits for the Fund on file with the SEC in
Washington, D.C. and available upon payment of a copying fee. The statements in
the Prospectus and this SAI concerning the contents of contracts or other
documents, copies of which are filed as exhibits to the registration statement,
are qualified by reference to such contracts or documents.

PURCHASE, REDEMPTION AND PRICING OF SHARES

Certain information regarding pricing, purchasing, and redeeming Fund shares is
contained in the Prospectus under the caption "Shareholder Information."

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
("NYSE") are valued at the last sale price on the NYSE 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 the NYSE on such day, the security is valued at the closing bid
price on such day. If no bid price is quoted on the NYSE on such day, then the
security is valued by such method as the Board of Directors of the Fund
determines in good faith

to reflect its fair value. Readily marketable securities not listed on the NYSE
but listed on other national securities exchanges are valued in like manner. In
the case of NASDAQ, the NASDAQ Official Closing Price will be used. 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 determines 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 in good faith deems appropriate to reflect their fair value.

FAIR VALUE

The Board of Directors has adopted guidelines and procedures to "fair value"
securities for which market prices are not readily available. Fair value pricing
may be used, for example, in the unlikely event that trading is halted for a
particular security or the security is thinly traded. Fair valuation is the
responsibility of the Fund's Valuation Committee. In making a fair value
determination, all relevant factors will be considered and an analysis of the
investment itself is of primary importance, but external factors such as general
market development and news events may also be relevant. Pursuant to these
procedures, fair values are determined using the best information available at
the time. The Valuation Committee will report at least quarterly to the Board of
Directors in the event fair value pricing is utilized.

PURCHASE OF FUND SHARES

Orders for shares received by the Fund prior to the close of business on the
NYSE on each day that the NYSE is open for trading are priced at net asset value
per share computed as of the close of the NYSE on that day (normally 4:00 p.m.
Eastern time). Orders received after the close of the NYSE or on a day it is not
open for trading are priced at the close of NYSE on the next day on which it is
open for trading at the next determined net asset value per share.

IN-KIND REDEMPTIONS

Under unusual circumstances, when the Board of Directors deems it in the best
interest of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current values. Should payment be made in securities, the redeeming shareholder
may incur brokerage costs in converting such securities to cash. Should the
in-kind distribution contain illiquid securities, the redeeming shareholder
could have difficulty converting these assets into cash.

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, Capital Gain Distributions and Taxes."

FEDERAL INCOME TAX CONSEQUENCES

The Fund will be treated as a separate entity for Federal income tax purposes.
The Fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Code. To so qualify (i) not more than 25% of the total value
of the Fund's assets may be invested in

securities of any one issuer (other than U.S. Government securities and the
securities of other regulated investment companies) or of any two or more
issuers controlled by the Fund, which, pursuant to the regulations under the
Code, may be deemed to be engaged in the same, similar, or related trades or
businesses, and (ii) with respect to 50% of the total value of the Fund's assets
(a) not more than 5% of its total assets may be invested in the securities of
any one issuer (other than U.S. Government securities and the securities of
other regulated investment companies) and (b) the Fund may not own more than 10%
of the outstanding voting securities of any one issuer (other than U.S.
Government securities and the securities of other regulated investment
companies). By so qualifying, the Fund will not be subject to Federal income
taxes to the extent that it distributes its net investment income and realized
net capital gains.

Under the Code, the Fund will be subject to a 4% excise tax on a portion of its
undistributed income if it fails to meet certain distribution requirements by
the end of the calendar year. The Fund intends to make distributions in a timely
manner and accordingly does not expect to be subject to the excise tax.

Under the Code, any dividend declared by a regulated investment company in
October, November or December of any calendar year and payable to shareholders
of record on a specified date in such month will be deemed to have been received
by each shareholder on such date, and to have been paid by such company on such
date if such dividend is actually paid by the company before February 1 of the
following calendar year.

If the Fund invests in zero coupon bonds upon their issuance, such obligations
will have original issue discount in the hands of the Fund. Generally, the
original issue discount equals the difference between the "stated redemption
price at maturity" of the obligation and its "issue price," as those terms are
defined in the Code. Similarly, if the Fund acquires an already issued zero
coupon bond from another holder, the bond will have original issue discount in
the Fund's hands, equal to the difference between the "adjusted issue price" of
the bond at the time the Fund acquires it (that is, the original issue price of
the bond plus the amount of original issue discount accrued to date) and its
stated price at maturity. In each case, the Fund is required to accrue as
ordinary interest income a portion of the original issue discount even though it
receives no cash currently as interest payment on the obligation.

If the Fund invests in Treasury-inflation protected securities ("TIPS"), it will
be required to treat as original issue discount any increase in the principal
amount of the securities that occurs during the course of its taxable year. If
the Fund purchases such inflation protection securities that are issued in
stripped form either as stripped bonds or coupons, it will be treated as if it
had purchased a newly issued debt instrument having original issue discount.

Because the Fund is required to distribute substantially all of its net
investment income (including accrued original issue discount), the Fund's
investment in either zero coupon bonds or TIPS may require the Fund to
distribute to shareholders an amount greater than the total cash income it
actually receives. Accordingly, in order to make the required distributions, the
Fund may be required to borrow or liquidate securities.

TAXATION OF SHAREHOLDERS

The Fund makes distributions to shareholders, if any, from net investment income
and any net capital gains that it has realized. These distributions will be
taxable to shareholders, whether paid in cash or reinvested (unless the
investment is in an IRA or other tax advantaged account).

Distributions paid from the Fund's net investment income will be taxable as
ordinary income or as qualified dividend income. Ordinary income is subject to
graduated federal tax rates as high as 35%; qualified dividend income is
currently subject to a maximum federal tax rate of 15%. The Fund will designate
the portion (if any) of its distributions from investment earnings during each
year that constitute qualified dividends. Generally, dividends that the Fund
receives from domestic corporations and from foreign corporations whose stock is
readily tradable on an established securities market in the U.S. or which are
domiciled in countries on a list established by the Internal Revenue Service
(the "IRS") will qualify for qualified dividend treatment when paid out to
investors.

Distributions from the Fund's net short-term capital gains are taxable as
ordinary income. Distributions from the Fund's long-term capital gains, if any,
are taxable as long-term capital gains, regardless of how long you have held
your shares. Long-term capital gains are currently subject to a maximum federal
income tax rate of 15%.

Absent further legislation, the reduced maximum tax rate on qualified dividend
income and long-term capital gains will cease to apply to taxable years
beginning after December 31, 2008.

Any dividend or capital gain distribution paid shortly after a purchase of
shares of the Fund will have the effect of reducing the per share net asset
value of such shares by the amount of the dividend or distribution. Furthermore,
even if the net asset value of the shares of the Fund immediately after a
dividend or distribution is less than the cost of such shares to the investor,
the dividend or distribution will be taxable to the investor.

Redemption of shares will generally result in a capital gain or loss for income
tax purposes. Such capital gain or loss will be long-term or short-term,
depending upon the holding period of the redeeming shareholder. However, if a
loss is realized on shares held for six months or less, and the shareholder
received a capital gain distribution during that period, then such loss is
treated as a long-term capital loss to the extent of the capital gain
distribution received. Shareholders may also be subject to state and local
taxes.

The Fund is required to withhold federal income tax at a rate set forth in
applicable IRS Rules and Regulations ("backup withholding") from dividend
payments and redemption and exchange proceeds if a shareholder fails to furnish
his Social Security Number or other Tax Identification Number or fails to
certify under penalty of perjury that such number is correct or that he is not
subject to backup withholding due to the underreporting of income. The
certification form is included as part of the share purchase application and
should be completed when the shareholder's account is opened.

TAXES ON FOREIGN SECURITIES

Income received from sources within foreign countries may be subject to
withholding and other taxes imposed by such countries. Tax conventions between
certain countries and the United

States may reduce or eliminate such taxes. It is impossible to determine the
effective rate of foreign tax applicable to such income in advance since the
precise amount of the Fund's assets to be invested in various countries is not
known. Any amount of taxes paid by the Fund to foreign countries will reduce the
amount of income available to the Fund for distributions to shareholders.

Under the Code, if more than 50% of the value of total assets of the Fund at the
close of its taxable year consists of stock or securities of foreign
corporations, the Fund may file an election with the Internal Revenue Service to
pass through to the Fund's shareholders the amount of foreign taxes paid by the
Fund. Pursuant to this election, shareholders will be required to: (i) include
in gross income their pro rata share of the foreign taxes paid by the Fund; (ii)
treat their pro rata share of foreign taxes as paid by them; and (iii) either
deduct their pro rata share of foreign taxes in computing their taxable income
or use their share as a foreign tax credit against U.S. income taxes. No
deduction for foreign taxes may be claimed by a shareholder who does not itemize
deductions. Each shareholder will be notified within 60 days after the close of
the Fund's taxable year whether the foreign taxes paid by the Fund will pass
through for that year.

Under the Code, the amount of foreign taxes for which a shareholder may claim a
foreign tax credit is subject to limitation based on certain categories
applicable to the income subjected to foreign tax. Specifically, the available
foreign tax credit must be determined separately with respect to nine categories
of income (which will be reduced to two categories beginning in 2007). The Fund
may have foreign source income allocable to the four following categories: (i)
passive income; (ii) high withholding tax interest; (iii) dividends from a
non-controlled foreign corporation pursuant to Section 902 of the Code; and (iv)
other income not specifically categorized. Of these categories, a substantial
part of the Fund's income is likely to constitute passive income. However, in
the absence of specific regulatory guidance on the application of the income
categories, the Fund cannot assure shareholders of the correctness of any
allocation made.

OTHER MATTERS

This section is not intended to be a full discussion of present or proposed
federal income tax laws and the effect of such laws on a shareholder.
Shareholders are urged to consult with their respective tax advisers for a
complete review of the tax ramifications of an investment in the Fund.

CALCULATION OF PERFORMANCE DATA

The Fund may occasionally advertise performance data such as total return
(before and after taxes) or yield. To facilitate the comparability of these
statistics from one mutual fund to another, the SEC has developed guidelines for
the calculation of these statistics. The Fund will calculate its performance
data in accordance with these guidelines.

AVERAGE ANNUAL TOTAL RETURN

The total return for a mutual fund represents the average annual compounded rate
of return over a specified period of time that would equate the initial amount
invested to the value of the investment at the end of the period of time. This
is calculated by dividing the ending redeemable value of a hypothetical $1,000
initial payment by $1,000 and raising the quotient to a power

equal to one divided by the number of years (or fractional portion thereof)
covered by the computation and subtracting one from the result. This calculation
can be expressed as follows:

P(1+T)(n)=ERV
where:

P = hypothetical initial payment of $1,000.
T = average annual total return.
n = period covered by the computation, expressed in years.
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the one-, five-, or
ten-year periods at the end of the one-, five- or
10-year periods.

The calculation of average annual total return assumes the reinvestment of all
dividends and capital gain distributions on the reinvestment dates during the
period. The ending redeemable value is determined by assuming complete
redemption of the hypothetical investment and the deduction of all nonrecurring
charges at the end of the period covered by the computations.

AFTER-TAX RETURNS

The Fund may also quote after-tax total returns to show the impact of assumed
federal taxes on an investment in the Fund. The Fund's total return after taxes
on distributions shows the effect of taxable distributions on an investment in
shares of the Fund for a specified period of time. The Fund's total return after
taxes on distributions and sale of the Fund's shares shows the effect of both
taxable distributions and any taxable gain or loss realized by the investor upon
the sale of the Fund's shares at the end of a specified period. To determine
these figures, all income, short-term capital gain distributions and long-term
capital gain distributions are assumed to have been taxed at the highest
marginal individual tax rate then in effect. Those maximum tax rates are applied
to distributions prior to reinvestment and the after-tax portion is assumed to
have been reinvested in the Fund. State and local taxes are not taken into
consideration.

Actual after-tax returns depend on a shareholder's tax situation and may differ
from those shown. After-tax returns reflect past tax effects and are not
predictions of future tax effects.

AVERAGE ANNUAL TOTAL RETURN (AFTER TAXES ON DISTRIBUTIONS). The average annual
total return (after taxes on distributions) is computed by finding the average
annual compounded rate of return over the specified periods that would equate
with the initial amount invested to the ending value, according to the following
formula:

P(1+T)(n)=ATV(D)
where:

P = a hypothetical initial payment of $1,000.
T = average annual total return (after taxes on distributions).
n = number of years.
ATV(D) = ending value of a hypothetical $1,000 payment made at the
beginning of the one-, five-, or ten-year periods at the
end of the one-, five- or 10-year periods after taxes on
the Fund's distributions, but not after taxes on
redemption.

AVERAGE ANNUAL TOTAL RETURNS (AFTER TAXES ON DISTRIBUTIONS AND REDEMPTION). The
average annual total return (after taxes on distributions and redemptions) is
computed by finding the average annual compounded rate of return over the
specified periods that would equate the initial amount invested to the ending
value, according to the following formula:

P(1+T)(n)=ATV(DR)
where:

P = a hypothetical initial payment of $1,000.
T = average annual total return (after taxes on distributions
and redemptions).
n = number of years.
ATV(DR) = ending value of a hypothetical $1,000 payment made at the
beginning of the one-, five- or ten-year periods at the end
of the one-, five- or ten-year periods after taxes on Fund
distributions and redemptions.

APPENDIX A

RATINGS ON PREFERRED STOCK AND LONG-TERM AND SHORT-TERM DEBT SECURITIES

Standard & Poor's ("S&P") Preferred Stock Ratings -- Investment Grade

S&P's ratings from "AA" to "CCC" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.

A preferred stock issue rated "AAA" has the highest rating that may be
assigned by S&P to a preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.

A preferred stock issue rated "AA" also qualifies as a high-quality issue.
The capacity to pay preferred stock obligations is very strong, although not as
overwhelming as for issues rated "AAA."

An issue rated "A" is backed by sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to adverse effects of
changes in circumstances and economic conditions.

An issue rated "BBB" is regarded as backed by adequate capacity to pay
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to make payments for a preferred stock in
this category than for issues in the "A" category.

S&P PREFERRED STOCK RATINGS -- NON-INVESTMENT GRADE

Preferred stock issues rated "BB," "B" and "CCC" are regarded, on balance,
as predominantly speculative with respect to the issuer's capacity to pay
preferred stock obligations. "BB" indicates the lowest degree of speculation and
"CCC" the highest. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.

A preferred stock issue rated "CC" is currently paying, but in arrears on,
dividends or sinking fund payments.

A preferred stock issue rated "C" is nonpaying.

A preferred stock issue rated "D" is nonpaying with the issuer in default
on debt instruments.

MOODY'S LONG-TERM DEBT RATINGS -- INVESTMENT GRADE

Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.

Bonds and preferred stock, which are rated Aaa, are judged to be of the
best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged". Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.

Bonds and preferred stock, which are rated Aa, are judged to be of high
quality by all standards. Together with the Aaa group, they comprise what are
generally known as high-grade bonds and preferred stock. Aa securities are rated
lower than the best bonds because margins of protection may not be as large as
in Aaa securities, fluctuation of protective elements may be of greater
amplitude, or there may be other elements present which make the long-term risk
appear somewhat larger than Aaa securities.

Bonds and preferred stock, which are rated A, possess many favorable
investment attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment some time in the future.

Bonds and preferred stock, which are rated Baa, are considered as
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.

MOODY'S LONG-TERM DEBT RATINGS -- NON-INVESTMENT GRADE

Bonds and preferred stock, which are rated Ba, are judged to have
speculative elements; their future cannot be considered as well-assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds and preferred stock in this class.

Bonds and preferred stock which are rated B generally lack characteristics
of the desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

Bonds and preferred stock, which are rated Caa, are of poor standing. Such
issues may be in default or there may be present elements of danger with respect
to principal or interest.

Bonds and preferred stock, which are rated Ca, represent obligations which
are speculative in a high degree. Such issues are often in default or have other
marked shortcomings.

Bonds and preferred stock, which are rated C, are the lowest rated class
of bonds and issues so rated and can be regarded as having extremely poor
prospects of ever attaining any real investment standing.

MOODY'S SHORT-TERM DEBT RATINGS -- INVESTMENT GRADE

Issuers rated PRIME-1 (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 repayment ability
will often be evidenced by many of the following characteristics:

o Leading market positions in well-established industries.

o High rates of return on funds employed.

o Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

o Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

o Well-established access to a range of financial markets and assured
sources of alternate liquidity.

Issuers rated PRIME-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

Issuers rated PRIME-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.

MOODY'S SHORT-TERM DEBT RATINGS -- NON-INVESTMENT GRADE

Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.

S&P LONG-TERM CREDIT RATINGS - INVESTMENT GRADE

The ratings from AA to CCC may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.

An obligation rated "AAA" has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.

An obligation rated "AA" differs from the highest rated obligations only
to a small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.

An obligation rated "A" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

An obligation rated "BBB" exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.

S&P LONG-TERM CREDIT RATINGS -- NON-INVESTMENT GRADE

Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.

An obligation rated "BB" is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.

An obligation rated "B" is more vulnerable to nonpayment than obligations
rated "BB," but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.

An obligation rated "CCC" is currently vulnerable to nonpayment and is
dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial or economic conditions, the obligor is not likely to
have the capacity to meet its financial commitment on the obligation.

An obligation rated "CC" is currently highly vulnerable to nonpayment.

The rating "C" may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on this
obligation are being continued.

An obligation rated "D" is in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.

S&P SHORT-TERM CREDIT RATINGS -- INVESTMENT GRADE

A short-term obligation rated "A-1" is rated in the highest category by
S&P. The obligor's capacity to meet its financial commitment on the obligation
is strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on the obligation is extremely strong.

A short-term obligation rated "A-2" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating

categories. However, the obligor's capacity to meet its financial commitment on
the obligation is satisfactory.

A short-term obligation rated "A-3" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.

S&P SHORT-TERM CREDIT RATINGS -- NON-INVESTMENT GRADE

A short-term obligation rated "B" is regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.

A short-term obligation rated "C" is currently vulnerable to nonpayment
and is dependent upon favorable business, financial and economic conditions for
the obligor to meet its financial commitment on the obligation.

A short-term obligation rated "D" is in default. The "D" rating is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P's believes that such
payments will be made during such grace period. The "D" rating also will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.

APPENDIX B
SUMMARY OF DAVIS ADVISORS'
PROXY VOTING PROCEDURES AND POLICIES
April 1, 2004

Davis Selected Advisers, L.P. ("Davis Advisors") votes on behalf of its clients
in matters of corporate governance through the proxy voting process. Davis
Advisors takes its ownership responsibilities very seriously and believes the
right to vote proxies for its Clients' holdings are a significant asset of the
clients. Davis Advisors exercises its voting responsibilities as a fiduciary,
solely with the goal of maximizing the value of its clients' investments.

Davis Advisors votes proxies with a focus on the investment implications of each
issue. For each proxy vote, Davis Advisors takes into consideration its duty to
clients and all other relevant facts available to Davis Advisors at the time of
the vote. Therefore, while these guidelines provide a framework for voting,
votes are ultimately cast on a case-by-case basis.

Davis Advisors has adopted written Proxy Voting Procedures and Policies and
established a Proxy Oversight Group to oversee voting policies and deal with
potential conflicts of interest. In evaluating issues, the Proxy Oversight Group
may consider information from many sources, including the portfolio manager for
each client account, management of a company presenting a proposal, shareholder
groups, and independent proxy research services.

Clients may obtain a copy of Davis Advisors' Proxy Voting Procedures and
Policies, and/or a copy of how their own proxies were voted, by writing to:

Davis Selected Advisers, L.P.
Attn: Chief Compliance Officer
2949 East Elvira Road, Suite 101
Tucson, Arizona, 85706

A copy of Davis Advisors' Proxy Voting Procedures and Policies is also included
in Davis Advisors' Form ADV Part II.

GUIDING PRINCIPLES

CREATING VALUE FOR EXISTING SHAREHOLDERS. The most important factors that we
consider in evaluating proxy issues are: (i) the Company's or management's
long-term track record of creating value for shareholders. In general, we will
consider the recommendations of a management with a good record of creating
value for shareholders as more credible than the recommendations of managements
with a poor record; (ii) whether, in our estimation, the current proposal being
considered will significantly enhance or detract from long-term value for
existing shareholders; and (iii) whether a poor record of long term performance
resulted from poor management or from factors outside of managements control.

Other factors which we consider may include:

(a) Shareholder Oriented Management. One of the factors that Davis Advisors
considers in selecting stocks for investment is the presence of
shareholder-oriented management. In general,

such managements will have a large ownership stake in the company. They will
also have a record of taking actions and supporting policies designed to
increase the value of the company's shares and thereby enhance shareholder
wealth. Davis Advisors' research analysts are active in meeting with top
management of portfolio companies and in discussing their views on policies or
actions which could enhance shareholder value. Whether management shows evidence
of responding to reasonable shareholder suggestions, and otherwise improving
general corporate governance, is a factor which may be taken into consideration
in proxy voting.

(b) Allow responsible management teams to run the business. Because we try
generally to invest with "owner oriented" managements (see above), we vote with
the recommendation of management on most routine matters, unless circumstances
such as long standing poor performance or a change from our initial assessment
indicate otherwise. Examples include the election of directors and ratification
of auditors. Davis Advisors supports policies, plans and structures that give
management teams appropriate latitude to run the business in the way that is
most likely to maximize value for owners. Conversely, Davis Advisors opposes
proposals that limit management's ability to do this. Davis Advisors will
generally vote with management on shareholder social and environmental proposals
on the basis that their impact on share value is difficult to judge and is
therefore best done by management.

(c) Preserve and expand the power of shareholders in areas of corporate
governance. Equity shareholders are owners of the business, and company boards
and management teams are ultimately accountable to them. Davis Advisors supports
policies, plans and structures that promote accountability of the board and
management to owners, and align the interests of the board and management with
owners. Examples include: annual election of all board members, cumulative
voting, and incentive plans that are contingent on delivering value to
shareholders. Davis Advisors generally opposes proposals that reduce
accountability or misalign interests, including but not limited to classified
boards, poison pills, excessive option plans, and repricing of options.

Davis Advisors exercises its professional judgment in applying these principles
to specific proxy votes. Davis Advisors Proxy Procedures and Policies provides
additional explanation of the analysis which Davis Advisors may conduct when
applying these guiding principles to specific proxy votes.

CONFLICTS OF INTEREST

A potential conflict of interest arises when Davis Advisors has business
interests that may not be consistent with the best interests of its client. In
reviewing proxy issues to identify any potential material conflicts between
Davis Advisors' interests and those of its clients, Davis Advisors' Proxy
Oversight Group is charged with resolving material potential conflicts of
interest which it becomes aware of. It is charged with resolving conflicts in a
manner that is consistent with the best interests of clients. There are many
acceptable methods of resolving potential conflicts and the Proxy Oversight
Group exercises its judgment and discretion to determine an appropriate means of
resolving a potential conflict in any given situation:

(1) Votes consistent with the "General Proxy Voting Policies," are presumed to
be consistent with the best interests of clients;

(2) Davis Advisors may disclose the conflict to the client and obtain the
client's consent prior to voting the proxy;

(3) Davis Advisors may obtain guidance from an independent third party;

(4) The potential conflict may be immaterial; or

(5) Other reasonable means of resolving potential conflicts of interest which
effectively insulate the decision on how to vote client proxies from the
conflict.

FORM N-1A

CLIPPER FUND, INC.

POST-EFFECTIVE AMENDMENT NO. 26 UNDER THE SECURITIES ACT OF 1933
REGISTRATION STATEMENT NO. 002-88543

AND

POST-EFFECTIVE AMENDMENT NO. 26 UNDER THE INVESTMENT COMPANY ACT OF 1940
REGISTRATION NO. 811-03931

PART C

OTHER INFORMATION

Item 23. Exhibits:

(a) Articles of Incorporation Articles of Incorporation dated
December 1,1983 incorporated by reference to Exhibit 23(a) of
Registrant's registration statement filed on Edgar on April 30,
1999.

(b)* By-Law of the Fund By-Laws as amended December 19, 2005, filed
herein.

(d)(1)* Form of Advisory and Sub-Advisory Agreement Agreement dated
January 1, 2006, filed herein.

(d)(2)* Temporary Fee Waiver Agreement dated January 1, 2006, filed
herein.

(e)* Form of Principal Underwriting Agreement Agreement dated
December 19, 2005, filed herein.

(f) Bonus or Profit Sharing Contracts Not applicable.

(g)* Custodian Agreement Agreement with State Street Bank & Trust
dated January 1, 2006, filed herein.

(h)(1)* Other Material Contracts. Transfer Agent Agreement with Boston
Financial Data Services dated January 1, 2006, filed herein.

(h)(2)* Administrative Services Agreement Agreement with Davis Selected
Advisers, L.P. dated December 19, 2005, filed herein

(i)* Opinion of Counsel Opinion and Consent of Fund Counsel, Paul,
Hastings, Janofsky & Walker LLP, filed herein.

(j)* Other Opinions Opinion and Consent of Independent Counsel,
Pricewaterhouse Coopers, filed herein.

(k) Omitted Financial Statements. Not applicable.

(l) Initial Capital Agreements. Not applicable.

(m) Rule 12b-1 Plan. Not applicable.

(n) Rule 18f-3 Plan. Not applicable.

(o) Reserved.

(p)* Code of Ethics. Code of Ethics as amended February 1, 2005,
filed herein.

(q)(1)* Other Exhibits. Power of Attorney of the Board of Directors,
dated December 19, 2005, filed herein.

(q)(2)* Other Exhibits. Power of Attorney of Officers, dated December
19, 2005, filed herein.

* Filed herein

Item 24. Persons Controlled by or Under Common Control With Registrant

Information pertaining to persons controlled by or under common control with
Registrant is incorporated by reference from the Statement of Additional
Information contained in Part B of this Registration Statement.

Item 25. Indemnification

Reference is made to Article VI of the Registrant's By-Laws (filed with the
Securities and Exchange Commission as Exhibit 23(b) to Form N-1A 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, as amended, 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, as amended, may be permitted to
directors, 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 directors,
officer or controlling person of the Registrant in the successful defense of an
action, suit or proceeding) is asserted by such director, 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.

In addition, the Registrant's directors and officers are covered under a policy
to indemnify them for loss (subject to certain deductibles) including costs of
defense incurred by reason of alleged errors or omissions, neglect or breach of
duty. The policy has a number of exclusions including alleged acts, errors, or
omissions which are finally adjudicated or established to be deliberate,
dishonest, malicious or fraudulent or to constitute willful misfeasance, bad
faith, gross negligence or reckless disregard of their duties in respect to any
registered investment company.

Item 26. Business and Other Connections of Investment Adviser

Davis Selected Advisers, L.P. ("DSA") and affiliated companies comprise a
financial services organization whose business consists primarily of providing
investment management services as the investment adviser and manager for
investment companies registered under the Investment Company Act of 1940,
unregistered domestic and off-shore investment companies, and as an investment
adviser to institutional and individual accounts. DSA also serves as sub-adviser
to other investment companies. Affiliated companies include:

Davis Investments, LLC: the sole general partner of DSA. Controlled by its sole
member, Christopher C. Davis.

Venture Advisers, Inc.: is a corporation whose primary purpose is to hold
limited partner units in DSA.

Davis Selected Advisers - NY, Inc.: a wholly-owned subsidiary of DSA, is a
federally registered investment adviser which serves as sub-adviser for may of
DSA's advisory clients.

Davis Distributors LLC: a wholly owned subsidiary of DSA, is a registered
broker-dealer which serves as primary underwriter of the Davis Funds and
Selected Funds.

Other business of a substantial nature that directors or officers of DSA are or
have been engaged in the last two years:

ANDREW A. DAVIS (6/25/63), 124 East Marcy Street, Santa Fe, NM 87501. Director
and President or Vice President of each of the Davis Funds and the Selected
Funds. President of Davis Investments, LLC. Also serves as a director and/or
senior officer for several companies affiliated with DSA which are described
above.

CHRISTOPHER C. DAVIS (7/13/65), 609 Fifth Avenue, New York, NY 10017. Director
and Chief Executive Officer, President, and/or Vice President of each of the
Davis Funds and the Selected Funds; President of Clipper Fujd, Director,
Chairman and Chief Executive Officer of Davis Investments, LLC. Also serves as a
director and/or senior officer for several companies affiliated with DSA, which
are described above. Is an employee of Shelby Cullom Davis & Co., a registered
broker/dealer.

KENNETH C. EICH (8/14/53), 2949 East Elvira Road, Suite 101, Tucson, AZ 85706.
Executive Vice President and Principal Executive Officer of each of the Davis
Funds, Selected Funds and Clipper Fund; Chief Operating Officer of Davis
Investments, LLC. Also serves as a senior officer for several companies
affiliated with DSA which are described above.

DOUGLAS HAINES (3/4/71) 2949 East Elvira Road, Suite 101, Tucson, AZ 85706. Vice
President, Treasurer Chief Financial Officer, Principal Financial Officer, and
Principal Accounting Officer of each of the Davis Funds, Selected Funds, and
Clipper Fund; Vice President of Davis Investments, LLC.

SHARRA L. REED (9/25/66) 2949 East Elvira Road, Suite 101, Tucson, AZ 85706.
Vice President Chief Compliance Officer of each of the Davis Funds, Selected
Funds, and Clipper Fund; Vice President of Davis Investments, LLC. Also serves
as Chief Compliance Officer for DSA and as a senior officer for several
companies affiliated with DSA which are described above.

THOMAS D. TAYS (03/07/57) 2949 East Elvira Road, Suite 101, Tucson, AZ 85706.
Vice President Secretary of eac of the Davis Funds, Selected Funds, and Clipper
Fund; Vice President, Chief Legal Officer and Secretary, Davis Investments, LLC.
Also serves as a senior officer for several companies affiliated with DSA which
are described above.

GARY TYC (05/27/56), 2949 East Elvira Road, Suite 101, Tucson, AZ 85706. Vice
President, Chief Financial Officer Treasurer, and Assistant Secretary of Davis
Investments, LLC. Also serves as a senior officer for several companies
affiliated with DSA which are described above.

RUSSELL O. WIESE (05/18/66) 609 Fifth Avenue, New York, NY 10017. Chief
Marketing Officer of Davis Investments, LLC. Also serves as a director and/or
senior officer for several companies affiliated with DSA which are described
above.

Item 27. Principal Underwriter

(a) Davis Distributors, LLC, a wholly owned subsidiary of the Adviser,
located at 2949 East Elvira Road, Suite 101, Tucson, AZ 85706, is the
principal underwriter for each of the Davis Funds, Selected Funds, and
Clipper Fund: Davis New York Venture Fund Inc., Davis Series, Inc., Davis
Variable Account Fund, Inc., Selected American Shares, Inc., Selected Special
Shares, Inc., Selected Capital Preservation Trust, Clipper Fund, Inc., and
Clipper Funds Trust.

(b) Management of the Principal Underwriter:

NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS UNDERWRITER WITH REGISTRANT
------------------ -------------------------- ---------------------

Kenneth C. Eich President Executive Vice President and
2949 East Elvira Road, Suite 101 Principal Executive Officer
Tucson, AZ 85706
Russell Wiese Chief Marketing Officer None
609 Fifth Avenue,
New York, NY 10017.

Gary P. Tyc Vice President, Treasurer and None
2949 East Elvira Road, Suite 101 Assistant Secretary
Tucson, AZ 85706
Anthony Frazia Chief Compliance Officer None
609 Fifth Avenue,
New York, NY 10017.

Thomas D. Tays Vice President and Secretary Vice President and Secretary
2949 East Elvira Road, Suite 101
Tucson, AZ 85706

Item 28. Location of Accounts and Records

Accounts and records are maintained at the offices of Davis Selected Advisers,
L.P., 2949 East Elvira Road, Suite 101, Tucson, Arizona 85706, and at the
offices of the Registrant's custodian, State Street Bank and Trust Company, One
Heritage Drive, North Quincy, Massachusetts 02107, and the Registrant's transfer
agent State Street Bank and Trust, c/o Service Agent, BFDS, Two Heritage Drive,
Seventh Floor, North Quincy, Massachusetts 02107.

Item 29. Management Services

Not applicable

Item 30. Undertakings

Not Applicable.

CLIPPER FUND, INC.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and/or the Investment
Company Act of 1940, the Registrant has caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Tucson and State of Arizona on the 24th day of April 2006.

The Registrant hereby certifies that this Post Effective Amendment meets all the
requirements for effectiveness under paragraph (b) of Rule 485 of the Securities
Act of 1933.

CLIPPER FUND, INC.

*By: /s/ Thomas Tays(1)
---------------------------------
Thomas Tays
Attorney-in-Fact

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated.

Signature Title Date
--------- ----- ----

Kenneth Eich(1) Principal Executive Officer April 24, 2006
---------------
Kenneth Eich

Douglas Haines(1) Principal Financial Officer
----------------- and Principal Accounting Officer April 24, 2006
Douglas Haines

*By: /s/ Thomas Tays
---------------------------------
Thomas Tays
Attorney-in-Fact

(1)Thomas Tays signs this document on behalf of the Registrant and each of the
foregoing officers pursuant to the power of attorney filed as Exhibit 23(q)(2)
to Part C of Form N-1A.

/s/ Thomas Tays
--------------------------------------
Thomas Tays
Attorney-in-Fact

CLIPPER FUND, INC.

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed on April 24, 2006, by the following persons in the
capacities indicated.

Signature Title
--------- -----
/s/ F. Otis Booth(2) Director
----------------------------------
F. Otis Booth

/s/ Lawrence P. McNamee(2) Director
----------------------------------
Lawrence P. McNamee

/s/ Norman B. Williamson(2) Director
----------------------------------
Norman B. Williamson

/s/ Steven N. Kearsley(2) Director
----------------------------------
Steven N. Kearsley

/s/ Lawrence E. Harris(2) Director
----------------------------------
Lawrence E. Harris

(2)Thomas Tays signs this document on behalf of the Registrant and each of the
foregoing officers pursuant to the power of attorney filed as Exhibit 23(q)(1)
to Part C of Form N-1A.

/s/ Thomas Tays
--------------------------------------
Thomas Tays
Attorney-in-Fact

EXHIBIT LIST

23(b) By-Law of the Fund By-Laws as amended December 19, 2005.

23(d)(1) Form of Advisory and Sub-Advisory Agreement Agreement dated
January 1, 2006.

23(d)(2) Temporary Fee Waiver Agreement dated January 1, 2006.

23(e) Form of Principal Underwriting Agreement Agreement dated December
19, 2005.

23(g) Custodian Agreement Agreement with State Street Bank & Trust
dated January 1, 2006.

23(h)(1) Transfer Agent Agreement Agreement with Boston Financial Data
Services dated January 1, 2006.

23(h)(2) Administrative Services Agreement Agreement with Davis Selected
Advisers, L.P. dated December 19, 2005.

23(i) Opinion of Counsel Opinion and Consent of Fund Counsel, Paul,
Hastings, Janofsky & Walker LLP.

23(j) Other Opinions Opinion and Consent of Independent Counsel,
Pricewaterhouse Coopers.

23(p) Code of Ethics. Code of Ethics as amended February 1, 2005.

23(q)(1) Other Exhibits. Power of Attorney of the Board of Directors,
dated December 19, 2005.

23(q)(2) Other Exhibits. Power of Attorney of Officers, dated December 19,
2005.