UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-03931
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Clipper Fund, Inc.
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(Exact name of registrant as specified in charter)
9601 Wilshire Boulevard, Suite 800
Beverly Hills, California 90210
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(Address of principal executive offices)(Zip code)
(Name and Address of Agent for Service) Copy to:
James H. Gipson Michael Glazer, Esq.
Clipper Fund, Inc. Paul, Hastings, Janofsky & Walker LLP
9601 Wilshire Boulevard, Suite 800 515 South Flower Street
Beverly Hills, California 90210 Los Angeles, California 90071
Registrant's telephone number, including area code: (800) 776-5033
Date of fiscal year end: December 31
Date of reporting period: June 30, 2005
Item 1: Reports to Stockholders.
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CLIPPER
FUND(SM)
[LOGO]
SEMI-ANNUAL REPORT
JUNE 30, 2005
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CLIPPER FUND(SM) ---------------------------------------------------------------
Dear Shareholder:
The summer doldrums arrived early this year:
Average Annual Total Return (as of 06/30/05)(1)
Morningstar
Clipper S&P 500 Large Value
Fund Index(2) Peer Group(3)
--------- --------- -------------
Second Quarter* 1.2% 1.4% 1.2%
Year-to-Date* -1.9% -0.8% 0.4%
1 Year 4.0% 6.3% 9.6%
5 Years 11.6% -2.4% 5.0%
10 Years 14.0% 9.9% 9.6%
Since Inception** 15.0% 12.8% ***
* Not annualized.
** Inception date: 02/29/84
*** Data not available.
The investment return and principal value will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost. Past
performance is not indicative of future results. See footnotes on page 8.
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THE WORLD'S EASIEST WAY TO GET RICH
THERE IS no easier way to get rich than rolling out of bed in the morning and
knowing that the floor you stand on is worth more than it was the night before.
The longer you sleep, the richer you are. Homes are the darlings of the decade,
at least the first half of it. Every business magazine warns against the
speculative housing bubble, particularly when financed by creative mortgages
with low documentation and even less down payment. Responsible mortgage holders,
including Fannie Mae and Freddie Mac, generally avoid these creative mortgages.
The warnings
2
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probably are reasonable in the long run, but bubbles are notoriously hard to
predict as to when and how they will pop.
Like a skilled magician who diverts your attention from the real action,
the conventional focus on the risk to housing prices may be a distraction to
investors. Some investment risks arrive well advertised (Alan Greenspan warned
of "irrational exuberance" in 1996; the stock market fell in 2000). Many of the
most painful shocks, however, do not come heralded by trumpets. Take the last
decade. No one we know predicted the Mexican debt crisis of 1995 or the Russian
one three years later. The Ph.D.'s and Nobel laureates of Long Term Capital
Management had an abundance of brainpower but an absence of ability to predict
their own downfall until it was underway. Because investing (and life in
general) entails future risks that are both unknown and unknowable, a reasonable
investor looks for a margin of safety before committing his capital. Currently,
the prices of most long-term assets (e.g., stocks, bonds and, of course, real
estate) do not offer much margin of safety.
HAMSTER ON A WHEEL
Most people form their expectation for the future from their experience of
the past. That way of thinking, so productive for the natural sciences, can be
so misleading for investors. During the strong, double-digit returns of the late
1990s, surveys of investors showed they expected more of the same. That didn't
happen, as reflected in the table below:
Peak in June 30,
2000 2005 Change
------- -------- ------
S&P 500(2) 1527 1191 -22%
Nasdaq(4) 5049 2057 -59%
Return is not the only thing shrinking. So is the average holding period
for stocks. The 8 year holding period in the 1960s reflected the view of
long-term equity ownership then; the less than 1 year holding period as this
decade began shows a fast turnover attitude now. Investors reasonably may feel
like a hamster on a wheel--lots of furious trading activity but little to show
for it in terms of profits produced.
3
CLIPPER FUND(SM) ---------------------------------------------------------------
Much of the increased trading volume stems from currently popular hedge
funds. While generalization is difficult on the roughly 8,000 such funds now
existing, one observation may be useful in distinguishing their past returns
from their probable future ones. Hedge funds often rely on two classic
conditions for their performance: large inefficiencies in the relative pricing
of assets and large volatility in those prices. Both conditions prevailed five
years ago. Neither condition appears to be present today. Volatility, as
measured by the S&P 500 (i.e., yearly high vs. yearly low), is at a 50 year low.
GOING NOWHERE FAST
Wal-Mart is your first new stock in a long time. It also is a good example
of two different ways of viewing a company. Looked at from the perspective of an
owner, Wal-Mart has done well. It continues to be a remarkably efficient
operator that generates a relentless record of profits today and growth
tomorrow. Of particular significance for a cash-generating company, Wal-Mart
uses that cash in shareholder-friendly ways that include profitable expansion
and stock repurchase.
Viewed as a stock, Wal-Mart has gone nowhere for years. While the
underlying business value has grown, the stock price has not. That is what has
made it cheap enough to buy again. Wal-Mart is not as cheap as it was when we
first bought the stock in 1995 (it became a substantial position in your
portfolio then), but it is a very good company at a price that makes it
attractive to a long-term investor.
Wal-Mart also demonstrates how changing interest rates alter the incentive
for investors. The basic discount rate applied to all long-term assets--the
yield on long-term treasury bonds--has declined to under 5%. In the mathematics
of stock valuation, growth is worth more than it used to be. Wal-Mart is one of
the few companies likely to sustain a good long-term growth rate.
Wal-Mart is a particular example of the general situation facing investors
today. There simply are not many cheap stocks, particularly when allowing for
reasonable risks such as a decline in today's record high profit margins. There
probably will be periods of better opportunity. In that respect we are
4
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basing our expectations for the future on our experience of the past. Neither we
nor anyone else can predict when the market will provide us with better
opportunities, but we will remain patient until that day arrives.
OF MICE AND MEN
In the long struggle between mice and men, the rodents are winning. Their
victory will create lower costs for most investors and lower income for some
humans.
Trading any commodity, in this case stocks, always was a face-to-face
affair. George wanted to buy a stock, Sam wanted to sell it, and they shouted
prices at each other until they came to common agreement. The common location
where the shouting took place was under a buttonwood tree in lower Manhattan in
the late 18th century. Eventually the traders moved their operations indoors to
get out of the rain, and then called themselves the New York Stock Exchange.
For the next two centuries the largely conservative members of the NYSE
preached the hard virtues of competitive capitalism to the rest of the country
while practicing the soft vices of price-fixing and monopoly in their own
business. When their price-fixing power ended in 1975 (the SEC simply told them
to stop it), brokers saw normal competition lower their brokerage prices
dramatically, in many cases over 90%. Economic theory was proven right;
monopolies overcharge their customers.
Price-fixing is gone, but monopoly remains in the form of an 80%-plus
market share in the trading of listed stocks. There have been regional stock
exchanges for decades, but they remain minor competition to the NYSE human
traders. The real threat comes from technology. Small orders already are
executed electronically without the need for humans to face each other like two
boxers in a ring. Electronic communication networks (ECNs) allow trades in
larger volumes, and both the NYSE and Nasdaq are merging with ECNs. Algorithmic
trading, a recent trend which uses computer-based formulas to execute rapid-fire
trades, would not be possible if slow humans were involved in executing those
fast trades.
Like a lobster in a pot that slowly realizes it is being boiled alive, the
traditional stock trader has a finite and forlorn future. The loud sound of
5
CLIPPER FUND(SM) ---------------------------------------------------------------
traders shouting is being replaced by the muted sound of computer mice clicking.
Since a computer mouse can click from anywhere on the planet, there is less need
for humans to face each other at a central market place to execute a trade. The
SEC is issuing new regulations whose full impact is not clear yet, but whose
consequence is likely to be an electronic link between markets to give investors
the best price. As computer mice replace trading men, the likely consequences
for investors are trades that are better, faster and cheaper.
On a housekeeping note, when we started Clipper over twenty years ago,
forming the Fund as a California corporation was a logical choice. With the
passage of time, what was logical then now warrants new consideration. When you
open up a closet door after more than twenty years, there's bound to be some
need for spring cleaning. Spring cleaning for Clipper means a recommendation
from your Board of Directors to change the Fund's state of incorporation to
Delaware. There will be no change in the way the Fund is managed or tax
consequences from this move, only a more efficient and cost-effective operating
environment. We would appreciate your careful consideration of the proxy you
will receive shortly.
Lastly, we would like to bid farewell to our colleague and friend, Doug
Grey. After 19 years with Pacific Financial Research, Inc., Doug has decided to
pursue new opportunities. We wish Doug much success.
Sincerely,
Your Portfolio Management Team
/s/ JAMES H. GIPSON
James H. Gipson
Chairman & President
Michael C. Sandler
Bruce G. Veaco
Nugroho "Dede" Soeharto
Peter J. Quinn
Kelly M. Sueoka
July 29, 2005
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PERFORMANCE DISCLOSURE
1 The performance presented for Clipper Fund, Inc. (the "Fund") on page 3
assumes reinvestment of dividends and capital gains distributions but does
not reflect the deduction of taxes that a shareholder would pay on such
distributions or on the redemption of Fund shares. Current performance may
be lower or higher than the performance quoted. To obtain current month end
performance call 1-800-776-5033. Average annual total return measures
annualized change while total return measures aggregate change.
2 The S&P 500 Index is an unmanaged, capitalization-weighted index of the
common stocks of 500 major US corporations. The S&P 500 Index returns
include dividend and/or interest income and, unlike Fund returns, do not
reflect fees and expenses. In addition, unlike the Fund, which periodically
maintains a significant cash position, the S&P 500 Index is fully invested.
You cannot invest directly in an index.
3 The Morningstar Large Value Peer Group comprises those actively managed
large value mutual funds monitored by Morningstar. The Peer Group is
unmanaged and as of June 30, 2005, included 1,186 mutual funds. Peer Group
returns reflect deductions for fees and expenses, but not for taxes.
4 The Nasdaq Composite Index is an unmanaged market weighted index that
measures all Nasdaq domestic and non-U.S. based common stocks listed on the
Nasdaq Stock Market. The Nasdaq Composite Index returns include dividend
and/or interest income and, unlike Fund returns, do not reflect fees and
expenses. In addition, unlike the Fund, which periodically maintains a
significant cash position, the Nasdaq Composite Index is fully invested.
You cannot invest directly in an index.
This material is submitted for the general information of the Fund's
shareholders. The report is not authorized for distribution to prospective
investors unless accompanied by a current prospectus. The prospectus contains
important information about the Fund, including the Fund's investment
objectives, risks, management fees, and other expenses. You can obtain a
prospectus by calling 1-800-776-5033 or by visiting the Fund's website at
www.clipperfund.com.
The discussion of Fund investments represents the views of the Fund's managers
at the time of this report and are subject to change without notice. References
to individual securities are for informational purposes only and should not be
construed as recommendations to purchase or sell individual securities. While
the Fund's managers believe that the Fund's holdings are value stocks, there can
be no assurance that others will consider them as such. Further, investing in
value stocks presents the risk that value stocks may fall out of favor with
investors and underperform growth stocks during given periods.
Because the Fund is non-diversified, the performance of each holding will have a
greater impact on the Fund's total return, and may make the Fund's returns more
volatile than a more diversified fund.
7
CLIPPER FUND(SM) ---------------------------------------------------------------
FORWARD LOOKING STATEMENT DISCLOSURE
As mutual fund managers, one of our responsibilities is to communicate with
shareholders in an open and direct manner. In so far as some of our opinions
and comments in our letters to shareholders are based on current management
expectations, they are considered "forward-looking statements" which may or may
not be accurate over the long term. While we believe we have a reasonable basis
for our comments and we have confidence in our opinions, actual results may
differ materially from those we anticipate. You can identify forward-looking
statements by words such as "believe," "expect," "may," "anticipate," and other
similar expressions when discussing prospects for particular portfolio holdings
and/or the markets, generally. We cannot, however, assure future results and
disclaim any obligation to update or alter any forward-looking statements,
whether as a result of new information, future events, or otherwise. Further,
information provided in this report should not be construed as a recommendation
to purchase or sell any particular security.
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INVESTMENT PORTFOLIO
June 30, 2005
(Unaudited)
COMMON STOCKS
Market
Shares Value %
- ------------- ------------- -----
Consumer Discretionary
Media
8,826,000 Interpublic Group of Companies, Inc.*.... $ 107,500,680 1.6%
3,706,000 Time Warner Inc.* ....................... 61,927,260 0.9%
-------------- ----
Total Consumer Discretionary .............. 169,427,940 2.5%
-------------- ----
Consumer Staples
Beverages
3,429,700 The Coca-Cola Company ................... 143,189,975 2.2%
-------------- ----
Food Products
4,223,700 Kraft Foods Inc. ........................ 134,355,897 2.0%
-------------- ----
Food & Staples Retailing
8,750,400 The Kroger Co.* ......................... 166,520,112 2.5%
6,118,000 Safeway Inc. ............................ 138,205,620 2.1%
2,814,100 Wal-Mart Stores Inc. .................... 135,639,620 2.0%
-------------- ----
440,365,352 6.6%
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Tobacco
4,225,400 Altria Group Inc. ....................... 273,214,364 4.1%
-------------- ----
Total Consumer Staples .................... 991,125,588 14.9%
-------------- ----
Energy
Oil, Gas & Consumable Fuels
17,974,800 El Paso Corporation ..................... 207,069,696 3.1%
-------------- ----
Total Energy .............................. 207,069,696 3.1%
-------------- ----
Financials
Capital Markets
2,784,400 Merrill Lynch & Co., Inc. ............... 153,169,844 2.3%
-------------- ----
Consumer Finance
7,075,200 American Express Company ................ 376,612,896 5.7%
-------------- ----
Thrifts & Mortgage Finance
9,492,700 Freddie Mac ............................. 619,208,821 9.3%
4,760,700 Fannie Mae .............................. 278,024,880 4.2%
-------------- ----
897,233,701 13.5%
-------------- ----
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* Non-income producing securities.
See notes to financial statements.
9
CLIPPER FUND(SM) ---------------------------------------------------------------
Market
Shares Value %
- ------------- -------------- -----
Insurance
13,479,000 Marsh & McLennan Companies Inc. ........ $ 373,368,300 5.6%
2,774,160 Old Republic International Corporation 70,158,506 1.0%
-------------- ----
443,526,806 6.6%
-------------- ----
Total Financials ......................... 1,870,543,247 28.1%
-------------- ----
Health Care
Health Care Providers & Services
19,189,400 Tenet Healthcare Corporation* .......... 234,878,256 3.5%
2,336,600 HCA Inc. ............................... 132,415,122 2.0%
-------------- ----
367,293,378 5.5%
-------------- ----
Pharmaceuticals
14,170,300 Pfizer Inc. ............................ 390,816,874 5.9%
3,002,800 Wyeth .................................. 133,624,600 2.0%
1,552,300 Johnson & Johnson ...................... 100,899,500 1.5%
-------------- ----
625,340,974 9.4%
-------------- ----
Total Health Care ........................ 992,634,352 14.9%
-------------- ----
Industrials
Commercial Services & Supplies
2,120,000 Pitney Bowes Inc. ...................... 92,326,000 1.4%
-------------- ----
Industrial Conglomerates
8,054,300 Tyco International Ltd. ................ 235,185,560 3.5%
-------------- ----
Total Industrials ........................ 327,511,560 4.9%
-------------- ----
Information Technology
IT Services
15,755,700 Electronic Data Systems ................ 303,297,225 4.6%
-------------- ----
Total Information Technology ............. 303,297,225 4.6%
-------------- ----
TOTAL COMMON STOCK
(Cost $4,397,550,319) .................. 4,861,609,608 73.0%
-------------- ----
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* Non-income producing securities.
See notes to financial statements.
10
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SHORT TERM INVESTMENTS
Market
Par Value Value %
- ------------- -------------- -----
US Treasury Bill
$856,235,000 (0.00%, 11/25/05) .............................. $ 845,252,074 12.7%
US Treasury Bill
306,826,000 (0.00%, 08/18/05) .............................. 305,627,231 4.6%
US Treasury Bill
227,704,000 (0.00%, 10/20/05) .............................. 225,519,180 3.4%
US Treasury Bill
217,632,000 (0.00%, 07/28/05) .............................. 217,161,044 3.2%
US Treasury Bill
98,898,000 (0.00%, 10/13/05) .............................. 98,016,522 1.5%
State Street Bank & Trust Company
Repurchase Agreements (Notes 1 and 2)
101,148,000 (2.50%, dated 06/30/05, due 07/01/05) .......... 101,148,000 1.5%
-------------- -----
TOTAL SHORT TERM
INVESTMENTS
(Cost $1,793,207,815) ......................... 1,792,724,051 26.9%
-------------- -----
Total Investment Portfolio (Cost $6,190,758,134) ........... 6,654,333,659 99.9%
Cash and Receivables less Liabilities ...................... 3,495,472 0.1%
-------------- -----
TOTAL NET ASSETS ........................................... $6,657,829,131 100.0%
============== =====
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* Non-income producing securities.
See notes to financial statements.
11
CLIPPER FUND(SM) ---------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005
(Unaudited)
Assets:
Investment Portfolio:
Investment securities, at market value
(identified cost: $6,190,758,134) .......................... $6,654,333,659
Cash .......................................................... 740
--------------
6,654,334,399
--------------
Receivable for:
Investments sold ............................................ 32,202,101
Dividends and interest ...................................... 7,613,181
Fund shares sold ............................................ 4,118,655
Directed commission recapture (Note 6) ...................... 13,936
Prepaid expenses .............................................. 24,417
--------------
43,972,290
--------------
6,698,306,689
--------------
Liabilities:
Payable for:
Fund shares repurchased ..................................... 32,743,119
Accrued expenses (including $5,550,351 due adviser) ......... 7,734,029
Taxes payable ............................................... 410
--------------
40,477,558
--------------
Net Assets: (equivalent to $87.98 per share on 75,672,265 shares
of Capital stock outstanding--200,000,000
shares authorized) ............................................ $6,657,829,131
==============
Components of Net Assets:
Paid-in Capital ............................................... $6,005,292,823
Undistributed appreciation of investments (Note 4) ............ 463,575,525
Realized gains (Note 4) ....................................... 159,959,467
Undistributed net investment income ........................... 29,001,316
--------------
Net assets at June 30, 2005 ................................... $6,657,829,131
==============
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See notes to financial statements.
12
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STATEMENT OF OPERATIONS
Six Months Ended June 30, 2005
(Unaudited)
Investment Income:
Dividends .............................................................. $ 43,846,804
Interest ............................................................... 22,741,463
-------------
Total Investment Income .............................................. 66,588,267
Expenses:
Management fee (Note 5) ................................. $33,870,456
Transfer agent .......................................... 2,905,240
Shareholder reports ..................................... 851,705
Custodian and accounting ................................ 371,021
Insurance ............................................... 134,198
Legal ................................................... 101,074
Administration fees ..................................... 86,612
Registration fees ....................................... 83,684
Auditing ................................................ 15,827
Investment Company Institute dues ....................... 15,644
Directors' fees (Note 5) ................................ 15,000
Taxes ................................................... 400
Miscellaneous ........................................... 2,161
-----------
Total Gross Expenses .................................. 38,453,022
Reduction of Expenses (Note 6) ............................ (155,424)
-----------
Total Net Expenses ..................................................... 38,297,598
-------------
Net Investment Income ................................... 28,290,669
-------------
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain on investments (Notes 3 and 4) ..................... 159,959,467
Net decrease in unrealized appreciation of investments ............... (327,701,833)
-------------
Net Realized and Unrealized Loss on Investments ...................... (167,742,366)
-------------
Net Change in Net Assets Resulting from Operations ....................... $(139,451,697)
=============
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See notes to financial statements.
13
CLIPPER FUND(SM) ---------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Six Months
Ended Year Ended
June 30, 2005 December 31,
(Unaudited) 2004
-------------- --------------
Change in Net Assets:
Operations:
Net investment income ........................... $ 28,290,669 $ 45,241,100
Net realized gain on investments
(Notes 3 and 4) ................................ 159,959,467 219,274,661
Net unrealized appreciation/(depreciation)
of investments ................................. (327,701,833) 134,427,864
-------------- --------------
Net increase/(decrease) in net assets
resulting from operations ...................... (139,451,697) 398,943,625
-------------- --------------
Distributions to shareholders from:
Net investment income ........................... -- (44,530,454)
Net realized gain on investments ................ -- (219,274,661)
-------------- --------------
Decrease in net assets resulting
from distributions ............................. -- (263,805,115)
-------------- --------------
Capital Stock Transactions:
Proceeds from Capital Stock sold
(5,650,174 and 17,562,184 shares,
respectively) .................................. 494,826,744 1,528,270,835
Proceeds from Capital Stock purchased by
reinvestment of dividends and
distributions (0 and 2,883,614
shares, respectively) .......................... -- 252,954,787
Cost of Capital Stock redeemed
(10,352,197 and 19,233,077
shares, respectively) .......................... (905,676,188) (1,671,721,090)
-------------- --------------
Increase/(decrease) in net assets resulted
from Capital Stock transactions ................ (410,849,444) 109,504,532
-------------- --------------
Total increase/(decrease) in net assets ......... (550,301,141) 244,643,042
Net Assets:
Beginning of period (includes $710,646
and $0 of undistributed net investment
income, respectively) .......................... 7,208,130,272 6,963,487,230
-------------- --------------
End of period (includes $29,001,316 and
$710,646 of undistributed net investment
income, respectively) .......................... $6,657,829,131 $7,208,130,272
============== ==============
- -----------------
See notes to financial statements.
14
- ------------------------------------------------------- 2005 SEMI-ANNUAL REPORT
FINANCIAL HIGHLIGHTS
Six Months
Ended Year Ended December 31,
June 30, 2005 -------------------------------------------------------
(Unaudited) 2004 2003 2002 2001 2000
------------- ------- ------- ------- ------- -------
Per Share Data:
Net asset value, beginning of
period ..................... $ 89.68 $ 87.97 $ 75.73 $ 83.53 $ 79.25 $ 65.28
------- ------- ------- ------- ------- -------
Income/(loss) from operations:
Net investment income ...... 0.37 0.58 0.72 1.05 1.08 1.83
Net realized and unrealized
gain/(loss) on investments (2.07) 4.51 13.87 (5.65) 7.03 22.40
------- ------- ------- ------- ------- -------
Total Income/(loss) from
operations ................. (1.70) 5.09 14.59 (4.60) 8.11 24.23
Less distributions:
Dividends from net
investment income ......... -- (0.57) (0.73) (1.05) (1.08) (1.86)
Distributions of return
of capital ................ -- -- -- -- -- (0.02)
Distributions from net
realized gain on
investments ............... -- (2.81) (1.62) (2.15) (2.75) (8.38)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 87.98 $ 89.68 $ 87.97 $ 75.73 $ 83.53 $ 79.25
------- ------- ------- ------- ------- -------
Total return ................. (1.9%)* 5.9% 19.3% (5.5%) 10.3% 37.4%
Ratios and Supplemental Data:
Net assets ($000,000's), end
of period .................. $ 6,658 $ 7,208 $ 6,963 $ 5,002 $ 2,685 $ 1,366
Ratio of expenses to average
net assets: (Note 6)
Gross of expense reduction . 1.14%** 1.12% 1.13% 1.12% 1.12% 1.11%
Net of expense reduction ... 1.13%** 1.12% 1.12% 1.07% 1.08% 1.09%
Ratio of net investment
income to average
net assets ................. 0.84%** 0.65% 0.98% 1.60% 1.72% 2.88%
Portfolio turnover rate ...... 5%* 16% 25% 48% 23% 46%
Number of shares outstanding
at end of period (000's) ... 75,672 80,374 79,162 66,050 32,144 17,241
- -----------------
* Not annualized.
** Annualized.
See notes to financial statements.
15
CLIPPER FUND(SM) ---------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
NOTE 1 -- Clipper Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act"), as a
non-diversified open-end management investment company. The Fund's investment
objective is long-term capital growth and capital preservation achieved
primarily by investing in equity securities that are considered by Pacific
Financial Research, Inc. (the "Adviser") to have long-term capital appreciation
potential. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with accounting principles generally
accepted in the United States of America:
(a) Security valuation -- Investments in securities traded on a national
securities exchange are valued at the last sale price on such exchange
on the business day as of which such value is being determined.
Securities traded in the over-the-counter market and listed securities
for which no sale was reported on that date are valued at the last
reported bid price. If no bid price is quoted on such day, then the
security is valued by such method as the Board of Directors of the
Fund shall determine in good faith to reflect its fair value.
Discounts and premiums are accreted and amortized over the life of the
respective securities. Short term investments are stated at amortized
cost, which approximates current market value. Securities for which
market quotations are not readily available are valued at fair value
as determined in good faith based upon guidelines established by the
Board of Directors.
(b) Security transactions and related investment income -- Security
transactions are recorded by the Fund as of the date the trades are
executed with brokers. Realized gains and losses from security
transactions are determined based on the specific identified cost of
the securities. Dividend income is recognized on the ex-dividend date
and interest income is recognized on an accrual basis. Market
discounts, premiums, and original issue discounts on fixed income
securities are amortized daily over the expected life of the security.
(c) Repurchase agreements -- In connection with transactions in repurchase
agreements, it is the Fund's policy that its custodian take possession
of the underlying collateral securities, and to have legally
segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as
collateral for repurchase agreements. The market value of the
underlying securities is required to be at least 102% of the resale
price at the time of purchase. If the seller of the agreement defaults
and the value of the collateral declines, or if the seller enters an
insolvency proceeding, realization of the value of the collateral by
the Fund may be delayed or limited.
(d) Dividends and distributions to shareholders -- Dividends and
distributions to shareholders are recorded on the ex-dividend date.
16
- ------------------------------------------------------- 2005 SEMI-ANNUAL REPORT
(e) Federal income taxes -- The Fund intends to comply with the
requirements of the Internal Revenue Code, as amended, applicable to
regulated investments companies and to distribute all of its taxable
income to its shareholders. Therefore, no Federal income tax provision
is required.
(f) Use of estimates -- The preparation of the financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements. Actual results could differ
from the estimates.
(g) Guarantees -- In the normal course of business the Fund enters into
contracts that contain a variety of representations which provide
general indemnifications. The Fund's maximum exposure under these
arrangements is unknown as this would involve future claims that may
be made against the Fund that have not yet occurred. However, the Fund
expects the risk of loss to be remote.
NOTE 2 -- As of June 30, 2005, the Fund held State Street Bank and Trust Company
("State Street") repurchase agreements, collateralized by U.S. Government Agency
Notes due February 15 and May 15, 2008. The market value of the underlying
securities is required to be at least 102% of the resale price at the time of
purchase. At June 30, 2005, the market value amounted to $103,171,370.
NOTE 3 -- Purchases and sales of investment securities (excluding short term
securities and U.S. Government Obligations) for the six months ended June 30,
2005, were $249,517,609 and $930,222,232, respectively. The cost of securities
held is the same for Federal income tax and financial reporting purposes.
Realized gains or losses are based on the specific identification method.
NOTE 4 -- During the six months ended June 30, 2005, the Fund realized net
capital gains of $159,959,467 from transactions for Federal income tax and
financial reporting purposes. As of June 30, 2005, unrealized net appreciation
of investments for tax and financial reporting purposes aggregated $463,575,525,
of which $800,768,513 related to appreciated securities and $337,192,988 related
to depreciated securities.
NOTE 5 -- The Adviser's management fee is equal to 1% per annum of the Fund's
average daily net asset value. The management fee is accrued daily in computing
the net asset value per share.
Each Fund Director who is not affiliated with the Adviser and does not otherwise
meet the definition of "interested person" under section 2(a)(19) of the
Investment Company Act ("Independent Directors") is compensated by the Fund at
the rate of $2,500 per quarter.
NOTE 6 -- During the six months ended June 30, 2005, the Fund directed portfolio
transactions totaling $165,903,394 to certain brokers which had agreed to credit
portions of their commissions to offset Fund operating expenses. The brokerage
commissions in connection with those transactions totaled $209,908, of which
$155,424 was used to reduce certain Fund operating expenses.
17
CLIPPER FUND(SM) ---------------------------------------------------------------
(Unaudited)
Portfolio Holdings by Sector
Sector Fund S&P 500
- ------ -------- --------
Financials ............................... 28.1% 20.3%
Health care .............................. 14.9% 13.4%
Consumer staples ......................... 14.9% 10.1%
Industrials .............................. 4.9% 11.2%
Information technology ................... 4.6% 15.1%
Energy ................................... 3.1% 8.8%
Consumer discretionary ................... 2.5% 11.4%
Utilities ................................ -- 3.5%
Telecommunications services .............. -- 3.2%
Materials ................................ -- 3.0%
----- -----
Sub-Total .............................. 73.0% 100.0%
Cash and short-term investments .......... 27.0%
----- -----
Total .................................. 100.0% 100.0%
===== =====
This table depicts the Fund's portfolio holdings, as of June 30, 2005, by
sectors (as defined by the Global Industry Classification Standard -- "GICS")
and as compared to the same sectors of the S&P 500 Index. The S&P 500 Index is
an unmanaged, capitalization-weighted index of the common stocks of 500 major
U.S. corporations.
Change in Value of $10,000 Initial Investment
Data presented from Fund Inception (February 29, 1984) through June 30, 2005
[DATA BELOW IS REPRESENTED BY A LINE CHART IN THE ORIGINAL REPORT]
Clipper Fund S&P 500
02/29/84 10,000 10,000
10,172 10,173
10,300 9,912
11,536 10,873
12/31/84 12,128 11,077
13,014 12,094
14,002 12,981
13,682 12,450
12/31/85 15,330 14,591
17,971 16,649
17,945 17,631
17,598 16,401
12/31/86 18,208 17,315
20,417 21,012
20,358 22,067
20,303 23,522
12/31/87 18,781 18,224
20,478 19,261
21,429 20,545
22,458 20,614
12/31/88 22,458 21,251
24,059 22,757
26,552 24,766
28,397 27,419
12/31/89 27,373 27,984
25,332 27,142
26,794 28,850
22,604 24,884
12/31/90 25,294 27,115
28,521 31,054
28,391 30,983
30,249 32,640
12/31/91 33,413 35,377
32,990 34,483
34,462 35,138
35,970 36,247
12/31/92 38,701 38,071
40,319 39,734
40,169 39,927
40,760 40,959
12/31/93 43,009 41,909
40,964 40,319
41,064 40,489
41,942 42,468
12/31/94 41,953 42,461
46,996 46,596
52,987 51,044
56,956 55,101
12/31/95 60,914 58,418
64,114 61,554
67,493 64,316
68,928 66,304
12/31/96 72,750 71,831
75,130 73,757
85,788 86,633
89,603 93,122
12/31/97 94,697 95,792
101,438 109,154
102,276 112,758
100,491 101,541
12/31/98 112,876 123,166
109,101 129,302
117,141 138,417
112,086 129,773
12/31/99 110,589 149,083
107,236 152,503
113,182 148,450
131,512 147,013
12/31/00 151,951 135,511
153,524 119,446
158,183 126,437
154,175 107,879
12/31/01 167,546 119,406
177,093 119,736
166,101 103,694
145,604 85,780
12/31/02 158,307 93,012
142,211 90,082
166,836 103,957
172,898 106,708
12/31/03 188,804 119,700
183,589 121,728
188,568 123,821
184,212 121,499
12/31/04 199,880 132,718
193,773 129,859
12/31/05 196,089 131,627
18
- ------------------------------------------------------- 2005 SEMI-ANNUAL REPORT
(Unaudited)
UNDERSTANDING YOUR FUND'S EXPENSES
Shareholder Expense Example
As a shareholder of the Fund, you incur ongoing costs including management fees,
shareholder services fees and the other Fund expenses. The examples below are
intended to help you understand your ongoing costs of investing in the Fund and
help you compare these with the ongoing costs of investing in other mutual
funds.
Actual Expenses
The first line in the table shows the actual account values and actual Fund
expenses you would have paid on a $1,000 investment in the Fund from January 1,
2005 through June 30, 2005. It also shows how much a $1,000 investment would be
worth at the close of the period, assuming actual Fund returns and expenses. To
estimate the expenses you paid over the period, simply divide your account by
$1,000 (for example $8,600 account value divided by $1,000 = 8.6) and multiply
the result by the number in the Expenses Paid During Period column as shown
below for the Fund.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. Thus, you should not use the hypothetical account
values and expenses to estimate the actual ending account balance or your
expenses for the period. Rather, these figures are provided to enable you to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
19
CLIPPER FUND(SM) ---------------------------------------------------------------
(Unaudited)
Please note that the expenses shown in the table are meant to highlight your
ongoing costs and do not reflect sales loads, of which the Fund has none.
Therefore, the second line of the table is useful in comparing ongoing costs of
the Fund with similar cost of different funds.
Beginning Ending Expenses Paid
Account Value Account Value During Period*
12/31/04 6/30/05 1/1/05-6/30/05
------------- ------------- --------------
Actual $ 1,000.00 $ 981.00 $ 5.55
Hypothetical
(5% return
before expenses) $ 1,000.00 $ 1,019.19 $ 5.66
* Expenses are equal to the Fund's annualized expense ratio of 1.13%
multiplied by the average account value over the period, multiplied by
181/365 (to reflect the one-half year period)
QUARTERLY PORTFOLIO HOLDINGS DISCLOSURE
The Fund files its complete schedule of investments with the Securities and
Exchange Commission ("SEC") for the first and third quarters of each fiscal
year, commencing with the quarter ended March 31, on Form N-Q. The Fund's Form
N-Q is available on the SEC's website at www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, DC. (Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.)
The same information is also available on the Fund's website at
www.clipperfund.com as of the second business day following the 15th calendar
day after quarter-end.
PROXY VOTING
A description of the policies and procedures that the Fund's Adviser uses to
vote proxies related to the Fund's portfolio securities is available upon
request, free of charge, by contacting the Fund at 800-776-5033 or on the Fund's
website at www.clipperfund.com and on the SEC's website at www.sec.gov.
20
- ------------------------------------------------------- 2005 SEMI-ANNUAL REPORT
(Unaudited)
The Fund's Proxy Voting record is available on the Fund's website at
www.clipperfund.com and the SEC's website at www.sec.gov no later than August 31
for the prior 12 months ending June 30.
BOARD DELIBERATIONS REGARDING APPROVAL OF THE ADVISORY AGREEMENT
General Background. The Board of Directors has approved renewal of the Fund's
Advisory Agreement with Pacific Financial Research, Inc. ("PFR" or the
"Adviser") for an additional one-year term through March 31, 2006. Board
approval was confirmed by the separate vote of the Independent Directors.
During the course of each year, the Directors receive a wide variety of
materials relating to the services provided by the Adviser, including reports on
the Fund's investment results, portfolio composition, portfolio trading
practices, and shareholder services. In determining whether to renew the
Advisory Agreement, the Board also reviewed additional information provided by
PFR in accordance with section 15(c) of the Investment Company Act of 1940, as
amended. At its March 31, and May 5, 2005 meetings, the Board considered a
number of factors in approving renewal of the Advisory Agreement, including the
nature, extent and quality of services furnished by PFR to the Fund; the
investment performance of the Fund compared to relevant market indexes and the
performance of peer groups of investment companies pursuing broadly similar
strategies; the advisory fees and other expenses paid by the Fund compared to
those of similar funds managed by other investment advisers; and the
profitability, economies of scale and ancillary benefits to PFR of its
investment advisory relationship with the Fund.
The information below summarizes the Board's considerations in connection with
its renewal of the Advisory Agreement. In deciding to renew the Advisory
Agreement, the Board did not identify a single factor as controlling and this
summary does not describe all of the matters considered. However, the Board
concluded that each of the various factors referred
21
CLIPPER FUND(SM) ---------------------------------------------------------------
(Unaudited)
to below favored such renewal. In considering these matters, the Directors were
advised with respect to relevant legal standards by counsel to the Fund. The
Independent Directors discussed the approval of the Advisory Agreement with
management and in a private session with counsel at which no employees of PFR
other than the Fund's Chief Compliance Officer (who also serves as the Adviser's
Chief Compliance Officer and Corporate Counsel) were present.
Quality of Services. In reviewing the quality of services provided to the Fund,
the Directors reviewed the performance of the Fund compared with the returns of
the S&P 500 Index (the "S&P") and the Russell 1000 Value Index (the "Russell
1000"); the average returns of all funds in the large cap value funds category
of Morningstar Associates, LLC (the "Morningstar Universe"); and the average and
median returns of all funds in the multi-cap value funds category of Lipper Inc.
(the "Lipper Performance Universe"), a group of multi-cap value funds considered
to be comparable to the Fund by Lipper Inc. (the "Lipper Performance Group"),
and a group of funds considered by PFR to be most similar to the Fund based on
their long-term capital appreciation goals, the concentrated nature of their
investment portfolios, their consideration of risk in constructing such
portfolios, and their classification as "value" funds or historical purchasers
of equity securities similar to those in which the Fund has invested (the
"Focused Peer Group"). The funds comprising the Morningstar Universe, the Lipper
Performance Universe and the Lipper Performance Group had been selected by
Morningstar Associates, LLC or Lipper Inc., as applicable, with no input from
PFR.
The Directors observed that the Fund's return for 2004 was less than the returns
of these Indexes and the average returns of these universes and peer groups.
However, the Directors noted that value managers who adhere to a contrarian
approach often experience such periods of underperformance, that PFR and the
Fund had consistently emphasized the long-term nature of an investment in the
Fund in part because of the acknowledged risk of such periods, and that such
risks were fully
22
- ------------------------------------------------------- 2005 SEMI-ANNUAL REPORT
(Unaudited)
disclosed in the Fund's prospectus. In that regard, the Directors noted that the
Fund's average annual total returns exceeded these average and Index returns for
longer periods. The Fund's returns for the three-, five- and ten-year periods
ended December 31, 2004, were greater than the returns of the S&P and the
average returns of the Morningstar Universe over the same periods; its returns
for the four- and five-year periods ended on December 31, 2004, were greater
than the returns of both the Russell 1000 Value Index and the average returns of
the Focused Peer Group; and its returns for the five- and ten-year periods ended
on the same date were greater than the average returns of the Lipper Performance
Group and the Lipper Performance Universe. In addition, the Independent
Directors noted that the Fund's risk-adjusted returns over the five- and
ten-year periods were substantially above the average for the Focused Peer Group
and the Morningstar Universe as measured by their respective "Sharpe ratios."
Advisory Fees and Total Expenses. In reviewing the advisory fees borne by the
Fund, the Directors reviewed information regarding the advisory fees of funds
included in the Focused Peer Group, a group of multi-cap value funds and
multi-cap core funds considered to be comparable to the Fund by Lipper Inc. (the
"Lipper Expense Group"), and all funds in the retail no-load multi-cap value and
multi-cap core funds categories of Lipper Inc. (the "Lipper Expense Universe").
They noted that although the Fund's advisory fees were greater than the average
fees of the Focused Peer Group and the median fees of the Lipper Expense Group
and Universe, the Fund's fees were below or substantially the same as one-third
of the other funds in both the Focused Peer Group and the Lipper Expense Group.
The Directors further noted that although the fees charged by PFR to the Fund
are greater than the standard fees charged by PFR to its separate account
clients and other registered investment companies for which it serves as
sub-adviser, the services provided by PFR to the Fund are much more extensive
than those provided under PFR's advisory agreements for
23
CLIPPER FUND(SM) ---------------------------------------------------------------
(Unaudited)
sub-advised and separate account clients. The Directors also considered that in
addition to investment advisory services PFR provides various compliance
services to the Fund and services to the Fund's shareholders which it does not
provide to the investment companies it sub-advises and which are not required by
its separate account clients. In addition, they observed that as PFR has not
accepted any new institutional separate account clients since January 1, 2003,
any new institutional investor wishing to invest with PFR must do so by
purchasing shares of the Fund and paying the Fund's advisory fee rate. Finally,
they noted that from the inception of the Fund in 1984 until the recent
retention of State Street Bank and Trust Company in December 2004, PFR had
voluntarily absorbed all administrative expenses of the Fund.
In reviewing the total expenses borne by the Fund, the Directors noted that the
Fund's total expenses were higher than the average expenses of the Focused Peer
Group and slightly higher than the median expenses of the Lipper Expense Group.
However, the Directors also noted that the Fund's total expenses were at the
expense-weighted average for the Focused Peer Group and the median for the
Lipper Expense Universe.
Profitability and Economies of Scale. The Directors considered information
prepared by PFR with respect to the profitability of its relationship to the
Fund during the past five years, the extent to which economies of scale are
realized by PFR in managing the Fund, and whether the Fund should implement
advisory fee breakpoints to reflect any such economies of scale. In considering
this information, the Directors noted that while the Adviser may realize
economies of scale, there is no uniform methodology for measuring those
economies or establishing breakpoints in mutual fund fees.
In reviewing PFR's profitability, the Directors noted that the Fund's overall
expense ratio, excluding omnibus account fees and recaptured commissions, has
declined since 1998, in part as a result of PFR's payment of certain expenses of
the Fund. They considered that omnibus
24
- ------------------------------------------------------- 2005 SEMI-ANNUAL REPORT
(Unaudited)
account expenses have been the fastest growing expense category of the Fund, and
that PFR reimburses the Fund when fees charged by any omnibus account exceed 15
basis points of the relevant assets under management or (if less) the fees the
Fund's transfer agent would have charged if shares owned by third-party
intermediaries were directly registered on the books of the transfer agent in
the names of beneficial owners and were serviced solely by the Fund's transfer
agent. They noted that as a result of the increase in the number of shareholder
accounts held through omnibus arrangements (from under 10,000 in 1998 to over
200,000 in 2004), fees reimbursed by PFR to the Fund with respect to omnibus
account arrangements have risen sharply from zero in 1998 to over $4,000,000 in
2004. The Directors also considered that significant increases in Fund
compliance expenses, including additional management time, the employment of new
personnel, and the implementation of new systems required to comply with new SEC
regulations, have largely been absorbed by PFR.
In reviewing whether the Fund should implement fee breakpoints, the Directors
noted that the majority of the funds in the combined Focused Peer Group (the
group of funds considered by PFR to be most similar to the Fund) and in the
Lipper Expense Group (a group of multi-cap value funds and multi-cap core funds
considered to be most comparable to the Fund by Lipper Inc.) had not implemented
advisory fee breakpoints, although a number of the funds in the Lipper Expense
Group had done so. The Directors considered that PFR has added significant value
to the shareholders of the Fund over the long term, noting that the Fund has
significantly outperformed its peer groups and the market over 10 years, 15
years and longer. They also considered that PFR's ability to add value to the
Fund's shareholders was in part attributable to the unusually stable composition
of PFR's portfolio management team, who on average have been with PFR for over
18 years, which in turn was made possible by an adequate level of profitability.
In addition, the Directors noted that the Fund has always clearly stated in its
prospectus its advisory fees and other expenses, and that the Fund's
shareholders had ready access
25
CLIPPER FUND(SM) ---------------------------------------------------------------
(Unaudited)
to other funds with different fees and expenses if they were dissatisfied with
those of the Fund.
Ancillary Benefits and Other Factors. The Directors also considered that PFR and
its affiliates receive no benefits other than investment advisory fees as a
result of PFR's relationship with the Fund, except the intangible benefits of
the favorable publicity arising in connection with the Fund's performance. In
reviewing PFR's portfolio trading and soft dollar practices, the Directors noted
that the Fund's brokerage commissions as a percentage of the Fund's average net
assets were the lowest in the Lipper Expense Group. The Directors also
considered the depth and quality of PFR's research capabilities and its key
personnel; the overall financial strength and stability of its organization; the
experience, capability and integrity of its senior management; and its
commitment with regard to compliance with applicable laws and regulations.
Conclusions. Based on their review, including their consideration of each of the
factors referred to above, the Board and the Independent Directors concluded
that the Advisory Agreement continues to be fair and reasonable to the Fund and
its shareholders, that the Fund's shareholders have received reasonable value in
return for the advisory fees paid to PFR by the Fund, and that renewal of the
Advisory Agreement was in the best interests of the Fund and its shareholders.
26
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CLIPPER FUND(SM)
9601 Wilshire Boulevard, Suite 800
Beverly Hills, California 90210
Telephone (800) 776-5033
Shareholder Services
& Audio Response (800) 432-2504
Internet: www.clipperfund.com
INVESTMENT ADVISER
Pacific Financial Research, Inc.
Internet: www.pfr.biz
DIRECTORS
James H. Gipson
F. Otis Booth, Jr.
Professor Lawrence P. McNamee
Norman B. Williamson
TRANSFER & DIVIDEND PAYING AGENT
Boston Financial Data Services
Post Office Box 219152
Kansas City, Missouri 64121-9152
(800) 432-2504
Overnight Address
330 W. 9th Street, 3rd Floor
Kansas City, MO 64105
ADMINISTRATOR & CUSTODIAN
State Street Bank and Trust Company
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
Investment Company File No. 811-3931
This report is not authorized for distribution to prospective investors unless
accompanied by a current prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CF 2QTR 0605
[LOGO]
CLIPPER
FUND(SM)
Item 2. Code of Ethics.
Not required.
Item 3. Audit Committee Financial Expert.
Not required.
Item 4. Principal Accountant Fees and Services.
Not required.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Schedule of Investments is included as a part of the report to shareholders
filed under Item 1 of this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There were no material changes to the procedures by which shareholders may
recommend nominees to the Fund's Board of Directors.
Item 11. Controls and Procedures.
a) The Fund's principal executive officer and principal financial officer have
evaluated the Fund's disclosure controls and procedures (as defined in Rule
30a-2(c) under the Investment Company Act of 1940, as amended (the "Act")) as of
a date within 90 days of the filing date of the report that includes the
disclosure required by this paragraph, and concluded that such disclosure
controls and procedures are effective.
(b) There have been no changes in the Fund's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the
second fiscal quarter of the period covered by this report that have materially
affected, or are reasonably likely to materially affect, the Fund's internal
control over financial reporting.
Item 12. Exhibits.
(a)(1) Not applicable.
(a)(2) The certifications required by Rule 30a-2(a) of the 1940 Act are attached
hereto.
(a)(3) Not applicable.
(b) The certifications required by Rule 30a-2(b) of the 1940 Act and Section
906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Fund has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CLIPPER FUND, INC.
By: /s/ James H. Gipson
------------------------------------------
James H. Gipson, Chairman & President
Date: September 2, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Fund and in the capacities and on the dates
indicated.
By: /s/ James H. Gipson
-----------------------------------------
James H. Gipson, Chairman & President
Date: September 2, 2005
By: /s/ Michael Kromm
-----------------------------------------
Michael Kromm, Secretary & Treasurer
Date: September 2, 2005