LIPPER FUNDS INC, 485BPOS, 1998-03-25

LIPPER FUNDS INC
485BPOS, 1998-03-25

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As filed with the Securities and Exchange Commission on
March 25, 1998

Registration Nos. 33-97984
811-9108

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. __ [ ]

POST-EFFECTIVE AMENDMENT NO. 4 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 6 [X]

--------------
THE LIPPER FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)

101 Park Avenue
New York, NY 10178
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (212) 883-6333

ABRAHAM BIDERMAN
THE LIPPER FUNDS, INC.
101 Park Avenue
New York, NY 10178
(Name and Address of Agent for Service)
--------------
Copies to:
James J. Burns, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017

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

It is proposed that this filing become effective:
(check appropriate box)
|X| immediately upon filing pursuant to Paragraph (b)
|_| on (date) pursuant to Paragraph (b)
|_| 60 days after filing pursuant to Paragraph (a) (1)
|_| 75 days after filing to paragraph (a) (1)
|_| on (date) pursuant to Paragraph (a) (2) of Rule 485

If appropriate, check the following box:
|_| this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.

Registrant has previously elected to and hereby continues its election
to register an indefinite number of shares pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended. Registrant filed its Rule 24f-2
Notice for the fiscal year ended December 31, 1997 on March 20, 1998.

<PAGE>

THE LIPPER FUNDS, INC.

CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- ------------- --------

<S> <C> <C>
PART A

Item 1. Cover Page....................................... Cover Page

Item 2. Synopsis......................................... Prospectus Summary; Expenses

Item 3. Condensed Financial Information.................. Financial Highlights

Item 4. General Description of Registrant................ Prospectus Summary; Investment
Objectives and Policies; Investment
Limitations; Additional Information

Item 5. Management of the Fund........................... Management of the Company

Item 5A. Management's Discussion
of Fund Performance.............................. Included in the Registrant's Annual
Report to Shareholders dated
December 31, 1997

Item 6. Capital Stock and Other Securities............... Additional Information;
Distribution and Service Plans;
Dividends; Exchange Privilege
Item 7. Purchase of Securities
Being Offered.................................... Purchase of Shares; Exchange
Privilege; Distribution and Service
Plans; Valuation of Shares

Item 8. Redemption or Repurchase......................... Redemption of Shares; Exchange
Privilege

Item 9. Legal Proceedings................................ Not Applicable
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION

<S> <C> <C>
PART B

Item 10. Cover Page....................................... Cover Page

Item 11. Table of Contents................................ Table of Contents

Item 12. General Information and History.................. Not Applicable

Item 13. Investment Objective and Policies................ Investment Objectives and Policies;
Investment Limitations

Item 14. Management of the Fund........................... Management of the Company

Item 15. Control Persons and Principal
Holders of Securities ........................... Management of the Company;
Principal Holders of Securities

Item 16. Investment Advisory and
Other Services................................... Management of the Company;
Distribution and Service Plans;
Counsel; Auditors

Item 17. Brokerage Allocation and
Other Practices.................................. Investment Objectives and Policies

Item 18. Capital Stock and Other
Securities....................................... Additional Information Concerning
Fund Shares; Distribution and
Service Plans

Item 19. Purchase, Redemption and Pricing
of Securities Being Offered...................... Additional Purchase Information;
Additional Redemption Information;
Valuation of Shares

Item 20. Tax Status....................................... Additional Information Concerning
Taxes

Item 21. Underwriters..................................... Additional Purchase Information;
Management of the Company

Item 22. Calculation of Performance Data.................. Performance Data

Item 23. Financial Statements............................. Financial Statements
</TABLE>

PART C

Information required to be included in Part C is set forth under the appropriate
item so numbered in Part C to this Registration Statement.

<PAGE>

P R O S P E C T U S

LIPPER HIGH INCOME BOND FUND

A no-load portfolio of

The Lipper Funds, Inc.
101 Park Avenue
New York, NY 10178
For information call 1-800-LIPPER9

The Lipper High Income Bond Fund (the "High Income Bond Fund" or the
"Fund") is a diversified no-load portfolio of The Lipper Funds, Inc. (the
"Company"). The High Income Bond Fund's investment objective is high current
income, which it seeks to achieve by investing primarily in a diversified
portfolio of high yield securities with maturities of less than 10 years rated
in medium to lower rating categories or determined to be comparable to
securities rated in medium to lower rating categories.

As described in this Prospectus, the Company offers the shares of the High
Income Bond Fund in three classes: Premier Shares, Retail Shares and Group
Retirement Plan Shares. Shares of the High Income Bond Fund are available
without any sales charge through Lipper & Company, L.P., the Company's
distributor (referred to herein as "Lipper" or the "Distributor"), the Company's
transfer agent and certain investment dealers, banks and financial services
firms that provide distribution, administrative or shareholder services to the
High Income Bond Fund.

The Company is an open-end investment company that offers three diversified
no-load portfolios: the High Income Bond Fund, Lipper U.S. Equity Fund and Prime
Lipper Europe Equity Fund. Copies of the prospectuses for the Lipper U.S. Equity
Fund and the Prime Lipper Europe Equity Fund may be obtained by writing or
calling the Distributor at the address and telephone number set forth above.

Lipper & Company, L.L.C., an affiliate of Lipper, serves as the investment
adviser to the High Income Bond Fund (the "Adviser").

Continued on Page 2

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

March 25, 1998

<PAGE>

Continued from Cover

THE HIGH INCOME BOND FUND INTENDS TO INVEST, UNDER NORMAL CIRCUMSTANCES, AT
LEAST 80% OF ITS TOTAL ASSETS IN MEDIUM AND LOWER RATED AND COMPARABLE UNRATED
DEBT SECURITIES, COMMONLY REFERRED TO AS "JUNK BONDS." BONDS OF THIS TYPE ARE
CONSIDERED TO BE SPECULATIVE WITH REGARD TO THE PAYMENT OF INTEREST AND ARE
SUBJECT TO GREATER RISK OF LOSS OF PRINCIPAL. PURCHASERS SHOULD CAREFULLY ASSESS
THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE HIGH INCOME BOND FUND. SEE "RISK
FACTORS AND SPECIAL CONSIDERATIONS-HIGH YIELD SECURITIES."

Shares of the U.S. Government Money Market Fund-Vista SharesSM are also
made available by the Distributor to qualified investors who are investors in
the High Income Bond Fund. Further information regarding the U.S. Government
Money Market Fund-Vista SharesSM and its current prospectus may be obtained by
writing or calling the Distributor at the address and telephone number set forth
above.

This Prospectus sets forth concisely the information about the Company and
the High Income Bond Fund that a prospective investor should know before
investing and it should be retained for future reference. Additional information
about the Company and the High Income Bond Fund is contained in the Company's
Statement of Additional Information, dated March 25, 1998 (which may be amended
or supplemented from time to time), which is incorporated herein in its entirety
by reference. The Statement of Additional Information is available upon request
and without charge by writing or calling the Company at the address and
telephone number set forth above.

SHARES OF THE HIGH INCOME BOND FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. SHARES OF THE HIGH INCOME BOND FUND INVOLVE CERTAIN INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

<PAGE>

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
COMPANY OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.

TABLE OF CONTENTS

PROSPECTUS SUMMARY........................................................... 4

EXPENSES..................................................................... 6

FINANCIAL HIGHLIGHTS......................................................... 8

INVESTMENT OBJECTIVE AND POLICIES............................................ 9

INVESTMENT LIMITATIONS....................................................... 15

THE TRANSFER................................................................. 16

RISK FACTORS AND SPECIAL CONSIDERATIONS...................................... 16

PURCHASE OF SHARES........................................................... 19

DISTRIBUTION AND SERVICE PLANS............................................... 21

REDEMPTION OF SHARES......................................................... 23

EXCHANGE PRIVILEGE........................................................... 25

VALUATION OF SHARES.......................................................... 26

MANAGEMENT OF THE COMPANY.................................................... 27

DIVIDENDS.................................................................... 29

TAXES........................................................................ 30

PERFORMANCE INFORMATION...................................................... 32

ADDITIONAL INFORMATION....................................................... 33

DESCRIPTION OF RATINGS.............................................. Appendix A

THE LIPPER FUNDS, INC. IS NOT ASSOCIATED WITH LIPPER ANALYTICAL SERVICES, INC.

<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and in the Statement
of Additional Information. Cross references in this summary are to headings in
the Prospectus.

THE COMPANY

The Company consists of three no-load portfolios and offers investors a
range of investment choices. The High Income Bond Fund's investment objective is
high current income, which it seeks to achieve by investing primarily in a
diversified portfolio of high yield securities with maturities of less than 10
years rated in medium to lower rating categories or determined to be comparable
to securities rated in medium to lower rating categories.

INVESTMENT ADVISER

Lipper & Company, L.L.C. serves as the investment adviser to the High
Income Bond Fund. The Adviser is an affiliate of Lipper, the Fund's distributor.
Each of the Adviser's officers or employees involved in managing the High Income
Bond Fund is also an employee of Lipper or one of its affiliates. Lipper is a
privately owned investment management and investment banking firm founded in
1987. At December 31, 1997, Lipper and its affiliates managed assets having an
aggregate market value on a gross basis of approximately $4.5 billion on behalf
of its institutional and high net worth clients. Lipper offers complementary
investment strategies in intermediate term high yield bonds, hedged convertible
securities, investment grade bonds, U.S. and European large capitalization
equities, U.S. small capitalization equities, merger arbitrage and preferred
stocks. See "Management of the Company".

RISK FACTORS AND SPECIAL CONSIDERATIONS

Prospective investors should consider certain risks associated with an
investment in the High Income Bond Fund. There is no assurance that the High
Income Bond Fund will achieve its investment objective. The value of the High
Income Bond Fund's investments, and thus the net asset value of each class of
the shares, can be expected to fluctuate in response to changes in market and
economic conditions, as well as the financial conditions and prospects of the
issuers in which the High Income Bond Fund invests. The High Income Bond Fund
may use various investment practices that involve special considerations,
including investing in high yield and/or illiquid securities, investing in
foreign securities, and engaging in hedging and derivatives, each of which
involves special risks. See "Risk Factors and Special Considerations".

HOW TO INVEST

Premier Shares, Retail Shares and Group Retirement Plan Shares of the High
Income Bond Fund may be purchased without any sales charge at their next
determined net asset value through the Distributor, through certain investment
dealers, banks and financial services firms that provide distribution,
administrative or shareholder services to the High Income Bond Fund, or by
mailing a purchase order directly to Chase Global Funds Services Company, the
Company's transfer agent (the "Transfer Agent"). See "Purchase of Shares".

Premier Shares of the High Income Bond Fund are offered for sale to
purchasers (other than purchasers eligible to purchase Group Retirement Plan
Shares) who invest a minimum of $1,000,000 in the Fund. The Company and the
Distributor reserve the right to waive or reduce the minimum initial investment
with respect to certain accounts.

4
<PAGE>

subject to an ongoing 12b-1 fee at an annual rate of up to 0.25% of their
average daily net assets. See "Distribution and Service Plans".

Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may
pay more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. (the "NASD").

Group Retirement Plan Shares of the High Income Bond Fund are offered for
sale with no minimum investment requirement to retirement plans including, but
not limited to, qualified 401(k) plans. Group Retirement Plan Shares of the High
Income Bond Fund are subject to a service fee of up to 0.25% of their average
daily net assets. See "Distribution and Service Plans". Investors should contact
the Distributor at the address and telephone number set forth on the cover of
this Prospectus for further information regarding the eligibility requirements
for Group Retirement Plan Shares.

The High Income Bond Fund has established a subsequent investment minimum
of $2,500 for its Premier and Retail Shares. Individual Retirement Accounts are
subject to a $250 subsequent investment minimum. Group Retirement Plan Shares
are not subject to a subsequent investment minimum. The High Income Bond Fund
reserves the right to vary any initial or subsequent investment minimum at any
time.

HOW TO REDEEM

Shares of each class may be redeemed at their net asset value next
determined after receipt of the redemption request. The redemption price may be
more or less than the purchase price. There is no deferred sales charge imposed
on redemptions. If an investor in Premier Shares or Retail Shares of the High
Income Bond Fund reduces the value of his or her account to below $500,000, in
the case of Premier Shares, or $1,000, in the case of Retail Shares, such
account may be subject to redemption by the Fund, but only after the investor
has been given at least 30 days in which to increase his or her account balance
to more than such required minimum account balance. Investors in Group
Retirement Plan Shares are not subject to such a minimum account balance
requirement. To the extent that shares in an investor's account are redeemed by
the High Income Bond Fund, the investor could reinvest in any class of shares of
the Fund at a later date provided that any eligibility requirements with respect
to investing in the Fund were met at such time. See "Redemption of Shares" and
"Valuation of Shares".

DIVIDENDS AND CAPITAL GAINS

The High Income Bond Fund intends to distribute substantially all of its
net investment income, if any, in the form of monthly dividends. The High Income
Bond Fund intends to distribute its net capital gain, if any, at least annually.

Unless a shareholder in the High Income Bond Fund instructs that dividend
and capital gain distributions be paid in cash, dividend and capital gain
distributions will be reinvested automatically in additional shares of the same
class of shares of the Fund at the net asset value of that class at the time of
reinvestment.

Dividends paid by each class of the High Income Bond Fund's shares will be
calculated at the same time and in the same manner and will be in the same
amount, except that the expenses attributable solely to a particular class will
be borne exclusively by that class. Retail Shares and Group Retirement Plan
Shares of the High Income Bond Fund will receive lower per share dividends than
Premier Shares because of the distribution and service fees borne by the Retail
and Group Retirement Plan Shares, respectively. See "Distribution and Service
Plans".

5
<PAGE>

EXPENSES

The High Income Bond Fund offers multiple classes of shares. Each share of
the High Income Bond Fund accrues income in the same manner, but certain
expenses differ based upon the class. The following tables are intended to
assist investors in understanding the various costs and expenses applicable to
each class of shares of the High Income Bond Fund:

High Income
Shareholder Transaction Expenses Bond Fund
-------------------------------- ---------
Maximum Sales Charge Imposed on Purchases None
Maximum Sales Charge Imposed on Reinvested Dividends None
Maximum Contingent Deferred Sales Charge None
Exchange Fees None
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
Investment Advisory Fees (afer waiver)(1)
Premier Shares 0.59%
Retail Shares 0.59%
Group Retirement Plan Shares 0.59%
Administrative Fees
Premier Shares 0.20%
Retail Shares 0.20%
Group Retirement Plan Shares 0.20%
12b-1 Fees
Premier Shares None
Retail Shares 0.25%
Group Retirement Plan Shares None
Service Fees
Premier Shares None
Retail Shares None
Group Retirement Plan Shares 0.25%
Other Expenses (2)
Premier Shares 0.21%
Retail Shares 0.21%
Group Retirement Plan Shares 0.21%
---------
Total Annual Operating Expenses
(after waiver)(3)
Premier Shares 1.00%
Retail Shares 1.25%
Group Retirement Plan Shares 1.25%
- ----------

(1) "Investment Advisory Fees" reflects voluntary waiver by the Adviser
of "Investment Advisory Fees" in excess of the amounts set forth in the
table, which voluntary waiver is limited to the extent of the
Adviser's investment advisory fee. The Adviser reserves the right to
terminate any voluntary waiver at any time in its sole discretion.
Absent voluntary waiver and based on actual expenses incurred during
the 1997 fiscal year, the ratio of "Investment Advisory Fees" to average
daily net assets of the High Income Bond fund would be 0.21%, 0.21% and
0.21% for Premier Shares, Retail Shares and Group Retirement Shares,
respectively.

(2) "Other Expenses" includes custodial and transfer agency fees, directors'
fees and expenses, amortization of organizational costs, filing fees,
professional fees, and the costs for reports to shareholders.

(3) Absent voluntary waiver and based on actual expenses incurred
during the 1997 fiscal year, the ratio of "Total Annual Operating Expenses"
to average daily net assets of the High Income Bond Fund would be 1.16%,
1.41% and 1.41% for Premier Shares, Retail Shares and Group Retirement
Shares, respectively.

<PAGE>

Based upon payment by the High Income Bond Fund of operating expenses at
the levels set forth in the table above, the following example illustrates the
projected dollar amount of cumulative expenses an investor would pay on a $1,000
investment in the High Income Bond Fund, assuming (1) a 5% annual rate of return
and (2) redemption at the end of each time period:

High Income
Bond Fund
---------
Premier Shares
1 Year $ 10
3 Years $ 32
5 Years $ 55
10 Years $122

Retail Shares
1 Year $ 13
3 Years $ 40
5 Years $ 69
10 Years $151

Group Retirement Plan Shares
1 Year $ 13
3 Years $ 40
5 Years $ 69
10 Years $151

THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, THE HIGH INCOME
BOND FUND'S PERFORMANCE WILL VARY AND MAY RESULT IN A RETURN GREATER OR LESS
THAN 5%. THE ADVISER IN ITS DISCRETION MAY TERMINATE VOLUNTARY REIMBURSEMENTS AT
ANY TIME.

Certain investment dealers, banks and financial services firms may charge
their customers direct fees for effecting transactions in the High Income Bond
Fund's shares; such fees are not reflected in the foregoing tables. See
"Purchase of Shares", "Redemption of Shares" and "Distribution and Service
Plans".

<PAGE>

FINANCIAL HIGHLIGHTS

The following table provides selected per share data and ratios for the
Premier Shares, Retail Shares and Group Retirement Plan Shares for the period
ended December 31, 1996 and the year ended December 31, 1997, for the High
Income Bond Fund. The information presented below has been audited by Price
Waterhouse LLP, the Company's independent accountant, whose unqualified opinion
thereon is included in the Annual Report, which is available upon request and
without charge. The following should be read in conjunction with the financial
statements including the notes thereto, which are also contained in the Annual
Report.

<TABLE>
<CAPTION>
HIGH INCOME BOND FUND

GROUP RETIREMENT
PREMIER SHARES RETAIL SHARES PLAN SHARES
-------------- ------------- -----------
January April 1, January April 11, January April 12,
1, 1997 1996** 1, 1997 1996*** 1, 1997 1996***
to to to to to to
December December December December December December
31, 1997 31, 1996 31, 1997 31, 1996 31, 1997 31, 1996
-------- -------- -------- -------- -------- --------

<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.18 $10.00 $10.18 $9.91 $10.18 $9.93
------ ------ ------ ----- ------ -----

INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income 5(1) 0.91 0.68 0.84 0.62 0.85 0.62
Net Realized and Unrealized Gain on Investments 0.19 0.21 0.23 0.34 0.22 0.32
------ ------ ------ ----- ------ -----
Total from Investment Operations 1.10 0.89 1.07 0.96 1.07 0.94
------ ------ ------ ----- ------ -----

DISTRIBUTIONS:
Net Investment Income (0.91) (0.68) (0.88) (0.66) (0.88) (0.66)
Net Realized Gain (0.26) (0.03) (0.26) (0.03) (0.26) (0.03)
------ ------ ------ ----- ------ -----
Total Distributions (1.17) (0.71) (1.14) (0.69) (1.14) (0.69)
------ ------ ------ ----- ------ -----

NET ASSET VALUE, END OF PERIOD $10.11 $10.18 $10.11 $10.18 $10.11 $10.18
====== ====== ====== ====== ====== ======
TOTAL RETURN(2) 11.22% 9.23% 10.97% 10.04% 10.96% 9.78%
====== ====== ====== ====== ====== ======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $85,151 $102,945 $4,697 $ 845 $3,518 $2,198
Ratios After Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets 1.00% 1.00%* 1.25% 1.25%* 1.25% 1.25%*
Net Investment Income to Average Net Assets 8.58% 9.01%* 8.31% 8.95%* 8.32% 8.91%*
Ratios Before Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets 1.16% 1.27%* 1.41% 1.59%* 1.41% 1.55%*
Net Investment Income to Average Net Assets 8.42% 8.74%* 8.15% 8.61%* 8.16% 8.61%*
Portfolio Turnover Rate 105% 74% 105% 74% 105% 74%
</TABLE>

- ----------

* Annualized.

** Commencement of Fund operations.

*** Initial offering of shares by the Fund.

(1) The effect to net investment income per share of voluntarily waived fees
and reimbursed expenses was:

Year Ended Period Ended
December 31, 1997 December 31, 1996
----------------- -----------------

Premier Shares $0.02 $0.02
Retail Shares $0.02 $0.02
Group Retirement Plan Shares $0.02 $0.02

(2) Total return would have been lower had the Adviser not waived or reimbursed
certain expenses during the period ended December 31, 1996 and the year
ended December 31, 1997. Total returns for periods of less than one year
are not annualized.

<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the High Income Bond Fund is described below,
together with the policies it employs in seeking to achieve its objective. There
is no assurance that Fund will attain its objective. The High Income Bond Fund's
investment objective and the investment policies described below are not
fundamental and may be changed by the Company's Board of Directors without
shareholder approval. In addition to the investment policies described below,
the Adviser may utilize certain investment strategies and techniques in managing
the High Income Bond Fund, as described below under "Other Investments and
Investment Strategies".

The High Income Bond Fund's investment objective is high current income.
The Fund seeks to achieve its investment objective by investing primarily in a
diversified portfolio of high yield securities with maturities of less than 10
years rated in medium to lower rating categories or determined by the Adviser to
be of comparable quality to securities rated in medium to lower rating
categories.

The High Income Bond Fund intends to invest, under normal market
conditions, at least 80% of its total assets in "bonds" rated at the time of
investment "Baa" to "B" by Moody's Investors Service, Inc. ("Moody's") or "BBB"
to "B" by Standard & Poor's Corporation ("S&P"), or in securities determined by
the Adviser to be of comparable quality. For purposes of the foregoing policy,
the High Income Bond Fund defines "bonds" to include bonds, notes and debentures
issued by U.S. and non-U.S. issuers. The High Income Bond Fund will not invest
any of its assets in securities which, at the time of investment, are rated
"Caa" or lower by Moody's or "CCC" or lower by S&P, or in comparable unrated
securities. To the extent that the rating of any security held by the High
Income Bond Fund falls below "B" by Moody's or S&P, the Adviser intends to
dispose of such security within a reasonable period of time depending on market
and issuer-specific conditions. The Adviser believes that medium- and
lower-rated and comparable unrated securities offer yields that fluctuate over
time but that are generally superior to the yields offered by higher rated
securities. However, such securities also involve significantly greater risks
than higher rated securities, including price volatility and risk of default in
the payment of interest and principal. See "Risk Factors and Special
Considerations-High Yield Securities".

The High Income Bond Fund may invest up to 15% of its total assets in
non-U.S. dollar-denominated securities. To the extent that the High Income Bond
Fund invests in non-U.S. dollar-denominated securities, changes in foreign
currency exchange rates will affect the value of the securities in its portfolio
and the unrealized appreciation and depreciation of investments. See "Risk
Factors and Special Considerations-Risk of Investment in Foreign Securities".

As used in this Prospectus, "high yield securities" include debt
obligations of all types issued by U.S. and non-U.S. corporate and governmental
issuers, including bonds, debentures and notes, and stocks, such as preferred
stocks, having priority over any other class of stock as to the distribution of
assets or payment of dividends. A high yield security itself may be convertible
into or exchangeable for equity securities, or it may carry with it the right to
acquire equity securities evidenced by warrants attached to the security or
acquired as part of a unit with the security.

Debt securities differ in their interest rates and maturities, among other
factors. The maturity of the debt securities in the High Income Bond Fund's
portfolio will be based in large part on the Adviser's expectations as to future
changes in interest rates. For example, if the Adviser expects interest rates to
rise, the High Income Bond Fund might invest more heavily in securities with
shorter maturities, enabling the Fund to benefit from purchases of longer-term
securities after rates have risen. Conversely, if the Adviser expects interest
rates to fall, the High Income Bond Fund might invest more heavily in securities
with longer maturities, in order to take advantage of the higher rates then
available. However, under normal market conditions, the Adviser anticipates that
the High Income Bond Fund's portfolio securities will have an assumed
dollar-weighted average maturity of between five and seven years.

9
<PAGE>

The Adviser emphasizes high yield securities with a target yield of 300-500
basis points above the corresponding U.S. Treasury security, and seeks to
maintain an average credit quality of BB-. The Adviser seeks to actively manage
credit and interest rate risk through credit analysis, credit diversity and
emphasis on short to intermediate maturities. In addition, in light of the risks
associated with investing in high yield securities, the Adviser takes various
factors into consideration in evaluating securities for purchase by the High
Income Bond Fund. Those factors will typically include one or more of the
following: (1) yield to maturity, yield to call (where appropriate), current
yield and the price of the security relative to other securities of comparable
quality and maturity; (2) the issuer's financial resources, sensitivity to
economic conditions and trends and its operating history; (3) review of the
terms under which securities are issued and the nature of and coverage under
financial covenants; and (4) the experience and track record of the issuer's
management. In addition, the Adviser expects to invest the assets of the High
Income Bond Fund in a broad range of issuers and industries.

The High Income Bond Fund may invest up to 20% of its total assets in
preferred stock (including convertible preferred stock), warrants, convertible
securities, common stock or other equity securities. The High Income Bond Fund
will generally hold such equity investments as a result of purchases of unit
offerings of fixed income securities which include such securities or in
connection with actual or proposed conversion or exchange of fixed income
securities, but may also purchase equity securities not associated with
fixed-income securities when, in the opinion of the Adviser, such purchase is
appropriate.

There may be times when, in the judgment of the Adviser, conditions in the
securities markets would make pursuing the High Income Bond Fund's basic
investment strategy inconsistent with the best interests of the Fund's
shareholders. At such times, the Adviser may employ alternative strategies,
including investment of a substantial portion of the High Income Bond Fund's
assets in securities rated higher than "Baa" by Moody's or "BBB" by S&P, or in
securities of comparable quality to securities with such ratings.

TEMPORARY INVESTMENTS

For temporary defensive purposes, the High Income Bond Fund may vary from
its investment objective and may invest, without limit (except for the
limitations described under "Investment Limitations"), in cash and/or certain
high quality short-term debt instruments described below. The High Income Bond
Fund may also at any time invest its assets in such instruments for cash
management purposes, pending investment in accordance with the Fund's investment
objective and policies and to meet operating expenses.

The short-term debt instruments in which the High Income Bond Fund may
invest include obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities ("U.S. Government Securities"); obligations issued
or guaranteed by other governments or one of their agencies or
instrumentalities; obligations issued or guaranteed by international
organizations designed or supported by multiple foreign government entities to
promote economic reconstruction or development; bank obligations, such as
certificates of deposit, time deposits and bankers' acceptances; corporate debt
obligations, including commercial paper; and repurchase agreements. To be
eligible for investment under the circumstances described above, such
instruments (other than U.S. Government Securities) must be issued by an issuer
having a short-term debt rating of A-1 or better by S&P, a rating of Prime-1 by
Moody's, a comparable rating from another nationally recognized statistical
rating organization or, if unrated, deemed to be of equivalent quality by the
Adviser.

OTHER INVESTMENTS AND INVESTMENT STRATEGIES

CONVERTIBLE SECURITIES. The High Income Bond Fund may invest in convertible
securities, which are bonds, debentures, notes, preferred stocks or other
securities that may be converted into or exchanged for a prescribed amount of

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equity securities (generally common stock) of the same or a different issuer
within a particular period of time at a specified price or formula. Convertible
securities have general characteristics similar to both fixed income and equity
securities. Although to a lesser extent than with fixed income securities
generally, the market value of convertible securities tends to decline as
interest rates increase and, conversely, tends to increase as interest rates
decline. In addition, because of the conversion feature, the market value of
convertible securities tends to vary with fluctuations in the market value of
the underlying security and therefore also will react to variations in the
general market for equity securities. While no securities investments are
without risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.

WARRANTS. The High Income Bond Fund may invest in warrants, which are
securities permitting, but not obligating, their holder to subscribe for other
securities. Warrants do not carry with them the right to dividends or voting
rights with respect to the securities that they entitle their holder to
purchase, and they do not represent any rights in the assets of the issuer. As a
result, an investment in warrants may be considered speculative. In addition,
the value of a warrant does not necessarily change with the value of the
underlying security and a warrant ceases to have value if it is not exercised
prior to its expiration date.

ZERO COUPON SECURITIES, PAY-IN-KIND BONDS AND DISCOUNT OBLIGATIONS. The
High Income Bond Fund may invest in zero coupon securities and pay-in-kind
bonds. In addition, certain of the High Income Bond Fund's debt securities may
be acquired at a discount ("Discount Obligations"). These investments involve
special risk considerations. Zero coupon securities are debt securities that pay
no cash income but are sold at substantial discounts from their value at
maturity. When a zero coupon security is held to maturity, its entire return,
which consists of the amortization of the discount, comes from the difference
between its purchase price and its maturity value. This difference is known at
the time of purchase, so that investors holding zero coupon securities until
maturity know at the time of their investment what the expected return on their
investment will be. Certain zero coupon securities, sold at substantial
discounts from their maturity value, provide for the commencement of regular
interest payments at a deferred date. The High Income Bond Fund also may
purchase pay-in-kind bonds. Pay-in-kind bonds pay all or a portion of their
interest in the form of additional debt or equity securities.

Zero coupon securities, pay-in-kind bonds and Discount Obligations tend to
be subject to greater price fluctuations in response to changes in interest
rates than are ordinary interest-paying debt securities with similar maturities.
The value of zero coupon securities and Discount Obligations appreciates more
during periods of declining interest rates and depreciates more during periods
of rising interest rates than ordinary interest-paying debt securities with
similar maturities. Under current federal income tax law, the High Income Bond
Fund is required to accrue as income each year the value of securities received
in respect of pay-in-kind bonds and a portion of the original issue discount
with respect to zero coupon securities and other securities issued at a discount
to the stated redemption price. In addition, the High Income Bond Fund will
elect similar treatment for any market discount with respect to Discount
Obligations. Accordingly, the High Income Bond Fund may have to dispose of
portfolio securities under disadvantageous circumstances in order to generate
current cash to satisfy certain distribution requirements. See "Taxes".

ILLIQUID SECURITIES. The High Income Bond Fund will not invest more than
15% of the value of its total assets in illiquid securities. Illiquid securities
are securities which may not be sold or disposed of in the ordinary course of
business within seven days at approximately the value at which the High Income
Bond Fund has valued the investments. Illiquid securities include securities
with legal or contractual restrictions on resale, time deposits, repurchase
agreements having maturities longer than seven days and securities that do not
have readily available market quotations and may involve the risk that the High
Income Bond Fund may be unable to sell such a security at the desired time. The
price at which the High Income Bond Fund values these securities could be less
than that originally paid by the Fund or less than that which may be

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considered the fair value of the securities. In addition, the High Income Bond
Fund may invest in securities that are sold in private placement transactions
between their issuers and their purchasers and that are neither listed on an
exchange nor traded over-the-counter. These factors may have an adverse effect
on the High Income Bond Fund's ability to dispose of particular securities and
may limit the Fund's ability to obtain accurate market quotations for purposes
of valuing securities and calculating net asset value and to sell securities at
fair value. If any privately placed securities held by the High Income Bond Fund
are required to be registered under the securities laws of one or more
jurisdictions before being resold, the Fund may be required to bear the expenses
of registration. The High Income Bond Fund may also purchase securities that are
not registered under the Securities Act of 1933, as amended (the "Securities
Act") but which can be sold to qualified institutional buyers in accordance with
Rule 144A under the Securities Act ("Rule 144A securities"). Rule 144A
securities generally must be sold to other qualified institutional buyers. The
High Income Bond Fund may also invest in commercial obligations issued in
reliance on the so-called "private placement" exemption from registration
afforded by Section 4(2) of the Securities Act ("Section 4(2) paper"). Section
4(2) paper is restricted as to disposition under the federal securities laws,
and generally is sold to institutional investors such as the High Income Bond
Fund who agree that they are purchasing the paper for investment and not with a
view to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) paper normally is resold to other institutional
investors like the High Income Bond Fund through or with the assistance of the
issuer or investment dealers who make a market in the Section 4(2) paper, thus
providing liquidity. If a particular investment in Rule 144A securities, Section
4(2) paper or private placement securities is not determined to be liquid, that
investment will be included within the 15% limitation on investment in illiquid
securities. The ability to sell Rule 144A securities to qualified institutional
buyers is a relatively recent development and it is not possible to predict how
this market will mature. The Adviser will monitor the liquidity of such
restricted securities under the supervision of the Board of Directors of the
Company. See "Investment Objective and Policies-Additional Information on
Portfolio Instruments and Certain Investment Strategies-Illiquid and Restricted
Securities" in the Statement of Additional Information.

PREFERRED STOCK. The High Income Bond Fund may invest in preferred stocks.
Generally, preferred stocks are non-voting shares of a corporation which pay a
fixed or variable stream of dividends. Preferred stock has a preference over
common stock in liquidation and generally in dividends as well, but is
subordinated to the liabilities of the issuer in all respects. Preferred stock
may or may not be convertible into common stock. As a general rule, the market
value of preferred stock with a fixed dividend rate and no conversion element
varies inversely with interest rates and perceived credit risk. Because
preferred stock is junior to debt securities and other obligations of the
issuer, deterioration in the credit quality of the issuer will cause greater
changes in the value of a preferred stock than in a more senior debt security
with similar stated yield characteristics.

DEPOSITARY RECEIPTS. The High Income Bond Fund may invest in Depositary
Receipts. American Depositary Receipts ("ADRs"), Global Depositary Receipts
("GDRs"), European Depositary Receipts ("EDRs") and other types of depositary
receipts (which, together with ADRs, GDRs, and EDRs, are collectively referred
to as "Depositary Receipts") evidence ownership of underlying securities issued
by either a non-U.S. or a U.S. corporation that have been deposited with a
depository or custodian bank. Depositary Receipts may be issued in connection
with an offering of securities by the issuer of the underlying securities or
issued by a depository bank as a vehicle to promote investment and trading in
the underlying securities. ADRs are receipts issued by U.S. banks or trust
companies in respect of securities of non-U.S. issuers held on deposit for use
in the U.S. securities markets. GDRs, EDRs and other types of Depositary
Receipts are typically issued by a U.S. bank or trust company and traded
principally in the U.S. and other international markets. The High Income Bond
Fund will treat Depositary Receipts as interests in the underlying securities
for purposes of its investment policies. While Depositary Receipts may not
necessarily be denominated in the same currency as the securities into which
they may be

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converted, they entail certain of the risks associated with investments in
foreign securities. See "Risk Factors and Special Considerations-Risk of
Investments in Foreign Securities". The High Income Bond Fund will limit its
investment in Depositary Receipts not sponsored by the issuer of the underlying
securities to no more than 5% of the value of its net assets (at the time of
investment). See the Statement of Additional Information for certain risks
related to unsponsored Depositary Receipts.

REPURCHASE AGREEMENTS. The High Income Bond Fund may purchase instruments
from financial institutions, such as banks and broker-dealers, subject to the
seller's agreement to repurchase them at an agreed upon time and price
("repurchase agreements"). The High Income Bond Fund would enter into repurchase
agreements to generate additional income. The seller under a repurchase
agreement will be required to maintain the value of the securities subject to
the agreement at not less than the repurchase price. Default by the seller
would, however, expose the High Income Bond Fund to possible loss because of
adverse market action or delay in connection with the disposition of the
underlying obligations.

OTHER INVESTMENT FUNDS. The High Income Bond Fund may invest in the
securities of other investment funds to the extent permitted by the Investment
Company Act of 1940, as amended (the "1940 Act"). Under the 1940 Act, the High
Income Bond Fund may as a general rule invest up to 10% of its total assets in
shares of other investment funds and up to 5% of its total assets in any one
investment fund, provided that the investment does not represent more than 3% of
the voting stock of the acquired investment fund. By investing in another
investment fund, the High Income Bond Fund bears a ratable share of the other
investment fund's expenses, as well as continuing to bear the Fund's advisory
and administrative fees with respect to the amount of the investment. In
addition, the High Income Bond Fund may, in the future, seek to achieve its
investment objective through the adoption of a "master-feeder" structure
pursuant to which the Fund would invest all of its assets in a no-load, open-end
management investment company having the same investment objective and policies
and substantially the same investment restrictions as those applicable to the
Fund, as described below under "Investment Limitations".

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The High Income Bond Fund may
purchase securities on a "when-issued" or delayed delivery basis. When-issued
and delayed delivery securities are securities purchased for delivery beyond the
normal settlement date at a stated price. The High Income Bond Fund will
generally not pay for such securities or start earning income on them until they
are received. Fixed income securities purchased on a when-issued or delayed
delivery basis are recorded as an asset and are subject to changes in value
based, among other factors, upon changes in the general level of interest rates.
The High Income Bond Fund will make commitments to purchase when-issued or
delayed delivery securities with the intention of actually acquiring the
securities, but may sell them before the settlement date if it is deemed
advisable. When the High Income Bond Fund purchases securities on a when-issued
or delayed delivery basis, it will set aside securities or cash with its
custodian equal to the payment that will be due.

BORROWING. The High Income Bond Fund may borrow only from banks or by
entering into reverse repurchase agreements, in aggregate amounts not to exceed
33 1/3 % of its total assets (including the amount borrowed) less its
liabilities (excluding the amount borrowed), and only for temporary or emergency
purposes. Bank borrowings may be from U.S. or foreign banks and may be secured
or unsecured. The High Income Bond Fund may also borrow by entering into reverse
repurchase agreements, pursuant to which it would sell portfolio securities to
financial institutions, such as banks and broker-dealers, and agree to
repurchase them at an agreed upon date and price. The High Income Bond Fund
would also consider entering into reverse repurchase agreements to avoid
otherwise selling securities during unfavorable market conditions to meet
redemptions. Reverse repurchase agreements involve the risk that the market
value of the portfolio securities sold by the High Income Bond Fund may decline
below the price at which the High Income Bond Fund is obligated to repurchase
such securities.

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LOANS OF FUND SECURITIES. The High Income Bond Fund may lend its portfolio
securities consistent with its investment policies, in order to generate
additional income. The High Income Bond Fund may lend portfolio securities
against collateral, consisting of cash or securities which are consistent with
its permitted investments, which is equal at all times to at least 100% of the
value of the securities loaned. There is no limitation on the amount of
securities that may be loaned. Such loans would involve risks of delay in
receiving additional collateral or in recovering the securities loaned or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans will be made only to borrowers deemed by the Adviser
to be of good standing and only when, in the judgment of the Adviser, the income
to be earned from the loans justifies the attendant risks.

SHORT SALES. The High Income Bond Fund may make short sales of securities
"against the box." A short sale is a transaction in which the High Income Bond
Fund sells a security it does not own in anticipation that the market price of
that security will decline. In a short sale "against the box," at the time of
sale the High Income Bond Fund owns or has the immediate and unconditional right
to acquire the identical security. Short sales against the box are a form of
hedging to offset potential declines in long positions in similar securities.

HEDGING AND DERIVATIVES. The High Income Bond Fund is authorized to use
various hedging and investment strategies described below to hedge market risks
(such as broad or specific market movements and interest rates or other factors
relevant to the Fund's investments, such as rates of inflation), to manage the
effective maturity or duration of securities held by the Fund, or to seek to
increase the Fund's income or capital appreciation. Over time, techniques and
instruments may change as new instruments and strategies are developed or
regulatory changes occur. Limitations on the portion of the High Income Bond
Fund's assets that may be used in connection with the investment strategies
described below appear in the Statement of Additional Information.

Subject to the constraints described above, the High Income Bond Fund may
purchase and sell (or write) exchange listed and over-the-counter put and call
options on securities, securities indices, currencies and other financial
instruments and enter into currency forward contracts (collectively, these
transactions are referred to in this Prospectus as "Derivatives"). The High
Income Bond Fund will not engage in transactions in futures or options on
futures.

Derivatives may be used to attempt to protect against possible changes in
the market value of securities held in or to be purchased by the High Income
Bond Fund resulting from securities markets or currency exchange rate
fluctuations, to protect the Fund's unrealized gains in the value of its
securities, to facilitate the sale of those securities for investment purposes,
to manage the effective maturity or duration of the Fund's portfolio, to
establish a position in the derivatives markets as a substitute for purchasing
or selling particular securities or to seek to enhance the Fund's income or
gain. The High Income Bond Fund may use any or all types of the above-described
Derivatives at any time; no particular strategy will dictate the use of one type
of transaction rather than another, as use of any authorized Derivative will be
a function of numerous variables, including market conditions. The ability of
the High Income Bond Fund to utilize Derivatives successfully will depend on the
Adviser's ability to predict pertinent market movements, which cannot be
assured. These skills are different from those needed to select securities. The
use of Derivatives in certain circumstances will require the High Income Bond
Fund to segregate cash or other liquid assets to the extent the Fund's
obligations are not otherwise "covered" through ownership of the underlying
security or financial instrument. See "Risk Factors and Special
Considerations-Other Investments and Investment Strategies".

A detailed discussion of Derivatives, including the requirement to
segregate assets with respect to these transactions and special risks associated
with such strategies, appears in the Statement of Additional Information.

The degree of the High Income Bond Fund's use of Derivatives may be limited
by certain provisions of the Internal Revenue Code of 1986, as amended (the
"Code"). See "Taxes".

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INVESTMENT LIMITATIONS

The investment limitations enumerated below are fundamental and may not be
changed by the Company's Board of Directors without the affirmative vote of the
holders of a majority of the High Income Bond Fund's outstanding shares.
However, the High Income Bond Fund's investment objective and the other
investment policies described herein may be changed by the Board of Directors
without shareholder approval at any time. The percentage limitations set forth
below, as well as those contained elsewhere in this Prospectus and the Statement
of Additional Information, apply at the time a transaction is effected.
Subsequent changes in a percentage resulting from market fluctuations or any
other cause other than a direct action by the High Income Bond Fund will not
require the Fund to dispose of its securities or to take other action to satisfy
the percentage limitation. If there is a change in the investment objective of
the High Income Bond Fund, shareholders of the Fund should consider whether the
Fund remains an appropriate investment for them in light of their then current
financial position and needs. (A complete list of the High Income Bond Fund's
investment limitations that cannot be changed without a vote of shareholders is
contained in the Statement of Additional Information under "Investment
Limitations".)

The High Income Bond Fund may not purchase the securities of any one issuer
if as a result of such purchase more than 5% of the value of its total assets
would be invested in the securities of such issuer, except that up to 25% of the
value of the Fund's total assets may be invested without regard to this 5%
limitation; provided that there is no limitation with respect to investments in
U.S. Government Securities; and provided further, that the Fund may invest all
or substantially all of its assets in another registered investment company
having the same investment objective and policies and substantially the same
investment restrictions as those with respect to the Fund.

The High Income Bond Fund may not borrow money, except that the Fund may
borrow money from banks or enter into reverse repurchase agreements, in each
case for temporary or emergency purposes only (not for leveraging or
investment), in aggregate amounts not exceeding 33 1/3% (including the amount
borrowed) of the value of its total assets at the time of such borrowing. For
purposes of the foregoing investment limitation, the term "total assets" shall
be calculated after giving effect to the net proceeds of any borrowings and
reduced by any liabilities and indebtedness other than such borrowings.
Additional investments will not be made by the High Income Bond Fund, including
interests in another registered investment company, when borrowings exceed 5% of
total net assets.

The High Income Bond Fund may not purchase any securities which would cause
25% or more of the value of its total assets at the time of such purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry; provided that there is no limitation
with respect to investments in U.S. Government Securities; and provided further,
that the Fund may invest all or substantially all of its assets in another
registered investment company having the same investment objective and policies
and substantially the same investment restrictions as those with respect to the
Fund. The High Income Bond Fund would invest all or substantially all of its
assets in another registered investment company in connection with the adoption
by the Company of a "master-feeder" structure.

The High Income Bond Fund may, in the future, seek to achieve its
investment objective by investing all of its assets in a no-load, open-end
management investment company having the same investment objective and policies
and substantially the same investment restrictions as those applicable to the
Fund. In such event, the High Income Bond Fund's investment advisory agreement
would be terminated since the investment management would be performed by or on
behalf of such other investment company.

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THE TRANSFER

The High Income Bond Fund was formed as a successor investment vehicle for
a limited partnership (the "Partnership") for which Lipper acted as general
partner and investment adviser since inception. On April 1, 1996, the High
Income Bond Fund exchanged Premier Shares for certain portfolio securities of
the Partnership (the "Transfer"). Premier Shares received in the Transfer were
distributed to the Partnership's limited partners who elected to participate in
the Transfer. To the extent that the High Income Bond Fund acquired securities
in the Transfer that have appreciated in value from the date originally acquired
by the Partnership, the Transfer may have adverse tax consequences to investors
who acquire shares of the Fund in the continuous offering after the Transfer. If
the High Income Bond Fund sells securities acquired in the Transfer that have
appreciated in value from the date they were acquired by the Partnership, the
amount of any gain with respect to such securities (including any appreciation
in value from the date they were acquired by the Partnership through the date of
the Transfer) would be taxable to all shareholders, including new shareholders
as well as those shareholders who were former limited partners of the
Partnership. The effect of this would be to tax new shareholders on a
distribution that economically represents a return of a portion of the purchase
price of their shares rather than on an increase in the value of their
investment. The amount of any such gain that would be taxable to a shareholder
is dependent on a number of factors, and there is no assurance that any gains
existing at the time of the Transfer would in fact be recognized. Moreover, any
tax liability would affect shareholders differently, depending on, among other
things, individual decisions to redeem or continue to hold shares, the timing of
such decisions, and applicable tax rates. See "Taxes-The Transfers".

RISK FACTORS AND SPECIAL CONSIDERATIONS

NET ASSET VALUE FLUCTUATION; CHANGES IN INTEREST RATES.

The High Income Bond Fund's net asset value, and hence the value of its
shares, will fluctuate, reflecting fluctuations in the market value of its
portfolio positions. To the extent that the High Income Bond Fund invests in
fixed income securities, the Fund's net asset value can be expected to change as
general levels of interest rates fluctuate. Except to the extent that values are
affected independently by other factors such as developments relating to a
specific issuer, when interest rates decline, the value of a fixed income
investment can generally be expected to rise. Conversely, when interest rates
rise, the value of a fixed income investment can generally be expected to
decline. These fluctuations can be expected to be greater with respect to
investments in fixed income securities with longer maturities than investments
in securities with shorter maturities. Other factors affecting the value of the
High Income Bond Fund's securities include, among other things, (1) changes in
the actual and perceived creditworthiness of the issuers of such securities, (2)
social, economic or political factors, (3) factors affecting the industry in
which a particular issuer operates, such as competition or technological
advances, and (4) factors affecting an issuer directly, such as management
changes, labor relations, collapse of key suppliers or customers, or material
changes in overhead. There is no assurance that the High Income Bond Fund will
achieve its investment objective.

HIGH YIELD SECURITIES

The High Income Bond Fund will invest all or substantially all of its
assets in high yield securities, commonly known as "junk bonds". High yield
securities are those securities rated below investment grade (i.e., rated below
"Baa" by Moody's or below "BBB" by S&P) and unrated securities of comparable
quality. Securities rated below investment grade and comparable unrated
securities involve greater risk, including greater price volatility and a
greater risk of default in the timely payment of principal and interest, than
higher rated securities. Under rating agency guidelines, securities which are

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rated in the category "B" (the lowest category in which the High Income Bond
Fund may make an initial investment) generally lack characteristics of a
desirable investment, and assurance of interest and principal payments or of
maintenance and other terms of the contract over any long period of time may be
small. Such securities are considered speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of the
obligations. Unrated securities deemed comparable to these rated securities will
have similar characteristics. Accordingly, it is possible that these types of
factors could, in certain instances, reduce the value of securities held by the
High Income Bond Fund with a commensurate effect on the value of the Fund's
shares. Therefore, an investment in the High Income Bond Fund should not be
considered as a complete investment program.

The secondary markets for high yield securities are not as liquid as the
secondary markets for higher rated securities. The secondary markets for high
yield securities are characterized by relatively few market makers and
participants in the market are mostly institutional investors, including
insurance companies, banks, other financial institutions and mutual funds. In
addition, the trading volume for high yield securities is generally lower than
that for higher-rated securities. Moreover, the secondary markets for high yield
securities could contract under adverse market or economic conditions
independent of any specific adverse changes in the condition of a particular
issuer. These factors may have an adverse effect on the High Income Bond Fund's
ability to dispose of particular portfolio investments and may limit its ability
to obtain accurate market quotations for purposes of valuing securities and
calculating net asset value. If the High Income Bond Fund is not able to obtain
precise or accurate market quotations for a particular security, it will become
more difficult for the Board of Directors to value the Fund's portfolio
securities and the Directors may have to use a greater degree of judgment in
making such valuations. Furthermore, adverse publicity and investor perceptions
about lower-rated securities, whether or not based on fundamental analysis, may
tend to decrease the market value and liquidity of such lower-rated securities.
Less liquid secondary markets may also affect the High Income Bond Fund's
ability to sell securities at their fair value. In addition, the High Income
Bond Fund is permitted to invest up to 15% of its net assets in illiquid
securities, which may be more difficult to value and to sell at fair value. If
the secondary markets for high yield securities contract due to adverse economic
conditions or for other reasons, certain previously liquid securities in the
High Income Bond Fund's portfolio may become illiquid and the proportion of the
Fund's assets invested in illiquid securities may increase.

The ratings of securities by Moody's and S&P are a generally accepted
barometer of credit risk. They are, however, subject to certain limitations from
an investor's standpoint. The rating of an issuer is heavily weighted by past
developments and does not necessarily reflect probable future conditions. There
is frequently a lag between the time a rating is assigned and the time it is
updated. In addition, there may be varying degrees of difference in credit risk
of securities within each rating category in which the High Income Bond Fund may
invest. See Appendix A to this Prospectus for a description of such ratings.
Achievement of the High Income Bond Fund's investment objective may be more
dependent on the Adviser's credit analysis of issuers than would be the case if
the Fund invested in higher quality securities.

While the market values of securities rated below investment grade and
comparable unrated securities tend to react less to fluctuations in interest
rate levels than do those of higher-rated securities, the market values of
certain of these securities also tend to be more sensitive to individual issuer
developments and changes in economic conditions than higher-rated securities. In
addition, such securities generally present a higher degree of credit risk.
Issuers of these securities are often highly leveraged and may not have more
traditional methods of financing available to them, so that their ability to
service their debt obligations during an economic downturn or during sustained
periods of rising interest rates may be impaired. The risk of loss due to
default in payment of interest or principal by such issuers is significantly
greater than with investment grade securities because such securities frequently
are subordinated to the prior payment of senior indebtedness.

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Many fixed income securities contain call or buy-back features which permit
the issuer of the security to call or repurchase it. Such securities may present
risks based on payment expectations. If an issuer exercises such a "call option"
and redeems the security, the High Income Bond Fund may have to replace the
called security with a lower yielding security, resulting in a decreased rate of
return for the Fund.

RISKS OF INVESTMENT IN FOREIGN SECURITIES

The High Income Bond Fund will from time to time invest in obligations of
foreign corporate and government issuers. Securities of non-U.S. issuers may
trade in U.S. or foreign securities markets. Securities of non-U.S. issuers
involve certain considerations and risks not typically associated with investing
in securities of U.S. companies or the U.S. Government, including uncertainties
regarding future social, political and economic developments, the possible
imposition of foreign withholding taxes on interest income payable on securities
held by the Fund, the possible seizure or nationalization of foreign assets and
the possible establishment of foreign government laws or restrictions that might
adversely affect the payment of interest on debt securities held by the Fund.
Because the High Income Bond Fund may invest in the securities of foreign
issuers denominated in foreign currencies, the strength or weakness of the U.S.
dollar against such foreign currencies will account for part of the Fund's
investment performance. A decline in the value of any particular currency
against the U.S. dollar will cause a decline in the U.S. dollar value of the
High Income Bond Fund's holdings of securities denominated in such currency and,
therefore, will cause an overall decline in the Fund's net asset value and any
net investment income and capital gains to be distributed in U.S. dollars to
shareholders of the Fund. Foreign securities markets may have substantially less
volume and may be smaller, less liquid and subject to greater price volatility
than U.S. markets. Delays or problems with settlement in foreign markets could
affect the liquidity of the High Income Bond Fund's foreign investments and
adversely affect performance. Investment in foreign securities also may result
in higher brokerage and other costs and the imposition of transfer taxes or
transaction charges. Investment by the High Income Bond Fund in non-U.S. issuers
may be restricted or controlled to varying degrees. These restrictions may limit
or preclude investment in certain issuers or countries and may increase the
costs and expenses of the High Income Bond Fund. In addition, the repatriation
of both investment income and capital from some countries requires governmental
approval and if there is a deterioration in a country's balance of payments or
for other reasons, a country may impose temporary restrictions on foreign
capital remittances abroad. Even where there is no outright restriction on
repatriation of capital, the mechanics of repatriation may affect certain
aspects of the operation of the High Income Bond Fund. The High Income Bond Fund
could be adversely affected by delays in, or a refusal to grant any required
governmental approval for repatriation of capital, as well as by the application
to the Fund of any restrictions on investments. In addition, there may be less
publicly available information about a non-U.S. issuer than about a U.S. issuer,
and non-U.S. issuers may not be subject to the same accounting, auditing and
financial recordkeeping standards and requirements as U.S. issuers. Finally, in
the event of a default in any such foreign obligations, it may be more difficult
for the High Income Bond Fund to obtain or enforce a judgment against the
issuers of such securities.

OTHER INVESTMENTS, INVESTMENT POLICIES AND INVESTMENT STRATEGIES; PRIOR HISTORY

Certain risks and special considerations of certain of the investment
practices in which the High Income Bond Fund may engage are described above
under "Investment Objectives and Policies-Other Investments and Investment
Strategies."

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Fund, force the purchase or sale of portfolio securities at inopportune times or
for prices higher or lower than current market values, or cause the Fund to hold
a security it might otherwise not purchase or sell. The use of currency
transactions could result in the High Income Bond Fund's incurring losses as a
result of the imposition of exchange controls or the inability to deliver or
receive a specified currency in addition to exchange rate fluctuations. Losses
resulting from the use of Derivatives will reduce the High Income Bond Fund's
net asset value, and possibly income, and the losses may be greater than if
Derivatives had not been used. Additional information regarding the risks and
special considerations associated with Derivatives appears in the Statement of
Additional Information.

As stated above under "The Transfer," the High Income Bond Fund was formed
as a successor investment vehicle for the Partnership. The Partnership was not
registered under and subject to the provisions of the 1940 Act, pursuant to an
exemption from registration for entities which have fewer than 100 holders. As
an unregistered entity, the Partnership was not required to comply with the
requirements of the 1940 Act, or the diversification, distribution and other
requirements imposed by the Code. To the extent that the High Income Bond Fund
acquired securities in a Transfer that have appreciated in value from the date
originally acquired by the Partnership, the Transfer may have adverse tax
consequences to investors who acquire shares of the Fund in the continuous
offering. To the extent that the High Income Bond Fund sells such securities,
new shareholders may be taxed on a distribution that economically represents a
return of a portion of the purchase price of their shares. See "Performance
Information" below for information regarding the historical investment
performance of the Partnership.

PURCHASE OF SHARES

Shares of each class of the High Income Bond Fund may be purchased without
any sales charge through the Distributor, through certain investment dealers,
banks and financial services firms that provide distribution, administrative or
shareholder services to the Fund ("Participating Dealers"), or by mailing a
purchase order directly to the Transfer Agent, at their net asset value next
determined after the purchase order is received. The Distributor and
Participating Dealers are responsible for forwarding orders they receive to the
Transfer Agent by the applicable times described below on the same day as their
receipt of the orders to permit purchase of shares as described above, and their
failure to do so will result in investors not receiving that day's net asset
value. See "Valuation of Shares."

Retail Shares of the High Income Bond Fund are offered for sale to
purchasers who invest a minimum of $10,000 in the Fund ($2,000 with respect to
Individual Retirement Accounts). Retail Shares of the High Income Bond Fund are
subject to an ongoing 12b-1 fee at an annual rate of up to 0.25% of their
average daily net assets. See "Distribution and Service Plans."

Group Retirement Plan Shares of the High Income Bond Fund are offered for
sale with no minimum investment requirement to retirement plans, including, but
not limited to, qualified 401(k) plans. Group Retirement Plan Shares of the High
Income Bond Fund are subject to a service fee of up to 0.25% of their average
daily net assets. See "Distribution and Service Plans." Investors should contact
the Distributor at the address and telephone number set forth on the cover of
this Prospectus for further information regarding the eligibility requirements
for Group Retirement Plan Shares.

The High Income Bond Fund has established a subsequent investment minimum
of $2,500 for its Premier and Retail Shares. Individual Retirement Accounts are
subject to a $250 subsequent investment minimum. Group Retirement Plan Shares
are not subject to any subsequent investment minimum. The High Income Bond Fund
reserves the right to vary any initial or subsequent investment minimum at any
time.

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<PAGE>

Purchase orders received by the Distributor or a Participating Dealer and
transmitted to the Transfer Agent prior to the close of regular trading on the
New York Stock Exchange, Inc. (the "NYSE"), generally 4:00 p.m., New York time,
on any day net asset value is calculated are priced according to the net asset
value of the purchased class of shares determined on that day. Purchase orders
received by the Transfer Agent after the close of regular trading on the NYSE
are priced as of the time the net asset value per share of the relevant class is
next determined. See "Valuation of Shares." Payment is generally due to the
Distributor or a Participating Dealer on the third business day (the "Settlement
Date") after the trade date. Investors who make payment prior to a Settlement
Date may permit the payment to be held in their brokerage accounts or may
designate a temporary investment for such payment until the Settlement Date. The
High Income Bond Fund reserves the right to reject any purchase order and to
suspend the offering of its shares for a period of time.

INITIAL INVESTMENTS BY MAIL

Shares of the High Income Bond Fund may be purchased by completing and
signing an account application and mailing it, together with a check payable to
"The Lipper Funds, Inc.," to:

The Lipper Funds, Inc.
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798

Payment for the purchase of shares received by mail will be credited to an
investor's account at the net asset value per share of the purchased class of
shares of the High Income Bond Fund next determined after receipt.

INITIAL INVESTMENT BY WIRE

Shares of the High Income Bond Fund may also be purchased by wiring Federal
Funds to the Company's custodian (see instructions below). In order to insure
prompt crediting of the Federal Funds wire, it is important to follow these
steps:

(a) The investor must telephone the Transfer Agent (toll-free
1-800-LIPPER9) and provide name, address, telephone number, social security
or tax I.D. number, the Fund's name and class of shares to be purchased,
the amount being wired and the name of the bank wiring the funds.
(Investors with existing accounts should also notify the Transfer Agent
prior to wiring funds.) An account number will then be provided;

(b) The investor must instruct his or her bank to wire the specified
amount to the Company's custodian as follows:

The Chase Manhattan Bank
New York, NY 10003
ABA # 0210-0002-1
DDA Acct. #910-2-753168
F/B/O The Lipper Funds, Inc.
Ref: Lipper High Income Bond Fund
Account Number __________________
Account Name ____________________

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<PAGE>

Agent and the Company in a timely manner, since shares of the High Income
Bond Fund will not be redeemed, exchanged or transferred until the Transfer
Agent receives the shareholder's account application. Federal Funds
purchases will be accepted only on days on which both the NYSE and the
Company's custodian are open for business.

ADDITIONAL INVESTMENTS

An investor may add to his or her account by purchasing additional shares
of the same class of the High Income Bond Fund's shares by mailing a check to
the Transfer Agent (payable to "The Lipper Funds, Inc.") at its address set
forth above under "Initial Investments by Mail" or by wiring funds to the
Company's custodian using the procedures set forth above under "Initial
Investment by Wire." It is important that the account number, account name, and
the Fund's name and class of shares to be purchased are specified on the check
or wire to ensure proper crediting to the investor's account.

In order to ensure that wire orders are invested promptly, investors are
requested to notify the Transfer Agent prior to the wire date. Mail orders must
include the "Invest by Mail" stub which accompanies the High Income Bond Fund's
confirmation statement.

OTHER PURCHASE INFORMATION

The High Income Bond Fund reserves the right, in its sole discretion, to
suspend the offering of its shares or reject purchase orders when, in the
judgment of management, such suspension or rejection is in the best interests of
the Fund.

Purchases of shares will be made in full and fractional shares calculated
to three decimal places. In the interest of economy and convenience,
certificates for shares will not be issued except at the written request of the
shareholder. Certificates for fractional shares, however, will not be issued
under any circumstances. Investors should note that it is considerably more
difficult to redeem shares held in certificate form.

As stated above, shares of the High Income Bond Fund may be purchased by
customers of Participating Dealers. Participating Dealers may impose additional
or different conditions or other account fees on the purchase and redemption of
Fund shares. Each Participating Dealer is responsible for transmitting to its
customers a schedule of any such fees and information regarding any additional
or different conditions regarding purchases and redemptions. Shareholders who
are customers of Participating Dealers should consult their Participating Dealer
for information regarding these fees and conditions. Certain Participating
Dealers may receive compensation from the Company, the Distributor, the Adviser,
or any of the Adviser's affiliates. A salesperson and any other person entitled
to receive compensation for selling or servicing High Income Bond Fund shares
may receive different compensation with respect to sales of one class of shares
over another.

Participating Dealers may enter confirmed purchase orders on behalf of
their customers. If you buy shares of the High Income Bond Fund in this manner,
your Participating Dealer must transmit your investment order to the Transfer
Agent prior to 4:00 p.m. on a business day to receive the net asset value of the
purchased class determined on the same day. Participating Dealers are solely
responsible to their customers for the timely transmission of all purchase and
redemption requests, investment information, documentation and money.

DISTRIBUTION AND SERVICE PLANS

The Company's Board of Directors has adopted a distribution plan for the
Retail Shares of the High Income Bond Fund pursuant to Rule 12b-1 under the 1940
Act (the "Retail Distribution Plan"), and a shareholder servicing plan for the
Group Retirement Plan Shares of the High Income Bond Fund (the "Group Retirement
Servicing Plan"). Potential investors should read this Prospectus in light of
the terms governing the agreement between their Participating Dealers and the
Distributor.

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<PAGE>

RETAIL DISTRIBUTION PLAN

Under the Retail Distribution Plan, the High Income Bond Fund, at the
expense of its Retail Shares, pays the Distributor for distributing the Fund's
Retail Shares at an annual rate of up to 0.25% of the value of the average daily
net assets of the Fund's Retail Shares. The Distributor may pay one or more
Participating Dealers a fee in respect of distribution of the High Income Bond
Fund's Retail Shares. The Distributor determines the amounts, if any, to be paid
to Participating Dealers under the Retail Distribution Plan and the basis on
which such payments are made. The Retail Distribution Plan also provides that
the Adviser may pay Participating Dealers out of its investment advisory fees,
its past profits or any other source available to the Adviser. From time to
time, the Distributor may defer or waive receipt of fees under the Retail
Distribution Plan while retaining the ability to be paid under the Retail
Distribution Plan thereafter. The foregoing fees payable under the Retail
Distribution Plan are payable without regard to actual expenses incurred.

GROUP RETIREMENT SERVICING PLAN

The Company intends to enter into servicing agreements pursuant to which
Participating Dealers and sometimes the Distributor will render certain support
services to their customers who are beneficial owners of Group Retirement Plan
Shares. Such services are intended to supplement the services provided by the
Company's administrator and Transfer Agent. Under the Group Retirement Servicing
Plan, the High Income Bond Fund, at the expense of its Group Retirement Plan
Shares, may pay one or more Participating Dealers and/or the Distributor up to
0.25% (on an annualized basis) of the value of the average daily net assets of
the Fund's Group Retirement Plan Shares for providing one or more of the
following services to such customers: establishing and maintaining accounts and
records relating to customers that invest in Group Retirement Plan Shares;
processing dividend and distribution payments from the High Income Bond Fund on
behalf of customers; arranging for bank wires; providing subaccounting with
respect to Group Retirement Plan Shares beneficially owned by customers or the
information necessary for subaccounting; forwarding shareholder communications
from the High Income Bond Fund (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
customers; assisting in processing purchase, exchange and redemption requests
from customers and in placing such orders with the Company's service
contractors; assisting customers in changing dividend options, account
designations and addresses; providing customers with a service that invests the
assets of their accounts in Group Retirement Plan Shares pursuant to specific or
pre-authorized instructions; providing information periodically to customers
showing their positions in Group Retirement Plan Shares and integrating such
statements with those of other transactions and balances in customers' other
accounts with the Participating Dealer; responding to customer inquiries
relating to the services performed by the Participating Dealer or the
Distributor; responding to customer inquiries concerning their investments in
Group Retirement Plan Shares; and providing other similar shareholder liaison
services. Fees payable under the Group Retirement Servicing Plan are not paid to
Participating Dealers or the Distributor with respect to other classes of shares
of the High Income Bond Fund. Investors who are or anticipate becoming
beneficial owners of Group Retirement Plan Shares should read this Prospectus in
light of the terms and fees governing their accounts with Participating Dealers.

OTHER

22
<PAGE>

without violation of such banking laws or regulations. However, future changes
in legal requirements relating to the permissible activities of banks and their
affiliates, as well as future interpretations of present requirements, could
require banks to discontinue providing such administrative and shareholder
servicing functions. If banks were required to discontinue providing all or a
part of such functions, alternative means for continuing the servicing of such
customers would be sought.

In addition, state securities laws on this issue may differ from
interpretations of federal law expressed herein and banks and other financial
institutions may be required to register as dealers pursuant to state laws.

REDEMPTION OF SHARES

Shareholders may request redemption of their shares at any time. When a
redemption request is received in proper form, the High Income Bond Fund will
redeem the shares at the next determined net asset value of the class of shares
being redeemed. The proceeds paid to a shareholder upon redemption may be more
or less than the amount invested depending upon the net asset value of the
shares being redeemed at the time of redemption. If a shareholder holds shares
in more than one class of the High Income Bond Fund, any request for redemption
must specify the class of shares being redeemed. In the event of a failure to
specify which class, or if the investor owns fewer shares of a class than
specified, the redemption request will be delayed until the Transfer Agent
receives further instructions from the Distributor or a Participating Dealer, or
if the shareholder's account is not with the Distributor or a Participating
Dealer, from the shareholder directly.

The High Income Bond Fund normally transmits redemption proceeds for credit
to the shareholder's account at the Distributor or a Participating Dealer at no
charge within seven days after receipt of a redemption request. Generally, these
funds will not be invested for the shareholder's benefit without specific
instruction, and the Distributor will benefit from the use of temporarily
uninvested funds. A shareholder who pays for shares by personal check will be
credited with the proceeds of a redemption of those shares only after the
purchase check has been collected, which may take up to 15 days or more. A
shareholder who anticipates the need for more immediate access to his or her
investment should purchase shares with Federal Funds, by bank wire or with a
certified or cashier's check. Shares will not be redeemed until the Transfer
Agent has received the shareholder's account application.

If an investor in Premier Shares or Retail Shares of the High Income Bond
Fund reduces the value of his or her account to below $500,000, in the case of
Premier Shares, or $1,000, in the case of Retail Shares, such account may be
subject to redemption by the Fund, but only after the investor has been given at
least 30 days in which to increase his or her account balance to more than such
required minimum account balance. Investors in Group Retirement Plan Shares are
not subject to such a minimum account balance requirement. To the extent that
shares in an investor's account are redeemed by the High Income Bond Fund, the
investor could reinvest in any class of shares of the Fund at a later date
provided that any eligibility requirements with respect to investing in the Fund
were met at such time. In addition, the High Income Bond Fund may redeem shares
involuntarily or suspend the right of redemption as permitted under the 1940
Act, or under certain special circumstances described in the Statement of
Additional Information under "Additional Redemption Information."

Shares of the High Income Bond Fund may be redeemed in one of the following
ways:

REDEMPTION THROUGH THE DISTRIBUTOR OR A PARTICIPATING DEALER

23
<PAGE>

requests involving shares represented by certificates will not be deemed
received until such certificates are received by the Transfer Agent in proper
form. The Transfer Agent is located at 73 Tremont Street, Boston, MA 02108.

Redemption requests also may be mailed to the Transfer Agent at the
following address:

The Lipper Funds, Inc.
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798

A mailed request to redeem shares must include the following:

(a) Stock certificates representing the shares redeemed, if issued;

(b) A letter of instruction or a stock assignment specifying the
number of shares or dollar amount to be redeemed, as well as the class
being redeemed, signed by all registered owners of the shares in the exact
names in which they are registered;

(d) Other supporting legal documents in the case of estates, trusts,
guardianships, custodianships, corporations, pension and profit sharing
plans and other organizations.

Shareholders who are uncertain of the requirements for redemption should
call 1-800-LIPPER9.

SIGNATURE GUARANTEES

To protect investors, the Company and the Transfer Agent from fraud,
signature guarantees are required for certain redemptions. Signature guarantees
are required for (1) redemptions where the proceeds are to be sent to someone
other than the registered shareholder(s) or the registered address, or (2) when
the registered shareholder requests a transfer of shares to another person(s).
The purpose of signature guarantees is to verify the identity of the party who
has authorized a redemption.

Signatures must be guaranteed by an "eligible guarantor institution" as
defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended.
Eligible guarantor institutions include banks, brokers, dealers, credit unions,
national securities exchanges, registered securities associations, clearing
agencies and savings associations. A complete definition of eligible guarantor
institutions is available from the Transfer Agent. Broker-dealers guaranteeing
signatures must be members of a clearing corporation or maintain net capital of
at least $100,000. Credit unions must be authorized to issue signature
guarantees. Signature guarantees will be accepted from any eligible guarantor
institution which participates in a signature guarantee program.

The signature guarantee must appear either: (1) on the written request for
redemption; (2) on a separate instrument for assignment ("stock power") which
must specify the total number of shares and class of shares to be redeemed; or
(3) on all stock certificates tendered for redemption (in the event that all
shares being redeemed are held in certificated form).

24
<PAGE>

REDEMPTION BY TELEPHONE

Provided that an investor has previously established a telephone redemption
privilege when completing an account application, a request for redemption of
shares may be made by calling the Transfer Agent at 1-800-LIPPER9 and requesting
that redemption proceeds be mailed to the investor or wired to his or her bank.
If an investor selects a telephone redemption privilege, the investor authorizes
the Transfer Agent to act on telephone instructions from any person representing
himself or herself to be the investor or a representative of the investor's
Participating Dealer, and reasonably believed by the Transfer Agent to be
genuine. The Company will require the Transfer Agent to employ reasonable
procedures, such as requiring a form of personal identification, to confirm that
instructions are genuine and, if it does not follow such procedures, it may be
liable for any losses due to unauthorized or fraudulent instructions. Neither
the Company nor the Transfer Agent will be liable for following telephone
instructions reasonably believed to be genuine. When redeeming shares by
telephone, an investor must have ready his or her name and account number, as
well as Social Security number or tax I.D. number and account address.

To change the name of the commercial bank or the account designated to
receive redemption proceeds, a written request must be sent to the Transfer
Agent at its address set forth above under "Redemption by Mail." Requests to
change the bank or account must be signed by each shareholder and each signature
must be guaranteed. An investor cannot redeem shares by telephone if he or she
holds stock certificates for the shares. Please contact 1-800-LIPPER9 for
further details.

REDEMPTION IN KIND

If the Board of Directors of the Company determines that it would be
detrimental to the best interests of the remaining shareholders of the High
Income Bond Fund to make payment wholly or partly in cash, the Fund may pay
redemption proceeds in whole or in part by a distribution of readily marketable
securities held by the Fund in lieu of cash in conformity with applicable rules
of the Securities and Exchange Commission (the "SEC"). Investors may incur
brokerage charges on the sale of securities so received in payment of
redemptions.

EXCHANGE PRIVILEGE

The Exchange Privilege enables investors to purchase, in exchange for
shares of the High Income Bond Fund, shares of certain other Funds of the
Company, to the extent such shares are offered for sale in the investor's state
of residence and the purchase meets the minimum investment and other eligibility
requirements of the Fund into which the investor is exchanging. If an investor
desires to use the Exchange Privilege, he or she should consult the Distributor
or his or her Participating Dealer to determine if it is available and whether
any other conditions are imposed on its use.

To use the Exchange Privilege, an investor or his or her Participating
Dealer acting on his or her behalf must give exchange instructions to the
Transfer Agent by mail, or by telephone if the investor has previously
established the telephone exchange privilege, as further described below. Shares
will be exchanged at the next determined net asset value. No fees currently are
charged to shareholders directly in connection with exchanges, although the
Company reserves the right, upon not less than 60 days' written notice, to
charge shareholders a nominal fee in accordance with rules promulgated by the
SEC.

Before any exchange, an investor must obtain and should carefully review a
copy of the current prospectus of the Fund into which he or she wishes to
exchange.

25
<PAGE>

broker "street name" may not be exchanged by mail or telephone; an investor must
contact his or her Participating Dealer to exchange such shares. The Company
reserves the right to reject any exchange request in whole or in part. The
Exchange Privilege may be modified or terminated at any time upon notice to
shareholders.

The exchange of shares of the High Income Bond Fund for shares of another
Fund is treated for federal income tax purposes as a sale of the shares given in
exchange by the shareholder and, therefore, an exchanging shareholder may
realize a taxable gain or loss.

EXCHANGE BY MAIL

In order to exchange shares by mail, an investor must include in the
exchange request the name and account number for his or her Fund, the class of
such fund from which he or she wishes to exchange, the name of the Fund into
which he or she wishes to exchange, and the documents described in the
procedures set forth above under "Redemption of Shares-Redemption by Mail." The
request to exchange shares must be sent to:

The Lipper Funds, Inc.
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798

EXCHANGE BY TELEPHONE

Provided that an investor has previously established the telephone exchange
privilege when completing an account application, he or she may request an
exchange of shares by calling the Transfer Agent at 1-800-LIPPER9. If an
investor selects a telephone exchange privilege, he or she authorizes the
Transfer Agent to act on telephone instructions from any person representing
himself or herself to be the investor or a representative of the investor's
Participating Dealer, and reasonably believed by the Transfer Agent to be
genuine. The Company will require the Transfer Agent to employ reasonable
procedures, such as requiring a form of personal identification, to confirm that
instructions are genuine and, if it does not follow such procedures, it may be
liable for any losses due to unauthorized or fraudulent instructions. Neither
the Company nor the Transfer Agent will be liable for following telephone
instructions reasonably believed to be genuine. When exchanging shares by
telephone, an investor should have ready the name and account number for his or
her current Fund, the class of such Fund from which he or she wishes to
exchange, the name of the Fund into which he or she wishes to exchange, his or
her Social Security number or tax I.D. number and account address.

TRANSFER OF REGISTRATION

An investor may transfer the registration of the High Income Bond Fund
shares to another person by writing to the Transfer Agent at the address set
forth above under "Redemption of Shares-Redemption by Mail."

VALUATION OF SHARES

The net asset value per share of each class of shares of the High Income
Bond Fund is calculated Monday through Friday, except on days on which the NYSE
is closed. Currently, the NYSE is closed on New Year's Day, Martin Luther King,
Jr.'s Birthday, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day (observed), Labor Day, Thanksgiving Day and Christmas Day.

The net asset value per share of each class of shares of the High Income
Bond Fund is determined as of the close of regular trading on the NYSE, and is
computed by dividing the value of the net assets of the High Income Bond Fund

26
<PAGE>

attributable to that class by the total number of shares of that class
outstanding. Generally, the High Income Bond Fund's investments are valued at
market value or, in the absence of a market value with respect to any
securities, at fair value as determined by or under the direction of the
Company's Board of Directors. Short-term investments that mature in 60 days or
less are valued at amortized cost whenever the Board of Directors determines
that amortized cost reflects the fair value of those investments. Occasionally,
events which affect the values of such securities may occur between the times at
which they are determined and the close of the NYSE and will therefore not be
reflected in the computation of the High Income Bond Fund's net asset value. If
events materially affecting the value of such securities occur during such
period, then these securities will be valued at their fair value as determined
in good faith by or under procedures established by the Company's Board of
Directors. Further information regarding the Company's valuation policies is
contained in the Statement of Additional Information.

MANAGEMENT OF THE COMPANY

GENERAL

The business and affairs of the Company are managed under the direction of
the Company's Board of Directors. The Board of Directors approves all
significant agreements between the Company and the persons or companies that
furnish services to the Company, including agreements with the Distributor,
Adviser, administrator, custodian and Transfer Agent. The day-to-day operations
of the Company are delegated to the Adviser and to the Company's administrator.
The Statement of Additional Information contains general background information
regarding each director and executive officer of the Company.

INVESTMENT ADVISER

Lipper & Company, L.L.C., located at 101 Park Avenue, New York, NY 10178,
serves as investment adviser to the High Income Bond Fund. The Adviser is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended (the "Advisers Act").

The Adviser is an affiliate of Lipper, which acts as the High Income Bond
Fund's distributor. Each of the Adviser's officers or employees involved in
managing the High Income Bond Fund is also an officer or employee of Lipper or
one of its affiliates. Lipper is a privately owned investment management and
investment banking firm founded in 1987. At December 31, 1997, Lipper and its
affiliates managed assets having an aggregate market value on a gross basis of
$4.5 billion on behalf of its institutional and high net worth clients. Lipper
offers complementary investment strategies in intermediate term high yield
bonds, hedged convertible securities, investment grade bonds, U.S. and European
large capitalization equities, U.S. small capitalization equities, merger
arbitrage and preferred stocks. Lipper served as the general partner and
investment adviser to the Partnership corresponding to the High Income Bond Fund
since the inception of the Partnership. An affiliate of Lipper also serves as
the general partner to several other investment limited partnerships organized
in the U.S. or offshore. Lipper is also registered as a broker-dealer with the
SEC and the NASD.

Kenneth Lipper is the President of the Adviser, and has been President of
Lipper (together with its predecessor, Lipper & Company, Inc.) since 1986. Mr.
Lipper was a General Partner of Lehman Brothers Inc from 1969 to 1975 and a
General Partner and Managing Director of Salomon Brothers Inc from 1976 to 1982.
He subsequently served as Deputy Mayor of New York City from 1983 to 1985. Mr.
Lipper is the author of the novel "Wall Street" and the screenplay "City Hall."
He graduated from Columbia University and Harvard Law School and is a member of
the New York State Bar. As a specialist in corporate finance since 1969, Mr.
Lipper has held all levels of responsibility as an adviser to corporations in
mergers, tender offers, convertible issues, asset valuations and other
investment banking transactions. Since 1986, Mr. Lipper has

27
<PAGE>

supervised the investment management and investment banking operations of
Lipper. He is a director of New Holland N.V., a trustee of the Rockefeller
Brothers Fund, a member of the Federal Reserve Bank of New York's International
Advisory Board and a Senior Financial Adviser to the New York City Council. Mr.
Lipper also serves on the Harvard Executive Committee on University Resources,
and the Visitor's Committee of the Kennedy School of Government at Harvard
University.

Abraham Biderman is an Executive Vice President of the Adviser and of
Lipper. Mr. Biderman is also (Co-Manager of Lipper Convertibles, L.P. ("Lipper
Convertibles"), an investment limited partnership under management by affiliates
of Lipper and the Adviser. Mr. Biderman joined Lipper & Company, Inc. in 1990.
He was the Commissioner of the New York City Department of Housing, Preservation
and Development from 1988 to 1989, and in that capacity was responsible for the
largest housing development project in the United States. He was the
Commissioner of the New York City Department of Finance from 1986 to 1988,
responsible for the collection of over $20 billion per year in tax and other
revenues. Mr. Biderman also served as a Special Advisor to former Mayor Edward
I. Koch from 1985 to 1987 and was an Assistant to then-Deputy Mayor Kenneth
Lipper from 1983 to 1985.

Edward Strafaci is the Director of Fixed Income Money Management for the
Adviser and for Lipper. Mr. Strafaci is principally responsible for the trading
operations of Lipper Convertibles. He has managed Lipper Convertibles since
1989, and has been a trader with Lipper Convertibles since its inception in
1985. Prior to joining Lipper Convertibles, Mr. Strafaci was a trader at Dean
Witter Reynolds Inc. from 1984 to 1985. Mr. Strafaci received his M.B.A. and
B.S. from St. John's University.

Wayne Plewniak is the portfolio manager for the High Income Bond Fund. Mr.
Plewniak joined Lipper in 1991. Prior to joining Lipper, he served as a Senior
Investment Analyst for Bell Atlantic Corporation from 1988 to 1991,
concentrating on private placement and high-yield investments. From 1986 to
1988, Mr. Plewniak worked for Paribas North America in its Merchant Banking
department. Mr. Plewniak holds an M.B.A. from Georgetown University and a B.S.
in Industrial Engineering from Rochester Institute of Technology.

COMPENSATION

For its services under its investment advisory agreement with the Company
with respect to the High Income Bond Fund, the Adviser is entitled to receive an
annual fee computed daily and paid monthly at the annual rate of 0.75%. From
time to time, the Adviser may voluntarily waive for a period of time all or a
portion of the fee to which it is entitled under its investment advisory
agreement with the Company with respect to the High Income Bond Fund. The
Adviser may from time to time pay certain Participating Dealers out of its
investment advisory fees, past profits or other sources available to it for
providing certain administrative services to its customers. Such compensation
does not represent an additional expense to the High Income Bond Fund or its
shareholders.

DISTRIBUTOR

Lipper & Company, L.P., located at 101 Park Avenue, New York, NY 10178,
serves as the Company's distributor. The Distributor is entitled to receive an
annual distribution fee with respect to the High Income Bond Fund's Retail
Shares, and may receive all or a portion of the annual service fee, if any, paid
with respect to the Fund's Group Retirement Plan Shares. See "Distribution and
Service Plans."

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<PAGE>

ADMINISTRATOR

Chase Global Funds Services Company, a corporate affiliate of The Chase
Manhattan Bank, serves as the Company's administrator (the "Administrator"). The
Administrator calculates the net asset value of each class of the High Income
Bond Fund's shares and generally assists in all aspects of the Company's
administration and operation. As compensation for its services, the Company pays
the Administrator a monthly fee at the annual rate of 0.20% of the value of the
Company's average daily net assets up to and including $200 million; 0.10% of
the Company's average daily net assets in excess of $200 million up to and
including $400 million; and 0.05% of the Company's average daily net assets in
excess of $400 million. The Administrator is located at 73 Tremont Street,
Boston, MA 02108.

EXPENSES

The High Income Bond Fund's expenses include taxes, interest, fees and
salaries of the Company's directors and officers who are not directors, officers
or employees of the Company's service contractors, SEC fees, state securities
qualification fees, costs of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders, advisory and
administration fees, charges of the custodian and of the transfer and dividend
disbursing agent, certain insurance premiums, outside auditing and legal
expenses, costs of shareholder reports and shareholder meetings and any
extraordinary expenses. The High Income Bond Fund also pays for brokerage fees
and commissions (if any) in connection with the purchase and sale of portfolio
securities. The High Income Bond Fund's expenses are allocated to a particular
class of its shares based on either expenses identifiable to such class or the
relative net assets of such class and the other classes of its shares.

DIVIDENDS

The policy of the High Income Bond Fund is to distribute its net investment
income and net capital gain, if any. Shares of the High Income Bond Fund begin
accruing dividends on the business day following the day a purchase order is
priced and continue to accrue dividends up to and including the day that such
shares are redeemed. Unless a shareholder instructs that dividends and capital
gains distributions on shares of a class be paid in cash and credited to the
shareholder's account at the Distributor or a Participating Dealer, dividends
and capital gains distributions will be reinvested automatically in additional
shares of the same class at the net asset value of that class at the time of
reinvestment.

The High Income Bond Fund intends to distribute substantially all of its
net investment income to shareholders monthly. The High Income Bond Fund intends
to distribute net capital gain, if any, with the last dividend for the calendar
year.

Dividends paid by each class of the High Income Bond Fund's shares will be
calculated at the same time and in the same manner and will be in the same
amount, except that the expenses attributable solely to a particular class will
be borne exclusively by that class. Shares subject to payments under the High
Income Bond Fund's Distribution or Service Plan will receive lower per share
dividends than shares not subject to such payment because of the higher expenses
borne by such shares.

Each shareholder or its authorized representative will receive an annual
statement detailing the amount of any dividends and distributions made during
each year and their federal tax qualification.

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<PAGE>

TAXES

The High Income Bond Fund intends to qualify and elect to be treated as a
regulated investment company for federal income tax purposes under Subchapter M
of the Code. If so qualified, the High Income Bond Fund will not be subject to
federal income taxes on its net investment income (i.e., its investment company
taxable income, as that term is defined in the Code, determined without regard
to the deduction for dividends paid) and net capital gain (i.e., the excess of
its net realized long-term capital gain over its net realized short-term capital
loss), if any, that it distributes to its shareholders in each taxable year. To
qualify as a regulated investment company, the High Income Bond Fund must, among
other things, distribute to its shareholders at least 90% of its net investment
income for such taxable year. However, the High Income Bond Fund would be
subject to federal corporate income tax (currently at a maximum rate of 35%) on
any undistributed net investment income or net capital gain. If in any year the
High Income Bond Fund should fail to qualify as a regulated investment company,
the Fund would be subject to federal income tax in the same manner as an
ordinary corporation, and distributions to shareholders would be taxable to such
holders as ordinary income to the extent of the earnings and profits of the
Fund. Distributions in excess of earnings and profits will be treated as a
tax-free return of capital, to the extent of a holder's basis in its shares, and
any excess, as a long- or short-term capital gain.

The High Income Bond Fund intends to distribute substantially all of its
net investment income each year. Such distributions, whether paid in cash or
reinvested in additional shares, of net investment income will be taxable as
ordinary income. Federal income taxes for distributions to an IRA or a qualified
retirement plan are deferred under the Code. Such distributions generally will
not qualify for the dividends-received deduction generally available for
corporate shareholders under the Code. Distributions to shareholders of net
capital gain that are designated by the High Income Bond Fund as "capital gain
dividends," whether paid in cash or reinvested in additional shares, will be
taxable as long-term capital gain regardless of how long the shares have been
held by such shareholders. Under recently enacted legislation, the maximum rate
of tax on long-term capital gain of individuals will generally be reduced from
28% to 20% (10% for gain otherwise taxed at 15%) for long-term capital gain
realized with respect to capital assets held for more than 18 months.
Shareholders receiving distributions in the form of additional shares will be
treated for federal income tax purposes as receiving a distribution in an amount
equal to the fair market value of the additional shares on the date of such a
distribution.

Gain or loss, if any, recognized on the sale or other disposition of shares
of the High Income Bond Fund will be taxed as capital gain or loss if the shares
are capital assets in the shareholder's hands. Generally, a shareholder's gain
or loss will be capital gain or loss and will be long-term capital gain or loss
if the shares were held for longer than one year. However, if a shareholder
disposes of a share of the High Income Bond Fund before holding it for more than
six months, any loss on the sale or other disposition of such share shall be
treated as a long-term capital loss to the extent of any capital gain dividends
received by the shareholder with respect to such share. A loss realized on a
sale or exchange of shares may be disallowed if other shares of the High Income
Bond Fund are acquired within a 61-day period beginning 30 days before and
ending 30 days after the date on which the shares are disposed.

Dividends and distributions by the High Income Bond Fund are generally
taxable to the shareholders in the year of receipt. Any dividend or distribution
declared by the High Income Bond Fund in October, November or December of any
calendar year, however, which is payable to shareholders of record on a
specified date in such a month and paid during January of the following year
will be treated as received by the shareholders as of December 31 of such year.

The High Income Bond Fund may engage in hedging. See "Investment Objective
and Policies-Other Investments and Investment Strategies-Hedging and
Derivative." Such transactions will be subject to special provisions of the
Code that, among other things, may affect the character of gains and losses
realized by the High Income Bond Fund (that is, may affect whether gains or
losses are ordinary or capital), accelerate recognition of income to the High
Income Bond Fund and

30
<PAGE>

defer recognition of certain of the High Income Bond Fund's losses. These rules
could therefore affect the character, amount and timing of distributions to
shareholders. In addition, these provisions (1) will require the High Income
Bond Fund to "mark-to-market" certain types of positions in its portfolio (that
is, treat them as if they were closed out) and (2) may cause the High Income
Bond Fund to recognize income without receiving cash with which to pay dividends
or make distributions in amounts necessary to satisfy the distribution
requirements for avoiding income and excise taxes. The High Income Bond Fund
intends to monitor its transactions, will make the appropriate tax elections and
will make the appropriate entries in its books and records when it acquires any
forward contracts, options or hedged investment in order to mitigate the effect
of these rules and prevent disqualification of the High Income Bond Fund as a
regulated investment company.

The High Income Bond Fund may be required to withhold federal income tax at
a rate of 31% ("backup withholding") from dividends and redemption proceeds paid
to non-corporate shareholders. This tax may be withheld from dividends if (1)
the shareholder fails to furnish the High Income Bond Fund with the
shareholder's correct taxpayer identification number, (2) the Internal Revenue
Service ("IRS") notifies the High Income Bond Fund that the shareholder has
failed to report properly certain interest and dividend income to the IRS and to
respond to notices to that effect, or (3) when required to do so, the
shareholder fails to certify that he or she is not subject to backup
withholding.

Ordinary income dividends paid by the High Income Bond Fund to shareholders
who are non-resident aliens or foreign entities will be subject to a 30%
withholding tax unless a reduced rate of withholding or a withholding exemption
is provided under applicable treaty law or the income is "effectively connected"
with a U.S. trade or business. Generally, subject to certain exceptions, capital
gain dividends paid to non-resident shareholders or foreign entities will not be
subject to U.S. tax. Non-resident shareholders are urged to consult their own
tax advisers concerning the applicability of the U.S. withholding tax.

If the High Income Bond Fund invests in foreign securities, it may be
required to pay withholding or other taxes to foreign governments on dividends
and interest. Shareholders will bear the cost of any foreign taxes but may be
able to claim a foreign tax credit or deduction for these foreign taxes.

The foregoing discussion is only a brief summary of the important federal
tax considerations generally affecting the High Income Bond Fund and its
shareholders. As noted above, IRAs and qualified retirement plans receive
special tax treatment. No attempt is made to present a detailed explanation of
the federal, state or local income tax treatment of the High Income Bond Fund or
its shareholders, and this discussion is not intended as a substitute for
careful tax planning. Accordingly, potential investors in the High Income Bond
Fund should consult their tax advisers with specific reference to their own tax
situation.

THE TRANSFER

As discussed above under "The Transfer," to the extent that the High Income
Bond Fund acquired securities in the Transfer that have appreciated in value
from the date originally acquired by its corresponding Partnership, the Transfer
may have adverse tax consequences to investors who acquire shares of the High
Income Bond Fund in the continuous offering after the Transfer. If the High
Income Bond Fund sells securities acquired in the Transfer that have appreciated
in value from the date they were acquired by its corresponding Partnership, the
amount of any gain with respect to such securities (including any appreciation
in value from the date they were acquired by the Partnership through the date of
the Transfer) would be taxable to all shareholders, including new shareholders
as well as those shareholders who were former limited partners of the
Partnership.

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<PAGE>

PERFORMANCE INFORMATION

From time to time, the "total return," "yield" and "effective yield" of
each class of shares of the High Income Bond Fund may be quoted in
advertisements or reports to shareholders. Total return figures show the average
percentage change in the value of an investment from the beginning date of the
measuring period to the end of the measuring period. These figures reflect
changes in the price of the High Income Bond Fund's class of shares and assume
that any income dividends and/or capital gains distributions made by the Fund
during the period were reinvested. These figures also take into account the
distribution fee payable with respect to the High Income Bond Fund's Retail
Shares and the service fee, if any, payable with respect to the High Income Bond
Fund's Group Retirement Plan Shares. See "Distribution and Service Plans."

Total return figures will be given for the recent one-, five- and ten-year
periods, if available, and may be given for other periods as well, such as on a
year-by-year basis. With respect to the High Income Bond Fund, total return
figures for each class of shares will include the performance of the predecessor
Partnership to the Fund, as described below. When considering average annual
total return figures for periods longer than one year, it is important to note
that the total return for any one year in the period might have been greater or
less than the average for the entire period. "Aggregate total return" figures
may be used for various periods, representing the cumulative change in value of
an investment for the specific period (again reflecting changes in prices and
assuming reinvestment of dividends and distributions). Aggregate total return
may be shown by means of schedules, charts or graphs and may indicate subtotals
of the various components of total return (that is, change in the value of
initial investment, income dividends and capital gains distributions). Because
of the differences in distribution and service fees and certain other expenses,
the performance of each of the classes of the High Income Bond Fund will differ.

The Company may make available information as to the yield and effective
yield on the High Income Bond Fund over a thirty-day period, as calculated in
accordance with the SEC's prescribed formula. The effective yield assumes that
the income earned by an investment in shares of the High Income Bond Fund is
reinvested in shares of the same class and will therefore be slightly higher
than the yield because of the compounding effect of this assumed reinvestment.

In reports or other communications to shareholders or in advertising
materials, performance of the High Income Bond Fund may be compared with that of
other mutual funds or classes of shares of other mutual funds, as listed in the
rankings prepared by independent services that monitor the performance of mutual
funds, or other industry or financial publications such as Barron's, Business
Week, CDA Investment Technologies, Inc., Changing Times, Forbes, Fortune,
Institutional Investor, Investors Business Daily, Money, Morningstar Mutual
Company Values, The New York Times, USA Today and The Wall Street Journal.
Performance figures are based on historical earnings and are not intended to
indicate future performance. The Statement of Additional Information contains a
further description of the methods used to determine performance. Investors may
contact the Distributor to obtain current performance figures.

The investment performance of the High Income Bond Fund for various periods
through December 31, 1997 is illustrated below. Performance information for the
High Income Bond Fund for periods prior to April 1, 1996 reflects the
performance of the Fund's predecessor Partnership. The predecessor Partnership
to the High Income Bond Fund commenced operations on February 1, 1992. The
investment objectives and policies of the High Income Bond Fund are in all
material respects equivalent to those of its corresponding Partnership. While
the High Income Bond Fund is managed in a manner that is in all material
respects equivalent to the management of its corresponding Partnership, the High
Income Bond Fund is subject to certain restrictions on its activities under the
1940 Act and the Code to which its corresponding Partnership was not subject.
Had the Partnership been registered under the 1940 Act and subject to the
provisions of the Code, its investment performance may have been adversely
affected. Operating expenses incurred by the High Income Bond Fund (before any
voluntary fee waivers and reimbursements) are expected to be higher than the

32
<PAGE>

expenses that would have been incurred by its corresponding Partnership. Past
performance of the High Income Bond Fund (including where applicable its
corresponding Partnership) should not be considered as indicative of the Fund's
future performance.

<TABLE>
<CAPTION>
TOTAL RETURN

Aggregate Annual Return Average Annual Return
12 Months Ended for Five Years Ended for Five Years Ended Average Annual
December 31, 1997(1) December 31, 1997(2) December 31, 1997(2) Return Since Inception(2)
-------------------- -------------------- -------------------- -------------------------

<S> <C> <C> <C> <C>
HIGH INCOME BOND FUND
Premier Shares 11.22% 62.20% 10.14% 10.38%
Retail Shares 10.97% 61.58% 10.06% 10.30%
Group Retirement Plan Shares 10.96% 61.49% 10.05% 10.29%
</TABLE>

- ----------

(1) Fee waivers and reimbursements were in effect for the High Income Bond Fund
during 1996 and 1997 without which total returns would have been lower.

(2) The High Income Bond Fund's Retail and Group Retirement Plan Shares were
introduced on April 11, 1996. Performance information for the Retail and
Group Retirement Plan Shares prior to their introduction dates reflects the
performance of the High Income Bond Fund's Premier Shares which are not
subject to shareholder servicing or distribution expenses borne by these
classes of shares.

The Company was incorporated in Maryland on August 22, 1995. The authorized
capital stock of the Company consists of 10,000,000,000 shares having a par
value of $.001 per share. The Company's Charter currently authorizes the
issuance of three series of shares, one series corresponding to each of the High
Income Bond Fund, Lipper U.S. Equity Fund and Prime Lipper Europe Equity Fund,
and three classes of shares with respect to each series, Premier Shares, Retail
Shares and Group Retirement Plan Shares. The Company's Board of Directors may,
in the future, authorize the issuance of additional series of capital stock
representing shares of additional investment Funds or additional classes of
shares of the Funds.

Shares of each class of the High Income Bond Fund represent interests in
the Fund in proportion to the net asset value of each class. The High Income
Bond Fund's expenses are allocated to each class of the Fund's shares based upon
expenses identifiable by class or the relative net assets of the class and the
other classes of its shares.

All shares of the Company have equal voting rights and will be voted in the
aggregate, and not by series or class, except where voting by series or class is
required by law or where the matter involved affects one series or class. Under
the corporate law of Maryland, the Company's state of incorporation, and the
Company's By-Laws (except as required under the 1940 Act), the Company is not
required and does not currently intend to hold annual meetings of shareholders
for the election of directors. Shareholders, however, do have the right to call
for a meeting to consider the removal of one or more of the Company's directors
if such a request is made, in writing, by the holders of at least 10% of the
Company's outstanding voting securities.

All shares of the Company, when issued, will be fully paid and
nonassessable.

33
<PAGE>

The Chase Manhattan Bank is located at 270 Park Avenue, New York, NY 10017,
and serves as custodian of the Company's investments.

Chase Global Funds Services Company is located at 73 Tremont Street,
Boston, MA 02108, and serves as the Company's transfer agent.

The High Income Bond Fund sends shareholders a semi-annual and audited
annual report, which includes listings of investment securities held by the High
Income Bond Fund at the end of the period covered. In an effort to reduce the
High Income Bond Fund's printing and mailing costs, the High Income Bond Fund
may consolidate the mailing of its semi-annual and annual reports by household.
This consolidation means that a household having multiple accounts with the
identical address of record would receive a single copy of each report. In
addition, the High Income Bond Fund may consolidate the mailing of its
Prospectus so that a shareholder of the Fund having multiple accounts would
receive a single Prospectus annually. Any shareholder who does not want this
consolidation to apply to his or her account should contact the Transfer Agent.
Shareholders may direct inquiries regarding the Company to 1-800-LIPPER9.

34
<PAGE>

APPENDIX A

DESCRIPTION OF RATINGS

A description of the rating policies of Moody's and S&P with respect to
bonds and commercial paper appears below.

MOODY'S INVESTORS SERVICE'S CORPORATE BOND RATINGS

Aaa -- Bonds which are rated "Aaa" are judged to be of the best quality and
carry the smallest degree of investment risk. 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.

Aa -- Bonds 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. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in "Aaa" securities.

A -- Bonds which are rated "A" possess many favorable investment qualities
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 sometime in the future.

Baa -- Bonds 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.

Ba -- Bonds 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 in this class.

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

Caa -- Bonds 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.

Ca -- Bonds which are rated "Ca" represent obligations which are
speculative in high degree. Such issues are often in default or have other
marked shortcomings.

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

Moody's applies numerical modifiers "1," "2" and "3" to certain of its
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.

STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS

AAA -- This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to repay principal and pay
interest.

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<PAGE>

AA -- Bonds rated "AA" also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and differs from "AAA"
issues only in small degree.

A -- Bonds rated "A" have a strong capacity to repay principal and pay
interest, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.

BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to
repay principal and pay interest. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to repay principal and pay interest
for bonds in this category than for higher rated categories.

BB-B-CCC-CC-C -- Bonds rated "BB," "B," "CCC," "CC" and "C" are regarded,
on balance, as predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal in accordance with the terms of the
obligations. "B" indicates the lowest degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.

CI -- Bonds rated "CI" are income bonds on which no interest is being paid.

D -- Bonds rated "D" are in default. The "D" category is used when interest
payments or principal payments 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 is also used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.

The ratings set forth above may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.

MOODY'S INVESTORS SERVICE'S COMMERCIAL PAPER RATINGS

PRIME-1 -- Issuers (or related supporting institutions) rated "Prime-1"
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: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.

PRIME-2 -- Issuers (or related supporting institutions) rated "Prime-2"
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, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternative liquidity is
maintained.

PRIME-3 -- Issuers (or related supporting institutions) rated "Prime-3"
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 the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.

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

36
<PAGE>

STANDARD & POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS

A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. The four categories are as follows:

A-1 -- This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.

A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."

A-3 -- Issues carrying this designation have adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.

B -- Issues rated "B" are regarded as having only speculative capacity for
timely payment.

C -- This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.

D -- Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments 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.

37
<PAGE>

INVESTMENT ADVISER

Lipper & Company, L.L.C. THE LIPPER FUNDS, INC.
101 Park Avenue, 6th Floor
New York, NY 10178
(212) 883-6333 LIPPER HIGH INCOME BOND FUND

ADMINISTRATOR AND TRANSFER AGENT

Chase Global Funds Services Company
73 Tremont Street, 9th Floor
Boston, MA 02108
1-800-LIPPER9

CUSTODIAN

The Chase Manhattan Bank
270 Park Avenue
New York, NY 10017

PROSPECTUS AND

LEGAL COUNSEL NEW ACCOUNT APPLICATION

Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036

BOARD OF DIRECTORS
Kenneth Lipper
Chairman of the Board,
The Lipper Funds, Inc.
President and Chairman,
Lipper & Company

Stanley Brezenoff
Chief Executive Officer,
Maimonides Medical Center

Martin Maltz
Principal Scientist,
Xerox Corporation

Irwin Russell
Attorney,
Law Offices of Irwin E. Russell
Director,
The Walt Disney Company

<PAGE>

P R O S P E C T U S

LIPPER U.S. EQUITY FUND

A no-load portfolio of

The Lipper Funds, Inc.
101 Park Avenue
New York, NY 10178

For information call 1-800-LIPPER9

The Lipper U.S. Equity Fund (the "U.S. Equity Fund" or the "Fund") is a
diversified no-load portfolio of The Lipper Funds, Inc. (the "Company"). The
U.S. Equity Fund's investment objective is capital appreciation, which it seeks
to achieve by investing primarily in a diversified portfolio of common stocks of
issuers with market capitalization in excess of $500 million believed to be
selling below their inherent value based on factors such as fundamental business
and financial prospects, economic forecasts, political factors and market
conditions.

As described in this Prospectus, the Company offers the shares of the U.S.
Equity Fund in three classes: Premier Shares, Retail Shares and Group Retirement
Plan Shares. Shares of the U.S. Equity Fund are available without any sales
charge through Lipper & Company, L.P., the Company's distributor (referred to
herein as "Lipper" or the "Distributor"), the Company's transfer agent and
certain investment dealers, banks and financial services firms that provide
distribution, administrative or shareholder services to the U.S. Equity Fund.

The Company is an open-end investment company that offers three diversified
no-load portfolios: the U.S. Equity Fund, Lipper High Income Bond Fund and Prime
Lipper Europe Equity Fund. Copies of the prospectuses for the Lipper High Income
Bond Fund and the Prime Lipper Europe Equity Fund may be obtained by writing or
calling the Distributor at the address and telephone number set forth above.

Lipper & Company, L.L.C., an affiliate of Lipper, serves as the investment
adviser to the U.S. Equity Fund (the "Adviser").

Continued on Page 2

March 25, 1998

<PAGE>

Continued from Cover

Shares of the U.S. Government Money Market Fund-Vista Shares(SM) are also
made available by the Distributor to qualified investors who are investors in
the U.S. Equity Fund. Further information regarding the U.S. Government Money
Market Fund-Vista Shares(SM) and its current prospectus may be obtained by
writing or calling the Distributor at the address and telephone number set forth
above.

This Prospectus sets forth concisely the information about the Company and
the U.S. Equity Fund that a prospective investor should know before investing
and it should be retained for future reference. Additional information about the
Company and the U.S. Equity Fund is contained in the Company's Statement of
Additional Information, dated March 25, 1998 (which may be amended or
supplemented from time to time), which is incorporated herein in its entirety by
reference. The Statement of Additional Information is available upon request and
without charge by writing or calling the Company at the address and telephone
number set forth above.

SHARES OF THE U.S. EQUITY FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. SHARES OF
THE U.S. EQUITY FUND INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.

<PAGE>

TABLE OF CONTENTS

PROSPECTUS SUMMARY........................................................... 4

EXPENSES..................................................................... 6

FINANCIAL HIGHLIGHTS......................................................... 8

INVESTMENT OBJECTIVE AND POLICIES............................................ 9

INVESTMENT LIMITATIONS....................................................... 13

RISK FACTORS AND SPECIAL CONSIDERATIONS...................................... 14

PURCHASE OF SHARES........................................................... 16

DISTRIBUTION AND SERVICE PLANS............................................... 18

REDEMPTION OF SHARES......................................................... 20

EXCHANGE PRIVILEGE........................................................... 22

VALUATION OF SHARES.......................................................... 23

MANAGEMENT OF THE COMPANY.................................................... 23

DIVIDENDS.................................................................... 26

TAXES........................................................................ 26

PERFORMANCE INFORMATION...................................................... 28

ADDITIONAL INFORMATION....................................................... 29

THE LIPPER FUNDS, INC. IS NOT ASSOCIATED WITH LIPPER ANALYTICAL SERVICES, INC.

<PAGE>

PROSPECTUS SUMMARY

THE COMPANY

The Company consists of three no-load portfolios and offers investors a
range of investment choices. The U.S. Equity Fund's investment objective is
capital appreciation, which it seeks to achieve by investing primarily in a
diversified portfolio of common stocks of issuers with market capitalization in
excess of $500 million believed to be selling below their inherent value based
on factors such as fundamental business and financial prospects, economic
forecasts, political factors and market conditions.

INVESTMENT ADVISER

Lipper & Company, L.L.C. serves as the investment adviser to the U.S.
Equity Fund. The Adviser is an affiliate of Lipper, the Fund's distributor. Each
of the Adviser's officers or employees involved in managing the U.S. Equity Fund
is also an employee of Lipper or one of its affiliates. Lipper is a privately
owned investment management and investment banking firm founded in 1987. At
December 31, 1997, Lipper and its affiliates managed assets having an aggregate
market value on a gross basis of approximately $4.5 billion on behalf of its
institutional and high net worth clients. Lipper offers complementary investment
strategies in intermediate term high yield bonds, hedged convertible securities,
investment grade bonds, U.S. and European large capitalization equities, U.S.
small capitalization equities, merger arbitrage and preferred stocks. See
"Management of the Company".

RISK FACTORS AND SPECIAL CONSIDERATIONS

Prospective investors should consider certain risks associated with an
investment in the U.S. Equity Fund. There is no assurance that the U.S. Equity
Fund will achieve its investment objective. The value of the U.S. Equity Fund's
investments, and thus the net asset value of each class of the Fund's shares,
can be expected to fluctuate in response to changes in market and economic
conditions, as well as the financial conditions and prospects of the issuers in
which the U.S. Equity Fund invests. The U.S. Equity Fund may use various
investment practices that involve special considerations, including investing in
illiquid securities, investing in foreign securities, and engaging in hedging
and derivatives, each of which involves special risks. See "Risk Factors and
Special Considerations".

HOW TO INVEST

Premier Shares, Retail Shares and Group Retirement Plan Shares of the U.S.
Equity Fund may be purchased without any sales charge at their next determined
net asset value through the Distributor, through certain investment dealers,
banks and financial services firms that provide distribution, administrative or
shareholder services to the Fund, or by mailing a purchase order directly to
Chase Global Funds Services Company, the Company's transfer agent (the "Transfer
Agent"). See "Purchase of Shares".

Premier Shares of the U.S. Equity Fund are offered for sale to purchasers
(other than purchasers eligible to purchase Group Retirement Plan Shares) who
invest a minimum of $1,000,000 in the Fund. The Company and the Distributor
reserve the right to waive or reduce the minimum initial investment with respect
to certain accounts.

Retail Shares of the U.S. Equity Fund are offered for sale to purchasers
who invest a minimum of $10,000 in the Fund ($2,000 with respect to Individual
Retirement Accounts). Retail Shares of the U.S. Equity Fund are subject to an
ongoing 12b-1 fee at an annual rate of up to 0.25% of their average daily net
assets. See "Distribution and Service Plans".

4
<PAGE>

Group Retirement Plan Shares of the U.S. Equity Fund are offered for sale
with no minimum investment requirement to retirement plans including, but not
limited to, qualified 401(k) plans. Group Retirement Plan Shares of the U.S.
Equity Fund are subject to a service fee of up to 0.25% of their average daily
net assets. See "Distribution and Service Plans". Investors should contact the
Distributor at the address and telephone number set forth on the cover of this
Prospectus for further information regarding the eligibility requirements for
Group Retirement Plan Shares.

The U.S. Equity Fund has established a subsequent investment minimum of
$2,500 for its Premier and Retail Shares. Individual Retirement Accounts are
subject to a $250 subsequent investment minimum. Group Retirement Plan Shares
are not subject to a subsequent investment minimum. The U.S. Equity Fund
reserves the right to vary any initial or subsequent investment minimum at any
time.

HOW TO REDEEM

Shares of each class may be redeemed at their net asset value next
determined after receipt of the redemption request. The redemption price may be
more or less than the purchase price. There is no deferred sales charge imposed
on redemptions. If an investor in Premier Shares or Retail Shares of the U.S.
Equity Fund reduces the value of his or her account to below $500,000, in the
case of Premier Shares, or $1,000, in the case of Retail Shares, such account
may be subject to redemption by the Fund, but only after the investor has been
given at least 30 days in which to increase his or her account balance to more
than such required minimum account balance. Investors in Group Retirement Plan
Shares are not subject to such a minimum account balance requirement. To the
extent that shares in an investor's account are redeemed by the U.S. Equity
Fund, the investor could reinvest in any class of shares of the Fund at a later
date provided that any eligibility requirements with respect to investing in the
Fund were met at such time. See "Redemption of Shares" and "Valuation of
Shares".

DIVIDENDS AND CAPITAL GAINS

The U.S. Equity Fund intends to distribute substantially all of its net
investment income, if any, in the form of annual dividends. The U.S. Equity Fund
intends to distribute its net capital gain, if any, at least annually.

Unless a shareholder in the U.S. Equity Fund instructs that dividend and
capital gain distributions be paid in cash, dividend and capital gain
distributions will be reinvested automatically in additional shares of the same
class of shares of the Fund at the net asset value of that class at the time of
reinvestment.

Dividends paid by each class of the U.S. Equity Fund's shares will be
calculated at the same time and in the same manner and will be in the same
amount, except that the expenses attributable solely to a particular class will
be borne exclusively by that class. Retail Shares and Group Retirement Plan
Shares of the U.S. Equity Fund will receive lower per share dividends than
Premier Shares because of the distribution and service fees borne by the Retail
and Group Retirement Plan Shares, respectively. See "Distribution and Service
Plans".

5
<PAGE>

EXPENSES

The U.S. Equity Fund offers multiple classes of shares. Each share of the
U.S. Equity Fund accrues income in the same manner, but certain expenses differ
based upon the class. The following tables are intended to assist investors in
understanding the various costs and expenses applicable to each class of shares
of the U.S. Equity Fund:

Shareholder Transaction Expenses U.S. Equity Fund
-------------------------------- ----------------
Maximum Sales Charge Imposed on Purchases None
Maximum Sales Charge Imposed on Reinvested Dividends None
Maximum Contingent Deferred Sales Charge None
Exchange Fees None
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
Investment Advisory Fees (after waiver)(1)
Premier Shares 0.19%
Retail Shares 0.19%
Group Retirement Plan Shares 0.19%
Administrative Fees
Premier Shares 0.20%
Retail Shares 0.20%
Group Retirement Plan Shares 0.20%
12b-1 Fees
Premier Shares None
Retail Shares 0.25%
Group Retirement Plan Shares None
Service Fees
Premier Shares None
Retail Shares None
Group Retirement Plan Shares 0.25%
Other Expenses(2)
Premier Shares 0.71%
Retail Shares 0.71%
Group Retirement Plan Shares 0.71%
----------------
Total Annual Operating Expenses
(after waiver)(3)
Premier Shares 1.10%
Retail Shares 1.35%
Group Retirement Plan Shares 1.35%

- ----------

(1) "Investment Advisory Fees" reflects voluntary waiver by the Adviser of
"Investment Advisory Fees" in excess of the amounts set forth in the table,
which voluntary waiver is limited to the extent of the Adviser's
investment advisory fee. The Adviser reserves the right to terminate any
voluntary waiver at any time in its sole discretion. Absent voluntary
waiver and based on actual expenses incurred during the 1997 fiscal year,
the ratio of "Investment Advisory Fees" to average daily net assets of the
U.S. Equity Fund would be 0.85% and 0.85% for Premier Shares, Retail Shares
and Group Retirement Shares, respectively.

(3) Absent voluntary waiver and based on actual expenses incurred during the
1997 fiscal year, the ratio of "Total Annual Operating Expenses" to average
daily net assets of the U.S. Equity Fund would be 1.76%, 2.01% and 2.01%
for Premier Shares, Retail Shares and Group Retirement Shares,
respectively.

6
<PAGE>

Based upon payment by the U.S. Equity Fund of operating expenses at the
levels set forth in the table above, the following example illustrates the
projected dollar amount of cumulative expenses an investor would pay on a $1,000
investment in the U.S. Equity Fund, assuming (1) a 5% annual rate of return and
(2) redemption at the end of each time period:

U.S. Equity Fund
----------------
Premier Shares
1 Year $ 11
3 Years $ 35
5 Years $ 61
10 Years $134

Retail Shares
1 Year $ 14
3 Years $ 43
5 Years $ 74
10 Years $162

Group Retirement Plan Shares
1 Year $ 14
3 Years $ 43
5 Years $ 74
10 Years $162

THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, THE U.S. EQUITY
FUND'S PERFORMANCE WILL VARY AND MAY RESULT IN A RETURN GREATER OR LESS THAN 5%.
THE ADVISER IN ITS DISCRETION MAY TERMINATE VOLUNTARY REIMBURSEMENTS AT ANY
TIME.

Certain investment dealers, banks and financial services firms may charge
their customers direct fees for effecting transactions in the U.S. Equity Fund's
shares; such fees are not reflected in the foregoing tables. See "Purchase of
Shares", "Redemption of Shares" and "Distribution and Service Plans".

<PAGE>

FINANCIAL HIGHLIGHTS

The following table provides selected per share data and ratios for the
Premier Shares, Retail Shares and Group Retirement Plan Shares for the period
ended December 31, 1996 and the year ended December 31, 1997, for the U.S.
Equity Fund. The information presented below has been audited by Price
Waterhouse LLP, the Company's independent accountants, whose unqualified opinion
thereon is included in the Annual Report, which is available upon request and
without charge. The following should be read in conjunction with the financial
statements including the notes thereto, which are also contained in the Annual
Report.

<TABLE>
<CAPTION>
U.S. EQUITY FUND

GROUP RETIREMENT
PREMIER SHARES RETAIL SHARES PLAN SHARES
-------------- ------------- -----------
January 1, January 2, January 1, January 4, January 1, January 4,
1997 to 1996** to 1997 to 1996*** to 1997 to 1996*** to
December December December December December December
31, 1997 31, 1996 31, 1997 31, 1996 31, 1997 31, 1996
-------- -------- -------- -------- -------- --------

<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.38 $10.00 $11.38 $10.00 $11.38 $10.00
------ ------ ------ ------ ------ ------

INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (1) 0.16 0.18 0.13 0.11 0.08 0.07
Net Realized and Unrealized Gain on Investments 1.96 1.81 1.95 1.86 2.00 1.91
------ ------ ------ ------ ------ ------
Total from Investment Operations 2.12 1.99 2.08 1.97 2.08 1.98
------ ------ ------ ------ ------ ------

DISTRIBUTIONS:
Net Investment Income (0.16) (0.19) (0.13) (0.17) (0.15) (0.18)
Net Realized Gain (1.30) (0.34) (1.30) (0.34) (1.30) (0.34)
In Excess of Realized Gain -- (0.08) -- (0.08) -- (0.08)
------ ------ ------ ------ ------ ------
Total Distributions (1.46) (0.61) (1.43) (0.59) (1.45) (0.60)
------ ------ ------ ------ ------ ------

NET ASSET VALUE, END OF PERIOD $12.04 $11.38 $12.03 $11.38 $12.01 $11.38
====== ====== ====== ====== ====== ======

TOTAL RETURN(2) 18.96% 19.81% 18.58% 19.62% 18.55% 19.69%
====== ====== ====== ====== ====== ======

RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $14,203 $15,098 $899 $613 $1,887 $452
Ratios After Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets 1.10% 1.10%* 1.35% 1.35%* 1.35% 1.35%*
Net Investment Income to Average Net Assets 1.24% 1.68%* 0.96% 1.31%* 0.89% 1.29%*
Ratios Before Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets 1.76% 2.28%* 2.01% 2.75%* 2.01% 2.39%*
Net Investment Income to Average Net Assets 0.58% 0.50%* 0.30% (0.09)%* 0.25% 0.25%*
Portfolio Turnover Rate 145% 117% 145% 117% 145% 117%
Average Broker Commission Rate $0.0342 $0.0445 $0.0342 $0.0445 $0.0342 $0.0445

</TABLE>
- ----------

* Annualized.

** Commencement of Fund operations.

*** Initial offering of shares by the Fund.

(1) The effect to net investment income per share of voluntarily waived fees
and reimbursed expenses was:

Year Ended Period Ended
December 31, 1997 December 31, 1996
----------------- -----------------
Premier Shares $0.08 $0.13
Retail Shares $0.09 $0.12
Group Retirement Plan Shares $0.06 $0.06

<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the U.S. Equity Fund is described below,
together with the policies it employs in seeking to achieve its objective. There
is no assurance that the Fund will attain its objective. The U.S. Equity Fund's
investment objective and the investment policies described below are not
fundamental and may be changed by the Company's Board of Directors without
shareholder approval. In addition to the investment policies described below,
the Adviser may utilize certain investment strategies and techniques in managing
the U.S. Equity Fund, as described below under "Other Investments and Investment
Strategies".

The U.S. Equity Fund's investment objective is capital appreciation. The
Fund seeks to achieve its investment objective by investing primarily in a
diversified portfolio of common stocks of issuers with market capitalization in
excess of $500 million which the Adviser believes are selling below their
inherent value based on factors such as fundamental business and financial
prospects, economic forecasts, political factors and market conditions. Under
normal market conditions, at least 65% of the U.S. Equity Fund's total assets
will be invested in common stocks issued by U.S. issuers with market
capitalization in excess of $500 million. The portion of the U.S. Equity Fund's
assets not invested in common stocks of U.S. issuers with market capitalization
in excess of $500 million may be invested in preferred stock, convertible
securities, rights and warrants, depositary receipts, Temporary Investments as
described below, and in common stocks of U.S. issuers with market capitalization
of $500 million or less. Issuers with smaller market capitalizations are subject
to a greater degree of changes in earnings and business prospects than larger,
more established companies. In addition, securities of smaller capitalization
companies are traded in lower volume than are those issued by larger companies
and are more volatile than those of larger companies. Up to 15% of the U.S.
Equity Fund's total assets may be invested in equity securities issued by
non-U.S. issuers and depositary receipts with respect to such securities. See
"Risk Factors and Special Considerations-Risk of Investments in Foreign
Securities".

Although the U.S. Equity Fund's portfolio is expected to be comprised
primarily of securities that are publicly traded and registered under the
Securities Act of 1933, as amended (the "Securities Act"), and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the U.S. Equity Fund may
also from time to time invest in securities for which a public market does not
exist or whose transfer will be restricted under the Securities Act. See "Other
Investments and Investment Strategies-Illiquid Securities".

In managing the U.S. Equity Fund, the Adviser utilizes a value-oriented,
"bottom-up" investment approach, focusing on attractive valuations relative to
earnings growth and business prospects. The Adviser attempts to structure a
portfolio of stocks whose average 5-year estimated earnings per share growth
rate is higher than that of the S&P 500 Index, which the Adviser considers to be
the U.S. Equity Fund's benchmark, and whose average price-to-earnings ratio is
below that of the Index. Emphasis is placed on industries undergoing fundamental
or secular changes which the Adviser believes will ultimately lead to improved
earnings growth. Through fundamental research the Adviser establishes a "fair
value" for portfolio holdings and actively trades selected holdings around their
established "fair value" to improve returns. In addition, the Adviser may employ
a "Buy-Write" strategy for equity securities which are trading within a range
which the Adviser believes already reflects a fair value for such securities.
Under such circumstances, the U.S. Equity Fund may write a call option in an
amount up to the number of shares of the underlying security it has purchased,
thereby generating income from the sale of the call option. This strategy is
intended to both enhance the U.S. Equity Fund's returns and reduce some of its
risk by lowering the break-even point of the U.S. Equity Fund's individual
underlying security position. A "Buy-Write" strategy is generally considered
more conservative than an outright purchase of the underlying security, but
limits potential capital gains by the sale of the call option. For a discussion
of the U.S. Equity Fund's use of call options and other hedging and derivatives
transactions, see "Other Investments and Investment Strategies-Hedging and
Derivatives"

9
<PAGE>

below and "Investment Objectives and Policies-Additional Information on
Portfolio Instruments and Certain Investment Strategies" in the Statement of
Additional Information.

TEMPORARY INVESTMENTS

For temporary defensive purposes, the U.S. Equity Fund may vary from its
investment objective and may invest, without limit (except for the limitations
described under "Investment Limitations"), in cash and/or certain high quality
short-term debt instruments described below. The U.S. Equity Fund may also at
any time invest its assets in such instruments for cash management purposes,
pending investment in accordance with the Fund's investment objective and
policies and to meet operating expenses.

The short-term debt instruments in which the U.S. Equity Fund may invest
include obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Securities"); obligations issued or
guaranteed by other governments or one of their agencies or instrumentalities;
obligations issued or guaranteed by international organizations designed or
supported by multiple foreign government entities to promote economic
reconstruction or development; bank obligations, such as certificates of
deposit, time deposits and bankers' acceptances; corporate debt obligations,
including commercial paper; and repurchase agreements. To be eligible for
investment under the circumstances described above, such instruments (other than
U.S. Government Securities) must be issued by an issuer having a short-term debt
rating of A-1 or better by S&P, a rating of Prime-1 by Moody's, a comparable
rating from another nationally recognized statistical rating organization or, if
unrated, deemed to be of equivalent quality by the Adviser.

OTHER INVESTMENTS AND INVESTMENT STRATEGIES

DEPOSITARY RECEIPTS. The U.S. Equity Fund may invest in Depositary
Receipts. American Depositary Receipts ("ADRs"), Global Depositary Receipts
("GDRs"), European Depositary Receipts ("EDRs") and other types of depositary
receipts (which, together with ADRs, GDRs, and EDRs, are collectively referred
to as "Depositary Receipts") evidence ownership of underlying securities issued
by either a non-U.S. or a U.S. corporation that have been deposited with a
depository or custodian bank. Depositary Receipts may be issued in connection
with an offering of securities by the issuer of the underlying securities or
issued by a depository bank as a vehicle to promote investment and trading in
the underlying securities. ADRs are receipts issued by U.S. banks or trust
companies in respect of securities of non-U.S. issuers held on deposit for use
in the U.S. securities markets. GDRs, EDRs and other types of Depositary
Receipts are typically issued by a U.S. bank or trust company and traded
principally in the U.S. and other international markets. The U.S. Equity Fund
will treat Depositary Receipts as interests in the underlying securities for
purposes of its investment policies. While Depositary Receipts may not
necessarily be denominated in the same currency as the securities into which
they may be converted, they entail certain of the risks associated with
investments in foreign securities. See "Risk Factors and Special
Considerations-Risk of Investments in Foreign Securities". The U.S. Equity Fund
will limit its investment in Depositary Receipts not sponsored by the issuer of
the underlying securities to no more than 5% of the value of its net assets (at
the time of investment). See the Statement of Additional Information for certain
risks related to unsponsored Depositary Receipts.

CONVERTIBLE SECURITIES. The U.S. Equity Fund may invest in convertible
securities, which are bonds, debentures, notes, preferred stocks or other
securities that may be converted into or exchanged for a prescribed amount of
equity securities (generally common stock) of the same or a different issuer
within a particular period of time at a specified price or formula. Convertible
securities have general characteristics similar to both fixed income and equity
securities. Although to a lesser extent than with fixed income securities
generally, the market value of convertible securities tends to decline as
interest rates increase and, conversely, tends to increase as interest rates
decline. In addition, because of the conversion feature, the market value of
convertible securities tends to vary with fluctuations in the market value of
the underlying

10
<PAGE>

security and therefore also will react to variations in the general market for
equity securities. While no securities investments are without risk, investments
in convertible securities generally entail less risk than investments in common
stock of the same issuer.

WARRANTS. The U.S. Equity Fund may invest in warrants, which are securities
permitting, but not obligating, their holder to subscribe for other securities.
Warrants do not carry with them the right to dividends or voting rights with
respect to the securities that they entitle their holder to purchase, and they
do not represent any rights in the assets of the issuer. As a result, an
investment in warrants may be considered speculative. In addition, the value of
a warrant does not necessarily change with the value of the underlying security
and a warrant ceases to have value if it is not exercised prior to its
expiration date.

ILLIQUID SECURITIES. The U.S. Equity Fund will not invest more than 15% of
the value of its total assets in illiquid securities. Illiquid securities are
securities which may not be sold or disposed of in the ordinary course of
business within seven days at approximately the value at which the U.S. Equity
Fund has valued the investments. Illiquid securities include securities with
legal or contractual restrictions on resale, time deposits, repurchase
agreements having maturities longer than seven days and securities that do not
have readily available market quotations and may involve the risk that the Fund
may be unable to sell such a security at the desired time. The price at which
the U.S. Equity Fund values these securities could be less than that originally
paid by the Fund or less than that which may be considered the fair value of the
securities. In addition, the U.S. Equity Fund may invest in securities that are
sold in private placement transactions between their issuers and their
purchasers and that are neither listed on an exchange nor traded
over-the-counter. These factors may have an adverse effect on the U.S. Equity
Fund's ability to dispose of particular securities and may limit the Fund's
ability to obtain accurate market quotations for purposes of valuing securities
and calculating net asset value and to sell securities at fair value. If any
privately placed securities held by the Fund are required to be registered under
the securities laws of one or more jurisdictions before being resold, the U.S.
Equity Fund may be required to bear the expenses of registration. The U.S.
Equity Fund may also purchase securities that are not registered under the
Securities Act but which can be sold to qualified institutional buyers in
accordance with Rule 144A under the Securities Act ("Rule 144A securities").
Rule 144A securities generally must be sold to other qualified institutional
buyers. The U.S. Equity Fund may also invest in commercial obligations issued in
reliance on the so-called "private placement" exemption from registration
afforded by Section 4(2) of the Securities Act ("Section 4(2) paper"). Section
4(2) paper is restricted as to disposition under the federal securities laws,
and generally is sold to institutional investors such as the U.S. Equity Fund
who agree that they are purchasing the paper for investment and not with a view
to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) paper normally is resold to other institutional
investors like the U.S. Equity Fund through or with the assistance of the issuer
or investment dealers who make a market in the Section 4(2) paper, thus
providing liquidity. If a particular investment in Rule 144A securities, Section
4(2) paper or private placement securities is not determined to be liquid, that
investment will be included within the 15% limitation on investment in illiquid
securities. The ability to sell Rule 144A securities to qualified institutional
buyers is a relatively recent development and it is not possible to predict how
this market will mature. The Adviser will monitor the liquidity of such
restricted securities under the supervision of the Board of Directors of the
Company. See "Investment Objective and Policies-Additional Information on
Portfolio Instruments and Certain Investment Strategies-Illiquid and Restricted
Securities" in the Statement of Additional Information.

PREFERRED STOCK. The U.S. Equity Fund may invest in preferred stocks.
Generally, preferred stocks are non-voting shares of a corporation which pay a
fixed or variable stream of dividends. Preferred stock has a preference over
common stock in liquidation and generally in dividends as well, but is
subordinated to the liabilities of the issuer in all respects. Preferred stock
may or may not be convertible into common stock. As a general rule, the market
value of preferred stock with a fixed

11
<PAGE>

dividend rate and no conversion element varies inversely with interest rates and
perceived credit risk. Because preferred stock is junior to debt securities and
other obligations of the issuer, deterioration in the credit quality of the
issuer will cause greater changes in the value of a preferred stock than in a
more senior debt security with similar stated yield characteristics.

REPURCHASE AGREEMENTS. The U.S. Equity Fund may purchase instruments from
financial institutions, such as banks and broker-dealers, subject to the
seller's agreement to repurchase them at an agreed upon time and price
("repurchase agreements"). The U.S. Equity Fund would enter into repurchase
agreements to generate additional income. The seller under a repurchase
agreement will be required to maintain the value of the securities subject to
the agreement at not less than the repurchase price. Default by the seller
would, however, expose the U.S. Equity Fund to possible loss because of adverse
market action or delay in connection with the disposition of the underlying
obligations.

OTHER INVESTMENT FUNDS. The U.S. Equity Fund may invest in the securities
of other investment funds to the extent permitted by the Investment Company Act
of 1940, as amended (the "1940 Act"). Under the 1940 Act, the U.S. Equity Fund
as a general rule may invest up to 10% of its total assets in shares of other
investment funds and up to 5% of its total assets in any one investment fund,
provided that the investment does not represent more than 3% of the voting stock
of the acquired investment fund. By investing in another investment fund, the
U.S. Equity Fund bears a ratable share of the other investment fund's expenses,
as well as continuing to bear the Fund's advisory and administrative fees with
respect to the amount of the investment. In addition, the U.S. Equity Fund may,
in the future, seek to achieve its investment objective through the adoption of
a "master-feeder" structure pursuant to which the Fund would invest all of its
assets in a no-load, open-end management investment company having the same
investment objective and policies and substantially the same investment
restrictions as those applicable to the Fund, as described below under
"Investment Limitations".

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The U.S. Equity Fund may
purchase securities on a "when-issued" or delayed delivery basis. When-issued
and delayed delivery securities are securities purchased for delivery beyond the
normal settlement date at a stated price. The U.S. Equity Fund will generally
not pay for such securities or start earning income on them until they are
received. Fixed income securities purchased on a when-issued or delayed delivery
basis are recorded as an asset and are subject to changes in value based, among
other factors, upon changes in the general level of interest rates. The U.S.
Equity Fund will make commitments to purchase when-issued or delayed delivery
securities with the intention of actually acquiring the securities, but may sell
them before the settlement date if it is deemed advisable. When the U.S. Equity
Fund purchases securities on a when-issued or delayed delivery basis, it will
set aside securities or cash with its custodian equal to the payment that will
be due.

BORROWING. The U.S. Equity Fund may borrow only from banks or by entering
into reverse repurchase agreements, in aggregate amounts not to exceed 33 1/3 %
of its total assets (including the amount borrowed) less its liabilities
(excluding the amount borrowed), and only for temporary or emergency purposes.
Bank borrowings may be from U.S. or foreign banks and may be secured or
unsecured. The U.S. Equity Fund may also borrow by entering into reverse
repurchase agreements, pursuant to which it would sell portfolio securities to
financial institutions, such as banks and broker-dealers, and agree to
repurchase them at an agreed upon date and price. The U.S. Equity Fund would
also consider entering into reverse repurchase agreements to avoid otherwise
selling securities during unfavorable market conditions to meet redemptions.
Reverse repurchase agreements involve the risk that the market value of the
portfolio securities sold by the U.S. Equity Fund may decline below the price at
which the U.S. Equity Fund is obligated to repurchase such securities.

LOANS OF FUND SECURITIES. The U.S. Equity Fund may lend its portfolio
securities consistent with its investment policies, in order to generate
additional income. The U.S. Equity Fund may lend portfolio securities against
collateral, consisting of cash or securities which are consistent with its
permitted investments, which is equal at all times to at least 100% of the value
of the securities loaned. There is no limitation on the amount of securities
that may be loaned. Such loans

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<PAGE>

would involve risks of delay in receiving additional collateral or in recovering
the securities loaned or even loss of rights in the collateral should the
borrower of the securities fail financially. However, loans will be made only to
borrowers deemed by the Adviser to be of good standing and only when, in the
judgment of the Adviser, the income to be earned from the loans justifies the
attendant risks.

SHORT SALES. The U.S. Equity Fund may make short sales of securities
"against the box". A short sale is a transaction in which the U.S. Equity Fund
sells a security it does not own in anticipation that the market price of that
security will decline. In a short sale "against the box", at the time of sale
the U.S. Equity Fund owns or has the immediate and unconditional right to
acquire the identical security. Short sales against the box are a form of
hedging to offset potential declines in long positions in similar securities.

HEDGING AND DERIVATIVES. The U.S. Equity Fund is authorized to use various
hedging and investment strategies described below to hedge market risks (such as
broad or specific market movements and interest rates or other factors relevant
to the Fund's investments, such as rates of inflation), or to seek to increase
the Fund's income or capital appreciation. Over time, techniques and instruments
may change as new instruments and strategies are developed or regulatory changes
occur. Limitations on the portion of the U.S. Equity Fund's assets that may be
used in connection with the investment strategies described below appear in the
Statement of Additional Information.

Subject to the constraints described above, the U.S. Equity Fund may
purchase and sell (or write) exchange listed and over-the-counter put and call
options on securities, securities indices, currencies and other financial
instruments and enter into currency forward contracts (collectively, these
transactions are referred to in this Prospectus as "Derivatives"). The U.S.
Equity Fund will not engage in transactions in futures or options on futures.

Derivatives may be used to attempt to protect against possible changes in
the market value of securities held in or to be purchased by the U.S. Equity
Fund resulting from securities markets or currency exchange rate fluctuations,
to protect the Fund's unrealized gains in the value of its securities, to
facilitate the sale of those securities for investment purposes, to establish a
position in the derivatives markets as a substitute for purchasing or selling
particular securities or to seek to enhance the Fund's income or gain. The U.S.
Equity Fund may use any or all types of the above-described Derivatives at any
time; no particular strategy will dictate the use of one type of transaction
rather than another, as use of any authorized Derivative will be a function of
numerous variables, including market conditions. The ability of the U.S. Equity
Fund to utilize Derivatives successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. These skills are
different from those needed to select securities. The use of Derivatives in
certain circumstances will require the U.S. Equity Fund to segregate cash or
other liquid assets to the extent the Fund's obligations are not otherwise
"covered" through ownership of the underlying security or financial instrument.
See "Risk Factors and Special Considerations-Other Investments and Investment
Strategies".

The degree of the U.S. Equity Fund's use of Derivatives may be limited by
certain provisions of the Internal Revenue Code of 1986, as amended (the
"Code"). See "Taxes".

INVESTMENT LIMITATIONS

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<PAGE>

Board of Directors without shareholder approval at any time. The percentage
limitations set forth below, as well as those contained elsewhere in this
Prospectus and the Statement of Additional Information, apply at the time a
transaction is effected. Subsequent changes in a percentage resulting from
market fluctuations or any other cause other than a direct action by the U.S.
Equity Fund will not require the Fund to dispose of its securities or to take
other action to satisfy the percentage limitation. If there is a change in the
investment objective of the U.S. Equity Fund, shareholders of the Fund should
consider whether the Fund remains an appropriate investment for them in light of
their then current financial position and needs. (A complete list of the U.S.
Equity Fund's investment limitations that cannot be changed without a vote of
shareholders is contained in the Statement of Additional Information under
"Investment Limitations".)

The U.S. Equity Fund may not purchase the securities of any one issuer if
as a result of such purchase more than 5% of the value of its total assets would
be invested in the securities of such issuer, except that up to 25% of the value
of the Fund's total assets may be invested without regard to this 5% limitation;
provided that there is no limitation with respect to investments in U.S.
Government Securities; and provided further, that the Fund may invest all or
substantially all of its assets in another registered investment company having
the same investment objective and policies and substantially the same investment
restrictions as those with respect to the Fund.

The U.S. Equity Fund may not borrow money, except that the Fund may borrow
money from banks or enter into reverse repurchase agreements, in each case for
temporary or emergency purposes only (not for leveraging or investment), in
aggregate amounts not exceeding 33 1/3% (including the amount borrowed) of the
value of its total assets at the time of such borrowing. For purposes of the
foregoing investment limitation, the term "total assets" shall be calculated
after giving effect to the net proceeds of any borrowings and reduced by any
liabilities and indebtedness other than such borrowings. Additional investments
will not be made by the U.S. Equity Fund, including interests in another
registered investment company, when borrowings exceed 5% of total net assets.

The U.S. Equity Fund may not purchase any securities which would cause 25%
or more of the value of its total assets at the time of such purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry; provided that there is no limitation
with respect to investments in U.S. Government Securities; and provided further,
that the Fund may invest all or substantially all of its assets in another
registered investment company having the same investment objective and policies
and substantially the same investment restrictions as those with respect to the
Fund. The U.S. Equity Fund would invest all or substantially all of its assets
in another registered investment company in connection with the adoption by the
Company of a "master-feeder" structure.

The U.S. Equity Fund may, in the future, seek to achieve its investment
objective by investing all of its assets in a no-load, open-end management
investment company having the same investment objective and policies and
substantially the same investment restrictions as those applicable to the U.S.
Equity Fund. In such event, the U.S. Equity Fund's investment advisory agreement
would be terminated since the investment management would be performed by or on
behalf of such other investment company.

RISK FACTORS AND SPECIAL CONSIDERATIONS

NET ASSET VALUE FLUCTUATION

The U.S. Equity Fund's net asset value, and hence the value of its shares,
will fluctuate, reflecting fluctuations in the market value of its portfolio
positions. Factors affecting the value of the U.S. Equity Fund's securities
include, among other things, (1) social, economic or political factors, (2)
factors affecting the industry in which a particular issuer operates, such as
competition or technological advances, and (3) factors affecting an issuer
directly, such as management changes, labor

14
<PAGE>

relations, collapse of key suppliers or customers, or material changes in
overhead. There is no assurance that the U.S. Equity Fund will achieve its
investment objective.

RISKS OF INVESTMENT IN FOREIGN SECURITIES

The U.S. Equity Fund will from time to time invest in securities of foreign
corporate and government issuers. Securities of non-U.S. issuers may trade in
U.S. or foreign securities markets. Securities of non-U.S. issuers involve
certain considerations and risks not typically associated with investing in
securities of U.S. companies or the U.S. Government, including uncertainties
regarding future social, political and economic developments, the possible
imposition of foreign withholding taxes on dividend income payable on securities
held by the U.S. Equity Fund, the possible seizure or nationalization of foreign
assets and the possible establishment of foreign government laws or restrictions
that might adversely affect the payment of interest on equity securities held by
the Fund. Because the U.S. Equity Fund may invest in the securities of foreign
issuers denominated in foreign currencies, the strength or weakness of the U.S.
dollar against such foreign currencies will account for part of the Fund's
investment performance. A decline in the value of any particular currency
against the U.S. dollar will cause a decline in the U.S. dollar value of the
U.S. Equity Fund's holdings of securities denominated in such currency and,
therefore, will cause an overall decline in the Fund's net asset value and any
net investment income and capital gains to be distributed in U.S. dollars to
shareholders of the Fund. Foreign securities markets may have substantially less
volume and may be smaller, less liquid and subject to greater price volatility
than U.S. markets. Delays or problems with settlement in foreign markets could
affect the liquidity of the U.S. Equity Fund's foreign investments and adversely
affect performance. Investment in foreign securities also may result in higher
brokerage and other costs and the imposition of transfer taxes or transaction
charges. Investment by the U.S. Equity Fund in non-U.S. issuers may be
restricted or controlled to varying degrees. These restrictions may limit or
preclude investment in certain issuers or countries and may increase the costs
and expenses of the Fund. In addition, the repatriation of both investment
income and capital from some countries requires governmental approval and if
there is a deterioration in a country's balance of payments or for other
reasons, a country may impose temporary restrictions on foreign capital
remittances abroad. Even where there is no outright restriction on repatriation
of capital, the mechanics of repatriation may affect certain aspects of the
operation of the U.S. Equity Fund. The U.S. Equity Fund could be adversely
affected by delays in, or a refusal to grant any required governmental approval
for repatriation of capital, as well as by the application to the Fund of any
restrictions on investments. In addition, there may be less publicly available
information about a non-U.S. issuer than about a U.S. issuer, and non-U.S.
issuers may not be subject to the same accounting, auditing and financial
recordkeeping standards and requirements as U.S. issuers. Finally, in the event
of a default in any such foreign obligations, it may be more difficult for the
U.S. Equity Fund to obtain or enforce a judgment against the issuers of such
securities.

OTHER INVESTMENTS, INVESTMENT POLICIES AND INVESTMENT STRATEGIES; PRIOR HISTORY

Certain risks and special considerations of certain of the investment
practices in which the U.S. Equity Fund may engage are described above under
"Investment Objectives and Policies-Other Investments and Investment
Strategies".

Derivatives involve special risks, including possible default by the other
party to the transaction, illiquidity and, to the extent the Adviser's view as
to certain market movements is incorrect, the risk that the use of Derivatives
could result in greater losses than if they had not been used. Use of put and
call options could result in losses to the U.S. Equity Fund, force the purchase
or sale of portfolio securities at inopportune times or for prices higher or
lower than current market values, or cause the Fund to hold a security it might
otherwise not purchase or sell. The use of currency transactions could result in
the U.S. Equity Fund's incurring losses as a result of the imposition of
exchange controls or the inability to deliver or receive a specified currency in
addition to exchange rate fluctuations. Losses resulting from the use of
Derivatives will reduce the

15
<PAGE>

U.S. Equity Fund's net asset value, and possibly income, and the losses may be
greater than if Derivatives had not been used. Additional information regarding
the risks and special considerations associated with Derivatives appears in the
Statement of Additional Information.

PURCHASE OF SHARES

Shares of each class of the U.S. Equity Fund may be purchased without any
sales charge through the Distributor, through certain investment dealers, banks
and financial services firms that provide distribution, administrative or
shareholder services to the Fund ("Participating Dealers"), or by mailing a
purchase order directly to the Transfer Agent, at their net asset value next
determined after the purchase order is received. The Distributor and
Participating Dealers are responsible for forwarding orders they receive to the
Transfer Agent by the applicable times described below on the same day as their
receipt of the orders to permit purchase of shares as described above, and their
failure to do so will result in investors not receiving that day's net asset
value. See "Valuation of Shares".

Group Retirement Plan Shares of the U.S. Equity Fund are offered for sale
with no minimum investment requirement to retirement plans, including, but not
limited to, qualified 401(k) plans. Group Retirement Plan Shares of the U.S.
Equity Fund are subject to a service fee of up to 0.25% of their average daily
net assets. See "Distribution and Service Plans". Investors should contact the
Distributor at the address and telephone number set forth on the cover of this
Prospectus for further information regarding the eligibility requirements for
Group Retirement Plan Shares.

The U.S. Equity Fund has established a subsequent investment minimum of
$2,500 for its Premier and Retail Shares. Individual Retirement Accounts are
subject to a $250 subsequent investment minimum. Group Retirement Plan Shares
are not subject to any subsequent investment minimum. The U.S. Equity Fund
reserves the right to vary any initial or subsequent investment minimum at any
time.

Purchase orders received by the Distributor or a Participating Dealer and
transmitted to the Transfer Agent prior to the close of regular trading on the
New York Stock Exchange, Inc. (the "NYSE"), generally 4:00 p.m., New York time,
on any day net asset value is calculated are priced according to the net asset
value of the purchased class of shares determined on that day. Purchase orders
received by the Transfer Agent after the close of regular trading on the NYSE
are priced as of the time the net asset value per share of the relevant class is
next determined. See "Valuation of Shares". Payment is generally due to the
Distributor or a Participating Dealer on the third business day (the "Settlement
Date") after the trade date. Investors who make payment prior to a Settlement
Date may permit the payment to be held in their brokerage accounts or may
designate a temporary investment for such payment until the Settlement Date. The
U.S. Equity Fund reserves the right to reject any purchase order and to suspend
the offering of its shares for a period of time.

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<PAGE>

INITIAL INVESTMENTS BY MAIL

Shares of the U.S. Equity Fund may be purchased by completing and signing
an account application and mailing it, together with a check payable to "The
Lipper Funds, Inc.", to:

The Lipper Funds, Inc.
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798

Payment for the purchase of shares received by mail will be credited to an
investor's account at the net asset value per share of the purchased class of
shares of the U.S. Equity Fund next determined after receipt.

INITIAL INVESTMENT BY WIRE

Shares of the U.S. Equity Fund may also be purchased by wiring Federal
Funds to the Company's custodian (see instructions below). In order to insure
prompt crediting of the Federal Funds wire, it is important to follow these
steps:

(b) The investor must instruct his or her bank to wire the specified
amount to the Company's custodian as follows:

The Chase Manhattan Bank
New York, NY 10003
ABA # 0210-0002-1
DDA Acct. #910-2-753168
F/B/O The Lipper Funds, Inc.
Ref: Lipper U.S. Equity Fund
Account Number ______________
Account Name ________________

(c) The investor must forward a completed and signed account
application to the Transfer Agent, and mail a copy of the account
application (manually signed) to the Company at the address set forth above
under "Initial Investments by Mail" as soon as possible. It is important
that investors forward the account application to the Transfer Agent and
the Company in a timely manner, since shares of the U.S. Equity Fund will
not be redeemed, exchanged or transferred until the Transfer Agent receives
the shareholder's account application. Federal Funds purchases will be
accepted only on days on which both the NYSE and the Company's custodian
are open for business.

ADDITIONAL INVESTMENTS

An investor may add to his or her account by purchasing additional shares
of the same class of the U.S. Equity Fund's shares by mailing a check to the
Transfer Agent (payable to "The Lipper Funds, Inc.") at its address set forth
above under

17
<PAGE>

"Initial Investments by Mail" or by wiring funds to the Company's custodian
using the procedures set forth above under "Initial Investment by Wire". It is
important that the account number, account name, and the Fund's name and class
of shares to be purchased are specified on the check or wire to ensure proper
crediting to the investor's account.

OTHER PURCHASE INFORMATION

The U.S. Equity Fund reserves the right, in its sole discretion, to suspend
the offering of its shares or reject purchase orders when, in the judgment of
management, such suspension or rejection is in the best interests of the Fund.

As stated above, shares of the U.S. Equity Fund may be purchased by
customers of Participating Dealers. Participating Dealers may impose additional
or different conditions or other account fees on the purchase and redemption of
Fund shares. Each Participating Dealer is responsible for transmitting to its
customers a schedule of any such fees and information regarding any additional
or different conditions regarding purchases and redemptions. Shareholders who
are customers of Participating Dealers should consult their Participating Dealer
for information regarding these fees and conditions. Certain Participating
Dealers may receive compensation from the Company, the Distributor, the Adviser,
or any of the Adviser's affiliates. A salesperson and any other person entitled
to receive compensation for selling or servicing U.S. Equity Fund shares may
receive different compensation with respect to sales of one class of shares over
another.

Participating Dealers may enter confirmed purchase orders on behalf of
their customers. If you buy shares of the U.S. Equity Fund in this manner, your
Participating Dealer must transmit your investment order to the Transfer Agent
prior to 4:00 p.m. on a business day to receive the net asset value of the
purchased class determined on the same day. Participating Dealers are solely
responsible to their customers for the timely transmission of all purchase and
redemption requests, investment information, documentation and money.

DISTRIBUTION AND SERVICE PLANS

The Company's Board of Directors has adopted a distribution plan for the
Retail Shares of the U.S. Equity Fund pursuant to Rule 12b-1 under the 1940 Act
(the "Retail Distribution Plan"), and a shareholder servicing plan for the Group
Retirement Plan Shares of the U.S. Equity Fund (the "Group Retirement Servicing
Plan"). Potential investors should read this Prospectus in light of the terms
governing the agreement between their Participating Dealers and the Distributor.

RETAIL DISTRIBUTION PLAN

Under the Retail Distribution Plan, the U.S. Equity Fund, at the expense of
its Retail Shares, pays the Distributor for distributing the Fund's Retail
Shares at an annual rate of up to 0.25% of the value of the average daily net
assets of the Fund's Retail Shares. The Distributor may pay one or more
Participating Dealers a fee in respect of distribution of the U.S. Equity Fund's
Retail Shares. The Distributor determines the amounts, if any, to be paid to
Participating Dealers under the

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<PAGE>

Retail Distribution Plan and the basis on which such payments are made. The
Retail Distribution Plan also provides that the Adviser may pay Participating
Dealers out of its investment advisory fees, its past profits or any other
source available to the Adviser. From time to time, the Distributor may defer or
waive receipt of fees under the Retail Distribution Plan while retaining the
ability to be paid under the Retail Distribution Plan thereafter. The foregoing
fees payable under the Retail Distribution Plan are payable without regard to
actual expenses incurred.

GROUP RETIREMENT SERVICING PLAN

The Company intends to enter into servicing agreements pursuant to which
Participating Dealers and sometimes the Distributor will render certain support
services to their customers who are beneficial owners of Group Retirement Plan
Shares. Such services are intended to supplement the services provided by the
Company's administrator and Transfer Agent. Under the Group Retirement Servicing
Plan, the U.S. Equity Fund, at the expense of its Group Retirement Plan Shares,
may pay one or more Participating Dealers and/or the Distributor up to 0.25% (on
an annualized basis) of the value of the average daily net assets of the Fund's
Group Retirement Plan Shares for providing one or more of the following services
to such customers: establishing and maintaining accounts and records relating to
customers that invest in Group Retirement Plan Shares; processing dividend and
distribution payments from the U.S. Equity Fund on behalf of customers;
arranging for bank wires; providing subaccounting with respect to Group
Retirement Plan Shares beneficially owned by customers or the information
necessary for subaccounting; forwarding shareholder communications from the
U.S. Equity Fund (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to customers;
assisting in processing purchase, exchange and redemption requests from
customers and in placing such orders with the Company's service contractors;
assisting customers in changing dividend options, account designations and
addresses; providing customers with a service that invests the assets of their
accounts in Group Retirement Plan Shares pursuant to specific or pre-authorized
instructions; providing information periodically to customers showing their
positions in Group Retirement Plan Shares and integrating such statements with
those of other transactions and balances in customers' other accounts with the
Participating Dealer; responding to customer inquiries relating to the services
performed by the Participating Dealer or the Distributor; responding to customer
inquiries concerning their investments in Group Retirement Plan Shares; and
providing other similar shareholder liaison services. Fees payable under the
Group Retirement Servicing Plan are not paid to Participating Dealers or the
Distributor with respect to other classes of shares of the U.S. Equity Fund.
Investors who are or anticipate becoming beneficial owners of Group Retirement
Plan Shares should read this Prospectus in light of the terms and fees governing
their accounts with Participating Dealers.

OTHER

Banking laws and regulations, including the Glass-Steagall Act as currently
interpreted by the Board of Governors of the Federal Reserve System, prohibit
banks generally from issuing, underwriting, selling or distributing securities.
These laws do not prohibit banks from purchasing mutual fund shares as agent for
a customer. Accordingly, banks will be engaged to act as Participating Dealers
only to perform administrative and shareholder servicing functions. The Company
believes that banks, subject to banking laws and regulations, may perform such
administrative and shareholder servicing functions without violation of such
banking laws or regulations. However, future changes in legal requirements
relating to the permissible activities of banks and their affiliates, as well as
future interpretations of present requirements, could require banks to
discontinue providing such administrative and shareholder servicing functions.
If banks were required to discontinue providing all or a part of such functions,
alternative means for continuing the servicing of such customers would be
sought.

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<PAGE>

REDEMPTION OF SHARES

Shareholders may request redemption of their shares at any time. When a
redemption request is received in proper form, the U.S. Equity Fund will redeem
the shares at the next determined net asset value of the class of shares being
redeemed. The proceeds paid to a shareholder upon redemption may be more or less
than the amount invested depending upon the net asset value of the shares being
redeemed at the time of redemption. If a shareholder holds shares in more than
one class of the U.S. Equity Fund, any request for redemption must specify the
class of shares being redeemed. In the event of a failure to specify which
class, or if the investor owns fewer shares of a class than specified, the
redemption request will be delayed until the Transfer Agent receives further
instructions from the Distributor or a Participating Dealer, or if the
shareholder's account is not with the Distributor or a Participating Dealer,
from the shareholder directly.

The U.S. Equity Fund normally transmits redemption proceeds for credit to
the shareholder's account at the Distributor or a Participating Dealer at no
charge within seven days after receipt of a redemption request. Generally, these
funds will not be invested for the shareholder's benefit without specific
instruction, and the Distributor will benefit from the use of temporarily
uninvested funds. A shareholder who pays for shares by personal check will be
credited with the proceeds of a redemption of those shares only after the
purchase check has been collected, which may take up to 15 days or more. A
shareholder who anticipates the need for more immediate access to his or her
investment should purchase shares with Federal Funds, by bank wire or with a
certified or cashier's check. Shares will not be redeemed until the Transfer
Agent has received the shareholder's account application.

If an investor in Premier Shares or Retail Shares of the U.S. Equity Fund
reduces the value of his or her account to below $500,000, in the case of
Premier Shares, or $1,000, in the case of Retail Shares, such account may be
subject to redemption by the U.S. Equity Fund, but only after the investor has
been given at least 30 days in which to increase his or her account balance to
more than such required minimum account balance. Investors in Group Retirement
Plan Shares are not subject to such a minimum account balance requirement. To
the extent that shares in an investor's account are redeemed by the Fund, the
investor could reinvest in any class of shares of the Fund at a later date
provided that any eligibility requirements with respect to investing in the Fund
were met at such time. In addition, the U.S. Equity Fund may redeem shares
involuntarily or suspend the right of redemption as permitted under the 1940
Act, or under certain special circumstances described in the Statement of
Additional Information under "Additional Redemption Information".

Shares of the U.S. Equity Fund may be redeemed in one of the following
ways:

REDEMPTION THROUGH THE DISTRIBUTOR OR A PARTICIPATING DEALER

Redemption requests may be made through the Distributor or a Participating
Dealer. A shareholder desiring to redeem shares represented by certificates must
also present such certificates to the Distributor or a Participating Dealer
endorsed for transfer (or accompanied by an endorsed stock power), signed
exactly as the shares are registered. Redemption requests involving shares
represented by certificates will not be deemed received until such certificates
are received by the Transfer Agent in proper form. The Transfer Agent is located
at 73 Tremont Street, Boston, MA 02108.

REDEMPTION BY MAIL

Redemption requests also may be mailed to the Transfer Agent at the
following address:

The Lipper Funds, Inc.
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798

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<PAGE>

A mailed request to redeem shares must include the following:

(a) Stock certificates representing the shares redeemed, if issued;

(d) Other supporting legal documents in the case of estates, trusts,
guardianships, custodianships, corporations, pension and profit sharing
plans and other organizations.

Shareholders who are uncertain of the requirements for redemption should
call 1-800-LIPPER9.

SIGNATURE GUARANTEES

Signatures must be guaranteed by an "eligible guarantor institution" as
defined in Rule 17Ad-15 under the Exchange Act. Eligible guarantor institutions
include banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations.
A complete definition of eligible guarantor institutions is available from the
Transfer Agent. Broker-dealers guaranteeing signatures must be members of a
clearing corporation or maintain net capital of at least $100,000. Credit unions
must be authorized to issue signature guarantees. Signature guarantees will be
accepted from any eligible guarantor institution which participates in a
signature guarantee program.

REDEMPTION BY TELEPHONE

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the bank or account must be signed by each shareholder and each signature must
be guaranteed. An investor cannot redeem shares by telephone if he or she holds
stock certificates for the shares. Please contact 1-800-LIPPER9 for further
details.

REDEMPTION IN KIND

If the Board of Directors of the Company determines that it would be
detrimental to the best interests of the remaining shareholders of the U.S.
Equity Fund to make payment wholly or partly in cash, the Fund may pay
redemption proceeds in whole or in part by a distribution of readily marketable
securities held by the Fund in lieu of cash in conformity with applicable rules
of the Securities and Exchange Commission (the "SEC"). Investors may incur
brokerage charges on the sale of securities so received in payment of
redemptions.

EXCHANGE PRIVILEGE

The Exchange Privilege enables investors to purchase, in exchange for
shares of the U.S. Equity Fund, shares of certain other Funds of the Company, to
the extent such shares are offered for sale in the investor's state of residence
and the purchase meets the minimum investment and other eligibility requirements
of the Fund into which the investor is exchanging. If an investor desires to use
the Exchange Privilege, he or she should consult the Distributor or his or her
Participating Dealer to determine if it is available and whether any other
conditions are imposed on its use.

Before any exchange, an investor must obtain and should carefully review a
copy of the current prospectus of the Fund into which he or she wishes to
exchange.

Exchanges may be subject to limitations as to amounts or frequency, and to
other restrictions established by the Company's Board of Directors to assure
that exchanges do not disadvantage the Funds or their shareholders. Shares held
in a broker "street name" may not be exchanged by mail or telephone; an investor
must contact his or her Participating Dealer to exchange such shares. The
Company reserves the right to reject any exchange request in whole or in part.
The Exchange Privilege may be modified or terminated at any time upon notice to
shareholders.

The exchange of shares of the U.S. Equity Fund for shares of another Fund
is treated for federal income tax purposes as a sale of the shares given in
exchange by the shareholder and, therefore, an exchanging shareholder may
realize a taxable gain or loss.

EXCHANGE BY MAIL

In order to exchange shares by mail, an investor must include in the exchange
request the name and account number for his or her current Fund, the class of
such Fund from which he or she wishes to exchange, the name of the Fund into
which he or she wishes to exchange, and the documents described in the
procedures set forth above under "Redemption of Shares-Redemption by Mail". The
request to exchange shares must be sent to:

The Lipper Funds, Inc.
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798

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<PAGE>

EXCHANGE BY TELEPHONE

TRANSFER OF REGISTRATION

An investor may transfer the registration of the U.S. Equity Fund shares to
another person by writing to the Transfer Agent at the address set forth above
under "Redemption of Shares-Redemption by Mail".

VALUATION OF SHARES

The net asset value per share of each class of shares of the U.S. Equity
Fund is calculated Monday through Friday, except on days on which the NYSE is
closed. Currently, the NYSE is closed on New Year's Day, Martin Luther King,
Jr.'s Birthday, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day (observed), Labor Day, Thanksgiving Day and Christmas Day.

The net asset value per share of each class of shares of the U.S. Equity
Fund is determined as of the close of regular trading on the NYSE, and is
computed by dividing the value of the net assets of the U.S. Equity Fund
attributable to that class by the total number of shares of that class
outstanding. Generally, the U.S. Equity Fund's investments are valued at market
value or, in the absence of a market value with respect to any securities, at
fair value as determined by or under the direction of the Company's Board of
Directors. Short-term investments that mature in 60 days or less are valued at
amortized cost whenever the Board of Directors determines that amortized cost
reflects the fair value of those investments. Occasionally, events which affect
the values of such securities may occur between the times at which they are
determined and the close of the NYSE and will therefore not be reflected in the
computation of the U.S. Equity Fund's net asset value. If events materially
affecting the value of such securities occur during such period, then these
securities will be valued at their fair value as determined in good faith by or
under procedures established by the Company's Board of Directors. Further
information regarding the Company's valuation policies is contained in the
Statement of Additional Information.

MANAGEMENT OF THE COMPANY

GENERAL

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Agent. The day-to-day operations of the Company are delegated to the Adviser and
to the Company's administrator. The Statement of Additional Information contains
general background information regarding each director and executive officer of
the Company.

INVESTMENT ADVISER

Lipper Company, L.L.C., located at 101 Park Avenue, New York, NY 10178,
serves as investment adviser to the U.S. Equity Fund. The Adviser is registered
as an investment adviser under the Investment Advisers Act of 1940, as amended
(the "Advisers Act").

The Adviser is an affiliate of Lipper, which acts as the U.S. Equity Fund's
distributor. Each of the Adviser's officers or employees involved in managing
the U.S. Equity Fund is also an officer or employee of Lipper or one of its
affiliates. Lipper is a privately owned investment management and investment
banking firm founded in 1987. At December 31, 1997, Lipper and its affiliates
managed assets having an aggregate market value on a gross basis of $4.5 billion
on behalf of its institutional and high net worth clients. Lipper offers
complementary investment strategies in intermediate term high yield bonds,
hedged convertible securities, investment grade bonds, U.S. and European large
capitalization equities, U.S. small capitalization equities, merger arbitrage
and preferred stocks. An affiliate of Lipper also serves as the general partner
to several investment limited partnerships organized in the U.S. or offshore.
Lipper is also registered as a broker-dealer with the SEC and the NASD.

Kenneth Lipper is the President of the Adviser and head of the Investment
Committee for the U.S. Equity Fund. Mr. Lipper has been President of Lipper
(together with its predecessor, Lipper & Company, Inc.) since 1986. Mr. Lipper
was a General Partner of Lehman Brothers Inc from 1969 to 1975 and a General
Partner and Managing Director of Salomon Brothers Inc from 1976 to 1982. He
subsequently served as Deputy Mayor of New York City from 1983 to 1985. Mr.
Lipper is the author of the novel "Wall Street" and the screenplay "City Hall".
He graduated from Columbia University and Harvard Law School and is a member of
the New York State Bar. As a specialist in corporate finance since 1969, Mr.
Lipper has held all levels of responsibility as an adviser to corporations in
mergers, tender offers, convertible issues, asset valuations and other
investment banking transactions. Since 1986, Mr. Lipper has supervised the
investment management and investment banking operations of Lipper. He is a
director of New Holland N.V., a trustee of the Rockefeller Brothers Fund, a
member of the Federal Reserve Bank of New York's International Advisory Board
and a Senior Financial Adviser to the New York City Council. Mr. Lipper also
serves on the Harvard Executive Committee on University Resources, and the
Visitor's Committee of the Kennedy School of Government at Harvard University.

Abraham Biderman is an Executive Vice President of the Adviser and of
Lipper. Mr. Biderman is also Co-Manager of Lipper Convertibles, L.P. ("Lipper
Convertibles"), an investment limited partnership under management by an
affiliate of Lipper and the Adviser. Mr. Biderman joined Lipper & Company, Inc.
in 1990. He was the Commissioner of the New York City Department of Housing,
Preservation and Development from 1988 to 1989, and in that capacity was
responsible for the largest housing development project in the United States. He
was the Commissioner of the New York City Department of Finance from 1986 to
1988, responsible for the collection of over $20 billion per year in tax and
other revenues. Mr. Biderman also served as a Special Advisor to former Mayor
Edward I. Koch from 1985 to 1987 and was an Assistant to then-Deputy Mayor
Kenneth Lipper from 1983 to 1985.

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<PAGE>

Michael Visovsky is a member of the Investment Committee for the U.S.
Equity Fund and is the Director of Research for Lipper. Mr. Visovsky is
responsible for all of the Adviser's and Lipper's research operations, and has
been responsible for research for the convertible arbitrage portfolio of Lipper
Convertibles since its inception in 1985. Previously, Mr. Visovsky was a
research analyst at Dean Witter Reynolds Inc. He received a law degree from
Brooklyn Law School and is a member of the New York State Bar. Mr. Visovsky
received his M.B.A. from New York University and his B.B.A. from Baruch College
(CUNY).

Nancy Friedman is a member of the Investment Committee for the U.S. Equity
Fund and is a Vice President in charge of equity research for Lipper. Ms.
Friedman joined Lipper in 1993. Prior to joining Lipper, she served as a
securities analyst at Lehman Brothers Inc. from 1985 to 1993. From 1982 to 1985,
Ms. Friedman worked for Merrill Lynch & Co. as a securities analyst in its
Capital Markets department. Ms. Friedman received her B.A. from Barnard College,
Columbia University and her M.B.A. from New York University.

Max Zentman is a member of the Investment Committee for the U.S. Equity
Fund and is a Vice President in charge of equity research for Lipper. Mr.
Zentman has over twenty-six years of equity research and investment management
experience. Prior to joining Lipper, Mr. Zentman served as Portfolio Manager at
Bethlehem Steel Pension Trust and Senior Equity Research Analyst, Woodbridge
Capital Management Division of Comerica Bank. Mr. Zentman also served as
Investment Officer and Research Analyst at Marine National Exchange Bank and
Investment Analyst at Manufacturers National Bank. Mr. Zentman graduated with a
B.S. in Finance and an M.A. in Economics from Wayne State University.

COMPENSATION

For its services under its investment advisory agreement with the Company
with respect to the U.S. Equity Fund, the Adviser is entitled to receive an
annual fee computed daily and paid monthly at the annual rate of 0.85%. From
time to time, the Adviser may voluntarily waive for a period of time all or a
portion of the fee to which it is entitled under its investment advisory
agreement with the Company with respect to the U.S. Equity Fund.

The investment advisory fees for the U.S. Equity Fund are higher than the
investment advisory fees paid by most investment companies, a universe of
companies which includes money market funds and other investment companies that
invest primarily in low risk instruments, and investment companies which are not
actively managed such as index funds. The Adviser believes, however, that such
fees are within the range of fees charged by investment advisers to investment
companies that have comparable investment objectives, policies and strategies to
those of the U.S. Equity Fund. The Adviser may from time to time pay certain
Participating Dealers out of its investment advisory fees, past profits or other
sources available to it for providing certain administrative services to its
customers. Such compensation does not represent an additional expense to the
U.S. Equity Fund or its shareholders.

DISTRIBUTOR

Lipper & Company, L.P., located at 101 Park Avenue, New York, NY 10178,
serves as the Company's distributor. The Distributor is entitled to receive an
annual distribution fee with respect to the U.S. Equity Fund's Retail Shares,
and may receive all or a portion of the annual service fee, if any, paid with
respect to the Fund's Group Retirement Plan Shares. See "Distribution and
Service Plans".

ADMINISTRATOR

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<PAGE>

Fund's shares and generally assists in all aspects of the Company's
administration and operation. As compensation for its services, the Company pays
the Administrator a monthly fee at the annual rate of 0.20% of the value of the
Company's average daily net assets up to and including $200 million; 0.10% of
the Company's average daily net assets in excess of $200 million up to and
including $400 million; and 0.05% of the Company's average daily net assets in
excess of $400 million. The Administrator is located at 73 Tremont Street,
Boston, MA 02108.

EXPENSES

The U.S. Equity Fund's expenses include taxes, interest, fees and salaries
of the Company's directors and officers who are not directors, officers or
employees of the Company's service contractors, SEC fees, state securities
qualification fees, costs of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders, advisory and
administration fees, charges of the custodian and of the transfer and dividend
disbursing agent, certain insurance premiums, outside auditing and legal
expenses, costs of shareholder reports and shareholder meetings and any
extraordinary expenses. The U.S. Equity Fund also pays for brokerage fees and
commissions (if any) in connection with the purchase and sale of portfolio
securities. The U.S. Equity Fund's expenses are allocated to a particular class
of its shares based on either expenses identifiable to such class or the
relative net assets of such class and the other classes of its shares.

DIVIDENDS

The policy of the U.S. Equity Fund is to distribute its net investment
income and net capital gain, if any. Shares of the U.S. Equity Fund begin
accruing dividends on the business day following the day a purchase order is
priced and continue to accrue dividends up to and including the day that such
shares are redeemed. Unless a shareholder instructs that dividends and capital
gains distributions on shares of a class be paid in cash and credited to the
shareholder's account at the Distributor or a Participating Dealer, dividends
and capital gains distributions will be reinvested automatically in additional
shares of the same class at the net asset value of that class at the time of
reinvestment.

The U.S. Equity Fund intends to distribute substantially all of its net
investment income to shareholders annually. The U.S. Equity Fund intends to
distribute net capital gain, if any, with the last dividend for the calendar
year.

Dividends paid by each class of the U.S. Equity Fund's shares will be
calculated at the same time and in the same manner and will be in the same
amount, except that the expenses attributable solely to a particular class will
be borne exclusively by that class. Shares subject to payments under the U.S.
Equity Fund's Distribution or Servicing Plan will receive lower per share
dividends than shares not subject to such payment because of the higher expenses
borne by such shares.

Each shareholder or its authorized representative will receive an annual
statement detailing the amount of any dividends and distributions made during
each year and their federal tax qualification.

TAXES

The U.S. Equity Fund intends to qualify and elect to be treated as a
regulated investment company for federal income tax purposes under Subchapter M
of the Code. If so qualified, the U.S. Equity Fund will not be subject to
federal income taxes on its net investment income (i.e., its investment company
taxable income, as that term is defined in the Code, determined without regard
to the deduction for dividends paid) and net capital gain (i.e., the excess of
its net realized long-term capital gain over its net realized short-term capital
loss), if any, that it distributes to its shareholders in each taxable year. To
qualify as a regulated investment company, the U.S. Equity Fund must, among
other things, distribute to its shareholders at least 90% of its net investment
income for such taxable year. However, the U.S. Equity Fund would be

26
<PAGE>

subject to federal corporate income tax (currently at a maximum rate of 35%) on
any undistributed net investment income or net capital gain. If in any year the
U.S. Equity Fund should fail to qualify as a regulated investment company, the
Fund would be subject to federal income tax in the same manner as an ordinary
corporation, and distributions to shareholders would be taxable to such holders
as ordinary income to the extent of the earnings and profits of the Fund.
Distributions in excess of earnings and profits will be treated as a tax-free
return of capital, to the extent of a holder's basis in its shares, and any
excess, as a long- or short-term capital gain.

The U.S. Equity Fund intends to distribute substantially all of its net
investment income each year. Such distributions, whether paid in cash or
reinvested in additional shares, of net investment income will be taxable as
ordinary income. Federal income taxes for distributions to an IRA or a qualified
retirement plan are deferred under the Code. A portion of such distributions may
qualify for the dividends-received deduction generally available for corporate
shareholders under the Code. Distributions to shareholders of net capital gain
that are designated by the U.S. Equity Fund as "capital gain dividends",
whether paid in cash or reinvested in additional shares, will be taxable as
long-term capital gain regardless of how long the shares have been held by such
shareholders. Under recently enacted legislation, the maximum rate of tax on
long-term capital gain of individuals will generally be reduced from 28% to 20%
(10% for gain otherwise taxed at 15%) for long-term capital gain realized with
respect to capital assets held for more than 18 months. Shareholders receiving
distributions in the form of additional shares will be treated for federal
income tax purposes as receiving a distribution in an amount equal to the fair
market value of the additional shares on the date of such a distribution.

Gain or loss, if any, recognized on the sale or other disposition of shares
of the U.S. Equity Fund will be taxed as capital gain or loss if the shares are
capital assets in the shareholder's hands. Generally, a shareholder's gain or
loss will be capital gain or loss and will be long-term capital gain or loss if
the shares were held for longer than one year. However, if a shareholder
disposes of a share of the U.S. Equity Fund before holding it for more than six
months, any loss on the sale or other disposition of such share shall be treated
as a long-term capital loss to the extent of any capital gain dividends received
by the shareholder with respect to such share. A loss realized on a sale or
exchange of shares may be disallowed if other shares of the U.S. Equity Fund are
acquired within a 61-day period beginning 30 days before and ending 30 days
after the date on which the shares are disposed.

Dividends and distributions by the U.S. Equity Fund are generally taxable
to the shareholders in the year of receipt. Any dividend or distribution
declared by the U.S. Equity Fund in October, November or December of any
calendar year, however, which is payable to shareholders of record on a
specified date in such a month and paid during January of the following year
will be treated as received by the shareholders as of December 31 of such year.

The U.S. Equity Fund may engage in hedging. See "Investment Objective and
Policies-Other Investments and Investment Strategies-Hedging and Derivatives".
Such transactions will be subject to special provisions of the Code that, among
other things, may affect the character of gains and losses realized by the U.S.
Equity Fund (that is, may affect whether gains or losses are ordinary or
capital), accelerate recognition of income to the U.S. Equity Fund and defer
recognition of certain of the U.S. Equity Fund's losses. These rules could
therefore affect the character, amount and timing of distributions to
shareholders. In addition, these provisions (1) will require the U.S. Equity
Fund to "mark-to-market" certain types of positions in its portfolio (that is,
treat them as if they were closed out) and (2) may cause the U.S. Equity Fund to
recognize income without receiving cash with which to pay dividends or make
distributions in amounts necessary to satisfy the distribution requirements for
avoiding income and excise taxes. The U.S. Equity Fund intends to monitor its
transactions, will make the appropriate tax elections and will make the
appropriate entries in its books and records when it acquires any forward
contracts, options or hedged investment in order to mitigate the effect of these
rules and prevent disqualification of the U.S. Equity Fund as a regulated
investment company.

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<PAGE>

The U.S. Equity Fund may be required to withhold federal income tax at a
rate of 31% ("backup withholding") from dividends and redemption proceeds paid
to non-corporate shareholders. This tax may be withheld from dividends if (1)
the shareholder fails to furnish the U.S. Equity Fund with the shareholder's
correct taxpayer identification number, (2) the Internal Revenue Service ("IRS")
notifies the U.S. Equity Fund that the shareholder has failed to report properly
certain interest and dividend income to the IRS and to respond to notices to
that effect, or (3) when required to do so, the shareholder fails to certify
that he or she is not subject to backup withholding.

Ordinary income dividends paid by the U.S. Equity Fund to shareholders who
are non-resident aliens or foreign entities will be subject to a 30% withholding
tax unless a reduced rate of withholding or a withholding exemption is provided
under applicable treaty law or the income is "effectively connected" with a U.S.
trade or business. Generally, subject to certain exceptions, capital gain
dividends paid to non-resident shareholders or foreign entities will not be
subject to U.S. tax. Non-resident shareholders are urged to consult their own
tax advisers concerning the applicability of the U.S. withholding tax.

If the U.S. Equity Fund invests in foreign securities, it may be
required to pay withholding or other taxes to foreign governments on dividends
and interest. Shareholders will bear the cost of any foreign taxes but may be
able to claim a foreign tax credit or deduction for these foreign taxes.

The foregoing discussion is only a brief summary of the important federal
tax considerations generally affecting the U.S. Equity Fund and its
shareholders. As noted above, IRAs and qualified retirement plans receive
special tax treatment. No attempt is made to present a detailed explanation of
the federal, state or local income tax treatment of the U.S. Equity Fund or its
shareholders, and this discussion is not intended as a substitute for careful
tax planning. Accordingly, potential investors in the U.S. Equity Fund should
consult their tax advisers with specific reference to their own tax situation.

PERFORMANCE INFORMATION

From time to time, the "total return", "yield" and "effective yield" of
each class of shares of the U.S. Equity Fund may be quoted in advertisements or
reports to shareholders. Total return figures show the average percentage change
in the value of an investment from the beginning date of the measuring period to
the end of the measuring period. These figures reflect changes in the price of
the U.S. Equity Fund's class of shares and assume that any income dividends
and/or capital gains distributions made by the Fund during the period were
reinvested. These figures also take into account the distribution fee payable
with respect to the U.S. Equity Fund's Retail Shares and the service fee, if
any, payable with respect to the Fund's Group Retirement Plan Shares. See
"Distribution and Service Plans".

Total return figures will be given for the recent one-, five- and ten-year
periods, if available, and may be given for other periods as well, such as on a
year-by-year basis. When considering average annual total return figures for
periods longer than one year, it is important to note that the total return for
any one year in the period might have been greater or less than the average for
the entire period. "Aggregate total return" figures may be used for various
periods, representing the cumulative change in value of an investment for the
specific period (again reflecting changes in prices and assuming reinvestment of
dividends and distributions). Aggregate total return may be shown by means of
schedules, charts or graphs and may indicate subtotals of the various components
of total return (that is, change in the value of initial investment, income
dividends and capital gains distributions). Because of the differences in
distribution and service fees and certain other expenses, the performance of
each of the classes of the U.S. Equity Fund will differ.

In reports or other communications to shareholders or in advertising
materials, performance of the U.S. Equity Fund may be compared with that of
other mutual funds or classes of shares of other mutual funds, as listed in the
rankings prepared by independent services that monitor the performance of mutual
funds, or other industry or financial publications

28
<PAGE>

such as Barron's, Business Week, CDA Investment Technologies, Inc., Changing
Times, Forbes, Fortune, Institutional Investor, Investors Business Daily, Money,
Morningstar Mutual Company Values, The New York Times, USA Today and The Wall
Street Journal. Performance figures are based on historical earnings and are not
intended to indicate future performance. The Statement of Additional Information
contains a further description of the methods used to determine performance.
Investors may contact the Distributor to obtain current performance figures.

The investment performance of the U.S. Equity Fund for various periods
through December 31, 1997 is illustrated below. Past performance of the U.S.
Equity Fund should not be considered as indicative of the U.S. Equity Fund's
future performance.

TOTAL RETURN

12 Months Ended Average Annual
December 31, 1997(1) Return Since Inception(2)
-------------------- -------------------------
U.S. EQUITY FUND
Premier Shares 18.96% 19.24%
Retail Shares 18.58% 19.15%
Group Retirement Plan Shares 18.55% 19.17%

- ----------

(1) Fee waivers and reimbursements were in effect for the U.S. Equity Fund
during 1996 and 1997 without which total returns would have been lower.

(2) The U.S. Equity Fund commenced investment operations on January 2, 1996.
The U.S. Equity Fund's Retail and Group Retirement Plan Shares were
introduced on January 4, 1996. Performance information for the Retail and
Group Retirement Plan Shares prior to their introduction dates reflects the
performance of the U.S. Equity fund's Premier Shares which are not subject
to shareholder servicing or distribution expenses borne by these classes of
shares.

ADDITIONAL INFORMATION

The Company was incorporated in Maryland on August 22, 1995. The authorized
capital stock of the Company consists of 10,000,000,000 shares having a par
value of $.001 per share. The Company's Charter currently authorizes the
issuance of three series of shares, one series corresponding to each of the U.S.
Equity Fund, Lipper High Income Bond Fund and Prime Lipper Europe Equity Fund,
and three classes of shares with respect to each series, Premier Shares, Retail
Shares and Group Retirement Plan Shares. The Company's Board of Directors may,
in the future, authorize the issuance of additional series of capital stock
representing shares of additional investment funds or additional classes of
shares of the Funds.

Shares of each class of the U.S. Equity Fund represent interests in the
Fund in proportion to the net asset value of each class. The U.S. Equity Fund's
expenses are allocated to each class of the Fund's shares based upon expenses
identifiable by class or the relative net assets of the class and the other
classes of its shares.

29
<PAGE>

All shares of the Company, when issued, will be fully paid and
nonassessable.

The Chase Manhattan Bank is located at 270 Park Avenue, New York, NY 10017,
and serves as custodian of the Company's investments.

Chase Global Funds Services Company is located at 73 Tremont Street,
Boston, MA 02108, and serves as the Company's transfer agent.

The U.S. Equity Fund sends shareholders a semi-annual and audited annual
report, which includes listings of investment securities held by the Fund at the
end of the period covered. In an effort to reduce the U.S. Equity Fund's
printing and mailing costs, the Fund may consolidate the mailing of its
semi-annual and annual reports by household. This consolidation means that a
household having multiple accounts with the identical address of record would
receive a single copy of each report. In addition, the U.S. Equity Fund may
consolidate the mailing of its Prospectus so that a shareholder of the Fund
having multiple accounts would receive a single Prospectus annually. Any
shareholder who does not want this consolidation to apply to his or her account
should contact the Transfer Agent. Shareholders may direct inquiries regarding
the Company to 1-800-LIPPER9.

30
<PAGE>

INVESTMENT ADVISER

Lipper & Company, L.L.C. THE LIPPER FUNDS, INC.
101 Park Avenue, 6th Floor
New York, NY 10178
(212) 883-6333 LIPPER U.S. EQUITY FUND

ADMINISTRATOR AND TRANSFER AGENT

Chase Global Funds Services Company
73 Tremont Street, 9th Floor
Boston, MA 02108
1-800-LIPPER9

CUSTODIAN

The Chase Manhattan Bank
270 Park Avenue
New York, NY 10017

PROSPECTUS AND

LEGAL COUNSEL NEW ACCOUNT APPLICATION

Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036

BOARD OF DIRECTORS
Kenneth Lipper
Chairman of the Board,
The Lipper Funds, Inc.
President and Chairman,
Lipper & Company

Stanley Brezenoff
Chief Executive Officer,
Maimonides Medical Center

Martin Maltz
Principal Scientist,
Xerox Corporation

Irwin Russell
Attorney,
Law Offices of Irwin E. Russell
Director,
The Walt Disney Company

<PAGE>

P R O S P E C T U S

PRIME LIPPER EUROPE EQUITY FUND

A no-load portfolio of

The Lipper Funds, Inc.
101 Park Avenue
New York, NY 10178
For information call 1-800-LIPPER9

The Prime Lipper Europe Equity Fund (the "Europe Equity Fund" or the
"Fund") is a diversified no-load portfolio of The Lipper Funds, Inc. (the
"Company"). The Europe Equity Fund's investment objective is capital
appreciation, which it seeks to achieve by investing primarily in a diversified
portfolio of common stocks of issuers located in Europe believed to have the
capacity for strong levels of growth based on factors such as financial
strength, earnings growth, industry position and management.

As described in this Prospectus, the Company offers the shares of the
Europe Equity Fund in three classes: Premier Shares, Retail Shares and Group
Retirement Plan Shares. Shares of the Europe Equity Fund are available without
any sales charge through Lipper & Company, L.P., the Company's distributor
(referred to herein as "Lipper" or the "Distributor"), the Company's transfer
agent and certain investment dealers, banks and financial services firms that
provide distribution, administrative or shareholder services to the Europe
Equity Fund.

The Company is an open-end investment company that offers three diversified
no-load portfolios: the Europe Equity Fund, Lipper U.S. Equity Fund and Lipper
High Income Bond Fund. Copies of the prospectuses for the Lipper U.S. Equity
Fund and the Lipper High Income Bond Fund may be obtained by writing or calling
the Distributor at the address and telephone numbers set forth above.

Prime Lipper Asset Management serves as the investment adviser to the
Europe Equity Fund (the "Adviser").

Continued on Page 2

March 25, 1998

<PAGE>

Continued from Cover

Shares of the U.S. Government Money Market Fund-Vista SharesSM are also
made available by the Distributor to qualified investors who are investors in
the Europe Equity Fund. Further information regarding the U.S. Government Money
Market Fund-Vista SharesSM and its current prospectus may be obtained by writing
or calling the Distributor at the address and telephone number set forth above.

This Prospectus sets forth concisely the information about the Company and
the Europe Equity Fund that a prospective investor should know before investing
and it should be retained for future reference. Additional information about the
Company and the Europe Equity Fund is contained in the Company's Statement of
Additional Information, dated March 25, 1998 (which may be amended or
supplemented from time to time), which is incorporated herein in its entirety by
reference. The Statement of Additional Information is available upon request and
without charge by writing or calling the Company at the address and telephone
number set forth above.

SHARES OF THE EUROPE EQUITY FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. SHARES OF THE EUROPE EQUITY FUND INVOLVE CERTAIN INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

<PAGE>

TABLE OF CONTENTS

PROSPECTUS SUMMARY........................................................... 4

EXPENSES..................................................................... 6

FINANCIAL HIGHLIGHTS......................................................... 8

INVESTMENT OBJECTIVE AND POLICIES............................................ 9

INVESTMENT LIMITATIONS....................................................... 13

THE TRANSFER................................................................. 14

RISK FACTORS AND SPECIAL CONSIDERATIONS...................................... 14

PURCHASE OF SHARES........................................................... 16

DISTRIBUTION AND SERVICE PLANS............................................... 18

REDEMPTION OF SHARES......................................................... 20

EXCHANGE PRIVILEGE........................................................... 22

VALUATION OF SHARES.......................................................... 23

MANAGEMENT OF THE COMPANY.................................................... 24

DIVIDENDS.................................................................... 26

TAXES........................................................................ 27

PERFORMANCE INFORMATION...................................................... 29

ADDITIONAL INFORMATION....................................................... 30

THE LIPPER FUNDS, INC. IS NOT ASSOCIATED WITH LIPPER ANALYTICAL SERVICES, INC.

<PAGE>

PROSPECTUS SUMMARY

THE COMPANY

The Company consists of three no-load portfolios and offers investors a
range of investment choices. The Europe Equity Fund's investment objective is
capital appreciation, which it seeks to achieve by investing primarily in a
diversified portfolio of widely-traded common stocks of issuers located in
Europe believed to have the capacity for strong levels of growth based on
factors such as product offerings, financial strength, earnings growth, industry
position and management.

INVESTMENT ADVISER

Prime Lipper Asset Management serves as the investment adviser to the
Europe Equity Fund. The Adviser is a joint venture between Lipper, the Fund's
distributor, and Prime S.p.A. ("Prime"), a subsidiary of Assicurazioni Generali
S.p.A., the Italian insurance company. Lipper is a privately owned investment
management and investment banking firm founded in 1987. At December 31, 1997,
Lipper and its affiliates managed assets having an aggregate market value on a
gross basis of approximately $4.5 billion on behalf of its institutional and
high net worth clients. Lipper offers complementary investment strategies in
intermediate term high yield bonds, hedged convertible securities, investment
grade bonds, U.S. large capitalization and small capitalization equities, merger
arbitrage and preferred stocks. Prime, through subsidiaries and affiliates, is
among the largest asset managers in Italy, and specializes in management of
portfolios invested in European issuers, with approximately $5.3 billion in
assets under management at December 31, 1997 from domestic and international
investors. See "Management of the Company".

RISK FACTORS AND SPECIAL CONSIDERATIONS

Prospective investors should consider certain risks associated with an
investment in the Europe Equity Fund. There is no assurance that the Europe
Equity Fund will achieve its investment objective. The value of the Europe
Equity Fund's investments, and thus the net asset value of each class of the
Fund's shares, can be expected to fluctuate in response to changes in market and
economic conditions, as well as the financial conditions and prospects of the
issuers in which the Fund invests. The Europe Equity Fund may use various
investment practices that involve special considerations, including investing in
illiquid securities, investing in foreign securities, and engaging in hedging
and derivatives, each of which involves special risks. See "Risk Factors and
Special Considerations".

HOW TO INVEST

Premier Shares, Retail Shares and Group Retirement Plan Shares of the
Europe Equity Fund may be purchased without any sales charge at their next
determined net asset value through the Distributor, through certain investment
dealers, banks and financial services firms that provide distribution,
administrative or shareholder services to the Fund, or by mailing a purchase
order directly to Chase Global Funds Services Company, the Company's transfer
agent (the "Transfer Agent"). See "Purchase of Shares".

Premier Shares of the Europe Equity Fund are offered for sale to purchasers
(other than purchasers eligible to purchase Group Retirement Plan Shares) who
invest a minimum of $1,000,000 in the Fund. The Company and the Distributor
reserve the right to waive or reduce the minimum initial investment with respect
to certain accounts.

4
<PAGE>

Retail Shares of the Europe Equity Fund are offered for sale to purchasers
who invest a minimum of $10,000 in the Fund ($2,000 with respect to Individual
Retirement Accounts). Retail Shares of the Europe Equity Fund are subject to an
ongoing 12b-1 fee at an annual rate of up to 0.25% of their average daily net
assets. See "Distribution and Service Plans."

Group Retirement Plan Shares of the Europe Equity Fund are offered for sale
with no minimum investment requirement to retirement plans including, but not
limited to, qualified 401(k) plans. Group Retirement Plan Shares of the Europe
Equity Fund are subject to a service fee of up to 0.25% of their average daily
net assets. See "Distribution and Service Plans." Investors should contact the
Distributor at the address and telephone number set forth on the cover of this
Prospectus for further information regarding the eligibility requirements for
Group Retirement Plan Shares.

The Europe Equity Fund has established a subsequent investment minimum of
$2,500 for its Premier and Retail Shares. Individual Retirement Accounts are
subject to a $250 subsequent investment minimum. Group Retirement Plan Shares
are not subject to a subsequent investment minimum. The Europe Equity Fund
reserves the right to vary any initial or subsequent investment minimum at any
time.

HOW TO REDEEM

Shares of each class may be redeemed at their net asset value next
determined after receipt of the redemption request. The redemption price may be
more or less than the purchase price. There is no deferred sales charge imposed
on redemptions. If an investor in Premier Shares or Retail Shares of the Europe
Equity Fund reduces the value of his or her account to below $500,000, in the
case of Premier Shares, or $1,000, in the case of Retail Shares, such account
may be subject to redemption by the Fund, but only after the investor has been
given at least 30 days in which to increase his or her account balance to more
than such required minimum account balance. Investors in Group Retirement Plan
Shares are not subject to such a minimum account balance requirement. To the
extent that shares in an investor's account are redeemed by the Europe Equity
Fund, the investor could reinvest in any class of shares of the Fund at a later
date provided that any eligibility requirements with respect to investing in the
Fund were met at such time. See "Redemption of Shares" and "Valuation of
Shares".

DIVIDENDS AND CAPITAL GAINS

The Europe Equity Fund intends to distribute substantially all of its net
investment income, if any, in the form of annual dividends. The Europe Equity
Fund intends to distribute its net capital gain, if any, at least annually.

Unless a shareholder in the Europe Equity Fund instructs that dividend and
capital gain distributions be paid in cash, dividend and capital gain
distributions will be reinvested automatically in additional shares of the same
class of shares of the Fund at the net asset value of that class at the time of
reinvestment.

Dividends paid by each class of the Europe Equity Fund's shares will be
calculated at the same time and in the same manner and will be in the same
amount, except that the expenses attributable solely to a particular class will
be borne exclusively by that class. Retail Shares and Group Retirement Plan
Shares of the Europe Equity Fund will receive lower per share dividends than
Premier Shares because of the distribution and service fees borne by the Retail
and Group Retirement Plan Shares, respectively. See "Distribution and Service
Plans".

5
<PAGE>

EXPENSES

The Europe Equity Fund offers multiple classes of shares. Each share of the
Europe Equity Fund accrues income in the same manner, but certain expenses
differ based upon the class. The following tables are intended to assist
investors in understanding the various costs and expenses applicable to each
class of shares of the Europe Equity Fund:

Shareholder Transaction Expenses Europe Equity Fund
-------------------------------- ------------------
Maximum Sales Charge Imposed on Purchases None
Maximum Sales Charge Imposed on Reinvested Dividends None
Maximum Contingent Deferred Sales Charge None
Exchange Fees None
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
Investment Advisory Fees
Premier Shares 1.10%
Retail Shares 1.10%
Group Retirement Plan Shares 1.10%
Administrative Fees
Premier Shares 0.20%
Retail Shares 0.20%
Group Retirement Plan Shares 0.20%
12b-1 Fees
Premier Shares None
Retail Shares 0.25%
Group Retirement Plan Shares None
Service Fees
Premier Shares None
Retail Shares None
Group Retirement Plan Shares 0.25%
Other Expenses
Premier Shares 0.29%
Retail Shares 0.29%
Group Retirement Plan Shares 0.29%
------------------
Total Annual Operating Expenses
Premier Shares 1.59%
Retail Shares 1.84%
Group Retirement Plan Shares 1.84%

<PAGE>

Based upon payment by the Europe Equity Fund of operating expenses at the
levels set forth in the table above, the following example illustrates the
projected dollar amount of cumulative expenses an investor would pay on a $1,000
investment in the Europe Equity Fund, assuming (1) a 5% annual rate of return
and (2) redemption at the end of each time period:

Europe Equity Fund
------------------
Premier Shares
1 Year $ 16
3 Years $ 50
5 Years $ 87
10 Years $189

Retail Shares
1 Year $ 19
3 Years $ 58
5 Years $100
10 Years $216

Group Retirement Plan Shares
1 Year $ 19
3 Years $ 58
5 Years $100
10 Years $216

THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, THE EUROPE EQUITY
FUND'S PERFORMANCE WILL VARY AND MAY RESULT IN A RETURN GREATER OR LESS THAN 5%.
THE ADVISER IN ITS DISCRETION MAY TERMINATE VOLUNTARY REIMBURSEMENTS AT ANY
TIME.

Certain investment dealers, banks and financial services firms may charge
their customers direct fees for effecting transactions in the Europe Equity
Fund's shares; such fees are not reflected in the foregoing tables. See
"Purchase of Shares", "Redemption of Shares" and "Distribution and Service
Plans".

<PAGE>

FINANCIAL HIGHLIGHTS

The following table provides selected per share data and ratios for the
Premier Shares, Retail Shares and Group Retirement Plan Shares for the period
ended December 31, 1996 and the year ended December 31, 1997, for the Europe
Equity Fund. The information presented below has been audited by Price
Waterhouse LLP, the Company's independent accountants, whose unqualified opinion
thereon is included in the Annual Report, which is available upon request and
without charge. The following should be read in conjunction with the financial
statements including the notes thereto, which are also contained in the Annual
Report.

<TABLE>
<CAPTION>
EUROPE EQUITY FUND

GROUP RETIREMENT
PREMIER SHARES RETAIL SHARES PLAN SHARES
-------------- ------------- -----------
January 1, April 1, January 1, April 11, January 1, April 12,
1997 to 1996** to 1997 to 1996*** to 1997 to 1996***
December December December December December December
31, 1997 31, 1996 31, 1997 31, 1996 31, 1997 31, 1996
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.25 $10.00 $11.25 $9.93 $11.24 $9.92
------ ------ ------ ----- ------ -----

INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income(1) 0.05 0.04 0.02 (0.01) 0.03 (0.02)
Net Realized and Unrealized Gain on
Investments 2.06 1.62 2.05 1.73 2.05 1.74
------ ------ ------ ----- ------ -----
Total from Investment Operations 2.11 1.66 2.07 1.72 2.08 1.72
------ ------ ------ ----- ------ -----

DISTRIBUTIONS:
Net Investment Income (0.03) (0.02) -- (0.01) (0.01) (0.01)
In Excess of Net Investment Income (0.00)**** -- (0.00)**** -- (0.00)**** --
Net Realized Gain (1.59) (0.39) (1.59) (0.39) (1.59) (0.39)
------ ------ ------ ----- ------ -----
Total Distributions (1.62) (0.41) (1.59) (0.40) (1.60) (0.40)
------ ------ ------ ----- ------ -----

NET ASSET VALUE, END OF PERIOD $11.74 $11.25 $11.73 $11.25 $11.72 $11.24
====== ====== ====== ====== ====== ======

TOTAL RETURN(2) 18.83% 16.68% 18.49% 17.37% 18.60% 17.40%
====== ====== ====== ====== ====== ======

RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $82,787 $62,942 $1,137 $609 $941 $195
Ratios After Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets 1.59% 1.60%* 1.84% 1.85%* 1.84% 1.85%*
Net Investment Income to Average Net Assets 0.43% 0.53%* 0.16% (0.13)%* 0.34% (0.43)%*
Ratios Before Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets 1.59% 1.78%* 1.84% 2.07%* 1.84% 2.04%*
Net Investment Income to Average Net Assets 0.43% 0.35%* 0.16% (0.35)%* 0.34% (0.62)%*
Portfolio Turnover Rate 71% 34% 71% 34% 71% 34%
Average Broker Commission Rate $0.0571 $0.0746 $0.0571 $0.0746 $0.0571 $0.0746
</TABLE>

- ----------

* Annualized.

** Commencement of Fund operations.

*** Initial offering of shares by the Fund.

(1) The effect to net investment income per share of voluntarily waived fees
and reimbursed expenses was:

Period Ended
December 31, 1996
-----------------
Premier Shares $0.01
Retail Shares $0.02
Group Retirement Plan Shares $0.01

**** Amount is less than $0.001 per share.

(2) Total return would have been lower had the Adviser not waived or reimbursed
certain expenses during the period ended December 31, 1996. Total Returns
for periods of less than one year are not annualized.

<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Europe Equity Fund is described below,
together with the policies it employs in seeking to achieve its objective. There
is no assurance that the Fund will attain its objective. The Europe Equity
Fund's investment objective and the investment policies described below are not
fundamental and may be changed by the Company's Board of Directors without
shareholder approval. In addition to the investment policies described below,
the Adviser may utilize certain investment strategies and techniques in managing
the Europe Equity Fund, as described below under "Other Investments and
Investment Strategies".

The Europe Equity Fund's investment objective is long-term capital
appreciation. The Fund intends to invest primarily in a diversified portfolio of
common stocks of "European Companies". Under normal market conditions, at least
65% of the total assets of the Europe Equity Fund will be invested in common
stocks of "European Companies". "European Companies" include companies that (1)
are organized under the laws of a European country, (2) regardless of where
organized, derive at least 50% of their revenues from goods produced or sold,
investments made or services performed, in or with a European country or
countries, or have at least 50% of their assets in a European country or
countries, or (3) have securities which are traded principally on a stock
exchange in a European country. The Adviser intends under current market
conditions to focus on companies organized under the laws of Austria, Belgium,
Denmark, Finland, France, Germany, Italy, Luxembourg, the Netherlands, Spain,
Sweden, Switzerland, the United Kingdom and Ireland. The Europe Equity Fund may
also invest from time to time in common stocks of issuers organized under the
laws of Greece, Norway and Portugal. The Adviser has no present intention to
invest in common stocks of issuers principally based in Eastern Europe or other
emerging market countries. The portion of the Europe Equity Fund's assets not
invested in common stocks may be invested in preferred stock, convertible
securities, rights and warrants, depositary receipts, and Temporary Investments
as described below. Although the Europe Equity Fund intends to invest primarily
in securities listed on foreign stock exchanges, it will also invest in
securities traded in over-the-counter markets, and may also from time to time
invest in securities for which a public market does not exist or whose transfer
will be restricted. See "Other Investments and Investment Strategies-Illiquid
Securities".

The Adviser is a joint venture between Lipper and Prime S.p.A., a
subsidiary of Assicurazioni Generali S.p.A., the Italian insurance company, and
combines the investment approach developed by Lipper with Prime's European-based
investment management expertise. The Adviser emphasizes those companies that it
believes will benefit from the political, social and economic changes and
reforms taking place in Europe. Common characteristics shared by such companies
include product lines or services with historical and projected rising demand,
superior historical and projected growth prospects and financial strength to
support long-term growth through capital investment.

The Europe Equity Fund does not intend to concentrate its investments in a
particular industry or group of industries, and expects to invest its assets in
a broad range of issuers. While the Europe Equity Fund is not subject to any
specific geographic diversification requirements, the Europe Equity Fund
emphasizes investment in the more liquid European markets in an effort to reduce
risk. In addition, the Adviser currently intends to allocate the Europe Equity
Fund's investments among major European markets to reduce currency risk. The
Europe Equity Fund will not, under normal circumstances, invest in the stocks of
U.S. issuers. For a description of special considerations and certain risks
associated with investments in foreign issuers, see "Risk Factors and Special
Considerations-Risk of Investment in Foreign Securities".

TEMPORARY INVESTMENTS

For temporary defensive purposes, the Europe Equity Fund may vary from its
investment objective and may invest, without limit (except for the limitations
described under "Investment Limitations"), in cash and/or certain high quality

9
<PAGE>

short-term debt instruments described below. The Europe Equity Fund may also at
any time invest its assets in such instruments for cash management purposes,
pending investment in accordance with the Fund's investment objective and
policies and to meet operating expenses.

The short-term debt instruments in which the Europe Equity Fund may invest
include obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Securities"); obligations issued or
guaranteed by other governments or one of their agencies or instrumentalities;
obligations issued or guaranteed by international organizations designed or
supported by multiple foreign government entities to promote economic
reconstruction or development; bank obligations, such as certificates of
deposit, time deposits and bankers' acceptances; corporate debt obligations,
including commercial paper; and repurchase agreements. To be eligible for
investment under the circumstances described above, such instruments (other than
U.S. Government Securities) must be issued by an issuer having a short-term debt
rating of A-1 or better by S&P, a rating of Prime-1 by Moody's, a comparable
rating from another nationally recognized statistical rating organization or, if
unrated, deemed to be of equivalent quality by the Adviser.

OTHER INVESTMENTS AND INVESTMENT STRATEGIES

DEPOSITARY RECEIPTS. The Europe Equity Fund may invest in Depositary
Receipts. American Depositary Receipts ("ADRs"), Global Depositary Receipts
("GDRs"), European Depositary Receipts ("EDRs") and other types of depositary
receipts (which, together with ADRs, GDRs, and EDRs, are collectively referred
to as "Depositary Receipts") evidence ownership of underlying securities issued
by either a non-U.S. or a U.S. corporation that have been deposited with a
depository or custodian bank. Depositary Receipts may be issued in connection
with an offering of securities by the issuer of the underlying securities or
issued by a depository bank as a vehicle to promote investment and trading in
the underlying securities. ADRs are receipts issued by U.S. banks or trust
companies in respect of securities of non-U.S. issuers held on deposit for use
in the U.S. securities markets. GDRs, EDRs and other types of Depositary
Receipts are typically issued by a U.S. bank or trust company and traded
principally in the U.S. and other international markets. The Europe Equity Fund
will treat Depositary Receipts as interests in the underlying securities for
purposes of its investment policies. While Depositary Receipts may not
necessarily be denominated in the same currency as the securities into which
they may be converted, they entail certain of the risks associated with
investments in foreign securities. See "Risk Factors and Special
Considerations-Risk of Investments in Foreign Securities". The Europe Equity
Fund will limit its investment in Depositary Receipts not sponsored by the
issuer of the underlying securities to no more than 5% of the value of its net
assets (at the time of investment). See the Statement of Additional Information
for certain risks related to unsponsored Depositary Receipts.

CONVERTIBLE SECURITIES. The Europe Equity Fund may invest in convertible
securities, which are bonds, debentures, notes, preferred stocks or other
securities that may be converted into or exchanged for a prescribed amount of
equity securities (generally common stock) of the same or a different issuer
within a particular period of time at a specified price or formula. Convertible
securities have general characteristics similar to both fixed income and equity
securities. Although to a lesser extent than with fixed income securities
generally, the market value of convertible securities tends to decline as
interest rates increase and, conversely, tends to increase as interest rates
decline. In addition, because of the conversion feature, the market value of
convertible securities tends to vary with fluctuations in the market value of
the underlying security and therefore also will react to variations in the
general market for equity securities. While no securities investments are
without risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.

WARRANTS. The Europe Equity Fund may invest in warrants, which are
securities permitting, but not obligating, their holder to subscribe for other
securities. Warrants do not carry with them the right to dividends or voting
rights with

10
<PAGE>

respect to the securities that they entitle their holder to purchase, and they
do not represent any rights in the assets of the issuer. As a result, an
investment in warrants may be considered speculative. In addition, the value of
a warrant does not necessarily change with the value of the underlying
securities and a warrant ceases to have value if it is not exercised prior to
its expiration date.

ILLIQUID SECURITIES. The Europe Equity Fund will not invest more than 15%
of the value of its total assets in illiquid securities. Illiquid securities are
securities which may not be sold or disposed of in the ordinary course of
business within seven days at approximately the value at which the Europe Equity
Fund has valued the investments. Illiquid securities include securities with
legal or contractual restrictions on resale, time deposits, repurchase
agreements having maturities longer than seven days and securities that do not
have readily available market quotations and may involve the risk that the Fund
may be unable to sell such a security at the desired time. The price at which
the Europe Equity Fund values these securities could be less than that
originally paid by the Fund or less than that which may be considered the fair
value of the securities. In addition, the Europe Equity Fund may invest in
securities that are sold in private placement transactions between their issuers
and their purchasers and that are neither listed on an exchange nor traded
over-the-counter. These factors may have an adverse effect on the Europe Equity
Fund's ability to dispose of particular securities and may limit the Fund's
ability to obtain accurate market quotations for purposes of valuing securities
and calculating net asset value and to sell securities at fair value. If any
privately placed securities held by the Europe Equity Fund are required to be
registered under the securities laws of one or more jurisdictions before being
resold, the Fund may be required to bear the expenses of registration. See
"Investment Objective and Policies-Additional Information on Portfolio
Instruments and Certain Investment Strategies-Illiquid and Restricted
Securities" in the Statement of Additional Information.

PREFERRED STOCK. The Europe Equity Fund may invest in preferred stocks.
Generally, preferred stocks are non-voting shares of a corporation which pay a
fixed or variable stream of dividends. Preferred stock has a preference over
common stock in liquidation and generally in dividends as well, but is
subordinated to the liabilities of the issuer in all respects. Preferred stock
may or may not be convertible into common stock. As a general rule, the market
value of preferred stock with a fixed dividend rate and no conversion element
varies inversely with interest rates and perceived credit risk. Because
preferred stock is junior to debt securities and other obligations of the
issuer, deterioration in the credit quality of the issuer will cause greater
changes in the value of a preferred stock than in a more senior debt security
with similar stated yield characteristics.

REPURCHASE AGREEMENTS. The Europe Equity Fund may purchase instruments from
financial institutions, such as banks and broker-dealers, subject to the
seller's agreement to repurchase them at an agreed upon time and price
("repurchase agreements"). The Europe Equity Fund would enter into repurchase
agreements to generate additional income. The seller under a repurchase
agreement will be required to maintain the value of the securities subject to
the agreement at not less than the repurchase price. Default by the seller
would, however, expose the Europe Equity Fund to possible loss because of
adverse market action or delay in connection with the disposition of the
underlying obligations.

OTHER INVESTMENT FUNDS. The Europe Equity Fund may invest in the securities
of other investment funds to the extent permitted by the Investment Company Act
of 1940, as amended (the "1940 Act"). Under the 1940 Act, the Europe Equity Fund
as a general rule may invest up to 10% of its total assets in shares of other
investment funds and up to 5% of its total assets in any one investment fund,
provided that the investment does not represent more than 3% of the voting stock
of the acquired investment fund. By investing in another investment fund, the
Europe Equity Fund bears a ratable share of the other investment fund's
expenses, as well as continuing to bear the Fund's advisory and administrative
fees with respect to the amount of the investment. In addition, the Europe
Equity Fund may, in the future, seek to achieve its investment

11
<PAGE>

objective through the adoption of a "master-feeder" structure pursuant to which
the Fund would invest all of its assets in a no-load, open-end management
investment company having the same investment objective and policies and
substantially the same investment restrictions as those applicable to the Fund,
as described below under "Investment Limitations".

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Europe Equity Fund may
purchase securities on a "when-issued" or delayed delivery basis. When-issued
and delayed delivery securities are securities purchased for delivery beyond the
normal settlement date at a stated price. The Europe Equity Fund will generally
not pay for such securities or start earning income on them until they are
received. Fixed income securities purchased on a when-issued or delayed delivery
basis are recorded as an asset and are subject to changes in value based, among
other factors, upon changes in the general level of interest rates. The Europe
Equity Fund will make commitments to purchase when-issued or delayed delivery
securities with the intention of actually acquiring the securities, but may sell
them before the settlement date if it is deemed advisable. When the Europe
Equity Fund purchases securities on a when-issued or delayed delivery basis, it
will set aside securities or cash with its custodian equal to the payment that
will be due.

BORROWING. The Europe Equity Fund may borrow only from banks or by entering
into reverse repurchase agreements, in aggregate amounts not to exceed 33 1/3 %
of its total assets (including the amount borrowed) less its liabilities
(excluding the amount borrowed), and only for temporary or emergency purposes.
Bank borrowings may be from U.S. or foreign banks and may be secured or
unsecured. The Europe Equity Fund may also borrow by entering into reverse
repurchase agreements, pursuant to which it would sell portfolio securities to
financial institutions, such as banks and broker-dealers, and agree to
repurchase them at an agreed upon date and price. The Europe Equity Fund would
also consider entering into reverse repurchase agreements to avoid otherwise
selling securities during unfavorable market conditions to meet redemptions.
Reverse repurchase agreements involve the risk that the market value of the
portfolio securities sold by the Europe Equity Fund may decline below the price
at which the Europe Equity Fund is obligated to repurchase such securities.

LOANS OF FUND SECURITIES. The Europe Equity Fund may lend its portfolio
securities consistent with its investment policies, in order to generate
additional income. The Europe Equity Fund may lend portfolio securities against
collateral, consisting of cash or securities which are consistent with its
permitted investments, which is equal at all times to at least 100% of the value
of the securities loaned. There is no limitation on the amount of securities
that may be loaned. Such loans would involve risks of delay in receiving
additional collateral or in recovering the securities loaned or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans will be made only to borrowers deemed by the Adviser to be of
good standing and only when, in the judgment of the Adviser, the income to be
earned from the loans justifies the attendant risks.

SHORT SALES. The Europe Equity Fund may make short sales of securities
"against the box". A short sale is a transaction in which the Europe Equity Fund
sells a security it does not own in anticipation that the market price of that
security will decline. In a short sale "against the box," at the time of sale
the Europe Equity Fund owns or has the immediate and unconditional right to
acquire the identical security. Short sales against the box are a form of
hedging to offset potential declines in long positions in similar securities.

HEDGING AND DERIVATIVES. The Europe Equity Fund is authorized to use
various hedging and investment strategies described below to hedge market risks
(such as broad or specific market movements and interest rates or other factors
relevant to the Fund's investments, such as rates of inflation), or to seek to
increase the Fund's income or capital appreciation. Over time, techniques and
instruments may change as new instruments and strategies are developed or
regulatory changes occur. Limitations on the portion of the Europe Equity Fund's
assets that may be used in connection with the investment strategies described
below appear in the Statement of Additional Information.

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<PAGE>

Subject to the constraints described above, the Europe Equity Fund may
purchase and sell (or write) exchange listed and over-the-counter put and call
options on securities, securities indices, currencies and other financial
instruments and enter into currency forward contracts (collectively, these
transactions are referred to in this Prospectus as "Derivatives"). The Europe
Equity Fund will not engage in transactions in futures or options on futures.

Derivatives may be used to attempt to protect against possible changes in
the market value of securities held in or to be purchased by the Europe Equity
Fund resulting from securities markets or currency exchange rate fluctuations,
to protect the Fund's unrealized gains in the value of its securities, to
facilitate the sale of those securities for investment purposes, to establish a
position in the derivatives markets as a substitute for purchasing or selling
particular securities or to seek to enhance the Fund's income or gain. The
Europe Equity Fund may use any or all types of the above-described Derivatives
at any time; no particular strategy will dictate the use of one type of
transaction rather than another, as use of any authorized Derivative will be a
function of numerous variables, including market conditions. The ability of the
Europe Equity Fund to utilize Derivatives successfully will depend on the
Adviser's ability to predict pertinent market movements, which cannot be
assured. These skills are different from those needed to select securities. The
use of Derivatives in certain circumstances will require the Europe Equity Fund
to segregate cash or other liquid assets to the extent the Fund's obligations
are not otherwise "covered" through ownership of the underlying security or
financial instrument. See "Risk Factors and Special Considerations-Other
Investments and Investment Strategies".

The degree of the Europe Equity Fund's use of Derivatives may be limited by
certain provisions of the Internal Revenue Code of 1986, as amended (the
"Code"). See "Taxes".

INVESTMENT LIMITATIONS

The investment limitations enumerated below are fundamental and may not be
changed by the Company's Board of Directors without the affirmative vote of the
holders of a majority of the Europe Equity Fund's outstanding shares. However,
the Europe Equity Fund's investment objective and the other investment policies
described herein may be changed by the Board of Directors without shareholder
approval at any time. The percentage limitations set forth below, as well as
those contained elsewhere in this Prospectus and the Statement of Additional
Information, apply at the time a transaction is effected. Subsequent changes in
a percentage resulting from market fluctuations or any other cause other than a
direct action by the Europe Equity Fund will not require the Fund to dispose of
its securities or to take other action to satisfy the percentage limitation. If
there is a change in the investment objective of the Europe Equity Fund,
shareholders of the Fund should consider whether the Fund remains an appropriate
investment for them in light of their then current financial position and needs.
(A complete list of the Europe Equity Fund's investment limitations that cannot
be changed without a vote of shareholders is contained in the Statement of
Additional Information under "Investment Limitations".)

The Europe Equity Fund may not purchase the securities of any one issuer if
as a result of such purchase more than 5% of the value of its total assets would
be invested in the securities of such issuer, except that up to 25% of the value
of the Fund's total assets may be invested without regard to this 5% limitation;
provided that there is no limitation with respect to investments in U.S.
Government Securities; and provided further, that the Fund may invest all or
substantially all of its assets in another registered investment company having
the same investment objective and policies and substantially the same investment
restrictions as those with respect to the Fund.

The Europe Equity Fund may not borrow money, except that the Fund may
borrow money from banks or enter into reverse repurchase agreements, in each
case for temporary or emergency purposes only (not for leveraging or
investment), in

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<PAGE>

aggregate amounts not exceeding 33 1/3% (including the amount borrowed) of the
value of its total assets at the time of such borrowing. For purposes of the
foregoing investment limitation, the term "total assets" shall be calculated
after giving effect to the net proceeds of any borrowings and reduced by any
liabilities and indebtedness other than such borrowings. Additional investments
will not be made by the Europe Equity Fund, including interests in another
registered investment company, when borrowings exceed 5% of total net assets.

The Europe Equity Fund may not purchase any securities which would cause
25% or more of the value of its total assets at the time of such purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry; provided that there is no limitation
with respect to investments in U.S. Government Securities; and provided further,
that the Fund may invest all or substantially all of its assets in another
registered investment company having the same investment objective and policies
and substantially the same investment restrictions as those with respect to the
Fund. The Europe Equity Fund would invest all or substantially all of its assets
in another registered investment company in connection with the adoption by the
Company of a "master-feeder" structure.

The Europe Equity Fund may, in the future, seek to achieve its investment
objective by investing all of its assets in a no-load, open-end management
investment company having the same investment objective and policies and
substantially the same investment restrictions as those applicable to the Fund.
In such event, the Europe Equity Fund's investment advisory agreement would be
terminated since the investment management would be performed by or on behalf of
such other investment company.

THE TRANSFER

The Europe Equity Fund was formed as a successor investment vehicle for a
limited partnership (the "Partnership") for which the Adviser acted as general
partner and investment adviser since inception. On April 1, 1996, the Europe
Equity Fund exchanged Premier Shares for certain portfolio securities of the
Partnership (the "Transfer"). Premier Shares received in the Transfer were
distributed to the Partnership's limited partners who elected to participate in
the Transfer. To the extent that the Europe Equity Fund acquired securities in
the Transfer that have appreciated in value from the date originally acquired by
the Partnership, the Transfer may have adverse tax consequences to investors who
acquire shares of the Fund in the continuous offering after the Transfer. If the
Europe Equity Fund sells securities acquired in the Transfer that have
appreciated in value from the date they were acquired by the Partnership, the
amount of any gain with respect to such securities (including any appreciation
in value from the date they were acquired by the Partnership through the date of
the Transfer) would be taxable to all shareholders, including new shareholders
as well as those shareholders who were former limited partners of the
Partnership. The effect of this would be to tax new shareholders on a
distribution that economically represents a return of a portion of the purchase
price of their shares rather than on an increase in the value of their
investment. The amount of any such gain that would be taxable to a shareholder
is dependent on a number of factors, and there is no assurance that any gains
existing at the time of the Transfer would in fact be recognized. Moreover, any
tax liability would affect shareholders differently, depending on, among other
things, individual decisions to redeem or continue to hold shares, the timing of
such decisions, and applicable tax rates. See "Taxes-The Transfers".

RISK FACTORS AND SPECIAL CONSIDERATIONS

NET ASSET VALUE FLUCTUATION

The Europe Equity Fund's net asset value, and hence the value of its
shares, will fluctuate, reflecting fluctuations in the market value of its
portfolio positions. Factors affecting the value of the Europe Equity Fund's
securities include, among

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<PAGE>

other things, (1) social, economic or political factors, (2) factors affecting
the industry in which a particular issuer operates, such as competition or
technological advances, and (3) factors affecting an issuer directly, such as
management changes, labor relations, collapse of key suppliers or customers, or
material changes in overhead. There is no assurance that the Europe Equity Fund
will achieve its investment objective.

RISKS OF INVESTMENT IN FOREIGN SECURITIES

The Europe Equity Fund will primarily invest in securities of foreign
corporate and government issuers. Securities of non-U.S. issuers may trade in
U.S. or foreign securities markets. Securities of non-U.S. issuers involve
certain considerations and risks not typically associated with investing in
securities of U.S. companies or the U.S. Government, including uncertainties
regarding future social, political and economic developments, the possible
imposition of foreign withholding taxes on dividend income payable on securities
held by the Europe Equity Fund, the possible seizure or nationalization of
foreign assets and the possible establishment of foreign government laws or
restrictions that might adversely affect the payment of interest on equity
securities held by the Fund. Because the Europe Equity Fund will invest in the
securities of foreign issuers denominated in foreign currencies, the strength or
weakness of the U.S. dollar against such foreign currencies will account for
part of the Fund's investment performance. A decline in the value of any
particular currency against the U.S. dollar will cause a decline in the U.S.
dollar value of the Europe Equity Fund's holdings of securities denominated in
such currency and, therefore, will cause an overall decline in the Fund's net
asset value and any net investment income and capital gains to be distributed in
U.S. dollars to shareholders of the Fund. Foreign securities markets may have
substantially less volume and may be smaller, less liquid and subject to greater
price volatility than U.S. markets. Delays or problems with settlement in
foreign markets could affect the liquidity of the Europe Equity Fund's
investments and adversely affect performance. Investment in foreign securities
also may result in higher brokerage and other costs and the imposition of
transfer taxes or transaction charges. Investment by the Europe Equity Fund in
non-U.S. issuers may be restricted or controlled to varying degrees. These
restrictions may limit or preclude investment in certain issuers or countries
and may increase the costs and expenses of the Europe Equity Fund. In addition,
the repatriation of both investment income and capital from some countries
requires governmental approval and if there is a deterioration in a country's
balance of payments or for other reasons, a country may impose temporary
restrictions on foreign capital remittances abroad. Even where there is no
outright restriction on repatriation of capital, the mechanics of repatriation
may affect certain aspects of the operation of the Europe Equity Fund. The
Europe Equity Fund could be adversely affected by delays in, or a refusal to
grant any required governmental approval for repatriation of capital, as well as
by the application to the Fund of any restrictions on investments. In addition,
there may be less publicly available information about a non-U.S. issuer than
about a U.S. issuer, and non-U.S. issuers may not be subject to the same
accounting, auditing and financial recordkeeping standards and requirements as
U.S. issuers. Finally, in the event of a default in any such foreign
obligations, it may be more difficult for the Europe Equity Fund to obtain or
enforce a judgment against the issuers of such securities.

OTHER INVESTMENTS, INVESTMENT POLICIES AND INVESTMENT STRATEGIES; PRIOR HISTORY

Certain risks and special considerations of certain of the investment
practices in which the Europe Equity Fund may engage are described above under
"Investment Objectives and Policies-Other Investments and Investment
Strategies".

15
<PAGE>

values, or cause the Fund to hold a security it might otherwise not purchase or
sell. The use of currency transactions could result in the Europe Equity Fund's
incurring losses as a result of the imposition of exchange controls or the
inability to deliver or receive a specified currency in addition to exchange
rate fluctuations. Losses resulting from the use of Derivatives will reduce the
Europe Equity Fund's net asset value, and possibly income, and the losses may be
greater than if Derivatives had not been used. Additional information regarding
the risks and special considerations associated with Derivatives appears in the
Statement of Additional Information.

As stated above under "The Transfer", the Europe Equity Fund was formed as
a successor investment vehicle for the Partnership. The Partnership was not
registered under and subject to the provisions of the 1940 Act, pursuant to an
exemption from registration for entities which have fewer than 100 holders. As
an unregistered entity, the Partnership was not required to comply with the
requirements of the 1940 Act, or the diversification, distribution and other
requirements imposed by the Code. To the extent that the Europe Equity Fund
acquired securities in a Transfer that have appreciated in value from the date
originally acquired by the Partnership, the Transfer may have adverse tax
consequences to investors who acquire shares of the Fund in the continuous
offering. To the extent that the Europe Equity Fund sells such securities, new
shareholders may be taxed on a distribution that economically represents a
return of a portion of the purchase price of their shares. See "Performance
Information" below for information regarding the historical investment
performance of the Partnership.

PURCHASE OF SHARES

Shares of each class of the Europe Equity Fund may be purchased without any
sales charge through the Distributor, through certain investment dealers, banks
and financial services firms that provide distribution, administrative or
shareholder services to the Fund ("Participating Dealers"), or by mailing a
purchase order directly to the Transfer Agent, at their net asset value next
determined after the purchase order is received. The Distributor and
Participating Dealers are responsible for forwarding orders they receive to the
Transfer Agent by the applicable times described below on the same day as their
receipt of the orders to permit purchase of shares as described above, and their
failure to do so will result in investors not receiving that day's net asset
value. See "Valuation of Shares".

Group Retirement Plan Shares of the Europe Equity Fund are offered for sale
with no minimum investment requirement to retirement plans, including, but not
limited to, qualified 401(k) plans. Group Retirement Plan Shares of the Europe
Equity Fund are subject to a service fee of up to 0.25% of their average daily
net assets. See "Distribution and Service Plans". Investors should contact the
Distributor at the address and telephone number set forth on the cover of this
Prospectus for further information regarding the eligibility requirements for
Group Retirement Plan Shares.

The Europe Equity Fund has established a subsequent investment minimum of
$2,500 for its Premier and Retail Shares. Individual Retirement Accounts are
subject to a $250 subsequent investment minimum. Group Retirement Plan Shares
are not subject to any subsequent investment minimum. The Europe Equity Fund
reserves the right to vary any initial or subsequent investment minimum at any
time.

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<PAGE>

Purchase orders received by the Distributor or a Participating Dealer and
transmitted to the Transfer Agent prior to the close of regular trading on the
New York Stock Exchange, Inc. (the "NYSE"), generally 4:00 p.m., New York time,
on any day net asset value is calculated are priced according to the net asset
value of the purchased class of shares determined on that day. Purchase orders
received by the Transfer Agent after the close of regular trading on the NYSE
are priced as of the time the net asset value per share of the relevant class is
next determined. See "Valuation of Shares". Payment is generally due to the
Distributor or a Participating Dealer on the third business day (the "Settlement
Date") after the trade date. Investors who make payment prior to a Settlement
Date may permit the payment to be held in their brokerage accounts or may
designate a temporary investment for such payment until the Settlement Date. The
Europe Equity Fund reserves the right to reject any purchase order and to
suspend the offering of its shares for a period of time.

INITIAL INVESTMENTS BY MAIL

Shares of the Europe Equity Fund may be purchased by completing and signing
an account application and mailing it, together with a check payable to "The
Lipper Funds, Inc.," to:

The Lipper Funds, Inc.
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798

Payment for the purchase of shares received by mail will be credited to an
investor's account at the net asset value per share of the purchased class of
shares of the Europe Equity Fund next determined after receipt.

INITIAL INVESTMENT BY WIRE

Shares of the Europe Equity Fund may also be purchased by wiring Federal
Funds to the Company's custodian (see instructions below). In order to insure
prompt crediting of the Federal Funds wire, it is important to follow these
steps:

(b) The investor must instruct his or her bank to wire the specified
amount to the Company's custodian as follows:

The Chase Manhattan Bank
New York, NY 10003
ABA # 0210-0002-1
DDA Acct. #910-2-753168
F/B/O The Lipper Funds, Inc.
Ref: Prime Lipper Europe Equity Fund
Account Number __________________
Account Name ____________________

17
<PAGE>

Investments by Mail" as soon as possible. It is important that investors
forward the account application to the Transfer Agent and the Company in a
timely manner, since shares of the Europe Equity Fund will not be redeemed,
exchanged or transferred until the Transfer Agent receives the
shareholder's account application. Federal Funds purchases will be accepted
only on days on which both the NYSE and the Company's custodian are open
for business.

ADDITIONAL INVESTMENTS

An investor may add to his or her account by purchasing additional shares
of the same class of the Europe Equity Fund's shares by mailing a check to the
Transfer Agent (payable to "The Lipper Funds, Inc.") at its address set forth
above under "Initial Investments by Mail" or by wiring funds to the Company's
custodian using the procedures set forth above under "Initial Investment by
Wire". It is important that the account number, account name, and the Fund's
name and class of shares to be purchased are specified on the check or wire to
ensure proper crediting to the investor's account.

OTHER PURCHASE INFORMATION

The Europe Equity Fund reserves the right, in its sole discretion, to
suspend the offering of its shares or reject purchase orders when, in the
judgment of management, such suspension or rejection is in the best interests of
the Fund.

As stated above, shares of the Europe Equity Fund may be purchased by
customers of Participating Dealers. Participating Dealers may impose additional
or different conditions or other account fees on the purchase and redemption of
Fund shares. Each Participating Dealer is responsible for transmitting to its
customers a schedule of any such fees and information regarding any additional
or different conditions regarding purchases and redemptions. Shareholders who
are customers of Participating Dealers should consult their Participating Dealer
for information regarding these fees and conditions. Certain Participating
Dealers may receive compensation from the Company, the Distributor, the Adviser,
or any of the Adviser's affiliates. A salesperson and any other person entitled
to receive compensation for selling or servicing Europe Equity Fund shares may
receive different compensation with respect to sales of one class of shares over
another.

Participating Dealers may enter confirmed purchase orders on behalf of
their customers. If you buy shares of the Europe Equity Fund in this manner,
your Participating Dealer must transmit your investment order to the Transfer
Agent prior to 4:00 p.m. on a business day to receive the net asset value of the
purchased class determined on the same day. Participating Dealers are solely
responsible to their customers for the timely transmission of all purchase and
redemption requests, investment information, documentation and money.

DISTRIBUTION AND SERVICE PLANS

The Company's Board of Directors has adopted a distribution plan for the
Retail Shares of the Europe Equity Fund pursuant to Rule 12b-1 under the 1940
Act (the "Retail Distribution Plan"), and a shareholder servicing plan for the

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<PAGE>

Group Retirement Plan Shares of the Europe Equity Fund (the "Group Retirement
Servicing Plan"). Potential investors should read this Prospectus in light of
the terms governing the agreement between their Participating Dealers and the
Distributor.

RETAIL DISTRIBUTION PLAN

Under the Retail Distribution Plan, the Europe Equity Fund, at the expense
of its Retail Shares, pays the Distributor for distributing the Fund's Retail
Shares at an annual rate of up to 0.25% of the value of the average daily net
assets of the Fund's Retail Shares. The Distributor may pay one or more
Participating Dealers a fee in respect of distribution of the Europe Equity
Fund's Retail Shares. The Distributor determines the amounts, if any, to be paid
to Participating Dealers under the Retail Distribution Plan and the basis on
which such payments are made. The Retail Distribution Plan also provides that
the Adviser may pay Participating Dealers out of its investment advisory fees,
its past profits or any other source available to the Adviser. From time to
time, the Distributor may defer or waive receipt of fees under the Retail
Distribution Plan while retaining the ability to be paid under the Retail
Distribution Plan thereafter. The foregoing fees payable under the Retail
Distribution Plan are payable without regard to actual expenses incurred.

GROUP RETIREMENT SERVICING PLAN

The Company intends to enter into servicing agreements pursuant to which
Participating Dealers and sometimes the Distributor will render certain support
services to their customers who are beneficial owners of Group Retirement Plan
Shares. Such services are intended to supplement the services provided by the
Company's administrator and Transfer Agent. Under the Group Retirement Servicing
Plan, the Europe Equity Fund, at the expense of its Group Retirement Plan
Shares, may pay one or more Participating Dealers and/or the Distributor up to
0.25% (on an annualized basis) of the value of the average daily net assets of
the Fund's Group Retirement Plan Shares for providing one or more of the
following services to such customers: establishing and maintaining accounts and
records relating to customers that invest in Group Retirement Plan Shares;
processing dividend and distribution payments from the Europe Equity Fund on
behalf of customers; arranging for bank wires; providing subaccounting with
respect to Group Retirement Plan Shares beneficially owned by customers or the
information necessary for subaccounting; forwarding shareholder communications
from the Europe Equity Fund (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
customers; assisting in processing purchase, exchange and redemption requests
from customers and in placing such orders with the Company's service
contractors; assisting customers in changing dividend options, account
designations and addresses; providing customers with a service that invests the
assets of their accounts in Group Retirement Plan Shares pursuant to specific or
pre-authorized instructions; providing information periodically to customers
showing their positions in Group Retirement Plan Shares and integrating such
statements with those of other transactions and balances in customers' other
accounts with the Participating Dealer; responding to customer inquiries
relating to the services performed by the Participating Dealer or the
Distributor; responding to customer inquiries concerning their investments in
Group Retirement Plan Shares; and providing other similar shareholder liaison
services. Fees payable under the Group Retirement Servicing Plan are not paid to
Participating Dealers or the Distributor with respect to other classes of shares
of the Europe Equity Fund. Investors who are or anticipate becoming beneficial
owners of Group Retirement Plan Shares should read this Prospectus in light of
the terms and fees governing their accounts with Participating Dealers.

OTHER

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<PAGE>

laws do not prohibit banks from purchasing mutual fund shares as agent for a
customer. Accordingly, banks will be engaged to act as Participating Dealers
only to perform administrative and shareholder servicing functions. The Company
believes that banks, subject to banking laws and regulations, may perform such
administrative and shareholder servicing functions without violation of such
banking laws or regulations. However, future changes in legal requirements
relating to the permissible activities of banks and their affiliates, as well as
future interpretations of present requirements, could require banks to
discontinue providing such administrative and shareholder servicing functions.
If banks were required to discontinue providing all or a part of such functions,
alternative means for continuing the servicing of such customers would be
sought.

REDEMPTION OF SHARES

Shareholders may request redemption of their shares at any time. When a
redemption request is received in proper form, the Europe Equity Fund will
redeem the shares at the next determined net asset value of the class of shares
being redeemed. The proceeds paid to a shareholder upon redemption may be more
or less than the amount invested depending upon the net asset value of the
shares being redeemed at the time of redemption. If a shareholder holds shares
in more than one class of the Europe Equity Fund, any request for redemption
must specify the class of shares being redeemed. In the event of a failure to
specify which class, or if the investor owns fewer shares of a class than
specified, the redemption request will be delayed until the Transfer Agent
receives further instructions from the Distributor or a Participating Dealer, or
if the shareholder's account is not with the Distributor or a Participating
Dealer, from the shareholder directly.

The Europe Equity Fund normally transmits redemption proceeds for credit to
the shareholder's account at the Distributor or a Participating Dealer at no
charge within seven days after receipt of a redemption request. Generally, these
funds will not be invested for the shareholder's benefit without specific
instruction, and the Distributor will benefit from the use of temporarily
uninvested funds. A shareholder who pays for shares by personal check will be
credited with the proceeds of a redemption of those shares only after the
purchase check has been collected, which may take up to 15 days or more. A
shareholder who anticipates the need for more immediate access to his or her
investment should purchase shares with Federal Funds, by bank wire or with a
certified or cashier's check. Shares will not be redeemed until the Transfer
Agent has received the shareholder's account application.

If an investor in Premier Shares or Retail Shares of the Europe Equity Fund
reduces the value of his or her account to below $500,000, in the case of
Premier Shares, or $1,000, in the case of Retail Shares, such account may be
subject to redemption by the Fund, but only after the investor has been given at
least 30 days in which to increase his or her account balance to more than such
required minimum account balance. Investors in Group Retirement Plan Shares are
not subject to such a minimum account balance requirement. To the extent that
shares in an investor's account are redeemed by the Europe Equity Fund, the
investor could reinvest in any class of shares of the Fund at a later date
provided that any eligibility requirements with respect to investing in the Fund
were met at such time. In addition, the Europe Equity Fund may redeem shares
involuntarily or suspend the right of redemption as permitted under the 1940
Act, or under certain special circumstances described in the Statement of
Additional Information under "Additional Redemption Information".

Shares of the Europe Equity Fund may be redeemed in one of the following
ways:

REDEMPTION THROUGH THE DISTRIBUTOR OR A PARTICIPATING DEALER

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<PAGE>

endorsed for transfer (or accompanied by an endorsed stock power), signed
exactly as the shares are registered. Redemption requests involving shares
represented by certificates will not be deemed received until such certificates
are received by the Transfer Agent in proper form. The Transfer Agent is located
at 73 Tremont Street, Boston, MA 02108.

REDEMPTION BY MAIL

Redemption requests also may be mailed to the Transfer Agent at the
following address:

The Lipper Funds, Inc.
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798

A mailed request to redeem shares must include the following:

(a) Stock certificates representing the shares redeemed, if issued;

(d) Other supporting legal documents in the case of estates, trusts,
guardianships, custodianships, corporations, pension and profit sharing
plans and other organizations.

Shareholders who are uncertain of the requirements for redemption should
call 1-800-LIPPER9.

SIGNATURE GUARANTEES

REDEMPTION BY TELEPHONE

21
<PAGE>

requesting that redemption proceeds be mailed to the investor or wired to his or
her bank. If an investor selects a telephone redemption privilege, the investor
authorizes the Transfer Agent to act on telephone instructions from any person
representing himself or herself to be the investor or a representative of the
investor's Participating Dealer, and reasonably believed by the Transfer Agent
to be genuine. The Company will require the Transfer Agent to employ reasonable
procedures, such as requiring a form of personal identification, to confirm that
instructions are genuine and, if it does not follow such procedures, it may be
liable for any losses due to unauthorized or fraudulent instructions. Neither
the Company nor the Transfer Agent will be liable for following telephone
instructions reasonably believed to be genuine. When redeeming shares by
telephone, an investor must have ready his or her name and account number, as
well as Social Security number or tax I.D. number and account address.

To change the name of the commercial bank or the account designated to
receive redemption proceeds, a written request must be sent to the Transfer
Agent at its address set forth above under "Redemption by Mail". Requests to
change the bank or account must be signed by each shareholder and each signature
must be guaranteed. An investor cannot redeem shares by telephone if he or she
holds stock certificates for the shares. Please contact 1-800-LIPPER9 for
further details.

REDEMPTION IN KIND

If the Board of Directors of the Company determines that it would be
detrimental to the best interests of the remaining shareholders of the Europe
Equity Fund to make payment wholly or partly in cash, the Fund may pay
redemption proceeds in whole or in part by a distribution of readily marketable
securities held by the Fund in lieu of cash in conformity with applicable rules
of the Securities and Exchange Commission (the "SEC"). Investors may incur
brokerage charges on the sale of securities so received in payment of
redemptions.

EXCHANGE PRIVILEGE

The Exchange Privilege enables investors to purchase, in exchange for
shares of the Europe Equity Fund, shares of certain other Funds of the Company,
to the extent such shares are offered for sale in the investor's state of
residence and the purchase meets the minimum investment and other eligibility
requirements of the Fund into which the investor is exchanging. If an investor
desires to use the Exchange Privilege, he or she should consult the Distributor
or his or her Participating Dealer to determine if it is available and whether
any other conditions are imposed on its use.

Before any exchange, an investor must obtain and should carefully review a
copy of the current prospectus of the Fund into which he or she wishes to
exchange.

Exchanges may be subject to limitations as to amounts or frequency, and to
other restrictions established by the Company's Board of Directors to assure
that exchanges do not disadvantage the Fund's or their shareholders. Shares held
in a broker "street name" may not be exchanged by mail or telephone; an investor
must contact his or her Participating Dealer to exchange such shares. The
Company reserves the right to reject any exchange request in whole or in part.
The Exchange Privilege may be modified or terminated at any time upon notice to
shareholders.

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<PAGE>

The exchange of shares of the Europe Equity Fund for shares of another Fund
is treated for federal income tax purposes as a sale of the shares given in
exchange by the shareholder and, therefore, an exchanging shareholder may
realize a taxable gain or loss.

EXCHANGE BY MAIL

In order to exchange shares by mail, an investor must include in the
exchange request the name and account number for his or her current Fund, the
class of such fund from which he or she wishes to exchange, the name of the Fund
into which he or she wishes to exchange, and the documents described in the
procedures set forth above under "Redemption of Shares-Redemption by Mail". The
request to exchange shares must be sent to:

The Lipper Funds, Inc.
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798

EXCHANGE BY TELEPHONE

Provided that an investor has previously established the telephone exchange
privilege when completing an account application, he or she may request an
exchange of shares by calling the Transfer Agent at 1-800-LIPPER9. If an
investor selects a telephone exchange privilege, he or she authorizes the
Transfer Agent to act on telephone instructions from any person representing
himself or herself to be the investor or a representative of the investor's
Participating Dealer, and reasonably believed by the Transfer Agent to be
genuine. The Company will require the Transfer Agent to employ reasonable
procedures, such as requiring a form of personal identification, to confirm that
instructions are genuine and, if it does not follow such procedures, it may be
liable for any losses due to unauthorized or fraudulent instructions. Neither
the Company nor the Transfer Agent will be liable for following telephone
instructions reasonably believed to be genuine. When exchanging shares by
telephone, an investor should have ready the name and account number for
his or her current Fund, the class of such Fund from which he or she wishes to
exchange, the name of the Fund into which he or she wishes to exchange, his or
her Social Security number or tax I.D. number and account address.

TRANSFER OF REGISTRATION

An investor may transfer the registration of the Europe Equity Fund shares
to another person by writing to the Transfer Agent at the address set forth
above under "Redemption of Shares-Redemption by Mail".

VALUATION OF SHARES

The net asset value per share of each class of shares of the Europe Equity
Fund is calculated Monday through Friday, except on days on which the NYSE is
closed. Currently, the NYSE is closed on New Year's Day, Martin Luther King,
Jr.'s Birthday, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day (observed), Labor Day, Thanksgiving Day and Christmas Day.

The net asset value per share of each class of shares of the Europe Equity
Fund is determined as of the close of regular trading on the NYSE, and is
computed by dividing the value of the net assets of the Europe Equity Fund
attributable to that

23
<PAGE>

class by the total number of shares of that class outstanding. Generally, the
Europe Equity Fund's investments are valued at market value or, in the absence
of a market value with respect to any securities, at fair value as determined by
or under the direction of the Company's Board of Directors. Short-term
investments that mature in 60 days or less are valued at amortized cost whenever
the Board of Directors determines that amortized cost reflects the fair value of
those investments. Occasionally, events which affect the values of such
securities may occur between the times at which they are determined and the
close of the NYSE and will therefore not be reflected in the computation of the
Europe Equity Fund's net asset value. If events materially affecting the value
of such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by or under procedures
established by the Company's Board of Directors. Further information regarding
the Company's valuation policies is contained in the Statement of Additional
Information.

MANAGEMENT OF THE COMPANY

GENERAL

The business and affairs of the Company are managed under the direction of
the Company's Board of Directors. The Board of Directors approves all
significant agreements between the Company and the persons or companies that
furnish services to the Company, including agreements with the Distributor,
Adviser, administrator, custodian and Transfer Agent. The day-to- day operations
of the Company are delegated to the Adviser and to the Company's administrator.
The Statement of Additional Information contains general background information
regarding each director and executive officer of the Company.

INVESTMENT ADVISER

Prime Lipper Asset Management, located at 101 Park Avenue, New York, NY
10178, serves as investment adviser to the Europe Equity Fund. The Adviser is a
joint venture between affiliates of Lipper and Prime S.p.A. and is registered as
an investment adviser under the Investment Advisers Act of 1940, as amended (the
"Advisers Act").

Lipper is a privately owned investment management and investment banking
firm founded in 1987. At December 31, 1997, Lipper and its affiliates managed
assets having an aggregate market value on a gross basis of $4.5 billion on
behalf of its institutional and high net worth clients. Lipper offers
complementary investment strategies in intermediate term high yield bonds,
hedged convertible securities, investment grade bonds, U.S. and European large
capitalization equities and preferred stocks. An affiliate of Lipper also serves
as the general partner to several investment limited partnerships organized in
the U.S. or offshore. Lipper is also registered as a broker-dealer with the SEC
and the NASD.

Prime is a subsidiary of Assicurazioni Generali S.p.A., the Italian
insurance company. Prime, through subsidiaries and affiliates, is among the
largest asset managers in Italy, and specializes in management of portfolios
invested in European issuers, with approximately $5.3 billion of assets under
management as of December 31, 1997 from domestic and international investors.

Kenneth Lipper is co-chairman of the Adviser and its Investment Committee.
Mr. Lipper has also been President of Lipper (together with its predecessor,
Lipper & Company, Inc.) since 1986. Mr. Lipper was a General Partner of Lehman
Brothers Inc. from 1969 to 1975 and a General Partner and Managing Director of
Salomon Brothers Inc from 1976 to 1982. He subsequently served as Deputy Mayor
of New York City from 1983 to 1985. Mr. Lipper is the author of the novel "Wall
Street" and the screenplay "City Hall". He graduated from Columbia University
and Harvard Law School and is a

24
<PAGE>

member of the New York State Bar. As a specialist in corporate finance since
1969, Mr. Lipper has held all levels of responsibility as an adviser to
corporations in mergers, tender offers, convertible issues, asset valuations and
other investment banking transactions. Since 1986, Mr. Lipper has supervised the
investment management and investment banking operations of Lipper. He is a
director of New Holland N.V., a trustee of the Rockefeller Brothers Fund, a
member of the Federal Reserve Bank of New York's International Advisory Board
and a Senior Financial Adviser to the New York City Council. Mr. Lipper also
serves on the Harvard Executive Committee on University Resources, and the
Visitor's Committee of the Kennedy School of Government at Harvard University.

Francesco Taranto is co-chairman of the Adviser and its Investment
Committee. Mr. Taranto is also the Managing Director of Prime. Mr. Taranto
joined PrimeGest S.p.A., an affiliate of Prime, in 1987 as a Managing Director.
Mr. Taranto's market experience dates from 1959, and he is responsible for the
overall supervision of portfolio management of all mutual funds advised by
Prime. As Chairman of Prime's Investment Committee, Mr. Taranto oversees the
development and implementation of investment strategy and asset allocation
policy. Mr. Taranto is also chairman of Banca Generali. Prior to joining Prime,
he served four years as the General Manager of Interbancaria Gestione, a
prominent Milan-based mutual fund company.

Abraham Biderman is an Executive Vice President of the Adviser and a member
of its Investment Committee. Mr. Biderman is also an Executive Vice President of
Lipper and Co-Manager of Lipper Convertibles, L.P. ("Lipper Convertibles"), an
investment limited partnership under management by an affiliate of Lipper and
the Adviser. Mr. Biderman joined Lipper & Company, Inc. in 1990. He was the
Commissioner of the New York City Department of Housing, Preservation and
Development from 1988 to 1989, and in that capacity was responsible for the
largest housing development project in the United States. He was the
Commissioner of the New York City Department of Finance from 1986 to 1988,
responsible for the collection of over $20 billion per year in tax and other
revenues. Mr. Biderman also served as a Special Advisor to former Mayor Edward
I. Koch from 1985 to 1987 and was an Assistant to then-Deputy Mayor Kenneth
Lipper from 1983 to 1985.

Guido Guzzetti is chief investment officer for the Europe Equity Fund and a
member of the Adviser's Investment Committee. Mr. Guzzetti has been associated
with Prime since 1987. He is responsible for the overall investment process of
Prime's Europe Growth investment strategy and for the research and development
of structured asset management products for institutional investors. Mr.
Guzzetti is also responsible for the oversight and management of Prime's
institutional clients. From 1981 through 1986, Mr. Guzzetti was an information
system analyst and sales representative at IBM. Prior to that he was a
researcher on mathematical and numerical modeling at ENI. Mr. Guzzetti holds a
B.A. in Physics from Milan University.

COMPENSATION

For its services under its investment advisory agreement with the Company
with respect to the Europe Equity Fund, the Adviser is entitled to receive an
annual fee computed daily and paid monthly at the annual rate of 1.10%. From
time to time, the Adviser may voluntarily waive for a period of time all or a
portion of the fee to which it is entitled under its investment advisory
agreement with the Company with respect to the Europe Equity Fund.

The investment advisory fees for the Europe Equity Fund are higher than the
investment advisory fees paid by most investment companies, a universe of
companies which includes money market funds and other investment companies that
invest primarily in low risk instruments, and investment companies which are not
actively managed such as index funds. The Adviser believes, however, that such
fees are within the range of fees charged by investment advisers to investment
companies that have comparable investment objectives, policies and strategies to
those of the Europe Equity Fund. The Adviser may from time to time pay certain
Participating Dealers out of its investment advisory fees, past profits or other

25
<PAGE>

sources available to it for providing certain administrative services to their
customers. Such compensation does not represent an additional expense to the
Europe Equity Fund or its shareholders.

DISTRIBUTOR

Lipper & Company, L.P., located at 101 Park Avenue, New York, NY 10178,
serves as the Company's distributor. The Distributor is entitled to receive an
annual distribution fee with respect to the Europe Equity Fund's Retail Shares,
and may receive all or a portion of the annual service fee, if any, paid with
respect to the Fund's Group Retirement Plan Shares. See "Distribution and
Service Plans".

ADMINISTRATOR

Chase Global Funds Services Company, a corporate affiliate of The Chase
Manhattan Bank, serves as the Company's administrator (the "Administrator"). The
Administrator calculates the net asset value of each class of the Europe Equity
Fund's shares and generally assists in all aspects of the Company's
administration and operation. As compensation for its services, the Company pays
the Administrator a monthly fee at the annual rate of 0.20% of the value of the
Company's average daily net assets up to and including $200 million; 0.10% of
the Company's average daily net assets in excess of $200 million up to and
including $400 million; and 0.05% of the Company's average daily net assets in
excess of $400 million. The Administrator is located at 73 Tremont Street,
Boston, MA 02108.

EXPENSES

The Europe Equity Fund's expenses include taxes, interest, fees and
salaries of the Company's directors and officers who are not directors, officers
or employees of the Company's service contractors, SEC fees, state securities
qualification fees, costs of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders, advisory and
administration fees, charges of the custodian and of the transfer and dividend
disbursing agent, certain insurance premiums, outside auditing and legal
expenses, costs of shareholder reports and shareholder meetings and any
extraordinary expenses. The Europe Equity Fund also pays for brokerage fees and
commissions (if any) in connection with the purchase and sale of portfolio
securities. The Europe Equity Fund's expenses are allocated to a particular
class of its shares based on either expenses identifiable to such class or the
relative net assets of such class and the other classes of its shares.

DIVIDENDS

The policy of the Europe Equity Fund is to distribute its net investment
income and net capital gain, if any. Shares of the Europe Equity Fund begin
accruing dividends on the business day following the day a purchase order is
priced and continue to accrue dividends up to and including the day that such
shares are redeemed. Unless a shareholder instructs that dividends and capital
gains distributions on shares of a class be paid in cash and credited to the
shareholder's account at the Distributor or a Participating Dealer, dividends
and capital gains distributions will be reinvested automatically in additional
shares of the same class at the net asset value of that class at the time of
reinvestment.

The Europe Equity Fund intends to distribute substantially all of its net
investment income to shareholders annually. The Europe Equity Fund intends to
distribute net capital gain, if any, with the last dividend for the calendar
year.

26
<PAGE>

exclusively by that class. Shares subject to payments under the Europe Equity
Fund's Distribution or Service Plan will receive lower per share dividends than
shares not subject to such payment because of the higher expenses borne by such
shares.

Each shareholder or its authorized representative will receive an annual
statement detailing the amount of any dividends and distributions made during
each year and their federal tax qualification.

TAXES

The Europe Equity Fund intends to qualify and elect to be treated as a
regulated investment company for federal income tax purposes under Subchapter M
of the Code. If so qualified, the Europe Equity Fund will not be subject to
federal income taxes on its net investment income (i.e., its investment company
taxable income, as that term is defined in the Code, determined without regard
to the deduction for dividends paid) and net capital gain (i.e., the excess of
its net realized long-term capital gain over its net realized short-term capital
loss), if any, that it distributes to its shareholders in each taxable year. To
qualify as a regulated investment company, the Europe Equity Fund must, among
other things, distribute to its shareholders at least 90% of its net investment
income for such taxable year. However, the Europe Equity Fund would be subject
to federal corporate income tax (currently at a maximum rate of 35%) on any
undistributed net investment income or net capital gain. If in any year the
Europe Equity Fund should fail to qualify as a regulated investment company, the
Fund would be subject to federal income tax in the same manner as an ordinary
corporation, and distributions to shareholders would be taxable to such holders
as ordinary income to the extent of the earnings and profits of the Fund.
Distributions in excess of earnings and profits will be treated as a tax-free
return of capital, to the extent of a holder's basis in its shares, and any
excess, as a long- or short-term capital gain.

The Europe Equity Fund intends to distribute substantially all of its net
investment income each year. Such distributions, whether paid in cash or
reinvested in additional shares, of net investment income will be taxable as
ordinary income. Federal income taxes for distributions to an IRA or a qualified
retirement plan are deferred under the Code. A portion of such distributions may
qualify for the dividends-received deduction generally available for corporate
shareholders under the Code. Distributions to shareholders of net capital gain
that are designated by the Europe Equity Fund as "capital gain dividends,"
whether paid in cash or reinvested in additional shares, will be taxable as
long-term capital gain regardless of how long the shares have been held by such
shareholders. Under recently enacted legislation, the maximum rate of tax on
long-term capital gain of individuals will generally be reduced from 28% to 20%
(10% for gain otherwise taxed at 15%) for long-term capital gain realized with
respect to capital assets held for more than 18 months. Shareholders receiving
distributions in the form of additional shares will be treated for federal
income tax purposes as receiving a distribution in an amount equal to the fair
market value of the additional shares on the date of such a distribution.

Gain or loss, if any, recognized on the sale or other disposition of shares
of the Europe Equity Fund will be taxed as capital gain or loss if the shares
are capital assets in the shareholder's hands. Generally, a shareholder's gain
or loss will be capital gain or loss and will be long-term capital gain or loss
if the shares were held for longer than one year. However, if a shareholder
disposes of a share of the Europe Equity Fund before holding it for more than
six months, any loss on the sale or other disposition of such share shall be
treated as a long-term capital loss to the extent of any capital gain dividends
received by the shareholder with respect to such share. A loss realized on a
sale or exchange of shares may be disallowed if other shares of the Europe
Equity Fund are acquired within a 61-day period beginning 30 days before and
ending 30 days after the date on which the shares are disposed.

Dividends and distributions by the Europe Equity Fund are generally taxable
to the shareholders in the year of receipt. Any dividend or distribution
declared by the Europe Equity Fund in October, November or December of any
calendar year,

27
<PAGE>

however, which is payable to shareholders of record on a specified date in such
a month and paid during January of the following year will be treated as
received by the shareholders as of December 31 of such year.

The Europe Equity Fund may engage in hedging. See "Investment Objective and
Policies-Other Investments and Investment Strategies-Hedging and Derivatives".
Such transactions will be subject to special provisions of the Code that, among
other things, may affect the character of gains and losses realized by the
Europe Equity Fund (that is, may affect whether gains or losses are ordinary or
capital), accelerate recognition of income to the Europe Equity Fund and defer
recognition of certain of the Europe Equity Fund's losses. These rules could
therefore affect the character, amount and timing of distributions to
shareholders. In addition, these provisions (1) will require the Europe Equity
Fund to "mark-to-market" certain types of positions in its portfolio (that is,
treat them as if they were closed out) and (2) may cause the Europe Equity Fund
to recognize income without receiving cash with which to pay dividends or make
distributions in amounts necessary to satisfy the distribution requirements for
avoiding income and excise taxes. The Europe Equity Fund intends to monitor its
transactions, will make the appropriate tax elections and will make the
appropriate entries in its books and records when it acquires any forward
contracts, options or hedged investment in order to mitigate the effect of these
rules and prevent disqualification of the Europe Equity Fund as a regulated
investment company.

The Europe Equity Fund may be required to withhold federal income tax at a
rate of 31% ("backup withholding") from dividends and redemption proceeds paid
to non-corporate shareholders. This tax may be withheld from dividends if (1)
the shareholder fails to furnish the Europe Equity Fund with the shareholder's
correct taxpayer identification number, (2) the Internal Revenue Service ("IRS")
notifies the Europe Equity Fund that the shareholder has failed to report
properly certain interest and dividend income to the IRS and to respond to
notices to that effect, or (3) when required to do so, the shareholder fails to
certify that he or she is not subject to backup withholding.

Ordinary income dividends paid by the Europe Equity Fund to shareholders
who are non-resident aliens or foreign entities will be subject to a 30%
withholding tax unless a reduced rate of withholding or a withholding exemption
is provided under applicable treaty law or the income is "effectively connected"
with a U.S. trade or business. Generally, subject to certain exceptions, capital
gain dividends paid to non-resident shareholders or foreign entities will not be
subject to U.S. tax. Non-resident shareholders are urged to consult their own
tax advisers concerning the applicability of the U.S. withholding tax.

If the Europe Equity Fund qualifies as a regulated investment company and
more than 50% of the value of its assets at the close of any taxable year
consists of stock or securities of foreign corporations, the Europe Equity Fund
may elect, for United States federal income tax purposes, to treat any foreign
country's income and withholding taxes paid by it that can be treated as income
taxes under the United States income tax principles, as paid by its
shareholders.

If the Europe Equity Fund invests in stock of a "passive foreign investment
company" ("PFIC"), it may be subject to federal income tax at ordinary rates,
and an additional charge in the nature of interest, on a portion of its
distributions from the PFIC, even if such distributions and gain are paid by the
Europe Equity Fund as a dividend to its shareholders. In some cases, the Europe
Equity Fund may be able to elect to include annually in income its pro rata
share of the ordinary earnings and capital gains (whether or not distributed) of
the PFIC. Alternatively, under recent legislation, the Europe Equity Fund could
elect to mark to market at the end of each taxable year its shares in PFICs; in
this case, the Europe Equity Fund would recognize as ordinary income any
increase in the value of such shares, and as ordinary loss any decrease in such
value to the extent it did not exceed prior increases included in income. Under
either election, the Europe Equity Fund might be required to recognize in a year
income in excess of its distributions from PFICs and its proceeds from
dispositions of PFIC stock during that year.

28
<PAGE>

The foregoing discussion is only a brief summary of the important federal
tax considerations generally affecting the Europe Equity Fund and its
shareholders. As noted above, IRAs and qualified retirement plans receive
special tax treatment. No attempt is made to present a detailed explanation of
the federal, state or local income tax treatment of the Europe Equity Fund or
its shareholders, and this discussion is not intended as a substitute for
careful tax planning. Accordingly, potential investors in the Europe Equity Fund
should consult their tax advisers with specific reference to their own tax
situation.

THE TRANSFER

As discussed above under "The Transfer," to the extent that the Europe
Equity Fund acquired securities in the Transfer that have appreciated in value
from the date originally acquired by its corresponding Partnership, the Transfer
may have adverse tax consequences to investors who acquire shares of the Europe
Equity Fund in the continuous offering after the Transfer. If the Europe Equity
Fund sells securities acquired in the Transfer that have appreciated in value
from the date they were acquired by its corresponding Partnership, the amount of
any gain with respect to such securities (including any appreciation in value
from the date they were acquired by the Partnership through the date of the
Transfer) would be taxable to all shareholders, including new shareholders as
well as those shareholders who were former limited partners of the Partnership.

PERFORMANCE INFORMATION

From time to time, the "total return," "yield" and "effective yield" of
each class of shares of the Europe Equity Fund may be quoted in advertisements
or reports to shareholders. Total return figures show the average percentage
change in the value of an investment from the beginning date of the measuring
period to the end of the measuring period. These figures reflect changes in the
price of the Europe Equity Fund's class of shares and assume that any income
dividends and/or capital gains distributions made by the Fund during the period
were reinvested. These figures also take into account the distribution fee
payable with respect to the Europe Equity Fund's Retail Shares and the service
fee, if any, payable with respect to the Fund's Group Retirement Plan Shares.
See "Distribution and Service Plans".

Total return figures will be given for the recent one-, five- and ten-year
periods, if available, and may be given for other periods as well, such as on a
year-by-year basis. With respect to the Europe Equity Fund, total return figures
for each class of shares will include the performance of the predecessor
Partnership to the Fund, as described below. When considering average annual
total return figures for periods longer than one year, it is important to note
that the total return for any one year in the period might have been greater or
less than the average for the entire period. "Aggregate total return" figures
may be used for various periods, representing the cumulative change in value of
an investment for the specific period (again reflecting changes in prices and
assuming reinvestment of dividends and distributions). Aggregate total return
may be shown by means of schedules, charts or graphs and may indicate subtotals
of the various components of total return (that is, change in the value of
initial investment, income dividends and capital gains distributions). Because
of the differences in distribution and service fees and certain other expenses,
the performance of each of the classes of the Europe Equity Fund will differ.

In reports or other communications to shareholders or in advertising
materials, performance of the Europe Equity Fund may be compared with that of
other mutual funds or classes of shares of other mutual funds, as listed in the
rankings prepared by independent services that monitor the performance of mutual
funds, or other industry or financial publications such as Barron's, Business
Week, CDA Investment Technologies, Inc., Changing Times, Forbes, Fortune,
Institutional Investor, Investors Business Daily, Money, Morningstar Mutual
Company Values, The New York Times, USA Today and The Wall Street Journal.

29
<PAGE>

Performance figures are based on historical earnings and are not intended to
indicate future performance. The Statement of Additional Information contains a
further description of the methods used to determine performance. Investors may
contact the Distributor to obtain current performance figures.

The investment performance of the Europe Equity Fund for various periods
through December 31, 1997 is illustrated below. Performance information for the
Europe Equity Fund for periods prior to April 1, 1996 reflects the performance
of the Fund's predecessor Partnership. The predecessor Partnership to the Europe
Equity Fund commenced operations on January 13, 1992. The investment objectives
and policies of the Europe Equity Fund are in all material respects equivalent
to those of its corresponding Partnership. While the Europe Equity Fund is
managed in a manner that is in all material respects equivalent to the
management of its corresponding Partnership, the Europe Equity Fund is subject
to certain restrictions on its activities under the 1940 Act and the Code to
which its corresponding Partnership was not subject. Had the Partnership been
registered under the 1940 Act and subject to the provisions of the Code, its
investment performance may have been adversely affected. Operating expenses
incurred by the Europe Equity Fund (before any voluntary fee waivers and
reimbursements) are expected to be higher than the expenses that would have been
incurred by its corresponding Partnership. Past performance of the Europe Equity
Fund (including where applicable its corresponding Partnership) should not be
considered as indicative of the Fund's future performance.

<TABLE>
<CAPTION>
TOTAL RETURN

Aggregate Return Average Annual Return
12 Months Ended for Five Years Ended for Five Years Ended Average Annual
December 31, 1997(1) December 31, 1997(2) December 31, 1997(2) Return Since Inception(2)
-------------------- -------------------- -------------------- -------------------------
<S> <C> <C> <C> <C>
EUROPE EQUITY FUND
Premier Shares 18.83% 109.13% 15.88% 12.59%
Retail Shares 18.49% 108.28% 15.79% 12.51%
Group Retirement Plan Shares 18.60% 108.33% 15.79% 12.52%
</TABLE>

- ----------

(1) Fee waivers and reimbursements were in effect for the Europe Equity Fund
during 1996 without which total returns would have been lower.

(2) The Europe Equity Fund's Retail and Group Retirement Plan Shares were
introduced on April 12, 1996. Performance information for the Retail and
Group Retirement Plan Shares prior to their introduction dates reflects the
performance of the Europe Equity Fund's Premier Shares which are not
subject to shareholder servicing or distribution expenses borne by these
classes of shares.

ADDITIONAL INFORMATION

The Company was incorporated in Maryland on August 22, 1995. The authorized
capital stock of the Company consists of 10,000,000,000 shares having a par
value of $.001 per share. The Company's Charter currently authorizes the
issuance of three series of shares, one series corresponding to each of the
Europe Equity Fund, Lipper U.S. Equity Fund and Lipper High Income Bond Fund,
and three classes of shares with respect to each series, Premier Shares, Retail
Shares and Group Retirement Plan Shares. The Company's Board of Directors may,
in the future, authorize the issuance of additional series of capital stock
representing shares of additional investment funds or additional classes of
shares of the Funds.

Shares of each class of the Europe Equity Fund represent interests in the
Fund in proportion to the net asset value of each class. The Europe Equity
Fund's expenses are allocated to each class of the Fund's shares based upon
expenses identifiable by class or the relative net assets of the class and the
other classes of its shares.

30
<PAGE>

All shares of the Company, when issued, will be fully paid and
nonassessable.

The Chase Manhattan Bank is located at 270 Park Avenue, New York, NY 10017,
and serves as custodian of the Company's investments.

Chase Global Funds Services Company is located at 73 Tremont Street,
Boston, MA 02108, and serves as the Company's transfer agent.

The Europe Equity Fund sends shareholders a semi-annual and audited annual
report, which includes listings of investment securities held by the Fund at the
end of the period covered. In an effort to reduce the Europe Equity Fund's
printing and mailing costs, the Fund may consolidate the mailing of its
semi-annual and annual reports by household. This consolidation means that a
household having multiple accounts with the identical address of record would
receive a single copy of each report. In addition, the Europe Equity Fund may
consolidate the mailing of its Prospectus so that a shareholder of the Fund
having multiple accounts would receive a single Prospectus annually. Any
shareholder who does not want this consolidation to apply to his or her account
should contact the Transfer Agent. Shareholders may direct inquiries regarding
the Company to 1-800-LIPPER9.

31
<PAGE>

INVESTMENT ADVISER

Prime Lipper Asset Management THE LIPPER FUNDS, INC.
101 Park Avenue, 6th Floor
New York, NY 10178

(212) 883-6333 PRIME LIPPER EUROPE EQUITY FUND

ADMINISTRATOR AND TRANSFER AGENT

Chase Global Funds Services Company
73 Tremont Street, 9th Floor
Boston, MA 02108
1-800-LIPPER9

CUSTODIAN

The Chase Manhattan Bank
270 Park Avenue
New York, NY 10017

PROSPECTUS AND

LEGAL COUNSEL NEW ACCOUNT APPLICATION

Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036

BOARD OF DIRECTORS
Kenneth Lipper
Chairman of the Board,
The Lipper Funds, Inc.
President and Chairman,
Lipper & Company

Stanley Brezenoff
Chief Executive Officer,
Maimonides Medical Center

Martin Maltz
Principal Scientist,
Xerox Corporation

Irwin Russell
Attorney,
Law Offices of Irwin E. Russell
Director,
The Walt Disney Company

<PAGE>

LIPPER HIGH INCOME BOND FUND
LIPPER U.S. EQUITY FUND
PRIME LIPPER EUROPE EQUITY FUND

The Lipper Funds, Inc.
101 Park Avenue
New York, NY 10178
For information call 1-800-LIPPER 9

STATEMENT OF ADDITIONAL INFORMATION

March 25, 1998

The Lipper Funds, Inc. (the "Company") is an open-end investment company
which offers three diversified portfolios: Lipper High Income Bond Fund (the
"High Income Bond Fund"), Lipper U.S. Equity Fund (the "U.S. Equity Fund") and
Prime Lipper Europe Equity Fund (the "Europe Equity Fund" and, together with the
High Income Bond Fund and the U.S. Equity Fund, the "Funds"). This Statement of
Additional Information should be read in conjunction with the Funds'
Prospectuses dated March 25, 1998 (which may be amended or supplemented from
time to time) (the "Prospectuses"), and is incorporated by reference in its
entirety into the Prospectuses.

This Statement of Additional Information is not itself a prospectus and is
authorized for distribution only when preceded or accompanied by a prospectus.
No investment in shares of the Funds should be made solely upon the information
contained herein. Copies of the Prospectuses may be obtained without charge by
writing or calling the Company at the address and telephone number set forth
above. Capitalized terms used but not defined herein have the same meanings as
in the Prospectuses.

TABLE OF CONTENTS

Page
----

Investment Objectives and Policies......................................... 2
Investment Limitations..................................................... 10
Additional Purchase Information............................................ 12
Additional Redemption Information.......................................... 12
Valuation of Shares........................................................ 12
Management of the Company.................................................. 13
Principal Holders of Securities............................................ 18
Distribution and Service Plans............................................. 24
Additional Information Concerning Taxes.................................... 25
Performance Data........................................................... 28
Additional Information Concerning Fund Shares.............................. 30
Counsel.................................................................... 31
Independent Accountants.................................................... 31
Financial Statements....................................................... 31

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INVESTMENT OBJECTIVES AND POLICIES

The investment objective of the High Income Bond Fund is high current
income. The investment objective of the U.S. Equity Fund and the Europe Equity
Fund is capital appreciation. The following policies supplement the description
of each Fund's investment objective and policies in the Prospectuses.

PORTFOLIO TRANSACTIONS

Subject to the general control of the Company's Board of Directors, Lipper
& Company, L.L.C., the investment adviser to the High Income Bond Fund and the
U.S. Equity Fund (the "U.S. Adviser"), and Prime Lipper Asset Management, the
investment adviser to the Europe Equity Fund (the "European Adviser" and,
together with the U.S. Adviser, the "Advisers") are responsible for making
decisions with respect to, and placing orders for, all purchases and sales of
portfolio securities for the Fund(s) for which each serves as investment
adviser. The High Income Bond Fund's portfolio transactions will occur primarily
with issuers, underwriters and major dealers acting as principals, and the U.S.
Equity Fund's and the Europe Equity Fund's portfolio transactions may consist of
such transactions. Such transactions are normally on a net basis which does not
involve payment of brokerage commissions. The cost of securities purchased from
underwriters includes an underwriter's commission or concession, and the prices
at which securities are purchased from and sold to dealers include an
undisclosed dealer spread. Transactions on foreign securities exchanges may
involve the payment of negotiated brokerage commissions, which may vary among
different brokers, or the payment of fixed brokerage commissions. In making
portfolio investments, the Advisers seek to obtain the best net price and the
most favorable execution of orders. To the extent that the execution and price
offered by more than one broker or dealer are comparable, the Advisers may, in
their discretion, effect transactions in portfolio securities with brokers or
dealers who provide the Advisers with research advice or other services.
Research advice and other services furnished by brokers through whom the Funds
effect securities transactions may be used by the Advisers in servicing accounts
in addition to the Funds, and not all such services will necessarily benefit the
Funds.

With respect to over-the-counter transactions, the Funds, where possible,
will deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere.

Investment decisions for each Fund are made independently from those for
the other Funds or other investment company portfolios or accounts advised by
the Advisers. Such other portfolios may also invest in the same securities as
the Funds. When purchases or sales of the same security are made at
substantially the same time on behalf of such other portfolios or accounts,
transactions are averaged as to price, and available investments allocated as to
amount, in a manner which the Advisers believe to be equitable to each
portfolio, including the Funds, pursuant to procedures adopted by the Advisers.
In some instances, this investment procedure may adversely affect the price paid
or received by the Funds or the size of the position obtainable for a Fund. To
the extent permitted by law, the Advisers may aggregate the securities to be
sold or purchased for the Funds with those to be sold or purchased for such
other portfolios or accounts in order to obtain best execution.

The Funds will not execute portfolio transactions through, acquire
portfolio securities issued by or enter into repurchase agreements with the
Advisers or any affiliated person (as such term is defined in the Investment
Company Act of 1940, as amended (the "1940 Act")) of the Advisers, except to the
extent permitted by the Securities and Exchange Commission (the "SEC"). The
Funds will not purchase securities during the existence of any underwriting or
selling group relating thereto of which the Advisers or any affiliate thereof is
a member, except to the extent permitted by the SEC. Under certain
circumstances, the Funds may be at a disadvantage because of these limitations
in comparison with other

<PAGE>

investment company portfolios which have similar investment objectives but are
not subject to such limitations.

The portfolio turnover rate of a Fund is calculated by dividing the lesser
of sales or purchases of portfolio securities for any given year by the average
monthly value of the Fund's portfolio securities for that year. For purposes of
this calculation, no regard is given to securities having a maturity or
expiration date at the time of acquisition of one year or less. Portfolio
turnover directly affects the amount of transaction costs that are borne by each
Fund. Higher portfolio turnover results in the incurrence of higher transaction
costs.

ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS AND CERTAIN INVESTMENT
STRATEGIES

U.S. GOVERNMENT OBLIGATIONS. Examples of the types of U.S. government
securities that may be held by the Funds include, in addition to U.S. Treasury
Bills, the obligations of the Federal Housing Administration, Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association, Federal National
Mortgage Association, Federal Financing Bank, General Services Administration,
Student Loan Marketing Association, Central Bank for Cooperatives, Federal Home
Loan Banks, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit
Banks, Federal Land Banks, Federal Farm Credit Banks, Maritime Administration,
Resolution Trust Corporation, Tennessee Valley Authority and the U.S. Postal
Service.

DEPOSITARY RECEIPTS. A purchaser of unsponsored Depositary Receipts may not
have unlimited voting rights and may not receive as much information about the
issuer of the underlying security as with sponsored Depositary Receipts.
Depositary Receipts evidence ownership of underlying securities issued by either
a non-U.S. or a U.S. corporation that have been deposited with a depositary or
custodian bank. Depositary Receipts may be issued in connection with an offering
of securities by the issuer of the underlying securities or issued by a
depositary bank as a vehicle to promote investment and trading in the underlying
securities. ADRs are receipts issued by U.S. banks or trust companies in respect
of securities of non-U.S. issuers held on deposit for use in the U.S. securities
markets. GDRs, EDRs and other types of Depositary Receipts are typically issued
by a U.S. bank or trust company and traded principally in the U.S. and other
international markets.

BANK OBLIGATIONS. Bank obligations include negotiable certificates of
deposit, bankers' acceptances, fixed time deposits and deposit notes. A
certificate of deposit is a short-term negotiable certificate issued by a
commercial bank against funds deposited in the bank and is either
interest-bearing or purchased on a discount basis. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. The borrower is liable for payment
as is the bank, which unconditionally guarantees to pay the draft at its face
amount on the maturity date. Fixed time deposits are obligations of branches of
United States banks or foreign banks which are payable at a stated maturity date
and bear a fixed rate of interest. Although fixed time deposits do not have a
market, there are no contractual restrictions on the right to transfer a
beneficial interest in the deposit to a third party. Fixed time deposits subject
to withdrawal penalties and with respect to which a Fund cannot realize the
proceeds thereon within seven days are deemed "illiquid" for the purposes of the
ninth investment limitation set forth under "Investment Limitations" below.
Deposit notes are notes issued by commercial banks which generally bear fixed
rates of interest and typically have original maturities ranging from eighteen
months to five years.

Banks are subject to extensive governmental regulations that may limit both
the amounts and types of loans and other financial commitments that may be made
and the interest rates and fees that may be charged. The profitability of this
industry is largely dependent upon the availability and cost of capital

<PAGE>

funds for the purpose of financing lending operations under prevailing money
market conditions. Also, general economic conditions play an important part in
the operations of this industry and exposure to credit losses arising from
possible financial difficulties of borrowers might affect a bank's ability to
meet its obligations. Bank obligations may be general obligations of the parent
bank or may be limited to the issuing branch by the terms of the specific
obligations or by government regulation. Investors should also be aware that
securities of foreign banks and foreign branches of U.S. banks may involve
investment risks in addition to those relating to domestic bank obligations.
Such risks include future political and economic developments, the possible
seizure or nationalization of foreign deposits, and the possible adoption of
foreign governmental restrictions which might adversely affect the payment of
principal and interest on such obligations. In addition, foreign branches of
U.S. banks and foreign banks may be subject to less stringent reserve
requirements and non-U.S. issuers generally are subject to different accounting,
auditing, reporting and recordkeeping standards than those applicable to U.S.
issuers.

CONVERTIBLE SECURITIES. A unique feature of convertible securities is that
as the market price of the underlying security declines, convertible securities
tend to trade increasingly on a yield basis, and so may not experience market
value declines to the same extent as the underlying security. When the market
price of the underlying security increases, the price of the convertible
securities tends to rise as a reflection of the value of the underlying
security. Fixed income convertible securities are investments that provide for a
stable stream of income with generally higher yields than common stocks. Of
course, like all fixed income securities, there can be no assurance of current
income because the issuers of the fixed income convertible securities may
default on their obligations. Convertible securities, however, generally offer
lower interest or dividend yields than non-convertible securities of similar
quality because of the potential for capital appreciation. A fixed income
convertible security, in addition to providing fixed income, offers the
potential for capital appreciation through the conversion feature, which enables
the holder to benefit from increases in the market price of the underlying
security. There can be no assurance of capital appreciation, however, because
securities prices fluctuate. Convertible securities generally are subordinated
to other similar but non-convertible securities of the same issuer, although
convertible bonds, as corporate debt obligations, enjoy seniority in right of
payment to all equity securities, and convertible preferred stock is senior to
common stock of the same issuer. Because of the subordination feature, however,
convertible securities typically have lower ratings than similar non-convertible
securities.

REPURCHASE AGREEMENTS. The repurchase price under the repurchase agreements
described in the Prospectuses generally equals the price paid by a Fund plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the securities underlying the repurchase agreement).
Securities subject to repurchase agreements will be held by the Company's
custodian, sub-custodian or in the Federal Reserve/Treasury book-entry system.
Repurchase agreements are considered to be loans by a Fund under the 1940 Act.
Each Fund will enter into repurchase agreements only with counterparties
determined to be creditworthy in accordance with standards adopted by the
Company's Board of Directors.

REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements are considered
to be borrowings by a Fund under the 1940 Act. Reverse repurchase agreements
involve the risk that the market value of the portfolio securities sold by a
Fund may decline below the price of the securities such Fund is obligated to
repurchase. Each Fund will enter into reverse repurchase agreements only with
counterparties determined to be creditworthy by its Adviser.

LOANS OF PORTFOLIO SECURITIES. Each Fund has the ability to lend securities
from its portfolio to brokers, dealers and other financial organizations. There
is no investment restriction on the amount of securities that may be loaned. The
Funds may not lend their portfolio securities to the Advisers or their
affiliates without specific authorization from the SEC. Loans of portfolio
securities by a Fund will be

<PAGE>

collateralized by cash, letters of credit or securities which are consistent
with its permitted investments, which will be maintained at all times in an
amount equal to at least 100% of the current market value of the loaned
securities. From time to time, the Funds may return a part of the interest
earned from the investment of collateral received for securities loaned to the
borrower and/or a third party, which is unaffiliated with the Funds or the
Advisers, and which is acting as a "finder." With respect to loans by a Fund of
its portfolio securities, such Fund would continue to accrue interest on loaned
securities and would also earn income on loans. Any cash collateral received by
a Fund in connection with such loans would be invested in securities in which
such Fund is permitted to invest.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Fund may purchase
securities on a "when issued" or delayed delivery basis (i.e., for delivery
beyond the normal settlement date at a stated price). When a Fund agrees to
purchase when-issued or delayed delivery securities, the custodian will set
aside cash or liquid portfolio securities equal to the amount of the commitment
in a separate account. Normally, the custodian will set aside portfolio
securities to satisfy a purchase commitment, and in such a case a Fund may be
required subsequently to place additional assets in the separate account in
order to ensure that the value of the account remains equal to the amount of a
Fund's commitment. It may be expected that a Fund's net assets will fluctuate to
a greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. When a Fund engages in when-issued or
delayed delivery transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in such Fund incurring a loss or
missing an opportunity to obtain a price considered to be advantageous.

ILLIQUID AND RESTRICTED SECURITIES. Each Fund may not invest more than 15%
of its assets in illiquid securities, including securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Securities that have legal or contractual restrictions
on resale but have a readily available market are not considered illiquid for
purpose of this limitation.

The SEC has adopted Rule 144A under the Securities Act of 1933, as amended
(the "Securities Act"), which allows for a broader institutional trading market
for securities otherwise subject to restrictions on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. The Advisers anticipate that the market for certain
restricted securities will expand further as a result of this regulation and the
development of automated systems for the trading, clearance and settlement of
unregistered securities of domestic and non-U.S. issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.

Each Adviser will monitor the liquidity of restricted and other illiquid
securities under the supervision of the Board of Directors. In reaching
liquidity decisions with respect to Rule 144A securities, the Advisers will
consider, among others, the following factors: (1) the unregistered nature of a
Rule 144A security; (2) the frequency of trades and quotes for a Rule 144A
security; (3) the number of dealers wishing to purchase or sell the Rule 144A
security and the number of other potential purchasers; (4) dealer undertakings
to make a market in the Rule 144A security; (5) the trading markets for the Rule
144A security; and (6) the nature of the Rule 144A security and the nature of
the marketplace trades (e.g., the time needed to dispose of the Rule 144A
security, the method of soliciting offers and the mechanics of the transfer).

Appendix A to the High Income Bond Fund Prospectus contains a description
of the relevant rating symbols used by nationally recognized rating agencies for
obligations that may be purchased by the Funds.

<PAGE>

ADDITIONAL INFORMATION REGARDING HEDGING AND DERIVATIVES

As described in the Prospectuses, each Fund is authorized to use various
hedging and investment strategies to hedge market risks (such as broad or
specific market movements and interest rates, or other factors relevant to the
Fund's investments, such as rates of inflation), to manage the effective
maturity or duration of debt instruments held by the Fund, or to seek to
increase the Fund's income or gain. A detailed discussion of Derivatives (as
defined below) that may be used by the Advisers on behalf of the Funds follows
below. The Funds will not be obligated, however, to use any Derivatives and make
no representations as to the availability or use of these techniques at this
time or at any time in the future. "Derivatives," as used herein, refers to the
purchase and sale (or writing) of exchange listed and over-the-counter ("OTC")
put and call options on securities, securities indices, currencies and other
financial instruments, and entering into currency forward contracts.

GENERAL CHARACTERISTICS OF OPTIONS. Put options and call options typically
have similar structural characteristics and operational mechanics regardless of
the underlying instrument on which they are purchased or sold. Thus, the
following general discussion relates to each of the particular types of options
discussed in greater detail below. In addition, many Derivatives involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."

A put option gives the purchaser of the option, upon payment of a premium,
the right to sell, and the writer the obligation to buy, the underlying
security, index or other instrument at the exercise price. A Fund's purchase of
a put option on a security, for example, might be designed to protect its
holdings in the underlying instrument (or, in some cases, a similar instrument)
against a substantial decline in the market value of such instrument by giving
such Fund the right to sell the instrument at the option exercise price. A call
option, upon payment of a premium, gives the purchaser of the option the right
to buy, and the seller the obligation to sell, the underlying instrument at the
exercise price. A Fund's purchase of a call option on a security, index or other
instrument might be intended to protect such Fund against an increase in the
price of the underlying instrument that it intends to purchase in the future by
fixing the price at which it may purchase the instrument. An "American" style
put or call option may be exercised at any time during the option period,
whereas a "European" style put or call option may be exercised only upon
expiration or during a fixed period prior to expiration. Exchange-listed options
are issued by a regulated intermediary such as the Options Clearing Corporation
("OCC"), which guarantees the performance of the obligations of the parties to
the options. The discussion below uses the OCC as an example, but is also
applicable to other similar financial intermediaries.

OCC-issued and exchange-listed options, with certain exceptions, generally
settle by physical delivery of the underlying security, although in the future,
cash settlement may become available. Index options are cash settled for the net
amount, if any, by which the option is "in-the-money" (that is, the amount by
which the value of the underlying instrument exceeds, in the case of a call
option, or is less than, in the case of a put option, the exercise price of the
option) at the time the option is exercised. Frequently, rather than taking or
making delivery of the underlying instrument through the process of exercising
the option, listed options are closed by entering into offsetting purchase or
sale transactions that do not result in ownership of the new option.

A Fund's ability to close out its position as a purchaser or seller of an
OCC-issued or exchange-listed put or call option is dependent, in part, upon the
liquidity of the particular option market. Among the possible reasons for the
absence of a liquid option market on an exchange are: (1) insufficient trading
interest in certain options; (2) restrictions on transactions imposed by an
exchange; (3) trading halts, suspensions or other restrictions imposed with
respect to particular classes or series of options or

<PAGE>

underlying securities, including reaching daily price limits; (4) interruption
of the normal operations of the OCC or an exchange; (5) inadequacy of the
facilities of an exchange or the OCC to handle current trading volume; or (6) a
decision by one or more exchanges to discontinue the trading of options (or a
particular class or series of options), in which event the relevant market for
that option on that exchange would cease to exist, although any such outstanding
options on that exchange would continue to be exercisable in accordance with
their terms.

The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that would not be reflected in the corresponding option
markets.

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties (collectively referred to as "Counterparties" and
individually referred to as a "Counterparty") through a direct bilateral
agreement with the Counterparty. In contrast to exchange-listed options, which
generally have standardized terms and performance mechanics, all of the terms of
an OTC option, including such terms as method of settlement, term, exercise
price, premium, guarantees and security, are determined by negotiation of the
parties. It is anticipated that any Fund authorized to use OTC options will
generally only enter into OTC options that have cash settlement provisions,
although it will not be required to do so.

Unless the parties provide for it, no central clearing or guarantee
function is involved in an OTC option. As a result, if a Counterparty fails to
make or take delivery of the security or other instrument underlying an OTC
option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, such Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Thus, a Fund's Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be met.
A Fund will enter into OTC option transactions only with U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York as
"primary dealers," or broker-dealers, domestic or foreign banks, or other
financial institutions that its Adviser deems to be creditworthy. In the absence
of a change in the current position of the staff of the SEC, OTC options
purchased by a Fund and the amount of such Fund's obligation pursuant to an OTC
option sold by such Fund (the cost of the sell-back plus the in-the-money
amount, if any) or the value of the assets held to cover such options will be
deemed illiquid.

If a Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments held by such Fund or will
increase such Fund's income. Similarly, the sale of put options can also provide
gains.

A Fund may purchase and sell call options on securities that are traded on
U.S. and foreign securities exchanges and in the OTC markets, and on securities
indices. All calls sold by a Fund must be "covered" (that is, such Fund must own
the securities subject to the call), or must otherwise meet the asset
segregation requirements described below for so long as the call is outstanding.
Even though a Fund will receive the option premium to help protect it against
loss, a call sold by such Fund will expose such Fund during the term of the
option to possible loss of opportunity to realize appreciation in the market
price of the underlying security or instrument and may require such Fund to hold
a security or instrument that it might otherwise have sold.

Each Fund reserves the right to purchase or sell options on instruments and
indices which may be developed in the future to the extent consistent with
applicable law, such Fund's investment objective and the restrictions set forth
herein.

<PAGE>

Each Fund may purchase and sell put options on securities (whether or not
it holds the securities in its portfolio) and on securities indices. A Fund will
not sell put options if, as a result, more than 50% of such Fund's assets would
be required to be segregated to cover its potential obligations under put
options. In selling put options, a Fund faces the risk that it may be required
to buy the underlying security at a disadvantageous price above the market
price.

OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES. Each Fund may
purchase and sell call and put options on securities indices and other financial
indices. In so doing, a Fund can achieve many of the same objectives it would
achieve through the sale or purchase of options on individual securities or
other instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, options on indices
settle by cash settlement; that is, an option on an index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of the index upon which the option is based exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of the option
(except if, in the case of an OTC option, physical delivery is specified). This
amount of cash is equal to the excess of the closing price of the index over the
exercise price of the option, which also may be multiplied by a formula value.
The seller of the option is obligated, in return for the premium received, to
make delivery of this amount. The gain or loss on an option on an index depends
on price movements in the instruments comprising the market, market segment,
industry or other composite on which the underlying index is based, rather than
price movements in individual securities, as is the case with respect to options
on securities.

OPTIONS ON CURRENCIES. Each Fund may purchase and sell put and call options
on foreign currencies for the purposes of protecting against declines in the
U.S. dollar value of foreign portfolio securities and anticipated dividends on
such securities and against increases in the U.S. dollar cost of foreign
securities to be acquired. Each Fund may use options on currency to cross-hedge,
which involves writing or purchasing options of one currency to hedge against
changes in exchange rates for a different currency, if there is a pattern of
correlation between the two currencies. As with other kinds of options
transactions, however, the writing of an option on foreign currency will
constitute only a partial hedge, up to the amount of the premium received. A
Fund could be required to purchase or sell foreign currencies at disadvantageous
exchange rates, thereby incurring losses. The purchase of an option on foreign
currency may constitute an effective hedge against exchange rate fluctuations;
however, in the event of exchange rate movements adverse to a Fund's position,
the Fund may forfeit the entire amount of the premium plus related transactions
costs. In addition, a Fund may purchase call or put options on a currency for
non-hedging purposes when its Adviser anticipates that the currency will
appreciate or depreciate in value, but securities denominated in that currency
do not present attractive investment opportunities. Currency transactions are
subject to risks different from other portfolio transactions, as discussed below
under "Risk Factors."

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Each Fund may enter into
forward foreign currency exchange contracts ("forward contracts") which provide
for the purchase or sale of an amount of a specified currency at a future date.
Purposes for which such contracts may be used include protecting against
fluctuations in the value of a foreign currency against the U.S. dollar between
the trade date and settlement date when a Fund purchases or sells securities,
locking in the U.S. dollar value of dividends declared on securities held by a
Fund and generally protecting the U.S. dollar value of securities held by a Fund
against exchange rate fluctuation.

<PAGE>

COMBINED TRANSACTIONS. A Fund may enter into multiple transactions,
including multiple options transactions, multiple interest rate transactions and
any combination of options and interest rate transactions, instead of a single
Derivative, as part of a single or combined strategy when, in the judgment of
its Adviser, it is in the best interests of such Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions will normally be
entered into by a Fund based on its Adviser's judgment that the combined
strategies will reduce risk or otherwise more effectively achieve the desired
portfolio management goal, it is possible that the combination will instead
increase the risks or hinder achievement of such Fund's management objective.

RISK FACTORS. Derivatives have special risks associated with them,
including possible default by the Counterparty to the transaction, illiquidity
and, to the extent an Adviser's view as to certain market movements is
incorrect, the risk that the use of the Derivatives could result in losses
greater than if they had not been used. Use of put and call options could result
in losses to a Fund, force the sale or purchase of portfolio securities at
inopportune times or for prices higher than (in the case of put options) or
lower than (in the case of call options) current market values, or cause a Fund
to hold a security it might otherwise sell.

The use of options transactions entails certain special risks. In
particular, options markets could be illiquid in some circumstances and certain
over-the-counter options could have no markets. As a result, in certain markets,
a Fund might not be able to close out a transaction without incurring
substantial losses. Although a Fund's use of options transactions for hedging
should tend to minimize the risk of loss due to a decline in the value of the
hedged position, at the same time it will tend to limit any potential gain to
the Fund that might result from an increase in value of the position.

Currency hedging involves some of the same risks and considerations as
other transactions with similar instruments. Currency transactions can result in
losses to a Fund if the currency being hedged fluctuates in value to a degree or
in a direction that is not anticipated. Further, the risk exists that the
perceived linkage between various currencies may not be present or may not be
present during the particular time that a Fund is engaging in hedging. Currency
transactions are also subject to risks different from those of other portfolio
transactions. Because currency control is of great importance to the issuing
governments and influences economic planning and policy, purchases and sales of
currency and related instruments can be adversely affected by government
exchange controls, limitations or restrictions on repatriation of currency, and
manipulations or exchange restrictions imposed by governments. Currency exchange
rates may fluctuate based on factors extrinsic to the issuing countries'
economies.

Losses resulting from the use of Derivatives will reduce a Fund's net asset
value, and possibly income, and the losses can be greater than if Derivatives
had not been used.

RISKS OF DERIVATIVES OUTSIDE THE UNITED STATES. When conducted outside the
United States, Derivatives may not be regulated as rigorously as in the United
States, may not involve a clearing mechanism and related guarantees, and will be
subject to the risk of governmental actions affecting trading in, or the prices
of, foreign securities and other instruments. The value of positions taken as
part of non-U.S. Derivatives also could be adversely affected by: (1) other
complex foreign political, legal and economic factors; (2) lesser availability
of data on which to make trading decisions than in the United States; (3) delays
in a Fund's ability to act upon economic events occurring in foreign markets
during non-business hours in the United States; (4) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States; and (5) lower trading volume and liquidity.

<PAGE>

USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Use of many Derivatives by a
Fund will require, among other things, that such Fund segregate cash or other
assets with its custodian, or a designated sub-custodian, to the extent such
Fund's obligations are not otherwise "covered" through ownership of the
underlying security or financial instrument. In general, either the full amount
of any obligation by a Fund to pay or deliver securities or assets must be
covered at all times by the securities or instruments required to be delivered,
or, subject to any regulatory restrictions, an amount of cash or other assets at
least equal to the current amount of the obligation must be segregated with the
custodian or sub-custodian. The segregated assets cannot be sold or transferred
unless equivalent assets are substituted in their place or it is no longer
necessary to segregate them. A call option on securities written by a Fund, for
example, will require such Fund to hold the securities subject to the call (or
securities convertible into the needed securities without additional
consideration) or to segregate assets sufficient to purchase and deliver the
securities if the call is exercised. A call option sold by a Fund on an index
will require such Fund to own portfolio securities that correlate with the index
or to segregate assets equal to the excess of the index value over the exercise
price on a current basis. A put option on securities written by a Fund will
require such Fund to segregate assets equal to the exercise price.

OTC options entered into by a Fund, including those on securities,
financial instruments or indices, and OCC-issued and exchange-listed index
options will generally provide for cash settlement, although such Fund will not
be required to do so. As a result, when a Fund sells these instruments it will
segregate an amount of assets equal to its obligations under the options.
OCC-issued and exchange-listed options sold by such Fund other than those
described above generally settle with physical delivery, and such Fund will
segregate an amount of assets equal to the full value of the option. OTC options
settling with physical delivery or with an election of either physical delivery
or cash settlement will be treated the same as other options settling with
physical delivery.

Derivatives may be covered by means other than those described above when
consistent with applicable regulatory policies. A Fund may also enter into
offsetting transactions so that its combined position, coupled with any
segregated assets, equals its net outstanding obligation in related Derivatives.
A Fund could purchase a put option, for example, if the strike price of that
option is the same or higher than the strike price of a put option sold by such
Fund. Moreover, instead of segregating assets if it holds a forward contract, a
Fund could purchase a put option on the same forward contract with a strike
price as high or higher than the price of the contract held. Other Derivatives
may also be offset in combinations. If the offsetting transaction terminates at
the time of or after the primary transaction, no segregation is required, but if
it terminates prior to that time, assets equal to any remaining obligation would
need to be segregated.

INVESTMENT LIMITATIONS

The Prospectuses summarize certain investment limitations that may not be
changed without the affirmative vote of the holders of a majority of a Fund's
outstanding shares (as defined below under "Additional Information Concerning
Fund Shares"). Investment limitations numbered 1 through 8 below may not be
changed with respect to a Fund without such vote of shareholders; investment
limitations 9 through 12 may be changed at any time with respect to a Fund by a
vote of the Company's Board of Directors without shareholder approval.

1. A Fund may not purchase the securities of any one issuer if as a
result more than 5% of the value of its total assets would be invested
in the securities of such issuer, except that up to 25% of the value
of its total assets may be invested without regard to this 5%
limitation and provided that there is no limitation with respect to
investments in U.S.

<PAGE>

Government Securities, and provided further that a Fund may invest all
or substantially all of its assets in another registered investment
company having the same investment objective and policies and
substantially the same investment restrictions as those with respect
to such Fund.

2. A Fund may not borrow money, except that each Fund may borrow money
from banks or enter into reverse repurchase agreements, in each case
for temporary or emergency purposes only (not for leveraging or
investment), in aggregate amounts not exceeding 33-1/3% of the value
of its total assets at the time of such borrowing. For purposes of the
foregoing investment limitation, the term "total assets" shall be
calculated after giving effect to the net proceeds of any borrowings
and reduced by any liabilities and indebtedness other than such
borrowings. Additional investments will not be made by a Fund when
borrowings exceed 5% of its total net assets.

3. A Fund may not issue senior securities, except as permitted under the
1940 Act.

4. A Fund may not purchase any securities which would cause 25% or more
of the value of its total assets at the time of such purchase to be
invested in the securities of one or more issuers conducting their
principal business activities in the same industry; provided that
there is no limitation with respect to investments in U.S. Government
Securities, and provided further, that a Fund may invest all or
substantially all of its assets in another registered investment
company having the same investment objective and policies and
substantially the same investment restrictions as those with respect
to such Fund.

5. A Fund may not make loans, except that it may purchase or hold debt
instruments in accordance with its investment objective and policies,
may lend its portfolio securities as described in its Prospectus and
may enter into repurchase agreements with respect to portfolio
securities.

6. A Fund may not act as an underwriter of securities, except insofar as
it may be deemed an underwriter under applicable securities laws in
selling portfolio securities.

7. A Fund may not purchase or sell real estate or real estate limited
partnerships, provided that it may purchase securities of issuers
which invest in real estate or interests therein.

8. A Fund may not purchase or sell commodities unless acquired as a
result of ownership of securities or other instruments (but this shall
not prevent a Fund from purchasing or selling options and futures
contracts or from investment in securities or other instruments backed
by or indexed to, or representing interests in, physical commodities
or investing or trading in Derivatives), or invest in oil, gas or
mineral exploration or development programs or in mineral leases.

9. A Fund may not invest more than 15% of the value of its assets in
securities that are illiquid, provided, however, that a Fund may
invest all or substantially all of its assets in another registered
investment company having the same investment objective and policies
and substantially the same investment restrictions as those with
respect to such Fund.

10. A Fund may not purchase securities on margin, make short sales of
securities or maintain a short position, except that a Fund may make
short sales against the box and except in connection with Derivatives.

<PAGE>

11. A Fund may not write or sell puts, calls, straddles, spreads or
combinations thereof except in connection with Derivatives.

12. A Fund may not purchase securities of other investment companies
except as permitted under the 1940 Act or in connection with a merger,
consolidation, acquisition or reorganization.

If a percentage restriction set forth above is adhered to at the time a
transaction is effected, later changes in percentages resulting from changes in
value or in the number of outstanding securities of an issuer will not be
considered a violation. However, with respect to investment restriction 2 above,
to the extent that asset coverage with respect to borrowings falls at any time
below 300%, then the Fund will within three business days or such longer period
as the SEC may prescribe, reduce the amount of borrowings so that asset coverage
shall be at least 300%.

ADDITIONAL PURCHASE INFORMATION

Information on how to purchase and redeem shares of each Fund is included
in the Prospectuses. The issuance of a Fund's shares is recorded on such Fund's
books, and certificates for shares are not issued unless expressly requested in
writing to the Transfer Agent. Certificates are not issued for fractional
shares.

ADDITIONAL REDEMPTION INFORMATION

Under the 1940 Act, a Fund may suspend the right of redemption or postpone
the date of payment upon redemption for any period during which the New York
Stock Exchange is closed, other than customary weekend and holiday closings, or
during which trading on said Exchange is restricted, or during which (as
determined by the SEC by rule or regulation) an emergency exists as a result of
which disposal or valuation of portfolio securities is not reasonably
practicable, or for such other periods as the SEC may permit. (A Fund may also
suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.) Each Fund is obligated to redeem
shares solely in cash up to $250,000 or 1% of such Fund's net asset value,
whichever is less, for any one shareholder within a 90-day period. Any
redemption beyond this amount will also be in cash unless the Board of Directors
determines that conditions exist which make payment of redemption proceeds
wholly in cash unwise or undesirable. In such a case, a Fund may make payment
wholly or partly in readily marketable securities or other property, valued in
the same way as such Fund determines net asset value. Redemption in kind is not
as liquid as a cash redemption. Shareholders who receive a redemption in kind
may incur transaction costs, if they sell such securities or property, and may
receive less than the redemption value of such securities or property upon sale,
particularly where such securities are sold prior to maturity.

VALUATION OF SHARES

Because of the differences in distribution fees, service fees and
class-specific expenses, the per share net asset value of each class of each
Fund may differ. The following is a description of the procedures used by each
Fund in valuing its assets.

Except as described below, securities traded on an exchange will be valued
on the basis of the last sale price on the principal market on which such
securities are traded, on the date on which the valuation is

<PAGE>

made or, in the absence of sales in such market will be valued at the mean
between the closing bid and asked prices, if available. Equity securities traded
on the NASDAQ National Market System for which no sales prices are available and
over-the-counter securities will be valued on the basis of the bid prices at the
close of business on each day, or, if market quotations for those securities are
not readily available, at fair value, as determined in good faith by the
Company's Board of Directors. Fixed income securities may be valued on the basis
of valuations provided by brokers and/or a pricing service which uses
information with respect to transactions in fixed income securities, quotations
from dealers, comparable securities and various relationships between securities
in determining value. Such valuations may reflect bid or mean between bid and
asked prices for securities. Securities which are traded both in the
over-the-counter market and on a stock exchange will be valued according to the
broadest and most representative market. Securities may be valued by independent
pricing services or other sources. Short-term obligations with maturities of 60
days or less are valued at amortized cost, which constitutes fair value as
determined by the Company's Board of Directors. Amortized cost involves valuing
an instrument at its original cost to a Fund and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. All other
securities and other assets of a Fund will be valued at fair value as determined
in good faith by the Company's Board of Directors.

MANAGEMENT OF THE COMPANY

DIRECTORS AND OFFICERS

The Board of Directors of the Company is responsible for the overall
management and operations of each Fund. The Company's directors and executive
officers, their addresses, ages, principal occupations during the past five
years and other affiliations are as follows:

<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS DURING
NAME, ADDRESS AND AGE THE COMPANY PAST 5 YEARS AND OTHER AFFILIATIONS
- --------------------- ----------- -----------------------------------

Kenneth Lipper (1) Director, Chairman of President of Lipper & Company, L.L.C. since 1995;
101 Park Avenue the Board and Co-chairman and Member of the Management Committee
New York, NY 10178 President of Prime Lipper Asset Management since 1992;
Age: 56 President of Lipper & Company, L.P. since 1991;
President of Lipper & Company, Inc. since 1986;
director of New Holland N.V.; trustee of the
Rockefeller Brothers Fund; member of the Federal
Reserve Bank of New York's International Advisor
Board; Senior Financial Adviser to the New York
City Counsel; member of the Harvard Executive
Committee on University Resources; member of the
Visitor's Committee of the Kennedy School of
Government at Harvard University.

</TABLE>

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

(1) Director considered by the Company to be an "interested person" of the
Company as defined in the 1940 Act.

<PAGE>

Abraham Biderman Executive Vice Executive Vice President of Lipper & Company,
101 Park Avenue President, Treasurer L.L.C. since 1995; Executive Vice President of
New York, NY 10178 and Secretary Prime Lipper Asset Management since 1992; Executive
Age: 50 Vice President of Lipper & Company, L.P. since
1991; Executive Vice President of Lipper & Company,
Inc. since 1990.

Steven Finkel Executive Vice Executive Vice President of Lipper & Company,
101 Park Avenue President L.L.C. since 1995; Executive Vice President of
New York, NY 10178 Prime Lipper Asset Management since 1992; Executive
Age: 51 Vice President of Lipper & Company, L.P. since
1991; Executive Vice President of Lipper & Company,
Inc. since 1987.

Martin Maltz(2)(3) Director Principal Scientist, Xerox Corporation.
25 Dunrovin Lane
Rochester, NY 14618
Age: 57

Irwin Russell(2)(3) Director Attorney, Law Offices of Irwin E. Russell since
433 North Camden Drive, November 1992; Of Counsel, Rudin and Appel
#1200 (November 1989 to November 1992); Director, The
Los Angeles, CA 90210 Walt Disney Company.
Age: 72

Stanley Brezenoff(2)(3) Director Chief Executive Officer, Maimonides Medical Center
510 E. 23rd Street since February 1995; Executive Director, Port
New York, NY 10010 Authority of New York and New Jersey (September
Age: 61 1990 to February 1995).

Kristina H. McDonough Vice President Vice President, Marketing and Business
101 Park Avenue Development, Lipper & Company, L.P. since 1992;
New York, NY 10178 Vice President of Marketing and Research, Prime
Age: 35 Lipper Asset Management since 1992; previously
employed by Citicorp and Citicorp Securities
Markets, Inc.

Karl O. Hartmann Assistant Secretary Senior Vice President, Secretary and General
Chase Global Funds Counsel of Chase Global Funds Services Company
Services Company since November 1991; Senior Vice President,
73 Tremont Street Secretary and General Counsel of Leland, O'Brien,
Boston, MA 02108-3913 Rubinstein Associates, Inc. from November, 1990 to
Age: 43 November 1991.

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

(2) Audit Committee Member.

(3) Nominating Committee Member.

</TABLE>

<PAGE>

Ellen Watson Assistant Secretary Supervisor of State Regulation, Chase Global Funds
Chase Global Funds Services Company since November 1991.
Services Company
73 Tremont Street
Boston, MA 02108-3913
Age: 40

Helen A. Robichaud Assistant Secretary Vice President and Associate General Counsel of
Chase Global Funds Chase Global Funds Services Company since August
Services Company 1994; Associate Counsel of 440 Financial Group of
73 Tremont Street Worcester, Inc. from 1993 to August 1994; Counsel,
Boston, MA 02108-3913 Palmer & Dodge from 1991 to 1993.
Age: 46

John M. Corcoran Assistant Treasurer Vice President, Senior Manager of Fund
Chase Global Funds Administration, Chase Global Funds Services
Services Company Company since July 1996; Assistant Vice President,
73 Tremont Street Manager of Fund Administration, October 1993
Boston, MA 02108-3913 through July 1996; Audit Manager, Ernst & Young
Age 33 from August 1987 to September 1993.
</TABLE>

For so long as the Retail Distribution Plan remains in effect, the
directors of the Company who are not "interested persons" of the Company, as
defined in the 1940 Act, will be selected and nominated by the directors who are
not "interested persons" of the Company.

No officer or employee of either Adviser or Chase Global Funds Services
Company, the Company's administrator, receives any compensation from the Company
for acting as an officer or director of the Company. The Company pays each
director who is not a director, officer or employee of either Adviser or any of
their affiliates, a fee of $8,000 per annum plus $500 per quarterly meeting
attended and reimburses them for travel and out-of-pocket expenses. Set forth
below is information regarding the aggregate amount of fees paid to each
director of the Company during the Company's initial fiscal year ending December
31, 1997:

<PAGE>

==================================================================================================================
(1) (2) (3) (4) (5)

Pension or Total
Retirement Compensation
Aggregate Benefits Accrued Estimated Annual From Fund and
Name of Board Compensation as Part of Benefits Upon Fund Complex to
Member From Company Company Expenses Retirement Board Member

==================================================================================================================

<S> <C> <C> <C> <C>
Kenneth Lipper 0 0 0 0

Abraham Biderman 0 0 0 0

Irwin Russell $10,000 0 0 $10,000

Martin Maltz $10,000 0 0 $10,000

Stanley Brezenoff $10,000 0 0 $10,000

</TABLE>

In addition, the aggregate reimbursement to directors for travel and
out-of-pocket expenses for the initial fiscal year ending December 31, 1997 was
$5,956.00.

By virtue of the responsibilities assumed by the Advisers, Chase Global
Funds Services Company and their affiliates under their respective agreements
with the Company, the Company itself requires no employees other than its
officers.

INVESTMENT ADVISERS

Each Fund's Adviser serves as its investment adviser pursuant to a separate
written advisory agreement approved by the Company's Board of Directors,
including a majority of the directors who are not "interested persons" (as
defined in the 1940 Act) of the Company or the Adviser. The advisory agreements
with respect to the High Income Bond Fund and the U.S. Equity Fund were approved
by the Company's Board of Directors on December 14, 1995, and each Fund's
initial shareholders on March 28, 1996 and December 28, 1995. The advisory
agreement with respect to the Europe Equity Fund was approved by the Company's
Board of Directors on December 18, 1996, and by the shareholders of the Fund on
March 13, 1997. The advisory agreements for each Fund were renewed on December
2, 1997. The services provided by each Fund's Adviser under its advisory
agreement with such Fund and the fees paid to each Adviser are described in the
Prospectuses under "Management of the Company." The Advisers bear all expenses
in connection with the performance of their services and pay the salaries of all
officers or employees who are employed by the Advisers and the Company. Unless
sooner terminated, each advisory agreement will continue in effect until
December 14, 1998 and from year to year thereafter if such continuance is
approved at least annually by the Company's Board of Directors or by a vote of a
majority (as defined under "Additional Information Concerning Fund Shares") of
the outstanding shares of the relevant Fund and, in either case, by a majority
of the directors who are not parties to such agreement or "interested persons"
of any party by votes cast in person at a meeting called for such purpose. Each

<PAGE>

advisory agreement is terminable by the Company or the Adviser on 60 days'
written notice, and will terminate immediately in the event of its assignment.

For the fiscal year ended December 31, 1997, the High Income Bond Fund and
U.S. Equity Fund paid advisory fees of $608,516 and $30,017, respectively.
During this period the U.S. Adviser voluntarily waived advisory fees of $170,854
for the High Income Bond Fund and $100,445 for the U.S. Equity Fund. For the
fiscal year ended December 31, 1997, the Europe Equity Fund paid advisory fees
of $837,255 and the European Adviser waived advisory fees of $0. For the fiscal
year ended December 31, 1996, the High Income Bond Fund and U.S. Equity Fund
paid advisory fees of $344,390 and $0, respectively. During this period, the
U.S. Adviser voluntarily waived advisory fees of $198,834 for the High Income
Bond Fund and $99,280 for the U.S. Equity Fund. For the fiscal year ended
December 31, 1996, the Europe Equity Fund paid advisory fees of $383,796 and the
European Adviser waived advisory fees of $74,333.

ADMINISTRATOR

Chase Global Funds Services Company (the "Administrator"), a corporate
affiliate of The Chase Manhattan Bank, located at 73 Tremont Street, Boston, MA
02108, has agreed to provide the following services to the Company: (1) assist
generally in supervising each Fund's operations, providing and supervising the
operation of an automated data processing system to process purchase and
redemption orders, providing information concerning the Funds to their
shareholders of record, handling shareholder problems, supervising the services
of employees whose principal responsibility and function is to preserve and
strengthen shareholder relations and monitoring the arrangements pertaining to
the Company's agreements with Participating Dealers; (2) prepare reports to the
Funds' shareholders and prepare tax returns and reports to and filings with the
SEC; (3) compute the net asset value per share of each class of each Fund; (4)
provide the services of certain persons who may be elected as directors or
appointed as officers of the Company by the Board of Directors; and (5) maintain
the registration of each Fund's shares for sale under state securities laws.
During the year ending December 31, 1997, the administrative services fees paid
to the Administrator by the High Income Bond Fund and Europe Equity Fund totaled
$245,328 and $170,709, respectively. During the fiscal year ended December 31,
1997, the administrative services fees paid to the Administrator by the U.S.
Equity Fund totaled $73,478. During the fiscal period from April 1, 1996 through
December 31, 1996, the administrative services fees paid to the Administrator by
the High Income Bond Fund and the Europe Equity Fund totaled $164,042 and
$96,187, respectively. During the fiscal year ended December 31, 1996, the
administrative services fees paid to the Administrator by the U.S. Equity Fund
totaled $76,284.

DISTRIBUTOR

Lipper & Company, L.P. (the "Distributor") distributes the Funds' shares
continuously on a best efforts basis pursuant to an agreement which is renewable
annually. The Distributor pays the cost of printing and distributing
prospectuses to persons who are not shareholders of the Funds (excluding
preparation and printing expenses necessary for the continued registration of
the Funds' shares) and of preparing, printing and distributing all sales
literature. See "Distribution and Service Plans." The Distributor may act as
distributor for other investment companies.

Payment for Fund shares is due and shares of the Funds are issued generally
on the third business day following the day the public offering price is next
determined after a purchase order is received (the "Settlement Date"). When
payment is made by the investor prior to a Settlement Date, unless otherwise
directed by the investor, the funds will be held as a free credit balance in the
investor's brokerage account, and the Distributor or a Participating Dealer may
benefit from the temporary use of the funds. The investor may designate another
use for the funds prior to the Settlement Date. If the investor instructs the

<PAGE>

Distributor or a Participating Dealer to invest the funds in a money market
fund, the amount of the investment will be included as part of the average daily
net assets of both the relevant Fund and the money market fund, and in the event
the Distributor or its affiliates serve both funds in an investment advisory
capacity, the Distributor will benefit from the fact that it (or its affiliates)
is receiving fees from both such funds for managing these assets computed on the
basis of their average daily net assets. The Company's Board of Directors has
been advised of the benefits to the Distributor and Participating Dealers
resulting from delayed settlement procedures and will take such benefits into
consideration when reviewing the advisory and distribution and service
agreements for continuance. For the fiscal years ended December 31, 1997 and
December 31, 1996, the High Income Bond Fund, U.S. Equity Fund and Europe Equity
Fund incurred brokerage commissions of $0, $25,838 and $370,449, respectively,
and $0, $163,654 (April 1, 1996 through December 31, 1996) and $26,389,
respectively.

CUSTODIAN AND TRANSFER AGENT

The Chase Manhattan Bank (the "Custodian") is located at 270 Park Avenue,
New York, NY 10017, and serves as the Company's custodian pursuant to a custody
agreement. Under the custody agreement, the Custodian holds the Fund's portfolio
securities and keeps all necessary accounts and records. For its services, the
Custodian receives a monthly fee based upon the month-end market value of
securities held in custody and also receives securities transaction charges,
including out-of-pocket expenses. The assets of the Company are held under bank
custodianship in compliance with the 1940 Act.

Chase Global Funds Services Company serves as the Company's transfer agent.
Under the transfer agency agreement, the Transfer Agent maintains the
shareholder account records for the Company, handles certain communications
between shareholders and the Company, distributes dividends and distributions
payable by the Company and produces statements with respect to account activity
for the Company and its shareholders. For these services, the Transfer Agent
receives a monthly fee computed separately for each class of each Fund's shares
and is reimbursed separately by each class for out-of-pocket expenses.

EXPENSES

Each Fund's expenses include taxes, interest, fees and salaries of the
Company's trustees and officers who are not directors, officers or employees of
the Company's service contractors, SEC fees, state securities registration fees,
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders, advisory and administration fees, charges
of the custodian and of the transfer and dividend disbursing agent, certain
insurance premiums, outside auditing and legal expenses, costs of shareholder
reports and shareholder meetings and any extraordinary expenses. Each Fund also
pays for brokerage fees and commissions (if any) in connection with the purchase
and sale of portfolio securities. Each Fund's expenses are allocated to a
particular class of its shares based on either expenses identifiable to such
class or the relative net assets of such class and the other classes of its
shares. In addition, the Retail Shares of each Fund bear a distribution fee in
accordance with the Retail Servicing Plan, and the Group Retirement Plan Shares
of each Fund may bear a service fee in accordance with the Group Retirement
Servicing Plan. See "Distribution and Service Plans."

PRINCIPAL HOLDERS OF SECURITIES

The following lists shareholders of record who hold 5% or more of the
outstanding securities of the Funds as of February 28, 1998. Shareholders who
own greater than 25% of the shares of a class are deemed to be controlling
persons of such class.

<PAGE>

FUND PERCENTAGE HELD
---- ---------------
(1) HIGH INCOME BOND FUND

PREMIER SHARES

First Trust National Association 14.76%
Agent Frey Group
Tax Escrow
Mutual Funds A/C 33317961
c/o Jerry Trenda Wabash Management Inc.
4005 IDS Center 80 South 8th St.
St. Paul, MN 55402

Claremont University Center 12.57%
Pooled Endowment Funds
c/o Michael Groener
Harper Hall 160/150 East 10th St.
Claremont, CA 91711

Bank Leumi New Corp. 5.97%
Attn. John J. Derpich
SVP & Controller
139 Centre Street
New York, NY 10013

Henry J. Leir 8.29%
Charitable Remainder Trust
U/A DTD 11/9/81
c/o Steven Rosenthal
641 Lexington
Avenue New York, NY 10022

Hadassah Medical Relief Association Inc. 7.84%
c/o Jodi Wechter
50 West 58th Street
New York, NY 10019

RETAIL SHARES

Edgewise Entertainment 13.99%
Profit Sharing Plan
760 N. La Cienega Bay
Los Angeles, CA 90069

Sean Daniel 8.16%
760 N. La Cienega Bay
Los Angeles, CA 90069

<PAGE>

FUND PERCENTAGE HELD
---- ---------------
(1) HIGH INCOME BOND FUND

RETAIL SHARES

Donald Petrie 6.38%
FBO Quartus Prod Inc. MP PL
DTD 2/1/94
760 N. La Cienega Bay
Los Angeles, CA 90069

James R. Jacks 5.93%
760 N. La Cienega
Los Angeles, CA 90069

GROUP RETIREMENT PLAN SHARES

Jacques C. Nordeman 41.49%
and Peter Grimm Trustee
FBO Nordeman Grimm Inc. 401(k)
Profit Sharing Trust
DTD 1/1/76
717 Fifth Avenue
New York, NY 10022

Lipper & Company Salary Savings Plan 21.16%
101 Park Avenue, 6th Floor
New York, NY 10178-0694

HEP & Co. 20.95%
c/o Wells Fargo Bank
Attn. Mutual Fun 9139-027
P.O. Box 9800
Calabasas, CA 91372

Lipper & Company 9.99%
Deferred Benefit Plan
101 Park Avenue, 6th Floor
New York, NY 10178

(2) U.S. EQUITY FUND

PREMIER SHARES

Kenneth and Evelyn Lipper Foundation 34.55%
Lipper & Company
101 Park Avenue, 6th Floor
New York, NY 10178

<PAGE>
FUND PERCENTAGE HELD
---- ---------------

(2) U.S. EQUITY FUND

PREMIER SHARES

Kenneth Lipper, Trustee 12.68%
FBO Joseph Gruss Settlor Trust
U/A DTD 07/22/92
101 Park Avenue, 6th Floor
New York, NY 10178

Joseph Gruss Charitable Lead Trust 6.00%
U/A dtd. 12/6/91
c/o Lipper & Co.
101 Park Avenue, 6th Floor
New York, NY 10178

Kenneth Lipper, Trustee 5.95%
UWIL Joseph Gruss Trust
FBO Evelyn G. Lipper Descendants
101 Park Avenue, 6th Floor
New York, NY 10178

RETAIL SHARES

Michael Black, Trustee 20.77%
FBO The Black 1989 Trust
U/A DTD 9/25/89
760 N. La Cienega Boulevard
Los Angeles, CA 90069

Lauren Anderson 14.15%
Apt. 8A
420 E. 79th Street
New York, NY 10021

Michael D. Loprete 9.16%
9 Cindy Lane
Holmdel, NJ 07733

J. Paul Amaden 6.31%
and Christine B. Amaden
JT Ten
P.O. Box 407
East Hampton, NY 11937

Gemini Investment Company 6.24%
9 Cindy Lane
Holmdel, NJ 07733

<PAGE>
FUND PERCENTAGE HELD
---- ---------------

(2) U.S. EQUITY FUND

GROUP RETIREMENT PLAN SHARES

HEP & Co. 53.16%
c/o Wells Fargo Bank
Attn. Mutual Fund 9139-027
P.O. Box 9800
Calabasas, CA 91372

Lipper & Company Salary Savings Plan 31.84%
101 Park Avenue, 6th Floor
New York, NY 10178-0694

Lipper & Company 8.39%
Deferred Benefit Plan
101 Park Avenue, 6th Floor
New York, NY 10178-0694

(3) EUROPE EQUITY FUND

PREMIER SHARES

Evelyn and Kenneth Lipper Foundation 12.92%
Lipper & Company
101 Park Avenue, 6th Floor
New York, NY 10178

Evelyn Gruss Lipper 8.09%
Grantor Trust
U/A DTD 12/23/88
c/o Kenneth Lipper
Lipper & Company
101 Park Avenue, 6th Floor
New York, NY 10178

RETAIL SHARES

Trust 6.75%
FBO Evelyn Lipper
U/A DTD 12/10/48
c/o Kenneth Lipper
Lipper & Company
101 Park Avenue, 6th Floor
New York, NY 10178

<PAGE>

FUND PERCENTAGE HELD
---- ---------------

(3) EUROPE EQUITY FUND

RETAIL SHARES

Lipper & Company, L.P. 6.23%
c/o Steven Finkel
101 Park Avenue, 6th Floor
New York, NY 10178

Michael D. Eisner 5.20%
283 Bel Air Road
Los Angeles, CA 90077

Lee Caldecot Chubb, Trustee 25.81%
FBO Chubb Family Trust
U/A DTD 8/15/90
410 23rd Street
Santa Monica, CA 90402-3281

Suzanne E. Russell 13.69%
10590 Wilshire Blvd., 1402
Los Angeles, CA 90024

Lauren Anderson 11.30%
Apt. 8A
420 E. 79th Street
New York, NY 10021

Michael Black, Trustee 10.80%
FBO The Black 1989 Trust
DTD 9/25/89
760 N. La Cienega Blvd.
Los Angeles, CA 90069

Irwin E. Russell 6.09%
10590 Wilshire Blvd., 1402
Los Angeles, CA 90024

Alvin L. Begleiter 5.75%
22 Cobblefield Lane
White Plains, NY 10605

Scott Kroopf Trustee 5.18%
FBO Kroopf/Johnson Family Trust
760 N. La Cienega Blvd.
Los Angeles, CA 90069-5231

<PAGE>

FUND PERCENTAGE HELD
---- ---------------

(3) EUROPE EQUITY FUND

GROUP RETIREMENT PLAN SHARES

HEP & Co. 53.33%
c/o Wells Fargo Bank
Attn. Mutual Fund 9139-027
P.O. Box 9800
Calabasas, CA 91372

Lipper & Company Salary Savings Plan 32.33%
101 Park Avenue, 6th Floor
New York, NY 10178-0694

Lipper & Company 11.96%
Deferred Benefit Plan
101 Park Avenue, 6th Floor
New York, NY 10178

As of February 28, 1998, all directors and officers as a group owned
beneficially (as the term is defined in Section 13(d) under the Securities
Exchange Act of 1934) 395,650.93 shares, or 4.84 % of the Premier Shares of the
High Income Bond Fund; less than 1% of the Retail Shares and the Group
Retirement Plan Shares of the High Income Bond Fund; 905,366.37 shares, or 64.6%
of the Premier Shares of the U.S. Equity Fund; less than 1% of the Retail Shares
and the Group Retirement Plan Shares of the U.S. Equity Fund; 1,150,894.66
shares, or 16.72% of the Premier Shares of the Europe Equity Fund; 8,058.75
shares, or 7.10% of the Retail Shares of the Europe Equity Fund; and 1,812.36
shares, or 1.79% of the Group Retirement Plan Shares of the Europe Equity Fund
outstanding on such date.

DISTRIBUTION AND SERVICE PLANS

Retail Distribution Plan

Rule 12b-1 (the "Rule") adopted by the SEC under the 1940 Act provides,
among other things, that an investment company may bear expenses of distributing
its shares only pursuant to a plan adopted in accordance with the Rule. Because
some or all of the fees paid by the Retail Shares of each Fund to the
Distributor and to certain Participating Dealers could be deemed to be payment
of distribution expenses, the Company's Board of Directors has adopted such a
plan with respect to the Retail Shares of each Fund (the Retail Distribution
Plan). The Company's Board of Directors believes that there is a reasonable
likelihood that the Retail Distribution Plan will benefit each Fund and the
holders of its Retail Shares. In some states, banks or other financial services
firms effecting transactions in Retail Shares may be required to register as
dealers pursuant to state law. The Funds' Premier Shares and Group Retirement
Plan Shares do not bear distribution fees.

Quarterly reports of the amounts expended under the Retail Distribution
Plan with respect to each Fund, and the purposes for which such expenditures
were incurred, must be made to the Board of Directors of the Company for its
review. In addition, the Retail Distribution Plan provides that it may not be
amended to increase materially the costs which the Retail Shares of any Fund may
bear pursuant to such

<PAGE>

plan without shareholder approval of the holders of such Fund's Retail Shares,
and that other material amendments of the Retail Distribution Plan must be
approved by the Board of Directors of the Company, and by the directors who are
neither interested persons of the Company nor have any direct or indirect
financial interest in the operation of such plan or in any agreements entered
into in connection with such plan, by vote cast in person at a meeting called
for the purpose of considering such amendments. The Retail Distribution Plan and
any agreements entered into in connection with such plan are subject to annual
approval with respect to each Fund by such vote of the Board of Directors of the
Company cast in person at a meeting called for the purpose of voting on the
Retail Distribution Plan. The Retail Distribution Plan may be terminated at any
time with respect to any Fund by vote of a majority of the directors who are not
interested persons and have no direct or indirect financial interest in the
operation of such plan or in any agreements entered into in connection with such
plan or by vote of a majority of the Retail Shares of a Fund. Any agreement
entered into in connection with the Retail Distribution Plan may be terminated
without penalty at any time, by such vote. Each such agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).

In accordance with the Retail Distribution Plan, the High Income Bond Fund,
U.S. Equity Fund and Europe Equity Fund paid fees of $6,323, $2,180 and $2,356,
respectively, to the Distributor as compensation for the distribution of the
Funds' Retail Shares during the fiscal year ended December 31, 1997.

Group Retirement Servicing Plan

As stated in the Prospectuses, in accordance with the Group Retirement
Servicing Plan, the Company intends to enter into servicing agreements pursuant
to which Participating Dealers and sometimes the Distributor will, as agent for
their customers, render certain support services to their customers who are
beneficial owners of Group Retirement Plan Shares. Such services are intended to
supplement the services provided by the Company's Administrator and Transfer
Agent, and are described in the Prospectuses. Servicing agreements between the
Company and Participating Dealers and/or the Distributor with respect to a
Fund's Group Retirement Plan Shares will be terminable by either party at any
time without penalty.

Conflict of interest restrictions may apply to an institution's receipt of
compensation paid by the Funds in connection with the investment of fiduciary
monies in the Funds. Institutions, including banks regulated by state banking
authorities and the Board of Governors of the Federal Reserve System and
investment advisers and other money managers subject to the jurisdiction of the
SEC, the Department of Labor or state securities commissions are urged to
consult their legal advisers before investing fiduciary monies in the Funds.

In connection with the shareholder servicing fees of their Group Retirement
Plan Shares, the High Income Bond Fund, U.S. Equity Fund and Europe Equity Fund
paid fees of $7,156, $2,379 and $1,158, respectively, during the fiscal year
ended December 31, 1997.

ADDITIONAL INFORMATION CONCERNING TAXES

The following discussion is only a brief summary of certain additional tax
considerations affecting the Funds and their shareholders. No attempt is made to
present a detailed explanation of all federal, state and local tax concerns, and
the discussion set forth here and in the Prospectuses is not intended as a
substitute for careful tax planning. Investors are urged to consult their own
tax advisers with specific questions relating to federal, state or local taxes.

<PAGE>

In General

Each Fund intends to qualify as a regulated investment company (a "RIC")
under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code")
and to continue to so qualify. Qualification as a RIC requires, among other
things, that a Fund: (1) derive at least 90% of its gross income in each taxable
year from dividends, interest, payments with respect to securities loans and
gains from the sale or other disposition of stock, securities or foreign
currencies, or other income (including gains from options, futures or forward
contracts) derived with respect to its business of investing in such stocks,
securities or currencies; and (2) diversify its holdings so that, at the end of
each quarter of each taxable year, (a) at least 50% of the market value of such
Fund's assets is represented by cash, cash items, U.S. government securities,
securities of other RICs and other securities with such other securities
limited, in respect of any issuer, to an amount not greater than 5% of the value
of such Fund's assets and 10% of the outstanding voting securities of such
issuer, and (b) not more than 25% of the value of its assets is invested in the
securities (other than U.S. government securities or the securities of other
RICs) of any one issuer.

Investors should consider the tax implications of buying shares just prior
to distribution. Although the price of shares purchased at that time may reflect
the amount of the forthcoming distribution, those purchasing just prior to a
distribution will receive a distribution which will nevertheless be taxable to
them.

Gain or loss, if any, on the sale or other disposition of shares of a Fund
will generally result in capital gain or loss to shareholders. Generally, a
shareholder's gain or loss will be a long-term gain or loss if the shares have
been held for more than one year. If a shareholder sells or otherwise disposes
of a share of a Fund before holding it for more than six months, any loss on the
sale or other disposition of such share shall be treated as a long-term capital
loss to the extent of any capital gain dividends received by the shareholder
with respect to such share. Currently, the maximum federal income tax rate
imposed on individuals with respect to net capital gain is limited to 28% with
respect to capital assets held more than one year but less than 18 months, and
20% with respect to capital assets held for more than 18 months. The maximum
federal income tax rate imposed on individuals with respect to short-term
capital gain (which is taxed at the same rates as ordinary income) is 39.6%.

A portion of the dividends of net investment income received by corporate
shareholders from a Fund may qualify for the federal dividends received
deduction generally available to corporations. The dividends received deduction
for corporate shareholders may be reduced if the securities with respect to
which dividends are received by a Fund are (1) considered to be "debt-financed"
(generally, acquired with borrowed funds), (2) held by a Fund for less than 46
days (91 days in the case of certain preferred stock) during the 90 day period
beginning on the date which is 45 days before the date on which such shares
become ex-dividend with respect to such dividend (during the 180 day period
beginning 90 days before such date in the case of certain preferred stock)) or
(3) subject to certain forms of hedges or short sales. The amount of any
dividend distribution eligible for the corporate dividends received deduction
will be designated by a Fund in a written notice within 60 days of the close of
the taxable year. Moreover, the dividends-received deduction for a corporate
shareholder may be disallowed or reduced if the corporate shareholder fails to
satisfy the foregoing requirements with respect to its shares of a Fund.

A Fund may be subject to certain taxes, including without limitation, taxes
imposed by foreign countries with respect to its income and capital gains.

If more than 50% of the value of a Fund's total assets at the close of its
taxable year consists of the stock or securities of foreign corporations, the
Fund may elect to "pass through" to the Fund's shareholders the amount of
foreign taxes paid by such Fund. If the Fund so elects, each shareholder would
be required to include in gross income, even though not actually received, his
pro rata share of the foreign taxes paid

<PAGE>

by the Fund, but would be treated as having paid his pro rata share of such
foreign taxes and would therefore be allowed to either deduct such amount in
computing taxable income or use such amount (subject to various Code
limitations) as a foreign tax credit against federal income tax (but not both).
For purposes of the foreign tax credit limitation rules of the Code, each
shareholder would treat as foreign source income his pro rata share of such
foreign taxes plus the portion of dividends received from the Fund representing
income derived from foreign sources. No deduction for foreign taxes could be
claimed by an individual shareholder who does not itemize deductions. In certain
circumstances, a shareholder that (1) has held shares of the Fund for less than
a specified minimum period during which it is not protected from risk of loss or
(2) is obligated to make payments related to the dividends, will not be allowed
a foreign tax credit for foreign taxes deemed imposed on dividends paid on such
shares. Additionally, the Fund must also meet this holding period requirement
with respect to its foreign stocks and securities in order for "creditable"
taxes to flow-through. Each shareholder should consult his own tax adviser
regarding the potential application of foreign tax credits.

A 4% non-deductible excise tax is imposed on RICs that fail currently to
distribute an amount equal to specified percentages of their ordinary taxable
income and capital gain net income (excess of capital gains over capital
losses). Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and any capital gain net income
prior to the end of each calendar year to avoid liability for this excise tax.

Each Fund may make investments that produce income that is not matched by a
corresponding cash distribution to such Fund, such as investments in obligations
that have original issue discount (i.e., an amount equal to the excess of the
stated redemption price of the security at maturity over its issue price), or
market discount (i.e., an amount equal to the excess of the stated redemption
price of the security at maturity over its basis immediately after it was
acquired) if such Fund elects to accrue market discount on a current basis.
Because such income may not be matched by a corresponding cash distribution to a
Fund, such Fund may be required to dispose of other securities to be able to
make distributions to its investors. The extent to which a Fund may liquidate
securities at a gain may be limited by the 30% limitation discussed above.

If a Fund purchases shares in certain foreign investments, called "passive
foreign investment companies" ("PFICs"), the Fund may be subject to U.S. federal
income tax on a portion of any "excess distribution" or gain from the
disposition of shares even if the income is distributed as a taxable dividend by
the fund to its shareholders. Additional charges in the nature of interest may
be imposed on either a Fund or its shareholders with respect to deferred taxes
arising from the distribution or gains. If a Fund were to invest in a PFIC and
(if the Fund received the necessary information available from the PFIC, which
may be difficult to obtain) elected to treat the PFIC as a "qualified electing
fund" under the Code (a "QEF"), in lieu of the foregoing requirements, the Fund
might be required to include in income each year a portion of the ordinary
earnings and net capital gains of the PFIC, even if not distributed to the Fund.
Alternatively, under recently-enacted legislation, a Fund can elect to
mark-to-market at the end of each taxable year its shares in a PFIC; in this
case, the Fund would recognize as ordinary income any increase in the value of
such shares, and as ordinary loss any decrease in such value to the extent it
did not exceed prior increases included in income. Under either election, a Fund
might be required to recognize in a year income in excess of its distributions
from PFICs and its proceeds from dispositions of PFIC stock during that year,
and such income would nevertheless be subject to the distribution requirements
to avoid corporate level taxes and the 4% excise tax.

If for any taxable year a Fund does not qualify for tax treatment as a RIC,
all of such Fund's taxable income will be subject to tax at regular corporate
rates without any deduction for distributions to such Fund's shareholders. In
such event, dividend distributions to shareholders would be taxable as

<PAGE>

ordinary income to the extent of such Fund's earnings and profits, and would be
eligible for the dividends received deduction in the case of corporate
shareholders.

Each Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of taxable dividends or 31% of gross proceeds realized upon
sale paid to its shareholders who have failed to provide a correct tax
identification number in the manner required, who are subject to backup
withholding by the Internal Revenue Service for failure properly to include on
their return payments of taxable interest or dividends, or who have failed to
certify to such Fund that they are not subject to backup withholding when
required to do so or that they are "exempt recipients."

Each Fund's net capital gains will be distributed at least annually. The
Funds will generally have no tax liability with respect to such gains, and the
distributions, whether paid in cash or reinvested in additional shares, will be
taxable to each Fund's shareholders as long-term capital gains, regardless of
how long a shareholder has held such Fund's shares. Such distributions will be
designated as a capital gain dividend in a written notice mailed by a Fund to
its shareholders not later than 60 days after the close of such Fund's taxable
year.

Net investment income earned by a Fund will be distributed to its
shareholders. In general, a Fund's net investment income will be its investment
company taxable income subject to certain adjustments and excluding the excess
of any net long-term capital gain for the taxable year over the net short-term
capital loss, if any, for such year. A Fund will be taxed on any undistributed
net investment income of such Fund. To the extent such income is distributed by
a Fund, it will be taxable to such Fund's shareholders as ordinary income,
whether paid in cash or reinvested in additional shares.

PERFORMANCE DATA

From time to time, each Fund may quote total return information, and the
High Income Bond Fund may quote yield information, for one or more classes of
its shares in advertisements or in reports and other communications to
shareholders and compare total return and yield on one or more classes of its
shares to that of other funds or accounts with a similar objective and to
relevant indices. Total return for the High Income Bond Fund and the Europe
Equity Fund will include the performance of a corresponding limited partnership
which was the predecessor entity to each Fund.

Average Annual Total Return

Under the rules of the SEC, funds advertising performance must include
"average annual total return" figures computed according to a formula prescribed
by the SEC. The formula can be expressed as follows:

P(1 + T)^n = ERV

where:

P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical $1,000 payment
made at the beginning of the 1-, 5-, or 10 year periods at the
end of the 1-, 5-, or 10-year period (or fractional portion
thereof), assuming reinvestment of all dividends and
distributions.

<PAGE>

Aggregate Total Return

"Aggregate total return" figures represent the cumulative change in the
value of an investment in a class of a Fund's shares for the specified period
and are computed by the following formula:

AGGREGATE TOTAL RETURN = ERV - P
-------
P

Where:

P = a hypothetical initial payment of $10,000.

ERV = Ending Redeemable Value of a hypothetical $10,000 investment
made at the beginning of a 1-, 5-, or 10-year period at the
end of the 1-, 5-, or 10-year period (or fractional portion
thereof), assuming reinvestment of all dividends and
distributions.

Thirty Day Yield

The High Income Bond Fund may advertise the yield on one or more classes of
its shares based on a 30-day (or one month) period, computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the period, according to the following
formula:

YIELD 2[(a-b)/CD+1)^6-1]

Where:

a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share on the last day of the period

Under this formula, interest earned on debt obligations for purposes of "a"
above, is calculated by (1) computing the yield to maturity of each obligation
held by the High Income Bond Fund based on the market value of the obligation
(including actual accrued interest) at the close of business on the last day of
each month, or, with respect to obligations purchased during the month, the
purchase price (plus actual accrued interest), (2) dividing that figure by 360
and multiplying the quotient by the market value of the obligation (including
actual accrued interest as referred to above) to determine the interest income
on the obligation in the High Income Bond Fund's portfolio (assuming a month of
30 days) and (3) computing the total of the interest earned on all debt
obligations during the 30-day or one month period. Undeclared earned income,
computed in accordance with generally accepted accounting principles, may be
subtracted from the maximum offering price calculation required pursuant to "d"
above.

The thirty-day yield of the High Income Bond Fund as of December 31, 1997
was 7.97% for the Premier Shares, 7.70% for the Retail Shares and 7.70% for the
Group Retirement Plan Shares.

<PAGE>

Each Fund may also from time to time include in advertisements a total
return figure that is not calculated according to the formulas set forth above.
Any such figure, and any quotation of the High Income Bond Fund's performance
stated in terms of yield (whether or not based on a 30-day period), will be
given no greater prominence than the information prescribed under SEC rules.

Each Fund's performance will vary from time to time depending upon market
conditions, the composition of such Fund's portfolio and operating expenses.
Consequently, any given performance quotations should not be considered
representative of the performance of any class of a Fund's shares for any
specified period in the future. Because performance will vary, it may not
provide a basis for comparing an investment in a Fund's shares with certain bank
deposits or other investments that pay a fixed yield for a stated period of
time. Investors comparing a Fund's performance with that of other mutual funds
should give consideration to the nature, quality and maturity of the respective
investment companies' portfolio securities and market conditions.

ADDITIONAL INFORMATION CONCERNING FUND SHARES

As used in this Statement of Additional Information and the Prospectuses, a
"majority of the outstanding shares," when referring to the 1940 Act approvals
to be obtained from shareholders in connection with matters affecting any
particular portfolio of the Company (such as each Fund) (e.g., approval of
investment advisory contracts) or any particular class (e.g., approval of the
plan of distribution with respect to the Retail Shares of each Fund) means the
lesser of (1) 67% of the shares of that particular portfolio or class, as
appropriate, represented at a meeting at which the holders of more than 50% of
the outstanding shares of such portfolio or class, as appropriate, are present
in person or by proxy, or (2) more than 50% of the outstanding shares of such
portfolio or class, as appropriate.

The By-Laws of the Company provide that the Company shall not be required
to hold an annual meeting of shareholders in any year in which the election of
directors to the Company's Board of Directors is not required to be acted upon
under the 1940 Act. The law under certain circumstances provides shareholders
with the right to call for a meeting of shareholders to consider the removal of
one or more directors. To the extent required by law, the Company will assist in
shareholder communication in such matters.

Shares of each class of a particular portfolio of the Company (such as each
Fund) are entitled to such dividends and distributions out of the assets
belonging to that class as are declared in the discretion of the Company's Board
of Directors. In determining the net asset value of a class of a portfolio,
assets belonging to a particular class are credited with a proportionate share
of any general assets of the Company not belonging to a particular class of a
portfolio and are charged with the direct liabilities in respect of that class
of the portfolio and with a share of the general liabilities of the Company
which are normally allocated in proportion to the relative net asset values of
the respective classes of the portfolios of the Company at the time of
allocation.

In the event of the liquidation or dissolution of the Company, shares of
each class of a portfolio are entitled to receive the assets attributable to it
that are available for distribution, and a proportionate distribution, based
upon the relative net assets of the classes of each portfolio, of any general
assets not attributable to a portfolio that are available for distribution.
Shareholders are not entitled to any preemptive rights.

<PAGE>

Subject to the provisions of the Company's Charter, determinations by the
Board of Directors as to the direct and allocable liabilities and the allocable
portion of any general assets of the Company with respect to a particular
portfolio or class are conclusive.

COUNSEL

Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York
10017-3954, serves as counsel to the Company. The validity of the shares under
Maryland law has been passed upon for the Company by Piper & Marbury LLP, 36
South Charles Street Baltimore, Maryland 21201-3018.

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP acts as the Company's independent accountants and has
offices at 1177 Avenue of the Americas, New York, New York 10036. The financial
statements incorporated by reference in this Statement of Additional Information
have been so incorporated in reliance on the report of the Company's independent
accountant, given on the authority of that firm as experts in auditing and
accounting.

FINANCIAL STATEMENTS

The financial statements and financial highlights for each of the Funds for
the year ended December 31, 1997, which appear in each Fund's 1997 Annual Report
to Shareholders, and the report thereon of Price Waterhouse LLP, the Fund's
independent accountants, also appearing therein, which were previously filed
electronically with the Securities and Exchange Commission, are incorporated
herein by reference.

31
<PAGE>

THE LIPPER FUNDS, INC.

PART C. OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(a) Financial Statements:

Included in Part A of the Registration Statement:

(i) Financial Highlights for the High Income Bond Fund, U.S. Equity
Fund and Europe Equity Fund for the periods ended December 31,
1997 and December 31, 1996.

Included in Part B of the Registration Statement*:

(i) Statement of Assets and Liabilities dated December 31, 1997.

(ii) Independent Accountants' Reports dated February 13, 1998.

(iii) Portfolio of Investments for the High Income Bond Fund dated
December 31, 1997.*

(iv) Portfolio of Investments for the U.S. Equity Fund dated December
31, 1997.*

(v) Portfolio of Investments for the Europe Equity Fund dated
December 31, 1997.*

(vi) Statement of Assets and Liabilities for the High Income Bond
Fund, U.S. Equity Fund and Europe Equity Fund dated December 31,
1997.*

(vii) Statement of Operations for the High Income Bond Fund, U.S.
Equity Fund and Europe Equity Fund for the period ended December
31, 1997.*

(viii) Statement of Changes in Net Assets for the High Income Bond
Fund, U.S. Equity Fund and Europe Equity Fund for the periods
ended December 31, 1997 and December 31, 1996.*

* Incorporated by reference to the Annual Reports of the High
Income Bond Fund, U.S. Equity Fund and Europe Equity
Fund filed on March 4, 1998. [Accession Number
0000950110-98-000024]

(b) Exhibits:

Exhibits
Number Description

1 - - Registrant's Amended and Restated Articles of Incorporation.**

2 - - Registrant's Amended and Restated By-Laws.*

3 - - None.

4(a) - - Form of Stock Certificate for Premier Shares of common stock.*

4(b) - - Form of Stock Certificate for Retail Shares of common stock.*

4(c) - - Form of Stock Certificate for Group Retirement Plan Shares of
common stock.*

<PAGE>

5(a) - - Form of Investment Advisory Agreement between Registrant and
Lipper & Company, L.L.C. relating to the High Income Bond
Fund.***

5(b) - - Form of Investment Advisory Agreement between Registrant and
Lipper & Company, L.L.C. relating to the U.S. Equity Fund.***

5(c) - - Investment Advisory Agreement between Registrant and Prime
Lipper Asset Management relating to the Europe Equity Fund.
(filed herewith)

6 - - Form of Distribution Agreement between Registrant and Lipper &
Company, L.P.***

7 - - None.

8 - - Form of Custody Agreement between Registrant and The Chase
Manhattan Bank**

9 - - Form of Administration Agreement between Registrant and Chase
Global Funds Services Company.**

10 - - Opinion and Consent of Piper & Marbury.*

11 - - Consent of Independent Accountants. (filed herewith)

12 - - None.

13 - - Form of Purchase Agreement among Registrant, Lipper & Company,
L.L.C. and Prime Lipper Asset Management.*

14 - - None.

15(a) - - Form of Retail Distribution Plan.**

15(b) - - Form of Group Retirement Servicing Plan.**

16 - - Total Return.*

17 - - Financial Data Schedules. (filed herewith)

18 - - Form of Multiclass Plan.**

19(a) - - Powers of Attorney for Kenneth Lipper, Abraham Biderman and
Stanley Brezenoff.**

19(b) - - Power of Attorney for Irwin Russell.*

* Incorporated by reference to Pre-Effective Amendment No. 2 to
Registration Statement filed on December 29, 1995.
** Incorporated by reference to Pre-Effective Amendment No. 1 to
Registration Statement filed on December 20, 1995.
*** Incorporated by reference to Registration Statement filed on
October 10, 1995.

<PAGE>

Item 25. Persons Controlled by or under Common Control with Registrant

None.

Item 26. Number of Holders of Securities

Number of Record
Holders at
Title of Class February 28, 1998

Premier Shares of the Lipper High
Income Bond Fund, par value $.001 per share...................... 72

Retail Shares of the Lipper High Income Bond Fund,
par value $.001 per share........................................ 66

Group Retirement Plan Shares of the Lipper High Income
Bond Fund, par value $.001 per share............................. 10

Premier Shares of the Lipper U.S. Equity Fund,
par value $.001 per share........................................ 35

Retail Shares of the Lipper U.S. Equity Fund,
par value $.001 per share........................................ 32

Group Retirement Plan Shares of the Lipper U.S. Equity Fund,
par value $.001 per share........................................ 6

Premier Shares of the Prime Lipper Europe Equity Fund,
par value $.001 per share........................................ 78

Retail Shares of the Prime Lipper Europe Equity Fund,
par value $.001 per share........................................ 30

Group Retirement Plan Shares of the Prime Lipper Europe
Equity Fund, par value $.001 per share........................... 5

Item 27. Indemnification

Reference is made to Article VII of Registrant's Articles of
Incorporation, Article IV of Registrant's By-laws, and subsections 4.1 and 4.2
of the Distribution Agreement between the Registrant and Lipper & Company, L.P.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant understands that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any 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 whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

<PAGE>

Item 28. Business and Other Connections of Investment Advisers

Reference is made to the Sections entitled "Management of the
Company" in the Prospectuses and the Statement of Additional Information.

The list required by this Item 28 of officers and directors of
Lipper & Company, L.L.C., together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers, directors and partners during the past two years, is incorporated by
reference to Schedules C and D to Form ADV filed by Lipper & Company, L.L.C.
pursuant to the Investment Advisers Act of 1940, as amended (the "Advisers Act")
(SEC File No. 801-50666).

The list required by this Item 28 of officers, directors and
partners of Prime Lipper Asset Management, together with information as to any
other business, profession, vocation or employment of a substantial nature
engaged in by such officers, directors and partners during the past two years,
is incorporated by reference to Schedules B and D to Form ADV filed by Prime
Lipper Asset Management pursuant to the Advisers Act (SEC File No. 801-41430).

Item 29. Principal Underwriters

(a) Other investment companies for which Registrant's principal
underwriter (exclusive distributor) acts as principal
underwriter or exclusive distributor: None.

(b) The information required by this Item 29(b) with respect to each
director, officer and partner of Lipper & Company, L.P. is
incorporated by reference to the Form BD filed by Lipper &
Company, L.P. pursuant to the Securities Exchange Act of 1934,
as amended (SEC File No. 8-030161).

Item 30. Location of Accounts and Records

All accounts, books and other documents required to be maintained
by Section 31(a) of the Investment Company Act of 1940 and the rules thereunder
will be maintained at the offices of:

Lipper & Company, L.L.C., 101 Park Avenue, New York, New York
10178;

Prime Lipper Asset Management, 101 Park Avenue, New York, New
York 10178 and Via Turati 9, Milan, Italy 20124;

The Chase Manhattan Bank,270 Park Avenue, New York, New York
10017;

Chase Global Funds Services Company, 73 Tremont Street, Boston,
Massachusetts 02108

Item 31. Management Services

Not applicable.

Item 32. Undertakings

(a) Not applicable.

(b) Registrant hereby undertakes to call a meeting of shareholders
for the purpose of voting upon the question of removal of one or
more of Registrant's directors when requested in writing to do so
by the holders of at least 10% of Registrant's outstanding shares
of common stock and, in connection with such meeting, to assist
in communications with other shareholders in this regard, as
provided under Section 16(c) of the Investment Company Act of
1940, as amended.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, in the City of New York and State of New York on the 25th day
of March, 1998.

THE LIPPER FUNDS, INC.

By /s/ Steven Finkel
-----------------
Steven Finkel
Executive Vice President

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

Signature Title Date

/s/ Kenneth Lipper Chairman of the Board March 25, 1998
- --------------------- (principal executive officer),
Kenneth Lipper President and Director

/s/ Abraham Biderman Executive Vice President, March 25, 1998
- --------------------- Treasurer (principal financial
Abraham Biderman and accounting officer) and
Secretary

* Director March 25, 1998
- ---------------------
Stanley Brezenoff

Director
- ---------------------
Martin Maltz

* Director March 25, 1998
- ---------------------
Irwin E. Russell

*By: /s/ Steven Finkel March 25, 1998
-------------------------
Steven Finkel as
Attorney-in-Fact

ADVISORY CONTRACT

THE LIPPER FUNDS, INC.
101 Park Avenue
New York, New York 10178

December 20, 1996

Prime Lipper Asset Management
101 Park Avenue
New York, New York 10178

Dear Sirs:

This will confirm the agreement between the undersigned (the "Company") and
you (the "Investment Adviser") as follows:

1. The Company is an open-end investment company which currently has three
investment portfolios -- Lipper High Income Bond Fund, Lipper U.S. Equity Fund
and Prime Lipper Europe Equity Fund. The Company engages in the business of
investing and reinvesting the assets of Prime Lipper Europe Equity Fund (the
"Fund") in the manner and in accordance with the investment objective and
limitations specified in the Company's Articles of Incorporation, as amended
(the "Articles") and the currently effective prospectus, including the documents
incorporated by reference therein (the "Prospectus"), relating to the Company
and the Fund, included in the Company's Registration Statement, as amended from
time to time (the "Registration Statement"), filed by the Company under the
Investment Company Act of 1940, as amended (the "1940 Act"), and the Securities
Act of 1933, as amended. Copies of the documents referred to in the preceding
sentence have been furnished to the Investment Adviser. Any amendments to these
documents shall be furnished to the Investment Adviser.

2. The Company employs the Investment Adviser to (a) make investment
strategy decisions for the Fund, (b) manage the investing and reinvesting of the
Fund's assets as specified in paragraph 1, (c) place purchase and sale orders on
behalf of the Fund and (d) provide continuous supervision of the Fund's
investment portfolio.

3. (a) The Investment Adviser shall, at its expense, provide the Fund with
office space, office facilities and personnel reasonably necessary for
performance of the services to be provided by the Investment Adviser pursuant to
this Agreement, and provide the Fund with persons satisfactory to the Company's
Board of Directors to serve as officers and employees of the Fund.

<PAGE>

(b) Except as provided in subparagraph (a), the Company shall be
responsible for all of the Fund's expenses and liabilities, including
organizational expenses; taxes; interest; fees (including fees paid to its
directors who are not affiliated with the Investment Adviser or any of its
affiliates); fees payable to the SEC; state securities qualification fees; costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; advisory and administration fees; charges
of the custodian and transfer agent; insurance premiums; auditing and legal
expenses; costs of shareholders' reports and shareholders' meetings; any
extraordinary expenses; and brokerage fees and commissions, if any, in
connection with the purchase or sale of portfolio securities; and payments to
the Fund's distributor for activities intended to result in the sale of Fund
shares.

4. As manager of the Fund's assets, the Investment Adviser shall make
investments for the Fund's account in accordance with the investment objective
and limitations set forth in the Articles, the Prospectus, the 1940 Act, the
provisions of the Internal Revenue Code of 1986, as amended, relating to
regulated investment companies, applicable banking laws and regulations, and
policy decisions adopted by the Company's Board of Directors from time to time.
The Investment Adviser shall advise the Company's officers and Board of
Directors, at such times as the Company's Board of Directors may specify, of
investments made for the Fund's account and shall, when requested by the
Company's officers or Board of Directors, supply the reasons for making such
investments.

5. The Investment Adviser is authorized on behalf of the Company, from time
to time when deemed to be in the best interests of the Company and to the extent
permitted by applicable law, to purchase and/or sell securities in which the
Investment Adviser or any of its affiliates underwrites, deals in and/or makes a
market and/or may perform or seek to perform investment banking services for
issuers of such securities. The Investment Adviser is further authorized, to the
extent permitted by applicable law, to select brokers for the execution of
trades for the Company, which broker may be an affiliate of the Investment
Adviser, provided that the best competitive execution price is obtained at the
time of the trade execution.

6. In consideration of the Investment Adviser's undertaking to render the
services described in this agreement, the Company agrees that the Investment
Adviser shall not be liable under this agreement for any error of judgment or
mistake of law or for any loss suffered by the Company in connection with the
performance of this agreement, provided that nothing in this agreement shall be
deemed to protect or purport to protect the Investment Adviser against any
liability to the Company or its stockholders to which the Investment Adviser
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Investment Adviser's duties

<PAGE>

under this agreement or by reason of the Investment Adviser's reckless disregard
of its obligations and duties under this Agreement ("disabling conduct"). The
Fund will indemnify the Investment Adviser against, and hold it harmless from,
any and all losses, claims, damages, liabilities or expenses (including
reasonable counsel fees and expenses), including any amounts paid in
satisfaction of judgments, in compromise or as fines or penalties, not resulting
from disabling conduct by the Investment Adviser. Indemnification shall be made
only following: (i) a final decision on the merits by a court or other body
before whom the proceeding was brought that the Investment Adviser was not
liable by reason of disabling conduct, or (ii) in the absence of such a
decision, a reasonable determination, based upon a review of the facts, that the
Investment Adviser was not liable by reason of disabling conduct by (a) the vote
of a majority of a quorum of directors of the Fund who are neither "interested
persons" of the Fund (as defined in the 1940 Act) nor parties to the proceeding
("disinterested non-party directors"), or (b) an independent legal counsel in a
written opinion. The Investment Adviser shall be entitled to advances from the
Fund for payment of the reasonable expenses (including reasonable counsel fees
and expenses) incurred by it in connection with the matter as to which it is
seeking indemnification in the manner and to the fullest extent permissible
under law. The Investment Adviser shall provide to the Fund a written
affirmation of its good faith belief that the standard of conduct necessary for
indemnification by the Fund has been met and a written undertaking to repay any
such advance if it should ultimately be determined that the standard of conduct
has not been met. In addition, at least one of the following additional
conditions shall be met: (a) the Investment Adviser shall provide security in
form and amount acceptable to the Fund for its undertaking; (b) the Fund is
insured against losses arising by reason of the advance; or (c) a majority of a
quorum of disinterested non-party directors, or independent legal counsel, in a
written opinion, shall have determined, based on a review of facts readily
available to the Fund at the time the advance is proposed to be made, that there
is reason to believe that the Investment Adviser will ultimately be found to be
entitled to indemnification.

7. In consideration of the services to be rendered by the Investment
Adviser under this agreement, the Company shall pay the Investment Adviser a
monthly fee on the first business day of each month at an annual rate of 1.10%
of the average daily value (as determined on the days and at the time set forth
in the Prospectus for determining net asset value per share) of the Fund's net
assets during the preceding month. If the fee payable to the Investment Adviser
pursuant to this paragraph 7 begins to accrue before the end of any month or if
this agreement terminates before the end of any month, the fee for the period
from such date to the end of such month or from the beginning of such month to
the date of termination, as the case may be, shall be prorated according to the
proportion which such period bears to the full month in which such effectiveness
or termination

<PAGE>

occurs. For purposes of calculating each such monthly fee, the value of the
Fund's net assets shall be computed in the manner specified in the Prospectus
and the Articles for the computation of the value of the Fund's net assets in
connection with the determination of the net asset value of shares of the Fund's
capital stock.

8. If the aggregate expenses incurred by, or allocated to, the Fund in any
fiscal year shall exceed the expense limitations applicable to the Fund imposed
by state securities laws or regulations thereunder, as such limitations may be
raised or lowered from time to time, the Investment Adviser shall reimburse the
Fund for such excess. The Investment Adviser's reimbursement obligation will be
limited to the amount of fees it received under this agreement during the period
in which such expense limitations were exceeded, unless otherwise required by
applicable laws or regulations. With respect to portions of a fiscal year in
which this agreement shall be in effect, the foregoing limitations shall be
prorated according to the proportion which that portion of the fiscal year bears
to the full fiscal year. Any payments required to be made by this paragraph 8
shall be made once a year promptly after the end of the Company's fiscal year.

9. This agreement shall continue in effect until December 27, 1997, and
thereafter for successive annual periods, provided that such continuance is
specifically approved at least annually (a) by the vote of a majority of the
Fund's outstanding voting securities (as defined in the 1940 Act) or by the
Company's Board of Directors and (b) by the vote, cast in person at a meeting
called for the purpose, of a majority of the Company's directors who are not
parties to this agreement or "interested persons" (as defined in the 1940 Act)
of any such party. This agreement may be terminated at any time, without the
payment of any penalty, by a vote of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act) or by a vote of a majority of the
Company's entire Board of Directors on 60 days' written notice to the Investment
Adviser or by the Investment Adviser on 60 days' written notice to the Company.
This agreement shall terminate automatically in the event of its assignment (as
defined in the 1940 Act).

10. Upon expiration or earlier termination of this agreement, the Company
shall, if reference to "Lipper" is made in the corporate name of the Company or
in the name of the Fund and if the Investment Adviser requests in writing, as
promptly as practicable change its corporate name and the name of the Fund so as
to eliminate all reference to "Lipper", and thereafter the Company and the Fund
shall cease transacting business in any corporate name using the words "Lipper"
or any other reference to the Investment Adviser or "Lipper". The foregoing
rights of the Investment Adviser and obligations of the Company shall not
deprive the Investment Adviser, or any affiliate thereof which has "Lipper" in
its name, of, but shall be in addition to, any

<PAGE>

other rights or remedies to which the Investment Adviser and any such affiliate
may be entitled in law or equity by reason of any breach of this agreement by
the Company, and the failure or omission of the Investment Adviser to request a
change of the Company's or the Fund's name or a cessation of the use of the name
of "Lipper" as described in this paragraph 10 shall not under any circumstances
be deemed a waiver of the right to require such change or cessation at any time
thereafter for the same or any subsequent breach.

11. Except to the extent necessary to perform the Investment Adviser's
obligations under this agreement, nothing herein shall be deemed to limit or
restrict the right of the Investment Adviser, or any affiliate of the Investment
Adviser, or any employee of the Investment Adviser, to engage in any other
business or to devote time and attention to the management or other aspects of
any other business, whether of a similar or dissimilar nature, or to render
services of any kind to any other corporation, firm, individual or association.

12. During the period of time commencing on the date hereof and continuing
until the earlier of (a) such time as this agreement is approved by a vote of a
majority of the Fund's outstanding voting securities (as defined in the 1940
Act) or (b) May 31, 1997, the fees payable to the Adviser under this agreement
shall be paid into an interest-bearing account (the "Account") maintained by an
escrow agent. Such escrow agent shall not be an "affiliated person" (as defined
in the 1940 Act) of any of the parties hereto. All amounts paid into the Account
(including interest earned on such fees) may be paid to the Adviser upon the
approval of a majority of the Fund's outstanding voting securities (as defined
in the 1940 Act) of this agreement. In the event that the shareholders of the
Fund fail to approve this agreement prior to May 31, 1997, all amounts in the
Account shall be paid to the Fund. The parties hereto expressly acknowledge that
the escrow agent may release the moneys in the Account only upon receipt of a
certificate from an officer of the Company (who shall not be an "interested
person" (as defined in the 1940 Act) of the Adviser) stating that the moneys are
to be delivered to the Adviser and that this agreement has been approved by a
majority of the outstanding voting securities of the Fund (as defined in the
1940 Act) or, in the event that the shareholders of the Fund failed to approve
the agreement prior to the date specified above, that the moneys in the Account
are to be delivered to the Fund.

13. This agreement shall be governed by the laws of the State of New York.

<PAGE>

If the foregoing correctly sets forth the agreement between the Company and
the Investment Adviser, please so indicate by signing and returning to the
Company the enclosed copy hereof.

Very truly yours,

THE LIPPER FUNDS, INC.

By: /s/ Steven Finkel
--------------------------------
Name: Steven Finkel
Title: Executive Vice President

ACCEPTED:

By: PRIME LIPPER ASSET MANAGEMENT

By: LIPPER EUROPE, L.P., a General
Partner

By: LIPPER & COMPANY, INC., as General
Partner

By: /s/ Abraham Biderman
--------------------------------
Name: Abraham Biderman
Title: Executive Vice President

By: PRIME U.S.A. INC.,
a General Partner

By: /s/ Francesco Taranto
--------------------------------
Name: Francesco Taranto
Title: Director

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 4 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 13, 1998, relating to the financial statements and financial highlights
of The Lipper Funds, Inc., which appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectuses which constitute part of this Registration Statement. We also
consent to the references to us under the heading "Financial Highlights" in the
Prospectuses and under the headings "Independent Accountants" and "Financial
Statements" in the Statement of Additional Information.

PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
March 20, 1998

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