As filed with the Securities and Exchange Commission on
February 26, 1999
Registration Nos. 33-97984
811-9108
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. __ [ ]
POST-EFFECTIVE AMENDMENT NO. 5 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 7 [X]
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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:
Sarah Cogan, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
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It is proposed that this filing become effective:
(check appropriate box)
| | immediately upon filing pursuant to Paragraph (b)
|_| on (date) pursuant to Paragraph (b)
|X| 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.
<PAGE>
THE LIPPER FUNDS, INC.
PROSPECTUS
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
Internet Site: www.lipper.com
The Prime Lipper Europe Equity Fund is a diversified no-load portfolio of
The Lipper Funds, Inc. The Fund's investment objective is long-term capital
appreciation. The Fund invests primarily in a diversified portfolio of common
stocks of issuers located in Europe and believed to have the capacity for strong
levels of growth based on factors such as financial strength, earnings growth,
industry position and management.
Prime Lipper Asset Management is the Fund's investment adviser.
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
April 30, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
RISK/RETURN SUMMARY................................................................3
Fund Investment Objectives/Goals................................................3
Principal Investment Strategies of the Fund.....................................3
Principal Risks of Investing in the Fund........................................3
Fees and Expenses of the Fund...................................................4
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS............5
Investment Objective............................................................5
Other Investments...............................................................5
Temporary Investments.........................................................5
Risks...........................................................................6
General.......................................................................6
Risks of Investment in Foreign Securities.....................................6
MANAGEMENT.........................................................................7
Compensation....................................................................7
Executive Officers, Members of the Investment Committee and Portfolio Manager...7
Year 2000.......................................................................8
SHAREHOLDER INFORMATION............................................................8
Pricing of Fund Shares..........................................................8
Minimum Purchases, Additional Investments and Account Balances..................9
Purchasing Fund Shares..........................................................9
Other Purchase Information...................................................10
Redeeming Fund Shares..........................................................10
Other Redemption Information.................................................10
Exchange Privilege.............................................................11
Other Exchange Information...................................................12
Transfer of Registration.......................................................12
Dividends and Distributions....................................................12
Taxation of Distributions......................................................13
The Transfer...................................................................13
DISTRIBUTION ARRANGEMENTS.........................................................14
Sales Loads....................................................................14
Rule 12b-1 Fees................................................................14
Retail Distribution Plan.....................................................14
Group Retirement Servicing Plan..............................................14
Multiple Classes...............................................................15
FINANCIAL HIGHLIGHTS..............................................................15
</TABLE>
The Lipper Funds, Inc. is not associated with Lipper Analytical Services, Inc.
2
<PAGE>
RISK/RETURN SUMMARY
Fund Investment Objectives/Goals
The Fund's investment objective is long-term capital appreciation.
Principal Investment Strategies of the Fund
The Fund will invest primarily in a diversified portfolio of common stocks
of "European companies." The Fund considers European companies to include
companies that
o are organized under the laws of a European country;
o derive at least 50% of their revenues in a European country or
have at least 50% of their assets in a European country; or
o have securities that are traded principally on a European stock
exchange.
The Fund is suitable for investors who seek long-term capital appreciation
and who want exposure to a diversified portfolio of large capitalization
European equities.
Principal Risks of Investing in the Fund
The value of the Fund's shares will fluctuate in response to (1) changes in
market and economic conditions, primarily in Europe and (2) changes in the
financial conditions and prospects of the issuers in which the Fund invests. In
addition, because the Fund invests primarily in European equities, an investment
in the Fund involves additional risks not typically associated with investing in
U.S. equities, including social, political, economic and currency risks. As a
result, you may lose money by investing in the Fund.
The following bar chart reflects the annual total returns for the Fund's
Premier Shares since the Fund's inception. The information in this bar chart
provides some indication of the risks of investing in the Fund by showing the
changes in the Fund's performance from year to year.*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
(2.50)% 19.31% (1.77)% 23.17% 21.92% 18.83% 32.29%
[Bar Chart] [Bar Chart] [Bar Chart] [Bar Chart] [Bar Chart] [Bar Chart] [Bar Chart]
1992 1993 1994 1995 1996 1997 1998
</TABLE>
The Fund's highest returns for a quarter were 22.33% for the Premier
Shares, 22.26% for the Retail Shares and 22.34% for the Group Retirement Shares,
all of which occurred in the 1st quarter of 1998. The Fund's lowest returns for
a quarter for the periods presented were (11.77)% for the Premier Shares,
(11.79)% for the Retail Shares and (11.79)% for the Group Retirement Shares, all
of which occurred in the 3rd quarter of 1998.
The following table provides some indication of the risks of investing in
the Fund by comparing the average annual total return of the Fund for the one
and five year periods and since inception to that of the Morgan Stanley Capital
International Equity Index**:
- ----------
* Reflects performance of the Fund's Premier shares for the period April 1,
1996 (date of inception of mutual fund) through December 31, 1998 and the
performance of the Fund's predecessor partnership for period January 13,
1992 (date of inception of partnership) through April 1, 1996. As a mutual
fund registered under the Investment Company Act of 1940, the Fund is
subject to certain restrictions under the Act and the Internal Revenue Code
to which its corresponding partnership was not subject. Had the partnership
been registered under the Act and subject to the provisions of the Code,
its investment performance may have been adversely affected.
** The MSCI Europe Index is a capitalization-weighted index in U.S. dollars
that includes companies representing 15 developed countries in Western
Europe.
3
<PAGE>
<TABLE>
<CAPTION>
Average Annual Average Annual Total
1 Year Performance Five Year Return*** Return Since Inception***
------------------ ---------------------- -------------------------
<S> <C> <C> <C>
Prime Lipper Europe Equity Fund
Premier Shares 32.29% 18.30% 15.21%
Retail Shares 31.96% 18.14% 15.10%
Group Retirement Plan Shares 32.08% 18.17% 15.12%
MSCI Europe Index 28.91% 19.54% 17.58%****
</TABLE>
The Fund's past performance is not necessarily an indication of how the
Fund will perform in the future.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fee None
Exchange Fee None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
Management Fees
Premier Shares 1.10%
Retail Shares 1.10%
Group Retirement Plan Shares 1.10%
Distribution and Service (12b-1) Fees
Premier Shares None
Retail Shares 0.25%
Group Retirement Plan Shares 0.25%
Administrative Fees
Premier Shares 0.20%
Retail Shares 0.20%
Group Retirement Plan Shares 0.20%
Other Expenses
Premier Shares 0.24%
Retail Shares 0.24%
Group Retirement Plan Shares 0.24%
-----
Total Annual Fund Operating Expenses
Premier Shares 1.54%
Retail Shares 1.79%
Group Retirement Plan Shares 1.79%
</TABLE>
Certain investment dealers, banks and financial services firms may charge
you direct fees in connection with purchasing or redeeming the Fund's shares.
These tables do not reflect those fees.
- ----------
*** Average Annual Five Year Return and Average Annual Total Return Since
Inception reflects the performance of the Fund's predecessor partnerships
for periods prior to April 1, 1996. The predecessor partnership for the
Fund had an inception date of January 13, 1992. As a mutual fund registered
under the Investment Company Act, the Fund is subject to certain
restrictions under the Act and the Internal Revenue Code to which its
corresponding partnership was not subject. Had the partnership been
registered under the Act and subject to the provisions of the Code, its
investment performance may have been adversely affected.
**** Reflects average annual total return for the period January 13, 1992
through December 31, 1998.
4
<PAGE>
Example
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Premier Shares $157 $486 $839 $1,834
Retail Shares $182 $563 $970 $2,105
Group Retirement Plan Shares $182 $563 $970 $2,105
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
Investment Objective and Principal Investment Strategies
The Fund's investment objective is long-term capital appreciation. The Fund
will invest primarily in a diversified portfolio of common stocks of "European
companies," including 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 Fund may also invest in
common stocks of issuers organized under the laws of Greece, Norway and
Portugal. The Fund will not invest in common stocks of issuers principally based
in Eastern Europe or other emerging market countries.
The Adviser focuses on medium and large capitalization stocks, including
those that have at least $500,000 in trading volume and at least $250 million in
"free float" market capitalization. The Adviser favors growth stocks over pure
cyclical equities. To evaluate the most attractive growth stocks, the Adviser
analyzes the issuer's balance sheet strength (including leverage and free cash
flow available for capital investment), historic return on equity and projected
earnings per share growth rates. The Adviser also considers certain qualitative
factors, including the strength of the issuer's management, breadth of product
lines and export potential.
To reduce risk, the Fund emphasizes the more liquid European markets. The
Adviser determines country allocation based on each country's share of the
overall European market capitalization. The Fund expects to invest its assets in
a broad range of issuers in terms of country and industry.
Other Investments
The portion of the Fund's assets not invested in common stocks may be
invested in preferred stock, convertible securities, rights and warrants, and
depositary receipts. Although the Fund intends to invest primarily in securities
listed on foreign stock exchanges, it may 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 may be restricted.
Temporary Investments
For temporary defensive purposes, the Fund may invest in cash and/or high
quality short-term debt instruments of U.S. issuers. The Fund may also at any
time invest some of its assets in these instruments to meet redemptions and to
cover operating expenses. If the Fund takes a temporary defensive position, it
may not achieve its investment objective.
5
<PAGE>
Risks
General
The value of the Fund's shares will fluctuate with the market value of its
portfolio positions. Factors affecting the value of the Fund's securities
include:
o social, economic or political factors;
o factors affecting the industry in which a particular issuer
operates, such as competition or technological advances; and
o 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 Fund will achieve its investment objective.
Risk of Investment in Foreign Securities
The Fund will primarily invest in European securities that trade on
European markets. Investments in European securities involve certain
considerations and risks not typically associated with investing in U.S.
securities, including
o future social, political and economic developments;
o the possible imposition of foreign withholding taxes on dividend
income payable on securities held by the Fund; and
o the possible seizure or nationalization of foreign assets.
The Fund's investments are denominated in foreign currencies. In general,
the Fund does not hedge any currency risks between the U.S. dollar and foreign
currencies. As a result, the strength or weakness of the U.S. dollar against
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 Fund's holdings of securities
denominated in that currency. As a result, the value of the Fund's shares will
decline.
On January 1, 1999, eleven European countries implemented a new currency
unit called the "Euro" which is expected to reshape financial markets, banking
systems and monetary policies in Europe and other parts of the world. While it
is impossible to predict the impact of the Euro, it is possible that it could
increase volatility in financial markets worldwide and adversely affect the
value of the Fund's shares.
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 Fund's investments and adversely affect performance.
Investment by the 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.
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.
The Fund may engage in active and frequent trading to achieve its principal
investment objective. Frequent trading also increases transaction costs, which
could detract from the Fund's performance.
MANAGEMENT
Prime Lipper Asset Management, located at 101 Park Avenue, New York, NY
10178, serves as the Fund's investment adviser. The Adviser is a joint venture
between affiliates of Lipper & Company, L.P., the Fund's distributor, and Prime
S.p.A.
6
<PAGE>
Lipper & Company, L.P. is a privately owned investment management and
investment banking firm founded in 1987. At December 31, 1998, 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
and its affiliates serve as the general partner and/or investment adviser to
several investment limited partnerships and mutual funds organized in the U.S.
or offshore that offer complementary investment strategies in intermediate term
high yield bonds, hedged convertible securities, investment grade bonds, U.S.
and European large capitalization equities and merger arbitrage.
Prime S.p.A. is a subsidiary of Assicurazioni Generali S.p.A., the Italian
insurance company. Prime, through subsidiaries and affiliates, is among the
oldest asset managers in Italy, and specializes in management of portfolios
invested in European issuers, with approximately $8.9 billion of assets under
management as of December 31, 1998 from domestic and international investors.
Compensation
The Fund pays the Adviser an annual fee computed daily and paid monthly at
the annual rate of 1.10% of the Fund's average daily net assets. The Adviser may
voluntarily waive for a period of time all or a portion of its investment
advisory fee with respect to the Fund. For the most recent fiscal year, the
Adviser's management fee was 1.10%.
Executive Officers, Members of the Investment Committee and Portfolio Manager
An Investment Committee of the Adviser consisting of Kenneth Lipper,
Francesco Taranto, Abraham Biderman and Guido Guzzetti is responsible for
strategic decisions for the Fund. Mr. Guzzetti is the Portfolio Manager of the
Fund and is responsible for the day-to-day management of the Fund's portfolio.
Set forth below is a biographical description of the Executive Officers and
Members of the Investment Committee of the Adviser and the Portfolio Manger of
the Fund.
Kenneth Lipper is co-chairman of the Adviser and its Investment Committee.
Mr. Lipper has also been President of Lipper & Company, L.P. (together with its
predecessor, Lipper & Company, Inc.) since 1987. 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 wrote the
novels Wall Street and City Hall, wrote and produced the film City Hall and
produced the films The Winter Guest and The Last Days. 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 1987, Mr. Lipper has supervised the investment management
and investment banking operations of Lipper. He is a director and chairman of
the audit committee of New Holland N.V., a director of the Lincoln Center for
the Performing Arts, a trustee of the Sundance Institute, a member of the
Federal Reserve Bank of New York's International Advisory Board, a member of the
Advisory Board of The Chase Manhattan Bank 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 the Investment Committee of Prime, 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 for 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 & Company, L.P. and Co-Manager
7
<PAGE>
of Lipper Convertibles, L.P., an investment limited partnership and an affiliate
of Lipper and the Adviser. Mr. Biderman joined Lipper 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 at that time. 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 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 to 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.
Year 2000
The Adviser and the Fund's other service providers, including Chase Global
Funds Services Company, the Fund's Administrator and Transfer Agent, The Chase
Manhattan Bank, the Fund's Custodian, and the Distributor, are taking steps to
address any year 2000-related computer problems that may affect the Fund. The
Lipper Funds and the Adviser do not anticipate that computer problems related to
the year 2000 will have an adverse effect on the Fund. However, there can be no
assurance in this area. There exists the possibility that year 2000 computer
problems could negatively affect communications systems, investment markets or
the economy in general. The Lipper Funds will monitor the year 2000 readiness of
the Adviser, the Administrator and Transfer Agent and the other third-party
vendors that provide services to the Fund.
SHAREHOLDER INFORMATION
Pricing of Fund Shares
The price of each share is based on the net asset value of each class. The
Fund's net asset value is the value of its assets minus its liabilities.
Expenses attributable solely to a particular class will be borne exclusively by
that class. The net asset value per share of each class of shares of the Fund is
calculated every day the New York Stock Exchange is open.
The Fund determines the net asset value per share of each class as of the
close of regular trading on the NYSE. The Fund computes the net asset value per
share by dividing the value of the net assets of each class by the total number
of shares of that class outstanding. In calculating the net assets of each
class, the Fund values securities traded on an exchange on the basis of the last
sale price or, in the absence of a sale, at the mean between the closing bid and
asked prices, if available. The Fund values equity securities traded on the
NASDAQ National Market System for which no sales prices are available and
over-the-counter securities on the basis of the bid prices at the close of
business on each day. If market quotations for those securities are not readily
available, the Fund values such securities at fair value. Fair value is
determined in accordance with procedures approved by the Board of Directors. The
Fund values fixed income securities on the basis of valuations provided by
brokers and/or a pricing service, quotations from dealers, and prices of
comparable securities. The Fund may value short-term investments that mature
within 60 days at amortized cost if it reflects the fair value of those
investments.
Minimum Purchases, Additional Investments and Account Balances
Each of the Fund's classes has the following minimum amounts to purchase
shares initially, to make additional investments, and to maintain your
investment in a particular class of shares:
8
<PAGE>
<TABLE>
<CAPTION>
Minimum Minimum Minimum
Class of Shares Initial Purchase Additional Investment Account Balance
- --------------- ---------------- --------------------- ---------------
<S> <C> <C> <C>
Premier $1,000,000 $2,500 $500,000
Retail (non-I.R.A) $10,000 $2,500 $1,000
Retail (I.R.A.) $2,000 $250 $1,000
Group Retirement Plan None None None
</TABLE>
The Fund may vary or waive these minimum amounts at any time.
Purchasing Fund Shares
Shares of the Fund are sold without any sales charge. You may purchase
shares of the Fund in one of the following ways:
Method for Purchase What You Need To Do
- ------------------- -------------------
Initial Purchase by Mail Mail your account application and a check made
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
Initial Purchase by Wire First, call Chase Global Funds Services Company,
the Fund's Transfer Agent, at 1-800-LIPPER9 and
provide: (1) your name, address, telephone number,
and social security or tax I.D. number, (2) the
Fund's name and class of shares you want to
purchase, (3) the amount you are wiring, (4) the
name of the bank wiring the funds, and (5) whether
or not you have an existing account. The Transfer
Agent will provide you with a reference number.
Next, instruct your bank to wire the specified
amount to The Chase Manhattan Bank, the Fund'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/Reference Number ___________
Account Name _______________________
Finally, mail your account application to the
Transfer Agent at the address set forth above
under "Initial Purchase by Mail."
Additional Investments Mail a check payable to "The Lipper Funds, Inc."
to the Transfer Agent at the address set forth
above under "Initial Purchase by Mail" or wire
funds using the procedures set forth above under
"Initial Purchase by Wire." Include the account
number, account name, and the Fund's name and
class of shares to be purchased on the check or
wire to ensure proper crediting to your account.
Other Purchase Information
You may also purchase shares of the Fund through participating dealers,
including banks and financial services firms that provide distribution,
administrative or shareholder services to the Fund if you are a customer of
9
<PAGE>
that participating dealer. Participating dealers may impose additional or
different conditions or other account fees on your purchase of Fund shares. Each
participating dealer is responsible for sending its customers a schedule of any
such fees and information regarding any additional or different conditions
regarding purchases and redemptions. If you are a customer of a participating
dealer, you should consult the dealer for information regarding these fees and
conditions. The Lipper Funds, the Distributor, the Adviser or any of the
Adviser's affiliates may compensate certain participating dealers. Compensation
may be different with respect to sales of one class of shares over another.
If the Distributor or a participating dealer receives your order and
transmits it to the Transfer Agent prior to the close of regular trading on the
NYSE, generally 4:00 p.m., New York time, the Fund will price your shares
according to that day's net asset value. If not, the Fund will price your shares
based on the next day's net asset value. The Distributor or a participating
dealer generally must receive payment for your shares on settlement date, the
third business day after the date on which you placed your order. If you make
payment prior to the settlement date, you may permit the payment to be held in
your brokerage account or you may designate a temporary investment for such
payment until the settlement date. The Fund may reject any purchase order and
suspend the offering of its shares for a period of time.
In the interest of economy and convenience, the Fund will not issue
certificates for shares unless you make a written request. The Fund will not
issue certificates for fractional shares under any circumstances. It is
considerably more difficult to redeem shares held in certificate form.
Redeeming Fund Shares
You may redeem shares of the Fund at any time in one of the following ways:
Method for Redemption What You Need to Do
- --------------------- -------------------
Redemption through the Contact the Distributor at 1-800-LIPPER9 or your
Distributor or a Participating Dealer.
Participating Dealer
Redemption by Mail First, call the Transfer Agent at 1-800-LIPPER9
for information to include in your redemption
request.
Then, send your redemption request to the
Transfer Agent at the address specified under
"Initial Purchase by Mail."
Redemption by Telephone Call the Transfer Agent at 1-800-LIPPER9
and request that the Transfer Agent send
you the redemption proceeds or wire the funds
to your account.
Other Redemption Information
If the Fund receives your redemption request in proper form before 4:00
p.m., New York time, it will redeem your shares at that day's net asset value.
If not, the Fund will redeem your shares at the next day's net asset value. The
proceeds paid to you upon redemption may be more or less than the amount you
originally invested depending upon the net asset value of the shares being
redeemed at the time of redemption. If you hold shares in more than one class of
the Fund, you must specify in your redemption request the class of shares being
redeemed. If you do not specify which class you want redeemed, or if you own
fewer shares of a class than specified, the Transfer Agent will delay your
request until it receives further instructions from you, the Distributor or a
participating dealer.
The Fund normally transmits redemption proceeds for credit to your account
at the Distributor or a participating dealer at no charge within seven days
after it receives your redemption request. Generally, the Fund will not invest
these funds for your benefit without specific instruction, and the Distributor
will benefit from the use of temporarily uninvested funds. If you pay for your
shares by personal check, you will be credited with the proceeds of a redemption
of those shares only after the check has been collected, which may take up to 15
days or more. If you anticipate the need for more immediate access to your
investment, you should purchase shares with Federal Funds, by bank wire or with
a certified or cashier's check.
10
<PAGE>
If you reduce your account to below the minimum investment balances set
forth above, the Fund may redeem your account. The Fund will give you at least
30 days in which to increase your account balance to more than the required
minimum account balance. Group Retirement Plan Shareholders are not subject to
this minimum. If the Fund redeems your shares, you may reinvest in any class of
shares of the Fund at a later date provided that you meet any eligibility
requirements with respect to investing in the Fund at that time.
Certain participating dealers may charge you fees in connection with
redeeming your shares.
The Fund may suspend your right to redeem your shares or postpone the date
of payment for any period during which trading on the NYSE is closed (other than
customary weekend and holiday closings) or restricted. The Fund may also suspend
your right to redeem your shares or postpone the date of payment if an emergency
exists for which the Fund cannot reasonably dispose of or value its securities
or for such other periods as the Securities and Exchange Commission may permit.
If the Board of Directors determines that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment wholly
or partly in cash, the Fund may pay your 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 SEC. You may incur brokerage
charges on the sale of such securities.
You must provide the Transfer Agent with a "signature guarantee" if (1) you
want your redemption proceeds sent to another person, (2) you want your
redemption proceeds sent to an address other than your registered address, or
(3) you want your shares transferred to another person. A signature guarantee
verifies your identity. You may obtain a signature guarantee from an "eligible
guarantor institution" (including banks, brokers and dealers that are members of
a clearing corporation or that maintain net capital of at least $100,000, credit
unions authorized to issue signature guarantees, national securities exchanges,
registered securities associations, clearing agencies and savings associations)
that participates in a signature guarantee program. The signature guarantee must
appear on (1) your written request for redemption, (2) a stock power that
specifies the total number of shares and class of shares to be redeemed, or (3)
all of the stock certificates you tender for redemption (if you hold your shares
in certificated form).
Exchange Privilege
You may exchange your shares of the Fund for shares of the same class of
the other funds in The Lipper Funds family, including the Lipper High Income
Bond Fund and the Lipper U.S. Equity Fund, in one of the following ways:
Method for Exchange What You Need To Do
- ------------------- -------------------
Exchange by Telephone Call the Transfer Agent at 1-800-LIPPER9 and
provide (1) your name, Social Security or tax I.D.
number, account address and account number for
your current Fund, (2) the Fund from which you
wish to exchange, and (3) the name of the Fund
into which you wish to exchange.
Exchange by Mail Mail the Transfer Agent a letter at the address
set forth above under "Initial Purchase by Mail"
requesting an exchange. The letter should include
(1) your name and account number of your current
Fund, (2) the class of such Fund from which you
wish to exchange, and (3) the name of the Fund
into which you wish to exchange.
Other Exchange Information
You may exercise the exchange privilege if the shares of the Fund into
which you wish to exchange are offered for sale in your state of residence and
the purchase meets the minimum investment and other eligibility requirements of
the Fund into which you are exchanging. To use the exchange privilege, you
should consult the
11
<PAGE>
Distributor or your participating dealer to determine if it is available and
whether any other conditions are imposed on its use.
If you exercise the exchange privilege, The Lipper Funds will exchange your
shares at the next determined net asset value. The Lipper Funds does not
currently charge any fees directly in connection with exchanges, although it may
charge shareholders a nominal fee in accordance with rules promulgated by the
SEC upon at least 60 days' written notice.
You must obtain and should carefully review a copy of the current
prospectus of the Fund into which you wish to exchange before making any
exchange.
The Lipper Funds may limit exchanges as to amounts or frequency, and may
impose other restrictions to assure that exchanges do not disadvantage the Funds
or their shareholders. If your shares are held in a broker "street name," you
must contact your participating dealer to exchange such shares; you may not
exchange such shares by mail or telephone. The Lipper Funds may reject any
exchange request in whole or in part. The Lipper Funds may modify or terminate
the exchange privilege at any time upon notice to shareholders.
If you exchange shares of the Fund for shares of another Fund, the Internal
Revenue Service treats such an exchange as a sale of the shares. Therefore, you
may realize a taxable gain or loss upon an exchange.
Transfer of Registration
You may instruct the Transfer Agent to transfer the registration of your
shares to another person by sending the Transfer Agent a letter at the address
set forth above under "Initial Purchase by Mail." The letter should include (1)
your name and account number, (2) the name of the Fund from which you want to
transfer your shares, (3) the number and class of shares you want to transfer,
(4) the name of the person to whom you are transferring your shares, (5) your
signature, (6) a signature guarantee and (7) an account application from the
person to whom you are transferring your shares.
Dividends and Distributions
The Fund will distribute its net investment income and net capital gain, if
any. Shares of the 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. The Fund will automatically
reinvest dividends and capital gains distributions on your shares in additional
shares of the same class at the net asset value of that class at the time of
reinvestment, unless you indicate on your application form that the Fund pay
dividends and capital gains distributions on shares in cash to your account.
The Fund will distribute substantially all of its net investment income to
shareholders annually. The Fund will distribute net capital gain, if any, with
the last dividend for the calendar year.
If you own Retail or Group Retirement Plan Shares, you will receive lower
per share dividends than Premier Shareholders because of the additional expenses
borne by Retail and Group Retirement Plan Shareholders under the Fund's Retail
Distribution Plan and Group Retirement Servicing Plan.
The Fund may pay additional distributions and dividends at other times if
necessary to avoid federal income taxes.
The Lipper Funds will send you an annual statement setting forth the amount
of any dividends and distributions made to you during each year and their
federal tax qualification.
12
<PAGE>
Taxation of Distributions
Fund dividends and distributions are taxable to you as ordinary income or
capital gain. Unless your Fund shares are in an IRA or other tax-advantaged
account, you are required to pay taxes on dividends and distributions whether
you receive them in cash or in the form of additional shares.
Distributions paid out of the Fund's "net capital gain" will be taxed to
you as long-term capital gain, regardless of how long you have owned shares. All
other distributions will be taxed to you as ordinary income.
You may want to avoid buying shares when the Fund is about to declare a
dividend or distribution, because it will be taxable to you even though it may
actually represent a return of your capital.
Your annual tax statement from the Fund will present in detail the tax
status of your distributions for each year.
If more than half of the total asset value of the Fund is invested in
foreign stock or securities, the Fund may elect to "pass through" to its
shareholders the amount of foreign taxes paid. In such case, you would be
required to include your proportionate share of such taxes in your income and
may be entitled to deduct or credit such taxes when computing your taxable
income.
If you do not provide the Fund with your correct taxpayer identification
number and any required certifications, you may be subject to backup withholding
of 31% of your dividends, distributions or redemption proceeds.
Because every investor has an individual tax situation, and also because
the tax laws are subject to periodic changes, you should always consult your tax
professional about federal, state and local tax consequences of owning shares of
the Fund.
The Transfer
Prior to the Fund's inception, the Fund operated as a limited partnership
for which the Adviser acted as general partner and investment adviser. The
partnership was not registered under and subject to the provisions of the
Investment Company Act of 1940, as amended, pursuant to an exemption from
registration for entities that have fewer than 100 holders. As an unregistered
entity, the partnership was not required to comply with the requirements of the
Investment Company Act, or the diversification, distribution and other
requirements imposed by the Internal Revenue Code of 1986, as amended. On April
1, 1996, the Fund exchanged Premier Shares for certain portfolio securities of
the partnership. The Fund distributed Premier Shares to the partnership's
limited partners who elected to participate in the transfer.
If the Fund acquired securities in the transfer that appreciated in value
from the date the partnership originally acquired them, the transfer may have
adverse tax consequences to you. If the Fund sells securities acquired in the
transfer that appreciated in value from the date the partnership originally
acquired them, you will be taxed on any resulting gain (including any
appreciation in value from the date the partnership acquired them through the
date of the transfer). As a result, you will be taxed on a distribution that
economically represents a return of your purchase price rather than an increase
in the value of your investment. Your taxable gain will be 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 will 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.
13
<PAGE>
DISTRIBUTION ARRANGEMENTS
Sales Loads
The Lipper Funds does not charge investors any sales load for purchasing or
selling shares of the Fund. Certain investment dealers, banks and financial
services firms may charge you fees in connection with the purchase or redemption
of the Fund's shares.
Rule 12b-1 Fees
The Board of Directors has adopted a Rule 12b-1 distribution plan for the
Fund's Retail Shares and a shareholder servicing plan for the Fund's Group
Retirement Plan Shares. Participating dealers may impose additional fees.
Retail Distribution Plan
Under the Retail Distribution Plan, Retail Shareholders pay the Distributor
an annual fee of up to 0.25% of the value of the average daily net assets of the
Fund's Retail Shares for distributing those shares. This fee may be more or less
than the actual expenses the Distributor incurs. The Distributor may, in turn,
pay one or more participating dealers all or a portion of this fee for selling
the Fund's Retail Shares. 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 for a period of time its fees under the
Retail Distribution Plan.
Group Retirement Servicing Plan
Under the Group Retirement Servicing Plan, Group Retirement Plan
Shareholders may pay one or more participating dealers and/or the Distributor an
annual fee of up to 0.25% of the value of the average daily net assets of the
Fund's Group Retirement Plan Shares for providing certain administrative
services to their customers who are beneficial owners of the Fund's Group
Retirement Plan Shares. These services are intended to supplement the services
provided by the Administrator and Transfer Agent and include:
o establishing and maintaining accounts and records relating to
customers that invest in Group Retirement Plan Shares;
o processing dividend and distribution payments from the Fund on
behalf of customers;
o arranging for bank wires;
o providing sub-accounting with respect to Group Retirement Plan
Shares beneficially owned by customers or the information
necessary for sub-accounting;
o forwarding shareholder communications from the Fund (such as
proxies, shareholder reports, annual and semi-annual financial
statements and dividend, distribution and tax notices) to
customers;
o assisting in processing purchase, exchange and redemption
requests from customers and in placing such orders with The
Lipper Funds' service contractors;
o assisting customers in changing dividend options, account
designations and addresses;
o providing customers with a service that invests the assets of
their accounts in Group Retirement Plan Shares pursuant to
specific or pre-authorized instructions;
o 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;
o responding to customer inquiries relating to the services
performed by the participating dealer or the Distributor;
14
<PAGE>
o responding to customer inquiries concerning their investments in
Group Retirement Plan Shares; and
o providing other similar shareholder liaison services.
Multiple Classes
The Fund offers three Classes of Shares: Premier Shares, Retail Shares, and
Group Retirement Plan Shares. If you invest more than $1 million in the Fund,
you may purchase Premier Shares and will not pay any 12b-1 fees. If you are part
of a 401(k), pension or other type of retirement plan, you must purchase Group
Retirement Plan Shares and you will have to pay an annual fee of up to 0.25% of
the value of the average daily net assets of the Fund's Group Retirement Plan
Shares. All other shareholders may purchase Retail Shares and will have to pay
the Distributor a 12b-1 fee at an annual rate of up to 0.25% of the value of the
average daily net assets of the Fund's Retail Shares.
Retail and Group Retirement Plan Shareholders pay fees out of the net
assets of those classes of shares on an ongoing basis. As a result, if you
purchase those classes of shares, over time the fees will increase the cost of
your investment and may cost you more than paying other types of sales charges.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
Fund's financial performance for the period of the Fund's operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that you would have earned on an
investment in the Fund (assuming you reinvested all dividends and
distributions). PricewaterhouseCoopers LLP, the Fund's independent accountants,
audited this information, and its report and the Fund's financial statements are
included in the Fund's annual report, which is available upon request.
15
<PAGE>
Premier Shares
--------------
<TABLE>
<CAPTION>
January 1, 1998 to January 1, 1997 to April 1, 1996** to
December 31, 1998 December 31, 1997 December 31, 1996
------------------ ------------------- ------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 11.74 $ 11.25 $ 10.00
----------- ----------- -----------
Income From Investment Operations:
Net Investment Income(1) (0.01) 0.05 0.04
Net Gains or Losses on Securities (both
realized and unrealized) 3.79 2.06 1.62
----------- ----------- -----------
Total from Investment Operations 3.78 2.11 1.66
----------- ----------- -----------
Less Distributions:
Dividends (from net investment income) -- (0.03) (0.02)
Distributions (from capital gains) (1.42) (1.59) (0.39)
----------- ----------- -----------
Total Distributions (1.42) (1.62) (0.41)
----------- ----------- -----------
Net Asset Value, End of Period $ 14.10 $ 11.74 $ 11.25
============ =========== ===========
Total Return(2) 32.29% 18.83% 16.68%
============ =========== ===========
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $ 124,406 $ 82,787 $ 62,942
Ratios of Expenses to Average Net Assets After
Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets 1.54% 1.59% 1.60%*
Net Investment Income to Average Net (0.06)% 0.43% 0.53%*
Assets
Ratios of Expenses to Average Net Assets Before
Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets 1.54% 1.59% 1.78%*
Net Investment Income to Average Net (0.06)% 0.43% 0.35%*
Assets
Portfolio Turnover Rate 61% 71% 34%
</TABLE>
- ----------
* Annualized.
** Commencement of Fund operations.
(1) Voluntarily waived fees and reimbursed expenses affected the net investment
income per share in the amount of $0.01 for the period ended December 31,
1996.
(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.
16
<PAGE>
Retail Shares
-------------
<TABLE>
<CAPTION>
January 1, 1998 to January 1, 1997 to April 11, 1996** to
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 11.73 $ 11.25 $ 9.93
---------- --------- ---------
Income From Investment Operations:
Net Investment Income(1) (0.03) 0.02 (0.01)
Net Gains or Losses on Securities (both
realized and unrealized) 3.77 2.05 1.73
--------- --------- ---------
Total from Investment Operations 3.74 2.07 1.72
--------- --------- ---------
Less Distributions:
Dividends (from net investment income) -- -- (0.01)
Distributions (from capital gains) (1.42) (1.59) (0.39)
--------- --------- ---------
Total Distributions (1.42) (1.59) (0.40)
--------- --------- ---------
Net Asset Value, End of Period $ 14.05 $ 11.73 $ 11.25
========= ========= =========
Total Return(2) 31.96% 18.49% 17.37%
========= ========= =========
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $ 2,472 $ 1,137 $ 609
Ratios of Expenses to Average Net Assets After
Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets 1.79% 1.84% 1.85%*
Net Investment Income to Average Net (0.25)% 0.16% (0.13)%*
Assets
Ratios of Expenses to Average Net Assets Before
Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets 1.79% 1.84% 2.07%*
Net Investment Income to Average Net (0.25)% 0.16% (0.35)%*
Assets
Portfolio Turnover Rate 61% 71% 34%
</TABLE>
- ----------
* Annualized.
** Initial offering of shares of the Fund.
(1) Voluntarily waived fees and reimbursed expenses affected the net investment
income per share in the amount of $0.2 for the period ended December 31,
1996.
(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.
17
<PAGE>
Group Retirement Plan Shares
----------------------------
<TABLE>
<CAPTION>
January 1, 1998 to January 1, 1997 to April 12, 1996** to
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 11.72 $ 11.24 $ 9.92
---------- --------- ---------
Income From Investment Operations:
Net Investment Income(1) (0.03) 0.03 (0.02)
Net Gains or Losses on Securities (both
realized and unrealized) 3.78 2.05 1.74
--------- --------- ---------
Total from Investment Operations 3.75 2.08 1.72
--------- --------- ---------
Less Distributions:
Dividends (from net investment income) -- (0.01) (0.01)
Distributions (from capital gains) (1.42) (1.59) (0.39)
--------- --------- ---------
Total Distributions (1.42) (1.60) (0.40)
---------- --------- ---------
Net Asset Value, End of Period $ 14.05 $ 11.72 $ 11.24
========= ========= ==========
Total Return(2) 32.08% 18.60% 17.40%
========= ========= ==========
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $ 2,318 $ 941 $ 195
Ratios of Expenses to Average Net Assets After
Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets 1.79% 1.84% 1.85%*
Net Investment Income to Average Net (0.29)% 0.34% (0.43)%*
Assets
Ratios of Expenses to Average Net Assets Before
Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets 1.79% 1.84% 2.04%*
Net Investment Income to Average Net (0.29)% 0.34% (0.62)%*
Assets
Portfolio Turnover Rate 61% 71% 34%
</TABLE>
- ----------
* Annualized.
** Initial offering of shares of the Fund.
(1) Voluntarily waived fees and reimbursed expenses affected the net investment
income per share in the amount of $01 for the period ended December 31,
1996.
(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.
18
<PAGE>
Investment Adviser
Prime Lipper Asset Management
101 Park Avenue, 6th Floor
New York, NY 10178
(212) 883-6333
Administrator and Transfer Agent
Chase Global Funds Services Company
73 Tremont Street, 9th Floor
Boston, MA 02108
1-800-LIPPER9
Distributor
Lipper & Company, L.P.
101 Park Avenue, 6th Floor
New York, NY 10178
(212) 883-6333
Custodian
The Chase Manhattan Bank
270 Park Avenue
New York, NY 10017
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Counsel
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Board of Directors
Kenneth Lipper
Chairman of the Board,
The Lipper Funds, Inc.
President and Chairman,
Lipper & Company
Abraham Biderman
Executive Vice President
Lipper & Company
Stanley Breznoff
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
THE LIPPER FUNDS, INC.
PRIME LIPPER EUROPE EQUITY FUND
Prospectus and
New Account Application
The Lipper Funds, Inc. offers three diversified no-load portfolios: Prime Lipper
Europe Equity Fund, Lipper U.S. Equity Fund and Lipper High Income Bond Fund.
The Statement of Additional Information, dated April 30, 1999, as amended from
time to time, contains additional information about The Lipper Funds and is
incorporated by reference into this Prospectus. The Fund's annual and
semi-annual reports to shareholders also contain additional information,
including a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
To obtain free copies of the Statement of Additional Information, the Fund's
annual or semi-annual reports, or the Prospectuses for any of The Lipper Funds,
to make shareholder inquiries, or to request other information about the Fund,
call 1-800-LIPPER9, write the Fund's Distributor at the address listed on the
front cover of this Prospectus, e-mail the Fund's Distributor at
[email protected], or visit The Lipper Funds' Internet site at
www.lipper.com.
You can review and copy information about the Fund, including the Statement of
Additional Information, at the SEC's Public Reference Room in Washington, DC.
Call 1-800-SEC-0330 for more information. You may also obtain reports and other
information about the Fund from the SEC's Internet site at http://www.sec.gov
or, upon payment of a duplicating fee, by writing the Public Reference Section
of the SEC, Washington, DC 20549-6009.
Investment Company Act File No. 811-9108
<PAGE>
THE LIPPER FUNDS, INC.
PROSPECTUS
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
Internet Site: www.lipper.com
The Lipper High Income Bond Fund is a diversified no-load portfolio of The
Lipper Funds, Inc. The Fund's investment objective is high total return
consistent with capital preservation. The Fund invests primarily in a
diversified portfolio of U.S. intermediate term, high yield corporate bonds that
offer high current income and the potential for capital appreciation.
Lipper & Company, L.L.C. is the Fund's investment adviser.
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
April 30, 1999
<PAGE>
TABLE OF CONTENTS
Page
RISK/RETURN SUMMARY..........................................................3
Fund Investment Objectives/Goals..........................................3
Principal Investment Strategies of the Fund...............................3
Principal Risks of Investing in the Fund..................................3
Fees and Expenses of the Fund.............................................4
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS......5
Investment Objective and Principal Investment Strategies..................5
Other Investments.......................................................6
Temporary Investments...................................................6
Risks.....................................................................6
General.................................................................6
Changes in Interest Rates...............................................7
High Yield Securities...................................................7
MANAGEMENT...................................................................8
Compensation..............................................................8
Portfolio Manager and Executive Officers..................................8
Year 2000.................................................................9
SHAREHOLDER INFORMATION......................................................9
Pricing of Fund Shares....................................................9
Minimum Purchases, Additional Investments and Account Balances............9
Purchasing Fund Shares...................................................10
Other Purchase Information.............................................10
Redeeming Fund Shares....................................................11
Other Redemption Information...........................................11
Exchange Privilege.......................................................12
Other Exchange Information.............................................12
Transfer of Registration.................................................13
Dividends and Distributions..............................................13
Taxation of Distributions................................................14
The Transfer.............................................................14
DISTRIBUTION ARRANGEMENTS...................................................14
Sales Loads..............................................................14
Rule 12b-1 Fees..........................................................15
Retail Distribution Plan...............................................15
Group Retirement Servicing Plan........................................15
Multiple Classes.........................................................15
FINANCIAL HIGHLIGHTS........................................................16
The Lipper Funds, Inc. is not associated with Lipper Analytical Services, Inc.
2
<PAGE>
RISK/RETURN SUMMARY
Fund Investment Objectives/Goals
The Fund's investment objective is high total return consistent with
capital preservation.
Principal Investment Strategies of the Fund
The Fund invests primarily in a diversified portfolio of U.S. intermediate
term, high yield corporate bonds with maturities of 10 years or less 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 of
similar quality. The Adviser emphasizes high yield bonds 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 invests the assets of
the Fund in a broad range of issuers and industries. The Adviser anticipates
that the Fund's portfolio securities will have an assumed dollar-weighted
average maturity of between five and seven years. The Adviser seeks to actively
manage credit risk and minimize interest rate risk through credit analysis,
credit diversity and emphasis on short to intermediate maturities.
The Fund is suitable for investors who seek a total return in excess of the
return typically offered by U.S. Treasury securities and who are comfortable
with the risks associated with investing in high yield bonds of the credit
quality in which the Fund invests.
Principal Risks of Investing in the Fund
The value of the Fund's shares will fluctuate in response to:
o changes in the levels of interest rates;
o changes in the actual and perceived creditworthiness of the
issuers of the Fund's investments
o social, economic or political factors
o factors affecting the industry in which a particular issuer
operates, such as competition or technological advances; and
o factors affecting an issuer directly, such as management changes,
labor relations, collapse of key suppliers or customers, or
material changes in overhead.
The Fund invests in securities rated below investment grade, commonly referred
to as "junk bonds." These securities involve greater risk than higher-rated
securities, including greater price volatility and a greater risk of default in
the timely payment of principal and interest. As a result, you may lose money by
investing in the Fund.
The following bar chart reflects the annual total returns for the Fund's
Premier Shares since the Fund's inception. The information in this bar chart
provides some indication of the risks of investing in the Fund by showing the
changes in the Fund's performance from year to year.*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
10.64% 14.29% 0.47% 14.42% 11.01% 11.22% 3.61%
[Bar Chart] [Bar Chart] [Bar Chart] [Bar Chart] [Bar Chart] [Bar Chart] [Bar Chart]
1992** 1993 1994 1995 1996 1997 1998
</TABLE>
- ----------
* Reflects performance of the Fund's Premier shares for the period April 1,
1996 (date of inception of mutual fund) through December 31, 1998 and the
performance of the Fund's predecessor partnership for period February 1,
1992 (date of inception of partnership) through April 1, 1996. As a mutual
fund registered under the Investment Company Act of 1940, the Fund is
subject to certain restrictions under the Act and the Internal Revenue Code
to which its corresponding partnership was not subject. Had the partnership
been registered under the Act and subject to the provisions of the Code,
its investment performance may have been adversely affected.
** Reflects performance for the period February 1, 1992 through December 31,
1992.
3
<PAGE>
The Fund's highest returns for a quarter were 4.54% for the Premier Shares,
4.54% for the Retail Shares and 4.54% for the Group Retirement Shares, all of
which occurred in the 1st quarter of 1993. The Fund's lowest returns for a
quarter for the periods presented were (2.45)% for the Premier Shares, (2.51)%
for the Retail Shares and (2.42)% for the Group Retirement Shares, all of which
occurred in the 3rd quarter of 1998.
The following table provides some indication of the risks of investing in
the Fund by comparing the average annual total return of the Fund for the one
and five year periods and since inception to that of the Lehman Brothers BB
Intermediate Index**:
<TABLE>
<CAPTION>
Average Annual Average Annual Total
1 Year Performance Five Year Return*** Return Since Inception***
------------------ ------------------- -------------------------
<S> <C> <C> <C>
Lipper High Income Bond Fund
Premier Shares 3.61% 8.01% 9.37%
Retail Shares 3.36% 7.87% 9.27%
Group Retirement Plan Shares 3.37% 7.86% 9.27%
Lehman BB Index 5.78% 9.10% 10.39%****
</TABLE>
The Fund's past performance is not necessarily an indication of how the
Fund will perform in the future.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fee None
Exchange Fee None
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets) Management Fees (before waiver)(1)
Premier Shares 0.75%
Retail Shares 0.75%
Group Retirement Plan Shares 0.75%
Distribution and Service (12b-1) Fees
Premier Shares None
Retail Shares 0.25%
Group Retirement Plan Shares 0.25%
Administrative Fees
Premier Shares 0.20%
Retail Shares 0.20%
Group Retirement Plan Shares 0.20%
Other Expenses
Premier Shares 0.20%
Retail Shares 0.20%
Group Retirement Plan Shares 0.20%
-----
Total Annual Fund Operating Expenses (before waiver)(1)
Premier Shares 1.15%
Retail Shares 1.40%
Group Retirement Plan Shares 1.40%
</TABLE>
- ----------
** The Lehman BB Index is an index of intermediate-term high yield corporate
bonds with BB credit ratings.
*** Average Annual Five Year Return and Average Annual Total Return Since
Inception reflects the performance of the Fund's predecessor partnership
for periods prior to April 1, 1996. The predecessor partnership for the
Fund had an inception date of February 1, 1992. As a mutual fund registered
under the Investment Company Act, the Fund is subject to certain
restrictions under the Act and the Internal Revenue Code to which its
corresponding partnership was not subject. Had the partnership been
registered under the Act and subject to the provisions of the Code, its
investment performance may have been adversely affected.
**** Reflects average total return for the period February 1, 1992 through
December 31, 1998.
(1) The Adviser voluntarily waived a portion of its investment advisory fee
during the 1998 fiscal year. As a result, the actual Management Fee was
0.60% for each of the Fund's share classes and the Total Annual Fund
Operating Expenses were 1.00% for the Premier Shares and 1.25% for the
Retail and Group Retirement Plan Shares. The Adviser may discontinue this
waiver at any time.
4
<PAGE>
Certain investment dealers, banks and financial services firms may charge
you direct fees in connection with purchasing or redeeming the Fund's shares.
These tables do not reflect those fees.
Example
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:*
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Premier Shares $117 $365 $633 $1,378
Retail Shares $143 $443 $766 $1,680
Group Retirement Plan Shares $143 $443 $766 $1,680
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
Investment Objective and Principal Investment Strategies
The Fund's primary investment objective is high total return consistent
with capital preservation. The Fund invests primarily in a diversified portfolio
of U.S. intermediate term, high yield bonds with maturities of 10 years or less
rated at the time of investment "Baa" to "B" by Moody's or "BBB" to "B-" by S&P,
or in securities determined by the Adviser to be of comparable quality. The Fund
will not invest any of its assets in high yield bonds that, at the time of
investment, are rated "Caa" or lower by Moody's or "CCC" or lower by S&P, or in
comparable unrated bonds. Depending on market and issuer-specific conditions,
the Adviser will sell any of the Fund's bonds that fall below "B" by Moody's or
"B-" by S&P within a reasonable period of time.
The Adviser focuses on high yield bonds 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- by concentrating on the middle to high
end of the non-investment grade spectrum. The Adviser expects to invest the
assets of the Fund in a broad range of issuers and industries. The Adviser will
actively seek to manage credit risk and minimize interest rate risk through
credit analysis, credit diversity and emphasis on short to intermediate
maturities.
The Adviser considers various factors in evaluating securities for purchase
by the Fund, including:
o 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;
o the difference, or "spread," between the yield of the security
and the yield of a comparable U.S. Treasury security;
o the size of the issuer, the issuer's sensitivity to economic
conditions and trends and the issuer's operating history;
o the issuer's financial resources and financial condition,
including leverage and cash flow to cover interest expense and
principal repayment;
- ----------
* The example reflects the Fund's total operating expenses before taking into
consideration that the Adviser voluntarily waived a portion of its investment
advisory fee during the 1998 fiscal year. If you consider this voluntary
waiver, your costs for the one, three, five and ten year periods would be
$102, $318, $552 and $1,225, respectively, for the Premier Shares, and $127,
$397, $686 and $1,511, respectively, for the Retail and Group Retirement Plan
Shares.
<PAGE>
o review of the terms under which securities are issued and the
nature of and coverage under financial covenants;
o the experience and track record of the issuer's management;
o market-technical factors, including the number and amount of new
high yield securities being issued; and
o underwriting factors, including size, capital and reputation of
the lead underwriter, number of additional underwriters, and
their track records.
"High yield bonds" are fixed income securities rated below investment grade
that typically offer investors higher yields than other fixed income securities.
The higher yields are justified by the weaker credit profile of high yield
issuers as compared to investment grade issuers. High yield bonds include debt
obligations of all types issued by U.S. and non-U.S. corporate and governmental
issuers, including bonds, debentures and notes, and preferred stocks that have
priority over any other class of stock of the issuer as to the distribution of
assets or payment of dividends. A high yield bond 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 bond or acquired
as part of a unit with the bond.
Debt securities differ in their interest rates and maturities, among other
factors. The Adviser's expectations as to future changes in interest rates will
determine the maturity of the debt securities comprising the Fund's portfolio.
For example, if the Adviser expects interest rates to rise, the Fund may 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 Fund may invest more heavily in
securities with longer maturities, in order to take advantage of the higher
rates then available. Under normal market conditions, the Adviser anticipates
that the Fund's portfolio securities will have an assumed dollar-weighted
average maturity of between five and seven years. The goal of maintaining such a
maturity is so that over the course of a year, approximately 20% of the Fund's
capital can be reinvested at current rates, minimizing potential volatility in a
changing interest rate environment.
Other Investments
The Fund may also invest in preferred stock (including convertible
preferred stock), warrants or common stock, as well as non-U.S. dollar
denominated securities.
Temporary Investments
If the Adviser believes that conditions in the securities markets would
make pursuing the Fund's basic investment strategy inconsistent with the best
interests of the Fund's shareholders, the Adviser may employ alternative
strategies, including investing a substantial portion of the Fund's assets in
cash, high quality short-term debt instruments, securities rated higher than
"Baa" by Moody's or "BBB" by S&P, or in unrated securities of comparable
quality. The Fund may also at any time invest some of its assets in these
instruments to meet redemptions and to cover operating expenses. If the Fund
takes a temporary defensive position, it may not achieve its investment
objective.
Risks
General
The value of the Fund's shares, will fluctuate with the market value of its
portfolio positions. Factors affecting the value of the Fund's securities
include:
o changes in the actual and perceived creditworthiness of the
issuers of such securities;
o social, economic or political factors;
o factors affecting the industry in which a particular issuer
operates, such as competition or technological advances; and
o factors affecting an issuer directly, such as management
changes, labor relations, collapse of key suppliers or customers,
or material changes in overhead.
6
<PAGE>
There is no assurance that the Fund will achieve its investment objective.
Changes in Interest Rates
The Fund's net asset value may change as general levels of interest rates
fluctuate. Generally, when interest rates decline, the value of the Fund's
investments will rise. Conversely, when interest rates rise, the value of the
Fund's investments will generally decline. These fluctuations are greater for
Fund investments with longer maturities than those with shorter maturities.
High Yield Securities
The Fund will invest all or substantially all of its assets in U.S.
intermediate term, high yield bonds, commonly referred to as "junk bonds." High
yield bonds 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. These securities involve greater risks, 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 that are rated in the category
"B" (the lowest category in which the Fund may make an initial investment), or
comparable unrated securities, generally lack characteristics of a desirable
investment, and there is little assurance that the issuer will pay interest and
principal or comply with other terms of the contract over any long period of
time. These factors may reduce the value of securities held by the Fund and, in
turn, the value of the Fund's shares.
The following factors may adversely affect the Fund's ability to dispose of
particular portfolio investments at their fair value:
o the secondary markets for high yield securities are not as liquid
as the secondary markets for higher rated securities;
o there are relatively few market-makers for high yield securities;
o participants in the market are mostly institutional investors,
including insurance companies, banks, other financial
institutions and mutual funds;
o 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;
o 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 Fund's ability to sell securities at their fair value.
The ratings of securities by Moody's and S&P are a generally accepted
barometer of credit risk. However, you should note that 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 Fund may invest. The Fund's ability to achieve its 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.
The market values of securities rated below investment grade and comparable
unrated securities tend to react less to fluctuations in interest rate levels
than those of higher-rated securities. However, the market values of certain of
these securities tend to be more sensitive to individual issuer developments and
changes in economic conditions than higher-rated securities. In addition, these
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
7
<PAGE>
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.
Many fixed income securities contain call or buy-back features that 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 Fund may have to replace the called security with
a lower yielding security, resulting in a decreased rate of return for the Fund.
The Fund may engage in active and frequent trading to achieve its principal
investment objective. Frequent trading also increases transaction costs, which
could detract from the Fund's performance.
MANAGEMENT
Lipper & Company, L.L.C., located at 101 Park Avenue, New York, NY 10178,
serves as the Fund's investment adviser.
The Adviser is an affiliate of Lipper & Company, L.P., which serves as the
Fund's distributor. Lipper is a privately owned investment management and
investment banking firm founded in 1987. At December 31, 1998, 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
and its affiliates serve as the general partner and/or investment adviser to
several investment limited partnerships and mutual funds organized in the U.S.
or offshore that offer complementary investment strategies in intermediate term
high yield bonds, hedged convertible securities, investment grade bonds, U.S.
and European large capitalization equities and merger arbitrage.
Compensation
The Fund pays the Adviser an annual fee computed daily and paid monthly at
the annual rate of 0.75% of the Fund's average daily net assets. The Adviser may
voluntarily waive for a period of time all or a portion of its investment
advisory fee with respect to the Fund. For the most recent fiscal year, the
Adviser's management fee was 0.60%.
Portfolio Manager and Executive Officers
Set forth below is a biographical description of the Executive Officers of
the Adviser and the Portfolio Manager of the Fund.
Kenneth Lipper is the President of the Adviser, and has been President of
Lipper & Company, L.P. (together with its predecessor, Lipper & Company, Inc.)
since 1987. 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 wrote the novels Wall Street and City Hall, wrote and
produced the film City Hall and produced the films The Winter Guest and The Last
Days. 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 1987, Mr. Lipper has supervised the
investment management and investment banking operations of Lipper. He is a
director and chairman of the audit committee of New Holland N.V., a director of
the Lincoln Center for the Performing Arts, a trustee of the Sundance Institute,
a member of the Federal Reserve Bank of New York's International Advisory Board,
a member of the Advisory Board of The Chase Manhattan Bank 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 & Company, L.P. Mr. Biderman is also Co-Manager of Lipper Convertibles,
L.P., an investment limited partnership and an affiliate of Lipper and the
Adviser. Mr. Biderman joined Lipper 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
8
<PAGE>
responsible for the largest housing development project in the United States at
that time. 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 & Company, L.P. 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 a Managing Director of Lipper & Company, L.P. and the
Portfolio Manager for the 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.
Year 2000
The Adviser and the Fund's other service providers, including Chase Global
Funds Services Company, the Fund's Administrator and Transfer Agent, The Chase
Manhattan Bank, the Fund's Custodian, and the Distributor, are taking steps to
address any year 2000-related computer problems that may affect the Fund. The
Lipper Funds and the Adviser do not anticipate that computer problems related to
the year 2000 will have an adverse effect on the Fund. However, there can be no
assurance in this area. There exists the possibility that year 2000 computer
problems could negatively affect communications systems, investment markets or
the economy in general. The Lipper Funds will monitor the year 2000 readiness of
the Adviser, the Administrator and Transfer Agent and the other third-party
vendors that provide services to the Fund.
SHAREHOLDER INFORMATION
Pricing of Fund Shares
The price of each share is based on the net asset value of each class. The
Fund's net asset value is the value of its assets minus its liabilities.
Expenses attributable solely to a particular class will be borne exclusively by
that class. The net asset value per share of each class of shares of the Fund is
calculated every day the New York Stock Exchange is open.
The Fund determines the net asset value per share of each class as of the
close of regular trading on the NYSE. The Fund computes the net asset value per
share by dividing the value of the net assets of each class by the total number
of shares of that class outstanding. In calculating the net assets of each
class, the Fund values securities traded on an exchange on the basis of the last
sale price or, in the absence of a sale, at the mean between the closing bid and
asked prices, if available. The Fund values equity securities traded on the
NASDAQ National Market System for which no sales prices are available and
over-the-counter securities on the basis of the bid prices at the close of
business on each day. If market quotations for those securities are not readily
available, the Fund values such securities at fair value. Fair value is
determined in accordance with procedures approved by the Board of Directors. The
Fund values fixed income securities on the basis of valuations provided by
brokers and/or a pricing service, quotations from dealers, and prices of
comparable securities. The Fund may value short-term investments that mature
within 60 days at amortized cost if it reflects the fair value of those
investments.
Minimum Purchases, Additional Investments and Account Balances
Each of the Fund's classes has the following minimum amounts to purchase
shares initially, to make additional investments, and to maintain your
investment in a particular class of shares:
9
<PAGE>
<TABLE>
<CAPTION>
Minimum Minimum Minimum
Class of Shares Initial Purchase Additional Investment Account Balance
- --------------- ---------------- --------------------- ---------------
<S> <C> <C> <C>
Premier $1,000,000 $2,500 $500,000
Retail (non-I.R.A) $10,000 $2,500 $1,000
Retail (I.R.A.) $2,000 $250 $1,000
Group Retirement Plan None None None
</TABLE>
The Fund may vary or waive these minimum amounts at any time.
Purchasing Fund Shares
Shares of the Fund are sold without any sales charge. You may purchase
shares of the Fund in one of the following ways:
Method for Purchase What You Need To Do
- ------------------- -------------------
Initial Purchase by Mail Mail your account application and a check made
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
Initial Purchase by Wire First, call Chase Global Funds Services Company,
the Fund's Transfer Agent, at 1-800-LIPPER9 and
provide: (1) your name, address, telephone number,
and social security or tax I.D. number, (2) the
Fund's name and class of shares you want to
purchase, (3) the amount you are wiring, (4) the
name of the bank wiring the funds, and (5) whether
or not you have an existing account. The Transfer
Agent will provide you with a reference number.
Next, instruct your bank to wire the specified
amount to The Chase Manhattan Bank, the Fund'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/Reference Number ________
Account Name ____________________
Finally, mail your account application to the
Transfer Agent at the address set forth above
under "Initial Purchase by Mail."
Additional Investments Mail a check payable to "The Lipper Funds, Inc."
to the Transfer Agent at the address set forth
above under "Initial Purchase by Mail" or wire
funds using the procedures set forth above under
"Initial Purchase by Wire." Include the account
number, account name, and the Fund's name and
class of shares to be purchased on the check or
wire to ensure proper crediting to your account.
Other Purchase Information
You may also purchase shares of the Fund through participating dealers,
including banks and financial services firms that provide distribution,
administrative or shareholder services to the Fund if you are a customer of
10
<PAGE>
that participating dealer. Participating dealers may impose additional or
different conditions or other account fees on your purchase of Fund shares. Each
participating dealer is responsible for sending its customers a schedule of any
such fees and information regarding any additional or different conditions
regarding purchases and redemptions. If not, you are a customer of a
participating dealer, you should consult the dealer for information regarding
these fees and conditions. The Lipper Funds, the Distributor, the Adviser or any
of the Adviser's affiliates may compensate certain participating dealers.
Compensation may be different with respect to sales of one class of shares over
another.
If the Distributor or a participating dealer receives your order and
transmits it to the Transfer Agent prior to the close of regular trading on the
NYSE, generally 4:00 p.m., New York time, the Fund will price your shares
according to that day's net asset value. If not, the Fund will price your shares
based on the next day's net asset value. The Distributor or a participating
dealer generally must receive payment for your shares on settlement date, the
third business day after the date on which you placed your order. If you make
payment prior to the settlement date, you may permit the payment to be held in
your brokerage account or you may designate a temporary investment for such
payment until the settlement date. The Fund may reject any purchase order and
suspend the offering of its shares for a period of time.
In the interest of economy and convenience, the Fund will not issue
certificates for shares unless you make a written request. The Fund will not
issue certificates for fractional shares under any circumstances. It is
considerably more difficult to redeem shares held in certificate form.
Redeeming Fund Shares
You may redeem shares of the Fund at any time in one of the following ways:
Method for Redemption What You Need to Do
- --------------------- -------------------
Redemption through the Contact the Distributor at 1-800-LIPPER9 or your
Distributor or a Participating Dealer.
Participating Dealer
Redemption by Mail First, call the Transfer Agent at 1-800-LIPPER9
for information to include in your redemption
request.
Then, send your redemption request to the
Transfer Agent at the address specified under
"Initial Purchase by Mail."
Redemption by Telephone Call the Transfer Agent at 1-800-LIPPER9 and
request that the Transfer Agent send you the
redemption proceeds or wire the funds to your
account.
Other Redemption Information
If the Fund receives your redemption request in proper form before 4:00
p.m., New York time, it will redeem your shares at that day's net asset value.
If not, the Fund will redeem your shares at the next day's net asset value. The
proceeds paid to you upon redemption may be more or less than the amount you
originally invested depending upon the net asset value of the shares being
redeemed at the time of redemption. If you hold shares in more than one class of
the Fund, you must specify in your redemption request the class of shares being
redeemed. If you do not specify which class you want redeemed, or if you own
fewer shares of a class than specified, the Transfer Agent will delay your
request until it receives further instructions from you, the Distributor or a
participating dealer.
The Fund normally transmits redemption proceeds for credit to your account
at the Distributor or a participating dealer at no charge within seven days
after it receives your redemption request. Generally, the Fund will not invest
these funds for your benefit without specific instruction, and the Distributor
will benefit from the use of temporarily uninvested funds. If you pay for your
shares by personal check, you will be credited with the proceeds of a redemption
of those shares only after the check has been collected, which may take up to 15
days or more. If you anticipate the need for more immediate access to your
investment, you should purchase shares with Federal Funds, by bank wire or with
a certified or cashier's check.
11
<PAGE>
If you reduce your account to below the minimum investment balances set
forth above, the Fund may redeem your account. The Fund will give you at least
30 days in which to increase your account balance to more than the required
minimum account balance. Group Retirement Plan Shareholders are not subject to
this minimum. If the Fund redeems your shares, you may reinvest in any class of
shares of the Fund at a later date provided that you meet any eligibility
requirements with respect to investing in the Fund at that time.
Certain participating dealers may charge you fees in connection with
redeeming your shares.
The Fund may suspend your right to redeem your shares or postpone the date
of payment for any period during which trading on the NYSE is closed (other than
customary weekend and holiday closings) or restricted. The Fund may also suspend
your right to redeem your shares or postpone the date of payment if an emergency
exists for which the Fund cannot reasonably dispose of or value its securities
or for such other periods as the Securities and Exchange Commission may permit.
If the Board of Directors determines that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment wholly
or partly in cash, the Fund may pay your 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 SEC. You may incur brokerage
charges on the sale of such securities.
You must provide the Transfer Agent with a "signature guarantee" if (1) you
want your redemption proceeds sent to another person, (2) you want your
redemption proceeds sent to an address other than your registered address, or
(3) you want your shares transferred to another person. A signature guarantee
verifies your identity. You may obtain a signature guarantee from an "eligible
guarantor institution" (including banks, brokers and dealers that are members of
a clearing corporation or that maintain net capital of at least $100,000, credit
unions authorized to issue signature guarantees, national securities exchanges,
registered securities associations, clearing agencies and savings associations)
that participates in a signature guarantee program. The signature guarantee must
appear on (1) your written request for redemption, (2) a stock power that
specifies the total number of shares and class of shares to be redeemed, or (3)
all of the stock certificates you tender for redemption (if you hold your shares
in certificated form).
Exchange Privilege
You may exchange your shares of the Fund for shares of the same class of
the other funds in The Lipper Funds family, including the Lipper U.S. Equity
Fund and the Prime Lipper Europe Equity Fund, in one of the following ways:
Method for Exchange What You Need To Do
- ------------------- -------------------
Exchange by Telephone Call the Transfer Agent at 1-800-LIPPER9 and
provide (1) your name, Social Security or tax I.D.
number, account address and account number for
your current Fund, (2) the Fund from which you
wish to exchange, and (3) the name of the Fund
into which you wish to exchange.
Exchange by Mail Mail the Transfer Agent a letter at the address
set forth above under "Initial Purchase by Mail"
requesting an exchange. The letter should include
(1) your name and account number of your current
Fund, (2) the class of such Fund from which you
wish to exchange, and (3) the name of the Fund
into which you wish to exchange.
Other Exchange Information
You may exercise the exchange privilege if the shares of the Fund into
which you wish to exchange are offered for sale in your state of residence and
the purchase meets the minimum investment and other eligibility requirements of
the Fund into which you are exchanging. To use the exchange privilege, you
should consult the
12
<PAGE>
Distributor or your participating dealer to determine if it is available and
whether any other conditions are imposed on its use.
If you exercise the exchange privilege, The Lipper Funds will exchange your
shares at the next determined net asset value. The Lipper Funds does not
currently charge any fees directly in connection with exchanges, although it may
charge shareholders a nominal fee in accordance with rules promulgated by the
SEC upon at least 60 days' written notice.
You must obtain and should carefully review a copy of the current
prospectus of the Fund into which you wish to exchange before making any
exchange.
The Lipper Funds may limit exchanges as to amounts or frequency, and may
impose other restrictions to assure that exchanges do not disadvantage the Funds
or their shareholders. If your shares are held in a broker "street name," you
must contact your participating dealer to exchange such shares; you may not
exchange such shares by mail or telephone. The Lipper Funds may reject any
exchange request in whole or in part. The Lipper Funds may modify or terminate
the exchange privilege at any time upon notice to shareholders.
If you exchange shares of the Fund for shares of another Fund, the Internal
Revenue Service treats such an exchange as a sale of the shares. Therefore, you
may realize a taxable gain or loss upon an exchange.
Transfer of Registration
You may instruct the Transfer Agent to transfer the registration of your
shares to another person by sending the Transfer Agent a letter at the address
set forth above under "Initial Purchase by Mail." The letter should include (1)
your name and account number, (2) the name of the Fund from which you want to
transfer your shares, (3) the number and class of shares you want to transfer,
(4) the name of the person to whom you are transferring your shares, (5) your
signature, (6) a signature guarantee and (7) an account application from the
person to whom you are transferring your shares.
Dividends and Distributions
The Fund will distribute its net investment income and net capital gain, if
any. Shares of the 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. The Fund will automatically
reinvest dividends and capital gains distributions on your shares in additional
shares of the same class at the net asset value of that class at the time of
reinvestment, unless you indicate on your application form that the Fund pay
dividends and capital gains distributions on shares in cash to your account.
The Fund will distribute substantially all of its net investment income to
shareholders annually. The Fund will distribute net capital gain, if any, with
the last dividend for the calendar year.
If you own Retail or Group Retirement Plan Shares, you will receive lower
per share dividends than Premier Shareholders because of the additional expenses
borne by Retail and Group Retirement Plan Shareholders under the Fund's Retail
Distribution Plan and Group Retirement Servicing Plan.
The Fund may pay additional distributions and dividends at other times if
necessary to avoid federal income taxes.
The Lipper Funds will send you an annual statement setting forth the amount
of any dividends and distributions made to you during each year and their
federal tax qualification.
13
<PAGE>
Taxation of Distributions
Fund dividends and distributions are taxable to you as ordinary income or
capital gain. Unless your Fund shares are in an IRA or other tax-advantaged
account, you are required to pay taxes on dividends and distributions whether
you receive them in cash or in the form of additional shares.
Distributions paid out of the Fund's "net capital gain" will be taxed to
you as long-term capital gain, regardless of how long you have owned shares. All
other distributions will be taxed to you as ordinary income.
You may want to avoid buying shares when the Fund is about to declare a
dividend or distribution, because it will be taxable to you even though it may
actually represent a return of your capital.
Your annual tax statement from the Fund will present in detail the tax
status of your distributions for each year.
If you do not provide the Fund with your correct taxpayer identification
number and any required certifications, you may be subject to backup withholding
of 31% of your dividends, distributions or redemption proceeds.
Because every investor has an individual tax situation, and also because
the tax laws are subject to periodic changes, you should always consult your tax
professional about federal, state and local tax consequences of owning shares of
the Fund.
The Transfer
Prior to the Fund's inception, the Fund operated as a limited partnership
for which an affiliate of the Adviser acted as general partner and investment
adviser. The partnership was not registered under and subject to the provisions
of the Investment Company Act of 1940, as amended, pursuant to an exemption from
registration for entities that have fewer than 100 holders. As an unregistered
entity, the partnership was not required to comply with the requirements of the
Investment Company Act, or the diversification, distribution and other
requirements imposed by the Internal Revenue Code of 1986, as amended. On April
1, 1996, the Fund exchanged Premier Shares for certain portfolio securities of
the partnership. The Fund distributed Premier Shares to the partnership's
limited partners who elected to participate in the transfer.
If the Fund acquired securities in the transfer that appreciated in value
from the date the partnership originally acquired them, the transfer may have
adverse tax consequences to you. If the Fund sells securities acquired in the
transfer that appreciated in value from the date the partnership originally
acquired them, you will be taxed on any resulting gain (including any
appreciation in value from the date the partnership acquired them through the
date of the transfer). As a result, you will be taxed on a distribution that
economically represents a return of your purchase price rather than an increase
in the value of your investment. Your taxable gain will be 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 will 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.
DISTRIBUTION ARRANGEMENTS
Sales Loads
The Lipper Funds does not charge investors any sales load for purchasing or
selling shares of the Fund. Certain investment dealers, banks and financial
services firms may charge you fees in connection with the purchase or redemption
of the Fund's shares.
14
<PAGE>
Rule 12b-1 Fees
The Board of Directors has adopted a Rule 12b-1 distribution plan for the
Fund's Retail Shares and a shareholder servicing plan for the Fund's Group
Retirement Plan Shares. Participating dealers may impose additional fees.
Retail Distribution Plan
Under the Retail Distribution Plan, Retail Shareholders pay the Distributor
an annual fee of up to 0.25% of the value of the average daily net assets of the
Fund's Retail Shares for distributing those shares. This fee may be more or less
than the actual expenses the Distributor incurs. The Distributor may, in turn,
pay one or more participating dealers all or a portion of this fee for selling
the Fund's Retail Shares. 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 for a period of time its fees under the
Retail Distribution Plan.
Group Retirement Servicing Plan
Under the Group Retirement Servicing Plan, Group Retirement Plan
Shareholders may pay one or more participating dealers and/or the Distributor an
annual fee of up to 0.25% of the value of the average daily net assets of the
Fund's Group Retirement Plan Shares for providing certain administrative
services to their customers who are beneficial owners of the Fund's Group
Retirement Plan Shares. These services are intended to supplement the services
provided by the Administrator and Transfer Agent and include:
o establishing and maintaining accounts and records relating to
customers that invest in Group Retirement Plan Shares;
o processing dividend and distribution payments from the Fund on
behalf of customers;
o arranging for bank wires;
o providing sub-accounting with respect to Group Retirement Plan
Shares beneficially owned by customers or the information
necessary for sub-accounting;
o forwarding shareholder communications from the Fund (such as
proxies, shareholder reports, annual and semi-annual financial
statements and dividend, distribution and tax notices) to
customers;
o assisting in processing purchase, exchange and redemption
requests from customers and in placing such orders with The
Lipper Funds' service contractors;
o assisting customers in changing dividend options, account
designations and addresses;
o providing customers with a service that invests the assets of
their accounts in Group Retirement Plan Shares pursuant to
specific or pre-authorized instructions;
o 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;
o responding to customer inquiries relating to the services
performed by the participating dealer or the Distributor;
o responding to customer inquiries concerning their investments in
Group Retirement Plan Shares; and
o providing other similar shareholder liaison services.
Multiple Classes
The Fund offers three Classes of Shares: Premier Shares, Retail Shares, and
Group Retirement Plan Shares. If you invest more than $1 million in the Fund,
you may purchase Premier Shares and will not pay any 12b-1 fees. If you are part
of a 401(k), pension or other type of retirement plan, you must purchase Group
Retirement Plan Shares
15
<PAGE>
and you will have to pay an annual fee of up to 0.25% of the value of the
average daily net assets of the Fund's Group Retirement Plan Shares. All other
shareholders may purchase Retail Shares and will have to pay the Distributor a
12b-1 fee at an annual rate of up to 0.25% of the value of the average daily net
assets of the Fund's Retail Shares.
Retail and Group Retirement Plan Shareholders pay fees out of the net
assets of those classes of shares on an ongoing basis. As a result, if you
purchase those classes of shares, over time the fees will increase the cost of
your investment and may cost you more than paying other types of sales charges.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
Fund's financial performance for the period of the Fund's operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that you would have earned on an
investment in the Fund (assuming you reinvested all dividends and
distributions). PricewaterhouseCoopers LLP, the Fund's independent accountants,
audited this information, and its report and the Fund's financial statements are
included in the Fund's annual report, which is available upon request.
16
<PAGE>
Premier Shares
--------------
<TABLE>
<CAPTION>
January 1, 1998 to January 1, 1997 to April 1, 1996** to
December 31, 1998 December 31, 1997 December 31, 1996
------------------ ----------------- ------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.11 $ 10.18 $ 10.00
----------- ----------- -----------
Income From Investment Operations:
Net Investment Income (1) 0.84 0.91 0.68
Net Gains or Losses on Securities (both
realized and unrealized) (0.48) 0.19 0.21
----------- ----------- -----------
Total from Investment Operations 0.36 1.10 0.89
----------- ----------- -----------
Less Distributions:
Dividends (from net investment income) (0.86) (0.91) (0.68)
Distributions (from capital gains) (0.04) (0.26) (0.03)
----------- ----------- -----------
Total Distributions (0.90) (1.17) (0.71)
----------- ----------- -----------
Net Asset Value, End of Period $ 9.57 $ 10.11 $ 10.18
=========== =========== ===========
Total Return(2) 3.61% 11.22% 9.23%
=========== =========== ===========
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $ 85,662 $ 85,151 $ 102,945
Ratios of Expenses to Average Net Assets After
Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets 1.00% 1.00% 1.00%*
Net Investment Income to Average Net 8.50% 8.58% 9.01%*
Assets
Ratios of Expenses to Average Net Assets Before
Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets 1.15% 1.16% 1.27%*
Net Investment Income to Average Net 8.35% 8.42% 8.74%*
Assets
Portfolio Turnover Rate 110% 105% 74%
</TABLE>
- ----------
* Annualized.
** Commencement of Fund operations.
(1) Voluntarily waived fees and reimbursed expenses affected the net investment
income per share in the amount of $0.01 for the year ended December 31,
1998, $0.02 for the year ended December 31, 1997 and $0.02 for the period
ended December 31, 1996.
(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 years
ended December 31, 1997 and December 31, 1998. Total returns for periods of
less than one year are not annualized.
17
<PAGE>
Retail Shares
-------------
<TABLE>
<CAPTION>
January 1, 1998 to January 1, 1997 to April 11, 1996** to
December 31, 1998 December 31, 1997 December 31, 1996
------------------ ------------------ -------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.11 $ 10.18 $ 9.91
--------- --------- ---------
Income From Investment Operations:
Net Investment Income (1) 0.82 0.84 0.62
Net Gains or Losses on Securities (both
realized and unrealized) (0.49) 0.23 0.34
--------- --------- ---------
Total from Investment Operations 0.33 1.07 0.96
--------- --------- ---------
Less Distributions:
Dividends (from net investment income) (0.83) (0.88) (0.66)
Distributions (from capital gains) (0.04) (0.26) (0.03)
--------- --------- ---------
Total Distributions (0.87) (1.14) (0.69)
--------- --------- ---------
Net Asset Value, End of Period $ 9.57 $ 10.11 $ 10.18
========= ========= =========
Total Return(2) 3.36% 10.97% 10.04%
========= ========= =========
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $ 5,950 $ 4,697 $ 845
Ratios of Expenses to Average Net Assets After
Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets 1.25% 1.25% 1.25%*
Net Investment Income to Average Net 8.12% 8.31% 8.95%*
Assets
Ratios of Expenses to Average Net Assets Before
Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets 1.40% 1.41% 1.59%*
Net Investment Income to Average Net 7.97% 8.15% 8.61%*
Assets
Portfolio Turnover Rate 110% 105% 74%
</TABLE>
- ----------
* Annualized.
** Initial offering of shares by the Fund.
(1) Voluntarily waived fees and reimbursed expenses affected the net investment
income per share in the amount of $0.01 for the year ended December 31,
1998, $0.02 for the year ended December 31, 1997 and $0.02 for the period
ended December 31, 1996.
(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 years
ended December 31, 1997 and December 31, 1998. Total returns for periods of
less than one year are not annualized.
18
<PAGE>
Group Retirement Plan Shares
----------------------------
<TABLE>
<CAPTION>
January 1, 1998 to January 1, 1997 to April 12 1996** to
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ------------------ ------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.11 $ 10.18 $ 9.93
--------- --------- ---------
Income From Investment Operations:
Net Investment Income (1) 0.80 0.85 0.62
Net Gains or Losses on Securities (both
realized and unrealized) (0.47) 0.22 0.32
--------- --------- ---------
Total from Investment Operations 0.33 1.07 0.94
--------- --------- ---------
Less Distributions:
Dividends (from net investment income) (0.83) (0.88) (0.66)
Distributions (from capital gains) (0.04) (0.26) (0.03)
--------- --------- ---------
Total Distributions (0.87) (1.14) (0.69)
--------- --------- ---------
Net Asset Value, End of Period $ 9.57 $ 10.11 $ 10.18
========= ========= =========
Total Return(2) 3.37% 10.96% 9.78%
========= ========= =========
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $ 4,515 $ 3,518 $ 2,198
Ratios of Expenses to Average Net Assets After
Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets 1.25% 1.25% 1.25%*
Net Investment Income to Average Net 8.13% 8.32% 8.91%*
Assets
Ratios of Expenses to Average Net Assets Before
Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets 1.40% 1.41% 1.55%*
Net Investment Income to Average Net 7.98% 8.16% 8.61%*
Assets
Portfolio Turnover Rate 110% 105% 74%
</TABLE>
- ----------
** Initial offering of shares by the Fund.
* Annualized.
(1) Voluntarily waived fees and reimbursed expenses affected the net investment
income per share in the amount of $0.01 for the year ended December 31,
1998, $0.02 for the year ended December 31, 1997 and $0.02 for the period
ended December 31, 1996.
(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 years
ended December 31, 1997 and December 31, 1998. Total returns for periods of
less than one year are not annualized.
19
<PAGE>
Investment Adviser
Lipper & Company, L.L.C.
101 Park Avenue, 6th Floor
New York, NY 10178
(212) 883-6333
Administrator and Transfer Agent
Chase Global Funds Services Company
73 Tremont Street, 9th Floor
Boston, MA 02108
1-800-LIPPER9
Distributor
Lipper & Company, L.P.
101 Park Avenue, 6th Floor
New York, NY 10178
(212) 883-6333
Custodian
The Chase Manhattan Bank
270 Park Avenue
New York, NY 10017
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Counsel
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Board of Directors
Kenneth Lipper
Chairman of the Board,
The Lipper Funds, Inc.
President and Chairman,
Lipper & Company
Abraham Biderman
Executive Vice President
Lipper & Company
Stanley Breznoff
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
THE LIPPER FUNDS, INC.
LIPPER HIGH INCOME BOND FUND
Prospectus and
New Account Application
The Lipper Funds, Inc. offers three diversified no-load portfolios: Lipper High
Income Bond Fund, Lipper U.S. Equity Fund and Prime Lipper Europe Equity Fund.
The Statement of Additional Information, dated April 30, 1999, as amended from
time to time, contains additional information about The Lipper Funds and is
incorporated by reference into this Prospectus. The Fund's annual and
semi-annual reports to shareholders also contains additional information,
including a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
To obtain free copies of the Statement of Additional Information, the Fund's
annual or semi-annual reports, or the Prospectuses for any of The Lipper Funds,
to make shareholder inquiries, or to request other information about the Fund,
call 1-800-LIPPER9, write the Fund's Distributor at the address listed on the
front cover of this Prospectus, e-mail the Fund's Distributor at
[email protected], or visit The Lipper Funds' Internet site at
www.lipper.com.
You can review and copy information about the Fund, including the Statement of
Additional Information, at the SEC's Public Reference Room in Washington, DC.
Call 1-800-SEC-0330 for more information. You may also obtain reports and other
information about the Fund from the SEC's Internet site at http://www.sec.gov
or, upon payment of a duplicating fee, by writing the Public Reference Section
of the SEC, Washington, DC 20549-6009.
Investment Company Act File No. 811-9108
<PAGE>
THE LIPPER FUNDS, INC.
PROSPECTUS
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
Internet Site: www.lipper.com
The Lipper U.S. Equity Fund is a diversified no-load portfolio of The
Lipper Funds, Inc. The Fund's investment objective is capital appreciation. The
Fund invests primarily in U.S. equity securities.
Lipper & Company, L.L.C. is the Fund's investment adviser.
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
April 30, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
RISK/RETURN SUMMARY..................................................................3
Fund Investment Objectives/Goals..................................................3
Principal Investment Strategies of the Fund.......................................3
Principal Risks of Investing in the Fund..........................................3
Fees and Expenses of the Fund.....................................................4
I
NVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS...............5
Investment Objective and Principal Investment Strategies..........................5
Other Investments...............................................................5
Temporary Investments...........................................................6
Risks.............................................................................6
MANAGEMENT...........................................................................6
Compensation......................................................................6
Executive Officers and Members of the Investment Committee........................7
Year 2000.........................................................................8
SHAREHOLDER INFORMATION..............................................................8
Pricing of Fund Shares............................................................8
Minimum Purchases, Additional Investments and Account Balances....................8
Purchasing Fund Shares............................................................8
Other Purchase Information......................................................9
Redeeming Fund Shares............................................................10
Other Redemption Information...................................................10
Exchange Privilege...............................................................11
Other Exchange Information.....................................................11
Transfer of Registration.........................................................12
Dividends and Distributions......................................................12
Taxation of Distributions........................................................12
DISTRIBUTION ARRANGEMENTS...........................................................13
Sales Loads......................................................................13
Rule 12b-1 Fees..................................................................13
Retail Distribution Plan.......................................................13
Group Retirement Servicing Plan................................................13
Multiple Classes.................................................................14
FINANCIAL HIGHLIGHTS................................................................14
</TABLE>
The Lipper Funds, Inc. is not associated with Lipper Analytical Services, Inc.
2
<PAGE>
RISK/RETURN SUMMARY
Fund Investment Objectives/Goals
The Fund's investment objective is capital appreciation.
Principal Investment Strategies of the Fund
The Fund invests primarily in a portfolio of common stocks of U.S. issuers
with market capitalizations in excess of $500 million. The Adviser looks for
stocks whose current market price do not reflect the corporation's historic
business performance and future earnings growth.
The Fund is suitable for investors who seek long-term capital appreciation
and who want exposure to a portfolio of U.S. equity securities.
Principal Risks of Investing in the Fund
The value of the Fund's shares will fluctuate in response to (1) changes in
market and economic conditions, (2) changes in the financial conditions and
prospects of the issuers in which the Fund invests and the industry in which the
issuer operates, and (3) market volatility. As a result, you may lose money by
investing in the Fund.
The following bar chart reflects the annual total returns for the Fund's
Premier Shares since the Fund's inception. The information in this bar chart
provides some indication of the risks of investing in the Fund by showing the
changes in the Fund's performance from year to year.
19.81% 18.96% 11.35%
[Bar Chart] [Bar Chart] [Bar Chart]
1996 1997 1998
The Fund's highest returns for a quarter were 14.37% for the Premier
Shares, 14.30% for the Retail Shares and 14.24% for the Group Retirement Shares,
all of which occurred in the 1st quarter of 1998. The Fund's lowest returns for
a quarter for the periods presented were (16.25)% for the Premier Shares,
(16.27)% for the Retail Shares and (16.29)% for the Group Retirement Shares, all
of which occurred in the 3rd quarter of 1998.
The following table provides some indication of the risks of investing in
the Fund by comparing the average annual total return of the Fund for the period
to that of the Standard & Poor's 500 Index:
Average Annual Total
1 Year Performance Return Since Inception*
Lipper U.S. Equity Fund ------------------ -----------------------
Premier Shares 11.35% 16.56%
Retail Shares 11.15% 16.42%
Group Retirement Plan Shares 11.16% 16.43%
S&P 500 Index 28.70% 28.27%**
The Fund's past performance is not necessarily an indication of how the
Fund will perform in the future.
- ----------
* Inception dates are January 2, 1996 for the Premier Shares and January 4,
1996 for the Retail and Group Retirement Plan Shares.
** Reflects average annual total return for the period January 2, 1996 through
December 31, 1998.
3
<PAGE>
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fee None
Exchange Fee None
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets)
Management Fees (before waiver)(1)
Premier Shares 0.85%
Retail Shares 0.85%
Group Retirement Plan Shares 0.85%
Distribution and Service (12b-1) Fees
Premier Shares None
Retail Shares 0.25%
Group Retirement Plan Shares 0.25%
Administrative Fees
Premier Shares 0.20%
Retail Shares 0.20%
Group Retirement Plan Shares 0.20%
Other Expenses
Premier Shares 0.46%
Retail Shares 0.46%
Group Retirement Plan Shares 0.46%
-----
Total Annual Fund Operating Expenses (before waiver)(1)
Premier Shares 1.51%
Retail Shares 1.76%
Group Retirement Plan Shares 1.76%
</TABLE>
Certain investment dealers, banks and financial services firms may charge
you direct fees in connection with purchasing or redeeming the Fund's shares.
These tables do not reflect those fees.
Example
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:*
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Premier Shares $154 $477 $824 $1,802
Retail Shares $179 $554 $954 $2,073
Group Retirement Plan Shares $179 $554 $954 $2,073
- ----------
* The example reflects the Fund's total operating expenses before taking
into consideration that the Adviser voluntarily waived a portion of its
investment advisory fee during the 1998 fiscal year. If you consider this
voluntary waiver, your costs for the one, three, five and ten year periods
would be $112, $350, $606 and $1,340, respectively, for the Premier Shares,
and $137, $428, $739 and $1,624, respectively, for the Retail and Group
Retirement Plan Shares.
(1) The Adviser voluntarily waived a portion of its investment advisory fee
during the 1998 fiscal year. As a result, the actual Management Fee was
0.44% for each of the Fund's share classes and the Total Annual Fund
Operating Expenses were 1.10% for the Premier Share and 1.35% for the
Retail and Group Retirement Plan Shares. The Adviser may discontinue this
waiver at any time.
4
<PAGE>
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
Investment Objective and Principal Investment Strategies
The Fund's investment objective is capital appreciation. The Fund invests
primarily in a diversified portfolio of common stocks of issuers with market
capitalizations 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.
In managing the Fund, the Adviser utilizes a value-oriented, "bottom-up"
investment approach, focusing on individual companies whose valuations relative
to earnings growth and business prospects are attractive. The Adviser attempts
to structure a portfolio of stocks whose average five year estimated earnings
per share growth rate is higher than that of the S&P 500 Index, and whose
average price-to-earnings ratio is below that of the S&P 500.
The Adviser emphasizes industries and companies undergoing fundamental
change that may lead to improved profitability and accelerated earnings growth.
For example, the Adviser may target an industry undergoing deregulation. The
Adviser may also seek investment opportunities on a company-specific level,
selecting a company whose earnings outlook is less certain as a result of a
merger, restructuring or recent earnings disappointment. The Adviser also seeks
stocks of corporations that are expected to generate substantial surplus cash
flows through high returns on equity or savings as a result of a restructuring
or a merger.
The Adviser may seek to reduce investment risk and increase income by
employing a "Buy-Write" strategy for the Fund. The Adviser may use this strategy
for equity securities that are trading within a range that the Adviser believes
reflect a fair value for such securities. The Adviser may write a call option
(e.g., sell, for a certain price, the right to purchase shares at a particular
"strike" price) in an amount up to the number of shares of the underlying
security the Adviser has purchased, thereby generating income from the sale of
the call option. This strategy is intended both to increase the Fund's returns
and to reduce some of the Fund's risk. A "Buy-Write" strategy is generally
considered more conservative than an outright purchase of the underlying
security. However, a "Buy-Write" strategy limits potential capital gains because
the Adviser may have to sell securities at the "strike" price if the purchaser
of the call option exercises its right to purchase the securities.
Because the Adviser seeks to invest in those stocks it believes are
undervalued, the Fund may not always be fully invested. If the Adviser cannot
find stocks that are undervalued, it will invest a portion of the Fund's assets
in cash and cash equivalents until such time as it finds stocks that meet its
investment criteria. If the Fund is not fully invested, it may not achieve its
investment objective.
Other Investments
The Fund may invest in preferred stock (including convertible preferred
stock), warrants and non-U.S. dollar-denominated securities. The Fund may also
invest in options on indexes, Standard & Poor's Depositary Receipts (SPDRs),
Diamonds and other investments that track broad-based indexes. SPDRs represent
units in a trust that holds a portfolio of common stocks that closely track the
price, performance and dividends of the S&P 500 Index. SPDRs also entitle
holders to receive proportionate quarterly cash distributions corresponding to
the dividends that accrue to the S&P 500 stocks in the underlying portfolio.
Diamonds represent units in an investment trust that holds the 30 component
stocks comprising the Dow Jones Industrial Average (DJIA) and are designed to
track the performance of the DJIA. Diamonds pay monthly dividends that
correspond to the dividend yields of the DJIA component stocks. Both SPDRs and
Diamonds are listed on the American Stock Exchange.
The Fund may also invest in American Depositary Receipts (ADRs), Global
Depositary Receipts (GDRs), European Depositary Receipts (EDRs) and other types
of 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 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.
5
<PAGE>
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.
Temporary Investments
For temporary defensive purposes, the Fund may invest up to all of its
assets in cash and/or high quality short-term debt instruments. The Fund may
also at any time invest some of its assets in these instruments to meet
redemptions and to cover operating expenses. If the Fund takes a temporary
defensive position, it may not achieve its investment objective.
Risks
The value of the Fund's shares will fluctuate with the market value of its
portfolio positions. Factors affecting the value of the Fund's portfolio
positions include:
o factors affecting an issuer directly, such as management changes,
labor relations, collapse of key suppliers or customers, or
material changes in overhead;
o factors affecting the industry in which a particular issuer
operates, such as competition or technological advances;
o social, economic or political factors; and
o market volatility.
The Fund's investments in non-U.S. securities, such as Depositary Receipts,
subjects the Fund to social, political, economic and currency risks not
typically associated with investing in U.S. equities.
The Fund may engage in active and frequent trading to achieve its principal
investment objective. Frequent trading also increases transaction costs, which
could detract from the Fund's performance.
MANAGEMENT
Lipper & Company, L.L.C., located at 101 Park Avenue, New York, NY 10178,
serves as the Fund's investment adviser.
The Adviser is an affiliate of Lipper & Company, L.P., which serves as the
Fund's distributor. Lipper is a privately owned investment management and
investment banking firm founded in 1987. At December 31, 1998, 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
and its affiliates serve as the general partner and/or investment adviser to
several investment limited partnerships and mutual funds organized in the U.S.
or offshore that offer complementary investment strategies in intermediate term
high yield bonds, hedged convertible securities, investment grade bonds, U.S.
and European large capitalization equities and merger arbitrage.
Compensation
The Fund pays the Adviser an annual fee computed daily and paid monthly at
the annual rate of 0.85% of the Fund's average daily net assets. The Adviser may
voluntarily waive for a period of time all or a portion of its investment
advisory fee with respect to the Fund. For the most recent fiscal year, the
Adviser's management fee was 0.44%.
Executive Officers and Members of the Investment Committee
An Investment Committee of the Adviser consisting of Kenneth Lipper,
Michael Visovsky, Nancy Friedman and Max Zentman is responsible for the
day-to-day management of the Fund's portfolio. Set forth below is a biographical
description of the Executive Officers of the Adviser and Members of the
Investment Committee for the Fund.
6
<PAGE>
Kenneth Lipper is the President of the Adviser and a member of the
Investment Committee for the Fund. Mr. Lipper has been President of Lipper &
Company, L.P. (together with its predecessor, Lipper & Company, Inc.) since
1987. 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 wrote the novels Wall Street and City Hall, wrote and produced
the film City Hall and produced the films The Winter Guest and The Last Days. 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 1987, Mr. Lipper has supervised the investment management
and investment banking operations of Lipper. He is a director and chairman of
the audit committee of New Holland N.V., a director of the Lincoln Center for
the Performing Arts, a trustee of the Sundance Institute, a member of the
Federal Reserve Bank of New York's International Advisory Board, a member of the
Advisory Board of The Chase Manhattan Bank 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 & Company, L.P. Mr. Biderman is also Co-Manager of Lipper Convertibles,
L.P., an investment limited partnership and an affiliate of Lipper and the
Adviser. Mr. Biderman joined Lipper 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 at that time. 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 & Company, L.P. 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.
Michael Visovsky is a member of the Investment Committee for the Fund and
is a Managing Director and the Director of Research for Lipper & Company, L.P.
Mr. Visovsky is responsible for all of Lipper's research operations, and has
been responsible for research for 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 Fund and is
a Vice President in charge of equity research for Lipper & Company, L.P. 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. 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 Fund and is a
Vice President of Lipper & Company, L.P. 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.
7
<PAGE>
Year 2000
The Adviser and the Fund's other service providers, including Chase Global
Funds Services Company, the Fund's Administrator and Transfer Agent, The Chase
Manhattan Bank, the Fund's Custodian, and the Distributor, are taking steps to
address any year 2000-related computer problems that may affect the Fund. The
Lipper Funds and the Adviser do not anticipate that computer problems related to
the year 2000 will have an adverse effect on the Fund. However, there can be no
assurance in this area. There exists the possibility that year 2000 computer
problems could negatively affect communications systems, investment markets or
the economy in general. The Lipper Funds will monitor the year 2000 readiness of
the Adviser, the Administrator and Transfer Agent and the other third-party
vendors that provide services to the Fund.
SHAREHOLDER INFORMATION
Pricing of Fund Shares
The price of each share is based on the net asset value of each class. The
Fund's net asset value is the value of its assets minus its liabilities.
Expenses attributable solely to a particular class will be borne exclusively by
that class. The net asset value per share of each class of shares of the Fund is
calculated every day the New York Stock Exchange is open.
The Fund determines the net asset value per share of each class as of the
close of regular trading on the NYSE. The Fund computes the net asset value per
share by dividing the value of the net assets of each class by the total number
of shares of that class outstanding. In calculating the net assets of each
class, the Fund values securities traded on an exchange on the basis of the last
sale price or, in the absence of a sale, at the mean between the closing bid and
asked prices, if available. The Fund values equity securities traded on the
NASDAQ National Market System for which no sales prices are available and
over-the-counter securities on the basis of the bid prices at the close of
business on each day. If market quotations for those securities are not readily
available, the Fund values such securities at fair value. Fair value is
determined in accordance with procedures approved by the Board of Directors. The
Fund values fixed income securities on the basis of valuations provided by
brokers and/or a pricing service, quotations from dealers, and prices of
comparable securities. The Fund may value short-term investments that mature
within 60 days at amortized cost if it reflects the fair value of those
investments.
Minimum Purchases, Additional Investments and Account Balances
Each of the Fund's classes has the following minimum amounts to purchase
shares initially, to make additional investments, and to maintain your
investment in a particular class of shares:
<TABLE>
<CAPTION>
Minimum Minimum Minimum
Class of Shares Initial Purchase Additional Investment Account Balance
- --------------- ---------------- --------------------- ---------------
<S> <C> <C> <C>
Premier $1,000,000 $2,500 $500,000
Retail (non-I.R.A) $10,000 $2,500 $1,000
Retail (I.R.A.) $2,000 $250 $1,000
Group Retirement Plan None None None
</TABLE>
The Fund may vary or waive these minimum amounts at any time.
Purchasing Fund Shares
Shares of the Fund are sold without any sales charge. You may purchase
shares of the Fund in one of the following ways:
8
<PAGE>
Method for Purchase What You Need To Do
- ------------------- -------------------
Initial Purchase by Mail Mail your account application and a check made
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
Initial Purchase by Wire First, call Chase Global Funds Services Company,
the Fund's Transfer Agent, at 1-800-LIPPER9 and
provide: (1) your name, address, telephone number,
and social security or tax I.D. number, (2) the
Fund's name and class of shares you want to
purchase, (3) the amount you are wiring, (4) the
name of the bank wiring the funds, and (5) whether
or not you have an existing account. The Transfer
Agent will provide you with a reference number.
Next, instruct your bank to wire the specified
amount to The Chase Manhattan Bank, the Fund'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/Reference Number __________
Account Name ______________________
Finally, mail your account application to the
Transfer Agent at the address set forth above
under "Initial Purchase by Mail."
Additional Investments Mail a check payable to "The Lipper Funds, Inc."
to the Transfer Agent at the address set forth
above under "Initial Purchase by Mail" or wire
funds using the procedures set forth above under
"Initial Purchase by Wire." Include the account
number, account name, and the Fund's name and
class of shares to be purchased on the check or
wire to ensure proper crediting to your account.
Other Purchase Information
You may also purchase shares of the Fund through participating dealers,
including banks and financial services firms that provide distribution,
administrative or shareholder services to the Fund if you are a customer of that
participating dealer. Participating dealers may impose additional or different
conditions or other account fees on your purchase of Fund shares. Each
participating dealer is responsible for sending its customers a schedule of any
such fees and information regarding any additional or different conditions
regarding purchases and redemptions. If you are a customer of a participating
dealer, you should consult the dealer for information regarding these fees and
conditions. The Lipper Funds, the Distributor, the Adviser or any of the
Adviser's affiliates may compensate certain participating dealers. Compensation
may be different with respect to sales of one class of shares over another.
If the Distributor or a participating dealer receives your order and
transmits it to the Transfer Agent prior to the close of regular trading on the
NYSE, generally 4:00 p.m., New York time, the Fund will price your shares
according to that day's net asset value. If not, the Fund will price your shares
based on the next day's net asset value. The Distributor or a participating
dealer generally must receive payment for your shares on settlement date, the
third business day after the date on which you placed your order. If you make
payment prior to the settlement date, you may permit the payment to be held in
your brokerage account or you may designate a temporary investment for such
payment until the settlement date. The Fund may reject any purchase order and
suspend the offering of its shares for a period of time.
9
<PAGE>
In the interest of economy and convenience, the Fund will not issue
certificates for shares unless you make a written request. The Fund will not
issue certificates for fractional shares under any circumstances. It is
considerably more difficult to redeem shares held in certificate form.
Redeeming Fund Shares
You may redeem shares of the Fund at any time in one of the following ways:
Method for Redemption What You Need to Do
- --------------------- -------------------
Redemption through the Contact the Distributor at 1-800-LIPPER9 or
Distributor or a your Participating Dealer.
Participating Dealer
Redemption by Mail First, call the Transfer Agent at 1-800-LIPPER9
for information to include in your redemption
request. Then, send your redemption request to the
Transfer Agent at the address specified under
"Initial Purchase by Mail."
Redemption by Telephone Call the Transfer Agent at 1-800-LIPPER9 and
request that the Transfer Agent send you the
redemption proceeds or wire the funds to your
account.
Other Redemption Information
If the Fund receives your redemption request in proper form before 4:00
p.m., New York time, it will redeem your shares at that day's net asset value.
If not, the Fund will redeem your shares at the next day's net asset value. The
proceeds paid to you upon redemption may be more or less than the amount you
originally invested depending upon the net asset value of the shares being
redeemed at the time of redemption. If you hold shares in more than one class of
the Fund, you must specify in your redemption request the class of shares being
redeemed. If you do not specify which class you want redeemed, or if you own
fewer shares of a class than specified, the Transfer Agent will delay your
request until it receives further instructions from you, the Distributor or a
participating dealer.
The Fund normally transmits redemption proceeds for credit to your account
at the Distributor or a participating dealer at no charge within seven days
after it receives your redemption request. Generally, the Fund will not invest
these funds for your benefit without specific instruction, and the Distributor
will benefit from the use of temporarily uninvested funds. If you pay for your
shares by personal check, you will be credited with the proceeds of a redemption
of those shares only after the check has been collected, which may take up to 15
days or more. If you anticipate the need for more immediate access to your
investment, you should purchase shares with Federal Funds, by bank wire or with
a certified or cashier's check.
If you reduce your account to below the minimum investment balances set
forth above, the Fund may redeem your account. The Fund will give you at least
30 days in which to increase your account balance to more than the required
minimum account balance. Group Retirement Plan Shareholders are not subject to
this minimum. If the Fund redeems your shares, you may reinvest in any class of
shares of the Fund at a later date provided that you meet any eligibility
requirements with respect to investing in the Fund at that time.
Certain participating dealers may charge you fees in connection with
redeeming your shares.
The Fund may suspend your right to redeem your shares or postpone the date
of payment for any period during which trading on the NYSE is closed (other than
customary weekend and holiday closings) or restricted. The Fund may also suspend
your right to redeem your shares or postpone the date of payment if an emergency
exists for which the Fund cannot reasonably dispose of or value its securities
or for such other periods as the Securities and Exchange Commission may permit.
10
<PAGE>
If the Board of Directors determines that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment wholly
or partly in cash, the Fund may pay your 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 SEC. You may incur brokerage
charges on the sale of such securities.
You must provide the Transfer Agent with a "signature guarantee" if (1) you
want your redemption proceeds sent to another person, (2) you want your
redemption proceeds sent to an address other than your registered address, or
(3) you want your shares transferred to another person. A signature guarantee
verifies your identity. You may obtain a signature guarantee from an "eligible
guarantor institution" (including banks, brokers and dealers that are members of
a clearing corporation or that maintain net capital of at least $100,000, credit
unions authorized to issue signature guarantees, national securities exchanges,
registered securities associations, clearing agencies and savings associations)
that participates in a signature guarantee program. The signature guarantee must
appear on (1) your written request for redemption, (2) a stock power that
specifies the total number of shares and class of shares to be redeemed, or (3)
all of the stock certificates you tender for redemption (if you hold your shares
in certificated form).
Exchange Privilege
You may exchange your shares of the Fund for shares of the same class of
the other funds in The Lipper Funds family, including the Lipper High Income
Bond Fund and the Prime Lipper Europe Equity Fund, in one of the following ways:
Method for Exchange What You Need To Do
Exchange by Telephone Call the Transfer Agent at 1-800-LIPPER9 and
provide (1) your name, Social Security or tax I.D.
number, account address and account number for
your current Fund, (2) the Fund from which you
wish to exchange, and (3) the name of the Fund
into which you wish to exchange.
Exchange by Mail Mail the Transfer Agent a letter at the address
set forth under "Initial Purchase by Mail"
requesting an exchange. The letter should include
(1) your name and account number of your current
Fund, (2) the class of such Fund from which you
wish to exchange, and (3) the name of the Fund
into which you wish to exchange.
Other Exchange Information
You may exercise the exchange privilege if the shares of the Fund into
which you wish to exchange are offered for sale in your state of residence and
the purchase meets the minimum investment and other eligibility requirements of
the Fund into which you are exchanging. To use the exchange privilege, you
should consult the Distributor or your participating dealer to determine if it
is available and whether any other conditions are imposed on its use.
If you exercise the exchange privilege, The Lipper Funds will exchange your
shares at the next determined net asset value. The Lipper Funds does not
currently charge any fees directly in connection with exchanges, although it may
charge shareholders a nominal fee in accordance with rules promulgated by the
SEC upon at least 60 days' written notice.
You must obtain and should carefully review a copy of the current
prospectus of the Fund into which you wish to exchange before making any
exchange.
The Lipper Funds may limit exchanges as to amounts or frequency, and may
impose other restrictions to assure that exchanges do not disadvantage the Funds
or their shareholders. If your shares are held in a broker "street name," you
must contact your participating dealer to exchange such shares; you may not
exchange such shares by
11
<PAGE>
mail or telephone. The Lipper Funds may reject any exchange request in whole or
in part. The Lipper Funds may modify or terminate the exchange privilege at any
time upon notice to shareholders.
If you exchange shares of the Fund for shares of another Fund, the Internal
Revenue Service treats such an exchange as a sale of the shares. Therefore, you
may realize a taxable gain or loss upon an exchange.
Transfer of Registration
You may instruct the Transfer Agent to transfer the registration of your
shares to another person by sending the Transfer Agent a letter at the address
set forth above under "Initial Purchase by Mail." The letter should include (1)
your name and account number, (2) the name of the Fund from which you want to
transfer your shares, (3) the number and class of shares you want to transfer,
(4) the name of the person to whom you are transferring your shares, (5) your
signature, (6) a signature guarantee and (7) an account application from the
person to whom you are transferring your shares.
Dividends and Distributions
The Fund will distribute its net investment income and net capital gain, if
any. Shares of the 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. The Fund will automatically
reinvest dividends and capital gains distributions on your shares in additional
shares of the same class at the net asset value of that class at the time of
reinvestment, unless you indicate on your application form that the Fund pay
dividends and capital gains distributions on shares in cash to your account.
The Fund will distribute substantially all of its net investment income to
shareholders annually. The Fund will distribute net capital gain, if any, with
the last dividend for the calendar year.
If you own Retail or Group Retirement Plan Shares, you will receive lower
per share dividends than Premier Shareholders because of the additional expenses
borne by Retail and Group Retirement Plan Shareholders under the Fund's Retail
Distribution Plan and Group Retirement Servicing Plan.
The Fund may pay additional distributions and dividends at other times if
necessary to avoid federal income taxes.
The Lipper Funds will send you an annual statement setting forth the amount
of any dividends and distributions made to you during each year and their
federal tax qualification.
Taxation of Distributions
Fund dividends and distributions are taxable to you as ordinary income or
capital gain. Unless your Fund shares are in an IRA or other tax-advantaged
account, you are required to pay taxes on dividends and distributions whether
you receive them in cash or in the form of additional shares.
Distributions paid out of the Fund's "net capital gain" will be taxed to
you as long-term capital gain, regardless of how long you have owned shares. All
other distributions will be taxed to you as ordinary income.
You may want to avoid buying shares when the Fund is about to declare a
dividend or distribution, because it will be taxable to you even though it may
actually represent a return of your capital.
Your annual tax statement from the Fund will present in detail the tax
status of your distributions for each year.
If you are a corporation, a significant portion of your ordinary income
dividends may be eligible for the dividends-received deduction.
12
<PAGE>
If you do not provide the Fund with your correct taxpayer identification
number and any required certifications, you may be subject to backup withholding
of 31% of your dividends, distributions or redemption proceeds.
Because every investor has an individual tax situation, and also because
the tax laws are subject to periodic changes, you should always consult your tax
professional about federal, state and local tax consequences of owning shares of
the Fund.
DISTRIBUTION ARRANGEMENTS
Sales Loads
The Lipper Funds does not charge investors any sales load for purchasing or
selling shares of the Fund. Certain investment dealers, banks and financial
services firms may charge you fees in connection with the purchase or redemption
of the Fund's shares.
Rule 12b-1 Fees
The Board of Directors has adopted a Rule 12b-1 distribution plan for the
Fund's Retail Shares and a shareholder servicing plan for the Fund's Group
Retirement Plan Shares. Participating dealers may impose additional fees.
Retail Distribution Plan
Under the Retail Distribution Plan, Retail Shareholders pay the Distributor
an annual fee of up to 0.25% of the value of the average daily net assets of the
Fund's Retail Shares for distributing those shares. This fee may be more or less
than the actual expenses the Distributor incurs. The Distributor may, in turn,
pay one or more participating dealers all or a portion of this fee for selling
the Fund's Retail Shares. 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 for a period of time its fees under the
Retail Distribution Plan.
Group Retirement Servicing Plan
Under the Group Retirement Servicing Plan, Group Retirement Plan
Shareholders may pay one or more participating dealers and/or the Distributor an
annual fee of up to 0.25% of the value of the average daily net assets of the
Fund's Group Retirement Plan Shares for providing certain administrative
services to their customers who are beneficial owners of the Fund's Group
Retirement Plan Shares. These services are intended to supplement the services
provided by the Administrator and Transfer Agent and include:
o establishing and maintaining accounts and records relating to
customers that invest in Group Retirement Plan Shares;
o processing dividend and distribution payments from the Fund on
behalf of customers;
o arranging for bank wires;
o providing sub-accounting with respect to Group Retirement Plan
Shares beneficially owned by customers or the information
necessary for sub-accounting;
o forwarding shareholder communications from the Fund (such as
proxies, shareholder reports, annual and semi-annual financial
statements and dividend, distribution and tax notices) to
customers;
o assisting in processing purchase, exchange and redemption
requests from customers and in placing such orders with The
Lipper Funds' service contractors;
o assisting customers in changing dividend options, account
designations and addresses;
13
<PAGE>
o providing customers with a service that invests the assets of
their accounts in Group Retirement Plan Shares pursuant to
specific or pre-authorized instructions;
o 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;
o responding to customer inquiries relating to the services
performed by the participating dealer or the Distributor;
o responding to customer inquiries concerning their investments in
Group Retirement Plan Shares; and
o providing other similar shareholder liaison services.
Multiple Classes
The Fund offers three Classes of Shares: Premier Shares, Retail Shares, and
Group Retirement Plan Shares. If you invest more than $1 million in the Fund,
you may purchase Premier Shares and will not pay any 12b-1 fees. If you are part
of a 401(k), pension or other type of retirement plan, you must purchase Group
Retirement Plan Shares and you will have to pay an annual fee of up to 0.25% of
the value of the average daily net assets of the Fund's Group Retirement Plan
Shares. All other shareholders may purchase Retail Shares and will have to pay
the Distributor a 12b-1 fee at an annual rate of up to 0.25% of the value of the
average daily net assets of the Fund's Retail Shares.
Retail and Group Retirement Plan Shareholders pay fees out of the net
assets of those classes of shares on an ongoing basis. As a result, if you
purchase those classes of shares, over time the fees will increase the cost of
your investment and may cost you more than paying other types of sales charges.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
Fund's financial performance for the period of the Fund's operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that you would have earned on an
investment in the Fund (assuming you reinvested all dividends and
distributions). PricewaterhouseCoopers LLP, the Fund's independent accountants,
audited this information, and its report and the Fund's financial statements are
included in the Fund's annual report, which is available upon request.
14
<PAGE>
Premier Shares
--------------
<TABLE>
<CAPTION>
January 1, 1998 to January 1, 1997 to January 2, 1996**
December 31, 1998 December 31, 1997 to December 31, 1996
------------------ ------------------ --------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.04 $ 11.38 $ 10.00
---------- ---------- ----------
Income From Investment Operations:
Net Investment Income (1) 0.13 0.16 0.18
Net Gains or Losses on Securities
(both realized and unrealized) 1.26 1.96 1.81
Total from Investment Operations ---------- ---------- ----------
1.39 2.12 1.99
---------- ---------- ----------
Less Distributions:
Dividends (from net investment income) (0.14) (0.16) (0.19)
Distributions (from capital gains) (0.67) (1.30) (0.34)
In Excess of Net Realized Gains -- -- (0.08)
---------- ---------- ----------
Total Distributions (0.81) (1.46) (0.61)
---------- ---------- ----------
Net Asset Value, End of Period $ 12.62 $ 12.04 $ 11.38
========== ========== ==========
Total Return(2) 11.35% 18.96% 19.81%
========== ========== ==========
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $ 22,088 $ 14,203 $ 15,098
Ratios of Expenses to Average Net Assets After
Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets 1.10% 1.10% 1.10%*
Net Investment Income to Average Net 1.07% 1.24% 1.68%*
Assets
Ratios of Expenses to Average Net Assets Before
Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets 1.51% 1.76% 2.28%*
Net Investment Income to Average Net 0.66% 0.58% 0.50%*
Assets
Portfolio Turnover Rate 204% 145% 117%
</TABLE>
- ----------
* Annualized.
** Commencement of Fund operations.
(1) Voluntarily waived fees and reimbursed expenses affected the net investment
income per share in the amount of $0.05 for the year ended December 31,
1998, $0.08 for the year ended December 31, 1997 and $0.13 for the period
ended December 31, 1996.
(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 years
ended December 31, 1997 and December 31, 1998. Total returns for periods of
less than one year are not annualized.
15
<PAGE>
Retail Shares
-------------
<TABLE>
<CAPTION>
January 1, 1998 to January 1, 1997 to January 4, 1996** to
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.03 $ 11.38 $ 10.00
--------- --------- ---------
Income From Investment Operations:
Net Investment Income (1) 0.11 0.13 0.11
Net Gains or Losses on Securities
(both realized and unrealized) 1.26 1.95 1.86
--------- --------- ---------
Total from Investment Operations 1.37 2.08 1.97
--------- --------- ---------
Less Distributions:
Dividends (from net investment income) (0.11) (0.13) (0.17)
Distributions (from capital gains) (0.67) (1.30) (0.34)
In Excess of Net Realized Gains -- -- (0.08)
--------- --------- ---------
Total Distributions (0.78) (1.43) (0.59)
--------- --------- ---------
Net Asset Value, End of Period $ 12.62 $ 12.03 $ 11.38
========= ========= =========
Total Return(2) 11.15% 18.58% 19.62%
========= ========= =========
Net Assets, End of Period (000's) $ 1,308 $ 899 $ 613
Ratios of Expenses to Average Net Assets After
Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets 1.35% 1.35% 1.35%*
Net Investment Income to Average Net 0.80% 0.96% 1.31%*
Assets
Ratios of Expenses to Average Net Assets Before
Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets 1.76% 2.01% 2.75%*
Net Investment Income to Average Net 0.39% 0.30% (0.09)%*
Assets
Portfolio Turnover Rate 204% 145% 117%
</TABLE>
- ----------
* Annualized.
** Initial offering of shares by the Fund.
(1) Voluntarily waived fees and reimbursed expenses affected the net investment
income per share in the amount of $0.06 for the year ended December 31,
1998, $0.09 for the year ended December 31, 1997 and $0.12 for the period
ended December 31, 1996.
(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 years
ended December 31, 1997 and December 31, 1998. Total returns for periods of
less than one year are not annualized.
16
<PAGE>
Group Retirement Plan Shares
----------------------------
<TABLE>
<CAPTION>
January 1, 1998 to January 1, 1997 to January 4, 1996** to
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.01 $ 11.38 $ 10.00
---------- --------- ---------
Income From Investment Operations:
Net Investment Income (1) 0.09 0.08 0.07
Net Gains or Losses on Securities
(both realized and unrealized) 1.28 2.00 1.91
--------- --------- ---------
Total from Investment Operations 1.37 2.08 1.98
--------- --------- ---------
Less Distributions:
Dividends (from net investment income) (0.12) (0.15) (0.18)
Distributions (from capital gains) (0.67) (1.30) (0.34)
In Excess of Net Realized Gains -- -- (0.08)
--------- --------- ---------
Total Distributions (0.79) (1.45) (0.60)
--------- --------- ---------
Net Asset Value, End of Period $ 12.59 $ 12.01 $ 11.38
========= ========= =========
Total Return(2) 11.16% 18.55% 19.69%
========= ========= =========
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $ 3,510 $ 1,887 $ 452
Ratios of Expenses to Average Net Assets After
Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets 1.35% 1.35% 1.35%*
Net Investment Income to Average Net 0.87% 0.89% 1.29%*
Assets
Ratios of Expenses to Average Net Assets Before
Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets 1.76% 2.01% 2.39%*
Net Investment Income to Average Net 0.46% 0.25% 0.25%*
Assets
Portfolio Turnover Rate 204% 145% 117%
</TABLE>
- ----------
* Annualized.
** Initial offering of shares by the Fund.
(1) Voluntarily waived fees and reimbursed expenses affected the net investment
income per share in the amount of $0.04 for the year ended December 31,
1998, $0.06 for the year ended December 31, 1997 and $0.06 for the period
ended December 31, 1996.
(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 years
ended December 31, 1997 and December 31, 1998. Total returns for periods of
less than one year are not annualized.
17
<PAGE>
Investment Adviser
Lipper & Company, L.L.C.
101 Park Avenue, 6th Floor
New York, NY 10178
(212) 883-6333
Administrator and Transfer Agent
Chase Global Funds Services Company
73 Tremont Street, 9th Floor
Boston, MA 02108
1-800-LIPPER9
Distributor
Lipper & Company, L.P.
101 Park Avenue, 6th Floor
New York, NY 10178
(212) 883-6333
Custodian
The Chase Manhattan Bank
270 Park Avenue
New York, NY 10017
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Counsel
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Board of Directors
Kenneth Lipper
Chairman of the Board,
The Lipper Funds, Inc.
President and Chairman,
Lipper & Company
Abraham Biderman
Executive Vice President
Lipper & Company
Stanley Breznoff
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
THE LIPPER FUNDS, INC.
LIPPER U.S. EQUITY FUND
Prospectus and
New Account Application
The Lipper Funds, Inc. offers three diversified no-load portfolios: Lipper U.S.
Equity Fund, Lipper High Income Bond Fund and Prime Lipper Europe Equity Fund.
The Statement of Additional Information, dated April 30, 1999, as amended from
time to time, contains additional information about The Lipper Funds and is
incorporated by reference into this Prospectus. The Fund's annual and
semi-annual reports to shareholders also contains additional information,
including a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
To obtain free copies of the Statement of Additional Information, the Fund's
annual or semi-annual reports, or the Prospectuses for any of The Lipper Funds,
to make shareholder inquiries, or to request other information about the Fund,
call 1-800-LIPPER9, write the Fund's Distributor at the address listed on the
front cover of this Prospectus, e-mail the Fund's Distributor at
[email protected], or visit The Lipper Funds' Internet site at
www.lipper.com.
You can review and copy information about the Fund, including the Statement of
Additional Information, at the SEC's Public Reference Room in Washington, DC.
Call 1-800-SEC-0330 for more information. You may also obtain reports and other
information about the Fund from the SEC's Internet site at http://www.sec.gov
or, upon payment of a duplicating fee, by writing the Public Reference Section
of the SEC, Washington, DC 20549-6009.
Investment Company Act File No. 811-9108
<PAGE>
THE LIPPER FUNDS, INC.
LIPPER HIGH INCOME BOND FUND
LIPPER U.S. EQUITY FUND
PRIME LIPPER EUROPE EQUITY FUND
The Lipper Funds, Inc.
101 Park Avenue
New York, New York 10178
For information call 1-800-LIPPER9
or visit our Internet site at www.lipper.com
STATEMENT OF ADDITIONAL INFORMATION
April 30, 1999
The Lipper Funds, Inc. is an open-end investment company that offers three
diversified portfolios: Lipper High Income Bond Fund, Lipper U.S. Equity Fund
and Prime Lipper Europe Equity Fund.
This Statement of Additional Information is not itself a prospectus and may
be distributed only if it is preceded or accompanied by a prospectus. You should
read this SAI in conjunction with the Funds' Prospectuses dated April 30, 1999,
and you should not make an investment in the Funds solely upon the information
contained herein. This Statement of Additional Information is incorporated by
reference in its entirety into the Prospectuses.
The financial statements for each of the Funds for the year ended December
31, 1998, which appear in each Fund's 1998 Annual Report to Shareholders, and
the report thereon of PricewaterhouseCoopers LLP, the Fund's independent
accountants, also appearing therein, were previously filed electronically with
the Securities and Exchange Commission and are incorporated herein by reference.
You may obtain copies of the Funds' Prospectuses and Annual Reports without
charge by writing or calling the Company at the address and toll free telephone
number set forth above, by accessing our Internet site at www.lipper.com or by
sending us an electronic mail at [email protected].
<PAGE>
TABLE OF CONTENTS
Page
The Company.................................................................4
Investment Objectives, Strategies and Risks.................................4
Investment Objectives and Principal Investment Strategies................4
Additional Investments and Investment Strategies.........................4
Investment Risks........................................................14
Temporary Defensive Position............................................15
Turnover................................................................15
Policies and Investment Limitations of the Funds...........................16
Management.................................................................17
Board of Directors......................................................17
Directors and Officers..................................................18
Compensation of the Directors and Officers..............................19
Sales Loads.............................................................20
Control Persons and Principal Holders of Shares of the Funds...............20
Control Persons.........................................................20
Principal Holders of Shares of the Funds................................21
Management Ownership of Shares of the Funds.............................24
Investment Advisory and Other Services.....................................25
Investment Advisers.....................................................25
Investment Advisory Services and Compensation...........................25
Rule 12b-1 Plans........................................................26
Administrator...........................................................28
Custodian...............................................................28
Transfer Agent..........................................................28
Distribution of the Funds..................................................29
Distribution of Securities..............................................29
Compensation............................................................29
Other Payments..........................................................29
Compensation to Dealers.................................................29
Brokerage Allocation and Other Practices...................................30
Brokerage Transactions..................................................30
Brokerage Selection.....................................................31
Capital Stock..............................................................31
Valuation of Shares........................................................33
Additional Purchase, Redemption and Exchange Information...................33
Purchase, Redemption and Exchange of Shares.............................33
Suspension of the Right of Redemption...................................33
Redemption in Kind......................................................34
2
<PAGE>
Page
Additional Information Concerning Taxation of the Funds....................34
Performance Data...........................................................37
Average Annual Total Return.............................................37
Aggregate Total Return..................................................38
Thirty Day Yield........................................................39
Other Information Concerning Performance Data...........................40
Independent Accountants....................................................41
Counsel....................................................................42
Financial Statements.......................................................42
Description of Corporate Bond Ratings......................................43
3
<PAGE>
THE COMPANY
The Lipper Funds, Inc. was organized as a corporation in Maryland on August
22, 1995. The Company is an open-end, management company that offers three
portfolios: Lipper High Income Bond Fund; Lipper U.S. Equity Fund; and Prime
Lipper Europe Equity Fund. Lipper & Company, L.L.C. serves as the investment
adviser to the High Income Bond Fund and the U.S. Equity Fund. Prime Lipper
Asset Management serves as the investment adviser to the Europe Equity Fund.
Each Fund is diversified.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
Investment Objectives and Principal Investment Strategies
The High Income Bond Fund will invest at least 80% of its total net assets
under normal market conditions in high yield bonds rated at the time of
investment "Baa" to "B" by Moody's Investors Service, Inc. or "BBB" to "B" by
Standard & Poor's Corporation or in comparable securities. The U.S. Equity Fund
will invest at least 65% of its total net assets under normal market conditions
in common stocks issued by U.S. issuers with market capitalization in excess of
$500 million. The Europe Equity Fund will invest at least 65% of its total net
assets under normal market conditions in common stocks of European companies.
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 that include such securities or in
connection with actual or proposed conversion or exchange of fixed income
securities. However, the Fund may also purchase equity securities not associated
with fixed-income securities when, in the opinion of the Adviser, such purchase
is appropriate.
The investment objectives and principal investment strategies of each Fund
are described in the Prospectuses.
Additional Investments and Investment Strategies
In addition to the principal investment strategies set forth in the
Prospectuses, the Funds may make investments in the securities, and engage in
the investment strategies, set forth below.
Depositary Receipts
The Funds may invest in American Depositary Receipts (ADRs), Global
Depositary Receipts (GDRs), European Depositary Receipts (EDRs) and other types
of 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 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 Funds will treat
Depositary Receipts as interests in the underlying securities for purposes of
their 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.
A purchaser of Depositary Receipts that are not sponsored by the issuer of
the underlying
4
<PAGE>
securities 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. The Funds will limit their investment in such unsponsored
Depositary Receipts to no more than 5% of the value of their net assets (at the
time of investment).
Convertible Securities
The Funds may invest in convertible securities, including 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.
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.
Warrants
The Funds 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 and Restricted Securities
Each Fund may invest up to 15% of its 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 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 a Fund may be unable to sell such a security at the desired time. The price
at which a 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, a Fund may invest in securities that are sold in
private placement transactions between their issuers and
5
<PAGE>
their purchasers and that are neither listed on an exchange nor traded
over-the-counter. These factors may have an adverse effect on a 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 a 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. Securities that have legal or contractual
restrictions on resale but have a readily available market are not considered
illiquid for purpose of this limitation.
Each Fund may also purchase securities that are not registered under the
Securities Act of 1933, as amended, but which can be sold to qualified
institutional buyers in accordance with Rule 144A under the Securities Act. Rule
144A securities generally must be sold to other qualified institutional buyers.
Rule 144A 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 of 1933 for resales of certain securities to qualified institutional buyers.
The Fund's 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.
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. Each of the Fund's Advisers 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).
The Funds 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 of 1933. Section 4(2) paper is restricted as
to disposition under the federal securities laws, and generally is sold to
institutional investors such as the Funds 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 Funds 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.
Preferred Stock
The Funds 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 subordinate 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.
6
<PAGE>
Repurchase Agreements
The Funds 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 Funds will enter
into repurchase agreements to generate additional income. The repurchase price
under the repurchase agreements 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.
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. 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 a
Fund to possible loss because of adverse market action or delay in connection
with the disposition of the underlying obligations.
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, the Funds may acquire certain debt securities at
a discount. These discount obligations 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 may also 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.
Index Securities
The U.S. Equity Fund may invest in various securities that are intended to
track broad-based market indexes, including Standard & Poor's Depositary
Receipts (SPDRs) and Diamonds. SPDRs represent units in a trust that holds a
portfolio of common stocks that closely tracks the price, performance and
dividend yield of the S&P 500 Index. SPDRs also entitle holders to receive
proportionate quarterly cash distributions corresponding to the dividends that
accrue to the S&P 500 stocks in the underlying portfolio. Diamonds represent
units in an investment trust that holds the 30 component stocks comprising the
Dow Jones Industrial Average (DJIA) and are designed to track the performance of
the DJIA. Diamonds pay monthly dividends that correspond to the dividend yields
of the DJIA component stocks. Both SPDRs and Diamonds are listed on the American
Stock Exchange.
7
<PAGE>
Other Investment Funds
The Funds may invest in the securities of other investment funds to the
extent permitted by the Investment Company Act of 1940, as amended. Under the
1940 Act, each of the Funds 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 Funds bear 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 Funds may, in the future, seek to achieve their investment objective through
the adoption of a "master-feeder" structure pursuant to which the Funds would
invest all of their 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 Funds.
When-Issued and Delayed Delivery Securities
The Funds 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 Funds 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 Funds 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 a Fund agrees to purchase when-issued or delayed delivery securities,
The Chase Manhattan Bank, the Fund's 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.
U.S. Government Obligations
The Funds may hold certain types of U.S. government securities, including
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.
Bank Obligations
The Funds may invest in bank obligations, including 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
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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. 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 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.
Borrowing
The Funds 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 Funds 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 Funds may also enter 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 a Fund may decline below the price at which the
Fund is obligated to repurchase such securities. Each Fund will enter into
reverse repurchase agreements only with counterparties determined to be
creditworthy by its Adviser.
Loans of Fund Securities
Each Fund may lend securities from their portfolios to brokers, dealers and
other financial organizations in order to generate additional income. There is
no limitation on the amount of securities that a Fund may loan. The Funds may
not lend their portfolio securities to their Advisers or their affiliates
without specific authorization from the Securities and Exchange Commission. The
Funds may lend portfolio securities against collateral, consisting of cash or
securities that are consistent with their permitted investments, which is equal
at all times to at least 100% of the value of the securities loaned. Loans of
portfolio securities by a Fund will be 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. 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
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will be made only to borrowers deemed by the Advisers 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 Funds may make short sales of securities "against the box." A short
sale is a transaction in which a 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 a 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
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 Funds' investments, such as rates of
inflation), to manage the effective maturity or duration of debt instruments
held by a Fund, or to seek to increase the Fund's income or gain. The Funds will
not be obligated, however, to use any derivatives (as defined below) 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 put and
call options on securities, securities indices, currencies and other financial
instruments, and entering into currency forward contracts. Over time, techniques
and instruments may change as new instruments and strategies are developed or
regulatory changes occur. The Funds 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 Funds resulting
from securities markets or currency exchange rate fluctuations, to protect the
Funds' 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 Funds' income or gain. The Fund may use any
or all types of 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 Funds to utilize Derivatives successfully will
depend on the Advisers' 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
Funds to segregate cash or other liquid assets to the extent the Funds'
obligations are not otherwise "covered" through ownership of the underlying
security or financial instrument.
Set forth below is a detailed discussion of Derivatives that may be used by
the Advisers on behalf of the Funds.
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
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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, which guarantees the performance of the
obligations of the parties to the options. The discussion below uses the Options
Clearing Corporation 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 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 "counterparties" 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
over-the-counter 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
over-the-counter options will generally only enter into over-the-counter 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 over-the-counter option. As a result, if a
counterparty fails to make or take delivery of the security or other instrument
underlying an over-the-counter 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 over-the-counter option will be met. A Fund will enter into
over-the-counter 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, over-the-counter options purchased by
a Fund and the amount of such Fund's obligation pursuant to an over-the-counter
option sold by
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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 over-the-counter 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.
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 over-the-counter 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
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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 which provide for the purchase or
sale of an amount of a specified currency at a future date. Forward contracts
may be used to (1) protect 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, (2) lock in the U.S. dollar value of
dividends declared on securities held by a Fund, and (3) generally protecting
the U.S. dollar value of securities held by a Fund against exchange rate
fluctuation.
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.
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 the 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.
Over-the-counter 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.
Over-the-counter 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.
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Investment Risks
The principal risks of investing in each of the Funds are described in the
Prospectuses. The Funds may also be subject to the additional investment risks
set forth below.
Foreign Securities
The Europe Equity Fund will, and the High Income Bond Fund and U.S. Equity
Fund may from time to time, invest in securities of foreign corporate and
government issuers. The U.S. Equity Fund may invest up to 15% of its total net
assets in equity securities issued by non-U.S. issuers and Depositary Receipts.
The High Income Bond Fund may invest up to 15% of its total net assets in
non-U.S. dollar-denominated securities. 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 Funds, 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 Funds 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 Funds' 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 Funds' holdings of securities
denominated in such currency and, therefore, will cause an overall decline in
the Funds' net asset value and any net investment income and capital gains to be
distributed in U.S. dollars to shareholders of the Funds. 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 Funds' 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 Funds 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 Funds. 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 Funds. The Funds 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 Funds 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
Funds to obtain or enforce a judgment against the issuers of such securities.
On January 1, 1999, eleven European countries implemented a new currency
unit called the "Euro" which is expected to reshape financial markets, banking
systems and monetary policies in Europe and other parts of the world. While it
is impossible to predict the impact of the Euro, it is possible that it could
increase volatility in financial markets worldwide and adversely affect the
value of the Fund's shares.
Derivatives
Derivatives involve special risks, including possible default by the other
party to the transaction, illiquidity and, to the extent the Advisers' views 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 Funds, force the purchase or sale of
portfolio securities at inopportune times or for prices
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higher than (in the case of put options) or lower than (in the case of call
options) current market values, or cause the Funds to hold a security they might
otherwise not purchase or sell. The use of currency transactions could result in
the Funds' 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 Funds' net asset values, and possibly income, and the losses may be
greater than if Derivatives had not been used.
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.
Foreign Derivatives
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.
Temporary Defensive Position
For temporary defensive purposes, the Funds may invest up to all of their
assets in cash and/or high quality short-term U.S. debt instruments. The Fund
may also at any time invest some of its assets in these instruments to meet
redemptions and to cover operating expenses. If the Funds take a temporary
defensive position, they may not achieve their investment objectives.
Turnover
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
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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.
The "Financial Highlights" section of the Prospectuses sets forth the
portfolio turnover rates for each of the Funds. The Funds have not experienced
any significant variation in their portfolio turnover rates over the two most
recently completed fiscal years. Nor do the Funds anticipate any variation in
their portfolio turnover rates in the fiscal year ending December 31, 1999, from
the reported portfolio turnover rates for the fiscal year ended December 31,
1998.
POLICIES AND INVESTMENT LIMITATIONS OF THE FUNDS
Policies numbered 1 through 8 below are fundamental policies and may not be
changed with respect to a Fund without a vote of the Fund's shareholders. The
Funds' investment objectives (as set forth in the Prospectuses) and policies
numbered 9 through 12 below may be changed by the Company's Board of Directors
without shareholder approval at any time.
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. Government Securities, and provided further that a
Fund may invest all or substantially all of its assets in another
regulated investment compay 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
Investment Company Act of 1940.
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 regulated investment compay
having the same investment objective and policies and substantially
the same investment restrictions as those with respect to such Fund.
The Fund would invest all or substantially all of its assets in
another regulated investment compay in connection with the adoption by
The Lipper Funds of a "master-feeder" structure.
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.
16
<PAGE>
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 that
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 regulated
investment compay 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.
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 Investment Company Act of 1940 or in
connection with a merger, consolidation, acquisition or
reorganization.
The percentage limitations set forth above 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 a Fund will not
require the Fund to dispose of its securities or to take other action to satisfy
the percentage limitation. Thus, 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%.
Each 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 a Fund. In such event, the Funds'
investment advisory agreement would be terminated since the investment
management would be performed by or on behalf of such other investment company.
MANAGEMENT
Board of Directors
The Board of Directors manages the business and affairs of The Lipper Funds
and is responsible for the overall management and operations of each Fund. The
Board of Directors approves all significant agreements
17
<PAGE>
between The Lipper Funds and the persons or companies that furnish services to
it, including agreements with the Lipper & Company, L.L.C. and Prime Lipper
Asset Management, the Funds' investment advisers, Lipper & Company, L.P., the
Funds' distributor, Chase Global Funds Services Company, the Funds'
administrator and transfer agent, and The Chase Manhattan Bank, the Funds'
custodian. The Board of Directors delegated the day-to-day operations of The
Lipper Funds to the advisers and the Administrator.
Directors and Officers
The directors and officers of The Lipper Funds, their addresses, ages and
principal occupations during the past five years are set forth below:
<TABLE>
<CAPTION>
====================================================================================================================================
(1) (2) (3)
====================================================================================================================================
Position(s) Held Principal Occupation(s)
Name, Address and Age with the Company During Past 5 Years
====================================================================================================================================
<S> <C>
Kenneth Lipper* Director, Chairman of the Board President of Lipper & Company, L.L.C. since 1995;
101 Park Avenue and President Co-chairman of Prime Lipper Asset Management and its
New York, NY 10178 Investment Committee since 1992; Chairman and
Age: 57 President of Lipper & Company, L.P. since 1991;
Chairman and President of Lipper & Company, Inc. since
1987.
====================================================================================================================================
Abraham Biderman* Director, Executive Vice Executive Vice President of Lipper & Company, L.L.C.
101 Park Avenue President, Treasurer and Secretary since 1995; Executive Vice President and Member of the
New York, NY 10178 Investment Committee of Prime Lipper Asset Management
Age: 51 since 1992; Executive Vice President of Lipper &
Company, L.P. since 1991; Executive Vice President of
Lipper & Company, Inc. since 1990.
====================================================================================================================================
Steven Finkel Executive Vice President Executive Vice President of Lipper & Company, L.L.C.
101 Park Avenue since 1995; Executive Vice President of Lipper &
New York, NY 10178 Company, L.P. since 1991; Executive Vice President of
Age: 52 Lipper & Company, Inc. since 1987.
====================================================================================================================================
Stanley Brezenoff** Director Chief Executive Officer of Maimonides Medical Center
510 E. 23rd Street since February 1995; Executive Director of Port
New York, NY 10010 Authority of New York and New Jersey from September
Age: 62 1990 through February 1995.
====================================================================================================================================
Martin Maltz** Director Principal Scientist, Xerox Corporation
25 Dunrovin Lane
Rochester, NY 14618
Age: 58
====================================================================================================================================
</TABLE>
- ----------
* Director considered to be an "interested person" of The Lipper Funds as
defined in the Investment Company Act of 1940.
** Member of The Lipper Funds' Audit Committee and Nominating Committee.
18
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
(1) (2) (3)
====================================================================================================================================
Position(s) Held Principal Occupation(s)
Name, Address and Age with the Company During Past 5 Years
====================================================================================================================================
<S> <C> <C>
Irwin Russell** Director Attorney, Law Offices of Irwin E. Russell since
433 North Camden Drive November 1992.
#1200
Los Angeles, CA 90210
Age: 73
====================================================================================================================================
Karl O. Hartmann Assistant Secretary Senior Vice President, Secretary and General Counsel
Chase Global Funds of Chase Global Funds Services Company ("CGFSC") since
Services Company November 1991.
73 Tremont Street
Boston, MA 02108-3913
Age: 44
====================================================================================================================================
Ellen Watson Assistant Secretary Supervisor of State Regulation of CGFSC since November 1991.
Chase Global Funds
Services Company
73 Tremont Street
Boston, MA 02108-3913
Age: 41
====================================================================================================================================
Helen A. Robichaud Assistant Secretary Vice President and Associate General Counsel of CGFSC
Chase Global Funds since August 1994; Associate Counsel of 440 Financial
Services Company Group of Worcester, Inc. from 1993 through August 1994.
73 Tremont Street
Boston, MA 02108-3913
Age: 47
====================================================================================================================================
John M. Corcoran Assistant Treasurer Vice President, Director of Fund Administration of CGFSC
Chase Global Funds since April 1998; Vice President and Senior Manager of
Services Company CGFSC from July 1996 through April 1998; Assistant Vice
Boston, MA 02108-3913 Company President and Manager of CGFSC from October 1993 through
Age: 33 July 1996.
====================================================================================================================================
Patricia M. Leyne Assistant Treasurer Assistant Vice President of Fund Administration of CGFSC
Chase Global Funds since July 1998; Assistant Treasurer of CGFSC from November
Services Company 1996 through July 1998; Supervisor of CGFSC from September
73 Tremont Street 1995 through November 1996; Fund Administrator of CGFSC
Boston, MA 02108-3913 from February 1993 through September 1995.
Age: 31
====================================================================================================================================
</TABLE>
Compensation of the Directors and Officers
The Lipper Funds does not pay any compensation to any officer or employee
of either of the Advisers or the Administrator for serving as an officer or
director of The Lipper Funds, including Messrs. Lipper and Biderman. The Lipper
Funds pays each director who is not a director, officer or employee of either of
the Advisers (or any of their affiliates) a fee of $8,000 per annum plus $500
per quarterly meeting attended and reimburses them for their travel and
out-of-pocket expenses. The Lipper Funds does not provide any pension or
retirement benefits to directors. The
19
<PAGE>
aggregate amount of fees paid to each non-interested director of The Lipper
Funds during the fiscal year ending December 31, 1998 is set forth below:
================================================================================
(1) (2) (3)
================================================================================
Name of Board Member Aggregate Compensation Total Compensation
================================================================================
Stanley Brezenoff $10,000 $10,000
================================================================================
Martin Maltz $10,000 $10,000
================================================================================
Irwin Russell $10,000 $10,000
================================================================================
In addition, the Company reimbursed directors for travel and out-of-pocket
expenses for the fiscal year ending December 31, 1998 in the aggregate amount of
$13,120.24.
By virtue of the responsibilities assumed by the Funds' Advisers, the
Administrator and their affiliates under their respective agreements with The
Lipper Funds, The Lipper Funds itself requires no employees other than its
officers.
Sales Loads
The Lipper Funds does not charge investors any sales loads for the Funds.
The Lipper Funds offers shares of the Funds to directors, officers and other
affiliated persons on the same terms as it offers such shares to the public.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SHARES OF THE FUNDS
Control Persons
Listed below are the names, addresses and percentage ownership of those
shareholders of record of the Funds who own greater than 25% of the shares of a
class of a Fund as of January 31, 1999. Because of their percentage ownership of
shares of a class, such shareholders are deemed to be "control persons" of such
class. In the event of a vote by all of shareholders of The Lipper Funds or by
the shareholders of a particular Fund, the vote of such "control person" will
have greater weight than the vote of other shareholders.
20
<PAGE>
<TABLE>
<CAPTION>
Fund and Class of Shares Name and Address of Shareholder Percentage Held
- ------------------------ ------------------------------- ---------------
<S> <C> <C>
High Income Bond Fund - Jacques C. Nordeman and 34.41%
Group Retirement Plan Shares Peter Grimm, Trustees
FBO Nordeman Grimm Inc. 401(k)
Profit Sharing Trust
DTD 1/1/76
717 Fifth Avenue
New York, NY 10022
HEP & Co. 29.01%
c/o Wells Fargo Bank
Attn. Mutual Fund 9139-027
P.O. Box 9800
Calabasas, CA 91372
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fund and Class of Shares Name and Address of Shareholder Percentage Held
- ------------------------ ------------------------------- ---------------
<S> <C> <C>
Europe Equity Fund - HEP & Co. 45.62%
Group Retirement Plan Shares c/o Wells Fargo Bank
Attn. Mutual Fund 9139-027
P.O. Box 9800
Calabasas, CA 91372
Lipper & Company Salary Savings Plan 38.10%
101 Park Avenue, 6th Floor
New York, NY 10178-0694
U.S. Equity Fund - Kenneth and Evelyn Lipper Foundation 36.73%
Premier Shares Lipper & Company
101 Park Avenue, 6th Floor
New York, NY 10178
U.S. Equity Fund - HEP & Co. 53.82%
Group Retirement Plan Shares c/o Wells Fargo Bank
Attn. Mutual Fund 9139-027
P.O. Box 9800
Calabasas, CA 91372
Lipper & Company Salary Savings Plan 29.48%
101 Park Avenue, 6th Floor
New York, NY 10178-0694
Principal Holders of Shares of the Funds
Listed below are the names, addresses and percentage ownership of those
shareholders of record of the Funds who own greater than 5% of the shares of a
class of a Fund as of January 31, 1999:
<CAPTION>
Fund and Class of Shares Name and Address of Shareholder Percentage Held
- ------------------------ ------------------------------- ---------------
<S> <C> <C>
High Income Bond Fund - Claremont University Center 11.80%
Premier Shares Pooled Endowment Funds
c/o Michael Groener
Harper Hall 160/150 East 10th St.
Claremont, CA 91711
First Trust National Association 10.08%
Agent Frey Group
Tax Escrow Mutual Funds A/C 33317961
P.O. Box 64010
St. Paul, MN 55164-0010
Henry J. Leir 8.42%
Charitable Remainder Trust
U/A DTD 11/9/81 c/o Steven Rosenthal
641 Lexington Avenue New York, NY 10022
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Fund and Class of Shares Name and Address of Shareholder Percentage Held
- ------------------------ ------------------------------- ---------------
<S> <C> <C>
High Income Bond Fund - Hadassah Medical Relief Association Inc. 7.97%
Premier Shares c/o Jodi Wechter
50 West 58th Street
New York, NY 10019
Kenneth and Evelyn Lipper Foundation 5.85%
Lipper & Company
101 Park Avenue, 6th Floor
New York, NY 10178
Bank Leumi New Corp. 5.58%
Attn. John J. Derpich
SVP & Controller
139 Centre Street
New York, NY 10013
High Income Bond Fund - Edgewise Entertainment 11.76%
Retail Shares Profit Sharing Plan
760 N. La Cienega Boulevard
Los Angeles, CA 90069
Sean Daniel 6.86%
760 N. La Cienega Boulevard
Los Angeles, CA 90069
Netherfield Park Productions Inc. 6.68%
Money Purchase Plan
863 Park Avenue
New York, NY 10021
Donald Petrie 5.97%
FBO Quartus Prod Inc. MP PL
DTD 2/1/94
760 N. La Cienega Boulevard
Los Angeles, CA 90069
High Income Bond Fund - Lipper & Company Salary Savings Plan 15.89%
Group Retirement Plan Shares 101 Park Avenue, 6th Floor
New York, NY 10178-0694
Lipper & Company Deferred Benefit Plan 13.95%
101 Park Avenue, 6th Floor
New York, NY 10178
Europe Equity Fund - Kenneth and Evelyn Lipper Foundation 13.00%
Premier Shares Lipper & Company
101 Park Avenue, 6th Floor
New York, NY 10178
Kenneth Lipper, Trustee 7.42%
UWIL Joseph Gruss Trust
FBO Evelyn G. Lipper Descendants
101 Park Avenue, 6th Floor
New York, NY 10178
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Fund and Class of Shares Name and Address of Shareholder Percentage Held
- ------------------------ ------------------------------- ---------------
<S> <C> <C>
Europe Equity Fund - Trust 5.90%
Premier Shares FBO Evelyn Lipper
U/A DTD 12/10/48 c/o Kenneth Lipper 101
Park Avenue, 6th Floor New York, NY
10178
Lipper & Company, L.P. 5.54%
101 Park Avenue, 6th Floor
New York, NY 10178
Europe Equity Fund - Lee Caldecot Chubb, Trustee 15.95%
Retail Shares FBO Chubb Family Trust
U/A DTD 8/15/90
410 23rd Street
Santa Monica, CA 90402-3281
Michael Black, Trustee 7.51%
FBO The Black 1989 Trust
U/A DTD 9/25/89
760 N. La Cienega Boulevard
Los Angeles, CA 90069
George J. Mitchell 6.02%
and Heather M. Mitchell
JT Ten
1965 Broadway
New York, NY 10023
Europe Equity Fund - Lipper & Company Deferred Benefit Plan 14.46%
Group Retirement Plan Shares 101 Park Avenue, 6th Floor
New York, NY 10178
U.S. Equity Fund - Kenneth Lipper, Trustee 10.80%
Premier Shares 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 9.52%
U/A dtd. 12/6/91
c/o Lipper & Co.
101 Park Avenue, 6th Floor
New York, NY 10178
U.S. Equity Fund - Michael Black, Trustee 18.92%
Retail Shares FBO The Black 1989 Trust
U/A DTD 9/25/89
760 N. La Cienega Boulevard
Los Angeles, CA 90069
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Fund and Class of Shares Name and Address of Shareholder Percentage Held
- ------------------------ ------------------------------- ---------------
<S> <C> <C>
U.S. Equity Fund - J. Paul Amaden 6.00%
Retail Shares and Christine B. Amaden
JT Ten
P.O. Box 407
East Hampton, NY 11937
Susan Fales 5.93%
863 Park Avenue
New York, NY 10021
Gemini Investment Company 5.69%
9 Cindy Lane
Holmdel, NJ 07773
U.S. Equity Fund - Lipper & Company 12.14%
Group Retirement Plan Shares Deferred Benefit Plan
101 Park Avenue, 6th Floor
New York, NY 10178-0694
</TABLE>
Management Ownership of Shares of the Funds
Listed below are the number of shares of each class of each Fund owned
beneficially by all directors and officers of The Lipper Funds as a group as of
January 31, 1999:
Number of Shares Percentage
Fund and Class Beneficially Owned Ownership
- -------------- ------------------ ---------
High Income Bond Fund
Premier Shares 757,300.76 8.65%
Retail Shares 24,512.50 3.79%
Group Retirement Plan Shares Less than 1%
Europe Equity Fund
Premier Shares 4,126,014.61 44.69%
Retail Shares 17,952.64 8.85%
Group Retirement Plan Shares 101,843.95 52.89%
U.S. Equity Fund
Premier Shares 2,056,757.31 79.62%
Retail Shares 5,397.20 3.70%
Group Retirement Plan Shares 36,498.14 12.19%
24
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Advisers
Lipper & Company, L.L.C. serves as investment adviser to the High Income
Bond Fund and the U.S. Equity Fund. Prime Lipper Asset Management serves as
investment adviser to the Europe Equity Fund. The Advisers are located at 101
Park Avenue, New York, New York 10178, and are registered as investment advisers
under the Investment Advisers Act of 1940, as amended.
Lipper & Company, L.L.C. is an affiliate of Lipper & Company, L.P., the
principal distributor of The Lipper Funds. Lipper is a privately owned
investment management and investment banking firm founded in 1987. At December
31, 1998, 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 and its affiliates serve as the general partner and/or
investment adviser to several investment limited partnerships and mutual funds
organized in the U.S. or offshore that offer complementary investment strategies
in intermediate term high yield bonds, hedged convertible securities, investment
grade bonds, U.S. and European large capitalization equities and merger
arbitrage. Lipper & Company, L.P. is registered as a broker-dealer with the SEC
and the NASD and as an investment adviser with the SEC. Lipper's address is the
same as that of the Advisers.
Prime Lipper Asset Management is a joint venture between Lipper Europe,
L.P., an affiliate of Lipper, and Prime USA Inc., a wholly owned subsidiary of
Prime S.p.A. Lipper Europe is a limited partnership for which Lipper & Company,
Inc. is the general partner and Lipper & Company, L.P. is the limited partner.
Prime S.p.A. is a subsidiary of Assicurazioni Generali S.p.A., the Italian
insurance company. Prime, through subsidiaries and affiliates, is among the
oldest asset managers in Italy, and specializes in management of portfolios
invested in European issuers, with approximately $8.9 billion of assets under
management as of December 31, 1998 from domestic and international investors.
Kenneth Lipper, Chairman and President of The Lipper Funds, is a control
person of the Funds' Advisers and the Distributor. Mr. Lipper is Chairman and
President of Lipper & Company, L.L.C. and Lipper & Company, L.P., and
Co-Chairman of Prime Lipper Asset Management and its Investment Committee.
Abraham Biderman, a director, Secretary, Treasurer and Executive Vice President
of The Lipper Funds, is an Executive Vice President of the Advisers and the
Distributor and a member of the Investment Committee of Prime Lipper Asset
Management. Francesco Taranto, Managing Director of Prime S.p.A., is Co-Chairman
of Prime Lipper Asset Management and a Member of its Investment Committee.
Steven Finkel, an Executive Vice President of The Lipper Funds, is an Executive
Vice President of Lipper & Company, L.L.C. and the Distributor.
Investment Advisory Services and Compensation
The Advisers serve as the Funds' investment advisers pursuant to separate
written advisory agreements approved by the Board of Directors, including a
majority of the directors who are not "interested persons" (as defined in the
Investment Company Act of 1940) of The Lipper Funds or the Advisers.
The Lipper Funds has agreed to pay Lipper & Company, L.L.C. under separate
investment advisory agreements an annual fee computed daily and paid monthly at
the annual rate of 0.75% of the High Income Bond Fund's average daily net assets
and 0.85% of the U.S. Equity Fund's average daily net assets. The Lipper Funds
has agreed to pay Prime Lipper Asset Management under an investment advisory
agreement an annual fee computed daily and paid monthly at the annual rate of
1.10% of the Europe Equity Fund's average daily net assets. From time to time,
the Advisers may voluntarily waive for a period of time all or a portion of
their investment advisory fees with respect to any of the Funds.
25
<PAGE>
For the fiscal year ended December 31, 1998, the High Income Bond Fund and
U.S. Equity Fund paid advisory fees of $553,087 and $110,556, respectively.
During this period Lipper & Company, L.L.C. voluntarily waived advisory fees of
$137,400 for the High Income Bond Fund and $103,555 for the U.S. Equity Fund.
For the fiscal year ended December 31, 1998, the Europe Equity Fund paid
advisory fees of $1,198,678 and Prime Lipper Asset Management waived advisory
fees of $0. 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 Lipper & Company, L.L.C. 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 Prime Lipper Asset Management 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, Lipper & Company, L.L.C. 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 Prime Lipper Asset Management waived advisory
fees of $74,333.
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 Lipper Funds. The Funds pay for brokerage fees and
commissions (if any) in connection with the purchase and sale of portfolio
securities.
Rule 12b-1 Plans
The Board of Directors has adopted a Rule 12b-1 distribution plan for the
Retail Shares of the Funds and a shareholder servicing plan for the Group
Retirement Plan Shares of the Funds.
Retail Distribution Plan
An investment company may bear expenses of distributing its shares only
pursuant to a plan adopted in accordance with Rule 12b-1, promulgated by the SEC
under the Investment Company Act of 1940. Some or all of the fees paid by the
Retail Shares of each Fund to the Fund's Distributor and to certain
participating dealers, including banks and financial services firms that provide
distribution, administrative or shareholder services to the Funds, could be
deemed to be payment of distribution expenses. Accordingly, the Board of
Directors has adopted a plan with respect to the Retail Shares of each Fund. The
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.
Under the Retail Distribution Plan, Retail Shareholders pay the Funds'
Distributor an annual fee of up to 0.25% of the value of the average daily net
assets of the Funds' Retail Shares for distributing those shares. The Retail
Shareholders pay this fee to cover various expenses of the Distributor,
including advertising, printing and mailing prospectuses to persons other than
current shareholders of the Funds, and compensation to participating dealers,
without regard to the actual expenses the Distributor incurs. The Distributor
may, in turn, pay one or more participating dealers a fee for distributing the
Funds' Retail Shares in an amount and manner the Distributor determines. The
Retail Distribution Plan also provides that the Advisers may pay participating
dealers out of their investment advisory fees, their past profits or any other
source available to the Advisers. From time to time, the Distributor may defer
or waive for a period of time its fees under the Retail Distribution Plan. The
Funds' Premier Shares and Group Retirement Plan Shares do not bear any fees
under the Retail Distribution Plan.
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 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 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, and by the directors who are
neither interested persons of The Lipper Funds nor have any direct or indirect
financial interest in the operation of such plan or in any agreements entered
into in
26
<PAGE>
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 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 Investment
Company Act of 1940).
In accordance with the Retail Distribution Plan, the Distributor accrued
fees from the High Income Bond Fund, U.S. Equity Fund and Europe Equity Fund in
the amount of $4,795, $10,065 and $9,520, respectively, as compensation for the
distribution of the Funds' Retail Shares during the fiscal year ended December
31, 1998.
For the fiscal year ending December 31, 1998, the Distributor incurred fees
for distributing the High Income Bond Fund in the amount of $1,664 for
advertising, $3,672 for printing and mailing prospectuses to persons other than
current shareholders of the Fund, and $3,920 to compensate other broker-dealers
for distributing the Fund's shares. For the fiscal year ending December 31,
1998, the Distributor incurred fees for distributing the U.S. Equity Fund in the
amount of $1,664 for advertising, $2,761 for printing and mailing prospectuses
to persons other than current shareholders of the Fund, and $3,702 to compensate
other broker-dealers for distributing the Fund's shares. For the fiscal year
ending December 31, 1998, the Distributor incurred fees for distributing the
Europe Equity Fund in the amount of $75,216 for advertising, $2,761 for printing
and mailing prospectuses to persons other than current shareholders of the Fund,
and $2,285 to compensate other broker-dealers for distributing the Fund's
shares.
Group Retirement Servicing Plan
As stated in the Prospectuses, the Board of Directors has adopted a Group
Retirement Servicing Plan, whereby The Lipper Funds intends to enter into
servicing agreements pursuant to which participating dealers and sometimes the
Funds' Distributor will, as agent for their customers, render certain
administrative services to their customers who are beneficial owners of Group
Retirement Plan Shares. Under the Group Retirement Servicing Plan, Group
Retirement Plan Shareholders may pay one or more participating dealers and/or
the Distributor an annual fee of up to 0.25% of the value of the average daily
net assets of the Funds' Group Retirement Plan Shares for providing one or more
of the services described in the Prospectuses. Such services are intended to
supplement the services provided by the Funds' Administrator and Transfer Agent.
Servicing agreements between The Lipper Funds and participating dealers and/or
the Distributor with respect to the Funds' 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 $10,423, $6,801 and $4,375, respectively, during the fiscal year
ended December 31, 1998.
27
<PAGE>
Administrator
Chase Global Funds Services Company, 73 Tremont Street, Boston, MA 02108,
serves as the Funds' administrator. The Administrator is a corporate affiliate
of The Chase Manhattan Bank. The Administrator 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 Lipper Funds' 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 by the
Board of Directors; and (5) maintain the registration of each Fund's shares for
sale under state securities laws.
The Lipper Funds pays the Administrator as compensation for its services a
monthly fee at the annual rate of 0.20% of the value of the Funds' average daily
net assets up to and including $200 million; 0.10% of the Funds' average daily
net assets in excess of $200 million up to and including $400 million; and 0.05%
of the Funds' average daily net assets in excess of $400 million. During the
year ending December 31, 1998, The Lipper Funds paid administrative services
fees to the Administrator in the amount of $204,009 on behalf of the High Income
Bond Fund, $224,826 on behalf of the Europe Equity Fund, and $76,675 on behalf
of the U.S. Equity Fund. During the year ending December 31, 1997, The Lipper
Funds paid administrative services fees to the Administrator in the amount of
$245,328 on behalf of the High Income Bond Fund, $170,709 on behalf of the
Europe Equity Fund, and $73,478 on behalf of the U.S. Equity Fund. During the
fiscal period from April 1, 1996 through December 31, 1996, The Lipper Funds
paid administrative services fees to the Administrator in the amount of $164,042
on behalf of the High Income Bond Fund and $96,187 on behalf of the Europe
Equity Fund. During the fiscal year ended December 31, 1996, The Lipper Funds
paid administrative services fees to the Administrator in the amount of $76,284
on behalf of the U.S. Equity Fund.
Custodian
The Chase Manhattan Bank, 270 Park Avenue, New York, NY 10017, serves as
The Lipper Funds custodian pursuant to a custody agreement. Under the custody
agreement, the Custodian holds the Funds' 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 Lipper Funds' assets are held under bank custodianship in
compliance with the Investment Company Act of 1940.
Transfer Agent
Chase Global Funds Services Company serves as The Lipper Funds' transfer
agent. Under the transfer agency agreement, the Transfer Agent maintains the
shareholder account records for The Lipper Funds, handles certain communications
between shareholders and The Lipper Funds, distributes dividends and
distributions payable by The Lipper Funds and produces statements with respect
to account activity for The Lipper Funds 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.
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DISTRIBUTION OF THE FUNDS
Distribution of Securities
Lipper & Company, L.P., 101 Park Avenue, New York, NY 10178, serves as the
principal distributor of the shares of The Lipper Funds. The Distributor and its
employees are affiliated persons of the Advisers and The Lipper Funds. The
Distributor distributes the Funds' shares continuously on a best efforts basis
pursuant to an agreement which is renewable annually. Pursuant to the Retail
Distribution Plan, the Distributor is entitled to receive an annual distribution
fee in the amount of 0.25% of the value of the average daily net assets of the
Funds' Retail Shares. The Distributor may also receive all or a portion of the
annual service fee of up to 0.25% (on an annualized basis) of the value of the
average daily net assets of the Funds' Group Retirement Plan Shares. See "Rule
12b-1 Plans."
For the fiscal years ending December 31, 1998, December 31, 1997 and
December 31, 1996, the Distributor accrued fees from the Rule 12b-1 Plans in the
amount of $24,795, $13,478 and $3,583, respectively, from the High Income Bond
Fund, $10,065, $4,559 and $1,529, respectively, from the U.S. Equity Fund, and
$9,520, $3,513 and $1,026, respectively, from the Europe Equity Fund.
Compensation
Set forth below is the commissions and other compensation received by the
Distributor, directly or indirectly, for the fiscal year ending December 31,
1998:
<TABLE>
<CAPTION>
=====================================================================================================
(1) (2) (3) (4)
=====================================================================================================
Net Underwriting Compensation on
Name of Discounts and Redemptions and Brokerage
Principal Distributor Commissions Repurchases Commissions
=====================================================================================================
<S> <C> <C> <C>
Lipper & Company, L.P. $0 $0 $0
=====================================================================================================
</TABLE>
Other Payments
In accordance with the Group Retirement Servicing Plan, The Lipper Funds
may enter into servicing agreements whereby participating dealers, including the
Distributor, will render certain administrative services to their customers who
are beneficial owners of the Funds' Group Retirement Plan Shares. These services
are intended to supplement the services provided by the Administrator and
Transfer Agent. Under the Group Retirement Servicing Plan, Group Retirement Plan
Shareholders may pay one or more participating dealers and/or the Distributor an
annual fee of up to 0.25% of the value of the average daily net assets of the
Funds' Group Retirement Plan Shares for providing various administrative or
shareholder services to the Funds' Group Retirement Shares.
The Distributor, the Advisers and their affiliates may pay one or more
participating dealers out of their fees, their past profits or any other
available source, a fee for distributing the Funds' Premier Shares.
Compensations to Dealers
Under the Retail Distribution Plan, the Fund's Retail Shareholders pays the
Distributor an annual fee of up to 0.25% of the value of the average daily net
assets of the Funds' Retail Shares for distributing those shares. The
Distributor may use this distribution fee, among other things, to compensate or
reimburse selected dealers for providing distribution and related services to
the Fund.
The Distributor customarily pays selected dealers with whom it has entered
into a distribution agreement for distribution of the Funds' Retail Shares a fee
in the amount of 0.25% of the value of the average daily assets of the Funds
attributable to the dealer. However, the Distributor has entered into
distribution agreements with Fidelity Investment Advisor Group and Charles
Schwab & Co. Inc., whereby the Distributor has agreed to pay 0.35% of the value
of the average daily net assets of the Funds' Retail Classes attributable to
Fidelity and Schwab, respectively.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Brokerage Transactions
Subject to the general control of the Board of Directors, Advisers are
responsible for making decisions with respect to, and placing orders for, all
purchases and sales of portfolio securities for the Funds for which each serves
as investment adviser. Portfolio transactions for the U.S. Equity Fund and the
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<PAGE>
Europe Equity Fund will involve the payment of brokerage commissions. 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, include any markups
and markdowns, and do not involve the 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.
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 or their affiliates. 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 or "bunch" 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. Bunching allows the Advisers to facilitate best execution and to
reduce brokerage commissions or other costs. The Funds and such other portfolios
participate at the average share price for all of the Advisers' transactions in
a particular security on a given business day for such bunched order. An Adviser
generally allocates securities purchased or sold in a bunched transaction to the
Fund and such other portfolio before the bunched order is placed, as determined
by the Adviser to be fair and equitable and consistent with the Adviser's
fiduciary responsibility. Allocation decisions may vary from transaction to
transaction and depend upon factors including, but not limited to, the type of
investment, the number of shares purchased or sold, the size of the account, and
the size of an existing security position in a client account. After execution
of the bunched order, the Adviser allocates the transaction to the Fund and such
other portfolio according to the allocation decision made by the Adviser before
it placed the transaction. If the Adviser is unable to fully execute a bunched
transaction, the transaction is allocated pro rata to the Fund and such other
portfolio. However, if the Adviser determines that it would be impractical to
allocate a small number of securities among the Fund and such other portfolios
on a pro-rata basis, the Adviser may allocate the securities in a manner
determined in good faith to be fair and equitable. In addition, the Adviser may
increase or decrease the amount of securities allocated to the Fund and such
other portfolio if necessary to avoid holding odd-lot or small number of shares
or to satisfy the regulatory or other investment requirements of the Fund or
such other portfolio.
For the fiscal years ended December 31, 1998, 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, $56,289 and $346,663, respectively,
$0, $25,838 and $370,449, respectively, and $0, $163,654 (April 1, 1996 through
December 31, 1996) and $26,389, respectively.
Brokerage Selection
In making portfolio investments, the Advisers seek to obtain the best net
price and the most favorable execution of orders, taking into account factors
such as (1) the general execution and operational facilities of the broker or
dealer, (2) the type and size of the transaction involved, (3) the
creditworthiness of the broker or dealer, (4) the stability of the broker or
dealer, (5) execution and settlement capabilities, (6) time required to
negotiate and execute the trade, (7) overall performance and (8) the broker's
commissions or dealer's spread or mark-up. 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 and their
affiliates in servicing accounts in addition to the Funds, and not all such
services will necessarily benefit the Funds.
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<PAGE>
While the Advisers generally seek the best price in placing its order, the
Funds may not necessarily be paying the lowest price available. Notwithstanding
the above, the Advisers may, in compliance with Section 28(e) of the Securities
Exchange Act of 1934, as amended, select brokers who charge a commission in
excess of that charged by other brokers, if the Advisers determine in good faith
that the commission to be charged is reasonable in relation to the brokerage and
research services provided to the Advisers by such broker. The Advisers may also
have arrangements with brokers pursuant to which such brokers provide research
services to the Advisers in exchange for a certain volume of brokerage
transactions to be executed through such broker.
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.
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) of the Advisers, except to the extent permitted by 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 investment company portfolios that have similar
investment objectives but are not subject to such limitations.
CAPITAL STOCK
The Lipper Funds has authorized capital stock of 10,000,000,000 shares
having a par value of $.001 per share. The Lipper Funds' Articles of Amendment
and Restatement currently authorizes the issuance of three series of shares, one
series corresponding to each of the U.S. Equity Fund, High Income Bond Fund and
Europe Equity Fund. The Articles of Amendment and Restatement also authorizes
three classes of shares with respect to each series, Premier Shares, Retail
Shares and Group Retirement Plan Shares. The 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 each Fund represent interests in the Fund in
proportion to the net asset value of each class. The 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 Lipper Funds 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 Lipper Funds' state of
incorporation, and The Lipper Funds' By-Laws (except as required under the
Investment Company Act of 1940), The Lipper Funds 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 directors if such a request is made,
in writing, by the holders of at least 10% of the outstanding voting The Lipper
Funds' securities. To the extent required by law, The Lipper Funds will assist
in shareholder communication in such matters.
All shares of The Lipper Funds, when issued, will be fully paid and
nonassessable.
As used in this Statement of Additional Information and in the
Prospectuses, a "majority of the outstanding shares," when referring to the
Investment Company Act of 1940 approvals to be obtained from shareholders in
connection with matters affecting any particular 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
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<PAGE>
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.
Shares of each class of 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 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 Lipper Funds 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 Lipper Funds which are normally allocated in proportion to
the relative net asset values of the respective classes of the portfolios of The
Lipper Funds at the time of allocation.
Shareholders of each class of each Fund have the right to redeem their
shares, as more fully set forth in the Prospectuses under "Shareholder
Information - Purchasing Fund Shares" and "Shareholder Information - Other
Purchase Information."
Subject to compliance with the requirements of the Investment Company Act
of 1940, the Articles of Amendment and Restatement authorizes the Board of
Directors to provide that shareholders of each class of each Fund shall have the
right to convert or exchange their shares into shares of one or more other
Funds. The Board of Directors has established such procedures, which are more
fully set forth in the Prospectuses under "Shareholder Information - Exchange
Privilege" and "Shareholder Information - Other Exchange Information."
In the event of the liquidation or dissolution of The Lipper Funds, shares
of each class of a Fund 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.
Subject to the provisions of the Articles of Amendment and Restatement,
determinations by the Board of Directors as to the direct and allocable
liabilities and the allocable portion of any general assets of The Lipper Funds
with respect to a particular portfolio or class are conclusive.
VALUATION OF SHARES
The net asset value of each share is based on the net asset value of each
of the Fund's classes. Because of the differences in distribution fees, service
fees and class-specific expenses, the net asset value per share of each class of
each Fund may differ. In addition, although The Lipper Funds does not charge any
sales loads, certain dealers may charge you fees in connection with your
purchases of the Funds' shares.
The Lipper Funds computes the net asset value per share by dividing the
value of the net assets of each of the Fund's classes by the total number of
shares of that class outstanding as of the close of regular trading on the New
York Stock Exchange. The net asset value per share of each class of shares of
each 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 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 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
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<PAGE>
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 Board
of Directors. Fixed income securities may be valued on the basis of valuations
provided by brokers and/or a pricing service that uses information with respect
to transactions in fixed income securities, quotations from dealers and prices
of comparable securities. Such valuations may reflect bid or mean between bid
and asked prices for securities. Securities that 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 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 Board of Directors.
ADDITIONAL PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
Purchase, Redemption and Exchange of Shares
Information on how to purchase, redeem and exchange shares of each Fund is
included in the Prospectuses under "Shareholder Information." 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.
Suspension of the Right of Redemption
Under the Investment Company Act of 1940, a Fund may suspend the right of
redemption or postpone the date of payment upon redemption for any period during
which the NYSE is closed, other than customary weekend and holiday closings, or
during which trading on the NYSE 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.)
Redemption in Kind
Each Fund is obligated to redeem shares solely in cash up to $250,000 or 1%
of its 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.
ADDITIONAL INFORMATION CONCERNING TAXATION OF THE FUNDS
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
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<PAGE>
tax planning. Investors are urged to consult their own tax advisers with
specific questions relating to federal, state or local taxes.
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended, and to continue
to so qualify. Qualification as a regulated investment company 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 registered investment companies 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 registered investment companies) of any one issuer, or
in two or more issuers which a Fund controls and which are engaged in the same
or similar trades or businesses.
If a Fund qualifies as a regulated investment company, such Fund will not
be subject to federal income tax on the portion of its net investment income
(i.e., it investment company taxable income, as that term is defined in the
Internal Revenue Code, without regard to the deduction for dividends paid) and
net capital gain (i.e., the excess of its net long-term capital gains over net
short-term capital losses) that it distributes to shareholders, provides that it
distributes at least 90% of its net investment income for the taxable year.
Distributions by a Fund made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year, will be
considered distributions of income and gains of the taxable year and can
therefore satisfy the distribution requirement.
If for any taxable year a Fund does not qualify for tax treatment as a
regulated investment compay, 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 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.
A 4% non-deductible excise tax is imposed on registered investment
companies that fail to distribute in each calendar year an amount equal to 98%
of ordinary taxable income for the calendar year and 98% of capital gain net
income for the one-year period ended on October 31 of such calendar year (or, at
the election of a regulated investment company having a taxable year ending
November 30 or December 31, for its taxable year (a "taxable year election")).
The balance of such income must be distributed during the next calendar year.
For the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year. 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.
Each Fund may engage in hedging or derivatives transactions involving
foreign currencies, forward contracts, option and futures contracts (including
options, futures and forward contracts on foreign currencies)
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<PAGE>
and short sales. Such transactions will be subject to special provisions of the
Internal Revenue Code that, among other things, may affect the character of
gains and losses realized by a Fund (that is, may affect whether gains or losses
are ordinary or capital), accelerate recognition of income to a Fund and defer
recognition of certain of a Fund's losses. These rules could therefore affect
the character, amount and timing of distributions to shareholders. In addition,
these provisions (1) will require a 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 a 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. Each 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 Fund as a regulated
investment compay.
A Fund may be subject to certain taxes, including without limitation, taxes
imposed by foreign countries with respect to its income and capital gains.
Each Fund's net capital gain will be taxable to each Fund's shareholders as
long-term capital gain, 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.
Distributions of a Fund's net investment income will be taxable to such
Fund's shareholders as ordinary income, whether paid in cash or reinvested in
additional shares.
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 that 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 long-term capital gain is 20%. 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%.
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 redemption proceeds 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."
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
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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.
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 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 Internal Revenue 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 Internal Revenue 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.
If a Fund purchases shares in "passive foreign investment companies", 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 a Fund with respect to
deferred taxes arising from the distribution or gains. If a Fund were to invest
in a passive foreign investment company and (if the Fund received the necessary
information available from the passive foreign investment company, which may be
difficult to obtain) elected to treat the passive foreign investment company as
a "qualified electing fund" under the Internal Revenue Code, 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 gain of the passive
foreign investment company, even if not distributed to the Fund. Alternatively,
a Fund can elect to mark-to-market at the end of each taxable year its shares in
a passive foreign investment company; 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 passive foreign investment
companies and its proceeds from dispositions of passive foreign investment
company 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.
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
that was the predecessor entity to each Fund.
36
<PAGE>
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.
The following tables sets forth the average annual return for the Funds for
the one and five year periods and since inception:
<TABLE>
<CAPTION>
Annual Return Average Annual Return for Average
for the One Year Period the Five Year Period Annual Return
Fund and Class Ending December 31, 1998 Ending December 31, 1998 Since Inception*
- -------------- ------------------------ ------------------------ ---------------
<S> <C> <C> <C>
Lipper U.S. Equity Fund
Premier Shares 11.35% N/A 16.56%
Retail Shares 11.15% N/A 16.42%
Group Retirement Plan Shares 11.16% N/A 16.43%
Prime Lipper Europe Equity Fund**
Premier Shares 32.29% 18.30% 15.21%
Retail Shares 31.96% 18.14% 15.10%
Group Retirement Plan Shares 32.08% 18.17% 15.12%
Lipper High Income Bond Fund**
Premier Shares 3.61% 8.01% 9.37%
Retail Shares 3.36% 7.87% 9.27%
Group Retirement Plan Shares 3.37% 7.86% 9.27%
</TABLE>
- ----------
* Inception dates for the U.S. Equity Fund are January 2, 1996 for the
Premier Shares and January 4, 1996 for the Retail and Group Retirement Plan
Shares. Inception dates for the Europe Equity Fund, as a mutual fund, are
April 1, 1996 for the Premier Shares, April 11, 1996 for the Retail Shares,
and April 12, 1996 for the Group Retirement Plan Shares. The Europe Equity
Fund's predecessor partnership had an inception date of January 13, 1992.
Inception dates for the High Income Bond Fund, as a mutual fund, are April
1, 1996 for the Premier Shares, April 11, 1996 for the Retail Shares, and
April 12, 1996 for the Group Retirement Plan Shares. The High Income Bond
Fund's predecessor partnership had an inception date of February 1, 1992.
** Average Annual Return for the Five Year Period Ending December 31, 1998 and
Average Annual Return Since Inception reflects the performance of the
Fund's predecessor partnerships for periods prior to April 1, 1996. As
mutual funds registered under the Investment Company Act, these Funds are
subject to certain restrictions under the Act and the Internal Revenue Code
to which their corresponding partnerships were not subject. Had those
partnerships been registered under the Act and subject to the provisions of
the Code, their investment performance may have been adversely affected.
37
<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.
The following tables sets forth the aggregate total return for the Funds
for the for a five year period and since inception:
<TABLE>
<CAPTION>
Aggregate Total Return for
the Five Year Period Aggregate Total
Ending December 31, 1998 Return Since Inception*
Fund and Class --------------------------- ----------------------
- --------------
<S> <C> <C>
Lipper U.S. Equity Fund
Premier Shares N/A 58.70%
Retail Shares N/A 57.66%
Group Retirement Plan Shares N/A 57.72%
Prime Lipper Europe Equity Fund**
Premier Shares 131.88% 169.73%
Retail Shares 130.37% 167.97%
Group Retirement Plan Shares 130.63% 168.28%
Lipper High Income Bond Fund**
Premier Shares 47.06% 85.94%
Retail Shares 43.13% 84.77%
Group Retirement Plan Shares 46.06% 84.68%
Thirty Day Yield
</TABLE>
- ----------
* Inception dates for the U.S. Equity Fund are January 2, 1996 for the
Premier Shares and January 4, 1996 for the Retail and Group Retirement Plan
Shares. Inception dates for the Europe Equity Fund, as a mutual fund, are
April 1, 1996 for the Premier Shares, April 11, 1996 for the Retail Shares,
and April 12, 1996 for the Group Retirement Plan Shares. The Europe Equity
Fund's predecessor partnership had an inception date of January 13, 1992.
Inception dates for the High Income Bond Fund, as a mutual fund, are April
1, 1996 for the Premier Shares, April 11, 1996 for the Retail Shares, and
April 12, 1996 for the Group Retirement Plan Shares. The High Income Bond
Fund's predecessor partnership had an inception date of February 1, 1992.
** Aggregate Total Return for the Five Year Period Ending December 31, 1998
and Aggregate Total Return Since Inception reflects the performance of the
Fund's predecessor partnerships for periods prior to April 1, 1996. As
mutual funds registered under the Investment Company Act, these Funds are
subject to certain restrictions under the Act and the Internal Revenue Code
to which their corresponding partnerships were not subject. Had those
partnerships been registered under the Act and subject to the provisions of
the Code, their investment performance may have been adversely affected.
38
<PAGE>
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, 1998
was 6.88% for the Premier Shares, 6.63% for the Retail Shares and 6.62% for the
Group Retirement Plan Shares.
Other Information Concerning Performance Data
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.
Each Fund may also from time to time include discussions or illustrations
of the effects of compounding in advertisements. "Compounding" refers to the
fact that, if dividends or other distributions on a Fund investment are
reinvested by being paid in additional Fund shares, any future income or capital
appreciation of a Fund would increase the value, not only of the original
investment in the Fund, but also of the additional Fund shares received through
reinvestment. Each Fund may also include discussions or illustrations of the
potential investment goals of a prospective investor (including materials that
describe general principles of investing, such as asset allocation,
diversification, risk tolerance and goal setting, questionnaires designed to
help create a personal financial profile,
39
<PAGE>
worksheets used to project savings needs based on assumed rates of inflation and
hypothetical rates of return and action plans offering investment alternatives),
investment management techniques, policies or investment suitability of a Fund
(such as value investing, market timing, dollar cost averaging, asset
allocation, constant ratio transfer, automatic account rebalancing and the
advantages and disadvantages of investing in tax-deferred and taxable
investments), economic and political conditions and the relationship between
sectors of the economy and the economy as a whole, the effects of inflation and
historical performance of various asset classes, including but not limited to,
stocks, bonds and Treasury bills. From time to time advertisements, sales
literature, communications to shareholders or other materials may summarize the
substance of information contained in relevant articles appearing in newspapers
or periodicals, shareholder reports (including the investment composition of a
Fund), as well as the views of the Funds' Advisers as to current market,
economy, trade and interest rate trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to a Fund. In addition, selected indices may be used to illustrate
historic performance of select asset classes. Each Fund may also include in
advertisements, sales literature, communications to shareholders or other
materials, charts, graphs or drawings that illustrate the potential risks and
rewards of investment in various investment vehicles, including but not limited
to, stocks, bonds, Treasury bills and shares of a Fund. In addition,
advertisements, sales literature, shareholder communications or other materials
may include a discussion of certain attributes or benefits to be derived by an
investment in a Fund and/or other mutual funds, benefits, characteristics or
services associated with a particular class of shares, shareholder profiles and
hypothetical investor scenarios, timely information on financial management, tax
and retirement planning and investment alternatives to certificates of deposit
and other financial instruments. Such advertisements or communications may
include symbols, headlines or other materials that highlight or summarize the
information discussed in more detail therein. Materials may include lists of
representative clients of the Funds' Advisers. Materials may refer to the CUSIP
numbers of the various classes of the Funds and may illustrate how to find the
listings of the Funds in newspapers and periodicals. Materials may also include
discussions of other Funds, products and services.
Charts and graphs using net asset value, adjusted NAVs and benchmark
indices may be used to exhibit performance. An adjusted NAV includes any
distributions paid and reflects all elements of return. Unless otherwise
indicated, the adjusted NAVs are not adjusted for sales charges, if any.
Each Fund may illustrate performance using moving averages. A long-term
moving average is the average of each week's adjusted closing NAV for a
specified period. A short-term moving average is the average of each day's
adjusted closing NAV for a specified period. Moving Average Activity Indicators
combine adjusted closing NAVs from the last business day of each week with
moving averages for a specified period to produce indicators showing when an NAV
has crossed, stayed above, or stayed below its moving average.
Each Fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, each Fund may compare these measures to
those of other mutual funds. Measures of volatility seek to compare the
historical share price fluctuations or total returns to those of a benchmark.
Measures of benchmark correlation indicate how valid a comparative benchmark may
be. All measures of volatility and correlation are calculated using averages of
historical data.
Momentum indicators indicate a Fund's price movements over specific periods
of time. Each point on the momentum indicator represents the Fund's percentage
change in price movements over that period.
Each Fund may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a Fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals. In evaluating such
a plan, investors should consider their ability to continue purchasing shares
during periods of low price levels. Each Fund may be
40
<PAGE>
available for purchase through retirement plans or other programs offering
deferral of, or exemption from, income taxes, which may produce superior
after-tax returns over time.
Each Fund may advertise its current interest rate sensitivity, duration,
weighted average maturity or similar maturity characteristics.
Advertisements and sales materials relating to a Fund may include
information regarding the background, experience and expertise of the Advisers
and/or portfolio managers for each Fund.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the Company's independent accountants. The financial statements
incorporated by reference in this SAI 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
COUNSEL
Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York
10017-3954, serves as counsel to the Company. Piper & Marbury L.L.P., 36 South
Charles Street Baltimore, Maryland 21201-3018, passed upon the validity of the
Company's shares under Maryland law.
FINANCIAL STATEMENTS
The financial highlights for each of the Funds for the year ended December
31, 1998 are set forth in the Prospectuses. The financial statements for each of
the Funds for the year ended December 31, 1998, which appear in each Fund's 1998
Annual Report to Shareholders, and the report thereon of PricewaterhouseCoopers
LLP, the Fund's independent accountants, also appearing therein, which were
previously filed electronically with the SEC, are incorporated herein by
reference.
41
<PAGE>
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
A description of the rating policies of Moody's Investor Services Corp. and
Standard & Poor's 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.
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.
42
<PAGE>
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. BB 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.
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.
43
<PAGE>
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.
44
<PAGE>
THE LIPPER FUNDS, INC.
PART C. OTHER INFORMATION
Item 22. Financial Statements
(a) Registration Statement.
(1) Financial Highlights for the year ended December 31, 1998 and
previous years.
(b) Annual Report.
Included in Part B of the Registration Statement*:
(i) Statement of Assets and Liabilities dated December 31, 1998.
(ii) Independent Accountants' Reports dated February 22, 1999.
(iii) Portfolio of Investments for the High Income Bond Fund dated
December 31, 1998.*
(iv) Portfolio of Investments for the U.S. Equity Fund dated December
31, 1998.*
(v) Portfolio of Investments for the Europe Equity Fund dated
December 31, 1998.*
(vi) Statement of Assets and Liabilities for the High Income Bond
Fund, U.S. Equity Fund and Europe Equity Fund dated December 31,
1998.*
(vii) Statement of Operations for the High Income Bond Fund, U.S.
Equity Fund and Europe Equity Fund for the period ended December
31, 1998.*
(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, 1998, 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 for the year ended
December 31, 1998.
Item 23. Exhibits:
(a) Articles of Incorporation.
(1) Registrant's Amended and Restated Articles of Incorporation.**
(b) By-Laws.
(1) Registrant's Amended and Restated By-Laws.*
(c) Instruments Defining Rights of Security Holders.
(1) Form of Stock Certificate for Premier Shares of common stock.*
(2) Form of Stock Certificate for Retail Shares of common stock.*
(3) Form of Stock Certificate for Group Retirement Plan Shares of
common stock.*
The rights of security holders of the Registrant are further defined in the
following sections of the Registrant's By-Laws and Declaration:
a. By-Laws.
See Article I and Article V.
b. Declaration.
See Article V.
<PAGE>
(d) Investment Advisory Contracts.
(1) Investment Advisory Agreement between Registrant and Lipper &
Company, L.L.C. relating to the High Income Bond Fund (filed
herewith).
(2) Investment Advisory Agreement between Registrant and Lipper &
Company, L.L.C. relating to the U.S. Equity Fund (filed herewith).
(3) Investment Advisory Agreement between Registrant and Prime Lipper
Asset Management relating to the Europe Equity Fund.*
(e) Underwriting Contracts.
(1) Distribution Agreement between Registrant and Lipper & Company, L.P.
(filed herewith).
(f) Bonus or Profit Sharing contracts.
None.
(g) Custodian Agreements.
(1) Global Custody Agreement between Registrant and The Chase
Manhattan Bank (filed herewith).
(h) Other Material Contracts.
(1) Administration Agreement between Registrant and Chase Global Funds
Services Company (filed herewith).
(i) Legal Opinion.
(1) Opinion and Consent of Piper & Marbury.*
(j) Other Opinions.
(1) Consent of Independent Accountants (filed herewith).
(k) Omitted Financial Statements.
None.
(l) Initial Capital Agreements.
(1) Purchase Agreement among Registrant, Lipper & Company, L.L.C. and
Prime Lipper Asset Management (filed herewith).
(m) Rule 12-b-1 Plan.
(1) Retail Distribution Plan (filed herewith).
(2) Form of Group Retirement Servicing Plan (filed herewith).
(n) Financial Data Schedule.
(1) Financial Data Schedules (filed herewith).
(o) Rule 18f-3 Plan.
(1) Multiclass Plan (filed herewith).
(p) Power of Attorney.
(1) Powers of Attorney for Kenneth Lipper, Abraham Biderman and Stanley
Brezenoff.**
(2) Power of Attorney for Irwin Russell.*
(3) Power of Attorney for Martin Maltz (filed herewith).
* Incorporated by reference to Registration Statement filed on March
25, 1998.
** Incorporated by reference to Pre-Effective Amendment No. 1 to
Registration Statement filed on December 29, 1995.
<PAGE>
Item 24. Persons Controlled by or under Common Control with the Registrant
Kenneth Lipper may be deemed to control The Lipper Funds, Inc.,
Lipper & Company, L.L.C., Prime Lipper Asset Management, Lipper &
Company, L.P. and affiliates thereof. Accordingly, these entities
may be deemed to be under common control with The Lipper Funds,
Inc.
Item 25. 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 26. Business and Other Connections of the Investment Advisers
Reference is made to the Sections entitled "Management" in the
Prospectuses and the Statement of Additional Information.
The list required by this Item 26 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 26 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 27. 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).
(c) Not applicable.
Item 28. 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 29. Management Services
Not applicable.
Item 30. Undertakings
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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
26th day of February, 1999.
THE LIPPER FUNDS, INC.
By /s/ Abraham Biderman
--------------------
Abraham Biderman
Director
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 Director, Chairman of the Board February 26, 1999
- --------------------- (principal executive officer),
Kenneth Lipper President and Director
/s/ Abraham Biderman Director, Executive Vice February 26, 1999
- --------------------- President,Treasurer (principal
Abraham Biderman financial and accounting officer)
and Secretary
* Director February 26, 1999
- ---------------------
Stanley Brezenoff
* Director February 26, 1999
- ---------------------
Martin Maltz
* Director February 26, 1999
- ---------------------
Irwin E. Russell
*By: /s/ Abraham Biderman
--------------------
Abraham Biderman
Attorney-in-Fact
ADVISORY CONTRACT
THE LIPPER FUNDS, INC.
101 Park Avenue
New York, New York 10178
December 28, 1995
Lipper & Company, L.L.C.
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:
I. 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 proposes to engage in the
business of investing and reinvesting the assets of Lipper High Income Bond 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
1
<PAGE>
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.
(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
2
<PAGE>
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.
3
<PAGE>
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 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
4
<PAGE>
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 0.85%
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 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 two
5
<PAGE>
years from the date hereof 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 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
6
<PAGE>
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.
7
<PAGE>
12. This agreement shall be governed by the laws of the State of New
York.
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/ABRAHAM BIDERMAN
--------------------------------
Name: Abraham Biderman
Title: Executive Vice President
ACCEPTED:
By: LIPPER & COMPANY, L.L.C.
By: /s/STEVEN FINKEL
------------------------------
Name: Steven Finkel
Title: Executive Vice President
8
ADVISORY CONTRACT
THE LIPPER FUNDS, INC.
101 Park Avenue
New York, New York 10178
December 28, 1995
Lipper & Company, L.L.C.
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 proposes to engage in the
business of investing and reinvesting the assets of Lipper U.S. 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.
1
<PAGE>
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.
(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
2
<PAGE>
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.
3
<PAGE>
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 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
4
<PAGE>
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 0.85%
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 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.
5
<PAGE>
9. This agreement shall continue in effect until two years from the
date hereof 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 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
6
<PAGE>
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. This agreement shall be governed by the laws of the State of New
York.
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/ABRAHAM BIDERMAN
--------------------------------
Name: Abraham Biderman
Title: Executive Vice President
ACCEPTED:
By: LIPPER & COMPANY, L.L.C.
By: /s/STEVEN FINKEL
------------------------------
Name: Steven Finkel
Title: Executive Vice President
7
DISTRIBUTION AGREEMENT
December 28, 1995
Lipper & Company, L.P.
101 Park Avenue
New York, New York 10178
Dear Sirs:
This is to confirm that, in consideration of the agreements hereinafter
contained, Lipper High Income Bond Fund, Lipper U.S. Equities Fund and Prime
Lipper Europe Equity Fund (together, the "Funds"), each an investment portfolio
of The Lipper Funds, Inc. (the "Company"), an open-end, professionally managed
investment company organized as a corporation under the laws of the State of
Maryland, have agreed that Lipper & Company, L.P. ("Lipper") shall be, for the
period of this Agreement, the distributor of shares of each Fund issued by the
Company (the "Shares").
1. Services as Distributor
1.1 Lipper will act as agent for the distribution of the Shares covered
by the registration statement, prospectus and statement of additional
information then in effect under the Securities Act of 1933, as amended (the
"1933 Act"), and the Investment Company Act of 1940, as amended (the "1940
Act").
1.2 Lipper agrees to use its best efforts to solicit orders for the
sale of the Shares at the public offering price, as determined in accordance
with the registration statement, and will undertake such advertising and
promotion as it believes is reasonable in connection with such solicitation.
1.3 All activities by Lipper as distributor of the Shares shall comply
with all applicable laws, rules and regulations, including, without limitation,
all rules and regulations made or adopted by the Securities and Exchange
Commission (the "SEC") or by any securities association
1
<PAGE>
registered under the Securities Exchange Act of 1934, as amended.
1.4 Lipper will transmit any orders received by it for purchase or
redemption of shares of each Fund to Chase Global Funds Services Company, the
Company's transfer agent and dividend disbursing agent, or any successor to
Chase Global Funds Services Company of which the Company has notified Lipper in
writing.
1.5 Lipper acknowledges that, whenever in the judgment of the Company's
officers such action is warranted for any reason, including, without limitation,
market, economic or political conditions, those officers may decline to accept
any orders for, or make any sales of, the Shares until such time as those
officers deem it advisable to accept such orders and to make such sales.
1.6 Lipper will act only on its own behalf as principal should it
choose to enter into selling agreements in the form of Exhibit A attached hereto
with selected dealers or others.
1.7 As compensation for its services hereunder, Lipper shall be
entitled to such compensation as is described in the Funds' current registration
statement.
2. Duties of the Funds
2.1 Each Fund agrees at its own expense to execute any and all
documents, to furnish any and all information and to take any other actions that
may be reasonably necessary in connection with the qualification of the Shares
for sale in those states that Lipper may designate.
2.2 Each Fund shall furnish from time to time, for use in connection
with the sale of the Shares, such information reports with respect to such Fund
and its Shares as Lipper may reasonably request, all of which shall be signed by
one or more of such Fund's duly authorized officers; and each Fund warrants that
the statements contained in any such reports, when so signed by one or more of
such Fund's officers, shall be true and correct. Each Fund shall also furnish
Lipper upon request with: (a) annual audits of such Fund's books and accounts
made by independent public accountants regularly retained by such Fund,
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<PAGE>
(b) semiannual unaudited financial statements pertaining to such Fund, (c)
quarterly earnings statements prepared by such Fund, (d) a monthly itemized list
of the securities in the portfolio of such Fund, (e) monthly balance sheets as
soon as practicable after the end of each month and (f) from time to time such
additional information regarding such Fund's financial condition as Lipper may
reasonably request.
3. Representations and Warranties
Each Fund represents to Lipper that all registration statements,
prospectuses and statements of additional information filed by such Fund with
the SEC under the 1933 Act and the 1940 Act with respect to the shares of such
Fund have been carefully prepared in conformity with the requirements of the
1933 Act, the 1940 Act and the rules and regulations of the SEC thereunder. As
used in this Agreement the terms "registration statement", "prospectus" and
"statement of additional information" shall mean any registration statement,
prospectus and statement of additional information filed by the Funds with the
SEC and any amendments and supplements thereto which at any time shall have been
filed with the SEC. Each Fund represents and warrants to Lipper that any
registration statement, prospectus and statement of additional information, when
such registration statement becomes effective, will include all statements
required to be contained therein in conformity with the 1933 Act, the 1940 Act
and the rules and regulations of the SEC; that all statements of fact contained
in any registration statement, prospectus or statement of additional information
will be true and correct when such registration statement becomes effective; and
that neither any registration statement nor any prospectus or statement of
additional information when such registration statement becomes effective will
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading to a purchaser of such Fund's shares. Lipper may, but shall not be
obligated to, propose from time to time such amendment or amendments to any
registration statement and such supplement or supplements to any prospectus or
statement of additional information as, in the light of future developments,
may, in the opinion of Lipper's counsel, be necessary or advisable. If a Fund
shall not propose such amendment or amendments and/or supplement or supplements
3
<PAGE>
within fifteen days after receipt by such Fund of a written request from Lipper
to do so, Lipper may, at its option, terminate this Agreement. Each Fund shall
not file any amendment to any registration statement or supplement to any
prospectus or statement of additional information without giving Lipper
reasonable notice thereof in advance; provided, however, that nothing contained
in this Agreement shall in any way limit each Fund's right to file at any time
such amendments to any registration statement and/or supplements to any
prospectus or statement of additional information, of whatever character, as
such Fund may deem advisable, such right being in all respects absolute and
unconditional.
4. Indemnification
4.1 Each Fund authorizes Lipper and any dealers with whom Lipper has
entered into dealer agreements to use any prospectus or statement of additional
information furnished by such Fund from time to time, in connection with the
sale of such Fund's shares. Each Fund agrees to indemnify, defend and hold
Lipper, its several officers and partners, and any person who controls Lipper
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which Lipper, its officers and
partners, or any such controlling person, may incur under the 1933 Act, the 1940
Act or common law or otherwise, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement, any prospectus or any statement of additional
information, or arising out of or based upon any omission or alleged omission to
state a material fact required to be stated in any registration statement, any
prospectus or any statement of additional information, or necessary to make the
statements in any of them not misleading; provided, however, that each Fund's
agreement to indemnify Lipper, its officers or partners, and any such
controlling person shall not be deemed to cover any claims, demands, liabilities
or expenses arising out of or based upon any statements or representations made
by Lipper or its representatives or agents other than such statements and
representations as are contained in any registration statement, prospectus or
statement of additional information and in such
4
<PAGE>
financial and other statements as are furnished to Lipper pursuant to paragraph
2.2 hereof; and further provided that each Fund's agreement to indemnify Lipper
and each Fund's representations and warranties hereinbefore set forth in
paragraph 3 shall not be deemed to cover any liability to such Fund or its
shareholders to which Lipper would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of Lipper's reckless disregard of its obligations and duties under
this Agreement. Each Fund's agreement to indemnify Lipper, its officers and
partners, and any such controlling person, as aforesaid, is expressly
conditioned upon such Fund's being notified of any action brought against
Lipper, its officers or partners, or any such controlling person, such
notification to be given by letter or by telegram addressed to such Fund at its
principal office in New York, New York and sent to such Fund by the person
against whom such action is brought, within ten days after the summons or other
first legal process shall have been served. The failure so to notify such Fund
of any such action shall not relieve the Fund from any liability that the Fund
may have to the person against whom such action is brought by reason of any such
untrue or alleged untrue statement or omission or alleged omission otherwise
than on account of such Fund's indemnity agreement contained in this paragraph
4.1. Each Fund's indemnification agreement contained in this paragraph 4.1 and
each Fund's representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of Lipper, its officers and partners, or any controlling person,
and shall survive the delivery of any of such Fund's shares. This agreement of
indemnity will inure exclusively to Lipper's benefit, to the benefit of its
several officers and partners, and their respective estates, and to the benefit
of the controlling persons and their successors. Each Fund agrees to notify
Lipper promptly of the commencement of any litigation or proceedings against
such Fund or any of its officers or directors in connection with the issuance
and sale of any of such Fund's shares.
4.2 Lipper agrees to indemnify, defend and hold each Fund, its several
officers and directors, and any person who controls such Fund within the meaning
of Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the costs of
5
<PAGE>
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) that such Fund, its officers or directors
or any such controlling person may incur under the 1933 Act, the 1940 Act or
common law or otherwise, but only to the extent that such liability or expense
incurred by such Fund, its officers or directors or such controlling person
resulting from such claims or demands shall arise out of or be based upon (a)
any unauthorized sales literature, advertisements, information, statements or
representations or (b) any untrue or alleged untrue statement of a material fact
contained in information, furnished in writing by Lipper to such Fund and used
in the answers to any of these items of the registration statement or in the
corresponding statements made in the prospectus or statement of additional
information, or shall arise out of or be based upon any omission or alleged
omission to state a material fact in connection with such information furnished
in writing by Lipper to such Fund and required to be stated in such answers or
necessary to make such information not misleading. Lipper's agreement to
indemnify each Fund, its officers and directors, and any such controlling
person, as aforesaid, is expressly conditioned upon Lipper being notified of any
action brought against such Fund, its officers or directors, or any such
controlling person, such notification to be given by letter or telegram
addressed to Lipper at its principal office in New York, New York and sent to
Lipper by the person against whom such action is brought, within ten days after
the summons or other first legal process shall have been served. The failure so
to notify Lipper of any such action shall not relieve Lipper from any liability
that Lipper may have to such Fund, its officers or directors, or to such
controlling person by reason of any such untrue or alleged untrue statement or
omission or alleged omission otherwise than on account of Lipper's indemnity
agreement contained in this paragraph 4.2. Lipper agrees to notify each Fund
promptly of the commencement of any litigation or proceedings against Lipper or
any of its officers or partners in connection with the issuance and sale of any
of such Fund's shares.
4.3 In case any action shall be brought against any indemnified party
under paragraph 4.1 or 4.2, and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in, and, to the extent that it shall wish to do so, to assume the defense
6
<PAGE>
thereof with counsel satisfactory to such indemnified party. If the indemnifying
party opts to assume the defense of such action, the indemnifying party will not
be liable to the indemnified party for any legal or other expenses subsequently
incurred by the indemnified party in connection with the defense thereof other
than (a) reasonable costs of investigation or the furnishing of documents or
witnesses and (b) all reasonable fees and expenses of separate counsel to such
indemnified party if (i) the indemnifying party and the indemnified party shall
have agreed to the retention of such counsel or (ii) the indemnified party shall
have concluded reasonably that representation of the indemnifying party and the
indemnified party by the same counsel would be inappropriate due to actual or
potential differing interests between them in the conduct of the defense of such
action.
5. Effectiveness of Registration
None of the Shares shall be offered by either Lipper or the Funds under
any of the provisions of this Agreement and no orders for the purchase or sale
of the Shares hereunder shall be accepted by the Funds if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the 1933
Act or if and so long as a current prospectus as required by Section 5(b)(2) of
the 1933 Act is not on file with the SEC; provided, however, that nothing
contained in this paragraph 5 shall in any way restrict or have an application
to or bearing upon each Fund's obligation to repurchase its Shares from any
shareholder in accordance with the provisions of such Fund's prospectus,
statement of additional information or articles of incorporation.
6. Notice to Lipper
Each Fund agrees to advise Lipper immediately in writing:
(a) of any request by the SEC for amendments to the registration
statement, prospectuses or statements of additional information then in effect
or for additional information;
(b) in the event of the issuance by the SEC of any
7
<PAGE>
stop order suspending the effectiveness of the registration statement,
prospectus or statement of additional information then in effect or the
initiation of any proceeding for that purpose;
(c) of the happening of any event that makes untrue any statement of a
material fact made in the registration statement, prospectus or statement of
additional information then in effect or that requires the making of a change in
such registration statement, prospectus or statement of additional information
in order to make the statements therein not misleading; and
(d) of all actions of the SEC with respect to any amendment to any
registration statement, prospectus or statement of additional information which
may from time to time be filed with the SEC.
7. Term of Agreement
This Agreement shall continue for one year from the date hereof and
thereafter shall continue automatically for successive annual periods, provided
such continuance is specifically approved at least annually by (i) the Company's
Board of Directors with respect to each Fund, or (ii) by a vote of a majority
(as defined in the 1940 Act) of such Fund's outstanding voting securities,
provided that in either event the continuance is also approved by the majority
of the Directors of the Company who are not interested persons (as defined in
the 1940 Act) of any party to this Agreement, by vote cast in person at a
meeting called for the purpose of voting on such approval. This Agreement is
terminable, without penalty, on 60 days' notice by the Company's Board of
Directors, by vote of the holders of a majority of each Fund's shares, or on 60
days' notice by Lipper. This Agreement will also terminate automatically in the
event of its assignment (as defined in the 1940 Act).
8. Miscellaneous
Each Fund recognizes that partners, officers and employees of Lipper
may from time to time serve as directors, partners, trustees, officers and
employees of corporations, business trusts, partnerships and other entities
(including other investment companies) and that such other corporations, trusts,
8
<PAGE>
partnerships and other entities may include the name "Lipper & Company" or
"Lipper" as part of their names, and that Lipper or its affiliates may enter
into distribution or other agreements with such other corporations, trusts,
partnerships and other entities. If Lipper, or an affiliate, ceases to act as
the distributor of a Fund's shares, such Fund agrees that, at Lipper's request,
such Fund's license to use the word "Lipper" will terminate and that such Fund
will take all necessary action to change the name of such Fund to a name not
including the words "Lipper & Company" or "Lipper."
9
<PAGE>
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance thereof at the place below
indicated, whereupon it shall become a binding agreement between us.
Very truly yours,
THE LIPPER FUNDS, INC.
By:/s/ABRAHAM BIDERMAN
---------------------------------
Name: Abraham Biderman
Title: Executive Vice President
Accepted:
LIPPER & COMPANY, L.P.
By: LIPPER & COMPANY, INC.
as General Partner
By: /s/STEVEN FINKEL
------------------------------
Name: Steven Finkel
Title: Executive Vice President
10
<PAGE>
EXHIBIT A
FORM OF DEALER CONTRACT
LIPPER & COMPANY, L.P.
101 Park Avenue
New York, New York 10178
[Name of Broker-Dealer]
_______________________
_______________________
_______________________
Ladies and Gentlemen:
We, Lipper & Company, L.P. ("Lipper"), have an agreement with The
Lipper Funds, Inc. (the "Company") pursuant to which we act as the distributor
for the sale of shares of the Company's capital stock, par value $.001 per share
("shares"), and as such have the right to distribute shares for resale. The
Company is an open-end investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act") and the shares being offered to
the public are registered under the Securities Act of 1933, as amended (the
"1933 Act"). You have received copies of the Distribution Agreement (the
"Distribution Agreement") between ourselves and the Company on behalf of each of
Lipper High Income Bond Fund, Lipper U.S. Equity Fund and Prime Lipper Europe
Equity Fund, each an investment portfolio of the Company, as well as any future
investment portfolios of the Company (together, the "Funds"), and reference is
made herein to certain provisions of the Distribution Agreement. The term
"Prospectus", as used herein, refers to the prospectus and related statement of
additional information (the "Statement of Additional Information") incorporated
therein by reference (as amended or supplemented) on file with the Securities
and Exchange Commission which is part of the most recent effective Registration
Statement of the Fund under the 1933 Act. As principal, we offer to sell to you,
as a dealer, shares of each Fund issued by the Company upon the following terms
and conditions:
1. In all sales to the public you shall act as dealer for your own
account, and in no transaction shall you have any authority to act as agent for
the Funds, for us or for any other dealer.
2. Orders received from you will be accepted through us only at the
public offering price per share (i.e. the net
1
<PAGE>
asset value per share plus the applicable sales charge, if any) applicable to
each order, and all orders for redemption of any Fund shares shall be executed
at the net asset value per share less any contingent deferred sales charge, if
any, in each case as set forth in the Prospectus. The procedure relating to the
handling of orders shall be subject to paragraph 4 hereof and instructions which
we or the Funds shall forward from time to time to you. All orders are subject
to acceptance or rejection by Lipper or each Fund in the sole discretion of
either. The minimum initial purchase and the minimum subsequent purchase shall
be as set forth in the Prospectus of each Fund.
3. You shall not place orders for any shares unless you have already
received purchase orders for those shares at the applicable public offering
price and subject to the terms hereof and of the Distribution Agreement. You
agree that you will not offer or sell any shares except under circumstances that
will result in compliance with the applicable Federal and state securities laws,
the applicable rules and regulations thereunder and the rules and regulations of
applicable regulatory agencies or authorities and that in connection with sales
and offers to sell shares you will furnish to each person to whom any such sale
or offer is made, at or prior to the time of such sale or offer, a copy of the
Prospectus and, upon request, the Statement of Additional Information, and will
not furnish to any person any information relating to shares which is
inconsistent in any respect with the information contained in the Prospectus or
Statement of Additional Information (as then amended or supplemented). You shall
not furnish or cause to be furnished to any person or display or publish any
information or materials relating to the shares (including, without limitation,
promotional materials and sales literature, advertisements, press releases,
announcements, statements, posters, signs or other similar material), except
such information and materials as may be furnished to you by us or by the Funds,
and such other information and materials as may be approved in writing by us.
4. As a dealer, you are hereby authorized (i) to place orders directly
with the Funds for shares to be resold by us to you subject to the applicable
terms and conditions governing the placement of orders by us set forth in the
Prospectus and the Distribution Agreement and (ii) to tender shares directly to
each Fund or its agent for redemption subject to the applicable terms and
conditions governing the redemption of shares applicable to us set forth in the
Prospectus and the Distribution Agreement.
2
<PAGE>
5. You shall not withhold placing orders received from your customers
so as to profit yourself as a result of such withholding, e.g., by a change in
the "net asset value" from that used in determining the offering price to your
customers.
6. In determining the amount of any sales concession payable to you
hereunder, we reserve the right to exclude any sales which we reasonably
determine are not made in accordance with the terms of the Prospectus and the
provisions of this Agreement. Unless at the time of transmitting an order we
advise you or the transfer agent to the contrary, the shares ordered will be
deemed to be the total holdings of the specified investor.
7. (a) You agree that payment for orders from you for the purchase of
shares will be made in accordance with the terms of the Prospectus. On or before
the business day following the settlement date of each purchase order for
shares, you shall transfer same day funds to an account designated by us with
the transfer agent an amount equal to the public offering price on the date of
purchase of the shares being purchased less your sales concession, if any, with
respect to such purchase order determined in accordance with the Prospectus. If
payment for any purchase order is not received in accordance with the terms of
the Prospectus, we reserve the right, without notice, to cancel the sale and to
hold you responsible for any loss sustained as a result thereof.
(b) If any shares sold under the terms of this Agreement are sold with
a sales charge and are redeemed or are tendered for redemption within seven (7)
business days after confirmation of your purchase order for such shares: (i) you
shall forthwith refund to us the full sales concession received by you on the
sale; and (ii) we shall forthwith pay to the applicable Fund our portion of the
sales charge on the sale which had been retained by us, if any, and shall also
pay to the applicable Fund the amount refunded by you.
(c) We will pay you an ongoing trail commission with respect to
holdings by you of shares of the Funds at such rates and in such manner as may
be described in the Prospectus.
(d) Certificates evidencing shares shall be available only upon
request. Upon payment for shares in accordance with paragraph 7(a) above, the
transfer agent will issue and transmit to you a confirmation statement
evidencing the purchase of such
3
<PAGE>
shares. Any transaction in uncertificated shares, including purchases,
transfers, redemptions and repurchases, shall be effected and evidenced by
book-entry on the records of the transfer agent.
8. No person is authorized to make any representations concerning
shares except those contained in the current Prospectus and Statement of
Additional Information and in printed information subsequently issued by us or
the Funds as information supplemental to the Prospectus and the Statement of
Additional Information. In purchasing shares through us you shall rely solely on
the representations contained in the Prospectus, the Statement of Additional
Information and the supplemental information above mentioned.
9. You agree to deliver to each purchaser making a purchase of shares
from you a copy of the Prospectus at or prior to the time of offering or sale,
and, upon request, the Statement of Additional Information. You may instruct the
transfer agent to register shares purchased in your name and account as nominee
for your customers. You agree thereafter to deliver to any purchaser whose
shares you are holding as record holder copies of the annual and interim reports
and proxy solicitation materials and any other information and materials
relating to the Funds and prepared by or on behalf of us, the Funds or the
investment adviser, custodian, transfer agent or dividend disbursing agent for
distribution to such customer. The Funds shall be responsible for the costs
associated with forwarding such reports, materials and other information and
shall reimburse you in full for such costs. You further agree to make reasonable
efforts to endeavor to obtain proxies from such purchasers whose shares you are
holding as record holder. You further agree to obtain from each customer to whom
you sell shares any taxpayer identification number certification required under
Section 3406 of the Internal Revenue Code of 1986, as amended (the "Code"), and
the regulations promulgated thereunder, and to provide us or our designee with
timely written notice of any failure to obtain such taxpayer identification
number certification in order to enable the implementation of any required
backup withholding in accordance with Section 3406 of the Code and the
regulations thereunder. Additional copies of the Prospectus, Statement of
Additional Information, annual or interim reports, proxy solicitation materials
and any such other information and materials relating to the Funds will be
supplied to you in reasonable quantities upon request.
4
<PAGE>
10. (a) In accordance with the terms of the Prospectus, a reduced sales
charge may be available to customers, depending on the amount of the investment.
In each case where a reduced sales charge is applicable, you agree to furnish to
the transfer agent sufficient information to permit confirmation of
qualification for a reduced sales charge, and acceptance of the purchase order
is subject to such confirmation. Reduced sales charges may be modified or
terminated at any time in the sole discretion of each Fund.
(b) You acknowledge that certain classes of investors may be entitled
to purchase shares at net asset value without a sales charge as provided in the
Prospectus and Statement of Additional Information.
(c) You agree to advise us promptly as to the amount of any and all
sales by you qualifying for a reduced sales charge or no sales charge.
(d) Exchanges (i.e., the investment of the proceeds from the
liquidation of shares of one fund in the shares of another fund, each of which
is managed by the Funds' investment adviser) shall, where available, be made in
accordance with the terms of each Prospectus.
11. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of shares entirely. Each party hereto has the
right to cancel this agreement upon notice to the other party.
12. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering of
shares. We shall be under no liability to you except for lack of good faith and
for obligations expressly assumed by us herein. Nothing contained in this
paragraph 12 is intended to operate as, and the provisions of this paragraph 12
shall not in any way whatsoever constitute a waiver by you of compliance with,
any provisions of the 1933 Act or of the rules and regulations of the Securities
and Exchange Commission issued thereunder.
13. You agree that: (a) you shall not effect any transactions
(including, without limitation, any purchases and redemptions) in any shares
registered in the name of, or beneficially owned by, any customer unless such
customer has granted you full right, power and authority to effect such
5
<PAGE>
transactions on his behalf, (b) we shall have full authority to act upon your
express instructions to sell, repurchase or exchange shares through us on behalf
of your customers under the terms and conditions provided in the Prospectus and
(c) we, the Funds, the transfer agent and our and their respective officers,
directors or trustees, agents, employees and affiliates shall not be liable for,
and shall be fully indemnified and held harmless by you from and against, any
and all claims, demands, liabilities and expenses (including, without
limitation, reasonable attorneys' fees) which may be incurred by us or any of
the foregoing persons entitled to indemnification from you hereunder arising out
of or in connection with (i) the execution of any transactions in shares
registered in the name of, or beneficially owned by, any customer in reliance
upon any oral or written instructions believed to be genuine and to have been
given by or on behalf of you, (ii) any statements or representations that you or
your employees make concerning the Funds that are inconsistent with the
applicable Fund's Prospectus and (iii) any sale of shares of a Fund where the
Fund or its shares were not properly registered or qualified for sale in any
state, any U.S. territory or the District of Columbia, when we have indicated to
you that the Fund or its shares were not properly registered or qualified. The
indemnification agreement contained in this Paragraph 13 shall survive the
termination of this Agreement.
14. You represent that: (a) you are a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD"), or, if a foreign
dealer who is not eligible for membership in the NASD, that (i) you will not
make any sales of shares in, or to nationals of, the United States of America,
its territories or its possessions, and (ii) in making any sales of shares you
will comply with the NASD's Rules of Fair Practice and (b) you are a member in
good standing of the Securities Investor Protection Corporation ("SIPC"). You
agree that you will provide us with timely written notice of any change in your
NASD or SIPC status.
15. We shall inform you as to the states or other jurisdictions in
which each Fund has advised us that shares have been qualified for sale under,
or are exempt from the requirements of, the respective securities laws of such
states, but we assume no responsibility or obligation as to your qualification
to sell shares in any jurisdiction.
16. All communications to us should be sent, postage prepaid, to 101
Park Avenue, New York, New York 10178.
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<PAGE>
Attention: Kenneth Lipper. Any notice to you shall be duly given if mailed,
telegraphed or telecopied to you at the address specified by you below.
Communications regarding placement of orders for shares should be sent, postage
prepaid, to [].
17. This Agreement shall be binding upon both parties hereto when
signed by us and accepted by you in the space provided below.
18. This Agreement and the terms and conditions set forth herein shall
be governed by, and construed in accordance with, the laws of the State of New
York.
LIPPER & COMPANY, L.P.
By: LIPPER & COMPANY, INC.,
as General Partner
By: _________________________
Name:
Title:
Please return one signed copy of this Contract to:
Lipper & Company, L.P.
101 Park Avenue
New York, New York 10178
Attention: Kenneth Lipper
Accepted:
Firm Name: ________________________________________________
By: _______________________________________________________
Address: __________________________________________________
------------------------------------------------------------
Accepted By (signature): __________________________________
Name (print): __________________ Title: __________________
Date: ______________________________________________________
7
GLOBAL CUSTODY AGREEMENT
This AGREEMENT is effective December 26, 1995, and is between THE CHASE
MANHATTAN BANK, N.A. (the "Bank") and THE LIPPER FUNDS, INC., a Maryland
Corporation, having an address at 101 Park Ave., New York, NY 10178 (the
"Customer").
1. CUSTOMER ACCOUNTS.
The Bank agrees to establish and maintain the following accounts
("Accounts"):
(a) A custody account in the name of the Customer ("Custody Account")
for any and all stocks, shares, bonds, debentures, notes, mortgages or
other obligations for the payment of money, bullion, coin and any
certificates, receipts, warrants or other instruments representing rights
to receive, purchase or subscribe for the same or evidencing or
representing any other rights or interests therein and other similar
property whether certificated or uncertified as may be received by the Bank
or its subcustodian (as defined in Section 3) for the account of the
Customer ("Securities"); and
(b) A deposit account in the name of the Customer ("Deposit Account")
for any and all cash in any currency received by the Bank or its
Subcustodian for the account of the Customer, which cash shall not be
subject to withdrawal by draft or check.
The Customer warrants its authority to: 1) deposit the cash and Securities
("Assets") received in the Accounts and 2) give Instructions (as defined in
Section 11) concerning the Accounts. The Bank may deliver securities of the same
class in place of those deposited in the Custody Account.
Upon written agreement between the Bank and the Customer, additional
Accounts may be established and separately accounted for as additional Accounts
under the terms of this Agreement.
2. MAINTENANCE OF SECURITIES AND CASH AT BANK AND SUBCUSTODIAN LOCATIONS.
Unless Instructions specifically require another location acceptable to the
Bank:
(a) Securities will be held in the country or other jurisdiction in
which the principal trading market for such Securities is located, where
such Securities are to be presented for payment or where such Securities
are acquired; and
(b) Cash will be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts; cash received in
respect of Securities will be held by the Subcustodian for such Securities
in the country in which such Securities are held until the Customer issues
Instructions to transfer the cash and otherwise cash received may only be
held outside of the United States if held by a Subcustodian or a securities
depository listed on Schedules A and B hereto respectively.
Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular currency.
To the extent Instructions are issued and the Bank can comply with such
Instructions, the Bank is authorized to maintain cash balances on deposit for
the Customer with itself or one of its affiliates at such reasonable rates of
interest as may from time to time be paid on such accounts, or in non-interest
bearing accounts as the Customer may direct, if acceptable to the Bank.
-1-
<PAGE>
If the Customer wishes to have any of its Assets held in the custody of an
institution other than the established Subcustodians as deemed in Section 3 (or
their securities depositories), such arrangement must be authorized by a written
agreement, signed by the Bank and the Customer.
3. SUBCUSTODIANS AND SECURITIES DEPOSITORIES.
With respect to actions taken by the Bank through Subcustodians, the Bank
may only act under this Agreement through the subcustodians listed in Schedule
A of this Agreement ("Subcustodians") with which the Bank has entered into
subcustodial agreements, which have terms substantially equivalent in all
material respects for purposes of compliance with Rule 17f-5 under the
Investment Company Act of 1940 (the "Act") to those contained in the form of
Subcustodial Agreement attached hereto as Exhibit I hereto. The Customer
authorizes the Bank to hold Assets in the Accounts which the Bank has
established with one or more of its branches or Subcustodians, provided that
with respect to Assets to be held outside the United States such Subcustodians
shall only be those listed in Schedule A hereto. The Bank and subcustodians are
authorized to hold any of the Securities in their account with any securities
depository in which they participate, and which are listed on Schedule B Hereto.
The Bank shall not amend any subcustodial agreement in a manner which, in its
reasonable judgment, would cause the Customer to be in violation of Rule 17f-5
under the Act.
The Bank agrees to request from any Subcustodian or securities depository
such information as the Customer may reasonably request from time to time with
respect to the foreign custody arrangements contemplated hereby and to forward
to the Customer such information, if any, as it may receive form the
Subcustodian or securities depository. The Bank shall, in any case, furnish such
information to the Customer with respect to each Subcustodian and securities
depository as the Customer shall reasonably request and which the Bank has
available to it to enable the Customer's Board of Directors to fulfill its
obligations under Rule 17f-5 under the Act.
The Bank agrees to provide the Customer with periodic reports, if any, with
respect to the safekeeping of the Customer's Assets maintained abroad,
including, but not necessarily limited to, notification of any transfer to or
from the Customer's Accounts.
Subject to the terms of the Mutual fund Rider attached hereto, the Bank
reserves the right to add new, replace or remove Subcustodians. The Customer
will be given reasonable notice by the Bank of any amendment to Schedule A. Upon
request by the Customer, the Bank will identify the name, address and principal
place of business of any Subcustodian of the Customer's Assets and the name and
address of the governmental agency or other regulatory authority that supervises
or regulates such Subcustodian.
4. USE OF SUBCUSTODIAN.
(a) The Bank will identify the Assets on its books as belonging to the
Customer.
(b) A Subcustodian will hold such Assets together with assets belonging to
other customers of the Bank in accounts identified on such Subcustodian's books
as special custody accounts for the exclusive benefit of customers of the Bank.
(c) Any Assets in the Accounts held by a Subcustodian will be subject only
to the instructions of the Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian will be subject only to
the instructions of such Subcustodian.
(d) Any agreement the Bank enters into with a Subcustodian for holding its
customer's assets shall provide that such assets will not be subject to any
right, charge, security interest, lien or claim of any kind in favor of such
Subcustodian except for safe custody or administration, and that the beneficial
ownership of such assets will be freely transferable without the payment of
money or value other than for safe custody or administration. The foregoing
shall not apply to the extent of any special agreement or arrangement made by
the Customer with any particular Subcustodian.
5. DEPOSIT ACCOUNT TRANSACTIONS.
(a) The Bank or its Subcustodians will make payments from the Deposit
Account upon receipt of Instructions which include all information required by
the Bank.
(b) In the event that any payment to be made under this Section 5 exceeds
the funds available in the Deposit Account, the Bank, in its discretion, may
advance the Customer such excess amount which shall be deemed a loan payable on
demand, bearing interest at the rate customarily charged by the Bank on similar
loans.
-2-
<PAGE>
(c) If the Bank credits the Deposit Account on a payable date, or at any
time prior to actual collection and reconciliation to the Deposit Account, with
interest, dividends, redemptions or any other amount due, the Customer will
promptly return any such amount upon oral or written notification: (i) that such
amount has not been received in the ordinary course of business or (ii) that
such amount was incorrectly credited. If the Customer does not promptly return
any amount upon such notification, the Bank shall be entitled, upon oral or
written notification to the Customer, to reverse such credit by debiting the
Deposit Account for the amount previously credited. The Bank or its Subcustodian
shall have no duty or obligation to institute legal proceedings, file a claim or
a proof of claim in any insolvency proceeding or take any other action with
respect to the collection of such amount, but may act for the Customer upon
Instructions after consultation with the Customer.
6. CUSTODY ACCOUNT TRANSACTIONS.
(a) Securities will be transferred, exchanged or delivered by the Bank or
its Subcustodian upon receipt by the Bank of Instructions which include all
information required by the Bank. Settlement and payment for Securities received
for, and delivery of Securities out of, the Custody Account may be made in
accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
action occurs, including, without limitation, delivery of Securities to a
purchaser, dealer or their agents against a receipt with the expectation of
receiving later payment and free delivery. Delivery of Securities out of the
Custody Account may also be made in any manner specifically required by
Instructions acceptable to the Bank.
(b) The Bank, in its discretion, may credit or debit the Accounts on a
contractual settlement date with cash or Securities with respect to any sale,
exchange or purchase of Securities. Otherwise, such transactions will be
credited or debited to the Accounts on the date cash or Securities are actually
received by the Bank and reconciled to the Account.
(i) The Bank may reverse credits or debits made to the Accounts in its
discretion if the related transaction fails to settle within a reasonable
period, determined by the Bank in its discretion, after the contractual
settlement date for the related transaction.
(ii) If any Securities delivered pursuant to this Section 6 are
returned by the recipient thereof, the Bank may reverse the credits and
debits of the particular transaction at any time.
7. ACTIONS OF THE BANK.
The Bank shall follow Instructions received regarding assets held in the
Accounts. However, until it receives Instructions to the contrary, the Bank
will:
(a) Present for payment any securities which are called, redeemed or
retired or otherwise become payable and all coupons and other income items which
call for payment upon presentation, to the extent that the Bank or Subcustodian
is actually aware of such opportunities.
(b) Execute in the name of the Customer such ownership and other
certificates as may be required to obtain payments in respect of Securities.
- 3 -
<PAGE>
(c) Exchange interim receipts or temporary Securities for definitive
Securities.
(d) Appoint brokers and agents for any transaction involving the
Securities, including, without limitation, affiliates of the Bank or any
Subcustodian.
(e) Issue statements to the Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.
The Bank will send the Customer an advice or notification of any transfers
of Assets to or from the Accounts. Such statements, advices or notifications
shall indicate the identity of the entity having custody of the Assets. Unless
the Customer sends the Bank a written exception or objection to any Bank
statement within sixty (60) days of receipt, the Customer shall be deemed to
have approved such statement. In such event, or where the Customer has otherwise
approved any such statement, the Bank shall, to the extent permitted by law, be
released, relieved and discharged with respect to all matters set forth in such
statement or reasonably implied therefrom as though it had been settled by the
decree of a court of competent jurisdiction in an action where the Customer and
all persons having or claiming an interest in the Customer or the Customer's
Accounts were parties.
All collections of funds or other property paid or distributed in respect
of Securities in the Custody Account shall be made at the risk of the Customer.
The Bank shall have no liability for any loss occasioned by delay in the actual
receipt of notice by the Bank or by its Subcustodians of any payment, redemption
or other transaction regarding Securities in the Custody Account in respect of
which the Bank has agreed to take any action under this Agreement.
8. CORPORATE ACTIONS; PROXIES; TAX RECLAIMS.
a. Corporate Actions. Whenever the Bank receives information concerning the
------------------
Securities which requires discretionary action by the beneficial owner of the
Securities (other than a proxy), such as subscription rights, bonus issues,
stock repurchase plans and rights offerings, or legal notices or other material
intended to be transmitted to securities holders ("Corporate Actions"), the Bank
will give the Customer notice of such corporate Actions to the extent that the
Bank's central corporate actions department has actual knowledge of a Corporate
Action in time to notify its customers.
When a rights entitlement or a fractional interest resulting from a rights
issue, stock dividend, stock split or similar Corporate Action is received which
bears an expiration date, the Bank will endeavor to obtain Instructions from the
Customer or its Authorized Person, but if Instructions are not received in time
for the Bank to take timely action, or actual notice of such Corporate Action
was received too late to seek Instructions, the Bank is authorized to sell such
rights entitlement or fractional interest and to credit the Deposit Account with
the proceeds or take any other action it deems, in good faith, to be appropriate
in which case it shall be held harmless for any such action.
b. Proxy Voting. The Bank will provide proxy voting services only pursuant
-------------
to a separate agreement. Proxy voting services may be provided by the Bank or,
in whole or in part, by one or more third parties appointed by the Bank (which
may be affiliates of the Bank).
-4-
<PAGE>
c. Tax Reclaims.
-------------
(i) subject to the provisions hereof, the Bank will apply for a reduction
of withholding tax and any refund of any tax paid or tax credits which apply in
each applicable market in respect of income payments on Securities for the
benefit of the Customer which the Bank believes may be available to such
Customer.
(ii) The provision of tax reclaim services by the Bank is conditional upon
the Bank receiving from the beneficial owner of Securities (A) a declaration of
its identity and place of residence and (B) certain other documentation (pro
forma copies of which are available from the Bank). The Customer acknowledges
that, if the Bank does not receive such declarations, documentation and
information, additional United Kingdom taxation will be deducted from all income
received in respect of Securities issued outside the United Kingdom and that
U.S. non-resident alien tax or U.S. backup withholding tax will be deducted from
U.S. source income. The Customer shall provide to the Bank such documentation
and information as it may require in connection with taxation, and warrants
that, when given, this information shall be true and correct in every respect,
not misleading in any way, and contain all material information. The Customer
undertakes to notify the Bank immediately if any such information requires
updating or amendment.
(iii) The Bank shall not be liable to the Customer or any third party for
any tax, fines or penalties payable by the Bank or the Customer, and shall be
indemnified accordingly, whether these result from the inaccurate completion of
documents by the Customer or any third party, or as a result of the provision to
the Bank or any third parry of inaccurate or misleading information or the
withholding of material information by the Customer or any other third party, or
as a result of any delay of any revenue authority or any other matter beyond the
control of the Bank.
(iv) The Customer confirms that the Bank is authorized to deduct from any
cash received or credited to the Cash Account any taxes or levies required by
any revenue or governmental authority for whatever reason in respect of the
Securities or Deposit Accounts.
(v) The Bank shall perform tax reclaim services only with respect to
taxation levied by the revenue authorities of the countries notified to the
Customer from time to time and the Bank may, by notification in writing, at its
absolute discretion, supplement or amend the markets in which the tax reclaim
services are offered. Other than as expressly provided in this sub-clause, the
Bank shall have no responsibility with regard to the Customer's tax position or
status in any jurisdiction.
(vi) The Customer confirms that the Bank is authorized to disclose any
information requested by any revenue authority or any governmental body in
relation to the Customer or the Securities and/or Cash held for the Customer.
(vii) Tax reclaim services may be provided by the Bank or, in whole or in
part, by one or more third parties appointed by the Bank (which may be
affiliates of the Bank); provided that the Bank shall be liable for the
performance of any such third party to the same extent as the Bank would have
been if it performed such services itself.
-5-
<PAGE>
9. NOMINEES.
Securities which are ordinarily held in registered form may be registered
in a nominee name of the Bank, Subcustodian or securities depository, as the
case may be. The Bank may without notice to the Customer cause any such
Securities to cease to be registered in the name of any such nominee and to be
registered in the name of the Customer. In the event that any Securities
registered in a nominee name are called for partial redemption by the issuer,
the Bank may allot the called portion to the respective beneficial holders of
such class of security in any manner the Bank deems to be fair and equitable.
The Customer agrees to hold the Bank, Subcustodians, and their respective
nominees harmless from any liability arising directly or indirectly from their
status as a mere record holder of Securities in the Custody Account.
10. AUTHORIZED PERSONS.
As used in this Agreement, the term "Authorized Person" means employees or
agents including investment managers as have been designated by written notice
from the Customer or its designated agent to act on behalf of the Customer under
this Agreement. Such persons shall continue to be Authorized Persons until such
time as the Bank receives Instructions from the Customer or its designated agent
that any such employee or agent is no longer an Authorized Person.
11. INSTRUCTIONS.
The term "Instructions" means instructions of any Authorized Person
received by the Bank, via telephone, telex, TWX, facsimile transmission, bank
wire or other teleprocess or electronic instruction or trade information system
acceptable to the Bank which the Bank believes in good faith to have been given
by Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions which the Bank may specify.
Unless otherwise expressly provided, all Instructions shall continue in full
force and effect until canceled or superseded.
Any Instructions delivered to the Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which confirmation
may bear the facsimile signature of such Person), but the Customer will hold the
Bank harmless for the failure of an Authorized Person to send such confirmation
in writing, the failure of such confirmation to conform to the telephone
instructions received or the Bank's failure to produce such confirmation at any
subsequent time. The Bank may electronically record any Instructions given by
telephone, and any other telephone discussions with respect to the Custody
Account. The Customer shall be responsible for safeguarding any testkeys,
identification codes or other security devices which the Bank shall make
available to the Customer or its Authorized Persons.
12. STANDARD OF CARE; LIABILITIES.
(a) The Bank shall be responsible for the performance of only such duties
as are set forth in this Agreement or expressly contained in Instructions which
are consistent with the provisions of this Agreement as follows:
(i) The Bank will use reasonable care with respect to its obligations
under this Agreement and the safekeeping of Assets. The Bank shall be
liable to the Customer for any loss which shall occur as the result of the
failure of a Subcustodian to exercise reasonable care with respect to the
safekeeping of such Assets to the same extent that the Bank would be liable
to the Customer if the Bank were holding
-6-
<PAGE>
such Assets in New York. In the event of any loss to the Customer by reason
of the failure of the Bank or its Subcustodian to utilize reasonable care,
the Bank shall be liable to the Customer only to the extent of the
Customer's direct damages, to be determined based on the market value of
the property which is the subject of the loss at the date of discovery of
such loss and without reference to any special conditions or circumstances.
The Bank will not be responsible for the insolvency of any Subcustodian
which is not a branch or affiliate of Bank.
(ii) The Bank will not be responsible for any act, omission, default
or the solvency of any broker or agent which it or a Subcustodian appoints
unless such appointment was made negligently or in bad faith.
(iii) The Bank shall be indemnified by, and without liability to the
Customer for any action taken or omitted by the Bank whether pursuant to
Instructions or otherwise with the scope of this Agreement if such act or
omission was in good faith, without negligence. In performing its
obligations under this Agreement, the Bank may rely on the genuineness of
any document which it believes in good faith to have been validly executed.
(iv) The Customer agrees to pay for and hold the Bank harmless from
any liability or loss resulting from the imposition or assessment of any
taxes or other governmental charges, and any related expenses with respect
to income from or Assets in the Accounts.
(v) The Bank shall be entitled to rely, and may act, upon the advice
of counsel (who may be counsel for the Customer) on all matters and shall
be without liability for any action reasonably taken or omitted pursuant to
such advice.
(vi) The Bank need not maintain any insurance for the benefit of the
Customer.
(vii) Without limiting the foregoing, the Bank shall not be liable for
any loss which results from: 1) the general risk of investing, or 2)
investing or holding Assets in a particular country including, but not
limited to, losses resulting from nationalization, expropriation or other
governmental actions; regulation of the banking or securities industry;
currency restrictions, devaluations or fluctuations; and market conditions
which prevent the orderly execution of securities transactions or affect
the value of Assets.
(viii) Neither party shall be liable to the other for any loss due to
forces beyond their control including, but not limited to strikes or work
stoppages, acts of war or terrorism, insurrection, revolution, nuclear
fusion, fission or radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that the Bank shall have no duty or
responsibility to:
(i) question Instructions or make any suggestions to the Customer or
an Authorized Person regarding such Instructions;
(ii) supervise or make recommendations with respect to investments or
the retention of Securities;
-7-
<PAGE>
(iii) advise the Customer or an Authorized Person regarding any
default in the payment of principal or income of any security other than as
provided in Section 5(c) of this Agreement;
(iv) evaluate or report to the Customer or an Authorized Person
regarding the financial condition of any broker, agent or other party to
which Securities are delivered or payments are made pursuant to this
Agreement;
(v) review or reconcile trade confirmations received from brokers. The
Customer or its Authorized Persons (as defined in Section 10) issuing
Instructions shall bear any responsibility to review such confirmations
against Instructions issued to and statements issued by the Bank.
(c) The Customer authorizes the Bank to act under this Agreement
notwithstanding that the Bank or any of its divisions or affiliates may have a
material interest in a transaction, or circumstances are such that the Bank may
have a potential conflict of duty or interest including the fact that the Bank
or any of its affiliates may provide brokerage services to other customers, act
as financial advisor to the issuer of Securities, act as a lender to the issuer
of Securities, act in the same transaction as agent for more than one customer,
have a material interest in the issue of Securities, or earn profits from any of
the activities listed herein.
13. FEES AND EXPENSES.
The Customer agrees to pay the Bank for its services under this Agreement
such amount as may be agreed upon in writing, together with the Bank's
reasonable out-of-pocket or incidental expenses, including, but not limited to,
legal fees. The Bank shall have a lien on and is authorized to charge any
Accounts of the Customer for any amount owing to the Bank under any provision of
this Agreement.
14. MISCELLANEOUS.
(a) Foreign Exchange Transactions. To facilitate the administration of the
------------------------------
Customer's trading and investment activity, the Bank is authorized to enter into
spot or forward foreign exchange contracts with the Customer or an Authorized
Person for the Customer and may also provide foreign exchange through its
subsidiaries, affiliates or Subcustodians. Instructions, including standing
instructions, may be issued with respect to such contracts but the Bank may
establish rules or limitations concerning any foreign exchange facility made
available. In all cases where the Bank, its subsidiaries, affiliates or
Subcustodians enter into a foreign exchange contract related to Accounts, the
terms and conditions of the then current foreign exchange contract of the Bank,
its subsidiary, affiliate or Subcustodian and, to the extent not inconsistent,
this Agreement shall apply to such transaction.
(b) Certification of Residency, etc. The Customer certifies that it is a
---------------------------
resident of the United States and agrees to notify the Bank of any changes in
residency. The Bank may rely upon this certification or the certification of
such other facts as may be required to administer the Bank's obligations under
this Agreement. The Customer will indemnify the Bank against all losses,
liability, claims or demands arising directly or indirectly from any such
certifications.
(c) Access to Records. The books and records relating to the Assets shall
------------------
be prepared and maintained by the Bank as required by the Act and other
applicable federal securities laws and rules and regulations. The Bank shall
allow the Customer's independent public accountant reasonable access to the
records of the Bank relating to the Assets as is required in connection with
their examination of books and records pertaining to the Customer's affairs.
Subject to restrictions under applicable law, the Bank shall also obtain an
undertaking to permit the Customer's independent public accountants
-8-
<PAGE>
reasonable access to the records of any Subcustodian which has physical
possession of any Assets as may be required in connection with the examination
of the Customer's books and records. Upon the reasonable request of the
Customer, the Bank shall provide copies of any such books and records to the
Customer or the Customer's authorized representative provided that the Bank
shall be permitted to make and retain a copy thereof.
(d) Governing Law; Successors and Assigns. This Agreement shall be governed
by the laws of the State of New York and shall not be assignable by either
party, but shall bind the successors in interest of the Customer and the Bank.
(e) Entire Agreements Applicable Riders. Customer represents that the
Assets deposited in the Accounts are (Check one):
_____ Employee Benefit Plan or other assets subject to the Employee
Retirement income Security Act of 1974, as amended ("ERISA");
__X__ Mutual Fund assets subject to certain Securities and Exchange
Commission ("SEC") rules and regulations;
_____ Neither of the above.
This Agreement consists exclusively of this document together with
Schedule A, Exhibits I-__________ and the following Rider(s) [Check
applicable rider(s)]:
_____ ERISA
__X__ MUTUAL FUND
_____ SPECIAL TERMS AND CONDITIONS
There are no other provisions of this Agreement and this Agreement
supersedes any other agreements, whether written or oral, between the parties.
Any amendment to this Agreement must be in writing, executed by both parties.
(f) Severability. In the event that one or more provisions of this
-------------
Agreement are held invalid, illegal or unenforceable in any respect on the basis
of any particular circumstances or in any jurisdiction, the validity, legality
and enforceability of such provision or provisions under other circumstances or
in other jurisdictions and of the remaining provisions will not in any way be
affected or unpaired.
(g) Waiver. Except as otherwise provided in this Agreement, no failure or
-------
delay on the part of either party in exercising any power or right under this
Agreement operates as a waiver, nor does any single or partial exercise of any
power or right preclude any other or further exercise, or the exercise of any
other power or right. No waiver by a party of any provision of this Agreement,
or waiver of any breach or default, is effective unless in writing and signed by
the party against whom the waiver is to be enforced.
(h) Notices. All notices under this Agreement shall be effective when
--------
actually received. Any notices or other communications which may be required
under this Agreement are to be sent to the parties at the following addresses or
such other addresses as may subsequently be given to the other party in writing:
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<PAGE>
Bank: The Chase Manhattan Bank, N.A.
4 Chase MetroTech Center
Brooklyn, NY 11245
Attention: Global Custody Division
or telex: _______________________
Customer: THE LIPPER FUNDS, INC.
101 Park Avenue
New York, NY 10178
Attn: Mr. Biderman
or telex: _______________________
(i) Termination. This Agreement may be terminated by the Customer or the
Bank by giving sixty (60) days written notice to the other, provided that such
notice to the Bank shall specify the names of the persons to whom the Bank shall
deliver the Assets in the Accounts. If notice of termination is given by the
Bank, the Customer shall, within sixty (60) days following receipt of the
notice, deliver to the Bank Instructions specifying the names of the persons to
whom the Bank shall deliver the Assets. In either case the Bank will deliver the
Assets to the persons so specified, after deducting any amounts which the Bank
determines in good faith to be owed to it under Section 13. If within sixty (60)
days following receipt of a notice of termination by the Bank, the Bank does not
receive Instructions from the Customer specifying the names of the persons to
whom the Bank shall deliver the Assets, the Bank, at its election, may deliver
the Assets to a bank or trust company doing business in the State of New York to
be held and disposed of pursuant to the provisions of this Agreement, or to
Authorized Persons, or may continue to hold the Assets until Instructions are
provided to the Bank.
CUSTOMER
By: /s/ ABRAHAM BIDERMAN
---------------------------
Title: Executive Vice President
Date: 12/26/95
THE CHASE MANHATTAN BANK, N.A.
By: /s/ ANNE J. MARINO
--------------------------
Title: Vice President
Date: 12/27/95
20576
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<PAGE>
STATE OF NEW YORK )
: SS
COUNTY OF NEW YORK )
On this 26th day of December, 1995, before me personally came Abraham
Biderman, to me known, who being by me duly sworn, did depose and say that
he/she resides in Brooklyn, New York at 5624 17th Avenue, that he/she is
Executive Vice President of The Lipper Funds, Inc., the entity described in and
which executed the foregoing instrument; that he/she knows the seal of said
entity, that the seal affixed to said instrument is such seal, that it was so
affixed by order of said entity, and that he/she signed his/her name thereto by
like order.
Sworn to before me this 26th
day of December, 1995.
Notary
- -------------------
/s/ HOWARD HOROWITZ
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<PAGE>
STATE OF NEW YORK )
: SS
COUNTY OF NEW YORK )
On this 27th day of December, 1995, before me personally came Anne J.
Marino, to me known, who being by me duly sworn, did depose and say that he/she
resides at Hasbrouck Heights, New Jersey; that he/she is a Vice President of THE
CHASE MANHATTAN BANK, (National Association), the corporation described in and
which executed the foregoing instrument; that he/she knows the seal of said
corporation, that the seal affixed to said instrument is such corporate seal,
that it was so affixed by order of the Board of Directors of said corporation,
and that he/she signed his/her name thereto by like order.
Sworn to before me this 27th
day of December, 1995.
Notary
- ------------------
/s/ STUART OMANSKY
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<PAGE>
MUTUAL FUND RIDER TO GLOBAL CUSTODY AGREEMENT
BETWEEN THE CHASE MANHATTAN BANK, N.A. AND
THE LIPPER FUNDS, INC.
effective December __, 1995
Customer represents that the Assets being placed in the Bank's custody are
subject to the Investment Company Act of 1940 (the Act), as the same may be
amended from time to time.
Except to the extent that the Bank has specifically agreed to comply with a
condition of a rule, regulation, interpretation promulgated by or under the
authority of the SEC or the Exemptive Order applicable to accounts of this
nature issued to the Bank (Investment Company Act of 1940, Release No. 12053,
November 20, 1981), as amended, or unless the Bank has otherwise specifically
agreed, the Customer shall be solely responsible to assure that the maintenance
of Assets under this Agreement complies with such rules, regulations,
interpretations or exemptive order promulgated by or under the authority of the
Securities Exchange Commission.
The following modifications are made to the Agreement:
Section 3. Subcustodians and Securities Depositories.
------------------------------------------
Add the following language to the end of Section 3:
The terms Subcustodian and securities depositories as used in this
Agreement shall mean a branch of a qualified U.S. bank, an eligible foreign
custodian or an eligible foreign securities depository, which are further
defined as follows:
(a) "qualified U.S. Bank" shall mean a qualified U.S. bank as defined in
Rule 17f-5 under the Investment Company Act of 1940;
(b) "eligible foreign custodian", shall mean (i) a banking institution or
trust company incorporated or organized under the laws of a country other
than the United States that is regulated as such by that country's
government or an agency thereof and that has shareholders, equity in excess
of $200 million in U.S. currency (or a foreign currency equivalent
thereof), (ii) a majority owned direct or indirect subsidiary of a
qualified U.S. bank or bank holding company that is incorporated or
organized under the laws of a country other than the United States and that
has shareholders' equity in excess of $100 million in U.S. currency (or a
foreign currency equivalent thereof), or (iii) any other entity that shall
have been so qualified by exemptive order, rule or other appropriate action
of the SEC; and
(c) "eligible foreign securities depository" shall mean a securities
depository or clearing agency, incorporated or organized under the laws of
a country other than the United States, which operates (i) the central
system for handling securities or equivalent book-entries in that country,
or (ii) a transnational system for the central handling of securities or
equivalent book-entries.
-13-
<PAGE>
The Customer represents that its Board of Directors has approved each of
the Subcustodians listed in Schedule A to this Agreement and the terms of the
subcustody agreements between the Bank and each Subcustodian, which are attached
as Exhibits I through of Schedule A, and further represents that its Board has
determined that the use of each Subcustodian and the terms of each subcustody
agreement are consistent with the best interests of the Fund(s) and its (their)
shareholders. The Bank will supply the Customer with any amendment to Schedule A
for approval. The Customer has supplied or will supply the Bank with certified
copies of its Board of Directors resolution(s) with respect to the foregoing
prior to placing Assets with any Subcustodian so approved.
Section 11. Instructions.
-------------
Add the following language to the end of Section 11:
Deposit Account Payments and Custody Account Transactions made pursuant to
Section 5 and 6 of this Agreement may be made only for the purposes listed
below. Instructions must specify the purpose for which any transaction is
to be made and Customer shall be solely responsible to assure that
Instructions are in accord with any limitations or restrictions applicable
to the Customer by law or as may be set forth in its prospectus.
(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions;
(b) When Securities are called, redeemed or retired, or otherwise become
payable;
(c) In exchange for or upon conversion into other securities alone or other
securities and cash pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment;
(d) Upon conversion of Securities pursuant to their terms into other
securities;
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities;
(f) For the payment of interest, taxes, management or supervisory fees,
distributions or operating expenses;
(g) In connection with any borrowings by the Customer requiring a pledge of
Securities, but only against receipt of amounts borrowed;
(h) In connection with any loans, but only against receipt of adequate
collateral as specified in Instructions which shall reflect any
restrictions applicable to the Customer;
(i) For the purpose of redeeming shares of the capital stock of the
Customer and the delivery to, or the crediting to the account of, the Bank,
its Subcustodian or the Customer's transfer agent, such shares to be
purchased or redeemed;
(j) For the purpose of redeeming in kind shares of the Customer against
delivery to the Bank, its Subcustodian or the Customer's transfer agent of
such shares to be so redeemed;
-14-
<PAGE>
(k) For delivery in accordance with the provisions of any agreement among
the Customer, the Bank and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The National
Association of Securities Dealers, Inc. ("NASD"), relating to compliance
with the rules of The Options Clearing Corporation and of any registered
national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Customer;
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only
upon payment to the Bank of monies for the premium due and a receipt for
the Securities which are to be held in escrow. Upon exercise of the option,
or at expiration, the Bank will receive from brokers the Securities
previously deposited. The Bank will act strictly in accordance with
Instructions in the delivery of Securities to be held in escrow and will
have no responsibility or liability for any such Securities which are not
returned promptly when due other than to make proper request for such
return;
(m) For spot or forward foreign exchange transactions to facilitate
security trading, receipt of income from Securities or related
transactions;
(n) For other proper purposes as may be specified in Instructions issued by
an officer of the Customer which shall include a statement of the purpose
for which the delivery or payment is to be made, the amount of the payment
or specific Securities to be delivered, the name of the person or persons
to whom delivery or payment is to be made, and a certification that the
purpose is a proper purpose under the instruments governing the Customer;
and
(o) Upon the termination of this Agreement as set forth in Section 14(i).
Section 12. Standard of Care; Liabilities.
------------------------------
Add the following subsection (c) to Section 12:
(c) The Bank hereby warrants to the Customer that in its opinion, after due
inquiry, the established procedures to be followed by each of its branches,
each branch of a qualified U.S. bank, each eligible foreign custodian and
each eligible foreign securities depository holding the Customer's
Securities pursuant to this Agreement afford protection for such Securities
at least equal to that afforded by the Bank's established procedures with
respect to similar securities held by the Bank and its securities
depositories in New York.
Section 14. Access to Records.
------------------
Add the following language to the end of Section 14(c):
Upon reasonable request from the Customer, the Bank shall furnish the
Customer such reports (or portions thereof) of the Bank's system of
internal accounting controls applicable to the Bank's duties under this
Agreement. The Bank shall endeavor to obtain and furnish the Customer with
such similar reports as it may reasonably request with respect to each
Subcustodian and securities depository holding the Customer's assets.
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<PAGE>
SPECIAL TERMS AND CONDITIONS RIDER
----------------------------------
GLOBAL CUSTODY AGREEMENT
WITH___________________________
DATE___________________________
-16-
<PAGE>
DOMESTIC AND GLOBAL
SPECIAL TERMS AND CONDITIONS RIDER
----------------------------------
Domestic Corporate Actions and Proxies
- --------------------------------------
With respect to domestic U.S. and Canadian Securities (the latter if held in
DTC), the following provisions will apply rather than the provisions of Section
8 of the Agreement:
The Bank will send to the Customer or the Authorized Person for a Custody
Account, such proxies (signed in blank, if issued in the name of the Bank's
nominee or the nominee of a central depository) and communications with
respect to Securities in the Custody Account as call for voting or relate
to legal proceedings within a reasonable time after sufficient copies are
received by the Bank for forwarding to its customers. In addition, the Bank
will follow coupon payments, redemptions, exchanges or similar matters with
respect to securities in the Custody Account and advise the Customer or the
Authorized Person for such Account of rights issued, tender offers or any
other discretionary rights with respect to such Securities, in each case,
of' which the Bank has received notice from the issuer of the Securities,
or as to which notice is published in publications routinely utilized by
the Bank for this purpose.
-17-
MUTUAL FUNDS SERVICE AGREEMENT
o FUND ADMINISTRATION SERVICES
o FUND ACCOUNTING SERVICES
o TRANSFER AGENCY SERVICES
THE CHASE MANHATTAN BANK, N.A.
DECEMBER 29, 1995
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
Table of Contents
SECTION/PARAGRAPH PAGE
- ----------------- ----
1. Appointment ............................................................. 1
2. Representations and Warranties .......................................... 1
3. Delivery of Documents ................................................... 2
4. Services Provided ....................................................... 3
5. Fees; Expenses; Expense Reimbursement ................................... 4
6. Proprietary and Confidential Information ................................ 6
7. Duties, Responsibilities and Limitation of Liability .................... 6
8. Term .................................................................... 8
9. Notices ................................................................. 8
10. Assignability ........................................................... 9
11. Waiver .................................................................. 9
12. Force Majeure ........................................................... 9
13. Use of Name ............................................................. 10
14. Amendments .............................................................. 10
15. Severability ............................................................ 10
16. Governing Law ........................................................... 10
Signatures .................................................................. 11
Schedule A Fees and Expenses................................................ A-1
Schedule B Fund Administration Services Description......................... B-1
Schedule C Fund Accounting Services Description............................. C-1
Schedule D Transfer Agency Services Description............................. D-1
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
AGREEMENT made as of December 29, 1995 by and between The Lipper Funds,
Inc. (the "Fund"), a Maryland corporation, and The Chase Manhattan Bank, N.A.
("Chase"), a nationally chartered banking association.
WITNESSETH:
WHEREAS, the Fund is registered as an open-end investment company under the
Investment Company Act Of 1940, as amended (the "1940 Act");
WHEREAS, the Fund is comprised of several investment portfolios with
separate investment objectives and policies; and
WHEREAS, the Fund wishes to retain Chase to provide certain fund
administration, fund accounting and transfer agent services with respect to the
Fund, such services to be performed by Chase Global Fund Services Company, an
affiliate of Chase;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Fund hereby appoints Chase to provide fund
administration, fund accounting and transfer agent services for the Fund,
subject to the supervision of the Board of Directors of the Fund (the "Board"),
for the period and on the terms set forth in this Agreement. Chase accepts such
appointment and agrees to furnish the services herein set forth in return for
the compensation as provided in Paragraph 5 of and Schedule A to this Agreement.
2. REPRESENTATIONS AND WARRANTIES.
(a) Chase represents and warrants to the Fund that:
(i) Chase is a bank duly organized and existing and in good standing
under the laws of the United States;
(ii) Chase is duly qualified to carry on its business in the State of
New York;
(iii) Chase is empowered under applicable laws and by its charter
documents and by-laws to enter into and perform this Agreement;
(iv) all requisite corporate proceedings have been taken to authorize
Chase to enter into and perform this Agreement;
(v) Chase has, and will continue to have, access to the facilities,
personnel and equipment required to fully perform its duties and obligations
hereunder,
(vi) no legal or administrative proceedings have been instituted or
threatened which would impair Chase's ability to perform its duties and
obligations under this Agreement; and
- 2 -
<PAGE>
(vii) Chase's entrance into this Agreement will not cause a material
breach or be in material conflict with any other agreement or obligation of
Chase or any law or regulation applicable to Chase.
(b) The Fund represents and warrants to Chase that:
(i) the Fund is a corporation, duly organized and existing and in
good standing under the laws of Maryland;
(ii) the Fund is empowered under applicable laws and by its charter
documents and by-laws to enter into and perform this Agreement;
(iii) all requisite proceedings have been taken to authorize the Fund
to enter into and perform this Agreement;
(iv) the Fund is an investment company registered under the 1940 Act;
(v) a registration statement under the Securities Act of 1933, as
amended ("1933 Act") and the 1940 Act on Form N-lA has been filed with the
Securities and Exchange Commission ("SEC") and will be effective and will remain
effective during the term of this Agreement;
(vi) no legal or administrative proceedings have been instituted or
threatened which would impair the Fund's ability to perform its duties and
obligations under this Agreement; and
(vii) the Fund's entrance into this Agreement will not cause a
material breach or be in material conflict with any other agreement or
obligation of the Fund or any law or regulation applicable to it.
3. DELIVERY OF DOCUMENTS. The Fund will promptly furnish to Chase such
copies, properly certified or authenticated, of contracts, documents and other
related information that Chase may reasonably request or require to properly
discharge its duties. Such documents may include but are not limited to the
following:
(a) Resolutions of the Board authorizing the appointment of chase to
provide certain fund administration, fund accounting and transfer agency
services to the Fund and approving this Agreement;
(b) The Fund's charter documents;
(c) The Fund's by-laws;
(d) The Fund's Notification of Registration on Form N-8A under the 1940
Act as filed with the SEC;
(e) The Fund's registration statement including exhibits, as amended, on
Form N-lA (the "Registration Statement") under the 1933 Act and the 1940 Act, as
filed with the SEC.
(f) Copies of the Investment Advisory Agreements between the Fund and
its investment advisers (the "Advisory Agreements");
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<PAGE>
(g) Auditors, reports;
(h) The Fund's Prospectus(es) and Statement(s) of Additional Information
relating to all investment portfolios of the Fund and all amendments and
supplements thereto (such Prospectus(es) and Statement(s) of Additional
Information and supplements thereto, as presently in effect and as from time to
time hereafter amended and supplemented, herein called the "Prospectuses"); and
(i) Such other agreements as the Fund may enter into from time to time
including securities lending agreements, futures and commodities account
agreements, brokerage agreements, and options agreements.
4. SERVICES PROVIDED.
(a) Chase will provide the following services subject to the control,
direction and supervision of the Board and in compliance with the objectives,
policies and limitations set forth in the Fund's Registration Statement, charter
document and by-laws; applicable laws and regulations; and all resolutions and
policies implemented by the Board:
(i) Fund Administration
(ii) Fund Accounting
(iii) Transfer Agency
A detailed description of each of the above services is contained in Schedules
B, C and D respectively, to this Agreement.
(iv) Dividend Disbursing. Chase will serve as the Fund's dividend
disbursing agent. Chase will prepare and mail checks, place wire transfers and
credit income and capital gain payments to shareholders. The Fund will advise
Chase of the declaration of any dividend or distribution and the record and
payable date thereof at least five (5) days prior to the record date. Chase
will, on or before the payment date of any such dividend or distribution, notify
the Fund's Custodian of the estimated amount required to pay any portion of such
dividend or distribution payable in cash, and on or before the payment date of
such distribution the Fund will instruct its Custodian to make available to
Chase sufficient funds for the cash amount to be paid out. If a shareholder is
entitled to receive additional shares by virtue of any such distribution or
dividend, appropriate credits will be made to each shareholder's account.
(b) Chase will also:
(i) provide office facilities with respect to the provision of the
services contemplated herein (which may be in the offices of Chase or a
corporate affiliate of Chase );
(ii) provide the services of individuals to serve as officers of the
Fund who will be designated by Chase and, subject to Board approval, elected by
the Board;
(iii) provide or otherwise obtain personnel sufficient, in Chase's
reasonable discretion, for provision of the services contemplated herein;
-4-
<PAGE>
(iv) furnish equipment and other materials, which Chase, in its
reasonable discretion, believes as necessary or desirable for provision of the
services contemplated herein; and
(v) keep records relating to the services provided hereunder in such
form and manner as set forth in Schedules B, C and D as Chase may otherwise deem
appropriate or advisable, all in accordance with the 1940 Act. To the extent
required by section 31 of the 1940 Act and the rules thereunder, Chase agrees
that all such records prepared or maintained relating to the services provided
hereunder are the property of the Fund and will be preserved for the periods
prescribed under Rule 3la-2 under the 1940 Act, and made available in accordance
with such Section and rules. Chase further agrees to surrender promptly to the
Fund upon its request and cease to retain in its records and files those records
and documents created and maintained pursuant to this Agreement.
5. FEES; EXPENSES; EXPENSE REIMBURSEMENT.
(a) As compensation for the services rendered to the Fund pursuant to
this Agreement the Fund shall pay Chase monthly fees determined as set forth in
Schedule A to this Agreement. Upon any termination of this Agreement before the
end of any month, the fee for the part of the month before such termination
shall be prorated according to the proportion which such part bears to the full
monthly period and shall be payable upon the date of termination of this
Agreement.
(b) For the purpose of determining fees calculated as a function of the
Fund's assets, the value of the Fund's assets and net assets shall be computed
as required by its currently effective Prospectus, generally accepted accounting
principles, and resolutions of the Board.
(c) Chase may, in its sole discretion, from time to time employ or
associate with such person or persons as may be appropriate to assist Chase in
the performance of this Agreement. Such person or persons may be officers and
employees who are employed or designated as officers by both Chase and the Fund.
The compensation of such person or persons for such employment shall be paid by
Chase and no obligation will be incurred by or on behalf of the Fund in such
respect.
(d) The Fund may request additional services, additional processing, or
special reports. The Fund shall submit such requests in writing together with
such specifications and requirements documentation as may be reasonably required
by Chase. If Chase elects to provide such services or arrange for their
provision, it shall be entitled to additional fees and expenses at an agreed
upon rate and charge.
(e) Chase will bear all of its own expenses in connection with the
performance of the services under this Agreement except as otherwise expressly
provided herein. The Fund agrees to promptly reimburse Chase for any equipment
and supplies specially ordered by the Fund through Chase and for any other
expenses not contemplated by this Agreement that Chase may incur on the Fund's
behalf at the Fund's written request or as consented to in writing by the Fund.
The Fund will bear its own expenses associated with operation of the Fund,
including, but not limited to: taxes; interest; brokerage fees and commissions;
salaries and fees of officers and directors of the Fund who are not officers,
directors, shareholders or employees of Chase or its affiliates, or the Fund's
investment advisers or distributor; SEC and state Blue Sky registration and
qualification fees, levies, fines and other charges; EDGAR filing fees; advisory
fees; charges and expenses of pricing services, including back up to the Fund's
primary pricing services; independent public accountants and custodians;
insurance premiums for the Fund's insurance coverages, including fidelity bond
premiums; legal expenses; costs of maintenance of corporate existence; expenses
of typesetting and printing of prospectuses for regulatory purposes
-5-
<PAGE>
and for distribution to current shareholders of the Fund; expenses of
typesetting and printing shareholders' reports and proxy statements and
materials; expenses incurred in the transmission of filings (e.g. N-SARs,
Registration Statements and proxy materials) to the SEC Via EDGAR; costs and
expenses of Fund stationery and forms; costs and expenses of special telephone
and data lines and devices; trade association dues and expenses; expenses
associated with off-site storage of Fund records, and any extraordinary expenses
and other customary Fund expenses.
(f) All fees, out-of-pocket expenses, or additional charges of Chase
shall be billed on a monthly basis and shall be due and payable within 15 days
of receipt of the invoice.
Chase will render, after the close of each month in which services have
been furnished, a statement reflecting all of the charges for such month.
Charges remaining unpaid after thirty (30) days (with the exception of specific
amounts which may be contested in good faith by the Fund) shall bear interest in
finance charges equivalent to, in the aggregate, the prime rate (as published by
Chase) and all reasonable costs and expenses of effecting collection of any such
sums, including reasonable attorney's fees, shall be paid by the Fund to Chase.
In the event that the Fund is more than sixty (60) days delinquent in
its payments of monthly billings in connection with this Agreement (with the
exception of specific amounts which may be contested in good faith by the Fund),
this Agreement may be terminated upon thirty (30) days, written notice to the
Fund by Chase. The Fund must notify Chase in writing of any contested amounts
within thirty (30) days of receipt of a billing for such amounts. Disputed
amounts are not due and payable while they are being investigated. The fees set
forth in Schedule A may be changed from time to time upon prior written
agreement of the parties.
6. PROPRIETARY AND CONFIDENTIAL INFORMATION. Chase agrees on behalf of
itself and its affiliates and employees of Chase and its affiliates, excepted as
required by law, to treat confidentially and as proprietary information of the
Fund, all records and other information relating to the Fund and its prior,
present or potential shareholders, and to not disclose the same to any person or
use such records and information for any purpose other than performance of
Chase's responsibilities and duties hereunder, except at the request or with the
prior written consent of the Fund.
7. DUTIES, RESPONSIBILITIES, AND LIMITATION OF LIABILITY.
(a) In the performance of its duties hereunder, Chase shall be obligated
to act in good faith and use its best judgment in performing the services
provided for under this Agreement. In performing its services hereunder, Chase
shall be entitled to rely on any oral or written instructions, notices or other
communications, including electronic transmissions, from the Fund and its
officers and directors, agents and other service providers which Chase
reasonably believes to be genuine, valid and authorized. Chase shall also be
entitled to consult with and rely in good faith on the advice and opinions of
outside legal counsel retained by the Fund, as necessary or appropriate.
(b) Chase shall not be liable for any error of judgment or mistake of
law or for any loss or expense suffered by the Fund, in connection with the
matters to which this Agreement relates, except for a loss or expense caused by
or resulting from willful misfeasance, bad faith or negligence on Chase's (or
any agent or subcontractor of Chase's) part in the performance of its duties or
from reckless disregard by Chase (or any agent or subcontractor of Chase's) of
Chase's obligations and duties under this Agreement. In the event of any loss to
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<PAGE>
the Fund by reason of Chase (or any agent or subcontractor of Chase) to perform
the services provided under this Agreement, Chase shall be liable to the Fund
only to the extent of the Fund's direct damages to be determined based on the
market value of the loss at the date of discovery and without reference to any
special or consequential damages. Notwithstanding the foregoing, Chase shall not
be liable to the Fund for any loss or expense caused by or resulting from any
agent or subcontractor used by Chase at the request of the Fund. Any person,
even though also an officer, director, partner, employee or agent of Chase, who
may be or become an officer, director, partner, employee or agent of the Fund,
shall be deemed when rendering services to the Fund or acting on any business of
the Fund (other than services or business in connection with or related to
Chase's duties hereunder) to be rendering such services to or acting solely for
the Fund and not as an officer, director, partner, employee or agent or person
under the control or direction of Chase even though paid by Chase.
(c) Subject to Paragraph 7(b) above, Chase shall not be responsible for,
and the Fund shall indemnify and hold Chase harmless from and against, any and
all losses, damages, costs, reasonable attorneys' fees and expenses, payments,
expenses and liabilities arising out of or attributable to:
(i) all actions of Chase or its officers or agents required to be
taken pursuant to this Agreement;
(ii) the reasonable reliance on or use by Chase or its officers or
agents of information, records, or documents which are received by Chase or its
officers or agents and furnished to it or them by or on behalf of the Fund, and
which have been prepared or maintained by the Fund or any third party on behalf
of the Fund;
(iii) the Fund's refusal or failure to comply with the terms of this
Agreement or the Fund's lack of good faith or in actions, or lack thereof,
involving negligence or willful misfeasance;
(iv) the breach in any material respect of any representation or
warranty of the Fund hereunder;
(v) the taping or other form of recording of telephone conversations
or other forms of electronic communications with investors and shareholders of
the Fund, or reliance by Chase on telephone or other electronic instructions of
any person acting on behalf of a Fund shareholder or shareholder account for
which telephone or other electronic services have been authorized, provided that
Chase employed reasonable procedures to confirm that Chase reasonably believes
such instructions are genuine;
(vi) the reliance on or the carrying out by Chase or its officers or
agents of any proper instructions reasonably believed to be duly authorized, or
requests of the Fund or recognition by Chase of any share certificates which are
reasonably believed to bear the proper signatures of the officers of the Fund
and the proper countersignature of any transfer agent or registrar of the Fund;
(vii) any delays, inaccuracies, errors in or omission from date
provided to Chase by the Fund, any of its affiliates, agents subcontractors or
pricing services;
(viii) the offer or sale of shares by the Fund in violation of any
requirement under the Federal securities laws or regulations or the securities
laws or regulations of any state, or in violation of any stop order or other
determination or ruling by any Federal agency or any state agency with respect
to the offer or sale of such shares in such state (1) resulting from activities,
actions, or omissions by the Fund or its other service
-7-
<PAGE>
providers and agents, or (2) existing or arising out of activities, actions or
omissions by or on behalf of the Fund prior to the effective date of this
Agreement;
(ix) any failure of the Fund's registration statement to comply in
any material respect with the 1933 Act and the 1940 Act (including the rules and
regulations thereunder) and any other applicable laws, or any untrue statement
of a material fact or omission of a material fact necessary to make any
statement therein not misleading in the Fund's prospectus; and
(x) actions taken by the Fund, its investment advisers, and its
distributor in violation of applicable securities, tax, commodities and other
laws, rules and regulations.
Notwithstanding the preceding sentence or anything else contained in this
Agreement, nothing contained herein shall protect or require the indemnification
of Chase for any losses, damages, expenses or liabilities caused by or resulting
from Chase's (or any agent or subcontractor other than one used by Chase at the
request of the Fund) willful misfeasance, bad faith, negligence or reckless
disregard of its obligations and duties hereunder.
8. TERM. This Agreement shall become effective on the date first
hereinabove written. This Agreement may be modified or amended from time to time
by mutual written agreement between the parties hereto. This Agreement shall
continue in effect unless terminated by either party on 60 days' prior written
notice. Upon termination of this Agreement, the Fund shall pay to Chase such
compensation and any out-of-pocket or other reimbursable expenses which may be
due or payable under the terms hereof as of the date of such termination.
9. NOTICES. Any notice required or permitted hereunder shall be in writing
and shall be deemed to be effective when delivered in person or by certified
mall, return receipt requested, to the parties at the following addresses (or
such other address as a party may specify, by notice to the other):
If to the Fund:
Attn: The Lipper Funds, Inc.
101 Park Avenue
New York, NY 10178
Attn: Abraham Biderman
If to Chase:
The Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, NY 10081
Attention: James Casey
Notice shall be effective upon receipt if by mail, on the date of personal
delivery (by private messenger, courier service or otherwise) or upon confirmed
receipt of telex or facsimile, whichever occurs first.
10. ASSIGNABILITY. Except as expressly provided in this Section 10, neither
this Agreement nor any rights or obligation hereunder may be assigned by either
of the parties hereto without the prior consent in writing of the other party.
Chase may, after notice to the Fund, in its own discretion and without prior
consent of
-8-
<PAGE>
the Fund, whenever and on such terms and conditions as Chase deems necessary or
appropriate, delegate or assign its duties and obligations hereunder to
subsidiaries or affiliates of Chase or may subcontract non-affiliated third
parties; provided that Chase, subject to the limitations set forth in paragraph
7(b), shall remain liable hereunder for any act or omission of any such entity
as if performed by Chase. This Agreement shall be binding on and shall inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. Any purported assignment in violation of this Agreement shall be void
and of no effect.
11. WAIVER. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.
12. FORCE MAJEURE. Chase shall not be responsible or liable for any failure
or delay in performance of its obligation under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its control, including
without limitation, acts of God, earthquakes, fires, floods, wars, acts of civil
or military authorities, or governmental actions, nor shall any such failure or
delay give the Fund the right to terminate this Agreement.
13. USE OF NAME. The Fund and Chase agree not to use the other's name nor
the names of such other's affiliates, subcontractors or permitted assignees in
any prospectus, sales literature, or other printed material written in a manner
not previously approved by the other or such other's affiliates, subcontractors
or permitted assignees except where required by the SEC or other regulatory
authorities.
14. AMENDMENTS. This Agreement may be modified or amended from time to time
by mutual written agreement between the parties. No provision of this Agreement
may be changed, discharged, or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, discharge
or termination is sought.
15. SEVERABILITY. If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance it shall nevertheless
remain applicable to all other persons and circumstances.
16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE SUBSTANTIVE LAWS
OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first written above.
Attest: By: /s/ Abraham Biderman
------------------------- -------------------------------
Name: Name: Abraham Biderman
--------------------------- -----------------------------
Title: Executive Vice President
- -------------------------------- ----------------------------
THE CHASE MANHATTAN BANK, N.A.
Attest: /s/ Robert O'Hare By: /s/ Donald P. Hearn
------------------------- -------------------------------
Name: Robert O'Hare Name: Donald P. Hearn
-------------------------- -----------------------------
Title: Senior Vice President
- -------------------------------- ----------------------------
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<PAGE>
SCHEDULE A
FEES AND EXPENSES
FUND ACCOUNTING AND ADMINISTRATION
For mutual fund accounting and administration services the Funds shall pay to
Chase a fee based on the following schedule:
20 basis points on the first $200 million in assets, plus
10 basis points on the next $200 million in assets, plus
5 basis points on assets in excess of $400 million.
This calculation is based on the combined daily net assets of all of the Funds
and is payable monthly.
There will be a minimum annual fee of $70,000 per fund, exclusive of Out of
Pocket Expenses and Custody Safekeeping and Transaction Fees.
"Out of Pocket" expenses including the cost of security pricing services, travel
and lodging for Fund officers to attend Board meetings, and preparation and
mailing of Board materials and will be billed to the Funds on a monthly basis.
TRANSFER AGENCY AND SHAREHOLDER SERVICING
Each Fund will be billed $20 for each shareholder account maintained in the
system.
"Out of Pocket" expenses including the costs for telephone services (800 numbers
and remote dial access to our systems), postage, forms, envelopes, pre-printed
statements and confirms, and proxy processing will be billed to the fund on a
monthly basis.
The above fee schedule applies only to the initial five funds sponsored by
Lipper & Co. Additional funds will be subject to review.
10
<PAGE>
SCHEDULE B
GENERAL DESCRIPTION OF FUND ADMINISTRATION SERVICES
I. FINANCIAL AND TAX REPORTING
A. Prepare agreed upon management reports and Board of Directors materials
such as unaudited financial statements and distribution summaries.
B. Report Fund performance to outside services as directed by Fund
management.
C. Calculate dividend and capital gain distributions in accordance with
distribution policies detailed in the Fund's prospectus(es). Assist Fund
management in making final determinations of distribution amounts.
D. Estimate and recommend year-end dividend and capital gain distributions
necessary to establish each series of the Fund's status as a regulated
investment company ("RIC") under Section 4982 of the Internal Revenue Code
of 1986, as amended (the "Code") regarding minimum distribution
requirements.
E. Work with the Fund's public accountants or other professionals, prepare
and file Fund's Federal tax return on Form 1120-RIC along with all state
and local tax returns where applicable. Prepare and file Federal Excise
Tax Return (Form 8613).
F. Prepare and file Fund's Form N-SAR with the SEC.
G. Prepare and coordinate printing of Fund's Semiannual and Annual Reports to
Shareholders.
H. Notify shareholders as to what portion, if any, of the distributions made
by the Fund during the prior fiscal year were exempt-interest dividends
under Section 852 (b)(5)(A) of the Code.
I. Provide Form 1099-MISC to persons other than corporations (e.g.,
Directors) to whom the Fund paid more than $600 during the year.
J. Prepare and file California State Expense Limitation Report and similar
reports if required by other states, if applicable.
K. Provide financial information for Fund proxies, prospectuses and
Statement(s) of Additional Information.
11
<PAGE>
II. PORTFOLIO COMPLIANCE
A. Assist with monitoring each series of the Fund's compliance with
investment restrictions (e.g., issuer or industry diversification,
etc.) listed in the current prospectus(es) and Statement(s) of
Additional Information, although primary responsibility for such
compliance shall remain with the Fund's investment adviser or
investment manager.
B. Assist with monitoring each series of the Fund's compliance With the
requirements of Section 851 of the Code for qualification as a RIC
(i.e., 90% Income. 30% Income - Short Three, Diversification Tests).
C. Assist with monitoring investment manager's compliance with Board
directives such as "Approved Issuers Listings for Repurchase
Agreements", Rule 17a-7, Rule 17e-1, Rule 10f-3 and Rule 12d-3
procedures.
D. Mail quarterly requests for "Securities Transaction Reports" to the
Fund's Directors and Officers and "access persons" under the terms of
the Fund's Code of Ethics and SEC regulations, and generally assist in
monitoring compliance with such Code of Ethics.
III. REGULATORY AFFAIRS AND CORPORATE GOVERNANCE
A. Prepare and file via Edgar post-effective amendments to the Fund's
registration statement on Form N-1A and supplements as needed.
B. Prepare and file proxy materials and administer shareholder meetings.
C. Prepare, file and monitor all state registrations of the Fund's
securities, including annual renewals, registering new series of the
Fund, preparing and filing sales reports, filing copies of the
registration statement and final prospectus and statement of
additional information, increasing registered amounts of securities in
individual states and monitoring blue sky compliance.
D. Prepare Board materials and agendas for all Board and Board Committee
meetings and minutes of such meetings.
E. Assist with the review and monitoring of fidelity bond and errors
and omissions insurance coverage and make any related regulatory
filings.
F. Prepare and update documents such as charter document, by-laws, and
foreign qualification filings.
G. Prepare and file notices pursuant to Rule 24f-2.
12
<PAGE>
H. Review and provide comments on all sales literature (e.g.,
advertisements, brochures and shareholder communications) with respect
to each series.
I. Assist in identifying and monitoring pertinent regulatory and
legislative developments which may affect the Fund and. in response to
the results of such monitoring, coordinate and provide support to the
Fund and the Funds investment adviser with respect to those
developments and results, including support with respect to routine
regulatory examinations or investigations of the Fund, and with
respect to such matters, to work in conjunction with outside counsel,
auditors and other professional organizations engaged by the Fund.
J. File copies of financial reports to shareholders with the SEC under
Rule 30b2-1.
IV. GENERAL ADMINISTRATION
A. Furnish officers of the Fund, subject to Board approval.
B. Prepare Fund and series expense projections, establish accruals and
review on a periodic basis, including expenses based on a percentage
of each series of the Fund's average daily net assets (advisory and
administrative fees) and expenses based on actual charges annualized
and accrued daily (audit fees, registration fees, directors' fees,
etc.).
C. For new series of the Fund obtain Employer or Taxpayer Identification
Number and CUSIP numbers. Estimate organizational costs and expenses
and monitor against actual disbursements.
D. Coordinate all communications and data collection with regard to any
regulatory examinations and yearly audits by independent accountants.
E. Make staff of Chase and affiliates available to the Fund to assist in
or respond to any reasonable requests for Fund-or-industry related
information.
13
<PAGE>
SCHEDULE C
DESCRIPTION OF FUND ACCOUNTING SERVICES
I. GENERAL DESCRIPTION
Chase shall provide the following accounting services to the Fund:
A. Maintenance of the books and records and accounting controls for the
Fund's assets, including records of all securities transactions;
B. Daily pricing of all securities. Calculation of each series of the
Fund's Net Asset Value in accordance with the prospectus and
transmission to NASDAQ and to such other entities as directed by the
Fund;
C. Accounting for dividends and interest received and distributions made
by the Fund,
D. Production of transaction data, financial reports and such other
periodic and special reports as the Board may reasonably request;
E. Liaison with the Fund's independent auditors; and
F. A listing of reports that will be available to the Fund is included
below.
II. DOMESTIC SERIES OF THE FUND ACCOUNTING DAILY REPORTS
A. General Ledger Reports
1. Trial Balance Report
2. General Ledger Activity Report
B. Portfolio Reports
1. Portfolio Report
2. Cost Lot Report
3. Purchase Journal
4. Sell/Maturity Journal
5. Amortization/Accretion Report
6. Maturity Projection Report
C. Pricing Reports
1. Pricing Report
2. Pricing Report by Market Value
14
<PAGE>
3. Pricing Variance by % Change
4. NAV Report
5. NAV Proof Report
6. Money Market Pricing Report
D. Accounts Receivable/Payable Reports
1. Accounts Receivable for Investments Report
2. Accounts Payable for Investments Report
3. Interest Accrual Report
4. Dividend Accrual Report
E. Other Reports
1. Dividend Computation Report
2. Cash Availability Report
3. Settlement Journal
III. INTERNATIONAL SERIES OF THE FUND ACCOUNTING DAILY REPORTS
A. General Ledger
1. Trial Balance Report
2. General Ledger Activity Report
B. Portfolio Reports
1. Portfolio Report by Sector
2. Cost Lot Report
3. Purchase Journal
4. Sell/Maturity Journal
C. Currency Reports
1. Currency Purchase /Sales Journal
2. Currency Valuation Report
D. Pricing Reports
1. Pricing Report by Country
2. Pricing Report by Market Value
3. Price Variance by % Change
15
<PAGE>
4. NAV Report
5. NAV Proof Report
E. Accounts Receivable/Payable Reports
1. Accounts Receivable for Investments Sold/Matured
2. Accounts Payable for Investments Purchased
3. Accounts Receivable for Forward Exchange Contracts
4. Accounts Payable for Forward Exchange Contracts
5. Interest Receivable Valuation
6. Interest Recoverable Withholding Tax
7. Dividends Receivable Valuation
8. Dividends Recoverable Withholding Tax
F. Other Reports
1. Exchange Rate Report
IV. MONTHLY ACCOUNTING REPORTS
A. Standard Reports
1. Cost Proof Report
2. Transaction History Report
3. Realized Gain/Loss Report
4. Interest Record Report
5. Dividend Record Report
6. Broker Commission Totals
7. Broker Principal Trades
8. Shareholder Activity Report
9. Fund Performance Report
B. International Reports
1. Forward Contract Transaction History Report
2. Currency Gain/Loss Report
16
<PAGE>
SCHEDULE D
DESCRIPTION OF TRANSFER AGENCY SERVICES
The following is a general description of the transfer agency services
Chase shall provide to the Fund.
A. SHAREHOLDER RECORDKEEPING. Maintain records showing for each Fund
shareholder the following: (i) name, address, appropriate tax
certification and tax identifying number; (ii) number of shares of
each series of the Fund; (iii) historical information including, but
not limited to, dividends paid and date and price of all transactions
including individual purchase and redemptions appropriate supporting
documents; and (iv) any dividend reinvestment order, application,
dividend to a specific address and correspondence relating to the
current maintenance of the account.
B. SHAREHOLDER ISSUANCE. Record the issuance of shares of each series of
the Fund. Except as specifically agreed in writing between Chase and
the Fund, Chase shall have no obligation when countersigning and
issuing and/or crediting shares to take cognizance of any other laws
relating to the issue and sale of such shares except insofar as
policies and procedures of the Stock Transfer Association recognize
such laws.
C. PURCHASE ORDERS. Process all orders for the purchase of shares of the
Fund in accordance with the Fund's current prospectus, including
electronic transmissions, which the Fund acknowledges it has
authorized. Upon receipt of any check or other payment for purchase of
shares of the Fund from an investor, chase will (i) stamp the order or
other documentation with the date and time of receipt, (ii) forthwith
process the same for collection, (iii) determine the amounts thereof
due the Fund, and notify the Fund of such determination and deposit,
such notification to be given on a daily basis of the total amounts
determined and deposited to the Fund's custodian bank account during
such day. Chase shall then credit the share account of the investor
with the number of shares to be purchased made on the date such
payment is received, as set forth in the Fund's current prospectus,
and shall promptly mail a confirmation of said purchase to the
investor, all subject to any instructions which the Fund may give to
Chase with respect to the timing or manner of acceptance of orders for
shares relating to payments so received by it. Any purchase order
received by Chase, which is deemed by Chase not in good order will be
rejected immediately.
D. REDEMPTION ORDERS. Receive and stamp with the date and time of receipt
all requests for redemptions or repurchase of shares held in
certificate or non-certificate form, and process redemptions and
repurchase requests as follows: (i) if such certificate or redemption
request complies with the applicable standards approved by the Fund,
Chase shall on each business day, notify the Fund of the total number
of shares presented and covered by such requests received by Chase on
such day; (ii) on or prior to the seventh calendar day succeeding any
such requests received by Chase subject to instructions from the Fund,
Chase shall transfer monies to such account as designated by Chase for
such payment to the redeeming shareholder of the applicable redemption
or repurchase price; (iii) if any such certificate or request for
redemption of repurchase does not comply with applicable standards,
Chase shall promptly notify the investor of such fact, together with
the reason therefor, and shall effect such redemption at the Fund's
price next determined after receipt of documents complying with said
standards of, at such other time as the Fund shall so direct.
17
<PAGE>
E. TELEPHONE ORDERS. Process redemptions, exchanges and transfers of Fund
shares upon telephone instructions from qualified shareholders in
accordance with the procedures set forth in the Fund's current
prospectus. Chase will employ reasonable procedures, such as requiring
a form of personal identification, so that Chase reasonably believes
that such telephones instructions are genuine. Chase shall be
permitted to redeem, exchange and/or transfer Fund shares from any
account for which such services have been authorized, including
electronic transmissions.
F. TRANSFER OF SHARES. Upon receipt by Chase of documentation in proper
form to effect a transfer of shares, including in the case of shares
for which certificates have been issued the share certificates in
proper form for transfer, Chase will register such transfer on the
Fund's shareholder records maintained by Chase pursuant to
instructions received from the transferor, cancel the certificates
representing such shares, if any, and if so requested, countersign,
register, issue and mail by first class mail new certificates for the
same or a smaller whole number of shares.
G. SHAREHOLDER COMMUNICATIONS. Address and mail all communications by the
Fund to its shareholders promptly following the delivery by the Fund
of the material to be mailed.
H. PROXY MATERIALS. Prepare shareholder lists, mail and certify as to the
mailing of proxy materials, receive the tabulated proxy cards, render
periodic reports to the Fund on the progress of such tabulation, and
provide the Fund with inspectors of election at any meeting of
shareholders and prepare agendas and minutes for such meetings.
I. SHARE CERTIFICATES. If a shareholder of the Fund requests a
certificate representing his/her shares, Chase, as transfer agent,
will countersign and mail, a share certificate to the investor at
his/her address as it appears on the Fund's transfer books. Chase
shall supply, at the expense of the Fund a supply of blank share
certificates. The certificates shall be properly signed, manually or
by facsimile, as authorized by the Fund, and shall bear the Fund's
seal or facsimile; and notwithstanding the death, resignation or
removal of any officers of the Fund authorized to sign certificates,
Chase may, until otherwise directed by the Fund, continue to
countersign certificates which bear the manual or facsimile signature
of such officer.
J. RETURNED CHECKS. In the event that any check or other order for the
payment of money is returned unpaid for any reason, chase will take
such steps, including redepositing the check for collection or
returning the check to the investor, as Chase may, at its reasonable
discretion, deem appropriate and notify the Fund of such action, or as
the Fund may instruct. However, the Fund remains ultimately liable for
any returned checks of its shareholders.
K. SHAREHOLDER CORRESPONDENCE. Acknowledge all correspondence from
shareholders relating to their share accounts and undertake such other
shareholder correspondence as may from time to time be mutually agreed
upon.
L. TAX REPORTING. Chase shall issue appropriate shareholder tax forms on
an annual basis.
M. ESCHEATMENT. All Fund assets shall be subject to the escheatment laws
of the Commonwealth of Massachusetts, including those which relate to
reciprocal agreements with other states.
N. SUB-TRANSFER AGENTS. Chase shall cooperate with the Fund and any
outside service provider selected by the Fund in connection with the
establishment of sub-transfer agency and sub-administration
arrangements.
O. TELEPHONE SERVICES. Chase shall provide and administer a toll-free
number to be available for shareholder inquiries.
18
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 5 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 22, 1999, relating to the financial
statements and financial highlights appearing in the December 31, 1998 Annual
Reports to Shareholders of The Lipper Funds, Inc., which are also incorporated
by reference into the 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.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 22, 1999
SHARE PURCHASE AGREEMENT
Share Purchase Agreement, dated as of December 27, 1995, among the
Lipper Funds, Inc., a corporation organized under the laws of Maryland (the
"Company"), Lipper & Company, L.L.C., a limited liability company organized
under the laws of Delaware ("Lipper"), and Prime Lipper Asset Management, a New
York general partnership ("Prime Lipper").
WHEREAS, the Company is an investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Company proposes to issue and sell shares of its common
stock, par value $.001 per share (the "Common Stock"), to the public pursuant to
a Registration Statement on Form N-1A (the "Registration Statement") filed with
the Securities and Exchange Commission; and
WHEREAS, Section 14(a) of the 1940 Act requires each registered
investment company to have a net worth of at least $100,000 before making a
public offering of its securities.
NOW, THEREFORE, the Company, Lipper and Prime Lipper agree as follows:
1. The Company offers to sell to Lipper and Prime Lipper, and each of
Lipper and Prime Lipper agree to purchase from the Company, 6,667
shares and 3,333 shares, respectively, of the Premier Shares of the
Company's Common Stock corresponding to the Lipper U.S. Equity fund
series at a price of $10.00 per share (the "{Shares"), on a date to
be specified by the Company, prior to the effective date of the
Registration Statement.
2. Each of Lipper and Prime Lipper represents and warrants to the
Company that the Shares are being acquired for investment purposes
and not with a view to the distribution thereof.
3. Each of Lipper and Prime Lipper agrees that if it or any direct or
indirect transferee of any of the Shares redeems any of the Shares
prior to the fifth anniversary of the date the Company begins its
investment activities, each of Lipper and Prime Lipper will pay the
Company an amount equal to the number resulting from multiplying the
Company's total unamortized organizational expenses by a fraction,
the numerator of which is equal to the number of Shares redeemed by
Lipper or Prime Lipper, as the case may be, or such transferee and
the denominator of which is equal to the number of Shares
outstanding as of the date of such redemption, as long as the
administrative position of the staff of the Securities and Exchange
Commission required such reimbursement
<PAGE>
IN WITNESS WHEREOF, each of the Company, Lipper and Prime Lipper has
caused a duly authorized person to execute this Share Purchase Agreement as of
the date first above written.
THE LIPPER FUNDS, INC.
By:/s/ABRAHAM BIDERMAN
--------------------------------
Name: Abraham Biderman
Title: Executive Vice President
LIPPER & COMPANY, L.L.C.
By:/s/STEVEN FINKEL
--------------------------------
Name: Steven Finkel
Title: Executive Vice President
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
THE LIPPER FUNDS, INC.
AMENDED AND RESTATED DISTRIBUTION PLAN
--------------------------------------
This Amended and Restated Distribution Plan (the "Plan") is adopted in
accordance with Rule 12b-1 (the "Rule") under the Investment Company Act of
1940, as amended (the "1940 Act"), by The Lipper Funds, Inc. a corporation
organized under the laws of the State of Maryland (the "Company"), with respect
to those classes (each, a "Class") of its investment portfolios (each, a "Fund")
listed in Appendix A, as amended from time to time, subject to the following
terms and conditions:
Section 1. Payments for Distribution.
--------------------------
(a) Distribution Fee. Each Fund will pay to the distributor of its shares,
-----------------
Lipper & Company, L.P., a limited partnership organized under the laws of the
State of Delaware, or any entity that may in the future act as a distributor for
such Fund (the "Distributor") or its assignees, on behalf of each Class of such
Fund, a distribution fee under the Plan at the annual rate set forth opposite
the name of such Class on Appendix A hereto of the average daily net assets of
such Fund attributable to each such Class (the "Distribution Fee").
(b) Payment of Fees. The Distribution Fee will be calculated daily and paid
----------------
monthly by each Fund with respect to each Class at the annual rates indicated on
Appendix A hereto. The Distributor may make payments to assist in the
distribution of all classes of shares of the Funds out of any portion of any fee
paid to the Distributor or any of its affiliates by a Fund, its past profits or
any other source available to it.
Section 2. Expenses Covered by the Plan.
-----------------------------
(a) The Distribution Fee with respect to each Class of a Fund is paid to
compensate the Distributor for distribution and related services provided by it
in connection with the offering and sale of shares of such Class, and related
expenses incurred, including payments by the Distributor to compensate or
reimburse selected dealers for providing such distribution or related services.
Such services and expenses may include, but are not limited to, the following:
costs of printing and distributing the Fund's Prospectus, Statement of
Additional Information and sales literature to prospective investors; an
allocation of overhead of the Distributor; payments to and expenses of other
persons who provide support services in connection with the distribution of the
shares, including support services for shareholder accounts that invest in the
Fund; any other costs and expenses relating to distribution or sales support
activities; compensation for the Distributor's initial expense of paying its
investment representatives or introducing brokers a commission upon the sale of
the Fund's shares; and
<PAGE>
accruals for interest on the amount of the foregoing expenses that exceed the
amount of the Distribution Fee received by the Distributor. The Distributor may
retain all or a portion of the Distribution Fee.
(b) The amount of the Distribution Fee payable by any Fund under Section 1
hereof is not related directly to expenses incurred by the Distributor and this
Section 2 does not obligate a Fund to reimburse the Distributor for such
expenses. The Distributor may retain any excess of the fees it receives pursuant
to this Plan over its expenses incurred in connection with providing the
services described in this Section 2. The Distribution Fee set forth in Section
1 will be paid by a Fund to the Distributor unless and until the Plan is
terminated or not renewed with respect to a Fund or Class thereof, and any
distribution expenses incurred by the Distributor on behalf of a Fund in excess
of payments of the Distribution Fee specified in Section 1 hereof which the
Distributor has accrued through the termination date are the sole responsibility
and liability of the Distributor and not an obligation of a Fund. The
Distributor may waive receipt of fees under the Plan for a period of time while
retaining the ability to be paid under the Plan thereafter.
Section 3. Indirect Distribution Expense.
------------------------------
To the extent that any payments made by any Fund to the Distributor, or to
either Lipper & Company, L.P. or Prime Lipper Asset Management in its capacity
as investment adviser to a Fund, including payment of any administrative and
other service fees or investment advisory fees, may be deemed to be indirect
payment of distribution expenses, those indirect payments shall be deemed to be
authorized by this Plan.
Section 4. Approval of Shareholders.
-------------------------
The Plan will not take effect with respect to a particular Class of a Fund,
and no fee will be payable in accordance with Section 1 of the Plan, until the
Plan has been approved by a vote of at least a majority of the outstanding
voting securities of such Class. The Plan will be deemed to have been approved
with respect to a particular class of a Fund so long as a majority of the
outstanding voting securities of such Class votes for the approval of the Plan,
notwithstanding that the Plan has not been approved by any other Class of such
Fund.
Section 5. Approval by Directors.
----------------------
Neither the Plan nor any related agreements will take effect with respect
to a Class of a Fund until approved by a majority of both (a) the full Board of
Directors of the Company and (b) those Directors who are not interested persons
of the Company and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements related to it (the "Independent
Directors"), cast in person at a meeting called for the purpose of voting on the
Plan and the related agreements.
<PAGE>
Section 6. Continuance of the Plan.
------------------------
The plan will continue in effect from year to year with respect to each
Class of a Fund, so long as its continuance is specifically approved at least
annually by the vote of the Company's Board of Directors in the manner described
in Section 5 above.
Section 7. Termination.
------------
The Plan may be terminated with respect to a Class of a Fund at any time,
without the payment of any penalty, by the vote of a majority of the outstanding
voting securities (as so defined) of such Class of such Fund or by a majority
vote of the Independent Directors. The Plan may remain in effect with respect to
a particular Class of a Fund even if the Plan has been terminated in accordance
with this Section 7 with respect to any other Class of the Fund or any other
Fund.
Section 8. Amendments.
-----------
The Plan may not be amended with respect to a Class of a Fund so as to
increase materially the amounts of the fees described in Section 1 above, unless
the amendment is approved by a vote of the holders of at least a majority of the
outstanding voting securities of such Class of such Fund. No material amendment
to the Plan may be made unless approved by the Company's Board of Directors in
the manner described in Section 5 above.
Section 9. Selection of Certain Directors.
-------------------------------
While the Plan is in effect, the selection and nomination of the Company's
Directors who are not interested persons of the Company will be committed to the
discretion of the Directors then in office who are not interested persons of the
Company.
Section 10. Written Reports.
----------------
In each year during which the Plan remains in effect, any person authorized
to direct the disposition of monies paid or payable by a Fund with respect to a
Class pursuant to the Plan or any related agreement will prepare and furnish to
the Company's Board of Directors, and the Board will review, at least quarterly,
written reports complying with the requirements of the Rule which set out the
amounts expended under the Plan and the purposes for which those expenditures
were made.
Section 11. Preservation of Materials.
--------------------------
The Company will preserve copies of the Plan, any agreement relating to the
Plan and any report made pursuant to Section 10 above, for a period of not less
than six years (the first two years in an easily accessible place) from the date
of the Plan, agreement or report.
<PAGE>
Section 12. Meanings of Certain Terms.
--------------------------
As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed to have the same meaning that
those terms have under the 1940 Act and the rules and regulations under the 1940
Act, subject to any exemption that may be granted to the Company under the 1940
Act by the Securities and Exchange Commission.
Section 13. Limitation of Liability.
------------------------
The Articles of Incorporation of the Company, as amended from time to time,
which is on file with the Secretary of State of Maryland, provides that to the
fullest extent permitted by Maryland law, no Director or officer of the Company
shall be personally liable to the Company or its stockholders for money damages,
except to the extent such exemption from liability or limitation thereof is
not permitted by the 1940 Act.
Section 14. Governing Law.
--------------
This Plan shall be governed by, and construed and interpreted in accordance
with, the law of the State of New York.
THE LIPPER FUNDS, INC.
By: /s/ ABRAHAM BIDERMAN
--------------------
Name: Abraham Biderman
Title: Executive Vice President
Dated: December 14, 1995,
as amended December 18, 1996
THE LIPPER FUNDS, INC.
GROUP RETIREMENT SERVICING PLAN
1. The Lipper Funds, Inc. (the "Company") is hereby authorized to enter
into written agreements in substantially the form attached hereto as Exhibit I
or in any other form duly approved by the Board of Directors (the Shareholder
Servicing Agreement") with institutional shareholders of record or other
financial institutions ("Shareholder Servicing Agents"). A Shareholder Servicing
Agreement shall require the Shareholder Servicing Agent to provide support
services on behalf of the Company as set forth therein to its customers (the
Customers") who beneficially own shares (the "Shares") in any of the company's
investment portfolios (the "Funds"). For such services, the Shareholder
Servicing Agent shall receive a fee, computed daily and paid monthly from the
assets of each Fund in the manner set forth in the Shareholder Servicing
Agreement, at an annual rate of up to [ ] of 1% of the average daily net asset
value of Shares in such Fund with respect to which the Shareholder Servicing
Agent provides services for its Customers.
2. Each Shareholder Servicing Agreement which varies substantially from the
form attached hereto as Exhibit I or which is proposed to be entered into with a
Shareholder Servicing Agent which is the investment adviser or principal
underwriter of the Company, or an "affiliate," as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), of the Company, its investment
adviser or its principal underwriter, shall be approved by the Board of
Directors and by a vote of a majority of the Directors who are not "interested
persons" of the Company, as defined in the 1940 Act, and who have no financial
interest, direct or indirect, in such Shareholder Servicing Agreement. Each
Shareholder Servicing Agreement which does not vary substantially from the form
attached hereto as Exhibit I and which is not proposed to be entered into with
the investment adviser or principal underwriter of the Company, or any
"affiliate," as defined in the 1940 Act, of the Company, its investment adviser
or its principal underwriter, may be entered into, executed and delivered in the
name and on behalf of the Company, by the President or any Vice President of the
Company, at a fee determined in accordance with paragraph 1 above by the officer
executing such Agreement.
3. This plan (the "Plan"), shall become effective upon the approval of the
Plan (and the form of Shareholder Servicing Agreement attached hereto) by the
Board of Directors and by the vote of the majority of the Directors who are not
"interested persons" of the Company, as defined in the 1940 Act and who have no
financial interest, direct or indirect, in the Plan or in any Shareholder
Servicing Agreement or other agreement relating to the Plan (the "Disinterested
Directors").
4. The Plan may be amended at any time by the Board of Directors including
the vote of a majority of the Disinterested Directors, without the consent of
any Shareholder
1
<PAGE>
Servicing Agent; provided, however, that any such amendment shall not, without
the consent of the affected Shareholder Servicing Agent, modify the terms of any
Shareholder Servicing Agent, modify the terms of any Shareholder Servicing
Agreement to which the company is a party.
5. The Plan may be terminated at any time, without the payment of any
penalty, by a vote of a majority of the Company's entire Board of Directors on
sixty (60) days', written notice to any Shareholder Servicing Agents which are
parties to any Shareholder Servicing Agreements with the Company. Any notice of
termination of the Plan shall be deemed to also constitute a notice of
termination of the Plan shall be deemed to also constitute a notice of
termination of the Shareholder Servicing Agreement between the Company and any
Shareholder Servicing Agent to which such notice of termination is delivered.
2
<PAGE>
SHAREHOLDER SERVICING AGREEMENT
SHAREHOLDER SERVICING AGREEMENT, dated as of December , 1995, by and
between The Lipper Funds, Inc. (the Company"), a Maryland corporation, and [ ]
(the "Financial Institution"), as a shareholder servicing agent hereunder (the
"Agent") relating to transactions in shares of capital stock, $.001 par value
(the "Shares"), of any of the three existing investment portfolios offered by
the Company (the "Funds"). In the event that the Company establishes one or more
portfolios other than the Funds with respect to which it decides to retain the
Financial Institution hereunder, the Company shall promptly notify the Financial
Institution in writing. If the Financial Institution is willing to render such
services, it shall notify the Company in writing whereupon such portfolio shall
become a Fund hereunder.
The Company and the Financial Institution hereby agree as follows:
1. Appointment. The Financial Institution, as Agent, hereby agrees to
perform certain services for its customers (the "Customers") as hereinafter set
forth. The Agent's appointment hereunder is non-exclusive, and the parties
recognize and agree that, from time to time, the Company may enter into other
shareholder servicing agreements, in writing, with other financial institutions.
2. Services to be Performed. The Agent, as agent for its Customers, shall
be responsible for performing shareholder administrative support services, which
will include the following: (i) answering customer inquiries regarding account
status and history, the manner in which purchases, exchanges and redemptions of
shares of the Funds may be effected and certain other matters pertaining to the
Funds; (ii) assisting shareholders in designating and changing dividend options,
account designations and addresses; (iii) providing necessary personnel and
facilities to establish and maintain shareholder accounts and records; (iv)
assisting in aggregating and processing purchase, exchange and redemption
transactions; (v) placing net purchase and redemption orders with the Company's
distributor; (vi) arranging for wiring of funds; (vii) transmitting and
receiving funds in connection with customer orders to purchase or redeem shares;
(viii) processing dividend payments; (ix) verifying and guaranteeing shareholder
signatures in connection with redemption orders and transfers and changes in
shareholder-designated accounts, as necessary; (x) providing periodic statements
showing a customer's account balance and, to the extent practicable, integrating
such information with other customer transactions otherwise effected through or
with the Shareholder Servicing Agent; (xi) furnishing (either separately or on
an integrated basis with other reports sent to a shareholder by a Shareholder
Servicing Agent) monthly and year-end statement and confirmations of purchases,
exchanges and redemptions; (xii) transmitting on behalf of the Company, proxy
statements, annual reports, updating prospectuses and other communications from
the Company to the shareholders of the Funds; (xiii) receiving, tabulating and
transmitting to the Company proxies executed by shareholders with respect to
meetings of shareholders of the
1
<PAGE>
Funds; and (xiv) providing such other related services as the Company as the
Company or a shareholder may request.
The Agent shall provide all personnel and facilities necessary in order for
it to perform the functions described in this paragraph with respect to its
Customers.
3. Fees.
3.1. Fees from the Company. In consideration for the services described in
Section 2 hereof and the incurring of expenses in connection therewith, the
Agent shall receive a fee, computed daily and payable monthly, at the annual
rate of _ of 1% of the average daily net asset value of Shares of each Fund for
which the Agent from time to time performs services under this Agreement on
behalf of Customers. Fees with respect to Customers' Shares in any one Fund will
be paid exclusively from the assets of that Fund in which such Customer's assets
are invested. For purposes of determining the fees payable to the Agent
hereunder, the value of the Company's net assets shall be computed in the manner
specified in the Company's then-current prospectus and statement of additional
information (the "Prospectus") for computation of the net asset value of the
Company's Shares.
3.2. Fees from Customers. It is agreed that the Financial Institution may
impose certain conditions on Customers, in addition to or different from those
imposed by the Company, such as requiring a minimum initial investment or
imposing limitations on the amounts of transactions. It is also understood that
the Financial Institution may directly credit or charge fees to Customers in
connection with an investment in the Funds. The Financial Institution shall
credit or bill Customers directly for such credits or fees. In the event the
Financial Institution charges Customers such fees, it shall make appropriate
prior written disclosure (such disclosure to be in accordance with all
applicable laws) to Customers both of any direct fees charged to the Customer
and of the fees received or to be received by it from the Company pursuant to
Section 3.1 of this Agreement. It is understood however, that in no event shall
the Financial Institution have recourse or access as Agent or otherwise to the
account of any shareholder of the Company except to the extent expressly
authorized by law or by such shareholder, or to any assets of the Company, for
payment of any direct fees referred to in this Section 3.2.
4. Approval of Materials to be Circulated. Advance copies or proofs of all
materials which are to be generally circulated or disseminated by the Agent to
Customers or prospective Customers which identify or describe the Company shall
be provided to the Company at least 10 days prior to such circulation or
dissemination (unless the Company consents in writing to a shorter period), and
such materials shall not be circulated or disseminated or further circulated or
disseminated at any time after the Company shall have given written notice to
the Agent of any objection thereto.
Nothing in this Section 4 shall be construed to make the Company liable for
the use of any information about the Company which is disseminated by the Agent.
2
<PAGE>
5. Compliance with Laws, etc. The Agent shall comply with all applicable
federal and state laws and regulations in the performance of its duties under
this Agreement, including securities laws.
6. Limitation of Agent's Liability. In consideration of the Agent's
undertaking to render the services described in this Agreement, the Company
agrees that the Agent 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 Agent against any liability
to the Company or its stockholders to which the Agent would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of the Agent's duties under this Agreement or by reason of the
Agent's reckless disregard of its obligations and duties hereunder.
7. Indemnification. The Company agrees to indemnify and hold harmless the
Agent from all taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the Securities Act of
1933, as amended, the Securities Exchange Act of 1934, as amended, the
Investment Company Act of 1940, as amended, and any state and foreign securities
and blue sky laws, all as or to be amended from time to time) and expenses,
including attorneys' fees and disbursements arising directly or indirectly from
(i) any misstatements or omissions in the Company's Prospectus, or (ii) any
action or thing which the Agent takes or does or omits to take or do reasonably
believed by the Agent to be at the request or direction or in reliance on the
advice or instructions, whether oral or written, of the Company provided, that
the Agent shall not be indemnified against any liability to the Company or to
its shareholders (or any expenses incident to such liability) arising out of the
Agent's own willful misfeasance, bad faith or gross negligence in the
performance of its duties hereunder or by reason of its reckless disregard of
its obligations and duties hereunder. In order that the indemnification
provision contained in this paragraph shall apply, it is understood that if in
any case the Company may be asked to indemnify or save the Agent harmless, the
Company shall be fully and promptly advised of all pertinent facts concerning
the situation in question, and it is further understood that the Agent will use
all reasonable care to identify and notify the Company promptly concerning any
situation which presents or appears likely to present the probability of such a
claim for indemnification against the Company. The Company shall have the option
to defend the Agent against any claim which may be the subject of this
indemnification and, in the event that the Company so elects, it will so notify
the Agent and thereupon the Company shall take over complete defense for the
claim, and the Agent shall in such situation incur no further legal or other
expenses for which it shall seek indemnification under this paragraph. The Agent
shall in no case confess any claim or make any compromise or settlement in any
case in which the Company will be asked to indemnify the Agent, except with
Company's prior written consent.
8. Limitation of Shareholder Liability, etc. The Agent hereby agrees that
3
<PAGE>
obligations assumed by the Company pursuant to this Agreement shall be limited
in all cases to the Company and its assets and that the Agent shall not seek
satisfaction of any such obligation from the shareholders or any shareholder of
the Company. It is further agreed that the Agent shall not seek satisfaction of
any such obligations from the Board of Directors or any individual Director of
the Company.
4
<PAGE>
9. Notices. All notices or other communications hereunder to either party
shall be in writing or by confirming telegram, cable, telex or facsimile sending
device. Notices shall be addressed (a) if to the Company, at the address of the
Company, or (b) if to the Agent, at _______________________________.
10. Further Assurances. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
11. Termination. This Agreement will continue in effect until two years
from the date hereof and thereafter for successive annual periods, provided that
such continuance is specifically approved at least annually (a) 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 Company'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 Agent or by the Agent on
(60) days', written notice to the Company. Notice of termination of the
Shareholder Servicing Plan by the Board of Directors, pursuant to which this
Agreement has been entered, shall constitute a notice of termination of this
Agreement.
12. Changes: Amendments. This Agreement may be changed or amended only by
written instrument signed by both parties.
13. Reports. The Agent will provide the Company or its designees such
information as the Company or its designees may reasonably request (including,
without limitation, periodic certifications confirming the provision to
Customers of the services described herein), and will otherwise cooperate with
the Company and its designees (including, without limitation, any auditors
designated by the Company), in connection with the preparation of reports to its
Board of Directors concerning this Agreement and the monies paid or payable
under this Agreement, as well as any other reports or filings that may be
required by law.
14. Subcontracting by Agent. The Agent may subcontract for the performance
of the Agent's obligations hereunder with any one or more persons, including but
not limited to any one or more persons which is an affiliate of the Agent;
provided, however, that the Agent shall be as fully responsible to the Company
for the acts and omissions of any subcontractor as it would be for its own acts
or omissions. The Agent shall notify the Company of any such arrangements no
later than the next meeting of the Company's Board of Directors following the
entry by the Agent into such arrangements. Notwithstanding this paragraph or
paragraph 11 of this Agreement, the Company reserves the right to terminate this
Agreement immediately or upon such notice as the Company, in its sole
discretion, determines to give, and without payment of any penalty, if the
Company notifies the Agent that any subcontractor of the Agent is
5
<PAGE>
unacceptable to the Company for any reason and the Agent does not terminate its
arrangements with such subcontractor as promptly as reasonably practicable.
15. Governing Law. This Agreement shall be governed by the laws of the
State of New York.
16. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement has been executed on behalf of the Company by the undersigned not
individually, but in the capacity indicated.
THE LIPPER FUNDS, INC.
By:
----------------------------
Title:
6
THE LIPPER FUNDS, INC.
FORM OF MULTICLASS PLAN PURSUANT TO RULE 18F-3
UNDER THE INVESTMENT COMPANY ACT OF 1940
December , 1995
I. Background
----------
This plan (the "Plan") pertains to the issuance by the investment
portfolios listed on Schedule A hereto (each a "Fund") of The Lipper Funds, Inc.
(the "Company") of multiple classes of capital stock and is being adopted by the
Company pursuant to Rule 18f-3 under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Company's Board members, including a majority of
its Directors who are not "interested persons (as defined in the 1940 Act), have
found that this Plan is in the best interests of each class of each Fund
individually and each Fund as a whole. REFERENCE SHOULD BE MADE TO THE COMPANY'S
PROSPECTUS FOR FURTHER INFORMATION ABOUT THE COMPANY'S MULTIPLE CLASS STRUCTURE.
II. Creation of Classes
-------------------
The Company's Articles of Incorporation authorize the Company to issue
multiple series of capital stock corresponding to shares in separate investment
portfolios. Pursuant to action taken by the Board of Directors of the Company at
its December , 1995 meeting, the Company established three classes of shares:
"Premier Shares", "Retail Shares" and "Group Retirement Plan Shares" for each of
the Funds.
III. Purchase Limits
---------------
Premier Shares of the Lipper High Income Bond Fund and the Lipper
Europe Equity Fund initially will be exchanged for portfolio securities of
certain limited partnerships for which the Funds' investment advisers act as
general partners. Premier Shares of the Lipper U.S. Equity Fund (and Premier
Shares of the Lipper High Income Bond Fund and the Lipper Europe Equity Fund
after the exchanges) will be offered for sale to purchasers who
1
<PAGE>
invest a minimum of $1,000,000 in a Fund (other than purchasers eligible to
purchase Group Retirement Plan Shares), subject to waiver of the minimum
purchase requirement as set forth in the prospectus. Retail Shares of each Fund
are offered for sale to purchasers who invest less than $1,000,000 in a Fund.
Group Retirement Plan Shares are offered for sale with no minimum investment
requirement to retirement plans including, but not limited to, qualified 401(k)
plans, provided such plans meet the required number of eligible employees or the
required amount of assets, and deferred compensation plans under 403(b)(7) of
the Internal Revenue Code, as amended.
IV. Sales Charges
-------------
Premier Shares, Retail Shares and Group Retirement Plan Shares are sold
at net asset value and are not subject to any sales charges.
V. Distribution and Service Fees
------------------------------
According to a distribution plan adopted by the Company's Board of
Directors pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-1"), Retail
Shares are subject to a 12b-1 distribution fee.
According to a service plan adopted by the Company's Board of
Directors, Group Retirement Plan Shares are subject to a service fee.
Premier Shares are not subject to a distribution fee or a service fee.
VI. Exchange Feature
----------------
Shares of each Fund are exchangeable for shares of a different fund in
the Lipper Group of Funds as set forth in the Company's prospectus.
VII. Allocation of Expenses
----------------------
Expenses of each Fund are borne by the various classes of the Fund on
the basis of relative net assets. The fees identified as "class expenses" (see
below) are to be allocated to
2
<PAGE>
each class based on actual expenses incurred, to the extent that such expenses
can properly be so allocated. To the extent that such expenses cannot be
properly allocated, such expenses are to be borne by all classes on the basis of
relative net assets.
The following are "class expenses":
(i) transfer agent fees as identified by the transfer agent as being
attributable to a specific class;
(ii) printing and postage expenses related to preparing and
distributing to the shareholders of a specific class materials
such as shareholder reports, prospectuses and proxies;
(iii) Blue Sky registration fees incurred by a class;
(iv) SEC registration fees incurred by a class;
(v) litigation or other legal expenses relating solely to one class;
(vi) professional fees relating solely to one class;
(vii) directors' fees, including independent counsel fees, incurred as
a result of issues relating to one class and
(viii) shareholder meeting expenses for meetings of a particular class.
VIII. Voting Rights
-------------
All shares of each Fund have equal voting rights and will be voted in
the aggregate, and not by class, except where voting by class is required by law
or where the matter involved affects only one class.
IX. Amendments
----------
No material amendment to this Plan may be made unless it is first
approved by a majority of both (a) the full Board of Directors of the Company
and (b) those Directors who are not "interested persons" of the Company, as that
term is defined in the 1940 Act.
3
<PAGE>
SCHEDULE A
INVESTMENT PORTFOLIOS
1. Lipper High Income Bond Fund
2. Lipper U.S. Equity Fund
3. Prime Lipper Europe Equity Fund
4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director Martin Maltz
of The Lipper Funds, Inc., a Maryland corporation (hereinafter called the
"Fund") does hereby constitute and appoint Kenneth Lipper, Abraham Riderman and
Steven Finkel, and each of them, his true and lawful attorneys and agents, with
full power to act without the others, for him and in his name, place and stead,
in any and all capacities, to do any and all acts and things, and execute in his
name any and all instruments, which said attorneys and agents may deem necessary
or advisable in order to enable the Fund to comply with the Investment Company
Act of 1940, Securities Act of 1933, any requirements of the Securities and
Exchange Commission in respect thereof, and any state securities laws, in
connection with the registration under said Acts of the aforesaid fund and the
offerings of shares by such Fund, including specifically and without limitation
power and authority to sign his name to any and all Notifications of
Registration and Registrations Statements to be filed with the Securities and
Exchange commission under either of said Acts in respect to such Fund and
shares, and any amendments (including post-effective amendments) or applications
for amendment or supplements of or such Notifications of Registration and
Registration Statements, and to file the same with the Securities and Exchange
Commission and the undersigned does hereby ratify and confirm all that said
attorneys and agents, and each of them, shall do or cause to be done by virtue
hereof. Any one of said agents and attorneys shall have, and may exercise,
without the others, all the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has signed his name hereto as of this
19th day of February, 1999.
/s/ Martin Maltz
----------------
Martin Maltz
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001000072
<NAME> LIPPER FUNDS, INC.
<SERIES>
<NUMBER> 013
<NAME> HIGH INCOME BOND FUND, PREMIER SHARES
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 93,768,173
<INVESTMENTS-AT-VALUE> 93,622,855
<RECEIVABLES> 2,758,040
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 58,213
<TOTAL-ASSETS> 96,439,108
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 312,259
<TOTAL-LIABILITIES> 312,259
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 98,464,618
<SHARES-COMMON-STOCK> 8,946,645
<SHARES-COMMON-PRIOR> 8,419,839
<ACCUMULATED-NII-CURRENT> (129,439)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,073,012)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (145,318)
<NET-ASSETS> 96,126,849
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,742,616
<OTHER-INCOME> 0
<EXPENSES-NET> (947,630)
<NET-INVESTMENT-INCOME> 7,794,986
<REALIZED-GAINS-CURRENT> (2,058,188)
<APPREC-INCREASE-CURRENT> (2,393,395)
<NET-CHANGE-FROM-OPS> 3,343,403
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,104,402)
<DISTRIBUTIONS-OF-GAINS> (288,220)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,673,871
<NUMBER-OF-SHARES-REDEEMED> (1,716,828)
<SHARES-REINVESTED> 569,763
<NET-CHANGE-IN-ASSETS> 2,760,690
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 310,519
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 690,487
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 947,630
<AVERAGE-NET-ASSETS> 82,149,906
<PER-SHARE-NAV-BEGIN> 10.11
<PER-SHARE-NII> 0.84
<PER-SHARE-GAIN-APPREC> (0.48)
<PER-SHARE-DIVIDEND> (0.86)
<PER-SHARE-DISTRIBUTIONS> (0.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.57
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001000072
<NAME> LIPPER FUNDS, INC.
<SERIES>
<NUMBER> 012
<NAME> HIGH INCOME BOND FUND, RETAIL SHARES
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 93,768,173
<INVESTMENTS-AT-VALUE> 93,622,855
<RECEIVABLES> 2,758,040
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 58,213
<TOTAL-ASSETS> 96,439,108
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 312,259
<TOTAL-LIABILITIES> 312,259
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 98,464,618
<SHARES-COMMON-STOCK> 621,869
<SHARES-COMMON-PRIOR> 464,774
<ACCUMULATED-NII-CURRENT> (129,439)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,073,012)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (145,318)
<NET-ASSETS> 96,126,849
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,742,616
<OTHER-INCOME> 0
<EXPENSES-NET> (947,630)
<NET-INVESTMENT-INCOME> 7,794,986
<REALIZED-GAINS-CURRENT> (2,058,188)
<APPREC-INCREASE-CURRENT> (2,393,395)
<NET-CHANGE-FROM-OPS> 3,343,403
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (483,298)
<DISTRIBUTIONS-OF-GAINS> (22,238)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 296,524
<NUMBER-OF-SHARES-REDEEMED> (186,151)
<SHARES-REINVESTED> 46,722
<NET-CHANGE-IN-ASSETS> 2,760,690
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 310,519
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 690,487
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 947,630
<AVERAGE-NET-ASSETS> 5,811,515
<PER-SHARE-NAV-BEGIN> 10.11
<PER-SHARE-NII> 0.82
<PER-SHARE-GAIN-APPREC> (0.49)
<PER-SHARE-DIVIDEND> (0.83)
<PER-SHARE-DISTRIBUTIONS> (0.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.57
<EXPENSE-RATIO> 1.24
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001000072
<NAME> LIPPER FUNDS, INC.
<SERIES>
<NUMBER> 011
<NAME> HIGH INCOME BOND FUND, RETIREMENT PLAN SHARES
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 93,768,173
<INVESTMENTS-AT-VALUE> 93,622,855
<RECEIVABLES> 2,758,040
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 58,213
<TOTAL-ASSETS> 96,439,108
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 312,259
<TOTAL-LIABILITIES> 312,259
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 98,464,618
<SHARES-COMMON-STOCK> 471,992
<SHARES-COMMON-PRIOR> 348,101
<ACCUMULATED-NII-CURRENT> (129,439)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,073,012)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (145,318)
<NET-ASSETS> 96,126,849
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,742,616
<OTHER-INCOME> 0
<EXPENSES-NET> (947,630)
<NET-INVESTMENT-INCOME> 7,794,986
<REALIZED-GAINS-CURRENT> (2,058,188)
<APPREC-INCREASE-CURRENT> (2,393,395)
<NET-CHANGE-FROM-OPS> 3,343,403
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (355,504)
<DISTRIBUTIONS-OF-GAINS> (14,885)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 167,761
<NUMBER-OF-SHARES-REDEEMED> (81,410)
<SHARES-REINVESTED> 37,540
<NET-CHANGE-IN-ASSETS> 2,760,690
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 310,519
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 690,487
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 947,630
<AVERAGE-NET-ASSETS> 4,215,515
<PER-SHARE-NAV-BEGIN> 10.11
<PER-SHARE-NII> 0.80
<PER-SHARE-GAIN-APPREC> (0.47)
<PER-SHARE-DIVIDEND> (0.83)
<PER-SHARE-DISTRIBUTIONS> (0.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.57
<EXPENSE-RATIO> 1.24
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001000072
<NAME> LIPPER FUNDS, INC.
<SERIES>
<NUMBER> 021
<NAME> U.S. EQUITY FUND, PREMIER SHARES
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 12,263,299
<INVESTMENTS-AT-VALUE> 13,754,288
<RECEIVABLES> 7,102
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 13,195,625
<TOTAL-ASSETS> 26,957,015
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 51,465
<TOTAL-LIABILITIES> 51,465
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,098,510
<SHARES-COMMON-STOCK> 1,750,347
<SHARES-COMMON-PRIOR> 1,180,005
<ACCUMULATED-NII-CURRENT> (25,854)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,341,897
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,490,988
<NET-ASSETS> 26,905,550
<DIVIDEND-INCOME> 341,779
<INTEREST-INCOME> 205,182
<OTHER-INCOME> 0
<EXPENSES-NET> (286,958)
<NET-INVESTMENT-INCOME> 260,003
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