LIPPER FUNDS INC, N-30D, 1996-08-27

LIPPER FUNDS INC
N-30D, 1996-08-27

Previous: RESIDENTIAL ACCREDIT LOANS INC, 424B5, 1996-08-27

Next: TENGASCO INC, RW, 1996-08-27

THE LIPPER FUNDS, INC.

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

SEMI-ANNUAL REPORT
--------------------------------------------------
June 30, 1996

<PAGE>

BOARD OF DIRECTORS KENNETH LIPPER
- ------------------------------- Director, President and Chairman

ABRAHAM BIDERMAN
Director and Executive Vice President

STANLEY BREZENOFF
Director

MARTIN MALTZ
Director

IRWIN RUSSELL
Director

INVESTMENT ADVISERS Lipper & Company, L.L.C and
- -------------------------------- Prime Lipper Asset Management
101 Park Avenue, 6th floor
New York, NY 10178
(212) 883-6333

ADMINISTRATOR AND Chase Global Funds Services Company
- -------------------------------- 73 Tremont Street, 9th floor
TRANSFER AGENT Boston, MA 02108
1-800-LIPPER9

CUSTODIAN The Chase Manhattan Bank
- -------------------------------- 770 Broadway
New York, NY 10003

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

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

<PAGE>

TABLE OF CONTENTS

Shareholder's Letter .................................. 1-4

Portfolio of Investments
Lipper High Income Bond Fund ......................... 5-11
Lipper U.S. Equity Fund .............................. 12-13
Prime Lipper Europe Equity Fund ...................... 14-18

Statement of Assets and Liabilities ................... 19

Statement of Operations ............................... 20

Statement of Changes in Net Assets .................... 21

Financial Highlights
Lipper High Income Bond Fund ......................... 22
Lipper U.S. Equity Fund .............................. 23
Prime Lipper Europe Equity Fund ...................... 24

Notes to Financial Statements ......................... 25-29

<PAGE>

THE LIPPER FUNDS, INC. SEMI-ANNUAL REPORT
June 30, 1996

Dear Shareholder:

We are very pleased to present to you the first semi-annual shareholder
report for The Lipper Funds, Inc. The Lipper Funds are off to a successful
start, as all three investment portfolios were funded during the first half of
1996. Today, The Lipper Funds offer three investment portfolios: Lipper U.S.
Equity Fund, Lipper High Income Bond Fund and Prime Lipper Europe Equity Fund
(each a "Fund" and collectively, the "Funds"), each made available to
individual, institutional and group retirement plan clients. This report
presents the financial statements of The Lipper Funds since commencement of
their status as mutual funds, and reviews the performance of each of the Funds
(including, where applicable, predecessor partnerships) for the period ended
June 30, 1996.

FUNDING OF THE INVESTMENT PORTFOLIOS:

The Lipper U.S. Equity Fund was funded on January 2, 1996 with an
approximately $10 million investment in the Fund's shares, and as of June 30,
1996, the Fund had approximately $11 million in assets under management.

Both the Lipper High Income Bond Fund and Prime Lipper Europe Equity Fund
were funded on April 1, 1996 with an in-kind transfer of securities from their
predecessor limited partnerships managed by Lipper & Company, L.P. and Prime
Lipper Asset Management, respectively. In exchange for their limited partnership
interests, each limited partner received shares in the respective new mutual
fund portfolio equal to their previous limited partnership interest. As of June
30, 1996 the Lipper High Income Bond Fund and the Prime Lipper Europe Equity
Fund had approximately $112 million and $53 million, respectively.

We are pleased to announce that the transfers were extremely successful
with 100% limited partner participation in the High Income Bond Fund transfer
and over 67% limited partner participation in the Prime Lipper Europe Equity
Fund transfer. Those limited partners who did not transfer their interests to
the mutual funds have remained with Prime Lipper Asset Management as separately
managed institutional accounts. We believe the transfers benefited our
investment management clients by providing them with increased investment
liquidity and daily performance information.

The Lipper High Income Bond Fund and the Prime Lipper Europe Equity Fund
were designed to mirror the former limited partnerships--with identical
investment objectives and management teams. These new mutual fund portfolios are
being managed in the same manner as their limited partnerships. As a result, the
performance information presented for these Funds includes the use of the
historical performance records relating to the predecessor limited partnerships.

PERFORMANCE AND PORTFOLIO REVIEW

Performance as discussed below reflects the performance of each Fund's
Premier class of shares. Performance for the Funds' Retail and Group Retirement
Plan shares (illustrated on page 4) differs from Premier share performance due
to later inception dates, and due to the higher class specific expenses
associated with the Retail and Group Retirement Plan classes of shares.

THE LIPPER U.S. EQUITY FUND

The U.S. Equity Fund employs a value-oriented investment strategy seeking
long-term capital appreciation by investing primarily in domestic stocks. The
Fund seeks to accomplish its objective by investing primarily in companies with
market capitalization in excess of $500 million which, in our opinion, are
currently undervalued by the investment community.

Commencing investment operations on January 2, 1996, we took a cautious
approach to investing the Fund's initial capital in the equity markets during
the first quarter of 1996, as the U.S. equity markets were reaching record
levels. Instead, we adhered to our investment discipline, adding only those
issues which offered attractive earnings

<PAGE>

growth prospects at a "reasonable" price. This strategy resulted in a cash and
marketable securities position just under 50% at the end of the first quarter,
with the remaining assets of the Fund invested in technology, media and
consumer-related stocks. This strategy proved prudent during a somewhat volatile
first quarter, delivering a solid 5.30% return for the Fund's Premier Shares for
the period ended March 31, 1996, comparing favorably to the S&P 500 Index return
of 4.55% for the same period.

By the end of the second quarter of 1996, 78% of the Fund's assets were
invested in the U.S. equity market, with investments overweighted in the
technology, telecommunications and financial services sectors, compared to the
S&P 500 Index. The Fund's first half return was 5.10% as of June 30, 1996,
compared to an S&P 500 Index return of 9.25% for the same period. The Fund
underperformed its benchmark index in the second quarter due, in part, to its
relatively high cash position, combined with a slump in the Fund's two prominent
sectors, technology and telecommunications. During the second quarter, concerns
about pricing pressures for computer-related products and components caused
downward revisions in earnings estimates and stock price declines for the
technology sector. Telecommunication stocks, which had initially reacted
positively to the February passage of the telecommunications deregulation bill,
suffered declines in the second quarter, as the outlook changed from optimism to
uncertainty regarding exactly how participants will operate profitably in a
deregulated environment.

We remain cautiously optimistic about the U.S. market as a whole over the
next 18 months, as current benchmark valuations fully reflect an optimistic
outlook for corporate earnings and leave little room for negative surprises. The
U.S. Equity Fund's current holdings continue to reflect our value orientation
and primarily represent large capitalization companies we believe have excellent
long-term earnings prospects, but which are currently undervalued or
misunderstood in the investment community. We remain positive on the long-term
outlook for these issues which should, over time, reflect their inherent value.

THE LIPPER HIGH INCOME BOND FUND

The High Income Bond Fund seeks high current income through investment
primarily in a diversified portfolio of quality, high yield intermediate-term
bonds rated primarily BBB to B-.

The first half of 1996 proved to be a difficult and somewhat volatile
environment for most bond investors as prices suffered from fears that the
economy may be overheating. The Lipper High Income Bond Fund (including its
predecessor partnership) fared relatively well in this environment, with its
Premier Shares delivering a total return of 2.47% over the first six months
ended June 30, 1996, compared to a 1.92% total return for the Lehman Brothers
Intermediate BB Index, the Fund's benchmark index, for the same period. By way
of comparison, the total return on a 10-year Treasury security was -4.98% for
the same six-month period.

Intermediate-term, high-yield bonds are less sensitive to changes in
interest rates when compared to investment grade and Treasury securities and/or
longer maturity bond issues. As a result, the High Income Bond Fund delivered
positive returns in a negative interest rate environment during the first half
of 1996. Over the same period, the Fund outperformed its benchmark index due
primarily to price appreciation resulting from some credit upgrades, as well as
merger and acquisition activity associated with particular holdings. In
addition, the Fund benefited in general from the improved earnings and credit
outlook related to strength in the overall economy.

The general outlook for interest rates remains uncertain, although we
believe inflation and concerns about rising interest rates have been overblown.
Regardless, the Fund continues to actively manage interest rate risk by focusing
on intermediate-term issues and maintaining an assumed weighted average life
equal to approximately 5.5 years, allowing roughly 20% of the Fund to be
reinvested at current market interest rates in any given year.

Our outlook for the High Income Bond Fund remains positive, despite the
periodic fluctuations of interest rates, as the outlook for steady economic
growth and resultant growth in corporate earnings remains favorable. The Fund
will continue to pursue its investment strategy of adding value by investing and
trading issues which, based upon internal analysis, offer attractive yields
compared to their official credit rating or market perceptions.

THE PRIME LIPPER EUROPE EQUITY FUND

The investment objective of the Prime Lipper Europe Equity Fund is
long-term capital appreciation through investment primarily in common stocks of
European companies. During the first half of fiscal 1996, the European

<PAGE>

markets benefited from stable-to-declining European interest rates, a low threat
of inflation and a positive U.S. equity market. Although economic growth
forecasts were revised to reflect a slower pace of growth over the near future,
the European markets benefited from the news of continued improvement in
corporate earnings.

Given this environment, the Prime Lipper Europe Equity Fund's Premier
Shares (including the Fund's predecessor partnership) delivered a strong 8.03%
total return for the six months ended June 30, 1996, compared to 6.64% for the
Morgan Stanley Capital International (MSCI) Europe Index for the same period.
The Fund outperformed its benchmark index for the first six months of 1996
primarily due to its focus on quality, large capitalization growth stocks, which
we believe offer the prospect of attractive earnings growth for the second half
of 1996 and into 1997. Conversely, some cyclical industries such as steel,
chemicals and pulp, which represent a larger portion of the benchmark index,
witnessed a stall in their stock prices as they approached their peak earnings
cycles.

We expect economic activity to accelerate over the next 18 months, which
should improve corporate earnings and benefit the European equity markets. This
environment should help local country officials address key structural issues
such as European monetary integration, reduction of public deficits,
restructuring the "welfare state", improving flexibility of the labor markets
and reducing state ownership in key industries. The countries we believe are
currently positioned to benefit the most from these trends are Germany, France
and Italy.

The Prime Lipper Europe Equity Fund's industry concentration, which favors
pure consumer stocks, consumer non-durables, infra-structure service sectors and
financials, is a direct result of our bottom-up approach to quality growth stock
selection. We believe well-positioned companies in these sectors provide the
best prospects for earnings growth and capital appreciation.

The Prime Lipper Europe Equity Fund's country allocation decisions are
primarily based on market capitalization across the region, with the United
Kingdom representing the largest allocation at approximately 30%. Given our
current country outlook, the Fund is over-weighted in Germany, France and Italy,
which we believe offer the strongest growth prospects. Due to somewhat weaker
growth prospects, the Fund is underweighted in the U.K. and Switzerland.

We believe the prospects for the Prime Lipper Europe Equity Fund are
positive. The Fund is well positioned in strong growth stocks which should
benefit from an advancing economic cycle in Europe.

IN CONCLUSION: As important as short-term performance is for each of The
Lipper Funds, we are firmly of the view that superior long-term results are best
achieved by adhering to a rigorous, well thought out and consistently applied
investment strategy. We hope you find the enclosed report informative. We very
much appreciate your participation in The Lipper Funds, Inc. and look forward to
a successful long-term relationship.

Sincerely,

/s/ KENNETH LIPPER
- ----------------------------
Kenneth Lipper
President and
Chairman of the Board

<PAGE>

THE LIPPER FUNDS, INC.

Set forth below is performance information through June 30, 1996 for the
various classes of shares of The Lipper Funds, and for their respective indexes.
The performance information for the Lipper High Income Bond Fund and the Prime
Lipper Europe Equity Fund reflects performance of the corresponding predecessor
partnerships for the period from January 1, 1996 through April 1, 1996. As
mutual funds registered under the Investment Company Act of 1940, each Fund is
subject to certain restrictions under the Act and the Internal Revenue Code to
which its corresponding partnership was not subject. Had the partnerships been
registered under the Act and subject to the provisions of the Code, their
investment performance may have been adversely affected. Fee waivers and
reimbursements are currently in effect for each of the Funds, without which
total returns would have been lower.

TOTAL RETURN
FOR THE
SIX MONTHS ENDED
JUNE 30, 1996 (1)
-----------------
<S> <C>
LIPPER U.S. EQUITY FUND
Premier Shares ............................................. 5.10%
Retail Shares .............................................. 5.00%
Group Retirement Plan Shares ............................... 5.00%
S&P Index (2) .............................................. 9.25%

LIPPER HIGH INCOME BOND FUND

Premier Shares ............................................. 2.44%
Retail Shares .............................................. 2.42%
Group Retirement Plan Shares ............................... 2.41%
Lehman Intermediate BB Index (2) ........................... 1.92%

PRIME LIPPER EUROPE EQUITY FUND

Premier Shares ............................................. 8.05%
Retail Shares .............................................. 8.05%
Group Retirement Plan Shares ............................... 8.05%
Morgan Stanley Capital
International Europe Index (2) ............................ 6.64%
</TABLE>
- ------------------
(1) The Lipper U.S. Equity Fund commenced investment operations on January 2,
1996. The Lipper U.S. Equity Fund's Retail and Group Retirement Plan Shares
were introduced on January 4, 1996. The Lipper High Income Bond Fund and
the Prime Lipper Europe Equity Fund's Retail and Group Retirement Plan
shares were introduced on April 11, and April 12, respectively. Performance
information presented for the Retail and Group Retirement Plan Shares prior
to their introduction dates reflects the performance of the Funds' Premier
Shares which are not subject to the shareholder servicing or distribution
fees borne by these classes of shares.

(2) The S&P 500 Index, the Morgan Stanley Capital International (MSCI) Europe
Index and the Lehman Brothers Intermediate BB Index are unmanaged indices.
The MSCI Europe and the S&P 500 Index are indices of common stock from the
European and U.S. regions, respectively. The Lehman Brothers Intermediate
BB Index is an index of BB Intermediate Bonds. Performance data assumes the
reinvestment of dividends, and does not reflect the expenses and management
fees incurred by the Funds.

Past performance is not indicative of future results.

<PAGE>

<TABLE>

LIPPER HIGH INCOME BOND FUND
FINANCIAL STATEMENTS (UNAUDITED)
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996

FACE
AMOUNT VALUE+
---------- ------------
<S> <C> <C>
CORPORATE BONDS (89.4%)

AEROSPACE & DEFENSE (1.1%)c.
Greenwich Air Services, Inc.
10.50%, 06/01/06 ........................... $1,250,000 $ 1,248,437
-----------
AUTO MANUFACTURING & RELATED (2.8%)
++APS, Inc.
11.875%, 01/15/06 .......................... 1,000,000 1,045,000
++Exide Corp.
2.90%, 12/15/05 ............................ 2,000,000 1,103,120
Hayes Wheels International, Inc.
11.00%, 07/15/06 ........................... 500,000 506,250
Walbro Corp., Series B
9.875%, 07/15/05 ........................... 500,000 495,000
-----------
3,149,370
-----------
BROADCASTING (2.5%)
Allbritton Communications Co.
9.75%, 11/30/07 ............................ 1,000,000 917,500
Chancellor Broadcasting Corp.
9.375%, 10/01/04 ........................... 1,000,000 947,500
Infinity Broadcasting Corp.
10.375%, 03/15/02 .......................... 250,000 269,687
@ Telemundo Group, Inc.
7.00%, 02/15/06 ............................ 750,000 676,875
-----------
2,811,562
-----------
CABLE (11.2%)
Cablevision Systems Corp.
10.75%, 04/01/04 ........................... 300,000 310,125
9.25%, 11/01/05 ............................ 1,500,000 1,402,500
CAI Wireless Systems, Inc.
12.25%, 09/15/02 ........................... 1,000,000 1,050,000
Comcast Corp.
10.25%, 10/15/01 ........................... 750,000 781,875
9.125%, 10/15/06 ........................... 500,000 473,125
Fundy Cable Ltd.
11.00%, 11/15/05 ........................... 750,000 761,250
Jones Intercable, Inc.
11.50%, 07/15/04 ........................... 700,000 770,000
Lenfest Communications, Inc.
8.375%, 11/01/05 ........................... 1,500,000 1,370,625
Rogers Communications, Inc.
10.875%, 04/15/04 .......................... 2,275,000 2,326,187
Storer Communications, Inc.
10.00%, 05/15/03 ........................... 1,000,000 998,750
Telewest plc
9.625%, 10/01/06 ........................... 1,825,000 1,788,500
Videotron Ltd.
10.25%, 10/15/02 ........................... 500,000 515,000
-----------
12,547,937
-----------

</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>

LIPPER HIGH INCOME BOND FUND
FINANCIAL STATEMENTS (UNAUDITED)
PORTFOLIO OF INVESTMENTS--(CONTINUED)
JUNE 30, 1996
<CAPTION>

FACE
AMOUNT VALUE+
--------- ------------
<S> <C> <C>

CORPORATE BONDS--(CONTINUED)
CAPITAL GOODS, EQUIPMENT & OTHER MANUFACTURING (7.9%)
Coltec Industries, Inc.
9.75%, 11/01/99 ............................... $1,750,000 $ 1,776,250
Communications & Power Industries, Series B
12.00%, 08/01/05 .............................. 625,000 664,062
IDEX Corp.
9.75%, 09/15/02 ............................... 250,000 255,625
++Imo Industries, Inc.
11.75%, 05/01/06 .............................. 1,000,000 1,022,500
Magnetek, Inc.
10.75%, 11/15/98 .............................. 1,750,000 1,758,750
Overhead Door, Inc.
12.25%, 02/01/00 .............................. 1,400,000 1,417,500
Sequa Corp.
9.625%, 10/15/99 .............................. 1,850,000 1,868,500
-----------
8,763,187
-----------

CHEMICALS (3.0%)
Freeport McMoRan Resources Partners, L.P.
8.75%, 02/15/04 ................................ 945,000 929,644
Sifto Canada, Inc.
8.50%, 07/15/00 ................................ 1,775,000 1,712,875
Viridian, Inc.
9.75%, 04/01/03 ................................ 725,000 737,687
-----------
3,380,206
-----------
COMMERCIAL SERVICES (1.5%)
Host Mar Travel Corp., Class B
9.50%, 05/15/05 ................................ 1,780,000 1,704,350
-----------
CONSUMER PRODUCTS (6.0%)
Coty, Inc.
10.25%, 05/01/05 ............................... 1,000,000 1,042,500
Doane Products Co.
10.625%, 03/01/06 .............................. 775,000 779,844
Harman International
12.00%, 08/01/02 ............................... 300,000 328,875
Herff Jones, Inc.
11.00%, 08/15/05 ............................... 1,000,000 1,035,000
Plantronics, Inc.
10.00%, 01/15/01 ............................... 1,825,000 1,838,688
Selmer Co., Inc.
11.00%, 06/30/00 ............................... 350,000 376,250
11.00%, 05/15/05 ............................... 500,000 530,000
@ Sola Group Ltd.
6.00%, 12/15/03 ................................ 750,000 714,375
-----------
6,645,532
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>

LIPPER HIGH INCOME BOND FUND
FINANCIAL STATEMENTS (UNAUDITED)
PORTFOLIO OF INVESTMENTS--(CONTINUED)
JUNE 30, 1996
<CAPTION>
FACE
AMOUNT VALUE+
------- ------
<S> <C> <C>
CORPORATE BONDS--(CONTINUED)
CONTAINER/PACKAGE MANUFACTURING (2.1%)
Owen Illinois, Inc.
10.00%, 08/01/02 ................................ $1,076,000 $ 1,097,520
11.00%, 12/01/03 ................................ 500,000 538,750
Riverwood International Corp.
10.25%, 04/01/06 ................................ 750,000 748,125
-----------
2,384,395
-----------
ENERGY (8.5%)
Crown Central Petroleum
10.875%, 02/01/05 ............................... 1,725,000 1,742,250
Ferrell Gas L.P.
10.00%, 08/01/01 ................................ 1,800,000 1,858,500
Global Marine, Inc.
12.75%, 12/15/99 ................................ 1,250,000 1,359,375
Gulf Canada Resources Ltd.
9.25%, 01/15/04 ................................. 1,250,000 1,221,875
Nuevo Energy Co.
12.50%, 06/15/02 ................................ 750,000 810,000
9.50%, 04/15/06 ................................. 1,000,000 985,000
Tuboscope Vetco International, Inc.
10.75%, 04/15/03 ................................ 500,000 512,500
United Meridan Corp.
10.375%, 10/15/05 ............................... 1,000,000 1,027,500
-----------
9,517,000
-----------
ENTERTAINMENT (1.1%)
++AMF Group, Inc.
10.875%, 03/15/06 ................................ 1,000,000 990,000
Royal Caribbean Cruises Ltd.
11.375%, 05/15/02 ................................ 250,000 269,688
-----------
1,259,688
-----------
FINANCIAL INSTITUTIONS (1.4%)
Navistar Financial Corp.
8.875%, 11/15/98 ................................. 1,500,000 1,507,500
-----------
FOOD & FOOD SERVICES (3.7%)
Canandaigua Wine, Inc.
8.75%, 12/15/03 .................................. 735,000 716,625
Carrols Corp.
11.50%, 08/15/03 ................................. 750,000 765,000
Chiquita Brands International
11.50%, 06/01/01 ................................. 750,000 792,188
Keebler Corp.
10.75%, 07/01/06 ................................. 375,000 387,188
Rykoff Sexton, Inc.
8.875%, 11/01/03 ................................. 575,000 531,875
SC International Services, Inc.
13.00%, 10/01/05 ................................. 825,000 901,312
-----------
4,094,188
-----------

</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>

LIPPER HIGH INCOME BOND FUND
FINANCIAL STATEMENTS (UNAUDITED)
PORTFOLIO OF INVESTMENTS--(CONTINUED)
JUNE 30, 1996
<CAPTION>

FACE
AMOUNT VALUE+
---------- -----------
<S> <C> <C>
CORPORATE BONDS--(CONTINUED)
HEALTHCARE SERVICES & RELATED (7.0%)
Apria Healthcare Group, Inc.
9.50%, 11/01/02 ............................... $ 500,000 $ 513,750
Integrated Health Services, Inc.
9.625%, 05/31/02 .............................. 1,750,000 1,745,625
Quorum Health Group, Inc.
8.75%, 11/01/05 ............................... 1,500,000 1,477,500
Regency Health Services, Inc.
9.875%, 10/15/02 .............................. 925,000 892,625
++12.25%, 07/15/03 .............................. 500,000 508,750
Tenet Healthcare Corp.
8.625%, 12/01/03 .............................. 1,885,000 1,908,562
Universal Health Services, Inc.
8.75%, 08/15/05 ............................... 750,000 742,500
----------
7,789,312
----------
HOMEBUILDING & BUILDING MATERIALS (6.1%)
Congoleum Corp.
9.00%, 02/01/01 ................................ 1,500,000 1,432,500
Kaufman & Broad Home Corp.
10.375%, 09/01/99 .............................. 1,200,000 1,221,000
Interface, Inc.
9.50%, 11/15/05 ................................ 250,000 238,125
Schuller International Group, Inc.
10.875%, 12/15/04 .............................. 1,000,000 1,076,250
Sealy Corp.
9.50%, 05/01/03 ................................ 1,045,000 1,013,650
Toll Corp.
10.50%, 03/15/02 ............................... 1,075,000 1,118,000
Webb (Del E.) Corp.
10.875%, 03/31/00 .............................. 768,000 779,520
----------
6,879,045
----------
HOTELS (1.2%)
Marriott Corp., Series D
8.875%, 05/01/97 ................................ 100,000 100,250
Orient Express Hotels, Inc.
10.25%, 09/01/98 ................................ 335,000 335,419
Red Roof Inns, Inc.
9.625%, 12/15/03 ................................ 1,000,000 952,500
----------
1,388,169
----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>

LIPPER HIGH INCOME BOND FUND
FINANCIAL STATEMENTS (UNAUDITED)
PORTFOLIO OF INVESTMENTS--(CONTINUED)
JUNE 30, 1996
<CAPTION>
FACE
AMOUNT VALUE+
---------- -----------
<S> <C> <C>

CORPORATE BONDS--(CONTINUED)
METALS (4.5%)
Armco, Inc.
11.375%, 10/15/99 .............................. $1,855,000 $ 1,910,650
Great Lakes Carbon Corp.
10.00%, 01/01/06 ............................... 735,000 760,725
GS Technologies Operating Co.
12.25%, 10/01/05 ............................... 1,350,000 1,387,125
Republic Engineered Steels, Inc.
9.875%, 12/15/01 ............................... 1,000,000 936,250
-----------
4,994,750
-----------
MULTIMEDIA (5.4%)
Ackerly Communications, Inc., Class B
10.75%, 10/01/03 ............................... 1,525,000 1,589,812
Heritage Media Corp.
11.00%, 06/15/02 ............................... 1,850,000 1,965,625
Lamar Advertising Co.
11.00%, 05/15/03 ............................... 825,000 847,687
Valassis Inserts, Inc.
9.375%, 03/15/99 ............................... 750,000 762,788
Viacom, Inc.
8.00%, 07/07/06 ................................ 900,000 835,875
-----------
6,001,787
-----------
PUBLISHING (1.2%)
Hollinger International, Inc.
9.25%, 02/01/06 ................................ 700,000 644,875
K-III Communications Corp.
10.625%, 05/01/02 .............................. 625,000 654,688
-----------
1,299,563
-----------
RETAILERS (1.9%)
Cort Furniture Rental
12.00%, 09/01/00 ............................... 500,000 523,125
Michaels Stores, Inc.
10.875%, 06/15/06 .............................. 1,000,000 1,020,000
Southland Corp.
5.00%, 12/15/03 ................................ 775,000 606,438
-----------
2,149,563
-----------
SUPERMARKETS (0.9%)
Smith's Food & Drug Centers, Inc.
11.25%, 05/15/07 ............................... 1,025,000 1,040,375
-----------
TELECOMMUNICATIONS (2.1%)
++#IXC Communications, Inc.
13.00%, 10/01/05 ............................... 1,000,000 1,050,000
Teleport Communications Group, Inc.
9.875%, 07/01/06 ............................... 1,250,000 1,250,000
-----------
2,300,000
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>

LIPPER HIGH INCOME BOND FUND
FINANCIAL STATEMENTS (UNAUDITED)
PORTFOLIO OF INVESTMENTS--(CONTINUED)
JUNE 30, 1996
<CAPTION>

FACE
AMOUNT VALUE+
---------- -----------
<S> <C> <C>
CORPORATE BONDS--(CONTINUED)
TEXTILE/APPAREL MANUFACTURING (3.4%)
Dominion Textile, Inc.
8.875%, 11/01/03 ............................... $1,250,000 $ 1,209,375
Westpoint Stevens, Inc.
9.375%, 12/15/05 ............................... 2,625,000 2,559,375
-----------
3,768,750
-----------
TRANSPORTATION (1.9%)
Ameritruck Distribution Corp., Series B
12.25%, 11/15/05 ............................... 1,000,000 985,000
Sea Containers Ltd.
9.50%, 07/01/03 ................................ 750,000 750,000
Sea Containers Ltd., Series A
12.50%, 12/01/04 ............................... 325,000 360,750
-----------
2,095,750
-----------
UTILITIES (1.0%)
AES Corp.
9.75%, 06/15/00 ................................. 1,000,000 1,002,500
First PV Funding
9.125%, 07/15/96 ................................ 101,000 101,505
-----------
1,104,005
-----------
TOTAL CORPORATE BONDS (COST $100,447,376) ........... 99,824,421
-----------
CONVERTIBLE BONDS (1.9%)
AUTO MANUFACTURING (0.8%)
Mascotech, Inc.
4.50%, 12/15/03 ................................. 1,125,000 891,562
-----------
HEALTHCARE SERVICES & RELATED (0.4%)
Novacare, Inc.
5.50%, 01/15/00 ................................. 550,000 482,625
-----------
RETAILERS (0.7%)
Michaels Stores, Inc.
6.75%, 01/15/03 ................................. 850,000 718,174
-----------
TOTAL CONVERTIBLE BONDS (COST $2,097,722) ........... 2,092,361
-----------
No. of
Rights
-------
RIGHTS (0.0%)
CAPITAL GOODS, EQUIPMENT & OTHER MANUFACTURING (0.0%)
* Terex Corp., expiring 07/31/96 (COST $375) ....... 375 --
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>

LIPPER HIGH INCOME BOND FUND
FINANCIAL STATEMENTS (UNAUDITED)
PORTFOLIO OF INVESTMENTS--(CONTINUED)
JUNE 30, 1996
<CAPTION>

FACE
AMOUNT VALUE+
----------- ------------
<S> <C> <C>
SHORT-TERM INVESTMENT (14.6%)
U.S. TREAURY BILL (14.6%)
** 4.59%, 07/11/96 (Cost $16,326,159) ........... $16,347,000 $ 16,326,159
------------
TOTAL INVESTMENTS (105.9%) (Cost $118,871,632) .... 118,242,941
NET OTHER ASSETS AND LIABILITIES (-5.9%) .......... (6,601,749)
------------
NET ASSETS (100%) ................................. $111,641,192
============
</TABLE>

- ------------
+ See Note A to Financial Statements.
* Non-Income Producing Security.
** Interest rate disclosed represents yield at time of purchase.
@ Step Bond--coupon rate increases in increments to maturity.
Rate disclosed is as of June 30, 996.
Maturity date disclosed is the ultimate maturity.
# Variable Rate Security--rate disclosed is as of June 30, 1996.
++ 144A Security--certain conditions for public sale may exist.

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>

LIPPER U.S. EQUITY FUND
FINANCIAL STATEMENTS (UNAUDITED)
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996

SHARES VALUE+
------ -----------
<S> <C> <C>
COMMON STOCKS (77.7%)
BASIC MATERIALS (9.0%)
Cyprus Amax Minerals Co. ....................... 22,300 $ 504,538
*Hexcel Corp. ................................... 20,600 314,150
Wausau Paper Mills Co. ......................... 11,400 225,150
-----------
1,043,838
-----------
COMPUTERS (13.3%)
*Compaq Computer Corp. .......................... 11,000 541,750
International Business Machines Corp. .......... 10,000 990,000
-----------
1,531,750
-----------
CONSUMER CYCLICAL (6.7%)
*Viacom, Inc., Class B .......................... 20,000 777,500
-----------
CONSUMER NON-DURABLES (4.5%)
Seagram Company Ltd. ........................... 15,400 517,825
-----------
ENVIRONMENTAL SERVICES (4.0%)
Browning-Ferris Industries, Inc. ............... 15,800 458,200
-----------
FINANCE (8.8%)
Chase Manhattan Corp. .......................... 8,100 572,063
PNC Bank Corp. ................................. 14,800 440,300
-----------
1,012,363
-----------
TECHNOLOGY (14.0%)
Autodesk, Inc. ................................. 15,600 464,100
*EMC Corp. (Mass.) .............................. 30,000 558,750
Motorola, Inc. ................................. 9,500 597,312
-----------
1,620,162
-----------
TELECOMMUNICATIONS (17.4%)
*AirTouch Communications, Inc. .................. 17,000 480,250
AT&T Corp. ..................................... 8,000 496,000
MCI Communications Corp. ....................... 19,000 484,500
*Teleport Communications Group, Inc., Class A ... 28,700 541,712
-----------
2,002,462
-----------
TOTAL COMMON STOCKS (COST $8,797,451) ............. 8,964,100
-----------
<CAPTION>

FACE
AMOUNT
----------
SHORT-TERM INVESTMENT (26.4%)
U.S. TREASURY BILL (26.4%)
** 2.00%, 07/11/96 (Cost $3,039,310) ............. $3,041,000 3,039,310
-----------
TOTAL INVESTMENTS (104.1%) (COST $11,836,761) ..... 12,003,410
NET OTHER ASSETS AND LIABILITIES (-4.1%) .......... (474,279)
-----------
NET ASSETS (100%) ................................. $11,529,131
===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

12
<PAGE>

<TABLE>

LIPPER U.S. EQUITY FUND
FINANCIAL STATEMENTS (Unaudited)
PORTFOLIO OF INVESTMENTS--(Continued)
June 30, 1996
<CAPTION>
No. of
Contracts Value+
--------- -------
<S> <C> <C>
WRITTEN CALL OPTIONS
Autodesk, Inc., expiring 10/18/96,
Strike Price $35 .................................. 156 $21,450

Compaq Computer Corp., expiring 01/17/97,
Strike Price $50 .................................. 44 24,200
-------
TOTAL WRITTEN CALL OPTIONS
(Premium Received $76,200) ........................ $45,650
=======

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

+ -- See Note A to Financial Statements.

* -- Non-Income Producing Security.

** -- Interest rate disclosed represents yield at time of purchase.

The accompanying notes are an integral part of the financial statements.

</TABLE>

<PAGE>

<TABLE>

PRIME LIPPER EUROPE EQUITY FUND
FINANCIAL STATEMENTS (Unaudited)
PORTFOLIO OF INVESTMENTS
June 30, 1996
<CAPTION>

Shares Value+
------- ----------
<S> <C> <C>
COMMON STOCKS (96.2%)
Denmark (1.6%)
Danisco A/S ..................................... 10,120 $ 504,660
Tele Danmark A/S ................................ 6,665 334,212
----------
838,872
----------
Finland (0.9%)
Oy Nokia AB, Class A ............................ 12,320 455,108
----------
France (15.2%)
Assurances Generales de France .................. 29,380 796,959
Banque Nationale de Paris ....................... 13,355 469,595
Carrefour Supermarche S.A ....................... 1,055 592,064
Castorama Dubois Investisse ..................... 3,480 686,655
Cetelem ......................................... 3,730 839,776
Lafarge S.A ..................................... 11,556 700,466
Legrand S.A ..................................... 4,200 751,897
L'oreal ......................................... 2,380 791,481
LVMH ............................................ 3,055 725,852
Promodes ........................................ 3,125 902,413
Total S.A ....................................... 10,990 816,498
----------
8,073,656
----------
Germany (16.0%)
Allianz AG Holding .............................. 448 779,874
Altana AG ....................................... 800 622,631
Bayer AG ........................................ 25,750 907,179
Bayerische Motoren Werke AG ..................... 1,420 821,171
Deutsche Bank AG ................................ 17,300 820,612
Mannesmann AG ................................... 2,015 694,645
Muenchener Rueckversicherungs-Gesellschaft AG ... 449 918,678
Praktiker Bau-Und Heimwerkemaerkte AG ........... 25,000 649,671
SAP AG .......................................... 5,945 884,710
Siemens AG ...................................... 11,950 641,369
VEBA AG ......................................... 14,770 786,114
----------
8,526,654
----------
Ireland (1.0%)
Bank of Ireland ................................. 76,720 523,297
----------

Italy (5.7%)
Assicurazioni Generali .......................... 14,130 326,288
Banco Ambrosiano Veneto S.p.A ................... 100,940 271,333
Edison S.p.A .................................... 50,590 305,687
ENI S.p.A ....................................... 62,190 310,576
Italgas S.p.A ................................... 81,720 305,615
*Parmalat Finanziaria S.p.A ...................... 238,010 320,282
Rinascente S.p.A ................................ 33,670 241,389
Societa Assicuratrice Industriale ............... 29,060 278,102
Stet Societa Finanziaria Telefonica S.p.A ....... 96,230 325,620
Telecom Italia Mobile S.p.A ..................... 153,580 343,610
----------
3,028,502
----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>

PRIME LIPPER EUROPE EQUITY FUND
FINANCIAL STATEMENTS (Unaudited)
PORTFOLIO OF INVESTMENTS--(Continued)
June 30, 1996
<CAPTION>

Shares Value+
------- ----------
<S> <C> <C>
COMMON STOCKS--(Continued)
Netherlands (8.3%)
Aegon N.V ....................................... 9,160 $ 422,397
Elsevier N.V .................................... 28,950 439,897
Getronics N.V ................................... 17,100 379,220
Heineken N.V .................................... 1,335 298,721
ING Groep N.V ................................... 12,713 379,622
Koninklijke Ahold N.V ........................... 8,520 462,364
Nutricia Verenigde Bedrijven N.V ................ 4,115 435,763
Philips Electronics N.V ......................... 11,640 379,009
PolyGram N.V .................................... 5,650 334,127
Royal PTT Nederland N.V ......................... 11,600 439,636
Wolters Kluwer N.V .............................. 3,690 419,766
---------
4,390,522
---------
Spain (4.0%)
Argentaria S.A .................................. 9,040 395,056
Banco Santander S.A ............................. 8,090 378,206
Centros Comerciales Pryca, S.A .................. 16,130 403,518
Empresa Nacional de Electridad S.A .............. 6,495 405,699
Gas Natural SDG, Class E ........................ 2,655 558,336
---------
2,140,815
---------
Sweden (4.4%)
Asea Brown Boveri Ltd., Class B ................. 6,250 662,330
Astra AB ........................................ 14,070 614,708
Ericsson LM, Class B ............................ 26,140 565,091
Sandvik AB, Class B ............................. 22,420 518,566
---------
2,360,695
---------
Switzerland (9.5%)
Asea Brown Boveri Ltd. (Bearer) ................. 538 666,526
Ciba-Geigy AG, Class B .......................... 570 692,485
Nestle S.A ...................................... 584 667,896
Roche Holding AG ................................ 82 626,403
Sandoz AG ....................................... 592 677,993
Schweizerische Bankgesellschaft, Class B ........ 598 586,274
SGS Societe Generale de Surveillance
Holding S.A., Class B ......................... 250 599,240
Zurich Versicherungsgesellschaft (Registered) ... 2,045 558,099
---------
5,074,916
---------
United Kingdom (29.6%)
Abbey National plc .............................. 91,620 770,012
B.A.T. Industries plc ........................... 67,965 528,972
Boots Co. plc ................................... 80,975 728,349
British Airways plc ............................. 86,420 743,762
British Petroleum Co. plc ....................... 78,160 685,422
British Telecommunications plc .................. 119,700 643,398
Cadbury Schweppes plc ........................... 90,639 716,709
Carlton Communications plc ...................... 77,700 625,260
Cookson Group plc ............................... 127,210 560,253
Electrocomponents plc ........................... 122,220 725,296

</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>

PRIME LIPPER EUROPE EQUITY FUND
FINANCIAL STATEMENTS (Unaudited)
PORTFOLIO OF INVESTMENTS--(Continued)
June 30, 1996
<CAPTION>

Shares Value+
------- -----------
<S> <C> <C>
COMMON STOCKS--(Continued)
United Kingdom--(continued)
Legal & General Group plc .................... 56,850 $ 590,835
Lloyds TSB Group plc ......................... 156,323 764,968
Marks & Spencer plc .......................... 91,330 667,548
Reed International plc ....................... 41,250 690,159
Reuters Holdings plc ......................... 58,158 703,812
Sainsbury (J) plc ............................ 90,530 533,018
Siebe plc .................................... 49,740 706,255
Smith (David S.) Holdings plc ................ 145,660 615,487
SmithKline Beecham plc ....................... 70,762 756,857
Tesco plc .................................... 162,450 741,954
THORN EMI plc ................................ 25,660 715,136
Vodafone Group plc ........................... 189,560 705,281
Zeneca Group plc ............................. 37,995 839,926
-----------
15,758,669
-----------
TOTAL COMMON STOCKS (Cost $43,380,211) .......... 51,171,706
-----------
<CAPTION>

No. of
Rights
--------
RIGHTS (0.6%)
France (0.6%)
* Carrefour Supermarche S.A.,
expiring 7/96 (Cost $0) ..................... 1,055 291,926
-----------
TOTAL FOREIGN SECURITIES (96.8%)
(Cost $43,380,211) .......................... 51,463,632
-----------
<CAPTION>

Face
Amount
--------
FOREIGN CURRENCY (1.9%)
Deutsche Mark (Cost $1,020,218) .............. DEM 1,550,652 1,020,166
-----------
TOTAL INVESTMENTS (98.7%) (Cost $44,400,429) .. 52,483,798
NET OTHER ASSETS AND LIABILITIES (1.3%) ........ 682,967
-----------
NET ASSETS (100%) ............................... $53,166,765
===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

PRIME LIPPER EUROPE EQUITY FUND
FINANCIAL STATEMENTS (Unaudited)
PORTFOLIO OF INVESTMENTS--(Continued)
June 30, 1996

Forward Foreign Currency Exchange Contract Information:

Under the terms of forward foreign currency exchange contracts open at June
30, 1996, the Fund is obligated to deliver or is to receive foreign currency in
exchange for U.S. dollars or foreign currency as indicated below:

<TABLE>
<CAPTION>
Net
Currency to Settlement Unrealized
Deliver Value Date In Exchange For Value Gain (Loss)
- ------------------- -------- -------- ------------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
DEM 145,231 $ 95,563 07/01/96 ITL 145,216,117 $ 94,832 $ (731)
DEM 419,430 275,989 07/01/96 GBP 177,429 275,627 (362)
GBP 20,399 31,689 07/01/96 DEM 48,121 31,664 (25)
DEM 358,059 235,620 07/02/96 ESP 30,094,832 235,219 (401)
ITL 97,803,081 63,889 07/02/96 DEM 97,365 64,056 167
DEM 266,315 175,564 07/31/96 FRF 902,249 175,844 280
-------- -------- -------
$878,314 $877,242 $(1,072)
======== ======== =======
</TABLE>

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

+ --See Note A to Financial Statements.
* --Non-Income Producing Security.
CHF--Swiss Franc
DEM--Deutsche Mark
ESP--Spanish Peseta
FRF--French Franc
GBP--British Pound
ITL--Italian Lira

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>

PRIME LIPPER EUROPE EQUITY FUND
FINANCIAL STATEMENTS (Unaudited)
PORTFOLIO OF INVESTMENTS--(Continued)
June 30, 1996

Summary of Foreign Securities by Industry Classification
<CAPTION>

Percent of
Net
Industry Assets Value
- -------- ---------- -----------
<S> <C> <C>
Appliance & Household Products ................ 0.7% $ 379,008
Automobiles ................................... 1.5 821,171
Banking ....................................... 9.4 4,979,353
Beverage & Tobacco ............................ 1.9 1,024,573
Broadcast & Publishing ........................ 4.1 2,175,082
Building Materials ............................ 1.3 700,466
Business & Public Service ..................... 4.1 2,187,762
Chemicals ..................................... 3.0 1,599,664
Data Processing/Reproduction .................. 0.7 379,220
Electrical Components/Instruments ............. 2.2 1,180,405
Electrical/Electronics ........................ 6.2 3,287,214
Energy Sources ................................ 3.4 1,812,496
Financial Services ............................ 1.6 839,776
Food & Household Products ..................... 5.0 2,645,310
Forest & Paper ................................ 1.1 615,487
Health & Personal ............................. 9.3 4,929,999
Insurance ..................................... 9.5 5,050,854
Machinery & Engineering ....................... 1.3 694,645
Merchandising ................................. 13.0 6,900,869
Miscellaneous Materials ....................... 1.1 560,253
Multi-Industry ................................ 2.3 1,235,227
Recreation .................................... 2.0 1,049,264
Steel & Metals ................................ 1.0 518,566
Telecommunications ............................ 5.3 2,791,756
Transportation ................................ 1.4 743,762
Utilities-Electrical-Gas ...................... 4.4 2,361,450
----- -----------
Total Investments ............................. 96.8 51,463,632
Net Other Assets and Liabilities .............. 3.2 1,703,133
----- -----------
Net Assets .................................... 100.0% $53,166,765
===== ===========

</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
THE LIPPER FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)

<CAPTION>
Lipper Lipper Prime Lipper
High Income U.S. Equity Europe Equity
Bond Fund Fund Fund
------------ ----------- -----------
<S> <C> <C> <C>
Assets:
Investments, at value (Note A-1) ............................... $118,242,941 $12,003,410 $51,463,632
Cash ........................................................... 544 2,395 2,342,504
Foreign Currency, at value (Cost $1,020,218) ................... -- -- 1,020,166
Net Receivable for Closed Forward Foreign Currency Exchange
Contracts .................................................... -- -- 4,707
Interest Receivable ............................................ 2,255,446 -- 6,743
Dividends Receivable ........................................... -- 7,440 464,293
Foreign Withholding Tax Reclaim Receivable ..................... -- -- 59,826
Receivable for Investments Sold ................................ 2,129,219 -- 1,380,965
Receivable for Fund Shares Sold ................................ 40,000 -- 10,000
Receivable from Investment Adviser ............................. -- 43,530 --
Deferred Organization Costs .................................... 73,985 70,106 73,985
Prepaid Assets ................................................. 12,958 10,478 13,960
------------ ----------- -----------
Total Assets ................................................ 122,755,093 12,137,359 56,840,781
------------ ----------- -----------
Liabilities:
Payable for Investments Purchased .............................. 5,893,554 459,200 3,452,179
Payable for Fund Shares Redeemed ............................... 5,001,500 -- --
Organization Costs Payable ..................................... 68,696 68,852 68,696
Net Unrealized Loss on Forward Foreign Currency
Exchange Contracts ........................................... -- -- 1,072
Written Call Options, at value (Premium Received $76,200) ...... -- 45,650 --
Custodian Fees Payable ......................................... 3,031 1,795 10,681
Investment Advisory Fees Payable ............................... 87,698 -- 103,690
Administrative Fees Payable .................................... 15,673 5,959 9,258
Directors' Fees Payable ........................................ 4,365 624 2,653
Distribution Fees Payable--Retail Shares ....................... 57 331 116
Shareholder Servicing Fees Payable--Group Retirement Plan Shares 400 57 3
Other Liabilities .............................................. 38,927 25,760 25,668
------------ ----------- -----------
Total Liabilities ........................................... 11,113,901 608,228 3,674,016
------------ ----------- -----------
Net Assets ...................................................... $111,641,192 $11,529,131 $53,166,765
============ =========== ===========
Net Assets Consist of:
Paid in Captial ................................................ $111,515,061 $11,020,934 $43,856,270
Undistributed (Overdistributed) Net Investment Income (Loss) ... 679,062 98,221 289,552
Accumulated Net Realized Gain (Loss) ........................... 75,760 212,777 944,989
Unrealized Appreciation (Depreciation) on Investments,
Written Options and Currency Translations .................... (628,691) 197,199 8,075,954
------------ ----------- -----------
$111,641,192 $11,529,131 $53,166,765
============ =========== ===========
Premier Shares:
Net Assets ..................................................... $110,666,294 $10,971,118 $52,691,362
Shares Issued and Outstanding ($.001 par value)
(Authorized 3,333,333,333) ................................... 11,133,180 1,043,423 5,094,487
Net Asset Value, Offering and Redemption Price Per Share ....... $ 9.94 $ 10.51 $ 10.34
============ =========== ===========
Retail Shares:
Net Assets ..................................................... $ 232,034 $ 482,045 $ 470,194
Shares Issued and Outstanding ($.001 par value)
(Authorized 3,333,333,333) ................................... 23,351 45,914 45,459
Net Asset Value, Offering and Redemption Price Per Share ....... $ 9.94 $ 10.50 $ 10.34
============ =========== ===========
Group Retirement Plan Shares:
Net Assets ..................................................... $ 742,864 $ 75,968 $ 5,209
Shares Issued and Outstanding ($.001 par value)
(Authorized 3,333,333,334) ................................... 74,761 7,234 504
Net Asset Value, Offering and Redemption Price Per Share ....... $ 9.94 $ 10.50 $ 10.34
============ =========== ===========
Investments at Cost (including Foreign Currency) ............... $118,871,632 $11,836,761 $44,400,429
============ =========== ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
THE LIPPER FUNDS, INC.
STATEMENT OF OPERATIONS
For the Period Ended June 30, 1996 (Unaudited)

<CAPTION>
Lipper Lipper Prime Lipper
High Income U.S. Equity Europe Equity
Bond Fund* Fund** Fund***
----------- ----------- -------------
<S> <C> <C> <C>
Investment Income
Dividends ............................................ $ -- $ 30,894 $ 560,822
Interest ............................................. 1,960,673 128,048 --
Less: Foreign Taxes Withheld ......................... -- -- (77,639)
---------- -------- ----------
Total Income ...................................... 1,960,673 158,942 483,183
---------- -------- ----------
Expenses
Investment Advisory Fees--Note B
Basic Fee .......................................... $153,254 $46,621 $133,040
Less: Fee Waived ................................... (65,556) 87,698 (46,621) -- (29,350) 103,690
-------- -------- --------
Administrative Fees--Note C .......................... 40,916 36,746 27,414
Directors' Fees--Note D .............................. 4,479 8,251 2,766
Distribution Fees--Retail Shares--Note E ............. 57 331 116
Servicing Fees--Group Retirement Plan Shares--Note E . 400 57 3
Audit Fees ........................................... 9,000 9,000 9,000
Custodian Fees ....................................... 4,070 4,794 10,681
Legal Fees ........................................... 7,440 10,511 3,172
Registration and Filing Fees ......................... 30,191 20,564 22,678
Amortization of Organization Costs ................... 3,878 7,757 3,878
Other Expenses ....................................... 16,667 6,240 10,233
Reimbursement from Investment Adviser--Note B ........ -- (43,530) --
---------- -------- ----------
Total Expenses .................................... 204,796 60,721 193,631
---------- -------- ----------
Net Investment Income (Loss) ...................... 1,755,877 98,221 289,552
---------- -------- ----------
Net Realized Gain (Loss):
Investments sold ..................................... 75,760 186,446 1,004,420
Foreign Currency Transactions ........................ -- -- (59,431)
Written Options ...................................... -- 26,331 --
---------- -------- ----------
Total Net Realized Gain (Loss) ........................ 75,760 212,777 944,989
---------- -------- ----------
Net Change in Unrealized Appreciation (Depreciation):
Investments .......................................... (966,029) 166,649 490,779
Written Options ...................................... -- 30,550 --
Foreign Currency Translations ........................ -- -- (7,653)
---------- -------- ----------
Total Net Change in Unrealized Appreciation
(Depreciation) ...................................... (966,029) 197,199 483,126
---------- -------- ----------
Total Net Realized Gain (Loss) and Net Change in
Unrealized Appreciation (Depreciation) .............. (890,269) 409,976 1,428,115
---------- -------- ----------
Net Increase (Decrease) in Net Assets
Resulting from Operations ........................... $ 865,608 $508,197 $1,717,667
========== ======== ==========
</TABLE>

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

* The Lipper High Income Bond Fund commenced operations on April 1, 1996.
** The Lipper U.S. Equity Fund commenced operations on January 2, 1996.
*** The Prime Lipper Europe Equity Fund commenced operations on April 1, 1996.

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
THE LIPPER FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended June 30, 1996 (Unaudited)

<CAPTION>
Lipper Lipper Prime Lipper
High Income U.S. Equity Europe Equity
Bond Fund* Fund** Fund***
------------ ----------- -------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets Resulting from Operations:
Net Investment Income (Loss) .............................. $ 1,755,877 $ 98,221 $ 289,552
Net Realized Gain (Loss) .................................. 75,760 212,777 944,989
Net Change in Unrealized Appreciation (Depreciation) ...... (966,029) 197,199 483,126
------------ ----------- -----------
Net Increase (Decrease) in Net Assets Resulting from
Operations .............................................. 865,608 508,197 1,717,667
------------ ----------- -----------
Distributions:
Net Investment Income:
Premier Shares ........................................... (1,065,491) -- --
Retail Shares ............................................ (1,280) -- --
Group Retirement Plan Shares ............................. (10,044) -- --
------------ ----------- -----------
Total Distributions .................................... (1,076,815) -- --
------------ ----------- -----------
Capital Share Transactions: (Notes G and H):
Premier Shares:
Issued--Regular ........................................... 40,912,239 10,458,934 3,189,920
--Distributions Reinvested .......................... 949,271 -- --
--Contribution from Partnerships .................... 74,518,234 -- 50,208,413
Redeemed .................................................. (5,500,008) -- (2,414,235)
------------ ----------- -----------
Net Increase (Decrease) in Premier Shares Transactions .. 110,879,736 10,458,934 50,984,098
------------ ----------- -----------
Retail Shares:
Issued--Regular ........................................... 233,000 486,000 460,000
--Distributions Reinvested .......................... 69 -- --
Redeemed .................................................. (1,500) -- --
------------ ----------- -----------
Net Increase (Decrease) in Retail Shares Transactions ... 231,569 486,000 460,000
------------ ----------- -----------
Group Retirement Plan Shares:
Issued--Regular ........................................... 731,050 76,000 5,000
--Distributions Reinvested .......................... 10,044 -- --
------------ ----------- -----------
Net Increase (Decrease) in Group Retirement Plan
Shares Transactions .................................... 741,094 76,000 5,000
------------ ----------- -----------
Net Increase (Decrease) from Capital Share Transactions .... 111,852,399 11,020,934 51,449,098
------------ ----------- -----------
Total Increase (Decrease) .............................. 111,641,192 11,529,131 53,166,765
Net Assets:
Beginning of Period ....................................... -- -- --
------------ ----------- -----------
End of Period (including line A) .......................... $111,641,192 $11,529,131 $53,166,765
============ =========== ===========
(A) Accumulated undistributed (overdistributed) net
investment income (loss) ............................... $ 679,062 $ 98,221 $ 289,552
============ =========== ===========
</TABLE>

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

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
LIPPER HIGH INCOME BOND FUND
FINANCIAL HIGHLIGHTS
Selected Per Share Data & Ratios
For a share outstanding throughout each period.
<CAPTION>
Group
Premier Retail Retirement
Shares Shares Plan Shares
----------- ----------- -----------
April 1, April 11, April 12,
1996** to 1996*** to 1996*** to
June 30, June 30, June 30,
1996(3) 1996(3) 1996(3)
(Unaudited) (Unaudited) (Unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ......................... $10.00 $9.91 $9.93
------ ----- -----
Income From Investment Operations:
Net Investment Income (Loss)(1) ............................ 0.21 0.18 0.18
Net Realized and Unrealized Gain (Loss)
on Investments ........................................... (0.13) (0.01) (0.03)
------ ----- -----
Total From Investment Operations ....................... 0.08 0.17 0.15
------ ----- -----
Distributions:
Net Investment Income ...................................... (0.14) (0.14) (0.14)
------ ----- -----
Net Asset Value, End of Period ............................... $ 9.94 $9.94 $9.94
====== ===== =====
Total Return(2) .............................................. 0.80% 1.69% 1.48%
====== ===== =====
Ratios and Supplemental Data:
Net Assets, End of Period (000's) ............................ $110,666 $232 $743
Ratios After Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets ............................. 1.00%* 1.25%* 1.25%*
Net Investment Income to Average Net Assets ................ 8.52%* 8.26%* 8.37%*
Ratios Before Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets ............................. 1.32%* 1.57%* 1.57%*
Net Investment Income to Average Net Assets ................ 8.20%* 7.94%* 8.05%*
Portfolio Turnover Rate ...................................... 18% 18% 18%
</TABLE>

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

* Annualized
** Commencement of Fund operations.
*** Initial offering of shares by the Fund.

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

Period Ended
June 30, 1996
-------------
<S> <C>
Premier Shares ........................ $0.01
Retail Shares ......................... 0.01
Group Retirement Plan Shares .......... 0.01
</TABLE>

(2) Total return would have been lower had the Fund's investment adviser not
waived and/or reimbursed certain expenses during the period ended June 30,
1996.

(3) Per share amounts for the period ended June 30, 1996 are based on average
outstanding shares.

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
LIPPER U.S. EQUITY FUND
FINANCIAL HIGHLIGHTS
Selected Per Share Data & Ratios
For a share outstanding throughout each period.
<CAPTION>
Group
Premier Retail Retirement
Shares Shares Plan Shares
----------- ----------- -----------
January 2, January 4, January 4,
1996** to 1996*** to 1996*** to
June 30, June 30, June 30,
1996(3) 1996(3) 1996(3)
(Unaudited) (Unaudited) (Unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ......................... $10.00 $10.00 $10.00
------ ------ ------
Income From Investment Operations:
Net Investment Income (Loss)(1) ............................ 0.09 0.07 0.07
Net Realized and Unrealized Gain (Loss)
on Investments ........................................... 0.42 0.43 0.43
------ ------ ------
Total From Investment Operations ....................... 0.51 0.50 0.50
------ ------ ------
Net Asset Value, End of Period ............................... $10.51 $10.50 $10.50
====== ====== ======
Total Return(2) .............................................. 5.10% 5.00% 5.00%
====== ====== ======
Ratios and Supplemental Data:
Net Assets, End of Period (000's) ............................ $10,971 $482 $76
Ratios After Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets ............................. 1.10%* 1.35%* 1.35%*
Net Investment Income to Average Net Assets ................ 1.81%* 1.29%* 1.29%*
Ratios Before Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets ............................. 2.75%* 3.00%* 3.00%*
Net Investment Income to Average Net Assets ................ 0.16%* (0.36)%* (0.36)%*
Portfolio Turnover Rate ...................................... 30% 30% 30%
Average Commission Rate ...................................... $0.0396 $0.0396 $0.0396
</TABLE>

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

* Annualized
** Commencement of Fund operations.
*** Initial offering of shares by the Fund.

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

Period Ended
June 30, 1996
-------------
<S> <C>

Premier Shares ........................ $0.08
Retail Shares ......................... 0.08
Group Retirement Plan Shares .......... 0.08
</TABLE>

(2) Total return would have been lower had the Fund's investment adviser not
waived and/or reimbursed certain expenses during the period ended June 30,
1996.

(3) Per share amounts for the period ended June 30, 1996 are based on average
outstanding shares.

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
PRIME LIPPER EUROPE EQUITY FUND
FINANCIAL HIGHLIGHTS
Selected Per Share Data & Ratios
For a share outstanding throughout each period.
<CAPTION>
Group
Premier Retail Retirement
Shares Shares Plan Shares
----------- ----------- -----------
April 1, April 11, April 12,
1996** to 1996*** to 1996*** to
June 30, June 30, June 30,
1996(3) 1996(3) 1996(3)
(Unaudited) (Unaudited) (Unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ...................... $10.00 $ 9.93 $ 9.92
------ ------ ------
Income From Investment Operations:
Net Investment Income (Loss)(1) ......................... 0.06 0.05 0.06
Net Realized and UnreaIized Gain (Loss)
on Investments ........................................ 0.28 0.36 0.36
------ ------ ------
Total From Investment Operations ...................... 0.34 0.41 0.42
------ ------ ------
Net Asset Value, End of Period ............................ $10.34 $10.34 $10.34
====== ====== ======
Total Return(2) ........................................... 3.40% 4.13% 4.23%
====== ====== ======
Ratios and Supplemental Data:
Net Assets, End of Period (000's) ......................... $52,692 $470 $5
Ratios After Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets .......................... 1.60%* 1.85%* 1.85%*
Net Investment Income to Average Net Assets ............. 2.31%* 2.34%* 2.61%*
Ratios Before Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets .......................... 1.83%* 2.08%* 2.08%*
Net Investment Income to Average Net Assets ............. 2.08%* 2.11%* 2.38%*
Portfolio Turnover Rate ................................... 8% 8% 8%
Average Commission Rate ................................... $0.0635 $0.0635 $0.0635
</TABLE>

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

* Annualized
** Commencement of Fund operations.
*** Initial offering of shares by the Fund.

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

Period Ended
June 30, 1996
-------------
<S> <C>
Premier Shares ........................ $0.01
Retail Shares ......................... 0.01
Group Retirement Plan Shares .......... 0.01
</TABLE>

(2) Total return would have been lower had the Fund's investment adviser not
waived and/or reimbursed certain expenses during the period ended June 30,
1996.

(3) Per share amounts for the period ended June 30, 1996 are based on average
outstanding shares.

The accompanying notes are an integral part of the financial statements.

<PAGE>

THE LIPPER FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)

The Lipper Funds, Inc. (the "Company") is registered under the Investment
Company Act of 1940 as an open-end management investment company and was
incorporated on August 22, 1995. As of June 30, 1996, the Company was comprised
of three diversified portfolios (each referred to as the "Fund" and collectively
as the "Funds"): Lipper High Income Bond Fund, Lipper U.S. Equity Fund, and
Prime Lipper Europe Equity Fund. The Company offers the shares of each Fund in
three classes: Premier Shares, Retail Shares and Group Retirement Plan Shares.
The Lipper U.S. Equity Fund commenced investment operations on January 2, 1996.
The Lipper High Income Bond Fund and Prime Lipper Europe Equity Fund were both
funded as registered investment companies on April 1, 1996 with a contribution
of securities to each Fund from a corresponding limited partnership (see
Note G).

A. Significant Accounting Policies. The following significant accounting
policies are in conformity with generally accepted accounting principles for
investment companies. Such policies are consistently followed by the Funds in
the preparation of their financial statements. Generally accepted accounting
principles may require management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual results
may differ from those estimates.

The Lipper High Income Bond Fund seeks high current income by investing
primarily in high yield securities with maturities of less than 10 years. The
Lipper U.S. Equity Fund seeks capital appreciation by investing primarily in a
diversified portfolio of common stocks of U.S. issuers with market
capitalization in excess of $500 million. The Prime Lipper Europe Equity Fund
seeks capital appreciation by investing primarily in a diversified portfolio of
common stocks of issuers located in Europe that have strong levels of growth
based on such factors as liquidity, financial strength, earnings growth,
industry position and management.

1. Security Valuation: Securities listed on a securities exchange for which
market quotations are readily available are valued at the last sale price as of
the close of the exchange on the day the valuation is made or, if no sale
occurred on such day, at the mean of the closing bid and asked prices on such
day. Price information on listed securities is taken from the exchange where the
security is primarily traded. Over-the-counter and unlisted securities are
valued at the bid price. Fixed income securities are stated on the basis of
valuations provided by brokers and/or a pricing service which uses information
with respect to transactions in fixed income securities, quotations from
dealers, market transactions in comparable securities and various relationships
between securities in determining value. Short-term investments that have
remaining maturities of sixty days or less at time of purchase are valued at
amortized cost, if it approximates market value. The value of securities for
which no quotations are readily available is determined in good faith at fair
value using methods determined by the Board of Directors.

2. Federal Income Taxes: It is each Fund's intention to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code and
to distribute all of its taxable income. Accordingly, no provision for Federal
income taxes is required in the financial statements. The Prime Lipper Europe
Equity Fund may be subject to taxes imposed by countries in which it invests.
Such taxes are generally based on income earned or reported and are accrued when
the related income is earned.

At June 30, 1996, cost of investments and unrealized appreciation
(depreciation) of investments for Federal income tax purposes were:

<TABLE>
<CAPTION>
Net
Appreciation
Fund Cost Appreciation (Depreciation) (Depreciation)
------ ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
Lipper High Income Bond Fund ................. $118,871,632 $ 481,233 $(1,109,924) $ (628,691)
Lipper U.S. Equity Fund ...................... 11,836,761 507,257 (340,608) 166,649
Prime Lipper Europe Equity Fund .............. 44,400,429 9,120,684 (1,037,315) 8,083,369
</TABLE>

<PAGE>

THE LIPPER FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)--(Continued)

3. Foreign Currency Translation and Foreign Investments: The books and
records of the Funds are maintained in U.S. dollars. Foreign currency amounts
are translated into U.S. dollars at the mean of the bid and asked prices of such
currencies against U.S. dollars quoted by a major U.S. or foreign bank. Although
the net assets of the Funds are presented at the foreign exchange rates and
market values at the close of the period, the Funds do not isolate that portion
of operations arising as a result of changes in the foreign exchange rates from
the fluctuations arising from changes in the market prices of the securities
held at period end. Similarly, the Funds do not isolate the effect of changes in
foreign exchange rates from the fluctuations arising from changes in the market
prices of securities sold during the period. Accordingly, realized and
unrealized foreign currency gains (losses) are included in the reported net
realized and unrealized gains (losses) on investment transactions and balances.
Pursuant to U.S. Federal income tax regulations, gains and losses from certain
foreign currency transactions are treated as ordinary income for U.S. Federal
income tax purposes.

Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from sales and maturities of foreign currency
exchange contracts, dispositions of foreign currencies, currency gains or losses
realized between the trade and settlement dates on securities transactions and
the difference between the amount of investment income and foreign withholding
taxes recorded on the Funds' books and the U.S. dollar equivalent amounts
actually received or paid. Net unrealized currency gains (losses) from valuing
foreign currency denominated assets and liabilities at period end exchange rates
are reflected as a component of unrealized appreciation (depreciation) in the
Statement of Asset and Liabilities. The change in net unrealized currency gains
(losses) for the period is reflected in the Statement of Operations.

Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of U.S. dollar
denominated transactions as a result of, among other factors, the possibility of
lower levels of governmental supervision and regulation of foreign securities
markets and the possibility of political or economic instability.

4. Forward Foreign Currency Exchange Contracts: The Prime Lipper Europe
Equity Fund may enter into forward foreign currency exchange contracts to
attempt to protect securities and related receivables and payables against
changes in future foreign currency exchange rates. A forward foreign currency
exchange contract is an agreement between two parties to buy or sell currency at
a set price on a future date. The market value of the contract will fluctuate
with changes in currency exchange rates. The contract is marked-to-market daily
using the forward rate and the change in market value is recorded by the Fund as
unrealized gain or loss. The Fund records realized gains or losses, when the
contract is closed, equal to the difference between the value of the contract at
the time it was opened and the value at the time it was closed. Risk may arise
upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and is generally limited to
the amount of the unrealized gain on the contracts, if any, at the date of
default. Risks may also arise from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar.

5. Distributions to Shareholders: The Lipper High Income Fund intends to
distribute substantially all of its net investment income monthly. The Lipper
U.S. Equity and Prime Lipper Europe Equity Funds intend to distribute
substantially all of their net investment income annually. Net realized capital
gains, if any, will be distributed at least annually by each Fund. All
distributions are recorded on ex-dividend date.

Income and capital gains distributions are determined in accordance with
U.S. Federal income tax regulations which may differ from generally accepted
accounting principles.

6. Purchased and Written Options: Each Fund may purchase or write put and
call options on securities, securities indices, currencies and other financial
instruments. 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. The Fund may purchase
a put option on a security to protect its holdings in the underlying instrument,
or a similar instrument, against a substantial decline in the market value of
such instrument by giving the Fund the right to sell the instrument at the
option exercise price. A call option, upon payment of a premium,

<PAGE>

THE LIPPER FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)--(Continued)

gives the purchaser of the option the right to buy, and the seller the
obligation to sell, the underlying instrument at the exercise price. The
purchase of a call option on a security, index or other instrument might be
intended to protect the 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. Each Fund may purchase a put or call
option to close out a written put or call option or write a put or call option
to close out a purchased put or call option. This closing out would be in lieu
of taking or making delivery of the underlying securities.

Options contracts are valued daily and unrealized appreciation or
depreciation is recorded based upon the last sales price on the principal
exchange on which the option is traded. A Fund will realize a gain or loss upon
the expiration or closing of the option transaction. Premiums received or paid
from the writing or purchasing of options are offset against the proceeds of
securities sold or added to the cost of securities purchased upon the exercise
of the option. Upon expiration of a purchased or written option, the premium is
recorded as a realized loss or gain, respectively. Possible losses on purchased
options can not exceed the total premium paid.

Use of written put and call options could result in losses to a Fund, force
the purchase or sale of portfolio securities at inopportune times or for prices
higher or lower than current market values, or cause the Fund to hold a security
it might otherwise not purchase or sell. Losses which may result from the use of
options will reduce a Fund's net asset value, and possibly income, and such
losses may be greater than if options had not been used.

During the period ended June 30, 1996, the Lipper U.S. Equity Fund
participated in writing call options. The Fund had option activity as follows:

Number of
Contracts Premium
--------- --------
<S> <C> <C>
Options outstanding at January 2, 1996* ........ -- $ --
Options written during the period .............. 375 110,675
Options exercised during the period ............ 175 34,475
--- --------
Options outstanding as of June 30, 1996 ........ 200 $ 76,200
--- --------
</TABLE>
- ------------

* Commencement of Fund investment operations.

7. Other: Security transactions are accounted for on the date the
securities are purchased or sold. Costs used in determining realized gains and
losses on the sale of investment securities are based on the specific
identification method. Dividend income is recorded on the ex-dividend date.
Interest income is recognized on the accrual basis. Discounts and premiums on
securities purchased are amortized according to the effective yield method over
their respective lives. Income, expenses (other than class specific expenses)
and realized and unrealized gains or losses are allocated to each class of
shares based upon their relative net assets.

B. Advisory Services: Lipper & Company, L.L.C. (the "U.S. Adviser") serves as
the investment adviser to the Lipper High Income Bond Fund and Lipper U.S.
Equity Fund. Prime Lipper Asset Management (the "European Adviser" and together
with the U.S. Adviser, the "Advisers") serves as the investment adviser to the
Prime Lipper Europe Equity Fund. Under the terms of separate Investment Advisory
Agreements (the "Agreements"), the Advisers provide investment advisory services
for a fee calculated at an annual rate of 0.75%, 0.85% and 1.10% of the average
daily net assets of the Lipper High Income Bond, Lipper U.S. Equity and Prime
Lipper Europe Equity Funds, respectively. From time to time, the Advisers may
voluntarily waive, for a period of time, all or a portion of the fee to which
they are entitled under their Agreements with the Funds.

C. Administrative Services: Chase Global Funds Services Company, a wholly owned
subsidiary of The Chase Manhattan Bank ("Chase"), serves as the Company's
administrator (the "Administrator") pursuant to an Administrative Agreement.
Under the Administrative Agreement, the Administrator provides administrative,
fund accounting, dividend disbursing and transfer agent services to the Company.
As compensation for its services, the Company pays the Administrator a monthly
fee at the annual rate of 0.20% of the Company's average daily net assets up to
and including $200 million; 0.10% of the Company's average daily net assets in
excess of $200 million up to and

<PAGE>

THE LIPPER FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)--(Continued)

including $400 million and 0.05% of the Company's average daily net assets in
excess of $400 million. Chase also acts as the Company's custodian for each
Fund's assets. The Company is subject to a minimum annual fee per Fund of
$70,000 per year.

D. Directors' Fees: The Company pays each Director who is not a director,
officer or employee of the Advisers or any of their affiliates, a fee of $8,000
per annum plus $500 per quarterly meeting attended and reimbursements for
expenses incurred in attending Board meetings.

E. Distribution Services: Lipper & Company, L.P. serves as the Company's
distributor (the "Distributor"). The Distributor is entitled to receive an
annual distribution fee payable from the net assets of each Fund's Retail Shares
of up to 0.25% of the average daily net assets of such Fund's Retail Shares. The
Company intends to enter into servicing agreements with respect to each Fund's
Group Retirement Plan Shares. Under such servicing agreements, each servicing
agent will be entitled to receive from the net assets of each Fund's Group
Retirement Plan Shares, an annual servicing fee of up to 0.25% of the average
daily net assets of such Fund's Group Retirement Plan Shares for certain support
services which supplement the services provided by the Company's administrator
and transfer agent.

F. Purchases and Sales: For the period ended June 30, 1996, the cost of
purchases and proceeds of sales for investment securities other than long-term
U.S. Government and short-term securities were:

Fund Purchases Sales
------ ----------- -----------
<S> <C> <C>
Lipper High Income Bond Fund .......... $43,750,588 $14,099,880
Lipper U.S. Equity Fund ............... 10,281,666 1,670,893
Prime Lipper Europe Equity Fund ....... 8,337,308 3,917,077

</TABLE>

There were no long-term purchases or sales of U.S. Government securities.

G. Limited Partnership Transfers: Each of the Lipper High Income Bond Fund and
the Prime Lipper Europe Equity Fund has been formed as a successor investment
vehicle for a corresponding limited partnership (each individually a
"Partnership" and collectively the "Partnerships") for which Lipper & Company,
L.P., an affiliate of the U.S. Adviser, or the European Adviser acted as general
partner and investment adviser since inception. On April 1, 1996, each such Fund
exchanged Premier Shares for portfolio securities of its corresponding
Partnership (individually a "Transfer" and collectively the "Transfers").
Premier Shares issued by each such Fund in the Transfers were issued at the net
asset value of Premier Shares prior to the Transfers. Premier Shares received in
the Transfers have been distributed to each Partnership's limited partners who
elected to participate in the Transfers. Securities valued at $74,518,234 and
$50,208,413 at the date of Transfers with unrealized appreciation of $337,338
and $7,592,828, were contributed to the Lipper High Income Bond Fund and the
Prime Lipper Europe Equity Fund, respectively. To the extent that a Fund
acquired securities in a Transfer that had appreciated in value from the date
originally acquired by its corresponding Partnership, the Transfer may have
adverse tax consequences to investors who acquire shares of the Fund in the
continuous offering after the Transfer.

<PAGE>

THE LIPPER FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)--(Continued)

H. Other: Capital share transactions for the period ended June 30, 1996 for each
Fund, by class of shares, were as follows:

<TABLE>
<CAPTION>
Lipper Lipper Prime Lipper
High Income U.S. Equity Europe Equity
Bond Fund Fund Fund
----------- ----------- -------------
<S> <C> <C> <C>
Premier Shares (1):
Issued--Regular .............................................. 4,138,545 1,043,423 314,480
--Distributions Reinvested ............................. 95,789 -- --
--Contribution from Partnerships ....................... 7,451,823 -- 5,020,243
Redeemed ..................................................... (552,977) -- (240,236)
---------- --------- ---------
Net Increase (Decrease) ...................................... 11,133,180 1,043,423 5,094,487
---------- --------- ---------

Retail Shares (2):
Issued--Regular .............................................. 23,495 45,914 45,459
--Distributions Reinvested ............................. 7 -- --
Redeemed ..................................................... (151) -- --
---------- --------- ---------
Net Increase (Decrease) ...................................... 23,351 45,914 45,459
---------- --------- ---------
Group Retirement Plan Shares (3):
Issued--Regular .............................................. 73,748 7,234 504
--Distributions Reinvested ............................. 1,013 -- --
---------- --------- ---------
Net Increase (Decrease) ...................................... 74,761 7,234 504
---------- --------- ---------
</TABLE>

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

1. Initial offering of Premier Shares commenced on April 1, 1996, January 2,
1996 and April 1, 1996 for the Lipper High Income Bond Fund, the Lipper
U.S. Equity Fund and the Prime Lipper Europe Equity Fund, respectively.

2. Initial offering of Retail Shares commenced on April 11, 1996, January 4,
1996 and April 11, 1996 for the Lipper High Income Bond Fund, the Lipper
U.S. Equity Fund and the Prime Lipper Europe Equity Fund, respectively.

3. Initial offering of Group Retirement Plan Shares commenced on April 12,
1996, January 4, 1996 and April 12, 1996 for the Lipper High Income Bond
Fund, the Lipper U.S. Equity Fund and the Prime Lipper Europe Equity Fund,
respectively.