LIPPER FUNDS INC, N-30D, 1998-09-01

LIPPER FUNDS INC
N-30D, 1998-09-01

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============================
THE LIPPER FUNDS, INC.
============================

LIPPER HIGH INCOME BOND FUND

Semi-Annual Report
==============================================
June 30, 1998

<PAGE>

=================
TABLE OF CONTENTS
=================

Shareholder's Letter ............................. 1-2

Portfolio of Investments ........................ 3-8

Statement of Assets and Liabilities ............. 9

Statement of Operations ......................... 10

Statement of Changes in Net Assets .............. 11

Financial Highlights ............................ 12

Notes to Financial Statements ................... 13-15

<PAGE>

THE LIPPER FUNDS, INC. SEMI-ANNUAL REPORT
THE LIPPER HIGH INCOME BOND FUND June 30, 1998

Dear Shareholder:

We are pleased to present the semi-annual report for The Lipper High Income
Bond Fund for the fiscal period ended June 30, 1998. The Lipper High Income Bond
Fund is one of three investment portfolios--along with The Lipper U.S. Equity
Fund and The Prime Lipper Europe Equity Fund--which comprise The Lipper Funds,
Inc. Each of the Lipper Funds is made available to individual, institutional and
group retirement plan investors through a separate class of shares. This report
presents the financial statements and performance review for The Lipper High
Income Bond Fund for the period ended June 30, 1998.

PERFORMANCE AND PORTFOLIO REVIEW

Performance as discussed below reflects the performance of the Fund's
Premier class of shares. Performance for the Fund's Retail and Group Retirement
Plan Shares (see page 12) differs from Premier Shares performance dueto the
higher class specific expenses associated with the Retail and Group Retirement
Plan classesof shares.

THE LIPPER HIGH INCOME BOND FUND

The Lipper High Income Bond Fund seeks high current income by investing in
a diversified portfolio of quality, high yield, intermediate-term bonds rated
BBB to B-. The Fund seeks to simultaneously manage risk through in-depth credit
analysis and portfolio diversification, and by focusing its investments in
short-to-intermediate term maturities.

During the six-months ended June 30, 1998, the Fund generated a total
return of 3.92% net of all fees and expenses. As a comparison, over the same six
month period ended June 30, the Fund's unmanaged benchmark index, the Lehman
Intermediate BB Index, generated a total return of 4.14%.

The Fund's six-month performance as of June 30, 1998 trailed that of the
benchmark index due in part to strong price gains during the first quarter
within certain sectors, as well as gains in some of the newer issues which do
not meet the Fund's investment criteria. Our investment strategy, however, paid
off during the second quarter as high yield prices came under pressure, due in
part to our consistent approach to investment selection. For example, the Fund's
manager only invests in those companies capable of generating strong cash flow.
As a result, the Fund had a relatively low exposure to the telecommunication
industry which currently has tight debt coverage from cash flow relative to
other high yield issues. While telecommunication issues proved to be very strong
performers in the first quarter, many of these issues suffered heavy price
declines in the second quarter of 1998.

Prices in the high yield market suffered in the second quarter of 1998
following strong price gains during most of 1997 and early 1998. High yield
prices came under pressure during the second quarter in response to the
continued record supply of new issues coming to market, as well as to some
concern about the impact of the Asian crisis on corporate earnings. Although
demand has remained strong, investors have responded to current market
conditions by widening the yield spreads on most high yield issues. As a result,
the high yield market witnessed negative price returns across all sectors during
the last three consecutive months.

The Fund's new cash, as well as cash flow from maturing and called issues
was invested primarily in quality, seasoned high yield issues, which the
portfolio manager believes offer more attractive risk/reward profiles than those
issues which have recently come to market. Exposure to the new issue market has
remained limited as the Fund invested only in a select few of the new high yield
issues which came to market during the period. Given the prevailing market
conditions during the second quarter, the Fund's manager did take the
opportunity to selectively add both to the Fund's current positions, as well as
issues that were fundamentally attractive, but which had previously been trading
at too narrow a yield spread.

MARKET OUTLOOK AND PORTFOLIO STRATEGY

Our outlook for The Lipper High Income Bond Fund is positive for the
remainder of 1998, although we expect some price volatility among high yield
issues as the impact of Asian financial crisis filters into multinational

<PAGE>

corporate earnings figures. Domestic economic growth should continue to be
supported by high consumer confidence, low interest rates and low unemployment,
but will likely be tempered by a rising trade surplus resulting from troubles in
Asia. The net effect will likely be one of moderate economic growth, combined
with little in the way of inflationary pressures. The environment for high yield
issues will likely become more selective over the coming months, but should
benefit those companies with strong domestic market positions.

As long-term investors, Lipper & Company's philosophy is to remain
consistent in our overall investment strategy and approach which has proven
sound in both positive and challenging market conditions. Regardless of the
market conditions, Lipper will remain consistent in its investment
approach--investing and trading issues which, based upon internal analysis,
offer attractive yields compared to their official credit rating or market
perceptions. We hope you find the enclosed report informative. We very much
appreciate your participation in The Lipper Funds, Inc.

Sincerely,

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

<PAGE>

<TABLE>

LIPPER HIGH INCOME BOND FUND

PORTFOLIO OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)

<CAPTION>
FACE
AMOUNT VALUE+
---------- -----------
<S> <C> <C>
CORPORATE BONDS (95.8%)
AEROSPACE (2.6%)
Sequa Corp.
9.625%, 10/15/99 .......................................... $1,850,000 $ 1,910,125
Wyman-Gordon Co.
8.00%, 12/15/07 ........................................... 500,000 508,125
-----------
2,418,250
-----------
AUTO MANUFACTURING & RELATED (2.4%)
Delco Remy International, Inc.
10.625%, 08/01/06 ......................................... 1,000,000 1,085,000
Hayes Wheels International, Inc.
11.00%, 07/15/06 .......................................... 1,000,000 1,135,000
----------
2,220,000
----------
CABLE (2.6%)
Adelphia Communications
9.25%, 10/01/02 ........................................... 1,500,000 1,556,250
Fundy Cable Ltd.
11.00%, 11/15/05 .......................................... 750,000 832,500
-----------
2,388,750
-----------
CAPITAL GOODS, EQUIPMENT & OTHER MANUFACTURING (4.2%)
American Standard
7.125%, 02/15/03 .......................................... 500,000 497,500
Communications & Power Industries, Series B
12.00%, 08/01/05 .......................................... 625,000 703,125
++ Coyne International Enterprises
11.25%, 06/01/08 .......................................... 1,000,000 1,007,500
International Knife & Saw, Inc.
11.375%, 11/15/06 ......................................... 1,500,000 1,635,000
-----------
3,843,125
-----------
COMMERCIAL SERVICES (8.0%)
Cort Furniture Rental
12.00%, 09/01/00 .......................................... 800,000 880,000
Host Marriott Travel Plaza, Class B
9.50%, 05/15/05 ........................................... 1,000,000 1,070,000
Prime Succession
10.75%, 08/15/04 ........................................ 1,000,000 1,097,500
Salem Communications Corp., Series B
9.50%, 10/01/07 ......................................... 1,000,000 1,050,000
Specialty Equipment Company
11.375%, 12/01/03 ......................................... 1,700,000 1,827,500
++ United Stationers Inc.
8.375%, 04/15/08 .......................................... 500,000 502,500
++ Wesco Distribution Inc.
9.125%, 06/01/08 .......................................... 1,000,000 995,000
-----------
7,422,500
-----------
</TABLE>

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

<PAGE>

<TABLE>

LIPPER HIGH INCOME BOND FUND

PORTFOLIO OF INVESTMENTS--(Continued)
JUNE 30, 1998 (UNAUDITED)

<CAPTION>
FACE
AMOUNT VALUE+
---------- -----------
<S> <C> <C>
CONSUMER PRODUCTS (3.5%)
Coty, Inc.
10.25%, 05/01/05 .......................................... $1,000,000 $ 1,070,000
Herff Jones, Inc.
11.00%, 08/15/05 .......................................... 1,000,000 1,095,000
Selmer Co., Inc.
11.00%, 05/15/05 .......................................... 1,000,000 1,090,000
-----------
3,255,000
-----------
ENERGY (1.1%)
AES Corp.
8.375%, 08/15/07 .......................................... 1,000,000 1,015,000
-----------

ENTERTAINMENT (3.1%)
AMF Group, Inc., Series B
10.875%, 03/15/06 ......................................... 1,000,000 1,070,000
Premier Parks
12.00%, 08/15/03 .......................................... 1,625,000 1,807,813
-----------
2,877,813
-----------
ENVIRONMENTAL SERVICES (1.2%)
Allied Waste N.A.
10.25%, 12/01/06 .......................................... 1,000,000 1,101,250
-----------

FINANCIAL INSTITUTIONS (2.5%)
Americredit Corp.
9.25%, 02/01/04 ........................................... 1,000,000 1,030,000
DVI, Inc.
9.875%, 02/01/04 .......................................... 1,250,000 1,309,375
-----------
2,339,375
-----------
FOOD & FOOD SERVICES (4.1%)
Canandaigua Wine, Inc.
8.75%, 12/15/03 ......................................... 1,000,000 1,030,000
Carrols Corp.
11.50%, 08/15/03 ........................................ 1,500,000 1,593,750
Keebler Corp.
10.75%, 07/01/06 ........................................ 375,000 423,750
Rykoff Sexton, Inc.
8.875%, 11/01/03 ........................................ 750,000 780,000
-----------
3,827,500
-----------
HEALTHCARE SERVICES & RELATED (3.4%)
++ Pediatric Services of America
10.00%, 04/15/08 .......................................... 500,000 497,500
Quorum Health Group, Inc.
8.75%, 11/01/05 ........................................... 1,000,000 1,040,000
Tenet Healthcare
8.625%, 01/15/07 .......................................... 1,500,000 1,556,250
-----------
3,093,750
-----------

</TABLE>

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

<PAGE>

<TABLE>

LIPPER HIGH INCOME BOND FUND

PORTFOLIO OF INVESTMENTS--(Continued)
JUNE 30, 1998 (UNAUDITED)

<CAPTION>
FACE
AMOUNT VALUE+
---------- -----------
<S> <C> <C>
HOMEBUILDING & BUILDING MATERIALS (9.8%)
Congoleum Corp.
9.00%, 02/01/01 ........................................... $1,500,000 $ 1,533,750
Del E. Webb
9.75%, 03/01/03 ........................................... 650,000 671,125
Kaufman & Broad Home
9.375%, 05/01/03 .......................................... 1,000,000 1,025,000
NVR Inc.
8.00%, 06/01/05 ........................................... 1,000,000 975,000
Nortek, Inc.
9.875%, 03/01/04 .......................................... 1,000,000 1,030,000
Ryland Group
10.50%, 07/15/02 .......................................... 1,000,000 1,030,000
Toll Brothers Corp.
9.50%, 03/15/03 ........................................... 1,000,000 1,041,250
Triangle Pacific Corp.
10.50%, 08/01/03 .......................................... 1,250,000 1,306,250
U.S. Home Corp.
8.88%, 08/15/07 ........................................... 419,000 427,380
-----------
9,039,755
-----------
HOTELS (2.2%)
Orient-Express Hotels, Inc.
10.25%, 09/01/98 .......................................... 209,000 211,351
Red Roof Inns, Inc.
9.625%, 12/15/03 .......................................... 1,750,000 1,785,000
-----------
1,996,351
-----------
INDUSTRIAL (1.1%)
Werner Holdings, Series A
10.00%, 11/15/07 .......................................... 1,000,000 1,045,000
-----------

MEDIA (1.4%)
Intermedia Communications, Series B
8.875%, 11/01/07 .......................................... 1,250,000 1,284,375
-----------

METALS (2.4)

GS Technologies Operating Co.
12.25%, 10/01/05 .......................................... 1,000,000 1,110,000
IVACO, Inc.
11.50%, 09/15/05 .......................................... 1,000,000 1,100,000
-----------
2,210,000
-----------
MULTIMEDIA (4.1%)
Ackerley Communications, Inc.
10.75%, 10/01/03 .......................................... 1,525,000 1,608,875
Lamar Advertising Co.
9.625%, 12/01/06 .......................................... 1,000,000 1,076,250
Outdoor Systems, Inc.
9.375%, 10/15/06 .......................................... 1,000,000 1,065,000
-----------
3,750,125
-----------

</TABLE>

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

<PAGE>

<TABLE>

LIPPER HIGH INCOME BOND FUND

PORTFOLIO OF INVESTMENTS--(Continued)
JUNE 30, 1998 (UNAUDITED)

<CAPTION>
FACE
AMOUNT VALUE+
---------- -----------
<S> <C> <C>
OIL & GAS (12.0%)
DI Industries Inc.
8.875%, 07/01/07 .......................................... $ 500,000 $ 485,000
Ferrell Gas Inc.
10.00%, 08/01/01 .......................................... 1,800,000 1,890,000
Giant Industries
9.75%, 11/15/03 ........................................... 1,125,000 1,184,062
Gulf Canada Resources Ltd.
9.25%, 01/15/04 ........................................... 1,000,000 1,051,540
Nuevo Energy
9.50%, 04/15/06 ........................................... 1,000,000 1,045,000
Ocean Energy Inc. (United Meridian)
10.375%, 10/15/05 ......................................... 1,000,000 1,105,000
Pride Petroleum Services, Inc.
9.375%, 05/01/07 .......................................... 1,000,000 1,057,500
Seagull Energy Corp.
8.625%, 08/01/05 .......................................... 625,000 658,569
Veritas DGC, Inc.
9.75%, 10/15/03 ........................................... 1,250,000 1,343,750
Vintage Petroleum
9.00%, 12/15/05 ........................................... 1,250,000 1,290,625
-----------
11,111,046
-----------
PAPER & FOREST PRODUCTS (1.1%)
U.S. Timberlands
9.625%, 11/15/07 .......................................... 1,000,000 1,020,000
-----------

PUBLISHING (2.6%)
Hollinger International, Inc.
9.25%, 02/01/06 ........................................... 750,000 787,500
K-III Communications Corp.
10.25%, 06/01/04 .......................................... 1,250,000 1,337,500
World Color Press
9.125%, 03/15/03 .......................................... 250,000 257,500
-----------
2,382,500
-----------
RETAILERS (4.8%)
Ann Taylor Inc.
8.75%, 06/15/00 ........................................... 1,000,000 1,017,500
Brylane
10.00%, 09/01/03 .......................................... 1,000,000 1,057,500
Leslie's Poolmart
10.375%, 07/15/04 ......................................... 1,000,000 1,055,000
Southland Corp.
4.50%, 06/15/04 ........................................... 1,000,000 810,000
Southland Corp.
5.00%, 12/15/03 ........................................... 550,000 473,000
-----------
4,413,000
-----------
</TABLE>

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

<PAGE>

<TABLE>

LIPPER HIGH INCOME BOND FUND

PORTFOLIO OF INVESTMENTS--(Continued)
JUNE 30, 1998 (UNAUDITED)

<CAPTION>
FACE
AMOUNT VALUE+
---------- -----------
<S> <C> <C>
TECHNOLOGY (4.1%)
Amphenol Corp.
9.875%, 05/15/07 .......................................... $1,000,000 $ 1,057,500
Clark-Schwebel, Inc.
10.50%, 04/15/06 .......................................... 750,000 832,500
Plantronics, Inc.
10.00%, 01/15/01 .......................................... 1,825,000 1,898,000
-----------
3,788,000
-----------
TELECOMMUNICATIONS (2.4%)
Globalstar LP/Capital
11.375%, 02/15/04 ......................................... 1,250,000 1,215,625
++ Level 3 Communications Inc.
9.125%, 05/01/08 .......................................... 1,000,000 980,000
-----------
2,195,625
-----------
TEXTILE/APPAREL MANUFACTURING (5.1%)
Glenoit Corp
11.00%, 04/15/07 .......................................... 1,000,000 1,075,000
Interface, Inc., Series B
9.50%, 11/15/05 ........................................... 250,000 267,500
Pillowtex Corp.
10.00%, 11/15/06 .......................................... 1,250,000 1,343,750
++ Tropical Sportswear International
11.00%, 06/15/08 .......................................... 1,000,000 1,013,750
++ WestPoint Stevens
7.875%, 06/15/05 .......................................... 1,000,000 1,013,750
-----------
4,713,750
-----------
TRANSPORTATION (4.0%)
++ American Commercial Lines
10.25%, 06/30/08 .......................................... 1,000,000 1,020,000
++ Cenargo International plc
9.75%, 06/15/08 ........................................... 500,000 496,250
Sea Containers Ltd.
9.50%, 07/01/03 ........................................... 750,000 780,000
Sea Containers Ltd., Series A
12.50%, 12/01/04 .......................................... 1,250,000 1,412,500
-----------
3,708,750
-----------
TOTAL CORPORATE BONDS (95.8%) (COST $86,950,687) .................. 88,460,590
-----------

</TABLE>

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

<PAGE>

<TABLE>

LIPPER HIGH INCOME BOND FUND

PORTFOLIO OF INVESTMENTS--(Continued)
JUNE 30, 1998 (UNAUDITED)

<CAPTION>
FACE
AMOUNT VALUE+
---------- -----------
<S> <C> <C>
CONVERTIBLE BONDS (3.4%)
COMMERCIAL SERVICES (1.0%)
Danka Business
6.75%, 04/01/02 ........................................... $1,000,000 $ 870,530
-----------
HEALTHCARE SERVICES & RELATED (1.5%)
Novacare, Inc.
5.50%, 01/15/00 ........................................... 1,500,000 1,428,750
-----------
RETAILERS (0.9%)
Nine West Group
5.50%, 07/15/03 ........................................... 1,000,000 833,280
-----------
TOTAL CONVERTIBLE BONDS (3.4%) (COST $3,382,303) .................. 3,132,560
-----------
SHORT-TERM INVESTMENT (0.8%)
REPURCHASE AGREEMENT (0.8%)
Chase Securities, Inc., 5.40%, dated 6/30/98,
due 7/1/98, to be repurchased at $701,105,
collateralized by a $575,000 U.S. Treasury Note,
7.625 %, due 11/15/22 (COST $701,000) .................... 701,000 701,000
-----------
TOTAL INVESTMENTS (100%) (COST $91,033,990) ....................... $92,294,150
===========

- ----------

+ See Note A to Financial Statements.

++ 144A Security. Certain conditions for public sale may exist.

</TABLE>

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

<PAGE>

LIPPER HIGH INCOME BOND FUND

STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)

ASSETS:
Investments, at value (Cost $91,033,990) (Note A) ............ $92,294,150
Cash ......................................................... 42,506
Interest Receivable .......................................... 2,113,713
Receivable for Investments Sold .............................. 507,142
Deferred Organization Costs (Note A) ......................... 51,752
Receivable for Fund Shares Sold .............................. 37,946
Prepaid Assets ............................................... 252
-----------
TOTAL ASSETS ........................................... 95,047,461
-----------
LIABILITIES:
Payable for Investments Purchased ............................ 1,014,048
Payable for Fund Shares Redeemed ............................. 92,239
Investment Advisory Fees Payable (Note B) .................... 48,793
Administrative Fees Payable (Note C) ......................... 25,334
Shareholder Servicing Fees Payable--Group Retirement
Plan Shares (Note E) ....................................... 15,063
Distribution Fees Payable--Retail Shares (Note E) ............ 13,325
Directors' Fees Payable (Note D) ............................. 6,065
Custodian Fees Payable ....................................... 3,227
Other Liabilities ............................................ 30,749
-----------
TOTAL LIABILITIES ...................................... 1,248,843
-----------
NET ASSETS ..................................................... $93,798,618
===========
NET ASSETS CONSIST OF:
Paid in Capital .............................................. $91,120,430
Undistributed Net Investment Income .......................... 668,149
Accumulated Net Realized Gain ................................ 749,879
Unrealized Appreciation on Investments ....................... 1,260,160
-----------
$93,798,618
===========
PREMIER SHARES:
Net Assets ................................................... $83,105,115
Shares Issued and Outstanding ($.001 par value)
(Authorized 3,333,333,333) ................................. 8,207,176
Net Asset Value, Offering and Redemption Price Per Share ..... $ 10.13
===========
RETAIL SHARES:
Net Assets ................................................... $ 6,406,195
Shares Issued and Outstanding ($.001 par value)
(Authorized 3,333,333,333) ................................. 633,246
Net Asset Value, Offering and Redemption Price Per Share ..... $ 10.12
===========
GROUP RETIREMENT PLAN SHARES:
Net Assets ................................................... $ 4,287,308
Shares Issued and Outstanding ($.001 par value)
(Authorized 3,333,333,333) ................................. 423,858
Net Asset Value, Offering and Redemption Price Per Share ..... $ 10.11
===========

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

<PAGE>

<TABLE>

LIPPER HIGH INCOME BOND FUND

STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
<CAPTION>

<S> <C> <C>
INVESTMENT INCOME
Interest ...................................................... $4,550,368
----------
EXPENSES
Investment Advisory Fees (Note B)
Basic Fee ................................................... $349,433
Less: Fee Waived ............................................ (69,300) 280,133
--------
Administrative Fees (Note C) .................................. 104,335
Directors' Fees (Note D) ...................................... 8,739
Distribution Fees-- Retail Shares (Note E) .................... 6,864
Servicing Fees-- Group Retirement Plan Shares (Note E) ........ 5,164
Registration and Filing Fees .................................. 13,836
Legal Fees .................................................... 9,644
Amortization of Organization Costs (Note A) ................... 9,312
Custodian Fees ................................................ 7,360
Auditing Fees ................................................. 6,991
Other Expenses ................................................ 27,574
----------
Total Expenses ............................................ 479,952
----------
NET INVESTMENT INCOME ..................................... 4,070,416
----------
NET REALIZED GAIN FROM:
Investments sold .............................................. 439,360
----------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION:
Investments ................................................... (987,917)
----------
TOTAL REALIZED GAIN AND NET CHANGE IN
UNREALIZED APPRECIATION/DEPRECIATION .......................... (548,557)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............ $3,521,859
==========
</TABLE>

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

<PAGE>

<TABLE>
LIPPER HIGH INCOME BOND FUND

STATEMENT OF CHANGES IN NET ASSETS

<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
----------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS:
Net Investment Income ........................................................ $ 4,070,416 $ 8,900,319
Net Realized Gain ............................................................ 439,360 2,631,435
Net Change in Unrealized Appreciation/Depreciation ........................... (987,917) (295,674)
----------- ------------
Net Increase in Net Assets Resulting from Operations ....................... 3,521,859 11,236,080
----------- ------------
DISTRIBUTIONS:
PREMIER SHARES:
From net investment income ................................................... (3,061,484) (8,415,284)
From net realized gains ...................................................... -- (2,140,829)

RETAIL SHARES:
From net investment income ................................................... (191,148) (228,895)
From net realized gains ...................................................... -- (120,871)

GROUP RETIREMENT PLAN SHARES:
From net investment income ................................................... (149,635) (248,840)
From net realized gains ...................................................... -- (88,296)
----------- ------------
Total Distributions .................................................... (3,402,267) (11,243,015)
----------- ------------
CAPITAL SHARE TRANSACTIONS (NOTE H):
PREMIER SHARES:
Issued--Regular .............................................................. 5,572,280 22,290,649
--Distributions Reinvested ............................................. 2,325,459 8,673,740
Redeemed ..................................................................... (10,072,363) (48,895,579)
----------- ------------
Net Decrease in Premier Shares Transactions ............................ (2,174,624) (17,931,190)
----------- ------------
RETAIL SHARES:
Issued--Regular .............................................................. 2,406,571 3,993,908
--Distributions Reinvested ............................................. 170,965 292,126
Redeemed ..................................................................... (863,577) (327,954)
----------- ------------
Net Increase in Retail Shares Transactions ............................. 1,713,959 3,958,080
----------- ------------
GROUP RETIREMENT PLAN SHARES:
Issued--Regular .............................................................. 824,864 1,773,908
--Distributions Reinvested ............................................. 149,635 337,135
Redeemed ..................................................................... (200,967) (752,919)
----------- ------------
Net Increase in Group Retirement Plan Shares Transactions .............. 773,532 1,358,124
----------- ------------
Net Increase (Decrease) in Net Assets From Capital Share Transactions .......... 312,867 (12,614,986)
----------- ------------
TOTAL INCREASE (DECREASE) ................................................ 432,459 (12,621,921)
----------- ------------
NET ASSETS:
Beginning of Period .......................................................... 93,366,159 105,988,080
----------- ------------
End of Period (A) ............................................................ $93,798,618 $ 93,366,159
=========== ============
(A) Includes undistributed net investment income ............................... $ 668,149 $ --
=========== ============

The accompanying notes are an integral part of the financial statements.
</TABLE>

11
<PAGE>

<TABLE>
LIPPER HIGH INCOME BOND FUND

FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA & RATIOS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<CAPTION>
PREMIER PREMIER PREMIER RETAIL RETAIL
SHARES SHARES SHARES SHARES SHARES
----------- ------------ ------------ ----------- ------------
SIX MONTHS SIX MONTHS
ENDED YEAR APRIL 1, ENDED YEAR
JUNE 30, ENDED 1996** TO JUNE 30, ENDED
1998 DECEMBER 31, DECEMBER 31, 1998 DECEMBER 31,
(UNAUDITED) 1997 1996 (UNAUDITED) 1997
----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................... $ 10.11 $ 10.18 $ 10.00 $10.11 $10.18
------- ------- -------- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (1) ............................ 0.44 0.91 0.68 0.43 0.84
Net Realized and Unrealized Gain (Loss)
on Investments ..................................... (0.05) 0.19 0.21 (0.06) 0.23
------- ------- -------- ------ ------
Total From Investment Operations ............... 0.39 1.10 0.89 0.37 1.07
------- ------- -------- ------ ------
DISTRIBUTIONS:
Net Investment Income ................................ (0.37) (0.91) (0.68) (0.36) (0.88)
Net Realized Gain .................................... -- (0.26) (0.03) -- (0.26)
------- ------- -------- ------ ------
Total Distributions ............................ (0.37) (1.17) (0.71) (0.36) (1.14)
------- ------- -------- ------ ------
NET ASSET VALUE, END OF PERIOD ......................... $ 10.13 $ 10.11 $ 10.18 $10.12 $10.11
======= ======= ======== ====== ======
TOTAL RETURN (2) ....................................... 3.92% 11.22% 9.23% 3.71% 10.97%
======= ======= ======== ====== ======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) ...................... $83,105 $85,151 $102,945 $6,406 $4,697
Ratios After Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets.. ..................... 1.00%* 1.00% 1.00%* 1.25%* 1.25%
Net Investment Income to Average Net Assets .......... 8.77%* 8.58% 9.01%* 8.46%* 8.31%
Ratios Before Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets ....................... 1.15%* 1.16% 1.27%* 1.40%* 1.41%
Net Investment Income to Average Net Assets .......... 8.62%* 8.42% 8.74%* 8.31%* 8.15%
Portfolio Turnover Rate ................................ 46% 105% 74% 46% 105%

<CAPTION>
GROUP GROUP GROUP
RETIREMENT RETIREMENT RETIREMENT
RETAIL PLAN PLAN PLAN
SHARES SHARES SHARES SHARES
------------ ----------- ------------ ------------
SIX MONTHS
APRIL 11, ENDED YEAR APRIL 12,
1996*** TO JUNE 30, ENDED 1996*** TO
DECEMBER 31, 1998 DECEMBER 31, DECEMBER 31,
1996 (UNAUDITED) 1997 1996
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................... $ 9.91 $10.11 $10.18 $ 9.93
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (1) ............................ 0.62 0.42 0.85 0.62
Net Realized and Unrealized Gain (Loss)
on Investments ..................................... 0.34 (0.06) 0.22 0.32
------ ------ ------ ------
Total From Investment Operations ............... 0.96 0.36 1.07 0.94
------ ------ ------ ------
DISTRIBUTIONS:
Net Investment Income ................................ (0.66) (0.36) (0.88) (0.66)
Net Realized Gain .................................... (0.03) -- (0.26) (0.03)
------ ------ ------ ------
Total Distributions ............................ (0.69) (0.36) (1.14) (0.69)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD ......................... $10.18 $10.11 $10.11 $10.18
====== ====== ====== ======
TOTAL RETURN (2) ....................................... 10.04% 3.61% 10.96% 9.78%
====== ====== ====== ======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) ...................... $ 845 $4,287 $3,518 $2,198
Ratios After Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets.. ..................... 1.25%* 1.25%* 1.25% 1.25%*
Net Investment Income to Average Net Assets .......... 8.95%* 8.50%* 8.32% 8.91%*
Ratios Before Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets ....................... 1.59%* 1.40%* 1.41% 1.55%*
Net Investment Income to Average Net Assets .......... 8.61%* 8.35%* 8.16% 8.61%*
Portfolio Turnover Rate ................................ 74% 46% 105% 74%*
- ----------------
* Annualized
** Commencement of Fund Operations
*** Initial offering of shares by the Fund

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

<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1998 YEAR ENDED PERIOD ENDED
(UNAUDITED) DECEMBER 31, 1997 DECEMBER 31, 1996
---------------- ----------------- -----------------
<S> <C> <C> <C>
Premier Shares ............................... $0.01 $0.02 $0.02
Retail Shares ................................ $0.01 $0.02 $0.02
Group Retirement Plan Shares ................. $0.01 $0.02 $0.02

(2) Total return would have been lower had the Adviser not waived or reimbursed certain expenses during the periods shown.
Total returns for periods of less than one year are not annualized.

The accompanying notes are an integral part of the financial statements.
</TABLE>
12
<PAGE>
LIPPER HIGH INCOME BOND FUND
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, 1998 the Company was comprised
of three diversified portfolios: Lipper High Income Bond Fund, Lipper U.S.
Equity Fund, and Prime Lipper Europe Equity Fund. These financial statements
pertain to Lipper High Income Bond Fund only. The financial statements of the
remaining Funds are presented separately. The Company offers the shares of each
Fund in three classes: Premier Shares, Retail Shares and Group Retirement Plan
Shares. The Lipper High Income Bond Fund (the "Fund") was funded as a registered
investment company on April 1, 1996 with a contribution of securities from a
corresponding limited partnership (see Note G).

The Lipper High Income Bond Fund seeks high current income by investing
primarily in high yield securities with maturities of less than 10 years.

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 Fund in the
preparation of its 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.

1. SECURITY VALUATION: 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.

At June 30, 1998 the cost of investments and unrealized appreciation
(depreciation) of investments for Federal income tax purposes were:

NET
COST APPRECIATION (DEPRECIATION) APPRECIATION
---- ------------ -------------- ------------
$91,033,990 $1,792,550 $(532,390) $1,260,160

3. DISTRIBUTIONS TO SHAREHOLDERS: The Fund intends to distribute
substantially all of its net investment income monthly. Net realized capital
gains, if any, will be distributed at least annually by the Fund. All
distributions are recorded on the 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. Those differences are primarily due to differing book and
tax treatments for deferred organization costs and losses due to wash sales
transactions.

Permanent book and tax differences between U.S. federal income tax
regulations and generally accepted accounting principles may result in
reclassifications to undistributed net investment income (loss), undistributed
realized net gain (loss) and paid in capital.

4. ORGANIZATION COSTS: Costs incurred by the Fund in connection with its
organization have been deferred and are being amortized on a straight-line basis
over a five-year period.

5. OTHER: Securities 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. 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. Expenses of the Company,
which are not directly attributable to a Fund, are allocated among the Funds
based on their relative net assets. 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.

13
<PAGE>

LIPPER HIGH INCOME BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)

B. ADVISORY SERVICES: Lipper & Company, L.L.C. (the "Adviser") serves as the
investment adviser to the Fund. Under the terms of the Investment Advisory
Agreement (the "Agreement"), the Adviser provides investment advisory services
for a fee calculated at an annual rate of 0.75% of the Fund's average daily net
assets. From time to time, the Adviser may voluntarily waive, for a period of
time, all or a portion of the fee to which it is entitled under its Agreement
with the Fund. Until further notice, the Adviser has agreed to voluntarily waive
fees and reimburse expenses to the extent necessary to maintain an annual
operating expense ratio to net assets of not more thanthe following:

GROUP
PREMIER SHARES RETAIL SHARES RETIREMENT PLAN SHARES
-------------- ------------- ----------------------
1.00% 1.25% 1.25%

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

D. DIRECTORS' FEES: The Company pays each Director who is not a director,
officer or employee of the Adviser or any of its 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., an affiliate of the Adviser,
serves as the Company's distributor (the "Distributor"). The Distributor is
entitled to receive an annual distribution fee payable from the net assets of
the Fund's Retail Shares of up to 0.25% of the average daily net assets of such
Fund's Retail Shares. The Company has entered into shareholder servicing
agreements with respect to the Fund's Group Retirement Plan Shares. Under such
servicing agreements, each servicing agent will be entitled to receive from the
net assets of the 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 six months ended June 30, 1998, the cost of
purchases and proceeds of sales for investment securities other than long-term
U.S. Government and short-term securities were:

PURCHASES SALES
--------- -----
$46,542,345 $41,671,420

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

G. LIMITED PARTNERSHIP TRANSFER: The Fund was formed as a successor investment
vehicle for a limited partnership (a "Partnership") for which Lipper & Company,
L.P., an affiliate of the Adviser acted as general partner and investment
adviser since inception. On April 1, 1996, the Fund exchanged Premier Shares for
portfolio securities of the Partnership (the "Transfer"). Premier Shares issued
by the Fund in the Transfer were issued at the net asset value of Premier Shares
prior to the Transfer. Premier Shares received in the Transfer have been
distributed to the Partnership's limited partners who elected to participate in
the Transfer. Securi ties valued at $74,518,234 at the date of Transfer with
unrealized appreciation of $337,368 were contributed to the Fund on a tax-free
basis. To the extent that the Fund acquired securities in the 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
subsequently acquire shares of the Fund.

14
<PAGE>

LIPPER HIGH INCOME BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)

H. OTHER: Capital share transactions for the Fund, by class of shares, were as
follows:

SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
---------------- -----------------
PREMIER SHARES:

Issued--Regular .............................. 548,633 2,177,661
Distributions Reinvested ............. 228,936 847,370
Contribution from Partnerships
Redeemed ..................................... (990,232) (4,718,897)
-------- ----------
Net Increase (Decrease) ...................... (212,663) (1,693,866)
-------- ----------
RETAIL SHARES:
Issued--Regular .............................. 236,254 385,019
Distributions Reinvested ............. 16,850 28,585
Redeemed ..................................... (84,632) (31,845)
-------- ----------
Net Increase ................................. 168,472 381,759
-------- ----------
GROUP RETIREMENT PLAN SHARES:
Issued--Regular .............................. 80,810 171,458
Distributions Reinvested ............. 14,747 32,968
Redeemed ..................................... (19,800) (72,343)
-------- ----------
Net Increase ................................. 75,757 132,083
-------- ----------

I. OTHER: At June 30, 1998, the percentage of total shares outstanding held by
record shareholders owning 10% or greater of the aggregate total shares for the
Fund was as follows:

NO. OF %
SHAREHOLDERS OWNERSHIP
------------ ---------
Premier Shares ..................... 2 27.7%
Retail Shares ...................... 1 11.4%
Group Retirement Shares ............ 3 85.7%

The Fund currently invests in high yield lower grade debt. The market
values of these higher yielding debt securities tend to be more sensitive to
economic conditions and individual corporate developments than do higher rated
securities.

15
<PAGE>

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

STANLEY BREZENOFF
Director

MARTIN MALTZ
Director

IRWIN RUSSELL
Director

INVESTMENT ADVISER Lipper & Company, L.L.C.
- ------------------------- 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 ACCOUNTANTS PricewaterhouseCoopers LLP
- ------------------------- 1177 Avenue of the Americas
New York, NY 10036

<PAGE>
=========================
THE LIPPER FUNDS, INC.
=========================

LIPPER U.S. EQUITY FUND

Semi-Annual Report
====================================
June 30, 1998

<PAGE>
=================
TABLE OF CONTENTS
=================

Shareholder's Letter ......................... 1-2

Portfolio of Investments ..................... 3

Statement of Assets and Liabilities .......... 4

Statement of Operations ...................... 5

Statement of Changes in Net Assets ........... 6

Financial Highlights ......................... 7

Notes to Financial Statements ................ 8-10
<PAGE>

LIPPER FUNDS, INC. SEMI-ANNUAL REPORT
THE LIPPER U.S. EQUITY FUND June 30, 1998

Dear Shareholder:

We are pleased to present the semi-annual report for The Lipper U.S. Equity
Fund for the fiscal period ended June 30, 1998. The Lipper U.S. Equity Fund is
one of three investment portfolios--along with The Lipper High Income Bond Fund
and The Prime Lipper Europe Equity Fund--which comprise The Lipper Funds, Inc.
Each of the Lipper Funds is made available to individual, institutional and
group retirement plan investors through a separate class of shares. This report
presents the financial statements and performance review for The Lipper U.S.
Equity Fund for the period ended June 30, 1998.

PERFORMANCE AND PORTFOLIO REVIEW

Performance as discussed below reflects the performance of each Fund's
Premier class of shares. Performance for the Fund's Retail and Group Retirement
Plan Shares (see page 7) differs from Premier Shares performance 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 Lipper U.S. Equity Fund employees a value-oriented investment strategy
seeking long-term capital appreciation with safety by investing primarily in
large capitalization U.S. equities which are believed to be selling at
substantially below their true economic values.

The Fund performed extremely well both in absolute and relative terms
during the first six months ended June 30, 1998, generating a total return of
18.69%. The Fund outperformed the S&P 500 index return of 17.7%, as well as the
average return for all domestic equity funds: 11.67%; and all large
capitalization value funds: 10.33%, tracked by Morningstar, Inc. over the same
six-month period.

The U.S. equity markets continued on a strong upward path during the first
half of 1998 with most of the gains generated during the first quarter of the
year. In general, large capitalization stocks outperformed small stocks
continuing the market's prevailing trend of rewarding the largest, most liquid
stocks. U.S. stock prices continued to be propelled to new highs during the
period due to strong economic growth, nearly full employment--with remarkably
little inflation, record high consumer confidence, and strong money inflows into
stock mutual funds.

During the six-month period ended June 30, 1998, The Lipper U.S. Equity
Fund benefited from strong performance across a majority of its holdings,
particularly those securities within the banking, pharmaceutical and
telecommunication sectors. During the period, several securities were sold as
they reached our price targets, including holdings within the aerospace/defense
sector, as well as select issues such as Hughes Electronics and Zeneca Group,
whose prices increased 71%, and 124%, respectively over the period. Several
securities, including Deere & Co., and Motorola, Inc. failed to meet our
expectations in terms of earnings potential and were consequently sold during
the period.

In the first half of 1998, we increased the Fund's allocation to the
business services, biotechnology and energy/natural resources sectors by
investing in several well-positioned companies which we believe will, over time,
reflect their inherent value as they benefit from strong industry fundamentals,
and corporate initiatives intended to increase revenues and improve
profitability.

MARKET OUTLOOK

The U.S. market has proved to be volatile during the beginning of the
second half of 1998 as the impact of the Asian financial crisis has begun to
filter into multinational corporate earnings figures. We expect this volatility
to continue over the near term as the world markets discount the impact of the
Asian crisis on corporate earnings.

<PAGE>

Certainly, many of the large capitalization, multinational stocks are vulnerable
at their current price levels should the impact of the Asian crisis prove to be
greater than is currently estimated by economists and analysts. On a positive
note, however, the U.S. economy remains strong which should benefit those
companies with sound valuations and strong domestic market positions. As a
result, the market environment will likely prove to be much more selective and
should benefit stock pickers and active managers over the broad market indices.

The Lipper U.S. Equity Fund's current holdings continue to reflect our
value orientation, representing primarily large capitalization companies which
we believe have excellent long-term earnings prospects, even in the current
market environment.

The Lipper Funds remain dedicated to superior long-term results, which we
believe are best achieved by adhering to a rigorous and consistently applied
investment strategy designed to generate positive results and reduce volatility
under various market conditions. We hope you find the enclosed report
informative. We very much appreciate your participation in The Lipper Funds,
Inc.

Sincerely,

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

2
<PAGE>

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

PORTFOLIO OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)

SHARES VALUE+
------ ------
<S> <C> <C>
COMMON STOCKS (98.6%)
AG. BIO./LIFE SCIENCES (4.2%)
Monsanto Company ..................................... 19,100 $ 1,067,213
-----------
BASIC MATERIALS (4.1%)
E.I. du Pont de Nemours and Company .................. 14,000 1,044,750
-----------
BIOTECHNOLOGY (12.9%)
* Biochem Pharmaceuticals, Inc. ........................ 48,000 1,266,000
* Genzyme Corp--General Division ....................... 42,000 1,063,125
* Millennium Pharmaceuticals ........................... 66,200 935,075
-----------
3,264,200
-----------
CONSUMER NON-DURABLES (4.5%)
Kimberly Clark Corp .................................. 25,000 1,146,875
-----------
ENERGY & NATURAL RESOURCES (7.8%)
Schlumberger Ltd. .................................... 19,200 1,311,600
Valero Energy Corp ................................... 20,000 665,000
-----------
1,976,600
-----------
BANKS-MONEY CENTER (5.1%)
Chase Manhattan Corp. ................................ 17,200 1,298,600
-----------
BANKS-SUPER REGIONAL (6.4%)
First Union Corp. .................................... 12,000 699,000
NationsBank Corp. .................................... 12,000 918,000
-----------
1,617,000
-----------
PHARMACEUTICALS (9.9%)
American Home Products Corp .......................... 25,400 1,314,450
Merck & Company ...................................... 8,800 1,177,000
-----------
2,491,450
-----------
BUSINESS SERVICES & RELATED (21.4%)
Computer Sciences Corp ............................... 21,200 1,356,800
Electronic Data Systems Corp. ........................ 28,000 1,120,000
First Data Corp. ..................................... 26,700 889,444
Reuters Group plc ADR ................................ 15,600 1,068,600
* Technology Solutions Co. ............................. 30,500 966,468
-----------
5,401,312
-----------
TECHNOLOGY (12.1%)
Compaq Computer Corp. ................................ 45,000 1,276,875
* Electronics For Imaging .............................. 49,000 1,032,063
Hewlett-Packard Co. .................................. 12,400 742,450
-----------
3,051,388
-----------
TELECOMMUNICATIONS (10.2%)
* Loral Space & Communications ......................... 54,200 1,531,150
* Qwest Communications International Inc. .............. 30,300 1,054,819
-----------
2,585,969
-----------
TOTAL COMMON STOCKS (COST $21,101,898) ................... 24,945,357
FACE AMOUNT
-----------
SHORT-TERM INVESTMENTS (1.4%)
Vista Prime Money Market Fund (COST $364,195) ........ $364,195 364,195
-----------
TOTAL INVESTMENTS (100%) (COST $21,466,093) .............. $25,309,552
===========
</TABLE>

- --------------
+ See Note A to Financial Statements.
* Non-Income Producing Security.
ADR American Depositary Receipt.

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

3
<PAGE>

<TABLE>

LIPPER U.S. EQUITY FUND

STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)
<S> <C>
ASSETS:
Investments, at value (Cost $21,466,093) (Note A) ....................... $25,309,552
Receivable for Investments Sold ......................................... 3,139,941
Receivable for Fund Shares Sold ......................................... 1,268,310
Deferred Organization Costs (Note A) .................................... 47,124
Dividends Receivable .................................................... 7,153
Interest Receivable ..................................................... 2,971
-----------
TOTAL ASSETS ...................................................... 29,775,051
-----------
LIABILITIES:
Payable for Fund Shares Redeemed ........................................ 119,777
Investment Advisory Fees Payable (Note B) ............................... 7,251
Administrative Fees Payable (Note C) .................................... 6,118
Shareholder Servicing Fees Payable--Group Retirement Plan Shares (Note E) 5,885
Distribution Fees Payable--Retail Shares (Note E) ....................... 4,379
Directors' Fees Payable (Note D) ........................................ 1,380
Other Liabilities ....................................................... 4,455
-----------
TOTAL LIABILITIES ................................................. 149,245
-----------
NET ASSETS ................................................................ $29,625,806
===========
NET ASSETS CONSIST OF:
Paid in Capital ......................................................... $23,374,093
Undistributed Net Investment Income ..................................... 130,674
Accumulated Net Realized Gain ........................................... 2,277,580
Unrealized Appreciation on Investments .................................. 3,843,459
-----------
$29,625,806
===========
PREMIER SHARES:
Net Assets .............................................................. $25,318,290
Shares Issued and Outstanding ($.001 par value)
(Authorized 3,333,333,333) ............................................ 1,771,376
Net Asset Value, Offering and Redemption Price Per Share ................ $ 14.29
===========
RETAIL SHARES:
Net Assets .............................................................. $ 1,484,753
Shares Issued and Outstanding ($.001 par value)
(Authorized 3,333,333,333) ............................................ 104,027
Net Asset Value, Offering and Redemption Price Per Share ................ $ 14.27
===========
GROUP RETIREMENT PLAN SHARES:
Net Assets .............................................................. $ 2,822,763
Shares Issued and Outstanding ($.001 par value)
(Authorized 3,333,333,333) ............................................ 198,152
Net Asset Value, Offering and Redemption Price Per Share ................ $ 14.25
===========
</TABLE>

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

4
<PAGE>

<TABLE>

LIPPER U.S. EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)

<S> <C> <C>
INVESTMENT INCOME
Dividends ........................................................ $ 252,525
Interest ......................................................... 5,673
----------
TOTAL INCOME ............................................... 258,198
----------
EXPENSES
Investment Advisory Fees (Note B)
Basic Fee ...................................................... $ 96,519
Less: Fee Waived ............................................... (51,059) 45,460
--------
Administrative Fees (Note C) ..................................... 37,269
Directors' Fees (Note D) ......................................... 2,192
Distribution Fees--Retail Shares (Note E) ........................ 1,568
Servicing Fees--Group Retirement Plan Shares (Note E) ............ 3,007
Registration and Filing Fees ..................................... 13,867
Amortization of Organization Costs (Note A) ...................... 9,322
Legal Fees ....................................................... 2,295
Auditing Fees .................................................... 2,160
Custodian Fees ................................................... 1,604
Other Expenses ................................................... 10,617
----------
Total Expenses ............................................. 129,361
----------
NET INVESTMENT INCOME ...................................... 128,837
----------
NET REALIZED GAIN (LOSS) FROM:
Investments sold ................................................. 1,613,770
Written Options .................................................. (125,299)
----------
TOTAL NET REALIZED GAIN ............................................ 1,488,471
----------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION:
Investments ...................................................... 2,257,994
----------
TOTAL NET REALIZED GAIN AND NET CHANGE IN
UNREALIZED APPRECIATION/DEPRECIATION ............................. 3,746,465
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............... $3,875,302
==========
</TABLE>

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

5
<PAGE>

<TABLE>

LIPPER U.S. EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS

SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS:
Net Investment Income ....................................................... $ 128,837 $ 184,492
Net Realized Gain ........................................................... 1,488,471 2,507,795
Net Change in Unrealized Appreciation/Depreciation .......................... 2,257,994 (31,755)
----------- -----------
Net Increase in Net Assets Resulting from Operations .................. 3,875,302 2,660,532
----------- -----------

DISTRIBUTIONS:
PREMIER SHARES:
From net investment income .................................................. -- (171,940)
From net realized gains ..................................................... -- (1,364,816)
RETAIL SHARES:
From net investment income .................................................. -- (8,737)
From net realized gains ..................................................... -- (86,666)
GROUP RETIREMENT PLAN SHARES:
From net investment income .................................................. -- (20,542)
From net realized gains ..................................................... -- (181,951)
----------- -----------
Total Distributions ................................................... -- (1,834,652)
----------- -----------
CAPITAL SHARE TRANSACTIONS (NOTE H):
PREMIER SHARES:
Issued--Regular ............................................................. 8,778,986 6,377,636
--Distributions Reinvested ............................................ -- 1,536,755
Redeemed .................................................................... (931,996) (9,627,970)
----------- -----------
Net Increase (Decrease) in Premier Shares Transactions ................ 7,846,990 (1,713,579)
----------- -----------
RETAIL SHARES:
Issued--Regular ............................................................. 635,366 574,703
--Distributions Reinvested ............................................ -- 95,403
Redeemed .................................................................... (254,784) (437,479)
----------- -----------
Net Increase in Retail Shares Transactions ............................ 380,582 232,627
----------- -----------
GROUP RETIREMENT PLAN SHARES:
Issued--Regular ............................................................. 689,861 1,780,338
--Distributions Reinvested ............................................ -- 202,493
Redeemed .................................................................... (155,834) (502,495)
----------- -----------
Net Increase in Group Retirement Plan Shares Transactions .............. 534,027 1,480,336
----------- -----------
Net Increase (Decrease) in Net Assets From Capital Share Transactions ........ 8,761,599 (616)
----------- -----------
TOTAL INCREASE ........................................................ 12,636,901 825,264
----------- -----------
NET ASSETS:
Beginning of Period ......................................................... 16,988,905 16,163,641
----------- -----------
End of Period (A) ........................................................... $29,625,806 $16,988,905
=========== ===========
(A) Includes undistributed net investment income .............................. $ 130,674 $ 1,837
=========== ===========

</TABLE>

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

6
<PAGE>

<TABLE>

LIPPER U.S. EQUITY FUND
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA & RATIOS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

PREMIER PREMIER PREMIER RETAIL RETAIL
SHARES SHARES SHARES SHARES SHARES
---------- ---------- ------------ ----------- -----------
SIX MONTHS SIX MONTHS
ENDED YEAR JANUARY 2, ENDED YEAR
JUNE 30, ENDED 1995** TO JUNE 30, ENDED
1998 DECEMBER 31, DECEMBER 31, 1998 DECEMBER 31,
(UNAUDITED) 1997 1996 (UNAUDITED) 1997
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................... $ 12.04 $ 11.38 $ 10.00 $12.03 $11.38
------- ------- ------- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (1) ............................ 0.06 0.16 0.18 0.05 0.13
Net Realized and Unrealized Gain on
Investments ........................................ 2.19 1.96 1.81 2.19 1.95
------- ------- ------- ------ ------
Total From Investment Operations ............... 2.25 2.12 1.99 2.24 2.08
------- ------- ------- ------ ------
DISTRIBUTIONS:
Net Investment Income ................................ -- (0.16) (0.19) -- (0.13)
Net Realized Gain .................................... -- (1.30) (0.34) -- (1.30)
In Excess of Net Realized Gain ....................... -- -- (0.08) -- --
------- ------- ------- ------ ------
Total Distributions ............................ -- (1.46) (0.61) -- (1.43)
------- ------- ------- ------ ------
NET ASSET VALUE, END OF PERIOD ......................... $ 14.29 $ 12.04 $ 11.38 $14.27 $12.03
======= ======= ======= ====== ======
TOTAL RETURN (2) ....................................... 18.69% 18.96% 19.81% 18.62% 18.58%
======= ======= ======= ====== ======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) ...................... $25,318 $14,203 $15,098 $1,485 $ 899
Ratios After Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets ....................... 1.10%* 1.10% 1.10%* 1.35%* 1.35%
Net Investment Income to Average Net Assets .......... 1.17%* 1.24% 1.68%* 0.89%* 0.96%
Ratios Before Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets ....................... 1.55%* 1.76% 2.28%* 1.80%* 2.01%
Net Investment Income to Average Net Assets .......... 0.72%* 0.58% 0.50%* 0.44%* 0.30%
Portfolio Turnover Rate ................................ 68% 145% 117% 68% 145%

GROUP GROUP GROUP
RETIREMENT RETIREMENT RETIREMENT
RETAIL PLAN PLAN PLAN
SHARES SHARES SHARES SHARES
----------- ---------- ---------- ----------
SIX MONTHS
JANUARY 4, ENDED YEAR JANUARY 4,
1996*** TO JUNE 30, ENDED 1996*** TO
DECEMBER 31, 1998 DECEMBER 31, DECEMBER 31,
1996 (UNAUDITED) 1997 1996
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................... $10.00 $12.01 $11.38 $10.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (1) ............................ 0.11 0.06 0.08 0.07
Net Realized and Unrealized Gain on
Investments ........................................ 1.86 2.18 2.00 1.91
------ ------ ------ ------
Total From Investment Operations ............... 1.97 2.24 2.08 1.98
------ ------ ------ ------
DISTRIBUTIONS:
Net Investment Income ................................ (0.17) -- (0.15) (0.18)
Net Realized Gain .................................... (0.34) -- (1.30) (0.34)
In Excess of Net Realized Gain ....................... (0.08) -- -- (0.08)
------ ------ ------ ------
Total Distributions ............................ (0.59) -- (1.45) (0.60)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD ......................... $11.38 $14.25 $12.01 $11.38%
====== ====== ====== ======
TOTAL RETURN (2) ....................................... 19.62% 18.65% 18.55% 19.69%
- ====== ====== ====== ======

RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) ...................... $ 613 $2,823 $1,887 $ 452
Ratios After Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets ....................... 1.35%* 1.35%* 1.35% 1.35%*
Net Investment Income to Average Net Assets .......... 1.31%* 0.99%* 0.89% 1.29%*
Ratios Before Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets ....................... 2.75%* 1.80%* 2.01% 2.39%*
Net Investment Income to Average Net Assets .......... (0.09)%* 0.54%* 0.25% 0.25%*
Portfolio Turnover Rate ................................ 117% 68% 145% 117%

<FN>
- -------------
* Annualized
** Commencement of Fund Operations
*** Initial offering of shares by the Fund
(1) The effect to net investment income per share by voluntarily waived fees and reimbursed expenses were:
</FN>
</TABLE>

<TABLE>

SIX MONTHS ENDED
JUNE 30, 1998 YEAR ENDED PERIOD ENDED
(UNAUDITED) DECEMBER 31, 1997 DECEMBER 31, 1996
----------- ----------------- -----------------
<S> <C> <C> <C>
Premier Shares ......................... $0.02 $0.08 $0.13
Retail Shares .......................... $0.03 $0.09 $0.12
Group Retirement Plan Shares ........... $0.03 $0.06 $0.06

</TABLE>

(2) Total return would have been lower had the Adviser not waived or reimbursed
certain expenses during the periods shown. Total returns for periods of
less than one year are not annualized

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

7
<PAGE>

LIPPER U.S. EQUITY FUND
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, 1998 the Company was comprised
of three diversified portfolios: Lipper High Income Bond Fund, Lipper U.S.
Equity Fund, and Prime Lipper Europe Equity Fund. These financial statements
pertain to Lipper U.S. Equity Fund only. The financial statements of the
remaining portfolios are presented separately. The Company offers the shares of
each Fund in three classes: Premier Shares, Retail Shares and Group Retirement
Plan Shares. Lipper U.S. Equity Fund (the "Fund") commenced investment
operations on January 2, 1996.

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.

A. SIGNIFICANT ACCOUNTING POLICIES. The following is a summary of significant
accounting policies followed by the Fund which are in conformity with generally
accepted accounting principles for investment companies. Such policies are
consistently followed by the Fund in the preparation of its 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.

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. 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.

At June 30, 1998 the cost of investments and unrealized appreciation
(depreciation) of investments for Federal income tax purposes were:

NET
COST APPRECIATION (DEPRECIATION) APPRECIATION
----------- ------------ -------------- ------------
$21,466,093 $4,293,664 $(450,205) $3,843,459

3. DISTRIBUTIONS TO SHAREHOLDERS: The Fund intends to distribute
substantially all of its net investment income annually. Net realized capital
gains, if any, will be distributed at least annually by the Fund. All
distributions are recorded on ex-dividend date.

Permanent book and tax differences between U.S. Federal income tax
regulations and generally accepted accounting principles may result in
reclassifications to undistributed net investment income (loss), accumulated net
realized gain (loss) and paid in capital.

4. PURCHASED ND WRITTEN OPTIONS: The 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, 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

8
<PAGE>

LIPPER U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited)--(Continued)

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. The Fund may purchase a put or call option to close out a
written 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. The 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 the 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 the Fund's net asset value, and possibly income,
and such losses may be greater than if options had not been used.

During the six months ended June 30, 1998, the Fund participated in writing
call options. The Fund had option activity as follows:

NUMBER OF
CONTRACTS PREMIUM
--------- -------
Options outstanding at December 31, 1997 ..... -- $ --
Options written during the year .............. 162 72,788
Options exercised during the year ............ (162) (72,788)
Options outstanding as of June 30, 1998 ...... -- $ --

5. ORGANIZATION COSTS: Costs incurred by the Fund in connection with its
organization have been deferred and are being amortized on a straight-line basis
over a five-year period.

6. OTHER: Securities 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. Expenses of the Company,
which are not directly attributable to a Fund, are allocated among the Funds
based on their relative net assets. 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 "Adviser") serves as
the investment adviser to the Fund. Under the terms of the Investment Advisory
Agreement (the "Agreement"), the Adviser provides investment advisory services
for a fee calculated at an annual rate of 0.85% of the Fund's average daily net
assets. From time to time, the Adviser may voluntarily waive, for a period of
time, all or a portion of the fee to which it is entitled under its Agreement
with the Fund. Until further notice, the Adviser has agreed to voluntarily waive
fees and reimburse expenses to the extent necessary to maintain an annual
operating expense ratio to net assets of not more thanthe following:

GROUP RETIREMENT
PREMIER SHARES RETAIL SHARES PLAN SHARES
-------------- ------------- ----------------
1.10% 1.35% 1.35%

9
<PAGE>
LIPPER U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited)--(Continued)

subject to a minimum annual fee of $70,000 per year. Under a separate agreement,
Chase also acts as the Company's custodian for the Fund's assets.

F. PURCHASES ND SALES: For the six months ended June 30, 1998, the cost of
purchases and proceeds of sales for investment securities other than long-term
U.S. Government and short-term securities were:

PURCHASES SALES
--------- -----
$18,115,440 $14,121,129

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

G. OTHER: Capital share transactions for the Fund, by class of shares, were as
follows:

SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
---------------- -----------------
PREMIER SHARES:
Issued--Regular ........................... 661,188 506,749
Distributions Reinvested ........... -- 130,566
Redeemed .................................. (69,817) (783,489)
------- --------
Net Increase (Decrease) ................... 591,371 (146,174)
------- --------
RETAIL SHARES:
Issued--Regular ........................... 47,337 48,391
Distributions Reinvested ........... -- 8,112
Redeemed .................................. (18,062) (35,615)
------- --------
Net Increase .............................. 29,275 20,888
------- --------
GROUP RETIREMENT PLAN SHARES:
Issued--Regular ........................... 52,534 141,807
Distributions Reinvested ........... -- 17,248
Redeemed .................................. (11,537) (41,627)
------- --------
Net Increase .............................. 40,997 117,428
------- --------

H. OTHER: At June 30, 1998, the percentage of total shares outstanding held by
record shareholders owning 10% or greater of the aggregate total shares for the
Fund was as follows:

NO. OF %
SHAREHOLDERS OWNERSHIP
------------ ---------
Premier Share ............. 2 52.8%
Retail Shares ............. 1 18.0%
Group Retirement Shares ... 3 93.6%

10
<PAGE>

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

STANLEY BREZENOFF
Director

MARTIN MALTZ
Director

IRWIN RUSSELL
Director

INVESTMENT ADVISER Lipper & Company, L.L.C.
- -------------------------------- 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 ACCOUNTANTS PricewaterhouseCoopers LLP
- -------------------------------- 1177 Avenue of the Americas
New York, NY 10036
<PAGE>

============================
THE LIPPER FUNDS, INC.
============================

PRIME LIPPER EUROPE EQUITY FUND

Semi-Annual Report
==============================================
June 30, 1998

<PAGE>

=================
TABLE OF CONTENTS
=================

Shareholder's Letter ............................. 1-2

Portfolio of Investments ......................... 3-6

Statement of Assets and Liabilities .............. 7

Statement of Operations .......................... 8

Statement of Changes in Net Assets ............... 9

Financial Highlights ............................. 10

Notes to Financial Statements .................... 11-14
<PAGE>

THE LIPPER FUNDS, INC. SEMI-ANNUAL REPORT
THE PRIME LIPPER EUROPE EQUITY FUND June 30, 1998

Dear Shareholder:

We are pleased to present the semi-annual report for The Prime Lipper
Europe Equity Fund for the fiscal period ended June 30, 1998. The Prime Lipper
Europe Equity Fund is one of three investment portfolios--along with The Lipper
U.S. Equity Fund and The Lipper High Income Bond Fund--which comprise The Lipper
Funds, Inc. Each of The Lipper Funds is made available to individual,
institutional and group retirement plan investors through a separate class of
shares. This report presents the financial statements and performance review for
The Prime Lipper Europe Equity Fund for the period ended June 30, 1998.

PERFORMANCE AND PORTFOLIO REVIEW

Performance as discussed below reflects the performance of the Fund's
Premier class of shares. Performance for the Fund's Retail and Group Retirement
Plan Shares (see page 10) differs from Premier Shares performance due to the
higher class specific expenses associated with the Retail and Group Retirement
Plan classes of shares.

THE PRIME LIPPER EUROPE EQUITY FUND

The Prime Lipper Europe Equity Fund seeks long-term capital appreciation
through investment in a diversified portfolio consisting primarily of
widely-traded, large capitalization European growth stocks. The Fund's
investments are selected according to a highly disciplined and structured
investment process which targets companies offering the potential for strong
earnings growth and capital appreciation. Investments are selected based on a
number of criteria including financial strength, competitive position, product
lines, and services offered.

The Prime Lipper Europe Equity Fund had an exceptional first half of 1998,
generating a total return net of fees and expenses of 28.28% for the six-month
period ended June 30, 1998. The Fund outperformed the average performance of all
European stock funds tracked by Morningstar, Inc. of 24.10%, as well as the
Fund's benchmark, the Morgan Stanley Capital International ("MSCI") Europe Index
which posted a total return of 26.68% for the same six-month period.

The European equity markets were strong during the first half of 1998,
fueled by factors such as ongoing economic recovery, a general improvement in
corporate earnings, and low inflation rates across the region. Investors also
benefited from the continued progress towards economic and monetary union (EMU)
which will go ahead as planned on January 1, 1999.

European stock prices continued to benefit from the recent wave of
corporate restructuring, and merger and acquisition activity resulting from both
cross-border consolidations, as well as the need for many European companies to
improve positioning in order to meet global competition. European corporate
earnings should continue to improve from these initiatives for several years to
come.

The Prime Lipper Europe Equity Fund's year to date 1998 performance was
primarily due to stock selection as opposed to sector or country allocation, or
due to currency hedging. During the period, the Fund's investments were highly
diversified across eleven western European countries, representing approximately
70 individual securities across 21 industries. To date, the Fund has focused on
select European companies such as banks, insurance companies, and
pharmaceuticals which we believe are positioned to successfully compete on both
a regional and global basis by offering advanced and innovative products and
services. The Fund is also invested in well-positioned data processing,
communications, infrastructure and outsourcing companies which we believe are
currently undergoing corporate restructuring in order to improve efficiency in
operations and production. Several securities were also sold during the period
where our analysis pointed to either a potential weakness in earnings growth,
and/or the price of a security had already discounted the anticipated earnings
growth.

The Fund's country allocation decisions typically reflect the equity market
capitalization across the region, with the United Kingdom representing the
largest allocation at approximately 30% of the portfolio's assets. The Fund was
relatively neutral with respect to this allocation during 1998.

<PAGE>

The outlook for Europe for the rest of 1998 is very positive. The European
economies continue to grow, fueled in part by low interest rates. EMU should
continue to encourage corporate restructuring, as well as investment in
communications and technology. The equity markets should, in turn, support
higher average valuations due both improvements in corporate earnings growth, as
well as a relatively benign inflation and interest rate environment. As in the
United States, the impact of the Asian crisis will not be fully discounted in
European equity market valuations until the effects on corporate earnings become
more apparent. While this uncertainty may add some volatility to the markets, we
believe the impact should be outweighed by the positive changes occurring
throughout the region.

We hope you find the enclosed report informative. We very much appreciate
your participation in The Lipper Funds, Inc.

Sincerely,

/s/ KENNETH LIPPER
----------------------------------
KENNETH LIPPER
President and Chairman of the Board
<PAGE>

<TABLE>

PRIME LIPPER EUROPE EQUITY FUND

PORTFOLIO OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
<CAPTION>

SHARES VALUE+
------ ------
<S> <C> <C>
COMMON AND PREFERRED STOCKS (100.0%)
BELGIUM (1.2%)
Credit Communal Preferred de Belique-DEXIA ........................ 9,000 $ 1,354,475
-----------
FINLAND (1.7%)
Oyj Nokia AB, Preferred ........................................... 25,440 1,870,963
-----------
FRANCE (13.0%)
AXA-UAP ........................................................... 18,000 2,024,479
Carrefour Supermarche S.A. ........................................ 3,300 2,087,744
GrandVision, S.A. ................................................. 31,800 1,057,195
Promodes S.A. ..................................................... 4,000 2,216,341
Sanofi S.A. ....................................................... 14,530 1,708,705
Sidel S.A. ........................................................ 20,000 1,455,508
Societe Technip S.A. .............................................. 12,000 1,466,755
Total S.A., B shares .............................................. 17,020 2,212,656
-----------
14,229,383
-----------
GERMANY (15.6%)
Adidas-Salomon AG ................................................. 6,600 1,140,831
* Allianz Holding AG ................................................ 8,400 2,768,975
BHW Holding AG .................................................... 56,000 966,427
Bayer AG .......................................................... 42,000 2,166,316
Bayerische Motoren Werke AG ....................................... 800 807,091
* Bayerische Motoren Werke AG, New .................................. 200 198,892
Dr. Ing H.C.F. Porsche AG, Preferred .............................. 200 579,501
Dresdner Bank AG .................................................. 30,000 1,617,175
Mannesmann AG ..................................................... 21,000 2,130,249
* Muenchener Rueckversicherungs-Gesellschaft AG ..................... 4,300 2,132,133
VEBA AG ........................................................... 23,070 1,572,083
Wella AG, Preferred ............................................... 900 1,017,174
-----------
17,096,847
-----------
IRELAND (1.1%)
Bank of Ireland ................................................... 58,000 1,189,287
-----------
ITALY (6.4%)
* Alleanza Assicurazioni S.p.A. ..................................... 59,000 801,581
Banca Popolare Di Bergamo S.p.A. .................................. 42,000 864,786
Bulgari S.p.A. .................................................... 145,000 760,260
ENI S.p.A. ........................................................ 239,190 1,567,643
* La Fondiaria Assicurazioni S.p.A. ................................. 112,000 643,312
* Parmalat Finanziaria S.p.A. ....................................... 258,612 527,394
Telecom Italia Mobile S.p.A. ...................................... 310,080 1,896,188
-----------
7,061,164
-----------
NETHERLANDS (8.5%)
Aegon N.V. ........................................................ 10,800 939,731
Baan Company, N.V. ................................................ 19,100 686,368
Getronics N.V. .................................................... 28,500 1,478,099
ING Groep N.V., Certificate Shares ................................ 38,212 2,502,133
Koninklijke Ahold NV .............................................. 48,460 1,555,618
VNU-Verenigde Nederlandse Uitgeversbedrijven ...................... 34,000 1,235,178
Wolters Kluwer N.V. ............................................... 7,100 974,496
-----------
9,371,623
-----------
</TABLE>

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

<PAGE>

<TABLE>

PRIME LIPPER EUROPE EQUITY FUND

PORTFOLIO OF INVESTMENTS--(CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<CAPTION>

SHARES VALUE+
------ ------
<S> <C> <C>
SPAIN (5.0%)
Banco Santander S.A. .............................................. 68,000 $ 1,743,419
Centros Comerciales Pryca, S.A. ................................... 49,000 909,008
Endesa S.A. ....................................................... 53,500 1,172,464
Gas Natural SDG. .................................................. 12,600 911,934
* Sol Melia S.A. .................................................... 16,500 786,792
------------
5,523,617
------------
SWEDEN (4.6%)
Astra AIB, Class B ................................................ 80,520 1,605,372
Enator AB ......................................................... 17,000 505,210
Ericsson LM, Class B .............................................. 61,000 1,782,217
Skandia Forsakrings AB ............................................ 45,000 643,268
Sandvik AB, Class B ............................................... 19,500 535,493
------------
5,071,560
------------
SWITZERLAND (11.7%)
Julius Baer Holding AG, Bearer .................................... 250 782,074
Nestle S.A., Registered ........................................... 1,200 2,568,038
Novartis AG, Registered ........................................... 2,000 3,328,059
Roche Holding AG, DRC ............................................. 285 2,798,705
UBS AG, Registered ................................................ 5,000 1,859,177
Zurich Versicherungsgesellschaft, Registered ...................... 2,400 1,531,645
------------
12,867,698
------------
UNITED KINGDOM (31.2%)
Bank of Scotland .................................................. 120,000 1,343,478
Boots plc ......................................................... 105,975 1,755,818
British Telecom plc ............................................... 264,000 3,259,586
Compass Group plc ................................................. 174,000 2,000,300
Cadbury Schweppes plc ............................................. 146,639 2,269,291
HSBC Holdings plc ................................................. 93,500 2,372,835
Lloyds TSB Group plc .............................................. 192,323 2,690,674
Marks & Spencer plc ............................................... 205,000 1,865,844
Misys plc ......................................................... 23,000 1,306,687
Pearson plc ....................................................... 91,000 1,667,134
SEMA Group plc .................................................... 136,000 1,599,760
Siebe plc ......................................................... 51,000 1,018,570
SmithKline Beecham plc ............................................ 240,000 2,929,222
Smiths Industries plc ............................................. 97,000 1,343,311
The Sage Group plc ................................................ 56,000 1,582,228
Vodafone Group plc ................................................ 224,000 2,842,327
Zeneca Group plc .................................................. 58,000 2,489,004
------------
34,336,069
------------
TOTAL COMMON AND PREFERRED STOCKS (100%)
(COST $80,719,635) .................................................. 109,972,686
============
RIGHTS (0.0%)
GERMANY (0.0%)
* Bayerische Motoren Werke .......................................... 200 5,729
* Bayerische Motoren Werke AG ....................................... 1,000 28,643
------------
TOTAL RIGHTS (0.0%) (COST $0) ......................................... 34,372
------------
TOTAL INVESMENTS (100.0%) (COST $80,719,635) .......................... $110,007,058
============
</TABLE>
- -------------
+ See Note A to Financial Statements.
* Non-Income Producing Security.

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

<PAGE>

PRIME LIPPER EUROPE EQUITY FUND

PORTFOLIO OF INVESTMENTS--(CONTINUED)
JUNE 30, 1998 (UNAUDITED)

FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:

Under the terms of foreign currency exchange contracts open at June 30,
1998, the Fund is obligated to deliver or is to receive foreign currency in
exchange for U.S. dollars or foreign currency as indicated below:

NET
CURRENCY TO SETTLEMENT UNREALIZED
DELIVER VALUE DATE IN EXCHANGE FOR VALUE GAIN (LOSS)
- ------------------- ---------- ---------- ------------------- ---------- -----------

<S> <C> <C> <C> <C> <C> <C> <C>
USD 393,944 $ 393,944 06/30/98 FRF 2,359,725 $ 390,296 $(3,648)
USD 571,689 571,689 06/30/98 FRF 3,412,413 564,408 (7,281)
FRF 386,879 63,989 06/30/98 USD 63,989 64,798 809
FRF 1,456,777 240,949 06/30/98 USD 240,949 241,548 599
---------- ---------- -------
$1,270,571 $1,261,050 $(9,521)
========== ========== =======
- --------------
FRF French Franc
USD U.S. Dollar
</TABLE>

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

<PAGE>

PRIME LIPPER EUROPE EQUITY FUND

PORTFOLIO OF INVESTMENTS--(CONTINUED)
JUNE 30, 1998 (UNAUDITED)

SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION

PERCENT OF
NET
INDUSTRY ASSETS VALUE
- -------- ---------- ------------
Automobiles .................................. 1.5% $ 1,619,856
Banking ...................................... 15.3 16,783,806
Broadcast & Publishing ....................... 3.5 3,876,808
Business & Public Services ................... 6.5 7,175,344
Chemicals .................................... 2.0 2,166,316
Data Processing .............................. 1.3 1,478,100
Electrical/Electronics ....................... 0.9 1,018,570
Electrical/Components/Instruments ............ 3.3 3,653,180
Energy Sources ............................... 3.5 3,780,299
Food & Household Products .................... 4.9 5,364,722
Health & Personal Care ....................... 14.4 15,876,242
Insurance .................................... 12.7 13,987,257
Leisure & Tourism ............................ 0.7 786,792
Machinery & Engineering ...................... 3.9 4,265,574
Merchandising ................................ 10.4 11,447,568
Recreation & Other Consumer Goods ............ 1.7 1,901,091
Steel & Metals ............................... 0.5 535,493
Telecommunications ........................... 9.7 10,633,560
Utilities--Electric/Gas ...................... 3.3 3,656,480
----- ------------
Total Investments ........................ 100.0% $110,007,058
===== ============

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

<PAGE>

PRIME LIPPER EUROPE EQUITY FUND

STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)
<S> <C>
ASSETS:
Investments, at value (Cost $80,719,635) (Note A) ....................................... $110,007,058
Cash .................................................................................... 3,890,293
Receivable for Fund Shares Sold ......................................................... 2,627,928
Receivable for Investments Sold ......................................................... 1,124,733
Dividends Receivable .................................................................... 190,875
Foreign Withholding Tax Reclaim Receivable .............................................. 74,237
Interest Receivable ..................................................................... 20,287
Deferred Organization Costs (Note A) .................................................... 51,752
Prepaid Assets .......................................................................... 230
------------
TOTAL ASSETS ...................................................................... 117,987,393
------------
LIABILITIES:
Payable for Investments Purchased ....................................................... 1,774,499
Investment Advisory Fees Payable (Note B) ............................................... 99,567
Administrative Fees Payable (Note C) .................................................... 21,229
Payable for Fund Shares Redeemed ........................................................ 18,169
Custodian Fees Payable .................................................................. 16,479
Unrealized Depreciation on Foreign Currency Contracts ................................... 9,521
Directors' Fees Payable (Note D) ........................................................ 5,376
Distribution Fees Payable--Retail Shares (Note E) ....................................... 5,191
Shareholder Servicing Fees Payable--Group Retirement Plan Shares (Note E) ............... 3,276
Other Liabilities ....................................................................... 27,367
------------
TOTAL LIABILITIES ................................................................. 1,980,674
------------
NET ASSETS ................................................................................ $116,006,719
============
NET ASSETS CONSIST OF:
Paid in Capital ......................................................................... $ 74,881,629
Undistributed Net Investment Income ..................................................... 232,866
Accumulated Net Realized Gain ........................................................... 11,609,278
Unrealized Appreciation on Investments and Foreign Currency Translations ................ 29,282,946
------------
$116,006,719
============
PREMIER SHARES:
Net Assets .............................................................................. $111,563,184
Shares Issued and Outstanding ($.001 par value) (Authorized 3,333,333,333) .............. 7,409,836
Net Asset Value, Offering and Redemption Price Per Share ................................ $ 15.06
============
RETAIL SHARES:
Net Assets .............................................................................. $ 2,450,650
Shares Issued and Outstanding ($.001 par value) (Authorized 3,333,333,333) .............. 163,016
Net Asset Value, Offering and Redemption Price Per Share ................................ $ 15.03
============
GROUP RETIREMENT PLAN SHARES:
Net Assets .............................................................................. $ 1,992,885
Shares Issued and Outstanding ($.001 par value) (Authorized 3,333,333,333) .............. 132,603
Net Asset Value, Offering and Redemption Price Per Share ................................ $ 15.03
============

</TABLE>

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

7
<PAGE>

PRIME LIPPER EUROPE EQUITY FUND

STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)

<S> <C>
INVESTMENT INCOME
Dividends .............................................................. $ 1,127,200
Interest ............................................................... 49,390
Less: Foreign Taxes Withheld ........................................... (136,990)
-----------
TOTAL INCOME ..................................................... 1,039,600
-----------
EXPENSES
Investment Advisory Fees (Note B) ...................................... 548,203
Administrative Fees (Note C) ........................................... 106,502
Directors' Fees (Note D) ............................................... 9,308
Distribution Fees--Retail Shares (Note E) .............................. 2,264
Servicing Fees--Group Retirement Plan Shares (Note E) .................. 1,926
Custodian Fees ......................................................... 39,653
Auditing Fees .......................................................... 12,395
Registration and Filing Fees ........................................... 10,534
Legal Fees ............................................................. 9,711
Amortization of Organization Costs (Note A) ............................ 9,312
Other Expenses ......................................................... 23,342
-----------
Total Expenses ................................................... 773,150
-----------
NET INVESTMENT INCOME ............................................ 266,450
-----------
NET REALIZED GAIN (LOSS) FROM:
Investments sold ....................................................... 8,467,113
Foreign Currency Translations .......................................... (115,849)
-----------
TOTAL NET REALIZED GAIN .......................................... 8,351,264
-----------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION:
Investments ............................................................ 15,187,469
Foreign Currency Translations .......................................... (4,403)
-----------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ....................... 15,183,066
-----------
TOTAL REALIZED GAIN (LOSS) AND NET CHANGE IN
UNREALIZED APPRECIATION/DEPRECIATION ................................... 23,534,330
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..................... $23,800,780
===========

</TABLE>

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

8
<PAGE>

PRIME LIPPER EUROPE EQUITY FUND

STATEMENT OF CHANGES
<TABLE>
<CAPTION>

SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS:
Net Investment Income ....................................... $ 266,450 $ 324,797
Net Realized Gain ........................................... 8,351,264 12,722,779
Net Change in Unrealized Appreciation/Depreciation .......... 15,183,066 263,553
------------- -------------
Net Increase in Net Assets Resulting from Operations .... 23,800,780 13,311,129
------------- -------------
DISTRIBUTIONS:
PREMIER SHARES:
From net investment income .................................. -- (142,928)
In excess of net investment income .......................... -- (33,407)
From net realized gains ..................................... -- (9,927,607)
RETAIL SHARES:
From net investment income .................................. -- (62)
In excess of net investment income .......................... -- (15)
From net realized gains ..................................... -- (136,371)
GROUP RETIREMENT PLAN SHARES:
From net investment income .................................. -- (693)
In excess of net investment income .......................... -- (162)
From net realized gains ..................................... -- (109,302)
------------- -------------
Total Distributions ..................................... -- (10,350,547)
------------- -------------
CAPITAL SHARE TRANSACTIONS (NOTE H):
PREMIER SHARES:
Issued--Regular ............................................. 8,345,008 16,358,781
--Distributions Reinvested ............................ -- 10,081,098
Redeemed .................................................... (2,637,182) (9,510,532)
------------- -------------
Net Increase in Premier Shares Transactions ............. 5,707,826 16,929,347
------------- -------------
RETAIL SHARES:
Issued--Regular ............................................. 1,175,450 367,267
--Distributions Reinvested ............................ -- 136,448
Redeemed .................................................... (254,858) (12,548)
------------- -------------
Net Increase in Retail Shares Transactions .............. 920,592 491,167
------------- -------------
GROUP RETIREMENT PLAN SHARES:
Issued--Regular ............................................. 724,386 957,709
--Distributions Reinvested ............................ -- 110,157
Redeemed .................................................... (11,690) (329,771)
------------- -------------
Net Increase in Group Retirement Plan Shares Transactions 712,696 738,095
------------- -------------
Net Increase in Net Assets From Capital Share Transactions .... 7,341,114 18,158,609
------------- -------------
TOTAL INCREASE .......................................... 31,141,894 21,119,191
------------- -------------
NET ASSETS:
Beginning of Period ......................................... 84,864,825 63,745,634
------------- -------------
End of Period (A) ........................................... 116,006,719 84,864,825
============= =============
- -----------

(A) Includes undistributed (distributions in excess of) net
investment income (loss) $ 232,866 $ (33,584)
============= =============

</TABLE>

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

9
<PAGE>

PRIME LIPPER EUROPE EQUITY FUND

FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA & RATIOS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

PREMIER PREMIER PREMIER RETAIL RETAIL
SHARES SHARES SHARES SHARES SHARES
---------- ----------- ----------- --------- ------------
SIX MONTHS SIX MONTHS
ENDED YEAR APRIL 1, ENDED YEAR
JUNE 30, ENDED 1996** TO JUNE 30, ENDED
1998 DECEMBER 31, DECEMBER 31, 1998 DECEMBER 31,
(UNAUDITED) 1997 1996 (UNAUDITED) 1997
---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............... $ 11.74 $ 11.25 $ 10.00 $11.73 $11.25
-------- ------- ------- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss)(1) .................. 0.04 0.05 0.04 0.03 0.02
Net Realized and Unrealized Gain
on Investments ................................. 3.28 2.06 1.62 3.27 2.05
-------- ------- ------- ------ ------
Total From Investment Operations ........... 3.32 2.11 1.66 3.30 2.07
-------- ------- ------- ------ ------
DISTRIBUTIONS:
Net Investment Income ............................ -- (0.03) (0.02) -- --
In Excess of Net Investment Income ............... -- (0.00)+ -- -- (0.00)+
Net Realized Gain ................................ -- (1.59) (0.39) -- (1.59)
-------- ------- ------- ------ ------
Total Distributions ........................ -- (1.62) (0.41) -- (1.59)
-------- ------- ------- ------ ------
NET ASSET VALUE, END OF PERIOD ..................... $ 15.06 $ 11.74 $ 11.25 $15.03 $11.73
======== ======= ======= ====== ======
TOTAL RETURN (2) ................................... 28.28% 18.83% 16.68% 28.13% 18.49%
======== ======= ======= ====== ======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) .................. $111,563 $82,787 $62,942 $2,451 $1,137
Ratios After Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets ................... 1.54%* 1.59% 1.60%* 1.79%* 1.84%
Net Investment Income (Loss) to Average Net Assets 0.54%* 0.43% 0.53%* 0.45%* 0.16%
Ratios Before Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets ................... 1.54%* 1.59% 1.78%* 1.79%* 1.84%
Net Investment Income (Loss) to Average
Net Assets ..................................... 0.54%* 0.43% 0.35%* 0.45%* 0.16%
Portfolio Turnover Rate ............................ 30% 71% 34% 30% 71%

</TABLE>

GROUP GROUP GROUP
RETIREMENT RETIREMENT RETIREMENT
RETAIL PLAN PLAN PLAN
SHARES SHARES SHARES SHARES
----------- ---------- ---------- ----------
SIX MONTHS
APRIL 11, ENDED YEAR APRIL 12,
1996*** TO JUNE 30, ENDED 1996*** TO
DECEMBER 31, 1998 DECEMBER 31, DECEMBER 31,
1996 (UNAUDITED) 1997 1996
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............... $ 9.93 $11.72 $11.24 $ 9.92
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss)(1) .................. (0.01) 0.03 0.03 (0.02)
Net Realized and Unrealized Gain
on Investments ................................. 1.73 3.28 2.05 1.74
------ ------ ------ ------
Total From Investment Operations ........... 1.72 3.31 2.08 1.72
------ ------ ------ ------
DISTRIBUTIONS:
Net Investment Income ............................ (0.01) -- (0.01) (0.01)
In Excess of Net Investment Income ............... -- -- (0.00)+ --
Net Realized Gain ................................ (0.39) -- (1.59) (0.39)
------ ------ ------ ------
Total Distributions ........................ (0.40) -- (1.60) (0.40)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD ..................... $11.25 $15.03 $11.72 $11.24
====== ====== ====== ======
TOTAL RETURN (2) ................................... 17.37% 28.24% 18.60% 17.40%
====== ====== ====== ======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) .................. $ 609 $1,993 $ 941 $ 195
Ratios After Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets ................... 1.85%* 1.79%* 1.84% 1.85%*
Net Investment Income (Loss) to Average Net Assets (0.13)%* 0.42%* 0.34% (0.43)%*
Ratios Before Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets ................... 2.07%* 1.79%* 1.84% 2.04%*
Net Investment Income (Loss) to Average
Net Assets ..................................... (0.35)%* 0.42%* 0.34% (0.62)%*
Portfolio Turnover Rate ............................ 34% 30% 71% 34%

</TABLE>

- ------------
* Annualized
** Commencement of Fund Operations
*** Initial offering of shares by the Fund
+ Amount is less than $0.01 per share.

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

PERIOD ENDED
DECEMBER 13, 1996
-----------------
Premier Shares ................................. $0.01
Retail Shares .................................. $0.02
Group Retirement Plan Shares ................... $0.01

(2) Total return would have been lower had the Adviser not waived or reimbursed
certain expenses during the periods shown. Total returns for periods of
less than one year are not annualized.

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

<PAGE>

PRIME LIPPER EUROPE EQUITY FUND
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, 1998 the Company was comprised
of three diversified portfolios: Lipper High Income Bond Fund, Lipper U.S.
Equity Fund, and Prime Lipper Europe Equity Fund. These financial statements
pertain to Prime Lipper Europe Equity Fund only. The financial statements of the
remaining Funds are presented separately. The Company offers the shares of each
Fund in three classes: Premier Shares, Retail Shares and Group Retirement Plan
Shares. Prime Lipper Europe Equity Fund (the "Fund") was funded on April 1, 1996
with a contribution of securities to the Fund from a corresponding limited
partnership (see Note G).

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.

2. FEDERAL INCOME TAXES: It is the 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 Fund may be subject to
taxes imposed by countries in which it invests. Such taxes are generally based
on income earned or repatriated and are accrued when the related income is
earned.

Net capital and net currency losses incurred after October 31 and within
the taxable year are deemed to arise on the first business day of the Fund's
next taxable year. For the period from November 1, 1997 to December 31, 1997 the
Fund incurred and elected to defer until January 1, 1998 for U.S. Federal income
tax purposes net currency losses of approximately $35,274.

At June 30, 1998 the cost of investments and unrealized appreciation
(depreciation) of investments for Federal income tax purposes were:

NET
COST APPRECIATION (DEPRECIATION) APPRECIATION
---- ------------ -------------- ------------
$80,719,635 $30,227,029 $(939,606) $29,287,423

3. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: The books and
records of the Fund 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 Fund are presented at the foreign exchange rates and
market values at the close of the period, the Fund does 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 Fund does 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

<PAGE>

PRIME LIPPER EUROPE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)

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 Fund's 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 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 theU.S.
dollar.

5. DISTRIBUTIONS TO SHAREHOLDERS: The Fund intends to distribute
substantially all of its net investment income annually. Net realized capital
gains, if any, will be distributed at least annually by the Fund. All
distributions are recorded on ex-dividend date.

Permanent book and tax differences relating to shareholder distributions
may result in reclassifications to undistributed net investment income (loss),
undistributed realized net gain (loss) and paid in capital.

6. ORGANIZATION COSTS: Costs incurred by the Fund in connection with its
organization have been deferred and are being amortized on a straight-line basis
over a five-year period.

7. OTHER: Securities 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. Expenses of the Company, which are not directly
attributable to a Fund, are allocated among the Funds based on their relative
net assets. 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: Prime Lipper Asset Management (the "Adviser") serves as
the investment adviser to the Fund. Under the terms the Investment Advisory
Agreement (the "Agreement"), the Adviser provides investment

<PAGE>

PRIME LIPPER EUROPE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)

advisory services for a fee calculated at an annual rate of 1.10% of the Fund's
average daily net assets. From time to time, the Adviser may voluntarily waive,
for a period of time, all or a portion of the fee to which it is entitled under
its Agreement with the Fund. Until further notice, the Adviser has agreed to
voluntarily waive fees and reimburse expenses to the extent necessary to
maintain an annual operating expense ratio to net assets of not more thanthe
following:

GROUP RETIREMENT
PREMIER SHARES RETAIL SHARES PLAN SHARES
-------------- ------------- ----------------
1.60% 1.85% 1.85%

There were no fees waived under this agreement for the six months ended
June 30, 1998.

PURCHASES SALES
--------- -----
$33,703,810 $29,538,375

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

G. LIMITED PARTNERSHIP TRANSFERS: The Fund was formed as a successor investment
vehicle for a limited partnership (the "Partnership") for which the Adviser
acted as general partner and investment adviser since inception. On April 1,
1996, the Fund exchanged Premier Shares for portfolio securities of the
Partnership (the "Transfer"). Premier Shares issued by the Fund in the Transfer
were issued at the net asset value of Premier Shares prior to the Transfer.
Premier Shares received in the Transfer have been distributed to the
Partnership's limited partners who elected to participate in the Transfer.
Securities valued at $50,208,413 at the date of Transfer with unrealized
appreciation of $7,587,935 were contributed to the Fund on a tax free basis. To
the extent that the Fund acquired securities in the 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
subsequently acquire shares of the Fund.

<PAGE>

PRIME LIPPER EUROPE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)

H. OTHER: Capital share transactions for the Fund, by class of shares, were as
follows:

SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
1998 1997
---------- ------------
PREMIER SHARES:
Issued--Regular ................ 571,771 1,398,901
--Distributions Reinvested -- 857,040
Redeemed ......................... (215,835) (796,803)
------- ---------
Net Increase ..................... 355,936 1,459,138
------- ---------
RETAIL SHARES:
Issued--Regular ................ 83,571 32,120
--Distributions Reinvested -- 11,602
Redeemed ......................... (17,442) (1,004)
------- ---------
Net Increase ..................... 66,129 42,718
------- ---------
GROUP RETIREMENT PLAN SHARES:
Issued--Regular ................ 53,268 80,068
--Distributions Reinvested -- 9,385
Redeemed ......................... (889) (26,544)
------- ---------
Net Increase ..................... 52,379 62,909
------- ---------

I. OTHER: At June 30, 1998, the percentage of total shares outstanding held by
record shareholders owning 10% or greater of the aggregate total shares for the
Fund was as follows:

NO. OF %
SHAREHOLDERS OWNERSHIP
------------ ---------
Premier Shares .................... 1 12.0%
Retail Shares ..................... 1 18.0%
Group Retirement Shares ........... 3 97.6%

14
<PAGE>

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

STANLEY BREZENOFF
Director

MARTIN MALTZ
Director

IRWIN RUSSELL
Director

INVESTMENT ADVISER 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 ACCOUNTANTS PricewaterhouseCoopers LLP
- -------------------------------- 1177 Avenue of the Americas
New York, NY 10036