LIPPER FUNDS INC, N-30D, 1999-08-13

LIPPER FUNDS INC
N-30D, 1999-08-13

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----------------------
THE LIPPER FUNDS, INC.
----------------------

LIPPER HIGH INCOME BOND FUND

Semi-Annual Report
===============================================================
June 30, 1999

<PAGE>

TABLE OF CONTENTS

Shareholder's Letter...................................... 1-2
Portfolio of Investments.................................. 3-7
Statement of Assets and Liabilities....................... 8
Statement of Operations................................... 9
Statement of Changes in Net Assets........................ 10
Financial Highlights...................................... 11
Notes to Financial Statements............................. 12-14

<PAGE>

THE LIPPER FUNDS, INC. SEMI-ANNUAL REPORT
LIPPER HIGH INCOME BOND FUND June 30, 1999

Dear Shareholder:

We are pleased to present the Semi-Annual Report for the Lipper High Income
Bond Fund for the six months ended June 30, 1999. The Lipper High Income Bond
Fund is one of three investment portfolios, together with the Lipper U.S. Equity
Fund and the Lipper Prime Europe Equity Fund, which comprise The Lipper Funds,
Inc. This report presents the financial statements and performance review of the
Lipper High Income Bond Fund (the "Fund") for the six months ended June 30,
1999.

The Lipper High Income Bond Fund seeks to achieve high total returns while
preserving capital by investing in a diversified portfolio of quality, high
yield, intermediate-term bonds rated BBB to B-. As of June 30, 1999, the
portfolio consisted of 104 securities representing 25 industries. The average
credit quality of the portfolio was BB-. The Fund's weighted average coupon was
approximately 9.1% and the average yield to maturity was approximately 9.1%. The
Fund maintained an average maturity of 6.2 years and an effective duration of
3.7 years.

The Fund seeks to manage credit risk and minimize interest rate risk
through in-depth credit analysis, portfolio diversification and by investing in
securities with short-to-intermediate term maturities. To manage default risk,
the Fund invests in companies with proven track records of established cash
flow, invests exclusively in cash-pay bonds, favors bonds that are senior in the
capital structure and avoids companies where it is difficult to quantify the
inherent risks. Due in part to this discipline, the Fund has never experienced a
default with respect to any bond holding. Further, the Fund's consistently
strong performance has earned the Fund a five-star rating from Morningstar, Inc.
out of 1,543 fixed income funds for the three-year period ending June 30, 1999.*

The high yield bond market performed well during the first quarter of 1999,
but inflationary concerns and uncertainty regarding the outlook of U.S. interest
rates negatively impacted the market during the second quarter of 1999. This
retreat was further supported by the U.S. Federal Reserve's adoption of a
tightening bias at the Federal Open Market Committee (F.O.M.C.) meeting on May
18, 1999, which caused the market to price in an anticipated rate hike of as
much as 50 basis points. In addition, the high yield market suffered from
volatility in the stock market and profit taking by portfolio managers looking
to lock in gains earned earlier in the year. Overall, these factors gave a
negative tone to the high yield market.

On June 30, 1999, the F.O.M.C. voted to increase its target for the Federal
funds rate, the overnight rate for interbank borrowing, by 25 basis points, to
5%. Further, the F.O.M.C. abandoned its tightening bias and adopted a neutral
stance regarding near term policy action. As a result, stocks and bonds rallied
sharply, with the Dow Jones industrial average jumping 155 points and the
30-Year Treasury yield falling below 6%. Similarly, the high yield bond market
rallied in tandem. We expect the Federal Reserve's decision to continue to have
a positive impact on the high yield market in the second half of 1999.

Notwithstanding the difficulties experienced during the months of May and
June, high yield bonds performed relatively well during the first half of 1999,
outperforming most fixed income asset classes. Year-to-date as of June 30, 1999,
the Lipper High Income Bond Fund Premier Shares generated a net return of 3.53%.
This return compares favorably with the 10-Year Treasury Bond, which generated a
return of -6.47% for the period, and the Fund's benchmark index, the Lehman
Brothers BB Intermediate Bond Index, which generated a return of 0.58% for the
period.** Further, the Fund's Premier Shares outperformed the 3.22% average
total return generated by all high yield funds tracked by Morningstar, Inc. for
the six-month period ended June 30, 1999 and ranked in the top 5% of the 279
high yield funds tracked by Morningstar, Inc. for the trailing 12-month period
ended June 30, 1999.*** Although the fixed income markets have been
disappointing in general, the Lipper High Income Bond Fund performed relatively
well during the first half of 1999, and we expect improved performance during
the second half of 1999.

Although spreads over Treasuries have narrowed since their peaks in August
and October of 1998, spreads have not yet returned to historical norms.
According to Donaldson Lufkin & Jenrette's HighYield Research

<PAGE>

Department, as of June 30, 1999, the spread of all high yield bonds over
comparable U.S. Treasury bonds was 549 basis points. This compares to an average
spread of 429 basis points between January 1, 1993 and June 30, 1999. Similarly,
the spread of BB-rated bonds over comparable U.S. Treasuries was 339 basis
points on June 30, 1999, versus an average spread of 291 basis points between
January 1, 1993 and June 30, 1999. Consequently, we expect additional spread
tightening in the high yield bond market.

Our outlook for the Lipper High Income Bond Fund is positive. Given the
strength of the U.S. dollar relative to other currencies, the negative impact
that a significant interest rate hike would have on U.S. trade and the Federal
Reserve's current policy predisposition, we expect interest rates to remain
relatively stable in the near term. Further, we believe the current U.S.
economic environment supports an optimistic outlook for high yield bonds. We
expect U.S. economic growth to continue, unemployment to remain low and
strengthening productivity to continue to contain inflationary pressures, making
U.S. bond yields attractive on both an absolute and relative basis. Considering
that high yield bond spreads are still wider than historical levels, we also
believe there is room for additional spread tightening in the high yield market,
providing additional support for investing in high yield bonds.

In the second half of 1999, the Fund will continue to pursue its investment
strategy of adding value by investing and trading issues which, based upon
internal analysis, offer attractive yields compared to their official credit
rating or market perceptions. Particularly, the portfolio manager will continue
to focus on higher quality bonds that generate sufficient cash flow to cover
interest expense and capital expenditures and maintain reasonable debt to cash
flow ratios. We expect to maintain the Fund's stated average maturity and
duration on the shorter end of the maturity spectrum, which currently offers
greater value than longer dated paper.

We hope you find the enclosed report informative. We appreciate your
participation in the Lipper High Income Bond Fund.

Sincerely,

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

- ------------
* Past performance is no guarantee of future results. The Morningstar, Inc.
ratings reflect risk-adjusted performance for the Lipper High Income Bond Fund
Premier, Retail and Group Retirement Plan Shares as of 6/30/99. These classes
have a common portfolio. The Morningstar, Inc. ratings may change monthly and
are calculated from a fund's three, five and ten-year (as available) average
annual total returns (which include reinvestment of dividends and capital gains)
in excess of 90-day treasury bill returns, with appropriate fee adjustments and
a risk factor reflecting fund performance below 90-day treasury bill returns.
The top 10% of funds in each broad asset class receive five stars. Fee waivers
and reimbursements were in effect for the Lipper High Income Bond Fund for the
period 4/1/96 through 6/30/99, without which total returns would have been
lower.

** The Lehman Brothers BB Intermediate Bond Index is an unmanaged index
comprised of BB-rated bonds with maturities of less than 10 years. The
performance of the index does not reflect management fees or transaction costs,
and one cannot invest directly in an unmanaged index.

*** The Morningstar, Inc. ranking compares the total returns (including
reinvestment of dividends and capital gains) of the Lipper High Income Bond Fund
Premier Shares with all funds in the same Morningstar category for the trailing
12-month period ended 6/30/99. This ranking may change monthly.

<PAGE>

LIPPER HIGH INCOME BOND FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1999 (UNAUDITED)

Face
Amount Value
---------- -----------
<S> <C> <C>
CORPORATE BONDS (89.2%)
ADVERTISING & BROADCASTING (4.1%)
Ackerley Group, Inc. 9.00%, 01/15/09....................................... $ 500,000 $ 492,500
Lamar Advertising Co. 9.625%, 12/01/06..................................... 1,000,000 1,025,000
Outdoor Systems, Inc. 9.375%, 10/15/06..................................... 1,000,000 1,068,750
Salem Communications Corp., Series B 9.50%, 10/01/07....................... 1,000,000 1,055,000
-----------
3,641,250
-----------
AEROSPACE & DEFENSE (2.8%)
BE Aerospace, Series B 8.00%, 03/01/08..................................... 1,000,000 940,000
Sequa Corp. 9.625%, 10/15/99............................................... 500,000 506,875
Wyman-Gordon Co. 8.00%, 12/15/07........................................... 1,000,000 1,090,000
-----------
2,536,875
-----------
AUTO MANUFACTURING & RELATED (4.2%)
Delco Remy International, Inc. 10.625%, 08/01/06........................... 1,000,000 1,025,000
+ Federal-Mogul Corp. 7.375%, 01/15/06....................................... 1,000,000 947,360
Hayes Wheels International, Inc. 11.00%, 07/15/06.......................... 750,000 817,500
Lear Seating 8.25%, 02/01/02............................................... 1,000,000 985,000
-----------
3,774,860
-----------
BEVERAGES & BOTTLING (1.1%)
Canandaigua Wine, Inc. 8.75%, 12/15/03..................................... 1,000,000 987,500
-----------
CABLE/DISTRIBUTED ENTERTAINMENT (5.1%)
Adelphia Communications, Series B 9.25%, 10/01/02.......................... 1,000,000 1,020,000
+ Charter Communication Holdings, LLC 8.25%, 04/01/07........................ 625,000 598,438
CSC Holding, Inc. 9.25%, 11/01/05.......................................... 750,000 776,250
+ Echostar DBS Corp. 9.25%, 02/01/06......................................... 1,000,000 1,025,000
Fundy Cable Ltd. 11.00%, 11/15/05.......................................... 1,000,000 1,095,000
-----------
4,514,688
-----------
CAPITAL GOODS, EQUIPMENT & OTHER MANUFACTURING (1.1%)
American Standard, Inc. 7.125%, 02/15/03................................... 500,000 485,625
+ International Game Technology 7.875%, 05/15/04............................. 500,000 491,250
-----------
976,875
-----------
CHEMICALS (3.5%)
Georgia Gulf Corp. 7.625%, 11/15/05........................................ 750,000 742,680
Lyondell Chemical Co. 9.90%, 05/01/00...................................... 500,000 510,775
+ Lyondell Chemical Co. 9.875%, 05/01/07..................................... 750,000 772,500
+ Scotts Co. 8.625%, 01/15/09................................................ 1,100,000 1,083,500
-----------
3,109,455
-----------
CONSUMER PRODUCTS (1.8%)
Herff Jones, Inc. 11.00%, 08/15/05......................................... 750,000 802,500
Selmer Co., Inc. 11.00%, 05/15/05.......................................... 750,000 798,750
-----------
1,601,250
-----------
</TABLE>

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

3
<PAGE>

LIPPER HIGH INCOME BOND FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
JUNE 30, 1999 (UNAUDITED)

Face
Amount Value
--------- ------------
<S> <C> <C>
ELECTRICAL EQUIPMENT (2.3%)
Amphenol Corp. 9.875%, 05/15/07............................................ $1,000,000 $ 1,025,000
+ Filtronic plc 10.00%, 12/01/05............................................. 1,000,000 1,005,000
-----------
2,030,000
-----------
ELECTRIC UTILITIES & POWER (3.4%)
AES Corp. 8.375%, 08/15/07................................................. 1,125,000 1,060,313
Calpine Corp. 7.625%, 04/15/06............................................. 500,000 482,500
+ CMS Energy Corp. 6.75%, 01/15/04........................................... 500,000 471,190
Cogentrix Energy, Inc. 8.10%, 03/15/04..................................... 1,000,000 990,390
-----------
3,004,393
-----------
ENERGY (7.9%)
Canadian Occidental Petroleum 7.125%, 02/04/04............................. 1,000,000 986,050
Ferrellgas Partners LP 9.375%, 06/15/06.................................... 500,000 492,500
Gulf Canada Resources Ltd. 9.25%, 01/15/04................................. 750,000 766,710
Nuevo Energy Co. 9.50%, 04/15/06........................................... 875,000 870,625
Pride Petroleum Services, Inc. 9.375%, 05/01/07............................ 1,000,000 995,000
Seagull Energy, Inc. 8.625%, 08/01/05...................................... 750,000 738,750
Tuboscope, Inc. 7.50%, 02/15/08............................................ 500,000 442,845
Veritas DGC, Inc. 9.75%, 10/15/03.......................................... 750,000 776,250
Vintage Petroleum 9.00%, 12/15/05.......................................... 1,000,000 997,500
-----------
7,066,230
-----------
ENTERTAINMENT (4.0%)
+ Marvel Enterprises, Inc. 12.00%, 06/15/09.................................. 500,000 521,250
Park Place Entertainment 7.875%, 12/15/05.................................. 1,000,000 955,000
Premier Parks, Inc., Series A 12.00%, 08/15/03............................. 1,000,000 1,072,340
Premier Parks, Inc. 9.25%, 04/01/06........................................ 500,000 495,000
Six Flags Entertainment Corp. 8.875%, 04/01/06............................. 500,000 495,000
-----------
3,538,590
-----------
ENVIRONMENTAL SERVICES (1.6%)
Allied Waste N.A. 7.375%, 01/01/04......................................... 500,000 475,000
Allied Waste N.A. 7.625%, 01/01/06......................................... 500,000 468,750
Allied Waste N.A. 7.875%, 01/01/09......................................... 500,000 465,000
-----------
1,408,750
-----------
FINANCIAL INSTITUTIONS (3.4%)
DVI, Inc. 9.875%, 02/01/04................................................. 1,000,000 975,000
Navistar Financial Corp., Series B 9.00%, 06/01/02......................... 1,000,000 1,030,000
Reliance Group Holdings 9.75%, 11/15/03.................................... 1,000,000 1,015,000
-----------
3,020,000
-----------
FOOD & FOOD SERVICES (3.5%)
Host Mar Travel Plaza, Class B 9.50%, 05/15/05............................. 1,000,000 1,035,000
Keebler Corp. 10.75%, 07/01/06............................................. 1,030,000 1,133,000
SC International Services, Series B 9.25%, 09/01/07........................ 1,000,000 1,025,000
-----------
3,193,000
-----------

</TABLE>

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

<PAGE>

LIPPER HIGH INCOME BOND FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
JUNE 30, 1999 (UNAUDITED)

Face
Amount Value
--------- ------------
<S> <C> <C>
HEALTHCARE SERVICES & RELATED (4.7%)
Columbia/HCA Healthcare 6.41%, 06/15/00.................................... $1,000,000 $ 989,660
+ Lifepoint Hospitals Holdings 10.75%, 05/15/09.............................. 500,000 512,500
Quorum Health Group, Inc. 8.75%, 11/01/05.................................. 1,000,000 975,000
Tenet Healthcare Corp. 8.625%, 01/15/07.................................... 1,250,000 1,231,250
+ Triad Hospitals Holdings 11.00%, 05/15/09.................................. 500,000 511,250
-----------
4,219,660
-----------
HOMEBUILDING & BUILDING MATERIALS (6.4%)
D.R. Horton, Inc. 8.375%, 06/15/04......................................... 1,000,000 997,500
Kaufman & Broad Home 9.375%, 05/01/03...................................... 1,000,000 1,020,000
Nortek, Inc. 9.875%, 03/01/04.............................................. 750,000 757,500
NVR, Inc. 8.00%, 06/01/05.................................................. 1,000,000 975,000
Republic Group, Inc. 9.50%, 07/15/08....................................... 1,000,000 992,500
U.S. Home Corp. 7.95%, 03/01/01............................................ 1,000,000 997,500
-----------
5,740,000
-----------
HOTELS (1.9%)
HMH Properties, Series A 7.875%, 08/01/05.................................. 1,000,000 960,000
Red Roof Inns, Inc. 9.625%, 12/15/03....................................... 750,000 768,750
-----------
1,728,750
-----------
METALS (2.9%)
AK Steel Corp. 9.125%, 12/15/06............................................ 1,000,000 1,035,000
Ivaco, Inc. 11.50%, 09/15/05............................................... 1,000,000 1,036,250
Ryerson Tull, Inc. 8.50%, 07/15/01......................................... 500,000 513,430
-----------
2,584,680
-----------
PAPER & FOREST PRODUCTS (6.8%)
Boise Cascade Co. 9.85%, 06/15/02.......................................... 1,000,000 1,060,760
Buckeye Cellulose Corp. 8.50%, 12/15/05.................................... 875,000 866,250
Container Corp. of America, Series A 11.25%, 05/01/04...................... 1,000,000 1,053,750
+ Packaging Corp. of America 9.625%, 04/01/09................................ 1,000,000 1,020,000
Tembec Finance Corp. 9.875%, 09/30/05...................................... 1,000,000 1,050,000
U.S. Timberlands 9.625%, 11/15/07.......................................... 1,000,000 1,005,000
-----------
6,055,760
-----------
PUBLISHING (2.3%)
Hollinger International, Inc. 9.25%, 02/01/06.............................. 1,000,000 1,032,500
K-III Communications Corp. (Primedia, Inc.) 10.25%, 06/01/04............... 1,000,000 1,040,000
-----------
2,072,500
-----------
RETAILERS (1.4%)
Southland Corp. 5.00%, 12/15/03............................................ 750,000 648,750
Southland Corp., Series A 4.50%, 06/15/04.................................. 750,000 618,750
-----------
1,267,500
-----------
</TABLE>

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

<PAGE>

LIPPER HIGH INCOME BOND FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
JUNE 30, 1999 (UNAUDITED)

Face
Amount Value
---------- ------------
<S> <C> <C>
TELECOMMUNICATIONS (6.1%)
+ Alaska Communications System 9.375%, 05/15/09.............................. $ 500,000 $ 483,750
+ Alestra S.A. 12.625%, 05/15/09............................................. 500,000 485,000
Intermedia Communications, Series B 8.875%, 11/01/07....................... 1,000,000 952,500
Level 3 Communications, Inc. 9.125%, 05/01/08.............................. 1,000,000 991,250
Loral Space & Communication Ltd 9.50%, 01/15/06............................ 750,000 660,000
Psinet, Inc., Series B 10.00%, 02/15/05.................................... 1,000,000 1,000,000
Verio, Inc. 10.375%, 04/01/05.............................................. 875,000 894,687
-----------
5,467,187
-----------
TEXTILE/APPAREL MANUFACTURING (2.4%)
Interface, Inc., Series B 9.50%, 11/15/05.................................. 750,000 772,500
Pillowtex Corp. 10.00%, 11/15/06........................................... 500,000 475,000
WestPoint Stevens 7.875%, 06/15/05......................................... 1,000,000 983,750
-----------
2,231,250
-----------
TRANSPORTATION (4.5%)
Cenargo International plc 9.75%, 06/15/08.................................. 1,000,000 940,000
Continental Airlines, Inc. 8.00%, 12/15/05................................. 1,000,000 971,380
+ Pacer International, Inc. 11.75%, 06/01/07................................. 500,000 490,000
Sea Containers Ltd. 9.50%, 07/01/03........................................ 750,000 766,875
Sea Containers Ltd., Series A 12.50%, 12/01/04............................. 750,000 817,500
-----------
3,985,755
-----------
TOTAL CORPORATE BONDS (COST $80,746,182)...................................... 79,756,758
-----------

</TABLE>

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

<PAGE>

LIPPER HIGH INCOME BOND FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
JUNE 30, 1999 (UNAUDITED)

Face
Amount Value
---------- ------------
<S> <C> <C>
CONVERTIBLE BONDS (5.5%)
AUTO MANUFACTURING & RELATED (0.5%)
Mascotech, Inc. 4.50%, 12/15/03............................................ $ 500,000 $ 407,500
-----------
CAPITAL GOODS, EQUIPMENT & OTHER MANUFACTURING (2.4%)
Hexcel Corp. 7.00%, 08/01/03............................................... 750,000 701,250
Mark IV Industries, Inc. 4.75%, 11/01/04................................... 1,000,000 893,240
+ Thermo Electron Corp. 4.25%, 01/01/03...................................... 625,000 559,569
-----------
2,154,059
-----------
HEALTHCARE SERVICES & RELATED (1.8%)
Healthsouth Corp. 3.25%, 04/01/03.......................................... 1,000,000 844,380
Omnicare, Inc. 5.00%, 12/01/07............................................. 1,000,000 735,490
-----------
1,579,870
-----------
PUBLISHING (0.5%)
World Color Press, Inc. 6.00%, 10/01/07.................................... 500,000 478,065
-----------
RETAILERS (0.3%)
Rite Aid Corp. 5.25%, 09/15/02............................................. 250,000 251,637
-----------
TOTAL CONVERTIBLE BONDS (COST $4,804,655)..................................... 4,871,131
-----------
SHORT-TERM INVESTMENT (3.6%)
REPURCHASE AGREEMENT
Chase Securities, Inc., 4.55%, dated 6/30/98, due 7/1/99, to be
repurchased at $3,237,409, collateralized by $3,005,000, U.S. Treasury
Notes, 7.25%, due 5/15/16, valued at $3,264,811. (COST $3,237,000)......... 3,237,000 3,237,000
-----------
TOTAL INVESTMENTS (98.3%) (COST $88,787,837).................................. 87,864,889

OTHER ASSETS AND LIABILITIES (1.7%)........................................... 1,519,358
-----------
NET ASSETS (100%) $89,384,247
===========

- -------------
+ 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
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)

ASSETS:
<S> <C>
Investments, at value (Cost $85,550,837).................................................. $84,627,889
Repurchase Agreement (Cost $3,237,000).................................................... 3,237,000
Cash...................................................................................... 1,098
Interest Receivable....................................................................... 1,757,098
Receivable for Investments Sold........................................................... 1,513,260
Deferred Organization Costs............................................................... 32,973
Prepaid Assets............................................................................ 10,662
-----------
TOTAL ASSETS....................................................................... 91,179,980
-----------
LIABILITIES:
Payable for Investments Purchased......................................................... 1,629,691
Dividends Payable--Retail Shares........................................................... 3,870
Dividends Payable--Group Retirement Plan Shares............................................ 1,998
Investment Advisory Fees Payable.......................................................... 47,814
Distribution Fees Payable--Retail Shares................................................... 27,240
Shareholder Servicing Fees Payable--Group Retirement Plan Shares........................... 23,904
Administrative Fees Payable............................................................... 18,935
Directors' Fees Payable................................................................... 8,965
Other Liabilities......................................................................... 33,316
-----------
TOTAL LIABILITIES.................................................................. 1,795,733
-----------
NET ASSETS................................................................................... $89,384,247
===========
NET ASSETS CONSIST OF:
Paid in Capital........................................................................... $91,253,940
Undistributed Net Investment Income....................................................... 566,196
Accumulated Net Realized Loss............................................................. (1,512,941)
Unrealized Depreciation on Investments.................................................... (922,948)
-----------
$89,384,247
===========
PREMIER SHARES:
Net Assets................................................................................ $ 76,140,839
Shares Issued and Outstanding ($.001 par value) (Authorized 3,333,333,333)................ 7,928,190
Net Asset Value, Offering and Redemption Price Per Share.................................. $ 9.60
============
RETAIL SHARES:
Net Assets................................................................................ $ 7,926,979
Shares Issued and Outstanding ($.001 par value) (Authorized 3,333,333,333)................ 826,704
Net Asset Value, Offering and Redemption Price Per Share.................................. $ 9.59
============
GROUP RETIREMENT PLAN SHARES:
Net Assets................................................................................ $ 5,316,429
Shares Issued and Outstanding ($.001 par value) (Authorized 3,333,333,333)................ 554,539
Net Asset Value, Offering and Redemption Price Per Share.................................. $ 9.59
============

</TABLE>

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

<PAGE>

LIPPER HIGH INCOME BOND FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

<S> <C>
INVESTMENT INCOME
Interest............................................................... $3,993,159
----------
EXPENSES
Investment Advisory Fees
Basic Fee............................................................. $347,972
Less: Fee Waived...................................................... (66,726) 281,246
Administrative Fees ................................................... 100,752
Professional Fees...................................................... 17,908
Registration and Filing Fees........................................... 14,858
Amortization of Organization Costs..................................... 9,313
Distribution Fees--Retail Shares ...................................... 8,564
Custodian Fees......................................................... 8,561
Directors' Fees ....................................................... 7,575
Servicing Fees--Group Retirement Plan Shares........................... 6,428
Other Expenses......................................................... 23,733
----------
Total Expenses....................................................... 478,938
----------
NET INVESTMENT INCOME................................................ 3,514,221
----------
NET REALIZED GAIN FROM:
Investments sold....................................................... 560,068
----------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION:
Investments............................................................ (777,630)
----------
TOTAL NET REALIZED GAIN AND NET CHANGE IN
UNREALIZED APPRECIATION/DEPRECIATION................................... (217,562)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................... $3,296,659
==========

</TABLE>

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

<PAGE>

LIPPER HIGH INCOME BOND FUND
STATEMENT OF CHANGES IN NET ASSETS

Six Months
Ended Year Ended
June 30, 1999 December 31,
(Unaudited) 1998
--------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS:
Net Investment Income ....................................................... $3,514,221 $7,794,986
Net Realized Gain (Loss)..................................................... 560,068 (2,058,188)
Net Change in Unrealized Appreciation/Depreciation........................... (777,630) (2,393,395)
----------- -----------
Net Increase in Net Assets Resulting from Operations........................ 3,296,659 3,343,403
----------- -----------

DISTRIBUTIONS:
PREMIER SHARES:
From net investment income................................................... (2,574,344) (6,980,439)
Return of Capital............................................................ -- (123,963)
From net realized gains...................................................... -- (288,220)

RETAIL SHARES:
From net investment income................................................... (211,842) (471,618)
Return of Capital............................................................ -- (11,680)
From net realized gains...................................................... -- (22,238)

GROUP RETIREMENT PLAN SHARES:
From net investment income................................................... (161,839) (342,929)
Return of Capital............................................................ -- (12,575)
From net realized gains...................................................... -- (14,885)
----------- -----------
Total Distributions........................................................ (2,948,025) (8,268,547)
----------- -----------

CAPITAL SHARE TRANSACTIONS:
PREMIER SHARES:
Issued--Regular ............................................................. 5,613,902 16,399,322
--Distributions Reinvested............................................. 2,023,301 5,630,833
Redeemed .................................................................... (17,499,181) (17,169,754)
----------- -----------
Net Increase (Decrease) from Premier Shares............................... (9,861,978) 4,860,401
----------- -----------

RETAIL SHARES:
Issued--Regular ............................................................. 2,939,752 2,991,781
--Distributions Reinvested............................................. 197,124 460,384
Redeemed..................................................................... (1,160,956) (1,853,051)
----------- -----------
Net Increase from Retail Shares........................................... 1,975,920 1,599,114
----------- -----------

GROUP RETIREMENT PLAN SHARES:
Issued--Regular ............................................................. 769,389 1,668,959
--Distributions Reinvested............................................. 159,796 370,479
Redeemed .................................................................... (134,363) (813,119)
----------- -----------
Net Increase from Group Retirement Plan Shares............................ 794,822 1,226,319
----------- -----------
Net Increase (Decrease) in Net Assets From Capital Share Transactions........... (7,091,236) 7,685,834
----------- -----------
Total Increase (Decrease).................................................. (6,742,602) 2,760,690
----------- -----------

NET ASSETS:
Beginning of Year............................................................ 96,126,849 93,366,159
=========== ===========
End of Period (A)............................................................ $89,384,247 $96,126,849
=========== ===========
- ------------
(A) Includes net investment income.............................................. $ 566,196 --
=========== ===========

</TABLE>

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

LIPPER HIGH INCOME BOND FUND
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA & RATIOS (3)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<CAPTION>
Premier Premier Premier Premier Retail Retail
Shares Shares Shares Shares Shares Shares
---------------- ------------- ------------ ------------ ----------------- ------------
April 1,
Six Months Ended Year Ended Year Ended 1996** to Six Months Ended Year Ended
June 30, 1999 December 31, December 31, December 31, June 30, 1999 December 31,
(Unaudited) 1998 1997 1996 (Unaudited) 1998
---------------- ------------- ------------- ----------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ... $9.57 $10.11 $10.18 $10.00 $9.57 $10.11
----- ------ ------ ------ ----- ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (1) ............ 0.43 0.84 0.91 0.68 0.41 0.82
Net Realized and Unrealized Gain
(Loss) on Investments ................ (0.03) (0.48) 0.19 0.21 (0.03) (0.49)
----- ------ ------ ------ ----- ------
Total From Investment Operations .. 0.40 0.36 1.10 0.89 0.38 0.33
----- ------ ------ ------ ----- ------
DISTRIBUTIONS:
Net Investment Income ................ (0.37) (0.86) (0.91) (0.68) (0.36) (0.83)
Return of Capital .................... -- --+ -- -- -- --+
Net Realized Gain .................... -- (0.04) (0.26) (0.03) -- (0.04)
----- ------ ------ ------ ----- ------
Total Distributions ............... (0.37) (0.90) (1.17) (0.71) (0.36) (0.87)
----- ------ ------ ------ ----- ------
NET ASSET VALUE, END OF PERIOD ......... $9.60 $ 9.57 $10.11 $10.18 $9.59 $ 9.57
===== ====== ====== ====== ===== ======
TOTAL RETURN (2) ....................... 3.53% 3.61% 11.22% 9.23% 3.32% 3.36%
===== ====== ====== ====== ===== ======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) ...... $76,141 $85,662 $85,151 $102,945 $7,927 $5,950
Ratios After Expense Waiver and/or
Reimbursement:
Expenses to Average Net Assets ....... 1.00%* 1.00% 1.00% 1.00%* 1.25%* 1.25%
Net Investment Income to Average
Net Assets .......................... 7.61%* 8.50% 8.58% 9.01%* 7.36%* 8.12%
Ratios Before Expense Waiver and/or
Reimbursement:
Expenses to Average Net Assets ....... 1.15%* 1.15% 1.16% 1.27%* 1.40%* 1.40%
Net Investment Income to Average
Net Assets .......................... 7.46%* 8.35% 8.42% 8.74%* 7.21%* 7.97%
Portfolio Turnover Rate ................ 131% 110% 105% 74% 131% 110%

<CAPTION>
Group Group Group Group
Retail Retail Retirement Retirement Retirement Retirement
Shares Shares Plan Shares Plan Shares Plan Shares Plan Shares
------------- ------------ ---------------- ------------ ------------- -------------
April 11, April 12,
Year Ended 1996*** to Six Months Ended Year Ended Year Ended 1996*** to
December 31, December 31, June 30, 1999 December 31, December 31, December 31,
1997 1996 (Unaudited) 1998 1997 1996
------------- ------------ ---------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ... $10.18 $9.91 $9.57 $10.11 $10.18 $9.93
------ ----- ----- ------ ------ -----
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (1) ............ 0.84 0.62 0.41 0.80 0.85 0.62
Net Realized and Unrealized Gain
(Loss) on Investments ............... 0.23 0.34 (0.03) (0.47) 0.22 0.32
------ ----- ----- ------ ------ -----
Total From Investment Operations .. 1.07 0.96 0.38 0.33 1.07 0.94
------ ----- ----- ------ ------ -----
DISTRIBUTIONS:
Net Investment Income ................ (0.88) (0.66) (0.36) (0.83) (0.88) (0.66)
Return of Capital .................... -- -- -- --+ -- --
Net Realized Gain .................... (0.26) (0.03) -- (0.04) (0.26) (0.03)
------ ----- ----- ------ ------ -----
Total Distributions ............... (1.14) (0.69) (0.36) (0.87) (1.14) (0.69)
------ ----- ----- ------ ------ -----
NET ASSET VALUE, END OF PERIOD ......... $10.11 $10.18 $9.59 $9.57 $10.11 $10.18
====== ===== ===== ====== ====== =====
TOTAL RETURN (2) ....................... 10.97% 10.04% 3.32% 3.37% 10.96% 9.78%
====== ===== ===== ====== ====== =====
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) ...... $4,697 $845 $5,316 $4,515 $3,518 $2,198
Ratios After Expense Waiver and/or
Reimbursement:
Expenses to Average Net Assets ....... 1.25% 1.25%* 1.25%* 1.25% 1.25% 1.25%*
Net Investment Income to Average
Net Assets .......................... 8.31% 8.95%* 7.36%* 8.13% 8.32% 8.91%*
Ratios Before Expense Waiver and/or
Reimbursement:
Expenses to Average Net Assets ....... 1.41% 1.59%* 1.40%* 1.40% 1.41% 1.55%*
Net Investment Income to Average
Net Assets .......................... 8.15% 8.61%* 7.21%* 7.98% 8.16% 8.61%*
Portfolio Turnover Rate ................ 105% 74% 131% 110% 105% 74%
- -----------
* Annualized
** Commencement of Fund Operations
*** Initial offering of shares by the Fund
+ Amount represents less than $0.01 per share
(1) The effect to net investment income per share by voluntarily waived fees and reimbursed expenses was:
<CAPTION>
Six Months Ended
June 30, 1999 Year Ended Year Ended Period Ended
(Unaudited) December 31, 1998 December 31, 1997 December 31, 1996
---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Premier Shares................................. $0.01 $0.01 $0.02 $0.02
Retail Shares.................................. $0.01 $0.01 $0.02 $0.02
Group Retirement Plan Shares................... $0.01 $0.01 $0.02 $0.02
</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

(3) The per share data shown does not reflect adjustments to undistributed net
investment income due to book/tax differences

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

11
<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 30,1999, the Company was comprised
of three diversified portfolios: Lipper High Income Bond Fund, Lipper U.S.
Equity Fund, and Lipper Prime Europe Equity Fund. These financial statements
pertain to the 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 total returns consistent with
capital preservation by investing primarily in high yield securities with
maturities of 10 years or less.

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.

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.

At June 30, 1999, the cost of investments and unrealized appreciation
(depreciation) of investments for Federal income tax purposes were:

Net
Cost Appreciation (Depreciation) Depreciation
----------- ------------ -------------- ------------
$88,787,837 $759,005 $(1,681,953) $(922,948)

3. REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements
under which it lends excess cash and takes possession of securities with an
agreement that the counterparty will repurchase such securities. In connection
with transactions in repurchase agreements, a bank as custodian for the Fund
takes possession of the underlying securities which are held as collateral, with
a market value at least equal to the amount of the repurchase transaction,
including principal and accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the counterparty to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.

4. 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.

<PAGE>

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

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

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. 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. The Company has a $20
million line of credit with The Chase Manhattan Bank which is available to meet
temporary cash needs of the Company. The Company pays a commitment fee for this
line of credit.

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 than the following:

Group Retirement
Premier Shares Retail Shares 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.

<PAGE>

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

F. PURCHASES AND SALES: For the six months ended June 30,1999, 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
----------- ------------
$57,521,753 $56,614,520

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. Securities 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.

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

Six Months Ended Year Ended
June 30, 1999 December 31, 1998
---------------- ------------------
PREMIER SHARES:
Issued--Regular ....................... 581,554 1,673,871
Distributions Reinvested ...... 209,572 569,763
Redeemed .............................. (1,809,581) (1,716,828)
---------- ----------
Net Increase (Decrease) ............... (1,018,455) 526,806
---------- ----------
RETAIL SHARES:
Issued--Regular ....................... 305,014 296,524
Distributions Reinvested ...... 20,434 46,722
Redeemed .............................. (120,613) (186,151)
---------- ----------
Net Increase .......................... 204,835 157,095
---------- ----------
GROUP RETIREMENT PLAN SHARES:
Issued--Regular ....................... 79,911 167,761
Distributions Reinvested ...... 16,571 37,540
Redeemed .............................. (13,935) (81,410)
---------- ----------
Net Increase .......................... 82,547 123,891
---------- ----------

I. OTHER: At June 30, 1999, 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 11.5%
Group Retirement Shares .......... 4 93.4%

Transactions by shareholders having a significant ownership percentage of
the Fund could have an impact on other shareholders of the Fund.

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.

<PAGE>

BOARD OF DIRECTORS KENNETH LIPPER
Director, President and Chairman

ABRAHAM BIDERMAN
Director, Executive Vice President,
Secretary and Treasurer

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

DISTRIBUTOR Lipper & Company, L.P.
101 Park Avenue, 6th floor
New York, NY 10178

ADMINISTRATOR AND Chase Global Funds Services Company
TRANSFER AGENT 73 Tremont Street, 9th floor
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

For more complete information concerning The Lipper Funds, Inc., including a
prospectus, please call 1-800-LIPPER9. The Lipper High Income Bond Fund invests
primarily in high yield bonds, which entail greater risks than investment grade
bonds, such as reduced liquidity and the possibility of default. Please read the
prospectus carefully before investing.

Lipper & Company, L.P., Distributor. The Lipper Funds, Inc. is not affiliated
with Lipper Inc.
<PAGE>

----------------------
THE LIPPER FUNDS, INC.
----------------------

LIPPER U.S. EQUITY FUND

Semi-Annual Report
=================================================
June 30, 1999

<PAGE>

-----------------
TABLE OF CONTENTS
-----------------

Shareholder's Letter.................................................... 1

Portfolio of Investments................................................ 2

Statement of Assets and Liabilities..................................... 3

Statement of Operations................................................. 4

Statement of Changes in Net Assets...................................... 5

Financial Highlights.................................................... 6

Notes to Financial Statements........................................... 7-9
<PAGE>

THE LIPPER FUNDS, INC. SEMI-ANNUAL REPORT
LIPPER U.S. EQUITY FUND June 30, 1999

Dear Shareholder:

We are pleased to present the Semi-Annual Report for the Lipper U.S. Equity
Fund for the six month period ended June 30, 1999. The Lipper U.S. Equity Fund
is one of three investment portfolios, together with the Lipper Prime Europe
Equity Fund and the Lipper High Income Bond Fund, which comprise The Lipper
Funds, Inc. This report presents the financial statements and performance review
of the Lipper U.S. Equity Fund for the six month period ended June 30, 1999.

The Lipper U.S. Equity Fund (the "Fund") seeks to achieve long-term capital
appreciation while preserving capital by investing in a diversified portfolio of
common stocks of companies with market capitalizations in excess of $500
million. The Fund employs a value-oriented investment strategy and invests in
stocks the investment adviser believes to be selling at prices below their
inherent values.

Given the high valuation levels of U.S. equities this year, identifying
undervalued securities which offer attractive earnings growth prospects has been
extremely challenging. In the fall of 1998, during the global financial crisis,
the investment adviser made a strategic decision to preserve the capital of the
Fund rather than risk significant potential losses in a highly volatile stock
market reacting to global economic uncertainty. Consequently, the investment
adviser increased the cash position of the Fund to an unusually large level as
of December 31, 1998.

During the first six months of 1999, the Fund's adviser sought to reduce
the cash position of the Fund by investing in undervalued companies which met
the Fund's investment criteria. However, given the high valuation levels of U.S.
equities, finding attractively priced stocks was particularly challenging. The
U.S. economy and corporate earnings grew at a stronger than expected rate during
the first half of the year and the equity markets continually reached new highs.
Further, inflationary concerns and fears of interest rate hikes, supported by
the U.S. Federal Reserve's adoption of a tightening bias at the Federal Open
Market Committee meeting on May 18, 1999, created uncertainty in the market and
a difficult environment for investing.

Notwithstanding this difficult market environment, the investment adviser
increased certain existing positions and made several new investments during the
first six months of the year, reducing the cash position of the Fund from 49% at
December 31, 1998 to 28% as of June 30, 1999. Particularly, the adviser
increased the Fund's exposure to the information technology industry as well as
companies benefiting from increased consumer spending.

During the second half of 1999, U.S. economic growth should moderate,
unemployment should remain low and inflationary pressure should remain
relatively benign, providing a favorable environment for corporate America and
the U.S. stock market. Given current U.S. equity valuations, our challenge in
the second half of 1999 will continue to be identifying undervalued companies
that meet our investment criteria. We at Lipper & Company remain dedicated to
achieving superior long-term results while focusing on capital preservation.
Therefore, we adhere to a rigorous and disciplined investment strategy designed
to identify undervalued securities of outstanding companies that generate
positive investment results under most market conditions.

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

Sincerely,

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

<PAGE>

LIPPER U.S. EQUITY FUND

PORTFOLIO OF INVESTMENTS
JUNE 30, 1999 (UNAUDITED)

Shares Value
------ -----------
COMMON STOCKS (94.7%)

AGRICULTURAL BIOTECH/LIFE SCIENCES (20.8%)
Delta & Pine Land Co. ........................ 36,600 $ 1,152,900
E.I. du Pont de Nemours and Company .......... 21,000 1,434,562
Monsanto Company ............................. 34,100 1,344,819
-----------
3,932,281
-----------
CONSUMER PRODUCTS (5.6%)
Gillette Co. ................................. 26,000 1,066,000
-----------
PHARMACEUTICALS (7.7%)
American Home Products Corp. ................. 25,400 1,460,500
-----------
CONSUMER SERVICES (6.8%)
* Office Depot, Inc. .......................... 58,500 1,290,656
-----------
FINANCIAL SERVICES (7.4%)
Household International, Inc. ................ 29,500 1,397,563
-----------
INFORMATION TECHNOLOGY (16.6%)
* J. D. Edwards & Company ..................... 90,700 1,672,281
SAP AG ADR ................................... 42,600 1,475,025
-----------
3,147,306
-----------
TECHNOLOGY/COMPUTERS (6.8%)
Compaq Computer Corp. ........................ 54,000 1,279,125
-----------
TELECOMMUNICATIONS/SATELLITE (23.0%)
* General Motor Corporation, Class H .......... 71,000 3,993,750
* Loral Space & Communications ................ 20,000 360,000
-----------
4,353,750
-----------
TOTAL COMMON STOCKS (COST $16,446,787) ......... 17,927,181
-----------
SHORT-TERM INVESTMENTS (5.3%)
Vista Prime Money Market (COST $1,004,046) ... 1,004,046 1,004,046
-----------
TOTAL INVESTMENTS (100.0%) (COST $17,450,833) .. $18,931,227
===========
- ----------

* Non-Income Producing Security
ADR--American Depositary Receipt

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

<PAGE>

<TABLE>
LIPPER U.S. EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
<CAPTION>

<S> <C>
ASSETS:
Investments, at value (Cost $17,450,833) ............................................. $18,931,227
Cash ................................................................................. 7,682,315
Interest Receivable .................................................................. 3,552
Dividends Receivable ................................................................. 6,095
Receivable for Investments Sold ...................................................... 1,181,496
Deferred Organization Costs .......................................................... 28,327
Prepaid Assets ....................................................................... 3,049
-----------
TOTAL ASSETS ..................................................................... 27,836,061
-----------
LIABILITIES:
Investment Advisory Fees Payable ..................................................... 12,536
Shareholder Servicing Fees Payable--Group Retirement Plan Shares ..................... 10,181
Distribution Fees Payable--Retail Shares ............................................. 7,700
Administrative Fees Payable .......................................................... 6,314
Directors' Fees Payable .............................................................. 2,539
Custodian Fees Payable ............................................................... 834
Other Liabilities .................................................................... 7,052
-----------
TOTAL LIABILITIES ................................................................ 47,156
-----------
NET ASSETS ........................................................................... $27,788,905
===========
NET ASSETS CONSIST OF:
Paid in Capital ...................................................................... $24,754,057
Undistributed Net Investment Loss .................................................... (76,016)
Accumulated Net Realized Gain ........................................................ 1,630,470
Unrealized Appreciation on Investments ............................................... 1,480,394
-----------
................................................................................. $27,788,905
===========
PREMIER SHARES:
Net Assets ........................................................................... $22,637,375
Shares Issued and Outstanding ($.001 par value) (Authorized 3,333,333,333) ........... 1,779,867
Net Asset Value, Offering and Redemption Price Per Share ............................. $ 12.72
===========
RETAIL SHARES:
Net Assets ........................................................................... $ 1,394,574
Shares Issued and Outstanding ($.001 par value) (Authorized 3,333,333,333) ........... 109,798
Net Asset Value, Offering and Redemption Price Per Share ............................. $ 12.70
===========
GROUP RETIREMENT PLAN SHARES:
Net Assets ........................................................................... $ 3,756,956
Shares Issued and Outstanding ($.001 par value) (Authorized 3,333,333,333) ........... 296,474
Net Asset Value, Offering and Redemption Price Per Share ............................. $ 12.67
===========

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

<PAGE>

LIPPER U.S. EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

INVESTMENT INCOME
Dividends .............................................. $ 54,175
Interest ............................................... 25,578
--------
Total Income ........................................ 79,753
--------
EXPENSES
Investment Advisory Fees
Basic Fee ............................................. $115,579
Less: Fee Waived ...................................... (48,812) 66,767
Administrative Fees .................................... -------- 40,067
Registration and Filing Fees ........................... 14,462
Amortization of Organization Costs ..................... 9,322
Professional Fees ...................................... 5,208
Servicing Fees--Group Retirement Plan Shares ........... 4,630
Directors' Fees ........................................ 2,255
Custodian Fees ......................................... 1,848
Distribution Fees--Retail Shares ....................... 1,626
Other Expenses ......................................... 9,584
--------
Total Expenses ...................................... 155,769
--------
NET INVESTMENT LOSS ................................. (76,016)
--------
NET REALIZED GAIN FROM:
Investments sold ....................................... 295,641
--------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION:
Investments ............................................ (10,594)
--------
TOTAL NET REALIZED GAIN AND NET CHANGE IN
UNREALIZED APPRECIATION/DEPRECIATION ................... 285,047
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .... $209,031
========

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

<PAGE>

<TABLE>
LIPPER U.S. EQUITY FUND

STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>

Six Months
Ended Year Ended
June 30, 1999 December 31,
(Unaudited) 1998
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS:
Net Investment Income (Loss) ....................................... $ (76,016) $ 260,003
Net Realized Gain .................................................. 295,641 1,924,964
Net Change in Unrealized Appreciation/Depreciation ................. (10,594) (94,477)
----------- -----------
Net Increase in Net Assets Resulting from Operations ............ 209,031 2,090,490
----------- -----------
DISTRIBUTIONS:
PREMIER SHARES:
From net investment income ......................................... -- (228,137)
In excess of net investment income ................................. -- (16,622)
From net realized gains ............................................ -- (1,153,473)

RETAIL SHARES:
From net investment income ......................................... -- (10,186)
In excess of net investment income ................................. -- (514)
From net realized gains ............................................ -- (66,919)

GROUP RETIREMENT PLAN SHARES:
From net investment income ......................................... -- (23,517)
In excess of net investment income ................................. -- (8,718)
From net realized gains ............................................ -- (151,784)
----------- -----------
Total Distributions ............................................. -- (1,659,870)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
PREMIER SHARES:
Issued--Regular .................................................... 1,271,686 9,755,618
--Distributions Reinvested ................................... -- 1,391,142
Redeemed ........................................................... (900,107) (3,608,698)
----------- -----------
Net Increase from Premier Shares ................................ 371,579 7,538,062
----------- -----------
RETAIL SHARES:
Issued--Regular .................................................... 191,707 804,846
--Distributions Reinvested ................................... -- 76,632
Redeemed ........................................................... (112,408) (481,807)
----------- -----------
Net Increase from Retail Shares ................................. 79,299 399,671
----------- -----------
GROUP RETIREMENT PLAN SHARES:
Issued--Regular .................................................... 436,583 1,587,243
--Distributions Reinvested ................................... -- 184,019
Redeemed ........................................................... (213,137) (222,970)
----------- -----------
Net Increase from Group Retirement Plan Shares .................. 223,446 1,548,292
----------- -----------
Net Increase in Net Assets From Capital Share Transactions .......... 674,324 9,486,025
----------- -----------
TOTAL INCREASE .................................................. 883,355 9,916,645
----------- -----------
NET ASSETS:
Beginning of Year .................................................. 26,905,550 16,988,905
----------- -----------
End of Period (A) .................................................. $27,788,905 $26,905,550
=========== ===========

- ----------

(A) Includes Undistributed Net Investment Loss....................... (76,016) --
=========== ===========

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

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

<CAPTION>
Premier Premier Premier Premier Retail Retail
Shares Shares Shares Shares Shares Shares
---------------- ------------- ------------ ------------ ----------------- ------------
January 2,
Six Months Ended Year Ended Year Ended 1996** to Six Months Ended Year Ended
June 30, 1999 December 31, December 31, December 31, June 30, 1999 December 31,
(Unaudited) 1998 1997 1996 (Unaudited) 1998
---------------- ------------- ------------- ----------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD... $ 12.62 $ 12.04 $ 11.38 $ 10.00 $12.62 $12.03
------- ------- ------- ------- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) (1)..... (0.03) 0.13 0.16 0.18 (0.05) 0.11
Net Realized and Unrealized Gain
on Investments...................... 0.13 1.26 1.96 1.81 0.13 1.26
------- ------- ------- ------- ------ ------
Total From Investment Operations. 0.10 1.39 2.12 1.99 (0.18) 1.37
------- ------- ------- ------- ------ ------
DISTRIBUTIONS:
Net Investment Income................ -- (0.14) (0.16) (0.19) -- (0.11)
In Excess of Net Investment Income... -- --+ -- -- -- --+
Net Realized Gain.................... -- (0.67) (1.30) (0.34) -- (0.67)
In Excess of Net Realized Gain....... -- -- -- (0.08) -- --
------- ------- ------- ------- ------ ------
Total Distributions.............. -- (0.81) (1.46) (0.61) -- (0.78)
------- ------- ------- ------- ------ ------
NET ASSET VALUE, END OF PERIOD......... $ 12.72 $ 12.62 $ 12.04 $ 11.38 $12.70 $12.62
======= ======= ======= ======= ====== ======
TOTAL RETURN (2)....................... 0.79% 11.35% 18.96% 19.81% 0.63% 11.15%
======= ======= ======= ======= ====== ======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's)...... $22,637 $22,088 $14,203 $15,098 $1,395 $1,308
Ratios After Expense Waiver and/or
Reimbursement:
Expenses to Average Net Assets....... 1.10%* 1.10% 1.10% 1.10%* 1.35%* 1.35%
Net Investment Income (Loss) to
Average Net Assets.................. (0.51)%* 1.07% 1.24% 1.68%* (0.76)%* 0.80%
Ratios Before Expense Waiver and/or
Reimbursement
Expenses to Average Net Assets....... 1.46%* 1.51% 1.76% 2.28%* 1.71%* 1.76%
Net Investment Income (Loss) to
Average Net Assets.................. (0.87)%* 0.66% 0.58% 0.50%* (1.12)%* 0.39%
Portfolio Turnover Rate ............... 72% 204% 145% 117% 72% 204%

<CAPTION>
Group Group Group Group
Retail Retail Retirement Retirement Retirement Retirement
Shares Shares Plan Shares Plan Shares Plan Shares Plan Shares
------------- ------------ ---------------- ------------ ------------- -------------
January 4, January 4,
Year Ended 1996*** to Six Months Ended Year Ended Year Ended 1996*** to
December 31, December 31, June 30, 1999 December 31, December 31, December 31,
1997 1996 (Unaudited) 1998 1997 1996
------------- ------------ ---------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD... $11.38 $10.00 $12.59 $12.01 $11.38 $10.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) (1)..... 0.13 0.11 (0.05) 0.09 0.08 0.07
Net Realized and Unrealized Gain
on Investments...................... 1.95 1.86 0.13 1.28 2.00 1.91
------ ------ ------ ------ ------ ------
Total From Investment Operations. 2.08 1.97 0.08 1.37 2.08 1.98
------ ------ ------ ------ ------ ------
DISTRIBUTIONS:
Net Investment Income................ (0.13) (0.17) -- (0.12) (0.15) (0.18)
In Excess of Net Investment Income... -- -- -- --+ -- --
Net Realized Gain.................... (1.30) (0.34) -- (0.67) (1.30) (0.34)
In Excess of Net Realized Gain....... -- (0.08) -- -- -- (0.08)
------ ------ ------ ------ ------ ------
Total Distributions.............. (1.43) (0.59) -- (0.79) (1.45) (0.60)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD......... $12.03 $11.38 $12.67 $12.59 $12.01 $11.38
====== ====== ====== ====== ====== ======
TOTAL RETURN (2)....................... 18.58% 19.62% 0.64% 11.16% 18.55% 19.69%
====== ====== ====== ====== ====== ======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's)...... $ 899 $ 613 $3,757 $3,510 $1,887 $ 452
Ratios After Expense Waiver and/or
Reimbursement:
Expenses to Average Net Assets....... 1.35% 1.35%* 1.35%* 1.35% 1.35% 1.35%*
Net Investment Income (Loss) to
Average Net Assets.................. 0.96% 1.31%* (0.76)%* 0.87% 0.89% 1.29%*
Ratios Before Expense Waiver and/or
Reimbursement
Expenses to Average Net Assets....... 2.01% 2.75%* 1.71%* 1.76% 2.01% 2.39%*
Net Investment Income (Loss) to
Average Net Assets.................. 0.30% (0.09)%* (1.12)%* 0.46% 0.25% 0.25%*
Portfolio Turnover Rate ............... 145% 117% 72% 204% 145% 117%
- -------------
* Annualized
** Commencement of Fund Operations
*** Initial offering of shares by the Fund
+ Amount represents less than $0.01 per share
(1) The effect to net investment income per share by voluntarily waived fees and reimbursed expenses were:

<CAPTION>
Six Months Ended
June 30, 1999 Year Ended Year Ended Period Ended
(Unaudited) December 31, 1998 December 31, 1997 December 31, 1996
---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Premier Shares.................... $0.02 $0.05 $0.08 $0.13
Retail Shares..................... $0.02 $0.06 $0.09 $0.12
Group Retirement Plan Shares...... $0.02 $0.04 $0.06 $0.06

(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>
6
<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, 1999 the Company was comprised
of three diversified portfolios: Lipper High Income Bond Fund, Lipper U.S.
Equity Fund, and Lipper Prime Europe Equity Fund. These financial statements
pertain to the 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. The Lipper U.S. Equity Fund (the "Fund") commenced investment
operations on January 2, 1996.

The Lipper U.S. Equity Fund seeks capital appreciation by investing
primarily in a diversified portfolio of common stocks of U.S. issuers with
market capitalizations 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, 1999 the cost of investments and unrealized appreciation
(depreciation) of investments for Federal income tax purposes were:

Net
Cost Appreciation (Depreciation) Appreciation
---- ------------ -------------- ------------
$17,450,833 $2,321,145 $(840,751) $1,480,394

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.

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.

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 AND 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

<PAGE>

LIPPER U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)

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 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 limit exposure to a written put or call option.

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.

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. The Company has a $20
million line of credit with the Chase Manhattan Bank which is available to meet
temporary cash needs of the Company. The Company pays a commitment fee for this
line of credit.

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 than the following:

Group Retirement
Premier Shares Retail Shares Plan Shares
-------------- ------------- ----------------
1.10% 1.35% 1.35%

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.

<PAGE>

LIPPER U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)

F. PURCHASES AND SALES: For the six months ended June 30, 1999, 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
----------- ----------
$10,380,286 $5,495,545

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, 1999 December 31, 1998
---------------- -----------------
PREMIER SHARES:
Issued--Regular ........................... 101,242 744,322
Distributions Reinvested .......... -- 105,483
Redeemed .................................. (71,722) (279,463)
------- -------
Net Increase (Decrease) ................... 29,520 570,342
------- -------
RETAIL SHARES:
Issued--Regular ........................... 15,040 60,005
Distributions Reinvested .......... -- 5,801
Redeemed .................................. (8,876) (36,924)
------- -------
Net Increase .............................. 6,164 28,882
------- -------
GROUP RETIREMENT PLAN SHARES:
Issued--Regular ........................... 34,678 124,270
Distributions Reinvested .......... -- 14,102
Redeemed .................................. (16,997) (16,734)
------- -------
Net Increase .............................. 17,681 121,638
------- -------

H. OTHER: At June 30, 1999, 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 48.9%
Retail Shares .................................. 1 18.9%
Group Retirement Shares ........................ 3 98.2%

Transactions by shareholders holding a significant ownership percentage of the
Fund can have an impact on other shareholders of the Fund.

<PAGE>

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

ABRAHAM BIDERMAN
Director, Executive Vice President,
Secretary and Treasurer

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

DISTRIBUTOR Lipper & Company, L.P.
- -------------------------- 101 Park Avenue, 6th floor
New York, NY 10178

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

For more complete information concerning The Lipper Funds, Inc., including a
prospectus, please call 1-800-LIPPER9. Please read the prospectus carefully
before investing.

Lipper & Company, L.P., Distributor. The Lipper Funds, Inc. is not affiliated
with Lipper Inc.

<PAGE>

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

THE LIPPER FUNDS, INC.

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

LIPPER PRIME EUROPE EQUITY FUND

Semi-Annual Report
================================================================================
June 30, 1999

<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
Lipper Prime Europe Equity Fund June 30, 1999
(formerly Prime Lipper Europe Equity Fund)

Dear Shareholder:

We are pleased to present the Semi-Annual Report for the Lipper Prime
Europe Equity Fund for the six months ended June 30, 1999. The Lipper Prime
Europe Equity Fund is one of three investment portfolios, together with the
Lipper U.S. Equity Fund and the Lipper High Income Bond Fund, which comprise The
Lipper Funds, Inc. This report presents the financial statements and performance
review of the Lipper Prime Europe Equity Fund for the six months ended June 30,
1999.

The Lipper Prime Europe Equity Fund (the "Fund") seeks long-term capital
appreciation through investing in a diversified portfolio of widely traded,
medium and large capitalization Western European growth stocks. The Fund's
investments are selected based upon a highly structured investment process that
utilizes both quantitative and qualitative criteria to target companies that
offer the potential for strong earnings growth and capital appreciation.

Early in 1999, economic forecasts predicted an accelerating trend in
Europe: a slow start in the first half of the year to be followed by a livelier
second half. Actually, European economies were somewhat weaker than expected
during the first half of the year. Notwithstanding the successful launch of the
Euro, some unexpected factors dampened the short-term economic prospects of the
region. First among these was the war in Kosovo. Besides creating uncertainty
and stress, the war highlighted the need for stronger political bodies and more
effective policymaking at the European level. At the individual country level,
governments had to add the warfare in Kosovo to their already challenging
agendas aimed at structural reform of the labor markets, fiscal systems, pension
systems and welfare systems. The internal debates regarding these issues were
fierce, as evidenced by the sudden resignation of Germany's economic minister,
Mr. Lafontaine, a symbol of the "old guard."

The European Central Bank reacted promptly to the slow economic growth
recorded in the first quarter of 1999, reducing its benchmark refinancing rate
by 0.50% to 2.5% on April 9, 1999. Similarly, the Bank of England and the Swiss
National Bank reduced their rates. In late April 1999, prospects of peace in
Kosovo, combined with signs of economic improvement in Europe, renewed
expectations of stronger growth in the second half of 1999. This, together with
strong news flow of corporate restructurings, mergers and acquisitions, renewed
optimism and pushed the European stock markets up.

The positive performance of European equities in the first half of this
year was completely offset by the adverse movement of the currency. The Euro
declined 12% against the US Dollar during the six-month period ended June 30,
1999. The US Dollar was pushed up by the unexpected strong growth of the US
economy, coupled with the widened differential between US and European interest
rates.

Notwithstanding the obstacles facing Europe during the first half of 1999,
the Lipper Prime Europe Equity Fund Premier Shares generated a return of 6.7% on
a Euro-denominated basis. For the three-year period ended June 30, 1999, the
Fund was awarded five stars by Morningstar, Inc. (its highest rating) out of 987
international equity funds.* However, as a result of the 12% decline in the
Euro, the Fund's Premier Shares generated a return of
-5.32% on a dollar-denominated basis. We expect this discrepancy to reverse
itself as European economic growth accelerates in the second half of 1999, the
differential between European and U.S. long-term interest rates shrinks and the
Euro strengthens versus the US Dollar.

Throughout the first half of 1999, the Fund was highly diversified, with
approximately 60-70 securities representing approximately twenty industries
invested in twelve Western European countries. During the year, the investment
adviser continued to position the Fund to benefit from the positive changes
occurring throughout Europe (including the continued integration of the region
and industry consolidation) by focusing on companies with sound financial
positions and high growth prospects. In particular, our analysts targeted
companies that offer competitive products or services, maintain leading
positions in their industries, have histories of consistently strong financial
performance and present earnings growth prospects superior to the market
average.

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. In the first
half of 1999, the Fund was relatively neutral with respect to this allocation.
Given our outlook for 1999 of moderate economic growth across the region, we do
not anticipate any significant over or underweighting of any country relative to
our current allocation.

<PAGE>

Our outlook for Europe in the second half of 1999 is positive.
Notwithstanding the difficulties impacting the region during the first half of
the year, we expect economic growth to accelerate in the second half of the
year, supported by increases in private consumption, increases in exports,
continued low inflation and a stabilizing currency environment. Further, based
upon current valuations across continental Europe, we believe investing in the
region is attractive relative to other financial markets.

Given our current outlook for Europe, we believe the prospects for Lipper
Prime Europe Equity Fund in the second half of 1999 are strong. The Fund is well
positioned in growth stocks, which should benefit from the expected acceleration
in internal consumption and the opportunities stemming from the structural
changes taking place in European companies. The Lipper Prime Europe Equity Fund
remains dedicated to superior long-term results, which we believe are best
achieved by adhering to a rigorous and disciplined investment strategy designed
to generate positive results and preserve capital under various market
conditions.

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

Sincerely,

/S/ KENNETH LIPPER

KENNETH LIPPER
President and Chairman of the Board

- ----------
* Past performance is no guarantee of future results. The Morningstar, Inc.
ratings reflect risk-adjusted performance for the Lipper Prime Europe
Equity Fund's Premier, Retail and Group Retirement Plan Shares as of
6/30/99. These classes have a common portfolio. The Morningstar, Inc.
ratings may change monthly and are calculated from a fund's three, five and
ten-year (as available) average annual total returns (which include
reinvestment of dividends and capital gains) in excess of 90-day treasury
bill returns, with appropriate fee adjustments and a risk factor reflecting
fund performance below 90-day treasury bill returns. The top 10% of funds
in each broad asset class receive five stars. Fee waivers and
reimbursements were in effect for the Lipper Prime Europe Equity Fund
during 1996, without which total returns would have been lower.

<PAGE>

LIPPER PRIME EUROPE EQUITY FUND
(formerly Prime Lipper Europe Equity Fund)
PORTFOLIO OF INVESTMENTS
June 30, 1999 (Unaudited)

<TABLE>
<CAPTION>
Shares Value
----- -----
<S> <C> <C>
COMMON AND PREFERRED STOCKS (94.1%)
Belgium (2.2%)
Credit Communal Holding de Belique-DEXIA ................................. 19,000 $ 2,829,474
-----------
Denmark (0.7%)
Bang & Olfufsen Holding A/S .............................................. 15,000 953,205
-----------
Finland (1.5%)
* Nokia Oyj, Class A ....................................................... 22,080 1,935,544
-----------
France (13.6%)
Axa ...................................................................... 19,500 2,379,054
Carrefour S.A. ........................................................... 19,000 2,792,245
Dassault Systemes S.A. ................................................... 60,000 1,983,190
Grand Optical Photoservice ............................................... 59,000 1,528,469
Promodes S.A. ............................................................ 3,000 1,969,267
Sidel S.A. ............................................................... 20,000 2,431,805
Societe Technip S.A. ..................................................... 18,000 2,019,698
* Total Fina S.A., B Shares ................................................ 21,020 2,711,908
-----------
17,815,636
-----------
Germany (11.7%)
Adidas-Salomon AG ........................................................ 16,500 1,637,833
Allianz Holding AG ....................................................... 10,000 2,774,197
Bayer AG ................................................................. 74,000 3,083,174
Bayerische Motoren Werke AG .............................................. 2,420 1,664,662
Mannesmann AG ............................................................ 20,000 2,984,582
Porsche AG PFD ........................................................... 580 1,363,791
Wella AG PFD ............................................................. 2,550 1,854,020
-----------
15,362,259
-----------
Ireland (1.7%)
Bank of Ireland .......................................................... 68,000 1,132,574
Ryanair Holding plc ...................................................... 110,000 1,140,102
-----------
2,272,676
-----------
Italy (6.5%)
Alleanza Assicurazioni S.p.A. ............................................ 79,900 918,770
Banca Popolare Di Bergamo S.p.A .......................................... 57,300 1,258,691
Bulgari S.p.A. ........................................................... 190,000 1,277,574
ENI S.p.A. ............................................................... 374,190 2,234,373
Rinascente ............................................................... 90,000 681,277
Telecom Italia Mobile S.p.A. ............................................. 370,080 2,209,832
-----------
8,580,517
-----------
Netherlands (8.5%)
Cap Gemini N.V. .......................................................... 26,000 1,775,074
Getronics N.V. ........................................................... 34,000 1,307,895
ING Groep N.V., Certificate Shares ....................................... 40,212 2,177,208
Koninklijke Ahold N.V. ................................................... 51,460 1,772,561
* Koninklijke Numico N.V. .................................................. 28,000 983,530
VNU-Verenigde Nederlandse Uitgeversbedrijven ............................. 35,000 1,398,701
Wolters Kluwer N.V. ...................................................... 43,000 1,711,751
-----------
11,126,720
-----------

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

3
<PAGE>

LIPPER PRIME EUROPE EQUITY FUND
(formerly Prime Lipper Europe Equity Fund)
PORTFOLIO OF INVESTMENTS--(CONTINUED)
June 30, 1999 (Unaudited)

<TABLE>
<CAPTION>
Shares Value
----- -----
<S> <C> <C>
Spain (5.1%)
Banco Santander, S.A. .................................................... 162,000 $ 1,687,413
Centros Comerciales Pryca, S.A. .......................................... 31,400 525,897
Endesa S.A. .............................................................. 60,000 1,279,637
* Indra Sistemas S.A. ...................................................... 50,000 500,181
* Telefonica Publicidad e Informacion, S.A. ................................ 25,000 498,891
* Telefonica de Espana S.A. ................................................ 46,000 2,215,913
-----------
6,707,932
-----------
Sweden (3.6%)
Enator AB ................................................................ 39,000 1,169,725
Ericsson LM, Class B ..................................................... 80,700 2,586,538
Skandia Forsakrings AB ................................................... 55,000 1,028,582
-----------
4,784,845
-----------
Switzerland (9.5%)
Disetronic Holding AG .................................................... 135 429,853
Julius Baer Holding AG ................................................... 500 1,424,804
Novartis AG, Bearer Registered ........................................... 3,200 4,672,585
Roche Holding AG, DRC .................................................... 355 3,649,106
Zurich Allied AG ......................................................... 4,000 2,274,540
-----------
12,450,888
-----------
United Kingdom (29.5%)
Astrazeneca plc .......................................................... 79,000 3,055,895
Boots plc ................................................................ 119,975 1,424,987
British Telecommunications plc ........................................... 264,000 4,423,581
Cadbury Schweppes plc .................................................... 333,278 2,122,388
Compass Group plc ........................................................ 156,700 1,553,662
Glaxo Wellcome plc ....................................................... 145,000 4,029,556
Invensys plc ............................................................. 503,100 2,381,081
Lloyds TSB Group plc ..................................................... 231,323 3,135,841
Misys plc ................................................................ 220,000 1,883,039
Pearson plc .............................................................. 113,000 2,295,980
PizzaExpress plc ......................................................... 125,000 1,793,033
SEMA Group plc ........................................................... 180,000 1,736,444
SmithKline Beecham plc ................................................... 225,000 2,924,220
Smiths Industries plc .................................................... 130,000 1,717,213
The Sage Group plc ....................................................... 38,500 1,377,601
Vodafone Airtouch plc .................................................... 140,800 2,774,275
-----------
38,628,796
-----------

TOTAL INVESTMENTS (94.1%) (Cost $106,366,490) .................................. 123,448,492
OTHER ASSETS AND LIABILITIES (5.9%) ............................................ 7,676,920
-----------
NET ASSETS (100%) .............................................................. $131,125,412
===========

- --------------
* Non-Income Producing Security

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

<PAGE>

LIPPER PRIME EUROPE EQUITY FUND
(formerly Prime Lipper Europe Equity Fund)
PORTFOLIO OF INVESTMENTS--(CONTINUED)
June 30, 1999 (Unaudited)

Foreign Currency Exchange Contract Information:

Under the terms of foreign currency exchange contracts open at June 30,
1999, the Fund is obligated to deliver U.S. dollars in exchange for foreign
currency as indicated below:

<TABLE>
<CAPTION> Net
Currency to Settlement Unrealized
Deliver Value Date In Exchange for Value Loss
-------------- --------- -------- ----------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
USD 253,301 $ 253,301 06/30/99 DKK 1,817,436 $ 252,702 $ (599)
USD 38,583 38,583 07/01/99 DKK 277,370 38,567 (16)
USD 424,751 424,751 07/02/99 DKK 3,054,386 424,692 (59)
USD 826,941 826,941 06/30/99 EU 797,128 822,078 (4,863)
USD 143,521 143,521 07/01/99 CHF 222,242 142,958 (563)
--------- --------- ------
$1,687,097 $1,680,997 $(6,100)
========= ========= ======
</TABLE>

- ------------
CHF Swiss Franc

DKK Danish Krone

EU European Union

USD U.S. Dollar

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

<PAGE>

LIPPER PRIME EUROPE EQUITY FUND
(formerly Prime Lipper Europe Equity Fund)
PORTFOLIO OF INVESTMENTS--(CONTINUED)
June 30, 1999 (Unaudited)

Summary of Foreign Securities by Industry Classification

Percent of
Net
Industry Assets Value
- -------- -------- ---------
Automobiles .................................... 2.3% $ 3,028,454
Banking ........................................ 8.7 11,468,798
Broadcast & Publishing ......................... 4.1 5,406,433
Business & Public Service ...................... 5.2 6,836,504
Chemicals ...................................... 2.4 3,083,174
Computer Services .............................. 4.3 5,641,302
Consumer Services .............................. 1.4 1,793,033
Data Processing ................................ 1.0 1,307,895
Electrical/Components/Instruments .............. 1.8 2,381,081
Electrical/Electronics ......................... 3.4 4,522,082
Energy Sources ................................. 3.8 4,946,282
Financial Services ............................. 1.7 2,274,540
Food & Household Products ...................... 2.4 3,105,918
Health & Personal Care ......................... 12.6 16,585,678
Insurance ...................................... 7.1 9,277,811
Machinery & Engineering ........................ 4.7 6,168,716
Merchandising .................................. 8.2 10,694,703
Pharmaceuticals ................................ 3.1 4,029,555
Recreation & Other Consumer Goods .............. 3.0 3,868,612
Telecommunications ............................. 11.1 14,608,182
Transportation ................................. 0.8 1,140,102
Utilities-- Electric/Gas ....................... 1.0 1,279,637
----- ------------
Total Investments .............................. 94.1 123,448,492
Net Other Assets and Liabilities ............... 5.9 7,676,920
----- ------------
Net Assets ..................................... 100.0% $131,125,412
===== ============

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

<PAGE>

<TABLE>
<CAPTION>
LIPPER PRIME EUROPE EQUITY FUND
(formerly Prime Lipper Europe Equity Fund)
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999 (Unaudited)

<S> <C>
Assets:
Investments, at value (Cost $106,366,490) ........................................................ $123,448,492
Cash ............................................................................................. 10,037,521
Dividends Receivable ............................................................................. 320,095
Deferred Organization Costs ...................................................................... 32,973
Prepaid Assets ................................................................................... 12,536
------------
Total Assets ............................................................................. 133,851,617
------------
Liabilities:
Payable for Investments Purchased ................................................................ 2,456,942
Unrealized Depreciation on Foreign Currency Contracts ............................................ 6,100
Investment Advisory Fees Payable ................................................................. 117,404
Administrative Fees Payable ...................................................................... 23,132
Custodian Fees Payable ........................................................................... 51,888
Directors' Fees Payable .......................................................................... 11,988
Distribution Fees Payable-- Retail Shares ........................................................ 11,684
Shareholder Servicing Fees Payable - Group Retirement Plan Shares ................................ 5,869
Other Liabilities ................................................................................ 41,198
------------
Total Liabilities ........................................................................ 2,726,205
------------

Net Assets .......................................................................................... $131,125,412
============
Net Assets Consist of:
Paid in Capital .................................................................................. $105,236,483
Undistributed Net Investment Income .............................................................. 163,381
Accumulated Net Realized Gain .................................................................... 8,641,102
Unrealized Appreciation on Investments and Foreign Currency Translations ......................... 17,084,446
------------
$131,125,412
============
Premier Shares:
Net Assets ....................................................................................... $124,939,354
Shares Issued and Outstanding ($.001 par value) (Authorized 3,333,333,333) ....................... 9,360,669
Net Asset Value, Offering and Redemption Price Per Share ......................................... $ 13.35
============
Retail Shares:
Net Assets ....................................................................................... $ 3,476,859
Shares Issued and Outstanding ($.001 par value) (Authorized 3,333,333,333) ....................... 261,750
Net Asset Value, Offering and Redemption Price Per Share ......................................... $ 13.28
============
Group Retirement Plan Shares:
Net Assets ....................................................................................... $ 2,709,199
Shares Issued and Outstanding ($.001 par value) (Authorized 3,333,333,333) ....................... 203,948
Net Asset Value, Offering and Redemption Price Per Share ......................................... $ 13.28
============
</TABLE>

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

<PAGE>

LIPPER PRIME EUROPE EQUITY FUND
(formerly Prime Lipper Europe Equity Fund)
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1999 (Unaudited)

Investment Income
Dividends ................................................ $ 1,245,170
Interest ................................................. 97,767
Less: Foreign Taxes Withheld ............................ (144,541)
------------
Total Income ..................................... 1,198,396
------------
Expenses
Investment Advisory Fees ................................. 699,314
Administrative Fees ...................................... 127,527
Custodian Fees ........................................... 52,850
Professional Fees ........................................ 22,504
Registration and Filing Fees ............................. 18,891
Directors' Fees .......................................... 10,730
Amortization of Organization Costs ....................... 9,312
Distribution Fees--Retail Shares ......................... 3,737
Servicing Fees--Group Retirement Plan Shares ............. 3,317
Other Expenses ........................................... 28,123
------------
Total Expenses ................................... 976,305
------------
Net Investment Income ............................ 222,091
------------
Net Realized Gain (Loss) From:
Investments sold ......................................... 4,407,677
Foreign Currency Transactions ............................ (58,464)
------------
Total Net Realized Gain ..................................... 4,349,213
------------
Net Change in Unrealized Appreciation/Depreciation:
Investments .............................................. (11,468,939)
Foreign Currency Translations ............................ 703
------------
Net Change in Unrealized Appreciation/Depreciation .......... (11,468,236)
------------
Total Net Realized Gain and Net Change in
Unrealized Appreciation/Depreciation .................... (7,119,023)
------------
Net Decrease in Net Assets
Resulting from Operations ............................... $ (6,896,932)
============

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

<PAGE>

LIPPER PRIME EUROPE EQUITY FUND
(formerly Prime Lipper Europe Equity Fund)
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
Increase (Decrease) in Net Assets Resulting From Operations:
Net Investment Income (Loss) ......................................... $ 222,091 $ (77,367)
Net Realized Gain .................................................... 4,349,213 12,900,178
Net Change in Unrealized Appreciation/Depreciation ................... (11,468,236) 14,452,802
------------- -------------
Net Increase (Decrease) in Net Assets
Resulting from Operations ................................... (6,896,932) 27,275,613
------------- -------------
Distributions:
Premier Shares:
From net realized gains .............................................. -- (11,390,232)
Retail Shares:
From net realized gains .............................................. -- (232,187)
Group Retirement Plan Shares:
From net realized gains .............................................. -- (210,280)
------------- -------------
Total Distributions .......................................... -- (11,832,699)
------------- -------------
Capital Share Transactions:
Premier Shares:
Issued--Regular ...................................................... 17,474,992 23,551,688
--Distributions Reinvested ..................................... -- 11,413,219
Redeemed ............................................................. (10,380,184) (8,372,885)
------------- -------------
Net Increase from Premier Shares ............................. 7,094,808 26,592,022
------------- -------------
Retail Shares:
Issued--Regular ...................................................... 1,440,768 1,603,199
--Distributions Reinvested ..................................... -- 226,949
Redeemed ............................................................. (259,516) (684,234)
------------- -------------
Net Increase from Retail Shares .............................. 1,181,252 1,145,914
------------- -------------
Group Retirement Plan Shares:
Issued--Regular ...................................................... 586,966 1,238,603
--Distributions Reinvested ..................................... -- 209,098
Redeemed ............................................................. (36,811) (297,247)
------------- -------------
Net Increase from Group Retirement Plan Shares ............... 550,155 1,150,454
------------- -------------
Net Increase in Net Assets From Capital Share Transactions .............. 8,826,215 28,888,390
------------- -------------
Total Increase ............................................... 1,929,283 44,331,304
Net Assets:
Beginning of Period .................................................. 129,196,129 84,864,825
------------- -------------
End of Period (A) .................................................... $ 131,125,412 $ 129,196,129
============= =============

- -------------
(A) Includes accumulated net investment income (loss) ................... $ 163,271 $ (58,710)
============= =============
</TABLE>

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

9
<PAGE>

<TABLE>
<CAPTION>
LIPPER PRIME EUROPE EQUITY FUND
(formerly Prime Lipper Europe Equity Fund)
FINANCIAL HIGHLIGHTS
Selected Per Share Data & Ratios
For a share outstanding throughout each period

Premier Premier Premier Premier
Shares Shares Shares Shares
----------- ----------- ----------- -----------
Six Months April 1,
Ended Year Ended Year Ended 1996** to
June 30, 1999 December 31, December 31, December 31,
(Unaudited) 1998 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .................. $ 14.10 $ 11.74 $ 11.25 $ 10.00
----------- ----------- ----------- -----------
Income From Investment Operations:
Net Investment Income (Loss)(1) ..................... 0.02 (0.01) 0.05 0.04
Net Realized and Unrealized Gain (Loss)
on Investments .................................... (0.77) 3.79 2.06 1.62
----------- ----------- ----------- -----------
Total From Investment Operations .............. (0.75) 3.78 2.11 1.66
----------- ----------- ----------- -----------
Distributions:
Net Investment Income ............................... -- -- (0.03) (0.02)
In Excess of Net Investment Income .................. -- -- --+ --
Net Realized Gain ................................... -- (1.42) (1.59) (0.39)
----------- ----------- ----------- -----------
Total Distributions ........................... -- (1.42) (1.62) (0.41)
----------- ----------- ----------- -----------
Net Asset Value, End of Period ........................ $ 13.35 $ 14.10 $ 11.74 $ 11.25
----------- ----------- ----------- -----------
Total Return .......................................... (5.32)% 32.29% 18.83% 16.68%(2)
=========== =========== =========== ===========
Ratios and Supplemental Data:
Net Assets, End of Period (000's) ..................... $ 124,939 $ 124,406 $ 82,787 $ 62,942
Ratios After Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets ...................... 1.53%* 1.54% 1.59% 1.60%*
Net Investment Income (Loss) to Average Net Assets... 0.36%* (0.06)% 0.43% 0.53%*
Ratios Before Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets ...................... -- -- -- 1.78%*
Net Investment Income (Loss) to Average Net Assets... -- -- -- 0.35%*
Portfolio Turnover Rate ............................... 40% 61% 71% 34%

<CAPTION>
Retail Retail Retail Retail
Shares Shares Shares Shares
----------- ----------- ----------- -----------
Six Months April 11,
Ended Year Ended Year Ended 1996*** to
June 30, 1999 December 31, December 31, December 31,
(Unaudited) 1998 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .................. $ 14.05 $ 11.73 $ 11.25 $ 9.93
----------- ----------- ----------- -----------
Income From Investment Operations:
Net Investment Income (Loss)(1) ..................... 0.01 (0.03) 0.02 (0.01)
Net Realized and Unrealized Gain (Loss)
on Investments .................................... (0.78) 3.77 2.05 1.73
----------- ----------- ----------- -----------
Total From Investment Operations .............. (0.77) 3.74 2.07 1.72
----------- ----------- ----------- -----------
Distributions:
Net Investment Income ............................... -- -- -- (0.01)
In Excess of Net Investment Income .................. -- -- --+ --
Net Realized Gain ................................... -- (1.42) (1.59) (0.39)
----------- ----------- ----------- -----------
Total Distributions ........................... -- (1.42) (1.59) (0.40)
----------- ----------- ----------- -----------
Net Asset Value, End of Period ........................ $ 13.28 $ 14.05 $ 11.73 $ 11.25
----------- ----------- ----------- -----------
Total Return .......................................... (5.48)% 31.96% 18.49% 17.37%(2)
=========== =========== =========== ===========
Ratios and Supplemental Data:
Net Assets, End of Period (000's) ..................... $ 3,477 $ 2,472 $ 1,137 $ 609
Ratios After Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets ...................... 1.78%* 1.79% 1.84% 1.85%*
Net Investment Income (Loss) to Average Net Assets... 0.12%* (0.25)% 0.16% (0.13)%*
Ratios Before Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets ...................... -- -- -- 2.07%*
Net Investment Income (Loss) to Average Net Assets... -- -- -- (0.35)%*
Portfolio Turnover Rate ............................... 40% 61% 71% 34%

<CAPTION>
Group Group Group Group
Retirement Retirement Retirement Retirement
Plan Plan Plan Plan
Shares Shares Shares Shares
----------- ----------- ----------- -----------
Six Months April 12,
Ended Year Ended Year Ended 1996*** to
June 30, 1999 December 31, December 31, December 31,
(Unaudited) 1998 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .................. $ 14.05 $ 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 (Loss)
on Investments .................................... (0.78) 3.78 2.05 1.74
----------- ----------- ----------- -----------
Total From Investment Operations .............. (0.77) 3.75 2.08 1.72
----------- ----------- ----------- -----------
Distributions:
Net Investment Income ............................... -- -- (0.01) (0.01)
In Excess of Net Investment Income .................. -- -- --+ --
Net Realized Gain ................................... -- (1.42) (1.59) (0.39)
----------- ----------- ----------- -----------
Total Distributions ........................... -- (1.42) (1.60) (0.40)
----------- ----------- ----------- -----------
Net Asset Value, End of Period ........................ $ 13.28 $ 14.05 $ 11.72 $ 11.24
----------- ----------- ----------- -----------
Total Return .......................................... (5.48)% 32.08% 18.60% 17.40%(2)
=========== =========== =========== ===========
Ratios and Supplemental Data:
Net Assets, End of Period (000's) ..................... $ 2,709 $ 2,318 $ 941 $ 195
Ratios After Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets ...................... 1.78%* 1.79% 1.84% 1.85%*
Net Investment Income (Loss) to Average Net Assets... 0.12%* (0.29)% 0.34% (0.43)%*
Ratios Before Expense Waiver and/or Reimbursement:
Expenses to Average Net Assets ...................... -- -- -- 2.04%*
Net Investment Income (Loss) to Average Net Assets... -- -- -- (0.62)%*
Portfolio Turnover Rate ............................... 40% 61% 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 31, 1996
-------------
Premier Shares $0.01
Retail Shares $0.02
Group Retirement Plan Shares $0.01

There were no waivers or reimbursements for the six months ended June 30,
1999 or for the years ended December 31, 1998 or 1997.

(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>

LIPPER PRIME EUROPE EQUITY FUND
(formerly 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, 1999 the Company was comprised
of three diversified portfolios: Lipper High Income Bond Fund, Lipper U.S.
Equity Fund, and Lipper Prime Europe Equity Fund (formerly Prime Lipper Europe
Equity Fund). These financial statements pertain to the Lipper Prime 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. The Lipper Prime 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).
The Lipper Prime Europe Equity Fund changed its name effective June 30, 1999.
The change applies to all three classes of shares.

The Lipper Prime 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.

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: 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.

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.

At June 30, 1999 the cost of investments and unrealized appreciation
(depreciation) of investments for Federal income tax purposes were:

Cost Appreciation (Depreciation) Net Appreciation
----------- ---------- ----------- ------------
$ 106,366,490 $ 19,864,986 $ (2,782,984) $ 17,082,002

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 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

<PAGE>

LIPPER PRIME EUROPE EQUITY FUND
(formerly Prime Lipper Europe Equity Fund)
NOTES TO FINANCIAL STATEMENTS (Unaudited)-(Continued)

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 Assets 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 Contract: 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 at default. Risks may also arise from
unanticipated movements in the value of a foreign currency relative to the U.S.
dollar.

5. Distributions To Shareholders: The 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. The Company has a $20 million line of credit with The
Chase Manhattan Bank which is available to meet temporary cash needs of the
company. The company pays a commitment fee for this line of credit.

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 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 than the following:

<PAGE>

LIPPER PRIME EUROPE EQUITY FUND
(formerly Prime Lipper Europe Equity Fund)
NOTES TO FINANCIAL STATEMENTS (Unaudited)-(Continued)

Group Retirement
Premier Shares Retail Shares Plan Shares
-------------- ------------- ----------------
1.60% 1.85% 1.85%

No waivers or reimbursements were received by the Fund for the six months
ended June 30, 1999.

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, 1999, 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
---------- ----------
$32,280,309 $23,898,498

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>

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

<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, l999 December 31, 1998
---------------- -----------------
<S> <C> <C>
Premier Shares:
Issued--Regular ....................... 1,273,489 1,605,948
--Distributions Reinvested ...... -- 797,991
Redeemed .............................. (738,937) (631,722)
---------- ----------
Net Increase ............................. 534,552 1,772,217
---------- ----------
Retail Shares:
Issued--Regular ....................... 104,976 113,663
--Distributions Reinvested ...... -- 15,887
Redeemed .............................. (19,149) (50,514)
---------- ----------
Net Increase ............................. 85,827 79,036
---------- ----------
Group Retirement Plan Shares:
Issued--Regular ....................... 41,531 90,078
--Distributions Reinvested ...... -- 14,661
Redeemed .............................. (2,664) (19,882)
---------- ----------
Net Increase ............................. 38,867 84,857
---------- ----------
</TABLE>

I. Other: At June 30, 1999, 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 12.5%
Retail Shares 2 56.7%
Group Retirement Shares 3 98.9%

Transactions by shareholders holding a significant ownership percentage of
the Fund can have an impact on other shareholders of the Fund.

<PAGE>

Board of Directors Kenneth Lipper
- ------------------------ Director, President and Chairman

Abraham Biderman
Director, Executive Vice President,
Secretary and Treasurer

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

Distributor Lipper & Company, L.P.
- ------------------------ 101 Park Avenue, 6th Floor
New York, NY 10178

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

For more complete information concerning The Lipper Funds, Inc., including a
prospectus, please call 1-800-LIPPER9. European investments involve currency and
other risks, which may include political and market risks. Please read the
prospectus carefully before investing.

Lipper & Company, L.P., Distributor. The Lipper Funds, Inc. is not affiliated
with Lipper Inc.