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PIPER
INCOME
FUNDS
[LOGO]
1995
ANNUAL REPORT
[LOG CABIN PHOTO]
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TABLE OF CONTENTS
GOVERNMENT INCOME FUND
This fund seeks high current income to the extent consistent with preservation
of capital. To achieve its objective, the fund invests primarily in securities
issued or guaranteed as to payment of principal and interest by the U.S.
government, its agencies or instrumentalities, including mortgage-related
securities. (Keep in mind that these securities, not the fund itself, are
guaranteed as to payment of principal and interest.) The fund may also invest in
mortgage-related securities issued by private entities. The fund's investments
in mortgage-related securities may include derivative mortgage securities. As
with other mutual funds, there can be no assurance that the fund will achieve
its objective. Government Income Fund's Nasdaq symbol is PJGIX.
Letter to Shareholders . . . . . . . . . . . . . . . . . . .2
Investments in Securities. . . . . . . . . . . . . . . . . .8
Financial Statements and Notes . . . . . . . . . . . . . . .10
Independent Auditors' Report . . . . . . . . . . . . . . . .19
Federal Tax Information. . . . . . . . . . . . . . . . . . .20
SHORT-INTERMEDIATE BOND FUND
This fund seeks current income consistent with the fund's stated maturity limits
and quality standards and preservation of capital. To achieve its objective, the
fund invests primarily in a broad range of investment-quality debt securities
with remaining maturities of five years or less. Under normal market conditions,
the dollar-weighted average maturity of the fund's investments will range from
two to four years. As with other mutual funds, there can be no assurance that
the fund will achieve its objective. Short-Intermediate Bond Fund's proposed
Nasdaq symbol is PJSBX.
Letter to Shareholders . . . . . . . . . . . . . . . . . . .5
Investments in Securities. . . . . . . . . . . . . . . . . .7
Financial Statements and Notes . . . . . . . . . . . . . . .10
Independent Auditors' Report . . . . . . . . . . . . . . . .19
Federal Tax Information. . . . . . . . . . . . . . . . . . .20
THIS REPORT IS INTENDED FOR SHAREHOLDERS OF PIPER GOVERNMENT INCOME FUND
AND PIPER SHORT-INTERMEDIATE BOND FUND, BUT IT MAY ALSO BE USED AS SALES
LITERATURE IF PRECEDED OR ACCOMPANIED BY A PROSPECTUS. THE PROSPECTUS GIVES
DETAILS ABOUT THE CHARGES, INVESTMENT RESULTS, RISKS AND OPERATING POLICIES
OF THE FUNDS.
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SHAREHOLDER SERVICES
AS A SHAREHOLDER IN PIPER FUNDS, YOU HAVE ACCESS TO A FULL RANGE OF SERVICES AND
BENEFITS. CHECK YOUR PROSPECTUS FOR DETAILS ABOUT SERVICES AND ANY LIMITATIONS
THAT MIGHT APPLY TO YOUR FUND.
LOW MINIMUM INVESTMENTS
You can open a Piper mutual fund account with a minimum investment of $250.
QUANTITY DISCOUNTS
If your initial investment exceeds a specified amount, if an investment combined
with the value of your existing Piper shares exceeds a specified amount, or if
your investments combined during a 13-month period exceed a specified amount,
you can reduce or even eliminate the front-end sales charge.
WAIVER OF SALES CHARGES
Money market funds carry no sales charges.*
Sales charges on other Piper funds are waived on purchases of $500,000 or more.
However, a contingent deferred sales charge may be imposed. See your prospectus
for details.
AUTOMATIC REINVESTMENT OF DIVIDENDS
For maximum growth of your assets, you can reinvest dividends and capital gains
automatically in additional shares of your fund without a sales charge.
CROSS-REINVESTMENT OF DISTRIBUTIONS
Diversify your holdings by reinvesting dividends and capital gains from one
Piper fund to another.
CASH DISTRIBUTIONS
If you prefer, take your dividends and/or capital gains in cash.
AUTOMATIC MONTHLY INVESTMENT PROGRAM
You may automatically transfer $25 or more each month from any Piper money
market fund into many other Piper funds.*
AUTOMATIC MONTHLY MONEY TRANSFER PROGRAM
If you are starting a savings discipline or seeking a convenient way to invest,
you can transfer a minimum of $100 automatically from your bank, savings and
loan or other financial institution into many of the Piper funds.
EXCHANGE PRIVILEGES
Revise your investment plan without incurring a sales charge by moving assets
from one Piper fund to another with the same fee structure. See your prospectus
for restrictions involving exchanges between funds with different sales charges.
REINVESTMENT PRIVILEGES
If you buy a fund with a sales charge and later redeem your shares, you may
reinvest all or part of the proceeds in shares of that fund or another Piper
fund within 30 days and pay no additional sales charge, subject to each fund's
minimum investment requirements.
SYSTEMATIC WITHDRAWAL PLAN
If your account has a value of $5,000 or more, you can elect to receive periodic
payments of $100 or more, at no cost, excluding money market funds.
ACCOUNT STATEMENTS
Whenever you add to or withdraw money from your account, you'll receive a
monthly statement from Piper Jaffray. Accounts with no activity receive a
quarterly statement instead. Periodic dividend and capital gain distributions,
if any, also appear on your statement.
CONFIRMATION OF TRANSACTIONS
You receive a confirmation statement following every transaction, except in the
money market funds. All transactions are reflected on your account statement.
$25 MILLION SHAREHOLDER PROTECTION
If you have a Piper Jaffray PRIME or PAT account, you are protected up to $25
million in the unlikely event that Piper Jaffray were to fail financially. This
is in addition to basic Securities Investor Protection Corporation (SIPC)
coverage, which protects up to $500,000 in cash and securities ($100,000 in cash
only) per customer. This protection does not cover market loss.
* AN INVESTMENT IN A PIPER MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED
BY THE U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1 PER SHARE.
1
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GOVERNMENT INCOME FUND
[BRUCE SALVOG PHOTO]
[BRAD STONE PHOTO]
BRUCE SALVOG, (ABOVE)
SHARES PRIMARY RESPONSIBILITY FOR THE MANAGEMENT OF GOVERNMENT INCOME FUND. HE
HAS 25 YEARS OF FINANCIAL EXPERIENCE.
BRAD STONE, CFA (BELOW)
SHARES PRIMARY RESPONSIBILITY FOR THE MANAGEMENT OF GOVERNMENT INCOME FUND. HE
HAS SEVEN YEARS OF FINANCIAL EXPERIENCE.
David Steele, (pictured on page 5)
SHARES PRIMARY RESPONSIBILITY FOR THE MANAGEMENT OF GOVERNMENT INCOME FUND. HE
HAS 16 YEARS OF FINANCIAL EXPERIENCE.
November 15, 1995
Dear Shareholders:
SPURRED BY DECLINING INTEREST RATES, THE BOND MARKET RALLIED DURING THE FISCAL
YEAR ENDED SEPTEMBER 30, 1995, HELPING PIPER GOVERNMENT INCOME FUND ACHIEVE A
TOTAL RETURN OF 14.87%.* This return includes reinvested distributions but not
the fund's sales charge. During the same time frame, the Lipper U.S. Mortgage
Funds Average had a return of 11.68% and the Merrill Lynch 5-10 Year Treasury
Index had a return of 15.64%.
DURING 1995, THE YIELD CURVE FLATTENED AS THE RESULT OF A RELATIVELY STABLE
FEDERAL RESERVE POLICY ON THE SHORT END OF THE CURVE AND LOWER INTERMEDIATE- AND
LONG-TERM RATES. (See the yield curve comparison chart on opposite page.) In a
flat yield curve environment, there is not much difference between the yields on
short-term and long-term securities. However, the lower intermediate- and long-
term rates benefited the fund as prices generally rose on fixed income
securities.
GOVERNMENT INCOME FUND OUTPERFORMED THE LIPPER U.S. MORTGAGE FUNDS AVERAGE
DURING THE FISCAL YEAR FOR TWO REASONS.
First, the fund had a 19% position in U.S. Treasury securities, which
outperformed mortgage securities during the period. Second, we maintained an
effective duration in the fund that ranged from approximately seven years as of
September 30, 1994, to approximately five years as of September 30, 1995. (See
page 4 for an explanation of effective duration.) Fixed income securities with
longer effective durations are more sensitive to changes in interest rates than
securities with shorter effective durations. In a period of declining interest
rates like we've experienced this year, securities with longer effective
durations generally appreciate in value more. Conversely, the value of
securities with longer effective durations decreases more when interest rates
rise.
PORTFOLIO COMPOSITION
SEPTEMBER 30, 1995
[PIE CHART]
INVESTMENT CATEGORIES REFLECT PERCENTAGE OF TOTAL ASSETS.
* PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT FUND SHARES, WHEN
SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
2
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GOVERNMENT INCOME FUND
BECAUSE THE FUND HAD ONLY A 19% POSITION IN TREASURY SECURITIES, IT LAGGED THE
MERRILL LYNCH TREASURY INDEX, WHICH IS MADE UP SOLELY OF FIVE- TO 10-YEAR U.S.
TREASURY BONDS. In a period of declining interest rates, U.S. Treasury
securities often outperform mortgage-backed securities because of prepayment
uncertainty as many homeowners have the opportunity to refinance their
mortgages. This refinancing uncertainty causes the prices of mortgage-backed
securities to increase less than similar duration Treasury securities.
OVER THE PAST YEAR, WE TOOK STEPS TO REDUCE THE VOLATILITY OF THE FUND. We
reduced our holdings of inverse floaters and inverse interest-only securities
from 6% of total assets last September to 4% as of September 30, 1995. We also
have continued to reduce the sale-forward (dollar-roll) program which has
dropped from 33% of total assets last September 30 to 12% of total assets as of
September 30, 1995. These actions, in addition to buying shorter duration
securities, gradually reduced the fund's effective duration to approximately
five years. These steps should make the fund less sensitive to future interest
rate changes.
CURRENTLY, WE ARE INCREASING THE PERCENTAGE OF MORTGAGE-BACKED SECURITIES IN THE
FUND. We believe mortgage-backed securities are undervalued and are offering a
high level of income. We are also emphasizing 30-year mortgage-backed securities
in order to capture additional income.
OUR OUTLOOK IS FOR A PERIOD OF RELATIVE INTEREST RATE STABILITY AS WE CONTINUE
TO EXPERIENCE A SLOW-GROWTH, LOW INFLATION ECONOMY. Over the next 12 months, we
believe that the economy will grow at an annual rate of 2% to 3%. We do not
anticipate a recession, and so we do not believe that the Federal Reserve will
need to stimulate the economy by
VALUE OF $10,000 INVESTED
SEPTEMBER 30, 1995
[GRAPH]
$10,000 INVESTED IN MARCH 1987 AND HELD THROUGH SEPTEMBER 30, 1995, WOULD HAVE
GROWN TO $17,660. THE FUND'S PERFORMANCE REFLECTS THE MAXIMUM SALES CHARGE OF
4%, WHILE NO SUCH CHARGES ARE REFLECTED IN THE INDEXES OR THE AVERAGE. ALL
PERFORMANCE FIGURES INCLUDE REINVESTED DISTRIBUTIONS. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS.
AVERAGE ANNUALIZED TOTAL RETURNS
THROUGH 9/30/95, INCLUDING 4% SALES CHARGE
One Year . . . . . . . . . . . . . . . . . . 10.27%
Five Year. . . . . . . . . . . . . . . . . . .7.65%
Since Inception (3/16/87). . . . . . . . . . .6.88%
SINCE THE FUND'S INCEPTION, THE FUND'S DISTRIBUTOR HAS VOLUNTARILY LIMITED 12b-1
FEES. HAD THE LIMITATION NOT BEEN IN EFFECT, RETURNS WOULD HAVE BEEN LOWER. ALL
RETURNS INCLUDE REINVESTED DISTRIBUTIONS. PAST PERFORMANCE DOES NOT GUARANTEE
FUTURE RESULTS.
YIELD CURVE CHART
SEPTEMBER 30, 1994 VERSUS SEPTEMBER 29, 1995
[GRAPH]
3
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GOVERNMENT INCOME FUND
significantly lowering the federal funds rate. Although inflation can never be
counted out entirely, we do not see it as a near-term threat to the markets. We
believe this environment will allow fixed income investors to continue to enjoy
a high rate of income in relation to inflation, particularly those investors who
hold a high proportion of mortgage-backed securities.
BECAUSE WE EXPECT INTEREST RATES TO REMAIN RELATIVELY STABLE, WE PLAN TO KEEP
THE FUND'S MORE CONSERVATIVE PROFILE INTO 1996. We anticipate maintaining the
fund's exposure to the sale-forward (dollar-roll) program and continuing to
reduce the fund's small holdings of inverse floating rate and inverse interest-
only securities. The fund's current five-year effective duration reflects this
slightly defensive posture. Should interest rates rise, we will consider
lengthening the fund's effective duration.
Thank you for investing in Government Income Fund. We appreciate the opportunity
to serve your investment needs.
Sincerely,
/s/Bruce Salvog /s/David M. Steele /s/Brad Stone
Bruce Salvog David Steele Brad Stone
Portfolio Manager Portfolio Manager Portfolio Manager
EFFECTIVE DURATION
Effective duration estimates the interest rate risk of a security, in other
words how much the value of the security is expected to change with a given
change in interest rates. The longer a security's effective duration, the more
sensitive its price is to changes in interest rates. For example, if interest
rates were to increase by 1%, the market value of a bond with an effective
duration of five years would decrease by about 5%, with all other factors being
constant.
It is important to understand that, while a valuable measure, effective duration
is based upon certain assumptions and has several limitations. It is most
effective as a measure of interest rate risk when interest rate changes are
small, rapid and occur equally across all the different points of the yield
curve.
In addition, effective duration is difficult to calculate precisely for bonds
with prepayment options, such as mortgage-backed securities, because the
calculation requires assumptions about prepayment rates. For example, when
interest rates go down, homeowners may prepay their mortgages at a higher rate
than assumed in the initial effective duration calculation, thereby shortening
the effective duration of the fund's mortgage-backed securities. Conversely, if
rates increase, prepayments may decrease to a greater extent than assumed,
extending the effective duration of such securities. For these reasons, the
effective durations of funds that invest a significant portion of their assets
in mortgage-backed securities can be greatly affected by changes in interest
rates.
4
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SHORT-INTERMEDIATE BOND FUND
[DAVID STEELE PHOTO]
FPO
66%
[NANCY OLSEN PHOTO]
FPO
65%
DAVID STEELE, (ABOVE)
SHARES PRIMARY RESPONSIBILITY FOR THE MANAGEMENT OF SHORT-INTERMEDIATE BOND
FUND. HE HAS 16 YEARS OF FINANCIAL EXPERIENCE.
NANCY OLSEN, (BELOW)
SHARES PRIMARY RESPONSIBILITY FOR THE MANAGEMENT OF SHORT-INTERMEDIATE BOND
FUND. SHE HAS 16 YEARS OF FINANCIAL EXPERIENCE.
Bruce Salvog, (pictured on page 2)
SHARES PRIMARY RESPONSIBILITY FOR THE MANAGEMENT OF SHORT-INTERMEDIATE BOND
FUND. HE HAS 25 YEARS OF FINANCIAL EXPERIENCE.
November 15, 1995
Dear Shareholders:
PIPER SHORT-INTERMEDIATE BOND FUND WAS LAUNCHED ON APRIL 10, 1995, WITH AN
OBJECTIVE OF PROVIDING SHAREHOLDERS WITH CURRENT INCOME CONSISTENT WITH THE
FUND'S STATED MATURITY LIMITS AND QUALITY STANDARDS AND PRESERVATION OF CAPITAL.
Typically, the fund will offer higher income than a money market fund in
exchange for some principal fluctuation -- although not as much volatility as
investments in longer-term bond funds. The fund will be invested in securities
with remaining maturities of no more than five years. Generally, investors in
the fund should have an investment horizon between two and four years. We expect
to maintain an overall average credit quality in the fund's investments of Aa or
AA as rated by Moody's or Standard & Poor's, respectively.
FROM ITS INCEPTION ON APRIL 10 THROUGH SEPTEMBER 30, 1995, SHORT-INTERMEDIATE
BOND FUND GENERATED A TOTAL RETURN OF 3.73%.*
This return includes reinvested distributions but not the fund's sales charge.
During that same time frame, the Merrill Lynch 1-5 Year Government Corporate
Index produced a return of 4.51% and the Lipper Short Investment-Grade Debt
Funds Average had a return of 4.05%. Note that these returns are not annualized.
THE FUND'S UNDERPERFORMANCE COMPARED TO THE LIPPER AVERAGE AND THE MERRILL LYNCH
INDEX WAS PRIMARILY DUE TO ITS SHORTER EFFECTIVE DURATION. A shorter effective
duration generally reduces a fund's volatility, causing it to underperform when
interest rates are falling and outperform when rates are rising. (See page 4 for
an explanation of effective duration.) The performance of the fund was also
hampered by its slow accumulation of assets in the initial funding process.
SINCE THE FUND'S INCEPTION, THE SLOPE OF THE YIELD CURVE HAS FLATTENED AS THE
RESULT OF A RELATIVELY STABLE FEDERAL RESERVE POLICY ON THE SHORT END OF THE
CURVE AND LOWER INTERMEDIATE- AND LONG-TERM RATES. This flatter yield curve
means that the one- to five-year securities the fund invests in are yielding
about the same as money market securities. As the yield curve steepens,
securities in the one- to five-year maturity range should typically provide 1%
to 2% of additional yield over money market securities.
PORTFOLIO COMPOSITION
SEPTEMBER 30, 1995
[PIE CHART]
INVESTMENT CATEGORIES REFLECT PERCENTAGE OF TOTAL ASSETS.
* PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN
AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT FUND SHARES,
WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
5
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SHORT-INTERMEDIATE BOND FUND
WE WILL CONTINUE TO FOCUS THE PORTFOLIO ON EARNING INCOME THROUGH INVESTMENTS IN
CORPORATE BONDS, ASSET-BACKED SECURITIES, AGENCY AND PRIVATELY ISSUED MORTGAGE
SECURITIES, AND U.S. TREASURY SECURITIES THAT ARE WITHIN THE FUND'S FIVE-YEAR
MATURITY LIMITS. During the third quarter, we increased the fund's holdings of
high-quality corporate bonds from 16% in June to 28% by the end of September. We
also reduced the fund's holdings of U.S. Treasury securities from 72% at the end
of June to 62% as of September 30.
WE EXPECT INFLATION TO REMAIN CONTROLLED, INTEREST RATES TO REMAIN RELATIVELY
STABLE AND THE ECONOMY TO EXPAND AT A SLOW TO MODERATE RATE. Over the next 12
months, we expect the Gross Domestic Product to grow about 2% to 3%, a growth
rate that should keep inflation subdued. We do not believe the economy will slip
into a recession. Therefore, the Federal Reserve Board is unlikely to lower
interest rates significantly.
AN ENVIRONMENT OF STABLE TO SLIGHTLY RISING INTEREST RATES FAVORS PORTFOLIOS
WITH SHORTER EFFECTIVE DURATIONS SUCH AS SHORT-INTERMEDIATE BOND FUND. Because
we expect the economy to continue to strengthen throughout 1995, and because it
appears the bond market has over-anticipated the degree of weakness the economy
will actually experience, we believe yields on taxable bonds may adjust upward
to accommodate slightly stronger economic growth. Therefore, we are maintaining
a modestly defensive approach to managing the fund's interest rate sensitivity
by keeping the portfolio's effective duration at around two years, which is
slightly shorter than the Merrill Lynch 1-5 Year Government Corporate Index's
effective duration.
Thank you for choosing the Short-Intermediate Bond Fund. We appreciate the
opportunity to serve your investment needs.
Sincerely,
/s/Bruce Salvog /s/David M. Steele /s/Nancy S. Olsen
Bruce Salvog David Steele Nancy Olsen
Portfolio Manager Portfolio Manager Portfolio Manager
VALUE OF $10,000 INVESTED
SEPTEMBER 30, 1995
[GRAPH]
$10,000 INVESTED ON APRIL 10, 1995, AND HELD THROUGH SEPTEMBER 30, 1995, WOULD
HAVE GROWN TO $10,217. THE FUND'S PERFORMANCE REFLECTS THE MAXIMUM SALES CHARGE
OF 1.5%, WHILE NO SUCH CHARGES ARE REFLECTED IN THE INDEX OR THE AVERAGE. ALL
PERFORMANCE FIGURES INCLUDE REINVESTED DISTRIBUTIONS. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS.
CUMULATIVE TOTAL RETURNS
THROUGH 9/30/95, INCLUDING 1.5% SALES CHARGE
Third Quarter. . . . . . . . . . . . . . 0.19%
Since Inception (4/10/95). . . . . . . 2.17%*
* FROM INCEPTION (APRIL 10, 1995) THROUGH JUNE 30, 1995, CLIENTS COULD
PURCHASE SHORT-INTERMEDIATE BOND FUND WITH NO INITIAL OR DEFERRED SALES CHARGES.
DURING THE PERIOD FROM INCEPTION (APRIL 10, 1995) THROUGH SEPTEMBER 30, 1995,
THE ADVISER AND DISTRIBUTOR WAIVED CERTAIN EXPENSES WHICH MAY OR MAY NOT BE
WAIVED IN THE FUTURE. OTHERWISE, THE CUMULATIVE TOTAL RETURNS FOR THE THIRD
QUARTER AND SINCE INCEPTION WOULD HAVE BEEN 0.00% AND 1.77%, RESPECTIVELY. ALL
RETURNS INCLUDE REINVESTED DISTRIBUTIONS. PAST PERFORMANCE DOES NOT GUARANTEE
FUTURE RESULTS.
6
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INVESTMENTS IN SECURITIES
SHORT-INTERMEDIATE BOND FUND
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- --------- ----------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
CORPORATE BONDS (27.8%):
American Brands, 7.50%, 5/15/99 ..................... $ 9,000 9,265
Associates Corporation of N.A., 6.75%, 7/15/97 ........ 10,000 10,106
Household Finance Corporation, 7.75%, 6/15/97 ......... 5,000 5,119
Nordstrom Incorporated, 8.88%, 2/15/98 5,000 5,269
Norwest Financial, 6.20%, 9/15/99 ..................... 5,000 4,968
Sears Mortgage Securities, Series 1992-19, Class P,
9.25%, 4/15/98 ....................................... 5,000 5,341
----------
Total Corporate Bonds
(cost: $40,046) .................................... 40,068
----------
U.S. GOVERNMENT SECURITIES (62.7%):
U.S. Treasury Note, 6.38%, 6/30/97 .................... 25,000 25,232
U.S. Treasury Note, 5.13%, 12/31/98 ................... 30,000 29,286
U.S. Treasury Note, 6.25%, 8/31/96 .................... 10,000 10,040
U.S. Treasury Note, 7.38%, 11/15/97 ................... 25,000 25,737
----------
90,295
----------
Total U.S. Government Securities
(cost: $89,800) ............................................... 90,295
----------
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- --------- ----------
<S> <C> <C>
ASSET-BACKED SECURITIES (5.3%):
Ford Credit Grantor Trust, Series 1993-B, Class A,
4.30%, 7/15/98
(cost: $7,556) ..................................... $ 7,711 7,606
----------
Total Investments in Securities (95.7%)
(cost: $137,402)(b) ................................ 137,969
----------
Other assets in excess of liabilities (4.3%) ........ 6,141
----------
Net assets (100.0%) ................................ $ 144,110
----------
----------
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES:
(A) SECURITIES ARE VALUED BY PROCEDURES DESCRIBED IN NOTE 2 TO THE
FINANCIAL STATEMENTS.
(B) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS
UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED
ON THIS COST WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION .... $ 731
GROSS UNREALIZED DEPRECIATION ...... (164)
-----
NET UNREALIZED APPRECIATION .... $ 567
-----
-----
</TABLE>
7
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
GOVERNMENT INCOME FUND
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- --------- ----------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
U.S. GOVERNMENT SECURITIES (22.5%):
U.S. Treasury Bond, 7.25%, 5/15/16 ................. $ 5,000,000(d) 5,346,000
U.S. Treasury Bond, 8.13%, 8/15/19 ................... 1,500,000 1,760,415
U.S. Treasury Note, 6.50%, 4/30/99 ................... 5,000,000 5,084,600
U.S. Treasury Note, 7.25%, 5/15/04 ................... 7,000,000 7,478,660
U.S. Treasury Note, 7.50%, 10/31/99 .................. 2,000,000 2,106,320
U.S. Treasury Note, 7.38%, 11/15/97 .................. 2,000,000 2,058,980
----------
Total U.S. Government Securities
(cost: $22,680,784) ................................ 23,834,975
----------
MORTGAGE-BACKED SECURITIES (90.8%):
COLLATERALIZED MORTGAGE OBLIGATIONS (C) (17.2%):
U.S. AGENCY FIXED RATE (0.4%):
10.00%, FNMA, Series 1989-15,
Class D, 9/25/18 .................................... 455,769 469,405
----------
U.S. AGENCY FLOATING RATE (3.6%):
5.89%, FNMA, Series 1993-210,
Class FC, COFI, 9/25/23 ............................. 4,000,000 3,757,440
----------
U.S. AGENCY INVERSE INTEREST-ONLY (0.8%):
14.21%, FHLMC G, Series 12,
Class AB, LIBOR, 12/25/08 ........................... -- 881,940
----------
U.S. AGENCY INVERSE FLOATER (3.4%):
14.68%, FHLMC, Series 1134, Class I, COFI, 9/15/96 ... 690,870 716,605
3.45%, FHLMC, Series 1419, Class G, LIBOR,
11/15/97 ............................................ 1,502,900 1,374,642
8.08%, FNMA, Series 1993-210,
Class SC, COFI, 9/25/23 ............................. 2,000,000 1,476,000
----------
3,567,247
----------
U.S. AGENCY Z-TRANCHE (9.0%):
8.36%, FHLMC, Series 1339,
Class PZ, 7/15/22 ................................... 6,479,057 6,466,423
7.64%, FHLMC, Series 1677,
Class Z, 7/15/23 .................................... 3,398,123 3,063,204
----------
9,529,627
----------
U.S. AGENCY FIXED RATE MORTGAGES (73.6%):
7.50%, FHLMC, 11/1/09 ................................ 2,882,020 2,933,319
7.50%, FHLMC, 10/1/09 ................................ 2,869,613 2,920,692
7.50%, FHLMC, 12/1/09 ................................ 3,779,142 3,846,411
8.00%, FNMA, 1/1/21 .................................. 5,000,000(b) 5,128,050
5.80%, FNMA, 12/10/03 ................................ 2,000,000 1,919,040
11.00%, FNMA, 10/1/20 ................................ 1,997,958 2,218,952
7.00%, FNMA, 12/1/07 ................................. 10,884,870 10,942,559
6.50%, FNMA, 8/1/23 .................................. 7,761,014 7,484,411
8.00%, FNMA, 2/1/25 .................................. 3,150,781 3,223,596
8.00%, FNMA, 8/1/24 .................................. 2,501,422 2,559,230
8.00%, FNMA, 12/1/24 ................................. 3,273,203 3,348,847
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- --------- ----------
<S> <C> <C>
8.00%, FNMA, 11/1/24 ............................... $ 3,880,920 3,970,608
6.50%, FNMA, 9/14/25 ................................. 5,000,000(b) 4,821,800
9.50%, FNMA, 8/1/22 .................................. 5,000,000(b) 5,332,750
7.00%, GNMA, 7/15/08 ................................. 610,816 615,391
7.00%, GNMA, 7/15/23 ................................. 3,694,031 3,652,436
7.00%, GNMA, 3/15/09 ................................. 1,897,937 1,912,153
9.00%, GNMA, 10/15/24 ................................ 980,001 1,031,441
7.00%, GNMA, 2/15/09 ................................. 2,040,957 2,056,244
7.00%, GNMA, 3/15/09 ................................. 2,227,245 2,243,927
10.00%, GNMA, 1/15/10 ................................ 1,497,910 1,633,636
9.00%, GNMA, 8/15/25 ................................. 3,920,003 4,125,764
----------
77,921,257
----------
Total Mortgage-Backed Securities
(cost: $94,792,611) ............................... 96,126,916
----------
SHORT-TERM SECURITIES (0.4%):
Repurchase agreement with Goldman Sachs in a joint
trading account, collateralized by U.S. government
agency securities, acquired on 9/29/95, accrued
interest at repurchase date of $219, 6.44%, 10/2/95.
(cost: $408,000) .................................... 408,000 408,000
----------
Total Investments in Securities (113.7%)
(cost: $117,881,395)(e) ........................... 120,369,892
----------
Liabilities in excess of other assets (-13.7%) ..... (14,505,766)
----------
Net assets (100.0%) ............................... $ 105,864,126
----------
----------
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES:
(A) SECURITIES ARE VALUED BY PROCEDURES DESCRIBED IN NOTE 2 TO THE FINANCIAL
STATEMENTS.
(B) ON SEPTEMBER 30, 1995, THE TOTAL COST OF INVESTMENTS PURCHASED ON A
WHEN-ISSUED BASIS WAS $15,246,094.
(C) DESCRIPTIONS OF CERTAIN COLLATERALIZED MORTGAGE OBLIGATIONS ARE AS FOLLOWS:
LIBOR - LONDON INTERBANK OFFERED RATE
COFI (11TH DISTRICT) - COST OF FUNDS INDEX OF THE FEDERAL RESERVE'S
11TH DISTRICT
INVERSE FLOATER - REPRESENTS SECURITIES THAT PAY INTEREST AT RATES THAT
INCREASE (DECREASE) WITH A DECLINE (INCREASE) IN THE SPECIFIED INDEX.
THE INTEREST RATE PAID BY THE INVERSE FLOATER WILL GENERALLY CHANGE AT
A MULTIPLE OF ANY CHANGE IN THE INDEX. INTEREST RATES DISCLOSED ARE
RATES IN EFFECT ON SEPTEMBER 30, 1995.
INVERSE INTEREST-ONLY - REPRESENTS SECURITIES THAT ENTITLE HOLDERS TO
RECEIVE ONLY INTEREST PAYMENTS ON THE UNDERLYING MORTGAGES. INTEREST
IS PAID AT A RATE THAT INCREASES (DECREASES) WITH A DECLINE (INCREASE)
IN THE SPECIFIED INDEX. THE YIELD TO MATURITY OF AN INVERSE
INTEREST-ONLY IS EXTREMELY SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS
ON THE UNDERLYING MORTGAGE ASSETS. A RAPID (SLOW) RATE
8
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
<TABLE>
<S> <C>
OF PRINCIPAL REPAYMENTS MAY HAVE AN ADVERSE (POSITIVE) EFFECT ON YIELD
TO MATURITY. INTEREST RATES DISCLOSED REPRESENT CURRENT YIELDS BASED
UPON THE CURRENT COST BASIS AND ESTIMATED TIMING AND AMOUNT OF FUTURE
CASH FLOWS.
Z-TRANCHE - REPRESENTS SECURITIES THAT PAY NO INTEREST OR PRINCIPAL
DURING THEIR INITIAL ACCRUAL PERIODS, BUT ACCRUE ADDITIONAL PRINCIPAL
AT SPECIFIED RATES. INTEREST RATE DISCLOSED REPRESENTS CURRENT YIELD
BASED UPON ESTIMATED TIMING OF FUTURE CASH FLOWS.
(D) THIS ISSUE IS PARTIALLY PLEDGED AS INITIAL MARGIN DEPOSIT ON THE FOLLOWING
OPEN INTEREST RATE FUTURES SALES CONTRACTS (SEE NOTE 7 TO THE FINANCIAL
STATEMENTS):
</TABLE>
<TABLE>
<S> <C> <C> <C>
NUMBER OF
TYPE OF CONTRACT CONTRACTS PAR VALUE
-------------------------------------------------- ----------- -----------
U.S. TREASURY NOTES, 10 YEAR, DECEMBER 1995 150 $15,000,000
</TABLE>
(E) AT SEPTEMBER 30, 1995, THE COST OF INVESTMENTS FOR FEDERAL INCOME TAX
PURPOSES WAS $118,235,589. THE AGGREGATE GROSS UNREALIZED APPRECIATION AND
DEPRECIATION OF INVESTMENTS BASED ON THIS COST WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION .... $ 3,445,585
GROSS UNREALIZED DEPRECIATION ...... (1,311,282)
----------
NET UNREALIZED APPRECIATION .... $ 2,134,303
----------
----------
</TABLE>
9
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Short-
Intermediate Government
Bond Fund Income Fund
------------- ------------
<S> <C> <C>
ASSETS:
Investments in securities at market value* (note 2)
(including repurchase agreements of $0 and $408,000,
respectively) ........................................ $ 137,969 120,369,892
Cash in bank on demand deposit ........................... 4,741 100,933
Receivable for investment securities sold ................ -- 2,181,413
Receivable for fund shares sold .......................... 191 92,906
Accrued interest receivable .............................. 2,351 1,082,015
------------- ------------
Total assets ......................................... 145,252 123,827,159
------------- ------------
LIABILITIES:
Dividends payable to shareholders ($0.080 and $0.046 per
share, respectively) ................................... 1,142 538,989
Payable for investment securities purchased - when issued
(note 2) ............................................... -- 15,246,094
Payable for investment securities purchased .............. -- 1,941,949
Payable for fund shares redeemed ......................... -- 62,672
Accrued investment management fee ........................ -- 43,878
Accrued distribution fee ................................. -- 26,326
Variation margin payable ................................. -- 103,125
------------- ------------
Total liabilities .................................... 1,142 17,963,033
------------- ------------
Net assets applicable to outstanding capital stock ....... $ 144,110 105,864,126
------------- ------------
------------- ------------
REPRESENTED BY:
Capital stock - authorized 2 billion shares of $0.01 par
value; outstanding, 14,283 and 11,775,112 shares,
respectively ......................................... $ 143 117,751
Additional paid-in capital ............................... 142,997 120,203,614
Undistributed net investment income ...................... -- 4,190
Accumulated net realized gain (loss) on investments ...... 403 (16,912,426 )
Unrealized appreciation of investments ................... 567 2,450,997
------------- ------------
Total - representing net assets applicable to
outstanding capital stock ........................ $ 144,110 105,864,126
------------- ------------
------------- ------------
Net asset value per share of outstanding capital stock ... $ 10.09 8.99
------------- ------------
------------- ------------
* Investments in securities at identified cost ........... $ 137,402 117,881,395
------------- ------------
------------- ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Short-
Intermediate Government
Bond Fund* Income Fund
------------- ------------
<S> <C> <C>
INCOME:
Interest ............................................... $ 4,106 8,441,590
Fee income (note 2) ...................................... -- 928,132
------------- ------------
Total investment income .............................. 4,106 9,369,722
------------- ------------
EXPENSES (NOTE 5):
Investment management fee ................................ 268 576,359
Distribution fee ......................................... 132 575,955
Custodian, accounting and transfer agent fees ............ 10,891 185,483
Registration fees ........................................ -- 19,712
Reports to shareholders .................................. 1,560 30,925
Shareholder servicing fees ............................... 51 47,536
Directors' fees .......................................... -- 2,149
Audit and legal fees ..................................... 2,468 38,794
Federal excise taxes ..................................... -- 4,190
Other expenses ........................................... 100 7,658
------------- ------------
Total expenses ....................................... 15,470 1,488,761
Less expenses waived by the distributor .................. (134) (210,196 )
Less expenses waived by the adviser ...................... (15,300) --
------------- ------------
Net expenses before expenses paid indirectly ......... 36 1,278,565
Less expenses paid indirectly ............................ (36) (17,044 )
------------- ------------
Total net expenses ................................... -- 1,261,521
------------- ------------
Net investment income ................................ 4,106 8,108,201
------------- ------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain (loss) on investments (note 3) ......... 403 (1,127,762 )
Net realized loss on closed futures contracts ............ -- (1,577,525 )
------------- ------------
Net realized gain (loss) on investments ................ 403 (2,705,287 )
Net change in unrealized appreciation or depreciation of
investments ............................................ 567 10,672,394
------------- ------------
Net gain on investments ................................ 970 7,967,107
------------- ------------
Net increase in net assets resulting from
operations ....................................... $ 5,076 16,075,308
------------- ------------
------------- ------------
* PERIOD FROM APRIL 10, 1995, (COMMENCEMENT OF OPERATIONS) TO SEPTEMBER 30, 1995.
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Short-
Intermediate
Bond Fund Government
------------ Income Fund
--------------------------
Period from
4/10/95* to Year Ended Year Ended
9/30/95 9/30/95 9/30/94
------------ ------------ -----------
<S> <C> <C> <C>
OPERATIONS:
Net investment income .................................. $ 4,106 8,108,201 10,911,378
Net realized gain (loss) on investments .................. 403 (2,705,287) (12,620,352)
Net change in unrealized appreciation or depreciation of
investments ............................................ 567 10,672,394 (12,511,011)
------------ ------------ -----------
Net increase (decrease) in net assets resulting from
operations ........................................... 5,076 16,075,308 (14,219,985)
------------ ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ............................... (4,106) (8,513,085) (10,747,436)
From net realized gains .................................. -- -- (330,790)
------------ ------------ -----------
Total distributions .................................... (4,106) (8,513,085) (11,078,226)
------------ ------------ -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales ...................................... 195,285 16,092,604 23,398,953
Proceeds from shares issued for reinvestment of
distributions .......................................... 2,867 5,730,718 7,300,216
Payments for shares redeemed ............................. (56,012) (49,494,075) (39,289,350)
------------ ------------ -----------
Increase (decrease) in net assets from capital share
transactions ......................................... 142,140 (27,670,753) (8,590,181)
------------ ------------ -----------
Total increase (decrease) in net assets .............. 143,110 (20,108,530) (33,888,392)
Net assets at beginning of period .......................... 1,000 125,972,656 159,861,048
------------ ------------ -----------
Net assets at end of period .............................. $ 144,110 105,864,126 125,972,656
------------ ------------ -----------
------------ ------------ -----------
Undistributed net investment income ...................... $ -- 4,190 404,884
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
* COMMENCEMENT OF OPERATIONS.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION
Piper Funds Inc. (the company) was
incorporated on November 12, 1986, and is
registered under the Investment Company Act of
1940 (as amended) as a single, open-end
management investment company that currently
includes a series of 13 individual funds
including Government Income Fund and
Short-Intermediate Bond Fund, which are
classified as diversified funds. The company's
articles of incorporation permit the board of
directors to create additional funds in the
future.
The Short-Intermediate Bond Fund commenced
operations on April 10, 1995 when its shares
were first offered for sale to the public.
(2) SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES
INVESTMENTS IN SECURITIES
The values of fixed income securities are
determined using pricing services or prices
quoted by independent brokers. Exchange-listed
options are valued at the last sales price,
and open financial futures contracts are
valued at the last settlement price. When
market quotations are not readily available,
securities are valued at fair value according
to methods selected in good faith by the board
of directors. Such fair values are determined
using pricing services or prices quoted by
independent brokers. Short-term securities
with maturities of 60 days or less are valued
at amortized cost which approximates market
value.
Security transactions are accounted for on the
date the securities are purchased or sold.
Realized gains and losses are calculated on
the identified cost basis. Interest income,
including amortization of bond discount and
premium computed on a level yield basis, is
accrued daily.
OPTIONS TRANSACTIONS
For hedging purposes, Government Income Fund
may buy and sell put and call options, write
covered-call options on portfolio securities,
write cash-secured puts, and write call
options that are not covered for cross-hedging
purposes. The risk in writing a call option is
that the fund gives up the opportunity of
profit if the market price of the security
increases. The risk in writing a put option is
that the fund may incur a loss if the market
price of the security decreases and the option
is exercised. The risk in buying an option is
that the fund pays a premium whether or not
the option is exercised. The fund also has the
additional risk of not being able to enter
into a closing transaction if a liquid
secondary market does not exist. Government
Income Fund also may write over-the-counter
options where the completion of the obligation
is dependent upon the credit standing of the
other party.
Option contracts are valued daily and
unrealized appreciation or depreciation is
recorded. Government Income Fund will realize
a gain or loss upon expiration or closing of
the option transaction. When an option is
exercised, the proceeds on the sale of a
written call option, the purchase cost for a
written put option, or the cost of a security
for purchased put and call options is adjusted
by the amount of premium received or paid.
Short-Intermediate Bond Fund is not permitted
to engage in options transactions.
FUTURES TRANSACTIONS
In order to gain exposure to or protect from
changes in the market, Government Income Fund
may buy and sell financial futures contracts
and related options. Risks of entering into
futures contracts and related options include
the possibility there may be an illiquid
market and that a change in the value of the
contract or option may not correlate with
changes in the value of the underlying
securities.
13
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Upon entering into a futures contract,
Government Income Fund is required to deposit
either cash or securities in an amount
(initial margin) equal to a certain percentage
of the contract value. Subsequent payments
(variation margin) are made or received by the
fund each day. The variation margin payments
are equal to the daily changes in the contract
value and are recorded as unrealized gains and
losses. The fund recognizes a realized gain or
loss when the contract is closed or expires.
Short-Intermediate Bond Fund is not permitted
to engage in futures transactions.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities that have
been purchased by the funds on a
forward-commitment or when-issued basis can
take place a month or more after the
transaction date. During this period, such
securities do not earn interest, are subject
to market fluctuation, and may increase or
decrease in value prior to their delivery. The
funds maintain, in a segregated account with
their custodian, assets with a market value
equal to the amount of their purchase
commitments. The purchase of securities on a
when-issued or forward-commitment basis may
increase the volatility of the funds' NAVs to
the extent the funds make such purchases while
remaining substantially fully invested. As of
September 30, 1995, Government Income Fund had
entered into outstanding when-issued or
forward commitments of $15,246,094.
In connection with their ability to purchase
securities on a when-issued or forward-
commitment basis, the funds may enter into
mortgage "dollar rolls" in which the funds
sell securities for delivery in the current
month and simultaneously contract with the
same counterparty to repurchase similar (same
type, coupon and maturity) but not identical
securities on a specified future date. Each
fund will hold and maintain in a segregated
account until the settlement date cash or
liquid high-grade debt securities in an amount
equal to the forward purchase price.
Short-Intermediate Bond Fund will hold only
cash or cash equivalent securities in such
account. As an inducement to "roll over" their
purchase commitments, the funds receive
negotiated fees. For the year ended September
30, 1995, such fees earned by Government
Income Fund amounted to $928,132.
FEDERAL TAXES
Each fund is treated as a separate entity for
federal income tax purposes. The funds intend
to comply with the requirements of the
Internal Revenue Code applicable to regulated
investment companies and not be subject to
federal income tax. Therefore, no income tax
provision is required. However, Government
Income Fund incurred federal excise taxes of
$4,190 on income retained by the fund during
the 1994 excise tax year.
Net investment income and net realized gains
(losses) may differ for financial statement
and tax purposes primarily because of the
deferral of losses on certain futures
contracts (Government Income Fund) and losses
deferred due to "wash sale" transactions and
the timing of recognition of income on certain
interest only securities (Government Income
Fund). The character of distributions made
during the year from net investment income or
net realized gains may also differ from their
ultimate characterization for federal income
tax purposes. In addition, due to the timing
of dividend distributions, the fiscal year in
which amounts are distributed may differ from
the year that the income or realized gains
(losses) were recorded by the funds.
14
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
On the statement of assets and liabilities, as
a result of permanent book-to-tax differences,
reclassification adjustments have been made to
increase undistributed net investment income
and to decrease additional paid-in-capital by
$4,190 for Government Income Fund.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders from net
investment income for Government Income Fund
and Short-Intermediate Bond Fund are declared
daily and paid monthly in cash or reinvested
in additional shares. Distributions from net
realized gains, if any, will be made at least
once annually.
REPURCHASE AGREEMENTS
The funds, along with other affiliated
registered investment companies, may transfer
uninvested cash balances into a joint trading
account, the daily aggregate of which is
invested in repurchase agreements secured by
U.S. government or agency obligations.
Securities pledged as collateral for all
individual and joint repurchase agreements are
held by the funds' custodian bank until
maturity of the repurchase agreement.
Procedures for all agreements ensure that the
daily market value of the collateral is in
excess of the repurchase amount, including
accrued interest, in the event of a default.
(3) INVESTMENT
SECURITY
TRANSACTIONS
Cost of purchases and proceeds from sales of
securities, other than temporary investments
in short-term securities, for the year ended
September 30, 1995, were $125,764,550 and
$185,930,346, respectively, for Government
Income Fund, and $180,496 and $43,497,
respectively, for Short-Intermediate Bond
Fund.
For the year ended September 30, 1995,
brokerage commissions paid to Piper Jaffray
Inc. (Piper Jaffray), the fund's distributor,
amounted to $1,700 for the Government Income
Fund.
(4) CAPITAL SHARE
TRANSACTIONS
Transactions in shares of Government Income
Fund for the years ended September 30, 1995
and 1994, and of Short-Intermediate Bond Fund
for the period from inception, April 10, 1995,
to September 30, 1995, were as follows:
<TABLE>
<CAPTION>
Government
Short-Intermediate Income
Bond Fund Fund
----------------- -----------
<S> <C> <C>
1995
Sold ............................................. 19,569 1,896,575
Issued for reinvested distributions .............. 284 670,492
Redeemed ......................................... (5,570) (5,760,853)
------- -----------
Increase (decrease) ............................ 14,283 (3,193,786)
------- -----------
------- -----------
1994
Sold ............................................. -- 2,480,768
Issued for reinvested distributions .............. -- 785,376
Redeemed ......................................... -- (4,275,183)
------- -----------
Decrease ....................................... -- (1,009,039)
------- -----------
------- -----------
</TABLE>
(5) FEES AND
EXPENSES
The company has entered into an investment
advisory and management agreement with Piper
Capital Management Incorporated (Piper
Capital) under which Piper Capital manages
each fund's assets and furnishes related
office facilities, equipment, research and
personnel. The agreement requires each fund to
pay Piper Capital a monthly fee based on
average daily net assets. The fee for the
Government Income Fund is equal to an annual
rate of 0.50% of the first $250 million in net
assets and decreases in percentages thereafter
to 0.40% of net assets in excess of $500
million. The fee for the Short-Intermediate
Bond Fund is 0.40% of all net assets.
15
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
The funds also pay Piper Jaffray, the funds'
distributor, a monthly fee in connection with
the servicing of each fund's shareholder
accounts and in connection with
distribution-related services provided to each
fund. Such fee is charged on a monthly basis
and is limited to a maximum of 1/12 of 0.50%
for the Government Income Fund and 0.20% for
the Short-Intermediate Bond Fund. The 0.50%
fee for Government Income Fund includes 0.25%
payable as a servicing fee and 0.25% payable
as a distribution fee. The entire 0.20% fee
for Short-Intermediate Bond Fund represents a
servicing fee. For the year ended September
30, 1995, Piper Jaffray voluntarily agreed to
limit the fee to an annual rate of 0.32% of
average daily net assets for the Government
Income Fund.
Each of the funds has also entered into
shareholder account servicing agreements under
which Piper Jaffray performs various transfer
and dividend disbursing agent services. The
fee, which is paid monthly to Piper Jaffray
for providing such services, is equal to an
annual rate of $7.50 per active shareholder
account, and $1.60 per closed shareholder
account.
In addition to the above fees, the funds are
responsible for paying most other operating
expenses including outside directors' fees and
expenses, custodian fees, registration fees,
printing and shareholder reports, transfer
agent fees and expenses, legal, auditing and
accounting services, insurance, interest,
taxes and other miscellaneous expenses.
For Short-Intermediate Bond Fund, for the
period from inception, April 10, 1995, to
September 30, 1995, the advisor and the
distributor agreed to waive all fees.
Expenses paid indirectly represent a reduction
of custodian fees for earnings on cash
balances maintained by the funds.
Sales charges by Piper Jaffray for
distributing the funds' shares were $111,536
for Government Income Fund for the year ended
September 30, 1995, and $440 for
Short-Intermediate Bond Fund for the period
from inception, April 10, 1995, to September
30, 1995.
(6) CAPITAL LOSS
CARRYOVER
For federal income tax purposes, Government
Income Fund had a capital loss carryover at
September 30, 1995, of $16,870,235 which, if
not offset by subsequent capital gains, will
expire September 30, 2002-2004. It is unlikely
the board of directors will authorize a
distribution of any net realized capital gains
until the available capital loss carryover has
been offset or expires.
(7) INTEREST RATE
FUTURES CONTRACT
Government Income Fund pledges securities or
cash as collateral when making initial margin
deposits on open futures contracts. At
September 30, 1995, Government Income Fund had
securities valued at $1,389,960 that were
pledged to cover initial margin deposits on
150 interest rate contracts. The market value
of the open contracts at September 30, 1995,
was $16,537,500 with a net unrealized loss of
$37,500.
16
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(8) FINANCIAL
HIGHLIGHTS
Per-share data for a share of capital stock
outstanding throughout each period and
selected information for each period are as
follows:
SHORT-INTERMEDIATE BOND FUND
<TABLE>
<CAPTION>
Period from
4/10/95* to
9/30/95
--------------
<S> <C>
PER-SHARE DATA
Net asset value, beginning of period ........... $ 10.00
------
Operations:
Net investment income........................... 0.28
Net realized and unrealized gains on
investments.................................... 0.09
------
Total from operations......................... 0.37
------
Distributions to shareholders from:
Net investment income........................... (0.28)
------
Total distributions........................... (0.28)
------
Net asset value, end of period ................. $ 10.09
------
------
SELECTED INFORMATION
Total return**.................................... 3.73%
Net assets end of period (in millions) ......... $ 0.1
Ratio of expenses to average daily net
assets***....................................... 0.0%+
Ratio of net investment income to average daily
net assets***................................... 6.12%+
Portfolio turnover rate (excluding short-term
securities)..................................... 31%
</TABLE>
* COMMENCEMENT OF OPERATIONS.
** TOTAL RETURN IS BASED ON THE CHANGE IN NET ASSET VALUE DURING THE PERIOD,
ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND DOES NOT REFLECT A SALES
CHARGE.
*** THE ADVISER AND DISTRIBUTOR VOLUNTARILY AGREED TO WAIVE ALL FEES FOR THE
FUND DURING THE PERIOD FROM APRIL 10, 1995, (COMMENCEMENT OF OPERATIONS) TO
SEPTEMBER 30, 1995. HAD FEES NOT BEEN WAIVED THE RATIO OF EXPENSES AND NET
INVESTMENT INCOME TO AVERAGE DAILY NET ASSETS WOULD HAVE BEEN 23%/(16.88%).
THE EXPENSE RATIO REFLECTS THE EFFECT OF GROSS EXPENSES PAID INDIRECTLY BY
THE FUND.
+ ADJUSTED TO AN ANNUAL BASIS.
17
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(8) FINANCIAL
HIGHLIGHTS
(CONTINUED)
Per-share data for a share of capital stock
outstanding throughout each period and
selected information for each period are as
follows:
GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
Fiscal year ended September 30,
--------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ........... $ 8.42 10.01 9.86 9.69 9.02
---------- ---------- ---------- ---------- ----------
Operations:
Net investment income........................... 0.60 0.69 0.80 0.90 0.84
Net realized and unrealized gains (losses) on
investments.................................... 0.60 (1.58) 0.15 0.17 0.67
---------- ---------- ---------- ---------- ----------
Total from operations......................... 1.20 (0.89) 0.95 1.07 1.51
---------- ---------- ---------- ---------- ----------
Distributions to shareholders from:
Net investment income........................... (0.63) (0.68) (0.80) (0.90) (0.84)
Net realized gains.............................. -- (0.02) -- -- --
---------- ---------- ---------- ---------- ----------
Total distributions........................... (0.63) (0.70) (0.80) (0.90) (0.84)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ................. $ 8.99 8.42 10.01 9.86 9.69
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
SELECTED INFORMATION
Total return*..................................... 14.87% (9.26%) 10.06% 11.57% 17.51%
Net assets at end of year (in millions) ........ $ 106 126 160 124 76
Ratio of expenses to average daily net
assets**++...................................... 1.11% 1.05% 1.09% 1.11% 1.18%
Ratio of net investment income to average daily
net assets...................................... 7.02% 7.43% 8.10% 9.15% 9.00%
Portfolio turnover rate (excluding short-term
securities)..................................... 87% 121% 191% 118% 110%
</TABLE>
* TOTAL RETURN IS BASED ON THE CHANGE IN NET ASSET VALUE DURING THE PERIOD,
ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND DOES NOT REFLECT A SALES
CHARGE.
** THE RATIO OF EXPENSES TO AVERAGE DAILY NET ASSETS EXCLUDES INTEREST EXPENSE
WHICH HAS BEEN PRESENTED NET OF THE RELATED INTEREST INCOME IN THE
FINANCIAL STATEMENTS.
++ DURING THE YEARS REFLECTED ABOVE, THE FUND'S DISTRIBUTION FEE WAS
VOLUNTARILY LIMITED. HOWEVER, HAD THE MAXIMUM FEE OF 0.50% BEEN IN EFFECT,
THE RATIOS OF EXPENSES AND NET INVESTMENT INCOME TO AVERAGE DAILY NET
ASSETS WOULD HAVE BEEN 1.29%/6.84% IN FISCAL 1995, 1.24%/7.24% IN FISCAL
1994, 1.27%/7.92% IN FISCAL 1993, 1.29%/8.97% IN FISCAL 1992 AND
1.36%/8.82% IN FISCAL 1991. BEGINNING IN FISCAL 1995, THE EXPENSE RATIO
REFLECTS THE EFFECT OF GROSS EXPENSES PAID INDIRECTLY BY THE FUND. PRIOR
PERIOD EXPENSE RATIOS HAVE NOT BEEN ADJUSTED.
18
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
PIPER FUNDS INC.:
We have audited the accompanying statements of
assets and liabilities, including the
schedules of investments in securities, of
Piper Government Income Fund and Piper
Short-Intermediate Bond Fund (funds within
Piper Funds Inc.) as of September 30, 1995,
and the related statements of operations for
the year then ended (the period from April 10,
1995, commencement of operations, to September
30, 1995 for Short-Intermediate Bond Fund),
the statements of changes in net assets for
each of the years in the two-year period then
ended (the period from April 10, 1995,
commencement of operations, to September 30,
1995 for Short-Intermediate Bond Fund) and the
financial highlights for each of the years in
the five-year period ended September 30, 1995
(the period from April 10, 1995, commencement
of operations, to September 30, 1995 for
Short-Intermediate Bond Fund). These financial
statements and the financial highlights are
the responsibility of the portfolios'
management. Our responsibility is to express
an opinion on these financial statements and
the financial highlights based on our audits.
We conducted our audits in accordance with
generally accepted auditing standards. Those
standards require that we plan and perform the
audit to obtain reasonable assurance about
whether the financial statements and the
financial highlights are free of material
misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts
and disclosures in the financial statements.
Investment securities held in custody are
confirmed to us by the custodian. As to
securities purchased and sold but not received
or delivered, we request confirmations from
brokers and where replies are not received, we
carry out other appropriate auditing
procedures. An audit also includes assessing
the accounting principles used and significant
estimates made by management, as well as
evaluating the overall financial statement
presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and
the financial highlights referred to above
present fairly, in all material respects, the
financial position of Piper Government Income
Fund and Piper Short-Intermediate Bond Fund as
of September 30, 1995, the results of their
operations for the year then ended (the period
from April 10, 1995, commencement of
operations, to September 30, 1995 for
Short-Intermediate Bond Fund), the changes in
their net assets for each of the years in the
two-year period then ended (the period from
April 10, 1995, commencement of operations, to
September 30, 1995 for Short-Intermediate Bond
Fund) and the financial highlights for the
periods stated in the first paragraph above,
in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 10, 1995
19
<PAGE>
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
FISCAL YEAR ENDED SEPTEMBER 30, 1995
Distributions shown below are taxable as
dividend income. None qualify for corporate
dividends received deduction. By early
February 1996, each shareholder will receive a
breakdown of income earned by investment
category on a calendar-year basis.
Information for federal income tax purposes is
presented as an aid to shareholders in
reporting the distributions shown below.
Shareholders should consult a tax adviser on
how to report these distributions for state
and local income taxes.
GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
Payable Date Per Share
- ---------------------------------------------------------------- -----------
<S> <C>
October 5, 1994 .............................................. $ 0.0580
November 3, 1994 ............................................... 0.0580
December 5, 1994 ............................................... 0.0580
January 5, 1995 ................................................ 0.0580
February 3, 1995 ............................................... 0.0560
March 3, 1995 .................................................. 0.0530
April 5, 1995 .................................................. 0.0530
May 5, 1995 .................................................... 0.0522
June 1, 1995 ................................................... 0.0515
July 3, 1995 ................................................... 0.0492
August 1, 1995 ................................................. 0.0484
September 1, 1995 .............................................. 0.0486
-----------
Total ...................................................... $ 0.6439
-----------
-----------
</TABLE>
SHORT-INTERMEDIATE BOND FUND
<TABLE>
<CAPTION>
Payable Date Per Share
- ---------------------------------------------------------------- -----------
<S> <C>
May 5, 1995 .................................................. $ 0.0143
June 1, 1995 ................................................... 0.0476
July 3, 1995 ................................................... 0.0452
August 1, 1995 ................................................. 0.0453
September 1, 1995 .............................................. 0.0475
-----------
Total ...................................................... $ 0.1999
-----------
-----------
</TABLE>
20
<PAGE>
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
<TABLE>
<S> <C>
DIRECTORS David T. Bennett, CHAIRMAN, HIGHLAND HOMES, INC., USL PRODUCTS, INC., KIEFER
BUILT, INC., OF COUNSEL, GRAY, PLANT, MOOTY, MOOTY & BENNETT, P.A.
Jaye F. Dyer, PRESIDENT, DYER MANAGEMENT COMPANY
William H. Ellis, PRESIDENT, PIPER JAFFRAY COMPANIES INC., PIPER CAPITAL
MANAGEMENT INCORPORATED
Karol D. Emmerich, PRESIDENT, THE PARACLETE GROUP
Luella G. Goldberg, DIRECTOR, TCF FINANCIAL, RELIASTAR FINANCIAL CORP.,
HORMEL
FOODS CORP.
George Latimer, DIRECTOR, SPECIAL ACTIONS OFFICE, OFFICE OF THE SECRETARY,
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
OFFICERS William H. Ellis, CHAIRMAN OF THE BOARD
Paul A. Dow, PRESIDENT
Worth Bruntjen, SENIOR VICE PRESIDENT
Richard W. Filippone, SENIOR VICE PRESIDENT
Marijo A. Goldstein, SENIOR VICE PRESIDENT
Steven V. Markusen, SENIOR VICE PRESIDENT
Robert H. Nelson, SENIOR VICE PRESIDENT
Edward P. Nicoski, SENIOR VICE PRESIDENT
Nancy S. Olsen, SENIOR VICE PRESIDENT
Ronald R. Reuss, SENIOR VICE PRESIDENT
Bruce D. Salvog, SENIOR VICE PRESIDENT
Sandra K. Shrewsbury, SENIOR VICE PRESIDENT
David M. Steele, SENIOR VICE PRESIDENT
Douglas J. White, SENIOR VICE PRESIDENT
J. Bradley Stone, VICE PRESIDENT
Marcy K. Winson, VICE PRESIDENT
David E. Rosedahl, SECRETARY
Charles N. Hayssen, TREASURER
INVESTMENT ADVISER Piper Capital Management Incorporated
222 SOUTH NINTH STREET, MINNEAPOLIS, MN 55402-3804
DISTRIBUTOR Piper Jaffray Inc.
222 SOUTH NINTH STREET, MINNEAPOLIS, MN 55402-3804
CUSTODIAN AND Investors Fiduciary Trust Company
TRANSFER AGENT 127 WEST 10TH STREET, KANSAS CITY, MO 64105-1716
INDEPENDENT AUDITORS KPMG Peat Marwick LLP
4200 NORWEST CENTER, MINNEAPOLIS, MN 55402
LEGAL COUNSEL Dorsey & Whitney P.L.L.P.
220 SOUTH SIXTH STREET, MINNEAPOLIS, MN 55402
</TABLE>
21
<PAGE>
---------------------
PIPER CAPITAL -----------------
MANAGEMENT Bulk Rate
--------------------- U.S. Postage
PAID
PIPER CAPITAL MANAGEMENT INCORPORATED Permit No. 3008
222 SOUTH NINTH STREET Mpls., MN
MINNEAPOLIS, MN 55402-3804 -----------------
PIPER JAFFRAY INC., FUND DISTRIBUTOR AND NASD MEMBER.
[LOGO] THIS DOCUMENT IS PRINTED ON PAPER MADE FROM
100% TOTAL RECOVERED FIBER, INCLUDING 15% POST-CONSUMER WASTE.
012-96 XIF-01 11/95
