<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM OCTOBER 1, 1995
TO JULY 12, 1996*
<TABLE>
<S> <C>
INCOME:
Interest ............................................... $ 7,252
----------------
EXPENSES (NOTE 5):
Investment management fee ................................ 479
Distribution fees ........................................ 240
Custodian, accounting and transfer agent fees ............ 15,656
Shareholder account servicing fees ....................... 90
Registration fees ........................................ 5,030
Reports to shareholders .................................. 7,548
Directors' fees .......................................... 1,333
Audit and legal fees ..................................... 12,325
Other expenses ........................................... 3,693
----------------
Total expenses ....................................... 46,394
Less expenses waived by the advisor ...................... (45,514)
----------------
Net expenses before expenses paid indirectly ........... 880
Less expenses paid indirectly ............................ (19)
----------------
Total net expenses ................................... 861
----------------
Net investment income ................................ 6,391
----------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized loss on investments (note 3) ................ (1,870)
Net change in unrealized appreciation or depreciation of
investments ............................................ (567)
----------------
Net loss on investments ................................ (2,437)
----------------
Net increase in net assets resulting from
operations ....................................... $ 3,954
----------------
----------------
*THE FUND DISTRIBUTED ALL ITS NET ASSETS TO SHAREHOLDERS AND CEASED OPERATIONS
ON JULY 12, 1996.
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
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FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Period Ended Period Ended
7/12/96* 9/30/95**
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income .................................. $ 6,391 4,106
Net realized gain (loss) on investments .................. (1,870) 403
Net change in unrealized appreciation or depreciation of
investments . (567) 567
---------------- ----------------
Net increase in net assets resulting from operations ... 3,954 5,076
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ............................... (6,350) (4,106)
---------------- ----------------
From net realized gains .................................. (403) --
---------------- ----------------
Total distributions .................................. (6,753) (4,106)
---------------- ----------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Proceeds from sales ...................................... 70,948 195,285
Proceeds from issuance of shares for reinvestment of
distributions .......................................... 7,452 2,867
Payments for shares redeemed ............................. (219,711) (56,012)
---------------- ----------------
Increase (decrease) in net assets from capital share
transactions ......................................... (141,311) 142,140
---------------- ----------------
Total increase (decrease) in net assets .............. (144,110) 143,110
Net assets at beginning of year ............................ 144,110 1,000
---------------- ----------------
Net assets at end of year ................................ $ -- 144,110
---------------- ----------------
---------------- ----------------
* PERIOD FROM OCTOBER 1, 1995 TO JULY 12, 1996. THE FUND DISTRIBUTED ALL ITS
NET ASSETS AND CEASED OPERATIONS ON JULY 12, 1996.
** COMMENCEMENT OF OPERATIONS WAS APRIL 10, 1995.
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION
Piper Funds Inc. (the company) is registered
under the Investment Company Act of 1940 (as
amended) as a single, open-end investment
management company. The company's articles of
incorporation permit the board of directors to
create additional series in the future. The
company currently has 13 series, including
Short-Intermediate Bond Fund (the fund), which
is classified as a diversified series. The
fund commenced operations on April 10, 1995,
when its shares were first offered for sale to
the public and ceased operations and
distributed all its net assets to shareholders
on July 12, 1996.
The fund invested primarily in a broad range
of investment-quality debt securities with
remaining maturities of five years or less.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS IN SECURITIES
The values of certain fixed income securities
were provided by an independent pricing
service, which determined these valuations at
a time earlier than the close of the Exchange.
Fixed income securities for which prices were
not available from an independent pricing
service but where an active market existed
were valued using market quotations obtained
from one or more dealers that made markets in
the securities.
Short-term securities with maturities of 60
days or less were valued at amortized cost,
which approximated market value.
Securities transactions were accounted for on
the date the securities were purchased or
sold. Realized gains and losses were
calculated on the identified-cost basis.
Interest income, including amortization of
bond discount and premium computed on a
level-yield basis, was accrued daily.
FEDERAL TAXES
The fund complied with the requirements of the
Internal Revenue Code applicable to regulated
investment companies and was not subject to
federal income tax. Therefore, no income tax
provision was required.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders from net
investment income were declared daily and paid
monthly. Distributions were paid in cash or
reinvested in additional shares.
REPURCHASE AGREEMENTS
For repurchase agreements entered into with
certain broker-dealers, the fund, along with
other affiliated registered investment
companies, transferred uninvested cash
balances into a joint trading account, the
daily aggregate of which was invested in
repurchase agreements secured by U.S.
government or agency obligations. Securities
pledged as collateral for all individual and
joint repurchase agreements were held by the
fund's custodian bank until maturity of the
repurchase agreement. Provisions for all
agreements ensured that the daily market value
of the collateral was in excess of the
repurchase amount, including accrued interest,
to protect the fund 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 period from
October 1, 1995 to July 12, 1996 aggregated
$88,270 and $223,802, respectively.
During the period from October 1, 1995 to July
12, 1996, no brokerage commissions were paid
to Piper Jaffray Inc., an affiliated broker.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(4) CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund for the
period from October 1, 1995 to July 12, 1996,
and the period from inception (April 10, 1995)
to September 30, 1995, were as follows:
<TABLE>
<CAPTION>
1996:
<S> <C>
Sold ...................................... 6,973
Issued for reinvested distributions ....... 738
Redeemed .................................. (21,994)
---------
Decrease ............................... (14,283)
---------
---------
1995:
Sold ...................................... 19,569
Issued for reinvested distributions ....... 284
Redeemed .................................. (5,570)
---------
Increase ............................... 14,283
---------
---------
</TABLE>
(5) EXPENSES
The company entered into an investment
management agreement with Piper Capital
Management Incorporated (Piper Capital) under
which Piper Capital managed the fund's assets
and furnished related office facilities,
equipment, research and personnel. The
agreement required the fund to pay Piper
Capital a monthly fee equal to an annualized
rate of 0.40% of average daily net assets.
The fund also paid Piper Jaffray Inc. (Piper
Jaffray), the fund's distributor, a monthly
fee for providing shareholder services and
distribution-related services. The fee was
limited to 0.20% , all of which represented a
servicing fee.
The company also entered into shareholder
servicing agreements under which Piper Jaffray
and Piper Trust Company performed various
transfer and dividend disbursing agent
services for accounts held at the respective
company. The fees, which were paid monthly to
Piper Jaffray and Piper Trust Company for
providing these services, were equal to an
annual rate of $7.50 per active shareholder
account and $1.60 per closed account.
In addition to the investment management,
distribution and shareholder account servicing
fees, the fund was 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 the period from
October 1, 1995 to July 12, 1996, Piper
Capital voluntarily limited total fees and
expenses, including the distribution and
servicing fees, but excluding interest and
income tax expenses, to an annual rate of
0.75% of average daily net assets.
Expenses paid indirectly represented a
reduction of custodian fees for earnings on
cash balances maintained by the fund.
No sales charges were received by Piper
Jaffray for distributing the fund's shares for
the period from October 1, 1995 to July 12,
1996.
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
(6) 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 ended Period ended
July 12, September 30,
1996(e) 1995(c)
------------- --------------
<S> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ...... $ 10.09 10.00
------ ------
Operations:
Net investment income ..................... 0.40 0.28
Net realized and unrealized gains (losses)
on investments .......................... (0.14) 0.09
------ ------
Total from operations ................... 0.26 0.37
------ ------
Distributions to shareholders from:
Net investment income ..................... (0.40) (0.28)
Liquidation of net assets of the fund ....... (9.92)(e) --
Net realized gains on investments ........... (0.03) --
------ ------
Total distributions to shareholders ..... (10.35) (0.28)
------ ------
Net asset value, end of period ............ $ 0.00 10.09
------ ------
------ ------
SELECTED INFORMATION
Total return(a) ............................. 2.56% 3.73%
Net assets at end of period (in
millions) ............................... $ 0.0 0.1
Ratio of expenses to average daily net
assets(b) ................................. 0.73%(d) --(d)
Ratio of net investment income to average
daily net assets(b) ....................... 5.30%(d) 6.12%(d)
Portfolio turnover rate (excluding short-term
securities) ............................... 60% 31%
</TABLE>
(A) 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.
(B) DURING THE YEARS REFLECTED ABOVE, THE ADVISOR AND DISTRIBUTOR VOLUNTARILY
WAIVED FEES AND EXPENSES. HAD THE FUND PAID ALL EXPENSES AND THE MAXIMUM
DISTRIBUTION FEE BEEN IN EFFECT, THE RATIOS OF EXPENSES AND NET INVESTMENT
INCOME TO AVERAGE DAILY NET ASSETS WOULD HAVE BEEN 38.47%/(32.44%) AND
23%/(16.88%) IN THE PERIODS ENDED JULY 12, 1996, AND SEPTEMBER 30, 1995,
RESPECTIVELY. EXPENSE RATIOS REFLECT THE EFFECT OF GROSS EXPENSES PAID
INDIRECTLY BY THE FUND.
(C) COMMENCEMENT OF OPERATIONS WAS APRIL 10, 1995.
(D) ADJUSTED TO AN ANNUAL BASIS.
(E) PERIOD FROM OCTOBER 1, 1995 TO JULY 12, 1996. THE FUND DISTRIBUTED ALL ITS
NET ASSETS TO SHAREHOLDERS AND CEASED OPERATIONS ON JULY 12, 1996.
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
PIPER FUNDS INC.:
We have audited the accompanying statement of
operations for the period from October 1, 1995
to July 12, 1996, the statements of changes in
net assets for the period from April 10, 1995,
commencement of operations, to September 30,
1995 and the period from October 1, 1995 to
July 12, 1996 and the financial highlights
presented in note 6 to the financial
statements of Short-Intermediate Bond Fund (a
fund within Piper Funds Inc.). These financial
statements and the financial highlights are
the responsibility of the fund's 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.
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
results of operations, the changes in net
assets and the financial highlights of
Short-Intermediate Bond Fund for the periods
stated in the first paragraph above, in
conformity with generally accepted accounting
principles.
As described in note 1 to the financial
statements, Short-Intermediate Bond Fund
distributed all its net assets and ceased
operations on July 12, 1996.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
August 16, 1996
<PAGE>
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DIRECTORS AND OFFICERS
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, CHIEF EXECUTIVE OFFICER, NATIONAL
EQUITY FUNDS
OFFICERS William H. Ellis, CHAIRMAN OF THE BOARD
Paul A. Dow, PRESIDENT
Robert H. Nelson, VICE PRESIDENT AND TREASURER
Susan S. Miley, SECRETARY
INVESTMENT
ADVISER Piper Capital Management Incorporated
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
LEGAL COUNSEL Dorsey & Whitney LLP
220 SOUTH SIXTH STREET, MINNEAPOLIS, MN 55402
INDEPENDENT KPMG Peat Marwick LLP
AUDITORS 4200 NORWEST CENTER, MINNEAPOLIS, MN 55402
