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INSTITUTIONAL
GOVERNMENT
INCOME
PORTFOLIO
[LOGO]
1996
SEMIANNUAL REPORT
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TABLE OF CONTENTS
INSTITUTIONAL GOVERNMENT INCOME PORTFOLIO
Letter to Shareholders . . . . . 2
Effective Duration . . . . . . . 4
Investments in Securities. . . . 5
Financial Statements and Notes . 6
This fund seeks a high level of current income consistent with preservation
of capital. In an effort to realize its objective, the fund invests in a
variety of government and agency securities, including mortgage-backed
derivative securities, and may also purchase securities through the
dollar-roll program. Use of these investment techniques may cause the fund's
net asset value (NAV) to fluctuate to a greater extent than would be expected
from interest rate movements alone. As with other mutual funds, there can be
no assurance that the fund will achieve its objective. (Please see
"Investment Objectives and Policies" in the fund's prospectus for a more
complete discussion.) The fund's Nasdaq symbol is PJIGX.
STANDARD & POOR'S RATINGS
Standard & Poor's Mutual Funds Rating Group evaluates the credit quality of
funds. Credit Quality Ratings represent an assessment of the creditworthiness
of an issuer with respect to a specific obligation. They are not an
indication of the fund's market risk. As of March 31, 1996, Institutional
Government Income Portfolio was rated AAAf by Standard & Poor's Mutual Funds
Rating Group.*
* THE "AAAf" CREDIT RATING MEANS INVESTMENTS IN THE FUND HAVE AN OVERALL CREDIT
QUALITY OF AAA. ALTHOUGH THE FUND'S SECURITIES HAVE AN OVERALL CREDIT RATING OF
AAA, CERTAIN SECURITIES HAVE BEEN DESIGNATED BY S&P AS SECURITIES THAT MAY
EXPERIENCE HIGH VOLATILITY OR HIGH VARIABILITY IN EXPECTED RETURNS DUE TO
NON-CREDIT RISKS.
THE FUND HAS ALSO BEEN GIVEN A MARKET RISK RATING BY S&P, WHICH WE CANNOT
PUBLISH DUE TO NASD REGULATIONS. RISK RATINGS EVALUATE VARIOUS INVESTMENT RISKS
THAT CAN AFFECT THE PERFORMANCE OF A BOND FUND AND INDICATE THE FUND'S OVERALL
STABILITY AND SENSITIVITY TO CHANGING MARKET CONDITIONS. THESE RATINGS ARE
AVAILABLE BY CALLING S&P AT 1 800-424-FUND.
CALL TO RECEIVE QUARTERLY UPDATES
If you would like to be put on our mailing list to receive quarterly fund
summaries for Institutional Government Income Portfolio, call our Shareholder
Services Department at 1 800 866-7778.
THIS REPORT IS INTENDED FOR SHAREHOLDERS OF INSTITUTIONAL GOVERNMENT INCOME
PORTFOLIO. THE FUND IS CURRENTLY CLOSED TO NEW INVESTORS. IN THE EVENT THAT
THE FUND IS REOPENED TO NEW INVESTORS, THIS REPORT MAY 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 FUND.
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SHAREHOLDER SERVICES
AS A SHAREHOLDER IN PIPER FUNDS, YOU HAVE ACCESS TO A FULL RANGE OF SERVICES AND
BENEFITS. IF YOU HOLD YOUR FUND SHARES THROUGH A BROKER/DEALER OTHER THAN PIPER
JAFFRAY, THESE SERVICES MAY NOT BE AVAILABLE TO YOU. CHECK YOUR PROSPECTUS FOR
DETAILS ABOUT SERVICES AND ANY LIMITATIONS THAT MIGHT APPLY TO YOUR FUND.
LOW MINIMUM INVESTMENTS
You can open most Piper mutual fund accounts 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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INSTITUTIONAL GOVERNMENT INCOME PORTFOLIO
[PHOTO]
WORTH BRUNTJEN
IS PRIMARILY RESPONSIBLE FOR THE MANAGEMENT OF INSTITUTIONAL GOVERNMENT
INCOME PORTFOLIO. HE HAS 29 YEARS OF FINANCIAL EXPERIENCE.
PORTFOLIO COMPOSITION
MARCH 31, 1996
[PIE CHART]
INVESTMENT CATEGORIES REFLECT PERCENTAGE OF TOTAL ASSETS.
PORTFOLIO INCOME SUMMARY
MARCH 31, 1996
March Distribution...................$0.0650
Dividend Reserve (Accumulated
Undistributed Net Investment
Income/Share)........................$0.0888
Net Investment Income/Share..........$0.0439
NET INVESTMENT INCOME PER SHARE IS BASED ON A THREE-MONTH AVERAGE.
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME (DIVIDEND RESERVE) PER SHARE
IS REFLECTED IN THE FUND'S NET ASSET VALUE. ANY REDUCTION OF THIS AMOUNT WILL
REDUCE THE FUND'S NET ASSET VALUE PENNY FOR PENNY. THE DIVIDEND RESERVE PER
SHARE WILL VARY BASED ON THE NUMBER OF FUND SHARES OUTSTANDING. THE DIVIDEND
RESERVE IS A MONTH-END BALANCE AND REFLECTS BOOK-TO-TAX ADJUSTMENTS DURING
THE FUND'S FISCAL YEAR.
May 15, 1996
Dear Shareholders:
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1996, INSTITUTIONAL GOVERNMENT INCOME
PORTFOLIO PRODUCED A 3.25%* TOTAL RETURN WITH ALL DISTRIBUTIONS REINVESTED BUT
NOT INCLUDING SALES CHARGE. The fund outperformed the Lipper U.S. Mortgage Funds
Average, which advanced 2.47%, and the Salomon Brothers Mortgage Index, which
increased 2.98%. The fund outperformed the average and index by maintaining a
slightly defensive investment posture during a period of rising interest rates
earlier this year.
THE SIX-MONTH PERIOD BEGAN WITH CONCERNS OF A SLOWDOWN IN ECONOMIC ACTIVITY
THAT CAUSED INTEREST RATES TO FALL AND BOND PRICES TO INCREASE. But early in
1996, the economy showed signs of picking up and interest rates began to inch
higher. Over the first six weeks of 1996, the bond market hovered in a
relatively narrow trading range, as investors watched intently for signs of
where the economy was heading. On March 8, the government released February
employment data that showed a surprisingly strong increase in new jobs.
Interest rates rose and bond prices fell sharply, ending the bond market
rally and resulting in the third worst quarter for bonds since interest rates
peaked in 1981.
OUR DECISION TO REDUCE THE EFFECTIVE DURATION OF THE PORTFOLIO IN LATE 1995,
BEFORE INTEREST RATES BEGAN TO RISE SHARPLY, HELPED OUR INVESTMENT RESULTS.
Then in late March when rates began to stabilize, we increased the
portfolio's effective duration to equal that of the Salomon Brothers Mortgage
Index. As of March 31, the fund's effective duration was 3.4 years. (See page
4 for more information about effective duration.)
DURING THE PERIOD, THE FUND'S EMPHASIS ON U.S. AGENCY MORTGAGE-BACKED SECURITIES
ALSO HELPED PERFORMANCE. The mortgage sector outperformed Treasury securities
during the first three months of 1996. The fund's investments in U.S. agency
mortgage-backed securities included securities issued by the Government National
Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA)
and the Federal Home Loan Mortgage Corporation (FHLMC). The rest of the
portfolio was invested primarily in U.S. Treasuries. In February, we completed
the final sale of our inverse interest-only securities. The portfolio no longer
holds any interest-only, principal-only, inverse floating or inverse interest-
only securities.
* 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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INSTITUTIONAL GOVERNMENT INCOME PORTFOLIO
VALUE OF $25,000 INVESTED
MARCH 31, 1996
[GRAPH]
$25,000 INVESTED IN JULY 1988 AND HELD THROUGH MARCH 31, 1996, WOULD HAVE
GROWN TO $42,551. THE FUND'S PERFORMANCE REFLECTS THE MAXIMUM SALES CHARGE OF
1.5%, WHILE NO SUCH CHARGES ARE REFLECTED IN THE INDEX OR AVERAGE. ALL
PERFORMANCE FIGURES INCLUDE REINVESTED DISTRIBUTIONS. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS.
AVERAGE ANNUALIZED TOTAL RETURNS
THROUGH MARCH 31, 1996
One Year . . . . . . . . . . 14.94%
Five Year . . . . . . . . . . 5.16%
Since Inception (7/11/88) . . 7.13%
DURING SOME PERIODS, PIPER CAPITAL WAIVED OR PAID FUND EXPENSES AND/OR PIPER
JAFFRAY, THE FUND'S DISTRIBUTOR, VOLUNTARILY LIMITED 12b-1 FEES FOR THE FUND.
HAD THESE FEES AND EXPENSES NOT BEEN WAIVED, RETURNS WOULD HAVE BEEN 5.11% FIVE
YEAR AND 7.08% SINCE INCEPTION. ALL RETURNS INCLUDE REINVESTED DISTRIBUTIONS AND
THE FUND'S 1.5% SALES CHARGE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE
RESULTS.
BEGINNING IN FEBRUARY, THE FUND REDUCED ITS DIVIDEND FROM 8.5 CENTS/SHARE TO
6.5 CENTS/SHARE. The fund continues to rely on its dividend reserve to help
pay its monthly dividend. As of March 31, the fund was earning approximately
4 cents per share while it was paying out 6.5 cents per share. During the
six-month period, the fund's regular and special dividends exceeded earnings
by $0.41 per share which reduced the fund's net asset value penny for penny.
As the dividend reserve is depleted, the fund's Dividend Committee will
continue to make changes to the monthly dividend to bring it in line with the
fund's earnings. Once the dividend reserve is substantially distributed, we
expect the fund's monthly dividend level to reflect its monthly earnings,
which means it will likely fluctuate.
LOOKING AHEAD, WE ARE ANTICIPATING A MODERATE RATE OF ECONOMIC GROWTH. Our
estimates for Gross Domestic Product (economic growth) for 1996 are between
1.5% and 2.5%. We believe inflation will remain benign. Our estimate for the
Consumer Price Index (the key inflation rate) in 1996 is between 2.5% and
3.5%. Given these projections, we expect the Federal Reserve to assume a
neutral monetary policy near-term, meaning we don't expect the Fed to raise
or lower short-term interest rates. We believe this subdued environment
should benefit the fixed income market. We remain optimistic about the
mortgage securities market and will view market weakness as an opportunity to
add to select holdings at attractive prices when possible.
I'd like to congratulate Marijo Goldstein, who previously assisted with the
management of the fund, on her new position as director of taxable fixed
income research for Piper Capital Management. Marijo will no longer be
involved with the management of the fund going forward as she will be
concentrating on her new duties. As always, we appreciate your investment in
Institutional Government Income Portfolio. We remain committed to providing
you with quality service and look forward to helping you achieve your
financial goals.
Sincerely,
/s/ Worth Bruntjen
Worth Bruntjen
Portfolio Manager
3
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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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INVESTMENTS IN SECURITIES (Unaudited)
INSTITUTIONAL GOVERNMENT INCOME PORTFOLIO
MARCH 31, 1996
<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 (10.1%):
U.S. Treasury Note, 5.75%, 8/15/03
(cost: $24,864,784) ............................... $ 25,000,000 24,158,750
-----------
MORTGAGE-BACKED SECURITIES (88.3%):
U.S. Agency Adjustable Rate Mortgages (4.3%):
6.75%, FHLMC, 10/1/18 ................................ 8,175,569 8,267,790
7.00%, FNMA, 8/1/28 .................................. 1,915,645 1,957,138
-----------
10,224,928
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U.S. Agency Fixed Rate Mortgages (84.0%):
7.00%, FHLMC, 8/1/10 ................................. 9,020,408 9,006,156
7.00%, FHLMC, 9/1/25 ................................. 4,846,796 4,730,085
7.50%, FHLMC, 10/1/25 ................................ 7,297,773 7,286,243
7.00%, FHLMC, 10/1/25 ................................ 9,999,281 9,758,499
7.00%, FHLMC, 3/1/26 ................................. 5,100,000 4,977,192
7.00%, FHLMC, 9/1/10 ................................. 14,179,322 14,156,918
7.00%, FNMA, 10/1/10 ................................. 14,081,037 14,054,424
7.50%, FNMA, 10/1/25 ................................. 7,477,086 7,460,636
7.00%, FNMA, 9/1/25 .................................. 9,849,906 9,603,559
6.50%, FNMA, 10/1/02 ................................. 9,756,529 9,689,307
7.00%, FNMA, 10/1/25 ................................. 4,871,179 4,749,351
6.50%, FNMA, 2/19/26 ................................. 5,000,000(b) 4,749,950
7.00%, FNMA, 10/16/25 ................................ 2,500,000(b) 2,437,475
7.50%, GNMA, 10/15/25 ................................ 7,318,056 7,306,493
6.50%, GNMA, 10/15/10 ................................ 19,149,239 18,855,681
8.50%, GNMA II, 6/20/25 .............................. 19,952,057 20,681,305
8.00%, GNMA II, 5/20/25 .............................. 3,063,755 3,109,650
9.00%, GNMA II, 5/20/25 .............................. 15,666,349 16,395,618
8.00%, GNMA II, 7/20/25 .............................. 4,675,657 4,745,699
8.50%, GNMA II, 7/20/25 .............................. 8,570,471 8,883,722
8.00%, GNMA II, 8/20/25 .............................. 17,703,938 17,969,142
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200,607,105
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Total Mortgage-Backed Securities
(cost: $212,083,160) .............................. 210,832,033
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</TABLE>
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- ---------- -----------
<S> <C> <C>
SHORT-TERM SECURITIES (2.5%):
Repurchase agreement with Goldman Sachs in a joint
trading account, collateralized by U.S. government
agency securities, acquired on 3/29/96, accrued
interest of $1,828, 5.48%, 4/1/96
(cost: $6,003,000) ................................ $ 6,003,000 6,003,000
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Total Investments in Securities (100.9%)
(cost: $242,950,944) .............................. 240,993,783
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Liabilities in excess of other assets (-0.9%) ...... (2,254,066)
-----------
Net assets (100.0%) ............................... $ 238,739,717
-----------
-----------
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES:
(A) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(B) ON MARCH 31, 1996, THE TOTAL COST OF INVESTMENTS PURCHASED ON A WHEN-ISSUED
BASIS WAS $7,180,078.
(C) 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 .... $ 201,690
GROSS UNREALIZED DEPRECIATION ...... (2,158,851)
----------
NET UNREALIZED DEPRECIATION .... $ (1,957,161)
----------
----------
</TABLE>
5
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FINANCIAL STATEMENTS (Unaudited)
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value*
(including a repurchase agreement of $6,003,000) (note
2) ................................................... $ 240,993,783
Cash in bank on demand deposit ........................... 50,737
Receivable for investment securities sold ................ 5,457,080
Mortgage security paydowns receivable .................... 72,574
Accrued interest receivable .............................. 1,517,631
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Total assets ......................................... 248,091,805
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LIABILITIES:
Dividends payable to shareholders ........................ 2,046,832
Payable for investment securities purchased on a
when-issued basis (note 2) ............................. 7,180,078
Payable for fund shares redeemed ......................... 26,559
Accrued investment management fee ........................ 56,630
Accrued distribution fee ................................. 41,989
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Total liabilities .................................... 9,352,088
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Net assets applicable to outstanding capital stock ....... $ 238,739,717
------------------
------------------
REPRESENTED BY:
Capital stock - authorized 10 billion shares of $0.01 par
value; outstanding, 31,082,663 shares ................ $ 310,827
Additional paid-in capital ............................... 510,170,416
Undistributed net investment income ...................... 3,690,522
Accumulated net realized loss on investments ............. (273,474,887)
Unrealized depreciation of investments ................... (1,957,161)
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Total - representing net assets applicable to
outstanding capital stock ........................ $ 238,739,717
------------------
------------------
Net asset value per share of outstanding capital stock ... $ 7.68
------------------
------------------
* Investments in securities at identified cost ........... $ 242,950,944
------------------
------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
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FINANCIAL STATEMENTS (UNAUDITED)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1996
<TABLE>
<S> <C>
INCOME:
Interest ............................................... $ 10,872,773
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EXPENSES (NOTE 4):
Investment management fee ................................ 374,470
Distribution fees ........................................ 427,319
Custodian, accounting and transfer agent fees ............ 125,976
Shareholder account servicing fees ....................... 23,796
Registration fees ........................................ 19,817
Reports to shareholders .................................. 8,431
Directors' fees .......................................... 1,333
Audit and legal fees ..................................... 27,971
Federal excise taxes (note 2) ............................ 197,646
Other expenses ........................................... 24,391
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Total expenses ....................................... 1,231,150
Less expenses waived by the distributor .................. (140,163)
----------------
Net expenses before expenses paid indirectly ........... 1,090,987
Less expenses paid indirectly ............................ (1,706)
----------------
Total net expenses ................................... 1,089,281
----------------
Net investment income ................................ 9,783,492
----------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized loss on investments (note 3) ................ (9,337,323)
Net change in unrealized appreciation or depreciation of
investments ............................................ 9,471,064
----------------
Net gain on investments ................................ 133,741
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Net increase in net assets resulting from
operations ....................................... $ 9,917,233
----------------
----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
7
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FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended
3/31/96 Year Ended
(Unaudited) 9/30/95
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income .................................. $ 9,783,492 31,383,950
Net realized loss on investments ......................... (9,337,323) (135,311,109)
Net change in unrealized appreciation or depreciation of
investments . 9,471,064 153,372,835
---------------- ----------------
Net increase in net assets resulting from operations ... 9,917,233 49,445,676
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ............................... (25,400,835) (51,996,924)
---------------- ----------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of 645,840 and 3,262,247 shares,
respectively ........................................... 5,135,723 24,931,594
Proceeds from isssuance of 3,515,684 and 5,175,622 shares
for reinvestment of distributions, respectively ........ 28,020,510 40,478,651
Payments for 12,329,056 and 39,887,016 shares redeemed,
respectively ........................................... (97,557,531) (308,593,733)
---------------- ----------------
Decrease in net assets from capital share
transactions ......................................... (64,401,298) (243,183,488)
---------------- ----------------
Total decrease in net assets ......................... (79,884,900) (245,734,736)
Net assets at beginning of period .......................... 318,624,617 564,359,353
---------------- ----------------
Net assets at end of period .............................. $ 238,739,717 318,624,617
---------------- ----------------
---------------- ----------------
Undistributed net investment income ...................... $ 3,690,522 17,447,004
---------------- ----------------
---------------- ----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(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 currently has
13 series, including Institutional Government
Income Portfolio (the fund), which is
classified as a diversified series. On June
14, 1994, the fund was closed to new
investors. The company's articles of
incorporation permit the board of directors to
create additional series in the future.
The fund invests in a variety of U.S.
government and agency securities, including
mortgage-backed derivative securities and may
also purchase securities through the
sale-forward (dollar-roll) program.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS IN SECURITIES
The value of certain fixed income securities
will be provided by an independent pricing
service, which determines these valuations at
a time earlier than the close of the Exchange.
Fixed income securities for which prices are
not available from an independent pricing
service but where an active market exists will
be valued using market quotations obtained
from one or more dealers that make markets in
the securities.
Occasionally events affecting the value of
such securities may occur between the time
valuations are determined and the close of the
Exchange. If events materially affecting the
value of such securities occur, if the
Company's management determines for any other
reason that valuations provided by the pricing
service are inaccurate or when market
quotations are not readily available,
securities will be valued at their fair value
according to procedures decided upon in good
faith by the Board of Directors. Short-term
securities with maturities of 60 days or less
are valued at amortized cost, which
approximates market value.
Securities 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.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities that have
been purchased by the fund 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
fund maintains, in a segregated account with
its custodian, assets with a market value
equal to the amount of its purchase
commitments. The purchase of securities on a
when-issued or forward commitment basis may
increase the volatility of the fund's net
asset value if the fund makes such purchases
while remaining substantially fully invested.
As of March 31,1996, the fund had entered into
outstanding when-issued or forward-commitments
of $7,180,078.
In connection with its ability to purchase
securities on a when-issued or forward-
commitment basis, the fund may enter into
mortgage "dollar rolls" in which the fund
sells securities for delivery in the current
month and simultaneously contracts with the
same counterparty to repurchase similar (same
type, coupon and maturity) but not identical
securities on a specified future date. As an
inducement to "roll over" its purchase
commitments, the fund receives negotiated
fees. For the six months ended March 31, 1996,
the fund earned no such fees.
FEDERAL TAXES
The fund intends to comply with the
requirements of the Internal Revenue Code
applicable to regulated investment companies
and not be subject to federal income
9
<PAGE>
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
tax. Therefore, no income tax provision is
required. However, the fund incurred federal
excise taxes of $197,646, or $0.006, on income
retained during the 1995 excise tax year.
Net investment income and net realized gains
(losses) may differ for financial statement
and tax purposes primarily because of losses
deferred due to "wash sale" and "straddle"
transactions, the timing of recognition of
income on certain collateralized
mortgage-backed securities and the
non-deductibility of excise tax payments made.
The character of distributions made during the
year from net investment income or net
realized gains may differ from its 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 fund. On the
statement of assets and liabilities, as a
result of permanent book-to-tax differences, a
reclassification adjustment has been made to
increase undistributed net investment income
and increase accumulated realized losses by
$1,860,861 for Institutional Government Income
Portfolio.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders from net
investment income are declared daily and paid
monthly. Net realized gains distributions, if
any, will be made at least annually.
Distributions are payable 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, 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
fund's custodian bank until maturity of the
repurchase agreement. Provisions for all
agreements ensure that the daily market value
of the collateral is in excess of the
repurchase amount, including accrued interest,
to protect the fund in the event of a default.
USE OF ESTIMATES
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make
estimates and assumptions that affect the
reported amounts of assets and liabilities and
disclosures of contingent assets and
liabilities at the date of the financial
statements and the reported results of
operations during the reporting period. Actual
results could differ from those estimates.
(3) INVESTMENT SECURITY TRANSACTIONS
Cost of purchases and proceeds from sales of
securities, other than temporary investments
in short-term securities, for the six months
ended March 31, 1996, aggregated $136,520,837
and $205,170,253, respectively.
During the six months ended March 31,1996, no
brokerage commissions were paid to Piper
Jaffray Inc., an affiliated broker.
(4) EXPENSES
The company has entered into an investment
management agreement with Piper Capital
Management Incorporated (Piper Capital) under
which Piper Capital manages the fund's assets
and furnishes related office facilities,
equipment, research and personnel. The
agreement requires the fund to pay Piper
Capital a monthly fee
10
<PAGE>
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
based on average daily net assets. The fee is
equal to an annual rate of 0.30% on the first
$100 million in net assets, 0.25% of the next
$150 million and 0.20% of net assets in excess
of $250 million.
The fund also pays Piper Jaffray Inc. (Piper
Jaffray), the fund's distributor, a monthly
fee for providing shareholder services and
distribution-related services. The fee is
limited to an annual rate of 0.30% of the
fund's average daily net assets and includes
0.25% payable as a servicing fee and 0.05%
payable as a distribution fee. For the year
ending September 30, 1996, Piper Jaffray
voluntarily agreed to limit the fee to an
annual rate of 0.20% of the fund's average
daily net assets.
The company has also entered into shareholder
servicing agreements under which Piper Jaffray
and Piper Trust Company perform various
transfer and dividend disbursing agent
services for accounts held at the respective
company. The fees, which are paid monthly to
Piper Jaffray and Piper Trust Company for
providing these services, are 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 is 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.
Expenses paid indirectly represent a reduction
of custodian fees for earnings on cash
balances maintained by the fund.
Sales charges received by Piper Jaffray for
distributing the fund's shares were $10,068
for the six months ended March 31, 1996.
(5) PENDING LITIGATION
A number of compliants have been brought in
federal and state court against the fund and
certain of its affiliates. On February 13,
1996, a Settlement Agreement became effective
for the consolidated class action lawsuit,
titled In Re: PIPER FUNDS INC. INSTITUTIONAL
GOVERNMENT INCOME PORTFOLIO LITIGATION. The
Amended Consolidated Class Action Complaint
was filed on October 5, 1994, in the United
States District Court, District of Minnesota,
against the fund, Piper Capital Management
Incorporated ("PCM"), Piper Jaffray Inc.
("PJI"), William H. Ellis and Edward J.
Kohler, and had alleged the making of
materially misleading statements in the
prospectus, common law negligent
misrepresentation and breach of fiduciary
duty. The Settlement Agreement will provide
approximately $67.5 million, together with
interest earned, less certain disbursements
and attorney fees, to class members in
payments scheduled over approximately three
years. Such payments will be made by Piper
Jaffray Companies Inc. and PCM and will not be
an obligation of the fund. Three lawsuits and
a number of arbitrations brought by some of
the investors who requested exclusion from the
settlement class remain pending. Although it
is impossible to predict the outcome of such
arbitrations and litigation, management
believes, based on the facts currently
available, that there will be no material
adverse impact on the fund.
(6) CAPITAL LOSS CARRYOVER
For federal income tax purposes, the fund had
capital loss carryovers of $262,276,703 as of
September 30, 1995, which, if not offset by
subsequent capital gains, will expire in 2003
and 2004. It is unlikely the board of
directors will authorize a distribution of any
net realized capital gains until the available
capital loss carryover has been offset or
expires.
11
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
(7) FINANCIAL HIGHLIGHTS
Per-share data for a share of capital stock
outstanding throughout each period and
selected information for each period are as
follows:
<TABLE>
<CAPTION>
Six months
ended Fiscal year ended September 30,
3/31/96 -------------------------------------------------------------
(Unaudited) 1995 1994 1993 1992 1991
----------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ...$ 8.12 7.98 12.22 11.51 10.71 10.02
----------- -------- --------- -------- -------- --------
Operations:
Net investment income ................. 0.28(a) 0.88 0.90 1.29 1.07 0.94
Net realized and unrealized gains
(losses) on investments ............. (0.03) 0.31 (3.96) 0.56 0.73 0.67
----------- -------- --------- -------- -------- --------
Total from operations .............. 0.25 1.19 (3.06) 1.85 1.80 1.61
----------- -------- --------- -------- -------- --------
Distributions to shareholders:
From net investment income ............ (0.69) (1.05) (0.95) (0.90) (0.91) (0.90)
From net realized gains on
investment .......................... -- -- (0.23) (0.24) (0.09) (0.02)
----------- -------- --------- -------- -------- --------
Total distributions to shareholders
.................................. (0.69) (1.05) (1.18) (1.14) (1.00) (0.92)
----------- -------- --------- -------- -------- --------
Net asset value, end of period .... $ 7.68 8.12 7.98 12.22 11.51 10.71
----------- -------- --------- -------- -------- --------
----------- -------- --------- -------- -------- --------
SELECTED INFORMATION
Total return(b) ......................... 3.25% 16.15% (26.65)% 17.04% 17.70% 16.80%
Net assets at end of period (in
millions) ........................... $ 239 319 564 792 470 132
Ratio of expenses to average daily net
assets(c)(e) .......................... 0.76%(d) 0.97% 0.78% 0.70% 0.65% 0.75%
Ratio of net investment income to average
daily net assets(c) ................... 6.83%(d) 8.02% 9.33% 12.51% 11.01% 9.29%
Portfolio turnover rate (excluding short-
term securities) ...................... 49% 136% 169% 109% 64% 29%
</TABLE>
(A) BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
(B) 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.
(C) DURING THE YEARS REFLECTED ABOVE, THE DISTRIBUTOR VOLUNTARILY WAIVED FEES.
HAD THE MAXIMUM DISTRIBUTION FEE BEEN IN EFFECT, THE RATIOS OF EXPENSES AND
NET INVESTMENT INCOME TO AVERAGE DAILY NET ASSETS WOULD HAVE BEEN AS
FOLLOWS: 0.86%/6.73%, 1.07%/7.92%, 0.85%/9.26%, 0.77%/12.44%, 0.72%/10.94%,
AND 0.82%/9.22% IN THE SIX MONTHS ENDED 3/31/96, FISCAL 1995, 1994, 1993,
1992 AND 1991, RESPECTIVELY. BEGINNING IN FISCAL 1995, THE EXPENSE RATIOS
REFLECT THE EFFECT OF GROSS EXPENSES PAID INDIRECTLY BY THE FUND. PRIOR
PERIOD EXPENSE RATIOS HAVE NOT BEEN ADJUSTED.
(D) ADJUSTED TO AN ANNUAL BASIS.
(E) INCLUDES FEDERAL EXCISE TAXES OF 0.07%, 0.37%, 0.23%, 0.09% AND 0.02% FOR
THE SIX MONTHS ENDED 3/31/96 AND FISCAL 1995, 1994, 1993 AND 1992,
RESPECTIVELY.
12
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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
Worth Bruntjen, SENIOR VICE PRESIDENT
Richard W. Filippone, SENIOR VICE PRESIDENT
Marjo A. Goldstein, SENIOR VICE PRESIDENT
Steven V. Markusen, SENIOR VICE PRESIDENT
Robert H. Nelson, SENIOR VICE PRESIDENT AND
TREASURER
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
Susan Sharp Miley, SECRETARY
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
LEGAL COUNSEL Dorsey & Whitney LLP
220 SOUTH SIXTH STREET, MINNEAPOLIS, MN 55402
13
<PAGE>
-------------------
[PIPER CAPITAL Bulk Rate
MANAGEMENT LOGO] 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.
[RECYCLE LOGO] THIS DOCUMENT IS PRINTED ON PAPER MADE FROM
100% TOTAL RECOVERED FIBER, INCLUDING 15% POST-CONSUMER WASTE.
In an effort to reduce costs to our shareholders, we have
implemented a process to reduce duplicate mailings of
the fund's shareholder reports. This householding
process should allow us to mail one report to each
address where one or more registered shareholders with
the same last name reside. If you would like to have
additional reports mailed to your address, please call our
Shareholder Services area at 1 800 866-7778, or mail
your request to:
Piper Capital Management
Attn: Communications Department
222 South Ninth Street
Minneapolis, MN 55402-3804
http://www.piperjaffray.com
130-96 PJIGX02 5/96
