PIPER FUNDS INC, N-30D, 1997-05-28

PIPER FUNDS INC
N-30D, 1997-05-28

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<PAGE>

1997 SEMIANNUAL REPORT

[LOGO]

INCOME FUNDS

GOVERNMENT INCOME FUND
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INTERMEDIATE BOND FUND
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ADJUSTABLE RATE MORTGAGE SECURITIES FUND
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<PAGE>

CONTENTS

GOVERNMENT INCOME FUND

Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Financial Statements and Notes . . . . . . . . . . . . . . . . . . . . . . .10

Investments in Securities. . . . . . . . . . . . . . . . . . . . . . . . . .24

Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . .27

Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

Glossary***. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

INTERMEDIATE BOND FUND

Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Financial Statements and Notes . . . . . . . . . . . . . . . . . . . . . . .10

Investments in Securities. . . . . . . . . . . . . . . . . . . . . . . . . .25

Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . .27

Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

Glossary***. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

ADJUSTABLE RATE MORTGAGE SECURITIES FUND

Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Financial Statements and Notes . . . . . . . . . . . . . . . . . . . . . . .10

Investments in Securities. . . . . . . . . . . . . . . . . . . . . . . . . .26

Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . .27

Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

Glossary***. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

This report is intended for shareholders of Government Income Fund, Intermediate
Bond Fund and Adjustable Rate Mortgage Securities Fund, but 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.

*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.

*** This report includes a glossary to help you understand financial words used
in the portfolio managers' letters. When you see this symbol, it indicates a
word that is defined in the glossary.

[LOGO]

INTERNATIONAL GROWTH FUNDS
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Emerging Markets Growth Fund
Pacific-European Growth Fund

U.S. GROWTH FUNDS
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Small Company Growth Fund
Emerging Growth Fund
Growth Fund

GROWTH AND INCOME FUNDS
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Growth and Income Fund
Balanced Fund

INCOME FUNDS
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Government Income Fund
Intermediate Bond Fund
Adjustable Rate Mortgage Securities Fund

TAX-EXEMPT INCOME FUNDS
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National Tax-exempt Fund
Minnesota Tax-exempt Fund

CASH MANAGEMENT FUNDS*
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Money Market Fund
Tax-Exempt Money Market Fund
U.s. Government Money Market Fund
Institutional Money Market Fund

Piper Funds provide you with the flexibility to help you pursue your financial
goals. Among our funds, we offer a spectrum of investment objectives and
convenient shareholder services to meet the varied needs of today's investors.

Contact your Piper Jaffray Investment Executive for more information about the
Piper Funds, including prospectuses, or call Mutual Fund Services at
1 800 866-7778. Please read the prospectuses carefully before investing.

Many traditional investment strategies rely on the steady, dependable investment
income generated by debt obligations of corporations and government entities.

<PAGE>

PRESIDENT'S LETTER
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MAY 15, 1997
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[PHOTO]
WILLIAM H. ELLIS
President
Piper Capital Management
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INVESTOR EXPECTATIONS
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What investors expect from the stock market over the next 10 years.

[GRAPH]

*Past performance does not guarantee future results. Keep in mind that stocks
are more volatile than bonds, and long-term government bonds are guaranteed by
the U.S. government or its agencies as to payment of principal and interest.

DEAR SHAREHOLDERS:

What are you expecting from the markets this year? There's no denying that the
stock market's been on a bit of a roller coaster ride of late. The past six
months alone have seen record Dow highs, followed by quick downturns and
rebounds that are higher still. In fact, stock and bond prices have seen
unprecedented growth for almost 15 years. And, fortunately, more of you than
ever are sharing in these gains.

Word has it that investors' EXPECTATIONS have soared right along with these
phenomenal returns, and that's troubling. Don't get me wrong - we're happy about
the gains investors have enjoyed. But it's important that we all understand the
markets' potential for volatility and balance that with a good dose of reality.

Here's what I mean. According to Ibbotson Associates, the markets have, on
average, returned 11% in large-company stocks and 5% in long-term government
bonds per year since 1926.* Yet today's investors expect much more. I recently
read the results of a national survey by Louis Harris and Associates that found
a wide majority of investors expect at least a 14% stock market return over the
next 10 years (which is the average annual return from the last decade). Some
predict even greater returns.

No matter what the markets bring this year, I believe it's important to
maintain a long-term perspective. History shows that it's common for investors
to bail out at the first signs of a market downturn. But if I've learned one
thing from my 30 years in the financial services industry, it's this: you can
gain only if you stay in the game for the long term. Remember that market and
interest rate volatility (like we saw in March) are normal parts of investing.
I've never met anyone who can always time the market to their advantage. Here's
an adage to keep in mind: focus on "TIME IN the market," not "TIMING the
market."

My other advice for weathering the bumpy markets? Stay in touch with your
Investment Executive. Together, you have probably already set your financial
goals and formulated a plan to help you reach them. Stick to that plan. During
this uncertain time, your Investment Executive can help you sort through the
clutter and tune out the market noise. Best of all, your broker can lend you the
perspective gained from years of experience and help you focus on long-term
results.

Thank you for your investment and best wishes for the balance of 1997.

Sincerely,

/s/ William H. Ellis

William H. Ellis

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1 1997 Semiannual Report - Income Funds

GOVERNMENT INCOME FUND
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May 15, 1997
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[PHOTO]

BRUCE SALVOG
shares responsibility for the management of Government Income Fund. He has 27
years of financial experience.

DEAR SHAREHOLDERS:

FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1997, GOVERNMENT INCOME FUND RECORDED A
1.86%* TOTAL RETURN WITH ALL DISTRIBUTIONS REINVESTED, BUT NOT INCLUDING THE
FUND'S SALES CHARGE. The fund outperformed its benchmark,*** the Merrill Lynch
5-10 Year Treasury Index,** which returned 1.69%, but trailed the Lipper U.S.
Mortgage Funds Average,+ which returned 2.65%. The above-average investment
results compared to the fund's benchmark were due to our emphasis on
mortgage-backed securities, which performed well relative to Treasuries, and our
decision to maintain a relatively neutral effective duration,*** which benefited
shareholders when interest rates rose during February and March. (When interest
rates rise, bond prices fall, and generally the longer a bond's effective
duration, the more sensitive it is to interest rate movements.) We believe the
total return of the Lipper category was slightly higher because the fund - along
with the Merrill Lynch index - had a slightly longer effective duration than
that of the Lipper category during the period.

THE INTEREST RATE SCENARIO WAS PARTICULARLY GOOD FOR BONDS IN LATE 1996 BUT
BECAME LESS FAVORABLE DURING FEBRUARY AND MARCH OF THIS YEAR. Early in the
period, reports suggesting a slowdown in economic growth caused interest rates
to decline and bond prices to rise. Beginning in February and carrying through
the remainder of the period, a series of stronger-than-expected economic reports
raised inflation concerns among investors, causing interest rates to rise and
bond prices to fall. On March 25, in a pre-emptive strike against inflation, the
Federal Reserve raised the federal funds

- --------------------------------------------------------------------------------
FUND PERFORMANCE THROUGH MARCH 31, 1997*
- --------------------------------------------------------------------------------

GROWTH OF $10,000 INVESTED SINCE INCEPTION

[GRAPH]

** An unmanaged index, that includes no expenses or transaction charges, of all
U.S. Treasury bonds that have maturities of five to 10 years.

+ The average total return, not including sales charges, of similar funds as
characterized by Lipper Analytical Services.

AVERAGE ANNUALIZED TOTAL RETURNS
Includes 2% maximum sales charge.

One Year 2.61%
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Five Year 5.63%
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Ten Year 6.79%
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Since Inception (3/16/87) 6.75%
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During some periods, the fund's adviser waived or paid certain fund expenses
and/or the fund's distributor voluntarily limited certain 12b-1 fees for the
fund. Otherwise, the average annualized total returns would have been: 2.49% one
year, 5.44% five year, 6.54% ten year and 6.50% since inception.

* 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. PLEASE REMEMBER, YOU COULD
LOSE MONEY WITH THIS INVESTMENT. NEITHER SAFETY OF PRINCIPAL NOR STABILITY OF
INCOME IS GUARANTEED.

All fund and benchmark returns include reinvested distributions.

*** - This symbol represents a graduation cap, used throughout this report
to indicate terms defined in the glossary.

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2 1997 Semiannual Report - Income Funds

<PAGE>

GOVERNMENT INCOME FUND (CONTINUED)
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[PHOTO]
DAVID STEELE
shares responsibility for the management of Government Income Fund. He has 18
years of financial experience.
- --------------------------------------------------------------------------------

rate*** by a quarter of one percent. It was the first such move by the Fed in
approximately two years. For the reporting period, interest rates, as measured
by the 10-year Treasury note, showed a slight increase. The yield on the 10-year
note rose from 6.65% on September 30, 1996, to 6.90% on March 31, 1997, the
highest yield during the period. The yield had been as low as 6.05% in early
December.

THE FUND MAINTAINED A WELL-DIVERSIFIED PORTFOLIO THROUGHOUT THE PERIOD. As of
March 31, 1997, 82% of the fund's total assets were invested in U.S. agency
mortgage-backed securities. These securities include bonds issued by the
Government National Mortgage Association (Ginnie Mae),*** Federal National
Mortgage Association (Fannie Mae)*** and Federal Home Loan Mortgage Corporation
(Freddie Mac).*** Remaining assets were invested in U.S. Treasury securities
(14%) and U.S. agency debentures (4%). Within the mortgage-backed sector, we
emphasized securities trading at a discount and seasoned*** securities trading
at a premium where the likelihood of prepayment on the underlying mortgages is
reduced. Earlier in the period, we had a slightly larger exposure to
mortgage-backed issues but reduced it slightly as the spread between their
yields and those of Treasuries narrowed to a historically low level.

OUR EMPHASIS ON MORTGAGE-BACKED SECURITIES AIDED PERFORMANCE AS INTEREST RATES
ROSE LATE IN THE PERIOD. As rates rose, mortgage-backed securities outperformed
Treasuries. Since the average duration of mortgage-backed securities increases
when interest rates rise - and the average duration of Treasuries decreases, the
fund's effective duration at the end of the period was longer than that of its
benchmark (6 years for the fund vs. 5.6 years for the benchmark).

WE CONTINUED TO MAINTAIN A MODEST 5% TO 10% POSITION IN THE DOLLAR ROLL PROGRAM.
This program allows the fund to generate fee income by committing to pay for
securities in the future at today's prices. These commitments also increase the
number of assets exposed to interest rate risk, and, therefore, increase the
volatility of the fund's net asset value. The program is attractive when
interest rates decline markedly, because the number of homeowners refinancing
their mortgages increases, as does

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Portfolio Composition
- --------------------------------------------------------------------------------
As a percentage of total assets on March 31, 1997.

U.S. Agency Inverse Interest-Only Securities 1%
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U.S. Agency Fixed Rate Mortgage-Backed Securities 63%
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U.S. Agency Z-Bond Securities 11%
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U.S. Agency Debentures 4%
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U.S. Treasury Securities 14%
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U.S. Agency CMOs-Fixed 5%
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U.S. Agency Inverse Floating Rate Securities 2%
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*** - This symbol represents a graduation cap, used throughout this report
to indicate terms defined in the glossary.

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3 1997 Semiannual Report - Income Funds

<PAGE>

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GOVERNMENT INCOME FUND (CONTINUED)
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the supply of new mortgages. While interest rates fell early in the period, they
did not decline enough to make the program as attractive as it has been in the
past.

LOOKING AHEAD, BONDS MAY COME UNDER ADDITIONAL PRICE PRESSURE NEAR-TERM IF THE
ECONOMY CONTINUES TO SHOW SIGNS OF STRENGTH, BUT WE BELIEVE THE LONGER-TERM
OUTLOOK IS FAVORABLE BECAUSE INFLATION REMAINS UNDER CONTROL. Moreover, real
interest rates on bonds, which equal current yields minus inflation, are at
historically high levels. Given this scenario, we intend to maintain our neutral
effective duration compared to the fund's benchmark in the coming weeks. Should
yields move higher, we may extend the fund's effective duration to enhance the
fund's long-term income producing potential.

Thank you for your investment in Government Income Fund. We look forward to
continuing to provide you with quality service as you work to achieve your
financial goals.

Sincerely,

/s/Bruce Salvog /s/David Steele

Bruce Salvog David Steele

Portfolio Manager Portfolio Manager

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4 1997 Semiannual Report- Income Funds

<PAGE>

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INTERMEDIATE BOND FUND
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[PHOTO]
WORTH BRUNTJEN
shares responsibility for the
management of Intermediate
Bond Fund. He has 30 years
of financial experience.
May 15, 1997
- --------------------------------------------------------------------------------

DEAR SHAREHOLDERS:

FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1997, INTERMEDIATE BOND FUND CLASS A
RECORDED A 2.43%* TOTAL RETURN WITH ALL DISTRIBUTIONS REINVESTED, BUT NOT
INCLUDING THE FUND'S SALES CHARGE. This return was in line with the Lipper
Intermediate Investment-Grade Debt Funds Average,** which gained 2.20%, and the
Lehman Brothers Intermediate Aggregate Index,+ which had a total return of
2.59%. The fund's performance reflects our decision to maintain a
neutral-to-defensive effective duration*** compared to the Lehman Brothers
benchmark*** for much of the period. We based our decision on our belief that
interest rates might rise slightly due to fears of higher inflation brought on
by stronger-than-expected growth.

THE INTEREST RATE SCENARIO WAS PARTICULARLY GOOD FOR INTERMEDIATE-TERM
SECURITIES IN LATE 1996 BUT BECAME LESS FAVORABLE IN EARLY 1997. Late in 1996,
the economy grew moderately, which kept interest rates under control, enabling
bond prices to advance. Beginning in February, a series of
stronger-than-expected economic reports, such as a pickup in consumer spending,
raised inflation concerns among investors, which sent interest rates higher and
bond prices lower. From December 31, 1996, to March 31, 1997, the five-year
Treasury bond yield rose from 6.20% to 6.75%. In its effort to

FUND PERFORMANCE THROUGH MARCH 31, 1997*
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED SINCE INCEPTION

- --------------------------------------------------------------------------------
[GRAPH]

+ An unmanaged index, that includes no expenses or transaction charges,
consisting of one- to 10-year government and corporate securities and all of the
mortgage- and asset-backed securities in the Lehman Brothers Aggregate Index.

** The average total return, not including sales charges, of similar funds as
characterized by Lipper Analytical Services.

CLASS A AVERAGE ANNUALIZED TOTAL RETURNS
Includes 2% maximum sales charge.
One Year 2.74%
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Five Year 3.34%
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Since Inception (7/11/88) 6.80%
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CLASS Y CUMULATIVE TOTAL RETURNS
Sales charges do not apply to Class Y shares.

Since Inception (2/18/97) -1.26%
- --------------------------------------------------------------------------------

During some periods, the fund's adviser waived or paid certain fund expenses
and/or the fund's distributor voluntarily limited certain 12b-1 fees for the
fund. Otherwise, the class A average annualized total returns would have been:
2.60% one year, 3.28% five year and 6.55% since inception.

All fund and benchmark returns include reinvested distributions.

*** - This symbol represents a graduation cap, used throughout this report
to indicate terms defined in the glossary.

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5 1997 Semiannual Report - Income Funds

<PAGE>

[PHOTO]
BRUCE SALVOG
shares responsibility for the
management of Intermediate
Bond Fund. He has 27 years
of financial experience.
- --------------------------------------------------------------------------------

Intermediate Bond Fund (continued)
- --------------------------------------------------------------------------------
combat fears of higher inflation, the Federal Reserve on March 25 raised
short-term interest rates one-quarter of one percent in a pre-emptive strike
against inflation. It was the first time in more than two years that the Fed had
adopted a tightening monetary policy.

THE FUND'S SUBSTANTIAL POSITION IN U.S. AGENCY FIXED RATE, MORTGAGE-BACKED
SECURITIES MIDWAY THROUGH THE PERIOD PROVED BENEFICIAL TO SHAREHOLDERS. In the
beginning of 1997, mortgage-backed securities enjoyed strong performance
compared to other fixed income securities. These securities tend to perform well
when the general bond market shows signs of weakness. Mortgage-backed securities
in the fund are issued by government agencies such as the Federal National
Mortgage Association (Fannie Mae),*** the Federal Home Loan Mortgage Corporation
(Freddie Mac)*** and the Government National Mortgage Association (Ginnie
Mae).***

DURING THE PERIOD, WE CONTINUED TO PLACE A STRONG EMPHASIS ON DISCOUNT PRICED
MORTGAGE SECURITIES AND SEASONED*** MORTGAGE SECURITIES PURCHASED AT PREMIUM
PRICES, INSTEAD OF CURRENT COUPON ISSUES.*** This strategy helped provide more
value to the fund and greater predictability of cash flow. Going forward, we
intend to maintain this strategy because seasoned mortgage securities should
provide relatively high and more predictable income, while the discount priced
mortgage securities are likely to offer support to the fund's net asset value
when interest rates decline. Current coupon issues, on the other hand, are more
likely to experience prepayments if interest rates fall or price declines if
interest rates rise.

THE FUND'S NEUTRAL-TO-DEFENSIVE DURATION HELPED PROTECT SHAREHOLDER CAPITAL WHEN
INTEREST RATES ROSE IN FEBRUARY AND MARCH. Generally, a fund with a shorter
effective duration will be less affected by interest rate movements than its
benchmark. At the end of the period, the fund's effective duration was 3.6
years, compared to 3.5 years for the fund's Lehman Brothers benchmark,
reflecting our concern that interest rates might move slightly higher.

PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
As a percentage of total assets on March 31, 1997.

[GRAPH]

U.S. Agency Debentures 5%
Corporate Bonds 17%
Private Asset-Backed Securities 3%
Short-Term 3%
Other Assets 4%
U.S. Agency Fixed Rate Mortgage-Backed Securities 44%
U.S. Treasury Securities 24%

*** - This symbol represents a graduation cap, used throughout this report
to indicate terms defined in the glossary.

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6 1997 Semiannual Report - Income Funds

<PAGE>

[PHOTO]

DAVID STEELE
shares responsibility for the
management of Intermediate
Bond Fund. He has 18 years
of financial experience.
- --------------------------------------------------------------------------------

Intermediate Bond Fund (continued)
- --------------------------------------------------------------------------------

IN JANUARY, THE FUND COMPLETED REPOSITIONING ITS PORTFOLIO IN ACCORDANCE WITH
REVISED INVESTMENT POLICIES ADOPTED AT THE SHAREHOLDER MEETING IN SEPTEMBER. The
revised policies allowed the fund to reduce its commitment to mortgage
securities and invest in a broader range of issues, such as investment-grade
corporate bonds, asset-backed securities, Treasury securities and U.S.
dollar-denominated Yankee bonds.*** At the end of the period, the fund had 44%
of its assets in U.S. government agency fixed rate, mortgage-backed securities,
24% in Treasury securities, 17% in corporate bonds (including approximately 3%
in U.S. dollar denominated Yankee bonds), with remaining assets spread across
private asset-backed securities, government repurchase agreements and U.S.
agency debentures. This allocation was significantly different than the
portfolio composition during our last reporting period. On September 30, 1996,
75% of the fund's assets were invested in U.S. government agency fixed rate,
mortgage-backed securities, 18% was invested in short-term securities, and 5%
was invested in corporate bonds.

OUR OUTLOOK FOR THE ECONOMY AND INFLATION REMAINS GENERALLY POSITIVE. Near-term,
continuing signs of economic strength are likely to put further pressure on bond
prices due to fears of higher inflation, but inflation does not appear to be a
significant problem. Moreover, Federal Reserve Chairman Alan Greenspan has a
long history of fighting inflation and appears committed to maintaining this
philosophy in keeping future inflationary pressures under control. We believe
the revised investment policies against a background of an expanding economy
with dampened inflation should help investors receive more consistent and
competitive returns with less volatility. Finally, with real returns on
intermediate bonds at historically attractive levels, we currently intend to
increase the fund's effective duration to help secure higher yields for
shareholders should interest rates move appreciably higher in the months ahead.

Thank you for your investment in Intermediate Bond Fund. We look forward to
helping you reach your financial goals in the coming year.

Sincerely,

/s/ Worth Bruntjen /s/ Bruce Salvog /s/ David Steele

Worth Bruntjen Bruce Salvog David Steele
Portfolio Manager Portfolio Manager Portfolio Manager

*** - This symbol represents a graduation cap, used throughout this report
to indicate terms defined in the glossary.

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7 1997 Semiannual Report - Income Funds

<PAGE>

[PHOTO]

TOM MCGLINCH, CFA
shares responsibility for the
management of Adjustable
Rate Mortgage Securities
Fund. He has 16 years of
financial experience.
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ADJUSTABLE RATE MORTGAGE SECURITIES FUND
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May 15, 1997
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DEAR SHAREHOLDERS:

FOR THE SIX MONTHS ENDED MARCH 31, 1997, ADJUSTABLE RATE MORTGAGE SECURITIES
FUND RECORDED A 3.48%* TOTAL RETURN. This figure assumes distributions were
reinvested and does not include sales charge. Performance was in line with the
Lipper Adjustable Rate Mortgage Funds Average,+ which delivered a total return
of 3.10%, and the fund's benchmark,*** the Lehman Brothers Adjustable Rate
Mortgage Index,** which had a total return of 3.81% for the period.

THE FUND'S PERFORMANCE WAS DUE LARGELY TO OUR RELATIVELY CONSERVATIVE INVESTMENT
STRATEGY. We continued to emphasize income and focus on higher-coupon,
adjustable-rate mortgage (ARM) securities; these securities have coupon*** rates
of approximately 7.25%, close to prevailing market rates available to borrowers.
At the end of the period, your fund had about 78% of total assets in ARM
securities. ARM securities, as a class, did well compared to other bonds during
the period, primarily due to their higher level of coupon income. The remainder
of the fund was invested in fixed rate securities such as seasoned*** premium
mortgage pass-throughs*** and balloon-maturity pass-throughs.*** The fixed rate
securities enabled the fund to lock in an income stream; they also increased the
fund's interest rate sensitivity.

BOND YIELDS DIDN'T CHANGE SIGNIFICANTLY FOR MUCH OF THE PERIOD, BUT THEY ROSE
SHARPLY IN FEBRUARY AND MARCH. The Federal Reserve raised the federal funds
rate*** from 5.25% to 5.50% in late February - the first
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FUND PERFORMANCE THROUGH MARCH 31, 1997*
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED SINCE INCEPTION

[GRAPH]

** An unmanaged index, which includes no expenses or transaction charges, of
U.S. agency adjustable rate mortgage securities.

+ The average total return, not including sales charges, of similar funds as
characterized by Lipper Analytical Services.

AVERAGE ANNUALIZED TOTAL RETURNS
Includes 2% maximum sales charge.
One Year 4.49%
- --------------------------------------------------------------------------------
Five Year 4.69%
- --------------------------------------------------------------------------------
Since Inception (1/30/92) 4.35%
- --------------------------------------------------------------------------------

During some periods, the fund's adviser waived or paid certain fund expenses
and/or the fund's distributor voluntarily limited certain 12b-1 fees for the
fund. Otherwise, the average annualized total returns would have been: 4.36% one
year, 4.67% five year and 4.32% since inception.

* 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. Please remember, you could
lose money with this investment. Neither safety of principal nor stability of
income is guaranteed.

Results through September 1, 1995, reflect historical net asset value
performance of American Adjustable Rate Term Trust - 1998, the fund's
predecessor for financial reporting purposes.

All fund and benchmark returns include reinvested distributions.

*** - This symbol represents a graduation cap, used throughout this report
to indicate terms defined in the glossary.

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8 1997 Semiannual Report - Income Funds

<PAGE>

[PHOTO]

WAN-CHONG KUNG, CFA
shares responsibility for the
management of Adjustable
Rate Mortgage Securities
Fund. She has five years of
financial experience.
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ADJUSTABLE RATE MORTGAGE SECURITIES FUND (CONTINUED)
- --------------------------------------------------------------------------------

such rate hike since February 1995. Consequently, the yield on the two-year
Treasury note rose to 6.40% on March 31, 1997, up from 6.09% on September 30,
1996.

ALTHOUGH INTEREST RATES ROSE, THE FUND'S NET ASSET VALUE EXPERIENCED ONLY
MODERATE VOLATILITY AND IN FACT INCREASED SLIGHTLY. The fund's net asset value
was $8.10 on March 31, compared to $8.06 on September 30, 1996. Our focus on
higher-coupon ARM securities was rewarded, as their prices generally fell less
than the prices of lower coupon issues when market interest rates rose.

WE BELIEVE THAT THE FEDERAL RESERVE WILL BE SUCCESSFUL IN SLOWING THE ECONOMY
AND PREVENTING A SURGE IN INFLATION. The process, however, may require more time
and perhaps slightly higher interest rates before an impact is realized. The
fund's emphasis on higher-coupon ARM securities should help reduce the
portfolio's volatility if market interest rates rise further. And with the
current higher level of rates, we are watching for opportunities to purchase
securities that would offer higher income for the fund.

Thank you for investing in Adjustable Rate Mortgage Securities Fund. We remain
committed to providing you with quality investment management and service.

Sincerely,

/s/ Tom McGlinch /s/ Wan-Chong Kung

Tom McGlinch Wan-Chong Kung
Portfolio Manager Portfolio Manager
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PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
As a percentage of total assets on March 31, 1997.

[GRAPH]
U.S. Agency Fixed Rate Mortgage-Backed Securities 19%
U.S.Agency Floating Rage Securities 3%
Private Floating Rate Securities 15%
Other Assets 1%
Short-Term 2%
U.S. Agency Adjustable Rate Mortgage-Backed Securities 60%

*** - This symbol represents a graduation cap, used throughout this report
to indicate terms defined in the glossary.

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9 1997 Semiannual Report - Income Funds

<PAGE>
Financial Statements (Unaudited)

- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES March 31, 1997
..................................................................

<TABLE>
<CAPTION>
ADJUSTABLE
RATE
MORTGAGE
GOVERNMENT INTERMEDIATE SECURITIES
INCOME FUND BOND FUND FUND
------------- ------------ -------------
<S> <C> <C> <C>
ASSETS:
Investments in securities at market value* (including
repurchase agreements of $350,000, $2,922,000 and
$3,291,000, respectively) (note 2) ....................... $ 78,452,465 $ 95,805,726 $215,199,935
Cash in bank on demand deposit ............................. 25,810 25,546 25,131
Receivable for investment securities sold .................. -- 2,339,412 --
Receivable for fund shares sold ............................ 992 518 --
Principal receivable on mortgage securities ................ -- -- 227,374
Accrued interest receivable ................................ 643,567 1,080,161 1,363,677
------------- ------------ -------------
Total assets ............................................. 79,122,834 99,251,363 216,816,117
------------- ------------ -------------

LIABILITIES:
Dividends payable to shareholders .......................... 363,285 464,000 989,480
Payable for investment securities purchased on a when-issued
basis (note 2) ........................................... 5,009,375 -- --
Payable for fund shares redeemed ........................... 22,414 1,327,616 328,499
Accrued investment management fee .......................... 32,085 26,070 65,028
Accrued distribution and service fees ...................... 21,818 16,426 27,869
------------- ------------ -------------
Total liabilities ........................................ 5,448,977 1,834,112 1,410,876
------------- ------------ -------------
Net assets applicable to outstanding capital stock ....... $ 73,673,857 $ 97,417,251 $215,405,241
------------- ------------ -------------
------------- ------------ -------------

COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital ............... $ 90,617,197 $375,132,514 $361,969,677
Distributions in excess of net investment income ........... -- (125,224) --
Accumulated net realized loss on investments ............... (16,377,026) (276,332,704) (146,548,405)
Unrealized depreciation of investments ..................... (566,314) (1,257,335) (16,031)
------------- ------------ -------------

Total - representing net assets applicable to outstanding
capital stock .......................................... $ 73,673,857 $ 97,417,251 $215,405,241
------------- ------------ -------------
------------- ------------ -------------

NET ASSET VALUE AND OFFERING PRICE:

CLASS A:
Net assets (note 1) ........................................ $ 73,673,857 $ 82,241,968 $215,405,241
Shares outstanding ......................................... 8,453,919 11,020,516 26,602,901
Net asset value ............................................ $ 8.71 $ 7.46 $ 8.10
Maximum offering price per share (net asset value plus 2% of
offering price) .......................................... $ 8.89 $ 7.61 $ 8.27

CLASS Y:
Net assets ................................................. $ -- $ 15,175,283 $ --
Shares outstanding ......................................... -- 2,032,469 --
Net asset value and offering price per share ............... $ -- $ 7.47 $ --

* Investments in securities at identified cost ............. $ 79,018,779 $ 97,063,061 $215,215,966
------------- ------------ -------------
------------- ------------ -------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

- --------------------------------------------------------------------------------

10 1997 Semiannual Report - Income Funds
<PAGE>
Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------

STATEMENTS OF OPERATIONS For the Six Months Ended March
31, 1997
..................................................................

<TABLE>
<CAPTION>
ADJUSTABLE
RATE
MORTGAGE
GOVERNMENT INTERMEDIATE SECURITIES
INCOME FUND BOND FUND FUND
------------ ------------ ------------
<S> <C> <C> <C>
INCOME:
Interest ................................................... $ 2,979,828 $ 3,945,259 $ 7,893,022
Fee income (note 2) ........................................ 52,848 -- --
------------ ------------ ------------

Total income ............................................. 3,032,676 3,945,259 7,893,022
------------ ------------ ------------

EXPENSES (NOTE 5):
Investment management fee .................................. 200,761 172,739 415,176
Distribution and service fees:
Class A .................................................. 200,760 172,006 176,660
Class Y .................................................. -- -- --
Custodian and accounting fees .............................. 42,791 57,073 120,593
Transfer agent and dividend disbursing agent fees .......... 30,858 21,058 130,804
Registration fees .......................................... 10,029 16,749 5,456
Reports to shareholders .................................... 25,482 41,379 40,470
Directors' fees ............................................ 3,619 3,619 8,309
Audit and legal fees ....................................... 25,553 38,522 43,028
Other expenses ............................................. 10,501 13,087 23,832
------------ ------------ ------------
Total expenses ........................................... 550,354 536,232 964,328
Less Class A expenses waived by the distributor ........ (70,485) (50,208) --
------------ ------------ ------------

Net expenses before expenses paid indirectly ............. 479,869 486,024 964,328
Less expenses paid indirectly .......................... (46) (1,343) (485)
------------ ------------ ------------

Total net expenses ....................................... 479,823 484,681 963,843
------------ ------------ ------------

Net investment income .................................... 2,552,853 3,460,578 6,929,179
------------ ------------ ------------

NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on investments (note 3) .................. 603,959 159,015 15,280
Net realized loss on closed futures contracts .............. (153,975) -- --
------------ ------------ ------------

Net realized gain on investments ......................... 449,984 159,015 15,280
Net change in unrealized appreciation or depreciation of
investments .............................................. (1,265,040) (326,795) 1,314,553
------------ ------------ ------------

Net gain (loss) on investments ........................... (815,056) (167,780) 1,329,833
------------ ------------ ------------

Net increase in net assets resulting from operations ... $ 1,737,797 $ 3,292,798 $ 8,259,012
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

- --------------------------------------------------------------------------------

11 1997 Semiannual Report - Income Funds
<PAGE>
Financial Statements (continued)
- --------------------------------------------------------------------------------

STATEMENTS OF CHANGES IN NET ASSETS
..................................................................
<TABLE>
<CAPTION>
INTERMEDIATE BOND FUND
GOVERNMENT INCOME FUND -----------------------------
-----------------------------
Six Months
Six Months Ended
Ended 3/31/97 Year Ended 3/31/97 Year Ended
(Unaudited) 9/30/96 (Unaudited) 9/30/96
------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income .................. $ 2,552,853 $ 6,314,212 $ 3,460,578 $ 15,762,040
Net realized gain (loss) on
investments .......................... 449,984 85,416 159,015 (12,736,864)
Net change in unrealized appreciation or
depreciation of investments .......... (1,265,040) (1,752,271) (326,795) 10,497,685
------------- ------------- ------------ --------------

Net increase in net assets resulting
from operations .................... 1,737,797 4,647,357 3,292,798 13,522,861
------------- ------------- ------------ --------------

DISTRIBUTIONS TO SHAREHOLDERS:
CLASS A:
From net investment income ........... (2,554,662) (6,318,402) (3,346,877) (34,266,074)
CLASS Y:
From net investment income ........... -- -- (113,702) --
------------- ------------- ------------ --------------
Total distributions .................. (2,554,662) (6,318,402) (3,460,579) (34,266,074)
------------- ------------- ------------ --------------

CAPITAL SHARE TRANSACTIONS (NOTE 4):
CLASS A ................................ (9,337,853) (20,364,506) (53,763,073) (162,043,566)
CLASS Y ................................ -- -- 15,510,267 --
------------- ------------- ------------ --------------
Decrease in net assets from capital
share transactions ................. (9,337,853) (20,364,506) (38,252,806) (162,043,566)
------------- ------------- ------------ --------------
Total decrease in net assets ......... (10,154,718) (22,035,551) (38,420,587) (182,786,779)

Net assets at beginning of period ...... 83,828,575 105,864,126 135,837,838 318,624,617
------------- ------------- ------------ --------------

Net assets at end of period ............ $ 73,673,857 $ 83,828,575 $97,417,251 $ 135,837,838
------------- ------------- ------------ --------------
------------- ------------- ------------ --------------

Undistributed (distributions in excess
of) net investment income ............ $ -- $ 1,809 $ (125,224) $ (125,223)
------------- ------------- ------------ --------------
------------- ------------- ------------ --------------

ADJUSTABLE RATE MORTGAGE SECURITIES FUND
----------------------------------------------

Six Months
Ended 3/31/97 Month Ended Year Ended
(Unaudited) 9/30/96 8/31/96
------------- ------------- --------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income .................. $ 6,929,179 $ 1,272,222 $ 24,706,910
Net realized gain (loss) on
investments .......................... 15,280 (68,233) (2,674,311)
Net change in unrealized appreciation or
depreciation of investments .......... 1,314,553 867,679 6,114,992
------------- ------------- --------------
Net increase in net assets resulting
from operations .................... 8,259,012 2,071,668 28,147,591
------------- ------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
CLASS A:
From net investment income ........... (6,929,179) (1,272,222) (24,649,898)
CLASS Y:
From net investment income ........... -- -- --
------------- ------------- --------------
Total distributions .................. (6,929,179) (1,272,222) (24,649,898)
------------- ------------- --------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
CLASS A ................................ (48,757,960) (7,914,495) (142,855,401)
CLASS Y ................................ -- -- --
------------- ------------- --------------
Decrease in net assets from capital
share transactions ................. (48,757,960) (7,914,495) (142,855,401)
------------- ------------- --------------
Total decrease in net assets ......... (47,428,127) (7,115,049) (139,357,708)
Net assets at beginning of period ...... 262,833,368 269,948,417 409,306,125
------------- ------------- --------------
Net assets at end of period ............ $215,405,241 $262,833,368 $ 269,948,417
------------- ------------- --------------
------------- ------------- --------------
Undistributed (distributions in excess
of) net investment income ............ $ -- $ -- $ --
------------- ------------- --------------
------------- ------------- --------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

- --------------------------------------------------------------------------------

12 1997 Semiannual Report - Income Funds
<PAGE>
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------

(1) ORGANIZATION
................................
Piper Funds Inc. (Piper Funds) and Piper Funds Inc.-II
(Piper Funds II) are each registered under the Investment
Company Act of 1940 (as amended) as single, open-end
management investment companies. Piper Funds currently has
12 series, including Government Income Fund and
Intermediate Bond Fund, each of which is classified as a
diversified series. Piper Funds II currently has one
series, Adjustable Rate Mortgage Securities Fund (ARMS
fund), which is classified as a diversified series.

On September 1, 1995, American Adjustable Rate Term Trust
1996 (BDJ), American Adjustable Rate Term Trust 1997
(CDJ), American Adjustable Rate Term Trust 1998 (DDJ) and
American Adjustable Rate Term Trust 1999 (EDJ) merged into
the ARMS fund. American Adjustable Rate Term Trust 1998
(DDJ) (a closed-end fund) is considered the surviving
entity for financial reporting purposes.

The articles of incorporation of Piper Funds and Piper
Funds II permit the boards of directors to create
additional series in the future.

Intermediate Bond Fund commenced offering Class Y shares
on February 18, 1997. All shares existing prior to this
date were classified as Class A shares. Key features of
each class are:

CLASS A:
- Subject to a front-end sales charge

- Higher annual expenses than Class Y

CLASS Y:
- Requires a minimum initial investment of $1 million or
more

- No front-end or contingent deferred sales charges

- Lower annual expenses than Class A

The classes of shares of Intermediate Bond Fund have the
same rights and are identical in all respects except that
each class bears different distribution expenses, has
exclusive voting rights with respect to matters affecting
that class and has different exchange privileges.
Government Income Fund and Adjustable Rate Mortgage
Securities Fund each have a single class of shares, which
are shown as Class A in the financial statements.

Government Income 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-backed securities.
The fund may also invest in mortgage-related securities
issued by private entities. The fund's investments in
mortgage-related securities may include certain derivative
mortgage securities.

Intermediate Bond Fund invests primarily in a broad range
of investment-quality debt securities.

- --------------------------------------------------------------------------------

13 1997 Semiannual Report - Income Funds
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------

Adjustable Rate Mortgage Securities Fund invests primarily
in adjustable rate mortgage securities.

(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 New York Stock 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 New York Stock Exchange.
If events materially affecting the value of such
securities occur, if the funds' management determines for
any other reason that valuations provided by the pricing
service or dealer 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.

Exchange-traded options are valued at the last sales price
on the exchange prior to the time when assets are valued.
If no sales were reported that day, the options will be
valued at the mean between the current closing bid and
asked prices. Over-the-counter options are valued using
market quotations obtained from independent dealers that
make markets in the securities. Financial futures are
valued at the last settlement price established each day
by the board of trade or exchange on which they are
traded. Such valuations are determined using independent
pricing services or prices quoted by independent brokers.

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.

OPTIONS TRANSACTIONS
For hedging purposes, Government Income Fund and
Adjustable Rate Mortgage Securities Fund may buy and sell
put and call options, write covered call options on
portfolio securities and write cash-secured puts. The risk
in writing a call option is that the funds give up the
opportunity of profit if the market price of the security
increases. The risk in writing a put option is that the
funds 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 funds pay a premium whether or not
the option is exercised. The funds also have the
additional risk of not being able to enter into a closing
transaction if a liquid secondary market does not exist.

Option contracts are valued daily and unrealized
appreciation or depreciation is recorded. The funds 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 of 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.

- --------------------------------------------------------------------------------

14 1997 Semiannual Report - Income Funds
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------

FUTURES TRANSACTIONS
In order to gain exposure to or protect from changes in
the market, Government Income Fund and Adjustable Rate
Mortgage Securities Fund may buy and sell financial
futures contracts and related options. Risks of entering
into futures contracts and related options include the
possibility that 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.

Upon entering into a futures contract, the funds are
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 funds 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 funds recognize a realized gain or loss when
the contract is closed or expires.

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.
Each fund maintains, in segregated accounts with the
custodian, assets with a market value equal to the amount
of its purchase commitments. Adjustable Rate Mortgage
Securities Fund will only hold cash or cash equivalents in
the segregated account. The purchase of securities on a
when-issued or forward-commitment basis may increase the
volatility of each fund's net asset value if the funds
make such purchases while remaining substantially fully
invested. As of March 31, 1997, Government Income Fund had
entered into outstanding when-issued or forward
commitments of $5,009,375.

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 purchased on a forward commitment basis and
simultaneously contracts with a counterparty to repurchase
similar (same type, coupon and maturity) but not identical
securities on a specified future date. As an inducement to
"roll over" their purchase commitments, the funds receive
negotiated fees. For the six months ended March 31, 1997,
such fees earned amounted to $52,848 for Government Income
Fund.

ALLOCATION OF INCOME, EXPENSES AND GAINS (LOSSES)
Income, expenses (other than class-specific expenses) and
realized and unrealized gains and losses for Intermediate
Bond Fund are allocated daily to each class of shares
based upon the relative proportion of net assets
represented by such class. Class-specific expenses, which
include distribution and service fees, are charged
directly to such class.

FEDERAL TAXES
Each fund is treated separately for federal income tax
purposes. Each fund intends to comply with the
requirements of the Internal Revenue Code applicable to
regulated investment companies and not be

- --------------------------------------------------------------------------------

15 1997 Semiannual Report - Income Funds
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
subject to federal income tax. Therefore, no income tax
provision is required. Generally, on a calendar-year
basis, the funds will distribute substantially all of
their taxable net investment income and realized gains, if
any, to avoid the payment of any federal excise taxes.

Net investment income and net realized gains (losses) may
differ for financial statement and tax purposes primarily
because of losses deferred due to "straddle" transactions
and the timing of recognition of income on certain
collateralized mortgage-backed securities.

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 funds.

DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders from net investment income
for Government Income Fund and Adjustable Rate Mortgage
Securities Fund are declared daily and paid monthly.
Distributions to shareholders from net investment income
for Intermediate Bond Fund are declared separately for
each class daily and paid monthly. Net realized gains
distributions for the funds, if any, will be made at least
annually. Distributions are payable in cash or reinvested
in additional shares of the same class.

REPURCHASE AGREEMENTS
For repurchase agreements entered into with certain
broker-dealers, the funds, along with other affiliated
registered investment companies, may transfer uninvested
cash balances to 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.
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 funds
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 in the financial statements. Actual
results could differ from these 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, 1997, were as follows:

<TABLE>
<CAPTION>
ADJUSTABLE
RATE
MORTGAGE
GOVERNMENT INTERMEDIATE SECURITIES
INCOME FUND BOND FUND FUND
------------ ------------ ------------
<S> <C> <C> <C>
Purchases ................................... $ 17,634,024 $ 54,833,390 $19,777,785
Proceeds from sales ......................... $ 32,190,368 $ 75,714,628 $63,437,091
</TABLE>

For the six months ended March 31, 1997, no brokerage
commissions were paid to Piper Jaffray Inc., an affiliated
broker.

- --------------------------------------------------------------------------------

16 1997 Semiannual Report - Income Funds
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------

(4) CAPITAL SHARE
TRANSACTIONS
................................
Capital share transactions for the funds were as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1997 SEPTEMBER 30, 1996
----------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
GOVERNMENT INCOME FUND:
(authorized 10 billion shares of $0.01 par
value)
Purchases of fund shares .................. 457,949 $ 4,092,484 822,655 $ 7,312,999
Issued for reinvested distributions ....... 212,753 1,906,480 706,427 6,312,741
Redemptions of fund shares ................ (1,712,270) (15,336,817) (3,808,707) (33,990,246)
----------- ------------- ------------ --------------
(1,041,568) $ (9,337,853) (2,279,625) $ (20,364,506)
----------- ------------- ------------ --------------
----------- ------------- ------------ --------------
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1997(A) SEPTEMBER 30, 1996
----------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
INTERMEDIATE BOND FUND:
CLASS A (authorized four billion shares of
$0.01 par value):
Purchases of fund shares .................. 337,158 $ 2,554,324 884,830 $ 6,934,686
Issued for reinvested distributions ....... 316,663 2,394,780 4,706,970 37,022,030
Redemptions of fund shares ................ (5,526,840) (41,868,291) (26,737,969) (206,000,282)
Redemptions in exchange for Class Y
shares .................................. (2,210,491) (16,843,886) -- --
----------- ------------- ------------ --------------
(7,083,510) $ (53,763,073) (21,146,169) $ (162,043,566)
----------- ------------- ------------ --------------
----------- ------------- ------------ --------------
CLASS Y (authorized one billion shares of
$0.01 par value):
Purchases of fund shares .................. 12,678 $ 95,333
Purchases in exchange for Class A
shares .................................. 2,210,491 16,843,886
Issued for reinvested distributions ....... 4,205 31,791
Redemptions of fund shares ................ (194,905) (1,460,743)
----------- -------------
2,032,469 $ 15,510,267
----------- -------------
----------- -------------
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED MONTH ENDED YEAR ENDED
MARCH 31, 1997 SEPTEMBER 30, 1996 AUGUST 31, 1996
------------------------ ------------------------ ----------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES FUND:
(authorized 10 billion shares of $0.01 par value)
Purchases of fund shares .................. 293,825 $ 2,378,928 14,416 $ 115,577 370,239 $ 2,964,814
Issued for reinvested distributions . 369,205 2,992,397 93,048 747,173 1,637,616 13,155,273
Issued in connection with the merger of
BDJ, CDJ, DDJ, and EDJ (note 7) ......... -- -- -- -- 104,403,211 801,742,686
Issued in connection with the merger of
PIFAX (note 7) .......................... -- -- 579,823 4,661,948 -- --
Redemptions of fund shares ................ (6,676,807) (54,129,285) (1,672,368) (13,439,193) (119,875,424) (960,718,174)
---------- ------------ ---------- ------------ ------------- -------------
(6,013,777) $(48,757,960) (985,081) $ (7,914,495) $ (13,464,358) $(142,855,401)
---------- ------------ ---------- ------------ ------------- -------------
---------- ------------ ---------- ------------ ------------- -------------
</TABLE>

(A) REPRESENTS PERIOD FROM FEBRUARY 18 (COMMENCEMENT OF OFFERING OF SHARES) TO
MARCH 31, 1997 FOR CLASS Y.

- --------------------------------------------------------------------------------

17 1997 Semiannual Report - Income Funds
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------

Sales charges received by Piper Jaffray Inc. (Piper
Jaffray), the funds' distributor, for distributing the
funds' shares were as follows:

<TABLE>
<CAPTION>
ADJUSTABLE
INTERMEDIATE RATE
GOVERNMENT BOND FUND MORTGAGE
INCOME ----------------------- SECURITIES
FUND CLASS A CLASS Y FUND
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Front-end sales charges ................ $ 593 $ 11 $ -- $ 406
Contingent deferred sales charges ...... 587 158 -- 519
---------- ---------- ---------- ----------
$1,180 $ 169 $ -- $ 925
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>

(5) EXPENSES
................................
INVESTMENT MANAGEMENT FEE
Piper Funds and Piper Funds II have entered into
investment management agreements 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
agreements require each fund to pay Piper Capital a
monthly fee based on average daily net assets. The fees
for each fund are as follows: Government Income Fund, an
annual rate of 0.50% of the first $250 million in net
assets and decreasing percentages thereafter to 0.40% of
net assets in excess of $500 million; Intermediate Bond
Fund, an annual rate of 0.30% of 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; Adjustable Rate
Mortgage Securities Fund, an annual rate of 0.35% on the
first $500 million in net assets and 0.30% of net assets
in excess of $500 million.

DISTRIBUTION AND SERVICE FEES
Each fund also pays Piper Jaffray Inc. (Piper Jaffray),
the funds' distributor, fees accrued daily and paid
quarterly for providing shareholder services and
distribution-related services. The fees for each class,
which are being voluntarily limited for Government Income
Fund and Class A of Intermediate Bond Fund for the year
ending September 30, 1997, are stated below as a percent
of average daily net assets attributable to such class.

<TABLE>
<CAPTION>
ADJUSTABLE
INTERMEDIATE RATE
GOVERNMENT BOND FUND MORTGAGE
INCOME ----------------------- SECURITIES
FUND CLASS A CLASS Y FUND
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Distribution fee ............................ 0.25% 0.05% -- --
Service fee ................................. 0.25% 0.25% -- 0.15%
----- ----- ----- -----
Total distribution and service fees ....... 0.50% 0.30% -- 0.15%
----- ----- ----- -----
----- ----- ----- -----
Total distribution and service fees after
voluntary limitation .................... 0.32% 0.22% -- 0.15%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>

- --------------------------------------------------------------------------------

18 1997 Semiannual Report - Income Funds
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------

SHAREHOLDER ACCOUNT SERVICING FEES
The company has also entered into shareholder account
servicing agreements under which Piper Jaffray and Piper
Trust Company (Piper Trust) 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 for providing these
services, are equal to an annual rate of $7.50 per active
shareholder account and $1.60 per closed account. For the
six months ended March 31, 1997, Piper Jaffray and Piper
Trust received the following amounts in connection with
the shareholder account servicing agreements:

<TABLE>
<CAPTION>
ADJUSTABLE
RATE
GOVERNMENT MORTGAGE
INCOME INTERMEDIATE SECURITIES
FUND BOND FUND FUND
---------- ------------ ----------
<S> <C> <C> <C>
Piper Jaffray ............................... $20,565 $ 8,797 $35,973
Piper Trust ................................. 2,793 1,758 --
---------- ------------ ----------
$23,358 $10,555 $35,973
---------- ------------ ----------
---------- ------------ ----------
</TABLE>

OTHER FEES AND EXPENSES
In addition to the investment management, distribution,
service and shareholder account servicing fees, each 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 miscellaneous cash balances
maintained by the funds.

(6) CAPITAL LOSS
CARRYOVER
................................
For federal income tax purposes, the following funds had
capital loss carryovers at September 30, 1996, which, if
not offset by subsequent capital gains, will expire as
noted. It is unlikely the board of directors will
authorize a distribution of any net realized capital gains
until the available capital loss carryovers have been
offset or expired. Due to limits on utilization of the
capital loss carryovers which Adjustable Rate Mortgage
Securities Fund acquired in the mergers described in note
7, the utilization of these capital loss carryovers in
subsequent years is limited to $69,945,971 per year

<TABLE>
<CAPTION>
ADJUSTABLE
RATE
MORTGAGE
GOVERNMENT INTERMEDIATE SECURITIES
INCOME FUND BOND FUND FUND
------------ ------------- -------------
<S> <C> <C> <C>
Fund Capital Loss Carryovers ................ $ 16,784,819 $ 276,491,719 $146,563,691
Expiration Dates ............................ 2002-2004 2003-2004 1997-2004
</TABLE>

- --------------------------------------------------------------------------------

19 1997 Semiannual Report - Income Funds
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------

(7) MERGERS
................................
As described in note 1 to the financial statements, on
September 1, 1995, the net assets of BDJ, CDJ, DDJ and EDJ
were combined in a tax-free merger to form ARMS Fund. In
addition, on September 16, 1996, the net assets of
Institutional Government Adjustable Portfolio (PIFAX) were
acquired by ARMS Fund via a tax-free merger. The following
table presents the shares of ARMS Fund issued in exchange
for the net assets of each of the merged funds and the
composition of such net assets as of the merger dates.

<TABLE>
<CAPTION>
MERGER OF
MERGER OF BDJ, CDJ, DDJ
PIFAX AND EDJ
9/16/96 9/1/95
------------- ---------------
<S> <C> <C>
Shares issued in connection with the
mergers* .................................. 579,823 104,403,211
------------- ---------------
------------- ---------------
Net assets immediately after the mergers .... $ 269,963,724 $1,211,749,182
------------- ---------------
------------- ---------------
Composition of net assets merged into ARMS
Fund**
Capital stock ............................. $ 7,987,753 $ 900,831,012
Accumulated net realized loss on
investment .............................. (3,325,805) (94,949,571)
Unrealized depreciation of investments .... -- (4,138,755)
------------- ---------------
Total net assets merged ................... $ 4,661,948 $ 801,742,686
------------- ---------------
------------- ---------------
</TABLE>

* SHARES ISSUED WERE DETERMINED BY THE RATIO OF EACH MERGED FUND'S NET ASSET
VALUE TO ARMS FUND'S NET ASSET VALUE ON THE DATES OF THE MERGERS. SHARES
ARE BASED ON A NET ASSET VALUE OF ARMS FUND OF $8.00 PER SHARE FOR THE
MERGER ON SEPTEMBER 1, 1995, AND $8.04 PER SHARE FOR THE MERGER ON
SEPTEMBER 16, 1996.
** DDJ IS CONSIDERED THE SURVIVOR OF THE SEPTEMBER 1, 1995, MERGER FOR
FINANCIAL REPORTING PURPOSES. THEREFORE, THE NET ASSETS MERGED ON 9/1/95
ARE THOSE OF BDJ, CDJ AND EDJ, WHICH ARE CONSIDERED TO HAVE MERGED INTO
ARMS FUND.

- --------------------------------------------------------------------------------

20 1997 Semiannual Report - Income Funds
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------

(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:

GOVERNMENT INCOME FUND

<TABLE>
<CAPTION>
Six Months
Ended
March 31, Year Ended September 30,
1997 -------------------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992
------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ........ $ 8.83 $ 8.99 $ 8.42 $ 10.01 $ 9.86 $ 9.69
------------- ------- ------- ------- ------- -------
Operations:
Net investment income ..................... 0.29 0.60 0.60 0.69 0.80 0.90
Net realized and unrealized gains (losses)
on investments .......................... (0.12) (0.16) 0.60 (1.58) 0.15 0.17
------------- ------- ------- ------- ------- -------
Total from operations ................... 0.17 0.44 1.20 (0.89) 0.95 1.07
------------- ------- ------- ------- ------- -------
Distributions to shareholders:
From net investment income ................ (0.29) (0.60) (0.63) (0.68) (0.80) (0.90)
From net realized gains on investments -- -- -- (0.02) -- --
------------- ------- ------- ------- ------- -------
Total distributions to shareholders ..... (0.29) (0.60) (0.63) (0.70) (0.80) (0.90)
------------- ------- ------- ------- ------- -------
Net asset value, end of period .............. $ 8.71 $ 8.83 $ 8.99 $ 8.42 $ 10.01 $ 9.86
------------- ------- ------- ------- ------- -------
------------- ------- ------- ------- ------- -------
SELECTED INFORMATION
Total return (a) ............................ 1.86% 4.99% 14.87% (9.26)% 10.06% 11.57%
Net assets at end of period (in millions) ... $ 74 $ 84 $ 106 $ 126 $ 160 $ 124
Ratio of expenses to average daily net
assets .................................... 1.20%(b) 1.09% 1.11% 1.05% 1.09% 1.11%
Ratio of net investment income to average
daily net assets .......................... 6.36%(b) 6.66% 7.02% 7.43% 8.10% 9.15%
Portfolio turnover rate (excluding short-term
securities) ............................... 21% 32% 87% 121% 191% 118%
Ratios before waivers by the distributor:
Ratio of expenses to average daily net
assets before waivers ................... 1.37%(b) 1.28% 1.29% 1.24% 1.27% 1.29%
Ratio of net investment income to average
daily net assets before waivers ......... 6.19%(b) 6.47% 6.84% 7.24% 7.92% 8.97%
</TABLE>

(A) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A
SALES CHARGE.
(B) ANNUALIZED.

- --------------------------------------------------------------------------------

21 1997 Semiannual Report - Income Funds
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------

(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:

INTERMEDIATE BOND FUND

<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------
Six Months
Ended
March 31, Year Ended September 30,
1997 --------------------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992
------------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ........ $ 7.50 $ 8.12 $ 7.98 $ 12.22 $ 11.51 $ 10.71
------------- ------- ------- -------- ------- -------
Operations:
Net investment income ..................... 0.23 0.53(c) 0.88 0.90 1.29 1.07
Net realized and unrealized gains (losses)
on investments .......................... (0.04) (0.11) 0.31 (3.96) 0.56 0.73
------------- ------- ------- -------- ------- -------
Total from operations ................... 0.19 0.42 1.19 (3.06) 1.85 1.80
------------- ------- ------- -------- ------- -------
Distributions to shareholders:
From net investment income ................ (0.23) (1.04) (1.05) (0.95) (0.90) (0.91)
From net realized gains on investments .... -- -- -- (0.23) (0.24) (0.09)
------------- ------- ------- -------- ------- -------
Total distributions to shareholders ..... (0.23) (1.04) (1.05) (1.18) (1.14) (1.00)
------------- ------- ------- -------- ------- -------
Net asset value, end of period .............. $ 7.46 $ 7.50 $ 8.12 $ 7.98 $ 12.22 $ 11.51
------------- ------- ------- -------- ------- -------
------------- ------- ------- -------- ------- -------
SELECTED INFORMATION
Total return (a) ............................ 2.43% 5.68% 16.15% (26.65)% 17.04% 17.70%
Net assets at end of period (in millions) ... $ 82 $ 136 $ 319 $ 564 $ 792 $ 470
Ratio of expenses to average daily net assets
(b) ....................................... 0.84%(e) 0.72% 0.97% 0.78% 0.70% 0.65%
Ratio of net investment income to average
daily net assets .......................... 5.92%(e) 6.65% 8.02% 9.33% 12.51% 11.01%
Portfolio turnover rate (excluding short-term
securities) ............................... 51% 89% 136% 169% 109% 64%
Ratios before waivers by the distributor:
Ratio of expenses to average daily net
assets before waivers ................... 0.93%(e) 0.82% 1.07% 0.85% 0.77% 0.72%
Ratio of net investment income to average
daily net assets before waivers ......... 5.83%(e) 6.55% 7.92% 9.26% 12.44% 10.94%
</TABLE>

<TABLE>
<CAPTION>
CLASS Y
-------------
Period Ended
March 31,
1997(d)
(Unaudited)
-------------
<S> <C>
PER-SHARE DATA
Net asset value, beginning of period ........ $ 7.62
-------------
Operations:
Net investment income ..................... 0.05
Net realized and unrealized loss on
investments ............................. (0.15)
-------------
Total from operations ................... (0.10)
-------------
Distributions to shareholders:
From net investment income ................ (0.05)
-------------
Net asset value, end of period .............. $ 7.47
-------------
-------------
SELECTED INFORMATION
Total return (a) ............................ (1.26)%
Net assets at end of period (in millions) ... $ 15
Ratio of expenses to average daily net
assets .................................... 0.58%(e)
Ratio of net investment income to average
daily net assets .......................... 6.39%(e)
Portfolio turnover rate (excluding short-term
securities) ............................... 51%
</TABLE>

(A) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A
SALES CHARGE.
(B) INCLUDES FEDERAL EXCISE TAXES OF 0.08%, 0.37%, 0.23%, 0.09% AND 0.02% FOR
FISCAL 1996, 1995, 1994, 1993, AND 1992, RESPECTIVELY.
(C) BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
(D) COMMENCEMENT OF OFFERING OF CLASS Y SHARES WAS FEBRUARY 18, 1997.
(E) ANNUALIZED.

- --------------------------------------------------------------------------------

22 1997 Semiannual Report - Income Funds
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------

(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:

ADJUSTABLE RATE MORTGAGE SECURITIES FUND
<TABLE>
<CAPTION>
Six Months
Ended
March 31, Month Ended Year Ended August 31,
1997 September 30, -------------------------------------------------
(Unaudited) 1996 1996 1995 1994 1993
------------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA (A)
Net asset value, beginning of period $ 8.06 $ 8.03 $ 7.99 $ 8.10 $ 8.88 $ 8.95
------------- ------------- ---------- ---------- ---------- ----------
Operations:
Net investment income ................ 0.24 0.04 0.49 0.47 0.55 0.63
Net realized and unrealized gains
(losses) on investments ............ 0.04 0.03 0.01 (0.05) (0.82) (0.09)
------------- ------------- ---------- ---------- ---------- ----------
Total from operations .............. 0.28 0.07 0.50 0.42 (0.27) 0.54
------------- ------------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income ........... (0.24) (0.04) (0.46) (0.53) (0.51) (0.61)
------------- ------------- ---------- ---------- ---------- ----------
Net asset value, end of period ......... $ 8.10 $ 8.06 $ 8.03 $ 7.99 $ 8.10 $ 8.88
------------- ------------- ---------- ---------- ---------- ----------
------------- ------------- ---------- ---------- ---------- ----------
SELECTED INFORMATION
Total return (c) ....................... 3.48% 0.85% 6.40% 5.43% (3.18)% 6.24%
Net assets at end of period (in
millions) ............................ $ 215 $ 263 $ 270 $ 409 $ 500 $ 551
Ratio of expenses to average daily net
assets ............................... 0.81%(e) 0.82%(e) 0.60% 0.63% 0.60% 0.58%
Ratio of net investment income to
average daily net assets ............. 5.85%(e) 5.82%(e) 5.74% 5.62% 6.39% 7.25%
Portfolio turnover rate (excluding
short-term securities) ............... 8% 2% %51 %36 %39 %39
Amount of borrowings outstanding at end
of period (in millions)(d) ........... $ -- $ -- $ -- $ -- $ 145 $ 145
Average amount of borrowings outstanding
during the period (in millions) ...... $ -- $ -- $ -- $ 57 $ 145 $ 149
Average number of shares outstanding
during the period (in millions) ...... -- -- -- 53 62 62
Average per-share amount of borrowings
outstanding during the period ........ $ -- $ -- $ -- $ 1.09 $ 2.34 $ 2.41

1992(b)
----------
<S> <C>
PER-SHARE DATA (A)
Net asset value, beginning of period $ 8.80
----------
Operations:
Net investment income ................ 0.40
Net realized and unrealized gains
(losses) on investments ............ 0.07
----------
Total from operations .............. 0.47
----------
Distributions to shareholders:
From net investment income ........... (0.32)
----------
Net asset value, end of period ......... $ 8.95
----------
----------
SELECTED INFORMATION
Total return (c) ....................... 5.49%
Net assets at end of period (in
millions) ............................ $ 555
Ratio of expenses to average daily net
assets ............................... 0.58%(e)
Ratio of net investment income to
average daily net assets ............. 7.70%(e)
Portfolio turnover rate (excluding
short-term securities) ............... 41%
Amount of borrowings outstanding at end
of period (in millions)(d) ........... $ 145
Average amount of borrowings outstanding
during the period (in millions) ...... $ 90
Average number of shares outstanding
during the period (in millions) ...... 52
Average per-share amount of borrowings
outstanding during the period ........ $ 1.67
</TABLE>

(A) ON SEPTEMBER 1, 1995, FOUR CLOSED-END FUNDS, AMERICAN ADJUSTABLE RATE TERM
TRUST 1996, AMERICAN ADJUSTABLE RATE TERM TRUST 1997, AMERICAN ADJUSTABLE
RATE TERM TRUST 1998 (DDJ) AND AMERICAN ADJUSTABLE RATE TERM TRUST 1999
WERE COMBINED TO CREATE THE FUND. DDJ IS CONSIDERED THE SURVIVING ENTITY
FOR FINANCIAL REPORTING PURPOSES. THE FINANCIAL HIGHLIGHTS PRESENTED FOR
THE PERIODS PRIOR TO SEPTEMBER 1, 1995 ARE THOSE OF DDJ. THE PER-SHARE
INFORMATION FOR SUCH PERIODS HAS BEEN RESTATED TO REFLECT THE IMPACT OF
ADDITIONAL SHARES CREATED RESULTING FROM THE DIFFERENCE IN THE NET ASSET
VALUE PER SHARE OF DDJ AT THE TIME OF THE MERGER ($8.71) AND THE INITIAL
NET ASSET VALUE PER SHARE OF THE FUND ($8.00).
(B) COMMENCEMENT OF OPERATIONS OF AMERICAN ADJUSTABLE RATE TERM TRUST 1998 WAS
JANUARY 30, 1992.
(C) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A
SALES CHARGE.
(D) DDJ WAS A CLOSED-END MANAGEMENT INVESTMENT COMPANY AND WAS PERMITTED TO
ENTER INTO BORROWINGS FOR OTHER THAN TEMPORARY OR EMERGENCY PURPOSES.
ADJUSTABLE RATE MORTGAGE SECURITIES FUND MAY BORROW ONLY FOR TEMPORARY OR
EMERGENCY PURPOSES.
(E) ANNUALIZED

- --------------------------------------------------------------------------------

23 1997 Semiannual Report - Income Funds
<PAGE>
Investments in Securities (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
GOVERNMENT INCOME FUND March 31, 1997
.......................................................................................

Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)

U.S. GOVERNMENT AND AGENCY SECURITIES (106.0%):
U.S. AGENCY DEBENTURES (3.9%):
5.80%, FNMA, 12/10/03 ............................. $ 2,000,000 $ 1,867,480
6.63%, FNMA, 3/21/06 .............................. 1,000,000 969,910
------------
2,837,390
------------

U.S. AGENCY MORTGAGE-BACKED SECURITIES (87.2%):
FIXED RATE (73.3%):
7.50%, FHLMC, 11/1/09 ............................. 1,526,707 1,536,249
7.50%, FHLMC, 10/1/09 ............................. 2,242,131 2,256,144
7.50%, FHLMC, 12/1/09 ............................. 3,023,713 3,042,611
7.00%, FHLMC, 11/1/25 ............................. 2,835,594 2,720,923
11.00%, FNMA, 10/1/20 ............................. 1,421,175 1,597,046
7.00%, FNMA, 12/1/07 .............................. 7,223,891 7,149,413
6.50%, FNMA, 8/1/23 ............................... 7,245,454 6,792,613
6.00%, FNMA, 10/1/23 .............................. 749,991 681,786
9.00%, FNMA, 7/1/24 ............................... 783,820 820,808
10.00%, FNMA, 10/1/17 ............................. 750,636 817,022
6.50%, FNMA, 9/1/25 ............................... 4,748,155 4,427,179
7.00%, FNMA, 1/1/08 ............................... 5,000,000(b) 4,912,500
10.00%, FNMA, Series 1989-15, Class D, 9/25/18 .... 190,752 195,479
6.50%, FNMA, Series 1996-23, Class G, 7/25/26 ..... 4,250,000 3,672,931
7.00%, GNMA, 7/15/23 .............................. 3,322,437 3,192,663
7.00%, GNMA, 3/15/09 .............................. 1,429,362 1,418,199
9.00%, GNMA, 10/15/24 ............................. 625,017 655,880
7.00%, GNMA, 2/15/09 .............................. 1,599,981 1,587,485
7.00%, GNMA, 3/15/09 .............................. 1,991,001 1,975,451
10.00%, GNMA, 1/15/10 ............................. 1,302,062 1,426,982
9.00%, GNMA, 8/15/25 .............................. 2,969,097 3,110,129
------------
53,989,493
------------

INVERSE FLOATER (C) (1.7%):
4.00%, FHLMC, Series 1419, Class G, LIBOR,
11/15/97 ........................................ 1,301,711 1,283,760
------------

INVERSE INTEREST-ONLY (C) (0.8%):
5.91%, FHLMC G, Series 12, Class AB, LIBOR,
12/25/08 ........................................ 9,382,815 608,569
------------

Z-BOND (C) (11.4%):
8.00%, FHLMC, Series 1339, Class PZ, 7/15/22 ...... 3,713,971 3,587,064
7.50%, FHLMC, Series 1677, Class Z, 7/15/23 ....... 3,777,803 3,373,163
6.50%, FHLMC, Series 1694, Class Z, 3/15/24 ....... 952,303 727,569
6.50%, FNMA, Series 1993-160, Class ZA, 9/25/23 ... 900,865 713,737
------------
8,401,533
------------

U.S. GOVERNMENT SECURITIES (14.9%):
7.25%, U.S. Treasury Bond, 5/15/16 ................ 2,000,000 2,008,420
8.13%, U.S. Treasury Bond, 8/15/19 ................ 1,000,000 1,097,380
5.75%, U.S. Treasury Note, 8/15/03 ................ 2,000,000 1,887,920
</TABLE>

<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
7.25%, U.S. Treasury Note, 5/15/04 ................ $ 1,500,000 $ 1,530,045
6.25%, U.S. Treasury Note, 5/31/00 ................ 2,500,000 2,474,175
6.50%, U.S. Treasury Note, 5/31/01 ................ 2,000,000 1,983,780
------------
10,981,720
------------

Total U.S. Government and Agency Securities
(cost: $78,668,779) .......................... 78,102,465
------------

SHORT-TERM SECURITIES (0.5%):
Repurchase agreement with Goldman Sachs, acquired
on 3/31/97, interest of $63, 6.53%, 4/1/97
(cost: $350,000) ................................ 350,000(d) 350,000
------------

Total Investments in Securities
(cost: $79,018,779) (e) ...................... $ 78,452,465
------------
------------
</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, 1997, THE TOTAL COST OF INVESTMENTS PURCHASED ON A WHEN-ISSUED
BASIS WAS $5,009,375.
(C) PORTFOLIO ABBREVIATIONS AND DEFINITIONS:
LIBOR - LONDON INTERBANK OFFERED RATE
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 IN EFFECT ON MARCH 31, 1997.
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 DECREASE
(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 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-BOND - 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 THE COST BASIS AND ESTIMATED TIMING OF FUTURE CASH FLOWS.
(D) REPURCHASE AGREEMENT IN A JOINT TRADING ACCOUNT WHICH IS COLLATERALIZED BY
U.S. GOVERNMENT AGENCY SECURITIES. ACCRUED INTEREST SHOWN REPRESENTS
INTEREST DUE AT MATURITY OF THE REPURCHASE AGREEMENT.
(E) ALSO APPROXIMATES THE COST OF INVESTMENTS IN SECURITIES 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 ...... $ 939,840
GROSS UNREALIZED DEPRECIATION ...... (1,506,154)
------------
NET UNREALIZED DEPRECIATION ...... $ (566,314)
------------
------------
</TABLE>

- --------------------------------------------------------------------------------

24 1997 Semiannual Report - Income Funds
<PAGE>
Investments in Securities (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
INTERMEDIATE BOND FUND March 31, 1997
.......................................................................................

U.S. GOVERNMENT AND AGENCY SECURITIES (74.5%):
U.S. AGENCY DEBENTURES (5.1%):
8.65%, FNMA, 2/10/98 .............................. $ 2,000,000 $ 2,044,780
6.18%, FNMA, 3/15/01 .............................. 1,000,000 979,300
6.16%, FNMA, 4/3/01 ............................... 2,000,000 1,956,260
------------
4,980,340
------------

U.S. AGENCY MORTGAGE-BACKED SECURITIES (44.7%):
FIXED RATE (44.7%):
7.00%, FHLMC, 9/1/01 .............................. 2,437,828 2,432,489
7.00%, FHLMC, 9/1/25 .............................. 2,694,533 2,590,120
6.50%, FHLMC, 5/1/26 .............................. 1,556,074 1,453,793
6.50%, FHLMC, 1/1/26 .............................. 2,508,404 2,343,527
7.00%, FHLMC, 9/1/10 .............................. 2,309,341 2,276,133
10.00%, FNMA, 11/1/18 ............................. 2,615,247 2,845,703
7.00%, FNMA, 10/1/25 .............................. 2,422,880 2,319,593
7.00%, FNMA, 11/1/10 .............................. 2,317,370 2,281,172
7.00%, FNMA, 5/1/26 ............................... 2,526,505 2,418,800
7.00%, FNMA, 9/1/25 ............................... 2,381,474 2,279,951
7.00%, FNMA, 10/1/25 .............................. 2,216,513 2,122,023
9.50%, FNMA, 6/1/21 ............................... 2,769,740 2,984,117
7.00%, FNMA, 9/1/03 ............................... 2,471,878 2,451,016
9.00%, GNMA, 5/20/25 .............................. 2,415,828 2,509,441
8.50%, GNMA, 7/20/25 .............................. 3,138,697 3,203,417
9.00%, GNMA, 8/15/21 .............................. 5,093,645 5,383,372
6.50%, GNMA, 10/15/10 ............................. 1,738,191 1,683,769
------------
43,578,436
------------

U.S. GOVERNMENT SECURITIES (24.7%):
7.25%, U.S. Treasury Note, 8/15/04 ................ 4,000,000 4,078,320
6.75%, U.S. Treasury Note, 4/30/00 ................ 5,000,000 5,017,300
8.88%, U.S. Treasury Note, 11/15/98 ............... 2,500,000 2,596,700
8.00%, U.S. Treasury Note, 8/15/99 ................ 5,000,000 5,162,500
7.88%, U.S. Treasury Note, 11/15/99 ............... 2,500,000 2,579,725
7.88%, U.S. Treasury Note, 1/15/98 ................ 2,500,000 2,536,700
7.75%, U.S. Treasury Note, 2/15/01 ................ 2,000,000 2,071,140
------------
24,042,385
------------

Total U.S. Government and Agency Securities
(cost: $73,617,743) .......................... 72,601,161
------------

CORPORATE BONDS (17.5%):
American Express Credit, 6.50%, 8/1/00 ............ 1,000,000 986,490
Coca-Cola Enterprises, 6.70%, 10/15/36 ............ 2,000,000 1,957,400
Ford Motor Credit Co., 7.00%, 9/25/01 ............. 3,000,000 2,987,250
</TABLE>

<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
General Motors Acceptance Corp., 8.50%, 1/1/03 .... $ 1,500,000 $ 1,583,040
Hertz Corp, 6.30%, 11/15/06 ....................... 2,000,000 1,926,580
Hydro-Quebec, 9.40%, 2/1/21 ....................... 2,300,000 2,646,541
Lehman Brothers Inc., 7.50%, 8/1/26 ............... 2,000,000 2,019,960
Morgan Stanley Group Inc., 8.10%, 6/24/02 ......... 1,000,000 1,038,170
Smith Barney Holdings, 7.00%, 3/15/04 ............. 2,000,000 1,954,120
------------

Total Corporate Bonds
(cost: $17,312,083) .......................... 17,099,551
------------

ASSET-BACKED SECURITIES (3.3%):
Daimler-Benz Vehicle Trust, 1996-A, Class A, 5.85%,
7/20/03 ......................................... 1,712,582 1,699,068
Norwest Automobile Trust, 1996-A, Class A3, 5.90%,
3/15/00 ......................................... 1,500,000 1,483,946
------------

Total Asset-Backed Securities
(cost: $3,211,235) ........................... 3,183,014
------------

SHORT-TERM SECURITIES (3.0%):
Repurchase agreement with Goldman Sachs, acquired
on 3/31/97, interest of $530, 6.53%, 4/1/97
(cost: $2,922,000) .............................. 2,922,000(b) 2,922,000
------------

Total Investments in Securities
(cost: $97,063,061) (c) ...................... $ 95,805,726
------------
------------
</TABLE>

NOTES TO INVESTMENTS IN SECURITIES:
(A) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(B) REPURCHASE AGREEMENT IN A JOINT TRADING ACCOUNT WHICH IS COLLATERALIZED BY
U.S. GOVERNMENT AGENCY SECURITIES. ACCRUED INTEREST SHOWN REPRESENTS
INTEREST DUE AT MATURITY OF THE REPURCHASE AGREEMENT.
(C) ALSO APPROXIMATES THE COST OF INVESTMENTS IN SECURITIES 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 ...... $ 62,162
GROSS UNREALIZED DEPRECIATION ...... (1,319,497)
------------
NET UNREALIZED DEPRECIATION ...... $ (1,257,335)
------------
------------
</TABLE>

- --------------------------------------------------------------------------------

25 1997 Semiannual Report - Income Funds
<PAGE>
Investments in Securities (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ADJUSTABLE RATE MORTGAGE SECURITIES FUND March 31, 1997
.......................................................................................

U.S. GOVERNMENT AND AGENCY SECURITIES (83.4%):
U.S. AGENCY MORTGAGE-BACKED SECURITIES (83.4%):
FIXED RATE (19.4%):
5.50%, FHLMC, 4/1/03 .............................. $ 2,189,092 $ 2,080,316
5.50%, FHLMC, 4/1/03 .............................. 1,694,728 1,610,517
5.50%, FHLMC, 4/1/03 .............................. 2,300,672 2,186,352
5.50%, FHLMC, 4/1/03 .............................. 1,236,061 1,174,642
5.50%, FHLMC, 4/1/03 .............................. 1,928,171 1,832,361
6.50%, FNMA, 3/1/03 ............................... 4,693,485 4,605,482
10.00%, FNMA, 12/1/21 ............................. 1,345,085 1,464,044
7.00%, FNMA, 4/1/03 ............................... 3,790,171 3,758,182
6.50%, FNMA, 3/1/03 ............................... 9,266,448 9,092,702
7.00%, FNMA, 3/1/03 ............................... 3,808,462 3,785,839
7.00%, FNMA, 4/1/03 ............................... 4,002,084 3,978,311
9.00%, GNMA, 5/15/16 .............................. 984,320 1,036,607
10.00%, GNMA, 2/15/25 ............................. 2,189,071 2,401,826
9.00%, GNMA, 4/15/21 .............................. 2,657,720 2,818,831
------------
41,826,012
------------

ADJUSTABLE AND FLOATING RATE (B) (64.0%):
7.38%, FHLMC, 11/1/16 ............................. 7,207,243 7,451,353
7.25%, FHLMC, 1/1/17 .............................. 816,019 841,446
7.75%, FHLMC, 6/1/18 .............................. 1,489,682 1,553,455
6.94%, FHLMC, 1/1/21 .............................. 4,342,850 4,483,037
6.26%, FHLMC, 12/1/26 ............................. 4,990,366 4,879,929
7.28%, FHLMC, 8/1/20 .............................. 7,639,416 7,938,881
7.16%, FNMA, 11/1/17 .............................. 7,672,699 7,894,977
7.34%, FNMA, 1/1/20 ............................... 1,517,835 1,580,567
7.62%, FNMA, 2/1/22 ............................... 1,311,768 1,374,169
6.96%, FNMA, 3/1/28 ............................... 5,447,797 5,460,109
7.32%, FNMA, 10/1/25 .............................. 6,676,043 6,706,419
5.32%, FNMA, Series 1993-116, Class FA, COFI,
7/25/22 ......................................... 7,443,964 7,301,189
7.13%, GNMA, 7/20/22 .............................. 6,412,305 6,578,576
7.13%, GNMA, 5/20/23 .............................. 8,257,641 8,469,119
7.13%, GNMA, 9/20/23 .............................. 6,439,082 6,601,605
7.13%, GNMA, 6/20/24 .............................. 7,824,628 8,023,139
7.13%, GNMA, 9/20/25 .............................. 12,115,489 12,409,775
7.00%, GNMA, 8/20/25 .............................. 9,989,848 10,221,912
7.00%, GNMA, 9/20/25 .............................. 14,471,210 14,808,100
7.13%, GNMA, 8/20/21 .............................. 5,865,891 6,031,074
6.88%, GNMA, 10/20/21 ............................. 5,604,302 5,753,880
6.88%, GNMA II, 11/20/25 .......................... 1,494,863 1,528,990
------------
137,891,701
------------

Total U.S. Government and Agency Securities
(cost: $178,952,967) ......................... 179,717,713
------------
</TABLE>

<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>

PRIVATE MORTGAGE-BACKED SECURITIES (15.0%):
FLOATING RATE (B) (15.0%):
7.50%, Capstead Mortgage Securities Corporation,
Series 1993-2H, Class A1, Treasury, 9/25/23 ..... $ 9,944,779 $ 10,086,184
7.17%, Donaldson, Lufkin and Jenrette, Series
1992-MF3, Class A3, LIBOR, 6/18/07 .............. 13,000,000 13,024,375
7.82%, Resolution Trust Corporation, Series 1991-8,
Class A1, Treasury, 12/25/20 .................... 9,063,669 9,080,663
------------

Total Private Mortgage-Backed Securities
(cost: $32,971,999) .......................... 32,191,222
------------

SHORT-TERM SECURITIES (1.5%):
Repurchase agreement with Goldman Sachs, acquired
on 3/31/97, interest of $597, 6.53%, 4/1/97
(cost: $3,291,000) .............................. 3,291,000(c) 3,291,000
------------

Total Investments in Securities
(cost: $215,215,966) (d) ..................... $215,199,935
------------
------------
</TABLE>

NOTES TO INVESTMENTS IN SECURITIES:
(A) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(B) PORTFOLIO ABBREVIATIONS AND DEFINITIONS:
COFI (11TH DISTRICT) - COST OF FUNDS INDEX OF THE FEDERAL RESERVE'S
11TH DISTRICT
LIBOR - LONDON INTERBANK OFFERED RATE
ADJUSTABLE RATE - REPRESENTS PASS-THROUGH MORTGAGE SECURITIES
COLLATERALIZED BY MORTGAGES WITH INTEREST RATES THAT ARE ADJUSTED
FROM TIME TO TIME IN ACCORDANCE WITH PREDETERMINED INTEREST RATE
INDEXES. INTEREST RATES DISCLOSED ARE IN EFFECT ON MARCH 31, 1997.
FLOATING RATE - REPRESENTS COLLATERALIZED MORTGAGE OBLIGATIONS OR
MULTI-CLASS PASS-THROUGH SECURITIES THAT PAY INTEREST AT RATES THAT
INCREASE (DECREASE) WITH AN INCREASE (DECREASE) IN THE SPECIFIED
INDEX. INTEREST RATES DISCLOSED ARE IN EFFECT ON MARCH 31, 1997.
(C) REPURCHASE AGREEMENT IN A JOINT TRADING ACCOUNT WHICH IS COLLATERALIZED BY
U.S. GOVERNMENT AGENCY SECURITIES. ACCRUED INTEREST SHOWN REPRESENTS
INTEREST DUE AT MATURITY OF THE REPURCHASE AGREEMENT.
(D) ALSO APPROXIMATES THE COST OF INVESTMENTS IN SECURITIES 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 ...... $ 1,295,242
GROSS UNREALIZED DEPRECIATION ...... (1,311,273)
------------
NET UNREALIZED DEPRECIATION ...... $ (16,031)
------------
------------
</TABLE>

- --------------------------------------------------------------------------------

26 1997 Semiannual Report - Income Funds
<PAGE>
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.
David A. Hughey, RETIRED EXECUTIVE VICE PRESIDENT AND
CHIEF ADMINISTRATIVE OFFICER OF DEAN WITTER
INTERCAPITAL INC. AND DEAN WITTER TRUST CO.
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 Sharp Miley, SECRETARY

INVESTMENT ADVISER
Piper Capital Management Incorporated
222 SOUTH NINTH STREET, MINNEAPOLIS, MN 55402-3804

TRANSFER AND DIVIDEND DISBURSING AGENTS
Investors Fiduciary Trust Company
127 WEST 10TH STREET, KANSAS CITY, MO 64105-1716
PIPER JAFFRAY INC.
222 SOUTH NINTH STREET, MINNEAPOLIS, MN 55402-3804
PIPER TRUST COMPANY
222 SOUTH NINTH STREET, MINNEAPOLIS, MN 55402-3804

CUSTODIAN AND ACCOUNTING AGENT
Investors Fiduciary Trust Company
127 WEST 10TH STREET, KANSAS CITY, MO 64105-1716

LEGAL COUNSEL
Dorsey & Whitney LLP
220 SOUTH SIXTH STREET, MINNEAPOLIS, MN 55402

- --------------------------------------------------------------------------------

27 1997 Semiannual Report - Income Funds
<PAGE>

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 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 DISTRIBUTIONS
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.

* 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.

- --------------------------------------------------------------------------------

28 1997 Semiannual Report - Income funds

<PAGE>

THIS PAGE WAS INTENTIONALLY LEFT BLANK.

- --------------------------------------------------------------------------------

29 1997 Semiannual Report - Income Funds

<PAGE>

THIS PAGE WAS INTENTIONALLY LEFT BLANK.

- --------------------------------------------------------------------------------

31 1997 Semiannual Report - Income Funds

<PAGE>

GLOSSARY OF TERMS ***
- --------------------------------------------------------------------------------

BALLOON MATURITY PASS-THROUGH SECURITIES
Securities with larger payments falling due in the later years of the
obligation.

BENCHMARK
A benchmark is an established basis of comparison for an investment's
performance. A benchmark may be an unmanaged market index or a group of similar
investments.

COUPON
Coupon is the interest rate on a bond that the issuer promises to pay to the
holder until the bond matures or resets its rate. It is expressed as an annual
percentage of face value.

CURRENT COUPON ISSUES
This is a bond with a coupon (or interest rate) within half a percentage point
of current market rates.

EFFECTIVE DURATION
Effective duration estimates how much the value of a security is expected to
change with a given change in interest rates. Longer effective durations
indicate more sensitivity 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 remember that effective duration is based on
certain assumptions and has several limitations. It is most effective as a
measure 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.

If a fund has an aggressive effective duration, it means its managers have set a
longer duration posture in comparison to the fund's benchmark. A fund with a
long effective duration is more sensitive to changing interest rates.

If a fund has a defensive effective duration, it means its managers have set
a shorter duration posture in comparison to the fund's benchmark, to make the
fund less sensitive to changing interest rates.

If a fund has a neutral effective duration, the duration is approximately the
same as its benchmark.

FANNIE MAE (OR FNMA, OR FEDERAL NATIONAL MORTGAGE ASSOCIATION )
Fannie Mae is a publicly owned, government-sponsored corporation chartered in
1938 to purchase mortgages from lenders and resell them to investors. The agency
mostly packages mortgages backed by the Federal Housing Administration, but also
sells some non-governmentally backed mortgages.

FEDERAL FUNDS RATE
The federal funds rate is the interest charged by banks with excess reserves at
a Federal Reserve district bank to banks needing overnight loans to meet reserve
requirements. The federal funds rate is the most sensitive indicator of the
direction of interest rates, since it is set daily by the market, unlike the
prime rate and the discount rate, which are periodically changed by banks and by
the Federal Reserve Board, respectively.

FREDDIE MAC (OR FHLMC, OR FEDERAL HOME LOAN MORTGAGE CORPORATION)
Freddie Mac is a public agency that buys home mortgages from lenders and
packages them into new securities to sell on the open market. The corporation
was established in 1970. It has created an enormous secondary market, which
provides more funds for mortgage lending and allows investors to buy
high-yielding securities backed by federal guarantees. Freddie Mac previously
packaged only mortgages backed by the Veteran's Administration or the Federal
Housing Administration, but now resells non-governmentally backed mortgages.

- --------------------------------------------------------------------------------

32 1997 Semiannual Report - Income Funds

<PAGE>

GLOSSARY OF TERMS ***
- --------------------------------------------------------------------------------

GINNIE MAE (OR GNMA, OR GOVERNMENT NATIONAL MORTGAGE ASSOCIATION)
Ginnie Mae is a government-owned corporation, which is an agency of the U.S.
Department of Housing and Urban Development. Ginnie Mae guarantees, with the
full faith and credit of the U.S. government, full and timely payment of all
monthly principal and interest payments on the mortgage-backed pass-through
securities of registered holders. The securities, which are issued by private
firms, such as mortgage bankers and savings institutions, and typically marketed
through security broker-dealers, represent pools of residential mortgages
insured or guaranteed by the Federal Housing Administration (FHA), the Farmer's
Home Administration (FmHA), or the Veteran's Administration(VA).

MORTGAGE PASS-THROUGHS
Pass-throughs are pooled mortgages, repackaged as shares, for investors. These
securities provide for the pass-through to investors of their pro-rata share of
monthly payments (including any prepayments) made by the individual borrowers on
the mortgage loans, net of any fees paid to the guarantor of such securities and
the servicer of the underlying mortgage loans.

SEASONED
For mortgage-backed securities, a seasoned issue is one that has already gone
through a refinancing cycle and, therefore, is less likely to prepay principal
at an accelerated rate if refinancings pick up again.

YANKEE BONDS
A Yankee bond is a dollar-denominated bond issued in the United States by a
foreign bank or corporation. They are issued in the United States when market
conditions are more favorable than in domestic markets overseas.

FOR MORE INFORMATION

By Phone
1 800 866-7778

FOR GENERAL INFORMATION
press 5, our Mutual Fund Services represeentatives are ready to answer your
questions.

TO LISTEN TO MONTHLY FUND UPDATES
press 3, press 1, then press:

17 for Government Income Fund
18 for Intermediate Bond Fund
19 for Adjustable Rate Mortgage Securities Fund

TO ORDER LITERATURE
press 5, ask a service representative to mail you additional literature,
including a Quarterly Update. You can also request to be put on a mailing list
to receive this information automatically each quarter.

By Mail
Piper Capital Management
Attn: Mutual Fund Services
222 South Ninth Street
Minneapolis, MN 55402-3804

In a effort to reduce cost to our shareholders, we have implemented a process to
reduce duplicate mailing of the funds' 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 Mutual Fund
Services area at 1 800 866-7778, or mail a request to us.

ON-LINE
http://www.piperjaffray.com/

<PAGE>

INCOME FUNDS

[LOGO]

PIPER FUNDS 222 South Ninth Street
Minneapolis, MN 55402-3804

PIPER JAFFRAY INC. FUND DISTRIBUTOR AND NASD MEMBER.

#20400 5/1997 154-97

Bulk Rate
U.S. Postage
PAID
Permit No. 3008
Mpls, MN