<PAGE>
1998 Semiannual Report
[LOGO]
THE PIPER
FAMILY OF FUNDS
INTERNATIONAL GROWTH FUNDS
Emerging Markets Growth Fund
Pacific-European Growth Fund
U.S. GROWTH FUNDS
Small Company Growth Fund
Emerging Growth Fund
Growth Fund
GROWTH AND INCOME FUNDS
Growth and Income Fund
Balanced Fund
INCOME FUNDS
Government Income Fund
Intermediate Bond Fund
Adjustable Rate Mortgage Securities Fund
TAX-EXEMPT INCOME FUNDS
National Tax-Exempt Fund
Minnesota Tax-Exempt Fund
<PAGE>
[LOGO]
CONTENTS
INTERNATIONAL GROWTH FUNDS
Emerging Markets Growth Fund . . . . . . . . . . . . . . . . . . . . . . .2
Pacific-European Growth Fund . . . . . . . . . . . . . . . . . . . . . . .5
U.S. GROWTH FUNDS
Small Company Growth Fund. . . . . . . . . . . . . . . . . . . . . . . . 25
Emerging Growth Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Growth Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
GROWTH AND INCOME FUNDS
Growth and Income Fund . . . . . . . . . . . . . . . . . . . . . . . . . 50
Balanced Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
INCOME FUNDS
Government Income Fund . . . . . . . . . . . . . . . . . . . . . . . . . 70
Intermediate Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . 72
Adjustable Rate Mortgage Securities Fund . . . . . . . . . . . . . . . . 74
TAX-EXEMPT INCOME FUNDS
National Tax-Exempt Fund . . . . . . . . . . . . . . . . . . . . . . . . 93
Minnesota Tax-Exempt Fund. . . . . . . . . . . . . . . . . . . . . . . . 96
GLOSSARY *** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116
This report is intended for shareholders of The Piper Funds, 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.
***This report includes a glossary to help you understand financial terms used
in the portfolio managers' letters. When you see this symbol, it indicates a
word that is defined in the glossary.
Dear Shareholders
- --------------------------------------------------------------------------------
Financial markets have not only continued the strength of the past few years,
they've actually accelerated their rate of gain. During just the first quarter
of 1998, for example, the Standard & Poor's 500 Index generated a total return
of 13.94%* -- its third highest quarterly return in the past 10 years. This
compares to its previous quarter return, a much lower 2.87%.* This acceleration
is quite surprising, given the uncertainty of the impact of the Asian crisis on
the U.S. economy and the slowdown in expected corporate profit growth. Inflation
has continued to trend downward, and interest rates declined only slightly
during the period.
As we look to the future, we do anticipate the economy will slow. We believe
the Asian crisis ultimately will have some negative impact on the U.S.
economy, be it from lower demand for American goods or increased pricing
pressures from competing Asian goods. Additionally, the Federal Reserve has
maintained a relatively high level of short-term interest rates even as
inflation has continued to decline. The real return of Fed funds at slightly
over 4% is the highest real return since the 1980s. The term structure of the
fixed income market continues to be relatively flat, with the difference in
yields between 30-year Treasury bonds and three-month Treasury bills at
approximately 0.7%.
Justifying stock market returns like these on the basis of fundamental analysis
continues to be extremely difficult. Price to earnings multiples in the mid-20s
are clearly at the top end of the historical average. Even with the almost
perfect investment environment, further gains do appear limited, particularly
given the slowdown in overall corporate earnings to an anemic yearly rate of
change of less than 3% as of March 31. If the stock market is to continue to
move up, it appears investors must be willing to accept higher valuation
multiples.
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
<PAGE>
- --------------------------------------------------------------------------------
[PHOTO]
PAUL A. DOW, CFA
- --------------------------------------------------------------------------------
Senior Managing Director
HOLDING A LONG-TERM VIEW
This environment has caused us to to keep Piper Funds' investment strategies
neutral to relative market benchmarks. In fixed income markets, we anticipate
only small changes in interest rates for the foreseeable future, which provides
little opportunity for capital appreciation in bond prices. In large stocks, we
continue to seek out companies that we believe are relatively undervalued, given
their future growth prospects, and we continue to seek and focus on small and
mid-sized companies with high growth prospects and solid fundamentals. We
believe this is a time for investors to reaffirm their investment goals and risk
tolerances, and position their portfolios at comfortable levels.
You may be assured that we understand the importance of a long-term investment
horizon. Even in this ever-changing market environment, we stand firm in our
belief that maintaining sound, disciplined investment strategies is essential to
achieving consistent, competitive performance.
GOING FORWARD
On May 1, U.S. Bancorp acquired Piper Jaffray Companies, the parent company of
the funds' investment advisor. As a result of the acquisition, the Piper Funds
board of directors has recommended the reorganization of the funds into the
First American family of funds. This family is managed by First American Asset
Management, -> [LOGO] the asset management division of U.S. Bank National
Association. As shareholders, you have the right to vote on this reorganization
of your funds, and we encourage you to do so. Please read your proxy materials
- -> [GRAPHIC] carefully. If you have any questions, please contact your
investment executive or call Mutual Fund Services at 800 866-7778.
Sincerely,
/s/ Paul A. Dow
- ------------------------
Paul A. Dow
Senior Managing Director
* The S&P 500 is an unmanaged index of large-capitalization stocks.
Past performance does not guarantee future results.
<PAGE>
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INTERNATIONAL GROWTH
- --------------------------------------------------------------------------------
[PHOTO]
RICHARD MUCKART
is investment director and head of emerging markets investing at Edinburgh Fund
Managers plc and manager of Emerging Markets Growth Fund. He has 26 years of
financial experience.
- --------------------------------------------------------------------------------
EMERGING MARKETS GROWTH FUND
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May 17, 1998
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
EMERGING MARKETS GROWTH FUND CLASS A RETURNED -10.85% FOR THE SIX-MONTH PERIOD
ENDED MARCH 31, 1998, WHICH INCLUDES REINVESTED DISTRIBUTIONS BUT NOT THE FUND'S
SALES CHARGE.* This compares to a -12.41% return for the MSCI Emerging Markets
Free Index+ and a -12.86% for the Lipper Emerging Markets Funds Average++ over
the same time period. The economic and currency crisis in Asia that spilled over
to most emerging markets was largely responsible for the fund's investment
results. The fund outperformed its respective benchmark by maintaining an
overweighted*** position in Latin America, which recorded relatively good
investment results over the past six months.
THE ECONOMIC AND CURRENCY CRISIS IN SOUTHEAST ASIA THAT SURFACED LATE LAST YEAR
WAS THE MOST SIGNIFICANT EVENT DURING THE PERIOD. The crisis caused investors to
grow concerned about the prospects for global deflation, sending most Asian
markets into a steep decline. The Asian turmoil also had a negative impact on
established markets, including the United States. When it became apparent that
the problems in southeast Asia would have a significant impact on markets within
the region, we reduced the fund's exposure there, which helped preserve
shareholder capital.
LATIN AMERICAN MARKETS WERE AFFECTED BY THE ASIAN SITUATION BUT FARED MUCH
BETTER THAN THEIR COUNTERPARTS ALONG THE PACIFIC RIM. After the crisis hit,
Latin American markets were relatively quiet,
- --------------------------------------------------------------------------------
PERFORMANCE THROUGH MARCH 31, 1998*
- --------------------------------------------------------------------------------
Growth of $10,000 Invested Since Inception
[GRAPH]
<TABLE>
<CAPTION>
Emerging Markets Growth Lipper
Fund Class A, reflects the MSCI Emerging Emerging Markets
fund's maximum 4% Markets Free Funds
sales charge Index+ Average++
<S> <C> <C>
9600 10000 10000
9580.8 10000 10000
10608 11653 11482.8
11644.8 11865 11974
11481.6 11653.9 11670.5
10454.4 10599.4 10694.1
9158.4 10387.3 10294.2
9408 10742.8 10496.6
8774.4 10446.7 10033.7
9436.8 11096.3 10653.1
10867.2 12473.5 11815
11443.2 12615.2 12039.1
10905.6 12387.7 11780.3
10550.4 11743.6 11285.9
8688 10800.4 10299
7267.2 9651.32 9162.75
6316.8 9403.78 8862.66
6009.6 9463.52 8876.73
6864 9888.07 9256.67
6777.6 10414.1 9643.2
6912 10444.9 9673.2
6998.4 10679.4 9980.6
7075.2 10427.8 9763.42
7008 10378.3 9707.99
6691.2 9981.04 9275.56
6537.6 9803.05 9040.05
6796.8 10237.8 9347.71
8025.6 10965.5 10245
7708.8 10791.2 10098.1
7622.4 10875.3 10170.9
8150.4 11310.1 10532.1
8515.2 11259.6 10640.9
8486.4 11329.9 10643.5
8112 10555.6 10025.4
8409.6 10825.8 10300.5
8496 10919.5 10382.3
8380.8 10628.3 10127.1
8534.4 10806.4 10319.8
8788.89 10855.3 10461.7
9422.84 11595.6 11232.9
9711 12092.4 11613.4
9576.52 11774.6 11295.1
9605.34 11795.5 11280.3
10037.6 12133 11674.4
10652.3 12782.4 12191
11142.2 12973.2 12606
9816.66 11322.4 11157.8
10575.5 11636.1 11604.3
8606.38 9726.74 9639.42
8615.99 9371.84 9277.73
8676.84 9597.68 9376.41
7954.57 8845.31 8629.09
8840.55 9768.13 9331.41
9428 10192 9724.74
</TABLE>
+ The Morgan Stanley Capital International (MSCI) Emerging Markets Free Index is
an unmanaged index of securities from emerging markets that are open to foreign
investors, that includes no expenses or transaction charges.
++ The average total return, not including sales charges, of similar funds as
characterized by Lipper Analytical Services.
- --------------------------------------------------------------------------------
CLASS A AVERAGE ANNUALIZED TOTAL RETURNS
Includes the fund's maximum 4% front-end sales charge
<TABLE>
<S> <C>
One Year -5.49%
- --------------------------------------------------------------------------------
Three Year 14.61%
- --------------------------------------------------------------------------------
Since Inception (11/9/93) -1.33%
- --------------------------------------------------------------------------------
CLASS B AVERAGE ANNUAL TOTAL RETURNS
Includes the fund's maximum 4% contingent deferred
sales charge
One Year -6.51%
- --------------------------------------------------------------------------------
Since Inception (2/18/97) -7.29%
- --------------------------------------------------------------------------------
</TABLE>
* PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. 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. Safety of principal is not guaranteed.
Performance prior to June 21, 1996, is that of Hercules Latin American Value
Fund, the fund's predecessor. International investing involves risks not
typically associated with U.S. investing, including currency fluctuations,
political instability and different accounting standards. Risks are particularly
significant when investing in emerging markets. See the prospectus for more
complete information regarding risks. During most periods, the fund's advisor
waived or paid certain expenses and/or the fund's distributor voluntarily waived
certain 12b-1 fees. Without waivers, Class A returns would have been lower.
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.
- --------------------------------------------------------------------------------
2 1998 Semiannual Report - Piper Funds
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL GROWTH
- --------------------------------------------------------------------------------
EMERGING MARKETS GROWTH FUND (continued)
- --------------------------------------------------------------------------------
as emerging market investors focused their attention on the Pacific Rim in
search of good values following the sharp selloff. Late in the period, however,
generally strong earnings growth, ongoing economic reforms and good performance
on the inflation front helped some Latin American markets recover, most notably
Brazil. Signs that the Brazilian government was taking serious steps to bolster
the country's sagging economy and ongoing privatization helped fuel the rally.
The fund was overweighted in these markets, compared to its benchmark, which
helped its performance.
THE FUND'S EXPOSURE TO EASTERN EUROPE AND AFRICA MANAGED TO SOFTEN THE BLOW OF
THE ASIAN CRISIS. Poland and Greece were among the better performers,
particularly during the last three months of the period. Poland's advance was
fueled by strong fundamentals, such as a solid economy and improving corporate
earnings. In Greece, investors reacted favorably to the government's decision to
devalue *** the currency relative to a basket of European currencies. Ghana, one
of the world's smallest equity markets, also recorded strong investment results.
Three stocks in this region that registered solid investment results for the
fund were, OTP, one of Hungary's leading banks (3.9% of total assets as of March
31, 1998), Al-Ahran Beverages in Egypt (3.9%) and Goody's, a food company in
Greece (3.3%). Each company benefited from solid earnings growth.
ANOTHER SMALL MARKET THAT CONTRIBUTED FAVORABLY TO THE FUND'S INVESTMENT RESULTS
WAS RUSSIA. Last year, Russia was one of the world's best performing markets. A
favorable, though somewhat uncertain political environment coupled with strong
earnings growth by established corporations that have benefited from the
country's changing economic environment lifted stock prices. One of the fund's
better performing stocks in Russia was Vimpel-Communications (2.9%), a leading
cellular telephone company. As long as President Yeltsin remains in power, we
believe the prospects for Russian equities, on balance, appear favorable.
OUR OUTLOOK FOR THE SOUTHEAST ASIAN MARKETS REMAINS CAUTIOUS. The recent bounce
back in some key markets, such as Malaysia, is a positive sign. However, since
the full impact of Asia's economic problems is still uncertain, further market
volatility is anticipated. Weakness in the Japanese yen, which is a possibility
given the country's fragile economic condition, may also put Asian currencies
<TABLE>
<CAPTION>
TOP 10 HOLDINGS
- ------------------------------------------------------------------------------------------------------------------------------------
As a percentage of total assets on March 31, 1998
COMPANY SECTOR COUNTRY
<S> <C> <C> <C>
1 OTP Bank GDR Banking &
Financial Services Hungary 3.9%
- ------------------------------------------------------------------------------------------------------------------------------------
2 Al-Ahram Beverages GDR Brewing & Distilling Egypt 3.9%
- ------------------------------------------------------------------------------------------------------------------------------------
3 Fomento Economico
Mexicano Class B Food & Beverage Mexico 3.7%
- ------------------------------------------------------------------------------------------------------------------------------------
4 Centrais Eletricas Brasileiras
(Electrobras) Utilities Brazil 3.3%
- ------------------------------------------------------------------------------------------------------------------------------------
5 Goody's Food & Beverage Greece 3.3%
- ------------------------------------------------------------------------------------------------------------------------------------
6 Cemex Class B Construction Materials Mexico 3.2%
- ------------------------------------------------------------------------------------------------------------------------------------
7 Petroleo Brasileiro Oil & gas Brazil 3.0%
- ------------------------------------------------------------------------------------------------------------------------------------
8 Corporacion GEO Class B Real Estate Mexico 3.0%
- ------------------------------------------------------------------------------------------------------------------------------------
9 Cervecerias Unidas ADR Brewing & Distilling Chile 3.0%
- ------------------------------------------------------------------------------------------------------------------------------------
10 Vimpel-Communications ADR Telecommunications Russia 2.9%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
3 1998 Semiannual Report - Piper Funds
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL GROWTH
- --------------------------------------------------------------------------------
EMERGING MARKETS GROWTH FUND (continued)
- --------------------------------------------------------------------------------
under pressure. Since valuations are generally attractive in Asia, we intend to
use any major market downturns to increase selectively our exposure in the
region.
OUR FORECAST FOR LATIN AMERICAN MARKETS IS SOMEWHAT OPTIMISTIC. While any
additional problems in Asia may affect Latin American markets, we do not believe
they will have a long-term impact on the region. Most economies in Latin America
are improving, and corporate earnings growth is much stronger than in Asia. Once
investors get beyond the fear caused by the Asian crisis, we believe Latin
American equities will again be in favor.
Thank you for your investment in Emerging Markets Growth Fund. As always, we
will continue to maintain a well-diversified portfolio to reduce risk and
enhance growth potential in helping you seek your long-term investment goals.
Sincerely,
/s/ Richard Muckart
- -------------------
Richard Muckart
Portfolio Manager
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION BY COUNTRY
- --------------------------------------------------------------------------------
[MAP]
As a percentage of total assets on March 31, 1998
<TABLE>
<S> <C>
Greece 3%
- --------------------------------------------------------------------------------
Hungary 5%
- --------------------------------------------------------------------------------
Turkey 1%
- --------------------------------------------------------------------------------
Russia 6%
- --------------------------------------------------------------------------------
Ghana 4%
- --------------------------------------------------------------------------------
South Africa 8%
- --------------------------------------------------------------------------------
Egypt 4%
- --------------------------------------------------------------------------------
Lebanon 5%
- --------------------------------------------------------------------------------
India 4%
- --------------------------------------------------------------------------------
Indonesia 1%
- --------------------------------------------------------------------------------
Malaysia 1%
- --------------------------------------------------------------------------------
Thailand 1%
- --------------------------------------------------------------------------------
Papua New Guinea 2%
- --------------------------------------------------------------------------------
Philippines 2%
- --------------------------------------------------------------------------------
China (Hong Kong) 3%
- --------------------------------------------------------------------------------
Taiwan 1%
- --------------------------------------------------------------------------------
Mexico 17%
- --------------------------------------------------------------------------------
Chile 5%
- --------------------------------------------------------------------------------
Argentina 5%
- --------------------------------------------------------------------------------
Brazil 19%
- --------------------------------------------------------------------------------
</TABLE>
Other assets of 3% are not included in the chart.
- --------------------------------------------------------------------------------
4 1998 Semiannual Report - Piper Funds
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL GROWTH
- --------------------------------------------------------------------------------
PACIFIC-EUROPEAN GROWTH FUND
- --------------------------------------------------------------------------------
[PHOTO]
RICHARD MUCKART
is investment director and head of emerging markets investing at Edinburgh Fund
Managers plc and manager of Pacific-European Growth Fund. He has 26 years of
financial experience.
- --------------------------------------------------------------------------------
May 17, 1998
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1998, PACIFIC-EUROPEAN GROWTH FUND
CLASS A PRODUCED A TOTAL RETURN OF 4.51%, WITH ALL DISTRIBUTIONS REINVESTED, BUT
NOT INCLUDING THE FUND'S SALES CHARGE.* Over the same time frame, the MSCI
European, Australian, Far East (EAFE) Index+, the fund's benchmark, ***
returned 5.87% and the Lipper International Funds Average++ returned 5.9%. The
fund's underperformance was largely due to its exposure to Pacific Basin stocks,
which, on balance, registered lower investment results than those recorded by
their European counterparts.
JAPANESE STOCKS DETRACTED FROM THE FUND'S INVESTMENT RESULTS, AS THE COUNTRY'S
WEAK ECONOMY CONTINUED TO IMPACT JAPANESE STOCK VALUES. After struggling through
the last three months of 1997, the Japanese stock market rallied in January on
reports the government was taking serious steps to stimulate the economy.
However, when the government failed to introduce a meaningful economic package,
the market gave back virtually all of those early-year gains in February and
March. Our decision to reduce the fund's weighting in Japan during the January
rally helped enhance the fund's performance.
THE FUND'S OVERWEIGHTED POSITIONS IN THE UNITED KINGDOM, FRANCE AND ITALY
CONTRIBUTED FAVORABLY TO ITS INVESTMENT RESULTS. During the period, all three
markets recorded solid performance. One stock that
PERFORMANCE THROUGH MARCH 31, 1998*
Growth of $10,000 Invested Since Inception
[GRAPH]
<TABLE>
<CAPTION>
Pacific-European Growth Lipper
Fund Class A, reflects the International
fund's maximum 4% MSCI EAFE Funds
sales charge Index+ Average++
<S> <C> <C>
9635 10000 10000
9775.02 11144.1 10741
9792.53 11048.6 10969.4
8934.91 11207.1 11399.4
9031.18 10121.8 10202.3
7884.78 8714.13 9042.44
8348.59 10074.8 9770.56
8121.06 9483.33 9518.72
8346.85 9640.65 9490.61
8579.7 9955.19 9742.52
9117.05 11025.3 10498.4
9269.3 10366.1 10203.4
9349.9 10470.9 10316.5
9502.15 10583.2 10425.4
9072.27 9808.34 9892.44
9233.48 10292.9 10338.7
8946.89 10086.4 10269.6
8902.11 10657.9 10579.5
8830.46 10811.6 10620.9
8866.29 10309.8 10238
9286.3 10845.4 10728.6
9485.23 10617 10838.2
9521.4 10239.9 10862.4
9204.92 9566.7 10499.1
9241.09 9614.6 10791.4
9919.26 10261.1 11312.7
9765.54 9777.82 11007.9
9096.42 9530.7 10615.3
9141.63 10131.7 10649.5
9186.84 9934.87 10429.8
9440.02 9416.75 10131.5
9213.97 9508.26 10178.5
9204.92 9560.32 10314.6
9458.11 9562 10361.8
9774.58 9853.67 10606.6
10054.9 10715.4 11196.9
10823.5 11735.3 11757.1
10977.2 11986 11989.8
10742.1 11801.8 11758
10950.1 12217.6 12115.1
11510.7 12879.9 12907.5
11610.1 12592.8 12892.9
12396.8 12983.7 13518.8
12225 11851.5 13021.6
13839.8 12710 14352
14411.9 13787.3 15168.9
14021.4 13751.9 14805
13167.8 13162.5 14100.7
13694.5 13723.9 14471.1
13785.3 13648.1 14447.7
13640 13844 14263.5
13921.5 13980.2 14667.5
14475.5 14314.2 15136
14148.5 13866.5 14799.5
14302.9 14331.5 15074.3
13413 13645.9 14360.6
13426.9 13734.5 14168.1
12476.9 13210.2 13464.7
12467.1 13175.7 13532.7
13172.2 14001.1 14009.9
13338.7 14531.4 14475.1
13299.6 14362 14636.5
13035.1 14113.9 14657.8
13906.8 14996.4 15433.6
13671.7 14428 15114.6
13632.5 14713.9 15389.4
13368.1 14321.8 15098.5
13622.8 14724 15257.3
14233.8 15321 15706.9
14706.2 15387.6 16034.3
14548.8 15443.4 16105.7
14811.2 15775.3 16365.6
15273 16237.8 16850.3
14853.2 15942.9 16809.7
14837.9 16036.5 16952.9
14108.1 15571.9 16371.4
13920.2 15610 16582.8
14307.2 16028.6 16936.3
13842.3 15868.6 16866.3
14306 16504 17641.3
14086 16295.6 17759.5
13926.9 15729 17691.8
14256.4 15990.1 17970.8
14086 16052 18012.3
13995.1 16141 18078.2
15051.5 17195.4 19122.8
15856.3 18147.6 20020.3
15969.9 18444.8 20626.2
14446.8 17071.1 19111
15344.8 18031.3 20351
14105.8 16649.3 18845.1
14049 16483.4 18715.9
14166.9 16630.9 18937.1
14691.2 17396 19369.4
15406.1 18515.6 20616.1
16037.6 19089.9 21654.2
</TABLE>
++ The average total return, not including sales charges, of similar funds as
characterized by Lipper Analytical Services.
+ The Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged
index of securities listed on the stock exchanges of Europe, Australia and the
Far East that includes no expenses or transaction charges.
- --------------------------------------------------------------------------------
CLASS A AVERAGE ANNUALIZED TOTAL RETURNS
Includes the fund's maximum 4% front-end sales charge
<TABLE>
<S> <C>
One Year 9.30%
- --------------------------------------------------------------------------------
Five Year 8.89%
- --------------------------------------------------------------------------------
Since Inception (4/27/90) 6.14%
- --------------------------------------------------------------------------------
CLASS B & Y AVERAGE ANNUAL TOTAL RETURNS
Class B share returns include the fund's maximum 4% contingent deferred sales
charge. Sales charges do not apply to Class Y shares.
Class B One Year 9.14%
- --------------------------------------------------------------------------------
Class B Since Inception (2/18/97) 6.98%
- --------------------------------------------------------------------------------
Class Y One Year 14.34%
- --------------------------------------------------------------------------------
Class Y Since Inception (2/18/97) 11.59%
- --------------------------------------------------------------------------------
</TABLE>
* PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. 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. Safety of principal is not guaranteed.
Performance prior to its conversion to an open-end fund on August 31, 1992, is
based on its experience as a closed-end fund. International investing involves
risks not typically associated with U.S. investing, including currency
fluctuations, political instability and different accounting standards. See the
prospectus for more complete information regarding risks. During most periods,
the fund's advisor waived or paid certain expenses and/or the fund's distributor
voluntarily waived certain 12b-1 fees. Without waivers, returns would have been
lower.
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.
- --------------------------------------------------------------------------------
5 1998 Semiannual Report - Piper Funds
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL GROWTH
- --------------------------------------------------------------------------------
PACIFIC-EUROPEAN GROWTH FUND (continued)
- --------------------------------------------------------------------------------
contributed favorably to the fund's investment results was Lloyds TSB (1.8% of
total assets as of March 31,1998), a premier main street bank in London with
solid earnings growth. The fund also benefited from its exposure to financial
and consumer stocks in the Netherlands.
SEVERAL ASIAN MARKETS SUFFERED DUE TO THE ECONOMIC AND CURRENCY CRISIS THAT
SWEPT THE REGION BEGINNING LATE OCTOBER. Late in the period, many of the Asian
markets rebounded from the market fallout. However, several markets continued to
struggle, most notably Indonesia. The fund's investments in Hong Kong and
Australia, two markets that outperformed the average performance in the region,
proved to be a positive defensive move in an otherwise difficult environment.
LATIN AMERICA WAS NEGATIVELY IMPACTED BY THE PROBLEMS IN ASIA, BUT MANY MARKETS
REBOUNDED EARLY IN 1998. In this environment, the fund's relatively small
position in Latin America contributed positively to investment results.
LOOKING AHEAD, OUR OUTLOOK FOR JAPANESE STOCKS REMAINS TENUOUS. The
government does not appear to be ready to introduce a bona fide economic
stimulus package. Additionally, any deepening of the financial crisis in Asia
is likely to have an impact on Japan's economy and its financial markets.
Given this forecast, we intend to maintain our underweighted*** exposure in
Japan and may continue to use significant upturns in the Japanese market to
reduce our weighting further.
OUR OUTLOOK FOR CONTINENTAL EUROPE IS FAVORABLE. Generally good economic
conditions, benign inflation and low interest rates should serve as a strong
foundation for higher equity prices on the continent. Additionally, the wave of
restructurings is expected to continue, which should translate to improving
corporate earnings. Finally, the fact that the continent is still on target to
achieve economic union by January 1, 1999, should bode well for European
equities.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION BY REGION
- --------------------------------------------------------------------------------
[GRAPH]
As a percentage of total assets on March 31, 1998
<TABLE>
<CAPTION>
Pacific-European MSCI EAFE
Growth Fund Index+
<S> <C> <C>
- --------------------------------------------------------------------------------
Europe 69 71
- --------------------------------------------------------------------------------
Japan 20 22
- --------------------------------------------------------------------------------
Other Pacific Basin 6 7
- --------------------------------------------------------------------------------
Latin America 2 0
- --------------------------------------------------------------------------------
Other Assets 2 0
- --------------------------------------------------------------------------------
Short-Term 1 0
- --------------------------------------------------------------------------------
</TABLE>
+ The Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged
index of securities listed on the stock exchanges of Europe, Australia and the
Far East that includes no expenses or transaction charges.
- --------------------------------------------------------------------------------
TOP 10 EQUITY HOLDINGS
- --------------------------------------------------------------------------------
As a percentage of total assets on March 31, 1998
<TABLE>
<CAPTION>
COMPANY SECTOR COUNTRY
<S> <C> <C> <C>
1 Koninklijke Ahold NV Food-Retail Netherlands 3.0%
- ---------------------------------------------------------------------------------------------
2 Astra Class A Pharmaceuticals Sweden 3.0%
- ---------------------------------------------------------------------------------------------
3 Verenigde Nederlandse
Uitgeversbedrijven Verenigd
Bezit(VNU) Printing & Publishing Netherlands 3.0%
- ---------------------------------------------------------------------------------------------
4 Novartis Pharmaceuticals Switzerland 2.9%
- ---------------------------------------------------------------------------------------------
5 Mannesmann Industrial
Machinery Germany 2.9%
- ---------------------------------------------------------------------------------------------
6 Telecom Italia Spa Telecommunications Italy 2.8%
- ---------------------------------------------------------------------------------------------
7 Schneider Electronics France 2.7%
- ---------------------------------------------------------------------------------------------
8 Union Bank of Switzerland Banking &
Class B Financial Services Switzerland 2.7%
- ---------------------------------------------------------------------------------------------
9 Total Class B Oil & Gas France 2.7%
- ---------------------------------------------------------------------------------------------
10 Rhone-Poulenc Class A Chemicals France 2.7%
- ---------------------------------------------------------------------------------------------
</TABLE>
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
6 1998 Semiannual Report - Piper Funds
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL GROWTH
- --------------------------------------------------------------------------------
Pacific-European Growth Fund (continued)
- --------------------------------------------------------------------------------
WE INTEND TO MAINTAIN A CAUTIOUS INVESTMENT POSTURE IN THE PACIFIC BASIN.
Countries are still struggling to rebound from the severe crisis that gripped
the region late last year. While the Asian financial crisis has not had a
serious impact on key financial markets outside the region in recent months, it
continues to pose a serious threat to the global economy. We intend to maintain
a heavy weighting in countries unlikely to be affected by another major fallout,
most notably Australia. We also believe stock selection will be critically
important in achieving solid returns throughout the Pacific Basin.
Thank you for your investment in Pacific-European Growth Fund. As always we will
continue to focus our efforts on finding high-quality, financially sound
companies with above-average growth prospects in seeking the fund's long-term
investment goal.
Sincerely,
/s/ Richard Muckart
- -------------------
Richard Muckart
Portfolio Manager
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION BY COUNTRY
- --------------------------------------------------------------------------------
[MAP]
As a percentage of total assets on March 31, 1998
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
France 12%
- --------------------------------------------------------------------------------
Europe 68%
- --------------------------------------------------------------------------------
Pacific Basin 6%
- --------------------------------------------------------------------------------
Japan 20%
- --------------------------------------------------------------------------------
Latin America 3%
- --------------------------------------------------------------------------------
United Kingdom 24%
- --------------------------------------------------------------------------------
Sweden 5%
- --------------------------------------------------------------------------------
Hong Kong 1%
- --------------------------------------------------------------------------------
Australia 3%
- --------------------------------------------------------------------------------
Mexico 1%
- --------------------------------------------------------------------------------
Netherlands 8%
- --------------------------------------------------------------------------------
Germany 5%
- --------------------------------------------------------------------------------
Denmark 2%
- --------------------------------------------------------------------------------
Switzerland 7%
- --------------------------------------------------------------------------------
Italy 5%
- --------------------------------------------------------------------------------
Singapore 1%
- --------------------------------------------------------------------------------
Brazil 1%
- --------------------------------------------------------------------------------
Argentina 1%
- --------------------------------------------------------------------------------
Papua New Guinea 1%
- --------------------------------------------------------------------------------
</TABLE>
Short-term assets of 1% and other assets of 2% are not included in the chart.
- --------------------------------------------------------------------------------
1998 Semiannual Report - Piper Funds
<PAGE>
Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES March 31, 1998
................................................................................
<TABLE>
<CAPTION>
EMERGING
MARKETS PACIFIC-EUROPEAN
GROWTH FUND GROWTH FUND
------------ -------------
<S> <C> <C>
ASSETS:
Investments in securities at market value* (including
repurchase agreements of $222,000 and $451,000,
respectively) (note 2) ................................... $12,598,718 $ 59,355,920
Cash in bank on demand deposit ............................. 36,266 20,934
Foreign cash in bank on demand deposit ..................... 1,686 643
Receivable for investment securities sold .................. -- 677,390
Receivable for fund shares sold ............................ 1,252 3,430
Net unrealized appreciation of forward foreign currency
contract held (note 5) ................................... -- 89
Organization costs ......................................... 15,006 --
Dividends and accrued interest receivable .................. 43,760 321,371
------------ -------------
Total assets ............................................. 12,696,688 60,379,777
------------ -------------
LIABILITIES:
Payable for investment securities purchased ................ -- 673,985
Payable for fund shares redeemed ........................... 39,962 23,003
Accrued investment management fee .......................... 10,452 50,316
Accrued distribution and service fees ...................... 3,297 14,474
------------ -------------
Total liabilities ........................................ 53,711 761,778
------------ -------------
Net assets applicable to outstanding capital stock ....... $12,642,977 $ 59,617,999
------------ -------------
------------ -------------
COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital ............... $17,540,139 $ 52,097,497
Distributions in excess of net investment income ........... (146,412) (250,700)
Accumulated net realized loss on investments and foreign
currency translations .................................... (7,283,761) (5,181,395)
Unrealized appreciation of investments and on translation of
other assets and liabilities denominated in foreign
currencies ............................................... 2,533,011 12,952,597
------------ -------------
Total - representing net assets applicable to outstanding
capital stock .......................................... $12,642,977 $ 59,617,999
------------ -------------
------------ -------------
* Investments in securities at identified cost ............. $10,065,537 $ 46,390,805
------------ -------------
------------ -------------
NET ASSET VALUE AND OFFERING PRICE:
CLASS A:
Net assets ................................................. $12,358,985 $ 56,858,230
Shares outstanding (authorized 800 million shares of $0.01
par value) ............................................... 1,261,810 4,225,204
Net asset value ............................................ $ 9.79 $ 13.46
Maximum offering price per share (net asset value plus 4% of
offering price) .......................................... $ 10.20 $ 14.02
CLASS B:
Net assets ................................................. $ 283,992 $ 80,845
Shares outstanding (authorized 400 million shares of $0.01
par value) ............................................... 29,348 6,042
Net asset value and offering price per share ............... $ 9.68 $ 13.38
CLASS Y:
Net assets ................................................. -- $ 2,678,924
Shares outstanding (authorized 200 million shares of $0.01
par value) ............................................... -- 198,892
Net asset value and offering price per share ............... -- $ 13.47
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
8
<PAGE>
Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS For the Six Months Ended March
31, 1998
................................................................................
<TABLE>
<CAPTION>
EMERGING
MARKETS PACIFIC-EUROPEAN
GROWTH FUND GROWTH FUND
------------ -------------
<S> <C> <C>
INCOME:
Dividends (net of foreign withholding taxes of $6,213 and
$40,015, respectively) ................................... $ 36,974 $ 344,339
Interest ................................................... 12,918 24,975
------------ -------------
Total income ............................................. 49,892 369,314
------------ -------------
EXPENSES (NOTE 6):
Investment management fee .................................. 66,201 282,894
Distribution and service fees:
CLASS A .................................................. 32,433 154,730
CLASS B .................................................. 1,335 303
CLASS Y .................................................. -- --
Custodian and accounting fees .............................. 20,319 90,224
Transfer agent and dividend disbursing agent fees .......... 18,895 53,496
Registration fees .......................................... 13,520 18,284
Reports to shareholders .................................... 15,947 32,004
Amortization of organization costs ......................... 8,925 --
Directors' fees ............................................ 4,613 4,613
Audit and legal fees ....................................... 29,989 36,734
Other expenses ............................................. 3,710 1,130
------------ -------------
Total expenses ........................................... 215,887 674,412
Less Class A expenses waived by the distributor ........ (11,598) (55,363)
Less expenses waived by the advisor .................... (72,526) --
------------ -------------
Net expenses before expenses paid indirectly ............. 131,763 619,049
Less expenses paid indirectly .......................... (2,604) --
------------ -------------
Total net expenses ....................................... 129,159 619,049
------------ -------------
Net investment loss ...................................... (79,267) (249,735)
------------ -------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
AND FOREIGN CURRENCY:
Net realized gain (loss) on:
Investments (note 3) ....................................... (1,542,808) 548,578
Foreign currency transactions .............................. (68,676) (137,454)
------------ -------------
Net realized gain (loss) on investments and foreign
currency ............................................... (1,611,484) 411,124
Net change in unrealized appreciation or depreciation of
investments and on translation of other assets and
liabilities denominated in foreign currencies ............ (349,736) 272,947
------------ -------------
Net gain (loss) on investments and foreign currency ...... (1,961,220) 684,071
------------ -------------
Net increase (decrease) in net assets resulting from
operations ........................................... $(2,040,487) $ 434,336
------------ -------------
------------ -------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
9
<PAGE>
Financial Statements (continued)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
................................................................................
<TABLE>
<CAPTION>
EMERGING MARKETS GROWTH FUND PACIFIC-EUROPEAN GROWTH FUND
----------------------------- -----------------------------
Six Months Six Months
Ended 3/31/98 Year Ended Ended 3/31/98 Year Ended
(Unaudited) 9/30/97 (Unaudited) 9/30/97
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ............................... $ (79,267) $ 27,411 $ (249,735) $ (235,371)
Net realized gain (loss) on investments and foreign currency
transactions ............................................. (1,611,484) 1,104,511 411,124 864,543
Net change in unrealized appreciation or depreciation of
investments and on translation of other assets and
liabilities denominated in foreign currencies ............ (349,736) 2,200,606 272,947 6,160,316
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting from
operations ............................................. (2,040,487) 3,332,528 434,336 6,789,488
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
CLASS A:
From net investment income ............................... (32,739) (7,719) (2,760,093) (306,934)
From net realized gains .................................. -- -- -- (4,156,148)
CLASS B:
From net investment income ............................... (534) -- (2,708) (30)
From net realized gains .................................. -- -- -- --
CLASS Y:
From net investment income ............................... -- -- (305,298) (11,223)
From net realized gains .................................. -- -- -- --
------------- ------------- ------------- -------------
Total distributions ...................................... (33,273) (7,719) (3,068,099) (4,474,335)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
CLASS A .................................................... (2,600,123) (88,308) (20,388,759) (94,756,049)
CLASS B .................................................... 8,718 299,743 24,174 53,014
CLASS Y .................................................... -- -- (11,302,630) 13,853,189
------------- ------------- ------------- -------------
Increase (decrease) in net assets from capital share
transactions ........................................... (2,591,405) 211,435 (31,667,215) (80,849,846)
------------- ------------- ------------- -------------
Total increase (decrease) in net assets .................. (4,665,165) 3,536,244 (34,300,978) (78,534,693)
Net assets at beginning of period .......................... 17,308,142 13,771,898 93,918,977 172,453,670
------------- ------------- ------------- -------------
Net assets at end of period ................................ $12,642,977 $ 17,308,142 $ 59,617,999 $ 93,918,977
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Undistributed (distributions in excess of) net investment
income ................................................... $ (146,412) $ (33,872) $ (250,700) $ 3,067,134
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
10
<PAGE>
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
................................
Piper Global Funds Inc. (the company) is registered under
the Investment Company Act of 1940 (as amended) as a
single, open-end management investment company. The
company currently has outstanding two series (the funds):
Emerging Markets Growth Fund and Pacific-European Growth
Fund, which are classified as non-diversified and
diversified series, respectively. The company's articles
of incorporation permit the board of directors to create
additional series in the future.
The funds commenced offering Class B shares and
Pacific-European Growth Fund commenced offering Class Y
shares on February 18, 1997. All shares existing prior to
that date were classified as Class A shares. Key features
of each class are:
CLASS A:
- Subject to a front-end sales charge
- Lower distribution and service fees than Class B
CLASS B:
- No front-end sales charge
- Subject to a contingent deferred sales charge upon
redemption
- Higher distribution and service fees than Class A
- Automatic conversion to Class A shares at the beginning
of the sixth calendar year after issuance
CLASS Y:
- Requires a minimum initial investment of $1 million
- No front-end or contingent deferred sales charges
- No distribution and service fees
The classes of shares 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.
Emerging Markets Growth Fund invests primarily in common
stocks of emerging securities markets. Emerging securities
markets can be found in regions such as Latin America,
Asia, Eastern Europe, the Middle East and Africa.
Pacific-European Growth Fund invests primarily in the
Pacific Basin (for example, Japan, Hong Kong, Malaysia,
Singapore or Thailand) and Europe (including Eastern
Europe). Pacific-European Growth Fund acquired the net
assets of Hercules European Value Fund and Hercules
Pacific Basin Value Fund on June 21, 1996, via a tax-free
reorganization.
(2) SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES
................................
INVESTMENTS IN SECURITIES
Portfolio securities for which market quotations are
readily available are valued at current market value. If
market quotations or valuations are not readily available,
or if such quotations or valuations are believed to be
inaccurate, unreliable or not reflective of market value,
portfolio securities are
- --------------------------------------------------------------------------------
11
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
valued according to procedures adopted by the funds' board
of directors in good faith at "fair value", that is, a
price that the fund might reasonably expect to receive for
the security or other asset upon its current sale.
Pricing services value domestic and foreign equity
securities (and occasionally fixed-income securities)
traded on a securities exchange or Nasdaq at the last
reported sale price, up to the time of valuation. If there
are no reported sales of a security on the valuation date,
it is valued at the mean between the published bid and
asked prices reported by the exchange or Nasdaq. If there
are no sales and no published bid and asked quotations for
a security on the valuation date or the security is not
traded on an exchange or Nasdaq, the pricing service may
obtain market quotations directly from broker-dealers.
Securities transactions are accounted for on the date
securities are purchased or sold. Realized gains and
losses are calculated on the identified-cost basis.
Dividend income is recognized on the ex-dividend date and
interest income, including amortization of bond discount
and premium, is recorded on an accrual basis.
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 subject to
federal income tax. Therefore, no income tax provision is
required. The funds also intend to distribute 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 the recognition of certain foreign currency
gains (losses) as ordinary income (loss) for tax purposes,
the "mark-to-market" of certain Passive Foreign Investment
Companies (PFICs) for tax purposes, the "mark-to-market"
of certain investments for tax purposes, losses deferred
due to "wash sale" transactions and the non-deductibility
of amortization of organization costs. 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 or losses
were recorded by the funds.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders from net investment income
will be declared separately for each class and paid at
least annually. Net realized gains distributions, if any,
will be made at least annually. Distributions are payable
in cash or reinvested in additional shares of the same
class.
ORGANIZATION COSTS
Organization costs were incurred in connection with the
start up and initial registration of Emerging Markets
Growth Fund's predecessor. These costs are amortized over
60 months on a straight-line basis. If any or all of the
shares representing initial capital of the fund are
redeemed by any holder
- --------------------------------------------------------------------------------
12
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
thereof prior to the end of the amortization period, the
proceeds will be reduced by the unamortized organization
cost balance in the same proportion as the number of
shares redeemed bears to the number of initial shares
outstanding preceding the redemption.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
Securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollars at the
closing rate of exchange. Foreign currency amounts related
to the purchase or sale of securities and income and
expenses are translated at the exchange rate on the
transaction date. For financial reporting purposes the
realized and unrealized gain or loss on investments
reflects changes in exchange rates as well as changes in
the market value of investments.
The funds also may enter into forward foreign currency
exchange contracts for hedging purposes. The net U.S.
dollar value of foreign currency underlying all
contractual commitments held by the funds, and the
resulting unrealized appreciation or depreciation, are
determined using foreign currency exchange rates from
independent pricing sources. The funds are subject to the
credit risk that the other party will not complete the
obligations of the contract.
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.
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES
Income, expenses (other than class-specific expenses) and
realized and unrealized gains and losses 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.
CONCENTRATION OF RISK
Investments in countries with limited or developing
capital markets may involve greater risks than investments
in more developed markets, and the prices of such
investments may be volatile. The consequences of
political, social or economic changes in these markets may
have disruptive effects on the market prices of the funds'
investments and the income they generate, as well as the
funds' ability to repatriate such amounts.
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.
- --------------------------------------------------------------------------------
13
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
(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, 1998, were as follows:
<TABLE>
<CAPTION>
EMERGING MARKETS PACIFIC-EUROPEAN
GROWTH FUND GROWTH FUND
----------------- -----------------
<S> <C> <C>
Purchases .............................. $4,375,659 $17,175,560
Proceeds from sales .................... $6,486,813 $51,085,720
</TABLE>
(4) CAPITAL SHARE
TRANSACTIONS
................................
Capital share transactions for the funds were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997(a)
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
EMERGING MARKETS GROWTH FUND:
CLASS A:
Sales of fund shares ................. 42,751 $ 400,623 668,289 $ 6,437,548
Issued for reinvested
distributions ...................... 3,553 31,939 850 7,638
Redemptions of fund shares ........... (335,552) (3,032,685) (673,484) (6,533,494)
-------- ----------- -------- -----------
(289,248) $(2,600,123) (4,345) $ (88,308)
-------- ----------- -------- -----------
-------- ----------- -------- -----------
CLASS B:
Sales of fund shares ................. 2,443 $ 23,701 29,614 $ 311,376
Issued for reinvested
distributions ...................... 60 534 -- --
Redemptions of fund shares ........... (1,686) (15,517) (1,083) (11,633)
-------- ----------- -------- -----------
817 $ 8,718 28,531 $ 299,743
-------- ----------- -------- -----------
-------- ----------- -------- -----------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997(a)
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
PACIFIC-EUROPEAN GROWTH FUND:
CLASS A:
Sales of fund shares ................. 136,962 $ 1,741,516 1,339,186 $ 16,832,030
Issued for reinvested
distributions ...................... 221,903 2,642,859 345,346 4,320,301
Redemptions of fund shares ........... (1,969,732) (24,773,134) (7,646,599) (96,625,546)
Redemptions in exchange for Class Y
shares ............................. -- -- (1,531,333) (19,282,834)
---------- ------------ ---------- ------------
(1,610,867) $(20,388,759) (7,493,400) $(94,756,049)
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
CLASS B:
Sales of fund shares ................. 2,146 $ 26,937 4,118 $ 52,984
Issued for reinvested
distributions ...................... -- -- 2 30
Redemptions of fund shares ........... (224) (2,763) -- --
---------- ------------ ---------- ------------
1,922 $ 24,174 4,120 $ 53,014
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
CLASS Y:
Sales of fund shares ................. 12,591 $ 161,596 94,569 $ 1,258,268
Sales in exchange for Class A
shares ............................. -- -- 1,531,178 19,282,834
Issued for reinvested
distributions ...................... 22,088 263,060 763 10,526
Redemptions of fund shares ........... (947,715) (11,727,286) (514,582) (6,698,439)
---------- ------------ ---------- ------------
(913,036) $(11,302,630) 1,111,928 $ 13,853,189
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
(a) REPRESENTS PERIOD FROM FEBRUARY 18 (COMMENCEMENT OF OFFERING OF SHARES) TO
SEPTEMBER 30, 1997, FOR CLASS B AND CLASS Y.
- --------------------------------------------------------------------------------
14
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
Sales charges received by Piper Jaffray Inc. (Piper
Jaffray), the funds' distributor, for distributing the
funds' shares for the six months ended March 31, 1998,
were as follows:
<TABLE>
<CAPTION>
EMERGING MARKETS PACIFIC-EUROPEAN
GROWTH FUND GROWTH FUND
------------------- -------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS Y
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Front-end sales charges ................ $3,879 $ -- $ 5,563 $-- $--
Contingent deferred sales charges ...... 2,633 372 6,475 37 --
-------- -------- --------- --- ---
$6,512 $372 $ 12,038 $37 $--
-------- -------- --------- --- ---
-------- -------- --------- --- ---
</TABLE>
(5) FORWARD FOREIGN
CURRENCY CONTRACTS
................................
On March 31, 1998, Pacific-European Growth Fund had an
open foreign currency exchange contract which obligates
the fund to deliver and receive currencies at a specified
future date. The unrealized appreciation on this contract
is reflected in the accompanying financial statements. The
terms of the open contract are as follows:
<TABLE>
<CAPTION>
U.S. U.S.
CURRENCY $ VALUE CURRENCY $ VALUE
TO BE AS OF TO BE AS OF APPRECIATION
SETTLEMENT DATE DELIVERED 3/31/98 RECEIVED 3/31/98 (DEPRECIATION)
- ------------------------- ------------ -------- ------------ -------- ---------------
<S> <C> <C> <C> <C> <C>
PACIFIC-EUROPEAN GROWTH
FUND:
April 1, 1998 ........... 453,531 JPY $ 3,406 3,495 USD $ 3,495 $ 89
</TABLE>
JPY = JAPANESE YEN
USD = UNITED STATES DOLLAR
(6) EXPENSES
................................
INVESTMENT MANAGEMENT FEE
The company has entered into an investment management
agreement with Piper Capital Management Incorporated
(Piper Capital) under which Piper Capital manages the
fund's assets and furnishes related office facilities,
equipment, research and personnel. The agreement requires
the fund to pay Piper Capital a monthly fee based on
average daily net assets. For Emerging Markets Growth Fund
the fee is equal to an annual rate of 1% of the fund's
average daily net assets. For Pacific-European Growth
Fund, the fee is equal to an annual rate of 1% of the
first $100 million in average daily net assets, 0.875% of
the next $100 million and 0.75% of the net assets in
excess of $200 million. For the six months ended March 31,
1998, the effective management fees paid by Emerging
Markets Growth Fund and Pacific-European Growth Fund
(including the performance adjustment described below)
were 1.00% and 0.82%, respectively, on an annual basis.
Since April 1991, the basic fee for Pacific-European
Growth Fund has been subject to a performance adjustment.
The adjustment is computed monthly by comparing the
performance of the Class A shares of the fund relative to
the Morgan Stanley Capital International EAFE Index, over
the preceding 12 month period. For each percentage point
the Class A shares of the fund outperform or underperform
the EAFE Index the monthly fee is increased or decreased
by 0.05% (on an annual basis) up to a maximum of 0.25% (on
an annual basis) of the fund's average daily net assets.
During the six months ended March 31, 1998, the
performance adjustment decreased the management fee by
$64,836.
Edinburgh Fund Managers plc has been retained by Piper
Capital as the subadvisor of Pacific-European Growth Fund
and is paid a fee equal to 65% of the basic investment
management fee plus
- --------------------------------------------------------------------------------
15
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
or minus 90% of the performance adjustment. Edinburgh Fund
Managers plc has entered into an expense reimbursement
agreement with the advisor under which it pays the advisor
a monthly fee equal to 10% of the basic investment
management fee. This 10% fee is a reimbursement to the
advisor for certain expenses it bears in connection with
the administration of Pacific-European Growth Fund.
Edinburgh Fund Managers plc has also been retained by
Piper Capital as the subadvisor of Emerging Markets Growth
Fund and is paid a fee equal to 0.50% of the fund's
average daily net assets.
DISTRIBUTION AND SERVICE FEES
Each fund also pays Piper Jaffray 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 Class A for the
year ending September 30, 1998, are stated below as a
percent of average daily net assets attributable to such
shares.
<TABLE>
<CAPTION>
EMERGING MARKETS PACIFIC-EUROPEAN
GROWTH FUND GROWTH FUND
----------------- ---------------------------
CLASS A CLASS B CLASS A CLASS B CLASS Y
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Payable as a distribution fee .......... 0.25% 0.75% 0.25% 0.75% --
Payable as a service fee ............... 0.25% 0.25% 0.25% 0.25% --
------- ------- ------- ------- -------
Total distribution and service
fees ............................... 0.50% 1.00% 0.50% 1.00% --
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total distribution and service fees
after voluntary limitation ......... 0.33% 1.00% 0.33% 1.00% --
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
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. The fees, which are
paid monthly to Piper Jaffray and Piper Trust for
providing these services, are equal to an annual rate of
$6.00 per active shareholder account and $1.60 per closed
account. For the six months ended March 31, 1998, Piper
Jaffray and Piper Trust received the following amounts in
connection with the shareholder account servicing
agreements:
<TABLE>
<CAPTION>
EMERGING MARKETS PACIFIC-EUROPEAN
GROWTH FUND GROWTH FUND
----------------- -----------------
<S> <C> <C>
Piper Jaffray .......................... $8,858 $29,510
Piper Trust ............................ -- 3,853
-------- -----------------
$8,858 $33,363
-------- -----------------
-------- -----------------
</TABLE>
OTHER FEES AND EXPENSES
In addition to the investment management, distribution and
shareholder account servicing fees, the fund is
responsible for paying most other operating expenses,
including: outside directors' fees and expenses; custodian
fees; registration fees; printing and shareholder reports;
transfer agent fees and expenses; legal, auditing and
accounting services; insurance; interest; taxes and other
miscellaneous expenses. For the year ending September 30,
1998, Piper Capital voluntarily limited total fees and
expenses for Emerging Markets Growth Fund to annual rates
of 2.00% and 2.67% of average daily net assets
attributable to such shares for Class A and Class B,
respectively.
- --------------------------------------------------------------------------------
16
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
Expenses paid indirectly represent a reduction of
custodian fees for earnings on miscellaneous cash balances
maintained by the fund.
(7) CAPITAL LOSS
CARRYOVER
................................
For federal income tax purposes, the following funds had
capital loss carryovers at September 30, 1997, which, if
not offset by subsequent capital gains, will expire on the
funds' fiscal year-ends as indicated below. 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 expire.
Utilization of the capital loss carryovers is limited to
$820,258 and $1,065,056 per year for Emerging Markets
Growth Fund and Pacific-European Growth Fund,
respectively.
<TABLE>
<CAPTION>
EMERGING MARKETS PACIFIC-EUROPEAN
GROWTH FUND GROWTH FUND
-------------------------- --------------------------
CAPITAL LOSS CAPITAL LOSS
CARRYOVER EXPIRATION CARRYOVER EXPIRATION
------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
$5,670,695 2003 $2,190,585 2003
148,394 2004
-------------
-------------
3,253,540 2006
-------------
$5,592,519
-------------
-------------
</TABLE>
(8) PENDING
ACQUISITION
................................
On December 15, 1997, Piper Jaffray Companies Inc., the
parent company of the funds' investment advisor, announced
that it had entered into an agreement to be acquired by
U.S. Bancorp. It is anticipated that this acquisition will
be completed in the second quarter of 1998, subject to
regulatory approval, the approval of Piper Jaffray
Companies shareholders and the satisfaction of customary
closing conditions.
U.S. Bancorp is a multi-state bank holding company
headquartered in Minneapolis, Minnesota with a geographic
service area spanning 17 states. As of December 31, 1997,
U.S. Bancorp was the 15th largest U.S. commercial bank
holding company, with assets of nearly $71.3 billion. U.S.
Bank National Association ("U.S. Bank"), a wholly owned
subsidiary of U.S. Bancorp, currently acts as the
investment advisor to 32 mutual funds (the "First American
Funds"). As of December 31, 1997, U.S. Bank, acting
through its First American Asset Management group, managed
more than $55 billion in assets, including approximately
$20.5 billion in assets of the First American Funds.
Effective as of the date of the acquisition, SEI
Investments Distribution Company will assume the role of
the principal distributor for the funds.
Under the Investment Company Act of 1940, as amended (the
"1940 Act"), consummation of the acquisition of Piper
Jaffray Companies by U.S. Bancorp will result in the
assignment and automatic
- --------------------------------------------------------------------------------
17
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
termination of the funds' investment advisory agreements
with Piper Capital Management Incorporated. The 1940 Act
requires that any new investment advisory agreements for
the funds be approved by the funds' board of directors and
shareholders.
(9) SUBSEQUENT EVENTS
................................
CLASS B AND Y SHARES NO LONGER OFFERED
Effective April 21, 1998, the funds will no longer offer
Class B shares. Any outstanding Class B shares of a series
will be automatically converted to Class A shares of the
same series as of the close of business on April 27, 1998.
No contingent deferred sales charges or other fees will be
imposed in connection with this conversion.
Effective April 15, 1998, Pacific-European Growth Fund
will no longer offer Class Y shares.
FUND CONVERSION
In connection with the acquisition of Piper Jaffray
Companies Inc. by U.S. Bancorp, the funds' board of
directors has recommended that the funds be merged into
mutual funds managed by First American Asset Management, a
division of U.S. Bank. The proposed fund mergers require
shareholder approval and proxy statements requesting
shareholder votes will be mailed in May 1998. If approved,
the mergers are expected to occur on or about July 31,
1998.
- --------------------------------------------------------------------------------
18
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
(10) FINANCIAL
HIGHLIGHTS
................................
Per-share data for a share of capital stock outstanding
throughout each period and selected information for each
period are as follows:
EMERGING MARKETS GROWTH FUND
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------
Three
Six Months Year Months
Ended Ended Ended
March 31, September September Year Ended June 30,
1998 30, 30, ---------------------------------
(Unaudited) 1997 1996 1996(c) 1995 1994(d)
------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of
period ..................... $ 10.96 $ 8.85 $ 8.84 $ 7.20 $ 9.14 $ 10.00
------------ --------- --------- --------- --------- ---------
Operations:
Net investment income
(loss) ................... (0.07) 0.02 -- 0.01 -- 0.01
Net realized and unrealized
gains (losses) on
investments .............. (1.08) 2.10 0.01 1.63 (1.94) (0.87)
------------ --------- --------- --------- --------- ---------
Total from operations .... (1.15) 2.12 0.01 1.64 (1.94) (0.86)
------------ --------- --------- --------- --------- ---------
Distributions to shareholders:
From net investment
income ................... (0.02) (0.01) -- -- -- --
------------ --------- --------- --------- --------- ---------
Net asset value, end of
period ................. $ 9.79 $ 10.96 $ 8.85 $ 8.84 $ 7.20 $ 9.14
------------ --------- --------- --------- --------- ---------
------------ --------- --------- --------- --------- ---------
SELECTED INFORMATION
Total return (a) ............. (10.85)% 23.91% 0.11% 22.78% (21.23)% (8.60)%
Net assets at end of period
(in millions) .............. $ 12 $ 17 $ 14 $ 14 $ 23 $ 28
Ratio of expenses to average
daily net assets ........... 1.98%(f) 2.00% 2.00%(f) 2.00% 2.00% 2.00%(f)
Ratio of net investment income
(loss) to average daily net
assets ..................... (1.19)%(f) 0.17% 0.26%(f) 0.15% (0.03)% 0.14%(f)
Average commission rate paid
on portfolio transactions
(b) ........................ $ 0.0001 $ 0.0007 $ 0.0009 n/a n/a n/a
Portfolio turnover rate
(excluding short-term
securities) ................ 34% 105% 0% 140% 161% 78%
Ratios before waivers by the
advisor and distributor:
Ratio of expenses to average
daily net assets before
waivers .................. 3.25%(f) 3.34% 4.09%(f) 3.54% 3.47% 3.10%(f)
Ratio of net investment loss
to average daily net
assets before waivers .... (2.46)%(f) (1.17)% (1.83)%(f) (1.39)% (1.50)% (0.96)%(f)
</TABLE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------
Six Months Ended
March 31, 1998 Period Ended
(Unaudited) September 30, 1997(e)
----------------- -------------------------
<S> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ... $ 10.86 $ 10.13
----------------- ----------
Operations:
Net investment loss .................. (0.08) --
Net realized and unrealized gains
(losses) on investments ............ (1.08) 0.73
----------------- ----------
Total from operations .............. (1.16) 0.73
----------------- ----------
Distributions to shareholders:
From net investment income ........... (0.02) --
----------------- ----------
Net asset value, end of period ..... $ 9.68 $ 10.86
----------------- ----------
----------------- ----------
SELECTED INFORMATION
Total return (a) ....................... (11.58)% 7.21%
Net assets at end of period (in
thousands) ........................... $ 284 $ 310
Ratio of expenses to average daily net
assets ............................... 2.66%(f) 2.64%(f)
Ratio of net investment income (loss) to
average daily net assets ............. (1.73)%(f) 0.03%(f)
Average commission rate paid on
portfolio transactions (b) ........... $0.0001 $0.0007
Portfolio turnover rate (excluding
short-term securities) ............... 34% 105%
Ratios before waivers by the advisor:
Ratio of expenses to average daily net
assets before waivers .............. 3.91%(f) 3.39%(f)
Ratio of net investment loss to
average daily net assets before
waivers (2.98)%(f) (0.72)%(f)
</TABLE>
(a) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A
SALES CHARGE.
(b) DISCLOSED IN ACCORDANCE WITH GUIDELINES ADOPTED IN 1996. THE COMPARABILITY
OF THIS INFORMATION MAY BE AFFECTED BY THE FACT THAT COMMISSION RATES PER
SHARE VARY SIGNIFICANTLY AMONG FOREIGN COUNTRIES.
(c) EMERGING MARKETS GROWTH FUND COMMENCED OPERATIONS AND ACQUIRED THE NET
ASSETS OF HERCULES LATIN AMERICAN VALUE FUND ON JUNE 21, 1996, VIA A
TAX-FREE REORGANIZATION. EMERGING MARKETS GROWTH FUND HAD NO ASSETS OR
LIABILITIES PRIOR TO THE ACQUISITION. CONSEQUENTLY, THE INFORMATION
PRESENTED FOR EMERGING MARKETS GROWTH FUND PRIOR TO JUNE 21, 1996,
REPRESENTS THE FINANCIAL HISTORY OF HERCULES LATIN AMERICAN VALUE FUND. AS
A RESULT OF THE REORGANIZATION, THE FUND'S SUBADVISOR CHANGED FROM BANKERS
TRUST COMPANY TO EDINBURGH FUND MANAGERS PLC. ON JULY 18, 1995,
SHAREHOLDERS OF HERCULES LATIN AMERICAN VALUE FUND APPROVED A CHANGE IN THE
FUND'S ADVISOR FROM HERCULES INTERNATIONAL MANAGEMENT LLC TO PIPER CAPITAL
MANAGEMENT INCORPORATED.
(d) COMMENCEMENT OF OPERATIONS OF HERCULES LATIN AMERICAN VALUE FUND WAS
NOVEMBER 9, 1993.
(e) COMMENCEMENT OF OFFERING OF CLASS B SHARES WAS FEBRUARY 18, 1997.
(f) ANNUALIZED.
- --------------------------------------------------------------------------------
19
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
(10) FINANCIAL
HIGHLIGHTS
................................
Per-share data for a share of capital stock outstanding
throughout each period and selected information for each
period are as follows:
PACIFIC-EUROPEAN GROWTH FUND
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------------
Seven
Six Months Months
Ended Year Ended
March 31, Ended September Year Ended February 28,
1998 September 30, ---------------------------------------------
(Unaudited) 30, 1997 1996(b) 1996 1995 1994 1993(d)
------------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of
period ..................... $ 13.50 $ 12.94 $ 13.86 $ 12.73 $ 15.44 $ 10.81 $ 10.53
------------ --------- --------- --------- --------- --------- ---------
Operations:
Net investment income
(loss) ................... (0.05)(g) (0.04)(g) 0.07 0.05 (0.03) (0.03) --
Net realized and unrealized
gains (losses) on
investments .............. 0.58 0.95 (0.28) 2.03 (1.63) 4.72 0.28
------------ --------- --------- --------- --------- --------- ---------
Total from operations .... 0.53 0.91 (0.21) 2.08 (1.66) 4.69 0.28
------------ --------- --------- --------- --------- --------- ---------
Distributions to shareholders:
From net investment
income ................... (0.57) (0.03) -- (0.05) -- -- --
From net realized gains .... -- (0.32) (0.71) (0.90) (1.05) (0.06) --
------------ --------- --------- --------- --------- --------- ---------
Total distributions to
shareholders ........... (0.57) (0.35) (0.71) (0.95) (1.05) (0.06) --
------------ --------- --------- --------- --------- --------- ---------
Net asset value, end of
period ................. $ 13.46 $ 13.50 $ 12.94 $ 13.86 $ 12.73 $ 15.44 $ 10.81
------------ --------- --------- --------- --------- --------- ---------
------------ --------- --------- --------- --------- --------- ---------
SELECTED INFORMATION
Total return (a) ............. 4.51% 7.25% (1.66)% 16.70% (11.09)% 43.45% 2.66%
Net assets at end of period
(in millions) .............. $ 57 $ 79 $ 172 $ 163 $ 154 $ 166 $ 60
Ratio of expenses to average
daily net assets 1.84%(f) 1.72% 1.64%(f) 1.55% 1.76% 1.81% 2.25%
Ratio of net investment income
(loss) to average daily net
assets ..................... (0.77)%(f) (0.28)% 0.29%(f) 0.36% (0.19)% (0.29)% 0.03%
Average commission rate paid
on portfolio transactions
(c) ........................ $ 0.0228 $ 0.0212 $ 0.0173 n/a n/a n/a n/a
Portfolio turnover rate
(excluding short-term
securities) ................ 25% 62% 49% 65% 57% 52% 59%
Ratios before waivers by the
advisor and distributor:
Ratio of expenses to average
daily net assets before
waivers .................. 2.01%(f) 1.89% 1.83%(f) 1.73% 1.98% 2.01% 2.59%
Ratio of net investment
income (loss) to average
daily net assets before
waivers . (0.94)%(f) (0.45)% 0.10%(f) 0.18% (0.41)% (0.49)% (0.31)%
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS Y
-------------------------- --------------------------
Six Months Period Six Months Period
Ended Ended Ended Ended
March 31, September March 31, September
1998 30, 1998 30,
(Unaudited) 1997(e) (Unaudited) 1997(e)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ............. $ 13.47 $ 12.55 $ 13.55 $ 12.55
----------- ----------- ----------- -----------
Operations:
Net investment income (loss) ................... (0.09)(g) (0.01) (0.02)(g) 0.07
Net realized and unrealized gains on
investments .................................. 0.57 0.94 0.56 0.94
----------- ----------- ----------- -----------
Total from operations ........................ 0.48 0.93 0.54 1.01
Distributions to shareholders:
From net investment income ..................... (0.57) (0.01) (0.62) (0.01)
----------- ----------- ----------- -----------
Net asset value, end of period ............... $ 13.38 $ 13.47 $ 13.47 $ 13.55
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
SELECTED INFORMATION
Total return (a) ................................. 4.17% 7.40% 4.65% 8.03%
Net assets at end of period (in thousands and
millions for Class B and Class Y,
respectively) .................................. $ 81 $ 55 $ 3 $ 15
Ratio of expenses to average daily net assets .... 2.63%(f) 2.44%(f) 1.35%(f) 1.42%(f)
Ratio of net investment income (loss) to average
daily net assets ............................... (1.45)%(f) (0.24)%(f) (0.32)%(f) 0.77%(f)
Average commission rate paid on portfolio
transactions (c) ............................... $ 0.0228 $ 0.0212 $ 0.0228 $ 0.0212
Portfolio turnover rate (excluding short-term
securities) .................................... 25% 62% 25% 62%
</TABLE>
(a) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A
SALES CHARGE.
(b) ON JUNE 21, 1996, THE FUND ACQUIRED THE NET ASSETS OF HERCULES EUROPEAN
VALUE FUND AND HERCULES PACIFIC BASIN VALUE FUND VIA A TAX-FREE
REORGANIZATION.
(c) DISCLOSED IN ACCORDANCE WITH GUIDELINES ADOPTED IN 1996. THE COMPARABILITY
OF THIS INFORMATION MAY BE AFFECTED BY THE FACT THAT COMMISSION RATES PER
SHARE VARY SIGNIFICANTLY AMONG FOREIGN COUNTRIES.
(d) THE FUND CONVERTED FROM A CLOSED-END INVESTMENT COMPANY TO AN OPEN-END
INVESTMENT COMPANY ON AUGUST 31, 1992.INFORMATION FOR PERIODS PRIOR TO
CONVERSION IS BASED ON THE FUND'S OPERATIONS AS A CLOSED-END FUND. FISCAL
1993 EXPENSES INCLUDE 0.32% RELATED TO CONVERTING TO AN OPEN-END FUND.
(e) COMMENCEMENT OF OFFERING OF CLASS B AND CLASS Y SHARES WAS FEBRUARY 18,
1997.
(f) ANNUALIZED.
(g) BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
- --------------------------------------------------------------------------------
20
<PAGE>
Investments in Securities (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING MARKETS GROWTH FUND March 31, 1998
.......................................................................................
Number Market
Description of Security of Shares Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
COMMON STOCK (90.4%):
ARGENTINA (5.2%):
Banco de Galicia y Buenos Aires - banking ........... 28,200 $ 173,736
Disco ADR - food-retail ............................. 5,400(b) 217,350
Perez Companc Class B - oil and gas ................. 38,387 259,916
------------
651,002
------------
BRAZIL (13.3%):
Centrais Eletricas Brasileiras (Electrobras) -
utilities ......................................... 9,059,580 422,301
Companhia de Eletricidade do Estado do Rio de Janerio
(CERJ) - utilities ................................ 350,000,000(b) 243,184
Companhia Energetica de Minas Gerais (CEMIG) ADR -
utilities ......................................... 5,000 243,174
Paranaense de Energia Copel - utilities 23,000,000 273,087
Telecomunicacoes Brasileiras (Telebras) -
telecommunications ................................ 3,248,300 337,086
Telecomunicacoes Brasileiras (Telebras) ADR -
telecommunications ................................ 1,300 168,756
------------
1,687,588
------------
CHILE (5.4%):
Cervecerias Unidas ADR - brewer and distiller ....... 12,500 378,125
Linea Aerea Nacional Chile ADR - passenger and cargo
air services ...................................... 10,000 137,500
Telecomunicaciones de Chile ADR -
telecommunications ................................ 5,911 162,922
------------
678,547
------------
EGYPT (3.9%):
Al-Ahram Beverages GDR - brewers and distillers ..... 16,000 492,400
------------
GHANA (4.1%):
Guinness Ghana - brewers and distillers ............. 354,889(b) 199,290
Pioneer Tobacco - tobacco ........................... 1,500,000(b) 317,494
------------
516,784
------------
GREECE (3.3%):
Goody's - food and beverage ......................... 17,470 415,432
------------
HONG KONG (2.6%):
Asia Satellite Telecom - telecommunications ......... 66,000 129,892
Guangdong Kelon Electrical - consumer goods ......... 100,000 116,149
Pacific Ports - transportation ...................... 320,000(b) 80,117
------------
326,158
------------
</TABLE>
<TABLE>
<CAPTION>
Number Market
Description of Security of Shares Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
HUNGARY (5.4%):
Magyar Tavkozlesi ADR - telecommunications .......... 2,250 $ 70,031
OTP Bank GDR - banking and financial services ....... 9,700 493,973
Pick Szeged - food and beverage ..................... 5,360 66,642
Richter Gedeon GDR - pharmaceuticals 540 56,430
------------
687,076
------------
INDIA (3.5%):
Mahanagar Telephone Nigam GDR -
telecommunications ................................ 9,430(b) 155,124
Mahindra & Mahindra GDR - automobiles ............... 19,300(b) 160,383
Videsh Sanchar Nigam GDR 144A -
telecommunications ................................ 10,400(b) (e) 130,000
------------
445,507
------------
INDONESIA (1.3%):
Daya Guna Samudera - fisheries ...................... 80,000 80,000
Gulf Indonesia Resources - oil and gas . 5,000 90,000
------------
170,000
------------
LEBANON (4.9%):
Banque Audi GDR - banking ........................... 9,500 266,713
Solidere GDR - real estate .......................... 25,000(b) 356,875
------------
623,588
------------
MALAYSIA (1.0%):
Guinness Anchor - brewers and distillers ............ 80,000 131,148
------------
MEXICO (16.8%):
Cemex Class B - construction materials .............. 74,000 408,917
Corporacion GEO Class B - real estate . 58,900(b) 383,522
Fomento Economico Mexicano (Femsa) Class B - food and
beverage .......................................... 65,500 472,604
Grupo Carso Class A1 - diversified holding
company ........................................... 23,179 143,586
Grupo Elektra GDR - retail .......................... 12,500 191,406
Panamerican Beverages - food and beverage ........... 7,500 300,938
TV Azteca ADR - television broadcasting ............. 11,000 215,875
------------
2,116,848
------------
PAPUA NEW GUINEA (1.9%):
Orogen Minerals - mining ............................ 120,000 244,768
------------
PHILIPPINES (1.6%):
Cosmos Bottling - food and beverage ................. 1,500,000 205,995
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
21
<PAGE>
Investments in Securities (Unaudited) (continued)
- --------------------------------------------------------------------------------
EMERGING MARKETS GROWTH FUND
(CONTINUED)
<TABLE>
<CAPTION>
Number Market
Description of Security of Shares Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
RUSSIA (5.7%):
Gazprom ADR - oil and gas ........................... 11,650 $ 241,155
Lukoil Holding ADR - oil and gas .................... 1,600 112,470
Vimpel-Communications ADR - telecommunications ...... 8,150(b) 362,675
------------
716,300
------------
SOUTH AFRICA (7.8%):
Dimension Data Holdings - computers ................. 35,001(b) 224,185
Fedsure Holdings - insurance ........................ 20,000 332,075
JD Group - consumer goods ........................... 20,000 188,878
Sasol - oil and gas ................................. 30,000 243,098
------------
988,236
------------
TAIWAN (1.3%):
Standard Foods Taiwan GDR - food and beverage ....... 11,867(b) 163,883
------------
THAILAND (0.8%):
National Finance and Securities - financial
services .......................................... 177,000 97,834
------------
TURKEY (0.6%):
Efes Sinai Yatirim GDR - food and beverage .......... 4,400(b) 79,750
------------
Total Common Stock
(cost: $8,770,339) ............................. 11,438,844
------------
PREFERRED STOCK (5.9%):
BRAZIL (5.9%):
Electrolux do Brasil - consumer goods . 700 1
Itausa-Investimentos Itau - diversified holding
company ........................................... 315,155 271,638
Mesbla - retail ..................................... 1,300,000(b) --
Petroleo Brasileiro - oil and gas ................... 1,616,500 383,865
Telecomunicacoes de Sao Paulo -
telecommunications ................................ 284,000 91,170
------------
Total Preferred Stock
(cost: $886,724) ............................... 746,674
------------
</TABLE>
<TABLE>
<CAPTION>
Number
of Shares
or
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
CONVERTIBLE CORPORATE NOTES AND BONDS (d) (1.5%):
TAIWAN (1.5%):
Nan Ya Plastics 144A, 1.75%, 7/19/01 (United States
Dollar) - diversified industrial and conglomerate
(cost: $186,474) .................................. 160,000(e) $ 191,200
------------
SHORT-TERM SECURITIES (1.8%):
Repurchase agreement with Goldman Sachs, acquired on
3/31/98, interest of $37, 6.00%, 4/1/98
(cost: $222,000) .................................. $ 222,000(c) 222,000
------------
Total Investments in Securities (cost: $10,065,537)
(f) .............................................. $ 12,598,718
------------
------------
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES:
(a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS. MARKET VALUES ARE STATED IN U.S. DOLLARS.
(b) CURRENTLY NON-INCOME PRODUCING.
(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) PRINCIPAL AMOUNTS ARE STATED IN THE CURRENCY WHICH IS INDICATED
PARENTHETICALLY.
(e) SECURITIES SOLD WITHIN TERMS OF A PRIVATE PLACEMENT MEMORANDUM, EXEMPT FROM
REGISTRATION UNDER RULE 144A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY BE SOLD ONLY TO DEALERS IN THAT PROGRAM OR OTHER ACCREDITED INVESTORS.
SECURITIES ARE CONSIDERED LIQUID UNDER GUIDELINES ESTABLISHED BY THE BOARD
OF DIRECTORS.
(f) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS
UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED
ON THIS COST WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 3,517,886
GROSS UNREALIZED DEPRECIATION ...... (984,705)
------------
NET UNREALIZED APPRECIATION ...... $ 2,533,181
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
22
<PAGE>
Investments in Securities (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PACIFIC-EUROPEAN GROWTH FUND March 31, 1998
.......................................................................................
Number Market
Description of Security of Shares Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
COMMON STOCK (96.3%):
ARGENTINA (0.7%):
Telecom Argentina ADR - telecommunications .......... 12,000 $ 429,750
------------
AUSTRALIA (3.3%):
Futuris - diversified industrial and
conglomerates ..................................... 260,000 311,655
GIO Australia Holdings LTD - multi-line insurance ... 120,000 361,589
Goodman Fielder - food products ..................... 100,000 155,364
Lend Lease - financial services ..................... 20,000 466,223
Reinsurance Australia - financial services 148,000 395,973
Westpac Banking - banking and financial services .... 38,000 254,675
------------
1,945,479
------------
BRAZIL (0.6%):
Telecomunicacoes Brasileiras (Telebras) ADR -
telecommunications ................................ 3,000 389,438
------------
DENMARK (2.1%):
Den Danske Bank - banking and financial services .... 9,790 1,280,676
------------
FRANCE (10.6%):
Pinault - Printemps-Redoute - retail ................ 1,885 1,459,257
Rhone-Poulenc Class A - chemicals ................... 31,700 1,613,306
Schneider - electronics ............................. 21,200 1,634,326
Total Class B - oil and gas ......................... 13,500 1,623,273
------------
6,330,162
------------
GERMANY (5.5%):
Mannesmann - industrial machinery ................... 2,350 1,722,320
Veba - diversified industrial and conglomerates ..... 21,600 1,533,963
------------
3,256,283
------------
HONG KONG (0.8%):
Hutchison Whampoa - diversified holding company ..... 65,000 457,173
------------
ITALY (5.4%):
ENI - oil and gas ................................... 225,500 1,538,007
Telecom Italia - telecommunications ................. 212,000 1,672,366
------------
3,210,373
------------
JAPAN (20.2%):
Aoyama Trading - retail ............................. 30,000 720,856
Bank of Tokyo-Mitsubishi - banking .................. 30,000 364,933
Bridgestone - automobile tires ...................... 25,000 566,923
Canon - electronics ................................. 37,000 836,269
Citizen Watch - manufacturing ....................... 29,000 211,226
East Japan Railway - transportation ................. 112 519,737
Fuji Photo Film - consumer goods .................... 6,000 223,465
Hitachi - electronics ............................... 68,000 495,288
</TABLE>
<TABLE>
<CAPTION>
Number Market
Description of Security of Shares Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
Honda Motor - motor vehicles ........................ 18,000 $ 648,770
Matsushita Electric Industrial - electronics ........ 38,000 610,625
Matsushita Electric Works - building materials ...... 49,000 481,997
Nichiei - financial services ........................ 7,040 623,781
Nippon Telephone and Telegraph -
telecommunications ................................ 10,000 833,490
Sankyo - pharmaceuticals ............................ 15,000 416,745
Sanwa Bank - financial services ..................... 23,000 205,519
Secom - business services ........................... 4,000 244,791
Shin-Etsu Chemical - chemicals ...................... 12,000 237,882
Shiseido - cosmetics ................................ 40,000 459,546
Shohkoh Fund - financial services ................... 1,800 601,464
Sony Corporation - electronics ...................... 6,000 509,105
Sumitomo Electric Industries - electronics .......... 14,000 180,815
Takefuji - financial services ....................... 4,500 212,878
TDK - computers ..................................... 4,000 309,367
Tokyo Electric Power - utilities .................... 29,000 548,752
Toyota Motor - motor vehicles ....................... 11,000 293,223
Yamanouchi Pharmaceutical - pharmaceuticals ......... 30,000 689,319
------------
12,046,766
------------
MEXICO (1.0%):
Fomento Economico Mexicano (Femsa) Class B - food and
beverage .......................................... 40,000 288,614
Kimberly-Clark de Mexico - A - paper and related
products .......................................... 60,700 313,345
------------
601,959
------------
NETHERLANDS (8.2%):
ING Groep - banking and financial services .......... 21,700 1,232,854
Koninklijke Ahold NV - food-retail .................. 56,900 1,839,054
Verenigde Nederlandse Uitgeversbedrijven Verenigd
Bezit (VNU) - printing and publishing ............. 52,500 1,797,695
------------
4,869,603
------------
PAPUA NEW GUINEA (0.7%):
Orogen Minerals - mining ............................ 195,000 397,747
------------
SINGAPORE (1.2%):
City Developments - real estate ..................... 50,400 248,176
Development Bank of Singapore - financial
services .......................................... 33,000 241,189
Singapore Press Holdings - printing and
publishing ........................................ 19,140 219,319
------------
708,684
------------
SWEDEN (5.2%):
Astra AB - A - pharmaceuticals ...................... 87,500 1,802,884
Nordbanken Holding AB - banking and financial
services .......................................... 196,000 1,297,203
------------
3,100,087
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
23
<PAGE>
Investments in Securities (Unaudited) (continued)
- --------------------------------------------------------------------------------
PACIFIC-EUROPEAN GROWTH FUND
(CONTINUED)
<TABLE>
<CAPTION>
Number Market
Description of Security of Shares Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
SWITZERLAND (7.4%):
Novartis - pharmaceuticals .......................... 990 $ 1,754,422
Union Bank of Switzerland Schweiz Bankgesellschaft -
B - banking and financial services ................ 995 1,627,344
Zurich Versicherungs-Gesellschaft - insurance ....... 1,840 1,069,592
------------
4,451,358
------------
THAILAND (0.3%):
National Finance and Securities - financial
services .......................................... 353,000 195,114
------------
UNITED KINGDOM (23.1%):
Albright & Wilson - chemicals ....................... 80,200 230,953
Barclays - banking and financial services 32,000 959,010
British Aerospace - aerospace ....................... 16,300 537,073
British Petroleum - oil and gas ..................... 76,000 1,096,835
British Telecom - telecommunications ................ 97,100 1,056,703
Centrica - utilities ................................ 382,000(b) 719,509
General Electric - electronics ...................... 88,400 700,058
GKN PLC - auto/truck parts and equipment ............ 29,100 786,839
Glaxo Wellcome - pharmaceuticals .................... 29,400 791,013
HSBC Holdings - banking and financial services ...... 23,800 776,222
Kingfisher - retail ................................. 18,400 344,721
Legal & General Group - insurance ................... 65,800 813,022
Lloyds TSB Group - banking and financial services ... 69,200 1,076,322
Marks & Spencers - retail ........................... 49,900 494,169
SeaPerfect - food and beverage ...................... 90,497(b) --
SmithKline Beecham - pharmaceuticals ................ 60,500 764,756
Unilever - consumer goods ........................... 50,800 480,543
Vodafone Group PLC - telecommunications ............. 45,000 470,883
Whitbread - brewers and distillers .................. 33,400 629,099
Wolseley - retail-building products ................. 58,200 447,256
Zeneca - pharmaceuticals ............................ 13,700 590,404
------------
13,765,390
------------
Total Common Stock
(cost: $44,880,855) ............................ 57,436,042
------------
</TABLE>
<TABLE>
<CAPTION>
Number
of Shares
or
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
CONVERTIBLE CORPORATE NOTES AND BONDS (D) (2.4%):
FRANCE (2.4%):
Finaxa, 2.75%, 1/1/06 (French Francs) - financial
services
(cost: $1,058,950) ................................ 6,312,400 $ 1,456,614
------------
RIGHTS (0.0%):
Development Bank of Singapore - financial services,
7/14/98
(cost: $0) ........................................ 6,000 12,264
------------
SHORT-TERM SECURITIES (0.8%):
Repurchase agreement with Goldman Sachs, acquired on
3/31/98, interest of $75, 6.00%, 4/1/98
(cost: $451,000) .................................. $ 451,000(c) 451,000
------------
Total Investments in Securities
(cost: $46,390,805) (e) ........................ $ 59,355,920
------------
------------
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES:
(a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS. MARKET VALUES ARE STATED IN U.S. DOLLARS.
(b) CURRENTLY NON-INCOME PRODUCING.
(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) PRINCIPAL AMOUNTS ARE STATED IN THE CURRENCY WHICH IS INDICATED
PARENTHETICALLY.
(e) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS
UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED
ON THIS COST WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 14,587,637
GROSS UNREALIZED DEPRECIATION ...... (1,622,522)
------------
NET UNREALIZED APPRECIATION ...... $ 12,965,115
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
24
<PAGE>
SMALL COMPANY GROWTH FUND
- --------------------------------------------------------------------------------
[PHOTO]
SANDRA SHREWSBURY, CFA
is primarily responsible for the management of Small Company Growth Fund. She
has 15 years of financial experience. Other management team members are shown on
pages 26-30.
- --------------------------------------------------------------------------------
May 17, 1998
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1998, SMALL COMPANY GROWTH FUND CLASS A
DELIVERED A 5.72%* TOTAL RETURN WITH ALL DISTRIBUTIONS REINVESTED BUT NOT
INCLUDING THE SALES CHARGE. This compares to the Standard & Poor's SmallCap 600
Index,+ which returned 7.63% during the period, and the 5.32% gain of the Lipper
Small Cap Funds Average.** Your fund's portfolio includes stocks of companies
that are more growth-oriented than those in the S&P SmallCap 600 (which includes
both growth and value stocks), and we believe this is the principal reason for
its underperformance of the S&P benchmark.
THE RUSSELL 2000 GROWTH INDEX, WHICH REPRESENTS A GROWTH INVESTMENT STYLE
SIMILAR TO THAT OF SMALL COMPANY GROWTH FUND, RETURNED 2.73% DURING THE
REPORTING PERIOD. We believe the fund's solid performance during the period is a
result of our process of maintaining a diverse portfolio of quality small
companies with the potential for significant growth. Even though the market was
volatile during the period, we remained focused on our strategy - and as a
result, the fund was well positioned when the market rebounded.
- --------------------------------------------------------------------------------
PERFORMANCE THROUGH MARCH 31, 1998*
- --------------------------------------------------------------------------------
Growth of $10,000 Invested Since Inception
[GRAPH]
<TABLE>
<CAPTION>
Small Company Growth Lipper
Fund Class A, reflects the S&P Small Cap
fund's 4% SmallCap Funds
sales charge 600 Index+ Average**
<S> <C> <C>
9600 10000 10000
9514 10000 10000
9571 9615 9769.57
9504 9471 9768.65
9648 9657 9901.62
10091 9963 10194
10284 10305 10557.4
10321 10038 10374.3
7634 7047 7570.78
7277 6590 7117.68
7763 7160 7853.28
7880 7441 8011.68
8366 8041 8636.24
8427 8321 8871.48
8524 8432 9060.19
8446 8241 8891.21
8765 8796 9535.83
8560 8667 9324.54
8335 8366 9021.04
8261 8560 9311.41
7899 8546 9189.49
7918 8273 8931.47
8092 8555 9322.65
8592 8775 9825.96
8455 8823 9830.16
8434 8976 10061.9
8760 9409 10623.5
9233 9761 11156.5
8936 9645 10838.5
9722 9971 11450.6
10000 10183 11809.2
10099 10189 11961.6
10039 9582 11397
10160 9673 11474.6
10342 9743 11587.9
9432 8845 10565.4
10005 9063 10882.1
10614 9345 11389.2
10348 8956 11127
11404 9588 12196.1
11815 9581 12279.6
11373 9074 11810.6
10190 7955 10298.7
9443 7214 9405.58
9350 6706 9070.45
9772 7192 9779.09
10293 7436 10324.9
11358 7970 11234.7
11886 8872 12193.7
12437 9429 13012.1
12633 9451 12883.5
13368 9823 13499.5
12082 9400 12759
13179 9770 13531.6
13407 10198 14117
13272 10284 14220
13355 10646 14689.9
13086 10168 14101.5
14477 11041 15799.5
14997 11879 16510.4
15256 12128 16738.7
14467 11790 15974.5
14384 11315 15237.2
14550 11445 15231.6
13958 11007 14525.5
14623 11417 15070.8
14176 11092 14715.2
14093 11408 15099.4
14820 11883 15781.7
15724 12905 17111.4
16137 13364 17684.4
16585 13722 18035.6
16283 13332 17305.8
16481 13841 17939.3
16200 13337 17379.2
16669 14053 18406.6
16804 14142 18554.6
16898 14289 18674.2
17325 15043 19674.9
17555 15589 20422.1
17607 15888 20725.5
17315 15319 19962.2
17906 15874 20819.1
18209 16249 21333
18125 16201 21299.7
17801 15038 20088.2
17843 15264 20140
18073 14962 19724
17227 14406 18957.4
17499 14586 19313.2
18073 15579 20565.8
17927 15499 20681
17624 15344 21089.4
17185 14758 20309.8
17465 15117 20761.8
17182 14903 20456
17696 15518 21353.9
18032 15832 22017.2
17833 16185 22346.4
17591 16438 22716.8
18441 17340 24290.8
19355 18665 26301.7
19491 19070 26681.5
20415 19557 27455.2
20079 18591 26717
20761 19327 27740.9
20998 19646 27960.8
21010 19689 27671.3
21661 20333 28799.4
21387 20769 29389.2
21959 21962 31743.1
22393 22742 33048.8
21490 21850 31598
20014 20347 28545.1
20769 21604 30311.1
21513 22552 32006.6
21094 22396 31079.6
21975 23559 31869.2
23444 23834 32179.2
23935 24230 32997.9
22887 23729 31372.3
20988 22511 29540.8
20988 22788 29310.4
23673 25465 32734.3
25867 26590 34362
27733 28263 36518.3
28617 28975 36961.1
31335 30890 39716.5
29895 29559 37794.6
29862 29343 37323.8
30295 29933 37618.2
29196 29349 37046.1
32095 32023 39973.9
33128 33246 41727.7
</TABLE>
+ An unmanaged index, that includes no expenses or transaction charges, of
small-capitalization stocks.
** The average total return, not including sales charges, of similar funds as
characterized by Lipper Analytical Services.
- --------------------------------------------------------------------------------
CLASS A AVERAGE ANNUALIZED TOTAL RETURNS
Includes the fund's maximum 4% front-end sales charge
<TABLE>
<CAPTION>
<S> <C>
One Year 51.53%
- --------------------------------------------------------------------------------
Five Year 14.04%
- --------------------------------------------------------------------------------
Ten Year 14.20%
- --------------------------------------------------------------------------------
Since Inception (3/16/87) 11.45%
- --------------------------------------------------------------------------------
CLASS B AVERAGE ANNUALIZED TOTAL RETURNS
Includes the fund's maximum 4% contingent deferred
sales charge
One Year 53.15%
- --------------------------------------------------------------------------------
Since Inception (2/18/97) 30.89%
- --------------------------------------------------------------------------------
</TABLE>
* PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. 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. Safety of principal is not guaranteed. THE
FUND OPERATED AS EQUITY STRATEGY FUND UNTIL SEPTEMBER 13, 1996, WITH AN
OBJECTIVE OF HIGH TOTAL INVESTMENT RETURN CONSISTENT WITH PRUDENT INVESTMENT
RISK. Stocks of small companies are more volatile than stocks of larger
companies. They often involve higher risks because small companies lack the
management expertise, financial resources, product diversification and
competitive strengths of larger companies. See the prospectus for more complete
information regarding risks. During most periods, the fund's advisor waived or
paid certain expenses and/or the fund's distributor voluntarily waived certain
12b-1 fees. Without waivers, returns would have been lower.
All fund and benchmark returns include reinvested distributions.
- --------------------------------------------------------------------------------
25 1998 Semiannual Report - Piper Funds
<PAGE>
SMALL COMPANY GROWTH FUND (CONTINUED)
- --------------------------------------------------------------------------------
[PHOTO]
JILL THOMPSON, CFA
assists with the management of Small Company Growth Fund and Emerging Growth
Fund. She has nine years of financial experience.
- --------------------------------------------------------------------------------
DURING FOURTH QUARTER 1997, SMALL-CAP STOCK PRICES FELL AS THE ASIAN ECONOMIC
CRISIS SPURRED AN INVESTOR FLIGHT TO SAFETY. The year ended with small-cap
stocks down for the quarter (but up considerably for the year), due to investor
concern that Asia's troubles might slow earnings growth in the United States.
However, sentiment changed dramatically, and investors returned to small-cap
stocks in late January, as the U.S. economy performed above expectations. This
strength continued throughout the remainder of the period, resulting in one of
the strongest quarters for stocks in some time.
OUR INVESTMENTS IN A VARIETY OF INDUSTRIES DID WELL DURING THE SIX-MONTH PERIOD.
Positive performers included Pier 1 Imports (1.1% of the fund's total assets as
of March 31, 1998) and Stage Stores (1.9%) in the retail industry; Commerce
Bancorp (1.3%) and Financial Federal Corp. (1.3%) in the financial sector,***
Control Devices (0.8%) in the capital goods area, and Novoste (0.6%), Cyberonics
(1.0%) and Express Scripts (1.5%) in the health care sector. Although the health
care and technology sectors provided mixed performance during the period, our
holdings in these areas performed well overall.
TAKING ADVANTAGE OF PRICE WEAKNESS IN THE TECHNOLOGY SECTOR, WE BOUGHT SEVERAL
STOCKS THAT WE BELIEVE OFFER BRIGHT PROSPECTS. These include P-COM Inc. (1.5%)
and PMC-Sierra (1.7%), which focus on telecommunications and communications
infrastructure; Made2Manage Systems (0.9%), which is an application software
provider; and Applied Micro Circuits (0.6%). Other issues we added included C.H.
Robinson Worldwide (0.8%), a transportation and logistics company, and Kuhlman
Corp. (0.5%), which provides products for utility companies.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION BY SECTOR
- --------------------------------------------------------------------------------
As a percentage of total assets on March 31, 1998
[GRAPH]
<TABLE>
<CAPTION>
Small Company S&P SmallCap
Growth Fund 600 Index+
<S> <C> <C>
Basic Materials 6 7
Capital Goods & Services 8.6 9
Commercial Services 7.3 10
Consumer Durables 0 6
Consumer Non-Durables 2 4
Consumer Services 8 5
Energy 5.2 4
Financial Services 11.4 16
Health Care 12 11
Retail Trade 9 6
Short-Term 7 0
Technology 19.8 14
Transportation 2.3 3
Utilities 0.9 5
Other Assets 1 0
</TABLE>
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
- --------------------------------------------------------------------------------
As a percentage of total assets on March 31, 1998
<TABLE>
<S> <C> <C>
1 U.S. Foodservice 1.9%
- --------------------------------------------------------------------------------
2 Stage Stores 1.9%
- --------------------------------------------------------------------------------
3 Hibbett Sporting Goods 1.9%
- --------------------------------------------------------------------------------
4 Affiliated Managers Group 1.8%
- --------------------------------------------------------------------------------
5 PMC-Sierra 1.7%
- --------------------------------------------------------------------------------
6 Sipex 1.7%
- --------------------------------------------------------------------------------
7 OM Group 1.6%
- --------------------------------------------------------------------------------
8 Peerless Systems 1.6%
- --------------------------------------------------------------------------------
9 Tier Technologies 1.6%
- --------------------------------------------------------------------------------
10 Herman Miller 1.6%
- --------------------------------------------------------------------------------
</TABLE>
+ An unmanaged index, that includes no expenses or transaction charges,
of small-capitalization stocks.
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
26 1998 Semiannual Report - Piper Funds
<PAGE>
SMALL COMPANY GROWTH FUND (CONTINUED)
- --------------------------------------------------------------------------------
[PHOTO]
JOYCE HALBE, CFA
assists with the management of Emerging Growth Fund and Small Company Growth
Fund. She has 13 years of financial experience.
- --------------------------------------------------------------------------------
THE FUND ALSO SOLD SELECTED STOCKS AS WE FELT APPROPRIATE. These names included
semiconductor companies Anadigics and PRI Automation (due to their difficult
operating environment), as well as commercial services businesses Watso Inc. (a
heating/air conditioning supplier hurt by unfavorable weather conditions) and
Wilmar Industries (because we no longer see a catalyst that will lift the stock
further).
EVEN WITH THE MARKET'S RECENT STRONG PERFORMANCE, VALUATIONS*** REMAIN
ATTRACTIVE FOR SMALL-CAP STOCKS. This is particularly true relative to larger
stocks. The valuations are similar; however, earnings growth is slowing for
many larger companies. Until recently, investors have not needed to shift to
smaller companies to achieve above average earnings growth.
Thank you for your investment in Small Company Growth Fund. We are dedicated to
providing you with superior service and look forward to helping you achieve your
investment goals.
Sincerely,
/s/ Sandra Shrewsbury
Sandra Shrewsbury
Portfolio Manager
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
27 1998 Semiannual Report - Piper Funds
<PAGE>
EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
[PHOTO]
SANDRA SHREWSBURY, CFA
is primarily responsible for the management of Emerging Growth Fund. She has 15
years of financial experience. Other management team members are shown on
pages 26-30.
- --------------------------------------------------------------------------------
May 17, 1998
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1998, EMERGING GROWTH FUND CLASS A
DELIVERED AN 11.26%* TOTAL RETURN WITH ALL DISTRIBUTIONS REINVESTED BUT NOT
INCLUDING THE SALES CHARGE. This compares to the Standard & Poor's MidCap 400
Index,** which returned 11.94% during the period, and the 8.41% gain of the
Lipper Mid Cap Funds Average.+
THE RUSSELL MID-CAP GROWTH INDEX, WHICH REPRESENTS AN INVESTMENT STYLE SIMILAR
TO THAT OF EMERGING GROWTH FUND, RETURNED 8.85% DURING THE REPORTING PERIOD. We
believe the fund's solid performance during the period is a result of our
process of maintaining a diverse portfolio of quality mid-sized companies with
the potential for significant growth. Even though the market was volatile during
the period, we remained focused on our strategy - and as a result, the fund was
well positioned when the market rebounded.
MID-CAP STOCK PRICES FELL DURING THE LAST MONTHS OF 1997 AS THE ASIAN ECONOMIC
CRISIS PROMPTED AN INVESTOR FLIGHT TO SAFETY. The year ended with mid-cap stocks
down for the quarter (but up considerably for the year), due to investor concern
that Asia's troubles might slow earnings growth in the United States. However,
sentiment changed dramatically, and investors returned to mid-cap stocks in late
January,
- --------------------------------------------------------------------------------
PERFORMANCE THROUGH MARCH 31, 1998*
- --------------------------------------------------------------------------------
Growth of $10,000 Invested Since Inception
[GRAPH]
<TABLE>
<CAPTION>
Emerging Growth Lipper
Fund Class A, reflects the S&P Mid Cap
fund's 4% MidCap Funds
sales charge 400 Index** Average+
<S> <C> <C>
9600 10000 10000
9600 10000 10000
10291 10977 10963
10406 11021 11017.8
10570 10769 10697.3
8736 9653 9560.69
8255 9062 8880.86
7957 8786 8592.07
8890 9631 9328.37
9226 10189 9770.87
10199 10995 10514.6
11307 11982 11359.4
11880 12529 11915.6
11754 12525 11864.6
12641 13102 12436.3
11940 12437 11802.9
12923 13185 12485.1
13501 13665 12940.7
13357 13621 12923.3
13925 14154 13330.3
13289 13677 12846.1
15263 15294 14304.5
15350 15565 14727.7
15408 15812 14965.9
14672 15217 14345.3
14061 15035 13904.1
14381 15177 13967.5
13722 14744 13388.9
14216 15476 13947.4
13606 15106 13572
13964 15317 13845.5
14633 15684 14376.6
15874 16560 15330.2
16377 17116 15856.2
16678 17330 16151
16164 17088 15574
16823 17678 16124.2
16019 17215 15583.9
17153 17999 16411
17318 18090 16534.6
17376 18055 16588.3
18316 18800 17314.5
19120 18999 17798.7
19023 19061 17999
18451 18639 17533.2
19401 19505 18267
20070 19958 18810.6
19837 19675 18714.8
18761 18764 17729
18548 18904 17733.1
17957 18725 17512.9
17230 18080 16836.8
17608 18692 17191.3
18858 19671 18223
18665 19304 18200.3
18791 19515 18401.2
18035 18635 17676.7
18442 18806 17977.6
18122 19001 17904.3
18965 19998 18634.1
19847 20346 19209.2
20283 20754 19385.8
20622 21255 19717.3
21707 22120 20783
23781 23274 22218
24188 23704 22498.7
25138 24279 23082.5
24411 23654 22483.3
25526 24687 23283.1
25701 24626 23493.7
25990 24983 23631.5
27123 25832 24524.8
27807 26142 24941.3
29175 26940 26308.3
30243 27305 27042
29624 26895 26193.2
26781 25075 24095.9
27978 26521 25400.5
29624 27678 27012.6
28544 27758 26534.9
29414 29322 27569.2
28755 29354 27462.9
29508 30456 28258.8
28332 30206 27187.8
26522 28918 25647.5
26686 29667 26029.9
29390 32261 28617.9
31365 33168 29677.3
33881 36448 31884.6
33481 36404 31751.8
35856 38498 33803
33739 36827 32222.8
33977 37372 32177.6
35483 38818 32560.5
34373 38081 32069.1
37861 41234 34958.3
39895 43093 36618.1
</TABLE>
** An unmanaged index, that includes no expenses or transaction charges, of
mid-capitalization stocks.
+ The average total return, not including sales charges, of similar funds as
characterized by Lipper Analytical Services.
- --------------------------------------------------------------------------------
CLASS A AVERAGE ANNUALIZED TOTAL RETURNS
Includes the fund's maximum 4% front-end sales charge
<TABLE>
<S> <C>
One Year 44.41%
- --------------------------------------------------------------------------------
Five Year 17.87%
- --------------------------------------------------------------------------------
Since Inception (4/23/90) 19.03%
- --------------------------------------------------------------------------------
CLASS B & Y AVERAGE ANNUALIZED TOTAL RETURNS
Class B share returns include the fund's maximum 4% contingent deferred sales
charge. Sales charges do not apply to Class Y shares.
Class B One Year 45.41%
- --------------------------------------------------------------------------------
Class B Since Inception (2/18/97) 26.95%
- --------------------------------------------------------------------------------
Class Y One Year 50.94%
- --------------------------------------------------------------------------------
Class Y Since Inception (2/18/97) 31.75%
- --------------------------------------------------------------------------------
</TABLE>
* PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. 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. Safety of principal is not guaranteed. Stocks
of mid-sized companies are more volatile than stocks of larger companies. These
companies may have limited product lines and operating histories and may rely on
narrower management teams. See the prospectus for more complete information
regarding risks. During most periods, the fund's advisor waived or paid certain
expenses and/or the fund's distributor voluntarily waived certain 12b-1 fees.
Without waivers, class A returns would have been lower.
All fund and benchmark returns include reinvested distributions.
- --------------------------------------------------------------------------------
28 1998 Semiannual Report - Piper Funds
<PAGE>
U.S. GROWTH
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND (CONTINUED)
- --------------------------------------------------------------------------------
[PHOTO]
MARY HOYME, CFA
assists with the management of Emerging Growth Fund and Small Company Growth
Fund. She has 15 years of financial experience.
- --------------------------------------------------------------------------------
as the U.S. economy performed above expectations. The strength continued
throughout the remainder of the period, resulting in one of the strongest
quarters for equities in some time.
THE FUND'S HOLDINGS IN THE FINANCIAL SECTOR*** LED THE WAY DURING THIS REPORTING
PERIOD, PARTICULARLY IN THE FOURTH QUARTER OF 1997. The financial sector has
been a strong performer for many years, and we believe its current values
generally reflect future prospects. For that reason, we have reduced our
financial industry weighting. Consumer cyclical stocks also were very strong
during the period, particularly our investments in value retailers such as
Dollar General (1.6% of the fund's total assets as of March 31, 1998) and Kohls
(1.1%). In other industries, Danaher (2.2%, a capital goods company), Cintas
(1.0%, uniform leasing) and Chancellor Media (1.9%) provided favorable results.
TECHNOLOGY AND HEALTH CARE STOCKS PROVIDED MIXED RESULTS DURING THE FOURTH
QUARTER OF 1997 BUT PICKED UP IN 1998. Our strong technology performers included
Sunguard Data Systems (1.4%) and Vantive (1.1%). In consumer non-durables, our
holdings of Rexall Sundown (1.1%, a vitamin producer) did well, as did health
care company Health Management Association (1.2%, hospital management). We are
selectively adding to our technology holdings as opportunities present
themselves. Recent additions have been in telecommunications (Tellabs Inc.,
1.2%, Advanced Fibre Communications, 0.6%, and CIENA, 1.0%) and software (Legato
Systems, 0.9%). We sold positions in Phycor and Genesis Health Ventures, two
health care services companies, to focus on health care areas with greater
earnings visibility and fewer external threats.
ENERGY STOCKS PERFORMED WELL DURING THE FOURTH QUARTER BUT WEAKENED IN EARLY
1998. We believe the current weakness is due to low oil prices caused by
weakening demand in Asia and a warm "El Nino" winter in the Northern
Hemisphere. We are underweighted*** in the energy sector, compared to the
fund's benchmark, as well as in slower-growth industries such as basic
materials and consumer durable goods.
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION BY SECTOR
- --------------------------------------------------------------------------------
As a percentage of total assets on March 31, 1998
<TABLE>
<CAPTION>
[Graph]
EMERGING S&P MidCap
GROWTH FUND 400 Index**
<S> <C> <C>
Basic Materials 6 8
- --------------------------------------------------------------------------------
Capital Goods & Services 8 9
- --------------------------------------------------------------------------------
Commercial Services 7 7
- --------------------------------------------------------------------------------
Consumer Durables 1 3
- --------------------------------------------------------------------------------
Consumer Non-Durables 3 5
- --------------------------------------------------------------------------------
Consumer Services 11 4
- --------------------------------------------------------------------------------
Energy 6.2 7
- --------------------------------------------------------------------------------
Financial Services 12 16
- --------------------------------------------------------------------------------
Health Care 12 8
- --------------------------------------------------------------------------------
Retail Trade 6 7
- --------------------------------------------------------------------------------
Short-Term 6 0
- --------------------------------------------------------------------------------
Technology 22.1 11
- --------------------------------------------------------------------------------
Transportation 0 2
- --------------------------------------------------------------------------------
Utilities 0 13
- --------------------------------------------------------------------------------
</TABLE>
** An unmanaged index, that includes no expenses or transaction charges, of
mid-capitalization stocks.
TOP 10 HOLDINGS
- --------------------------------------------------------------------------------
As a percentage of total assets on March 31, 1998
<TABLE>
<S> <C>
1 Elan Corporation, ADR 2.4%
- --------------------------------------------------------------------------------
2 Stewart Enterprises Class A 2.3%
- --------------------------------------------------------------------------------
3 Danaher 2.2%
- --------------------------------------------------------------------------------
4 EMC 2.2%
- --------------------------------------------------------------------------------
5 Clear Channel Communications 2.2%
- --------------------------------------------------------------------------------
6 Stage Stores 2.1%
- --------------------------------------------------------------------------------
7 TCF Financial 2.0%
- --------------------------------------------------------------------------------
8 The FINOVA Group 2.0%
- --------------------------------------------------------------------------------
9 Sola International 1.9%
- --------------------------------------------------------------------------------
10 Chancellor Media 1.9%
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
29 1998 Semiannual Report - Piper Funds
<PAGE>
EMERGING GROWTH FUND (CONTINUED)
- --------------------------------------------------------------------------------
[PHOTO]
ADAM BENSON
assists with the management of Emerging Growth Fund and Small Company Growth
Fund. He has four years of financial experience.
- --------------------------------------------------------------------------------
TIMOTHY MCSWEENEY
(NOT PICTURED)
assists with the management of Emerging Growth Fund and Small Company Growth
Fund. He has four years of financial experience.
- --------------------------------------------------------------------------------
EVEN WITH THE MARKET'S RECENT STRONG PERFORMANCE, VALUATIONS*** REMAIN
ATTRACTIVE FOR MID-CAP STOCKS. This is particularly true relative to larger
stocks. The valuations are similar; however, earnings growth is slowing for
many larger companies. Until recently, investors have not needed to shift to
smaller companies to achieve above average earnings growth.
Thank you for your investment in Emerging Growth Fund. We are dedicated to
providing you with superior service and look forward to helping you achieve your
investment goals.
Sincerely,
/s/ Sandra Shrewsbury
Sandra Shrewsbury
Portfolio Manager
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
30 1998 Semiannual Report - Piper Funds
<PAGE>
U.S. GROWTH
- --------------------------------------------------------------------------------
GROWTH FUND
- --------------------------------------------------------------------------------
[PHOTO]
STEVE MARKUSEN, CFA
is primarily responsible for the management of Growth Fund's portfolio.
He has 14 years of financial experience.
May 17, 1998
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
FOR THE SIX MONTHS ENDED MARCH 31, 1998, GROWTH FUND CLASS A RETURNED 6.52%*
WHICH INCLUDES REINVESTED DISTRIBUTIONS BUT NOT THE FUND'S SALES CHARGE. This
return is less than the 11.55% return for the Lipper Growth Funds Average+ and
the 17.21% return for the S&P 500 Index, **the fund's benchmark. We are not
happy with these results and have taken steps to improve performance.
THE DOMINANT THEME IN THE STOCK MARKET OVER THE LAST SIX MONTHS HAS BEEN THE
ECONOMIC FALLOUT FROM THE FINANCIAL CRISIS IN SOUTHEAST ASIA. This economic
fallout has had a negative effect on the sales and earnings growth of
economically sensitive sectors*** such as technology, basic materials and
energy. However, the stock market has staged a strong advance from its lows
in October, driven primarily by large growth stocks.
OVER THE PAST SIX MONTHS, THE FUND'S PERFORMANCE HAS BEEN NEGATIVELY AFFECTED BY
ITS OVERWEIGHTING*** IN TECHNOLOGY AND ENERGY. Long-term, we still like these
areas, and as the situation in Asia stabilizes we would expect the stock
performance in these sectors to improve.
THE FUND BENEFITED FROM ITS INVESTMENTS IN THE FINANCE SECTOR. Our large
holdings in Norwest (4.3% of the fund's total assets as of March 31, 1998),
American International Group (3.9%) and the Federal
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
PERFORMANCE THROUGH MARCH 31, 1998*
- --------------------------------------------------------------------------------
Growth of $10,000 Invested Since Inception
<TABLE>
<CAPTION>
Growth Fund Class A,
reflects the fund's Lipper Growth
4% sales charge S&P 500 Index** Funds Average+
<S> <C> <C>
9600 10000 10000
9629 10000 10000
9446 9911 9855.74
9494 9997 9916.03
9950 10502 10240.7
10298 11034 10684.7
10713 11446 11038.1
10602 11195 10865.8
8336 8784 8390.65
7707 8060 7835.14
8337 8673 8523.99
8640 9038 8710.6
9127 9459 9211.15
8901 9167 9139.6
9107 9268 9216.06
8999 9349 9153.26
9490 9778 9660.53
9343 9740 9521.62
9087 9410 9233.2
9456 9811 9595.48
9485 10084 9679.18
9189 9940 9492.47
9354 10114 9737.74
10020 10854 10358.2
9831 10584 10223.8
10303 10831 10468.9
10912 11393 11003.6
11400 11854 11478.1
11180 11787 11326.3
12151 12851 12160.4
12531 13102 12478.7
12512 13049 12518.7
12200 12746 12113.2
12502 13006 12290.9
13020 13318 12408.4
11981 12424 11589.5
12142 12584 11786.9
12748 12918 12137.7
12475 12595 11869.4
13964 13823 13011.5
14095 13730 13053.9
13801 13686 12822.1
12410 12449 11622.2
11910 11843 10947.3
11757 11793 10737.1
12746 12555 11470.9
13174 12905 11873.2
14148 13467 12671.6
15266 14430 13588.2
15933 14779 14038.5
15902 14814 14011.4
16796 15453 14638.1
15973 14745 13870
17127 15433 14633.4
17776 15798 15091.4
17416 15534 14950.4
17819 15743 15266.5
17013 15109 14672.8
19483 16837 16378.5
19473 16523 16398.2
19634 16737 16648
18871 16411 16128
18634 16893 16043.9
18710 16976 16170.9
18183 16723 15701.2
18538 17406 16268.7
17892 17050 15913.8
18420 17250 16195.7
18873 17310 16515.2
19780 17899 17366.8
20038 18119 17684.9
20449 18271 17942.2
20146 18520 17655
20525 18910 18156.9
19473 18453 17629.9
20059 18947 18314.6
20092 19002 18371
19853 18926 18306.7
20634 19644 19104.7
20971 19493 19302.8
20884 19897 19574.8
20439 19707 19190.8
21059 19945 19740.6
21844 20623 20392.5
21266 20064 20064
20165 19189 19099.5
20263 19435 19188.6
20579 19754 19285.8
19902 19270 18615.3
20459 19903 19129.6
21464 20719 20027
20655 20212 19607.8
20939 20666 19925.7
0043 19913 19176
20329 20209 19366
20098 20733 19512.1
21197 21541 20279.8
21770 22176 20863.5
22156 22830 21352
22662 23742 22008.8
23477 24294 22953.6
24380 25099 24071.5
24539 25162 24254.6
24910 26224 24965.7
24092 26130 24594.5
25728 27277 25459.3
26067 27803 25608.3
26259 28749 26165.1
27056 29016 26731
28217 29295 26953.6
29027 29727 27755.8
29357 30494 28410.5
28729 30610 28043.7
27037 29257 26437.9
28316 29875 27340.4
29114 31556 28851.2
29975 32426 29182.7
31864 34877 31018.7
30949 34186 30596.9
31712 36322 32197.8
31346 36607 31850.5
30186 35103 30464.4
30705 37199 31602.3
32994 39463 33849.1
34215 41231 35189.7
38092 44509 38060.3
37145 42017 36831.3
39038 44319 38876.9
38018 42839 37377.2
38018 44822 37970.3
38086 45593 38428.9
37401 46095 38563.5
40589 49418 41416.5
41583 51948 43231.5
</TABLE>
** An unmanaged index, that includes no expenses or transaction charges, of
large-capitalization stocks.
+ The average total return, not including sales charges, of similar funds as
characterized by Lipper Analytical Services.
CLASS A AVERAGE ANNUALIZED TOTAL RETURNS
Includes the fund's maximum 4% front-end sales charge
<TABLE>
<S> <C>
One Year 32.24%
- --------------------------------------------------------------------------------
Five Year 14.22%
- --------------------------------------------------------------------------------
Ten Year 16.18%
- --------------------------------------------------------------------------------
Since Inception (3/16/87) 13.77%
- --------------------------------------------------------------------------------
</TABLE>
CLASS B AVERAGE ANNUALIZED TOTAL RETURNS
Includes the fund's maximum 4% contingent deferred
sales charge
<TABLE>
<S> <C>
One Year 32.91%
- --------------------------------------------------------------------------------
Since Inception (2/18/97) 21.86%
- --------------------------------------------------------------------------------
</TABLE>
* PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. 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. Safety of principal is not guaranteed. During
most periods, the fund's advisor waived or paid certain expenses and/or the
fund's distributor voluntarily waived certain 12b-1 fees. Without waivers, class
A returns would have been lower.
All fund and benchmark returns include reinvested distributions.
- --------------------------------------------------------------------------------
31 1998 Semiannual Report - Piper Funds
<PAGE>
GROWTH FUND (CONTINUED)
- --------------------------------------------------------------------------------
[PHOTO]
BRENT MELLUM, CFA
assists with the management of Growth Fund. He has four years of financial
experience.
- --------------------------------------------------------------------------------
National Mortgage Association (3.3%) had a strong positive effect on
performance. Other strong contributors included Magna International (4.0%),
Gap Inc. (2.3%) and AirTouch Communications (5.0%).
RECOGNIZING THE NEED TO IMPROVE THE PERFORMANCE OF THE FUND, WE HAVE DEDICATED
MORE RESOURCES TO ITS MANAGEMENT. The results so far are encouraging, even
though they have not yet produced a significant improvement in performance. We
have focused our efforts on adding high-quality growth stocks to the portfolio.
Recent additions include Worldcom (1.7%), Albertson's (1.4%), United Healthcare
(2.0%), McDonald's (2.2%), Mattel (1.0%) and Masco Corp. (1.1%). We see
investment opportunities in growth stocks outside the mega-cap stock arena,
since we believe growth rates for the somewhat smaller stocks are higher and
prices are more reasonable.
Thank you for your investment in Growth Fund. We appreciate your confidence, and
we want to assure you that we remain committed to providing quality management
services.
Sincerely,
/s/ Steve Markusen /s/ Brent Mellum
Steve Markusen Brent Mellum
Portfolio Manager Portfolio Manager
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION BY SECTOR
- --------------------------------------------------------------------------------
As a percentage of total assets on March 31, 1998
<TABLE>
<CAPTION>
[Graph]
GROWTH FUND S&P 500 Index**
<S> <C> <C>
Basic Materials 4 5
- --------------------------------------------------------------------------------
Capital Goods & Services 13.9 10
- --------------------------------------------------------------------------------
Commercial Services 1.3 1
- --------------------------------------------------------------------------------
Consumer Services 2 4
- --------------------------------------------------------------------------------
Consumer Durables 2.5 3
- --------------------------------------------------------------------------------
Consumer Non-Durables 1 11
- --------------------------------------------------------------------------------
Energy 14.4 8
- --------------------------------------------------------------------------------
Financial Services 18 17
- --------------------------------------------------------------------------------
Health Care 7 12
- --------------------------------------------------------------------------------
Retail Trade 3.7 5
- --------------------------------------------------------------------------------
Short-Term 3 0
- --------------------------------------------------------------------------------
Technology 16.1 13
- --------------------------------------------------------------------------------
Transportation 3 1
- --------------------------------------------------------------------------------
Utilities 9 10
- --------------------------------------------------------------------------------
</TABLE>
** An unmanaged index, that includes no expenses or transaction charges, of
large-capitalization stocks.
TOP 10 HOLDINGS
- --------------------------------------------------------------------------------
As a percentage of total assets on March 31, 1998
<TABLE>
<S> <C>
1 AirTouch Communications 5.0%
- --------------------------------------------------------------------------------
2 Transocean Offshore 4.8%
- --------------------------------------------------------------------------------
3 AlliedSignal 4.3%
- --------------------------------------------------------------------------------
4 Schlumberger Limited 4.3%
- --------------------------------------------------------------------------------
5 Norwest 4.3%
- --------------------------------------------------------------------------------
6 Magna International Class A 4.0%
- --------------------------------------------------------------------------------
7 American International Group 3.9%
- --------------------------------------------------------------------------------
8 Baker Hughes 3.6%
- --------------------------------------------------------------------------------
9 Pentair 3.5%
- --------------------------------------------------------------------------------
10 FNMA (Fannie Mae) 3.3%
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
32 1998 Semiannual Report - Piper Funds
<PAGE>
Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES March 31, 1998
................................................................................
<TABLE>
<CAPTION>
SMALL COMPANY EMERGING
GROWTH GROWTH GROWTH
FUND FUND FUND
------------- -------------- --------------
<S> <C> <C> <C>
ASSETS:
Investments in securities at market value* (note 2)
(including repurchase agreements of $2,914,000;
$19,474,000 and $6,610,000, respectively) ................ $ 38,149,830 $ 345,822,792 $ 194,261,875
Cash in bank on demand deposit ............................. 211,407 20,998 20,693
Receivable for investment securities sold .................. 308,651 -- --
Receivable for fund shares sold ............................ 15,365 68,217 8,172
Dividends and accrued interest receivable .................. 3,624 99,267 81,805
------------- -------------- --------------
Total assets ............................................. 38,688,877 346,011,274 194,372,545
------------- -------------- --------------
LIABILITIES:
Payable for investment securities purchased ................ 895,380 6,605,757 --
Payable for fund shares redeemed ........................... -- 1,259,974 20,549
Accrued investment management fee .......................... 23,718 188,712 114,601
Accrued distribution and service fees ...................... 10,092 70,180 49,172
------------- -------------- --------------
Total liabilities ........................................ 929,190 8,124,623 184,322
------------- -------------- --------------
Net assets applicable to outstanding capital stock ....... $ 37,759,687 $ 337,886,651 $ 194,188,223
------------- -------------- --------------
------------- -------------- --------------
COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital ............... $ 24,576,956 $ 165,663,179 $ 97,957,363
Accumulated net investment loss ............................ (103,566) (954,424) (266,340)
Accumulated net realized gain on investments ............... 3,684,116 43,043,251 14,357,357
Unrealized appreciation of investments ..................... 9,602,181 130,134,645 82,139,843
------------- -------------- --------------
Total - representing net assets applicable to outstanding
capital stock .......................................... $ 37,759,687 $ 337,886,651 $ 194,188,223
------------- -------------- --------------
------------- -------------- --------------
* Investments in securities at identified cost ............. $ 28,547,649 $ 215,688,147 $ 112,122,032
------------- -------------- --------------
------------- -------------- --------------
NET ASSET VALUE AND OFFERING PRICE:
CLASS A:
Net assets ................................................. $ 36,744,767 $ 275,935,155 $ 193,858,893
Shares outstanding (authorized four billion shares for each
fund of $0.01 par value) ................................. 3,696,840 18,274,290 15,975,325
Net asset value ............................................ $ 9.94 $ 15.10 $ 12.13
Maximum offering price per share (net asset value plus 4% of
offering price) .......................................... $ 10.35 $ 15.73 $ 12.64
CLASS B:
Net assets ................................................. $ 1,014,920 $ 1,404,255 $ 329,330
Shares outstanding (authorized two billion shares for each
fund of $0.01 par value) ................................. 102,731 93,673 27,337
Net asset value and offering price per share ............... $ 9.88 $ 14.99 $ 12.05
CLASS Y:
Net assets ................................................. -- $ 60,547,241 --
Shares outstanding (authorized one billion shares of $0.01
par value) ............................................... -- 3,991,939 --
Net asset value and offering price per share ............... -- $ 15.17 --
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
33
<PAGE>
Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS For the Six Months Ended March
31, 1998
................................................................................
<TABLE>
<CAPTION>
SMALL
COMPANY EMERGING
GROWTH GROWTH GROWTH
FUND FUND FUND
------------ ------------- ------------
<S> <C> <C> <C>
INCOME:
Dividends (net of foreign withholding taxes of $0; $0 and
$6,944, respectively) .................................... $ 58,352 $ 494,638 $ 821,151
Interest ................................................... 74,303 332,869 97,373
------------ ------------- ------------
Total income ............................................. 132,655 827,507 918,524
------------ ------------- ------------
EXPENSES (NOTE 5):
Investment management fee .................................. 132,379 1,071,516 671,406
Distribution and service fees:
CLASS A .................................................. 86,347 650,584 477,447
CLASS B .................................................. 3,817 6,118 1,326
CLASS Y .................................................. -- -- --
Transfer agent and dividend disbursing agent fees .......... 31,172 91,339 59,259
Custodian and accounting fees .............................. 20,566 98,260 67,813
Registration fees .......................................... 18,613 31,208 22,487
Reports to shareholders .................................... 6,739 19,083 12,517
Directors' fees ............................................ 4,036 4,036 4,036
Audit and legal fees ....................................... 23,763 27,763 27,763
Other expenses ............................................. 2,530 7,722 5,915
------------ ------------- ------------
Total expenses ........................................... 329,962 2,007,629 1,349,969
Less Class A expenses waived by the distributor ........ (29,934) (225,413) (165,092)
Less expenses waived by the advisor .................... (63,322) -- --
------------ ------------- ------------
Net expenses before expenses paid indirectly ............. 236,706 1,782,216 1,184,877
Less expenses paid indirectly .......................... (485) (285) (13)
------------ ------------- ------------
Total net expenses ....................................... 236,221 1,781,931 1,184,864
------------ ------------- ------------
Net investment loss ...................................... (103,566) (954,424) (266,340)
------------ ------------- ------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gain on investments (note 3) .................. 4,009,989 44,740,586 14,806,635
Net change in unrealized appreciation or depreciation of
investments .............................................. (1,874,599) (9,483,895) (2,793,871)
------------ ------------- ------------
Net gain on investments .................................. 2,135,390 35,256,691 12,012,764
------------ ------------- ------------
Net increase in net assets resulting from operations ... $ 2,031,824 $ 34,302,267 $11,746,424
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
34
<PAGE>
Financial Statements (continued)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
................................................................................
<TABLE>
<CAPTION>
SMALL COMPANY GROWTH FUND EMERGING GROWTH FUND
------------------------------ -------------------------------
Six Months Six Months
Ended 3/31/98 Year Ended Ended 3/31/98 Year Ended
(Unaudited) 9/30/97 (Unaudited) 9/30/97
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ............................... $ (103,566) $ (224,017) $ (954,424) $ (1,509,425)
Net realized gain on investments ........................... 4,009,989 3,716,140 44,740,586 34,831,105
Net change in unrealized appreciation or depreciation of
investments .............................................. (1,874,599) 8,021,635 (9,483,895) 25,682,866
-------------- ------------- -------------- --------------
Net increase in net assets resulting from operations ..... 2,031,824 11,513,758 34,302,267 59,004,546
-------------- ------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
CLASS A:
From net investment income ............................... -- (82,567) -- --
From net realized gains .................................. (597,551) (8,846,691) (27,994,020) (27,377,820)
CLASS B:
From net realized gains .................................. (10,087) -- (119,611) --
CLASS Y:
From net realized gains .................................. -- -- (5,981,187) --
-------------- ------------- -------------- --------------
Total distributions ...................................... (607,638) (8,929,258) (34,094,818) (27,377,820)
-------------- ------------- -------------- --------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
CLASS A .................................................... (261,705) 2,174,732 1,271,853 (50,186,524)
CLASS B .................................................... 469,748 400,314 348,173 860,466
CLASS Y .................................................... -- -- 858,812 49,131,008
-------------- ------------- -------------- --------------
Increase (decrease) in net assets from capital share
transactions ........................................... 208,043 2,575,046 2,478,838 (195,050)
-------------- ------------- -------------- --------------
Total increase (decrease) in net assets .................. 1,632,229 5,159,546 2,686,287 31,431,676
Net assets at beginning of period .......................... 36,127,458 30,967,912 335,200,364 303,768,688
-------------- ------------- -------------- --------------
Net assets at end of period ................................ $ 37,759,687 $ 36,127,458 $ 337,886,651 $ 335,200,364
-------------- ------------- -------------- --------------
-------------- ------------- -------------- --------------
Accumulated net investment loss ............................ $ (103,566) -- $ (954,424) --
-------------- ------------- -------------- --------------
-------------- ------------- -------------- --------------
<CAPTION>
GROWTH FUND
------------------------------
Six Months
Ended 3/31/98 Year Ended
(Unaudited) 9/30/97
------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ............................... $ (266,340) $ 237,335
Net realized gain on investments ........................... 14,806,635 24,239,313
Net change in unrealized appreciation or depreciation of
investments .............................................. (2,793,871) 30,823,801
------------- --------------
Net increase in net assets resulting from operations ..... 11,746,424 55,300,449
------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
CLASS A:
From net investment income ............................... -- (284,304)
From net realized gains .................................. (21,147,360) (17,945,057)
CLASS B:
From net realized gains .................................. (25,233) --
CLASS Y:
From net realized gains .................................. -- --
------------- --------------
Total distributions ...................................... (21,172,593) (18,229,361)
------------- --------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
CLASS A .................................................... 1,328,079 (13,397,914)
CLASS B .................................................... 122,669 188,390
CLASS Y .................................................... -- --
------------- --------------
Increase (decrease) in net assets from capital share
transactions ........................................... 1,450,748 (13,209,524)
------------- --------------
Total increase (decrease) in net assets .................. (7,975,421) 23,861,564
Net assets at beginning of period .......................... 202,163,644 178,302,080
------------- --------------
Net assets at end of period ................................ $ 194,188,223 $ 202,163,644
------------- --------------
------------- --------------
Accumulated net investment loss ............................ $ (266,340) --
------------- --------------
------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
35
<PAGE>
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
................................
Piper Funds Inc. (the company) is registered under the
Investment Company Act of 1940 (as amended) as a single,
open-end management investment company. The company
currently has 12 series, including Small Company Growth
Fund, Emerging Growth Fund, and Growth Fund (the funds).
Each fund is classified as a diversified series. The
company's articles of incorporation permit the board of
directors to create additional series in the future.
The funds commenced offering Class B shares and Emerging
Growth Fund commenced offering Class Y shares on February
18, 1997. All shares existing prior to that date were
classified as Class A shares. Key features of each class
are:
CLASS A:
- Subject to a front-end sales charge
- Lower distribution and service fees than Class B
CLASS B:
- No front-end sales charge
- Subject to a contingent deferred sales charge upon
redemption
- Higher distribution and service fees than Class A
- Automatic conversion to Class A shares at the beginning
of the sixth calendar year after issuance
CLASS Y:
- Requires a minimum initial investment of $1 million
- No front-end or contingent deferred sales charges
- No distribution and service fees
The classes of shares 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.
Small Company Growth Fund invests primarily in common
stocks of small-capitalization companies believed to
possess superior growth potential.
Emerging Growth Fund invests primarily in common stocks
and securities convertible into common stocks of emerging
growth companies.
Growth Fund invests primarily in a broadly diversified
portfolio of stocks or securities convertible into or
carrying rights to buy common stocks.
(2) SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES
................................
INVESTMENTS IN SECURITIES
Portfolio securities for which market quotations are
readily available are valued at current market value. If
market quotations or valuations are not readily available,
or if such quotations or valuations are believed to be
inaccurate, unreliable or not reflective of market value,
portfolio securities are
- --------------------------------------------------------------------------------
36
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
valued according to procedures adopted by the funds' board
of directors in good faith at "fair value", that is, a
price that the fund might reasonably expect to receive for
the security or other asset upon its current sale.
Pricing services value domestic and foreign equity
securities (and occasionally fixed-income securities)
traded on a securities exchange or Nasdaq at the last
reported sale price, up to the time of valuation. If there
are no reported sales of a security on the valuation date,
it is valued at the mean between the published bid and
asked prices reported by the exchange or Nasdaq. If there
are no sales and no published bid and asked quotations for
a security on the valuation date or the security is not
traded on an exchange or Nasdaq, the pricing service may
obtain market quotations directly from broker-dealers.
Securities transactions are accounted for on the date
securities are purchased or sold. Realized gains and
losses are calculated on the identified-cost basis.
Dividend income is recognized on the ex-dividend date and
interest income, including amortization of bond discount
and premium, is recorded on an accrual basis.
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 subject to
federal income tax. Therefore, no income tax provision is
required. The funds also intend to distribute 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 "wash sale"
transactions. 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.
ALLOCATION OF INCOME, EXPENSES AND GAINS(LOSSES)
Income, expenses (other than class-specific expenses) and
realized and unrealized gains and losses 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.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders from net investment income
will be declared separately for each class and paid at
least annually. Net realized gains distributions, if any,
will be made at least annually. Distributions are payable
in cash or reinvested in additional shares of the same
class.
- --------------------------------------------------------------------------------
37
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
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, 1998, were as follows:
<TABLE>
<CAPTION>
SMALL COMPANY EMERGING GROWTH
GROWTH FUND GROWTH FUND FUND
-------------- ------------ ------------
<S> <C> <C> <C>
Purchases .............................. $14,198,235 $ 63,601,296 $ 57,309,154
Proceeds from sales .................... $14,303,535 $ 92,473,371 $ 80,267,356
</TABLE>
During the six months ended March 31, 1998, brokerage
commissions paid to Piper Jaffray Inc., an affiliated
broker, amounted to $10,644, $0 and $2,400 for Small
Company Growth Fund, Emerging Growth Fund, and Growth
Fund, respectively.
(4) CAPITAL SHARE
TRANSACTIONS
................................
Capital share transactions for the funds were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997(A)
--------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
SMALL COMPANY GROWTH FUND:
CLASS A
Sales of fund shares ................. 331,118 $ 3,016,883 1,030,455 $ 7,678,103
Issued for reinvested
distributions ...................... 64,210 597,551 1,298,315 8,636,664
Redemptions of fund shares ........... (423,573) (3,876,139) (1,806,030) (14,140,035)
Issued for stock dividend ............ -- -- 1,555,872 --
-------- ----------- ---------- ------------
(28,245) $ (261,705) 2,078,612 $ 2,174,732
-------- ----------- ---------- ------------
-------- ----------- ---------- ------------
CLASS B
Sales of fund shares ................. 64,476 $ 580,950 53,821 $ 424,004
Issued for reinvested
distributions ...................... 1,139 10,087 -- --
Redemptions of fund shares ........... (13,138) (121,289) (3,567) (23,690)
-------- ----------- ---------- ------------
52,477 $ 469,748 50,254 $ 400,314
-------- ----------- ---------- ------------
-------- ----------- ---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
38
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997(A)
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
EMERGING GROWTH FUND:
CLASS A
Sales of fund shares ................. 904,869 $ 12,311,107 4,214,135 $ 52,588,314
Issued for reinvested
distributions ...................... 2,162,969 27,318,293 2,159,866 26,933,532
Redemptions of fund shares ........... (2,652,081) (36,148,506) (6,351,382) (80,423,986)
Redemptions in exchange for Class Y
shares ............................. (161,345) (2,209,041) (3,914,798) (49,284,384)
---------- ------------ ---------- ------------
254,412 $ 1,271,853 (3,892,179) $(50,186,524)
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
CLASS B
Sales of fund shares ................. 42,380 $ 574,319 81,216 $ 1,045,576
Issued for reinvested
distributions ...................... 9,516 119,611 -- --
Redemptions of fund shares ........... (25,867) (345,757) (13,572) (185,110)
---------- ------------ ---------- ------------
26,029 $ 348,173 67,644 $ 860,466
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
CLASS Y
Sales of fund shares ................. 2,713,072 $ 36,717,533 907,255 $ 12,792,132
Sales in exchange from Class A
shares ............................. 160,699 2,209,041 3,914,209 49,284,384
Issued for reinvested
distributions ...................... 451,799 5,724,291 -- --
Redemptions of fund shares ........... (3,218,933) (43,792,053) (936,162) (12,945,508)
---------- ------------ ---------- ------------
106,637 $ 858,812 3,885,302 $ 49,131,008
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997(A)
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
GROWTH FUND:
CLASS A
Sales of fund shares ................. 639,373 $ 7,334,817 1,726,718 $ 18,865,295
Issued for reinvested
distributions ...................... 1,888,911 20,664,690 1,772,740 17,663,981
Redemptions of fund shares ........... (2,341,795) (26,671,428) (4,513,968) (49,927,190)
Issued for stock dividend ............ -- -- 8,376,464 --
---------- ------------ ---------- ------------
186,489 $ 1,328,079 7,361,954 $(13,397,914)
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
CLASS B
Sales of fund shares ................. 9,768 $ 111,562 16,775 $ 191,828
Issued for reinvested
distributions ...................... 2,317 25,233 -- --
Redemptions of fund shares ........... (1,174) (14,126) (349) (3,438)
---------- ------------ ---------- ------------
10,911 $ 122,669 16,426 $ 188,390
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
(A) REPRESENTS PERIOD FROM FEBRUARY 18 (COMMENCEMENT
OF OFFERING OF SHARES) TO SEPTEMBER 30, 1997, FOR CLASS B AND CLASS Y.
Sales charges received by Piper Jaffray Inc. (Piper
Jaffray), the funds' distributor, for distributing the
funds' shares for the six months ended March 31, 1998,
were as follows:
<TABLE>
<CAPTION>
SMALL COMPANY EMERGING
GROWTH FUND GROWTH FUND GROWTH FUND
----------------- ------------------------------- --------------------
CLASS A CLASS B CLASS A CLASS B CLASS Y CLASS A CLASS B
------- -------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Front-end sales charges ................ $43,985 $ -- $ 101,036 $ -- $-- $ 35,741 $ --
Contingent deferred sales charges ...... 1,378 4,763 10,600 11,327 -- 2,408 412
------- -------- --------- -------- --- --------- --------
$45,363 $4,763 $ 111,636 $ 11,327 $-- $ 38,149 $412
------- -------- --------- -------- --- --------- --------
------- -------- --------- -------- --- --------- --------
</TABLE>
(5) EXPENSES
................................
INVESTMENT MANAGEMENT FEE
The company has entered into an investment management
agreement with Piper Capital Management Incorporated
(Piper Capital) under which Piper Capital manages each
fund's assets and furnishes related office facilities,
equipment, research and personnel. The agreement requires
each fund to pay Piper Capital a monthly fee based on
average daily net assets. The fee for each fund is
- --------------------------------------------------------------------------------
39
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
equal to an annual rate of 0.75% of the first $100 million
in net assets, 0.65% of the next $200 million and
decreasing percentages thereafter to 0.50% of net assets
in excess of $500 million. For the six months ended March
31, 1998, the effective investment management fee paid by
the funds was 0.75%, 0.68% and 0.70% on an annual basis
for Small Company Growth Fund, Emerging Growth Fund and
Growth Fund, respectively.
DISTRIBUTION AND SERVICE FEES
Each fund also pays Piper Jaffray 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 Class A for the
year ending September 30, 1998, are stated below as a
percent of average daily net assets attributable to such
shares.
<TABLE>
<CAPTION>
SMALL COMPANY EMERGING
GROWTH FUND GROWTH FUND GROWTH FUND
----------------- --------------------------- -----------------
CLASS A CLASS B CLASS A CLASS B CLASS Y CLASS A CLASS B
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Distribution fee ....................... 0.25% 0.75% 0.25% 0.75% -- 0.25% 0.75%
Service fee ............................ 0.25% 0.25% 0.25% 0.25% -- 0.25% 0.25%
--
------- ------- ------- ------- ------- -------
Total distribution and service fees .... 0.50% 1.00% 0.50% 1.00% -- 0.50% 1.00%
--
--
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Total distribution and service fees
after voluntary limitation ........... 0.34% 1.00% 0.34% 1.00% -- 0.34% 1.00%
--
--
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
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 $6.00 per active
shareholder account and $1.60 per closed account. For the
six months ended March 31, 1998, Piper Jaffray and Piper
Trust received the following amounts in connection with
the shareholder account servicing agreements:
<TABLE>
<CAPTION>
SMALL COMPANY EMERGING
GROWTH FUND GROWTH FUND GROWTH FUND
-------------- ------------ ------------
<S> <C> <C> <C>
Piper Jaffray .......................... $13,526 $61,754 $34,839
Piper Trust ............................ 130 9,560 6,918
-------------- ------------ ------------
$13,656 $71,314 $41,757
-------------- ------------ ------------
-------------- ------------ ------------
</TABLE>
OTHER FEES AND EXPENSES
In addition to the investment management, distribution 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. For the year ending September 30,
1998, Piper Capital is voluntarily limiting total fees and
expenses for Small Company Growth Fund to annual rates of
1.34% and 2.00% of average daily net assets attributable
to such shares for Class A and Class B, respectively.
Expenses paid indirectly represent a reduction of
custodian fees for earnings on miscellaneous cash balances
maintained by the funds.
- --------------------------------------------------------------------------------
40
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
(6) PENDING
ACQUISITION
................................
On December 15, 1997, Piper Jaffray Companies Inc., the
parent company of the funds' investment advisor, announced
that it had entered into an agreement to be acquired by
U.S. Bancorp. It is anticipated that this acquisition will
be completed in the second quarter of 1998, subject to
regulatory approval, the approval of Piper Jaffray
Companies shareholders and the satisfaction of customary
closing conditions.
U.S. Bancorp is a multi-state bank holding company
headquartered in Minneapolis, Minnesota with a geographic
service area spanning 17 states. As of December 31, 1997,
U.S. Bancorp was the 15th largest U.S. commercial bank
holding company, with assets of nearly $71.3 billion. U.S.
Bank National Association ("U.S. Bank"), a wholly owned
subsidiary of U.S. Bancorp, currently acts as the
investment advisor to 32 mutual funds (the "First American
Funds"). As of December 31, 1997, U.S. Bank, acting
through its First American Asset Management group, managed
more than $55 billion in assets, including approximately
$20.5 billion in assets of the First American Funds.
Effective as of the date of the acquisition, SEI
Investments Distribution Company will assume the role of
the principal distributor for the funds.
Under the Investment Company Act of 1940, as amended (the
"1940 Act"), consummation of the acquisition of Piper
Jaffray Companies by U.S. Bancorp will result in the
assignment and automatic termination of the funds'
investment advisory agreements with Piper Capital
Management Incorporated. The 1940 Act requires that any
new investment advisory agreements for the funds be
approved by the funds' board of directors and
shareholders.
(7) SUBSEQUENT EVENTS
................................
CLASS B SHARES NO LONGER OFFERED
Effective April 21, 1998, the funds will no longer offer
Class B shares. Any outstanding Class B shares of a fund
will be automatically converted to Class A shares of the
same fund as of the close of business on April 27, 1998.
No contingent deferred sales charges or other fees will be
imposed in connection with this conversion.
FUND CONVERSION
In connection with the acquisition of Piper Jaffray
Companies Inc. by U.S. Bancorp, the funds' board of
directors has recommended that the funds be merged into
mutual funds managed by First American Asset Management, a
division of U.S. Bank. The proposed fund mergers require
shareholder approval, and proxy statements requesting
shareholder votes will be mailed in May 1998. If approved,
the mergers are expected to occur on or about July 31,
1998.
- --------------------------------------------------------------------------------
41
<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:
SMALL COMPANY GROWTH FUND
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------
Six Months
Ended
March 31, Year Ended September 30,
1998 -----------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA (A)
Net asset value, beginning of period ... $ 9.57 $ 9.41 $ 9.73 $ 8.59 $ 8.42 $ 6.79
----------- -------- -------- -------- -------- --------
Operations:
Net investment income (loss) ......... (0.03) (0.09) 0.03 0.05 0.04 0.01
Net realized and unrealized gains on
investments ........................ 0.56 3.11 0.48 1.14 0.15 1.65
----------- -------- -------- -------- -------- --------
Total from operations .............. 0.53 3.02 0.51 1.19 0.19 1.66
----------- -------- -------- -------- -------- --------
Distributions to shareholders:
From net investment income ........... -- (0.02) (0.04) (0.05) (0.02) (0.03)
From net realized gains .............. (0.16) (2.84) (0.79) -- -- --
----------- -------- -------- -------- -------- --------
Total distributions to
shareholders ..................... (0.16) (2.86) (0.83) (0.05) (0.02) (0.03)
----------- -------- -------- -------- -------- --------
Net asset value, end of period ..... $ 9.94 $ 9.57 $ 9.41 $ 9.73 $ 8.59 $ 8.42
----------- -------- -------- -------- -------- --------
----------- -------- -------- -------- -------- --------
SELECTED INFORMATION
Total return (b) ....................... 5.72% 45.66% 5.38% 13.88% 2.12% 24.56%
Net assets at end of period (in
millions) ............................ $ 37 $ 36 $ 31 $ 48 $ 78 $ 84
Ratio of expenses to average daily net
assets ............................... 1.33%(e) 1.34% 1.32% 1.40% 1.32% 1.28%
Ratio of net investment income (loss) to
average daily net assets ............. (0.57)%(e) (0.75)% 0.20% 0.43% 0.37% 0.50%
Average commission rate paid on
portfolio transactions (c) ........... $ 0.0600 $ 0.0600 $ 0.0600 n/a n/a n/a
Portfolio turnover rate (excluding
short-term securities) ............... 43% 109% 125% 182% 177% 154%
Ratios before waivers by the advisor
and/or distributor:
Ratio of expenses to average daily net
assets before waivers .............. 1.86%(e) 1.98% 1.79% 1.63% 1.54% 1.86%
Ratio of net investment income (loss)
to average daily net assets before
waivers ............................ (1.10)%(e) (1.39)% (0.27)% 0.20% 0.15% (0.08)%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
------------------------------------
Six Months
Ended Period Ended
March 31, 1998 September 30,
(Unaudited) 1997(d)
--------------- ---------------
<S> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ............. $ 9.54 $ 7.24
--------------- ---------------
Operations:
Net investment loss ............................ (0.05) (0.03)
Net realized and unrealized gains on
investments .................................. 0.55 2.33
--------------- ---------------
Total from operations ........................ 0.50 2.30
--------------- ---------------
Distributions to shareholders:
From net realized gains on investments ......... (0.16) --
--------------- ---------------
Net asset value, end of period ............... $ 9.88 $ 9.54
--------------- ---------------
--------------- ---------------
SELECTED INFORMATION
Total return (b) ................................. 5.42% 31.77%
Net assets at end of period (in thousands) ....... $ 1,015 $ 480
Ratio of expenses to average daily net assets
(e) ............................................ 1.99% 1.98%
Ratio of net investment loss to average daily net
assets (e) ..................................... (1.27)% (1.49)%
Average commission rate paid on portfolio
transactions (c) ............................... $ 0.0600 $ 0.0600
Portfolio turnover rate (excluding short-term
securities) .................................... 43% 109%
Ratios before waivers by the advisor:
Ratio of expenses to average daily net assets
before waivers (e) ........................... 2.43% 2.15%
Ratio of net investment loss to average daily
net assets before waivers (e) ................ (1.71)% (1.66)%
</TABLE>
(a) PER-SHARE AMOUNTS HAVE BEEN ADJUSTED TO REFLECT THE EFFECT OF THE STOCK
DIVIDEND DECLARED ON OCTOBER 21, 1996. SEE NOTE 4 IN THE NOTES TO FINANCIAL
STATEMENTS.
(b) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A
SALES CHARGE.
(c) DISCLOSED IN ACCORDANCE WITH GUIDELINES ADOPTED IN 1996.
(d) COMMENCEMENT OF OFFERING OF CLASS B SHARES WAS FEBRUARY 18, 1997.
(e) ANNUALIZED.
- --------------------------------------------------------------------------------
42
<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:
EMERGING GROWTH FUND
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------
Six Months
Ended Year Ended September 30,
March 31, 1998 --------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
-------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA (A)
Net asset value, beginning of period ........ $ 15.25 $ 13.86 $ 12.97 $ 9.63 $ 9.87 $ 7.21
-------------- -------- -------- -------- -------- --------
Operations:
Net investment loss ....................... (0.05) (0.08) (0.05) (0.06) (0.04) (0.03)
Net realized and unrealized gains (losses)
on investments .......................... 1.46 2.72 2.18 3.40 (0.20) 2.69
-------------- -------- -------- -------- -------- --------
Total from operations ................... 1.41 2.64 2.13 3.34 (0.24) 2.66
-------------- -------- -------- -------- -------- --------
Distributions to shareholders:
From net realized gains ................... (1.56) (1.25) (1.24) -- -- --
-------------- -------- -------- -------- -------- --------
Net asset value, end of period .......... $ 15.10 $ 15.25 $ 13.86 $ 12.97 $ 9.63 $ 9.87
-------------- -------- -------- -------- -------- --------
-------------- -------- -------- -------- -------- --------
SELECTED INFORMATION
Total return (b) ............................ 11.26% 21.04% 17.84% 34.68% (2.38)% 36.92%
Net assets at end of period (in millions) ... $ 276 $ 275 $ 304 $ 253 $ 224 $ 191
Ratio of expenses to average daily net
assets .................................... 1.18%(e) 1.23% 1.18% 1.24% 1.24% 1.29%
Ratio of net investment loss to average daily
net assets ................................ (0.66)%(e) (0.55)% (0.41)% (0.51)% (0.38)% (0.34)%
Average commission rate paid on portfolio
transactions (c) .......................... $ 0.0600 $ 0.0600 $ 0.0600 n/a n/a n/a
Portfolio turnover rate (excluding short-term
securities) ............................... 21% 51% 44% 33% 31% 30%
Ratios before waivers by the advisor and/or
distributor:
Ratio of expenses to average daily net
assets before waivers ................... 1.35%(e) 1.39% 1.37% 1.42% 1.44% 1.49%
Ratio of net investment loss to average
daily net assets before waivers ......... (0.83)%(e) (0.71)% (0.60)% (0.69)% (0.58)% (0.54)%
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS Y
-------------------------------- --------------------------------
Six Months Six Months
Ended Period Ended Ended Period Ended
March 31, 1998 September 30, March 31, 1998 September 30,
(Unaudited) 1997(d) (Unaudited) 1997(d)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ............. $ 15.20 $ 12.54 $ 15.29 $ 12.54
-------------- -------------- -------------- --------------
Operations:
Net investment loss ............................ (0.09) (0.10) (0.02) (0.01)
Net realized and unrealized gains on
investments .................................. 1.44 2.76 1.46 2.76
-------------- -------------- -------------- --------------
Total from operations ........................ 1.35 2.66 1.44 2.75
-------------- -------------- -------------- --------------
Distributions to shareholders:
From net realized gains on investments ......... (1.56) -- (1.56) --
-------------- -------------- -------------- --------------
Net asset value, end of period ............... $ 14.99 $ 15.20 $ 15.17 $ 15.29
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
SELECTED INFORMATION
Total return (b) ................................. 10.88% 21.21% 11.45% 21.93%
Net assets at end of period (in millions) ........ $ 1 $ 1 $ 61 $ 59
Ratio of expenses to average daily net assets
(e) ............................................ 1.85% 1.85% 0.85% 0.87%
Ratio of net investment loss to average daily net
assets (e) ..................................... (1.33)% (1.16)% (0.33)% (0.16)%
Average commission rate paid on portfolio
transactions (c) ............................... $ 0.0600 $ 0.0600 $ 0.0600 $ 0.0600
Portfolio turnover rate (excluding short-term
securities) .................................... 21% 51% 21% 51%
</TABLE>
(a) PER-SHARE AMOUNTS HAVE BEEN ADJUSTED TO REFLECT THE EFFECT OF THE STOCK
DIVIDEND DECLARED ON DECEMBER 23, 1995. SEE NOTE 4 IN THE NOTES TO
FINANCIAL STATEMENTS.
(b) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A
SALES CHARGE.
(c) DISCLOSED IN ACCORDANCE WITH GUIDELINES ADOPTED IN 1996.
(d) COMMENCEMENT OF OFFERING OF CLASS B AND CLASS Y SHARES WAS FEBRUARY 18,
1997.
(e) ANNUALIZED.
- --------------------------------------------------------------------------------
43
<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:
GROWTH FUND
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------------
Six Months Ended Year Ended September 30,
March 31, 1998 --------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
----------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA (A)
Net asset value, beginning of
period .......................... $ 12.79 $ 10.58 $ 10.20 $ 9.45 $ 9.65 $ 8.53
----------------- -------- -------- -------- -------- --------
Operations:
Net investment income (loss) .... (0.02) 0.01 0.03 0.04 0.04 0.06
Net realized and unrealized gains
(losses) on investments ....... 0.71 3.28 1.55 1.80 (0.18) 1.12
----------------- -------- -------- -------- -------- --------
Total from operations ......... 0.69 3.29 1.58 1.84 (0.14) 1.18
----------------- -------- -------- -------- -------- --------
Distributions to shareholders:
From net investment income ...... -- (0.01) (0.03) (0.04) (0.06) (0.06)
From net realized gains ......... (1.35) (1.07) (1.17) (1.05) -- --
----------------- -------- -------- -------- -------- --------
Total distributions to
shareholders ................ (1.35) (1.08) (1.20) (1.09) (0.06) (0.06)
----------------- -------- -------- -------- -------- --------
Net asset value, end of
period ...................... $ 12.13 $ 12.79 $ 10.58 $ 10.20 $ 9.45 $ 9.65
----------------- -------- -------- -------- -------- --------
----------------- -------- -------- -------- -------- --------
SELECTED INFORMATION
Total return (b) .................. 6.52% 34.09% 16.87% 20.60% (1.51)% 13.85%
Net assets at end of period (in
millions) ....................... $ 194 $ 202 $ 178 $ 172 $ 195 $ 252
Ratio of expenses to average daily
net assets ...................... 1.24%(e) 1.26% 1.24% 1.27% 1.23% 1.26%
Ratio of net investment income
(loss) to average daily net
assets .......................... (0.28)%(e) 0.13% 0.28% 0.40% 0.43% 0.66%
Average commission rate paid on
portfolio transactions (c) ...... $0.0600 $ 0.0600 $ 0.0600 n/a n/a n/a
Portfolio turnover rate (excluding
short-term securities) .......... 30% 44% 19% 80% 11% 45%
Ratios before waivers by the
distributor:
Ratio of expenses to average
daily net assets before
waivers ....................... 1.41%(e) 1.42% 1.43% 1.45% 1.42% 1.44%
Ratio of net investment income
(loss) to average daily net
assets before waivers ......... (0.45)%(e) (0.03)% 0.09% 0.22% 0.24% 0.48%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------
Six Months Ended Period Ended
March 31, 1998 September 30,
(Unaudited) 1997(d)
----------------- --------------
<S> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ... $ 12.75 $ 10.53
----------------- --------------
Operations:
Net investment loss .................. (0.05) (0.03)
Net realized and unrealized gains on
investments ........................ 0.70 2.25
----------------- --------------
Total from operations .............. 0.65 2.22
----------------- --------------
Distributions to shareholders:
From net realized gains on
investments ........................ (1.35) --
----------------- --------------
Net asset value, end of period ..... $ 12.05 $ 12.75
----------------- --------------
----------------- --------------
SELECTED INFORMATION
Total return (b) ....................... 6.20% 21.08%
Net assets at end of period (in
thousands) ........................... $ 329 $ 209
Ratio of expenses to average daily net
assets (e) ........................... 1.91% 1.90%
Ratio of net investment loss to average
daily net assets (e) ................. (0.93)% (0.74)%
Average commission rate paid on
portfolio transactions (c) ........... $0.0600 $0.0600
Portfolio turnover rate (excluding
short-term securities) ............... 30% 44%
</TABLE>
(a) PER-SHARE AMOUNTS HAVE BEEN ADJUSTED TO REFLECT THE EFFECT OF THE STOCK
DIVIDEND DECLARED ON OCTOBER 21, 1996. SEE NOTE 4 IN THE NOTES TO FINANCIAL
STATEMENTS.
(b) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A
SALES CHARGE.
(c) DISCLOSED IN ACCORDANCE WITH GUIDELINES ADOPTED IN 1996.
(d) COMMENCEMENT OF OFFERING OF CLASS B SHARES WAS FEBRUARY 18, 1997.
(e) ANNUALIZED.
- --------------------------------------------------------------------------------
44
<PAGE>
Investments in Securities (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL COMPANY GROWTH FUND March 31, 1998
.......................................................................................
Number Market
Description of Security of Shares Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
COMMON STOCK (93.3%):
BASIC MATERIALS (5.8%):
AptarGroup Inc. ..................................... 7,000 $ 420,437
Brunswick Technologies .............................. 20,000(b) 280,000
ChiRex Inc. ......................................... 14,500(b) 274,594
Cuno Inc. ........................................... 27,000(b) 594,000
OM Group ............................................ 15,000 631,875
------------
2,200,906
------------
CAPITAL GOODS AND SERVICES (8.4%):
American Disposal Services, Inc. .................... 12,000(b) 453,000
Casella Waste Systems Class A ....................... 15,000(b) 396,562
CompX International ................................. 15,000(b) 350,625
Control Devices Inc. ................................ 20,000(b) 307,500
Dura Automotive Systems 'A' ......................... 10,800(b) 346,950
Kuhlman Corp. ....................................... 4,200 204,487
Miller (Herman) ..................................... 18,000 603,562
Rental Service ...................................... 22,000(b) 511,500
------------
3,174,186
------------
COMMERCIAL SERVICES (7.3%):
ABR Information Services ............................ 13,000(b) 365,625
American Building Maintenance ....................... 10,000 310,625
G & K Services Class A .............................. 13,500 592,312
Learning Tree International ......................... 15,000(b) 331,875
U.S. Foodservice .................................... 20,000(b) 736,250
Wackenhut Corrections ............................... 17,000(b) 426,062
------------
2,762,749
------------
CONSUMER NON-DURABLES (2.7%):
1-800 CONTACTS Inc. ................................. 10,000(b) 198,750
Columbia Sportswear ................................. 20,000(b) 422,500
Home Products International Inc. .................... 25,000(b) 403,125
------------
1,024,375
------------
CONSUMER SERVICES (7.6%):
Carriage Services 'A' ............................... 20,000(b) 480,000
Chancellor Media Corp. .............................. 11,000(b) 504,625
Computer Learning Centers ........................... 19,000(b) 318,250
Consolidated Products ............................... 12,500(b) 240,625
Equity Corp. International .......................... 17,000(b) 406,937
PJ America Inc. ..................................... 23,000(b) 414,000
Strayer Education ................................... 15,000 498,750
------------
2,863,187
------------
ENERGY (5.2%):
Dril-Quip Inc. ...................................... 12,500(b) 406,250
IRI International Corp. ............................. 30,000(b) 367,500
Newpark Resources ................................... 18,000(b) 328,500
St. Mary Land Exploration ........................... 11,000 420,406
Tuboscope Inc. ...................................... 22,000(b) 418,000
------------
1,940,656
------------
</TABLE>
<TABLE>
<CAPTION>
Number Market
Description of Security of Shares Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
FINANCIAL SERVICES (11.4%):
Affiliated Managers Group ........................... 20,000(b) $ 697,500
AMRESCO Inc. ........................................ 17,000(b) 556,750
ARM Financial Group Class A ......................... 19,000 440,563
Commerce Bancorp .................................... 8,966 493,690
Financial Federal ................................... 19,000(b) 484,500
First Republic Bancorp (CA) ......................... 10,000(b) 360,000
GBC Bancorp ......................................... 6,000 400,875
Stirling Cooke Brown Holdings Ltd. .................. 13,000(c) 347,750
Westamerica Bancorporation .......................... 15,900 530,663
------------
4,312,291
------------
HEALTH CARE (12.5%):
Alpha 1 Biomedicals, Inc. ........................... 5,391(b) 243
Biosite Diagnostics ................................. 15,000(b) 244,688
Centennial HealthCare ............................... 10,000(b) 251,250
Cyberonics .......................................... 11,800(b) 376,125
Cytyc Corp. ......................................... 11,000(b) 275,000
Daou Systems Inc. ................................... 18,200(b) 356,038
Express Scripts 'A' ................................. 7,000(b) 593,469
Medical Manager ..................................... 14,000(b) 406,000
Novoste Corp. ....................................... 9,000(b) 233,438
Perclose Inc. ....................................... 12,000(b) 339,750
Physio-Control International ........................ 11,000(b) 192,500
PSS World Medical ................................... 19,500(b) 458,250
QuadraMed ........................................... 8,000(b) 267,000
Scherer (R.P.) ...................................... 8,000(b) 540,000
Urogen .............................................. 10,000(b) --
Urologix Inc. ....................................... 20,000(b) 185,625
------------
4,719,376
------------
RETAIL TRADE (9.4%):
99 (Cents) Only Stores .............................. 13,250(b) 462,922
Duane Reade Inc. .................................... 20,000(b) 511,250
Fred's Inc. ......................................... 15,000 373,125
Hibbett Sporting Goods .............................. 26,000(b) 721,500
O'Reilly Automotive ................................. 13,000(b) 358,313
Pier 1 Imports ...................................... 15,000 406,875
Stage Stores ........................................ 14,000(b) 722,750
------------
3,556,735
------------
TECHNOLOGY (19.8%):
Applied Micro Circuits .............................. 10,000(b) 225,000
Aris Corp. .......................................... 15,500(b) 461,125
Aspect Development .................................. 9,000(b) 493,875
Industri-Matematik International .................... 15,000(b) (c) 470,625
ISS Group ........................................... 5,400(b) 209,925
Made2Manage Systems ................................. 35,000(b) 341,250
Ontrack Data International .......................... 30,000(b) 487,500
P-COM Inc. .......................................... 29,000(b) 580,000
Peerless Systems .................................... 35,000(b) 630,000
Photronics, Inc. .................................... 14,000(b) 392,000
PMC-Sierra Inc. ..................................... 17,500(b) (c) 665,000
RELTEC Corp. ........................................ 5,300(b) 187,819
Sipex Corp. ......................................... 20,000(b) 660,000
Technology Solutions ................................ 15,000(b) 397,500
Tecnomatix Technologies Ltd. ........................ 10,000(b) (c) 376,250
Tier Technologies ................................... 35,000(b) 603,750
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
45
<PAGE>
Investments in Securities (Unaudited) (continued)
- --------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND
(CONTINUED)
<TABLE>
<CAPTION>
Number of
Shares or
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
Wonderware Corp. .................................... 12,000(b) $ 286,500
------------
7,468,119
------------
TRANSPORTATION (2.3%):
C.H. Robinson Worldwide ............................. 12,000 312,000
Knightsbridge Tankers Ltd. .......................... 20,000(c) 570,000
------------
882,000
------------
UTILITIES (0.9%):
Quanta Services Inc. ................................ 20,000(b) 331,250
------------
Total Common Stock
(cost: $25,633,649) ............................ 35,235,830
------------
SHORT-TERM SECURITIES (7.7%):
Repurchase agreement with Goldman Sachs, acquired on
3/31/98, interest of $486, 6.00%, 4/1/98
(cost: $2,914,000) ................................ $ 2,914,000(d) 2,914,000
------------
Total Investments in Securities
(cost: $28,547,649) (e) ........................ $ 38,149,830
------------
------------
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES:
(a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(b) CURRENTLY NON-INCOME PRODUCING.
(c) SECURITIES OF FOREIGN ISSUERS ARE DENOMINATED IN U.S. DOLLARS. THE
AGGREGATE VALUE OF THESE SECURITIES AT MARCH 31, 1998, IS $2,429,625, WHICH
REPRESENTS 6.4% OF TOTAL NET ASSETS.
(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 COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS
UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED
ON THIS COST WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 10,135,395
GROSS UNREALIZED DEPRECIATION ...... (533,214)
------------
NET UNREALIZED APPRECIATION ...... $ 9,602,181
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
46
<PAGE>
Investments in Securities (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING GROWTH FUND March 31, 1998
.......................................................................................
Number Market
Description of Security of Shares Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
COMMON STOCK (96.6%):
BASIC MATERIALS (6.4%):
AptarGroup Inc. ..................................... 60,000 $ 3,603,750
Bemis Co. ........................................... 70,000 3,158,750
Ecolab Inc. ......................................... 154,000 4,466,000
Sealed Air .......................................... 81,000(b) 5,305,500
Valspar Corp. ....................................... 128,000 5,024,000
------------
21,558,000
------------
CAPITAL GOODS AND SERVICES (8.0%):
Allied Waste Industries ............................. 152,500(b) 3,807,734
Danaher Corp. ....................................... 100,000 7,593,750
Miller (Herman) ..................................... 162,000 5,432,062
Molex Inc. Class A .................................. 93,750 2,513,672
Pentair, Inc. ....................................... 100,000 4,475,000
Tower Automotive .................................... 73,800(b) 3,321,000
------------
27,143,218
------------
COMMERCIAL SERVICES (6.8%):
Cintas Corp. ........................................ 70,000 3,622,500
Corrections Corp. of America ........................ 100,000(b) 3,412,500
G & K Services Class A .............................. 50,000 2,193,750
Richfood Holdings ................................... 167,500 5,360,000
Servicemaster Company ............................... 60,000 1,713,750
U.S. Foodservice .................................... 105,000(b) 3,865,312
Wackenhut Corrections ............................... 110,000(b) 2,756,875
------------
22,924,687
------------
CONSUMER DURABLES (1.2%):
Newell Co. .......................................... 85,000 4,117,187
------------
CONSUMER NON-DURABLES (3.1%):
Rexall Sundown ...................................... 115,000(b) 3,917,187
Sola International .................................. 155,000(b) 6,422,813
------------
10,340,000
------------
CONSUMER SERVICES (11.4%):
Apollo Group Class A ................................ 110,000(b) 5,293,750
Chancellor Media Corp. .............................. 140,000(b) 6,422,500
Clear Channel Communication ......................... 76,000(b) 7,448,000
DeVRY Inc. .......................................... 120,000(b) 4,102,500
Premier Parks ....................................... 60,000(b) 3,480,000
Regal Cinemas ....................................... 130,000(b) 3,900,000
Stewart Enterprises Class A ......................... 145,000 8,065,625
------------
38,712,375
------------
ENERGY (6.2%):
Camco International ................................. 57,000 3,448,500
National-Oilwell .................................... 100,000(b) 3,281,250
Newfield Exploration ................................ 166,570(b) 4,341,231
Noble Affiliates .................................... 110,000 4,578,750
Noble Drilling Corp. ................................ 100,000 3,056,250
Smith International ................................. 39,000(b) 2,147,438
------------
20,853,419
------------
</TABLE>
<TABLE>
<CAPTION>
Number Market
Description of Security of Shares Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
FINANCIAL SERVICES (12.5%):
AMRESCO Inc. ........................................ 125,000(b) $ 4,093,750
Charter One Financial ............................... 80,000 5,355,000
FINOVA Group ........................................ 115,000 6,770,625
MGIC Investment ..................................... 80,000 5,255,000
ReliaStar Financial ................................. 87,500 4,030,469
Schwab (Charles) Corp. .............................. 100,000 3,800,000
Star Banc Corp. ..................................... 106,110 6,273,754
TCF Financial ....................................... 200,000 6,787,500
------------
42,366,098
------------
HEALTH CARE (12.5%):
BioChem Pharma ...................................... 137,650(b) (c) 3,329,409
Cardinal Health ..................................... 35,000 3,086,563
DENTSPLY International .............................. 146,000 4,553,375
Elan Corp. PLC - ADR ................................ 130,000(b) (c) 8,401,250
Genzyme Corp. - General Division .................... 100,000(b) 3,200,000
Guidant Corp. ....................................... 25,000 1,834,375
Health Management Association ....................... 150,000(b) 4,293,750
PSS World Medical ................................... 215,000(b) 5,052,500
Quintiles Transnational ............................. 103,250(b) 4,975,359
Stryker Corp. ....................................... 73,400 3,440,625
------------
42,167,206
------------
RETAIL TRADE (6.4%):
Consolidated Stores ................................. 120,000(b) 5,152,500
Dollar General ...................................... 140,625 5,440,430
Kohl's Corp. ........................................ 45,000(b) 3,678,750
Stage Stores ........................................ 140,000(b) 7,227,500
------------
21,499,180
------------
TECHNOLOGY (22.1%):
ADC Telecommunications .............................. 130,000(b) 3,583,125
Advanced Fibre Communications ....................... 58,000(b) 2,109,750
Analog Devices ...................................... 100,000(b) 3,325,000
Ascend Communications ............................... 100,000(b) 3,787,500
Cambridge Technology Partners Inc. .................. 108,000(b) 5,352,750
CIENA Corp. ......................................... 78,000(b) 3,324,750
Comverse Technology ................................. 100,000(b) 4,887,500
EMC Corp. ........................................... 200,000(b) 7,562,500
Etec Systems ........................................ 73,000(b) 4,307,000
Fiserv Inc. ......................................... 80,000(b) 5,070,000
Legato Systems ...................................... 53,785(b) 3,193,484
Level One Communications ............................ 144,000(b) 3,384,000
Manugistics Group Inc. .............................. 77,200(b) 4,328,025
Sterling Commerce ................................... 120,300(b) 5,578,913
SunGard Data Systems ................................ 130,000(b) 4,785,625
Tellabs, Inc. ....................................... 60,000(b) 4,027,500
Teradyne Inc. ....................................... 60,000(b) 2,403,750
Vantive Corp. ....................................... 100,000(b) 3,656,250
------------
74,667,422
------------
Total Common Stock
(cost: $196,214,147) ........................... 326,348,792
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
47
<PAGE>
Investments in Securities (Unaudited) (continued)
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
SHORT-TERM SECURITIES (5.8%):
Repurchase agreement with Goldman Sachs, acquired on
3/31/98, interest of $3,246, 6.00%, 4/1/98
(cost: $19,474,000) ............................... $19,474,000(d) $ 19,474,000
------------
Total Investments in Securities
(cost: $215,688,147) (e) ....................... $345,822,792
------------
------------
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES:
(a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(b) CURRENTLY NON-INCOME PRODUCING.
(c) SECURITIES OF FOREIGN ISSUERS ARE DENOMINATED IN U.S. DOLLARS. THE
AGGREGATE VALUE OF THESE SECURITIES AT MARCH 31, 1998, IS $11,730,659,
WHICH REPRESENTS 3.5% OF TOTAL NET ASSETS.
(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 COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS
UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED
ON THIS COST WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $130,646,095
GROSS UNREALIZED DEPRECIATION ...... (511,450)
------------
NET UNREALIZED APPRECIATION ...... $130,134,645
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
48
<PAGE>
Investments in Securities (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH FUND March 31, 1998
.......................................................................................
Number Market
Description of Security of Shares Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
COMMON STOCK (96.6%):
BASIC MATERIALS (4.3%):
Morton International ................................ 100,000 $ 3,281,250
Praxair Inc. ........................................ 100,000 5,143,750
------------
8,425,000
------------
CAPITAL GOODS AND SERVICES (13.9%):
Allegheny Teledyne .................................. 70,000 1,946,875
AlliedSignal Inc. ................................... 200,000 8,400,000
Magna International Class A ......................... 100,000(c) 7,793,750
Masco Corp. ......................................... 35,000 2,082,500
Pentair, Inc. ....................................... 150,000 6,712,500
------------
26,935,625
------------
COMMERCIAL SERVICES (1.3%):
Sensormatic Electronics ............................. 150,000 2,456,250
------------
CONSUMER DURABLES (2.5%):
Ford Motor .......................................... 75,000 4,860,937
------------
CONSUMER NON-DURABLES (1.0%):
Mattel, Inc. ........................................ 50,000 1,981,250
------------
CONSUMER SERVICES (2.2%):
McDonald's Corp. .................................... 70,000 4,200,000
------------
ENERGY (14.4%):
Anadarko Petroleum .................................. 50,000 3,450,000
Baker Hughes Inc. ................................... 175,000 7,043,750
Schlumberger Ltd. ................................... 110,000 8,332,500
Transocean Offshore Inc. ............................ 180,000 9,258,750
------------
28,085,000
------------
FINANCIAL SERVICES (18.4%):
American International Group ........................ 60,000 7,556,250
Federal National Mortgage Association . 100,000 6,325,000
FINOVA Group ........................................ 100,000 5,887,500
Franklin Resources .................................. 80,000 4,240,000
Norwest Corp. ....................................... 200,000 8,312,500
TCF Financial ....................................... 100,000 3,393,750
------------
35,715,000
------------
HEALTH CARE (6.4%):
Endosonics Corp. .................................... 150,000(b) 1,556,250
Medtronic, Inc. ..................................... 40,000 2,075,000
St. Jude Medical .................................... 150,000(b) 5,015,625
United Healthcare ................................... 60,000 3,885,000
------------
12,531,875
------------
RETAIL TRADE (3.7%):
Albertson's, Inc. ................................... 50,000 2,631,250
Gap Inc. ............................................ 100,000 4,500,000
------------
7,131,250
------------
</TABLE>
<TABLE>
<CAPTION>
Number of
Shares or
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
TECHNOLOGY (16.1%):
3Com Corp ........................................... 75,000(b) $ 2,695,312
ADC Telecommunications .............................. 150,000(b) 4,134,375
CIENA Corp. ......................................... 50,000(b) 2,131,250
Cisco Systems, Inc. ................................. 60,000(b) 4,102,500
Compaq Computer ..................................... 75,000 1,940,625
EMC Corp. ........................................... 125,000(b) 4,726,563
Hewlett-Packard Co. ................................. 45,000 2,851,875
Intel Corp. ......................................... 30,000 2,341,875
Seagate Technology .................................. 100,000(b) 2,525,000
Tech Data Corp. ..................................... 100,000(b) 3,850,000
------------
31,299,375
------------
TRANSPORTATION (3.3%):
AMR Corp. ........................................... 30,000(b) 4,295,625
Burlington Northern Santa Fe ........................ 20,000 2,080,000
------------
6,375,625
------------
UTILITIES (9.1%):
AirTouch Communications ............................. 200,000(b) 9,787,500
Enron ............................................... 100,000 4,637,500
WorldCom, Inc. ...................................... 75,000(b) 3,229,688
------------
17,654,688
------------
Total Common Stock
(cost: $105,512,032) ........................... 187,651,875
------------
SHORT-TERM SECURITIES (3.4%):
Repurchase agreement with Goldman Sachs, acquired on
3/31/98, interest of $1,102, 6.00%, 4/1/98
(cost: $6,610,000) ................................ $ 6,610,000(d) 6,610,000
------------
Total Investments in Securities
(cost: $112,122,032) (e) ....................... $194,261,875
------------
------------
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES:
(a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(b) CURRENTLY NON-INCOME PRODUCING.
(c) SECURITIES OF FOREIGN ISSUERS ARE DENOMINATED IN U.S. DOLLARS. THE
AGGREGATE VALUE OF THESE SECURITIES AT MARCH 31,1998, IS $7,793,750, WHICH
REPRESENTS 4.0% OF TOTAL NET ASSETS.
(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 COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS
UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED
ON THIS COST WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 85,049,216
GROSS UNREALIZED DEPRECIATION ...... (2,909,373)
------------
NET UNREALIZED APPRECIATION ...... $ 82,139,843
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
49
<PAGE>
GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
May 17, 1998
- --------------------------------------------------------------------------------
[PHOTO]
STEVE MARKUSEN, CFA
shares responsibility for the management of Growth and Income Fund. He has 14
years of financial experience.
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1998, GROWTH AND INCOME FUND CLASS A
RETURNED 11.72%,* WITH ALL DISTRIBUTIONS REINVESTED, BUT NOT INCLUDING THE
FUND'S SALES CHARGE. These results were below the 12.49% return for the Lipper
Growth and Income Funds Average.+ The stock market continued its upward move
with most major indexes recording strong gains. High levels of volatility
characterized the market during the last six months as the Dow Jones Industrial
Average dropped more than 500 points in mid-October but went on to record levels
as the first quarter of 1998 ended. The fund achieved excellent results from
several large holdings and its exposure to interest rate sensitive sector*** of
the market. However, poor relative results from the fund's energy holdings
caused its performance to lag that of its Lipper peer group.
STRONG APPRECIATION FROM SEVERAL LARGE HOLDINGS IN THE FUND HAD A POSITIVE
IMPACT ON PERFORMANCE. Ford Motor Co. (3.6% of the fund's total assets as of
March 31, 1998) posted higher earnings due to improved profitability at its
North American automotive unit. The low valuation of Ford's automotive assets,
along with its strong earnings improvement, allowed the stock to sharply
appreciate during the period. AirTouch Communications (2.9%) maintained its
leadership position in wireless communications by posting subscriber additions,
cash flow, profit margins and earnings
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
PERFORMANCE THROUGH MARCH 31, 1998*
- --------------------------------------------------------------------------------
Growth of $10,000 Invested Since Inception
<TABLE>
<CAPTION>
Growth and Income Fund S&P 500 Index** Lipper Growth and Income
Class A, reflects the fund's Funds Average +
maximum 4% sales charge
<S> <C> <C> <C>
9600 10000 10000
9715 10000 10000
9504 9795 9804.01
9610 9910 9919.2
9446 9945 9981.54
9677 10283 10354.7
9751 10409 10522.9
9692 10496 10645.1
9789 10639 10732.7
9934 10864 11021.4
9788 10601 10825.8
9983 10885 11081.6
9886 10917 11139.5
9886 10873 11139.4
10218 11285 11546
10130 11199 11547.5
10326 11431 11719.8
10287 11322 11554.5
10347 11459 11824.5
10685 11848 12200.1
10377 11527 11958.8
9987 11024 11469.8
10047 11165 11588.6
10267 11349 11692.5
10005 11070 11430.1
10296 11434 11748.6
10598 11903 12198.9
10386 11612 11930.2
10487 11873 12055.3
10214 11440 11611.8
10463 11610 11732.2
10647 11911 11906.2
11076 12375 12348.4
11436 12740 12661.5
11806 13116 12965.3
12289 13640 13390.4
12444 13957 13683.6
12733 14419 14149.1
12815 14456 14249.7
13379 15066 14701.4
13410 15012 14515.2
14093 15671 15134
14410 15973 15376.2
14769 16516 15800.7
14790 16670 16023.9
15180 16830 16218.8
15392 17078 16492
15731 17519 16803.8
15784 17585 16767
15084 16808 16060.2
15338 17163 16513.8
15996 18129 17272.7
16442 18629 17624.6
17533 20037 18788.7
17294 19640 18591.1
18037 20867 19428.1
18082 21031 19537.7
17384 20167 18841
17968 21371 19561.6
18942 22672 20756.5
19563 23687 21573.2
21192 25570 23169.8
20148 24138 22364.2
21094 25461 23504.5
20308 24611 22712.7
21045 25750 23338.3
21379 26193 23752.7
21508 26481 23768.4
22945 28391 25379.5
23566 29844 26509.3
</TABLE>
** An unmanaged index of large-capitalization stocks that includes no expenses
or transaction charges.
+ The average total return, not including sales charges, of similar funds as
characterized by Lipper Analytical Services.
CLASS A AVERAGE ANNUALIZED TOTAL RETURNS
Includes the fund's maximum 4% front-end sales charge
<TABLE>
<S> <C>
One Year 30.14%
- --------------------------------------------------------------------------------
Five Year 17.88%
- --------------------------------------------------------------------------------
Since Inception (7/27/92) 16.29%
- --------------------------------------------------------------------------------
CLASS B & Y AVERAGE ANNUALIZED TOTAL RETURNS
Class B share returns include the fund's maximum 4% contingent deferred sales
charge. Sales charges do not apply to Class Y shares.
Class B One Year 30.62%
- --------------------------------------------------------------------------------
Class B Since Inception (2/18/97) 20.32%
- --------------------------------------------------------------------------------
Class Y One Year 35.95%
- --------------------------------------------------------------------------------
Class Y Since Inception (2/18/97) 24.98%
- --------------------------------------------------------------------------------
</TABLE>
* PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. PAST PERFORMANCE
DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of
your investment will fluctuate so that fund shares, when sold, may be worth more
or less than their original cost. Neither safety of principal nor stability of
income is guaranteed. During most periods, the fund's advisor waived or paid
certain expenses and/or the fund's distributor voluntarily waived certain 12b-1
fees. Without waivers, Class A returns would have been lower.
All fund and benchmark returns include reinvested distributions.
- --------------------------------------------------------------------------------
50 1998 Semiannual Report - Piper Funds
<PAGE>
GROWTH AND INCOME FUND (CONTINUED)
- --------------------------------------------------------------------------------
[PHOTO]
BRENT MELLUM, CFA
shares responsibility for the management of Growth and Income Fund. He has four
years of financial experience.
- --------------------------------------------------------------------------------
that were above consensus expectations. Carnival Corp. (1.8%), the leading
cruise operator, was also a strong performer due to excellent pricing trends and
high occupancy levels that led to good earnings growth. These stocks highlight
the fund's investment process of identifying attractively valued companies with
above average earnings and dividend growth prospects.
THE FUND WAS OVERWEIGHTED IN SECTORS THAT ARE SENSITIVE TO INTEREST RATES, WHICH
ALSO HAD A POSITIVE IMPACT ON PERFORMANCE. Financial stocks continued to perform
well as lower interest rates highlighted attractive valuations.*** Norwest Corp.
(2.7%), Federal National Mortgage Corp. (3.1%) and Associates First Capital
Corp. (1.6%) recorded strong gains due to above average earnings growth. The
utility sector benefited from its position as a safe haven during the volatile
fourth quarter of 1997. Telecommunications utilities such as BellSouth Corp.
(2.1%) and GTE Corp. (2.4%) and electric utility FPL Group (2.5%) registered
price appreciation and provided the fund with income from their above average
dividends.
THE FUND'S OVERWEIGHTED*** POSITION IN ENERGY STOCKS HAMPERED PERFORMANCE DURING
THE PERIOD. Short-term factors, including a slowdown in Asian demand and a
warmer than normal winter in North America, resulted in a near-term excess
supply of oil in the world's energy markets. This caused the price of oil to
fall dramatically, reducing earnings expectations for the group as a whole,
which led to poor stock performance. Oil service companies like Schlumberger
(1.7%) and Baker Hughes (1.3%) performed poorly as low oil prices lowered growth
prospects for 1998.
LONGER TERM, WE ARE STILL POSITIVE ON THE SUPPLY/DEMAND OUTLOOK FOR OIL. We
anticipate steady demand growth over the next few years, which will ease the
current oversupply. Given this viewpoint, we
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
PORTFOLIO COMPOSITION BY SECTOR
- --------------------------------------------------------------------------------
As a percentage of total assets on March 31, 1998
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND S&P 500 INDEX**
<S> <C> <C>
Basic Materials 3.34 5
Capital Goods & Services 9.36 10
Commercial Services 0 1
Consumer Durables 6.14 3
Consumer Non-Durables 8.32 11
Consumer Services 3.4 4
Energy 8.49 8
Financial Services 16.7 17
Health Care 11.6 12
Retail Trade 3.09 5
Short-Term 2.43 0
Technology 12.4 13
Transportation 2.38 1
Utilities 11.67 10
</TABLE>
** An unmanaged index of large-capitalization stocks that includes no expenses
or transaction charges.
TOP 10 EQUITY HOLDINGS
- --------------------------------------------------------------------------------
As a percentage of total assets on March 31, 1998
As a percentage of total assets
<TABLE>
<CAPTION>
<S> <C> <C>
1 Ford Motor 3.6%
- --------------------------------------------------------------------------------
2 General Electric 3.4%
- --------------------------------------------------------------------------------
3 Merck & Co. 3.4%
- --------------------------------------------------------------------------------
4 BankAmerica 3.2%
- --------------------------------------------------------------------------------
5 FNMA (Fannie Mae) 3.1%
- --------------------------------------------------------------------------------
6 AirTouch Communications 2.9%
- --------------------------------------------------------------------------------
7 Norwest 2.7%
- --------------------------------------------------------------------------------
8 Abbott Laboratories 2.5%
- --------------------------------------------------------------------------------
9 FPL Group 2.5%
- --------------------------------------------------------------------------------
10 AlliedSignal 2.5%
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
51 1998 Semiannual Report - Piper Funds
<PAGE>
GROWTH AND INCOME FUND (CONTINUED)
- --------------------------------------------------------------------------------
believe major integrated oil companies such as Exxon (2.2%) and Texaco (2.4%)
will benefit from rising production levels and higher utilization rates that
should improve profit margins and earnings. Both companies are attractively
valued and provide income to the fund from their above average dividend
payments. We also think oil service companies, primarily Schlumberger, are
attractively valued given the strong earnings growth we anticipate over the next
several years.
MODERATE ECONOMIC GROWTH AND LOW INFLATION WILL CONTINUE TO PROVIDE AN EXCELLENT
BACKDROP FOR THE EQUITY MARKET. However, we remain cautious over the near term
due to increased volatility and high valuations in certain sectors of the
market. We believe the fund offers investors a diversified portfolio of large,
high-quality companies. Our investment process continues to focus on identifying
attractively valued companies with above-average earnings and dividend growth
potential or companies that are undervalued in the marketplace. We believe this
process will deliver consistent, competitive performance and fulfill the fund's
investment objective of current income and growth of capital and income.
Thank you for your investment in Growth and Income Fund. We appreciate the
opportunity to manage your assets and help you pursue your long-term investment
goals.
Sincerely,
/s/ Steve Markusen /s/ Brent Mellum
Steve Markusen Brent Mellum
Portfolio Manager Portfolio Manager
- --------------------------------------------------------------------------------
52 1998 Semiannual Report - Piper Funds
<PAGE>
BALANCED FUND
- --------------------------------------------------------------------------------
May 17, 1998
- --------------------------------------------------------------------------------
[PHOTO]
DAVID STEELE
shares responsibility for the management of the fixed income portion of Balanced
Fund. He has 19 years of financial experience.
DEAR SHAREHOLDERS:
FOR THE SIX MONTHS ENDED MARCH 31, 1998, BALANCED FUND CLASS A PROVIDED A
7.85%* TOTAL RETURN WITH ALL DISTRIBUTIONS REINVESTED BUT NOT INCLUDING THE
SALES CHARGE. The fund fell short of the 8.92% gain reported by the Lipper
Balanced Funds Average,++ mainly because we held a smaller proportion of
stocks (slightly more than 50%) than the average (about 60%, according to our
estimates). We continued our conservative stock position because U.S.
equities appeared fully valued, if not expensive, and bonds showed better
value. As it turned out, stocks resumed their rapid ascent in the first
quarter, outperforming bonds by a considerable margin. During the same time
period, the Lehman Brothers Government Corporate Index** and the Standard &
Poor's 500 Index+ advanced 4.77% and 17.21%, respectively.
THE BOND PORTION OF YOUR FUND PERFORMED WELL, DUE TO A MODEST
OVERWEIGHTING*** IN CORPORATE AND MORTGAGE-BACKED SECURITIES. Our bond
portfolio's effective duration*** was essentially the same as that of its
benchmark.*** Changes in the fund's bond holdings were minor during the
period. We focused on the purchase and sale of select Treasury securities.
Overall, we continued our existing strategy of emphasizing as much income as
prudent.
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
PERFORMANCE THROUGH MARCH 31, 1998*
- --------------------------------------------------------------------------------
Growth of $10,000 Invested Since Inception
<TABLE>
<CAPTION>
Balanced Fund S&P 500 Index+ Lehman Brothers Lipper Balanced
Class A, reflects the Government Funds Average++
fund's maximum Corporate Index**
4% sales charge
<S> <C> <C> <C> <C>
9600 10000 10000 10000
9581 10000 10000 10000
9331 9911 9734 9831.03
9274 9997 9691 9832.06
9490 10502 9811 10105.6
9654 11034 9790 10358.3
9819 11446 9735 10577.9
9604 11195 9526 10390.2
8809 8784 9883 9039.36
8534 8060 9945 8732.57
8809 8673 10081 9146.47
9120 9038 10427 9476.87
9320 9459 10547 9809.5
9052 9167 10443 9653.84
9042 9268 10382 9702.37
8992 9349 10313 9678.95
9319 9778 10546 10037.8
9299 9740 10485 9976.98
9206 9410 10513 9836.37
9456 9811 10743 10112.2
9560 10084 10933 10297.9
9415 9940 10810 10176.1
9469 10114 10846 10291.3
9797 10854 10991 10715.1
9691 10584 10907 10594.9
9765 10831 10965 10746
10064 11393 11197 11100.4
10385 11854 11473 11440.3
10448 11787 11847 11499.6
10945 12851 12093 12086.8
10999 13102 11906 12201.7
10918 13049 11958 12181.8
10787 12746 12261 12017.2
10863 13006 12371 12160.2
11072 13318 12390 12280.3
10549 12424 12220 11736
10572 12584 12247 11836
10577 12918 12248 11980.8
10387 12595 12135 11764.9
11091 13823 12487 12446.9
11157 13730 12689 12486.2
11067 13686 12847 12467.9
10323 12449 12661 11766.2
10096 11843 12766 11421.1
10050 11793 12935 11385
10529 12555 13217 11919
10768 12905 13417 12211.7
11185 13467 13567 12652.1
11741 14430 13684 13252.3
11956 14779 13778 13503.3
12049 14814 13937 13579
12493 15453 14002 14019.4
12101 14745 13987 13587.3
12466 15433 14163 14038.5
12807 15798 14489 14379
12796 15534 14792 14374.7
12951 15743 14923 14560.1
12570 15109 15073 14217.6
13718 16837 15581 15291.4
13573 16523 15350 15184.5
13815 16737 15431 15366.6
13621 16411 15346 15152.7
13986 16893 15439 15346.9
14180 16976 15738 15538.1
14132 16723 15969 15423.9
14549 17406 16378 15891.8
14463 17050 16524 15744.8
14684 17250 16749 15932
14585 17310 16492 15913.6
15018 17899 16478 16279
15180 18119 16761 16514.9
15410 18271 17126 16733.7
15576 18520 17483 16935.5
15780 18910 17542 17270.5
15535 18453 17677 17169.5
15780 18947 17668 17421.9
15793 19002 18069 17603.1
15689 18926 18185 17654.7
16116 19644 18603 18193
15934 19493 18668 18226.2
16156 19897 18745 18438
16182 19707 18533 18171.6
16269 19945 18615 18479
16695 20623 18894 18983.4
16295 20064 18482 18587.7
15759 19189 18029 17904.9
15786 19435 17880 17954.3
15974 19754 17847 18071.5
15757 19270 17806 17786.1
16148 19903 18162 18189.9
16446 20719 18170 18624.9
16093 20212 17895 18272.1
16243 20666 17876 18333.2
15984 19913 17843 17891.4
16229 20209 17961 18052
16521 20733 18306 18287.7
17106 21541 18731 18838.4
17458 22176 18856 19183.7
17851 22830 19118 19550.9
18525 23742 19919 20197.7
18794 24294 20079 20534.9
19007 25099 20000 20961.1
19135 25162 20256 21135.1
19598 26224 20463 21653
19655 26130 20764 21573.1
20355 27277 21107 22290.1
20698 27803 21417 22665.3
20968 28749 21550 23096.1
20818 29016 21093 23136.3
21013 29295 20916 23244.5
21104 29727 20771 23396.9
21270 30494 20736 23656
21407 30610 21014 23715.5
20829 29257 21062 23105.1
21011 29875 21012 23504.7
21589 31556 21386 24372.5
22042 32426 21884 24912.1
23016 34877 22286 26100
22624 34186 22039 25802.7
23214 36322 22066 26592.7
23247 36607 22112 26705.1
22570 35103 21849 25955.5
23114 37199 22168 26671.2
23839 39463 22374 27805.7
24470 41231 22642 28687.8
26013 44509 23335 30332.8
25183 42017 23074 29445.4
25960 44319 23436 30646.9
25690 42839 23811 30114.3
26102 44822 23937 30677.6
26350 45593 24189 31148.6
26639 46095 24530 31346.5
27667 49418 24481 32595.4
27997 51948 24557 33522.1
</TABLE>
** An unmanaged index of U.S. government and Treasury securities and
investment-grade corporate debt securities that includes no expenses or
transaction charges.
+ An unmanaged index of large-capitalization stocks that includes no expenses
or transaction charges.
++ The average total return, not including sales charges, of similar funds as
characterized by Lipper Analytical Services.
CLASS A AVERAGE ANNUALIZED TOTAL RETURNS
Includes the fund's maximum 4% front-end sales charge
<TABLE>
<CAPTION>
<S> <C>
One Year 19.08%
- --------------------------------------------------------------------------------
Five Year 11.23%
- --------------------------------------------------------------------------------
Ten Year 11.49%
- --------------------------------------------------------------------------------
Since Inception (3/16/87) 9.77%
- --------------------------------------------------------------------------------
CLASS B AVERAGE ANNUALIZED TOTAL RETURNS
Includes the fund's maximum 4% contingent deferred sales charge
One Year 19.24%
- --------------------------------------------------------------------------------
Since Inception (2/18/97) 11.88%
- --------------------------------------------------------------------------------
</TABLE>
* PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. PAST PERFORMANCE
DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of
your investment will fluctuate so that fund shares, when sold, may be worth more
or less than their original cost. Neither safety of principal nor stability of
income is guaranteed. During most periods, the fund's advisor waived or paid
certain expenses and/or the fund's distributor voluntarily waived certain 12b-1
fees. Without waivers, returns would have been lower.
All fund and benchmark returns include reinvested distributions.
- --------------------------------------------------------------------------------
53 1998 Semiannual Report - Piper Funds
<PAGE>
BALANCED FUND (CONTINUED)
- --------------------------------------------------------------------------------
[PHOTO]
STEVE MARKUSEN, CFA
is primarily responsible for the management of the equity portion of Balanced
Fund. He has 14 years of financial experience.
- --------------------------------------------------------------------------------
[PHOTO]
BRUCE SALVOG
shares responsibility for the management of the fixed income portion of Balanced
Fund. He has 28 years of financial experience.
- --------------------------------------------------------------------------------
CERTAIN PORTIONS OF THE EQUITY COMPONENT OF YOUR FUND POSTED A STRONG RETURN
DURING THE PERIOD, AND THE FUND CONTINUED TO BENEFIT FROM POSITIONS IN COMPANIES
SUCH AS COCA-COLA CO. (0.6% OF TOTAL ASSETS AS OF MARCH 31, 1998), GENERAL
ELECTRIC (1.5%) AND MERCK & CO., INC. (2.0%). The U.S. stock market slumped
during the fourth quarter as investors worried about the effects of the Asian
economic crisis on earnings growth. But the U.S. economy continued its strong
growth in early 1998, resulting in one of the strongest quarters for stocks in
some time. During the period, we added several quality growth stocks to the
portfolio, including McDonald's (1.2%), Albertson's (0.6%), United Healthcare
(1.0%), Mattel Inc. (0.5%) and WorldCom Inc. (0.65). These additions already
have had a positive impact on the fund's performance.
THE FUND'S EQUITY PERFORMANCE WAS HELD BACK BY OUR HOLDINGS IN THE ENERGY SECTOR
- -- PARTICULARLY THE ENERGY SERVICE INDUSTRY. Our investments in this industry
have been strong performers over the last three years, and we believe the
current weakness is due to low oil prices caused by weakening demand in Asia and
a warm "El Nino" winter in the Northern Hemisphere. OPEC has recently taken
steps to reduce oil production, and that has stabilized prices. Typically, oil
prices have rebounded from such lows within about six months. We believe we are
in a long-term capital spending cycle for oil service companies and intend to
maintain our position in these stocks.
Thank you for investing in Balanced Fund. We appreciate the opportunity to help
you manage your assets.
Sincerely,
/s/ David Steele /s/ Steve Markusen /s/ Bruce Salvog
David Steele Steve Markusen Bruce Salvog
Portfolio Manager Portfolio Manager Portfolio Manager
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
As a percentage of total assets on March 31, 1998
[GRAPH]
STOCKS 55%
Basic Materials 2%
Capital Goods & Services 5%
Consumer Durables 3%
Consumer Non-Durables 4%
Consumer Services 2%
Energy 6%
Financial Services 9%
Health Care 6%
Retail Trade 3%
Technology 7%
Transportation 2%
Utilities 6%
BONDS 44%
U.S. Treasury Securities 13%
Corporate Bonds 13%
U.S. Agency Fixed Rate
Mortgage-Backed Securities 7%
U.S. Agency Adjustable Rate
Mortgage-Backed Securities 1%
Private Fixed Rate CMOs 2%
U.S. Agency CMOs 2%
Asset-Backed Securities 1%
U.S. Agency Fixed Debentures 5%
OTHER ASSETS 1%
- --------------------------------------------------------------------------------
TOP 10 EQUITY HOLDINGS
- --------------------------------------------------------------------------------
As a percentage of total assets on March 31, 1998
<TABLE>
<C> <S> <C>
1 Norwest 2.3%
- --------------------------------------------------------------------------------
2 FNMA (Fannie Mae) 2.1%
- --------------------------------------------------------------------------------
3 AirTouch Communications 2.1%
- --------------------------------------------------------------------------------
4 Ford Motor 2.1%
- --------------------------------------------------------------------------------
5 Merck & Co. 2.0%
- --------------------------------------------------------------------------------
6 Schlumberger Limited 1.8%
- --------------------------------------------------------------------------------
7 AlliedSignal 1.6%
- --------------------------------------------------------------------------------
8 The Procter & Gamble Company 1.6%
- --------------------------------------------------------------------------------
9 General Electric 1.5%
- --------------------------------------------------------------------------------
10 Burlington Northern Santa Fe 1.4%
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
54 1998 Semiannual Report - Piper Funds
<PAGE>
Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES March 31, 1998
................................................................................
<TABLE>
<CAPTION>
GROWTH AND
INCOME BALANCED
FUND FUND
------------- ------------
<S> <C> <C>
ASSETS:
Investments in securities at market value* (note 2)
(including repurchase agreements of $3,704,000 and
$43,000, respectively) ................................... $152,480,800 $49,653,912
Cash in bank on demand deposit ............................. 20,306 20,255
Receivable for investment securities sold .................. -- 263,934
Receivable for fund shares sold ............................ 14,491 6,387
Dividends and accrued interest receivable .................. 155,939 293,236
Other assets ............................................... 12,933 --
------------- ------------
Total assets ............................................. 152,684,469 50,237,724
------------- ------------
LIABILITIES:
Payable for fund shares redeemed ........................... 32,638 --
Accrued investment management fee .......................... 91,843 32,030
Accrued distribution and service fees ...................... 35,192 12,876
------------- ------------
Total liabilities ........................................ 159,673 44,906
------------- ------------
Net assets applicable to outstanding capital stock ....... $152,524,796 $50,192,818
------------- ------------
------------- ------------
COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital ............... $ 92,959,326 $35,646,838
Undistributed (distributions in excess of) net investment
income ................................................... (25,347) 28,059
Accumulated net realized gain on investments ............... 2,829,678 1,565,952
Unrealized appreciation of investments ..................... 56,761,139 12,951,969
------------- ------------
Total - representing net assets applicable to outstanding
capital stock .......................................... $152,524,796 $50,192,818
------------- ------------
------------- ------------
* Investments in securities at identified cost ............. $ 95,719,661 $36,701,943
------------- ------------
------------- ------------
NET ASSET VALUE AND OFFERING PRICE:
CLASS A:
Net assets ................................................. $134,629,709 $50,081,494
Shares outstanding ......................................... 7,406,020 3,243,143
Net asset value ............................................ $ 18.18 $ 15.44
Maximum offering price per share (net asset value plus 4% of
offering price) .......................................... $ 18.94 $ 16.08
CLASS B:
Net assets ................................................. $ 1,427,187 $ 111,324
Shares outstanding ......................................... 78,815 7,234
Net asset value and offering price per share ............... $ 18.11 $ 15.39
CLASS Y:
Net assets ................................................. $ 16,467,900 --
Shares outstanding ......................................... 906,887 --
Net asset value and offering price per share ............... $ 18.16 --
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
55
<PAGE>
Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS For the Six Months Ended March
31, 1998
................................................................................
<TABLE>
<CAPTION>
GROWTH AND
INCOME BALANCED
FUND FUND
------------ ------------
<S> <C> <C>
INCOME:
Dividends .................................................. $ 1,085,136 $ 162,228
Interest ................................................... 132,851 781,449
------------ ------------
Total income ............................................. 1,217,987 943,677
------------ ------------
EXPENSES (NOTE 5):
Investment management fee .................................. 514,073 184,094
Distribution and service fees:
CLASS A .................................................. 316,431 122,555
CLASS B .................................................. 5,912 348
CLASS Y .................................................. -- --
Custodian and accounting fees .............................. 53,510 26,153
Transfer agent and dividend disbursing agent fees .......... 42,954 28,078
Registration fees .......................................... 26,103 17,188
Reports to shareholders .................................... 15,795 23,112
Directors' fees ............................................ 4,036 4,036
Audit and legal fees ....................................... 23,763 23,763
Other expenses ............................................. 4,480 2,851
------------ ------------
Total expenses ........................................... 1,007,057 432,178
Less Class A expenses waived by the distributor ........ (109,794) (42,437)
Less expenses waived by the advisor .................... -- (64,442)
------------ ------------
Net expenses before expenses paid indirectly ............. 897,263 325,299
Less expenses paid indirectly .......................... (49) (60)
------------ ------------
Total net expenses ....................................... 897,214 325,239
------------ ------------
Net investment income .................................... 320,773 618,438
------------ ------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on investments (note 3) .................. 5,808,483 1,699,075
Net change in unrealized appreciation or depreciation of
investments .............................................. 10,075,313 1,436,900
------------ ------------
Net gain on investments .................................. 15,883,796 3,135,975
------------ ------------
Net increase in net assets resulting from operations ... $16,204,569 $ 3,754,413
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
56
<PAGE>
Financial Statements (continued)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
................................................................................
<TABLE>
<CAPTION>
BALANCED FUND
GROWTH AND INCOME FUND ---------------------------
------------------------------
Six Months
Six Months Ended
Ended 3/31/98 Year Ended 3/31/98 Year Ended
(Unaudited) 9/30/97 (Unaudited) 9/30/97
-------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ...................................... $ 320,773 $ 1,129,415 $ 618,438 $ 1,395,733
Net realized gain on investments ........................... 5,808,483 12,833,367 1,699,075 3,266,517
Net change in unrealized appreciation or depreciation of
investments .............................................. 10,075,313 19,936,662 1,436,900 4,157,249
-------------- ------------- ------------ ------------
Net increase in net assets resulting from operations ..... 16,204,569 33,899,444 3,754,413 8,819,499
-------------- ------------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
CLASS A:
From net investment income ............................... (278,629) (1,123,538) (605,921) (1,402,111)
From net realized gains .................................. (13,534,252) (6,538,320) (3,231,339) (2,554,492)
CLASS B:
From net investment income ............................... -- (1,110) (940) (433)
From net realized gains .................................. (102,221) -- (2,483) --
CLASS Y:
From net investment income ............................... (70,675) (70,694) -- --
From net realized gains .................................. (1,520,397) -- -- --
-------------- ------------- ------------ ------------
Total distributions ...................................... (15,506,174) (7,733,662) (3,840,683) (3,957,036)
-------------- ------------- ------------ ------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
CLASS A .................................................... 7,081,825 4,970,887 1,299,606 (1,431,461)
CLASS B .................................................... 480,692 827,747 70,761 34,648
CLASS Y .................................................... 2,369,906 12,692,933 -- --
-------------- ------------- ------------ ------------
Increase (decrease) in net assets from capital share
transactions ........................................... 9,932,423 18,491,567 1,370,367 (1,396,813)
-------------- ------------- ------------ ------------
Total increase in net assets ............................. 10,630,818 44,657,349 1,284,097 3,465,650
Net assets at beginning of period .......................... 141,893,978 97,236,629 48,908,721 45,443,071
-------------- ------------- ------------ ------------
Net assets at end of period ................................ $ 152,524,796 $ 141,893,978 $50,192,818 $ 48,908,721
-------------- ------------- ------------ ------------
-------------- ------------- ------------ ------------
Undistributed (distributions in excess of) net investment
income ................................................... $ (25,347) $ 3,184 $ 28,059 $ 16,482
-------------- ------------- ------------ ------------
-------------- ------------- ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
57
<PAGE>
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
................................
Piper Funds Inc. (the company) is registered under the
Investment Company Act of 1940 (as amended) as a single,
open-end management investment company. The company
currently has 12 series, including Growth and Income Fund
and Balanced Fund (the funds). Each fund is classified as
a diversified series. The company's articles of
incorporation permit the board of directors to create
additional series in the future.
The funds commenced offering Class B shares and Growth and
Income Fund commenced offering Class Y shares on February
18, 1997. All shares existing prior to that date were
classified as Class A shares. Key features of each class
are:
CLASS A:
- Subject to a front-end sales charge
- Lower distribution and service fees than Class B
CLASS B:
- No front-end sales charge
- Subject to a contingent deferred sales charge upon
redemption
- Higher distribution and service fees than Class A
- Automatic conversion to Class A shares at the beginning
of the sixth calendar year after issuance
CLASS Y:
- Requires a minimum initial investment of $1 million
- No front-end or contingent deferred sales charges
- No distribution and service fees
The classes of shares 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.
Growth and Income Fund invests primarily in stocks of
large, established companies that appear undervalued and
potentially offer long-term dividend and earnings growth.
The fund may also invest in debt securities including U.S.
government securities and nonconvertible preferred stock.
Balanced Fund invests in both common stocks and fixed
income securities that appear to have some potential for
capital appreciation.
(2) SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES
................................
INVESTMENTS IN SECURITIES
Portfolio securities for which market quotations are
readily available are valued at current market value. If
market quotations or valuations are not available, or if
such quotations or valuations are believed to be
inaccurate, unreliable or not reflective of market value,
portfolio securities are valued
- --------------------------------------------------------------------------------
58
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
according to procedures adopted by the funds' board of
directors in good faith at "fair value", that is, a price
that the fund might reasonably expect to receive for the
security or other asset upon its current sale.
The current market value of certain fixed income
securities is provided by an independent pricing service.
Fixed income securities for which prices are not available
from an independent pricing service but where an active
market exists are valued using market quotations obtained
from one or more dealers that make markets in the
securities or from a widely-used quotation system.
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 broker-dealers. Financial
futures are valued at the last settlement price
established each day by the board of trade or exchange on
which they are traded.
Pricing services value domestic and foreign equity
securities (and occasionally fixed-income securities)
traded on a securities exchange or Nasdaq at the last
reported sale price, up to the time of valuation. If there
are no reported sales of a security on the valuation date,
it is valued at the mean between the published bid and
asked prices reported by the exchange or Nasdaq. If there
are no sales and no published bid and asked quotations for
a security on the valuation date or the security is not
traded on an exchange or Nasdaq, the pricing service may
obtain market quotations directly from broker-dealers.
Securities transactions are accounted for on the date
securities are purchased or sold. Realized gains and
losses are calculated on the identified-cost basis.
Dividend income is recognized on the ex-dividend date and
interest income, including amortization of bond discount
and premium, is recorded on an accrual basis.
OPTIONS TRANSACTIONS
For hedging purposes, the funds 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.
- --------------------------------------------------------------------------------
59
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
FUTURES TRANSACTIONS
For hedging purposes, the funds 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 when-issued or
forward-commitment basis can take place a month or more
after the transaction date. During this period, such
securities do not earn interest, are subject to market
fluctuation and may increase or decrease in value prior to
their delivery. The funds segregate, with their custodian,
assets with a market value equal to the amount of their
purchase commitments. The purchase of securities on a
when-issued or forward-commitment basis may increase the
volatility of the funds' net asset value if the funds make
such purchases while remaining substantially fully
invested. As of March 31, 1998, the funds had no
outstanding when-issued or forward-commitments.
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 subject to
federal income tax. Therefore, no income tax provision is
required. The funds also intend to distribute 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 "wash sale" and
"straddle" transactions.
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
are declared separately for each class and paid quarterly.
Net realized gains distributions, if any, will be made at
least annually. Distributions are payable in cash or
reinvested in additional shares of the same class.
- --------------------------------------------------------------------------------
60
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
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.
ALLOCATION OF INCOME, EXPENSES AND GAINS (LOSSES)
Income, expenses (other than class-specific expenses) and
realized and unrealized gains and losses 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.
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, 1998 were as follows:
<TABLE>
<CAPTION>
GROWTH AND BALANCED
INCOME FUND FUND
----------- ----------
<S> <C> <C>
Purchases .............................. $31,044,432 $7,140,619
Proceeds from sales .................... $37,306,172 $9,187,088
</TABLE>
During the six months ended March 31, 1998, brokerage
commissions paid to Piper Jaffray Inc., an affiliated
broker, amounted to $852 for the Growth and Income Fund.
- --------------------------------------------------------------------------------
61
<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, 1998 SEPTEMBER 30, 1997(A)
---------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
GROWTH AND INCOME FUND:
CLASS A
Sales of fund shares ................. 427,459 $ 7,251,831 2,164,442 $ 33,710,309
Issued for reinvested
distributions ...................... 824,053 12,831,889 483,550 7,152,088
Redemptions of fund shares ........... (698,093) (11,948,812) (1,460,532) (23,640,495)
Redemptions in exchange for Class Y
shares ............................. (64,486) (1,053,083) (734,641) (12,251,015)
-------- ------------ ---------- ------------
488,933 $ 7,081,825 452,819 $ 4,970,887
-------- ------------ ---------- ------------
-------- ------------ ---------- ------------
CLASS B
Sales of fund shares ................. 25,464 $ 421,615 51,933 $ 869,013
Issued for reinvested
distributions ...................... 6,402 99,170 66 1,105
Redemptions of fund shares ........... (2,406) (40,093) (2,644) (42,371)
-------- ------------ ---------- ------------
29,460 $ 480,692 49,355 $ 827,747
-------- ------------ ---------- ------------
-------- ------------ ---------- ------------
CLASS Y
Sales of fund shares ................. 78,090 $ 1,342,470 149,097 $ 2,539,485
Sales in exchange from Class A
shares ............................. 64,486 1,053,083 734,994 12,251,015
Issued for reinvested
distributions ...................... 101,888 1,591,073 4,142 70,694
Redemptions of fund shares ........... (95,937) (1,616,720) (129,873) (2,168,261)
-------- ------------ ---------- ------------
148,527 $ 2,369,906 758,360 $ 12,692,933
-------- ------------ ---------- ------------
-------- ------------ ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997(A)
---------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
BALANCED FUND:
CLASS A
Sales of fund shares ................. 297,942 $ 4,409,187 819,933 $ 11,658,196
Issued for reinvested
distributions ...................... 251,837 3,614,324 269,167 3,740,957
Redemptions of fund shares ........... (452,287) (6,723,905) (1,170,542) (16,830,614)
-------- ------------ ---------- ------------
97,492 $ 1,299,606 (81,442) $ (1,431,461)
-------- ------------ ---------- ------------
-------- ------------ ---------- ------------
CLASS B
Sales of fund shares ................. 4,744 $ 69,418 2,366 $ 34,215
Issued for reinvested
distributions ...................... 238 3,423 29 433
Redemptions of fund shares ........... (143) (2,080) -- --
-------- ------------ ---------- ------------
4,839 $ 70,761 2,395 $ 34,648
-------- ------------ ---------- ------------
-------- ------------ ---------- ------------
</TABLE>
(a) REPRESENTS PERIOD FROM FEBRUARY 18 (COMMENCEMENT OF OFFERING OF SHARES) TO
SEPTEMBER 30, 1997, FOR CLASS B AND CLASS Y.
Sales charges received by Piper Jaffray Inc. (Piper
Jaffray), the funds' distributor, for distributing the
funds' shares for the six months ended March 31, 1998 were
as follows:
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND BALANCED FUND
---------------------------- --------------------
CLASS A CLASS B CLASS Y CLASS A CLASS B
------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Front-end sales charges ................ $64,030 $ -- $-- $ 13,198 $--
Contingent deferred sales charges ...... 4,280 1,077 -- 254 43
------- -------- --- --------- ---
$68,310 $1,077 $-- $ 13,452 $43
------- -------- --- --------- ---
------- -------- --- --------- ---
</TABLE>
(5) EXPENSES
................................
INVESTMENT MANAGEMENT FEE
The company has entered into an investment management
agreement with Piper Capital Management Incorporated
(Piper Capital) under which Piper Capital manages each
fund's assets and
- --------------------------------------------------------------------------------
62
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
furnishes related office facilities, equipment, research
and personnel. The agreement requires each fund to pay
Piper Capital a monthly fee based on average daily net
assets. The fee for each fund is equal to an annual rate
of 0.75% of the first $100 million in net assets, 0.65% of
the next $200 million and decreasing percentages
thereafter to 0.50% of net assets in excess of $500
million. For the six months ended March 31, 1998, the
effective investment management fee paid by the funds was
0.72% and 0.75% on an annual basis for Growth and Income
Fund and Balanced Fund, respectively.
DISTRIBUTION AND SERVICE FEES
Each fund also pays Piper Jaffray 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 Class A for the
year ended September 30, 1998, are stated below as a
percent of average daily net assets attributable to such
shares.
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND BALANCED FUND
--------------------------- -----------------
CLASS A CLASS B CLASS Y CLASS A CLASS B
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Distribution fee ....................... 0.25% 0.75% -- 0.25% 0.75%
Service fee ............................ 0.25% 0.25% -- 0.25% 0.25%
--
------- ------- ------- -------
Total distribution and service fees .... 0.50% 1.00% -- 0.50% 1.00%
--
--
------- ------- ------- -------
------- ------- ------- -------
Total distribution and service fees
after voluntary limitation ........... 0.34% 1.00% -- 0.34% 1.00%
--
--
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
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 $6.00 per active
shareholder account and $1.60 per closed account. For the
six months ended March 31, 1998, Piper Jaffray and Piper
Trust received the following amounts in connection with
the shareholder account servicing agreements:
<TABLE>
<CAPTION>
GROWTH AND
INCOME FUND BALANCED FUND
------------ --------------
<S> <C> <C>
Piper Jaffray .......................... $29,107 $ 7,257
Piper Trust ............................ 1,304 3,312
------------ --------------
$30,411 $10,569
------------ --------------
------------ --------------
</TABLE>
OTHER FEES AND EXPENSES
In addition to the investment management, distribution 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. For the year ended September 30,
1998, Piper Capital voluntarily limited total fees and
expenses for Growth and Income Fund to annual rates of
1.34%, 2.00% and 1.00% of average daily
- --------------------------------------------------------------------------------
63
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
net assets attributable to such shares for Class A, Class
B and Class Y, respectively, and for Balanced Fund to
annual rates of 1.34% and 2.00% of average daily net
assets attributable to such shares for Class A and Class
B, respectively.
Expenses paid indirectly represent a reduction of
custodian fees for earnings on miscellaneous cash balances
maintained by the funds.
(6) PENDING
ACQUISITION
................................
On December 15, 1997, Piper Jaffray Companies Inc., the
parent company of the funds' investment advisor, announced
that it had entered into an agreement to be acquired by
U.S. Bancorp. It is anticipated that this acquisition will
be completed in the second quarter of 1998, subject to
regulatory approval, the approval of Piper Jaffray
Companies shareholders and the satisfaction of customary
closing conditions.
U.S. Bancorp is a multi-state bank holding company
headquartered in Minneapolis, Minnesota with a geographic
service area spanning 17 states. As of December 31, 1997,
U.S. Bancorp was the 15th largest U.S. commercial bank
holding company, with assets of nearly $71.3 billion. U.S.
Bank National Association ("U.S. Bank"), a wholly owned
subsidiary of U.S. Bancorp, currently acts as the
investment advisor to 32 mutual funds (the "First American
Funds"). As of December 31, 1997, U.S. Bank, acting
through its First American Asset Management group, managed
more than $55 billion in assets, including approximately
$20.5 billion in assets of the First American Funds.
Effective as of the date of the acquisition, SEI
Investments Distribution Company will assume the role of
the principal distributor for the funds.
Under the Investment Company Act of 1940, as amended (the
"1940 Act"), consummation of the acquisition of Piper
Jaffray Companies by U.S. Bancorp will result in the
assignment and automatic termination of the funds'
investment advisory agreement with Piper Capital
Management Incorporated. The 1940 Act requires that any
new investment advisory agreement for the funds be
approved by the funds' board of directors and
shareholders.
(7) SUBSEQUENT EVENTS
................................
CLASS B SHARES NO LONGER OFFERED
Effective April 21, 1998, the funds will no longer offer
Class B shares. Any outstanding Class B shares of a fund
will be automatically converted to Class A shares of the
same fund as of the close of business on April 27, 1998.
No contingent deferred sales charges or other fees will be
imposed in connection with this conversion.
FUND CONVERSION
In connection with the acquisition of Piper Jaffray
Companies Inc. by U.S. Bancorp, the funds' board of
directors has recommended that the funds be merged into
mutual funds managed by First American Asset Management, a
division of U.S. Bank. The proposed fund mergers require
shareholder approval, and proxy statements requesting
shareholder votes will be mailed in May 1998. If approved,
the mergers are expected to occur on or about July 31,
1998.
- --------------------------------------------------------------------------------
64
<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:
GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------
Six Months Ended Year Ended September 30,
March 31, 1998 --------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ... $ 18.37 $ 15.04 $ 12.93 $ 10.27 $ 10.30 $ 10.01
---------------- -------- -------- -------- -------- --------
Operations:
Net investment income ................ 0.04 0.15 0.18 0.19 0.24 0.24
Net realized and unrealized gains on
investments 1.78 4.35 2.31 2.70 0.02 0.29
---------------- -------- -------- -------- -------- --------
Total from operations .............. 1.82 4.50 2.49 2.89 0.26 0.53
---------------- -------- -------- -------- -------- --------
Distributions to shareholders:
From net investment income ........... (0.04) (0.16) (0.20) (0.19) (0.24) (0.24)
From net realized gains on
investments ........................ (1.97) (1.01) (0.18) (0.04) (0.05) --
---------------- -------- -------- -------- -------- --------
Total distributions to
shareholders ..................... (2.01) (1.17) (0.38) (0.23) (0.29) (0.24)
---------------- -------- -------- -------- -------- --------
Net asset value, end of period ..... $ 18.18 $ 18.37 $ 15.04 $ 12.93 $ 10.27 $ 10.30
---------------- -------- -------- -------- -------- --------
---------------- -------- -------- -------- -------- --------
SELECTED INFORMATION
Total return (a) ....................... 11.72% 31.87% 19.56% 28.81% 2.53% 5.41%
Net assets at end of period (in
millions) ............................ $ 135 $ 127 $ 97 $ 73 $ 73 $ 96
Ratio of expenses to average daily net
assets ............................... 1.28%(d) 1.34% 1.32% 1.32% 1.29% 1.32%
Ratio of net investment income to
average daily net assets ............. 0.42%(d) 0.90% 1.26% 1.93% 2.26% 2.51%
Average commission rate paid on
portfolio transactions (b) ........... $0.0600 $ 0.0600 $ 0.0600 n/a n/a n/a
Portfolio turnover rate (excluding
short-term securities) ............... 22% 46% 22% 14% 20% 26%
Ratios before waivers by the advisor and
distributor:
Ratio of expenses to average daily net
assets before waivers .............. 1.45%(d) 1.52% 1.56% 1.60% 1.62% 1.58%
Ratio of net investment income to
average daily net assets before
waivers ............................ 0.25%(d) 0.72% 1.02% 1.65% 1.93% 2.25%
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS Y
---------------------------------- ----------------------------------
Six Months Ended Period Ended Six Months Ended Period Ended
March 31, 1998 September 30, March 31, 1998 September 30,
(Unaudited) 1997(c) (Unaudited) 1997(c)
----------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ... $ 18.33 $ 16.14 $ 18.36 $ 16.14
----------------- -------------- ----------------- --------------
Operations:
Net investment income (loss) ......... (0.02) 0.03 0.06 0.12
Net realized and unrealized gains on
investments 1.77 2.21 1.79 2.21
----------------- -------------- ----------------- --------------
Total from operations .............. 1.75 2.24 1.85 2.33
----------------- -------------- ----------------- --------------
Distributions to shareholders:
From net investment income ........... -- (0.05) (0.08) (0.11)
From net realized gains on
investments ........................ (1.97) -- (1.97) --
----------------- -------------- ----------------- --------------
Total distributions to
shareholders ..................... (1.97) (0.05) (2.05) (0.11)
----------------- -------------- ----------------- --------------
Net asset value, end of period ..... $ 18.11 $ 18.33 $ 18.16 $ 18.36
----------------- -------------- ----------------- --------------
----------------- -------------- ----------------- --------------
SELECTED INFORMATION
Total return (a) ....................... 11.33% 13.93% 11.91% 14.51%
Net assets at end of period (in
thousands and millions for Class B and
Class Y, respectively) ............... $ 1,427 $ 905 $ 16 $ 14
Ratio of expenses to average daily net
assets ............................... 1.95%(d) 1.98%(d) 0.96%(d) 0.99%(d)
Ratio of net investment income (loss) to
average daily net assets ............. (0.26)%(d) 0.04%(d) 0.74%(d) 1.12%(d)
Average commission rate paid on
portfolio transactions (b) ........... $0.0600 $0.0600 $0.0600 $0.0600
Portfolio turnover rate (excluding
short-term securities) ............... 22% 46% 22% 46%
Ratios before waivers by the advisor:
Ratio of expenses to average daily net
assets before waivers .............. 1.95%(d) 1.98%(d) 0.96%(d) 1.00%(d)
Ratio of net investment income (loss)
to average daily net assets before
waivers ............................ (0.26)%(d) 0.04%(d) 0.74%(d) 1.11%(d)
</TABLE>
(a) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A
SALES CHARGE.
(b) DISCLOSED IN ACCORDANCE WITH GUIDELINES ADOPTED IN 1996.
(c) COMMENCEMENT OF OFFERING OF CLASS B AND CLASS Y SHARES WAS FEBRUARY 18,
1997.
(d) ANNUALIZED.
- --------------------------------------------------------------------------------
65
<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:
BALANCED FUND
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------
Six Months Ended Year Ended September 30,
March 31, 1998 --------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of
period .......................... $ 15.54 $ 14.08 $ 13.74 $ 11.81 $ 12.23 $ 11.88
---------------- -------- -------- -------- -------- --------
Operations:
Net investment income ........... 0.18 0.42 0.44 0.47 0.38 0.34
Net realized and unrealized gains
(losses) on investments ....... 0.93 2.26 0.89 1.93 (0.26) 0.65
---------------- -------- -------- -------- -------- --------
Total from operations ......... 1.11 2.68 1.33 2.40 0.12 0.99
---------------- -------- -------- -------- -------- --------
Distributions to shareholders:
From net investment income ...... (0.18) (0.42) (0.44) (0.35) (0.37) (0.34)
From net realized gains ......... (1.03) (0.80) (0.55) (0.12) (0.17) (0.30)
---------------- -------- -------- -------- -------- --------
Total distributions to
shareholders ................ (1.21) (1.22) (0.99) (0.47) (0.54) (0.64)
---------------- -------- -------- -------- -------- --------
Net asset value, end of
period ...................... $ 15.44 $ 15.54 $ 14.08 $ 13.74 $ 11.81 $ 12.23
---------------- -------- -------- -------- -------- --------
---------------- -------- -------- -------- -------- --------
SELECTED INFORMATION
Total return (a) .................. 7.85% 20.24% 10.16% 21.78% 1.00% 8.51%
Net assets at end of period (in
millions) ....................... $ 50 $ 49 $ 45 $ 44 $ 46 $ 57
Ratio of expenses to average daily
net assets ...................... 1.32%(d) 1.34% 1.32% 1.32% 1.32% 1.32%
Ratio of net investment income to
average daily net assets ........ 2.52%(d) 2.89% 3.16% 3.54% 3.03% 3.13%
Average commission rate paid on
portfolio transactions (b) ...... $0.0600 $ 0.0600 $ 0.0600 n/a n/a n/a
Portfolio turnover rate (excluding
short-term securities) .......... 15% 42% 27% 39% 62% 41%
Ratios before waivers by the
advisor and distributor:
Ratio of expenses to average
daily net assets before
waivers ....................... 1.75%(d) 1.73% 1.69% 1.65% 1.60% 1.62%
Ratio of net investment income to
average daily net assets before
waivers ....................... 2.09%(d) 2.50% 2.79% 3.21% 2.75% 2.83%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
--------------------------------------
Six Months Ended Period Ended
March 31, 1998(c) September 30,
(Unaudited) 1997(c)
--------------------- --------------
<S> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ... $ 15.51 $ 14.46
---------- --------------
Operations:
Net investment income ................ 0.11 0.20
Net realized and unrealized gains on
investments ........................ 0.95 1.10
---------- --------------
Total from operations .............. 1.06 1.30
---------- --------------
Distributions to shareholders:
From net investment income ........... (0.15) (0.25)
From net realized gains on
investments ........................ (1.03) --
---------- --------------
Total distributions to
shareholders ..................... (1.18) (0.25)
---------- --------------
Net asset value, end of period ..... $ 15.39 $ 15.51
---------- --------------
---------- --------------
SELECTED INFORMATION
Total return (a) ....................... 7.54% 9.08%
Net assets at end of period (in
thousands) ........................... $ 111 $ 37
Ratio of expenses to average daily net
assets ............................... 1.99%(d) 1.99%(d)
Ratio of net investment income to
average daily net assets ............. 1.81%(d) 2.11%(d)
Average commission rate paid on
portfolio transactions (b) ........... $0.0600 $0.0600
Portfolio turnover rate (excluding
short-term securities) ............... 15% 42%
Ratios before waivers by the advisor:
Ratio of expenses to average daily net
assets before waivers .............. 2.40%(d) 2.11%(d)
Ratio of net investment income to
average daily net assets before
waivers ............................ 1.40%(d) 1.99%(d)
</TABLE>
(a) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A
SALES CHARGE.
(b) DISCLOSED IN ACCORDANCE WITH GUIDELINES ADOPTED IN 1996.
(c) COMMENCEMENT OF OFFERING OF CLASS B SHARES WAS FEBRUARY 18, 1997.
(d) ANNUALIZED.
- --------------------------------------------------------------------------------
66
<PAGE>
Investments in Securities (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND March 31, 1998
.......................................................................................
Number Market
Description of Security of Shares Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
COMMON STOCK (97.5%):
BASIC MATERIALS (3.4%):
Air Products & Chemicals ............................ 21,200 $ 41,756,950
Aluminum Company of America ......................... 20,000 1,376,250
Morton International ................................ 60,000 1,968,750
------------
5,101,950
------------
CAPITAL GOODS AND SERVICES (9.4%):
AlliedSignal Inc. ................................... 90,000 3,780,000
Boeing Co. .......................................... 50,000 2,606,250
General Electric .................................... 60,000 5,171,250
Minnesota Mining & Manufacturing Co. . 30,000 2,735,625
------------
14,293,125
------------
CONSUMER DURABLES (6.1%):
Chrysler Corp. ...................................... 50,000 2,078,125
Ford Motor .......................................... 85,000 5,509,062
Masco Corp. ......................................... 30,000 1,785,000
------------
9,372,187
------------
CONSUMER NON-DURABLES (8.3%):
Coca-Cola Co. ....................................... 25,000 1,935,937
Colgate-Palmolive ................................... 38,000 3,291,750
General Mills ....................................... 25,000 1,900,000
Mattel, Inc. ........................................ 35,000 1,386,875
Philip Morris Co. ................................... 50,000 2,084,375
Procter & Gamble .................................... 25,000 2,109,375
------------
12,708,312
------------
CONSUMER SERVICES (3.4%):
Carnival Corp. - Class A ............................ 40,000 2,790,000
McDonald's Corp. .................................... 40,000 2,400,000
------------
5,190,000
------------
ENERGY (9.0%):
Baker Hughes Inc. ................................... 50,000 2,012,500
Exxon Corp. ......................................... 50,000 3,381,250
Schlumberger Ltd. ................................... 35,000 2,651,250
Texaco Inc. ......................................... 60,000 3,615,000
Transocean Offshore Inc. ............................ 40,000 2,057,500
------------
13,717,500
------------
FINANCIAL SERVICES (16.7%):
American Express .................................... 35,000 3,213,437
Associates First Capital 'A' ........................ 30,000 2,370,000
BankAmerica Corp. ................................... 60,000 4,957,500
Chubb Corp. ......................................... 40,000 3,135,000
Federal National Mortgage Association . 75,000 4,743,750
NationsBank Corp. ................................... 40,000 2,917,500
Norwest Corp. ....................................... 100,000 4,156,250
------------
25,493,437
------------
HEALTH CARE (11.6%):
Abbott Laboratories ................................. 51,400 3,871,062
Eli Lilly & Co. ..................................... 25,000 1,490,625
Johnson & Johnson ................................... 45,000 3,299,063
</TABLE>
<TABLE>
<CAPTION>
Number of
Shares or
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
Medtronic, Inc. ..................................... 27,400 $ 1,421,375
Merck & Co., Inc. ................................... 40,000 5,135,000
United Healthcare ................................... 40,000 2,590,000
------------
17,807,125
------------
RETAIL TRADE (3.1%):
Dayton Hudson ....................................... 26,700 2,349,600
Home Depot .......................................... 35,000 2,360,313
------------
4,709,913
------------
TECHNOLOGY (12.4%):
Cisco Systems, Inc. ................................. 45,000(b) 3,076,875
Compaq Computer ..................................... 60,000 1,552,500
Electronic Data Systems ............................. 45,000 2,064,375
EMC Corp. ........................................... 60,000(b) 2,268,750
Hewlett-Packard Co. ................................. 55,000 3,485,625
Intel Corp. ......................................... 25,000 1,951,563
International Business Machines Corp. ............... 20,000 2,077,500
Sensormatic Electronics ............................. 150,000 2,456,250
------------
18,933,438
------------
TRANSPORTATION (2.4%):
Burlington Northern Santa Fe ........................ 35,000 3,640,000
------------
UTILITIES (11.7%):
AirTouch Communications ............................. 90,000(b) 4,404,375
BellSouth Corp. ..................................... 47,000 3,175,438
Enron ............................................... 60,000 2,782,500
FPL Group ........................................... 60,000 3,855,000
GTE Corp. ........................................... 60,000 3,592,500
------------
17,809,813
------------
Total Common Stock
(cost: $92,015,661) ............................ 148,776,800
------------
SHORT-TERM SECURITIES (2.4%):
Repurchase agreement with Goldman Sachs, acquired on
3/31/98, interest of $617, 6.00%, 4/1/98
(cost: $3,704,000) ................................ $ 3,704,000(c) 3,704,000
------------
Total Investments in Securities
(cost: $95,719,661) (d) ........................ $152,480,800
------------
------------
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES:
(a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(b) CURRENTLY NON-INCOME PRODUCING.
(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 COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS
UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED
ON THIS COST WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 57,050,427
GROSS UNREALIZED DEPRECIATION ...... (289,288)
------------
NET UNREALIZED APPRECIATION ...... $ 56,761,139
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
67
<PAGE>
Investments in Securities (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCED FUND March 31, 1998
.......................................................................................
Number Market
Description of Security of Shares Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
COMMON STOCK (55.1%):
BASIC MATERIALS (2.5%):
Air Products & Chemicals .......................... 6,000 $ 497,250
Aluminum Company of America ....................... 6,000 412,875
Morton International .............................. 10,000 328,125
------------
1,238,250
------------
CAPITAL GOODS AND SERVICES (5.2%):
AlliedSignal Inc. ................................. 19,000 798,000
Boeing Co. ........................................ 11,600 604,650
General Electric .................................. 9,000 775,687
Minnesota Mining & Manufacturing Co. 4,500 410,344
------------
2,588,681
------------
CONSUMER DURABLES (2.8%):
Ford Motor ........................................ 16,000 1,037,000
Masco Corp. ....................................... 6,500 386,750
------------
1,423,750
------------
CONSUMER NON-DURABLES (4.2%):
Coca-Cola Co. ..................................... 4,100 317,494
Colgate-Palmolive ................................. 3,000 259,875
Mattel, Inc. ...................................... 6,300 249,637
Philip Morris Co. ................................. 12,200 508,587
Procter & Gamble .................................. 9,400 793,125
------------
2,128,718
------------
CONSUMER SERVICES (2.3%):
Carnival Corp. - Class A .......................... 8,000 558,000
McDonald's Corp. .................................. 10,000 600,000
------------
1,158,000
------------
ENERGY (6.2%):
Anadarko Petroleum ................................ 4,000 276,000
Baker Hughes Inc. ................................. 15,000 603,750
Exxon Corp. ....................................... 4,400 297,550
Schlumberger Ltd. ................................. 12,100 916,575
Texaco Inc. ....................................... 9,000 542,250
Transocean Offshore Inc. .......................... 9,500 488,656
------------
3,124,781
------------
FINANCIAL SERVICES (8.9%):
American International Group ...................... 3,750 472,266
Associates First Capital 'A' ...................... 6,300 497,700
BankAmerica Corp. ................................. 8,448 698,016
Federal National Mortgage Association 16,800 1,062,600
NationsBank Corp. ................................. 8,000 583,500
Norwest Corp. ..................................... 27,400 1,138,812
------------
4,452,894
------------
HEALTH CARE (6.0%):
Johnson & Johnson ................................. 8,600 630,487
Medtronic, Inc. ................................... 7,000 363,125
Merck & Co., Inc. ................................. 8,000 1,027,000
St. Jude Medical .................................. 15,000(b) 501,562
</TABLE>
<TABLE>
<CAPTION>
Number of
Shares or
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
United Healthcare ................................. 8,000 $ 518,000
------------
3,040,174
------------
RETAIL TRADE (2.8%):
Albertson's, Inc. ................................. 5,500 289,438
Gap Inc. .......................................... 12,000 540,000
Home Depot ........................................ 8,400 566,475
------------
1,395,913
------------
TECHNOLOGY (7.2%):
Cisco Systems, Inc. ............................... 10,000(b) 683,750
Compaq Computer ................................... 15,000 388,125
EMC Corp. ......................................... 18,000(b) 680,625
Hewlett-Packard Co. ............................... 7,000 443,625
Intel Corp. ....................................... 3,500 273,219
International Business Machines Corp. . 4,000 415,500
Lucent Technologies ............................... 2,916 372,884
Sensormatic Electronics ........................... 21,000 343,875
------------
3,601,603
------------
TRANSPORTATION (1.4%):
Burlington Northern Santa Fe ...................... 6,900 717,600
------------
UTILITIES (5.6%):
AirTouch Communications ........................... 21,500(b) 1,052,156
BellSouth Corp. ................................... 7,000 472,938
Enron ............................................. 12,100 561,138
GTE Corp. ......................................... 7,000 419,125
WorldCom, Inc. .................................... 7,000(b) 301,438
------------
2,806,795
------------
Total Common Stock
(cost: $15,898,108) .......................... 27,677,159
------------
CORPORATE BONDS (13.1%):
CONSUMER DURABLES (0.8%):
Ford Holdings, 9.25%, 3/1/00 ...................... $ 400,000 423,360
------------
CONSUMER SERVICES (2.2%):
MCI Communications, 7.13%, 6/15/27 500,000 526,070
Time Warner Inc., 8.88%, 10/1/12 .................. 500,000 590,030
------------
1,116,100
------------
FINANCIAL SERVICES (7.7%):
American Express Credit Corporation, 7.38%,
2/1/99 .......................................... 400,000 405,632
Aon Corp., 6.88%, 10/1/99 ......................... 450,000 456,399
BankAmerica Corp., 8.38%, 3/15/02 ................. 480,000 516,605
General Motors Acceptance Corp., 8.50%, 1/1/03 .... 500,000 546,315
Heller Financial, 9.13%, 8/1/99 ................... 300,000 311,511
Lehman Brothers, floating rate, 7.36%, 12/15/03 ... 650,000(d) 677,423
Morgan Stanley Group Inc., 8.10%, 6/24/02 ......... 500,000 534,915
NationsBank Corp., 5.38%, 4/15/00 ................. 400,000 395,720
------------
3,844,520
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
68
<PAGE>
Investments in Securities (Unaudited) (continued)
- --------------------------------------------------------------------------------
BALANCED FUND
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
TRANSPORTATION (1.3%):
Boeing Co., 8.75%, 9/15/31 ........................ $ 500,000 $ 641,755
------------
UTILITIES (1.1%):
Pennsylvania Power and Light, 7.70%, 10/1/09 ...... 500,000 550,670
------------
Total Corporate Bonds
(cost: $6,223,803) ........................... 6,576,405
------------
U.S. GOVERNMENT AND AGENCY SECURITIES (27.0%):
GOVERNMENT TRUST CERTIFICATES (0.6%):
9.25%, Government Trust Certificate, 11/15/01 ..... 261,031 276,127
------------
U.S. AGENCY DEBENTURES (5.1%):
5.94%, FHLMC, 9/21/99 ............................. 1,000,000 1,005,100
7.40%, FNMA, 7/1/04 ............................... 500,000 538,635
6.63%, FNMA, 3/21/06 .............................. 1,000,000 1,040,800
------------
2,584,535
------------
U.S. AGENCY MORTGAGE-BACKED SECURITIES (8.8%):
ADJUSTABLE RATE (2.0%):
7.05%, FHLMC, Series 1435, Class FA, LIBOR,
12/15/22 ........................................ 586,622(d) 601,323
7.32%, FNMA, 4/1/18 ............................... 384,464(d) 397,063
------------
998,386
------------
FIXED RATE (6.8%):
6.50%, FHLMC, 9/1/25 .............................. 368,435 367,168
6.50%, FHLMC, 9/1/12 .............................. 483,186 485,147
6.50%, FHLMC, 1/1/01 .............................. 429,184 429,317
8.00%, FHLMC, 11/1/24 ............................. 804,924 835,962
6.50%, FHLMC, Series 1056, Class KB, 3/15/01 ...... 305,968 306,250
6.00%, FNMA, 4/1/09 ............................... 685,560 678,917
6.00%, FNMA, 3/1/03 ............................... 317,516 315,532
10.00%, FNMA, Series 1989-15, Class D, 9/25/18 .... 11,483 11,544
------------
3,429,837
------------
U.S. GOVERNMENT SECURITIES (12.5%):
8.50%, U.S. Treasury Bond, 2/15/20 ................ 1,000,000 1,297,730
7.63%, U.S. Treasury Bond, 11/15/22 . 1,500,000 1,804,290
5.88%, U.S. Treasury Note, 2/15/04 ................ 1,000,000 1,010,590
7.25%, U.S. Treasury Note, 8/15/04 ................ 1,000,000 1,081,670
6.25%, U.S. Treasury Note, 10/31/01 . 500,000 509,400
7.04%, U.S. Treasury Strip, 2/15/15 ............... 1,500,000(c) 545,250
------------
6,248,930
------------
Total U.S. Government and Agency Securities
(cost: $12,733,324) .......................... 13,537,815
------------
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
PRIVATE MORTGAGE-BACKED SECURITIES (2.4%):
FIXED RATE (2.4%):
6.40%, Capstead Securities Corporation, Series
1993-D, Class D2, 7/25/23 ....................... $ 204,037 $ 201,297
8.50%, Residential Funding Mortgage Securities,
Series 1993-S26, Class A17, 6/25/09 ............. 900,000 933,912
9.30%, Security Pacific National Bank, Series
1989-A, Class 7, 8/25/19 ........................ 74,247 74,178
------------
1,209,387
------------
Total Private Mortgage-Backed Securities
(cost: $1,198,418) ........................... 1,209,387
------------
ASSET-BACKED SECURITIES (1.2%):
Citibank Credit Card Master Trust I, Series 1997-7,
Class A, 6.35%, 8/15/02 ......................... 500,000 504,285
Premier Auto Trust, Series 1993-6, Class A2, 4.65%,
11/2/99 ......................................... 106,149 105,861
------------
Total Asset-Backed Securities
(cost: $605,290) ............................. 610,146
------------
SHORT-TERM SECURITIES (0.1%):
Repurchase agreement with Goldman Sachs, acquired
on 3/31/98, interest of $7, 6.00%, 4/1/98
(cost: $43,000) ................................. 43,000(e) 43,000
------------
Total Investments in Securities
(cost: $36,701,943) (f) ...................... $ 49,653,912
------------
------------
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES:
(a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(b) CURRENTLY NON-INCOME PRODUCING.
(c) FOR ZERO-COUPON INVESTMENTS, THE INTEREST RATE SHOWN IS THE EFFECTIVE YIELD
ON THE DATE OF PURCHASE.
(d) PORTFOLIO ABBREVIATIONS AND DEFINITIONS:
LIBOR - LONDON INTERBANK OFFERED RATE
ADJUSTABLE OR FLOATING RATE - REPRESENTS SECURITIES THAT PAY INTEREST
AT RATES THAT INCREASE (DECREASE) WITH AN INCREASE (DECREASE) IN THE
SPECIFIED INDEX. INTEREST RATES DISCLOSED ARE IN EFFECT MARCH 31,
1998.
(e) 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.
(f) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS
UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED
ON THIS COST WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 13,079,164
GROSS UNREALIZED DEPRECIATION ...... (127,195)
------------
NET UNREALIZED APPRECIATION ...... $ 12,951,969
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
69
<PAGE>
GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
[PHOTO]
BRUCE SALVOG
shares responsibility for the management of Government Income Fund. He has 28
years of financial experience.
- --------------------------------------------------------------------------------
May 17, 1998
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1998, THE FUND ACHIEVED A TOTAL RETURN
OF 4.31%* WITH ALL DISTRIBUTIONS REINVESTED BUT NOT INCLUDING THE FUND'S SALES
CHARGE. During the same period, the fund's benchmark,*** the Merrill Lynch 5-10
Year Treasury Index,** returned 5.22%, while the Lipper U.S. Mortgage Funds
Average+ gained 3.6%. The fund's monthly dividend remained stable at between 4.5
cents and 4.9 cents per share over the six-month reporting period.
THE FUND WAS POSITIONED TO BENEFIT FROM AN EXPECTED DECLINE IN LONG-TERM
INTEREST RATES, WHICH DID HAPPEN DURING THE REPORTING PERIOD. Entering the
fourth quarter of 1997, the fund's effective duration*** was 5.5 years, or about
two years longer than our estimate of the effective duration of the average
mortgage fund within the Lipper category. (We discuss effective duration in
greater detail below.) During the period, we made no significant changes to the
fund's duration. This strategy reflected our view that long-term interest rates
were likely to exhibit stability, along with the high priority that the fund
continues to place on generating current income.
THE FUND'S PERFORMANCE RELATIVE TO ITS LIPPER PEER GROUP IS IN PART DUE TO ITS
LONGER EFFECTIVE DURATION. In a falling interest-rate environment such as the
one that characterized the reporting period, longer-duration portfolios will
typically outperform as bond prices appreciate. Relative to the fund's
benchmark, we attribute the fund's underperformance to our portfolio mix of
mortgage-backed and Treasury securities. During periods of falling interest
rates, Treasuries usually outperform mortgage-backed issues due to concerns
about refinancing. The fund's benchmark, the Merrill Lynch 5-10 Year Treasury
Index, is comprised entirely of Treasury securities.
PERFORMANCE THROUGH MARCH 31, 1998*
- --------------------------------------------------------------------------------
Growth of $10,000 Invested Since Inception
[GRAPH]
<TABLE>
<CAPTION>
Government Income Fund,
reflects the fund's 2% Merrill Lynch 5-10 Year Lipper U.S. Mortgage
sales charge++ Treasury Index** Funds Average+
<S> <C> <C>
9800 10000 10000
9790.2 10000 10000
9561.86 9699.8 9711.75
9524.5 9644.22 9678.12
9715.29 9757.25 9817.59
9643.2 9721.05 9835.96
9520.92 9629.77 9778.59
9184.04 9370.63 9523
9661.51 9798.22 9843.35
9720.71 9837.6 9946.71
9841.11 9977.79 10066
10241.3 10370.8 10410.8
10352.4 10511.8 10528.3
10193.9 10366.3 10439.4
10106.6 10309.3 10395.1
10004.7 10188.8 10328.1
10317.3 10451.1 10566.8
10325.8 10373.6 10539.1
10295.4 10372.9 10546.4
10482.5 10646.2 10771.2
10644.8 10846 10968.6
10595.1 10666.6 10840.1
10544.1 10659.2 10805
10653.5 10809.3 10942.3
10650.1 10695.7 10870.8
10636.7 10770.5 10886
10788.1 11004.5 11077.5
10943.8 11343.7 11349.4
11109.4 11739.2 11619
11251.9 12061.4 11817.5
11133.6 11779.8 11682.7
11165.7 11827.4 11735
11395 12152.9 11979.6
11501.4 12286.4 12102.2
11584.3 12288.3 12157.9
11370.2 12106.5 12043.4
11428.6 12100.4 12088.6
11411.1 12104.9 12105.1
11220.1 11956.5 11992
11615.6 12315.7 12329
11830.4 12518.1 12511.6
12036.2 12715.7 12705.3
11872.1 12505.3 12594.3
11969 12631.8 12691
12145.7 12860.9 12820.4
12382.3 13162.4 13085.7
12592.9 13385.2 13289.6
12797.2 13540.5 13447.7
12892 13599.2 13533.9
12940.5 13647.5 13618
13073.1 13796.4 13752.9
13168.9 13860.6 13834
13090.6 13819 13839.1
13361.2 13996.8 14043.6
13679.8 14355.2 14322.9
14065.1 14732.6 14596.5
14274.5 14888.4 14781.4
14423.6 15075.9 14905
14985.5 15679.7 15289.8
14430.7 15306.5 15075.4
14539.2 15385.6 15186.2
14361.4 15255.3 15096.7
14498.8 15367.7 15221.7
14935.6 15692.1 15482.5
15184.1 15989.4 15696.8
15361.9 16456.9 15910
15555.7 16670.3 16078
15692 16984.9 16230.1
15242.7 16667.4 16005.8
15270.1 16558.8 16025.5
15640.5 16863.3 16257.9
16029.8 17330.2 16544
16230.8 17741.1 16757.1
16300.4 17824.9 16821.7
16376.4 17979.8 16906.6
16378.4 17947.6 16943.1
16798 18406.9 17191.7
16984.7 18450.3 17275
17327.3 18894 17458.1
17287.8 19026.9 17463.3
17351.7 19049.3 17508.5
17073.8 18799.2 17368
17211.9 18883.4 17481.3
17508.1 19169.1 17669.2
16974.9 18662.3 17424
16297 18139.2 16928.1
15919.1 17960.9 16657.7
15860.5 17963.2 16620.6
15710.8 17900.2 16581.9
16126.4 18242.1 16842.7
16142.1 18287.3 16876.1
15694.1 17964.2 16636.6
15597.2 17903.4 16572.4
15499.6 17840.2 16516.8
15647 17977.6 16632
16001 18352.8 16938.5
16524.2 18862.6 17341.5
16665 18964.7 17412.4
16940.8 19273.4 17636.1
17704.9 20223.8 18194.3
17683.7 20408.1 18292.2
17641 20280.9 18286
17836.7 20547 18473.1
18027.6 20773.2 18626.2
18225 21117.2 18804.1
18488.2 21518.2 19035.5
18749.9 21845.5 19278.9
18869.5 21998.7 19392.2
18498 21441 19142.7
18412.5 21203.4 19041.7
18268.1 20981.9 18949.6
18229 20878 18869.3
18565 21191.2 19091.5
18589.2 21219.6 19144.6
18567.2 21137 19126.9
18926.3 21556.2 19429.8
19417.6 22112.5 19828.2
19782.2 22598.6 20131.2
19543 22239.2 19981.2
19578.9 22261.7 20086.4
19616 22244.6 20135.3
19278 21921.4 19930.3
19711.1 22299.3 20233.2
19858.9 22512.5 20401
20142.8 22783.5 20631.3
20832.5 23554 21084.6
20576.1 23221.7 20967.7
20912.5 23635.3 21224.6
21247 24108.5 21451.1
21281.4 24183.9 21524.9
21531 24463.7 21716.6
21847.2 24930.5 21948.2
21768.8 24813.1 21958.3
21812.8 24867.9 22003
</TABLE>
** 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 10.89%
- --------------------------------------------------------------------------------
Five Year 5.57%
- --------------------------------------------------------------------------------
Ten Year 7.68%
- --------------------------------------------------------------------------------
Since Inception (3/16/87) 7.31%
- --------------------------------------------------------------------------------
* PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. 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. Neither safety of principal nor stability of
income is guaranteed. During most periods, the fund's advisor waived or paid
certain expenses and/or the fund's distributor voluntarily waived certain 12b-1
fees. Without waivers, returns would have been lower.
All fund and benchmark returns include reinvested distributions.
++ Effective February 18, 1997, the fund's maximum sales charge was changed from
4% to 2%.
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
70 1998 Semiannual Report - Piper Funds
<PAGE>
GOVERNMENT INCOME FUND (CONTINUED)
- --------------------------------------------------------------------------------
[PHOTO]
DAVID STEELE
shares responsibility for the management of Government Income Fund. He has 19
years of financial experience.
- --------------------------------------------------------------------------------
FIXED-INCOME INVESTMENTS BENEFITED FROM THE IMPACT OF THE ASIAN RECESSION.
Between October and early January, long-term bond yields declined by about 0.50%
as global investors sought refuge in high-quality U.S. fixed income securities
amid the economic storm raging in Asia. Domestic investors also bought
longer-term bonds, confident that reduced demand for U.S. goods abroad and the
impact of the strong dollar at home would keep inflation under control.
Better-than-expected inflation news and reduced borrowing requirements from the
federal government also helped to create a bullish environment for fixed income
securities. However, when U.S. economic growth appeared to remain strong during
the first quarter of 1998, bond yields rose modestly during the final weeks of
the reporting period.
DESPITE THE ROBUST DOMESTIC ECONOMY, INFLATION REMAINED BENIGN. Prices at the
consumer level increased just 1.4% during the 12 months through March, while
producer prices actually declined during the same period. Excluding the volatile
food and energy sectors,*** last year's 2.2% rise in the consumer price index
was the smallest in more than 30 years. Significant gains in productivity,
falling energy prices, and the strong dollar helped to keep inflation in check
despite strong economic growth and an increasingly tight labor market.
THE FEDERAL RESERVE MAINTAINED A STABLE MONETARY POLICY. Faced with little
evidence of reported inflation and concerned about exacerbating the difficulties
in Asia, the Federal Reserve Board kept the target for the key Federal funds
lending rate*** at 5.5% during the reporting period. The decline in long-term
bond yields, coupled with steady short-term interest rates, resulted in a
significant flattening of the yield curve.***
Thank you for your investment in Government Income Fund. We continue our
dedication to providing you with quality investment management.
Sincerely,
/s/ Bruce Salvog /s/ David Steele
Bruce Salvog David Steele
Portfolio Manager Portfolio Manager
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
As a percentage of total assets on March 31, 1998
[CHART]
<TABLE>
<CAPTION>
<S> <C>
U.S. Agency Inverse Interest-Only Securities 1%
U.S. Agency Fixed Rate Mortgage-Backed Securities 61%
U.S. Agency Z-Bond Securities 15%
U.S. Agency Fixed Debentures 4%
U.S. Treasury Securities 9%
U.S. Agency CMOs - Fixed 8%
Short-Term 1%
Other Assets 1%
</TABLE>
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
71 1998 Semiannual Report - Piper Funds
<PAGE>
INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
[PHOTO]
BRUCE SALVOG
shares responsibility for the management of Intermediate Bond Fund. He has 28
years of financial experience.
- --------------------------------------------------------------------------------
May 17, 1998
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1998, THE FUND ACHIEVED A TOTAL RETURN
OF 3.27%* WITH ALL DISTRIBUTIONS REINVESTED BUT NOT INCLUDING THE FUND'S SALES
CHARGE. During the same period, the fund's benchmark,*** the Lehman Brothers
Intermediate Aggregate Index,** returned 3.85%, while the Lipper Intermediate
Investment-Grade Debt Funds Average+ gained 3.94%.
THE FUND MADE ONLY MINOR CHANGES TO ITS PORTFOLIO DURING THE REPORTING PERIOD,
MAINTAINING THE FUND'S AVERAGE EFFECTIVE DURATION*** AT 3.3 YEARS. (Effective
duration is discussed in greater detail below.) The fund continues to be
managed with the goal of maximizing current income, within the context of market
conditions.
FIXED INCOME INVESTMENTS BENEFITED FROM THE IMPACT OF THE ASIAN RECESSION.
Between October and early January, yields declined across the maturity spectrum
as global investors sought refuge in high-quality U.S. bonds amid the economic
storm raging in Asia. Domestic investors also bought fixed income securities,
confident that reduced demand for U.S. goods abroad and the impact of the strong
dollar at home would keep inflation under control. Better-than-expected
inflation news and reduced borrowing requirements from the federal government
also helped to create a bullish environment for fixed income securities.
- --------------------------------------------------------------------------------
PERFORMANCE THROUGH MARCH 31, 1998*
- --------------------------------------------------------------------------------
Growth of $10,000 Invested Since Inception
[GRAPH]
<TABLE>
<CAPTION>
Intermediate Bond Fund Lehman Brothers Lipper Intermediate
class A, reflects the fund's Intermediate Investment-Grade Debt
2% sales charge++ Aggregate Index** Funds Average+
<S> <C> <C>
9800 10000 10000
9760.8 10000 10000
9765.7 10017.3 10009.6
9958.25 10217 10203.2
10102.5 10384.7 10355.1
9987.24 10275.2 10259.7
9982.19 10262.9 10281
10099.2 10394.6 10403.1
10042.8 10343.9 10356.3
10027.3 10378.5 10380.1
10220 10586.7 10559.7
10477 10837.1 10777
10736 11108 11041.8
10911.8 11343.6 11241
10777.7 11196.9 11105.6
10847.9 11258.9 11162.5
11082.1 11503.8 11374.2
11219.3 11618.8 11453.7
11296.6 11664.1 11474.3
11224.1 11587 11357.8
11285.9 11639.1 11394
11291.6 11659.3 11400
11251.6 11595.3 11310.1
11522 11888.6 11585.8
11713.3 12058.5 11749.8
11917.6 12241.6 11906.5
11864.7 12162 11780.6
11965.4 12257.9 11836
12090.8 12398.7 11920.4
12313.4 12613.9 12138.9
12478.2 12801.1 12299.8
12716.8 12955.3 12428.7
12846.2 13060.9 12559.1
12964.1 13149.7 12662
13095.3 13284.8 12812.5
13177.2 13379.2 12898.7
13196.2 13389.5 12902.7
13407 13567.8 13054.9
13657.9 13822.4 13338
13975.4 14067.9 13598.8
14164.6 14255.7 13742.4
14355.1 14396.4 13872.4
14687.6 14715.2 14292.5
14560 14570.4 14112.3
14715.5 14658.4 14186.9
14763.1 14588.8 14135.7
14886.5 14723.6 14223.1
15156 14965 14485.6
15427.4 15168.8 14697.1
15924.9 15405.2 15051.3
16185.8 15576.1 15187.1
16448.5 15752.7 15383.8
16255.6 15574.1 15154.3
16291.5 15555.2 15131.4
16481.2 15760.7 15357.2
17128.9 16029.8 15674.1
17720.8 16247.5 15988.9
17969.6 16324.9 16075
18159.4 16438.7 16198
18243.4 16451.1 16203
18589.2 16659.8 16510
18797.9 16710.3 16611.4
19023.6 16906.1 16926.8
19250.6 16956.2 16984.8
19290 17002.9 17062.1
19060.2 16931.8 16908.9
19053.5 17030.5 17010.2
19209.7 17211.5 17238.8
18887.1 17008.4 16910.4
17446.4 16672.3 16467.3
15223.7 16555.9 16219.8
14504.8 16586.6 16146.3
14172 16576 16091.1
14576.7 16847.3 16359
14689.6 16900.2 16401.8
14119.9 16716.1 16196.2
13704.1 16712.2 16154.3
13445 16644.6 16099.1
13652.6 16729.2 16178.7
13844.2 17037.5 16432.5
14314.9 17418.7 16785.9
14510.9 17512.3 16893
14822.2 17739.6 17141.4
15652 18282.1 17765.9
15854.4 18398.3 17874.8
15747.3 18411.4 17842.2
16111.5 18586.9 18058.2
16399.9 18731.4 18236.5
16551.5 18925.1 18463.8
16768.2 19161.8 18725.8
17010.5 19376.2 18977.8
17107.3 19536.1 19108
16988 19331.6 18786.6
16933.4 19243.3 18662.8
16856.2 19180.8 18560.9
16800.6 19151.6 18531.4
17013.7 19376.6 18745.4
17082.9 19439.2 18795.7
17086.7 19449.1 18788.4
17331.3 19740.1 19108.4
17651.8 20103.4 19508
17857.8 20376.8 19847.2
17759.9 20256.5 19679.9
17842.6 20361.9 19745.8
17901.6 20410.7 19800.8
17752.4 20251.5 19597.7
17979.1 20520.9 19848.1
18114.5 20701.5 20031.2
18298 20910.5 20262.9
18673.1 21322.5 20790.4
18595 21237.2 20616.2
18768.5 21492 20908
18954.8 21730.6 21128.4
18969.4 21787.1 21196.2
19083 21970.1 21387.8
19316.6 22231.6 21671.8
19309.1 22238.2 21651.9
19382.5 22318.3 21735.2
</TABLE>
** 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++
<TABLE>
<CAPTION>
<S> <C>
One Year 7.00%
- --------------------------------------------------------------------------------
Five Year 1.12%
- --------------------------------------------------------------------------------
Since Inception (7/11/88) 7.04%
- --------------------------------------------------------------------------------
CLASS Y AVERAGE ANNUALIZED TOTAL RETURNS
Sales charges do not apply to class Y shares.
One Year 9.50%
- --------------------------------------------------------------------------------
Since Inception (2/18/97) 7.27%
- --------------------------------------------------------------------------------
</TABLE>
* PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. 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. Neither safety of principal nor stability of
income is guaranteed. During most periods, the fund's advisor waived or paid
certain expenses and/or the fund's distributor voluntarily waived certain 12b-1
fees. Without waivers, the class A returns would have been lower.
All fund and benchmark returns include reinvested distributions.
++ Effective September 12, 1996, the fund's maximum sales charge was changed
from 1.5% to 2%.
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
72 1998 Semiannual Report - Piper Funds
<PAGE>
INTERMEDIATE BOND FUND (CONTINUED)
- --------------------------------------------------------------------------------
[PHOTO]
DAVID STEELE
shares responsibility for the management of Intermediate Bond Fund. He has 19
years of financial experience.
- --------------------------------------------------------------------------------
DURING THE SECOND HALF OF THE REPORTING PERIOD, BOND YIELDS BACKED UP AS
ECONOMIC GROWTH REMAINED STRONG. Investors had expected the effects of the Asian
crisis to begin slowing the domestic economy by early 1998. When subsequent
evidence showed continued strength in consumer demand, interest rates retraced a
portion of their earlier decline. Beginning in mid-January, the yield on the
Treasury's 30-year benchmark bond increased by about one-fourth of one
percentage point to close the reporting period at slightly less than 6%. Also
during this time, yield differentials between high- and low-rated bonds
contracted, after widening significantly during the fourth quarter of 1997.
DESPITE THE ROBUST DOMESTIC ECONOMY, INFLATION REMAINED BENIGN. Prices at the
consumer level increased just 1.4% during the 12 months through March, while
producer prices actually declined over the same period. Excluding the volatile
food and energy sectors,*** last year's 2.2% rise in the consumer price index
was the smallest in more than 30 years. Significant gains in productivity,
falling energy prices, and the strong dollar helped to keep inflation in check
despite strong economic growth and an increasingly tight labor market.
THE FEDERAL RESERVE MAINTAINED A STABLE MONETARY POLICY. Faced with little
evidence of reported inflation and concerned about exacerbating the difficulties
in Asia, the Federal Reserve Board kept the target for the key Federal funds
lending rate*** at 5.5 percent over the reporting period. The decline in
long-term bond yields, coupled with steady short-term interest rates, resulted
in a significant flattening of the yield curve.***
Thank you for investing in Intermediate Bond Fund. We appreciate the opportunity
to help you pursue your investment goals.
Sincerely,
/s/ Bruce Salvog /s/ David Steele
Bruce Salvog David Steele
Portfolio Manager Portfolio Manager
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
As a percentage of total assets on March 31, 1998
[CHART]
<TABLE>
<CAPTION>
<S> <C>
U.S. Agency Debentures 7%
U.S. Treasury Securities 17%
U.S. Agency Fixed Rate Mortgage-Backed Securities 30%
Corporate Bonds 37%
Asset-Backed Securities 7%
Short-Term 1%
Other Assets 1%
</TABLE>
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
73 1998 Semiannual Report - Piper Funds
<PAGE>
ADJUSTABLE RATE MORTGAGE SECURITIES FUND
- --------------------------------------------------------------------------------
[PHOTO]
TOM MCGLINCH, CFA
shares responsibility for the management of Adjustable Rate Mortgage Securities
Fund. He has 17 years of financial experience.
- --------------------------------------------------------------------------------
May 17, 1998
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
FOR THE SIX MONTHS ENDED MARCH 31, 1998, ADJUSTABLE RATE MORTGAGE SECURITIES
FUND PRODUCED A TOTAL RETURN OF 2.75%.* This return includes reinvested
distributions but does not include the fund's sales charge. While the Lehman
Brothers Adjustable Rate Mortgage Index,** the fund's unmanaged market
benchmark,*** returned 3.14%, the fund's performance was better than the average
fund in the Lipper Adjustable Rate Mortgage Funds Average,+ which returned 2.39%
during the same time frame. Our decision to avoid adjustable rate mortgage
securities that are sensitive to prepayment risk, along with placing a
significant proportion of our assets in fixed rate mortgage securities, worked
well for our investors.
OVERALL, SHORT-TERM INTEREST RATES ROSE SLIGHTLY DURING THE PAST SIX MONTHS,
ALTHOUGH THEY FELL RATHER DRAMATICALLY IN JANUARY WHEN FEARS ABOUT THE ASIAN
ECONOMIC CRISIS PEAKED. While the U.S. economy continued to produce impressive
growth, inflation remained low and wages rose only slightly. In fact, the Asian
economic crisis -- which devalued currencies, rattled the foundations of shaky
financial institutions and caused a sharp rise in bankruptcies -- may have put a
damper on U.S. inflation expectations. The main reason: U.S. corporations fear
Asian goods, made cheaper by the devaluation*** of their currencies, could
compel U.S. producers to hold down their prices in
- --------------------------------------------------------------------------------
PERFORMANCE THROUGH MARCH 31, 1998*
- --------------------------------------------------------------------------------
Growth of $10,000 Invested Since Inception
[GRAPH]
<TABLE>
<CAPTION>
Adjustable Rate Mortgage Lehman Brothers
Securities Fund, reflects the Adjustable Rate Lipper Adjustable Rate
fund's 2% sales charge++ Mortgage Index** Mortgage Funds Average+
<S> <C> <C>
9800 10000 10000
9789.77 10000 10000
9779.54 9957 10038.9
9706.91 9918.17 10060.8
9798.52 10026.3 10113.6
9952.86 10116.5 10175.3
10087.3 10221.7 10247
10149.2 10266.7 10263.5
10338 10354 10313.7
10390 10409.9 10361.7
10314.2 10324.5 10349.5
10291.6 10340 10370
10312.2 10437.2 10416.2
10496 10543.7 10460.2
10631.9 10636.4 10521.5
10680.6 10684.3 10556.1
10738.1 10747.3 10604.8
10818.3 10773.1 10627
10887.6 10886.3 10684.6
10934.9 10936.3 10724.8
10982.4 11002 10772.7
11041.5 11004.2 10795.5
11112.3 11008.6 10812.4
11114.6 10978.8 10801.7
11148.2 11061.2 10829.4
11321.2 11135.3 10872.5
11109.9 11099.6 10869.8
10789.7 11012 10820.4
10727.2 10953.6 10774
10656 10944.8 10746.9
10620.3 10968.9 10768
10656.2 11035.8 10806.6
10644.2 11089.9 10832.6
10608 11044.4 10820.4
10535.2 11035.6 10823.4
10477.4 11004.7 10798.4
10419.2 11061.9 10815.1
10631.4 11245.5 10919
10782.9 11471.6 11041.4
10885.4 11526.6 11115.2
10938.4 11648.8 11200.2
11054.5 11837.5 11332.9
11120.6 11886.1 11354
11174.5 11928.9 11394.4
11222.2 12001.6 11465.7
11299.2 12086.8 11525.9
11365.3 12161.8 11591.4
11434.5 12265.2 11669.2
11518.9 12358.4 11737.6
11602.8 12444.9 11813.6
11631.9 12473.5 11830
11686.3 12496 11864.4
11712.2 12512.2 11906.5
11753.1 12528.5 11952.2
11822.9 12617.4 12026.3
11880.2 12679.2 12074.6
11940.1 12755.3 12128.2
12041.5 12853.5 12214.2
12160.7 13000.1 12319
12253.2 13124.9 12394
12297.4 13166.9 12433.9
12370.2 13243.2 12498.2
12430.9 13317.4 12558.4
12460.4 13342.7 12602.9
12533.1 13446.8 12690.9
12610.3 13530.1 12766.7
12702.9 13619.4 12846.1
12795.7 13736.6 12942.5
12810.9 13772.3 12977.7
12904 13885.2 13055.5
12966.8 13976.9 13119.9
13011.6 14018.8 13151.1
13073.7 14114.1 13223.2
13150.9 14208.7 13296.9
13180.9 14239.9 13328.7
13259.1 14335.3 13380.9
</TABLE>
** 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++
<TABLE>
<CAPTION>
<S> <C>
One Year 4.28%
- --------------------------------------------------------------------------------
Five Year 4.00%
- --------------------------------------------------------------------------------
Since Inception (1/30/92) 4.68%
- --------------------------------------------------------------------------------
</TABLE>
* PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. 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. Neither safety of principal nor stability of
income is guaranteed. Performance prior to September 1, 1995, reflects
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.
++ Effective February 18, 1997, the fund's maximum sales charge was changed from
1.5% to 2%.
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
74 1998 Semiannual Report - Piper Funds
<PAGE>
ADJUSTABLE RATE MORTGAGE SECURITIES FUND (CONTINUED)
- --------------------------------------------------------------------------------
[PHOTO]
WAN-CHONG KUNG, CFA
shares responsibility for the management of Adjustable Rate Mortgage Securities
Fund. She has six years of financial experience.
- --------------------------------------------------------------------------------
response. Those competitive pressures, combined with sharply reduced Asian
demand for U.S. products, may slow U.S. economic growth, and relieve wage and
price pressures that seemed inevitable as U.S. unemployment reached 20-year
lows.
GIVEN OUR EXPECTATION THAT THE ECONOMY WOULD BE WEAKER LATER THIS YEAR, WE SOLD
PREPAYMENT-SENSITIVE ISSUES AND BOUGHT SECURITIES WITH STABLE INCOME STREAMS.
Although the softer economy might point to lower interest rates over the long
haul, we are not prepared to sacrifice income in order to boost our price
sensitivity (or the potential for big price gains if interest rates fall). This
strategy of selling prepayment-sensitive issues has largely been in place since
mid-1996, and the portfolio, consequently, has had very little turnover in the
time since we last wrote. Overall, our goal is to achieve the highest current
income that is consistent with stable principal.
WE SOLD OUR HIGH-COUPON ARMS, WHICH TEND TO PREPAY QUICKLY WHEN INTEREST RATES
FALL. To maintain a consistent dividend for our shareholders, we reinvested that
money in floating rate securities pegged to a lagging index such as the 11th
Federal Reserve District's Cost of Funds Index, commonly called COFI. Since that
index is an average, which tends to adjust more slowly than market rates, we
hope to maintain our income, should interest rates fall. We also continue to
hold 20% of our total assets in fixed-rate mortgage securities. By holding
fixed-rate mortgages we can take advantage of price gains when interest rates
fall, and their yields are stable. This helps us maintain a consistent dividend
payout.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
As a percentage of total assets on March 31, 1998
[CHART]
<TABLE>
<CAPTION>
<S> <C>
U.S. Agency Fixed Rate Mortgage-Backed Securities 19%
U.S. Agency Adjustable Rate Mortgage-Backed Securities 55%
U.S. Treasury Securities 1%
U.S. Agency Adjustable Rate CMOs 13%
Private Adjustable Rate CMOs 9%
Short-Term 2%
Other Assets 1%
</TABLE>
U.S. agency mortgage-backed ARM securities include 9% of total assets in ARM
securities with coupons that reset in more than four years. All other ARM
security coupons in the fund reset in 12 months or less.
- --------------------------------------------------------------------------------
75 1998 Semiannual Report - Piper Funds
<PAGE>
ADJUSTABLE RATE MORTGAGE SECURITIES FUND (CONTINUED)
- --------------------------------------------------------------------------------
LOOKING AHEAD, OUR OUTLOOK CALLS FOR STABLE INTEREST RATES AS WE BELIEVE
ECONOMIC GROWTH WILL SLOW LATER THIS YEAR. In effect, some of the surprisingly
strong economic activity we saw in the first quarter of 1998 was probably
"borrowed" from the second quarter: the combination of unseasonably warm weather
in much of the U.S. and early tax refund payments boosted items like housing
starts and consumer sales. But we expect that growing consumer debt is likely to
put a damper on spending later this year and economic growth will slow. In this
environment, we plan to maintain our current focus on stable income.
Thank you for investing in Adjustable Rate Mortgage Securities Fund.
Sincerely,
/s/ Tom McGlinch /s/ Wan-Chong Kung
Tom McGlinch Wan-Chong Kung
Portfolio Manager Portfolio Manager
- --------------------------------------------------------------------------------
76 1998 Semiannual Report - Piper Funds
<PAGE>
Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES March 31, 1998
................................................................................
<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 $655,000, $336,000 and
$3,091,000, respectively) (note 2) ....................... $ 72,436,530 $ 58,693,690 $ 157,241,295
Cash in bank on demand deposit ............................. 20,751 17,332 20,901
Receivable for fund shares sold ............................ 28,330 -- --
Principal receivable on mortgage securities ................ -- -- 332,563
Accrued interest receivable ................................ 507,670 724,244 1,014,915
------------- -------------- --------------
Total assets ............................................. 72,993,281 59,435,266 158,609,674
------------- -------------- --------------
LIABILITIES:
Dividends payable to shareholders .......................... 329,256 227,158 742,638
Payable for investment securities purchased on a when-issued
basis (note 2) ........................................... 9,996,094 -- --
Payable for fund shares redeemed ........................... 23,403 282 63,505
Accrued investment management fee .......................... 26,983 15,297 47,560
Accrued distribution and service fees ...................... 16,190 8,643 20,383
------------- -------------- --------------
Total liabilities ........................................ 10,391,926 251,380 874,086
------------- -------------- --------------
Net assets applicable to outstanding capital stock ....... $ 62,601,355 $ 59,183,886 $ 157,735,588
------------- -------------- --------------
------------- -------------- --------------
COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital ............... $ 75,186,954 $ 334,049,149 $ 303,198,330
Distributions in excess of net investment income ........... (331) (125,225) --
Accumulated net realized loss on investments ............... (16,000,967) (275,876,897) (146,707,133)
Unrealized appreciation of investments ..................... 3,415,699 1,136,859 1,244,391
------------- -------------- --------------
Total - representing net assets applicable to outstanding
capital stock .......................................... $ 62,601,355 $ 59,183,886 $ 157,735,588
------------- -------------- --------------
------------- -------------- --------------
* Investments in securities at identified cost ............. $ 69,020,831 $ 57,556,831 $ 155,996,904
------------- -------------- --------------
------------- -------------- --------------
NET ASSET VALUE AND OFFERING PRICE:
CLASS A (NOTE 1):
Net assets ................................................. $ 62,601,355 $ 50,061,076 $ 157,735,588
Shares outstanding (authorized 10 billion, four billion and
10 billion shares, respectively, of $0.01 par value) ..... 6,752,501 6,491,084 19,379,923
Net asset value ............................................ $ 9.27 $ 7.71 $ 8.14
Maximum offering price per share (net asset value plus 2% of
offering price) .......................................... $ 9.46 $ 7.87 $ 8.31
CLASS Y:
Net assets ................................................. -- $ 9,122,810 --
Shares outstanding (authorized one billion shares of $0.01
par value) ............................................... -- 1,182,247 --
Net asset value and offering price per share ............... -- $ 7.72 --
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
77
<PAGE>
Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS For the Six Months Ended March
31, 1998
................................................................................
<TABLE>
<CAPTION>
ADJUSTABLE
RATE
MORTGAGE
GOVERNMENT INTERMEDIATE SECURITIES
INCOME FUND BOND FUND FUND
------------ ------------ ------------
<S> <C> <C> <C>
INCOME:
Interest ................................................... $ 2,319,631 $ 2,139,776 $ 5,543,406
Fee income (note 2) ........................................ 46,996 -- --
------------ ------------ ------------
Total income ............................................. 2,366,627 2,139,776 5,543,406
------------ ------------ ------------
EXPENSES (NOTE 5):
Investment management fee ................................ 163,178 101,607 298,493
Distribution and service fees:
CLASS A ................................................ 163,178 83,822 127,926
CLASS Y ................................................ -- -- --
Custodian and accounting fees ............................ 26,672 33,408 78,057
Transfer agent and dividend disbursing agent fees ........ 32,426 24,333 98,580
Registration fees ........................................ 9,788 13,333 7,529
Reports to shareholders .................................. 12,703 16,488 23,441
Directors' fees .......................................... 4,036 4,036 9,113
Audit and legal fees ..................................... 24,763 25,263 28,351
Other expenses ........................................... 4,458 4,235 6,734
------------ ------------ ------------
Total expenses ........................................... 441,202 306,525 678,224
Less Class A expenses waived by the distributor ........ (56,365) (24,026) --
------------ ------------ ------------
Net expenses before expenses paid indirectly ............. 384,837 282,499 678,224
Less expenses paid indirectly .......................... (19) (56) (14)
------------ ------------ ------------
Total net expenses ....................................... 384,818 282,443 678,210
------------ ------------ ------------
Net investment income .................................... 1,981,809 1,857,333 4,865,196
------------ ------------ ------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on investments (note 3) ................ 128,142 333,171 248,647
------------ ------------ ------------
Net realized gain on investments ......................... 128,142 333,171 248,647
Net change in unrealized appreciation or depreciation of
investments .............................................. 653,486 51,503 (484,268)
------------ ------------ ------------
Net gain (loss) on investments ........................... 781,628 384,674 (235,621)
------------ ------------ ------------
Net increase in net assets resulting from operations ... $ 2,763,437 $ 2,242,007 $ 4,629,575
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
78
<PAGE>
Financial Statements (continued)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
................................................................................
<TABLE>
<CAPTION>
GOVERNMENT INCOME FUND INTERMEDIATE BOND FUND
----------------------------- -----------------------------
Six Months Six Months
Ended 3/31/98 Year Ended Ended 3/31/98 Year Ended
(Unaudited) 9/30/97 (Unaudited) 9/30/97
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ...................................... $ 1,981,809 $ 4,770,030 $ 1,857,333 $ 5,962,017
Net realized gain (loss) on investments .................... 128,142 697,901 333,171 281,651
Net change in unrealized appreciation or depreciation of
investments .............................................. 653,486 2,063,487 51,503 2,015,896
------------- ------------- ------------- -------------
Net increase in net assets resulting from operations ..... 2,763,437 7,531,418 2,242,007 8,259,564
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
CLASS A:
From net investment income ............................... (1,982,140) (4,771,839) (1,520,427) (5,402,892)
CLASS Y:
From net investment income ............................... -- -- (336,906) (559,127)
------------- ------------- ------------- -------------
Total distributions ...................................... (1,982,140) (4,771,839) (1,857,333) (5,962,019)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
CLASS A .................................................... (5,448,319) (19,319,777) (14,616,293) (73,660,708)
CLASS Y .................................................... -- -- (4,971,240) 13,912,070
------------- ------------- ------------- -------------
Decrease in net assets from capital share transactions ... (5,448,319) (19,319,777) (19,587,533) (59,748,638)
------------- ------------- ------------- -------------
Total decrease in net assets ............................. (4,667,022) (16,560,198) (19,202,859) (57,451,093)
Net assets at beginning of period .......................... 67,268,377 83,828,575 78,386,745 135,837,838
------------- ------------- ------------- -------------
Net assets at end of period ................................ $62,601,355 $ 67,268,377 $ 59,183,886 $ 78,386,745
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Distributions in excess of net investment income ........... ($ 331) -- $ (125,225) $ (125,225)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
<CAPTION>
ADJUSTABLE RATE MORTGAGE
SECURITIES FUND
-----------------------------
Six Months
Ended 3/31/98 Month Ended
(Unaudited) 9/30/97
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income ...................................... 4,865,196 12,789,553
Net realized gain (loss) on investments .................... 248,647 (392,095)
Net change in unrealized appreciation or depreciation of
investments .............................................. (484,268) 3,059,243
------------- -------------
Net increase in net assets resulting from operations ..... 4,629,575 15,456,701
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
CLASS A:
From net investment income ............................... (4,865,196) (12,789,553)
CLASS Y:
From net investment income ............................... -- --
------------- -------------
Total distributions ...................................... (4,865,196) (12,789,553)
------------- -------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
CLASS A .................................................... (26,726,579) (80,802,728)
CLASS Y .................................................... -- --
------------- -------------
Decrease in net assets from capital share transactions ... (26,726,579) (80,802,728)
------------- -------------
Total decrease in net assets ............................. (26,962,200) (78,135,580)
Net assets at beginning of period .......................... 184,697,788 262,833,368
------------- -------------
Net assets at end of period ................................ 157,735,588 184,697,788
------------- -------------
------------- -------------
Distributions in excess of net investment income ........... -- --
------------- -------------
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
79
<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 fund is classified as a
diversified series. Piper Funds II currently has one
series, Adjustable Rate Mortgage Securities Fund, which is
classified as a diversified series.
On September 1, 1995, four closed-end funds, 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 Adjustable Rate Mortgage Securities
Fund. (DDJ) 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 that
date were classified as Class A shares. Key features of
each class are:
CLASS A:
- Subject to a front-end sales charge
- Subject to distribution and service fees
CLASS Y:
- Requires a minimum initial investment of $1 million
- No front-end or contingent deferred sales charges
- No distribution and service fees
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.
Intermediate Bond Fund invests primarily in a broad range
of investment-quality debt securities.
Adjustable Rate Mortgage Securities Fund invests primarily
in adjustable rate mortgage securities.
(2) SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES
................................
INVESTMENTS IN SECURITIES
Portfolio securities for which market quotations are
readily available are valued at current market value. If
market quotations or valuations are not readily available,
or if such quotations or valuations are believed to be
inaccurate, unreliable or not reflective of market value,
portfolio securities are
- --------------------------------------------------------------------------------
80
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
valued according to procedures adopted by the funds' board
of directors in good faith at "fair value", that is, a
price that the fund might reasonably expect to receive for
the security or other asset upon its current sale.
The current market value of certain fixed income
securities is provided by an independent pricing service.
Fixed income securities for which prices are not available
from an independent pricing service but where an active
market exists are valued using market quotations obtained
from one or more dealers that make markets in the
securities or from a widely-used quotation system.
Short-term securities with maturities of 60 days or less
are valued at amortized cost, which approximates market
value.
Securities transactions are accounted for on the date
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, is recorded on an accrual basis.
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 when-issued or
forward-commitment basis can take place a month or more
after the transaction date. During this period, such
securities do not earn interest, are subject to market
fluctuation and may increase or decrease in value prior to
their delivery. The funds segregate, with their custodian,
assets with a market value equal to the amount of their
purchase commitments. The purchase of securities on a
when-issued or forward-commitment basis may increase the
volatility of the funds' net asset value if the funds make
such purchases while remaining substantially fully
invested. As of March 31, 1998, Government Income Fund had
entered into outstanding when-issued or forward
commitments of $9,996,094.
In connection with their ability to purchase securities on
a when-issued or forward-commitment basis, Government
Income Fund and Intermeditate Bond Fund may enter into
mortgage dollar rolls in which the funds sell securities
purchased on a forward commitment basis and simultaneously
contract with a counterparty to repurchase similar (same
type, coupon and maturity) but not identical
- --------------------------------------------------------------------------------
81
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
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, 1998,
such fees earned amounted to $46,996 for Government Income
Fund.
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 subject to
federal income tax. Therefore, no income tax provision is
required. The funds also intend to distribute 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 "wash sale" 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 or losses
were recorded by the funds.
ALLOCATION OF INCOME, EXPENSES AND GAINS AND 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.
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.
- --------------------------------------------------------------------------------
82
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
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 dollar roll transactions and temporary
investments in short-term securities, for the six months
ended March 31, 1998, were as follows:
<TABLE>
<CAPTION>
ADJUSTABLE RATE
GOVERNMENT INTERMEDIATE MORTGAGE SECURITIES
INCOME FUND BOND FUND FUND
----------- ------------- --------------------
<S> <C> <C> <C>
Purchases .............................. $11,997,249 2,389,503 16,731,105
Proceeds from sales .................... $11,472,798 20,631,514 40,981,222
</TABLE>
Including dollar rolls for Government Income Fund,
purchases and sales aggregated $37,070,296 and
$36,545,845, respectively.
(4) CAPITAL SHARE
TRANSACTIONS
................................
Capital share transactions for the funds were as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
GOVERNMENT INCOME FUND:
Sales of fund shares ................. 490,534 $ 4,559,915 686,546 $ 6,139,195
Issued for reinvested
distributions ...................... 143,941 1,334,107 406,146 3,630,952
Redemptions of fund shares ........... (1,222,328) (11,342,341) (3,247,825) (29,089,924)
----------- ------------ ----------- ------------
(587,853) $ (5,448,319) (2,155,133) $(19,319,777)
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997(A)
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
INTERMEDIATE BOND FUND:
CLASS A
Sales of fund shares ................. 64,948 $ 1,081,089 412,880 $ 3,127,050
Issued for reinvested
distributions ...................... 110,240 267,599 467,515 3,535,885
Redemptions of fund shares ........... (2,075,392) (15,964,981) (8,391,651) (63,548,352)
Redemptions in exchange for Class Y
shares ............................. -- -- (2,201,482) (16,775,291)
---------- ------------ ---------- ------------
(1,900,204) $(14,616,293) (9,712,738) $(73,660,708)
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
CLASS Y
Sales of fund shares ................. 51,871 $ 400,720 37,581 $ 284,580
Sales in exchange for Class A
shares ............................. -- -- 2,201,482 16,775,291
Issued for reinvested
distributions ...................... 18,116 139,533 41,735 316,060
Redemptions of fund shares ........... (709,100) (5,511,493) (459,438) (3,463,861)
---------- ------------ ---------- ------------
(639,113) $ (4,971,240) 1,821,360 $ 13,912,070
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
(A) REPRESENTS PERIOD FROM FEBRUARY 18 (COMMENCEMENT
OF OFFERING OF SHARES) TO SEPTEMBER 30, 1997, FOR CLASS Y.
- --------------------------------------------------------------------------------
83
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997
------------------------ -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES
FUND:
Sales of fund shares ................. 133,510 $ 1,087,362 317,414 $ 2,570,801
Issued for reinvested
distributions ...................... 226,884 1,847,617 626,711 5,084,891
Redemptions of fund shares ........... (3,641,897) (29,661,558) (10,899,377) (88,458,420)
---------- ------------ ----------- ------------
(3,281,503) $(26,726,579) (9,955,252) $(80,802,728)
---------- ------------ ----------- ------------
---------- ------------ ----------- ------------
</TABLE>
Sales charges received by Piper Jaffray Inc. (Piper
Jaffray), the funds' distributor, for distributing the
funds' shares for the six months ended March 31, 1998,
were as follows:
<TABLE>
<CAPTION>
INTERMEDIATE
BOND FUND ADJUSTABLE RATE
GOVERNMENT ------------------- MORTGAGE
INCOME FUND CLASS A CLASS Y SECURITIES FUND
------------ -------- -------- ----------------
<S> <C> <C> <C> <C>
Front-end sales charges ................ $5,546 $1,601 $-- $308
Contingent deferred sales charges ...... 928 571 -- 385
------------ -------- --- ------
$6,474 $2,172 $-- $693
------------ -------- --- ------
------------ -------- --- ------
</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. For the six months ended March
31, 1998, the effective management fee paid by the funds
was 0.50%, 0.30% and 0.35% on an annual basis for
Government Income Fund, Intermediate Bond Fund and
Adjustable Rate Mortgage Securities Fund, respectively.
DISTRIBUTION AND SERVICE FEES
Each fund also pays Piper Jaffray fees accrued daily and
paid quarterly for providing shareholder services and
distribution-related services. The fees for each fund,
which are being voluntarily limited for Government Income
Fund and Class A of Intermediate Bond Fund for the year
ending September 30, 1998, are stated below as a percent
of average daily net assets attributable to such shares.
<TABLE>
<CAPTION>
INTERMEDIATE
BOND FUND ADJUSTABLE RATE
GOVERNMENT ------------------- MORTGAGE
INCOME FUND CLASS A CLASS Y SECURITIES 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 ........... 0.34% 0.22% -- 0.15%
------ -------- -------- ------
------ -------- -------- ------
</TABLE>
- --------------------------------------------------------------------------------
84
<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, 1998, Piper Jaffray and Piper
Trust received the following amounts in connection with
the shareholder account servicing agreements:
<TABLE>
<CAPTION>
ADJUSTABLE RATE
GOVERNMENT INTERMEDIATE MORTGAGE
INCOME FUND BOND FUND SECURITIES FUND
------------ ------------- ----------------
<S> <C> <C> <C>
Piper Jaffray .......................... $15,319 $6,336 $20,149
Piper Trust ............................ 2,077 562 --
------------ ------------- ----------------
$17,396 $6,898 $20,149
------------ ------------- ----------------
------------ ------------- ----------------
</TABLE>
OTHER FEES AND EXPENSES
In addition to the investment management, distribution 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, 1997, which, if
not offset by subsequent capital gains, will expire on the
funds' fiscal year-ends as indicated below. 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 expire.
<TABLE>
<CAPTION>
GOVERNMENT
INCOME FUND INTERMEDIATE ADJUSTABLE RATE MORTGAGE
----------------------- BOND FUND SECURITIES FUND
CAPITAL ---------------------------- ----------------------------
LOSS CAPITAL LOSS CAPITAL LOSS
CARRYOVER EXPIRATION CARRYOVER EXPIRATION CARRYOVER EXPIRATION
----------- ---------- --------------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C>
$ 842,317 2002 $ 180,309,397 2003 $ 600,056 1998
13,367,115 2003 95,748,876 2004 4,923,055 1999
1,723,511 2004 146,313 2006 38,088,524 2000
----------- ---------------
$15,932,943 $ 276,204,586 99,472,115 2001
----------- ---------------
----------- ---------------
765,529 2002
1,311,310 2003
1,340,246 2004
454,744 2006
---------------
$ 146,955,579
---------------
---------------
</TABLE>
(7) PENDING
ACQUISITION
................................
On December 15, 1997, Piper Jaffray Companies Inc., the
parent company of the funds' investment advisor, announced
that it had entered into an agreement to be acquired by
U.S. Bancorp. It is
- --------------------------------------------------------------------------------
85
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
anticipated that this acquisition will be completed in the
second quarter of 1998, subject to regulatory approval,
the approval of Piper Jaffray Companies shareholders and
the satisfaction of customary closing conditions.
U.S. Bancorp is a multi-state bank holding company
headquartered in Minneapolis, Minnesota with a geographic
service area spanning 17 states. As of December 31, 1997,
U.S. Bancorp was the 15th largest U.S. commercial bank
holding company, with assets of nearly $71.3 billion. U.S.
Bank National Association ("U.S. Bank"), a wholly owned
subsidiary of U.S. Bancorp, currently acts as the
investment advisor to 32 mutual funds (the "First American
Funds"). As of December 31, 1997, U.S. Bank, acting
through its First American Asset Management group, managed
more than $55 billion in assets, including approximately
$20.5 billion in assets of the First American Funds.
Effective as of the date of the acquisition, SEI
Investments Distribution Company will assume the role of
the principal distributor for the funds.
Under the Investment Company Act of 1940, as amended (the
"1940 Act"), consummation of the acquisition of Piper
Jaffray Companies by U.S. Bancorp will result in the
assignment and automatic termination of the funds'
investment advisory agreements with Piper Capital
Management Incorporated. The 1940 Act requires that any
new investment advisory agreements for the funds be
approved by the funds' board of directors and
shareholders.
(8) SUBSEQUENT EVENT
................................
FUND CONVERSION
In connection with the acquisition of Piper Jaffray
Companies Inc. by U.S. Bancorp, the funds' board of
directors has recommended that the funds be merged into
mutual funds managed by First American Asset Management, a
division of U.S. Bank. The proposed fund mergers require
shareholder approval and proxy statements requesting
shareholder votes will be mailed in May 1998. If approved,
the mergers are expected to occur on or about July 31,
1998.
- --------------------------------------------------------------------------------
86
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
(9) 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 Year Ended September 30,
March 31, 1998 ---------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
--------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of
period .......................... $ 9.16 $ 8.83 $ 8.99 $ 8.42 $ 10.01 $ 9.86
------- ------- ------- ------- ------- -------
Operations:
Net investment income ........... 0.28 0.57 0.60 0.60 0.69 0.80
Net realized and unrealized gains
(losses) on investments ....... 0.11 0.33 (0.16) 0.60 (1.58) 0.15
------- ------- ------- ------- ------- -------
Total from operations ......... 0.39 0.90 0.44 1.20 (0.89) 0.95
------- ------- ------- ------- ------- -------
Distributions to shareholders:
From net investment income ...... (0.28) (0.57) (0.60) (0.63) (0.68) (0.80)
From net realized gains ......... -- -- -- -- (0.02) --
------- ------- ------- ------- ------- -------
Total distributions to
shareholders ................ (0.28) (0.57) (0.60) (0.63) (0.70) (0.80)
------- ------- ------- ------- ------- -------
Net asset value, end of
period .......................... $ 9.27 $ 9.16 $ 8.83 $ 8.99 $ 8.42 $ 10.01
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
SELECTED INFORMATION
Total return (a) .................. 4.31% 10.49% 4.99% 14.87% (9.26)% 10.06%
Net assets at end of period (in
millions) ....................... $ 63 $ 67 $ 84 $ 106 $ 126 $ 160
Ratio of expenses to average daily
net assets ...................... 1.18%(b) 1.19% 1.09% 1.11% 1.05% 1.09%
Ratio of net investment income to
average daily net assets ........ 6.08%(b) 6.32% 6.66% 7.02% 7.43% 8.10%
Portfolio turnover rate (excluding
short-term securities and dollar
roll transactions) .............. 16% 21% 32% 87% 121% 191%
Ratios before waivers by the
distributor:
Ratio of expenses to average
daily net assets before
waivers ....................... 1.35%(b) 1.35% 1.28% 1.29% 1.24% 1.27%
Ratio of net investment income to
average daily net assets before
waivers ....................... 5.91%(b) 6.16% 6.47% 6.84% 7.24% 7.92%
</TABLE>
(a) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A
SALES CHARGE.
(b) ANNUALIZED.
- --------------------------------------------------------------------------------
87
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
(9) 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 Year Ended September 30,
March 31, 1998 ---------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
---------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of
period .......................... $ 7.67 $ 7.50 $ 8.12 $ 7.98 $ 12.22 $ 11.51
------- ------- ------- ------- ------- -------
Operations:
Net investment income ........... 0.21 0.44 0.53(c) 0.88 0.90 1.29
Net realized and unrealized gains
(losses) on investments ....... 0.04 0.17 (0.11) 0.31 (3.96) 0.56
------- ------- ------- ------- ------- -------
Total from operations ......... 0.25 0.61 0.42 1.19 (3.06) 1.85
------- ------- ------- ------- ------- -------
Distributions to shareholders:
From net investment income ...... (0.21) (0.44) (1.04) (1.05) (0.95) (0.90)
From net realized gains ......... -- -- -- -- (0.23) (0.24)
------- ------- ------- ------- ------- -------
Total distributions to
shareholders ................ (0.21) (0.44) (1.04) (1.05) (1.18) (1.14)
------- ------- ------- ------- ------- -------
Net asset value, end of
period ...................... $ 7.71 $ 7.67 $ 7.50 $ 8.12 $ 7.98 $ 12.22
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
SELECTED INFORMATION
Total return (a) .................. 3.27% 8.29% 5.68% 16.15% (26.65)% 17.04%
Net assets at end of period (in
millions) ....................... $ 50 $ 64 $ 136 $ 319 $ 564 $ 792
Ratio of expenses to average daily
net assets (b) .................. 0.88%(e) 0.85% 0.72% 0.97% 0.78% 0.70%
Ratio of net investment income to
average daily net assets ........ 5.45%(e) 5.83% 6.65% 8.02% 9.33% 12.51%
Portfolio turnover rate (excluding
short-term securities) .......... 4% 86% 89% 136% 169% 109%
Ratios before waivers by the
distributor:
Ratio of expenses to average
daily net assets before waivers
(b) ........................... 0.96%(e) 0.93% 0.82% 1.07% 0.85% 0.77%
Ratio of net investment income to
average daily net assets before
waivers ....................... 5.37%(e) 5.75% 6.55% 7.92% 9.26% 12.44%
</TABLE>
<TABLE>
<CAPTION>
CLASS Y
------------------------------------------
Six Months Ended
March 31, 1998 Period Ended
(Unaudited) September 30, 1997(d)
----------------- ----------------------
<S> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ... $ 7.68 $7.62
------- ------
Operations:
Net investment income ................ 0.22 0.28
Net realized and unrealized gains on
investments ........................ 0.04 0.06
------- ------
Total from operations .............. 0.26 0.34
------- ------
Distributions to shareholders:
From net investment income ........... (0.22) (0.28)
------- ------
Net asset value, end of period ..... $ 7.72 $7.68
------- ------
------- ------
SELECTED INFORMATION
Total return (a) ....................... 3.38% 4.58%
Net assets at end of period (in
millions) ............................ $ 9 $ 14
Ratio of expenses to average daily net
assets ............................... 0.64%(e) 0.57%(e)
Ratio of net investment income to
average daily net assets ............. 5.70%(e) 6.06%(e)
Portfolio turnover rate (excluding
short-term securities) ............... 4% 86%
</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% AND 0.09% FOR FISCAL
1996, 1995, 1994 AND 1993, RESPECTIVELY.
(c) BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
(d) COMMENCEMENT OF OFFERING OF CLASS Y SHARES WAS FEBRUARY 18, 1997.
(e) ANNUALIZED.
- --------------------------------------------------------------------------------
88
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
(9) 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>
Year Month
Six Months Ended Ended
Ended September September Year Ended August 31,
March 31, 1998 30, 30, -------------------------------------------
(Unaudited) 1997 1996 1996 1995 1994 1993
---------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA (A)
Net asset value, beginning of
period .......................... $ 8.15 $ 8.06 $ 8.03 $ 7.99 $ 8.10 $ 8.88 $ 8.95
------- ------- ------- ------- ------- ------- -------
Operations:
Net investment income ........... 0.23 0.47 0.04 0.49 0.47 0.55 0.63
Net realized and unrealized gains
(losses) on investments ....... (0.01) 0.09 0.03 0.01 (0.05) (0.82) (0.09)
------- ------- ------- ------- ------- ------- -------
Total from operations ......... 0.22 0.56 0.07 0.50 0.42 (0.27) 0.54
------- ------- ------- ------- ------- ------- -------
Distributions to shareholders:
From net investment income ...... (0.23) (0.47) (0.04) (0.46) (0.53) (0.51) (0.61)
------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period .......................... $ 8.14 $ 8.15 $ 8.06 $ 8.03 $ 7.99 $ 8.10 $ 8.88
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
SELECTED INFORMATION(A)
Total return (b) .................. 2.75% 7.16% 0.85% 6.40% 5.43% (3.18)% 6.24%
Net assets at end of period (in
millions) ....................... $ 158 $ 185 $ 263 $ 270 $ 409 $ 500 $ 551
Ratio of expenses to average daily
net assets ...................... 0.80%(d) 0.81% 0.82%(d) 0.60% 0.63% 0.60% 0.58%
Ratio of net investment income to
average daily net assets ........ 5.71%(d) 5.84% 5.28%(d) 5.74% 5.62% 6.39% 7.25%
Portfolio turnover rate (excluding
short-term securities) .......... 10% 25% 2% 51% 36% 39% 39%
Amount of borrowings outstanding at
end of period (in
millions)(c) .................... -- -- -- -- -- $ 145 $ 145
Average amount of borrowings
outstanding during the period (in
millions) (c) ................... -- -- -- -- $ 57 $ 145 $ 149
Average number of shares
outstanding during the period (in
millions) (c) ................... -- -- -- -- 53 62 62
Average per-share amount of
borrowings outstanding during the
period (c) ...................... -- -- -- -- $ 1.09 $ 2.34 $ 2.41
Ratios before waivers by the
adviser:
Ratio of expenses to average
daily net assets before
waivers ....................... 0.80%(d) 0.81% 0.76%(d) 0.60% 0.63% 0.60% 0.58%
Ratio of net investment income to
average daily net assets before
waivers ....................... 5.71%(d) 5.84% 5.58%(d) 5.74% 5.62% 6.39% 7.25%
</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) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A
SALES CHARGE.
(c) 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.
(d) ANNUALIZED.
- --------------------------------------------------------------------------------
89
<PAGE>
Investments in Securities (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT INCOME FUND March 31, 1998
.......................................................................................
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 (114.7%):
U.S. AGENCY DEBENTURES (4.9%):
5.80%, FNMA, 12/10/03 ............................. $ 2,000,000 $ 1,993,760
6.63%, FNMA, 3/21/06 .............................. 1,000,000 1,040,800
------------
3,034,560
------------
U.S. AGENCY MORTGAGE-BACKED SECURITIES (98.9%):
FIXED RATE (81.3%):
7.50%, FHLMC, 11/1/09 ............................. 1,059,656 1,091,117
7.50%, FHLMC, 10/1/09 ............................. 1,859,542 1,914,752
7.50%, FHLMC, 12/1/09 ............................. 2,453,938 2,526,795
7.00%, FHLMC, 11/1/25 ............................. 2,600,822 2,641,447
11.00%, FNMA, 10/1/20 ............................. 1,114,708 1,262,752
7.00%, FNMA, 12/1/07 .............................. 5,020,394 5,128,633
6.50%, FNMA, 8/1/23 ............................... 6,788,068 6,764,717
6.00%, FNMA, 10/1/23 .............................. 712,111 692,749
9.00%, FNMA, 7/1/24 ............................... 595,585 633,929
10.00%, FNMA, 10/1/17 ............................. 601,047 664,344
6.50%, FNMA, 9/1/25 ............................... 4,466,280 4,441,180
7.00%, FNMA, 3/12/28 .............................. 5,000,000(b) 5,050,000
6.00%, FNMA, 2/18/13 .............................. 5,000,000(b) 4,921,850
6.25%, FNMA Series 1998-M1, Class A2, 1/25/08 ..... 2,000,000 1,992,813
10.00%, FNMA, Series 1989-15, Class D, 9/25/18 .... 43,060 43,291
6.50%, FNMA, Series 1996-23, Class G, 7/25/26 ..... 4,250,000 4,052,290
7.00%, GNMA, 3/15/09 .............................. 1,199,082 1,225,318
9.00%, GNMA, 10/15/24 ............................. 490,050 526,651
7.00%, GNMA, 3/15/09 .............................. 1,713,897 1,751,397
10.00%, GNMA, 1/15/10 ............................. 978,417 1,083,900
9.00%, GNMA, 8/15/25 .............................. 2,311,481 2,482,670
------------
50,892,595
------------
INVERSE INTEREST-ONLY (C) (0.8%):
10.46%, FHLMC G, Series 12, Class AB, LIBOR,
12/25/08 ........................................ 7,654,421 529,686
------------
Z-BOND (C) (16.8%):
8.29%, FHLMC, Series 1339, Class PZ, 7/15/22 ...... 4,022,228 4,392,113
7.59%, FHLMC, Series 1677, Class Z, 7/15/23 ....... 4,071,084 4,273,294
8.04%, FHLMC, Series 1694, Class Z, 3/15/24 ....... 1,016,080 931,949
7.58%, FNMA, Series 1993-160, Class ZA, 9/25/23 ... 961,198 904,055
------------
10,501,411
------------
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES (10.9%):
7.25%, U.S. Treasury Bond, 5/15/16 ................ $ 2,000,000 $ 2,273,980
8.13%, U.S. Treasury Bond, 8/15/19 ................ 1,000,000 1,249,620
7.25%, U.S. Treasury Note, 5/15/04 ................ 1,000,000 1,079,450
6.25%, U.S. Treasury Note, 5/31/00 ................ 1,000,000 1,013,220
5.88%, U.S. Treasury Note, 6/30/00 ................ 1,200,000 1,207,008
------------
6,823,278
------------
Total U.S. Government and Agency Securities
(cost: $68,365,831) .......................... 71,781,530
------------
SHORT-TERM SECURITIES (1.0%):
Repurchase agreement with Goldman Sachs, acquired
on 3/31/98, interest of $109, 6.00%, 4/1/98
(cost: $655,000) ................................ 655,000(d) 655,000
------------
Total Investments in Securities
(cost: $69,020,831) (d) ...................... $ 72,436,530
------------
------------
</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, 1998, THE TOTAL COST OF INVESTMENTS PURCHASED ON A WHEN-ISSUED
BASIS WAS $9,996,094.
(c) PORTFOLIO ABBREVIATIONS AND DEFINITIONS:
LIBOR - LONDON INTERBANK OFFERED RATE
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 COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS
UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED
ON THIS COST WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 3,620,134
GROSS UNREALIZED DEPRECIATION ...... (204,435)
------------
NET UNREALIZED APPRECIATION ...... $ 3,415,699
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
90
<PAGE>
Investments in Securities (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE BOND FUND March 31, 1998
.......................................................................................
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 (54.2%):
U.S. AGENCY DEBENTURES (7.1%):
7.40%, FNMA, 7/1/04 ............................... $ 2,000,000 $ 2,154,540
6.18%, FNMA, 3/15/01 .............................. 1,000,000 1,011,280
6.16%, FNMA, 4/3/01 ............................... 1,000,000 1,010,920
------------
4,176,740
------------
U.S. AGENCY MORTGAGE-BACKED SECURITIES (30.5%):
FIXED RATE (30.5%):
7.00%, FHLMC, 9/1/10 .............................. 1,940,145 1,975,300
10.00%, FNMA, 11/1/18 ............................. 1,967,540 2,162,445
6.00%, FNMA, 8/1/08 ............................... 1,460,326 1,447,096
7.00%, FNMA, 11/1/10 .............................. 1,943,318 1,977,928
9.00%, FNMA, 12/1/20 .............................. 1,770,608 1,886,582
9.50%, FNMA, 6/1/21 ............................... 1,742,157 1,882,610
9.00%, GNMA, 5/20/25 .............................. 1,475,332 1,571,685
8.50%, GNMA, 7/20/25 .............................. 2,184,552 2,293,103
9.00%, GNMA, 8/15/21 .............................. 2,635,252 2,843,595
------------
18,040,344
------------
U.S. GOVERNMENT SECURITIES (16.6%):
7.25%, U.S. Treasury Note, 8/15/04 ................ 2,000,000 2,163,340
6.75%, U.S. Treasury Note, 4/30/00 ................ 2,000,000 2,044,860
5.50%, U.S. Treasury Note, 12/31/00 . 1,500,000 1,495,080
8.00%, U.S. Treasury Note, 8/15/99 ................ 2,000,000 2,064,440
7.88%, U.S. Treasury Note, 11/15/99 . 2,000,000 2,071,140
------------
9,838,860
------------
Total U.S. Government and Agency Securities
(cost: $31,606,340) .......................... 32,055,944
------------
CORPORATE BONDS (37.0%):
CAPITAL GOODS AND SERVICES (1.7%):
Boeing Co., 6.35%, 6/15/03 ........................ 1,000,000 1,014,310
------------
COMMERCIAL SERVICES (3.4%):
Hertz Corp, 6.30%, 11/15/06 ....................... 2,000,000 2,015,980
------------
CONSUMER NON-DURABLES (3.5%):
Coca-Cola Enterprises, 6.70%, 10/15/36 ............ 2,000,000 2,080,060
------------
FINANCIAL SERVICES (20.4%):
American Express Credit, 6.50%, 8/1/00 ............ 1,000,000 1,011,410
First Chicago, 7.63%, 1/15/03 ..................... 1,000,000 1,057,160
Ford Motor Credit Co., 7.00%, 9/25/01 2,000,000 2,057,480
Lehman Brothers Inc., 7.50%, 8/1/26 . 2,000,000 2,142,580
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
Nordstrom Credit Inc., 6.70%, 7/1/05 . $ 1,000,000 $ 1,013,810
General Motors Acceptance Corp., 8.50%, 1/1/03 .... 1,500,000 1,638,945
Morgan Stanley Group Inc., 8.10%, 6/24/02 ......... 1,000,000 1,069,830
Salomon Smith Barney Holdings, 7.00%, 3/15/04 ..... 2,000,000 2,060,080
------------
12,051,295
------------
UTILITIES (8.0%):
Hydro-Quebec, 9.40%, 2/1/21 ....................... 2,300,000 2,999,499
Korea Electric Power ADS, 6.38%, 12/1/03 .......... 2,000,000 1,727,360
------------
4,726,859
------------
Total Corporate Bonds
(cost: $21,223,835) .......................... 21,888,504
------------
ASSET-BACKED SECURITIES (7.4%):
Citibank Credit Card Master Trust I, Series 1997-7,
Class A, 6.35%, 8/15/02 ......................... 2,000,000 2,017,140
Daimler-Benz Vehicle Trust, 1996-A, Class A, 5.85%,
7/20/03 ......................................... 892,962 893,882
Norwest Automobile Trust, 1996-A, Class A3, 5.90%,
3/15/00 ......................................... 1,500,000 1,502,220
------------
Total Asset-Backed Securities
(cost: $4,390,656) ........................... 4,413,242
------------
SHORT-TERM SECURITIES (0.6%):
Repurchase agreement with Goldman Sachs, acquired
on 3/31/98, interest of $56, 6.00%, 4/1/98
(cost: $336,000) ................................ 336,000(b) 336,000
------------
Total Investments in Securities
(cost: $57,556,831) (c) ...................... $ 58,693,690
------------
------------
</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 COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS
UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED
ON THIS COST WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 1,317,288
GROSS UNREALIZED DEPRECIATION ...... (180,429)
------------
NET UNREALIZED APPRECIATION ...... $ 1,136,859
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
91
<PAGE>
Investments in Securities (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADJUSTABLE RATE MORTGAGE SECURITIES FUND March 31, 1998
........................................................................................
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 (88.3%):
U.S. AGENCY MORTGAGE-BACKED SECURITIES (87.6%):
ADJUSTABLE RATE (B) (68.5%):
7.25%, FHLMC, 11/1/16 ............................. $ 5,968,081 $ 6,142,349
7.25%, FHLMC, 1/1/17 .............................. 672,827 692,151
7.65%, FHLMC, 6/1/18 .............................. 1,164,295 1,206,908
6.26%, FHLMC, 12/1/26 ............................. 4,564,865 4,578,651
6.53%, FHLMC, 2/1/27 .............................. 4,702,944 4,704,213
7.52%, FHLMC, 8/1/20 .............................. 6,175,648 6,407,297
5.59%, FMNA, Series 1992-196, Class FA, COFI,
11/25/07 ........................................ 2,331,612 2,240,376
7.15%, FNMA, 11/1/17 .............................. 6,272,385 6,384,034
7.55%, FNMA, 1/1/20 ............................... 1,296,776 1,350,813
7.63%, FNMA, 2/1/22 ............................... 1,072,286 1,111,896
6.98%, FNMA, 3/1/28 ............................... 5,063,319 5,145,598
7.30%, FNMA, 10/1/25 .............................. 5,631,122 5,733,834
5.89%, FNMA Series 1993-65, Class FC, COFI,
6/25/12 ......................................... 5,500,000 5,410,955
6.09%, FNMA Series 1994-30, Class F, COFI,
6/25/23 ......................................... 5,818,344 5,793,092
5.99%, FNMA Series 1994-33, Class FD, COFI,
3/25/09 ......................................... 2,000,000 1,961,920
6.09%, FNMA, Series 1994-12, Class FB, COFI,
1/25/09 ......................................... 4,635,174 4,632,671
7.00%, GNMA, 7/20/22 .............................. 5,220,371 5,356,570
7.38%, GNMA, 5/20/23 .............................. 6,605,420 6,779,737
7.00%, GNMA, 9/20/23 .............................. 5,304,943 5,435,179
7.38%, GNMA, 6/20/24 .............................. 6,031,960 6,184,810
7.00%, GNMA, 9/20/25 .............................. 6,596,162 6,756,976
7.00%, GNMA, 8/20/21 .............................. 4,762,276 4,887,381
7.00%, GNMA, 10/20/21 ............................. 4,583,700 4,705,305
7.00%, GNMA II, 11/20/25 .......................... 1,008,684 1,033,548
6.00%, GNMA II, 8/20/27 ........................... 3,401,434 3,454,801
-------------
108,091,065
-------------
FIXED RATE (19.1%):
5.50%, FHLMC, 4/1/03 .............................. 1,926,202 1,898,504
5.50%, FHLMC, 4/1/03 .............................. 1,504,161 1,482,531
5.50%, FHLMC, 4/1/03 .............................. 1,938,623 1,910,746
5.50%, FHLMC, 4/1/03 .............................. 1,070,457 1,055,064
5.50%, FHLMC, 4/1/03 .............................. 1,731,531 1,706,632
6.00%, FHLMC, 6/1/04 .............................. 4,719,636 4,693,111
6.00%, FHLMC, 6/1/03 .............................. 4,479,184 4,454,011
6.50%, FNMA, 3/1/03 ............................... 7,934,055 7,968,806
9.00%, GNMA, 5/15/16 .............................. 789,615 850,068
10.00%, GNMA, 2/15/25 ............................. 1,689,828 1,871,484
9.00%, GNMA, 4/15/21 .............................. 2,140,550 2,320,485
-------------
30,211,442
-------------
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- -------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES (0.7%):
7.75%, U.S. Treasury Note, 1/31/00 . $ 1,000,000 $ 1,037,490
-------------
Total U.S. Government and Agency Securities
(cost: $138,002,798) ......................... 139,339,997
-------------
PRIVATE MORTGAGE-BACKED SECURITIES (9.4%):
FLOATING RATE (B) (9.4%):
7.48%, Capstead Mortgage Securities Corporation,
Series 1993-2H, Class A1, Treasury, 9/25/23 ..... 7,059,821 7,183,898
7.93%, Resolution Trust Corporation, Series 1991-8,
Class A1, Treasury, 12/25/20 .................... 7,559,077 7,626,400
-------------
Total Private Mortgage-Backed Securities
(cost: $14,903,106) .......................... 14,810,298
-------------
SHORT-TERM SECURITIES (2.0%):
Repurchase agreement with Goldman Sachs,acquired on
3/31/98, interest of $515, 6.00%, 4/1/98
(cost: $3,091,000) .............................. 3,091,000(c) 3,091,000
-------------
Total Investments in Securities
(cost: $155,996,904) (d) ..................... $ 157,241,295
-------------
-------------
</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
ADJUSTABLE OR FLOATING RATE - REPRESENTS 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,
1998.
(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 COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS
UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED
ON THIS COST WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 1,486,325
GROSS UNREALIZED DEPRECIATION ...... (241,934)
------------
NET UNREALIZED APPRECIATION ...... $ 1,244,391
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
92
<PAGE>
NATIONAL TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
[PHOTO]
RONALD REUSS, ISFA
shares responsibility for the management of National Tax-Exempt Fund.
He has 29 years of financial experience.
- --------------------------------------------------------------------------------
May 17, 1998
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
NATIONAL TAX-EXEMPT FUND PROVIDED A TOTAL RETURN OF 3.66%* FOR THE SIX-MONTHS
ENDED MARCH 31, 1998, WHICH REFLECTS REINVESTED DISTRIBUTIONS BUT NOT THE FUND'S
SALES CHARGE. This compared to a 3.89% total return for the fund's benchmark,
the Lehman Brothers Municipal Bond Index,** and a 3.73% return for the Lipper
General Municipal Bond Funds Average.+
FIXED INCOME INVESTMENTS BENEFITED FROM THE IMPACT OF THE ASIAN RECESSION.
Between mid-October and early-January, long-term Treasury bond yields declined
by about 0.75% as global investors sought refuge in U.S. government securities
amid the economic turmoil in Asia. Domestic investors also bought longer-term
bonds, confident that reduced demand for U.S. goods abroad and the impact of the
strong dollar at home would continue to keep inflation under control. Reduced
borrowing requirements from the federal government also contributed to a bullish
environment for fixed income securities.
TAX-EXEMPT BONDS GAINED FROM THE GLOBAL 'FLIGHT TO QUALITY.' While municipal
issues did not benefit directly from the foreign demand for government bonds
that accompanied the drop in Treasury yields, all fixed income securities
compete for funds on an after-tax basis among domestic investors. Consequently,
yields on long-term municipal bonds also drifted lower in concert with Treasury
issues over the first three months of the reporting period.
- --------------------------------------------------------------------------------
PERFORMANCE THROUGH MARCH 31, 1998*
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED SINCE INCEPTION
[GRAPH]
<TABLE>
<CAPTION>
National Tax-Exempt
Fund, reflects the Lehman Brothers Lipper General
fund's 2% maximum Municipal Bond Municipal Bond
sales charge++ Index** Funds Average+
<S> <C> <C>
9800 10000 10000
9800 10000 10000
9829 10009 10036.1
9947 10190 10225.8
10129 10370 10439.4
10076 10274 10343.5
10115 10379 10502.3
10194 10594 10661.8
10172 10473 10575.3
10181 10448 10569.7
10416 10695 10828.7
10611 10918 11034.4
10723 11066 11179.5
10814 11217 11293.8
10684 11107 11174.1
10625 11074 11137.5
10772 11209 11271.3
10929 11405 11451.5
11001 11498 11528.5
10902 11444 11400.2
11041 11546 11514.5
11049 11550 11512.2
10891 11467 11360.5
11164 11717 11658.8
11294 11820 11771.6
11480 11993 11967
11207 11819 11706.4
11278 11827 11726.3
11427 12041 11896.5
11721 12283 12185.1
11798 12337 12239
11933 12502 12390.4
12000 12611 12463.8
12038 12616 12488.8
12214 12784 12671.5
12341 12897 12785.3
12287 12884 12747
12463 13042 12934.5
12627 13214 13100
12778 13386 13267.6
12883 13506 13387.8
12900 13544 13405.1
13217 13835 13719.2
13210 13867 13713.2
13227 13871 13732.4
13227 13877 13740.3
13309 14000 13869.7
13529 14165 14066.1
13799 14403 14322.7
14365 14835 14836.2
14087 14690 14598.9
14143 14785 14653.2
13798 14641 14394.9
14192 14903 14759
14351 15055 14943.9
14563 15229 15113.8
15290 15781 15705.2
15075 15613 15532.2
15222 15771 15699.6
15324 15859 15785.1
15614 16124 16057.8
15615 16145 16055.7
16026 16481 16414
16230 16669 16609.7
16228 16701 16646
16013 16554 16474.6
16440 16903 16809.3
16623 17096 16992.6
16085 16653 16557.8
15182 15975 15837.2
15249 16111 15888
15390 16251 16029.6
15239 16152 15926.9
15588 16447 16213.1
15615 16505 16258.4
15300 16262 15993.4
14969 15973 15688
14560 15684 15353.7
15049 16029 15737.1
15605 16487 16207.9
16149 16967 16693.8
16251 17162 16845.9
16214 17183 16855
16749 17731 17379
16539 17577 17190.8
16642 17744 17300
16823 17969 17487.9
16877 18082 17593.3
17184 18344 17871
17608 18649 18219.8
17839 18828 18428.6
17912 18971 18518
17735 18842 18376.8
17464 18601 18090.5
17342 18549 18005.8
17353 18539 18020.8
17528 18741 18192.8
17753 18912 18353.1
17715 18908 18346.9
17961 19173 18618.2
18187 19390 18819.9
18499 19744 19152.7
18455 19662 19074.6
18479 19699 19075
18605 19880 19244.7
18375 19616 18997.3
18572 19780 19158.9
18821 20077 19436
19019 20292 19661.7
19599 20854 20254.8
19383 20658 20023.1
19593 20904 20272.3
19663 21038 20405.1
19778 21162 20524.8
20124 21471 20855.4
20293 21692 21056.1
20303 21698 21048.2
20311 21718 21059
</TABLE>
** An unmanaged index that includes no expenses or transaction charges,
measuring performance for the investment-grade municipal bond market.
+ The average total return of similar funds, not including sales charges, as
characterized by Lipper Analytical Services.
AVERAGE ANNUALIZED TOTAL RETURNS
Includes 2% maximum sales charge++
<TABLE>
<S> <C>
One Year 8.32%
- --------------------------------------------------------------------------------
Five Year 5.71%
- --------------------------------------------------------------------------------
Since Inception (7/11/88) 7.56%
- --------------------------------------------------------------------------------
</TABLE>
* PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. 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. Neither safety of principal nor stability of
income is guaranteed. During most periods, the fund's advisor waived or paid
certain expenses and/or the fund's distributor voluntarily waived certain 12b-1
fees. Without waivers, returns would have been lower.
All fund and benchmark returns include reinvested distributions.
++ Effective February 18, 1997, the fund's maximum sales charge was changed from
4% to 2%.
- --------------------------------------------------------------------------------
93 1998 Semiannual Report - Piper Funds
<PAGE>
NATIONAL TAX-EXEMPT FUND (CONTINUED)
- --------------------------------------------------------------------------------
[PHOTO]
DOUGLAS WHITE, CFA
shares responsibility for the management of National Tax-Exempt Fund.
He has 15 years of financial experience.
- --------------------------------------------------------------------------------
YIELDS ACROSS THE FIXED INCOME SPECTRUM REBOUNDED BEGINNING IN MID-JANUARY.
Investors had expected fallout from the Asian recessions to begin slowing the
U.S. economy by the end of the first quarter. When little evidence appeared of
an imminent deceleration in the rate of domestic economic growth, bond yields
began climbing, retracing about one-third of the previous decline. Overall, the
yield on the Bond Buyer 20-Bond Index (a municipal benchmark comprised of
AA-rated general obligation bonds) dropped by 0.15% over the six-month reporting
period.
DESPITE THE STRONG ECONOMY, INFLATION REMAINED BENIGN. At the consumer level,
prices rose just 1.4% during the 12 months through March, while the producer
price index actually fell during the same period. Significant gains in
productivity, falling energy prices, and the strong U.S. dollar helped to keep
inflation in check despite a robust economy and an increasingly tight labor
market. Faced with little evidence of inflation and concerned about exacerbating
the difficulties in Asia, Federal Reserve policy makers kept short-term interest
rates steady during the reporting period.
THE FUND MAINTAINED ITS POLICY OF EMPHASIZING CREDIT QUALITY. In recent years,
yield differentials between similar-maturity bonds of differing credit quality
have narrowed significantly. At current levels, we believe that the marginal
improvement in yields offered by lower-rated debt does not provide adequate
compensation to take on the incremental credit risk. Accordingly, 67% of the
fund's assets are invested in bonds rated AA or higher or short-term rating
equivalent. While 21% of the fund's portfolio remains in non-rated paper, these
bonds were acquired at a time when quality spreads were significantly wider,
thus cushioning the potential impact of any additional credit risk.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION BY SECTOR
- --------------------------------------------------------------------------------
As a percentage of total assets on March 31, 1998
[CHART]
<TABLE>
<S> <C>
Hospital Revenue 15%
- --------------------------------------------------------------------------------
Industrial Development Revenue 2%
- --------------------------------------------------------------------------------
Electric Revenue 12%
- --------------------------------------------------------------------------------
Leasing Revenue 5%
- --------------------------------------------------------------------------------
Multiple Utility Revenue 3%
- --------------------------------------------------------------------------------
General Obligations 13%
- --------------------------------------------------------------------------------
Miscellaneous Revenue 3%
- --------------------------------------------------------------------------------
Nursing Home Revenue 14%
- --------------------------------------------------------------------------------
Water/Sewer/Pollution Control Revenue 9%
- --------------------------------------------------------------------------------
Special Tax Revenue 4%
- --------------------------------------------------------------------------------
Education Revenue 1%
- --------------------------------------------------------------------------------
Housing Revenue 17%
- --------------------------------------------------------------------------------
Other Assets 2%
- --------------------------------------------------------------------------------
</TABLE>
Municipal derivative securities (inverse floating rate securities) account for
7% of the fund's total assets.
PORTFOLIO COMPOSITION BY RATING
- --------------------------------------------------------------------------------
As a percentage of total assets on March 31, 1998
<TABLE>
<S> <C>
AAA 57%
- --------------------------------------------------------------------------------
AA 7%
- --------------------------------------------------------------------------------
A 8%
- --------------------------------------------------------------------------------
Baa and Below 2%
- --------------------------------------------------------------------------------
Non-Rated 21%
- --------------------------------------------------------------------------------
Short-Term 3%
- --------------------------------------------------------------------------------
Other Assets 2%
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
94 1998 Semiannual Report - Piper Funds
<PAGE>
NATIONAL TAX-EXEMPT FUND (CONTINUED)
- --------------------------------------------------------------------------------
MUNICIPAL BOND YIELDS ARE ATTRACTIVE RELATIVE TO THOSE AVAILABLE ON TAXABLE
ISSUES. Bolstered by strong economic growth and bulging tax coffers of municipal
issuers, credit upgrades by the rating agencies have continued to substantially
outpace downgrades. As interest rates dropped during the fourth quarter of last
year, municipalities rushed to finance new projects and refund higher-yielding
issues. The sharp increase in supply caused a mild underperformance by municipal
bonds relative to Treasuries, especially during the last three months of 1997.
As a result of that underperformance, however, long-term AAA-rated tax-exempt
yields have risen to roughly 87% of comparable-maturity Treasury issues, an
attractive differential by historical standards. At current levels, municipal
bond yields provide a significant after-tax premium for individuals in the 28%
federal income tax bracket and above.
Thank you for your investment in NationalTax-Exempt Fund. We appreciate the
opportunity to help you achieve your investment goals.
Sincerely,
/s/ Ronald Reuss /s/ Douglas White
Ronald Reuss Douglas White
Portfolio Manager Portfolio Manager
- --------------------------------------------------------------------------------
95 1998 Semiannual Report - Piper Funds
<PAGE>
MINNESOTA TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
[PHOTO]
DOUGLAS WHITE, CFA
shares responsibility for the management of Minnesota Tax-Exempt Fund.
He has 15 years of financial experience.
- --------------------------------------------------------------------------------
May 17, 1998
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
MINNESOTA TAX-EXEMPT FUND PROVIDED A TOTAL RETURN OF 3.78%* FOR THE SIX MONTHS
ENDED MARCH 31, 1998, WHICH REFLECTS REINVESTED DISTRIBUTIONS BUT NOT THE FUND'S
SALES CHARGE. This compared to a 3.89% total return for the fund's benchmark,
the Lehman Brothers Municipal Bond Index,** and a 3.46% return for the Lipper
Minnesota Municipal Bond Funds Average.+
FIXED INCOME INVESTMENTS BENEFITED FROM THE IMPACT OF THE ASIAN RECESSION.
Between mid-October and early-January, long-term Treasury bond yields declined
by about 0.75% as global investors sought refuge in U.S. government securities
amid the economic turmoil in Asia. Domestic investors also bought longer-term
bonds, confident that reduced demand for U.S. goods abroad and the impact of the
strong dollar at home would continue to keep inflation under control. Reduced
borrowing requirements from the federal government also contributed to a bullish
environment for fixed income securities.
TAX-EXEMPT BONDS GAINED FROM THE GLOBAL 'FLIGHT TO QUALITY.' While municipal
issues did not benefit directly from the foreign demand for government bonds
that accompanied the drop in Treasury yields, all fixed income securities
compete for funds on an after-tax basis among domestic investors. Consequently,
yields on long-term municipal bonds also drifted lower in concert with Treasury
issues over the first three months of the reporting period.
- --------------------------------------------------------------------------------
PERFORMANCE THROUGH MARCH 31, 1998*
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED SINCE INCEPTION
[GRAPH]
<TABLE>
<CAPTION>
Minnesota Tax-Exempt
Fund, Class A, reflects Lehman Brothers Lipper Minnesota
the fund's 2% maximum Municipal Bond Municipal Bond
sales charge++ Index** Funds Average+
<S> <C> <C>
9800 10000 10000
9771 10000 10000
9693 10009 10015.4
9856 10190 10196.9
10043 10370 10386.5
9983 10274 10314.9
10009 10379 10436.4
10157 10594 10601.2
10123 10473 10525.1
10161 10448 10526.1
10394 10695 10761.5
10608 10918 10952
10729 11066 11091.5
10795 11217 11193.6
10727 11107 11119.1
10668 11074 11074.3
10833 11209 11215.8
10967 11405 11356
11027 11498 11425.2
10905 11444 11354.6
11042 11546 11467.4
11059 11550 11488.2
10890 11467 11376.8
11126 11717 11611.1
11242 11820 11711.3
11437 11993 11882.9
11163 11819 11694.9
11234 11827 11721.1
11402 12041 11884.6
11658 12283 12125.3
11733 12337 12183.9
11832 12502 12311.8
11872 12611 12395.2
11910 12616 12417.6
12073 12784 12555.7
12184 12897 12663.4
12154 12884 12650.6
12327 13042 12798.3
12477 13214 12935.2
12637 13386 13069.1
12740 13506 13162.5
12768 13544 13185.5
13019 13835 13418.3
13059 13867 13454.2
13070 13871 13495.8
13079 13877 13524.9
13170 14000 13624.6
13337 14165 13764.3
13529 14403 13960.7
13950 14835 14372
13776 14690 14223.6
13844 14785 14275
13579 14641 14083
13917 14903 14361.1
14080 15055 14517.8
14275 15229 14702
14741 15781 15147.8
14610 15613 15046.6
14770 15771 15195.7
14859 15859 15288
15082 16124 15521
15112 16145 15544.4
15412 16481 15844.7
15578 16669 16036.7
15595 16701 16089.6
15484 16554 15980.1
15765 16903 16259
15949 17096 16427.7
15610 16653 16060.3
14986 15975 15472.7
15058 16111 15503.9
15186 16251 15644.1
15056 16152 15568.3
15359 16447 15826.9
15389 16505 15866
15090 16262 15649.9
14813 15973 15371.5
14446 15684 15061
14903 16029 15418.5
15425 16487 15866
15950 16967 16326.2
16070 17162 16454.7
16115 17183 16466.7
16645 17731 16906.3
16477 17577 16744.2
16568 17744 16834.5
16675 17969 16993.2
16807 18082 17112.3
17147 18344 17355.8
17571 18649 17651
17791 18828 17836.3
17836 18971 17923.8
17628 18842 17801.5
17274 18601 17533.2
17175 18549 17471.7
17218 18539 17499.7
17391 18741 17661
17568 18912 17815.2
17562 18908 17815.2
17855 19173 18048.2
18029 19390 18230.5
18332 19744 18515.3
18277 19662 18447.5
18289 19699 18453.6
18453 19880 18612.5
18230 19616 18387.5
18412 19780 18542
18659 20077 18789.1
18842 20292 18977.4
19315 20854 19482
19120 20658 19290.1
19340 20904 19507.2
19483 21038 19633.2
19584 21162 19747.5
19879 21471 20010.9
20031 21692 20185.2
20079 21698 20185.4
20070 21718 20206.8
</TABLE>
** An unmanaged index that includes no expenses or transaction charges,
measuring performance for the investment-grade municipal bond market.
+ The average total return of similar funds, not including sales charges, as
characterized by Lipper Analytical Services.
CLASS A AVERAGE ANNUALIZED TOTAL RETURNS
Includes 2% maximum sales charge++
<TABLE>
<S> <C>
One Year 7.90%
- --------------------------------------------------------------------------------
Five Year 6.12%
- --------------------------------------------------------------------------------
Since Inception (7/11/88) 7.43%
- --------------------------------------------------------------------------------
CLASS Y CUMULATIVE TOTAL RETURNS
Sales charges do not apply to class Y shares
Since Inception (8/1/97) 4.64%
- --------------------------------------------------------------------------------
</TABLE>
* PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. 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. Neither safety of principal nor stability of
income is guaranteed. During most periods, the fund's advisor waived or paid
certain expenses and/or the fund's distributor voluntarily limited certain 12b-1
fees. Without waivers, class A returns would have been lower.
All fund and benchmark returns include reinvested distributions.
++ Effective February 18, 1997, the fund's maximum class A sales charge was
changed from 4% to 2%.
- --------------------------------------------------------------------------------
96 1998 Semiannual Report - Piper Funds
<PAGE>
MINNESOTA TAX-EXEMPT FUND (CONTINUED)
- --------------------------------------------------------------------------------
[PHOTO]
RONALD REUSS, ISFA
shares responsibility for the management of Minnesota Tax-Exempt Fund.
He has 29 years of financial experience.
- --------------------------------------------------------------------------------
YIELDS ACROSS THE FIXED INCOME SPECTRUM REBOUNDED BEGINNING IN MID-JANUARY.
Investors had expected fallout from the Asian recessions to begin slowing the
U.S. economy by the end of the first quarter. When little evidence appeared of
an imminent deceleration in the rate of domestic economic growth, bond yields
began climbing, retracing about one-third of the previous decline. Overall, the
yield on the Bond Buyer 20-Bond Index (a municipal benchmark comprised of
AA-rated general obligation bonds) dropped by 0.15% over the six-month reporting
period.
DESPITE THE STRONG ECONOMY, INFLATION REMAINED BENIGN. At the consumer level,
prices rose just 1.4% during the 12 months through March, while the producer
price index actually fell during the same period. Significant gains in
productivity, falling energy prices, and the strong U.S. dollar helped to keep
inflation in check despite a robust economy and an increasingly tight labor
market. Faced with little evidence of inflation and concerned about exacerbating
the difficulties in Asia, Federal Reserve policy makers kept short-term interest
rates steady over the reporting period.
THE FUND MAINTAINED ITS POLICY OF EMPHASIZING CREDIT QUALITY. In recent years,
yield differentials between similar-maturity bonds of differing credit quality
have narrowed significantly. At current levels, we believe that the marginal
improvement in yields offered by lower-rated debt does not provide adequate
compensation to take on the incremental credit risk. Accordingly, 63% of the
fund's assets are invested in bonds rated AA or higher or short-term rating
equivalent. While 23% of the fund's portfolio remains in non-rated paper, these
bonds were acquired at a time when quality spreads were significantly wider,
thus cushioning the potential impact of any additional credit risk. The fund
will continue to search for issues that offer the combination of compelling
value and the potential for significant improvement in underlying fundamentals.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION BY SECTOR
- --------------------------------------------------------------------------------
As a percentage of total assets on March 31, 1998
[CHART]
<TABLE>
<S> <C>
Hospital Revenue 11%
- --------------------------------------------------------------------------------
Miscellaneous Revenue 2%
- --------------------------------------------------------------------------------
Electric Revenue 3%
- --------------------------------------------------------------------------------
Leasing Revenue 6%
- --------------------------------------------------------------------------------
Education Revenue 14%
- --------------------------------------------------------------------------------
Water/Sewer/Pollution Control Revenue 1%
- --------------------------------------------------------------------------------
Housing Revenue 11%
- --------------------------------------------------------------------------------
Industrial Development Revenue 1%
- --------------------------------------------------------------------------------
Nursing Home Revenue 11%
- --------------------------------------------------------------------------------
Health Services Revenue 1%
- --------------------------------------------------------------------------------
Other Assets 2%
- --------------------------------------------------------------------------------
General Obligations 37%
- --------------------------------------------------------------------------------
</TABLE>
Municipal derivative securities (inverse floating rate securities) account for
7% of the fund's total assets.
PORTFOLIO COMPOSITION BY RATING
- --------------------------------------------------------------------------------
As a percentage of total assets on March 31, 1998
<TABLE>
<S> <C>
AAA 26%
- --------------------------------------------------------------------------------
AA 36%
- --------------------------------------------------------------------------------
A 6%
- --------------------------------------------------------------------------------
Baa and Below 6%
- --------------------------------------------------------------------------------
Non-Rated 23%
- --------------------------------------------------------------------------------
Short-Term 1%
- --------------------------------------------------------------------------------
Other Assets 2%
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
97 1998 Semiannual Report - Piper Funds
<PAGE>
MINNESOTA TAX-EXEMPT FUND (CONTINUED)
- --------------------------------------------------------------------------------
FALLING INTEREST RATES CAUSED A BULGE IN SUPPLY. Municipalities in Minnesota
rushed to finance new projects and refund higher-yielding issues as interest
rates dropped during the reporting period. Aggregate new issues and refinancing
in the state increased at nearly double the national rate during the first
quarter of 1998, offsetting a slight decline in supply last year. The fund is
seeking opportunities to take advantage of the higher supply of Minnesota bonds
to increase the portfolio's book yield and call protection.
MUNICIPAL BOND YIELDS ARE ATTRACTIVE RELATIVE TO THOSE AVAILABLE ON TAXABLE
ISSUES. Bolstered by strong economic growth and bulging tax coffers of municipal
issuers, credit upgrades by the rating agencies have continued to substantially
outpace downgrades. The sharp increase in supply caused a mild underperformance
by municipal bonds relative to Treasuries, especially during the last three
months of 1997. As a result of that underperformance, however, long-term
AAA-rated tax-exempt yields have risen to roughly 87% of comparable-maturity
Treasury issues, an attractive differential by historical standards. At current
levels, municipal bond yields provide a significant after-tax premium for
individuals in the 28% federal income tax bracket and above.
Thank you for your investment in Minnesota Tax-Exempt Fund. We appreciate the
opportunity to help you achieve your investment goals.
Sincerely,
/s/ Ronald Reuss /s/ Douglas White
Ronald Reuss Douglas White
Portfolio Manager Portfolio Manager
- --------------------------------------------------------------------------------
98 1998 Semiannual Report - Piper Funds
<PAGE>
Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES March 31, 1998
................................................................................
<TABLE>
<CAPTION>
NATIONAL MINNESOTA
TAX-EXEMPT TAX-EXEMPT
FUND FUND
------------ -------------
<S> <C> <C>
ASSETS:
Investments in securities, at market value* (note 2) ....... $45,585,856 $129,191,432
Cash in bank on demand deposit ............................. 102,038 118,353
Receivable for fund shares sold ............................ 20,000 7,246
Accrued interest receivable ................................ 738,334 2,070,969
------------ -------------
Total assets ............................................. 46,446,228 131,388,000
------------ -------------
LIABILITIES:
Dividends payable to shareholders .......................... 179,899 519,399
Payable for investment securities purchased on a when-issued
basis .................................................... -- 498,615
Payable for investment securities purchased ................ -- 1,000,000
Payable for fund shares redeemed ........................... 10,645 4,304
Accrued investment management fee .......................... 19,754 55,863
Accrued distribution and service fees ...................... 7,902 20,758
------------ -------------
Total liabilities ........................................ 218,200 2,098,939
------------ -------------
Net assets applicable to outstanding capital stock ....... $46,228,028 $129,289,061
------------ -------------
------------ -------------
COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital ............... $42,574,979 $120,765,215
Accumulated net realized gain on investments ............... 144,221 774,770
Unrealized appreciation of investments ..................... 3,508,828 7,749,076
------------ -------------
Total - representing net assets applicable to outstanding
capital stock .......................................... $46,228,028 $129,289,061
------------ -------------
------------ -------------
* Investments in securities, at identified cost ............ $42,077,028 $121,442,356
------------ -------------
------------ -------------
NET ASSET VALUE AND OFFERING PRICE:
CLASS A (NOTE 1):
Net assets ................................................. $46,228,028 $121,462,921
Shares outstanding (authorized 10 billion and four billion
shares, respectively, of $0.01 par value) ................ 4,095,056 10,813,277
Net asset value ............................................ $ 11.29 $ 11.23
Maximum offering price per share (net asset value plus 2% of
offering price) .......................................... $ 11.52 $ 11.46
CLASS Y:
Net assets ................................................. -- $ 7,826,140
Shares outstanding (authorized one billion shares of $0.01
par value) ............................................... -- 697,398
Net asset value and offering price per share ............... -- $ 11.22
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
99
<PAGE>
Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS For The Six Months Ended March
31, 1998
................................................................................
<TABLE>
<CAPTION>
NATIONAL MINNESOTA
TAX-EXEMPT TAX-EXEMPT
FUND FUND
------------ -------------
<S> <C> <C>
INCOME:
Interest ................................................... $ 1,422,470 $ 3,956,007
------------ -------------
EXPENSES (NOTE 5):
Investment management fee .................................. 120,570 331,067
Distribution and service fees:
CLASS A .................................................. 72,342 185,575
CLASS Y .................................................. -- --
Custodian and accounting fees .............................. 22,670 51,940
Transfer agent and dividend disbursing agent fees .......... 12,727 20,784
Registration fees .......................................... 9,436 12,506
Reports to shareholders .................................... 9,357 8,960
Directors' fees ............................................ 4,036 4,036
Audit and legal fees ....................................... 24,253 25,558
Other expenses ............................................. 3,841 5,436
------------ -------------
Total expenses ........................................... 279,232 645,862
Less Class A expenses waived by the distributor ........ (17,522) (45,080)
------------ -------------
Net expenses before expenses paid indirectly ............. 261,710 600,782
Less expenses paid indirectly .......................... (1,978) (1,717)
------------ -------------
Total net expenses ....................................... 259,732 599,065
------------ -------------
Net investment income .................................... 1,162,738 3,356,942
------------ -------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on investments (note 3) .................. 215,325 780,157
Net change in unrealized appreciation or depreciation of
investments .............................................. 370,039 784,710
------------ -------------
Net gain on investments .................................. 585,364 1,564,867
------------ -------------
Net increase in net assets resulting from operations ... $ 1,748,102 $ 4,921,809
------------ -------------
------------ -------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
100
<PAGE>
Financial Statements (continued)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
................................................................................
<TABLE>
<CAPTION>
NATIONAL TAX-EXEMPT FUND MINNESOTA TAX-EXEMPT FUND
----------------------------- -----------------------------
Six Months Six Months
Ended 3/31/98 Year Ended Ended 3/31/98 Year Ended
(Unaudited) 9/30/97 (Unaudited) 9/30/97
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ...................................... $ 1,162,738 $ 2,394,720 $ 3,356,942 $ 6,688,180
Net realized gain on investments ........................... 215,325 192,273 780,157 1,170,417
Net change in unrealized appreciation or depreciation of
investments .............................................. 370,039 1,642,454 784,710 2,526,783
------------- ------------- ------------- -------------
Net increase in net assets resulting from operations ..... 1,748,102 4,229,447 4,921,809 10,385,380
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
CLASS A
From net investment income ............................... (1,162,727) (2,385,860) (3,100,031) (6,587,533)
From net realized gains .................................. (237,149) (82,981) (615,368) (602,174)
CLASS Y
From net investment income ............................... -- -- (228,573) (80,240)
From net realized gains .................................. -- -- (41,668) --
------------- ------------- ------------- -------------
Total distributions ...................................... (1,399,876) (2,468,841) (3,985,640) (7,269,947)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
CLASS A .................................................... (3,757,877) 1,942,178 (5,071,277) (3,145,424)
CLASS Y .................................................... -- -- (1,245,112) 9,022,490
------------- ------------- ------------- -------------
Increase (decrease) in net assets from capital share
transactions ........................................... (3,757,877) 1,942,178 (6,316,389) 5,877,066
------------- ------------- ------------- -------------
Total increase (decrease) in net assets .................. (3,409,651) 3,702,784 (5,380,220) 8,992,499
Net assets at beginning of period .......................... 49,637,679 45,934,895 134,669,281 125,676,782
------------- ------------- ------------- -------------
Net assets at end of period ................................ $46,228,028 $ 49,637,679 $ 129,289,061 $ 134,669,281
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Distributions in excess of net investment income ........... $ -- $ (11) $ -- $ (28,338)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
101
<PAGE>
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
................................
Piper Funds Inc. (the company) is registered under the
Investment Company Act of 1940 (as amended) as a single,
open-end management investment company. The company
currently has 12 series, including National Tax-Exempt
Fund, a diversified series, and Minnesota Tax-Exempt Fund,
a non-diversified series (the funds). The company's
articles of incorporation permit the board of directors to
create additional series in the future.
Minnesota Tax-Exempt Fund commenced offering Class Y
shares on July 1, 1997. All shares existing prior to that
date were classified as Class A shares. Key features of
each class are:
CLASS A:
- Subject to a front-end sales charge
- Subject to distribution and service fees
CLASS Y:
- Requires a minimum initial investment of $1 million
- No front-end or contingent deferred sales charges
- No distribution and service fees
The classes of shares of Minnesota Tax-Exempt 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. National
Tax-Exempt Fund has a single class of shares, which is
shown as Class A in the financial statements.
National Tax-Exempt Fund invests primarily in
investment-grade or comparable quality municipal bonds,
notes and tax-free municipal leases issued by states,
territories and possessions of the United States, the
District of Columbia or their agencies, instrumentalities
and political subdivisions. These may include municipal
derivative securities.
Minnesota Tax-Exempt Fund invests primarily in
investment-grade or comparable quality municipal bonds,
notes and tax-free municipal leases issued by the state of
Minnesota, its agencies, instrumentalities and political
subdivisions, and certain securities of U.S. territorial
possessions. These may include municipal derivative
securities.
(2) SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES
................................
INVESTMENTS IN SECURITIES
Portfolio securities for which market quotations are
readily available are valued at current market value. If
market quotations or valuations are not readily available,
or if such quotations or valuations are believed to be
inaccurate, unreliable or not reflective of market value,
portfolio securities are valued according to procedures
adopted by the funds' board of directors in good faith at
"fair value", that is, a price that the fund might
reasonably expect to receive for the security or other
asset upon its current sale.
- --------------------------------------------------------------------------------
102
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
The current market value of certain fixed income
securities is provided by an independent pricing service.
Fixed income securities for which prices are not available
from an independent pricing service but where an active
market exists are valued using market quotations obtained
from one or more dealers that make markets in the
securities or from a widely-used quotation system.
Short-term securities with maturities of 60 days or less
are valued at amortized cost, which approximates market
value.
Securities transactions are accounted for on the date
securities are purchased or sold. Realized gains and
losses are calculated on the identified-cost basis.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities that have been
purchased by the funds on a when-issued or
forward-commitment basis can take place a month or more
after the transaction date. During this period, such
securities do not earn interest, are subject to market
fluctuation and may increase or decrease in value prior to
their delivery. The funds segregate, with their custodian,
assets with a market value equal to the amount of their
purchase commitments. The purchase of securities on a
when-issued or forward-commitment basis may increase the
volatility of the funds' net asset value if the funds make
such purchases while remaining substantially fully
invested. As of March 31, 1998, Minnesota Tax-Exempt had
entered into outstanding when-issued or forward
commitments of $498,615.
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 subject to
federal income tax. Therefore, no income tax provision is
required. The funds also intend to distribute 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 market discount amortization. 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 or losses
were recorded by the funds.
ALLOCATION OF INCOME, EXPENSES AND GAINS AND LOSSES
Income, expenses (other than class-specific expenses) and
realized and unrealized gains and losses for Minnesota
Tax-Exempt 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.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income for National
Tax-Exempt Fund are declared daily and paid monthly.
Distributions to shareholders from net investment income
for Minnesota Tax-Exempt are
- --------------------------------------------------------------------------------
103
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
declared separately for each class daily and paid monthly.
Net realized gains distributions, if any, will be made at
least annually. Distributions are payable in cash or
reinvested in additional shares 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, 1998, were as follows:
<TABLE>
<CAPTION>
NATIONAL MINNESOTA
TAX-EXEMPT TAX-EXEMPT
FUND FUND
---------- -----------
<S> <C> <C>
Purchases .............................. $1,959,612 $16,506,189
Proceeds from sales .................... $6,437,141 $22,149,423
</TABLE>
(4) CAPITAL SHARE
TRANSACTIONS
................................
Capital share transactions for the funds were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
NATIONAL TAX-EXEMPT FUND:
Sales of fund shares ................. 96,952 $ 1,090,700 1,301,809 $ 14,202,955
Issued for reinvested
distributions ...................... 75,385 847,199 144,321 1,580,581
Redemptions of fund shares ........... (505,030) (5,695,776) (1,265,996) (13,841,358)
---------- ----------- ---------- ------------
(332,693) $(3,757,877) 180,134 $ 1,942,178
---------- ----------- ---------- ------------
---------- ----------- ---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
104
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997 (a)
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
MINNESOTA TAX-EXEMPT FUND:
CLASS A
Sales of fund shares ................. 620,780 $ 6,972,823 2,314,387 $ 25,337,742
Issued for reinvested
distributions ...................... 217,968 2,440,224 437,608 4,791,499
Redemptions of fund shares ........... (1,188,645) (13,311,935) (2,216,525) (24,291,535)
Redemptions in exchange for Class Y
shares ............................. (104,584) (1,172,389) (804,940) (8,983,130)
---------- ------------ ---------- ------------
(454,481) $ (5,071,277) (269,470) $ (3,145,424)
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
CLASS Y
Sales in exchange for Class A
shares ............................. 104,678 1,172,389 804,940 8,983,130
Issued for reinvested
distributions ...................... 13,402 149,829 3,559 39,360
Redemptions of fund shares ........... (229,181) (2,567,330) -- --
---------- ------------ ---------- ------------
(111,101) $ (1,245,112) 808,499 $ 9,022,490
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
(a) REPRESENTS PERIOD FROM AUGUST 1 (COMMENCEMENT OF
OFFERING OF SHARES) TO SEPTEMBER 30, 1997, FOR CLASS Y.
Sales charges received by Piper Jaffray Inc. (Piper
Jaffray), the funds' distributor, for distributing the
funds' shares for the six months ended March 31, 1998,
were as follows:
<TABLE>
<CAPTION>
MINNESOTA
TAX-EXEMPT FUND
NATIONAL ----------------------
TAX-EXEMPT FUND CLASS A CLASS Y
---------------- ----------- --------
<S> <C> <C> <C>
Front-end sales charges ................ $12,100 $ 59,303 $--
Contingent deferred sales charges ...... 13,962 26,039 --
---------------- ----------- ---
$26,062 $ 85,342 $--
---------------- ----------- ---
---------------- ----------- ---
</TABLE>
(5) EXPENSES
................................
INVESTMENT MANAGEMENT FEE
The company has entered into an investment management
agreement with Piper Capital Management Incorporated
(Piper Capital) under which Piper Capital manages each
fund's assets and furnishes related office facilities,
equipment, research and personnel. The agreement requires
each fund to pay Piper Capital a monthly fee based on
average daily net assets. The fee for each fund is equal
to an annual rate of 0.50% of the first $250 million in
net assets, 0.45% of the next $250 million and 0.40% of
net assets in excess of $500 million. For the six months
ended March 31, 1998, the effective management fee paid by
the funds was 0.50% and 0.50% on an annual basis for
National Tax-Exempt Fund and Minnesota Tax-Exempt Fund,
respectively.
DISTRIBUTION AND SERVICE FEES
Each fund also pays Piper Jaffray fees accrued daily and
paid quarterly for providing shareholder services and
distribution-related services. The fees for each fund,
which were being voluntarily limited for the year ending
September 30, 1998, are stated below as a percent of
average daily net assets.
<TABLE>
<CAPTION>
MINNESOTA
TAX-EXEMPT FUND
NATIONAL ------------------
TAX-EXEMPT FUND CLASS A CLASS Y
--------------- ------- --------
<S> <C> <C> <C>
Distribution fee ....................... 0.05% 0.05% --
Service fee ............................ 0.25% 0.25% --
----- ------- --------
Total distribution and service
fees ............................... 0.30% 0.30% --
----- ------- --------
----- ------- --------
Total distribution and service fees
after voluntary limitation ......... 0.24% 0.24% --
----- ------- --------
----- ------- --------
</TABLE>
- --------------------------------------------------------------------------------
105
<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, 1998, Piper Jaffray and Piper
Trust received the following amounts in connection with
the shareholder account servicing agreements:
<TABLE>
<CAPTION>
NATIONAL MINNESOTA
TAX-EXEMPT FUND TAX-EXEMPT FUND
---------------- ----------------
<S> <C> <C>
Piper Jaffray .......................... $5,226 $10,783
Piper Trust ............................ -- --
-------- ----------------
$5,226 $10,783
-------- ----------------
-------- ----------------
</TABLE>
OTHER FEES AND EXPENSES
In addition to the investment management, distribution 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) PENDING
ACQUISITION
................................
On December 15, 1997, Piper Jaffray Companies Inc., the
parent company of the funds' investment advisor, announced
that it had entered into an agreement to be acquired by
U.S. Bancorp. It is anticipated that this acquisition will
be completed in the second quarter of 1998, subject to
regulatory approval, the approval of Piper Jaffray
Companies shareholders and the satisfaction of customary
closing conditions.
U.S. Bancorp is a multi-state bank holding company
headquartered in Minneapolis, Minnesota with a geographic
service area spanning 17 states. As of December 31, 1997,
U.S. Bancorp was the 15th largest U.S. commercial bank
holding company, with assets of nearly $71.3 billion. U.S.
Bank National Association ("U.S. Bank"), a wholly owned
subsidiary of U.S. Bancorp, currently acts as the
investment advisor to 32 mutual funds (the "First American
Funds"). As of December 31, 1997, U.S. Bank, acting
through its First American Asset Management group, managed
more than $55 billion in assets, including approximately
$20.5 billion in assets of the First American Funds.
Effective as of the date of the acquisition, SEI
Investments Distribution Company will assume the role of
the principal distributor for the funds.
Under the Investment Company Act of 1940, as amended (the
"1940 Act"), consummation of the acquisition of Piper
Jaffray Companies by U.S. Bancorp will result in the
assignment and automatic
- --------------------------------------------------------------------------------
106
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
termination of the funds' investment advisory agreements
with Piper Capital Management Incorporated. The 1940 Act
requires that any new investment advisory agreements for
the funds be approved by the funds' board of directors and
shareholders.
(7) SUBSEQUENT EVENT
................................
FUND CONVERSION
In connection with the acquisition of Piper Jaffray
Companies Inc. by U.S. Bancorp, the funds' board of
directors has recommended that the funds be merged into
mutual funds managed by First American Asset Management, a
division of U.S. Bank. The proposed fund mergers require
shareholder approval and proxy statements requesting
shareholder votes will be mailed in May 1998. If approved,
the mergers are expected to occur on or about July 31,
1998.
- --------------------------------------------------------------------------------
107
<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:
NATIONAL TAX-EXEMPT FUND
<TABLE>
<CAPTION>
Six Months Ended Year Ended September 30,
March 31, 1998 -------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
---------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of
period .......................... $ 11.21 $ 10.81 $ 10.69 $ 10.22 $ 11.76 $ 10.94
-------- ------- ------- ------- ------- -------
Operations:
Net investment income ........... 0.27 0.54 0.56 0.60 0.57 0.61
Net realized and unrealized gains
(losses) on investments ....... 0.13 0.42 0.12 0.47 (1.21) 0.94
-------- ------- ------- ------- ------- -------
Total from operations ......... 0.40 0.96 0.68 1.07 (0.64) 1.55
-------- ------- ------- ------- ------- -------
Distributions to shareholders:
From net investment income ...... (0.27) (0.54) (0.56) (0.60) (0.57) (0.61)
From net realized gains ......... (0.05) (0.02) -- -- (0.33) (0.12)
-------- ------- ------- ------- ------- -------
Total distributions to
shareholders ................ (0.32) (0.56) (0.56) (0.60) (0.90) (0.73)
-------- ------- ------- ------- ------- -------
Net asset value, end of period .... $ 11.29 $ 11.21 $ 10.81 $ 10.69 $ 10.22 $ 11.76
-------- ------- ------- ------- ------- -------
-------- ------- ------- ------- ------- -------
SELECTED INFORMATION
Total return (a) .................. 3.66% 9.09% 6.42% 10.30% (5.72)% 14.76%
Net assets at end of period (in
millions) ....................... $ 46 $ 50 $ 46 $ 57 $ 68 $ 79
Ratio of expenses to average daily
net assets ...................... 1.09%(b) 1.11% 1.03% 1.01% 0.93% 0.94%
Ratio of net investment income to
average daily net assets ........ 4.82%(b) 4.91% 5.15% 5.37% 5.25% 5.42%
Portfolio turnover rate (excluding
short-term securities) .......... 4% 28% 43% 28% 65% 43%
Ratios before waivers by the
adviser and distributor:
Ratio of expenses to average
daily net assets before
waivers ....................... 1.16%(b) 1.17% 1.13% 1.09% 1.03% 1.04%
Ratio of net investment income to
average daily net assets before
waivers ....................... 4.75%(b) 4.85% 5.05% 5.29% 5.15% 5.32%
</TABLE>
(a) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A
SALES CHARGE.
(b) ANNUALIZED
- --------------------------------------------------------------------------------
108
<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:
MINNESOTA TAX-EXEMPT FUND
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------
Six Months Ended Year Ended September 30,
March 31, 1998 ---------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
---------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of
period .......................... $ 11.15 $ 10.89 $ 10.81 $ 10.28 $ 11.43 $ 10.79
-------- ------- ------- ------- ------- -------
Operations:
Net investment income ........... 0.28 0.57 0.59 0.66 0.61 0.62
Net realized and unrealized gains
(losses) on investments ....... 0.14 0.31 0.07 0.53 (0.95) 0.68
-------- ------- ------- ------- ------- -------
Total from operations ......... 0.42 0.88 0.66 1.19 (0.34) 1.30
-------- ------- ------- ------- ------- -------
Distributions to shareholders:
From net investment income ...... (0.28) (0.57) (0.58) (0.66) (0.61) (0.62)
From net realized gains ......... (0.06) (0.05) -- -- (0.20) (0.04)
-------- ------- ------- ------- ------- -------
Total distributions to
shareholders ................ (0.34) (0.62) (0.58) (0.66) (0.81) (0.66)
-------- ------- ------- ------- ------- -------
Net asset value, end of
period ...................... $ 11.23 $ 11.15 $ 10.89 $ 10.81 $ 10.28 $ 11.43
-------- ------- ------- ------- ------- -------
-------- ------- ------- ------- ------- -------
SELECTED INFORMATION
Total return (a) .................. 3.78% 8.32% 6.24% 11.38% (3.14)% 12.52%
Net assets at end of period (in
millions) ....................... $ 121 $ 126 $ 126 $ 134 $ 162 $ 169
Ratio of expenses to average daily
net assets ...................... 0.92%(c) 0.95% 0.90% 0.91% 0.89% 0.91%
Ratio of net investment income to
average daily net assets ........ 5.06%(c) 5.17% 5.38% 5.80% 5.61% 5.62%
Portfolio turnover rate (excluding
short-term securities) .......... 13% 17% 35% 30% 44% 29%
Ratios before waivers by the
distributor:
Ratio of expenses to average
daily net assets before
waivers ....................... 1.00%(c) 1.01% 0.99% 0.99% 0.99% 1.00%
Ratio of net investment income to
average daily net assets before
waivers ....................... 4.98%(c) 5.11% 5.29% 5.72% 5.51% 5.53%
</TABLE>
<TABLE>
<CAPTION>
CLASS Y
---------------------------------------------
Six Months Ended
March 31, 1998 Period Ended
(Unaudited) September 30, 1997(b)
----------------- -------------------------
<S> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ... $11.14 $11.16
-------- --------
Operations:
Net investment income ................ 0.29 0.10
Net realized and unrealized gains
(losses) on investments ............ 0.14 (0.02)
-------- --------
Total from operations .............. 0.43 0.08
-------- --------
Distributions to shareholders:
From net investment income ........... (0.29) (0.10)
From net realized gains on
investments ........................ (0.06) --
-------- --------
Total distributions to
shareholders ..................... (0.35) (0.10)
-------- --------
Net asset value, end of period ..... $11.22 $11.14
-------- --------
-------- --------
SELECTED INFORMATION
Total return (a) ....................... 3.89% 0.72%
Net assets at end of period (in
millions) ............................ $ 8 $ 9
Ratio of expenses to average daily net
assets ............................... 0.70%(c) 0.75%(c)
Ratio of net investment income to
average daily net assets ............. 5.30%(c) 5.73%(c)
Portfolio turnover rate (excluding
short-term securities) ............... 13% 17%
</TABLE>
(a) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A
SALES CHARGE.
(b) COMMENCEMENT OF OFFERING OF CLASS Y SHARES WAS AUGUST 1, 1997.
(c) ANNUALIZED.
- --------------------------------------------------------------------------------
109
<PAGE>
Investments in Securities (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NATIONAL TAX-EXEMPT FUND March 31, 1998
.......................................................................................
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
MUNICIPAL LONG-TERM SECURITIES (96.2%):
MUNICIPAL BONDS (88.6%):
ALASKA (2.3%):
State Housing Finance Corporation (Callable 6/1/07 at
102), 5.90%, 12/1/19 .............................. $ 1,000,000 $ 1,046,560
------------
COLORADO (2.4%):
Montrose County Health Care Facilities (Callable
11/1/02 at 102), 8.25%, 11/1/19 ................... 1,000,000 1,108,630
------------
FLORIDA (0.7%):
Clay County Industrial Development Revenue (Callable
3/1/02 at 102), 6.40%, 3/1/11 ..................... 300,000(c) 325,344
------------
GEORGIA (2.6%):
State General Obligation, 6.75%, 9/1/10 1,000,000 1,202,140
------------
ILLINOIS (9.4%):
Education Facility Authority Revenue (Callable
10/1/07 at 100), 5.88%, 10/1/17 ................... 500,000 526,390
Development Financial Authority, (Callable 7/1/06 at
102), 7.38%, 7/1/21 ............................... 500,000 585,070
Board of Governors, State College and University
(Callable 2/1/02 at 100), 7.55%-7.70%,
2/1/16-2/1/22 ..................................... 425,000 467,650
Rock Island Nursing Home Revenue, 7.00%, 6/1/06 ..... 1,100,000 1,172,270
Rock Island Nursing Home Revenue (Callable 6/1/03 at
102), 7.20%, 6/1/13 ............................... 400,000 427,344
State Toll Highway Authority, 6.30%, 1/1/12 ......... 1,000,000 1,144,180
------------
4,322,904
------------
INDIANA (9.2%):
Municipal Power Agency, 6.00%, 1/1/12 1,000,000 1,121,840
Lake County Redevelopment Authority (MBIA) (Callable
2/1/05 at 102), 6.50%, 2/1/16 ..................... 800,000 890,936
Hammond School Building Corporation (Callable 7/15/03
at 102), 6.00%, 1/15/13 ........................... 1,000,000 1,114,570
Municipal Power Agency, 6.00%, 1/1/11 1,000,000 1,123,030
------------
4,250,376
------------
MICHIGAN (6.7%):
Lakeview Community Schools, (Callable 5/1/07 at 100),
5.75%, 5/1/16 ..................................... 1,000,000 1,059,410
Detroit Finance Authority (Callable 5/1/07 at 101.5),
5.38%, 5/1/18 ..................................... 2,000,000 2,019,040
------------
3,078,450
------------
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
MINNESOTA (13.5%):
Glencoe Hospital Revenue (Callable 8/1/04 at 102),
6.75%, 4/1/16 ..................................... $ 485,000 $ 505,433
Hopkins Multifamily Housing Revenue (Callable 4/1/07
at 102), 6.25%, 4/1/15 ............................ 500,000 530,220
St. Paul Housing - Como Lake Project (Callable 3/1/99
at 102), 7.50%, 3/1/26 ............................ 500,000(d) 490,000
Brooklyn Center Health Care Facility (Callable
12/1/03 at 102), 7.60%, 12/1/18 ................... 400,000 433,824
Fergus Falls Health Care Facility (Callable 11/1/04
at 102), 7.00%, 11/1/19 ........................... 500,000 530,375
Maplewood Health Care Facility (Callable 10/1/04 at
102), 7.50%, 10/1/24 .............................. 500,000 544,435
Plymouth Health Care Facility (Callable 8/1/04 at
102), 7.50%, 8/1/24 ............................... 500,000 543,645
Roseville Housing Facility Revenue (Callable 10/1/03
at 102), 7.13%, 10/1/13 ........................... 1,000,000 1,066,540
St. Anthony Multifamily Revenue (Callable 5/20/06 at
102), 6.25%, 11/20/25 ............................. 1,000,000 1,055,210
White Bear Lake Care Center (Callable 11/1/03 at
102), 8.25%, 11/1/12 .............................. 500,000 557,685
------------
6,257,367
------------
MONTANA (0.6%):
Sidney Nursing Home (Callable 6/1/00 at 102), 9.00%,
6/1/11 ............................................ 250,000 269,470
------------
NEW MEXICO (7.7%):
Mortgage Finance Authority, 6.20%-6.40%, 7/1/15 ..... 3,350,000 3,569,341
------------
NORTH DAKOTA (8.7%):
Mercer County Pollution Control Revenue, 7.20%,
6/30/13 ........................................... 3,300,000 4,032,006
------------
SOUTH DAKOTA (2.3%):
State Health and Education Facilities (MBIA)
(Callable 7/1/06 at 102), 6.00%, 7/1/14 ........... 1,000,000 1,080,180
------------
TEXAS (4.8%):
Carrolton Independent School District (MBIA)
(Callable 2/15/06 at 100), 5.70%, 2/15/17 ......... 1,000,000 1,043,050
Fort Bend Independent School District (MBIA)
(Callable 2/15/05 at 100), 5.00%, 2/15/14 ......... 500,000 497,265
Harts Bluff Independent School District (Callable
5/15/98 at 100.5), 8.60%-8.80%,
11/15/98-11/15/00 ................................. 100,000 100,552
Austin Employment Commission (Callable 8/1/98 at
102), 8.10%-8.45%, 8/1/01-8/1/08 .................. 440,000 454,025
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
110
<PAGE>
Investments in Securities (Unaudited) (continued)
- --------------------------------------------------------------------------------
NATIONAL TAX-EXEMPT FUND
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
Houston Employment Commission (Callable 11/1/98 at
101), 7.85%-8.05%, 5/1/04-5/1/07 .................. $ 135,000 $ 136,710
------------
2,231,602
------------
UTAH (3.2%):
Intermountain Power Agency, 6.50%, 7/1/11 ........... 1,000,000 1,175,400
Carbon County Road Improvement Revenue (Callable
8/1/99 at 100), 7.90%, 8/1/04 ..................... 300,000 307,317
------------
1,482,717
------------
WASHINGTON (7.1%):
Grant County Public Utilities District (MBIA)
(Callable 1/1/06 at 101), 5.70%, 1/1/15 ........... 1,000,000 1,054,110
Public Power Supply System, 7.13%, 7/1/16 ........... 600,000 739,872
Public Power Supply System (MBIA) (Callable 7/1/07 at
102), 5.13%, 7/1/16 ............................... 1,500,000 1,484,970
------------
3,278,952
------------
WEST VIRGINIA (2.6%):
State General Obligation (Callable 11/1/16 at 102),
6.50%, 11/1/26 .................................... 1,000,000 1,184,040
------------
WISCONSIN (4.8%):
Watertown Community Development Authority (Callable
3/1/00 at 103), 8.50%, 3/1/19 ..................... 95,000 101,983
State Health Facilities Authority-Franciscan Hospital
(Callable 11/15/05 at 102), 6.13%, 11/15/15 . 1,000,000 1,083,570
Dallas Nursing Home Revenue (Callable 5/1/03 at 102),
6.25%, 5/1/19 ..................................... 1,020,000 1,047,724
------------
2,233,277
------------
Total Municipal Bonds
(cost: $37,968,337) ............................. 40,953,356
------------
MUNICIPAL DERIVATIVE SECURITIES (7.6%):
INVERSE FLOATER (7.6%):
Illinois Health Facilities Authority, inverse floater
(Callable 6/1/02 at 102), 9.57%, 6/19/15 .......... 1,000,000(b) 1,195,000
North Central Texas Health Facility, inverse floater,
(Prerefunded to 6/1/01 at 102), 9.42%, 6/22/21 .... 1,000,000(b) 1,186,250
Rochester, MN, Health Care Facility Authority,
inverse floater, 8.12%, 11/15/15 .................. 1,000,000(b) 1,151,250
------------
Total Municipal Derivative Securities
(cost: $3,008,691) ............................. 3,532,500
------------
Total Municipal Long-Term Securities
(cost: $40,977,028) ............................ 44,485,856
------------
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
MUNICIPAL SHORT-TERM SECURITIES (2.4%):
NEW YORK (0.4%):
New York City, NY, Subseries A-10, VRDN, 3.80%,
8/15/17 ........................................... $ 200,000(b) $ 200,000
------------
NORTH DAKOTA (1.9%):
Grand Forks, Health Care, United Hospital, VRDN,
3.80%, 12/1/25 .................................... 900,000(b) 900,000
------------
Total Municipal Short-Term Securities
(cost: $1,100,000) .............................. 1,100,000
------------
Total Investments in Securities
(cost: $42,077,028) (e) ........................ $ 45,585,856
------------
------------
</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:
VRDN - VARIABLE RATE DEMAND NOTE. FLOATING OR VARIABLE RATE OBLIGATION
MATURING IN MORE THAN ONE YEAR. THE INTEREST RATE, WHICH IS BASED ON
SPECIFIC, OR AN INDEX OF, MARKET INTEREST RATES, IS SUBJECT TO CHANGE
PERIODICALLY AND IS THE EFFECTIVE RATE ON MARCH 31, 1998. THIS
INSTRUMENT MAY ALSO HAVE A DEMAND FEATURE WHICH ALLOWS THE RECOVERY
OF PRINCIPAL AT ANY TIME, OR AT SPECIFIED INTERVALS NOT EXCEEDING ONE
YEAR, ON UP TO 30 DAYS' NOTICE. MATURITY DATE SHOWN REPRESENTS FULL
MATURITY.
INVERSE FLOATER - REPRESENTS SECURITIES THAT PAY INTEREST AT RATES THAT
INCREASE (DECREASE) IN THE SAME MAGNITUDE AS, OR IN A MULTIPLE OF, A
DECREASE (INCREASE) IN THE MARKET RATE PAID ON A RELATED, FLOATING
RATE SECURITY. INTEREST RATES DISCLOSED ARE IN EFFECT ON MARCH 31,
1998. PREREFUNDED ISSUES ARE BACKED BY U.S. GOVERNMENT OBLIGATIONS.
THE BONDS ARE CALLED AND MATURE AT THE CALL DATE INDICATED.
(c) SECURITY PURCHASED AS PART OF A PRIVATE PLACEMENT WHICH HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES
ACT OF 1933 AND IS CONSIDERED TO BE ILLIQUID. ON MARCH 31, 1998, THE TOTAL
MARKET VALUE OF THIS INVESTMENT WAS $325,344 OR 0.7% OF TOTAL NET ASSETS.
ADDITIONAL INFORMATION RELATED TO THIS SECURITY IS PRESENTED BELOW.
<TABLE>
<CAPTION>
SECURITY PAR DATE ACQUIRED COST BASIS
- ----------------------------------- --------- ------------- -----------
<S> <C> <C> <C>
CLAY COUNTY INDUSTRIAL DEVELOPMENT
REVENUE $ 300,000 7/14/92 $ 300,000
</TABLE>
(D) CONSIDERED ILLIQUID BY THE ADVISOR. ON MARCH 31, 1998, THE TOTAL MARKET
VALUE OF THE INVESTMENT WAS $490,000 OR 1.1% OF TOTAL NET ASSETS.
(E) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS
UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES,
BASED ON THIS COST WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 3,518,840
GROSS UNREALIZED DEPRECIATION ...... (10,012)
------------
NET UNREALIZED APPRECIATION ...... $ 3,508,828
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
111
<PAGE>
Investments in Securities (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MINNESOTA TAX-EXEMPT FUND March 31, 1998
.......................................................................................
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
MUNICIPAL LONG-TERM SECURITIES (99.1%):
MUNICIPAL BONDS (92.0%)
EDUCATION REVENUE (14.2%):
Higher Education Facility - Carleton College
(Callable 5/1/06 at 100), 5.75%, 11/1/12 .......... $ 1,050,000 $ 1,120,475
Higher Education Facility - Carleton College,
(Callable 11/1/07 at 100), 5.25%-5.40%,
11/1/11-11/1/15 ................................... 2,000,000 2,056,675
Higher Education Facility - St. Benedict College
(Callable 3/1/04 at 100), 6.20%-6.38%,
3/1/14-3/1/20 ..................................... 1,400,000 1,476,725
Higher Education Facility - St. John's University
(Callable 10/01/07 at 100), 5.35%, 10/1/17 ........ 1,000,000 1,014,130
Higher Education Facility - University of St. Thomas
(Callable 4/1/07 at 100), 5.35%, 4/1/17 ........... 500,000 506,770
Higher Education Facility - University of St. Thomas
(Callable 10/1/06 at 100), 5.40%-5.63%,
10/1/11-10/1/21 ................................... 3,000,000 3,124,340
Higher Education Facility - University of St. Thomas
(Callable 4/1/07 at 100), 5.38%, 4/1/12 ........... 500,000 513,820
Higher Education Facility - Vermillion Community
College, (Callable 1/1/04 at 102), 6.00%,
1/1/13 ............................................ 825,000 875,490
Maplewood-Mounds Park Academy Project (Callable
9/1/03 at 102), 7.00%, 9/1/23 ..................... 1,500,000 1,606,725
Minneapolis Minnesota Revenue University Gateway
Project Series A, (Callable 12/1/07 at 100), 5.25%,
12/1/17 ........................................... 4,000,000 4,014,760
South Washington County Independent School District
#833 (Callable 12/1/2006 at 100), 5.25%, 12/1/14 500,000(e) 502,035
State Higher Education - Augsburg College (Callable
5/1/06 at 102), 6.25%, 5/1/23 ..................... 1,500,000 1,612,545
------------
18,424,490
------------
ELECTRIC REVENUE (3.6%):
Southern Municipal Power Agency, 5.00%, 1/1/12 ...... 1,000,000 1,001,630
Southern Municipal Power Agency (MBIA) (escrowed to
maturity), 5.75%, 1/1/18 .......................... 850,000 904,247
Western Minnesota Municipal Power Agency (AMBAC)
(Callable 1/1/06 at 102), 5.40%-5.50%,
1/1/09-1/1/12 . 2,000,000 2,113,900
Western Municipal Power Agency (MBIA) (escrowed to
maturity), 9.75%, 1/1/16 .......................... 410,000 629,104
------------
4,648,881
------------
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
GENERAL OBLIGATIONS (30.8%):
Big Lake Independent School District # 727 (Callable
2/1/07 at 100), 5.60%, 2/1/15 ..................... $ 1,000,000 $ 1,048,310
Burnsville Independent School District (Callable
2/1/06 at 100), 4.88%, 2/1/13 ..................... 1,450,000 1,435,572
Chaska Independent School District (Crossover
refunded 2/1/06 at 100), 5.88%-6.00%,
2/1/11-2/1/16 ..................................... 9,690,000 10,647,103
Columbia Heights Independent School District
(Callable 2/1/07 at 100), 5.25%, 2/1/15 ........... 1,000,000 1,013,330
Eden Prairie Independent School District (Callable
2/1/08 at 100), 5.10%, 2/1/12 ..................... 1,150,000 1,174,909
Hawley Independent School District (FHA) (Callable
2/1/06 at 100), 5.75%, 2/1/14 ..................... 1,500,000 1,591,020
Lakeville Minnesota Independent School District #194,
(Callable 2/1/09 at 100), 5.00%, 2/1/17 ........... 1,000,000 985,540
Minneapolis and St. Paul Metropolitan Council
(Callable 6/1/05 at 100), 5.60%, 6/1/15 ........... 1,000,000 1,045,610
Minneapolis General Obligation (Callable 9/1/05 at
100), 5.20%, 3/1/13 ............................... 400,000 406,924
Minneapolis Sports Arena Project (Callable 4/1/08 at
100), 5.10%-5.13%, 4/1/13-10/1/20 ................. 1,750,000 1,754,365
North Branch Independent School District (FGIC)
(Callable 2/1/05 at 100), 5.60%, 2/1/13 ........... 1,500,000 1,566,615
North St. Paul Independent School District, (Callable
2/1/07 at 100), 5.00%, 2/1/15 ..................... 2,925,000 2,905,081
North St. Paul Maplewood Independent School District
(Callable 5/1/06 at 100), 5.85%, 5/1/17 ........... 500,000 531,710
Prior Lake Independent School District (FGIC)
(Callable 2/1/06 at 100), 5.25%, 2/1/15 ........... 2,335,000 2,363,230
Rochester Independent School District (Callable
2/1/06 at 100), 5.25%, 2/1/14 ..................... 1,000,000 1,020,520
Shakopee Minnesota Independent School District #720,
(Callable 2/1/08 at 100), 4.63%, 2/1/15-2/1/16 .... 4,170,000 3,946,439
South Washington Independent School District
(Callable 6/1/05 at 100), 5.85%, 6/1/15 ........... 500,000 528,685
State General Obligation (Callable 11/1/06 at 100),
5.25%, 11/1/13 .................................... 1,500,000 1,535,310
Wayzata Independent School District (FSA) (Callable
2/1/05 at 100), 5.95%-6.00%, 2/1/13-2/1/16 ........ 3,000,000 3,232,830
Wayzata Minnesota Independent School District
(Callable 2/1/07 at 100), 5.50%, 2/1/17 ........... 1,000,000 1,038,170
------------
39,771,273
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
112
<PAGE>
Investments in Securities (Unaudited) (continued)
- --------------------------------------------------------------------------------
MINNESOTA TAX-EXEMPT FUND
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
HEALTH SERVICE/HMO (1.1%):
Coon Rapids Medical Clinic, 6.00%, 5/1/03 ........... $ 905,000 $ 950,268
Duluth Clinic Health Care Facilities (AMBAC)
(Callable 11/1/02 at 102), 6.30%, 11/1/22 ......... 145,000 158,059
Minneapolis and St. Paul, Health One Obligated Group
(FSA) (Callable 8/15/05 at 102), 5.60%, 8/15/12 ... 250,000 263,625
------------
1,371,952
------------
HOSPITAL REVENUE (11.7%):
Fairview Hospital Revenue (MBIA) (Callable 11/15/07
at 102), 5.50%, 11/15/17 .......................... 1,000,000 1,040,920
Fairview Hospital Revenue (MBIA) (Callable 11/15/07
at 102), 5.50%, 11/15/11 .......................... 500,000 526,315
Glencoe Hospital Revenue (Callable 8/1/04 at 102),
6.75%, 4/1/16 ..................................... 1,100,000 1,146,343
Monticello-Big Lake Minnesota Community Hospital
District Gross Revenue, (Callable 12/1/09 at 100),
5.75%, 12/1/19 .................................... 1,000,000 1,002,100
New Prague Hospital Revenue (Callable 12/1/06 at
100), 6.50%, 6/1/12 ............................... 500,000 521,385
Northern Itasca Hospital Revenue (Callable 1/1/00 at
100), 7.50%-8.00%, 7/1/03-7/1/11 .................. 830,000 857,819
Northfield Hospital Revenue (Callable 12/1/01 at
100), 7.00%, 12/1/05-12/1/08 ...................... 1,690,000 1,790,437
Roseau Hospital District Revenue (Callable 10/1/01 at
100), 7.20%, 10/1/11-10/1/13 ...................... 730,000 770,569
South St. Paul, Healtheast Hospital (Callable 11/1/04
at 102), 6.75%, 11/1/09 ........................... 2,000,000 2,178,300
St. Cloud Hospital Facility Revenue (AMBAC) (Callable
7/1/06 at 101), 5.00%, 7/1/12-7/1/15 .............. 4,000,000 3,964,540
Worthington Hospital Revenue (Callable 12/1/02 at
100), 6.50%, 12/1/10-12/1/12 ...................... 1,230,000 1,277,510
------------
15,076,238
------------
HOUSING REVENUE (10.8%):
Austin Housing - Courtyard Project (Callable 1/1/06
at 102), 7.25%, 1/1/26 ............................ 500,000 530,780
Coon Rapids, Multifamily Development-Woodland Apts.
(FHA) (Callable 12/1/03 at 100), 5.63%, 12/1/09 ... 940,000 960,708
Coon Rapids, Multifamily Housing Revenue (Callable
11/1/07 at 102), 6.25%, 5/1/18 .................... 500,000 507,375
Dakota County Housing and Redevelopment (Callable
9/1/98 at 103), 8.10%, 9/1/12 ..................... 495,000 513,567
Fairmount Housing - Maplewood Project (Callable
7/1/02 at 102), 8.50%, 7/1/15 ..................... 900,000 988,416
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
Hopkins Minnesota Elderly Housing Revenue, (Callable
11/20/07 at 100), 5.60%, 11/20/17 ................. $ 500,000 $ 511,560
Hopkins Multifamily Housing Revenue (Callable 4/1/07
at 102), 6.25%, 4/1/15 ............................ 500,000 530,220
Minneapolis Community Development Agency (Callable
6/1/98 at 102), 8.25%, 6/1/02 ..................... 350,000 359,237
Minneapolis Housing - Churchill Apartments (Callable
10/1/01 at 102), 7.05%, 10/1/22 ................... 750,000 799,335
Minneapolis Housing and Urban Development (Callable
2/1/01 at 102), 7.88%-8.25%, 2/1/06-2/1/18 . 2,810,000 2,930,474
Minneapolis Housing Revenue-Seward Towers (Callable
12/20/00 at 102), 7.38%, 12/20/30 ................. 1,370,000 1,444,761
Minnetonka Housing Revenue (Callable 12/1/99 at 103),
7.50%, 12/1/27 .................................... 500,000 518,945
St. Cloud Northway Housing Project (Callable 12/1/00
at 102), 7.50%, 12/1/18 ........................... 500,000 551,960
St. Louis Park, Multifamily Housing Project (Callable
12/1/05 at 102), 6.25%, 12/1/28 ................... 500,000 529,705
St. Paul Housing - Como Lake Project (Callable 3/1/99
at 102), 7.50%, 3/1/26 ............................ 1,500,000(d) 1,470,000
State Housing and Finance Agency (Callable 2/1/02 at
102), 7.05%, 8/1/27 ............................... 500,000 534,350
State Housing and Finance Agency (Callable 7/1/00 at
102), 7.65%, 7/1/08 ............................... 285,000 299,663
------------
13,981,056
------------
IDR - MISCELLANEOUS PROJECTS (0.6%):
Duluth Economic Development Revenue, 8.00%,
2/1/08 ............................................ 325,000 388,557
Shakopee Industrial Development, 6.25%-6.75%,
6/1/98-12/1/00 .................................... 75,000(c) 77,512
Shakopee Industrial Development (Callable 12/1/00 at
101), 7.00%-7.50%, 6/1/01-12/1/08 ................. 290,000(c) 307,659
------------
773,728
------------
LEASING REVENUE (6.3%):
Hastings Housing and Redevelopment Authority
(Callable 2/1/03 at 100), 6.50%, 2/1/14 ........... 1,000,000 1,047,880
Hennepin County Certificates of Participation
(Callable 11/15/01 at 100), 6.65%-6.80%,
11/15/08-5/15/17 .................................. 3,625,000 3,925,299
Little Canada Community Development, (Callable 4/1/03
at 100), 7.10%, 4/1/13 ............................ 1,775,000 1,863,182
Melrose City Center Project (Prerefunded 2/1/99 at
101), 7.80%-8.00%, 2/1/02-8/1/04 .................. 270,000 278,830
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
113
<PAGE>
Investments in Securities (Unaudited) (continued)
- --------------------------------------------------------------------------------
MINNESOTA TAX-EXEMPT FUND
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
St. Paul Independent School District (Callable 2/1/05
at 100), 5.25%, 2/1/15 ............................ $ 1,000,000 $ 1,009,640
------------
8,124,831
------------
NURSING HOME REVENUE (11.1%):
Brooklyn Center Health Care Facility (Callable
12/1/03 at 102), 7.60%, 12/1/18 ................... 900,000 976,104
Chisago City Health Facility - Pleasant Heights
(Callable 7/1/05 at 102), 7.30%, 7/1/25 ........... 400,000 428,244
Fergus Falls Health Care Facility (Callable 11/1/04
at 102), 7.00%, 11/1/19 ........................... 1,000,000 1,060,750
Glencoe Health Care System (Prerefunded to 12/1/00 at
100), 8.50%, 12/1/15 .............................. 575,000 638,814
Litchfield Health Care (Callable 8/1/01 at 102),
8.75%, 8/1/20 ..................................... 500,000 549,225
Little Canada Presbyterian Home (Callable 7/1/01 at
102), 7.00%, 7/1/07 ............................... 700,000 727,342
Maplewood Health Care Facility (Callable 10/1/04 at
102), 7.50%, 10/1/24 .............................. 1,000,000 1,088,870
Minneapolis, Careview Home Inc. (Callable 5/1/01 at
100), 8.00%, 5/1/21 ............................... 250,000 263,793
Plymouth Health Care Facility (Callable 8/1/04 at
102), 7.50%, 8/1/14-8/1/24 ........................ 1,100,000 1,201,549
Red Wing Elderly Housing - River Region (Callable
9/1/03 at 102), 6.40%, 9/1/12 ..................... 1,000,000 1,075,530
Roseville Housing Facility Revenue (Callable 10/1/03
at 102), 7.13%, 10/1/13 ........................... 2,000,000 2,133,080
Rushford Good Shepard Nursing Home (Callable 11/1/98
at 100), 9.00%, 11/1/06 ........................... 200,000 200,558
Springfield Nursing Home (Callable 11/1/99 at 103),
8.50%, 11/1/19 .................................... 250,000 267,108
St. Anthony Multifamily Revenue (Callable 5/20/06 at
102), 6.25%, 11/20/25 ............................. 1,500,000 1,582,815
White Bear Lake Care Center (Callable 11/1/03 at
102), 8.25%, 11/1/12 .............................. 1,000,000 1,115,370
White Bear Lake Multifamily Revenue (Callable 2/1/07
at 102), 6.00%, 8/1/20 ............................ 1,020,000 1,062,809
------------
14,371,961
------------
OTHER REVENUE (1.1%):
Moorhead Golf Course Revenue (Callable 12/1/01 at
100), 7.75%, 12/1/15 .............................. 1,165,000 1,252,841
Olmsted County Hiawatha Children's Home (Callable
7/1/03 at 102), 6.50%, 7/1/16 ..................... 205,000 213,790
------------
1,466,631
------------
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
WATER/POLLUTION CONTROL REVENUE (0.7%):
Minnesota Public Facility Authority Water Pollution,
(Callable 3/1/08 at 100), 4.75%, 3/1/18 ........... $ 1,000,000 $ 957,710
------------
Total Municipal Bonds
(cost: $112,648,721) ........................... 118,968,751
------------
MUNICIPAL DERIVATIVE SECURITIES (7.1%):
INVERSE FLOATER (7.1%):
Osseo Independent School District, inverse floater,
(Callable 2/1/03 at 103), 8.05%, 2/1/14 ........... 3,195,000(b) 3,398,681
St. Cloud General Obligation, inverse floater
(Prerefunded 2/1/02 at 100), 8.40%, 8/1/13 ........ 5,200,000(b) 5,824,000
------------
Total Municipal Derivative Securities
(cost: $7,793,635) ............................. 9,222,681
------------
Total Municipal Long-Term Securities
(cost: $120,442,356) ........................... 118,968,752
------------
MUNICIPAL SHORT-TERM SECURITIES (0.8%):
Mankato, MN, 3.50%, 2/1/18 .......................... 300,000 300,000
Nuveen Tax-Exempt Money Market, 3.22%, 4/1/98 ....... 700,000 700,000
------------
Total Municipal Short-Term Securities
(cost: $1,000,000) ............................. 1,000,000
------------
Total Investments in Securities
(cost: $121,442,356) (f) ....................... $129,191,432
------------
------------
</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:
INVERSE FLOATER - REPRESENTS SECURITIES THAT PAY INTEREST AT RATES THAT
INCREASE (DECREASE) IN THE SAME MAGNITUDE AS, OR IN A MULTIPLE OF, A
DECREASE (INCREASE) IN THE MARKET RATE PAID ON A RELATED, FLOATING
RATE SECURITY. INTEREST RATES DISCLOSED ARE IN EFFECT ON MARCH 31,
1998.
PREREFUNDED ISSUES ARE BACKED BY U.S. GOVERNMENT OBLIGATIONS. CROSSOVER
REFUNDED ISSUES ARE BACKED BY THE CREDIT OF THE REFUNDING ISSUER. IN
BOTH CASES THE BONDS ARE CALLED AND MATURE AT THE CALL DATE
INDICATED.
(c) SECURITIES PURCHASED AS PART OF A PRIVATE PLACEMENT WHICH HAS NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES
ACT OF 1933 AND ARE CONSIDERED TO BE ILLIQUID. ON MARCH 31, 1998, THE TOTAL
MARKET VALUE OF THESE INVESTMENTS WAS $385,171 OR 0.3% OF TOTAL NET ASSETS.
ADDITIONAL INFORMATION RELATED TO THIS SECURITY IS PRESENTED BELOW.
<TABLE>
<CAPTION>
SECURITY PAR DATE ACQUIRED COST BASIS
- ----------------------------------- --------- ------------- -----------
<S> <C> <C> <C>
SHAKOPEE INDUSTRIAL DEVELOPMENT $ 365,000 12/2/92 $ 365,000
</TABLE>
(D) CONSIDERED ILLIQUID BY THE ADVISOR. ON MARCH 31, 1998, THE TOTAL MARKET
VALUE OF THIS INVESTMENT WAS $1,470,000 OR 1.1% OF TOTAL NET ASSETS.
(E) ON MARCH 31, 1998, THE TOTAL COST OF INVESTMENTS PURCHASED ON A WHEN-ISSUED
BASIS WAS $498,615.
(F) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS
UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES,
BASED ON THIS COST WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 7,915,020
GROSS UNREALIZED DEPRECIATION ...... (165,944)
------------
NET UNREALIZED APPRECIATION ...... $ 7,749,076
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
114
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
- --------------------------------------------------------------------------------
115 1998 Semiannual Report - Piper Funds
<PAGE>
Glossary of Terms ***
- --------------------------------------------------------------------------------
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.
DEVALUED OR DEVALUATION
The lowering of the value of a country's currency relative to gold and/or the
currencies of other nations. Devaluation can also result from a rise in value of
other currencies relative to the currency of a particular country.
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.
FEDERAL FUNDS RATE
The federal funds rate is the interest rate 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.
OVERWEIGHTED OR OVERWEIGHTING
In portfolio management, overweighting means a fund's portfolio contains a
higher percentage of a certain sector than its benchmark.
SECTOR
Refers to a particular group of stocks, usually in one industry.
UNDERWEIGHTED OR UNDERWEIGHTING
In portfolio management, underweighting means a fund's portfolio contains a
lower percentage of a certain sector than its benchmark.
VALUATIONS
The determined or estimated value of a particular stock.
YIELD CURVE
A graph that shows the relationship between the interest rates paid on bonds and
their maturities, ranging from the shortest maturities to the longest available
(assuming the bonds are all of the same quality). The resulting curve indicates
whether short-term interest rates are higher or lower than long-term rates.
- --------------------------------------------------------------------------------
116 1998 Semiannual Report - Piper Funds
<PAGE>
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, Retired 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 ADVISOR
- --------------------------------------------------------------------------------
PIPER CAPITAL MANAGEMENT INCORPORATED, 222 South Ninth Street, Minneapolis, MN
55402-3804
SUBADVISOR (Emerging Markets Growth Fund and Pacific-European Growth Fund)
- --------------------------------------------------------------------------------
EDINBURGH FUND MANAGERS PLC, Donaldson House, 97 Haymarket Terrace, Edinburgh,
Scotland EH 12 5HD
TRANSFER AND DIVIDEND DISBURSING AGENTS
- --------------------------------------------------------------------------------
INVESTORS FIDUCIARY TRUST COMPANY, 1004 Baltimore, Kansas City, MO 64105-1614
PIPER JAFFRAY INC., 222 South Ninth Street, Minneapolis, MN 55402-3804
PIPER TRUST COMPANY, 222 South Ninth Street, Minneapolis, MN 55402-3804
CUSTODIAN
- --------------------------------------------------------------------------------
FIRST TRUST NATIONAL ASSOCIATION (PACIFIC-EUROPEAN GROWTH FUND)
180 East Fifth Street, St. Paul, MN 55101
INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania, Kansas City, MO 64105-1307
ACCOUNTING AGENT (Emerging Markets Growth Fund and Pacific-European Growth
Fund)
- --------------------------------------------------------------------------------
INVESTORS FIDUCIARY TRUST COMPANY, 801 Pennsylvania, Kansas City, MO 64105-1307
LEGAL COUNSEL
- --------------------------------------------------------------------------------
DORSEY & WHITNEY LLP, 220 South Sixth Street, Minneapolis, MN 55402
FOR MORE INFORMATION
BY PHONE [GRAPHIC]
800 866-7778
FOR GENERAL INFORMATION
press 5, our Mutual Fund Services representatives are ready to answer your
questions.
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 [GRAPHIC]
Mutual Fund Services,
19th Floor
222 South Ninth Street
Minneapolis, MN 55402-3804
In an effort to reduce costs to our shareholders, we have implemented a process
to reduce duplicate mailings of the fund's shareholder reports. This
householding process should allow us to mail one report to each address where
one or more registered shareholders with the same last name reside. If you
would like to have additional reports mailed to your address, please call our
Mutual Fund Services area at 800 866-7778, or mail a request to us.
ON-LINE [GRAPHIC]
http://www.piperjaffray.com/
<PAGE>
Piper Family of Funds
INTERNATIONAL GROWTH FUNDS
- --------------------------------------------------------------------------------
Emerging Markets Growth Fund
Pacific-European Growth Fund
International investments offer geographic diversification, often considered
essential for successful equity investing.
U.S. GROWTH FUNDS
- --------------------------------------------------------------------------------
Small Company Growth Fund
Emerging Growth Fund
Growth Fund
Portfolios that offer the opportunity for long-term capital appreciation are
valued by many investors for their potential to build wealth over time.
GROWTH AND INCOME FUNDS
- --------------------------------------------------------------------------------
Growth and Income Fund
Balanced Fund
Portfolios composed of quality stocks and bonds offer the potential for both
investment income and capital appreciation, considered a valuable combination by
many investors.
INCOME FUNDS
- --------------------------------------------------------------------------------
Government Income Fund
Intermediate Bond Fund
Adjustable Rate Mortgage Securities Fund
Many traditional investment strategies rely on the steady, dependable investment
income generated by debt obligations of corporations and government entities.
TAX-EXEMPT INCOME FUNDS
- --------------------------------------------------------------------------------
National Tax-Exempt Fund
Minnesota Tax-Exempt Fund
To counteract the impact of taxes on total investment return, many investors
find a tax-exempt fund often provides more spendable income.
CASH MANAGEMENT FUNDS*
- --------------------------------------------------------------------------------
Money Market Fund
U.S. Government Money Market Fund
Tax-Exempt Money Market Fund
Institutional Money Market Fund
An investment staple, cash management funds can help you organize your finances
and build your assets.
- ----------------------------------------------------
NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
- ----------------------------------------------------
Contact your Piper Jaffray Investment Executive for more information, including
prospectuses, about the Piper Funds or call Mutual Fund Services at
800 866-7778. Please read the prospectuses carefully before investing or sending
money.
*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.
SEI INVESTMENTS DISTRIBUTION CO., FUND DISTRIBUTOR AND NASD MEMBER.
#20001 5/1998 079-98
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