<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS For the Period Ended July 31, 1998*
................................................................................
<TABLE>
<CAPTION>
GOVERNMENT INTERMEDIATE
INCOME FUND BOND FUND
------------ -------------
<S> <C> <C>
INCOME:
Interest ................................................... $ 3,747,904 $ 3,343,251
Fee income (note 2) ........................................ 75,481 --
------------ -------------
Total income ............................................. 3,823,385 3,343,251
------------ -------------
EXPENSES (NOTE 5):
Investment management fee .................................. 265,576 158,930
Distribution and service fees:
CLASS A .................................................. 264,406 131,538
CLASS Y .................................................. -- --
Custodian and accounting fees .............................. 54,258 59,514
Transfer agent and dividend disbursing agent fees .......... 63,311 47,687
Registration fees .......................................... 14,410 19,648
Reports to shareholders .................................... 25,053 32,583
Directors' fees ............................................ 7,937 7,937
Audit and legal fees ....................................... 40,526 41,226
Other expenses ............................................. 6,961 6,864
------------ -------------
Total expenses ........................................... 742,438 505,927
Less Class A expenses waived by the distributor ........ (90,228) (37,323)
------------ -------------
Net expenses before expenses paid indirectly ............. 652,210 468,604
Less expenses paid indirectly .......................... (205) (64)
------------ -------------
Total net expenses ....................................... 652,005 468,540
------------ -------------
Net investment income .................................... 3,171,380 2,874,711
------------ -------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gain on investments (note 3) .................. 221,586 354,300
Net change in unrealized appreciation or depreciation of
investments .............................................. 648,930 (93,800)
------------ -------------
Net gain on investments .................................. 870,516 260,500
------------ -------------
Net increase in net assets resulting from operations ... $ 4,041,896 $ 3,135,211
------------ -------------
------------ -------------
* DATE FUNDS DISCONTINUED OPERATIONS DUE TO MERGER. SEE NOTE 1 IN THE NOTES TO FINANCIAL
STATEMENTS.
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
1 1998 Annual Report - Income Funds
<PAGE>
Financial Statements (continued)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
................................................................................
<TABLE>
<CAPTION>
GOVERNMENT INCOME FUND INTERMEDIATE BOND FUND
----------------------------- -----------------------------
Period Ended Year Ended Period Ended Year Ended
7/31/98* 9/30/97 7/31/98* 9/30/97
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ...................................... $ 3,171,380 $ 4,770,030 $ 2,874,711 $ 5,962,017
Net realized gain on investments ........................... 221,586 697,901 354,300 281,651
Net change in unrealized appreciation or depreciation of
investments .............................................. 648,930 2,063,487 (93,800) 2,015,896
------------- ------------- ------------- -------------
Net increase in net assets resulting from operations ..... 4,041,896 7,531,418 3,135,211 8,259,564
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
CLASS A:
From net investment income ............................... (3,328,229) (4,771,839) (2,262,077) (5,402,892)
Tax return of capital .................................... (5,804) -- (108,938) --
CLASS Y:
From net investment income ............................... -- -- (480,552) (559,127)
Tax return of capital .................................... -- -- (23,143) --
------------- ------------- ------------- -------------
Total distributions ...................................... (3,334,033) (4,771,839) (2,874,710) (5,962,019)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
CLASS A .................................................... (67,976,240) (19,319,777) (64,573,447) (73,660,708)
CLASS Y .................................................... -- -- (14,073,799) 13,912,070
------------- ------------- ------------- -------------
Decrease in net assets from capital share transactions ... (67,976,240) (19,319,777) (78,647,246) (59,748,638)
------------- ------------- ------------- -------------
Total decrease in net assets ............................. (67,268,377) (16,560,198) (78,386,745) (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 ................................ $ -- $ 67,268,377 $ -- $ 78,386,745
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Distributions in excess of net investment income ........... $ -- $ -- $ -- $ (125,225)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
* DATE FUNDS DISCONTINUED OPERATIONS DUE TO MERGER. SEE NOTE 1 IN THE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
2 1998 Annual Report - Income Funds
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) ORGANIZATION
................................
Piper Funds Inc. (Piper Funds) is registered under the
Investment Company Act of 1940 (as amended) as a single,
open-end management investment company. Piper Funds has 12
series, including Government Income Fund and Intermediate
Bond Fund. Each fund is classified as a diversified
series.
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 were:
CLASS A:
- Subject to a front-end sales charge
- Subject to distribution and service fees
CLASS Y:
- Required 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 had the
same rights and were identical in all respects except that
each class had different distribution expenses, had
exclusive voting rights with respect to matters affecting
that class and had different exchange privileges.
Government Income Fund had a single class of shares, which
is shown as Class A in the financial statements.
Government Income Fund invested 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 invested primarily in a broad range
of investment-quality debt securities.
On May 1, 1998, Piper Jaffray Companies Inc., the parent
company of the funds' investment advisor, was acquired by
U.S. Bancorp. U.S. Bancorp is a multi-state bank holding
company headquartered in Minneapolis, Minnesota with a
geographic service area spanning 17 states. As of June 30,
1998, U.S. Bancorp was the 14th largest U.S. commercial
bank holding company, with assets of nearly $73.8 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 June 30, 1998, U.S. Bank, acting through
its First American Asset Management group, managed more
than $77.5 billion in assets, including approximately
$28.4 billion in assets of the First American Funds.
- --------------------------------------------------------------------------------
3 1998 Annual Report - Income Funds
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
As discussed in note 7, the net assets of Government
Income Fund and Intermediate Bond Fund were acquired by
First American Investment Funds, Inc. - Fixed Income Fund
and Intermediate Term Income Fund, respectively, effective
at the close of business on July 31, 1998. It is
anticipated that the company will be dissolved under
Minnesota law as soon as practicable.
(2) SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES
................................
INVESTMENTS IN SECURITIES
Portfolio securities for which market quotations were
readily available were valued at current market value. If
market quotations or valuations were not readily
available, or if such quotations or valuations were
believed to be inaccurate, unreliable or not reflective of
market value, portfolio securities were 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 have reasonably expected to receive for the security
or other asset upon its current sale.
The current market value of certain fixed income
securities was provided by an independent pricing service.
Fixed income securities for which prices were not
available from an independent pricing service but where an
active market exists were 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
were valued at amortized cost, which approximated market
value.
Securities transactions were accounted for on the date
securities were purchased or sold. Realized gains and
losses were calculated on the identified-cost basis.
Interest income, including amortization of bond discount
and premium, is recorded on an accrual basis.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities that were purchased by
the funds on a when-issued or forward-commitment basis
could take place a month or more after the transaction
date. During this period, such securities did not earn
interest, were subject to market fluctuation and may have
increased or decreased in value prior to their delivery.
The funds segregated, 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 have increased the
volatility of the funds' net asset value if the funds made
such purchases while remaining substantially fully
invested.
In connection with their ability to purchase securities on
a when-issued or forward-commitment basis, Government
Income Fund entered into mortgage dollar rolls in which
the fund sold securities purchased on a forward commitment
basis and simultaneously contracted with a counterparty to
repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date. As an
inducement to "roll over" its purchase commitments, the
fund received negotiated fees. For the period ended July
31, 1998, such fees earned amounted to $75,481 for
Government Income Fund.
- --------------------------------------------------------------------------------
4 1998 Annual Report - Income Funds
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
FEDERAL TAXES
Each fund is treated separately for federal income tax
purposes. Prior to discontinuing operations, each fund
complied with the requirements of the Internal Revenue
Code applicable to regulated investment companies in order
to avoid payment of federal income tax. The funds
distributed their taxable net investment income and
realized gains to avoid the payment of any federal excise
tax.
Net investment income and net realized gains (losses) may
have differed 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 have differed
from its ultimate characterization for federal income tax
purposes. In addition, due to the timing of dividend
distributions, the fiscal year in which amounts were
distributed may have differed from the year that the
income or realized gains or losses were recorded by the
funds.
As a result of permanent book-to-tax differences,
reclassification adjustments were made prior to the
mergers of the funds as follows:
<TABLE>
<CAPTION>
GOVERNMENT INTERMEDIATE
INCOME FUND BOND FUND
------------ -------------
<S> <C> <C>
Decrease distributions in excess of net
investment income .................... $156,849 $ --
Decrease undistributed net investment
income ............................... $ -- $ 6,857
Increase accumulated net realized loss
on investment ........................ $160,695 $ --
Increase additional paid in captial .... $ 3,846 $ 6,857
</TABLE>
ALLOCATION OF INCOME, EXPENSES AND GAINS (LOSSES)
Income, expenses (other than class-specific expenses) and
realized and unrealized gains and losses for Intermediate
Bond Fund were allocated daily to each class of shares
based upon the relative proportion of net assets
represented by such class. Class-specific expenses, which
included distribution and service fees, were charged
directly to such class.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders from net investment income
for Government Income Fund were declared daily and paid
monthly. Distributions to shareholders from net investment
income for Intermediate Bond Fund were declared separately
for each class daily and paid monthly. Net realized gains
distributions for the funds, if any, were made at least
annually. Distributions were 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, transferred uninvested
cash balances to a joint trading account, the daily
aggregate of which was invested in repurchase agreements
secured by U.S. government or agency obligations.
Securities pledged as collateral for all individual and
joint repurchase agreements were held by the funds'
custodian bank until maturity of the repurchase agreement.
Provisions for all agreements ensured that the daily
market value of the collateral was in excess of the
repurchase amount, including accrued interest, to protect
the funds in the event of a default.
- --------------------------------------------------------------------------------
5 1998 Annual Report - Income Funds
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles required
management to make estimates and assumptions that affected
the reported amounts in the financial statements. Actual
results could have differed from these estimates.
(3) INVESTMENT
SECURITY
TRANSACTIONS
................................
Cost of purchases and proceeds from sales of securities,
other than temporary investments in short-term securities
and dollar roll transactions, for the period ended July
31, 1998 were as follows:
<TABLE>
<CAPTION>
GOVERNMENT INTERMEDIATE
INCOME FUND BOND FUND
----------- -------------
<S> <C> <C>
Purchases .............................. $13,985,396 $ 2,348,999
Proceeds from sales .................... $28,808,201 $ 27,098,153
</TABLE>
Including dollar rolls for Government Income Fund,
purchases and sales aggregated $49,048,287 and
$63,871,092, respectively.
(4) CAPITAL SHARE
TRANSACTIONS
................................
Capital share transactions for the funds were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
JULY 31, 1998(b) SEPTEMBER 30, 1997
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
GOVERNMENT INCOME FUND:
Sales of fund shares ................. 937,630 $ 8,714,404 686,546 $ 6,139,195
Issued for reinvested
distributions ...................... 281,562 2,611,180 406,146 3,630,952
Redemptions of fund shares ........... (2,307,534) (21,422,174) (3,247,825) (29,089,924)
Merger into Fixed Income Fund (note
7) ................................. (6,252,012) (57,879,650) -- --
---------- ------------ ---------- ------------
(7,340,354) $(67,976,240) (2,155,133) $(19,319,777)
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED
JULY 31, 1998(b) SEPTEMBER 30, 1997(a)
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
INTERMEDIATE BOND FUND:
CLASS A
Sales of fund shares ................. 102,373 $ 788,322 412,880 $ 3,127,050
Issued for reinvested
distributions ...................... 194,317 1,496,893 467,515 3,535,885
Redemptions of fund shares ........... (2,979,130) (22,932,706) (8,391,651) (63,548,352)
Redemptions in exchange for Class Y
shares ............................. -- -- (2,201,482) (16,775,291)
Merger into Intermediate Term Income
Fund Class A (note 7) .............. (5,708,848) (43,925,956) -- --
---------- ------------ ---------- ------------
(8,391,288) $(64,573,447) (9,712,738) $(73,660,708)
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
CLASS Y
Sales of fund shares ................. 77,751 $ 600,490 37,581 $ 284,580
Sales in exchange for Class A
shares ............................. -- -- 2,201,482 16,775,291
Issued for reinvested
distributions ...................... 31,746 244,595 41,735 316,060
Redemptions of fund shares ........... (782,115) (6,075,058) (459,438) (3,463,861)
Merger into Intermediate Term Income
Fund Class Y (note 7) .............. (1,148,742) (8,843,826) -- --
---------- ------------ ---------- ------------
(1,821,360) $(14,073,799) 1,821,360 $ 13,912,070
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
(a) REPRESENTS PERIOD FROM FEBRUARY 18 (COMMENCEMENT OF OFFERING OF SHARES) TO
SEPTEMBER 30, 1997.
(b) PERIOD FROM OCTOBER 1, 1997 TO JULY 31, 1998 (DATE OF MERGER).
- --------------------------------------------------------------------------------
6 1998 Annual Report - Income Funds
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
Piper Jaffray Inc. (Piper Jaffray) acted as distributor
for the funds from inception through April 30, 1998. On
May 1, 1998, SEI Investments Distribution Corporation
(SEI) assumed the role of the funds' distributor. SEI is
not an affiliate of Piper Capital Management Incorporated
or of the funds. Sales charges received by Piper Jaffray,
the funds' distributor, for distributing the funds' shares
from October 31, 1998 through April 30, 1998, were as
follows:
<TABLE>
<CAPTION>
INTERMEDIATE
BOND FUND
GOVERNMENT ----------------------
INCOME FUND CLASS A CLASS Y
------------ -------- -----------
<S> <C> <C> <C>
Front-end sales charges ................ $8,779 $3,663 $ --
Contingent deferred sales charges ...... 1,165 628 --
------------ -------- ---
$9,944 $4,291 $ --
------------ -------- ---
------------ -------- ---
</TABLE>
(5) EXPENSES
................................
INVESTMENT MANAGEMENT FEE
Piper Funds entered into investment management agreements
with Piper Capital Management Incorporated (Piper Capital)
under which Piper Capital managed each fund's assets and
furnished related office facilities, equipment, research
and personnel. The agreements required each fund to pay
Piper Capital a monthly fee based on average daily net
assets. The fees for each fund were 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. For the period ended July 31, 1998, the effective
management fees paid by the funds were 0.50% and 0.30% on
an annual basis for Government Income Fund and
Intermediate Bond Fund, respectively.
DISTRIBUTION AND SERVICE FEES
Piper Jaffray acted as distributor for the funds from
inception through April 30, 1998. On May 1, 1998, SEI
Investments Distribution Corporation (SEI) assumed the
role of the funds' distributor. Each fund paid Piper
Jaffray and SEI fees accrued daily and paid quarterly, for
providing shareholder services and distribution-related
services for the periods referred to above. The fees for
each fund, which were being voluntarily limited for
Government Income Fund and Class A of Intermediate Bond
Fund for the period ended July 31, 1998, are stated below
as a percent of average daily net assets attributable to
such shares.
<TABLE>
<CAPTION>
INTERMEDIATE
BOND FUND
GOVERNMENT ---------------------
INCOME FUND CLASS A CLASS Y
------------ -------- ----------
<S> <C> <C> <C>
Distribution fee ....................... 0.25% 0.05% --
Service fee ............................ 0.25% 0.25% --
------ -------- ----------
Total distribution and service
fees ............................... 0.50% 0.30% --
------ -------- ----------
------ -------- ----------
Total distribution and service fees
after voluntary limitation ......... 0.34% 0.22% --
------ -------- ----------
------ -------- ----------
</TABLE>
SHAREHOLDER ACCOUNT SERVICING FEES
The company also entered into shareholder account
servicing agreements under which Piper Jaffray and Piper
Trust Company (Piper Trust) performed various transfer and
dividend disbursing agent services for accounts held at
the respective company. The fees, which were paid monthly
to Piper
- --------------------------------------------------------------------------------
7 1998 Annual Report - Income Funds
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
Jaffray and Piper Trust for providing these services, were
equal to an annual rate of $7.50 per active shareholder
account and $1.60 per closed account. For the period ended
July 31, 1998, Piper Jaffray and Piper Trust received the
following amounts in connection with the shareholder
account servicing agreements:
<TABLE>
<CAPTION>
GOVERNMENT INTERMEDIATE
INCOME FUND BOND FUND
------------ -------------
<S> <C> <C>
Piper Jaffray .......................... $26,455 $10,692
Piper Trust ............................ 5,684 915
------------ -------------
$32,139 $11,607
------------ -------------
------------ -------------
</TABLE>
OTHER FEES AND EXPENSES
In addition to the investment management, distribution and
shareholder account servicing fees, each fund was
responsible for paying most other operating expenses
including: outside directors' fees and expenses; custodian
fees; registration fees; printing and shareholder reports;
transfer agent fees and expenses; legal, auditing and
accounting services; insurance; interest; taxes and other
miscellaneous expenses.
Expenses paid indirectly represented 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 the date of the merger, which,
if not offset by subsequent capital gains, will expire on
the funds' fiscal year-ends as indicated below. As a
result of the acquisition of the funds' net assets by
First American Investment Funds, Inc.--Fixed Income Fund
and Intermediate Term Income Fund, these capital loss
carryovers will be available to Fixed Income Fund and
Intermediate Term Income Fund, subject to certain
limitations. It is unlikely the boards of the acquiring
funds will authorize a distribution of any net realized
capital gains until the available capital loss carryovers
have been offset or expire. Utilization of these capital
loss carryovers by First American Investment Funds, Inc. -
Fixed Income Fund and Intermediate Term Income Fund in the
year ended September 30, 1998 is limited to $474,993 and
432,277, respectively. In subsequent years, utilization of
these capital loss carryovers is limited to $2,989,179 per
year and $2,720,363 per year, respectively.
<TABLE>
<CAPTION>
GOVERNMENT INTERMEDIATE
INCOME FUND BOND FUND
- -------------------------- ----------------------------
CAPITAL LOSS CAPITAL LOSS
CARRYOVER EXPIRATION CARRYOVER EXPIRATION
- -------------- ---------- --------------- ----------
<S> <C> <C> <C>
$ 781,426 2002 $ 180,104,699 2003
13,367,115 2003 95,748,876 2004
1,723,511 2004
- -------------- ---------------
$ 15,872,052 $ 275,853,575
- -------------- ---------------
- -------------- ---------------
</TABLE>
(7) MERGER
................................
At a special meeting held July 10, 1998, shareholders of
Government Income Fund and Intermediate Bond Fund approved
a plan under which the funds' net assets were acquired by
First American Investment Funds, Inc. - Fixed Income Fund
and Intermediate Term Income Fund, respectively, each of
which is a diversified series of an open-end investment
management company. These tax-free reorganizations were
effective July 31, 1998.
- --------------------------------------------------------------------------------
8 1998 Annual Report - Income Funds
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
The following table presents the composition of the net
assets of the funds immediately prior to the mergers.
<TABLE>
<CAPTION>
GOVERNMENT INTERMEDIATE
INCOME FUND BOND FUND
------------ -------------
<S> <C> <C>
Capital stock and additional paid-in
capital .............................. $ 70,536,725 $ 327,633,994
Accumulated net realized loss on
investments .......................... (16,068,218) (275,855,768)
Unrealized appreciation of
investments .......................... 3,411,143 991,556
------------ -------------
Total - representing net assets
applicable to capital stock .......... $ 57,879,650 $ 52,769,782
------------ -------------
------------ -------------
CLASS A:
Net assets ........................... $ 57,879,650 $ 43,925,956
Net asset value ...................... $ 9.258 $ 7.694
Shares outstanding ................... 6,252,012 5,708,848
CLASS Y:
Net assets ........................... -- $ 8,843,826
Net asset value ...................... -- $ 7.699
Shares outstanding ................... -- 1,148,742
</TABLE>
- --------------------------------------------------------------------------------
9 1998 Annual Report - Income Funds
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
(8) FINANCIAL
HIGHLIGHTS
................................
Per-share data for a share of capital stock outstanding
throughout each period and selected information for each
period are as follows:
GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
Period Ended Year Ended September 30,
July 31, ------------------------------------------------
1998(c) 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 ................ 0.49 0.57 0.60 0.60 0.69 0.80
Net realized and unrealized gains
(losses) on investments ............ 0.10 0.33 (0.16) 0.60 (1.58) 0.15
------------- ------- ------- ------- ------- -------
Total from operations .............. 0.59 0.90 0.44 1.20 (0.89) 0.95
------------- ------- ------- ------- ------- -------
Distributions to shareholders:
From net investment income ........... (0.49) (0.57) (0.60) (0.63) (0.68) (0.80)
From net realized gains .............. -- -- -- -- (0.02) --
------------- ------- ------- ------- ------- -------
Total distributions to
shareholders ..................... (0.49) (0.57) (0.60) (0.63) (0.70) (0.80)
------------- ------- ------- ------- ------- -------
Net asset value, date of merger
(7/31/98) ............................ (9.26) -- -- -- -- --
------------- ------- ------- ------- ------- -------
Net asset value, end of period ......... $ -- $ 9.16 $ 8.83 $ 8.99 $ 8.42 $ 10.01
------------- ------- ------- ------- ------- -------
------------- ------- ------- ------- ------- -------
SELECTED INFORMATION
Total return (a) ....................... 6.54% 10.49% 4.99% 14.87% (9.26)% 10.06%
Net assets at end of period (in
millions) ............................ -- $ 67 $ 84 $ 106 $ 126 $ 160
Ratio of expenses to average daily net
assets ............................... 1.23%(b) 1.19% 1.09% 1.11% 1.05% 1.09%
Ratio of net investment income to
average daily net assets ............. 5.98%(b) 6.32% 6.66% 7.02% 7.43% 8.10%
Portfolio turnover rate (excluding
short-term securities and dollar roll
transactions) ........................ 20% 21% 32% 87% 121% 191%
Ratios before waivers by the
distributor:
Ratio of expenses to average daily net
assets before waivers .............. 1.40%(b) 1.35% 1.28% 1.29% 1.24% 1.27%
Ratio of net investment income to
average daily net assets before
waivers ............................ 5.81%(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.
(c) DATE FUND DISCONTINUED OPERATIONS DUE TO MERGER. SEE NOTE 1 IN THE NOTES TO
FINANCIAL STATMENTS.
- --------------------------------------------------------------------------------
10 1998 Annual Report - Income Funds
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
(8) FINANCIAL HIGHLIGHTS
(CONTINUED)
................................
Per-share data for a share of capital stock outstanding
throughout each period and selected information for each
period are as follows:
INTERMEDIATE BOND FUND
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------
Period
Ended Year Ended September 30,
July 31, --------------------------------------------------
1998(f) 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 ........... 0.35 0.44 0.53(c) 0.88 0.90 1.29
Net realized and unrealized gains
(losses) on investments ....... 0.02 0.17 (0.11) 0.31 (3.96) 0.56
----------- ------- ------- ------- ------- -------
Total from operations ......... 0.37 0.61 0.42 1.19 (3.06) 1.85
----------- ------- ------- ------- ------- -------
Distributions to shareholders:
From net investment income ...... (0.33) (0.44) (1.04) (1.05) (0.95) (0.90)
From net realized gains ......... -- -- -- -- (0.23) (0.24)
Tax return of capital ........... (0.02) -- -- -- -- --
----------- ------- ------- ------- ------- -------
Total distributions to
shareholders ................ (0.35) (0.44) (1.04) (1.05) (1.18) (1.14)
----------- ------- ------- ------- ------- -------
Net asset value, date of merger
(7/31/98) ....................... (7.69) -- -- -- -- --
----------- ------- ------- ------- ------- -------
Net asset value, end of period .... $ -- $ 7.67 $ 7.50 $ 8.12 $ 7.98 $ 12.22
----------- ------- ------- ------- ------- -------
----------- ------- ------- ------- ------- -------
SELECTED INFORMATION
Total return (a) .................. 4.93% 8.29% 5.68% 16.15% (26.65)% 17.04%
Net assets at end of period (in
millions) ....................... $ -- $ 64 $ 136 $ 319 $ 564 $ 792
Ratio of expenses to average daily
net assets (b) .................. 0.92%(e) 0.85% 0.72% 0.97% 0.78% 0.70%
Ratio of net investment income to
average daily net assets ........ 5.40%(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) ........................... 1.01%(e) 0.93% 0.82% 1.07% 0.85% 0.77%
Ratio of net investment income to
average daily net assets before
waivers ....................... 5.31%(e) 5.75% 6.55% 7.92% 9.26% 12.44%
</TABLE>
<TABLE>
<CAPTION>
CLASS Y
------------------------------------------------
Period Ended Period Ended
July 31, 1998(f) September 30, 1998(d)
-------------------- -------------------------
<S> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ... $ 7.68 $ 7.62
------- -------
Operations:
Net investment income ................ 0.36 0.28
Net realized and unrealized gains on
investments ........................ 0.02 0.06
------- -------
Total from operations .............. 0.38 0.34
------- -------
Distributions to shareholders:
From net investment income ........... (0.34) (0.28)
Tax return of capital ................ (0.02) --
------- -------
Total distributions to
shareholders ..................... (0.36) (0.28)
------- -------
Net asset value, date of merger
(7/31/98) ............................ (7.70) --
------- -------
Net asset value, end of period ......... $ -- $ 7.68
------- -------
------- -------
SELECTED INFORMATION
Total return (a) ....................... 5.05% 4.58%
Net assets at end of period (in
millions) ............................ $ -- $ 14
Ratio of expenses to average daily net
assets ............................... 0.70%(e) 0.57%(e)
Ratio of net investment income to
average daily net assets ............. 5.63%(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.
(f) DATE FUND DISCONTINUED OPERATIONS DUE TO MERGER. SEE NOTE 1 TO THE NOTES TO
FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
11 1998 Annual Report - Income Funds
<PAGE>
Independent Auditors' Report
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS AND SHAREHOLDERS
PIPER FUNDS INC.:
We have audited the accompanying statements of operations
of Government Income Fund and Intermediate Bond Fund
(funds within Piper Funds Inc.) for the period from
October 1, 1997 to July 31, 1998 (date of fund mergers),
the statements of changes in net assets for the period
from October 1, 1997 to July 31, 1998, and the year ended
September 30, 1997, and the financial highlights for
periods presented in note 8 to the financial statements.
These financial statements and the financial highlights
are the responsibility of the funds' management. Our
responsibility is to express an opinion on these financial
statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and the
financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the
accounting principles used and significant estimates made
by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and the financial
highlights referred to above present fairly, in all
material respects, for Government Income Fund and
Intermediate Bond Fund, the results of their operations,
the changes in their net assets and the financial
highlights for the periods stated in the first paragraph
above, in conformity with generally accepted accounting
principles.
As described in note 1 to the financial statements,
Government Income Fund and Intermediate Bond Fund merged
into Fixed Income Fund and Intermediate Term Income Fund
(each a series of First American Investment Funds, Inc.),
respectively, on July 31, 1998.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
September 11, 1998
- --------------------------------------------------------------------------------
12 1998 Annual Report - Income Funds
<PAGE>
Federal Income Tax Information
- --------------------------------------------------------------------------------
The following per-share information describes the federal
tax treatment of distributions made during the fiscal
year. Distributions for the calendar year will be reported
on Form 1099-DIV. Please consult a tax advisor on how to
report these distributions at the state and local levels.
INCOME DISTRIBUTIONS (99.8% AND 95.4% TAXABLE AS ORDINARY
DIVIDENDS, NONE QUALIFYING FOR DEDUCTION BY CORPORATIONS,
AND 0.2% AND 4.6% TAX RETURN OF CAPITAL FOR GOVERNMENT
INCOME FUND AND INTERMEDIATE BOND FUND, RESPECTIVELY)
<TABLE>
<CAPTION>
INTERMEDIATE
GOVERNMENT BOND FUND
INCOME ---------------------
PAYABLE DATE FUND CLASS A CLASS Y
- ---------------------------------------- ----------- --------- ---------
<S> <C> <C> <C>
October 1, 1997 ........................ $0.0481 $ 0.0312 $ 0.0354
November 3, 1997 ....................... 0.0465 0.0361 0.0377
December 2, 1997 ....................... 0.0450 0.0360 0.0374
January 2, 1998 ........................ 0.0482 0.0360 0.0375
February 2, 1998 ....................... 0.0464 0.0341 0.0356
March 2, 1998 .......................... 0.0463 0.0370 0.0382
April 1, 1998 .......................... 0.0488 0.0293 0.0306
May 1, 1998 ............................ 0.0468 0.0351 0.0364
June 2, 1998 ........................... 0.0455 0.0351 0.0366
July 1, 1998 ........................... 0.0463 0.0370 0.0383
July 31, 1998 .......................... 0.0708 0.0317 0.0333
----------- --------- ---------
Total ................................ $0.5387 $ 0.3786 $ 0.3970
----------- --------- ---------
----------- --------- ---------
</TABLE>
- --------------------------------------------------------------------------------
13 1998 Annual Report - Income Funds
<PAGE>
Shareholder Update
- --------------------------------------------------------------------------------
SPECIAL MEETING RESULTS
A special meeting of the funds' shareholders was held on
July 10, 1998. Each matter voted upon at that meeting, as
well as the number of votes cast for, against or withheld,
the number of abstentions, and the number of broker
non-votes with respect to such matters, are set forth
below.
1. PROPOSAL TO RATIFY AND APPROVE AN INTERIM ADVISORY
AGREEMENT between the funds and Piper Capital
Management Incorporated ("Piper Capital") and the
receipt of investment advisory fees by Piper Capital
under such agreement.
<TABLE>
<CAPTION>
GOVERNMENT INTERMEDIATE BOND FUND
INCOME FUND ---------------------------
------------ CLASS A CLASS Y
SHARES VOTED SHARES VOTED SHARES VOTED
------------ ------------ ------------
<S> <C> <C> <C>
For .................................... 6,023,175 5,896,468 1,162,896
Against ................................ 160,107 146,662 --
Abstain ................................ 275,060 162,611 --
------------ ------------ ------------
Total .................................. 6,458,342 6,205,741 1,162,896
</TABLE>
2. PROPOSAL TO APPROVE AN AGREEMENTAND PLAN OF
REORGANIZATION providing for the transfer of the
assets and liabilities of Government Income Fund and
Intermediate Bond Fund, respectively, to funds of
First American Investment Funds, Inc. ("FAIF"), in
exchange for shares of the same class of shares of
FAIF Fixed Income Fund and FAIF Intermediate Term
Income Fund.
<TABLE>
<CAPTION>
GOVERNMENT INTERMEDIATE BOND FUND
INCOME FUND ---------------------------
------------ CLASS A CLASS Y
SHARES VOTED SHARES VOTED SHARES VOTED
------------ ------------ ------------
<S> <C> <C> <C>
For .................................... 3,337,396 3,211,763 1,133,738
Against ................................ 134,361 125,426 --
Abstain ................................ 273,694 186,608 --
Broker Non-Vote ........................ 2,712,891 2,681,945 29,158
------------ ------------ ------------
Total .................................. 6,458,342 6,205,742 1,162,896
</TABLE>
- --------------------------------------------------------------------------------
14 1998 Annual Report - Income Funds
