<PAGE>
AMERICAN GOVERNMENT
TERM TRUST
* * *
SEMIANNUAL REPORT
1995
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
FUND PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . 1
LETTER TO SHAREHOLDERS . . . . . . . . . . . . . . . . . . . 2
FINANCIAL STATEMENTS AND NOTES . . . . . . . . . . . . . . . 5
INVESTMENTS IN SECURITIES. . . . . . . . . . . . . . . . . . 17
SHAREHOLDER UPDATE . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
AMERICAN GOVERNMENT TERM TRUST
American Government Term Trust is a diversified, closed-end investment
management company. The fund's objective is to provide high current income and
return $10 per share on or shortly before August 31, 2001. The fund invests
primarily in U.S. government mortgage-backed and zero-coupon securities. It may
also invest in other U.S. government securities and privately issued
mortgage-backed securities. The fund's investments in mortgage-backed securities
may include derivative mortgage securities. The fund may also invest in
structured securities which include foreign linked index securities. In
addition, the fund may borrow by entering into reverse repurchase agreements and
may purchase securities through the sale-forward (dollar-roll) program. Use of
these investments and investment techniques may cause the fund's net asset value
(NAV) to fluctuate to a greater extent than would be expected from interest rate
movements alone. As with other investment companies, there can be no assurance
the fund will achieve its objective. Since its inception on January 26, 1989,
the fund has been rated AAA-f by Standard & Poor's Corporation (S&P).*
Fund shares trade on the New York Stock Exchange under the
symbol AGT.
*THE FUND IS RATED AAA-f, WHICH MEANS INVESTMENTS IN THE FUND HAVE AN OVERALL
CREDIT QUALITY OF AAA. CREDIT QUALITIES ARE ASSESSED BY STANDARD & POOR'S MUTUAL
FUNDS RATING GROUP. S&P DOES NOT EVALUATE THE MARKET RISK OF AN INVESTMENT WHEN
ASSIGNING A CREDIT RATING. SEE STANDARD & POOR'S CORPORATE AND MUNICIPAL RATING
DEFINITIONS FOR AN EXPLANATION OF AAA.
THE FUND HAS ALSO BEEN GIVEN A MARKET RISK RATING BY S&P, WHICH WE CANNOT
PUBLISH DUE TO NASD REGULATIONS. RISK RATINGS EVALUATE VARIOUS INVESTMENT RISKS
THAT CAN AFFECT THE PERFORMANCE OF A BOND FUND AND INDICATE THE FUND'S OVERALL
STABILITY AND SENSITIVITY TO CHANGING MARKET CONDITIONS. THESE RATINGS ARE
AVAILABLE BY CALLING S&P AT 1-800-424-FUND.
<PAGE>
FUND PERFORMANCE
AVERAGE ANNUALIZED TOTAL RETURNS FOR THE PERIODS ENDED MAY 31, 1995
[Graph]
American Government Term Trust's average annualized total return figures are
based on the change in its net asset value (NAV), assume all distributions were
reinvested and do not reflect the fund's sales charge. NAV-based performance is
used to measure investment management results.
Average annualized total return figures based on the change in market price for
the one-year, five-year and since inception periods ended May 31, 1995, were
- -13.97%, 3.16% and 4.30%, respectively. These figures also assume distributions
were reinvested and do not reflect sales charges.
The Lehman Brothers Mutual Fund Government/Mortgage Index is comprised of all
U.S. government agency and Treasury securities and agency mortgage-backed
securities. Developed by Lehman Brothers for comparative use by the mutual fund
industry, this index is unmanaged and does not include any fees or expenses in
its total return figures.
The Lipper Closed-End U.S. Mortgage Funds: Term Trusts Average represents the
average total return of 29 similar closed-end funds with termination dates. This
average assumes reinvestment of distributions and does not reflect sales
charges.
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.
1
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AMERICAN GOVERNMENT TERM TRUST
July 17, 1995
Dear Shareholders:
ON APRIL 19, 1995, WE ANNOUNCED THAT WE WOULD REDUCE THE MONTHLY DIVIDEND FOR
AMERICAN GOVERNMENT TERM TRUST TO $0.04 PER SHARE EFFECTIVE WITH THE MAY
DISTRIBUTION. We also announced that the fund's reduced earning capacity due to
losses realized in 1994 would likely affect the fund's ability to return $10 per
share to shareholders upon its scheduled termination in August 2001. In light of
these factors, we submitted a proposal to the fund's board of directors in July
recommending the early termination of the fund and the return of the fund's net
assets to shareholders. If the board of directors votes in favor of this
proposal, we will then present it to shareholders for a vote.
THROUGH EARLY 1994, AMERICAN GOVERNMENT TERM TRUST WAS GENERALLY ON TARGET TO
ACHIEVE ITS OBJECTIVE OF RETURNING $10 PER SHARE. The strategy of the fund has
been to invest in a pool of zero-coupon bonds that mature prior to August 31,
2001, with a stated principal amount equal to $10 per share and a pool of
non-zero-coupon bonds which provide cash flow to pay the monthly dividend until
termination. However, during the volatile market environment of 1994, the fund
suffered significant losses in the non-zero-coupon bond portion of the fund,
which reduced the fund's earning capacity. This portion of the fund included
collateralized mortgage obligation derivatives and other mortgage-backed
securities.
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THE PORTFOLIO MANAGEMENT TEAM OF AMERICAN GOVERNMENT TERM TRUST WAS CHANGED IN
MARCH TO INCLUDE MIKE JANSEN (TOP), TOM MCGLINCH (MIDDLE) AND KEVIN JANSEN
(BOTTOM). MIKE JANSEN, WHO IS PRIMARILY RESPONSIBLE FOR THE MANAGEMENT OF THE
FUND, HAS EXTENSIVE KNOWLEDGE IN MORTGAGE SECURITIES AND 14 YEARS OF FINANCIAL
EXPERIENCE. TOM MCGLINCH, WHO ASSISTS WITH THE FUND'S MANAGEMENT, IS A CHARTERED
FINANCIAL ANALYST WITH 14 YEARS OF FINANCIAL EXPERIENCE. KEVIN JANSEN, WHO ALSO
ASSISTS WITH THE MANAGEMENT OF THE FUND, HAS SEVEN YEARS OF FINANCIAL
EXPERIENCE, ALSO IN MORTGAGE SECURITIES.
2
<PAGE>
AMERICAN GOVERNMENT TERM TRUST
IF THE ZERO-COUPON BONDS CURRENTLY HELD BY THE PORTFOLIO COULD BE HELD TO
MATURITY, SHAREHOLDERS WOULD RECEIVE APPROXIMATELY $10 PER SHARE UPON
TERMINATION OF THE FUND. However, tax regulations require the fund to pay
dividends to shareholders in an amount equal to the accreted annual income on
the zero-coupon bonds plus the income earned on the balance of the portfolio. We
expected that we would be able to pay these dividends by liquidating
substantially all of the fund's assets other than the zero-coupon bonds over
time. However, as a result of the losses realized in 1994, the non-zero-coupon
bond portion of the portfolio is now too small to generate the cash needed to
make those dividend payments for the six years remaining until
maturity. Assuming that interest rates, income and dividend payments remain
stable, we would be forced to begin liquidating zero-coupon bonds sometime in
1998 to meet the tax accounting requirements related to distribution of income.
The sale of these zero-coupon bonds would reduce the net asset value of the fund
at termination, thereby preventing the fund from reaching its objective of
returning $10 per share.
TO INCREASE THE STABILITY OF THE FUND'S NET ASSET VALUE AND INCOME WHILE WE
EXPLORED OPTIONS FOR THE FUND, WE MADE SIGNIFICANT CHANGES IN THE FUND'S
PORTFOLIO IN RECENT MONTHS. As of May 31, 1995, we had sold all of the fund's
derivatives, mortgage-backed securities and municipal zero-coupon securities.
The proceeds were reinvested in short- and intermediate-term Treasury
securities, creating a portfolio that consists solely of Treasury securities.
<TABLE>
<CAPTION>
PORTOFOLIO COMPOSITION
May 31, 1995
<S> <C>
Short-Term Securities 1%
U.S. Treasury Fixed Coupon 19%
Other Assets 1%
U.S. Treasury Zero-Coupon 79%
</TABLE>
INVESTMENT CATEGORIES REFLECT PERCENTAGE OF TOTAL ASSETS.
3
<PAGE>
AMERICAN GOVERNMENT TERM TRUST
SIX-MONTH FUND PERFORMANCE
Since we last reported to you in January, the bond market has performed well as
the economy showed its first signs of slowing. American Government Term Trust
responded to this environment with a six-month net asset value total return of
16.17%,* as of May 31, 1995, including reinvested distributions but no sales
charge. This compares to the Lipper Closed-End U.S. Mortgage Funds: Term Trusts
Average return of 12.00% and the Lehman Brothers Mutual Fund Government/Mortgage
Index return of 11.01% for the same period. The fund's return based on market
price was -9.26%.
In early July, the Federal Reserve Board eased credit by lowering the federal
funds rate from 6% to 5.75%. Unfortunately, however, the fund's recent
performance and the Fed's latest actions do not change the long-term outlook
that the fund is unlikely to meet its objective of returning $10 per share.
* 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. DURING THE SIX MONTHS ENDED
MAY 31, 1995, CERTAIN INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES WERE WAIVED
BY PIPER CAPITAL. HAD FEES NOT BEEN WAIVED, THE FUND'S NET ASSET VALUE TOTAL
RETURN WOULD HAVE BEEN 16.04%.
OVER THE NEXT FEW WEEKS, THE FUND'S BOARD OF DIRECTORS WILL REVIEW OUR PROPOSAL
TO DETERMINE WHETHER THEY BELIEVE IT IS IN THE SHAREHOLDERS' BEST INTEREST. In
the meantime, Piper Capital will continue to waive its management and
administrative fees in order to help support the dividend, as we have been doing
since April 1995. We will waive these fees through at least November 1995, which
is the end of the fund's fiscal year. While we are disappointed that we are
unlikely to meet our objective of returning $10 per share, we believe we have
found a solution that is in the best interest of shareholders. We remain
committed to your investment needs and will continue to keep you updated on the
status of the proposal and your fund.
Sincerely,
/s/ Michael Jansen
Michael Jansen
Portfolio Manager
4
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FINANCIAL STATEMENTS (UNAUDITED)
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (including a
repurchase agreement of $972,000) (note 2) ........... $ 69,284,345
Receivable for investment securities sold ................ 42,187
Other assets ............................................. 8,912
Accrued interest receivable .............................. 154,267
----------------
Total assets ......................................... 69,489,711
----------------
LIABILITIES:
Payable for fund shares retired .......................... 37,867
Other accrued expenses ................................... 31,580
----------------
Total liabilities .................................... 69,447
----------------
Net assets applicable to outstanding capital stock ....... $ 69,420,264
----------------
----------------
REPRESENTED BY:
Capital stock - authorized 1 billion shares of $0.01 par
value; outstanding, 8,014,900 shares (note 6) ........ $ 80,149
Additional paid-in capital ............................... 71,773,040
Distributions in excess of net investment income ......... (236,422)
Accumulated net realized loss on investments ............. (4,629,421)
Unrealized appreciation of investments ................... 2,432,918
----------------
Total - representing net assets applicable to
outstanding capital stock ........................ $ 69,420,264
----------------
----------------
Net asset value per share of outstanding capital stock ... $ 8.66
----------------
----------------
* Investments in securities at identified cost ........... $ 66,851,427
----------------
----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
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FINANCIAL STATEMENTS (UNAUDITED)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MAY 31, 1995
<TABLE>
<S> <C>
INCOME:
Interest (net of interest expense of $61,730) .......... $ 2,483,945
Fee income (note 2) ...................................... 130,962
----------------
Total investment income .............................. 2,614,907
----------------
EXPENSES (NOTE 3):
Investment management fee ................................ 145,842
Administrative fee ....................................... 40,512
Custodian, accounting and transfer agent fees ............ 29,301
Reports to shareholders .................................. 7,737
Directors' fees .......................................... 5,833
Audit and legal fees ..................................... 15,752
Other expenses ........................................... 16,484
----------------
Total expenses ....................................... 261,461
Less expenses waived or absorbed by the adviser ...... (64,721)
----------------
Total net expenses ................................... 196,740
----------------
Net investment income ................................ 2,418,167
----------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized loss on investments (note 4) ................ (1,412,877)
Net change in unrealized appreciation or depreciation of
investments ............................................ 8,844,152
----------------
Net gain on investments ................................ 7,431,275
----------------
Net increase in net assets resulting from
operations ....................................... $ 9,849,442
----------------
----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
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FINANCIAL STATEMENTS (UNAUDITED)
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MAY 31, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and fee income ................................ $ 2,614,907
Expenses - net ........................................... (196,740)
----------------
Net investment income ................................ 2,418,167
----------------
Adjustments to reconcile net investment income to net cash
provided by operating activities:
Change in accrued interest receivable .................. 286,098
Discount amortization - net for zero-coupon
securities ........................................... (1,969,399)
Change in accrued fees and expenses and other assets ... (14,392)
----------------
Total adjustments .................................... (1,697,693)
----------------
Net cash provided by operating activities ............ 720,474
----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments ....................... 92,701,920
Purchases of investments ................................. (86,330,564)
Net purchases of short-term securities ................... (861,000)
----------------
Net cash provided by investing activities ............ 5,510,356
----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on reverse repurchase agreements ............ (4,300,000)
Distributions paid to shareholders ....................... (2,638,248)
Retirement of fund shares (note 6) ....................... (292,751)
----------------
Net cash used by financing activities ................ (7,230,999)
----------------
Net decrease in cash ....................................... (1,000,169)
Cash at beginning of period ................................ 1,000,169
----------------
Cash at end of period .................................... $ 0
----------------
----------------
Supplemental disclosure of cash flow information:
Cash paid for interest on reverse
repurchase agreements ................................ $ 63,104
----------------
----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
7
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FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended 5/31/95 Year Ended
(Unaudited) 11/30/94
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income .................................. $ 2,418,167 6,325,282
Net realized loss on investments ......................... (1,412,877) (2,995,505)
Net change in unrealized appreciation or depreciation of
investments ............................................ 8,844,152 (13,926,868)
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations ........................................... 9,849,442 (10,597,091)
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ............................... (2,638,248) (4,761,820)
Tax return of capital (note 2) ........................... -- (1,524,980)
---------------- ----------------
Total distributions .................................... (2,638,248) (6,286,800)
---------------- ----------------
CAPITAL SHARE TRANSACTIONS:
Payments for retirement of 45,100 and 0 shares,
respectively (note 6) .................................. (330,618) --
---------------- ----------------
Total increase (decrease) in net assets .............. 6,880,576 (16,883,891)
Net assets at beginning of period .......................... 62,539,688 79,423,579
---------------- ----------------
Net assets at end of period .............................. $ 69,420,264 62,539,688
---------------- ----------------
---------------- ----------------
Distributions in excess of net investment income ......... $ (236,422) (16,341)
---------------- ----------------
---------------- ----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
8
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(1) ORGANIZATION
American Government Term Trust Inc. (the fund) is registered
under the Investment Company Act of 1940 (as amended) as a
diversified, closed-end management investment company. Shares of
the fund are listed on the New York Stock Exchange under the
symbol AGT. The fund intends to terminate operations and
distribute all of its net assets to shareholders on or shortly
before August 31, 2001.
(2) SIGNIFICANT
ACCOUNTING
POLICIES
INVESTMENTS IN SECURITIES
The values of fixed income securities are determined using
pricing services or prices quoted by independent brokers.
Exchange-listed options are valued at the last sales price and
open financial futures contracts are valued at the last
settlement price. When market quotations are not readily
available, securities are valued at fair value according to
methods selected in good faith by the board of directors.
Short-term securities with maturities of 60 days or less are
valued at amortized cost which approximates market value.
Securities transactions are accounted for on the date the
securities are purchased or sold. Realized gains and losses are
calculated on the identified-cost basis. Interest income is
recorded on the accrual basis and, except for original issue
discount on zero-coupon bonds, the fund does not amortize
premiums or discounts on long-term bonds for financial reporting
purposes.
OPTION TRANSACTIONS
For hedging purposes, the fund may buy and sell put and call
options, write covered call options on portfolio securities,
write cash-secured puts and write call options that are not
covered for cross-hedging purposes. The risk in writing a call
option is that the fund gives up the opportunity for profit if
the market price of the security increases. The risk in writing
a put option is that the fund may incur a loss if the market
price of the security decreases and the option is exercised. The
risk in buying an option is the fund pays a premium whether or
not the option is exercised. The fund also has the additional
risk of not being able to enter into a closing transaction if a
liquid secondary market does not exist. The fund also may write
over-the-counter options where the completion of the obligation
is dependent upon the credit standing of the other party.
9
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Option contracts are valued daily and unrealized appreciation or
depreciation is recorded. The fund 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 for 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.
FUTURES TRANSACTIONS
In order to gain exposure to or protect against changes in the
market, the fund may buy and sell financial futures contracts
and related options. Risks of entering into futures contracts
and related options include the possibility 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 fund is 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 fund
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 fund recognizes a realized gain or loss
when the contract is closed or expires.
INTEREST RATE TRANSACTIONS
To preserve a return or spread on a particular investment or
portion of its portfolio or for other non-speculative purposes,
the fund may enter into various hedging transactions such as
interest rate swaps and the purchase of interest rate caps and
floors. Interest rate swaps involve the exchange of commitments
to pay or receive interest, e.g., an exchange of floating-rate
payments for fixed-rate payments. The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified
index exceeds a predetermined interest rate, to receive payments
of interest on a contractually based notional principal amount
from the party selling the interest rate cap. The purchase of an
interest rate floor entitles the purchaser, to the extent that a
specified index falls below a predetermined interest rate, to
receive payments of interest on a contractually based notional
principal amount from the party selling such interest rate
floor.
10
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
If forecasts of interest rates and other market factors are
incorrect, investment performance will diminish compared to what
performance would have been if these investment techniques were
not used. Even if the forecasts are correct, there is risk that
the positions may correlate imperfectly with the asset or
liability being hedged. Other risks of entering into these
transactions are that a liquid secondary market may not always
exist, or that the other party to the transaction may not
perform.
For interest rate swaps, caps and floors, the fund accrues
weekly, as an increase or decrease to interest income, the
current net amount due to or owed by the fund. Interest rate
swaps, caps and floors are valued from prices quoted by
independent brokers. These valuations represent the present
value of all future cash settlement amounts based upon implied
forward interest rates.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities that have been purchased by
the fund on a forward-commitment or when-issued basis can take
place a month or more after the transaction date. During this
period, such securities do not earn interest, are subject to
market fluctuation and may increase or decrease in value prior
to their delivery. The fund maintains, in a segregated account
with its custodian, assets with a market value equal to the
amount of its purchase commitments. The purchase of securities
on a when-issued or forward-commitment basis may increase the
volatility of the fund's NAV to the extent the fund makes such
purchases while remaining substantially fully invested. As of
May 31, 1995, the fund had no outstanding when-issued or forward
commitments.
In connection with its ability to purchase securities on a
when-issued or forward-commitment basis, the fund may enter into
mortgage "dollar rolls" in which the fund sells securities for
delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future
date. As an inducement to "roll over" its purchase commitments,
the fund receives negotiated fees. For the six months ended May
31, 1995, such fees earned by the fund amounted to $130,962.
11
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
FEDERAL TAXES
The fund intends to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and
not be subject to federal income tax. Therefore, no income tax
provision is required.
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 for tax purposes, losses deferred due to "wash
sale" transactions and the timing of recognition of income on
certain interest-only, principal-only and residual interest
securities. The character of distributions made during the year
from net investment income or net realized gains may also differ
from their ultimate characterization for federal income tax
purposes. In addition, due to the timing of dividend
distributions, the fiscal year in which amounts are distributed
may differ from the year that the income or realized gains
(losses) were recorded by the fund. Due to tax basis income
adjustments on the fund's investments in REMIC residual
interests in collateralized mortgage obligations and the
recognition of certain foreign currency losses as a reduction of
ordinary income for tax purposes, $0.1892 per share of
distributions in fiscal 1994 represented a return of capital
distribution.
DISTRIBUTIONS
The fund pays monthly distributions from net investment income,
and as described above, certain book-to-tax adjustments may
result in a portion of the income distributions being
characterized as a return of capital for tax purposes. Realized
capital gains, if any, will be distributed on an annual basis.
These distributions are recorded as of the close of business on
the ex-dividend date. Such distributions are payable in cash or,
pursuant to the fund's dividend reinvestment plan, reinvested in
additional shares of the fund's capital stock. Under the plan,
fund shares will be purchased in the open market.
REPURCHASE AGREEMENTS
For repurchase agreements entered into with certain
broker-dealers, the fund, along with other affiliated registered
investment companies, may transfer uninvested cash balances into
a joint trading account,
12
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
the daily aggregate of which is invested in repurchase
agreements secured by U.S. government and agency obligations.
Securities pledged as collateral for all individual and joint
repurchase agreements are held by the fund's custodian bank
until maturity of the repurchase agreement. Provisions for all
agreements ensure that the daily market value of the collateral
is in excess of the repurchase amount in the event of default.
(3) EXPENSES
The fund has entered into the following agreements with Piper
Capital Management Incorporated (the adviser and the
administrator):
The investment advisory agreement provides the adviser with a
monthly advisory fee based on the fund's average weekly net
assets computed at the per-annum rate of 0.60% of the fund's
average weekly net assets through January 31, 1993; 0.45% from
February 1, 1993, through January 31, 1997; and 0.30% from
February 1, 1997, until termination of the fund. For its fee,
the adviser will provide investment advice and, in general, will
conduct the management and investment activity of the fund.
The administration agreement provides the administrator with a
monthly fee based on the fund's average weekly net assets
computed at the per annum rate of 0.15% of the fund's average
weekly net assets through January 31, 1993; 0.125% from February
1, 1993, through January 31, 1997; and 0.10% from February 1,
1997, until termination of the fund. For its fee, the
administrator will provide reporting, regulatory and
record-keeping services for the fund.
For the six months ended May 31, 1995, Piper Capital voluntarily
waived investment management fees of $50,651 and administrative
fees of $14,070.
In addition to advisory and administrative 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, organizational costs, insurance, interest, taxes, and
other miscellaneous expenses.
13
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(4) SECURITIES
TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other
than short-term securities) aggregated $73,381,213 and
$92,342,993, respectively, for the six months ended May 31,
1995.
(5) CAPITAL LOSS
CARRYOVER
For federal income tax purposes, the fund had a capital loss
carryover of $5,674,400 on November 30, 1994, which, if not
offset by subsequent capital gains, will expire in 2001 through
2002. It is unlikely the board of directors will authorize a
distribution of any net realized capital gains until the
available capital loss carryover has been offset or expires.
(6) RETIREMENT OF
FUND SHARES
The fund's board of directors has approved a plan to repurchase
shares of the fund in the open market and retire those shares.
Repurchases may only be made when the previous day's closing
market price was at a discount from net asset value. Daily
repurchases are limited to 25% of the previous four weeks'
average daily trading volume on the New York Stock Exchange.
Under the current plan, cumulative repurchases in the fund
cannot exceed 3% of the total shares originally issued. The
board of directors will review the plan every six months and may
change the amount which may be repurchased. The plan was last
reviewed and reapproved by the board of directors on May 19,
1995. Pursuant to the plan, the fund has cummulatively
repurchased and retired 45,100 shares as of May 31, 1995, which
represents 0.56% of the shares originally issued.
14
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NOTES TO FINANCIAL STATEMENTS
(7) FINANCIAL
HIGHLIGHTS
Per-share data for a share of capital stock outstanding
throughout each period and selected information for each period
are as follows:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended November 30,
5/31/95 --------------------------------------------
(Unaudited) 1994 1993 1992 1991 1990
----------- -------- ------ ------ ------ ------
PER-SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year ........ $ 7.76 9.85 9.47 9.97 9.13 9.34
----------- -------- ------ ------ ------ ------
Operations:
Net investment income ..................... .30 0.78 0.90 0.87 1.09 0.95
Net realized and unrealized gains (losses)
on investments ........................... .93 (2.09) 0.34 (0.43) 0.70 (0.26)
----------- -------- ------ ------ ------ ------
Total from operations ................... 1.23 (1.31) 1.24 0.44 1.79 0.69
----------- -------- ------ ------ ------ ------
Distributions to shareholders:
From net investment income ................ (.33) (0.59) (0.66) (0.85) (0.95) (0.90)
Tax return of capital ..................... -- (0.19) (0.20) -- -- --
From net realized gains ................... -- -- -- (0.09) -- --
----------- -------- ------ ------ ------ ------
Total distributions to shareholders ..... (.33) (0.78) (0.86) (0.94) (0.95) (0.90)
----------- -------- ------ ------ ------ ------
Net asset value, end of period ............ $ 8.66 7.76 9.85 9.47 9.97 9.13
----------- -------- ------ ------ ------ ------
----------- -------- ------ ------ ------ ------
Per-share market value, end of period ..... $ 7.50 8.63 10.25 10.88 10.38 10.00
----------- -------- ------ ------ ------ ------
----------- -------- ------ ------ ------ ------
SELECTED INFORMATION
Total investment return, market value* ...... (9.26%) (8.58%) 2.12% 14.29% 13.68% 5.38%
Total investment return, net asset
value** ................................... 16.17% (13.75%) 13.54% 4.54% 20.49% 8.07%
Net assets at end of period (in millions) $ 69 63 79 76 80 74
Ratio of expenses to average weekly net
assets+++ ................................. .61%+ 0.82% 0.86% 1.04% 1.11% 1.05%
Ratio of net investment income to average
weekly net assets+++ ...................... 7.46%+ 9.02% 9.28% 8.93% 11.48% 10.59%
Portfolio turnover rate (excluding short-term
securities) ............................... 100% 47% 79% 70% 53% 44%
Amount of borrowings outstanding at end of
period (in millions)*** ................. $ -- 4 19 13 20 21
Per-share amount of borrowings outstanding at
end of period ........................... $ -- 0.53 2.41 1.60 2.47 2.58
Per-share asset coverage of borrowings
outstanding at end of period++ .......... $ -- 8.29 12.26 11.07 12.44 11.71
<FN>
* BASED ON THE CHANGE IN MARKET PRICE OF A SHARE DURING THE PERIOD. ASSUMES
REINVESTMENT OF DISTRIBUTIONS AT ACTUAL PRICES PURSUANT TO THE FUND'S
DIVIDEND REINVESTMENT PLAN.
** BASED ON THE CHANGE IN NET ASSET VALUE OF A SHARE DURING THE PERIOD.
ASSUMES REINVESTMENT OF DISTRIBUTIONS AT NET ASSET VALUE. DURING THE SIX
MONTHS ENDED MAY 31, 1995, CERTAIN INVESTMENT MANAGEMENT AND ADMINISTRATIVE
FEES WERE WAIVED BY THE ADVISER. HAD FEES NOT BEEN WAIVED, THE FUND'S NAV
TOTAL RETURN WOULD HAVE BEEN 16.04%.
*** SECURITIES PURCHASED ON A WHEN-ISSUED BASIS FOR WHICH LIQUID, HIGH-GRADE
DEBT OBLIGATIONS ARE MAINTAINED IN A SEGREGATED ACCOUNT ARE NOT CONSIDERED
BORROWINGS. SEE FOOTNOTE 2 IN THE NOTES TO FINANCIAL STATEMENTS.
+ ADJUSTED TO ANNUAL BASIS.
++ REPRESENTS THE FUND'S NET ASSETS (EXCLUDING BORROWINGS) DIVIDED BY CAPITAL
SHARES OUTSTANDING.
+++ DURING THE SIX MONTHS ENDED MAY 31, 1995, CERTAIN INVESTMENT MANAGEMENT AND
ADMINISTRATIVE FEES WERE WAIVED BY THE ADVISER. HAD FEES NOT BEEN WAIVED,
THE ANNUALIZED RATIOS OF EXPENSES AND NET INVESTMENT INCOME WOULD HAVE BEEN
0.81%/7.26%.
</TABLE>
15
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(8) QUARTERLY DATA (UNAUDITED)
DOLLAR AMOUNTS
<TABLE>
<CAPTION>
Net Realized Net Increase in Distributions
Total Net and Unrealized Net Assets from Net
Investment Investment Gains on Resulting from Investment
Income Income Investments Operations Income
----------- ----------- -------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
2/28/95 $ 1,375,841 1,264,990 3,613,039 4,878,029 (1,470,950)
5/31/95 1,239,066 1,153,177 3,818,236 4,971,413 (1,167,298)
----------- ----------- -------------- --------------- ------------
$ 2,614,907 2,418,167 7,431,275 9,849,442 (2,638,248)
----------- ----------- -------------- --------------- ------------
----------- ----------- -------------- --------------- ------------
</TABLE>
PER-SHARE AMOUNTS
<TABLE>
<CAPTION>
Net Realized Net Increase Distributions
Net and Unrealized in Net Assets from Net Quarter End
Investment Gains on Resulting Investment Net Asset
Income Investments from Operations Income Value
---------- -------------- --------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
2/28/95 $ 0.15 0.45 0.60 (0.18) 8.18
5/31/95 0.15 0.48 0.63 (0.15) 8.66
--- --- --- -----
$ 0.30 0.93 1.23 (0.33)
--- --- --- -----
--- --- --- -----
</TABLE>
16
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES (UNAUDITED)
AMERICAN GOVERNMENT TERM TRUST
MAY 31, 1995
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- ---------- ----------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
U.S. GOVERNMENT SECURITIES (98.4%):
U.S. Treasury Note, 4.63%, 8/15/95 .................. $ 845,000 843,209
U.S. Treasury Note, 5.13%, 11/15/95 ................... 815,000 812,734
U.S. Treasury Note, 4.63%, 2/15/96 .................... 860,000 853,206
U.S. Treasury Note, 4.25%, 5/15/96 .................... 835,000 823,001
U.S. Treasury Note, 4.38%, 8/15/96 .................... 885,000 870,070
U.S. Treasury Note, 7.25%, 11/15/96 ................... 850,000 866,482
U.S. Treasury Note, 4.75%, 2/15/97 .................... 910,000 893,502
U.S. Treasury Note, 6.50%, 5/15/97 .................... 875,000 885,246
U.S. Treasury Note, 6.50%, 8/15/97 .................... 930,000 941,737
U.S. Treasury Note, 7.38%, 11/15/97 ................... 905,000 934,919
U.S. Treasury Note, 7.25%, 2/15/98 .................... 960,000 991,584
U.S. Treasury Note, 9.00%, 5/15/98 .................... 940,000 1,017,089
U.S. Treasury Note, 5.25%, 7/31/98 .................... 995,000 974,593
U.S. Treasury Note, 8.88%, 11/15/98 ................... 985,000 1,072,468
U.S. Treasury Note, 5.00%, 1/31/99 .................... 335,000 323,995
U.S. Treasury Principal Strip, 6.87%, 8/15/01 ......... 80,500,000(b) 55,208,510
----------
Total U.S. Government Securities
(cost: $65,879,427) ................................. 68,312,345
----------
SHORT-TERM SECURITIES (1.4%):
Repurchase agreement with Goldman Sachs in a joint
trading account, collateralized by U.S. government
agency securities, acquired on 5/31/95, accrued
interest at repurchase date of $166, 6.14%, 6/1/95.
(cost: $972,000) ..................................... 972,000 972,000
----------
Total Investments in Securities
(cost: $66,851,427)(c) ............................ $ 69,284,345
----------
----------
</TABLE>
17
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES (UNAUDITED)
NOTES TO INVESTMENTS IN SECURITIES:
(A) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(B) FOR ZERO-COUPON INVESTMENTS, THE INTEREST RATE SHOWN IS THE EFFECTIVE YIELD
ON THE DATE
OF PURCHASE.
(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 .... $ 2,432,918
GROSS UNREALIZED DEPRECIATION ...... --
----------
NET UNREALIZED APPRECIATION .... $ 2,432,918
----------
----------
</TABLE>
18
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER UPDATE
ANNUAL MEETING RESULTS
An annual meeting of the fund's shareholders was held on August 22, 1994. Each
matter voted upon at the 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 matter, are set forth below.
1. The fund's shareholders elected the following eight directors:
<TABLE>
<CAPTION>
Shares Shares Withholding
Voted "For" Authority to Vote
----------- ------------------
<S> <C> <C>
David T. Bennett 5,359,764 110,800
Jaye F. Dyer 5,361,339 109,225
William H. Ellis 5,361,005 109,559
Karol D. Emmerich 5,362,405 108,159
Luella G. Goldberg 5,357,785 112,780
John T. Golle* 5,361,405 109,159
Edward J. Kohler* 5,360,897 109,668
George Latimer 5,359,784 110,781
<FN>
*MR. KOHLER RESIGNED AS DIRECTOR OF THE FUND, EFFECTIVE NOVEMBER 30, 1994.
MR. GOLLE RESIGNED AS DIRECTOR OF THE FUND, EFFECTIVE JUNE 1, 1995.
</TABLE>
2. The fund's shareholders ratified the selection by a majority of the
independent members of the fund's Board of Directors of KPMG Peat
Marwick LLP as the independent public accountants for the fund for the
fiscal year ending November 30, 1994. The following votes were cast
regarding this matter:
<TABLE>
<CAPTION>
Shares Shares Voted Broker
Voted "For" "Against" Abstentions Non-Votes
- ----------- ------------- ----------- ---------------
<S> <C> <C> <C>
5,177,698 100,841 192,027 --
</TABLE>
SHARE REPURCHASE PROGRAM
Your fund's board of directors has reapproved the fund's share repurchase
program, which enables the fund to 'buy back' shares of its common stock in the
open market. Repurchases may only be made when the previous day's closing market
price per share was at a discount from net asset value. Repurchases cannot
exceed 3% of the fund's originally issued shares.
WHAT EFFECT WILL THIS PROGRAM HAVE ON SHAREHOLDERS?
- - We do not expect any adverse impact on the adviser's ability to manage the
fund.
19
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER UPDATE
- - Because repurchases will be at a price below net asset value, remaining shares
outstanding may experience a slight increase in net asset value.
- - Although the effect of share repurchases on market price is less certain, the
board of directors believes the program may have a favorable effect on the
market price of fund shares.
- - We do not anticipate any material increase in the fund's expense ratio.
WHEN WILL SHARES BE REPURCHASED?
Share repurchases may be made from time to time and may be discontinued at any
time. Share repurchases are not mandatory when fund shares are trading at a
discount from net asset value; all repurchases will be at the discretion of the
fund's investment adviser. The board of directors will consider whether to
continue the share repurchase program on at least a semiannual basis and will
notify shareholders of its determination in the next semiannual or annual
report.
HOW WILL SHARES BE REPURCHASED?
We expect to finance the repurchase of shares by liquidating portfolio
securities or using current cash balances. We do not anticipate borrowing in
order to finance share repurchases.
20
<PAGE>
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
<TABLE>
<S> <C>
DIRECTORS David T. Bennett, CHAIRMAN, HIGHLAND HOMES, INC., USL PRODUCTS
INC., KIEFER BUILT, INC., OF COUNSEL, GRAY, PLANT, MOOTY,
MOOTY AND BENNETT, P.A.
Jaye F. Dyer, PRESIDENT, DYER MANAGEMENT COMPANY
William H. Ellis, PRESIDENT, PIPER JAFFRAY COMPANIES INC.,
PIPER CAPITAL MANAGEMENT INCORPORATED
Karol D. Emmerich, PRESIDENT, THE PARACLETE GROUP
Luella G. Goldberg, DIRECTOR, TCF FINANCIAL,
RELIASTAR FINANCIAL CORP., HORMEL FOODS CORP.
George Latimer, DIRECTOR, SPECIAL ACTIONS OFFICE, OFFICE OF
THE SECRETARY, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
OFFICERS William H. Ellis, CHAIRMAN OF THE BOARD
Worth Bruntjen, SENIOR VICE PRESIDENT
Robert H. Nelson, VICE PRESIDENT
David E. Rosedahl, SECRETARY
Charles N. Hayssen, TREASURER
INVESTMENT Piper Capital Management Incorporated
ADVISER 222 SOUTH NINTH STREET, MINNEAPOLIS, MN 55402
CUSTODIAN AND Investors Fiduciary Trust Company
TRANSFER AGENT 127 WEST 10TH STREET, KANSAS CITY, MO 64105-1716
LEGAL COUNSEL Dorsey & Whitney P.L.L.P.
220 SOUTH SIXTH STREET, MINNEAPOLIS, MN 55402
</TABLE>
21
<PAGE>
Bulk Rate
U.S. Postage
PAID
Permit No. 3008
Mpls., MN
PIPER CAPITAL
MANAGEMENT
PIPER CAPITAL MANAGEMENT INCORPORATED
222 SOUTH NINTH STREET
MINNEAPOLIS, MN 55402-3804
PIPER JAFFRAY INC., FUND SPONSOR AND NASD MEMBER.
[LOGO] THIS DOCUMENT IS PRINTED ON PAPER MADE FROM
100% TOTAL RECOVERED FIBER, INCLUDING 15% POST-CONSUMER WASTE.
242-95 AGT-02
STAPLES
