<PAGE>
ANNUAL REPORT
[LOGO]
JUNE 30, 1996
PIPER
INSTITUTIONAL
FUNDS
MINNEAPOLIS
222 SOUTH NINTH STREET
MINNEAPOLIS, MN 55402
612 342-6402
SEATTLE
1200 FIFTH AVENUE
SEATTLE,WA 98101
206 287-8862
DENVER
1050 17TH STREET
DENVER, CO 80265
303 820-5885
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TABLE OF CONTENTS
Letter to Shareholders . . . . . . . . 1
Financial Statements and Notes . . . . 6
Investments in Securities. . . . . . .16
Independent Auditors' Report . . . . .18
Federal Tax Information. . . . . . . .19
Letter to Shareholders . . . . . . . . 3
Financial Statements and Notes . . . . 6
Investments in Securities. . . . . . .17
Independent Auditors' Report . . . . .18
Federal Tax Information. . . . . . . .19
INSTITUTIONAL MONEY MARKET FUND
Institutional Money Market Fund seeks maximum current income consistent with
preservation of capital and maintenance of liquidity. To realize its objective,
the fund invests in securities that are issued or guaranteed as to payment of
principal and interest by the U.S. government, its agencies or
instrumentalities, and repurchase agreements backed by such securities. The U.S.
government securities held by the fund, not the fund shares, are guaranteed as
to payment of principal and interest. An investment in the fund is neither
insured nor guaranteed by the U.S. government. There can be no assurance the
fund will be able to maintain a stable net asset value of $1 per share.
INSTITUTIONAL GOVERNMENT ADJUSTABLE PORTFOLIO
Institutional Government Adjustable Portfolio seeks high current income
consistent with low principal volatility. The fund invests primarily (at least
65% of its total assets under normal market conditions) in adjustable rate
mortgage (ARM) securities that are issued or guaranteed by the U.S. government,
its agencies or its instrumentalities. The fund also may invest in privately
issued ARM securities, mortgage-backed securities other than ARM securities,
other types of U.S. government securities, Canadian government securities,
structured securities including foreign linked index securities and corporate
debt securities. The fund may also purchase securities through the sale-forward
(dollar-roll) program. This investment technique and investments in certain
types of securities, such as foreign linked index securities, may cause the
fund's net asset value to fluctuate to a greater extent than would be expected
from interest rate movements alone. As with other mutual funds, there can be no
assurance the fund will achieve its objective. Since the fund's inception on
February 2, 1993, it has had a credit rating of AAAf by Standard and Poor's
Mutual Funds Ratings Group (S&P).*
*THE FUND IS RATED AAAf, WHICH MEANS THE FUND'S INVESTMENTS HAVE AN OVERALL
CREDIT QUALITY OF AAA. CREDIT QUALITIES ARE ASSESSED BY STANDARD AND POOR'S
MUTUAL FUNDS RATINGS GROUP. S&P DOES NOT EVALUATE THE MARKET RISK OF AN
INVESTMENT WHEN ASSIGNING A CREDIT RATING. SEE STANDARD AND POOR'S CORPORATE AND
MUNICIPAL RATINGS DEFINITIONS FOR AN EXPLANATION OF AAA. THE FUND HAS 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.
THIS REPORT IS INTENDED FOR SHAREHOLDERS OF INSTITUTIONAL MONEY MARKET FUND AND
INSTITUTIONAL GOVERNMENT ADJUSTABLE PORTFOLIO, BUT IT MAY ALSO BE USED AS SALES
LITERATURE IF PRECEDED OR ACCOMPANIED BY A PROSPECTUS. THE PROSPECTUS GIVES
DETAILS ABOUT THE CHARGES, INVESTMENT RESULTS AND OPERATING POLICIES OF THE
FUNDS.
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INSTITUTIONAL MONEY MARKET FUND
PORTFOLIO COMPOSITION
JUNE 30, 1996
Federal Home Loan Mortgage
Corporation 24%
Federal Home Loan Bank 8%
Other Government-
Backed Securities 3%
Federal Farm
Credit Bank 1%
[PIE CHART]
Federal National
Mortgage Association 19%
Student Loan Marketing
Association 5%
U.S. Treasury Securities 5%
Repurchase Agreements 35%
INVESTMENT CATEGORIES REFLECT PERCENTAGE OF TOTAL ASSETS.
NANCY SHELLENBERGER OLSEN
IS PRIMARILY RESPONSIBLE FOR THE MANAGEMENT OF INSTITUTIONAL MONEY MARKET FUND.
SHE HAS 18 YEARS OF FINANCIAL EXPERIENCE.
SHAISTA TAJAMAL
ASSISTS WITH THE MANAGEMENT OF INSTITUTIONAL MONEY MARKET FUND. SHE HAS SIX
YEARS OF FINANCIAL EXPERIENCE.
July 19, 1996
Dear Shareholders:
DURING THE PAST YEAR, INSTITUTIONAL MONEY MARKET FUND'S SEVEN-DAY CURRENT YIELD
FELL FROM 5.67% ON JUNE 30, 1995, TO 5.04% ON JUNE 30, 1996.* This decline was
due to a decrease in short-term interest rates brought on by the Federal Reserve
Board (Fed) easing credit in July, December and January. Since January, the Fed
has maintained a neutral monetary policy, meaning they have neither raised nor
lowered interest rates.
SEVERAL ECONOMIC DEVELOPMENTS TOOK PLACE DURING THE PERIOD THAT HAD AN IMPACT ON
THE MARKET. Inflation, as measured by the Consumer Price Index, grew only 2.4%
for 1995, its lowest annual increase since 1986. This kept interest rates
relatively low. Inflation remained subdued during the first six months of 1996,
but the economy showed signs of strength with job creation in the non-farm
sector posting much higher increases than expected -- 624,000 new jobs in
February and 140,000 in March. In addition, there was a substantial, though
short-lived, rally in commodity prices. As a result of these signs of economic
strength, both long- and short-term interest rates rose.
DURING THE YEAR, WE SHORTENED THE FUND'S AVERAGE WEIGHTED MATURITY FROM 68 TO 34
DAYS. Shortening the average weighted maturity is a common strategy that we
employ when we believe short-term interest rates will rise. The benefit is that
we don't have to wait as long for securities to mature in order for us to put
that money to work at higher interest rates.
ONE OF THE WAYS WE SHORTENED THE AVERAGE MATURITY OF THE PORTFOLIO WAS TO ADD
GOVERNMENT AGENCY FLOATING SECURITIES. This helped performance due to the
favorable spreads on those securities and to the rising short-term rates in the
first half of 1996. These securities represent approximately 12% of the fund's
total assets as of June 30.
*PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE RETURN OF AN INVESTMENT
WILL FLUCTUATE. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1 PER SHARE.
1
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INSTITUTIONAL MONEY MARKET FUND
[GRAPH]
CURRENT YIELD REFERS TO THE INCOME GENERATED BY THE FUND OVER A 30-DAY
PERIOD. THIS INCOME IS THEN ANNUALIZED. EFFECTIVE YIELD IS CALCULATED
SIMILARLY BUT THE INCOME EARNED IS ASSUMED TO BE REINVESTED. DURING SOME
PERIODS, PIPER CAPITAL WAIVED OR PAID FUND EXPENSES AND/OR PIPER JAFFRAY, THE
FUND'S DISTRIBUTOR, VOLUNTARILY LIMITED 12B-1 FEES FOR THE FUND. HAD THESE
FEES AND EXPENSES NOT BEEN WAIVED, YIELDS WOULD HAVE BEEN: 4.98% 30-DAY
CURRENT YIELD AND 5.10% 30-DAY EFFECTIVE YIELD.
GOING FORWARD, THERE'S A POSSIBILITY THE FED WILL RAISE SHORT-TERM RATES AT THE
FEDERAL OPEN MARKET COMMITTEE MEETING ON OR BEFORE AUGUST 20. Because we believe
the market has already factored in a Fed tightening, we don't expect that a Fed
rate hike will have a significant impact on prices if it does occur. As a
result, a Fed increase may encourage us to increase slightly the fund's average
weighted maturity.
THE SAFETY OF YOUR PRINCIPAL REMAINS OUR PRIMARY CONSIDERATION IN MANAGING
THE FUND AS WE STRIVE TO PROVIDE YOU WITH A CONSERVATIVE ALTERNATIVE FOR YOUR
SHORT-TERM CASH. As of June 30, all of the fund's investments were in
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities, or in repurchase agreements backed by such securities.We
continue to use a fundamental approach to identify high-quality, liquid money
market securities that provide competitive yields. Our strategy is designed
to add value by active positioning of the portfolio on the short end of the
yield curve, investing in high-quality securities and managing the fund's
average weighted maturity based on our interest rate forecast.
Thank you for your investment in Institutional Money Market Fund. We remain
committed to providing you with quality service and look forward to helping
you achieve your financial goals.
Sincerely,
/s/ Nancy Shellenberger Olsen
Nancy Shellenberger Olsen
30-DAY YIELDS
30-DAY CURRENT AND EFFECTIVE YIELDS ARE AS OF THE END OF
EACH MONTH.
2
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INSTITUTIONAL GOVERNMENT ADJUSTABLE PORTFOLIO
PORTFOLIO COMPOSITION
JUNE 30, 1996
U.S. Agency Adjustable
Rate Mortgage-Backed
Securities 72%
U.S. Agency Fixed
Rate Mortgage-Backed
Securities 14%
[PIE CHART]
U.S. Treasury
Securities 1%
Short-Term
Securities 1%
Other Assets 2%
INVESTMENT CATEGORIES REFLECT PERCENTAGE OF TOTAL ASSETS.
TOM MCGLINCH, CFA
IS PRIMARILY RESPONSIBLE FOR THE MANAGEMENT OF INSTITUTIONAL GOVERNMENT
ADJUSTABLE PORTFOLIO. HE HAS 15 YEARS OF FINANCIAL EXPERIENCE.
July 19, 1996
Dear Shareholders:
DURING THE FISCAL YEAR ENDED JUNE 30, 1996, INSTITUTIONAL GOVERNMENT
ADJUSTABLE PORTFOLIO HAD A TOTAL RETURN OF 6.34%.* This return includes
reinvested distributions but not the fund's sales charge. Comparatively, the
one-year return for the Lipper Adjustable Rate Mortgage Funds Average was
3.30% and the Lehman Brothers Adjustable Rate Mortgage Index's return was
6.31%. During this period, coupon income contributed a significant portion of
the fund's total return. The fund slightly outperformed the Lehman index as a
result of owning securities with slightly higher coupon income and less price
sensitivity to higher interest rates than securities in the index. In
addition, we believe the Lipper average return was lower because several of
the funds in the category experienced credit losses.
BOND MARKET PERFORMANCE WAS MIXED DURING THE FUND'S FISCAL YEAR. In late
1995 and early 1996, the bond market rallied as interest rates continued
their decline. During this period, the Federal Reserve Board (Fed) lowered
the federal funds rate in July, December and January. These moves had
important implications for the adjustable-rate mortgage (ARM) securities
market as many of the underlying loans reset their coupons based on the
one-year Treasury yield. Also, many borrowers began to see the interest rate
on their mortgage decrease, and investors experienced a gradual reduction in
coupon income as the underlying mortgage loans reset to lower rates. Once
economic reports showed stronger-than-expected growth, interest rates began
to rise and bond prices fell sharply, abruptly ending the bond market rally.
Fortunately, adjustable rate mortgages posted slightly better returns in this
environment compared to most fixed income securities. Through the period,
market consensus grew that the Federal Reserve would raise short-term
interest rates in a pre-emptive strike against inflation. That sentiment
began to wane the last few trading days in June, resulting in a slight
improvement in returns.
WE MAINTAINED A RELATIVELY CONSERVATIVE INVESTMENT STRATEGY, WHICH INCLUDED A
NEARLY NEUTRAL EFFECTIVE DURATION IN COMPARISON TO THE FUND'S BENCHMARK
INDEX. The effective duration for the fund was 1.7 years as of June 30. The
fund benefited from its emphasis on ARM securities during the period. As
short-term interest rates fell in late 1995, the coupon rates on these ARM
securities did not fall as quickly or as far
*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.
3
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INSTITUTIONAL GOVERNMENT ADJUSTABLE PORTFOLIO
VALUE OF $100,000 INVESTED
JUNE 30, 1996
[GRAPH]
$100,000 INVESTED IN FEBRUARY 1993 AND HELD THROUGH JUNE 30, 1996, WOULD HAVE
GROWN TO $112,202. THE FUND'S PERFORMANCE REFLECTS THE MAXIMUM SALES CHARGE
OF 1%, WHILE NO SUCH CHARGES ARE REFLECTED IN THE INDEX OR AVERAGE. ALL
PERFORMANCE FIGURES INCLUDE REINVESTED DISTRIBUTIONS. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS.
AVERAGE ANNUALIZED TOTAL RETURNS
THROUGH 6/30/96, INCLUDING 1% SALES CHARGE
One Year . . . . . . . . . . . . . .5.27%
Since Inception (2/2/93) . . . . . .3.44%
DURING SOME PERIODS, PIPER CAPITAL WAIVED OR PAID FUND EXPENSES AND/OR PIPER
JAFFRAY, THE FUND'S DISTRIBUTOR, VOLUNTARILY LIMITED 12B-1 FEES FOR THE FUND.
HAD THESE FEES AND EXPENSES NOT BEEN WAIVED, THE AVERAGE ANNUALIZED TOTAL
RETURNS INCLUDING REINVESTED DISTRIBUTIONS AND THE FUND'S SALES CHARGE WOULD
HAVE BEEN 4.05% ONE YEAR AND 3.02% SINCE INCEPTION.
as market rates due to the lagging nature of their reset frequency. As a
result, they increased in value. Since the coupons did not experience
significant downward adjustments as rates fell, they offered comparatively
attractive income as rates began to rise, helping to hold their value.
TO MEET FUND REDEMPTIONS DURING THE PAST YEAR, WE SOLD SOME OF THE FUND'S
TREASURY SECURITIES AND, IN TURN, CAUSED A SLIGHT INCREASE IN ITS ALLOCATION
TO U.S. AGENCY ARM SECURITIES. At the end of the period, the fund had
approximately 72% of its net assets in U.S. agency ARM securities. We expect
to maintain our weighting in ARM securities until we see indications of
changing market conditions. Not only does the current market for these
securities appear strong, but we believe they have the potential to generate
high relative income in the rest of 1996.
EARLY PRINCIPAL PAYMENTS IN LATE 1995 HAVE HAD A NEGATIVE IMPACT ON THE
FUND'S INCOME. Borrowers were refinancing their adjustable rate mortgages at
a faster speed due to the lower rates available on fixed rate mortgages.
Since many of the ARM securities held in the fund were purchased at premium
prices, the faster prepayments caused the fund to amortize these premiums
more quickly. That reduced the fund's current income level. We were generally
successful at minimizing the impact of prepayments by selling some of the
fund's ARM securities that we believed were most susceptible to prepayments.
As rates have risen in 1996, the refinancing opportunity has been limited,
further reducing prepayments.
SOME OF THE FUND'S 1995 DIVIDENDS WERE RECLASSIFIED AS A RETURN OF CAPITAL
FOR TAX PURPOSES DUE TO THE SALE OF A CANADIAN MORTGAGE-BACKED SECURITY THAT
RECOGNIZED FOREIGN CURRENCY LOSSES. Tax regulations require that certain
foreign currency losses be treated as ordinary losses and be offset against
net investment income when determining taxable ordinary income. As a result,
some of the fund's distributions to investors were classified as a return of
capital. A return of capital means that the distribution is not reported as
taxable income but can be used to reduce the investor's cost basis in the
fund. This will affect the capital gain or loss calculation upon your sale of
the fund's shares. Your tax adviser can provide more information about how
this will affect you in your tax reporting.
4
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INSTITUTIONAL GOVERNMENT ADJUSTABLE PORTFOLIO
GOING FORWARD, WE HAVE POSITIONED THE FUND TO PERFORM BEST IN A STABLE
INTEREST RATE ENVIRONMENT, though we can't rule out the possibility that the
Fed may raise short-term interest rates in August. The recent rise in yields
has improved bond market fundamentals, and our expectation is that the
economy will grow moderately in the coming months. We intend to maintain a
neutral strategy and expect ARM securities to perform well in the less
volatile market environment we anticipate. The securities in the fund have a
relatively high average coupon, which reduces their price sensitivity to
changing market rates and allows them to maintain relatively high levels of
income.
IN THE NEXT FEW WEEKS, YOU WILL RECEIVE A PROXY IN THE MAIL ASKING YOU TO
APPROVE A PROPOSAL TO MERGE THIS FUND INTO THE ADJUSTABLE RATE MORTGAGE
SECURITIES FUND, ANOTHER PIPER FUND. Piper Capital Management recommended to
the board of directors of Institutional Government Adjustable Portfolio that
a reorganization take place because the fund has been unable to attract and
retain sufficient assets for its continued operation to be economically
feasible. The board of directors approved the recommendation and recommends
shareholders vote for the proposal. If the plan is approved, you will become
a shareholder of the Adjustable Rate Mortgage Securities Fund and will
receive shares equal to the value of your shares in Institutional Government
Adjustable Portfolio. The Adjustable Rate Mortgage Securities Fund shares
would be issued on a net asset value basis, and you would incur no sales
charge. I manage Adjustable Rate Mortgage Securities Fund and would remain
primarily responsible for its day-to-day management.
Thank you for your investment in Institutional Government Adjustable
Portfolio. As always, my efforts are dedicated to reaching the fund's
objective and helping you achieve your financial goals.
Sincerely,
/s/ Tom McGlinch
Tom McGlinch
Portfolio Manager
5
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FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1996
<TABLE>
<CAPTION>
Institutional Institutional
Money Government
Market Adjustable
Fund Portfolio
----------- ------------
<S> <C> <C>
ASSETS:
Investments in securities at market value* (note 2)
(including repurchase agreements of $61,051,000 and
$46,000, respectively) ............................... $ 173,849,628 5,670,773
Cash in bank on demand deposit ........................... 48,026 48,058
Organization costs (note 2) .............................. 27,167 15,295
Mortgage security paydowns receivable .................... -- 28,925
Accrued interest receivable .............................. 575,266 38,165
----------- ------------
Total assets ......................................... 174,500,087 5,801,216
----------- ------------
LIABILITIES:
Dividends payable to shareholders ........................ 664,593 25,308
Accrued investment management fee ........................ 19,863 1,436
----------- ------------
Total liabilities .................................... 684,456 26,744
----------- ------------
Net assets applicable to outstanding capital stock ....... $ 173,815,631 5,774,472
----------- ------------
----------- ------------
REPRESENTED BY:
Capital stock - authorized 100 billion shares of $0.01 par
value of Institutional Money Market Fund and 10 billion
shares of $0.01 par value of Institutional Government
Adjustable Portfolio; outstanding, 173,815,631 and
608,858 shares, respectively ......................... $ 1,738,156 6,089
Additional paid-in capital ............................... 172,077,475 9,124,869
Distributions in excess of net investment income ......... -- (25,308)
Accumulated net realized loss on investments ............. -- (3,355,290)
Unrealized appreciation of investments ................... -- 24,112
----------- ------------
Total - representing net assets applicable to
outstanding capital stock ........................ $ 173,815,631 5,774,472
----------- ------------
----------- ------------
Net asset value per share of outstanding capital stock ... $ 1.00 9.48
----------- ------------
----------- ------------
* Investments in securities at identified cost ........... $ 173,849,628 5,646,661
----------- ------------
----------- ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
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FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Institutional Institutional
Money Government
Market Adjustable
Fund Portfolio
----------- ------------
<S> <C> <C>
INCOME:
Interest (net of interest expense of $1,750 for
Institutional Government Adjustable Portfolio) ....... $ 5,748,809 673,117
----------- ------------
EXPENSES (NOTE 5):
Investment management fee ................................ 155,276 30,710
Custodian, accounting and transfer agent fees ............ 123,526 52,701
Shareholder account servicing fees ....................... 1,206 365
Registration fees ........................................ 26,964 12,351
Reports to shareholders .................................. 21,026 23,265
Amortization of organization costs ....................... 14,204 7,997
Directors' fees .......................................... 5,611 5,127
Audit and legal fees ..................................... 35,540 30,874
Other expenses ........................................... 12,193 15,433
----------- ------------
Total expenses ....................................... 395,546 178,823
Less expenses waived by the advisor ...................... (32,746) (116,698)
----------- ------------
Net expenses before expenses paid indirectly ......... 362,800 62,125
Less expenses paid indirectly ............................ (490) (424)
----------- ------------
Total net expenses ................................... 362,310 61,701
----------- ------------
Net investment income ................................ 5,386,499 611,416
----------- ------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized loss on investments (note 3) ................ -- (143,585)
Net change in unrealized appreciation or depreciation of
investments ............................................ -- 190,446
----------- ------------
Net gain on investments ................................ -- 46,861
----------- ------------
Net increase in net assets resulting from
operations ....................................... $ 5,386,499 658,277
----------- ------------
----------- ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
7
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FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Institutional Money Institutional Government
Market Fund Adjustable Portfolio
------------------------------ --------------------------
Year Ended Year Ended Year Ended Year Ended
6/30/96 6/30/95 6/30/96 6/30/95
-------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income .................................. $ 5,386,499 1,764,252 611,416 1,295,309
Net realized loss on investments ......................... -- -- (143,585) (2,209,087)
Net change in unrealized appreciation or depreciation of
investments ............................................ -- -- 190,446 1,791,630
-------------- ------------- ----------- ------------
Net increase in net assets resulting from operations ... 5,386,499 1,764,252 658,277 877,852
-------------- ------------- ----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ............................... (5,386,499) (1,764,252) (362,543) (1,105,594)
Tax return of capital .................................... -- -- (221,821) (148,061)
-------------- ------------- ----------- ------------
Total distributions .................................... (5,386,499) (1,764,252) (584,364) (1,253,655)
-------------- ------------- ----------- ------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Proceeds from sales ...................................... 590,483,864 168,842,836 187,462 875,301
Proceeds from shares issued for reinvestment of
distributions .......................................... 4,730,393 1,434,995 505,527 983,642
Payments for shares redeemed ............................. (473,887,488) (152,763,914) (9,962,203) (21,423,001)
-------------- ------------- ----------- ------------
Increase (decrease) in net assets from capital share
transactions ......................................... 121,326,769 17,513,917 (9,269,214) (19,564,058)
-------------- ------------- ----------- ------------
Total increase (decrease) in net assets .............. 121,326,769 17,513,917 (9,195,301) (19,939,861)
Net assets at beginning of year ............................ 52,488,862 34,974,945 14,969,773 34,909,634
-------------- ------------- ----------- ------------
Net assets at end of year ................................ $ 173,815,631 52,488,862 5,774,472 14,969,773
-------------- ------------- ----------- ------------
-------------- ------------- ----------- ------------
Distributions in excess of net investment income ......... $ -- -- (25,308) (198,326)
-------------- ------------- ----------- ------------
-------------- ------------- ----------- ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION
Piper Institutional Funds Inc. (the company)
is registered under the Investment Company Act
of 1940 (as amended) as a single, open-end
investment management company. The company
currently includes two diversified series:
Institutional Money Market Fund and
Institutional Government Adjustable Portfolio
(the funds). The company's articles of
incorporation permit the board of directors to
create additional series in the future.
Institutional Money Market Fund invests in
short-term securities that are issued or
guaranteed as to payment of principal and
interest by the U.S. government, its agencies
or instrumentalities, and repurchase
agreements backed by such securities.
Institutional Government Adjustable Portfolio
invests primarily in adjustable rate mortgage
(ARM) securities that are issued and
guaranteed as to payment of principal and
interest by the U.S. government, its agencies
or instrumentalities. The fund may also invest
in privately issued ARM securities,
mortgage-backed securities other than ARM
securities, other types of U.S. government
securities, Canadian government securities,
structured securities including foreign linked
index securities and corporate debt
securities. The fund may also purchase
securities through the sale-forward
(dollar-roll) program.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS IN SECURITIES
For Institutional Money Market Fund, pursuant
to Rule 2a-7 of the Investment Company Act of
1940 (as amended), securities are valued at
amortized cost, which approximates market
value, in order to maintain a constant net
asset value of $1 per share.
For Institutional Government Adjustable
Portfolio, 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,
including amortization of bond discount and
premium computed on a level-yield basis, is
accrued daily.
OPTIONS TRANSACTIONS
For hedging purposes, Institutional Government
Adjustable Portfolio 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 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 of buying an option is
that 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.
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
9
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NOTES TO FINANCIAL STATEMENTS
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.
FUTURES TRANSACTIONS
In order to gain exposure to or protect
against changes in the market, Institutional
Government Adjustable Portfolio 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, Institutional
Government Adjustable Portfolio 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 the interest
rate floor.
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 on
implied forward interest rates.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities that have
been purchased by Institutional Government
Adjustable Portfolio 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
10
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
basis may increase the volatility of the
fund's net asset value if the fund makes such
purchases while remaining substantially fully
invested. As of June 30, 1996, 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 year ended June 30, 1996, the fund
earned no such fees.
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. In addition, on a
calendar-year basis, the funds will distribute
substantially all of their taxable net
investment income and realized gains, if any,
to avoid the payment of any federal excise
taxes.
Net investment income and net realized gains
(losses) may differ for financial statement
and tax purposes primarily because of the
recognition of certain foreign currency gains
(losses) as ordinary income (loss) for tax
purposes 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. Distributions which exceed the net
investment income or net realized gains for
financial statement purposes are presented as
an "excess distribution" in the statements of
changes in net assets and the financial
highlights. Distributions that exceed the net
investment income or net realized gains
recorded on a tax basis are presented as a
"tax return of capital" in the statements of
changes in net assets and the financial
highlights. 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.
On the statement of assets and liabilities, as
a result of permanent book-to-tax differences,
reclassification adjustments have been made
for Institutional Government Adjustable
Portfolio to decrease additional paid-in
capital by $3,463, increase distributions in
excess of net investment income by $75,855 and
decrease accumulated net realized losses by
$79,318.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders from net
investment income are declared daily and paid
monthly. Net realized gains distributions, if
any, will be made at least annually.
Distributions are payable in cash or
reinvested in additional shares.
REPURCHASE AGREEMENTS
For repurchase agreements entered into with
certain broker-dealers, the funds, along with
other affiliated registered investment
companies, may transfer uninvested cash
balances into an individual, joint or
tri-party 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. Securities pledged as collateral
for all tri-party repurchase agreements are
11
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
held by a third-party custodian 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.
ORGANIZATION COSTS
Organization costs were incurred in connection
with the start up and initial registration of
the funds. 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 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.
USE OF ESTIMATES
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make
estimates and assumptions that affect the
reported amounts of assets and liabilities.
Management is also required to make
disclosures of contingent assets and
liabilities at the date of the financial
statements and the reported results of
operations during the reporting period. Actual
results could differ from those estimates.
(3) INVESTMENT SECURITY TRANSACTIONS
Cost of purchases and proceeds from sales of
securities, other than temporary investments
in short-term securities (for Institutional
Government Adjustable Portfolio), for the year
ended June 30, 1996 were as follows:
<TABLE>
<CAPTION>
Institutional
Institutional Government
Money Market Adjustable
Fund Portfolio
-------------- -----------
<S> <C> <C>
Purchases .......................................... $ 3,703,354,777 4,288,478
Proceeds from sales ................................ $ 3,581,950,731 13,282,084
</TABLE>
For the year ended June 30, 1996, no brokerage
commissions were paid to Piper Jaffray Inc.,
an affiliated broker.
(4) CAPITAL SHARE TRANSACTIONS
Transactions in shares of each fund for the
years ended June 30, 1996, and June 30, 1995,
were as follows:
<TABLE>
<CAPTION>
Institutional
Institutional Government
Money Market Adjustable
Fund Portfolio
------------- -----------
<S> <C> <C>
1996:
Sold .............................................. 590,483,864 19,737
Issued for reinvested distributions ............... 4,730,393 53,334
Redeemed .......................................... (473,887,488) (1,049,909)
------------- -----------
Increase (decrease) ........................... 121,326,769 (976,838)
------------- -----------
------------- -----------
1995:
Sold .............................................. 168,842,836 95,422
Issued for reinvested distributions ............... 1,434,995 104,898
Redeemed .......................................... (152,763,914) (2,304,441)
------------- -----------
Increase (decrease) ......................... 17,513,917 (2,104,121)
------------- -----------
------------- -----------
</TABLE>
(5) EXPENSES
The company has entered into an investment
management agreement with Piper Capital
Management (Piper Capital) under which Piper
Capital manages each fund's assets and
furnishes related office facilities,
equipment, research and personnel. The
12
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
agreement requires each fund to pay Piper
Capital a monthly fee based on average daily
net assets. The fee for Institutional Money
Market Fund is equal to an annual rate of
0.15%. The fee for Institutional Government
Adjustable Portfolio is equal to an annual
rate of 0.30%.
The company has also entered into shareholder
servicing agreements under which Piper Jaffray
Inc. (Piper Jaffray) and Piper Trust Company
perform various transfer and dividend
disbursing agent services. The fees, which are
paid monthly to Piper Jaffray and Piper Trust
Company for providing these services, are
equal to an annual rate of $9.00 per active
shareholder account and $6.00 per inactive
account for Institutional Money Market Fund
and $7.50 per active shareholder account and
$1.60 per closed account for Institutional
Government Adjustable Portfolio.
In addition to the investment management 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; organization
costs; insurance; interest; taxes and other
miscellaneous expenses. For the year ended
June 30, 1996, Piper Capital voluntarily
limited total fees and expenses, excluding
interest and income tax expenses, to an annual
rate of 0.35% and 0.60% of average daily net
assets on an annual basis for Institutional
Money Market Fund and Institutional Government
Adjustable Portfolio, respectively.
Expenses paid indirectly represent a reduction
of custodian fees for earnings on cash
balances maintained by the funds.
Sales charges received by Piper Jaffray for
distributing shares of Institutional
Government Adjustable Portfolio were $4 for
the year ended June 30, 1996.
(6) CAPITAL LOSS CARRYOVER
For federal income tax purposes, Institutional
Government Adjustable Portfolio had capital
loss carryovers of $3,355,290 at June 30,
1996, which, if not offset by subsequent
capital gains, will expire in 2002 through
2005. It is unlikely the board of directors
will authorize a distribution of any net
realized capital gains until the available
capital loss carryovers have been offset or
expired.
(7) PROPOSED REORGANIZATION
The board of directors has approved, subject
to shareholder approval, a reorganization
pursuant to which Adjustable Rate Mortgage
Securities Fund ('Adjustable Rate Fund'), a
series of Piper Funds Inc. - II, will acquire
substantially all of the assets of
Institutional Government Adjustable Portfolio.
Shareholders of Institutional Government
Adjustable Portfolio will become shareholders
of Adjustable Rate Fund, receiving shares of
Adjustable Rate Fund with a value equal to the
value of their holdings in Institutional
Government Adjustable Portfolio. The
reorganization is subject to the approval of a
majority of the outstanding shares of
Institutional Government Adjustable Portfolio.
A special meeting to vote on the
reorganization is currently scheduled for
September 12, 1996.
13
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(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:
INSTITUTIONAL MONEY MARKET FUND
<TABLE>
<CAPTION>
Year Year Year Period
Ended Ended Ended Ended
6/30/96 6/30/95 6/30/94 6/30/93(c)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ................................ $ 1.00 1.00 1.00 1.00
------- ------- ------- -------
Operations:
Net investment income ............................................... 0.05 0.05 0.03 0.01
------- ------- ------- -------
Total from operations ............................................ 0.05 0.05 0.03 0.01
------- ------- ------- -------
Distributions from net investment income .............................. (0.05) (0.05) (0.03) (0.01)
------- ------- ------- -------
Net asset value, end of period .................................. $ 1.00 1.00 1.00 1.00
------- ------- ------- -------
------- ------- ------- -------
Total return (a) ...................................................... 5.42% 5.26% 3.23% 1.24%
Net assets at end of period (in millions) ........................... $ 174 52 35 40
Ratio of expenses to average daily net assets (b) ..................... 0.35% 0.35% 0.35% 0.35%(d)
Ratio of net investment income to average daily net assets (b) ........ 5.22% 5.17% 3.26% 3.02%(d)
</TABLE>
(A) TOTAL RETURN IS BASED ON THE CHANGE IN NET ASSET VALUE DURING THE PERIOD,
ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND DOES NOT REFLECT A SALES
CHARGE.
(B) DURING THE YEARS REFLECTED ABOVE, THE ADVISOR VOLUNTARILY WAIVED FEES AND
EXPENSES. HAD THE FUND PAID ALL FEES AND EXPENSES, THE RATIOS OF EXPENSES
AND NET INVESTMENT INCOME TO AVERAGE DAILY NET ASSETS WOULD HAVE BEEN AS
FOLLOWS: 0.38%/5.19%, 0.49%/5.03% AND 0.61%/3.00% IN FISCAL YEARS 1996,
1995 AND 1994, RESPECTIVELY. BEGINNING IN FISCAL 1996, THE EXPENSE RATIO
REFLECTS THE EFFECT OF GROSS EXPENSES PAID INDIRECTLY BY THE FUND. PRIOR
PERIOD EXPENSE RATIOS HAVE NOT BEEN ADJUSTED.
(C) COMMENCEMENT OF OPERATIONS WAS FEBRUARY 2, 1993.
(D) ADJUSTED TO AN ANNUAL BASIS.
14
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(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:
INSTITUTIONAL GOVERNMENT ADJUSTABLE PORTFOLIO
<TABLE>
<CAPTION>
Year Year Year Period
Ended Ended Ended Ended
6/30/96 6/30/95 6/30/94 6/30/93(d)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ............................... $ 9.44 9.46 10.04 10.00
------- ------- ------- -------
Operations:
Net investment income .............................................. 0.59(f) 0.52 0.49 0.18
Net realized and unrealized gains (losses) on investments .......... (0.01) (0.04) (0.57) 0.04
------- ------- ------- -------
Total from operations ........................................... 0.58 0.48 (0.08) 0.22
------- ------- ------- -------
Distributions to shareholders:
From net investment income ......................................... (0.25) (0.41) (0.50) (0.18)
Tax return of capital .............................................. (0.29) (0.09) -- --
------- ------- ------- -------
Total distributions to shareholders ............................. (0.54) (0.50) (0.50) (0.18)
------- ------- ------- -------
Net asset value, end of period ................................. $ 9.48 9.44 9.46 10.04
------- ------- ------- -------
------- ------- ------- -------
Total return (a) ..................................................... 6.34% 5.26% (0.91)% 2.18%
Net assets at end of period (in millions) .......................... $ 6 15 35 41
Ratio of expenses to average daily net assets (b) .................... 0.61% 0.55% 0.55% 0.74%(e)
Ratio of net investment income to average daily net assets (b) ....... 5.98% 5.54% 5.13% 4.73%(e)
Portfolio turnover rate (excluding short-term securities) ............ 43% 43% 110% 26%
Amount of borrowings outstanding at end of period (in millions)
(c) .............................................................. $ 0 0 9 6
Average amount of borrowings outstanding during the period (in
millions) ........................................................ $ -- 1.62 11.71 5.87
Average number of shares outstanding during the period (in
millions) .......................................................... 1.03 2.41 5.38 3.37
Average per-share asset amount of borrowings outstanding during the
period ........................................................... $ 0.03 0.67 2.18 1.74
</TABLE>
(A) TOTAL RETURN IS BASED ON THE CHANGE IN NET ASSET VALUE DURING THE PERIOD,
ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND DOES NOT REFLECT A SALES
CHARGE.
(B) DURING THE YEARS REFLECTED ABOVE, THE ADVISOR VOLUNTARILY WAIVED FEES AND
EXPENSES. HAD THE FUND PAID ALL FEES AND EXPENSES, THE RATIOS OF EXPENSES
AND NET INVESTMENT INCOME TO AVERAGE DAILY NET ASSETS WOULD HAVE BEEN AS
FOLLOWS: 1.75%/4.84%, 0.75%/5.34% AND 0.60%/5.08% IN FISCAL YEARS 1996,
1995 AND 1994, RESPECTIVELY. BEGINNING IN FISCAL 1996, THE EXPENSE RATIO
REFLECTS THE EFFECT OF GROSS EXPENSES PAID INDIRECTLY BY THE FUND. PRIOR
PERIOD EXPENSE RATIOS HAVE NOT BEEN ADJUSTED.
(C) 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 NOTE 2 IN THE NOTES TO FINANCIAL STATEMENTS.
(D) COMMENCEMENT OF OPERATIONS WAS FEBRUARY 2, 1993.
(E) ADJUSTED TO AN ANNUAL BASIS.
(F) BASED ON AVERAGE SHARES OUTSTANDING DURING THE YEAR.
15
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
INSTITUTIONAL MONEY MARKET FUND
JUNE 30, 1996
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- ---------- -----------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
U.S. GOVERNMENT AND AGENCY SECURITIES (62.0%):
Federal Farm Credit Bank Floating Rate Notes (b) (0.9%):
5.19%, 2/13/97 ...................................... $ 1,500,000 1,499,460
-----------
Federal Home Loan Bank Discount Notes (6.1%):
5.30%, 8/12/96 ........................................ 985,000 978,909
5.17%, 8/19/96 ........................................ 2,640,000 2,621,422
5.12%, 9/20/96 ........................................ 1,000,000 988,480
5.18%, 10/4/96 ........................................ 1,000,000 986,332
5.27%, 7/22/96 ........................................ 5,000,000 4,984,629
-----------
10,559,772
-----------
Federal Home Loan Bank Floating Rate Notes (b) (1.7%):
5.45%, 9/2/97 ......................................... 1,000,000 997,109
5.35%, 11/21/96 ....................................... 2,000,000 1,999,813
-----------
2,996,922
-----------
Federal Home Loan Mortgage Corporation Coupon Notes (1.7%):
7.88%, 12/20/96 ....................................... 2,000,000 2,021,274
5.56%, 11/7/96 ........................................ 1,000,000 999,848
-----------
3,021,122
-----------
Federal Home Loan Mortgage Corporation Discount Notes (22.6%):
5.25%, 8/6/96 ......................................... 3,000,000 2,984,250
5.21%, 8/8/96 ......................................... 1,650,000 1,640,926
5.32%, 9/3/96 ......................................... 2,000,000 1,981,084
5.33%, 9/20/96 ........................................ 2,000,000 1,976,015
5.23%, 10/16/96 ....................................... 1,255,000 1,235,491
5.18%, 7/3/96 ......................................... 3,000,000 2,999,137
5.19%, 7/3/96 ......................................... 2,475,000 2,474,286
5.17%, 7/9/96 ......................................... 3,000,000 2,996,553
5.27%, 7/10/96 ........................................ 5,000,000 4,993,413
5.25%, 7/15/96 ........................................ 3,000,000 2,993,875
5.28%, 7/15/96 ........................................ 2,000,000 1,995,893
5.18%, 7/16/96 ........................................ 5,000,000 4,989,208
5.19%, 7/16/96 ........................................ 3,000,000 2,993,513
5.25%, 7/18/96 ........................................ 3,000,000 2,992,563
-----------
39,246,207
-----------
Federal National Mortgage Association Discount Notes (14.0%):
5.15%, 8/1/96 ......................................... 1,500,000 1,493,348
5.24%, 8/6/96 ......................................... 3,000,000 2,984,280
5.29%, 8/13/96 ........................................ 2,000,000 1,987,363
4.80%, 8/16/96 ........................................ 2,000,000 1,987,733
5.23%, 8/20/96 ........................................ 3,000,000 2,978,208
5.18%, 7/24/96 ........................................ 8,000,000 7,973,525
5.27%, 7/25/96 ........................................ 5,000,000 4,982,433
-----------
24,386,890
-----------
Federal National Mortgage Association Floating Rate Notes (b) (5.2%):
5.54%, 10/4/96 ........................................ 2,000,000 2,000,000
5.44%, 5/1/97 ......................................... 3,000,000 2,998,741
5.47%, 6/20/97 ........................................ 2,000,000 1,998,084
5.45%, 6/2/99 ......................................... 2,000,000 1,986,422
-----------
8,983,247
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- ---------- -----------
<S> <C> <C>
Student Loan Marketing Association Floating Rate Notes (b) (4.6%):
5.59%, 10/30/97 ..................................... $ 2,360,000 2,360,000
6.08%, 7/1/96 ......................................... 2,700,000 2,700,000
6.13%, 6/30/97 ........................................ 1,000,000 999,585
5.45%, 12/20/96 ....................................... 2,000,000 2,000,000
-----------
8,059,585
-----------
U.S. Treasury Notes and Bonds (5.2%):
6.50%, 11/30/96 ....................................... 1,500,000 1,506,483
6.88%, 2/28/97 ........................................ 3,000,000 3,029,435
6.63%, 3/31/97 ........................................ 3,000,000 3,023,173
8.50%, 4/15/97 ........................................ 1,500,000 1,533,001
-----------
9,092,092
-----------
Total U.S. Government and Agency Securities (cost:
$107,845,297) ...................................... 107,845,297
-----------
OTHER U.S. GOVERNMENT AGENCY-BACKED (2.9%):
Downey Savings & Loan, LOC Federal Home Loan Bank San
Francisco, 5.50%, 7/12/96 ............................ 1,000,000 998,319
Downey Savings & Loan, LOC Federal Home Loan Bank San
Francisco, 5.25%, 8/16/96 ............................ 1,000,000 993,292
Fidelity Federal Bank, LOC Federal Home Loan Bank San
Francisco, 5.22%, 9/27/96 ............................ 3,000,000 2,961,720
-----------
Total Other U.S. Government Agency-Backed (cost:
$4,953,331) ........................................ 4,953,331
-----------
REPURCHASE AGREEMENTS (35.1%):
Repurchase agreement with Goldman Sachs in a joint
trading account, collateralized by U.S. government
agency securities, acquired on 6/28/96, accrued
interest of $486, 5.55%, 7/1/96 ...................... 1,051,000 1,051,000
Repurchase agreement with Goldman Sachs in a tri-party
account, collateralized by U.S. government agency
securities, acquired on 6/26/96, accrued interest of
$5,889, 5.30%, 7/1/96 ................................ 8,000,000(c) 8,000,000
Repurchase agreement with Goldman Sachs in a tri-party
account, collateralized by U.S. government agency
securities, acquired on 6/26/96, accrued interest of
$7,950, 5.30%, 7/2/96 ................................ 9,000,000(c) 9,000,000
Repurchase agreement with Goldman Sachs in a tri-party
account, collateralized by U.S. government agency
securities, acquired on 6/5/96, accrued interest of
$12,015, 5.34%, 7/2/96 ............................... 3,000,000(c) 3,000,000
Repurchase agreement with Goldman Sachs in a tri-party
account, collateralized by U.S. government agency
securities, acquired on 6/6/96, accrued interest of
$14,187, 5.32%, 7/8/96 ............................... 3,000,000(c)(d) 3,000,000
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
16
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
INSTITUTIONAL MONEY MARKET FUND
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- ---------- -----------
<S> <C> <C>
Repurchase agreement with Goldman Sachs in a tri-party
account, collateralized by U.S. government agency
securities, acquired on 6/6/96, accrued interest of
$15,517, 5.32%, 7/11/96 ............................ $ 3,000,000(c)(d) 3,000,000
Repurchase agreement with Morgan Stanley in a tri-party
account, collateralized by U.S. government agency
securities, acquired on 5/28/96, accrued interest of
$39,825, 5.31%, 8/26/96 .............................. 3,000,000(c)(d) 3,000,000
Repurchase agreement with Morgan Stanley in a tri-party
account, collateralized by U.S. government agency
securities, acquired on 6/24/96, accrued interest of
$18,865, 5.39%, 7/1/96 ............................... 18,000,000(c) 18,000,000
Repurchase agreement with Morgan Stanley in a tri-party
account, collateralized by U.S. government agency
securities, acquired on 6/26/96, accrued interest of
$8,338, 5.36%, 7/3/96 ................................ 8,000,000(c) 8,000,000
Repurchase agreement with Morgan Stanley in a tri-party
account, collateralized by U.S. government agency
securities, acquired on 6/7/96, accrued interest of
$20,689, 5.32%, 7/5/96 ............................... 5,000,000(c) 5,000,000
-----------
Total Repurchase Agreements
(cost: $61,051,000) ................................ 61,051,000
-----------
Total Investments in Securities (100.0%)
(cost: $173,849,628) (e) ........................... 173,849,628
-----------
Liabilities in excess of other assets (-0.0%) ....... (33,997)
-----------
Net assets (100.0%) ................................ $ 173,815,631
-----------
-----------
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES:
(A) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(B) INTEREST RATE VARIES TO REFLECT CURRENT MARKET CONDITIONS; RATE SHOWN IS
THE EFFECTIVE RATE ON JUNE 30, 1996. THE MATURITY DATE REPRESENTS FINAL
MATURITY. HOWEVER, FOR PURPOSES OF RULE 2A-7, MATURITY DATE IS THE NEXT
INTEREST RATE RESET DATE.
(C) TRI-PARTY REPURCHASE AGREEMENTS REPRESENT AGREEMENTS WHERE UNINVESTED CASH
BALANCES ARE TRANSFERRED TO AN INDEPENDENT THIRD-PARTY CUSTODIAN (BANK OF
NEW YORK) AND THE COLLATERAL PLEDGED BY THE COUNTERPARTY TO THE AGREEMENT
IS HELD AT THE SAME THIRD-PARTY CUSTODIAN FOR THE BENEFIT OF THE FUND.
(D) REPURCHASE AGREEMENTS WITH GREATER THAN SEVEN DAYS TO MATURITY ARE
CONSIDERED ILLIQUID. THE AGGREGATE VALUE OF SUCH REPURCHASE AGREEMENTS
REPRESENTS 5.2% OF NET ASSETS.
(E) ALSO REPRESENTS COST FOR FEDERAL INCOME TAX PURPOSES.
INSTITUTIONAL GOVERNMENT ADJUSTABLE PORTFOLIO
JUNE 30, 1996
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- ---------- -----------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
U.S. GOVERNMENT AND AGENCY SECURITIES (97.4%):
U.S. Government Securities (11.3%):
U.S. Treasury Note, 6.00%, 11/30/97 ................ $ 650,000 650,325
-----------
U.S. Agency Mortgage-Backed Securities (86.1%):
Fixed Rate (14.3%):
7.50%, FNMA, 2/1/10 .................................. 823,589 828,473
-----------
Adjustable Rate (71.8%):
7.25%, FHLMC, 1/1/17 ................................. 926,788 942,423
7.59%, FNMA, 2/1/22 .................................. 1,460,184 1,510,268
6.50%, GNMA, 11/20/25 ................................ 1,678,081 1,693,284
-----------
4,145,975
-----------
Total U.S. Government and Agency Securities
(cost: $5,600,661) ................................ 5,624,773
-----------
REPURCHASE AGREEMENTS (0.8%):
Repurchase agreement with Goldman Sachs in a joint
trading account, collateralized by U.S. government
agency securities, acquired on 6/28/96, accrued
interest of $21, 5.55%, 7/1/96
(cost: $46,000) ..................................... 46,000 46,000
-----------
Total Investments in Securities (98.2%)
(cost: $5,646,661) (b) ............................ 5,670,773
-----------
Other assets in excess of liabilities (1.8%) ....... 103,699
-----------
Net assets (100.0%) ............................... $ 5,774,472
-----------
-----------
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES:
(A) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(B) ON JUNE 30, 1996, THE COST OF INVESTMENTS IN SECURITIES FOR FEDERAL INCOME
TAX PURPOSES WAS $5,646,661. THE AGGREGATE GROSS UNREALIZED APPRECIATION
AND DEPRECIATION OF INVESTMENTS IN SECURITIES WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION .... $ 46,668
GROSS UNREALIZED DEPRECIATION ...... (22,556)
-----------
NET UNREALIZED APPRECIATION .... $ 24,112
-----------
-----------
</TABLE>
17
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
PIPER INSTITUTIONAL FUNDS INC.:
We have audited the accompanying statements of
assets and liabilities, including the schedule
of investments in securities, of Institutional
Money Market Fund and Institutional Government
Adjustable Portfolio (funds within Piper
Institutional Funds Inc.) as of June 30, 1996,
the related statements of operations for the
year then ended, the statements of changes in
net assets for each of the years in the two-
year period then ended and the financial
highlights 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.
Investment securities held in custody are
confirmed to us by the custodian. As to
securities purchased and sold but not received
or delivered, we request confirmations from
brokers and, where replies are not received,
we carry out other appropriate auditing
procedures. 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, the
financial position of Institutional Money
Market Fund and Institutional Government
Adjustable Portfolio as of June 30, 1996, and
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.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
July 19, 1996
18
<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 to you on
Form 1099-DIV. Please consult a tax adviser on
how to report these distributions at the state
and local levels.
INCOME DISTRIBUTIONS
(TAXABLE AS ORDINARY DIVIDENDS, NONE
QUALIFYING FOR DEDUCTION BY CORPORATIONS)
<TABLE>
<CAPTION>
Institutional
Institutional Government
Money Market Adjustable
Payable Date Fund Portfolio
- ----------------------------------------------------- --------------- -------------
<S> <C> <C>
July 31, 1995.......................................$ 0.0047 0.0417
August 31, 1995...................................... 0.0047 0.0417
September 30, 1995................................... 0.0045 0.0448
October 31, 1995..................................... 0.0046 0.0467
November 30, 1995.................................... 0.0044 0.0492
December 31, 1995.................................... 0.0046 0.0473
January 31, 1996..................................... 0.0045 0.0467
February 29, 1996.................................... 0.0040 0.0470
March 31, 1996....................................... 0.0043 0.0464
April 30, 1996....................................... 0.0041 0.0464
May 31, 1996......................................... 0.0042 0.0452
June 30, 1996........................................ 0.0041 0.0410
------- -------------
Total...........................................$ 0.0527 0.5441*
------- -------------
------- -------------
</TABLE>
* $0.2921 per share of the total distributions
of $0.5441 per share represents a return of
capital for tax purposes.
19
<PAGE>
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
DIRECTORS David T. Bennett, CHAIRMAN, HIGHLAND HOMES, INC.,
USL PRODUCTS, INC., KIEFER BUILT, INC., OF
COUNSEL, GRAY, PLANT, MOOTY, MOOTY & BENNETT,
P.A.
Jaye F. Dyer, PRESIDENT, DYER MANAGEMENT COMPANY
William H. Ellis, PRESIDENT, PIPER JAFFRAY
COMPANIES INC., PIPER CAPITAL MANAGEMENT
INCORPORATED
Karol D. Emmerich, PRESIDENT, THE PARACLETE GROUP
Luella G. Goldberg, DIRECTOR, TCF FINANCIAL,
RELIASTAR FINANCIAL CORP., HORMEL FOODS CORP.
George Latimer, CHIEF EXECUTIVE OFFICER, NATIONAL
EQUITY FUNDS
OFFICERS William H. Ellis, CHAIRMAN OF THE BOARD
Paul A. Dow, PRESIDENT
Thomas S. McGlinch, SENIOR VICE PRESIDENT
Robert H. Nelson, SENIOR VICE PRESIDENT AND
TREASURER
Nancy S. Olsen, SENIOR VICE PRESIDENT
Molly J. Destro, VICE PRESIDENT
Amy K. Johnson, VICE PRESIDENT
Paul D. Pearson, VICE PRESIDENT
Susan Sharp Miley, SECRETARY
INVESTMENT ADVISER Piper Capital Management Incorporated
222 SOUTH NINTH STREET, MINNEAPOLIS, MN 55402-3804
CUSTODIAN AND Investors Fiduciary Trust Company
TRANSFER AGENT 127 WEST 10TH STREET, KANSAS CITY, MO 64105-1716
LEGAL COUNSEL Dorsey & Whitney LLP
220 SOUTH SIXTH STREET, MINNEAPOLIS, MN 55402
INDEPENDENT KPMG Peat Marwick LLP
AUDITORS 4200 NORWEST CENTER, MINNEAPOLIS, MN 55402
20
<PAGE>
[LOGO]
PIPER CAPITAL MANAGEMENT INCORPORATED
222 SOUTH NINTH STREET
MINNEAPOLIS, MN 55402-3804
PIPER JAFFRAY INC., FUND DISTRIBUTOR AND NASD MEMBER.
THIS DOCUMENT IS PRINTED ON PAPER MADE FROM
100% TOTAL RECOVERED FIBER, INCLUDING 15% POST-CONSUMER WASTE.
In an effort to reduce costs to our shareholders, we have
implemented a process to reduce duplicate mailings of
the fund's shareholder reports. This householding
process should allow us to mail one report to each
address where one or more registered shareholders with
the same last names reside. If you would like to have
additional reports mailed to your address, please call our
Shareholder Services area at 1 800 866-7778, or mail
your request to:
Piper Capital Management
Attn: Communications Department
222 South Ninth Street
Minneapolis, MN 55402-3804
http://www.piperjaffray.com/
#10700 7/96 190-96
