<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS Period from July 1, 1996 to
September 16, 1996
..................................................................
<TABLE>
<S> <C>
INCOME:
Interest ................................................... $ 72,047
----------------
EXPENSES (NOTE 3):
Investment management fee .................................. 3,313
Custodian and accounting fees .............................. 2,841
Transfer agent and dividend disbursing agent fees .......... 5,028
Amortization of organization costs ......................... 1,704
Directors' fees ............................................ 1,126
Audit and legal fees ....................................... 5,728
----------------
Total expenses ........................................... 19,740
Less expenses waived by the adviser ........................ (13,114)
----------------
Net expenses before expenses paid indirectly ............. 6,626
Less expenses paid indirectly .............................. (15)
----------------
Total net expenses ....................................... 6,611
----------------
Net investment income .................................... 65,436
----------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on investments (note 4) .................. 29,485
Net change in unrealized appreciation or depreciation of
investments .............................................. (21,955)
----------------
Net gain on investments .................................. 7,530
----------------
Net increase in net assets resulting from operations ..... $ 72,966
----------------
----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
1 1996 Annual Report - Institutional
Government Adjustable
<PAGE>
Financial Statements (continued)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
..................................................................
<TABLE>
<CAPTION>
PERIOD FROM
7/1/96 TO YEAR ENDED
9/16/96 6/30/96
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income ...................................... $ 65,436 $ 611,416
Net realized gain (loss) on investments .................... 29,485 (143,585)
Net change in unrealized appreciation or depreciation of
investments .............................................. (21,955) 190,446
---------------- ----------------
Net increase in net assets resulting from operations ..... 72,966 658,277
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ................................. (40,866) (362,543)
Tax return of capital ...................................... (24,570) (221,821)
---------------- ----------------
Total distributions ...................................... (65,436) (584,364)
---------------- ----------------
CAPITAL SHARE TRANSACTIONS (NOTE 5):
Proceeds from sales ........................................ 3,007 187,462
Proceeds from shares issued for reinvestment of
distributions ............................................ 49,028 505,527
Payments for shares redeemed ............................... (1,172,089) (9,962,203)
Payment for shares exchanged in connection with merger (note
1) ....................................................... (4,661,948) --
---------------- ----------------
Decrease in net assets from capital share transactions ... (5,782,002) (9,269,214)
---------------- ----------------
Total decrease in net assets ............................. (5,774,472) (9,195,301)
Net assets at beginning of period .......................... 5,774,472 14,969,773
---------------- ----------------
Net assets at end of period ................................ $ -- $5,774,472
---------------- ----------------
---------------- ----------------
Distributions in excess of net investment income ........... $ -- $ (25,308)
---------------- ----------------
---------------- ----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
2 1996 Annual Report - Institutional
Government Adjustable
<PAGE>
Notes to Financial Statements
- --------------------------------------------------
(1) ORGANIZATION
................................................................................
Piper Institutional Funds Inc. (the company) is registered
under the Investment Company Act of 1940 (as amended) as
an open-end management investment company. Institutional
Government Adjustable Portfolio (the fund), a series of
the company, commenced operations on February 2, 1993. The
fund ceased operations and merged all its net assets into
Piper Funds Inc. II--Adjustable Rate Mortgage Securities
Fund via a tax free reorganization on September 16, 1996.
The merger was conducted in accordance with a plan
approved by the fund's shareholders on September 12, 1996.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
................................................................................
INVESTMENTS IN SECURITIES
The value of certain fixed income securities were provided
by an independent pricing service, which determined these
valuations at a time earlier than the close of the New
York Stock Exchange each trading day. Fixed income
securities for which prices were not available from an
independent pricing service but where an active market
exists were valued using market quotations obtained from
one or more dealers that make markets in the securities.
Occasionally, events affecting the value of such
securities occurred between the time valuations were
determined and the close of the Exchange. If events
materially affecting the value of such securities
occurred, if the Company's management determined for any
other reason that valuations provided by the pricing
service or market quotations from dealers were inaccurate
or when market quotations were not readily available,
securities were valued at their fair value according to
procedures decided upon in good faith by the Board of
Directors. Short-term securities with maturities of 60
days or less were valued at amortized cost, which
approximates market value.
Securities transactions were accounted for on the date the
securities were purchased or sold. Realized gains and
losses were calculated on the identified-cost basis.
Interest income, including amortization of bond discount
and premium computed on a level-yield basis, was accrued
daily.
FEDERAL TAXES
The fund complied with the requirements of the Internal
Revenue Code applicable to regulated investment companies
and was not subject to federal income tax.
Net investment income and net realized gains (losses)
differed for financial statement and tax purposes
primarily because of 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 that exceeded
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
were distributed may differ from the year that the income
or realized gains (losses) were recorded by the fund.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders from net investment income
were declared daily and paid monthly. Net realized gains
distributions, if any, were made at least annually.
Distributions were payable in cash or reinvested in
additional shares.
- --------------------------------------------------------------------------------
3 1996 Annual Report - Institutional Government Adjustable
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
ORGANIZATION COSTS
Organization costs were incurred in connection with the
start up and initial registration of the fund. These costs
were being amortized over 60 months on a straight-line
basis. Upon ceasing operations, the fund was reimbursed by
Piper Capital for any unamortized organizational costs.
(3) EXPENSES
................................................................................
The company had entered into an investment management
agreement with Piper Capital Management Incorporated
(Piper Capital) under which Piper Capital managed the
fund's assets and furnished related office facilities,
equipment, research and personnel. The agreement required
the fund to pay Piper Capital a monthly fee based on
average daily net assets computed at the per-annum rate of
0.30%.
The company had also entered into shareholder servicing
agreements under which Piper Jaffray and Piper Trust
Company performed various transfer and dividend disbursing
agent services for accounts held at the respective
company. The fees, which were paid monthly to Piper
Jaffray and Piper Trust Company for providing these
services, were equal to an annual rate of $7.50 per active
shareholder account and $1.60 per closed account.
In addition to the investment management, transfer agent
and dividend disbursing agent fees, the fund was
responsible for paying most other operating expenses
including: outside directors' fees and expenses; custodian
fees; registration fees; printing and shareholder reports;
transfer agent fees and expenses; legal, auditing and
accounting services; insurance; interest; taxes and other
miscellaneous expenses. For the period ended September 16,
1996, Piper Capital voluntarily limited total fees and
expenses to an annual rate of 0.60% of the funds average
daily net assets.
Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by
the fund.
(4) INVESTMENT SECURITY TRANSACTIONS
................................................................................
Cost of purchases and proceeds from sales of securities,
other than temporary investments in short-term securities,
for the period ended September 16, 1996 aggregated
$451,926 and $1,600,423, respectively.
For the period ended September 16, 1996, no brokerage
commissions were paid to Piper Jaffray Inc., an affiliated
broker.
(5) CAPITAL SHARE TRANSACTIONS
................................................................................
Transactions in shares of the fund were as follows:
<TABLE>
<CAPTION>
Period ended September 16, 1996:
<S> <C>
Sold ...................................... 317
Issued for reinvested distributions ....... 5,168
Redeemed .................................. (123,630)
Exchanged in connection with merger ....... (490,713)
-----------
Decrease ................................ (608,858)
-----------
-----------
Year ended June 30, 1996:
Sold ...................................... 19,737
Issued for reinvested distributions ....... 53,334
Redeemed .................................. (1,049,909)
-----------
Decrease ................................ (976,838)
-----------
-----------
</TABLE>
- --------------------------------------------------------------------------------
4 1996 Annual Report - Institutional Government Adjustable
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
(6) 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 GOVERNMENT ADJUSTABLE PORTFOLIO
<TABLE>
<CAPTION>
Period
from
7/1/96 Year Year Year Year
to Ended Ended Ended Ended
9/16/96(a) 6/30/96 6/30/95 6/30/94 6/30/93(e)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ........ $ 9.48 $ 9.44 $ 9.46 $10.04 $10.00
------- ------- ------- ------- -------
Operations:
Net investment income ..................... 0.13 0.59(g) 0.52 0.49 0.18
Net realized and unrealized gains (losses)
on investments .......................... 0.01 (0.01) (0.04) (0.57) 0.04
------- ------- ------- ------- -------
Total from operations ................... 0.14 (0.58) 0.48 (0.08) 0.22
------- ------- ------- ------- -------
Distributions to shareholders:
From net investment income ................ (0.07) (0.25) (0.41) (0.50) (0.18)
Tax return of capital ..................... (0.05) (0.29) (0.09) -- --
------- ------- ------- ------- -------
Total distributions to shareholders ..... (0.12) (0.54) (0.50) (0.50) (0.18)
------- ------- ------- ------- -------
Net asset value, date of merger ............. (9.50) -- -- -- --
------- ------- ------- ------- -------
Net asset value, end of period .............. $ -- $ 9.48 $ 9.44 $ 9.46 $10.04
------- ------- ------- ------- -------
------- ------- ------- ------- -------
SELECTED INFORMATION
Total return (b) ............................ 1.49% 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
(c) ....................................... 0.60%(f) 0.61% 0.55% 0.55% 0.74%(f)
Ratio of net investment income to average
daily net assets (c) ...................... 5.97%(f) 5.98% 5.54% 5.13% 4.73%(f)
Portfolio turnover rate (excluding short-term
securities) ............................... 9% 43% 43% 110% 26%
Amount of borrowings outstanding at end of
period (in millions)(d) ................... $ -- $ -- $ -- $ 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) ON SEPTEMBER 16, 1996, THE FUND CEASED OPERATIONS AND MERGED ALL OF ITS NET
ASSETS INTO PIPER FUNDS INC. II--ADJUSTABLE RATE MORTGAGE SECURITIES FUND
VIA A TAX FREE REORGANIZATION.
(B) 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.
(C) 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: 1.80%/4.77%, 1.75%/4.84%, 0.75%/5.34% AND 0.60%/5.08% FOR THE
PERIOD ENDED SEPTEMBER 16, 1996, AND 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.
(D) SECURITIES PURCHASED ON A WHEN-ISSUED BASIS FOR WHICH LIQUID, HIGH-GRADE
DEBT OBLIGATIONS ARE MAINTAINED IN A SEGREGATED ACCOUNT ARE NOT CONSIDERED
BORROWINGS.
(E) COMMENCEMENT OF OPERATIONS WAS FEBRUARY 2, 1993.
(F) ADJUSTED TO AN ANNUAL BASIS.
(G) BASED ON AVERAGE SHARES OUTSTANDING DURING THE YEAR.
- --------------------------------------------------------------------------------
5 1996 Annual Report - Institutional Government Adjustable
<PAGE>
Independent Auditors' Report
- --------------------------------------------------
THE BOARD OF DIRECTORS AND SHAREHOLDERS
PIPER INSTITUTIONAL FUNDS INC.:
We have audited the accompanying statement of operations
of Institutional Government Adjustable Portfolio (a fund
within Piper Institutional Funds Inc.) for the period from
July 1, 1996 to September 16, 1996, the related statements
of changes in net assets for the period from July 1, 1996
to September 16, 1996 and the year ended June 30, 1996 and
the financial highlights for the periods presented in note
6 to the financial statements. These financial statements
and the financial highlights are the responsibility of the
fund's management. Our responsibility is to express an
opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and the
financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the
accounting principles used and significant estimates made
by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and the financial
highlights referred to above present fairly, in all
material respects, the results of operations of
Institutional Government Adjustable Portfolio and the
changes in its net assets and the financial highlights for
the periods stated in the first paragraph above, in
conformity with generally accepted accounting principles.
As described in note 1 to the financial statements,
Institutional Government Adjustable Portfolio ceased
operations and merged all of its net assets into Piper
Funds Inc. II -Adjustable Rate Mortgage Securities Fund on
September 16, 1996.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 27, 1996
- --------------------------------------------------------------------------------
6 1996 Annual Report - Institutional Government Adjustable
<PAGE>
Directors and Officers
- --------------------------------------------------
DIRECTORS
David T. Bennett, CHAIRMAN, HIGHLAND HOMES, INC., USL
PRODUCTS, INC., KIEFER BUILT, INC., OF COUNSEL, GRAY,
PLANT, MOOTY, MOOTY & BENNETT, P.A.
Jaye F. Dyer, PRESIDENT, DYER MANAGEMENT COMPANY
William H. Ellis, PRESIDENT, PIPER JAFFRAY COMPANIES INC.,
PIPER CAPITAL MANAGEMENT INCORPORATED
Karol D. Emmerich, PRESIDENT, THE PARACLETE GROUP
Luella G. Goldberg, DIRECTOR, TCF FINANCIAL, RELIASTAR
FINANCIAL CORP., HORMEL FOODS CORP.
David A. Hughey, RETIRED EXECUTIVE VICE PRESIDENT AND
CHIEF ADMINISTRATIVE OFFICER OF DEAN WITTER
INTERCAPITAL INC. AND DEAN WITTER TRUST CO.
George Latimer, CHIEF EXECUTIVE OFFICER, NATIONAL EQUITY
FUNDS
OFFICERS
William H. Ellis, CHAIRMAN OF THE BOARD
Paul A. Dow, PRESIDENT
Robert H. Nelson, VICE PRESIDENT AND TREASURER
Susan Sharp Miley, SECRETARY
INVESTMENT ADVISER
Piper Capital Management Incorporated
222 SOUTH NINTH STREET, MINNEAPOLIS, MN 55402-3804
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company
127 WEST 10TH STREET, KANSAS CITY, MO 64105-1716
LEGAL COUNSEL
Dorsey & Whitney LLP
220 SOUTH SIXTH STREET, MINNEAPOLIS, MN 55402
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
4200 NORWEST CENTER, MINNEAPOLIS, MN 55402
- --------------------------------------------------------------------------------
7 1996 Annual Report - Institutional Government Adjustable
