-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BCPXQsy72cNWLMjxhPJEWTIOcc2hvyEqgOmkej2ATcG6KuZokiEiV2k5X+tWEqaQ qClx8rOWbhotjzEz7axMOw== 0001047469-97-006080.txt : 19971126 0001047469-97-006080.hdr.sgml : 19971126 ACCESSION NUMBER: 0001047469-97-006080 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971125 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIPER FUNDS INC CENTRAL INDEX KEY: 0000806177 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MN FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-04905 FILM NUMBER: 97728303 BUSINESS ADDRESS: STREET 1: 222 S 9TH ST - STE 1300 STREET 2: PIPER JEFFRAY TOWER CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: 6123426288 MAIL ADDRESS: STREET 1: 222 S 9TH ST - STE 1300 CITY: MINNEAPOLIS STATE: MN ZIP: 55402 FORMER COMPANY: FORMER CONFORMED NAME: PIPER JAFFRAY INVESTMENT TRUST INC DATE OF NAME CHANGE: 19940520 FORMER COMPANY: FORMER CONFORMED NAME: PIPER JAFFRAY FUNDS INC DATE OF NAME CHANGE: 19870127 N-30D 1 N-30D U.S. Growth Funds - 1997 Annual Report [LOGO] U.S. GROWTH FUNDS 1997 Annual Report SMALL COMPANY GROWTH FUND EMERGING GROWTH FUND GROWTH FUND INSIDE: ACTION OR REACTION -- Which Guides Your Approach to Investing? [PICTURE] [LOGO] CONTENTS President's Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Federal Tax Information . . . . . . . . . . . . . . . . . . . . . . . . . .30 Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . .31 Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 Glossary***. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36 SMALL COMPANY GROWTH FUND Portfolio Managers' Letter . . . . . . . . . . . . . . . . . . . . . . . . . 4 Financial Statements and Notes . . . . . . . . . . . . . . . . . . . . . . .13 Investments in Securities. . . . . . . . . . . . . . . . . . . . . . . . . .25 EMERGING GROWTH FUND Portfolio Managers' Letter . . . . . . . . . . . . . . . . . . . . . . . . . 7 Financial Statements and Notes . . . . . . . . . . . . . . . . . . . . . . .13 Investments in Securities. . . . . . . . . . . . . . . . . . . . . . . . . .27 GROWTH FUND Portfolio Managers' Letter . . . . . . . . . . . . . . . . . . . . . . . . .10 Financial Statements and Notes . . . . . . . . . . . . . . . . . . . . . . .13 Investments in Securities. . . . . . . . . . . . . . . . . . . . . . . . . .29 This report is intended for shareholders of Small Company Growth Fund, Emerging Growth Fund and Growth Fund, but may also be used as sales literature if preceded or accompanied by a prospectus. The prospectus gives details about the charges, investment results, risks and operating policies of the funds. *** This report includes a glossary to help you understand financial terms used in the portfolio managers' letters. When you see this symbol, it indicates a word that is defined in the glossary. ACTION - -------------------------------------------------------------------------------- WHICH GUIDES YOUR APPROACH TO INVESTING? The market soars 150 points. The market plummets 150 points. One financial commentator urges investors to sell stocks and buy bonds. Another promotes a "can't miss" investment opportunity. One thing is for sure -- in today's financial markets, it's easy to get the impression that investment experts possess a secret formula for success. Yet many successful investors realize there are no short-term secrets to investing. While others heed market soothsayers and prophets, savvy investors work with investment professionals who help them remain calm in the face of volatility. Guided by long-term investment plans rather than by emotions, these investors stay the course while others react to the latest trend. More important, successful investors employ several time-tested investment strategies to help reach their goals, including diversification and systematic investing.* - -------------------------------------------------------------------------------- WALL STREET'S WILD RIDE - -------------------------------------------------------------------------------- Dow Jones Industrial Average [EDGAR REPRESENTATION OF CHART] 8/1 8194 8/4 8198 8/5 8188 8/6 8259 High 8/6/97 8,259 8/7 8188 8/8 8031 8/11 8062 8/12 7961 8/13 7928 8/14 7942 8/15 7695 8/18 7803 8/19 7918 8/20 8021 8/21 7894 8/22 7888 8/25 7860 8/26 7782 8/27 7787 8/28 7694 8/29 7622 9/2 7880 9/3 7895 9/4 7867 9/5 7822 9/8 7835 9/9 7852 9/10 7719 9/11 7661 9/12 7743 9/15 7721 9/16 7896 9/17 7886 9/18 7923 9/19 7917 9/22 7997 9/23 7970 9/24 7907 9/25 7848 9/26 7922 9/29 7991 9/30 7945 10/1 8016 10/2 8028 10/3 8039 10/6 8100 10/7 8178 10/8 8095 10/9 8061 10/10 8045 10/13 8072 10/14 8096 10/15 8058 10/16 7939 10/17 7847 10/20 7921 10/21 8060 10/22 8035 10/23 7848 10/24 7715 10/27 7161 Low 10/27/97 7,161 10/28 7498 10/29 7507 10/30 7382 10/31 7442 Source: Bloomberg. The Dow Jones industrial average is a price-weighted average of the 30 largest blue-chip stocks on the New York Stock Exchange. DO YOUR EXPECTATIONS REFLECT MARKET REALITIES? Investors' expectations have risen with the market -- and are in sharp contrast to market realities. In the words of Federal Reserve Chairman Alan Greenspan, there is an "irrational exuberance" based on unprecedented growth in recent years. During the past few years, returns -- especially from stocks -- have been much higher than at any other time in history. The chart below shows long-term returns of various securities compared to the highly inflated results of the past year. - -------------------------------------------------------------------------------- SHORT-TERM RETURNS VS. LONG-TERM RETURNS THROUGH SEPTEMBER 30, 1997 - -------------------------------------------------------------------------------- The past year has provided investors with unusually high returns [EDGAR REPRESENTATION OF GRAPH] THE PAST YEAR PAST 71 YEARS total return average annualized total return, 1926-1997 Large-Company Stocks 40.49% 10.98% Long-Term Corporate Bonds 12.67% 5.67% Source: Ibbotson Associates. Past performance does not guarantee future results. Stocks generally exhibit more volatility than bonds. OR REACTION: - -------------------------------------------------------------------------------- What actions do successful investors take to weather the market's normal ups and downs? First, they realize that markets move in cycles. In addition, they diversify their holdings among a mix of funds that mirror their investment objectives and risk tolerance and continue to purchase fund shares systematically. By investing regularly* -- consistently buying shares through market fluctuations -- educated investors steadily increase the number of shares they own, while evening out their average cost per share over time. THE MISGUIDED REACTIVE INVESTOR The reactive investor believes that a shortcut to success is to chase today's best-performing funds. After all, what could go wrong when you invest in these winners? Plenty. The lure of a quick profit could fade to the reality of poor returns for reactive investors who buy in at the peak of a fund's rally. They often buy when prospects look bright and sell when prices drop -- behavior that can devastate an investor's returns even while the market makes solid gains. In contrast, educated investors don't succumb to emotions that could undermine rational decisions. They're aware that few, if any, mutual funds can significantly outperform their peers year after year. They also realize that long-term investing helps reduce volatility. A buy-and-hold philosophy protects investors against wild swings triggered by short-term market fluctuations -- and helps them sleep better at night, too. IT'S A FACT: INVESTORS PROFIT FROM THEIR ACTIONS, NOT THEIR REACTIONS If you want to be successful in the financial marketplace, don't be swayed by emotions or speculation. Keep in mind that markets change daily, yet your goals may not change for years. Work with your Piper Jaffray Investment Executive to develop an investment plan or to fine-tune your investment strategies as your objectives change. A professional can help you ignore short-term volatility and focus on long-term results. Your actions -- not your reactions -- ultimately represent the difference between getting by ... and getting ahead. * Keep in mind, investing regularly does not assure a profit and does not protect against loss in declining markets. TAKE THE GUESSWORK OUT OF INVESTING WITH THESE TRIED-AND-TRUE INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- X GET AN INVESTMENT PLAN An investment plan maps out your goals and identifies effective ways to pursue them. X INVEST SYSTEMATICALLY* Systematic investing is an effective way to build wealth over time and helps you avoid hitting only market peaks and valleys. X DIVERSIFY Diversification helps reduce volatility within your portfolio and may also give you better long-term results. X REASSESS YOUR RISK TOLERANCE Life's events may affect the amount of risk that's comfortable. A "BUY-AND-HOLD" PHILOSOPHY HELPS REDUCE YOUR RISK - -------------------------------------------------------------------------------- Your chance of losing money decreases the longer you hold stocks [EDGAR REPRESENTATION OF GRAPH] HOLDING STOCKS FOR ONE YEAR 29% HOLDING STOCKS FOR FIVE YEARS 11% HOLDING STOCKS FOR 10 YEARS 3% Source: Based on rolling annual returns of the S&P 500 Index through 1996. The S&P 500 is an unmanaged index of large-capitalization stocks. Past performance does not guarantee future results. PRESIDENT'S LETTER - -------------------------------------------------------------------------------- [PHOTO] PAUL A. DOW, CFA - -------------------------------------------------------------------------------- President Piper Funds November 17, 1997 - -------------------------------------------------------------------------------- DEAR SHAREHOLDERS: An athlete is sometimes said to be "in the zone." That's the time when the difficult seems easy, the fast seems slow; essentially, the time when everything comes together and performance soars. For the past few years, the investment environment has been in the zone. The economy has maintained a steady growth rate without increasing inflationary pressures. In fact, economic prognosticators have consistently underestimated growth and overestimated inflation -- traditionally considered an impossible feat. This robust economic environment, supplemented by company earnings that have grown at even faster rates than the economy due to widening profit margins, has provided extraordinary returns for equity investors. As you can see in the chart below, the Dow Jones Industrial Average appreciation in recent years has been far above the normal experience of the past 100 years. In fact, the past 15- and 20-year periods are in the top one percentile of all periods. The most significant event for the stock market during the funds' fiscal year was the shift in performance leadership from large stocks to small- and mid-cap stocks. In the first six months of the fiscal year, small- and mid-cap stock returns (as measured by S&P's SmallCap 600 and MidCap 400 indexes) were -0.18% and 4.48%, compared to 11.23% for the S&P 500 Index. In the second half of the fiscal year, small- and mid-cap stocks surged ahead with returns of 37.22% and 33.13%, compared to 26.25% for large-company stocks.** With this outstanding performance, small- and midsize company stocks' fiscal year returns through September 30 closed the gap with large-company stock returns, as shown below. This trend was also evident within the S&P 500. During the quarter, the average stock in the S&P 500 outperformed the weighted index for the first time since the - -------------------------------------------------------------------------------- THE DOW JONES INDUSTRIAL AVERAGE CAPITAL APPRECIATION* - -------------------------------------------------------------------------------- Median Annualized Annualized Appreciation for Appreciation Rolling Periods as of 8/29/97 Since 1896 3 years 24.9% 5.8% - ------------------------------------------------------------ 10 years 11.1% 3.9% - ------------------------------------------------------------ 15 years 15.3% 4.1% - ------------------------------------------------------------ 20 years 11.5% 3.5% - ------------------------------------------------------------ * The Dow Jones Industrial Average is a price-weighted average of the 30 largest blue-chip stocks on the New York Stock Exchange. Performance does not include reinvested dividends. Past performance does not guarantee future results. Sources: Dow Jones & Company; Crandall, Pierce & Company [EDGAR REPRESENTATION OF GRAPH] TOTAL RETURNS (INCLUDING REINVESTED DISTRIBUTIONS)** - -------------------------------------------------------------------------------- For the fiscal year ended September 30, 1997 S&P SmallCap 600 Ixdex 36.98% S&P MidCap 400 Index 39.09% S&P 500 Ixdex 40.45% The S&P 600, 400 and 500 indexes are unmanaged indexes of small-, mid- and large-capitalization stocks, respectively. Performance includes no expenses or transaction charges. - -------------------------------------------------------------------------------- 2 1997 Annual Report - U.S. Growth Funds - -------------------------------------------------------------------------------- quarter ending March 31, 1996. This means the market was less driven by the "nifty fifty," the 50 largest stocks in the S&P 500 as measured by market capitalization. It appears the prolonged period of only the largest stocks providing the highest returns has ended, and investors are focusing more on companies selling at attractive relative values. At this time of high valuations and buoyant investor confidence, it is particularly important to be watchful of significant changes that may alter the markets. A negative event in the marketplace would likely bring on a period of lower performance. During the past few months, several events developed that could alter the generally positive condition of the investment environment. The aftermath of the UPS strike could have an effect on corporate profit margins, as the strength of labor improves while the labor pool is shrinking. The recently publicized Boeing and Union Pacific production and transportation backlogs could indicate an economy that is reaching some stress points. Most significantly, the turmoil in Asia recently has spread to U.S. markets, causing a high level of volatility. The decline in Asian currencies and the high level of excess manufacturing capacity could bring increasing competitive pressures on U.S. companies, threatening their strong earnings growth. So far, none of these events appear significant enough to change our overall view of continued slow inflation and a growing economy. However, the Asian situation is the biggest challenge to "the zone" yet. When markets change, it is important to clearly understand, and be disciplined in, your investment strategy. At Piper Funds, we believe that maintaining sound, disciplined investment strategies is essential to achieving consistent, competitive performance in an ever-changing environment. We also believe in providing a higher level of quality service to shareholders. That means going the extra step to make sure you understand your investments. Take a look at the fund prospectus that accompanies this shareholder report. We've revised it to make it simpler and easier to read. We hope the information in your new prospectus, and in this shareholder report, is useful to you, and we look forward to continuing to provide you with exceptional service. Thank you for your continued confidence in the Piper Funds family. Sincerely, /s/ Paul A. Dow Paul A. Dow President, Piper Funds ** Past performance does not guarantee future results. Small- and mid-capitalization stocks are more volatile than stocks of larger companies. They often involve higher risks because they lack the management expertise, operating history, financial resources, product diversification and competitive strengths of larger companies. - -------------------------------------------------------------------------------- 3 1997 Annual Report - U.S. Growth Funds SMALL COMPANY GROWTH FUND - -------------------------------------------------------------------------------- [PHOTO] SANDRA SHREWSBURY, CFA is primarily responsible for the management of Small Company Growth Fund. She has 14 years of financial experience. Other management team members are shown on pages 5-9. - -------------------------------------------------------------------------------- November 17, 1997 - -------------------------------------------------------------------------------- DEAR SHAREHOLDERS: FOR THE ONE-YEAR PERIOD ENDED SEPTEMBER 30, 1997, SMALL COMPANY GROWTH FUND CLASS A ACHIEVED A TOTAL RETURN OF 45.66%* WITH ALL DISTRIBUTIONS REINVESTED BUT NOT INCLUDING THE FUND'S SALES CHARGE. The fund's performance compares favorably with the Standard & Poor's SmallCap 600 Index,+ which returned 36.98%. We are also pleased that the fund outperformed the Lipper Small Cap Funds Average,** which gained 29.79% during the same period. During this very challenging environment for small-cap stocks, we remained true to our strategy of buying carefully selected smaller companies that we believe are poised for above-average earnings growth. A CONTRIBUTING FACTOR TO THE FUND'S OUTPERFORMANCE OF THE BENCHMARK AND PEER-GROUP RETURNS WAS OUR OVERWEIGHTED*** POSITION IN TECHNOLOGY COMPANIES. In particular, the fund enjoyed strong gains from its holdings in semiconductor stocks, which began rallying late last year after a severe correction.*** We must also acknowledge that when our team took over management of the fund in September 1996, small-capitalization stock prices were severely depressed. As such, we were able to take advantage of many attractive opportunities in the small-cap growth group. - -------------------------------------------------------------------------------- PERFORMANCE THROUGH SEPTEMBER 30, 1997* - -------------------------------------------------------------------------------- Growth of $10,000 Invested Since Inception [EDGAR REPRESENTATION OF CHART] Small Company Growth S&P SmallCap Lipper Small Cap Fund Class A, reflects 600 Index+ Funds Average** the fund's 4% sales charge 3/87 9,600 10,000 10,000 3/87 9,514 10,000 10,000 4/87 9,571 9,615 9,774 5/87 9,504 9,471 9,772 6/87 9,648 9,657 9,906 7/87 10,091 9,963 10,199 8/87 10,284 10,305 10,560 9/87 10,321 10,038 10,385 10/87 7,634 7,047 7,572 11/87 7,277 6,590 7,128 12/87 7,763 7,160 7,861 1/88 7,880 7,441 8,018 2/88 8,366 8,041 8,641 3/88 8,427 8,321 8,892 4/88 8,524 8,432 9,084 5/88 8,446 8,241 8,914 6/88 8,765 8,796 9,559 7/88 8,560 8,667 9,355 8/88 8,335 8,366 9,056 9/88 8,261 8,560 9,348 10/88 7,899 8,546 9,224 11/88 7,918 8,273 8,964 12/88 8,092 8,555 9,357 1/89 8,592 8,775 9,855 2/89 8,455 8,823 9,870 3/89 8,434 8,976 10,100 4/89 8,760 9,409 10,661 5/89 9,233 9,761 11,188 6/89 8,936 9,645 10,878 7/89 9,722 9,971 11,489 8/89 10,000 10,183 11,849 9/89 10,099 10,189 12,001 10/89 10,039 9,582 11,450 11/89 10,160 9,673 11,529 12/89 10,342 9,743 11,650 1/90 9,432 8,845 10,624 2/90 10,005 9,063 10,935 3/90 10,614 9,345 11,438 4/90 10,348 8,956 11,181 5/90 11,404 9,588 12,241 6/90 11,815 9,581 12,323 7/90 11,373 9,074 11,858 8/90 10,190 7,955 10,358 9/90 9,443 7,214 9,463 10/90 9,350 6,706 9,117 11/90 9,772 7,192 9,811 12/90 10,293 7,436 10,353 1/91 11,358 7,970 11,239 2/91 11,886 8,872 12,191 3/91 12,437 9,429 12,996 4/91 12,633 9,451 12,882 5/91 13,368 9,823 13,500 6/91 12,082 9,400 12,780 7/91 13,179 9,770 13,552 8/91 13,407 10,198 14,115 9/91 13,272 10,284 14,220 10/91 13,355 10,646 14,680 11/91 13,086 10,168 14,095 12/91 14,477 11,041 15,766 1/92 14,997 11,879 16,475 2/92 15,256 12,128 16,707 3/92 14,467 11,790 15,966 4/92 14,384 11,315 15,248 5/92 14,550 11,445 15,234 6/92 13,958 11,007 14,538 7/92 14,623 11,417 15,062 8/92 14,176 11,092 14,720 9/92 14,093 11,408 15,102 10/92 14,820 11,883 15,790 11/92 15,724 12,905 17,119 12/92 16,137 13,364 17,685 1/93 16,585 13,722 18,040 2/93 16,283 13,332 17,329 3/93 16,481 13,841 17,956 4/93 16,200 13,337 17,395 5/93 16,669 14,053 18,402 6/93 16,804 14,142 18,541 7/93 16,898 14,289 18,671 8/93 17,325 15,043 19,659 9/93 17,555 15,589 20,401 10/93 17,607 15,888 20,719 11/93 17,315 15,319 19,953 12/93 17,906 15,874 20,806 1/94 18,209 16,249 21,321 2/94 18,125 16,201 21,304 3/94 17,801 15,038 20,106 4/94 17,843 15,264 20,161 5/94 18,073 14,962 19,758 6/94 17,227 14,406 19,008 7/94 17,499 14,586 19,366 8/94 18,073 15,579 20,601 9/94 17,927 15,499 20,716 10/94 17,624 15,344 21,103 11/94 17,185 14,758 20,332 12/94 17,465 15,117 20,778 1/95 17,182 14,903 20,485 2/95 17,696 15,518 21,376 3/95 18,032 15,832 22,024 4/95 17,833 16,185 22,366 5/95 17,591 16,438 22,720 6/95 18,441 17,340 24,275 7/95 19,355 18,665 26,249 8/95 19,491 19,070 26,635 9/95 20,415 19,557 27,400 10/95 20,079 18,591 26,652 11/95 20,761 19,327 27,685 12/95 20,998 19,646 27,906 1/96 21,010 19,689 27,636 2/96 21,661 20,333 28,757 3/96 21,387 20,769 29,330 4/96 21,959 21,962 31,658 5/96 22,393 22,742 32,938 6/96 21,490 21,850 31,486 7/96 20,014 20,347 28,479 8/96 20,769 21,604 30,222 9/96 21,513 22,552 31,903 10/96 21,094 22,396 30,997 11/96 21,975 23,559 31,784 12/96 23,444 23,834 32,108 1/97 23,935 24,230 32,907 2/97 22,887 23,729 31,324 3/97 20,988 22,511 29,489 4/97 20,988 22,788 29,276 5/97 23,673 25,465 32,700 6/97 25,867 26,590 34,314 7/97 27,733 28,263 36,445 8/97 28,617 28,975 36,880 9/97 31,335 30,890 39,643 + An unmanaged index, that includes no expenses or transaction charges, of small-capitalization stocks. ** The average total return, not including sales charges, of similar funds as characterized by Lipper Analytical Services. - -------------------------------------------------------------------------------- Class A Average Annualized Total Returns Includes the fund's maximum 4% front-end sales charge One Year 39.83% - -------------------------------------------------------------------------------- Five Year 16.36% - -------------------------------------------------------------------------------- Ten Year 11.28% - -------------------------------------------------------------------------------- Since Inception (3/16/87) 11.43% - -------------------------------------------------------------------------------- Class B Cumulative Total Returns Includes the fund's maximum 4% contingent deferred sales charge Since Inception (2/18/97) 27.77% - -------------------------------------------------------------------------------- * PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of an investment will fluctuate so that fund shares, when sold, may be worth more or less than their original cost. Safety of principal is not guaranteed. The fund operated as Equity Strategy Fund until September 13, 1996, with an objective of high total investment return consistent with prudent investment risk. Stocks of small companies are more volatile than stocks of larger companies. They often involve higher risks because small companies lack the management expertise, financial resources, product diversification and competitive strengths of larger companies. See the prospectus for more complete information regarding risks. During most periods, the fund's advisor waived or paid certain expenses and/or the fund's distributor voluntarily waived certain 12b-1 fees. Without waivers, returns would have been lower. All fund and benchmark returns include reinvested distributions. *** - This symbol represents a graduation cap, used throughout this report to indicate terms defined in the glossary. - -------------------------------------------------------------------------------- 4 1997 Annual Report - U.S. Growth Funds SMALL COMPANY GROWTH FUND (CONTINUED) - -------------------------------------------------------------------------------- [PHOTO] JILL THOMPSON, CFA assists with the management of Small Company Growth Fund and Emerging Growth Fund. She has eight years of financial experience. - -------------------------------------------------------------------------------- AFTER WE RESTRUCTURED THE FUND LAST FALL, THE FUND'S SECTOR*** WEIGHTINGS REMAINED LARGELY UNCHANGED DURING THE REST OF THE REPORTING PERIOD, ALTHOUGH WE MODESTLY REDUCED OUR HOLDINGS IN TECHNOLOGY STOCKS EARLIER THIS YEAR. Despite our decrease in the fund's technology weighting, we remain optimistic about the sector's long-term potential. In fact, the fund continues to be overweighted in technology companies, as well as in consumer services, health care and commercial services. We anticipate that each of these industries will enjoy strong earnings growth that is generated primarily by gains in unit volume. In the current disinflationary environment, we believe it is risky to depend on price increases to grow revenues. We are underweighted in such slower-growth industries as finance, transportation and consumer non-durables. STRENGTH IN THE FUND'S PORTFOLIO WAS BROAD BASED OVER THE 12-MONTH REPORTING PERIOD. ChiRex, in the basic materials sector (2.0% of the fund's total assets as of September 30), Daou Systems, in the health care sector (2.6%), and AMRESCO, in the financial services sector (1.3%) were particularly strong performers. The fund also benefited from gains in several new issues, including semiconductor equipment maker Cymer. The fund bought Cymer at under $10 per share (before a 2-1 stock split) on the company's initial public offering,*** then held on as its price climbed more than eight-fold. (Keep in mind that few initial public offerings experience that rate of appreciation.) The fund subsequently sold its position in Comer before the fiscal year end after our research indicated a potential risk to future orders. WE BELIEVE THE ECONOMIC ENVIRONMENT WILL REMAIN POSITIVE FOR DOMESTIC STOCKS. Interest rates are likely to remain moderate for the immediate future as the economy continues to slow. Despite a modest reduction in the overall rate of economic growth, however, corporate profits should continue to - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION BY SECTOR - -------------------------------------------------------------------------------- As a percentage of total assets on September 30, 1997 [EDGAR REPRESENTATION OF CHART] Small Company Growth Fund S&P SmallCap 600 Index+ Basic Materials 7% 7% Capital Goods & Services 7% 8% Commercial Services 10% 7% Consumer Durables 2% 5% Consumer Non-Durables 1% 4% Consumer Services 6% 5% Energy 5% 6% Financial Services 10% 17% Health Care 15% 10% Retail Trade 5% 6% Short-Term 8% 0% Technology 21% 17% Transportation 1% 3% Utilities 0% 5% Other Assets 2% 0% + An unmanaged index, that includes no expenses or transaction charges, of small-capitalization stocks. - -------------------------------------------------------------------------------- TOP 10 HOLDINGS - -------------------------------------------------------------------------------- As a percentage of total assets on September 30, 1997 1 Daou Systems 2.6% - -------------------------------------------------------------------------------- 2 Sipex 2.6% - -------------------------------------------------------------------------------- 3 TCF Financial 2.4% - -------------------------------------------------------------------------------- 4 ReliaStar Financial 2.2% - -------------------------------------------------------------------------------- 5 Comverse Technology 2.1% - -------------------------------------------------------------------------------- 6 Natural MicroSystems 2.1% - -------------------------------------------------------------------------------- 7 Herman Miller 2.0% - -------------------------------------------------------------------------------- 8 ChiRex 2.0% - -------------------------------------------------------------------------------- 9 DuPont Photomasks 2.0% - -------------------------------------------------------------------------------- 10 Newpark Resources 1.9% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- *** - This symbol represents a graduation cap, used throughout this report to indicate terms defined in the glossary. - -------------------------------------------------------------------------------- 5 1997 Annual Report - U.S. Growth Funds SMALL COMPANY GROWTH FUND (CONTINUED) - -------------------------------------------------------------------------------- [PHOTO] JOYCE HALBE, CFA assists with the management of Emerging Growth Fund and Small Company Growth Fund. She has 12 years of financial experience. - -------------------------------------------------------------------------------- provide a solid underpinning to equity prices. Recent turmoil in Southeast Asian currency and financial markets could also contribute to increased global demand for U.S. equities. WE ARE PARTICULARLY OPTIMISTIC ABOUT THE LONGER-TERM OUTLOOK FOR SMALL-CAPITALIZATION STOCKS. Over the short term, global political uncertainty could add to the group's inherently greater volatility. But the relatively minimal exposure of small companies to foreign economies may protect them from events unfolding in Southeast Asia. And while small stocks have rallied substantially since April, we believe small-cap stocks are still attractively valued*** relative to larger companies. We are prepared to use periods of market weakness to add to the fund's holdings in technology stocks as companies with solid earnings prospects become available at reasonable prices. Thank you for your investment in Small Company Growth Fund. We are dedicated to providing you with superior service and look forward to helping you achieve your investment goals. Sincerely, /s/ Sandra Shrewsbury Sandra Shrewsbury Portfolio Manager *** - This symbol represents a graduation cap, used throughout this report to indicate terms defined in the glossary. - -------------------------------------------------------------------------------- 6 1997 Annual Report - U.S. Growth Funds EMERGING GROWTH FUND - -------------------------------------------------------------------------------- [PHOTO] SANDRA SHREWSBURY, CFA is primarily responsible for the management of Emerging Growth Fund. She has 14 years of financial experience. Other management team members are shown on pages 5-9. - -------------------------------------------------------------------------------- November 17, 1997 - -------------------------------------------------------------------------------- DEAR SHAREHOLDERS: FOR THE ONE-YEAR PERIOD ENDED SEPTEMBER 30, 1997, EMERGING GROWTH FUND CLASS A ACHIEVED A TOTAL RETURN OF 21.04%* WITH ALL DISTRIBUTIONS REINVESTED BUT NOT INCLUDING THE FUND'S SALES CHARGE. During the same period, the Standard & Poor's MidCap 400 Index** gained 39.09%, while the Lipper Mid Cap Funds Average+ returned 26.88%. SEVERAL FACTORS CONTRIBUTED TO THE FUND'S UNDERPERFORMANCE DURING THE REPORTING PERIOD. First, a number of companies we owned failed to meet our earnings expectations last year. In the market environment that prevailed for small- and mid-cap companies at that time, negative earnings surprises were severely punished. Also, the fund typically holds companies that are smaller and more growth oriented than those comprising the S&P MidCap 400 benchmark. The fourth quarter of 1996 was an especially difficult period for our preferred type of company. Despite the troublesome market environment for mid-cap growth stocks early in the reporting period, we remained true to our strategy of buying carefully selected midsize companies that we believe are poised for above-average earnings growth. - -------------------------------------------------------------------------------- PERFORMANCE THROUGH SEPTEMBER 30, 1997* - -------------------------------------------------------------------------------- Growth of $10,000 Invested Since Inception [EDGAR REPRESENTATION OF CHART] Emerging Growth Fund Class A, reflects the fund's S&P MidCap Lipper Mid Cap 4% sales charge 400 Index ** Funds Average+ 4/90 9,600 10,000 10,000 4/90 9,600 10,000 10,000 5/90 10,291 10,977 10,971 6/90 10,406 11,021 11,031 7/90 10,570 10,769 10,705 8/90 8,736 9,653 9,575 9/90 8,255 9,062 8,901 10/90 7,957 8,786 8,620 11/90 8,890 9,631 9,387 12/90 9,226 10,189 9,844 1/91 10,199 10,995 10,611 2/91 11,307 11,982 11,462 3/91 11,880 12,529 12,035 4/91 11,754 12,525 11,970 5/91 12,641 13,102 12,560 6/91 11,940 12,437 11,910 7/91 12,923 13,185 12,607 8/91 13,501 13,665 13,081 9/91 13,357 13,621 13,075 10/91 13,925 14,154 13,527 11/91 13,289 13,677 13,053 12/91 15,263 15,294 14,576 1/92 15,350 15,565 14,978 2/92 15,408 15,812 15,222 3/92 14,672 15,217 14,562 4/92 14,061 15,035 14,091 5/92 14,381 15,177 14,155 6/92 13,722 14,744 13,577 7/92 14,216 15,476 14,143 8/92 13,606 15,106 13,751 9/92 13,964 15,317 14,029 10/92 14,633 15,684 14,570 11/92 15,874 16,560 15,534 12/92 16,377 17,116 16,088 1/93 16,678 17,330 16,395 2/93 16,164 17,088 15,776 3/93 16,823 17,678 16,343 4/93 16,019 17,215 15,806 5/93 17,153 17,999 16,680 6/93 17,318 18,090 16,825 7/93 17,376 18,055 16,863 8/93 18,316 18,800 17,599 9/93 19,120 18,999 18,106 10/93 19,023 19,061 18,288 11/93 18,451 18,639 17,816 12/93 19,401 19,505 18,551 1/94 20,070 19,958 19,126 2/94 19,837 19,675 19,017 3/94 18,761 18,764 17,975 4/94 18,548 18,904 17,959 5/94 17,957 18,725 17,708 6/94 17,230 18,080 16,980 7/94 17,608 18,692 17,355 8/94 18,858 19,671 18,438 9/94 18,665 19,304 18,421 10/94 18,791 19,515 18,644 11/94 18,035 18,635 17,897 12/94 18,442 18,806 18,216 1/95 18,122 19,001 18,133 2/95 18,965 19,998 18,867 3/95 19,847 20,346 19,463 4/95 20,283 20,754 19,607 5/95 20,622 21,255 19,952 6/95 21,707 22,120 21,047 7/95 23,781 23,274 22,533 8/95 24,188 23,704 22,807 9/95 25,138 24,279 23,424 10/95 24,411 23,654 22,823 11/95 25,526 24,687 23,635 12/95 25,701 24,626 23,856 1/96 25,990 24,983 23,983 2/96 27,123 25,832 24,904 3/96 27,807 26,142 25,329 4/96 29,175 26,940 26,724 5/96 30,243 27,305 27,475 6/96 29,624 26,895 26,625 7/96 26,781 25,075 24,425 8/96 27,978 26,521 25,779 9/96 29,624 27,678 27,443 10/96 28,544 27,758 26,940 11/96 29,414 29,322 28,028 12/96 28,755 29,354 27,881 1/97 29,508 30,456 28,712 2/97 28,332 30,206 27,620 3/97 26,522 28,918 26,088 4/97 26,686 29,667 26,479 5/97 29,390 32,261 29,098 6/97 31,365 33,168 30,141 7/97 33,881 36,448 32,411 8/97 33,481 36,404 32,259 9/97 35,856 38,498 34,289 ** An unmanaged index, that includes no expenses or transaction charges, of mid-capitalization stocks. + The average total return, not including sales charges, of similar funds as characterized by Lipper Analytical Services. Class A Average Annualized Total Returns Includes the fund's maximum 4% front-end sales charge One Year 16.20% - -------------------------------------------------------------------------------- Five Year 19.76% - -------------------------------------------------------------------------------- Since Inception (4/23/90) 18.71% - -------------------------------------------------------------------------------- Class B and Y Cumulative Total Returns Class B share returns include the fund's maximum 4% contingent deferred sales charge. Sales charges do not apply to Class Y shares. Class B Since Inception (2/18/97) 17.21% - -------------------------------------------------------------------------------- Class Y Since Inception (2/18/97) 21.93% - -------------------------------------------------------------------------------- * PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of an investment will fluctuate so that fund shares, when sold, may be worth more or less than their original cost. Safety of principal is not guaranteed. Stocks of mid-sized companies are more volatile than stocks of larger companies. These companies may have limited product lines and operating histories and may rely on narrower management teams. See the prospectus for more complete information regarding risks. During most periods, the fund's advisor waived or paid certain expenses and/or the fund's distributor voluntarily waived certain 12b-1 fees. Without waivers, class A returns would have been lower. All fund and benchmark returns include reinvested distributions. - -------------------------------------------------------------------------------- 7 1997 Annual Report - U.S. Growth Funds EMERGING GROWTH FUND (CONTINUED) - -------------------------------------------------------------------------------- [PHOTO] MARY HOYME, CFA assists with the management of Emerging Growth Fund and Small Company Growth Fund. She has 14 years of financial experience. - -------------------------------------------------------------------------------- THE FUND MADE ONLY MODEST CHANGES IN SECTOR*** WEIGHTINGS DURING THE REPORTING PERIOD. We took advantage of strengthening fundamentals in the energy industry to add to our position in that sector, and we also increased our holdings in financial companies early this year as concerns about higher interest rates abated. As the reporting period ended, the fund continued to be overweighted*** in technology, health care and consumer services. We anticipate that each of these industries will enjoy solid earnings growth that is generated largely by gains in unit volume. In the current disinflationary environment, it is risky to depend on price increases to grow revenues. We are underweighted in such slower-growth industries as utilities, basic materials and consumer durables. STRONG-PERFORMING HOLDINGS WERE SPREAD ACROSS MANY SECTORS IN THE FUND'S PORTFOLIO. Stage Stores in the retail sector (1.8% of the fund's total assets as of September 30), ASM Litho graphy in the technology sector (1.9%), and AMRESCO in the financial services sector (1.3%) were particularly strong performers. The fund also achieved solid returns from its investment in health-care provider Daou Systems. We bought Daou on its initial public offering*** at $9 per share, held on as the stock tripled in value and then sold the stock before the end of the period. (Keep in mind that few initial public offerings experience that rate of appreciation.) We also sold our holdings in two technology firms, FORE Systems and INSO Corp., and replaced them with software companies Vantive Corp. (0.7%) and VERITAS Software (0.5%). WE BELIEVE THE ECONOMIC ENVIRONMENT WILL REMAIN POSITIVE FOR DOMESTIC STOCKS. Interest rates are likely to remain moderate for the immediate future as the economy continues to slow. Despite a modest reduction in the overall rate of economic growth, corporate profits should continue to provide a solid underpinning to equity prices. Recent turmoil in Southeast Asian currency and financial markets could also contribute to increased global demand for U.S. equities. - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION BY SECTOR - -------------------------------------------------------------------------------- As a percentage of total assets on September 30, 1997 [EDGAR REPRESENTATION OF CHART] Emerging Growth Fund S&P MidCap 400 Index** Basic Materials 5% 9% Capital Goods & Services 7% 9% Commercial Services 6% 6% Consumer Durables 1% 2% Consumer Non-Durables 5% 5% Consumer Services 8% 4% Energy 7% 7% Financial Services 15% 16% Health Care 13% 9% Retail Trade 6% 6% Short-Term 6% 0% Technology 19% 13% Transportation 1% 2% Utilities 0% 12% Other Assets 1% 0% ** An unmanaged index, that includes no expenses or transaction charges, of mid-capitalization stocks. - -------------------------------------------------------------------------------- TOP 10 HOLDINGS - -------------------------------------------------------------------------------- As a percentage of total assets on September 30, 1997 1 The FINOVA Group 2.4% - -------------------------------------------------------------------------------- 2 TCF Financial 2.3% - -------------------------------------------------------------------------------- 3 Green Tree Financial 2.1% - -------------------------------------------------------------------------------- 4 Elan Corporation, ADR 1.9% - -------------------------------------------------------------------------------- 5 ASM Lithography 1.9% - -------------------------------------------------------------------------------- 6 Kohl's 1.9% - -------------------------------------------------------------------------------- 7 Stewart Enterprises Class A 1.8% - -------------------------------------------------------------------------------- 8 Smith International 1.8% - -------------------------------------------------------------------------------- 9 Stage Stores 1.8% - -------------------------------------------------------------------------------- 10 Sealed Air 1.7% - -------------------------------------------------------------------------------- *** - This symbol represents a graduation cap, used throughout this report to indicate terms defined in the glossary. - -------------------------------------------------------------------------------- 8 1997 Annual Report - U.S. Growth Funds EMERGING GROWTH FUND (CONTINUED) - -------------------------------------------------------------------------------- [PHOTO] ADAM BENSON assists with the management of Emerging Growth Fund and Small Company Growth Fund. He has three years of financial experience. - -------------------------------------------------------------------------------- [PHOTO] TIMOTHY MCSWEENEY (NOT PICTURED) assists with the management of Emerging Growth Fund and Small Company Growth Fund. He has three years of financial experience. - -------------------------------------------------------------------------------- WE ARE PARTICULARLY OPTIMISTIC ABOUT THE LONGER-TERM OUTLOOK FOR MID-CAPITALIZATION STOCKS. Over the short term, global political uncertainty could add to the group's inherently greater volatility. But the relatively minimal exposure of many midsize companies to foreign economies may protect them from events unfolding in Southeast Asia. And while midsize stocks have rallied substantially since April, we believe that the mid-cap group is still attractively valued*** relative to larger companies. We are prepared to use periods of market weakness to add to the fund's holdings in technology stocks as companies with solid earnings prospects become available at reasonable prices. Thank you for your investment in Emerging Growth Fund. We are dedicated to providing you with superior service and look forward to helping you achieve your investment goals. Sincerely, /s/ Sandra Shrewsbury Sandra Shrewsbury Portfolio Manager *** - This symbol represents a graduation cap, used throughout this report to indicate terms defined in the glossary. - -------------------------------------------------------------------------------- 9 1997 Annual Report - U.S. Growth Funds GROWTH FUND - -------------------------------------------------------------------------------- [PHOTO] STEVE MARKUSEN, CFA is primarily responsible for the management of Growth Fund's portfolio. He has 13 years of financial experience. - -------------------------------------------------------------------------------- November 17, 1997 - -------------------------------------------------------------------------------- DEAR SHAREHOLDERS: FOR THE ONE-YEAR PERIOD ENDED SEPTEMBER 30, 1997, GROWTH FUND CLASS A RETURNED 34.09%,* WHICH INCLUDES REINVESTED DISTRIBUTIONS BUT NOT THE FUND'S SALES CHARGE. This compares to a 33.52% return for the Lipper Growth Funds Average+ and a 40.45% return for the S&P 500 Index.** The fund's focus on growth stocks with smaller average market capitalizations*** than the S&P 500 caused it to underperform the index. The S&P 500 benefited from the strong performance of a relatively small group of large, blue-chip companies. We outperformed the Lipper Growth Funds Average due to our stock selection and sector*** weightings. We are pleased to note that we have outperformed the Lipper average in each of the two fiscal years ending September 30, 1996,++ and 1997, achieving our goal of delivering consistent, competitive performance. THE FUND'S PERFORMANCE BENEFITED FROM BOTH STOCK SELECTION AND SECTOR WEIGHTINGS. Our investments in the energy sector, particularly Schlumberger (5.2% of the fund's total assets as of September 30) and Transocean Offshore (4.7%), continued to deliver strong performance. A tight supply situation combined with strong demand led to sharply higher revenues and margins for oil service companies. We believe this trend will continue over the next several years. Our decision to increase our technology investments in the March/April market correction*** had a positive impact on - -------------------------------------------------------------------------------- PERFORMANCE THROUGH SEPTEMBER 30, 1997* - -------------------------------------------------------------------------------- Growth of $10,000 Invested Since Inception [EDGAR REPRESENTATION OF CHART] Growth Fund Class A, reflects the fund's 4% Lipper Growth sales charge S&P 500 Index** Funds Average+ 3/87 9,600 10,000 10,000 3/87 9,629 10,000 10,000 4/87 9,446 9,911 9,851 5/87 9,494 9,997 9,915 6/87 9,950 10,502 10,241 7/87 10,298 11,034 10,686 8/87 10,713 11,446 11,039 9/87 10,602 11,195 10,865 10/87 8,336 8,784 8,382 11/87 7,707 8,060 7,824 12/87 8,337 8,673 8,516 1/88 8,640 9,038 8,709 2/88 9,127 9,459 9,215 3/88 8,901 9,167 9,147 4/88 9,107 9,268 9,226 5/88 8,999 9,349 9,163 6/88 9,490 9,778 9,669 7/88 9,343 9,740 9,533 8/88 9,087 9,410 9,248 9/88 9,456 9,811 9,609 10/88 9,485 10,084 9,693 11/88 9,189 9,940 9,505 12/88 9,354 10,114 9,752 1/89 10,020 10,854 10,373 2/89 9,831 10,584 10,241 3/89 10,303 10,831 10,489 4/89 10,912 11,393 11,025 5/89 11,400 11,854 11,500 6/89 11,180 11,787 11,353 7/89 12,151 12,851 12,188 8/89 12,531 13,102 12,505 9/89 12,512 13,049 12,547 10/89 12,200 12,746 12,141 11/89 12,502 13,006 12,325 12/89 13,020 13,318 12,445 1/90 11,981 12,424 11,620 2/90 12,142 12,584 11,818 3/90 12,748 12,918 12,172 4/90 12,475 12,595 11,899 5/90 13,964 13,823 13,048 6/90 14,095 13,730 13,090 7/90 13,801 13,686 12,855 8/90 12,410 12,449 11,648 9/90 11,910 11,843 10,967 10/90 11,757 11,793 10,752 11/90 12,746 12,555 11,490 12/90 13,174 12,905 11,891 1/91 14,148 13,467 12,692 2/91 15,266 14,430 13,611 3/91 15,933 14,779 14,064 4/91 15,902 14,814 14,037 5/91 16,796 15,453 14,662 6/91 15,973 14,745 13,893 7/91 17,127 15,433 14,656 8/91 17,776 15,798 15,117 9/91 17,416 15,534 14,977 10/91 17,819 15,743 15,292 11/91 17,013 15,109 14,696 12/91 19,483 16,837 16,398 1/92 19,473 16,523 16,422 2/92 19,634 16,737 16,669 3/92 18,871 16,411 16,145 4/92 18,634 16,893 16,060 5/92 18,710 16,976 16,192 6/92 18,183 16,723 15,715 7/92 18,538 17,406 16,288 8/92 17,892 17,050 15,935 9/92 18,420 17,250 16,219 10/92 18,873 17,310 16,538 11/92 19,780 17,899 17,388 12/92 20,038 18,119 17,709 1/93 20,449 18,271 17,964 2/93 20,146 18,520 17,678 3/93 20,525 18,910 18,188 4/93 19,473 18,453 17,663 5/93 20,059 18,947 18,352 6/93 20,092 19,002 18,412 7/93 19,853 18,926 18,353 8/93 20,634 19,644 19,156 9/93 20,971 19,493 19,359 10/93 20,884 19,897 19,632 11/93 20,439 19,707 19,242 12/93 21,059 19,945 19,800 1/94 21,844 20,623 20,444 2/94 21,266 20,064 20,113 3/94 20,165 19,189 19,143 4/94 20,263 19,435 19,230 5/94 20,579 19,754 19,331 6/94 19,902 19,270 18,660 7/94 20,459 19,903 19,176 8/94 21,464 20,719 20,074 9/94 20,655 20,212 19,657 10/94 20,939 20,666 19,975 11/94 20,043 19,913 19,216 12/94 20,329 20,209 19,407 1/95 20,098 20,733 19,546 2/95 21,197 21,541 20,320 3/95 21,770 22,176 20,909 4/95 22,156 22,830 21,393 5/95 22,662 23,742 22,048 6/95 23,477 24,294 22,992 7/95 24,380 25,099 24,115 8/95 24,539 25,162 24,306 9/95 24,910 26,224 25,012 10/95 24,092 26,130 24,636 11/95 25,728 27,277 25,500 12/95 26,067 27,803 25,659 1/96 26,259 28,749 26,214 2/96 27,056 29,016 26,785 3/96 28,217 29,295 27,017 4/96 29,027 29,727 27,824 5/96 29,357 30,494 28,483 6/96 28,729 30,610 28,107 7/96 27,037 29,257 26,503 8/96 28,316 29,875 27,414 9/96 29,114 31,556 28,925 10/96 29,975 32,426 29,247 11/96 31,864 34,877 31,078 12/96 30,949 34,186 30,663 1/97 31,712 36,322 32,251 2/97 31,346 36,607 31,892 3/97 30,186 35,103 30,498 4/97 30,705 37,199 31,627 5/97 32,994 39,463 33,881 6/97 34,215 41,231 35,220 7/97 38,092 44,509 38,092 8/97 37,145 42,017 36,880 9/97 39,038 44,319 38,933 ** An unmanaged index, that includes no expenses or transaction charges, of large-capitalization stocks. + The average total return, not including sales charges, of similar funds as characterized by Lipper Analytical Services. - -------------------------------------------------------------------------------- Class A Average Annualized Total Returns Includes the fund's maximum 4% front-end sales charge One Year 28.72% - -------------------------------------------------------------------------------- Five Year 15.26% - -------------------------------------------------------------------------------- Ten Year 13.45% - -------------------------------------------------------------------------------- Since Inception (3/16/87) 13.78% - -------------------------------------------------------------------------------- Class B Cumulative Total Returns Includes the fund's maximum 4% contingent deferred sales charge Since Inception (2/18/97) 17.08% - -------------------------------------------------------------------------------- * PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of an investment will fluctuate so that fund shares, when sold, may be worth more or less than their original cost. Safety of principal is not guaranteed. During most periods, the fund's advisor waived or paid certain expenses and/or the fund's distributor voluntarily waived certain 12b-1 fees. Without waivers, class A returns would have been lower. All fund and benchmark returns include reinvested distributions. ++ Total returns for the year ended September 30, 1996, for Growth Fund and the Lipper average were: 16.87% and 15.89%, respectively (including reinvested distributions but not sales charges). *** - This symbol represents a graduation cap, used throughout this report to indicate terms defined in the glossary. - -------------------------------------------------------------------------------- 10 1997 Annual Report - U.S. Growth Funds GROWTH FUND (CONTINUED) - -------------------------------------------------------------------------------- [PHOTO] BRENT MELLUM, CFA assists with the management of Growth Fund. He has three years of financial experience. - -------------------------------------------------------------------------------- performance. Investments in companies like Compaq Computer (1.1%), Oracle (1.1%), Cisco Systems (1.1%) and International Business Machines (1.6%) have delivered superior returns. Financial services stocks, another area where we increased our investments, also performed well with excellent gains in American International Group (3.1%) and Norwest (3.0%). Stocks in the capital goods sector benefited from continued economic growth. Auto parts manufacturer Magna International (3.4%), aerospace company AlliedSignal (4.2%), and truck trailer manufacturer, Wabash National (1.1%), all delivered superior returns during the past 12 months. In other areas, retailer Gap (4.3%) was a great stock during the past year and in the past six months our investment in AirTouch Communications (4.0%) has begun to have a significantly positive impact on performance. OVER THE PAST YEAR, WE MADE A NUMBER OF CHANGES IN THE PORTFOLIO. As previously mentioned, we used the market correction last spring to increase our portfolio holdings in technology and financial stocks. We see growth continuing in these sectors with the stocks attractively valued.*** New investments in technology include ADC Telecommunications (1.0%), a broad line telecommunications equipment supplier and EMC Corp. (2.0%), a vendor of data storage products. In financial services, we added U.S. Bancorp (2.4%, formerly First Bank Systems). We believe all of these stocks offer above-average growth, yet are good values based on our fundamental research. In the health care area, we added to our investment in St. Jude Medical (1.7%), a company we believe is on track to grow earnings beginning mid-1998. On the sell side, we eliminated our positions in Columbia/HCA Healthcare and WMX Technologies. For both companies, our research indicated diminished long-term growth prospects. - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION BY SECTOR - -------------------------------------------------------------------------------- As a percentage of total assets on September 30, 1997 [EDGAR REPRESENTATION OF CHART] Growth Fund S&P 500 Index** Basic Materials 10% 6% Capital Goods & Services 12% 10% Commerical Services 0% 1% Consumer Durables 3% 3% Consumer Non-Durables 3% 11% Consumer Services 0% 4% Energy 16% 9% Financial Services 16% 16% Health Care 6% 11% Retail Trade 7% 5% Technology 15% 14% Transportation 4% 1% Utilities 6% 9% Other Assets 2% 0% ** An unmanaged index, that includes no expenses or transaction charges, of large-capitalization stocks. - -------------------------------------------------------------------------------- TOP 10 HOLDINGS - -------------------------------------------------------------------------------- As a percentage of total assets on September 30, 1997 1 Schlumberger Limited 5.2% - -------------------------------------------------------------------------------- 2 Transocean Offshore 4.7% - -------------------------------------------------------------------------------- 3 Gap 4.3% - -------------------------------------------------------------------------------- 4 AlliedSignal 4.2% - -------------------------------------------------------------------------------- 5 AirTouch Communications 4.0% - -------------------------------------------------------------------------------- 6 Baker Hughes 3.8% - -------------------------------------------------------------------------------- 7 Magna International Class A 3.4% - -------------------------------------------------------------------------------- 8 American International Group 3.1% - -------------------------------------------------------------------------------- 9 Norwest 3.0% - -------------------------------------------------------------------------------- 10 Reebok International 3.0% - -------------------------------------------------------------------------------- *** - This symbol represents a graduation cap, used throughout this report to indicate terms defined in the glossary. - -------------------------------------------------------------------------------- 11 1997 Annual Report - U.S. Growth Funds GROWTH FUND (CONTINUED) - -------------------------------------------------------------------------------- OUR OUTLOOK CALLS FOR CONTINUED ECONOMIC GROWTH, BUT AN INCREASE IN MARKET VOLATILITY. We believe that economic growth in the United States and the rest of the world will continue at a moderate pace despite the problems in Southeast Asia. Recent declines in global markets and the U.S. stock market are due in our opinion to the high valuation*** of global equities. As we have written previously, any deviation from the moderate growth, low inflation environment of today will have a negative impact on stock prices. OUR STRATEGY IN THIS MARKET ENVIRONMENT IS TO FOCUS ON THE INVESTMENT FUNDAMENTALS OF INDIVIDUAL STOCKS. We will closely monitor the progress of our existing holdings and look for opportunities to add new investments that meet our criteria for long-term growth and good value. We will maintain a well diversified portfolio consistent with the fund's primary objective of long-term capital appreciation and the secondary objective of current income. Thank you for your investment in Growth Fund. As managers we appreciate your confidence, and we will continue to diligently pursue our goal of providing our shareholders with consistent, competitive investment performance. Sincerely, /s/ Steve Markusen /s/ Brent Mellum Steve Markusen Brent Mellum Portfolio Manager Portfolio Manager *** - This symbol represents a graduation cap, used throughout this report to indicate terms defined in the glossary. - -------------------------------------------------------------------------------- 12 1997 Annual Report - U.S. Growth Funds Financial Statements - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES September 30, 1997 ................................................................................
SMALL COMPANY EMERGING GROWTH GROWTH GROWTH FUND FUND FUND ------------- -------------- -------------- ASSETS: Investments in securities at market value* (note 2) (including repurchase agreements of $2,842,000; $20,019,000 and $457,000, respectively) .................. $ 36,281,948 $ 340,056,171 $ 199,054,313 Cash in bank on demand deposit ............................. 117,132 25,853 25,768 Receivable for investment securities sold .................. 331,989 3,319,889 3,554,031 Receivable for fund shares sold ............................ 184,965 1,354,163 90,709 Dividends and accrued interest receivable .................. 2,787 80,933 105,587 Other assets ............................................... 1,683 2,616 -- ------------- -------------- -------------- Total assets ............................................. 36,920,504 344,839,625 202,830,408 ------------- -------------- -------------- LIABILITIES: Payable for investment securities purchased ................ 676,625 8,724,027 -- Payable for fund shares redeemed ........................... 85,798 659,302 493,579 Accrued investment management fee .......................... 20,928 180,196 116,468 Accrued distribution and service fees ...................... 9,695 75,736 56,717 ------------- -------------- -------------- Total liabilities ........................................ 793,046 9,639,261 666,764 ------------- -------------- -------------- Net assets applicable to outstanding capital stock ....... $ 36,127,458 $ 335,200,364 $ 202,163,644 ------------- -------------- -------------- ------------- -------------- -------------- COMPOSITION OF NET ASSETS: Capital stock and additional paid-in capital ............... $ 24,368,913 $ 163,184,341 $ 96,506,615 Accumulated net realized gain on investments ............... 281,765 32,397,483 20,723,315 Unrealized appreciation of investments ..................... 11,476,780 139,618,540 84,933,714 ------------- -------------- -------------- Total - representing net assets applicable to outstanding capital stock .......................................... $ 36,127,458 $ 335,200,364 $ 202,163,644 ------------- -------------- -------------- ------------- -------------- -------------- * Investments in securities at identified cost ........... $ 24,805,168 $ 200,437,631 $ 114,120,599 ------------- -------------- -------------- ------------- -------------- -------------- NET ASSET VALUE AND OFFERING PRICE: CLASS A (NOTE 1): Net assets ............................................... $ 35,647,823 $ 274,779,473 $ 201,954,257 Shares outstanding (authorized four billion shares for each fund of $0.01 par value) .......................... 3,725,085 18,019,878 15,788,836 Net asset value .......................................... $ 9.57 $ 15.25 $ 12.79 Maximum offering price per share (net asset value plus 4% of offering price) ..................................... $ 9.97 $ 15.89 $ 13.32 CLASS B: Net assets ............................................... $ 479,635 $ 1,028,098 $ 209,387 Shares outstanding (authorized two billion shares for each fund of $0.01 par value) ............................... 50,254 67,644 16,426 Net asset value and offering price per share ............. $ 9.54 $ 15.20 $ 12.75 CLASS Y: Net assets ............................................... -- $ 59,392,793 -- Shares outstanding (authorized one billion shares of $0.01 par value) ............................................. -- 3,885,302 -- Net asset value and offering price per share ............. -- $ 15.29 --
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 13 1997 Annual Report - U. S. Growth Funds Financial Statements (continued) - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS For the Year Ended September 30, 1997 ................................................................................
SMALL COMPANY EMERGING GROWTH GROWTH GROWTH FUND FUND FUND ------------ ------------- ------------ INCOME: Dividends (net of foreign withholding taxes of $0; $0 and $15,469, respectively) ................................... $ 84,603 $ 903,320 $ 2,334,335 Interest ................................................... 92,386 1,123,736 262,807 ------------ ------------- ------------ Total income ............................................. 176,989 2,027,056 2,597,142 ------------ ------------- ------------ EXPENSES (NOTE 5): Investment management fee .................................. 223,793 2,034,041 1,314,478 Distribution and service fees: CLASS A .................................................. 148,666 1,344,972 933,969 CLASS B .................................................. 1,040 3,309 559 CLASS Y .................................................. -- -- -- Transfer agent and dividend disbursing agent fees .......... 50,477 188,044 120,419 Custodian and accounting fees .............................. 44,656 214,266 146,701 Registration fees .......................................... 36,661 51,921 34,945 Reports to shareholders .................................... 23,692 51,827 38,124 Directors' fees ............................................ 7,968 7,968 7,968 Audit and legal fees ....................................... 48,299 41,414 41,654 Other expenses ............................................. 7,990 30,424 20,223 ------------ ------------- ------------ Total expenses ........................................... 593,242 3,968,186 2,659,040 Less Class A expenses waived by the distributor ........ (47,801) (430,769) (299,188) Less expenses waived by the adviser .................... (143,996) -- -- ------------ ------------- ------------ Net expenses before expenses paid indirectly ............. 401,445 3,537,417 2,359,852 Less expenses paid indirectly .......................... (439) (936) (45) ------------ ------------- ------------ Total net expenses ....................................... 401,006 3,536,481 2,359,807 ------------ ------------- ------------ Net investment income (loss) ............................. (224,017) (1,509,425) 237,335 ------------ ------------- ------------ NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS: Net realized gain on investments (note 3) .................. 3,716,140 34,831,105 24,239,313 Net change in unrealized appreciation or depreciation of investments .............................................. 8,021,635 25,682,866 30,823,801 ------------ ------------- ------------ Net gain on investments .................................. 11,737,775 60,513,971 55,063,114 ------------ ------------- ------------ Net increase in net assets resulting from operations ... $11,513,758 $ 59,004,546 $55,300,449 ------------ ------------- ------------ ------------ ------------- ------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 14 1997 Annual Report - U. S. Growth Funds Financial Statements (continued) - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS ................................................................................
SMALL COMPANY GROWTH FUND EMERGING GROWTH FUND GROWTH FUND ---------------------------- ----------------------------- ----------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended 9/30/97 9/30/96 9/30/97 9/30/96 9/30/97 9/30/96 ------------ ------------- ------------- ------------- ------------- ------------- OPERATIONS: Net investment income (loss) ... $ (224,017) $ 84,218 $ (1,509,425) $ (1,124,687) $ 237,335 $ 498,018 Net realized gain on investments .................. 3,716,140 7,564,663 34,831,105 32,003,899 24,239,313 16,132,322 Net change in unrealized appreciation or depreciation of investments ............... 8,021,635 (5,498,330) 25,682,866 13,771,971 30,823,801 10,738,269 ------------ ------------- ------------- ------------- ------------- ------------- Net increase in net assets resulting from operations ................. 11,513,758 2,150,551 59,004,546 44,651,183 55,300,449 27,368,609 ------------ ------------- ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS: CLASS A: From net investment income ... (82,567) (175,841) -- -- (284,304) (511,937) From net realized gains ...... (8,846,691) (3,725,755) (27,377,820) (23,854,784) (17,945,057) (19,384,717) CLASS B: From net investment income ... -- -- -- -- -- -- From net realized gains ...... -- -- -- -- -- -- CLASS Y: From net investment income ... -- -- -- -- -- -- From net realized gains ...... -- -- -- -- -- -- ------------ ------------- ------------- ------------- ------------- ------------- Total distributions .......... (8,929,258) (3,901,596) (27,377,820) (23,854,784) (18,229,361) (19,896,654) ------------ ------------- ------------- ------------- ------------- ------------- CAPITAL SHARE TRANSACTIONS (NOTE 4): CLASS A ........................ 2,174,732 (15,702,321) (50,186,524) 30,340,269 (13,397,914) (1,655,157) CLASS B ........................ 400,314 -- 860,466 -- 188,390 -- CLASS Y ........................ -- -- 49,131,008 -- -- -- ------------ ------------- ------------- ------------- ------------- ------------- Increase (decrease) in net assets from capital share transactions ............... 2,575,046 (15,702,321) (195,050) 30,340,269 (13,209,524) (1,655,157) ------------ ------------- ------------- ------------- ------------- ------------- Total increase (decrease) in net assets ................. 5,159,546 (17,453,366) 31,431,676 51,136,668 23,861,564 5,816,798 Net assets at beginning of year ......................... 30,967,912 48,421,278 303,768,688 252,632,020 178,302,080 172,485,282 ------------ ------------- ------------- ------------- ------------- ------------- Net assets at end of year ...... $ 36,127,458 $ 30,967,912 $ 335,200,364 $ 303,768,688 $ 202,163,644 $ 178,302,080 ------------ ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- ------------- ------------- ------------- Undistributed net investment income ....................... $ -- $ 80,672 $ -- $ -- $ -- $ 46,969 ------------ ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- ------------- ------------- -------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 15 1997 Annual Report - U. S. Growth Funds Notes to Financial Statements - -------------------------------------------------------------------------------- (1) ORGANIZATION ................................ Piper Funds Inc. (the company) is registered under the Investment Company Act of 1940 (as amended) as a single, open-end management investment company. The company currently has 12 series, including Small Company Growth Fund, Emerging Growth Fund and Growth Fund (the funds). Each fund is classified as a diversified series. The company's articles of incorporation permit the board of directors to create additional series in the future. The funds commenced offering Class B shares and Emerging Growth Fund commenced offering Class Y shares on February 18, 1997. All shares existing prior to that date were classified as Class A shares. Key features of each class are: CLASS A: - Subject to a front-end sales charge - Lower distribution and service fees than Class B CLASS B: - No front-end sales charge - Subject to a contingent deferred sales charge upon redemption - Higher distribution and service fees than Class A - Automatic conversion to Class A shares at the beginning of the sixth calendar year after issuance CLASS Y: - Requires a minimum initial investment of $1 million - No front-end or contingent deferred sales charges - No distribution and service fees The classes of shares have the same rights and are identical in all respects except that each class bears different distribution expenses, has exclusive voting rights with respect to matters affecting that class and has different exchange privileges. Small Company Growth Fund invests primarily in common stocks of small-capitalization companies believed to possess superior growth potential. Emerging Growth Fund invests primarily in common stocks and securities convertible into common stocks of emerging growth companies. Growth Fund invests primarily in a broadly diversified portfolio of stocks or securities convertible into or carrying rights to buy common stocks. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ................................ INVESTMENTS IN SECURITIES Portfolio securities for which market quotations are readily available are valued at current market value. If market quotations or valuations are not available, or if such quotations or valuations are believed to be inaccurate, unreliable or not reflective of market value, portfolio securities are valued - -------------------------------------------------------------------------------- 16 1997 Annual Report - U. S. Growth Funds Notes to Financial Statements (continued) - -------------------------------------------------------------------------------- according to procedures adopted by the funds' board of directors in good faith at "fair value", that is, a price that the fund might reasonably expect to receive for the security or other asset upon its current sale. Pricing services value domestic and foreign equity securities (and occasionally fixed-income securities) traded on a securities exchange or Nasdaq at the last reported sale price, up to the time of valuation. If there are no reported sales of a security on the valuation date, it is valued at the mean between the published bid and asked prices reported by the exchange or Nasdaq. If there are no sales and no published bid and asked quotations for a security on the valuation date or the security is not traded on an exchange or Nasdaq, the pricing service may obtain market quotations directly from broker-dealers. Securities transactions are accounted for on the date securities are purchased or sold. Realized gains and losses are calculated on the identified-cost basis. Dividend income is recognized on the ex-dividend date and interest income, including amortization of bond discount and premium, is recorded on an accrual basis. FEDERAL TAXES Each fund is treated separately for federal income tax purposes. Each fund intends to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and not be subject to federal income tax. Therefore, no income tax provision is required. The funds also intend to distribute their taxable net investment income and realized gains, if any, to avoid the payment of any federal excise taxes. Net investment income and net realized gains (losses) may differ for financial statement and tax purposes primarily because of losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from its ultimate characterization for federal income tax purposes. In addition, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the funds. On the statements of assets and liabilities, as a result of permanent book-to-tax differences, reclassification adjustments have been made as follows:
SMALL COMPANY EMERGING GROWTH GROWTH GROWTH FUND FUND FUND -------------- ------------ ------- Decrease distributions in excess of net investment income .................... $ 225,912 $ 1,509,425 $-- Decrease accumulated net realized gain on investments ....................... $(225,912) $ (806,040) $-- Decrease additional paid in capital .... $ -- $ (703,385) $--
ALLOCATION OF INCOME, EXPENSES AND GAINS (LOSSES) Income, expenses (other than class-specific expenses) and realized and unrealized gains and losses are allocated daily to each class of shares based upon the relative proportion of net assets represented by such class. Class-specific expenses, which include distribution and service fees, are charged directly to such class. - -------------------------------------------------------------------------------- 17 1997 Annual Report - U. S. Growth Funds Notes to Financial Statements (continued) - -------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders from net investment income will be declared separately for each class and paid at least annually. Net realized gains distributions, if any, will be made at least annually. Distributions are payable in cash or reinvested in additional shares of the same class. REPURCHASE AGREEMENTS For repurchase agreements entered into with certain broker-dealers, the funds, along with other affiliated registered investment companies, may transfer uninvested cash balances to a joint trading account, the daily aggregate of which is invested in repurchase agreements secured by U.S. government or agency obligations. Securities pledged as collateral for all individual and joint repurchase agreements are held by the funds' custodian bank until maturity of the repurchase agreement. Provisions for all agreements ensure that the daily market value of the collateral is in excess of the repurchase amount, including accrued interest, to protect the funds in the event of a default. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ from these estimates. (3) INVESTMENT SECURITY TRANSACTIONS ................................ Cost of purchases and proceeds from sales of securities, other than temporary investments in short-term securities, for the year ended September 30, 1997, were as follows:
SMALL COMPANY EMERGING GROWTH FUND GROWTH FUND GROWTH FUND -------------- ------------- ------------- Purchases .............................. $30,790,132 $ 141,190,612 $ 80,956,179 Proceeds from sales .................... $37,580,125 $ 174,268,383 $ 115,885,832
During the year ended September 30, 1997, brokerage commissions paid to Piper Jaffray Inc., an affiliated broker, amounted to $4,020, $0 and $0 for Small Company Growth Fund, Emerging Growth Fund, and Growth Fund, respectively. (4) CAPITAL SHARE TRANSACTIONS ................................ Small Company Growth Fund, Emerging Growth Fund, and Growth Fund declared 100% stock dividends on October 21, 1996, December 23, 1995, and October 21, 1996, respectively. Shareholders received one additional share of capital stock for each share they owned and the net asset value of each share was reduced by half. - -------------------------------------------------------------------------------- 18 1997 Annual Report - U. S. Growth Funds Notes to Financial Statements (continued) - -------------------------------------------------------------------------------- Capital share transactions for the funds were as follows:
YEAR ENDED Year Ended SEPTEMBER 30, 1997 (a) September 30, 1996 ------------------------ ------------------------- SHARES AMOUNT SHARES AMOUNT ---------- ------------ ----------- ------------ SMALL COMPANY GROWTH FUND: CLASS A Sales of fund shares ................. 1,030,455 $ 7,678,103 77,719 $ 1,445,527 Issued for reinvested distributions ...................... 1,298,315 8,636,664 211,527 3,901,679 Redemptions of fund shares ........... (1,806,030) (14,140,035) (1,130,511) (21,049,527) Issued for stock dividend ............ 1,555,872 -- -- -- ---------- ------------ ----------- ------------ 2,078,612 $ 2,174,732 (841,265) $(15,702,321) ---------- ------------ ----------- ------------ CLASS B Sales of fund shares ................. 53,821 $ 424,004 Redemptions of fund shares ........... (3,567) (23,690) ---------- ------------ 50,254 $ 400,314 ---------- ------------
YEAR ENDED Year Ended SEPTEMBER 30, 1997 (a) September 30, 1996 ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------ EMERGING GROWTH FUND: CLASS A Sales of fund shares ................. 4,214,135 $ 52,588,314 4,424,067 $ 65,931,347 Issued for reinvested distributions ...................... 2,159,866 26,933,532 986,585 23,845,752 Redemptions of fund shares ........... (6,351,382) (80,423,986) (3,766,383) (59,436,830) Redemptions in exchange for Class Y shares ............................. (3,914,798) (49,284,384) -- -- Issued for stock dividend ............ -- -- 10,529,165 -- ---------- ------------ ---------- ------------ (3,892,179) $(50,186,524) 12,173,434 $ 30,340,269 ---------- ------------ ---------- ------------ CLASS B Sales of fund shares ................. 81,216 $ 1,045,576 Redemptions of fund shares ........... (13,572) (185,110) ---------- ------------ 67,644 $ 860,466 ---------- ------------ CLASS Y Sales of fund shares ................. 907,255 $ 12,792,132 Sales in exchange from Class A shares ............................. 3,914,209 49,284,384 Redemptions of fund shares ........... (936,162) (12,945,508) ---------- ------------ 3,885,302 $ 49,131,008 ---------- ------------
YEAR ENDED Year Ended SEPTEMBER 30, 1997 (a) September 30, 1996 ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------ GROWTH FUND: CLASS A Sales of fund shares ................. 1,726,718 $ 18,865,295 909,407 $ 18,395,008 Issued for reinvested distributions ...................... 1,772,740 17,663,981 1,050,275 19,897,268 Redemptions of fund shares ........... (4,513,968) (49,927,190) (1,987,117) (39,947,433) Issued for stock dividend ............ 8,376,464 -- -- -- ---------- ------------ ---------- ------------ 7,361,954 $(13,397,914) (27,435) $ (1,655,157) ---------- ------------ ---------- ------------ CLASS B Sales of fund shares ................. 16,775 $ 191,828 Redemptions of fund shares ........... (349) (3,438) ---------- ------------ 16,426 $ 188,390 ---------- ------------
(a) REPRESENTS PERIOD FROM FEBRUARY 18 (COMMENCEMENT OF OFFERING OF SHARES) TO SEPTEMBER 30, 1997, FOR CLASS B AND CLASS Y. - -------------------------------------------------------------------------------- 19 1997 Annual Report - U. S. Growth Funds Notes to Financial Statements (continued) - -------------------------------------------------------------------------------- Sales charges received by Piper Jaffray Inc. (Piper Jaffray), the funds' distributor, for distributing the funds' shares for the year ended September 30, 1997 were as follows:
SMALL COMPANY EMERGING GROWTH FUND GROWTH FUND GROWTH FUND ----------------- -------------------------------- ------------------- CLASS A CLASS B CLASS A CLASS B CLASS Y CLASS A CLASS B ------- -------- ---------- -------- -------- -------- -------- Front-end sales charges ................ $46,124 $-- $ 120,434 $ -- $ -- $ 48,128 $ -- Contingent deferred sales charges ...... 5,241 13 15,880 4,733 -- 3,703 132 ------- --- ---------- -------- -------- -------- -------- $51,365 $13 $ 136,314 $4,733 $ -- $ 51,831 $132 ------- --- ---------- -------- -------- -------- -------- ------- --- ---------- -------- -------- -------- --------
(5) EXPENSES ................................ INVESTMENT MANAGEMENT FEE The company has entered into an investment management agreement with Piper Capital Management Incorporated (Piper Capital) under which Piper Capital manages each fund's assets and furnishes related office facilities, equipment, research and personnel. The agreement requires each fund to pay Piper Capital a monthly fee based on average daily net assets. The fee for each fund is equal to an annual rate of 0.75% of the first $100 million in net assets, 0.65% of the next $200 million and decreasing percentages thereafter to 0.50% of net assets in excess of $500 million. For the year ended September 30, 1997, the effective investment management fee paid by the funds was .75%, .69% and .70% on an annual basis for Small Company Growth Fund, Emerging Growth Fund and Growth Fund, respectively. DISTRIBUTION AND SERVICE FEES Each fund also pays Piper Jaffray fees accrued daily and paid quarterly for providing shareholder services and distribution-related services. The fees for each class, which were being voluntarily limited for Class A for the year ended September 30, 1997, are stated below as a percent of average daily net assets attributable to such shares.
SMALL COMPANY EMERGING GROWTH FUND GROWTH FUND GROWTH FUND ------------------- ------------------------------ ------------------- CLASS A CLASS B CLASS A CLASS B CLASS Y CLASS A CLASS B -------- -------- -------- -------- -------- -------- -------- Distribution fee ....................... 0.25% 0.75% 0.25% 0.75% -- 0.25% 0.75% Service fee ............................ 0.25% 0.25% 0.25% 0.25% -- 0.25% 0.25% -------- -------- -------- -------- --- -------- -------- Total distribution and service fees ............................... 0.50% 1.00% 0.50% 1.00% -- 0.50% 1.00% -------- -------- -------- -------- --- -------- -------- -------- -------- -------- -------- --- -------- -------- Total distribution and service fees after voluntary limitation ......... 0.34% 1.00% 0.34% 1.00% -- 0.34% 1.00% -------- -------- -------- -------- --- -------- -------- -------- -------- -------- -------- --- -------- --------
- -------------------------------------------------------------------------------- 20 1997 Annual Report - U. S. Growth Funds Notes to Financial Statements (continued) - -------------------------------------------------------------------------------- SHAREHOLDER ACCOUNT SERVICING FEES The company has also entered into shareholder account servicing agreements under which Piper Jaffray and Piper Trust Company (Piper Trust) perform various transfer and dividend disbursing agent services for accounts held at the respective company. The fees, which are paid monthly to Piper Jaffray and Piper Trust for providing these services, are equal to an annual rate of $6.00 per active shareholder account and $1.60 per closed account. For the year ended September 30, 1997, Piper Jaffray and Piper Trust received the following amounts in connection with the shareholder account servicing agreements:
SMALL COMPANY EMERGING GROWTH FUND GROWTH FUND GROWTH FUND -------------- ------------ ------------ Piper Jaffray .......................... $28,521 $131,958 $76,219 Piper Trust ............................ 840 26,866 20,219 -------------- ------------ ------------ $29,361 $158,824 $96,438 -------------- ------------ ------------ -------------- ------------ ------------
OTHER FEES AND EXPENSES In addition to the investment management, distribution and shareholder account servicing fees, each fund is responsible for paying most other operating expenses including: outside directors' fees and expenses; custodian fees; registration fees; printing and shareholder reports; transfer agent fees and expenses; legal, auditing and accounting services; insurance; interest; taxes and other miscellaneous expenses. For the year ended September 30, 1997, Piper Capital voluntarily limited total fees and expenses for Small Company Growth Fund to annual rates of 1.34% and 2.00% of average daily net assets attributable to such shares for Class A and Class B, respectively. Expenses paid indirectly represent a reduction of custodian fees for earnings on miscellaneous cash balances maintained by the funds. - -------------------------------------------------------------------------------- 21 1997 Annual Report - U. S. Growth Funds 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: SMALL COMPANY GROWTH FUND
CLASS A --------------------------------------------------------- Year Ended September 30, --------------------------------------------------------- 1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- PER-SHARE DATA (a) Net asset value, beginning of period ... $ 9.41 $ 9.73 $ 8.59 $ 8.42 $ 6.79 --------- --------- --------- --------- --------- Operations: Net investment income (loss) ......... (0.09) 0.03 0.05 0.04 0.01 Net realized and unrealized gains on investments ........................ 3.11 0.48 1.14 0.15 1.65 --------- --------- --------- --------- --------- Total from operations .............. 3.02 0.51 1.19 0.19 1.66 --------- --------- --------- --------- --------- Distributions to shareholders: From net investment income ........... (0.02) (0.04) (0.05) (0.02) (0.03) From net realized gains .............. (2.84) (0.79) -- -- -- --------- --------- --------- --------- --------- Total distributions to shareholders ..................... (2.86) (0.83) (0.05) (0.02) (0.03) --------- --------- --------- --------- --------- Net asset value, end of period ......... $ 9.57 $ 9.41 $ 9.73 $ 8.59 $ 8.42 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- SELECTED INFORMATION Total return (b) ....................... 45.66% 5.38% 13.88% 2.12% 24.56% Net assets at end of period (in millions) ............................ $ 36 $ 31 $ 48 $ 78 $ 84 Ratio of expenses to average daily net assets ............................... 1.34% 1.32% 1.40% 1.32% 1.28% Ratio of net investment income (loss) to average daily net assets ............. (0.75)% 0.20% 0.43% 0.37% 0.50% Average commission rate paid on portfolio transactions (c) ........... $ 0.0600 $ 0.0600 n/a n/a n/a Portfolio turnover rate (excluding short-term securities) ............... 109% 125% 182% 177% 154% Ratios before waivers by the adviser and/or distributor: Ratio of expenses to average daily net assets before waivers .............. 1.98% 1.79% 1.63% 1.54% 1.86% Ratio of net investment income (loss) to average daily net assets before waivers ............................ (1.39)% (0.27)% 0.20% 0.15% (0.08)%
CLASS B ---------------------------- Period Ended September 30, 1997(d) -------------------- PER-SHARE DATA Net asset value, beginning of period ... $ 7.24 ---------- Operations: Net investment loss .................. (0.03) Net realized and unrealized gains on investments ........................ 2.33 ---------- Total from operations .............. 2.30 ---------- Net asset value, end of period ......... $ 9.54 ---------- ---------- SELECTED INFORMATION Total return (b) ....................... 31.77% Net assets at end of period (in thousands) ........................... $ 480 Ratio of expenses to average daily net assets ............................... 1.98%(e) Ratio of net investment loss to average daily net assets ..................... (1.49)%(e) Average commission rate paid on portfolio transactions (c) ........... $0.0600 Portfolio turnover rate (excluding short-term securities) ............... 109% Ratios before waivers by the adviser: Ratio of expenses to average daily net assets before waivers .............. 2.15%(e) Ratio of net investment loss to average daily net assets before waivers ............................ (1.66)%(e)
(a) PER-SHARE AMOUNTS HAVE BEEN ADJUSTED TO REFLECT THE EFFECT OF THE STOCK DIVIDEND DECLARED ON OCTOBER 21, 1996. SEE NOTE 4 IN THE NOTES TO FINANCIAL STATEMENTS. (b) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A SALES CHARGE. (c) DISCLOSED IN ACCORDANCE WITH GUIDELINES ADOPTED IN 1996. (d) COMMENCEMENT OF OFFERING OF CLASS B SHARES WAS FEBRUARY 18, 1997. (e) ANNUALIZED. - -------------------------------------------------------------------------------- 22 1997 Annual Report - U. S. Growth Funds 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: EMERGING GROWTH FUND
CLASS A -------------------------------------------------------- Year Ended September 30, -------------------------------------------------------- 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- PER-SHARE DATA (a) Net asset value, beginning of period ....................... $ 13.86 $ 12.97 $ 9.63 $ 9.87 $ 7.21 -------- -------- -------- -------- -------- Operations: Net investment loss ...................................... (0.08) (0.05) (0.06) (0.04) (0.03) Net realized and unrealized gains (losses) on investments ............................................ 2.72 2.18 3.40 (0.20) 2.69 -------- -------- -------- -------- -------- Total from operations .................................. 2.64 2.13 3.34 (0.24) 2.66 -------- -------- -------- -------- -------- Distributions to shareholders: From net realized gains .................................. (1.25) (1.24) -- -- -- -------- -------- -------- -------- -------- Net asset value, end of period ............................. $ 15.25 $ 13.86 $ 12.97 $ 9.63 $ 9.87 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- SELECTED INFORMATION Total return (b) ........................................... 21.04% 17.84% 34.68% (2.38)% 36.92% Net assets at end of period (in millions) .................. $ 275 $ 304 $ 253 $ 224 $ 191 Ratio of expenses to average daily net assets .............. 1.23% 1.18% 1.24% 1.24% 1.29% Ratio of net investment loss to average daily net assets ... (0.55)% (0.41)% (0.51)% (0.38)% (0.34)% Average commission rate paid on portfolio transactions (c) ...................................................... $ 0.0600 $ 0.0600 n/a n/a n/a Portfolio turnover rate (excluding short-term securities) .............................................. 51% 44% 33% 31% 30% Ratios before waivers by the adviser and/or distributor: Ratio of expenses to average daily net assets before waivers ................................................ 1.39% 1.37% 1.42% 1.44% 1.49% Ratio of net investment loss to average daily net assets before waivers ......................................... (0.71)% (0.60)% (0.69)% (0.58)% (0.54)%
CLASS B CLASS Y -------- -------- Period Period Ended Ended September September 30, 30, 1997(d) 1997(d) -------- -------- PER-SHARE DATA Net asset value, beginning of period ....................... $ 12.54 $ 12.54 -------- -------- Operations: Net investment loss ...................................... (0.10) (0.01) Net realized and unrealized gains on investments ......... 2.76 2.76 -------- -------- Total from operations .................................. 2.66 2.75 -------- -------- Net asset value, end of period ............................. $ 15.20 $ 15.29 -------- -------- -------- -------- SELECTED INFORMATION Total return (b) ........................................... 21.21% 21.93% Net assets at end of period (in millions) .................. $ 1 $ 59 Ratio of expenses to average daily net assets .............. 1.85%(e) 0.87%(e) Ratio of net investment loss to average daily net assets ... (1.16)%(e) (0.16)%(e) Average commission rate paid on portfolio transactions (c) ...................................................... $0.0600 $0.0600 Portfolio turnover rate (excluding short-term securities) .............................................. 51% 51%
(a) PER-SHARE AMOUNTS HAVE BEEN ADJUSTED TO REFLECT THE EFFECT OF THE STOCK DIVIDEND DECLARED ON DECEMBER 23, 1995. SEE NOTE 4 IN THE NOTES TO FINANCIAL STATEMENTS. (b) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A SALES CHARGE. (c) DISCLOSED IN ACCORDANCE WITH GUIDELINES ADOPTED IN 1996. (d) COMMENCEMENT OF OFFERING OF CLASS B AND CLASS Y SHARES WAS FEBRUARY 18, 1997. (e) ANNUALIZED. - -------------------------------------------------------------------------------- 23 1997 Annual Report - U. S. Growth Funds 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: GROWTH FUND
CLASS A --------------------------------------------------------- Year Ended September 30, --------------------------------------------------------- 1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- PER-SHARE DATA (a) Net asset value, beginning of period ... $ 10.58 $ 10.20 $ 9.45 $ 9.65 $ 8.53 --------- --------- --------- --------- --------- Operations: Net investment income ................ 0.01 0.03 0.04 0.04 0.06 Net realized and unrealized gains (losses) on investments ............ 3.28 1.55 1.80 (0.18) 1.12 --------- --------- --------- --------- --------- Total from operations .............. 3.29 1.58 1.84 (0.14) 1.18 --------- --------- --------- --------- --------- Distributions to shareholders: From net investment income ........... (0.01) (0.03) (0.04) (0.06) (0.06) From net realized gains .............. (1.07) (1.17) (1.05) -- -- --------- --------- --------- --------- --------- Total distributions to shareholders ..................... (1.08) (1.20) (1.09) (0.06) (0.06) --------- --------- --------- --------- --------- Net asset value, end of period ......... $ 12.79 $ 10.58 $ 10.20 $ 9.45 $ 9.65 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- SELECTED INFORMATION Total return (b) ....................... 34.09% 16.87% 20.60% (1.51)% 13.85% Net assets at end of period (in millions) ............................ $ 202 $ 178 $ 172 $ 195 $ 252 Ratio of expenses to average daily net assets ............................... 1.26% 1.24% 1.27% 1.23% 1.26% Ratio of net investment income to average daily net assets ............. 0.13% 0.28% 0.40% 0.43% 0.66% Average commission rate paid on portfolio transactions (c) ........... $ 0.0600 $ 0.0600 n/a n/a n/a Portfolio turnover rate (excluding short-term securities) ............... 44% 19% 80% 11% 45% Ratios before waivers by the distributor: Ratio of expenses to average daily net assets before waivers .............. 1.42% 1.43% 1.45% 1.42% 1.44% Ratio of net investment income (loss) to average daily net assets before waivers ............................ (0.03)% 0.09% 0.22% 0.24% 0.48%
CLASS B ------------------------- Period Ended September 30, 1997(d) ------------------------- PER-SHARE DATA Net asset value, beginning of period ... $ 10.53 ---------- Operations: Net investment loss .................. (0.03) Net realized and unrealized gains on investments ........................ 2.25 ---------- Total from operations .............. 2.22 ---------- Net asset value, end of period ......... $ 12.75 ---------- ---------- SELECTED INFORMATION Total return (b) ....................... 21.08% Net assets at end of period (in thousands) ........................... $ 209 Ratio of expenses to average daily net assets ............................... 1.90%(e) Ratio of net investment loss to average daily net assets ..................... (0.74)%(e) Average commission rate paid on portfolio transactions (c) ........... $0.0600 Portfolio turnover rate (excluding short-term securities) ............... 44%
(a) PER-SHARE AMOUNTS HAVE BEEN ADJUSTED TO REFLECT THE EFFECT OF THE STOCK DIVIDEND DECLARED ON OCTOBER 21, 1996. SEE NOTE 4 IN THE NOTES TO FINANCIAL STATEMENTS. (b) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A SALES CHARGE. (c) DISCLOSED IN ACCORDANCE WITH GUIDELINES ADOPTED IN 1996. (d) COMMENCEMENT OF OFFERING OF CLASS B SHARES WAS FEBRUARY 18, 1997. (e) ANNUALIZED. - -------------------------------------------------------------------------------- 24 1997 Annual Report - U. S. Growth Funds Investments in Securities - --------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND September 30, 1997 ........................................................................................... Number Market Description of Security of Shares Value (a) - --------------------------------------------------------- ----------- ------------ (PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS) COMMON STOCK (92.5%): BASIC MATERIALS (7.4%): AptarGroup Inc. ..................................... 7,000 $ 391,562 Brunswick Technologies .............................. 30,000(b) 480,000 ChiRex Inc. ......................................... 29,000(b) 739,500 Cuno Inc. ........................................... 27,000(b) 469,125 OM Group ............................................ 15,000 599,062 ------------ 2,679,249 ------------ CAPITAL GOODS AND SERVICES (7.2%): American Disposal Services, Inc. .................... 12,000(b) 375,000 Chicago Miniature Lamp .............................. 13,000(b) 432,250 Control Devices Inc. ................................ 15,000(b) 225,000 Dura Automotive Systems 'A' ......................... 10,800(b) 340,200 Miller (Herman) ..................................... 14,000 749,000 Rental Service ...................................... 22,000(b) 493,625 ------------ 2,615,075 ------------ COMMERCIAL SERVICES (10.3%): ABR Information Services ............................ 13,000(b) 359,125 American Building Maintenance ....................... 15,000 396,562 G & K Services Class A .............................. 13,500 469,125 JP Foodservice ...................................... 20,000(b) 630,000 Learning Tree International ......................... 15,000(b) 429,375 Wackenhut Corrections ............................... 17,000(b) 527,000 Watsco Inc. ......................................... 12,000 375,000 Wilmar Industries ................................... 20,000(b) 540,000 ------------ 3,726,187 ------------ CONSUMER DURABLES (1.7%): ITI Technologies .................................... 21,000(b) 598,500 ------------ CONSUMER NON-DURABLES (1.6%): Home Products International Inc. .................... 25,000(b) 365,625 Robert Mondavi Class A .............................. 4,150(b) 227,212 ------------ 592,837 ------------ CONSUMER SERVICES (6.3%): Bridgestreet Accomodations .......................... 10,000(b) 115,000 Chancellor Media Corp. .............................. 10,000(b) 526,250 Equity Corp. International .......................... 17,000(b) 396,312 PJ America Inc. ..................................... 23,000(b) 393,875 Strayer Education ................................... 10,000 455,000 York Group Inc. ..................................... 18,000 389,250 ------------ 2,275,687 ------------ ENERGY (4.7%): Lomak Petroleum ..................................... 16,000 309,000 Newpark Resources ................................... 18,000(b) 707,625 Tuboscope Inc. ...................................... 22,000(b) 690,250 ------------ 1,706,875 ------------ FINANCIAL SERVICES (10.4%): AMRESCO Inc. ........................................ 13,000(b) 482,625 Commerce Bancorp .................................... 6,825 265,322 First Republic Bancorp (CA) ......................... 20,000(b) 535,000
Number Market Description of Security of Shares Value (a) - --------------------------------------------------------- ----------- ------------ First Savings Bank of Washington .................... 15,000 $ 371,250 Money Store ......................................... 15,000 427,500 ReliaStar Financial ................................. 20,000 796,250 TCF Financial ....................................... 15,000 876,563 ------------ 3,754,510 ------------ HEALTH CARE (15.0%): Alpha 1 Biomedicals, Inc. ........................... 5,391(b) 539 BioReliance Corp. ................................... 2,000(b) 52,500 Biosite Diagnostics ................................. 15,000(b) 131,250 Centennial HealthCare ............................... 10,000(b) 230,000 Cytyc Corp. ......................................... 11,000(b) 276,375 Daou Systems Inc. ................................... 31,000(b) 968,750 Digene Corp. ........................................ 17,000(b) 218,875 Express Scripts 'A' ................................. 7,000(b) 377,125 FPA Medical Management Inc. ......................... 15,000(b) 515,625 Genesis Health Ventures ............................. 10,000(b) 389,375 HPR Inc. ............................................ 20,000(b) 437,500 NeXstar Pharmaceuticals ............................. 8,000(b) 142,000 Novoste Corp. ....................................... 9,000(b) 149,625 Physician Sales & Service ........................... 19,500 380,250 Physio-Control International ........................ 11,000(b) 186,313 Scherer (R.P.) ...................................... 8,000(b) 495,500 Urogen .............................................. 10,000(b) (e) -- Urologix Inc. ....................................... 20,000(b) 475,000 ------------ 5,426,602 ------------ RETAIL TRADE (5.1%): Hibbett Sporting Goods .............................. 5,000(b) 139,375 Mazel Stores ........................................ 10,000(b) 247,500 O'Reilly Automotive ................................. 13,000(b) 295,750 Pier 1 Imports ...................................... 30,000 538,125 Stage Stores ........................................ 14,000(b) 603,750 ------------ 1,824,500 ------------ TECHNOLOGY (21.2%): Advanced Energy Industries .......................... 11,000(b) 311,438 ANADIGICS Inc. ...................................... 5,000(b) 246,563 Aspect Development .................................. 5,200(b) 213,525 Coherent Communication Systems Corp. . 15,000(b) 425,625 Comverse Technology ................................. 15,000(b) 791,250 Cyberonics .......................................... 11,800(b) 190,275 DuPont Photomasks ................................... 10,000(b) 720,000 FSI International ................................... 20,000(b) 417,500 Natural MicroSystems Corp. .......................... 20,000(b) 760,000 Ontrack Data International .......................... 30,000(b) 697,500 Peerless Systems .................................... 27,000(b) 378,000 Sipex Corp. ......................................... 30,000(b) 952,500 Technology Solutions ................................ 15,000(b) 483,750 Tecnomatix Technologies Ltd. ........................ 15,000(b) (c) 573,750 TriQuint Semiconductor .............................. 8,000(b) 291,500 Wonderware Corp. .................................... 12,000(b) 220,500 ------------ 7,673,676 ------------
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES. - -------------------------------------------------------------------------------- 25 1997 Annual Report - U. S. Growth Funds Investments in Securities (continued) - -------------------------------------------------------------------------------- SMALL COMPANY GROWTH FUND (CONTINUED)
Number of Shares or Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------ TRANSPORTATION (1.6%): Knightsbridge Tankers Ltd. .......................... 20,000(c) $ 566,250 ------------ Total Common Stock (cost: $21,963,168) ............................ 33,439,948 ------------ SHORT-TERM SECURITIES (7.9%): Repurchase agreement with Goldman Sachs, acquired on 9/30/97, interest of $486, 6.15%, 10/1/97 (cost: $2,842,000) ................................ 2,842,000(d) $ 2,842,000 ------------ Total Investments in Securities (cost: $24,805,168) (f) ........................ $ 36,281,948 ------------ ------------
NOTES TO INVESTMENTS IN SECURITIES: (a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO THE FINANCIAL STATEMENTS. (b) CURRENTLY NON-INCOME PRODUCING. (c) SECURITIES OF FOREIGN ISSUERS ARE DENOMINATED IN U.S. DOLLARS. THE AGGREGATE VALUE OF THESE SECURITIES AT SEPTEMBER 30, 1997, IS $1,140,000, WHICH REPRESENTS 3.2% OF TOTAL NET ASSETS. (d) REPURCHASE AGREEMENT IN A JOINT TRADING ACCOUNT WHICH IS COLLATERALIZED BY U.S. GOVERNMENT AGENCY SECURITIES. ACCRUED INTEREST SHOWN REPRESENTS INTEREST DUE AT MATURITY OF THE REPURCHASE AGREEMENT. (e) SECURITY IS RESTRICTED (CANNOT BE OFFERED FOR PUBLIC SALE) AND ILLIQUID. SECURITY WAS ACQUIRED AS A RESULT OF A SPINOFF FROM MEDSTONE INTERNATIONAL. OWNERSHIP OF SECURITY CANNOT BE LEGALLY TRANSFERRED BEFORE DEC. 31, 1997. (f) ON SEPTEMBER 30, 1997, THE COST OF INVESTMENTS IN SECURITIES FOR FEDERAL INCOME TAX PURPOSES WAS $24,805,533. THE AGGREGATE GROSS UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED ON THIS COST WERE AS FOLLOWS: GROSS UNREALIZED APPRECIATION ...... $ 11,648,603 GROSS UNREALIZED DEPRECIATION ...... (172,188) ------------ NET UNREALIZED APPRECIATION ...... $ 11,476,415 ------------ ------------
- -------------------------------------------------------------------------------- 26 1997 Annual Report - U. S. Growth Funds Investments in Securities - --------------------------------------------------------------------------------
EMERGING GROWTH FUND September 30, 1997 ......................................................................................... Number Market Description of Security of Shares Value (a) - ------------------------------------------------------- ----------- ------------ (PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS) COMMON STOCK (95.5%): BASIC MATERIALS (4.7%): Bemis Co. ......................................... 50,000 $ 2,237,500 Ecolab Inc. ....................................... 77,000 3,739,312 Sealed Air ........................................ 108,000(b) 5,933,250 Valspar Corp. ..................................... 128,000 4,016,000 ------------ 15,926,062 ------------ CAPITAL GOODS AND SERVICES (8.0%): Danaher Corp. ..................................... 100,000 5,800,000 Fastenal Co. ...................................... 37,500 1,996,875 Miller (Herman) ................................... 81,000 4,333,500 Molex Inc. Class A ................................ 75,000 3,056,250 Pentair, Inc. ..................................... 100,000 3,687,500 Tower Automotive .................................. 73,800(b) 3,321,000 USA Waste Service ................................. 112,875(b) 4,500,891 ------------ 26,696,016 ------------ COMMERCIAL SERVICES (6.4%): Cintas Corp. ...................................... 35,000 2,581,250 Corrections Corp. of America ...................... 70,000(b) 3,045,000 G & K Services Class A ............................ 50,000 1,737,500 JP Foodservice .................................... 105,000(b) 3,307,500 Learning Tree International ....................... 110,000(b) 3,148,750 Richfood Holdings ................................. 167,500 4,344,531 Wackenhut Corrections ............................. 110,000(b) 3,410,000 ------------ 21,574,531 ------------ CONSUMER DURABLES (1.0%): Newell Co. ........................................ 85,000 3,400,000 ------------ CONSUMER NON-DURABLES (5.1%): Rexall Sundown .................................... 115,000(b) 5,246,875 Robert Mondavi Class A ............................ 44,150(b) 2,417,212 Sola International ................................ 155,000(b) 5,318,438 Tommy Hilfiger .................................... 80,000(b) 3,995,000 ------------ 16,977,525 ------------ CONSUMER SERVICES (8.5%): Apollo Group Class A .............................. 110,000(b) 4,661,250 Chancellor Media Corp. ............................ 70,000(b) 3,683,750 Clear Channel Communication ....................... 76,000(b) 4,930,500 DeVRY Inc. ........................................ 120,000(b) 3,585,000 Papa John's International Inc. .................... 56,500(b) 1,931,594 Regal Cinemas ..................................... 130,000(b) 3,493,750 Stewart Enterprises Class A ....................... 145,000 6,343,750 ------------ 28,629,594 ------------ ENERGY (7.6%): Camco International ............................... 82,000 5,719,500 ENSCO International ............................... 120,000 4,732,500 Newfield Exploration .............................. 147,570(b) 4,141,183 Noble Affiliates .................................. 110,000 4,922,500 Smith International ............................... 78,000(b) 6,059,625 ------------ 25,575,308 ------------
Number Market Description of Security of Shares Value (a) - ------------------------------------------------------- ----------- ------------ FINANCIAL SERVICES (15.8%): AMRESCO Inc. ...................................... 125,000(b) $ 4,640,625 Commercial Federal ................................ 105,000 4,948,125 FINOVA Group ...................................... 87,000 8,232,375 Firstar Corp. ..................................... 100,000 3,625,000 Green Tree Financial .............................. 154,000 7,238,000 Hartford Life Class A ............................. 4,400 169,125 MGIC Investment ................................... 80,000 4,585,000 Nationwide Financial Services, Inc. ............... 7,200 200,700 PMI Group ......................................... 56,000 3,209,500 ReliaStar Financial ............................... 70,000 2,786,875 Schwab (Charles) Corp. ............................ 150,000 5,362,500 TCF Financial ..................................... 135,000 7,889,063 ------------ 52,886,888 ------------ HEALTH CARE (12.9%): BioChem Pharma .................................... 96,000(b) (c) 3,024,000 Cardinal Health ................................... 35,000 2,485,000 DENTSPLY International ............................ 73,000 4,088,000 Elan Corp. PLC -- ADR ............................. 130,000(b) (c) 6,508,125 Genesis Health Ventures ........................... 108,500(b) 4,224,719 Genzyme Corp. -- General Division ................. 100,000(b) 2,975,000 Health Management Association ..................... 75,000(b) 2,371,875 PhyCor Inc. ....................................... 140,625(b) 4,086,914 Physician Sales & Service ......................... 215,000(b) 4,192,500 Quintiles Transnational ........................... 51,625(b) 4,349,406 Stryker Corp. ..................................... 110,000 4,805,625 ------------ 43,111,164 ------------ RETAIL TRADE (6.2%): Consolidated Stores ............................... 104,687(b) 4,383,768 Dollar General .................................... 112,500 3,832,031 Kohl's Corp. ...................................... 90,000(b) 6,390,000 Stage Stores ...................................... 140,000(b) 6,037,500 ------------ 20,643,299 ------------ TECHNOLOGY (18.5%): ADC Telecommunications ............................ 100,000(b) 3,250,000 Altera Corp. ...................................... 90,000(b) 4,612,500 Analog Devices .................................... 133,333(b) 4,466,656 Andrew Corp. ...................................... 83,750(b) 2,193,203 ASM Lithography Holding NV ........................ 65,000(b) (c) 6,418,750 Cambridge Technology Partners Inc. ................ 145,000(b) 5,192,813 CIENA Corp. ....................................... 6,425(b) 318,238 Comverse Technology ............................... 100,000(b) 5,275,000 EMC Corp. ......................................... 100,000(b) 5,837,500 Fiserv Inc. ....................................... 80,000(b) 3,510,000 KLA-Tencor Corp. .................................. 75,000(b) 5,067,188 Sterling Commerce ................................. 120,300(b) 4,323,281 SunGard Data Systems .............................. 130,000(b) 3,152,500 Teradyne Inc. ..................................... 80,000(b) 4,305,000 Vantive Corp. ..................................... 100,000(b) 2,400,000 VERITAS Software .................................. 38,000(b) 1,669,625 ------------ 61,992,254 ------------
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES. - -------------------------------------------------------------------------------- 27 1997 Annual Report - U. S. Growth Funds Investments in Securities (continued) - -------------------------------------------------------------------------------- EMERGING GROWTH FUND (CONTINUED)
Number of Shares or Principal Market Description of Security Amount Value (a) - ------------------------------------------------------- ----------- ------------ TRANSPORTATION (0.8%): Wisconsin Central Transportation .................. 82,500(b) $ 2,624,530 ------------ Total Common Stock (cost: $180,418,631) ......................... 320,037,171 ------------ SHORT-TERM SECURITIES (5.9%): Repurchase agreement with Goldman Sachs, acquired on 9/30/97, interest of $3,420, 6.15%, 10/1/97 (cost: $20,019,000) ............................. 20,019,000(d) $ 20,019,000 ------------ Total Investments in Securities (cost: $200,437,631) (e) ..................... $340,056,171 ------------ ------------
NOTES TO INVESTMENTS IN SECURITIES: (a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO THE FINANCIAL STATEMENTS. (b) CURRENTLY NON-INCOME PRODUCING. (c) SECURITIES OF FOREIGN ISSUERS ARE DENOMINATED IN U.S. DOLLARS. THE AGGREGATE VALUE OF THESE SECURITIES AT SEPTEMBER 30, 1997, IS $15,950,875, WHICH REPRESENTS 4.8% OF TOTAL NET ASSETS. (d) REPURCHASE AGREEMENT IN A JOINT TRADING ACCOUNT WHICH IS COLLATERALIZED BY U.S. GOVERNMENT AGENCY SECURITIES. ACCRUED INTEREST SHOWN REPRESENTS INTEREST DUE AT MATURITY OF THE REPURCHASE AGREEMENT. (e) ON SEPTEMBER 30, 1997, THE COST OF INVESTMENTS IN SECURITIES FOR FEDERAL INCOME TAX PURPOSES WAS $200,437,631. THE AGGREGATE GROSS UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED ON THIS COST WERE AS FOLLOWS: GROSS UNREALIZED APPRECIATION .... $140,999,878 GROSS UNREALIZED DEPRECIATION .... (1,381,338) ------------ NET UNREALIZED APPRECIATION .... $139,618,540 ------------ ------------
- -------------------------------------------------------------------------------- 28 1997 Annual Report - U. S. Growth Funds Investments in Securities - --------------------------------------------------------------------------------
GROWTH FUND September 30, 1997 ....................................................................................... Number Market Description of Security of Shares Value (a) - --------------------------------------------------------- ----------- ------------ (PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS) COMMON STOCK (98.3%): BASIC MATERIALS (9.9%): Aluminum Company of America ......................... 50,000 $ 4,100,000 Morton International ................................ 150,000 5,325,000 Phelps Dodge ........................................ 50,000 3,881,250 USX -- U.S. Steel Group ............................. 80,000 2,780,000 Willamette Industries ............................... 100,000 3,825,000 ------------ 19,911,250 ------------ CAPITAL GOODS AND SERVICES (12.3%): AlliedSignal Inc. ................................... 200,000 8,500,000 Magna International Class A ......................... 100,000(c) 6,912,500 Pentair, Inc. ....................................... 150,000 5,531,250 Thomas & Betts ...................................... 30,000 1,638,750 Wabash National ..................................... 80,000 2,315,000 ------------ 24,897,500 ------------ CONSUMER DURABLES (2.8%): Ford Motor .......................................... 125,000 5,656,250 ------------ CONSUMER NON-DURABLES (3.0%): Reebok International ................................ 125,000(b) 6,085,937 ------------ ENERGY (16.4%): Anadarko Petroleum .................................. 75,000 5,385,937 Baker Hughes Inc. ................................... 175,000 7,656,250 Schlumberger Ltd. ................................... 125,000 10,523,438 Transocean Offshore Inc. ............................ 200,000 9,587,500 ------------ 33,153,125 ------------ FINANCIAL SERVICES (16.3%): American International Group ........................ 60,000 6,191,250 Federal National Mortgage Association ............... 70,000 3,290,000 FINOVA Group ........................................ 50,000 4,731,250 Franklin Resources .................................. 40,000 3,725,000 Norwest Corp. ....................................... 100,000 6,125,000 TCF Financial ....................................... 70,000 4,090,625 U.S. Bancorp ........................................ 50,000 4,825,000 ------------ 32,978,125 ------------ HEALTH CARE (5.5%): Cardiovascular Dynamics ............................. 4,000(b) 32,000 Endosonics Corp. .................................... 100,000(b) 1,468,750 HealthCare Compare .................................. 50,000(b) 3,193,750 Medtronic, Inc. ..................................... 60,000 2,820,000 St. Jude Medical .................................... 100,000(b) 3,506,250 ------------ 11,020,750 ------------ RETAIL TRADE (7.2%): Gap Inc. ............................................ 175,000 8,760,938 Sears, Roebuck ...................................... 100,000 5,693,750 ------------ 14,454,688 ------------
Number of Shares or Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------ TECHNOLOGY (14.9%): ADC Telecommunications .............................. 60,000(b) $ 1,950,000 Cabletron Systems ................................... 60,000(b) 1,920,000 Cisco Systems, Inc. ................................. 30,000(b) 2,191,875 Compaq Computer ..................................... 30,000(b) 2,242,500 EMC Corp. ........................................... 70,000(b) 4,086,250 Hewlett-Packard Co. ................................. 45,000 3,130,313 Intel Corp. ......................................... 40,000 3,692,500 International Business Machines Corp. ............... 30,000 3,178,125 Oracle Corp. ........................................ 60,000(b) 2,186,250 Sensormatic Electronics ............................. 150,000 2,118,750 Tech Data Corp. ..................................... 75,000(b) 3,450,000 ------------ 30,146,563 ------------ TRANSPORTATION (4.1%): AMR Corp. ........................................... 40,000(b) 4,427,500 Burlington Northern Santa Fe ........................ 40,000 3,865,000 ------------ 8,292,500 ------------ UTILITIES (5.9%): AirTouch Communications ............................. 230,000(b) 8,150,625 Enron ............................................... 100,000 3,850,000 ------------ 12,000,625 ------------ Total Common Stock (cost: $113,663,599) ........................... 198,597,313 ------------ SHORT-TERM SECURITIES (0.2%): Repurchase agreement with Goldman Sachs, acquired on 9/30/97, interest of $78, 6.15%, 10/1/97 (cost: $457,000) .................................. 457,000(d) $ 457,000 ------------ Total Investments in Securities (cost: $114,120,599) (e) ....................... $199,054,313 ------------ ------------
NOTES TO INVESTMENTS IN SECURITIES: (a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO THE FINANCIAL STATEMENTS. (b) CURRENTLY NON-INCOME PRODUCING. (c) SECURITIES OF FOREIGN ISSUERS ARE DENOMINATED IN U.S. DOLLARS. THE AGGREGATE VALUE OF THESE SECURITIES AT SEPTEMBER 30, 1997, IS $6,912,500, WHICH REPRESENTS 3.4% OF TOTAL NET ASSETS. (d) REPURCHASE AGREEMENT IN A JOINT TRADING ACCOUNT WHICH IS COLLATERALIZED BY U.S. GOVERNMENT AGENCY SECURITIES. ACCRUED INTEREST SHOWN REPRESENTS INTEREST DUE AT MATURITY OF THE REPURCHASE AGREEMENT. (e) ON SEPTEMBER 30, 1997, THE COST OF INVESTMENTS IN SECURITIES FOR FEDERAL INCOME TAX PURPOSES WAS $114,120,599. THE AGGREGATE GROSS UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED ON THIS COST WERE AS FOLLOWS: GROSS UNREALIZED APPRECIATION ...... $ 87,416,145 GROSS UNREALIZED DEPRECIATION ...... (2,482,431) ------------ NET UNREALIZED APPRECIATION ...... $ 84,933,714 ------------ ------------
- -------------------------------------------------------------------------------- 29 1997 Annual Report - U. S. Growth Funds Independent Auditors' Report - -------------------------------------------------------------------------------- THE BOARD OF DIRECTORS AND SHAREHOLDERS PIPER FUNDS INC.: We have audited the accompanying statements of assets and liabilities, including the schedules of investments in securities, of Small Company Growth Fund, Emerging Growth Fund and Growth Fund (funds within Piper Funds Inc.) as of September 30, 1997, and 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 ended September 30, 1997, and the financial highlights for each of the years in the five-year period ended September 30, 1997. 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 Small Company Growth Fund, Emerging Growth Fund and Growth Fund as of September 30, 1997, 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 November 7, 1997 - -------------------------------------------------------------------------------- 30 1997 Annual Report - U. S. Growth Funds 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, 5.55%, 100% AND 100% QUALIFYING FOR DEDUCTION BY CORPORATIONS, RESPECTIVELY)
SMALL COMPANY EMERGING GROWTH FUND GROWTH FUND GROWTH FUND PAYABLE DATE CLASS A CLASS B CLASS A CLASS B CLASS Y CLASS A CLASS B - -------------------- ------------- ------- ------------- ------- ------- ------------- ------- December 23, 1996 ............. $ 0.0190 $ -- $ -- $ -- $ -- $ 0.0142 $ -- ------------- ------- ------------- ------- ------- ------------- ------- ------------- ------- ------------- ------- ------- ------------- -------
SHORT-TERM GAINS (TAXABLE AS ORDINARY DIVIDENDS)
SMALL COMPANY EMERGING GROWTH FUND GROWTH FUND GROWTH FUND PAYABLE DATE CLASS A CLASS B CLASS A CLASS B CLASS Y CLASS A CLASS B - -------------------- ------------- ------- ------------- ------- ------- ------------- ------- October 22, 1996 ... $ 0.6120 $ -- $ 0.0450 $ -- $ -- $ 0.1474 $ -- ------------- ------- ------------- ------- ------- ------------- ------- ------------- ------- ------------- ------- ------- ------------- -------
LONG-TERM GAINS (TAXABLE AS CAPITAL GAINS DISTRIBUTIONS)
SMALL COMPANY EMERGING GROWTH FUND GROWTH FUND GROWTH FUND PAYABLE DATE CLASS A CLASS B CLASS A CLASS B CLASS Y CLASS A CLASS B - -------------------- ------------- ------- ------------- ------- ------- ------------- ------- October 22, 1996 ... $ 2.2310 $ -- $ 1.2028 $ -- $ -- $ 0.9233 $ -- ------------- ------- ------------- ------- ------- ------------- ------- ------------- ------- ------------- ------- ------- ------------- -------
- -------------------------------------------------------------------------------- 31 1997 Annual Report - U. S. Growth Funds THIS PAGE WAS INTENTIONALLY LEFT BLANK. - -------------------------------------------------------------------------------- 32 1997 Annual Report - U.S. Growth Funds THIS PAGE WAS INTENTIONALLY LEFT BLANK. - -------------------------------------------------------------------------------- 33 1997 Annual Report - U.S. Growth Funds THIS PAGE WAS INTENTIONALLY LEFT BLANK. - -------------------------------------------------------------------------------- 34 1997 Annual Report - U.S. Growth Funds SHAREHOLDER SERVICES - -------------------------------------------------------------------------------- As a shareholder in Piper Funds, you have access to a full range of services and benefits. Check your prospectus for details about services and any limitations that might apply to your fund. Low Minimum Investments You may become a shareholder in Piper Funds class A shares or class B shares with an initial investment of $250 or more. Class Y shares have a minimum initial investment of $1 million. Add to your existing investment with any amount, at any time. Automatic Monthly Investment Programs To purchase shares as part of a savings discipline, you may automatically transfer $100 or more each month to any Piper fund from your bank, savings and loan or other financial institution. Or, transfer $25 or more per month from any of the Piper money market funds.* Receiving Dividends and Other Distributions Dividend and capital gains distributions may be reinvested in additional shares of the fund you own, invested in shares of a different Piper fund offered in your state, or distributed in cash. Any reinvestments must be in the same class of shares. Reducing the Class A Front-End Sales Charge You may reduce, or even eliminate, the class A front-end sales charge if: your initial investment exceeds a specified amount, your investment combined with the value of your existing Piper Funds investments (or a related account's investments) exceeds a specified amount or if your investments combined during a 13-month period exceed a specified amount. See your prospectus for details. Exchanging Shares If your investment goals or your financial needs change, you may move from one Piper fund to the same class of another Piper fund, if the shares of that fund are legally available in your state. There is no fee to exchange shares. Exchanges are generally made based on the net asset value per share of each fund at the time of the exchange. However, if your new fund has a higher sales charge, you must pay the difference. Taking Systematic Withdrawals If your account has a value of $5,000 or more, you may make automatic withdrawals from your account. You may withdraw $100 or more monthly, quarterly, or semiannually by authorizing the sale of the appropriate number of shares on a periodic basis. Reinvesting After a Sale If you sell class A shares, you may reinvest in class A shares of that fund or another Piper fund within 30 days without a sales charge. If you sell class B shares (or other shares subject to a CDSC) and elect to reinvest within 30 days, that charge will be credited to your account and the reinvested shares will continue to be subject to the CDSC. Confirmation of Transactions You receive a confirmation statement following every transaction, except in the money market funds. All transactions are reflected on your account statement. Account Statements Whenever you add to or withdraw from your account, you will receive a monthly statement from Piper Jaffray. Accounts with no activity receive a quarterly statement instead. Periodic dividend and capital gains distributions, if any, also appear on your statement. * An investment in a Piper money market fund is neither insured nor guaranteed by the U.S. government, and there can be no assurance that the fund will be able to maintain a stable net asset value of $1 per share. - -------------------------------------------------------------------------------- 35 1997 Annual Report - U.S. Growth Funds GLOSSARY OF TERMS*** - -------------------------------------------------------------------------------- Correction Reverse movement, usually downward, in the price of a stock. Initial public offering A corporation's first offering of stock to the public. Market capitalization The value of a company determined by multiplying the number of outstanding shares by the current market price of a share. Overweighted or overweighting In portfolio management, overweighting means a fund's portfolio contains a higher percentage of a certain sector than its benchmark. Sector Refers to a particular group of stocks, usually in one industry. Valued or valuation The determined or estimated value of a particular stock. *** - This symbol represents a graduation cap, used throughout this report to indicate terms defined in the glossary. - -------------------------------------------------------------------------------- 36 1997 Annual Report - U.S. Growth Funds DIRECTORS - -------------------------------------------------------------------------------- DAVID T. BENNETT, Chairman, Highland Homes, Inc., USL Products, Inc., Kiefer Built, Inc., of Counsel, Gray, Plant, Mooty, Mooty & Bennett, P.A. JAYE F. DYER, President, Dyer Management Company WILLIAM H. ELLIS, Retired President, Piper Jaffray Companies Inc., Piper Capital Management Incorporated KAROL D. EMMERICH, President, The Paraclete Group LUELLA G. GOLDBERG, Director, TCF Financial, ReliaStar Financial Corp., Hormel Foods Corp. DAVID A. HUGHEY, Retired Executive Vice President and Chief Administrative Officer of Dean Witter InterCapital Inc. and Dean Witter Trust Co. GEORGE LATIMER, Chief Executive Officer, National Equity Funds OFFICERS - -------------------------------------------------------------------------------- WILLIAM H. ELLIS, Chairman of the Board PAUL A. DOW, President ROBERT H. NELSON, Vice President and Treasurer SUSAN SHARP MILEY, Secretary INVESTMENT ADVISOR - -------------------------------------------------------------------------------- PIPER CAPITAL MANAGEMENT INCORPORATED 222 South Ninth Street, Minneapolis, MN 55402-3804 TRANSFER AND DIVIDEND DISBURSING AGENTS - -------------------------------------------------------------------------------- INVESTORS FIDUCIARY TRUST COMPANY 1004 Baltimore, Kansas City, MO 64105-1614 PIPER JAFFRAY INC. 222 South Ninth Street, Minneapolis, MN 55402-3804 PIPER TRUST COMPANY 222 South Ninth Street, Minneapolis, MN 55402-3804 CUSTODIAN AND ACCOUNTING AGENT - -------------------------------------------------------------------------------- INVESTORS FIDUCIARY TRUST COMPANY 801 Pennsylvania, Kansas City, MO 64105-1307 INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- KPMG PEAT MARWICK LLP 4200 Norwest Center, Minneapolis, MN 55402 LEGAL COUNSEL - -------------------------------------------------------------------------------- DORSEY & WHITNEY LLP 220 South Sixth Street, Minneapolis, MN 55402 FOR MORE INFORMATION By Phone [GRAPHIC] 800 866-7778 FOR GENERAL INFORMATION press 5, our Mutual Fund Services representatives are ready to answer your questions. TO ORDER LITERATURE press 5, ask a service representative to mail you additional literature, including a Quarterly Update. You can also request to be put on a mailing list to receive this information automatically each quarter. By Mail [GRAPHIC] Piper Capital Management Attn: Mutual Fund Services 222 South Ninth Street Minneapolis, MN 55402-3804 In an effort to reduce costs to our shareholders, we have implemented a process to reduce duplicate mailings of the funds' shareholder reports. This householding process should allow us to mail one report to each address where one or more registered shareholders with the same last name reside. If you would like to have additional reports mailed to your address, please call our Mutual Fund Services area at 800 866-7778, or mail a request to us. On-Line [GRAPHIC] http://www.piperjaffray.com/ U.S. GROWTH FUNDS INTERNATIONAL GROWTH FUNDS - -------------------------------------------------------------------------------- Emerging Markets Growth Fund Pacific-European Growth Fund U.S. GROWTH FUNDS - -------------------------------------------------------------------------------- Small Company Growth Fund Emerging Growth Fund Growth Fund GROWTH AND INCOME FUNDS - -------------------------------------------------------------------------------- Growth and Income Fund Balanced Fund INCOME FUNDS - -------------------------------------------------------------------------------- Government Income Fund Intermediate Bond Fund Adjustable Rate Mortgage Securities Fund TAX-EXEMPT INCOME FUNDS - -------------------------------------------------------------------------------- National Tax-Exempt Fund Minnesota Tax-Exempt Fund CASH MANAGEMENT FUNDS* - -------------------------------------------------------------------------------- Money Market Fund U.S. Government Money Market Fund Tax-Exempt Money Market Fund Institutional Money Market Fund Portfolios that offer the opportunity for long-term capital appreciation are valued by many investors for their potential to build wealth over time. Piper Funds provide you with the flexibility to help you pursue your financial goals. Among our funds, we offer a spectrum of investment objectives and convenient shareholder services to meet the varied needs of today's investors. Contact your Piper Jaffray Investment Executive for more information, including prospectuses, about the Piper Funds or call Mutual Fund Services at 800 866-7778. Please read the prospectuses carefully before investing or sending money. * An investment in a Piper money market fund is neither insured nor guaranteed by the U.S. government, and there can be no assurance that the fund will be able to maintain a stable net asset value of $1 per share. PIPER JAFFRAY INC., FUND DISTRIBUTOR AND NASD MEMBER. #10200 11/1997 265-97 - -------------------------------------------------------------------------------- [LOGO] 222 South Ninth Street Minneapolis, MN 55402-3804 Toll Free 1 800 866-7778 Bulk Rate U.S. Postage PAID Permit No. 3008 Mpls., MN -----END PRIVACY-ENHANCED MESSAGE-----