-----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, K4YNzOPMCSCPlwbSWyfG0IUM3V+pZ/tXmhtEj+/cSX5EN3pT+BEDahJksfbECmUS sHe5SBFtVOM0H4FpiyN48A== 0001047469-98-021735.txt : 19980527 0001047469-98-021735.hdr.sgml : 19980527 ACCESSION NUMBER: 0001047469-98-021735 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980526 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: 98631395 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIPER GLOBAL FUNDS INC /MN CENTRAL INDEX KEY: 0000860721 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 411663782 STATE OF INCORPORATION: MN FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-06046 FILM NUMBER: 98631396 BUSINESS ADDRESS: STREET 1: PIPER JAFFRAY TOWER STREET 2: 222 SOUTH NINTH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: 6123426387 MAIL ADDRESS: STREET 1: PIPER JAFFRAY TOWER STREET 2: 222 SOUTH NINTH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402 FORMER COMPANY: FORMER CONFORMED NAME: PACIFIC EUROPEAN GROWTH FUND INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIPER FUNDS INC II CENTRAL INDEX KEY: 0000943887 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MN FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-07279 FILM NUMBER: 98631397 BUSINESS ADDRESS: STREET 1: PIPER CAPITAL MANAGEMENT STREET 2: 222 S 9TH STREET 20TH FLOOR CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: 6123426412 MAIL ADDRESS: STREET 1: C/O PIPER CAPITAL MANAGEMENT STREET 2: 222 59TH STREET 20TH FLOOR CITY: MINNEAPOLIS STATE: MN ZIP: 55402 FORMER COMPANY: FORMER CONFORMED NAME: JAFFRAY FUNDS INC DATE OF NAME CHANGE: 19950413 N-30D 1 N-30D 1998 Semiannual Report [LOGO] THE PIPER FAMILY OF 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 [LOGO] CONTENTS INTERNATIONAL GROWTH FUNDS Emerging Markets Growth Fund . . . . . . . . . . . . . . . . . . . . . . .2 Pacific-European Growth Fund . . . . . . . . . . . . . . . . . . . . . . .5 U.S. GROWTH FUNDS Small Company Growth Fund. . . . . . . . . . . . . . . . . . . . . . . . 25 Emerging Growth Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Growth Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 GROWTH AND INCOME FUNDS Growth and Income Fund . . . . . . . . . . . . . . . . . . . . . . . . . 50 Balanced Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 INCOME FUNDS Government Income Fund . . . . . . . . . . . . . . . . . . . . . . . . . 70 Intermediate Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . 72 Adjustable Rate Mortgage Securities Fund . . . . . . . . . . . . . . . . 74 TAX-EXEMPT INCOME FUNDS National Tax-Exempt Fund . . . . . . . . . . . . . . . . . . . . . . . . 93 Minnesota Tax-Exempt Fund. . . . . . . . . . . . . . . . . . . . . . . . 96 GLOSSARY *** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116 This report is intended for shareholders of The Piper Funds, 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. Dear Shareholders - -------------------------------------------------------------------------------- Financial markets have not only continued the strength of the past few years, they've actually accelerated their rate of gain. During just the first quarter of 1998, for example, the Standard & Poor's 500 Index generated a total return of 13.94%* -- its third highest quarterly return in the past 10 years. This compares to its previous quarter return, a much lower 2.87%.* This acceleration is quite surprising, given the uncertainty of the impact of the Asian crisis on the U.S. economy and the slowdown in expected corporate profit growth. Inflation has continued to trend downward, and interest rates declined only slightly during the period. As we look to the future, we do anticipate the economy will slow. We believe the Asian crisis ultimately will have some negative impact on the U.S. economy, be it from lower demand for American goods or increased pricing pressures from competing Asian goods. Additionally, the Federal Reserve has maintained a relatively high level of short-term interest rates even as inflation has continued to decline. The real return of Fed funds at slightly over 4% is the highest real return since the 1980s. The term structure of the fixed income market continues to be relatively flat, with the difference in yields between 30-year Treasury bonds and three-month Treasury bills at approximately 0.7%. Justifying stock market returns like these on the basis of fundamental analysis continues to be extremely difficult. Price to earnings multiples in the mid-20s are clearly at the top end of the historical average. Even with the almost perfect investment environment, further gains do appear limited, particularly given the slowdown in overall corporate earnings to an anemic yearly rate of change of less than 3% as of March 31. If the stock market is to continue to move up, it appears investors must be willing to accept higher valuation multiples. *** - This symbol represents a graduation cap, used throughout this report to indicate terms defined in the glossary. - -------------------------------------------------------------------------------- [PHOTO] PAUL A. DOW, CFA - -------------------------------------------------------------------------------- Senior Managing Director HOLDING A LONG-TERM VIEW This environment has caused us to to keep Piper Funds' investment strategies neutral to relative market benchmarks. In fixed income markets, we anticipate only small changes in interest rates for the foreseeable future, which provides little opportunity for capital appreciation in bond prices. In large stocks, we continue to seek out companies that we believe are relatively undervalued, given their future growth prospects, and we continue to seek and focus on small and mid-sized companies with high growth prospects and solid fundamentals. We believe this is a time for investors to reaffirm their investment goals and risk tolerances, and position their portfolios at comfortable levels. You may be assured that we understand the importance of a long-term investment horizon. Even in this ever-changing market environment, we stand firm in our belief that maintaining sound, disciplined investment strategies is essential to achieving consistent, competitive performance. GOING FORWARD On May 1, U.S. Bancorp acquired Piper Jaffray Companies, the parent company of the funds' investment advisor. As a result of the acquisition, the Piper Funds board of directors has recommended the reorganization of the funds into the First American family of funds. This family is managed by First American Asset Management, -> [LOGO] the asset management division of U.S. Bank National Association. As shareholders, you have the right to vote on this reorganization of your funds, and we encourage you to do so. Please read your proxy materials - -> [GRAPHIC] carefully. If you have any questions, please contact your investment executive or call Mutual Fund Services at 800 866-7778. Sincerely, /s/ Paul A. Dow - ------------------------ Paul A. Dow Senior Managing Director * The S&P 500 is an unmanaged index of large-capitalization stocks. Past performance does not guarantee future results. - -------------------------------------------------------------------------------- INTERNATIONAL GROWTH - -------------------------------------------------------------------------------- [PHOTO] RICHARD MUCKART is investment director and head of emerging markets investing at Edinburgh Fund Managers plc and manager of Emerging Markets Growth Fund. He has 26 years of financial experience. - -------------------------------------------------------------------------------- EMERGING MARKETS GROWTH FUND - -------------------------------------------------------------------------------- May 17, 1998 - -------------------------------------------------------------------------------- DEAR SHAREHOLDERS: EMERGING MARKETS GROWTH FUND CLASS A RETURNED -10.85% FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1998, WHICH INCLUDES REINVESTED DISTRIBUTIONS BUT NOT THE FUND'S SALES CHARGE.* This compares to a -12.41% return for the MSCI Emerging Markets Free Index+ and a -12.86% for the Lipper Emerging Markets Funds Average++ over the same time period. The economic and currency crisis in Asia that spilled over to most emerging markets was largely responsible for the fund's investment results. The fund outperformed its respective benchmark by maintaining an overweighted*** position in Latin America, which recorded relatively good investment results over the past six months. THE ECONOMIC AND CURRENCY CRISIS IN SOUTHEAST ASIA THAT SURFACED LATE LAST YEAR WAS THE MOST SIGNIFICANT EVENT DURING THE PERIOD. The crisis caused investors to grow concerned about the prospects for global deflation, sending most Asian markets into a steep decline. The Asian turmoil also had a negative impact on established markets, including the United States. When it became apparent that the problems in southeast Asia would have a significant impact on markets within the region, we reduced the fund's exposure there, which helped preserve shareholder capital. LATIN AMERICAN MARKETS WERE AFFECTED BY THE ASIAN SITUATION BUT FARED MUCH BETTER THAN THEIR COUNTERPARTS ALONG THE PACIFIC RIM. After the crisis hit, Latin American markets were relatively quiet, - -------------------------------------------------------------------------------- PERFORMANCE THROUGH MARCH 31, 1998* - -------------------------------------------------------------------------------- Growth of $10,000 Invested Since Inception [GRAPH]
Emerging Markets Growth Lipper Fund Class A, reflects the MSCI Emerging Emerging Markets fund's maximum 4% Markets Free Funds sales charge Index+ Average++ 9600 10000 10000 9580.8 10000 10000 10608 11653 11482.8 11644.8 11865 11974 11481.6 11653.9 11670.5 10454.4 10599.4 10694.1 9158.4 10387.3 10294.2 9408 10742.8 10496.6 8774.4 10446.7 10033.7 9436.8 11096.3 10653.1 10867.2 12473.5 11815 11443.2 12615.2 12039.1 10905.6 12387.7 11780.3 10550.4 11743.6 11285.9 8688 10800.4 10299 7267.2 9651.32 9162.75 6316.8 9403.78 8862.66 6009.6 9463.52 8876.73 6864 9888.07 9256.67 6777.6 10414.1 9643.2 6912 10444.9 9673.2 6998.4 10679.4 9980.6 7075.2 10427.8 9763.42 7008 10378.3 9707.99 6691.2 9981.04 9275.56 6537.6 9803.05 9040.05 6796.8 10237.8 9347.71 8025.6 10965.5 10245 7708.8 10791.2 10098.1 7622.4 10875.3 10170.9 8150.4 11310.1 10532.1 8515.2 11259.6 10640.9 8486.4 11329.9 10643.5 8112 10555.6 10025.4 8409.6 10825.8 10300.5 8496 10919.5 10382.3 8380.8 10628.3 10127.1 8534.4 10806.4 10319.8 8788.89 10855.3 10461.7 9422.84 11595.6 11232.9 9711 12092.4 11613.4 9576.52 11774.6 11295.1 9605.34 11795.5 11280.3 10037.6 12133 11674.4 10652.3 12782.4 12191 11142.2 12973.2 12606 9816.66 11322.4 11157.8 10575.5 11636.1 11604.3 8606.38 9726.74 9639.42 8615.99 9371.84 9277.73 8676.84 9597.68 9376.41 7954.57 8845.31 8629.09 8840.55 9768.13 9331.41 9428 10192 9724.74
+ The Morgan Stanley Capital International (MSCI) Emerging Markets Free Index is an unmanaged index of securities from emerging markets that are open to foreign investors, that includes no expenses or transaction charges. ++ 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 -5.49% - -------------------------------------------------------------------------------- Three Year 14.61% - -------------------------------------------------------------------------------- Since Inception (11/9/93) -1.33% - -------------------------------------------------------------------------------- CLASS B AVERAGE ANNUAL TOTAL RETURNS Includes the fund's maximum 4% contingent deferred sales charge One Year -6.51% - -------------------------------------------------------------------------------- Since Inception (2/18/97) -7.29% - --------------------------------------------------------------------------------
* 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. Performance prior to June 21, 1996, is that of Hercules Latin American Value Fund, the fund's predecessor. International investing involves risks not typically associated with U.S. investing, including currency fluctuations, political instability and different accounting standards. Risks are particularly significant when investing in emerging markets. 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. *** - This symbol represents a graduation cap, used throughout this report to indicate terms defined in the glossary. - -------------------------------------------------------------------------------- 2 1998 Semiannual Report - Piper Funds - -------------------------------------------------------------------------------- INTERNATIONAL GROWTH - -------------------------------------------------------------------------------- EMERGING MARKETS GROWTH FUND (continued) - -------------------------------------------------------------------------------- as emerging market investors focused their attention on the Pacific Rim in search of good values following the sharp selloff. Late in the period, however, generally strong earnings growth, ongoing economic reforms and good performance on the inflation front helped some Latin American markets recover, most notably Brazil. Signs that the Brazilian government was taking serious steps to bolster the country's sagging economy and ongoing privatization helped fuel the rally. The fund was overweighted in these markets, compared to its benchmark, which helped its performance. THE FUND'S EXPOSURE TO EASTERN EUROPE AND AFRICA MANAGED TO SOFTEN THE BLOW OF THE ASIAN CRISIS. Poland and Greece were among the better performers, particularly during the last three months of the period. Poland's advance was fueled by strong fundamentals, such as a solid economy and improving corporate earnings. In Greece, investors reacted favorably to the government's decision to devalue *** the currency relative to a basket of European currencies. Ghana, one of the world's smallest equity markets, also recorded strong investment results. Three stocks in this region that registered solid investment results for the fund were, OTP, one of Hungary's leading banks (3.9% of total assets as of March 31, 1998), Al-Ahran Beverages in Egypt (3.9%) and Goody's, a food company in Greece (3.3%). Each company benefited from solid earnings growth. ANOTHER SMALL MARKET THAT CONTRIBUTED FAVORABLY TO THE FUND'S INVESTMENT RESULTS WAS RUSSIA. Last year, Russia was one of the world's best performing markets. A favorable, though somewhat uncertain political environment coupled with strong earnings growth by established corporations that have benefited from the country's changing economic environment lifted stock prices. One of the fund's better performing stocks in Russia was Vimpel-Communications (2.9%), a leading cellular telephone company. As long as President Yeltsin remains in power, we believe the prospects for Russian equities, on balance, appear favorable. OUR OUTLOOK FOR THE SOUTHEAST ASIAN MARKETS REMAINS CAUTIOUS. The recent bounce back in some key markets, such as Malaysia, is a positive sign. However, since the full impact of Asia's economic problems is still uncertain, further market volatility is anticipated. Weakness in the Japanese yen, which is a possibility given the country's fragile economic condition, may also put Asian currencies
TOP 10 HOLDINGS - ------------------------------------------------------------------------------------------------------------------------------------ As a percentage of total assets on March 31, 1998 COMPANY SECTOR COUNTRY 1 OTP Bank GDR Banking & Financial Services Hungary 3.9% - ------------------------------------------------------------------------------------------------------------------------------------ 2 Al-Ahram Beverages GDR Brewing & Distilling Egypt 3.9% - ------------------------------------------------------------------------------------------------------------------------------------ 3 Fomento Economico Mexicano Class B Food & Beverage Mexico 3.7% - ------------------------------------------------------------------------------------------------------------------------------------ 4 Centrais Eletricas Brasileiras (Electrobras) Utilities Brazil 3.3% - ------------------------------------------------------------------------------------------------------------------------------------ 5 Goody's Food & Beverage Greece 3.3% - ------------------------------------------------------------------------------------------------------------------------------------ 6 Cemex Class B Construction Materials Mexico 3.2% - ------------------------------------------------------------------------------------------------------------------------------------ 7 Petroleo Brasileiro Oil & gas Brazil 3.0% - ------------------------------------------------------------------------------------------------------------------------------------ 8 Corporacion GEO Class B Real Estate Mexico 3.0% - ------------------------------------------------------------------------------------------------------------------------------------ 9 Cervecerias Unidas ADR Brewing & Distilling Chile 3.0% - ------------------------------------------------------------------------------------------------------------------------------------ 10 Vimpel-Communications ADR Telecommunications Russia 2.9% - ------------------------------------------------------------------------------------------------------------------------------------
*** - This symbol represents a graduation cap, used throughout this report to indicate terms defined in the glossary. - -------------------------------------------------------------------------------- 3 1998 Semiannual Report - Piper Funds - -------------------------------------------------------------------------------- INTERNATIONAL GROWTH - -------------------------------------------------------------------------------- EMERGING MARKETS GROWTH FUND (continued) - -------------------------------------------------------------------------------- under pressure. Since valuations are generally attractive in Asia, we intend to use any major market downturns to increase selectively our exposure in the region. OUR FORECAST FOR LATIN AMERICAN MARKETS IS SOMEWHAT OPTIMISTIC. While any additional problems in Asia may affect Latin American markets, we do not believe they will have a long-term impact on the region. Most economies in Latin America are improving, and corporate earnings growth is much stronger than in Asia. Once investors get beyond the fear caused by the Asian crisis, we believe Latin American equities will again be in favor. Thank you for your investment in Emerging Markets Growth Fund. As always, we will continue to maintain a well-diversified portfolio to reduce risk and enhance growth potential in helping you seek your long-term investment goals. Sincerely, /s/ Richard Muckart - ------------------- Richard Muckart Portfolio Manager - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION BY COUNTRY - -------------------------------------------------------------------------------- [MAP] As a percentage of total assets on March 31, 1998 Greece 3% - -------------------------------------------------------------------------------- Hungary 5% - -------------------------------------------------------------------------------- Turkey 1% - -------------------------------------------------------------------------------- Russia 6% - -------------------------------------------------------------------------------- Ghana 4% - -------------------------------------------------------------------------------- South Africa 8% - -------------------------------------------------------------------------------- Egypt 4% - -------------------------------------------------------------------------------- Lebanon 5% - -------------------------------------------------------------------------------- India 4% - -------------------------------------------------------------------------------- Indonesia 1% - -------------------------------------------------------------------------------- Malaysia 1% - -------------------------------------------------------------------------------- Thailand 1% - -------------------------------------------------------------------------------- Papua New Guinea 2% - -------------------------------------------------------------------------------- Philippines 2% - -------------------------------------------------------------------------------- China (Hong Kong) 3% - -------------------------------------------------------------------------------- Taiwan 1% - -------------------------------------------------------------------------------- Mexico 17% - -------------------------------------------------------------------------------- Chile 5% - -------------------------------------------------------------------------------- Argentina 5% - -------------------------------------------------------------------------------- Brazil 19% - --------------------------------------------------------------------------------
Other assets of 3% are not included in the chart. - -------------------------------------------------------------------------------- 4 1998 Semiannual Report - Piper Funds - -------------------------------------------------------------------------------- INTERNATIONAL GROWTH - -------------------------------------------------------------------------------- PACIFIC-EUROPEAN GROWTH FUND - -------------------------------------------------------------------------------- [PHOTO] RICHARD MUCKART is investment director and head of emerging markets investing at Edinburgh Fund Managers plc and manager of Pacific-European Growth Fund. He has 26 years of financial experience. - -------------------------------------------------------------------------------- May 17, 1998 - -------------------------------------------------------------------------------- DEAR SHAREHOLDERS: FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1998, PACIFIC-EUROPEAN GROWTH FUND CLASS A PRODUCED A TOTAL RETURN OF 4.51%, WITH ALL DISTRIBUTIONS REINVESTED, BUT NOT INCLUDING THE FUND'S SALES CHARGE.* Over the same time frame, the MSCI European, Australian, Far East (EAFE) Index+, the fund's benchmark, *** returned 5.87% and the Lipper International Funds Average++ returned 5.9%. The fund's underperformance was largely due to its exposure to Pacific Basin stocks, which, on balance, registered lower investment results than those recorded by their European counterparts. JAPANESE STOCKS DETRACTED FROM THE FUND'S INVESTMENT RESULTS, AS THE COUNTRY'S WEAK ECONOMY CONTINUED TO IMPACT JAPANESE STOCK VALUES. After struggling through the last three months of 1997, the Japanese stock market rallied in January on reports the government was taking serious steps to stimulate the economy. However, when the government failed to introduce a meaningful economic package, the market gave back virtually all of those early-year gains in February and March. Our decision to reduce the fund's weighting in Japan during the January rally helped enhance the fund's performance. THE FUND'S OVERWEIGHTED POSITIONS IN THE UNITED KINGDOM, FRANCE AND ITALY CONTRIBUTED FAVORABLY TO ITS INVESTMENT RESULTS. During the period, all three markets recorded solid performance. One stock that PERFORMANCE THROUGH MARCH 31, 1998* Growth of $10,000 Invested Since Inception [GRAPH]
Pacific-European Growth Lipper Fund Class A, reflects the International fund's maximum 4% MSCI EAFE Funds sales charge Index+ Average++ 9635 10000 10000 9775.02 11144.1 10741 9792.53 11048.6 10969.4 8934.91 11207.1 11399.4 9031.18 10121.8 10202.3 7884.78 8714.13 9042.44 8348.59 10074.8 9770.56 8121.06 9483.33 9518.72 8346.85 9640.65 9490.61 8579.7 9955.19 9742.52 9117.05 11025.3 10498.4 9269.3 10366.1 10203.4 9349.9 10470.9 10316.5 9502.15 10583.2 10425.4 9072.27 9808.34 9892.44 9233.48 10292.9 10338.7 8946.89 10086.4 10269.6 8902.11 10657.9 10579.5 8830.46 10811.6 10620.9 8866.29 10309.8 10238 9286.3 10845.4 10728.6 9485.23 10617 10838.2 9521.4 10239.9 10862.4 9204.92 9566.7 10499.1 9241.09 9614.6 10791.4 9919.26 10261.1 11312.7 9765.54 9777.82 11007.9 9096.42 9530.7 10615.3 9141.63 10131.7 10649.5 9186.84 9934.87 10429.8 9440.02 9416.75 10131.5 9213.97 9508.26 10178.5 9204.92 9560.32 10314.6 9458.11 9562 10361.8 9774.58 9853.67 10606.6 10054.9 10715.4 11196.9 10823.5 11735.3 11757.1 10977.2 11986 11989.8 10742.1 11801.8 11758 10950.1 12217.6 12115.1 11510.7 12879.9 12907.5 11610.1 12592.8 12892.9 12396.8 12983.7 13518.8 12225 11851.5 13021.6 13839.8 12710 14352 14411.9 13787.3 15168.9 14021.4 13751.9 14805 13167.8 13162.5 14100.7 13694.5 13723.9 14471.1 13785.3 13648.1 14447.7 13640 13844 14263.5 13921.5 13980.2 14667.5 14475.5 14314.2 15136 14148.5 13866.5 14799.5 14302.9 14331.5 15074.3 13413 13645.9 14360.6 13426.9 13734.5 14168.1 12476.9 13210.2 13464.7 12467.1 13175.7 13532.7 13172.2 14001.1 14009.9 13338.7 14531.4 14475.1 13299.6 14362 14636.5 13035.1 14113.9 14657.8 13906.8 14996.4 15433.6 13671.7 14428 15114.6 13632.5 14713.9 15389.4 13368.1 14321.8 15098.5 13622.8 14724 15257.3 14233.8 15321 15706.9 14706.2 15387.6 16034.3 14548.8 15443.4 16105.7 14811.2 15775.3 16365.6 15273 16237.8 16850.3 14853.2 15942.9 16809.7 14837.9 16036.5 16952.9 14108.1 15571.9 16371.4 13920.2 15610 16582.8 14307.2 16028.6 16936.3 13842.3 15868.6 16866.3 14306 16504 17641.3 14086 16295.6 17759.5 13926.9 15729 17691.8 14256.4 15990.1 17970.8 14086 16052 18012.3 13995.1 16141 18078.2 15051.5 17195.4 19122.8 15856.3 18147.6 20020.3 15969.9 18444.8 20626.2 14446.8 17071.1 19111 15344.8 18031.3 20351 14105.8 16649.3 18845.1 14049 16483.4 18715.9 14166.9 16630.9 18937.1 14691.2 17396 19369.4 15406.1 18515.6 20616.1 16037.6 19089.9 21654.2
++ The average total return, not including sales charges, of similar funds as characterized by Lipper Analytical Services. + The Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged index of securities listed on the stock exchanges of Europe, Australia and the Far East that includes no expenses or transaction charges. - -------------------------------------------------------------------------------- CLASS A AVERAGE ANNUALIZED TOTAL RETURNS Includes the fund's maximum 4% front-end sales charge One Year 9.30% - -------------------------------------------------------------------------------- Five Year 8.89% - -------------------------------------------------------------------------------- Since Inception (4/27/90) 6.14% - -------------------------------------------------------------------------------- CLASS B & Y AVERAGE ANNUAL 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 One Year 9.14% - -------------------------------------------------------------------------------- Class B Since Inception (2/18/97) 6.98% - -------------------------------------------------------------------------------- Class Y One Year 14.34% - -------------------------------------------------------------------------------- Class Y Since Inception (2/18/97) 11.59% - --------------------------------------------------------------------------------
* 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. Performance prior to its conversion to an open-end fund on August 31, 1992, is based on its experience as a closed-end fund. International investing involves risks not typically associated with U.S. investing, including currency fluctuations, political instability and different accounting standards. 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. - -------------------------------------------------------------------------------- 5 1998 Semiannual Report - Piper Funds - -------------------------------------------------------------------------------- INTERNATIONAL GROWTH - -------------------------------------------------------------------------------- PACIFIC-EUROPEAN GROWTH FUND (continued) - -------------------------------------------------------------------------------- contributed favorably to the fund's investment results was Lloyds TSB (1.8% of total assets as of March 31,1998), a premier main street bank in London with solid earnings growth. The fund also benefited from its exposure to financial and consumer stocks in the Netherlands. SEVERAL ASIAN MARKETS SUFFERED DUE TO THE ECONOMIC AND CURRENCY CRISIS THAT SWEPT THE REGION BEGINNING LATE OCTOBER. Late in the period, many of the Asian markets rebounded from the market fallout. However, several markets continued to struggle, most notably Indonesia. The fund's investments in Hong Kong and Australia, two markets that outperformed the average performance in the region, proved to be a positive defensive move in an otherwise difficult environment. LATIN AMERICA WAS NEGATIVELY IMPACTED BY THE PROBLEMS IN ASIA, BUT MANY MARKETS REBOUNDED EARLY IN 1998. In this environment, the fund's relatively small position in Latin America contributed positively to investment results. LOOKING AHEAD, OUR OUTLOOK FOR JAPANESE STOCKS REMAINS TENUOUS. The government does not appear to be ready to introduce a bona fide economic stimulus package. Additionally, any deepening of the financial crisis in Asia is likely to have an impact on Japan's economy and its financial markets. Given this forecast, we intend to maintain our underweighted*** exposure in Japan and may continue to use significant upturns in the Japanese market to reduce our weighting further. OUR OUTLOOK FOR CONTINENTAL EUROPE IS FAVORABLE. Generally good economic conditions, benign inflation and low interest rates should serve as a strong foundation for higher equity prices on the continent. Additionally, the wave of restructurings is expected to continue, which should translate to improving corporate earnings. Finally, the fact that the continent is still on target to achieve economic union by January 1, 1999, should bode well for European equities. - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION BY REGION - -------------------------------------------------------------------------------- [GRAPH] As a percentage of total assets on March 31, 1998
Pacific-European MSCI EAFE Growth Fund Index+ - -------------------------------------------------------------------------------- Europe 69 71 - -------------------------------------------------------------------------------- Japan 20 22 - -------------------------------------------------------------------------------- Other Pacific Basin 6 7 - -------------------------------------------------------------------------------- Latin America 2 0 - -------------------------------------------------------------------------------- Other Assets 2 0 - -------------------------------------------------------------------------------- Short-Term 1 0 - --------------------------------------------------------------------------------
+ The Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged index of securities listed on the stock exchanges of Europe, Australia and the Far East that includes no expenses or transaction charges. - -------------------------------------------------------------------------------- TOP 10 EQUITY HOLDINGS - -------------------------------------------------------------------------------- As a percentage of total assets on March 31, 1998
COMPANY SECTOR COUNTRY 1 Koninklijke Ahold NV Food-Retail Netherlands 3.0% - --------------------------------------------------------------------------------------------- 2 Astra Class A Pharmaceuticals Sweden 3.0% - --------------------------------------------------------------------------------------------- 3 Verenigde Nederlandse Uitgeversbedrijven Verenigd Bezit(VNU) Printing & Publishing Netherlands 3.0% - --------------------------------------------------------------------------------------------- 4 Novartis Pharmaceuticals Switzerland 2.9% - --------------------------------------------------------------------------------------------- 5 Mannesmann Industrial Machinery Germany 2.9% - --------------------------------------------------------------------------------------------- 6 Telecom Italia Spa Telecommunications Italy 2.8% - --------------------------------------------------------------------------------------------- 7 Schneider Electronics France 2.7% - --------------------------------------------------------------------------------------------- 8 Union Bank of Switzerland Banking & Class B Financial Services Switzerland 2.7% - --------------------------------------------------------------------------------------------- 9 Total Class B Oil & Gas France 2.7% - --------------------------------------------------------------------------------------------- 10 Rhone-Poulenc Class A Chemicals France 2.7% - ---------------------------------------------------------------------------------------------
*** - This symbol represents a graduation cap, used throughout this report to indicate terms defined in the glossary. - -------------------------------------------------------------------------------- 6 1998 Semiannual Report - Piper Funds - -------------------------------------------------------------------------------- INTERNATIONAL GROWTH - -------------------------------------------------------------------------------- Pacific-European Growth Fund (continued) - -------------------------------------------------------------------------------- WE INTEND TO MAINTAIN A CAUTIOUS INVESTMENT POSTURE IN THE PACIFIC BASIN. Countries are still struggling to rebound from the severe crisis that gripped the region late last year. While the Asian financial crisis has not had a serious impact on key financial markets outside the region in recent months, it continues to pose a serious threat to the global economy. We intend to maintain a heavy weighting in countries unlikely to be affected by another major fallout, most notably Australia. We also believe stock selection will be critically important in achieving solid returns throughout the Pacific Basin. Thank you for your investment in Pacific-European Growth Fund. As always we will continue to focus our efforts on finding high-quality, financially sound companies with above-average growth prospects in seeking the fund's long-term investment goal. Sincerely, /s/ Richard Muckart - ------------------- Richard Muckart Portfolio Manager - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION BY COUNTRY - -------------------------------------------------------------------------------- [MAP] As a percentage of total assets on March 31, 1998 - -------------------------------------------------------------------------------- France 12% - -------------------------------------------------------------------------------- Europe 68% - -------------------------------------------------------------------------------- Pacific Basin 6% - -------------------------------------------------------------------------------- Japan 20% - -------------------------------------------------------------------------------- Latin America 3% - -------------------------------------------------------------------------------- United Kingdom 24% - -------------------------------------------------------------------------------- Sweden 5% - -------------------------------------------------------------------------------- Hong Kong 1% - -------------------------------------------------------------------------------- Australia 3% - -------------------------------------------------------------------------------- Mexico 1% - -------------------------------------------------------------------------------- Netherlands 8% - -------------------------------------------------------------------------------- Germany 5% - -------------------------------------------------------------------------------- Denmark 2% - -------------------------------------------------------------------------------- Switzerland 7% - -------------------------------------------------------------------------------- Italy 5% - -------------------------------------------------------------------------------- Singapore 1% - -------------------------------------------------------------------------------- Brazil 1% - -------------------------------------------------------------------------------- Argentina 1% - -------------------------------------------------------------------------------- Papua New Guinea 1% - --------------------------------------------------------------------------------
Short-term assets of 1% and other assets of 2% are not included in the chart. - -------------------------------------------------------------------------------- 1998 Semiannual Report - Piper Funds Financial Statements (Unaudited) - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES March 31, 1998 ................................................................................
EMERGING MARKETS PACIFIC-EUROPEAN GROWTH FUND GROWTH FUND ------------ ------------- ASSETS: Investments in securities at market value* (including repurchase agreements of $222,000 and $451,000, respectively) (note 2) ................................... $12,598,718 $ 59,355,920 Cash in bank on demand deposit ............................. 36,266 20,934 Foreign cash in bank on demand deposit ..................... 1,686 643 Receivable for investment securities sold .................. -- 677,390 Receivable for fund shares sold ............................ 1,252 3,430 Net unrealized appreciation of forward foreign currency contract held (note 5) ................................... -- 89 Organization costs ......................................... 15,006 -- Dividends and accrued interest receivable .................. 43,760 321,371 ------------ ------------- Total assets ............................................. 12,696,688 60,379,777 ------------ ------------- LIABILITIES: Payable for investment securities purchased ................ -- 673,985 Payable for fund shares redeemed ........................... 39,962 23,003 Accrued investment management fee .......................... 10,452 50,316 Accrued distribution and service fees ...................... 3,297 14,474 ------------ ------------- Total liabilities ........................................ 53,711 761,778 ------------ ------------- Net assets applicable to outstanding capital stock ....... $12,642,977 $ 59,617,999 ------------ ------------- ------------ ------------- COMPOSITION OF NET ASSETS: Capital stock and additional paid-in capital ............... $17,540,139 $ 52,097,497 Distributions in excess of net investment income ........... (146,412) (250,700) Accumulated net realized loss on investments and foreign currency translations .................................... (7,283,761) (5,181,395) Unrealized appreciation of investments and on translation of other assets and liabilities denominated in foreign currencies ............................................... 2,533,011 12,952,597 ------------ ------------- Total - representing net assets applicable to outstanding capital stock .......................................... $12,642,977 $ 59,617,999 ------------ ------------- ------------ ------------- * Investments in securities at identified cost ............. $10,065,537 $ 46,390,805 ------------ ------------- ------------ ------------- NET ASSET VALUE AND OFFERING PRICE: CLASS A: Net assets ................................................. $12,358,985 $ 56,858,230 Shares outstanding (authorized 800 million shares of $0.01 par value) ............................................... 1,261,810 4,225,204 Net asset value ............................................ $ 9.79 $ 13.46 Maximum offering price per share (net asset value plus 4% of offering price) .......................................... $ 10.20 $ 14.02 CLASS B: Net assets ................................................. $ 283,992 $ 80,845 Shares outstanding (authorized 400 million shares of $0.01 par value) ............................................... 29,348 6,042 Net asset value and offering price per share ............... $ 9.68 $ 13.38 CLASS Y: Net assets ................................................. -- $ 2,678,924 Shares outstanding (authorized 200 million shares of $0.01 par value) ............................................... -- 198,892 Net asset value and offering price per share ............... -- $ 13.47
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 8 Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS For the Six Months Ended March 31, 1998 ................................................................................
EMERGING MARKETS PACIFIC-EUROPEAN GROWTH FUND GROWTH FUND ------------ ------------- INCOME: Dividends (net of foreign withholding taxes of $6,213 and $40,015, respectively) ................................... $ 36,974 $ 344,339 Interest ................................................... 12,918 24,975 ------------ ------------- Total income ............................................. 49,892 369,314 ------------ ------------- EXPENSES (NOTE 6): Investment management fee .................................. 66,201 282,894 Distribution and service fees: CLASS A .................................................. 32,433 154,730 CLASS B .................................................. 1,335 303 CLASS Y .................................................. -- -- Custodian and accounting fees .............................. 20,319 90,224 Transfer agent and dividend disbursing agent fees .......... 18,895 53,496 Registration fees .......................................... 13,520 18,284 Reports to shareholders .................................... 15,947 32,004 Amortization of organization costs ......................... 8,925 -- Directors' fees ............................................ 4,613 4,613 Audit and legal fees ....................................... 29,989 36,734 Other expenses ............................................. 3,710 1,130 ------------ ------------- Total expenses ........................................... 215,887 674,412 Less Class A expenses waived by the distributor ........ (11,598) (55,363) Less expenses waived by the advisor .................... (72,526) -- ------------ ------------- Net expenses before expenses paid indirectly ............. 131,763 619,049 Less expenses paid indirectly .......................... (2,604) -- ------------ ------------- Total net expenses ....................................... 129,159 619,049 ------------ ------------- Net investment loss ...................................... (79,267) (249,735) ------------ ------------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND FOREIGN CURRENCY: Net realized gain (loss) on: Investments (note 3) ....................................... (1,542,808) 548,578 Foreign currency transactions .............................. (68,676) (137,454) ------------ ------------- Net realized gain (loss) on investments and foreign currency ............................................... (1,611,484) 411,124 Net change in unrealized appreciation or depreciation of investments and on translation of other assets and liabilities denominated in foreign currencies ............ (349,736) 272,947 ------------ ------------- Net gain (loss) on investments and foreign currency ...... (1,961,220) 684,071 ------------ ------------- Net increase (decrease) in net assets resulting from operations ........................................... $(2,040,487) $ 434,336 ------------ ------------- ------------ -------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 9 Financial Statements (continued) - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS ................................................................................
EMERGING MARKETS GROWTH FUND PACIFIC-EUROPEAN GROWTH FUND ----------------------------- ----------------------------- Six Months Six Months Ended 3/31/98 Year Ended Ended 3/31/98 Year Ended (Unaudited) 9/30/97 (Unaudited) 9/30/97 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income (loss) ............................... $ (79,267) $ 27,411 $ (249,735) $ (235,371) Net realized gain (loss) on investments and foreign currency transactions ............................................. (1,611,484) 1,104,511 411,124 864,543 Net change in unrealized appreciation or depreciation of investments and on translation of other assets and liabilities denominated in foreign currencies ............ (349,736) 2,200,606 272,947 6,160,316 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations ............................................. (2,040,487) 3,332,528 434,336 6,789,488 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS: CLASS A: From net investment income ............................... (32,739) (7,719) (2,760,093) (306,934) From net realized gains .................................. -- -- -- (4,156,148) CLASS B: From net investment income ............................... (534) -- (2,708) (30) From net realized gains .................................. -- -- -- -- CLASS Y: From net investment income ............................... -- -- (305,298) (11,223) From net realized gains .................................. -- -- -- -- ------------- ------------- ------------- ------------- Total distributions ...................................... (33,273) (7,719) (3,068,099) (4,474,335) ------------- ------------- ------------- ------------- CAPITAL SHARE TRANSACTIONS (NOTE 4): CLASS A .................................................... (2,600,123) (88,308) (20,388,759) (94,756,049) CLASS B .................................................... 8,718 299,743 24,174 53,014 CLASS Y .................................................... -- -- (11,302,630) 13,853,189 ------------- ------------- ------------- ------------- Increase (decrease) in net assets from capital share transactions ........................................... (2,591,405) 211,435 (31,667,215) (80,849,846) ------------- ------------- ------------- ------------- Total increase (decrease) in net assets .................. (4,665,165) 3,536,244 (34,300,978) (78,534,693) Net assets at beginning of period .......................... 17,308,142 13,771,898 93,918,977 172,453,670 ------------- ------------- ------------- ------------- Net assets at end of period ................................ $12,642,977 $ 17,308,142 $ 59,617,999 $ 93,918,977 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Undistributed (distributions in excess of) net investment income ................................................... $ (146,412) $ (33,872) $ (250,700) $ 3,067,134 ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 10 Notes to Financial Statements (Unaudited) - -------------------------------------------------------------------------------- (1) ORGANIZATION ................................ Piper Global 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 outstanding two series (the funds): Emerging Markets Growth Fund and Pacific-European Growth Fund, which are classified as non-diversified and diversified series, respectively. 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 Pacific-European 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. Emerging Markets Growth Fund invests primarily in common stocks of emerging securities markets. Emerging securities markets can be found in regions such as Latin America, Asia, Eastern Europe, the Middle East and Africa. Pacific-European Growth Fund invests primarily in the Pacific Basin (for example, Japan, Hong Kong, Malaysia, Singapore or Thailand) and Europe (including Eastern Europe). Pacific-European Growth Fund acquired the net assets of Hercules European Value Fund and Hercules Pacific Basin Value Fund on June 21, 1996, via a tax-free reorganization. (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 readily available, or if such quotations or valuations are believed to be inaccurate, unreliable or not reflective of market value, portfolio securities are - -------------------------------------------------------------------------------- 11 Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- valued according to procedures adopted by the funds' board of directors in good faith at "fair value", that is, a price that the fund might 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 the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes, the "mark-to-market" of certain Passive Foreign Investment Companies (PFICs) for tax purposes, the "mark-to-market" of certain investments for tax purposes, losses deferred due to "wash sale" transactions and the non-deductibility of amortization of organization costs. The character of distributions made during the year from net investment income or net realized gains may differ from its ultimate characterization for federal income tax purposes. 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 or losses were recorded by the funds. 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. ORGANIZATION COSTS Organization costs were incurred in connection with the start up and initial registration of Emerging Markets Growth Fund's predecessor. These costs are amortized over 60 months on a straight-line basis. If any or all of the shares representing initial capital of the fund are redeemed by any holder - -------------------------------------------------------------------------------- 12 Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- thereof prior to the end of the amortization period, the proceeds will be reduced by the unamortized organization cost balance in the same proportion as the number of shares redeemed bears to the number of initial shares outstanding preceding the redemption. FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the closing rate of exchange. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. For financial reporting purposes the realized and unrealized gain or loss on investments reflects changes in exchange rates as well as changes in the market value of investments. The funds also may enter into forward foreign currency exchange contracts for hedging purposes. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the funds, and the resulting unrealized appreciation or depreciation, are determined using foreign currency exchange rates from independent pricing sources. The funds are subject to the credit risk that the other party will not complete the obligations of the contract. 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. ALLOCATION OF INCOME, EXPENSES, GAINS AND 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. CONCENTRATION OF RISK Investments in countries with limited or developing capital markets may involve greater risks than investments in more developed markets, and the prices of such investments may be volatile. The consequences of political, social or economic changes in these markets may have disruptive effects on the market prices of the funds' investments and the income they generate, as well as the funds' ability to repatriate such amounts. 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. - -------------------------------------------------------------------------------- 13 Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- (3) INVESTMENT SECURITY TRANSACTIONS ................................ Cost of purchases and proceeds from sales of securities, other than temporary investments in short-term securities, for the six months ended March 31, 1998, were as follows:
EMERGING MARKETS PACIFIC-EUROPEAN GROWTH FUND GROWTH FUND ----------------- ----------------- Purchases .............................. $4,375,659 $17,175,560 Proceeds from sales .................... $6,486,813 $51,085,720
(4) CAPITAL SHARE TRANSACTIONS ................................ Capital share transactions for the funds were as follows:
SIX MONTHS ENDED YEAR ENDED MARCH 31, 1998 SEPTEMBER 30, 1997(a) --------------------- --------------------- SHARES AMOUNT SHARES AMOUNT -------- ----------- -------- ----------- EMERGING MARKETS GROWTH FUND: CLASS A: Sales of fund shares ................. 42,751 $ 400,623 668,289 $ 6,437,548 Issued for reinvested distributions ...................... 3,553 31,939 850 7,638 Redemptions of fund shares ........... (335,552) (3,032,685) (673,484) (6,533,494) -------- ----------- -------- ----------- (289,248) $(2,600,123) (4,345) $ (88,308) -------- ----------- -------- ----------- -------- ----------- -------- ----------- CLASS B: Sales of fund shares ................. 2,443 $ 23,701 29,614 $ 311,376 Issued for reinvested distributions ...................... 60 534 -- -- Redemptions of fund shares ........... (1,686) (15,517) (1,083) (11,633) -------- ----------- -------- ----------- 817 $ 8,718 28,531 $ 299,743 -------- ----------- -------- ----------- -------- ----------- -------- -----------
SIX MONTHS ENDED YEAR ENDED MARCH 31, 1998 SEPTEMBER 30, 1997(a) ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------ PACIFIC-EUROPEAN GROWTH FUND: CLASS A: Sales of fund shares ................. 136,962 $ 1,741,516 1,339,186 $ 16,832,030 Issued for reinvested distributions ...................... 221,903 2,642,859 345,346 4,320,301 Redemptions of fund shares ........... (1,969,732) (24,773,134) (7,646,599) (96,625,546) Redemptions in exchange for Class Y shares ............................. -- -- (1,531,333) (19,282,834) ---------- ------------ ---------- ------------ (1,610,867) $(20,388,759) (7,493,400) $(94,756,049) ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ CLASS B: Sales of fund shares ................. 2,146 $ 26,937 4,118 $ 52,984 Issued for reinvested distributions ...................... -- -- 2 30 Redemptions of fund shares ........... (224) (2,763) -- -- ---------- ------------ ---------- ------------ 1,922 $ 24,174 4,120 $ 53,014 ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ CLASS Y: Sales of fund shares ................. 12,591 $ 161,596 94,569 $ 1,258,268 Sales in exchange for Class A shares ............................. -- -- 1,531,178 19,282,834 Issued for reinvested distributions ...................... 22,088 263,060 763 10,526 Redemptions of fund shares ........... (947,715) (11,727,286) (514,582) (6,698,439) ---------- ------------ ---------- ------------ (913,036) $(11,302,630) 1,111,928 $ 13,853,189 ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
(a) REPRESENTS PERIOD FROM FEBRUARY 18 (COMMENCEMENT OF OFFERING OF SHARES) TO SEPTEMBER 30, 1997, FOR CLASS B AND CLASS Y. - -------------------------------------------------------------------------------- 14 Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- Sales charges received by Piper Jaffray Inc. (Piper Jaffray), the funds' distributor, for distributing the funds' shares for the six months ended March 31, 1998, were as follows:
EMERGING MARKETS PACIFIC-EUROPEAN GROWTH FUND GROWTH FUND ------------------- ------------------------------- CLASS A CLASS B CLASS A CLASS B CLASS Y -------- -------- --------- -------- -------- Front-end sales charges ................ $3,879 $ -- $ 5,563 $-- $-- Contingent deferred sales charges ...... 2,633 372 6,475 37 -- -------- -------- --------- --- --- $6,512 $372 $ 12,038 $37 $-- -------- -------- --------- --- --- -------- -------- --------- --- ---
(5) FORWARD FOREIGN CURRENCY CONTRACTS ................................ On March 31, 1998, Pacific-European Growth Fund had an open foreign currency exchange contract which obligates the fund to deliver and receive currencies at a specified future date. The unrealized appreciation on this contract is reflected in the accompanying financial statements. The terms of the open contract are as follows:
U.S. U.S. CURRENCY $ VALUE CURRENCY $ VALUE TO BE AS OF TO BE AS OF APPRECIATION SETTLEMENT DATE DELIVERED 3/31/98 RECEIVED 3/31/98 (DEPRECIATION) - ------------------------- ------------ -------- ------------ -------- --------------- PACIFIC-EUROPEAN GROWTH FUND: April 1, 1998 ........... 453,531 JPY $ 3,406 3,495 USD $ 3,495 $ 89
JPY = JAPANESE YEN USD = UNITED STATES DOLLAR (6) 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 the fund's assets and furnishes related office facilities, equipment, research and personnel. The agreement requires the fund to pay Piper Capital a monthly fee based on average daily net assets. For Emerging Markets Growth Fund the fee is equal to an annual rate of 1% of the fund's average daily net assets. For Pacific-European Growth Fund, the fee is equal to an annual rate of 1% of the first $100 million in average daily net assets, 0.875% of the next $100 million and 0.75% of the net assets in excess of $200 million. For the six months ended March 31, 1998, the effective management fees paid by Emerging Markets Growth Fund and Pacific-European Growth Fund (including the performance adjustment described below) were 1.00% and 0.82%, respectively, on an annual basis. Since April 1991, the basic fee for Pacific-European Growth Fund has been subject to a performance adjustment. The adjustment is computed monthly by comparing the performance of the Class A shares of the fund relative to the Morgan Stanley Capital International EAFE Index, over the preceding 12 month period. For each percentage point the Class A shares of the fund outperform or underperform the EAFE Index the monthly fee is increased or decreased by 0.05% (on an annual basis) up to a maximum of 0.25% (on an annual basis) of the fund's average daily net assets. During the six months ended March 31, 1998, the performance adjustment decreased the management fee by $64,836. Edinburgh Fund Managers plc has been retained by Piper Capital as the subadvisor of Pacific-European Growth Fund and is paid a fee equal to 65% of the basic investment management fee plus - -------------------------------------------------------------------------------- 15 Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- or minus 90% of the performance adjustment. Edinburgh Fund Managers plc has entered into an expense reimbursement agreement with the advisor under which it pays the advisor a monthly fee equal to 10% of the basic investment management fee. This 10% fee is a reimbursement to the advisor for certain expenses it bears in connection with the administration of Pacific-European Growth Fund. Edinburgh Fund Managers plc has also been retained by Piper Capital as the subadvisor of Emerging Markets Growth Fund and is paid a fee equal to 0.50% of the fund's average daily net assets. 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 are being voluntarily limited for Class A for the year ending September 30, 1998, are stated below as a percent of average daily net assets attributable to such shares.
EMERGING MARKETS PACIFIC-EUROPEAN GROWTH FUND GROWTH FUND ----------------- --------------------------- CLASS A CLASS B CLASS A CLASS B CLASS Y ------- ------- ------- ------- ------- Payable as a distribution fee .......... 0.25% 0.75% 0.25% 0.75% -- Payable as a service fee ............... 0.25% 0.25% 0.25% 0.25% -- ------- ------- ------- ------- ------- Total distribution and service fees ............................... 0.50% 1.00% 0.50% 1.00% -- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total distribution and service fees after voluntary limitation ......... 0.33% 1.00% 0.33% 1.00% -- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
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. 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 six months ended March 31, 1998, Piper Jaffray and Piper Trust received the following amounts in connection with the shareholder account servicing agreements:
EMERGING MARKETS PACIFIC-EUROPEAN GROWTH FUND GROWTH FUND ----------------- ----------------- Piper Jaffray .......................... $8,858 $29,510 Piper Trust ............................ -- 3,853 -------- ----------------- $8,858 $33,363 -------- ----------------- -------- -----------------
OTHER FEES AND EXPENSES In addition to the investment management, distribution and shareholder account servicing fees, the fund is responsible for paying most other operating expenses, including: outside directors' fees and expenses; custodian fees; registration fees; printing and shareholder reports; transfer agent fees and expenses; legal, auditing and accounting services; insurance; interest; taxes and other miscellaneous expenses. For the year ending September 30, 1998, Piper Capital voluntarily limited total fees and expenses for Emerging Markets Growth Fund to annual rates of 2.00% and 2.67% of average daily net assets attributable to such shares for Class A and Class B, respectively. - -------------------------------------------------------------------------------- 16 Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- Expenses paid indirectly represent a reduction of custodian fees for earnings on miscellaneous cash balances maintained by the fund. (7) CAPITAL LOSS CARRYOVER ................................ For federal income tax purposes, the following funds had capital loss carryovers at September 30, 1997, which, if not offset by subsequent capital gains, will expire on the funds' fiscal year-ends as indicated below. It is unlikely the board of directors will authorize a distribution of any net realized capital gains until the available capital loss carryovers have been offset or expire. Utilization of the capital loss carryovers is limited to $820,258 and $1,065,056 per year for Emerging Markets Growth Fund and Pacific-European Growth Fund, respectively.
EMERGING MARKETS PACIFIC-EUROPEAN GROWTH FUND GROWTH FUND -------------------------- -------------------------- CAPITAL LOSS CAPITAL LOSS CARRYOVER EXPIRATION CARRYOVER EXPIRATION ------------- ---------- ------------- ---------- $5,670,695 2003 $2,190,585 2003 148,394 2004 ------------- ------------- 3,253,540 2006 ------------- $5,592,519 ------------- -------------
(8) PENDING ACQUISITION ................................ On December 15, 1997, Piper Jaffray Companies Inc., the parent company of the funds' investment advisor, announced that it had entered into an agreement to be acquired by U.S. Bancorp. It is anticipated that this acquisition will be completed in the second quarter of 1998, subject to regulatory approval, the approval of Piper Jaffray Companies shareholders and the satisfaction of customary closing conditions. U.S. Bancorp is a multi-state bank holding company headquartered in Minneapolis, Minnesota with a geographic service area spanning 17 states. As of December 31, 1997, U.S. Bancorp was the 15th largest U.S. commercial bank holding company, with assets of nearly $71.3 billion. U.S. Bank National Association ("U.S. Bank"), a wholly owned subsidiary of U.S. Bancorp, currently acts as the investment advisor to 32 mutual funds (the "First American Funds"). As of December 31, 1997, U.S. Bank, acting through its First American Asset Management group, managed more than $55 billion in assets, including approximately $20.5 billion in assets of the First American Funds. Effective as of the date of the acquisition, SEI Investments Distribution Company will assume the role of the principal distributor for the funds. Under the Investment Company Act of 1940, as amended (the "1940 Act"), consummation of the acquisition of Piper Jaffray Companies by U.S. Bancorp will result in the assignment and automatic - -------------------------------------------------------------------------------- 17 Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- termination of the funds' investment advisory agreements with Piper Capital Management Incorporated. The 1940 Act requires that any new investment advisory agreements for the funds be approved by the funds' board of directors and shareholders. (9) SUBSEQUENT EVENTS ................................ CLASS B AND Y SHARES NO LONGER OFFERED Effective April 21, 1998, the funds will no longer offer Class B shares. Any outstanding Class B shares of a series will be automatically converted to Class A shares of the same series as of the close of business on April 27, 1998. No contingent deferred sales charges or other fees will be imposed in connection with this conversion. Effective April 15, 1998, Pacific-European Growth Fund will no longer offer Class Y shares. FUND CONVERSION In connection with the acquisition of Piper Jaffray Companies Inc. by U.S. Bancorp, the funds' board of directors has recommended that the funds be merged into mutual funds managed by First American Asset Management, a division of U.S. Bank. The proposed fund mergers require shareholder approval and proxy statements requesting shareholder votes will be mailed in May 1998. If approved, the mergers are expected to occur on or about July 31, 1998. - -------------------------------------------------------------------------------- 18 Notes to Financial Statements (continued) - -------------------------------------------------------------------------------- (10) 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 MARKETS GROWTH FUND
CLASS A ------------------------------------------------------------------------ Three Six Months Year Months Ended Ended Ended March 31, September September Year Ended June 30, 1998 30, 30, --------------------------------- (Unaudited) 1997 1996 1996(c) 1995 1994(d) ------------ --------- --------- --------- --------- --------- PER-SHARE DATA Net asset value, beginning of period ..................... $ 10.96 $ 8.85 $ 8.84 $ 7.20 $ 9.14 $ 10.00 ------------ --------- --------- --------- --------- --------- Operations: Net investment income (loss) ................... (0.07) 0.02 -- 0.01 -- 0.01 Net realized and unrealized gains (losses) on investments .............. (1.08) 2.10 0.01 1.63 (1.94) (0.87) ------------ --------- --------- --------- --------- --------- Total from operations .... (1.15) 2.12 0.01 1.64 (1.94) (0.86) ------------ --------- --------- --------- --------- --------- Distributions to shareholders: From net investment income ................... (0.02) (0.01) -- -- -- -- ------------ --------- --------- --------- --------- --------- Net asset value, end of period ................. $ 9.79 $ 10.96 $ 8.85 $ 8.84 $ 7.20 $ 9.14 ------------ --------- --------- --------- --------- --------- ------------ --------- --------- --------- --------- --------- SELECTED INFORMATION Total return (a) ............. (10.85)% 23.91% 0.11% 22.78% (21.23)% (8.60)% Net assets at end of period (in millions) .............. $ 12 $ 17 $ 14 $ 14 $ 23 $ 28 Ratio of expenses to average daily net assets ........... 1.98%(f) 2.00% 2.00%(f) 2.00% 2.00% 2.00%(f) Ratio of net investment income (loss) to average daily net assets ..................... (1.19)%(f) 0.17% 0.26%(f) 0.15% (0.03)% 0.14%(f) Average commission rate paid on portfolio transactions (b) ........................ $ 0.0001 $ 0.0007 $ 0.0009 n/a n/a n/a Portfolio turnover rate (excluding short-term securities) ................ 34% 105% 0% 140% 161% 78% Ratios before waivers by the advisor and distributor: Ratio of expenses to average daily net assets before waivers .................. 3.25%(f) 3.34% 4.09%(f) 3.54% 3.47% 3.10%(f) Ratio of net investment loss to average daily net assets before waivers .... (2.46)%(f) (1.17)% (1.83)%(f) (1.39)% (1.50)% (0.96)%(f)
CLASS B --------------------------------------------- Six Months Ended March 31, 1998 Period Ended (Unaudited) September 30, 1997(e) ----------------- ------------------------- PER-SHARE DATA Net asset value, beginning of period ... $ 10.86 $ 10.13 ----------------- ---------- Operations: Net investment loss .................. (0.08) -- Net realized and unrealized gains (losses) on investments ............ (1.08) 0.73 ----------------- ---------- Total from operations .............. (1.16) 0.73 ----------------- ---------- Distributions to shareholders: From net investment income ........... (0.02) -- ----------------- ---------- Net asset value, end of period ..... $ 9.68 $ 10.86 ----------------- ---------- ----------------- ---------- SELECTED INFORMATION Total return (a) ....................... (11.58)% 7.21% Net assets at end of period (in thousands) ........................... $ 284 $ 310 Ratio of expenses to average daily net assets ............................... 2.66%(f) 2.64%(f) Ratio of net investment income (loss) to average daily net assets ............. (1.73)%(f) 0.03%(f) Average commission rate paid on portfolio transactions (b) ........... $0.0001 $0.0007 Portfolio turnover rate (excluding short-term securities) ............... 34% 105% Ratios before waivers by the advisor: Ratio of expenses to average daily net assets before waivers .............. 3.91%(f) 3.39%(f) Ratio of net investment loss to average daily net assets before waivers (2.98)%(f) (0.72)%(f)
(a) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A SALES CHARGE. (b) DISCLOSED IN ACCORDANCE WITH GUIDELINES ADOPTED IN 1996. THE COMPARABILITY OF THIS INFORMATION MAY BE AFFECTED BY THE FACT THAT COMMISSION RATES PER SHARE VARY SIGNIFICANTLY AMONG FOREIGN COUNTRIES. (c) EMERGING MARKETS GROWTH FUND COMMENCED OPERATIONS AND ACQUIRED THE NET ASSETS OF HERCULES LATIN AMERICAN VALUE FUND ON JUNE 21, 1996, VIA A TAX-FREE REORGANIZATION. EMERGING MARKETS GROWTH FUND HAD NO ASSETS OR LIABILITIES PRIOR TO THE ACQUISITION. CONSEQUENTLY, THE INFORMATION PRESENTED FOR EMERGING MARKETS GROWTH FUND PRIOR TO JUNE 21, 1996, REPRESENTS THE FINANCIAL HISTORY OF HERCULES LATIN AMERICAN VALUE FUND. AS A RESULT OF THE REORGANIZATION, THE FUND'S SUBADVISOR CHANGED FROM BANKERS TRUST COMPANY TO EDINBURGH FUND MANAGERS PLC. ON JULY 18, 1995, SHAREHOLDERS OF HERCULES LATIN AMERICAN VALUE FUND APPROVED A CHANGE IN THE FUND'S ADVISOR FROM HERCULES INTERNATIONAL MANAGEMENT LLC TO PIPER CAPITAL MANAGEMENT INCORPORATED. (d) COMMENCEMENT OF OPERATIONS OF HERCULES LATIN AMERICAN VALUE FUND WAS NOVEMBER 9, 1993. (e) COMMENCEMENT OF OFFERING OF CLASS B SHARES WAS FEBRUARY 18, 1997. (f) ANNUALIZED. - -------------------------------------------------------------------------------- 19 Notes to Financial Statements (continued) - -------------------------------------------------------------------------------- (10) FINANCIAL HIGHLIGHTS ................................ Per-share data for a share of capital stock outstanding throughout each period and selected information for each period are as follows: PACIFIC-EUROPEAN GROWTH FUND
CLASS A ------------------------------------------------------------------------------------ Seven Six Months Months Ended Year Ended March 31, Ended September Year Ended February 28, 1998 September 30, --------------------------------------------- (Unaudited) 30, 1997 1996(b) 1996 1995 1994 1993(d) ------------ --------- --------- --------- --------- --------- --------- PER-SHARE DATA Net asset value, beginning of period ..................... $ 13.50 $ 12.94 $ 13.86 $ 12.73 $ 15.44 $ 10.81 $ 10.53 ------------ --------- --------- --------- --------- --------- --------- Operations: Net investment income (loss) ................... (0.05)(g) (0.04)(g) 0.07 0.05 (0.03) (0.03) -- Net realized and unrealized gains (losses) on investments .............. 0.58 0.95 (0.28) 2.03 (1.63) 4.72 0.28 ------------ --------- --------- --------- --------- --------- --------- Total from operations .... 0.53 0.91 (0.21) 2.08 (1.66) 4.69 0.28 ------------ --------- --------- --------- --------- --------- --------- Distributions to shareholders: From net investment income ................... (0.57) (0.03) -- (0.05) -- -- -- From net realized gains .... -- (0.32) (0.71) (0.90) (1.05) (0.06) -- ------------ --------- --------- --------- --------- --------- --------- Total distributions to shareholders ........... (0.57) (0.35) (0.71) (0.95) (1.05) (0.06) -- ------------ --------- --------- --------- --------- --------- --------- Net asset value, end of period ................. $ 13.46 $ 13.50 $ 12.94 $ 13.86 $ 12.73 $ 15.44 $ 10.81 ------------ --------- --------- --------- --------- --------- --------- ------------ --------- --------- --------- --------- --------- --------- SELECTED INFORMATION Total return (a) ............. 4.51% 7.25% (1.66)% 16.70% (11.09)% 43.45% 2.66% Net assets at end of period (in millions) .............. $ 57 $ 79 $ 172 $ 163 $ 154 $ 166 $ 60 Ratio of expenses to average daily net assets 1.84%(f) 1.72% 1.64%(f) 1.55% 1.76% 1.81% 2.25% Ratio of net investment income (loss) to average daily net assets ..................... (0.77)%(f) (0.28)% 0.29%(f) 0.36% (0.19)% (0.29)% 0.03% Average commission rate paid on portfolio transactions (c) ........................ $ 0.0228 $ 0.0212 $ 0.0173 n/a n/a n/a n/a Portfolio turnover rate (excluding short-term securities) ................ 25% 62% 49% 65% 57% 52% 59% Ratios before waivers by the advisor and distributor: Ratio of expenses to average daily net assets before waivers .................. 2.01%(f) 1.89% 1.83%(f) 1.73% 1.98% 2.01% 2.59% Ratio of net investment income (loss) to average daily net assets before waivers . (0.94)%(f) (0.45)% 0.10%(f) 0.18% (0.41)% (0.49)% (0.31)%
CLASS B CLASS Y -------------------------- -------------------------- Six Months Period Six Months Period Ended Ended Ended Ended March 31, September March 31, September 1998 30, 1998 30, (Unaudited) 1997(e) (Unaudited) 1997(e) ----------- ----------- ----------- ----------- PER-SHARE DATA Net asset value, beginning of period ............. $ 13.47 $ 12.55 $ 13.55 $ 12.55 ----------- ----------- ----------- ----------- Operations: Net investment income (loss) ................... (0.09)(g) (0.01) (0.02)(g) 0.07 Net realized and unrealized gains on investments .................................. 0.57 0.94 0.56 0.94 ----------- ----------- ----------- ----------- Total from operations ........................ 0.48 0.93 0.54 1.01 Distributions to shareholders: From net investment income ..................... (0.57) (0.01) (0.62) (0.01) ----------- ----------- ----------- ----------- Net asset value, end of period ............... $ 13.38 $ 13.47 $ 13.47 $ 13.55 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- SELECTED INFORMATION Total return (a) ................................. 4.17% 7.40% 4.65% 8.03% Net assets at end of period (in thousands and millions for Class B and Class Y, respectively) .................................. $ 81 $ 55 $ 3 $ 15 Ratio of expenses to average daily net assets .... 2.63%(f) 2.44%(f) 1.35%(f) 1.42%(f) Ratio of net investment income (loss) to average daily net assets ............................... (1.45)%(f) (0.24)%(f) (0.32)%(f) 0.77%(f) Average commission rate paid on portfolio transactions (c) ............................... $ 0.0228 $ 0.0212 $ 0.0228 $ 0.0212 Portfolio turnover rate (excluding short-term securities) .................................... 25% 62% 25% 62%
(a) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A SALES CHARGE. (b) ON JUNE 21, 1996, THE FUND ACQUIRED THE NET ASSETS OF HERCULES EUROPEAN VALUE FUND AND HERCULES PACIFIC BASIN VALUE FUND VIA A TAX-FREE REORGANIZATION. (c) DISCLOSED IN ACCORDANCE WITH GUIDELINES ADOPTED IN 1996. THE COMPARABILITY OF THIS INFORMATION MAY BE AFFECTED BY THE FACT THAT COMMISSION RATES PER SHARE VARY SIGNIFICANTLY AMONG FOREIGN COUNTRIES. (d) THE FUND CONVERTED FROM A CLOSED-END INVESTMENT COMPANY TO AN OPEN-END INVESTMENT COMPANY ON AUGUST 31, 1992.INFORMATION FOR PERIODS PRIOR TO CONVERSION IS BASED ON THE FUND'S OPERATIONS AS A CLOSED-END FUND. FISCAL 1993 EXPENSES INCLUDE 0.32% RELATED TO CONVERTING TO AN OPEN-END FUND. (e) COMMENCEMENT OF OFFERING OF CLASS B AND CLASS Y SHARES WAS FEBRUARY 18, 1997. (f) ANNUALIZED. (g) BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. - -------------------------------------------------------------------------------- 20 Investments in Securities (Unaudited) - --------------------------------------------------------------------------------
EMERGING MARKETS GROWTH FUND March 31, 1998 ....................................................................................... Number Market Description of Security of Shares Value (a) - --------------------------------------------------------- ----------- ------------ (PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS) COMMON STOCK (90.4%): ARGENTINA (5.2%): Banco de Galicia y Buenos Aires - banking ........... 28,200 $ 173,736 Disco ADR - food-retail ............................. 5,400(b) 217,350 Perez Companc Class B - oil and gas ................. 38,387 259,916 ------------ 651,002 ------------ BRAZIL (13.3%): Centrais Eletricas Brasileiras (Electrobras) - utilities ......................................... 9,059,580 422,301 Companhia de Eletricidade do Estado do Rio de Janerio (CERJ) - utilities ................................ 350,000,000(b) 243,184 Companhia Energetica de Minas Gerais (CEMIG) ADR - utilities ......................................... 5,000 243,174 Paranaense de Energia Copel - utilities 23,000,000 273,087 Telecomunicacoes Brasileiras (Telebras) - telecommunications ................................ 3,248,300 337,086 Telecomunicacoes Brasileiras (Telebras) ADR - telecommunications ................................ 1,300 168,756 ------------ 1,687,588 ------------ CHILE (5.4%): Cervecerias Unidas ADR - brewer and distiller ....... 12,500 378,125 Linea Aerea Nacional Chile ADR - passenger and cargo air services ...................................... 10,000 137,500 Telecomunicaciones de Chile ADR - telecommunications ................................ 5,911 162,922 ------------ 678,547 ------------ EGYPT (3.9%): Al-Ahram Beverages GDR - brewers and distillers ..... 16,000 492,400 ------------ GHANA (4.1%): Guinness Ghana - brewers and distillers ............. 354,889(b) 199,290 Pioneer Tobacco - tobacco ........................... 1,500,000(b) 317,494 ------------ 516,784 ------------ GREECE (3.3%): Goody's - food and beverage ......................... 17,470 415,432 ------------ HONG KONG (2.6%): Asia Satellite Telecom - telecommunications ......... 66,000 129,892 Guangdong Kelon Electrical - consumer goods ......... 100,000 116,149 Pacific Ports - transportation ...................... 320,000(b) 80,117 ------------ 326,158 ------------
Number Market Description of Security of Shares Value (a) - --------------------------------------------------------- ----------- ------------ HUNGARY (5.4%): Magyar Tavkozlesi ADR - telecommunications .......... 2,250 $ 70,031 OTP Bank GDR - banking and financial services ....... 9,700 493,973 Pick Szeged - food and beverage ..................... 5,360 66,642 Richter Gedeon GDR - pharmaceuticals 540 56,430 ------------ 687,076 ------------ INDIA (3.5%): Mahanagar Telephone Nigam GDR - telecommunications ................................ 9,430(b) 155,124 Mahindra & Mahindra GDR - automobiles ............... 19,300(b) 160,383 Videsh Sanchar Nigam GDR 144A - telecommunications ................................ 10,400(b) (e) 130,000 ------------ 445,507 ------------ INDONESIA (1.3%): Daya Guna Samudera - fisheries ...................... 80,000 80,000 Gulf Indonesia Resources - oil and gas . 5,000 90,000 ------------ 170,000 ------------ LEBANON (4.9%): Banque Audi GDR - banking ........................... 9,500 266,713 Solidere GDR - real estate .......................... 25,000(b) 356,875 ------------ 623,588 ------------ MALAYSIA (1.0%): Guinness Anchor - brewers and distillers ............ 80,000 131,148 ------------ MEXICO (16.8%): Cemex Class B - construction materials .............. 74,000 408,917 Corporacion GEO Class B - real estate . 58,900(b) 383,522 Fomento Economico Mexicano (Femsa) Class B - food and beverage .......................................... 65,500 472,604 Grupo Carso Class A1 - diversified holding company ........................................... 23,179 143,586 Grupo Elektra GDR - retail .......................... 12,500 191,406 Panamerican Beverages - food and beverage ........... 7,500 300,938 TV Azteca ADR - television broadcasting ............. 11,000 215,875 ------------ 2,116,848 ------------ PAPUA NEW GUINEA (1.9%): Orogen Minerals - mining ............................ 120,000 244,768 ------------ PHILIPPINES (1.6%): Cosmos Bottling - food and beverage ................. 1,500,000 205,995 ------------
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES. - -------------------------------------------------------------------------------- 21 Investments in Securities (Unaudited) (continued) - -------------------------------------------------------------------------------- EMERGING MARKETS GROWTH FUND (CONTINUED)
Number Market Description of Security of Shares Value (a) - --------------------------------------------------------- ----------- ------------ RUSSIA (5.7%): Gazprom ADR - oil and gas ........................... 11,650 $ 241,155 Lukoil Holding ADR - oil and gas .................... 1,600 112,470 Vimpel-Communications ADR - telecommunications ...... 8,150(b) 362,675 ------------ 716,300 ------------ SOUTH AFRICA (7.8%): Dimension Data Holdings - computers ................. 35,001(b) 224,185 Fedsure Holdings - insurance ........................ 20,000 332,075 JD Group - consumer goods ........................... 20,000 188,878 Sasol - oil and gas ................................. 30,000 243,098 ------------ 988,236 ------------ TAIWAN (1.3%): Standard Foods Taiwan GDR - food and beverage ....... 11,867(b) 163,883 ------------ THAILAND (0.8%): National Finance and Securities - financial services .......................................... 177,000 97,834 ------------ TURKEY (0.6%): Efes Sinai Yatirim GDR - food and beverage .......... 4,400(b) 79,750 ------------ Total Common Stock (cost: $8,770,339) ............................. 11,438,844 ------------ PREFERRED STOCK (5.9%): BRAZIL (5.9%): Electrolux do Brasil - consumer goods . 700 1 Itausa-Investimentos Itau - diversified holding company ........................................... 315,155 271,638 Mesbla - retail ..................................... 1,300,000(b) -- Petroleo Brasileiro - oil and gas ................... 1,616,500 383,865 Telecomunicacoes de Sao Paulo - telecommunications ................................ 284,000 91,170 ------------ Total Preferred Stock (cost: $886,724) ............................... 746,674 ------------
Number of Shares or Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------ CONVERTIBLE CORPORATE NOTES AND BONDS (d) (1.5%): TAIWAN (1.5%): Nan Ya Plastics 144A, 1.75%, 7/19/01 (United States Dollar) - diversified industrial and conglomerate (cost: $186,474) .................................. 160,000(e) $ 191,200 ------------ SHORT-TERM SECURITIES (1.8%): Repurchase agreement with Goldman Sachs, acquired on 3/31/98, interest of $37, 6.00%, 4/1/98 (cost: $222,000) .................................. $ 222,000(c) 222,000 ------------ Total Investments in Securities (cost: $10,065,537) (f) .............................................. $ 12,598,718 ------------ ------------
NOTES TO INVESTMENTS IN SECURITIES: (a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO THE FINANCIAL STATEMENTS. MARKET VALUES ARE STATED IN U.S. DOLLARS. (b) CURRENTLY NON-INCOME PRODUCING. (c) 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. (d) PRINCIPAL AMOUNTS ARE STATED IN THE CURRENCY WHICH IS INDICATED PARENTHETICALLY. (e) SECURITIES SOLD WITHIN TERMS OF A PRIVATE PLACEMENT MEMORANDUM, EXEMPT FROM REGISTRATION UNDER RULE 144A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE SOLD ONLY TO DEALERS IN THAT PROGRAM OR OTHER ACCREDITED INVESTORS. SECURITIES ARE CONSIDERED LIQUID UNDER GUIDELINES ESTABLISHED BY THE BOARD OF DIRECTORS. (f) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED ON THIS COST WERE AS FOLLOWS: GROSS UNREALIZED APPRECIATION ...... $ 3,517,886 GROSS UNREALIZED DEPRECIATION ...... (984,705) ------------ NET UNREALIZED APPRECIATION ...... $ 2,533,181 ------------ ------------
- -------------------------------------------------------------------------------- 22 Investments in Securities (Unaudited) - --------------------------------------------------------------------------------
PACIFIC-EUROPEAN GROWTH FUND March 31, 1998 ....................................................................................... Number Market Description of Security of Shares Value (a) - --------------------------------------------------------- ----------- ------------ (PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS) COMMON STOCK (96.3%): ARGENTINA (0.7%): Telecom Argentina ADR - telecommunications .......... 12,000 $ 429,750 ------------ AUSTRALIA (3.3%): Futuris - diversified industrial and conglomerates ..................................... 260,000 311,655 GIO Australia Holdings LTD - multi-line insurance ... 120,000 361,589 Goodman Fielder - food products ..................... 100,000 155,364 Lend Lease - financial services ..................... 20,000 466,223 Reinsurance Australia - financial services 148,000 395,973 Westpac Banking - banking and financial services .... 38,000 254,675 ------------ 1,945,479 ------------ BRAZIL (0.6%): Telecomunicacoes Brasileiras (Telebras) ADR - telecommunications ................................ 3,000 389,438 ------------ DENMARK (2.1%): Den Danske Bank - banking and financial services .... 9,790 1,280,676 ------------ FRANCE (10.6%): Pinault - Printemps-Redoute - retail ................ 1,885 1,459,257 Rhone-Poulenc Class A - chemicals ................... 31,700 1,613,306 Schneider - electronics ............................. 21,200 1,634,326 Total Class B - oil and gas ......................... 13,500 1,623,273 ------------ 6,330,162 ------------ GERMANY (5.5%): Mannesmann - industrial machinery ................... 2,350 1,722,320 Veba - diversified industrial and conglomerates ..... 21,600 1,533,963 ------------ 3,256,283 ------------ HONG KONG (0.8%): Hutchison Whampoa - diversified holding company ..... 65,000 457,173 ------------ ITALY (5.4%): ENI - oil and gas ................................... 225,500 1,538,007 Telecom Italia - telecommunications ................. 212,000 1,672,366 ------------ 3,210,373 ------------ JAPAN (20.2%): Aoyama Trading - retail ............................. 30,000 720,856 Bank of Tokyo-Mitsubishi - banking .................. 30,000 364,933 Bridgestone - automobile tires ...................... 25,000 566,923 Canon - electronics ................................. 37,000 836,269 Citizen Watch - manufacturing ....................... 29,000 211,226 East Japan Railway - transportation ................. 112 519,737 Fuji Photo Film - consumer goods .................... 6,000 223,465 Hitachi - electronics ............................... 68,000 495,288
Number Market Description of Security of Shares Value (a) - --------------------------------------------------------- ----------- ------------ Honda Motor - motor vehicles ........................ 18,000 $ 648,770 Matsushita Electric Industrial - electronics ........ 38,000 610,625 Matsushita Electric Works - building materials ...... 49,000 481,997 Nichiei - financial services ........................ 7,040 623,781 Nippon Telephone and Telegraph - telecommunications ................................ 10,000 833,490 Sankyo - pharmaceuticals ............................ 15,000 416,745 Sanwa Bank - financial services ..................... 23,000 205,519 Secom - business services ........................... 4,000 244,791 Shin-Etsu Chemical - chemicals ...................... 12,000 237,882 Shiseido - cosmetics ................................ 40,000 459,546 Shohkoh Fund - financial services ................... 1,800 601,464 Sony Corporation - electronics ...................... 6,000 509,105 Sumitomo Electric Industries - electronics .......... 14,000 180,815 Takefuji - financial services ....................... 4,500 212,878 TDK - computers ..................................... 4,000 309,367 Tokyo Electric Power - utilities .................... 29,000 548,752 Toyota Motor - motor vehicles ....................... 11,000 293,223 Yamanouchi Pharmaceutical - pharmaceuticals ......... 30,000 689,319 ------------ 12,046,766 ------------ MEXICO (1.0%): Fomento Economico Mexicano (Femsa) Class B - food and beverage .......................................... 40,000 288,614 Kimberly-Clark de Mexico - A - paper and related products .......................................... 60,700 313,345 ------------ 601,959 ------------ NETHERLANDS (8.2%): ING Groep - banking and financial services .......... 21,700 1,232,854 Koninklijke Ahold NV - food-retail .................. 56,900 1,839,054 Verenigde Nederlandse Uitgeversbedrijven Verenigd Bezit (VNU) - printing and publishing ............. 52,500 1,797,695 ------------ 4,869,603 ------------ PAPUA NEW GUINEA (0.7%): Orogen Minerals - mining ............................ 195,000 397,747 ------------ SINGAPORE (1.2%): City Developments - real estate ..................... 50,400 248,176 Development Bank of Singapore - financial services .......................................... 33,000 241,189 Singapore Press Holdings - printing and publishing ........................................ 19,140 219,319 ------------ 708,684 ------------ SWEDEN (5.2%): Astra AB - A - pharmaceuticals ...................... 87,500 1,802,884 Nordbanken Holding AB - banking and financial services .......................................... 196,000 1,297,203 ------------ 3,100,087 ------------
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES. - -------------------------------------------------------------------------------- 23 Investments in Securities (Unaudited) (continued) - -------------------------------------------------------------------------------- PACIFIC-EUROPEAN GROWTH FUND (CONTINUED)
Number Market Description of Security of Shares Value (a) - --------------------------------------------------------- ----------- ------------ SWITZERLAND (7.4%): Novartis - pharmaceuticals .......................... 990 $ 1,754,422 Union Bank of Switzerland Schweiz Bankgesellschaft - B - banking and financial services ................ 995 1,627,344 Zurich Versicherungs-Gesellschaft - insurance ....... 1,840 1,069,592 ------------ 4,451,358 ------------ THAILAND (0.3%): National Finance and Securities - financial services .......................................... 353,000 195,114 ------------ UNITED KINGDOM (23.1%): Albright & Wilson - chemicals ....................... 80,200 230,953 Barclays - banking and financial services 32,000 959,010 British Aerospace - aerospace ....................... 16,300 537,073 British Petroleum - oil and gas ..................... 76,000 1,096,835 British Telecom - telecommunications ................ 97,100 1,056,703 Centrica - utilities ................................ 382,000(b) 719,509 General Electric - electronics ...................... 88,400 700,058 GKN PLC - auto/truck parts and equipment ............ 29,100 786,839 Glaxo Wellcome - pharmaceuticals .................... 29,400 791,013 HSBC Holdings - banking and financial services ...... 23,800 776,222 Kingfisher - retail ................................. 18,400 344,721 Legal & General Group - insurance ................... 65,800 813,022 Lloyds TSB Group - banking and financial services ... 69,200 1,076,322 Marks & Spencers - retail ........................... 49,900 494,169 SeaPerfect - food and beverage ...................... 90,497(b) -- SmithKline Beecham - pharmaceuticals ................ 60,500 764,756 Unilever - consumer goods ........................... 50,800 480,543 Vodafone Group PLC - telecommunications ............. 45,000 470,883 Whitbread - brewers and distillers .................. 33,400 629,099 Wolseley - retail-building products ................. 58,200 447,256 Zeneca - pharmaceuticals ............................ 13,700 590,404 ------------ 13,765,390 ------------ Total Common Stock (cost: $44,880,855) ............................ 57,436,042 ------------
Number of Shares or Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------ CONVERTIBLE CORPORATE NOTES AND BONDS (D) (2.4%): FRANCE (2.4%): Finaxa, 2.75%, 1/1/06 (French Francs) - financial services (cost: $1,058,950) ................................ 6,312,400 $ 1,456,614 ------------ RIGHTS (0.0%): Development Bank of Singapore - financial services, 7/14/98 (cost: $0) ........................................ 6,000 12,264 ------------ SHORT-TERM SECURITIES (0.8%): Repurchase agreement with Goldman Sachs, acquired on 3/31/98, interest of $75, 6.00%, 4/1/98 (cost: $451,000) .................................. $ 451,000(c) 451,000 ------------ Total Investments in Securities (cost: $46,390,805) (e) ........................ $ 59,355,920 ------------ ------------
NOTES TO INVESTMENTS IN SECURITIES: (a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO THE FINANCIAL STATEMENTS. MARKET VALUES ARE STATED IN U.S. DOLLARS. (b) CURRENTLY NON-INCOME PRODUCING. (c) 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. (d) PRINCIPAL AMOUNTS ARE STATED IN THE CURRENCY WHICH IS INDICATED PARENTHETICALLY. (e) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED ON THIS COST WERE AS FOLLOWS: GROSS UNREALIZED APPRECIATION ...... $ 14,587,637 GROSS UNREALIZED DEPRECIATION ...... (1,622,522) ------------ NET UNREALIZED APPRECIATION ...... $ 12,965,115 ------------ ------------
- -------------------------------------------------------------------------------- 24 SMALL COMPANY GROWTH FUND - -------------------------------------------------------------------------------- [PHOTO] SANDRA SHREWSBURY, CFA is primarily responsible for the management of Small Company Growth Fund. She has 15 years of financial experience. Other management team members are shown on pages 26-30. - -------------------------------------------------------------------------------- May 17, 1998 - -------------------------------------------------------------------------------- DEAR SHAREHOLDERS: FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1998, SMALL COMPANY GROWTH FUND CLASS A DELIVERED A 5.72%* TOTAL RETURN WITH ALL DISTRIBUTIONS REINVESTED BUT NOT INCLUDING THE SALES CHARGE. This compares to the Standard & Poor's SmallCap 600 Index,+ which returned 7.63% during the period, and the 5.32% gain of the Lipper Small Cap Funds Average.** Your fund's portfolio includes stocks of companies that are more growth-oriented than those in the S&P SmallCap 600 (which includes both growth and value stocks), and we believe this is the principal reason for its underperformance of the S&P benchmark. THE RUSSELL 2000 GROWTH INDEX, WHICH REPRESENTS A GROWTH INVESTMENT STYLE SIMILAR TO THAT OF SMALL COMPANY GROWTH FUND, RETURNED 2.73% DURING THE REPORTING PERIOD. We believe the fund's solid performance during the period is a result of our process of maintaining a diverse portfolio of quality small companies with the potential for significant growth. Even though the market was volatile during the period, we remained focused on our strategy - and as a result, the fund was well positioned when the market rebounded. - -------------------------------------------------------------------------------- PERFORMANCE THROUGH MARCH 31, 1998* - -------------------------------------------------------------------------------- Growth of $10,000 Invested Since Inception [GRAPH]
Small Company Growth Lipper Fund Class A, reflects the S&P Small Cap fund's 4% SmallCap Funds sales charge 600 Index+ Average** 9600 10000 10000 9514 10000 10000 9571 9615 9769.57 9504 9471 9768.65 9648 9657 9901.62 10091 9963 10194 10284 10305 10557.4 10321 10038 10374.3 7634 7047 7570.78 7277 6590 7117.68 7763 7160 7853.28 7880 7441 8011.68 8366 8041 8636.24 8427 8321 8871.48 8524 8432 9060.19 8446 8241 8891.21 8765 8796 9535.83 8560 8667 9324.54 8335 8366 9021.04 8261 8560 9311.41 7899 8546 9189.49 7918 8273 8931.47 8092 8555 9322.65 8592 8775 9825.96 8455 8823 9830.16 8434 8976 10061.9 8760 9409 10623.5 9233 9761 11156.5 8936 9645 10838.5 9722 9971 11450.6 10000 10183 11809.2 10099 10189 11961.6 10039 9582 11397 10160 9673 11474.6 10342 9743 11587.9 9432 8845 10565.4 10005 9063 10882.1 10614 9345 11389.2 10348 8956 11127 11404 9588 12196.1 11815 9581 12279.6 11373 9074 11810.6 10190 7955 10298.7 9443 7214 9405.58 9350 6706 9070.45 9772 7192 9779.09 10293 7436 10324.9 11358 7970 11234.7 11886 8872 12193.7 12437 9429 13012.1 12633 9451 12883.5 13368 9823 13499.5 12082 9400 12759 13179 9770 13531.6 13407 10198 14117 13272 10284 14220 13355 10646 14689.9 13086 10168 14101.5 14477 11041 15799.5 14997 11879 16510.4 15256 12128 16738.7 14467 11790 15974.5 14384 11315 15237.2 14550 11445 15231.6 13958 11007 14525.5 14623 11417 15070.8 14176 11092 14715.2 14093 11408 15099.4 14820 11883 15781.7 15724 12905 17111.4 16137 13364 17684.4 16585 13722 18035.6 16283 13332 17305.8 16481 13841 17939.3 16200 13337 17379.2 16669 14053 18406.6 16804 14142 18554.6 16898 14289 18674.2 17325 15043 19674.9 17555 15589 20422.1 17607 15888 20725.5 17315 15319 19962.2 17906 15874 20819.1 18209 16249 21333 18125 16201 21299.7 17801 15038 20088.2 17843 15264 20140 18073 14962 19724 17227 14406 18957.4 17499 14586 19313.2 18073 15579 20565.8 17927 15499 20681 17624 15344 21089.4 17185 14758 20309.8 17465 15117 20761.8 17182 14903 20456 17696 15518 21353.9 18032 15832 22017.2 17833 16185 22346.4 17591 16438 22716.8 18441 17340 24290.8 19355 18665 26301.7 19491 19070 26681.5 20415 19557 27455.2 20079 18591 26717 20761 19327 27740.9 20998 19646 27960.8 21010 19689 27671.3 21661 20333 28799.4 21387 20769 29389.2 21959 21962 31743.1 22393 22742 33048.8 21490 21850 31598 20014 20347 28545.1 20769 21604 30311.1 21513 22552 32006.6 21094 22396 31079.6 21975 23559 31869.2 23444 23834 32179.2 23935 24230 32997.9 22887 23729 31372.3 20988 22511 29540.8 20988 22788 29310.4 23673 25465 32734.3 25867 26590 34362 27733 28263 36518.3 28617 28975 36961.1 31335 30890 39716.5 29895 29559 37794.6 29862 29343 37323.8 30295 29933 37618.2 29196 29349 37046.1 32095 32023 39973.9 33128 33246 41727.7
+ 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 51.53% - -------------------------------------------------------------------------------- Five Year 14.04% - -------------------------------------------------------------------------------- Ten Year 14.20% - -------------------------------------------------------------------------------- Since Inception (3/16/87) 11.45% - -------------------------------------------------------------------------------- CLASS B AVERAGE ANNUALIZED TOTAL RETURNS Includes the fund's maximum 4% contingent deferred sales charge One Year 53.15% - -------------------------------------------------------------------------------- Since Inception (2/18/97) 30.89% - --------------------------------------------------------------------------------
* 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. - -------------------------------------------------------------------------------- 25 1998 Semiannual Report - Piper 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 nine years of financial experience. - -------------------------------------------------------------------------------- DURING FOURTH QUARTER 1997, SMALL-CAP STOCK PRICES FELL AS THE ASIAN ECONOMIC CRISIS SPURRED AN INVESTOR FLIGHT TO SAFETY. The year ended with small-cap stocks down for the quarter (but up considerably for the year), due to investor concern that Asia's troubles might slow earnings growth in the United States. However, sentiment changed dramatically, and investors returned to small-cap stocks in late January, as the U.S. economy performed above expectations. This strength continued throughout the remainder of the period, resulting in one of the strongest quarters for stocks in some time. OUR INVESTMENTS IN A VARIETY OF INDUSTRIES DID WELL DURING THE SIX-MONTH PERIOD. Positive performers included Pier 1 Imports (1.1% of the fund's total assets as of March 31, 1998) and Stage Stores (1.9%) in the retail industry; Commerce Bancorp (1.3%) and Financial Federal Corp. (1.3%) in the financial sector,*** Control Devices (0.8%) in the capital goods area, and Novoste (0.6%), Cyberonics (1.0%) and Express Scripts (1.5%) in the health care sector. Although the health care and technology sectors provided mixed performance during the period, our holdings in these areas performed well overall. TAKING ADVANTAGE OF PRICE WEAKNESS IN THE TECHNOLOGY SECTOR, WE BOUGHT SEVERAL STOCKS THAT WE BELIEVE OFFER BRIGHT PROSPECTS. These include P-COM Inc. (1.5%) and PMC-Sierra (1.7%), which focus on telecommunications and communications infrastructure; Made2Manage Systems (0.9%), which is an application software provider; and Applied Micro Circuits (0.6%). Other issues we added included C.H. Robinson Worldwide (0.8%), a transportation and logistics company, and Kuhlman Corp. (0.5%), which provides products for utility companies. - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION BY SECTOR - -------------------------------------------------------------------------------- As a percentage of total assets on March 31, 1998 [GRAPH]
Small Company S&P SmallCap Growth Fund 600 Index+ Basic Materials 6 7 Capital Goods & Services 8.6 9 Commercial Services 7.3 10 Consumer Durables 0 6 Consumer Non-Durables 2 4 Consumer Services 8 5 Energy 5.2 4 Financial Services 11.4 16 Health Care 12 11 Retail Trade 9 6 Short-Term 7 0 Technology 19.8 14 Transportation 2.3 3 Utilities 0.9 5 Other Assets 1 0
- -------------------------------------------------------------------------------- TOP 10 HOLDINGS - -------------------------------------------------------------------------------- As a percentage of total assets on March 31, 1998 1 U.S. Foodservice 1.9% - -------------------------------------------------------------------------------- 2 Stage Stores 1.9% - -------------------------------------------------------------------------------- 3 Hibbett Sporting Goods 1.9% - -------------------------------------------------------------------------------- 4 Affiliated Managers Group 1.8% - -------------------------------------------------------------------------------- 5 PMC-Sierra 1.7% - -------------------------------------------------------------------------------- 6 Sipex 1.7% - -------------------------------------------------------------------------------- 7 OM Group 1.6% - -------------------------------------------------------------------------------- 8 Peerless Systems 1.6% - -------------------------------------------------------------------------------- 9 Tier Technologies 1.6% - -------------------------------------------------------------------------------- 10 Herman Miller 1.6% - --------------------------------------------------------------------------------
+ An unmanaged index, that includes no expenses or transaction charges, of small-capitalization stocks. *** - This symbol represents a graduation cap, used throughout this report to indicate terms defined in the glossary. - -------------------------------------------------------------------------------- 26 1998 Semiannual Report - Piper 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 13 years of financial experience. - -------------------------------------------------------------------------------- THE FUND ALSO SOLD SELECTED STOCKS AS WE FELT APPROPRIATE. These names included semiconductor companies Anadigics and PRI Automation (due to their difficult operating environment), as well as commercial services businesses Watso Inc. (a heating/air conditioning supplier hurt by unfavorable weather conditions) and Wilmar Industries (because we no longer see a catalyst that will lift the stock further). EVEN WITH THE MARKET'S RECENT STRONG PERFORMANCE, VALUATIONS*** REMAIN ATTRACTIVE FOR SMALL-CAP STOCKS. This is particularly true relative to larger stocks. The valuations are similar; however, earnings growth is slowing for many larger companies. Until recently, investors have not needed to shift to smaller companies to achieve above average earnings growth. 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. - -------------------------------------------------------------------------------- 27 1998 Semiannual Report - Piper Funds EMERGING GROWTH FUND - -------------------------------------------------------------------------------- [PHOTO] SANDRA SHREWSBURY, CFA is primarily responsible for the management of Emerging Growth Fund. She has 15 years of financial experience. Other management team members are shown on pages 26-30. - -------------------------------------------------------------------------------- May 17, 1998 - -------------------------------------------------------------------------------- DEAR SHAREHOLDERS: FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1998, EMERGING GROWTH FUND CLASS A DELIVERED AN 11.26%* TOTAL RETURN WITH ALL DISTRIBUTIONS REINVESTED BUT NOT INCLUDING THE SALES CHARGE. This compares to the Standard & Poor's MidCap 400 Index,** which returned 11.94% during the period, and the 8.41% gain of the Lipper Mid Cap Funds Average.+ THE RUSSELL MID-CAP GROWTH INDEX, WHICH REPRESENTS AN INVESTMENT STYLE SIMILAR TO THAT OF EMERGING GROWTH FUND, RETURNED 8.85% DURING THE REPORTING PERIOD. We believe the fund's solid performance during the period is a result of our process of maintaining a diverse portfolio of quality mid-sized companies with the potential for significant growth. Even though the market was volatile during the period, we remained focused on our strategy - and as a result, the fund was well positioned when the market rebounded. MID-CAP STOCK PRICES FELL DURING THE LAST MONTHS OF 1997 AS THE ASIAN ECONOMIC CRISIS PROMPTED AN INVESTOR FLIGHT TO SAFETY. The year ended with mid-cap stocks down for the quarter (but up considerably for the year), due to investor concern that Asia's troubles might slow earnings growth in the United States. However, sentiment changed dramatically, and investors returned to mid-cap stocks in late January, - -------------------------------------------------------------------------------- PERFORMANCE THROUGH MARCH 31, 1998* - -------------------------------------------------------------------------------- Growth of $10,000 Invested Since Inception [GRAPH]
Emerging Growth Lipper Fund Class A, reflects the S&P Mid Cap fund's 4% MidCap Funds sales charge 400 Index** Average+ 9600 10000 10000 9600 10000 10000 10291 10977 10963 10406 11021 11017.8 10570 10769 10697.3 8736 9653 9560.69 8255 9062 8880.86 7957 8786 8592.07 8890 9631 9328.37 9226 10189 9770.87 10199 10995 10514.6 11307 11982 11359.4 11880 12529 11915.6 11754 12525 11864.6 12641 13102 12436.3 11940 12437 11802.9 12923 13185 12485.1 13501 13665 12940.7 13357 13621 12923.3 13925 14154 13330.3 13289 13677 12846.1 15263 15294 14304.5 15350 15565 14727.7 15408 15812 14965.9 14672 15217 14345.3 14061 15035 13904.1 14381 15177 13967.5 13722 14744 13388.9 14216 15476 13947.4 13606 15106 13572 13964 15317 13845.5 14633 15684 14376.6 15874 16560 15330.2 16377 17116 15856.2 16678 17330 16151 16164 17088 15574 16823 17678 16124.2 16019 17215 15583.9 17153 17999 16411 17318 18090 16534.6 17376 18055 16588.3 18316 18800 17314.5 19120 18999 17798.7 19023 19061 17999 18451 18639 17533.2 19401 19505 18267 20070 19958 18810.6 19837 19675 18714.8 18761 18764 17729 18548 18904 17733.1 17957 18725 17512.9 17230 18080 16836.8 17608 18692 17191.3 18858 19671 18223 18665 19304 18200.3 18791 19515 18401.2 18035 18635 17676.7 18442 18806 17977.6 18122 19001 17904.3 18965 19998 18634.1 19847 20346 19209.2 20283 20754 19385.8 20622 21255 19717.3 21707 22120 20783 23781 23274 22218 24188 23704 22498.7 25138 24279 23082.5 24411 23654 22483.3 25526 24687 23283.1 25701 24626 23493.7 25990 24983 23631.5 27123 25832 24524.8 27807 26142 24941.3 29175 26940 26308.3 30243 27305 27042 29624 26895 26193.2 26781 25075 24095.9 27978 26521 25400.5 29624 27678 27012.6 28544 27758 26534.9 29414 29322 27569.2 28755 29354 27462.9 29508 30456 28258.8 28332 30206 27187.8 26522 28918 25647.5 26686 29667 26029.9 29390 32261 28617.9 31365 33168 29677.3 33881 36448 31884.6 33481 36404 31751.8 35856 38498 33803 33739 36827 32222.8 33977 37372 32177.6 35483 38818 32560.5 34373 38081 32069.1 37861 41234 34958.3 39895 43093 36618.1
** 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 44.41% - -------------------------------------------------------------------------------- Five Year 17.87% - -------------------------------------------------------------------------------- Since Inception (4/23/90) 19.03% - -------------------------------------------------------------------------------- CLASS B & Y AVERAGE ANNUALIZED 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 One Year 45.41% - -------------------------------------------------------------------------------- Class B Since Inception (2/18/97) 26.95% - -------------------------------------------------------------------------------- Class Y One Year 50.94% - -------------------------------------------------------------------------------- Class Y Since Inception (2/18/97) 31.75% - --------------------------------------------------------------------------------
* 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. - -------------------------------------------------------------------------------- 28 1998 Semiannual Report - Piper Funds U.S. GROWTH - -------------------------------------------------------------------------------- EMERGING GROWTH FUND (CONTINUED) - -------------------------------------------------------------------------------- [PHOTO] MARY HOYME, CFA assists with the management of Emerging Growth Fund and Small Company Growth Fund. She has 15 years of financial experience. - -------------------------------------------------------------------------------- as the U.S. economy performed above expectations. The strength continued throughout the remainder of the period, resulting in one of the strongest quarters for equities in some time. THE FUND'S HOLDINGS IN THE FINANCIAL SECTOR*** LED THE WAY DURING THIS REPORTING PERIOD, PARTICULARLY IN THE FOURTH QUARTER OF 1997. The financial sector has been a strong performer for many years, and we believe its current values generally reflect future prospects. For that reason, we have reduced our financial industry weighting. Consumer cyclical stocks also were very strong during the period, particularly our investments in value retailers such as Dollar General (1.6% of the fund's total assets as of March 31, 1998) and Kohls (1.1%). In other industries, Danaher (2.2%, a capital goods company), Cintas (1.0%, uniform leasing) and Chancellor Media (1.9%) provided favorable results. TECHNOLOGY AND HEALTH CARE STOCKS PROVIDED MIXED RESULTS DURING THE FOURTH QUARTER OF 1997 BUT PICKED UP IN 1998. Our strong technology performers included Sunguard Data Systems (1.4%) and Vantive (1.1%). In consumer non-durables, our holdings of Rexall Sundown (1.1%, a vitamin producer) did well, as did health care company Health Management Association (1.2%, hospital management). We are selectively adding to our technology holdings as opportunities present themselves. Recent additions have been in telecommunications (Tellabs Inc., 1.2%, Advanced Fibre Communications, 0.6%, and CIENA, 1.0%) and software (Legato Systems, 0.9%). We sold positions in Phycor and Genesis Health Ventures, two health care services companies, to focus on health care areas with greater earnings visibility and fewer external threats. ENERGY STOCKS PERFORMED WELL DURING THE FOURTH QUARTER BUT WEAKENED IN EARLY 1998. We believe the current weakness is due to low oil prices caused by weakening demand in Asia and a warm "El Nino" winter in the Northern Hemisphere. We are underweighted*** in the energy sector, compared to the fund's benchmark, as well as in slower-growth industries such as basic materials and consumer durable goods. *** - This symbol represents a graduation cap, used throughout this report to indicate terms defined in the glossary. - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION BY SECTOR - -------------------------------------------------------------------------------- As a percentage of total assets on March 31, 1998
[Graph] EMERGING S&P MidCap GROWTH FUND 400 Index** Basic Materials 6 8 - -------------------------------------------------------------------------------- Capital Goods & Services 8 9 - -------------------------------------------------------------------------------- Commercial Services 7 7 - -------------------------------------------------------------------------------- Consumer Durables 1 3 - -------------------------------------------------------------------------------- Consumer Non-Durables 3 5 - -------------------------------------------------------------------------------- Consumer Services 11 4 - -------------------------------------------------------------------------------- Energy 6.2 7 - -------------------------------------------------------------------------------- Financial Services 12 16 - -------------------------------------------------------------------------------- Health Care 12 8 - -------------------------------------------------------------------------------- Retail Trade 6 7 - -------------------------------------------------------------------------------- Short-Term 6 0 - -------------------------------------------------------------------------------- Technology 22.1 11 - -------------------------------------------------------------------------------- Transportation 0 2 - -------------------------------------------------------------------------------- Utilities 0 13 - --------------------------------------------------------------------------------
** An unmanaged index, that includes no expenses or transaction charges, of mid-capitalization stocks. TOP 10 HOLDINGS - -------------------------------------------------------------------------------- As a percentage of total assets on March 31, 1998 1 Elan Corporation, ADR 2.4% - -------------------------------------------------------------------------------- 2 Stewart Enterprises Class A 2.3% - -------------------------------------------------------------------------------- 3 Danaher 2.2% - -------------------------------------------------------------------------------- 4 EMC 2.2% - -------------------------------------------------------------------------------- 5 Clear Channel Communications 2.2% - -------------------------------------------------------------------------------- 6 Stage Stores 2.1% - -------------------------------------------------------------------------------- 7 TCF Financial 2.0% - -------------------------------------------------------------------------------- 8 The FINOVA Group 2.0% - -------------------------------------------------------------------------------- 9 Sola International 1.9% - -------------------------------------------------------------------------------- 10 Chancellor Media 1.9% - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 29 1998 Semiannual Report - Piper Funds EMERGING GROWTH FUND (CONTINUED) - -------------------------------------------------------------------------------- [PHOTO] ADAM BENSON assists with the management of Emerging Growth Fund and Small Company Growth Fund. He has four years of financial experience. - -------------------------------------------------------------------------------- TIMOTHY MCSWEENEY (NOT PICTURED) assists with the management of Emerging Growth Fund and Small Company Growth Fund. He has four years of financial experience. - -------------------------------------------------------------------------------- EVEN WITH THE MARKET'S RECENT STRONG PERFORMANCE, VALUATIONS*** REMAIN ATTRACTIVE FOR MID-CAP STOCKS. This is particularly true relative to larger stocks. The valuations are similar; however, earnings growth is slowing for many larger companies. Until recently, investors have not needed to shift to smaller companies to achieve above average earnings growth. 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. - -------------------------------------------------------------------------------- 30 1998 Semiannual Report - Piper Funds U.S. GROWTH - -------------------------------------------------------------------------------- GROWTH FUND - -------------------------------------------------------------------------------- [PHOTO] STEVE MARKUSEN, CFA is primarily responsible for the management of Growth Fund's portfolio. He has 14 years of financial experience. May 17, 1998 - -------------------------------------------------------------------------------- DEAR SHAREHOLDERS: FOR THE SIX MONTHS ENDED MARCH 31, 1998, GROWTH FUND CLASS A RETURNED 6.52%* WHICH INCLUDES REINVESTED DISTRIBUTIONS BUT NOT THE FUND'S SALES CHARGE. This return is less than the 11.55% return for the Lipper Growth Funds Average+ and the 17.21% return for the S&P 500 Index, **the fund's benchmark. We are not happy with these results and have taken steps to improve performance. THE DOMINANT THEME IN THE STOCK MARKET OVER THE LAST SIX MONTHS HAS BEEN THE ECONOMIC FALLOUT FROM THE FINANCIAL CRISIS IN SOUTHEAST ASIA. This economic fallout has had a negative effect on the sales and earnings growth of economically sensitive sectors*** such as technology, basic materials and energy. However, the stock market has staged a strong advance from its lows in October, driven primarily by large growth stocks. OVER THE PAST SIX MONTHS, THE FUND'S PERFORMANCE HAS BEEN NEGATIVELY AFFECTED BY ITS OVERWEIGHTING*** IN TECHNOLOGY AND ENERGY. Long-term, we still like these areas, and as the situation in Asia stabilizes we would expect the stock performance in these sectors to improve. THE FUND BENEFITED FROM ITS INVESTMENTS IN THE FINANCE SECTOR. Our large holdings in Norwest (4.3% of the fund's total assets as of March 31, 1998), American International Group (3.9%) and the Federal *** - This symbol represents a graduation cap, used throughout this report to indicate terms defined in the glossary. - -------------------------------------------------------------------------------- PERFORMANCE THROUGH MARCH 31, 1998* - -------------------------------------------------------------------------------- Growth of $10,000 Invested Since Inception
Growth Fund Class A, reflects the fund's Lipper Growth 4% sales charge S&P 500 Index** Funds Average+ 9600 10000 10000 9629 10000 10000 9446 9911 9855.74 9494 9997 9916.03 9950 10502 10240.7 10298 11034 10684.7 10713 11446 11038.1 10602 11195 10865.8 8336 8784 8390.65 7707 8060 7835.14 8337 8673 8523.99 8640 9038 8710.6 9127 9459 9211.15 8901 9167 9139.6 9107 9268 9216.06 8999 9349 9153.26 9490 9778 9660.53 9343 9740 9521.62 9087 9410 9233.2 9456 9811 9595.48 9485 10084 9679.18 9189 9940 9492.47 9354 10114 9737.74 10020 10854 10358.2 9831 10584 10223.8 10303 10831 10468.9 10912 11393 11003.6 11400 11854 11478.1 11180 11787 11326.3 12151 12851 12160.4 12531 13102 12478.7 12512 13049 12518.7 12200 12746 12113.2 12502 13006 12290.9 13020 13318 12408.4 11981 12424 11589.5 12142 12584 11786.9 12748 12918 12137.7 12475 12595 11869.4 13964 13823 13011.5 14095 13730 13053.9 13801 13686 12822.1 12410 12449 11622.2 11910 11843 10947.3 11757 11793 10737.1 12746 12555 11470.9 13174 12905 11873.2 14148 13467 12671.6 15266 14430 13588.2 15933 14779 14038.5 15902 14814 14011.4 16796 15453 14638.1 15973 14745 13870 17127 15433 14633.4 17776 15798 15091.4 17416 15534 14950.4 17819 15743 15266.5 17013 15109 14672.8 19483 16837 16378.5 19473 16523 16398.2 19634 16737 16648 18871 16411 16128 18634 16893 16043.9 18710 16976 16170.9 18183 16723 15701.2 18538 17406 16268.7 17892 17050 15913.8 18420 17250 16195.7 18873 17310 16515.2 19780 17899 17366.8 20038 18119 17684.9 20449 18271 17942.2 20146 18520 17655 20525 18910 18156.9 19473 18453 17629.9 20059 18947 18314.6 20092 19002 18371 19853 18926 18306.7 20634 19644 19104.7 20971 19493 19302.8 20884 19897 19574.8 20439 19707 19190.8 21059 19945 19740.6 21844 20623 20392.5 21266 20064 20064 20165 19189 19099.5 20263 19435 19188.6 20579 19754 19285.8 19902 19270 18615.3 20459 19903 19129.6 21464 20719 20027 20655 20212 19607.8 20939 20666 19925.7 0043 19913 19176 20329 20209 19366 20098 20733 19512.1 21197 21541 20279.8 21770 22176 20863.5 22156 22830 21352 22662 23742 22008.8 23477 24294 22953.6 24380 25099 24071.5 24539 25162 24254.6 24910 26224 24965.7 24092 26130 24594.5 25728 27277 25459.3 26067 27803 25608.3 26259 28749 26165.1 27056 29016 26731 28217 29295 26953.6 29027 29727 27755.8 29357 30494 28410.5 28729 30610 28043.7 27037 29257 26437.9 28316 29875 27340.4 29114 31556 28851.2 29975 32426 29182.7 31864 34877 31018.7 30949 34186 30596.9 31712 36322 32197.8 31346 36607 31850.5 30186 35103 30464.4 30705 37199 31602.3 32994 39463 33849.1 34215 41231 35189.7 38092 44509 38060.3 37145 42017 36831.3 39038 44319 38876.9 38018 42839 37377.2 38018 44822 37970.3 38086 45593 38428.9 37401 46095 38563.5 40589 49418 41416.5 41583 51948 43231.5
** 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 32.24% - -------------------------------------------------------------------------------- Five Year 14.22% - -------------------------------------------------------------------------------- Ten Year 16.18% - -------------------------------------------------------------------------------- Since Inception (3/16/87) 13.77% - --------------------------------------------------------------------------------
CLASS B AVERAGE ANNUALIZED TOTAL RETURNS Includes the fund's maximum 4% contingent deferred sales charge One Year 32.91% - -------------------------------------------------------------------------------- Since Inception (2/18/97) 21.86% - --------------------------------------------------------------------------------
* 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. - -------------------------------------------------------------------------------- 31 1998 Semiannual Report - Piper Funds GROWTH FUND (CONTINUED) - -------------------------------------------------------------------------------- [PHOTO] BRENT MELLUM, CFA assists with the management of Growth Fund. He has four years of financial experience. - -------------------------------------------------------------------------------- National Mortgage Association (3.3%) had a strong positive effect on performance. Other strong contributors included Magna International (4.0%), Gap Inc. (2.3%) and AirTouch Communications (5.0%). RECOGNIZING THE NEED TO IMPROVE THE PERFORMANCE OF THE FUND, WE HAVE DEDICATED MORE RESOURCES TO ITS MANAGEMENT. The results so far are encouraging, even though they have not yet produced a significant improvement in performance. We have focused our efforts on adding high-quality growth stocks to the portfolio. Recent additions include Worldcom (1.7%), Albertson's (1.4%), United Healthcare (2.0%), McDonald's (2.2%), Mattel (1.0%) and Masco Corp. (1.1%). We see investment opportunities in growth stocks outside the mega-cap stock arena, since we believe growth rates for the somewhat smaller stocks are higher and prices are more reasonable. Thank you for your investment in Growth Fund. We appreciate your confidence, and we want to assure you that we remain committed to providing quality management services. Sincerely, /s/ Steve Markusen /s/ Brent Mellum Steve Markusen Brent Mellum Portfolio Manager Portfolio Manager - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION BY SECTOR - -------------------------------------------------------------------------------- As a percentage of total assets on March 31, 1998
[Graph] GROWTH FUND S&P 500 Index** Basic Materials 4 5 - -------------------------------------------------------------------------------- Capital Goods & Services 13.9 10 - -------------------------------------------------------------------------------- Commercial Services 1.3 1 - -------------------------------------------------------------------------------- Consumer Services 2 4 - -------------------------------------------------------------------------------- Consumer Durables 2.5 3 - -------------------------------------------------------------------------------- Consumer Non-Durables 1 11 - -------------------------------------------------------------------------------- Energy 14.4 8 - -------------------------------------------------------------------------------- Financial Services 18 17 - -------------------------------------------------------------------------------- Health Care 7 12 - -------------------------------------------------------------------------------- Retail Trade 3.7 5 - -------------------------------------------------------------------------------- Short-Term 3 0 - -------------------------------------------------------------------------------- Technology 16.1 13 - -------------------------------------------------------------------------------- Transportation 3 1 - -------------------------------------------------------------------------------- Utilities 9 10 - --------------------------------------------------------------------------------
** An unmanaged index, that includes no expenses or transaction charges, of large-capitalization stocks. TOP 10 HOLDINGS - -------------------------------------------------------------------------------- As a percentage of total assets on March 31, 1998 1 AirTouch Communications 5.0% - -------------------------------------------------------------------------------- 2 Transocean Offshore 4.8% - -------------------------------------------------------------------------------- 3 AlliedSignal 4.3% - -------------------------------------------------------------------------------- 4 Schlumberger Limited 4.3% - -------------------------------------------------------------------------------- 5 Norwest 4.3% - -------------------------------------------------------------------------------- 6 Magna International Class A 4.0% - -------------------------------------------------------------------------------- 7 American International Group 3.9% - -------------------------------------------------------------------------------- 8 Baker Hughes 3.6% - -------------------------------------------------------------------------------- 9 Pentair 3.5% - -------------------------------------------------------------------------------- 10 FNMA (Fannie Mae) 3.3% - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 32 1998 Semiannual Report - Piper Funds Financial Statements (Unaudited) - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES March 31, 1998 ................................................................................
SMALL COMPANY EMERGING GROWTH GROWTH GROWTH FUND FUND FUND ------------- -------------- -------------- ASSETS: Investments in securities at market value* (note 2) (including repurchase agreements of $2,914,000; $19,474,000 and $6,610,000, respectively) ................ $ 38,149,830 $ 345,822,792 $ 194,261,875 Cash in bank on demand deposit ............................. 211,407 20,998 20,693 Receivable for investment securities sold .................. 308,651 -- -- Receivable for fund shares sold ............................ 15,365 68,217 8,172 Dividends and accrued interest receivable .................. 3,624 99,267 81,805 ------------- -------------- -------------- Total assets ............................................. 38,688,877 346,011,274 194,372,545 ------------- -------------- -------------- LIABILITIES: Payable for investment securities purchased ................ 895,380 6,605,757 -- Payable for fund shares redeemed ........................... -- 1,259,974 20,549 Accrued investment management fee .......................... 23,718 188,712 114,601 Accrued distribution and service fees ...................... 10,092 70,180 49,172 ------------- -------------- -------------- Total liabilities ........................................ 929,190 8,124,623 184,322 ------------- -------------- -------------- Net assets applicable to outstanding capital stock ....... $ 37,759,687 $ 337,886,651 $ 194,188,223 ------------- -------------- -------------- ------------- -------------- -------------- COMPOSITION OF NET ASSETS: Capital stock and additional paid-in capital ............... $ 24,576,956 $ 165,663,179 $ 97,957,363 Accumulated net investment loss ............................ (103,566) (954,424) (266,340) Accumulated net realized gain on investments ............... 3,684,116 43,043,251 14,357,357 Unrealized appreciation of investments ..................... 9,602,181 130,134,645 82,139,843 ------------- -------------- -------------- Total - representing net assets applicable to outstanding capital stock .......................................... $ 37,759,687 $ 337,886,651 $ 194,188,223 ------------- -------------- -------------- ------------- -------------- -------------- * Investments in securities at identified cost ............. $ 28,547,649 $ 215,688,147 $ 112,122,032 ------------- -------------- -------------- ------------- -------------- -------------- NET ASSET VALUE AND OFFERING PRICE: CLASS A: Net assets ................................................. $ 36,744,767 $ 275,935,155 $ 193,858,893 Shares outstanding (authorized four billion shares for each fund of $0.01 par value) ................................. 3,696,840 18,274,290 15,975,325 Net asset value ............................................ $ 9.94 $ 15.10 $ 12.13 Maximum offering price per share (net asset value plus 4% of offering price) .......................................... $ 10.35 $ 15.73 $ 12.64 CLASS B: Net assets ................................................. $ 1,014,920 $ 1,404,255 $ 329,330 Shares outstanding (authorized two billion shares for each fund of $0.01 par value) ................................. 102,731 93,673 27,337 Net asset value and offering price per share ............... $ 9.88 $ 14.99 $ 12.05 CLASS Y: Net assets ................................................. -- $ 60,547,241 -- Shares outstanding (authorized one billion shares of $0.01 par value) ............................................... -- 3,991,939 -- Net asset value and offering price per share ............... -- $ 15.17 --
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 33 Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS For the Six Months Ended March 31, 1998 ................................................................................
SMALL COMPANY EMERGING GROWTH GROWTH GROWTH FUND FUND FUND ------------ ------------- ------------ INCOME: Dividends (net of foreign withholding taxes of $0; $0 and $6,944, respectively) .................................... $ 58,352 $ 494,638 $ 821,151 Interest ................................................... 74,303 332,869 97,373 ------------ ------------- ------------ Total income ............................................. 132,655 827,507 918,524 ------------ ------------- ------------ EXPENSES (NOTE 5): Investment management fee .................................. 132,379 1,071,516 671,406 Distribution and service fees: CLASS A .................................................. 86,347 650,584 477,447 CLASS B .................................................. 3,817 6,118 1,326 CLASS Y .................................................. -- -- -- Transfer agent and dividend disbursing agent fees .......... 31,172 91,339 59,259 Custodian and accounting fees .............................. 20,566 98,260 67,813 Registration fees .......................................... 18,613 31,208 22,487 Reports to shareholders .................................... 6,739 19,083 12,517 Directors' fees ............................................ 4,036 4,036 4,036 Audit and legal fees ....................................... 23,763 27,763 27,763 Other expenses ............................................. 2,530 7,722 5,915 ------------ ------------- ------------ Total expenses ........................................... 329,962 2,007,629 1,349,969 Less Class A expenses waived by the distributor ........ (29,934) (225,413) (165,092) Less expenses waived by the advisor .................... (63,322) -- -- ------------ ------------- ------------ Net expenses before expenses paid indirectly ............. 236,706 1,782,216 1,184,877 Less expenses paid indirectly .......................... (485) (285) (13) ------------ ------------- ------------ Total net expenses ....................................... 236,221 1,781,931 1,184,864 ------------ ------------- ------------ Net investment loss ...................................... (103,566) (954,424) (266,340) ------------ ------------- ------------ NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gain on investments (note 3) .................. 4,009,989 44,740,586 14,806,635 Net change in unrealized appreciation or depreciation of investments .............................................. (1,874,599) (9,483,895) (2,793,871) ------------ ------------- ------------ Net gain on investments .................................. 2,135,390 35,256,691 12,012,764 ------------ ------------- ------------ Net increase in net assets resulting from operations ... $ 2,031,824 $ 34,302,267 $11,746,424 ------------ ------------- ------------ ------------ ------------- ------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 34 Financial Statements (continued) - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS ................................................................................
SMALL COMPANY GROWTH FUND EMERGING GROWTH FUND ------------------------------ ------------------------------- Six Months Six Months Ended 3/31/98 Year Ended Ended 3/31/98 Year Ended (Unaudited) 9/30/97 (Unaudited) 9/30/97 -------------- ------------- -------------- -------------- OPERATIONS: Net investment income (loss) ............................... $ (103,566) $ (224,017) $ (954,424) $ (1,509,425) Net realized gain on investments ........................... 4,009,989 3,716,140 44,740,586 34,831,105 Net change in unrealized appreciation or depreciation of investments .............................................. (1,874,599) 8,021,635 (9,483,895) 25,682,866 -------------- ------------- -------------- -------------- Net increase in net assets resulting from operations ..... 2,031,824 11,513,758 34,302,267 59,004,546 -------------- ------------- -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS: CLASS A: From net investment income ............................... -- (82,567) -- -- From net realized gains .................................. (597,551) (8,846,691) (27,994,020) (27,377,820) CLASS B: From net realized gains .................................. (10,087) -- (119,611) -- CLASS Y: From net realized gains .................................. -- -- (5,981,187) -- -------------- ------------- -------------- -------------- Total distributions ...................................... (607,638) (8,929,258) (34,094,818) (27,377,820) -------------- ------------- -------------- -------------- CAPITAL SHARE TRANSACTIONS (NOTE 4): CLASS A .................................................... (261,705) 2,174,732 1,271,853 (50,186,524) CLASS B .................................................... 469,748 400,314 348,173 860,466 CLASS Y .................................................... -- -- 858,812 49,131,008 -------------- ------------- -------------- -------------- Increase (decrease) in net assets from capital share transactions ........................................... 208,043 2,575,046 2,478,838 (195,050) -------------- ------------- -------------- -------------- Total increase (decrease) in net assets .................. 1,632,229 5,159,546 2,686,287 31,431,676 Net assets at beginning of period .......................... 36,127,458 30,967,912 335,200,364 303,768,688 -------------- ------------- -------------- -------------- Net assets at end of period ................................ $ 37,759,687 $ 36,127,458 $ 337,886,651 $ 335,200,364 -------------- ------------- -------------- -------------- -------------- ------------- -------------- -------------- Accumulated net investment loss ............................ $ (103,566) -- $ (954,424) -- -------------- ------------- -------------- -------------- -------------- ------------- -------------- -------------- GROWTH FUND ------------------------------ Six Months Ended 3/31/98 Year Ended (Unaudited) 9/30/97 ------------- -------------- OPERATIONS: Net investment income (loss) ............................... $ (266,340) $ 237,335 Net realized gain on investments ........................... 14,806,635 24,239,313 Net change in unrealized appreciation or depreciation of investments .............................................. (2,793,871) 30,823,801 ------------- -------------- Net increase in net assets resulting from operations ..... 11,746,424 55,300,449 ------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS: CLASS A: From net investment income ............................... -- (284,304) From net realized gains .................................. (21,147,360) (17,945,057) CLASS B: From net realized gains .................................. (25,233) -- CLASS Y: From net realized gains .................................. -- -- ------------- -------------- Total distributions ...................................... (21,172,593) (18,229,361) ------------- -------------- CAPITAL SHARE TRANSACTIONS (NOTE 4): CLASS A .................................................... 1,328,079 (13,397,914) CLASS B .................................................... 122,669 188,390 CLASS Y .................................................... -- -- ------------- -------------- Increase (decrease) in net assets from capital share transactions ........................................... 1,450,748 (13,209,524) ------------- -------------- Total increase (decrease) in net assets .................. (7,975,421) 23,861,564 Net assets at beginning of period .......................... 202,163,644 178,302,080 ------------- -------------- Net assets at end of period ................................ $ 194,188,223 $ 202,163,644 ------------- -------------- ------------- -------------- Accumulated net investment loss ............................ $ (266,340) -- ------------- -------------- ------------- --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 35 Notes to Financial Statements (Unaudited) - -------------------------------------------------------------------------------- (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 readily available, or if such quotations or valuations are believed to be inaccurate, unreliable or not reflective of market value, portfolio securities are - -------------------------------------------------------------------------------- 36 Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- valued according to procedures adopted by the funds' board of directors in good faith at "fair value", that is, a price that the fund might 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. 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. 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. - -------------------------------------------------------------------------------- 37 Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- 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 six months ended March 31, 1998, were as follows:
SMALL COMPANY EMERGING GROWTH GROWTH FUND GROWTH FUND FUND -------------- ------------ ------------ Purchases .............................. $14,198,235 $ 63,601,296 $ 57,309,154 Proceeds from sales .................... $14,303,535 $ 92,473,371 $ 80,267,356
During the six months ended March 31, 1998, brokerage commissions paid to Piper Jaffray Inc., an affiliated broker, amounted to $10,644, $0 and $2,400 for Small Company Growth Fund, Emerging Growth Fund, and Growth Fund, respectively. (4) CAPITAL SHARE TRANSACTIONS ................................ Capital share transactions for the funds were as follows:
SIX MONTHS ENDED YEAR ENDED MARCH 31, 1998 SEPTEMBER 30, 1997(A) --------------------- ------------------------ SHARES AMOUNT SHARES AMOUNT -------- ----------- ---------- ------------ SMALL COMPANY GROWTH FUND: CLASS A Sales of fund shares ................. 331,118 $ 3,016,883 1,030,455 $ 7,678,103 Issued for reinvested distributions ...................... 64,210 597,551 1,298,315 8,636,664 Redemptions of fund shares ........... (423,573) (3,876,139) (1,806,030) (14,140,035) Issued for stock dividend ............ -- -- 1,555,872 -- -------- ----------- ---------- ------------ (28,245) $ (261,705) 2,078,612 $ 2,174,732 -------- ----------- ---------- ------------ -------- ----------- ---------- ------------ CLASS B Sales of fund shares ................. 64,476 $ 580,950 53,821 $ 424,004 Issued for reinvested distributions ...................... 1,139 10,087 -- -- Redemptions of fund shares ........... (13,138) (121,289) (3,567) (23,690) -------- ----------- ---------- ------------ 52,477 $ 469,748 50,254 $ 400,314 -------- ----------- ---------- ------------ -------- ----------- ---------- ------------
- -------------------------------------------------------------------------------- 38 Notes to Financial Statements (Unaudited) (continued) - --------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED MARCH 31, 1998 SEPTEMBER 30, 1997(A) ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------ EMERGING GROWTH FUND: CLASS A Sales of fund shares ................. 904,869 $ 12,311,107 4,214,135 $ 52,588,314 Issued for reinvested distributions ...................... 2,162,969 27,318,293 2,159,866 26,933,532 Redemptions of fund shares ........... (2,652,081) (36,148,506) (6,351,382) (80,423,986) Redemptions in exchange for Class Y shares ............................. (161,345) (2,209,041) (3,914,798) (49,284,384) ---------- ------------ ---------- ------------ 254,412 $ 1,271,853 (3,892,179) $(50,186,524) ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ CLASS B Sales of fund shares ................. 42,380 $ 574,319 81,216 $ 1,045,576 Issued for reinvested distributions ...................... 9,516 119,611 -- -- Redemptions of fund shares ........... (25,867) (345,757) (13,572) (185,110) ---------- ------------ ---------- ------------ 26,029 $ 348,173 67,644 $ 860,466 ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ CLASS Y Sales of fund shares ................. 2,713,072 $ 36,717,533 907,255 $ 12,792,132 Sales in exchange from Class A shares ............................. 160,699 2,209,041 3,914,209 49,284,384 Issued for reinvested distributions ...................... 451,799 5,724,291 -- -- Redemptions of fund shares ........... (3,218,933) (43,792,053) (936,162) (12,945,508) ---------- ------------ ---------- ------------ 106,637 $ 858,812 3,885,302 $ 49,131,008 ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
SIX MONTHS ENDED YEAR ENDED MARCH 31, 1998 SEPTEMBER 30, 1997(A) ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------ GROWTH FUND: CLASS A Sales of fund shares ................. 639,373 $ 7,334,817 1,726,718 $ 18,865,295 Issued for reinvested distributions ...................... 1,888,911 20,664,690 1,772,740 17,663,981 Redemptions of fund shares ........... (2,341,795) (26,671,428) (4,513,968) (49,927,190) Issued for stock dividend ............ -- -- 8,376,464 -- ---------- ------------ ---------- ------------ 186,489 $ 1,328,079 7,361,954 $(13,397,914) ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ CLASS B Sales of fund shares ................. 9,768 $ 111,562 16,775 $ 191,828 Issued for reinvested distributions ...................... 2,317 25,233 -- -- Redemptions of fund shares ........... (1,174) (14,126) (349) (3,438) ---------- ------------ ---------- ------------ 10,911 $ 122,669 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. Sales charges received by Piper Jaffray Inc. (Piper Jaffray), the funds' distributor, for distributing the funds' shares for the six months ended March 31, 1998, 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 ................ $43,985 $ -- $ 101,036 $ -- $-- $ 35,741 $ -- Contingent deferred sales charges ...... 1,378 4,763 10,600 11,327 -- 2,408 412 ------- -------- --------- -------- --- --------- -------- $45,363 $4,763 $ 111,636 $ 11,327 $-- $ 38,149 $412 ------- -------- --------- -------- --- --------- -------- ------- -------- --------- -------- --- --------- --------
(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 - -------------------------------------------------------------------------------- 39 Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- 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 six months ended March 31, 1998, the effective investment management fee paid by the funds was 0.75%, 0.68% and 0.70% 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 are being voluntarily limited for Class A for the year ending September 30, 1998, 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% -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
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 six months ended March 31, 1998, 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 .......................... $13,526 $61,754 $34,839 Piper Trust ............................ 130 9,560 6,918 -------------- ------------ ------------ $13,656 $71,314 $41,757 -------------- ------------ ------------ -------------- ------------ ------------
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 ending September 30, 1998, Piper Capital is voluntarily limiting 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. - -------------------------------------------------------------------------------- 40 Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- (6) PENDING ACQUISITION ................................ On December 15, 1997, Piper Jaffray Companies Inc., the parent company of the funds' investment advisor, announced that it had entered into an agreement to be acquired by U.S. Bancorp. It is anticipated that this acquisition will be completed in the second quarter of 1998, subject to regulatory approval, the approval of Piper Jaffray Companies shareholders and the satisfaction of customary closing conditions. U.S. Bancorp is a multi-state bank holding company headquartered in Minneapolis, Minnesota with a geographic service area spanning 17 states. As of December 31, 1997, U.S. Bancorp was the 15th largest U.S. commercial bank holding company, with assets of nearly $71.3 billion. U.S. Bank National Association ("U.S. Bank"), a wholly owned subsidiary of U.S. Bancorp, currently acts as the investment advisor to 32 mutual funds (the "First American Funds"). As of December 31, 1997, U.S. Bank, acting through its First American Asset Management group, managed more than $55 billion in assets, including approximately $20.5 billion in assets of the First American Funds. Effective as of the date of the acquisition, SEI Investments Distribution Company will assume the role of the principal distributor for the funds. Under the Investment Company Act of 1940, as amended (the "1940 Act"), consummation of the acquisition of Piper Jaffray Companies by U.S. Bancorp will result in the assignment and automatic termination of the funds' investment advisory agreements with Piper Capital Management Incorporated. The 1940 Act requires that any new investment advisory agreements for the funds be approved by the funds' board of directors and shareholders. (7) SUBSEQUENT EVENTS ................................ CLASS B SHARES NO LONGER OFFERED Effective April 21, 1998, the funds will no longer offer Class B shares. Any outstanding Class B shares of a fund will be automatically converted to Class A shares of the same fund as of the close of business on April 27, 1998. No contingent deferred sales charges or other fees will be imposed in connection with this conversion. FUND CONVERSION In connection with the acquisition of Piper Jaffray Companies Inc. by U.S. Bancorp, the funds' board of directors has recommended that the funds be merged into mutual funds managed by First American Asset Management, a division of U.S. Bank. The proposed fund mergers require shareholder approval, and proxy statements requesting shareholder votes will be mailed in May 1998. If approved, the mergers are expected to occur on or about July 31, 1998. - -------------------------------------------------------------------------------- 41 Notes to Financial Statements (continued) - -------------------------------------------------------------------------------- (8) FINANCIAL HIGHLIGHTS ................................ Per-share data for a share of capital stock outstanding throughout each period and selected information for each period are as follows: SMALL COMPANY GROWTH FUND
CLASS A ---------------------------------------------------------------------- Six Months Ended March 31, Year Ended September 30, 1998 ----------------------------------------------------- (Unaudited) 1997 1996 1995 1994 1993 ----------- -------- -------- -------- -------- -------- PER-SHARE DATA (A) Net asset value, beginning of period ... $ 9.57 $ 9.41 $ 9.73 $ 8.59 $ 8.42 $ 6.79 ----------- -------- -------- -------- -------- -------- Operations: Net investment income (loss) ......... (0.03) (0.09) 0.03 0.05 0.04 0.01 Net realized and unrealized gains on investments ........................ 0.56 3.11 0.48 1.14 0.15 1.65 ----------- -------- -------- -------- -------- -------- Total from operations .............. 0.53 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 .............. (0.16) (2.84) (0.79) -- -- -- ----------- -------- -------- -------- -------- -------- Total distributions to shareholders ..................... (0.16) (2.86) (0.83) (0.05) (0.02) (0.03) ----------- -------- -------- -------- -------- -------- Net asset value, end of period ..... $ 9.94 $ 9.57 $ 9.41 $ 9.73 $ 8.59 $ 8.42 ----------- -------- -------- -------- -------- -------- ----------- -------- -------- -------- -------- -------- SELECTED INFORMATION Total return (b) ....................... 5.72% 45.66% 5.38% 13.88% 2.12% 24.56% Net assets at end of period (in millions) ............................ $ 37 $ 36 $ 31 $ 48 $ 78 $ 84 Ratio of expenses to average daily net assets ............................... 1.33%(e) 1.34% 1.32% 1.40% 1.32% 1.28% Ratio of net investment income (loss) to average daily net assets ............. (0.57)%(e) (0.75)% 0.20% 0.43% 0.37% 0.50% Average commission rate paid on portfolio transactions (c) ........... $ 0.0600 $ 0.0600 $ 0.0600 n/a n/a n/a Portfolio turnover rate (excluding short-term securities) ............... 43% 109% 125% 182% 177% 154% Ratios before waivers by the advisor and/or distributor: Ratio of expenses to average daily net assets before waivers .............. 1.86%(e) 1.98% 1.79% 1.63% 1.54% 1.86% Ratio of net investment income (loss) to average daily net assets before waivers ............................ (1.10)%(e) (1.39)% (0.27)% 0.20% 0.15% (0.08)%
CLASS B ------------------------------------ Six Months Ended Period Ended March 31, 1998 September 30, (Unaudited) 1997(d) --------------- --------------- PER-SHARE DATA Net asset value, beginning of period ............. $ 9.54 $ 7.24 --------------- --------------- Operations: Net investment loss ............................ (0.05) (0.03) Net realized and unrealized gains on investments .................................. 0.55 2.33 --------------- --------------- Total from operations ........................ 0.50 2.30 --------------- --------------- Distributions to shareholders: From net realized gains on investments ......... (0.16) -- --------------- --------------- Net asset value, end of period ............... $ 9.88 $ 9.54 --------------- --------------- --------------- --------------- SELECTED INFORMATION Total return (b) ................................. 5.42% 31.77% Net assets at end of period (in thousands) ....... $ 1,015 $ 480 Ratio of expenses to average daily net assets (e) ............................................ 1.99% 1.98% Ratio of net investment loss to average daily net assets (e) ..................................... (1.27)% (1.49)% Average commission rate paid on portfolio transactions (c) ............................... $ 0.0600 $ 0.0600 Portfolio turnover rate (excluding short-term securities) .................................... 43% 109% Ratios before waivers by the advisor: Ratio of expenses to average daily net assets before waivers (e) ........................... 2.43% 2.15% Ratio of net investment loss to average daily net assets before waivers (e) ................ (1.71)% (1.66)%
(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. - -------------------------------------------------------------------------------- 42 Notes to Financial Statements (continued) - -------------------------------------------------------------------------------- (8) FINANCIAL HIGHLIGHTS ................................ Per-share data for a share of capital stock outstanding throughout each period and selected information for each period are as follows: EMERGING GROWTH FUND
CLASS A -------------------------------------------------------------------------- Six Months Ended Year Ended September 30, March 31, 1998 -------------------------------------------------------- (Unaudited) 1997 1996 1995 1994 1993 -------------- -------- -------- -------- -------- -------- PER-SHARE DATA (A) Net asset value, beginning of period ........ $ 15.25 $ 13.86 $ 12.97 $ 9.63 $ 9.87 $ 7.21 -------------- -------- -------- -------- -------- -------- Operations: Net investment loss ....................... (0.05) (0.08) (0.05) (0.06) (0.04) (0.03) Net realized and unrealized gains (losses) on investments .......................... 1.46 2.72 2.18 3.40 (0.20) 2.69 -------------- -------- -------- -------- -------- -------- Total from operations ................... 1.41 2.64 2.13 3.34 (0.24) 2.66 -------------- -------- -------- -------- -------- -------- Distributions to shareholders: From net realized gains ................... (1.56) (1.25) (1.24) -- -- -- -------------- -------- -------- -------- -------- -------- Net asset value, end of period .......... $ 15.10 $ 15.25 $ 13.86 $ 12.97 $ 9.63 $ 9.87 -------------- -------- -------- -------- -------- -------- -------------- -------- -------- -------- -------- -------- SELECTED INFORMATION Total return (b) ............................ 11.26% 21.04% 17.84% 34.68% (2.38)% 36.92% Net assets at end of period (in millions) ... $ 276 $ 275 $ 304 $ 253 $ 224 $ 191 Ratio of expenses to average daily net assets .................................... 1.18%(e) 1.23% 1.18% 1.24% 1.24% 1.29% Ratio of net investment loss to average daily net assets ................................ (0.66)%(e) (0.55)% (0.41)% (0.51)% (0.38)% (0.34)% Average commission rate paid on portfolio transactions (c) .......................... $ 0.0600 $ 0.0600 $ 0.0600 n/a n/a n/a Portfolio turnover rate (excluding short-term securities) ............................... 21% 51% 44% 33% 31% 30% Ratios before waivers by the advisor and/or distributor: Ratio of expenses to average daily net assets before waivers ................... 1.35%(e) 1.39% 1.37% 1.42% 1.44% 1.49% Ratio of net investment loss to average daily net assets before waivers ......... (0.83)%(e) (0.71)% (0.60)% (0.69)% (0.58)% (0.54)%
CLASS B CLASS Y -------------------------------- -------------------------------- Six Months Six Months Ended Period Ended Ended Period Ended March 31, 1998 September 30, March 31, 1998 September 30, (Unaudited) 1997(d) (Unaudited) 1997(d) -------------- -------------- -------------- -------------- PER-SHARE DATA Net asset value, beginning of period ............. $ 15.20 $ 12.54 $ 15.29 $ 12.54 -------------- -------------- -------------- -------------- Operations: Net investment loss ............................ (0.09) (0.10) (0.02) (0.01) Net realized and unrealized gains on investments .................................. 1.44 2.76 1.46 2.76 -------------- -------------- -------------- -------------- Total from operations ........................ 1.35 2.66 1.44 2.75 -------------- -------------- -------------- -------------- Distributions to shareholders: From net realized gains on investments ......... (1.56) -- (1.56) -- -------------- -------------- -------------- -------------- Net asset value, end of period ............... $ 14.99 $ 15.20 $ 15.17 $ 15.29 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- SELECTED INFORMATION Total return (b) ................................. 10.88% 21.21% 11.45% 21.93% Net assets at end of period (in millions) ........ $ 1 $ 1 $ 61 $ 59 Ratio of expenses to average daily net assets (e) ............................................ 1.85% 1.85% 0.85% 0.87% Ratio of net investment loss to average daily net assets (e) ..................................... (1.33)% (1.16)% (0.33)% (0.16)% Average commission rate paid on portfolio transactions (c) ............................... $ 0.0600 $ 0.0600 $ 0.0600 $ 0.0600 Portfolio turnover rate (excluding short-term securities) .................................... 21% 51% 21% 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. - -------------------------------------------------------------------------------- 43 Notes to Financial Statements (continued) - -------------------------------------------------------------------------------- (8) FINANCIAL HIGHLIGHTS ................................ Per-share data for a share of capital stock outstanding throughout each period and selected information for each period are as follows: GROWTH FUND
CLASS A ----------------------------------------------------------------------------- Six Months Ended Year Ended September 30, March 31, 1998 -------------------------------------------------------- (Unaudited) 1997 1996 1995 1994 1993 ----------------- -------- -------- -------- -------- -------- PER-SHARE DATA (A) Net asset value, beginning of period .......................... $ 12.79 $ 10.58 $ 10.20 $ 9.45 $ 9.65 $ 8.53 ----------------- -------- -------- -------- -------- -------- Operations: Net investment income (loss) .... (0.02) 0.01 0.03 0.04 0.04 0.06 Net realized and unrealized gains (losses) on investments ....... 0.71 3.28 1.55 1.80 (0.18) 1.12 ----------------- -------- -------- -------- -------- -------- Total from operations ......... 0.69 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 ......... (1.35) (1.07) (1.17) (1.05) -- -- ----------------- -------- -------- -------- -------- -------- Total distributions to shareholders ................ (1.35) (1.08) (1.20) (1.09) (0.06) (0.06) ----------------- -------- -------- -------- -------- -------- Net asset value, end of period ...................... $ 12.13 $ 12.79 $ 10.58 $ 10.20 $ 9.45 $ 9.65 ----------------- -------- -------- -------- -------- -------- ----------------- -------- -------- -------- -------- -------- SELECTED INFORMATION Total return (b) .................. 6.52% 34.09% 16.87% 20.60% (1.51)% 13.85% Net assets at end of period (in millions) ....................... $ 194 $ 202 $ 178 $ 172 $ 195 $ 252 Ratio of expenses to average daily net assets ...................... 1.24%(e) 1.26% 1.24% 1.27% 1.23% 1.26% Ratio of net investment income (loss) to average daily net assets .......................... (0.28)%(e) 0.13% 0.28% 0.40% 0.43% 0.66% Average commission rate paid on portfolio transactions (c) ...... $0.0600 $ 0.0600 $ 0.0600 n/a n/a n/a Portfolio turnover rate (excluding short-term securities) .......... 30% 44% 19% 80% 11% 45% Ratios before waivers by the distributor: Ratio of expenses to average daily net assets before waivers ....................... 1.41%(e) 1.42% 1.43% 1.45% 1.42% 1.44% Ratio of net investment income (loss) to average daily net assets before waivers ......... (0.45)%(e) (0.03)% 0.09% 0.22% 0.24% 0.48%
CLASS B ---------------------------------- Six Months Ended Period Ended March 31, 1998 September 30, (Unaudited) 1997(d) ----------------- -------------- PER-SHARE DATA Net asset value, beginning of period ... $ 12.75 $ 10.53 ----------------- -------------- Operations: Net investment loss .................. (0.05) (0.03) Net realized and unrealized gains on investments ........................ 0.70 2.25 ----------------- -------------- Total from operations .............. 0.65 2.22 ----------------- -------------- Distributions to shareholders: From net realized gains on investments ........................ (1.35) -- ----------------- -------------- Net asset value, end of period ..... $ 12.05 $ 12.75 ----------------- -------------- ----------------- -------------- SELECTED INFORMATION Total return (b) ....................... 6.20% 21.08% Net assets at end of period (in thousands) ........................... $ 329 $ 209 Ratio of expenses to average daily net assets (e) ........................... 1.91% 1.90% Ratio of net investment loss to average daily net assets (e) ................. (0.93)% (0.74)% Average commission rate paid on portfolio transactions (c) ........... $0.0600 $0.0600 Portfolio turnover rate (excluding short-term securities) ............... 30% 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. - -------------------------------------------------------------------------------- 44 Investments in Securities (Unaudited) - --------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND March 31, 1998 ....................................................................................... Number Market Description of Security of Shares Value (a) - --------------------------------------------------------- ----------- ------------ (PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS) COMMON STOCK (93.3%): BASIC MATERIALS (5.8%): AptarGroup Inc. ..................................... 7,000 $ 420,437 Brunswick Technologies .............................. 20,000(b) 280,000 ChiRex Inc. ......................................... 14,500(b) 274,594 Cuno Inc. ........................................... 27,000(b) 594,000 OM Group ............................................ 15,000 631,875 ------------ 2,200,906 ------------ CAPITAL GOODS AND SERVICES (8.4%): American Disposal Services, Inc. .................... 12,000(b) 453,000 Casella Waste Systems Class A ....................... 15,000(b) 396,562 CompX International ................................. 15,000(b) 350,625 Control Devices Inc. ................................ 20,000(b) 307,500 Dura Automotive Systems 'A' ......................... 10,800(b) 346,950 Kuhlman Corp. ....................................... 4,200 204,487 Miller (Herman) ..................................... 18,000 603,562 Rental Service ...................................... 22,000(b) 511,500 ------------ 3,174,186 ------------ COMMERCIAL SERVICES (7.3%): ABR Information Services ............................ 13,000(b) 365,625 American Building Maintenance ....................... 10,000 310,625 G & K Services Class A .............................. 13,500 592,312 Learning Tree International ......................... 15,000(b) 331,875 U.S. Foodservice .................................... 20,000(b) 736,250 Wackenhut Corrections ............................... 17,000(b) 426,062 ------------ 2,762,749 ------------ CONSUMER NON-DURABLES (2.7%): 1-800 CONTACTS Inc. ................................. 10,000(b) 198,750 Columbia Sportswear ................................. 20,000(b) 422,500 Home Products International Inc. .................... 25,000(b) 403,125 ------------ 1,024,375 ------------ CONSUMER SERVICES (7.6%): Carriage Services 'A' ............................... 20,000(b) 480,000 Chancellor Media Corp. .............................. 11,000(b) 504,625 Computer Learning Centers ........................... 19,000(b) 318,250 Consolidated Products ............................... 12,500(b) 240,625 Equity Corp. International .......................... 17,000(b) 406,937 PJ America Inc. ..................................... 23,000(b) 414,000 Strayer Education ................................... 15,000 498,750 ------------ 2,863,187 ------------ ENERGY (5.2%): Dril-Quip Inc. ...................................... 12,500(b) 406,250 IRI International Corp. ............................. 30,000(b) 367,500 Newpark Resources ................................... 18,000(b) 328,500 St. Mary Land Exploration ........................... 11,000 420,406 Tuboscope Inc. ...................................... 22,000(b) 418,000 ------------ 1,940,656 ------------
Number Market Description of Security of Shares Value (a) - --------------------------------------------------------- ----------- ------------ FINANCIAL SERVICES (11.4%): Affiliated Managers Group ........................... 20,000(b) $ 697,500 AMRESCO Inc. ........................................ 17,000(b) 556,750 ARM Financial Group Class A ......................... 19,000 440,563 Commerce Bancorp .................................... 8,966 493,690 Financial Federal ................................... 19,000(b) 484,500 First Republic Bancorp (CA) ......................... 10,000(b) 360,000 GBC Bancorp ......................................... 6,000 400,875 Stirling Cooke Brown Holdings Ltd. .................. 13,000(c) 347,750 Westamerica Bancorporation .......................... 15,900 530,663 ------------ 4,312,291 ------------ HEALTH CARE (12.5%): Alpha 1 Biomedicals, Inc. ........................... 5,391(b) 243 Biosite Diagnostics ................................. 15,000(b) 244,688 Centennial HealthCare ............................... 10,000(b) 251,250 Cyberonics .......................................... 11,800(b) 376,125 Cytyc Corp. ......................................... 11,000(b) 275,000 Daou Systems Inc. ................................... 18,200(b) 356,038 Express Scripts 'A' ................................. 7,000(b) 593,469 Medical Manager ..................................... 14,000(b) 406,000 Novoste Corp. ....................................... 9,000(b) 233,438 Perclose Inc. ....................................... 12,000(b) 339,750 Physio-Control International ........................ 11,000(b) 192,500 PSS World Medical ................................... 19,500(b) 458,250 QuadraMed ........................................... 8,000(b) 267,000 Scherer (R.P.) ...................................... 8,000(b) 540,000 Urogen .............................................. 10,000(b) -- Urologix Inc. ....................................... 20,000(b) 185,625 ------------ 4,719,376 ------------ RETAIL TRADE (9.4%): 99 (Cents) Only Stores .............................. 13,250(b) 462,922 Duane Reade Inc. .................................... 20,000(b) 511,250 Fred's Inc. ......................................... 15,000 373,125 Hibbett Sporting Goods .............................. 26,000(b) 721,500 O'Reilly Automotive ................................. 13,000(b) 358,313 Pier 1 Imports ...................................... 15,000 406,875 Stage Stores ........................................ 14,000(b) 722,750 ------------ 3,556,735 ------------ TECHNOLOGY (19.8%): Applied Micro Circuits .............................. 10,000(b) 225,000 Aris Corp. .......................................... 15,500(b) 461,125 Aspect Development .................................. 9,000(b) 493,875 Industri-Matematik International .................... 15,000(b) (c) 470,625 ISS Group ........................................... 5,400(b) 209,925 Made2Manage Systems ................................. 35,000(b) 341,250 Ontrack Data International .......................... 30,000(b) 487,500 P-COM Inc. .......................................... 29,000(b) 580,000 Peerless Systems .................................... 35,000(b) 630,000 Photronics, Inc. .................................... 14,000(b) 392,000 PMC-Sierra Inc. ..................................... 17,500(b) (c) 665,000 RELTEC Corp. ........................................ 5,300(b) 187,819 Sipex Corp. ......................................... 20,000(b) 660,000 Technology Solutions ................................ 15,000(b) 397,500 Tecnomatix Technologies Ltd. ........................ 10,000(b) (c) 376,250 Tier Technologies ................................... 35,000(b) 603,750
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES. - -------------------------------------------------------------------------------- 45 Investments in Securities (Unaudited) (continued) - -------------------------------------------------------------------------------- SMALL COMPANY GROWTH FUND (CONTINUED)
Number of Shares or Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------ Wonderware Corp. .................................... 12,000(b) $ 286,500 ------------ 7,468,119 ------------ TRANSPORTATION (2.3%): C.H. Robinson Worldwide ............................. 12,000 312,000 Knightsbridge Tankers Ltd. .......................... 20,000(c) 570,000 ------------ 882,000 ------------ UTILITIES (0.9%): Quanta Services Inc. ................................ 20,000(b) 331,250 ------------ Total Common Stock (cost: $25,633,649) ............................ 35,235,830 ------------ SHORT-TERM SECURITIES (7.7%): Repurchase agreement with Goldman Sachs, acquired on 3/31/98, interest of $486, 6.00%, 4/1/98 (cost: $2,914,000) ................................ $ 2,914,000(d) 2,914,000 ------------ Total Investments in Securities (cost: $28,547,649) (e) ........................ $ 38,149,830 ------------ ------------
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 MARCH 31, 1998, IS $2,429,625, WHICH REPRESENTS 6.4% 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) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED ON THIS COST WERE AS FOLLOWS: GROSS UNREALIZED APPRECIATION ...... $ 10,135,395 GROSS UNREALIZED DEPRECIATION ...... (533,214) ------------ NET UNREALIZED APPRECIATION ...... $ 9,602,181 ------------ ------------
- -------------------------------------------------------------------------------- 46 Investments in Securities (Unaudited) - --------------------------------------------------------------------------------
EMERGING GROWTH FUND March 31, 1998 ....................................................................................... Number Market Description of Security of Shares Value (a) - --------------------------------------------------------- ----------- ------------ (PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS) COMMON STOCK (96.6%): BASIC MATERIALS (6.4%): AptarGroup Inc. ..................................... 60,000 $ 3,603,750 Bemis Co. ........................................... 70,000 3,158,750 Ecolab Inc. ......................................... 154,000 4,466,000 Sealed Air .......................................... 81,000(b) 5,305,500 Valspar Corp. ....................................... 128,000 5,024,000 ------------ 21,558,000 ------------ CAPITAL GOODS AND SERVICES (8.0%): Allied Waste Industries ............................. 152,500(b) 3,807,734 Danaher Corp. ....................................... 100,000 7,593,750 Miller (Herman) ..................................... 162,000 5,432,062 Molex Inc. Class A .................................. 93,750 2,513,672 Pentair, Inc. ....................................... 100,000 4,475,000 Tower Automotive .................................... 73,800(b) 3,321,000 ------------ 27,143,218 ------------ COMMERCIAL SERVICES (6.8%): Cintas Corp. ........................................ 70,000 3,622,500 Corrections Corp. of America ........................ 100,000(b) 3,412,500 G & K Services Class A .............................. 50,000 2,193,750 Richfood Holdings ................................... 167,500 5,360,000 Servicemaster Company ............................... 60,000 1,713,750 U.S. Foodservice .................................... 105,000(b) 3,865,312 Wackenhut Corrections ............................... 110,000(b) 2,756,875 ------------ 22,924,687 ------------ CONSUMER DURABLES (1.2%): Newell Co. .......................................... 85,000 4,117,187 ------------ CONSUMER NON-DURABLES (3.1%): Rexall Sundown ...................................... 115,000(b) 3,917,187 Sola International .................................. 155,000(b) 6,422,813 ------------ 10,340,000 ------------ CONSUMER SERVICES (11.4%): Apollo Group Class A ................................ 110,000(b) 5,293,750 Chancellor Media Corp. .............................. 140,000(b) 6,422,500 Clear Channel Communication ......................... 76,000(b) 7,448,000 DeVRY Inc. .......................................... 120,000(b) 4,102,500 Premier Parks ....................................... 60,000(b) 3,480,000 Regal Cinemas ....................................... 130,000(b) 3,900,000 Stewart Enterprises Class A ......................... 145,000 8,065,625 ------------ 38,712,375 ------------ ENERGY (6.2%): Camco International ................................. 57,000 3,448,500 National-Oilwell .................................... 100,000(b) 3,281,250 Newfield Exploration ................................ 166,570(b) 4,341,231 Noble Affiliates .................................... 110,000 4,578,750 Noble Drilling Corp. ................................ 100,000 3,056,250 Smith International ................................. 39,000(b) 2,147,438 ------------ 20,853,419 ------------
Number Market Description of Security of Shares Value (a) - --------------------------------------------------------- ----------- ------------ FINANCIAL SERVICES (12.5%): AMRESCO Inc. ........................................ 125,000(b) $ 4,093,750 Charter One Financial ............................... 80,000 5,355,000 FINOVA Group ........................................ 115,000 6,770,625 MGIC Investment ..................................... 80,000 5,255,000 ReliaStar Financial ................................. 87,500 4,030,469 Schwab (Charles) Corp. .............................. 100,000 3,800,000 Star Banc Corp. ..................................... 106,110 6,273,754 TCF Financial ....................................... 200,000 6,787,500 ------------ 42,366,098 ------------ HEALTH CARE (12.5%): BioChem Pharma ...................................... 137,650(b) (c) 3,329,409 Cardinal Health ..................................... 35,000 3,086,563 DENTSPLY International .............................. 146,000 4,553,375 Elan Corp. PLC - ADR ................................ 130,000(b) (c) 8,401,250 Genzyme Corp. - General Division .................... 100,000(b) 3,200,000 Guidant Corp. ....................................... 25,000 1,834,375 Health Management Association ....................... 150,000(b) 4,293,750 PSS World Medical ................................... 215,000(b) 5,052,500 Quintiles Transnational ............................. 103,250(b) 4,975,359 Stryker Corp. ....................................... 73,400 3,440,625 ------------ 42,167,206 ------------ RETAIL TRADE (6.4%): Consolidated Stores ................................. 120,000(b) 5,152,500 Dollar General ...................................... 140,625 5,440,430 Kohl's Corp. ........................................ 45,000(b) 3,678,750 Stage Stores ........................................ 140,000(b) 7,227,500 ------------ 21,499,180 ------------ TECHNOLOGY (22.1%): ADC Telecommunications .............................. 130,000(b) 3,583,125 Advanced Fibre Communications ....................... 58,000(b) 2,109,750 Analog Devices ...................................... 100,000(b) 3,325,000 Ascend Communications ............................... 100,000(b) 3,787,500 Cambridge Technology Partners Inc. .................. 108,000(b) 5,352,750 CIENA Corp. ......................................... 78,000(b) 3,324,750 Comverse Technology ................................. 100,000(b) 4,887,500 EMC Corp. ........................................... 200,000(b) 7,562,500 Etec Systems ........................................ 73,000(b) 4,307,000 Fiserv Inc. ......................................... 80,000(b) 5,070,000 Legato Systems ...................................... 53,785(b) 3,193,484 Level One Communications ............................ 144,000(b) 3,384,000 Manugistics Group Inc. .............................. 77,200(b) 4,328,025 Sterling Commerce ................................... 120,300(b) 5,578,913 SunGard Data Systems ................................ 130,000(b) 4,785,625 Tellabs, Inc. ....................................... 60,000(b) 4,027,500 Teradyne Inc. ....................................... 60,000(b) 2,403,750 Vantive Corp. ....................................... 100,000(b) 3,656,250 ------------ 74,667,422 ------------ Total Common Stock (cost: $196,214,147) ........................... 326,348,792 ------------
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES. - -------------------------------------------------------------------------------- 47 Investments in Securities (Unaudited) (continued) - -------------------------------------------------------------------------------- EMERGING GROWTH FUND (CONTINUED)
Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------ SHORT-TERM SECURITIES (5.8%): Repurchase agreement with Goldman Sachs, acquired on 3/31/98, interest of $3,246, 6.00%, 4/1/98 (cost: $19,474,000) ............................... $19,474,000(d) $ 19,474,000 ------------ Total Investments in Securities (cost: $215,688,147) (e) ....................... $345,822,792 ------------ ------------
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 MARCH 31, 1998, IS $11,730,659, WHICH REPRESENTS 3.5% 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) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED ON THIS COST WERE AS FOLLOWS: GROSS UNREALIZED APPRECIATION ...... $130,646,095 GROSS UNREALIZED DEPRECIATION ...... (511,450) ------------ NET UNREALIZED APPRECIATION ...... $130,134,645 ------------ ------------
- -------------------------------------------------------------------------------- 48 Investments in Securities (Unaudited) - --------------------------------------------------------------------------------
GROWTH FUND March 31, 1998 ....................................................................................... Number Market Description of Security of Shares Value (a) - --------------------------------------------------------- ----------- ------------ (PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS) COMMON STOCK (96.6%): BASIC MATERIALS (4.3%): Morton International ................................ 100,000 $ 3,281,250 Praxair Inc. ........................................ 100,000 5,143,750 ------------ 8,425,000 ------------ CAPITAL GOODS AND SERVICES (13.9%): Allegheny Teledyne .................................. 70,000 1,946,875 AlliedSignal Inc. ................................... 200,000 8,400,000 Magna International Class A ......................... 100,000(c) 7,793,750 Masco Corp. ......................................... 35,000 2,082,500 Pentair, Inc. ....................................... 150,000 6,712,500 ------------ 26,935,625 ------------ COMMERCIAL SERVICES (1.3%): Sensormatic Electronics ............................. 150,000 2,456,250 ------------ CONSUMER DURABLES (2.5%): Ford Motor .......................................... 75,000 4,860,937 ------------ CONSUMER NON-DURABLES (1.0%): Mattel, Inc. ........................................ 50,000 1,981,250 ------------ CONSUMER SERVICES (2.2%): McDonald's Corp. .................................... 70,000 4,200,000 ------------ ENERGY (14.4%): Anadarko Petroleum .................................. 50,000 3,450,000 Baker Hughes Inc. ................................... 175,000 7,043,750 Schlumberger Ltd. ................................... 110,000 8,332,500 Transocean Offshore Inc. ............................ 180,000 9,258,750 ------------ 28,085,000 ------------ FINANCIAL SERVICES (18.4%): American International Group ........................ 60,000 7,556,250 Federal National Mortgage Association . 100,000 6,325,000 FINOVA Group ........................................ 100,000 5,887,500 Franklin Resources .................................. 80,000 4,240,000 Norwest Corp. ....................................... 200,000 8,312,500 TCF Financial ....................................... 100,000 3,393,750 ------------ 35,715,000 ------------ HEALTH CARE (6.4%): Endosonics Corp. .................................... 150,000(b) 1,556,250 Medtronic, Inc. ..................................... 40,000 2,075,000 St. Jude Medical .................................... 150,000(b) 5,015,625 United Healthcare ................................... 60,000 3,885,000 ------------ 12,531,875 ------------ RETAIL TRADE (3.7%): Albertson's, Inc. ................................... 50,000 2,631,250 Gap Inc. ............................................ 100,000 4,500,000 ------------ 7,131,250 ------------
Number of Shares or Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------ TECHNOLOGY (16.1%): 3Com Corp ........................................... 75,000(b) $ 2,695,312 ADC Telecommunications .............................. 150,000(b) 4,134,375 CIENA Corp. ......................................... 50,000(b) 2,131,250 Cisco Systems, Inc. ................................. 60,000(b) 4,102,500 Compaq Computer ..................................... 75,000 1,940,625 EMC Corp. ........................................... 125,000(b) 4,726,563 Hewlett-Packard Co. ................................. 45,000 2,851,875 Intel Corp. ......................................... 30,000 2,341,875 Seagate Technology .................................. 100,000(b) 2,525,000 Tech Data Corp. ..................................... 100,000(b) 3,850,000 ------------ 31,299,375 ------------ TRANSPORTATION (3.3%): AMR Corp. ........................................... 30,000(b) 4,295,625 Burlington Northern Santa Fe ........................ 20,000 2,080,000 ------------ 6,375,625 ------------ UTILITIES (9.1%): AirTouch Communications ............................. 200,000(b) 9,787,500 Enron ............................................... 100,000 4,637,500 WorldCom, Inc. ...................................... 75,000(b) 3,229,688 ------------ 17,654,688 ------------ Total Common Stock (cost: $105,512,032) ........................... 187,651,875 ------------ SHORT-TERM SECURITIES (3.4%): Repurchase agreement with Goldman Sachs, acquired on 3/31/98, interest of $1,102, 6.00%, 4/1/98 (cost: $6,610,000) ................................ $ 6,610,000(d) 6,610,000 ------------ Total Investments in Securities (cost: $112,122,032) (e) ....................... $194,261,875 ------------ ------------
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 MARCH 31,1998, IS $7,793,750, WHICH REPRESENTS 4.0% 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) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED ON THIS COST WERE AS FOLLOWS: GROSS UNREALIZED APPRECIATION ...... $ 85,049,216 GROSS UNREALIZED DEPRECIATION ...... (2,909,373) ------------ NET UNREALIZED APPRECIATION ...... $ 82,139,843 ------------ ------------
- -------------------------------------------------------------------------------- 49 GROWTH AND INCOME FUND - -------------------------------------------------------------------------------- May 17, 1998 - -------------------------------------------------------------------------------- [PHOTO] STEVE MARKUSEN, CFA shares responsibility for the management of Growth and Income Fund. He has 14 years of financial experience. - -------------------------------------------------------------------------------- DEAR SHAREHOLDERS: FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1998, GROWTH AND INCOME FUND CLASS A RETURNED 11.72%,* WITH ALL DISTRIBUTIONS REINVESTED, BUT NOT INCLUDING THE FUND'S SALES CHARGE. These results were below the 12.49% return for the Lipper Growth and Income Funds Average.+ The stock market continued its upward move with most major indexes recording strong gains. High levels of volatility characterized the market during the last six months as the Dow Jones Industrial Average dropped more than 500 points in mid-October but went on to record levels as the first quarter of 1998 ended. The fund achieved excellent results from several large holdings and its exposure to interest rate sensitive sector*** of the market. However, poor relative results from the fund's energy holdings caused its performance to lag that of its Lipper peer group. STRONG APPRECIATION FROM SEVERAL LARGE HOLDINGS IN THE FUND HAD A POSITIVE IMPACT ON PERFORMANCE. Ford Motor Co. (3.6% of the fund's total assets as of March 31, 1998) posted higher earnings due to improved profitability at its North American automotive unit. The low valuation of Ford's automotive assets, along with its strong earnings improvement, allowed the stock to sharply appreciate during the period. AirTouch Communications (2.9%) maintained its leadership position in wireless communications by posting subscriber additions, cash flow, profit margins and earnings *** - This symbol represents a graduation cap, used throughout this report to indicate terms defined in the glossary. - -------------------------------------------------------------------------------- PERFORMANCE THROUGH MARCH 31, 1998* - -------------------------------------------------------------------------------- Growth of $10,000 Invested Since Inception
Growth and Income Fund S&P 500 Index** Lipper Growth and Income Class A, reflects the fund's Funds Average + maximum 4% sales charge 9600 10000 10000 9715 10000 10000 9504 9795 9804.01 9610 9910 9919.2 9446 9945 9981.54 9677 10283 10354.7 9751 10409 10522.9 9692 10496 10645.1 9789 10639 10732.7 9934 10864 11021.4 9788 10601 10825.8 9983 10885 11081.6 9886 10917 11139.5 9886 10873 11139.4 10218 11285 11546 10130 11199 11547.5 10326 11431 11719.8 10287 11322 11554.5 10347 11459 11824.5 10685 11848 12200.1 10377 11527 11958.8 9987 11024 11469.8 10047 11165 11588.6 10267 11349 11692.5 10005 11070 11430.1 10296 11434 11748.6 10598 11903 12198.9 10386 11612 11930.2 10487 11873 12055.3 10214 11440 11611.8 10463 11610 11732.2 10647 11911 11906.2 11076 12375 12348.4 11436 12740 12661.5 11806 13116 12965.3 12289 13640 13390.4 12444 13957 13683.6 12733 14419 14149.1 12815 14456 14249.7 13379 15066 14701.4 13410 15012 14515.2 14093 15671 15134 14410 15973 15376.2 14769 16516 15800.7 14790 16670 16023.9 15180 16830 16218.8 15392 17078 16492 15731 17519 16803.8 15784 17585 16767 15084 16808 16060.2 15338 17163 16513.8 15996 18129 17272.7 16442 18629 17624.6 17533 20037 18788.7 17294 19640 18591.1 18037 20867 19428.1 18082 21031 19537.7 17384 20167 18841 17968 21371 19561.6 18942 22672 20756.5 19563 23687 21573.2 21192 25570 23169.8 20148 24138 22364.2 21094 25461 23504.5 20308 24611 22712.7 21045 25750 23338.3 21379 26193 23752.7 21508 26481 23768.4 22945 28391 25379.5 23566 29844 26509.3
** An unmanaged index of large-capitalization stocks that includes no expenses or transaction charges. + 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 30.14% - -------------------------------------------------------------------------------- Five Year 17.88% - -------------------------------------------------------------------------------- Since Inception (7/27/92) 16.29% - -------------------------------------------------------------------------------- CLASS B & Y AVERAGE ANNUALIZED 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 One Year 30.62% - -------------------------------------------------------------------------------- Class B Since Inception (2/18/97) 20.32% - -------------------------------------------------------------------------------- Class Y One Year 35.95% - -------------------------------------------------------------------------------- Class Y Since Inception (2/18/97) 24.98% - --------------------------------------------------------------------------------
* PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of your investment will fluctuate so that fund shares, when sold, may be worth more or less than their original cost. Neither safety of principal nor stability of income is 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. - -------------------------------------------------------------------------------- 50 1998 Semiannual Report - Piper Funds GROWTH AND INCOME FUND (CONTINUED) - -------------------------------------------------------------------------------- [PHOTO] BRENT MELLUM, CFA shares responsibility for the management of Growth and Income Fund. He has four years of financial experience. - -------------------------------------------------------------------------------- that were above consensus expectations. Carnival Corp. (1.8%), the leading cruise operator, was also a strong performer due to excellent pricing trends and high occupancy levels that led to good earnings growth. These stocks highlight the fund's investment process of identifying attractively valued companies with above average earnings and dividend growth prospects. THE FUND WAS OVERWEIGHTED IN SECTORS THAT ARE SENSITIVE TO INTEREST RATES, WHICH ALSO HAD A POSITIVE IMPACT ON PERFORMANCE. Financial stocks continued to perform well as lower interest rates highlighted attractive valuations.*** Norwest Corp. (2.7%), Federal National Mortgage Corp. (3.1%) and Associates First Capital Corp. (1.6%) recorded strong gains due to above average earnings growth. The utility sector benefited from its position as a safe haven during the volatile fourth quarter of 1997. Telecommunications utilities such as BellSouth Corp. (2.1%) and GTE Corp. (2.4%) and electric utility FPL Group (2.5%) registered price appreciation and provided the fund with income from their above average dividends. THE FUND'S OVERWEIGHTED*** POSITION IN ENERGY STOCKS HAMPERED PERFORMANCE DURING THE PERIOD. Short-term factors, including a slowdown in Asian demand and a warmer than normal winter in North America, resulted in a near-term excess supply of oil in the world's energy markets. This caused the price of oil to fall dramatically, reducing earnings expectations for the group as a whole, which led to poor stock performance. Oil service companies like Schlumberger (1.7%) and Baker Hughes (1.3%) performed poorly as low oil prices lowered growth prospects for 1998. LONGER TERM, WE ARE STILL POSITIVE ON THE SUPPLY/DEMAND OUTLOOK FOR OIL. We anticipate steady demand growth over the next few years, which will ease the current oversupply. Given this viewpoint, we *** - This symbol represents a graduation cap, used throughout this report to indicate terms defined in the glossary. PORTFOLIO COMPOSITION BY SECTOR - -------------------------------------------------------------------------------- As a percentage of total assets on March 31, 1998
GROWTH AND INCOME FUND S&P 500 INDEX** Basic Materials 3.34 5 Capital Goods & Services 9.36 10 Commercial Services 0 1 Consumer Durables 6.14 3 Consumer Non-Durables 8.32 11 Consumer Services 3.4 4 Energy 8.49 8 Financial Services 16.7 17 Health Care 11.6 12 Retail Trade 3.09 5 Short-Term 2.43 0 Technology 12.4 13 Transportation 2.38 1 Utilities 11.67 10
** An unmanaged index of large-capitalization stocks that includes no expenses or transaction charges. TOP 10 EQUITY HOLDINGS - -------------------------------------------------------------------------------- As a percentage of total assets on March 31, 1998 As a percentage of total assets
1 Ford Motor 3.6% - -------------------------------------------------------------------------------- 2 General Electric 3.4% - -------------------------------------------------------------------------------- 3 Merck & Co. 3.4% - -------------------------------------------------------------------------------- 4 BankAmerica 3.2% - -------------------------------------------------------------------------------- 5 FNMA (Fannie Mae) 3.1% - -------------------------------------------------------------------------------- 6 AirTouch Communications 2.9% - -------------------------------------------------------------------------------- 7 Norwest 2.7% - -------------------------------------------------------------------------------- 8 Abbott Laboratories 2.5% - -------------------------------------------------------------------------------- 9 FPL Group 2.5% - -------------------------------------------------------------------------------- 10 AlliedSignal 2.5% - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 51 1998 Semiannual Report - Piper Funds GROWTH AND INCOME FUND (CONTINUED) - -------------------------------------------------------------------------------- believe major integrated oil companies such as Exxon (2.2%) and Texaco (2.4%) will benefit from rising production levels and higher utilization rates that should improve profit margins and earnings. Both companies are attractively valued and provide income to the fund from their above average dividend payments. We also think oil service companies, primarily Schlumberger, are attractively valued given the strong earnings growth we anticipate over the next several years. MODERATE ECONOMIC GROWTH AND LOW INFLATION WILL CONTINUE TO PROVIDE AN EXCELLENT BACKDROP FOR THE EQUITY MARKET. However, we remain cautious over the near term due to increased volatility and high valuations in certain sectors of the market. We believe the fund offers investors a diversified portfolio of large, high-quality companies. Our investment process continues to focus on identifying attractively valued companies with above-average earnings and dividend growth potential or companies that are undervalued in the marketplace. We believe this process will deliver consistent, competitive performance and fulfill the fund's investment objective of current income and growth of capital and income. Thank you for your investment in Growth and Income Fund. We appreciate the opportunity to manage your assets and help you pursue your long-term investment goals. Sincerely, /s/ Steve Markusen /s/ Brent Mellum Steve Markusen Brent Mellum Portfolio Manager Portfolio Manager - -------------------------------------------------------------------------------- 52 1998 Semiannual Report - Piper Funds BALANCED FUND - -------------------------------------------------------------------------------- May 17, 1998 - -------------------------------------------------------------------------------- [PHOTO] DAVID STEELE shares responsibility for the management of the fixed income portion of Balanced Fund. He has 19 years of financial experience. DEAR SHAREHOLDERS: FOR THE SIX MONTHS ENDED MARCH 31, 1998, BALANCED FUND CLASS A PROVIDED A 7.85%* TOTAL RETURN WITH ALL DISTRIBUTIONS REINVESTED BUT NOT INCLUDING THE SALES CHARGE. The fund fell short of the 8.92% gain reported by the Lipper Balanced Funds Average,++ mainly because we held a smaller proportion of stocks (slightly more than 50%) than the average (about 60%, according to our estimates). We continued our conservative stock position because U.S. equities appeared fully valued, if not expensive, and bonds showed better value. As it turned out, stocks resumed their rapid ascent in the first quarter, outperforming bonds by a considerable margin. During the same time period, the Lehman Brothers Government Corporate Index** and the Standard & Poor's 500 Index+ advanced 4.77% and 17.21%, respectively. THE BOND PORTION OF YOUR FUND PERFORMED WELL, DUE TO A MODEST OVERWEIGHTING*** IN CORPORATE AND MORTGAGE-BACKED SECURITIES. Our bond portfolio's effective duration*** was essentially the same as that of its benchmark.*** Changes in the fund's bond holdings were minor during the period. We focused on the purchase and sale of select Treasury securities. Overall, we continued our existing strategy of emphasizing as much income as prudent. *** - This symbol represents a graduation cap, used throughout this report to indicate terms defined in the glossary. - -------------------------------------------------------------------------------- PERFORMANCE THROUGH MARCH 31, 1998* - -------------------------------------------------------------------------------- Growth of $10,000 Invested Since Inception
Balanced Fund S&P 500 Index+ Lehman Brothers Lipper Balanced Class A, reflects the Government Funds Average++ fund's maximum Corporate Index** 4% sales charge 9600 10000 10000 10000 9581 10000 10000 10000 9331 9911 9734 9831.03 9274 9997 9691 9832.06 9490 10502 9811 10105.6 9654 11034 9790 10358.3 9819 11446 9735 10577.9 9604 11195 9526 10390.2 8809 8784 9883 9039.36 8534 8060 9945 8732.57 8809 8673 10081 9146.47 9120 9038 10427 9476.87 9320 9459 10547 9809.5 9052 9167 10443 9653.84 9042 9268 10382 9702.37 8992 9349 10313 9678.95 9319 9778 10546 10037.8 9299 9740 10485 9976.98 9206 9410 10513 9836.37 9456 9811 10743 10112.2 9560 10084 10933 10297.9 9415 9940 10810 10176.1 9469 10114 10846 10291.3 9797 10854 10991 10715.1 9691 10584 10907 10594.9 9765 10831 10965 10746 10064 11393 11197 11100.4 10385 11854 11473 11440.3 10448 11787 11847 11499.6 10945 12851 12093 12086.8 10999 13102 11906 12201.7 10918 13049 11958 12181.8 10787 12746 12261 12017.2 10863 13006 12371 12160.2 11072 13318 12390 12280.3 10549 12424 12220 11736 10572 12584 12247 11836 10577 12918 12248 11980.8 10387 12595 12135 11764.9 11091 13823 12487 12446.9 11157 13730 12689 12486.2 11067 13686 12847 12467.9 10323 12449 12661 11766.2 10096 11843 12766 11421.1 10050 11793 12935 11385 10529 12555 13217 11919 10768 12905 13417 12211.7 11185 13467 13567 12652.1 11741 14430 13684 13252.3 11956 14779 13778 13503.3 12049 14814 13937 13579 12493 15453 14002 14019.4 12101 14745 13987 13587.3 12466 15433 14163 14038.5 12807 15798 14489 14379 12796 15534 14792 14374.7 12951 15743 14923 14560.1 12570 15109 15073 14217.6 13718 16837 15581 15291.4 13573 16523 15350 15184.5 13815 16737 15431 15366.6 13621 16411 15346 15152.7 13986 16893 15439 15346.9 14180 16976 15738 15538.1 14132 16723 15969 15423.9 14549 17406 16378 15891.8 14463 17050 16524 15744.8 14684 17250 16749 15932 14585 17310 16492 15913.6 15018 17899 16478 16279 15180 18119 16761 16514.9 15410 18271 17126 16733.7 15576 18520 17483 16935.5 15780 18910 17542 17270.5 15535 18453 17677 17169.5 15780 18947 17668 17421.9 15793 19002 18069 17603.1 15689 18926 18185 17654.7 16116 19644 18603 18193 15934 19493 18668 18226.2 16156 19897 18745 18438 16182 19707 18533 18171.6 16269 19945 18615 18479 16695 20623 18894 18983.4 16295 20064 18482 18587.7 15759 19189 18029 17904.9 15786 19435 17880 17954.3 15974 19754 17847 18071.5 15757 19270 17806 17786.1 16148 19903 18162 18189.9 16446 20719 18170 18624.9 16093 20212 17895 18272.1 16243 20666 17876 18333.2 15984 19913 17843 17891.4 16229 20209 17961 18052 16521 20733 18306 18287.7 17106 21541 18731 18838.4 17458 22176 18856 19183.7 17851 22830 19118 19550.9 18525 23742 19919 20197.7 18794 24294 20079 20534.9 19007 25099 20000 20961.1 19135 25162 20256 21135.1 19598 26224 20463 21653 19655 26130 20764 21573.1 20355 27277 21107 22290.1 20698 27803 21417 22665.3 20968 28749 21550 23096.1 20818 29016 21093 23136.3 21013 29295 20916 23244.5 21104 29727 20771 23396.9 21270 30494 20736 23656 21407 30610 21014 23715.5 20829 29257 21062 23105.1 21011 29875 21012 23504.7 21589 31556 21386 24372.5 22042 32426 21884 24912.1 23016 34877 22286 26100 22624 34186 22039 25802.7 23214 36322 22066 26592.7 23247 36607 22112 26705.1 22570 35103 21849 25955.5 23114 37199 22168 26671.2 23839 39463 22374 27805.7 24470 41231 22642 28687.8 26013 44509 23335 30332.8 25183 42017 23074 29445.4 25960 44319 23436 30646.9 25690 42839 23811 30114.3 26102 44822 23937 30677.6 26350 45593 24189 31148.6 26639 46095 24530 31346.5 27667 49418 24481 32595.4 27997 51948 24557 33522.1
** An unmanaged index of U.S. government and Treasury securities and investment-grade corporate debt securities that includes no expenses or transaction charges. + An unmanaged index of large-capitalization stocks that includes no expenses or transaction charges. ++ 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 19.08% - -------------------------------------------------------------------------------- Five Year 11.23% - -------------------------------------------------------------------------------- Ten Year 11.49% - -------------------------------------------------------------------------------- Since Inception (3/16/87) 9.77% - -------------------------------------------------------------------------------- CLASS B AVERAGE ANNUALIZED TOTAL RETURNS Includes the fund's maximum 4% contingent deferred sales charge One Year 19.24% - -------------------------------------------------------------------------------- Since Inception (2/18/97) 11.88% - --------------------------------------------------------------------------------
* PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of your investment will fluctuate so that fund shares, when sold, may be worth more or less than their original cost. Neither safety of principal nor stability of income is 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, returns would have been lower. All fund and benchmark returns include reinvested distributions. - -------------------------------------------------------------------------------- 53 1998 Semiannual Report - Piper Funds BALANCED FUND (CONTINUED) - -------------------------------------------------------------------------------- [PHOTO] STEVE MARKUSEN, CFA is primarily responsible for the management of the equity portion of Balanced Fund. He has 14 years of financial experience. - -------------------------------------------------------------------------------- [PHOTO] BRUCE SALVOG shares responsibility for the management of the fixed income portion of Balanced Fund. He has 28 years of financial experience. - -------------------------------------------------------------------------------- CERTAIN PORTIONS OF THE EQUITY COMPONENT OF YOUR FUND POSTED A STRONG RETURN DURING THE PERIOD, AND THE FUND CONTINUED TO BENEFIT FROM POSITIONS IN COMPANIES SUCH AS COCA-COLA CO. (0.6% OF TOTAL ASSETS AS OF MARCH 31, 1998), GENERAL ELECTRIC (1.5%) AND MERCK & CO., INC. (2.0%). The U.S. stock market slumped during the fourth quarter as investors worried about the effects of the Asian economic crisis on earnings growth. But the U.S. economy continued its strong growth in early 1998, resulting in one of the strongest quarters for stocks in some time. During the period, we added several quality growth stocks to the portfolio, including McDonald's (1.2%), Albertson's (0.6%), United Healthcare (1.0%), Mattel Inc. (0.5%) and WorldCom Inc. (0.65). These additions already have had a positive impact on the fund's performance. THE FUND'S EQUITY PERFORMANCE WAS HELD BACK BY OUR HOLDINGS IN THE ENERGY SECTOR - -- PARTICULARLY THE ENERGY SERVICE INDUSTRY. Our investments in this industry have been strong performers over the last three years, and we believe the current weakness is due to low oil prices caused by weakening demand in Asia and a warm "El Nino" winter in the Northern Hemisphere. OPEC has recently taken steps to reduce oil production, and that has stabilized prices. Typically, oil prices have rebounded from such lows within about six months. We believe we are in a long-term capital spending cycle for oil service companies and intend to maintain our position in these stocks. Thank you for investing in Balanced Fund. We appreciate the opportunity to help you manage your assets. Sincerely, /s/ David Steele /s/ Steve Markusen /s/ Bruce Salvog David Steele Steve Markusen Bruce Salvog Portfolio Manager Portfolio Manager Portfolio Manager - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION - -------------------------------------------------------------------------------- As a percentage of total assets on March 31, 1998 [GRAPH] STOCKS 55% Basic Materials 2% Capital Goods & Services 5% Consumer Durables 3% Consumer Non-Durables 4% Consumer Services 2% Energy 6% Financial Services 9% Health Care 6% Retail Trade 3% Technology 7% Transportation 2% Utilities 6% BONDS 44% U.S. Treasury Securities 13% Corporate Bonds 13% U.S. Agency Fixed Rate Mortgage-Backed Securities 7% U.S. Agency Adjustable Rate Mortgage-Backed Securities 1% Private Fixed Rate CMOs 2% U.S. Agency CMOs 2% Asset-Backed Securities 1% U.S. Agency Fixed Debentures 5% OTHER ASSETS 1% - -------------------------------------------------------------------------------- TOP 10 EQUITY HOLDINGS - -------------------------------------------------------------------------------- As a percentage of total assets on March 31, 1998 1 Norwest 2.3% - -------------------------------------------------------------------------------- 2 FNMA (Fannie Mae) 2.1% - -------------------------------------------------------------------------------- 3 AirTouch Communications 2.1% - -------------------------------------------------------------------------------- 4 Ford Motor 2.1% - -------------------------------------------------------------------------------- 5 Merck & Co. 2.0% - -------------------------------------------------------------------------------- 6 Schlumberger Limited 1.8% - -------------------------------------------------------------------------------- 7 AlliedSignal 1.6% - -------------------------------------------------------------------------------- 8 The Procter & Gamble Company 1.6% - -------------------------------------------------------------------------------- 9 General Electric 1.5% - -------------------------------------------------------------------------------- 10 Burlington Northern Santa Fe 1.4% - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 54 1998 Semiannual Report - Piper Funds Financial Statements (Unaudited) - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES March 31, 1998 ................................................................................
GROWTH AND INCOME BALANCED FUND FUND ------------- ------------ ASSETS: Investments in securities at market value* (note 2) (including repurchase agreements of $3,704,000 and $43,000, respectively) ................................... $152,480,800 $49,653,912 Cash in bank on demand deposit ............................. 20,306 20,255 Receivable for investment securities sold .................. -- 263,934 Receivable for fund shares sold ............................ 14,491 6,387 Dividends and accrued interest receivable .................. 155,939 293,236 Other assets ............................................... 12,933 -- ------------- ------------ Total assets ............................................. 152,684,469 50,237,724 ------------- ------------ LIABILITIES: Payable for fund shares redeemed ........................... 32,638 -- Accrued investment management fee .......................... 91,843 32,030 Accrued distribution and service fees ...................... 35,192 12,876 ------------- ------------ Total liabilities ........................................ 159,673 44,906 ------------- ------------ Net assets applicable to outstanding capital stock ....... $152,524,796 $50,192,818 ------------- ------------ ------------- ------------ COMPOSITION OF NET ASSETS: Capital stock and additional paid-in capital ............... $ 92,959,326 $35,646,838 Undistributed (distributions in excess of) net investment income ................................................... (25,347) 28,059 Accumulated net realized gain on investments ............... 2,829,678 1,565,952 Unrealized appreciation of investments ..................... 56,761,139 12,951,969 ------------- ------------ Total - representing net assets applicable to outstanding capital stock .......................................... $152,524,796 $50,192,818 ------------- ------------ ------------- ------------ * Investments in securities at identified cost ............. $ 95,719,661 $36,701,943 ------------- ------------ ------------- ------------ NET ASSET VALUE AND OFFERING PRICE: CLASS A: Net assets ................................................. $134,629,709 $50,081,494 Shares outstanding ......................................... 7,406,020 3,243,143 Net asset value ............................................ $ 18.18 $ 15.44 Maximum offering price per share (net asset value plus 4% of offering price) .......................................... $ 18.94 $ 16.08 CLASS B: Net assets ................................................. $ 1,427,187 $ 111,324 Shares outstanding ......................................... 78,815 7,234 Net asset value and offering price per share ............... $ 18.11 $ 15.39 CLASS Y: Net assets ................................................. $ 16,467,900 -- Shares outstanding ......................................... 906,887 -- Net asset value and offering price per share ............... $ 18.16 --
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 55 Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS For the Six Months Ended March 31, 1998 ................................................................................
GROWTH AND INCOME BALANCED FUND FUND ------------ ------------ INCOME: Dividends .................................................. $ 1,085,136 $ 162,228 Interest ................................................... 132,851 781,449 ------------ ------------ Total income ............................................. 1,217,987 943,677 ------------ ------------ EXPENSES (NOTE 5): Investment management fee .................................. 514,073 184,094 Distribution and service fees: CLASS A .................................................. 316,431 122,555 CLASS B .................................................. 5,912 348 CLASS Y .................................................. -- -- Custodian and accounting fees .............................. 53,510 26,153 Transfer agent and dividend disbursing agent fees .......... 42,954 28,078 Registration fees .......................................... 26,103 17,188 Reports to shareholders .................................... 15,795 23,112 Directors' fees ............................................ 4,036 4,036 Audit and legal fees ....................................... 23,763 23,763 Other expenses ............................................. 4,480 2,851 ------------ ------------ Total expenses ........................................... 1,007,057 432,178 Less Class A expenses waived by the distributor ........ (109,794) (42,437) Less expenses waived by the advisor .................... -- (64,442) ------------ ------------ Net expenses before expenses paid indirectly ............. 897,263 325,299 Less expenses paid indirectly .......................... (49) (60) ------------ ------------ Total net expenses ....................................... 897,214 325,239 ------------ ------------ Net investment income .................................... 320,773 618,438 ------------ ------------ NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Net realized gain on investments (note 3) .................. 5,808,483 1,699,075 Net change in unrealized appreciation or depreciation of investments .............................................. 10,075,313 1,436,900 ------------ ------------ Net gain on investments .................................. 15,883,796 3,135,975 ------------ ------------ Net increase in net assets resulting from operations ... $16,204,569 $ 3,754,413 ------------ ------------ ------------ ------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 56 Financial Statements (continued) - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS ................................................................................
BALANCED FUND GROWTH AND INCOME FUND --------------------------- ------------------------------ Six Months Six Months Ended Ended 3/31/98 Year Ended 3/31/98 Year Ended (Unaudited) 9/30/97 (Unaudited) 9/30/97 -------------- ------------- ------------ ------------ OPERATIONS: Net investment income ...................................... $ 320,773 $ 1,129,415 $ 618,438 $ 1,395,733 Net realized gain on investments ........................... 5,808,483 12,833,367 1,699,075 3,266,517 Net change in unrealized appreciation or depreciation of investments .............................................. 10,075,313 19,936,662 1,436,900 4,157,249 -------------- ------------- ------------ ------------ Net increase in net assets resulting from operations ..... 16,204,569 33,899,444 3,754,413 8,819,499 -------------- ------------- ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: CLASS A: From net investment income ............................... (278,629) (1,123,538) (605,921) (1,402,111) From net realized gains .................................. (13,534,252) (6,538,320) (3,231,339) (2,554,492) CLASS B: From net investment income ............................... -- (1,110) (940) (433) From net realized gains .................................. (102,221) -- (2,483) -- CLASS Y: From net investment income ............................... (70,675) (70,694) -- -- From net realized gains .................................. (1,520,397) -- -- -- -------------- ------------- ------------ ------------ Total distributions ...................................... (15,506,174) (7,733,662) (3,840,683) (3,957,036) -------------- ------------- ------------ ------------ CAPITAL SHARE TRANSACTIONS (NOTE 4): CLASS A .................................................... 7,081,825 4,970,887 1,299,606 (1,431,461) CLASS B .................................................... 480,692 827,747 70,761 34,648 CLASS Y .................................................... 2,369,906 12,692,933 -- -- -------------- ------------- ------------ ------------ Increase (decrease) in net assets from capital share transactions ........................................... 9,932,423 18,491,567 1,370,367 (1,396,813) -------------- ------------- ------------ ------------ Total increase in net assets ............................. 10,630,818 44,657,349 1,284,097 3,465,650 Net assets at beginning of period .......................... 141,893,978 97,236,629 48,908,721 45,443,071 -------------- ------------- ------------ ------------ Net assets at end of period ................................ $ 152,524,796 $ 141,893,978 $50,192,818 $ 48,908,721 -------------- ------------- ------------ ------------ -------------- ------------- ------------ ------------ Undistributed (distributions in excess of) net investment income ................................................... $ (25,347) $ 3,184 $ 28,059 $ 16,482 -------------- ------------- ------------ ------------ -------------- ------------- ------------ ------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 57 Notes to Financial Statements (Unaudited) - -------------------------------------------------------------------------------- (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 Growth and Income Fund and Balanced 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 Growth and Income 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. Growth and Income Fund invests primarily in stocks of large, established companies that appear undervalued and potentially offer long-term dividend and earnings growth. The fund may also invest in debt securities including U.S. government securities and nonconvertible preferred stock. Balanced Fund invests in both common stocks and fixed income securities that appear to have some potential for capital appreciation. (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 - -------------------------------------------------------------------------------- 58 Notes to Financial Statements (Unaudited) (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. The current market value of certain fixed income securities is provided by an independent pricing service. Fixed income securities for which prices are not available from an independent pricing service but where an active market exists are valued using market quotations obtained from one or more dealers that make markets in the securities or from a widely-used quotation system. Short-term securities with maturities of 60 days or less are valued at amortized cost, which approximates market value. Exchange-traded options are valued at the last sales price on the exchange prior to the time when assets are valued. If no sales were reported that day, the options will be valued at the mean between the current closing bid and asked prices. Over-the-counter options are valued using market quotations obtained from broker-dealers. Financial futures are valued at the last settlement price established each day by the board of trade or exchange on which they are traded. 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. OPTIONS TRANSACTIONS For hedging purposes, the funds may buy and sell put and call options, write covered call options on portfolio securities and write cash-secured puts. The risk in writing a call option is that the funds give up the opportunity of profit if the market price of the security increases. The risk in writing a put option is that the funds may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the funds pay a premium whether or not the option is exercised. The funds also have the additional risk of not being able to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily and unrealized appreciation or depreciation is recorded. The funds will realize a gain or loss upon expiration or closing of the option transaction. When an option is exercised, the proceeds on the sale of a written call option, the purchase cost of a written put option, or the cost of a security for purchased put and call options is adjusted by the amount of premium received or paid. - -------------------------------------------------------------------------------- 59 Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- FUTURES TRANSACTIONS For hedging purposes, the funds may buy and sell financial futures contracts and related options. Risks of entering into futures contracts and related options include the possibility that there may be an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the funds are required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the funds each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The funds recognize a realized gain or loss when the contract is closed or expires. SECURITIES PURCHASED ON A WHEN-ISSUED BASIS Delivery and payment for securities that have been purchased by the funds on a when-issued or forward-commitment basis can take place a month or more after the transaction date. During this period, such securities do not earn interest, are subject to market fluctuation and may increase or decrease in value prior to their delivery. The funds segregate, with their custodian, assets with a market value equal to the amount of their purchase commitments. The purchase of securities on a when-issued or forward-commitment basis may increase the volatility of the funds' net asset value if the funds make such purchases while remaining substantially fully invested. As of March 31, 1998, the funds had no outstanding when-issued or forward-commitments. 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" and "straddle" 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. DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders from net investment income are declared separately for each class and paid quarterly. 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. - -------------------------------------------------------------------------------- 60 Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- 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. 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. 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 six months ended March 31, 1998 were as follows:
GROWTH AND BALANCED INCOME FUND FUND ----------- ---------- Purchases .............................. $31,044,432 $7,140,619 Proceeds from sales .................... $37,306,172 $9,187,088
During the six months ended March 31, 1998, brokerage commissions paid to Piper Jaffray Inc., an affiliated broker, amounted to $852 for the Growth and Income Fund. - -------------------------------------------------------------------------------- 61 Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- (4) CAPITAL SHARE TRANSACTIONS ................................ Capital share transactions for the funds were as follows:
SIX MONTHS ENDED YEAR ENDED MARCH 31, 1998 SEPTEMBER 30, 1997(A) ---------------------- ------------------------ SHARES AMOUNT SHARES AMOUNT -------- ------------ ---------- ------------ GROWTH AND INCOME FUND: CLASS A Sales of fund shares ................. 427,459 $ 7,251,831 2,164,442 $ 33,710,309 Issued for reinvested distributions ...................... 824,053 12,831,889 483,550 7,152,088 Redemptions of fund shares ........... (698,093) (11,948,812) (1,460,532) (23,640,495) Redemptions in exchange for Class Y shares ............................. (64,486) (1,053,083) (734,641) (12,251,015) -------- ------------ ---------- ------------ 488,933 $ 7,081,825 452,819 $ 4,970,887 -------- ------------ ---------- ------------ -------- ------------ ---------- ------------ CLASS B Sales of fund shares ................. 25,464 $ 421,615 51,933 $ 869,013 Issued for reinvested distributions ...................... 6,402 99,170 66 1,105 Redemptions of fund shares ........... (2,406) (40,093) (2,644) (42,371) -------- ------------ ---------- ------------ 29,460 $ 480,692 49,355 $ 827,747 -------- ------------ ---------- ------------ -------- ------------ ---------- ------------ CLASS Y Sales of fund shares ................. 78,090 $ 1,342,470 149,097 $ 2,539,485 Sales in exchange from Class A shares ............................. 64,486 1,053,083 734,994 12,251,015 Issued for reinvested distributions ...................... 101,888 1,591,073 4,142 70,694 Redemptions of fund shares ........... (95,937) (1,616,720) (129,873) (2,168,261) -------- ------------ ---------- ------------ 148,527 $ 2,369,906 758,360 $ 12,692,933 -------- ------------ ---------- ------------ -------- ------------ ---------- ------------
SIX MONTHS ENDED YEAR ENDED MARCH 31, 1998 SEPTEMBER 30, 1997(A) ---------------------- ------------------------ SHARES AMOUNT SHARES AMOUNT -------- ------------ ---------- ------------ BALANCED FUND: CLASS A Sales of fund shares ................. 297,942 $ 4,409,187 819,933 $ 11,658,196 Issued for reinvested distributions ...................... 251,837 3,614,324 269,167 3,740,957 Redemptions of fund shares ........... (452,287) (6,723,905) (1,170,542) (16,830,614) -------- ------------ ---------- ------------ 97,492 $ 1,299,606 (81,442) $ (1,431,461) -------- ------------ ---------- ------------ -------- ------------ ---------- ------------ CLASS B Sales of fund shares ................. 4,744 $ 69,418 2,366 $ 34,215 Issued for reinvested distributions ...................... 238 3,423 29 433 Redemptions of fund shares ........... (143) (2,080) -- -- -------- ------------ ---------- ------------ 4,839 $ 70,761 2,395 $ 34,648 -------- ------------ ---------- ------------ -------- ------------ ---------- ------------
(a) REPRESENTS PERIOD FROM FEBRUARY 18 (COMMENCEMENT OF OFFERING OF SHARES) TO SEPTEMBER 30, 1997, FOR CLASS B AND CLASS Y. Sales charges received by Piper Jaffray Inc. (Piper Jaffray), the funds' distributor, for distributing the funds' shares for the six months ended March 31, 1998 were as follows:
GROWTH AND INCOME FUND BALANCED FUND ---------------------------- -------------------- CLASS A CLASS B CLASS Y CLASS A CLASS B ------- -------- -------- --------- -------- Front-end sales charges ................ $64,030 $ -- $-- $ 13,198 $-- Contingent deferred sales charges ...... 4,280 1,077 -- 254 43 ------- -------- --- --------- --- $68,310 $1,077 $-- $ 13,452 $43 ------- -------- --- --------- --- ------- -------- --- --------- ---
(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 - -------------------------------------------------------------------------------- 62 Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- 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 six months ended March 31, 1998, the effective investment management fee paid by the funds was 0.72% and 0.75% on an annual basis for Growth and Income Fund and Balanced 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 are being voluntarily limited for Class A for the year ended September 30, 1998, are stated below as a percent of average daily net assets attributable to such shares.
GROWTH AND INCOME FUND BALANCED FUND --------------------------- ----------------- CLASS A CLASS B CLASS Y CLASS A CLASS B ------- ------- ------- ------- ------- Distribution fee ....................... 0.25% 0.75% -- 0.25% 0.75% Service fee ............................ 0.25% 0.25% -- 0.25% 0.25% -- ------- ------- ------- ------- Total distribution and service fees .... 0.50% 1.00% -- 0.50% 1.00% -- -- ------- ------- ------- ------- ------- ------- ------- ------- Total distribution and service fees after voluntary limitation ........... 0.34% 1.00% -- 0.34% 1.00% -- -- ------- ------- ------- ------- ------- ------- ------- -------
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 six months ended March 31, 1998, Piper Jaffray and Piper Trust received the following amounts in connection with the shareholder account servicing agreements:
GROWTH AND INCOME FUND BALANCED FUND ------------ -------------- Piper Jaffray .......................... $29,107 $ 7,257 Piper Trust ............................ 1,304 3,312 ------------ -------------- $30,411 $10,569 ------------ -------------- ------------ --------------
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, 1998, Piper Capital voluntarily limited total fees and expenses for Growth and Income Fund to annual rates of 1.34%, 2.00% and 1.00% of average daily - -------------------------------------------------------------------------------- 63 Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- net assets attributable to such shares for Class A, Class B and Class Y, respectively, and for Balanced 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. (6) PENDING ACQUISITION ................................ On December 15, 1997, Piper Jaffray Companies Inc., the parent company of the funds' investment advisor, announced that it had entered into an agreement to be acquired by U.S. Bancorp. It is anticipated that this acquisition will be completed in the second quarter of 1998, subject to regulatory approval, the approval of Piper Jaffray Companies shareholders and the satisfaction of customary closing conditions. U.S. Bancorp is a multi-state bank holding company headquartered in Minneapolis, Minnesota with a geographic service area spanning 17 states. As of December 31, 1997, U.S. Bancorp was the 15th largest U.S. commercial bank holding company, with assets of nearly $71.3 billion. U.S. Bank National Association ("U.S. Bank"), a wholly owned subsidiary of U.S. Bancorp, currently acts as the investment advisor to 32 mutual funds (the "First American Funds"). As of December 31, 1997, U.S. Bank, acting through its First American Asset Management group, managed more than $55 billion in assets, including approximately $20.5 billion in assets of the First American Funds. Effective as of the date of the acquisition, SEI Investments Distribution Company will assume the role of the principal distributor for the funds. Under the Investment Company Act of 1940, as amended (the "1940 Act"), consummation of the acquisition of Piper Jaffray Companies by U.S. Bancorp will result in the assignment and automatic termination of the funds' investment advisory agreement with Piper Capital Management Incorporated. The 1940 Act requires that any new investment advisory agreement for the funds be approved by the funds' board of directors and shareholders. (7) SUBSEQUENT EVENTS ................................ CLASS B SHARES NO LONGER OFFERED Effective April 21, 1998, the funds will no longer offer Class B shares. Any outstanding Class B shares of a fund will be automatically converted to Class A shares of the same fund as of the close of business on April 27, 1998. No contingent deferred sales charges or other fees will be imposed in connection with this conversion. FUND CONVERSION In connection with the acquisition of Piper Jaffray Companies Inc. by U.S. Bancorp, the funds' board of directors has recommended that the funds be merged into mutual funds managed by First American Asset Management, a division of U.S. Bank. The proposed fund mergers require shareholder approval, and proxy statements requesting shareholder votes will be mailed in May 1998. If approved, the mergers are expected to occur on or about July 31, 1998. - -------------------------------------------------------------------------------- 64 Notes to Financial Statements (continued) - -------------------------------------------------------------------------------- (8) FINANCIAL HIGHLIGHTS ................................ Per-share data for a share of capital stock outstanding throughout each period and selected information for each period are as follows: GROWTH AND INCOME FUND
CLASS A ---------------------------------------------------------------------------- Six Months Ended Year Ended September 30, March 31, 1998 -------------------------------------------------------- (Unaudited) 1997 1996 1995 1994 1993 ---------------- -------- -------- -------- -------- -------- PER-SHARE DATA Net asset value, beginning of period ... $ 18.37 $ 15.04 $ 12.93 $ 10.27 $ 10.30 $ 10.01 ---------------- -------- -------- -------- -------- -------- Operations: Net investment income ................ 0.04 0.15 0.18 0.19 0.24 0.24 Net realized and unrealized gains on investments 1.78 4.35 2.31 2.70 0.02 0.29 ---------------- -------- -------- -------- -------- -------- Total from operations .............. 1.82 4.50 2.49 2.89 0.26 0.53 ---------------- -------- -------- -------- -------- -------- Distributions to shareholders: From net investment income ........... (0.04) (0.16) (0.20) (0.19) (0.24) (0.24) From net realized gains on investments ........................ (1.97) (1.01) (0.18) (0.04) (0.05) -- ---------------- -------- -------- -------- -------- -------- Total distributions to shareholders ..................... (2.01) (1.17) (0.38) (0.23) (0.29) (0.24) ---------------- -------- -------- -------- -------- -------- Net asset value, end of period ..... $ 18.18 $ 18.37 $ 15.04 $ 12.93 $ 10.27 $ 10.30 ---------------- -------- -------- -------- -------- -------- ---------------- -------- -------- -------- -------- -------- SELECTED INFORMATION Total return (a) ....................... 11.72% 31.87% 19.56% 28.81% 2.53% 5.41% Net assets at end of period (in millions) ............................ $ 135 $ 127 $ 97 $ 73 $ 73 $ 96 Ratio of expenses to average daily net assets ............................... 1.28%(d) 1.34% 1.32% 1.32% 1.29% 1.32% Ratio of net investment income to average daily net assets ............. 0.42%(d) 0.90% 1.26% 1.93% 2.26% 2.51% Average commission rate paid on portfolio transactions (b) ........... $0.0600 $ 0.0600 $ 0.0600 n/a n/a n/a Portfolio turnover rate (excluding short-term securities) ............... 22% 46% 22% 14% 20% 26% Ratios before waivers by the advisor and distributor: Ratio of expenses to average daily net assets before waivers .............. 1.45%(d) 1.52% 1.56% 1.60% 1.62% 1.58% Ratio of net investment income to average daily net assets before waivers ............................ 0.25%(d) 0.72% 1.02% 1.65% 1.93% 2.25%
CLASS B CLASS Y ---------------------------------- ---------------------------------- Six Months Ended Period Ended Six Months Ended Period Ended March 31, 1998 September 30, March 31, 1998 September 30, (Unaudited) 1997(c) (Unaudited) 1997(c) ----------------- -------------- ----------------- -------------- PER-SHARE DATA Net asset value, beginning of period ... $ 18.33 $ 16.14 $ 18.36 $ 16.14 ----------------- -------------- ----------------- -------------- Operations: Net investment income (loss) ......... (0.02) 0.03 0.06 0.12 Net realized and unrealized gains on investments 1.77 2.21 1.79 2.21 ----------------- -------------- ----------------- -------------- Total from operations .............. 1.75 2.24 1.85 2.33 ----------------- -------------- ----------------- -------------- Distributions to shareholders: From net investment income ........... -- (0.05) (0.08) (0.11) From net realized gains on investments ........................ (1.97) -- (1.97) -- ----------------- -------------- ----------------- -------------- Total distributions to shareholders ..................... (1.97) (0.05) (2.05) (0.11) ----------------- -------------- ----------------- -------------- Net asset value, end of period ..... $ 18.11 $ 18.33 $ 18.16 $ 18.36 ----------------- -------------- ----------------- -------------- ----------------- -------------- ----------------- -------------- SELECTED INFORMATION Total return (a) ....................... 11.33% 13.93% 11.91% 14.51% Net assets at end of period (in thousands and millions for Class B and Class Y, respectively) ............... $ 1,427 $ 905 $ 16 $ 14 Ratio of expenses to average daily net assets ............................... 1.95%(d) 1.98%(d) 0.96%(d) 0.99%(d) Ratio of net investment income (loss) to average daily net assets ............. (0.26)%(d) 0.04%(d) 0.74%(d) 1.12%(d) Average commission rate paid on portfolio transactions (b) ........... $0.0600 $0.0600 $0.0600 $0.0600 Portfolio turnover rate (excluding short-term securities) ............... 22% 46% 22% 46% Ratios before waivers by the advisor: Ratio of expenses to average daily net assets before waivers .............. 1.95%(d) 1.98%(d) 0.96%(d) 1.00%(d) Ratio of net investment income (loss) to average daily net assets before waivers ............................ (0.26)%(d) 0.04%(d) 0.74%(d) 1.11%(d)
(a) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A SALES CHARGE. (b) DISCLOSED IN ACCORDANCE WITH GUIDELINES ADOPTED IN 1996. (c) COMMENCEMENT OF OFFERING OF CLASS B AND CLASS Y SHARES WAS FEBRUARY 18, 1997. (d) ANNUALIZED. - -------------------------------------------------------------------------------- 65 Notes to Financial Statements (continued) - -------------------------------------------------------------------------------- (8) FINANCIAL HIGHLIGHTS ................................ Per-share data for a share of capital stock outstanding throughout each period and selected information for each period are as follows: BALANCED FUND
CLASS A ---------------------------------------------------------------------------- Six Months Ended Year Ended September 30, March 31, 1998 -------------------------------------------------------- (Unaudited) 1997 1996 1995 1994 1993 ---------------- -------- -------- -------- -------- -------- PER-SHARE DATA Net asset value, beginning of period .......................... $ 15.54 $ 14.08 $ 13.74 $ 11.81 $ 12.23 $ 11.88 ---------------- -------- -------- -------- -------- -------- Operations: Net investment income ........... 0.18 0.42 0.44 0.47 0.38 0.34 Net realized and unrealized gains (losses) on investments ....... 0.93 2.26 0.89 1.93 (0.26) 0.65 ---------------- -------- -------- -------- -------- -------- Total from operations ......... 1.11 2.68 1.33 2.40 0.12 0.99 ---------------- -------- -------- -------- -------- -------- Distributions to shareholders: From net investment income ...... (0.18) (0.42) (0.44) (0.35) (0.37) (0.34) From net realized gains ......... (1.03) (0.80) (0.55) (0.12) (0.17) (0.30) ---------------- -------- -------- -------- -------- -------- Total distributions to shareholders ................ (1.21) (1.22) (0.99) (0.47) (0.54) (0.64) ---------------- -------- -------- -------- -------- -------- Net asset value, end of period ...................... $ 15.44 $ 15.54 $ 14.08 $ 13.74 $ 11.81 $ 12.23 ---------------- -------- -------- -------- -------- -------- ---------------- -------- -------- -------- -------- -------- SELECTED INFORMATION Total return (a) .................. 7.85% 20.24% 10.16% 21.78% 1.00% 8.51% Net assets at end of period (in millions) ....................... $ 50 $ 49 $ 45 $ 44 $ 46 $ 57 Ratio of expenses to average daily net assets ...................... 1.32%(d) 1.34% 1.32% 1.32% 1.32% 1.32% Ratio of net investment income to average daily net assets ........ 2.52%(d) 2.89% 3.16% 3.54% 3.03% 3.13% Average commission rate paid on portfolio transactions (b) ...... $0.0600 $ 0.0600 $ 0.0600 n/a n/a n/a Portfolio turnover rate (excluding short-term securities) .......... 15% 42% 27% 39% 62% 41% Ratios before waivers by the advisor and distributor: Ratio of expenses to average daily net assets before waivers ....................... 1.75%(d) 1.73% 1.69% 1.65% 1.60% 1.62% Ratio of net investment income to average daily net assets before waivers ....................... 2.09%(d) 2.50% 2.79% 3.21% 2.75% 2.83%
CLASS B -------------------------------------- Six Months Ended Period Ended March 31, 1998(c) September 30, (Unaudited) 1997(c) --------------------- -------------- PER-SHARE DATA Net asset value, beginning of period ... $ 15.51 $ 14.46 ---------- -------------- Operations: Net investment income ................ 0.11 0.20 Net realized and unrealized gains on investments ........................ 0.95 1.10 ---------- -------------- Total from operations .............. 1.06 1.30 ---------- -------------- Distributions to shareholders: From net investment income ........... (0.15) (0.25) From net realized gains on investments ........................ (1.03) -- ---------- -------------- Total distributions to shareholders ..................... (1.18) (0.25) ---------- -------------- Net asset value, end of period ..... $ 15.39 $ 15.51 ---------- -------------- ---------- -------------- SELECTED INFORMATION Total return (a) ....................... 7.54% 9.08% Net assets at end of period (in thousands) ........................... $ 111 $ 37 Ratio of expenses to average daily net assets ............................... 1.99%(d) 1.99%(d) Ratio of net investment income to average daily net assets ............. 1.81%(d) 2.11%(d) Average commission rate paid on portfolio transactions (b) ........... $0.0600 $0.0600 Portfolio turnover rate (excluding short-term securities) ............... 15% 42% Ratios before waivers by the advisor: Ratio of expenses to average daily net assets before waivers .............. 2.40%(d) 2.11%(d) Ratio of net investment income to average daily net assets before waivers ............................ 1.40%(d) 1.99%(d)
(a) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A SALES CHARGE. (b) DISCLOSED IN ACCORDANCE WITH GUIDELINES ADOPTED IN 1996. (c) COMMENCEMENT OF OFFERING OF CLASS B SHARES WAS FEBRUARY 18, 1997. (d) ANNUALIZED. - -------------------------------------------------------------------------------- 66 Investments in Securities (Unaudited) - --------------------------------------------------------------------------------
GROWTH AND INCOME FUND March 31, 1998 ....................................................................................... Number Market Description of Security of Shares Value (a) - --------------------------------------------------------- ----------- ------------ (PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS) COMMON STOCK (97.5%): BASIC MATERIALS (3.4%): Air Products & Chemicals ............................ 21,200 $ 41,756,950 Aluminum Company of America ......................... 20,000 1,376,250 Morton International ................................ 60,000 1,968,750 ------------ 5,101,950 ------------ CAPITAL GOODS AND SERVICES (9.4%): AlliedSignal Inc. ................................... 90,000 3,780,000 Boeing Co. .......................................... 50,000 2,606,250 General Electric .................................... 60,000 5,171,250 Minnesota Mining & Manufacturing Co. . 30,000 2,735,625 ------------ 14,293,125 ------------ CONSUMER DURABLES (6.1%): Chrysler Corp. ...................................... 50,000 2,078,125 Ford Motor .......................................... 85,000 5,509,062 Masco Corp. ......................................... 30,000 1,785,000 ------------ 9,372,187 ------------ CONSUMER NON-DURABLES (8.3%): Coca-Cola Co. ....................................... 25,000 1,935,937 Colgate-Palmolive ................................... 38,000 3,291,750 General Mills ....................................... 25,000 1,900,000 Mattel, Inc. ........................................ 35,000 1,386,875 Philip Morris Co. ................................... 50,000 2,084,375 Procter & Gamble .................................... 25,000 2,109,375 ------------ 12,708,312 ------------ CONSUMER SERVICES (3.4%): Carnival Corp. - Class A ............................ 40,000 2,790,000 McDonald's Corp. .................................... 40,000 2,400,000 ------------ 5,190,000 ------------ ENERGY (9.0%): Baker Hughes Inc. ................................... 50,000 2,012,500 Exxon Corp. ......................................... 50,000 3,381,250 Schlumberger Ltd. ................................... 35,000 2,651,250 Texaco Inc. ......................................... 60,000 3,615,000 Transocean Offshore Inc. ............................ 40,000 2,057,500 ------------ 13,717,500 ------------ FINANCIAL SERVICES (16.7%): American Express .................................... 35,000 3,213,437 Associates First Capital 'A' ........................ 30,000 2,370,000 BankAmerica Corp. ................................... 60,000 4,957,500 Chubb Corp. ......................................... 40,000 3,135,000 Federal National Mortgage Association . 75,000 4,743,750 NationsBank Corp. ................................... 40,000 2,917,500 Norwest Corp. ....................................... 100,000 4,156,250 ------------ 25,493,437 ------------ HEALTH CARE (11.6%): Abbott Laboratories ................................. 51,400 3,871,062 Eli Lilly & Co. ..................................... 25,000 1,490,625 Johnson & Johnson ................................... 45,000 3,299,063
Number of Shares or Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------ Medtronic, Inc. ..................................... 27,400 $ 1,421,375 Merck & Co., Inc. ................................... 40,000 5,135,000 United Healthcare ................................... 40,000 2,590,000 ------------ 17,807,125 ------------ RETAIL TRADE (3.1%): Dayton Hudson ....................................... 26,700 2,349,600 Home Depot .......................................... 35,000 2,360,313 ------------ 4,709,913 ------------ TECHNOLOGY (12.4%): Cisco Systems, Inc. ................................. 45,000(b) 3,076,875 Compaq Computer ..................................... 60,000 1,552,500 Electronic Data Systems ............................. 45,000 2,064,375 EMC Corp. ........................................... 60,000(b) 2,268,750 Hewlett-Packard Co. ................................. 55,000 3,485,625 Intel Corp. ......................................... 25,000 1,951,563 International Business Machines Corp. ............... 20,000 2,077,500 Sensormatic Electronics ............................. 150,000 2,456,250 ------------ 18,933,438 ------------ TRANSPORTATION (2.4%): Burlington Northern Santa Fe ........................ 35,000 3,640,000 ------------ UTILITIES (11.7%): AirTouch Communications ............................. 90,000(b) 4,404,375 BellSouth Corp. ..................................... 47,000 3,175,438 Enron ............................................... 60,000 2,782,500 FPL Group ........................................... 60,000 3,855,000 GTE Corp. ........................................... 60,000 3,592,500 ------------ 17,809,813 ------------ Total Common Stock (cost: $92,015,661) ............................ 148,776,800 ------------ SHORT-TERM SECURITIES (2.4%): Repurchase agreement with Goldman Sachs, acquired on 3/31/98, interest of $617, 6.00%, 4/1/98 (cost: $3,704,000) ................................ $ 3,704,000(c) 3,704,000 ------------ Total Investments in Securities (cost: $95,719,661) (d) ........................ $152,480,800 ------------ ------------
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) 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. (d) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED ON THIS COST WERE AS FOLLOWS: GROSS UNREALIZED APPRECIATION ...... $ 57,050,427 GROSS UNREALIZED DEPRECIATION ...... (289,288) ------------ NET UNREALIZED APPRECIATION ...... $ 56,761,139 ------------ ------------
- -------------------------------------------------------------------------------- 67 Investments in Securities (Unaudited) - --------------------------------------------------------------------------------
BALANCED FUND March 31, 1998 ....................................................................................... Number Market Description of Security of Shares Value (a) - --------------------------------------------------------- ----------- ------------ (PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS) COMMON STOCK (55.1%): BASIC MATERIALS (2.5%): Air Products & Chemicals .......................... 6,000 $ 497,250 Aluminum Company of America ....................... 6,000 412,875 Morton International .............................. 10,000 328,125 ------------ 1,238,250 ------------ CAPITAL GOODS AND SERVICES (5.2%): AlliedSignal Inc. ................................. 19,000 798,000 Boeing Co. ........................................ 11,600 604,650 General Electric .................................. 9,000 775,687 Minnesota Mining & Manufacturing Co. 4,500 410,344 ------------ 2,588,681 ------------ CONSUMER DURABLES (2.8%): Ford Motor ........................................ 16,000 1,037,000 Masco Corp. ....................................... 6,500 386,750 ------------ 1,423,750 ------------ CONSUMER NON-DURABLES (4.2%): Coca-Cola Co. ..................................... 4,100 317,494 Colgate-Palmolive ................................. 3,000 259,875 Mattel, Inc. ...................................... 6,300 249,637 Philip Morris Co. ................................. 12,200 508,587 Procter & Gamble .................................. 9,400 793,125 ------------ 2,128,718 ------------ CONSUMER SERVICES (2.3%): Carnival Corp. - Class A .......................... 8,000 558,000 McDonald's Corp. .................................. 10,000 600,000 ------------ 1,158,000 ------------ ENERGY (6.2%): Anadarko Petroleum ................................ 4,000 276,000 Baker Hughes Inc. ................................. 15,000 603,750 Exxon Corp. ....................................... 4,400 297,550 Schlumberger Ltd. ................................. 12,100 916,575 Texaco Inc. ....................................... 9,000 542,250 Transocean Offshore Inc. .......................... 9,500 488,656 ------------ 3,124,781 ------------ FINANCIAL SERVICES (8.9%): American International Group ...................... 3,750 472,266 Associates First Capital 'A' ...................... 6,300 497,700 BankAmerica Corp. ................................. 8,448 698,016 Federal National Mortgage Association 16,800 1,062,600 NationsBank Corp. ................................. 8,000 583,500 Norwest Corp. ..................................... 27,400 1,138,812 ------------ 4,452,894 ------------ HEALTH CARE (6.0%): Johnson & Johnson ................................. 8,600 630,487 Medtronic, Inc. ................................... 7,000 363,125 Merck & Co., Inc. ................................. 8,000 1,027,000 St. Jude Medical .................................. 15,000(b) 501,562
Number of Shares or Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------ United Healthcare ................................. 8,000 $ 518,000 ------------ 3,040,174 ------------ RETAIL TRADE (2.8%): Albertson's, Inc. ................................. 5,500 289,438 Gap Inc. .......................................... 12,000 540,000 Home Depot ........................................ 8,400 566,475 ------------ 1,395,913 ------------ TECHNOLOGY (7.2%): Cisco Systems, Inc. ............................... 10,000(b) 683,750 Compaq Computer ................................... 15,000 388,125 EMC Corp. ......................................... 18,000(b) 680,625 Hewlett-Packard Co. ............................... 7,000 443,625 Intel Corp. ....................................... 3,500 273,219 International Business Machines Corp. . 4,000 415,500 Lucent Technologies ............................... 2,916 372,884 Sensormatic Electronics ........................... 21,000 343,875 ------------ 3,601,603 ------------ TRANSPORTATION (1.4%): Burlington Northern Santa Fe ...................... 6,900 717,600 ------------ UTILITIES (5.6%): AirTouch Communications ........................... 21,500(b) 1,052,156 BellSouth Corp. ................................... 7,000 472,938 Enron ............................................. 12,100 561,138 GTE Corp. ......................................... 7,000 419,125 WorldCom, Inc. .................................... 7,000(b) 301,438 ------------ 2,806,795 ------------ Total Common Stock (cost: $15,898,108) .......................... 27,677,159 ------------ CORPORATE BONDS (13.1%): CONSUMER DURABLES (0.8%): Ford Holdings, 9.25%, 3/1/00 ...................... $ 400,000 423,360 ------------ CONSUMER SERVICES (2.2%): MCI Communications, 7.13%, 6/15/27 500,000 526,070 Time Warner Inc., 8.88%, 10/1/12 .................. 500,000 590,030 ------------ 1,116,100 ------------ FINANCIAL SERVICES (7.7%): American Express Credit Corporation, 7.38%, 2/1/99 .......................................... 400,000 405,632 Aon Corp., 6.88%, 10/1/99 ......................... 450,000 456,399 BankAmerica Corp., 8.38%, 3/15/02 ................. 480,000 516,605 General Motors Acceptance Corp., 8.50%, 1/1/03 .... 500,000 546,315 Heller Financial, 9.13%, 8/1/99 ................... 300,000 311,511 Lehman Brothers, floating rate, 7.36%, 12/15/03 ... 650,000(d) 677,423 Morgan Stanley Group Inc., 8.10%, 6/24/02 ......... 500,000 534,915 NationsBank Corp., 5.38%, 4/15/00 ................. 400,000 395,720 ------------ 3,844,520 ------------
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES. - -------------------------------------------------------------------------------- 68 Investments in Securities (Unaudited) (continued) - -------------------------------------------------------------------------------- BALANCED FUND (CONTINUED)
Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------ TRANSPORTATION (1.3%): Boeing Co., 8.75%, 9/15/31 ........................ $ 500,000 $ 641,755 ------------ UTILITIES (1.1%): Pennsylvania Power and Light, 7.70%, 10/1/09 ...... 500,000 550,670 ------------ Total Corporate Bonds (cost: $6,223,803) ........................... 6,576,405 ------------ U.S. GOVERNMENT AND AGENCY SECURITIES (27.0%): GOVERNMENT TRUST CERTIFICATES (0.6%): 9.25%, Government Trust Certificate, 11/15/01 ..... 261,031 276,127 ------------ U.S. AGENCY DEBENTURES (5.1%): 5.94%, FHLMC, 9/21/99 ............................. 1,000,000 1,005,100 7.40%, FNMA, 7/1/04 ............................... 500,000 538,635 6.63%, FNMA, 3/21/06 .............................. 1,000,000 1,040,800 ------------ 2,584,535 ------------ U.S. AGENCY MORTGAGE-BACKED SECURITIES (8.8%): ADJUSTABLE RATE (2.0%): 7.05%, FHLMC, Series 1435, Class FA, LIBOR, 12/15/22 ........................................ 586,622(d) 601,323 7.32%, FNMA, 4/1/18 ............................... 384,464(d) 397,063 ------------ 998,386 ------------ FIXED RATE (6.8%): 6.50%, FHLMC, 9/1/25 .............................. 368,435 367,168 6.50%, FHLMC, 9/1/12 .............................. 483,186 485,147 6.50%, FHLMC, 1/1/01 .............................. 429,184 429,317 8.00%, FHLMC, 11/1/24 ............................. 804,924 835,962 6.50%, FHLMC, Series 1056, Class KB, 3/15/01 ...... 305,968 306,250 6.00%, FNMA, 4/1/09 ............................... 685,560 678,917 6.00%, FNMA, 3/1/03 ............................... 317,516 315,532 10.00%, FNMA, Series 1989-15, Class D, 9/25/18 .... 11,483 11,544 ------------ 3,429,837 ------------ U.S. GOVERNMENT SECURITIES (12.5%): 8.50%, U.S. Treasury Bond, 2/15/20 ................ 1,000,000 1,297,730 7.63%, U.S. Treasury Bond, 11/15/22 . 1,500,000 1,804,290 5.88%, U.S. Treasury Note, 2/15/04 ................ 1,000,000 1,010,590 7.25%, U.S. Treasury Note, 8/15/04 ................ 1,000,000 1,081,670 6.25%, U.S. Treasury Note, 10/31/01 . 500,000 509,400 7.04%, U.S. Treasury Strip, 2/15/15 ............... 1,500,000(c) 545,250 ------------ 6,248,930 ------------ Total U.S. Government and Agency Securities (cost: $12,733,324) .......................... 13,537,815 ------------
Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------ PRIVATE MORTGAGE-BACKED SECURITIES (2.4%): FIXED RATE (2.4%): 6.40%, Capstead Securities Corporation, Series 1993-D, Class D2, 7/25/23 ....................... $ 204,037 $ 201,297 8.50%, Residential Funding Mortgage Securities, Series 1993-S26, Class A17, 6/25/09 ............. 900,000 933,912 9.30%, Security Pacific National Bank, Series 1989-A, Class 7, 8/25/19 ........................ 74,247 74,178 ------------ 1,209,387 ------------ Total Private Mortgage-Backed Securities (cost: $1,198,418) ........................... 1,209,387 ------------ ASSET-BACKED SECURITIES (1.2%): Citibank Credit Card Master Trust I, Series 1997-7, Class A, 6.35%, 8/15/02 ......................... 500,000 504,285 Premier Auto Trust, Series 1993-6, Class A2, 4.65%, 11/2/99 ......................................... 106,149 105,861 ------------ Total Asset-Backed Securities (cost: $605,290) ............................. 610,146 ------------ SHORT-TERM SECURITIES (0.1%): Repurchase agreement with Goldman Sachs, acquired on 3/31/98, interest of $7, 6.00%, 4/1/98 (cost: $43,000) ................................. 43,000(e) 43,000 ------------ Total Investments in Securities (cost: $36,701,943) (f) ...................... $ 49,653,912 ------------ ------------
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) FOR ZERO-COUPON INVESTMENTS, THE INTEREST RATE SHOWN IS THE EFFECTIVE YIELD ON THE DATE OF PURCHASE. (d) PORTFOLIO ABBREVIATIONS AND DEFINITIONS: LIBOR - LONDON INTERBANK OFFERED RATE ADJUSTABLE OR FLOATING RATE - REPRESENTS SECURITIES THAT PAY INTEREST AT RATES THAT INCREASE (DECREASE) WITH AN INCREASE (DECREASE) IN THE SPECIFIED INDEX. INTEREST RATES DISCLOSED ARE IN EFFECT MARCH 31, 1998. (e) 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. (f) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED ON THIS COST WERE AS FOLLOWS: GROSS UNREALIZED APPRECIATION ...... $ 13,079,164 GROSS UNREALIZED DEPRECIATION ...... (127,195) ------------ NET UNREALIZED APPRECIATION ...... $ 12,951,969 ------------ ------------
- -------------------------------------------------------------------------------- 69 GOVERNMENT INCOME FUND - -------------------------------------------------------------------------------- [PHOTO] BRUCE SALVOG shares responsibility for the management of Government Income Fund. He has 28 years of financial experience. - -------------------------------------------------------------------------------- May 17, 1998 - -------------------------------------------------------------------------------- DEAR SHAREHOLDERS: FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1998, THE FUND ACHIEVED A TOTAL RETURN OF 4.31%* WITH ALL DISTRIBUTIONS REINVESTED BUT NOT INCLUDING THE FUND'S SALES CHARGE. During the same period, the fund's benchmark,*** the Merrill Lynch 5-10 Year Treasury Index,** returned 5.22%, while the Lipper U.S. Mortgage Funds Average+ gained 3.6%. The fund's monthly dividend remained stable at between 4.5 cents and 4.9 cents per share over the six-month reporting period. THE FUND WAS POSITIONED TO BENEFIT FROM AN EXPECTED DECLINE IN LONG-TERM INTEREST RATES, WHICH DID HAPPEN DURING THE REPORTING PERIOD. Entering the fourth quarter of 1997, the fund's effective duration*** was 5.5 years, or about two years longer than our estimate of the effective duration of the average mortgage fund within the Lipper category. (We discuss effective duration in greater detail below.) During the period, we made no significant changes to the fund's duration. This strategy reflected our view that long-term interest rates were likely to exhibit stability, along with the high priority that the fund continues to place on generating current income. THE FUND'S PERFORMANCE RELATIVE TO ITS LIPPER PEER GROUP IS IN PART DUE TO ITS LONGER EFFECTIVE DURATION. In a falling interest-rate environment such as the one that characterized the reporting period, longer-duration portfolios will typically outperform as bond prices appreciate. Relative to the fund's benchmark, we attribute the fund's underperformance to our portfolio mix of mortgage-backed and Treasury securities. During periods of falling interest rates, Treasuries usually outperform mortgage-backed issues due to concerns about refinancing. The fund's benchmark, the Merrill Lynch 5-10 Year Treasury Index, is comprised entirely of Treasury securities. PERFORMANCE THROUGH MARCH 31, 1998* - -------------------------------------------------------------------------------- Growth of $10,000 Invested Since Inception [GRAPH]
Government Income Fund, reflects the fund's 2% Merrill Lynch 5-10 Year Lipper U.S. Mortgage sales charge++ Treasury Index** Funds Average+ 9800 10000 10000 9790.2 10000 10000 9561.86 9699.8 9711.75 9524.5 9644.22 9678.12 9715.29 9757.25 9817.59 9643.2 9721.05 9835.96 9520.92 9629.77 9778.59 9184.04 9370.63 9523 9661.51 9798.22 9843.35 9720.71 9837.6 9946.71 9841.11 9977.79 10066 10241.3 10370.8 10410.8 10352.4 10511.8 10528.3 10193.9 10366.3 10439.4 10106.6 10309.3 10395.1 10004.7 10188.8 10328.1 10317.3 10451.1 10566.8 10325.8 10373.6 10539.1 10295.4 10372.9 10546.4 10482.5 10646.2 10771.2 10644.8 10846 10968.6 10595.1 10666.6 10840.1 10544.1 10659.2 10805 10653.5 10809.3 10942.3 10650.1 10695.7 10870.8 10636.7 10770.5 10886 10788.1 11004.5 11077.5 10943.8 11343.7 11349.4 11109.4 11739.2 11619 11251.9 12061.4 11817.5 11133.6 11779.8 11682.7 11165.7 11827.4 11735 11395 12152.9 11979.6 11501.4 12286.4 12102.2 11584.3 12288.3 12157.9 11370.2 12106.5 12043.4 11428.6 12100.4 12088.6 11411.1 12104.9 12105.1 11220.1 11956.5 11992 11615.6 12315.7 12329 11830.4 12518.1 12511.6 12036.2 12715.7 12705.3 11872.1 12505.3 12594.3 11969 12631.8 12691 12145.7 12860.9 12820.4 12382.3 13162.4 13085.7 12592.9 13385.2 13289.6 12797.2 13540.5 13447.7 12892 13599.2 13533.9 12940.5 13647.5 13618 13073.1 13796.4 13752.9 13168.9 13860.6 13834 13090.6 13819 13839.1 13361.2 13996.8 14043.6 13679.8 14355.2 14322.9 14065.1 14732.6 14596.5 14274.5 14888.4 14781.4 14423.6 15075.9 14905 14985.5 15679.7 15289.8 14430.7 15306.5 15075.4 14539.2 15385.6 15186.2 14361.4 15255.3 15096.7 14498.8 15367.7 15221.7 14935.6 15692.1 15482.5 15184.1 15989.4 15696.8 15361.9 16456.9 15910 15555.7 16670.3 16078 15692 16984.9 16230.1 15242.7 16667.4 16005.8 15270.1 16558.8 16025.5 15640.5 16863.3 16257.9 16029.8 17330.2 16544 16230.8 17741.1 16757.1 16300.4 17824.9 16821.7 16376.4 17979.8 16906.6 16378.4 17947.6 16943.1 16798 18406.9 17191.7 16984.7 18450.3 17275 17327.3 18894 17458.1 17287.8 19026.9 17463.3 17351.7 19049.3 17508.5 17073.8 18799.2 17368 17211.9 18883.4 17481.3 17508.1 19169.1 17669.2 16974.9 18662.3 17424 16297 18139.2 16928.1 15919.1 17960.9 16657.7 15860.5 17963.2 16620.6 15710.8 17900.2 16581.9 16126.4 18242.1 16842.7 16142.1 18287.3 16876.1 15694.1 17964.2 16636.6 15597.2 17903.4 16572.4 15499.6 17840.2 16516.8 15647 17977.6 16632 16001 18352.8 16938.5 16524.2 18862.6 17341.5 16665 18964.7 17412.4 16940.8 19273.4 17636.1 17704.9 20223.8 18194.3 17683.7 20408.1 18292.2 17641 20280.9 18286 17836.7 20547 18473.1 18027.6 20773.2 18626.2 18225 21117.2 18804.1 18488.2 21518.2 19035.5 18749.9 21845.5 19278.9 18869.5 21998.7 19392.2 18498 21441 19142.7 18412.5 21203.4 19041.7 18268.1 20981.9 18949.6 18229 20878 18869.3 18565 21191.2 19091.5 18589.2 21219.6 19144.6 18567.2 21137 19126.9 18926.3 21556.2 19429.8 19417.6 22112.5 19828.2 19782.2 22598.6 20131.2 19543 22239.2 19981.2 19578.9 22261.7 20086.4 19616 22244.6 20135.3 19278 21921.4 19930.3 19711.1 22299.3 20233.2 19858.9 22512.5 20401 20142.8 22783.5 20631.3 20832.5 23554 21084.6 20576.1 23221.7 20967.7 20912.5 23635.3 21224.6 21247 24108.5 21451.1 21281.4 24183.9 21524.9 21531 24463.7 21716.6 21847.2 24930.5 21948.2 21768.8 24813.1 21958.3 21812.8 24867.9 22003
** An unmanaged index, that includes no expenses or transaction charges, of all U.S. Treasury bonds that have maturities of five to 10 years. + The average total return, not including sales charges, of similar funds as characterized by Lipper Analytical Services. AVERAGE ANNUALIZED TOTAL RETURNS Includes 2% maximum sales charge++ One Year 10.89% - -------------------------------------------------------------------------------- Five Year 5.57% - -------------------------------------------------------------------------------- Ten Year 7.68% - -------------------------------------------------------------------------------- Since Inception (3/16/87) 7.31% - -------------------------------------------------------------------------------- * 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. Neither safety of principal nor stability of income is 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, returns would have been lower. All fund and benchmark returns include reinvested distributions. ++ Effective February 18, 1997, the fund's maximum sales charge was changed from 4% to 2%. *** - This symbol represents a graduation cap, used throughout this report to indicate terms defined in the glossary. - -------------------------------------------------------------------------------- 70 1998 Semiannual Report - Piper Funds GOVERNMENT INCOME FUND (CONTINUED) - -------------------------------------------------------------------------------- [PHOTO] DAVID STEELE shares responsibility for the management of Government Income Fund. He has 19 years of financial experience. - -------------------------------------------------------------------------------- FIXED-INCOME INVESTMENTS BENEFITED FROM THE IMPACT OF THE ASIAN RECESSION. Between October and early January, long-term bond yields declined by about 0.50% as global investors sought refuge in high-quality U.S. fixed income securities amid the economic storm raging in Asia. Domestic investors also bought longer-term bonds, confident that reduced demand for U.S. goods abroad and the impact of the strong dollar at home would keep inflation under control. Better-than-expected inflation news and reduced borrowing requirements from the federal government also helped to create a bullish environment for fixed income securities. However, when U.S. economic growth appeared to remain strong during the first quarter of 1998, bond yields rose modestly during the final weeks of the reporting period. DESPITE THE ROBUST DOMESTIC ECONOMY, INFLATION REMAINED BENIGN. Prices at the consumer level increased just 1.4% during the 12 months through March, while producer prices actually declined during the same period. Excluding the volatile food and energy sectors,*** last year's 2.2% rise in the consumer price index was the smallest in more than 30 years. Significant gains in productivity, falling energy prices, and the strong dollar helped to keep inflation in check despite strong economic growth and an increasingly tight labor market. THE FEDERAL RESERVE MAINTAINED A STABLE MONETARY POLICY. Faced with little evidence of reported inflation and concerned about exacerbating the difficulties in Asia, the Federal Reserve Board kept the target for the key Federal funds lending rate*** at 5.5% during the reporting period. The decline in long-term bond yields, coupled with steady short-term interest rates, resulted in a significant flattening of the yield curve.*** Thank you for your investment in Government Income Fund. We continue our dedication to providing you with quality investment management. Sincerely, /s/ Bruce Salvog /s/ David Steele Bruce Salvog David Steele Portfolio Manager Portfolio Manager - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION - -------------------------------------------------------------------------------- As a percentage of total assets on March 31, 1998 [CHART]
U.S. Agency Inverse Interest-Only Securities 1% U.S. Agency Fixed Rate Mortgage-Backed Securities 61% U.S. Agency Z-Bond Securities 15% U.S. Agency Fixed Debentures 4% U.S. Treasury Securities 9% U.S. Agency CMOs - Fixed 8% Short-Term 1% Other Assets 1%
*** - This symbol represents a graduation cap, used throughout this report to indicate terms defined in the glossary. - -------------------------------------------------------------------------------- 71 1998 Semiannual Report - Piper Funds INTERMEDIATE BOND FUND - -------------------------------------------------------------------------------- [PHOTO] BRUCE SALVOG shares responsibility for the management of Intermediate Bond Fund. He has 28 years of financial experience. - -------------------------------------------------------------------------------- May 17, 1998 - -------------------------------------------------------------------------------- DEAR SHAREHOLDERS: FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1998, THE FUND ACHIEVED A TOTAL RETURN OF 3.27%* WITH ALL DISTRIBUTIONS REINVESTED BUT NOT INCLUDING THE FUND'S SALES CHARGE. During the same period, the fund's benchmark,*** the Lehman Brothers Intermediate Aggregate Index,** returned 3.85%, while the Lipper Intermediate Investment-Grade Debt Funds Average+ gained 3.94%. THE FUND MADE ONLY MINOR CHANGES TO ITS PORTFOLIO DURING THE REPORTING PERIOD, MAINTAINING THE FUND'S AVERAGE EFFECTIVE DURATION*** AT 3.3 YEARS. (Effective duration is discussed in greater detail below.) The fund continues to be managed with the goal of maximizing current income, within the context of market conditions. FIXED INCOME INVESTMENTS BENEFITED FROM THE IMPACT OF THE ASIAN RECESSION. Between October and early January, yields declined across the maturity spectrum as global investors sought refuge in high-quality U.S. bonds amid the economic storm raging in Asia. Domestic investors also bought fixed income securities, confident that reduced demand for U.S. goods abroad and the impact of the strong dollar at home would keep inflation under control. Better-than-expected inflation news and reduced borrowing requirements from the federal government also helped to create a bullish environment for fixed income securities. - -------------------------------------------------------------------------------- PERFORMANCE THROUGH MARCH 31, 1998* - -------------------------------------------------------------------------------- Growth of $10,000 Invested Since Inception [GRAPH]
Intermediate Bond Fund Lehman Brothers Lipper Intermediate class A, reflects the fund's Intermediate Investment-Grade Debt 2% sales charge++ Aggregate Index** Funds Average+ 9800 10000 10000 9760.8 10000 10000 9765.7 10017.3 10009.6 9958.25 10217 10203.2 10102.5 10384.7 10355.1 9987.24 10275.2 10259.7 9982.19 10262.9 10281 10099.2 10394.6 10403.1 10042.8 10343.9 10356.3 10027.3 10378.5 10380.1 10220 10586.7 10559.7 10477 10837.1 10777 10736 11108 11041.8 10911.8 11343.6 11241 10777.7 11196.9 11105.6 10847.9 11258.9 11162.5 11082.1 11503.8 11374.2 11219.3 11618.8 11453.7 11296.6 11664.1 11474.3 11224.1 11587 11357.8 11285.9 11639.1 11394 11291.6 11659.3 11400 11251.6 11595.3 11310.1 11522 11888.6 11585.8 11713.3 12058.5 11749.8 11917.6 12241.6 11906.5 11864.7 12162 11780.6 11965.4 12257.9 11836 12090.8 12398.7 11920.4 12313.4 12613.9 12138.9 12478.2 12801.1 12299.8 12716.8 12955.3 12428.7 12846.2 13060.9 12559.1 12964.1 13149.7 12662 13095.3 13284.8 12812.5 13177.2 13379.2 12898.7 13196.2 13389.5 12902.7 13407 13567.8 13054.9 13657.9 13822.4 13338 13975.4 14067.9 13598.8 14164.6 14255.7 13742.4 14355.1 14396.4 13872.4 14687.6 14715.2 14292.5 14560 14570.4 14112.3 14715.5 14658.4 14186.9 14763.1 14588.8 14135.7 14886.5 14723.6 14223.1 15156 14965 14485.6 15427.4 15168.8 14697.1 15924.9 15405.2 15051.3 16185.8 15576.1 15187.1 16448.5 15752.7 15383.8 16255.6 15574.1 15154.3 16291.5 15555.2 15131.4 16481.2 15760.7 15357.2 17128.9 16029.8 15674.1 17720.8 16247.5 15988.9 17969.6 16324.9 16075 18159.4 16438.7 16198 18243.4 16451.1 16203 18589.2 16659.8 16510 18797.9 16710.3 16611.4 19023.6 16906.1 16926.8 19250.6 16956.2 16984.8 19290 17002.9 17062.1 19060.2 16931.8 16908.9 19053.5 17030.5 17010.2 19209.7 17211.5 17238.8 18887.1 17008.4 16910.4 17446.4 16672.3 16467.3 15223.7 16555.9 16219.8 14504.8 16586.6 16146.3 14172 16576 16091.1 14576.7 16847.3 16359 14689.6 16900.2 16401.8 14119.9 16716.1 16196.2 13704.1 16712.2 16154.3 13445 16644.6 16099.1 13652.6 16729.2 16178.7 13844.2 17037.5 16432.5 14314.9 17418.7 16785.9 14510.9 17512.3 16893 14822.2 17739.6 17141.4 15652 18282.1 17765.9 15854.4 18398.3 17874.8 15747.3 18411.4 17842.2 16111.5 18586.9 18058.2 16399.9 18731.4 18236.5 16551.5 18925.1 18463.8 16768.2 19161.8 18725.8 17010.5 19376.2 18977.8 17107.3 19536.1 19108 16988 19331.6 18786.6 16933.4 19243.3 18662.8 16856.2 19180.8 18560.9 16800.6 19151.6 18531.4 17013.7 19376.6 18745.4 17082.9 19439.2 18795.7 17086.7 19449.1 18788.4 17331.3 19740.1 19108.4 17651.8 20103.4 19508 17857.8 20376.8 19847.2 17759.9 20256.5 19679.9 17842.6 20361.9 19745.8 17901.6 20410.7 19800.8 17752.4 20251.5 19597.7 17979.1 20520.9 19848.1 18114.5 20701.5 20031.2 18298 20910.5 20262.9 18673.1 21322.5 20790.4 18595 21237.2 20616.2 18768.5 21492 20908 18954.8 21730.6 21128.4 18969.4 21787.1 21196.2 19083 21970.1 21387.8 19316.6 22231.6 21671.8 19309.1 22238.2 21651.9 19382.5 22318.3 21735.2
** An unmanaged index, that includes no expenses or transaction charges, consisting of one- to 10-year government and corporate securities and all of the mortgage- and asset-backed securities in the Lehman Brothers Aggregate Index. + The average total return, not including sales charges, of similar funds as characterized by Lipper Analytical Services. CLASS A AVERAGE ANNUALIZED TOTAL RETURNS Includes 2% maximum sales charge++
One Year 7.00% - -------------------------------------------------------------------------------- Five Year 1.12% - -------------------------------------------------------------------------------- Since Inception (7/11/88) 7.04% - -------------------------------------------------------------------------------- CLASS Y AVERAGE ANNUALIZED TOTAL RETURNS Sales charges do not apply to class Y shares. One Year 9.50% - -------------------------------------------------------------------------------- Since Inception (2/18/97) 7.27% - --------------------------------------------------------------------------------
* 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. Neither safety of principal nor stability of income is 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, the class A returns would have been lower. All fund and benchmark returns include reinvested distributions. ++ Effective September 12, 1996, the fund's maximum sales charge was changed from 1.5% to 2%. *** - This symbol represents a graduation cap, used throughout this report to indicate terms defined in the glossary. - -------------------------------------------------------------------------------- 72 1998 Semiannual Report - Piper Funds INTERMEDIATE BOND FUND (CONTINUED) - -------------------------------------------------------------------------------- [PHOTO] DAVID STEELE shares responsibility for the management of Intermediate Bond Fund. He has 19 years of financial experience. - -------------------------------------------------------------------------------- DURING THE SECOND HALF OF THE REPORTING PERIOD, BOND YIELDS BACKED UP AS ECONOMIC GROWTH REMAINED STRONG. Investors had expected the effects of the Asian crisis to begin slowing the domestic economy by early 1998. When subsequent evidence showed continued strength in consumer demand, interest rates retraced a portion of their earlier decline. Beginning in mid-January, the yield on the Treasury's 30-year benchmark bond increased by about one-fourth of one percentage point to close the reporting period at slightly less than 6%. Also during this time, yield differentials between high- and low-rated bonds contracted, after widening significantly during the fourth quarter of 1997. DESPITE THE ROBUST DOMESTIC ECONOMY, INFLATION REMAINED BENIGN. Prices at the consumer level increased just 1.4% during the 12 months through March, while producer prices actually declined over the same period. Excluding the volatile food and energy sectors,*** last year's 2.2% rise in the consumer price index was the smallest in more than 30 years. Significant gains in productivity, falling energy prices, and the strong dollar helped to keep inflation in check despite strong economic growth and an increasingly tight labor market. THE FEDERAL RESERVE MAINTAINED A STABLE MONETARY POLICY. Faced with little evidence of reported inflation and concerned about exacerbating the difficulties in Asia, the Federal Reserve Board kept the target for the key Federal funds lending rate*** at 5.5 percent over the reporting period. The decline in long-term bond yields, coupled with steady short-term interest rates, resulted in a significant flattening of the yield curve.*** Thank you for investing in Intermediate Bond Fund. We appreciate the opportunity to help you pursue your investment goals. Sincerely, /s/ Bruce Salvog /s/ David Steele Bruce Salvog David Steele Portfolio Manager Portfolio Manager - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION - -------------------------------------------------------------------------------- As a percentage of total assets on March 31, 1998 [CHART]
U.S. Agency Debentures 7% U.S. Treasury Securities 17% U.S. Agency Fixed Rate Mortgage-Backed Securities 30% Corporate Bonds 37% Asset-Backed Securities 7% Short-Term 1% Other Assets 1%
*** - This symbol represents a graduation cap, used throughout this report to indicate terms defined in the glossary. - -------------------------------------------------------------------------------- 73 1998 Semiannual Report - Piper Funds ADJUSTABLE RATE MORTGAGE SECURITIES FUND - -------------------------------------------------------------------------------- [PHOTO] TOM MCGLINCH, CFA shares responsibility for the management of Adjustable Rate Mortgage Securities Fund. He has 17 years of financial experience. - -------------------------------------------------------------------------------- May 17, 1998 - -------------------------------------------------------------------------------- DEAR SHAREHOLDERS: FOR THE SIX MONTHS ENDED MARCH 31, 1998, ADJUSTABLE RATE MORTGAGE SECURITIES FUND PRODUCED A TOTAL RETURN OF 2.75%.* This return includes reinvested distributions but does not include the fund's sales charge. While the Lehman Brothers Adjustable Rate Mortgage Index,** the fund's unmanaged market benchmark,*** returned 3.14%, the fund's performance was better than the average fund in the Lipper Adjustable Rate Mortgage Funds Average,+ which returned 2.39% during the same time frame. Our decision to avoid adjustable rate mortgage securities that are sensitive to prepayment risk, along with placing a significant proportion of our assets in fixed rate mortgage securities, worked well for our investors. OVERALL, SHORT-TERM INTEREST RATES ROSE SLIGHTLY DURING THE PAST SIX MONTHS, ALTHOUGH THEY FELL RATHER DRAMATICALLY IN JANUARY WHEN FEARS ABOUT THE ASIAN ECONOMIC CRISIS PEAKED. While the U.S. economy continued to produce impressive growth, inflation remained low and wages rose only slightly. In fact, the Asian economic crisis -- which devalued currencies, rattled the foundations of shaky financial institutions and caused a sharp rise in bankruptcies -- may have put a damper on U.S. inflation expectations. The main reason: U.S. corporations fear Asian goods, made cheaper by the devaluation*** of their currencies, could compel U.S. producers to hold down their prices in - -------------------------------------------------------------------------------- PERFORMANCE THROUGH MARCH 31, 1998* - -------------------------------------------------------------------------------- Growth of $10,000 Invested Since Inception [GRAPH]
Adjustable Rate Mortgage Lehman Brothers Securities Fund, reflects the Adjustable Rate Lipper Adjustable Rate fund's 2% sales charge++ Mortgage Index** Mortgage Funds Average+ 9800 10000 10000 9789.77 10000 10000 9779.54 9957 10038.9 9706.91 9918.17 10060.8 9798.52 10026.3 10113.6 9952.86 10116.5 10175.3 10087.3 10221.7 10247 10149.2 10266.7 10263.5 10338 10354 10313.7 10390 10409.9 10361.7 10314.2 10324.5 10349.5 10291.6 10340 10370 10312.2 10437.2 10416.2 10496 10543.7 10460.2 10631.9 10636.4 10521.5 10680.6 10684.3 10556.1 10738.1 10747.3 10604.8 10818.3 10773.1 10627 10887.6 10886.3 10684.6 10934.9 10936.3 10724.8 10982.4 11002 10772.7 11041.5 11004.2 10795.5 11112.3 11008.6 10812.4 11114.6 10978.8 10801.7 11148.2 11061.2 10829.4 11321.2 11135.3 10872.5 11109.9 11099.6 10869.8 10789.7 11012 10820.4 10727.2 10953.6 10774 10656 10944.8 10746.9 10620.3 10968.9 10768 10656.2 11035.8 10806.6 10644.2 11089.9 10832.6 10608 11044.4 10820.4 10535.2 11035.6 10823.4 10477.4 11004.7 10798.4 10419.2 11061.9 10815.1 10631.4 11245.5 10919 10782.9 11471.6 11041.4 10885.4 11526.6 11115.2 10938.4 11648.8 11200.2 11054.5 11837.5 11332.9 11120.6 11886.1 11354 11174.5 11928.9 11394.4 11222.2 12001.6 11465.7 11299.2 12086.8 11525.9 11365.3 12161.8 11591.4 11434.5 12265.2 11669.2 11518.9 12358.4 11737.6 11602.8 12444.9 11813.6 11631.9 12473.5 11830 11686.3 12496 11864.4 11712.2 12512.2 11906.5 11753.1 12528.5 11952.2 11822.9 12617.4 12026.3 11880.2 12679.2 12074.6 11940.1 12755.3 12128.2 12041.5 12853.5 12214.2 12160.7 13000.1 12319 12253.2 13124.9 12394 12297.4 13166.9 12433.9 12370.2 13243.2 12498.2 12430.9 13317.4 12558.4 12460.4 13342.7 12602.9 12533.1 13446.8 12690.9 12610.3 13530.1 12766.7 12702.9 13619.4 12846.1 12795.7 13736.6 12942.5 12810.9 13772.3 12977.7 12904 13885.2 13055.5 12966.8 13976.9 13119.9 13011.6 14018.8 13151.1 13073.7 14114.1 13223.2 13150.9 14208.7 13296.9 13180.9 14239.9 13328.7 13259.1 14335.3 13380.9
** An unmanaged index, which includes no expenses or transaction charges, of U.S. agency adjustable rate mortgage securities. + The average total return, not including sales charges, of similar funds as characterized by Lipper Analytical Services. AVERAGE ANNUALIZED TOTAL RETURNS Includes 2% maximum sales charge++
One Year 4.28% - -------------------------------------------------------------------------------- Five Year 4.00% - -------------------------------------------------------------------------------- Since Inception (1/30/92) 4.68% - --------------------------------------------------------------------------------
* 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. Neither safety of principal nor stability of income is guaranteed. Performance prior to September 1, 1995, reflects historical net asset value performance of American Adjustable Rate Term Trust 1998, the fund's predecessor for financial reporting purposes. All fund and benchmark returns include reinvested distributions. ++ Effective February 18, 1997, the fund's maximum sales charge was changed from 1.5% to 2%. *** - This symbol represents a graduation cap, used throughout this report to indicate terms defined in the glossary. - -------------------------------------------------------------------------------- 74 1998 Semiannual Report - Piper Funds ADJUSTABLE RATE MORTGAGE SECURITIES FUND (CONTINUED) - -------------------------------------------------------------------------------- [PHOTO] WAN-CHONG KUNG, CFA shares responsibility for the management of Adjustable Rate Mortgage Securities Fund. She has six years of financial experience. - -------------------------------------------------------------------------------- response. Those competitive pressures, combined with sharply reduced Asian demand for U.S. products, may slow U.S. economic growth, and relieve wage and price pressures that seemed inevitable as U.S. unemployment reached 20-year lows. GIVEN OUR EXPECTATION THAT THE ECONOMY WOULD BE WEAKER LATER THIS YEAR, WE SOLD PREPAYMENT-SENSITIVE ISSUES AND BOUGHT SECURITIES WITH STABLE INCOME STREAMS. Although the softer economy might point to lower interest rates over the long haul, we are not prepared to sacrifice income in order to boost our price sensitivity (or the potential for big price gains if interest rates fall). This strategy of selling prepayment-sensitive issues has largely been in place since mid-1996, and the portfolio, consequently, has had very little turnover in the time since we last wrote. Overall, our goal is to achieve the highest current income that is consistent with stable principal. WE SOLD OUR HIGH-COUPON ARMS, WHICH TEND TO PREPAY QUICKLY WHEN INTEREST RATES FALL. To maintain a consistent dividend for our shareholders, we reinvested that money in floating rate securities pegged to a lagging index such as the 11th Federal Reserve District's Cost of Funds Index, commonly called COFI. Since that index is an average, which tends to adjust more slowly than market rates, we hope to maintain our income, should interest rates fall. We also continue to hold 20% of our total assets in fixed-rate mortgage securities. By holding fixed-rate mortgages we can take advantage of price gains when interest rates fall, and their yields are stable. This helps us maintain a consistent dividend payout. - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION - -------------------------------------------------------------------------------- As a percentage of total assets on March 31, 1998 [CHART]
U.S. Agency Fixed Rate Mortgage-Backed Securities 19% U.S. Agency Adjustable Rate Mortgage-Backed Securities 55% U.S. Treasury Securities 1% U.S. Agency Adjustable Rate CMOs 13% Private Adjustable Rate CMOs 9% Short-Term 2% Other Assets 1%
U.S. agency mortgage-backed ARM securities include 9% of total assets in ARM securities with coupons that reset in more than four years. All other ARM security coupons in the fund reset in 12 months or less. - -------------------------------------------------------------------------------- 75 1998 Semiannual Report - Piper Funds ADJUSTABLE RATE MORTGAGE SECURITIES FUND (CONTINUED) - -------------------------------------------------------------------------------- LOOKING AHEAD, OUR OUTLOOK CALLS FOR STABLE INTEREST RATES AS WE BELIEVE ECONOMIC GROWTH WILL SLOW LATER THIS YEAR. In effect, some of the surprisingly strong economic activity we saw in the first quarter of 1998 was probably "borrowed" from the second quarter: the combination of unseasonably warm weather in much of the U.S. and early tax refund payments boosted items like housing starts and consumer sales. But we expect that growing consumer debt is likely to put a damper on spending later this year and economic growth will slow. In this environment, we plan to maintain our current focus on stable income. Thank you for investing in Adjustable Rate Mortgage Securities Fund. Sincerely, /s/ Tom McGlinch /s/ Wan-Chong Kung Tom McGlinch Wan-Chong Kung Portfolio Manager Portfolio Manager - -------------------------------------------------------------------------------- 76 1998 Semiannual Report - Piper Funds Financial Statements (Unaudited) - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES March 31, 1998 ................................................................................
ADJUSTABLE RATE MORTGAGE GOVERNMENT INTERMEDIATE SECURITIES INCOME FUND BOND FUND FUND ------------- -------------- -------------- ASSETS: Investments in securities at market value* (including repurchase agreements of $655,000, $336,000 and $3,091,000, respectively) (note 2) ....................... $ 72,436,530 $ 58,693,690 $ 157,241,295 Cash in bank on demand deposit ............................. 20,751 17,332 20,901 Receivable for fund shares sold ............................ 28,330 -- -- Principal receivable on mortgage securities ................ -- -- 332,563 Accrued interest receivable ................................ 507,670 724,244 1,014,915 ------------- -------------- -------------- Total assets ............................................. 72,993,281 59,435,266 158,609,674 ------------- -------------- -------------- LIABILITIES: Dividends payable to shareholders .......................... 329,256 227,158 742,638 Payable for investment securities purchased on a when-issued basis (note 2) ........................................... 9,996,094 -- -- Payable for fund shares redeemed ........................... 23,403 282 63,505 Accrued investment management fee .......................... 26,983 15,297 47,560 Accrued distribution and service fees ...................... 16,190 8,643 20,383 ------------- -------------- -------------- Total liabilities ........................................ 10,391,926 251,380 874,086 ------------- -------------- -------------- Net assets applicable to outstanding capital stock ....... $ 62,601,355 $ 59,183,886 $ 157,735,588 ------------- -------------- -------------- ------------- -------------- -------------- COMPOSITION OF NET ASSETS: Capital stock and additional paid-in capital ............... $ 75,186,954 $ 334,049,149 $ 303,198,330 Distributions in excess of net investment income ........... (331) (125,225) -- Accumulated net realized loss on investments ............... (16,000,967) (275,876,897) (146,707,133) Unrealized appreciation of investments ..................... 3,415,699 1,136,859 1,244,391 ------------- -------------- -------------- Total - representing net assets applicable to outstanding capital stock .......................................... $ 62,601,355 $ 59,183,886 $ 157,735,588 ------------- -------------- -------------- ------------- -------------- -------------- * Investments in securities at identified cost ............. $ 69,020,831 $ 57,556,831 $ 155,996,904 ------------- -------------- -------------- ------------- -------------- -------------- NET ASSET VALUE AND OFFERING PRICE: CLASS A (NOTE 1): Net assets ................................................. $ 62,601,355 $ 50,061,076 $ 157,735,588 Shares outstanding (authorized 10 billion, four billion and 10 billion shares, respectively, of $0.01 par value) ..... 6,752,501 6,491,084 19,379,923 Net asset value ............................................ $ 9.27 $ 7.71 $ 8.14 Maximum offering price per share (net asset value plus 2% of offering price) .......................................... $ 9.46 $ 7.87 $ 8.31 CLASS Y: Net assets ................................................. -- $ 9,122,810 -- Shares outstanding (authorized one billion shares of $0.01 par value) ............................................... -- 1,182,247 -- Net asset value and offering price per share ............... -- $ 7.72 --
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 77 Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS For the Six Months Ended March 31, 1998 ................................................................................
ADJUSTABLE RATE MORTGAGE GOVERNMENT INTERMEDIATE SECURITIES INCOME FUND BOND FUND FUND ------------ ------------ ------------ INCOME: Interest ................................................... $ 2,319,631 $ 2,139,776 $ 5,543,406 Fee income (note 2) ........................................ 46,996 -- -- ------------ ------------ ------------ Total income ............................................. 2,366,627 2,139,776 5,543,406 ------------ ------------ ------------ EXPENSES (NOTE 5): Investment management fee ................................ 163,178 101,607 298,493 Distribution and service fees: CLASS A ................................................ 163,178 83,822 127,926 CLASS Y ................................................ -- -- -- Custodian and accounting fees ............................ 26,672 33,408 78,057 Transfer agent and dividend disbursing agent fees ........ 32,426 24,333 98,580 Registration fees ........................................ 9,788 13,333 7,529 Reports to shareholders .................................. 12,703 16,488 23,441 Directors' fees .......................................... 4,036 4,036 9,113 Audit and legal fees ..................................... 24,763 25,263 28,351 Other expenses ........................................... 4,458 4,235 6,734 ------------ ------------ ------------ Total expenses ........................................... 441,202 306,525 678,224 Less Class A expenses waived by the distributor ........ (56,365) (24,026) -- ------------ ------------ ------------ Net expenses before expenses paid indirectly ............. 384,837 282,499 678,224 Less expenses paid indirectly .......................... (19) (56) (14) ------------ ------------ ------------ Total net expenses ....................................... 384,818 282,443 678,210 ------------ ------------ ------------ Net investment income .................................... 1,981,809 1,857,333 4,865,196 ------------ ------------ ------------ NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Net realized gain on investments (note 3) ................ 128,142 333,171 248,647 ------------ ------------ ------------ Net realized gain on investments ......................... 128,142 333,171 248,647 Net change in unrealized appreciation or depreciation of investments .............................................. 653,486 51,503 (484,268) ------------ ------------ ------------ Net gain (loss) on investments ........................... 781,628 384,674 (235,621) ------------ ------------ ------------ Net increase in net assets resulting from operations ... $ 2,763,437 $ 2,242,007 $ 4,629,575 ------------ ------------ ------------ ------------ ------------ ------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 78 Financial Statements (continued) - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS ................................................................................
GOVERNMENT INCOME FUND INTERMEDIATE BOND FUND ----------------------------- ----------------------------- Six Months Six Months Ended 3/31/98 Year Ended Ended 3/31/98 Year Ended (Unaudited) 9/30/97 (Unaudited) 9/30/97 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income ...................................... $ 1,981,809 $ 4,770,030 $ 1,857,333 $ 5,962,017 Net realized gain (loss) on investments .................... 128,142 697,901 333,171 281,651 Net change in unrealized appreciation or depreciation of investments .............................................. 653,486 2,063,487 51,503 2,015,896 ------------- ------------- ------------- ------------- Net increase in net assets resulting from operations ..... 2,763,437 7,531,418 2,242,007 8,259,564 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS: CLASS A: From net investment income ............................... (1,982,140) (4,771,839) (1,520,427) (5,402,892) CLASS Y: From net investment income ............................... -- -- (336,906) (559,127) ------------- ------------- ------------- ------------- Total distributions ...................................... (1,982,140) (4,771,839) (1,857,333) (5,962,019) ------------- ------------- ------------- ------------- CAPITAL SHARE TRANSACTIONS (NOTE 4): CLASS A .................................................... (5,448,319) (19,319,777) (14,616,293) (73,660,708) CLASS Y .................................................... -- -- (4,971,240) 13,912,070 ------------- ------------- ------------- ------------- Decrease in net assets from capital share transactions ... (5,448,319) (19,319,777) (19,587,533) (59,748,638) ------------- ------------- ------------- ------------- Total decrease in net assets ............................. (4,667,022) (16,560,198) (19,202,859) (57,451,093) Net assets at beginning of period .......................... 67,268,377 83,828,575 78,386,745 135,837,838 ------------- ------------- ------------- ------------- Net assets at end of period ................................ $62,601,355 $ 67,268,377 $ 59,183,886 $ 78,386,745 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Distributions in excess of net investment income ........... ($ 331) -- $ (125,225) $ (125,225) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ADJUSTABLE RATE MORTGAGE SECURITIES FUND ----------------------------- Six Months Ended 3/31/98 Month Ended (Unaudited) 9/30/97 ------------- ------------- OPERATIONS: Net investment income ...................................... 4,865,196 12,789,553 Net realized gain (loss) on investments .................... 248,647 (392,095) Net change in unrealized appreciation or depreciation of investments .............................................. (484,268) 3,059,243 ------------- ------------- Net increase in net assets resulting from operations ..... 4,629,575 15,456,701 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS: CLASS A: From net investment income ............................... (4,865,196) (12,789,553) CLASS Y: From net investment income ............................... -- -- ------------- ------------- Total distributions ...................................... (4,865,196) (12,789,553) ------------- ------------- CAPITAL SHARE TRANSACTIONS (NOTE 4): CLASS A .................................................... (26,726,579) (80,802,728) CLASS Y .................................................... -- -- ------------- ------------- Decrease in net assets from capital share transactions ... (26,726,579) (80,802,728) ------------- ------------- Total decrease in net assets ............................. (26,962,200) (78,135,580) Net assets at beginning of period .......................... 184,697,788 262,833,368 ------------- ------------- Net assets at end of period ................................ 157,735,588 184,697,788 ------------- ------------- ------------- ------------- Distributions in excess of net investment income ........... -- -- ------------- ------------- ------------- -------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 79 Notes to Financial Statements (Unaudited) - -------------------------------------------------------------------------------- (1) ORGANIZATION ................................ Piper Funds Inc. (Piper Funds) and Piper Funds Inc.-II (Piper Funds II) are each registered under the Investment Company Act of 1940 (as amended) as single, open-end management investment companies. Piper Funds currently has 12 series, including Government Income Fund and Intermediate Bond Fund. Each fund is classified as a diversified series. Piper Funds II currently has one series, Adjustable Rate Mortgage Securities Fund, which is classified as a diversified series. On September 1, 1995, four closed-end funds, American Adjustable Rate Term Trust 1996 (BDJ), American Adjustable Rate Term Trust 1997 (CDJ), American Adjustable Rate Term Trust 1998 (DDJ) and American Adjustable Rate Term Trust 1999 (EDJ) merged into Adjustable Rate Mortgage Securities Fund. (DDJ) is considered the surviving entity for financial reporting purposes. The articles of incorporation of Piper Funds and Piper Funds II permit the boards of directors to create additional series in the future. Intermediate Bond Fund commenced offering Class Y shares on February 18, 1997. All shares existing prior to that date were classified as Class A shares. Key features of each class are: CLASS A: - Subject to a front-end sales charge - Subject to distribution and service fees 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 of Intermediate Bond Fund 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. Government Income Fund and Adjustable Rate Mortgage Securities Fund each have a single class of shares, which are shown as Class A in the financial statements. Government Income Fund invests primarily in securities issued or guaranteed as to payment of principal and interest by the U.S. government, its agencies or instrumentalities, including mortgage-backed securities. Intermediate Bond Fund invests primarily in a broad range of investment-quality debt securities. Adjustable Rate Mortgage Securities Fund invests primarily in adjustable rate mortgage securities. (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 readily available, or if such quotations or valuations are believed to be inaccurate, unreliable or not reflective of market value, portfolio securities are - -------------------------------------------------------------------------------- 80 Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- valued according to procedures adopted by the funds' board of directors in good faith at "fair value", that is, a price that the fund might reasonably expect to receive for the security or other asset upon its current sale. The current market value of certain fixed income securities is provided by an independent pricing service. Fixed income securities for which prices are not available from an independent pricing service but where an active market exists are valued using market quotations obtained from one or more dealers that make markets in the securities or from a widely-used quotation system. Short-term securities with maturities of 60 days or less are valued at amortized cost, which approximates market value. Securities transactions are accounted for on the date securities are purchased or sold. Realized gains and losses are calculated on the identified-cost basis. Interest income, including amortization of bond discount and premium, is recorded on an accrual basis. FUTURES TRANSACTIONS In order to gain exposure to or protect from changes in the market, Government Income Fund and Adjustable Rate Mortgage Securities Fund may buy and sell financial futures contracts and related options. Risks of entering into futures contracts and related options include the possibility that there may be an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the funds are required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the funds each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The funds recognize a realized gain or loss when the contract is closed or expires. SECURITIES PURCHASED ON A WHEN-ISSUED BASIS Delivery and payment for securities that have been purchased by the funds on a when-issued or forward-commitment basis can take place a month or more after the transaction date. During this period, such securities do not earn interest, are subject to market fluctuation and may increase or decrease in value prior to their delivery. The funds segregate, with their custodian, assets with a market value equal to the amount of their purchase commitments. The purchase of securities on a when-issued or forward-commitment basis may increase the volatility of the funds' net asset value if the funds make such purchases while remaining substantially fully invested. As of March 31, 1998, Government Income Fund had entered into outstanding when-issued or forward commitments of $9,996,094. In connection with their ability to purchase securities on a when-issued or forward-commitment basis, Government Income Fund and Intermeditate Bond Fund may enter into mortgage dollar rolls in which the funds sell securities purchased on a forward commitment basis and simultaneously contract with a counterparty to repurchase similar (same type, coupon and maturity) but not identical - -------------------------------------------------------------------------------- 81 Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- securities on a specified future date. As an inducement to "roll over" their purchase commitments, the funds receive negotiated fees. For the six months ended March 31, 1998, such fees earned amounted to $46,996 for Government Income Fund. 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 and the timing of recognition of income on certain collateralized mortgage-backed securities. The character of distributions made during the year from net investment income or net realized gains may 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 or losses were recorded by the funds. ALLOCATION OF INCOME, EXPENSES AND GAINS AND LOSSES Income, expenses (other than class-specific expenses) and realized and unrealized gains and losses for Intermediate Bond Fund 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. DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders from net investment income for Government Income Fund and Adjustable Rate Mortgage Securities Fund are declared daily and paid monthly. Distributions to shareholders from net investment income for Intermediate Bond Fund are declared separately for each class daily and paid monthly. Net realized gains distributions for the funds, 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. - -------------------------------------------------------------------------------- 82 Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- 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 dollar roll transactions and temporary investments in short-term securities, for the six months ended March 31, 1998, were as follows:
ADJUSTABLE RATE GOVERNMENT INTERMEDIATE MORTGAGE SECURITIES INCOME FUND BOND FUND FUND ----------- ------------- -------------------- Purchases .............................. $11,997,249 2,389,503 16,731,105 Proceeds from sales .................... $11,472,798 20,631,514 40,981,222
Including dollar rolls for Government Income Fund, purchases and sales aggregated $37,070,296 and $36,545,845, respectively. (4) CAPITAL SHARE TRANSACTIONS ................................ Capital share transactions for the funds were as follows:
SIX MONTHS YEAR ENDED MARCH 31, 1998 SEPTEMBER 30, 1997 ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ------------ ----------- ------------ GOVERNMENT INCOME FUND: Sales of fund shares ................. 490,534 $ 4,559,915 686,546 $ 6,139,195 Issued for reinvested distributions ...................... 143,941 1,334,107 406,146 3,630,952 Redemptions of fund shares ........... (1,222,328) (11,342,341) (3,247,825) (29,089,924) ----------- ------------ ----------- ------------ (587,853) $ (5,448,319) (2,155,133) $(19,319,777) ----------- ------------ ----------- ------------ ----------- ------------ ----------- ------------
SIX MONTHS ENDED YEAR ENDED MARCH 31, 1998 SEPTEMBER 30, 1997(A) ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------ INTERMEDIATE BOND FUND: CLASS A Sales of fund shares ................. 64,948 $ 1,081,089 412,880 $ 3,127,050 Issued for reinvested distributions ...................... 110,240 267,599 467,515 3,535,885 Redemptions of fund shares ........... (2,075,392) (15,964,981) (8,391,651) (63,548,352) Redemptions in exchange for Class Y shares ............................. -- -- (2,201,482) (16,775,291) ---------- ------------ ---------- ------------ (1,900,204) $(14,616,293) (9,712,738) $(73,660,708) ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ CLASS Y Sales of fund shares ................. 51,871 $ 400,720 37,581 $ 284,580 Sales in exchange for Class A shares ............................. -- -- 2,201,482 16,775,291 Issued for reinvested distributions ...................... 18,116 139,533 41,735 316,060 Redemptions of fund shares ........... (709,100) (5,511,493) (459,438) (3,463,861) ---------- ------------ ---------- ------------ (639,113) $ (4,971,240) 1,821,360 $ 13,912,070 ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
(A) REPRESENTS PERIOD FROM FEBRUARY 18 (COMMENCEMENT OF OFFERING OF SHARES) TO SEPTEMBER 30, 1997, FOR CLASS Y. - -------------------------------------------------------------------------------- 83 Notes to Financial Statements (Unaudited) (continued) - --------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED MARCH 31, 1998 SEPTEMBER 30, 1997 ------------------------ ------------------------- SHARES AMOUNT SHARES AMOUNT ---------- ------------ ----------- ------------ ADJUSTABLE RATE MORTGAGE SECURITIES FUND: Sales of fund shares ................. 133,510 $ 1,087,362 317,414 $ 2,570,801 Issued for reinvested distributions ...................... 226,884 1,847,617 626,711 5,084,891 Redemptions of fund shares ........... (3,641,897) (29,661,558) (10,899,377) (88,458,420) ---------- ------------ ----------- ------------ (3,281,503) $(26,726,579) (9,955,252) $(80,802,728) ---------- ------------ ----------- ------------ ---------- ------------ ----------- ------------
Sales charges received by Piper Jaffray Inc. (Piper Jaffray), the funds' distributor, for distributing the funds' shares for the six months ended March 31, 1998, were as follows:
INTERMEDIATE BOND FUND ADJUSTABLE RATE GOVERNMENT ------------------- MORTGAGE INCOME FUND CLASS A CLASS Y SECURITIES FUND ------------ -------- -------- ---------------- Front-end sales charges ................ $5,546 $1,601 $-- $308 Contingent deferred sales charges ...... 928 571 -- 385 ------------ -------- --- ------ $6,474 $2,172 $-- $693 ------------ -------- --- ------ ------------ -------- --- ------
(5) EXPENSES ................................ INVESTMENT MANAGEMENT FEE Piper Funds and Piper Funds II have entered into investment management agreements 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 agreements require each fund to pay Piper Capital a monthly fee based on average daily net assets. The fees for each fund are as follows: Government Income Fund, an annual rate of 0.50% of the first $250 million in net assets and decreasing percentages thereafter to 0.40% of net assets in excess of $500 million; Intermediate Bond Fund, an annual rate of 0.30% of the first $100 million in net assets, 0.25% of the next $150 million and 0.20% of net assets in excess of $250 million; Adjustable Rate Mortgage Securities Fund, an annual rate of 0.35% on the first $500 million in net assets and 0.30% of net assets in excess of $500 million. For the six months ended March 31, 1998, the effective management fee paid by the funds was 0.50%, 0.30% and 0.35% on an annual basis for Government Income Fund, Intermediate Bond Fund and Adjustable Rate Mortgage Securities 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 fund, which are being voluntarily limited for Government Income Fund and Class A of Intermediate Bond Fund for the year ending September 30, 1998, are stated below as a percent of average daily net assets attributable to such shares.
INTERMEDIATE BOND FUND ADJUSTABLE RATE GOVERNMENT ------------------- MORTGAGE INCOME FUND CLASS A CLASS Y SECURITIES FUND ------------ -------- -------- ---------------- Distribution fee ....................... 0.25% 0.05% -- -- Service fee ............................ 0.25% 0.25% -- 0.15% ------ -------- -------- ------ Total distribution and service fees .... 0.50% 0.30% -- 0.15% ------ -------- -------- ------ ------ -------- -------- ------ Total distribution and service fees after voluntary limitation ........... 0.34% 0.22% -- 0.15% ------ -------- -------- ------ ------ -------- -------- ------
- -------------------------------------------------------------------------------- 84 Notes to Financial Statements (Unaudited) (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 $7.50 per active shareholder account and $1.60 per closed account. For the six months ended March 31, 1998, Piper Jaffray and Piper Trust received the following amounts in connection with the shareholder account servicing agreements:
ADJUSTABLE RATE GOVERNMENT INTERMEDIATE MORTGAGE INCOME FUND BOND FUND SECURITIES FUND ------------ ------------- ---------------- Piper Jaffray .......................... $15,319 $6,336 $20,149 Piper Trust ............................ 2,077 562 -- ------------ ------------- ---------------- $17,396 $6,898 $20,149 ------------ ------------- ---------------- ------------ ------------- ----------------
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. Expenses paid indirectly represent a reduction of custodian fees for earnings on miscellaneous cash balances maintained by the funds. (6) CAPITAL LOSS CARRYOVER ................................ For federal income tax purposes, the following funds had capital loss carryovers at September 30, 1997, which, if not offset by subsequent capital gains, will expire on the funds' fiscal year-ends as indicated below. It is unlikely the board of directors will authorize a distribution of any net realized capital gains until the available capital loss carryovers have been offset or expire.
GOVERNMENT INCOME FUND INTERMEDIATE ADJUSTABLE RATE MORTGAGE ----------------------- BOND FUND SECURITIES FUND CAPITAL ---------------------------- ---------------------------- LOSS CAPITAL LOSS CAPITAL LOSS CARRYOVER EXPIRATION CARRYOVER EXPIRATION CARRYOVER EXPIRATION ----------- ---------- --------------- ---------- --------------- ---------- $ 842,317 2002 $ 180,309,397 2003 $ 600,056 1998 13,367,115 2003 95,748,876 2004 4,923,055 1999 1,723,511 2004 146,313 2006 38,088,524 2000 ----------- --------------- $15,932,943 $ 276,204,586 99,472,115 2001 ----------- --------------- ----------- --------------- 765,529 2002 1,311,310 2003 1,340,246 2004 454,744 2006 --------------- $ 146,955,579 --------------- ---------------
(7) PENDING ACQUISITION ................................ On December 15, 1997, Piper Jaffray Companies Inc., the parent company of the funds' investment advisor, announced that it had entered into an agreement to be acquired by U.S. Bancorp. It is - -------------------------------------------------------------------------------- 85 Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- anticipated that this acquisition will be completed in the second quarter of 1998, subject to regulatory approval, the approval of Piper Jaffray Companies shareholders and the satisfaction of customary closing conditions. U.S. Bancorp is a multi-state bank holding company headquartered in Minneapolis, Minnesota with a geographic service area spanning 17 states. As of December 31, 1997, U.S. Bancorp was the 15th largest U.S. commercial bank holding company, with assets of nearly $71.3 billion. U.S. Bank National Association ("U.S. Bank"), a wholly owned subsidiary of U.S. Bancorp, currently acts as the investment advisor to 32 mutual funds (the "First American Funds"). As of December 31, 1997, U.S. Bank, acting through its First American Asset Management group, managed more than $55 billion in assets, including approximately $20.5 billion in assets of the First American Funds. Effective as of the date of the acquisition, SEI Investments Distribution Company will assume the role of the principal distributor for the funds. Under the Investment Company Act of 1940, as amended (the "1940 Act"), consummation of the acquisition of Piper Jaffray Companies by U.S. Bancorp will result in the assignment and automatic termination of the funds' investment advisory agreements with Piper Capital Management Incorporated. The 1940 Act requires that any new investment advisory agreements for the funds be approved by the funds' board of directors and shareholders. (8) SUBSEQUENT EVENT ................................ FUND CONVERSION In connection with the acquisition of Piper Jaffray Companies Inc. by U.S. Bancorp, the funds' board of directors has recommended that the funds be merged into mutual funds managed by First American Asset Management, a division of U.S. Bank. The proposed fund mergers require shareholder approval and proxy statements requesting shareholder votes will be mailed in May 1998. If approved, the mergers are expected to occur on or about July 31, 1998. - -------------------------------------------------------------------------------- 86 Notes to Financial Statements (continued) - -------------------------------------------------------------------------------- (9) FINANCIAL HIGHLIGHTS ................................ Per-share data for a share of capital stock outstanding throughout each period and selected information for each period are as follows: GOVERNMENT INCOME FUND
Six Months Ended Year Ended September 30, March 31, 1998 --------------------------------------------------- (Unaudited) 1997 1996 1995 1994 1993 --------------- ------- ------- ------- ------- ------- PER-SHARE DATA Net asset value, beginning of period .......................... $ 9.16 $ 8.83 $ 8.99 $ 8.42 $ 10.01 $ 9.86 ------- ------- ------- ------- ------- ------- Operations: Net investment income ........... 0.28 0.57 0.60 0.60 0.69 0.80 Net realized and unrealized gains (losses) on investments ....... 0.11 0.33 (0.16) 0.60 (1.58) 0.15 ------- ------- ------- ------- ------- ------- Total from operations ......... 0.39 0.90 0.44 1.20 (0.89) 0.95 ------- ------- ------- ------- ------- ------- Distributions to shareholders: From net investment income ...... (0.28) (0.57) (0.60) (0.63) (0.68) (0.80) From net realized gains ......... -- -- -- -- (0.02) -- ------- ------- ------- ------- ------- ------- Total distributions to shareholders ................ (0.28) (0.57) (0.60) (0.63) (0.70) (0.80) ------- ------- ------- ------- ------- ------- Net asset value, end of period .......................... $ 9.27 $ 9.16 $ 8.83 $ 8.99 $ 8.42 $ 10.01 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SELECTED INFORMATION Total return (a) .................. 4.31% 10.49% 4.99% 14.87% (9.26)% 10.06% Net assets at end of period (in millions) ....................... $ 63 $ 67 $ 84 $ 106 $ 126 $ 160 Ratio of expenses to average daily net assets ...................... 1.18%(b) 1.19% 1.09% 1.11% 1.05% 1.09% Ratio of net investment income to average daily net assets ........ 6.08%(b) 6.32% 6.66% 7.02% 7.43% 8.10% Portfolio turnover rate (excluding short-term securities and dollar roll transactions) .............. 16% 21% 32% 87% 121% 191% Ratios before waivers by the distributor: Ratio of expenses to average daily net assets before waivers ....................... 1.35%(b) 1.35% 1.28% 1.29% 1.24% 1.27% Ratio of net investment income to average daily net assets before waivers ....................... 5.91%(b) 6.16% 6.47% 6.84% 7.24% 7.92%
(a) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A SALES CHARGE. (b) ANNUALIZED. - -------------------------------------------------------------------------------- 87 Notes to Financial Statements (continued) - -------------------------------------------------------------------------------- (9) FINANCIAL HIGHLIGHTS ................................ Per-share data for a share of capital stock outstanding throughout each period and selected information for each period are as follows: INTERMEDIATE BOND FUND
CLASS A ----------------------------------------------------------------------- Six Months Ended Year Ended September 30, March 31, 1998 --------------------------------------------------- (Unaudited) 1997 1996 1995 1994 1993 ---------------- ------- ------- ------- ------- ------- PER-SHARE DATA Net asset value, beginning of period .......................... $ 7.67 $ 7.50 $ 8.12 $ 7.98 $ 12.22 $ 11.51 ------- ------- ------- ------- ------- ------- Operations: Net investment income ........... 0.21 0.44 0.53(c) 0.88 0.90 1.29 Net realized and unrealized gains (losses) on investments ....... 0.04 0.17 (0.11) 0.31 (3.96) 0.56 ------- ------- ------- ------- ------- ------- Total from operations ......... 0.25 0.61 0.42 1.19 (3.06) 1.85 ------- ------- ------- ------- ------- ------- Distributions to shareholders: From net investment income ...... (0.21) (0.44) (1.04) (1.05) (0.95) (0.90) From net realized gains ......... -- -- -- -- (0.23) (0.24) ------- ------- ------- ------- ------- ------- Total distributions to shareholders ................ (0.21) (0.44) (1.04) (1.05) (1.18) (1.14) ------- ------- ------- ------- ------- ------- Net asset value, end of period ...................... $ 7.71 $ 7.67 $ 7.50 $ 8.12 $ 7.98 $ 12.22 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SELECTED INFORMATION Total return (a) .................. 3.27% 8.29% 5.68% 16.15% (26.65)% 17.04% Net assets at end of period (in millions) ....................... $ 50 $ 64 $ 136 $ 319 $ 564 $ 792 Ratio of expenses to average daily net assets (b) .................. 0.88%(e) 0.85% 0.72% 0.97% 0.78% 0.70% Ratio of net investment income to average daily net assets ........ 5.45%(e) 5.83% 6.65% 8.02% 9.33% 12.51% Portfolio turnover rate (excluding short-term securities) .......... 4% 86% 89% 136% 169% 109% Ratios before waivers by the distributor: Ratio of expenses to average daily net assets before waivers (b) ........................... 0.96%(e) 0.93% 0.82% 1.07% 0.85% 0.77% Ratio of net investment income to average daily net assets before waivers ....................... 5.37%(e) 5.75% 6.55% 7.92% 9.26% 12.44%
CLASS Y ------------------------------------------ Six Months Ended March 31, 1998 Period Ended (Unaudited) September 30, 1997(d) ----------------- ---------------------- PER-SHARE DATA Net asset value, beginning of period ... $ 7.68 $7.62 ------- ------ Operations: Net investment income ................ 0.22 0.28 Net realized and unrealized gains on investments ........................ 0.04 0.06 ------- ------ Total from operations .............. 0.26 0.34 ------- ------ Distributions to shareholders: From net investment income ........... (0.22) (0.28) ------- ------ Net asset value, end of period ..... $ 7.72 $7.68 ------- ------ ------- ------ SELECTED INFORMATION Total return (a) ....................... 3.38% 4.58% Net assets at end of period (in millions) ............................ $ 9 $ 14 Ratio of expenses to average daily net assets ............................... 0.64%(e) 0.57%(e) Ratio of net investment income to average daily net assets ............. 5.70%(e) 6.06%(e) Portfolio turnover rate (excluding short-term securities) ............... 4% 86%
(a) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A SALES CHARGE. (b) INCLUDES FEDERAL EXCISE TAXES OF 0.08%, 0.37%, 0.23% AND 0.09% FOR FISCAL 1996, 1995, 1994 AND 1993, RESPECTIVELY. (c) BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. (d) COMMENCEMENT OF OFFERING OF CLASS Y SHARES WAS FEBRUARY 18, 1997. (e) ANNUALIZED. - -------------------------------------------------------------------------------- 88 Notes to Financial Statements (continued) - -------------------------------------------------------------------------------- (9) FINANCIAL HIGHLIGHTS ................................ Per-share data for a share of capital stock outstanding throughout each period and selected information for each period are as follows: ADJUSTABLE RATE MORTGAGE SECURITIES FUND
Year Month Six Months Ended Ended Ended September September Year Ended August 31, March 31, 1998 30, 30, ------------------------------------------- (Unaudited) 1997 1996 1996 1995 1994 1993 ---------------- ------- ------- ------- ------- ------- ------- PER-SHARE DATA (A) Net asset value, beginning of period .......................... $ 8.15 $ 8.06 $ 8.03 $ 7.99 $ 8.10 $ 8.88 $ 8.95 ------- ------- ------- ------- ------- ------- ------- Operations: Net investment income ........... 0.23 0.47 0.04 0.49 0.47 0.55 0.63 Net realized and unrealized gains (losses) on investments ....... (0.01) 0.09 0.03 0.01 (0.05) (0.82) (0.09) ------- ------- ------- ------- ------- ------- ------- Total from operations ......... 0.22 0.56 0.07 0.50 0.42 (0.27) 0.54 ------- ------- ------- ------- ------- ------- ------- Distributions to shareholders: From net investment income ...... (0.23) (0.47) (0.04) (0.46) (0.53) (0.51) (0.61) ------- ------- ------- ------- ------- ------- ------- Net asset value, end of period .......................... $ 8.14 $ 8.15 $ 8.06 $ 8.03 $ 7.99 $ 8.10 $ 8.88 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SELECTED INFORMATION(A) Total return (b) .................. 2.75% 7.16% 0.85% 6.40% 5.43% (3.18)% 6.24% Net assets at end of period (in millions) ....................... $ 158 $ 185 $ 263 $ 270 $ 409 $ 500 $ 551 Ratio of expenses to average daily net assets ...................... 0.80%(d) 0.81% 0.82%(d) 0.60% 0.63% 0.60% 0.58% Ratio of net investment income to average daily net assets ........ 5.71%(d) 5.84% 5.28%(d) 5.74% 5.62% 6.39% 7.25% Portfolio turnover rate (excluding short-term securities) .......... 10% 25% 2% 51% 36% 39% 39% Amount of borrowings outstanding at end of period (in millions)(c) .................... -- -- -- -- -- $ 145 $ 145 Average amount of borrowings outstanding during the period (in millions) (c) ................... -- -- -- -- $ 57 $ 145 $ 149 Average number of shares outstanding during the period (in millions) (c) ................... -- -- -- -- 53 62 62 Average per-share amount of borrowings outstanding during the period (c) ...................... -- -- -- -- $ 1.09 $ 2.34 $ 2.41 Ratios before waivers by the adviser: Ratio of expenses to average daily net assets before waivers ....................... 0.80%(d) 0.81% 0.76%(d) 0.60% 0.63% 0.60% 0.58% Ratio of net investment income to average daily net assets before waivers ....................... 5.71%(d) 5.84% 5.58%(d) 5.74% 5.62% 6.39% 7.25%
(a) ON SEPTEMBER 1, 1995 FOUR CLOSED-END FUNDS, AMERICAN ADJUSTABLE RATE TERM TRUST 1996, AMERICAN ADJUSTABLE RATE TERM TRUST 1997, AMERICAN ADJUSTABLE RATE TERM TRUST 1998 (DDJ) AND AMERICAN ADJUSTABLE RATE TERM TRUST 1999 WERE COMBINED TO CREATE THE FUND. DDJ IS CONSIDERED THE SURVIVING ENTITY FOR FINANCIAL REPORTING PURPOSES. THE FINANCIAL HIGHLIGHTS PRESENTED FOR THE PERIODS PRIOR TO SEPTEMBER 1, 1995 ARE THOSE OF DDJ. THE PER-SHARE INFORMATION FOR SUCH PERIODS HAS BEEN RESTATED TO REFLECT THE IMPACT OF ADDITIONAL SHARES CREATED RESULTING FROM THE DIFFERENCE IN THE NET ASSET VALUE PER SHARE OF DDJ AT THE TIME OF THE MERGER ($8.71) AND THE INITIAL NET ASSET VALUE PER SHARE OF THE FUND ($8.00). (b) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A SALES CHARGE. (c) DDJ WAS A CLOSED-END MANAGEMENT INVESTMENT COMPANY AND WAS PERMITTED TO ENTER INTO BORROWINGS FOR OTHER THAN TEMPORARY OR EMERGENCY PURPOSES. ADJUSTABLE RATE MORTGAGE SECURITIES FUND MAY BORROW ONLY FOR TEMPORARY OR EMERGENCY PURPOSES. (d) ANNUALIZED. - -------------------------------------------------------------------------------- 89 Investments in Securities (Unaudited) - --------------------------------------------------------------------------------
GOVERNMENT INCOME FUND March 31, 1998 ....................................................................................... Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------ (PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS) U.S. GOVERNMENT AND AGENCY SECURITIES (114.7%): U.S. AGENCY DEBENTURES (4.9%): 5.80%, FNMA, 12/10/03 ............................. $ 2,000,000 $ 1,993,760 6.63%, FNMA, 3/21/06 .............................. 1,000,000 1,040,800 ------------ 3,034,560 ------------ U.S. AGENCY MORTGAGE-BACKED SECURITIES (98.9%): FIXED RATE (81.3%): 7.50%, FHLMC, 11/1/09 ............................. 1,059,656 1,091,117 7.50%, FHLMC, 10/1/09 ............................. 1,859,542 1,914,752 7.50%, FHLMC, 12/1/09 ............................. 2,453,938 2,526,795 7.00%, FHLMC, 11/1/25 ............................. 2,600,822 2,641,447 11.00%, FNMA, 10/1/20 ............................. 1,114,708 1,262,752 7.00%, FNMA, 12/1/07 .............................. 5,020,394 5,128,633 6.50%, FNMA, 8/1/23 ............................... 6,788,068 6,764,717 6.00%, FNMA, 10/1/23 .............................. 712,111 692,749 9.00%, FNMA, 7/1/24 ............................... 595,585 633,929 10.00%, FNMA, 10/1/17 ............................. 601,047 664,344 6.50%, FNMA, 9/1/25 ............................... 4,466,280 4,441,180 7.00%, FNMA, 3/12/28 .............................. 5,000,000(b) 5,050,000 6.00%, FNMA, 2/18/13 .............................. 5,000,000(b) 4,921,850 6.25%, FNMA Series 1998-M1, Class A2, 1/25/08 ..... 2,000,000 1,992,813 10.00%, FNMA, Series 1989-15, Class D, 9/25/18 .... 43,060 43,291 6.50%, FNMA, Series 1996-23, Class G, 7/25/26 ..... 4,250,000 4,052,290 7.00%, GNMA, 3/15/09 .............................. 1,199,082 1,225,318 9.00%, GNMA, 10/15/24 ............................. 490,050 526,651 7.00%, GNMA, 3/15/09 .............................. 1,713,897 1,751,397 10.00%, GNMA, 1/15/10 ............................. 978,417 1,083,900 9.00%, GNMA, 8/15/25 .............................. 2,311,481 2,482,670 ------------ 50,892,595 ------------ INVERSE INTEREST-ONLY (C) (0.8%): 10.46%, FHLMC G, Series 12, Class AB, LIBOR, 12/25/08 ........................................ 7,654,421 529,686 ------------ Z-BOND (C) (16.8%): 8.29%, FHLMC, Series 1339, Class PZ, 7/15/22 ...... 4,022,228 4,392,113 7.59%, FHLMC, Series 1677, Class Z, 7/15/23 ....... 4,071,084 4,273,294 8.04%, FHLMC, Series 1694, Class Z, 3/15/24 ....... 1,016,080 931,949 7.58%, FNMA, Series 1993-160, Class ZA, 9/25/23 ... 961,198 904,055 ------------ 10,501,411 ------------
Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------ U.S. GOVERNMENT SECURITIES (10.9%): 7.25%, U.S. Treasury Bond, 5/15/16 ................ $ 2,000,000 $ 2,273,980 8.13%, U.S. Treasury Bond, 8/15/19 ................ 1,000,000 1,249,620 7.25%, U.S. Treasury Note, 5/15/04 ................ 1,000,000 1,079,450 6.25%, U.S. Treasury Note, 5/31/00 ................ 1,000,000 1,013,220 5.88%, U.S. Treasury Note, 6/30/00 ................ 1,200,000 1,207,008 ------------ 6,823,278 ------------ Total U.S. Government and Agency Securities (cost: $68,365,831) .......................... 71,781,530 ------------ SHORT-TERM SECURITIES (1.0%): Repurchase agreement with Goldman Sachs, acquired on 3/31/98, interest of $109, 6.00%, 4/1/98 (cost: $655,000) ................................ 655,000(d) 655,000 ------------ Total Investments in Securities (cost: $69,020,831) (d) ...................... $ 72,436,530 ------------ ------------
NOTES TO INVESTMENTS IN SECURITIES: (a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO THE FINANCIAL STATEMENTS. (b) ON MARCH 31, 1998, THE TOTAL COST OF INVESTMENTS PURCHASED ON A WHEN-ISSUED BASIS WAS $9,996,094. (c) PORTFOLIO ABBREVIATIONS AND DEFINITIONS: LIBOR - LONDON INTERBANK OFFERED RATE INVERSE INTEREST-ONLY - REPRESENTS SECURITIES THAT ENTITLE HOLDERS TO RECEIVE ONLY INTEREST PAYMENTS ON THE UNDERLYING MORTGAGES. INTEREST IS PAID AT A RATE THAT INCREASES (DECREASES) WITH A DECREASE (INCREASE) IN THE SPECIFIED INDEX. THE YIELD TO MATURITY OF AN INVERSE INTEREST-ONLY IS EXTREMELY SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS ON THE UNDERLYING MORTGAGE ASSETS. A RAPID (SLOW) RATE OF PRINCIPAL REPAYMENTS MAY HAVE AN ADVERSE (POSITIVE) EFFECT ON YIELD TO MATURITY. INTEREST RATES DISCLOSED REPRESENT CURRENT YIELDS BASED UPON THE CURRENT COST BASIS AND ESTIMATED TIMING AND AMOUNT OF FUTURE CASH FLOWS. Z-BOND - REPRESENTS SECURITIES THAT PAY NO INTEREST OR PRINCIPAL DURING THEIR INITIAL ACCRUAL PERIODS, BUT ACCRUE ADDITIONAL PRINCIPAL AT SPECIFIED RATES. INTEREST RATE DISCLOSED REPRESENTS CURRENT YIELD BASED UPON THE COST BASIS AND ESTIMATED TIMING OF FUTURE CASH FLOWS. (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) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED ON THIS COST WERE AS FOLLOWS: GROSS UNREALIZED APPRECIATION ...... $ 3,620,134 GROSS UNREALIZED DEPRECIATION ...... (204,435) ------------ NET UNREALIZED APPRECIATION ...... $ 3,415,699 ------------ ------------
- -------------------------------------------------------------------------------- 90 Investments in Securities (Unaudited) - --------------------------------------------------------------------------------
INTERMEDIATE BOND FUND March 31, 1998 ....................................................................................... Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------ (PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS) U.S. GOVERNMENT AND AGENCY SECURITIES (54.2%): U.S. AGENCY DEBENTURES (7.1%): 7.40%, FNMA, 7/1/04 ............................... $ 2,000,000 $ 2,154,540 6.18%, FNMA, 3/15/01 .............................. 1,000,000 1,011,280 6.16%, FNMA, 4/3/01 ............................... 1,000,000 1,010,920 ------------ 4,176,740 ------------ U.S. AGENCY MORTGAGE-BACKED SECURITIES (30.5%): FIXED RATE (30.5%): 7.00%, FHLMC, 9/1/10 .............................. 1,940,145 1,975,300 10.00%, FNMA, 11/1/18 ............................. 1,967,540 2,162,445 6.00%, FNMA, 8/1/08 ............................... 1,460,326 1,447,096 7.00%, FNMA, 11/1/10 .............................. 1,943,318 1,977,928 9.00%, FNMA, 12/1/20 .............................. 1,770,608 1,886,582 9.50%, FNMA, 6/1/21 ............................... 1,742,157 1,882,610 9.00%, GNMA, 5/20/25 .............................. 1,475,332 1,571,685 8.50%, GNMA, 7/20/25 .............................. 2,184,552 2,293,103 9.00%, GNMA, 8/15/21 .............................. 2,635,252 2,843,595 ------------ 18,040,344 ------------ U.S. GOVERNMENT SECURITIES (16.6%): 7.25%, U.S. Treasury Note, 8/15/04 ................ 2,000,000 2,163,340 6.75%, U.S. Treasury Note, 4/30/00 ................ 2,000,000 2,044,860 5.50%, U.S. Treasury Note, 12/31/00 . 1,500,000 1,495,080 8.00%, U.S. Treasury Note, 8/15/99 ................ 2,000,000 2,064,440 7.88%, U.S. Treasury Note, 11/15/99 . 2,000,000 2,071,140 ------------ 9,838,860 ------------ Total U.S. Government and Agency Securities (cost: $31,606,340) .......................... 32,055,944 ------------ CORPORATE BONDS (37.0%): CAPITAL GOODS AND SERVICES (1.7%): Boeing Co., 6.35%, 6/15/03 ........................ 1,000,000 1,014,310 ------------ COMMERCIAL SERVICES (3.4%): Hertz Corp, 6.30%, 11/15/06 ....................... 2,000,000 2,015,980 ------------ CONSUMER NON-DURABLES (3.5%): Coca-Cola Enterprises, 6.70%, 10/15/36 ............ 2,000,000 2,080,060 ------------ FINANCIAL SERVICES (20.4%): American Express Credit, 6.50%, 8/1/00 ............ 1,000,000 1,011,410 First Chicago, 7.63%, 1/15/03 ..................... 1,000,000 1,057,160 Ford Motor Credit Co., 7.00%, 9/25/01 2,000,000 2,057,480 Lehman Brothers Inc., 7.50%, 8/1/26 . 2,000,000 2,142,580
Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------ Nordstrom Credit Inc., 6.70%, 7/1/05 . $ 1,000,000 $ 1,013,810 General Motors Acceptance Corp., 8.50%, 1/1/03 .... 1,500,000 1,638,945 Morgan Stanley Group Inc., 8.10%, 6/24/02 ......... 1,000,000 1,069,830 Salomon Smith Barney Holdings, 7.00%, 3/15/04 ..... 2,000,000 2,060,080 ------------ 12,051,295 ------------ UTILITIES (8.0%): Hydro-Quebec, 9.40%, 2/1/21 ....................... 2,300,000 2,999,499 Korea Electric Power ADS, 6.38%, 12/1/03 .......... 2,000,000 1,727,360 ------------ 4,726,859 ------------ Total Corporate Bonds (cost: $21,223,835) .......................... 21,888,504 ------------ ASSET-BACKED SECURITIES (7.4%): Citibank Credit Card Master Trust I, Series 1997-7, Class A, 6.35%, 8/15/02 ......................... 2,000,000 2,017,140 Daimler-Benz Vehicle Trust, 1996-A, Class A, 5.85%, 7/20/03 ......................................... 892,962 893,882 Norwest Automobile Trust, 1996-A, Class A3, 5.90%, 3/15/00 ......................................... 1,500,000 1,502,220 ------------ Total Asset-Backed Securities (cost: $4,390,656) ........................... 4,413,242 ------------ SHORT-TERM SECURITIES (0.6%): Repurchase agreement with Goldman Sachs, acquired on 3/31/98, interest of $56, 6.00%, 4/1/98 (cost: $336,000) ................................ 336,000(b) 336,000 ------------ Total Investments in Securities (cost: $57,556,831) (c) ...................... $ 58,693,690 ------------ ------------
NOTES TO INVESTMENTS IN SECURITIES: (a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO THE FINANCIAL STATEMENTS. (b) 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. (c) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED ON THIS COST WERE AS FOLLOWS: GROSS UNREALIZED APPRECIATION ...... $ 1,317,288 GROSS UNREALIZED DEPRECIATION ...... (180,429) ------------ NET UNREALIZED APPRECIATION ...... $ 1,136,859 ------------ ------------
- -------------------------------------------------------------------------------- 91 Investments in Securities (Unaudited) - --------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE SECURITIES FUND March 31, 1998 ........................................................................................ Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------- (PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS) U.S. GOVERNMENT AND AGENCY SECURITIES (88.3%): U.S. AGENCY MORTGAGE-BACKED SECURITIES (87.6%): ADJUSTABLE RATE (B) (68.5%): 7.25%, FHLMC, 11/1/16 ............................. $ 5,968,081 $ 6,142,349 7.25%, FHLMC, 1/1/17 .............................. 672,827 692,151 7.65%, FHLMC, 6/1/18 .............................. 1,164,295 1,206,908 6.26%, FHLMC, 12/1/26 ............................. 4,564,865 4,578,651 6.53%, FHLMC, 2/1/27 .............................. 4,702,944 4,704,213 7.52%, FHLMC, 8/1/20 .............................. 6,175,648 6,407,297 5.59%, FMNA, Series 1992-196, Class FA, COFI, 11/25/07 ........................................ 2,331,612 2,240,376 7.15%, FNMA, 11/1/17 .............................. 6,272,385 6,384,034 7.55%, FNMA, 1/1/20 ............................... 1,296,776 1,350,813 7.63%, FNMA, 2/1/22 ............................... 1,072,286 1,111,896 6.98%, FNMA, 3/1/28 ............................... 5,063,319 5,145,598 7.30%, FNMA, 10/1/25 .............................. 5,631,122 5,733,834 5.89%, FNMA Series 1993-65, Class FC, COFI, 6/25/12 ......................................... 5,500,000 5,410,955 6.09%, FNMA Series 1994-30, Class F, COFI, 6/25/23 ......................................... 5,818,344 5,793,092 5.99%, FNMA Series 1994-33, Class FD, COFI, 3/25/09 ......................................... 2,000,000 1,961,920 6.09%, FNMA, Series 1994-12, Class FB, COFI, 1/25/09 ......................................... 4,635,174 4,632,671 7.00%, GNMA, 7/20/22 .............................. 5,220,371 5,356,570 7.38%, GNMA, 5/20/23 .............................. 6,605,420 6,779,737 7.00%, GNMA, 9/20/23 .............................. 5,304,943 5,435,179 7.38%, GNMA, 6/20/24 .............................. 6,031,960 6,184,810 7.00%, GNMA, 9/20/25 .............................. 6,596,162 6,756,976 7.00%, GNMA, 8/20/21 .............................. 4,762,276 4,887,381 7.00%, GNMA, 10/20/21 ............................. 4,583,700 4,705,305 7.00%, GNMA II, 11/20/25 .......................... 1,008,684 1,033,548 6.00%, GNMA II, 8/20/27 ........................... 3,401,434 3,454,801 ------------- 108,091,065 ------------- FIXED RATE (19.1%): 5.50%, FHLMC, 4/1/03 .............................. 1,926,202 1,898,504 5.50%, FHLMC, 4/1/03 .............................. 1,504,161 1,482,531 5.50%, FHLMC, 4/1/03 .............................. 1,938,623 1,910,746 5.50%, FHLMC, 4/1/03 .............................. 1,070,457 1,055,064 5.50%, FHLMC, 4/1/03 .............................. 1,731,531 1,706,632 6.00%, FHLMC, 6/1/04 .............................. 4,719,636 4,693,111 6.00%, FHLMC, 6/1/03 .............................. 4,479,184 4,454,011 6.50%, FNMA, 3/1/03 ............................... 7,934,055 7,968,806 9.00%, GNMA, 5/15/16 .............................. 789,615 850,068 10.00%, GNMA, 2/15/25 ............................. 1,689,828 1,871,484 9.00%, GNMA, 4/15/21 .............................. 2,140,550 2,320,485 ------------- 30,211,442 -------------
Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------- U.S. GOVERNMENT SECURITIES (0.7%): 7.75%, U.S. Treasury Note, 1/31/00 . $ 1,000,000 $ 1,037,490 ------------- Total U.S. Government and Agency Securities (cost: $138,002,798) ......................... 139,339,997 ------------- PRIVATE MORTGAGE-BACKED SECURITIES (9.4%): FLOATING RATE (B) (9.4%): 7.48%, Capstead Mortgage Securities Corporation, Series 1993-2H, Class A1, Treasury, 9/25/23 ..... 7,059,821 7,183,898 7.93%, Resolution Trust Corporation, Series 1991-8, Class A1, Treasury, 12/25/20 .................... 7,559,077 7,626,400 ------------- Total Private Mortgage-Backed Securities (cost: $14,903,106) .......................... 14,810,298 ------------- SHORT-TERM SECURITIES (2.0%): Repurchase agreement with Goldman Sachs,acquired on 3/31/98, interest of $515, 6.00%, 4/1/98 (cost: $3,091,000) .............................. 3,091,000(c) 3,091,000 ------------- Total Investments in Securities (cost: $155,996,904) (d) ..................... $ 157,241,295 ------------- -------------
NOTES TO INVESTMENTS IN SECURITIES: (a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO THE FINANCIAL STATEMENTS. (b) PORTFOLIO ABBREVIATIONS AND DEFINITIONS: COFI (11TH DISTRICT) - COST OF FUNDS INDEX OF THE FEDERAL RESERVE'S 11TH DISTRICT ADJUSTABLE OR FLOATING RATE - REPRESENTS SECURITIES THAT PAY INTEREST AT RATES THAT INCREASE (DECREASE) WITH AN INCREASE (DECREASE) IN THE SPECIFIED INDEX. INTEREST RATES DISCLOSED ARE IN EFFECT ON MARCH 31, 1998. (c) 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. (d) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED ON THIS COST WERE AS FOLLOWS: GROSS UNREALIZED APPRECIATION ...... $ 1,486,325 GROSS UNREALIZED DEPRECIATION ...... (241,934) ------------ NET UNREALIZED APPRECIATION ...... $ 1,244,391 ------------ ------------
- -------------------------------------------------------------------------------- 92 NATIONAL TAX-EXEMPT FUND - -------------------------------------------------------------------------------- [PHOTO] RONALD REUSS, ISFA shares responsibility for the management of National Tax-Exempt Fund. He has 29 years of financial experience. - -------------------------------------------------------------------------------- May 17, 1998 - -------------------------------------------------------------------------------- DEAR SHAREHOLDERS: NATIONAL TAX-EXEMPT FUND PROVIDED A TOTAL RETURN OF 3.66%* FOR THE SIX-MONTHS ENDED MARCH 31, 1998, WHICH REFLECTS REINVESTED DISTRIBUTIONS BUT NOT THE FUND'S SALES CHARGE. This compared to a 3.89% total return for the fund's benchmark, the Lehman Brothers Municipal Bond Index,** and a 3.73% return for the Lipper General Municipal Bond Funds Average.+ FIXED INCOME INVESTMENTS BENEFITED FROM THE IMPACT OF THE ASIAN RECESSION. Between mid-October and early-January, long-term Treasury bond yields declined by about 0.75% as global investors sought refuge in U.S. government securities amid the economic turmoil in Asia. Domestic investors also bought longer-term bonds, confident that reduced demand for U.S. goods abroad and the impact of the strong dollar at home would continue to keep inflation under control. Reduced borrowing requirements from the federal government also contributed to a bullish environment for fixed income securities. TAX-EXEMPT BONDS GAINED FROM THE GLOBAL 'FLIGHT TO QUALITY.' While municipal issues did not benefit directly from the foreign demand for government bonds that accompanied the drop in Treasury yields, all fixed income securities compete for funds on an after-tax basis among domestic investors. Consequently, yields on long-term municipal bonds also drifted lower in concert with Treasury issues over the first three months of the reporting period. - -------------------------------------------------------------------------------- PERFORMANCE THROUGH MARCH 31, 1998* - -------------------------------------------------------------------------------- GROWTH OF $10,000 INVESTED SINCE INCEPTION [GRAPH]
National Tax-Exempt Fund, reflects the Lehman Brothers Lipper General fund's 2% maximum Municipal Bond Municipal Bond sales charge++ Index** Funds Average+ 9800 10000 10000 9800 10000 10000 9829 10009 10036.1 9947 10190 10225.8 10129 10370 10439.4 10076 10274 10343.5 10115 10379 10502.3 10194 10594 10661.8 10172 10473 10575.3 10181 10448 10569.7 10416 10695 10828.7 10611 10918 11034.4 10723 11066 11179.5 10814 11217 11293.8 10684 11107 11174.1 10625 11074 11137.5 10772 11209 11271.3 10929 11405 11451.5 11001 11498 11528.5 10902 11444 11400.2 11041 11546 11514.5 11049 11550 11512.2 10891 11467 11360.5 11164 11717 11658.8 11294 11820 11771.6 11480 11993 11967 11207 11819 11706.4 11278 11827 11726.3 11427 12041 11896.5 11721 12283 12185.1 11798 12337 12239 11933 12502 12390.4 12000 12611 12463.8 12038 12616 12488.8 12214 12784 12671.5 12341 12897 12785.3 12287 12884 12747 12463 13042 12934.5 12627 13214 13100 12778 13386 13267.6 12883 13506 13387.8 12900 13544 13405.1 13217 13835 13719.2 13210 13867 13713.2 13227 13871 13732.4 13227 13877 13740.3 13309 14000 13869.7 13529 14165 14066.1 13799 14403 14322.7 14365 14835 14836.2 14087 14690 14598.9 14143 14785 14653.2 13798 14641 14394.9 14192 14903 14759 14351 15055 14943.9 14563 15229 15113.8 15290 15781 15705.2 15075 15613 15532.2 15222 15771 15699.6 15324 15859 15785.1 15614 16124 16057.8 15615 16145 16055.7 16026 16481 16414 16230 16669 16609.7 16228 16701 16646 16013 16554 16474.6 16440 16903 16809.3 16623 17096 16992.6 16085 16653 16557.8 15182 15975 15837.2 15249 16111 15888 15390 16251 16029.6 15239 16152 15926.9 15588 16447 16213.1 15615 16505 16258.4 15300 16262 15993.4 14969 15973 15688 14560 15684 15353.7 15049 16029 15737.1 15605 16487 16207.9 16149 16967 16693.8 16251 17162 16845.9 16214 17183 16855 16749 17731 17379 16539 17577 17190.8 16642 17744 17300 16823 17969 17487.9 16877 18082 17593.3 17184 18344 17871 17608 18649 18219.8 17839 18828 18428.6 17912 18971 18518 17735 18842 18376.8 17464 18601 18090.5 17342 18549 18005.8 17353 18539 18020.8 17528 18741 18192.8 17753 18912 18353.1 17715 18908 18346.9 17961 19173 18618.2 18187 19390 18819.9 18499 19744 19152.7 18455 19662 19074.6 18479 19699 19075 18605 19880 19244.7 18375 19616 18997.3 18572 19780 19158.9 18821 20077 19436 19019 20292 19661.7 19599 20854 20254.8 19383 20658 20023.1 19593 20904 20272.3 19663 21038 20405.1 19778 21162 20524.8 20124 21471 20855.4 20293 21692 21056.1 20303 21698 21048.2 20311 21718 21059
** An unmanaged index that includes no expenses or transaction charges, measuring performance for the investment-grade municipal bond market. + The average total return of similar funds, not including sales charges, as characterized by Lipper Analytical Services. AVERAGE ANNUALIZED TOTAL RETURNS Includes 2% maximum sales charge++ One Year 8.32% - -------------------------------------------------------------------------------- Five Year 5.71% - -------------------------------------------------------------------------------- Since Inception (7/11/88) 7.56% - --------------------------------------------------------------------------------
* 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. Neither safety of principal nor stability of income is 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, returns would have been lower. All fund and benchmark returns include reinvested distributions. ++ Effective February 18, 1997, the fund's maximum sales charge was changed from 4% to 2%. - -------------------------------------------------------------------------------- 93 1998 Semiannual Report - Piper Funds NATIONAL TAX-EXEMPT FUND (CONTINUED) - -------------------------------------------------------------------------------- [PHOTO] DOUGLAS WHITE, CFA shares responsibility for the management of National Tax-Exempt Fund. He has 15 years of financial experience. - -------------------------------------------------------------------------------- YIELDS ACROSS THE FIXED INCOME SPECTRUM REBOUNDED BEGINNING IN MID-JANUARY. Investors had expected fallout from the Asian recessions to begin slowing the U.S. economy by the end of the first quarter. When little evidence appeared of an imminent deceleration in the rate of domestic economic growth, bond yields began climbing, retracing about one-third of the previous decline. Overall, the yield on the Bond Buyer 20-Bond Index (a municipal benchmark comprised of AA-rated general obligation bonds) dropped by 0.15% over the six-month reporting period. DESPITE THE STRONG ECONOMY, INFLATION REMAINED BENIGN. At the consumer level, prices rose just 1.4% during the 12 months through March, while the producer price index actually fell during the same period. Significant gains in productivity, falling energy prices, and the strong U.S. dollar helped to keep inflation in check despite a robust economy and an increasingly tight labor market. Faced with little evidence of inflation and concerned about exacerbating the difficulties in Asia, Federal Reserve policy makers kept short-term interest rates steady during the reporting period. THE FUND MAINTAINED ITS POLICY OF EMPHASIZING CREDIT QUALITY. In recent years, yield differentials between similar-maturity bonds of differing credit quality have narrowed significantly. At current levels, we believe that the marginal improvement in yields offered by lower-rated debt does not provide adequate compensation to take on the incremental credit risk. Accordingly, 67% of the fund's assets are invested in bonds rated AA or higher or short-term rating equivalent. While 21% of the fund's portfolio remains in non-rated paper, these bonds were acquired at a time when quality spreads were significantly wider, thus cushioning the potential impact of any additional credit risk. - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION BY SECTOR - -------------------------------------------------------------------------------- As a percentage of total assets on March 31, 1998 [CHART] Hospital Revenue 15% - -------------------------------------------------------------------------------- Industrial Development Revenue 2% - -------------------------------------------------------------------------------- Electric Revenue 12% - -------------------------------------------------------------------------------- Leasing Revenue 5% - -------------------------------------------------------------------------------- Multiple Utility Revenue 3% - -------------------------------------------------------------------------------- General Obligations 13% - -------------------------------------------------------------------------------- Miscellaneous Revenue 3% - -------------------------------------------------------------------------------- Nursing Home Revenue 14% - -------------------------------------------------------------------------------- Water/Sewer/Pollution Control Revenue 9% - -------------------------------------------------------------------------------- Special Tax Revenue 4% - -------------------------------------------------------------------------------- Education Revenue 1% - -------------------------------------------------------------------------------- Housing Revenue 17% - -------------------------------------------------------------------------------- Other Assets 2% - --------------------------------------------------------------------------------
Municipal derivative securities (inverse floating rate securities) account for 7% of the fund's total assets. PORTFOLIO COMPOSITION BY RATING - -------------------------------------------------------------------------------- As a percentage of total assets on March 31, 1998 AAA 57% - -------------------------------------------------------------------------------- AA 7% - -------------------------------------------------------------------------------- A 8% - -------------------------------------------------------------------------------- Baa and Below 2% - -------------------------------------------------------------------------------- Non-Rated 21% - -------------------------------------------------------------------------------- Short-Term 3% - -------------------------------------------------------------------------------- Other Assets 2% - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 94 1998 Semiannual Report - Piper Funds NATIONAL TAX-EXEMPT FUND (CONTINUED) - -------------------------------------------------------------------------------- MUNICIPAL BOND YIELDS ARE ATTRACTIVE RELATIVE TO THOSE AVAILABLE ON TAXABLE ISSUES. Bolstered by strong economic growth and bulging tax coffers of municipal issuers, credit upgrades by the rating agencies have continued to substantially outpace downgrades. As interest rates dropped during the fourth quarter of last year, municipalities rushed to finance new projects and refund higher-yielding issues. The sharp increase in supply caused a mild underperformance by municipal bonds relative to Treasuries, especially during the last three months of 1997. As a result of that underperformance, however, long-term AAA-rated tax-exempt yields have risen to roughly 87% of comparable-maturity Treasury issues, an attractive differential by historical standards. At current levels, municipal bond yields provide a significant after-tax premium for individuals in the 28% federal income tax bracket and above. Thank you for your investment in NationalTax-Exempt Fund. We appreciate the opportunity to help you achieve your investment goals. Sincerely, /s/ Ronald Reuss /s/ Douglas White Ronald Reuss Douglas White Portfolio Manager Portfolio Manager - -------------------------------------------------------------------------------- 95 1998 Semiannual Report - Piper Funds MINNESOTA TAX-EXEMPT FUND - -------------------------------------------------------------------------------- [PHOTO] DOUGLAS WHITE, CFA shares responsibility for the management of Minnesota Tax-Exempt Fund. He has 15 years of financial experience. - -------------------------------------------------------------------------------- May 17, 1998 - -------------------------------------------------------------------------------- DEAR SHAREHOLDERS: MINNESOTA TAX-EXEMPT FUND PROVIDED A TOTAL RETURN OF 3.78%* FOR THE SIX MONTHS ENDED MARCH 31, 1998, WHICH REFLECTS REINVESTED DISTRIBUTIONS BUT NOT THE FUND'S SALES CHARGE. This compared to a 3.89% total return for the fund's benchmark, the Lehman Brothers Municipal Bond Index,** and a 3.46% return for the Lipper Minnesota Municipal Bond Funds Average.+ FIXED INCOME INVESTMENTS BENEFITED FROM THE IMPACT OF THE ASIAN RECESSION. Between mid-October and early-January, long-term Treasury bond yields declined by about 0.75% as global investors sought refuge in U.S. government securities amid the economic turmoil in Asia. Domestic investors also bought longer-term bonds, confident that reduced demand for U.S. goods abroad and the impact of the strong dollar at home would continue to keep inflation under control. Reduced borrowing requirements from the federal government also contributed to a bullish environment for fixed income securities. TAX-EXEMPT BONDS GAINED FROM THE GLOBAL 'FLIGHT TO QUALITY.' While municipal issues did not benefit directly from the foreign demand for government bonds that accompanied the drop in Treasury yields, all fixed income securities compete for funds on an after-tax basis among domestic investors. Consequently, yields on long-term municipal bonds also drifted lower in concert with Treasury issues over the first three months of the reporting period. - -------------------------------------------------------------------------------- PERFORMANCE THROUGH MARCH 31, 1998* - -------------------------------------------------------------------------------- GROWTH OF $10,000 INVESTED SINCE INCEPTION [GRAPH]
Minnesota Tax-Exempt Fund, Class A, reflects Lehman Brothers Lipper Minnesota the fund's 2% maximum Municipal Bond Municipal Bond sales charge++ Index** Funds Average+ 9800 10000 10000 9771 10000 10000 9693 10009 10015.4 9856 10190 10196.9 10043 10370 10386.5 9983 10274 10314.9 10009 10379 10436.4 10157 10594 10601.2 10123 10473 10525.1 10161 10448 10526.1 10394 10695 10761.5 10608 10918 10952 10729 11066 11091.5 10795 11217 11193.6 10727 11107 11119.1 10668 11074 11074.3 10833 11209 11215.8 10967 11405 11356 11027 11498 11425.2 10905 11444 11354.6 11042 11546 11467.4 11059 11550 11488.2 10890 11467 11376.8 11126 11717 11611.1 11242 11820 11711.3 11437 11993 11882.9 11163 11819 11694.9 11234 11827 11721.1 11402 12041 11884.6 11658 12283 12125.3 11733 12337 12183.9 11832 12502 12311.8 11872 12611 12395.2 11910 12616 12417.6 12073 12784 12555.7 12184 12897 12663.4 12154 12884 12650.6 12327 13042 12798.3 12477 13214 12935.2 12637 13386 13069.1 12740 13506 13162.5 12768 13544 13185.5 13019 13835 13418.3 13059 13867 13454.2 13070 13871 13495.8 13079 13877 13524.9 13170 14000 13624.6 13337 14165 13764.3 13529 14403 13960.7 13950 14835 14372 13776 14690 14223.6 13844 14785 14275 13579 14641 14083 13917 14903 14361.1 14080 15055 14517.8 14275 15229 14702 14741 15781 15147.8 14610 15613 15046.6 14770 15771 15195.7 14859 15859 15288 15082 16124 15521 15112 16145 15544.4 15412 16481 15844.7 15578 16669 16036.7 15595 16701 16089.6 15484 16554 15980.1 15765 16903 16259 15949 17096 16427.7 15610 16653 16060.3 14986 15975 15472.7 15058 16111 15503.9 15186 16251 15644.1 15056 16152 15568.3 15359 16447 15826.9 15389 16505 15866 15090 16262 15649.9 14813 15973 15371.5 14446 15684 15061 14903 16029 15418.5 15425 16487 15866 15950 16967 16326.2 16070 17162 16454.7 16115 17183 16466.7 16645 17731 16906.3 16477 17577 16744.2 16568 17744 16834.5 16675 17969 16993.2 16807 18082 17112.3 17147 18344 17355.8 17571 18649 17651 17791 18828 17836.3 17836 18971 17923.8 17628 18842 17801.5 17274 18601 17533.2 17175 18549 17471.7 17218 18539 17499.7 17391 18741 17661 17568 18912 17815.2 17562 18908 17815.2 17855 19173 18048.2 18029 19390 18230.5 18332 19744 18515.3 18277 19662 18447.5 18289 19699 18453.6 18453 19880 18612.5 18230 19616 18387.5 18412 19780 18542 18659 20077 18789.1 18842 20292 18977.4 19315 20854 19482 19120 20658 19290.1 19340 20904 19507.2 19483 21038 19633.2 19584 21162 19747.5 19879 21471 20010.9 20031 21692 20185.2 20079 21698 20185.4 20070 21718 20206.8
** An unmanaged index that includes no expenses or transaction charges, measuring performance for the investment-grade municipal bond market. + The average total return of similar funds, not including sales charges, as characterized by Lipper Analytical Services. CLASS A AVERAGE ANNUALIZED TOTAL RETURNS Includes 2% maximum sales charge++ One Year 7.90% - -------------------------------------------------------------------------------- Five Year 6.12% - -------------------------------------------------------------------------------- Since Inception (7/11/88) 7.43% - -------------------------------------------------------------------------------- CLASS Y CUMULATIVE TOTAL RETURNS Sales charges do not apply to class Y shares Since Inception (8/1/97) 4.64% - --------------------------------------------------------------------------------
* 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. Neither safety of principal nor stability of income is guaranteed. During most periods, the fund's advisor waived or paid certain expenses and/or the fund's distributor voluntarily limited certain 12b-1 fees. Without waivers, class A returns would have been lower. All fund and benchmark returns include reinvested distributions. ++ Effective February 18, 1997, the fund's maximum class A sales charge was changed from 4% to 2%. - -------------------------------------------------------------------------------- 96 1998 Semiannual Report - Piper Funds MINNESOTA TAX-EXEMPT FUND (CONTINUED) - -------------------------------------------------------------------------------- [PHOTO] RONALD REUSS, ISFA shares responsibility for the management of Minnesota Tax-Exempt Fund. He has 29 years of financial experience. - -------------------------------------------------------------------------------- YIELDS ACROSS THE FIXED INCOME SPECTRUM REBOUNDED BEGINNING IN MID-JANUARY. Investors had expected fallout from the Asian recessions to begin slowing the U.S. economy by the end of the first quarter. When little evidence appeared of an imminent deceleration in the rate of domestic economic growth, bond yields began climbing, retracing about one-third of the previous decline. Overall, the yield on the Bond Buyer 20-Bond Index (a municipal benchmark comprised of AA-rated general obligation bonds) dropped by 0.15% over the six-month reporting period. DESPITE THE STRONG ECONOMY, INFLATION REMAINED BENIGN. At the consumer level, prices rose just 1.4% during the 12 months through March, while the producer price index actually fell during the same period. Significant gains in productivity, falling energy prices, and the strong U.S. dollar helped to keep inflation in check despite a robust economy and an increasingly tight labor market. Faced with little evidence of inflation and concerned about exacerbating the difficulties in Asia, Federal Reserve policy makers kept short-term interest rates steady over the reporting period. THE FUND MAINTAINED ITS POLICY OF EMPHASIZING CREDIT QUALITY. In recent years, yield differentials between similar-maturity bonds of differing credit quality have narrowed significantly. At current levels, we believe that the marginal improvement in yields offered by lower-rated debt does not provide adequate compensation to take on the incremental credit risk. Accordingly, 63% of the fund's assets are invested in bonds rated AA or higher or short-term rating equivalent. While 23% of the fund's portfolio remains in non-rated paper, these bonds were acquired at a time when quality spreads were significantly wider, thus cushioning the potential impact of any additional credit risk. The fund will continue to search for issues that offer the combination of compelling value and the potential for significant improvement in underlying fundamentals. - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION BY SECTOR - -------------------------------------------------------------------------------- As a percentage of total assets on March 31, 1998 [CHART] Hospital Revenue 11% - -------------------------------------------------------------------------------- Miscellaneous Revenue 2% - -------------------------------------------------------------------------------- Electric Revenue 3% - -------------------------------------------------------------------------------- Leasing Revenue 6% - -------------------------------------------------------------------------------- Education Revenue 14% - -------------------------------------------------------------------------------- Water/Sewer/Pollution Control Revenue 1% - -------------------------------------------------------------------------------- Housing Revenue 11% - -------------------------------------------------------------------------------- Industrial Development Revenue 1% - -------------------------------------------------------------------------------- Nursing Home Revenue 11% - -------------------------------------------------------------------------------- Health Services Revenue 1% - -------------------------------------------------------------------------------- Other Assets 2% - -------------------------------------------------------------------------------- General Obligations 37% - --------------------------------------------------------------------------------
Municipal derivative securities (inverse floating rate securities) account for 7% of the fund's total assets. PORTFOLIO COMPOSITION BY RATING - -------------------------------------------------------------------------------- As a percentage of total assets on March 31, 1998 AAA 26% - -------------------------------------------------------------------------------- AA 36% - -------------------------------------------------------------------------------- A 6% - -------------------------------------------------------------------------------- Baa and Below 6% - -------------------------------------------------------------------------------- Non-Rated 23% - -------------------------------------------------------------------------------- Short-Term 1% - -------------------------------------------------------------------------------- Other Assets 2% - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 97 1998 Semiannual Report - Piper Funds MINNESOTA TAX-EXEMPT FUND (CONTINUED) - -------------------------------------------------------------------------------- FALLING INTEREST RATES CAUSED A BULGE IN SUPPLY. Municipalities in Minnesota rushed to finance new projects and refund higher-yielding issues as interest rates dropped during the reporting period. Aggregate new issues and refinancing in the state increased at nearly double the national rate during the first quarter of 1998, offsetting a slight decline in supply last year. The fund is seeking opportunities to take advantage of the higher supply of Minnesota bonds to increase the portfolio's book yield and call protection. MUNICIPAL BOND YIELDS ARE ATTRACTIVE RELATIVE TO THOSE AVAILABLE ON TAXABLE ISSUES. Bolstered by strong economic growth and bulging tax coffers of municipal issuers, credit upgrades by the rating agencies have continued to substantially outpace downgrades. The sharp increase in supply caused a mild underperformance by municipal bonds relative to Treasuries, especially during the last three months of 1997. As a result of that underperformance, however, long-term AAA-rated tax-exempt yields have risen to roughly 87% of comparable-maturity Treasury issues, an attractive differential by historical standards. At current levels, municipal bond yields provide a significant after-tax premium for individuals in the 28% federal income tax bracket and above. Thank you for your investment in Minnesota Tax-Exempt Fund. We appreciate the opportunity to help you achieve your investment goals. Sincerely, /s/ Ronald Reuss /s/ Douglas White Ronald Reuss Douglas White Portfolio Manager Portfolio Manager - -------------------------------------------------------------------------------- 98 1998 Semiannual Report - Piper Funds Financial Statements (Unaudited) - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES March 31, 1998 ................................................................................
NATIONAL MINNESOTA TAX-EXEMPT TAX-EXEMPT FUND FUND ------------ ------------- ASSETS: Investments in securities, at market value* (note 2) ....... $45,585,856 $129,191,432 Cash in bank on demand deposit ............................. 102,038 118,353 Receivable for fund shares sold ............................ 20,000 7,246 Accrued interest receivable ................................ 738,334 2,070,969 ------------ ------------- Total assets ............................................. 46,446,228 131,388,000 ------------ ------------- LIABILITIES: Dividends payable to shareholders .......................... 179,899 519,399 Payable for investment securities purchased on a when-issued basis .................................................... -- 498,615 Payable for investment securities purchased ................ -- 1,000,000 Payable for fund shares redeemed ........................... 10,645 4,304 Accrued investment management fee .......................... 19,754 55,863 Accrued distribution and service fees ...................... 7,902 20,758 ------------ ------------- Total liabilities ........................................ 218,200 2,098,939 ------------ ------------- Net assets applicable to outstanding capital stock ....... $46,228,028 $129,289,061 ------------ ------------- ------------ ------------- COMPOSITION OF NET ASSETS: Capital stock and additional paid-in capital ............... $42,574,979 $120,765,215 Accumulated net realized gain on investments ............... 144,221 774,770 Unrealized appreciation of investments ..................... 3,508,828 7,749,076 ------------ ------------- Total - representing net assets applicable to outstanding capital stock .......................................... $46,228,028 $129,289,061 ------------ ------------- ------------ ------------- * Investments in securities, at identified cost ............ $42,077,028 $121,442,356 ------------ ------------- ------------ ------------- NET ASSET VALUE AND OFFERING PRICE: CLASS A (NOTE 1): Net assets ................................................. $46,228,028 $121,462,921 Shares outstanding (authorized 10 billion and four billion shares, respectively, of $0.01 par value) ................ 4,095,056 10,813,277 Net asset value ............................................ $ 11.29 $ 11.23 Maximum offering price per share (net asset value plus 2% of offering price) .......................................... $ 11.52 $ 11.46 CLASS Y: Net assets ................................................. -- $ 7,826,140 Shares outstanding (authorized one billion shares of $0.01 par value) ............................................... -- 697,398 Net asset value and offering price per share ............... -- $ 11.22
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 99 Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS For The Six Months Ended March 31, 1998 ................................................................................
NATIONAL MINNESOTA TAX-EXEMPT TAX-EXEMPT FUND FUND ------------ ------------- INCOME: Interest ................................................... $ 1,422,470 $ 3,956,007 ------------ ------------- EXPENSES (NOTE 5): Investment management fee .................................. 120,570 331,067 Distribution and service fees: CLASS A .................................................. 72,342 185,575 CLASS Y .................................................. -- -- Custodian and accounting fees .............................. 22,670 51,940 Transfer agent and dividend disbursing agent fees .......... 12,727 20,784 Registration fees .......................................... 9,436 12,506 Reports to shareholders .................................... 9,357 8,960 Directors' fees ............................................ 4,036 4,036 Audit and legal fees ....................................... 24,253 25,558 Other expenses ............................................. 3,841 5,436 ------------ ------------- Total expenses ........................................... 279,232 645,862 Less Class A expenses waived by the distributor ........ (17,522) (45,080) ------------ ------------- Net expenses before expenses paid indirectly ............. 261,710 600,782 Less expenses paid indirectly .......................... (1,978) (1,717) ------------ ------------- Total net expenses ....................................... 259,732 599,065 ------------ ------------- Net investment income .................................... 1,162,738 3,356,942 ------------ ------------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Net realized gain on investments (note 3) .................. 215,325 780,157 Net change in unrealized appreciation or depreciation of investments .............................................. 370,039 784,710 ------------ ------------- Net gain on investments .................................. 585,364 1,564,867 ------------ ------------- Net increase in net assets resulting from operations ... $ 1,748,102 $ 4,921,809 ------------ ------------- ------------ -------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 100 Financial Statements (continued) - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS ................................................................................
NATIONAL TAX-EXEMPT FUND MINNESOTA TAX-EXEMPT FUND ----------------------------- ----------------------------- Six Months Six Months Ended 3/31/98 Year Ended Ended 3/31/98 Year Ended (Unaudited) 9/30/97 (Unaudited) 9/30/97 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income ...................................... $ 1,162,738 $ 2,394,720 $ 3,356,942 $ 6,688,180 Net realized gain on investments ........................... 215,325 192,273 780,157 1,170,417 Net change in unrealized appreciation or depreciation of investments .............................................. 370,039 1,642,454 784,710 2,526,783 ------------- ------------- ------------- ------------- Net increase in net assets resulting from operations ..... 1,748,102 4,229,447 4,921,809 10,385,380 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS: CLASS A From net investment income ............................... (1,162,727) (2,385,860) (3,100,031) (6,587,533) From net realized gains .................................. (237,149) (82,981) (615,368) (602,174) CLASS Y From net investment income ............................... -- -- (228,573) (80,240) From net realized gains .................................. -- -- (41,668) -- ------------- ------------- ------------- ------------- Total distributions ...................................... (1,399,876) (2,468,841) (3,985,640) (7,269,947) ------------- ------------- ------------- ------------- CAPITAL SHARE TRANSACTIONS (NOTE 4): CLASS A .................................................... (3,757,877) 1,942,178 (5,071,277) (3,145,424) CLASS Y .................................................... -- -- (1,245,112) 9,022,490 ------------- ------------- ------------- ------------- Increase (decrease) in net assets from capital share transactions ........................................... (3,757,877) 1,942,178 (6,316,389) 5,877,066 ------------- ------------- ------------- ------------- Total increase (decrease) in net assets .................. (3,409,651) 3,702,784 (5,380,220) 8,992,499 Net assets at beginning of period .......................... 49,637,679 45,934,895 134,669,281 125,676,782 ------------- ------------- ------------- ------------- Net assets at end of period ................................ $46,228,028 $ 49,637,679 $ 129,289,061 $ 134,669,281 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Distributions in excess of net investment income ........... $ -- $ (11) $ -- $ (28,338) ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 101 Notes to Financial Statements (Unaudited) - -------------------------------------------------------------------------------- (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 National Tax-Exempt Fund, a diversified series, and Minnesota Tax-Exempt Fund, a non-diversified series (the funds). The company's articles of incorporation permit the board of directors to create additional series in the future. Minnesota Tax-Exempt Fund commenced offering Class Y shares on July 1, 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 - Subject to distribution and service fees 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 of Minnesota Tax-Exempt Fund 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. National Tax-Exempt Fund has a single class of shares, which is shown as Class A in the financial statements. National Tax-Exempt Fund invests primarily in investment-grade or comparable quality municipal bonds, notes and tax-free municipal leases issued by states, territories and possessions of the United States, the District of Columbia or their agencies, instrumentalities and political subdivisions. These may include municipal derivative securities. Minnesota Tax-Exempt Fund invests primarily in investment-grade or comparable quality municipal bonds, notes and tax-free municipal leases issued by the state of Minnesota, its agencies, instrumentalities and political subdivisions, and certain securities of U.S. territorial possessions. These may include municipal derivative securities. (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 readily available, or if such quotations or valuations are believed to be inaccurate, unreliable or not reflective of market value, portfolio securities are valued according to procedures adopted by the funds' board of directors in good faith at "fair value", that is, a price that the fund might reasonably expect to receive for the security or other asset upon its current sale. - -------------------------------------------------------------------------------- 102 Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- The current market value of certain fixed income securities is provided by an independent pricing service. Fixed income securities for which prices are not available from an independent pricing service but where an active market exists are valued using market quotations obtained from one or more dealers that make markets in the securities or from a widely-used quotation system. Short-term securities with maturities of 60 days or less are valued at amortized cost, which approximates market value. Securities transactions are accounted for on the date securities are purchased or sold. Realized gains and losses are calculated on the identified-cost basis. SECURITIES PURCHASED ON A WHEN-ISSUED BASIS Delivery and payment for securities that have been purchased by the funds on a when-issued or forward-commitment basis can take place a month or more after the transaction date. During this period, such securities do not earn interest, are subject to market fluctuation and may increase or decrease in value prior to their delivery. The funds segregate, with their custodian, assets with a market value equal to the amount of their purchase commitments. The purchase of securities on a when-issued or forward-commitment basis may increase the volatility of the funds' net asset value if the funds make such purchases while remaining substantially fully invested. As of March 31, 1998, Minnesota Tax-Exempt had entered into outstanding when-issued or forward commitments of $498,615. 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 market discount amortization. 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 or losses were recorded by the funds. ALLOCATION OF INCOME, EXPENSES AND GAINS AND LOSSES Income, expenses (other than class-specific expenses) and realized and unrealized gains and losses for Minnesota Tax-Exempt Fund 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. DISTRIBUTIONS TO SHAREHOLDERS Distributions from net investment income for National Tax-Exempt Fund are declared daily and paid monthly. Distributions to shareholders from net investment income for Minnesota Tax-Exempt are - -------------------------------------------------------------------------------- 103 Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- declared separately for each class daily and paid monthly. Net realized gains distributions, if any, will be made at least annually. Distributions are payable in cash or reinvested in additional shares 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 six months ended March 31, 1998, were as follows:
NATIONAL MINNESOTA TAX-EXEMPT TAX-EXEMPT FUND FUND ---------- ----------- Purchases .............................. $1,959,612 $16,506,189 Proceeds from sales .................... $6,437,141 $22,149,423
(4) CAPITAL SHARE TRANSACTIONS ................................ Capital share transactions for the funds were as follows:
SIX MONTHS ENDED YEAR ENDED MARCH 31, 1998 SEPTEMBER 30, 1997 ----------------------- ------------------------ SHARES AMOUNT SHARES AMOUNT ---------- ----------- ---------- ------------ NATIONAL TAX-EXEMPT FUND: Sales of fund shares ................. 96,952 $ 1,090,700 1,301,809 $ 14,202,955 Issued for reinvested distributions ...................... 75,385 847,199 144,321 1,580,581 Redemptions of fund shares ........... (505,030) (5,695,776) (1,265,996) (13,841,358) ---------- ----------- ---------- ------------ (332,693) $(3,757,877) 180,134 $ 1,942,178 ---------- ----------- ---------- ------------ ---------- ----------- ---------- ------------
- -------------------------------------------------------------------------------- 104 Notes to Financial Statements (Unaudited) (continued) - --------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED MARCH 31, 1998 SEPTEMBER 30, 1997 (a) ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------ MINNESOTA TAX-EXEMPT FUND: CLASS A Sales of fund shares ................. 620,780 $ 6,972,823 2,314,387 $ 25,337,742 Issued for reinvested distributions ...................... 217,968 2,440,224 437,608 4,791,499 Redemptions of fund shares ........... (1,188,645) (13,311,935) (2,216,525) (24,291,535) Redemptions in exchange for Class Y shares ............................. (104,584) (1,172,389) (804,940) (8,983,130) ---------- ------------ ---------- ------------ (454,481) $ (5,071,277) (269,470) $ (3,145,424) ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ CLASS Y Sales in exchange for Class A shares ............................. 104,678 1,172,389 804,940 8,983,130 Issued for reinvested distributions ...................... 13,402 149,829 3,559 39,360 Redemptions of fund shares ........... (229,181) (2,567,330) -- -- ---------- ------------ ---------- ------------ (111,101) $ (1,245,112) 808,499 $ 9,022,490 ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
(a) REPRESENTS PERIOD FROM AUGUST 1 (COMMENCEMENT OF OFFERING OF SHARES) TO SEPTEMBER 30, 1997, FOR CLASS Y. Sales charges received by Piper Jaffray Inc. (Piper Jaffray), the funds' distributor, for distributing the funds' shares for the six months ended March 31, 1998, were as follows:
MINNESOTA TAX-EXEMPT FUND NATIONAL ---------------------- TAX-EXEMPT FUND CLASS A CLASS Y ---------------- ----------- -------- Front-end sales charges ................ $12,100 $ 59,303 $-- Contingent deferred sales charges ...... 13,962 26,039 -- ---------------- ----------- --- $26,062 $ 85,342 $-- ---------------- ----------- --- ---------------- ----------- ---
(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 0.50% of the first $250 million in net assets, 0.45% of the next $250 million and 0.40% of net assets in excess of $500 million. For the six months ended March 31, 1998, the effective management fee paid by the funds was 0.50% and 0.50% on an annual basis for National Tax-Exempt Fund and Minnesota Tax-Exempt 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 fund, which were being voluntarily limited for the year ending September 30, 1998, are stated below as a percent of average daily net assets.
MINNESOTA TAX-EXEMPT FUND NATIONAL ------------------ TAX-EXEMPT FUND CLASS A CLASS Y --------------- ------- -------- Distribution fee ....................... 0.05% 0.05% -- Service fee ............................ 0.25% 0.25% -- ----- ------- -------- Total distribution and service fees ............................... 0.30% 0.30% -- ----- ------- -------- ----- ------- -------- Total distribution and service fees after voluntary limitation ......... 0.24% 0.24% -- ----- ------- -------- ----- ------- --------
- -------------------------------------------------------------------------------- 105 Notes to Financial Statements (Unaudited) (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 $7.50 per active shareholder account and $1.60 per closed account. For the six months ended March 31, 1998, Piper Jaffray and Piper Trust received the following amounts in connection with the shareholder account servicing agreements:
NATIONAL MINNESOTA TAX-EXEMPT FUND TAX-EXEMPT FUND ---------------- ---------------- Piper Jaffray .......................... $5,226 $10,783 Piper Trust ............................ -- -- -------- ---------------- $5,226 $10,783 -------- ---------------- -------- ----------------
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. Expenses paid indirectly represent a reduction of custodian fees for earnings on miscellaneous cash balances maintained by the funds. (6) PENDING ACQUISITION ................................ On December 15, 1997, Piper Jaffray Companies Inc., the parent company of the funds' investment advisor, announced that it had entered into an agreement to be acquired by U.S. Bancorp. It is anticipated that this acquisition will be completed in the second quarter of 1998, subject to regulatory approval, the approval of Piper Jaffray Companies shareholders and the satisfaction of customary closing conditions. U.S. Bancorp is a multi-state bank holding company headquartered in Minneapolis, Minnesota with a geographic service area spanning 17 states. As of December 31, 1997, U.S. Bancorp was the 15th largest U.S. commercial bank holding company, with assets of nearly $71.3 billion. U.S. Bank National Association ("U.S. Bank"), a wholly owned subsidiary of U.S. Bancorp, currently acts as the investment advisor to 32 mutual funds (the "First American Funds"). As of December 31, 1997, U.S. Bank, acting through its First American Asset Management group, managed more than $55 billion in assets, including approximately $20.5 billion in assets of the First American Funds. Effective as of the date of the acquisition, SEI Investments Distribution Company will assume the role of the principal distributor for the funds. Under the Investment Company Act of 1940, as amended (the "1940 Act"), consummation of the acquisition of Piper Jaffray Companies by U.S. Bancorp will result in the assignment and automatic - -------------------------------------------------------------------------------- 106 Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- termination of the funds' investment advisory agreements with Piper Capital Management Incorporated. The 1940 Act requires that any new investment advisory agreements for the funds be approved by the funds' board of directors and shareholders. (7) SUBSEQUENT EVENT ................................ FUND CONVERSION In connection with the acquisition of Piper Jaffray Companies Inc. by U.S. Bancorp, the funds' board of directors has recommended that the funds be merged into mutual funds managed by First American Asset Management, a division of U.S. Bank. The proposed fund mergers require shareholder approval and proxy statements requesting shareholder votes will be mailed in May 1998. If approved, the mergers are expected to occur on or about July 31, 1998. - -------------------------------------------------------------------------------- 107 Notes to Financial Statements (continued) - -------------------------------------------------------------------------------- (8) FINANCIAL HIGHLIGHTS ................................ Per-share data for a share of capital stock outstanding throughout each period and selected information for each period are as follows: NATIONAL TAX-EXEMPT FUND
Six Months Ended Year Ended September 30, March 31, 1998 ------------------------------------------------------- (Unaudited) 1997 1996 1995 1994 1993 ---------------- ------- ------- ------- ------- ------- PER-SHARE DATA Net asset value, beginning of period .......................... $ 11.21 $ 10.81 $ 10.69 $ 10.22 $ 11.76 $ 10.94 -------- ------- ------- ------- ------- ------- Operations: Net investment income ........... 0.27 0.54 0.56 0.60 0.57 0.61 Net realized and unrealized gains (losses) on investments ....... 0.13 0.42 0.12 0.47 (1.21) 0.94 -------- ------- ------- ------- ------- ------- Total from operations ......... 0.40 0.96 0.68 1.07 (0.64) 1.55 -------- ------- ------- ------- ------- ------- Distributions to shareholders: From net investment income ...... (0.27) (0.54) (0.56) (0.60) (0.57) (0.61) From net realized gains ......... (0.05) (0.02) -- -- (0.33) (0.12) -------- ------- ------- ------- ------- ------- Total distributions to shareholders ................ (0.32) (0.56) (0.56) (0.60) (0.90) (0.73) -------- ------- ------- ------- ------- ------- Net asset value, end of period .... $ 11.29 $ 11.21 $ 10.81 $ 10.69 $ 10.22 $ 11.76 -------- ------- ------- ------- ------- ------- -------- ------- ------- ------- ------- ------- SELECTED INFORMATION Total return (a) .................. 3.66% 9.09% 6.42% 10.30% (5.72)% 14.76% Net assets at end of period (in millions) ....................... $ 46 $ 50 $ 46 $ 57 $ 68 $ 79 Ratio of expenses to average daily net assets ...................... 1.09%(b) 1.11% 1.03% 1.01% 0.93% 0.94% Ratio of net investment income to average daily net assets ........ 4.82%(b) 4.91% 5.15% 5.37% 5.25% 5.42% Portfolio turnover rate (excluding short-term securities) .......... 4% 28% 43% 28% 65% 43% Ratios before waivers by the adviser and distributor: Ratio of expenses to average daily net assets before waivers ....................... 1.16%(b) 1.17% 1.13% 1.09% 1.03% 1.04% Ratio of net investment income to average daily net assets before waivers ....................... 4.75%(b) 4.85% 5.05% 5.29% 5.15% 5.32%
(a) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A SALES CHARGE. (b) ANNUALIZED - -------------------------------------------------------------------------------- 108 Notes to Financial Statements (continued) - -------------------------------------------------------------------------------- (8) FINANCIAL HIGHLIGHTS ................................ Per-share data for a share of capital stock outstanding throughout each period and selected information for each period are as follows: MINNESOTA TAX-EXEMPT FUND
CLASS A ----------------------------------------------------------------------- Six Months Ended Year Ended September 30, March 31, 1998 --------------------------------------------------- (Unaudited) 1997 1996 1995 1994 1993 ---------------- ------- ------- ------- ------- ------- PER-SHARE DATA Net asset value, beginning of period .......................... $ 11.15 $ 10.89 $ 10.81 $ 10.28 $ 11.43 $ 10.79 -------- ------- ------- ------- ------- ------- Operations: Net investment income ........... 0.28 0.57 0.59 0.66 0.61 0.62 Net realized and unrealized gains (losses) on investments ....... 0.14 0.31 0.07 0.53 (0.95) 0.68 -------- ------- ------- ------- ------- ------- Total from operations ......... 0.42 0.88 0.66 1.19 (0.34) 1.30 -------- ------- ------- ------- ------- ------- Distributions to shareholders: From net investment income ...... (0.28) (0.57) (0.58) (0.66) (0.61) (0.62) From net realized gains ......... (0.06) (0.05) -- -- (0.20) (0.04) -------- ------- ------- ------- ------- ------- Total distributions to shareholders ................ (0.34) (0.62) (0.58) (0.66) (0.81) (0.66) -------- ------- ------- ------- ------- ------- Net asset value, end of period ...................... $ 11.23 $ 11.15 $ 10.89 $ 10.81 $ 10.28 $ 11.43 -------- ------- ------- ------- ------- ------- -------- ------- ------- ------- ------- ------- SELECTED INFORMATION Total return (a) .................. 3.78% 8.32% 6.24% 11.38% (3.14)% 12.52% Net assets at end of period (in millions) ....................... $ 121 $ 126 $ 126 $ 134 $ 162 $ 169 Ratio of expenses to average daily net assets ...................... 0.92%(c) 0.95% 0.90% 0.91% 0.89% 0.91% Ratio of net investment income to average daily net assets ........ 5.06%(c) 5.17% 5.38% 5.80% 5.61% 5.62% Portfolio turnover rate (excluding short-term securities) .......... 13% 17% 35% 30% 44% 29% Ratios before waivers by the distributor: Ratio of expenses to average daily net assets before waivers ....................... 1.00%(c) 1.01% 0.99% 0.99% 0.99% 1.00% Ratio of net investment income to average daily net assets before waivers ....................... 4.98%(c) 5.11% 5.29% 5.72% 5.51% 5.53%
CLASS Y --------------------------------------------- Six Months Ended March 31, 1998 Period Ended (Unaudited) September 30, 1997(b) ----------------- ------------------------- PER-SHARE DATA Net asset value, beginning of period ... $11.14 $11.16 -------- -------- Operations: Net investment income ................ 0.29 0.10 Net realized and unrealized gains (losses) on investments ............ 0.14 (0.02) -------- -------- Total from operations .............. 0.43 0.08 -------- -------- Distributions to shareholders: From net investment income ........... (0.29) (0.10) From net realized gains on investments ........................ (0.06) -- -------- -------- Total distributions to shareholders ..................... (0.35) (0.10) -------- -------- Net asset value, end of period ..... $11.22 $11.14 -------- -------- -------- -------- SELECTED INFORMATION Total return (a) ....................... 3.89% 0.72% Net assets at end of period (in millions) ............................ $ 8 $ 9 Ratio of expenses to average daily net assets ............................... 0.70%(c) 0.75%(c) Ratio of net investment income to average daily net assets ............. 5.30%(c) 5.73%(c) Portfolio turnover rate (excluding short-term securities) ............... 13% 17%
(a) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A SALES CHARGE. (b) COMMENCEMENT OF OFFERING OF CLASS Y SHARES WAS AUGUST 1, 1997. (c) ANNUALIZED. - -------------------------------------------------------------------------------- 109 Investments in Securities (Unaudited) - --------------------------------------------------------------------------------
NATIONAL TAX-EXEMPT FUND March 31, 1998 ....................................................................................... Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------ (PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS) MUNICIPAL LONG-TERM SECURITIES (96.2%): MUNICIPAL BONDS (88.6%): ALASKA (2.3%): State Housing Finance Corporation (Callable 6/1/07 at 102), 5.90%, 12/1/19 .............................. $ 1,000,000 $ 1,046,560 ------------ COLORADO (2.4%): Montrose County Health Care Facilities (Callable 11/1/02 at 102), 8.25%, 11/1/19 ................... 1,000,000 1,108,630 ------------ FLORIDA (0.7%): Clay County Industrial Development Revenue (Callable 3/1/02 at 102), 6.40%, 3/1/11 ..................... 300,000(c) 325,344 ------------ GEORGIA (2.6%): State General Obligation, 6.75%, 9/1/10 1,000,000 1,202,140 ------------ ILLINOIS (9.4%): Education Facility Authority Revenue (Callable 10/1/07 at 100), 5.88%, 10/1/17 ................... 500,000 526,390 Development Financial Authority, (Callable 7/1/06 at 102), 7.38%, 7/1/21 ............................... 500,000 585,070 Board of Governors, State College and University (Callable 2/1/02 at 100), 7.55%-7.70%, 2/1/16-2/1/22 ..................................... 425,000 467,650 Rock Island Nursing Home Revenue, 7.00%, 6/1/06 ..... 1,100,000 1,172,270 Rock Island Nursing Home Revenue (Callable 6/1/03 at 102), 7.20%, 6/1/13 ............................... 400,000 427,344 State Toll Highway Authority, 6.30%, 1/1/12 ......... 1,000,000 1,144,180 ------------ 4,322,904 ------------ INDIANA (9.2%): Municipal Power Agency, 6.00%, 1/1/12 1,000,000 1,121,840 Lake County Redevelopment Authority (MBIA) (Callable 2/1/05 at 102), 6.50%, 2/1/16 ..................... 800,000 890,936 Hammond School Building Corporation (Callable 7/15/03 at 102), 6.00%, 1/15/13 ........................... 1,000,000 1,114,570 Municipal Power Agency, 6.00%, 1/1/11 1,000,000 1,123,030 ------------ 4,250,376 ------------ MICHIGAN (6.7%): Lakeview Community Schools, (Callable 5/1/07 at 100), 5.75%, 5/1/16 ..................................... 1,000,000 1,059,410 Detroit Finance Authority (Callable 5/1/07 at 101.5), 5.38%, 5/1/18 ..................................... 2,000,000 2,019,040 ------------ 3,078,450 ------------
Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------ MINNESOTA (13.5%): Glencoe Hospital Revenue (Callable 8/1/04 at 102), 6.75%, 4/1/16 ..................................... $ 485,000 $ 505,433 Hopkins Multifamily Housing Revenue (Callable 4/1/07 at 102), 6.25%, 4/1/15 ............................ 500,000 530,220 St. Paul Housing - Como Lake Project (Callable 3/1/99 at 102), 7.50%, 3/1/26 ............................ 500,000(d) 490,000 Brooklyn Center Health Care Facility (Callable 12/1/03 at 102), 7.60%, 12/1/18 ................... 400,000 433,824 Fergus Falls Health Care Facility (Callable 11/1/04 at 102), 7.00%, 11/1/19 ........................... 500,000 530,375 Maplewood Health Care Facility (Callable 10/1/04 at 102), 7.50%, 10/1/24 .............................. 500,000 544,435 Plymouth Health Care Facility (Callable 8/1/04 at 102), 7.50%, 8/1/24 ............................... 500,000 543,645 Roseville Housing Facility Revenue (Callable 10/1/03 at 102), 7.13%, 10/1/13 ........................... 1,000,000 1,066,540 St. Anthony Multifamily Revenue (Callable 5/20/06 at 102), 6.25%, 11/20/25 ............................. 1,000,000 1,055,210 White Bear Lake Care Center (Callable 11/1/03 at 102), 8.25%, 11/1/12 .............................. 500,000 557,685 ------------ 6,257,367 ------------ MONTANA (0.6%): Sidney Nursing Home (Callable 6/1/00 at 102), 9.00%, 6/1/11 ............................................ 250,000 269,470 ------------ NEW MEXICO (7.7%): Mortgage Finance Authority, 6.20%-6.40%, 7/1/15 ..... 3,350,000 3,569,341 ------------ NORTH DAKOTA (8.7%): Mercer County Pollution Control Revenue, 7.20%, 6/30/13 ........................................... 3,300,000 4,032,006 ------------ SOUTH DAKOTA (2.3%): State Health and Education Facilities (MBIA) (Callable 7/1/06 at 102), 6.00%, 7/1/14 ........... 1,000,000 1,080,180 ------------ TEXAS (4.8%): Carrolton Independent School District (MBIA) (Callable 2/15/06 at 100), 5.70%, 2/15/17 ......... 1,000,000 1,043,050 Fort Bend Independent School District (MBIA) (Callable 2/15/05 at 100), 5.00%, 2/15/14 ......... 500,000 497,265 Harts Bluff Independent School District (Callable 5/15/98 at 100.5), 8.60%-8.80%, 11/15/98-11/15/00 ................................. 100,000 100,552 Austin Employment Commission (Callable 8/1/98 at 102), 8.10%-8.45%, 8/1/01-8/1/08 .................. 440,000 454,025
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES. - -------------------------------------------------------------------------------- 110 Investments in Securities (Unaudited) (continued) - -------------------------------------------------------------------------------- NATIONAL TAX-EXEMPT FUND (CONTINUED)
Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------ Houston Employment Commission (Callable 11/1/98 at 101), 7.85%-8.05%, 5/1/04-5/1/07 .................. $ 135,000 $ 136,710 ------------ 2,231,602 ------------ UTAH (3.2%): Intermountain Power Agency, 6.50%, 7/1/11 ........... 1,000,000 1,175,400 Carbon County Road Improvement Revenue (Callable 8/1/99 at 100), 7.90%, 8/1/04 ..................... 300,000 307,317 ------------ 1,482,717 ------------ WASHINGTON (7.1%): Grant County Public Utilities District (MBIA) (Callable 1/1/06 at 101), 5.70%, 1/1/15 ........... 1,000,000 1,054,110 Public Power Supply System, 7.13%, 7/1/16 ........... 600,000 739,872 Public Power Supply System (MBIA) (Callable 7/1/07 at 102), 5.13%, 7/1/16 ............................... 1,500,000 1,484,970 ------------ 3,278,952 ------------ WEST VIRGINIA (2.6%): State General Obligation (Callable 11/1/16 at 102), 6.50%, 11/1/26 .................................... 1,000,000 1,184,040 ------------ WISCONSIN (4.8%): Watertown Community Development Authority (Callable 3/1/00 at 103), 8.50%, 3/1/19 ..................... 95,000 101,983 State Health Facilities Authority-Franciscan Hospital (Callable 11/15/05 at 102), 6.13%, 11/15/15 . 1,000,000 1,083,570 Dallas Nursing Home Revenue (Callable 5/1/03 at 102), 6.25%, 5/1/19 ..................................... 1,020,000 1,047,724 ------------ 2,233,277 ------------ Total Municipal Bonds (cost: $37,968,337) ............................. 40,953,356 ------------ MUNICIPAL DERIVATIVE SECURITIES (7.6%): INVERSE FLOATER (7.6%): Illinois Health Facilities Authority, inverse floater (Callable 6/1/02 at 102), 9.57%, 6/19/15 .......... 1,000,000(b) 1,195,000 North Central Texas Health Facility, inverse floater, (Prerefunded to 6/1/01 at 102), 9.42%, 6/22/21 .... 1,000,000(b) 1,186,250 Rochester, MN, Health Care Facility Authority, inverse floater, 8.12%, 11/15/15 .................. 1,000,000(b) 1,151,250 ------------ Total Municipal Derivative Securities (cost: $3,008,691) ............................. 3,532,500 ------------ Total Municipal Long-Term Securities (cost: $40,977,028) ............................ 44,485,856 ------------
Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------ MUNICIPAL SHORT-TERM SECURITIES (2.4%): NEW YORK (0.4%): New York City, NY, Subseries A-10, VRDN, 3.80%, 8/15/17 ........................................... $ 200,000(b) $ 200,000 ------------ NORTH DAKOTA (1.9%): Grand Forks, Health Care, United Hospital, VRDN, 3.80%, 12/1/25 .................................... 900,000(b) 900,000 ------------ Total Municipal Short-Term Securities (cost: $1,100,000) .............................. 1,100,000 ------------ Total Investments in Securities (cost: $42,077,028) (e) ........................ $ 45,585,856 ------------ ------------
NOTES TO INVESTMENTS IN SECURITIES: (a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO THE FINANCIAL STATEMENTS. (b) PORTFOLIO ABBREVIATIONS AND DEFINITIONS: VRDN - VARIABLE RATE DEMAND NOTE. FLOATING OR VARIABLE RATE OBLIGATION MATURING IN MORE THAN ONE YEAR. THE INTEREST RATE, WHICH IS BASED ON SPECIFIC, OR AN INDEX OF, MARKET INTEREST RATES, IS SUBJECT TO CHANGE PERIODICALLY AND IS THE EFFECTIVE RATE ON MARCH 31, 1998. THIS INSTRUMENT MAY ALSO HAVE A DEMAND FEATURE WHICH ALLOWS THE RECOVERY OF PRINCIPAL AT ANY TIME, OR AT SPECIFIED INTERVALS NOT EXCEEDING ONE YEAR, ON UP TO 30 DAYS' NOTICE. MATURITY DATE SHOWN REPRESENTS FULL MATURITY. INVERSE FLOATER - REPRESENTS SECURITIES THAT PAY INTEREST AT RATES THAT INCREASE (DECREASE) IN THE SAME MAGNITUDE AS, OR IN A MULTIPLE OF, A DECREASE (INCREASE) IN THE MARKET RATE PAID ON A RELATED, FLOATING RATE SECURITY. INTEREST RATES DISCLOSED ARE IN EFFECT ON MARCH 31, 1998. PREREFUNDED ISSUES ARE BACKED BY U.S. GOVERNMENT OBLIGATIONS. THE BONDS ARE CALLED AND MATURE AT THE CALL DATE INDICATED. (c) SECURITY PURCHASED AS PART OF A PRIVATE PLACEMENT WHICH HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933 AND IS CONSIDERED TO BE ILLIQUID. ON MARCH 31, 1998, THE TOTAL MARKET VALUE OF THIS INVESTMENT WAS $325,344 OR 0.7% OF TOTAL NET ASSETS. ADDITIONAL INFORMATION RELATED TO THIS SECURITY IS PRESENTED BELOW.
SECURITY PAR DATE ACQUIRED COST BASIS - ----------------------------------- --------- ------------- ----------- CLAY COUNTY INDUSTRIAL DEVELOPMENT REVENUE $ 300,000 7/14/92 $ 300,000
(D) CONSIDERED ILLIQUID BY THE ADVISOR. ON MARCH 31, 1998, THE TOTAL MARKET VALUE OF THE INVESTMENT WAS $490,000 OR 1.1% OF TOTAL NET ASSETS. (E) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES, BASED ON THIS COST WERE AS FOLLOWS: GROSS UNREALIZED APPRECIATION ...... $ 3,518,840 GROSS UNREALIZED DEPRECIATION ...... (10,012) ------------ NET UNREALIZED APPRECIATION ...... $ 3,508,828 ------------ ------------
- -------------------------------------------------------------------------------- 111 Investments in Securities (Unaudited) - --------------------------------------------------------------------------------
MINNESOTA TAX-EXEMPT FUND March 31, 1998 ....................................................................................... Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------ (PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS) MUNICIPAL LONG-TERM SECURITIES (99.1%): MUNICIPAL BONDS (92.0%) EDUCATION REVENUE (14.2%): Higher Education Facility - Carleton College (Callable 5/1/06 at 100), 5.75%, 11/1/12 .......... $ 1,050,000 $ 1,120,475 Higher Education Facility - Carleton College, (Callable 11/1/07 at 100), 5.25%-5.40%, 11/1/11-11/1/15 ................................... 2,000,000 2,056,675 Higher Education Facility - St. Benedict College (Callable 3/1/04 at 100), 6.20%-6.38%, 3/1/14-3/1/20 ..................................... 1,400,000 1,476,725 Higher Education Facility - St. John's University (Callable 10/01/07 at 100), 5.35%, 10/1/17 ........ 1,000,000 1,014,130 Higher Education Facility - University of St. Thomas (Callable 4/1/07 at 100), 5.35%, 4/1/17 ........... 500,000 506,770 Higher Education Facility - University of St. Thomas (Callable 10/1/06 at 100), 5.40%-5.63%, 10/1/11-10/1/21 ................................... 3,000,000 3,124,340 Higher Education Facility - University of St. Thomas (Callable 4/1/07 at 100), 5.38%, 4/1/12 ........... 500,000 513,820 Higher Education Facility - Vermillion Community College, (Callable 1/1/04 at 102), 6.00%, 1/1/13 ............................................ 825,000 875,490 Maplewood-Mounds Park Academy Project (Callable 9/1/03 at 102), 7.00%, 9/1/23 ..................... 1,500,000 1,606,725 Minneapolis Minnesota Revenue University Gateway Project Series A, (Callable 12/1/07 at 100), 5.25%, 12/1/17 ........................................... 4,000,000 4,014,760 South Washington County Independent School District #833 (Callable 12/1/2006 at 100), 5.25%, 12/1/14 500,000(e) 502,035 State Higher Education - Augsburg College (Callable 5/1/06 at 102), 6.25%, 5/1/23 ..................... 1,500,000 1,612,545 ------------ 18,424,490 ------------ ELECTRIC REVENUE (3.6%): Southern Municipal Power Agency, 5.00%, 1/1/12 ...... 1,000,000 1,001,630 Southern Municipal Power Agency (MBIA) (escrowed to maturity), 5.75%, 1/1/18 .......................... 850,000 904,247 Western Minnesota Municipal Power Agency (AMBAC) (Callable 1/1/06 at 102), 5.40%-5.50%, 1/1/09-1/1/12 . 2,000,000 2,113,900 Western Municipal Power Agency (MBIA) (escrowed to maturity), 9.75%, 1/1/16 .......................... 410,000 629,104 ------------ 4,648,881 ------------
Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------ GENERAL OBLIGATIONS (30.8%): Big Lake Independent School District # 727 (Callable 2/1/07 at 100), 5.60%, 2/1/15 ..................... $ 1,000,000 $ 1,048,310 Burnsville Independent School District (Callable 2/1/06 at 100), 4.88%, 2/1/13 ..................... 1,450,000 1,435,572 Chaska Independent School District (Crossover refunded 2/1/06 at 100), 5.88%-6.00%, 2/1/11-2/1/16 ..................................... 9,690,000 10,647,103 Columbia Heights Independent School District (Callable 2/1/07 at 100), 5.25%, 2/1/15 ........... 1,000,000 1,013,330 Eden Prairie Independent School District (Callable 2/1/08 at 100), 5.10%, 2/1/12 ..................... 1,150,000 1,174,909 Hawley Independent School District (FHA) (Callable 2/1/06 at 100), 5.75%, 2/1/14 ..................... 1,500,000 1,591,020 Lakeville Minnesota Independent School District #194, (Callable 2/1/09 at 100), 5.00%, 2/1/17 ........... 1,000,000 985,540 Minneapolis and St. Paul Metropolitan Council (Callable 6/1/05 at 100), 5.60%, 6/1/15 ........... 1,000,000 1,045,610 Minneapolis General Obligation (Callable 9/1/05 at 100), 5.20%, 3/1/13 ............................... 400,000 406,924 Minneapolis Sports Arena Project (Callable 4/1/08 at 100), 5.10%-5.13%, 4/1/13-10/1/20 ................. 1,750,000 1,754,365 North Branch Independent School District (FGIC) (Callable 2/1/05 at 100), 5.60%, 2/1/13 ........... 1,500,000 1,566,615 North St. Paul Independent School District, (Callable 2/1/07 at 100), 5.00%, 2/1/15 ..................... 2,925,000 2,905,081 North St. Paul Maplewood Independent School District (Callable 5/1/06 at 100), 5.85%, 5/1/17 ........... 500,000 531,710 Prior Lake Independent School District (FGIC) (Callable 2/1/06 at 100), 5.25%, 2/1/15 ........... 2,335,000 2,363,230 Rochester Independent School District (Callable 2/1/06 at 100), 5.25%, 2/1/14 ..................... 1,000,000 1,020,520 Shakopee Minnesota Independent School District #720, (Callable 2/1/08 at 100), 4.63%, 2/1/15-2/1/16 .... 4,170,000 3,946,439 South Washington Independent School District (Callable 6/1/05 at 100), 5.85%, 6/1/15 ........... 500,000 528,685 State General Obligation (Callable 11/1/06 at 100), 5.25%, 11/1/13 .................................... 1,500,000 1,535,310 Wayzata Independent School District (FSA) (Callable 2/1/05 at 100), 5.95%-6.00%, 2/1/13-2/1/16 ........ 3,000,000 3,232,830 Wayzata Minnesota Independent School District (Callable 2/1/07 at 100), 5.50%, 2/1/17 ........... 1,000,000 1,038,170 ------------ 39,771,273 ------------
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES. - -------------------------------------------------------------------------------- 112 Investments in Securities (Unaudited) (continued) - -------------------------------------------------------------------------------- MINNESOTA TAX-EXEMPT FUND (CONTINUED)
Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------ HEALTH SERVICE/HMO (1.1%): Coon Rapids Medical Clinic, 6.00%, 5/1/03 ........... $ 905,000 $ 950,268 Duluth Clinic Health Care Facilities (AMBAC) (Callable 11/1/02 at 102), 6.30%, 11/1/22 ......... 145,000 158,059 Minneapolis and St. Paul, Health One Obligated Group (FSA) (Callable 8/15/05 at 102), 5.60%, 8/15/12 ... 250,000 263,625 ------------ 1,371,952 ------------ HOSPITAL REVENUE (11.7%): Fairview Hospital Revenue (MBIA) (Callable 11/15/07 at 102), 5.50%, 11/15/17 .......................... 1,000,000 1,040,920 Fairview Hospital Revenue (MBIA) (Callable 11/15/07 at 102), 5.50%, 11/15/11 .......................... 500,000 526,315 Glencoe Hospital Revenue (Callable 8/1/04 at 102), 6.75%, 4/1/16 ..................................... 1,100,000 1,146,343 Monticello-Big Lake Minnesota Community Hospital District Gross Revenue, (Callable 12/1/09 at 100), 5.75%, 12/1/19 .................................... 1,000,000 1,002,100 New Prague Hospital Revenue (Callable 12/1/06 at 100), 6.50%, 6/1/12 ............................... 500,000 521,385 Northern Itasca Hospital Revenue (Callable 1/1/00 at 100), 7.50%-8.00%, 7/1/03-7/1/11 .................. 830,000 857,819 Northfield Hospital Revenue (Callable 12/1/01 at 100), 7.00%, 12/1/05-12/1/08 ...................... 1,690,000 1,790,437 Roseau Hospital District Revenue (Callable 10/1/01 at 100), 7.20%, 10/1/11-10/1/13 ...................... 730,000 770,569 South St. Paul, Healtheast Hospital (Callable 11/1/04 at 102), 6.75%, 11/1/09 ........................... 2,000,000 2,178,300 St. Cloud Hospital Facility Revenue (AMBAC) (Callable 7/1/06 at 101), 5.00%, 7/1/12-7/1/15 .............. 4,000,000 3,964,540 Worthington Hospital Revenue (Callable 12/1/02 at 100), 6.50%, 12/1/10-12/1/12 ...................... 1,230,000 1,277,510 ------------ 15,076,238 ------------ HOUSING REVENUE (10.8%): Austin Housing - Courtyard Project (Callable 1/1/06 at 102), 7.25%, 1/1/26 ............................ 500,000 530,780 Coon Rapids, Multifamily Development-Woodland Apts. (FHA) (Callable 12/1/03 at 100), 5.63%, 12/1/09 ... 940,000 960,708 Coon Rapids, Multifamily Housing Revenue (Callable 11/1/07 at 102), 6.25%, 5/1/18 .................... 500,000 507,375 Dakota County Housing and Redevelopment (Callable 9/1/98 at 103), 8.10%, 9/1/12 ..................... 495,000 513,567 Fairmount Housing - Maplewood Project (Callable 7/1/02 at 102), 8.50%, 7/1/15 ..................... 900,000 988,416
Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------ Hopkins Minnesota Elderly Housing Revenue, (Callable 11/20/07 at 100), 5.60%, 11/20/17 ................. $ 500,000 $ 511,560 Hopkins Multifamily Housing Revenue (Callable 4/1/07 at 102), 6.25%, 4/1/15 ............................ 500,000 530,220 Minneapolis Community Development Agency (Callable 6/1/98 at 102), 8.25%, 6/1/02 ..................... 350,000 359,237 Minneapolis Housing - Churchill Apartments (Callable 10/1/01 at 102), 7.05%, 10/1/22 ................... 750,000 799,335 Minneapolis Housing and Urban Development (Callable 2/1/01 at 102), 7.88%-8.25%, 2/1/06-2/1/18 . 2,810,000 2,930,474 Minneapolis Housing Revenue-Seward Towers (Callable 12/20/00 at 102), 7.38%, 12/20/30 ................. 1,370,000 1,444,761 Minnetonka Housing Revenue (Callable 12/1/99 at 103), 7.50%, 12/1/27 .................................... 500,000 518,945 St. Cloud Northway Housing Project (Callable 12/1/00 at 102), 7.50%, 12/1/18 ........................... 500,000 551,960 St. Louis Park, Multifamily Housing Project (Callable 12/1/05 at 102), 6.25%, 12/1/28 ................... 500,000 529,705 St. Paul Housing - Como Lake Project (Callable 3/1/99 at 102), 7.50%, 3/1/26 ............................ 1,500,000(d) 1,470,000 State Housing and Finance Agency (Callable 2/1/02 at 102), 7.05%, 8/1/27 ............................... 500,000 534,350 State Housing and Finance Agency (Callable 7/1/00 at 102), 7.65%, 7/1/08 ............................... 285,000 299,663 ------------ 13,981,056 ------------ IDR - MISCELLANEOUS PROJECTS (0.6%): Duluth Economic Development Revenue, 8.00%, 2/1/08 ............................................ 325,000 388,557 Shakopee Industrial Development, 6.25%-6.75%, 6/1/98-12/1/00 .................................... 75,000(c) 77,512 Shakopee Industrial Development (Callable 12/1/00 at 101), 7.00%-7.50%, 6/1/01-12/1/08 ................. 290,000(c) 307,659 ------------ 773,728 ------------ LEASING REVENUE (6.3%): Hastings Housing and Redevelopment Authority (Callable 2/1/03 at 100), 6.50%, 2/1/14 ........... 1,000,000 1,047,880 Hennepin County Certificates of Participation (Callable 11/15/01 at 100), 6.65%-6.80%, 11/15/08-5/15/17 .................................. 3,625,000 3,925,299 Little Canada Community Development, (Callable 4/1/03 at 100), 7.10%, 4/1/13 ............................ 1,775,000 1,863,182 Melrose City Center Project (Prerefunded 2/1/99 at 101), 7.80%-8.00%, 2/1/02-8/1/04 .................. 270,000 278,830
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES. - -------------------------------------------------------------------------------- 113 Investments in Securities (Unaudited) (continued) - -------------------------------------------------------------------------------- MINNESOTA TAX-EXEMPT FUND (CONTINUED)
Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------ St. Paul Independent School District (Callable 2/1/05 at 100), 5.25%, 2/1/15 ............................ $ 1,000,000 $ 1,009,640 ------------ 8,124,831 ------------ NURSING HOME REVENUE (11.1%): Brooklyn Center Health Care Facility (Callable 12/1/03 at 102), 7.60%, 12/1/18 ................... 900,000 976,104 Chisago City Health Facility - Pleasant Heights (Callable 7/1/05 at 102), 7.30%, 7/1/25 ........... 400,000 428,244 Fergus Falls Health Care Facility (Callable 11/1/04 at 102), 7.00%, 11/1/19 ........................... 1,000,000 1,060,750 Glencoe Health Care System (Prerefunded to 12/1/00 at 100), 8.50%, 12/1/15 .............................. 575,000 638,814 Litchfield Health Care (Callable 8/1/01 at 102), 8.75%, 8/1/20 ..................................... 500,000 549,225 Little Canada Presbyterian Home (Callable 7/1/01 at 102), 7.00%, 7/1/07 ............................... 700,000 727,342 Maplewood Health Care Facility (Callable 10/1/04 at 102), 7.50%, 10/1/24 .............................. 1,000,000 1,088,870 Minneapolis, Careview Home Inc. (Callable 5/1/01 at 100), 8.00%, 5/1/21 ............................... 250,000 263,793 Plymouth Health Care Facility (Callable 8/1/04 at 102), 7.50%, 8/1/14-8/1/24 ........................ 1,100,000 1,201,549 Red Wing Elderly Housing - River Region (Callable 9/1/03 at 102), 6.40%, 9/1/12 ..................... 1,000,000 1,075,530 Roseville Housing Facility Revenue (Callable 10/1/03 at 102), 7.13%, 10/1/13 ........................... 2,000,000 2,133,080 Rushford Good Shepard Nursing Home (Callable 11/1/98 at 100), 9.00%, 11/1/06 ........................... 200,000 200,558 Springfield Nursing Home (Callable 11/1/99 at 103), 8.50%, 11/1/19 .................................... 250,000 267,108 St. Anthony Multifamily Revenue (Callable 5/20/06 at 102), 6.25%, 11/20/25 ............................. 1,500,000 1,582,815 White Bear Lake Care Center (Callable 11/1/03 at 102), 8.25%, 11/1/12 .............................. 1,000,000 1,115,370 White Bear Lake Multifamily Revenue (Callable 2/1/07 at 102), 6.00%, 8/1/20 ............................ 1,020,000 1,062,809 ------------ 14,371,961 ------------ OTHER REVENUE (1.1%): Moorhead Golf Course Revenue (Callable 12/1/01 at 100), 7.75%, 12/1/15 .............................. 1,165,000 1,252,841 Olmsted County Hiawatha Children's Home (Callable 7/1/03 at 102), 6.50%, 7/1/16 ..................... 205,000 213,790 ------------ 1,466,631 ------------
Principal Market Description of Security Amount Value (a) - --------------------------------------------------------- ----------- ------------ WATER/POLLUTION CONTROL REVENUE (0.7%): Minnesota Public Facility Authority Water Pollution, (Callable 3/1/08 at 100), 4.75%, 3/1/18 ........... $ 1,000,000 $ 957,710 ------------ Total Municipal Bonds (cost: $112,648,721) ........................... 118,968,751 ------------ MUNICIPAL DERIVATIVE SECURITIES (7.1%): INVERSE FLOATER (7.1%): Osseo Independent School District, inverse floater, (Callable 2/1/03 at 103), 8.05%, 2/1/14 ........... 3,195,000(b) 3,398,681 St. Cloud General Obligation, inverse floater (Prerefunded 2/1/02 at 100), 8.40%, 8/1/13 ........ 5,200,000(b) 5,824,000 ------------ Total Municipal Derivative Securities (cost: $7,793,635) ............................. 9,222,681 ------------ Total Municipal Long-Term Securities (cost: $120,442,356) ........................... 118,968,752 ------------ MUNICIPAL SHORT-TERM SECURITIES (0.8%): Mankato, MN, 3.50%, 2/1/18 .......................... 300,000 300,000 Nuveen Tax-Exempt Money Market, 3.22%, 4/1/98 ....... 700,000 700,000 ------------ Total Municipal Short-Term Securities (cost: $1,000,000) ............................. 1,000,000 ------------ Total Investments in Securities (cost: $121,442,356) (f) ....................... $129,191,432 ------------ ------------
NOTES TO INVESTMENTS IN SECURITIES: (a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO THE FINANCIAL STATEMENTS. (b) PORTFOLIO ABBREVIATIONS AND DEFINITIONS: INVERSE FLOATER - REPRESENTS SECURITIES THAT PAY INTEREST AT RATES THAT INCREASE (DECREASE) IN THE SAME MAGNITUDE AS, OR IN A MULTIPLE OF, A DECREASE (INCREASE) IN THE MARKET RATE PAID ON A RELATED, FLOATING RATE SECURITY. INTEREST RATES DISCLOSED ARE IN EFFECT ON MARCH 31, 1998. PREREFUNDED ISSUES ARE BACKED BY U.S. GOVERNMENT OBLIGATIONS. CROSSOVER REFUNDED ISSUES ARE BACKED BY THE CREDIT OF THE REFUNDING ISSUER. IN BOTH CASES THE BONDS ARE CALLED AND MATURE AT THE CALL DATE INDICATED. (c) SECURITIES PURCHASED AS PART OF A PRIVATE PLACEMENT WHICH HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933 AND ARE CONSIDERED TO BE ILLIQUID. ON MARCH 31, 1998, THE TOTAL MARKET VALUE OF THESE INVESTMENTS WAS $385,171 OR 0.3% OF TOTAL NET ASSETS. ADDITIONAL INFORMATION RELATED TO THIS SECURITY IS PRESENTED BELOW.
SECURITY PAR DATE ACQUIRED COST BASIS - ----------------------------------- --------- ------------- ----------- SHAKOPEE INDUSTRIAL DEVELOPMENT $ 365,000 12/2/92 $ 365,000
(D) CONSIDERED ILLIQUID BY THE ADVISOR. ON MARCH 31, 1998, THE TOTAL MARKET VALUE OF THIS INVESTMENT WAS $1,470,000 OR 1.1% OF TOTAL NET ASSETS. (E) ON MARCH 31, 1998, THE TOTAL COST OF INVESTMENTS PURCHASED ON A WHEN-ISSUED BASIS WAS $498,615. (F) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES, BASED ON THIS COST WERE AS FOLLOWS: GROSS UNREALIZED APPRECIATION ...... $ 7,915,020 GROSS UNREALIZED DEPRECIATION ...... (165,944) ------------ NET UNREALIZED APPRECIATION ...... $ 7,749,076 ------------ ------------
- -------------------------------------------------------------------------------- 114 THIS PAGE WAS INTENTIONALLY LEFT BLANK. - -------------------------------------------------------------------------------- 115 1998 Semiannual Report - Piper Funds Glossary of Terms *** - -------------------------------------------------------------------------------- BENCHMARK A benchmark is an established basis of comparison for an investment's performance. A benchmark may be an unmanaged market index or a group of similar investments. DEVALUED OR DEVALUATION The lowering of the value of a country's currency relative to gold and/or the currencies of other nations. Devaluation can also result from a rise in value of other currencies relative to the currency of a particular country. EFFECTIVE DURATION Effective duration estimates how much the value of a security is expected to change with a given change in interest rates. Longer effective durations indicate more sensitivity to changes in interest rates. For example, if interest rates were to increase by 1%, the market value of a bond with an effective duration of five years would decrease by about 5%, with all other factors being constant. It is important to remember that effective duration is based on certain assumptions and has several limitations. It is most effective as a measure when interest rate changes are small, rapid and occur equally across all the different points of the yield curve. In addition, effective duration is difficult to calculate precisely for bonds with prepayment options, such as mortgage-backed securities. If a fund has an aggressive effective duration, it means its managers have set a longer duration posture in comparison to the fund's benchmark. A fund with a long effective duration is more sensitive to changing interest rates. If a fund has a defensive effective duration, it means its managers have set a shorter duration posture in comparison to the fund's benchmark, to make the fund less sensitive to changing interest rates. If a fund has a neutral effective duration, the duration is approximately the same as its benchmark. FEDERAL FUNDS RATE The federal funds rate is the interest rate charged by banks with excess reserves at a Federal Reserve district bank to banks needing overnight loans to meet reserve requirements. The federal funds rate is the most sensitive indicator of the direction of interest rates, since it is set daily by the market, unlike the prime rate and the discount rate, which are periodically changed by banks and by the Federal Reserve Board, respectively. 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. UNDERWEIGHTED OR UNDERWEIGHTING In portfolio management, underweighting means a fund's portfolio contains a lower percentage of a certain sector than its benchmark. VALUATIONS The determined or estimated value of a particular stock. YIELD CURVE A graph that shows the relationship between the interest rates paid on bonds and their maturities, ranging from the shortest maturities to the longest available (assuming the bonds are all of the same quality). The resulting curve indicates whether short-term interest rates are higher or lower than long-term rates. - -------------------------------------------------------------------------------- 116 1998 Semiannual Report - Piper 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 SUBADVISOR (Emerging Markets Growth Fund and Pacific-European Growth Fund) - -------------------------------------------------------------------------------- EDINBURGH FUND MANAGERS PLC, Donaldson House, 97 Haymarket Terrace, Edinburgh, Scotland EH 12 5HD 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 - -------------------------------------------------------------------------------- FIRST TRUST NATIONAL ASSOCIATION (PACIFIC-EUROPEAN GROWTH FUND) 180 East Fifth Street, St. Paul, MN 55101 INVESTORS FIDUCIARY TRUST COMPANY 801 Pennsylvania, Kansas City, MO 64105-1307 ACCOUNTING AGENT (Emerging Markets Growth Fund and Pacific-European Growth Fund) - -------------------------------------------------------------------------------- INVESTORS FIDUCIARY TRUST COMPANY, 801 Pennsylvania, Kansas City, MO 64105-1307 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] Mutual Fund Services, 19th Floor 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 fund's shareholder reports. This householding process should allow us to mail one report to each address where one or more registered shareholders with the same last 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/ Piper Family of Funds INTERNATIONAL GROWTH FUNDS - -------------------------------------------------------------------------------- Emerging Markets Growth Fund Pacific-European Growth Fund International investments offer geographic diversification, often considered essential for successful equity investing. U.S. GROWTH FUNDS - -------------------------------------------------------------------------------- Small Company Growth Fund Emerging Growth Fund Growth Fund Portfolios that offer the opportunity for long-term capital appreciation are valued by many investors for their potential to build wealth over time. GROWTH AND INCOME FUNDS - -------------------------------------------------------------------------------- Growth and Income Fund Balanced Fund Portfolios composed of quality stocks and bonds offer the potential for both investment income and capital appreciation, considered a valuable combination by many investors. INCOME FUNDS - -------------------------------------------------------------------------------- Government Income Fund Intermediate Bond Fund Adjustable Rate Mortgage Securities Fund Many traditional investment strategies rely on the steady, dependable investment income generated by debt obligations of corporations and government entities. TAX-EXEMPT INCOME FUNDS - -------------------------------------------------------------------------------- National Tax-Exempt Fund Minnesota Tax-Exempt Fund To counteract the impact of taxes on total investment return, many investors find a tax-exempt fund often provides more spendable income. CASH MANAGEMENT FUNDS* - -------------------------------------------------------------------------------- Money Market Fund U.S. Government Money Market Fund Tax-Exempt Money Market Fund Institutional Money Market Fund An investment staple, cash management funds can help you organize your finances and build your assets. - ---------------------------------------------------- NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE - ---------------------------------------------------- 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. SEI INVESTMENTS DISTRIBUTION CO., FUND DISTRIBUTOR AND NASD MEMBER. #20001 5/1998 079-98 [Logo] 222 South Ninth Street Minneapolis, MN 55402-3804 -----END PRIVACY-ENHANCED MESSAGE-----