UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1996 Commission file number 1-7421
PIPER JAFFRAY COMPANIES INC.
(Exact name of Registrant as specified in its charter)
Delaware 41-1233380
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Piper Jaffray Tower, 222 South 9th Street, Minneapolis, Minnesota 55402
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 612-342-6000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of June 30, 1996, 18,142,042 shares of the Registrant's common stock were
issued and outstanding.
<PAGE>
PIPER JAFFRAY COMPANIES INC.
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Financial Condition 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 26
Signatures 27
Index of Exhibits 28
Exhibits 29
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PIPER JAFFRAY COMPANIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands, Except Share Amounts)
June 30, September 30,
1996 1995
(unaudited)
ASSETS
Cash (including $2,121 and $2,401,
respectively, required to be segregated
under federal and other regulations) ............... $ 27,409 $ 17,345
Receivable from other brokers and dealers ............ 101,725 55,708
Receivable from customers ............................ 472,428 371,667
Trading securities owned, at market .................. 150,049 58,651
Investments pursuant to mortgage-backed bonds ........ 45,052 52,949
Office equipment and leasehold improvements,
at cost, less accumulated depreciation of
$53,687 and $47,621, respectively .................. 28,977 25,764
Deferred income tax asset ............................ 36,858 40,093
Other assets ......................................... 57,259 57,586
--------- ---------
$ 919,757 $ 679,763
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings ................................ $ 224,075 $ 63,781
Checks and drafts payable ............................ 40,936 44,201
Payable to other brokers and dealers ................. 113,501 84,447
Payable to customers ................................. 74,230 78,874
Trading securities sold but not
yet purchased, at market ............................ 54,686 21,491
Mortgage-backed bonds payable ........................ 46,352 54,077
Employee compensation ................................ 69,658 63,678
Accrual for PJIGX litigation settlement .............. 49,236 51,500
Federal and state income taxes ....................... -- 19,136
Other liabilities .................................... 84,007 42,854
--------- ---------
756,681 524,039
------- -------
Shareholders' equity:
Preferred stock, $1 par value; authorized,
300,000 shares; none issued and outstanding ....... -- --
Common stock, $1 par value; authorized
40,000,000 shares; 18,142,536 and 17,565,399
shares issued, respectively ....................... 18,142 17,566
Additional paid-in capital ......................... 18,825 11,901
Retained earnings .................................. 126,116 127,306
Treasury stock, at cost; 494 and 65,145
shares, respectively .............................. (7) (1,049)
--------- ---------
163,076 155,724
--------- ---------
$ 919,757 $ 679,763
========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
PIPER JAFFRAY COMPANIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
1996 1995 1996 1995
REVENUES
Commissions ......................... $50,584 $ 37,381 $141,974 $103,666
Profits on principal transactions ... 42,026 32,681 125,555 88,194
Investment banking .................. 27,830 14,268 72,782 36,348
Asset management fees ............... 9,287 10,740 28,422 33,391
Interest ............................ 10,381 8,810 29,920 25,109
Other income ........................ 7,523 5,276 19,096 12,804
----- ----- ------ ------
Total revenues .................. 147,631 109,156 417,749 299,512
======= ======= ======= =======
EXPENSES
Employee compensation ............... 93,600 66,922 260,044 181,441
Floor brokerage and clearance ....... 2,427 2,117 6,832 5,951
Interest ............................ 4,488 2,826 11,917 8,821
Occupancy and equipment ............. 9,258 7,408 26,188 21,395
Communications ...................... 5,358 3,944 14,860 11,840
Travel and promotional .............. 4,091 3,581 11,892 11,440
Charge for PJIGX settlement ......... - (13,910) - 56,090
Other operating expenses ............ 30,665 14,800 81,351 34,057
------ ------ ------ ------
Total expenses .................. 149,887 87,688 413,084 331,035
------- ------ ------- -------
Income (loss) before income taxes ... (2,256) 21,468 4,665 (31,523)
Income taxes (benefit) .............. (742) 8,373 1,819 (11,994)
---- ----- ----- -------
Net income (loss) ................... $(1,514) $ 13,095 $ 2,846 $(19,529)
======= ======== ======== ========
Net income (loss) per common and
common equivalent share (primary
and fully diluted) .............. $ (.08) $ .73 $ .16 $ (1.13)
Weighted average number of
common and common equivalent
shares outstanding .............. 18,140 18,020 18,327 17,239
Dividends per share ................. $ .075 $ .075 $ .225 $ .225
See accompanying notes to consolidated financial statements
<PAGE>
PIPER JAFFRAY COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended
June 30,
1996 1995
Operating activities:
Net income (loss) ................................. $ 2,846 $ (19,529)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization ................. 6,130 5,421
Accrual for PJIGX settlement .................. - 70,000
Deferred income taxes ......................... 3,235 (17,274)
(Increase) decrease in:
Net receivable from customers ............... (105,405) 30,749
Net trading securities ...................... (58,203) (65,274)
Other ....................................... 39,699 (17,588)
Increase (decrease) in:
Net payable to other brokers and dealers .... (16,963) 19,428
Checks and drafts payable ................... (3,265) 2,214
Employee compensation ....................... 5,980 (14,560)
Federal and state income taxes payable ...... (19,136) (134)
------- ----
Net cash used in operating activities ........ (145,082) (6,547)
-------- ------
Financing activities:
Net change in:
Short-term borrowings ........................... 160,294 28,294
Mortgage-backed bonds payable ................... (7,725) 52,797
Investments and funds pursuant to mortgage-
backed bonds ................................... 7,897 (51,675)
Payments made on capitalized lease obligations .. (483) (1,183)
Net common stock issued ........................... 10,909 6,824
Treasury shares repurchased ....................... (2,367) (360)
Dividends paid .................................... (4,036) (3,866)
------ ------
Net cash provided by financing activities .... 164,489 30,831
Net cash used for purchase of office
equipment and leasehold improvements .............. (9,343) (6,139)
------ ------
Net increase in cash ................................ 10,064 18,145
Cash at beginning of period ......................... 17,345 12,070
------ ------
Cash at end of period ............................... $ 27,409 $ 30,215
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the nine months ended for:
Interest .......................................... 12,009 8,200
Income taxes ...................................... 19,313 1,476
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements of Piper Jaffray Companies
Inc. and its subsidiaries (the "Company") have been prepared in conformity with
generally accepted accounting principles and should be read in conjunction with
the Company's Annual Report for the year ended September 30, 1995. The results
of operations for the nine months ended June 30, 1996, are not necessarily
indicative of the results to be expected for the year ending September 30, 1996.
The consolidated statement of financial condition as of June 30, 1996 and the
other consolidated financial information for the periods ended June 30, 1996 and
1995, is unaudited, but management of the Company believes that all adjustments
(consisting of normal recurring accruals) necessary for a fair statement of the
results of operations for the periods have been included.
Net income (loss) per common and common equivalent share is calculated by
dividing net income (loss) by the weighted average number of common shares and
common share equivalents outstanding, which includes the dilutive effect of all
outstanding stock options. For periods in which a net loss is reported, the
effect of common share equivalents is excluded from the calculation of per share
amounts as they are anti-dilutive.
2. NET CAPITAL REQUIREMENTS
At June 30, 1996, Piper Jaffray Inc. (Piper Jaffray), the Company's
broker-dealer subsidiary, had net capital under applicable regulations of $109.5
million, or 23% of aggregate debit balances and $99.8 million in excess of the
minimum required net capital.
3. LITIGATION AND CONTINGENCIES
On August 12, 1996, the Company's subsidiary, Piper Jaffray, reached an
agreement in principle to settle litigation brought on behalf of the bankruptcy
trustee for Bonneville Pacific Corporation (BPCO). Piper Jaffray's involvement
with BPCO relates to public offerings of that company's securities between 1986
and 1989. The agreement, which requires approval by the U.S. District Court and
the Bankruptcy Court, calls for payment of $7 million seven days after all
required court approvals have been obtained, or September 9, 1996, whichever is
later and two additional payments of $1.5 million each, payable in September
1997 and September 1998. The Company had previously provided sufficient
reserves to cover the $10 million proposed settlement, resulting in no charge
against the Company's earnings for the quarter ended June 30, 1996.
On June 21, 1996, the Company and the attorneys representing a class of
shareholders of several closed-end funds managed by Piper Capital Management
Incorporated (Piper Capital), a wholly owned subsidiary of the Company,
announced that they had reached an agreement in principle to settle purported
class action litigation brought on behalf of fund shareholders. The agreement in
principle, which affects American Government Income Fund (AGF), American
Government Income Portfolio (AAF), American Opportunity Income Fund (OIF),
American Government Term Trust (AGT), American Strategic Income Portfolios I, II
and III (ASP, BSP, and CSP, respectively) and American Select Portfolio (SLA),
requires court approval. The Company recorded a pre-tax charge of $15.5 million
in the third quarter of fiscal 1996, which is included in other operating
expenses, to accrue for the expense related to this proposed settlement. The
proposed settlement also includes an agreement for these funds to repurchase a
portion of outstanding shares from current shareholders at net asset value. This
repurchase will have no material impact on the earnings of the Company.
On April 23, 1996, the Company reached an agreement in principle on a proposed
settlement of litigation relating to the American Adjustable Rate Term Trusts
Inc. 1996, 1997, 1998 and 1999 closed-end funds (the "American Adjustable Rate
Term Trusts") managed by Piper Capital. The Company recorded a pre-tax charge of
$14.0 million in the second quarter of fiscal 1996, which is included in other
operating expenses, to accrue for the expense related to this proposed
settlement.
The Company is currently a defendant in other lawsuits and arbitrations and is
subject to regulatory inquiries related to various funds or assets managed by
Piper Capital. In addition, management is aware of unasserted claims which may
contain similar allegations. The Company is also a defendant in a case involving
an underwriting by Piper Jaffray. The Company intends to defend, or in some
cases negotiate to settle these actions. It is impossible to predict the outcome
of these actions and, at the present time, the effect of these actions on the
consolidated financial statements cannot be determined. Accordingly, no
provision for losses that may result has been recorded in the consolidated
financial statements. However, the aggregate cost of litigation and any
judgments, settlements or regulatory action relating to these cases could have a
material adverse effect on the consolidated financial statements.
4. SHAREHOLDERS' EQUITY
During the nine months ended June 30, 1996, 177,500 shares of the Company's
common stock were repurchased by the Company, leaving a total of 107,500 shares
available for repurchase pursuant to the Board of Directors' authorizations to
repurchase common stock to satisfy employee benefit plan obligations. On July
24, 1996, the Board of Directors granted approval of the repurchase of up to an
additional 750,000 shares to satisfy future employee benefit plan obligations.
The shares will be used by the Company's Stock Investment Plan for purchase, at
a 15% discount, by employees. As of June 30, 1996, 494 common shares were held
in the treasury.
On January 23, 1996, the Board of Directors authorized the contribution of
approximately $14.2 million to the Piper Jaffray Companies ESOP for fiscal year
1995. The contribution was made 50 percent in cash and 50 percent in the
Company's newly issued common stock, thus adding $7.1 million in additional
shareholders' equity during the second quarter of fiscal 1996.
On July 24, 1996, the Board of Directors of the Company, at its regularly
scheduled meeting, declared a quarterly dividend of 7.5 cents per share of
common stock, payable September 10, 1996, to shareholders of record on August
27, 1996.
(dollars in thousands, except share amounts)
Common Stock Additional Total
---------------- Paid-In Retained Treasury Shareholders'
Shares Amount Capital Earnings Stock Equity
------- -------- --------- -------- --------- ----------
Balances at 9/30/94 17,188,161 $ 17,462 $ 7,163 $ 146,601 $ (3,423) $ 167,803
Net loss ........... (14,118) (14,118)
Net stock issued
pursuant to employee
benefit plans ...... 347,993 104 4,738 2,734 7,576
Cash dividends -
$.30 per share .... (5,177) (5,177)
Treasury stock
acquired ......... (35,900) (360) (360)
------- ------ ------ -------- -------- -------
Balances at 9/30/95 17,500,254 $ 17,566 $ 11,901 $127,306 $ (1,049) $ 155,724
========== ======== ======== ======== ======== =========
Net income .......... 2,846 2,846
Net stock issued
pursuant to employee
benefit plans ...... 819,288 576 6,924 3,409 10,909
Cash dividends -
$.225 per share ... (4,036) (4,036)
Treasury stock
acquired .......... (177,500) (2,367) (2,367)
-------- ------ ------ ------- -------- -------
Balances at 6/30/96 18,142,042 $ 18,142 $ 18,825 $126,116 $ (7) $ 163,076
========== ======== ======== ======== ======== =========
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
This discussion should be read in conjunction with Management's Financial
Discussion contained in the Company's Annual Report for the year ended September
30, 1995.
OPERATIONS
Revenues for the quarter ended June 30, 1996 were $147.6 million, a 35% increase
over the same period of the prior year. The Company incurred a net loss of $1.5
million for the quarter ended June 30, 1996 versus net income of $13.1 million a
year earlier. The net loss per share for the quarter ended June 30, 1996 was
$.08 versus net income per share of $.73 for the same period of the prior fiscal
year.
The third quarter loss was due to a $15.5 million pre-tax charge to accrue for
an agreement in principle to settle purported class action litigation brought on
behalf of shareholders of several closed-end funds managed by Piper Capital.
Excluding the pre-tax charge to earnings for this agreement, third-quarter net
income would have been $7.7 million or $.41 per share. On August 12, 1996, the
Company's subsidiary, Piper Jaffray, reached an agreement in principle to settle
for $10.0 million litigation brought on behalf of the bankruptcy trustee for
Bonneville Pacific Corporation (BPCO), a former underwriting client. The Company
had previously provided sufficient reserves to cover the $10.0 million proposed
settlement, resulting in no charge to earnings for the quarter ended June 30,
1996.
The Company's revenues for the nine months ended June 30, 1996 were $417.7
million, a 39% increase over the same period of the prior fiscal year. Net
income for the first nine months was $2.8 million, as compared to a net loss of
$19.5 million recorded in the prior fiscal year. The Company's net income per
share for the first nine months of fiscal 1996 was $.16 versus a net loss per
share of $1.13 a year earlier.
The nine month results for fiscal 1996 include loss accruals for proposed
settlement of two purported class actions brought on behalf of shareholders of
closed-end funds managed by Piper Capital. Additionally, the nine month results
for the prior year include a $70 million pre-tax charge relating to the
settlement of litigation on behalf of the Institutional Government Income
Portfolio (PJIGX) mutual fund, an open-end fund managed by Piper Capital. The
$70 million charge, taken in the second quarter, was partially offset in the
third quarter of fiscal 1995 by $13.9 million in insurance proceeds, net of
related expenses, pursuant to the PJIGX settlement.
Commissions, profits on principal transactions and investment banking revenues
showed continued strength, increasing 37%, 42%, and 100%, respectively, over the
prior year's nine month results. Increases were due to general market strength
and increased volume of mutual fund sales, initial public offerings and mergers
and acquisitions business. Asset management revenue decreased 15% for the nine
months ended June 30, 1996 compared to the same period in fiscal 1995 due to a
decline in assets under management by Piper Capital to $9.2 billion from $10.4
billion a year earlier. The decrease in assets under management was due
primarily to mutual fund net redemptions resulting from the reorganization of
various closed end funds. Interest income was up 19% to $29.9 million for the
nine months ended June 30, 1996 due primarily to a 19% increase in average
customer margin debits. Other income increased 49% to $19.1 million due to
growth in managed accounts and increased fee revenues.
Employee compensation, including broker compensation and employee incentives,
increased by $78.6 million, or 43% as compared to the same nine months of fiscal
1995. Compensation increased at a slightly higher rate than revenues due to the
opening of two new branch offices and the re-alignment of various
bonus/incentive plans. Interest expense grew $3.1 million or 35% due to accruals
for litigation settlement notes payable and an increase in borrowings to finance
higher customer margin debits. Additional depreciation and equipment rental
related to new broker workstations and increased rent expense and property taxes
resulted in occupancy and equipment expenses increasing by $4.8 million or 22%
over the prior year. Other operating expenses increased over the nine months of
the prior fiscal year primarily due to loss accruals pursuant to two
settlements of proposed class-action litigation, other legal settlements,
professional fees, and costs resulting from lawsuits and arbitrations related to
various funds or assets managed by Piper Capital.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a liquid balance sheet. Most of the Company's assets consist of
cash and assets readily convertible into cash. The fluctuations in cash flows
from financing activities are directly related to operating activities due to
the liquid nature of the Company's balance sheet.
Management believes that existing capital, funds from operations and current
credit lines will be sufficient to finance the Company's business.
The $15.5 million proposed settlement, recorded in the third quarter of fiscal
1996, will be paid in a combination of $500,000 cash payable upon preliminary
court approval of the definitive settlement agreement, $5.0 million cash payable
upon the effective date of the settlement after final court approval, and
payments of $2.5 million on each anniversary of the effective date for the next
four years. The deferred payments are expected to be financed by current
available credit facilities and cash flow from operations.
The $10.0 million BPCO proposed settlement, calls for the payment of $7.0
million within seven days after all required court approvals have been obtained
or by September 9, 1996, whichever is later. Two additional payments of $1.5
million each would be payable in September 1997 and September 1998. These
payments are expected to be financed by current available credit facilities and
cash flow from operations.
The $14.0 million American Adjustable Rate Term Trusts proposed settlement,
recorded in the second quarter of fiscal 1996, calls for a combination of
$500,000 cash, which was paid July 1, 1996 upon execution of the definitive
settlement agreement, $1.5 million cash payable upon final approval by the court
(effective date), and payments of $3.0 million on each anniversary of the
effective date for the next four years. The deferred payments will accrue
interest totaling as much as $1.8 million and are expected to be financed by
current available credit facilities and cash flow from operations.
In January 1996, the Court entered an order granting final approval of the PJIGX
settlement, which will provide approximately $67.5 million in payments to
claimants over a three year period. Approximately $20.0 million of this
settlement was paid into an escrow fund on August 3, 1995 following the signing
of the definitive settlement agreement, and was, in turn, paid out to fund
shareholders during the second quarter of fiscal 1996. In addition, on August 5,
1996, $7.9 million was paid into an escrow fund for distribution to fund
shareholders as a part of the deferred settlement notes payable. The remaining
amount is expected to be financed by tax refunds arising from the fiscal 1995
net operating loss, cash flow from operations, and available credit facilities.
The Company is currently a defendant in other lawsuits and arbitrations and is
subject to regulatory inquiries related to various funds or assets managed by
Piper Capital. In addition, management is aware of unasserted claims which may
contain similar allegations. The Company is also a defendant in a case involving
an underwriting by Piper Jaffray. The Company intends to defend, or in some
cases negotiate to settle these actions. It is impossible to predict the outcome
of these actions, and, at the present time, the effect of these actions on the
consolidated financial statements cannot be determined. Accordingly, no
provision for losses that may result has been recorded in the consolidated
financial statements. However, the aggregate cost of litigation and any
judgments, settlements or regulatory action relating to these cases could have a
material adverse effect on the consolidated financial statements.
In the normal course of business, the Company's customer, trading and
correspondent clearance activities involve the execution, settlement and
financing of various securities transactions. These activities may expose the
Company to off-balance sheet risk in the event the other party to the
transaction is unable to fulfill its contractual obligations.
The Company utilizes financial futures contracts to a limited extent to hedge
fixed income inventories against market interest rate fluctuations. Such
transactions are subject to the same controls as all trading for the Company's
own account. The Company also enters into government reverse repurchase
agreements to facilitate hedging. The Company does not, and has no plans to
enter into, for either hedging or speculative purposes, the following types of
transactions: interest rate swaps, foreign currency contracts or significant
amounts of futures, options, forwards, mortgage-backed derivatives, or other
securities whose value is derived from other investment products (derivatives).
The Company's investment management subsidiary, Piper Capital, manages mutual
funds and other investment portfolios which do contain such derivatives.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is currently a defendant in lawsuits and arbitrations and is subject
to regulatory inquiries related to various funds or assets managed by Piper
Capital. In addition, management is aware of unasserted claims which may contain
similar allegations. The Company is also a defendant in a case involving an
underwriting by Piper Jaffray. The Company intends to defend or, in some cases,
negotiate to settle these actions. It is impossible to predict the outcome of
these actions, and, at the present time, the effect of these actions on the
consolidated financial statements cannot be determined. Accordingly, no
provision for losses that may result has been recorded in the consolidated
financial statements. However, the aggregate cost of litigation and any
judgments, settlements or regulatory action relating to these cases could have a
material adverse effect on the consolidated financial statements.
Piper Jaffray and Piper Capital have been continuing to cooperate in an
investigation being conducted by the Securities and Exchange Commission and have
been responding to requests for information from several states.
The Company is involved in various other lawsuits or arbitrations or threatened
lawsuits or arbitrations incidental to its securities business. Management of
the Company, after consultation with counsel, believes the resolution of these
various lawsuits, arbitrations and claims will have no material adverse effect
on the consolidated financial statements.
Actions which individually, or when aggregated with similar actions, make claims
for a material amount are described in more detail below:
A. Lawsuits Related to Various Funds or Assets Managed by Piper Capital
Management Incorporated
1. Institutional Government Income Portfolio
a. Lawsuits Brought by Investors in the Institutional Government Income
Portfolio.
The following actions have been brought by investors in the Institutional
Government Income Portfolio. Plaintiffs in these actions requested exclusion
from a previously settled consolidated class action, In re Piper Funds Inc.
Institutional Government Income Portfolio (United States District Court,
District of Minnesota) ("PJIGX" action). The PJIGX action had included
claims based on allegations of misrepresentation and improper management.
The claims alleged in the following actions are similar to the claims which
had been alleged in the PJIGX action.
Gary Pashel and Gregg S. Hayutin, Trustees of the Mae Pashel Trust;
Mae Pashel, individually; Gary Pashel and Michael H. Feinstein,
Trustees of the Robert Hayutin Insurance Trust; Dennis E. Hayutin,
Gregg S. Hayutin and Gary Pashel, Trustees of the Marie Ellen
Hayutin Trust v. Piper Funds, Inc., Piper Capital Management
Incorporated, Piper Jaffray Inc. and Piper Jaffray Companies Inc.
(United States District Court, District of Colorado).
Action commenced on September 30, 1994 in the District of Colorado. The
action has been transferred to Minnesota for discovery. Plaintiffs seek
rescission of their alleged investment of approximately $840,141.28 or
monetary damages, plus interest, and attorneys' fees and costs.
Frank R. Berman, Trustee of Frank R. Berman Professional CP Pension
Plan Trust v. Piper Jaffray Inc., Piper Fund, Inc., Morton Silverman
and Worth Bruntjen (Minnesota State District Court, Hennepin
County).
Action commenced on April 11, 1995 in Minnesota State District Court,
Hennepin County. This action was removed to United States District Court,
District of Minnesota. Plaintiff seeks monetary damages, plus interest, and
attorneys' fees and costs. The Complaint does not specify an amount of
damages sought.
Beverly Muth vs. Piper Jaffray Inc. and Teresa L. Darnielle (Montana
Thirteenth Judicial District Court, Yellowstone County).
Action commenced on June 22, 1995. Plaintiff seeks monetary damages of over
$12,000, a sum to be determined at trial for extreme emotional distress and
an award of punitive damages.
City of Mound v. Piper Jaffray Companies, Inc., Piper Capital
Management Incorporated, Piper Funds, Inc. Institutional Government
Income Portfolio, Worth Bruntjen, William H. Ellis, Edward J.
Kohler, Bennet E. Marks and John and Jane Does 1-10 (Minnesota State
District Court, Hennepin County).
Action commenced on May 13, 1996. Plaintiff seeks recission or compensatory
damages in an unspecified amount, plus interest, attorney's fees and costs.
b. Arbitrations Brought by Investors in Institutional Government Income
Portfolio.
The following arbitrations, commenced by investors in the Institutional
Government Income Portfolio, are based on claims similar to the claims which
had been alleged in the PJIGX action. Claimants in these arbitrations
requested exclusion from the settlement class in the PJIGX action.
Fredrikson & Byron, P.A., Bertin A. Bisbee, William J. Brody, John
P. Byron, and Richard R. Hansen, as Trustees of the Fredrikson &
Byron, P.A. Money Purchase Pension Plan, Fredrikson & Byron, P.A.
Money Purchase Pension Trust, Fredrikson & Byron, P.A. Profit
Sharing Plan and Fredrikson & Byron, P.A. Profit Sharing Trust v.
Piper Jaffray Incorporated, Piper Capital Management Incorporated,
Worth Bruntjen, and John Gibas (National Association of Securities
Dealers Arbitration).
Claim filed November 11, 1994. Claimants seek to recover in excess of $1
million.
Public Water Supply District No. 5 v. Piper Jaffray Inc., Robert
Williams, Branch Manager, and Charles Greenway, Assistant Vice
President Investments (National Association of Securities Dealers
Arbitration).
Claim filed August 30, 1994. Claimant seeks to recover $12,263.37.
Roger W. Arvold and Maxine E. Arvold v. Piper Jaffray Inc. (National
Association of Securities Dealers Arbitration).
Claim filed December 30, 1994. Claimants seek to recover approximately
$30,000.
David S. Bradford, M.D. v. Piper Capital Management Inc., Piper
Jaffray Inc., and Piper Jaffray Companies Inc. (National Association
of Securities Dealers Arbitration).
Claim filed February 22, 1995. Claimant seeks to recover approximately
$400,000.
South Dakota School of Mines and Technology Foundation, Inc. v.
Piper Jaffray Inc., Piper Jaffray Companies Inc., Piper Capital
Management Incorporated, Addison L. Piper, William H. Ellis, Dan L.
Lastavich, Delos V. Steenson, Worth Bruntjen, Jaye F. Dyer, Edward
J. Kohler, John T. Golle, and David T. Bennett (New York Stock
Exchange Arbitration).
Claim filed January 4, 1995. Claimant seeks to recover approximately
$17,500,000.
City of Mound v. Piper Funds Inc. Institutional Government Income
Portfolio, Piper Capital Management Incorporated, Piper Jaffray
Inc., Piper Jaffray Companies Inc. and Bennett E. Marks (New York
Stock Exchange Arbitration).
Claim filed May 31, 1995. Claimant seeks to recover in excess of $800,000.
Eric Wade Compton Russell v. Piper Funds Inc. Institutional
Government Income Portfolio, Piper Capital Management Incorporated,
Piper Jaffray Inc., Piper Jaffray Companies Inc. and Edwin Johnson
(New York Stock Exchange Arbitration).
Claim filed June 13, 1995. Claimant seeks to recover in excess of $37,500.
Thomas Howe and Richard Westphal, Trustees of the Swanson FloSystems
Profit Sharing Trust under Agreement dated January 1, 1971 v. Piper
Capital Management Incorporated, Piper Jaffray Inc., Piper Funds
Inc., Piper Jaffray Companies Inc., John J. Gibas, Thomas H. Hussian
and James S. Vieburg (National Association of Securities Dealers
Arbitration).
Claim filed December 11, 1995. Claimants seek to recover damages in excess
of $89,000.
Hart v. Piper Jaffray Inc. (National Association of Securities
Dealers Arbitration).
Claim filed December 28, 1995. Claimant seeks to recover in excess of
$804,629.
North Dakota State College of Science Foundation v. Piper Capital
Management Incorporated, Piper Jaffray Inc. and Piper Jaffray
Companies Inc. (National Association of Securities Dealers
Arbitration).
Claim filed January 8, 1996. Claimant seeks to recover compensatory damages,
attorneys' fees, costs and punitive damages in an unspecified amount.
Catholic Charities of the Diocese of Winona v. Piper Jaffray Inc.
(National Association of Securities Dealers Arbitration).
Claim filed January 15, 1996. Claimant seeks to recover in excess of
$377,271.
James T. Dootson, Elizabeth O. Dootson Trust, Jeto Enterprises,
Inc., and Sterling Irrevocable Trust v. Piper Funds Inc.
Institutional Government Income Portfolio, Piper Capital Management
Inc., Piper Jaffray Inc. and Piper Jaffray Companies Inc. (National
Association of Securities Dealers Arbitration).
Claim filed February 16, 1996. Claimants seek to recover in excess of
$262,450.
Fairview Hospital v. Piper Capital Management Incorporated, Piper
Jaffray Inc. and Piper Jaffray Companies Inc. (National Association
of Securities Dealers Arbitration).
Claim filed March 1, 1996. Claimant seeks to recover in excess of $1.5
million.
City of Rapid City, South Dakota v. Piper Jaffray Inc., Piper
Jaffray Companies Inc., Piper Capital Management Incorporated,
Addison L. Piper, William H. Ellis, Dan L. Lastavich, Delos V.
Steenson, Worth Bruntjen, Jaye F. Dyer, Edward J. Kohler, John T.
Golle, and David T. Bennett (New York Stock Exchange Arbitration).
Claim filed March 29, 1996. Claimant seeks to recover $20,000,000.
Central Iowa Hospital Corporation v. Piper Funds Inc. Institutional
Government Income Portfolio, Piper Capital Management Incorporated,
Piper Jaffray Inc., and Piper Jaffray Companies Inc. (National
Association of Securities Dealers Arbitration).
Claim filed April 12, 1996. Claimant seeks to recover in excess of
$1,700,000.
Lummi Indian Business Council v. Piper Jaffray Inc. and Piper
Capital Management Incorporated (National Association of Securities
Dealers Arbitration).
Claim filed June 13, 1996. Claimant seeks to recover in excess of $1.7
million.
City of Eden Prairie v. Piper Capital Management, Piper Jaffray Inc.,
Piper Jaffray Companies Inc. and Worth Bruntjen (National Association
of Securities Dealers Arbitration).
Claim filed June 12, 1996. Claimant seeks to recover in excess of $1
million.
2. Adjustable Rate Term Trusts
a. Herman D. Gordon, Robert D. Moore, I.R.A., Frank Donio, I.R.A., Jane
Mazzagatte, I.R.A., Myra W. Smith, John M. Gobble, I.R.A., Morgan
Properties, Inc., Gerald D. Cashill, Richard Harbison, P. Joan
Spengler, I.R.A., James O. Chambers, and Mary A. Snively, on Behalf
of Themselves and All Others Similarly Situated v. American
Adjustable Rate Term Trust, Inc. 1996, American Adjustable Rate Term
Trust, Inc. 1997, American Adjustable Rate Term Trust 1998; American
Adjustable Rate Trust 1999; Piper Jaffray Companies Inc.; Piper
Capital Management Inc., Piper Jaffray Inc.; Benjamin Rinkey;
Jeffrey Griffin; Charles N. Hayssen, Edward J. Kohler; and William
H. Ellis (United States District Court, District of Minnesota).
Frank Donio, I.R.A., Jane Mazzagatte, I.R.A., Myra Smith, John M.
Gobble, I.R.A., and Morgan Properties, Inc., on Behalf of Themselves
and All Others Similarly Situated v. American Adjustable Rate Term
Trust Inc. 1996; American Adjustable Rate Term Trust Inc. 1997;
American Adjustable Rate Term Trust Inc. 1998; American Adjustable
Rate Term Trust Inc. 1999; Piper Jaffray Companies Inc.; Piper
Capital Management Inc.; Piper Jaffray Inc.; Benjamin Rinkey;
Jeffrey Griffin; Charles N. Hayssen, Edward J. Kohler and William H.
Ellis (United States District Court, District of Minnesota).
Plaintiff Gordon, an investor in the American Adjustable Rate Term Trusts
Inc. 1998 and 1999, filed a putative class action lawsuit on October 20,
1994. Plaintiffs Donio, et al., investors in the American Adjustable Rate
Term Trusts Inc. 1996, 1997, 1998 and 1999 ("Trusts"), filed a putative
class action lawsuit on April 14, 1995. Plaintiffs in both actions filed a
Consolidated Amended Class Action Complaint on May 23, 1995. By Order dated
June 8, 1995, the Court consolidated the two putative class actions.
Plaintiffs allege violation of Sections 11, 12 (2) and 15 of the Securities
Act; violation of Sections 10(b) and 20(a) of the Securities Exchange Act,
and Rule 10b-5 promulgated thereunder; violation of Sections 17(j), 34(b),
36(a) and 36(b) of the Investment Company Act; violation of Section 80A.01
of the Minnesota Statutes; negligent misrepresentation and breach of
fiduciary duty. Plaintiffs seek rescission or damages, plus interest, and
attorneys' fees and costs. The Complaint does not specify an amount of
damages sought.
On June 8, 1996, the parties executed a Settlement Agreement which settled
all outstanding claims. On June 22, 1996, the Court preliminarily approved
the Settlement Agreement. The terms of the Settlement Agreement, which must
receive the final approval of the Court and a sufficiently large percentage
of the Settlement Class, would provide $14.0 million in principal payments
consisting of $500,000 which was paid upon the Court's preliminary approval,
$1.5 million payable upon the Effective Date of the Settlement Agreement,
and payments of $3.0 million on each anniversary of the Effective Date for
the next four years, with accrued interest payments of up to $1.8 million.
b. Other Lawsuits Brought by Investors in Adjustable Rate Term Trusts
Ernest Volinn v. Piper Jaffray Inc. (Washington State District
Court, King County).
Plaintiff, an investor in the American Adjustable Rate Term Trusts, Inc.
1997 and 1998, the American Strategic Portfolio, Inc.-III and the American
Opportunity Income Fund Inc., filed this action on August 11, 1995.
Plaintiff alleges the investments were unsuitable and seeks compensatory
damages in the amount of $3,543, costs and attorneys' fees.
The Ewing Company Profit Sharing Plan v. Piper Jaffray Inc. (United
States District Court, District of Idaho).
Plaintiff, an investor in the American Adjustable Rate Term Trusts, Inc.,
1995, 1996, 1997, 1998, 1999, the American Strategic Income Portfolio Inc.,
and the American Strategic Income Portfolio Inc.-II, filed this action on
November 1, 1995. Plaintiff alleges violation of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder;
violation of the Idaho Securities Act and the Idaho Consumer Protection Act;
and common law fraud. Plaintiff seeks to recover principal in excess of
$90,000, interest in excess of $32,000, attorneys' fees and costs and has
reserved the right to seek punitive damages.
c. Arbitration Claims Brought by Investors in Adjustable Rate Term
Trusts and Other Funds
The following arbitrations are based on claims similar to those
asserted in Gordon, et al. v. American Adjustable Rate Term Trust
1996, et al.
William J. Kenney v. John P. Murphy, Piper Capital Management Inc.,
and Kemper Securities, Inc. (National Association of Securities
Dealers Arbitration).
Claim filed February 24, 1995. Claimant seeks to recover approximately
$97,500.
Daniel J. Epstein and Continental America Properties, Ltd. v.
Dickinson & Company, Inc., Richard C. Barrett, Jr., Advest Company,
Inc., Piper Jaffray Inc., and Piper Capital Management Incorporated
(National Association of Securities Dealers Arbitration).
Claim filed June 21, 1995. Claimant seeks to recover in excess of $30,000 in
damages and in excess of $1 million in punitive damages.
Richard C. Mollin, Trustee, and Richard C. Mollin v. Piper Jaffray
Inc. and Philip H. Strom (National Association of Securities Dealers
Arbitration).
Claim filed May 5, 1995. Claimants seek to recover $42,656.13.
Robert Albright v. Piper Jaffray Inc. (National Association of
Securities Dealers Arbitration).
Claim filed May 8, 1995. Claimant seeks $68,000 in compensatory damages and
$182,000 in punitive damages.
F.A. Wittern Charitable Foundation; Selectivend, Inc.; Specialty
Foods Limited Partnership; 3-W Corporation; Vikart Industries, Inc.;
Wittern Investment Company v. Piper Jaffray Companies Inc. and Jed
Willoughby (National Association of Securities Dealers Arbitration).
Claim filed September 5, 1995. Claimants seek to recover approximately
$98,726.92.
Patricia LaFrenz v. Piper Jaffray Inc. (National Association of
Securities Dealers Arbitration).
Claim filed March 15, 1996. Claimant seeks to recover $16,850.
E. Boyd Taylor v. Piper Jaffray Inc. (National Association of
Securities Dealers Arbitration).
Claim filed May 13, 1996. Claimant seeks to recover $6,998.
David L. G. Willats and Dixie Lea Willats v. Piper Jaffray Inc.
(National Association of Securities Dealers Arbitration).
Claim filed July 25, 1996. Claimant seeks to recover in excess of $62,000.
3. American Strategic Income Portfolio Inc., American Opportunity
Income Fund, and other named funds
a. The following actions have been brought by investors in the American
Strategic Income Portfolio Inc., the American Opportunity Income
Fund Inc., and other closed-end funds.
Gary E. Nelson, et al. v. American Strategic Income Portfolio Inc.-II, Piper
Jaffray Companies Inc., Piper Capital Management Incorporated, Piper Jaffray
Inc., Worth Bruntjen, Charles Hayssen, Michael Jansen, William Ellis and
Edward Kohler (United States District Court, Western District of
Washington). Christian Fellowship Foundation Peace United Church of Christ,
Roseville Firefighter's Relief Association, William J. and Florence B.
Cohen, John and Shirley Breitner, Gary E. Nelson and Lloyd Schmidt, et al.
v. American Government Income Portfolio, Inc., American Government Income
Fund Inc., American Government Term Trust Inc., American Strategic Income
Portfolio Inc., American Strategic Income Portfolio Inc.-II, American
Strategic Income Portfolio Inc.-III, American Opportunity Income Fund Inc.,
American Select Portfolio Inc., Piper Jaffray Companies Inc., Piper Capital
Management Inc., Piper Jaffray Inc., Worth Bruntjen, Charles Hayssen,
Michael Jansen, William H. Ellis and Edward J. Kohler (United States
District Court, Western District of Washington).
Plaintiff Nelson, an investor in the American Strategic Income Portfolio
Inc.-II, filed a putative class action lawsuit on June 28, 1995. Nelson also
was an investor in the American Opportunity Income Fund Inc. ("American
Opportunity Fund"), and filed a second putative class action lawsuit on July
12, 1995. On September 7, 1995, Plaintiffs Nelson, et al. filed an Amended
Complaint alleging claims against eight funds and various individuals and
entities, which included many of the allegations contained in the previous
two putative class action lawsuits, as well as new allegations. By Order
filed October 5, 1995, the Court consolidated the two putative class action
lawsuits. Plaintiffs filed a Second Amended Complaint on February 5, 1996,
and a Third Amended Complaint on June 4, 1996. Plaintiffs seek to represent
a global class of persons who purchased shares in the eight funds during the
period May 25, 1988 through May 1, 1995, as well as certain subclasses.
With respect to some or all of the subclasses, Plaintiffs allege violations
of Sections 11, 12(2) and 15 of the Securities Act; Sections 10(b) and 20(a)
of the Securities Exchange Act and Rule 10b-5 promulgated thereunder;
Sections 13(a), 34(b), and 36(b) of the Investment Company Act; certain
subsections of the Racketeer Influenced and Corrupt Organizations Act
("RICO"), 18 U.S.C. S~1962 based on alleged predicate acts of mail fraud,
wire fraud, interstate transportation of money obtained through fraud, and
fraud in the sale of securities; the Washington State Securities Act; and
the Washington Consumer Protection Act. Plaintiffs may also purport to
allege claims under the common law of negligent misrepresentation and breach
of fiduciary duty. Under some or all of the claims, plaintiffs seek
rescission or monetary damages, treble damages, attorney's fees, prejudgment
interest and costs. The Third Amended Complaint does not specify a
particular amount of damages sought.
Although plaintiffs in this action allege that it has been brought as a
class action, the Court has not yet determined whether any classes will be
certified. The defendants have filed a motion to dismiss the consolidated
action and a motion for summary judgment.
The named plaintiffs and defendants have reached an agreement-in-principle
on a proposed settlement. If approved by the Court, a settlement agreement
consistent with the terms of the agreement-in-principle would provide $15.5
million in payments to class members by Piper Jaffray Companies Inc. and
Piper Capital Management Incorporated over the next four years. The
settlement also includes an agreement that each of American Government
Income Fund, American Government Income Portfolio and American Opportunity
Income Fund would offer to repurchase up to 25 percent of their outstanding
shares from current shareholders at net asset value. If the discounts
between net asset value and market price of these funds do not decrease to 5
percent or less within approximately two years after the effective date of
the settlement, the fund boards may submit shareholder proposals to convert
these funds to an open-end format, unless they determine that it is not in
the shareholders' best interest to do so. Finally, the agreement stipulates
that each of American Strategic Income Portfolios I, II and III and American
Select Portfolio would offer to repurchase up to 10 percent of their
outstanding shares from current shareholders at net asset value.
John Darlington and Ann Darlington v. Piper Jaffray Inc. and Dick
Tallent (Montana Second Judicial District Court, Silver Bow County).
Plaintiff filed this action on November 1, 1995 based on his investment in
the American Strategic Income Portfolio Inc.-III and the Americas Income
Trust Inc. Plaintiff alleges claims of breach of contract, breach of the
covenant of good faith and fair dealing, fraud and misrepresentation. The
Complaint seeks compensatory damages in an unspecified amount, damages for
mental and emotional distress and pain and suffering, punitive damages, and
costs and attorneys' fees.
Kenneth Schneider v. Piper Jaffray Inc. and Richard Tallent (Montana
Second Judicial District Court, Silver Bow County).
Plaintiff filed this action on April 11, 1996 based on his investment in the
American Select Portfolio. Plaintiff alleges claims of misrepresentation and
negligent misrepresentation. The Complaint seeks compensatory damages in an
unspecified amount, punitive damages, and costs and attorneys' fees.
Margaret Nagel v. Piper Jaffray Inc. and Richard Tallent (Montana
Second Judicial District Court, Silver Bow County).
Plaintiff filed this action on April 11, 1996 based on her investment in the
American Select Portfolio Inc. Plaintiff alleges claims of misrepresentation
and negligent misrepresentation. The Complaint seeks compensatory damages in
an unspecified amount, punitive damages, and costs and attorneys' fees.
b. The following arbitration claims seek recovery by investors in one
or more of the following closed-end funds: the American Strategic
Income Portfolio Inc. I-III; the American Select Portfolio Inc.;
American Opportunity Income Fund; American Government Income
Portfolio, Inc.; or the American Government Income Fund Inc.
Frederick Poole and Jane Poole; George Chapman; Dolores Patterson; Craig
Carter; Elliott J. Ashford and Linda K. Ashford; Elliott J. Ashford as the
Custodian for the accounts of Katie Stoltz and Zachary Stoltz; Linda K.
Ashford, as custodian for the account of Shelby Ashford; Kenneth Powers and
Marlene Powers; Robert Ferris and William Ferris, Custodians for the account
of Eva Ferris; Jim Toomey and Linda Toomey; Jeffrey Erwin and Lynda Erwin;
Alan Citron and Kathy Citron; Mishelle Barr as the custodian for the account
of Maria Barr; J. Kerry Wilcox and Sally E. Wilcox; Willard R. Helton and
Lenora J. Helton; Richard Austin and Joan Austin; Sydney Bannister; F. Alan
Boyd and Viola Boyd; Joseph Brown and Wanda Brown; Peter Crane and Jody
Gebbers; Robert Fately and Regna Fately; Millard Fowler and Frankie Fowler;
Marilyn Gearing; Edward Godsey and Nancy Godsey; James Keaton; R. L.
McDonald; Nora Rappe and Elmer Rappe;; Doris Riggs; Larry Simms and Bonnie
Simms; Kenneth Willig and Noreen Willig, as trustees for the Kenneth A.
Willig 1976 Trust; Talleta Wibmer and Helmut Wibmer; Susan Van Masdam;
George Willot; Teresa Smith; Betty Wick; Susan Wick; Velma Donelly v. Piper
Jaffray & Hopwood Incorporated; Piper Capital Management Inc; American
Strategic Income Portfolio, Inc., I; American Strategic Income Portfolio,
Inc., II; American Strategic Income Portfolio, III; American Select, Inc.;
Piper Jaffray Companies Inc.; Piper Jaffray Inc.; and Mike Jansen (National
Association of Securities Dealers Arbitration).
Claim filed December 6, 1995. Claimants seek rescission or damages, interest
and costs in an unspecified amount.
Daniel K. Nordby and Barbara L. Rawley v. Piper Jaffray Inc. and
Gary M. Petrucci (National Association of Securities Dealers
Arbitration).
Claim filed in February, 1995. Claimants seek to recover approximately
$31,500.
Penny DiRocco v. Piper Jaffray Inc. (National Association of
Securities Dealers Arbitration).
Claim filed March 27, 1995. Claimant seeks damages in excess of $500,000.
Kelly E. Andrews v. Piper Jaffray Inc. (National Association of
Securities Dealers Arbitration).
Claim filed May 10, 1996. Claimant seeks to recover approximately $24,979.
Mabel I. Hines v. Piper Jaffray Inc. and Robert Bliss (National
Association of Securities Dealers Arbitration).
Claim filed May 16, 1996. Claimant seeks to recover approximately $25,000.
Stanley E. Williams and Grayce E. Williams v. Piper Jaffray Inc.
(National Association of Securities Dealers Arbitration).
Claim filed June 3, 1996. Claimants seek to recover $8,500.
William Stephan Blattner v. Piper Jaffray Inc. (National Association
of Securities Dealers Arbitration).
Claim filed June 7, 1996. Claimant seeks to recover $13,164.
William C. Schwenck v. Piper Jaffray Inc. (National Association of
Securities Dealers Arbitration).
Claim filed July 17, 1996. Claimant seeks to recover in excess of $100,000.
Thomas R. Clements v. Piper Jaffray Inc. (National Association of
Securities Arbitration).
Claim filed July 18, 1996. Claimant seeks to recover $7,275.
Elmer Cipala v. Piper Jaffray Inc. (National Association of
Securities Dealers Arbitration).
Claim filed May 10, 1996. Claimant seeks to recover approximately $2,241.
4. Managers Intermediate Mortgage Fund
a. Florence R. Hosea, Bobby W. Hosea, Getrud B. Dale and Peter M. Dale,
Andrew Poffel and Diane Poffel as tenants by the Entireties, Myrone
Barone, Donna M. DiPalo, Bernard B. Geltner as IRA custodian, IRA
and Bernard B. Geltner and Gail Geltner and Paul Delman v. The
Managers Funds, The Managers Funds, L.P., Robert P. Watson, Piper
Capital Management Incorporated, Piper Jaffray Inc., Worth Bruntjen
and Managers Intermediate Mortgage Fund (United States District
Court, District of Connecticut).
Karen E. Kopelman v. The Managers Fund, The Managers Funds, L.P.,
Robert P. Watson, Piper Capital Management Incorporated, Piper
Jaffray Inc., Worth Bruntjen and Managers Intermediate Mortgage Fund
(United States District Court, District of Connecticut).
Plaintiff Hosea filed a putative class action lawsuit on September 26, 1994.
Plaintiff Kopelman filed a putative class action lawsuit on November 4,
1994. By court order dated December 13, 1994, these two putative class
action lawsuits were consolidated. The plaintiffs purport to represent a
class of persons who purchased shares in the Managers Intermediate Mortgage
Fund ("Managers Intermediate") during the period from May 1, 1992, through
June 14, 1994. Managers Intermediate is a no-load, open-end mutual fund that
was generally managed by The Managers Funds, L.P. During the class period,
Piper Capital was the portfolio asset manager.
In their Amended and Restated Complaint, filed on July 19, 1995, plaintiffs
allege that defendants Piper Capital, Piper Jaffray and Worth Bruntjen (the
"Piper Defendants") violated Sections 11, 12(2) and 15 of the Securities
Act; Section 10(b) of the Securities Exchange Act, and Rule 10b-5
promulgated thereunder; Sections 34(b) and 36(b) of the Investment Company
Act; and engaged in negligent misrepresentation. Plaintiffs seek rescission
or monetary damages, plus prejudgment interest, punitive damages "where
appropriate," and attorneys' fees and costs. The Complaint does not specify
an amount of damages sought.
Although the plaintiffs in this consolidated action allege that it has been
brought as a class action, the Court has not yet determined whether a class
will be certified. The defendants have filed a motion to dismiss the
consolidated action in its entirety.
5. Managers Short Government Income Fund
a. Robert Fleck, on behalf of himself and all others similarly situated
v. The Managers Funds, The Managers Funds, L.P., Piper Jaffray Inc.,
Piper Capital Management Incorporated, Worth Bruntjen, Evaluation
Associates, Inc., Robert P. Watson, John E. Rosati, William M.
Graulty, Madeline H. McWhinney, Steven J. Paggioli, Thomas R.
Schneeweis and Managers Short Government Fund, F/K/A Managers Short
Government Income Fund (United States District Court, District of
Minnesota).
Plaintiff, a shareholder of the Managers Short Government Income Fund
("Managers Short"), filed this putative class action lawsuit on November 18,
1994. Plaintiff purports to represent a class of persons who purchased
shares of Managers Short during the period from May 1, 1993, through
September 12, 1994. Managers Short is a no-load, open-end mutual fund that
was generally managed by The Managers Funds, L.P. Piper Capital was the
portfolio asset manager until August 12, 1994.
By Order filed November 24, 1995, the Court dismissed all claims against the
Piper Defendants for failure to state a claim. The Court ordered that
plaintiff may file an amended complaint on or before December 20, 1995. The
Court denied, in part, a motion to dismiss claims asserted against
defendants other than the Piper Defendants, including claims for alleged
violation of Sections 11, 12(2) and 15 of the Securities Act.
On December 14, 1995, plaintiff served an Amended Complaint alleging that
defendants Piper Jaffray Inc., Piper Capital and Worth Bruntjen (the "Piper
Defendants") violated Sections 11, 12(2) and 15 of the Securities Act;
Section 10(b) of the Securities Exchange Act, and Rule 10b-5 promulgated
thereunder; Section 13(a)(3) of the Investment Company Act; and engaged in
common law fraud. Plaintiff seeks rescission and monetary damages, plus
prejudgment interest, punitive damages if appropriate, and attorneys' fees
and costs. The Amended Complaint does not specify an amount of damages
sought.
Although the plaintiff in this action alleges that it has been brought as a
class action, the Court has not yet determined whether a class will be
certified. The Piper Defendants have filed a motion to dismiss the claims
against them in the Amended Complaint.
b. Other Lawsuit Brought by Investor in the Managers Short Government
Fund and the Managers Intermediate Mortgage Fund
First Commercial Trust Company, N.A. v. The Managers Funds, a
Massachusetts Business Trust, Managers Short Government Fund,
Managers Intermediate Mortgage Fund, Managers Short and Intermediate
Bond Fund, The Managers Funds, L.P., EAIMC Holdings Corporation,
Evaluation Associates Holding Corporation, EAI Partners, L.P.,
Evaluation Associates, Inc., Robert P. Watson, William W. Graulty,
Madeline H. McWhinney, Steven J. Paggioli, Thomas R. Schneeweis,
William J. Crerend, Piper Capital Management Inc., Piper Jaffray
Companies Inc., Worth Bruntjen, Standish, Ayer & Wood, Inc., TCW
Funds Management, Inc. and TCW Management Company (Connecticut
Superior Court, Stamford/Norwalk District).
According to the Complaint filed on October 26, 1995, plaintiff First
Commercial Trust Company ("FCTC") is an investor in the Managers Short
Government Fund, the Managers Intermediate Mortgage Fund, and the Managers
Short and Intermediate Bond Fund. Piper Capital was the portfolio asset
manager for the Managers Short Government Fund and the Managers Intermediate
Bond Fund, which are generally managed by The Managers Funds, L.P. Based on
the allegations in the Complaint, plaintiff appears to fall within the
definition of the proposed classes in both the Hosea/Kopelman and Fleck
actions described above.
Plaintiff alleges that Piper Jaffray Companies Inc., Piper Capital and
Bruntjen (the "Piper Defendants"), engaged in fraud, fraudulent concealment,
breach of contract, breach of fiduciary duty, breach of implied covenant of
good faith and fair dealing, negligent misrepresentation, civil conspiracy,
negligent interference with contractual relations, violation of the
Connecticut Unfair and Deceptive Trade Practices Act, and violation of the
Connecticut Securities Act. Plaintiff seeks compensatory damages in an
unspecified amount, punitive damages, attorneys' fees, interest and costs.
The Piper Defendants have joined a motion brought by other defendants to
dismiss the Complaint or alternatively to stay the action.
In a declaratory action filed on October 26, 1995 in the United States
District Court, District of Connecticut, the Piper Defendants, along with
The Managers Funds, L.P., The Managers Funds and related persons and
entities seek a declaration that they bear no liability to FCTC. FCTC has
brought a motion to dismiss the
declaratory action.
6. Privately Managed Accounts
The following arbitration claims seek recovery for accounts managed by Piper
Capital Management Incorporated:
a. Hunter, Keith Industries, Inc. v. Piper Capital Management
Incorporated and Piper Jaffray Inc. (National Association of
Securities Dealers Arbitration).
Claim filed July 27, 1995. Claimant seeks to recover in excess of $500,000
and punitive damages, Claimant alleges violation of federal and state
securities laws, breach of fiduciary duty, breach of contract, common law
fraud and negligence. Claimant had individually managed accounts which
included investments in derivative products.
b. Regents of the University of Minnesota and Ruminco, Ltd. v. Piper
Capital Management Incorporated, Piper Jaffray Inc., Piper Jaffray
Companies Inc. and Worth Bruntjen (National Association of
Securities Dealers Arbitration).
Claim filed November 22, 1995. Claimants seek to recover over $15 million
and punitive damages. Claimants allege violation of federal and state
securities laws, breach of fiduciary duty, breach of contract, negligence
and violation of the Minnesota Consumer Fraud Act. Claimants' individually
managed account included investments in derivative products.
c. Rosemount Inc. v. Piper Capital Management Incorporated, Piper
Jaffray Inc. and Piper Jaffray Companies Inc. (National Association
of Securities Dealers Arbitration).
Claim filed December 15, 1995. Claimant seeks to recover in excess of $3.5
million and punitive damages. Claimant alleges violation of federal
securities laws, breach of fiduciary duty, common law fraud and negligence.
Claimant's individually managed account included investments in derivative
products.
B. Shareholder Litigation
Edward B. McDaid and Ronald Goldstein v. Piper Jaffray Companies
Inc., Addison L. Piper, William H. Ellis and Charles N. Hayssen
(United States District Court, District of Delaware).
This putative class action lawsuit consolidates separate lawsuits previously
filed by Edward McDaid and Ronald Goldstein. Plaintiffs represent a class of
persons who purchased Piper Jaffray Companies Inc. common stock during the
period from May 12, 1993, through August 24, 1994.
On July 15, 1996, pursuant to an Order of the Court, a settlement of this
matter became final and effective. The settlement provides up to $1.95
million to plaintiffs, consisting of $450,000 in cash, 55,446 shares of
Piper Jaffray Companies common stock and $800,000 to be paid with interest
at 8% per annum 12 months from the effective date of the settlement
agreement.
C. Bonneville Pacific Corporation
Piper Jaffray has been named as one of several defendants in two lawsuits
separately filed in the United States District Court for the District of
Utah resulting from Piper Jaffray's dealings with Bonneville Pacific
Corporation ("BPCO"). Other defendants include BPCO's attorneys,
accountants, lenders and other investment bankers. BPCO is currently in
Chapter 11 reorganization proceedings in Utah.
The plaintiffs in the first-filed lawsuit originally brought their complaint
as a purported class action relating to the $63.25 million offering of
convertible subordinated debentures of BPCO in August 1989, for which Piper
Jaffray was a co-managing underwriter in a syndicate led by Kidder, Peabody
& Co. and secondary trading in BPCO's Common Stock from August 1989 through
the inception of BPCO's bankruptcy proceeding in December 1991. The
plaintiffs in their complaint alleged violations of federal and state
securities laws, common law fraud and negligent misrepresentation. On March
14, 1994, the plaintiffs filed a motion to amend their complaint seeking
leave to add additional parties and claims. The proposed amended complaint
seeks to add claims under RICO and to expand the class period, under a
common law fraud theory, to include the $22.5 million initial public
offering of BPCO's Common Stock in August 1986, for which Piper Jaffray
acted as the sole underwriter, and the $31 million secondary offering of
BPCO's Common Stock in August 1987, for which Piper Jaffray acted as
co-managing underwriter. In addition to actual damages, the proposed amended
complaint also seeks treble damages under RICO, punitive damages, interest,
costs and attorneys' fees. On April 29, 1994, motions to dismiss brought by
Piper Jaffray and the other underwriter defendants with respect to the
plaintiffs' claims of violations of Section 10(b) of the Securities Exchange
Act and Rule 10b-5 promulgated thereunder, conspiracy, aiding and abetting,
common-law fraud and negligent misrepresentation were granted. The judge in
the case certified to the Utah Supreme Court issues related to the
plaintiffs' claims under the Utah Uniform Securities Act and further denied
plaintiffs' March 14, 1994 motion for leave to file an amended complaint as
premature. The plaintiffs were given leave to amend all dismissed claims
except the conspiracy and aiding and abetting claims under Section 10(b),
which were dismissed with prejudice. By date of June 14, 1994, plaintiffs
served a second amended complaint, realleging claims under Sections 11 and
15 of the Securities Act and Section 10 of the Securities Exchange Act and
Rule 10b-5 promulgated thereunder. Plaintiffs also asserted RICO claims and
claims under the Utah Uniform Securities Act, among others. On August 2,
1994, Piper Jaffray and the other defendants moved to dismiss the RICO,
Securities Exchange Act and Utah Uniform Securities Act claims and that
motion is pending. In an opinion filed July 5, 1996, the Utah Supreme Court
held that reliance was not an element of a claim under Utah's Uniform
Securities Act, but that the plaintiffs were required to establish priority
with a particular defendant seller of securities in order to recover from
that defendant.
The second lawsuit was brought by the BPCO bankruptcy trustee. The lawsuit
alleged conspiracy, RICO, common law fraud, breach of fiduciary duty and
similar theories arising out of the activities of BPCO from 1984 through the
inception of its bankruptcy proceeding. The lawsuit sought actual damages,
treble damages under RICO, punitive damages, interest, costs and attorneys'
fees. On August 12, 1996, Piper Jaffray entered into a settlement agreement
with the BPCO bankruptcy trustee providing for the payment of $10.0 million
in settlement of all claims against Piper Jaffray. The settlement is subject
to the approval of the District Court and the Bankruptcy Court. Under the
terms of the settlement agreement, Piper Jaffray would be obligated to make
a $7.0 million payment on the later of September 9, 1996 or seven days after
all required court approvals have been obtained. Two additional payments of
$1.5 million each would be payable in September 1997 and September 1998.
D. NASDAQ Market-Maker Anti-Trust Securities Litigation and Justice
Department Investigation
Piper Jaffray had been named as a defendant in several purported
class action proceedings that alleged anti-trust violations. Piper
Jaffray was joined as defendant in such actions during July 1994.
All actions have been consolidated under the title In re NASDAQ
Market-Maker Anti-Trust and Securities Litigation (United States
District Court, Southern District of New York ).
The plaintiffs alleged that twenty-four defendants, including Piper Jaffray,
that act as dealers on the NASDAQ computerized quotations system, conspired
to raise and fix the spreads between the bid and ask prices of securities
traded on NASDAQ. Plaintiffs further alleged that as a result of such
conspiracy, NASDAQ spreads were larger than spreads for stocks traded on the
New York Stock Exchange and the American Stock Exchange. The purported class
consisted of all persons in the United States are current customers and who
bought or sold securities through NASDAQ within four years prior to the
filing of the complaints. Plaintiffs sought treble damages of an unspecified
amount.
On July 17, 1996, while denying any wrongdoing, the Company joined in a
settlement agreement with twenty-three other NASDAQ dealers, resolving the
U.S. Department of Justice Investigation of the NASDAQ stock market. Piper
Jaffray cooperated fully with the Justice Department's investigation. Terms
of the settlement call for the defendants to implement certain policies and
procedures intended to address the concerns raised by the Department of
Justice.
Additionally, the Securities and Exchange Commission is also conducting an
investigation of NASDAQ market making activities and has requested the
production of information and documents from Piper Jaffray in connection
with that investigation.
<PAGE>
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibits
11 - Statement Regarding Computation of Per Share Earnings.
27 - Financial Data Schedule (filed electronically).
(b)Reports on Form 8-K
On March 6, 1996, the Company filed a report on Form 8-K announcing the
agreements with the NASD and the DOC related to their joint investigations
of the Company's marketing and sale of the PJIGX fund.
On April 23, 1996, the Company filed a report on Form 8-K announcing the
agreement in principle to settle purported class action litigation brought
on behalf of shareholders of the American Adjustable Rate Term Trusts.
On June 21, 1996, the Company filed a report on Form 8-K announcing the
agreement in principle to settle purported class action litigation brought
on behalf of shareholders of several closed-end funds managed by Piper
Capital.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PIPER JAFFRAY COMPANIES INC.
(Registrant)
Dated August 14, 1996 /s/ Deborah K. Roesler
DEBORAH K. ROESLER
Chief Financial Officer and Managing Director
Dated August 14, 1996 /s/ William H. Ellis
WILLIAM H. ELLIS
President
<PAGE>
PIPER JAFFRAY COMPANIES INC.
INDEX OF EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q
Exhibit Description of Exhibit Form of Filing
- ------- ----------------------- ---------------
11 Statement Regarding Computation of Per Share Earnings Electronic
transmission
27 Financial Data Schedule Electronic
transmission
<PAGE>
Exhibit 11
PIPER JAFFRAY COMPANIES INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
1996 1995 1996 1995
PRIMARY NET INCOME (LOSS) PER SHARE:
Net income (loss) $(1,514) $13,095 $ 2,846 $(19,529)
======= ======= ======= ========
Average number of common and common equivalent shares outstanding:
Average common shares
outstanding 18,140 17,425 17,875 17,239
Dilutive effect of CSE's:
Book value plan options - 212 184 -
Executive incentive stock
options - 301 268 -
--- --- --- ---
18,140 17,938 18,327 17,239
Primary net income (loss) per share $(.08) $ .73 $ .16 $(1.13)
===== ===== ===== ======
NET INCOME (LOSS) PER SHARE
ASSUMING FULL DILUTION:
Net income (loss) $(1,514) $13,095 $ 2,846 $(19,529)
======= ======= ======= ========
Average number of common and common equivalent shares outstanding:
Average common shares
outstanding 18,140 17,425 17,875 17,239
Dilutive effect of CSE's:
Book value plan options - 224 184 -
Executive incentive stock
options - 371 268 -
--- --- --- ---
18,140 18,020 18,327 17,239
Fully diluted net income
(loss) per share $(.08) $.73 $ .16 $(1.13)
===== ==== ===== ======
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF PIPER JAFFRAY COMPANIES INC. AS OF
AND FOR THE PERIODS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 27,409
<RECEIVABLES> 574,153
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 150,049
<PP&E> 28,977
<TOTAL-ASSETS> 919,757
<SHORT-TERM> 224,075
<PAYABLES> 228,667
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 54,686
<LONG-TERM> 46,352
0
0
<COMMON> 18,142
<OTHER-SE> 144,934
<TOTAL-LIABILITY-AND-EQUITY> 919,757
<TRADING-REVENUE> 125,555
<INTEREST-DIVIDENDS> 29,920
<COMMISSIONS> 141,974
<INVESTMENT-BANKING-REVENUES> 72,782
<FEE-REVENUE> 28,422
<INTEREST-EXPENSE> 11,917
<COMPENSATION> 260,044
<INCOME-PRETAX> 4,665
<INCOME-PRE-EXTRAORDINARY> 4,665
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,819
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
