<PAGE>
1933 Act Registration No. 33-10261
1940 Act Registration No. 811-4905
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 25, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Registration No. 33-10261)
Pre-Effective Amendment No.______
Post-Effective Amendment No. 32
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
(Registration No. 811-4905)
Amendment No. 32
(Check appropriate box or boxes)
PIPER FUNDS INC.
----------------
(Exact Name of Registrant as Specified in Charter)
Piper Jaffray Tower, 222 South 9th Street, Minneapolis, MN 55402
----------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (6l2) 342-6384
Paul A. Dow
Piper Capital Management Incorporated
Piper Jaffray Tower
222 South 9th Street, Minneapolis, Minnesota 55402
--------------------------------------------------
(Name and Address of Agent for Service)
Copy to:
Kathleen L. Prudhomme
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
___X___ immediately upon filing pursuant to paragraph (b) of rule 485
_______ on (specify date) pursuant to paragraph (b) of rule 485
_______ 75 days after filing pursuant to paragraph (a) of rule 485, unless
effectiveness is accelerated by the staff of the Securities and
Exchange Commission
_______ on (specify date) pursuant to paragraph (a) of rule 485
The Registrant has registered an indefinite number of its common shares
pursuant to Regulation 270.24f-2 under the Investment Company Act of 1940. A
Rule 24f-2 Notice for the fiscal year ended September 30, 1996 will be filed on
or before November 29, 1996.
<PAGE>
PIPER FUNDS INC.
Registration Statement on Form N-1A
------------------------------
CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
------------------------------
ITEM NO. PROSPECTUS HEADING
-------- . . . . . . . . . . . . . . . ------------------
1. Cover Page . . . . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . . . . Introduction; Fund Expenses
3. Financial Highlights . . . . . . . . . Financial Highlights
4. General Description of
Registrant. . . . . . . . . . . . . Introduction; Investment
Objectives and Policies; Special
Investment Methods;
Characteristics and Risks of
Securities and Special Investment
Methods
5. Management of the Fund . . . . . . . . Management
6. Capital Stock and Other
Securities. . . . . . . . . . . . . General Information;
Introduction; Dividends and
Distributions; Tax Status
7. Purchase of Securities
Being Offered . . . . . . . . . . . Distribution of Fund Shares; How
to Purchase Shares; Reducing Your
Sales Charge; Special Purchase
Plans; Valuation of Shares;
Shareholder Services
8. Redemption or Repurchase . . . . . . . How to Redeem Shares; Shareholder
Services
9. Pending Legal Proceedings. . . . . . . General Information
STATEMENT OF ADDITIONAL
INFORMATION HEADING
10. Cover Page . . . . . . . . . . . . . . Cover Page
11. Table of Contents. . . . . . . . . . . Cover Page
12. General Information
and History . . . . . . . . . . . . General Information; Pending
Litigation
13. Investment Objectives
and Policies. . . . . . . . . . . . Investment Policies and
Restrictions
<PAGE>
14. Management of the Fund . . . . . . . . Directors and Executive Officers
15. Control Persons and Principal
Holders of Securities . . . . . . . Capital Stock and Ownership of
Shares
16. Investment Advisory and
Other Services. . . . . . . . . . . Investment Advisory and Other
Services
17. Brokerage Allocation. . . . . . . . . Portfolio Transactions and
Allocation of Brokerage
18. Capital Stock and Other
Securities. . . . . . . . . . . . . Capital Stock and Ownership of
Shares
19. Purchase, Redemption and
Pricing of Securities
Being Purchased . . . . . . . . . . Net Asset Value and Public
Offering Price; Performance
Comparisons; Purchase of Shares;
Redemption of Shares
20. Tax Status. . . . . . . . . . . . . . Taxation
21. Underwriters. . . . . . . . . . . . . Investment Advisory and Other
Services; Portfolio Transactions
and Allocation of Brokerage
22. Calculations of
Performance Data. . . . . . . . . . Performance Comparisons
23. Financial Statements. . . . . . . . . Financial Statements
<PAGE>
Prospectus Dated November 25, 1996
GROWTH AND INCOME FUND
BALANCED FUND
Series of Piper Funds Inc.
Piper Jaffray Tower
222 South Ninth Street, Minneapolis, Minnesota 55402-3804
(800) 866-7778 (toll free)
GROWTH AND INCOME FUND has investment objectives of both current income and
long-term growth of capital and income. The Fund invests in a broadly
diversified portfolio of securities, with an emphasis on securities of large,
established companies that have a history of dividend payments and that the
Adviser believes are undervalued.
BALANCED FUND has investment objectives of both current income and long-term
capital appreciation consistent with conservation of principal. The Fund invests
in both common stocks and fixed-income securities on the basis of combined
considerations of risk, income, capital appreciation and protection of capital
value.
Please remember, you could lose money with this investment. Neither safety
of principal nor stability of income is guaranteed.
Each Fund may invest in illiquid securities which will involve greater risk
than investments in other securities and may increase Fund expenses. See
"Special Investment Methods."
This Prospectus concisely describes the information about the Funds that you
ought to know before investing. Please read it carefully before investing and
retain it for future reference.
A Statement of Additional Information about the Funds dated November 25,
1996, is available free of charge. Write to the Funds at Piper Jaffray Tower,
222 South Ninth Street, Minneapolis, Minnesota 55402-3804 or telephone (800)
866-7778 (toll free). The Statement of Additional Information has been filed
with the Securities and Exchange Commission and is incorporated in its entirety
by reference in this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
INTRODUCTION
Growth and Income Fund and Balanced Fund (sometimes referred to herein as a
"Fund" or, collectively, as the "Funds") are series of Piper Funds Inc. (the
"Company"). Each Fund is classified as a diversified fund. The Company is an
open-end management investment company organized under the laws of the State of
Minnesota in 1986, the shares of which are currently offered in twelve series.
Each Fund has a different investment objective and is designed to meet different
investment needs.
The Investment Adviser
The Company is managed by Piper Capital Management Incorporated (the
"Adviser"), a wholly owned subsidiary of Piper Jaffray Companies Inc. Each Fund
pays the Adviser a fee for managing its investment portfolio. Fees for each Fund
are paid at an annual rate of .75% on net assets up to $100 million and are
scaled downward as net assets increase in size. These fees are higher than fees
paid by most other investment companies. See "Management--Investment Adviser."
The Distributor
Piper Jaffray Inc. ("Piper Jaffray"), a wholly owned subsidiary of Piper
Jaffray Companies Inc. and an affiliate of the Adviser, serves as Distributor of
the Funds' shares.
Offering Price
Shares of the Funds are offered to the public at the next determined net
asset value after receipt of an order by a shareholder's Piper Jaffray
Investment Executive or other broker-dealer, plus a maximum sales charge of 4%
of the offering price (4.17% of the net asset value) on purchases of less than
$100,000. The sales charge is reduced on a graduated scale on purchases of
$100,000 or more. In connection with purchases of $500,000 or more, there is no
initial sales charge; however, a 1% contingent deferred sales charge will be
imposed in the event of a redemption transaction occurring within 24 months
following such a purchase. During the Special Offering Period, which extends
through December 31, 1996, shares of the Funds are being offered to the public
without an initial sales charge. However, for any purchase that would be subject
to a sales charge outside of the Special Offering Period, the Funds will impose
a contingent deferrred sales charge of 2% on redemptions during the first 12
months after purchase, and 1% on redemptions during the second 12 months. See
"How to Purchase Shares--Purchase Price" and "How to Redeem Shares--Contingent
Deferred Sales Charge."
Minimum Initial and Subsequent Investments
The minimum initial investment for each Fund is $250. There is no minimum
for subsequent investments. See "How to Purchase Shares--Minimum Investments."
Exchanges
You may exchange your shares for shares of any other mutual fund managed by
the Adviser which is eligible for sale in your state of residence. All exchanges
are subject to the minimum investment requirements and other applicable terms
set forth in the prospectus of the fund whose shares you acquire. See
"Shareholder Services--Exchange Privilege."
Redemption Price
Shares of any Fund may be redeemed at any time at their net asset value next
determined after a redemption request is received by your Piper Jaffray
Investment Executive or other broker-dealer. A contingent deferred sales charge
will be imposed upon the redemption of certain shares initially purchased
without a sales charge. See "How to Redeem Shares--Contingent Deferred Sales
Charge." Each Fund reserves the right, upon 30 days' written notice, to redeem
an account in any Fund if the net asset value of the shares falls below $200.
See "How to Redeem Shares--Involuntary Redemption."
2
<PAGE>
Certain Risk Factors to Consider
An investment in either Fund is subject to certain risks, as set forth in
detail under "Investment Objectives and Policies" and "Special Investment
Methods." As with other mutual funds, there can be no assurance that either Fund
will achieve its objective. Each of the Funds is subject to market risk (the
risk that a security will be worth less when it is sold than when it was bought
due to any number of factors, including reduced demand or loss of investor
confidence in the market) and/or interest-rate risk (the risk that rising
interest rates will make bonds issued at lower interest rates worth less). As a
result, the value of each Fund's shares will vary. Each Fund may engage in the
following investment practices: the use of repurchase agreements, the lending of
portfolio securities, borrowing from banks, entering into options transactions
on securities in which the Funds may invest and on stock indexes, the use of
stock index futures contracts and interest rate futures contracts, entering into
options on futures contracts, and the purchase or sale of securities on a
"when-issued" or forward commitment basis, including the use of mortgage dollar
rolls. These techniques may increase the volatility of a Fund's net asset value.
Each Fund may purchase mortgage-related securities, including derivative
mortgage securities. In addition to interest rate risk, mortgage-related
securities are subject to prepayment risk. Recent market experience has shown
that certain derivative mortgage securities may be extremely sensitive to
changes in interest rates and in prepayment rates on the underlying mortgage
assets and, as a result, the prices of such securities may be highly volatile.
All of these transactions involve certain special risks, as set forth under
"Investment Objectives and Policies" and "Special Investment Methods."
Shareholder Inquiries
Any questions or communications regarding a shareholder account should be
directed to your Piper Jaffray Investment Executive or, in the case of shares
held through another broker-dealer, to IFTC at (800) 874-6205. General inquiries
regarding the Funds should be directed to the Funds at the telephone number set
forth on the cover page of this Prospectus.
3
<PAGE>
FUND EXPENSES
<TABLE>
<CAPTION>
Growth and
Income Balanced
Fund Fund
--------------- ------------
<S> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............................. 4.00% 4.00%
Exchange Fee...................................................... $ 0 0
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees................................................... .75% .75%
Rule 12b-1 Fees (after voluntary limitation) *.................... .34% .34%
Other Expenses (after voluntary expense reimbursement) *.......... .25% .25%
--- ---
Total Fund Operating Expenses (after voluntary limitations and
expense reimbursements)......................................... 1.34% 1.34%
</TABLE>
- ------------------------
*See the discussion below for an explanation of voluntary Rule 12b-1 fee
limitations and expense reimbursements.
Example
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Growth and
Income Balanced
Fund Fund
--------------- -------------
<S> <C> <C>
1 Year .................................. $ 53 53
3 Years ................................. $ 81 81
5 Years ................................. $ 110 110
10 Years ................................. $ 195 195
</TABLE>
The purpose of the above Fund Expenses table is to assist you in
understanding the various costs and expenses that investors in the Funds will
bear directly or indirectly. The Example contained in the table should not be
considered a representation of past or future expenses. Actual expenses may be
greater or less than those shown.
The information set forth in the table is based on actual expenses incurred
by the Funds during the fiscal year ended September 30, 1996, except that Rule
12b-1 fees reflect a voluntary limitation by the Distributor of amounts payable
to it under each Fund's Rule 12b-1 Plan to .34% of average daily net assets for
the fiscal year ending September 30, 1997. Rule 12b-1 fees had been limited to
.32% of each Fund's average daily net assets for the fiscal year ended September
30, 1996. In addition, the Adviser reimbursed each Fund for the amount by which
total Fund operating expenses for fiscal 1996 exceeded 1.32% of average daily
net assets. Absent any Rule 12b-1 fee limitations or expense reimbursements,
Total Fund Operating Expenses for the fiscal year ended September 30, 1996, as a
percentage of average daily net assets, would have been 1.56% for Growth and
Income Fund and 1.69% for Balanced Fund. For fiscal 1997, the Adviser will limit
total operating expenses for each Fund to 1.34% of average daily net assets. The
voluntary Rule 12b-1 fee limitations and expense reimbursements reflected in the
Fund Expenses table may be discontinued at any
4
<PAGE>
time after the fiscal 1997 year end. The Adviser may or may not assume
additional expenses of the Funds from time to time, in its discretion, while
retaining the ability to be reimbursed by the Funds for expenses assumed during
a fiscal year prior to the end of such year. The foregoing policy will have the
effect of lowering a Fund's overall expense ratio and increasing yield to
investors when such amounts are assumed or the inverse when such amounts are
reimbursed.
As a result of each Fund's annual payment of its Rule 12b-1 fee, a portion
of which is considered an asset-based sales charge, long-term shareholders of a
Fund may pay more than the economic equivalent of the maximum 6.25% front end
sales charge permitted under the rules of the National Association of Securities
Dealers, Inc. For additional information, including a more complete explanation
of management and Rule 12b-1 fees, see "Management--Investment Adviser" and
"Distribution of Fund Shares."
5
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights show certain per share data and selected
information for a share of capital stock outstanding during the indicated
periods for each Fund. This information has been audited by KPMG Peat Marwick
LLP, independent auditors, and should be read in conjunction with the financial
statements of each Fund contained in its annual report. An annual report of each
Fund is available without charge by contacting the Funds at 800-866-7778 (toll
free). In addition to financial statements, such reports contain further
information about the performance of the Funds.
Growth and Income Fund
<TABLE>
<CAPTION>
Fiscal year ended September 30,
------------------------------------------------------
1996 1995 1994 1993 1992*
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................................... $ 12.93 10.27 10.30 10.01 10.00
---------- --------- --------- --------- ---------
Operations:
Net investment income................................................ 0.18 0.19 0.24 0.24 0.03
Net realized and unrealized gains (losses) on investments............ 2.31 2.70 0.02 0.29 (0.02)
---------- --------- --------- --------- ---------
Total from operations............................................ 2.49 2.89 0.26 0.53 0.01
---------- --------- --------- --------- ---------
Distributions from net investment income............................... (0.20) (0.19) (0.24) (0.24) --
Distributions from net realized gains.................................. (0.18) (0.04) (0.05) -- --
---------- --------- --------- --------- ---------
Total distributions.............................................. (0.38) (0.23) (0.29) (0.24) --
---------- --------- --------- --------- ---------
Net asset value, end of period......................................... $ 15.04 12.93 10.27 10.30 10.01
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
Total return (%)+...................................................... 19.56 28.81 2.53 5.41 0.10
Net assets, end of period (in millions)................................ $ 97 73 73 96 52
Ratio of expenses to average daily net assets (%)++.................... 1.32 1.32 1.29 1.32 1.28**
Ratio of net investment income to average daily net assets (%)++....... 1.26 1.93 2.26 2.51 3.00**
Average brokerage commission rate+++................................... $ 0.0600 n/a n/a n/a n/a
Portfolio turnover rate (excluding short-term securities) (%).......... 22 14 20 26 1
</TABLE>
- ------------------------
*Period from 7/21/92 (commencement of operations) to 9/30/92.
**Adjusted to an annual basis.
+Total return is based on the change in net asset value during the period,
assumes reinvestment of all distributions and does not reflect a sales
charge.
++During the periods reflected above, the Adviser and the Distributor
voluntarily waived fees and expenses. Had the Fund paid all expenses and had
the maximum Rule 12b-1 fee been in effect, the ratios of expenses and net
investment income to average daily net assets would have been: 1.56%/1.02% in
fiscal 1996, 1.60%/1.65% in fiscal 1995, 1.62%/1.93% in fiscal 1994,
1.58%/2.25% in fiscal 1993 and 2.06%/2.22% in fiscal 1992. Beginning in
fiscal 1995, the expense ratio reflects the effect of gross expenses paid
indirectly by the Fund. Prior period expense ratios have not been adjusted.
+++Beginning in fiscal 1996, the Fund is required to disclose an average
brokerage commission rate. The rate is calculated by dividing total brokerage
commissions paid on purchases and sales of portfolio securities by the total
number of related shares purchased and sold.
6
<PAGE>
Balanced Fund
<TABLE>
<CAPTION>
Fiscal year ended September 30, Period from
--------------------------------------------------------------------------- 11/1/88 to
1996 1995 1994 1993 1992 1991 1990 9/30/89
--------- --------- --------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period......................... $ 13.74 11.81 12.23 11.88 10.77 8.87 10.00 9.19
--------- --------- --------- --------- --------- --------- --------- ------
Operations:
Net investment income.......... 0.44 0.47 0.38 0.34 0.38 0.43 0.42 0.44
Net realized and unrealized
gains (losses) on
investments.................. 0.89 1.93 (0.26) 0.65 1.17 1.89 (1.14) 0.83
--------- --------- --------- --------- --------- --------- --------- ------
Total from operations...... 1.33 2.40 0.12 0.99 1.55 2.32 (0.72) 1.27
--------- --------- --------- --------- --------- --------- --------- ------
Distributions from net investment
income......................... (0.44) (0.35) (0.37) (0.34) (0.39) (0.42) (0.41) (0.46)
Distributions from net realized
gains.......................... (0.55) (0.12) (0.17) (0.30) (0.05) -- -- --
--------- --------- --------- --------- --------- --------- --------- ------
Total distributions........ (0.99) (0.47) (0.54) (0.64) (0.44) (0.42) (0.41) (0.46)
--------- --------- --------- --------- --------- --------- --------- ------
Net asset value, end of period... $ 14.08 13.74 11.81 12.23 11.88 10.77 8.87 10.00
--------- --------- --------- --------- --------- --------- --------- ------
--------- --------- --------- --------- --------- --------- --------- ------
Total return (%)+................ 10.16 21.78 1.00 8.51 14.75 26.61 (7.42) 14.20
Net assets end of period (in
millions)...................... $ 45 44 46 57 28 15 14 16
Ratio of expenses to average
daily net assets (%)++......... 1.32 1.32 1.32 1.32 1.32 1.32 1.31 1.30**
Ratio of net investment income to
average daily net assets
(%)++.......................... 3.16 3.54 3.03 3.13 3.57 4.15 4.32 5.15**
Average brokerage commission
rate+++........................ $ 0.0600 n/a n/a n/a n/a n/a n/a n/a
Portfolio turnover rate
(excluding short-term
securities) (%)................ 27 39 62 41 58 44 105 95
<CAPTION>
Period from
Year Ended 3/16/87* to
10/31/88 10/31/87
----------- -----------
<S> <C> <C>
Net asset value, beginning of
period......................... 8.97 10.00
----------- -----------
Operations:
Net investment income.......... 0.51 0.28
Net realized and unrealized
gains (losses) on
investments.................. 0.22 (1.09)
----------- -----------
Total from operations...... 0.73 (0.81)
----------- -----------
Distributions from net investment
income......................... (0.51) (0.22)
Distributions from net realized
gains.......................... -- --
----------- -----------
Total distributions........ (0.51) (0.22)
----------- -----------
Net asset value, end of period... 9.19 8.97
----------- -----------
----------- -----------
Total return (%)+................ 8.53 (8.24)
Net assets end of period (in
millions)...................... 13 13
Ratio of expenses to average
daily net assets (%)++......... 1.30 .99**
Ratio of net investment income to
average daily net assets
(%)++.......................... 5.58 5.46**
Average brokerage commission
rate+++........................ n/a n/a
Portfolio turnover rate
(excluding short-term
securities) (%)................ 73 95
</TABLE>
- ------------------------------
*Commencement of operations.
**Adjusted to an annual basis.
+Total return is based on the change in net asset value during the periods,
assumes reinvestment of all distributions and does not reflect a sales
charge.
++During the periods reflected above, the Adviser and the Distributor
voluntarily waived fees and expenses. Had the Fund paid all expenses and had
the maximum Rule 12b-1 fee been in effect, the ratios of expenses and net
investment income to average daily net assets would have been: 1.69 %/2.79%
in fiscal 1996, 1.65%/3.21% in fiscal 1995, 1.60%/2.75% in fiscal 1994,
1.62%/2.83% in fiscal 1993, 1.77%/3.12% in fiscal 1992, 1.98%/3.49% in fiscal
1991, 1.96%/3.67% in fiscal 1990, 2.29%/4.16% in fiscal 1989, 2.09%/4.79% in
fiscal 1988 and 1.96%/4.49% in fiscal 1987. Beginning in fiscal 1995, the
expense ratio reflects the effect of gross expenses paid indirectly by the
Fund. Prior period expense ratios have not been adjusted.
+++Beginning in fiscal 1996, the Fund is required to disclose an average
brokerage commission rate. The rate is calculated by dividing total brokerage
commissions paid on purchases and sales of portfolio securities by the total
number of related shares purchased and sold.
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives listed below cannot be changed without shareholder
approval. The investment policies and techniques employed in pursuit of the
Funds' objectives may be changed without shareholder approval, unless otherwise
noted.
Because of the risks associated with common stock and bond investments, the
Funds are intended to be long-term investment vehicles and are not designed to
provide investors with a means of speculating on short-term market movements.
Investors should be willing to accept the risk of the potential for sudden,
sometimes substantial declines in market value. No assurance can be given that
the Funds will achieve their objectives or that shareholders will be protected
from the risk of loss that is inherent in equity and bond market investing.
Growth and Income Fund
INVESTMENT OBJECTIVES. Growth and Income Fund's investment objectives are
to provide current income and long-term growth of capital and income.
INVESTMENT POLICIES AND TECHNIQUES. Growth and Income Fund will pursue its
investment objectives by investing in a broadly diversified portfolio of
securities, with an emphasis on securities of large, established companies that
have a history of dividend payments and that the Adviser believes are
undervalued. Companies will be selected on the basis of the Adviser's assessment
of their prospects for long-term growth in dividends and earnings. Additional
factors which the Adviser will consider include the stability of a company's
earnings as well as the sensitivity of that company's particular industry to
fluctuations in major economic variables, such as interest rates and industrial
production.
Under normal market conditions, Growth and Income Fund will invest
principally in common stocks and securities convertible into common stocks.
However, the Fund may also invest in debt securities, including U.S. Government
securities (securities issued or guaranteed as to payment of principal and
interest by the U.S. Government or its agencies or instrumentalities) and
nonconvertible preferred stocks. Investments in long-term debt securities,
including debt securities convertible into common stock, will be limited to U.S.
Government securities and those securities rated at the time of purchase within
the four highest investment grades assigned by Moody's Investors Service, Inc.
("Moody's") (Aaa, Aa, A or Baa) or Standard & Poor's Ratings Services ("Standard
& Poor's") (AAA, AA, A, or BBB), or to unrated securities judged by the Adviser
at the time of purchase to be of comparable quality. Debt securities rated Baa
and BBB have speculative characteristics; changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade bonds. In the
event a security held in Growth and Income Fund's portfolio is downgraded to a
rating below Baa or BBB, the Fund will sell such security as promptly as
practicable. For an explanation of Moody's and Standard & Poor's ratings, see
Appendix A to the Statement of Additional Information. U.S. Government
securities in which the Fund may invest include direct obligations of the U.S.
Treasury, such as U.S. Treasury bills, notes and bonds, and obligations of U.S.
Government agencies or instrumentalities. Obligations of U.S. Government
agencies or instrumentalities are backed in a variety of ways by the U.S.
Government or its agencies or instrumentalities. Some of these obligations, such
as Government National Mortgage Association mortgage-backed securities, are
backed by the full faith and credit of the U.S. Treasury. Others, such as
obligations of the Federal Home Loan Banks, are backed by the right of the
issuer to borrow from the Treasury. Still others, such as those issued by the
Federal National Mortgage Association, are backed by the discretionary authority
of the U.S. Government to purchase certain obligations of the agency or
instrumentality. Finally, obligations of other agencies or instrumentalities are
backed only by the credit of the agency or instrumentality issuing
8
<PAGE>
the obligations. See "Investment Objectives and Policies--U.S. Government
Securities" in the Statement of Additional Information.
Under unusual circumstances, as a defensive measure, Growth and Income Fund
may retain cash or invest part or all of its assets in short-term money market
securities deemed by the Adviser to be consistent with a temporary defensive
posture. In addition, normally a small portion of the Fund's assets will be held
in short-term money market securities and cash to pay redemption requests and
Fund expenses. Investments in short-term money market securities may include
obligations of the U.S. Government and its agencies and instrumentalities, time
deposits, bank certificates of deposit, bankers' acceptances, high-grade
commercial paper and other money market instruments. See "Investment Objectives,
Policies and Restrictions" in the Statement of Additional Information. Growth
and Income Fund may also enter into repurchase agreements. See "Special
Investment Methods--Repurchase Agreements."
Growth and Income Fund may write covered put and call options on the
securities in which it may invest, purchase put and call options with respect to
such securities, and enter into closing purchase and sale transactions with
respect thereto. Growth and Income Fund may also purchase and write put and call
options on stock indexes listed on national securities exchanges. See "Special
Investment Methods--Options Transactions." In addition, solely for the purpose
of hedging against changes in the value of its portfolio securities due to
anticipated changes in the market, Growth and Income Fund may enter into stock
index futures contracts and interest rate futures contracts, purchase and write
put or call options on such contracts, and close such contracts and options. See
"Special Investment Methods--Futures Contracts and Options on Futures Contracts"
and "--Risks of Transactions in Futures Contracts and Options on Futures
Contracts."
Growth and Income Fund may purchase or sell securities on a "when-issued" or
"forward commitment" basis and may enter into mortgage "dollar rolls." The use
of these techniques could result in increased volatility of the Fund's net asset
value. See "Special Investment Methods--When-Issued Securities."
INVESTMENT RISKS. As a mutual fund investing primarily in common stocks,
Growth and Income Fund is subject to market risk, i.e., the possibility that
stock prices in general will decline over short or even extended periods. The
stock market tends to be cyclical, with periods when stock prices generally rise
and periods when stock prices generally decline.
Because Growth and Income Fund also may invest in debt securities, the Fund
may be subject to interest rate risk as well. Bond prices generally vary
inversely with changes in the level of interest rates so that when interest
rates rise, the prices of bonds fall; conversely, when interest rates fall, bond
prices rise. Investments in debt securities may also subject the Fund to credit
risk. Credit risk, also know as default risk, is the possibility that a bond
issuer will fail to make timely payments of interest or principal. As discussed
above, the Fund's investments in long-term debt securities are limited to U.S.
Government securities and securities which, at the time of purchase, are rated
investment grade or are judged by the Adviser to be of comparable quality. The
investment techniques used by the Fund also pose certain risks. See "Special
Investment Methods."
Balanced Fund
INVESTMENT OBJECTIVES. Balanced Fund has investment objectives of both
current income and long-term capital appreciation consistent with conservation
of principal.
INVESTMENT POLICIES AND TECHNIQUES. It is intended that the assets of
Balanced Fund will be invested on the basis of combined considerations of risk,
income, capital appreciation and protection of capital value. The Fund may
invest in any type or class of securities, including money market securities,
fixed-income securities, such as bonds, debentures, preferred stocks and U.S.
Government securities (securities issued or
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guaranteed as to payment of principal and interest by the U.S. Government or its
agencies or instrumentalities), senior securities convertible into common stocks
and common stocks. The Fund may invest up to 25% of its total assets in foreign
securities. See "Special Investment Methods--Foreign Securities." Balanced Fund
may also enter into repurchase agreements. See "Special Investment
Methods--Repurchase Agreements." The mix of securities in the Fund's portfolio
will be determined on the basis of existing and anticipated market conditions.
Consequently, the relative percentages of each type of security in the portfolio
may be expected to fluctuate. At least 35% of the Fund's total assets, however,
must be invested in fixed-income securities. To pay redemption requests and Fund
expenses, normally a small portion of the Fund's assets will be held in
short-term money market securities and cash.
Investments in long-term debt securities will be limited to U.S. Government
securities and to those securities rated at the time of purchase within the four
highest investment grades assigned by Moody's (Aaa, Aa, A or Baa) or Standard &
Poor's (AAA, AA, A or BBB) or unrated securities judged by the Adviser at the
time of purchase to be of comparable quality. Debt securities rated Baa and BBB
have speculative characteristics; changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. In the event a
security held in Balanced Fund's portfolio is downgraded to a rating below Baa
or BBB, the Fund will sell such security as promptly as practicable. For an
explanation of Moody's and Standard & Poor's ratings, see Appendix A to the
Statement of Additional Information. Not more than 20% of the long-term debt
securities held at any one time by Balanced Fund will be unrated. U.S.
Government securities in which the Fund may invest include direct obligations of
the U.S. Treasury, such as U.S. Treasury bills, notes and bonds, and obligations
of U.S. Government agencies or instrumentalities. Obligations of U.S. Government
agencies or instrumentalities are backed in a variety of ways by the U.S.
Government or its agencies or instrumentalities. Some of these obligations, such
as Government National Mortgage Association mortgage-backed securities, are
backed by the full faith and credit of the U.S. Treasury. Others, such as
obligations of the Federal Home Loan Banks, are backed by the right of the
issuer to borrow from the Treasury. Still others, such as those issued by the
Federal National Mortgage Association, are backed by the discretionary authority
of the U.S. Government to purchase certain obligations of the agency or
instrumentality. Finally, obligations of other agencies or instrumentalities are
backed only by the credit of the agency or instrumentality issuing the
obligations. The Fund may invest in mortgage-related U.S. Government securities,
including derivative mortgage securities. Recent market experience has shown
that certain derivative mortgage securities may be extremely sensitive to
changes in interest rates and in prepayment rates on the underlying mortgage
assets and, as a result, may be highly volatile. However, Balanced Fund will not
invest more than 5% of its net assets, in the aggregate, in the following types
of derivative mortgage securities: inverse floaters, interest only, principal
only, inverse interest only and Z tranches of collateralized mortgage
obligations, and stripped mortgage-backed securities. See "Investment Objectives
and Policies--U.S. Government Securities" in the Statement of Additional
Information. Investments in short-term money market securities may include
obligations of the U.S. Government and its agencies and instrumentalities, time
deposits, bank certificates of deposit, bankers' acceptances, high-grade
commercial paper and other money market instruments. See "Investment Objectives,
Policies and Restrictions" in the Statement of Additional Information.
Balanced Fund may write covered put and call options on the securities in
which it may invest, purchase put and call options with respect to such
securities, and enter into closing purchase and sale transactions with respect
thereto. Balanced Fund may also purchase and write put and call options on stock
indexes listed on national securities exchanges. See "Special Investment
Methods--Options Transactions." In addition, solely for the purpose of hedging
against changes in the value of its portfolio securities due to anticipated
changes in the market and in interest rates, Balanced Fund may enter into stock
index futures contracts and interest rate futures contracts, purchase and write
put or call options on such contracts, and close such contracts and
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options. See "Special Investment Methods--Futures Contracts and Options on
Futures Contracts" and "--Risks of Transactions in Futures Contracts and Options
on Futures Contracts."
Balanced Fund may purchase or sell securities on a "when-issued" or "forward
commitment" basis and may enter into mortgage "dollar rolls." The use of these
techniques could result in increased volatility of the Fund's net asset value.
See "Special Investment Methods--When-Issued Securities."
EFFECTIVE DURATION. In managing the fixed income portion of Balanced Fund's
portfolio, the Adviser will attempt to maintain an average effective duration of
3 to 6 1/2 years. Effective duration estimates the interest rate risk (price
volatility) of a security, I.E., how much the value of the security is expected
to change with a given change in interest rates. The longer a security's
effective duration, the more sensitive its price is 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 understand that, while a valuable measure, effective
duration is based on certain assumptions and has several limitations. It is most
useful as a measure of interest rate risk 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, because the calculation
requires assumptions about prepayment rates. For example, when interest rates go
down, homeowners may prepay their mortgages at a higher rate than assumed in the
initial effective duration calculation, thereby shortening the effective
duration of the Fund's mortgage-backed securities. Conversely, if rates
increase, prepayments may decrease to a greater extent than assumed, extending
the effective duration of such securities. For these reasons, the effective
durations of funds which invest a significant portion of their assets in
mortgage-backed securities can be greatly affected by changes in interest rates.
INVESTMENT RISKS. The Fund may invest in any type or class of securities,
including money market securities, fixed-income securities and common stocks. As
a result, investors in the Fund will be exposed to the market risks of both
common stocks and bonds. Stock market risk is the possibility that stock prices
in general will decline over short or even extended periods. The stock market
tends to be cyclical, with periods when stock prices generally rise and periods
when stock prices generally decline. Bond market risk is the potential for
fluctuations in the market value of bonds. Bond prices vary inversely with
changes in the level of interest rates. When interest rates rise, the prices of
bonds fall; conversely, when interest rates fall, bond prices rise.
To the extent the Fund invests in mortgage-related securities, the Fund will
also be subject to prepayment risk. Prepayment risk results because, as interest
rates fall, homeowners are more likely to refinance their home mortgages. When
home mortgages are refinanced, the principal on mortgage-related securities held
by the Fund is "prepaid" earlier than expected. The Fund must then reinvest the
unanticipated principal payments, just at a time when interest rates on new
mortgage investments are falling. Prepayment risk has two important effects on
the Fund:
- When interest rates fall and additional mortgage prepayments must be
reinvested at lower interest rates, the income of the Fund will be
reduced.
- When interest rates fall, prices on mortgage-backed securities may not
rise as much as comparable Treasury bonds because bond market investors
may anticipate an increase in mortgage prepayments and a likely decline in
income.
Balanced Fund's investments in mortgage-related securities also subject the
Fund to extension risk. Extension risk is the possibility that rising interest
rates may cause prepayments to occur at a slower than
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expected rate. This particular risk may effectively change a security which was
considered short- or intermediate-duration at the time of purchase into a
long-duration security. Long-duration securities generally fluctuate more widely
in response to changes in interest rates than short- or intermediate-duration
securities.
Investments in debt securities may also subject the Fund to credit risk.
Credit risk, also known as default risk, is the possibility that a bond issuer
will fail to make timely payments of interest or principal. As discussed above,
the Fund's investments in long-term debt securities are limited to U.S.
Government securities and securities which, at the time of purchase, are rated
investment grade or are judged by the Adviser to be of comparable quality. The
investment techniques used by the Fund and the Fund's ability to invest up to
25% of its total assets in foreign securities also pose certain risks. See
"Special Investment Methods."
Investors should also be aware that the investment results of the Fund
depend upon the Adviser's ability to anticipate correctly the relative
performance and risks of stocks, bonds and money market instruments. The Fund's
investment results would suffer, for example, if only a small portion of the
Fund's assets were invested in stocks during a significant market advance, or if
a major portion of its assets were invested in stocks during a market decline.
Similarly, the Fund's performance could deteriorate if the Fund were
substantially invested in bonds at a time when interest rates moved adversely.
SPECIAL INVESTMENT METHODS
Repurchase Agreements
Each Fund may enter into repurchase agreements with respect to securities
issued or guaranteed as to payment of principal and interest by the U.S.
Government or its agencies or instrumentalities. A repurchase agreement involves
the purchase by a Fund of securities with the condition that after a stated
period of time the original seller (a member bank of the Federal Reserve System
or a recognized securities dealer) will buy back the same securities
("collateral") at a predetermined price or yield. Repurchase agreements involve
certain risks not associated with direct investments in securities. In the event
the original seller defaults on its obligation to repurchase, as a result of its
bankruptcy or otherwise, the Fund will seek to sell the collateral, which action
could involve costs or delays. In such case, the Fund's ability to dispose of
the collateral to recover such investment may be restricted or delayed. While
collateral will at all times be maintained in an amount equal to the repurchase
price under the agreement (including accrued interest due thereunder), to the
extent proceeds from the sale of collateral were less than the repurchase price,
a Fund would suffer a loss.
Repurchase agreements maturing in more than seven days are considered illiquid
and subject to each Fund's restriction on investing in illiquid securities.
Lending of Portfolio Securities
In order to generate additional income, each Fund may lend portfolio
securities up to one-third of the value of its total assets to broker-dealers,
banks or other financial borrowers of securities. As with other extensions of
credit, there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However, the
Funds will only enter into loan arrangements with broker-dealers, banks or other
institutions which the Adviser has determined are creditworthy under guidelines
established by the Company's Board of Directors and will receive collateral in
the form of cash, U.S. Government securities or other high-grade debt
obligations equal to at least 100% of the value of the securities loaned. The
value of the collateral and of the securities loaned will be marked to market on
a daily basis. During the time portfolio securities are on loan, the borrower
pays the Fund an amount equivalent to any dividends or interest paid on the
securities and the Fund may invest the cash collateral and earn
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additional income or may receive an agreed upon amount of interest income from
the borrower. However, the amounts received by the Fund may be reduced by
finders' fees paid to broker-dealers and related expenses.
Borrowing
Each Fund may borrow money from banks for temporary or emergency purposes in
an amount up to 10% of the value of the Fund's total assets. Interest paid by a
Fund on borrowed funds would decrease the net earnings of that Fund. Neither
Fund will purchase portfolio securities while outstanding borrowings exceed 5%
of the value of the Fund's total assets. Each Fund may mortgage, pledge or
hypothecate its assets in an amount not exceeding 10% of the value of its total
assets to secure temporary or emergency borrowing. The policies set forth in
this paragraph are fundamental and may not be changed without the approval of a
majority of a Fund's shares.
Options Transactions
Each Fund may write and purchase put and call options on securities and on
stock indexes listed on national securities exchanges. The Funds may purchase
and write only exchange-traded options.
WRITING COVERED OPTIONS. Each Fund may write (i.e., sell) covered put and
call options with respect to the securities in which they may invest. By writing
a call option, a Fund becomes obligated during the term of the option to deliver
the securities underlying the option upon payment of the exercise price if the
option is exercised. By writing a put option, a Fund becomes obligated during
the term of the option to purchase the securities underlying the option at the
exercise price if the option is exercised. With respect to put options written
by any Fund, there will have been a predetermination that acquisition of the
underlying security is in accordance with the investment objective of such Fund.
The principal reason for writing call or put options is to obtain, through
the receipt of premiums, a greater current return than would be realized on the
underlying securities alone. The Funds receive premiums from writing call or put
options, which they retain whether or not the options are exercised. By writing
a call option, a Fund might lose the potential for gain on the underlying
security while the option is open, and by writing a put option a Fund might
become obligated to purchase the underlying security for more than its current
market price upon exercise.
For each Fund, the aggregate value of the securities or other collateral
underlying the calls and obligations underlying the puts written by a Fund,
determined as of the date the options are sold, will not exceed 25% of the net
assets of such Fund.
PURCHASING OPTIONS. Each Fund may purchase put options, solely for hedging
purposes, in order to protect portfolio holdings in an underlying security
against a substantial decline in the market value of such holdings ("protective
puts"). Such protection is provided during the life of the put because a Fund
may sell the underlying security at the put exercise price, regardless of a
decline in the underlying security's market price. Any loss to a Fund is limited
to the premium paid for, and transaction costs paid in connection with, the put
plus the initial excess, if any, of the market price of the underlying security
over the exercise price. However, if the market price of such security
increases, the profit a Fund realizes on the sale of the security will be
reduced by the premium paid for the put option less any amount for which the put
is sold.
The Funds may also purchase call options solely for the purpose of hedging
against an increase in prices of securities that the Funds ultimately want to
buy. Such protection is provided during the life of the call option because the
Fund may buy the underlying security at the call exercise price regardless of
any increase in the underlying security's market price. In order for a call
option to be profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and transaction
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costs. By using call options in this manner, a Fund will reduce any profit it
might have realized had it bought the underlying security at the time it
purchased the call option by the premium paid for the call option and by
transaction costs.
STOCK INDEX OPTION TRADING. Each Fund may purchase and write put and call
options on stock indexes listed on national securities exchanges. Stock index
options will be purchased for the purpose of hedging against changes in the
value of a Fund's portfolio securities due to anticipated changes in the market.
Stock index options will be written for hedging purposes and to realize gains
from the premiums received on the sale of such options. Options on stock indexes
are similar to options on stock except that, rather than the right to take or
make delivery of stock at a specified price, an option on a stock index gives
the holder the right to receive, upon exercise of the option, an amount of cash
if the closing level of the stock index upon which the option is based is
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. The writer of the option is obligated to make
delivery of this amount. The value of a stock index fluctuates with changes in
the market values of the stocks included in the index. The index may include
stocks representative of the entire market, such as the S&P 500, or may include
only stocks in a particular industry or market segment, such as the AMEX Oil and
Gas Index. The effectiveness of purchasing or writing stock index options as a
hedging technique depends upon the extent to which price movements in a Fund's
portfolio correlate with price movements of the stock index selected.
For further information concerning the characteristics and risks of options
transactions, see "Investment Objectives, Policies and Restrictions--Options" in
the Statement of Additional Information.
Futures Contracts and Options on Futures Contracts
Each Fund may purchase and sell stock index futures contracts and interest
rate futures contracts. The futures contracts in which the Funds may invest have
been developed by and are traded on national commodity exchanges. Stock index
futures contracts may be based upon broad-based stock indexes such as the S&P
500 or upon narrow-based stock indexes. A buyer entering into a stock index
futures contract will, on a specified future date, pay or receive a final cash
payment equal to the difference between the actual value of the stock index on
the last day of the contract and the value of the stock index established by the
contract. An interest rate futures contract is an agreement to purchase or sell
an agreed amount of debt securities at a set price for delivery on a future
date.
The purpose of the acquisition or sale of a futures contract by a Fund is to
hedge against fluctuations in the value of its portfolio without actually buying
or selling securities. For example, if a Fund owns long-term U.S. Government
securities and interest rates are expected to increase, the Fund might sell
futures contracts. If interest rates did increase, the value of the U.S.
Government securities in the Fund's portfolio would decline, but the value of
the Fund's futures contracts would increase at approximately the same rate,
thereby keeping the net asset value of the Fund from declining as much as it
otherwise would have. If, on the other hand, the Fund held cash reserves and
short-term investments pending anticipated investment in long-term obligations
and interest rates were expected to decline, the Fund might purchase futures
contracts for U.S. Government securities. Since the behavior of such contracts
would generally be similar to that of long-term securities, the Fund could take
advantage of the anticipated rise in the value of long-term securities without
actually buying them until the market had stabilized. At that time, the Fund
could accept delivery under the futures contracts or the futures contracts could
be liquidated and the Fund's reserves could then be used to buy long-term
securities in the cash market. The Funds will engage in such transactions only
for hedging purposes, on either an asset-based or a liability-based basis, in
each case in accordance with the rules and regulations of the Commodity Futures
Trading Commission. See Appendix B and Appendix C to the Statement of Additional
Information.
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Each Fund may purchase and sell put and call options on futures contracts
and enter into closing transactions with respect to such options to terminate
existing positions. The Funds may use such options on futures contracts in
connection with their hedging strategies in lieu of purchasing and writing
options directly on the underlying securities or purchasing and selling the
underlying futures contracts.
There are risks in using futures contracts and options on futures contracts
as hedging devices. The primary risks associated with the use of futures
contracts and options thereon are (a) the prices of futures contracts and
options may not correlate perfectly with the market value of the securities
subject to the hedge and (b) the possible lack of a liquid secondary market for
a futures contract and the resulting inability to close a futures position prior
to its maturity date. With respect to stock index futures contracts, the risk of
imperfect correlation increases as the composition of a Fund's portfolio
diverges from the securities included in the applicable stock index. The Adviser
will attempt to reduce this risk, to the extent possible, by entering into
futures contracts on indexes whose movements it believes will have a significant
correlation with movements in the value of the Fund's portfolio securities
sought to be hedged. The risk that a Fund will be unable to close out a futures
position will be minimized by entering into such transactions on a national
exchange with an active and liquid secondary market.
Additional information with respect to interest rate and stock index futures
contracts, together with information regarding options on such contracts, is set
forth in Appendix B and Appendix C, respectively, to the Statement of Additional
Information.
When-Issued Securities
Each Fund may purchase securities on a "when-issued" basis and may purchase
or sell securities on a "forward commitment" basis. When such transactions are
negotiated, the price is fixed at the time the commitment is made, but delivery
and payment for the securities take place at a later date. The Funds will not
accrue income with respect to when-issued or forward commitment securities prior
to their stated delivery date. Pending delivery of the securities, each Fund
maintains in a segregated account cash or liquid securities in an amount
sufficient to meet its purchase commitments.
The purchase of securities on a when-issued or forward commitment basis
exposes the Funds to risk because the securities may decrease in value prior to
their delivery. Purchasing securities on a when-issued or forward commitment
basis involves the additional risk that the return available in the market when
the delivery takes place will be higher than that obtained in the transaction
itself. A Fund's purchase of securities on a when-issued or forward commitment
basis while remaining substantially fully invested increases the amount of the
Fund's assets that are subject to market risk to an amount that is greater than
the Fund's net asset value, which could result in increased volatility of the
price of the Fund's shares. For additional information concerning when-issued
and forward commitment transactions, see "Investment Objectives, Policies and
Restrictions" in the Statement of Additional Information.
Mortgage Dollar Rolls
In connection with their ability to purchase securities on a when-issued or
forward commitment basis, each Fund may enter into mortgage "dollar rolls" in
which a Fund sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase similar (same
type, coupon and maturity) but not identical securities on a specified future
date. The Fund gives up the right to receive principal and interest paid on the
securities sold. However, the Fund would benefit to the extent of any difference
between the price received for the securities sold and the lower forward price
for the future purchase plus any fee income received. Unless such benefits
exceed the income, capital appreciation and gain or loss due to mortgage
prepayments that would have been realized on the securities sold as part of the
mortgage dollar roll, the use of this technique will diminish the investment
performance of the Fund
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compared with what such performance would have been without the use of mortgage
dollar rolls. Each Fund will hold and maintain in a segregated account until the
settlement date cash or liquid securities in an amount equal to the forward
purchase price. The benefits derived from the use of mortgage dollar rolls may
depend upon the Adviser's ability to predict correctly mortgage prepayments and
interest rates. There is no assurance that mortgage dollar rolls can be
successfully employed. In addition, the use of mortgage dollar rolls by a Fund
while remaining substantially fully invested increases the amount of the Fund's
assets that are subject to market risk to an amount that is greater than the
Fund's net asset value, which could result in increased volatility of the price
of the Fund's shares.
For financial reporting and tax purposes, the Funds treat mortgage dollar
rolls as two separate transactions: one involving the purchase of a security and
a separate transaction involving a sale. The Funds do not currently intend to
enter into mortgage dollar rolls that are accounted for as a financing.
No more than one-third of a Fund's total assets may be committed to the
purchase of securities on a when-issued or forward commitment basis, including
mortgage dollar roll purchases.
Illiquid Securities
Neither Fund will invest more than 15% of its net assets in illiquid
securities. A security is considered illiquid if it cannot be sold in the
ordinary course of business within seven days at approximately the price at
which it is valued. Illiquid securities may offer a higher yield than securities
which are more readily marketable, but they may not always be marketable on
advantageous terms. This investment restriction is nonfundamental, which means
that it may be changed without shareholder approval. However, the Securities and
Exchange Commission currently limits a non-money market fund's investments in
illiquid securities to 15% of net assets.
The sale of illiquid securities often requires more time and results in
higher brokerage charges or dealer discounts and other selling expenses than
does the sale of securities eligible for trading on national securities
exchanges or in the over-the-counter markets. A Fund may be restricted in its
ability to sell such securities at a time when the Adviser deems it advisable to
do so. In addition, in order to meet redemption requests, a Fund may have to
sell other assets, rather than such illiquid securities, at a time which is not
advantageous.
"Restricted securities" are securities which were originally sold in private
placements and which have not been registered under the Securities Act of 1933
(the "1933 Act"). Such securities generally have been considered illiquid, since
they may be resold only subject to statutory restrictions and delays or if
registered under the 1933 Act. In 1990, however, the Securities and Exchange
Commission adopted Rule 144A under the 1933 Act, which provides a safe harbor
exemption from the registration requirements of the 1933 Act for resales of
restricted securities to "qualified institutional buyers," as defined in the
rule. The result of this rule has been the development of a more liquid and
efficient institutional resale market for restricted securities. Thus,
restricted securities are no longer necessarily illiquid. The Funds may
therefore invest in Rule 144A securities and treat them as liquid when they have
been determined to be liquid by the Board of Directors of the Company or by the
Adviser subject to the oversight of and pursuant to procedures adopted by the
Board of Directors. See "Investment Objectives, Policies and
Restrictions--Illiquid Securities" in the Statement of Additional Information.
Similar determinations may be made with respect to commercial paper issued in
reliance on the so-called "private placement" exemption from registration under
Section 4(2) of the 1933 Act and with respect to interest only, principal only
and inverse floating classes of mortgage-backed securities issued by the U.S.
Government or its agencies and instrumentalities.
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Foreign Securities
As nonfundamental investment restrictions which may be changed at any time
without shareholder approval, Balanced Fund may invest up to 25% of its total
assets in foreign securities and Growth and Income Fund may invest up to 5% of
its total assets in such securities. The value of foreign securities investments
may be affected by changes in currency rates or exchange control regulations,
changes in governmental administration or economic or monetary policy (in this
country or abroad) or changed circumstances in dealings between nations. Costs
may be incurred in connection with conversions between various currencies.
Moreover, there may be less publicly available information about foreign issuers
than about domestic issuers, and foreign issuers may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to those of domestic issuers. Securities of some foreign issuers are
less liquid and more volatile than securities of comparable domestic issuers and
foreign brokerage commissions are generally higher than in the United States.
Foreign securities markets may also be less liquid, more volatile and less
subject to government supervision than in the United States. Investments in
foreign countries could be affected by other factors not present in the United
States, including expropriation, confiscatory taxation and potential
difficulties in enforcing contractual obligations and could be subject to
extended settlement periods.
In addition, as a result of their investments in foreign securities, the
Funds may receive interest or dividend payments, or the proceeds of the sale or
redemption of such securities, in the foreign currencies in which such
securities are denominated. Under certain circumstances, such as where the
Adviser believes that the applicable exchange rate is unfavorable at the time
the currencies are received or the Adviser anticipates, for any other reason,
that the exchange rate will improve, the Funds may hold such currencies for an
indefinite period of time. While the holding of currencies will permit the Funds
to take advantage of favorable movements in the applicable exchange rate, such
strategy also exposes the Funds to risk of loss if exchange rates move in a
direction adverse to a Fund's position. Such losses could reduce any profits or
increase any losses sustained by the Funds from the sale or redemption of
securities, and could reduce the dollar value of interest or dividend payments
received.
Portfolio Turnover
While it is not the policy of either Fund to trade actively for short-term
profits, each Fund will dispose of securities without regard to the time they
have been held when such action appears appropriate to the Adviser. In the case
of each Fund, frequent changes may result in higher brokerage and other costs
for the Fund. The method of calculating portfolio turnover rate is set forth in
the Statement of Additional Information under "Investment Objectives, Policies
and Restrictions--Portfolio Turnover." Portfolio turnover rates for the Funds
are set forth in "Financial Highlights."
Investment Restrictions
Each Fund has adopted certain fundamental and nonfundamental investment
restrictions in addition to those set forth above. As a fundamental investment
restriction which may not be changed without shareholder approval, neither Fund
will invest 25% or more of its total assets in any one industry. (This
restriction does not apply to securities of the U.S. Government or its agencies
and instrumentalities and repurchase agreements relating thereto. As to utility
companies, gas, electric, telephone, telegraph, satellite and microwave
communications companies are considered as separate industries.) In addition, as
a nonfundamental investment restriction which may be changed at any time without
shareholder approval, neither Fund will invest more than 5% of its total assets
in the securities of issuers which, with their predecessors, have a record of
less than three years' continuous operation. A list of each Fund's fundamental
and nonfundamental investment restrictions is set forth in the Statement of
Additional Information.
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Except for each Fund's policy regarding borrowing, if a percentage
restriction set forth under "Investment Objectives and Policies" or under
"Special Investment Methods" is adhered to at the time of an investment, a later
increase or decrease in percentage resulting from changes in values or assets
will not constitute a violation of such restriction.
MANAGEMENT
Board of Directors
The Company's Board of Directors has the primary responsibility for
overseeing the overall management of the Company and electing its officers.
Investment Adviser
Piper Capital Management Incorporated (the "Adviser") has been retained
under an Investment Advisory and Management Agreement with the Company to act as
the Funds' investment adviser subject to the authority of the Board of
Directors.
In addition to acting as the investment adviser for the other series of the
Company, the Adviser also serves as investment adviser to a number of other
open-end and closed-end investment companies and to various other concerns,
including pension and profit-sharing funds, corporate funds and individuals. As
of November 1, 1996, the Adviser rendered investment advice regarding
approximately $9 billion of assets. The Adviser is a wholly owned subsidiary of
Piper Jaffray Companies Inc., a publicly held corporation which is engaged
through its subsidiaries in various aspects of the financial services industry.
The address of the Adviser is Piper Jaffray Tower, 222 South Ninth Street,
Minneapolis, Minnesota 55402-3804.
The Adviser furnishes each Fund with investment advice and supervises the
management and investment programs of the Funds. The Adviser furnishes at its
own expense all necessary administrative services, office space, equipment and
clerical personnel for servicing the investments of the Funds. The Adviser also
provides investment advisory facilities and executive and supervisory personnel
for managing the investments and effecting the portfolio transactions of the
Funds. In addition, the Adviser pays the salaries and fees of all officers and
directors of the Company who are affiliated with the Adviser.
Under the Investment Advisory and Management Agreement, each Fund pays the
Adviser monthly fees at an annual rate of .75% on average daily net assets up to
$100 million. These fees are higher than fees paid by most other investment
companies. The fees are scaled downward as net assets increase in size to as low
as .50% on net assets of over $500 million.
Portfolio Management
Paul A. Dow has been primarily responsible for the day-to-day management of
the Growth and Income Fund's portfolio since the Fund's inception in 1992. Mr.
Dow has shared that primary responsibility with John K. Schonberg since May 31,
1996. Mr. Dow has been a Senior Vice President of the Adviser since February
1989 and Chief Investment Officer of the Adviser since December 1989. He is a
CFA and has 23 years of financial experience. Mr. Schonberg has been a portfolio
manager for the Adviser since 1989, prior to which he had been a research
analyst for the Distributor since 1987. Mr. Schonberg has ten years of financial
experience.
Bruce D. Salvog and David M. Steele have been primarily responsible for the
day-to-day management of the fixed income portion of Balanced Fund's portfolio
since 1992. Mr. Salvog has been a Senior Vice President of the Adviser since
1992. He has an AB from Harvard University and 27 years of financial experience.
Mr. Steele has been a Senior Vice President of the Adviser since 1992. He has an
MBA from the University of Southern California and 18 years of financial
experience. Paul A. Dow has been primarily
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responsible for the day-to-day management of the equity portion of Balanced
Fund's portfolio since 1989. He has shared that primary responsibility with John
K. Schonberg since October 1995. Mr. Dow and Mr. Schonberg are also portfolio
managers for Growth and Income Fund and their experience is discussed above.
Transfer Agent, Dividend Disbursing Agent and Custodian
Investors Fiduciary Trust Company ("IFTC"), 127 West Tenth Street, Kansas
City, Missouri 64105, (800) 874-6205, serves as Custodian for the Funds'
portfolio securities and cash and as Transfer Agent and Dividend Disbursing
Agent for the Funds.
The Company has entered into Shareholder Account Servicing Agreements with
the Distributor and Piper Trust Company, an affiliate of the Distributor and the
Adviser. Under these agreements, the Distributor and Piper Trust Company provide
transfer agent and dividend disbursing agent services for certain shareholder
accounts. For more information, see "Investment Advisory and Other
Services--Transfer Agent and Dividend Disbursing Agent" in the Statement of
Additional Information.
Portfolio Transactions and Brokerage Commissions
The Adviser selects brokers and futures commission merchants to use for the
Funds' portfolio transactions. In making its selection, the Adviser may consider
a number of factors, which are more fully discussed in the Statement of
Additional Information, including, but not limited to, research services, the
reasonableness of commissions and quality of services and execution. A broker's
sales of shares of any series of the Company may also be considered a factor if
the Adviser is satisfied that a Fund would receive from that broker the most
favorable price and execution then available for a transaction. Portfolio
transactions for the Funds may be effected through the Distributor on a
securities exchange in compliance with Section 17(e) of the Investment Company
Act of 1940, as amended (the "1940 Act"). For more information, see "Portfolio
Transactions and Allocation of Brokerage" in the Statement of Additional
Information.
DISTRIBUTION OF FUND SHARES
Piper Jaffray acts as the principal distributor of the Funds' shares. The
Company has adopted a Distribution Plan (the "Plan") as required by Rule 12b-1
under the 1940 Act. Under the Plan, the Distributor is paid a total fee in
connection with the servicing of each Fund's shareholder accounts and in
connection with distribution related services provided with respect to each
Fund. This fee is calculated daily and paid quarterly at an annual rate equal to
.50% of the average daily net assets of each Fund.
A portion of the total fee equal to .25% of each Fund's average daily net
assets is categorized as a distribution fee intended to compensate the
Distributor for its expenses incurred in connection with the sale of Fund
shares. The remaining portion of the fee, equal to .25% of each Fund's average
daily net assets, is categorized as a servicing fee intended to compensate the
Distributor for ongoing servicing and/or maintenance of shareholder accounts.
The Distributor has voluntarily agreed to limit the total fee payable under the
Plan to .34% of each Fund's average daily net assets. This limitation may be
revised or terminated at any time after fiscal 1997 year end. Payments made
under the Plan are not tied exclusively to expenses actually incurred by the
Distributor and may exceed such expenses. The Adviser and the Distributor, out
of their own assets, may pay for certain expenses incurred in connection with
the distribution of shares of the Funds. In particular, the Adviser may make
payments out of its own assets to Piper Jaffray Investment Executives and other
broker dealers in connection with their sales of shares of the Funds. See "How
to Purchase Shares-- Purchase Price." Further information regarding the Plan is
contained in the Statement of Additional Information.
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The Distributor uses a portion of its Rule 12b-1 fee to make payments to
Investment Executives of the Distributor and broker-dealers which have entered
into sales agreements with the Distributor. If shares of a Fund are sold by a
representative of a broker-dealer other than the Distributor, the broker-dealer
is paid .30% of the average daily net assets of the Fund attributable to shares
sold by the broker-dealer's representative. If shares of a Fund are sold by an
Investment Executive of the Distributor, compensation is paid to the Investment
Executive in the manner set forth in a written agreement, in an amount not to
exceed .30% of the average daily net assets of the Fund attributable to shares
sold by the Investment Executive.
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SHAREHOLDER GUIDE TO INVESTING
HOW TO PURCHASE SHARES
General
The Funds' shares may be purchased at the public offering price from the
Distributor and from other broker-dealers who have sales agreements with the
Distributor. The address of the Distributor is that of the Funds. The
Distributor reserves the right to reject any purchase order. You should be aware
that, because the Funds do not issue stock certificates, Fund shares must be
kept in an account with the Distributor or with IFTC. All investments must be
arranged through your Piper Jaffray Investment Executive or other broker-dealer.
Purchase Price
You may purchase shares of the Funds at the net asset value per share next
calculated after receipt of your order by your Piper Jaffray Investment
Executive or other broker-dealer, plus a front-end sales charge as follows:
<TABLE>
<CAPTION>
Sales Charge Sales Charge
as a Percentage of as a Percentage of
Amount of Transaction at Offering Price Offering Price Net Asset Value
- --------------------------------------------------------- ------------------- -------------------
<S> <C> <C>
Less than $100,000....................................... 4.00% 4.17%
$100,000 but less than $250,000.......................... 3.25% 3.36%
$250,000 but less than $500,000.......................... 2.50% 2.56%
$500,000 and over........................................ 0.00% 0.00%
</TABLE>
This table sets forth total sales charges or underwriting commissions. The
Distributor may reallow up to the entire sales charge to broker-dealers in
connection with their sales of shares. These broker-dealers may, by virtue of
such reallowance, be deemed to be "underwriters" under the 1933 Act.
During the Special Offering Period, which extends through December 31, 1996,
you may purchase shares of the Funds without an initial sales charge. For any
purchase that would be subject to a sales charge outside of the Special Offering
Period, the Funds will impose a contingent deferred sales charge of 2% on
redemptions during the first 12 months after purchase, and 1% on redemptions
during the second 12 months. See "How to Redeem Shares--Contingent Deferred
Sales Charge." The Adviser will pay the Distributor, out of its own assets, a
fee equal to 2% of the net asset value of any shares sold during this period
that would be subject to a sales charge outside of the Special Offering Period.
This fee also will be paid in connection with certain sales that are not subject
to a sales charge outside of the Special Offering Period, including (a)
purchases by 401(k) plans, by certain plans which are qualified plans under
Section 401(a) of the Internal Revenue Code and by tax-sheltered annuities, (b)
purchases funded by the proceeds from the sale of shares of any non-money market
open-end mutual fund within 30 days after such sale, (c) purchases of $500,000
or more, (d) exchanges of shares of Adjustable Rate Mortgage Securities Fund, a
series of Piper Funds Inc.--II, that were originally acquired in the American
Adjustable Rate Term Trust merger, and (e) purchases made with distributions
received in connection with the dissolution of American Government Term Trust
Inc., a closed-end fund previously managed by the Adviser. The Distributor will
pay a portion of its 2% fee to Piper Jaffray Investment Executives and other
broker-dealers selling shares of the Funds. Please contact your Piper Jaffray
Investment Executive or other broker-dealer for more information.
The Distributor will make certain payments to its Investment Executives and
to other broker-dealers in connection with their sales of Fund shares. See
"Distribution of Fund Shares" above. In addition, the Distributor or the
Adviser, at their own expense, provide promotional incentives to Investment
Executives of
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SHAREHOLDER GUIDE TO INVESTING
the Distributor and to broker-dealers who have sales agreements with the
Distributor in connection with sales of shares of the Funds, other series of the
Company and other mutual funds for which the Adviser acts as investment adviser.
In some instances, these incentives may be made available only to certain
Investment Executives or broker-dealers who have sold or may sell significant
amounts of such shares. The incentives may include payment for travel expenses,
including lodging at luxury resorts, incurred in connection with sales seminars.
Purchases of $500,000 or More
If you make a purchase of $500,000 or more (including purchases made under a
Letter of Intent), a 1% contingent deferred sales charge will be assessed in the
event you redeem shares within 24 months following the purchase. This sales
charge will be paid to the Distributor. For more information, please refer to
the Contingent Deferred Sales Charge section of "How To Redeem Shares." The
Distributor currently pays its Investment Executives and other broker-dealers
fees in connection with these purchases as follows:
<TABLE>
<CAPTION>
Fee as a Percentage
Amount of Transaction of Offering Price
- --------------------------------------------------------------------------- --------------------
<S> <C>
First $1,000,000........................................................... 1.00%
Next $2,000,000............................................................ 0.75%
Next $2,000,000............................................................ 0.50%
Next $5,000,000............................................................ 0.25%
Above $10,000,000.......................................................... 0.15%
</TABLE>
Piper Jaffray Investment Executives and other broker-dealers generally will
not receive a fee in connection with purchases on which the contingent deferred
sales charge is waived. However, the Distributor, in its discretion, may pay a
fee out of its own assets to its Investment Executives and other broker-dealers
in connection with purchases by employee benefit plans on which no sales charge
is imposed. Please see the Special Purchase Plans section of "Reducing Your
Sales Charge."
Minimum Investments
A minimum initial investment of $250 is required. There is no minimum for
subsequent investments. The Distributor, in its discretion, may waive the
minimum.
REDUCING YOUR SALES CHARGE
You may qualify for a reduced sales charge through one or more of several
plans. You must notify your Piper Jaffray Investment Executive or broker-dealer
at the time of purchase to take advantage of these plans.
Aggregation
Front-end or initial sales charges may be reduced or eliminated by
aggregating your purchase with purchases of certain related personal accounts.
In addition, purchases made by members of certain organized groups will be
aggregated for purposes of determining sales charges. Sales charges are
calculated by adding the dollar amount of your current purchase to the higher of
the cost or current value of shares of any Piper fund sold with a sales charge
that are currently held by you and your related accounts or by other members of
your group.
QUALIFIED GROUPS. You may group purchases in the following personal
accounts together:
- Your individual account.
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SHAREHOLDER GUIDE TO INVESTING
- Your spouse's account.
- Your children's accounts (if they are under the age of 21).
- Your employee benefit plan accounts if they are exclusively for your
benefit. This includes accounts such as IRAs, individual 403(b) plans or
single-participant Keogh-type plans.
- A single trust estate or single fiduciary account if you are the trustee
or fiduciary.
Additionally, purchases made by members of any organized group meeting the
requirements listed below may be aggregated for purposes of determining sales
charges:
- The group has been in existence for more than six months.
- It is not organized for the purpose of buying redeemable securities of a
registered investment company.
- Purchases must be made through a central administration, or through a
single dealer, or by other means that result in economy of sales effort or
expense.
An organized group does not include a group of individuals whose sole
organizational connection is participation as credit card holders of a company,
policyholders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser.
Right of Accumulation
Sales charges for purchases of Fund shares into Piper Jaffray accounts will
be automatically calculated taking into account the dollar amount of any new
purchases along with the higher of current value or cost of shares previously
purchased in any other mutual fund managed by the Adviser that was sold with a
sales charge. For other broker-dealer accounts, you should notify your
Investment Executive at the time of purchase of additional Piper fund shares you
may own.
Letter of Intent
Your sales charge may be reduced by signing a non-binding Letter of Intent.
This Letter of Intent will state your intention to invest $100,000 or more in
any of the mutual funds managed by the Adviser that are sold with a sales charge
over a 13-month period, beginning not earlier than 90 days prior to the date you
sign the Letter. You will pay the lower sales charge applicable to the total
amount you plan to invest over the 13-month period. Part of your shares will be
held in escrow to cover additional sales charges that may be due if you do not
invest the planned amount. Please see "Purchase of Shares" in the Statement of
Additional Information for more details. You can contact your Piper Jaffray
Investment Executive or other broker-dealer for an application.
SPECIAL PURCHASE PLANS
For more information on any of the following special purchase plans, contact
your Piper Jaffray Investment Executive or other broker-dealer.
Purchases by Piper Jaffray Companies Inc., Its Subsidiaries and Associated
Persons
Piper Jaffray Companies Inc. and its subsidiaries may buy shares of the
Funds without incurring a sales charge. The following persons associated with
such entities also may buy Fund shares without paying a sales charge:
- Officers, directors and their spouses.
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SHAREHOLDER GUIDE TO INVESTING
- Employees, retirees and their spouses.
- Investment executives and their spouses.
- Children, grandchildren, parents or siblings of any of the above, or
spouses of any of these persons.
- Any trust, pension, profit-sharing or other benefit plan for any of the
above.
All persons in the first four groups set forth above may continue to add to
their accounts even after their company relationships have ended.
Purchases by Broker-Dealers
Employees of broker-dealers who have entered into sales agreements with the
Distributor, and spouses and children under the age of 21 of such employees, may
buy shares of the Funds without incurring a sales charge.
Purchases by Other Individuals Without a Sales Charge
The following other individuals and entities also may buy Fund shares
without paying a sales charge:
- Clients of the Adviser buying shares of the Funds in their advisory
accounts.
- Discretionary accounts at Piper Trust Company and participants in
investment companies exempt from registration under the 1940 Act that are
managed by the Adviser.
- Trust companies and bank trust departments using funds over which they
exercise exclusive discretionary investment authority and which are held
in a fiduciary, agency, advisory, custodial or similar capacity.
- Investors purchasing shares through a Piper Jaffray Investment Executive
if the purchase of such shares is funded by the proceeds from the sale of
shares of any non-money market open-end mutual fund not managed by the
Adviser. This privilege is available for 30 days after the sale.
- Former shareholders of American Government Term Trust Inc. may invest the
distributions received by them in connection with the dissolution of such
fund in shares of the Funds without payment of a sales charge.
Purchases by Employee Benefit Plans and Tax-Sheltered Annuities
- Shares of the Funds will be sold at net asset value, without a sales
charge, to employee benefit plans containing an actively maintained
qualified cash or deferred arrangement under Section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code") (a "401(k) Plan").
In the event a 401(k) Plan of an employer has purchased shares in the
Funds or any other series of the Company (other than a money market fund)
during any calendar quarter, any other employee benefit plan of such
employer that is a qualified plan under Section 401(a) of the Code also
may purchase shares of the Funds during such quarter without incurring a
sales charge.
- Custodial accounts under Section 403(b) of the Code (known as
tax-sheltered annuities) also may buy shares of the Funds without
incurring a sales charge.
HOW TO REDEEM SHARES
Normal Redemption
You may redeem all or a portion of your shares on any day that a Fund values
its shares. (Please refer to "Valuation of Shares" below for more information.)
Your shares will be redeemed at the net asset value next
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SHAREHOLDER GUIDE TO INVESTING
calculated after the receipt of your instructions in good form by your Piper
Jaffray Investment Executive or other broker-dealer as explained below.
PIPER JAFFRAY INC. ACCOUNTS. To redeem your shares, please contact your
Piper Jaffray Investment Executive with an oral request to redeem your shares.
OTHER BROKER-DEALER ACCOUNTS. To redeem your shares, you may either contact
your broker-dealer with an oral request or send a written request directly to
the Funds' transfer agent, IFTC. This request should contain: the dollar amount
or number of shares to be redeemed, your Fund account number and either a social
security or tax identification number (as applicable). You should sign your
request in exactly the same way the account is registered. If there is more than
one owner of the shares, all owners must sign. A signature guarantee is required
for redemptions over $25,000. Please contact IFTC or refer to "Redemption of
Shares" in the Statement of Additional Information for more details.
Contingent Deferred Sales Charge
If you invest $500,000 or more and, as a result, pay no front-end sales
charge, or if you purchased shares during the Special Offering Period, you may
incur a contingent deferred sales charge if you redeem within 24 months. In the
case of investments of $500,000 or more, for all redemptions made during the
24-month period this charge will be equal to 1% of the lesser of the net asset
value of the shares at the time of purchase or at the time of redemption. In the
case of purchases made during the Special Offering Period that otherwise would
be subject to a front-end sales charge, the contingent deferred sales charge
will be equal to 2% of the lesser of the net asset value of the shares at the
time of purchase or at the time of redemption for redemptions made during the
first 12 months after purchase, and 1% during the second 12 months. In both
cases, the contingent deferred sales charge does not apply to amounts
representing an increase in the value of Fund shares due to capital appreciation
or to shares acquired through reinvestment of dividend or capital gain
distributions. In determining whether a contingent deferred sales charge is
payable, shares that are not subject to any deferred sales charge will be
redeemed first, and other shares will then be redeemed in the order purchased.
LETTER OF INTENT. In the case of a Letter of Intent, the 24-month period
begins on the date the Letter of Intent is completed.
SPECIAL PURCHASE PLANS. If you purchased your shares through one of the
plans described above under "Special Purchase Plans," the contingent deferred
sales charge will be waived. In addition, the contingent deferred sales charge
will be waived in the event of:
- The death or disability (as defined in Section 72(m)(7) of the Code) of
the shareholder. (This waiver will be applied to shares held at the time
of death or the initial determination of disability of either an
individual shareholder or one who owns the shares as a joint tenant with
the right of survivorship or as a tenant in common.)
- A lump sum distribution from an employee benefit plan qualified under
Section 401(a) of the Code, an individual retirement account under Section
408(a) of the Code or a simplified employee pension plan under Section
408(k) of the Code.
- Systematic withdrawals from any such plan or account if the shareholder is
at least 59 1/2 years old.
- A tax-free return of the excess contribution to an individual retirement
account under Section 408(a) of the Code.
- Involuntary redemptions effected pursuant to the right to liquidate
shareholder accounts having an aggregate net asset value of less than
$200.
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SHAREHOLDER GUIDE TO INVESTING
EXCHANGES. If you exchange your shares, no contingent deferred sales charge
will be imposed. However, the charge will apply if you subsequently redeem the
new shares within 24 months of the original purchase.
REINSTATEMENT PRIVILEGE. If you elect to use the Reinstatement Privilege
(please see "Shareholder Services" below), any contingent deferred sales charge
you paid will be credited to your account (proportional to the amount
reinvested). Please see "Redemption of Shares" in the Statement of Additional
Information for more details.
Payment of Redemption Proceeds
After your shares have been redeemed, the cash proceeds will normally be
sent to you or your broker-dealer within three business days. In no event will
payment be made more than seven days after receipt of your order in good form.
However, payment may be postponed or the right of redemption suspended for more
than seven days under unusual circumstances, such as when trading is not taking
place on the New York Stock Exchange. Payment of redemption proceeds may also be
delayed if the shares to be redeemed were purchased by a check drawn on a bank
which is not a member of the Federal Reserve System, until such checks have
cleared the banking system (normally up to 15 days from the purchase date).
Involuntary Redemption
Each Fund reserves the right to redeem your account at any time the net
asset value of the account falls below $200 as the result of a redemption or
exchange request. You will be notified in writing prior to any such redemption
and will be allowed 30 days to make additional investments before the redemption
is processed.
SHAREHOLDER SERVICES
Automatic Monthly Investment Program
You may arrange to make additional automated purchases of shares of the
Funds or certain other mutual funds managed by the Adviser. You can
automatically transfer $100 or more per month from your bank, savings and loan
or other financial institution to purchase additional shares. In addition, if
you hold your shares in a Piper Jaffray account you may arrange to make such
additional purchases by having $25 or more automatically transferred each month
from any of the money market fund series of the Company. You should contact your
Piper Jaffray Investment Executive or IFTC to obtain authorization forms or for
additional information.
Reinstatement Privilege
If you have redeemed shares of a Fund, you may be eligible to reinvest in
shares of any fund managed by the Adviser without payment of an additional sales
charge. The reinvestment request must be made within 30 days of the redemption.
This privilege is subject to the eligibility of share purchases in your state as
well as the minimum investment requirements and any other applicable terms in
the prospectus of the fund being acquired.
Exchange Privilege
If your investment goals change, you may prefer a fund with a different
objective. If you are considering an exchange into another mutual fund managed
by the Adviser, you should carefully read the appropriate prospectus for
additional information about that fund. A prospectus may be obtained through
your Piper Jaffray Investment Executive, your broker-dealer or the Distributor.
To exchange your shares, please contact your Piper Jaffray Investment Executive,
your broker-dealer or IFTC.
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SHAREHOLDER GUIDE TO INVESTING
You may exchange your shares for shares of any other mutual fund managed by
the Adviser. All exchanges are subject to the eligibility of share purchases in
your state as well as the minimum investment requirements and any other
applicable terms in the prospectus of the fund being acquired. Exchanges are
made on the basis of the net asset values of the funds involved, except that
investors exchanging into a fund which has a higher sales charge must pay the
difference.
The Company reserves the right to change or discontinue the exchange
privilege, or any aspect of the privilege, upon 60 days' written notice.
Telephone Transaction Privileges
PIPER JAFFRAY INC. ACCOUNTS. If you hold your shares in a Piper Jaffray
account, you may telephone your Investment Executive to execute any transaction
or to apply for many shareholder services. In some cases, you may be required to
complete a written application.
OTHER BROKER-DEALER ACCOUNTS. If you hold your shares in an account with
your broker-dealer or at IFTC, you may authorize telephone privileges by
completing the Account Application and Services Form. Please contact your
broker-dealer or IFTC (800-874-6205) for an application or for more details. The
Funds will employ reasonable procedures to confirm that a telephonic request is
genuine, including requiring that payment be made only to the address of record
or the bank account designated on the Account Application and Services Form and
requiring certain means of telephonic identification. A Fund employing such
procedures will not be liable for following instructions communicated by
telephone that it reasonably believes to be genuine. If a Fund does not employ
such procedures, it may be liable for any losses due to unauthorized or
fraudulent telephone transactions. It may be difficult to reach the Funds by
telephone during periods when market or economic conditions lead to an unusually
large volume of telephone requests. If you cannot reach the Funds by telephone,
you should contact your broker-dealer or issue written instructions to IFTC at
the address set forth herein. See "Management--Transfer Agent, Dividend
Disbursing Agent and Custodian." The Funds reserve the right to suspend or
terminate their telephone services at any time without notice.
Directed Dividends
You may direct income dividends and capital gains distributions to be
invested in any other mutual fund managed by the Adviser (other than a money
market fund) that is offered in your state. This investment will be made at net
asset value. It will not be subject to a minimum investment amount except that
you must hold shares in such fund (including the shares being acquired with the
dividend or distribution) with a value at least equal to such fund's minimum
initial investment amount.
Systematic Withdrawal Plan
If your account has a value of $5,000 or more, you may establish a
Systematic Withdrawal Plan for either Fund. This plan will allow you to receive
regular periodic payments by redeeming as many shares from your account as
necessary. As with other redemptions, a redemption to make a withdrawal is a
sale for federal income tax purposes. Payments made under a Systematic
Withdrawal Plan cannot be considered as actual yield or income since part of the
payments may be a return of capital.
A request to establish a Systematic Withdrawal Plan must be submitted in
writing to your Piper Jaffray Investment Executive or other broker-dealer. There
are no service charges for maintenance; the minimum amount that you may withdraw
each period is $100. You will be required to have any income dividends and any
capital gains distributions reinvested. You may choose to have withdrawals made
monthly, quarterly or semiannually. Please contact your Piper Jaffray Investment
Executive, other broker-dealer or IFTC for more information.
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You should be aware that additional investments in an account that has an
active Systematic Withdrawal Plan may be inadvisable due to sales charges and
tax liabilities. Please refer to "Redemption of Shares" in the Statement of
Additional Information for additional details.
Account Protection
If your Fund shares are held in a Piper Jaffray account, they are protected
in the unlikely event of Piper Jaffray's financial failure. Piper Jaffray is a
member of the Securities Investor Protection Corporation ("SIPC"), whose primary
purpose is to protect the customers of its members against losses of up to
$500,000 ($100,000 on claims for cash) in the event of a member's liquidation.
In addition to the $500,000 SIPC protection, Piper Jaffray clients have
additional protection provided by Aetna Casualty and Surety Company. Your
investments in the Funds held in a Piper Jaffray PRIME or PAT Plus account are
protected up to $49.5 million beyond the coverage provided by SIPC, for total
account protection of $50 million. Investments held in all other Piper Jaffray
accounts are protected up to $24.5 million beyond the coverage provided by SIPC,
for total account protection of $25 million. This protection does NOT cover any
declines in the net asset value of Fund shares.
Confirmation of Transactions and Reporting of Other Information
Each time there is a transaction involving your Fund shares, such as a
purchase, redemption or dividend reinvestment, you will receive a confirmation
statement describing that activity. This information will be provided to you
from either Piper Jaffray, your broker-dealer or IFTC. In addition, you will
receive various IRS forms after the first of each year detailing important tax
information and each Fund is required to supply annual and semiannual reports
that list securities held by the Fund and include the current financial
statements of the Fund.
HOUSEHOLDING. If you have multiple accounts with Piper Jaffray, you may
receive some of the above information in combined mailings. This will not only
help to reduce Fund expenses, it will help the environment by saving paper.
Please contact your Piper Jaffray Investment Executive for more information.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income, if any, will be paid quarterly by each
Fund. Net realized capital gains, if any, will be distributed at least once
annually.
BUYING A DIVIDEND. On the ex-dividend date for a distribution, a Fund's
share price is reduced by the amount of the distribution. If you buy shares just
before the ex-dividend date ("buying a dividend"), you will pay the full price
for the shares and then receive a portion of the price back as a taxable
distribution.
DISTRIBUTION OPTIONS. All net investment income dividends and net realized
capital gains distributions for a Fund generally will be payable in additional
shares of that Fund at net asset value ("Reinvestment Option"). If you wish to
receive your distributions in cash, you must notify your Piper Jaffray
Investment Executive or other broker-dealer. You may elect either to receive
income dividends in cash and capital gains distributions in additional shares of
the Fund at net asset value ("Split Option"), or to receive both income
dividends and capital gains distributions in cash ("Cash Option"). You may also
direct income dividends and capital gains distributions to be invested in
another mutual fund managed by the Adviser. See "Shareholder Services--Directed
Dividends" above. The taxable status of income dividends and/or net capital
gains distributions is not affected by whether they are reinvested or paid in
cash.
28
<PAGE>
VALUATION OF SHARES
The Funds compute their net asset value on each day the New York Stock
Exchange (the "Exchange") is open for business. The calculation is made as of
the regular close of the Exchange (currently 4:00 p.m. New York time) after the
Funds have declared any applicable dividends.
The net asset value per share for each of the Funds is determined by
dividing the value of the securities owned by the Fund plus any cash and other
assets (including interest accrued and dividends declared but not collected)
less all liabilities by the number of Fund shares outstanding. For the purposes
of determining the aggregate net assets of the Funds, cash and receivables will
be valued at their face amounts. Interest will be recorded as accrued and
dividends will be recorded on the ex-dividend date. Securities traded on a
national securities exchange or on the Nasdaq National Market System are valued
at the last reported sale price that day. Securities traded on a national
securities exchange or on the Nasdaq National Market System for which there were
no sales on that day and securities traded on other over-the-counter markets for
which market quotations are readily available are valued at the mean between the
bid and asked prices. If a Fund should have an open short position as to a
security, the valuation of the contract will be at the average of the bid and
asked prices. Portfolio securities underlying actively traded options will be
valued at their market price as determined above. The current market value of
any exchange-traded option held or written by a Fund is its last sales price on
the exchange prior to the time when assets are valued. Lacking any sales that
day, the options will be valued at the mean between the current closing bid and
asked prices. Financial futures are valued at the settlement price established
each day by the board of trade or exchange on which they are traded.
The value of certain fixed-income securities will be provided by an
independent pricing service, which determines these valuations at a time earlier
than the close of the Exchange. Pricing services consider such factors as
security prices, yields, maturities, call features, ratings and developments
relating to specific securities in arriving at securities valuations.
Occasionally events affecting the value of such securities may occur between the
time valuations are determined and the close of the Exchange. If events
materially affecting the value of such securities occur during such period, or
if the Company's management determines for any other reason that valuations
provided by the pricing service are inaccurate, such securities will be valued
at their fair value according to procedures decided upon in good faith by the
Board of Directors. In addition, any securities or other assets of a Fund for
which market prices are not readily available will be valued at their fair value
in accordance with such procedures.
TAX STATUS
Each Fund is treated as a separate corporation for federal income tax
purposes under the Internal Revenue Code of 1986, as amended (the "Code").
Therefore, each Fund is treated separately in determining whether it qualifies
as a regulated investment company under the Code and for purposes of determining
the net ordinary income (or loss), net realized capital gains (or losses) and
distributions necessary to relieve such Fund of any federal income tax
liability. Each Fund qualified as a regulated investment company during its last
taxable year and intends to so qualify during the current taxable year. If so
qualified, a Fund will not be liable for federal income taxes to the extent it
distributes its taxable income to shareholders.
Distributions by a Fund are generally taxable to the shareholders, whether
received in cash or additional shares of the Fund (or shares of another mutual
fund managed by the Adviser). Under the Code, corporate shareholders generally
may deduct 70% of distributions from a Fund attributable to dividends paid by
domestic corporations. Distributions of net capital gains (designated as
"capital gain dividends") are taxable
29
<PAGE>
to shareholders as long-term capital gains, regardless of the length of time the
shareholder has held the shares of the Fund.
A shareholder will recognize a capital gain or loss upon the sale or
exchange of shares in a Fund if, as is normally the case, the shares are capital
assets in the shareholder's hands. This capital gain or loss will be long-term
if the shares have been held for more than one year.
The foregoing relates to federal income taxation as in effect as of the date
of this Prospectus. For a more detailed discussion of the federal income tax
consequences of investing in shares of the Funds, see "Taxation" in the
Statement of Additional Information. Before investing in any of the Funds, you
should check the consequences of your local and state tax laws.
PERFORMANCE COMPARISONS
Advertisements and other sales literature for each Fund may refer to the
Fund's "average annual total return", "cumulative total return" and "yield." All
such yield and total return quotations are based upon historical earnings and
are not intended to indicate future performance. The return on and principal
value of an investment in any of the Funds will fluctuate, so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
Yield calculations will be based upon a 30-day period stated in the
advertisement and will be calculated by dividing the net investment income per
share (as defined under Securities and Exchange Commission rules and
regulations) earned during the advertised period by the offering price per share
(including the maximum sales charge) on the last day of the period. The result
will then be "annualized" using a formula that provides for semi-annual
compounding of income.
Average annual total return is the average annual compounded rate of return
on a hypothetical $1,000 investment made at the beginning of the advertised
period. Cumulative total return is calculated by subtracting a hypothetical
$1,000 payment to a Fund from the redeemable value of such payment at the end of
the advertised period, dividing such difference by $1,000 and multiplying the
quotient by 100. In calculating average annual and cumulative total return, the
maximum sales charge is deducted from the hypothetical investment and all
dividends and distributions are assumed to be reinvested. Such total return
quotations may be accompanied by quotations which do not reflect the reduction
in value of the initial investment due to the sales charge, and which thus will
be higher.
Comparative performance information also may be used from time to time in
advertising the Funds' shares. For example, advertisements may compare the
Funds' performance to that of various unmanaged market indices, or may include
performance data from Lipper Analytical Services, Inc., Morningstar, Inc. or
other entities or organizations which track the performance of investment
companies.
For additional information regarding comparative performance information and
the calculation of yield, average annual total return and cumulative total
return, see "Performance Comparisons" in the Statement of Additional
Information.
GENERAL INFORMATION
The Company, which was organized under the laws of State of Minnesota in
1986, is authorized to issue a total of 10 trillion shares of common stock, with
a par value of $.01 per share. Three hundred and ninety billion of these shares
have been authorized by the Board of Directors to be issued in twelve separate
series, as follows: Growth Fund, Emerging Growth Fund, Small Company Growth Fund
(formerly Equity Strategy Fund), Growth and Income Fund, Balanced Fund,
Government Income Fund, Intermediate Bond Fund
30
<PAGE>
(formerly Institutional Government Income Portfolio), National Tax-Exempt Fund
and Minnesota Tax-Exempt Fund, each of which has ten billion authorized shares,
and Money Market Fund, Tax-Exempt Money Market Fund and U.S. Government Money
Market Fund, each of which has one hundred billion authorized shares.
The Board of Directors is empowered under the Company's Articles of
Incorporation to issue additional series of the Company's common stock without
shareholder approval. In addition, the Board of Directors may, without
shareholder approval, create and issue one or more additional classes of shares
within each Fund, as well as within any series of the Company created in the
future. See "Capital Stock and Ownership of Shares" in the Statement of
Additional Information.
All shares, when issued, will be fully paid and nonassessable and will be
redeemable. All shares have equal voting rights. They can be issued as full or
fractional shares. A fractional share has pro-rata the same kind of rights and
privileges as a full share. The shares possess no preemptive or conversion
rights.
Each share of a series has one vote (with proportionate voting for
fractional shares) irrespective of the relative net asset value of the series'
shares. On some issues, such as the election of directors, all shares of the
Company vote together as one series. On an issue affecting only a particular
series, the shares of the affected series vote separately. Cumulative voting is
not authorized. This means that the holders of more than 50% of the shares
voting for the election of directors can elect 100% of the directors if they
choose to do so, and, in such event, the holders of the remaining shares will be
unable to elect any directors.
The Bylaws of the Company provide that shareholder meetings be held only
with such frequency as required under Minnesota law. Minnesota corporation law
requires only that the Board of Directors convene shareholder meetings when it
deems appropriate. In addition, Minnesota law provides that if a regular meeting
of shareholders has not been held during the immediately preceding 15 months, a
shareholder or shareholders holding 3% or more of the voting shares of the
Company may demand a regular meeting of shareholders by written notice given to
the chief executive officer or chief financial officer of the Company. Within 30
days after receipt of the demand, the Board of Directors shall cause a regular
meeting of shareholders to be called, which meeting shall be held no later than
90 days after receipt of the demand, all at the expense of the Company. In
addition, the 1940 Act requires a shareholder vote for all amendments to
fundamental investment policies and restrictions and for all amendments to
investment advisory contracts and for certain amendments to Rule 12b-1
distribution plans.
Pending Legal Proceedings
Complaints have been brought against the Adviser and the Distributor
relating to another series of the Company and to other investment companies for
which the Adviser acts or has acted as investment adviser or subadviser. These
lawsuits do not involve the Funds.
A number of complaints have been brought in federal and state court against
the Institutional Government Income Portfolio ("PJIGX") series of the Company
(such series has been renamed Intermediate Bond Fund), the Adviser, the
Distributor, and certain individuals affiliated or formerly affiliated with the
Adviser and the Distributor. On February 13, 1996, a Settlement Agreement became
effective for the consolidated class action lawsuit, titled In Re: PIPER FUNDS
INC. INSTITUTIONAL GOVERNMENT INCOME PORTFOLIO LITIGATION. The Amended
Consolidated Class Action Complaint was filed on October 5, 1994, in the United
States District Court, District of Minnesota, against PJIGX, the Adviser, the
Distributor, William H. Ellis and Edward J. Kohler, and had alleged the making
of materially misleading statements in the prospectus, common law negligent
misrepresentation and breach of fiduciary duty. The Settlement Agreement will
provide approximately $67.5 million, together with interest earned, less certain
disbursements and attorney fees, to class
31
<PAGE>
members in payments scheduled over approximately three years. Such payments will
be made by Piper Jaffray Companies Inc. and the Adviser and will not be an
obligation of the Company. A number of lawsuits and arbitrations brought by some
of the investors who requested exclusion from the settlement class remain
pending.
Complaints also have been filed in state and federal court relating to a
number of closed-end investment companies managed by the Adviser and two
open-end investment companies for which the Adviser has acted as sub-adviser.
The complaints, which ask for rescission of plaintiff shareholders' purchases or
compensatory damages, plus interest, costs and expenses, generally allege, among
other things, certain violations of federal and/or state securities laws,
including the making of materially misleading statements in prospectuses
concerning investment policies and risks. In addition to the Settlement
Agreement discussed above, a settlement agreement has been reached with respect
to a consolidated complaint relating to four closed-end investment companies
managed by the Adviser and agreements-in-principle have been reached to settle
certain other complaints. The Adviser and the Distributor also are subject to
regulatory inquiries related to various funds or assets managed by the Adviser.
See "Pending Litigation" in the Statement of Additional Information.
The Adviser and the Distributor do not believe that the settlements
discussed above, any agreement-in-principal to settle, or any outstanding
complaint, action in arbitration or regulatory inquiry will have a material
adverse effect on their ability to perform under their agreements with the
Company or a material adverse effect on the Funds.
No dealer, sales representative or other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus (and/or in the Statement of Additional Information referred to
on the cover page of this Prospectus), and, if given or made, such information
or representations must not be relied upon as having been authorized by the
Funds or Piper Jaffray Inc. This Prospectus does not constitute an offer or
solicitation by anyone in any state in which such offer or solicitation is not
authorized, or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation.
32
<PAGE>
PIPER FUNDS INC.
INVESTMENT ADVISER
Piper Capital Management Incorporated
DISTRIBUTOR
Piper Jaffray Inc.
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
LEGAL COUNSEL
Dorsey & Whitney LLP
Table of Contents
<TABLE>
<CAPTION>
PAGE
<S> <C>
Introduction........................... 2
Fund Expenses.......................... 4
Financial Highlights................... 6
Investment Objectives and Policies..... 8
Special Investment Methods............. 12
Management............................. 18
Distribution of Fund Shares............ 19
SHAREHOLDER GUIDE TO INVESTING
How to Purchase Shares............... 21
Reducing Your Sales Charge........... 22
Special Purchase Plans............... 23
How to Redeem Shares................. 24
Shareholder Services................. 26
Dividends and Distributions.......... 28
Valuation of Shares.................... 29
Tax Status............................. 29
Performance Comparisons................ 30
General Information.................... 30
</TABLE>
- ----------------------------------------------------------
Prospectus
[LOGO]
------------------------------
Growth and Income Funds
Growth and Income Fund
Balanced Fund
November 25, 1996
--------------------------------
30300 021-97
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
Prospectus Dated November 25, 1996
GROWTH FUND
EMERGING GROWTH FUND
SMALL COMPANY GROWTH FUND
Series of Piper Funds Inc.
Piper Jaffray Tower
222 South Ninth Street, Minneapolis, Minnesota 55402-3804
(800) 866-7778 (toll free)
GROWTH FUND has a primary investment objective of long-term capital
appreciation with secondary objectives of current income and conservation of
principal. The Fund invests primarily in a diversified portfolio of common
stocks or securities convertible into or carrying rights to buy common stocks.
EMERGING GROWTH FUND has an investment objective of long-term capital
appreciation. The Fund invests primarily in common stocks of emerging growth
companies believed by the Adviser to possess superior growth potential, with an
emphasis on companies headquartered or maintaining offices or manufacturing
facilities in states in which the Distributor maintains offices.
SMALL COMPANY GROWTH FUND has an investment objective of long-term capital
appreciation. The Fund invests primarily in common stocks of
small-capitalization companies believed by the Adviser to possess superior
growth potential.
Please remember, you could lose money with this investment. Safety of
principal is not guaranteed.
Each Fund may invest in illiquid securities which will involve greater risk
than investments in other securities and may increase Fund expenses. See
"Special Investment Methods."
This Prospectus concisely describes the information about the Funds that you
ought to know before investing. Please read it carefully before investing and
retain it for future reference.
A Statement of Additional Information about the Funds dated November 25,
1996, is available free of charge. Write to the Funds at Piper Jaffray Tower,
222 South Ninth Street, Minneapolis, Minnesota 55402-3804 or telephone (800)
866-7778 (toll free). The Statement of Additional Information has been filed
with the Securities and Exchange Commission and is incorporated in its entirety
by reference in this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
INTRODUCTION
Growth Fund, Emerging Growth Fund and Small Company Growth Fund (formerly
Equity Strategy Fund) (sometimes referred to herein as a "Fund" or,
collectively, as the "Funds") are series of Piper Funds Inc. (the "Company").
Each Fund is classified as a diversified fund. The Company is an open-end
management investment company organized under the laws of the State of Minnesota
in 1986, the shares of which are currently offered in twelve series. Each Fund
has a different investment objective and is designed to meet different
investment needs.
The Investment Adviser
The Company is managed by Piper Capital Management Incorporated (the
"Adviser"), a wholly owned subsidiary of Piper Jaffray Companies Inc. Each Fund
pays the Adviser a fee for managing its investment portfolio. Fees for each Fund
are paid at an annual rate of .75% on net assets up to $100 million and are
scaled downward as net assets increase in size. These fees are higher than fees
paid by most other investment companies. See "Management--Investment Adviser."
The Distributor
Piper Jaffray Inc. ("Piper Jaffray"), a wholly owned subsidiary of Piper
Jaffray Companies Inc. and an affiliate of the Adviser, serves as Distributor of
the Funds' shares.
Offering Price
Shares of the Funds are offered to the public at the next determined net
asset value after receipt of an order by a shareholder's Piper Jaffray
Investment Executive or other broker-dealer, plus a maximum sales charge of 4%
of the offering price (4.17% of the net asset value) on purchases of less than
$100,000. The sales charge is reduced on a graduated scale on purchases of
$100,000 or more. In connection with purchases of $500,000 or more, there is no
initial sales charge; however, a 1% contingent deferred sales charge will be
imposed in the event of a redemption transaction occurring within 24 months
following such a purchase. During the Special Offering Period, which extends
through December 31, 1996, shares of the Funds are being offered to the public
without an initial sales charge. However, for any purchase that would be subject
to a sales charge outside of the Special Offering Period, the Funds will impose
a contingent deferred sales charge of 2% on redemptions during the first 12
months after purchase, and 1% on redemptions during the second 12 months. See
"How to Purchase Shares--Purchase Price" and "How to Redeem Shares--Contingent
Deferred Sales Charge."
Minimum Initial and Subsequent Investments
The minimum initial investment for each Fund is $250. There is no minimum
for subsequent investments. See "How to Purchase Shares--Minimum Investments."
Exchanges
You may exchange your shares for shares of any other mutual fund managed by
the Adviser which is eligible for sale in your state of residence. All exchanges
are subject to the minimum investment requirements and other applicable terms
set forth in the prospectus of the fund whose shares you acquire. See
"Shareholder Services--Exchange Privilege."
Redemption Price
Shares of any Fund may be redeemed at any time at their net asset value next
determined after a redemption request is received by your Piper Jaffray
Investment Executive or other broker-dealer. A contingent deferred sales charge
will be imposed upon the redemption of certain shares initially purchased
without a sales charge. See "How to Redeem Shares--Contingent Deferred Sales
Charge." Each Fund
2
<PAGE>
reserves the right, upon 30 days' written notice, to redeem an account in any
Fund if the net asset value of the shares falls below $200. See "How to Redeem
Shares--Involuntary Redemption."
Certain Risk Factors to Consider
An investment in any of the Funds is subject to certain risks, as set forth
in detail under "Investment Objectives and Policies" and "Special Investment
Methods." As with other mutual funds, there can be no assurance that any Fund
will achieve its objective. Each of the Funds is subject to market risk (the
risk that a security will be worth less when it is sold than when it was bought
due to any number of factors, including reduced demand or loss of investor
confidence in the market) and/or interest-rate risk (the risk that rising
interest rates will make bonds issued at lower interest rates worth less). As a
result, the value of each Fund's shares will vary. Each Fund may engage in the
following investment practices: the use of repurchase agreements, the lending of
portfolio securities, borrowing from banks, entering into options transactions
on securities in which the Funds may invest and on stock indexes, and the use of
stock index futures contracts and options on futures contracts. These techniques
may increase the volatility of a Fund's net asset value. All of these
transactions involve certain special risks, as set forth under "Investment
Objectives and Policies" and "Special Investment Methods."
Shareholder Inquiries
Any questions or communications regarding a shareholder account should be
directed to your Piper Jaffray Investment Executive or, in the case of shares
held through another broker-dealer, to IFTC at (800) 874-6205. General inquiries
regarding the Funds should be directed to the Funds at the telephone number set
forth on the cover page of this Prospectus.
3
<PAGE>
FUND EXPENSES
<TABLE>
<CAPTION>
Emerging
Growth Growth Small Company
Fund Fund Growth Fund
------------ ------------- -------------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).......................... 4.00% 4.00% 4.00%
Exchange Fee................................................... $ 0 0 0
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees................................................ .71% .69% .75%
Rule 12b-1 Fees (after voluntary limitation) *................. .34% .34% .34%
Other Expenses (after voluntary expense reimbursement) *....... .22% .18% .25%
--- --- ---
Total Fund Operating Expenses (after voluntary limitations and
expense reimbursements)...................................... 1.27% 1.21% 1.34%
</TABLE>
- ------------------------
*See the discussion below for an explanation of voluntary Rule 12b-1 fee
limitations and expense reimbursements.
Example
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Emerging Small
Growth Growth Company
Fund Fund Growth Fund
----------- ------------- -------------
<S> <C> <C> <C>
1 Year ..................................... $ 52 52 53
3 Years .................................... $ 79 77 81
5 Years .................................... $ 107 104 110
10 Years .................................... $ 187 181 195
</TABLE>
The purpose of the above Fund Expenses table is to assist you in
understanding the various costs and expenses that investors in the Funds will
bear directly or indirectly. The Example contained in the table should not be
considered a representation of past or future expenses. Actual expenses may be
greater or less than those shown.
The information set forth in the table is based on actual expenses incurred
by the Funds during the fiscal year ended September 30, 1996, except that Rule
12b-1 fees reflect a voluntary limitation by the Distributor of amounts payable
to it under each Fund's Rule 12b-1 Plan to .34% of average daily net assets for
the fiscal year ending September 30, 1997. Rule 12b-1 fees had been limited to
.32% of each Fund's average daily net assets for the fiscal year ended September
30, 1996. In addition, the Adviser reimbursed Small Company Growth Fund for the
amount by which total Fund operating expenses for fiscal 1996 exceeded 1.32% of
average daily net assets. Absent any Rule 12b-1 fee limitations or expense
reimbursements, Total Fund Operating Expenses for the fiscal year ended
September 30, 1996, as a percentage of average daily net assets, would have been
1.43% for Growth Fund, 1.37% for Emerging Growth Fund and 1.79% for Small
4
<PAGE>
Company Growth Fund. For fiscal 1997, the Adviser will limit total operating
expenses for Small Company Growth Fund to 1.34% of average daily net assets. The
voluntary Rule 12b-1 fee limitations for each Fund and the expense
reimbursements for Small Company Growth Fund reflected in the Fund Expenses
table may be discontinued at any time after the fiscal 1997 year end. The
Adviser may or may not assume additional expenses of the Funds from time to
time, in its discretion, while retaining the ability to be reimbursed by the
Funds for expenses assumed during a fiscal year prior to the end of such year.
The foregoing policy will have the effect of lowering a Fund's overall expense
ratio and increasing yield to investors when such amounts are assumed or the
inverse when such amounts are reimbursed.
As a result of each Fund's annual payment of its Rule 12b-1 fee, a portion
of which is considered an asset-based sales charge, long-term shareholders of a
Fund may pay more than the economic equivalent of the maximum 6.25% front end
sales charge permitted under the rules of the National Association of Securities
Dealers, Inc. For additional information, including a more complete explanation
of management and Rule 12b-1 fees, see "Management--Investment Adviser" and
"Distribution of Fund Shares."
5
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights show certain per share data and selected
information for a share of capital stock outstanding during the indicated
periods for each Fund. This information has been audited by KPMG Peat Marwick
LLP, independent auditors, and should be read in conjunction with the financial
statements of each Fund contained in its annual report. An annual report of each
Fund is available without charge by contacting the Funds at 800-866-7778 (toll
free). In addition to financial statements, such reports contain further
information about the performance of the Funds.
Growth Fund TRIANGLE
<TABLE>
<CAPTION>
Period Period
from from
Fiscal year ended September 30, 11/1/88 Year 3/16/87*
-------------------------------------------------------------- to Ended to
1996 1995 1994 1993 1992 1991 1990 9/30/89 10/31/88 10/31/87
-------- ------ ------ ------ ------ ------ ------ ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period............... $ 10.20 9.45 9.65 8.53 8.43 5.85 6.23 4.80 4.31 5.00
-------- ------ ------ ------ ------ ------ ------ ------- -------- --------
Operations:
Net investment income... 0.03 0.04 0.04 0.06 0.09 0.09 0.10 0.09 0.09 0.05
Net realized and
unrealized gains
(losses) on
investments........... 1.55 1.80 (0.18) 1.12 0.38 2.59 (0.38) 1.43 0.49 (0.69)
-------- ------ ------ ------ ------ ------ ------ ------- -------- --------
Total from
operations........ 1.58 1.84 (0.14) 1.18 0.47 2.68 (0.28) 1.52 0.58 (0.64)
-------- ------ ------ ------ ------ ------ ------ ------- -------- --------
Distributions from net
investment income....... (0.03) (0.04) (0.06) (0.06) (0.08) (0.10) (0.10) (0.09) (0.09) (0.05)
Distributions from net
realized gains.......... (1.17) (1.05) -- -- (0.29) -- -- -- -- --
-------- ------ ------ ------ ------ ------ ------ ------- -------- --------
Total
distributions..... (1.20) (1.09) (0.06) (0.06) (0.37) (0.10) (0.10) (0.09) (0.09) (0.05)
-------- ------ ------ ------ ------ ------ ------ ------- -------- --------
Net asset value, end of
period.................. $ 10.58 10.20 9.45 9.65 8.53 8.43 5.85 6.23 4.80 4.31
-------- ------ ------ ------ ------ ------ ------ ------- -------- --------
-------- ------ ------ ------ ------ ------ ------ ------- -------- --------
Total return (%)+......... 16.87 20.60 (1.51) 13.85 5.76 46.23 (4.81) 31.90 13.79 (13.16)
Net assets end of period
(in millions)........... $ 178 172 195 252 200 107 47 37 19 18
Ratio of expenses to
average daily net assets
(%)++................... 1.24 1.27 1.23 1.26 1.29 1.32 1.31 1.30** 1.30 1.00**
Ratio of net investment
income to average daily
net assets (%)++........ 0.28 0.40 0.43 0.66 1.04 1.25 1.57 1.75** 2.06 1.84**
Average brokerage
commission rate+++...... $0.0600 n/a n/a n/a n/a n/a n/a n/a n/a n/a
Portfolio turnover rate
(excluding short-term
securities) (%)......... 19 80 11 45 36 36 37 48 52 32
</TABLE>
- ------------------------------
*Commencement of operations.
**Adjusted to an annual basis.
+Total return is based on the change in net asset value during the period,
assumes reinvestment of all distributions and does not reflect a sales
charge.
++During the periods reflected above, the Advisor and Distributor voluntarily
waived fees and expenses. Had the Fund paid all expenses and had the maximum
Rule 12b-1 fee been in effect, the ratios of expenses and net investment
income to average daily net assets would have been: 1.43%/0.09% in fiscal
1996, 1.45%/0.22% in fiscal 1995, 1.42%/0.24% in fiscal 1994, 1.44%/0.48% in
fiscal 1993, 1.47%/0.86% in fiscal 1992, 1.55%/1.02% in fiscal 1991,
1.64%/1.24% in fiscal 1990, 1.89%/1.16% in fiscal 1989, 1.96%/1.40% in fiscal
1988 and 2.29%/0.55% in fiscal 1987. Beginning in fiscal 1995, the expense
ratio reflects the effect of gross expenses paid indirectly by the Fund.
Prior period expense ratios have not been adjusted.
+++Beginning in fiscal 1996, the Fund is required to disclose an average
brokerage commission rate. The rate is calculated by dividing total brokerage
commissions paid on purchases and sales of portfolio securities by the total
number of related shares purchased and sold.
TRIANGLEPer share amounts have been restated to reflect the effect of the stock
dividend paid on October 21, 1996.
6
<PAGE>
Emerging Growth Fund++
<TABLE>
<CAPTION>
Fiscal year ended September 30,
----------------------------------------------------------------
1996 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period....................... $ 12.97 9.63 9.87 7.21 6.93 4.30
--------- --------- --------- --------- --------- ---------
Operations:
Net investment income (loss)............................. (0.05) (0.06) (0.04) (0.03) -- 0.01
Net realized and unrealized gains (losses) on
investments............................................ 2.18 3.40 (0.20) 2.69 0.32 2.64
--------- --------- --------- --------- --------- ---------
Total from operations................................ 2.13 3.34 (0.24) 2.66 0.32 2.65
--------- --------- --------- --------- --------- ---------
Distributions from net investment income................... -- -- -- -- -- (0.02)
Distributions from net realized gains...................... (1.24) -- -- -- (0.04) --
--------- --------- --------- --------- --------- ---------
Total distributions.................................. (1.24) -- -- -- (0.04) (0.02)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period............................. $ 13.86 12.97 9.63 9.87 7.21 6.93
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Total return (%)***........................................ 17.84 34.68 (2.38) 36.92 4.55 61.80
Net asset, end of period (in millions)..................... $ 304 253 224 191 110 56
Ratio of expenses to average daily net assets (%)+......... 1.18 1.24 1.24 1.29 1.30 1.30
Ratio of net investment income to average daily net assets
(%)+..................................................... (0.41) (0.51) (0.38) (0.34) (0.14) 0.11
Average brokerage commission rate+++....................... $ 0.0600 n/a n/a n/a n/a n/a
Portfolio turnover rate (excluding short-term securities)
(%)...................................................... 44 33 31 30 21 27
<CAPTION>
1990*
---------
<S> <C>
Net asset value, beginning of period....................... 5.00
---------
Operations:
Net investment income (loss)............................. 0.01
Net realized and unrealized gains (losses) on
investments............................................ (0.71)
---------
Total from operations................................ (0.70)
---------
Distributions from net investment income................... --
Distributions from net realized gains...................... --
---------
Total distributions.................................. --
---------
Net asset value, end of period............................. 4.30
---------
---------
Total return (%)***........................................ (14.01)
Net asset, end of period (in millions)..................... 21
Ratio of expenses to average daily net assets (%)+......... 1.30**
Ratio of net investment income to average daily net assets
(%)+..................................................... 0.71**
Average brokerage commission rate+++....................... n/a
Portfolio turnover rate (excluding short-term securities)
(%)...................................................... 6
</TABLE>
- ------------------------------
*Period from 4/23/90 (commencement of operations) to 9/30/90.
**Adjusted to an annual basis.
***Total return is based on the change in net asset value during the period,
assumes reinvestment of all distributions and does not reflect a sales
charge.
+During the periods reflected above, the Adviser and the Distributor
voluntarily waived fees and expenses. Had the Fund paid all expenses and had
the maximum Rule 12b-1 fee been in effect, the ratios of expenses and net
investment income to average daily net assets would have been: 1.37%/(0.60%)
in fiscal 1996, 1.42%/(0.69%) in fiscal 1995, 1.44%/(0.58%) in fiscal 1994,
1.49%/ (0.54%) in fiscal 1993, 1.56%/(0.40%) in fiscal 1992, 1.70%/(0.29%) in
fiscal 1991 and 1.95%/0.06% in fiscal 1990. Beginning in fiscal 1995, the
expense ratio reflects the effect of gross expenses paid indirectly by the
Fund. Prior period expense ratios have not been adjusted.
++Per share amounts have been restated to reflect the effect of the stock
dividend declared on December 23, 1995.
+++Beginning in fiscal 1996, the Fund is required to disclose an average
brokerage commission rate. The rate is calculated by dividing total brokerage
commissions paid on purchases and sales of portfolio securities by the total
number of related shares purchased and sold.
7
<PAGE>
Small Company Growth Fund TRIANGLE TRIANGLE
<TABLE>
<CAPTION>
Period
from
Fiscal year ended September 30, Period from Year 3/16/87**
------------------------------------------------------ 11/1/88 to Ended to
1996* 1995 1994 1993 1992 1991 1990 9/30/89 10/31/88 10/31/87
----------- ------ ----- ----- ----- ----- ----- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period............... $ 9.73 8.59 8.42 6.79 6.41 4.59 5.03 4.04 3.95 5.00
----------- ------ ----- ----- ----- ----- ----- ----------- -------- ----------
Operations:
Net investment
income+++............. 0.03 0.05 0.04 0.01 0.04 0.04 0.05 0.19 0.05 0.04
Net realized and
unrealized gains
(losses) on
investments........... 0.48 1.14 0.15 1.65 0.36 1.82 (0.37) 0.93 0.10 (1.05)
----------- ------ ----- ----- ----- ----- ----- ----------- -------- ----------
Total from
operations........ 0.51 1.19 0.19 1.66 0.40 1.86 (0.32) 1.12 0.15 (1.01)
----------- ------ ----- ----- ----- ----- ----- ----------- -------- ----------
Distributions from net
investment income....... (0.04) (0.05) (0.02) (0.03) (0.02) (0.04) (0.12) (0.13) (0.06) (0.04)
Distributions from net
realized gains on
investments............. (0.79) -- -- -- -- -- -- -- -- --
----------- ------ ----- ----- ----- ----- ----- ----------- -------- ----------
Total distributions to
shareholders............ (0.83) (0.05) (0.02) (0.03) (0.02) (0.04) (0.12) (0.13) (0.06) (0.04)
----------- ------ ----- ----- ----- ----- ----- ----------- -------- ----------
Net asset value, end of
period.................. $ 9.41 9.73 8.59 8.42 6.79 6.41 4.59 5.03 4.04 3.95
----------- ------ ----- ----- ----- ----- ----- ----------- -------- ----------
----------- ------ ----- ----- ----- ----- ----- ----------- -------- ----------
Total return (%)+......... 5.38 13.88 2.12 24.56 6.18 40.71 (6.61) 27.86 3.47 (20.48)
Net assets end of period
(in millions)........... $ 31 48 78 84 9 9 8 13 19 28
Ratio of expenses to
average daily net assets
(%)++................... 1.32 1.40 1.32 1.28 1.47 1.32 1.49 1.30*** 1.52 1.02***
Ratio of net investment
income to average daily
net assets (%)++........ 0.20 0.43 0.37 0.50 0.56 0.61 1.03 3.95*** 1.13 1.51***
Average brokerage
commission
rate TRIANGLE .......... $ 0.0600 n/a n/a n/a n/a n/a n/a n/a n/a n/a
Portfolio turnover rate
(excluding short-term
securities) (%)......... 125 182 177 154 420 507 514 375 202 200
</TABLE>
- ------------------------------
*On September 12, 1996, shareholders of Small Company Growth Fund approved a
change in the Fund's investment objective from high total investment return
consistent with prudent investment risk to long-term capital appreciation.
In connection with this change in investment objective, the Fund's
investment policies were revised and the Fund's name was changed from Equity
Strategy Fund to Small Company Growth Fund.
**Commencement of operations.
***Adjusted to an annual basis.
+Total return is based on the change in net asset value during the period,
assumes reinvestment of all distributions and does not reflect a sales
charge.
++During the periods reflected above, the Adviser and Distributor voluntarily
waived fees and expenses. Had the Fund paid all expenses and had the maximum
Rule 12b-1 fee been in effect, the ratios of expenses and net investment
income to average daily net assets would have been: 1.79%/(0.27%) in fiscal
1996, 1.63%/0.20% in fiscal 1995, 1.54%/0.15% in fiscal 1994, 1.86%/ (0.08%)
in fiscal 1993, 2.49%/(0.46%) in fiscal 1992, 2.39%/(0.46%) in fiscal 1991,
2.55%/(0.03%) in fiscal 1990, 2.23%/3.02% in fiscal 1989, 2.20%/0.45% in
fiscal 1988 and 2.24%/0.29% in fiscal 1987. Beginning in fiscal 1995, the
expense ratio reflects the effect of gross expenses paid indirectly by the
Fund. Prior period expense ratios have not been adjusted.
+++For the years ended September 30, 1992, and October 31, 1988, gross expenses
included $0.01 per share of income tax expense.
TRIANGLEBeginning in fiscal 1996, the Fund is required to disclose an average
brokerage commission rate. The rate is calculated by dividing total
brokerage commissions paid on purchases and sales of portfolio
securities by the total number of related shares purchased and sold.
TRIANGLE TRIANGLEPer share amounts have been restated to reflect the effect of
the stock dividend paid on October 21, 1996.
8
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives listed below cannot be changed without shareholder
approval. The investment policies and techniques employed in pursuit of the
Funds' objectives may be changed without shareholder approval, unless otherwise
noted.
Because of the risks associated with common stock investments, the Funds are
intended to be long-term investment vehicles and are not designed to provide
investors with a means of speculating on short-term market movements. Investors
should be willing to accept the risk of the potential for sudden, sometimes
substantial declines in market value. No assurance can be given that the Funds
will achieve their objectives or that shareholders will be protected from the
risk of loss that is inherent in equity investing.
Growth Fund
INVESTMENT OBJECTIVES. Growth Fund's primary investment objective is
long-term capital appreciation with secondary objectives of current income and
conservation of principal.
INVESTMENT POLICIES AND TECHNIQUES. Growth Fund will maintain a carefully
selected portfolio of securities broadly diversified among industries and
companies. The Fund will invest at least 60% of its total assets in securities
of companies with market capitalizations of over $1 billion offering, in the
opinion of the Adviser, long-term earnings growth, a cyclical earnings rebound
or above-average dividend yield when compared to the S&P 500. Emphasis will be
placed on common stocks of companies which the Adviser believes are well managed
with strong business fundamentals and which are trading at a discount to the
present value of their projected future earnings. Growth Fund may also invest up
to 40% of its total assets in securities of companies with market
capitalizations of $1 billion or less, some of which may be considered
speculative in nature, which the Adviser believes could generate high levels of
future revenue and earnings growth and where, in the Adviser's opinion, the
investment opportunity is not fully reflected in the price of the securities.
Growth Fund will invest under normal market conditions not less than 90% of
its total assets in common stocks or securities convertible into or that carry
the right to buy common stocks and in repurchase agreements. See "Special
Investment Methods--Repurchase Agreements." Under unusual circumstances, as a
defensive measure, Growth Fund may retain cash or invest part or all of its
assets in short-term money market securities deemed by the Adviser to be
consistent with a temporary defensive posture. In addition, normally a small
portion of the Fund's assets will be held in short-term money market securities
and cash to pay redemption requests and Fund expenses. Investments in short-term
money market securities may include obligations of the U.S. Government and its
agencies and instrumentalities, time deposits, bank certificates of deposit,
bankers' acceptances, high-grade commercial paper and other money market
instruments. See "Investment Objectives, Policies and Restrictions" in the
Statement of Additional Information.
Growth Fund may write covered put and call options on the securities in
which it may invest, purchase put and call options with respect to such
securities, and enter into closing purchase and sale transactions with respect
thereto. Growth Fund may also purchase and write put and call options on stock
indexes listed on national securities exchanges. See "Special Investment
Methods--Options Transactions." In addition, solely for the purpose of hedging
against changes in the value of its portfolio securities due to anticipated
changes in the market, Growth Fund may enter into stock index futures contracts,
purchase and write put or call options on such contracts, and close such
contracts and options. See "Special Investment Methods--Futures Contracts and
Options on Futures Contracts" and "--Risks of Transactions in Futures Contracts
and Options on Futures Contracts."
9
<PAGE>
INVESTMENT RISKS. As a mutual fund investing primarily in common stocks,
Growth Fund is subject to market risk, i.e., the possibility that stock prices
in general will decline over short or even extended periods. The stock market
tends to be cyclical, with periods when stock prices generally rise and periods
when stock prices generally decline. The investment techniques used by the Fund
also pose certain risks. See "Special Investment Methods."
Emerging Growth Fund
INVESTMENT OBJECTIVE. Emerging Growth Fund's investment objective is
long-term capital appreciation. Dividend and interest income from portfolio
securities, if any, is incidental to the Fund's objective.
INVESTMENT POLICIES AND TECHNIQUES. Emerging Growth Fund seeks to achieve
its objective by investing primarily (i.e., at least 65% of its assets under
normal market conditions) in common stocks of emerging growth companies which
the Adviser believes possess superior growth potential. A company will be
considered an emerging growth company if, at the time of purchase, it has a
market capitalization within the range of market capitalizations for those
companies included in the S&P MidCap 400 Index ($159 million to $6.2 billion as
of October 31, 1996). Emerging Growth Fund also intends to invest at least 65%
of its assets in common stocks of companies headquartered or maintaining offices
or manufacturing facilities in states in which the Distributor maintains
offices. This will allow the Fund to draw on the Distributor's local expertise
and research capabilities. The Distributor currently maintains offices in
Arizona, California, Colorado, Idaho, Illinois, Iowa, Kansas, Minnesota,
Missouri, Montana, Nebraska, New Jersey, New York, North Dakota, Oregon, South
Dakota, Utah, Washington, Wisconsin and Wyoming; however, these states may
change from time to time.
In the Adviser's view, there are four broad phases of corporate growth. The
first phase of corporate growth occurs during the infancy of a company.
Investing in a company during this phase involves the potential for rapid growth
but also involves high risk. During the second phase of a company's growth,
sometimes referred to as the emerging growth phase, there is often a period of
swift development during which growth occurs at a rate generally not equaled by
more mature companies. Investing in a company during this phase of its growth
may still involve substantial risk. There next occurs a third phase of
established growth in which growth is generally less dramatic because of
competitive forces, regulations and internal bureaucracy. This is followed by a
fourth phase of maturity, when the growth pattern of a company begins to roughly
reflect the increase in gross national product. The Adviser intends to focus on
companies positioned in the second phase of growth. Of course, the actual growth
of a company is not necessarily consistent with this pattern and cannot be
foreseen. Consequently, it may be difficult to determine the phase in which a
company is currently situated.
The following illustration represents the Adviser's conception of the four
phases of revenue growth for a successful business. This graph is presented for
illustrative purposes only, and does not represent the actual revenue growth of
a typical company. In addition, there is no necessary correlation between the
growth of a company's revenues and the market value of its stock. This
illustration should not be considered a representation of the performance of the
common stocks in which the Fund invests.
10
<PAGE>
[LOGO]
Under normal circumstances, the Fund will be fully invested in common
stocks, except that a small portion of the Fund's assets will be held in
short-term money market securities and cash to pay redemption requests and Fund
expenses. Under unusual circumstances, as a defensive measure, Emerging Growth
Fund may retain cash or invest part or all of its assets in short-term money
market securities deemed by the Adviser to be consistent with a temporary
defensive posture. Investments in short-term money market securities may include
obligations of the U.S. Government and its agencies and instrumentalities, time
deposits, bank certificates of deposit, bankers' acceptances, high-grade
commercial paper and other money market instruments. See "Investment Objectives,
Policies and Restrictions" in the Statement of Additional Information. Emerging
Growth Fund may also enter into repurchase agreements. See "Special Investment
Methods-- Repurchase Agreements."
Emerging Growth Fund may write covered put and call options on the
securities in which it may invest, purchase put and call options with respect to
such securities, and enter into closing purchase and sale transactions with
respect thereto. Emerging Growth Fund may also purchase and write put and call
options on stock indexes listed on national securities exchanges. See "Special
Investment Methods--Options Transactions." In addition, solely for the purpose
of hedging against changes in the value of its portfolio securities due to
anticipated changes in the market, Emerging Growth Fund may enter into stock
index futures contracts, purchase and write put or call options on such
contracts, and close such contracts and options. See "Special Investment
Methods--Futures Contracts and Options on Futures Contracts" and "--Risks of
Transactions in Futures Contracts and Options on Futures Contracts."
INVESTMENT RISKS. As a mutual fund investing primarily in common stocks,
Emerging Growth Fund is subject to market risk, i.e., the possibility that stock
prices in general will decline over short or even extended periods. The stock
market tends to be cyclical, with periods when stock prices generally rise and
periods when stock prices generally decline. In addition, companies in which the
Fund invests also may involve certain special risks. Emerging growth companies
may have limited product lines, markets or financial resources, and they may be
dependent on a limited management group. The securities of emerging growth
companies may have limited market stability and may be subject to more abrupt or
erratic market movements than securities of larger, more established companies
or the market averages in general. Thus, shares of Emerging Growth Fund will
probably be subject to greater fluctuation in value than shares of a more
conservative equity fund and an investment in the Fund should not be considered
a total investment plan. In addition, Emerging Growth Fund may be less
diversified by industry and company than other funds with a
11
<PAGE>
similar investment objective and no geographic limitation. The investment
techniques used by the Fund also pose certain risks. See "Special Investment
Methods."
Small Company Growth Fund
On September 12, 1996, shareholders of Small Company Growth Fund approved a
change in the Fund's investment objective from high total investment return
consistent with prudent investment risk to long-term capital appreciation. In
connection with this change in investment objective, the Fund's investment
policies were revised and the Fund's name was changed from Equity Strategy Fund
to Small Company Growth Fund.
INVESTMENT OBJECTIVE. Small Company Growth Fund's investment objective is
long-term capital appreciation.
INVESTMENT POLICIES AND TECHNIQUES. Small Company Growth Fund seeks to
achieve its objective by investing primarily (at least 65% of its total assets
under normal market conditions) in common stocks of small-capitalization
companies which the Adviser believes possess superior growth potential. A
company will be considered a small-capitalization company if, at the time of
purchase, it has a market capitalization within the range of market
capitalizations for those companies included in the S&P SmallCap 600 Index ($40
million to $2.3 billion as of October 31, 1996).
Small-capitalization companies are generally positioned in the first phase
of corporate growth, or early in the second phase. For a description of the
different phases of corporate growth, see "Emerging Growth Fund--Investment
Policies and Techniques" above. While the Adviser believes that
small-capitalization companies can provide greater growth potential than larger,
more mature companies, investing in the securities of small-capitalization
companies may involve greater risks and portfolio price volatility. See
"Investment Risks" below.
Under normal circumstances, the Fund will be fully invested in common
stocks, except that a small portion of the Fund's assets will be held in
short-term money market securities and cash to pay redemption requests and Fund
expenses. Under unusual circumstances, as a defensive measure, Small Company
Growth Fund may retain cash or invest part or all of its assets in short-term
money market securities deemed by the Adviser to be consistent with a temporary
defensive posture. Investments in short-term money market securities may include
obligations of the U.S. Government and its agencies and instrumentalities, time
deposits, bank certificates of deposit, bankers' acceptances, high-grade
commercial paper and other money market instruments. See "Investment Objectives,
Policies and Restrictions" in the Statement of Additional Information. Small
Company Growth Fund may also enter into repurchase agreements. See "Special
Investment Methods--Repurchase Agreements."
Small Company Growth Fund may write covered put and call options on the
securities in which it may invest, purchase put and call options with respect to
such securities, and enter into closing purchase and sale transactions with
respect thereto. Small Company Growth Fund may also purchase and write put and
call options on stock indexes listed on national securities exchanges. See
"Special Investment Methods--Options Transactions." In addition, solely for the
purpose of hedging against changes in the value of its portfolio securities due
to anticipated changes in the market, Small Company Growth Fund may enter into
stock index futures contracts, purchase and write put or call options on such
contracts, and close such contracts and options. See "Special Investment
Methods--Futures Contracts and Options on Futures Contracts" and "--Risks of
Transactions in Futures Contracts and Options on Futures Contracts."
INVESTMENT RISKS. As a mutual fund investing primarily in common stocks,
Small Company Growth Fund is subject to market risk, i.e., the possibility that
stock prices in general will decline over short or even
12
<PAGE>
extended periods. The stock market tends to be cyclical, with periods when stock
prices generally rise and periods when stock prices generally decline. In
addition, companies in which the Fund will invest are typically in the first
phase of their growth cycle, which occurs during the infancy of a company.
Investing in such companies involves certain special risks. While
small-capitalization companies generally have potential for rapid growth, they
often involve higher risks because they lack the management experience,
financial resources, product diversification and competitive strengths of larger
companies. The securities of small-capitalization companies may have limited
market stability and may be subject to more abrupt or erratic market movements
than those of larger, more established companies or the market in general. In
addition, in many instances, the frequency and volume of their trading is
substantially less than is typical of larger companies. Therefore, the
securities of smaller companies may be subject to wider price fluctuations. The
spreads between the bid and asked prices of the securities of these companies
are typically larger than the spreads for more actively traded securities. When
making large sales, the Fund may have to sell portfolio holdings at a discount
from quoted prices or may have to make a series of small sales over an extended
period of time due to the trading volume of smaller company securities. The
values of the shares of small-capitalization companies may move independently of
the values of larger capitalization companies or of general stock market indices
such as the Dow Jones Industrial Average or the Standard & Poor's 500 Stock
Index. Shares of Small Company Growth Fund will probably be subject to greater
fluctuations in value than shares of a more conservative equity fund and an
investment in the Fund should not be considered a total investment plan. The
investment techniques used by the Fund also pose certain risks. See "Special
Investment Methods."
13
<PAGE>
SPECIAL INVESTMENT METHODS
Repurchase Agreements
Each Fund may enter into repurchase agreements with respect to securities
issued or guaranteed as to payment of principal and interest by the U.S.
Government or its agencies or instrumentalities. A repurchase agreement involves
the purchase by a Fund of securities with the condition that after a stated
period of time the original seller (a member bank of the Federal Reserve System
or a recognized securities dealer) will buy back the same securities
("collateral") at a predetermined price or yield. Repurchase agreements involve
certain risks not associated with direct investments in securities. In the event
the original seller defaults on its obligation to repurchase, as a result of its
bankruptcy or otherwise, the Fund will seek to sell the collateral, which action
could involve costs or delays. In such case, the Fund's ability to dispose of
the collateral to recover such investment may be restricted or delayed. While
collateral will at all times be maintained in an amount equal to the repurchase
price under the agreement (including accrued interest due thereunder), to the
extent proceeds from the sale of collateral were less than the repurchase price,
a Fund would suffer a loss. Repurchase agreements maturing in more than seven
days are considered illiquid and subject to each Fund's restriction on investing
in illiquid securities.
Lending of Portfolio Securities
In order to generate additional income, each Fund may lend portfolio
securities up to one-third of the value of its total assets to broker-dealers,
banks or other financial borrowers of securities. As with other extensions of
credit, there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However, the
Funds will only enter into loan arrangements with broker-dealers, banks or other
institutions which the Adviser has determined are creditworthy under guidelines
established by the Company's Board of Directors and will receive collateral in
the form of cash, U.S. Government securities or other high-grade debt
obligations equal to at least 100% of the value of the securities loaned. The
value of the collateral and of the securities loaned will be marked to market on
a daily basis. During the time portfolio securities are on loan, the borrower
pays the Fund an amount equivalent to any dividends or interest paid on the
securities and the Fund may invest the cash collateral and earn additional
income or may receive an agreed upon amount of interest income from the
borrower. However, the amounts received by the Fund may be reduced by finders'
fees paid to broker-dealers and related expenses.
Borrowing
Each Fund may borrow money from banks for temporary or emergency purposes in
an amount up to 10% of the value of the Fund's total assets. Interest paid by a
Fund on borrowed funds would decrease the net earnings of that Fund. None of the
Funds will purchase portfolio securities while outstanding borrowings exceed 5%
of the value of the Fund's total assets. Each Fund may mortgage, pledge or
hypothecate its assets in an amount not exceeding 10% of the value of its total
assets to secure temporary or emergency borrowing. The policies set forth in
this paragraph are fundamental and may not be changed without the approval of a
majority of a Fund's shares.
Options Transactions
Each Fund may write and purchase put and call options on securities and on
stock indexes listed on national securities exchanges. The Funds may purchase
and write only exchange-traded options.
WRITING COVERED OPTIONS. Each Fund may write (i.e., sell) covered put and
call options with respect to the securities in which it may invest. By writing a
call option, a Fund becomes obligated during the term of the option to deliver
the securities underlying the option upon payment of the exercise price if the
option is
14
<PAGE>
exercised. By writing a put option, a Fund becomes obligated during the term of
the option to purchase the securities underlying the option at the exercise
price if the option is exercised. With respect to put options written by a Fund,
there will have been a predetermination that acquisition of the underlying
security is in accordance with such Fund's investment objective.
The principal reason for writing call or put options is to obtain, through
the receipt of premiums, a greater current return than would be realized on the
underlying securities alone. The Funds receive premiums from writing call or put
options, which they retain whether or not the options are exercised. By writing
a call option, a Fund might lose the potential for gain on the underlying
security while the option is open, and by writing a put option a Fund might
become obligated to purchase the underlying security for more than its current
market price upon exercise.
The aggregate value of the securities or other collateral underlying the
calls and obligations underlying the puts written by any Fund, determined as of
the date the options are sold, will not exceed 25% of such Fund's net assets.
PURCHASING OPTIONS. Each Fund may purchase put options, solely for hedging
purposes, in order to protect portfolio holdings in an underlying security
against a substantial decline in the market value of such holdings ("protective
puts"). Such protection is provided during the life of the put because a Fund
may sell the underlying security at the put exercise price, regardless of a
decline in the underlying security's market price. Any loss to a Fund is limited
to the premium paid for, and transaction costs paid in connection with, the put
plus the initial excess, if any, of the market price of the underlying security
over the exercise price. However, if the market price of such security
increases, the profit a Fund realizes on the sale of the security will be
reduced by the premium paid for the put option less any amount for which the put
is sold.
Each Fund may also purchase call options solely for the purpose of hedging
against an increase in prices of securities that the Fund ultimately wants to
buy. Such protection is provided during the life of the call option because the
Fund may buy the underlying security at the call exercise price regardless of
any increase in the underlying security's market price. In order for a call
option to be profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and transaction
costs. By using call options in this manner, a Fund will reduce any profit it
might have realized had it bought the underlying security at the time it
purchased the call option by the premium paid for the call option and by
transaction costs.
STOCK INDEX OPTION TRADING. Each Fund may purchase and write put and call
options on stock indexes listed on national securities exchanges. Stock index
options will be purchased for the purpose of hedging against changes in the
value of a Fund's portfolio securities due to anticipated changes in the market.
Stock index options will be written for hedging purposes and to realize gains
from the premiums received on the sale of such options. Options on stock indexes
are similar to options on stock except that, rather than the right to take or
make delivery of stock at a specified price, an option on a stock index gives
the holder the right to receive, upon exercise of the option, an amount of cash
if the closing level of the stock index upon which the option is based is
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. The writer of the option is obligated to make
delivery of this amount. The value of a stock index fluctuates with changes in
the market values of the stocks included in the index. The index may include
stocks representative of the entire market, such as the S&P 500, or may include
only stocks in a particular industry or market segment, such as the AMEX Oil and
Gas Index. The effectiveness of purchasing or writing stock index options as a
hedging technique depends upon the extent to which price movements in a Fund's
portfolio correlate with price movements of the stock index selected.
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For further information concerning the characteristics and risks of options
transactions, see "Investment Objectives, Policies and Restrictions--Options" in
the Statement of Additional Information.
Futures Contracts and Options on Futures Contracts
Each Fund may purchase and sell stock index futures contracts. The futures
contracts in which the Funds may invest have been developed by and are traded on
national commodity exchanges. Stock index futures contracts may be based upon
broad-based stock indexes such as the S&P 500 or upon narrow-based stock
indexes. A buyer entering into a stock index futures contract will, on a
specified future date, pay or receive a final cash payment equal to the
difference between the actual value of the stock index on the last day of the
contract and the value of the stock index established by the contract.
The purpose of the acquisition or sale of a futures contract by a Fund is to
hedge against fluctuations in the value of its portfolio without actually buying
or selling securities. For example, a Fund may sell stock index futures
contracts in anticipation of or during a market decline to attempt to offset the
decrease in market value of the Fund's portfolio securities that might otherwise
result. When a Fund is not fully invested in the securities markets and
anticipates a significant market advance, it may purchase stock index futures in
order to gain rapid market exposure that may in part or entirely offset
increases in the costs of securities that the Fund intends to purchase. As such
purchases are made, an equivalent amount of stock index futures contracts will
be terminated by offsetting sales. The Funds will engage in such transactions
only for hedging purposes, on either an asset-based or a liability-based basis,
in each case in accordance with the rules and regulations of the Commodity
Futures Trading Commission. See Appendix C to the Statement of Additional
Information.
Each Fund may purchase and sell put and call options on futures contracts
and enter into closing transactions with respect to such options to terminate
existing positions. The Funds may use such options on futures contracts in
connection with their hedging strategies in lieu of purchasing and writing
options directly on the underlying securities or purchasing and selling the
underlying futures contracts.
There are risks in using futures contracts and options on futures contracts
as hedging devices. The primary risks associated with the use of futures
contracts and options thereon are (a) the prices of futures contracts and
options may not correlate perfectly with the market value of the securities
subject to the hedge and (b) the possible lack of a liquid secondary market for
a futures contract and the resulting inability to close a futures position prior
to its maturity date. The risk of imperfect correlation increases as the
composition of a Fund's portfolio diverges from the securities included in the
applicable stock index. The Adviser will attempt to reduce this risk, to the
extent possible, by entering into futures contracts on indexes whose movements
it believes will have a significant correlation with movements in the value of
the Fund's portfolio securities sought to be hedged. The risk that a Fund will
be unable to close out a futures position will be minimized by entering into
such transactions on a national exchange with an active and liquid secondary
market.
Additional information with respect to stock index futures contracts,
together with information regarding options on such contracts, is set forth in
Appendix C to the Statement of Additional Information.
Illiquid Securities
No Fund will invest more than 15% of its net assets in illiquid securities.
A security is considered illiquid if it cannot be sold in the ordinary course of
business within seven days at approximately the price at which it is valued.
Illiquid securities may offer a higher yield than securities which are more
readily marketable, but they may not always be marketable on advantageous terms.
This investment restriction is nonfundamental, which means that it may be
changed without shareholder approval. However, the Securities and Exchange
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Commission currently limits a non-money market fund's investments in illiquid
securities to 15% of net assets.
The sale of illiquid securities often requires more time and results in
higher brokerage charges or dealer discounts and other selling expenses than
does the sale of securities eligible for trading on national securities
exchanges or in the over-the-counter markets. A Fund may be restricted in its
ability to sell such securities at a time when the Adviser deems it advisable to
do so. In addition, in order to meet redemption requests, a Fund may have to
sell other assets, rather than such illiquid securities, at a time which is not
advantageous.
"Restricted securities" are securities which were originally sold in private
placements and which have not been registered under the Securities Act of 1933
(the "1933 Act"). Such securities generally have been considered illiquid, since
they may be resold only subject to statutory restrictions and delays or if
registered under the 1933 Act. In 1990, however, the Securities and Exchange
Commission adopted Rule 144A under the 1933 Act, which provides a safe harbor
exemption from the registration requirements of the 1933 Act for resales of
restricted securities to "qualified institutional buyers," as defined in the
rule. The result of this rule has been the development of a more liquid and
efficient institutional resale market for restricted securities. Thus,
restricted securities are no longer necessarily illiquid. The Funds may
therefore invest in Rule 144A securities and treat them as liquid when they have
been determined to be liquid by the Board of Directors of the Company or by the
Adviser subject to the oversight of and pursuant to procedures adopted by the
Board of Directors. See "Investment Objectives, Policies and
Restrictions--Illiquid Securities" in the Statement of Additional Information.
Similar determinations may be made with respect to commercial paper issued in
reliance on the so-called "private placement" exemption from registration under
Section 4(2) of the 1933 Act.
Portfolio Turnover
While it is not the policy of any of the Funds to trade actively for
short-term profits, each Fund will dispose of securities without regard to the
time they have been held when such action appears appropriate to the Adviser. In
the case of each Fund, frequent changes may result in higher brokerage and other
costs for the Fund. The method of calculating portfolio turnover rate is set
forth in the Statement of Additional Information under "Investment Objectives,
Policies and Restrictions--Portfolio Turnover." Portfolio turnover rates for the
Funds are set forth in "Financial Highlights."
Investment Restrictions
Each Fund has adopted certain fundamental and nonfundamental investment
restrictions in addition to those set forth above. As a fundamental investment
restriction which may not be changed without shareholder approval, no Fund will
invest 25% or more of its total assets in any one industry. (This restriction
does not apply to securities of the U.S. Government or its agencies and
instrumentalities and repurchase agreements relating thereto. As to utility
companies, gas, electric, telephone, telegraph, satellite and microwave
communications companies are considered as separate industries.) In addition, as
nonfundamental investment restrictions which may be changed at any time without
shareholder approval, no Fund will invest more than 5% of its total assets in
the securities of issuers which, with their predecessors, have a record of less
than three years' continuous operation and no Fund will invest more than 5% of
its total assets in foreign securities. A list of each Fund's fundamental and
nonfundamental investment restrictions is set forth in the Statement of
Additional Information.
Except for each Fund's policy regarding borrowing, if a percentage
restriction set forth under "Investment Objectives and Policies" or under
"Special Investment Methods" is adhered to at the time of an investment, a later
increase or decrease in percentage resulting from changes in values or assets
will not constitute a violation of such restriction.
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MANAGEMENT
Board of Directors
The Company's Board of Directors has the primary responsibility for
overseeing the overall management of the Company and electing its officers.
Investment Adviser
Piper Capital Management Incorporated (the "Adviser") has been retained
under an Investment Advisory and Management Agreement with the Company to act as
the Funds' investment adviser subject to the authority of the Board of
Directors.
In addition to acting as the investment adviser for the other series of the
Company, the Adviser also serves as investment adviser to a number of other
open-end and closed-end investment companies and to various other concerns,
including pension and profit-sharing funds, corporate funds and individuals. As
of November 1, 1996, the Adviser rendered investment advice regarding
approximately $9 billion of assets. The Adviser is a wholly owned subsidiary of
Piper Jaffray Companies Inc., a publicly held corporation which is engaged
through its subsidiaries in various aspects of the financial services industry.
The address of the Adviser is Piper Jaffray Tower, 222 South Ninth Street,
Minneapolis, Minnesota 55402-3804.
The Adviser furnishes each Fund with investment advice and supervises the
management and investment programs of the Funds. The Adviser furnishes at its
own expense all necessary administrative services, office space, equipment and
clerical personnel for servicing the investments of the Funds. The Adviser also
provides investment advisory facilities and executive and supervisory personnel
for managing the investments and effecting the portfolio transactions of the
Funds. In addition, the Adviser pays the salaries and fees of all officers and
directors of the Company who are affiliated with the Adviser.
Under the Investment Advisory and Management Agreement, each Fund pays the
Adviser monthly fees at an annual rate of .75% on average daily net assets up to
$100 million. These fees are higher than fees paid by most other investment
companies. The fees are scaled downward as net assets increase in size to as low
as .50% on net assets of over $500 million.
Portfolio Management
Beginning December 1994, Steven B. Markusen assumed primary responsibility
for the day-to-day management of the Growth Fund's portfolio. Mr. Markusen has
been a Senior Vice President of the Adviser since 1993. Prior to that, he had
been with Investment Advisers, Inc., Minneapolis, Minnesota, since 1989, where
he served as a Senior Vice President and was responsible for managing
institutional equity and balanced portfolios and the IAI Growth Fund. In
addition, he was responsible for a group which managed $2.5 billion in large
capitalization growth equity assets. He is a Chartered Financial Analyst ("CFA")
and has 13 years of financial experience.
Sandra K. Shrewsbury has been primarily responsible for the day-to-day
management of the Emerging Growth Fund's portfolio since 1993 and of the Small
Company Growth Fund's portfolio since September 1996. Ms. Shrewsbury has been a
Senior Vice President of the Adviser since 1993, prior to which she had been a
Managing Director of the Distributor since 1992 and a Vice President of the
Distributor from 1990 to 1992. She is a CFA and has 14 years of financial
experience.
Transfer Agent, Dividend Disbursing Agent and Custodian
Investors Fiduciary Trust Company ("IFTC"), 127 West Tenth Street, Kansas
City, Missouri 64105, (800) 874-6205, serves as Custodian for the Funds'
portfolio securities and cash and as Transfer Agent and Dividend Disbursing
Agent for the Funds.
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The Company has entered into Shareholder Account Servicing Agreements with
the Distributor and Piper Trust Company, an affiliate of the Distributor and the
Adviser. Under these agreements, the Distributor and Piper Trust Company provide
transfer agent and dividend disbursing agent services for certain shareholder
accounts. For more information, see "Investment Advisory and Other
Services--Transfer Agent and Dividend Disbursing Agent" in the Statement of
Additional Information.
Portfolio Transactions and Brokerage Commissions
The Adviser selects brokers and futures commission merchants to use for the
Funds' portfolio transactions. In making its selection, the Adviser may consider
a number of factors, which are more fully discussed in the Statement of
Additional Information, including, but not limited to, research services, the
reasonableness of commissions and quality of services and execution. A broker's
sales of shares of any series of the Company may also be considered a factor if
the Adviser is satisfied that a Fund would receive from that broker the most
favorable price and execution then available for a transaction. Portfolio
transactions for the Funds may be effected through the Distributor on a
securities exchange in compliance with Section 17(e) of the Investment Company
Act of 1940, as amended (the "1940 Act"). For more information, see "Portfolio
Transactions and Allocation of Brokerage" in the Statement of Additional
Information.
DISTRIBUTION OF FUND SHARES
Piper Jaffray acts as the principal distributor of the Funds' shares. The
Company has adopted a Distribution Plan (the "Plan") as required by Rule 12b-1
under the 1940 Act. Under the Plan, the Distributor is paid a total fee in
connection with the servicing of each Fund's shareholder accounts and in
connection with distribution related services provided with respect to each
Fund. This fee is calculated daily and paid quarterly at an annual rate equal to
.50% of the average daily net assets of each Fund.
A portion of the total fee equal to .25% of each Fund's average daily net
assets is categorized as a distribution fee intended to compensate the
Distributor for its expenses incurred in connection with the sale of Fund
shares. The remaining portion of the fee, equal to .25% of each Fund's average
daily net assets, is categorized as a servicing fee intended to compensate the
Distributor for ongoing servicing and/or maintenance of shareholder accounts.
The Distributor has voluntarily agreed to limit the total fee payable under the
Plan to .34% of each Fund's average daily net assets. This limitation may be
revised or terminated at any time after fiscal 1997 year end. Payments made
under the Plan are not tied exclusively to expenses actually incurred by the
Distributor and may exceed such expenses. The Adviser and the Distributor, out
of their own assets, may pay for certain expenses incurred in connection with
the distribution of shares of the Funds. In particular, the Adviser may make
payments out of its own assets to Piper Jaffray Investment Executives and other
broker dealers in connection with their sales of shares of the Funds. See "How
to Purchase Shares-- Purchase Price." Further information regarding the Plan is
contained in the Statement of Additional Information.
The Distributor uses a portion of its Rule 12b-1 fee to make payments to
Investment Executives of the Distributor and broker-dealers which have entered
into sales agreements with the Distributor. If shares of a Fund are sold by a
representative of a broker-dealer other than the Distributor, the broker-dealer
is paid .30% of the average daily net assets of the Fund attributable to shares
sold by the broker-dealer's representative. If shares of a Fund are sold by an
Investment Executive of the Distributor, compensation is paid to the Investment
Executive in the manner set forth in a written agreement, in an amount not to
exceed .30% of the average daily net assets of the Fund attributable to shares
sold by the Investment Executive.
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SHAREHOLDER GUIDE TO INVESTING
HOW TO PURCHASE SHARES
General
The Funds' shares may be purchased at the public offering price from the
Distributor and from other broker-dealers who have sales agreements with the
Distributor. The address of the Distributor is that of the Funds. The
Distributor reserves the right to reject any purchase order. You should be aware
that, because the Funds do not issue stock certificates, Fund shares must be
kept in an account with the Distributor or with IFTC. All investments must be
arranged through your Piper Jaffray Investment Executive or other broker-dealer.
Purchase Price
You may purchase shares of the Funds at the net asset value per share next
calculated after receipt of your order by your Piper Jaffray Investment
Executive or other broker-dealer, plus a front-end sales charge as follows:
<TABLE>
<CAPTION>
Sales Charge Sales Charge
as a Percentage of as a Percentage of
Amount of Transaction at Offering Price Offering Price Net Asset Value
- --------------------------------------------------------- ------------------- -------------------
<S> <C> <C>
Less than $100,000....................................... 4.00% 4.17%
$100,000 but less than $250,000.......................... 3.25% 3.36%
$250,000 but less than $500,000.......................... 2.50% 2.56%
$500,000 and over........................................ 0.00% 0.00%
</TABLE>
This table sets forth total sales charges or underwriting commissions. The
Distributor may reallow up to the entire sales charge to broker-dealers in
connection with their sales of shares. These broker-dealers may, by virtue of
such reallowance, be deemed to be "underwriters" under the 1933 Act.
During the Special Offering Period, which extends through December 31, 1996,
you may purchase shares of the Funds without an initial sales charge. For any
purchase that would be subject to a sales charge outside of the Special Offering
Period, the Funds will impose a contingent deferred sales charge of 2% on
redemptions during the first 12 months after purchase, and 1% on redemptions
during the second 12 months. See "How to Redeem Shares--Contingent Deferred
Sales Charge." The Adviser will pay the Distributor, out of its own assets, a
fee equal to 2% of the net asset value of any shares sold during this period
that would be subject to a sales charge outside of the Special Offering Period.
This fee also will be paid in connection with certain sales that are not subject
to a sales charge outside of the Special Offering Period, including (a)
purchases by 401(k) plans, by certain plans which are qualified plans under
Section 401(a) of the Internal Revenue Code and by tax-sheltered annuities, (b)
purchases funded by the proceeds from the sale of shares of any non-money market
open-end mutual fund within 30 days after such sale, (c) purchases of $500,000
or more, (d) exchanges of shares of Adjustable Rate Mortgage Securities Fund, a
series of Piper Funds Inc.--II, that were originally acquired in the American
Adjustable Rate Term Trust merger, and (e) purchases made with distributions
received in connection with the dissolution of American Government Term Trust
Inc., a closed-end fund previously managed by the Adviser. The Distributor will
pay a portion of its 2% fee to Piper Jaffray Investment Executives and other
broker-dealers selling shares of the Funds. Please contact your Piper Jaffray
Investment Executive or other broker-dealer for more information.
The Distributor will make certain payments to its Investment Executives and
to other broker-dealers in connection with their sales of Fund shares. See
"Distribution of Fund Shares" above. In addition, the Distributor or the
Adviser, at their own expense, provide promotional incentives to Investment
Executives of
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SHAREHOLDER GUIDE TO INVESTING
the Distributor and to broker-dealers who have sales agreements with the
Distributor in connection with sales of shares of the Funds, other series of the
Company and other mutual funds for which the Adviser acts as investment adviser.
In some instances, these incentives may be made available only to certain
Investment Executives or broker-dealers who have sold or may sell significant
amounts of such shares. The incentives may include payment for travel expenses,
including lodging at luxury resorts, incurred in connection with sales seminars.
Purchases of $500,000 or More
If you make a purchase of $500,000 or more (including purchases made under a
Letter of Intent), a 1% contingent deferred sales charge will be assessed in the
event you redeem shares within 24 months following the purchase. This sales
charge will be paid to the Distributor. For more information, please refer to
the Contingent Deferred Sales Charge section of "How To Redeem Shares." The
Distributor currently pays its Investment Executives and other broker-dealers
fees in connection with these purchases as follows:
<TABLE>
<CAPTION>
Fee as a Percentage
Amount of Transaction of Offering Price
- --------------------------------------------------------------------------- --------------------
<S> <C>
First $1,000,000........................................................... 1.00%
Next $2,000,000............................................................ 0.75%
Next $2,000,000............................................................ 0.50%
Next $5,000,000............................................................ 0.25%
Above $10,000,000.......................................................... 0.15%
</TABLE>
Piper Jaffray Investment Executives and other broker-dealers generally will
not receive a fee in connection with purchases on which the contingent deferred
sales charge is waived. However, the Distributor, in its discretion, may pay a
fee out of its own assets to its Investment Executives and other broker-dealers
in connection with purchases by employee benefit plans on which no sales charge
is imposed. Please see the Special Purchase Plans section of "Reducing Your
Sales Charge."
Minimum Investments
A minimum initial investment of $250 is required. There is no minimum for
subsequent investments. The Distributor, in its discretion, may waive the
minimum.
REDUCING YOUR SALES CHARGE
You may qualify for a reduced sales charge through one or more of several
plans. You must notify your Piper Jaffray Investment Executive or broker-dealer
at the time of purchase to take advantage of these plans.
Aggregation
Front-end or initial sales charges may be reduced or eliminated by
aggregating your purchase with purchases of certain related personal accounts.
In addition, purchases made by members of certain organized groups will be
aggregated for purposes of determining sales charges. Sales charges are
calculated by adding the dollar amount of your current purchase to the higher of
the cost or current value of shares of any Piper fund sold with a sales charge
that are currently held by you and your related accounts or by other members of
your group.
QUALIFIED GROUPS. You may group purchases in the following personal
accounts together:
- Your individual account.
- Your spouse's account.
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SHAREHOLDER GUIDE TO INVESTING
- Your children's accounts (if they are under the age of 21).
- Your employee benefit plan accounts if they are exclusively for your
benefit. This includes accounts such as IRAs, individual 403(b) plans or
single-participant Keogh-type plans.
- A single trust estate or single fiduciary account if you are the trustee
or fiduciary.
Additionally, purchases made by members of any organized group meeting the
requirements listed below may be aggregated for purposes of determining sales
charges:
- The group has been in existence for more than six months.
- It is not organized for the purpose of buying redeemable securities of a
registered investment company.
- Purchases must be made through a central administration, or through a
single dealer, or by other means that result in economy of sales effort or
expense.
An organized group does not include a group of individuals whose sole
organizational connection is participation as credit card holders of a company,
policyholders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser.
Right of Accumulation
Sales charges for purchases of Fund shares into Piper Jaffray accounts will
be automatically calculated taking into account the dollar amount of any new
purchases along with the higher of current value or cost of shares previously
purchased in any other mutual fund managed by the Adviser that was sold with a
sales charge. For other broker-dealer accounts, you should notify your
Investment Executive at the time of purchase of additional Piper fund shares you
may own.
Letter of Intent
Your sales charge may be reduced by signing a non-binding Letter of Intent.
This Letter of Intent will state your intention to invest $100,000 or more in
any of the mutual funds managed by the Adviser that are sold with a sales charge
over a 13-month period, beginning not earlier than 90 days prior to the date you
sign the Letter. You will pay the lower sales charge applicable to the total
amount you plan to invest over the 13-month period. Part of your shares will be
held in escrow to cover additional sales charges that may be due if you do not
invest the planned amount. Please see "Purchase of Shares" in the Statement of
Additional Information for more details. You can contact your Piper Jaffray
Investment Executive or other broker-dealer for an application.
SPECIAL PURCHASE PLANS
For more information on any of the following special purchase plans, contact
your Piper Jaffray Investment Executive or other broker-dealer.
Purchases by Piper Jaffray Companies Inc., Its Subsidiaries and Associated
Persons
Piper Jaffray Companies Inc. and its subsidiaries may buy shares of the
Funds without incurring a sales charge. The following persons associated with
such entities also may buy Fund shares without paying a sales charge:
- Officers, directors and their spouses.
- Employees, retirees and their spouses.
- Investment executives and their spouses.
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SHAREHOLDER GUIDE TO INVESTING
- Children, grandchildren, parents or siblings of any of the above, or
spouses of any of these persons.
- Any trust, pension, profit-sharing or other benefit plan for any of the
above.
All persons in the first four groups set forth above may continue to add to
their accounts even after their company relationships have ended.
Purchases by Broker-Dealers
Employees of broker-dealers who have entered into sales agreements with the
Distributor, and spouses and children under the age of 21 of such employees, may
buy shares of the Funds without incurring a sales charge.
Purchases by Other Individuals Without a Sales Charge
The following other individuals and entities also may buy Fund shares
without paying a sales charge:
- Clients of the Adviser buying shares of the Funds in their advisory
accounts.
- Discretionary accounts at Piper Trust Company and participants in
investment companies exempt from registration under the 1940 Act that are
managed by the Adviser.
- Trust companies and bank trust departments using funds over which they
exercise exclusive discretionary investment authority and which are held
in a fiduciary, agency, advisory, custodial or similar capacity.
- Investors purchasing shares through a Piper Jaffray Investment Executive
if the purchase of such shares is funded by the proceeds from the sale of
shares of any non-money market open-end mutual fund not managed by the
Adviser. This privilege is available for 30 days after the sale.
- Former shareholders of American Government Term Trust Inc. may invest the
distributions received by them in connection with the dissolution of such
fund in shares of the Funds without payment of a sales charge.
Purchases by Employee Benefit Plans and Tax-Sheltered Annuities
- Shares of the Funds will be sold at net asset value, without a sales
charge, to employee benefit plans containing an actively maintained
qualified cash or deferred arrangement under Section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code") (a "401(k) Plan").
In the event a 401(k) Plan of an employer has purchased shares in the
Funds or any other series of the Company (other than a money market fund)
during any calendar quarter, any other employee benefit plan of such
employer that is a qualified plan under Section 401(a) of the Code also
may purchase shares of the Funds during such quarter without incurring a
sales charge.
- Custodial accounts under Section 403(b) of the Code (known as
tax-sheltered annuities) also may buy shares of the Funds without
incurring a sales charge.
HOW TO REDEEM SHARES
Normal Redemption
You may redeem all or a portion of your shares on any day that a Fund values
its shares. (Please refer to "Valuation of Shares" below for more information.)
Your shares will be redeemed at the net asset value next calculated after the
receipt of your instructions in good form by your Piper Jaffray Investment
Executive or other broker-dealer as explained below.
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SHAREHOLDER GUIDE TO INVESTING
PIPER JAFFRAY INC. ACCOUNTS. To redeem your shares, please contact your
Piper Jaffray Investment Executive with an oral request to redeem your shares.
OTHER BROKER-DEALER ACCOUNTS. To redeem your shares, you may either contact
your broker-dealer with an oral request or send a written request directly to
the Funds' transfer agent, IFTC. This request should contain: the dollar amount
or number of shares to be redeemed, your Fund account number and either a social
security or tax identification number (as applicable). You should sign your
request in exactly the same way the account is registered. If there is more than
one owner of the shares, all owners must sign. A signature guarantee is required
for redemptions over $25,000. Please contact IFTC or refer to "Redemption of
Shares" in the Statement of Additional Information for more details.
Contingent Deferred Sales Charge
If you invest $500,000 or more and, as a result, pay no front-end sales
charge, or if you purchased during shares during the Special Offering Period,
you may incur a contingent deferred sales charge if you redeem within 24 months.
In the case of investments of $500,000 or more, for all redemptions made during
the 24-month period this charge will be equal to 1% of the lesser of the net
asset value of the shares at the time of purchase or at the time of redemption.
In the case of purchases made during the Special Offering Period that otherwise
would be subject to a front-end sales charge, the contingent deferred sales
charge will be equal to 2% of the lesser of the net asset value of the shares at
the time of purchase or at the time of redemption for redemptions made during
the first 12 months after purchase, and 1% during the second 12 months. In both
cases, the contingent deferred sales charge does not apply to amounts
representing an increase in the value of Fund shares due to capital appreciation
or to shares acquired through reinvestment of dividend or capital gain
distributions. In determining whether a contingent deferred sales charge is
payable, shares that are not subject to any deferred sales charge will be
redeemed first, and other shares will then be redeemed in the order purchased.
LETTER OF INTENT. In the case of a Letter of Intent, the 24-month period
begins on the date the Letter of Intent is completed.
SPECIAL PURCHASE PLANS. If you purchased your shares through one of the
plans described above under "Special Purchase Plans," the contingent deferred
sales charge will be waived. In addition, the contingent deferred sales charge
will be waived in the event of:
- The death or disability (as defined in Section 72(m)(7) of the Code) of
the shareholder. (This waiver will be applied to shares held at the time
of death or the initial determination of disability of either an
individual shareholder or one who owns the shares as a joint tenant with
the right of survivorship or as a tenant in common.)
- A lump sum distribution from an employee benefit plan qualified under
Section 401(a) of the Code, an individual retirement account under Section
408(a) of the Code or a simplified employee pension plan under Section
408(k) of the Code.
- Systematic withdrawals from any such plan or account if the shareholder is
at least 59 1/2 years old.
- A tax-free return of the excess contribution to an individual retirement
account under Section 408(a) of the Code.
- Involuntary redemptions effected pursuant to the right to liquidate
shareholder accounts having an aggregate net asset value of less than
$200.
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SHAREHOLDER GUIDE TO INVESTING
EXCHANGES. If you exchange your shares, no contingent deferred sales charge
will be imposed. However, the charge will apply if you subsequently redeem the
new shares within 24 months of the original purchase.
REINSTATEMENT PRIVILEGE. If you elect to use the Reinstatement Privilege
(please see "Shareholder Services" below), any contingent deferred sales charge
you paid will be credited to your account (proportional to the amount
reinvested). Please see "Redemption of Shares" in the Statement of Additional
Information for more details.
Payment of Redemption Proceeds
After your shares have been redeemed, the cash proceeds will normally be
sent to you or your broker-dealer within three business days. In no event will
payment be made more than seven days after receipt of your order in good form.
However, payment may be postponed or the right of redemption suspended for more
than seven days under unusual circumstances, such as when trading is not taking
place on the New York Stock Exchange. Payment of redemption proceeds may also be
delayed if the shares to be redeemed were purchased by a check drawn on a bank
which is not a member of the Federal Reserve System, until such checks have
cleared the banking system (normally up to 15 days from the purchase date).
Involuntary Redemption
Each Fund reserves the right to redeem your account at any time the net
asset value of the account falls below $200 as the result of a redemption or
exchange request. You will be notified in writing prior to any such redemption
and will be allowed 30 days to make additional investments before the redemption
is processed.
SHAREHOLDER SERVICES
Automatic Monthly Investment Program
You may arrange to make additional automated purchases of shares of the
Funds or certain other mutual funds managed by the Adviser. You can
automatically transfer $100 or more per month from your bank, savings and loan
or other financial institution to purchase additional shares. In addition, if
you hold your shares in a Piper Jaffray account you may arrange to make such
additional purchases by having $25 or more automatically transferred each month
from any of the money market fund series of the Company. You should contact your
Piper Jaffray Investment Executive or IFTC to obtain authorization forms or for
additional information.
Reinstatement Privilege
If you have redeemed shares of a Fund, you may be eligible to reinvest in
shares of any fund managed by the Adviser without payment of an additional sales
charge. The reinvestment request must be made within 30 days of the redemption.
This privilege is subject to the eligibility of share purchases in your state as
well as the minimum investment requirements and any other applicable terms in
the prospectus of the fund being acquired.
Exchange Privilege
If your investment goals change, you may prefer a fund with a different
objective. If you are considering an exchange into another mutual fund managed
by the Adviser, you should carefully read the appropriate prospectus for
additional information about that fund. A prospectus may be obtained through
your Piper Jaffray Investment Executive, your broker-dealer or the Distributor.
To exchange your shares, please contact your Piper Jaffray Investment Executive,
your broker-dealer or IFTC.
25
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- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE TO INVESTING
You may exchange your shares for shares of any other mutual fund managed by
the Adviser. All exchanges are subject to the eligibility of share purchases in
your state as well as the minimum investment requirements and any other
applicable terms in the prospectus of the fund being acquired. Exchanges are
made on the basis of the net asset values of the funds involved, except that
investors exchanging into a fund which has a higher sales charge must pay the
difference.
The Company reserves the right to change or discontinue the exchange
privilege, or any aspect of the privilege, upon 60 days' written notice.
Telephone Transaction Privileges
PIPER JAFFRAY INC. ACCOUNTS. If you hold your shares in a Piper Jaffray
account, you may telephone your Investment Executive to execute any transaction
or to apply for many shareholder services. In some cases, you may be required to
complete a written application.
OTHER BROKER-DEALER ACCOUNTS. If you hold your shares in an account with
your broker-dealer or at IFTC, you may authorize telephone privileges by
completing the Account Application and Services Form. Please contact your
broker-dealer or IFTC (800-874-6205) for an application or for more details. The
Funds will employ reasonable procedures to confirm that a telephonic request is
genuine, including requiring that payment be made only to the address of record
or the bank account designated on the Account Application and Services Form and
requiring certain means of telephonic identification. A Fund employing such
procedures will not be liable for following instructions communicated by
telephone that it reasonably believes to be genuine. If a Fund does not employ
such procedures, it may be liable for any losses due to unauthorized or
fraudulent telephone transactions. It may be difficult to reach the Funds by
telephone during periods when market or economic conditions lead to an unusually
large volume of telephone requests. If you cannot reach the Funds by telephone,
you should contact your broker-dealer or issue written instructions to IFTC at
the address set forth herein. See "Management--Transfer Agent, Dividend
Disbursing Agent and Custodian." The Funds reserve the right to suspend or
terminate their telephone services at any time without notice.
Directed Dividends
You may direct income dividends and capital gains distributions to be
invested in any other mutual fund managed by the Adviser (other than a money
market fund) that is offered in your state. This investment will be made at net
asset value. It will not be subject to a minimum investment amount except that
you must hold shares in such fund (including the shares being acquired with the
dividend or distribution) with a value at least equal to such fund's minimum
initial investment amount.
Systematic Withdrawal Plan
If your account has a value of $5,000 or more, you may establish a
Systematic Withdrawal Plan for any of the Funds. This plan will allow you to
receive regular periodic payments by redeeming as many shares from your account
as necessary. As with other redemptions, a redemption to make a withdrawal is a
sale for federal income tax purposes. Payments made under a Systematic
Withdrawal Plan cannot be considered as actual yield or income since part of the
payments may be a return of capital.
A request to establish a Systematic Withdrawal Plan must be submitted in
writing to your Piper Jaffray Investment Executive or other broker-dealer. There
are no service charges for maintenance; the minimum amount that you may withdraw
each period is $100. You will be required to have any income dividends and any
capital gains distributions reinvested. You may choose to have withdrawals made
monthly, quarterly or semiannually. Please contact your Piper Jaffray Investment
Executive, other broker-dealer or IFTC for more information.
26
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- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE TO INVESTING
You should be aware that additional investments in an account that has an
active Systematic Withdrawal Plan may be inadvisable due to sales charges and
tax liabilities. Please refer to "Redemption of Shares" in the Statement of
Additional Information for additional details.
Account Protection
If your Fund shares are held in a Piper Jaffray account, they are protected
in the unlikely event of Piper Jaffray's financial failure. Piper Jaffray is a
member of the Securities Investor Protection Corporation ("SIPC"), whose primary
purpose is to protect the customers of its members against losses of up to
$500,000 ($100,000 on claims for cash) in the event of a member's liquidation.
In addition to the $500,000 SIPC protection, Piper Jaffray clients have
additional protection provided by Aetna Casualty and Surety Company. Your
investments in the Funds held in a Piper Jaffray PRIME or PAT Plus account are
protected up to $49.5 million beyond the coverage provided by SIPC, for total
account protection of $50 million. Investments held in all other Piper Jaffray
accounts are protected up to $24.5 million beyond the coverage provided by SIPC,
for total account protection of $25 million. This protection does NOT cover any
declines in the net asset value of Fund shares.
Confirmation of Transactions and Reporting of Other Information
Each time there is a transaction involving your Fund shares, such as a
purchase, redemption or dividend reinvestment, you will receive a confirmation
statement describing that activity. This information will be provided to you
from either Piper Jaffray, your broker-dealer or IFTC. In addition, you will
receive various IRS forms after the first of each year detailing important tax
information and each Fund is required to supply annual and semiannual reports
that list securities held by the Fund and include the current financial
statements of the Fund.
HOUSEHOLDING. If you have multiple accounts with Piper Jaffray, you may
receive some of the above information in combined mailings. This will not only
help to reduce Fund expenses, it will help the environment by saving paper.
Please contact your Piper Jaffray Investment Executive for more information.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income, if any, will be paid annually. Net
realized capital gains, if any, will be distributed at least once annually by
each Fund.
BUYING A DIVIDEND. On the ex-dividend date for a distribution, a Fund's
share price is reduced by the amount of the distribution. If you buy shares just
before the ex-dividend date ("buying a dividend"), you will pay the full price
for the shares and then receive a portion of the price back as a taxable
distribution.
DISTRIBUTION OPTIONS. All net investment income dividends and net realized
capital gains distributions for a Fund generally will be payable in additional
shares of that Fund at net asset value ("Reinvestment Option"). If you wish to
receive your distributions in cash, you must notify your Piper Jaffray
Investment Executive or other broker-dealer. You may elect either to receive
income dividends in cash and capital gains distributions in additional shares of
the Fund at net asset value ("Split Option"), or to receive both income
dividends and capital gains distributions in cash ("Cash Option"). You may also
direct income dividends and capital gains distributions to be invested in
another mutual fund managed by the Adviser. See "Shareholder Services--Directed
Dividends" above. The taxable status of income dividends and/or net capital
gains distributions is not affected by whether they are reinvested or paid in
cash.
27
<PAGE>
VALUATION OF SHARES
The Funds compute their net asset value on each day the New York Stock
Exchange (the "Exchange") is open for business. The calculation is made as of
the regular close of the Exchange (currently 4:00 p.m. New York time) after the
Funds have declared any applicable dividends.
The net asset value per share for each of the Funds is determined by
dividing the value of the securities owned by the Fund plus any cash and other
assets (including interest accrued and dividends declared but not collected)
less all liabilities by the number of Fund shares outstanding. For the purposes
of determining the aggregate net assets of the Funds, cash and receivables will
be valued at their face amounts. Interest will be recorded as accrued and
dividends will be recorded on the ex-dividend date. Securities traded on a
national securities exchange or on the Nasdaq National Market System are valued
at the last reported sale price that day. Securities traded on a national
securities exchange or on the Nasdaq National Market System for which there were
no sales on that day and securities traded on other over-the-counter markets for
which market quotations are readily available are valued at the mean between the
bid and asked prices. If a Fund should have an open short position as to a
security, the valuation of the contract will be at the average of the bid and
asked prices. Portfolio securities underlying actively traded options will be
valued at their market price as determined above. The current market value of
any exchange-traded option held or written by a Fund is its last sales price on
the exchange prior to the time when assets are valued. Lacking any sales that
day, the options will be valued at the mean between the current closing bid and
asked prices. Financial futures are valued at the settlement price established
each day by the board of trade or exchange on which they are traded.
The value of certain fixed-income securities will be provided by an
independent pricing service, which determines these valuations at a time earlier
than the close of the Exchange. Pricing services consider such factors as
security prices, yields, maturities, call features, ratings and developments
relating to specific securities in arriving at securities valuations.
Occasionally events affecting the value of such securities may occur between the
time valuations are determined and the close of the Exchange. If events
materially affecting the value of such securities occur during such period, or
if the Company's management determines for any other reason that valuations
provided by the pricing service are inaccurate, such securities will be valued
at their fair value according to procedures decided upon in good faith by the
Board of Directors. In addition, any securities or other assets of a Fund for
which market prices are not readily available will be valued at their fair value
in accordance with such procedures.
TAX STATUS
Each Fund is treated as a separate corporation for federal income tax
purposes under the Internal Revenue Code of 1986, as amended (the "Code").
Therefore, each Fund is treated separately in determining whether it qualifies
as a regulated investment company under the Code and for purposes of determining
the net ordinary income (or loss), net realized capital gains (or losses) and
distributions necessary to relieve such Fund of any federal income tax
liability. Each Fund qualified as a regulated investment company during its last
taxable year and intends to so qualify during the current taxable year. If so
qualified, a Fund will not be liable for federal income taxes to the extent it
distributes its taxable income to shareholders.
Distributions by a Fund are generally taxable to the shareholders, whether
received in cash or additional shares of the Fund (or shares of another mutual
fund managed by the Adviser). Under the Code, corporate shareholders generally
may deduct 70% of distributions from a Fund attributable to dividends paid by
domestic corporations. Distributions of net capital gains (designated as
"capital gain dividends") are taxable
28
<PAGE>
to shareholders as long-term capital gains, regardless of the length of time the
shareholder has held the shares of the Fund.
A shareholder will recognize a capital gain or loss upon the sale or
exchange of shares in a Fund if, as is normally the case, the shares are capital
assets in the shareholder's hands. This capital gain or loss will be long-term
if the shares have been held for more than one year.
The foregoing relates to federal income taxation as in effect as of the date
of this Prospectus. For a more detailed discussion of the federal income tax
consequences of investing in shares of the Funds, see "Taxation" in the
Statement of Additional Information. Before investing in any of the Funds, you
should check the consequences of your local and state tax laws.
PERFORMANCE COMPARISONS
Advertisements and other sales literature for each Fund may refer to the
Fund's "average annual total return" and "cumulative total return." All such
total return quotations are based upon historical earnings and are not intended
to indicate future performance. The return on and principal value of an
investment in any of the Funds will fluctuate, so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Average annual total return is the average annual compounded rate of return
on a hypothetical $1,000 investment made at the beginning of the advertised
period. Cumulative total return is calculated by subtracting a hypothetical
$1,000 payment to a Fund from the redeemable value of such payment at the end of
the advertised period, dividing such difference by $1,000 and multiplying the
quotient by 100. In calculating average annual and cumulative total return, the
maximum sales charge is deducted from the hypothetical investment and all
dividends and distributions are assumed to be reinvested. Such total return
quotations may be accompanied by quotations which do not reflect the reduction
in value of the initial investment due to the sales charge, and which thus will
be higher.
Comparative performance information also may be used from time to time in
advertising the Funds' shares. For example, advertisements may compare the
Funds' performance to that of various unmanaged market indices, or may include
performance data from Lipper Analytical Services, Inc., Morningstar, Inc. or
other entities or organizations which track the performance of investment
companies.
For additional information regarding comparative performance information and
the calculation of average annual total return and cumulative total return, see
"Performance Comparisons" in the Statement of Additional Information.
GENERAL INFORMATION
The Company, which was organized under the laws of State of Minnesota in
1986, is authorized to issue a total of 10 trillion shares of common stock, with
a par value of $.01 per share. Three hundred and ninety billion of these shares
have been authorized by the Board of Directors to be issued in twelve separate
series, as follows: Growth Fund, Emerging Growth Fund, Small Company Growth Fund
(formerly Equity Strategy Fund), Growth and Income Fund, Balanced Fund,
Government Income Fund, Intermediate Bond Fund (formerly Institutional
Government Income Portfolio), National Tax-Exempt Fund and Minnesota Tax-Exempt
Fund, each of which has ten billion authorized shares, and Money Market Fund,
Tax-Exempt Money Market Fund and U.S. Government Money Market Fund, each of
which has one hundred billion authorized shares.
29
<PAGE>
The Board of Directors is empowered under the Company's Articles of
Incorporation to issue additional series of the Company's common stock without
shareholder approval. In addition, the Board of Directors may, without
shareholder approval, create and issue one or more additional classes of shares
within each Fund, as well as within any series of the Company created in the
future. See "Capital Stock and Ownership of Shares" in the Statement of
Additional Information.
All shares, when issued, will be fully paid and nonassessable and will be
redeemable. All shares have equal voting rights. They can be issued as full or
fractional shares. A fractional share has pro-rata the same kind of rights and
privileges as a full share. The shares possess no preemptive or conversion
rights.
Each share of a series has one vote (with proportionate voting for
fractional shares) irrespective of the relative net asset value of the series'
shares. On some issues, such as the election of directors, all shares of the
Company vote together as one series. On an issue affecting only a particular
series, the shares of the affected series vote separately. Cumulative voting is
not authorized. This means that the holders of more than 50% of the shares
voting for the election of directors can elect 100% of the directors if they
choose to do so, and, in such event, the holders of the remaining shares will be
unable to elect any directors.
The Bylaws of the Company provide that shareholder meetings be held only
with such frequency as required under Minnesota law. Minnesota corporation law
requires only that the Board of Directors convene shareholder meetings when it
deems appropriate. In addition, Minnesota law provides that if a regular meeting
of shareholders has not been held during the immediately preceding 15 months, a
shareholder or shareholders holding 3% or more of the voting shares of the
Company may demand a regular meeting of shareholders by written notice given to
the chief executive officer or chief financial officer of the Company. Within 30
days after receipt of the demand, the Board of Directors shall cause a regular
meeting of shareholders to be called, which meeting shall be held no later than
90 days after receipt of the demand, all at the expense of the Company. In
addition, the 1940 Act requires a shareholder vote for all amendments to
fundamental investment policies and restrictions, for all amendments to
investment advisory contracts and for certain amendments to Rule 12b-1
distribution plans.
Pending Legal Proceedings
Complaints have been brought against the Adviser and the Distributor
relating to another series of the Company and to other investment companies for
which the Adviser acts or has acted as investment adviser or subadviser. These
lawsuits do not involve the Funds.
A number of complaints have been brought in federal and state court against
the Institutional Government Income Portfolio ("PJIGX") series of the Company
(such series has been renamed Intermediate Bond Fund), the Adviser, the
Distributor, and certain individuals affiliated or formerly affiliated with the
Adviser and the Distributor. On February 13, 1996, a Settlement Agreement became
effective for the consolidated class action lawsuit, titled In Re: PIPER FUNDS
INC. INSTITUTIONAL GOVERNMENT INCOME PORTFOLIO LITIGATION. The Amended
Consolidated Class Action Complaint was filed on October 5, 1994, in the United
States District Court, District of Minnesota, against PJIGX, the Adviser, the
Distributor, William H. Ellis and Edward J. Kohler, and had alleged the making
of materially misleading statements in the prospectus, common law negligent
misrepresentation and breach of fiduciary duty. The Settlement Agreement will
provide approximately $67.5 million, together with interest earned, less certain
disbursements and attorney fees, to class members in payments scheduled over
approximately three years. Such payments will be made by Piper Jaffray Companies
Inc. and the Adviser and will not be an obligation of the Company. A number of
lawsuits and arbitrations brought by some of the investors who requested
exclusion from the settlement class remain pending.
30
<PAGE>
Complaints also have been filed in state and federal court relating to a
number of closed-end investment companies managed by the Adviser and two
open-end investment companies for which the Adviser has acted as sub-adviser.
The complaints, which ask for rescission of plaintiff shareholders' purchases or
compensatory damages, plus interest, costs and expenses, generally allege, among
other things, certain violations of federal and/or state securities laws,
including the making of materially misleading statements in prospectuses
concerning investment policies and risks. In addition to the Settlement
Agreement discussed above, a settlement agreement has been reached with respect
to a consolidated complaint relating to four closed-end investment companies
managed by the Adviser and agreements-in-principle have been reached to settle
certain other complaints. The Adviser and the Distributor also are subject to
regulatory inquiries related to various funds or assets managed by the Adviser.
See "Pending Litigation" in the Statement of Additional Information.
The Adviser and the Distributor do not believe that the settlements
discussed above, any agreement-in-principle to settle, or any outstanding
complaint or action in arbitration or regulatory inquiry will have a material
adverse effect on their ability to perform under their agreements with the
Company or a material adverse effect on the Funds.
No dealer, sales representative or other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus (and/or in the Statement of Additional Information referred to
on the cover page of this Prospectus), and, if given or made, such information
or representations must not be relied upon as having been authorized by the
Funds or Piper Jaffray Inc. This Prospectus does not constitute an offer or
solicitation by anyone in any state in which such offer or solicitation is not
authorized, or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation.
31
<PAGE>
PIPER FUNDS INC.
INVESTMENT ADVISER
Piper Capital Management Incorporated
DISTRIBUTOR
Piper Jaffray Inc.
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
LEGAL COUNSEL
Dorsey & Whitney LLP
Table of Contents
<TABLE>
<CAPTION>
PAGE
<S> <C>
Introduction........................... 2
Fund Expenses.......................... 4
Financial Highlights................... 6
Investment Objectives and Policies..... 9
Special Investment Methods............. 14
Management............................. 18
Distribution of Fund Shares............ 19
SHAREHOLDER GUIDE TO INVESTING
How to Purchase Shares............... 20
Reducing Your Sales Charge........... 21
Special Purchase Plans............... 22
How to Redeem Shares................. 23
Shareholder Services................. 25
Dividends and Distributions.......... 27
Valuation of Shares.................... 28
Tax Status............................. 28
Performance Comparisons................ 29
General Information.................... 29
</TABLE>
- ----------------------------------------------------------
Prospectus
[LOGO]
------------------------------
U.S. Growth Funds
Small Company Growth Fund
Emerging Growth Fund
Growth Fund
November 25, 1996
--------------------------------
30200 021-97
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
PART B
GROWTH FUND
GROWTH AND INCOME FUND
EMERGING GROWTH FUND
SMALL COMPANY GROWTH FUND
BALANCED FUND
STATEMENT OF ADDITIONAL INFORMATION
November 25, 1996
Table of Contents
Page
----
Investment Policies and Restrictions . . . . . . . . . . . . . . . . . 2
Directors and Executive Officers . . . . . . . . . . . . . . . . . . . 13
Investment Advisory and Other Services . . . . . . . . . . . . . . . . 17
Portfolio Transactions and Allocation of Brokerage . . . . . . . . . . 24
Capital Stock and Ownership of Shares. . . . . . . . . . . . . . . . . 27
Net Asset Value and Public Offering Price. . . . . . . . . . . . . . . 28
Performance Comparisons. . . . . . . . . . . . . . . . . . . . . . . . 29
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . 33
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
General Information. . . . . . . . . . . . . . . . . . . . . . . . . . 36
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 37
Pending Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Appendix A - Corporate Bond, Preferred Stock and
Commercial Paper Ratings . . . . . . . . . . . . . . . . . . . . . . A-1
Appendix B - Interest Rate Futures Contracts
and Related Options. . . . . . . . . . . . . . . . . . . . . . . . . B-1
Appendix C - Stock Index Futures Contracts
and Related Options. . . . . . . . . . . . . . . . . . . . . . . . . C-1
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information relates to two Prospectuses, each dated
November 25, 1996. One Prospectus relates to Growth Fund, Emerging Growth Fund
and Small Company Growth Fund; the other relates to Growth and Income Fund and
Balanced Fund. This Statement of Additional Information should be read in
conjunction with each applicable Prospectus. Copies of these Prospectuses may
be obtained from the Funds at Piper Jaffray Tower, 222 South Ninth Street,
Minneapolis, Minnesota 55402-3804.
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
The shares of Piper Funds Inc. (the "Company") are currently offered in
twelve series. This Statement of Additional Information relates to five of
these series: Growth Fund, Emerging Growth Fund, Small Company Growth Fund,
Growth and Income Fund and Balanced Fund. These series are sometimes referred
to herein individually as a "Fund" or, collectively, as the "Funds." The
investment objectives and policies of the Funds are set forth in the Funds'
respective Prospectuses. Certain additional investment information is set forth
below.
REPURCHASE AGREEMENTS
Each Fund may invest in repurchase agreements. The Funds' custodian will
hold the securities underlying any repurchase agreement or such securities will
be part of the Federal Reserve Book Entry System. The market value of the
collateral underlying the repurchase agreement will be determined on each
business day. If at any time the market value of the collateral falls below the
repurchase price of the repurchase agreement (including any accrued interest),
the respective Fund will promptly receive additional collateral (so the total
collateral is an amount at least equal to the repurchase price plus accrued
interest).
The Funds have received from the Securities and Exchange Commission an
exemptive order permitting the Funds, along with the other series of the
Company, closed-end and other open-end investment companies currently managed by
Piper Capital Management Incorporated (the "Adviser"), and all future series of
the Company and all future investment companies advised by the Adviser or its
affiliates, to deposit uninvested cash balances into a single joint account to
be used to enter into one or more large repurchase agreements.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES
Balanced Fund and Growth and Income Fund may purchase securities offered on
a "when-issued" basis and may purchase or sell securities on a "forward
commitment" basis. When a Fund purchases securities on a when-issued or forward
commitment basis, it will maintain in a segregated account with its custodian
cash or liquid high-grade debt obligations having an aggregate value equal to
the amount of such purchase commitments until payment is made; such Fund will
likewise segregate securities it sells on a forward commitment basis.
SHORT-TERM MONEY MARKET SECURITIES
As set forth in the Funds' respective Prospectuses, each Fund may invest in
short-term money market securities including obligations of the U.S. Government
and its agencies and instrumentalities, bank certificates of deposit, bankers'
acceptances, high-grade commercial paper and other money market instruments.
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities include Treasury securities, which differ only in their
interest
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<PAGE>
rates, maturities and times of issuance. Treasury Bills have initial maturities
of one year or less; Treasury Notes have initial maturities of one to ten years;
and Treasury Bonds generally have initial maturities of greater than ten years.
Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example Government National Mortgage Association pass-
through certificates, are supported by the full faith and credit of the U.S.
Treasury; others, such as those of the Federal Home Loan Banks, by the right of
the issuer to borrow from the Treasury; others, such as those issued by the
Federal National Mortgage Association, by discretionary authority of the U.S.
Government to purchase certain obligations of the agency or instrumentality; and
others, such as those issued by the Student Loan Marketing Association, only by
the credit of the agency or instrumentality. While the U.S. Government provides
financial support to such U.S. Government-sponsored agencies or
instrumentalities, no assurance can be given that it will always do so, since it
is not so obligated by law. Securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities that mature within 397 days are
considered money market securities for purposes of the Funds' investment
policies.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits are not transferable and are therefore illiquid prior to their
maturity. No Fund will invest more than 15% of its net assets in time deposits
and other illiquid securities. See "Investment Restrictions." Certificates of
deposit are certificates evidencing the obligation of a bank to repay funds
deposited with it for a specified period of time. Bankers' acceptances are
credit instruments evidencing the obligation of a bank to pay a draft drawn on
it by a customer. These instruments reflect the obligation both of the bank and
of the drawer to pay the full amount of the instrument upon maturity.
Commercial paper consists of short-term, unsecured promissory notes issued
to finance short-term credit needs. The commercial paper purchased by the Funds
will consist only of direct obligations which, at the time of their purchase,
are (a) rated Prime-1 or Prime-2 by Moody's Investors Service, Inc. ("Moody's")
or A-1 or A-2 by Standard & Poor's Ratings Services ("Standard & Poor's"),
(b) issued by companies having an outstanding unsecured debt issue currently
rated at least Aa by Moody's or at least AA by Standard & Poor's, or (c) if
unrated, determined by the Adviser to be of comparable quality to those rated
obligations which may be purchased by the Funds.
Money market instruments in which the Funds may invest also include non-
convertible corporate debt securities (for example, bonds and debentures) with
no more than 397 days remaining to maturity, provided such obligations are rated
Aa or better by Moody's or AA or better by Standard & Poor's.
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MORTGAGE-RELATED SECURITIES
PASS-THROUGH SECURITIES -- The investments of Balanced Fund and Growth and
Income Fund in mortgage-related securities include government guaranteed pass-
through securities. These obligations are described below.
(1 ) GNMA CERTIFICATES. Certificates of the Government National Mortgage
Association ("GNMA Certificates") are mortgage-backed securities which evidence
an ownership interest in a pool of mortgage loans. GNMA Certificates differ
from bonds in that principal is paid back monthly by the borrower over the term
of the loan rather than returned in a lump sum at maturity. GNMA Certificates
that the Funds purchase are the "modified pass-through" type. "Modified
pass-through" GNMA Certificates entitle the holder to receive a share of all
interest and principal payments paid and owed on the mortgage pool, net of fees
paid to the issuer and GNMA, regardless of whether the mortgagor actually makes
the payment.
- GNMA Guarantee -- The National Housing Act authorizes GNMA to
guarantee the timely payment of principal and interest on securities backed by a
pool of mortgages insured by the Federal Housing Administration ("FHA") or the
Farmers' Home Administration ("FHA") or guaranteed by the Veterans
Administration ("VA"). The GNMA guarantee is backed by the full faith and
credit of the United States. GNMA is also empowered to borrow without
limitation from the U.S. Treasury if necessary to make any payments required
under its guarantee.
- Life of GNMA Certificates -- The average life of a GNMA Certificate is
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of principal
investment long before the maturity of the mortgages in the pool. Foreclosures
impose no risk to principal investment because of the GNMA guarantee.
As prepayment rates of individual mortgage pools vary widely, it is not
possible to predict accurately the average life of a particular issue of GNMA
Certificates. However, statistics published by the FHA indicate that the
average life of single-family dwelling mortgages with 25- to 30-year maturities,
the type of mortgages backing the vast majority of GNMA Certificates, is
approximately 12 years. Therefore, it is customary to treat GNMA Certificates
as 30-year mortgage-backed securities which prepay fully in the twelfth year.
- Yield Characteristics of GNMA Certificates -- The coupon rate of
interest on GNMA Certificates is lower than the interest rate paid on the VA-
guaranteed or FHA-insured mortgages underlying the Certificates by the amount of
the fees paid to GNMA and the issuer.
The coupon rate by itself, however, does not indicate the yield which will
be earned on GNMA Certificates. First, Certificates may be issued at a premium
or discount, rather than at par, and, after issuance, Certificates may trade in
the secondary market at a premium or discount. Second, interest is earned
monthly,
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rather than semiannually as with traditional bonds; monthly compounding raises
the effective yield earned. Finally, the actual yield of a GNMA Certificate is
influenced by the prepayment experience of the mortgage pool underlying it. For
example, if the higher yielding mortgages from the pool are prepaid, the yield
on the remaining pool will be reduced.
(2) FHLMC SECURITIES. The Federal Home Loan Mortgage Corporation
("FHLMC") was created in 1970 through enactment of Title III of the Emergency
Home Finance Act of 1970. Its purpose is to promote development of a nationwide
secondary market in conventional residential mortgages.
FHLMC issues two types of mortgage pass-through securities, mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA Certificates in that each PC represents a pro rata
share of all interest and principal payments made and owed on the underlying
pool. FHLMC guarantees timely payment of interest on PCs and the full return of
principal. Like GNMA Certificates, PCs are assumed to be prepaid fully in their
twelfth year.
GMCs also represent a pro rata interest in a pool of mortgages. However,
these instruments pay interest semiannually and return principal once a year in
guaranteed minimum payments. The expected average life of these securities is
approximately ten years.
(3) FNMA SECURITIES. The Federal National Mortgage Association was
established in 1938 to create a secondary market in mortgages insured by the
FHA.
FNMA issues guaranteed mortgage pass-through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA Certificates in that each FNMA
Certificate represents a pro rata share of all interest and principal payments
made and owed on the underlying pool. FNMA guarantees timely payment of
interest on FNMA Certificates and the full return of principal. Like GNMA
Certificates, FNMA Certificates are assumed to be prepaid fully in their twelfth
year.
CREDIT SUPPORT -- To lessen the effect of failures by obligors on
underlying mortgages to make payments, mortgage-related securities may contain
elements of credit support. Such credit support falls into two categories: (i)
liquidity protection and (ii) protection against losses resulting from ultimate
default by an obligor on the underlying assets. Liquidity protection refers to
the provision of advances, generally by the entity administering the pool of
assets, to ensure that the pass-through of payments due on the underlying pool
occurs in a timely fashion. Protection against losses resulting from ultimate
default enhances the likelihood of ultimate payment of the obligations on at
least a portion of the assets in the pool. Such protection may be provided
through guarantees, insurance policies or letters of credit obtained by the
issuer or sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches. The Funds will not pay
any additional fees for such credit support, although the existence of credit
support may increase the price of a security.
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The ratings of securities for which third-party credit enhancement provides
liquidity protection or protection against losses from default are generally
dependent upon the continued creditworthiness of the enhancement provider. The
ratings of such securities could be subject to reduction in the event of
deterioration in the creditworthiness of the credit enhancement provider even in
cases where the delinquency and loss experience on the underlying pool of assets
is better than expected.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments, sometimes funded from a portion of the
payments on the underlying assets, are held in reserve against future losses)
and "over-collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceed those required to make payment on the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based on historical information with
respect to the level of credit risk associated with the underlying assets.
Other information which may be considered includes demographic factors, loan
underwriting practices and general market and economic conditions. Delinquency
or loss in excess of that which is anticipated could adversely affect the return
on an investment in such a security.
OPTIONS
As set forth in the Funds' respective Prospectuses, each Fund may write
covered options and purchase options on securities. The principal reason for
writing call or put options is to obtain, through receipt of premiums, a greater
current return than would be realized on the underlying securities alone. The
Funds receive premiums from writing call or put options, which they retain
whether or not the option is exercised. The Funds will write only "covered"
options. This means that so long as a Fund is obligated as the writer of a call
option, it will own the underlying securities subject to the option (or
comparable securities satisfying the cover requirements of securities
exchanges). A Fund will be considered "covered" with respect to a put option it
writes if, so long as it is obligated as the writer of a put option, it deposits
and maintains with its custodian cash, U.S. Government Securities or other
liquid high-grade debt obligations having a value equal to or greater than the
exercise price of the option.
A Fund may wish to protect certain portfolio securities against a decline
in market value at a time when no put options on those particular securities are
available for purchase. That Fund may therefore purchase a put option on
securities other than those it wishes to protect even though it does not hold
such other securities in its portfolio. While the Funds will only purchase put
options on securities where, in the opinion of the Adviser, changes in the value
of the put option should generally offset changes in the value of the securities
to be hedged,
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the correlation will be less than in transactions in which the Funds purchase
put options on underlying securities they own.
The writing by the Funds of options on securities will be subject to
limitations established by each of the registered securities exchanges on which
such options are traded. Such limitations govern the maximum number of options
in each class which may be written by a single investor or group of investors
acting in concert, regardless of whether the options are written on the same or
different securities exchanges or are held or written on one or more accounts or
through one or more brokers. Thus, the number of options which a Fund may write
may be affected by options written by the other Funds and by other investment
companies managed by and other investment advisory clients of the Adviser. An
exchange may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions.
STOCK INDEX OPTIONS - GENERAL. Each Fund may purchase and write put and
call options on stock indexes listed on national securities exchanges. Stock
index options are purchased for the purpose of hedging against changes in the
value of a Fund's portfolio securities due to anticipated changes in the market.
Stock index options are written for hedging purposes and to realize income from
the premiums received on the sale of such options. Options are traded both on
broadly based stock market indexes and on industry or market segment indexes.
Options on stock indexes are similar to options on stock except that,
rather than the right to take or make delivery of stock at a specified price, an
option on a stock index gives the holder the right to receive, upon exercise of
the option, an amount of cash if the closing level of the stock index upon which
the option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. This amount of cash is equal
to the difference between the closing price of the index and the exercise price
of the option expressed in dollars times a specified multiple (the
"multiplier"). The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. Unlike stock options, all
settlements are in cash and gain or loss depends upon price movements in the
stock market generally (or in a particular industry or segment of the market)
rather than price movements in individual stocks.
The multiplier for an index option performs a function similar to the unit
of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an option
and the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indexes may have
different multipliers.
Except as described below, the Funds will write call options on indexes
only if on such date a Fund holds a portfolio of stocks at least equal to the
value of the index times the multiplier times the number of contracts. When a
Fund writes a call option on a broadly based stock market index, the Fund will
segregate or put into escrow with its custodian or pledge to a broker as
collateral for the option, cash, "qualified securities" or other liquid
securities with a market value determined on a
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daily basis of not less than 100% of the current index value times the
multiplier times the number of contracts.
If a Fund has written an option on an industry or market segment index, it
will segregate, escrow or pledge at least five "qualified securities," all of
which are stocks of issuers in such industry or market segment, with a market
value at the time the option is written of not less than 100% of the current
index value times the multiplier times the number of contracts. Such stocks
will include stocks which represent at least 50% of the weighting of the
industry or market segment index and will represent at least 50% of the Fund's
holdings in that industry or market segment. No individual security will
represent more than 25% of the amount so segregated, pledged or escrowed in the
case of industry or market segment index options. If at the close of business
on any day the market value of such qualified securities so segregated, pledged
or escrowed falls below 100% of the current index value times the multiplier
times the number of contracts, the Fund will segregate, pledge or escrow an
amount in cash, "qualified securities" or other liquid securities equal in value
to the difference. In addition, when a Fund writes a call on an index which is
in-the-money at the time the call is written, the Fund will segregate with its
custodian or pledge to the broker short-term debt obligations equal in value to
the amount by which the call is in-the-money times the multiplier times the
number of contracts. Any amount segregated pursuant to the foregoing sentence
may be applied to the Fund's obligation to segregate additional amounts in the
event the market value of the qualified securities falls below 100% of the
current index value times the multiplier times the number of contracts. A
"qualified security" is an equity security which is listed on a national
securities exchange or listed on the Nasdaq against which the Fund has not
written a stock call option.
A Fund may write a put on a stock index only if it is "secured." A put is
"secured" if the Fund maintains cash or liquid securities with a value equal to
the exercise price in a segregated account with the Custodian or holds a put on
the same underlying index at an equal or greater exercise price. The aggregate
value of the obligations underlying puts written by a Fund will not exceed 50%
of its net assets.
The Funds are not subject to any limitations with respect to the percentage
of total assets that may be hedged. Accordingly, a Fund will not be prohibited
from purchasing or writing stock index options to hedge against changes in the
value of its entire portfolio.
The purchase and sale of options on stock indexes by a Fund are subject to
certain risks that are not present with options on securities. Because the
value of an index option depends upon movements in the level of the index rather
than the price of a particular stock, whether a Fund will realize a gain or loss
on the purchase or sale of an option on an index depends upon movements in the
level of stock prices in the stock market generally or in an industry or market
segment rather than movements in the price of a particular stock. Accordingly,
successful use by the Funds of options on indexes is subject to the Adviser's
ability to correctly predict movements in the direction of the stock market
generally or of a particular industry. This requires different skills and
techniques than predicting changes in the price of
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individual stocks. In the event the Adviser is unsuccessful in predicting the
movements of an index, the Funds could be in a worse position than had no hedge
been attempted.
Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this occurred, a Fund would not be able to
close out options which it had purchased or written and, if restrictions on
exercise were imposed, might be unable to exercise an option it holds, which
could result in substantial losses to the Fund. However, it is the Funds'
policy to purchase or write options only on indexes which include a sufficient
number of stocks so that the likelihood of a trading halt in the index is
minimized.
The markets for certain index options are still relatively illiquid The
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid secondary market. It is not certain
that the market will develop in all index option contracts. The Funds will not
purchase or sell any index option contracts unless and until, in the Adviser's
opinion, the market for such options has developed sufficiently that such risk
in connection with such transactions is no greater than such risk in connection
with options on stocks.
SPECIAL RISKS OF WRITING CALLS ON STOCK INDEXES. Because exercises of
index options are settled in cash, a call writer cannot determine the amount of
its settlement obligations in advance and, unlike call writing on specific
stocks, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities. However, the
Funds will write call options on indexes only under the circumstances described
above.
Price movements in a Fund's portfolio probably will not correlate perfectly
with movements in the level of the index and, therefore, each Fund bears the
risk that the price of the securities held by such Fund may not increase as much
as the index. In such event, the Fund would bear a loss on the call which is
not completely offset by movements in the price of such Fund's portfolio. It is
also possible that the index may rise when the Fund's portfolio of stocks does
not rise. If this occurred, the Fund would experience a loss on the call which
is not offset by an increase in the value of its portfolio and might also
experience a loss in its portfolio. However, because the value of a diversified
portfolio will, over time, tend to move in the same direction as the market,
movements in the value of a Fund in the opposite direction as the market would
be likely to occur for only a short period or to a small degree.
Unless a Fund has other liquid assets which are sufficient to satisfy the
exercise of a call, the Fund would be required to liquidate portfolio securities
in order to satisfy the exercise. Because an exercise must be settled within
hours after receiving the notice of exercise, if a Fund fails to anticipate an
exercise it may have to borrow from a bank pending settlement of the sale of
securities in its portfolio and would incur interest charges thereon.
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When a Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise, and
the time the Fund is able to sell stocks in its portfolio. As with stock
options, a Fund will not learn that an index option has been exercised until the
day following the exercise date, but, unlike a call on stock where the Fund
would be able to deliver the underlying securities in settlement, the Fund may
have to sell part of its stock portfolio in order to make settlement in cash,
and the price of such stocks might decline before they can be sold.
SPECIAL RISKS OF PURCHASING PUTS AND CALLS ON STOCK INDEXES. If a Fund
holds an index option and exercises it before final determination of the closing
index value for that day, it runs the risk that the level of the underlying
index may change before closing. If such a change causes the exercise option to
fall out-of-the-money, i.e., the exercise price of the option rises above the
closing index value, the Fund will be required to pay the difference between the
closing index value and the exercise price of the option (multiplied by the
applicable multiplier) to the assigned writer. While a Fund may be able to
minimize this risk by withholding exercise instructions until just before the
daily cutoff time or by selling rather than exercising an option when the index
level is close to the exercise price, it may not be possible to eliminate this
risk entirely because the cutoff times for index options may be earlier than
those fixed for other types of options and may occur before definitive closing
index values are announced.
ILLIQUID SECURITIES
To the extent set forth in the respective Prospectuses, the Funds may
invest in Rule 144A securities, commercial paper issued pursuant to Rule 4(2)
under the Securities Act of 1933, and interest-only and principal-only classes
of mortgage-related securities issued by the U.S. Government or its agencies or
instrumentalities, and treat such securities as liquid when they have been
determined to be liquid by the Board of Directors of the Companies or by the
Adviser subject to the oversight of and pursuant to procedures adopted by the
Board of Directors. Under these procedures, factors taken into account in
determining the liquidity of a security include (a) the frequency of trades and
quotes for the security; (b) the number of dealers willing to purchase or sell
the security and the number of other potential purchasers; (c) dealer
undertakings to make a market in the security; and (d) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
transfer). With respect to Rule 144A securities, investing in such securities
could have the effect of increasing the level of Fund illiquidity to the extent
that qualified institutional buyers become, for a time, uninterested in
purchasing these securities.
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PORTFOLIO TURNOVER
Portfolio turnover is the ratio of the lesser of annual purchases or sales
of portfolio securities to the average monthly value of portfolio securities,
not including securities maturing in less than 12 months. A 100% portfolio
turnover rate would occur, for example, if the lesser of the value of purchases
or sales of portfolio securities for a particular year were equal to the average
monthly value of the portfolio securities owned during such year. For purposes
of calculating portfolio turnover, the maturity of investment purchases and
sales related to dollar roll transactions is considered to be less than 12
months. See "Special Investment Methods--Mortgage Dollar Rolls" in the
applicable Prospectus.
DIVERSIFICATION
Each Fund intends to operate as a "diversified" fund, as defined in the
Investment Company Act of 1940 (the"1940 Act"), which means that at least 75% of
its assets must be represented by cash and cash items (including receivables),
U.S. Government securities, securities of other investment companies, and other
securities for the purposes of this calculation limited in respect of any one
issuer to an amount not greater in value than 5% of the value of total assets of
each Fund and to not more than 10% of the outstanding voting securities of such
issuer.
INVESTMENT RESTRICTIONS
In addition to the investment objectives and policies set forth in the
respective Prospectus, each Fund is subject to certain fundamental and
nonfundamental investment restrictions, as set forth below. Fundamental
investment restrictions may not be changed without the vote of a majority of a
Fund's outstanding shares. "Majority," as used in the Prospectuses and in this
Statement of Additional Information, means the lesser of (a) 67% of a Fund's
outstanding shares present at a meeting of the holders if more than 50% of the
outstanding shares are present in person or by proxy or (b) more than 50% of a
Fund's outstanding shares.
No Fund will:
1. Invest 25% or more of the value of its total assets in the securities
of issuers conducting their principal business activities in any one industry.
This restriction does not apply to securities of the U.S. Government or its
agencies and instrumentalities and repurchase agreements relating thereto. The
various types of utilities companies, such as gas, electric, telephone,
telegraph, satellite and microwave communications companies, are considered as
separate industries.
2. Issue any senior securities, as defined in the Investment Company Act
of 1940, as amended (the "1940 Act"), other than as set forth in restriction #3
below and except to the extent that using options and futures contracts or
purchasing or selling securities on a when-issued or forward commitment basis
may be deemed to constitute issuing a senior security.
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3. Borrow money, except from banks for temporary or emergency purposes.
The amount of such borrowing may not exceed 10% of the value of the Fund's total
assets. With respect to each of the Funds, interest paid on borrowed funds will
decrease the net earnings of the Fund. None of the Funds will purchase
portfolio securities while outstanding borrowing exceeds 5% of the value of the
Fund's total assets. None of the Funds will borrow money for leverage purposes.
4. Mortgage, pledge or hypothecate its assets except in an amount not
exceeding 10% of the value of its total assets to secure temporary or emergency
borrowing. For purposes of this policy, collateral arrangements for margin
deposits on futures contracts or with respect to the writing of options are not
deemed to be a pledge of assets.
5. Purchase or sell commodities or commodity futures contracts, except
that the Funds may enter into financial futures contracts and engage in related
options transactions.
6. Purchase or sell real estate or real estate mortgage loans, except
that the Funds may invest in securities secured by real estate or interests
therein or issued by companies that invest in real estate or interests therein.
Growth and Income Fund will not invest in real estate limited partnerships.
7. Act as an underwriter of securities of other issuers, except insofar
as each Fund may be technically deemed an underwriter under the federal
securities laws in connection with the disposition of portfolio securities.
As nonfundamental investment restrictions that may be changed at any time
without shareholder approval, no Fund will:
1. Invest in warrants.
2. Make short sales of securities.
3. Purchase any securities on margin except to obtain such short-term
credits as may be necessary for the clearance of transactions and except that
the Funds may make margin deposits in connection with futures contracts.
4. Purchase or retain the securities of any issuer if, to the Fund's
knowledge, those officers or directors of the Company or its affiliates or of
its investment adviser who individually own beneficially more than 0.5% of the
outstanding securities of such issuer, together own more than 5% of such
outstanding securities.
5. Invest for the purpose of exercising control or management.
6. Purchase or sell oil, gas or other mineral leases, rights or royalty
contracts, except that the Funds may purchase or sell securities of companies
investing in the foregoing.
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7. Purchase the securities of other investment companies except as part
of a merger, consolidation or acquisition of assets.
8. Invest in real estate limited partnerships.
9. Invest more than 5% (25% for Balanced Fund) of total assets in the
securities of foreign issuers.
10. Invest more than 15% of net assets in illiquid securities.
11. Invest more than 5% of the value of its total assets in the securities
of any issuers which, with their predecessors, have a record of less than three
years' continuous operation. (Securities of such issuers will not be deemed to
fall within this limitation if they are guaranteed by an entity in continuous
operation for more than three years. The value of all securities issued or
guaranteed by such guarantor and owned by a Fund shall not exceed 10% of the
value of the total assets of such Fund.)
12. Write, purchase or sell puts, calls or combinations thereof, except
that each Fund may purchase or write put and call options on stock indexes
listed on national securities exchanges, and each Fund may write put and call
options with respect to the securities in which they may invest, may purchase
put and call options, and may engage in financial futures contracts and related
options transactions.
Any investment restriction or limitation referred to above or in a Fund's
Prospectus which involves a maximum percentage of securities or assets, shall
not be considered to be violated unless an excess over the percentage occurs
immediately after an acquisition of securities or utilization of assets and such
excess results therefrom.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and officers of the Company and their principal occupations
during the past five years are set forth below. Unless otherwise indicated, all
positions have been held for more than five years. The Company's directors and
officers also serves as a director or officer of various closed-end and open-end
investment companies managed by the Adviser.
Name, Address and (Age) Position with the Company
----------------------- -------------------------
William H. Ellis* (54) Chairman of the Board of Directors
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
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David T. Bennett (56) Director
3400 City Center
33 South Sixth Street
Minneapolis, Minnesota 55402
Jaye F. Dyer (69) Director
4670 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402
Karol D. Emmerich (47) Director
7302 Claredon Drive
Edina, Minnesota 55439
Luella G. Goldberg (59) Director
7019 Tupa Drive
Edina, Minnesota 55435
David A. Hughey (65) Director
134 Powers Road
Meredith, NH 03253
George Latimer (61) Director
754 Linwood Avenue
St. Paul, MN 55105
Paul A. Dow (45) President
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Robert H. Nelson (33) Vice President
Piper Jaffray Tower and Treasurer
222 South Ninth Street
Minneapolis, Minnesota 55402
Susan S. Miley (39) Secretary
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
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* Directors of the Company who are interested persons (as that term is
defined by the 1940 Act) of Piper Capital Management Incorporated and the
Funds.
William H. Ellis is President of Piper Jaffray Companies Inc.; Director and
Chairman of the Board of Piper Capital Management Incorporated ("the Adviser");
President of the Adviser since 1994; Director of Piper Jaffray Inc..
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David T. Bennett is of counsel to the law firm of Gray, Plant, Mooty, Mooty
& Bennett, P.A., located in Minneapolis, Minnesota. Mr. Bennett is chairman of
a group of privately held companies and serves on the board of directors of a
number of nonprofit organizations.
Jaye F. Dyer has been President of Dyer Management Company, a private
management company, since 1991. Prior to that he was President and Chief
Executive Officer of Dyco Petroleum Corporation, a Minneapolis based oil and
natural gas development company he founded, from 1971 to March 1, 1989, and
Chairman of the Board until December 31, 1990. Mr. Dyer serves on the board of
directors of Northwestern National Life Insurance Company, The ReliaStar
Financial Corp. (the holding company of Northwestern National Life Insurance
Company) and various privately held and nonprofit corporations.
Karol D. Emmerich has been President of The Paraclete Group, a consultant
to nonprofit organizations, since 1993. Prior to that she was Vice President,
Chief Accounting Officer and Treasurer of Dayton Hudson Corporation from 1980 to
1993. Ms. Emmerich is an Executive Fellow at the University of St. Thomas
Graduate School of Business and serves on the board of directors of a number of
privately held and nonprofit organizations.
Luella G. Goldberg serves on the board of directors of Northwestern
National Life Insurance Company (since 1976), The ReliaStar Financial Corp.
(since 1989), TCF Bank Savings fsb (since 1985), TCF Financial Corporation
(since 1988), and Hormel Foods Corp. (since 1993). Ms. Goldberg also serves as
a Trustee of Wellesley College, and as a director of a number of other
organizations, including the University of Minnesota Foundation and the
Minnesota Orchestral Association. Ms. Goldberg was Chairman of the Board of
Trustees of Wellesley College from 1985 to 1993 and acting President from July
1, 1993 to October 1, 1993.
David A. Hughey is a Trustee of Bentley College. Prior to September 1996,
he was Executive Vice President and Chief Administrative Officer of Dean Witter
InterCapital Inc., Dean Witter Services Company Inc. and Dean Witter
Distributors Inc.; Director, Executive Vice President and Chief Administrative
Officer of Dean Witter Trust Company; Vice President of Dean Witter Family of
Funds and TCW/DW Family of Funds; and Director of ICI Mutual Insurance Company.
George Latimer has been Chief Executive Officer of National Equity Fund,
Chicago, Illinois since November 1995; prior thereto, Mr. Latimer was Director,
Special Actions Office, Office of the Secretary, Department of Housing and Urban
Development since 1993, and prior thereto he had been Dean of Hamline Law
School, Saint Paul, Minnesota from 1990 to 1993. Mr. Latimer also serves on the
board of directors of Digital Biometrics, Inc. and Payless Cashways, Inc.
Paul A. Dow is Chief Investment Officer and Senior Vice President of the
Adviser.
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Robert H. Nelson has been a Senior Vice President of the Adviser since
1993; prior thereto he had been a Vice President of the Adviser from 1991 to
1993.
Susan S. Miley has been Senior Vice President and General Counsel of the
Adviser since 1995 and Secretary of the Adviser since 1996; prior thereto she
was counsel for American Express Financial Advisors, Minneapolis, Minnesota from
1994 to 1995 and an attorney at Simpson Thatcher & Bartlett, New York, New York
from 1984 to 1992.
Ms. Emmerich, Ms. Goldberg and Mr. Hughey are members of the Audit
Committee of the Board of Directors. Ms. Emmerich acts as the chairperson of
such committee. The Audit Committee oversees the Company's financial reporting
process, reviews audit results and recommends annually to the Company a firm of
independent certified public accountants.
The Board of Directors also has a Committee of the Independent Directors,
consisting of Messrs. Bennett, Dyer, Hughey and Latimer, Ms. Emmerich and Ms.
Goldberg, and a Derivatives Subcommittee consisting of Ms. Emmerich, who serves
as chairperson, Ms. Goldberg and Mr. Dyer.
The functions of the Committee of the Independent Directors are: (a)
recommendation to the full Board of approval of any management, advisory, sub-
advisory and/or administration agreements; (b) recommendation to the full Board
of approval of any underwriting and/or distribution agreements; (c) review of
the fidelity bond and premium allocation; (d) review of errors and omissions and
any other joint insurance policies and premium allocation; (e) review of, and
monitoring of compliance with, procedures adopted pursuant to certain rules
promulgated under the 1940 Act; and (f) such other duties as the independent
directors shall, from time to time, conclude are necessary or appropriate to
carry out their duties under the 1940 Act. The functions of the Derivatives
Subcommittee are: (a) to oversee practices, policies and procedures of the
Adviser in connection with the use of derivatives; (b) to receive periodic
reports from management; and (c) to report periodically to the Committee of the
Independent Directors and the Board of Directors.
The directors of the Company who are officers or employees of the Adviser
or of its affiliates receive no remuneration from the Company. Each of the
other directors currently receives a quarterly retainer of $3,625 that is
allocated among the Funds and all other open-end funds managed by the Adviser on
the basis of the total assets of each such fund. In addition, each director
receives a fee from the Company for each regular quarterly and in-person special
meeting of the Board of Directors attended. (The per-meeting fee is based on
the combined total assets of the Company and Piper Institutional Funds Inc.)
The per-meeting fee is based upon asset size and is $250 if assets are under
$200 million, $500 if assets are $200 million and over but less than $500
million, $750 if asses are $500 million and over but less than $1 billion,
$1,000 if assets are $1 billion and over but less than $5 billion, and $1,500 if
assets are $5 billion or over. Members of the Audit Committee who are not
affiliated with the Adviser receive $1,000 for each Audit Committee meeting
-16-
<PAGE>
attended ($2,000 for the chairperson of the Committee), and the chairperson of
the Committee of the Independent Directors receives $1,000 for each meeting of
such committee attended, with such fees being allocated evenly between the
Company and all other closed-end and open-end investment companies managed by
the Adviser. Members of the Committee of the Independent Directors and the
Derivatives Subcommittee (other than the chairperson of the Committee of the
Independent Directors) currently receive no additional compensation. In
addition, each Director who is not affiliated with the Adviser is reimbursed for
expenses incurred in connection with attending meetings.
The following table sets forth the compensation received by each director
from the Company during the fiscal year ended September 30, 1996, as well as the
total compensation received by each director from the Company and all other
registered investment companies managed by the Adviser or affiliates of the
Adviser during the calendar year ended December 31, 1995. Directors who are
officers or employees of the Adviser or any of its affiliates did not receive
any such compensation and are not included in the table. Mr. Hughey became a
director of the Company on September 3, 1996.
Aggregate Compensation Total Compensation
Director from the Company from Fund Complex*
- -------- ----------------------- ------------------
David T. Bennett $ 6,400 $ 61,700
Jaye F. Dyer $ 6,775 $ 67,700
Karol D. Emmerich $ 6,775 $ 67,700
Luella G. Goldberg $ 7,150 $ 70,700
George Latimer $ 6,400 $ 64,700
David A. Hughey $ 0 $ 0
- ---------------------------
* Currently consists of 20 registered investment companies managed by the
Adviser or an affiliate of the Adviser, including the Company. During the 1995
calendar year, the Fund Complex consisted of up to 27 such investment companies,
several of which were merged or consolidated during the year. Each director
included in the table serves on the board of each such open-end and closed-end
investment company.
INVESTMENT ADVISORY AND OTHER SERVICES
The investment adviser for the Funds is Piper Capital Management
Incorporated (the "Adviser"). Its affiliate, Piper Jaffray Inc. (the
"Distributor"), acts as the Funds' distributor. Each acts as such pursuant to a
written agreement which is periodically approved by the directors or the
shareholders of the Funds. The address of both the Adviser and the Distributor
is Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402-
3804.
CONTROL OF THE ADVISER AND THE DISTRIBUTOR
The Adviser and the Distributor are both wholly owned subsidiaries of Piper
Jaffray Companies Inc., a publicly held corporation which is engaged through its
subsidiaries in various aspects of the financial services industry.
-17-
<PAGE>
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
The Adviser acts as the investment adviser of the Funds under an Investment
Advisory and Management Agreement which has been approved by the Board of
Directors (including a majority of the directors who are not parties to the
agreement, or interested persons of any such party, other than as directors of
the Funds) and the shareholders of the Funds.
The Investment Advisory and Management Agreement will terminate
automatically in the event of its assignment. In addition, each agreement is
terminable at any time, without penalty, by the Board of Directors of the
Company or by vote of a majority of the Company's outstanding voting securities
on not more than 60 days' written notice to the Adviser, and by the Adviser on
60 days' written notice to the Company. The agreement may be terminated with
respect to a particular Fund at any time by a vote of the holders of a majority
of the outstanding voting securities of such Fund, upon 60 days' written notice
to the Adviser. Unless sooner terminated, the agreement shall continue in
effect for more than two years after its execution only so long as such
continuance is specifically approved at least annually by either the Board of
Directors or by a vote of a majority of the outstanding voting securities of the
Company, provided that in either event such continuance is also approved by a
vote of a majority of the directors who are not parties to such agreement, or
interested persons of such parties, cast in person at a meeting called for the
purpose of voting on such approval. If a majority of the outstanding voting
securities of any of the Funds approves the agreement, the agreement shall
continue in effect with respect to such approving Fund whether or not the
shareholders of any other Fund approve the agreement.
Pursuant to the Investment Advisory and Management Agreement, each Fund
pays the Adviser monthly advisory fees equal on an annual basis to a certain
percentage of the Fund's average net assets as set forth in the following table.
Fees paid by the Funds are higher than fees paid by most other investment
companies.
Annual Advisory Fee
Average Net Asset Values as Percentage of
of each Fund Average Net Assets
------------------------- -----------------------
On the first $100,000,000 .75%
On the next $200,000,000 .65%
On the next $200,000,000 .55%
On average assets of over $500,000,000 .50%
The table below sets forth the advisory fees paid by the Funds for the
periods indicated:
-18-
<PAGE>
<TABLE>
<CAPTION>
Advisory fees Advisory fees Advisory fees
for the fiscal for the fiscal for the fiscal
year ended year ended year ended
Fund September 30, 1994 September 30, 1995 September 30, 1996
- ---- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Growth Fund $1,551,840 $1,232,856 $1,248,175
Emerging Growth Fund 1,489,006 1,525,105 1,875,662
Small Company Growth Fund 630,178 463,332 307,937
Growth and Income Fund 635,999 512,370 639,184
Balanced Fund 404,219 324,086 342,187
</TABLE>
The Adviser intends, although not required under the Investment Advisory
and Management Agreement, to reimburse Small Company Growth Fund, Balanced Fund
and Growth and Income Fund for the amount, if any, by which the total operating
and management expenses of each Fund (including the Adviser's compensation and
amounts paid pursuant to the Company's Rule 12b-1 plan, but excluding interest,
taxes, brokerage fees and commissions, and extraordinary expenses) for the
fiscal year ending September 30, 1997, exceed 1.34% of average daily net assets.
This arrangement is voluntary and may be revised or terminated at any time after
fiscal year end, at the Adviser's discretion.
Under the Investment Advisory and Management Agreement, the Adviser
provides each Fund with advice and assistance in the selection and disposition
of that Fund's investments. All investment decisions are subject to review by
the Board of Directors of each Company. The Adviser is obligated to pay the
salaries and fees of any affiliates of the Adviser serving as officers or
directors of the Funds.
The same security may be suitable for more than one of the Funds and/or for
other series of the Company or other funds or private accounts managed by the
Adviser or its affiliates. If and when two or more funds or accounts
simultaneously purchase or sell the same security, the transactions will be
allocated as to price and amount in accordance with arrangements equitable to
each fund or account. The simultaneous purchase or sale of the same securities
by more than one of the Funds or by any of the Funds and other series of the
Company or other funds or accounts may have a detrimental effect on a Fund, as
this may affect the price paid or received by that Fund or the size of the
position obtainable or able to be sold by that Fund.
EXPENSES
The expenses of each Fund are deducted from their income before dividends
are paid. These expenses include, but are not limited to, organizational costs,
fees paid to the Adviser, fees and expenses of officers and directors who are
not affiliated with the Adviser, taxes, interest, legal fees, transfer agent,
dividend disbursing agent and custodian fees, audit fees, brokerage fees and
commissions, fees and expenses of registering and qualifying the Funds and their
shares for distribution under federal and state securities laws, expenses of
preparing prospectuses and statements of additional information and of printing
and distributing prospectuses and statements of additional information annually
to existing shareholders, the expenses of reports to shareholders, shareholders'
meetings and proxy solicitations, distribution expenses pursuant to the Rule
12b-1 plan, and other expenses which are not
-19-
<PAGE>
expressly assumed by the Adviser under the Investment Advisory and Management
Agreement. Any general expenses of the Company that are not readily
identifiable as belonging to a particular series of the Company will be
allocated among the series based upon the relative net assets of the series at
the time such expenses were incurred.
DISTRIBUTION PLAN
Rule 12b-1(b) under the 1940 Act provides that any payments made by the
Funds in connection with financing the distribution of their shares may only be
made pursuant to a written plan describing all aspects of the proposed financing
of distribution, and also requires that all agreements with any person relating
to the implementation of the plan must be in writing. Because some of the
payments described below to be made by the Funds are distribution expenses
within the meaning of Rule 12b-1, the Company has entered into an Underwriting
and Distribution Agreement with the Distributor pursuant to a Distribution Plan
adopted in accordance with such Rule.
Rule 12b-1(b)(1) requires that such plan be approved by a majority of a
Fund's outstanding shares, and Rule 12b-1(b)(2) requires that such plan,
together with any related agreements, be approved by a vote of the Board of
Directors and of the directors who are not interested persons of the Company and
who have no direct or indirect interest in the operation of the plan or in the
agreements related to the plan, cast in person at a meeting called for the
purpose of voting on such plan or agreement. Rule 12b-1(b)(3) requires that the
plan or agreement provide, in substance:
(a) that it shall continue in effect for a period of more than one
year from the date of its execution or adoption only so long as such
continuance is specifically approved at least annually in the manner
described in paragraph (b)(2) of Rule 12b-1;
(b) that any person authorized to direct the disposition of moneys
paid or payable by the Company pursuant to the plan or any related
agreement shall provide to the Company's Board of Directors, and the
directors shall review, at least quarterly, a written report of the amounts
so expended and the purposes for which such expenditures were made; and
(c) in the case of a plan, that it may be terminated at any time by a
vote of a majority of the members of the Board of Directors of the Company
who are not interested persons of the Company and who have no direct or
indirect financial interest in the operation of the plan or in any
agreements related to the plan or by a vote of a majority of the
outstanding voting securities of a Fund.
Rule 12b-1(b)(4) requires that such a plan may not be amended to increase
materially the amount to be spent for distribution without shareholder approval
-20-
<PAGE>
and that all material amendments of the plan must be approved in the manner
described in paragraph (b)(2) of Rule 12b-1.
Rule 12b-1(c) provides that the Company may rely upon Rule 12b-1(b) only if
the selection and nomination of the Company's disinterested directors are
committed to the discretion of such disinterested directors. Rule 12b-1(e)
provides that the Company may implement or continue a plan pursuant to Rule
12b-1(b) only if the directors who vote to approve such implementation or
continuation conclude, in the exercise of reasonable business judgment and in
light of their fiduciary duties under state law, and under Sections 36(a) and
(b) of the Investment Company Act of 1940, that there is a reasonable likelihood
that the plan will benefit the Company and its shareholders. The Board of
Directors has concluded that there is a reasonable likelihood that the
Distribution Plan will benefit the Company and its shareholders.
Pursuant to the provisions of the Distribution Plan, each Fund pays a
monthly fee to the Distributor equal, on an annual basis to .50% of such Fund's
average daily net assets in connection with servicing of the Fund's shareholder
accounts and in connection with distribution-related services provided with
respect to the Funds. A portion of each Fund's total fee (to be determined from
time to time by the Board of Directors) may be paid as a distribution fee and
will be used by the Distributor to cover expenses that are primarily intended to
result in, or that are primarily attributable to, the sale of shares of such
Fund ("Distribution Expenses"), and the remaining portion of the fee may be paid
as a shareholder servicing fee and will be used by the Distributor to provide
compensation for ongoing servicing and/or maintenance of shareholder accounts
with respect to such Fund ("Shareholder Servicing Costs"). Distribution
Expenses under the Plan include, but are not limited to, initial and ongoing
sales compensation (in addition to sales charges) paid to Investment Executives
of the Distributor and to other broker-dealers; expenses incurred in the
printing of prospectuses, statements of additional information and reports used
for sales purposes; expenses of preparation and distribution of sales
literature; expenses of advertising of any type; an allocation of the
Distributor's overhead; and payments to and expenses of persons who provide
support services in connection with the distribution of Fund shares.
Shareholder Servicing Costs include all expenses of the Distributor incurred in
connection with providing administrative or accounting services to shareholders,
including, but not limited to, an allocation of the Distributor's overhead and
payments made to persons, including employees of the Distributor, who respond to
inquiries of shareholders of the Funds regarding their ownership of shares or
their accounts with the Funds, or who provide other administrative or accounting
services not otherwise required to be provided by the Funds' Adviser or transfer
agent.
The table below sets forth the net distribution fees (the Distributor's
voluntary limitation of fees is discussed below) paid by the Funds for the
periods indicated.
-21-
<PAGE>
<TABLE>
<CAPTION>
Distribution fees Distribution fees Distribution fees
for the fiscal for the fiscal for the fiscal
year ended year ended year ended
Fund September 30, 1994 September 30, 1995 September 30, 1996
- ---- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Growth Fund $ 701,411 $552,509 $546,436
Emerging Growth Fund 641,080 692,842 845,637
Small Company Growth Fund 265,322 196,463 127,005
Growth and Income Fund 244,091 216,333 263,642
Balanced Fund 161,688 137,063 141,132
</TABLE>
The Distributor voluntarily limited the amounts payable under the
Distribution Plan to an annual rate of .31%, .30%, .29%, .32% and .30% of
average daily net assets for Growth Fund, Emerging Growth Fund, Growth and
Income Fund, Small Company Growth Fund and Balanced Fund, respectively, for the
fiscal year ended September 30, 1994. The Distributor voluntarily limited the
amounts payable under the Distribution Plan to an annual rate of .32% of average
daily net assets for each Fund for the fiscal years ended September 30, 1995 and
1996. The voluntary limitations for the fiscal year ending September 30, 1997
are .34% of each Fund's average daily net assets. The Distributor may
terminate its voluntary fee limitation at any time in its discretion.
Fees payable under the Distribution Plan for the fiscal year ended
September 30, 1996, were used by the Distributor as follows:
<TABLE>
<CAPTION>
Growth Emerging Small Company Growth and Balanced
Fund Growth Fund Growth Fund Income Fund Fund
--------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Advertising $ 17,627 $ 27,279 $ 4,097 $ 8,505 $ 4,553
Printing and mailing
of prospectuses to
other than current
shareholders -0- -0- -0- -0- -0-
Compensation to
underwriters (trail
fees to investment
executives) 528,809 818,358 122,908 255,137 136,579
Compensation to
dealers -0- -0- -0- -0- -0-
Compensation to
sales personnel -0- -0- -0- -0- -0-
Interest, carrying or
other financing charge -0- -0- -0- -0- -0-
Other (specify) -0- -0- -0- -0- -0-
--------- --------- --------- --------- ---------
Total $ 546,436 $ 845,637 $ 127,005 $ 263,642 $ 141,132
</TABLE>
UNDERWRITING AND DISTRIBUTION AGREEMENT
Pursuant to an Underwriting and Distribution Agreement, the Distributor has
agreed to act as the principal underwriter for the Funds in the sale and
distribution to the public of shares of the Funds, either through dealers or
otherwise. The Distributor has agreed to offer such shares for sale at all
times when
-22-
<PAGE>
such shares are available for sale and may lawfully be offered for sale and
sold. As compensation for its services, in addition to receiving fees pursuant
to the Distribution Plan discussed above, the Distributor receives the sales
load on sales of Fund shares set forth in the respective Prospectus. The
following table sets forth the aggregate dollar amount of underwriting
commissions paid by the Funds for the periods indicated and the amount of such
commissions retained by the Distributor.
<TABLE>
<CAPTION>
Total Underwriting Commissions Underwriting Commissions Retained by Distributor
--------------------------------------------------------- ---------------------------------------------------------
Fiscal year ended Fiscal year ended Fiscal year ended Fiscal year ended Fiscal year ended Fiscal year ended
Sept. 30, 1994 Sept. 30, 1995 Sept. 30, 1996 Sept. 30, 1994 Sept. 30, 1995 Sept. 30, 1996
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Growth Fund $ 208,621 $ 133,585 $ 169,574 $ 121,000 $ 77,479 $ 100,049
Emerging
Growth Fund 594,112 288,665 695,309 345,000 167,426 410,232
Small Company
Growth Fund 124,400 39,339 23,234 72,000 22,817 13,708
Growth and
Income Fund 126,666 67,532 187,370 73,000 39,169 110,548
Balanced Fund 47,145 42,214 73,382 27,000 24,484 43,295
</TABLE>
For the same periods, in addition to retaining the underwriting commissions
set forth above, the Distributor received brokerage commissions from the Funds
as set forth below.
<TABLE>
<CAPTION>
Brokerage Commissions Paid to Distributor
---------------------------------------------------------------------------
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
September 30, 1994 September 30, 1995 September 30, 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
Growth Fund $ 6,366 $ 0 $ 0
Emerging Growth Fund 1,200 15,314 3,726
Small Company Growth Fund 118,194 125,638 65,924
Growth and Income Fund 0 0 0
Balanced Fund 0 0 0
</TABLE>
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Investors Fiduciary Trust Company ("IFTC"), the transfer agent for the
Company, maintains certain omnibus shareholder accounts for each of the Funds.
Each such omnibus account represents the accounts of a number of individual
shareholders of a Fund. The Company has entered into Shareholder Account
Servicing Agreements with the Distributor and Piper Trust Company ("Piper
Trust"), pursuant to which the Distributor and Piper Trust provide certain
transfer agent and dividend disbursing agent services for the underlying
individual shareholder accounts held at the respective companies. Pursuant to
such Agreements, the Distributor and Piper Trust have agreed to perform the
usual and ordinary services of transfer agent and dividend disbursing agent not
performed by IFTC with respect to the underlying individual shareholder
accounts, including, without limitation, the following: maintaining all
shareholder accounts, preparing shareholder meeting lists, mailing shareholder
reports and prospectuses, tracking shareholder accounts for blue sky and Rule
l2b-1 purposes, withholding taxes on nonresident alien and foreign corporation
accounts, preparing and mailing checks for disbursement of income dividends and
capital gains distributions, preparing and
-23-
<PAGE>
filing U.S. Treasury Department Form 1099 for all shareholders, preparing and
mailing confirmation forms to shareholders and dealers with respect to all
purchases, exchanges and liquidations of series shares and other transactions in
shareholder accounts for which confirmations are required, recording
reinvestments of dividends and distributions in series shares, recording
redemptions of series shares, and preparing and mailing checks for payments upon
redemption and for disbursements to withdrawal plan holders. As compensation
for such services, the Distributor and Piper Trust are paid annual fees of $6.00
per active shareholder account (defined as an account that has a balance of
shares) by each Fund and $1.60 per closed account (defined as an account that
does not have a balance of shares but has had activity within the past 12
months) by each Fund. Such fees are payable on a monthly basis at a rate of
1/12 of the annual per-account charge. Such fees cover all services listed
above, with the exception of preparing shareholder meeting lists and mailing
shareholder reports and prospectuses. These services, along with proxy
processing (if applicable) and other special service requests, are billable as
performed at a mutually agreed upon fee in addition to the annual fee noted
above, provided that such mutually agreed upon fee shall be fair and reasonable
in light of the usual and customary charges made by others for services of the
same nature and quality.
During the fiscal year ended September 30, 1996, Growth Fund paid $86,841,
Growth and Income Fund paid $49,083, Emerging Growth Fund paid $130,707, Small
Company Growth Fund paid $45,089, and Balanced Fund paid $17,321 to the
Distributor under its Shareholder Account Servicing Agreement. During the
fiscal year ended September 30, 1996, Growth Fund paid $15,791, Growth and
Income Fund paid $1,859, Emerging Growth Fund paid $19,737, Small Company Growth
Fund paid $2,830 and Balanced Fund paid $17,282 to Piper Trust under its
Shareholder Account Servicing Agreement.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for the
Funds, the selection of broker-dealers to effect the transactions and the
negotiation of brokerage commissions, if any. In placing orders for securities
transactions, the primary criterion for the selection of a broker-dealer is the
ability of the broker-dealer, in the opinion of the Adviser, to secure prompt
execution of the transactions on favorable terms, including the reasonableness
of the commission and considering the state of the market at the time.
When consistent with these objectives, business may be placed with
broker-dealers who furnish investment research or services to the Adviser. Such
research or services include advice, both directly and in writing, as to the
value of securities; the advisability of investing in, purchasing or selling
securities; and the availability of securities, or purchasers or sellers of
securities; as well as analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts. This allows the Adviser to supplement its own investment research
activities and enables the Adviser to obtain the views and information of
individuals and research staffs of many
-24-
<PAGE>
different securities firms prior to making investment decisions for the Funds.
To the extent portfolio transactions are effected with broker-dealers who
furnish research services to the Adviser, the Adviser receives a benefit, not
capable of evaluation in dollar amounts, without providing any direct monetary
benefit to the Funds from these transactions. The Adviser believes that most
research services obtained by it generally benefit several or all of the
investment companies and private accounts which it manages, as opposed to solely
benefiting one specific managed fund or account. Normally, research services
obtained through managed funds or accounts investing in common stocks would
primarily benefit the managed funds or accounts which invest in common stock;
similarly, services obtained from transactions in fixed-income securities would
normally be of greater benefit to the managed funds or accounts which invest in
debt securities. The Funds will not purchase at a higher price or sell at a
lower price in connection with transactions effected with a director, acting as
principal, who furnishes research services to the Adviser than would be the case
if no weight were given by the Adviser to the dealer's furnishing of such
services.
The Adviser has not entered into any formal or informal agreements with any
broker-dealers, nor does it maintain any "formula" which must be followed in
connection with the placement of the Funds' portfolio transactions in exchange
for research services provided the Adviser, except as noted below. However, the
Adviser does maintain an informal list of broker-dealers, which is used from
time to time as a general guide in the placement of the Funds' business, in
order to encourage certain broker-dealers to provide the Adviser with research
services which the Adviser anticipates will be useful to it. Because the list
is merely a general guide, which is to be used only after the primary criterion
for the selection of broker-dealers (discussed above) has been met, substantial
deviations from the list are permissible and may be expected to occur. The
Adviser will authorize the Funds to pay an amount of commission for effecting a
securities transaction in excess of the amount of commission another
broker-dealer would have charged only if the Adviser determines in good faith
that such amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in terms
of either that particular transaction or the Adviser's overall responsibilities
with respect to the accounts as to which it exercises investment discretion.
Generally, the Funds pay higher than the lowest commission rates available.
Portfolio transactions for the Funds, including transactions in futures
contracts and options thereon, may be effected through the Distributor. In
determining the commissions to be paid to the Distributor in connection with
transactions effected on a securities exchange, it is the policy of the Funds
that such commissions will, in the judgment of the Adviser, subject to review by
the Board of Directors, be both (a) at least as favorable as those which would
be charged by other qualified brokers or futures commission merchants in
connection with comparable transactions involving similar securities or similar
futures contracts or options on futures contracts being purchased or sold on an
exchange during a comparable period of time, and (b) at least as favorable as
commissions contemporaneously charged by the Distributor on comparable
transactions for its most favored
-25-
<PAGE>
comparable unaffiliated customers. While the Funds do not deem it practicable
and in their best interest to solicit competitive bids for commission rates on
each transaction, consideration will regularly be given to posted commission
rates as well as to other information concerning the level of commissions
charged on comparable transactions by other qualified brokers and futures
commission merchants.
The Funds paid the following brokerage commissions for the periods
indicated:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
September 30, 1994 September 30, 1995 September 30, 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
Growth Fund $ 131,716 $ 451,281 $ 104,995
Emerging Growth Fund 158,195 193,809 208,245
Small Company Growth Fund 305,429 325,156 110,776
Growth and Income Fund 82,472 38,430 50,309
Balanced Fund 34,191 16,115 8,592
</TABLE>
The following table sets forth additional information with respect to
brokerage commissions paid by each Fund during the fiscal year ended
September 30, 1996:
<TABLE>
<CAPTION>
% of Fund's aggregate
dollar amount of
transactions involving
% of Fund's payment of
Brokerage total brokerage commissions which
Total brokerage commissions paid commissions paid was effected through
commissions paid to Distributor to Distributor the Distributor
---------------- ----------------- ---------------- --------------------
<S> <C> <C> <C> <C>
Growth Fund $ 104,995 $ 0 0 0
Emerging Growth Fund 208,245 3,726 1.8 1.5
Small Company Growth Fund 110,776 65,924 59.5 75.6
Growth and Income Fund 50,309 0 0 0
Balanced Fund 8,592 0 0 0
</TABLE>
From time to time the Funds may acquire the securities of their regular
brokers or dealers or parent companies of such brokers or dealers. Growth Fund
held $4,087,500 of securities issued by Norwest Corporation and $2,790,000
issued by FNMA at fiscal year end. During the fiscal year, Emerging Growth Fund
purchased securities issued by Charles Schwab Corporation and Firstar
Corporation and held $1,387,500 of securities issued by Charles Schwab
Corporation and $4,728,500 issued by Firstar Corporation at fiscal year end.
Small Company Growth Fund purchased securities issued by SunAmerica Inc. during
the fiscal year and held $622,125 issued by J.P. Morgan and $345,000 issued by
SunAmerica Inc. at fiscal year end. Growth and Income Fund purchased securities
issued by Federal National Mortgage Association and Norwest Corporation during
the fiscal year and held $1,534,500 of securities issued by Federal National
Mortgage Association, $1,753,538 of securities issued by Norwest Corporation,
$1,248,750 of securities issued by American Express and $1,075,387 of securities
issued by J.P. Morgan at fiscal year end. Balanced Fund purchased securities
during the fiscal year issued by Federal National Mortgage Association, Lehman
Brothers and Nationsbank Credit Card and held at fiscal year end $1,805,345 of
securities issued by Federal National Mortgage Association, $650,312 of
securities issued by Lehman Brothers, $479,933 of securities issued by
-26-
<PAGE>
Nationsbank Credit Card and $402,904 issued by Nationsbank, $407,492 of
securities issued by American Express, $989,260 of securities issued by Federal
Home Loan Mortgage Corporation and $723,488 of securities issued by Norwest
Corporation.
OPTION TRADING LIMITS
The writing by the Funds of options on securities will be subject to
limitations established by each of the registered securities exchanges on which
such options are traded. Such limitations govern the maximum number of options
in each class which may be written by a single investor or group of investors
acting in concert, regardless of whether the options are written on the same or
different securities exchanges or are held or written in one or more accounts or
through one or more brokers. Thus, the number of options which one Fund may
write may be affected by options written by the other Funds and other series of
the Companies and by other investment advisory clients of the Adviser. An
exchange may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions.
CAPITAL STOCK AND OWNERSHIP OF SHARES
The Board of Directors is empowered under the Company's Articles of
Incorporation to issue additional series of the Company's common stock without
shareholder approval. On an issue affecting only a particular series, the
shares of the affected series vote separately. An example of such an issue
would be a fundamental investment restriction pertaining to only one series. In
voting on the Investment Advisory and Management Agreement (the "Agreement"),
approval of the Agreement by the shareholders of a particular series would make
the Agreement effective as to that series whether or not it had been approved by
the shareholders of any other series.
The assets received by the Company for the issue or sale of shares of each
series, and all income, earnings, profits and proceeds thereof, subject only to
the rights of creditors, will be allocated to such series, and constitute the
underlying assets of such series. The underlying assets of each series are
required to be segregated on the books of account, and are to be charged with
the expenses relating to such series and with a share of the general expenses of
the Company. Any general expenses of the Company not readily identifiable as
belonging to a particular series shall be allocated among the series based on
the relative net assets of the series at the time such expenses were accrued.
The Board of Directors may, without shareholder approval, create and issue
one or more additional classes of shares within a Fund, as well as within any
series of the Company created in the future. All classes of shares in a series
would be identical except that each class of shares would be available through a
different distribution channel and certain classes might incur different
expenses for the provision of distribution services or the provision of
shareholder services or administration assistance by institutions. Shares of
each class would share equally in the gross income of a series, but any
variation in expenses would be charged
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separately against the income of the particular class incurring such expenses.
This would result in variations in net investment income accrued and dividends
paid by and in the net asset value of the different classes of a series. This
ability to create multiple classes of shares within each series of the Company
will allow the Company in the future the flexibility to better tailor its
methods of marketing, administering and distributing shares of the Fund to the
needs of particular investors and to allocate expenses related to such
marketing, administration and distribution methods to the particular classes of
shareholders of the Fund incurring such expenses.
As of November 21, 1996, no shareholder owns of record or was known by
the Funds to own beneficially 5% or more of the outstanding shares of any of
the Funds except as follows: Growth Fund--Piper Trust Company Trustee, FBO
Piper Jaffray Companies 401(k), 222 South 9th Street, Minneapolis, MN 55402,
1,124,837 shares (6.00%); Emerging Growth Fund--Piper Trust Company Trustee,
FBO Piper Jaffray Companies 401(k), 222 South 9th Street, Minneapolis, MN
55402, 1,855,388 shares (7.66%); Balanced Fund--Piper Trust Company as
Trustee, Bannock Regional Medical Center Retirement & Incentive Savings Plan,
222 South 9th Street, Minneapolis, MN 55402, 194,258 shares (5.71%). The
directors and officers of the Company as a group owned less than 1% of the
outstanding shares of each Fund as of such date.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the public offering price of Fund shares is
summarized in each Prospectus in the text following the headings "How to
Purchase Shares--Purchase Price" and "Valuation of Shares." The net asset value
of each Fund's shares is determined on each day on which the New York Stock
Exchange is open, provided that the net asset value need not be determined on
days when no Fund shares are tendered for redemption and no order for Fund
shares is received. The New York Stock Exchange is not open for business on the
following holidays (or on the nearest Monday or Friday if the holiday falls on a
weekend): New Year's Day, Presidents' Day, Good Friday, Memorial Day, July 4th,
Labor Day, Thanksgiving and Christmas.
The portfolio securities in which each Fund invests fluctuate in value, and
hence the net asset value per share of each Fund also fluctuates. On
September 30, 1996, the net asset value per share for each Fund was calculated
as follows:
Growth Fund
-----------
Net Assets ($178,302,080) = Net Asset Value Per Share ($21.16)
- -----------------------------
Shares Outstanding (8,426,882)
Emerging Growth Fund
--------------------
Net Assets ($303,768,688) = Net Asset Value Per Share ($13.86)
- -------------------------------
Shares Outstanding (21,912,057)
Small Company Growth Fund
-------------------------
Net Assets ($30,967,912) = Net Asset Value Per Share ($18.81)
- -----------------------------
Shares Outstanding (1,646,473)
Growth and Income Fund
----------------------
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Net Assets ($97,236,629) = Net Asset Value Per Share ($15.04)
- ------------------------------
Shares Outstanding (6,464,268)
Balanced Fund
-------------
Net Assets ($45,443,071) = Net Asset Value Per Share ($14.08)
- ------------------------------
Shares Outstanding (3,227,093)
For each Fund, a sales charge of 4.17% of the net asset value (in the case
of sales of less than $100,000) will be added to the net asset value per share
to determine the public offering price per share.
PERFORMANCE COMPARISONS
Advertisements and other sales literature for the Funds may refer to
"average annual total return," "cumulative total return" and "yield."
Average annual total return figures are computed by finding the average
annual compounded rates of return over the periods indicated in the
advertisement that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the period
of a hypothetical $1,000 payment made at the
beginning of such period.
This calculation deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and capital gains distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the applicable Prospectus, and includes all recurring fees, such as
investment advisory and management fees, charged to all shareholder accounts.
The following table sets forth the average annual total returns for each
Fund for one year, five years and since inception for the period ending
September 30, 1996:
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Average Annual Total Returns
----------------------------------------------
1 Year 5 Years Since Inception
------- ------- ---------------
Growth Fund 12.20% 9.91% 11.84% (1)
Emerging Growth Fund 13.13% 16.30% 18.36% (3)
Small Company Growth Fund 1.16% 9.23% 8.35% (1)
Growth and Income Fund 14.78% N/A 11.89% (2)
Balanced Fund 5.76% 10.11% 8.39% (1)
- -------------------
(1) Inception date: 3/16/87. Small Company Growth Fund's investment objective
was changed to long-term capital appreciation on September 13, 1996. Prior
to that date, the Fund was named Equity Strategy Fund and had an investment
objective of high total investment return consistent with prudent
investment risk.
(2) Inception date: 7/27/92
(3) Inception date: 4/23/90
The Distributor has voluntarily limited Rule 12b-1 fees and the Adviser has
paid certain expenses of some of the Funds, thereby increasing total return and
yield. These fees and expenses may or may not waived or paid in the future in
the Distributor's and the Adviser's discretion. Absent any voluntary expense
payments or fee waivers, the average annual total returns for such Funds for one
year, five years and since inception for the period ending September 30, 1996
would have been:
Average Annual Total Returns
----------------------------------------------
(absent voluntary fee waivers
and expense payments)
1 Year 5 Years Since Inception
------- ------- ---------------
Growth Fund 11.99% 9.72% 11.60%(1)
Emerging Growth Fund 12.88% 15.99% 18.01%(3)
Small Company Growth Fund 0.68% 8.77% 7.85%(1)
Growth and Income Fund 14.47% N/A 11.62%(2)
Balanced Fund 5.38% 9.78% 7.93%(1)
- ------------------
(1) Inception date: 3/16/87. Small Company Growth Fund's investment objective
was changed to long-term capital appreciation on September 13, 1996. Prior
to that date, the Fund was named Equity Strategy Fund and had an investment
objective of high total investment return consistent with prudent
investment risk.
(2) Inception date: 7/27/92
(3) Inception date: 4/23/90
Cumulative total return is computed by finding the cumulative compounded
rate of return over the period indicated in the advertisement that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
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<PAGE>
CTR = (ERV-P) 100
-------
P
Where: CTR = Cumulative total return;
ERV = ending redeemable value at the end of the period
of a hypothetical $1,000 payment made at the
beginning of such period; and
P = initial payment of $1,000.
This calculation assumes all dividends and capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the applicable Prospectus and includes all recurring fees, such as investment
advisory and management fees, charged to all shareholder accounts.
The following table sets forth the cumulative total returns for each Fund
from inception to September 30, 1996:
Cumulative Total Returns
Cumulative (absent voluntary fee waivers
Total Returns and expense payments)
------------- ----------------------------
Growth Fund (1) 191.14% 185.22%
Emerging Growth Fund (3) 196.22% 190.67%
Small Company Growth Fund (1) 115.13% 105.86%
Growth and Income Fund (2) 59.96% 58.36%
Balanced Fund (1) 115.89% 107.31%
- ------------------------
(1) Inception date: 3/16/87. Small Company Growth Fund's investment objective
was changed to long-term capital appreciation on September 13, 1996. Prior
to that date, the Fund was named Equity Strategy Fund and had an investment
objective of high total investment return consistent with prudent
investment risk.
(2) Inception date: 7/27/92
(3) Inception date: 4/23/90
Balanced Fund and Growth and Income Fund may issue yield quotations. Yield
is computed by dividing the net investment income per share (as defined under
Securities and Exchange Commission rules and regulations) earned during the
computation period by the maximum offering price per share on the last day of
the period, according to the following formula:
6
YIELD = 2[(a-b + 1) - 1]
-------
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of
the period.
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<PAGE>
For the 30-day period ended September 30, 1996, Balanced Fund and Growth
and Income Fund had yields of 3.12% and 1.23%, respectively. Had the
Distributor not voluntarily waived a portion of its Rule 12b-1 fees, the 30-day
yield as of September 30, 1996 for Balanced Fund and Growth and Income Fund
would have been 2.75% and 0.99%, respectively.
In addition to advertising total return and yield, comparative performance
information may be used from time to time in advertising the Funds' shares,
including data from Lipper Analytical Services, Inc. ("Lipper"), Morningstar,
other industry publications and other entities or organizations which track the
performance of investment companies. The performance of each Fund may be
compared to that of its unmanaged benchmark index and to the performance of
similar funds as reported by Lipper. Each Fund's benchmark index and comparison
group are set forth below.
Performance information for the Funds also may be compared to other
unmanaged indices. Unmanaged indices do not reflect deductions for
administrative and management costs and expenses. The Funds may also include in
advertisements and communications to Fund shareholders evaluations of a Fund
published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as BARRON'S, BUSINESS WEEK,
FORBES, INSTITUTIONAL INVESTOR, INVESTOR'S DAILY, MONEY, KIPLINGER'S PERSONAL
FINANCE MAGAZINE, MORNINGSTAR MUTUAL FUND VALUES, THE NEW YORK TIMES, USA TODAY
and THE WALL STREET JOURNAL.
The performance of Growth Fund may be compared to the performance of the
Growth Funds Average, as reported by Lipper, and to the performance of the S&P
500 Index. The performance of Emerging Growth Fund may be compared to the
performance of the MidCap Funds Average, as reported by Lipper, and to the
performance of the S&P MidCap 400 Index. The performance of Small Company
Growth Fund may be compared to the performance of the Small Company Growth Funds
Average, as reported by Lipper, and to the performance of the S&P SmallCap 600
Index. The performance of Growth and Income Fund may be compared to the
performance of the Growth and Income Funds Average, as reported by Lipper, and
to the performance of the S&P 500 Index. The performance of Balanced Fund may
be compared to the performance of the Balanced Funds Average, as reported by
Lipper, and to the performance of the Lehman Brothers Government Corporate Index
and the S&P 500 Index.
PURCHASE OF SHARES
An investor may qualify for a reduced sales charge immediately by signing a
nonbinding Letter of Intent stating the investor's intention to invest within a
13-month period, beginning not earlier than 90 days prior to the date of
execution of the Letter, a specified amount which, if made at one time, would
qualify for a reduced sales charge. Reinvested dividends will be treated as
purchases of additional shares. Any redemptions made during the term of the
Letter of Intent will be subtracted from the amount of purchases in determining
whether the Letter
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<PAGE>
of Intent has been completed. During the term of a Letter of Intent, IFTC will
hold shares representing 5% of the amount that the investor intends to invest
during the 13-month period in escrow for payment of a higher sales charge if the
full amount indicated in the Letter of Intent is not purchased. Dividends on
the escrowed shares will be paid to the shareholder. The escrowed shares will
be released when the full amount indicated has been purchased. If the full
indicated amount is not purchased within the 13-month period, the investor will
be required to pay, either in cash or by liquidating escrowed shares, an amount
equal to the difference in the dollar amount of sales charge actually paid and
the amount of sales charge the investor would have paid on his or her aggregate
purchases if the total of such purchases had been made at a single time.
REDEMPTION OF SHARES
GENERAL
Redemption of shares, or payment, may be suspended at times (a) when the
New York Stock Exchange is closed for other than customary weekend or holiday
closings, (b) when trading on said Exchange is restricted, (c) when an emergency
exists, as a result of which disposal by the Funds of securities owned by them
is not reasonably practicable, or it is not reasonably practicable for the Funds
fairly to determine the value of their net assets, or (d) during any other
period when the Securities and Exchange Commission, by order, so permits,
provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist.
Shareholders who purchased shares through a broker-dealer other than the
Distributor may also redeem such shares by written request to IFTC at the
address set forth in the Prospectus. To be considered in proper form, written
requests for redemption should indicate the dollar amount or number of shares to
be redeemed, refer to the shareholder's Fund account number, and give either a
social security or tax identification number. The request should be signed in
exactly the same way the account is registered. If there is more than one owner
of the shares, all owners must sign. If shares to be redeemed have a value of
$10,000 or more or redemption proceeds are to be paid to someone other than the
shareholder at the shareholder's address of record, the signature(s) must be
guaranteed by an "eligible guarantor institution," which includes a commercial
bank that is a member of the Federal Deposit Insurance Corporation, a trust
company, a member firm of a domestic stock exchange, a savings association or a
credit union that is authorized by its charter to provide a signature guarantee.
IFTC may reject redemption instructions if the guarantor is neither a member of
nor a participant in a signature guarantee program. Signature guarantees by
notaries public are not acceptable. The purpose of a signature guarantee is to
protect shareholders against the possibility of fraud. Further documentation
will be requested from corporations, administrators, executors, personal
representatives, trustees and custodians. Redemption requests given by
facsimile will not be accepted. Unless other instructions are given in proper
form, a check for the proceeds of the redemption will be sent to the
shareholder's address of record.
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<PAGE>
REINSTATEMENT PRIVILEGE
A shareholder who has redeemed shares of a Fund may reinvest all or part of
the redemption proceeds in shares of any Fund within 30 days without payment of
an additional sales charge. The Distributor will refund to any shareholder a
pro rata amount of any contingent deferred sales charge paid by such shareholder
in connection with a redemption of Fund shares if and to the extent that the
redemption proceeds are reinvested within 30 days of such redemption in any
mutual fund managed by the Adviser. Such refund will be based upon the ratio of
the net asset value of shares purchased in the reinvestment to the net asset
value of shares redeemed. Reinvestments will be allowed at net asset value
without the payment of a front-end sales charge, irrespective of the amounts of
the reinvestment, but shall be subject to the same pro rata contingent deferred
sales charge that was applicable to the earlier investment; however, the period
during which the contingent deferred sales charge shall apply on the newly
issued shares shall be the period applicable to the redeemed shares extended by
the number of days between the redemption and the reinvestment dates
(inclusive).
SYSTEMATIC WITHDRAWAL PLAN
To establish a Systematic Withdrawal Plan for any Fund and receive regular
periodic payments, an account must have a value of $5,000 or more. A request to
establish a Systematic Withdrawal Plan must be submitted in writing to an
investor's Piper Jaffray Investment Executive or other broker-dealer. There are
no service charges for maintenance; the minimum amount that may be withdrawn
each period is $100. (This is merely the minimum amount allowed and should not
be interpreted as a recommended amount.) The holder of a Systematic Withdrawal
Plan will have any income dividends and any capital gains distributions
reinvested in full and fractional shares at net asset value. To provide funds
for payment, the appropriate Fund will redeem as many full and fractional shares
as necessary at the redemption price, which is net asset value. Redemption of
shares may reduce or possibly exhaust the shares in your account, particularly
in the event of a market decline. As with other redemptions, a redemption to
make a withdrawal payment is a sale for federal income tax purposes. Payments
made pursuant to a Systematic Withdrawal Plan cannot be considered as actual
yield or income since part of such payments may be a return of capital.
The maintenance of a Systematic Withdrawal Plan for a Fund concurrent with
purchases of additional shares of that Fund would be disadvantageous because of
the sales commission involved in the additional purchases. A confirmation of
each transaction showing the sources of the payment and the share and cash
balance remaining in the account will be sent. The plan may be terminated on
written notice by the shareholder or the appropriate Fund, and it will terminate
automatically if all shares are liquidated or withdrawn from the account or upon
the death or incapacity of the shareholder. The amount and schedule of
withdrawal payments may be changed or suspended by giving written notice to your
Piper Jaffray Investment Executive or other broker-dealer at least seven
business days prior to the end of the month preceding a scheduled payment.
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<PAGE>
TAXATION
Each Fund intends to qualify each year as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). To qualify as a regulated investment company a Fund must, among other
things, receive at least 90% of its gross income each year from dividends,
interest, gains from the sale or other disposition of securities and certain
other types of income, including income from options and futures contracts.
The Code also forbids a regulated investment company from earning 30% or
more of its gross income from the sale or other disposition of securities held
less than three months. This restriction may limit the extent to which a Fund
may purchase futures contracts and options. To the extent the Funds engage in
short-term trading and enter into futures and options transactions, the
likelihood of violating this 30% requirement is increased.
The Code requires a regulated investment company to diversify its holdings.
The Internal Revenue Service has not made its position clear regarding the
treatment of futures contracts and options for purposes of the diversification
test, and the extent to which a Fund can buy or sell futures contracts and
options may be limited by this requirement.
If for any taxable year one of the Funds does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders, and
such distributions will be taxable to the Fund's shareholders as ordinary
dividends to the extent of the Fund's current or accumulated earnings and
profits.
Each Fund will be subject to a nondeductible excise tax equal to 4% of the
excess, if any, of the amount required to be distributed pursuant to the Code
for each calendar year over the amount actually distributed. No amount of such
excess, however, will be subject to the excise tax to the extent it is subject
to the corporate-level income tax. In order to avoid the imposition of this
excise tax, each Fund generally must declare dividends by the end of a calendar
year representing 98% of the Fund's ordinary income for the calendar year and
98% of its capital gain net income (both long-term and short-term capital gains)
for the 12-month period ending October 31 of the calendar year.
Gain or loss on futures contracts and options is taken into account when
realized by entering into a closing transaction or by exercise. In addition,
with respect to many types of futures contracts and options held at the end of a
Fund's taxable year, unrealized gain or loss on such contracts is taken into
account at the then current fair market value thereof under a special
"marked-to-market, 60/40 system," and such gain or loss is recognized for tax
purposes. The gain or loss from such futures contracts and options (including
premiums on certain options that expire unexercised) is treated as 60% long-term
and 40% short-term capital gain or loss, regardless of their holding period.
The amount of any capital gain or loss actually realized by a Fund in a
subsequent sale or other disposition of such futures
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<PAGE>
contracts will be adjusted to reflect any capital gain or loss taken into
account by the Fund in a prior year as a result of the constructive sale under
the "marked-to-market, 60/40 system." Notwithstanding the rules described above,
with respect to certain futures contracts, a Fund may make an election that will
have the effect of exempting all or a part of those identified futures contracts
from being treated for federal income tax purposes as sold on the last business
day of the Fund's taxable year. All or part of any loss realized by the Fund on
any closing of a futures contract may be deferred until all of the Fund's
offsetting positions with respect to the futures contract are closed.
Ordinarily, distributions and redemption proceeds earned by a Fund
shareholder are not subject to withholding of federal income tax. However, 31%
of a Fund shareholder's distributions and redemption proceeds must be withheld
if a Fund shareholder fails to supply the Fund or its agent with such
shareholder's taxpayer identification number or if a Fund shareholder who is
otherwise exempt from withholding fails to properly document such shareholder's
status as an exempt recipient.
Any loss on the sale or exchange of shares of a Fund generally will be
disallowed to the extent that a shareholder acquires or contracts to acquire
shares of the same Fund within 30 days before or after such sale or exchange.
In addition, if a shareholder disposes of shares within 90 days of acquiring
such shares and purchases other shares of the Company or of another mutual fund
managed by the Adviser at a reduced sales charge, the shareholder's tax basis
for determining gain or loss on the shares which are disposed of is reduced by
the lesser of the amount of the sales charge that was paid when the shares
disposed of were acquired or the amount by which the sales charge for the new
shares is reduced. If a shareholder's tax basis is so reduced, the amount of
the reduction is treated as part of the tax basis of the new shares.
Additionally, distributions may be subject to state and local income taxes,
and the treatment thereof may differ from the federal income tax consequences
discussed above.
GENERAL INFORMATION
Minnesota has enacted legislation which authorizes corporations to
eliminate or limit the personal liability of a director to the corporation or
its shareholders for monetary damages for breach of the fiduciary duty of "care"
(the duty to act with the care an ordinarily prudent person in a like position
would exercise under similar circumstances). Minnesota law does not, however,
permit a corporation to eliminate or limit the liability of a director (a) for
any breach of the director's duty of "loyalty" to the corporation or its
shareholders (the duty to act in good faith and in a manner reasonably believed
to be in the best interest of the corporation), (b) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law,
(c) for authorizing a dividend, stock repurchase or redemption or other
distribution in violation of Minnesota law or for violation of certain
provisions of Minnesota securities laws, or (d) for any transaction from which
the
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<PAGE>
director derived an improper personal benefit. Minnesota law does not permit
elimination or limitation of a director's liability under the Securities Act of
1933 or the Securities Exchange Act of 1934, and the 1940 Act prohibits
elimination or limitation of a director's liability for acts involving willful
malfeasance, bad faith, gross negligence or reckless disregard of the duties of
a director. The Articles of Incorporation of the Company limit the liability of
directors to the fullest extent permitted by Minnesota law and the 1940 Act.
FINANCIAL STATEMENTS
The audited financial statements for the Funds as of September 30, 1996
have been incorporated by reference into this Statement of Additional
Information from the Funds' annual reports to shareholders in reliance on the
reports of KPMG Peat Marwick LLP, 4200 Norwest Center, Minneapolis, Minnesota
55402, independent auditors of the Funds, given on the authority of such firm
as experts in accounting and auditing.
PENDING LITIGATION
Complaints have been brought in federal and state court relating to one
open-end and twelve closed-end investment companies managed by the Adviser and
to two open-end funds for which the Adviser has acted as sub-adviser. On
February 13, 1996, a Settlement Agreement became effective for the consolidated
class action lawsuit, titled IN RE: PIPER FUNDS INC. INSTITUTIONAL GOVERNMENT
INCOME PORTFOLIO LITIGATION. The Amended Consolidated Class Action Complaint
was filed on October 5, 1994, in the United States District Court, District of
Minnesota, against Institutional Government Income Portfolio (a series of Piper
Funds Inc.), the Adviser, the Distributor, William H. Ellis and Edward J.
Kohler, and had alleged the making of materially misleading statements in the
prospectus, common law negligent misrepresentation and breach of fiduciary duty.
The Settlement Agreement will provide approximately $67.5 million, together with
interest earned, less certain disbursements and attorney fees, to class members
in payments scheduled over approximately three years. Such payments will be
made by Piper Jaffray Companies Inc. and the Adviser and will not be an
obligation of Piper Funds Inc.
Two additional complaints relating to the Institutional Government Income
Portfolio remain pending. These complaints were brought by investors who
requested exclusion from the settlement class and are based on claims similar to
those asserted in the consolidated Class Action complaint. The first pending
complaint was brought on April 11, 1995, and filed in the Minnesota State
District Court, Hennepin County. This action was removed to United States
District Court, District of Minnesota. The plaintiff, Frank R. Berman, Trustee
of Frank R. Berman Professional CP Pension Plan Trust, sued individually and not
on behalf of any putative class. Defendants are the Distributor, Piper Funds
Inc., Morton Silverman and Worth Bruntjen. A second pending complaint relating
to the Institutional Government Income Portfolio was filed on June 22, 1995 in
the Montana Thirteenth Judicial District Court, Yellowstone County by Beverly
Muth against the Distributor
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<PAGE>
and Teresa L. Darnielle. In addition to the above complaints, a number of
actions have been commenced in arbitration by some of individual investors who
requested exclusion from the settlement class in the IN RE: PIPER FUNDS INC.
action.
A complaint was filed by Herman D. Gordon on October 20, 1994, in the
United States District Court, District of Minnesota, against American
Adjustable Rate Term Trust Inc.--1998, American Adjustable Rate Term Trust
Inc.--1999, the Adviser, the Distributor, Piper Jaffray Companies Inc.,
Benjamin Rinkey, Jeffrey Griffin, Charles N. Hayssen and Edward J. Kohler. A
second complaint was filed by Frank Donio, I.R.A. and other plaintiffs on
April 14, 1995, in the United States District Court, District of Minnesota,
against 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, the Adviser, the Distributor,
Piper Jaffray Companies Inc. and certain associated individuals. Plaintiffs
in both actions filed a Consolidated Amended Class Action Complaint on May
23, 1995 and by Order dated June 8, 1995, the Court consolidated the two
putative class actions. The consolidated amended complaint, which purports
to be a class action, alleges certain violations of federal and state
securities laws, breach of fiduciary duty and negligent misrepresentation.
On August 23, 1996, the Court granted final approval to the parties'
agreement to settle all outstanding cliams of the purported class action. The
Effective Date of the Settlement Agreement was September 23, 1996. The
Settlement Agreement provides for $14 million in principal payments
consisting of $500,000 which was paid upon the Court's preliminary approval,
$1.5 million which was paid on the Effective Date of the Settlement
Agreement, and payments of $3 million on each anniversary of the Effective
Date for the next four years, with accrued interest payments of up to $1.8
million.
Two additional complaints relating to the American Adjustable Rate Term
Trusts, which are based on claims similar to those asserted in the Gordon/Donio
Consolidated Complaint, remain pending. The first of these additional
complaints was filed against the Distributor on August 11, 1995 in Washington
State District Court, King County, by plaintiff Ernest Volinn. The second
complaint was filed against the Distributor on November 1, 1995 in the United
States District Court, District of Idaho, by plaintiff Ewing Company Profit
Sharing Plan. In addition to the above complaints, a number of actions have
been commenced in arbitration by individual investors in the American Adjustable
Rate Term Trusts.
A complaint was filed by Gary E. Nelson on June 28, 1995 in the United
States District Court for the Western District of Washington at Seattle against
American Strategic Income Portfolio Inc. -- II ("BSP"), the Adviser, the
Distributor, Piper Jaffray Companies Inc., Worth Bruntjen, Charles N. Hayssen,
Michael Jansen, William H. Ellis and Edward J. Kohler. A second complaint was
filed by the same individual in the same court on July 12, 1995 against American
Opportunity Income Fund Inc. ("OIF"), the Adviser, the Distributor, Piper
Jaffray Companies Inc., Worth Bruntjen, Charles N. Hayssen, Michael Jansen,
William H. Ellis and Edward J. Kohler. On September 7, 1995, Christian
Fellowship Foundation Peace United Church of Christ, Gary E. Nelson and Lloyd
Schmidt filed an amended complaint
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purporting to be a class action in the United States District Court for the
District of Washington. The complaint was filed against American Government
Income Portfolio, Inc. ("AAF"), American Government Income Fund Inc. ("AGF"),
American Government Term Trust, Inc., American Strategic Income Portfolio Inc.
("ASP"), American Strategic Income Portfolio Inc. -- II, American Strategic
Income Portfolio Inc. -- III ("CSP"), American Opportunity Income Fund Inc.,
American Select Portfolio Inc., Piper Jaffray Companies Inc., the Distributor,
the Adviser and certain associated individuals. By Order filed October 5, 1995,
the complaints were consolidated. Plaintiffs filed a second amended complaint
on February 5, 1996 and a third amended complaint on June 4, 1996. The third
amended third complaint alleges generally that the prospectus and financial
statements of each investment company were false and misleading. Specific
violations of various federal securities laws are alleged with respect to each
investment company. The complaint also alleges that the defendants violated the
Racketeer Influenced and Corrupt Organizations Act, the Washington State
Securities Act and the Washington Consumer Protection Act. 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 to class members in
payments by Piper Jaffray Companies Inc. and the Adviser over the next four
years. The settlement also includes an agreement that each of OIF, AAF, and AGF
would offer to repurchase up to 25% 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% 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. Finally,
the agreement stipulates that each of ASP, BSP, CSP and SLA would offer to
repurchase up to 10% of their outstanding shares from current shareholders at
net asset value.
Four additional complaints are pending which involve the funds named as
defendants in the Nelson/Christian Fellowship Consolidated Action and are based
on claims similar to that action. The first additional complaint was filed
against the Distributor and Richard Tallent in Montana State District Court,
Silver Bow County on November 1, 1995 by plaintiff John Darlington. The second
complaint was filed against the Distributor and Richard Tallent on April 11,
1996 in Montana State District Court, Silver Bow County by plaintiff Kenneth
Schneider. The third complaint was filed against the Distributor and Richard
Tallent on April 11, 1996 in Montana State District Court, Silver Bow County by
plaintiff Margaret Nagel. The fourth complaint was filed against the
Distributor on August 7, 1996 by plaintiff Kenneth Gennerman as Trustee of the
Nicole Bowlin Trust in Wisconsin Circuit Court, Waukesha County. In addition to
the above complaints, a number of arbitrations have been commenced by individual
investors in the funds named as defendants in the Nelson/Christian Fellowship
Consolidated Action.
Complaints have also been filed relating to two open-end funds for which
the Adviser has acted as sub-adviser, Managers Intermediate Mortgage Fund and
Managers Short Government Fund. A complaint was filed on September 26, 1994 in
the United States District Court, District of Connecticut, by Florence R. Hosea,
Bobby
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W. Hosea, Getrud B. Dale and Peter M. Dale, Andrew Poffel and Diane Poffel as
tenants by the Entireties, Myrone Sarone, Donna M. DiPalo, Bernard B. Geltner
and Gail Geltner and Paul Delman. The complaint was filed against The Managers
Funds, The Managers Funds, L.P., Robert P. Watson, the Adviser, the Distributor,
an individual associated with the Adviser, Evaluation Associates, Inc. and
Managers Intermediate Mortgage Fund. The complaint, which is a putative class
action, alleges certain violations of federal securities laws, including the
making of false and misleading statements in the prospectus, and alleges
negligent misrepresentation, breach of fiduciary duty and common law fraud. A
similar complaint was filed as a putative class action in the same court on
November 4, 1994. The complaint was filed by Karen E. Kopelman against The
Managers Fund, The Managers Funds, L.P., Robert P. Watson, the Adviser, the
Distributor, Worth Bruntjen, Evaluation Associates, Inc. and Managers
Intermediate Mortgage Fund. The two putative class actions were consolidated by
court order on December 13, 1994. Plaintiffs filed an Amended and Restated
Complaint on July 19, 1995. A complaint relating to the Managers Short
Government Fund was filed on November 18, 1994 in the United States District
Court, District of Minnesota. The complaint was filed by Robert Fleck as a
putative class action against The Managers Funds, The Managers Funds, L.P., the
Adviser, the Distributor, Worth Bruntjen, Evaluation Associates, Inc., Robert P.
Watson, John E. Rosati, William M. Graulty, Madeline H. McWhinney, Steven J.
Pasggioli, Thomas R. Schneeweis and Managers Short Government Fund, F/K/A/
Managers Short Government Income Fund. The complaint alleges certain violations
of federal securities laws, including the making of false and misleading
statements in the prospectus, and negligent misrepresentation. The named
plaintiff and defendants have reached an agreement-in-principle on a proposed
settlement. If approved by the Court and a sufficiently large percentage of the
putative class members, a settlement agreement consistent with the terms of the
agreement-in-principle would provide to class members up to a total of $1.5
million collectively from The Managers Funds, L.P. and the Adviser on the
effective date of the settlement. A third complaint relating to both the
Managers Intermediate Mortgage Fund and the Managers Short Government Fund was
filed on October 26, 1995 in Connecticut State Superior Court, Stamford/Norwalk
District. The complaint was filed by First Commercial Trust Company, N.A.
against the Managers Funds, 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, the Adviser, Piper Jaffray Companies Inc., Worth
Bruntjen, Standish, Ayer & Wood, Inc., TCW Funds Managements, Inc., and TCW
Management Company. The complaint alleges claims under Connecticut common law
and violation of the Connecticut Securities Act and the Connecticut Unfair and
Deceptive Trade Practices Act.
The Adviser and Distributor do not believe that the settlements described
above, or any of the above lawsuits and arbitrations, will have a material
adverse effect upon their ability to perform under their agreements with the
Company, and they intend to defend the remaining lawsuits vigorously.
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APPENDIX A
CORPORATE BOND, PREFERRED STOCK AND
COMMERCIAL PAPER RATINGS
COMMERCIAL PAPER RATINGS
STANDARD & POOR'S RATINGS SERVICES. Commercial paper ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues assigned the A rating are regarded as having the
greatest capacity for timely payment. Issues in this category are further
refined with designation 1, 2 and 3 to indicate the relative degree of safety.
The "A-1" designation indicates that the degree of safety regarding timely
payment is very strong. Those issues determined to possess overwhelming safety
characteristics will be denoted with a plus sign designation.
MOODY'S INVESTORS SERVICE, INC. Moody's commercial paper ratings are
opinions of the ability of the issuers to repay punctually promissory
obligations not having an original maturity in excess of nine months. Moody's
makes no representation that such obligations are exempt from registration under
the Securities Act of 1933, nor does it represent that any specific note is a
valid obligation of a rated issuer or issued in conformity with any applicable
law. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Superior capacity for repayment of short-term promissory
obligations
Prime-2 Strong capacity for repayment of short-term promissory
obligations
Prime-3 Acceptable capacity for repayment of short-term promissory
obligations
CORPORATE BOND RATINGS
STANDARD & POOR'S RATINGS SERVICES. Standard & Poor's ratings for
corporate bonds have the following definitions:
Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in a small degree.
Debt rated "A" has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
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Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
MOODY'S INVESTORS SERVICE, INC. Moody's ratings for corporate bonds
include the following:
Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than in Aaa
securities.
Bonds which are rated "A" possess many favorable attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Bonds which are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
PREFERRED STOCK RATING
STANDARD & POOR'S RATINGS SERVICES. Standard & Poor's ratings for
preferred stock have the following definitions:
An issue rated "AAA" has the highest rating that may be assigned by
Standard & Poor's to a preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.
A preferred stock issue rated "AA" also qualifies as a high-quality fixed
income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated "AAA."
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An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
MOODY'S INVESTORS SERVICE, INC. Moody's ratings for preferred stock
include the following:
An issue which is rated "aaa" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
An issue which is rated "aa" is considered a high grade preferred stock.
This rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue which is rate "a" is considered to be an upper medium grade
preferred stock. While risks are judged to be somewhat greater than in the
"aaa" and "aa" classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
An issue which is rated "baa" is considered to be medium grade, neither
highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.
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APPENDIX B
INTEREST RATE FUTURES CONTRACTS AND RELATED OPTIONS
INTEREST RATE FUTURES CONTRACTS
Balanced Fund and Growth and Income Fund may purchase and sell interest
rate futures contracts and options thereon. An interest rate futures contract
creates an obligation on the part of the seller (the "short") to deliver, and an
offsetting obligation on the part of the purchaser (the "long") to accept
delivery of, the type of financial instrument called for in the contract in a
specified delivery month for a stated price. A majority of transactions in
interest rate futures contracts, however, do not result in the actual delivery
of the underlying instrument, but are settled through liquidation, i.e., by
entering into an offsetting transaction. The interest rate futures contracts to
be traded by the Funds are traded only on commodity exchanges--known as
"contract markets"--approved for such trading by the Commodity Futures Trading
Commission and must be executed through a futures commission merchant or
brokerage firm which is a member of the relevant contract market. These
contract markets, through their clearing corporations, guarantee that the
contracts will be performed. Presently, futures contracts are based upon such
debt securities as long-term U.S. Treasury bonds, Treasury notes, Government
National Mortgage Association modified pass-through mortgage-backed securities,
three-month U.S. Treasury bills and bank certificates of deposit. In addition,
futures contracts are traded in the Moody's Investment Grade Corporate Bond
Index and the Long Term Corporate Bond Index.
Although most futures contracts by their terms call for actual delivery or
acceptance of commodities or securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery.
Closing out a short position is effected by purchasing a futures contract for
the same aggregate amount of the specific type of financial instrument or
commodity and the same delivery month. If the price of the initial sale of the
futures contract exceeds the price of the offsetting purchase, the seller is
paid the difference and realizes a gain. Conversely, if the price of the
offsetting purchase exceeds the price of the initial sale, the trader realizes a
loss. Similarly, the closing out of a long position is effected by the
purchaser entering into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the purchaser realizes a gain and, if the purchase
price exceeds the offsetting sale price, the purchaser realizes a loss.
The purchase or sale of a futures contract differs from the purchase or
sale of a security in that no price or premium is paid or received. Instead, an
amount of cash or securities acceptable to the Adviser and the relevant contract
market, which varies but is generally about 5% of the contract amount, must be
deposited with the custodian in the name of the broker. This amount is known as
"initial margin," and represents a "good faith" deposit assuring the performance
of both the purchaser and the seller under the futures contract. Subsequent
payments to and from the broker, known as "variation margin," are required to be
made on a daily basis as the price of the futures contract fluctuates, making
the long or short positions in the futures contract more or less valuable, a
process known as "marking
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to the market." Prior to the settlement date of the futures contract, the
position may be closed out by taking an opposite position which will operate to
terminate the position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid to or
released by the broker, and the purchaser realizes a loss or gain. In addition,
a commission is paid on each completed purchase and sale transaction.
The purpose of the acquisition or sale of a futures contract by a Fund, as
the holder of long-term fixed-income securities, is to hedge against
fluctuations in rates on such securities without actually buying or selling
long-term fixed-income securities. For example, if a Fund owns long-term bonds
and interest rates are expected to increase, the Fund might sell futures
contracts. Such a sale would have much the same effect as selling some of the
long-term bonds in the Fund's portfolio. If interest rates increase as
anticipated by the Adviser, the value of certain long-term securities in the
portfolio would decline, but the value of the Fund's futures contracts would
increase at approximately the same rate, thereby keeping the net asset value of
the Fund from declining as much as it otherwise would have. Of course, since
the value of the securities in the Fund's portfolio will far exceed the value of
the futures contracts sold by the Fund, an increase in the value of the futures
contracts could only mitigate--but not totally offset--the decline in the value
of the portfolio.
Similarly, when it is expected that interest rates may decline, futures
contracts could be purchased to hedge against a Fund's anticipated purchases of
long-term fixed-income securities, such as bonds, at higher prices. Since the
rate of fluctuation in the value of futures contracts should be similar to that
of long-term bonds, the Fund could take advantage of the anticipated rise in the
value of long-term bonds without actually buying them until the market had
stabilized. At that time, the futures contracts could be liquidated and the
Fund's cash could then be used to buy long-term bonds on the cash market. The
Fund could accomplish similar results by selling bonds with long maturities and
investing in bonds with short maturities when interest rates are expected to
increase or by buying bonds with long maturities and selling bonds with short
maturities when interest rates are expected to decline. However, in
circumstances when the market for bonds may not be as liquid as that for futures
contracts, the ability to invest in such contracts could enable the Fund to
react more quickly to anticipated changes in market conditions or interest
rates.
OPTIONS ON INTEREST RATE FUTURES CONTRACTS
The Funds may purchase and sell put and call options on interest rate
futures contracts which are traded on a United States exchange or board of trade
as a hedge against changes in interest rates, and will enter into closing
transactions with respect to such options to terminate existing positions. An
interest rate futures contract provides for the future sale by one party and the
purchase by the other party of a certain amount of a specific financial
instrument (debt security) at a specified price, date, time and place. An
option on an interest rate futures contract, as contrasted with the direct
investment in such a contract, gives the purchaser the right, in return for the
premium paid, to assume a position in an interest rate futures
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contract at a specified exercise price at any time prior to the expiration date
of the option. Options on interest rate futures contracts are similar to
options on securities, which give the purchaser the right, in return for the
premium paid, to purchase or sell securities. A call option gives the purchaser
of such option the right to buy, and obliges its writer to sell, a specified
underlying futures contract at a specified exercise price at any time prior to
the expiration date of the option. A purchaser of a put option has the right to
sell, and the writer has the obligation to buy, such contract at the exercise
price during the option period. Upon exercise of an option, the delivery of the
futures position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's future margin
account, which represents the amount by which the market price of the futures
contract exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. If an option is
exercised on the last trading day prior to the expiration date of the option,
the settlement will be made entirely in cash equal to the difference between the
exercise price of the option and the closing price of the interest rate futures
contract on the expiration date. A Fund will pay a premium for purchasing
options on interest rate futures contracts. Because the value of the option is
fixed at the point of sale, there are no daily cash payments to reflect changes
in the value of the underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset value of the
Fund. In connection with the writing of options on interest rate futures
contracts, a Fund will make initial margin deposits and make or receive
maintenance margin payments that reflect changes in the market value of such
options. Premiums received from the writing of an option are included in
initial margin deposits.
PURCHASE OF PUT OPTIONS ON FUTURES CONTRACTS. A Fund will purchase put
options on interest rate futures contracts if the Adviser anticipates a rise in
interest rates. Because the value of an interest rate futures contract moves
inversely in relation to changes in interest rates, a put option on such a
contract becomes more valuable as interest rates rise. By purchasing put
options on interest rate futures contracts at a time when the Adviser expects
interest rates to rise, a Fund will seek to realize a profit to offset the loss
in value of its portfolio securities.
PURCHASE OF CALL OPTIONS ON FUTURES CONTRACTS. A Fund will purchase call
options on interest rate futures contracts if the Adviser anticipates a decline
in interest rates. The purchase of a call option on an interest rate futures
contract represents a means of obtaining temporary exposure to market
appreciation at limited risk. Because the value of an interest rate futures
contract moves inversely in relation to changes to interest rates, a call option
on such a contract becomes more valuable as interest rates decline. A Fund will
purchase a call option on an interest rate futures contract to hedge against a
decline in interest rates in a market advance when the Fund is holding cash.
The Fund can take advantage of the anticipated rise in the value of long-term
securities without actually buying them until the market is stabilized. At that
time, the options can be liquidated and the Fund's cash can be used to buy
long-term securities.
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WRITING CALL OPTIONS ON FUTURES CONTRACTS. A Fund will write call options
on interest rate futures contracts if the Adviser anticipates a rise in interest
rates. As interest rates rise, a call option on such a contract becomes less
valuable. If the futures contract price at expiration of the option is below
the exercise price, the option will not be exercised and the Fund will retain
the full amount of the option premium. Such amount provides a partial hedge
against any decline that may have occurred in the Fund's portfolio securities.
WRITING PUT OPTIONS ON FUTURES CONTRACTS. A Fund will write put options on
interest rate futures contracts if the Adviser anticipates a decline in interest
rates. As interest rates decline, a put option on an interest rate futures
contract becomes less valuable. If the futures contract price at expiration of
the option has risen due to declining interest rates and is above the exercise
price, the option will not be exercised and the Fund will retain the full amount
of the option premium. Such amount can then be used by the Fund to buy
long-term securities when the market has stabilized.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
HEDGING RISKS IN FUTURES CONTRACTS TRANSACTIONS. There are several risks
in using futures contracts as hedging devices. One risk arises because the
prices of futures contracts may not correlate perfectly with movements in the
underlying fixed-income security due to certain market distortions. First, all
participants in the futures market are subject to initial margin and variation
margin requirements. Rather than making additional variation margin payments,
investors may close the contracts through offsetting transactions which could
distort the normal relationship between the security and the futures market.
Second, the margin requirements in the futures market are lower than margin
requirements in the securities market, and as a result the futures market may
attract more speculators than does the securities market. Increased
participation by speculators in the futures market may also cause temporary
price distortions. Because of possible price distortion in the futures market
and because of imperfect correlation between movements in securities and
movements in the prices of futures contracts, even a correct forecast of general
market trends may not result in a successful hedging transaction over a very
short period. Another risk arises because of imperfect correlation between
movements in the value of the futures contracts and movements in the value of
securities subject to the hedge.
Successful use of futures contracts by a Fund is subject to the ability of
the Adviser to predict correctly movements in the direction of interest rates.
If a Fund has hedged against the possibility of an increase in interest rates
adversely affecting the value of fixed-income securities held in its portfolio
and interest rates decrease instead, the Fund will lose part or all of the
benefit of the increased value of its security which it has hedged because it
will have offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to sell securities to
meet daily variation margin requirements. Such sales of securities may, but
will not necessarily, be at increased prices which reflect the
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decline in interest rates. The Fund may have to sell securities at a time when
it may be disadvantageous to do so.
LIQUIDITY OF FUTURES CONTRACTS. A Fund may elect to close some or all of
its contracts prior to expiration. The purpose of making such a move would be
to reduce or eliminate the hedge position held by the Fund. A Fund may close
its positions by taking opposite positions. Final determinations of variation
margin are then made, additional cash as required is paid by or to the Fund, and
the Fund realizes a loss or a gain.
Positions in futures contracts may be closed only on an exchange or board
of trade providing a secondary market for such futures contracts. Although the
Funds intend to enter into futures contracts only on exchanges or boards of
trade where there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular contract
at any particular time.
In addition, most domestic futures exchanges and boards of trade limit the
amount of fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the maximum amount that the price of a
futures contract may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been reached in
a particular contract, no trades may be made that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses because the limit may prevent
the liquidation of unfavorable positions. It is possible that futures contract
prices could move to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses. In such event, it
will not be possible to close a futures position and, in the event of adverse
price movements, a Fund would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the
portion of the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. However, as described above, there is no
guarantee that the price of the securities being hedged will, in fact, correlate
with the price movements in the futures contract and thus provide an offset to
losses on a futures contract.
RISKS OF OPTIONS ON FUTURES CONTRACTS. The use of options on futures
contracts also involves additional risk. Compared to the purchase or sale of
futures contracts, the purchase of call or put options on futures contracts
involves less potential risk to a Fund because the maximum amount at risk is the
premium paid for the options (plus transactions costs). The writing of a call
option on a futures contract generates a premium which may partially offset a
decline in the value of the Fund's portfolio assets. By writing a call option,
a Fund becomes obligated to sell a futures contract, which may have a value
higher than the exercise price. Conversely, the writing of a put option on a
futures contract generates a premium, but the Fund becomes obligated to purchase
a futures contract, which may have a value lower than the exercise price. Thus,
the loss incurred by a Fund in writing options on futures contracts may exceed
the amount of the premium received.
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The effective use of options strategies is dependent, among other things,
on a Fund's ability to terminate options positions at a time when the Adviser
deems it desirable to do so. Although the Funds will enter into option
positions only if the Adviser believes that a liquid secondary market exists for
such options, there is no assurance that the Funds will be able to effect
closing transactions at any particular time or at an acceptable price. The
Funds' transactions involving options on futures contracts will be conducted
only on recognized exchanges. Each Fund's purchase or sale of put or call
options on futures contracts will be based upon predictions as to anticipated
interest rates by the Adviser, which could prove to be inaccurate. Even if the
expectations of the Adviser are correct, there may be an imperfect correlation
between the change in the value of the options and of the Fund's portfolio
securities.
REGULATORY MATTERS
To the extent required to comply with applicable Securities and Exchange
Commission releases and staff positions, when entering into futures contracts,
the Fund will maintain, in a segregated account, cash or liquid high-grade debt
securities equal to the value of such contracts.
The Commodity Futures Trading Commission (the "CFTC"), a federal agency,
regulates trading activity on the exchanges pursuant to the Commodity Exchange
Act, as amended. The CFTC requires the registration of "commodity pool
operators," defined as any person engaged in a business which is of the nature
of an Company, syndicate or a similar form of enterprise, and who, in connection
therewith, solicits, accepts or receives from others, funds, securities or
property for the purpose of trading in any commodity for future delivery on or
subject to the rules of any contract market. The CFTC has adopted Rule 4.5,
which provides an exclusion from the definition of commodity pool operator for
any registered investment company which meets the requirements of the Rule.
Rule 4.5 requires, among other things, that an investment company wishing to
avoid commodity pool operator status use futures and options positions only (a)
for "bona fide hedging purposes" (as defined in CFTC regulations) or (b) for
other purposes so long as aggregate initial margins and premiums required in
connection with non-hedging positions do not exceed 5% of the liquidation value
of the investment company's portfolio. Any investment company wishing to claim
the exclusion provided in Rule 4.5 must file a notice of eligibility with both
the CFTC and the National Futures Association. Before engaging in transactions
involving interest rate futures contracts, the Funds will file such notices and
meet the requirements of Rule 4.5, or such other requirements as the CFTC or its
staff may from time to time issue, in order to render registration as a
commodity pool operator unnecessary.
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APPENDIX C
STOCK INDEX FUTURES CONTRACTS AND RELATED OPTIONS
STOCK INDEX FUTURES CONTRACTS
Each Fund may purchase and sell stock index futures contracts, options
thereon and options on stock indexes. Stock index futures contracts are
commodity contracts listed on commodity exchanges. They presently include
contracts on the Standard & Poor's 500 Stock Index (the "S&P 500 Index") and
such other broad stock market indexes as the New York Stock Exchange Composite
Stock Index and the Value Line Composite Stock Index, as well as narrower
"sub-indexes" such as the S&P 100 Energy Stock Index and the New York Stock
Exchange Utilities Stock Index. A stock index assigns relative values to common
stocks included in the index and the index fluctuates with the value of the
common stocks so included. A futures contract is a legal agreement between a
buyer or seller and the clearing house of a futures exchange in which the
parties agree to make a cash settlement on a specified future date in an amount
determined by the stock index on the last trading day of the contract. The
amount is a specified dollar amount (usually $100 or $500) times the difference
between the index value on the last trading day and the value on the day the
contract was struck.
For example, the S&P 500 Index consists of 500 selected common stocks, most
of which are listed on the New York Stock Exchange. The S&P 500 Index assigns
relative weightings to the common stocks included in the Index, and the Index
fluctuates with changes in the market values of those common stocks. In the
case of S&P 500 Index futures contracts, the specified multiple is $500. Thus,
if the value of the S&P 500 Index were 150, the value of one contract would be
$75,000 (150 x $500). Unlike other futures contracts, a stock index futures
contract specifies that no delivery of the actual stocks making up the index
will take place. Instead, settlement in cash must occur upon the termination of
the contract with the settlement amount being the difference between the
contract price and the actual level of the stock index at the expiration of the
contract. For example (excluding any transaction costs), if a Fund enters into
one futures contract to buy the S&P 500 Index at a specified future date at a
contract value of 150 and the S&P 500 Index is at 154 on that future date, the
Fund will gain $500 x (154-150) or $2,000. If a Fund enters into one futures
contract to sell the S&P 500 Index at a specified future date at a contract
value of 150 and the S&P 500 Index is at 152 on that future date, the Fund will
lose $500 x (152-150) or $1,000.
Unlike the purchase or sale of an equity security, no price would be paid
or received by a Fund upon entering into stock index futures contracts. Upon
entering into a contract, the Fund would be required to deposit with its
custodian in a segregated account in the name of the futures broker an amount of
cash or U.S. Treasury bills equal to a portion of the contract value. This
amount is known as "initial margin." The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve borrowing funds by a Fund to finance
the transactions. Rather, the initial
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margin is in the nature of a performance bond or good faith deposit on the
contract that is returned to the Fund upon termination of the contract, assuming
all contractual obligations have been satisfied.
Subsequent payments, called "variation margin," to and from the broker
would be made on a daily basis as the price of the underlying stock index
fluctuates, making the long and short positions in the contract more or less
valuable, a process known as "marking to the market." For example, when a Fund
enters into a contract in which it benefits from a rise in the value of an index
and the price of the underlying stock index has risen, the Fund will receive
from the broker a variation margin payment equal to that increase in value.
Conversely, if the price of the underlying stock index declines, the Fund would
be required to make a variation margin payment to the broker equal to the
decline in value.
The Funds intend to use stock index futures contracts and related options
for hedging and not for speculation. Hedging permits a Fund to gain rapid
exposure to or protect itself from changes in the market. For example, a Fund
may find itself with a high cash position at the beginning of a market rally.
Conventional procedures of purchasing a number of individual issues entail the
lapse of time and the possibility of missing a significant market movement. By
using futures contracts, the Fund can obtain immediate exposure to the market
and benefit from the beginning stages of a rally. The buying program can then
proceed, and once it is completed (or as it proceeds), the contracts can be
closed. Conversely, in the early stages of a market decline, market exposure
can be promptly offset by entering into stock index futures contracts to sell
units of an index and individual stocks can be sold over a longer period under
cover of the resulting short contract position.
The Funds may enter into contracts with respect to any stock index or
sub-index. To hedge a Fund's portfolio successfully, however, the Fund must
enter into contracts with respect to indexes or sub-indexes whose movements will
have a significant correlation with movements in the prices of the Fund's
portfolio securities.
OPTIONS ON STOCK INDEX FUTURES CONTRACTS
The Funds may purchase and sell put and call options on stock index futures
contracts which are traded on a United States exchange or board of trade as a
hedge against changes in the market, and will enter into closing transactions
with respect to such options to terminate existing positions. An option on a
stock index futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a stock index futures contract at a
specified exercise price at any time prior to the expiration date of the option.
A call option gives the purchaser of such option the right to buy, and it
obliges its writer to sell, a specified underlying futures contract at a
specified exercise price at any time prior to the expiration date of the option.
A purchaser of a put option has the right to sell, and the writer has the
obligation to buy, such contract at the exercise price during the option period.
Upon exercise of an option, the delivery of the futures position by the writer
of the option
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to the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's future margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. If an option is exercised on the last trading day prior to
the expiration date of the option, the settlement will be made entirely in cash
equal to the difference between the exercise price of the option and the closing
price of the stock index futures contract on the expiration date. A Fund will
pay a premium for purchasing options on stock index futures contracts. Because
the value of the option is fixed at the point of sale, there are no daily cash
payments to reflect changes in the value of the underlying contract; however,
the value of the option does change daily and that change would be reflected in
the net asset value of the Fund. In connection with the writing of options on
stock index futures contracts, a Fund will make initial margin deposits and make
or receive maintenance margin payments that reflect changes in the market value
of such options. Premiums received from the writing of an option are included
in initial margin deposits.
PURCHASE OF PUT OPTIONS ON FUTURES CONTRACTS. A Fund will purchase put
options on futures contracts if the Adviser anticipates a market decline. A put
option on a stock index futures contract becomes more valuable as the market
declines. By purchasing put options on stock index futures contracts at a time
when the Adviser expects the market to decline, a Fund will seek to realize a
profit to offset the loss in value of its portfolio securities.
PURCHASE OF CALL OPTIONS ON FUTURES CONTRACTS. A Fund will purchase call
options on stock index futures contracts if the Adviser anticipates a market
rally. The purchase of a call option on a stock index futures contract
represents a means of obtaining temporary exposure to market appreciation at
limited risk. A call option on such a contract becomes more valuable as the
market appreciates. A Fund will purchase a call option on a stock index futures
contract to hedge against a market advance when the Fund is holding cash. The
Fund can take advantage of the anticipated rise in the value of equity
securities without actually buying them until the market is stabilized. At that
time, the options can be liquidated and the Fund's cash can be used to buy
portfolio securities.
WRITING CALL OPTIONS ON FUTURES CONTRACTS. A Fund will write call options
on stock index futures contracts if the Adviser anticipates a market decline.
As the market declines, a call option on such a contract becomes less valuable.
If the futures contract price at expiration of the option is below the exercise
price, the option will not be exercised and the Fund will retain the full amount
of the option premium. Such amount provides a partial hedge against any decline
that may have occurred in the Fund's portfolio securities.
WRITING PUT OPTIONS ON FUTURES CONTRACTS. A Fund will write put options on
stock index futures contracts if the Adviser anticipates a market rally. As the
market appreciates, a put option on a stock index futures contract becomes less
valuable. If the futures contract price at expiration of the option has risen
due to market
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appreciation and is above the exercise price, the option will not be exercised
and the Fund will retain the full amount of the option premium. Such amount can
then be used by the Fund to buy portfolio securities when the market has
stabilized.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
HEDGING RISKS IN FUTURES CONTRACTS TRANSACTIONS. There are several risks
in using stock index futures contracts as hedging devices. One risk arises
because the prices of futures contracts may not correlate perfectly with
movements in the underlying stock index due to certain market distortions.
First, all participants in the futures market are subject to initial margin and
variation margin requirements. Rather than making additional variation margin
payments, investors may close the contracts through offsetting transactions
which could distort the normal relationship between the index and the futures
market. Second, the margin requirements in the futures market are lower than
margin requirements in the securities market. Increased participation by
speculators in the futures market may also cause temporary price distortions.
Because of possible price distortion in the futures market and because of
imperfect correlation between movements in stock indexes or securities and
movements in the prices of futures contracts, even a correct forecast of general
market trends may not result in a successful hedging transaction over a very
short period.
Another risk arises because of imperfect correlation between movements in
the value of the stock index futures contracts and movements in the value of
securities subject to the hedge. The risk of imperfect correlation increases as
the composition of a Fund's portfolio diverges from the securities included in
the applicable stock index. It is possible that a Fund might sell stock index
futures contracts to hedge its portfolio against decline in the market, only to
have the market advance and the value of securities held in the Fund's portfolio
decline. If this occurred, the Fund would lose money on the contracts and also
experience a decline in the value of its portfolio securities. While this could
occur, the Adviser believes that over time the value of an equity fund's
portfolio will tend to move in the same direction as the market indexes. In an
attempt to reduce this risk, the Adviser will enter into futures contracts on
indexes whose movements it believes will have a significant correlation with
movements in the value of the Fund's portfolio securities.
Successful use of futures contracts by a Fund is subject to the ability of
the Adviser to predict correctly movements in the direction of the market. If a
Fund has hedged against the possibility of a decline in the value of the stocks
held in its portfolio and stock prices increase instead, the Fund will lose part
or all of the benefit of the increased value of its security which it has hedged
because it will have to sell securities to meet daily variation margin
requirements. Such sales of securities may, but will not necessarily, be at
increased prices which reflect the rising market. The Fund may have to sell
securities at a time when it may be disadvantageous to do so.
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LIQUIDITY OF FUTURES CONTRACTS. A Fund may elect to close some or all of
its contracts prior to expiration. The purpose of making such a move would be
to reduce or eliminate the hedge position held by the Fund. A Fund may close
its positions by taking opposite positions. Final determinations of variation
margin are then made, additional cash as required is paid by or to the Fund, and
the Fund realizes a loss or a gain.
Positions in futures contracts may be closed only on an exchange or board
of trade providing a secondary market for such futures contracts. Although the
Funds intend to enter into futures contracts only on exchanges or boards of
trade where there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular contract
at any particular time.
In addition, most domestic futures exchanges and boards of trade limit the
amount of fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the maximum amount that the price of a
futures contract may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been reached in
a particular contract, no trades may be made that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses because the limit may prevent
the liquidation of unfavorable positions. It is possible that futures contract
prices could move to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses. In such event, it
will not be possible to close a futures position and, in the event of adverse
price movements, the Fund would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the
portion of the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. However, as described above, there is no
guarantee that the price of the securities being hedged will, in fact, correlate
with the price movements in the futures contract and thus provide an offset to
losses on the futures contract.
RISKS OF OPTIONS ON FUTURES CONTRACTS. The use of options on stock index
futures contracts also involves additional risk. Compared to the purchase or
sale of futures contracts, the purchase of call or put options on futures
contracts involves less potential risk to a Fund because the maximum amount at
risk is the premium paid for the options (plus transactions costs). The writing
of a call option on a futures contract generates a premium which may partially
offset a decline in the value of the Fund's portfolio assets. By writing a call
option, the Fund becomes obligated to sell a futures contract, which may have a
value higher than the exercise price. Conversely, the writing of a put option
on a futures contract generates a premium, but the Fund becomes obligated to
purchase a futures contract, which may have a value lower than the exercise
price. Thus, the loss incurred by the Fund in writing options on futures
contracts may exceed the amount of the premium received.
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The effective use of options strategies is dependent, among other things,
on a Fund's ability to terminate options positions at a time when the Adviser
deems it desirable to do so. Although a Fund will enter into an option position
only if the Adviser believes that a liquid secondary market exists for such
option, there is no assurance that the Fund will be able to effect closing
transactions at any particular time or at an acceptable price. The Funds'
transactions involving options on futures contracts will be conducted only on
recognized exchanges.
A Fund's purchase or sale of put or call options on futures contracts will
be based upon predictions as to anticipated market trends by the Adviser, which
could prove to be inaccurate. Even if the expectations of the Adviser are
correct, there may be an imperfect correlation between the change in the value
of the options and of the Fund's portfolio securities.
REGULATORY MATTERS
To the extent required to comply with applicable Securities and Exchange
Commission releases and staff positions, when entering into futures contracts,
the Fund will maintain, in a segregated account, cash or liquid high-grade debt
securities equal to the value of such contracts.
The Commodity Futures Trading Commission (the "CFTC"), a federal agency,
regulates trading activity on the exchanges pursuant to the Commodity Exchange
Act, as amended. The CFTC requires the registration of "commodity pool
operators," defined as any person engaged in a business which is of the nature
of an investment trust, syndicate or a similar form of enterprise, and who, in
connection therewith, solicits, accepts or receives from others, funds,
securities or property for the purpose of trading in any commodity for future
delivery on or subject to the rules of any contract market. The CFTC has
adopted Rule 4.5, which provides an exclusion from the definition of commodity
pool operator for any registered investment company which meets the requirements
of the Rule. Rule 4.5 requires, among other things, that an investment company
wishing to avoid commodity pool operator status use futures and options
positions only (a) for "bona fide hedging purposes" (as defined in CFTC
regulations) or (b) for other purposes so long as aggregate initial margins and
premiums required in connection with non-hedging positions do not exceed 5% of
the liquidation value of the investment company's portfolio. Any investment
company wishing to claim the exclusion provided in Rule 4.5 must file a notice
of eligibility with both the CFTC and the National Futures Association. Before
engaging in transactions involving interest rate futures contracts, the Funds
will file such notices and meet the requirements of Rule 4.5, or such other
requirements as the CFTC or its staff may from time to time issue, in order to
render registration as a commodity pool operator unnecessary.
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PART C
OTHER INFORMATION
Growth Fund, Emerging Growth Fund, Small Company
Growth Fund, Growth and Income Fund and Balanced Fund
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements are incorporated by reference to the Registrant's
Annual Reports previously filed with the Commission.
(b) Exhibits:
1.1 Restated Articles of Incorporation dated November 23, 1993 *
1.2 Certificate of Designation of Series M Common Shares *
2.1 Bylaws *
2.2 Amendment to Bylaws dated July 6, 1995 *
2.3 Amendment to Bylaws dated September 13, 1996 (1)
5.1 Investment Advisory and Management Agreement dated February 19,
1987 *
5.2 Supplement to Investment Advisory and Management Agreement dated
April 4, 1988 *
5.3 Supplement to Investment Advisory and Management Agreement dated
March 16, 1990 *
5.4 Supplement to Investment Advisory and Management Agreement dated
July 21, 1992 *
5.5 Supplement to Investment Advisory and Management Agreement dated
April 10, 1995 *
6 Amended Underwriting and Distribution Agreement *
9.1 Shareholder Account Servicing Agreement between Piper Funds Inc.
and Piper Trust Company *
9.2 Shareholder Account Servicing Agreement between Piper Funds Inc.
and Piper Jaffray Inc. *
10 Opinion and Consent of Dorsey & Whitney P.L.L.P. dated April 7,
1995 *
11 Consent of KPMG Peat Marwick LLP (2)
13 Letter of Investment Intent dated April 6, 1995 *
15.1 Amended and Restated Plan of Distribution *
15.2 Supplement to Distribution Plan dated April 10, 1995 *
17.1 Power of Attorney dated November 15, 1996 (2)
--------------------------------------
* Incorporated by reference to Post-Effective Amendment No. 27 to the
Registrant's Registration Statement on Form N-1A filed with the
Commission on November 27, 1995.
(1) Incorporated by reference to Post-Effective Amendment No. 29 to the
Registrant's Registration Statement on Form N-1A filed with the
Commission on September 13, 1996.
(2) Filed herewith.
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
No person is directly or indirectly controlled by or under common control
with the Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of November 21, 1996: Number of
Title of Class Record Holders
-------------- --------------
Growth Fund Common Shares 12,406
Emerging Growth Fund Common Shares 21,276
Small Company Growth Fund Common Shares 4,285
Growth & Income Fund Common Shares 8,764
Balanced Fund Common Shares 2,537
ITEM 27. INDEMNIFICATION
The Articles of Incorporation and Bylaws of the Registrant provide that the
Registrant shall indemnify such persons for such expenses and liabilities, in
such manner and under such circumstances, to the full extent permitted by
Section 302A.521, Minnesota Statutes, as now enacted or hereafter amended,
provided that no such indemnification may be made if it would be in violation of
Section 17(h) of the Investment Company Act of 1940, as now enacted or hereafter
amended. Section 302A.521 of the Minnesota Statutes, as now enacted, provides
that a corporation shall indemnify a person made or threatened to be made a
party to a proceeding of the person against judgments, penalties, fines,
settlements, and reasonable expenses, including attorneys' fees and
disbursements, incurred by the person in connection with the proceeding if, with
respect to the acts or omissions of the person complained of in the proceeding,
the person has not been indemnified by another organization for the same
judgments, penalties, fines, settlements, and reasonable expenses incurred by
the person in connection with the proceeding with respect to the same acts or
omissions; acted in good faith, received no improper personal benefit and the
Minnesota Statutes dealing with directors' conflicts of interest, if applicable,
have been satisfied; in the case of a criminal proceeding, had no reasonable
cause to believe that the conduct was unlawful; and reasonably believed that the
conduct was in the best interests of the corporation or, in certain
circumstances, reasonably believed that the conduct was not opposed to the best
interests of the corporation.
Insofar as the indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person
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in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information on the business of the Adviser is described in the section of
the Prospectus, incorporated by reference in this Registration Statement,
entitled "Management -- Investment Adviser."
The officers and directors of the Adviser and their titles are as follow:
Name Title
---- -----
William H. Ellis President, Director and Chairman of
the Board
Deborah K. Roesler Director
Bruce C. Huber Director
David E. Rosedahl Director
Momchilo Vucenich Director
Paul A. Dow Senior Vice President and
Chief Investment Officer
Susan S. Miley Senior Vice President, General
Counsel and Secretary
Worth Bruntjen Senior Vice President
Richard Daly Senior Vice President
Michael C. Derck Senior Vice President
Richard W. Filippone Senior Vice President
John J. Gibas Senior Vice President
Marijo A. Goldstein Senior Vice President
Mark R. Grotte Senior Vice President
Jerry F. Gudmundson Senior Vice President
Robert C. Hannah Senior Vice President
Lynne Harrington Senior Vice President
Kim Jenson Senior Vice President
Russell J. Kappenman Senior Vice President
Kimberly F. Kaul Senior Vice President
Lisa A. Kenyon Senior Vice President
Thomas S. McGlinch Senior Vice President
Curt D. McLeod Senior Vice President
Steven V. Markusen Senior Vice President
Paula Meyer Senior Vice President
Robert H. Nelson Senior Vice President
Gary Norstrem Senior Vice President
Nancy S. Olsen Senior Vice President
Ronald R. Reuss Senior Vice President
Bruce D. Salvog Senior Vice President
John K. Schonberg Senior Vice President
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Sandra K. Shrewsbury Senior Vice President
Eric L. Siedband Senior Vice President
David M. Steele Senior Vice President
Jill A. Thompson Senior Vice President
Robert H. Weidenhammer Senior Vice President
John G. Wenker Senior Vice President
Douglas J. White Senior Vice President
Cynthia K. Castle Vice President
Molly Destro Vice President
Julie Deutz Vice President
Rochelle B. Gonzo Vice President
Joyce A. K. Halbe Vice President
Joan L. Harrod Vice President
Mary M. Hoyme Vice President
Amy K. Johnson Vice President
John D. Kightlinger Vice President
Wan-Chong Kung Vice President
Jane C. Longueville Vice President
Robert D. Mellum Vice President
Steven Meyer Vice President
Thomas Moore Vice President
Chris Neuharth Vice President
Paul D. Pearson Vice President
Catherine M. Stienstra Vice President
Shaista Tajamal Vice President
Jane K. Welter Vice President
Marcy K. Winson Vice President
Fong P. Woo Vice President
Principal occupations of Messrs. Ellis, Dow, Nelson and Ms. Miley are set
forth in the Statement of Additional Information under the heading "Directors
and Officers." MR. HAYSSEN is a Director of the Adviser and has been Chief
Information Officer of Piper Jaffray Companies Inc. since January 1996 and a
Managing Director of Piper Jaffray Inc. ("Piper Jaffray") since 1986, prior to
which he was a Managing Director of Piper Jaffray Companies Inc. from 1987 to
1995, Chief Financial Officer of Piper Jaffray from 1988 to 1995, Chief
Financial Officer of the Adviser from 1989 to 1995 and Chief Operating Officer
of the Adviser from 1994 to 1995. MR. HUBER has been a Director of the Adviser
since 1985 and a Managing Director of Piper Jaffray since 1986. MR. ROSEDAHL is
a Director of the Adviser and Managing Director and Secretary for Piper Jaffray
and Managing Director, Secretary and General Counsel for Piper Jaffray Companies
Inc. MR. VUCENICH has been a Director of the Adviser since 1994 and a Managing
Director of Piper Jaffray Inc. since 1993.
MR. BRUNTJEN has been a Senior Vice President of the Adviser since 1988.
MR. DALY has been a Senior Vice President of the Adviser since November 1996,
prior to which he had been a Vice President of the Adviser from 1992 to 1996 and
an Assistant Vice President of Piper Jaffray since 1990. MR. DERCK has been a
Vice President of the Adviser since November 1992, prior to which he had been a
manager of Advisory Accounts Services with the Adviser since April 1992 and,
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before that, an Assistant Vice President at First Trust since 1976. MR.
FILIPPONE has been a Senior Vice President of the Adviser since 1991. MR. GIBAS
has been a Senior Vice President of the Adviser since 1992, prior to which he
had been a Vice President of the Adviser from 1987 to 1992. MS. GOLDSTEIN has
been a Senior Vice President of the Adviser since 1993, prior to which she was a
Vice President of the Adviser from 1991 to 1993. MR. GROTTE has been a Senior
Vice President of the Adviser since 1992, prior to which he had been a Vice
President of the Adviser from 1988 to 1992. MR. GUDMUNDSON has been a Senior
Vice President of the Adviser since 1995, prior to which he was an Executive
Vice President at Resource Capital Advisers from 1991 to 1995. MR. HANNAH has
been a Senior Vice President of the Adviser since 1995, prior to which he was
manager of Craig and Associates in Seattle, Washington from 1993 to 1994, and
prior thereto, he was manager of Exvere in Seattle from January 1993 to August
1993 and a registered representative at Geneva in Irvine, California from 1991
to 1992. MS. HARRINGTON has been a Senior Vice President of the Adviser since
1995, prior to which she was a Managing Director at Piper Jaffray Inc. in the
Public Finance Department. MS. KENYON has been a Senior Vice President of the
Adviser since 1992, prior to which she had been a financial adviser for a
private family in Los Angeles. MS. JENSON has been a Senior Vice President of
the Adviser since 1996, prior to which she was a Managing Director at Piper
Trust since 1991. MR. KAPPENMAN has been a Senior Vice President of the Adviser
since November 1996, prior to which he was a Vice President of the Adviser from
1991 to 1996. MS. KAUL has been a Senior Vice President of the Adviser since
November 1996 and Director of Corporate Communications of the Adviser since
1991, prior to which she was a Vice President of the Adviser from 1991 to 1996.
MR. MCGLINCH has been a Senior Vice President of the Adviser since 1995, prior
to which he had been a Vice President of the Adviser since 1992 and, prior
thereto, he had been a specialty products trader at FBS Investment Services from
1990 to 1992. MR. MCLEOD has been a Senior Vice President of the Adviser since
1995, prior to which he had a Vice President of the Adviser since 1994, and
prior thereto, a Vice President of Piper Jaffray since 1991. MR. MARKUSEN has
been a Senior Vice President of the Adviser since 1993, prior to which had been
a senior vice president of Investment Advisers, Inc., in Minneapolis, Minnesota
from 1989 to 1993. MS. MEYER has been a Senior Vice President of the Adviser
since 1994, prior to which she had been a Vice President of Secura Insurance,
Appleton, Wisconsin from 1988 to 1994. MR. NORSTREM has been a Senior Vice
President of the Adviser since 1993, prior to which he was Treasurer of the City
of Saint Paul, Minnesota for twenty-eight years. MS. OLSEN has been a Senior
Vice President of the Adviser since 1991. MR. REUSS has been a Senior Vice
President of the Adviser since 1989. MR. SALVOG has been a Senior Vice
President of the Adviser since 1992, prior to which he had been a portfolio
manager at Kennedy & Associates in Seattle, Washington from 1984 to 1992. MR.
SCHONBERG has been a Senior Vice President of the Adviser since 1995, prior to
which he was a Vice President of the Adviser from 1992 to 1995 and a portfolio
manager for the Adviser since 1989. MS. SHREWSBURY has been a Senior Vice
President of the Adviser since 1993, prior to which she had been a Managing
Director of Piper Jaffray since 1992, and a Vice President of Piper Jaffray
since 1990. MR. SIEDBAND has been a Senior Vice President of the Adviser since
November 1996, prior to which he was a Vice President of the Adviser from 1992
to 1996. MR. STEELE has been a Senior Vice President of the Adviser since 1992,
prior to which he had been a portfolio manager at Kennedy & Associates in
Seattle, Washington from 1987
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to 1992. MS. THOMPSON has been a Senior Vice President of the Adviser since
November 1996, prior to which she was a Vice President of the Adviser from 1994
to 1996, and prior thereto, a Vice President of Piper Jaffray since 1991.
MR. WEIDENHAMMER has been a Senior Vice President of the Adviser since 1991.
MR. WENKER has been a Senior Vice President of the Adviser since 1993, prior to
which he had been a Managing Director of Piper Jaffray from 1992 to 1993, and
prior thereto, the Director of Revitalization Resources of the Minneapolis
Community Development Agency from 1990 to 1992. MR. WHITE has been a Senior
Vice President of the Adviser since 1991.
MS. CASTLE has been a Vice President of the Adviser since 1994, prior to
which she was a client service associate of the Adviser since 1990. MS. DESTRO
has been a Vice President of the Adviser since 1994, prior to which she was an
Accounting Manager from 1993 to 1994 and mutual fund accountant from 1991 to
1993 with the Adviser. MS. DEUTZ has been a Vice President of the Adviser since
September 1995, prior to which she was an Assistant Vice President at Daiwa
Bank, Ltd. from 1992 to September 1995 and a manager of financial reporting at
The Churchill Companies from 1991 to 1992. MS. GONZO has been a Vice President
of the Adviser since November 1996, prior to which she was a communications
manager of the Adviser since 1993, and prior thereto, a senior financial
communications specialist at Minnesota Mutual in St. Paul, Minnesota from 1986
to 1993. MS. HALBE has been a Vice President of the Adviser since 1996, prior
to which she was a Vice President at First Asset Management since 1990. MS.
HARROD has been a Vice President of the Adviser since 1992 and has been a trader
for the Adviser since 1989. MS. HOYME has been a Vice President of the Adviser
since 1996, prior to which she had been a Vice President at First Asset
Management since 1989. MS. JOHNSON has been a Vice President of the Adviser
since 1994, prior to which she was an Accounting Manager from 1993 to 1994 and
mutual fund accountant from 1991 to 1993 with the Adviser. MR. KIGHTLINGER has
been a Vice President of the Adviser since 1991. MS. KUNG has been a Vice
President of the Adviser since 1993, prior to which she had been a Senior
Consultant at Cytrol Inc. from 1989 to 1992. MS. LONGUEVILLE has been a Vice
President of the Adviser since November 1996, prior to which she was an
Assistant Vice President since 1995, and prior thereto, a communications manager
at the Adviser. MR. MELLUM has been a Vice President of the Adviser since 1996,
prior to which he was an Assistant Vice President of the Adviser since 1995, and
prior thereto, a credit analyst at the Adviser since 1993, and prior to that he
was a student. MR. MEYER has been a Vice President of the Adviser since 1994 and
manager of Systems Integration for the Adviser since 1991. MR. MOORE has been a
Vice President of the Adviser since 1992, prior to which he was a Portfolio
Manager at Alpine Capital Management from 1990 to 1992 and a broker at Hanifen
Capital Management from 1990 to 1992. MR. NEUHARTH has been a Vice President of
the Adviser since 1996, prior to which he had been a senior mortgage trader at
FBS Mortgage since 1995, and prior thereto, a fixed income portfolio manager at
Fortis Financial since 1987. MR. PEARSON has been a Vice President of the
Adviser since 1995, prior to which he was Mutual Funds Accounting Manager of the
Adviser from 1994 to 1995 and prior thereto, Director of Fund Operations at
Norwest Bank, Minneapolis from 1992 to 1994. MS. STIENSTRA has been a Vice
President of the Adviser since November 1995 and a municipal bond trader of the
Adviser since June 1995, prior to which she was an assistant analyst of the
Adviser from 1991 to 1994. MS. TAJAMAL has been a
6
<PAGE>
Vice President of the Adviser since 1995 and a portfolio manager of the Adviser
since 1993, prior to which she was a money market analyst of the Adviser from
1990 to 1993. MS. WELTER has been a Vice President of the Adviser since 1994,
prior to which she was a client service associate of the Adviser since 1993 and
a mutual fund accountant with the Adviser from 1990 to 1993. MS. WINSON has
been a Vice President of the Adviser since November 1993, prior to which she was
an Assistant Vice President of the Adviser since March 1993 and an educator from
1990 to 1992. MR. WOO has been a Vice President of the Adviser since 1994, prior
to which he was a municipal credit analyst of the Adviser since 1992 and a
credit specialist at a commercial trading firm from 1991 to 1992.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Piper Jaffray Inc. acts as principal underwriter for the Registrant
and also for three other open-end investment companies, Piper Funds Inc. -- II,
the shares of which are currently offered in one series, Piper Institutional
Funds Inc., the shares of which are currently offered in one series and Piper
Global Funds Inc., the shares of which are currently offered in two series.
Piper Jaffray has acted as principal underwriter in connection with the initial
public offering of shares of 23 closed-end investment companies.
(b) The name, positions and offices with Piper Jaffray Inc., and positions
and offices with the Registrant of each director and officer of Piper Jaffray
Inc. are as follow:
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
---- ---------------------------- --------------------
Addison L. Piper Chairman of the Board of None
Directors and Chief Executive
Officer
Andrew S. Duffe President None
Ralph W. Burnet Member of the Board None
of Directors
William H. Ellis Member of the Board None
of Directors
John L. McElroy, Jr. Member of the Board None
of Directors
Kathy Halbreich Member of the Board None
of Directors
Robert S. Slifka Member of the Board None
of Directors
David Stanley Member of the Board None
of Directors
7
<PAGE>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
---- ---------------------------- --------------------
James J. Bellus Managing Director None
AnnDrea M. Benson Managing Director and None
General Counsel
Lloyd K. Benson Managing Director None
Gary J. Blauer Managing Director None
Karen M. Bohn Managing Director None
Sean K. Boyea Managing Director None
Ronald O. Braun Managing Director None
Jay A. Brunkhorst Managing Director None
Edward M. Caillier Managing Director None
Kenneth S. Cameranesi Managing Director None
Stephen M. Carnes Managing Director None
Joseph V. Caruso Managing Director None
Antonio J. Cecin Managing Director None
Joyce E. Chaney Managing Director None
Kenneth P. Clark Managing Director None
Linda A. Clark Managing Director None
Stephen B. Clark Managing Director None
John P. Clausen Managing Director None
Mark Copman Managing Director None
David P. Crosby Managing Director None
Mark A. Curran Managing Director None
George S. Dahlman Managing Director None
William E. Darling Managing Director None
8
<PAGE>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
---- ---------------------------- --------------------
Michael D. Deede Managing Director None
Jack C. Dillingham Managing Director None
Mark T. Donahoe Managing Director None
Darci L. Doneff Managing Director None
Michael D. Duffy Managing Director None
Andrew W. Dunleavy Managing Director None
Richard A. Edstrom Managing Director None
Fred R. Eoff, Jr. Managing Director None
Richard D. Estenson Managing Director None
Francis E. Fairman IV Managing Director None
John R. Farrish Managing Director None
G. Richard Ferguson Managing Director None
Paul Ferry Managing Director None
Mark E. Fisler Managing Director None
Michael W. Follett Managing Director None
Daniel P. Gallaher Managing Director None
Peter M. Gill Managing Director None
Kevin D. Grahek Managing Director None
Paul D. Grangaard Managing Director None
Thomas J. Gunderson Managing Director None
James S. Harrington Managing Director None
Charles N. Hayssen Managing Director None
William P. Henderson Managing Director None
9
<PAGE>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
---- ---------------------------- --------------------
Allan F. Hickok Managing Director None
Richard L. Hines Managing Director None
David B. Holden Managing Director None
Charles E. Howell Managing Director None
Bruce C. Huber Managing Director None
Elizabeth A. Huey Managing Director None
John R. Jacobs Managing Director None
Earl L. Johnson Managing Director None
Richard L. Johnson Managing Director None
Nicholas P. Karos Managing Director None
Paul P. Karos Managing Director None
Richard G. Kiss Managing Director None
Gordon E. Knudsvig Managing Director None
Jerome P. Kohl Managing Director None
Eric W. Larson Managing Director None
Michael L. Libera Managing Director None
Marina M. Lyon Managing Director None
Robert J. Magnuson Managing Director None
Robert E. Mapes Managing Director None
Peter T. Mavroulis Managing Director None
Timothy R. McClernon Managing Director None
Michael P. McMahon Managing Director None
G. Terry McNellis Managing Director None
10
<PAGE>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
---- ---------------------------- --------------------
Darryl L. Meyers Managing Director None
Joseph E. Meyers Managing Director None
John V. Miller Managing Director None
Davil L. Miogley Managing Director None
Dennis V. Mitchell Managing Director None
Edward P. Nicoski Managing Director None
Barry J. Nordstrand Managing Director None
Benjamin S. Oehler Managing Director None
Brooks G. O'Neil Managing Director None
John P. O'Neill Managing Director None
John Otterlei Managing Director None
Robin C. Pfister Managing Director None
Laurence S. Podobinski Managing Director None
Steven J. Proeschel Managing Director None
Rex W. Ramsay Managing Director None
Brian J. Ranallo Managing Director None
Jeffrey K. Ray Managing Director None
Roger W. Redmond Managing Director None
Robert P. Rinek Managing Director None
Wesley L. Ringo Managing Director None
Jim M. Roane Managing Director None
Deborah K. Roesler Managing Director None
Ross E. Rogers Managing Director None
11
<PAGE>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
---- ---------------------------- --------------------
David E. Rosedahl Managing Director None
and Secretary
Jeanne R. Rosengren Managing Director None
David D. Rothschild Managing Director None
Terry D. Sandven Managing Director None
Thomas P. Schnettler Managing Director None
Steven R. Schroll Managing Director None
Joyce Nelson Schuette Managing Director None\
Lawrence M. Schwartz, Jr. Managing Director None
Morton D. Silverman Managing Director None
Linda E. Singer Managing Director None
David P. Sirianni Managing Director None
Arch C. Smith Managing Director None
Robert L. Sonnek Managing Director None
Sandra G. Sponem Managing Director None
Thomas E. Stanberry Managing Director None
DeLos V. Steenson Managing Director None
D. Greg Sundberg Managing Director None
Robert D. Swerdling Managing Director None
William H. Teeter Managing Director None
Ann C. Tillotson Managing Director None
Marie Uhrich Managing Director None
Momchilo Vucenich Managing Director None
Charles M. Webster, Jr. Managing Director None
12
<PAGE>
Darrell L. Westby Managing Director None
David R. Westcott Managing Director None
Douglas R. Whitaker Managing Director None
James H. Wilford Managing Director None
Stephen W. Woodard Managing Director None
Mark Wren Managing Director None
Saul Yaari Managing Director None
Bradley F. Zilka Managing Director None
Beverly J. Zimmer Managing Director None
The principal business address of each of the individuals listed above is Piper
Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402-3804.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The physical possession of the accounts, books, and other documents
required to be maintained by Section 31(a) of the Investment Company Act of 1940
and Rules 3la-1 to 3la-3 promulgated thereunder is maintained by the Registrant
at Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota
55402-3804, except that the physical possession of certain accounts, books and
other documents related to the custody of the Registrant's securities is
maintained by Investors Fiduciary Trust Company, 127 West Tenth Street, Kansas
City, Missouri 64105.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) Each recipient of a prospectus of any series of the Registrant may
request the latest Annual Report of such series, and such Annual Report will be
furnished by the Registrant without charge.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement on Form N-1A pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused this Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Minneapolis and State of Minnesota on the 25th day of November 1996.
PIPER FUNDS INC.
(Registrant)
By /s/ Paul A. Dow
------------------------
Paul A. Dow
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
/s/ Paul A. Dow President (principal November 25, 1996
- -----------------------
Paul A. Dow executive officer)
/s/ Robert H. Nelson Treasurer (principal November 25, 1996
- -----------------------
Robert H. Nelson financial and
accounting officer)
David T. Bennett* Director
Jaye F. Dyer* Director
William H. Ellis* Director
Karol D. Emmerich* Director
Luella G. Goldberg* Director
David A. Hughey Director
George Latimer* Director
*By /s/ William H. Ellis November 25, 1996
----------------------------------------
William H. Ellis, Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
TO
REGISTRATION STATEMENT
OF
PIPER FUNDS INC.
Exhibit Page No.
- ------- --------
11 Consent of KPMG Peat Marwick LLP
17.1 Power of Attorney dated November 15, 1996
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Piper Funds Inc.
We consent to the use of our report dated November 14, 1996 incorporated by
reference herein and to the references to our Firm under the headings "FINANCIAL
HIGHLIGHTS" in Part A and "FINANCIAL STATEMENTS" in Part B of the Registration
Statement.
/s/KPMG Peat Marwick LLP
------------------------
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 25, 1996
<PAGE>
PIPER FUNDS INC.
PIPER FUNDS INC.--II
PIPER INSTITUTIONAL FUNDS INC.
POWER OF ATTORNEY
Each of the undersigned, a duly elected director and/or officer of Piper
Funds Inc., Piper Funds Inc.--II and Piper Institutional Funds Inc.
(individually, a "Fund") hereby constitutes and appoints Paul A. Dow, William H.
Ellis, Robert H. Nelson and Susan S. Miley, and each of them, his or her true
and lawful attorneys-in-fact and agents, each acting alone, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all amendments to each
Fund's Registration Statement on Form N-1A, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission or any other regulatory authority as may be
desirable or necessary, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or the
substitutes for such attorneys-in-fact and agents, may lawfully do or cause to
be done by virtue hereof.
Signature Title Date
/s/ Paul A. Dow President November 15, 1996
- -----------------------------
Paul A. Dow
/s/ Robert H. Nelson Treasurer November 15, 1996
- -----------------------------
Robert H. Nelson
/s/ David T. Bennett Director November 15, 1996
- -----------------------------
David T. Bennett
/s/ Jaye F. Dyer Director November 15, 1996
- -----------------------------
Jaye F. Dyer
/s/ William H. Ellis Director November 15, 1996
- -----------------------------
William H. Ellis
/s/ Karol D. Emmerich Director November 15, 1996
- -----------------------------
Karol D. Emmerich
/s/ Luella G. Goldberg Director November 15, 1996
- -----------------------------
Luella G. Goldberg
/s/ David A. Hughey Director November 15, 1996
- -----------------------------
David A. Hughey
/s/ George Latimer Director November 15, 1996
- -----------------------------
George Latimer
