PIPER FUNDS INC, 485APOS, 1996-12-09

PIPER FUNDS INC
485APOS, 1996-12-09

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<PAGE>

1933 Act Registration No. 33-10261
1940 Act Registration No. 811-4905

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 9, 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. 34
----
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
(Registration No. 811-4905)
Amendment No. 34
----
(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, MN 55402
--------------------------------------------------
(Name and Address of Agent for Service)

Copy to:
Kathleen L. Prudhomme
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402

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
- ---
X 60 days after filing 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 was filed on
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 (no caption)

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/How to Invest; How
to Purchase Class A Shares/How to
Purchase Class B 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 (no caption)

11. Table of Contents . . . . . . . . . Cover Page

12. General Information
and History. . . . . . . . . . . General Information; Pending
Litigation

13. Investment Objectives
<PAGE>

and Policies. . . . . . . . . . . Investment Policies and
Restrictions

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>

EXPLANATORY NOTE

This Registration Statement relates to seven series of the Registrant which
are proposing to issue Class B and/or Class Y shares. These seven series and
the various classes of each are contained in six Prospectuses, three Statements
of Additional Information and one Part C.

<PAGE>

PROSPECTUS DATED FEBRUARY , 1997

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.

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 February ,
1997, 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 mutual funds organized as diversified series
of Piper Funds Inc. (the "Company"). The Company is an open-end management
investment company, 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.

CHOOSING A SHARE CLASS

You may purchase either Class A or Class B shares of a Fund. Each class has
its own cost structure, allowing you to choose the one that best meets your
requirements. Emerging Growth Fund also offers Class Y shares, which have their
own expense structure and are available only to investors making an initial
investment of $2 million or more. To obtain more information about Class Y
shares, call the Funds at the telephone number that appears on the cover of this
Prospectus.

Class A shares have the following features:

- An initial sales charge of 4% on purchases of less than $100,000. The
sales charge is reduced for purchases of $100,000 or more. See "How to
Purchase Class A Shares."

- Lower annual expenses than Class B shares. Class A shares are subject to
Rule 12b-1 fees equal, on an annual basis, to 0.50% of the average daily
net assets of the Class A shares. The Distributor has voluntarily limited
these fees to 0.34% of average daily net assets during fiscal 1997. See
"Distribution of Fund Shares."

Class B shares have the following features:

- No initial sales charge; all your money goes to work for you right away.

- A contingent deferred sales charge ("CDSC") if you redeem your shares
during the calendar year in which they are purchased, or in any of the
next five full calendar years. The CDSC declines from 4% during the
calendar year in which you purchase the shares to 1% during the fifth full
calendar year following the year of purchase. See "How to Purchase Class B
Shares."

- Higher annual expenses than Class A shares. Class B shares are subject to
Rule 12b-1 fees equal, on an annual basis, to 1.00% of the average daily
net assets of the Class B shares. See "Distribution of Fund Shares."

- Automatic conversion to Class A shares at the beginning of the sixth full
calendar year following the year of purchase, thus reducing future annual
expenses.

2
<PAGE>
MINIMUM INITIAL AND SUBSEQUENT INVESTMENTS

The minimum initial investment for each Fund is $250. There is no minimum
for subsequent investments. See "How to Invest--Minimum Investments."

EXCHANGES

You may exchange your shares for shares of the same class of any other
mutual fund managed by the Adviser (a "Piper fund") that offers its shares in
multiple classes. In addition, Class A shares may be exchanged for shares of any
Piper fund that offers only one class of shares. 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, and such shares must be
eligible for sale in your state of residence. 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, less any applicable contingent
deferred sales charge. See "How to Redeem Shares." 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."

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). 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.

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
SMALL COMPANY
GROWTH FUND FUND GROWTH FUND
----------------- ----------------- -----------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price)..................... 4.00% None 4.00% None 4.00% None
Maximum Deferred Sales Charge (as a
percentage of original purchase
price or redemption proceeds, as
applicable)......................... None* 4.00% None* 4.00% None* 4.00%
ANNUAL FUND OPERATING EXPENSES (as a
percentage of average net assets)
Management Fees....................... .71% .71% .69% .69% .75% .75%
Rule 12b-1 Fees (after voluntary
limitation for Class A shares)**.... .34% 1.00% .34% 1.00% .34% 1.00%
Other Expenses (after voluntary
expense reimbursement)**............ .22% .22% .18% .18% .25% .25%
------- ------- ------- ------- ------- -------
Total Fund Operating Expenses (after
voluntary limitations and expense
reimbursements)..................... 1.27% 1.93% 1.21% 1.87% 1.34% 2.00%
</TABLE>

- ---------

* A contingent deferred sales charge of 1.00% is imposed on certain redemptions
of Class A shares that were purchased without an initial sales charge as part
of an investment of $500,000 or more. See "How to Purchase Class A Shares."

**See the discussion below for an explanation of voluntary Rule 12b-1 fee
limitations and expense reimbursements.

EXAMPLE

At the end of the periods shown, you would have paid the following expenses
on a $1,000 investment, assuming a 5% annual return:

<TABLE>
<CAPTION>
SMALL
COMPANY
GROWTH FUND EMERGING GROWTH FUND GROWTH FUND
----------------------------------------- ----------------------------------------- -----------
CLASS B CLASS B
---------------------------- ----------------------------
REDEMPTION AT REDEMPTION AT
END END
CLASS A OF PERIOD NO REDEMPTION CLASS A OF PERIOD NO REDEMPTION CLASS A
----------- ------------- ------------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
One year............... $ 52 $ 60 $ 20 $ 52 $ 59 $ 19 $ 53
Three years............ $ 79 $ 81 $ 61 $ 77 $ 79 $ 59 $ 81
Five Years............. $ 107 $ 114 $ 104 $ 104 $ 111 $ 101 $ 110
Ten Years.............. $ 187 $ 185* $ 185* $ 181 $ 179* $ 179* $ 195

CLASS B
----------------------------
REDEMPTION AT
END
OF PERIOD NO REDEMPTION
------------- -------------
<S> <C> <C>
One year............... $ 60 $ 20
Three years............ $ 83 $ 63
Five Years............. $ 118 $ 108
Ten Years.............. $ 193* $ 193*
</TABLE>

- ------------

* Assumes that Class B shares are purchased on December 31 and convert to Class
A shares at the beginning of the sixth full calendar year following the year
of purchase.

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.

4
<PAGE>

The information set forth in the table, other than Rule 12b-1 fees, is based
on actual expenses incurred by the Class A shares of Funds during the fiscal
year ended September 30, 1996. The Funds did not offer Class B shares during
such fiscal year. Class A share Rule 12b-1 fees set forth in the table 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 attributable to Class
A shares 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 Company Growth Fund. For fiscal 1997, the Adviser will limit
total operating expenses for Small Company Growth Fund to 1.34% of the Fund's
average daily net assets attributable to Class A shares and 2.00% of the Fund's
average daily net assets attributable to Class B shares. The voluntary Rule
12b-1 fee limitations for the Class A shares of 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.

A portion of the Rule 12b-1 fee paid with respect to both Class A and Class
B shares is considered an asset-based sales charge. As a result of the payment
of such 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 Class 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. No Class B
shares were outstanding during the indicated periods. 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

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>
[GRAPH]

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."

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

13
<PAGE>
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 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

14
<PAGE>
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.

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.

15
<PAGE>
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
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

16
<PAGE>
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

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.

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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.

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

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attributable to such shares. This limitation may be revised or terminated at any
time after fiscal 1997 year end. The Distributor does not intend to limit Rule
12b-1 fees payable with respect to any Fund's Class B shares.

Rule 12b-1 fees paid by each Fund are categorized as either "distribution
fees" or "servicing fees." Distribution fees are intended to compensate the
Distributor for its expenses incurred in connection with the sale of Fund
shares, and servicing fees are intended to compensate the Distributor for
ongoing servicing and/ or maintenance of shareholder accounts. The .50% Rule
12b-1 fee paid by each Fund with respect to its Class A shares is comprised of
(a) a servicing fee equal to .25% of the Fund's average daily net assets
attributable to Class A shares and (b) a distribution fee equal to .25% of the
Fund's average daily net assets attributable to Class A shares. The 1.00% Rule
12b-1 fee paid by each Fund with respect to its Class B shares is comprised of
(a) a servicing fee equal to .25% of the Fund's average daily net assets
attributable to Class B shares and (b) a distribution fee equal to .75% of the
Fund's average daily net assets attributable to Class B shares.

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 Invest--Sales Compensation." 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 INVEST

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.

CHOOSING A SHARE CLASS

If you purchase Class A shares, you will pay a sales charge at the time of
purchase. As a result, Class A shares are not subject to any charges when they
are redeemed (except for sales of $500,000 and over, which are not subject to an
initial sales charge, but are subject to a contingent deferred sales charge).
The initial sales charge may be reduced or waived for certain purchases. Class A
shares of each Fund are subject to Rule 12b-1 distribution and servicing fees
equal, on an annual basis, to 0.50% of the average daily net assets of the Class
A shares. The Distributor has voluntarily limited these fees to 0.34% of average
daily net assets during fiscal 1997. See "Fund Expenses" and "Distribution of
Fund Shares."

If you purchase Class B shares, you will not pay an initial sales charge,
but you will pay a contingent deferred sales charge of up to 4% if you redeem
your shares during the calendar year in which they are purchased, or in any of
the next five full calendar years. Class B shares are also subject to higher
Rule 12b-1 fees than Class A shares. For each Fund, Class B shares are subject
to Rule 12b-1 distribution and servicing fees equal, on an annual basis, to
1.00% of the average daily net assets of the Class B shares. Class B shares
automatically convert into Class A shares at the beginning of the sixth full
calendar year following the year of purchase. Class B shares put all of your
money to work for you right away. However, they will have higher annual expense
ratios due to their higher Rule 12b-1 fees and, as a result, generally will pay
lower ordinary income dividends than the Class A shares. See "Fund Expenses" and
"Distribution of Fund Shares."

The amount of your purchase and the length of time you expect to hold your
shares will be factors in determining which class of shares is best for you. You
should consider whether, over the time you expect to maintain your investment,
the accumulated Rule 12b-1 fees and any applicable contingent deferred sales
charges on Class B shares prior to conversion would be less than the initial
sales charge and accumulated Rule 12b-1 fees on Class A shares purchased at the
same time, and to what extent the differential would be offset by the higher
dividends on the Class A shares. If you are making an investment that qualifies
for a reduced sales charge as described below, an investment in Class A shares
will normally be more beneficial. Accordingly, orders for Class B shares for
$250,000 or more will be treated as orders for Class A shares. For Emerging
Growth Fund, orders for either Class A or Class B shares for $2 million or more
will be treated as orders for Class Y shares.

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SHAREHOLDER GUIDE TO INVESTING

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.

SALES COMPENSATION

The Distributor and other broker-dealers who sell Fund shares receive
compensation from different sources. A portion of this compensation is typically
passed along to your Piper Jaffray Investment Executive or other sales
representative. Compensation will differ for selling Class A and Class B shares.

The Distributor receives the sales charge that you pay upon purchasing Class
A shares, and reallows a portion of this to other broker-dealers who sell Fund
shares. See "How to Purchase Class A Shares-- Purchase Price" below. If the
Class A share purchase is not subject to an initial sales charge, the
Distributor may receive a fee from the Adviser in connection with the purchase.
The Distributor also receives any contingent deferred sales charges that may be
imposed on redemptions of certain Class A shares that were not subject to an
initial sales charge and on redemptions of Class B shares. The Distributor pays
a sales commission of up to 4% of the amount invested to its Investment
Executives and to other broker-dealers who sell Class B shares.

The Distributor also receives the Rule 12b-1 fees that are paid out of each
Fund's assets. As discussed above, the Rule 12b-1 fee rates vary by class. See
"Distribution of Fund Shares." The Distributor pays a portion of these fees to
broker-dealers who sell Fund shares.

In addition to the types of compensation discussed above, the Distributor or
the Adviser, at their own expense, provide promotional incentives to Investment
Executives of 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.

HOW TO PURCHASE CLASS A SHARES

PURCHASE PRICE

You may purchase Class A 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 DEALER REALLOWANCE
AS A PERCENTAGE OF AS A PERCENTAGE OF AS A PERCENTAGE OF
AMOUNT OF TRANSACTION AT OFFERING PRICE OFFERING PRICE NET ASSET VALUE OFFERING PRICE
- --------------------------------------- ------------------- ------------------- -------------------
<S> <C> <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>

CONTINGENT DEFERRED SALES CHARGE ON 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 contingent deferred sales charge ("CDSC") will be assessed
in the event you redeem shares within 24 months

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SHAREHOLDER GUIDE TO INVESTING

following the purchase. 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.
The CDSC 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 CDSC is
payable, Class A shares that are not subject to any CDSC will be redeemed first,
and other Class A shares will then be redeemed starting with the shares most
recently purchased.

LETTER OF INTENT. If you purchased your Class A shares under a Letter of
Intent, as described below under "Reducing Your Sales Charge--Letter of Intent,"
the 24-month period begins on the date the Letter of Intent is completed.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The CDSC on redemptions of
Class A shares will be waived under the same circumstances as will the CDSC on
redemptions of Class B shares. See "How to Purchase Class B Shares--Waiver of
Contingent Deferred Sales Charge" below.

EXCHANGES. If you exchange your shares, no CDSC 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 CDSC 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.

REDUCING YOUR SALES CHARGE

You may qualify for a reduced sales charge on Class A shares 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. For
purposes of determining whether your sales charge may be reduced through any of
the following plans, and for purposes of the reinstatement, exchange and
directed dividends privileges discussed below under "Shareholder Services,"
shares of a Piper fund that does not offer multiple classes of shares will be
considered Class A shares.

AGGREGATION. Initial sales charges on Class A shares 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 on Class A
shares. Sales charges are calculated by adding the dollar amount of your current
purchase to the higher of the cost or current value of Class A 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.

You may group purchases in the following personal accounts together:

- Your individual account.

- 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.

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SHAREHOLDER GUIDE TO INVESTING

Additionally, purchases of Class A shares 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 Class A 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 Class A shares previously purchased in any Piper fund 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 on Class A shares 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 Class A shares of any of the Piper funds
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 may contact your Piper Jaffray Investment Executive or other
broker-dealer for an application.

PURCHASES NOT SUBJECT TO A SALES CHARGE

If you fall within one of the categories summarized below, you may buy Class
A shares of the Funds without incurring an initial or contingent deferred sales
charge. For more information, 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 Class A
shares of the Funds without incurring a sales charge. The following persons
associated with such entities also may buy Class A Fund shares without paying a
sales charge:

- Officers, directors and their spouses.

- 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.

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SHAREHOLDER GUIDE TO INVESTING

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 Class A 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 Class A shares of the Funds 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 Class A shares of the Funds without payment of a sales charge.

PURCHASES BY EMPLOYEE BENEFIT PLANS AND TAX-SHELTERED ANNUITIES.

- Class A 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 Class A 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 Class A shares of the Funds during such quarter without
incurring a sales charge. For this purpose, shares of a series of the
Company that offers only one class of shares will be considered Class A
shares.

HOW TO PURCHASE CLASS B SHARES

PURCHASE PRICE

Class B shares are sold at net asset value without any initial sales charge.
However, if you redeem your shares during the calendar year in which they are
purchased, or in any of the next five full calendar years, you will have to pay
a CDSC according to the following schedule:

<TABLE>
<CAPTION>
IF REDEEMED DURING THE CDSC
- ---------------------------------------------------------------------------------------------------------- -----------
<S> <C>
Calendar year of the purchase 4%
First calendar year after purchase 4%
Second calendar year after purchase 3%
Third calendar year after purchase 2%
Fourth calendar year after purchase 2%
Fifth calendar year after purchase 1%
</TABLE>

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SHAREHOLDER GUIDE TO INVESTING

It is important to note that your CDSC is based upon the calendar year in
which the purchase and redemption occur, rather than the number of years you
have held your shares. For example, if you buy shares on December 31, 1997 and
redeem them on January 2, 1999, a 3% CDSC will apply, even though you have held
the shares for just over one year.

The CDSC is based upon the lesser of the net asset value of the shares at
the time of purchase or at the time of redemption. There is no CDSC on shares
acquired through reinvestment of dividends or capital gains distributions. To
keep your CDSC as low as possible, Class B shares will be redeemed in the order
purchased, starting with the shares that you have held the longest. If you
exchange your Class B shares for Class B shares of another Piper fund and later
redeem the "new" Class B shares, the date you purchased your original Class B
shares will be used for determining your CDSC. (This date will also be used for
purposes of determining when your new Class B shares convert to Class A shares.
See "Conversion Feature.")

WAIVER OF CONTINGENT DEFERRED SALES CHARGE

The CDSC on Class B shares 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.)

- 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.

CONVERSION FEATURE

Your Class B shares (except for shares purchased through the reinvestment of
distributions) will automatically convert to Class A shares on January 1 of the
sixth calendar year following the year in which you purchased the shares. This
conversion will be made on the basis of the relative net asset values of the two
classes. Whenever any of these Class B shares convert to Class A shares, a
proportionate number of your Class B shares purchased through the reinvestment
of distributions will also convert.

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, less any applicable CDSC.

PIPER JAFFRAY INC. ACCOUNTS. To redeem your shares, please contact your
Piper Jaffray Investment Executive with an oral redemption request.

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SHAREHOLDER GUIDE TO INVESTING

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.

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,
except that 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 Piper funds. 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 Class A shares of a Fund, you may be eligible to
reinvest in the Class A shares of any Piper fund without payment of an
additional sales charge. The reinvestment request must be made within 30 days of
the redemption. If you have redeemed Class B shares and elect within 30 days to
reinvest in Class B shares of a Piper fund, any CDSC you paid will be credited
to your account (proportional to the amount reinvested). The reinstatement
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 Piper fund, 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 Class A shares for Class A shares of any other Piper
fund. Similarly, you may exchange your Class B shares for Class B shares of any
Piper fund that offers such shares. However, not all Piper funds offer Class B
shares. Investors exchanging their Class B shares into Class B shares of Money
Market Fund (another series of the Company) should be aware that these Money
Market Fund shares have higher expenses than are typical for a money market
fund. Exchanges are made on the basis of the net asset values of the funds
involved, except that investors exchanging their Class A shares into a fund
which has a higher sales charge must pay the difference.

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. 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 the same class of shares of another Piper fund (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.

27
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE TO INVESTING

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.

Establishing a Systematic Withdrawal Plan for Class B shares that are
subject to a CDSC may be inadvisable. Additional investments in an account that
has an active Systematic Withdrawal Plan also 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.

Dividends paid by the Funds, if any, with respect to Class A and Class B
shares will be calculated in the same manner, at the same time, on the same day
and will be in the same amount, prior to the deduction of expenses. The Rule
12b-1 fees attributable to a class of shares will be borne exclusively by that
class. In addition, to the extent they can reasonably be identified as relating
to a particular class, transfer agent fees will be allocated to that class.
Class B shareholders generally will receive lower per share dividends than Class
A shareholders because of the higher expenses applicable to Class B shares.

28
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE TO INVESTING

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 the same class 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 same class 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.

29
<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.
Fixed-income securities for which prices are not available from an independent
pricing service but where an active market exists will be valued using market
quotations obtained from one or more dealers that make markets in the
securities. 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 or through dealer quotations 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.

Although the methodology and procedures for determining net asset value are
identical for all classes of shares, the net asset values per share of the Class
A and Class B shares of the same Fund may differ because of the differing Rule
12b-1 fees and transfer agent fees charged to such classes.

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

30
<PAGE>
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 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." Total return
will be computed separately for each class of shares of a fund. 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 imposed on Class A shares or the contingent deferred sales
charge imposed on Class B shares 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 initial
or contingent deferred sales charges, 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

31
<PAGE>

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 other
series of the Company or any series created in the future. See "Capital Stock
and Ownership of Shares" in the Statement of Additional Information.

All shares of the Funds, when issued, will be fully paid and nonassessable
and will be redeemable. 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.

The different classes of shares of a Fund have the same rights and are
identical in all respects except that (a) expenses related to the distribution
of each class of shares are borne solely by such class; (b) to the extent they
can reasonably be identified as relating to a particular class of shares,
transfer agent fees will be allocated to that class; (c) each class has
exclusive voting rights with respect to approvals of any Rule 12b-1 distribution
plan related to that specific class (although Class B shareholders will have the
right to vote on any distribution fees imposed on Class A shares as long as
Class B shares convert into Class A shares); (d) only Class B shares carry a
conversion feature; and (e) each class has different exchange privileges.

Each share of a series has one vote (with proportionate voting for
fractional shares) irrespective of the relative net asset values 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 or class, the shares of the affected series or class 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.

32
<PAGE>
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.

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.

33
<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............. 13
Management............................. 17
Distribution of Fund Shares............ 18
SHAREHOLDER GUIDE TO INVESTING
How to Invest........................ 20
How to Purchase Class A Shares....... 21
How to Purchase Class B Shares....... 24
How to Redeem Shares................. 25
Shareholder Services................. 26
Dividends and Distributions.......... 28
Valuation of Shares.................... 30
Tax Status............................. 30
Performance Comparisons................ 31
General Information.................... 31
</TABLE>

- ----------------------------------------------------------
Prospectus

[LOGO]

------------------------------

U.S. Growth Funds
Small Company Growth Fund
Emerging Growth Fund
Growth Fund

February , 1997

--------------------------------

30200 021-97
<PAGE>

PROSPECTUS DATED FEBRUARY , 1997

EMERGING GROWTH FUND
A SERIES OF PIPER FUNDS INC.
PIPER JAFFRAY TOWER
222 SOUTH NINTH STREET, MINNEAPOLIS, MINNESOTA 55402-3804
(800) 866-7778 (TOLL FREE)

PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. SAFETY OF
PRINCIPAL IS NOT GUARANTEED.

This Prospectus concisely describes the information about the Fund 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 Fund dated February ,
1997, is available free of charge. Write to the Fund 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.

Emerging Growth Fund (the "Fund") is a mutual fund organized as a
diversified series of Piper Funds Inc. (the "Company"). The Company is an
open-end management investment company, the shares of which are currently
offered in twelve series. This Prospectus provides information regarding the
Class Y shares of the Fund. Class Y shares are available only to investors
making an initial investment of $2 million or more. The Fund also offers Class A
and Class B shares through a separate prospectus. To obtain more information on
the Fund's Class A and Class B shares, call the Fund at the telephone number
that appears on the cover of this Prospectus.

THE INVESTMENT ADVISER

The Company is managed by Piper Capital Management Incorporated (the
"Adviser"), a wholly owned subsidiary of Piper Jaffray Companies Inc. The Fund
pays the Adviser a fee for managing its investment portfolio at an annual rate
of .75% on net assets up to $100 million. The fee is scaled downward as net
assets increase in size. This fee is 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 Fund's shares.

OFFERING PRICE

Class Y shares of the Fund are sold at net asset value without any initial
or deferred sales charges, and are not subject to any Rule 12b-1 fees. See "How
to Purchase Shares--Purchase Price."

MINIMUM INITIAL AND SUBSEQUENT INVESTMENTS

The minimum initial investment is $2 million. There is no minimum for
subsequent investments. See "How to Purchase Shares--Minimum Investments."

EXCHANGES

You may exchange your shares for Class Y shares of any other mutual fund
managed by the Adviser that offers such shares and 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 the 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. The Fund reserves the right, upon
30 days' written notice, to redeem your account if the net asset value of your
Class Y shares falls below $2 million as a result of a redemption or exchange
request. See "How to Redeem Shares."

CERTAIN RISK FACTORS TO CONSIDER

An investment in the Fund is subject to certain risks, as set forth in
detail under "Investment Objective and Policies" and "Special Investment
Methods." As with other mutual funds, there can be no assurance that the Fund
will achieve its objective. The Fund 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). As a result, the value of the Fund's shares will vary. The 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 Fund may

2
<PAGE>

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
the Fund's net asset value.

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 Fund should be directed to the Fund at the telephone number set
forth on the cover page of this Prospectus.

FUND EXPENSES

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases.......................................... None
Maximum Deferred Sales Charge...................................................... None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees.................................................................... .69%
Rule 12b-1 Fees.................................................................... None
Other Expenses..................................................................... .18%
---------
Total Fund Operating Expenses...................................................... .87%
</TABLE>

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>
<S> <C>
1 Year...................................................... $ 9
3 Years..................................................... $ 28
5 Years..................................................... $ 48
10 Years..................................................... $ 107
</TABLE>

The purpose of the above Fund Expenses table is to assist you in
understanding the various costs and expenses that investors in the Fund will
bear directly or indirectly. The information set forth in the table is based on
actual expenses incurred by Class A shares of the Fund during the fiscal year
ended September 30, 1996, except that it reflects the fact that Class Y shares
will not pay any Rule 12b-1 fees. The Fund did not offer Class Y shares during
such fiscal year. 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.

3
<PAGE>
FINANCIAL HIGHLIGHTS

The following financial highlights show certain per share data and selected
information for a Class A share of capital stock outstanding during the
indicated periods. This information has been audited by KPMG Peat Marwick LLP,
independent auditors, and should be read in conjunction with the financial
statements of the Fund contained in its annual report. No Class Y shares were
outstanding during the indicated periods. Class A shares are subject to sales
charges and fees that may differ from those applicable to Class Y shares. An
annual report of the Fund is available without charge by contacting the Fund at
800-866-7778 (toll free). In addition to financial statements, such report
contains further information about the performance of the Fund.

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

- ------------
*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.

++Per share amounts have been restated to reflect the effect of the stock
dividend declared on December 23, 1995.

4
<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

The investment objective listed below cannot be changed without shareholder
approval. The investment policies and techniques employed in pursuit of the
Fund's objective may be changed without shareholder approval, unless otherwise
noted.

Because of the risks associated with common stock investments, the Fund is
intended to be a long-term investment vehicle and is 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 Fund
will achieve its objective or that shareholders will be protected from the risk
of loss that is inherent in equity investing.

INVESTMENT OBJECTIVE

The 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

The 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.

5
<PAGE>
[GRAPHIC]

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 similar investment objective

6
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and no geographic limitation. The investment techniques used by the Fund also
pose certain risks. See "Special Investment Methods."

SPECIAL INVESTMENT METHODS

REPURCHASE AGREEMENTS

The 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 the 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,
the Fund would suffer a loss. Repurchase agreements maturing in more than seven
days are considered illiquid and subject to the Fund's restriction on investing
in illiquid securities.

LENDING OF PORTFOLIO SECURITIES

In order to generate additional income, the 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
Fund 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

The 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
the Fund on borrowed funds would decrease the net earnings of the Fund. The Fund
will not purchase portfolio securities while outstanding borrowings exceed 5% of
the value of its total assets. The 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 the
Fund's shares.

OPTIONS TRANSACTIONS

The Fund may write and purchase put and call options on securities and on
stock indexes listed on national securities exchanges. The Fund may purchase and
write only exchange-traded options.

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WRITING COVERED OPTIONS. The 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, the 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, the 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 the Fund, there will have been a predetermination that acquisition of the
underlying security is in accordance with the 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 Fund receives premiums from writing call or put
options, which it retains whether or not the options are exercised. By writing a
call option, the Fund might lose the potential for gain on the underlying
security while the option is open, and by writing a put option the 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 the Fund, determined as of
the date the options are sold, will not exceed 25% of the Fund's net assets.

PURCHASING OPTIONS. The 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 the 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 the 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 the 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 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, the 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. The 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 the 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

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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 the 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

The Fund may purchase and sell stock index futures contracts. The futures
contracts in which the Fund 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 the Fund is
to hedge against fluctuations in the value of its portfolio without actually
buying or selling securities. For example, the 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 the 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 Fund 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.

The 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 Fund may use such options on futures contracts in
connection with its 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 the 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 the 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.

ILLIQUID SECURITIES

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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. The 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, the 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 Fund 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 the Fund to trade actively for short-term
profits, the Fund will dispose of securities without regard to the time they
have been held when such action appears appropriate to the Adviser. 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 Fund are set
forth in "Financial Highlights."

INVESTMENT RESTRICTIONS

The 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, the Fund will
not 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, the Fund will not 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 the Fund will not invest more
than 5% of its total assets in foreign securities. A list of the Fund's
fundamental and nonfundamental investment restrictions is set forth in the
Statement of Additional Information.

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Except for the Fund's policy regarding borrowing, if a percentage
restriction set forth under "Investment Objective 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 Fund's investment adviser subject to the authority of the Board of
Directors.

The Adviser furnishes the Fund with investment advice and supervises the
management and investment programs of the Fund. The Adviser furnishes at its own
expense all necessary administrative services, office space, equipment and
clerical personnel for servicing the investments of the Fund. The Adviser also
provides investment advisory facilities and executive and supervisory personnel
for managing the investments and effecting the portfolio transactions of the
Fund. 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, the Fund pays the
Adviser a monthly fee at an annual rate of .75% on average daily net assets up
to $100 million. This fee is higher than fees paid by most other investment
companies. The fee is scaled downward as net assets increase in size to as low
as .50% on net assets of over $500 million.

PORTFOLIO MANAGEMENT

Sandra K. Shrewsbury has been primarily responsible for the day-to-day
management of the Fund's portfolio since 1993. 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 Fund's
portfolio securities and cash and as Transfer Agent and Dividend Disbursing
Agent for the Fund.

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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
Fund's 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 the Fund would receive from that broker the most
favorable price and execution then available for a transaction. Portfolio
transactions for the Fund 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.

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SHAREHOLDER GUIDE TO INVESTING

HOW TO PURCHASE SHARES

GENERAL

Class Y shares of the Fund may be purchased from the Distributor and from
other broker-dealers who have sales agreements with the Distributor. The address
of the Distributor is that of the Fund. The Distributor reserves the right to
reject any purchase order. You should be aware that, because the Fund does 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 Class Y shares of the Fund at net asset value without any
initial or deferred sales charges. The purchase price will be equal to the net
asset value per share next calculated after receipt of your order by your Piper
Jaffray Investment Executive or other broker-dealer.

The Adviser makes ongoing payments out of its own assets to Piper Jaffray
Investment Executives and other broker-dealers who have sold Class Y shares of
the Fund. In addition, the Distributor or the Adviser, at their own expense,
provide promotional incentives to Investment Executives of the Distributor and
to broker-dealers who have sales agreements with the Distributor in connection
with sales of shares of the Fund, 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.

MINIMUM INVESTMENTS

A minimum initial investment of $2 million is required to purchase Class Y
shares of the Fund. There is no minimum for subsequent investments. For purposes
of meeting the minimum initial investment amount, investments in Class Y shares
of Intermediate Bond Fund (another series of the Company) will be aggregated
with investments in Class Y shares of the Fund (provided that the Class Y
Intermediate Bond Fund shares have not already been aggregated with investments
in Class Y shares of another mutual fund managed by the Adviser in order to meet
such fund's minimum initial investment amount).

HOW TO REDEEM SHARES

NORMAL REDEMPTION

You may redeem all or a portion of your Class Y shares on any day that the
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.

PIPER JAFFRAY INC. ACCOUNTS. To redeem your shares, please contact your
Piper Jaffray Investment Executive with an oral redemption request.

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 Class Y 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

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SHAREHOLDER GUIDE TO INVESTING

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.

PAYMENT OF REDEMPTION PROCEEDS

INVOLUNTARY REDEMPTION

The Fund reserves the right to redeem your Class Y share account at any time
the net asset value of the account falls below $2 million as the result of a
redemption or exchange request. For purposes of determining the net asset value
of your account, your holdings of Class Y shares of the Fund will be aggregated
with your holdings of Class Y shares of Intermediate Bond Fund (unless your
Intermediate Bond Fund holdings have already been aggregated with investments in
Class Y shares of another mutual fund managed by the Adviser for purposes of
determining account size). 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 Class Y shares of
the Fund. 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.

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.

You may exchange your Class Y shares for Class Y shares of any other mutual
fund managed by the Adviser that offers such shares. 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.

The Company reserves the right to change or discontinue the exchange
privilege, or any aspect of the privilege, upon 60 days' written notice.

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SHAREHOLDER GUIDE TO INVESTING

TELEPHONE TRANSACTION PRIVILEGES

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
Fund 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. If the Fund employs such
procedures, it will not be liable for following instructions communicated by
telephone that it reasonably believes to be genuine. If the 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 Fund by
telephone during periods when market or economic conditions lead to an unusually
large volume of telephone requests. If you cannot reach the Fund 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 Fund reserves the right to suspend or
terminate its telephone services at any time without notice.

DIRECTED DIVIDENDS

SYSTEMATIC WITHDRAWAL PLAN

You may establish a Systematic Withdrawal Plan that allows you to receive
regular periodic payments by redeeming as many shares from your account as
necessary, provided you maintain a minimum account balance of $2 million. Your
account balance will be determined in the manner described above under "How to
Redeem Shares--Involuntary Redemption". 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.

You should be aware that additional investments in an account that has an
active Systematic Withdrawal Plan may be inadvisable due to tax liabilities.
Please refer to "Redemption of Shares" in the Statement of Additional
Information for additional details.

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SHAREHOLDER GUIDE TO INVESTING

ACCOUNT PROTECTION

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 Fund 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 the 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.

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.
Class Y shareholders generally will receive higher per share dividends than
Class A or Class B shareholders because Class Y shareholders are not subject to
Rule 12b-1 fees.

BUYING A DIVIDEND. On the ex-dividend date for a distribution, the 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 the Fund generally will be payable in additional
Class Y shares of the 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 Class Y
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 Class Y shares of another mutual fund managed by the Adviser that offers such
shares. 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.

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VALUATION OF SHARES

The Fund computes its 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
Fund has declared any applicable dividends.

The Fund's net asset value per share 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 Fund, 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 the 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 the 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.
Fixed-income securities for which prices are not available from an independent
pricing service but where an active market exists will be valued using market
quotations obtained from one or more dealers that make markets in the
securities. 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 or through dealer quotations 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 the Fund for which market prices are not
readily available will be valued at their fair value in accordance with such
procedures.

Although the methodology and procedures for determining net asset value are
identical for all classes of shares, the net asset values per share of Class A,
Class B and Class Y shares of the Fund may differ because of the differing Rule
12b-1 fees and transfer agent fees charged to such classes.

TAX STATUS

The 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,
the Fund will not be liable for federal income taxes to the extent it
distributes its taxable income to shareholders.

Distributions by the 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 the Fund attributable to dividends

17
<PAGE>
paid by domestic corporations. Distributions of net capital gains (designated as
"capital gain dividends") are taxable 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 Fund shares 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 Fund, see "Taxation" in the Statement
of Additional Information. Before investing in the Fund, you should check the
consequences of your local and state tax laws.

PERFORMANCE COMPARISONS

Advertisements and other sales literature for the Fund may refer to the
Fund's "average annual total return" and "cumulative total return." Total return
will be computed separately for each class of the Fund's shares. 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 the Fund will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than their original cost.

Comparative performance information also may be used from time to time in
advertising the Fund's shares. For example, advertisements may compare the
Fund's 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.

GENERAL INFORMATION

The Company was organized under the laws of State of Minnesota in 1986 and
currently offers its shares in twelve series. 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 the Fund, as well as within any
other series of the Company or any series created in the future. See "Capital
Stock and Ownership of Shares" in the Statement of Additional Information.

All shares of the Fund, when issued, will be fully paid and nonassessable
and will be redeemable. 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.

18
<PAGE>

The different classes of the Fund's shares have the same rights and are
identical in all respects except that (a) expenses related to the distribution
of each class of shares are borne solely by such class; (b) to the extent they
can reasonably be identified as relating to a particular class of shares,
transfer agent fees will be allocated to that class; (c) each class has
exclusive voting rights with respect to approvals of any Rule 12b-1 distribution
plan related to that specific class (although Class B shareholders will have the
right to vote on any distribution fees imposed on Class A shares as long as
Class B shares convert into Class A shares); (d) only Class B shares carry a
conversion feature; and (e) each class has a different exchange privileges.

PENDING LEGAL PROCEEDINGS

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.

19
<PAGE>
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.

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 FUND
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.

20
<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.......................... 3
Financial Highlights................... 4
Investment Objective and Policies...... 5
Special Investment Methods............. 7
Management............................. 11
SHAREHOLDER GUIDE TO INVESTING
How to Purchase Shares............... 13
How to Redeem Shares................. 13
Shareholder Services................. 14
Dividends and Distributions.......... 16
Valuation of Shares.................... 17
Tax Status............................. 17
Performance Comparisons................ 18
General Information.................... 18
</TABLE>

- ----------------------------------------------------------
Prospectus

[LOGO]

------------------------------

Emerging Growth Fund

February , 1997

--------------------------------

30200 021-97
<PAGE>

PROSPECTUS DATED FEBRUARY , 1997

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.

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.

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 mutual funds organized as
diversified series of Piper Funds Inc. (the "Company"). The Company is an
open-end management investment company, 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 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.

CHOOSING A SHARE CLASS

You may purchase either Class A or Class B shares of a Fund. Each class has
its own cost structure, allowing you to choose the one that best meets your
requirements. Growth and Income Fund also offers Class Y shares, which have
their own expense structure and are available only to investors making an
initial investment of $2 million or more. To obtain more information about Class
Y shares, call the Funds at the telephone number that appears on the cover of
this Prospectus.

Class A shares have the following features:

- An initial sales charge of 4% on purchases of less than $100,000. The
sales charge is reduced for purchases of $100,000 or more. See "How to
Purchase Class A Shares."

Class B shares have the following features:

- No initial sales charge; all your money goes to work for you right away.

- Automatic conversion to Class A shares at the beginning of the sixth full
calendar year following the year of purchase, thus reducing future annual
expenses.

2
<PAGE>
MINIMUM INITIAL AND SUBSEQUENT INVESTMENTS

The minimum initial investment for each Fund is $250. There is no minimum
for subsequent investments. See "How to Invest--Minimum Investments."

EXCHANGES

REDEMPTION PRICE

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 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.

SHAREHOLDER INQUIRIES

3
<PAGE>

FUND EXPENSES

<TABLE>
<CAPTION>
GROWTH AND INCOME BALANCED
FUND FUND
----------------- -----------------
CLASS A CLASS B CLASS A CLASS B
------- ------- ------- -------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price)..................... 4.00% None 4.00% None
Maximum Deferred Sales Charge (as a
percentage of original purchase
price or redemption proceeds, as
applicable)......................... None* 4.00% None* 4.00%
ANNUAL FUND OPERATING EXPENSES (as a
percentage of average net assets)
Management Fees....................... .75% .75% .75% .75%
Rule 12b-1 Fees (after voluntary
limitation for Class A shares)**.... .34% 1.00% .34% 1.00%
Other Expenses (after voluntary
expense reimbursement)**............ .25% .25% .25% .25%
------- ------- ------- -------
Total Fund Operating Expenses (after
voluntary limitations and expense
reimbursements)..................... 1.34% 2.00% 1.34% 2.00%
</TABLE>

- ------------------------

**See the discussion below for an explanation of voluntary Rule 12b-1 fee
limitations and expense reimbursements.

EXAMPLE

At the end of the periods shown, you would have paid the following expenses
on a $1,000 investment, assuming a 5% annual return:

<TABLE>
<CAPTION>
GROWTH AND INCOME FUND BALANCED FUND
----------------------------------------- --------------------------
CLASS B CLASS B
---------------------------- -------------
REDEMPTION AT REDEMPTION AT
END END
CLASS A OF PERIOD NO REDEMPTION CLASS A OF PERIOD
----------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
One year............................................. $ 53 $ 60 $ 20 $ 53 $ 60
Three years.......................................... $ 81 $ 83 $ 63 $ 81 $ 83
Five years........................................... $ 110 $ 118 $ 108 $ 110 $ 118
Ten years............................................ $ 195 $ 193* $ 193* $ 195 $ 193*

NO REDEMPTION
-------------
<S> <C>
One year............................................. $ 20
Three years.......................................... $ 63
Five years........................................... $ 108
Ten years............................................ $ 193*
</TABLE>

- ------------------------------

* Assumes that Class B shares are purchased on December 31, and convert to Class
A shares at the beginning of the sixth full calendar year following the year
of purchase.

The information set forth in the table, other than Rule 12b-1 fees, is based
on actual expenses incurred by the Class A shares of the Funds during the fiscal
year ended September 30, 1996. The Funds did not offer Class B shares during
such fiscal year. Class A share Rule 12b-1 fees set forth in the table reflect a
voluntary limitation by the Distributor of amounts payable to it under each
Fund's Rule 12b-1 Plan to .34% of average

4
<PAGE>

daily net assets attributable to Class A shares 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 the Fund's average daily net assets
attributable to Class A shares and 2.00% of the Fund's average daily net assets
attributable to Class B shares. The voluntary Rule 12b-1 fee limitations for the
Class A shares and the expense reimbursements 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.

A portion of the Rule 12b-1 fee paid with respect to both Class A and Class
B shares is considered an asset-based sales charge. As a result of the payment
of such 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

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.

6
<PAGE>
BALANCED FUND

<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............ $ 13.74 11.81 12.23 11.88 10.77 8.87 10.00 9.19 8.97 10.00
------- ----- ----- ----- ----- ----- ----- ----------- -------- --------
Operations:
Net investment
income.......... 0.44 0.47 0.38 0.34 0.38 0.43 0.42 0.44 0.51 0.28
Net realized and
unrealized gains
(losses) on
investments..... 0.89 1.93 (0.26) 0.65 1.17 1.89 (1.14) 0.83 0.22 (1.09)
------- ----- ----- ----- ----- ----- ----- ----------- -------- --------
Total from
operations... 1.33 2.40 0.12 0.99 1.55 2.32 (0.72) 1.27 0.73 (0.81)
------- ----- ----- ----- ----- ----- ----- ----------- -------- --------
Distributions from
net investment
income............ (0.44) (0.35) (0.37) (0.34) (0.39) (0.42) (0.41) (0.46) (0.51) (0.22)
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) (0.51) (0.22)
------- ----- ----- ----- ----- ----- ----- ----------- -------- --------
Net asset value, end
of period......... $ 14.08 13.74 11.81 12.23 11.88 10.77 8.87 10.00 9.19 8.97
------- ----- ----- ----- ----- ----- ----- ----------- -------- --------
------- ----- ----- ----- ----- ----- ----- ----------- -------- --------
Total return (%)+... 10.16 21.78 1.00 8.51 14.75 26.61 (7.42) 14.20 8.53 (8.24)

Net assets end of
period (in
millions)......... $ 45 44 46 57 28 15 14 16 13 13
Ratio of expenses to
average daily net
assets (%)++...... 1.32 1.32 1.32 1.32 1.32 1.32 1.31 1.30** 1.30 .99**
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** 5.58 5.46**
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) (%)... 27 39 62 41 58 44 105 95 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.

7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

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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<PAGE>
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

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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.

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.

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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<PAGE>
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.

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.

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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

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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

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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<PAGE>
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

PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS

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 Rule 12b-1 fees for
servicing each Fund's shareholder accounts and for providing distribution
related services to each Fund. For each Fund, these fees are calculated daily
and paid quarterly at an annual rate equal to .50% of the Fund's average daily
net assets attributable to Class A shares and 1.00% of the Fund's average daily
net assest attributable to Class B shares. The Distributor has voluntarily
agreed to limit each Fund's Rule 12b-1 fees payable with respect to Class A
shares to .34% of the Fund's average daily net assets attributable to such
shares. This limitation may be revised or terminated at any time after fiscal
1997 year end. The Distributor does not intend to limit Rule 12b-1 fees payable
with respect to either Fund's Class B shares.

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SHAREHOLDER GUIDE TO INVESTING

HOW TO INVEST

GENERAL

CHOOSING A SHARE CLASS

The amount of your purchase and the length of time you expect to hold your
shares will be factors in determining which class of shares is best for you. You
should consider whether, over the time you expect to maintain your investment,
the accumulated Rule 12b-1 fees and any applicable contingent deferred sales
charges on Class B shares prior to conversion would be less than the initial
sales charge and accumulated Rule 12b-1 fees on Class A shares purchased at the
same time, and to what extent the differential would be offset by the higher
dividends on the Class A shares. If you are making an investment that qualifies
for a reduced sales charge as described below, an investment in Class A shares
will normally be more beneficial. Accordingly, orders for Class B shares for
$250,000 or more will be treated as orders for Class A shares. For Growth and
Income Fund, orders for either Class A or Class B shares for $2 million or more
will be treated as orders for Class Y shares.

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SHAREHOLDER GUIDE TO INVESTING

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.

SALES COMPENSATION

HOW TO PURCHASE CLASS A SHARES

PURCHASE PRICE

CONTINGENT DEFERRED SALES CHARGE ON PURCHASES OF $500,000 OR MORE

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SHAREHOLDER GUIDE TO INVESTING

EXCHANGES. If you exchange your shares, no CDSC will be imposed. However,
the charge will apply if you subsequently redeem the new shares within 24 months
of the original purchase.

REDUCING YOUR SALES CHARGE

You may group purchases in the following personal accounts together:

- Your individual account.

- Your spouse's account.

- Your children's accounts.

- 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.

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SHAREHOLDER GUIDE TO INVESTING

Additionally, purchases of Class A shares 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.

PURCHASES NOT SUBJECT TO A SALES CHARGE

- Officers, directors and their spouses.

- 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.

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SHAREHOLDER GUIDE TO INVESTING

PURCHASES BY OTHER INDIVIDUALS WITHOUT A SALES CHARGE. The following other
individuals and entities also may buy Class A shares of the Funds 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.

PURCHASES BY EMPLOYEE BENEFIT PLANS AND TAX-SHELTERED ANNUITIES.

HOW TO PURCHASE CLASS B SHARES

PURCHASE PRICE

<TABLE>
<CAPTION>
IF REDEEMED DURING THE CDSC
- ---------------------------------------------------------------------------------------------------------- -----------
<S> <C>
Calendar year of the purchase 4%
First calendar year after purchase 4%
Second calendar year after purchase 3%
Third calendar year after purchase 2%
Fourth calendar year after purchase 2%
Fifth calendar year after purchase 1%
</TABLE>

25
<PAGE>

- --------------------------------------------------------------------------------

SHAREHOLDER GUIDE TO INVESTING

WAIVER OF CONTINGENT DEFERRED SALES CHARGE

The CDSC on Class B shares will be waived in the event of:

- 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.

CONVERSION FEATURE

HOW TO REDEEM SHARES

NORMAL REDEMPTION

PIPER JAFFRAY INC. ACCOUNTS. To redeem your shares, please contact your
Piper Jaffray Investment Executive with an oral redemption request.

26
<PAGE>

- --------------------------------------------------------------------------------

SHAREHOLDER GUIDE TO INVESTING

PAYMENT OF REDEMPTION PROCEEDS

INVOLUNTARY REDEMPTION

SHAREHOLDER SERVICES

AUTOMATIC MONTHLY INVESTMENT PROGRAM

REINSTATEMENT PRIVILEGE

EXCHANGE PRIVILEGE

27
<PAGE>

- --------------------------------------------------------------------------------

SHAREHOLDER GUIDE TO INVESTING

TELEPHONE TRANSACTION PRIVILEGES

DIRECTED DIVIDENDS

SYSTEMATIC WITHDRAWAL PLAN

If your account has a value of $5,000 or more, you may establish a
Systematic Withdrawal Plan for either 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.

28
<PAGE>

- --------------------------------------------------------------------------------

SHAREHOLDER GUIDE TO INVESTING

ACCOUNT PROTECTION

CONFIRMATION OF TRANSACTIONS AND REPORTING OF OTHER 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.

29
<PAGE>

- --------------------------------------------------------------------------------

SHAREHOLDER GUIDE TO INVESTING

30
<PAGE>
VALUATION OF SHARES

TAX STATUS

31
<PAGE>
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.

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."
Total return will be computed separately for each class of shares of a Fund. 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 either 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.

32
<PAGE>
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 was organized under the laws of State of Minnesota in 1986 and
currently offers its shares in twelve series. 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
other series of the Company or any series created in the future. See "Capital
Stock and Ownership of Shares" in the Statement of Additional Information.

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

33
<PAGE>
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.

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.

34
<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 Invest........................ 21
How to Purchase Class A Shares....... 22
How to Purchase Class B Shares....... 25
How to Redeem Shares................. 26
Shareholder Services................. 27
Dividends and Distributions.......... 29
Valuation of Shares.................... 31
Tax Status............................. 31
Performance Comparisons................ 32
General Information.................... 33
</TABLE>

- ----------------------------------------------------------
Prospectus

[LOGO]

------------------------------

Growth and Income Funds
Growth and Income Fund
Balanced Fund

February , 1997

--------------------------------

30300 021-97
<PAGE>

PROSPECTUS DATED FEBRUARY , 1997

GROWTH AND INCOME FUND
A SERIES OF PIPER FUNDS INC.
PIPER JAFFRAY TOWER
222 SOUTH NINTH STREET, MINNEAPOLIS, MINNESOTA 55402-3804
(800) 866-7778 (TOLL FREE)

PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. NEITHER SAFETY
OF PRINCIPAL NOR STABILITY OF INCOME IS GUARANTEED.

This Prospectus concisely describes the information about the Fund 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 Fund dated February ,
1997, 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 (the "Fund") is a mutual fund organized as a
diversified series of Piper Funds Inc. (the "Company"). The Company is an
open-end management investment company the shares of which are currently offered
in twelve series. This Prospectus provides information regarding the Class Y
shares of the Fund. Class Y shares are available only to investors making an
initial investment of $2 million or more. The Fund also offers Class A and Class
B shares through a separate prospectus. To obtain more information on the Fund's
Class A and Class B shares, call the Fund at the telephone number that appears
on the cover of this Prospectus.

THE 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 Fund's shares.

OFFERING PRICE

Class Y shares of the Fund are sold at net asset value without any initial
or deferred sales charges, and are not subject to any Rule 12b-1 fees. See "How
to Purchase Shares--Purchase Price."

MINIMUM INITIAL AND SUBSEQUENT INVESTMENTS

The minimum initial investment is $2 million. There is no minimum for
subsequent investments. See "How to Purchase Shares--Minimum Investments."

EXCHANGES

REDEMPTION PRICE

CERTAIN RISK FACTORS TO CONSIDER

An investment in the 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 the Fund
will achieve its objective. The Fund 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 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
the Fund's shares will vary. The 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 Fund may

2
<PAGE>

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 the Fund's net asset value. The 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.

SHAREHOLDER INQUIRIES

3
<PAGE>
FUND EXPENSES

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases...................... None
Maximum Deferred Sales Charge.................................. None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees................................................ .75%
Rule 12b-1 Fees................................................ None
Other Expenses (after voluntary expense reimbursement)......... .25%
-----
Total Fund Operating Expenses (after voluntary limitations and
expense reimbursements)...................................... 1.00%
</TABLE>

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>
<S> <C> <C>
1 Year ................................... $
3 Years .................................. $
5 Years .................................. $
10 Years .................................. $
</TABLE>

The information set forth in the table is based on actual expenses incurred
by the Class A shares of the Fund during the fiscal year ended September 30,
1996, except that it reflects the fact that Class Y shares will not pay any Rule
12b-1 fees. The Fund did not offer Class Y shares during such fiscal year. The
Adviser reimbursed the Fund for the amount by which Other Expenses for fiscal
1996 exceeded .25% of average daily net assets. Absent such expense
reimbursements, Other Expenses for the fiscal year ended September 30, 1996,
would have been .31% of the Fund's average daily net assets. For fiscal 1997,
the Adviser will limit total operating expenses for the Fund to 1.00% of the
Fund's average daily net assets attributable to Class Y shares. The voluntary
expense reimbursements 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.

4
<PAGE>
FINANCIAL HIGHLIGHTS

- ------------------------
*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.

5
<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
Fund's objectives may be changed without shareholder approval, unless otherwise
noted.

Because of the risks associated with common stock and bond investments, the
Fund is intended to be a long-term investment vehicle and is 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 Fund will achieve its objectives or that shareholders will be protected from
the risk of loss that is inherent in equity and bond market investing.

INVESTMENT OBJECTIVES

The Fund's investment objectives are to provide current income and long-term
growth of capital and income.

INVESTMENT POLICIES AND TECHNIQUES

The 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, the 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

6
<PAGE>
the obligations. See "Investment Objectives and Policies--U.S. Government
Securities" in the Statement of Additional Information.

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. The 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, the 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."

SPECIAL INVESTMENT METHODS

REPURCHASE AGREEMENTS

7
<PAGE>

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, the Fund would suffer a
loss. Repurchase agreements maturing in more than seven days are considered
illiquid and subject to the Fund's restriction on investing in illiquid
securities.

LENDING OF PORTFOLIO SECURITIES

BORROWING

OPTIONS TRANSACTIONS

The Fund may write and purchase put and call options on securities and on
stock indexes listed on national securities exchanges. The Fund may purchase and
write only exchange-traded options.

WRITING COVERED OPTIONS. The 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, the 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, the 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 the Fund, there will have been a predetermination that acquisition of
the underlying security is in accordance with the Fund's investment objectives.

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 Fund receives premiums from writing call or put
options, which it retains whether or not the options are exercised. By writing a
call option, the Fund might lose the potential for gain on the underlying
security while the option is open,

8
<PAGE>

and by writing a put option the Fund might become obligated to purchase the
underlying security for more than its current market price upon exercise.

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

The Fund may purchase and sell stock index futures contracts and interest
rate futures contracts. The futures contracts in which the Fund 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

9
<PAGE>
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 the Fund is
to hedge against fluctuations in the value of its portfolio without actually
buying or selling securities. For example, if the 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 Fund 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.

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 the 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 the 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.

WHEN-ISSUED SECURITIES

The 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 Fund will not
accrue income with respect to when-issued or forward commitment securities prior
to their stated delivery date. Pending delivery of the securities, the Fund
maintains in a segregated account cash or liquid securities in an amount
sufficient to meet its purchase commitments.

10
<PAGE>

The purchase of securities on a when-issued or forward commitment basis
exposes the Fund 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. The 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 its ability to purchase securities on a when-issued or
forward commitment basis, the Fund may enter into mortgage "dollar rolls" in
which the 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 compared with what such performance would have been
without the use of mortgage dollar rolls. The 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 the 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 Fund treats mortgage dollar
rolls as two separate transactions: one involving the purchase of a security and
a separate transaction involving a sale. The Fund does not currently intend to
enter into mortgage dollar rolls that are accounted for as a financing.

No more than one-third of the 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

The Fund will not 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.

11
<PAGE>

at a time when the Adviser deems it advisable to do so. In addition, in order to
meet redemption requests, the 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 Fund 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.

PORTFOLIO TURNOVER

INVESTMENT RESTRICTIONS

The 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, the Fund will
not 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, the Fund will not 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 or more than 5% of its total assets
in foreign securities. A list of the Fund's fundamental and nonfundamental
investment restrictions is set forth in the Statement of Additional Information.

Except for the 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.

12
<PAGE>
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

PORTFOLIO MANAGEMENT

Paul A. Dow has been primarily responsible for the day-to-day management of
the 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.

TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND CUSTODIAN

13
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS

14
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE TO INVESTING
- --------------------------------------------------------------------------------

HOW TO PURCHASE SHARES

GENERAL

PURCHASE PRICE

MINIMUM INVESTMENTS

HOW TO REDEEM SHARES

NORMAL REDEMPTION

PIPER JAFFRAY INC. ACCOUNTS. To redeem your shares, please contact your
Piper Jaffray Investment Executive with an oral redemption request.

15
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE TO INVESTING
- --------------------------------------------------------------------------------
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.

PAYMENT OF REDEMPTION PROCEEDS

INVOLUNTARY REDEMPTION

SHAREHOLDER SERVICES

AUTOMATIC MONTHLY INVESTMENT PROGRAM

EXCHANGE PRIVILEGE

The Company reserves the right to change or discontinue the exchange
privilege, or any aspect of the privilege, upon 60 days' written notice.

16
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE TO INVESTING
- --------------------------------------------------------------------------------

TELEPHONE TRANSACTION PRIVILEGES

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
Fund 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. If the Fund employs such
procedures it will not be liable for following instructions communicated by
telephone that it reasonably believes to be genuine. If the 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 Fund by
telephone during periods when market or economic conditions lead to an unusually
large volume of telephone requests. If you cannot reach the Fund 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 Fund reserves the right to suspend or
terminate its telephone services at any time without notice.

DIRECTED DIVIDENDS

SYSTEMATIC WITHDRAWAL PLAN

You may establish a Systematic Withdrawal Plan that allows you to receive
regular periodic payments by redeeming as many shares from your account as
necessary, provided you maintain a minimum account balance of $2 million. Your
account balance will be determined in the manner described above under "How to
Redeem Shares--Involuntary Redemption." 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.

17
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE TO INVESTING
- --------------------------------------------------------------------------------

ACCOUNT PROTECTION

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 the 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.

DIVIDENDS AND DISTRIBUTIONS

Dividends from net investment income, if any, will be paid quarterly. Net
realized capital gains, if any, will be distributed at least once annually.
Class Y shareholders generally will receive higher per share dividends than
Class A or Class B shareholders because Class Y shareholders are not subject to
Rule 12b-1 fees.

18
<PAGE>
VALUATION OF SHARES

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.
Fixed-income securities for which prices are not available from an independent
pricing service but where an active market exists will be valued using market
quotations obtained from one or more dealers that make markets in the
securities. 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 or through dealer quotations 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 the Fund for which market prices are not
readily available will be valued at their fair value in accordance with such
procedures.

Although the methodology and procedures for determining net asset value are
identical for all classes of shares, the net asset values per share of the Class
A, Class B and Class Y shares of the Fund may differ because of the differing
Rule 12b-1 fees and transfer agent fees charged to such classes.

TAX STATUS

19
<PAGE>
paid by domestic corporations. Distributions of net capital gains (designated as
"capital gain dividends") are taxable to shareholders as long-term capital
gains, regardless of the length of time the shareholder has held the shares of
the Fund.

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 Fund, see "Taxation" in the Statement
of Additional Information. Before investing in the Fund, you should check the
consequences of your local and state tax laws.

PERFORMANCE COMPARISONS

Advertisements and other sales literature for the Fund may refer to the
Fund's "average annual total return", "cumulative total return" and "yield."
Total return and yield will be computed separately for each class of the Fund's
shares. 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 the Fund will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.

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

20
<PAGE>

shares within the Fund, as well as within any other series of the Company or any
series created in the future. See "Capital Stock and Ownership of Shares" in the
Statement of Additional Information.

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

21
<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.

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 FUND
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.

22
<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................... 5
Investment Objectives and Policies..... 6
Special Investment Methods............. 7
Management............................. 13
SHAREHOLDER GUIDE TO INVESTING
How to Purchase Shares............... 15
How to Redeem Shares................. 15
Shareholder Services................. 16
Dividends and Distributions.......... 18
Valuation of Shares.................... 19
Tax Status............................. 19
Performance Comparisons................ 20
General Information.................... 20
</TABLE>

- ----------------------------------------------------------
Prospectus

[LOGO]

------------------------------

Growth and Income Fund

February , 1997

--------------------------------

30300 021-97
<PAGE>

PROSPECTUS DATED FEBRUARY , 1997

INTERMEDIATE BOND FUND

PIPER JAFFRAY TOWER
222 SOUTH NINTH STREET, MINNEAPOLIS, MINNESOTA 55402-3804
(800) 866-7778 (TOLL FREE)

INTERMEDIATE BOND FUND has an investment objective of a high level of
current income consistent with preservation of capital. The Fund seeks to
achieve its objective by investing primarily in a broad range of investment
quality debt securities.

PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. NEITHER SAFETY
OF PRINCIPAL NOR STABILITY OF INCOME IS GUARANTEED.

AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS. THE FUND MAY ENGAGE
IN SHORT-TERM TRADING IN ATTEMPTING TO ACHIEVE ITS INVESTMENT OBJECTIVE, WHICH
WILL INCREASE TRANSACTION COSTS. IN ADDITION, THE FUND MAY INVEST A SIGNIFICANT
PORTION OF ITS ASSETS IN MORTGAGE-RELATED SECURITIES, INCLUDING DERIVATIVE
MORTGAGE SECURITIES. SEE "CHARACTERISTICS AND RISKS OF SECURITIES AND SPECIAL
INVESTMENT METHODS" FOR A DISCUSSION OF THE RISKS OF THESE TECHNIQUES. THE
MARKET VALUES OF THE SECURITIES IN WHICH THE FUND INVESTS WILL FLUCTUATE WITH
CHANGING INTEREST RATES, AS WILL THE FUND'S NET ASSET VALUE.

This Prospectus concisely describes the information about the Fund 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 Fund dated February , 1997
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.

INTRODUCTION

Intermediate Bond Fund ("the Fund") (formerly Institutional Government
Income Portfolio) is a diversified series of Piper Funds Inc. ("Piper Funds"),
an open-end management investment company the shares of which are currently
issued in twelve separate series. This Prospectus provides information regarding
the Class Y shares of the Fund. Class Y shares are available only to investors
making an initial investment of $2 million or more. The Fund also offers Class A
shares through a separate prospectus. To obtain more information on the Fund's
Class A shares, call the Fund at the telephone number that appears on the cover
of this Prospectus.

THE INVESTMENT ADVISER

The Fund is managed by Piper Capital Management Incorporated (the
"Adviser"), a wholly owned subsidiary of Piper Jaffray Companies Inc. The Fund
pays the Adviser a fee for managing its investment portfolio at an annual rate
of .30% of the Fund's average daily net assets. The fee is scaled downward as
assets increase in size above $100 million. 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 Fund's shares.

OFFERING PRICE

Class Y shares of the Fund are sold at net asset value without any initial
or deferred sales charges, and are not subject to any Rule 12b-1 fees. See "How
to Purchase Shares--Purchase Price."

MINIMUM INITIAL AND SUBSEQUENT INVESTMENTS

The minimum initial investment is $2 million. There is no minimum for
subsequent investments. The Distributor, in its discretion, may waive the
minimum. See "How to Purchase Shares--Minimum Investments."

EXCHANGES

You may exchange your shares for Class Y shares of any other mutual fund
managed by the Adviser that offers such shares and is eligible for sale in your
state of residence, provided that, if you hold your Fund shares through a
broker-dealer other than the Distributor, the exchange privilege may not be
available. Exchanges will be permitted only if there is a valid sales agreement
between your broker-dealer and the Distributor for the fund into which the
exchange will be made. 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 the 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. The Fund reserves the right, upon
30 days' written notice, to redeem an account if the net asset value of the
shares falls below $2 million as a result of a redemption or exchange request.
See "How to Redeem Shares."

CERTAIN RISK FACTORS TO CONSIDER

An investment in the Fund is subject to certain risks, as set forth in
detail under "Investment Objective and Policies" and "Characteristics and Risks
of Securities and Special Investment Methods." As with other mutual funds, there
can be no assurance that the Fund will achieve its objective. The Fund is
subject to interest-rate risk (the risk that rising interest rates will make
bonds issued at lower interest rates worth less).

2
<PAGE>

As a result, the value of the Fund's shares will vary. The Fund is also subject
to credit risk (the risk that a bond issuer will fail to make timely payments of
interest or principal) to the extent it invests in non-U.S. Government
securities. The Fund may engage in the following investment practices: the use
of repurchase agreements, borrowing from banks and the purchase or sale of
securities on a "when-issued" or forward commitment basis, including the use of
mortgage dollar rolls. These investment practices may increase the volatility of
the Fund's net asset value. The Fund may engage in short-term trading in
attempting to achieve its investment objective, which will increase transaction
costs. The Fund may purchase mortgage-related securities which, in addition to
interest rate risk, are subject to prepayment risk. The Fund's investments in
mortgage-related securities include 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, 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 "Characteristics and
Risks of Securities 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 Fund should be directed to the Fund at the telephone number set
forth on the cover page of this Prospectus.

FUND EXPENSES

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases.... None
Maximum Deferred Sales Charge.............. None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees............................ .25%
Rule 12b-1 Fees............................ None
Other Expenses............................. .19%
------
Total Fund Operating Expenses.............. .44%
</TABLE>

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>
<S> <C>
1 Year...................................... $
3 Years..................................... $
5 Years..................................... $
10 Years..................................... $
</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 information set forth in the table is based on
actual expenses incurred by Class A shares of the Fund during the fiscal year
ended September 30, 1996, except that it reflects the fact that Class Y shares
will not pay any Rule 12b-1 fees. The Fund did not offer Class Y shares during
such fiscal year. 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.

3
<PAGE>
FINANCIAL HIGHLIGHTS

INTERMEDIATE BOND FUND*
<TABLE>
<CAPTION>
PERIOD FROM
FISCAL YEAR ENDED SEPTEMBER 30, 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....... $ 8.12 7.98 12.22 11.51 10.71 10.02 9.96 10.08
-------- -------- -------- -------- -------- ------- ------- -----------
Operations:
Net investment income.................... 0.53(b) 0.88 0.90 1.29 1.07 0.94 0.91 0.82
Net realized and unrealized gains
(losses) on investments................ (0.11) 0.31 (3.96) 0.56 0.73 0.67 0.08 (0.12)
-------- -------- -------- -------- -------- ------- ------- -----------
Total from operations................ 0.42 1.19 (3.06) 1.85 1.80 1.61 0.99 0.70
-------- -------- -------- -------- -------- ------- ------- -----------
Distributions:
From net investment income............... (1.04) (1.05) (0.95) (0.90) (0.91) (0.90) (0.90) (0.81)
From net realized gains.................. -- -- (0.23) (0.24) (0.09) (0.02) (0.03) (0.01)
-------- -------- -------- -------- -------- ------- ------- -----------
Total distributions.................. (1.04) (1.05) (1.18) (1.14) (1.00) (0.92) (0.93) (0.82)
-------- -------- -------- -------- -------- ------- ------- -----------
Net asset value, end of period............. $ 7.50 8.12 7.98 12.22 11.51 10.71 10.02 9.96
-------- -------- -------- -------- -------- ------- ------- -----------
-------- -------- -------- -------- -------- ------- ------- -----------
Total return (d)........................... 5.68% 16.15% (26.65%) 17.04% 17.70% 16.80% 10.30% 7.38%
Net assets, end of period (in millions).... $ 136 319 564 792 470 132 36 28
Ratio of expenses to average daily net
assets (e)(f)............................ 0.72% 0.97% 0.78% 0.70% 0.65% 0.75% 0.78% 0.85%(c)
Ratio of net investment income to average
daily net assets (e)..................... 6.65% 8.02% 9.33% 12.51% 11.01% 9.29% 9.00% 9.03%(c)
Portfolio turnover rate (excluding
short-term securities)................... 89% 136% 169% 109% 64% 29% 76% 23%

<CAPTION>
PERIOD
FROM
7/11/88(A)
TO
10/31/88
--------
<S> <C>
Net asset value, beginning of period....... 10.00
--------
Operations:
Net investment income.................... 0.21
Net realized and unrealized gains
(losses) on investments................ 0.08
--------
Total from operations................ 0.29
--------
Distributions:
From net investment income............... (0.21)
From net realized gains.................. --
--------
Total distributions.................. (0.21)
--------
Net asset value, end of period............. 10.08
--------
--------
Total return (d)........................... 3.09%
Net assets, end of period (in millions).... 18
Ratio of expenses to average daily net
assets (e)(f)............................ 0.75%(c)
Ratio of net investment income to average
daily net assets (e)..................... 7.91%(c)
Portfolio turnover rate (excluding
short-term securities)................... 14%
</TABLE>

- ------------------------------

*On September 12, 1996, shareholders of Intermediate Bond Fund approved the
discontinuance of a fundamental policy requiring the Fund to invest only in
securities issued or guaranteed as to payment of principal and interest by
the U.S. government or its agencies or instrumentalities and repurchase
agreements fully secured by such securities. In connection with the
discontinuance of this policy, the Fund's investment policies were revised to
permit investments in a broad range of investment quality debt securities and
the Fund's name was changed from Institutional Government Income Portfolio to
Intermediate Bond Fund.
(a) Commencement of operations.
(b) Based on average shares outstanding during the period.
(c) Adjusted to an annual basis.
(d) 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.
(e) During the years reflected above, the Distributor voluntarily waived fees.
In addition, the Adviser waived various fees and expenses during fiscal
periods 1990, 1989 and 1988. Had the maximum Rule 12b-1 fee been in effect
and had the Fund paid all fees and expenses, the ratios of expenses and net
investment income to average daily net assets would have been: 0.82%/6.55%
in fiscal 1996, 1.07%/7.92% in fiscal 1995, 0.85%/9.26% in fiscal 1994,
0.77%/12.44% in fiscal 1993, 0.72%/10.94% in fiscal 1992 0.82%/9.22% in
fiscal 1991, 0.91%/8.87% in fiscal 1990, 1.40%/8.48% in fiscal 1989 and
1.53%/7.13% in fiscal 1988. Beginning in fiscal 1995, the expense ratios
reflect the effect of gross expenses paid indirectly by the Fund. Prior
period expense ratios have not been adjusted.
(f) Includes federal excise taxes of 0.08%, 0.37%, 0.23%, 0.09% and 0.02% for
the fiscal years ended 9/30/96, 9/30/95, 9/30/94, 9/30/93 and 9/30/92,
respectively.

4
<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

Because of the risks associated with bond investments, the Fund is intended
to be a long-term investment vehicle and is 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 Fund will achieve
its objective or that shareholders will be protected from the risk of loss that
is inherent in bond market investing.

On September 12, 1996, shareholders of the Fund approved the discontinuance
of a fundamental policy requiring the Fund to invest only in securities issued
or guaranteed as to payment of principal and interest by the U.S. government or
its agencies or instrumentalities and repurchase agreements fully secured by
such securities. In connection with the discontinuance of this policy, the
Fund's investment policies were revised to permit investments in a broad range
of investment quality debt securities and the Fund's name was changed from
Institutional Government Income Portfolio to Intermediate Bond Fund.

INVESTMENT OBJECTIVE

The Fund has an investment objective of a high level of current income
consistent with preservation of capital.

INVESTMENT POLICIES AND TECHNIQUES

The Fund will seek to realize its objective by investing in a diversified
portfolio of debt securities. The Fund will invest primarily (at least 65% of
its total assets under normal circumstances) in the following debt securities:
securities which are issued or guaranteed as to payment of principal and
interest by the U.S. Government or its agencies or instrumentalities ("U.S.
Government Securities"), including mortgage-related securities, corporate
fixed-income securities (excluding, for purposes of the 65% requirement,
preferred or preference stock) and other fixed-income securities, including
privately issued mortgage-related securities, asset-backed securities and U.S.
dollar-denominated Yankee bonds. The Fund also may invest in cash and short-term
money market securities and, for temporary defensive purposes, may invest more
than 35% of its total assets in such securities. The Fund's investments in
short-term money market securities may include time deposits, bank certificates
of deposit, bankers' acceptances, high-grade commercial paper and other money
market instruments. See "Investment Objectives, Policies and
Restrictions--Short-Term Money Market Securities" in the Statement of Additional
Information. In addition, the Fund may invest in repurchase agreements with
respect to U.S. Government Securities. See "Characteristics and Risks of
Securities and Special Investment Methods--Repurchase Agreements."

The Fund's investments in mortgage-related securities may include certain
tranches of collateralized mortgage obligations. The Fund, however, will not
invest in any inverse floating, interest only, principal only or inverse
interest only tranches of collateralized mortgage obligations or in any stripped
mortgage-backed securities.

The Fund will invest only in securities rated investment grade (securities
rated Baa or better by Moody's Investors Service, Inc. ("Moody's") or BBB or
better by Standard & Poor's Corporation ("Standard & Poor's")) or, in the case
of unrated securities, judged to be of comparable quality by the Adviser. If a
credit rating agency lowers the rating of a portfolio security held by the Fund
to below investment grade, the Fund may retain the portfolio security if the
Adviser deems it in the best interest of the Fund's shareholders, provided that
in no event will more than 5% of the Fund's net assets be invested in
fixed-income securities

5
<PAGE>

rated lower than investment grade. Securities rated Baa are considered by
Moody's as medium-grade obligations which lack outstanding investment
characteristics and in fact have speculative characteristics as well, while
securities rated BBB are regarded by Standard & Poor's as having an adequate
capacity to pay principal and interest. The Fund may be more dependent on the
Adviser's investment analysis with respect to securities for which a comparable
quality determination is made than is the case with respect to rated securities.
See Appendix A to the Statement of Additional Information for a description of
Moody's and Standard & Poor's ratings applicable to fixed income securities.

The Fund may purchase or sell securities offered on a "when-issued" or
"forward commitment" basis in an amount up to 25% of the value of its total
assets. In connection therewith, the Fund may enter into mortgage "dollar
rolls." See "Characteristics and Risks of Securities and Special Investment
Methods-- When-Issued Securities" and "--Mortgage Dollar Rolls." The Fund will
not lend its portfolio securities, purchase or sell options on securities or
enter into futures contracts or options thereon.

Under normal circumstances, the Fund will attempt to maintain for its
portfolio a dollar-weighted average maturity of three to ten years. In
calculating maturity, the Fund will consider various factors, including
anticipated payments of principal. The Fund will also attempt to maintain under
normal circumstances an average effective portfolio duration of two to six
years. Effective duration estimates the interest rate risk of a portfolio of
securities. See "Characteristics and Risks of Securities and Special Investment
Methods--Effective Duration."

INVESTMENT RISKS. The Fund is subject to interest rate risk, which is the
potential for a decline in bond prices due to rising interest rates. In general,
bond prices vary inversely with interest rates. When interest rates rise, bond
prices generally fall. Conversely, when interest rates fall, bond prices
generally rise. Interest rate risk applies to U.S. Government Securities as well
as other bonds. U.S. Government Securities are guaranteed only as to the payment
of interest and principal. The current market prices for such securities are not
guaranteed and will fluctuate.

The Fund is subject to prepayment risk and extension risk to the extent it
invests in mortgage-related securities. 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 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.

The 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 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.

The Fund also is subject 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. The investment techniques used by the Fund also pose
certain risks. See "Characteristics and Risks of Securities and Special
Investment Methods."

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CHARACTERISTICS AND RISKS OF SECURITIES
AND SPECIAL INVESTMENT METHODS

The following describes in greater detail the different types of securities
and investment techniques used by the Fund. Additional information about the
Fund's investments and investment practices may be found in the Statement of
Additional Information.

GENERAL

The different types of securities in which the Fund invests all have
attendant risks of varying degrees. Investors should carefully consider the
investment objective, investment policies and potential risks of the Fund before
investing. Certain securities in which the Fund invests and certain investment
techniques used by the Fund could be considered "derivative instruments." The
term "derivatives" has been used to identify a variety of financial instruments;
there is no discrete class of instruments that is covered by the term. A
"derivative" is commonly defined as a financial instrument whose value is based
upon, or derived from, an underlying index, reference rate (e.g., interest rates
or currency exchange rates), security, commodity, or other asset. Securities in
which the Fund invests that could be considered derivatives include mortgage-
related securities and asset-backed securities, which derive their value from
underlying pools of mortgages and assets, respectively. In addition, when-issued
securities transactions are derivative contracts. Derivative securities and
contracts and other types of investments and investment techniques that may be
used by the Fund are described in greater detail, including the risks of each,
in this section.

U.S. GOVERNMENT SECURITIES

The Fund may invest in U.S. Government Securities. Such securities are
issued or guaranteed as to payment of principal and interest by the U.S.
Government or its agencies or instrumentalities. THE CURRENT MARKET PRICES FOR
SUCH SECURITIES ARE NOT GUARANTEED AND WILL FLUCTUATE. The Fund may invest in
direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes and
bonds, and in obligations of U.S. Government agencies or instrumentalities,
including, but not limited to, Federal Home Loan Banks, the Farmers Home
Administration, Federal Farm Credit Banks, the Federal National Mortgage
Association, the Government National Mortgage Association, the Federal Home Loan
Mortgage Corporation, the Financing Corporation and the Student Loan Marketing
Association.

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.

U.S. Government Securities include securities that have no coupons, or have
been stripped of their unmatured interest coupons, individual interest coupons
from such securities that trade separately, and evidences of receipt of such
securities. Such securities may pay no cash income, and are purchased at a deep
discount from their value at maturity. Because interest on zero-coupon
securities is not distributed on a current basis but is, in effect, compounded,
the market prices of zero-coupon securities are more volatile than the market
prices of securities of comparable quality and similar maturity that pay
interest periodically and may respond to a greater degree to fluctuations in
interest rates than do such non-zero-coupon securities. Although holders of
zero-coupon securities do not receive periodic payments of interest, income
accretes on such securities and is subject to the distribution requirements of
the Internal Revenue Code of

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<PAGE>

1986, as amended. Because such income may not be matched by a corresponding cash
distribution to the Fund, the Fund may be required to borrow money or dispose of
other securities to be able to make distributions to shareholders. The Fund may
also invest in custodial receipts issued in connection with so called trademark
zero coupon securities, such as CATs and TIGRs. Since such securities are not
issued by the U.S. Treasury, however, they are not considered U.S. Government
Securities for purposes of the Fund's investment policies, although the
underlying bond represented by such receipt is a debt obligation of the U.S.
Treasury.

MORTGAGE-RELATED SECURITIES

The Fund may invest in U.S. Government mortgage-related securities and in
mortgage-related securities issued by private entities. Mortgage-related
securities are securities that, directly or indirectly, represent participations
in, or are secured by and payable from, loans secured by real property.
Mortgage-related securities, as the term is used in this Prospectus, include
guaranteed mortgage pass-through securities, private mortgage pass-through
securities, adjustable rate mortgage securities and derivative mortgage
securities such as collateralized mortgage obligations and stripped
mortgage-backed securities. Mortgage-related securities fall into three
categories: (a) those issued or guaranteed by the United States Government or
one of its agencies or instrumentalities, such as Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA") and Federal
Home Loan Mortgage Corporation ("FHLMC"); (b) those issued by non-governmental
issuers that represent interests in, or are collateralized by, mortgage-related
securities issued or guaranteed by the United States Government or one of its
agencies or instrumentalities; and (c) those issued by non-governmental issuers
that represent an interest in, or are collateralized by, whole mortgage loans or
mortgage-related securities without a government guarantee but usually with
over-collateralization or some other form of private credit enhancement.
Non-governmental issuers referred to in (b) and (c) above include originators of
and investors in mortgage loans, including savings and loan associations,
mortgage bankers, commercial banks, investment banks and special purpose
subsidiaries of the foregoing. Securities in categories (b) and (c) are not
considered U.S. Government Securities for purposes of this Prospectus.

(a) GUARANTEED MORTGAGE PASS-THROUGH SECURITIES. The government guaranteed
mortgage pass-through securities in which the Fund may invest include
certificates issued or guaranteed by GNMA, FNMA and FHLMC, which represent
interests in underlying residential mortgage loans. These mortgage pass-through
securities provide for the pass-through to investors of their pro-rata share of
monthly payments (including any prepayments) made by the individual borrowers on
the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans. Each of GNMA, FNMA
and FHLMC guarantee timely distributions of interest to certificate holders.
GNMA and FNMA guarantee timely distributions of scheduled principal. FHLMC
generally guarantees only ultimate collection of principal of the underlying
mortgage loans. For a further description of these securities, see "Investment
Objectives, Policies and Restrictions--Mortgage-Related Securities" in the
Statement of Additional Information.

(b) PRIVATE MORTGAGE PASS-THROUGH SECURITIES. Private mortgage
pass-through securities ("Private Pass-Throughs") are structured similarly to
GNMA, FNMA and FHLMC mortgage pass-through securities and are issued by
originators of and investors in mortgage loans, including savings and loan
associations, mortgage bankers, commercial banks, investment banks and special
purpose subsidiaries of the foregoing. These securities usually are backed by a
pool of conventional fixed rate or adjustable loans. Since Private Pass-Throughs
typically are not guaranteed by an entity having the credit status of GNMA, FNMA
or FHLMC, such securities generally are structured with one or more types of
credit enhancement. See

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<PAGE>
"Investment Objectives, Policies and Restrictions--Mortgage-Related Securities"
in the Statement of Additional Information.

(c) ADJUSTABLE RATE MORTGAGE SECURITIES. The Fund may also invest in
adjustable rate mortgage securities ("ARMS"). ARMS are pass-through mortgage
securities collateralized by mortgages with interest rates that are adjusted
from time to time. The adjustments usually are determined in accordance with a
predetermined interest rate index and may be subject to certain limits. While
the values of ARMS, like other debt securities, generally vary inversely with
changes in market interest rates (increasing in value during periods of
declining interest rates and decreasing in value during periods of increasing
interest rates), the values of ARMS should generally be more resistant to price
swings than other debt securities because the interest rates of ARMS move with
market interest rates. The adjustable rate feature of ARMS will not, however,
eliminate fluctuations in the prices of ARMS, particularly during periods of
extreme fluctuations in interest rates. ARMS typically have caps which limit the
maximum amount by which the interest rate may be increased or decreased at
periodic intervals or over the life of the loan. To the extent that interest
rates increase in excess of the caps, ARMS can be expected to behave more like
traditional debt securities and to decline in value to a greater extent than
would be the case in the absence of such caps. Also, since many adjustable rate
mortgages only reset on an annual basis, it can be expected that the prices of
ARMS will fluctuate to the extent that changes in prevailing interest rates are
not immediately reflected in the interest rates payable on the underlying
adjustable rate mortgages. The extent to which the prices of ARMS fluctuate with
changes in interest rates will also be affected by the indices underlying the
ARMS. Some indices, such as the one-year constant maturity Treasury note rate,
closely mirror changes in market interest rate levels. Others, such as the 11th
District Federal Reserve Cost of Funds Index (often related to ARMS issued by
FNMA), tend to lag changes in market levels and tend to be somewhat less
volatile.

(d) COLLATERALIZED MORTGAGE OBLIGATIONS. The Fund may invest in CMOs
(collateralized mortgage obligations and multiclass pass-through securities
unless the context otherwise indicates), which are derivative mortgage
securities. However, the Fund will not invest in inverse floating,
interest-only, principal-only, or inverse interest-only tranches of CMOs.
Collateralized mortgage obligations are debt instruments issued by special
purpose entities which are secured by pools of mortgage loans or other
mortgage-related securities. Multi-class pass-through securities are equity
interests in a trust composed of mortgage loans or other mortgage-related
securities. Payments of principal and interest on underlying collateral provide
the funds to pay debt service on the collateralized mortgage obligation or make
scheduled distributions on the multi-class pass-through security. CMOs may be
issued by agencies or instrumentalities of the U.S. Government or by private
organizations.

In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMO, often referred to as a "tranche," is issued at a specific
coupon rate and has a stated maturity or final distribution date. Principal
prepayments on collateral underlying a CMO may cause it to be retired
substantially earlier than the stated maturities or final distribution dates.

The principal and interest on the underlying mortgages may be allocated
among the several tranches of a CMO in many ways. For example, certain tranches
may have variable or floating interest rates. Floating rate CMOs are generally
backed by fixed rate mortgages and generally have lifetime caps on the coupon
rate thereon. These caps, similar to the caps on adjustable rate mortgages,
represent a ceiling beyond which the coupon rate on a floating rate CMO may not
be increased regardless of increases in the interest rate index to which the
floating rate CMO is geared, which may cause the security to be valued at a
greater discount than if the security was not subject to a ceiling.

9
<PAGE>

Generally, the purpose of the allocation of the cash flow of a CMO to the
various tranches is to obtain a more predictable cash flow to certain of the
individual tranches than exists with the underlying collateral of the CMO. As a
general rule, the more predictable the cash flow is on a CMO tranche, the lower
the anticipated yield will be on that tranche at the time of issuance relative
to prevailing market yields on mortgage-related securities. As part of the
process of creating more predictable cash flows on most of the tranches of a
CMO, one or more tranches generally must be created that absorb most of the
volatility in the cash flows on the underlying mortgage loans. The yields on
these tranches, which may include Z tranches, discussed below, are generally
higher than prevailing market yields on mortgage-related securities with similar
maturities. As a result of the uncertainty of the cash flows of these tranches,
the market prices of and yield on these tranches generally may be more volatile.

The Fund may invest in Z tranches of CMOs, which defer interest and
principal payments until one or more other classes of the CMO have been paid in
full. Interest accrues on the Z tranche, being added to principal, and is
compounded through the accretion period. After the other classes have been paid
in full, interest payments begin and continue through maturity. Z tranches have
characteristics similar to zero-coupon bonds. Like a zero-coupon bond, during
its accretion period a Z tranche has the advantage of eliminating the risk of
reinvesting interest payments at lower rates during a period of declining market
interest rates. At the same time, however, and also like a zero-coupon bond, the
market value of a Z tranche can be expected to fluctuate more widely with
changes in market interest rates than would the market value of a tranche which
pays interest currently. In addition, changes in prepayment rates on the
underlying mortgage loans will affect the accretion period of a Z tranche, and
therefore also are likely to influence its market value.

CORPORATE FIXED-INCOME SECURITIES

The Fund may invest in corporate fixed-income securities, which include
corporate bonds, debentures, notes and other similar corporate debt instruments.
Fixed-income securities may be acquired with warrants attached. Corporate
income-producing securities may also include forms of preferred or preference
stock, although such securities are not considered debt securities for purposes
of the requirement that the Fund invest at least 65% of its total assets in debt
securities. The values of corporate fixed-income securities typically will
fluctuate in response to general economic conditions, to changes in interest
rates and, to a greater extent than the values of mortgage-related securities,
to business conditions affecting the specific industries in which the issuers
are engaged. Corporate fixed-income securities will typically decrease in value
as a result of increases in interest rates. The Fund may invest in certain types
of corporate fixed-income securities that have been issued with original issue
discount or market discount. An investment in such securities poses certain
economic risks and may have certain adverse cash flow consequences to the
investor.

The Fund's investments in corporate fixed-income securities may also include
zero-coupon, pay-in-kind and delayed interest securities. Zero-coupon securities
pay no cash income to their holders until they mature and are issued at
substantial discounts from their value at maturity. When held to maturity, their
entire return comes from the difference between their purchase price and their
maturity value. Pay-in-kind securities pay interest through the issuance to the
holders of additional securities. Delayed interest securities are securities
that remain zero-coupon securities until a predetermined date at which time the
stated coupon rate becomes effective and interest becomes payable at regular
intervals. Because interest on zero-coupon, pay-in-kind and delayed interest
securities is not paid on a current basis, the values of securities of this type
are subject to greater fluctuations than are the value of securities that
distribute income regularly and may be more speculative than such securities.
Accordingly, the values of these securities may be highly volatile as interest
rates rise or fall. In addition, the Fund's investments in zero-coupon,
pay-in-kind and delayed interest securities will result in special tax
consequences. Although zero-coupon securities do not make interest

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<PAGE>
payments, for tax purposes a portion of the difference between a zero-coupon
security's maturity value and its purchase price is taxable income of the Fund
each year.

ASSET-BACKED SECURITIES

The Fund may invest in asset-backed securities. Such securities represent
the application of the securitization techniques used to develop
mortgage-related securities to a broad range of other assets. Through the use of
trusts and special purpose corporations, various types of assets, primarily
automobile and credit card receivables and home equity loans, are being
securitized in pass-through structures similar to the mortgage pass-through
structures described above or in a pay-through structure similar to the CMO
structure.

In general, the collateral supporting asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. As with mortgage-related securities, asset-backed securities are
often backed by a pool of assets representing obligations of a number of
different parties and use various credit enhancement techniques.

Generally, asset-backed securities involve many of the risks associated with
mortgage-related securities; however due to the difference in the underlying
collateral, asset-backed securities involve certain risks that are not posed by
mortgage-related securities. For example, asset-backed securities are typically
collateralized with assets such as credit card receivables, automobile loans, or
lease contracts which have historically had higher loss experience than that of
mortgage-related securities. Although the credit enhancements for these
securities generally contemplate this higher loss experience, the difference in
lien status and underlying collateral quality could create a situation where the
proceeds from repossessed collateral may not be sufficient to maintain credit
quality or support payments on these securities.

YANKEE BONDS

The Fund may invest in Yankee bonds, which are dollar denominated
fixed-income securities of foreign-domiciled issuers that are publicly traded in
the United States. The prominant issuers of Yankee bonds are supranational
agencies and Canadian provinces (including provincial utilities). Supranational
organizations are entities designated or supported by a government or government
entity to promote economic development, and include, among others, the Asian
Development Bank, the European Coal and Steel Community, the European Economic
Community and the World Bank. These organizations do not have taxing authority
and are dependent upon their members for payments of interest and principal.
Each supranational entity's lending activities are limited to a percentage of
its total capital (including "callable capital" contributed by members at the
entity's call), reserves and net income. Foreign corporations may also issue
Yankee bonds. Investments in Yankee bonds may involve risks not typically
associated with investments in domestic issuers. With respect to certain foreign
countries, there is the possibility of expropriation or confiscatory taxation,
political or social instability, or diplomatic developments which could affect
the Fund's investments in those countries. Moreover, individual foreign
economies may differ favorably or unfavorably from the United States economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payment position.

EFFECTIVE DURATION

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.

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<PAGE>

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-related 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 mortgage-related 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-related securities can be greatly affected by changes in interest
rates.

REPURCHASE AGREEMENTS

The Fund may enter into repurchase agreements with respect to U.S.
Government Securities. 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, the Fund would suffer a
loss. Repurchase agreements maturing in more than seven days are considered
illiquid and subject to the Fund's prohibition on investing in illiquid
securities.

BORROWING

The Fund may borrow money from banks for temporary or emergency purposes in
an amount up to 5% of the value of the Fund's total assets. Interest paid by the
Fund on borrowed funds would decrease the Fund's net earnings. The 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 the Fund's shares.

WHEN-ISSUED SECURITIES

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<PAGE>
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 its ability to purchase securities on a when-issued or
forward commitment basis, the Fund may enter into mortgage "dollar rolls" in
which the 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. In a mortgage dollar roll, 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 compared with
what such performance would have been without the use of mortgage dollar rolls.
The 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 the 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.

No more than 25% of the 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.

PORTFOLIO TURNOVER

The Fund may engage in short-term trading in attempting to achieve its
investment objective and will actively use trading to benefit from yield
disparities among different issues of securities or otherwise to achieve their
investment objectives and policies. Since the Fund engages in short-term
trading, it pays greater brokerage commission costs or other transaction costs.
High portfolio turnover also may increase short-term capital gains, which are
taxable as ordinary income when distributed to shareholders.

The method of calculating portfolio turnover rate is set forth in the
Statement of Additional Information under "Investment Objectives, Policies and
Restrictions--Portfolio Turnover." The portfolio turnover rate for the Fund is
set forth in "Financial Highlights."

INVESTMENT RESTRICTIONS

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<PAGE>

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, (b) the Fund will not invest in foreign securities, provided that it
may invest in U.S. dollar-denominated Yankee bonds, and (c) the Fund will not
invest 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. The Fund operates as a diversified Fund, which
means that, with respect to 75% of its total assets, it will not invest more
than 5% of the value of its total assets (taken at market value at the time of
purchase) in the outstanding securities of any one issuer, or own more than 10%
of the outstanding voting securities of any one issuer, in each case other than
securities issued or guaranteed by the U.S. Government or any agency or
instrumentality thereof. A complete list of the Fund's fundamental and
nonfundamental investment restrictions is set forth in the Statement of
Additional Information.

MANAGEMENT

BOARD OF DIRECTORS

The Board of Directors of Piper Funds has the primary responsibility for
overseeing the overall management of Piper Funds and electing its officers.

INVESTMENT ADVISER

Piper Capital Management Incorporated (the "Adviser") has been retained
under an Investment Advisory and Management Agreement with Piper Funds to act as
the Fund's investment adviser subject to the authority of the Board of
Directors.

In addition to acting as the investment adviser for the other series of
Piper Funds, 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 September 30, 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.

Under the Investment Advisory and Management Agreement, the Fund pays the
Adviser a monthly fee which is paid at an annual rate of .30% on average daily
net assets up to $100 million, .25% on average daily net assets of over $100 and
up to $250 million and .20% on average daily net assets in excess of $250
million.

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<PAGE>
PORTFOLIO MANAGEMENT

Bruce D. Salvog, David M. Steele and Worth Bruntjen share primary
responsibility for the day-to-day management of the Fund's portfolio. Mr.
Bruntjen has been primarily responsible for the Fund's management since the
Fund's inception in 1988, and was joined by Mr. Salvog and Mr. Steele in
September 1996. Mr. Salvog has been a Senior Vice President of the Adviser since
1992 and was a Portfolio Manager at Kennedy Associates, Inc. in Seattle from
1984 to 1992. He has an AB from Harvard University and 25 years of financial
experience. Mr. Steele has been a Senior Vice President of the Adviser since
1992 and was a portfolio manager at Kennedy Associates, Inc. in Seattle from
1987 to 1992. He has an MBA from the University of Southern California and 16
years of financial experience. Mr. Bruntjen is a Senior Vice President of the
Adviser and a fixed income manager for a variety of client portfolios including
foundations, pensions and profit-sharing plans. Mr. Bruntjen has a BSBA from the
University of Minnesota and 28 years of financial experience.

TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND CUSTODIAN

Piper Funds 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
Fund's 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 Fund shares may also be considered a factor if the Adviser is satisfied
that the Fund would receive from that broker the most favorable price and
execution then available for a transaction. Portfolio transactions for the Fund
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.

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SHAREHOLDER GUIDE TO INVESTING

HOW TO PURCHASE SHARES

GENERAL

PURCHASE PRICE

You may purchase Class Y shares of the Fund at net asset value without any
initial or deferred sales charge. The purchase price will be equal to the net
asset value per share next calculated after receipt of your order by your Piper
Jaffray Investment Executive or other broker-dealer.

The Adviser makes ongoing payments out of its own assets to Piper Jaffray
Investment Executives and other broker-dealers who have sold Class Y shares of
the Fund. In addition, the Distributor or the Adviser, at their own expense,
provide promotional incentives to Investment Executives of the Distributor and
to broker-dealers who have sales agreements with the Distributor in connection
with sales of Fund shares 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.

MINIMUM INVESTMENTS

A minimum initial investment of $2 million is required to purchase Class Y
shares of the Fund. There is no minimum for subsequent investments. If you are
also investing in the Class Y shares of another mutual fund managed by the
Adviser, that investment will be aggregated with your investment in Class Y
shares of the Fund for purposes of meeting the minimum initial investment
amount. This aggregation right is limited to the Class Y shares of one other
mutual fund managed by the Adviser.

HOW TO REDEEM SHARES

NORMAL REDEMPTION

PIPER JAFFRAY INC. ACCOUNTS. To redeem your shares, please contact your
Piper Jaffray Investment Executive with an oral redemption request.

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 Fund's transfer agent, IFTC. This request should contain: the dollar amount
or number of Class Y 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

16
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SHAREHOLDER GUIDE TO INVESTING

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.

PAYMENT OF REDEMPTION PROCEEDS

INVOLUNTARY REDEMPTION

The Fund reserves the right to redeem your account at any time the net asset
value of the account falls below $2 million as the result of a redemption or
exchange request. If you hold Class Y shares of another mutual fund managed by
the Adviser, those holdings will be aggregated with your holdings of Class Y
shares of the Fund for purposes of determining the net asset value of your
account. This aggregation right is limited to the Class Y shares of one other
mutual fund managed by the Adviser. 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 Class Y shares of
the Fund. 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 Piper Funds.
You should contact your Piper Jaffray Investment Executive or IFTC to obtain
authorization forms or for additional information.

EXCHANGE PRIVILEGE

If you hold your Fund shares through a broker-dealer other than the
Distributor, the exchange privilege may not be available. Exchanges will be
permitted only if there is a valid sales agreement between your broker-dealer
and the Distributor for the fund into which you wish to exchange.

17
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SHAREHOLDER GUIDE TO INVESTING

Piper Funds reserves the right to change or discontinue the exchange
privilege, or any aspect of the privilege, upon 60 days' written notice.

TELEPHONE TRANSACTION PRIVILEGES

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
Fund 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. If the Fund employs such
procedures, it will not be liable for following instructions communicated by
telephone that it reasonably believes to be genuine. If the 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 Fund by
telephone during periods when market or economic conditions lead to an unusually
large volume of telephone requests. If you cannot reach the Fund 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 Fund reserves the right to suspend or
terminate its telephone services at any time without notice.

DIRECTED DIVIDENDS

You may direct income dividends and capital gains distributions to be
invested in Class Y shares of any other mutual fund managed by the Adviser that
offers such shares, provided such shares are eligible for purchase 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 Class Y share minimum initial investment
amount. This privilege may not be available if you hold your Fund shares through
a broker-dealer other than the Distributor. Distributions may be invested in
another mutual fund managed by the Adviser only if there is a valid sales
agreement for that fund between your broker-dealer and the Distributor.

SYSTEMATIC WITHDRAWAL PLAN

You may establish a Systematic Withdrawal Plan that allows you to receive
regular periodic payments by redeeming as many shares from your account as
necessary, provided you maintain a minimum account balance of $2 million. Your
account balance will be determined in the manner described above under "How to
Redeem Shares--Involuntary Redemption." 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.

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SHAREHOLDER GUIDE TO INVESTING
semiannually. Please contact your Piper Jaffray Investment Executive, other
broker-dealer or IFTC for more information.

ACCOUNT PROTECTION

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 the 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.

DIVIDENDS AND DISTRIBUTIONS

The net investment income of each Fund will be declared as dividends daily
and will be paid monthly. Net realized capital gains, if any, will be
distributed at least once annually. Each daily dividend is payable to Fund
shareholders of record at the time of its declaration. "Shareholders of record"
includes holders of shares purchased for which payment has been received by the
Distributor or IFTC, as appropriate, and excludes holders of shares redeemed on
that day. Shares redeemed will earn dividends through the day prior to
settlement of the redemption.

The Funds will not attempt to stabilize distributions, and intend to
distribute to their shareholders substantially all of the net investment income
earned during any period. Thus, each Fund's dividends can be expected to vary
from month to month. Class Y shareholders generally will receive higher per
share dividends than Class A shareholders because Class Y shareholders are not
subject to Rule 12b-1 fees.

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SHAREHOLDER GUIDE TO INVESTING

CAPITAL LOSS CARRYOVER. For federal income tax purposes, the Fund had
capital loss carryovers at September 30, 1996 of $276,491,719. Such capital loss
carryovers, if not offset by subsequent capital gains, will expire September 30,
2003-2004. It is unlikely that the Board of Directors will authorize a
distribution of any net realized capital gains until the Fund's available
capital loss carryovers have been offset or have expired.

VALUATION OF SHARES

The net asset value per share for the Fund 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 Fund, cash and receivables will be
valued at their face amounts. Interest will be recorded as accrued.

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. Fixed
income securities for which prices are not available from an independent pricing
service but where an active market exists will be valued using market quotations
obtained from one or more dealers that make markets in the securities.
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 Fund's management determines for any other reason that valuations
provided by the pricing service or through dealer quotations 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 the Fund for which market prices are not readily
available will be valued at their fair value in accordance with such procedures.

Although the methodology and procedures for determining net asset value are
identical for each class of the Fund's shares, the net asset value per share of
the Class A and Class Y shares of the Fund may differ because of the differing
Rule 12b-1 fees and transfer agent fees charged to such classes.

20
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SHAREHOLDER GUIDE TO INVESTING

TAX STATUS

The Fund qualified as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code") during its last taxable year and
each Fund intends to so qualify during the current taxable year. If so
qualified, the Fund will not be liable for federal income taxes to the extent it
distributes its taxable income to shareholders. The Fund will, however, 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. In order to avoid imposition of this
excise tax, the 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. The Fund
retained income subject to the 4% excise tax for the 1995, 1994, 1993 and 1992
excise tax years. The Fund intends hereafter to distribute sufficient amounts to
avoid payment of the excise tax.

Distributions by the 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). Distributions of net capital gains (designated as
"capital gain dividends") are taxable 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 the 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 Fund, see "Taxation" in the Statement
of Additional Information. Before investing in the Fund, you should check the
consequences of your local and state tax laws.

PERFORMANCE COMPARISONS

Advertisements and other sales literature for the Fund may refer to the
Fund's "average annual total return" and "cumulative total return." In addition,
the Fund may provide yield calculations in advertisements and other sales
literature. Total return and yield will be computed separately for each class of
the Fund's shares. 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 the Fund will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than their
original cost.

21
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SHAREHOLDER GUIDE TO INVESTING

average annual and cumulative total return for Class Y shares, all dividends and
distributions are assumed to be reinvested.

GENERAL INFORMATION

Piper Funds was organized under the laws of State of Minnesota in 1986 and
currently offers its shares in twelve series. The Board of Directors is
empowered under Piper Funds' Articles of Incorporation to issue additional
series of 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 the Fund, as well as within any other series
of Piper Funds or any series created in the future. See "Capital Stock and
Ownership of Shares" in the Statement of Additional Information.

The two classes of the Fund's shares have the same rights and are identical
in all respects except that (a) expenses related to the distribution of each
class of shares are borne solely by such class; (b) to the extent they can
reasonably be identified as relating to a particular class of shares, transfer
agent fees will be allocated to that class; (c) the Class A shares have
exclusive voting rights with respect to approvals of the Rule 12b-1 distribution
plan related to that class; and (d) each class has a different exchange
privileges.

Each share of a series has one vote (with proportionate voting for
fractional shares) irrespective of the relative net asset values of the series'
shares. On some issues, such as the election of directors, all shares of Piper
Funds vote together as one series. On an issue affecting only a particular
series or class, the shares of the affected series or class 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 Piper Funds 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 a
corporation may demand a regular meeting of shareholders by written notice given
to the chief executive officer or chief financial officer of the corporation.
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
corporation. In addition, the 1940 Act requires a shareholder vote for all
amendments

22
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SHAREHOLDER GUIDE TO INVESTING
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 Bond Fund and to other investment companies for which the Adviser
acts or has acted as investment adviser or subadviser.

A number of complaints have been brought in federal and state court against
Bond Fund (formerly named Institutional Government Income Portfolio ("PJIGX")),
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
Piper Funds. A number of lawsuits and arbitrations brought by some of the
investors who requested exclusion from the settlement class remain pending.

The Adviser and the Distributor do not believe that the settlements
discussed above, any agreement-in-principle 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 Piper
Funds or a material adverse effect on the Fund.

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 FUND 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.

23
<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.......................... 3
Financial Highlights................... 4
Investment Objective and Policies...... 5
Characteristics and Risks of Securities
and Special Investment Methods........ 7
Management............................. 14
SHAREHOLDER GUIDE TO INVESTING
How to Purchase Shares............... 16
How to Redeem Shares................. 16
Shareholder Services................. 17
Dividends and Distributions.......... 19
Valuation of Shares.................... 20
Tax Status............................. 21
Performance Comparisons................ 21
General Information.................... 22
</TABLE>

- ----------------------------------------------------------
Prospectus

[LOGO]

------------------------------

INTERMEDIATE BOND FUND

February , 1997

--------------------------------

30400 021-97
<PAGE>

PROSPECTUS DATED FEBRUARY , 1997

MONEY MARKET FUND
U.S. GOVERNMENT MONEY MARKET FUND
TAX-EXEMPT MONEY MARKET FUND

SERIES OF PIPER FUNDS INC.
PIPER JAFFRAY TOWER
222 SOUTH NINTH STREET
MINNEAPOLIS, MINNESOTA 55402-3804
(800) 866-7778 (TOLL FREE)

MONEY MARKET FUND AND U.S. GOVERNMENT MONEY MARKET FUND both have an
investment objective of maximum current income consistent with preservation of
capital and maintenance of liquidity. Money Market Fund invests in a variety of
high quality money market instruments such as high grade domestic and U.S.
dollar denominated foreign commercial paper, repurchase agreements, obligations
of domestic and foreign banks (time deposits, certificates of deposit and
bankers' acceptances), U.S. Government securities and short-term corporate
obligations. U.S. Government Money Market Fund invests only in securities that
are issued or guaranteed as to payment of principal and interest by the U.S.
government, its agencies or instrumentalities, and repurchase agreements with
respect to such securities.

TAX-EXEMPT MONEY MARKET FUND has an investment objective of a high level of
current income exempt from federal income taxes consistent with preservation of
capital and maintenance of liquidity. The Fund seeks to achieve this objective
by investing primarily in high quality tax-exempt securities with short-term
maturities, including municipal bonds, municipal notes and municipal commercial
paper.

INVESTMENTS IN THE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT OR ANY OTHER ENTITY. THERE IS NO ASSURANCE THAT THE FUNDS WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.

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 February ,
1997, is available free of charge. Write to the Funds at Piper Jaffray Tower,
222 South Ninth Street, Minneapolis, Minnesota 55402 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

Money Market Fund, U.S. Government Money Market Fund and Tax-Exempt Money
Market Fund (sometimes referred to herein as a "Fund" or, collectively, as the
"Funds") are mutual funds organized as diversified series of Piper Funds Inc.
(the "Company"). The Company is an open-end management investment company, the
shares of which are currently offered in twelve series. Each Fund has its own
investment objective and policies 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 at an annual rate
of .50% on net assets up to $500 million. For each Fund the fee is scaled
downward as net assets increase in size above $500 million. 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 U.S. Government Money Market Fund and Tax-Exempt Money Market Fund
and Class A shares of Money Market Fund are sold at their net asset value of
$1.00 per share with no sales charge. There can be no assurance, however, that
the net asset value per share of any Fund will always be maintained at $1.00.

Money Market Fund also offers Class B shares. Class B shares are available
for purchase only in exchange for Class B shares of another mutual fund managed
by the Adviser (a "Piper fund"). Class B shares of Money Market Fund are sold at
their net asset value without any initial sales charge. However, such shares are
subject to a contingent deferred sales charge and they bear higher Rule 12b-1
fees than Class A shares of Money Market Fund. See "Class B Shares."

MINIMAL 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 of U.S. Government Money Market Fund and
Tax-Exempt Money Market Fund and your Class A shares of Money Market Fund for
shares of any other Piper fund which is eligible for sale in your state of
residence, except that such exchanges may not be made into Class B shares of
Piper funds offering multiple classes of shares. Exchanges are made on the basis
of the net asset values of the funds involved, except that if you exchange into
a fund with a sales charge, you pay the percentage-point difference between that
fund's sales charge and any sales charge you have previously paid in connection
with the shares you are exchanging. Class B shares of Money Market Fund may be
exchanged only for Class B shares of other Piper Funds that offer such shares.
Such exchanges are made on the basis of the net asset values of the funds
involved. 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

2
<PAGE>

case of the Class B shares of Money Market Fund, any applicable contingent
deferred sales charge. The Funds reserve the right, upon 30 days' written
notice, to redeem your account if the net asset value of the shares falls below
$200. See "How to Redeem Shares--Involuntary Redemption."

CERTAIN RISK FACTORS TO CONSIDER

As with other mutual funds, there can be no assurance that any Fund will
achieve its objective. As set forth in detail under "Investment Objectives and
Policies" and "Special Investment Methods and Risk Factors," an investment in
any of the Funds is subject to certain risks and some or all of the Funds may
engage in the following investment practices which involve certain special
risks: the use of repurchase agreements and the purchase or sale of securities
on a "when-issued" or "forward commitment" basis.

SHAREHOLDER INQUIRIES

3
<PAGE>

FUND EXPENSES

<TABLE>
<CAPTION>
MONEY MARKET FUND
U.S. GOVERNMENT TAX-EXEMPT
----------------- MONEY MARKET MONEY
CLASS A CLASS B FUND MARKET FUND
------- ------- --------------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases................. None None None None
Maximum Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)... None 4.00% None None
ANNUAL FUND OPERATING EXPENSES (as a percentage
of average net assets)
Management Fees........................................... .40% .40% .50% .50%
Rule 12b-1 Fees (after voluntary limitation)*............. .20% 1.00% .20% .20%
Other Expenses............................................ .24% .24% .20% .20%
------- ------- --- ---
Total Fund Operating Expenses (after voluntary
limitation)............................................. .84% 1.64% .90% .90%
</TABLE>

- ---------

* See the discussion below for an explanation of voluntary Rule 12b-1 fee
limitations that apply to all shares other than Class B shares of Money Market
Fund.

EXAMPLE

At the end of the periods shown, you would have paid the following expenses
on a $1,000 investment, assuming a 5% annual return:

<TABLE>
<CAPTION>
MONEY MARKET FUND
------------------------------------
CLASS B U.S. TAX-EXEMPT
-------------------------- GOVERNMENT MONEY
REDEMPTION AT NO MONEY MARKET MARKET
CLASS A END OF PERIOD REDEMPTION FUND FUND
------- ------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
One year.................................................... $ 9 $ $ $ 9 $ 9
Three years................................................. $ 27 $ $ $ 29 $ 29
Five years.................................................. $ 47 $ $ $ 50 $ 50
Ten years................................................... $104 $ * $ * $111 $111
</TABLE>

- ---------

* Assumes that Class B shares are purchased on January 1 and convert to Class A
shares at the beginning of the sixth full calendar year following the year of
purchase.

The information in the table reflects actual expenses incurred during the
fiscal year ended September 30, 1996, except that there were no Class B shares
of Money Market Fund outstanding during such fiscal year. The information for
the Class B shares is based on actual expenses incurred by the Class A shares of
Money Market Fund during the fiscal year, except that Rule 12b-1 fees have been
changed to reflect the higher Rule 12b-1 fees charged to Class B shares. The
Funds have adopted a Rule 12b-1 Plan under which U.S. Government Money Market
Fund and Tax-Exempt Money Market Fund pay the Distributor Rule

4
<PAGE>

12b-1 fees equal, on an annual basis, to .30% of each Fund's average daily net
assets. Money Market Fund pays the Distributor a Rule 12b-1 fee equal to .30% of
its average daily net assets attributable to Class A shares and 1.00% of its
average daily net assets attributable to Class B shares. The Distributor
voluntarily limited fees payable under the Plan to .20% of each Fund's average
daily net assets during the fiscal year ended September 30, 1996. Absent this
limitation, Total Fund Operating Expenses for the fiscal year ended September
30, 1996, as a percentage of average daily net assets, would have been .94% for
Money Market Fund and 1.00% for each of U.S. Government Money Market Fund and
Tax-Exempt Money Market Fund. The Distributor has agreed to continue limiting
Rule 12b-1 fees to .20% of U.S. Government Money Market Fund's and Tax-Exempt
Money Market Fund's average daily net assets and .20% of Money Market Fund's
average daily net assets attributable to Class A shares during the fiscal year
ending September 30, 1997. After fiscal 1997, this limitation may be revised or
terminated at any time. For additional information, including a more complete
explanation of management and Rule 12b-1 fees, see "Management--Investment
Adviser" and "Distribution of Fund Shares." The Adviser may or may not assume
expenses of the Funds from time to time, in its discretion, while retaining the
ability to be reimbursed by the Funds for expenses assumed by it 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 of increasing yield to investors
when such amounts are assumed or the inverse when such amounts are reimbursed.

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 the Funds. 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. No Class B shares of
Money Market Fund were outstanding during the indicated periods. 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, the annual
reports contain further information about the performance of the Funds.

MONEY MARKET FUND

<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, PERIOD FROM PERIOD FROM
------------------------------------------------------- 11/1/87 TO 3/16/87* TO
1996 1995 1994 1993 1992 1991 1990 1989 9/30/88 10/31/87
------ ----- ----- ----- ----- ----- ----- ----- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............... $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Operations:
Net investment
income............. 0.05 0.05 0.03 0.02 0.04 0.06 0.08 0.08 0.06 0.04
Distributions from net
investment income.... (0.05) (0.05) (0.03) (0.02) (0.04) (0.06) (0.08) (0.08) (0.06) (0.04)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of
period............... $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total return***........ 4.79% 5.05% 2.98% 2.45% 3.87% 6.34% 7.88% 8.60% 6.02% 3.70%
Net assets, end of
period
(in millions)........ $1,966 1,703 1,185 1,106 1,096 1,242 1,176 1,004 583 215
Ratio of expenses to
average daily net
assets(1)............ 0.84% 0.92% 0.93% 0.96% 0.90% 0.89% 0.91% 1.00% 1.05%** 0.74%**
Ratio of net investment
income to average
daily net
assets(1)............ 4.73% 4.94% 2.90% 2.42% 3.66% 6.06% 7.56% 8.32% 6.45%** 6.29%**
</TABLE>

- ------------

U.S. GOVERNMENT MONEY MARKET FUND

<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, PERIOD FROM
------------------------------------------------------- 7/5/88* TO
1996 1995 1994 1993 1992 1991 1990 1989 9/30/88
------ ----- ----- ----- ----- ----- ----- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning
of period........... $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
------ ----- ----- ----- ----- ----- ----- -----
Operations:
Net investment
income............ 0.05 0.05 0.03 0.02 0.04 0.06 0.08 0.08 0.01
Distributions from net
investment income... (0.05) (0.05) (0.03) (0.02) (0.04) (0.06) (0.08) (0.08) (0.01)
------ ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end
of period........... $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
------ ----- ----- ----- ----- ----- ----- ----- -----
------ ----- ----- ----- ----- ----- ----- ----- -----
Total return***....... 4.72% 4.99% 2.98% 2.51% 3.78% 6.05% 7.80% 8.37% 1.28%
Net assets, end of
period
(in millions)....... $ 291 256 185 195 191 199 112 46 17
Ratio of expenses to
average daily net
assets(2)........... 0.90% 0.91% 0.92% 0.93% 0.90% 0.88% 0.91% 0.90% 0.90%**
Ratio of net
investment income to
average daily net
assets(2)........... 4.62% 4.90% 2.88% 2.41% 3.58% 5.84% 7.35% 8.17% 7.16%**
</TABLE>

- ------------
See Notes to Financial Highlights

6
<PAGE>
TAX-EXEMPT MONEY MARKET FUND

<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, PERIOD FROM
------------------------------------------------------- 7/5/88* TO
1996 1995 1994 1993 1992 1991 1990 1989 9/30/88
------ ----- ----- ----- ----- ----- ----- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning
of period........... $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
------ ----- ----- ----- ----- ----- ----- ----- -----
Operations:
Net investment
income............ 0.03 0.03 0.02 0.02 0.03 0.04 0.05 0.06 0.01
Distributions from net
investment
income(3)........... (0.03) (0.03) (0.02) (0.02) (0.03) (0.04) (0.05) (0.06) (0.01)
------ ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end
of period........... $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
------ ----- ----- ----- ----- ----- ----- ----- -----
------ ----- ----- ----- ----- ----- ----- ----- -----
Total return***....... 2.80% 3.02% 1.82% 1.87% 3.07% 4.54% 5.41% 5.76% 1.21%

Net assets, end of
period
(in millions)....... $ 210 206 178 169 158 134 116 84 36
Ratio of expenses to
average daily net
assets (4).......... 0.90% 0.91% 0.90% 0.92% 0.88% 0.87% 0.89% 0.90% 0.90%**
Ratio of net
investment income to
average daily net
assets (4).......... 2.76% 2.97% 1.80% 1.83% 2.91% 4.37% 5.34% 5.63% 4.99%**
</TABLE>

- ------------
NOTES TO FINANCIAL HIGHLIGHTS

* Commencement of operations.

** Adjusted to an annual basis.

*** Total return is based on the change in net asset value during the period and
assumes reinvestment of all distributions.

(1)During the periods reflected above, Money Market Fund's distribution fee was
voluntarily limited by the Distributor. In addition, other various fees and
expenses were voluntarily waived or absorbed by the Adviser during fiscal
1987. Had the maximum distribution fee been in effect and the fund paid all
fees and expenses, the ratios of expenses and net investment income to
average daily net assets would have been: 0.94%/4.63% in fiscal 1996,
1.02%/4.84% in fiscal 1995, 1.03%/2.80% in fiscal 1994, 1.06%/2.32% in
fiscal 1993, 1.00%/3.56% in fiscal 1992, 0.98%/5.97% in fiscal 1991,
1.00%/7.47% in fiscal 1990, 1.10%/8.22% in fiscal 1989, 1.10%/6.40% in
fiscal 1988 and 1.35%/5.68% in fiscal 1987.

(2)During the periods reflected above, U.S. Government Money Market Fund's
distribution fee was voluntarily limited by the Distributor. Prior to fiscal
year 1991, other various fees and expenses were voluntarily waived or
absorbed by the Adviser. Had the maximum distribution fee been in effect and
the fund paid all fees and expenses, the ratios of expenses and net
investment income to average daily net assets would have been: 1.00%/4.52%
in fiscal 1996, 1.01%/4.80% in fiscal 1995, 1.02%/2.78% in fiscal 1994,
1.03%/2.31% in fiscal 1993, 1.00%/3.48% in fiscal 1992, 0.97%/5.75% in
fiscal 1991, 1.05%/7.21% in fiscal 1990, 1.29%/7.78% in fiscal 1989 and
2.08%/5.98% in fiscal 1988.

(3)Tax-Exempt Money Market Fund distributions from net investment income that
are taxable for federal and state income tax purposes were $0.000, $0.0001,
$0.0000, $0.0000, $0.0001, $0.0002, $0.0003, $0.0010 and $0.0030 per share
for the years ended September 30, 1996, 1995, 1994, 1993, 1992, 1991, 1990
and 1989, and for the period ended September 30, 1988, respectively.

(4)During the periods reflected above, Tax-Exempt Money Market Fund's
distribution fee was voluntarily limited by the Distributor. Prior to fiscal
year 1990, other various fees and expenses were voluntarily waived or
absorbed by the Adviser. Had the maximum distribution fee been in effect and
the fund paid all fees and expenses, the ratios of expenses and net
investment income to average daily net assets would have been: 1.00%/2.66%
in fiscal 1996, 1.01%/2.87% in fiscal 1995, 1.00%/1.70% in fiscal 1994,
1.02%/1.73% in fiscal 1993, 0.98%/2.81% in fiscal 1992, 0.96%/4.28% in
fiscal 1991, 0.98%/5.25% in fiscal 1990, 1.04%/5.49% in fiscal 1989 and
1.44%/4.45% in fiscal 1988.

7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

The investment objectives listed below cannot be changed without shareholder
approval. In view of the risks inherent in all investments in securities, there
is no assurance that these objectives will be achieved. The investment policies
and techniques employed in pursuit of the Funds' objectives may be changed
without shareholder approval, unless otherwise noted.

RULE 2A-7. Each Fund is subject to the investment restrictions of Rule 2a-7
under the Investment Company Act of 1940, as amended (the "1940 Act"), in
addition to its other policies and restrictions. Rule 2a-7 requires that each of
the Funds invest exclusively in securities that mature within 397 days and that
each maintain an average weighted maturity of not more than 90 days. Rule 2a-7
also requires that all investments by the Funds be limited to United States
dollar-denominated investments that: (1) present "minimal credit risks," and (2)
are at the time of acquisition "Eligible Securities." Eligible Securities
include, among others, (a) securities that are rated by two Nationally
Recognized Statistical Rating Organizations ("NRSROs") in one of the two highest
categories for short-term debt obligations, such as A-1 or A-2 by Standard &
Poors Ratings Services or P-1 or P-2 by Moody's Investors Service, Inc., (b)
securities that at the time of issuance were long-term securities but that have
remaining maturities of 397 calendar days or less, provided the issuer has
comparable outstanding short-term debt rated in one of the two highest
categories, and (c) unrated securities of comparable quality. See Appendix A to
the Statement of Additional Information for an explanation of the ratings issued
by NRSROs. It is the responsibility of the Adviser to determine that the Funds'
investments present only "minimal credit risks" and are Eligible Securities,
pursuant to the oversight of, and written guidelines and procedures established
by, the Company's Board of Directors.

Under Rule 2a-7, 95% of the assets of non-tax-exempt money funds (such as
Money Market Fund and U.S. Government Money Market Fund) must be invested in
Eligible Securities that are deemed First Tier Securities, which include, among
others, securities rated by two NRSROs in the highest category (such as A-1 and
P-1). In addition, a non-tax-exempt money fund (1) may not invest (with certain
limited exceptions) more than 5% of its total assets in securities of a single
issuer, other than U.S. Government securities and (2) may not invest more than
the greater of 1% of the fund's total assets or $1,000,000 in Second Tier
Securities of a single issuer. These requirements do not apply to tax-exempt
money funds such as Tax-Exempt Money Market Fund.

MONEY MARKET FUND

INVESTMENT OBJECTIVE. Money Market Fund has an investment objective of
maximum current income consistent with preservation of capital and maintenance
of liquidity.

INVESTMENT POLICIES AND TECHNIQUES. Money Market Fund may invest in any
combination of the money market securities described below, and it may invest in
repurchase agreements with respect to such securities. See "Special Investment
Methods and Risk Factors--Repurchase Agreements."

U.S. GOVERNMENT SECURITIES--These obligations are issued or guaranteed as to
principal and interest by the U.S. Government or one of its agencies or
instrumentalities. U.S. Government securities are more fully described below.
See "Investment Objectives and Policies--U.S. Government Money Market Fund."

FOREIGN GOVERNMENT OBLIGATIONS--Money Market Fund may invest in U.S. dollar
denominated obligations issued or guaranteed by one or more foreign governments
or any of their political subdivisions, agencies or instrumentalities that are
determined by the Adviser to be of comparable quality to the other obligations
in which the Fund may invest. Such securities also include debt obligations of
supranational entities. Supranational entities include international
organizations designated or supported by governmental

8
<PAGE>
entities to promote economic reconstruction or development and international
banking institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the "World Bank"), the
European Coal and Steel Community, the Asian Development Bank and the
InterAmerican Development Bank. The percentage of Money Market Fund's assets
invested in securities issued by foreign governments will vary depending upon
the relative yields of such securities, the economic and financial markets of
the countries in which the investments are made, and the interest rate climate
of such countries.

COMMERCIAL PAPER--Investments in commercial paper are limited to direct
obligations issued by domestic and foreign entities which, at the time of their
purchase, are Eligible Securities. Commercial paper in which Money Market Fund
invests includes variable amount master demand notes, which are demand
obligations that permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payees of such notes, whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes. Money
Market Fund may also invest in asset-backed commercial paper. This type of
commercial paper is issued by an entity which does not have a corporate purpose
other than that of financing a specific asset or pool of assets with some common
characteristics. Assets include, for example, loans or retail and trade
receivables. Although payment of principal and interest on asset-backed
securities is generally dependent upon the cash flows generated by the assets
backing the securities, the asset-backed commercial paper purchased by Money
Market Fund will generally contain elements of credit support.

BANK OBLIGATIONS--Money Market Fund will invest in certificates of deposit,
bank notes, time deposits and bankers' acceptances issued by domestic banks,
foreign branches of domestic banks, foreign subsidiaries of domestic banks, and
domestic and foreign branches of foreign banks. See "Risks of Investing in
Foreign Securities," below. Certificates of deposit are certificates evidencing
the obligation of a bank to repay funds deposited with it for a specified period
of time. 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. The Fund will not invest more than 10% of its net assets in time
deposits and other illiquid securities. See "Special Investment
Methods--Illiquid Securities." 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 face amount of the instrument upon maturity. Certificates of deposit,
bank notes, time deposits and bankers' acceptances issued by foreign branches of
domestic banks, foreign subsidiaries of domestic banks and foreign branches of
foreign banks will not benefit from insurance from the Bank Insurance Fund or
the Savings Association Insurance Fund administered by the Federal Deposit
Insurance Corporation.

PARTICIPATION INTERESTS--Money Market Fund may purchase from banks and
securities dealers participation interests in securities in which the Fund may
invest. A participation interest gives the Fund an undivided interest in the
security in the proportion that the Fund's participation interest bears to the
total principal amount of the security. These instruments may have fixed,
floating or variable rates of interest, with remaining maturities of one year or
less. If the participation interest is unrated, or has been given a rating below
that which is permissible for purchase by the Fund, the participation interest
will be backed by an irrevocable letter of credit or guarantee of a bank, or the
payment obligation otherwise will be collateralized by U.S. Government
securities, or, in the case of unrated participation interests, the Adviser must
have determined that the instrument is of comparable quality to those
instruments in which the Fund may invest. For certain participation interests,
the Fund will have the right to demand payment, on not more than seven days'
notice, for all or any part of the Fund's participation interest in the
security, plus accrued interest. As to these instruments, the Fund intends to
exercise its right to demand payment only upon a default under the

9
<PAGE>
terms of the security, as needed to provide liquidity to meet redemptions, or to
maintain or improve the quality of its investment portfolio. The Fund will not
invest more than 10% of its net assets in participation interests that do not
have this demand feature and in other illiquid securities. See "Special
Investment Methods--Illiquid Securities."

CORPORATE DEBT--Money Market Fund may invest in non-convertible corporate
debt securities of domestic and foreign entities (for example, bonds and
debentures) with no more than 397 calendar days remaining to maturity, provided
such obligations are Eligible Securities. Corporate debt securities with a
remaining maturity of 397 calendar days or less tend to be liquid and are traded
as money market securities. Such issues tend to have greater liquidity and
considerably less market value fluctuations than longer term issues.

RISKS OF INVESTING IN FOREIGN SECURITIES--Money Market Fund's portfolio may
contain securities issued by foreign governments, or any of their political
subdivisions, agencies or instrumentalities, and by foreign branches of domestic
banks, foreign subsidiaries of domestic banks, domestic and foreign branches of
foreign banks, and commercial paper issued by foreign issuers. As a result, the
Fund will be subject to additional investment risks with respect to such
securities. The issuers of some of these securities, such as bank obligations,
may be subject to less stringent or different regulation than are U.S. issuers.
In addition, there may be less publicly available information about a non-U.S.
issuer, and non-U.S. issuers are not subject to uniform accounting and financial
reporting standards, practices and requirements comparable to those applicable
to U.S. issuers. Additional risks include possible adverse political and
economic developments, and possible adoption of governmental restrictions which
might adversely affect the payment of principal and interest on the foreign
securities or restrict the payment of principal and interest to investors
located outside the country of the issuer.

U.S. GOVERNMENT MONEY MARKET FUND

INVESTMENT OBJECTIVE. U.S. Government Money Market Fund has an investment
objective of maximum current income consistent with preservation of capital and
maintenance of liquidity.

INVESTMENT POLICIES AND TECHNIQUES. U.S. Government Money Market Fund may
invest in U.S. Government securities, as described below, and it may invest in
repurchase agreements with respect to such securities. See "Special Investment
Methods and Risk Factors--Repurchase Agreements."

U.S. GOVERNMENT SECURITIES--U.S. Government securities are obligations
issued or guaranteed as to payment of principal and interest by the U.S.
Government or its agencies or instrumentalities. These securities 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, including, but
not limited to, Federal Home Loan Banks, the Farmers Home Administration,
Federal Farm Credit Banks, the Federal National Mortgage Association, the
Government National Mortgage Association, the Federal Home Loan Mortgage
Corporation, the Financing Corporation and the Student Loan Marketing
Association. 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 those 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, such as the Student Loan Marketing Association,
are backed by the credit of the agency or instrumentality issuing the
obligations.

10
<PAGE>
TAX-EXEMPT MONEY MARKET FUND

INVESTMENT OBJECTIVE. Tax-Exempt Money Market Fund's investment objective
is to obtain a high level of current income exempt from federal income taxes,
consistent with the preservation of capital and the maintenance of liquidity.

INVESTMENT POLICIES AND TECHNIQUES. Tax-Exempt Money Market Fund pursues
its investment objective by investing at least 80% of its total assets, under
normal circumstances, in high quality Tax-Exempt Securities (as defined below),
the income from which is not includable in federal gross income and is not an
item of tax preference for purposes of the federal alternative minimum tax.
(Income from Tax-Exempt Securities is, however, includable in the adjusted
current earnings of corporations for purposes of determining their alternative
minimum taxable income.) All Tax-Exempt Securities in which the Fund invests
will be, at the time of purchase, Eligible Securities, as discussed above.

The balance of the Fund's total assets in an amount, under normal
circumstances, not to exceed 20% of the value of the Fund's total assets, may be
invested in any combination of the taxable money market securities set forth
above under "Money Market Fund--Investment Policies and Techniques" (subject to
the Fund's limitation on investments in foreign securities set forth below under
"Investment Restrictions") and in Tax-Exempt Securities the income on which is
an item of tax preference for purposes of the federal alternative minimum tax.
The circumstances in which the Fund will invest in taxable securities include,
but are not limited to, (a) pending investment of proceeds of the sale of Fund
shares or of Fund securities, (b) pending settlement of purchase of Fund
securities, and (c) maintaining liquidity to satisfy anticipated redemption
requests.

For defensive purposes, the Fund may temporarily invest more than 20% of the
value of its total assets in taxable money market securities and Tax-Exempt
Securities the income on which is an item of tax preference for purposes of the
federal alternative minimum tax when, in the opinion of the Adviser, it is
advisable to do so in light of prevailing market and economic conditions for
purposes of preserving liquidity or capital.

Tax-Exempt Money Market Fund may invest in repurchase agreements with
respect to the securities in which the Fund may invest, may purchase and sell
securities on a when-issued or forward commitment basis and may purchase
Tax-Exempt Securities which provide for the right to resell them at an agreed
upon price or yield within a specified period of time prior to the maturity date
of such obligations. See "Special Investment Methods and Risk Factors."

TAX-EXEMPT SECURITIES--Tax-Exempt Securities include obligations issued by
or on behalf of states, territories and possessions of the United States, the
District of Columbia and their political subdivisions, agencies or
instrumentalities, the interest on which, in the opinion of bond counsel, is not
includable in federal gross income. Tax-Exempt Securities are issued to obtain
funds for various public purposes, including the construction or improvement of
a wide range of public facilities such as bridges, docks and wharves, highways,
hospitals, housing, jails, mass transportation, parks, public buildings,
recreational facilities, school facilities, streets, and water and sewer
systems. Other public purposes for which Tax-Exempt Securities may be issued
include the refunding of outstanding obligations, the anticipation of taxes or
federal or state grants or aids, the payment of judgments, community
redevelopment, district heating or cooling facilities, the purchase of street
maintenance and firefighting equipment, and any authorized corporate purpose of
the issuer. In addition, certain types of industrial development or private
activity bonds have been or may be issued by or on behalf of public corporations
to finance privately owned and/or operated housing facilities, hospitals,
nursing homes, air or water pollution control facilities and certain local
facilities for water supply,

11
<PAGE>
gas, electricity or sewage or solid waste disposal. Such obligations are
included within the term Tax-Exempt Securities if the interest payable thereon,
in the opinion of bond counsel, is not includable in federal gross income. Other
types of industrial development or private activity bonds, the proceeds of which
are used for the construction, equipment, repair or improvement of privately
owned and/or operated industrial, commercial or office facilities, may
constitute Tax-Exempt Securities, although current federal income tax laws place
substantial limitations on the size and volume of such issues.

The two principal classifications of Tax-Exempt Securities are general
obligation securities and limited obligation (or revenue) securities. General
obligation securities are obligations involving the credit of an issuer which
are secured by its taxing power without limitation as to rate or amount and are
payable from the issuer's general unrestricted revenues and not from any
particular fund or revenue source. The characteristics and methods of
enforcement of general obligation securities vary according to the law
applicable to the particular issuer. Limited obligation securities are payable
only from the revenues derived from a particular facility or class of
facilities, from a specific limited tax or, in some cases, from the proceeds of
a specific revenue source, such as the user of the facility. Industrial
development or private activity bonds are in most cases limited obligation bonds
payable solely from specific revenues of the project to be financed, which are
pledged to their payment. The credit quality of industrial development or
private activity bonds is usually directly related to the credit standing of the
owner and/or user of the facilities financed (or the credit standing of a
third-party guarantor or other credit enhancement participant, if any).

Tax-Exempt Securities include municipal bonds, notes and commercial paper.
Municipal bonds are debt obligations issued to obtain funds for various public
purposes which have maturities at the time of issuance generally ranging from
one to twenty years or more. Municipal notes are short-term obligations,
generally with maturities ranging from six months to three years. Municipal
notes include grant anticipation notes, tax anticipation notes, revenue
anticipation notes, bond anticipation notes and construction loan notes.
Municipal commercial paper refers to short-term obligations with maturities of
365 days or less issued by state and local governments to finance seasonal
working capital needs or as short-term financing in anticipation of longer-term
financing.

Tax-Exempt Money Market Fund does not intend to invest more than 25% of its
total assets in securities of governmental units located in any one state,
territory or possession of the United States. In addition, the Fund will not
invest more than 25% of its total assets in limited obligation bonds payable
only from revenues derived from facilities or projects within a single industry,
provided that bonds that have been refunded with escrowed U.S. Government
securities will not be subject to this limitation. As to utility companies, gas,
electric, water and telephone companies will be considered as separate
industries.

From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal securities, some of which have been enacted. Additional
proposals may be introduced in the future which, if enacted, could affect the
availability of municipal securities for investment by the Fund and the value of
the Fund's portfolio. In such event, the Fund may discontinue the issuance of
shares to new investors and it may reevaluate its investment objective and
policies and submit possible changes in the structure of the Fund for the
approval of its shareholders.

12
<PAGE>
SPECIAL INVESTMENT METHODS AND RISK FACTORS

REPURCHASE AGREEMENTS

Each Fund may enter into repurchase agreements with respect to the
securities in which it may invest. 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. See "--Illiquid Securities" below. Interest earned by a
Fund from repurchase agreements with respect to Tax-Exempt Securities will not
be treated for federal income tax purposes as tax-exempt interest. For
additional information concerning repurchase agreements, see "Investment
Objectives, Policies and Restrictions" in the Statement of Additional
Information.

BORROWING

Each Fund may borrow money from banks for temporary or emergency purposes in
an amount up to one-third of the value of its total assets in order to meet
redemption requests without immediately selling any money market instruments.
If, for any reason, the current value of any Fund's total assets falls below an
amount equal to three times the amount of its indebtedness from money borrowed,
such Fund will, within three days, reduce its indebtedness to the extent
necessary. To do this, the Fund may have to sell a portion of its investments at
a time when it may be disadvantageous to do so. 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 (other than
reverse repurchase agreements) exceed 5% of the value of the Fund's total
assets. The Funds may mortgage, pledge or hypothecate their assets in an amount
not exceeding 10%, with respect to Money Market Fund and U.S. Government Money
Market Fund, or 20% with respect to Tax-Exempt Money Market Fund, of the value
of their 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.

The Funds also may borrow through reverse repurchase agreements with banks
and securities dealers. However, the Funds have not entered into reverse
repurchase agreements during the past fiscal year and have no current intention
of entering into such agreements in the future. See "Investment Objectives and
Policies--Reverse Repurchase Agreements" in the Statement of Additional
Information.

WHEN-ISSUED SECURITIES

Tax-Exempt Money Market Fund may purchase and sell Tax-Exempt Securities on
a when-issued or forward commitment basis. When-issued and forward commitment
transactions arise when securities are purchased or sold with payment and
delivery beyond the regular settlement date. (When-issued transactions normally
settle within 30-45 days.) On such transactions the payment obligation and the
interest rate are fixed at the time the buyer enters into the commitment. The
commitment to purchase securities on a when-issued or forward commitment basis
may involve an element of risk because the value of the securities is subject to
market fluctuation. No interest accrues to the purchaser prior to the settlement
of the transaction

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and at the time of delivery the market value may be less than cost. Although the
Fund will only make commitments to purchase such obligations with the intention
of actually acquiring the securities, the Fund may sell these securities before
the settlement date. If the Fund sells a when-issued or forward commitment
security before the settlement date, any gain or loss would not be exempt from
federal income tax. For purposes of Tax-Exempt Money Market Fund's investment
policies, the purchase of securities with a settlement date occurring on the
Public Securities Association approved settlement date is considered a normal
delivery and not a when-issued or forward commitment purchase. For additional
information concerning when-issued and forward commitment transactions, see
"Investment Objectives, Policies and Restrictions" in the Statement of
Additional Information.

PUTS

Tax-Exempt Money Market Fund may purchase Tax-Exempt Securities which
provide for the right to resell them to the issuer, a bank or a broker-dealer at
a specified price within a specified period of time prior to the maturity date
of such obligations. Such a right to resell, which is commonly known as a "put,"
may be sold, transferred or assigned only with the underlying security or
securities. The Fund may pay a higher price for a Tax-Exempt Security with a put
than would be paid for the same security without a put. The primary purpose of
purchasing Tax-Exempt Securities with puts is to permit the Fund to be as fully
invested as practicable in Tax-Exempt Securities while at the same time
providing the Fund with appropriate liquidity. For additional information
concerning puts, see "Investment Objectives, Policies and Restrictions" in the
Statement of Additional Information.

VARIABLE AND FLOATING RATE OBLIGATIONS

Certain of the obligations in which the Funds may invest may be variable or
floating rate obligations in which the interest rate is adjusted either at
predesignated periodic intervals (variable rate) or when there is a change in
the index rate of interest on which the interest rate payable on the obligation
is based (floating rate). Variable or floating rate obligations may include a
demand feature which is a put that entitles the holder to receive the principal
amount of the underlying security or securities and which may be exercised
either at any time on no more than 30 days' notice or at specified intervals not
exceeding 397 calendar days on no more than 30 days' notice. Variable or
floating rate instruments with a demand feature enable the Funds to purchase
instruments with a stated maturity in excess of 397 calendar days. The Funds
determine the maturity of variable or floating rate instruments in accordance
with Securities and Exchange Commission rules which allow the Funds to consider
certain of such instruments as having maturities that are less than the maturity
date on the face of the instrument.

ILLIQUID SECURITIES

Each Fund may invest up to 10% of its net assets in illiquid securities.
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 money market fund's investments in illiquid
securities to 10% of net assets.

The sale of illiquid securities often requires more time and results in
higher brokerage charges or dealer discounts 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 or restricted securities, at a time which is not advantageous.

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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 SEC 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 are not
subject to any limitation on their ability to invest in securities simply
because such securities are restricted. 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 upon the so-called "private
placement" exemption from registration under Section 4(2) of the 1933 Act. Money
Market Fund currently invests a significant portion of its assets in this type
of commercial paper.

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, to Tax-Exempt
Securities, or to obligations of United States banks, domestic branches thereof
and United States branches of foreign banks subject to United States regulation.
As to utility companies, gas, electric, telephone, telegraph, satellite and
microwave communications companies are considered separate industries.) In
addition, the following are nonfundamental investment restrictions which may be
changed at any time without shareholder approval: (1) 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. (2)
No Fund will purchase the securities of other investment companies except as
part of a merger, consolidation or acquisition of assets, provided that
Tax-Exempt Money Market Fund may invest up to 5% of its total assets in the
securities of other investment companies. (3) Tax-Exempt Money Market Fund may
not invest more than 5% of the value 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 and Risk Factors" 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

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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.

The Adviser furnishes each of the Funds 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, the Funds pay the
Adviser monthly advisory fees equal on an annual basis to a certain percentage
of each Fund's average net assets as set forth in the following table.

<TABLE>
<CAPTION>
ANNUAL
ADVISORY FEE
AS PERCENTAGE
OF
AVERAGE NET
AVERAGE NET ASSET VALUES OF THE FUND ASSETS
- -------------------------------------------------- --------------
<S> <C>
On the first $500,000,000......................... .50%
On the next $250,000,000.......................... .425%
On the next $250,000,000.......................... .375%
On the next $500,000,000.......................... .35%
On the next $500,000,000.......................... .325%
On the next $500,000,000.......................... .30%
On average assets of over $2,500,000,000.......... .275%
</TABLE>

TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND CUSTODIAN

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
certain 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

Portfolio transactions for the Funds are generally effected on a net basis
without payment of brokerage commissions. The Adviser may consider a number of
factors in determining which brokers to use for the Funds' portfolio
transactions. These factors, which are more fully discussed in the Statement of
Additional Information, include, but are not limited to, research services,
favorableness of the net price and quality of services and execution. A broker's
sales of shares of any series of the Company may also be considered a

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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 will generally be with the issuer or with
dealers acting on a principal basis. In the event, however, that any portfolio
transactions are executed on an agency basis, these transactions may be effected
through the Distributor. 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 Rule 12b-1 fees for
servicing each Fund's shareholder accounts and for providing
distribution-related services to each Fund. For U.S. Government Money Market
Fund and Tax-Exempt Money Market Fund, these fees are calculated daily and paid
quarterly at an annual rate equal to .30% of the Fund's average daily net
assets. For Money Market Fund, the fee is calculated daily and paid quarterly at
an annual rate equal to .30% of the Fund's average daily net assets attributable
to Class A shares and 1.00% of the Fund's average daily net assets attributable
to Class B shares. The Distributor has voluntarily agreed to limit U.S.
Government Money Market Fund's and Tax-Exempt Money Market Fund's Rule 12b-1
fees, and Money Market Fund's Rule 12b-1 fee payable with respect to its Class A
shares, to .20% of average daily net assets. This limitation may be revised or
terminated at any time after fiscal 1997 year end. The Distributor does not
intend to limit Rule 12b-1 fees payable with respect to Money Market Fund's
Class B shares.

Rule 12b-1 fees paid by each Fund are categorized as either "distribution
fees" or "servicing fees." Distribution fees are intended to compensate the
Distributor for its expenses incurred in connection with the sale of Fund
shares, and servicing fees are intended to compensate the Distributor for
ongoing servicing and/ or maintenance of shareholder accounts. The .30% Rule
12b-1 fee paid by U.S. Government Money Market Fund and Tax-Exempt Money Market
Fund, and by Money Market Fund with respect to its Class A shares, is comprised
of (a) a servicing fee equal to .25% of average daily net assets and (b) a
distribution fee equal to .05% of average daily net assets. The 1.00% Rule 12b-1
fee paid by Money Market Fund with respect to its Class B shares is comprised of
(a) a servicing fee equal to .25% of the Fund's average daily net assets
attributable to Class B shares and (b) a distribution fee equal to .75% of the
Fund's average daily net assets attributable to Class B shares.

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 may, out of their own assets, 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 all or a portion of its servicing 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 .20% 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 .20% 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

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. Each Fund's net asset value is normally
expected to be $1.00 per share. For more information on how the value of Fund
shares is determined, see "Valuation of Shares."

Money Market Fund offers both Class A and Class B shares. U.S. Government
Money Market and Tax-Exempt Money Market Fund do not offer different classes of
shares. The shares of U.S. Government Money Market Fund and Tax-Exempt Money
Market Fund and the Class A shares of Money Market Fund are offered at net asset
value with no initial or contingent deferred sales charge. Such shares are
subject to Rule 12b-1 fees equal, on an annual basis, to .30% of a Fund's
average daily net assets attributable to such shares.

The Class B shares of Money Market Fund are offered at net asset value with
no initial sales charge. However, they are subject to a contingent deferred
sales charge of up to 4% and bear Rule 12b-1 fees equal, on an annual basis, to
1.00% of Money Market Fund's average daily net assets attributable to Class B
shares. Money Market Fund's Class B shares are available for purchase only in
exchange for Class B shares of another Piper fund. See "Class B Shares" below.

The Distributor and other broker dealers who sell Fund shares receive
compensation from different sources. A portion of this compensation is typically
passed along to your Piper Jaffray Investment Executive or other sales
representative. Compensation will differ for selling Class A and Class B shares.
The Distributor receives the Rule 12b-1 fees that are paid out of each Fund's
assets. As discussed above, the Rule 12b-1 fee rates vary by class. See
"Distribution of Fund Shares." The Distributor pays a portion of these fees to
broker-dealers who sell Fund shares. In addition, the Distributor or the
Adviser, at their own expense, provide promotional incentives to Investment
Executives of 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.

MINIMUM INVESTMENTS

A minimum initial investment of $250 is required for each Fund. There is no
minimum for subsequent investments. The Distributor, in its discretion, may
waive the minimum. This minimum does not apply to the Cash Management Program
described below.

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SHAREHOLDER GUIDE TO INVESTING

CLASS B SHARES

GENERAL

Class B shares are offered by Money Market Fund and are available for
purchase only in exchange for Class B shares of another Piper fund (the
"Exchange Shares"). Class B shares are sold at net asset value without any
initial sales charge, but will be subject to a contingent deferred sales charge
("CDSC") if they are redeemed during the calendar year in which the Exchange
Shares were purchased, or during any of the next five full calendar years.

CONTINGENT DEFERRED SALES CHARGE

The exchange from Class B shares of another Piper fund into Class B shares
of Money Market Fund will not be subject to a CDSC. However, when you redeem
your Class B Money Market Fund shares acquired through the exchange, you will be
assessed a CDSC that will be based upon the date you acquired your Exchange
Shares, according to the following schedule:

<TABLE>
<CAPTION>
IF REDEEMED DURING THE CDSC
- ---------------------------------------------------------------------------------------------------------- -----------
<S> <C>
Calendar year of the purchase............................................................................. 4%
First calendar year after purchase........................................................................ 4%
Second calendar year after purchase....................................................................... 3%
Third calendar year after purchase........................................................................ 2%
Fourth calendar year after purchase....................................................................... 2%
Fifth calendar year after purchase........................................................................ 1%
</TABLE>

It is important to note that your CDSC is based upon the calendar years in
which the purchase of Exchange Shares and the redemption of Class B Money Market
Fund shares occur, rather than the number of years since you purchased your
Exchange Shares. For example, if you buy Exchange Shares on December 31, 1997,
exchange them for Class B Money Market Fund shares and then redeem the Class B
Money Market Fund shares on January 2, 1999, a 3% CDSC will apply, even though
you purchased the Exchange Shares just over one year ago.

The CDSC is based upon the lesser of the net asset value of the Exchange
Shares at the time of purchase or the net asset value of the Class B Money
Market Fund shares at the time of redemption. There is no CDSC on shares
acquired through reinvestment of dividends or capital gains distributions. To
keep your CDSC as low as possible, Class B shares will be redeemed in the order
purchased, starting with the shares that you have held the longest.

If you exchange your Class B Money Market Fund shares for Class B shares of
another Piper fund and later redeem the "new" Class B shares, the date you
purchased the original Exchange Shares will be used for determining your CDSC.
(This date will also be used for purposes of determining when your new Class B
shares convert to Class A shares. See "Conversion Feature.")

WAIVER OF CONTINGENT DEFERRED SALES CHARGE

The CDSC on Class B shares 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.)

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SHAREHOLDER GUIDE TO INVESTING

-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.

CONVERSION FEATURE

Your Class B shares (except for shares purchased through the reinvestment of
distributions) will automatically convert to Class A shares on January 1 of the
sixth calendar year following the year in which you purchased the Exchange
Shares. This conversion will be made on the basis of the relative net asset
values of the two classes. Whenever any of these Class B shares convert to Class
A shares, a proportionate number of your Class B shares purchased through the
reinvestment of distributions will also convert.

CASH MANAGEMENT PROGRAM

You may purchase shares of the Funds (other than Class B shares of Money
Market Fund) through your Piper Automatic Transfer (PAT) account. The PAT
account is a conventional securities account that may be used to buy and sell
securities, paying all customary transactional fees incurred in the use of a
securities account. Available cash in a PAT account is automatically invested in
shares of the Fund you specify. Shares of the Fund are redeemed automatically at
their net asset value as cash is needed to pay debits in your account.
Operational details of the PAT account are covered by your PAT account
agreement, not this Prospectus. Other broker-dealers may offer similar programs
in the future. These programs will be governed and explained by that brokerage
firm's account agreements, brochures or other documents.

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
receipt of your instructions by your Piper Jaffray Investment Executive or other
broker-dealer in good form as explained below, less any applicable CDSC in the
case of Money Market Fund Class B shares. Each Fund's net asset value is
normally expected to be $1.00 per share.

PIPER JAFFRAY INC. ACCOUNTS. To redeem your shares, please contact your
Piper Jaffray Investment Executive with an oral redemption request.

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, the class of shares in the case of Money
Market Fund, 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 the Statement of Additional
Information for more details.

PAYMENT OF REDEMPTION PROCEEDS

After your shares have been redeemed, proceeds will normally be paid on the
next business day. In no event will payment be made more than seven days after
receipt of your order in good form, except that

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SHAREHOLDER GUIDE TO INVESTING
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 check has
cleared the banking system (normally up to 15 days from the purchase date).

INVOLUNTARY REDEMPTION

SHAREHOLDER SERVICES

AUTOMATIC MONTHLY INVESTMENT PROGRAM

You may arrange to make additional automated purchases of shares of the
Funds (other than the Class B shares of Money Market Fund) or certain other
Piper funds. You can automatically transfer $100 or more per month from your
bank, savings and loan or other financial institution to purchase additional
shares. You should contact your Piper Jaffray Investment Executive or IFTC to
obtain authorization forms or for additional information.

EXCHANGE PRIVILEGE

You may exchange your shares of U.S. Government Money Market Fund and
Tax-Exempt Money Market Fund and your Class A shares of Money Market Fund for
shares of any other Piper fund. These shares may not be exchanged, however, for
Class B shares of a Piper fund that offers multiple classes of shares. Exchanges
between the money market funds covered by this Prospectus are made at net asset
value. Exchanges into another fund which imposes a sales charge will generally
require payment of the sales charge, except in some cases where you originally
purchased shares subject to a sales charge, and then exchanged into a money
market fund. In all cases, if the exchange purchase would generate a higher
sales charge than the original purchase, you will be required to pay a sales
charge equal to the difference. If you exchange less than all of your shares of
a fund, shares which may be exchanged at net asset value without payment of any
sales charge will considered to be exchanged first.

You may exchange your Class B shares of Money Market Fund only for Class B
shares of another Piper fund. Exchanges will be made on the basis of the net
asset values of the funds involved.

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SHAREHOLDER GUIDE TO INVESTING

TELEPHONE TRANSACTION PRIVILEGES

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 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.

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, it will be reported to you on
your next regular account statement. 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 reduce Fund expenses, it will also help the environment by saving paper.
Please contact your Piper Jaffray Investment Executive for more information.

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SHAREHOLDER GUIDE TO INVESTING

DIVIDENDS AND DISTRIBUTIONS

The net investment income of each Fund will be declared as dividends daily
and will be reinvested in additional shares of the Fund monthly. Net investment
income for Saturdays, Sundays and other days on which the New York Stock
Exchange (the "Exchange") is closed will be declared as dividends on the prior
business day. Each daily dividend is payable to Fund shareholders of record at
the time of its declaration. Net realized capital gains of each Fund, if any,
will be declared and reinvested in additional Fund shares at least annually.

Dividends paid by Money Market Fund with respect to Class A and Class B
shares will be calculated in the same manner, at the same time, on the same day
and will be in the same amount, prior to the deduction of expenses. The Rule
12b-1 fees attributable to a class of shares will be borne exclusively by that
class. In addition, to the extent they can reasonably be identified as relating
to a particular class, transfer agent fees will be allocated to that class.
Class B shareholders generally will receive lower per share dividends than Class
A shareholders be cause of the higher expenses applicable to Class B shares.

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VALUATION OF SHARES

The Funds compute their net asset value (or price per share) on each day 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.

It is the policy of each Fund to attempt to maintain a net asset value of
$1.00 per share. The securities held by the Funds are valued on the basis of
amortized cost, in accordance with the Funds' election to operate under the
provisions of Rule 2a-7 under the 1940 Act. The amortized cost method of
valuation involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the Fund would receive if it sold the instrument.

Under the direction of the Board of Directors, procedures have been adopted
to monitor and stabilize each Fund's price per share. Calculations are made to
compare the value of each Fund's portfolio valued at amortized cost with market
values. In the event that a deviation of one-half of 1% or more exists between
the $1.00 per share net asset value for a Fund and the net asset value
calculated by reference to market quotations, or if there is any other deviation
which the Board of Directors believes would result in a material dilution to
shareholders or purchasers, the Board of Directors will promptly consider what
action, if any, should be initiated. See "Net Asset Value and Public Offering
Price" in the Statement of Additional Information.

TAX STATUS

TAXES

The following discussions relate to federal income taxation 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 consult your tax adviser regarding the consequences of your local and
state tax laws.

MONEY MARKET FUND AND U.S. GOVERNMENT MONEY MARKET FUND. Distributions by
Money Market Fund and U.S. Government Money Market Fund are generally taxable to
shareholders as ordinary income.

Interest income from direct investment by noncorporate taxpayers in United
States Government obligations (but not repurchase agreements) generally is not
subject to state taxation. However, some states attempt to tax mutual fund
dividends attributable to such income. This treatment has been challenged in a
number of lawsuits. Shareholders are encouraged to consult their tax advisers
concerning this matter.

TAX-EXEMPT MONEY MARKET FUND. Tax-Exempt Money Market Fund intends to take
all actions required under the Code to ensure that it may pay "exempt-interest
dividends." If the Fund meets these requirements, distributions of net interest
income from tax-exempt obligations that are designated by the

24
<PAGE>
Fund as exempt-interest dividends will be excludable from the gross income of
the Fund's shareholders. Distributions paid from other interest income will be
taxable to shareholders as ordinary income.

Exempt-interest dividends attributable to interest income on certain tax
exempt obligations issued after August 7, 1986 to finance private activities are
treated as an item of tax preference for purposes of computing the alternative
minimum tax for individuals, estates and trusts. Tax-Exempt Money Market Fund
may invest up to 20% of its total assets in securities which generate interest
which is treated as an item of tax preference. See "Taxation" in the Statement
of Additional Information.

Some states may exclude from taxable income the portion of the dividends
paid by Tax-Exempt Money Market Fund that is attributable to interest on the
obligations of the state or its political subdivisions. In the case of
shareholders subject to Minnesota income tax, no portion of the dividends paid
by Tax-Exempt Money Market Fund will be exempt from their Minnesota taxable
income. The Fund will provide to shareholders annually information showing the
portion of the dividends they receive that is attributable to interest on the
obligations of each state.

PERFORMANCE COMPARISONS

Advertisements and other sales literature may refer to the Funds' "yield,"
"effective yield," "average annual total return" and "cumulative total return."
Yield and total return will be computed separately for each class of shares of
Money Market Fund. In addition, Tax-Exempt Money Market Fund may advertise its
"tax equivalent yield." All such yield and total return quotations are based
upon historical earnings and are not intended to indicate future performance.

The yield of a Fund refers to the income generated by an investment in the
Fund over a seven-day period (which period will be stated in the advertisement).
This income is then annualized. That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The effective yield is
calculated similarly but, when annualized, the income earned by an investment in
a Fund is assumed to be reinvested. The effective yield will be slightly higher
than the yield because of the compounding effect of this assumed reinvestment.

Tax equivalent yield quotations will be calculated by applying the stated
income tax rate only to that portion of Tax-Exempt Money Market Fund's seven-day
yield or effective yield that is exempt from taxation. The stated income tax
rate is subtracted from the number 1 (e.g., 1-28% = 72%) and the tax-exempt
portion of the yield is divided by the difference. The result is then added to
that portion of the Fund's yield, if any, that is not tax-exempt.

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, all
dividends are assumed to be reinvested and, with respect to the Class B shares
of Money Market Fund, the contingent deferred sales charge is deducted from the
hypothetical investment.

For additional information regarding comparative performance information and
the calculation of yield, effective yield, total return, average annual total
return and cumulative total return, see "Performance Comparisons" in the
Statement of Additional Information.

25
<PAGE>
GENERAL INFORMATION

The Company was organized under the laws of the State of Minnesota and
currently offers its shares in twelve series. 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
other series of the Company or any series created in the future. See "Capital
Stock and Ownership of Shares" in the Statement of Additional Information.

All shares of U.S. Government Money Market Fund and Tax-Exempt Money Market
Fund have equal voting rights. The two classes of shares of Money Market Fund
have the same rights and are identical in all respects except that (a) expenses
related to the distribution of each class of shares are borne solely by such
class; (b) to the extent they can reasonably be identified as relating to a
particular class of shares, transfer agent fees will be allocated to that class;
(c) each class has exclusive voting rights with respect to approvals of any Rule
12b-1 distribution plan related to that specific class (although Class B
shareholders will have the right to vote on any distribution fees imposed on
Class A shares as long as Class B shares convert into Class A shares); (d) only
Class B shares carry a conversion feature; and (e) each class has different
exchange privileges.

Each share of a series has one vote (with proportionate voting for
fractional shares) irrespective of the relative net asset values 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 or class, the shares of the affected series or class rate 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.

PENDING LEGAL PROCEEDINGS

26
<PAGE>
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.

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 subadviser. 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, 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.

TAX-EXEMPT VS. TAXABLE INCOME

The table below shows the approximate yields that taxable securities must
earn to equal tax-exempt yields under selected 1996 federal income tax brackets.

<TABLE>
<CAPTION>
EQUIVALENT TAXABLE YIELD
--------------------------------------------------------------------------
TAX-FREE 28% 31% 36% 39.6%
YIELD FEDERAL BRACKET FEDERAL BRACKET FEDERAL BRACKET FEDERAL BRACKET
- ------------ ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
2.00% 2.78% 2.90% 3.13% 3.31%
2.50 3.47 3.62 3.91 4.14
3.00 4.17 4.35 4.69 4.97
3.50 4.86 5.07 5.47 5.79
4.00 5.56 5.80 6.25 6.62
4.50 6.25 6.52 7.03 7.45
5.00 6.94 7.25 7.81 8.28
5.50 7.64 7.97 8.59 9.11
6.00 8.33 8.70 9.38 9.93
</TABLE>

27
<PAGE>
This table does not take into consideration any federal alternative minimum
tax. In addition, the table is based upon yields that are derived solely from
tax-exempt income. To the extent a Fund's advertised yield is derived from
taxable income, the Fund's equivalent taxable yield will be less than set forth
in the table. The tax-free yields used in this table should not be considered as
representations of any particular rates of return and are for purposes of
illustration only. The table is based on federal tax rates in effect for
individuals in 1996 and currently scheduled to be in effect for individuals in
1997. To the extent that these rates are increased in 1997 or subsequent years,
the equivalent taxable yields shown above will also increase.

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 THE 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.

28
<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 and
Risk Factors........................ 13
Management........................... 15
Distribution of Fund Shares.......... 17
SHAREHOLDER GUIDE TO INVESTING
How to Purchase Shares............. 18
Class B Shares..................... 19
Cash Management Program............ 20
How To Redeem Shares............... 20
Shareholder Services............... 21
Dividends and Distributions........ 23
Valuation of Shares.................. 24
Tax Status........................... 24
Performance Comparisons.............. 25
General Information.................. 26
Tax-Exempt vs. Taxable Income........ 27
</TABLE>

- -------------------------------------------
Prospectus

[LOGO]

--------------------------

Cash Management Funds

Money Market Fund

U.S. Government Money
Market Fund

Tax-Exempt Money Market Fund

February , 1997

---------------------------------

30600 021-97

<PAGE>

PART B
GROWTH FUND
GROWTH AND INCOME FUND
EMERGING GROWTH FUND
SMALL COMPANY GROWTH FUND
BALANCED FUND
SERIES OF PIPER FUNDS INC.
STATEMENT OF ADDITIONAL INFORMATION
February __ , 1997

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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 four Prospectuses, each dated
February __ , 1997. One Prospectus relates to the Class A and B shares of
Growth Fund, Emerging Growth Fund and Small Company Growth Fund, one to the
Class Y shares of Emerging Growth Fund, one to the Class A and B shares of
Growth and Income Fund and Balanced Fund and one to the Class Y shares of Growth
and Income 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.

30201/30301
<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

-2-
<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.

-3-
<PAGE>

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.

-4-
<PAGE>

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.

-5-
<PAGE>

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,

-6-
<PAGE>

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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<PAGE>

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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<PAGE>

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.

-9-
<PAGE>

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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<PAGE>

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:

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.

-11-
<PAGE>

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.

-12-
<PAGE>

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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<PAGE>

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
- ---------------
* 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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<PAGE>

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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<PAGE>

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 Mr. Bennett, who serves as chairperson, Messrs. 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.

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<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.

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<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:

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<PAGE>

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
- ---- ------------------ ------------------ ------------------

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

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

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<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:

(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
quarterly fee to the Distributor equal, on an annual basis to .50% of such
Fund's average daily net assets attributable to Class A shares and 1.00% of
such Fund's average daily net assets attributable to Class B shares. Such
fee is paid for servicing of the Fund's shareholder accounts and providing
distribution-related services to the Funds. As described in the relevant
Prospectus, a portion of each Fund's total fee is 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 a portion of the fee is
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;
interest expenses; 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 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. There were no Class B shares outstanding during such periods.

-21-
<PAGE>

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
- ---- ------------------ ------------------ ------------------

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

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 attributable to Class A
shares. The Distributor does not intend to limit Rule 12b-1 fees payable with
respect to any Fund's Class B shares.

Fees payable under the Distribution Plan for the fiscal year ended
September 30, 1996, were used by the Distributor as follows:

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>

-22-
<PAGE>

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 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
initial sales charge on sales of Class A shares of the Funds and any contingent
deferred sales charge imposed on redemptions of Class B shares of the Funds and
redemption of certain Class A shares of the Funds that were not subject to an
initial sales charge, as set forth in the respective Prospectuses. 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.

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.

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

-23-
<PAGE>

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 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.

-24-
<PAGE>

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 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

-25-
<PAGE>

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 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:

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:

% 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

-26-
<PAGE>

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 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

Each Fund's shares constitute a separate series of the Company's common
stock. 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.

As of January __, 1997, no shareholder owned 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: _____________________________. 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. All of the foregoing ownership information
relates to the Class A shares of the Funds. There were no Class B or Class Y
shares outstanding as of such date.

-27-
<PAGE>

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 Class A 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

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)

There were no Class B or Class Y Shares outstanding as of September 30,
1996.

-28-
<PAGE>

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 the
Class A shares of each Fund for one year, five years and since inception for the
period ending September 30, 1996. There were no Class B or Class Y shares of
the Funds outstanding during such periods.

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

-29-
<PAGE>

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 the Class A shares
of 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:

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 the Class A
shares of each Fund from inception to September 30, 1996. There were no Class B
or Class Y shares of the Funds outstanding during such periods.

-30-
<PAGE>

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.

For the 30-day period ended September 30, 1996, the Class A shares of
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 the Class A shares of
Balanced Fund and Growth and Income Fund would have been 2.75% and 0.99%,
respectively. The Funds had no Class B or Class Y shares outstanding during
such periods.

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

-31-
<PAGE>

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 on Class A shares 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 Class A 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 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.

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<PAGE>

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.

REINSTATEMENT PRIVILEGE

A shareholder who has redeemed Class A shares of a Fund may reinvest all or
part of the redemption proceeds in Class A shares of any fund managed by the
Adviser within 30 days without payment of an additional sales charge. If the
shareholder paid a contingent deferred sales charge ("CDSC") in connection with
such redemption of Class A shares, the Distributor will refund a proportional
amount of such CDSC. Similarly, a shareholder who has redeemed Class B shares
of a Fund may reinvest all or a part of the redemption proceeds in the Class B
shares of any fund managed by the Adviser within 30 days of such redemption and
the Distributor will refund a proportional amount of the CDSC paid on such

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<PAGE>

redemption. 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 an initial sales charge in the case of Class A shares),
irrespective of the amounts of the reinvestment, but shall be subject to the
same pro rata CDSC that was applicable to the earlier investment; however,
the period during which the CDSC 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 ($2 million or
more in the case of Class Y shares). 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 of the same Class 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.

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.

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.

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<PAGE>

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 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.

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<PAGE>

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 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.

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<PAGE>

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 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.

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<PAGE>

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.

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<PAGE>

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.

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<PAGE>

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.

A-1
<PAGE>

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."

A-2
<PAGE>

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.

A-3
<PAGE>

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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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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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

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 B

GOVERNMENT INCOME FUND
INTERMEDIATE BOND FUND
each a series of Piper Funds Inc.
and
ADJUSTABLE RATE MORTGAGE SECURITIES FUND
a series of Piper Funds Inc.--II

STATEMENT OF ADDITIONAL INFORMATION
February ___________ , 1997

Table of Contents

Page
----
Investment Policies and Restrictions . . . . . . . . . . . . . . 2
Directors and Executive Officers . . . . . . . . . . . . . . . . 14
Investment Advisory and Other Services . . . . . . . . . . . . . 18
Portfolio Transactions and Allocation of Brokerage . . . . . . . 26
Capital Stock and Ownership of Shares. . . . . . . . . . . . . . 28
Net Asset Value and Public Offering Price. . . . . . . . . . . . 29
Performance Comparisons. . . . . . . . . . . . . . . . . . . . . 29
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . 33
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . 33
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
General Information. . . . . . . . . . . . . . . . . . . . . . . 37
Financial Statements . . . . . . . . . . . . . . . . . . . . . . 38
Pending Litigation . . . . . . . . . . . . . . . . . . . . . . . 38
Appendix A - Corporate Bond, Preferred Stock and
Commercial Paper Ratings . . . . . . . . . . . . . . . . . . . A-1
Appendix B - Interest Rate Futures Contracts
and Related Options. . . . . . . . . . . . . . . . . . . . . . B-1

This Statement of Additional Information is not a prospectus. This
Statement of Additional Information relates to two prospectuses. One
Prospectus, dated November 6, 1996, relates to Government Income Fund and the
Class A shares of Intermediate Bond Fund (series of Piper Funds Inc.) and
Adjustable Rate Mortgage Securities Fund (a series of Piper Funds Inc.--II),
and the other, dated February __________ , 1997, relates to the Class Y
shares of Intermediate Bond Fund. This Statement of Additional Information
should be read in conjunction with the 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

This Statement of Additional Information relates to Government Income Fund
and Intermediate Bond Fund (formerly Institutional Government Income Portfolio),
each of which is a series of Piper Funds Inc. ("Piper Funds"), and Adjustable
Rate Mortgage Securities Fund, which is a series of Piper Funds Inc.--II ("Piper
Funds--II"). These series are sometimes referred to herein individually as a
"Fund" or, collectively, as the "Funds." Piper Funds and Piper Funds--II are
sometimes referred to herein individually as a "Company" or, collectively, as
the "Companies." The investment objectives and policies of the Funds are set
forth in the Funds' respective Prospectus. Certain additional investment
information is set forth below.

On September 1, 1995, four closed-end investment companies, American
Adjustable Rate Term Trust Inc.--1996, American Adjustable Rate Term Trust
Adjustable Rate Term Trust Inc.--1999, merged into Adjustable Rate Mortgage
Securities Fund (the "Merger"). Adjustable Rate Mortgage Securities Fund had no
history of operations prior to the Merger. In this Statement of Additional
Information, certain performance and financial information is provided for
Adjustable Rate Mortgage Securities Fund for periods prior to September 1, 1995.
Such information relates to American Adjustable Rate Term Trust Inc.--1998
("DDJ"), the surviving entity of the Merger for financial reporting purposes.

REPURCHASE AGREEMENTS

The Funds have received from the Securities and Exchange Commission an
exemptive order permitting the Funds, along with the other series of Piper
Funds, closed-end and other open-end investment companies currently managed by
Piper Capital Management Incorporated (the "Adviser"), and all future series of
each Company and all future investment companies advised by the Adviser or its
affiliates, to deposit uninvested cash balances into a large single joint
account to be used to enter into one or more large repurchase agreements.

WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES

Each 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

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<PAGE>

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 Prospectus, 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 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. The Funds will not invest more than 15% of their net assets in time
deposits and other illiquid securities. (Intermediate Bond Fund may not invest
in 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.

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<PAGE>

unsecured debt issue currently rated at least Aa by Moody's Investors Service,
Inc. or at least AA by Standard & Poor's Ratings Services, or (c) if unrated,
determined by the Adviser to be of comparable quality to those rated obligations
which may be purchased by the Funds.

MORTGAGE-RELATED SECURITIES

PASS-THROUGH SECURITIES -- The investments of each Fund in mortgage-
related securities include government guaranteed pass-through securities. These
obligations are described below.

- 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.

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<PAGE>

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, 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.

(3) FNMA SECURITIES. The Federal National Mortgage Association was
established in 1938 to create a secondary market in mortgages insured by the
FHA.

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<PAGE>

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.

RESTRICTIONS ON INVESTMENTS BY ADJUSTABLE RATE MORTGAGE SECURITIES FUND.
As set forth in the Prospectus, Adjustable Rate Mortgage Securities Fund will
not invest in any inverse floating, interest-only, principal-only or Z tranches
of CMOs or in stripped mortgage-related securities. In addition, the Fund will
not invest in any other mortgage-related securities that are considered "high
risk" under applicable supervisory policies of the Office of the Comptroller of
the Currency (the "OCC"). In OCC Banking Circular 228 (Rev.) (January 10,
1992), the OCC defined a "high-risk mortgage security" as any mortgage
derivative product that at the time of purchase, or at a subsequent testing
date, meets any of the following three tests:

(a) AVERAGE LIFE TEST. The mortgage derivative product has an
expected weighted average life greater than 10.0 years.

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<PAGE>

(b) AVERAGE LIFE SENSITIVITY TEST. The expected weighted average
life of the mortgage derivative product:

(i) extends by more than 4.0 years, assuming an immediate and
sustained parallel shift in the yield curve of plus 300 basis points;
or

(ii) shortens by more than 6.0 years, assuming an immediate and
sustained parallel shift in the yield curve of minus 300 basis points.

(c) PRICE SENSITIVITY TEST. The estimated change in the price of the
mortgage derivative product is more than 17%, due to an immediate and
sustained parallel shift in the yield curve of plus or minus 300 basis
points.

Examples of certain "high-risk mortgage securities" include interest-only and
principal-only classes of stripped mortgage-related securities, inverse floating
CMOs and certain zero-coupon Treasury securities.

OPTIONS

As set forth in the Prospectus, Government Income Fund and Adjustable Rate
Mortgage Securities 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.

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<PAGE>

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.

OVER-THE-COUNTER OPTIONS. Government Income Fund may purchase and write
over-the-counter ("OTC") put and call options in negotiated transactions. The
staff of the Securities and Exchange Commission has previously taken the
position that the value of purchased OTC options and the assets used as "cover"
for written OTC options are illiquid securities and, as such, are to be included
in the calculation of a Fund's 15% limitation on illiquid securities. However,
the staff has eased its position somewhat in certain limited circumstances.
Government Income Fund will attempt to enter into contracts with certain dealers
with which it writes OTC options. Each such contract will provide that the Fund
has the absolute right to repurchase the options it writes at any time at a
repurchase price which represents the fair market value, as determined in good
faith through negotiation between the parties, but which in no event will exceed
a price determined pursuant to a formula contained in the contract. Although
the specific details of such formula may vary among contracts, the formula will
generally be based upon a multiple of the premium received by the Fund for
writing the option, plus the amount, if any, of the option's intrinsic value.
The formula will also include a factor to account for the difference between the
price of the security and the strike price of the option if the option is
written out-of-the-money. With respect to each OTC option for which such a
contract is entered into, the Fund will count as illiquid only the initial
formula price minus the option's intrinsic value.

The Fund will enter into such contracts only with primary U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York.
Moreover, such primary dealers will be subject to the same standards as are
imposed upon dealers with which the Fund enters into repurchase agreements.

ILLIQUID SECURITIES

To the extent set forth in the Prospectus, the Funds may invest in Rule
144A securities, commercial paper issued pursuant to Rule 4(2) under the
Securities Act of 1933, and, except for Adjustable Rate Mortgage Securities
Fund, may invest in 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

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<PAGE>

Fund illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing these securities.

PORTFOLIO TURNOVER

DIVERSIFICATION

Each Fund intends to operate as a "diversified" management investment
company, 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
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 Prospectus 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.

With respect to Government Income Fund, as fundamental investment
restrictions, the Fund will not:

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<PAGE>

2. Issue any senior securities, as defined in 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.

3. Borrow money (provided that the Fund may enter into reverse repurchase
agreements) 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.
Interest paid on borrowed funds will decrease the net earnings of the Fund. The
Fund will not purchase portfolio securities while outstanding borrowing exceeds
5% of the value of the Fund's total assets. The Fund will not borrow money for
leverage purposes (provided that the Fund may enter into reverse repurchase
agreements for such purposes).

5. Purchase or sell commodities or commodity futures contracts, except
that the Fund 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 Fund may invest in securities secured by real estate or interests
therein or issued by companies that invest in real estate or interests therein.

7. Act as an underwriter of securities of other issuers, except insofar
as the Fund may be technically deemed an underwriter under the federal
securities laws in connection with the disposition of portfolio securities.

With respect to Intermediate Bond Fund, as fundamental investment
restrictions, the Fund will not:

1. Issue any senior securities, as defined in the 1940 Act.

2. Borrow money, except from banks for temporary or emergency purposes in
an amount not exceeding 5% of the value of its total assets.

3. 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.

4. Act as an underwriter of securities of other issuers, except insofar
as the Fund may be technically deemed an underwriter under the federal
securities laws in connection with the disposition of portfolio securities.

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<PAGE>

5. Purchase or sell real estate or real estate mortgage loans, except
that the Fund may invest in securities secured by real estate or interests
therein.

6. Purchase or sell commodities or commodity futures contracts.

7. 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 or instrumentalities and repurchase agreements relating thereto.

8. Make loans to other persons, provided that the Fund may enter into
repurchase agreements. The purchase of a portion of an issue of publicly
distributed bonds, debentures, or other debt securities will not be considered
the making of a loan.

9. Loan its portfolio securities.

With respect to Adjustable Rate Mortgage Securities Fund, as fundamental
investment restrictions, the Fund will not:

1. With respect to 75% of its total assets, invest more than 5% of the
value of its total assets (taken at market value at the time of purchase) in the
outstanding securities of any one issuer, or own more than 10% of the
outstanding voting securities of any one issuer, in each case other than
securities issued or guaranteed by the U. S. Government or any agency or
instrumentality thereof.

2. 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,
except that, under normal market conditions, the Fund will invest 25% or more of
the value of its total assets in ARMS issued or guaranteed by the U.S.
Government or its agencies or instrumentalities or by private organizations.
Except for the requirement that the Fund invest 25% or more of its total assets
in ARMS, the foregoing restriction does not apply to securities of the U.S.
Government or its agencies or instrumentalities or repurchase agreements
relating thereto.

3. Issue any senior securities, as defined in the 1940 Act, other than as
set forth in restriction #4 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.

4. Borrow money, except for temporary or emergency purposes. The amount
of such borrowing (including borrowing through reverse repurchase agreements)
may not exceed 10% of the value of the Fund's total assets. The Fund will not
purchase portfolio securities while outstanding borrowings exceeds 5% of the
value of the Fund's total assets. The Fund will not borrow for leverage
purposes.

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<PAGE>

5. 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.

6. Purchase or sell commodities or commodity futures contracts, except
that the Fund may enter into financial futures contracts and engage in related
options transactions.

7. Purchase or sell real estate or interests therein (other than
securities backed by mortgages and similar instruments).

8. Act as an underwriter of securities of other issuers, except insofar
as the Fund may be technically deemed an underwriter under the federal
securities laws in connection with the disposition of portfolio securities.

9. Make loans of money or property to any person, except through loans of
portfolio securities, the purchase of debt obligations in which the Fund may
invest consistent with the Fund's investment objective and policies or the
acquisition of securities subject to repurchase agreements.

For purposes of determining compliance with fundamental investment
restriction number 2, relating to industry concentration, the various types of
utilities companies, such as gas, electric, telephone, telegraph, satellite and
microwave communications companies, are considered separate industries and ARMS
issued by private organizations are considered to be securities of issuers in
the same industry. In addition, the industry classification of asset-backed
securities will be determined based on the type of collateral underlying the
securities. For example, asset-backed securities backed by automobile
receivables will be considered to be in a different industry than asset-backed
securities backed by credit card receivables.

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.

4. Purchase or retain the securities of any issuer if, to the Fund's
knowledge, those officers or directors of the respective 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.

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<PAGE>

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.

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% of total assets in the securities of foreign
issuers, provided that Intermediate Bond Fund will not invest in the securities
of foreign issuers other than U.S. dollar-denominated Yankee bonds and
Adjustable Rate Mortgage Securities Fund will not invest in the securities of
foreign issuers.

10. Invest more than 15% of net assets in illiquid securities, except that
Intermediate Bond Fund will not invest in illiquid securities.

11. Except for Adjustable Rate Mortgage Securities Fund, 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 Government Income Fund and Adjustable Rate Mortgage Securities 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. With respect to Adjustable Rate
Mortgage Securities Fund, the Fund is subject to the following limitations:

a. The Fund will not write puts if, as a result, more than 50% of its
assets would be required to be segregated.

b. The aggregate premiums paid on all put and call options purchased by
the Fund, including options on futures contracts, may not exceed 20% of the
Fund's net assets.

c. The Fund's aggregate margin deposits in connection with futures
contracts and options thereon will not exceed 5% of the Fund's total
assets.

d. The Fund will not purchase or write over-the-counter put and call
options.

Any investment restriction or limitation referred to above or in the
Prospectus which involves a maximum percentage of securities or assets, shall
not be considered to be violated unless an excess over the percentage occurs

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<PAGE>

immediately after an acquisition of securities or utilization of assets and such
excess results therefrom.

DIRECTORS AND EXECUTIVE OFFICERS

The directors and officers of each 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. Each 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 Companies
----------------------- ---------------------------

William H. Ellis* (54) Chairman of the Board of Directors
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402

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

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<PAGE>

Name, Address and (Age) Position with the Companies
----------------------- ---------------------------

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

- ---------------
* Directors of the Company who are interested persons (as that term is
defined by the 1940 Act) of Piper Capital Management Incorporated and the
Fund.

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<PAGE>

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.

Paul A. Dow is Chief Investment Officer and Senior Vice President of the
Adviser.

Robert H. Nelson has been a Senior Vice President of the Adviser since
1993; prior there 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 to which 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 each Company's financial reporting
process, reviews audit results and recommends annually to the Companies a firm
of independent certified public accountants.

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<PAGE>

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 each Company who are officers or employees of the Adviser
or of its affiliates receive no remuneration from the Companies. 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 each Company for each regular quarterly and in-person
special meeting of the Board of Directors attended. (The per-meeting fee of
Piper Funds is based on the combined total assets of Piper Funds 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 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 Companies 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 Piper Funds for the fiscal year ended September 30, 1996 from Piper Funds--
II for the fiscal year ended August 31, 1996 and for the fiscal period ended
September 30, 1996, and from the from the Companies 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
each Company on September 3, 1996.

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<PAGE>

Compensation
from Compensation from
Piper Funds Piper Funds -- II Total
------------- ---------------------- Compensation
Year Ended One-Month Year Ended from
Director 9/30/96 9/30/96 8/31/96 Fund Complex*
- ----------------- ------------- --------- ----------- -------------

Jaye F. Dyer $ 6,775 $ 0 $ 6,531 $ 67,700
Karol D. Emmerich $ 6,775 $ 0 $ 6,531 $ 67,700
Luella G. Goldberg $ 7,150 $ 0 $ 6,562 $ 70,700
George Latimer $ 6,400 $ 0 $ 6,500 $ 64,700
David T. Bennett $ 6,400 $ 0 $ 6,500 $ 61,700
David A. Hughey $ 0 $ 0 $ 0 $ 0

* Currently consists of 20 open-end and closed-end investment companies
managed by the Adviser, including the Companies. During the 1995 calendar
year, the Fund Complex consisted of up to 27 such investment companies,
managed by the Adviser or an affiliate of the Adviser, 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

CONTROL OF THE ADVISER AND THE DISTRIBUTOR

INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT

The Adviser acts as the investment adviser of the Funds under Investment
Advisory and Management Agreements which have been approved by the Board of
Directors (including a majority of the directors who are not parties to the
agreements, or interested persons of any such party, other than as directors of
the Funds) and the shareholders of the Funds.

Each 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. An 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

-18-
<PAGE>

sooner terminated, each 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 an 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 each Investment Advisory and Management Agreement, the Funds
pay the Adviser monthly advisory fees equal on an annual basis to a certain
percentage of each Fund's average net assets as set forth in the following
table.

Annual Advisory Fee
Average Net Asset Values as Percentage of
of the Fund Average Net Assets
-------------------------- -------------------

Government On the first $250,000,000 .50%
Income Fund On the next $250,000,000 .45%
On average assets of over
$500,000,000 .40%

Intermediate Bond Fund On the first $100,000,000 .30%
On the next $150,000,000 .25%
On average assets of over
$250,000,000 .20%

Adjustable Rate Mortgage On the first $500,000,000 .35%
Securities Fund One average assets of over .30%
$500,000,000

The table below sets forth the advisory fees paid by Government Income Fund
and Intermediate Bond Fund for the periods indicated:

Government Income
Fund $734,950 $576,359 $474,589
Intermediate Bond
Fund $ 1,645,922 $959,379 $634,796

With respect to Adjustable Rate Mortgage Securities Fund, the Adviser
received compensation of $1,487,059 for the fiscal year ended August 31, 1996
and $76,672 for the fiscal period from September 1, 1996 to September 30, 1996.
Prior to the Merger, the Adviser also acted as the investment adviser of DDJ,
the surviving entity of the Merger for financial reporting purposes. Pursuant
to the Investment Advisory and Management Agreement between DDJ and the Adviser,
the Adviser

-19-
<PAGE>

received a monthly management fee at the per annum rate of .35% of DDJ's average
weekly net assets. Under such agreement, the Adviser received compensation of
$1,857,513 and $1,462,719, respectively, for the fiscal years ended August 31,
1994 and 1995.

Prior to the Merger, the Adviser also acted as the administrator of DDJ
pursuant to an Administration Agreement under which the Adviser received a
monthly administration fee at the per annum rate of .15% of DDJ's average weekly
net assets. Under such agreement, the Adviser received compensation of $796,077
and $626,880, respectively, for the fiscal years ended August 31, 1994 and 1995.
Adjustable Rate Mortgage Securities Fund has not entered into such an agreement
with the Adviser.

Under the Investment Advisory and Management Agreements, 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 the respective 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 Companies 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
Companies 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

-20-
<PAGE>

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, each 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 each such plan be approved by a majority of
a Fund's outstanding shares, and Rule 12b-1(b)(2) requires that each 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 respective
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:

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
and that all material amendments of the plan must be approved in the manner
described in paragraph (b)(2) of Rule 12b-1.

-21-
<PAGE>

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 Plans will
benefit the Companies and their shareholders.

Pursuant to the provisions of the Distribution Plans, each Fund pays a
quarterly fee to the Distributor for servicing the Funds' shareholder
accounts and providing distribution-related services to the Funds. Such fees
are equal, on an annual basis, to .50% of the average daily net assets of
Government Income Fund, .30% of the average daily net assets of Intermediate
Bond Fund attributable to such Fund's Class A shares and .15% of the average
daily net assets of Adjustable Rate Mortgage Securities Fund. The Class Y
shares of Intermediate Bond Fund do not pay fees under such Fund's
Distribution Plan. As described in the Prospectuses, except with respect to
Adjustable Rate Mortgage Securities Fund, a portion of each Fund's total fee
is 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 a portion of the fee is 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"). All of the Rule 12b-1 fee paid by Adjustable Rate
Mortgage Securities Fund is categorized as a servicing fee. 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 services not otherwise required to be provided
by the Funds' Adviser or transfer agent.

The table below sets forth the distribution fees paid by Government Income
Fund and Intermediate Bond Fund for the periods indicated.

-22-
<PAGE>

Government Income
Fund $ 461,794 $ 365,759 $ 292,676
Intermediate Bond
Fund 1,553,536 781,067 475,345

With respect to Adjustable Rate Mortgage Securities Fund, distribution fees
paid by the Fund for the fiscal year ended August 31, 1996 and the fiscal period
from September 1, 1996 to September 30, 1996 were $638,422 and $32,843,
respectively. The Distribution Plan for Adjustable Rate Mortgage Securities
Fund was not in effect during prior fiscal years.

The Distributor voluntarily limited the amount payable under the
Distribution Plan to an annual rate of .21% and .31% of average daily net
assets for Intermediate Bond Fund and Government Income Fund, respectively,
for the fiscal year ended September 30, 1994. For the fiscal years ended
September 30, 1995 and 1996, the Distributor voluntarily limited the amounts
payable under such Distribution Plan to annual rates of .20% and .32% of
average daily net assets for Intermediate Bond Fund and Government Income
Fund, respectively. The voluntary limitations for the fiscal year ending
September 30, 1997 are .34% of Government Income Fund's average daily net
assets and .22% of Intermediate Bond Fund's average daily net assets
attributable to such Fund's Class Y shares.

Fees payable under the Piper Funds Distribution Plan for the fiscal year
ended September 30, 1996, were used by the Distributor as follows:

Government Intermediate
Income Fund Bond Fund
----------- ---------
Advertising $ 0 $ 0
Printing and mailing of prospectuses to
other than current shareholders $ 9,441 $ 0
Compensation to underwriters (trail
fees to investment executives) $ 283,235 $ 475,345
Compensation to dealers $ 0 $ 0
Compensation to sales personnel $ 0 $ 0
Interest, carrying or other
financing charge $ 0 $ 0
Other (specify) $ 0 $ 0
--------- ---------
Total $ 292,676 $ 475,345

With respect to Adjustable Rate Mortgage Securities Fund, total
servicing fees in the amount of $638,422 were paid under such Fund's
Distribution Plan for the fiscal year ended August 31, 1996 and were used for
compensation to underwriters (trail fees to investment executives). For the
fiscal period from September 1, 1996 to September 30, 1996, servicing fees in
the amount of $32,843 were paid under the Plan and also were used for
compensation to underwriters.

-23-
<PAGE>

UNDERWRITING AND DISTRIBUTION AGREEMENT

Pursuant to Underwriting and Distribution Agreements with Piper Funds
and Piper Funds--II, 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 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 Plans discussed above, the Distributor receives the sales charge
on sales of Fund shares, as set forth in the Prospectuses. 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>
Government
Income Fund $ 439,716 $ 111,536 $ 42,651 $ 255,000 $ 64,691 $ 17,487
Intermediate
Bond Fund 1,340,277 43,458 12,517 777,361 25,206 5,132
</TABLE>

With respect to Adjustable Rate Mortgage Securities Fund, total
underwriting commissions paid and underwriting commissions retained by the
Distributor for the fiscal year ended August 31, 1996 were $9,280 and $0,
respectively, and total underwriting commissions paid and underwriting
commissions retained by the Distributor for the fiscal period from September 1,
1996 to September 30, 1996 were $3,805 and $0, respectively. The Underwriting
and Distribution Agreement between the Distributor and Piper Funds--II was not
in effect prior to the fiscal year ended August 31, 1996.

For the same periods, in addition to retaining the underwriting commissions
set forth above, the Distributor received brokerage commissions as set forth
below.

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>
Government Income Fund $ 41,650 $ 1,700 $ 0
Intermediate Bond Fund 0 0 0

</TABLE>

Adjustable Rate Mortgage Securities Fund did not pay any brokerage
commissions to the Distributor during the fiscal year ended August 31, 1996 and
the fiscal period from September 1, 1996 to September 30, 1996.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Investors Fiduciary Trust Company ("IFTC"), the transfer agent for the
Companies, maintains certain omnibus shareholder accounts for each of the Funds.
Each such omnibus account represents the accounts of a number of individual

-24-
<PAGE>

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 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 $7.50 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, Government Income Fund
paid $51,052 and Intermediate Bond Fund paid $31,433 to the Distributor under
the Shareholder Account Servicing Agreement. During the fiscal year ended
September 30, 1996, Government Income Fund paid $6,955 and Intermediate Bond
Fund paid $2,939 to Piper Trust under the Shareholder Account Servicing
Agreement.

Adjustable Rate Mortgage Securities Fund paid $86,239 to the Distributor
and $0 to Piper Trust during the fiscal year ended August 31, 1996 and for the
fiscal period from September 1, 1996 to September 30, 1996, the Fund paid $7,365
to the Distributor and $0 to Piper Trust.

-25-
<PAGE>

PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE

-26-
<PAGE>

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 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:

Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
September 30, 1994 September 30, 1995 September 30, 1996
------------------- ------------------ -------------------
<S> <C> <C> <C>
Government Income Fund $65,620 $15,300 $7,650
Intermediate Bond Fund 24,022 11,833 0
</TABLE>

The following table sets forth additional information with respect to
brokerage commissions paid during the fiscal year ended September 30, 1996:

% 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>
Government Income Fund $7,650 $0 0% 2%
Intermediate Bond Fund * 0 0 0% 0%

</TABLE>

For the fiscal years ended August 31, 1994 and 1995, DDJ paid aggregate
brokerage commissions of $69,650 and $3,740, respectively. Of such amounts,
$63,325 and $1,700, respectively, were paid to the Distributor. For the fiscal
year ended August 31, 1996 Adjustable Rate Mortgage Securities Fund paid no
brokerage

-27-
<PAGE>

commissions. For the fiscal period from September 1, 1996 to
September 30, 1996, Adjustable Rate Mortgage Securities Fund paid no brokerage
commissions.

From time to time the Funds may acquire the securities of their regular
brokers or dealers or parent companies of such brokers or dealers. None of the
Funds held any such securities at fiscal year end or purchased any such
securities during the fiscal year or fiscal period.

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

Each Fund's shares constitute a separate series of the Company's common
stock. The assets received by a 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 a 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.

As of January _________ , 1997, no shareholder owned 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:
________________________________________________. 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. For Intermediate Bond Fund, the foregoing
ownership information relates to such Fund's Class A shares; there were no
Class Y shares of Intermediate Bond Fund outstanding as of such date.

-28-
<PAGE>

NET ASSET VALUE AND PUBLIC OFFERING PRICE

The method for determining the public offering price of Fund shares is
summarized in the 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 (Class A shares
of Intermediate Bond Fund) was calculated as follows:

Government Income Fund
-----------------------

Net Assets ($83,828,575) = Net Asset Value Per Share
- -------------------------------
Shares Outstanding (9,495,487) ($8.83)

Intermediate Bond Fund
-----------------------

Net Assets ($135,837,838) = Net Asset Value Per Share
- --------------------------------
Shares Outstanding (18,104,026) ($7.50)

Adjustable Rate Mortgage Securities Fund
----------------------------------------

Net Assets ($262,833,368) = Net Asset Value Per Share
- --------------------------------
Shares Outstanding (32,616,678) ($8.06)

There were no Class Y shares of Intermediate Bond Fund outstanding as of
such date.

PERFORMANCE COMPARISONS

Advertisements and other sales literature for the Funds may refer to
"average annual total return," "cumulative total return" and "yield."

-29-
<PAGE>

P(1+T)n = 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 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 (Class A shares of Intermediate Bond Fund) for one year, five years and
since inception for the period ending September 30, 1996. There were no Class Y
shares of Intermediate Bond Fund outstanding during such periods.

Average Annual Total Returns
-----------------------------
1 Year 5 Years Since Inception
------ ------- ---------------
Government Income Fund (1) 0.79% 5.25% 6.68%
Intermediate Bond Fund (2) 3.57% 3.97% 6.91%
Adjustable Rate Mortgage
Securities Fund (3) 4.97% N/A 4.17%

- ------------------------
(1) Inception date: 3/16/87
(2) Inception date: 7/11/88. The Fund's investment policies were revised on
September 13, 1996 to permit investments in a broad range of investment
quality debt securities. Prior to that date, the Fund was named
Institutional Government Income Portfolio, and was permitted to invest only
in U.S. Government Securities and repurchase agreements for such
securities. Total return calculations deduct the current maximum sales
charge of 2%. The maximum sales charge prior to September 13, 1996 was
1.5%.
(3) Inception date: 1/30/92. Performance for periods prior to September 1,
1995 is that of DDJ, the Fund's predecessor for financial reporting
purposes.

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 Adviser's discretion. Absent any voluntary expense payments or fee waivers,
the average annual total returns for such Funds (Class A shares of Intermediate
Bond Fund) for one year, five years and since inception for the period ending
September 30, 1996 would have been.

-30-
<PAGE>

Average Annual Total Returns
----------------------------
(absent voluntary waivers and reimbursements)
1 Year 5 Years Since Inception
------- ------- ---------------
Government Income Fund (1) 0.67% 5.06% 6.44%
Intermediate Bond Fund (2) + 3.95% 6.67%

- -------------------
(1) Inception date: 3/16/87.
(2) Inception date: 7/11/88.
+ There were no voluntary expense waivers or payments by the Adviser during
this period.

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 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
(Class A shares of Intermediate Bond Fund) from inception to September 30, 1996.
There were no Class Y shares of Intermediate Bond Fund outstanding during such
periods.

Cumulative Total Returns
Cumulative (absent voluntary fee waivers
Total Returns and expense reimbursements)
----------- ---------------------------
Government Income Fund (1) 85.40% 81.43%
Intermediate Bond Fund (2) 73.31% 70.11%
Adjustable Rate Mortgage
Securities Fund (3) 21.03% 20.88%

(1) Inception date: 3/16/87
(2) Inception date: 7/11/88. The Fund's investment policies were revised on
September 13, 1996 to permit investments in a broad range of investment
quality debt securities. Prior to that date, the Fund was named
Institutional Government Income Portfolio, and was permitted to invest only
in U.S. Government Securities and repurchase agreements for such
securities. Total

-31-
<PAGE>

return calculations deduct the current maximum sales charge of 2%. The
maximum sales charge prior to September 13, 1996 was 1.5%.
(3) Inception date: 1/30/92. Performance for periods prior to September 1,
1995 is that of DDJ, the Fund's predecessor for financial reporting
purposes.

The Funds 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:

YIELD = 2[(a-b + 1)6 - 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.

For the 30-day period ended September 30, 1996, Government Income Fund,
Intermediate Bond Fund (Class A shares) and Adjustable Rate Mortgage
Securities Fund had yields of 6.53%, 6.53% and 5.94%, respectively. (The
yield for Intermediate Bond Fund has been restated to reflect the Fund's
current 2% maximum sales charge. The maximum sales charge prior to September
13, 1996 was 1.5%.) Absent voluntary expense payments or fee waivers, the
30-day yield as of September 30, 1996 would have been 6.34% and 6.43% for
Government Income Fund and the Class A shares of Intermediate Bond Fund,
respectively. There were no Class Y shares of Intermediate Bond Fund
outstanding during such period.

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 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 the Funds
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.

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<PAGE>

The performance of Intermediate Bond Fund may be compared to the
performance of the U.S. Mortgage Funds Average, as reported by Lipper, and to
the performance of the Lehman Brothers Intermediate Aggregate Index. The
performance of Government Fund may be compared to the performance of the U.S.
Mortgage Fund Average, as reported by Lipper, and to the performance of the
Merrill Lynch 5 -10 Year Treasury Index. The performance of Adjustable Rate
Mortgage Securities Fund may be compared to the performance of the Adjustable
Rate Mortgage Funds Average, as reported by Lipper, and to the performance of
the Lehman Brothers Adjustable Rate Mortgage Index, an unmanaged index.

PURCHASE OF SHARES

For shares of Government Income Fund and Adjustable Rate Mortgage
Securities Fund and the Class A shares of Intermediate Bond Fund, 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 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

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<PAGE>

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.

REINSTATEMENT PRIVILEGE

A shareholder who has redeemed shares of a Fund (Class A shares of
Intermediate Bond Fund), may reinvest all or part of the redemption proceeds
in the shares of any fund managed by the Adviser (the Class A shares of any
such fund that offers multiple classes of shares) within 30 days without
payment of an additional sales charge. If the shareholder paid a contingent
deferred sales charge ("CDSC") in connection with such redemption, the
Distributor will refund a proportional amount of such CDSC. 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 CDSC that was applicable to the earlier
investment; however, the period during which the CDSC 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

-34-

<PAGE>

in full and fractional shares (of the same Class in the case of Intermediate
Bond Fund) 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.

TAXATION

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

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<PAGE>

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.

-36-
<PAGE>

Certain Funds may make investments that produce income that is not matched
by corresponding distributions to such Funds, such as investments in obligations
having original issue discount, such as zero coupon securities, or market
discount (if a Fund elects to accrue the market discount on a current basis with
respect to such instruments). Such income would be treated as income earned by
a Fund and therefore would be subject to the distribution requirements of the
Code. Because such income may not be matched by a corresponding cash
distribution to a Fund, such Fund may be required to borrow money or dispose of
other securities to be able to make distributions to shareholders.

As noted in the Prospectus, for federal income tax purposes, Government
Income Fund, Intermediate Bond Fund and Adjustable Rate Mortgage Securities Fund
had capital loss carryovers at September 30, 1996 of $16,784,819, $276,491,719
and $146,563,691, respectively. Adjustable Rate Mortgage Securities Fund is
limited in its utilization of capital loss carryovers to $69,945,971 per year.
If these loss carryovers are not offset by subsequent capital gains, they will
expire September 30, 2002-2004 for Government Fund, September 30, 2003-2004 for
Intermediate Bond Fund and September 30, 1997-2004 for Adjustable Rate Mortgage
Securities Fund. It is unlikely that the Board of Directors will authorize a
distribution of any net realized capital gains for a Fund until such Fund's
available capital loss carryover has been offset or has expired.

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

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<PAGE>

FINANCIAL STATEMENTS

The audited financial statements and supplementary schedules for the Funds
as of September 30, 1996 (as of August 31, 1996 and September 30, 1996 for
Adjustable Rate Mortgage Securities Fund) and 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

-38-
<PAGE>

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.

-39-
<PAGE>

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.

-40-
<PAGE>

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.

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<PAGE>

APPENDIX A
CORPORATE BOND, PREFERRED STOCK AND
COMMERCIAL PAPER RATINGS

COMMERCIAL PAPER RATINGS

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.

A-1
<PAGE>

MOODY'S INVESTORS SERVICE, INC. Moody's ratings for corporate bonds
include the following:

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-2
<PAGE>

MOODY'S INVESTORS SERVICE, INC. Moody's ratings for preferred stock
include the following:

A-3
<PAGE>

APPENDIX B
INTEREST RATE FUTURES CONTRACTS AND RELATED OPTIONS

INTEREST RATE FUTURES CONTRACTS

Government 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
Fund 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.

B-1
<PAGE>

The purpose of the acquisition or sale of a futures contract by the 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 the 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 the 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 Fund 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

B-2
<PAGE>

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. The 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, the 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. The 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, the Fund will seek to realize a profit to offset the
loss in value of its portfolio securities.

PURCHASE OF CALL OPTIONS ON FUTURES CONTRACTS. The 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. The 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.

B-3
<PAGE>

WRITING CALL OPTIONS ON FUTURES CONTRACTS. The 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. The 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

Successful use of futures contracts by the 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

B-4
<PAGE>

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. The 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. The 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
Fund 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 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 the 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

B-5
<PAGE>

in writing options on futures contracts may exceed the amount of the premium
received.

The effective use of options strategies is dependent, among other things,
on the Fund's ability to terminate options positions at a time when the Adviser
deems it desirable to do so. Although the Fund 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 Fund will be able to effect closing
transactions at any particular time or at an acceptable price. The Fund's
transactions involving options on futures contracts will be conducted only on
recognized exchanges. The 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

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 Fund 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.

B-6
<PAGE>

PART B

MONEY MARKET FUND
U.S. GOVERNMENT MONEY MARKET FUND
TAX-EXEMPT MONEY MARKET FUND

Series of Piper Funds Inc.

STATEMENT OF ADDITIONAL INFORMATION

February , 1997

Table of Contents
Page
----

Investment Policies and Restrictions . . . . . . . . . . . . . . . . . 2
Directors and Executive Officers . . . . . . . . . . . . . . . . . . . 7
Investment Advisory and Other Services . . . . . . . . . . . . . . . . 11
Portfolio Transactions and Allocation of Brokerage . . . . . . . . . . 16
Capital Stock and Ownership of Shares. . . . . . . . . . . . . . . . . 18
Net Asset Value and Public Offering Price. . . . . . . . . . . . . . . 19
Performance Comparisons. . . . . . . . . . . . . . . . . . . . . . . . 20
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . 23
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
General Information. . . . . . . . . . . . . . . . . . . . . . . . . . 26
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 26
Pending Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Appendix A - Ratings . . . . . . . . . . . . . . . . . . . . . . . . . A-1

This Statement of Additional Information is not a prospectus. This
Statement of Additional Information relates to the Prospectus dated February
, 1997, and should be read in conjunction therewith. A copy of the
Prospectus may be obtained from the Funds at Piper Jaffray Tower, 222 South
Ninth Street, Minneapolis, Minnesota 55402.

3060-1

<PAGE>

INVESTMENT POLICIES AND RESTRICTIONS

The shares of Piper Funds Inc. (the "Company") are currently offered in 12
series. This Statement of Additional Information relates to three of those
series, Money Market Fund, U.S. Government Money Market Fund and Tax-Exempt
Money Market Fund (sometimes referred to herein as a "Fund" or, collectively, as
the "Funds"). The investment objectives and policies of the Funds are set forth
in the Prospectus. Certain additional investment information is set forth
below.

REPURCHASE AGREEMENTS

U.S. Government Money Market Fund will enter into repurchase agreements and
reverse repurchase agreements (see "--Reverse Repurchase Agreements" below) only
with the primary reporting dealers that report to the Federal Reserve Bank of
New York and with banks that are among the 100 largest United States commercial
banks.

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 large single joint
account to be used to enter into one or more large repurchase agreements.

REVERSE REPURCHASE AGREEMENTS

Each Fund may enter into reverse repurchase agreement transactions with the
same parties with whom it may enter into repurchase agreements. However, the
Funds do not currently enter into or intend to enter into such transactions
during the coming year. Under a reverse repurchase agreement, a Fund sells
securities and agrees to repurchase them at a mutually agreed date and price.
Because certain of the incidents of ownership of the security are retained by
the Fund, reverse repurchase agreements are considered a form of borrowing by
the Fund from the buyer, collateralized by the security. At the time the Fund
enters into a reverse repurchase agreement, it will establish and maintain a
segregated account with an approved custodian containing high-grade liquid debt
securities having a value not less than the repurchase price (including accrued
interest). Reverse repurchase agreements involve the risk that the market value
of the securities retained in lieu of sale by the Fund may decline below the
price of the securities the Fund has sold but is obligated to repurchase. In
the event the buyer of securities

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<PAGE>

under a reverse repurchase agreement files for bankruptcy or becomes insolvent,
such buyer or its trustee or receiver may receive an extension of time to
determine whether to enforce the Fund's obligation to repurchase the securities
and the Fund's use of the proceeds of the reverse repurchase agreement may
effectively be restricted pending such decisions. Reverse repurchase agreements
will be used as a means of borrowing for investment purposes. This speculative
technique is referred to as leveraging. Leveraging may exaggerate the effect on
net asset value of any increase or decrease in the market value of a Fund's
portfolio. Money borrowed for leveraging will be subject to interest costs
which may or may not be recovered by income from or appreciation of the
securities purchased. The Board of Directors has established procedures, which
are periodically reviewed by the Board, pursuant to which the Adviser will
monitor the creditworthiness of the dealers and banks with which the Funds enter
into reverse repurchase agreement transactions.

WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES

Tax-Exempt Money Market Fund may purchase securities on a "when-issued"
basis and may purchase and sell securities on a "forward commitment" basis.
When the 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; the Fund will likewise
segregate securities it sells on a forward commitment basis.

PUTS

To help assure appropriate liquidity, Tax-Exempt Money Market Fund may
acquire Municipal Obligations which provide for the right to resell them to the
issuer, a bank or a broker-dealer at a specified price within a specified period
of time prior to the maturity date of such obligation. Such a right to resell,
which is commonly known as a "put," may be sold, transferred or assigned only
with the underlying security or securities. Immediately after acquisition of
any put, Tax-Exempt Money Market Fund will not, with respect to 75% of the total
amortized cost value of its assets, have invested more than 5% of the total
amortized cost value of its assets in securities underlying puts from the same
institution. An unconditional put, which is a put that would be readily
exercisable in the event of a default in payment of principal or interest on the
underlying security or securities, will not be considered to be a put from that
institution, provided that the amortized cost value of all securities held by
the Fund and issued or guaranteed by the same institution does not exceed 10% of
the total amortized cost value of the Fund's assets. For the purposes of this
paragraph, a put will be considered to be from the party to whom the Fund will
look for payment of the exercise price and an unconditional put will be
considered to be a guarantee of the underlying security or securities.

If an issuer, bank or broker-dealer should default on its obligation to
repurchase a security, Tax-Exempt Money Market Fund might be unable to recover
all or a portion of any loss sustained from having to sell the security
elsewhere. It will be the Fund's policy to enter into puts only with issuers,
banks or broker-dealers that are determined by the Adviser to present minimal
credit risks.

-3-

<PAGE>

ILLIQUID SECURITIES

As set forth in the Prospectus, the Funds may invest in Rule 144A
securities and commercial paper issued pursuant to Rule 4(2) under the
Securities Act of 1933, and treat such securities 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. 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.

PORTFOLIO TURNOVER

Each Fund, consistent with its investment objective, may attempt to
maximize yield through portfolio trading. This may involve selling portfolio
instruments and purchasing different instruments to take advantage of
disparities of yield in different segments of the high-grade money market or
among particular instruments within the same segment of the market. Since each
Fund's assets will be invested in securities with short maturities and the Funds
will manage their portfolios as described above, each Fund's portfolio will turn
over several times a year. However, this will not generally increase the Funds'
brokerage costs, since brokerage commissions as such are not usually paid in
connection with the purchase or sale of the instruments in which the Funds
invest.

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. Because
securities with maturities of less than one year are excluded from required
portfolio turnover rate calculations, the portfolio turnover rate for each Fund
will generally be insignificant.

INVESTMENT RESTRICTIONS

-4-
<PAGE>

As fundamental investment restrictions, 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, or to
Tax-Exempt Securities, as defined in the Prospectus. In addition, this
restriction does not apply to obligations of United States banks, domestic
branches thereof and United States branches of foreign banks subject to United
States regulation. 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
number 3 below and except to the extent that purchasing or selling securities on
a when-issued or delayed delivery basis may be deemed to constitute issuing a
senior security.

3. Borrow money (provided that the Funds may enter into reverse
repurchase agreements) except from banks for temporary or emergency purposes.
Each Fund may borrow money in an amount up to one-third of the value of its
total assets in order to meet redemption requests without immediately selling
any money market instruments. If, for any reason, the current value of a Fund's
total assets falls below an amount equal to three times the amount of its
indebtedness from money borrowed, such Fund will, within three business days,
reduce its indebtedness to the extent necessary. To do this, a Fund may have to
sell a portion of its investments at a time when it may be disadvantageous to do
so. 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
(provided that the Funds may enter into reverse repurchase agreements for such
purposes).

4. Mortgage, pledge or hypothecate its assets except in an amount not
exceeding 10%, with respect to Money Market Fund and U.S. Government Money
Market Fund, and 20% with respect to Tax-Exempt Money Market Fund, of the value
of their total assets to secure temporary or emergency borrowing.

5. Purchase or sell commodities or commodity futures contracts.

As nonfundamental investment restrictions that may be changed at any time
without shareholder approval, no Fund will:

-5-
<PAGE>

1. Invest more than 10% of its net assets in illiquid securities.

2. Invest in warrants.

3. 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.)

4. Make short sales of securities.

5. Purchase any securities on margin except to obtain such short-term
credits as may be necessary for the clearance of transactions.

6. Write, purchase or sell puts, calls or combinations thereof, provided
that the Funds may purchase securities with demand or put features.

7. 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.

8. Invest for the purpose of exercising control or management.

9. 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.

10. Purchase the securities of other investment companies except as part
of a merger, consolidation or acquisition of assets, provided that Tax-Exempt
Money Market Fund may invest up to 5% of its total assets in the securities of
other investment companies. Any purchases by Tax-Exempt Money Market Fund of
the securities of other investment companies will be made in the open market
where customary brokerage fees and commissions are paid.

11. Invest in foreign securities, except as follows: (a) Money Market
Fund may invest without limit in foreign securities, subject to the requirements
of Rule 2a-7 of the 1940 Act, and (b) Tax-Exempt Money Market Fund may invest up
to 5% of its total assets in foreign securities. For purposes of this
investment limitation, securities of foreign issuers which are guaranteed as to
payment of principal and interest by the U.S. Government or its agencies or
instrumentalities are not considered foreign securities.

12. Loan portfolio securities.

-6-
<PAGE>

The identification of the issuer of a Tax-Exempt Security depends on the
terms and conditions of the obligation. If the assets and revenues of an
agency, authority, instrumentality or other political subdivision are separate
from those of the government creating the subdivision, and the obligation is
backed only by the assets and revenues of the subdivision, such subdivision will
be regarded as the sole issuer. Similarly, in the case of a nongovernmental
user, such as an industrial corporation or a privately owned or operated
hospital, if the security is backed only by the assets and revenues of the
nongovernmental user then such nongovernmental user will be deemed to be the
sole issuer. If in either case the creating government or another entity
guarantees an obligation, and the value of all securities issued or guaranteed
by the guarantor and owned by a Fund exceeds 10% of the value of such Fund's
total assets, the guarantee will be regarded as a separate security and treated
as an issue of such government or entity.

Any investment restriction or limitation referred to above or in the
Prospectus, except the borrowing policy, 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

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

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

-7-
<PAGE>

NAME, ADDRESS AND (AGE) POSITION WITH THE COMPANY

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

- ---------------------
* 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.

-8-
<PAGE>

Paul A. Dow is Chief Investment Officer and Senior Vice President of the
Adviser.

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.

The Board of Directors also has a Committee of the Independent Directors,
consisting of Mr. Bennett, who serves as chairperson, Messrs. Dyer, Hughey and

-9-
<PAGE>

Latimer, Ms. Emmerich and Ms. Goldberg, and a Derivatives Subcommittee
consisting of Ms. Emmerich, who serves as chairperson, Ms. Goldberg and Mr.
Dyer.

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
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.

-10-
<PAGE>

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 will act as such pursuant
to a written agreement which will be 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.

CONTROL OF THE ADVISER AND THE DISTRIBUTOR

INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT

The Investment Advisory and Management Agreement will terminate
automatically in the event of its assignment. In addition, the 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

-11-
<PAGE>

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, the Funds pay
the Adviser monthly advisory fees equal on an annual basis to a certain
percentage of each Fund's average net assets as set forth in the following
table.

Annual Advisory Fee
Average Net Asset Values as Percentage of
of the Fund Average Net Assets
- -------------------------- ---------------------
On the first $500,000,000 .50%
On the next $250,000,000 .425%
On the next $250,000,000 .375%
On the next $500,000,000 .35%
On the next $500,000,000 .325%
On the next $500,000,000 .30%
On average assets of over
$2,500,000,000 .275%

Money Market Fund, U.S. Government Money Market Fund and Tax-Exempt Money
Market Fund paid $5,287,804, $995,914 and $972,714, respectively, in advisory
fees for the fiscal year ended September 30, 1994, $5,857,287, $1,105,123 and
$966,676, respectively, in advisory fees for the fiscal year ended September 30,
1995 and $7,536,110, $1,477,604 and $1,122,039, respectively for the fiscal year
ended September 30, 1996.

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 the 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.

EXPENSES

-12-
<PAGE>

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 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

(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.

-13-
<PAGE>

Pursuant to the provisions of the Distribution Plan, U.S. Government
Money Market Fund and Tax-Exempt Money Market Fund each pays a quarterly
(Class A fee to the Distributor equal, on an annual basis, to .30% of such
Fund's average daily net assets. The fee for Money Market Fund is equal to
.30% of such Fund's average daily net assets attributable to Class A shares
and 1.00% fo such Fund's average daily net assets attributable to Class B
shares. Such fees are paid for servicing of the Funds' shareholder accounts
and providing distribution-related services to the Funds. As described in
the Prospectus, a portion of each Fund's total fee is 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 the Funds ("Distribution Expenses"), and a portion of the fee is
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 the Funds ("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;
interest expenses; 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 services not
otherwise required to be provided by the Funds' Adviser or transfer agent.

For each of the fiscal years ended September 30, 1994, 1995 and 1996,
the Distributor voluntarily limited amounts payable under the Distribution
Plan to an annual rate of .20% of average daily net assets for each Fund.
The Distributor intends to limit its Rule 12b-1 fees to the same extent for
the fiscal year ending September 30, 1997, provided that it does not intend
to limit Rule 12b-1 fees payable with respect to Money Market Fund's Class B
shares. Money Market Fund paid Rule 12b-1 fees for the fiscal years ended
September 30, 1994, 1995 and 1996 of $2,450,296, $2,725,532 and $3,774,268,
respectively. (There were no Class B shares of

-14-
<PAGE>

Money Market Fund outstanding during these periods. U.S. Government Money
Market Fund paid distribution fees for the fiscal years ended September 30,
1994, 1995 and 1996 of $399,419, $443,366 and $587,962, respectively.
Tax-Exempt Money Market Fund paid distribution fees for the fiscal years
ended September 30, 1994, 1995 and 1996 of $389,086, $381,907 and $446,581,
respectively.

Distribution fees for the fiscal year ended September 30, 1996, were used
by the Distributor as follows:

U.S. Government Tax-Exempt
Money Market Money Market Money Market
Fund Fund Fund
------------ --------------- ------------
<S> <C> <C> <C>
Advertising. . . . . . . . . . . . . . . $ -0- $ -0- $ -0-
Printing and Mailing of
Prospectuses to Other
than Current Shareholders. . . -0- -0- -0-
Compensation to Under-
writers (trail fees to
Investment Executives) . . . . $3,774,268 $587,962 $446,581
Compensation to Dealers . . . . . . . . -0- -0- -0-
Compensation to Sales
Personnel. . . . . . . . . . . -0- -0- -0-
Interest, Carrying or Other
Finance Charge . . . . . . . . -0- -0- -0-
Other (Specify). . . . . . . . . . . . . -0- -0- -0-
---------- ------------- ---------
$3,774,268 $587,962 $446,581

</TABLE>

UNDERWRITING AND DISTRIBUTION AGREEMENT

Pursuant to the 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 such shares are available for sale and may lawfully be offered for
sale and sold.

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. 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

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<PAGE>

shareholder reports and prospectuses, tracking shareholder accounts for blue sky
and Rule 12b-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 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 $9.00 per active shareholder account by
each Fund and $6.00 per inactive account (defined as an account that has a
balance of shares in any of the Funds but that does not require a client
statement for the current month) by each Fund. There is no charge for a closed
shareholder account (defined as an account that has been inactive for at least
three consecutive months). Such fee is payable on a monthly basis at a rate of
1/12 of the annual per-account charge. Such fee covers 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, Money Market Fund, U.S.
Government Money Market Fund and Tax-Exempt Money Market Fund paid
$3,189,833, $201,049, and $120,803, respectively, to the Distributor and
$18,085, $0 and $0, respectively to Piper Trust under the Shareholder Account
Servicing Agreements.

PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE

Because each Fund's portfolio is composed exclusively of debt, rather than
equity securities, most of the Funds' portfolio transactions are effected
without the payment of brokerage commissions, but at net prices which usually
include a markup. Most of the Funds' transactions are with the issuer, or with
major dealers on a principal basis acting for their own account and not as
brokers. However, portfolio transactions for the Funds which are executed on an
agency basis may be effected through the Distributor on a securities exchange if
the commissions, fees or other remuneration received by the Distributor are
reasonable and fair compared to the commissions, fees or other remuneration paid
to other brokers or other 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. In effecting portfolio transactions through
the Distributor, the Funds intend to comply with Section 17(e)(1) of the 1940
Act. For the fiscal years ended September 30, 1994, 1995 and 1996, the Funds
did not pay any brokerage commissions.

-16-
<PAGE>

The Adviser is responsible for effecting securities transactions for each
of the Funds. 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 at the most favorable net price, considering the state of the
market at the time. Frequently the Adviser selects a broker-dealer to effect a
particular transaction without contacting all broker-dealers who might be able
to effect such transaction, because of the volatility of the money market and
the desire to accept a particular price for a security because the price offered
by the broker-dealer meets a Fund's guidelines for profit, yield, or both.

When consistent with the objectives of prompt execution and favorable net
price, 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
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 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. In the
event any transactions are executed on an agency basis, 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

-17-
<PAGE>

responsibilities with respect to the accounts as to which it exercises
investment discretion. If the Funds execute any transactions on an agency
basis, they will generally pay higher than the lowest commission rates
available.

Any portfolio transactions for the Funds executed on an agency basis may be
effected through the Distributor. In determining the commissions to be paid to
the Distributor, 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 in connection with comparable transactions involving similar
securities 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 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.

From time to time the Funds may acquire the securities of their regular
brokers or dealers or parent companies of such brokers or dealers. As of
September 30, 1996, Money Market Fund held $29,971,824 of securities issued by
Goldman Sachs Group L.P., $31,537,877 of securities issued by Merrill Lynch &
Co., Inc., and $28,974,677 of securities issued by Morgan Stanley Group, Inc.
During the 1996 fiscal year, Money Market Fund also purchased securities issued
by C.S. First Boston, Goldman Sachs Group L.P., Merrill Lynch & Co., Inc. and
Morgan Stanley Group, Inc. During the 1996 fiscal year, U.S. Government Money
Market Fund and Tax-Exempt Money Market Fund did not purchase any securities of
their regular brokers or dealers or parent companies of such brokers or dealers.

CAPITAL STOCK AND OWNERSHIP OF SHARES

Each Fund's shares constitute a separate series of the Company's common
stock. 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, are 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 in respect 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 upon
the relative net assets of the series at the time such expenses were accrued.

As of January __________, 1997, no shareholder owned 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:_________________________ . 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. There were no Class B shares of Money Market Fund
outstanding as of such date.

-18-
<PAGE>

NET ASSET VALUE AND PUBLIC OFFERING PRICE

The method for determining the public offering price of Fund shares (which
is equal to their net asset value) is summarized in the Prospectus in the text
following the heading "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 may also fluctuate. On
September 30, 1996, the net asset value per share for each Fund (Class A
shares of Money Market Fund) was calculated as follows:

MONEY MARKET FUND

Net Assets ($1,965,800,008) = Net Asset Value Per Share
- -----------------------------------------
Shares Outstanding (1,965,800,008) ($1.00)

U. S. GOVERNMENT MONEY MARKET FUND

Net Assets ($291,021,811) = Net Asset Value Per Share
- ------------------------------------------
Shares Outstanding (291,021,811) ($1.00)

TAX-EXEMPT MONEY MARKET FUND

Net Assets ($209,938,990) = Net Asset Value Per Share
- -----------------------------------------
Shares Outstanding (209,938,990) ($1.00)

There were no Class B shares of Money Market Fund outstanding as of such
date.

Each Fund values its portfolio securities at amortized cost in accordance
with Rule 2a-7 under the 1940 Act. This method involves valuing an instrument
at its cost and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuations in interest rates
on the market value of the instrument and regardless of any unrealized capital
gains or losses. While this method provides certainty in valuation, it may
result in periods during which value, as determined by amortized cost, is higher
or lower than the price a Fund would receive if it sold the instrument. During
periods of declining interest rates, the daily yield on shares of a Fund
computed by dividing the annualized daily income of the Fund by the net asset
value computed as described above may tend to be higher than a like computation
made by the Fund with identical investments utilizing a method of valuation
based upon market prices and estimates of market prices for all of its
securities.

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<PAGE>

Pursuant to Rule 2a-7, the Board of Directors has determined, in good faith
based upon a full consideration of all material factors, that it is in the best
interests of each of the Funds and their shareholders to maintain a stable net
asset value per share by virtue of the amortized cost method of valuation. Each
of the Funds will continue to use this method only so long as the Board of
Directors believes that it fairly reflects the market-based net asset value per
share. In accordance with Rule 2a-7, the Board of Directors has undertaken, as
a particular responsibility within the overall duty of care owed to Fund
shareholders, to establish procedures reasonably designed, taking into account
current market conditions and the Funds' investment objectives, to stabilize
each Fund's net asset value per share at a single value. These procedures
include the periodic determination of any deviation of current net asset value
per share, calculated using available market quotations, from each Fund's
amortized cost price per share, the periodic review by the Board of the amount
of any such deviation and the method used to calculate any such deviation, the
maintenance of records of such determinations and the Board's review thereof,
the prompt consideration by the Board if any such deviation exceeds 1/2 of 1%,
and the taking of such remedial action by the Board as it deems appropriate
where it believes the extent of any such deviation may result in material
dilution or other unfair results to investors or existing shareholders. Such
remedial action may include redemptions in kind, selling portfolio instruments
prior to realizing capital gains or losses, shortening the average portfolio
maturity, withholding dividends or utilizing a net asset value per share as
determined by using available market quotations. Each Fund will, in further
compliance with Rule 2a-7, maintain a dollar-weighted average portfolio maturity
appropriate to its objective of maintaining a stable net asset value and not
exceeding 90 days, will not purchase any instrument with a remaining maturity of
greater than 397 calendar days, will limit its portfolio investments to those
U.S. dollar-denominated instruments which the Board determines present minimal
credit risks and which are at the time of acquisition Eligible Securities (as
defined in Rule 2a-7), and will record, maintain and preserve a written copy of
the above-described procedures and a written record of the Board's
considerations and actions taken in connection with the discharge of its
above-described responsibilities.

PERFORMANCE COMPARISONS

Advertisements and other sales literature for the Funds may refer to
each Funds "yield," "average annual total return" and "cumulative total return."

Each Fund may issue current yield quotations. Simple yields are computed
by determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of a recent seven calendar day period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return, and then multiplying the base period return by 365/7. The
resulting yield figure will be carried to at least the nearest hundredth of one
percent. Effective yields are computed by determining the net change, exclusive
of capital changes, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of a recent seven calendar day period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power

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<PAGE>

equal to 365 divided by 7, and subtracting 1 from the result, according to the
following formula:
365/7
Effective Yield = [(Base Period Return +1) ] -1

When calculating the foregoing yield or effective yield quotations, the
calculation of net change in account value will include the value of additional
shares purchased with dividends from the original share and dividends declared
on both the original share and any such additional shares, and all fees, other
than nonrecurring accounts or sales charges, that are charged to all shareholder
accounts in proportion to the length of the base period. Realized gains and
losses from the sale of securities and unrealized appreciation and depreciation
are excluded from the calculation of yield and effective yield.

Tax-Exempt Money Market Fund may also advertise its tax equivalent yield.
This yield will be computed by dividing that portion of the seven-day yield or
effective yield of the Fund (computed as set forth above) which is tax-exempt by
one minus a stated income tax rate and adding the product to that portion, if
any, of the yield of the Fund that is not tax-exempt.

The Funds' yields, effective yields and, in the case of Tax-Exempt Money
Market Fund, tax-equivalent yield (assuming a 36% federal income tax rate),
based upon the seven days ended September 30, 1996, are set forth below.
Information for Money Market Fund relates to such Fund's Class A shares; there
were no Class B shares of Money Market Fund outstanding as of such date.

Effective Tax-Equivalent Tax-Equivalent
Fund Yield Yield Yield Effective Yield
----- ----- --------- ------------- ---------------
<S> <C> <C> <C> <C>
Money Market Fund 4.63% 4.74% N/A N/A
U.S. Government Money
Market Fund 4.55% 4.66% N/A N/A
Tax-Exempt Money
Market Fund 2.81% 2.85% 4.39% 4.45%

</TABLE>

During some of the periods for which yields are calculated, the Adviser
voluntarily waived certain Rule 12b-1 fees for each Fund, thereby increasing
yields. These fees may or may not be waived or paid in the future, in the
Adviser's discretion. The following table sets forth the yields of each Fund
as of September 30, 1996, absent the waiver of fees.

Effective Tax-Equivalent Tax-Equivalent
Fund Yield Yield Yield Effective Yield
---- ------ ----- ------- ---------------
<S> <C> <C> <C> <C>
Money Market Fund 4.53% 4.64% N/A N/A
U.S. Government Money
Market Fund 4.45% 4.56% N/A N/A
Tax-Exempt Money
Market Fund 2.71% 2.75% 4.23% 4.30%
</TABLE>

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<PAGE>

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 assumes all dividends and any capital gains distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the 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 return of each
Fund for various periods ended September 30, 1996. Information for Money
Market Fund relates to such Fund's Class A shares; there were no Class B shares
of Money Market Fund outstanding as of such date.

Average Annual Total Returns
-------------------------------------------------------------------------------------
Absent Voluntary
Actual Fee Waivers
-------------------------------------- -----------------------------------------
Since Since
1 Year 5 Year Inception 1 Year 5 Year Inception
------- -------- ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Money Market Fund
(Inception 3/16/87) 4.79% 3.79% 5.40% 4.69% 3.69% 5.29%

U.S. Government Money
Market Fund
(Inception 7/5/88) 4.72% 3.77% 5.16% 4.62% 3.67% 5.03%

Tax-Exempt Money
Market Fund
(Inception 7/5/88) 2.80% 2.51% 3.57% 2.70% 2.41% 3.44%
</TABLE>

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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 any capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus and includes all recurring fees, such as investment advisory
and management fees, charged to all shareholder accounts.

The cumulative total return for the Class A shares of Money Market Fund
from inception (March 16, 1987) to September 30, 1996 was 64.99%. (There were
no Class B shares of Money Market Fund outstanding during such period.) The
cumulative total return for U.S. Government Money Market Fund from inception
(July 5, 1988) to September 30, 1996 was 51.16%. The cumulative total return
for Tax-Exempt Money Market Fund from inception (July 5, 1988) to September 30,
1996 was 33.37%. Had the Adviser not voluntarily waived certain fees, the total
returns for Money Market Fund, U.S. Government Money Market Fund and Tax-Exempt
Money Market Fund would have been 63.34%, 49.65% and 32.04%, respectively.

In addition to advertising total return and yield, comparative performance
information may be used from time to time in advertising the Fund's 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. Performance information for the Funds also
may be compared to various 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.

REDEMPTION OF SHARES

-23-
<PAGE>

TAXATION

Pursuant to the Internal Revenue Code of 1986, as amended (the "Code"),
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. 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. For purposes of this calculation, any amount of income on which
corporate-level income tax has been paid is deemed to have been distributed.

Ordinarily, distributions and redemption proceeds earned by a Fund
shareholder are not subject to withholding of federal income tax. However, 31%
of a Fund'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.

Distributions paid from net realized capital gains, if any, will be taxable
to shareholders as ordinary income. Capital gains from the sale or exchange of
shares are also taxable.

Distributions may be subject to state and local income taxes and the
treatment thereof may differ from the federal income tax consequences discussed
above.

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<PAGE>

TAX-EXEMPT MONEY MARKET FUND

Under the Code, interest on indebtedness incurred or continued to purchase
or carry shares of an investment company paying exempt-interest dividends, such
as Tax-Exempt Money Market Fund, will not be deductible by a shareholder in
proportion to the ratio of exempt-interest dividends to all dividends other than
those treated as long-term capital gains. Indebtedness may be allocated to
shares of Tax-Exempt Money Market Fund even though not directly traceable to the
purchase of such shares. Federal law also restricts the deductibility of other
expenses allocable to shares of Tax-Exempt Money Market Fund.

For federal income tax purposes, an alternative minimum tax ("AMT") is
imposed on taxpayers to the extent that such tax exceeds a taxpayer's regular
income tax liability (with certain adjustments). Exempt-interest dividends
attributable to interest income on certain tax-exempt obligations issued after
August 7, 1986 to finance certain private activities are treated as an item of
tax preference that is included in alternative minimum taxable income for
purposes of computing the federal alternative minimum tax for all taxpayers and
the federal environmental tax on corporations. Tax-Exempt Money Market Fund may
invest in obligations the interest on which is treated as an item of tax
preference, to the extent set forth in the Prospectus. In addition, a portion
of all other tax-exempt interest received by a corporation, including exempt-
interest dividends, will be included in adjusted current earnings and earnings
and profits for purposes of determining the federal corporate alternative
minimum tax, the environmental tax imposed on corporations by Section 59A of the
Code, and the branch profits tax imposed on foreign corporations under Section
884 of the Code.

Because liability for AMT in the case of individuals will depend upon the
regular tax liability and tax preference items of a specific taxpayer, the
extent, if any, to which any tax preference items resulting from investment in
Tax-Exempt Money Market Fund will be subject to the tax will depend upon each
shareholder's individual situation. For shareholders with substantial tax
preferences, the AMT could reduce the after-tax economic benefits of an
investment in the Fund. Each shareholder is advised to consult his or her tax
adviser with respect to the possible effects of such tax preference items.

For shareholders who are or may become recipients of Social Security
benefits, exempt-interest dividends are includable in computing "modified
adjusted gross income" for purposes of determining the amount of Social Security
benefits, if any, that is required to be included in gross income. The maximum
amount of Social Security benefits includable in gross income is 85%.

The Code imposes requirements on certain tax-exempt bonds which, if not
satisfied, could result in loss of tax-exemption for interest on such bonds,
even retroactively to the date of issuance of the bonds. Proposals may be
introduced before Congress in the future, the purpose of which will be to
further restrict or eliminate the federal income tax exemption for Tax-Exempt
Securities. The Fund cannot predict what additional legislation may be enacted
that may affect shareholders. The Fund will avoid investment in Tax-Exempt
Securities which, in the opinion of the Adviser, pose a material risk of the
loss of tax exemption.

-25-
<PAGE>

Further, if a Tax-Exempt Security in the Fund's portfolio loses its exempt
status, the Fund will make every effort to dispose of such investment on terms
that are not detrimental to the Fund.

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 director derived an improper personal benefit. Minnesota law does not
permit elimination or limitation of a director's liability under the 1933 Act 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 dated September 30, 1996, as
set forth in Funds' Annual Reports, are incorporated by reference into this
Statement of Additional Information. The audited financial statements are
provided in reliance on the report 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

-26-
<PAGE>

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.

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
certainassociated 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.

-27-
<PAGE>

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 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.

-28-
<PAGE>

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 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.

-29-
<PAGE>

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.

-30-

<PAGE>
APPENDIX A
RATINGS

Description of the two highest commercial paper, bond and other short- and
long-term rating categories assigned by Standard & Poor's Ratings Services
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors Service LP
("Fitch"), Duff & Phelps, Inc. ("Duff"), IBCA Limited and IBCA Inc. ("IBCA") and
Thomson BankWatch, Inc. ("BankWatch").

COMMERCIAL PAPER AND SHORT-TERM RATINGS

The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined
to possess overwhelming safety characteristics are denoted with a plus sign (+)
designation. Capacity for timely payment on issues with an A-2 designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.

The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers of P-1 paper must have a superior capacity for repayment of
short-term promissory obligations, and ordinarily will be evidenced by leading
market positions in well-established industries, high rates of return on funds
employed, conservative capitalization structures with moderate reliance on debt
and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well-established access
to a range of financial markets and assured sources of alternate liquidity.
Issues rated Prime-2 (P-2) have a strong capacity for repayment of short-term
promissory obligations. This ordinarily will be evidenced by many of the
characteristics cited above, but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.

The rating Fitch-1 (Highest Grade) is the highest commercial paper rating
assigned by Fitch. Paper rated Fitch-1 is regarded as having the strongest
degree of assurance for timely payment. The rating Fitch-2 (Very Good Grade) is
the second highest commercial paper rating assigned by Fitch which reflects an
assurance of timely payment only slightly less in degree than the strongest
issues.

The rating Duff-1 is the highest commercial paper rating assigned by Duff.
Paper rated Duff-1 is regarded as having very high certainty of timely payment
with excellent liquidity factors which are supported by ample asset protection.
Risk factors are minor. Paper rated Duff-2 is regarded as having good certainty
of timely payment, good access to capital markets, and sound liquidity factors
and company fundamentals. Risk factors are small.

The designation A1 by IBCA indicates that the obligation is supported by a
very strong capacity for timely repayment. Those obligations rated A1+ are
supported by the highest capacity for timely repayment. Obligations rated A2
are supported by a strong capacity for timely repayment, although such capacity
may be susceptible to adverse changes in business, economic or financial
conditions.

A-1

<PAGE>

The rating TBW-1 is the highest short-term obligation rating assigned by
BankWatch. Obligations rated TBW-1 are regarded as having the strongest
capacity for timely repayment. Obligations rated TBW-2 are supported by a
strong capacity for timely repayment, although the degree of safety is not as
high as for issues rated TBW-1.

BOND AND LONG-TERM RATINGS

Bonds rated AAA are considered by S&P to be the highest grade obligations
and possess an extremely strong capacity to pay principal and interest. Bonds
rated AA by S&P are judged by S&P to have a very strong capacity to pay
principal and interest, and in the majority of instances differ only in small
degrees from issues rated AAA.

Bonds rated Aaa are judged by Moody's to be of the best quality. Bonds
rated Aa by Moody's are judged by Moody's to be of high quality by all standards
and, together with the Aaa group, they comprise what are generally known as
high-grade bonds. Bonds rated Aa are rated lower than Aaa bonds because margins
of protection may not be as large or fluctuations of protective elements may be
of greater amplitude or there may be other elements present which make the long-
term risks appear somewhat larger. Moody's applies numerical modifiers 1, 2 and
3 in the Aa rating category. The modifier 1 indicates a ranking for the
security in the higher end of this rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
the rating category.

Bonds rated AAA by Fitch are judged by Fitch to be strictly high-grade,
broadly marketable, suitable for investment by trustees and fiduciary
institutions, and liable to but slight market fluctuation other than through
changes in the money rate. The prime feature of an AAA bond is a showing of
earnings several times or many times interest requirements, with such stability
of applicable earnings that safety is beyond reasonable question whatever
changes occur in conditions. Bonds rated AA by Fitch are judged by Fitch to be
of safety virtually beyond question and are readily salable, whose merits are
not unlike those of the AAA class, but whose margin of safety is less strikingly
broad. The issue may be the obligation of a small company, strongly secured but
influenced as to rating by the lesser financial power of the enterprise and more
local type of market.

Bonds rated AAA by Duff are considered to be of the highest credit quality.
The risk factors are negligible, being only slightly more than U.S. Treasury
debt. Bonds rated AA are considered by Duff to be of high credit quality with
strong protection factors. Risk is modest but may vary slightly from time to
time because of economic conditions.

Obligations rated AAA by IBCA have the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly. Obligations rated AA by
IBCA have a very low expectation of investment risk. Capacity for timely
repayment of principal and interest is substantial. Adverse changes in
business, economic or financial condition may increase investment risk, albeit
not very significantly.

A-2
<PAGE>

IBCA also assigns a rating to certain international and U.S. banks. An
IBCA bank rating represents IBCA's current assessment of the strength of the
bank and whether such bank would receive support should it experience
difficulties. In its assessment of a bank, IBCA uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In addition, IBCA assigns
banks Long- and Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5, address the
question of whether the bank would receive support provided by central banks or
shareholders if it experienced difficulties, and such ratings are considered by
IBCA to be a prime factor in its assessment of credit risk. Individual Ratings,
which range in gradations from A through E, represent IBCA's assessment of a
bank's economic merits and address the question of how the bank would be viewed
if it were entirely independent and could not rely upon support from state
authorities or its owners.

In addition to its ratings of short-term obligations, BankWatch assigns a
rating to each issuer it rates, in gradations of A through E. BankWatch
examines all segments of the organization, including, where applicable, the
holding company, member banks or associations, and other subsidiaries. In those
instances where financial disclosure is incomplete or untimely, a qualified
rating (QR) is assigned to the institution. BankWatch also assigns, in the case
of foreign banks, a country rating which represents an assessment of the overall
political and economic stability of the country in which the bank is domiciled.

A-3

<PAGE>

PART C

OTHER INFORMATION

Growth Fund, Emerging Growth Fund, Small Company
Growth Fund, Growth and Income Fund, Balanced Fund, Intermediate
Bond Fund, Money Market Fund, U.S. Government Money Market Fund and
Tax-Exempt Money Market 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 *
1.3 Certificate of Designation of Class B of Series A, B, C, E, K and
L and of Class Y of Series H, K and L (3)
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 *
6.1 Underwriting and Distribution Agreement (3)
6.2 Dealer Agreement (3)
9.1 Shareholder Account Servicing Agreement between Piper Funds Inc.
and Piper Trust Company (3)
9.2 Shareholder Account Servicing Agreement between Piper Funds Inc.
and Piper Jaffray Inc. (3)
10.1 Opinion and Consent of Dorsey & Whitney P.L.L.P. dated April 7,
1995 *
10.2 Opinion and Consent of Dorsey & Whitney LLP with respect to Class
B shares of Series A, B, C E, K and L and Class Y shares of
Series H, K and L (3)
11 Consent of KPMG Peat Marwick LLP (2)
13 Letter of Investment Intent dated April 6, 1995 *
15.1 Plan of Distribution (3)
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.
<PAGE>

(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) Incorporated by reference to Post-Effective Amendment No. 32 to the
Registrant's Registration Statement on Form N-1A filed with the
Commission on November 25, 1996.
(3) To be filed by amendment.

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 February __, 1997, the following Class A Common Shares were
outstanding. There were no Class B shares or Class Y shares, as applicable,
outstanding of any Fund:

Number of
Title of Class Record Holders
-------------- --------------

Growth Fund Common Shares _______________
Emerging Growth Fund Common Shares _______________
Small Company Growth Fund Common Shares _______________
Growth & Income Fund Common Shares _______________
Balanced Fund Common Shares _______________
Intermediate Bond Fund Common Shares _______________
Money Market Fund Common Shares _______________
U.S. Government Money Market Fund Common Shares _______________
Tax-Exempt Money Market Fund Common Shares _______________

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

2
<PAGE>

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 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

3
<PAGE>

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
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

4
<PAGE>

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,
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,

5
<PAGE>

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 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

6
<PAGE>

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 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

7
<PAGE>

Positions and Offices Positions and Offices
Name with Underwriter with Registrant
- ---------------------- ----------------------------- ---------------------

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

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

8
<PAGE>

Positions and Offices Positions and Offices
Name with Underwriter with Registrant
- ---------------------- ----------------------------- ---------------------

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

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

9
<PAGE>

Positions and Offices Positions and Offices
Name with Underwriter with Registrant
- ---------------------- ----------------------------- ---------------------

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

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

10
<PAGE>

Positions and Offices Positions and Offices
Name with Underwriter with Registrant
- ---------------------- ----------------------------- ---------------------

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

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

11
<PAGE>

Positions and Offices Positions and Offices
Name with Underwriter with Registrant
- ---------------------- ----------------------------- ---------------------

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

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

12
<PAGE>

Positions and Offices Positions and Offices
Name with Underwriter with Registrant
- ---------------------- ----------------------------- ---------------------

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

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.

13
<PAGE>

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.

14
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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 9th
day of December 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 December 9, 1996
- ------------------------ executive officer)

/s/ Robert H. Nelson Treasurer (principal December 9, 1996
- ------------------------ financial and
Robert H. Nelson 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 December 9, 1996
-----------------------
William H. Ellis, Attorney-in-Fact