PIPER FUNDS INC, 485BPOS, 1997-11-24

PIPER FUNDS INC
485BPOS, 1997-11-24

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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 NOVEMBER 24, 1997
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- --------------------------------------------------------------------------------

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. 42

AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940

(Registration No. 811-4905)
Amendment No. 42
(Check appropriate box or boxes)

PIPER FUNDS INC.
(Exact Name of Registrant as Specified in Charter)

PIPER JAFFRAY TOWER, 222 SOUTH 9TH STREET, MINNEAPOLIS, MN 55402
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code: (6l2) 342-6384

Paul A. Dow
Piper Capital Management Incorporated
Piper Jaffray Tower
222 SOUTH 9TH STREET, MINNEAPOLIS, MINNESOTA 55402
(Name and Address of Agent for Service)

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

It is proposed that this filing will become effective (check box):

X immediately upon filing pursuant to paragraph (b) of rule 485
- ---------

on (specify date) pursuant to paragraph (b) of rule 485
- ---------

75 days after filing pursuant to paragraph (a) of rule 485, unless
- --------- effectiveness is accelerated by the staff of the Securities and
Exchange Commission

on (specify date) pursuant to paragraph (a) of rule 485
- ---------

<PAGE>

PIPER FUNDS INC.
Registration Statement on Form N-1A

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

CROSS REFERENCE SHEET
Pursuant to Rule 481(a)

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

Item No. Prospectus Heading

1. Cover Page . . . . . . . . . . Cover Page

2. Synopsis . . . . . . . . . . . Fund Descriptions

3. Financial Highlights . . . . . Fund Descriptions

4. General Description of
Registrant . . . . . . . . . Fund Descriptions

5. Management of the Fund . . . . Fund Descriptions

6. Capital Stock and Other
Securities . . . . . . . . . . Managing Your Investment--Holding Shares

7. Purchase of Securities
Being Offered. . . . . . . . . Managing Your Investment--Buying Shares

8. Redemption or Repurchase . . . Managing Your Investment--Selling Shares

9. Pending Legal Proceedings. . . General Information

STATEMENT OF ADDITIONAL INFORMATION HEADING

10. Cover Page . . . . . . . . . . Cover Page

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

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

13. Investment Objectives
and Policies . . . . . . . . . Investment Policies and Restrictions

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

<PAGE>

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 the 12 series of the Registrant
which issue Class A, Class B and/or Class Y shares. This filing consists of ten
Prospectuses, four Statements of Additional Information, one Part C and one
exhibit.

<PAGE>

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U.S. Growth Funds - Prospectus
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NOVEMBER 24, 1997

[LOGO]

U.S. GROWTH FUNDS

SMALL COMPANY GROWTH FUND (Class A and Class B Shares)
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EMERGING GROWTH FUND (Class A and Class B Shares)
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GROWTH FUND (Class A and Class B Shares)
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BEFORE YOU INVEST:

PLEASE READ THIS PROSPECTUS CAREFULLY, AND KEEP IT FOR FUTURE REFERENCE. IT
CONTAINS IMPORTANT INFORMATION ABOUT THE FUNDS, INCLUDING INFORMATION ON
INVESTMENT POLICIES, RISKS AND FEES.

AS WITH ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION (SEC) OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>

[LOGO]

CONTENTS
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INVESTING IN PIPER U.S. GROWTH FUNDS . . . . . . 1

FUND DESCRIPTIONS
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SMALL COMPANY GROWTH FUND. . . . . . . . . . . . 2 Investment objectives and
EMERGING GROWTH FUND . . . . . . . . . . . . . . 4 policies, risk
GROWTH FUND. . . . . . . . . . . . . . . . . . . 6 considerations, portfolio
managers, shareholder
expenses and financial
highlights
PORTFOLIO OVERVIEW
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INVESTMENT SECURITIES AND TECHNIQUES . . . . . . 8 An overview of securities
RISK FACTORS . . . . . . . . . . . . . . . . . .10 and investment techniques
that may be used by the
funds and their risks

MANAGING YOUR INVESTMENT
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BUYING SHARES. . . . . . . . . . . . . . . . . .11 Practical information to
Choosing a Share Class help you manage your
Calculating Your Purchase Price investment in Piper Funds
Reducing the Front-End Sales Charge
Investing Automatically
HOLDING SHARES . . . . . . . . . . . . . . . . .13
Receiving Dividends and Other Distributions
Taxing of Dividends and Other Distributions
Exchanging Shares
Conducting Transactions by Phone
Staying Informed
SELLING SHARES . . . . . . . . . . . . . . . . .14
Receiving the Proceeds
Paying the Contingent Deferred Sales Charge
Taking Systematic Withdrawals
Reinvesting After a Sale

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GENERAL INFORMATION. . . . . . . . . . . . . . .15
<PAGE>

INVESTING IN PIPER
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U.S. GROWTH FUNDS
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PIPER U.S. GROWTH FUNDS TARGET LONG-TERM GROWTH BY INVESTING PRIMARILY IN COMMON
STOCKS. SMALL COMPANY GROWTH FUND, EMERGING GROWTH FUND AND GROWTH FUND ARE
ADVISED BY PIPER CAPITAL MANAGEMENT INCORPORATED.

BEFORE YOU INVEST:

KNOW YOUR GOALS
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One or more of these funds may be appropriate for your investment portfolio if:

- - You are investing for retirement, your child's education, or another long-
term goal.

- - You are comfortable with a volatile investment and are willing to take risk
in the hope of achieving a higher long-term return.

- - You wish to diversify your portfolio, perhaps as part of an asset
allocation strategy.

If you anticipate needing your money in a short time --- or if you prefer a
stable investment and would consider selling your shares at the first sign of
loss in your portfolio --- you should consider other investment vehicles. Piper
U.S. Growth Funds were not designed to meet these goals.

UNDERSTAND THE RISKS
- --------------------------------------------------------------------------------
While mutual funds are a convenient and potentially rewarding way to invest,
they do not always meet their objectives. Please remember: You could lose money
with these investments. Safety of principal is not guaranteed. Risks associated
with these funds are outlined in the following pages.

USE YOUR PROSPECTUS
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Please read this prospectus carefully and keep it on file for future reference.
More detailed information about the funds is contained in their statement of
additional information, which can be obtained from the funds at the address and
phone number on the back cover. Further information is also available from your
broker or by calling Piper Capital at 800 866-7778.

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1 Prospectus - U.S. Growth Funds
<PAGE>

FUND DESCRIPTIONS

SMALL COMPANY GROWTH FUND
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Small Company Growth Fund seeks long-term capital appreciation. To pursue this
objective, the fund invests primarily in common stocks of small companies.

OVER TIME, SMALL COMPANIES MAY PROVIDE GREATER GROWTH POTENTIAL
THAN LARGER, MORE MATURE COMPANIES. HOWEVER, THEY ALSO INVOLVE GREATER RISKS
AND PRICE VOLATILITY.

INVESTMENT POLICIES
- --------------------------------------------------------------------------------
Under normal market conditions, Small Company Growth Fund will invest at least
65% of its total assets in common stocks of small companies that the advisor
believes offer superior growth potential. A company will be considered small if,
at the time of purchase, it has a market capitalization within the range of
companies included in Standard & Poor's SmallCap 600 Index ($39 million to $2.8
billion as of October 31, 1997).

The advisor uses a long-term, fundamental approach to identify and select small
companies which appear to offer superior growth potential. A "fundamental"
approach includes looking at a company's earnings and sales growth, competitive
advantages, management, and market opportunities and evaluating whether its
stock is fairly valued at the current market price.

Generally, the fund will be fully invested in a diversified portfolio of common
stocks, except that a small portion of assets will be held in short-term money
market securities and cash to pay redemption requests and fund expenses.
However, under unusual circumstances, the fund may retain cash or invest part or
all of its assets in short-term money market securities as a temporary defensive
measure. The fund may invest up to 10% of its total assets in equity securities
of foreign issuers.

The fund may purchase or write put and call options on the securities in which
it may invest and on stock indexes listed on national securities exchanges. In
addition, solely to hedge 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 purchase or write put or call options on such
contracts. Use of these practices may increase the volatility of the fund's net
asset value.

RISK CONSIDERATIONS
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Stocks may decline significantly in price over short or extended periods of
time. Price changes may affect the market as a whole, or they may affect only a
particular company, industry or sector of the market. See the descriptions of
market risk, company risk and sector risk on page 10.

Stocks of small companies involve substantial risk. Small companies may lack the
management expertise, financial resources, product diversification and
competitive strengths of larger companies. Stocks of small companies may be
subject to more abrupt or erratic market movements than those of larger, more
established companies or the market averages in general. In addition, the
frequency and volume of their trading may be less than is typical of larger
companies, making them subject to wider price fluctuations. In some cases, there
could be difficulties in selling the stocks of small companies at the desired
time and price.

The investment securities and techniques used by this fund present other risks
as well. See pages 8-10 for more information.

PORTFOLIO MANAGER
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SANDRA SHREWSBURY, CFA, is a senior vice president of Piper Capital with 14
years of financial experience.

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SHAREHOLDER EXPENSES
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As a shareholder, you pay expenses both directly and indirectly. Figures below
show expenses for the past year.(1)

SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
--------------------
Maximum front-end sales charge on purchases. . . . . . . . 4.00% none
(AS A % OF OFFERING PRICE)
Maximum deferred sales charge. . . . . . . . . . . . . . . none(2) 4.00%
(AS A % OF NET ASSET VALUE AT PURCHASE
OR REDEMPTION, WHICHEVER IS LESS)

FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
Management fee . . . . . . . . . . . . . . . . . . . . . . 0.75% 0.75%
12b-1 fee (after class A share fee limitation)(3,4). . . . 0.34% 1.00%
Other expenses (after expense reimbursements)(4) . . . . . 0.25% 0.25%
----- -----
Total operating expenses
(after fee limitation and expense reimbursements)(4). . 1.34% 2.00%

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EXPENSES ON A $1,000 INVESTMENT
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The example below shows the expenses you would pay on a $1,000 investment over
various time periods. It assumes you reinvested all distributions and received a
5% annual return. PLEASE NOTE: THIS IS ONLY AN EXAMPLE AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES COULD
VARY.

CLASS A CLASS B CLASS B
Assuming Assuming
redemption no
at end of redemption
period
---------------------------------------
1 year . . . . . . . . . . . . . . . . $53 $60 $20
3 years. . . . . . . . . . . . . . . . $81 $93 $63
5 years. . . . . . . . . . . . . . . . $110 $128 $108
10 years . . . . . . . . . . . . . . . $195 $200(5) $200(5)

(1) For class B shares, "other expenses" are based on intended
reimburstments for fiscal 1998.

(2) Except for investments of $500,000 or more. See "Paying the Contingent
Deferred Sales Charge," page 14.

(3) Due to the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.

(4) If Piper Jaffray and Piper Capital had not voluntarily limited fees and
reimbursed expenses, the class A share 12b-1 fee would have been 0.50%,
other expenses would have been 0.73% for class A shares, 0.40% for class B
shares, and total operating expenses would have been 1.98% for class A
shares and 2.15% for class B shares. Fee limitations and expense
reimbursements reflected in the table may be discontinued at any time after
fiscal 1998 year end.

(5) Assumes 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.

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2 Prospectus - U.S. Growth Funds
<PAGE>

FUND DESCRIPTIONS

SMALL COMPANY GROWTH FUND (CONTINUED)
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FINANCIAL HIGHLIGHTS The following information has been audited by KPMG Peat
Marwick LLP, independent auditors.
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Period Period
from from
11/1/88 Year 3/16/87(1)
CLASS A SHARES Fiscal year ended September 30, to Ended to
1997 1996(2) 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> <C>
PER SHARE DATA(3)
Net asset value, beginning
of period . . . . . . . . . . . . . $9.41 $9.73 $8.59 $8.42 $6.79 $6.41 $4.59 $5.03 $4.04 $3.95 $5.00
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Operations:
Net investment income (loss). . . (0.09) 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. . 3.11 0.48 1.14 0.15 1.65 0.36 1.82 (0.37) 0.93 0.10 (1.05)
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from operations . . . . . . 3.02 0.51 1.19 0.19 1.66 0.40 1.86 (0.32) 1.12 0.15 (1.01)
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Distributions to shareholders:
From net investment income. . . . (0.02) (0.04) (0.05) (0.02) (0.03) (0.02) (0.04) (0.12) (0.13) (0.06) (0.04)
From net realized gains
on investments . . . . . . . . . (2.84) (0.79) -- -- -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions to
shareholders . . . . . . . . . . (2.86) (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 . . . $9.57 $9.41 $9.73 $8.59 $8.42 $6.79 $6.41 $4.59 $5.03 $4.04 $3.95
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----

SELECTED INFORMATION

Total return(4)[BAR GRAPH] . . . . . 45.66% 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) . . . . . . . . . . . $36 $31 $48 $78 $84 $9 $9 $8 $13 $19 $28
Ratio of expenses to average
daily net assets(5) . . . . . . . . 1.34% 1.32% 1.40% 1.32% 1.28% 1.47% 1.32% 1.49% 1.30%(7) 1.52% 1.02%(7)
Ratio of net investment
income (loss) to average
daily net assets. . . . . . . . . (0.75%) 0.20% 0.43% 0.37% 0.50% 0.56% 0.61% 1.03% 3.95%(7) 1.13% 1.51%(7)
Average commission rate paid
on portfolio transactions(6). . . . $0.0600 $0.0600 -- -- -- -- -- -- -- -- --
Portfolio turnover rate
(excluding short-term
securities) . . . . . . . . . . . . 109% 125% 182% 177% 154% 420% 507% 514% 375% 202% 200%
Ratios before waivers by the
advisor and/or distributor:
Of expenses to average
daily net assets(5). . . . . . . 1.98% 1.79% 1.63% 1.54% 1.86% 2.49% 2.39% 2.55% 2.23%(7) 2.20% 2.24%(7)
Of net investment
income (loss) to average
daily net assets . . . . . . . . (1.39%) (0.27%) 0.20% 0.15% (0.08%) (0.46%) (0.46%) (0.03%) 3.02%(7) 0.45% 0.29%(7)
- ------------------------------------------------------------------------------------------------------------------------------------

Period from
CLASS B SHARES 2/18/97(8) to
9/30/97
--------------
<S> <C>
PER SHARE DATA
Net asset value, beginning
of period . . . . . . . . . . . . . $7.24
-----
Operations:
Net investment loss . . . . . . . (0.03)
Net realized and unrealized
gains on investments . . . . . . 2.33
-----
Total from operations . . . . . . 2.30
-----
Net asset value, end of period . . . $9.54
-----
-----
SELECTED INFORMATION

Total return(4). . . . . . . . . . . 31.77%
Net assets, end of
period (in thousands) . . . . . . . $480
Ratio of expenses to average
daily net assets. . . . . . . . . . 1.98%(7)
Ratio of net investment
loss to average
daily net assets. . . . . . . . . (1.49%)(7)
Average commission rate paid
on portfolio transactions(6). . . . $0.0600
Portfolio turnover rate
(excluding short-term
securities) . . . . . . . . . . . . 109%
Ratios before waivers by the advisor:
Of expenses to average
daily net assets . . . . . . . . 2.15%(7)
Of net investment
loss to average
daily net assets . . . . . . . . (1.66%)(7)

</TABLE>

(1) Commencement of operations.

(2) On 9/12/96, shareholders of the 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.

(3) Per-share amounts have been adjusted to reflect the effect of the stock
dividend declared on 10/21/96.

(4) Total return assumes reinvestment of distributions and does not reflect a
sales charge.

(5) Includes 0.24%, 0.17% and 0.15% of income tax expense for fiscal 1988, 1990
and 1992, respectively.

(6) Disclosed in accordance with guidelines adopted in 1996.

(7) Annualized.

(8) Commencement of offering of class B shares.

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3 Prospectus - U.S. Growth Funds
<PAGE>

FUND DESCRIPTIONS

EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND SEEKS LONG-TERM CAPITAL APPRECIATION. TO PURSUE THIS
OBJECTIVE, THE FUND INVESTS PRIMARILY IN COMMON STOCKS OF EMERGING GROWTH
COMPANIES.

INVESTMENT POLICIES
- --------------------------------------------------------------------------------
Under normal market conditions, Emerging Growth Fund will invest at least 65% of
its total assets in common stocks of emerging growth companies that the advisor
believes offer 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 companies included in Standard & Poor's
MidCap 400 Index ($236 million to $11.3 billion as of October 31, 1997).

The advisor uses a long-term, fundamental approach to identify and select
emerging growth companies which appear to offer superior growth potential. A
"fundamental" approach includes looking at a company's earnings and sales
growth, competitive advantages, management, and market opportunities and
evaluating whether its stock is fairly valued at the current market price.

Generally, the fund will be fully invested in a diversified portfolio of common
stocks, except that a small portion of its assets will be held in short-term
money market securities and cash to pay redemption requests and fund expenses.
However, under unusual circumstances, the fund may retain cash or invest part or
all of its assets in short-term money market securities as a temporary defensive
measure. The fund may invest up to 10% of its total assets in equity securities
of foreign issuers.

RISK CONSIDERATIONS
- --------------------------------------------------------------------------------

Stocks may decline significantly in price over short or extended periods of
time. Price changes may affect the market as a whole, or they may affect only
a particular company, industry or sector of the market. See the descriptions
of market risk, company risk and sector risk on page 10.

While emerging growth stocks may be slightly less volatile than small company
stocks, they still involve substantial risk. This is because emerging growth
companies may have limited product lines, markets or financial resources, and
they may be dependent on a limited management group. Securities of emerging
growth companies may be subject to more abrupt or erratic market movements than
those of larger, more established companies or the market averages in general.

The investment securities and techniques used by this fund present other risks
as well. See pages 8-10 for more information.

SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
--------------------
Maximum front-end sales charge on purchases. . . . . . . 4.00% none
(AS A % OF OFFERING PRICE)
Maximum deferred sales charge. . . . . . . . . . . . . . none(1) 4.00%
(AS A % OF NET ASSET VALUE AT PURCHASE
OR REDEMPTION, WHICHEVER IS LESS)

FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
Management fee . . . . . . . . . . . . . . . . . . . . . 0.69% 0.69%
12b-1 fee (after class A share fee limitation)(2,3). . . 0.34% 1.00%
Other expenses . . . . . . . . . . . . . . . . . . . . . 0.20% 0.16%
---- ----
Total operating expenses (after fee limitation)(3) . . . 1.23% 1.85%

CLASS A CLASS B CLASS B
Assuming redemption Assuming
at end of period no redemption
----------------------------------------------
1 year . . . . . . . . . . . . $52 $59 $19
3 years. . . . . . . . . . . . $77 $88 $58
5 years. . . . . . . . . . . . $105 $120 $100
10 years . . . . . . . . . . . $183 $186(4) $186(4)

(1) Except for investments of $500,000 or more. See "Paying the Contingent
Deferred Sales Charge," page 14.

(2) Due to the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.

(3) If Piper Jaffray had not voluntarily limited fees, the class A share 12b-1
fee would have been 0.50% and total operating expenses for class A shares
would have been 1.39%. Voluntary 12b-1 fee limitations may be discontinued
at any time after fiscal 1998 year end.

(4) Assumes 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.

- --------------------------------------------------------------------------------
4 Prospectus - U.S. Growth Funds
<PAGE>

FUND DESCRIPTIONS

EMERGING GROWTH FUND (CONTINUED)
- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS The following information has been audited by KPMG Peat
Marwick LLP, independent auditors.
- --------------------------------------------------------------------------------

Period from
CLASS A SHARES Fiscal year ended September 30, 4/23/90(1) to
1997 1996 1995 1994 1993 1992 1991 9/30/90
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA(2)
Net asset value, beginning
of period . . . . . . . . . . . . . . $13.86 $12.97 $9.63 $9.87 $7.21 $6.93 $4.30 $5.00
------ ------ ----- ----- ----- ----- ----- -----
Operations:
Net investment income
(loss). . . . . . . . . . . . . . (0.08) (0.05) (0.06) (0.04) (0.03) -- 0.01 0.01
Net realized and unrealized
gains (losses) on
investments . . . . . . . . . . . 2.72 2.18 3.40 (0.20) 2.69 0.32 2.64 (0.71)
------ ------ ----- ----- ----- ----- ----- -----
Total from operations. . . . . . . 2.64 2.13 3.34 (0.24) 2.66 0.32 2.65 (0.70)
------ ------ ----- ----- ----- ----- ----- -----
Distributions to shareholders:
From net investment income . . . . -- -- -- -- -- -- (0.02) --
From net realized gains on
investments . . . . . . . . . . . (1.25) (1.24) -- -- -- (0.04) -- --
------ ------ ----- ----- ----- ----- ----- -----
Total distributions to
shareholders. . . . . . . . . . . (1.25) (1.24) -- -- -- (0.04) (0.02) --
------ ------ ----- ----- ----- ----- ----- -----
Net asset value, end of period . . . . $15.25 $13.86 $12.97 $9.63 $9.87 $7.21 $6.93 $4.30
------ ------ ----- ----- ----- ----- ----- -----
------ ------ ----- ----- ----- ----- ----- -----

SELECTED INFORMATION

Total return(3)(BAR GRAPH] . . . . . . 21.04% 17.84% 34.68% (2.38%) 36.92% 4.55% 61.80% (14.01%)
Net assets, end of
period (in millions). . . . . . . . . $275 $304 $253 $224 $191 $110 $56 $21
Ratio of expenses to average
daily net assets. . . . . . . . . . . 1.23% 1.18% 1.24% 1.24% 1.29% 1.30% 1.30% 1.30%(5)
Ratio of net investment
income (loss) to average daily net
assets. . . . . . . . . . . . . . (0.55%) (0.41%) (0.51%) (0.38%) (0.34%) (0.14%) 0.11% 0.71%(5)
Average commission rate paid
on portfolio transactions(4). . . . . $0.0600 $0.0600 -- -- -- -- -- --
Portfolio turnover rate
(excluding short-term securities) . . 51% 44% 33% 31% 30% 21% 27% 6%
Ratios before waivers by the
advisor and/or distributor:
Of expenses to average
daily net assets. . . . . . . . . 1.39% 1.37% 1.42% 1.44% 1.49% 1.56% 1.70% 1.95%(5)
Of net investment income
(loss) to average daily
net assets. . . . . . . . . . . . (0.71%) (0.60%) (0.69%) (0.58%) (0.54%) (0.40%) (0.29%) 0.06%(5)
- ------------------------------------------------------------------------------------------------------------------------------------

Period from
CLASS B SHARES 2/18/97(6) to
9/30/97
------------
<S> <C>
PER SHARE DATA
Net asset value,
beginning of period . . . . . . . . . $12.54
------
Operations:
Net investment loss. . . . . . . . (0.10)
Net realized and
unrealized gains on
investments . . . . . . . . . . . 2.76
------
Total from operations. . . . . . . 2.66
------
Net asset value, end of period . . . . $15.20
------
------
SELECTED INFORMATION
Total return(3). . . . . . . . . . . . 21.21%
Net assets, end of
period (in millions). . . . . . . . . $1
Ratio of expenses to
average daily net assets . . . . . . . 1.85%(5)
Ratio of net investment
loss to average
daily net assets . . . . . . . . . (1.16%)(5)
Average commission rate
paid on portfolio
transactions(4) . . . . . . . . . . . $0.0600
Portfolio turnover rate
(excluding short-term securities) . . 51%

</TABLE>

(1) Commencement of operations.

(2) Per-share amounts have been adjusted to reflect the effect of the stock
dividend declared on 12/23/95.

(3) Total return assumes reinvestment of distributions and does not reflect a
sales charge.

(4) Disclosed in accordance with guidelines adopted in 1996.

(5) Annualized.

(6) Commencement of offering of class B shares.

- --------------------------------------------------------------------------------
5 Prospectus - U.S. Growth Funds
<PAGE>

FUND DESCRIPTIONS

GROWTH FUND
- --------------------------------------------------------------------------------
GROWTH FUND HAS A PRIMARY OBJECTIVE OF LONG-TERM CAPITAL APPRECIATION.
SECONDARILY, IT SEEKS CURRENT INCOME AND CONSERVATION OF PRINCIPAL. THE FUND
TARGETS THESE OBJECTIVES BY MAINTAINING A PORTFOLIO OF COMMON STOCKS BROADLY
DIVERSIFIED AMONG INDUSTRIES AND COMPANIES.

INVESTMENT POLICIES
- --------------------------------------------------------------------------------
Growth Fund invests at least 60% of its total assets in securities of companies
with market capitalizations over $1 billion. In selecting these securities, the
advisor seeks companies which it believes have the potential for long-term
earnings growth, a cyclical earnings rebound, or attractive relative valuations
when compared to the S&P 500. Emphasis is placed on companies which appear well
managed with strong business fundamentals and which are trading at a discount to
the present value of their projected future earnings.

The fund may invest up to 40% of its total assets in securities of companies
with market capitalizations of $1 billion or less. The advisor looks for
companies which could generate high levels of future revenue and earnings
growth, but which trade at prices that, in the advisor's view, do not fully
reflect this investment opportunity.

Under normal market conditions, the fund will invest at least 90% of its total
assets in common stocks, securities convertible into or that carry the right to
buy common stocks, and repurchase agreements. However, in unusual circumstances,
the fund may retain cash or invest part or all of its assets in short-term money
market securities as a temporary defensive measure. In addition, a small portion
of the fund's assets usually will be held in short-term money market securities
and cash to pay redemption requests and fund expenses. The fund may invest up to
10% of its total assets in equity securities of foreign issuers.

To the extent that the fund invests in securities of small and emerging growth
companies, it will be subject to the risks described in the "Risk
Considerations" section for Small Company Growth Fund and Emerging Growth Fund.

The investment securities and techniques used by this fund present other risks
as well. See pages 8-10 for more information.

PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
STEVE MARKUSEN, CFA, is a senior vice president of Piper Capital Management with
13 years of financial experience.

SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
--------------------
Maximum front-end sales charge on purchases. . . . . . 4.00% none
(AS A % OF OFFERING PRICE)
Maximum deferred sales charge. . . . . . . . . . . . . none(1) 4.00%
(AS A % OF NET ASSET VALUE AT PURCHASE
OR REDEMPTION, WHICHEVER IS LESS)
FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
Management fee . . . . . . . . . . . . . . . . . . . . 0.70% 0.70%
12b-1 fee (after class A share fee limitation)(2,3). . 0.34% 1.00%
Other expenses . . . . . . . . . . . . . . . . . . . . 0.22% 0.20%
----- -----
Total operating expenses (after fee limitation )(3). . 1.26% 1.90%

CLASS A CLASS B CLASS B
Assuming redemption Assuming
at end of period no redemption
------------------------------------------------
1 year . . . . . . . . . . . . $52 $59 $19
3 years. . . . . . . . . . . . $78 $90 $60
5 years. . . . . . . . . . . . $106 $123 $103
10 years . . . . . . . . . . . $186 $190(4) $190(4)

(1) Except for investments of $500,000 or more. See "Paying the Contingent
Deferred Sales Charge," page 14.

(2) Due to the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.

(3) If Piper Jaffray had not voluntarily limited fees, the class A share 12b-1
fee would have been 0.50% and total operating expenses for class A shares
would have been 1.42%. Voluntary 12b-1 fee limitations may be discontinued
at any time after fiscal 1998 year end.

(4) Assumes 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.

- --------------------------------------------------------------------------------
6 Prospectus - U.S. Growth Funds
<PAGE>

FUND DESCRIPTIONS

GROWTH FUND (CONTINUED)
- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS The following information has been audited by KPMG Peat
Marwick LLP, independent auditors.
- --------------------------------------------------------------------------------

Period from Period from
11/1/88 to Year 3/16/87(1)
CLASS A SHARES Fiscal year ended September 30, to Ended to
1997 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> <C>
---------------------------------------------------------------------------------------------------
PER SHARE DATA(2)
Net asset value, beginning
of period . . . . . . . . . . . $10.58 $10.20 $9.45 $9.65 $8.53 $8.43 $5.85 $6.23 $4.80 $4.31 $5.00
------ ------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Operations:
Net investment income . . . . 0.01 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. . . 3.28 1.55 1.80 (0.18) 1.12 0.38 2.59 (0.38) 1.43 0.49 (0.69)
------ ------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from operations . . . . 3.29 1.58 1.84 (0.14) 1.18 0.47 2.68 (0.28) 1.52 0.58 (0.64)
------ ------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Distributions to shareholders:
From net investment income. . (0.01) (0.03) (0.04) (0.06) (0.06) (0.08) (0.10) (0.10) (0.09) (0.09) (0.05)
From net realized gains
on investments . . . . . . . (1.07) (1.17) (1.05) -- -- (0.29) -- -- -- -- --
------ ------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions
to shareholders. . . . . . . (1.08) (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 . . . . . . . . . . . $12.79 $10.58 $10.20 $9.45 $9.65 $8.53 $8.43 $5.85 $6.23 $4.80 $4.31
------ ------ ----- ----- ----- ----- ----- ----- ----- ----- -----
------ ------ ----- ----- ----- ----- ----- ----- ----- ----- -----

SELECTED INFORMATION

Total return(3)[BAR GRAPH] . . . 34.09% 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). . . . . . $202 $178 $172 $195 $252 $200 $107 $47 $37 $19 $18
Ratio of expenses to
average daily net assets. . . . 1.26% 1.24% 1.27% 1.23% 1.26% 1.29% 1.32% 1.31% 1.30%(5) 1.30% 1.00%(5)
Ratio of net investment
income to average daily
net assets. . . . . . . . . . . 0.13% 0.28% 0.40% 0.43% 0.66% 1.04% 1.25% 1.57% 1.75%(5) 2.06% 1.84%(5)
Average commission rate
paid on portfolio
transactions(4) . . . . . . . . $0.0600 $0.0600 -- -- -- -- -- -- -- -- --
Portfolio turnover rate
(excluding short-term
securities) . . . . . . . . . . 44% 19% 80% 11% 45% 36% 36% 37% 48% 52% 32%
Ratios before waivers by the
advisor and/or distributor:
Of expenses to average
daily net assets . . . . . . 1.42% 1.43% 1.45% 1.42% 1.44% 1.47% 1.55% 1.64% 1.89%(5) 1.96% 2.29%(5)
Of net investment
income (loss) to average
daily net assets . . . . . . (0.03%) 0.09% 0.22% 0.24% 0.48% 0.86% 1.02% 1.24% 1.16%(5) 1.40% 0.55%(5)

CLASS B SHARES Period from
2/18/97(6) to
9/30/97
--------------
<S> <C>
PER SHARE DATA
Net asset value, beginning
of period . . . . . . . . . . . $10.53
------
Operations:
Net investment loss . . . . . (0.03)
Net realized and
unrealized gains
on investments . . . . . . . 2.25
------
Total from operations . . . . 2.22
------
Net asset value, end of
period. . . . . . . . . . . . . $12.75
------
------
SELECTED INFORMATION
Total return(3). . . . . . . . . 21.08%
Net assets, end of
period (in thousands) . . . . . $209
Ratio of expenses to
average daily net assets. . . . 1.90%(5)
Ratio of net investment
loss to average
daily net assets. . . . . . . (0.74%)(5)
Average commission rate
paid on portfolio
transactions(4) . . . . . . . . $0.0600
Portfolio turnover rate
(excluding short-term
securities) . . . . . . . . . . 44%

</TABLE>

(1) Commencement of operations.

(2) Per-share amounts have been adjusted to reflect the effect of the stock
dividend declared on 10/21/96.

(3) Total return assumes reinvestment of distributions and does not reflect a
sales charge.

(4) Disclosed in accordance with guidelines adopted in 1996.

(5) Annualized.

(6) Commencement of offering of class B shares.

- --------------------------------------------------------------------------------
7 Prospectus - U.S. Growth Funds
<PAGE>

PORTFOLIO OVERVIEW

INVESTMENT SECURITIES AND TECHNIQUES
- --------------------------------------------------------------------------------
This table lists investment securities and techniques used by the funds and
notes any investment limitations as a percentage of portfolio assets. It also
lists the principal risk factors related to their use, which are explained in
greater detail on the following page.

10 Maximum percent of total assets
/10/ Maximum percent of net assets
y Permitted without limitation
n Not permitted

SMALL
COMPANY EMERGING
GROWTH GROWTH GROWTH
FUND FUND FUND
INVESTMENT SECURITIES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y y
are securities that represent a share of ownership in a corporation, entitling the holder
to certain voting rights and to receive a pro rata share of any common dividends.
Company, Market, Sector

CONVERTIBLE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . n n y
are corporate debt securities that can be converted, at the option of the owner, into the common
stock of the issuer. Company, Interest Rate, Market, Sector

FOREIGN EQUITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10(1) 10(1) 10(1)
include stocks issued by foreign companies, as well as American depository receipts (ADRs).
ADRs are dollar-denominated securities designed for use in the U.S. securities markets which
represent underlying securities issued by foreign companies. Company, Currency, Foreign Issuer,
Information, Market, Sector

FUTURES CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y(2) y(2) y(2)
require the holder to buy or sell securities at a specified price on a specified date. Some are
contracts to make a cash settlement on a future date in an amount determined by the value of a
financial index (such as the S&P 500 Index) on the last day of the contract. A fund generally buys
or sells futures in seeking protection against fluctuations in the value of its portfolio
without actually buying or selling securities.
Hedging, Leverage, Market

OPTIONS ON FUTURES CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y(2) y(2) y(2)
give the holder the right, in return for the premium paid, to assume a position in a futures
contract at a specified exercise price at any time prior to the expiration date of the
option. A fund generally uses these for the same purposes as futures contracts.
Hedging, Leverage, Market

ILLIQUID SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . /15/ /15/ /15/
cannot be sold in the ordinary course of business within seven days at approximately the price at
which they are valued. Liquidity

OPTIONS ON SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y y
are contracts which give the holder the right, in return for the premium paid, to buy or sell
securities prior to the expiration date of the option at the option exercise price. The writer
of the option is then obligated, in return for the premium received, to either deliver or purchase
the securities. Company, Credit, Hedging, Leverage, Liquidity, Market, Sector

OPTIONS ON STOCK INDEXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y y
are contracts which give the holder the right, in return for the premium paid, to receive a cash
settlement, if, prior to the expiration of the option, the closing level of the index 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, in return for the premium received, to make the
cash payment upon exercise of the option. Credit, Hedging, Leverage, Liquidity, Market

SHORT-TERM MONEY MARKET SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35(3) 35(3) 35(3)
include short-term U.S. government securities, time deposits, bank certificates of deposit,
bankers' acceptances, high-grade commercial paper and other money market instruments. Credit,
Interest Rate
</TABLE>

- --------------------------------------------------------------------------------
8 Prospectus - U.S. Growth Funds
<PAGE>

PORTFOLIO OVERVIEW

INVESTMENT SECURITIES AND TECHNIQUES (CONTINUED)
- --------------------------------------------------------------------------------

INVESTMENT TECHNIQUES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BORROWING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 10 10
is permitted for temporary or emergency purposes only. Interest paid on borrowed funds reduces
earnings. Each fund's policy on borrowing cannot be changed without shareholder approval.
Leverage

REPURCHASE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y y
The fund purchases securities on the condition that the seller will buy them back at a set time
and price, plus interest. Each fund may enter into repurchase agreements for securities issued or
guaranteed as to payment of principal and interest by the U.S. government or its agencies or
instrumentalities. Credit, Interest Rate

</TABLE>

MANY OF THE SECURITIES IDENTIFIED ABOVE ARE CONSIDERED DERIVATIVE SECURITIES. A
DERIVATIVE IS A FINANCIAL INSTRUMENT WHOSE VALUE IS BASED ON ANOTHER SECURITY,
INDEX, REFERENCE RATE (FOR EXAMPLE, INTEREST OR CURRENCY EXCHANGE RATE) OR OTHER
ASSET. THESE SECURITIES HAVE VARYING TYPES AND DEGREES OF RISK, AS DESCRIBED
ABOVE.

(1) No more than 5% of a fund's total assets will be invested in securities of
foreign issuers which are not either listed on a U.S. stock exchange or
represented by ADRs.

(2) A fund's use of futures contracts and options on futures contracts will be
limited by regulations of the Commodity Futures Trading Commission.

(3) Each fund may invest without limitation in these securities for temporary
defensive purposes. Time deposits are considered illiquid and subject to
each fund's limitation on investing in illiquid securities.

- --------------------------------------------------------------------------------
9 Prospectus - U.S. Growth Funds
<PAGE>

PORTFOLIO OVERVIEW

RISK FACTORS
- --------------------------------------------------------------------------------
A SUMMARY OF THE PRINCIPAL RISKS WHICH APPLY TO EACH FUND IS PROVIDED IN
"FUND DESCRIPTIONS." MORE DETAIL REGARDING THESE AND OTHER RISKS ASSOCIATED
WITH INVESTMENT SECURITIES AND TECHNIQUES USED BY PIPER U.S. GROWTH FUNDS IS
PROVIDED BELOW.

COMPANY RISK

Individual stocks can perform differently than the overall market. This may be a
result of specific factors such as changes in corporate profitability due to the
success or failure of specific products or management strategies, or it may be
due to changes in investor perceptions regarding a company. To help mitigate
company risk, each fund is "diversified," which means that, with respect to 75%
of its assets, it invests no more than 5% of its total assets in the stocks of
any one issuer.

CREDIT RISK

The issuer of a security, or the other party to a contract, such as a repurchase
agreement, could default on its financial obligation, causing a loss in a fund's
portfolio.

CURRENCY RISK

The value of a fund's foreign securities in U.S. dollars will vary with
increases and decreases in the exchange rate. A decline in the value of any
particular currency against the U.S. dollar will cause a decline in the U.S.
dollar value of securities denominated in that currency. That will, in turn,
cause a decline in the fund's net asset value, net investment income, and
capital gains, if any. The exchange rate between the U.S. dollar and other
currencies is determined by many factors, including the supply and demand for
particular currencies, central bank efforts to support currencies, the movement
of interest rates, the price of oil, the pace of activity in industrial
countries, and other economic and financial conditions affecting the world
economy.

FOREIGN ISSUER RISK

Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers. For certain foreign countries, political or social instability
or diplomatic developments could adversely affect the securities. There is also
the risk of loss due to governmental actions such as a change in tax statutes or
the modification of individual property rights. In addition, individual foreign
economies may differ favorably or unfavorably from the U.S. economy.

HEDGING RISK

Successful use of a hedging instrument depends on the advisor's ability to
correctly forecast the direction of market movements. In the case of an
incorrect market forecast, the use of a hedging instrument will reduce or
eliminate gains. In addition, changes in the price of a hedging instrument may
not correlate perfectly with changes in the market value of the securities
subject to that hedge. As a result, even a correct market forecast could result
in an unsuccessful hedging transaction.

INTEREST RATE RISK

Generally, rising interest rates cause a decline in market prices of existing
debt securities, because investors may purchase new debt securities at a higher
rate of interest. Falling interest rates generally cause market prices of
existing debt securities to rise.

INFORMATION RISK

Non-U.S. companies are not generally subject to uniform accounting, auditing,
and financial reporting standards or to other regulatory requirements comparable
to those which apply to U.S. companies. As a result, less information may be
available concerning non-U.S. issuers or securities held by a fund. Accounting
and financial reporting standards in emerging markets may be especially lacking.

LEVERAGE RISK

Leverage is a speculative technique that involves the use of a relatively small
amount of money to produce a potentially large gain or loss. Securities or
practices (such as borrowing) that can multiply small index or market movements
into large changes in value involve leverage risk.

LIQUIDITY RISK

Each fund may invest without limitation in certain types of securities which
have historically been considered illiquid, but only if they are determined to
be liquid under procedures adopted by the board of directors. These include
unregistered securities which can be resold, without registration, to qualified
institutional buyers (Rule 144A securities). Investing in Rule 144A 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.

MARKET RISK

All stocks are subject to price movements due to changes in general economic
conditions, changes in the level of prevailing interest rates, changes in
investor perceptions of the market, or the outlook for overall corporate
profitability.

SECTOR RISK

The stocks of companies within specific industries or sectors of the economy can
periodically perform differently than the overall stock market. This can be due
to changes in such things as the regulatory or competitive environment or to
changes in investor perceptions of a particular industry or sector. Large
concentrations in specific industries will increase sector risk. No fund will
invest 25% or more of its total assets in any one industry. (Gas, electric,
telephone, telegraph, satellite and microwave communications companies are
considered separate industries.)

- --------------------------------------------------------------------------------
10 Prospectus - U.S. Growth Funds
<PAGE>

MANAGING YOUR INVESTMENT

BUYING SHARES
- --------------------------------------------------------------------------------
YOU MAY BECOME A SHAREHOLDER IN PIPER FUNDS WITH AN INITIAL INVESTMENT OF $250
OR MORE. ADD TO YOUR EXISTING INVESTMENT WITH ANY AMOUNT, AT ANY TIME. SIMPLY
CALL YOUR PIPER JAFFRAY INVESTMENT EXECUTIVE OR ANOTHER AUTHORIZED BROKERAGE
FIRM.

CHOOSING A SHARE CLASS
- --------------------------------------------------------------------------------
You may purchase class A shares or class B shares of Piper U.S. Growth Funds.
Each class has its own cost structure, allowing you to choose the one that best
meets your requirements. 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.

CLASS A SHARES

If you are making an investment that qualifies for a reduced sales charge, class
A shares may be best for you. Class A shares feature:

- - A front-end sales charge, as described below.

- - Lower annual expenses than class B shares.(See "Fund Descriptions.")

CLASS B SHARES

If you want to avoid a front-end sales charge because you want all your money to
go to work immediately, you may prefer class B shares. Class B shares feature:

- - No front-end sales charge.

- - Higher annual expenses than class A shares.

- - A contingent deferred sales charge if you redeem your shares within five
years after the calendar year of purchase.

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

CLASS Y (INSTITUTIONAL) SHARES

Through a separate prospectus, Emerging Growth Fund also
offers class Y shares to investors making an initial investment
of $1 million or more. Class Y shares feature:

- - No sales charges.

- - Lower annual expenses than class A or B.

For more information, call your broker or Mutual Fund Services at 800 866-7778.

NOTE:

If your investment qualifies for a reduced sales charge as described below,
class A shares will normally be the better choice. For that reason:

- - Orders for class B shares for $250,000 or more will be treated as orders
for class A shares.

- - Orders for class B shares by an investor eligible to purchase class A
shares without a front-end sales charge will be treated as orders for class
A shares.

- - For Emerging Growth Fund, orders for either class A or class B shares for
$1 million or more will be treated as orders for class Y shares.

CALCULATING YOUR PURCHASE PRICE
- --------------------------------------------------------------------------------
Your purchase price will be based on the next net asset value of your shares
calculated after your broker receives your purchase order. The net asset value
of each share is equal to the market value of the fund's investments and other
assets, less any liabilities, divided by the number of fund shares.

CLASS A SHARES

Your purchase price is typically the net asset value of your shares, plus a
front-end sales charge. Sales charges vary depending on the amount of your
purchase. Piper Jaffray receives the sales charge you pay and, if you purchased
shares through another brokerage firm, reallows a portion of the sales charge to
that firm.

Sales Charge Maximum
Paid by Investors Reallowance
---------------------------------------------------------
(as a % of (as a % of (as a % of
Purchase amount purchase price) net asset value) purchase price)
- --------------------------------------------------------------------------------
Up to $100,000 . . . . . . 4.00% . . . . . . . 4.17% . . . . . . . .3.75%
$100,000-249,999 . . . . . 3.25% . . . . . . . 3.36% . . . . . . . .3.00%
$250,000-499,999 . . . . . 2.50% . . . . . . . 2.56% . . . . . . . .2.25%
$500,000 and more. . . . . None* . . . . . . None* . . . . . . . .0.00%*

* A contingent deferred sales charge will be assessed if you redeem within 24
months. See "Selling Shares," page 14. Although you pay no front-end sales
charge, Piper Jaffray and other brokerage firms receive fees for these sales of
up to 1%.

CLASS B SHARES

Class B shares are sold at net asset value with no 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 calendar years, you will pay a contingent
deferred sales charge. See "Selling Shares," page 14.

- --------------------------------------------------------------------------------
11 Prospectus - U.S. Growth Funds
<PAGE>

MANAGING YOUR INVESTMENT

BUYING SHARES (CONTINUED)
- --------------------------------------------------------------------------------

REDUCING THE FRONT-END SALES CHARGE
- --------------------------------------------------------------------------------
You may reduce, or even eliminate, the front-end sales charge on class A shares
through the following purchase plans. For details, please consult your broker or
the statement of additional information.

ACCUMULATION PRIVILEGE

Prior purchases of class A shares of any Piper fund (except a money market fund)
will be factored into your sales charge calculation. For example, let's say
you're making a $10,000 investment. If the current value or the original cost of
all other Piper fund class A shares that you hold is $90,000 or greater, your
current sales charge is reduced.

COMBINED PURCHASE PLAN

The accumulation privilege described above also applies to prior purchases of
class A Piper fund shares in certain other accounts, such as your spouse's or
child's account or your IRA. Qualified groups that invest as a unit may also
combine purchases of class A shares to reduce sales charges.

LETTER OF INTENT

If you plan to invest $100,000 or more over a 13-month period in class A shares
of any Piper fund, you may reduce your sales charge by signing a non-binding
letter of intent. (If you do not fulfill the letter of intent, you must pay the
applicable sales charge.)

SPECIAL PURCHASE PLANS

Class A shares may be purchased without a sales charge by:

- - Investors in 401(k) or certain other qualified plans that offer Piper
Funds.

- - Investors purchasing shares through Piper Jaffray's Advantage program or
other qualified wrap-fee accounts.

- - Investors using the proceeds from the sale of any mutual fund not in the
Piper Funds family, excluding money market funds. (This privilege is
available for 30 days after the sale.)

- - Piper Capital clients purchasing shares for their advisory accounts.

- - Employees, directors, or retirees of Piper Jaffray Companies or any of its
subsidiaries, as well as certain relatives of these persons. Trust,
pension, profit-sharing or other benefit plans for these individuals also
may qualify.

- - Employees of brokerage firms that have sales agreements with Piper Jaffray,
their spouses and minor children.

- - Trust companies or bank trust departments investing for discretionary
accounts.

- - Piper Jaffray Companies and its subsidiaries.

INVESTING AUTOMATICALLY
- --------------------------------------------------------------------------------

AUTOMATIC MONTHLY INVESTMENT PROGRAMS

To purchase class A or class B shares as part of a savings discipline, you may
automatically transfer $100 or more each month to any Piper fund from your bank,
savings and loan, or other financial institution. Or transfer $25 or more per
month from any of the Piper money market funds.

CROSS-REINVESTMENT OF DISTRIBUTIONS

To help you diversify your portfolio, you may automatically invest your income
and capital gain distributions in the same class of shares of another Piper fund
(excluding money market funds) at net asset value, provided you hold the
required minimum balance in that fund.

- --------------------------------------------------------------------------------
12 Prospectus - U.S. Growth Funds
<PAGE>

MANAGING YOUR INVESTMENT

HOLDING SHARES
- --------------------------------------------------------------------------------

RECEIVING DIVIDENDS AND OTHER DISTRIBUTIONS
- --------------------------------------------------------------------------------
Dividends from a fund's net investment income, if any, will be paid annually.
Any capital gains are distributed at least once each year.

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, in effect, you "buy the dividend." You will pay the full price for the
shares and then receive a portion of that price back as a taxable distribution.

Dividend and capital gain distributions will be reinvested in additional shares
of the fund, invested in shares of a different Piper fund, or distributed in
cash. Any reinvestments must be in the same class of shares. Please tell your
broker which distribution method you prefer. Otherwise, distributions
automatically will be reinvested in additional shares of the same fund.

CLASS B SHAREHOLDERS GENERALLY WILL RECEIVE LOWER DIVIDENDS FROM NET
INVESTMENT INCOME THAN CLASS A SHAREHOLDERS BECAUSE OF THE HIGHER EXPENSES
APPLICABLE TO CLASS B SHARES.

TAXING OF DIVIDENDS AND OTHER DISTRIBUTIONS
- --------------------------------------------------------------------------------
Each fund has qualified, and intends to continue qualifying, for taxation as a
regulated investment company. As long as a fund continues to qualify, it will
not be subject to federal income tax to the extent its income is distributed to
shareholders.

Dividends and distributions you receive from a fund are generally taxable
whether you reinvest them or take them in cash. Distributions of long-term
capital gains are taxable as long-term gains, regardless of how long you have
held your shares (except that, under recent amendments to the tax code, the
funds will be required to designate certain capital gain distributions as mid-
term capital gain distributions, to be treated by individual shareholders as
mid-term capital gains). Dividends from a fund's net investment income and
short-term capital gain distributions are taxable as ordinary income.

The sale or exchange of fund shares will be a taxable event for you and may
result in a capital gain or loss. Under recent amendments to the tax code, the
gain or loss will be considered long-term if you have held your shares for more
than18 months and mid-term if you have held your shares more than one year but
not more than 18 months. A gain or loss on shares held for one year or less is
considered short-term and is taxed at the same rates as ordinary income.

EXCHANGING SHARES
- --------------------------------------------------------------------------------
If your investment goals or your financial needs change, you may move from one
Piper fund to another, if the shares of that fund are legally available in your
state. There is no fee to exchange shares.

You may exchange your class A shares only for class A shares and your class B
shares only for class B shares. However, please note that not all Piper funds
offer class B shares.

You may also move your class A growth fund assets into a Piper money market
fund. If you later exchange those money market shares for class A shares of
another Piper fund, that exchange will be treated as an exchange from the class
A shares of the growth fund for purposes of determining your sales charge. Class
B shares may be exchanged for class B shares of Piper Money Market Fund.
However, please note that class B Money Market Fund shares have higher expenses
than are typical for money market funds.

Before exchanging into any fund, be sure to read its prospectus carefully. A
fund may change or cancel its exchange policies at any time, upon 60 days'
notice to shareholders.

CONDUCTING TRANSACTIONS BY PHONE
- --------------------------------------------------------------------------------
You may buy or sell shares over the phone by calling your broker. If you hold
your shares with Investors Fiduciary Trust Company (IFTC) or with a brokerage
firm other than Piper Jaffray, you may also buy or sell shares by calling IFTC
at 800 874-6205, provided you have authorized telephone privileges in your
Account Application and Services form.

For your protection, IFTC will attempt to verify your identity by asking for
your account number, social security number or other form of personal
identification. If reasonable care is taken to identify you as the caller,
neither IFTC nor the funds will be liable for losses to your account resulting
from an unauthorized telephone transaction. Payments that result from telephone
transactions will be made only to the address of record or the bank account
designated on your Account Application and Services form.

STAYING INFORMED

- --------------------------------------------------------------------------------
Piper Capital offers a variety of resources to help keep you informed. If you
would like more information, please contact your broker or call Mutual Fund
Services at 800 866-7778. As a shareholder, you automatically receive the
following:

SHAREHOLDER REPORTS

Shareholder reports are mailed twice a year, in November and May. They include
financial statements and performance information on the funds, a message from
your portfolio manager, and, on an annual basis, the auditors' report.

To reduce shareholder costs and help eliminate duplication, only one report is
sent to each address that lists one or more shareholders with the same last
name. If you would like additional reports mailed to your address, please
contact Mutual Fund Services.

STATEMENTS AND CONFIRMATIONS

Statements summarizing activity in your account are mailed monthly (quarterly if
your account has no activity). Confirms are mailed following each purchase or
sale of fund shares.

- --------------------------------------------------------------------------------
13 Prospectus - U.S. Growth Funds
<PAGE>

MANAGING YOUR INVESTMENT

SELLING SHARES
- --------------------------------------------------------------------------------

YOU MAY SELL ANY OR ALL OF YOUR SHARES FOR THEIR NET ASSET VALUE (LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGES) ON ANY DAY WHEN THE NEW YORK STOCK
EXCHANGE IS OPEN. SIMPLY CALL YOUR BROKER. YOUR REQUEST WILL BE EXECUTED AT THE
NEXT NET ASSET VALUE CALCULATED AFTER YOUR BROKER RECEIVES YOUR REQUEST.

RECEIVING THE PROCEEDS
- --------------------------------------------------------------------------------
If you are a Piper Jaffray client with a signed Piper Automated Transfer (PAT)
agreement, proceeds from a sale of shares usually will be transferred to your
account the next business day. Otherwise, proceeds will be sent to you or your
broker, generally within three business days. If you sell shares that were
recently purchased by check, payment may be delayed until the check has cleared
(normally up to 15 days from the purchase date).

As noted above, you may sell shares by calling your broker. If you work with a
broker from a firm other than Piper Jaffray, you also may sell your shares by
submitting a written request to the funds' transfer agent, IFTC. Call IFTC at
800 874-6205 for instructions.

Remember to keep at least $200 in your account. If your account falls below $200
due to a sale of shares or an exchange request, your account may be liquidated
following 30 days written notice.

PAYING THE CONTINGENT DEFERRED SALES CHARGE
- --------------------------------------------------------------------------------

CLASS A SHARES

If you invest $500,000 or more in class A shares and, as a result, pay no front-
end sales charge, you may incur a contingent deferred sales charge (CDSC) if you
sell your shares within 24 months. The CDSC is equal to 1% of the value of the
shares at the time of purchase or at the time of sale, whichever is less. This
charge does not apply to shares you acquired by reinvesting your dividend or
capital gain distributions.

To lower your costs, class A shares that are not subject to a CDSC will be sold
first. Other shares will then be sold in an order that minimizes your CDSC.

LETTER OF INTENT

If you sell your class A shares within 24 months of fulfilling a letter of
intent, you will be charged a CDSC.

EXCHANGES

No CDSC is charged if you exchange class A shares that were originally purchased
without a sales charge, unless you sell your new class A shares within 24 months
of your original purchase.

CLASS B SHARES

If you sell your class B shares during the calendar year in which they were
purchased or in any of the following five calendar years, you will pay a CDSC
based on the value of your shares at the time of purchase or at the time of
sale, whichever is less. The charge does not apply to shares you acquired by
reinvesting your dividend or capital gain distributions.

If sold during this period the CDSC would be
(as a % of net asset value)
- --------------------------------------------------------------------------------
Calendar year of 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%

Your CDSC is based on the calendar years in which you purchase and sell shares,
rather than on the number of years you have held shares. For example: If you buy
shares on December 31, 1997, and redeem them on January 1, 1999, you will pay a
3% CDSC, even though you have held the shares for just over one year. Shares
will be sold in an order that minimizes your CDSC.

CONVERSION FEATURE

Your class B shares will automatically convert to class A shares on January 1 of
the sixth calendar year following the year in which you purchased your shares.
The conversion will be based on the net asset values of the two classes.
Whenever any of your class B shares convert to class A shares, a proportionate
number of class B shares purchased by reinvested distributions will also
convert.

CDSC WAIVERS

For class A shares, if you purchased your shares through a Special Purchase
Plan, the CDSC will be waived.

For both class A and class B shares, the CDSC will be waived:

- - Due to death or disability of the shareholder.

- - To allow a lump-sum distribution from a qualified employee benefit plan.

- - To allow systematic withdrawals from a qualified employee benefit plan, if
you are at least 59 1/2 years old.

- - To allow for a tax-free return of an excess contribution to your IRA.

- - If your account balance falls below $200 and your account is liquidated.

TAKING SYSTEMATIC WITHDRAWALS
- --------------------------------------------------------------------------------
If your account has a value of $5,000 or more, you can make automatic
withdrawals from your account. You may withdraw $100 or more monthly, quarterly,
or semiannually by authorizing the sale of the appropriate number of shares on a
periodic basis. To set up systematic withdrawals, contact your broker.

You should not make systematic withdrawals if you plan to continue investing in
the fund, due to sales charges and tax liabilities.

REINVESTING AFTER A SALE
- --------------------------------------------------------------------------------
If you sell class A shares, you may reinvest in class A shares of that fund or
another Piper fund within 30 days without a sales charge. If you sell class B
shares, or other shares subject to a CDSC, that charge will be credited to your
account and the reinvested shares will continue to be subject to the CDSC.

- --------------------------------------------------------------------------------
14 Prospectus - U.S. Growth Funds
<PAGE>

GENERAL INFORMATION
- --------------------------------------------------------------------------------

HOW THE FUNDS ARE ORGANIZED
- --------------------------------------------------------------------------------
Small Company Growth Fund, Emerging Growth Fund and Growth Fund are diversified
series of Piper Funds Inc., an open-end investment company.

VOTING RIGHTS

Although the funds are not required by law to hold annual meetings, they may
hold shareholder meetings from time to time on important matters. In addition,
shareholders have the right to call a meeting under certain circumstances. When
your fund holds a meeting, you will receive a proxy statement requesting your
vote. You have one vote for each share you own.

RIGHTS OF DIFFERENT CLASSES

The different classes of shares of a fund have the same rights and are identical
in all respects except that:

- - Expenses related to the distribution of each class of shares are borne
solely by that class.

- - 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.

- - Each class has exclusive voting rights with respect to approval of any
12b-1 distribution plan related to that class. However, as long as class B
shares convert into class A shares, class B shareholders will have the
right to vote on any distribution fees imposed on class A shares.

- - Only class B shares carry a conversion feature.

- - Each class has different exchange privileges.

FUND OBJECTIVES

Each fund's investment objective is fundamental and may be changed only with
shareholder approval. The funds' investment policies and techniques may be
changed without shareholder approval, unless otherwise noted.

HOW THE FUNDS ARE MANAGED
- --------------------------------------------------------------------------------
The funds are governed by a board of directors, which is responsible for
protecting the interests of shareholders. Directors meet periodically throughout
the year to oversee the funds' activities, review their performance and review
the actions of the funds' advisor. Although the board may include individuals
who are affiliated with the advisor, the majority of board members must be
independent. The board has retained the following companies to manage the funds'
operations.

INVESTMENT ADVISOR

Piper Capital Management Incorporated
222 South Ninth Street
Minneapolis, MN 55402-3804

As investment advisor, Piper Capital manages the funds' business and investment
activities, subject to the authority of the board of directors. Each fund pays
Piper Capital a monthly management fee for providing investment advisory
services. See "Shareholder Expenses" in the "Fund Descriptions" section of this
prospectus for more information.

Piper Capital also is investment advisor to other Piper open-end funds, to a
number of closed-end investment companies and to various institutions,
corporations and individuals. Piper Capital has approximately $12 billion
under management and is a wholly owned subsidiary of Piper Jaffray Companies
Inc., a full-service investment company.

DISTRIBUTOR

Piper Jaffray Inc.
222 South Ninth Street
Minneapolis, MN 55402-3804

Piper Jaffray is the principal distributor of the funds' shares. Other brokerage
firms that have a sales agreement with Piper Jaffray may also sell fund shares.
Piper Jaffray is a wholly owned subsidiary of Piper Jaffray Companies and an
affiliate of Piper Capital.

CUSTODIAN AND ACCOUNTING AGENT

Investors Fiduciary Trust Company
801 Pennsylvania Avenue
Kansas City, MO 64105-1307

As the funds' custodian and accounting agent, IFTC holds the funds' portfolio
securities, settles trades, collects data needed to calculate net asset values,
and provides record-keeping.

TRANSFER AND DIVIDEND DISBURSING AGENTS

Investors Fiduciary Trust Company
1004 Baltimore Avenue
Kansas City, MO 64105-1802

Piper Jaffray (address listed above)

Piper Trust Company
222 South Ninth Street
Minneapolis, MN 55402-3804

IFTC provides transfer agent services and pays dividends and other distributions
for the funds. Piper Jaffray and Piper Trust provide these services for
shareholders whose accounts they maintain.

- --------------------------------------------------------------------------------
15 Prospectus - U.S. Growth Funds
<PAGE>

GENERAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------

PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
STEVE MARKUSEN, CFA, is director of the large-cap equity team and a senior vice
president of Piper Capital. He joined the advisor in 1993 and has managed Growth
Fund since December 1994. From 1989 through 1993, he was an equity portfolio
manager with Investment Advisers, Inc. He has 13 years of financial experience.

SANDRA SHREWSBURY, CFA, is director of the small-/mid-cap equity team and a
senior vice president of Piper Capital. She has been with the management team of
Emerging Growth Fund since its inception. She was given primary responsibility
for the fund in 1993 and has managed Small Company Growth Fund since September
1996. She has been with Piper Capital or its affiliates since 1987 and has 14
years of financial experience.

HOW DEALERS ARE COMPENSATED
- --------------------------------------------------------------------------------
Piper Jaffray and other brokerage firms which sell fund shares receive
compensation in several ways. A portion of this compensation is typically passed
along to your broker.

SALES COMMISSIONS

Piper Jaffray receives the sales charge that you pay when you purchase class
A shares. If you purchased your shares from another brokerage firm, that firm
retains a portion of the sales charge (their "reallowance"). If your purchase
of class A shares was not subject to a front-end sales charge, Piper Jaffray
or the other participating brokerage firm may receive a fee from Piper
Capital of up to 1% of the purchase price. Piper Jaffray also receives any
CDSC imposed when you sell your class A or class B shares. Piper Jaffray pays
a sales commission of up to 4% of the amount invested to its Investment
Executives and to other brokerage firms which sell class B shares. From time
to time, Piper Jaffray and/or Piper Capital may pay Investment Executives and
other brokerage firms an additional commission of up to 1% of the amount
invested in connection with sales of class B shares.

12b-1 FEES

Piper Jaffray receives 12b-1 fees from each fund for providing distribution-
related services and for servicing shareholder accounts. Fees are established
under each fund's 12b-1 plan, which is approved by the board, and vary by class.
Class A and class B shares of each fund pay 12b-1 fees quarterly at annual rates
equal to 0.50% and 1%, respectively, of average daily net assets. Piper Jaffray
is currently voluntarily limiting the 12b-1 fees it receives from class A shares
to 0.34% of average daily net assets.

For each fund, Piper Jaffray pays a portion of its 12b-1 fee to brokerage firms
which have sold shares of that fund. Firms receive an annual fee equal to 0.30%
of the fund's average daily net assets attributable to shares sold by the firm's
brokers. Piper Jaffray may also use 12b-1 fees to pay other distribution
expenses and shareholder servicing costs, such as printing and promotional
costs.

PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
When deciding which brokers to use for the funds' portfolio transactions, Piper
Capital may consider whether brokers have sold shares of these or any other
Piper funds. Piper Capital may place trades through Piper Jaffray in compliance
with Investment Company Act of 1940 rules.

NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value per share is calculated by dividing the total market value of a
fund's investments and other assets, less any liabilities, by the number of fund
shares. The values of securities within a fund's portfolio are determined as
follows:

- - By an independent pricing service, or

- - Through market quotations obtained from one or more dealers who make a
market in the securities or from a widely used quotation system.

- - Occasionally, if prices are not available from the above sources or are
determined to be unreliable, securities will be priced at "fair market
value" according to procedures approved by the board of directors.

Net asset value is calculated as of the close of regular trading on the New York
Stock Exchange (typically 4 p.m. Eastern Time) on each day the exchange is open
for trading.

PENDING LAWSUITS
- --------------------------------------------------------------------------------
The following two complaints, which are based on allegations of
misrepresentation and improper management, are pending relating to the
Intermediate Bond Fund (formerly Institutional Government Income Portfolio),
another series of Piper Funds Inc.

1) Filed April 11, 1995, by Frank R. Berman, Trustee of Frank R. Berman
Professional CP Pension Plan Trust. First filed in Minnesota State District
Court, Hennepin County, and moved to U.S. District Court, District of Minnesota.
Defendants include Piper Funds Inc., Piper Jaffray and certain persons
affiliated or formerly affiliated with Piper Capital and Piper Jaffray.

2) Filed June 22, 1995, by Beverly Muth, in the Montana Thirteenth Judicial
District Court, Yellowstone County. Filed against Piper Jaffray and an
affiliated person.

Piper Capital and Piper Jaffray are also subject to an investigation by the
Securities and Exchange Commission which began February 21, 1995, related to
various funds and assets managed by Piper Capital.

- --------------------------------------------------------------------------------
16 Prospectus - U.S. Growth Funds
<PAGE>

Prospectus - U.S. Growth Funds

FOR MORE INFORMATION
- --------------------------------------------------------------------------------
ANNUAL/SEMIANNUAL REPORTS

Shareholder reports include financial statements and performance information on
the funds, a message from your portfolio manager, and, on an annual basis, the
auditors' report.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

The SAI contains more detailed information about the funds. A current SAI has
been filed with the SEC and is incorporated by reference into this prospectus.

To order free copies, please write or call:

Piper Capital Management
Attn: Mutual Fund Services
222 South Ninth Street
Minneapolis, MN 55402-3804

800 866-7778

- --------------------------------------------------------------------------------
No dealer, sales representative or other person has been authorized to give any
information or make any representations other than those contained in this
prospectus or in the SAI. You should not rely upon any such information or
representation as having been authorized by the funds or Piper Jaffray.
- --------------------------------------------------------------------------------
[LOGO] PIPER FUNDS 222 South Ninth Street
Minneapolis, MN 55402-3804

#30200 11/1997 220-97
<PAGE>

- --------------------------------------------------------------------------------
Prospectus - Emerging Growth Fund
- --------------------------------------------------------------------------------

NOVEMBER 24, 1997

[LOGO]

EMERGING GROWTH FUND

CLASS Y SHARES
- --------------------------------------------------------------------------------

BEFORE YOU INVEST:

PLEASE READ THIS PROSPECTUS CAREFULLY, AND KEEP IT FOR FUTURE REFERENCE. IT
CONTAINS IMPORTANT INFORMATION ABOUT THE FUND, INCLUDING INFORMATION ON
INVESTMENT POLICIES, RISKS AND FEES.

<PAGE>

[LOGO]

CONTENTS
- --------------------------------------------------------------------------------
INVESTING IN EMERGING GROWTH FUND . . . . . . .1

FUND DESCRIPTION
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND. . . . . . . . . . . . . .2 Investment objective and
policies, risk considerations,
portfolio manager information,
shareholder expenses and
financial highlights

PORTFOLIO OVERVIEW
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES AND TECHNIQUES. . . . . .4 An overview of securities and
RISK FACTORS. . . . . . . . . . . . . . . . . .6 investment techniques that may
be used by the fund and their
risks

MANAGING YOUR INVESTMENT
- --------------------------------------------------------------------------------
BUYING SHARES . . . . . . . . . . . . . . . . .7 Practical information to help
Calculating Your Purchase Price you manage your investment in
Investing Automatically Piper Funds
HOLDING SHARES. . . . . . . . . . . . . . . . .8
Receiving Dividends and Other Distributions
Taxing of Dividends and Other Distributions
Exchanging Shares
Conducting Transactions by Phone
Staying Informed
SELLING SHARES. . . . . . . . . . . . . . . . .9
Receiving the Proceeds
Taking Systematic Withdrawals

- --------------------------------------------------------------------------------
GENERAL INFORMATION . . . . . . . . . . . . . .10

<PAGE>

INVESTING IN
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND TARGETS LONG-TERM GROWTH BY INVESTING PRIMARILY IN COMMON
STOCKS. THE FUND IS ADVISED BY PIPER CAPITAL MANAGEMENT INCORPORATED.

BEFORE YOU INVEST:

KNOW YOUR GOALS
- --------------------------------------------------------------------------------
This fund may be appropriate for your investment portfolio if:

- - You are investing for retirement, your child's education, or another
long-term goal.

- - You are comfortable with a volatile investment and are willing to take risk
in the hope of achieving a higher long-term return.

- - You wish to diversify your portfolio, perhaps as part of an asset
allocation strategy.

If you anticipate needing your money in a short time -- or if you prefer a
stable investment and would consider selling your shares at the first sign of
loss in your portfolio -- you should consider other investment vehicles.
Emerging Growth Fund was not designed to meet these goals.

UNDERSTAND THE RISKS
- --------------------------------------------------------------------------------
While mutual funds are a convenient and potentially rewarding way to invest,
they do not always meet their objectives. Please remember: You could lose money
with this investment. Safety of principal is not guaranteed. Risks associated
with this fund are outlined in the following pages.

USE YOUR PROSPECTUS
- --------------------------------------------------------------------------------
Please read this prospectus carefully and keep it on file for future reference.
More detailed information about the fund is contained in its statement of
additional information, which can be obtained from the fund at the address and
phone number on the back cover. Further information is also available from your
broker or by calling Piper Capital at 800 866-7778.

- --------------------------------------------------------------------------------
1 Prospectus - Emerging Growth Fund

<PAGE>

FUND DESCRIPTION
EMERGING GROWTH FUND
- --------------------------------------------------------------------------------

EMERGING GROWTH FUND SEEKS LONG-TERM CAPITAL APPRECIATION. TO PURSUE THIS
OBJECTIVE, THE FUND INVESTS PRIMARILY IN COMMON STOCKS OF EMERGING GROWTH
COMPANIES.

Emerging growth stocks involve substantial risk. This is because emerging growth
companies may have limited product lines, markets or financial resources, and
they may be dependent on a limited management group. Securities of emerging
growth companies may be subject to more abrupt or erratic market movements than
those of larger, more established companies or the market averages in general.

The investment securities and techniques used by this fund present other risks
as well. See pages 4-6 for more information.

PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
SANDRA SHREWSBURY, CFA, is director of the small-/mid-cap equity team and a
senior vice president of Piper Capital. She has been with the management team of
Emerging Growth Fund since its inception and was given primary responsibility
for the fund in 1993. She has been with Piper Capital or its affiliates since
1987 and has 14 years of financial experience.

SHAREHOLDER TRANSACTION EXPENSES

Maximum front-end sales charge on purchases . . . . . . . . . . none
Maximum deferred sales charge . . . . . . . . . . . . . . . . . none

FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
Management fee. . . . . . . . . . . . . . . . . . . . . . . . . 0.69%
12b-1 fee . . . . . . . . . . . . . . . . . . . . . . . . . . . none
Other expenses. . . . . . . . . . . . . . . . . . . . . . . . . 0.20%
-----
Total operating expenses. . . . . . . . . . . . . . . . . . . . 0.89%

1 year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9
3 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28
5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49
10 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . $110

- --------------------------------------------------------------------------------
2 Prospectus - Emerging Growth Fund

<PAGE>

FUND DESCRIPTION

EMERGING GROWTH FUND (CONTINUED)
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS The following information has been audited by KPMG Peat
Marwick LLP, independent auditors. Because of the limited history of class Y
share operations, information is also presented for the fund's class A shares.
Class A shares have higher expenses than class Y shares.

Period from
CLASS Y SHARES 2/18/97(6) to
9/30/97
-------------
<S> <C>
PER SHARE DATA
Net asset value, beginning of period . . . . . . $12.54
------
Operations:
Net investment loss. . . . . . . . . . . . . . (0.01)
Net realized and unrealized gains on
investments. . . . . . . . . . . . . . . . . 2.76
------
Total from operations. . . . . . . . . . . . . 2.75
------
Net asset value, end of period . . . . . . . . . $15.29
------
------

SELECTED INFORMATION
Total return(3). . . . . . . . . . . . . . . . . 21.93%
Net assets, end of period (in millions). . . . . $ 59
Ratio of expenses to average daily net assets. . 0.87%(5)
Ratio of net investment loss to average
daily net assets . . . . . . . . . . . . . . . (0.16%)(5)
Average commission rate paid on portfolio
transactions(4). . . . . . . . . . . . . . . $0.0600
Portfolio turnover rate (excluding short-term
securities). . . . . . . . . . . . . . . . . 51%

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

<CAPTION>
Period from
CLASS A SHARES Fiscal year ended September 30, 4/23/90(1) to
1997 1996 1995 1994 1993 1992 1991 9/30/90
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA(2)
Net asset value, beginning of period . . . . . . . . . $13.86 $12.97 $ 9.63 $ 9.87 $ 7.21 $ 6.93 $ 4.30 $ 5.00
------ ------ ------ ------ ------ ------ ------ ------
Operations:
Net investment income (loss) . . . . . . . . . . . . (0.08) (0.05) (0.06) (0.04) (0.03) -- 0.01 0.01
Net realized and unrealized gains (losses) on
investments. . . . . . . . . . . . . . . . . . . . 2.72 2.18 3.40 (0.20) 2.69 0.32 2.64 (0.71)
------ ------ ------ ------ ------ ------ ------ ------
Total from operations. . . . . . . . . . . . . . . . 2.64 2.13 3.34 (0.24) 2.66 0.32 2.65 (0.70)
------ ------ ------ ------ ------ ------ ------ ------
Distributions to shareholders:
From net investment income . . . . . . . . . . . . . -- -- -- -- -- -- (0.02) --
From net realized gains on investments . . . . . . . (1.25) (1.24) -- -- -- (0.04) -- --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions to shareholders. . . . . . . . . (1.25) (1.24) -- -- -- (0.04) (0.02) --
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period . . . . . . . . . . . . $15.25 $13.86 $12.97 $ 9.63 $ 9.87 $ 7.21 $ 6.93 $ 4.30
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------

SELECTED INFORMATION

Total Return(3)[BAR GRAPH] . . . . . . . . . . . . . . 21.04% 17.84% 34.68% (2.38%) 36.92% 4.55% 61.80% (14.01%)
Net assets, end of period (in millions). . . . . . . . $ 275 $ 304 $ 253 $ 224 $ 191 $ 110 $ 56 $ 21
Ratio of expenses to average daily net assets. . . . . 1.23% 1.18% 1.24% 1.24% 1.29% 1.30% 1.30% 1.30%(5)
Ratio of net investment income (loss) to average
daily net assets . . . . . . . . . . . . . . . . . . (0.55%) (0.41%) (0.51%) (0.38%) (0.34%) (0.14%) 0.11% 0.71%(5)
Average commission rate paid on portfolio
transactions(4). . . . . . . . . . . . . . . . . . . $0.0600 $0.0600 -- -- -- -- -- --
Portfolio turnover rate (excluding short-term
securities). . . . . . . . . . . . . . . . . . . . . 51% 44% 33% 31% 30% 21% 27% 6%
Ratios before waivers by the advisor and/or distributor:
Of expenses to average daily net assets. . . . . . . 1.39% 1.37% 1.42% 1.44% 1.49% 1.56% 1.70% 1.95%(5)
Of net investment income (loss) to average
daily net assets . . . . . . . . . . . . . . . . . (0.71%) (0.60%) (0.69%) (0.58%) (0.54%) (0.40%) (0.29%) 0.06%(5)
</TABLE>

(1) Commencement of operations.

(2) Per-share amounts have been adjusted to reflect the effect of the stock
dividend declared on 12/23/95.

(3) Total return assumes reinvestment of distributions and does not reflect a
sales charge.

(4) Disclosed in accordance with guidelines adopted in 1996.

(5) Annualized.

(6) Commencement of offering of class Y shares.

- --------------------------------------------------------------------------------
3 Prospectus - Emerging Growth Fund

<PAGE>

PORTFOLIO OVERVIEW

INVESTMENT SECURITIES AND TECHNIQUES
- --------------------------------------------------------------------------------

This table lists investment securities and techniques used by the fund and notes
any investment limitations as a percentage of portfolio assets. It also lists
the principal risk factors related to their use, which are explained in greater
detail on the following page.

10 Maximum percent of total assets
/10/ Maximum percent of net assets
y Permitted without limitation

INVESTMENT SECURITIES
- --------------------------------------------------------------------------------

COMMON STOCKS. . . . . . . . . . . . . . . . . . . . . . . . . . y
are securities that represent a share of ownership in a
corporation, entitling the holder to certain voting rights and
to receive a pro rata share of any common dividends. Company,
Market, Sector

FOREIGN EQUITIES . . . . . . . . . . . . . . . . . . . . . . . . 10(1)
include stocks issued by foreign companies, as well as American
depository receipts (ADRs). ADRs are dollar-denominated
securities designed for use in the U.S. securities markets
which represent underlying securities issued by foreign
companies. Company, Currency, Foreign Issuer, Information,
Market, Sector

FUTURES CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . y(2)
require the holder to buy or sell securities at a specified
price on a specified date. Some are contracts to make a cash
settlement on a future date in an amount determined by the
value of a financial index (such as the S&P 500 Index) on the
last day of the contract. The fund generally buys or sells
futures in seeking protection against fluctuations in the
value of its portfolio without actually buying or selling
securities. Hedging, Leverage, Market

OPTIONS ON FUTURES CONTRACTS . . . . . . . . . . . . . . . . y(2)
give the holder the right, in return for the premium
paid, to assume a position in a futures contract at a
specified exercise price at any time prior to the
expiration date of the option. The fund generally uses
these for the same purposes as futures contracts.
Hedging, Leverage, Market

ILLIQUID SECURITIES. . . . . . . . . . . . . . . . . . . . . . . /15/
cannot be sold in the ordinary course of business within
seven days at approximately the price at which they are
valued. Liquidity

OPTIONS ON SECURITIES. . . . . . . . . . . . . . . . . . . . . . y
are contracts which give the holder the right, in return for
the premium paid, to buy or sell securities prior to the
expiration date of the option at the option exercise price.
The writer of the option is then obligated, in return for
the premium received, to either deliver or purchase the
securities. Company, Credit, Hedging, Leverage, Liquidity,
Market, Sector

OPTIONS ON STOCK INDEXES . . . . . . . . . . . . . . . . . . . . y
are contracts which give the holder the right, in return
for the premium paid, to receive a cash settlement if,
prior to the expiration of the option, the closing level
of the index 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, in
return for the premium received, to make the cash payment
upon exercise of the option. Credit, Hedging, Leverage,
Liquidity, Market

SHORT-TERM MONEY MARKET SECURITIES . . . . . . . . . . . . . . . 35(3)
include short-term U.S. government securities, time
deposits, bank certificates of deposit, bankers'
acceptances, high-grade commercial paper and other
money market instruments. Credit, Interest Rate

- --------------------------------------------------------------------------------
4 Prospectus - Emerging Growth Fund

<PAGE>

PORTFOLIO OVERVIEW

INVESTMENT SECURITIES AND TECHNIQUES (CONTINUED)
- --------------------------------------------------------------------------------

INVESTMENT TECHNIQUES
- --------------------------------------------------------------------------------

BORROWING. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
is permitted for temporary or emergency purposes only.
Interest paid on borrowed funds reduces earnings. The fund's
policy on borrowing cannot be changed without shareholder
approval. Leverage

REPURCHASE AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . y
The fund purchases securities on the condition that the
seller will buy them back at a set time and price, plus
interest. The fund may enter into repurchase agreements for
securities issued or guaranteed as to payment of principal
and interest by the U.S. government or its agencies or
instrumentalities. Credit, Interest Rate

(1) No more than 5% of the fund's total assets will be invested in securities
of foreign issuers which are not either listed on a U.S. stock exchange or
represented by American depository receipts.

(2) The fund's use of futures contracts and options on futures contracts will
be limited by regulations of the Commodity Futures Trading Commission.

(3) The fund may invest without limitation in these securities for temporary
defensive purposes. Time deposits are considered illiquid and subject to
the fund's limitation on investing in illiquid securities.

- --------------------------------------------------------------------------------
5 Prospectus - Emerging Growth Fund

<PAGE>

PORTFOLIO OVERVIEW

RISK FACTORS
- --------------------------------------------------------------------------------
A SUMMARY OF THE PRINCIPAL RISKS WHICH APPLY TO THE FUND IS PROVIDED IN "FUND
DESCRIPTION." MORE DETAIL REGARDING THESE AND OTHER RISKS ASSOCIATED WITH
INVESTMENT SECURITIES AND TECHNIQUES USED BY EMERGING GROWTH FUND IS PROVIDED
BELOW.

COMPANY RISK

Individual stocks can perform differently than the overall market. This may be a
result of specific factors such as changes in corporate profitability due to the
success or failure of specific products or management strategies, or it may be
due to changes in investor perceptions regarding a company. To help mitigate
company risk, the fund is "diversified," which means that, with respect to 75%
of its assets, it invests no more than 5% of its total assets in the stocks of
any one issuer.

CREDIT RISK

The issuer of a security, or the other party to a contract, such as a repurchase
agreement, could default on its financial obligation, causing a loss in the
fund's portfolio.

CURRENCY RISK

The value of the fund's foreign securities in U.S. dollars will vary with
increases and decreases in the exchange rate. A decline in the value of any
particular currency against the U.S. dollar will cause a decline in the U.S.
dollar value of securities denominated in that currency. That will, in turn,
cause a decline in the fund's net asset value, net investment income, and
capital gains, if any. The exchange rate between the U.S. dollar and other
currencies is determined by many factors, including the supply and demand for
particular currencies, central bank efforts to support currencies, the movement
of interest rates, the price of oil, the pace of activity in industrial
countries, and other economic and financial conditions affecting the world
economy.

FOREIGN ISSUER RISK

HEDGING RISK

INTEREST RATE RISK

INFORMATION RISK

Non-U.S. companies are not generally subject to uniform accounting, auditing,
and financial reporting standards or to other regulatory requirements comparable
to those which apply to U.S. companies. As a result, less information may be
available concerning non-U.S. issuers or securities held by the fund. Accounting
and financial reporting standards in emerging markets may be especially lacking.

LEVERAGE RISK

LIQUIDITY RISK

The fund may invest without limitation in certain types of securities which have
historically been considered illiquid, but only if they are determined to be
liquid under procedures adopted by the board of directors. These include
unregistered securities which can be resold, without registration, to qualified
institutional buyers (Rule 144A securities). Investing in Rule 144A 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.

MARKET RISK

SECTOR RISK

The stocks of companies within specific industries or sectors of the economy can
periodically perform differently than the overall stock market. This can be due
to changes in such things as the regulatory or competitive environment or to
changes in investor perceptions of a particular industry or sector. Large
concentrations in specific industries will increase sector risk. The fund will
not invest 25% or more of its total assets in any one industry. (Gas, electric,
telephone, telegraph, satellite and microwave communications companies are
considered separate industries.)

- --------------------------------------------------------------------------------
6 Prospectus - Emerging Growth Fund

<PAGE>

MANAGING YOUR INVESTMENT

BUYING SHARES
- --------------------------------------------------------------------------------
YOU MAY PURCHASE CLASS Y SHARES OF THE FUND WITH AN INITIAL INVESTMENT OF $1
MILLION OR MORE. ADD TO YOUR EXISTING INVESTMENT WITH ANY AMOUNT, AT ANY TIME.
SIMPLY CALL YOUR PIPER JAFFRAY INVESTMENT EXECUTIVE OR ANOTHER AUTHORIZED
BROKERAGE FIRM.

CALCULATING YOUR PURCHASE PRICE
- --------------------------------------------------------------------------------
Class Y shares are sold without any initial or deferred sales charges. Your
purchase price will be equal to the next net asset value of your shares
calculated after your broker receives your purchase order. The net asset value
of each share is equal to the market value of the fund's investments and other
assets, less any liabilities, divided by the number of fund shares.

INVESTING AUTOMATICALLY
- --------------------------------------------------------------------------------

AUTOMATIC MONTHLY INVESTMENT PROGRAMS

To purchase class Y shares as part of a savings discipline, you may
automatically transfer $100 or more each month to any Piper fund offering
class Y shares from your bank, savings and loan, or other financial institution.
Or transfer $25 or more per month from any of the Piper money market funds.

CROSS-REINVESTMENT OF DISTRIBUTIONS

SHARE CLASSES

EMERGING GROWTH FUND ALSO OFFERS CLASS A AND CLASS B SHARES THROUGH A SEPARATE
PROSPECTUS. YOU CAN OBTAIN MORE INFORMATION ON THE FUND'S CLASS A AND CLASS B
SHARES BY CALLING THE FUND AT THE PHONE NUMBER ON THE BACK COVER.

- --------------------------------------------------------------------------------
7 Prospectus - Emerging Growth Fund

<PAGE>

MANAGING YOUR INVESTMENT

HOLDING SHARES
- --------------------------------------------------------------------------------

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, in effect, you "buy the dividend." You will pay the full price for the
shares and then receive a portion of that price back as a taxable distribution.

Class Y shareholders generally will receive higher dividends from net investment
income than class A or class B shareholders because class Y shareholders are not
subject to Rule 12b-1 fees.

TAXING OF DIVIDENDS AND OTHER DISTRIBUTIONS
- --------------------------------------------------------------------------------
The fund has qualified, and intends to continue qualifying, for taxation as a
regulated investment company. As long as the fund continues to qualify, it will
not be subject to federal income tax to the extent its income is distributed to
shareholders.

Dividends and distributions you receive from the fund are generally taxable
whether you reinvest them or take them in cash. Distributions of long-term
capital gains are taxable as long-term gains, regardless of how long you have
held your shares (except that, under recent amendments to the tax code, the fund
will be required to designate certain capital gain distributions as mid-term
capital gain distributions, to be treated by individual shareholders as mid-term
capital gains). Dividends from the fund's net investment income and short-term
capital gain distributions are taxable as ordinary income.

The sale or exchange of fund shares will be a taxable event for you and may
result in a capital gain or loss. Under recent amendments to the tax code, the
gain or loss will be considered long-term if you have held your shares for more
than 18 months and mid-term if you have held your shares more than one year but
not more than 18 months. A gain or loss on shares held for one year or less is
considered short-term and is taxed at the same rates as ordinary income.

You may exchange your class Y shares only for class Y shares of another Piper
fund. However, please note that not all Piper funds offer class Y shares.

Exchanges are made based on the net asset value per share of each fund at the
time of the exchange.

Before exchanging into any fund, be sure to read its prospectus carefully. The
fund may change or cancel its exchange policies at any time, upon 60 days'
notice to shareholders.

For your protection, IFTC will attempt to verify your identity by asking for
your account number, social security number or other form of personal
identification. If reasonable care is taken to identify you as the caller,
neither IFTC nor the fund will be liable for losses to your account resulting
from an unauthorized telephone transaction. Payments that result from telephone
transactions will be made only to the address of record or the bank account
designated on your Account Application and Services form.

STAYING INFORMED
- --------------------------------------------------------------------------------
Piper Capital offers a variety of resources to help keep you informed. If you
would like more information, please contact your broker or call Mutual Fund
Services at 800 866-7778. As a shareholder, you automatically receive the
following:

SHAREHOLDER REPORTS

Shareholder reports are mailed twice a year, in November and May. They include
financial statements and performance information on the fund, a message from
your portfolio manager, and, on an annual basis, the auditors' report.

STATEMENTS AND CONFIRMATIONS

Statements summarizing activity in your account are mailed monthly (quarterly if
your account has no activity). Confirms are mailed following each purchase or
sale of fund shares.

- --------------------------------------------------------------------------------
8 Prospectus - Emerging Growth Fund

<PAGE>

MANAGING YOUR INVESTMENT

SELLING SHARES
- --------------------------------------------------------------------------------

YOU MAY SELL ANY OR ALL OF YOUR SHARES FOR THEIR NET ASSET VALUE ON ANY DAY WHEN
THE NEW YORK STOCK EXCHANGE IS OPEN. SIMPLY CALL YOUR BROKER. YOUR REQUEST WILL
BE EXECUTED AT THE NEXT NET ASSET VALUE CALCULATED AFTER YOUR BROKER RECEIVES
YOUR REQUEST.

As noted above, you may sell shares by calling your broker. If you work with a
broker from a firm other than Piper Jaffray, you also may sell your shares by
submitting a written request to the fund's transfer agent, IFTC. Call IFTC at
800 874-6205 for instructions.

If your account falls below $1 million due to a sale of shares or an exchange
request, your account may be liquidated following 30 days written notice.

TAKING SYSTEMATIC WITHDRAWALS
- --------------------------------------------------------------------------------
You can make automatic withdrawals from your account provided you maintain a
minimum account balance of $1 million. You may withdraw $100 or more monthly,
quarterly, or semiannually by authorizing the sale of the appropriate number of
shares on a periodic basis. To set up systematic withdrawals, contact your
broker.

You may not want to make systematic withdrawals if you plan to continue
investing in the fund, due to tax liabilities.

- --------------------------------------------------------------------------------
9 Prospectus - Emerging Growth Fund

<PAGE>

GENERAL INFORMATION
- --------------------------------------------------------------------------------

HOW THE FUND IS ORGANIZED
- --------------------------------------------------------------------------------
Emerging Growth Fund is a diversified series of Piper Funds Inc., an open-end
investment company.

VOTING RIGHTS

Although the fund is not required by law to hold annual meetings, it may hold
shareholder meetings from time to time on important matters. In addition,
shareholders have the right to call a meeting under certain circumstances. When
the fund holds a meeting, you will receive a proxy statement requesting your
vote. You have one vote for each share you own.

RIGHTS OF DIFFERENT CLASSES

The different classes of shares of the fund have the same rights and are
identical in all respects except that:

- - Expenses related to the distribution of each class of shares are borne
solely by that class.

- - 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.

- - Each class has exclusive voting rights with respect to approval of any
12b-1 distribution plan related to that class (except that class B
shareholders generally have the right to vote on any distribution fees
imposed on class A shares).

- - Only class B shares carry a conversion feature.

- - Each class has different exchange privileges.

FUND OBJECTIVE

The fund's investment objective is fundamental and may be changed only with
shareholder approval. The funds' investment policies and techniques may be
changed without shareholder approval, unless otherwise noted.

HOW THE FUND IS MANAGED
- --------------------------------------------------------------------------------
The fund is governed by a board of directors, which is responsible for
protecting the interests of shareholders. Directors meet periodically throughout
the year to oversee the fund's activities, review its performance and review the
actions of the fund's advisor. Although the board may include individuals who
are affiliated with the advisor, the majority of board members must be
independent. The board has retained the following companies to manage the fund's
operations.

INVESTMENT ADVISOR

Piper Capital Management Incorporated
222 South Ninth Street
Minneapolis, MN 55402-3804

As investment advisor, Piper Capital manages the fund's business and investment
activities, subject to the authority of the board of directors. The fund pays
Piper Capital a monthly management fee for providing investment advisory
services. See "Shareholder Expenses" in the "Fund Description" section of this
prospectus for more information.

Piper Capital also is investment advisor to other Piper open-end funds, to a
number of closed-end investment companies and to various institutions,
corporations and individuals. Piper Capital has approximately $12 billion under
management and is a wholly owned subsidiary of Piper Jaffray Companies Inc., a
full-service investment company.

DISTRIBUTOR

Piper Jaffray Inc.
222 South Ninth Street
Minneapolis, MN 55402-3804

Piper Jaffray is the principal distributor of the fund's shares. Other brokerage
firms that have a sales agreement with Piper Jaffray may also sell fund shares.
Piper Jaffray is a wholly owned subsidiary of Piper Jaffray Companies and an
affiliate of Piper Capital.

CUSTODIAN AND ACCOUNTING AGENT

Investors Fiduciary Trust Company
801 Pennsylvania Avenue
Kansas City, MO 64105-1307

As the fund's custodian and accounting agent, IFTC holds the fund's portfolio
securities, settles trades, collects data needed to calculate net asset values,
and provides recordkeeping.

TRANSFER AND DIVIDEND DISBURSING AGENTS

Investors Fiduciary Trust Company
1004 Baltimore Avenue
Kansas City, MO 64105-1802

Piper Jaffray (address listed above)

Piper Trust Company
222 South Ninth Street
Minneapolis, MN 55402-3804

IFTC provides transfer agent services and pays dividends and other distributions
for the fund. Piper Jaffray and Piper Trust provide these services for
shareholders whose accounts they maintain.

- --------------------------------------------------------------------------------
10 Prospectus - Emerging Growth Fund

<PAGE>

GENERAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------

HOW DEALERS ARE COMPENSATED
- --------------------------------------------------------------------------------
Piper Jaffray Investment Executives and other brokerage firms who sell class Y
shares receive ongoing fees from Piper Capital which equal, on an annual basis,
up to approximately 0.27% of the fund's average daily net assets attributable to
such shares.

PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
When deciding which brokers to use for the fund's portfolio transactions, Piper
Capital may consider whether brokers have sold shares of this or any other Piper
fund. Piper Capital may place trades through Piper Jaffray in compliance with
Investment Company Act of 1940 rules.

NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value per share is calculated by dividing the total market value of
the fund's investments and other assets, less any liabilities, by the number of
fund shares. The values of securities within the fund's portfolio are determined
as follows:

- - By an independent pricing service, or

- - Through market quotations obtained from one or more dealers who make a
market in the securities or from a widely used quotation system.

Net asset value is calculated as of the close of regular trading on the New York
Stock Exchange (typically 4 p.m. Eastern Time) on each day the exchange is open
for trading.

2) Filed June 22, 1995, by Beverly Muth, in the Montana Thirteenth Judicial
District Court, Yellowstone County. Filed against Piper Jaffray and an
affiliated person.

Piper Capital and Piper Jaffray are also subject to an investigation by the
Securities and Exchange Commission which began
February 21, 1995, related to various funds and assets managed
by Piper Capital.

- --------------------------------------------------------------------------------
11 Prospectus - Emerging Growth Fund

<PAGE>

Prospectus - Emerging Growth Fund

FOR MORE INFORMATION
- --------------------------------------------------------------------------------

Annual/Semiannual Reports

Shareholder reports include financial statements and performance information on
the fund, a message from your portfolio manager, and, on an annual basis, the
auditors' report.

Statement of Additional Information (SAI)

The SAI contains more detailed information about the fund. A current SAI has
been filed with the SEC and is incorporated by reference into this prospectus.

To order free copies, please write or call:

Piper Capital Management
Attn: Mutual Fund Services
222 South Ninth Street
Minneapolis, MN 55402-3804

800 866-7778

No dealer, sales representative or other person has been authorized to give any
information or make any representations other than those contained in this
prospectus or in the SAI. You should not rely upon any such information or
representation as having been authorized by the fund or Piper Jaffray.

- --------------------------------------------------------------------------------
[LOGO] PIPER FUNDS 222 South Ninth Street
Minneapolis, MN 55402-3804

#30222 11/1997 032-98
<PAGE>

- --------------------------------------------------------------------------------
Growth and Income Fund - Prospectus
- --------------------------------------------------------------------------------

NOVEMBER 24, 1997

[LOGO]

GROWTH AND INCOME FUNDS

GROWTH AND INCOME FUND (Class A and Class B Shares)
- --------------------------------------------------------------------------------
BALANCED FUND (Class A and Class B Shares)
- --------------------------------------------------------------------------------

BEFORE YOU INVEST:

PLEASE READ THIS PROSPECTUS CAREFULLY, AND KEEP IT FOR FUTURE REFERENCE. IT
CONTAINS IMPORTANT INFORMATION ABOUT THE FUNDS, INCLUDING INFORMATION ON
INVESTMENT POLICIES, RISKS AND FEES.

[LOGO]

CONTENTS
- --------------------------------------------------------------------------------
INVESTING IN PIPER GROWTH AND INCOME FUNDS . . . 1

FUND DESCRIPTIONS
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUND . . . . . . . . . . . . . 2 Investment objectives and
BALANCED FUND. . . . . . . . . . . . . . . . . . 4 policies, risk
considerations, portfolio
managers, shareholder
expenses and financial
highlights

PORTFOLIO OVERVIEW
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES AND TECHNIQUES . . . . . . 6 An overview of securities
RISK FACTORS . . . . . . . . . . . . . . . . . . 9 and investment techniques
that may be used by the
funds and their risks

- --------------------------------------------------------------------------------
GENERAL INFORMATION. . . . . . . . . . . . . . .15
<PAGE>

INVESTING IN PIPER
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUNDS
- --------------------------------------------------------------------------------
PIPER GROWTH AND INCOME FUNDS ARE DESIGNED TO PROVIDE YOU WITH A COMBINATION OF
INCOME AND CAPITAL APPRECIATION. GROWTH AND INCOME FUND AND BALANCED FUND ARE
ADVISED BY PIPER CAPITAL MANAGEMENT INCORPORATED.

BEFORE YOU INVEST:

KNOW YOUR GOALS
- --------------------------------------------------------------------------------
One or both of these funds may be appropriate for your investment portfolio if:

- - You want growth opportunities from a more conservative investment.

- - You are retired or nearing retirement and concerned about the effects of
inflation on your investments.

- - You are comfortable with volatility in the value of your shares.

If you require absolute stability of your principal -- or if you want maximum
growth from your investment -- you should consider other investment vehicles.
Piper Growth and Income Funds were not designed to meet these goals.

UNDERSTAND THE RISKS
- --------------------------------------------------------------------------------
While mutual funds are a convenient and potentially rewarding way to invest,
they do not always meet their objectives. Please remember: You could lose money
with these investments. Stability of income and safety of principal are not
guaranteed. Risks associated with these funds are outlined in the following
pages.

USE YOUR PROSPECTUS
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1 Prospectus - Growth and Income Funds
<PAGE>

FUND DESCRIPTIONS

GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
Growth and Income Fund seeks current income and long-term growth of capital and
income. To pursue this objective, the fund invests in a broadly diversified
portfolio of securities. It emphasizes securities of large, established
companies that may be undervalued and that have a history of dividend payments.

INVESTMENT POLICIES
- --------------------------------------------------------------------------------
Under normal market conditions, Growth and Income Fund will invest primarily in
common stocks and securities convertible into common stocks. However, the fund
may also invest in debt securities.

In selecting stocks for the portfolio, the advisor considers a company's
prospects for long-term growth of both dividends and earnings, its stability of
earnings, and the sensitivity of its industry to fluctuations in major economic
variables, such as interest rates and industrial production.

Investments in long-term debt securities, including debt securities convertible
into common stock, will be limited to:

- - U.S. government securities,

- - Securities rated at the time of purchase within the four highest investment
grades assigned by Moody's Investors Service or Standard & Poor's Ratings
Services, or

- - Unrated securities judged by the advisor to be of comparable quality.

The fund may purchase or write put and call options on the securities in which
it may invest and on stock indexes listed on national securities exchanges. In
addition, solely to hedge against changes in the value of its portfolio
securities due to anticipated changes in the market, the fund may enter into
futures contracts and purchase or write put or call options on such contracts.
The fund also may purchase or sell securities on a when issued or forward
commitment basis and enter into mortgage dollar rolls. Use of these practices
may increase the volatility of the fund's net asset value.

Under unusual circumstances, as a temporary defensive measure, the fund may
retain cash or invest part or all of its assets in short-term money market
securities. The fund may invest up to 10% of its total assets in equity
securities of foreign issuers.

RISK CONSIDERATIONS
- --------------------------------------------------------------------------------

Stocks may decline significantly in price over short or extended periods of
time. Price changes may affect the market as a whole, or they may affect only a
particular company, industry or sector of the market. See pages 9-10 for more
information on market risk, company risk and sector risk.

To the extent the fund invests in debt securities, it will be subject to credit
risk, which is the possibility that the issuer of a security will default, and
interest rate risk, which occurs because the prices of debt securities generally
fall as interest rates rise (and vice versa). See the descriptions of credit
risk and interest rate risk on page 9.

The investment securities and techniques used by this fund present other risks
as well. See pages 6-10 for more information.

PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
STEVE MARKUSEN, CFA, is a senior vice president of Piper Capital with 13 years
of financial experience.

BRENT MELLUM, CFA, is a vice president of Piper Capital with three years of
financial experience.

SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
----------------------
Maximum front-end sales charge on purchases. . . . . . . 4.00% none
(AS A % OF OFFERING PRICE)

Maximum deferred sales charge. . . . . . . . . . . . . . none(2) 4.00%
(AS A % OF NET ASSET VALUE AT PURCHASE OR
REDEMPTION, WHICHEVER IS LESS)

FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
Management fee . . . . . . . . . . . . . . . . . . . . . 0.73% 0.73%
12b-1 fee (after class A share fee limitation)(3)(4) . . 0.34% 1.00%
Other expenses (after expense reimbursements)(4) . . . . 0.27% 0.27%
----- -----

Total operating expenses
(after fee limitation and expense
reimbursements)(4). . . . . . . . . . . . . . . . . . 1.34% 2.00%

CLASS A CLASS B CLASS B
Assuming Assuming
redemption no redemption
at end of period
------------------------------------------

1 year . . . . . . . . . . . . . . $53 $60 $20
3 years. . . . . . . . . . . . . . $81 $93 $63
5 years. . . . . . . . . . . . . . $110 $128 $108
10 years . . . . . . . . . . . . . $195 $200(5) $200(5)

(1) For class B shares, other expenses are based on intended reimbursements
for fiscal 1998.

(2) Except for investments of $500,000 or more. See "Paying the Contingent
Deferred Sales Charge," on page 14.

(3) Due to the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.

(4) If Piper Jaffray and Piper Capital had not voluntarily limited fees and
reimbursed expenses for class A shares, the 12b-1 fee would have been
0.50%, other expenses would have been 0.29% and total operating expenses
would have been 1.52%. Fee limitations and expense reimbursements
reflected in the table may be discontinued at any time after fiscal 1998
year end.

(5) Assumes 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.

- --------------------------------------------------------------------------------
2 Prospectus - Growth and Income Funds
<PAGE>

FUND DESCRIPTIONS

GROWTH AND INCOME FUND (CONTINUED)
- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS The following information has been audited by KPMG Peat
Marwick LLP, independent auditors.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Fiscal year ended September 30, Period from
CLASS A SHARES 7/21/92(1) to
1997 1996 1995 1994 1993 9/30/92
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period . . . . $15.04 $12.93 $10.27 $10.30 $10.01 $10.00
------ ------ ------ ------ ------ ------
Operations:
Net investment income . . . . . . . . . . 0.15 0.18 0.19 0.24 0.24 0.03
Net realized and unrealized gains
(losses) on investments. . . . . . . . . 4.35 2.31 2.70 0.02 0.29 (0.02)
------ ------ ------ ------ ------ ------
Total from operations . . . . . . . . . . 4.50 2.49 2.89 0.26 0.53 0.01
------ ------ ------ ------ ------ ------
Distributions to shareholders:
From net investment income. . . . . . . . (0.16) (0.20) (0.19) (0.24) (0.24) --
From net realized gains on investments. . (1.01) (0.18) (0.04) (0.05) -- --
------ ------ ------ ------ ------ ------
Total distributions to shareholders . . . (1.17) (0.38) (0.23) (0.29) (0.24) --
------ ------ ------ ------ ------ ------
Net asset value, end of period . . . . . . . $18.37 $15.04 $12.93 $10.27 $10.30 $10.01
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------

SELECTED INFORMATION

Total return(2)[BAR GRAPH] . . . . . . . . . 31.87% 19.56% 28.81% 2.53% 5.41% 0.10%

Net assets, end of period (in millions). . . $127 $97 $73 $73 $96 $52
Ratio of expenses to average daily
net assets. . . . . . . . . . . . . . . . . 1.34% 1.32% 1.32% 1.29% 1.32% 1.28%(3)
Ratio of net investment income
to average daily net assets. . . . . . . . 0.90% 1.26% 1.93% 2.26% 2.51% 3.00%(3)
Average commission rate paid on
portfolio transactions(4). . . . . . . . . . $0.0600 $0.0600 -- -- -- --
Portfolio turnover rate (excluding
short-term securities). . . . . . . . . . . 46% 22% 14% 20% 26% 1%
Ratios before waivers by the advisor
and/or distributor:
Of expenses to average daily net
assets . . . . . . . . . . . . . . . . . 1.52% 1.56% 1.60% 1.62% 1.58% 2.06%(3)
Of net investment income to average
daily net assets . . . . . . . . . . . . 0.72% 1.02% 1.65% 1.93% 2.25% 2.22%(3)

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

Period from
CLASS B SHARES 2/18/97(5) to
9/30/97
--------------
<S> <C>
PER SHARE DATA
Net asset value, beginning of period . . . . $16.14
Operations:
Net investment income . . . . . . . . . . 0.03
Net realized and unrealized gains
on investments . . . . . . . . . . . . . 2.21
------
Total from operations . . . . . . . . . . 2.24
------
Distributions to shareholders:
From net investment income. . . . . . . . (0.05)
------
Net asset value, end of period . . . . . . . $18.33
------
------

SELECTED INFORMATION
Total return(2). . . . . . . . . . . . . . . 13.93%
Net assets, end of period (in thousands) . . $905
Ratio of expenses to average
daily net assets. . . . . . . . . . . . . . 1.98%(3)
Ratio of net investment income to
average daily net assets. . . . . . . . . . 0.04%(3)
Average commission rate paid on
portfolio transactions(4) . . . . . . . . . $0.0600
Portfolio turnover rate
(excluding short-term securities) . . . . . 46%
Ratios before waivers by the advisor:
Of expenses to average daily
net assets . . . . . . . . . . . . . . . 1.98%(3)
Of net investment income to average
daily net assets . . . . . . . . . . . . 0.04%(3)

</TABLE>

(1) Commencement of operations.

(2) Total return assumes reinvestment of distributions and does not reflect a
sales charge.

(3) Annualized.

(4) Disclosed in accordance with guidelines adopted in 1996.

(5) Commencement of offering of class B shares.

- --------------------------------------------------------------------------------
3 Prospectus - Growth and Income Funds
<PAGE>

FUND DESCRIPTIONS

BALANCED FUND
- --------------------------------------------------------------------------------

BALANCED FUND TARGETS BOTH CURRENT INCOME AND LONG-TERM CAPITAL APPRECIATION
CONSISTENT WITH CONSERVATION OF PRINCIPAL BY INVESTING IN A VARIETY OF
SECURITIES.

INVESTMENT POLICIES
- --------------------------------------------------------------------------------
Balanced Fund may invest in any type of security, including common and preferred
stocks, convertible securities, fixed income securities and money market
instruments. It may invest up to 25% of its total assets in foreign securities.
The mix of securities will change based on existing and anticipated market
conditions. Investment results will be affected by the advisor's ability to
manage the asset mix effectively.

When investing in common stocks, the fund emphasizes stocks of large companies
that the advisor believes offer above average earnings growth potential at a
reasonable price, relative to Standard & Poor's 500 Index. Large companies are
considered to be those with market capitalizations within the range of companies
included in the S&P 500 ($549 million to $211 billion as of October 31, 1997).

At least 35% of the fund's total assets must be invested in fixed income
securities, including (but not limited to) collateralized mortgage obligations
and other mortgage-related securities, U.S. government securities, corporate
fixed income securities and short-term money market securities. Investments in
long-term debt securities will be limited to U.S. government securities,
securities rated at the time of purchase within the four highest investment
grades assigned by Moody's or Standard & Poor's, or unrated securities judged by
the advisor to be of comparable quality. No more than 20% of the long-term debt
securities held by the fund will be unrated.

The fund may purchase or write put and call options on the securities in which
it may invest and on stock indexes listed on national securities exchanges. In
addition, solely to hedge against changes in the value of its portfolio
securities due to anticipated changes in the market, the fund may enter into
futures contracts and purchase or write put and call options on such contracts.
The fund also may purchase or sell securities on a when issued or forward
commitment basis and enter into mortgage dollar rolls. Use of these practices
may increase volatility of the fund's net asset value.

The value of debt securities in the fund will fluctuate with changing interest
rates. If rates rise, prices likely will fall and vice versa. One measure of
interest rate risk is effective duration, explained on page 9 under "Interest
Rate Risk." This fund seeks to maintain an average effective duration of three
to 6 1/2 years for the fixed income portion of its portfolio.

The fund also is subject to credit risk, which is the possibility that the
issuer of a security will default. The fund may invest in securities of the
lowest investment grade or in comparable unrated securities. These securities
may have speculative characteristics. See page 9 for more information on credit
risk.

Investments in foreign securities will subject the fund to additional risks,
including risks of currency fluctuations, political or social instability of
certain foreign countries, and a lack of uniform accounting, auditing and
financial reporting standards. See page 9 for descriptions of currency risk,
foreign issuer risk and information risk. To the extent the fund invests in
mortgage-related securities, it will be subject to both prepayment and extension
risk. The investment securities and techniques used by this fund present other
risks as well, including leverage and liquidity risks. See pages 6-10 for more
information.

BRUCE SALVOG is a senior vice president of Piper Capital with 27 years of
financial experience.

DAVID STEELE is a senior vice president of Piper Capital with 18 years of
financial experience.

SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
----------------------
Maximum front-end sales charge on purchases. . . . . 4.00% none
(AS A % OF OFFERING PRICE)

Maximum deferred sales charge. . . . . . . . . . . . none(1) 4.00%
(AS A % OF NET ASSET VALUE AT PURCHASE
OR REDEMPTION, WHICHEVER IS LESS)

FUND OPERATING EXPENSES (AS A % OF AVERAGE NET
ASSETS)
Management fee . . . . . . . . . . . . . . . . . . . 0.75% 0.75%
12b-1 fee (after class A share fee
limitation)(2,3). . . . . . . . . . . . . . . . . . 0.34% 1.00%

Other expenses (after expense reimbursements)(3) . . 0.25% 0.25%
----- -----
Total operating expenses
(after fee limitation and expense
reimbursements)(3). . . . . . . . . . . . . . . . 1.34% 2.00%

1 year . . . . . . . . . . . . . . $53 $60 $20
3 years. . . . . . . . . . . . . . $81 $93 $63
5 years. . . . . . . . . . . . . . $110 $128 $108
10 years . . . . . . . . . . . . . $195 $200(4) $200(4)

(1) Except for investments of $500,000 or more. See "Paying the Contingent
Deferred Sales Charge," on page 14.

(2) Due to the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.

(3) If Piper Jaffray and Piper Capital had not voluntarily limited fees and
reimbursed expenses, the class A share 12b-1 fee would have been 0.50%,
other expenses would have been 0.48% for class A shares and 0.36% for class
B shares, and total operating expenses would have been 1.73% for class A
shares and 2.11% for class B shares. Fee limitations and expense
reimbursements reflected in the table may be discontinued at any time after
fiscal 1998 year end.

(4) Assumes 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.

- --------------------------------------------------------------------------------
4 Prospectus - Growth and Income Funds
<PAGE>

FUND DESCRIPTIONS

BALANCED FUND (CONTINUED)
- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS The following information has been audited by KPMG Peat
Marwick LLP, independent auditors.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Period Period
CLASS A SHARES from from
11/1/88 Year 3/16/87(1)
Fiscal year ended September 30, to Ended to
1997 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> <C>
PER SHARE DATA
Net asset value, beginning of
period. . . . . . . . . . . . . . . . $14.08 $13.74 $11.81 $12.23 $11.88 $10.77 $ 8.87 $10.00 $ 9.19 $8.97 $10.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ----- ------
Operations:
Net investment income . . . . . . . 0.42 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. . . 2.26 0.89 1.93 (0.26) 0.65 1.17 1.89 (1.14) 0.83 0.22 (1.09)
------ ------ ------ ------ ------ ------ ------ ------ ------ ----- ------
Total from operations . . . . . . . 2.68 1.33 2.40 0.12 0.99 1.55 2.32 (0.72) 1.27 0.73 (0.81)
------ ------ ------ ------ ------ ------ ------ ------ ------ ----- ------
Distributions to shareholders:
From net investment income. . . . . (0.42) (0.44) (0.35) (0.37) (0.34) (0.39) (0.42) (0.41) (0.46) (0.51) (0.22)
From net realized gains
on investments . . . . . . . . . . (0.80) (0.55) (0.12) (0.17) (0.30) (0.05) -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ----- ------
Total distributions to
shareholders . . . . . . . . . . . (1.22) (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 . . . . $15.54 $14.08 $13.74 $11.81 $12.23 $11.88 $10.77 $ 8.87 $10.00 $9.19 $ 8.97
------ ------ ------ ------ ------ ------ ------ ------ ------ ----- ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ----- ------

SELECTED INFORMATION

Total return(2)[BAR GRAPH] . . . . . . 20.24% 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) . . . . . . . . . . . . $ 49 $ 45 $ 44 $ 46 $ 57 $ 28 $ 15 $ 14 $ 16 $ 13 $ 13
Ratio of expenses to average
daily net assets. . . . . . . . . . . 1.34% 1.32% 1.32% 1.32% 1.32% 1.32% 1.32% 1.31% 1.30%(3) 1.30% 0.99%(3)
Ratio of net investment income
to average daily net assets . . . . . 2.89% 3.16% 3.54% 3.03% 3.13% 3.57% 4.15% 4.32% 5.15%(3) 5.58% 5.46%(3)
Average commission rate paid
on portfolio transactions(4). . . . . $0.0600 $0.0600 -- -- -- -- -- -- -- -- --
Portfolio turnover rate
(excluding short-term securities) . . 42% 27% 39% 62% 41% 58% 44% 105% 95% 73% 95%
Ratios before waivers by
the advisor and/or distributor:
Of expenses to average daily
net assets . . . . . . . . . . . . 1.73% 1.69% 1.65% 1.60% 1.62% 1.77% 1.98% 1.96% 2.29%(3) 2.09% 1.96%(3)
Of net investment income to
average daily net assets . . . . . 2.50% 2.79% 3.21% 2.75% 2.83% 3.12% 3.49% 3.67% 4.16%(3) 4.79% 4.49%(3)

- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Period from
CLASS B SHARES 2/18/97(5) to
9/30/97
-------------
PER SHARE DATA
Net asset value, beginning of
period. . . . . . . . . . . . . . . . $14.46
------
Operations:
Net investment income . . . . . . . 0.20
Net realized and unrealized
gains on investments . . . . . . . 1.10
------
Total from operations . . . . . . . 1.30
------
Distributions to shareholders:
From net investment income. . . . . (0.25)
------
Net asset value, end of period . . . . $15.51
------
------

SELECTED INFORMATION
Total return(2). . . . . . . . . . . . 9.08%
Net assets, end of period
(in thousands). . . . . . . . . . . . $37
Ratio of expenses to average daily
net assets. . . . . . . . . . . . . . 1.99%(3)
Ratio of net investment income
to average daily net assets . . . . . 2.11%(3)
Average commission rate paid on
portfolio transactions(4) . . . . . $0.0600
Portfolio turnover rate
(excluding short-term securities) . . 42%
Ratios before waivers by the advisor:
Of expenses to average
daily net assets . . . . . . . . . 2.11%(3)
Of net investment income to
average daily net assets . . . . . 1.99%(3)

(1) Commencement of operations.

(2) Total return assumes reinvestment of distributions and does not reflect a
sales charge.

(3) Annualized.

(4) Disclosed in accordance with guidelines adopted in 1996.

(5) Commencement of offering of class B shares.

- --------------------------------------------------------------------------------
5 Prospectus - Growth and Income Funds
<PAGE>

PORTFOLIO OVERVIEW

INVESTMENT SECURITIES AND TECHNIQUES
- --------------------------------------------------------------------------------

This table lists investment securities and techniques used by the funds and
notes any investment limitations as a percentage of portfolio assets. It also
lists the principal risk factors related to their use, which are explained in
greater detail on the following pages.

10 MAXIMUM PERCENT OF TOTAL ASSETS
/10/ MAXIMUM PERCENT OF NET ASSETS
y PERMITTED WITHOUT LIMITATION
n NOT PERMITTED

GROWTH AND BALANCED
INCOME FUND FUND
INVESTMENT SECURITIES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>

ASSET-BACKED SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y
generally are backed by consumer or corporate receivables or credit obligations, such as credit
card receivables, auto loans, home equity loans or manufactured housing loans. These securities
are often guaranteed or over-collateralized to improve credit quality. Credit, Interest Rate

COMMON STOCKS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y 65
are securities that represent a share of ownership in a corporation, entitling the holder to
certain voting rights and to receive a pro rata share of any common dividends. Company, Market,
Sector

CONVERTIBLE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y 65
are corporate debt securities that can be converted, at the option of the owner, into the common
stock of the issuer. Company, Interest Rate, Market, Sector

CORPORATE FIXED INCOME SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y
include corporate bonds, debentures, notes and similar debt securities. Credit, Interest Rate

FOREIGN SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10(1) 25
are securities issued by foreign companies, as well as American depository receipts. The latter
are dollar-denominated securities, designed for use in the U.S. securities markets, which
represent underlying securities issued by foreign companies. Currency, Foreign Issuer,
Information, Market

FUTURES CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y(2) y(2)
require the holder to buy or sell securities at a specified price on a specified date. Some are
contracts to make a cash settlement on a future date in an amount determined by the value of a
financial index (such as the S&P 500 Index) on the last day of the contract. A fund generally
buys or sells futures in seeking protection against fluctuations in the value of its portfolio
without actually buying or selling securities. Hedging, Interest Rate, Leverage, Market

OPTIONS ON FUTURES CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y(2) y(2)
give the holder the right, in return for the premium paid, to assume a position in a futures
contract at a specified exercise price at any time prior to the expiration date of the
option. A fund generally uses these for the same purposes as futures contracts. Hedging,
Interest Rate, Leverage, Market

ILLIQUID SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . /15/ /15/
cannot be sold in the ordinary course of business within seven days at approximately the price
at which they are valued. Liquidity

MORTGAGE-RELATED SECURITIES represent participations in, or are secured by, pools of
mortgages. They are issued by U.S. government agencies and private entities and include
the following:

ADJUSTABLE RATE MORTGAGE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y
pay interest rates which change periodically based on changes in an underlying interest
rate index. Credit, Extension, Interest Rate, Prepayment

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) . . . . . . . . . . . . . . . . . . . . . . . . . . y y
are mortgage-related securities in which the cash flows are allocated to different tranches
or classes, rather than being passed through directly to investors. Different classes have
different risk/return characteristics. Classes with more predictable cash flows generally
have lower yields. Credit, Extension, Interest Rate, Leverage, Liquidity, Prepayment

</TABLE>

- --------------------------------------------------------------------------------
6 Prospectus - Growth and Income Funds
<PAGE>

PORTFOLIO OVERVIEW

INVESTMENT SECURITIES AND TECHNIQUES (CONTINUED)
- --------------------------------------------------------------------------------

INVERSE FLOATING RATE, INVERSE INTEREST-ONLY, INTEREST-ONLY, AND PRINCIPAL-ONLY SECURITIES. . . n /5/(3)
are CMO classes or multiclass mortgage securities with less predictable cash flows. These
securities can be extremely sensitive to interest rate changes and therefore more volatile
than conventional debt securities. Some of these securities may decline in value at times
when other debt securities are increasing. Conversely, some may increase at times when
conventional debt securities are decreasing. Credit, Extension, Interest Rate, Leverage,
Liquidity, Prepayment

PASS-THROUGHS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y
are mortgage-related securities which pass principal and interest payments through to
investors, net of fees. Credit, Extension, Interest Rate, Prepayment

Z BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . n /5/(3)
are CMO classes which do not pay interest until other classes have been paid. Instead,
interest payments are accrued and added to the principal balance. Prices fluctuate more
widely with changes in interest rates than prices of securities with similar maturities that
pay interest currently. Credit, Extension, Interest Rate, Liquidity, Prepayment

OPTIONS ON SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y
are contracts which give the holder the right, in return for the premium paid, to buy or sell
securities prior to the expiration date of the option at the option exercise price. The writer of
the option is then obligated to either deliver or purchase the securities. Company, Credit,
Hedging, Interest Rate, Leverage, Liquidity, Market, Sector

OPTIONS ON STOCK INDEXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y
are contracts which give the holder the right, in return for the premium paid, to receive a cash
settlement, if, prior to the expiration of the option, the closing level of the index 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, in return for the premium received, to make the
cash payment upon exercise of the option. Credit, Hedging, Leverage, Liquidity, Market

PREFERRED STOCKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y 65
are securities that, like common stock, represent ownership in a corporation, but have a claim
ahead of common stock on the payment of dividends and on the corporation's assets in the event
it is dissolved. Unlike common stock, holders generally do not have the right to share in
corporate profits (except in the case of participating preferred stock).
Company, Interest Rate, Market, Sector

SHORT-TERM MONEY MARKET SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y(4) y(4)
include short-term U.S. government securities, time deposits, bank certificates of deposit,
bankers' acceptances, high-grade commercial paper and other money market instruments. Credit,
Interest Rate

U.S. GOVERNMENT SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y
are issued - or guaranteed as to payment of principal and interest - by the U.S. government or
its agencies or instrumentalities. They include U.S. Treasury bills, notes and bonds, as well as
agency-issued securities, such as Fannie Maes (issued by the Federal National Mortgage
Association), Ginnie Maes (issued by the Government National Mortgage Association) and Freddie
Macs (issued by the Federal Home Loan Mortgage Corporation).
Credit, Interest Rate

YANKEE BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y
are dollar-denominated bonds of foreign issuers traded in the United States. Yankee bonds may
involve risks not associated with securities of domestic issuers. Credit, Foreign Issuer,
Interest Rate

ZERO COUPON AND DELAYED INTEREST SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y
do not pay interest on a current basis. Their prices fluctuate more widely with changes in
interest rates than prices of securities with similar maturities that pay interest currently.
Credit, Interest Rate

</TABLE>

- --------------------------------------------------------------------------------
7 Prospectus - Growth and Income Funds
<PAGE>

PORTFOLIO OVERVIEW

INVESTMENT SECURITIES AND TECHNIQUES (CONTINUED)
- --------------------------------------------------------------------------------

10 MAXIMUM PERCENT OF TOTAL ASSETS
/10/ MAXIMUM PERCENT OF NET ASSETS
y PERMITTED WITHOUT LIMITATION
n NOT PERMITTED

<TABLE>
<CAPTION>
GROWTH AND BALANCED
INVESTMENT TECHNIQUES INCOME FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BORROWING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 10
is permitted for temporary or emergency purposes only. Interest payments on borrowed funds reduce
earnings. Each fund's policy on borrowing cannot be changed without shareholder approval. Leverage

HOLDING OF FOREIGN CURRENCIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y
In anticipation of favorable movements in the applicable exchange rates, the funds may hold, for
an indefinite period of time, foreign currencies received as a result of investing in foreign
securities. Currency

MORTGAGE DOLLAR ROLLS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 1/3(5) 33 1/3(5)
The fund sells mortgage-related securities for delivery in the current month while contracting
with the same party to repurchase similar securities at a future date. Interest Rate, Leverage

REPURCHASE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y
The fund purchases securities on the condition that the seller will buy them back at a set time
and price, plus interest. Each fund may enter into repurchase agreements for U.S. government
securities. Credit, Interest Rate

WHEN-ISSUED AND FORWARD COMMITMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 1/3(5) 33 1/3(5)
The purchase or sale of a security at a future date for a predetermined price. Securities may
decrease in value prior to their delivery. Interest Rate, Leverage

</TABLE>

MANY OF THE SECURITIES IDENTIFIED ABOVE ARE CONSIDERED DERIVATIVE SECURITIES. A
DERIVATIVE IS A FINANCIAL INSTRUMENT WHOSE VALUE IS BASED ON ANOTHER SECURITY,
INDEX, REFERENCE RATE (FOR EXAMPLE INTEREST OR CURRENCY EXCHANGE RATE) OR OTHER
ASSET. THESE SECURITIES HAVE VARYING TYPES AND DEGREES OF RISK, AS DESCRIBED
ABOVE.

(1) No more than 5% of Growth and Income Fund's total assets will be invested
in securities of foreign issuers which are not either listed on a U.S.
stock exchange or represented by American depository receipts.

(2) A fund's use of futures contracts and options on futures contracts will be
limited by regulations of the Commodity Futures Trading Commission.

(3) Balanced Fund will not invest more than 5% of its net assets, in the
aggregate, in inverse floating rate, interest-only, principal-only, inverse
interest-only and Z tranches of CMOs, and stripped mortgage-related
securities.

(4) Time deposits are considered illiquid and subject to each fund's limitation
on investing in illiquid securities.

(5) Percentage limitation relates to all purchases of securities on a when-
issued or forward commitment basis, including mortgage dollar roll
purchases.

- --------------------------------------------------------------------------------
8 Prospectus - Growth and Income Funds
<PAGE>

PORTFOLIO OVERVIEW

RISK FACTORS
- --------------------------------------------------------------------------------
A SUMMARY OF THE PRINCIPAL RISKS WHICH APPLY TO EACH FUND IS PROVIDED IN "FUND
DESCRIPTIONS." MORE DETAIL REGARDING THESE AND OTHER RISKS ASSOCIATED WITH
INVESTMENT SECURITIES AND TECHNIQUES USED BY PIPER GROWTH AND INCOME FUNDS IS
PROVIDED BELOW.

COMPANY RISK

CREDIT RISK

The issuer of a security, or the other party to a contract, such as a repurchase
agreement, could default on its financial obligation, causing a loss in a fund's
portfolio. In addition, changes in a security's credit rating or changes in the
perception of an issuer's ability to pay principal and interest could affect the
value of a security and cause a decline in the value of the fund's portfolio.

The funds may invest in securities of the lowest investment grade or in unrated
securities judged by the advisor to be of comparable quality. These securities
may have speculative characteristics and carry a somewhat greater risk of
default than government securities or other, more highly rated securities. When
a fund purchases unrated securities, it will depend on the advisor's investment
analysis more heavily than usual.

CURRENCY RISK

EXTENSION RISK

Rising interest rates could cause homeowners to prepay their mortgages more
slowly than expected, resulting in slower prepayments of mortgage-related
securities. This would, in effect, convert a short- or medium-duration mortgage-
related security into a longer-duration security, increasing its sensitivity to
interest rate changes and causing its price to decline.

FOREIGN ISSUER RISK

HEDGING RISK

INFORMATION RISK

Non-U.S. companies are not generally subject to uniform accounting, auditing and
financial reporting standards or to other regulatory requirements comparable to
those which apply to U.S. companies. As a result, less information may be
available concerning non-U.S. issuers or securities held by a fund. Accounting
and financial reporting standards in emerging markets may be especially lacking.

INTEREST RATE RISK

Effective duration, one measure of interest rate risk, measures how much the
value of a security is expected to change with a given change in interest rates.
The longer a security's effective duration, the more sensitive its price to
changes in interest rates. For example, if interest rates were to increase by
one percentage point, the market value of a bond with an effective duration of
five years would decrease by 5%, with all other factors being constant. However,
all other factors are rarely constant. Effective duration is based on
assumptions and subject to a number of limitations. It is most useful when
interest rate changes are small, rapid and occur equally in short-term and long-
term securities. In addition, it is difficult to calculate precisely for bonds
with prepayment options, such as mortgage-related securities, because the
calculation requires assumptions about prepayment rates. 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.

- --------------------------------------------------------------------------------
9 Prospectus - Growth and Income Funds
<PAGE>

PORTFOLIO OVERVIEW

RISK FACTORS (CONTINUED)
- --------------------------------------------------------------------------------

LEVERAGE RISK

LIQUIDITY RISK

MARKET RISK

PREPAYMENT RISK

Falling interest rates could cause prepayments of mortgage-related securities to
occur more quickly than expected. This occurs because, as interest rates fall,
more homeowners refinance the mortgages underlying these securities. The fund
must reinvest the prepayments at a time when interest rates on new mortgage
investments are falling, reducing its income. In addition, when interest rates
fall, prices on mortgage-related securities may not rise as much as for
comparable Treasury securities because investors may anticipate an increase in
mortgage prepayments.

SECTOR RISK

- --------------------------------------------------------------------------------
10 Prospectus - Growth and Income Funds
<PAGE>

MANAGING YOUR INVESTMENT

CHOOSING A SHARE CLASS
- --------------------------------------------------------------------------------
You may purchase class A shares or class B shares of Piper Growth and Income
Funds. Each class has its own cost structure, allowing you to choose the one
that best meets your requirements. 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.

CLASS A SHARES

If you are making an investment that qualifies for a reduced sales charge, class
A shares may be best for you. Class A shares feature:

- - A front-end sales charge, as described below.

- - Lower annual expenses than class B shares.
(See "Fund Descriptions.")

CLASS B SHARES

If you want to avoid a front-end sales charge because you want all your money to
go to work for you immediately, you may prefer class B shares. Class B shares
feature:

- - No front-end sales charge.

- - Higher annual expenses than class A shares.

- - A contingent deferred sales charge if you redeem your shares within five
years after the calendar year of purchase.

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

CLASS Y (INSTITUTIONAL) SHARES

Through a separate prospectus, Growth and Income Fund also offers class Y shares
to investors making an initial investment of $1 million or more. Class Y shares
feature:

- - No sales charges.

- - Lower annual expenses than class A or B.

For more information, call your broker or Mutual Fund Services
at 800 866-7778.

NOTE:

If your investment qualifies for a reduced sales charge as
described below, class A shares will normally be the better choice. For that
reason:

- - Orders for class B shares for $250,000 or more will be treated as orders
for class A shares.

- - Orders for class B shares by an investor eligible to purchase class A
shares without a front-end sales charge will be treated as orders for class
A shares.

- - For Growth and Income Fund, orders for either class A or class B shares for
$1 million or more will be treated as orders for class Y shares.

CLASS A SHARES

Sales Charge Maximum
Paid by Investors Reallowance
------------------------------------------------------
(as a % of (as a % of (as a % of
Purchase amount purchase price) net asset value) purchase price)
- -------------------------------------------------------------------------------
Up to $100,000 . . . . . . . .4.00%. . . . . . . .4.17%. . . . . . . .3.75%
$100,000-249,999 . . . . . . .3.25%. . . . . . . .3.36%. . . . . . . .3.00%
$250,000-499,999 . . . . . . .2.50%. . . . . . . .2.56%. . . . . . . .2.25%
$500,000 and more. . . . . . None*. . . . . . . None*. . . . . . . .0.00%*

CLASS B SHARES

- --------------------------------------------------------------------------------
11 Prospectus - Growth and Income Funds
<PAGE>

MANAGING YOUR INVESTMENT

BUYING SHARES (CONTINUED)
- --------------------------------------------------------------------------------

ACCUMULATION PRIVILEGE

COMBINED PURCHASE PLAN

LETTER OF INTENT

SPECIAL PURCHASE PLANS

Class A shares may be purchased without a sales charge by:

- - Investors in 401(k) or certain other qualified plans that offer Piper
Funds.

- - Investors purchasing shares through Piper Jaffray's Advantage program or
other qualified wrap-fee accounts.

- - Investors using the proceeds from the sale of any mutual fund not in the
Piper Funds family, excluding money market funds. (This privilege is
available for 30 days after the sale.)

- - Piper Capital clients purchasing shares for their advisory accounts.

- - Employees of brokerage firms that have sales agreements with Piper Jaffray,
their spouses and minor children.

- - Trust companies or bank trust departments investing for discretionary
accounts.

- - Piper Jaffray Companies and its subsidiaries.

INVESTING AUTOMATICALLY
- --------------------------------------------------------------------------------

AUTOMATIC MONTHLY INVESTMENT PROGRAMS

CROSS-REINVESTMENT OF DISTRIBUTIONS

To help you diversify your portfolio, you may automatically invest your
income and capital gain distributions in the same class of shares of another
Piper fund (excluding money market funds) at net asset value, provided you
hold the required minimum balance in that fund.

- --------------------------------------------------------------------------------
12 Prospectus - Growth and Income Funds
<PAGE>

MANAGING YOUR INVESTMENT

HOLDING SHARES
- --------------------------------------------------------------------------------

RECEIVING DIVIDENDS AND OTHER DISTRIBUTIONS
- --------------------------------------------------------------------------------
Dividends from a fund's net investment income, if any, will be paid quarterly.
Any capital gains are distributed at least once each year.

CLASS B SHAREHOLDERS GENERALLY WILL RECEIVE LOWER DIVIDENDS FROM NET
INVESTMENT INCOME THAN CLASS A SHAREHOLDERS BECAUSE OF THE HIGHER
EXPENSES APPLICABLE TO CLASS B SHARES.

You may exchange your class A shares only for class A shares and your class B
shares only for class B shares. However, please note that not all Piper funds
offer class B shares.

You may also move your class A growth and income fund assets into a Piper money
market fund. If you later exchange those money market shares for class A shares
of another Piper fund, that exchange will be treated as an exchange from the
class A shares of the growth and income fund for purposes of determining your
sales charge. Class B shares may be exchanged for class B shares of Piper Money
Market Fund. However, please note that class B Money Market Fund shares have
higher expenses than are typical for money market funds.

Before exchanging into any fund, be sure to read its prospectus carefully. A
fund may change or cancel its exchange policies at any time, upon 60 days'
notice to shareholders.

SHAREHOLDER REPORTS

STATEMENTS AND CONFIRMATIONS

Statements summarizing activity in your account are mailed monthly (quarterly if
your account has no activity). Confirms are mailed following each purchase or
sale of fund shares.

- --------------------------------------------------------------------------------
13 Prospectus - Growth and Income Funds
<PAGE>

MANAGING YOUR INVESTMENT

SELLING SHARES
- --------------------------------------------------------------------------------

Remember to keep at least $200 in your account. If your account falls below $200
due to a sale of shares or an exchange request, your account may be liquidated
following 30 days written notice.

PAYING THE CONTINGENT DEFERRED SALES CHARGE
- --------------------------------------------------------------------------------

CLASS A SHARES

To lower your cost, class A shares that are not subject to a CDSC will be sold
first. Other shares will then be sold in an order that minimizes your CDSC.

LETTER OF INTENT

If you sell your class A shares within 24 months of fulfilling a letter of
intent, you will be charged a CDSC.

EXCHANGES

No CDSC is charged if you exchange class A shares that were originally purchased
without a sales charge, unless you sell your new class A shares within 24 months
of your original purchase.

CLASS B SHARES

If sold during this period the CDSC would be
(as a % of net asset value)
- --------------------------------------------------------------------------------
Calendar year of 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%

Your CDSC is based on the calendar years in which you purchase and redeem
shares, rather than on the number of years you have held shares. For example: If
you buy shares on December 31, 1997, and redeem them on January 1, 1999, you
will pay a 3% CDSC, even though you have held the shares for just over one year.
Shares will be sold in an order that minimizes your CDSC.

CONVERSION FEATURE

CDSC WAIVERS

For class A shares, if you purchased your shares through a Special Purchase
Plan, the CDSC will be waived.

For both class A and class B shares, the CDSC will be waived:

- - Due to death or disability of the shareholder.

- - To allow a lump-sum distribution from a qualified employee benefit plan.

- - To allow systematic withdrawals from a qualified employee benefit plan, if
you are at least 59 1/2 years old.

- - To allow for a tax-free return of an excess contribution to your IRA.

- - If your account balance falls below $200 and your account is liquidated.

You should not make systematic withdrawals if you plan to continue investing in
the fund, due to sales charges and tax liabilities.

- --------------------------------------------------------------------------------
14 Prospectus - Growth and Income Funds
<PAGE>

GENERAL INFORMATION
- --------------------------------------------------------------------------------

HOW THE FUNDS ARE ORGANIZED
- --------------------------------------------------------------------------------
Growth and Income Fund and Balanced Fund are diversified series of Piper Funds
Inc., an open-end investment company.

VOTING RIGHTS

RIGHTS OF DIFFERENT CLASSES

The different classes of shares of a fund have the same rights and are identical
in all respects except that:

- - Expenses related to the distribution of each class of shares are borne
solely by that class.

- - 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.

- - Each class has exclusive voting rights with respect to approval of any 12b-
1 distribution plan related to that class. However, as long as class B
shares convert into class A shares, class B shareholders will have the
right to vote on any distribution fees imposed on class A shares.

- - Only class B shares carry a conversion feature.

- - Each class has different exchange privileges.

FUND OBJECTIVES

INVESTMENT ADVISOR

Piper Capital Management Incorporated
222 South Ninth Street
Minneapolis, MN 55402-3804

DISTRIBUTOR

Piper Jaffray Inc.
222 South Ninth Street
Minneapolis, MN 55402-3804

CUSTODIAN AND ACCOUNTING AGENT

Investors Fiduciary Trust Company
801 Pennsylvania Avenue
Kansas City, MO 64105-1307

As the funds' custodian and accounting agent, IFTC holds the funds' portfolio
securities, settles trades, collects data needed to calculate net asset values,
and provides record-keeping.

TRANSFER AND DIVIDEND DISBURSING AGENTS

Investors Fiduciary Trust Company
1004 Baltimore Avenue
Kansas City, MO 64105-1802

Piper Jaffray (address listed above)

Piper Trust Company
222 South Ninth Street
Minneapolis, MN 55402-3804

IFTC provides transfer agent services and pays dividends and other distributions
for the funds. Piper Jaffray and Piper Trust provide these services for
shareholders whose accounts they maintain.

- --------------------------------------------------------------------------------
15 Prospectus - Growth and Income Funds
<PAGE>

GENERAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------

PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
STEVE MARKUSEN, CFA, is director of the large-cap equity team and a senior vice
president of Piper Capital. He joined the advisor in 1993 and has managed the
funds since March 1997. From 1989 through 1993, he was an equity portfolio
manager with Investment Advisers, Inc. He has 13 years of financial experience.

BRENT MELLUM, CFA, a vice president of Piper Capital, began managing the Growth
and Income Fund in March 1997. He joined the advisor in 1993 and has three years
of financial experience. Prior to that, he earned a BS in business
administration and an MBA in finance from the University of Texas.

BRUCE SALVOG is director of the fixed income team and a senior vice president of
Piper Capital. He has managed the fixed income portion of Balanced Fund since
1992 and has 27 years of financial experience.

DAVID STEELE, a senior vice president of Piper Capital, has managed the fixed
income portion of Balanced Fund since 1992 and has 18 years of financial
experience.

SALES COMMISSIONS

12b-1 FEES

Piper Jaffray receives 12b-1 fees from each fund for providing distribution-
related services and for servicing shareholder accounts. Fees are established
under each fund's 12b-1 plan, which is approved by the board, and vary by class.
Class A and class B shares of each fund pay 12b-1 fees quarterly, at annual
rates equal to 0.50% and 1%, respectively, of average daily net assets. Piper
Jaffray is currently voluntarily limiting the 12b-1 fees it receives from class
A shares to 0.34% of average daily net assets.

- - By an independent pricing service, or

- - Through market quotations obtained from one or more dealers who make a
market in the securities or from a widely used quotation system.

Net asset value is calculated as of the close of regular trading on the New York
Stock Exchange (typically 4 p.m. Eastern Time) on each day the exchange is open
for trading.

2) Filed June 22, 1995, by Beverly Muth, in the Montana Thirteenth Judicial
District Court, Yellowstone County. Filed against Piper Jaffray and an
affiliated person.

- --------------------------------------------------------------------------------
16 Prospectus - Growth and Income Funds
<PAGE>

Prospectus - Growth and Income Funds

FOR MORE INFORMATION
- --------------------------------------------------------------------------------
Annual/Semiannual Reports
Shareholder reports include financial statements and performance information on
the funds, a message from your portfolio managers, and, on an annual basis, the
auditors' report.

Statement of Additional Information (SAI)
The SAI contains more detailed information about the funds. A current SAI has
been filed with the SEC and is incorporated by reference into this prospectus.

To order free copies, please write or call:

Piper Capital Management
Attn: Mutual Fund Services
222 South Ninth Street
Minneapolis, MN 55402-3804

800 866-7778

- --------------------------------------------------------------------------------
[LOGO] PIPER FUNDS 222 South Ninth Street
Minneapolis, MN 55402-3804

#30300 11/1997 221-97
<PAGE>
- --------------------------------------------------------------------------------
Prospectus - Growth and Income Fund
- --------------------------------------------------------------------------------

NOVEMBER 24, 1997

[LOGO]

GROWTH AND INCOME FUND

CLASS Y SHARES
- --------------------------------------------------------------------------------

BEFORE YOU INVEST:

PLEASE READ THIS PROSPECTUS CAREFULLY, AND KEEP IT FOR FUTURE REFERENCE. IT
CONTAINS IMPORTANT INFORMATION ABOUT THE FUND, INCLUDING INFORMATION ON
INVESTMENT POLICIES, RISKS AND FEES.

[LOGO]

CONTENTS
- --------------------------------------------------------------------------------
INVESTING IN GROWTH AND INCOME FUND. . . . . . . 1

FUND DESCRIPTION
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUND . . . . . . . . . . . . . 2 Investment objective
and policies, risk
considerations, portfolio
managers, shareholder
expenses and financial
highlights

PORTFOLIO OVERVIEW
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES AND TECHNIQUES . . . . . . 4 An overview of securities
RISK FACTORS . . . . . . . . . . . . . . . . . . 7 and investment techniques
that may be used by the
fund and their risks

MANAGING YOUR INVESTMENT
- --------------------------------------------------------------------------------
BUYING SHARES. . . . . . . . . . . . . . . . . . 9 Practical information to
Calculating Your Purchase Price help you manage your
Investing Automatically investment in Piper Funds
HOLDING SHARES . . . . . . . . . . . . . . . . .10
Receiving Dividends and Other Distributions
Taxing of Dividends and Other Distributions
Exchanging Shares
Conducting Transactions by Phone
Staying Informed
SELLING SHARES . . . . . . . . . . . . . . . . .11
Receiving the Proceeds
Taking Systematic Withdrawals

- --------------------------------------------------------------------------------
GENERAL INFORMATION. . . . . . . . . . . . . . .12
<PAGE>

INVESTING IN
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUND IS DESIGNED TO PROVIDE YOU WITH A COMBINATION OF INCOME
AND CAPITAL APPRECIATION. THE FUND IS ADVISED BY PIPER CAPITAL MANAGEMENT
INCORPORATED.

BEFORE YOU INVEST:

KNOW YOUR GOALS
- --------------------------------------------------------------------------------
This fund may be appropriate for your investment portfolio if:

- - You want growth opportunities from a more conservative investment.

- - You are retired or nearing retirement and concerned about the effects of
inflation on your investments.

- - You are comfortable with volatility in the value of your shares.

UNDERSTAND THE RISKS
- --------------------------------------------------------------------------------
While mutual funds are a convenient and potentially rewarding way to invest,
they do not always meet their objectives. Please remember: You could lose money
with this investment. Stability of income and safety of principal are not
guaranteed. Risks associated with this fund are outlined in the following pages.

- --------------------------------------------------------------------------------
1 Prospectus - Growth and Income Fund
<PAGE>

FUND DESCRIPTION

GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUND SEEKS CURRENT INCOME AND LONG-TERM GROWTH OF CAPITAL AND
INCOME. TO PURSUE THIS OBJECTIVE, THE FUND INVESTS IN A BROADLY DIVERSIFIED
PORTFOLIO OF SECURITIES. IT EMPHASIZES SECURITIES OF LARGE, ESTABLISHED
COMPANIES THAT MAY BE UNDERVALUED AND THAT HAVE A HISTORY OF DIVIDEND PAYMENTS.

Investments in long-term debt securities, including debt securities convertible
into common stock, will be limited to:

- - U.S. government securities,

- - Securities rated at the time of purchase within the four highest investment
grades assigned by Moody's Investors Service or Standard & Poor's Ratings
Services, or

- - Unrated securities judged by the advisor to be of comparable quality.

The fund may purchase or write put and call options on the securities in which
it may invest and on stock indexes listed on national securities exchanges. In
addition, solely to hedge against changes in the value of its portfolio
securities due to anticipated changes in the market, the fund may enter into
futures contracts and purchase or write put or call options on such contracts.
The fund also may purchase or sell securities on a when issued or forward
commitment basis and enter into mortgage dollar rolls. Use of these practices
may increase the volatility of the fund's net asset value.

RISK CONSIDERATIONS
- --------------------------------------------------------------------------------
Stocks may decline significantly in price over short or extended periods of
time. Price changes may affect the market as a whole, or they may affect only a
particular company, industry or sector of the market. See pages 7-8 for more
information on market risk, company risk and sector risk.

The investment securities and techniques used by this fund present other risks
as well. See pages 4-8 for more information.

PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
STEVE MARKUSEN, CFA, is director of the large-cap equity team and a senior vice
president of Piper Capital. He joined the advisor in 1993 and has managed the
fund since March 1997. From 1989 through 1993, he was an equity portfolio
manager with Investment Advisers, Inc. He has 13 years of financial experience.

BRENT MELLUM, CFA, a vice president of Piper Capital, began managing the fund
in March 1997. He joined the advisor in 1993 and has three years of financial
experience. Prior to that, he earned a BS in business administration and an
MBA in finance from the University of Texas.

SHAREHOLDER TRANSACTION EXPENSES

Maximum front-end sales charge on purchases. . . . . . . . . . . . . . . none
Maximum deferred sales charge. . . . . . . . . . . . . . . . . . . . . . none

FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
Management fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.73%
12b-1 fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . none
Other expenses (after expense reimbursements)(1) . . . . . . . . . . . . 0.27%
-----
Total operating expenses
(after expense reimbursements)(1) . . . . . . . . . . . . . . . . . . 1.00%

1 year . . . . . . . . . . . . . . $ 10
3 years. . . . . . . . . . . . . . $ 32
5 years. . . . . . . . . . . . . . $ 55
10 years . . . . . . . . . . . . . $122

(1) If Piper Capital had not voluntarily reimbursed expenses, other expenses
would have been 0.29% and total operating expenses would have been 1.02%.
Expense reimbursements reflected in the table may be discontinued at any
time after fiscal 1998 year end.

- --------------------------------------------------------------------------------
2 Prospectus - Growth and Income Fund
<PAGE>

FUND DESCRIPTION

GROWTH AND INCOME FUND (CONTINUED)
- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS The following information has been audited by KPMG Peat
Marwick LLP, independent auditors.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Period from
CLASS Y SHARES 2/18/97(5) to
9/30/97
--------------
<S> <C>
PER SHARE DATA
Net asset value, beginning of period . . . . $ 16.14
-------
Operations:
Net investment income. . . . . . . . . . 0.12
Net realized and unrealized gains
on investments. . . . . . . . . . . . . 2.21
-------
Total from operations. . . . . . . . . . 2.33
-------
Distributions to shareholders:
From net investment income . . . . . . . (0.11)
-------
Net asset value, end of period . . . . . . . $ 18.36
-------
-------

SELECTED INFORMATION
Total return(2). . . . . . . . . . . . . . . 14.51%
Net assets, end of period (in millions). . . $ 14
Ratio of expenses to average daily
net assets. . . . . . . . . . . . . . . . . 0.99%(3)
Ratio of net investment income to
average daily net assets. . . . . . . . . . 1.12%(3)
Average commission rate paid on
portfolio transactions(4) . . . . . . . . . $ 0.0600
Portfolio turnover rate (excluding
short-term securities). . . . . . . . . . . 46%
Ratios before waivers by the advisor:
Of expenses to average daily
net assets. . . . . . . . . . . . . . . 1.00%(3)
Of net investment income to
average daily net assets. . . . . . . . 1.11%(3)

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

<CAPTION>
Fiscal year ended September 30, Period from
CLASS A SHARES 7/21/92(1) to
1997 1996 1995 1994 1993 9/30/92
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period . . . . $15.04 $12.93 $10.27 $10.30 $10.01 $10.00
------ ------ ------ ------ ------ ------
Operations:
Net investment income. . . . . . . . . . 0.15 0.18 0.19 0.24 0.24 0.03
Net realized and unrealized
gains (losses) on investments . . . . . 4.35 2.31 2.70 0.02 0.29 (0.02)
------ ------ ------ ------ ------ ------
Total from operations. . . . . . . . . . 4.50 2.49 2.89 0.26 0.53 0.01
------ ------ ------ ------ ------ ------
Distributions to shareholders:
From net investment income . . . . . . . (0.16) (0.20) (0.19) (0.24) (0.24) --
From net realized gains
on investments . . . . . . . . . . . . (1.01) (0.18) (0.04) (0.05) -- --
------ ------ ------ ------ ------ ------
Total distributions to shareholders . . (1.17) (0.38) (0.23) (0.29) (0.24) --
------ ------ ------ ------ ------ ------
Net asset value, end of period . . . . . . . $18.37 $15.04 $12.93 $10.27 $10.30 $10.01
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------

SELECTED INFORMATION

Total return(2)[BAR GRAPH] . . . . . . . . . 31.87% 19.56% 28.81% 2.53% 5.41% 0.10%

Net assets, end of period (in millions). . . $127 $97 $73 $73 $96 $52
Ratio of expenses to average
daily net assets. . . . . . . . . . . . . . 1.34% 1.32% 1.32% 1.29% 1.32% 1.28%(3)
Ratio of net investment income
to average daily net assets . . . . . . . . 0.90% 1.26% 1.93% 2.26% 2.51% 3.00%(3)
Average commission rate paid
on portfolio transactions(4). . . . . . . . $0.0600 $0.0600 -- -- -- --
Portfolio turnover rate (excluding
short-term securities). . . . . . . . . . . 46% 22% 14% 20% 26% 1%
Ratios before waivers by the advisor
and/or distributor:
Of expenses to average daily
net assets. . . . . . . . . . . . . . . 1.52% 1.56% 1.60% 1.62% 1.58% 2.06%(3)
Of net investment income to average
daily net assets. . . . . . . . . . . . 0.72% 1.02% 1.65% 1.93% 2.25% 2.22%(3)

</TABLE>

(1) Commencement of operations.

(2) Total return assumes reinvestment of distributions and does not reflect a
sales charge.

(3) Annualized.

(4) Disclosed in accordance with guidelines adopted in 1996.

(5) Commencement of offering of class Y shares.

- --------------------------------------------------------------------------------
3 Prospectus - Growth and Income Fund
<PAGE>

PORTFOLIO OVERVIEW

INVESTMENT SECURITIES AND TECHNIQUES
- --------------------------------------------------------------------------------

THIS TABLE LISTS INVESTMENT SECURITIES AND TECHNIQUES USED BY THE FUND AND NOTES
ANY INVESTMENT LIMITATIONS AS A PERCENTAGE OF PORTFOLIO ASSETS. IT ALSO LISTS
THE PRINCIPAL RISK FACTORS RELATED TO THEIR USE, WHICH ARE EXPLAINED IN GREATER
DETAIL ON THE FOLLOWING PAGES.

10 MAXIMUM PERCENT OF TOTAL ASSETS
/10/ MAXIMUM PERCENT OF NET ASSETS
y PERMITTED WITHOUT LIMITATION

INVESTMENT SECURITIES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSET-BACKED SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y
generally are backed by consumer or corporate receivables or credit obligations, such as credit card receivables,
auto loans, home equity loans or manufactured housing loans. These securities are often guaranteed or
over-collateralized to improve credit quality. Credit, Interest Rate

COMMON STOCKS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y
are securities that represent a share of ownership in a corporation, entitling the holder to certain voting
rights and to receive a pro rata share of any common dividends. Company, Market, Sector

CONVERTIBLE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y
are corporate debt securities that can be converted, at the option of the owner, into the common stock of the
issuer. Company, Interest Rate, Market, Sector

CORPORATE FIXED INCOME SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y
include corporate bonds, debentures, notes and similar debt securities. Credit, Interest Rate

FOREIGN SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10(1)
are securities issued by foreign companies, as well as American depository receipts. The latter are
dollar-denominated securities, designed for use in the U.S. securities markets, which represent underlying
securities issued by foreign companies. Currency, Foreign Issuer, Information, Market

FUTURES CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y(2)
require the holder to buy or sell securities at a specified price on a specified date. Some are contracts to
make a cash settlement on a future date in an amount determined by the value of a financial index (such as the
S&P 500 Index) on the last day of the contract. The fund generally buys or sells futures in seeking protection
against fluctuations in the value of its portfolio without actually buying or selling securities. Hedging,
Interest Rate, Leverage, Market

OPTIONS ON FUTURES CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y(2)
give the holder the right, in return for the premium paid, to assume a position in a futures contract
at a specified exercise price at any time prior to the expiration date of the option. The fund generally
uses these for the same purposes as futures contracts. Hedging, Interest Rate, Leverage, Market

ILLIQUID SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . /15/
cannot be sold in the ordinary course of business within seven days at approximately the price at which they are
valued. Liquidity

</TABLE>

- --------------------------------------------------------------------------------
4 Prospectus - Growth and Income Fund
<PAGE>

PORTFOLIO OVERVIEW

INVESTMENT SECURITIES AND TECHNIQUES (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
MORTGAGE-RELATED SECURITIES represent participations in, or are secured by, pools of mortgages. They are issued by
U.S. government agencies and private entities and include the following:

ADJUSTABLE RATE MORTGAGE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y
pay interest rates which change periodically based on changes in an underlying interest rate index. Credit,
Extension, Interest Rate, Prepayment

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y
are mortgage-related securities in which the cash flows are allocated to different tranches or classes, rather
than being passed through directly to investors. Different classes have different risk/return characteristics.
Classes with more predictable cash flows generally have lower yields. Credit, Extension, Interest Rate,
Leverage, Liquidity, Prepayment

PASS-THROUGHS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y
are mortgage-related securities which pass principal and interest payments through to investors, net of fees.
Credit, Extension, Interest Rate, Prepayment

OPTIONS ON SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y
are contracts which give the holder the right, in return for the premium paid, to buy or sell securities prior to
the expiration date of the option at the option exercise price. The writer of the option is then obligated to either
deliver or purchase the securities. Company, Credit, Hedging, Interest Rate, Leverage, Liquidity, Market, Sector

OPTIONS ON STOCK INDEXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y
are contracts which give the holder the right, in return for the premium paid, to receive a cash settlement if,
prior to the expiration of the option, the closing level of the index 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, in return for
the premium received, to make the cash payment upon exercise of the option. Credit, Hedging, Leverage, Liquidity,
Market

PREFERRED STOCKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y
are securities that, like common stock, represent ownership in a corporation, but have a claim ahead of common stock
on the payment of dividends and on the corporation's assets in the event it is dissolved. Unlike common stock,
holders generally do not have the right to share in corporate profits (except in the case of participating preferred
stock). Company, Interest Rate, Market, Sector

SHORT-TERM MONEY MARKET SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y(3)
include short-term U.S. government securities, time deposits, bank certificates of deposit, bankers' acceptances,
high-grade commercial paper and other money market instruments. Credit, Interest Rate

U.S. GOVERNMENT SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y
are issued - or guaranteed as to payment of principal and interest - by the U.S. government or its agencies or
instrumentalities. They include U.S. Treasury bills, notes and bonds, as well as agency-issued securities, such as
Fannie Maes (issued by the Federal National Mortgage Association), Ginnie Maes (issued by the Government National
Mortgage Association) and Freddie Macs (issued by the Federal Home Loan Mortgage Corporation). Credit, Interest Rate

YANKEE BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y
are dollar-denominated bonds of foreign issuers traded in the United States. Yankee bonds may involve risks not
associated with securities of domestic issuers. Credit, Foreign Issuer, Interest Rate

ZERO COUPON AND DELAYED INTEREST SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y
do not pay interest on a current basis. Their prices fluctuate more widely with changes in interest rates than prices
of securities with similar maturities that pay interest currently. Credit, Interest Rate

</TABLE>

- --------------------------------------------------------------------------------
5 Prospectus - Growth and Income Fund
<PAGE>

INVESTMENT SECURITIES AND TECHNIQUES (CONTINUED)
- --------------------------------------------------------------------------------

INVESTMENT TECHNIQUES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
BORROWING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
is permitted for temporary or emergency purposes only. Interest payments on borrowed funds reduce earnings. The
fund's policy on borrowing cannot be changed without shareholder approval. Leverage

HOLDING OF FOREIGN CURRENCIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y
In anticipation of favorable movements in the applicable exchange rates, the fund may hold, for an indefinite
period of time, foreign currencies received as a result of investing in foreign securities. Currency

MORTGAGE DOLLAR ROLLS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 1/3(4)
The fund sells mortgage-related securities for delivery in the current month while contracting with the same
party to repurchase similar securities at a future date. Interest Rate, Leverage

REPURCHASE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y
The fund purchases securities on the condition that the seller will buy them back at a set time and price, plus
interest. The fund may enter into repurchase agreements for U.S. government securities. Credit, Interest Rate

WHEN-ISSUED AND FORWARD COMMITMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 1/3(4)
The purchase or sale of a security at a future date for a predetermined price. Securities may decrease in value
prior to their delivery. Interest Rate, Leverage

</TABLE>

Many of the securities identified above are considered derivative securities. A
derivative is a financial instrument whose value is based on another security,
index, reference rate (for example interest or currency exchange rate) or other
asset. These securities have varying types and degrees of risk, as described
above.

(2) The fund's use of futures contracts and options on futures contracts will
be limited by regulations of the Commodity Futures Trading Commission.

(3) Time deposits are considered illiquid and subject to the fund's limitation
on investing in illiquid securities.

(4) Percentage limitation relates to all purchases of securities on a when-
issued or forward commitment basis, including mortgage dollar roll
purchases.

- --------------------------------------------------------------------------------
6 Prospectus - Growth and Income Fund
<PAGE>

PORTFOLIO OVERVIEW

RISK FACTORS
- --------------------------------------------------------------------------------
A SUMMARY OF THE PRINCIPAL RISKS WHICH APPLY TO EACH FUND IS PROVIDED IN "FUND
DESCRIPTION." MORE DETAIL REGARDING THESE AND OTHER RISKS ASSOCIATED WITH
INVESTMENT SECURITIES AND TECHNIQUES USED BY GROWTH AND INCOME FUND IS PROVIDED
BELOW.

COMPANY RISK

Individual stocks can perform differently than the overall market. This may be a
result of specific factors such as changes in corporate profitability due to the
success or failure of specific products or management strategies, or it may be
due to changes in investor perceptions regarding a company. To help mitigate
company risk, the fund is "diversified," which means that, with respect to 75%
of its assets, it invests no more than 5% of its total assets in the stocks of
any one issuer.

CREDIT RISK

The issuer of a security, or the other party to a contract, such as a repurchase
agreement, could default on its financial obligation, causing a loss in the
fund's portfolio. In addition, changes in a security's credit rating or changes
in the perception of an issuer's ability to pay principal and interest could
affect the value of a security and cause a decline in the value of the fund's
portfolio.

The fund may invest in securities of the lowest investment grade or in unrated
securities judged by the advisor to be of comparable quality. These securities
may have speculative characteristics and carry a somewhat greater risk of
default than government securities or other, more highly rated securities. When
the fund purchases unrated securities, it will depend on the advisor's
investment analysis more heavily than usual.

CURRENCY RISK

EXTENSION RISK

FOREIGN ISSUER RISK

HEDGING RISK

INFORMATION RISK

Non-U.S. companies are not generally subject to uniform accounting, auditing and
financial reporting standards or to other regulatory requirements comparable to
those which apply to U.S. companies. As a result, less information may be
available concerning non-U.S. issuers or securities held by the fund. Accounting
and financial reporting standards in emerging markets may be especially lacking.

INTEREST RATE RISK

- --------------------------------------------------------------------------------
7 Prospectus - Growth and Income Fund
<PAGE>

PORTFOLIO OVERVIEW

RISK FACTORS (CONTINUED)
- --------------------------------------------------------------------------------

LEVERAGE RISK

LIQUIDITY RISK

MARKET RISK

PREPAYMENT RISK

SECTOR RISK

The stocks of companies within specific industries or sectors of the economy can
periodically perform differently than the overall stock market. This can be due
to changes in such things as the regulatory or competitive environment or to
changes in investor perceptions of a particular industry or sector. Large
concentrations in specific industries will increase sector risk. The fund will
not invest 25% or more of its total assets in any one industry. (Gas, electric,
telephone, telegraph, satellite and microwave communications companies are
considered separate industries.)

- --------------------------------------------------------------------------------
8 Prospectus - Growth and Income Fund
<PAGE>

MANAGING YOUR INVESTMENT

BUYING SHARES
- --------------------------------------------------------------------------------
YOU MAY PURCHASE CLASS Y SHARES OF THE FUND WITH AN INITIAL INVESTMENT OF
$1 MILLION OR MORE. ADD TO YOUR EXISTING INVESTMENT WITH ANY AMOUNT, AT ANY
TIME. SIMPLY CALL YOUR PIPER JAFFRAY INVESTMENT EXECUTIVE OR ANOTHER AUTHORIZED
BROKERAGE FIRM.

The fund also offers class A and class B shares through a separate prospectus.
You can obtain more information on the fund's class A and class B shares by
calling the fund at the phone number on the back cover.

INVESTING AUTOMATICALLY
- --------------------------------------------------------------------------------

AUTOMATIC MONTHLY INVESTMENT PROGRAMS

CROSS-REINVESTMENT OF DISTRIBUTIONS

SHARE CLASSES

GROWTH AND INCOME FUND ALSO OFFERS CLASS A AND CLASS B SHARES THROUGH A SEPARATE
PROSPECTUS. YOU CAN OBTAIN MORE INFORMATION ON THE FUND'S CLASS A AND CLASS B
SHARES BY CALLING THE FUND AT THE PHONE NUMBER ON THE BACK COVER.

- --------------------------------------------------------------------------------
9 Prospectus - Growth and Income Fund
<PAGE>

MANAGING YOUR INVESTMENT

HOLDING SHARES
- --------------------------------------------------------------------------------

Class Y shareholders generally will receive higher dividends from net investment
income than class A or class B shareholders because class Y shareholders are not
subject to Rule 12b-1 fees.

The sale or exchange of fund shares will be a taxable event for you and may
result in a capital gain or loss. Under recent amendments to the tax code, the
gain or loss will be considered long-term if you have held your shares for more
than 18 months and mid-term if you have held your shares more than one year but
not more than 18 months. A gain or loss on shares held for one year or less is
considered short-term and is taxed at the same rates as ordinary income.

You may exchange your class Y shares only for class Y shares of another Piper
fund. However, please note that not all Piper funds offer class Y shares.
Exchanges are made based on the net asset value per share of each fund at the
time of the exchange.

Before exchanging into any fund, be sure to read its prospectus carefully. The
fund may change or cancel its exchange policies at any time, upon 60 days'
notice to shareholders.

For your protection, IFTC will attempt to verify your identity by asking for
your account number, social security number or other form of personal
identification. If reasonable care is taken to identify you as the caller,
neither IFTC nor the fund will be liable for losses to your account resulting
from an unauthorized telephone transaction. Payments that result from telephone
transactions will be made only to the address of record or the bank account
designated on your Account Application and Services form.

SHAREHOLDER REPORTS

STATEMENTS AND CONFIRMATIONS

Statements summarizing activity in your account are mailed monthly (quarterly if
your account has no activity). Confirms are mailed following each purchase or
sale of fund shares.

- --------------------------------------------------------------------------------
10 Prospectus - Growth and Income Fund
<PAGE>

MANAGING YOUR INVESTMENT

SELLING SHARES
- --------------------------------------------------------------------------------
YOU MAY SELL ANY OR ALL OF YOUR SHARES FOR THEIR NET ASSET VALUE ON ANY DAY WHEN
THE NEW YORK STOCK EXCHANGE IS OPEN. SIMPLY CALL YOUR BROKER. YOUR REQUEST WILL
BE EXECUTED AT THE NEXT NET ASSET VALUE CALCULATED AFTER YOUR BROKER RECEIVES
YOUR REQUEST.

As noted above, you may sell shares by calling your broker. If you work with a
broker from a firm other than Piper Jaffray, you also may sell your shares by
submitting a written request to the fund's transfer agent, IFTC. Call IFTC at
800 874-6205 for instructions.

If your account falls below $1 million due to a sale of shares or an exchange
request, your account may be liquidated following 30 days written notice.

You may not want to make systematic withdrawals if you plan to continue
investing in the fund, due to tax liabilities.

- --------------------------------------------------------------------------------
11 Prospectus - Growth and Income Fund
<PAGE>

GENERAL INFORMATION
- --------------------------------------------------------------------------------

HOW THE FUND IS ORGANIZED
- --------------------------------------------------------------------------------
Growth and Income Fund is a diversified series of Piper Funds Inc., an open-end
investment company.

VOTING RIGHTS

RIGHTS OF DIFFERENT CLASSES

The different classes of shares of the fund have the same rights and are
identical in all respects except that:

- - Expenses related to the distribution of each class of shares are borne
solely by that class.

- - 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.

- - Only class B shares carry a conversion feature.

- - Each class has different exchange privileges.

FUND OBJECTIVE

The fund's investment objective is fundamental and may be changed only with
shareholder approval. The fund's investment policies and techniques may be
changed without shareholder approval, unless otherwise noted.

INVESTMENT ADVISOR

Piper Capital Management Incorporated
222 South Ninth Street
Minneapolis, MN 55402-3804

Piper Capital also is investment advisor to other Piper open-end funds, to a
number of closed-end investment companies and to various institutions,
corporations and individuals. Piper Capital has approximately $12 billion under
management and is a wholly owned subsidiary of Piper Jaffray Companies Inc., a
full-service investment company.

DISTRIBUTOR

Piper Jaffray Inc.
222 South Ninth Street
Minneapolis, MN 55402-3804

CUSTODIAN AND ACCOUNTING AGENT

Investors Fiduciary Trust Company
801 Pennsylvania Avenue
Kansas City, MO 64105-1307

As the fund's custodian and accounting agent, IFTC holds the fund's portfolio
securities, settles trades, collects to calculate net asset values,
and provides recordkeeping.

TRANSFER AND DIVIDEND DISBURSING AGENTS

Investors Fiduciary Trust Company
1004 Baltimore Avenue
Kansas City, MO 64105-1802

Piper Jaffray (address listed above)

Piper Trust Company
222 South Ninth Street
Minneapolis, MN 55402-3804

IFTC provides transfer agent services and pays dividends and other distributions
for the fund. Piper Jaffray and Piper Trust provide these services for
shareholders whose accounts they maintain.

- --------------------------------------------------------------------------------
12 Prospectus - Growth and Income Fund
<PAGE>

GENERAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------

NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value per share is calculated by dividing the total market value of
the fund's investments and other assets, less any liabilities, by the number of
fund shares. The values of securities within the fund's portfolio are determined
as follows:

- - By an independent pricing service, or

- - Through market quotations obtained from one or more dealers who make a
market in the securities or from a widely used quotation system.

Net asset value is calculated as of the close of regular trading on the New York
Stock Exchange (typically 4 p.m. Eastern Time) on each day the exchange is open
for trading.

2) Filed June 22, 1995, by Beverly Muth, in the Montana Thirteenth Judicial
District Court, Yellowstone County. Filed against Piper Jaffray and an
affiliated person.

Piper Capital and Piper Jaffray are also subject to an investigation by the
Securities and Exchange Commission, which began February 21, 1995, related to
various funds and assets managed by Piper Capital.

- --------------------------------------------------------------------------------
13 Prospectus - Growth and Income Fund
<PAGE>

Prospectus - Growth and Income Fund

FOR MORE INFORMATION
- --------------------------------------------------------------------------------

ANNUAL/SEMIANNUAL REPORTS

Shareholder reports include financial statements and performance information on
the fund, a message from your portfolio managers, and, on an annual basis, the
auditors' report.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

The SAI contains more detailed information about the fund. A current SAI has
been filed with the SEC and is incorporated by reference into this prospectus.

To order free copies, please write or call:

Piper Capital Management
Attn: Mutual Fund Services
222 South Ninth Street
Minneapolis, MN 55402-3804

800 866-7778

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

[LOGO] PIPER FUNDS 222 South Ninth Street
Minneapolis, MN 55402-3804

#30312 11/1997 031-98
<PAGE>

- --------------------------------------------------------------------------------
Prospectus - Income Funds
- --------------------------------------------------------------------------------

NOVEMBER 24, 1997

[LOGO]

INCOME FUNDS

GOVERNMENT INCOME FUND (Class A Shares)
- --------------------------------------------------------------------------------

INTERMEDIATE BOND FUND (Class A Shares)
- --------------------------------------------------------------------------------

ADJUSTABLE RATE MORTGAGE SECURITIES FUND (Class A Shares)
- --------------------------------------------------------------------------------

BEFORE YOU INVEST:

PLEASE READ THIS PROSPECTUS CAREFULLY, AND KEEP IT FOR FUTURE REFERENCE. IT
CONTAINS IMPORTANT INFORMATION ABOUT THE FUNDS, INCLUDING INFORMATION ON
INVESTMENT POLICIES, RISKS AND FEES.

<PAGE>

[LOGO]

CONTENTS
- --------------------------------------------------------------------------------
INVESTING IN PIPER INCOME FUNDS. . . . . . . 1

FUND DESCRIPTIONS
- --------------------------------------------------------------------------------
GOVERNMENT INCOME FUND . . . . . . . . . . . 2 Investment objectives and
INTERMEDIATE BOND FUND . . . . . . . . . . . 4 policies, risk considerations,
ADJUSTABLE RATE MORTGAGE SECURITIES FUND . . 6 portfolio managers,
shareholder expenses and
financial highlights

PORTFOLIO OVERVIEW
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES AND TECHNIQUES . . . . 8 An overview of securities and
RISK FACTORS . . . . . . . . . . . . . . . . 11 investment techniques that may
be used by the funds and their
risks

MANAGING YOUR INVESTMENT
- --------------------------------------------------------------------------------
BUYING SHARES. . . . . . . . . . . . . . . . 12 Practical information to help
Calculating Your Purchase Price you manage your investment in
Reducing Your Sales Charge Piper Funds
Investing Automatically
HOLDING SHARES . . . . . . . . . . . . . . . 13
Receiving Dividends and Other Distributions
Taxing of Dividends and Other Distributions
Exchanging Shares
Conducting Transactions by Phone
Staying Informed
SELLING SHARES . . . . . . . . . . . . . . . 14
Receiving the Proceeds
Paying the Contingent Deferred Sales Charge
Taking Systematic Withdrawals
Reinvesting After a Sale

- --------------------------------------------------------------------------------
GENERAL INFORMATION. . . . . . . . . . . . . 15

<PAGE>

INVESTING IN PIPER
- --------------------------------------------------------------------------------
INCOME FUNDS
- --------------------------------------------------------------------------------

PIPER INCOME FUNDS SEEK TO PROVIDE YOU WITH INCOME WHILE PRESERVING THE
PRINCIPAL VALUE OF YOUR INVESTMENT. GOVERNMENT INCOME FUND, INTERMEDIATE BOND
FUND AND ADJUSTABLE RATE MORTGAGE SECURITIES FUND ARE ADVISED BY PIPER CAPITAL
MANAGEMENT INCORPORATED.

BEFORE YOU INVEST:

KNOW YOUR GOALS
- --------------------------------------------------------------------------------
One or more of these funds may be appropriate for your investment portfolio if:

- - You want a regular stream of income or wish to diversify your portfolio.

- - You are looking for higher return potential than you get from your money
market funds.

- - You are comfortable with volatility in the value of your shares.

If you require absolute stability of your principal -- or if you desire maximum
return and are willing to accept the commensurate risk -- you should consider
other investment vehicles. Piper Income Funds were not designed to meet these
goals.

UNDERSTAND THE RISKS
- --------------------------------------------------------------------------------
While mutual funds are a convenient and potentially rewarding way to invest,
they do not always meet their objectives. Please remember: You could lose money
with these investments. Stability of income and safety of principal are not
guaranteed. Risks associated with these funds are outlined in the following
pages.

USE YOUR PROSPECTUS

- --------------------------------------------------------------------------------
Please read this prospectus carefully and keep it on file for future reference.
More detailed information about the funds is contained in their statement of
additional information, which can be obtained from the funds at the address and
phone number on the back cover. Further information is also available from your
broker or by calling Piper Capital at 800 866-7778.

- --------------------------------------------------------------------------------
1 Prospectus - Income Funds

<PAGE>

FUND DESCRIPTIONS

GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
GOVERNMENT INCOME FUND SEEKS HIGH CURRENT INCOME CONSISTENT WITH PRESERVATION OF
CAPITAL. TO PURSUE THIS OBJECTIVE, THE FUND INVESTS PRIMARILY IN U.S. GOVERNMENT
SECURITIES AS DESCRIBED BELOW. MUCH OF THE FUND IS INVESTED IN MORTGAGE-RELATED
SECURITIES.

INVESTMENT POLICIES
- --------------------------------------------------------------------------------
Under normal market conditions, Government Income Fund will invest at least 65%
of its total assets in securities issued - or guaranteed as to the payment of
principal and interest - by the U.S. government, its agencies, or its
instrumentalities. Examples include Treasuries, mortgage-related securities such
as Ginnie Maes and Fannie Maes, and zero-coupon securities. The fund also may
enter into repurchase agreements and reverse repurchase agreements involving
these securities.

MORTGAGE-RELATED SECURITIES INCLUDE INVERSE FLOATING RATE, INTEREST-ONLY,
INVERSE INTEREST-ONLY AND PRINCIPAL-ONLY SECURITIES. WHILE THESE SECURITIES CAN
ADD SIGNIFICANT INCOME TO THE FUND, THEIR PRICES CAN BE HIGHLY VOLATILE IN
RESPONSE TO CHANGING INTEREST RATES. INVESTMENT IN THESE SECURITIES IS LIMITED
TO 10% OF NET ASSETS.

The fund may invest up to 10% of its total assets in mortgage-related securities
issued by private entities. These securities must be rated AA/Aa or better at
the time of purchase or, if unrated, they must be of comparable quality as
determined by the advisor. The fund does not invest in corporate fixed income
securities (other than short-term money market securities). The fund may engage
in options and futures transactions, purchase or sell securities on a
when-issued or forward commitment basis, and enter into mortgage dollar rolls.
Use of these practices may increase the volatility of the fund's net asset
value.

To provide flexibility and liquidity, the fund may invest up to 35% of its total
assets in cash and short-term money market securities. For temporary defensive
purposes, the fund may invest without limitation in these securities.

RISK CONSIDERATIONS
- --------------------------------------------------------------------------------
The value of your investment will fluctuate with changing interest rates. If
rates rise, the prices of debt securities in the fund likely will fall and vice
versa. One measure of interest rate risk is effective duration, explained on
page 11 under "Interest Rate Risk." The fund attempts to maintain an average
effective duration of three to eight years. That's longer than the effective
duration of the other funds in this prospectus, making this fund potentially
more volatile.

This fund is also subject to credit risk, which is the possibility that the
issuer of a security will default, although that's less likely in the portion of
the fund invested in U.S. government securities (at least 65% of total assets).
Treasury securities carry minimal credit risk. Obligations of government
agencies, however, are somewhat riskier, although generally not as risky as
obligations of private issuers. When the fund purchases unrated securities, it
will depend on the advisor's investment analysis more heavily than usual.

This fund holds many mortgage-related securities, which are subject to both
prepayment and extension risk. The investment securities and techniques used by
this fund present other risks as well, including leverage and liquidity risks.
See pages 8-11 for more information.

PLEASE REMEMBER: THE GOVERNMENT'S GUARANTEE DOES NOT EXTEND TO THE FUND ITSELF.
NOR DOES IT COVER THE MARKET VALUE OF GOVERNMENT SECURITIES. LIKE ANY OTHER
SECURITIES, THEY WILL FLUCTUATE IN VALUE.

PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
BRUCE SALVOG is a senior vice president of Piper Capital with 27 years of
financial experience.

DAVID STEELE is a senior vice president of Piper Capital with 18 years of
financial experience.

SHAREHOLDER TRANSACTION EXPENSES (AS A % OF OFFERING PRICE)
Maximum front-end sales charge on purchases. . . . . . . . . . . . . 2.00%

FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
Management fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.50%
12b-1 fee (after fee limitation)(1,2). . . . . . . . . . . . . . . . 0.34%
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.35%
-----
Total operating expenses (after fee limitation)(2) . . . . . . . . . 1.19%

(1) Due to the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.

(2) If Piper Jaffray had not voluntarily limited fees, the 12b-1 fee would have
been 0.50% and total operating expenses would have been 1.35%. Voluntary
12b-1 fee limitations may be discontinued at any time after fiscal 1998
year end.

1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $32
3 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $57
5 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $84
10 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $161

- --------------------------------------------------------------------------------
2 Prospectus - Income Funds

<PAGE>

FUND DESCRIPTIONS

GOVERNMENT INCOME FUND (CONTINUED)
- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS The following information has been audited by KPMG Peat
Marwick LLP, independent auditors.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Period
from
Period from Year 3/16/87(1)
Fiscal year ended September 30, 11/1/88 to Ended to
1997 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> <C>
PER SHARE DATA
Net asset value, beginning of period . $ 8.83 $ 8.99 $ 8.42 $10.01 $ 9.86 $ 9.69 $ 9.02 $ 9.18 $ 9.50 $ 9.40 $10.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Operations:
Net investment income. . . . . . . . 0.57 0.60 0.60 0.69 0.80 0.90 0.84 0.81 0.76 0.82 0.45
Net realized and unrealized gains
(losses) on investments . . . . . . 0.33 (0.16) 0.60 (1.58) 0.15 0.17 0.67 (0.16) (0.32) 0.10 (0.60)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from operations. . . . . . . . 0.90 0.44 1.20 (0.89) 0.95 1.07 1.51 0.65 0.44 0.92 (0.15)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions to shareholders:
From net investment income . . . . . (0.57) (0.60) (0.63) (0.68) (0.80) (0.90) (0.84) (0.81) (0.76) (0.82) (0.45)
From net realized gains on
investments . . . . . . . . . . . . -- -- -- (0.02) -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions to
shareholders . . . . . . . . . . (0.57) (0.60) (0.63) (0.70) (0.80) (0.90) (0.84) (0.81) (0.76) (0.82) (0.45)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period . . . . $ 9.16 $ 8.83 $ 8.99 $ 8.42 $10.01 $ 9.86 $ 9.69 $ 9.02 $ 9.18 $ 9.50 $ 9.40
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------

SELECTED INFORMATION

Total return(2)[BAR GRAPH] . . . . . . 10.49% 4.99% 14.87% (9.26%) 10.06% 11.57% 17.51% 7.31% 4.78% 10.18% 1.41%

Net assets, end of period
(in millions) . . . . . . . . . . . . $67 $84 $106 $126 $160 $124 $76 $73 $85 $62 $75
Ratio of expenses to average daily
net assets. . . . . . . . . . . . . . 1.19% 1.09% 1.11% 1.05% 1.09% 1.11% 1.18% 1.08% 1.15%(3) 1.23% 0.70%(3)
Ratio of net investment income to
average daily net assets. . . . . . . 6.32% 6.66% 7.02% 7.43% 8.10% 9.15% 9.00% 8.87% 8.81%(3) 8.68% 8.07%(3)
Portfolio turnover rate (excluding
short-term securities). . . . . . . . 21% 32% 87% 121% 191% 118% 110% 202% 149% 217% 281%
Ratios before waivers by the distributor:
Of expenses to average daily
net assets. . . . . . . . . . . . . 1.35% 1.28% 1.29% 1.24% 1.27% 1.29% 1.36% 1.27% 1.35%(3) 1.43% 1.48%(3)
Of net investment income to average
daily net assets. . . . . . . . . . 6.16% 6.47% 6.84% 7.24% 7.92% 8.97% 8.82% 8.68% 8.61%(3) 8.48% 7.29%(3)

</TABLE>

(1) Commencement of operations.

(2) Total return assumes reinvestment of distributions and does not reflect a
sales charge.

(3) Annualized.

- --------------------------------------------------------------------------------
3 Prospectus - Income Funds

<PAGE>

FUND DESCRIPTIONS

INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------

INTERMEDIATE BOND FUND SEEKS HIGH CURRENT INCOME CONSISTENT WITH PRESERVATION OF
CAPITAL. TO PURSUE THIS OBJECTIVE, THE FUND INVESTS PRIMARILY IN A BROAD RANGE
OF INVESTMENT-QUALITY DEBT SECURITIES.

INVESTMENT POLICIES
- --------------------------------------------------------------------------------
Under normal market conditions, Intermediate Bond Fund invests at least 65% of
its total assets in:

- - U.S. government securities, which are securities issued - or guaranteed as
to the payment of principal and interest - by the government, its agencies,
or its instrumentalities. This includes mortgage-related securities,

- - Corporate fixed income securities, and

- - Other fixed income securities, such as privately issued mortgage-related
securities, asset-backed securities and U.S. dollar-denominated Yankee
bonds.

Securities other than U.S. government securities must be rated BBB/Baa or
better at the time of purchase. Or, if unrated, they must be of comparable
quality, as determined by the fund's investment advisor.

Investments in mortgage-related securities may include collateralized mortgage
obligations. However, the fund will not invest in inverse floating rate,
interest-only, principal-only, inverse interest-only, or stripped
mortgage-backed securities.

To provide liquidity and flexibility, the fund may invest up to 35% of its total
assets in cash and short-term money market securities. For temporary defensive
purposes, the fund may invest without limitation in these securities.

The fund may enter into repurchase agreements for U.S. government securities. In
addition, it may purchase or sell securities on a when-issued or forward
commitment basis, and it may enter into mortgage dollar rolls. Use of these
practices may increase the volatility of the fund's net asset value. The fund
will not purchase or sell options on securities or enter into futures contracts.

RISK CONSIDERATIONS
- --------------------------------------------------------------------------------
The value of your investment will fluctuate with changing interest rates. If
rates rise, the prices of debt securities in the fund likely will fall and vice
versa. One measure of interest rate risk is effective duration, explained on
page 11 under "Interest Rate Risk." The fund attempts to maintain an average
effective duration of two to six years. It also attempts to maintain a
dollar-weighted average maturity of three to 10 years.

This fund is also subject to credit risk, which is the possibility that the
issuer of a security will default. The fund may invest in securities rated as
low as BBB/Baa or in unrated securities of comparable quality. These securities
may have speculative characteristics and carry a somewhat greater risk of
default than government securities or other, more highly rated securities. When
the fund purchases unrated securities, it will depend on the advisor's
investment analysis more heavily than usual.

This fund may invest a large portion of its assets in mortgage-related
securities, which are subject to both prepayment and extension risk. The
investment securities and techniques used by this fund present other risks as
well, including leverage and liquidity risks. See pages
8-11 for more information.

PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
BRUCE SALVOG is a senior vice president of Piper Capital with 27 years of
financial experience.

DAVID STEELE is a senior vice president of Piper Capital with 18 years of
financial experience.

SHAREHOLDER TRANSACTION EXPENSES (AS A % OF OFFERING PRICE)
Maximum front-end sales charge on purchases. . . . . . . . . . . . . 2.00%

FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
Management fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.30%
12b-1 fee (after fee limitation)(1). . . . . . . . . . . . . . . . . 0.22%
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.33%
-----
Total operating expenses (after fee limitation)(1) . . . . . . . . . 0.85%

(1) If Piper Jaffray had not voluntarily limited fees, the 12b-1 fee would have
been 0.30% and total operating expenses would have been 0.93%. Voluntary
12b-1 fee limitations may be discontinued at any time after fiscal 1998
year end.

1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29
3 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $47
5 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $66
10 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $123

- --------------------------------------------------------------------------------
4 Prospectus - Income Funds

<PAGE>

FUND DESCRIPTIONS

INTERMEDIATE BOND FUND (CONTINUED)
- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS The following information has been audited by KPMG Peat
Marwick LLP, independent auditors.
- --------------------------------------------------------------------------------

Period from Period from
Fiscal year ended September 30, 11/1/88 to 7/11/88(1) to
1997 1996(2) 1995 1994 1993 1992 1991 1990 9/30/89 10/31/88
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period . $7.50 $8.12 $7.98 $12.22 $11.51 $10.71 $10.02 $9.96 $10.08 $10.00
----- ----- ----- ------ ------ ------ ------ ----- ------ ------
Operations:
Net investment income. . . . . . . . 0.44 0.53(3) 0.88 0.90 1.29 1.07 0.94 0.91 0.82 0.21
Net realized and unrealized gains
(losses) on investments . . . . . . 0.17 (0.11) 0.31 (3.96) 0.56 0.73 0.67 0.08 (0.12) 0.08
----- ----- ----- ------ ------ ------ ------ ----- ------ ------
Total from operations. . . . . . . . 0.61 0.42 1.19 (3.06) 1.85 1.80 1.61 0.99 0.70 0.29
----- ----- ----- ------ ------ ------ ------ ----- ------ ------
Distributions to shareholders:
From net investment income . . . . . (0.44) (1.04) (1.05) (0.95) (0.90) (0.91) (0.90) (0.90) (0.81) (0.21)
From net realized gains on
investments . . . . . . . . . . . . -- -- -- (0.23) (0.24) (0.09) (0.02) (0.03) (0.01) --
----- ----- ----- ------ ------ ------ ------ ----- ------ ------
Total distributions to
shareholders. . . . . . . . . . . (0.44) (1.04) (1.05) (1.18) (1.14) (1.00) (0.92) (0.93) (0.82) (0.21)
----- ----- ----- ------ ------ ------ ------ ----- ------ ------
Net asset value, end of period . . . . $7.67 $7.50 $8.12 $7.98 $12.22 $11.51 $10.71 $10.02 $9.96 $10.08
----- ----- ----- ------ ------ ------ ------ ----- ------ ------
----- ----- ----- ------ ------ ------ ------ ----- ------ ------

SELECTED INFORMATION

Total return(4)[BAR GRAPH] . . . . . . 8.29% 5.68% 16.15% (26.65%) 17.04% 17.70% 16.80% 10.30% 7.38% 3.09%

Net assets, end of period
(in millions) . . . . . . . . . . . . $64 $136 $319 $564 $792 $470 $132 $36 $28 $18
Ratio of expenses to average daily net
assets(6) . . . . . . . . . . . . . . 0.85% 0.72% 0.97% 0.78% 0.70% 0.65% 0.75% 0.78% 0.85%(5) 0.75%(5)
Ratio of net investment income to
average daily net assets. . . . . . . 5.83% 6.65% 8.02% 9.33% 12.51% 11.01% 9.29% 9.00% 9.03%(5) 7.91%(5)
Portfolio turnover rate (excluding
short-term securities). . . . . . . . 86% 89% 136% 169% 109% 64% 29% 76% 23% 14%
Ratios before waivers by the
distributor:
Of expenses to average daily net
assets(6) . . . . . . . . . . . . . 0.93% 0.82% 1.07% 0.85% 0.77% 0.72% 0.82% 0.91% 1.40%(5) 1.53%(5)
Of net investment income to average
daily net assets. . . . . . . . . . 5.75% 6.55% 7.92% 9.26% 12.44% 10.94% 9.22% 8.87% 8.48%(5) 7.13%(5)

</TABLE>

(1) Commencement of operations.

(2) On 9/12/96, shareholders of the fund approved the discontinuance of a
fundamental policy requiring the fund to invest only in securities issued
or guaranteed as to the 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.

(3) Based on average shares outstanding during the period.

(4) Total return assumes reinvestment of distributions and does not reflect a
sales charge.

(5) Annualized.

(6) Includes federal excise taxes of 0.08%, 0.37%, 0.23%, 0.09% and 0.02% for
fiscal 1996, 1995, 1994, 1993, and 1992, respectively.

- --------------------------------------------------------------------------------
5 Prospectus - Income Funds

<PAGE>

FUND DESCRIPTIONS

ADJUSTABLE RATE MORTGAGE SECURITIES FUND
- --------------------------------------------------------------------------------

ADJUSTABLE RATE MORTGAGE SECURITIES FUND SEEKS MAXIMUM CURRENT INCOME CONSISTENT
WITH LOW VOLATILITY OF PRINCIPAL. IT TARGETS THIS OBJECTIVE THROUGH A PORTFOLIO
COMPOSED PRIMARILY OF ADJUSTABLE RATE MORTGAGE SECURITIES.

INVESTMENT POLICIES
- --------------------------------------------------------------------------------
Under normal conditions, Adjustable Rate Mortgage Securities Fund invests at
least 65% of its total assets in adjustable rate mortgage (ARM) securities. ARM
securities have interest rates which reset periodically in response to changes
in the current interest rate environment. They include pass-through securities
and floating rate collateralized mortgage obligations.

The remaining 35% of the portfolio may include:

- - Mortgage-related securities other than ARM securities.

- - Asset-backed securities.

- - Corporate fixed income securities.

The fund may engage in options and futures transactions, purchase and sell
interest rate caps and floors, make investments in Eurodollar instruments for
hedging purposes, and purchase or sell securities on a when-issued or forward
commitment basis. It may enter into repurchase agreements for U.S. government
securities and into reverse repurchase agreement. Use of these practices may
increase the volatility of the fund's net asset value.

For temporary defensive purposes, the fund may invest without limitation in cash
and short-term money market securities.

At least 85% of the fund's assets must be U.S. government securities, securities
with a minimum rating of AA/Aa or equivalent at the time of purchase, or unrated
securities of comparable quality as determined by the advisor. Up to 15% of its
total assets may be in securities with an A or equivalent rating or in unrated
securities of comparable quality. The fund may not invest in securities rated
lower than A. If a security's quality falls below A, the fund will sell it as
promptly as possible.

RISK CONSIDERATIONS
- --------------------------------------------------------------------------------
The value of your investment will fluctuate with changing interest rates. If
rates rise, the prices of debt securities in the fund likely will fall and vice
versa. One measure of interest rate risk is effective duration, explained on
page 11 under "Interest Rate Risk." The fund attempts to maintain an average
effective duration of one to four years, making this, potentially, the least
volatile fund in this prospectus.

ARM SECURITIES MAY FLUCTUATE LESS IN PRICE THAN OTHER DEBT SECURITIES, BECAUSE
THEIR INTEREST RATES MOVE WITH MARKET RATES. HOWEVER, THIS DOES NOT ELIMINATE
PRICE FLUCTUATIONS, PARTICULARLY DURING PERIODS OF EXTREME INTEREST RATE
VOLATILITY.

ARM securities typically have caps which limit the amount by which their
interest rates may increase or decrease. Also, since many adjustable rate
mortgages reset just once a year, ARM securities may fluctuate in price
because interest rates payable on the underlying mortgages have not yet
changed to reflect current market rates.

This fund is also subject to credit risk, which is the possibility that the
issuer of a security will default. When the fund purchases unrated securities,
it will depend on the advisor's investment analysis more heavily than usual.
This fund typically invests a large portion of its assets in mortgage-related
securities, which are subject to both prepayment and extension risk. The
investment securities and techniques used by this fund present other risks as
well, including liquidity risk. See pages 8-11 for more information.

PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
TOM MCGLINCH, CFA, is a senior vice president of Piper Capital with 16 years of
financial experience.

WAN-CHONG KUNG, CFA, is a vice president of Piper Capital with five years of
financial experience.

SHAREHOLDER TRANSACTION EXPENSES (AS A % OF OFFERING PRICE)
Maximum front-end sales charge on purchases. . . . . . . . . . . . . 2.00%

FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
Management fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.35%
12b-1 fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.15%
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.31%
-----
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . 0.81%

1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $28
3 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $45
5 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $64
10 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $118

- --------------------------------------------------------------------------------
6 Prospectus - Income Funds

<PAGE>

FUND DESCRIPTIONS

ADJUSTABLE RATE MORTGAGE SECURITIES FUND (CONTINUED)
- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS The following information has been audited by KPMG Peat
Marwick LLP, independent auditors.
- --------------------------------------------------------------------------------

Fiscal Year Month Period from
Ended Ended Year Ended August 31, 1/30/92(1) to
9/30/97 9/30/96 1996 1995 1994 1993 8/31/92
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA(2)
Net asset value, beginning of period . . . . . . $8.06 $8.03 $7.99 $8.10 $8.88 $8.95 $8.80
----- ----- ----- ----- ----- ----- -----
Operations:
Net investment income . . . . . . . . . . . . . 0.47 0.04 0.49 0.47 0.55 0.63 0.40
Net realized and unrealized gains (losses)
on investments . . . . . . . . . . . . . . . . 0.09 0.03 0.01 (0.05) (0.82) (0.09) 0.07
----- ----- ----- ----- ----- ----- -----
Total from operations . . . . . . . . . . . . . 0.56 0.07 0.50 0.42 (0.27) 0.54 0.47
----- ----- ----- ----- ----- ----- -----
Distributions to shareholders:
From net investment income. . . . . . . . . . . (0.47) (0.04) (0.46) (0.53) (0.51) (0.61) (0.32)
----- ----- ----- ----- ----- ----- -----
Net asset value, end of period . . . . . . . . . $8.15 $8.06 $8.03 $7.99 $8.10 $8.88 $8.95
----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- -----

SELECTED INFORMATION

Total return(3)[BAR GRAPH] . . . . . . . . . . . 7.16% 0.85% 6.40% 5.43% (3.18%) 6.24% 5.49%

Net assets, end of period (in millions). . . . . $185 $263 $270 $409 $500 $551 $555
Ratio of expenses to average daily net assets(6) 0.81% 0.82%(4) 0.60% 0.63% 0.60% 0.58% 0.58%(4)
Ratio of net investment income to average daily
net assets(6) . . . . . . . . . . . . . . . . . 5.84% 5.82%(4) 5.74% 5.62% 6.39% 7.25% 7.70%(4)
Portfolio turnover rate (excluding short-term
securities) . . . . . . . . . . . . . . . . . . 25% 2% 51% 36% 39% 39% 41%
Amount of borrowings outstanding at end of
period (in millions)(5) . . . . . . . . . . . . -- -- -- -- $145 $145 $145
Average amount of borrowings outstanding
during the period (in millions)(5). . . . . . . -- -- -- $57 $145 $149 $90
Average number of shares outstanding
during the period (in millions) . . . . . . . . -- -- -- 53 62 62 52
Average per-share amount of borrowings
outstanding during the period(5). . . . . . . . . -- -- -- $1.09 $2.34 $2.41 $1.67

</TABLE>

(1) Commencement of operations of DDJ.

(2) On 9/1/95, four closed-end funds, American Adjustable Rate Term Trusts
1996, 1997, 1998 and 1999 (BDJ, CDJ, DDJ and EDJ) were combined to create
the fund. DDJ is considered the surviving entity for financial reporting
purposes. The financial highlights presented for the periods prior to
9/1/95 are those of DDJ. The per share historical information for those
periods has been restated to reflect the impact of additional shares
created resulting from the difference in the net asset value per share of
DDJ at the time of the merger ($8.71) and the initial net asset value per
share of the fund ($8.00).

(3) Total return assumes reinvestment of distributions and does not reflect a
sales charge.

(4) Annualized.

(5) DDJ was a closed-end management company and was permitted to enter into
borrowings for other than temporary or emergency purposes. The fund may
borrow only for temporary or emergency purposes.

(6) Various fees and expenses of the fund were voluntarily waived or absorbed
by the advisor during the year ending 8/31/96. Had the fund paid all
expenses, the ratios of expenses and net investment income to average daily
net assets would have been 0.76%/5.58%, respectively.

- --------------------------------------------------------------------------------
7 Prospectus - Income Funds

<PAGE>

PORTFOLIO OVERVIEW

INVESTMENT SECURITIES AND TECHNIQUES
- --------------------------------------------------------------------------------

10 MAXIMUM PERCENT OF TOTAL ASSETS
/10/ MAXIMUM PERCENT OF NET ASSETS
y PERMITTED WITHOUT LIMITATION
n NOT PERMITTED

ADJUSTABLE RATE
GOVERNMENT INTERMEDIATE MORTGAGE
INCOME FUND BOND FUND SECURITIES FUND

INVESTMENT SECURITIES
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . n y 35
generally are backed by consumer or corporate receivables or credit obligations,
such as credit card receivables, auto loans, home equity loans or manufactured
housing loans. These securities are often guaranteed or over-collateralized to
improve credit quality. Credit, Interest Rate

CORPORATE FIXED INCOME SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . n y 35
include corporate bonds, debentures, notes and similar debt securities. Credit,
Interest Rate

FUTURES CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y(1) n y(1)
require the holder to buy or sell securities at a specified price on a specified
date. Some are contracts to make a cash settlement on a future date in an amount
determined by the value of a financial instrument (such as the London Interbank
Offered Rate) on the last day of the contract. A fund generally buys or sells
futures in seeking protection against fluctuations in the value of its portfolio
without actually buying or selling securities. Hedging, Interest Rate, Leverage

OPTIONS ON FUTURES CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . y(1) n y(1)
give the holder the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time prior
to the expiration date of the option. A fund generally uses these for the same
purposes as futures contracts. Hedging, Interest Rate, Leverage

ILLIQUID SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . /15/ n /15/
cannot be sold in the ordinary course of business within seven days at
approximately the price at which they are valued. Liquidity

INTEREST RATE CAPS AND FLOORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . n n 5
entitle the holder to receive payments of interest if a specified index exceeds
(in the case of a cap) or falls below (in the case of a floor) a specified
interest rate. Credit, Hedging, Interest Rate, Liquidity

MORTGAGE-RELATED SECURITIES represent participations in, or are secured by, pools
of mortgages. They are issued by U.S. government agencies and private entities and
include the following:

ADJUSTABLE RATE MORTGAGE SECURITIES. . . . . . . . . . . . . . . . . . . . . . . y y y
pay interest rates which change periodically based on changes in an underlying
interest rate index Credit, Extension, Interest Rate, Prepayment

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) . . . . . . . . . . . . . . . . . . . y y y
are mortgage-related securities in which the cash flows are allocated to
different tranches or classes, rather than being passed through directly to
investors. Different classes have different risk/return characteristics.
Classes with more predictable cash flows generally have lower yields. Credit,
Extension, Interest Rate, Leverage, Liquidity, Prepayment

- --------------------------------------------------------------------------------
8 Prospectus - Income Funds

<PAGE>

PORTFOLIO OVERVIEW

INVESTMENT SECURITIES AND TECHNIQUES (CONTINUED)
- --------------------------------------------------------------------------------

INVERSE FLOATING RATE, INVERSE INTEREST-ONLY, INTEREST-ONLY, AND
PRINCIPAL-ONLY SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . /10/ n n
are CMO classes or multiclass mortgage securities with less predictable cash
flows. These securities can be extremely sensitive to interest rate changes
and therefore more volatile than conventional debt securities. Some of these
securities may decline in value at times when other debt securities are
increasing. Conversely, some may increase at times when conventional debt
securities are decreasing. Credit, Extension, Interest Rate, Leverage,
Liquidity, Prepayment

PASS-THROUGHS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y y
are mortgage-related securities which pass principal and interest payments
through to investors, net of fees. Credit, Extension, Interest Rate, Prepayment

Z BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y n
are CMO classes which do not pay interest until other classes have been paid.
Instead, interest payments are accrued and added to the principal balance.
Prices fluctuate more widely with changes in interest rates than prices of
securities with similar maturities that pay interest currently. Credit,
Extension, Interest Rate, Liquidity, Prepayment

OPTIONS ON SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y n y
are contracts which give the holder the right, in return for the premium paid, to
buy or sell securities prior to the expiration date of the option at the option
exercise price. The writer of the option is then obligated to either deliver or
purchase the securities. Credit, Hedging, Interest Rate, Leverage, Liquidity

SHORT-TERM MONEY MARKET SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . 35(2) 35(2) 35(2)
include short-term U.S. government securities, time deposits, bank certificates of
deposit, bankers' acceptances, high-grade commercial paper and other money market
instruments. Credit, Interest Rate

U.S. GOVERNMENT SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y y
are issued - or guaranteed as to payment of principal and interest - by the U.S.
government or its agencies or instrumentalities. They include U.S. Treasury bills,
notes and bonds, as well as agency-issued securities, such as Fannie Maes (issued
by the Federal National Mortgage Association), Ginnie Maes (issued by the
Government National Mortgage Association) and Freddie Macs (issued by the Federal
Home Loan Mortgage Corporation). Credit, Interest Rate

YANKEE BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . n y n
are dollar-denominated bonds of foreign issuers traded in the United States.
Yankee bonds may involve risks not associated with securities of domestic issuers.
Credit, Foreign Issuer, Interest Rate

ZERO COUPON, PAY-IN-KIND AND DELAYED INTEREST SECURITIES . . . . . . . . . . . . . . y(3) y /10(3)/
do not pay interest on a current basis or they pay interest by issuing additional
securities. Their prices fluctuate more widely with changes in interest rates than
prices of securities with similar maturities that pay interest currently. Credit,
Interest Rate

</TABLE>

Many of the securities identified above are considered derivative securities.
A derivative is a financial instrument whose value is based on another
security, index, reference rate (for example, interest or currency exchange
rate) or other asset. These securities have varying types and degrees of
risk, as described above.

(1) A fund's use of futures contracts and options on futures contracts will be
limited by regulations of the Commodity Futures Trading Commission.

(2) Each fund may invest without limitation in these securities for temporary
defensive measures. Time deposits are considered illiquid and subject to
each fund's limitation on investing in illiquid securities.

(3) Adjustable Rate Mortgage Securities Fund may invest only in U.S. government
STRIPS. Government Income Fund may invest only in zero coupon securities.

- --------------------------------------------------------------------------------
9 Prospectus - Income Funds

<PAGE>

PORTFOLIO OVERVIEW

INVESTMENT SECURITIES AND TECHNIQUES (CONTINUED)
- --------------------------------------------------------------------------------

10 PERCENT OF TOTAL ASSETS
/10/ PERCENT OF NET ASSETS
y PERMITTED WITHOUT LIMITATION
n NOT PERMITTED

ADJUSTABLE RATE
GOVERNMENT INTERMEDIATE MORTGAGE
INCOME FUND BOND FUND SECURITIES FUND

INVESTMENT TECHNIQUES
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>

BORROWING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 5 10
is permitted for temporary or emergency purposes only. Interest paid on borrowed
funds reduces earnings. Each fund's policy on borrowing cannot be changed without
shareholder approval. Leverage

MORTGAGE DOLLAR ROLLS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 1/3(1) 25(1) n
The fund sells mortgage-related securities for delivery in the current month while
contracting with the same party to repurchase similar securities at a future date.
Interest Rate, Leverage

PORTFOLIO TURNOVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y y
Each income fund may engage in short-term trading to benefit from yield
disparities among securities and to otherwise attempt to achieve its
objectives. This may result in higher transaction costs and increased
short-term gains, which are taxable as ordinary income when distributed.

REPURCHASE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y y
The fund purchases securities on the condition that the seller will buy them back
at a set time and price, plus interest. Credit, Interest Rate

REVERSE REPURCHASE AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 n 10
The fund sells securities and agrees to buy them back at a set time and price,
plus interest. Interest Rate, Leverage

WHEN-ISSUED AND FORWARD COMMITMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 33 1/3(1) 25(1) y
The purchase or sale of a security at a future date for a predetermined price.
Securities may decrease in value prior to their delivery. Interest Rate, Leverage

</TABLE>

(1) Percentage limitation relates to all purchases of securities on a
when-issued or forward commitment basis, including mortgage dollar roll
purchases.

- --------------------------------------------------------------------------------
10 Prospectus - Income Funds

<PAGE>

PORTFOLIO OVERVIEW

RISK FACTORS
- --------------------------------------------------------------------------------

A SUMMARY OF THE PRINCIPAL RISKS WHICH APPLY TO EACH FUND IS PROVIDED IN "FUND
DESCRIPTIONS." MORE DETAIL REGARDING THESE AND OTHER RISKS ASSOCIATED WITH
INVESTMENT SECURITIES AND TECHNIQUES USED BY PIPER INCOME FUNDS IS PROVIDED
BELOW.

CREDIT RISK

The issuer of a security, or the other party to a contract, such as a repurchase
agreement, could default on its financial obligation causing a loss in a fund's
portfolio. In addition, changes in a security's credit rating or changes in the
perception of an issuer's ability to pay principal and interest could affect the
value of a security and cause a decline in the value of the fund's portfolio.

When a fund is restricted to investing in securities which have received at
least a particular credit rating, the fund may invest in securities of the
lowest gradation within that rating category. For example, if a fund may
purchase only securities rated A or better, the purchase of a security rated A-
is permitted.

EXTENSION RISK

Rising interest rates could cause homeowners to prepay their mortgages more
slowly than expected, resulting in slower prepayments of mortgage-related
securities. This would, in effect, convert a short- or medium-duration
mortgage-related security into a longer-duration security, increasing its
sensitivity to interest rate changes and causing its price to decline.

FOREIGN ISSUER RISK

HEDGING RISK

Successful use of a hedging instrument depends on the advisor's ability to
correctly forecast the direction of interest rate movements. In the case of an
incorrect market forecast, the use of a hedging instrument will reduce or
eliminate gains. In addition, changes in the price of a hedging instrument may
not correlate perfectly with changes in the market value of the securities
subject to that hedge. As a result, even a correct market forecast could result
in an unsuccessful hedging transaction.

INTEREST RATE RISK

Effective duration, one measure of interest rate risk, measures how much the
value of a security is expected to change with a given change in interest rates.
The longer a security's effective duration, the more sensitive its price to
changes in interest rates. For example, if interest rates were to increase by
one percentage point, the market value of a bond with an effective duration of
five years would decrease by 5%, with all other factors being constant. However,
all other factors are rarely constant. Effective duration is based on
assumptions and subject to a number of limitations. It is most useful when
interest rate changes are small, rapid and occur equally in short-term and
long-term securities. In addition, it is difficult to calculate precisely for
bonds with prepayment options, such as mortgage-related securities, because the
calculation requires assumptions about prepayment rates. 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.

LEVERAGE RISK

LIQUIDITY RISK

PREPAYMENT RISK

Falling interest rates could cause prepayments of mortgage-related securities to
occur more quickly than expected. This occurs because, as interest rates fall,
more homeowners refinance the mortgages underlying these securities. The fund
must reinvest the prepayments at a time when interest rates on new mortgage
investments are falling, reducing the income of the fund. In addition, when
interest rates fall, prices on mortgage-related securities may not rise as much
as for comparable Treasury securities because investors may anticipate an
increase in mortgage prepayments.

- --------------------------------------------------------------------------------
11 Prospectus - Income Funds

<PAGE>

MANAGING YOUR INVESTMENT

BUYING SHARES
- --------------------------------------------------------------------------------

YOU MAY BECOME A SHAREHOLDER IN PIPER FUNDS WITH AN INITIAL INVESTMENT OF $250
OR MORE. ADD TO YOUR EXISTING INVESTMENT WITH ANY AMOUNT, AT ANY TIME. SIMPLY
CALL YOUR PIPER JAFFRAY INVESTMENT EXECUTIVE OR ANOTHER AUTHORIZED BROKERAGE
FIRM.

CALCULATING YOUR PURCHASE PRICE
- --------------------------------------------------------------------------------
Your purchase price is typically the net asset value of your shares, plus a
front-end sales charge. The net asset value of each share is equal to the market
value of the fund's investments and other assets, less any liabilities, divided
by the number of fund shares. Your purchase price will be based on the next net
asset value of your shares calculated after your broker receives your
purchase order.

SALES CHARGES

Sales charges vary depending on the amount of your purchase. Piper Jaffray
receives the sales charge you pay and, if you purchased shares through another
brokerage firm, reallows a portion of the sales charge to that firm.

Sales Charge Maximum
Paid by Investors Reallowance
--------------------------------------------------------
(as a % of (as a % of (as a % of
Purchase amount purchase price) net asset value) purchase price)
- --------------------------------------------------------------------------------
Up to $100,000 . . . . . . 2.00% . . . . . . 2.04% . . . . . . 1.75%
$100,000-249,999 . . . . . 1.25% . . . . . . 1.27% . . . . . . 1.00%
$250,000-499,999 . . . . . 0.50% . . . . . . 0.50% . . . . . . 0.25%
$500,000 and more. . . . . None* . . . . . . None* . . . . . . 0.00%*

* A contingent deferred sales charge will be assessed if you redeem within 12
months. See "Selling Shares," page 14. Although you pay no front-end sales
charge, Piper Jaffray and other brokerage firms receive fees for these sales of
up to 0.50% for Government Income Fund and 0.30% for Intermediate Bond Fund and
Adjustable Rate Mortgage Securities Fund.

REDUCING YOUR SALES CHARGE
- --------------------------------------------------------------------------------
You may reduce, or even eliminate, your sales charge through the following
purchase plans. For details, please consult your broker or the statement of
additional information.

ACCUMULATION PRIVILEGE

COMBINED PURCHASE PLAN

LETTER OF INTENT

SPECIAL PURCHASE PLANS

Class A shares may be purchased without a sales charge by:

- - Investors in 401(k) or certain other qualified plans that offer Piper
Funds.

- - Investors purchasing shares through Piper Jaffray's Advantage program or
other qualified wrap-fee accounts.

- - Investors using the proceeds from the sale of any mutual fund not in the
Piper Funds family, excluding money market funds. (This privilege is
available for 30 days after the sale.)

- - Piper Capital clients purchasing shares for their advisory accounts.

- - Employees of brokerage firms that have sales agreements with Piper Jaffray,
their spouses and minor children.

- - Trust companies or bank trust departments investing for discretionary
accounts.

- - Piper Jaffray Companies and its subsidiaries.

INVESTING AUTOMATICALLY
- --------------------------------------------------------------------------------

AUTOMATIC MONTHLY INVESTMENT PROGRAMS

To purchase shares as part of a savings discipline, you may automatically
transfer $100 or more each month to any Piper fund from your bank, savings and
loan, or other financial institution. Or transfer $25 or more per month from any
of the Piper money market funds.

CROSS-REINVESTMENT OF DISTRIBUTIONS

SHARE CLASS
GOVERNMENT INCOME FUND AND ADJUSTABLE RATE MORTGAGE SECURITIES FUND EACH OFFERS
A SINGLE CLASS OF SHARES, CALLED "CLASS A SHARES" IN THIS PROSPECTUS.
INTERMEDIATE BOND FUND OFFERS BOTH CLASS A SHARES AND, THROUGH ANOTHER
PROSPECTUS, CLASS Y (INSTITUTIONAL) SHARES. CLASS Y SHARES HAVE NO SALES CHARGES
AND A LOWER EXPENSE STRUCTURE. THEY ARE AVAILABLE TO INVESTORS MAKING AN INITIAL
INVESTMENT OF $1 MILLION OR MORE. FOR MORE INFORMATION, CALL YOUR BROKER OR
MUTUAL FUND SERVICES AT 800 866-7778.

- --------------------------------------------------------------------------------
12 Prospectus - Income Funds

<PAGE>

MANAGING YOUR INVESTMENT

HOLDING SHARES
- --------------------------------------------------------------------------------

RECEIVING DIVIDENDS AND OTHER DISTRIBUTIONS
- --------------------------------------------------------------------------------

Dividends from a fund's net investment income are declared daily and paid
monthly. Shares begin accruing dividends on the settlement date for their
purchase and continue through the day before the settlement date for their sale.
Capital gains, if any, are distributed at least once annually.

Dividends and distributions you receive from a fund are generally taxable
whether you reinvest them or take them in cash. Distributions of long-term
capital gains are taxable as long-term gains, regardless of how long you have
held your shares (except that, under recent amendments to the tax code, the
funds will be required to designate certain capital gain distributions as
mid-term capital gain distributions, to be treated by individual shareholders as
mid-term capital gains). Dividends from a fund's net investment income and
short-term capital gain distributions are taxable as ordinary income.

The sale or exchange of fund shares will be a taxable event for you and may
result in a capital gain or loss. Under recent amendments to the tax code, the
gain or loss will be considered long-term if you have held your shares for more
than 18 months and mid-term if you have held your shares more than one year but
not more than 18 months. A gain or loss on shares held for one year or less is
considered short-term and is taxed at the same rates as ordinary income.

Exchanges are generally made based on the net asset value per share of each fund
at the time of the exchange. However, if your new fund has a higher sales charge
- - for example if you move from an income fund to a growth fund - you must pay
the difference. Exchanges from the class A shares of an income fund into a Piper
fund offering more than one class of shares may only be made into that fund's
class A shares.

You may also move your income fund assets into a Piper money market fund. If you
later exchange those money market fund shares for class A shares of another
Piper fund, that exchange will be treated as an exchange from the income fund
for purposes of determining your sales charge.

Before exchanging into any fund, be sure to read its prospectus carefully. A
fund may change or cancel its exchange policies at any time, upon 60 days'
notice to shareholders.

SHAREHOLDER REPORTS

STATEMENTS AND CONFIRMATIONS

Statements summarizing activity in your account are mailed monthly (quarterly if
your account has no activity). Confirms are mailed following each purchase or
sale of fund shares.

- --------------------------------------------------------------------------------
13 Prospectus - Income Funds
<PAGE>

MANAGING YOUR INVESTMENT

SELLING SHARES
- --------------------------------------------------------------------------------

Remember to keep at least $200 in your account. If your account falls below $200
due to a sale of shares or an exchange request, your account may be liquidated
following 30 days written notice.

Government Income Fund . . . . . . . . . . . . . . . . 0.50%
Intermediate Bond Fund . . . . . . . . . . . . . . . . 0.30%
Adjustable Rate Mortgage Securities Fund . . . . . . . 0.30%

The CDSC is based on the value of your shares at the time of purchase or at the
time of sale, whichever is less. The charge does not apply to shares you
acquired by reinvesting your dividend or capital gain distributions.

To help lower your costs, shares that are not subject to a CDSC will be sold
first. Other shares will then be sold in an order that minimizes your CDSC.

LETTER OF INTENT

If you sell your shares within 12 months of fulfilling a letter of intent, you
will be charged a CDSC.

EXCHANGES

No CDSC is charged if you exchange shares that were originally purchased without
a sales charge, unless you sell your new shares within 12 months of your
original purchase.

CDSC WAIVERS

If you purchased your shares through a Special Purchase Plan, the CDSC will be
waived. In addition, the charge will be waived:

- - Due to death or disability of the shareholder.

- - To allow a lump-sum distribution from a qualified employee benefit plan.

- - To allow systematic withdrawals from a qualified employee benefit plan, if
you are at least 59 1/2 years old.

- - To allow for a tax-free return of an excess contribution to your IRA.

- - If your account balance falls below $200 and your account is liquidated.

REINVESTING AFTER A SALE
- --------------------------------------------------------------------------------
If you sell class A shares, you may reinvest in class A shares of that fund or
another Piper fund within 30 days without a sales charge. If the shares you sold
were subject to a CDSC, that charge will be credited to your account and the
reinvested shares will continue to be subject to the CDSC.

- --------------------------------------------------------------------------------
14 Prospectus - Income Funds

<PAGE>

GENERAL INFORMATION
- --------------------------------------------------------------------------------

HOW THE FUNDS ARE ORGANIZED
- --------------------------------------------------------------------------------
Each income fund is a diversified series of an open-end investment company.
Government Income Fund and Intermediate Bond Fund are series of Piper Funds Inc.
Adjustable Rate Mortgage Securities Fund is a series of Piper Funds Inc.-II.

VOTING RIGHTS

FUND OBJECTIVES

INVESTMENT ADVISOR

Piper Capital Management Incorporated
222 South Ninth Street
Minneapolis, MN 55402-3804

As investment advisor, Piper Capital manages the funds' business and investment
activities, subject to the authority of the board of directors. Each fund pays
Piper Capital a monthly fee for providing investment advisory services. See
"Shareholder Expenses" in the "Fund Descriptions" section of this prospectus for
more information.

Piper Capital also is investment advisor to other Piper open-end funds, to a
number of closed-end investment companies and to various institutions,
corporations and individuals. Piper Capital has approximately $12 billion under
management and is a wholly owned subsidiary of Piper Jaffray Companies Inc., a
full-service investment company.

DISTRIBUTOR

Piper Jaffray Inc.
222 South Ninth Street
Minneapolis, MN 55402-3804

CUSTODIAN AND ACCOUNTING AGENT

Investors Fiduciary Trust Company
801 Pennsylvania Avenue
Kansas City, MO 64105-1307

As the funds' custodian and accounting agent, IFTC holds the funds' portfolio
securities, settles trades, collects data needed to calculate net asset values,
and provides record-keeping.

TRANSFER AND DIVIDEND DISBURSING AGENTS

Investors Fiduciary Trust Company
1004 Baltimore Avenue
Kansas City, MO 64105-1802

Piper Jaffray (address listed above)

Piper Trust Company
222 South Ninth Street
Minneapolis, MN 55402-3804

IFTC provides transfer agent services and pays dividends and other distributions
for the funds. Piper Jaffray and Piper Trust provide these services for
shareholders whose accounts they maintain.

PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
WAN-CHONG KUNG, CFA, a vice president of Piper Capital, began managing
Adjustable Rate Mortgage Securities Fund in December 1995. Prior to joining
Piper Capital in 1993, she was a senior consultant at Cytrol Inc. in Edina,
Minnesota, from 1989 to 1992. She has five years of financial experience.

TOM MCGLINCH, CFA, is a senior vice president of Piper Capital. He has managed
Adjustable Rate Mortgage Securities Fund since its inception in September 1995.
He joined the advisor in 1992 and has 16 years of financial experience.

BRUCE SALVOG, director of the taxable fixed income team and a senior vice
president of Piper Capital, has managed Government Income Fund since March 1995
and Intermediate Bond Fund since September 1996. He joined the advisor in 1992
and has 27 years of financial experience.

DAVID STEELE, a senior vice president of Piper Capital, began managing
Government Income Fund in March 1995 and Intermediate Bond Fund in September
1996. He joined the advisor in 1992 and has 18 years of financial experience.

- --------------------------------------------------------------------------------
15 Prospectus - Income Funds
<PAGE>

GENERAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------

SALES COMMISSIONS

Piper Jaffray receives the sales charge that you pay when you purchase fund
shares. If you purchased your shares from another brokerage firm, that firm
retains a portion of the sales charge (their "reallowance"). If your purchase of
fund shares was not subject to a front-end sales charge, Piper Jaffray or the
other participating brokerage firm may receive a fee from Piper Capital of up to
0.50% of the purchase price for sales of Government Income Fund shares and up to
0.30% of the purchase price for sales of Intermediate Bond Fund and Adjustable
Rate Mortgage Securities Fund shares. Piper Jaffray also receives any CDSC
imposed when you sell your shares. From December 1, 1997, through March 31,
1998, Piper Capital will pay Piper Jaffray and other brokerage firms, out of its
own assets, an additional fee for selling fund shares equal to 1% of the
purchase price.

12b-1 FEES

Piper Jaffray receives 12b-1 fees from class A shares of each fund for providing
distribution-related services and for servicing shareholder accounts. Fees are
established under each fund's 12b-1 plan, which is approved by the board. Piper
Jaffray is currently voluntarily limiting the 12b-1 fees it receives from
class A shares of Government Income Fund and Intermediate Bond Fund. The funds'
class A shares pay 12b-1 fees to Piper Jaffray quarterly, at the following
annual rates:

12b-1 Fee as a % of Net Assets
-------------------------------------
Before Limitation After Limitation
-------------------------------------
Government Income Fund . . . . . . . . . . . . 0.50% . . . . . . . 0.34%
Intermediate Bond Fund . . . . . . . . . . . . 0.30% . . . . . . . 0.22%
Adjustable Rate Mortgage
Securities Fund. . . . . . . . . . . . . . . . 0.15% . . . . . . . 0.15%

For each fund, Piper Jaffray pays a portion of its 12b-1 fee to brokerage firms
which have sold shares of that fund. Firms receive an annual fee equal to a
percentage of the fund's average daily net assets attributable to shares sold by
the firm's brokers. That fee is equal to 0.30%, 0.20% and 0.15%, respectively,
for Government Income Fund, Intermediate Bond Fund and Adjustable Rate Mortgage
Securities Fund. Piper Jaffray may also use 12b-1 fees to pay other distribution
expenses and shareholder servicing costs, such as printing and promotional
costs.

PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
The funds purchase most of their portfolio securities directly from the issuer
or from an underwriter or market maker, and not from a broker acting as an
agent. However, the funds may from time to time use brokers when buying
portfolio securities. When deciding which brokers to use, Piper Capital may
consider whether brokers have sold shares of these or any other Piper funds.
Piper Capital may place trades through Piper Jaffray in compliance with
Investment Company Act of 1940 rules.

- - By an independent pricing service, or

- - Through market quotations obtained from one or more dealers who make a
market in the securities or from a widely used quotation system.

Net asset value is calculated as of the close of regular trading on the New York
Stock Exchange (typically 4 p.m. Eastern Time) on each day the exchange is open
for trading.

2) Filed June 22, 1995, by Beverly Muth, in the Montana Thirteenth Judicial
District Court, Yellowstone County. Filed against Piper Jaffray and an
affiliated person.

- --------------------------------------------------------------------------------
16 Prospectus - Income Funds
<PAGE>

PROSPECTUS - INCOME FUNDS
- --------------------------------------------------------------------------------

FOR MORE INFORMATION
- --------------------------------------------------------------------------------

ANNUAL/SEMIANNUAL REPORTS

Shareholder reports include financial statements and performance information on
the funds, a message from your portfolio managers, and, on an annual basis, the
auditors' report.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

The SAI contains more detailed information about the funds. A current SAI has
been filed with the SEC and is incorporated by reference into this prospectus.

To order free copies, please write or call:

Piper Capital Management
Attn: Mutual Fund Services
222 South Ninth Street
Minneapolis, MN 55402-3804

800 866-7778

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

[LOGO] PIPER FUNDS 222 South Ninth Street
Minneapolis, MN 55402-3804

#30400 11/1997 222-97
<PAGE>

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

PROSPECTUS

NOVEMBER 24, 1997

[LOGO]

INTERMEDIATE BOND FUND

CLASS Y SHARES
- --------------------------------------------------------------------------------

BEFORE YOU INVEST:

PLEASE READ THIS PROSPECTUS CAREFULLY, AND KEEP IT FOR FUTURE REFERENCE. IT
CONTAINS IMPORTANT INFORMATION ABOUT THE FUND, INCLUDING INFORMATION ON
INVESTMENT POLICIES, RISKS AND FEES.

<PAGE>

[LOGO]

CONTENTS
- --------------------------------------------------------------------------------
INVESTING IN INTERMEDIATE BOND FUND. . . . . . . 1

FUND DESCRIPTION
- --------------------------------------------------------------------------------
INTERMEDIATE BOND FUND . . . . . . . . . . . . . 2 Investment objective and
policies, risk
considerations, portfolio
managers, shareholder
expenses and financial
highlights

PORTFOLIO OVERVIEW
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES AND TECHNIQUES . . . . . . 4 An overview of securities
RISK FACTORS . . . . . . . . . . . . . . . . . . 6 and investment techniques
that may be used by the
fund and their risks

MANAGING YOUR INVESTMENT
- --------------------------------------------------------------------------------
BUYING SHARES. . . . . . . . . . . . . . . . . . 7 Practical information to
Calculating Your Purchase Price help you manage your
Investing Automatically investment in Piper Funds
HOLDING SHARES . . . . . . . . . . . . . . . . . 8
Receiving Dividends and Other Distributions
Taxing of Dividends and Other Distributions
Exchanging Shares
Conducting Transactions by Phone
Staying Informed
SELLING SHARES . . . . . . . . . . . . . . . . . 9
Receiving the Proceeds
Taking Systematic Withdrawals

- --------------------------------------------------------------------------------
GENERAL INFORMATION. . . . . . . . . . . . . . .10

<PAGE>

INVESTING IN
- --------------------------------------------------------------------------------
INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
INTERMEDIATE BOND FUND SEEKS TO PROVIDE YOU WITH INCOME WHILE PRESERVING THE
PRINCIPAL VALUE OF YOUR INVESTMENT. THE FUND IS ADVISED BY PIPER CAPITAL
MANAGEMENT INCORPORATED.

BEFORE YOU INVEST:

KNOW YOUR GOALS
- --------------------------------------------------------------------------------
This fund may be appropriate for your investment portfolio if:

- - You want a regular stream of income or wish to diversify your portfolio.

- - You are looking for higher return potential than you get from your
money market funds.

- - You are comfortable with volatility in the value of your shares.

If you require absolute stability of your principal -- or if you desire maximum
return and are willing to accept the commensurate risk -- you should consider
other investment vehicles. Intermediate Bond Fund was not designed to meet
these goals.

UNDERSTAND THE RISKS
- --------------------------------------------------------------------------------
While mutual funds are a convenient and potentially rewarding way to invest,
they do not always meet their objectives. Please remember: You could lose money
with this investment. Stability of income and safety of principal are not
guaranteed. Risks associated with the fund are outlined in the following pages.

- --------------------------------------------------------------------------------
1 Prospectus - Intermediate Bond Fund
<PAGE>

FUND DESCRIPTION

INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
INTERMEDIATE BOND FUND SEEKS HIGH CURRENT INCOME CONSISTENT WITH PRESERVATION OF
CAPITAL. TO PURSUE THIS OBJECTIVE, THE FUND INVESTS PRIMARILY IN A BROAD RANGE
OF INVESTMENT-QUALITY DEBT SECURITIES.

- - Corporate fixed income securities, and

- - Other fixed income securities, such as privately issued mortgage-related
securities, asset-backed securities and U.S. dollar-denominated Yankee
bonds.

Securities other than U.S. government securities must be rated BBB/Baa or better
at the time of purchase. Or, if unrated, they must be of comparable quality, as
determined by the fund's investment advisor.

RISK CONSIDERATIONS
- --------------------------------------------------------------------------------
The value of your investment will fluctuate with changing interest rates. If
rates rise, the prices of debt securities in the fund likely will fall and vice
versa. One measure of interest rate risk is effective duration, explained on
page 6 under "Interest Rate Risk." The fund attempts to maintain an average
effective duration of two to six years. It also attempts to maintain a dollar-
weighted average maturity of three to 10 years.

PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
BRUCE SALVOG, director of the taxable fixed income team and a senior vice
president of Piper Capital, has managed the fund since September 1996. He joined
the advisor in 1992 and has 27 years of financial experience.

DAVID STEELE, a senior vice president of Piper Capital, began managing the fund
in September 1996. He joined the advisor in 1992 and has 18 years of financial
experience.

SHAREHOLDER TRANSACTION EXPENSES
Maximum front-end sales charge on purchases. . . . . . . . none
Maximum deferred sales charge. . . . . . . . . . . . . . . none

FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
Management fee . . . . . . . . . . . . . . . . . . . . . . 0.30%
12b-1 fee. . . . . . . . . . . . . . . . . . . . . . . . . none
Other expenses . . . . . . . . . . . . . . . . . . . . . . 0.33%
-----

Total operating expenses . . . . . . . . . . . . . . . . . 0.63%

1 year . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6
3 years. . . . . . . . . . . . . . . . . . . . . . . . . . $20
5 years. . . . . . . . . . . . . . . . . . . . . . . . . . $35
10 years . . . . . . . . . . . . . . . . . . . . . . . . . $79

- --------------------------------------------------------------------------------
2 Prospectus - Intermediate Bond Fund
<PAGE>

FUND DESCRIPTION

INTERMEDIATE BOND FUND (CONTINUED)
- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS The following information has been audited by KPMG Peat
Marwick LLP, independent auditors. Because of the limited history of class Y
share operations, information is also presented for the fund's class A shares.
Class A shares have higher expenses than class Y shares.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Period from
CLASS Y SHARES 2/18/97(7) to
9/30/97
----------------
<S> <C>
PER SHARE DATA
Net asset value, beginning of period . . . . . . . . . . . . $ 7.62
------
Operations:
Net investment income . . . . . . . . . . . . . . . . . 0.28
Net realized and unrealized gains on investments. . . . 0.06
------
Total from operations . . . . . . . . . . . . . . . . . 0.34
------
Distributions to shareholders:
From net investment income. . . . . . . . . . . . . . . (0.28)
Net asset value, end of period . . . . . . . . . . . . . . . $ 7.68
------
------
SELECTED INFORMATION
Total return(4). . . . . . . . . . . . . . . . . . . . . . . 4.58%
Net assets, end of period (in thousands) . . . . . . . . . . $14
Ratio of expenses to average daily net assets. . . . . . . . 0.57%(5)
Ratio of net investment income to average
daily net assets. . . . . . . . . . . . . . . . . . . . . 6.06%(5)
Portfolio turnover rate (excluding short-term securities). . 86%
- ------------------------------------------------------------------------------------------------------------------------------------

Period from Period from
CLASS A SHARES Fiscal year ended September 30, 11/1/88 to 7/11/88(1) to
1997 1996(2) 1995 1994 1993 1992 1991 1990 9/30/89 10/31/88
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period . . $ 7.50 $ 8.12 $ 7.98 $12.22 $11.51 $10.71 $10.02 $ 9.96 $10.08 $10.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Operations:
Net investment income . . . . . . . . 0.44 0.53(3) 0.88 0.90 1.29 1.07 0.94 0.91 0.82 0.21
Net realized and unrealized gains
(losses) on investments. . . . . . . 0.17 (0.11) 0.31 (3.96) 0.56 0.73 0.67 0.08 (0.12) 0.08
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from operations . . . . . . . . 0.61 0.42 1.19 (3.06) 1.85 1.80 1.61 0.99 0.70 0.29
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions to shareholders:
From net investment income. . . . . .(0.44) (1.04) (1.05) (0.95) (0.90) (0.91) (0.90) (0.90) (0.81) (0.21)
From net realized gains on
investments. . . . . . . . . . . . . -- -- -- (0.23) (0.24) (0.09) (0.02) (0.03) (0.01) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions to
shareholders . . . . . . . . . . . (0.44) (1.04) (1.05) (1.18) (1.14) (1.00) (0.92) (0.93) (0.82) (0.21)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period . . . . . $ 7.67 $ 7.50 $ 8.12 $ 7.98 $12.22 $11.51 $10.71 $10.02 $ 9.96 $10.08
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

SELECTED INFORMATION

Total return(4)[BAR GRAPH] . . . . . . . . 8.29% 5.68% 16.15% (26.65%) 17.04% 17.70% 16.80% 10.30% 7.38% 3.09%

Net assets, end of period (in millions). . $64 $136 $319 $564 $792 $470 $132 $36 $28 $18
Ratio of expenses to average
daily net assets(6). . . . . . . . . . . 0.85% 0.72% 0.97% 0.78% 0.70% 0.65% 0.75% 0.78% 0.85%(5) 0.75%(5)
Ratio of net investment income to
average daily net assets . . . . . . . . 5.83% 6.65% 8.02% 9.33% 12.51% 11.01% 9.29% 9.00% 9.03%(5) 7.91%(5)
Portfolio turnover rate (excluding
short-term securities) . . . . . . . . . 86% 89% 136% 169% 109% 64% 29% 76% 23% 14%

Ratios before waivers by the distributor:
Of expenses to average daily
net assets(6). . . . . . . . . . . . 0.93% 0.82% 1.07% 0.85% 0.77% 0.72% 0.82% 0.91% 1.40%(5) 1.53%(5)
Of net investment income to average
daily net assets . . . . . . . . . . 5.75% 6.55% 7.92% 9.26% 12.44% 10.94% 9.22% 8.87% 8.48%(5) 7.13%(5)

</TABLE>

(1) Commencement of operations.

(3) Based on average shares outstanding during the period.

(4) Total return assumes reinvestment of distributions and does not reflect a
sales charge.

(5) Annualized.

(6) Includes federal excise taxes of 0.08%, 0.37%, 0.23%, 0.09% and 0.02% for
fiscal 1996, 1995, 1994, 1993, and 1992, respectively.

(7) Commencement of offering of class Y shares.

- --------------------------------------------------------------------------------
3 Prospectus - Intermediate Bond Fund
<PAGE>

PORTFOLIO OVERVIEW

INVESTMENT SECURITIES AND TECHNIQUES
- --------------------------------------------------------------------------------

10 MAXIMUM PERCENT OF TOTAL ASSETS
/10/ MAXIMUM PERCENT OF NET ASSETS
Y PERMITTED WITHOUT LIMITATION

INVESTMENT SECURITIES
- -----------------------------------------------------------------------------------------------
<S> <C>
ASSET-BACKED SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y
generally are backed by consumer or corporate receivables or credit obligations,
such as credit card receivables, auto loans, home equity loans or manufactured
housing loans. These securities are often guaranteed or over-collateralized to
improve credit quality. Credit, Interest Rate

CORPORATE FIXED INCOME SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . y
include corporate bonds, debentures, notes and similar debt securities. Credit,
Interest Rate

MORTGAGE-RELATED SECURITIES represent participations in, or are secured by,
pools of mortgages. They are issued by U.S. government agencies and private
entities and include the following:

ADJUSTABLE RATE MORTGAGE SECURITIES . . . . . . . . . . . . . . . . . . . . . . y
pay interest rates which change periodically based on changes in an
underlying interest rate index Credit, Extension, Interest Rate, Prepayment

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs). . . . . . . . . . . . . . . . . . . y
are mortgage-related securities in which the cash flows are allocated to
different tranches or classes, rather than being passed through directly to
investors. Different classes have different risk/return characteristics.
Classes with more predictable cash flows generally have lower yields.
Credit, Extension, Interest Rate, Leverage, Liquidity, Prepayment

PASS-THROUGHS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y
are mortgage-related securities which pass principal and interest payments
through to investors, net of fees.
Credit, Extension, Interest Rate, Prepayment

Z BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y
are CMO classes which do not pay interest until other classes have been
paid. Instead, interest payments are accrued and added to the principal
balance. Prices fluctuate more widely with changes in interest rates than
prices of securities with similar maturities that pay interest currently.
Credit, Extension, Interest Rate, Liquidity, Prepayment

SHORT-TERM MONEY MARKET SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . 35
include short-term U.S. government securities, bank certificates of deposit,
bankers' acceptances, high-grade commercial paper and other money market
instruments. Credit, Interest Rate

U.S. GOVERNMENT SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . y
are issued - or guaranteed as to payment of principal and interest - by the U.S.
government or its agencies or instrumentalities. They include U.S. Treasury
bills, notes and bonds, as well as agency-issued securities, such as Fannie Maes
(issued by the Federal National Mortgage Association), Ginnie Maes (issued by
the Government National Mortgage Association) and Freddie Macs (issued by the
Federal Home Loan Mortgage Corporation). Credit, Interest Rate

- --------------------------------------------------------------------------------
4 Prospectus - Intermediate Bond Fund
<PAGE>

PORTFOLIO OVERVIEW

INVESTMENT SECURITIES AND TECHNIQUES (CONTINUED)
- --------------------------------------------------------------------------------

YANKEE BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y
are dollar-denominated bonds of foreign issuers traded in the United States.
Yankee bonds may involve risks not associated with securities of domestic
issuers. Credit, Foreign Issuer, Interest Rate

ZERO COUPON, PAY-IN-KIND AND DELAYED INTEREST SECURITIES . . . . . . . . . . . . . . y
do not pay interest on a current basis or they pay interest by issuing
additional securities. Their prices fluctuate more widely with changes in
interest rates than prices of securities with similar maturities that pay
interest currently. Credit, Interest Rate

INVESTMENT TECHNIQUES
- --------------------------------------------------------------------------------

BORROWING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
is permitted for temporary or emergency purposes only. Interest paid on borrowed
funds reduces earnings. The fund's policy on borrowing cannot be changed without
shareholder approval. Leverage

MORTGAGE DOLLAR ROLLS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25(1)
The fund sells mortgage-related securities for delivery in the current month
while contracting with the same party to repurchase similar securities at a
future date. Interest Rate, Leverage

PORTFOLIO TURNOVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y
The fund may engage in short-term trading to benefit from yield disparities
among securities and to otherwise attempt to achieve its objectives. This may
result in higher transaction costs and increased short-term gains, which are
taxable as ordinary income when distributed.

REPURCHASE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y
The fund purchases securities on the condition that the seller will buy them
back at a set time and price, plus interest. Credit

WHEN-ISSUED AND FORWARD COMMITMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 25(1)
The purchase or sale of a security at a future date for a predetermined price.
Securities may decrease in value prior to their delivery. Interest Rate,
Leverage
</TABLE>

(1) Percentage limitation relates to all purchases of securities on a when-
issued or forward commitment basis, including mortgage dollar roll
purchases.

- --------------------------------------------------------------------------------
5 Prospectus - Intermediate Bond Fund
<PAGE>

PORTFOLIO OVERVIEW

CREDIT RISK

The issuer of a security, or the other party to a contract, such as a repurchase
agreement, could default on its financial obligation causing a loss in the
fund's portfolio. In addition, changes in a security's credit rating or changes
in the perception of an issuer's ability to pay principal and interest could
affect the value of a security and cause a decline in the value of the fund's
portfolio.

When the fund is restricted to investing in securities which have received at
least a particular credit rating, the fund may invest in securities of the
lowest gradation within that rating category. For example, if the fund may
purchase only securities rated A or better, the purchase of a security rated A-
is permitted.

EXTENSION RISK

FOREIGN ISSUER RISK

INTEREST RATE RISK

LEVERAGE RISK

LIQUIDITY RISK

Although the fund may not invest in illiquid securities, the fund may invest
without limitation in certain types of securities which have historically been
considered illiquid, but only if they are determined to be liquid under
procedures adopted by the board of directors. These include unregistered
securities which can be resold, without registration, to qualified institutional
buyers (Rule 144A securities). Investing in Rule 144A 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.

If such a security were to become illiquid, the fund might not be able to sell
it at the desired time and price. It might have to accept a lower price or
sell other securities instead at a time when the sale of those securities
might not be advantageous. The sale of illiquid securities often requires
more time and results in higher selling expenses than the sale of liquid
securities.

PREPAYMENT RISK

Falling interest rates could cause prepayments of mortgage-related securities to
occur more quickly than expected. This occurs because, as interest rates fall,
more homeowners refinance the mortgages underlying these securities. The fund
must reinvest the prepayments at a time when interest rates on new mortgage
investments are falling, reducing the income of the fund. In addition, when
interest rates fall, prices on mortgage-related securities may not rise as much
as for comparable Treasury securities because investors may anticipate an
increase in mortgage prepayments.

- --------------------------------------------------------------------------------
6 Prospectus - Intermediate Bond Fund
<PAGE>

MANAGING YOUR INVESTMENT

BUYING SHARES
- --------------------------------------------------------------------------------
YOU MAY PURCHASE CLASS Y SHARES OF THE FUND WITH AN INITIAL INVESTMENT OF
$1 MILLION OR MORE. ADD TO YOUR EXISTING INVESTMENT WITH ANY AMOUNT, AT ANY
TIME. SIMPLY CALL YOUR PIPER JAFFRAY INVESTMENT EXECUTIVE OR ANOTHER AUTHORIZED
BROKERAGE FIRM.

CALCULATING YOUR PURCHASE PRICE
- --------------------------------------------------------------------------------
Class Y shares are sold without any initial or deferred sales charges. Your
purchase price is the next net asset value of your shares calculated after your
broker receives your purchase order. The net asset value of each share is equal
to the market value of the fund's investments and other assets, less any
liabilities, divided by the number of fund shares.

INVESTING AUTOMATICALLY
- --------------------------------------------------------------------------------

AUTOMATIC MONTHLY INVESTMENT PROGRAMS

To purchase class Y shares as part of a savings discipline, you may
automatically transfer $100 or more each month to any Piper fund offering
class Y shares from your bank, savings and loan or other financial institution.
Or transfer $25 or more per month from any of the Piper money market funds.

CROSS-REINVESTMENT OF DISTRIBUTIONS

SHARE CLASSES
INTERMEDIATE BOND FUND ALSO OFFERS CLASS A SHARES THROUGH A SEPARATE
PROSPECTUS. YOU CAN OBTAIN MORE INFORMATION ON THE FUND'S CLASS A
SHARES BY CALLING THE FUND AT THE PHONE NUMBER ON THE BACK COVER.

- --------------------------------------------------------------------------------
7 Prospectus - Intermediate Bond Fund
<PAGE>

MANAGING YOUR INVESTMENT

HOLDING SHARES
- --------------------------------------------------------------------------------

RECEIVING DIVIDENDS AND OTHER DISTRIBUTIONS
- --------------------------------------------------------------------------------
Dividends from the fund's net investment income are declared daily and paid
monthly. Shares begin accruing dividends on the settlement date for their
purchase and continue through the day before the settlement date for their sale.
Capital gains, if any, are distributed at least once annually.

Class Y shareholders generally will receive higher dividends from net investment
income than class A shareholders because class Y shareholders are not subject to
Rule 12b-1 fees.

The sale or exchange of fund shares will be a taxable event for you and may
result in a capital gain or loss. Under recent amendments to the tax code, the
gain or loss will be considered long-term if you have held your shares for more
than 18 months and mid-term if you have held your shares more than one year but
not more than 18 months. A gain or loss on shares held for one year or less is
considered short-term and is taxed at the same rates as ordinary income.

Before exchanging into any fund, be sure to read its prospectus carefully. The
fund may change or cancel its exchange policies at any time, upon 60 days'
notice to shareholders.

For your protection, IFTC will attempt to verify your identity by asking for
your account number, social security number or other form of personal
identification. If reasonable care is taken to identify you as the caller,
neither IFTC nor the fund will be liable for losses to your account resulting
from an unauthorized telephone transaction. Payments that result from telephone
transactions will be made only to the address of record or the bank account
designated on your Account Application and Services form.

SHAREHOLDER REPORTS

STATEMENTS AND CONFIRMATIONS

Statements summarizing activity in your account are mailed monthly (quarterly if
your account has no activity). Confirms are mailed following each purchase or
sale of fund shares.

- --------------------------------------------------------------------------------
8 Prospectus - Intermediate Bond Fund
<PAGE>

MANAGING YOUR INVESTMENT

As noted above, you may sell shares by calling your broker. If you work with a
broker from a firm other than Piper Jaffray, you also may sell your shares by
submitting a written request to the fund's transfer agent, IFTC. Call IFTC at
800 874-6205 for instructions.

If your account falls below $1 million due to a sale of shares or an exchange
request, your account may be liquidated following 30 days written notice.

You may not want to make systematic withdrawals if you plan to continue
investing in the fund, due to tax liabilities.

- --------------------------------------------------------------------------------
9 Prospectus - Intermediate Bond Fund
<PAGE>

GENERAL INFORMATION
- --------------------------------------------------------------------------------

HOW THE FUND IS ORGANIZED
- --------------------------------------------------------------------------------
Intermediate Bond Fund is a diversified series of Piper Funds Inc., an open-end
investment company.

VOTING RIGHTS

FUND OBJECTIVE

INVESTMENT ADVISOR

Piper Capital Management Incorporated
222 South Ninth Street
Minneapolis, MN 55402-3804

As investment advisor, Piper Capital manages the fund's business and investment
activities, subject to the authority of the board of directors. The fund pays
Piper Capital a monthly fee for providing investment advisory services. See
"Shareholder Expenses" in the "Fund Description" section of this prospectus for
more information.

Piper Capital also is investment advisor to other Piper open-end funds, to a
number of closed-end investment companies and to various institutions,
corporations and individuals. Piper Capital has approximately $12 billion under
management and is a wholly owned subsidiary of Piper Jaffray Companies Inc., a
full-service investment company.

DISTRIBUTOR

Piper Jaffray Inc.
222 South Ninth Street
Minneapolis, MN 55402-3804

CUSTODIAN AND ACCOUNTING AGENT

Investors Fiduciary Trust Company
801 Pennsylvania Avenue
Kansas City, MO 64105-1307

As the fund's custodian and accounting agent, IFTC holds the fund's portfolio
securities, settles trades, collects data needed to calculate net asset values,
and provides recordkeeping.

TRANSFER AND DIVIDEND DISBURSING AGENTS

Investors Fiduciary Trust Company
1004 Baltimore Avenue
Kansas City, MO 64105-1802

Piper Jaffray (address listed above)

Piper Trust Company
222 South Ninth Street
Minneapolis, MN 55402-3804

IFTC provides transfer agent services and pays dividends and other distributions
for the fund. Piper Jaffray and Piper Trust provide these services for
shareholders whose accounts they maintain.

- --------------------------------------------------------------------------------
10 Prospectus - Intermediate Bond Fund
<PAGE>

GENERAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------

HOW DEALERS ARE COMPENSATED
- --------------------------------------------------------------------------------
Piper Jaffray Investment Executives and other brokerage firms who sell class Y
shares receive ongoing fees from Piper Capital which equal, on an annual basis,
up to 0.175% of the fund's average daily net assets attributable to such shares.

PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
The fund purchases most of its portfolio securities directly from the issuer or
from an underwriter or market maker, and not from a broker acting as an agent.
However, the fund may from time to time use brokers when buying portfolio
securities. When deciding which brokers to use, Piper Capital may consider
whether brokers have sold shares of this or any other Piper fund. Piper Capital
may place trades through Piper Jaffray in compliance with Investment Company Act
of 1940 rules.

- - By an independent pricing service, or

- - Through market quotations obtained from one or more dealers who make a
market in the securities or from a widely used quotation system.

Net asset value is calculated as of the close of regular trading on the New York
Stock Exchange (typically 4 p.m. Eastern Time) on each day the exchange is open
for trading.

PENDING LAWSUITS
- --------------------------------------------------------------------------------
The following two complaints, which are based on allegations of
misrepresentation and improper management, are pending relating to the fund
(formerly Institutional Government Income Portfolio).

2) Filed June 22, 1995, by Beverly Muth, in the Montana Thirteenth Judicial
District Court, Yellowstone County. Filed against Piper Jaffray and an
affiliated person.

- --------------------------------------------------------------------------------
11 Prospectus - Intermediate Bond Fund

<PAGE>

Prospectus - Intermediate Bond Fund

FOR MORE INFORMATION
- --------------------------------------------------------------------------------
Annual/Semiannual Reports
Shareholder reports include financial statements and performance information on
the fund, a message from your portfolio managers, and, on an annual basis, the
auditors' report.

Statement of Additional Information (SAI)
The SAI contains more detailed information about the fund. A current SAI has
been filed with the SEC and is incorporated by reference into this prospectus.

To order free copies, please write or call:

Piper Capital Management
Attn: Mutual Fund Services
222 South Ninth Street
Minneapolis, MN 55402-3804

800 866-7778

- --------------------------------------------------------------------------------
[LOGO] PIPER FUNDS 222 South Ninth Street
Minneapolis, MN 55402-3804

#30422 11/1997 030-98

<PAGE>

- --------------------------------------------------------------------------------
PROSPECTUS - TAX-EXEMPT INCOME FUNDS
- --------------------------------------------------------------------------------

PROSPECTUS

NOVEMBER 24, 1997

[LOGO]

TAX-EXEMPT

INCOME FUNDS

NATIONAL TAX-EXEMPT FUND (Class A Shares)
- --------------------------------------------------------------------------------

MINNESOTA TAX-EXEMPT FUND (Class A Shares)
- --------------------------------------------------------------------------------

BEFORE YOU INVEST:

PLEASE READ THIS PROSPECTUS CAREFULLY, AND KEEP IT FOR FUTURE REFERENCE. IT
CONTAINS IMPORTANT INFORMATION ABOUT THE FUNDS, INCLUDING INFORMATION ON
INVESTMENT POLICIES, RISKS AND FEES.

<PAGE>

[LOGO]

CONTENTS
- --------------------------------------------------------------------------------
INVESTING IN PIPER TAX-EXEMPT INCOME FUNDS . . .1

FUND DESCRIPTIONS
- --------------------------------------------------------------------------------
NATIONAL TAX-EXEMPT FUND . . . . . . . . . . . .2 Investment objectives
MINNESOTA TAX-EXEMPT FUND. . . . . . . . . . . .4 and policies, risk
considerations, portfolio
managers, shareholder
expenses and financial
highlights

PORTFOLIO OVERVIEW
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES AND TECHNIQUES . . . . . .6 An overview of securities
RISK FACTORS . . . . . . . . . . . . . . . . . .8 and investment techniques
that may be used by the
funds and their risks

MANAGING YOUR INVESTMENT
- --------------------------------------------------------------------------------
BUYING SHARES. . . . . . . . . . . . . . . . . .9 Practical information to
Calculating Your Purchase Price help you manage your
Reducing Your Sales Charge investment in Piper Funds
Investing Automatically
HOLDING SHARES . . . . . . . . . . . . . . . . 10
Receiving Dividends and Other Distributions
Taxing of Dividends and Other Distributions
Exchanging Shares
Conducting Transactions by Phone
Staying Informed
SELLING SHARES . . . . . . . . . . . . . . . . 11
Receiving the Proceeds
Paying the Contingent Deferred Sales Charge
Taking Systematic Withdrawals
Reinvesting After a Sale

- --------------------------------------------------------------------------------
GENERAL INFORMATION. . . . . . . . . . . . . . 12

<PAGE>

INVESTING IN PIPER
- --------------------------------------------------------------------------------

TAX-EXEMPT INCOME FUNDS
- --------------------------------------------------------------------------------
PIPER TAX-EXEMPT INCOME FUNDS SEEK TO PROVIDE YOU WITH TAX-FREE INCOME WHILE
PRESERVING THE PRINCIPAL VALUE OF YOUR INVESTMENT OVER TIME. NATIONAL TAX-EXEMPT
FUND AND MINNESOTA TAX-EXEMPT FUND ARE ADVISED BY PIPER CAPITAL MANAGEMENT
INCORPORATED.

BEFORE YOU INVEST:

KNOW YOUR GOALS
- --------------------------------------------------------------------------------
One of these funds may be appropriate for your investment portfolio if:

- - You want a regular stream of tax-exempt income or wish to diversify your
portfolio.

- - You are in a high income bracket and wish to decrease your tax burden. (If
you pay Minnesota income tax, consider the Minnesota Tax-Exempt Fund.)

- - You are comfortable with some volatility in the value of your shares.

If you require absolute stability of your principal, you want maximum return, or
you are seeking an investment for a tax-deferred retirement plan, you should
consider other investment vehicles. Piper Tax-Exempt Income Funds were not
designed to meet these goals.

UNDERSTAND THE RISKS
- --------------------------------------------------------------------------------
While mutual funds are a convenient and potentially rewarding way to invest,
they do not always meet their objectives. Please remember: You could lose money
with these investments. Stability of income and safety of principal are not
guaranteed. Risks associated with these funds are outlined in the following
pages.

USE YOUR PROSPECTUS
- --------------------------------------------------------------------------------
Please read this prospectus carefully and keep it on file for future reference.
More detailed information about the funds is contained in their statement of
additional information, which can be obtained from the funds at the address and
phone number on the back cover. Further information is also available from your
broker or by calling Piper Capital at 800 866-7778.

- --------------------------------------------------------------------------------
1 Prospectus - Tax-Exempt Income Funds
<PAGE>

FUND DESCRIPTIONS

NATIONAL TAX-EXEMPT FUND
- --------------------------------------------------------------------------------

NATIONAL TAX-EXEMPT FUND SEEKS MAXIMUM CURRENT INCOME EXEMPT FROM FEDERAL INCOME
TAXES, CONSISTENT WITH PRUDENT INVESTMENT RISK AND PRESERVATION OF CAPITAL. TO
PURSUE THIS OBJECTIVE, THE FUND INVESTS PRIMARILY IN A DIVERSIFIED PORTFOLIO OF
MUNICIPAL SECURITIES.

INVESTMENT POLICIES
- --------------------------------------------------------------------------------
Under normal market conditions, National Tax-Exempt Fund will invest at least
80% of its net assets in municipal securities exempt (in the opinion of bond
counsel to the issuer) from federal income tax, including the federal
alternative minimum tax (AMT).

Municipal securities include securities issued by state and local governments
(as well as certain U.S. territorial possessions) to obtain funds for various
public purposes, including the construction of public facilities such as
airports, highways, hospitals and schools. These securities may include bonds,
notes and commercial paper of any maturity, although the fund emphasizes
investments in long-term municipal securities. The fund invests only in
investment grade municipal securities, or unrated securities that the fund's
advisor determines are of comparable quality. The fund's investments may include
derivative municipal securities.

The fund may invest up to 20% of its net assets in taxable obligations. It
may temporarily invest without limitation in these obligations during periods
of abnormal market conditions. Taxable obligations include municipal
securities subject to regular federal income tax or federal AMT which are
rated investment grade or are of comparable quality, U.S. government
securities, corporate bonds rated within the three highest grades by either
Moody's Investors Service or Standard & Poor's Ratings Services, commercial
paper rated within the two highest grades by either Moody's or Standard &
Poor's, certificates of deposit, bankers' acceptances, repurchase agreements
and cash.

To facilitate portfolio management, the fund may engage in futures contracts,
enter into repurchase agreements, and purchase and sell securities on a
when-issued or forward commitment basis. Use of these practices may increase the
volatility of the fund's net asset value.

This fund also is subject to credit risk, which is the possibility that the
issuer of a security will default. The fund may invest in securities of the
lowest investment grade, or in unrated securities of comparable quality. These
securities may have speculative characteristics and carry a somewhat greater
risk of default than more highly rated securities. When the fund purchases
unrated securities, it will depend on the advisor's investment analysis more
heavily than usual. The fund may invest in both general obligation bonds and
revenue bonds. Revenue bonds may entail greater credit risk.

Some municipal securities held by the fund may be redeemed by the issuer, or
"called," prior to their stated maturity dates. If a security is redeemed during
a time of declining interest rates, the fund may be unable to reinvest in
securities providing as high a level of income.

The value of municipal securities owned by the fund may be adversely affected by
local political and economic conditions and developments, or by future changes
in federal income tax laws, including rate reductions or the imposition of a
flat tax.

PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
RON REUSS is a senior vice president of Piper Capital with 28 years of financial
experience.

DOUG WHITE, CFA, is a senior vice president of Piper Capital with 14 years of
financial experience.

SHAREHOLDER TRANSACTION EXPENSES (AS A % OF OFFERING PRICE)
Maximum front-end sales charge on purchases. . . . . . . . . . . . . 2.00%

FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
Management fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.50%
12b-1 fee (after fee limitation)(1,2). . . . . . . . . . . . . . . . 0.24%
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.37%
----
Total operating expenses (after fee limitation)(2) . . . . . . . . . 1.11%

(1) Due to the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.

(2) If Piper Jaffray had not voluntarily limited fees, the 12b-1 fee would have
been 0.30% and total operating expenses would have been 1.17%. Voluntary
12b-1 fee limitations may be discontinued at any time after fiscal 1998
year end.

1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $31
3 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $55
5 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $80
10 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $152

- --------------------------------------------------------------------------------
2 Prospectus - Tax-Exempt Income Funds
<PAGE>

FUND DESCRIPTIONS

NATIONAL TAX-EXEMPT FUND (CONTINUED)
- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS The following information has been audited by KPMG Peat
Marwick LLP, independent auditors.
- --------------------------------------------------------------------------------

Fiscal year ended September 30, Period from
7/11/88(1) to
1997 1996 1995 1994 1993 1992 1991 1990 1989 9/30/88
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period . . . . $10.81 $10.69 $10.22 $11.76 $10.94 $10.51 $ 9.91 $9.99 $10.03 $10.00
------ ------ ------ ------ ------ ------ ------ ----- ------ ------
Operations:
Net investment income . . . . . . . . . . . 0.54 0.56 0.60 0.57 0.61 0.66 0.68 0.68 0.71 0.12
Net realized and unrealized
gains (losses) on investments . . . . . . 0.42 0.12 0.47 (1.21) 0.94 0.43 0.60 (0.08) (0.04) 0.03
------ ------ ------ ------ ------ ------ ------ ----- ------ ------
Total from operations . . . . . . . . . . . 0.96 0.68 1.07 (0.64) 1.55 1.09 1.28 0.60 0.67 0.15
------ ------ ------ ------ ------ ------ ------ ----- ------ ------
Distributions to shareholders:
From net investment income(2) . . . . . . . (0.54) (0.56) (0.60) (0.57) (0.61) (0.66) (0.68) (0.68) (0.71) (0.12)
From net realized gains on investments. . . (0.02) -- -- (0.33) (0.12) -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ----- ------ ------
Total distributions to shareholders . . . (0.56) (0.56) (0.60) (0.90) (0.73) (0.66) (0.68) (0.68) (0.71) (0.12)
------ ------ ------ ------ ------ ------ ------ ----- ------ ------
Net asset value, end of period . . . . . . . $11.21 $10.81 $10.69 $10.22 $11.76 $10.94 $10.51 $9.91 $ 9.99 $10.03
------ ------ ------ ------ ------ ------ ------ ----- ------ ------
------ ------ ------ ------ ------ ------ ------ ----- ------ ------

SELECTED INFORMATION

TOTAL RETURN(3)[BAR GRAPH] . . . . . . . . . 9.09% 6.42% 10.30% (5.72%) 14.76% 10.68% 13.31% 6.15% 6.82% 1.50%

Net assets, end of period (in millions). . . $ 50 $ 46 $ 57 $ 68 $ 79 $ 59 $ 46 $ 36 $ 36 $ 5
Ratio of expenses to average
daily net assets. . . . . . . . . . . . . . 1.11% 1.03% 1.01% 0.93% 0.94% 0.94% 0.92% 0.86% 0.80% 0.80%(4)
Ratio of net investment income to
average daily net assets. . . . . . . . . . 4.91% 5.15% 5.37% 5.25% 5.42% 6.13% 6.59% 6.78% 6.56% 5.90%(4)
Portfolio turnover rate (excluding
short-term securities). . . . . . . . . . . 28% 43% 28% 65% 43% 35% 59% 80% 57% 10%
Ratios before waivers by the
advisor and distributor:
Of expenses to average daily net assets . . 1.17% 1.13% 1.09% 1.03% 1.04% 1.10% 1.15% 1.13% 1.62% 2.76%(4)
Of net investment income to
average daily net assets. . . . . . . . . 4.85% 5.05% 5.29% 5.15% 5.32% 5.97% 6.36% 6.51% 5.74% 3.94%(4)

</TABLE>

(1) Commencement of operations.
(2) Amounts included in distributions from net investment income that are
taxable for federal income tax purposes are $0.001, $0.002, $0.013 and
$0.03 per share for fiscal 1991, 1990, 1989 and 1988, respectively.
(3) Total return assumes reinvestment of distributions and does not reflect a
sales charge.
(4) Annualized.

- --------------------------------------------------------------------------------
3 Prospectus - Tax-Exempt Income Funds

<PAGE>

FUND DESCRIPTIONS

MINNESOTA TAX-EXEMPT FUND
- --------------------------------------------------------------------------------

MINNESOTA TAX-EXEMPT FUND SEEKS MAXIMUM CURRENT INCOME EXEMPT FROM BOTH FEDERAL
AND MINNESOTA STATE INCOME TAXES, CONSISTENT WITH PRUDENT INVESTMENT RISK AND
PRESERVATION OF CAPITAL. TO PURSUE THIS OBJECTIVE, THE FUND INVESTS PRIMARILY IN
MINNESOTA MUNICIPAL SECURITIES AND CERTAIN SECURITIES OF U.S. TERRITORIAL
POSSESSIONS.

INVESTMENT POLICIES
- --------------------------------------------------------------------------------
Under normal market conditions, Minnesota Tax-Exempt Fund will invest at least
80% of its net assets in municipal securities exempt (in the opinion of bond
counsel to the issuer) from both federal and Minnesota state income taxes,
including federal and state alternative minimum tax (AMT).

Because this fund concentrates its investments in securities of Minnesota
issuers, it will be disproportionately affected by state and local political,
economic and regulatory conditions and developments. See the statement of
additional information for details.

Municipal securities include securities issued to obtain funds for public
purposes, including the construction of airports, highways, hospitals and
schools. These securities may include bonds, notes and commercial paper of any
maturity, although the fund emphasizes investments in long-term securities. The
fund invests only in investment grade municipal securities, or unrated
securities that the advisor determines are of comparable quality. The fund's
investments may include derivative municipal securities.

The fund may invest up to 20% of its net assets in taxable obligations of the
types described for National Tax-Exempt Fund. During periods of abnormal
market conditions, it temporarily may invest without limitation in these
obligations.

The value of municipal securities owned by the fund may be adversely affected by
local political and economic conditions and developments, or by future changes
in state or federal income tax laws, including rate reductions or the imposition
of a flat tax.

The investment securities and techniques used by this fund present other risks
as well. In particular, special risks are presented by the fund's investments in
derivative municipal securities, municipal lease obligations and zero-coupon
municipal securities. See pages 6-8 for more information. Because the fund is
not diversified, it will be subject to additional risk. See "Non-Diversification
Risk," page 8.

PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
RON REUSS is a senior vice president of Piper Capital with 28 years of financial
experience.

DOUG WHITE, CFA, is a senior vice president of Piper Capital with 14 years of
financial experience.

SHAREHOLDER TRANSACTION EXPENSES (AS A % OF OFFERING PRICE)
Maximum front-end sales charge on purchases. . . . . . . . . . . . . 2.00%

FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
Management fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.50%
12b-1 fee (after fee limitation)(1,2). . . . . . . . . . . . . . . . 0.24%
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.21%
-----
Total operating expenses (after fee limitation)(2) . . . . . . . . . 0.95%

1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29
3 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $50
5 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $71
10 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $134

(1) Due to the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.

(2) If Piper Jaffray had not voluntarily limited fees, the 12b-1 fee would have
been 0.30% and total operating expenses would have been 1.01%. Voluntary
12b-1 fee limitations may be discontinued at any time after fiscal 1998
year end.

- --------------------------------------------------------------------------------
4 Prospectus - Tax-Exempt Income Funds
<PAGE>

FUND DESCRIPTIONS

MINNESOTA TAX-EXEMPT FUND (CONTINUED)
- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS The following information has been audited by KPMG Peat
Marwick LLP, independent auditors.
- --------------------------------------------------------------------------------

Fiscal year ended September 30, Period from
7/11/88(1) to
1997 1996 1995 1994 1993 1992 1991 1990 1989 9/30/88
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period . . . . $10.89 $10.81 $10.28 $11.43 $10.79 $10.46 $ 9.92 $10.06 $9.94 $10.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Operations:
Net investment income . . . . . . . . . . . 0.57 0.59 0.66 0.61 0.62 0.64 0.66 0.66 0.68 0.12
Net realized and unrealized
gains (losses) on investments . . . . . . 0.31 0.07 0.53 (0.95) 0.68 0.33 0.54 (0.14) 0.12 (0.06)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from operations . . . . . . . . . . . 0.88 0.66 1.19 (0.34) 1.30 0.97 1.20 0.52 0.80 0.06
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions to shareholders:
From net investment income(2) . . . . . . . (0.57) (0.58) (0.66) (0.61) (0.62) (0.64) (0.66) (0.66) (0.68) (0.12)
From net realized gains on investments. . . (0.05) -- -- (0.20) (0.04) -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions to shareholders . . . (0.62) (0.58) (0.66) (0.81) (0.66) (0.64) (0.66) (0.66) (0.68) (0.12)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period . . . . . . . $11.15 $10.89 $10.81 $10.28 $11.43 $10.79 $10.46 $ 9.92 $10.06 $ 9.94
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

SELECTED INFORMATION

TOTAL RETURN(3)[BAR GRAPH] . . . . . . . . . 8.32% 6.24% 11.38% (3.14%) 12.52% 9.56% 12.49% 5.30% 8.23% 0.58%

Net assets, end of period (in millions). . . $ 126 $ 126 $ 134 $ 162 $ 169 $ 132 $ 83 $ 63 $ 51 $ 9
Ratio of expenses to average
daily net assets. . . . . . . . . . . . . . 0.95% 0.90% 0.91% 0.89% 0.91% 0.93% 0.92% 0.87% 0.80% 0.80%(4)
Ratio of net investment income
to average daily net assets . . . . . . . . 5.17% 5.38% 5.80% 5.61% 5.62% 6.00% 6.44% 6.58% 6.45% 5.91%(4)
Portfolio turnover rate
(excluding short-term securities) . . . . . 17% 35% 30% 44% 29% 35% 22% 41% 54% 12%
Ratios before waivers by the advisor
and distributor:
Of expenses to average daily net assets . . 1.01% 0.99% 0.99% 0.99% 1.00% 1.01% 1.05% 1.06% 1.33% 1.97%(4)
Of net investment income to
average daily net assets. . . . . . . . . 5.11% 5.29% 5.72% 5.51% 5.53% 5.92% 6.31% 6.39% 5.92% 4.74%(4)

</TABLE>

(1) Commencement of operations.
(2) Amounts included in distributions from net investment income that are
taxable for federal income tax purposes are $0.003, $0.001, $0.012, $0.011
and $0.02 per share for fiscal 1992, 1991, 1990, 1989 and 1988,
respectively.
(3) Total return assumes reinvestment of distributions and does not reflect a
sales charge.
(4) Annualized.

- --------------------------------------------------------------------------------
5 Prospectus - Tax-Exempt Income Funds

<PAGE>

PORTFOLIO OVERVIEW

INVESTMENT SECURITIES AND TECHNIQUES
- --------------------------------------------------------------------------------

10 MAXIMUM PERCENT OF TOTAL ASSETS
/10/ MAXIMUM PERCENT OF NET ASSETS
y PERMITTED WITHOUT LIMITATION
n NOT PERMITTED

NATIONAL MINNESOTA
TAX-EXEMPT FUND TAX-EXEMPT FUND

INVESTMENT SECURITIES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FUTURES CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y(1) y(1)
require the holder to buy or sell securities at a specified price on a specified date.
Some are contracts to make a cash settlement on a future date in an amount determined
by the value of a financial index (such as the Bond Buyer Municipal Bond Index) on the
last day of the contract. A fund generally buys or sells futures in seeking protection
against fluctuations in the value of its portfolio without actually buying or selling
securities. Hedging, Interest Rate, Leverage

ILLIQUID SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . /15/ /15/
cannot be sold in the ordinary course of business within seven days at approximately
the price at which they are valued. Liquidity

MUNICIPAL SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y
include debt obligations issued by states, cities, local authorities, and certain
territorial possessions of the United States to obtain funds for public purposes. There
are two principal classifications of municipal securities:
(1) General obligation bonds, which are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest. Call,
Credit, Information, Interest Rate, Liquidity, Political and Economic
(2) Revenue bonds, which are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a special
excise tax or other specific revenue source. Revenue bonds may entail greater
credit risk than general obligation bonds. Call, Credit, Information, Interest Rate,
Liquidity, Political and Economic

DERIVATIVE MUNICIPAL SECURITIES are custodial receipts or certificates that
evidence ownership of future interest payments, principal payments, or both on
certain underlying municipal securities. The principal and interest payments on the
underlying municipal securities may be allocated in various ways, including
allocations that result in the types of structured municipal securities listed
below. The securities can be highly sensitive to interest rate movements and their
performance may not correlate to such movements in a conventional fashion.

FLOATING RATE CUSTODIAL RECEIPTS. . . . . . . . . . . . . . . . . . . . . . . . y y
pay variable or floating rates of interest. Call, Credit, Information, Interest
Rate, Liquidity, Political and Economic

INVERSE FLOATING RATE CUSTODIAL RECEIPTS. . . . . . . . . . . . . . . . . . . . 20 20
pay interest at a rate that varies inversely to changes in the interest rate
of specified municipal securities or a specified index. The interest rate on
this type of security will generally change at a multiple of any change in the
reference interest rate. Call, Credit, Information, Interest Rate, Leverage,
Liquidity, Political and Economic

FLOATING RATE MUNICIPAL SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . y y
carry variable or floating rates of interest which change with changes in specified
market rates or indexes, such as a bank prime rate or a tax-exempt money market
index. The yield on these securities can be expected to fluctuate with changes in
prevailing interest rates. Call, Credit, Information, Interest Rate, Political and
Economic

</TABLE>

- --------------------------------------------------------------------------------
6 Prospectus - Tax-Exempt Income
<PAGE>

PORTFOLIO OVERVIEW

INVESTMENT SECURITIES AND TECHNIQUES (CONTINUED)
- --------------------------------------------------------------------------------

<S> <C> <C>
MUNICIPAL LEASE OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . /20/ /20/
include leases, installment purchase contracts and conditional sales contracts
entered into by state or local governmental units to acquire equipment or
facilities, and participation interests in such leases and contracts. Municipal
lease obligations frequently pose special risks because many leases and contracts
contain "non-appropriation" clauses that provide that the governmental issuer has
no obligation to make future payments under the lease or contract unless money is
appropriated for this purpose by the appropriate legislative body. Call, Credit,
Information, Interest Rate, Liquidity, Political and Economic

ZERO-COUPON MUNICIPAL SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . y y
do not entitle the holder to any periodic payments prior to maturity and are
issued and traded at a discount from their face amounts. Their prices fluctuate
more widely with changes in interest rates than prices of municipal securities with
similar maturities that pay current interest. Call, Credit, Information, Interest
Rate, Liquidity, Political and Economic

PUTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y
provide the right to resell securities at a specified price within a specified period
of time prior to the maturity date. Puts provide a fund with potential liquidity and
have the effect of changing a security with a longer maturity date into a security
with a shorter maturity date. Credit

INVESTMENT TECHNIQUES
- ------------------------------------------------------------------------------------------------------------------------------------

BORROWING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 10
is permitted for temporary or emergency purposes only. Interest paid on borrowed
funds reduces earnings. Each fund's policy on borrowing cannot be changed without
shareholder approval. Leverage

GEOGRAPHIC CONCENTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . n y
The investment by a fund of 25% or more of its total assets in any one state or
territory. Political and Economic

REPURCHASE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y
The fund purchases securities on the condition that the seller will buy them back at
a set time and price, plus interest. Credit, Interest Rate

WHEN-ISSUED AND FORWARD COMMITMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . y y
The purchase or sale of a security at a future date for a predetermined price.
Securities may decrease in value prior to their delivery. Leverage, Interest Rate

</TABLE>

Many of the securities identified above are considered derivative securities. A
derivative is a financial instrument whose value is based on another security,
index, reference rate (for example, interest or currency exchange rate) or other
asset. These securities have varying types and degrees of risk, as described
above.

(1) A fund's use of futures contracts will be limited by regulations of the
Commodity Futures Trading Commission.

- --------------------------------------------------------------------------------
7 Prospectus - Tax-Exempt Income

<PAGE>

PORTFOLIO OVERVIEW

RISK FACTORS
- --------------------------------------------------------------------------------
A summary of the principal risks which apply to each fund is provided in "Fund
Descriptions." More detail regarding these and other risks associated with
investment securities and techniques used by Piper Tax-Exempt Income Funds is
provided below.

CALL RISK

Some municipal securities held by the funds may be redeemed at the option of the
issuer, or "called," prior to their stated maturity date. If a security is
redeemed during a time of declining interest rates, the fund may be unable to
reinvest the proceeds in municipal securities which provide as high a level of
investment return.

CREDIT RISK

HEDGING RISK

INFORMATION RISK

Information about the financial condition of an issuer of municipal securities
may not be as readily available as information about corporations whose
securities are publicly traded.

INTEREST RATE RISK

LEVERAGE RISK

LIQUIDITY RISK

A fund may not be able to sell an illiquid security at the desired time and
price. It may have to accept a lower price or sell other securities instead at a
time when the sale of those securities might not be advantageous. The sale of
illiquid securities often requires more time and results in higher selling
expenses than the sale of liquid securities. In general, the secondary market
for municipal securities is less liquid than the market for most taxable fixed
income securities. Consequently, the fund's ability to buy and sell securities
may be limited from time to time.

NON-DIVERSIFICATION RISK

Because Minnesota Tax-Exempt Fund is not diversified, and because of the
relatively small number of issuers of Minnesota municipal securities, the fund
is more likely to invest a higher percentage of its assets in the securities of
a single issuer or of a limited number of issuers than a diversified fund. This
involves an increased risk of loss to the fund if the issuers are unable to make
interest or principal payments or if the fair market values of such securities
decline.

POLITICAL AND ECONOMIC RISK

The value of municipal securities may be adversely affected by local political
and economic conditions and developments. Adverse conditions in an industry
significant to a local economy could have a correspondingly adverse effect on
the financial condition of local issuers. Other factors that could affect
municipal securities include a change in the local, state or national economy,
demographic factors, ecological or environmental concerns, statutory limitations
on the issuer's ability to increase taxes and other developments generally
affecting the revenue of issuers (for example, legislation or court decisions
reducing state aid to local governments or mandating additional services). To
the extent a fund invests in the securities of issuers located in a single
state, it will be disproportionately affected by political and economic
conditions and developments in that state. The value of municipal securities
also may be adversely affected by future changes in federal or state income tax
laws, including rate reductions or the imposition of a flat tax.

- --------------------------------------------------------------------------------
8 Prospectus - Tax-Exempt Income
<PAGE>

MANAGING YOUR INVESTMENT

BUYING SHARES
- --------------------------------------------------------------------------------

You may become a shareholder in Piper Funds with an initial investment of $250
or more. Add to your existing investment with any amount, at any time. Simply
call your Piper Jaffray Investment Executive or another authorized brokerage
firm.

SALES CHARGES

Sales Charge Maximum
Paid by Investors Reallowance
-------------------------------------------------------
(as a % of (as a % of (as a % of
Purchase amount purchase price) net asset value) purchase price)
- --------------------------------------------------------------------------------
Up to $100,000 . . . . . . . 2.00% . . . . . . . 2.04% . . . . . . . 1.75%
$100,000-249,999 . . . . . . 1.25% . . . . . . . 1.27% . . . . . . . 1.00%
$250,000-499,999 . . . . . . 0.50% . . . . . . . 0.50% . . . . . . . 0.25%
$500,000 and more. . . . . . None* . . . . . . None* . . . . . . .0.00%*

*A contingent deferred sales charge will be assessed if you redeem within 12
months. See "Selling Shares," page 11. Although you pay no front-end sales
charge, Piper Jaffray and other brokerage firms receive fees for these sales of
up to 0.50%.

ACCUMULATION PRIVILEGE

COMBINED PURCHASE PLAN

LETTER OF INTENT

SPECIAL PURCHASE PLANS

Class A shares may be purchased without a sales charge by:

- - Investors purchasing shares through Piper Jaffray's Advantage program or
other qualified wrap-fee accounts.

- - Investors using the proceeds from the sale of any mutual fund not in the
Piper Funds family, excluding money market funds. (This privilege is
available for 30 days after the sale.)

- - Piper Capital clients purchasing shares for their advisory accounts.

- - Employees of brokerage firms that have sales agreements with Piper Jaffray,
their spouses and minor children.

- - Trust companies or bank trust departments investing for discretionary
accounts.

- - Piper Jaffray Companies and its subsidiaries.

INVESTING AUTOMATICALLY
- --------------------------------------------------------------------------------
AUTOMATIC MONTHLY INVESTMENT PROGRAMS

CROSS-REINVESTMENT OF DISTRIBUTIONS

SHARE CLASS
NATIONAL TAX-EXEMPT FUND OFFERS A SINGLE CLASS OF SHARES, CALLED
"CLASS A SHARES" IN THIS PROSPECTUS. MINNESOTA TAX-EXEMPT FUND
OFFERS BOTH CLASS A SHARES AND, THROUGH ANOTHER PROSPECTUS,
CLASS Y (INSTITUTIONAL) SHARES. CLASS Y SHARES HAVE NO SALES CHARGES
AND A LOWER EXPENSE STRUCTURE. THEY ARE AVAILABLE TO INVESTORS MAKING
AN INITIAL INVESTMENT OF $1 MILLION OR MORE. FOR MORE INFORMATION,
CALL YOUR BROKER OR MUTUAL FUND SERVICES AT 800 866-7778.

- --------------------------------------------------------------------------------
9 Prospectus - Tax-Exempt Income Funds
<PAGE>

MANAGING YOUR INVESTMENT

HOLDING SHARES
- --------------------------------------------------------------------------------

RECEIVING DIVIDENDS AND OTHER DISTRIBUTIONS
- --------------------------------------------------------------------------------

Piper Tax-Exempt Funds intend to meet certain federal tax requirements so that
distributions of tax-exempt interest income may be treated as "exempt-interest
dividends." These dividends are not subject to regular federal tax. However,
each fund may invest up to 20% of its net assets in municipal securities subject
to the alternative minimum tax. Any portion of exempt-interest dividends
attributable to interest on these securities may increase some shareholders'
alternative minimum tax.

Distributions paid from any interest income that is not tax-exempt and from any
net realized capital gains will be taxable whether you reinvest those
distributions or take them in cash.

National Tax-Exempt Fund's exempt-interest dividends may be subject to state or
local taxes. Minnesota Tax-Exempt Fund intends to comply with certain state tax
requirements so that dividends it pays that are attributable to interest on
Minnesota municipal securities will be exempt from Minnesota personal income
tax. At least 95% of the exempt-interest dividends paid by the fund will be
derived from interest income on Minnesota municipal securities. A portion of the
fund's dividends may be subject to the Minnesota alternative minimum tax.
Exempt-interest dividends are not excluded from the Minnesota taxable income of
corporations and financial institutions.

The sale or exchange of fund shares will be a taxable event for you and may
result in a capital gain or loss. Under recent amendments to the tax code, the
gain or loss will be considered long-term if you have held your shares for more
than 18 months and mid-term if you have held your shares more than one year but
not more than 18 months. A gain or loss on shares held for not more than one
year is considered short-term and is taxed at the same rates as ordinary income.

Exchanges are generally made based on the net asset value per share of each fund
at the time of the exchange. However, if your new fund has a higher sales
charge - for example if you move from a tax-exempt income fund to a growth
fund - you must pay the difference. Exchanges from the class A shares of a
tax-exempt income fund into a Piper fund offering more than one class of shares
may only be made into that fund's class A shares.

You may also move your tax-exempt income fund assets into a Piper money market
fund. If you later exchange those money market fund shares for class A shares of
another Piper fund, that exchange will be treated as an exchange from the
tax-exempt income fund for purposes of determining your sales charge.

Before exchanging into any fund, be sure to read its prospectus carefully. A
fund may change or cancel its exchange policies at any time, upon 60 days'
notice to shareholders.

SHAREHOLDER REPORTS

STATEMENTS AND CONFIRMATIONS

Statements summarizing activity in your account are mailed monthly (quarterly if
your account has no activity). Confirms are mailed following each purchase or
sale of fund shares.

- --------------------------------------------------------------------------------
10 Prospectus - Tax-Exempt Income Funds
<PAGE>

MANAGING YOUR INVESTMENT

SELLING SHARES
- --------------------------------------------------------------------------------

You may sell any or all of your shares for their net asset value (less any
applicable contingent deferred sales charges) on any day when the New York Stock
Exchange is open. Simply call your broker. Your request will be executed at the
next net asset value calculated after your broker receives your request.

RECEIVING THE PROCEEDS

- --------------------------------------------------------------------------------
If you are a Piper Jaffray client with a signed Piper Automatic Transfer (PAT)
agreement, proceeds from a sale of shares usually will be transferred to your
account the next business day. Otherwise, proceeds will be sent to you or your
broker, generally within three business days. If you sell shares that were
recently purchased by check, payment may be delayed until the check has cleared
(normally up to 15 days from the purchase date).

Remember to keep at least $200 in your account. If your account falls below $200
due to a sale of shares or an exchange request, your account may be liquidated
following 30 days written notice.

PAYING THE CONTINGENT DEFERRED SALES CHARGE
- --------------------------------------------------------------------------------
If you invest $500,000 or more and, as a result, pay no front-end sales charge,
you may incur a 0.50% contingent deferred sales charge (CDSC) if you sell your
shares within 12 months. The CDSC is based on the value of your shares at the
time of purchase or at the time of sale, whichever is less. The charge does not
apply to shares you acquired by reinvesting your dividend or capital gain
distributions.

To help you lower your costs, shares that are not subject to a CDSC will be sold
first. Other shares will then be sold in an order that minimizes your CDSC.

LETTER OF INTENT

If you sell your shares within 12 months of fulfilling a letter of intent, you
will be charged a CDSC.

EXCHANGES

No CDSC is charged if you exchange shares that were originally purchased without
a sales charge, unless you sell your new shares within 12 months of your
original purchase.

CDSC WAIVERS

If you purchased your shares through a Special Purchase Plan, the CDSC will be
waived. In addition, the charge will be waived:

- - Due to death or disability of the shareholder.

- - If your account balance falls below $200 and your account is liquidated.

You should not make systematic withdrawals if you plan to continue investing in
the fund, due to sales charges and tax liabilities.

REINVESTING AFTER A SALE
- --------------------------------------------------------------------------------
If you sell class A shares, you may reinvest in class A shares of that fund or
another Piper fund within 30 days without a sales charge. If the shares you sold
were subject to a CDSC, that charge will be credited to your account and the
reinvested shares will continue to be subject to the CDSC.

- --------------------------------------------------------------------------------
11 Prospectus - Tax-Exempt Income Funds
<PAGE>

GENERAL INFORMATION
- --------------------------------------------------------------------------------

HOW THE FUNDS ARE ORGANIZED
- --------------------------------------------------------------------------------
National Tax-Exempt Fund and Minnesota Tax-Exempt Fund are series of Piper Funds
Inc., an open-end investment company. National Tax-Exempt Fund is a diversified
fund. Minnesota Tax-Exempt Fund is nondiversified, which means it may invest its
assets in the securities of a limited number of issuers.

VOTING RIGHTS

FUND OBJECTIVES

HOW THE FUNDS ARE MANAGED

- --------------------------------------------------------------------------------
The funds are governed by a board of directors, which is responsible for
protecting the interests of shareholders. Directors meet periodically throughout
the year to oversee the funds' activities, review their performance and review
the actions of the funds' advisor. Although the board may include individuals
who are affiliated with the advisor, the majority of board members must be
independent. The board has retained the following companies to manage the funds'
operations.

INVESTMENT ADVISOR

Piper Capital Management Incorporated
222 South Ninth Street
Minneapolis, MN 55402-3804

Piper Capital also is investment advisor to the other Piper Funds, to a number
of closed-end investment companies and to various institutions, corporations and
individuals. Piper Capital has approximately $12 billion under management and is
a wholly owned subsidiary of Piper Jaffray Companies Inc., a full-service
investment company.

DISTRIBUTOR

Piper Jaffray Inc.
222 South Ninth Street
Minneapolis, MN 55402-3804

CUSTODIAN AND ACCOUNTING AGENT

Investors Fiduciary Trust Company
801 Pennsylvania Avenue
Kansas City, MO 64105-1307

As the funds' custodian and accounting agent, IFTC holds the funds' portfolio
securities, settles trades, collects data needed to calculate net asset values,
and provides record-keeping.

TRANSFER AND DIVIDEND DISBURSING AGENTS

Investors Fiduciary Trust Company
1004 Baltimore Avenue
Kansas City, MO 64105-1802

Piper Jaffray (address listed above)

Piper Trust Company
222 South Ninth Street
Minneapolis, MN 55402-3804

IFTC provides transfer agent services and pays dividends and other distributions
for the funds. Piper Jaffray and Piper Trust provide these services for
shareholders whose accounts they maintain.

- --------------------------------------------------------------------------------
12 Prospectus - Tax-Exempt Income Funds
<PAGE>

GENERAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------

PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
RON REUSS, chief economist and a senior vice president of Piper Capital, has
managed the funds since inception. He joined the advisor in 1986 and has 28
years of financial experience.

DOUG WHITE, CFA, is a senior vice president of Piper Capital. He joined the
advisor in 1987 and has managed the funds since inception. He has 14 years of
financial experience.

SALES COMMISSIONS

Piper Jaffray receives the sales charge that you pay when you purchase fund
shares. If you purchased your shares from another brokerage firm, that firm
retains a portion of the sales charge (their "reallowance"). If your purchase of
fund shares was not subject to a front-end sales charge, Piper Jaffray or the
other participating brokerage firm may receive a fee from Piper Capital of up to
0.50% of the purchase price. Piper Jaffray also receives any CDSC imposed when
you sell your shares. From December 1, 1997, through March 31, 1998, Piper
Capital will pay Piper Jaffray and other brokerage firms, out of its own assets,
an additional fee for selling fund shares equal to 1% of the purchase price.

12b-1 FEES

Piper Jaffray receives 12b-1 fees from class A shares of each fund for providing
distribution-related services and for servicing shareholder accounts. Fees are
established under each fund's 12b-1 plan, which is approved by the board.
Class A shares of each fund pay 12b-1 fees quarterly at an annual rate equal to
0.30% of average daily net assets. Piper Jaffray is currently voluntarily
limiting the 12b-1 fees it receives from class A shares of the funds to 0.24% of
average daily net assets.

For each fund, Piper Jaffray pays a portion of its 12b-1 fee to brokerage firms
which have sold shares of that fund. Firms receive an annual fee equal to 0.20%
of the fund's average daily net assets attributable to shares sold by the firm's
brokers. Piper Jaffray may also use 12b-1 fees to pay other distribution
expenses and shareholder servicing costs, such as printing and promotional
costs.

- - By an independent pricing service, or

- - Through market quotations obtained from one or more dealers who make a
market in the securities or from a widely used quotation system.

Net asset value is calculated as of the close of regular trading on the New York
Stock Exchange (typically 4 p.m. Eastern Time) on each day the exchange is open
for trading.

2) Filed June 22, 1995, by Beverly Muth, in the Montana Thirteenth Judicial
District Court, Yellowstone County. Filed against Piper Jaffray and an
affiliated person.

- --------------------------------------------------------------------------------
13 Prospectus - Tax-Exempt Income Funds
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS - TAX-EXEMPT INCOME FUNDS
- --------------------------------------------------------------------------------

FOR MORE INFORMATION
- --------------------------------------------------------------------------------
Annual/Semiannual Reports

Shareholder reports include financial statements and performance information on
the funds, a message from your portfolio managers, and, on an annual basis, the
auditors' report.

Statement of Additional Information (SAI)

The SAI contains more detailed information about the funds. A current SAI has
been filed with the SEC and is incorporated by reference into this prospectus.

To order free copies, please write or call:

Piper Capital Management
Attn: Mutual Fund Services
222 South Ninth Street
Minneapolis, MN 55402-3804

800 866-7778

- --------------------------------------------------------------------------------
[LOGO] PIPER FUNDS 222 South Ninth Street
Minneapolis, MN 55402-3804

#30500 11/1997 223-97

<PAGE>

- --------------------------------------------------------------------------------
Prospectus - Minnesota Tax-Exempt Fund
- --------------------------------------------------------------------------------

NOVEMBER 24, 1997

[LOGO]

MINNESOTA TAX-EXEMPT FUND

CLASS Y SHARES
- --------------------------------------------------------------------------------

BEFORE YOU INVEST:

PLEASE READ THIS PROSPECTUS CAREFULLY, AND KEEP IT FOR FUTURE REFERENCE. IT
CONTAINS IMPORTANT INFORMATION ABOUT THE FUND, INCLUDING INFORMATION ON
INVESTMENT POLICIES, RISKS AND FEES.

<PAGE>

[LOGO]

CONTENTS
- --------------------------------------------------------------------------------
INVESTING IN MINNESOTA TAX-EXEMPT FUND. . . . . . 1

FUND DESCRIPTION
- --------------------------------------------------------------------------------
MINNESOTA TAX-EXEMPT FUND . . . . . . . . . . . . 2 Investment objective and
policies, risk
considerations, portfolio
managers, shareholder
expenses and financial
highlights

PORTFOLIO OVERVIEW
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES AND TECHNIQUES. . . . . . . 4 An overview of securities
RISK FACTORS. . . . . . . . . . . . . . . . . . . 6 and investment techniques
that may be used by the
fund and their risks

MANAGING YOUR INVESTMENT
- --------------------------------------------------------------------------------
BUYING SHARES . . . . . . . . . . . . . . . . . . 7 Practical information to
Calculating Your Purchase Price help you manage your
Investing Automatically investment in Piper Funds
HOLDING SHARES. . . . . . . . . . . . . . . . . . 8
Receiving Dividends and Other Distributions
Taxing of Dividends and Other Distributions
Exchanging Shares
Conducting Transactions by Phone
Staying Informed
SELLING SHARES. . . . . . . . . . . . . . . . . . 9
Receiving the Proceeds
Taking Systematic Withdrawals

- --------------------------------------------------------------------------------
GENERAL INFORMATION . . . . . . . . . . . . . . .10

<PAGE>

INVESTING IN
- --------------------------------------------------------------------------------
MINNESOTA TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
MINNESOTA TAX-EXEMPT FUND SEEKS TO PROVIDE YOU WITH TAX-FREE INCOME WHILE
PRESERVING THE PRINCIPAL VALUE OF YOUR INVESTMENT OVER TIME. THE FUND IS ADVISED
BY PIPER CAPITAL MANAGEMENT INCORPORATED.

BEFORE YOU INVEST:

KNOW YOUR GOALS
- --------------------------------------------------------------------------------
This fund may be appropriate for your investment portfolio if:

- - You want a regular stream of tax-exempt income or wish to diversify your
portfolio.

- - You are a Minnesota resident in a high income bracket and wish to decrease
your tax burden.

- - You are comfortable with some volatility in the value of your shares.

If you require absolute stability of your principal, you want maximum return, or
you are seeking an investment for a tax-deferred retirement plan, you should
consider other investment vehicles. Minnesota Tax-Exempt Fund was not designed
to meet these goals.

UNDERSTAND THE RISKS
- --------------------------------------------------------------------------------
While mutual funds are a convenient and potentially rewarding way to invest,
they do not always meet their objectives. Please remember: You could lose money
with this investment. Stability of income and safety of principal are not
guaranteed. Risks associated with this fund are outlined in the following pages.

- --------------------------------------------------------------------------------
1 Prospectus - Minnesota Tax-Exempt Fund

<PAGE>

FUND DESCRIPTION

MINNESOTA TAX-EXEMPT FUND
- --------------------------------------------------------------------------------

BECAUSE THIS FUND CONCENTRATES ITS INVESTMENTS IN SECURITIES OF MINNESOTA
ISSUERS, IT WILL BE DISPROPORTIONATELY AFFECTED BY STATE AND LOCAL
POLITICAL, ECONOMIC AND REGULATORY CONDITIONS AND DEVELOPMENTS. SEE THE
STATEMENT OF ADDITIONAL INFORMATION FOR DETAILS.

Municipal securities include securities issued to obtain funds for public
purposes, including the construction of airports, highways, hospitals and
schools. These securities may include bonds, notes and commercial paper of any
maturity, although the fund emphasizes investments in long-term securities. The
fund invests only in investment grade municipal securities or unrated securities
that the advisor determines are of comparable quality. The fund's investments
may include derivative municipal securities.

The fund may invest up to 20% of its net assets in taxable obligations. It
may temporarily invest without limitation in these obligations during
periods of abnormal market conditions. Taxable obligations include municipal
securities subject to regular federal income tax or federal AMT which are rated
investment grade or are of comparable quality, U.S. government securities,
corporate bonds rated within the three highest grades by either Moody's
Investors Service or Standard & Poor's Ratings Services, commercial paper rated
within the two highest grades by either Moody's or Standard & Poor's,
certificates of deposit, bankers' acceptances, repurchase agreements and cash.

To facilitate portfolio management, the fund may engage in futures contracts,
enter into repurchase agreements and reverse repurchase agreements, and purchase
and sell securities on a when-issued or delayed delivery basis. Use of these
practices may increase the volatility of the fund's net asset value.

RISK CONSIDERATIONS
- --------------------------------------------------------------------------------

The value of your investment will fluctuate with changing interest rates. If
rates rise, the prices of municipal securities in the fund likely will fall and
vice versa. Bonds with longer maturities and derivative municipal securities can
be particularly sensitive to interest rate movements.

The investment securities and techniques used by this fund present other risks
as well. In particular, special risks are presented by the fund's investments in
derivative municipal securities, municipal lease obligations and zero coupon
municipal securities. See pages 4-6 for more information. Because the fund is
not diversified, it will be subject to additional risk. See "Non-Diversification
Risk," page 6, for more information.

PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
RONALD REUSS, chief economist and a senior vice president of Piper Capital, has
managed the fund since inception. He joined the advisor in 1986 and has 28 years
of financial experience.

DOUGLAS WHITE, CFA, is a senior vice president of Piper Capital. He joined the
advisor in 1987 and has managed the fund since inception. He has 14 years of
financial experience.

SHAREHOLDER TRANSACTION EXPENSES
Maximum front-end sales charge on purchases. . . . . . . . . . . none
Maximum deferred sales charge. . . . . . . . . . . . . . . . . . none

FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
Management fee . . . . . . . . . . . . . . . . . . . . . . . . . 0.50%
12b-1 fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . none
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . 0.21%
Total operating expenses . . . . . . . . . . . . . . . . . . . . 0.71%

1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7
3 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23
5 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40
10 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 88

- --------------------------------------------------------------------------------
2 Prospectus - Minnesota Tax-Exempt Fund

<PAGE>

FUND DESCRIPTION

MINNESOTA TAX-EXEMPT FUND (CONTINUED)
- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS The following information has been audited by KPMG Peat
Marwick LLP, independent auditors. Because of the limited history of class Y
share operations, information is also presented for the fund's class A
shares. Class A shares have higher expenses than class Y shares.
- --------------------------------------------------------------------------------

CLASS Y SHARES Period from
8/1/97(5) to
9/30/97
-----------

PER SHARE DATA
Net asset value, beginning of period . . . . . . . . . . . $ 11.16
-------
Operations:
Net investment income . . . . . . . . . . . . . . . . 0.10
Net realized and unrealized losses on investments. . . (0.02)
-------
Total from operations. . . . . . . . . . . . . . . . . 0.08
Distributions to shareholders:
From net investment income . . . . . . . . . . . . . . (0.10)
-------
Net asset value, end of period . . . . . . . . . . . . . . $ 11.14
-------
-------

SELECTED INFORMATION
Total return(3). . . . . . . . . . . . . . . . . . . . . . 0.72%
Net assets, end of period (in millions). . . . . . . . . . $ 9
Ratio of expenses to average daily net assets. . . . . . . 0.75%(4)
Ratio of net investment income to
average daily net assets. . . . . . . . . . . . . . . . 5.73%(4)
Portfolio turnover rate (excluding short-term securities). 17%

(1) Commencement of operations.

(2) Amounts included in distributions from net investment income that are
taxable for federal income tax purposes are $0.003, $0.001, $0.012, $0.011
and $0.02 per share for fiscal 1992, 1991, 1990, 1989 and 1988,
respectively.

(3) Total return assumes reinvestment of distributions and does not reflect a
sales charge.

(4) Annualized.

(5) Commencement of offering of class Y shares.

CLASS A SHARES Fiscal year ended September 30, Period from
7/11/88(1) to
1997 1996 1995 1994 1993 1992 1991 1990 1989 9/30/88
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of
period. . . . . . . . . . . . . . . . $10.89 $10.81 $10.28 $11.43 $10.79 $10.46 $9.92 $10.06 $9.94 $10.00
------ ------ ------ ------ ------ ------ ----- ------ ----- ------
Operations:
Net investment income . . . . . . . 0.57 0.59 0.66 0.61 0.62 0.64 0.66 0.66 0.68 0.12
Net realized and unrealized gains
(losses) on investments. . . . . . 0.31 0.07 0.53 (0.95) 0.68 0.33 0.54 (0.14) 0.12 (0.06)
------ ------ ------ ------ ------ ------ ----- ------ ----- ------
Total from operations . . . . . . . 0.88 0.66 1.19 (0.34) 1.30 0.97 1.20 0.52 0.80 0.06
------ ------ ------ ------ ------ ------ ----- ------ ----- ------
Distributions to shareholders:
From net investment income(2) . . . (0.57) (0.58) (0.66) (0.61) (0.62) (0.64) (0.66) (0.66) (0.68) (0.12)
From net realized gains on
investments. . . . . . . . . . . . (0.05) -- -- (0.20) (0.04) -- -- -- -- --
------ ------ ------ ------ ------ ------ ----- ------ ----- ------
Total distributions to
shareholders. . . . . . . . . . (0.62) (0.58) (0.66) (0.81) (0.66) (0.64) (0.66) (0.66) (0.68) (0.12)
------ ------ ------ ------ ------ ------ ----- ------ ----- ------
Net asset value, end of period . . . . $11.15 $10.89 $10.81 $10.28 $11.43 $10.79 $10.46 $ 9.92 $10.06 $ 9.94
------ ------ ------ ------ ------ ------ ----- ------ ----- ------
------ ------ ------ ------ ------ ------ ----- ------ ----- ------

SELECTED INFORMATION

Total return(3) [BAR GRAPH]. . . . . . 8.32% 6.24% 11.38% (3.14%) 12.52% 9.56% 12.49% 5.30% 8.23% 0.58%

Net assets, end of period
(in millions) . . . . . . . . . . . . $ 126 $ 126 $ 134 $ 162 $ 169 $ 132 $ 83 $ 63 $ 51 $ 9
Ratio of expenses to average
daily net assets. . . . . . . . . . . 0.95% 0.90% 0.91% 0.89% 0.91% 0.93% 0.92% 0.87% 0.80% 0.80%(4)
Ratio of net investment income to
average daily net assets. . . . . . . 5.17% 5.38% 5.80% 5.61% 5.62% 6.00% 6.44% 6.58% 6.45% 5.91%(4)
Portfolio turnover rate (excluding
short-term securities). . . . . . . . 17% 35% 30% 44% 29% 35% 22% 41% 54% 12%
Ratios before waivers by the distributor:
Of expenses to average daily net
assets . . . . . . . . . . . . . . 1.01% 0.99% 0.99% 0.99% 1.00% 1.01% 1.05% 1.06% 1.33% 1.97%(4)
Of net investment income to average
daily net assets . . . . . . . . . 5.11% 5.29% 5.72% 5.51% 5.53% 5.92% 6.31% 6.39% 5.92% 4.74%(4)

- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

- --------------------------------------------------------------------------------
3 Prospectus - Minnesota Tax-Exempt Fund

<PAGE>

PORTFOLIO OVERVIEW

INVESTMENT SECURITIES AND TECHNIQUES
- --------------------------------------------------------------------------------

10 MAXIMUM PERCENT OF TOTAL ASSETS
/10/ MAXIMUM PERCENT OF NET ASSETS
y PERMITTED WITHOUT LIMITATION

INVESTMENT SECURITIES
- ----------------------------------------------------------------------------------------------------
<S> <C>
FUTURES CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y(1)
require the holder to buy or sell securities at a specified price on a specified date.
Some are contracts to make a cash settlement on a future date in an amount determined
by the value of a financial index (such as the Bond Buyer Municipal Bond Index) on the
last day of the contract. The fund generally buys or sells futures in seeking protection
against fluctuations in the value of its portfolio without actually buying or selling
securities. Hedging, Interest Rate, Leverage

ILLIQUID SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ./15/
cannot be sold in the ordinary course of business within seven days at approximately the
price at which they are valued. Liquidity

MUNICIPAL SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .y
include debt obligations issued by states, cities, local authorities, and certain
territorial possessions of the United States to obtain funds for public purposes.
There are two principal classifications of municipal securities:
1 General obligation bonds, which are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest. Call,
Credit, Information, Interest Rate, Liquidity, Political and Economic
2 Revenue bonds, which are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a special
excise tax or other specific revenue source. Revenue bonds may entail greater
credit risk than general obligation bonds. Call, Credit, Information, Interest
Rate, Liquidity, Political and Economic

DERIVATIVE MUNICIPAL SECURITIES
are custodial receipts or certificates that evidence ownership of future
interest payments, principal payments, or both on certain underlying
municipal securities. The principal and interest payments on the
underlying municipal securities may be allocated in various ways, including
allocations that result in the types of structured municipal securities
listed below. The securities can be highly sensitive to interest rate
movements and their performance may not correlate to such movements in a
conventional fashion.

FLOATING RATE CUSTODIAL RECEIPTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .y
pay variable or floating rates of interest. Call, Credit, Information,
Interest Rate, Liquidity, Political and Economic

INVERSE FLOATING RATE CUSTODIAL RECEIPTS . . . . . . . . . . . . . . . . . . . . . . . 20
pay interest at a rate that varies inversely to changes in the interest
rate of specified municipal securities or a specified index. The interest
rate on this type of security will generally change at a multiple of any
change in the reference interest rate. Call, Credit, Information, Interest
Rate, Leverage, Liquidity, Political and Economic

FLOATING RATE MUNICIPAL SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .y
carry variable or floating rates of interest which change with changes in specified
market rates or indexes, such as a bank prime rate or a tax-exempt money market index.
The yield on these securities can be expected to fluctuate with changes in prevailing
interest rates. Call, Credit, Information, Interest Rate, Political and Economic
</TABLE>

- --------------------------------------------------------------------------------
4 Prospectus - Minnesota Tax-Exempt Fund

<PAGE>

PORTFOLIO OVERVIEW

INVESTMENT SECURITIES AND TECHNIQUES (CONTINUED)
- --------------------------------------------------------------------------------

<S> <C>
MUNICIPAL LEASE OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . /20/
include leases, installment purchase contracts and conditional sales contracts
entered into by state or local governmental units to acquire equipment or
facilities, and participation interests in such leases and contracts. Municipal
lease obligations frequently pose special risks because many leases and contracts
contain "non-appropriation" clauses that provide that the governmental issuer has
no obligation to make future payments under the lease or contract unless money is
appropriated for this purpose by the appropriate legislative body. Call, Credit,
Information, Interest Rate, Liquidity, Political and Economic

ZERO-COUPON MUNICIPAL SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .y
do not entitle the holder to any periodic payments prior to maturity and are issued
and traded at a discount from their face amounts. Their prices fluctuate more widely
with changes in interest rates than prices of municipal securities with similar
maturities that pay current interest. Call, Credit, Information, Interest Rate,
Liquidity, Political and Economic

PUTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .y
provide the right to resell securities at a specified price within a specified period of time
prior to the maturity date. Puts provide the fund with potential liquidity and have the
effect of changing a security with a longer maturity date into a security with a shorter
maturity date. Credit

INVESTMENT TECHNIQUES
- ----------------------------------------------------------------------------------------------------

BORROWING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
is permitted for temporary or emergency purposes only. Interest paid on borrowed funds
reduces earnings. The fund's policy on borrowing cannot be changed without shareholder
approval. Leverage

GEOGRAPHIC CONCENTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .y
The investment by the fund of 25% or more of its total assets in any one state or
territory. Political and Economic

REPURCHASE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .y
The fund purchases securities on the condition that the seller will buy them back
at a set time and price, plus interest. Credit

WHEN-ISSUED AND FORWARD COMMITMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .y
The purchase or sale of a security at a future date for a predetermined price.
Securities may decrease in value prior to their delivery. Leverage, Interest Rate
</TABLE>

Many of the securities identified above are considered derivative securities. A
derivative is a financial instrument whose value is based on another security,
index, reference rate (for example, interest or currency exchange rate) or other
asset. These securities have varying types and degrees of risk, as described
above.

(1) The fund's use of futures contracts will be limited by regulations of the
Commodity Futures Trading Commission.

- --------------------------------------------------------------------------------
5 Prospectus - Minnesota Tax-Exempt Fund

<PAGE>

PORTFOLIO OVERVIEW

CALL RISK

Some municipal securities held by the fund may be redeemed at the option of the
issuer, or "called," prior to their stated maturity date. If a security is
redeemed during a time of declining interest rates, the fund may be unable to
reinvest the proceeds in municipal securities which provide as high a level of
investment return.

CREDIT RISK

HEDGING RISK

INFORMATION RISK

Information about the financial condition of an issuer of municipal securities
may not be as readily available as information about corporations whose
securities are publicly traded.

INTEREST RATE RISK

LEVERAGE RISK

LIQUIDITY RISK

The fund may not be able to sell an illiquid security at the desired time and
price. It may have to accept a lower price or sell other securities instead at a
time when the sale of those securities might not be advantageous. The sale of
illiquid securities often requires more time and results in higher selling
expenses than the sale of liquid securities. In general, the secondary market
for municipal securities is less liquid than the market for most taxable fixed
income securities. Consequently, the fund's ability to buy and sell securities
may be limited from time to time.

NON-DIVERSIFICATION RISK

Because the fund is not diversified, and because of the relatively small number
of issuers of Minnesota municipal securities, the fund is more likely to invest
a higher percentage of its assets in the securities of a single issuer or of a
limited number of issuers than a diversified fund. This involves an increased
risk of loss to the fund if the issuers are unable to make interest or principal
payments or if the fair market values of such securities decline.

POLITICAL AND ECONOMIC RISK

The value of municipal securities may be adversely affected by local political
and economic conditions and developments. Adverse conditions in an industry
significant to a local economy could have a correspondingly adverse effect on
the financial condition of local issuers. Other factors that could affect
municipal securities include a change in the local, state or national economy,
demographic factors, ecological or environmental concerns, statutory limitations
on the issuer's ability to increase taxes and other developments generally
affecting the revenue of issuers (for example, legislation or court decisions
reducing state aid to local governments or mandating additional services). To
the extent the fund invests in the securities of issuers located in a single
state, it will be disproportionately affected by political and economic
conditions and developments in that state. The value of municipal securities
also may be adversely affected by future changes in federal or state income tax
laws, including rate reductions or the imposition of a flat tax.

- --------------------------------------------------------------------------------
6 Prospectus - Minnesota Tax-Exempt Fund

<PAGE>

MANAGING YOUR INVESTMENT

BUYING SHARES
- --------------------------------------------------------------------------------
YOU MAY PURCHASE CLASS Y SHARES OF THE FUND WITH AN INITIAL INVESTMENT OF
$1 MILLION OR MORE. ADD TO YOUR EXISTING INVESTMENT WITH ANY AMOUNT, AT ANY
TIME. SIMPLY CALL YOUR PIPER JAFFRAY INVESTMENT EXECUTIVE OR ANOTHER AUTHORIZED
BROKERAGE FIRM.

CALCULATING YOUR PURCHASE PRICE
- --------------------------------------------------------------------------------
Class Y shares are sold without any initial or deferred sales charges. Your
purchase price is the next net asset value of your share calculated after your
broker receives your purchase order. The net asset value of each share is equal
to the market value of the fund's investments and other assets, less any
liabilities, divided by the number of fund shares.

INVESTING AUTOMATICALLY
- --------------------------------------------------------------------------------

AUTOMATIC MONTHLY INVESTMENT PROGRAMS

CROSS-REINVESTMENT OF DISTRIBUTIONS

SHARE CLASSES

MINNESOTA TAX-EXEMPT FUND ALSO OFFERS CLASS A SHARES THROUGH A
SEPARATE PROSPECTUS. YOU CAN OBTAIN MORE INFORMATION ON THE FUND'S
CLASS A SHARES BY CALLING THE FUND AT THE PHONE NUMBER ON THE BACK COVER.

- --------------------------------------------------------------------------------
7 Prospectus - Minnesota Tax-Exempt Fund

<PAGE>

MANAGING YOUR INVESTMENT

HOLDING SHARES
- --------------------------------------------------------------------------------

Class Y shareholders generally will receive higher dividends from net investment
income than class A shareholders because class Y shareholders are not subject to
Rule 12b-1 fees.

The fund intends to meet certain federal tax requirements so that distributions
of tax-exempt interest income may be treated as "exempt-interest dividends."
These dividends are not subject to regular federal tax. However, the fund may
invest up to 20% of its net assets in municipal securities subject to the
alternative minimum tax. Any portion of exempt-interest dividends attributable
to interest on these securities may increase some shareholders' alternative
minimum tax.

Distributions paid from any interest income that is not tax-exempt and from any
net realized capital gains will be taxable whether you reinvest those
distributions or take them in cash.

The fund intends to comply with certain state tax requirements so that dividends
it pays that are attributable to interest on Minnesota municipal securities will
be exempt from Minnesota personal income tax. At least 95% of the
exempt-interest dividends paid by the fund will be derived from interest income
on Minnesota municipal securities. A portion of the fund's dividends may be
subject to the Minnesota alternative minimum tax. Exempt-interest dividends are
not excluded from the Minnesota taxable income of corporations and financial
institutions.

The sale or exchange of fund shares will be a taxable event for you and may
result in a capital gain or loss. Under recent amendments to the tax code, the
gain or loss will be considered long-term if you have held your shares for more
than 18 months and mid-term if you have held your shares more than one year but
not more than 18 months. A gain or loss on shares held for one year or less is
considered short-term and is taxed at the same rates as ordinary income.

You may exchange your class Y shares only for class Y shares of another Piper
fund. However, please note that not all Piper funds offer class Y shares.

Exchanges are made based on the net asset value per share of each fund at the
time of the exchange.

Before exchanging into any fund, be sure to read its prospectus carefully. The
fund may change or cancel its exchange policies at any time, upon 60 days'
notice to shareholders.

For your protection, IFTC will attempt to verify your identity by asking for
your account number, social security number or other form of personal
identification. If reasonable care is taken to identify you as the caller,
neither IFTC nor the fund will be liable for losses to your account resulting
from an unauthorized telephone transaction. Payments which result from telephone
transactions will be made only to the address of record or the bank account
designated on your Account Application and Services form.

SHAREHOLDER REPORTS

STATEMENTS AND CONFIRMATIONS

Statements summarizing activity in your account are mailed monthly (quarterly if
your account has no activity). Confirms are mailed following each purchase or
sale of fund shares.

- --------------------------------------------------------------------------------
8 Prospectus - Minnesota Tax-Exempt Fund

<PAGE>

MANAGING YOUR INVESTMENT

RECEIVING THE PROCEEDS
- --------------------------------------------------------------------------------
If you are a Piper Jaffray client with a signed Piper Automatic Transfer (PAT)
agreement, proceeds from a sale of shares usually will be transferred to your
account the next business day. Otherwise, proceeds will be sent to you or your
broker, generally within three business days. If you sell shares that were
recently purchased by check, payment may be delayed until the check has cleared
(normally up to 15 days from the purchase date).

As noted above, you may sell shares by calling your broker. If you work with a
broker from a firm other than Piper Jaffray, you also may sell your shares by
submitting a written request to the fund's transfer agent, IFTC. Call IFTC at
800 874-6205 for instructions.

If your account falls below $1 million due to a sale of shares or an exchange
request, your account may be liquidated following 30 days written notice.

You may not want to make systematic withdrawals if you plan to continue
investing in the fund, due to tax liabilities.

- --------------------------------------------------------------------------------
9 Prospectus - Minnesota Tax-Exempt Fund

<PAGE>

GENERAL INFORMATION
- --------------------------------------------------------------------------------

HOW THE FUND IS ORGANIZED
- --------------------------------------------------------------------------------
Minnesota Tax-Exempt Fund is a series of Piper Funds Inc., an open-end
investment company. The fund is nondiversified, which means it may invest its
assets in the securities of a limited number of issuers.

VOTING RIGHTS

FUND OBJECTIVE

HOW THE FUND IS MANAGED
- --------------------------------------------------------------------------------
The fund is governed by a board of directors, which is responsible for
protecting the interests of shareholders. Directors meet periodically throughout
the year to oversee the fund's activities, review its performance and review the
actions of the fund's advisor. Although the board may include individuals who
are affiliated with the advisor, the majority of board members must be
independent. The board has retained the companies listed below to manage the
fund's operations.

INVESTMENT ADVISOR

Piper Capital Management Incorporated
222 South Ninth Street
Minneapolis, MN 55402-3804

DISTRIBUTOR

Piper Jaffray Inc.
222 South Ninth Street
Minneapolis, MN 55402-3804

CUSTODIAN AND ACCOUNTING AGENT

Investors Fiduciary Trust Company
801 Pennsylvania Avenue
Kansas City, MO 64105-1307

As the fund's custodian and accounting agent, IFTC holds the fund's portfolio
securities, settles trades, collects data needed to calculate net asset values,
and provides recordkeeping.

TRANSFER AND DIVIDEND DISBURSING AGENTS

Investors Fiduciary Trust Company
1004 Baltimore Avenue
Kansas City, MO 64105-1802

Piper Jaffray (address listed above)

Piper Trust Company
222 South Ninth Street
Minneapolis, MN 55402-3804

IFTC provides transfer agent services and pays dividends and other distributions
for the fund. Piper Jaffray and Piper Trust provide these services for
shareholders whose accounts they maintain.

- --------------------------------------------------------------------------------
10 Prospectus - Minnesota Tax-Exempt Fund

<PAGE>

GENERAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------

HOW DEALERS ARE COMPENSATED
- --------------------------------------------------------------------------------

Piper Jaffray Investment Executives and other brokerage firms who sell class
Y shares receive ongoing fees from Piper Capital which equal, on an annual
basis, up to approximately 0.175% of the fund's average daily net assets
attributable to such shares.

PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------

The fund purchases most of its portfolio securities directly from the issuer
or from an underwriter or market maker, and not from a broker acting as an
agent. However, the fund may from time to time use brokers when buying
portfolio securities. When deciding which brokers to use, Piper Capital may
consider whether brokers have sold shares of this or any other Piper fund.
Piper Capital may place trades through Piper Jaffray in compliance with
Investment Company Act of 1940 rules.

- - By an independent pricing service, or

- - Through market quotations obtained from one or more dealers who make a
market in the securities or from a widely used quotation system.

Net asset value is calculated as of the close of regular trading on the New York
Stock Exchange (typically 4 p.m. Eastern Time) on each day the exchange is open
for trading.

2) Filed June 22, 1995, by Beverly Muth, in the Montana Thirteenth Judicial
District Court, Yellowstone County. Filed against Piper Jaffray and an
affiliated person.

- --------------------------------------------------------------------------------
11 Prospectus - Minnesota Tax-Exempt Fund

<PAGE>

- --------------------------------------------------------------------------------
Prospectus - Mnnesota Tax-Exempt Fund
- --------------------------------------------------------------------------------

FOR MORE INFORMATION
- --------------------------------------------------------------------------------

ANNUAL/SEMIANNUAL REPORTS
Shareholder reports include financial statements and performance information on
the fund, a message from your portfolio managers, and, on an annual basis, the
auditors' report.

STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information about the fund. A current SAI has
been filed with the SEC and is incorporated by reference into this prospectus.

To order free copies, please write or call:

Piper Capital Management
Attn: Mutual Fund Services
222 South Ninth Street
Minneapolis, MN 55402-3804

800 866-7778

- --------------------------------------------------------------------------------
[LOGO] PIPER FUNDS 222 South Ninth Street
Minneapolis, MN 55402-3804

#30503 11/1997 029-98
<PAGE>

PROSPECTUS - CASH MANAGEMENT FUNDS

PROSPECTUS

NOVEMBER 24, 1997

[Logo]

CASH MANAGEMENT FUNDS

MONEY MARKET FUND (Class A and Class B Shares)
- -------------------------------------------------------------------------------
U.S. GOVERNMENT MONEY MARKET FUND (Class A Shares)
- -------------------------------------------------------------------------------
TAX-EXEMPT MONEY MARKET FUND (Class A Shares)
- -------------------------------------------------------------------------------

BEFORE YOU INVEST:

PLEASE READ THIS PROSPECTUS CAREFULLY, AND KEEP IT FOR FUTURE REFERENCE. IT
CONTAINS IMPORTANT INFORMATION ABOUT THE FUNDS, INCLUDING INFORMATION ON
INVESTMENT POLICIES, RISKS AND FEES.

INVESTMENTS IN THESE FUNDS ARE NOT INSURED OR 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 PER SHARE.

<PAGE>

[LOGO]

CONTENTS
- --------------------------------------------------------------------------------
INVESTING IN PIPER CASH MANAGEMENT FUNDS. . 1

FUND DESCRIPTIONS
- --------------------------------------------------------------------------------
MONEY MARKET FUND . . . . . . . . . . . . . 2 Investment objectives and
U.S. GOVERNMENT MONEY MARKET FUND . . . . . 4 policies, risk considerations,
TAX-EXEMPT MONEY MARKET FUND. . . . . . . . 6 portfolio managers, shareholder
expenses and financial
highlights
RISK FACTORS. . . . . . . . . . . . . . . . 8

MANAGING YOUR INVESTMENT
- --------------------------------------------------------------------------------
BUYING SHARES . . . . . . . . . . . . . . . 9 Practical information to help
Calculating Your Purchase Price you manage your investment in
Investing Automatically Piper Funds
HOLDING SHARES. . . . . . . . . . . . . . .10
Receiving Dividends and
Other Distributions
Taxing of Dividends and Other
Distributions
Exchanging Shares
Conducting Transactions by Phone
Staying Informed
SELLING SHARES. . . . . . . . . . . . . . .11
Receiving the Proceeds
Paying the Contingent Deferred
Sales Charge on Class B Shares

- --------------------------------------------------------------------------------
GENERAL INFORMATION . . . . . . . . . . . .12

<PAGE>

INVESTING IN PIPER
- --------------------------------------------------------------------------------

CASH MANAGEMENT
FUNDS
- --------------------------------------------------------------------------------
PIPER CASH MANAGEMENT FUNDS PROVIDE YOU WITH A LIQUID INVESTMENT DESIGNED TO
OFFER CURRENT INCOME WHILE PRESERVING YOUR CAPITAL. MONEY MARKET FUND, U.S.
GOVERNMENT MONEY MARKET FUND AND TAX-EXEMPT MONEY MARKET FUND ARE ADVISED BY
PIPER CAPITAL MANAGEMENT INCORPORATED.

BEFORE YOU INVEST:

KNOW YOUR GOALS
- --------------------------------------------------------------------------------

A Piper cash management fund can complement your investment portfolio by:

- - Giving you easy access to your cash reserves.

- - Providing an interest-earning parking spot when you are between investments.

- - Offering a conservative alternative for a portion of your investable assets.

Individuals in high tax brackets should consider Tax-Exempt Money Market Fund.
If you have ample liquid assets and are investing for the long term, consider
diversifying your portfolio with other investments as well. Money market funds
may not have the earning power you need to keep ahead of inflation.

UNDERSTAND THE RISKS
- --------------------------------------------------------------------------------

While mutual funds are a convenient and potentially rewarding way to invest,
they do not always meet their objectives. Please remember: Investments in these
funds are neither insured nor guaranteed by the U.S. government or any other
entity. There is no assurance that the funds will maintain a stable net asset
value of $1 per share. Risks associated with these funds are outlined in the
following pages.

USE YOUR PROSPECTUS
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1 Prospectus - Cash Management Funds
<PAGE>

FUND DESCRIPTIONS

MONEY MARKET FUND
- --------------------------------------------------------------------------------

MONEY MARKET FUND SEEKS MAXIMUM CURRENT INCOME CONSISTENT WITH PRESERVATION OF
CAPITAL AND MAINTENANCE OF LIQUIDITY.

INVESTMENT POLICIES
- --------------------------------------------------------------------------------
Money Market Fund invests in a variety of U.S. dollar-denominated money market
securities, including:

- - Securities issued by the U.S. government or one of its agencies or
instrumentalities

- - Obligations of foreign governments and any of their political subdivisions,
agencies and instrumentalities

- - Obligations of supranational entities such as the World Bank

- - Obligations of domestic and foreign banks (including certificates of deposit,
bank notes, commercial paper, time deposits and bankers' acceptances)

- - Domestic and foreign corporate obligations, including commercial paper, notes
and bonds

- - Asset-backed securities

- - Participation interests in securities in which the fund may invest

- - Repurchase agreements for the securities in which the fund may invest

- - Illiquid securities (limited to 10% of the fund's net assets)

The fund invests only in high-quality securities. Generally, it may purchase
only securities rated, or issued by an entity with comparable securities rated,
within the two highest short-term rating categories of one or more nationally
recognized rating agencies. The fund may purchase unrated securities if the
advisor judges them to be comparable in quality. No more than 5% of the fund's
total assets may be invested in securities that were rated in the second highest
short-term rating category at the time of their purchase or that were unrated
and determined by the advisor to be of comparable quality. The rest of the
fund's investments must be in the highest short-term rating category (or be
unrated equivalents).

The fund invests only in securities that mature in 397 calendar days or less
from the date of purchase, and it maintains an average weighted maturity of 90
days or less. The fund's investments include securities with variable or
floating interest rates and securities with demand features. The maturities of
these securities are determined according to federal rules which allow the fund
to consider some of these securities as having maturities shorter than their
stated maturity dates. The 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. This policy may not be changed without shareholder approval.

RISK CONSIDERATIONS
- --------------------------------------------------------------------------------

The fund seeks to maintain a stable share price of $1. However, there may be
situations where the fund's share price could fall below $1, which would reduce
the value of your account.

The level of income you receive from the fund will be affected by movements in
short-term interest rates.

Foreign securities in which the fund invests, although dollar denominated, may
present some additional risk. The investment securities and techniques used by
the fund present other risks as well, including credit risk and interest rate
risk. See page 8 for more information.

PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
NANCY OLSEN is a senior vice president of Piper Capital with 19 years of
financial experience.

SHAISTA TAJAMAL is a vice president of Piper Capital with seven years of
financial experience.

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

SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
As a shareholder, you pay expenses both directly and indirectly. Figures below
show expenses for the past year.

SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
----------------------
Maximum front-end sales charge on purchases . . . . none none
(AS A % OF OFFERING PRICE)
Maximum deferred sales charge . . . . . . . . . . . none 4.00%
(AS A % OF NET ASSET VALUE AT PURCHASE
OR REDEMPTION, WHICHEVER IS LESS)

FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
Management fee . . . . . . . . . . . . . . . . . . . 0.39% 0.39%
12b-1 fee (after class A share fee limitation)(1). . 0.20% 1.00%
Other expenses . . . . . . . . . . . . . . . . . . . 0.23% 0.24%
----- -----
Total operating expenses (after fee limitation)(1) . 0.82% 1.63%

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

EXPENSES ON A $1,000 INVESTMENT
- --------------------------------------------------------------------------------
The example below shows the expenses you would pay on a $1,000 investment over
various time periods. It assumes you reinvested all distributions and received a
5% annual return. PLEASE NOTE: THIS IS ONLY AN EXAMPLE AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES COULD
VARY.
CLASS A CLASS B CLASS B
Assuming redemption Assuming
at end of period no redemption
---------------------------------------------
1 year. . . . . . . . . $ 8 $ 57 $ 17
3 years . . . . . . . . $ 26 $ 81 $ 51
5 years . . . . . . . . $ 46 $109 $ 89
10 years. . . . . . . . $101 $152(2) $152(2)

(1) If Piper Jaffray had not voluntarily limited fees, the class A share 12b-1
fee would have been 0.30% and total operating expenses would have been
0.92% for class A shares. The 12b-1 fees for class B shares have not been
voluntarily limited. Voluntary 12b-1 fee limitations may be discontinued
at any time after fiscal 1998 year end.

(2) Assumes 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.

- --------------------------------------------------------------------------------
2 Prospectus - Cash Management Funds
<PAGE>

FUND DESCRIPTIONS

MONEY MARKET FUND (CONTINUED)
- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS The following information has been audited by KPMG Peat
Marwick LLP, independent auditors.
- --------------------------------------------------------------------------------

Period from Period from
CLASS A SHARES Fiscal year ended September 30, 11/1/87 to 3/16/87(1) to
1997 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> <C>
PER SHARE DATA
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 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Operations:
Net investment income . . . . . . 0.05 0.05 0.05 0.03 0.02 0.04 0.06 0.08 0.08 0.06 0.04
Distributions to shareholders:
From net investment income. . . . (0.05) (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 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----

SELECTED INFORMATION

Total return(2) [GRAPH] . . . . . . . 4.84% 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) . . . . . . . . . . . $2,266 $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. . . . . . . . . . . . . 0.82% 0.84% 0.92% 0.93% 0.96% 0.90% 0.89% 0.91% 1.00% 1.05%(3) 0.74%(3)
Ratio of net investment income to
average daily net assets. . . . . . 4.76% 4.73% 4.94% 2.90% 2.42% 3.66% 6.06% 7.56% 8.32% 6.45%(3) 6.29%(3)
Ratios before waivers by the
distributor:
Of expenses to average daily
net assets. . . . . . . . . . . 0.92% 0.94% 1.02% 1.03% 1.06% 1.00% 0.98% 1.00% 1.10% 1.10%(3) 1.35%(3)
Of net investment income to
average daily net assets. . . . 4.66% 4.63% 4.84% 2.80% 2.32% 3.56% 5.97% 7.47% 8.22% 6.40%(3) 5.68%(3)

- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Period from
CLASS B SHARES 2/18/97(4) to
9/30/97
-------------
PER SHARE DATA
Net asset value, beginning of period. . . . . . $1.00
-----
Operations:
Net investment income . . . . . . . . . . . 0.02
Distributions to shareholders:
From net investment income. . . . . . . . . (0.02)
-----

Net asset value, end of period. . . . . . . . . $1.00
-----
-----

SELECTED INFORMATION
Total return(2) . . . . . . . . . . . . . . . . 2.39%
Net assets, end of period (in thousands). . . . $ 10
Ratio of expenses to average daily net assets . 1.63%(3)
Ratio of net investment income to average
daily net assets . . . . . . . . . . . . . . 4.00%(3)

(1) Commencement of operations.
(2) Total return assumes reinvestment of distributions and does not reflect a
sales charge.
(3) Annualized.
(4) Commencement of offering of class B shares.

- --------------------------------------------------------------------------------
3 Prospectus - Cash Management Funds
<PAGE>

FUND DESCRIPTIONS

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

U.S. GOVERNMENT MONEY MARKET FUND SEEKS MAXIMUM CURRENT INCOME CONSISTENT WITH
PRESERVATION OF CAPITAL AND MAINTENANCE OF LIQUIDITY THROUGH INVESTMENTS IN
SHORT-TERM U.S. GOVERNMENT SECURITIES.

INVESTMENT POLICIES
- --------------------------------------------------------------------------------
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 those
securities. Not all of these securities are backed by the full faith and credit
of the U.S. government.

The 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. This policy may not be
changed without shareholder approval. Up to 10% of the fund's net assets may be
invested in illiquid securities.

RISK CONSIDERATIONS
- --------------------------------------------------------------------------------
The fund seeks to maintain a stable share price of $1. However, there may be
situations where the fund's share price could fall below $1, which would reduce
the value of your account.

The level of income you receive from the fund will be affected by movements in
short-term interest rates.

By investing solely in U.S. government and agency securities and repurchase
agreements for those securities, the fund may offer less income than a money
market fund investing in other high-quality money market securities.

PLEASE REMEMBER: THE GOVERNMENT'S GUARANTEE DOES NOT EXTEND TO
THE FUND ITSELF. NOR DOES IT COVER THE MARKET VALUE OR CURRENT YIELD OF
GOVERNMENT SECURITIES.

The investment securities and techniques used by the fund present other risks as
well, including interest rate risk. See page 8 for more information.

PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
NANCY OLSEN is a senior vice president of Piper Capital with 19 years of
financial experience.

SHAISTA TAJAMAL is a vice president of Piper Capital with seven years of
financial experience.

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

SHAREHOLDER TRANSACTION EXPENSES

Maximum front-end sales charge on purchases. . . . . . none
(AS A % OF OFFERING PRICE)
Maximum deferred sales charge. . . . . . . . . . . . . none
(AS A % OF NET ASSET VALUE AT PURCHASE
OR REDEMPTION, WHICHEVER IS LESS)

FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
Management fee . . . . . . . . . . . . . . . . . . . . 0.50%
12b-1 fee (after fee limitation)(1). . . . . . . . . . 0.20%

Other expenses . . . . . . . . . . . . . . . . . . . . 0.20%
-----
Total operating expenses (after fee limitation)(1) . . 0.90%

(1) If Piper Jaffray had not voluntarily limited fees, the 12b-1 fee would have
been 0.30% and total operating expenses would have been 1.00%. Voluntary
12b-1 fee limitations may be discontinued at any time after fiscal 1998
year end.

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

1 year. . . . . . . $9
3 years . . . . . . $29
5 years . . . . . . $50
10 years. . . . . . $110

- --------------------------------------------------------------------------------
4 Prospectus - Cash Management Funds
<PAGE>

FUND DESCRIPTIONS

U.S. GOVERNMENT MONEY MARKET FUND (CONTINUED)
- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS The following information has been audited by KPMG Peat
Marwick LLP, independent auditors.
- --------------------------------------------------------------------------------

Period from
Fiscal year ended September 30, 7/5/88(1) to
1997 1996 1995 1994 1993 1992 1991 1990 1989 9/30/88
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
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 0.05 0.03 0.02 0.04 0.06 0.08 0.08 0.01
Distributions to shareholders:
From net investment income. . . . . . (0.05) (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 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- ----- ----- ----- -----

SELECTED INFORMATION

Total return(2) [GRAPH] . . . . . . . . . 4.71% 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) . . . . . . . . . . . . . $ 285 $ 291 $ 256 $ 185 $ 195 $ 191 $ 199 $ 112 $ 46 $ 17
Ratio of expenses to average
daily net assets. . . . . . . . . . . . 0.90% 0.90% 0.91% 0.92% 0.93% 0.90% 0.88% 0.91% 0.90% 0.90%(3)
Ratio of net investment income to
average daily net assets. . . . . . . . 4.61% 4.62% 4.90% 2.88% 2.41% 3.58% 5.84% 7.35% 8.17% 7.16%(3)
Ratios before waivers by the
distributor:
Of expenses to average daily
net assets. . . . . . . . . . . . . 1.00% 1.00% 1.01% 1.02% 1.03% 1.00% 0.97% 1.05% 1.29% 2.08%(3)
Of net investment income to
average daily net assets. . . . . . 4.51% 4.52% 4.80% 2.78% 2.31% 3.48% 5.75% 7.21% 7.78% 5.98%(3)

</TABLE>

(1) Commencement of operations.
(2) Total return assumes reinvestment of distributions and does not reflect a
sales charge.
(3) Annualized.

- --------------------------------------------------------------------------------
5 Prospectus - Cash Management Funds

<PAGE>

FUND DESCRIPTIONS

TAX-EXEMPT MONEY MARKET FUND
- --------------------------------------------------------------------------------

TAX-EXEMPT MONEY MARKET FUND SEEKS A HIGH LEVEL OF CURRENT INCOME EXEMPT FROM
FEDERAL INCOME TAXES, CONSISTENT WITH THE PRESERVATION OF CAPITAL AND THE
MAINTENANCE OF LIQUIDITY.

INVESTMENT POLICIES
- --------------------------------------------------------------------------------

Under normal market conditions, Tax-Exempt Money Market Fund will invest at
least 80% of its total assets in high-quality, short-term municipal securities
which are, in the opinion of bond counsel to the issuer, exempt from federal
income tax, including the federal alternative minimum tax. Municipal securities
include securities issued by state and local governments (as well as certain
U.S. territorial possessions) to obtain funds for various public purposes, such
as the construction of airports, highways, hospitals and schools. There are two
principal classifications of municipal securities:

1) General obligation bonds, which are secured by the issuer's pledge of its
full faith, credit and taxing power for the payment of principal and interest,
and

2) Revenue bonds, which are payable only from the revenues derived from a
particular facility or other specific revenue source. Revenue bonds may entail
greater credit risk than general obligation bonds.

The balance of the fund's total assets may be invested in taxable money market
securities and municipal securities subject to the alternative minimum tax. For
temporary defensive purposes, the fund may invest up to 100% of its total assets
in these securities when, in the opinion of the advisor, it is advisable in
light of economic or market conditions. Any taxable money market securities
purchased by the fund will be of the types described for Money Market Fund,
except that Tax-Exempt Money Market Fund may not invest more than 5% of its
total assets in foreign securities.

All of the securities that the fund purchases, or that underlie its repurchase
agreements, are U.S. dollar-denominated and are considered to be high quality.
These securities are generally rated, or issued by an entity with comparable
securities rated, within the two highest short-term rating categories of one or
more nationally recognized rating agencies. In addition, the fund may purchase
unrated securities if the advisor judges them to be comparable in quality.
The fund invests only in securities that mature in 397 calendar days or less
from the date of purchase, and it maintains an average weighted maturity of 90
days or less. The fund's investments include securities with variable or
floating interest rates and securities with demand features. The maturities of
these securities are determined according to federal rules which allow the fund
to consider some of these securities as having maturities shorter than their
stated maturity dates.

The fund may invest in repurchase agreements, may purchase and sell securities
on a when-issued or forward commitment basis, and may purchase municipal
securities which include a put feature (the right to resell the security at a
specified price within a specified period of time prior to maturity). Up to 10%
of the fund's net assets may be invested in illiquid securities.

The 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. This policy may not be
changed without shareholder approval.

RISK CONSIDERATIONS

- --------------------------------------------------------------------------------
The fund seeks to maintain a stable share price of $1. However, there may be
situations where the fund's share price could fall below $1, which would reduce
the value of your account.

The level of income you receive from the fund will be affected by movements in
short-term interest rates.

The investment securities and techniques used by the fund present other risks as
well, including credit risk and interest rate risk. See page 8 for more
information.

PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
DOUG WHITE, CFA, is a senior vice president of Piper Capital with 14 years of
financial experience.

CATHERINE STIENSTRA is a vice president of Piper Capital with six years of
financial experience.

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

SHAREHOLDER TRANSACTION EXPENSES

FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
Management fee . . . . . . . . . . . . . . . . . . . . 0.50%
12b-1 fee (after fee limitation)(1). . . . . . . . . . 0.20%

Other expenses . . . . . . . . . . . . . . . . . . . . 0.20%
-----
Total operating expenses (after fee limitation)(1) . . 0.90%

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

1 year. . . . . . . $9
3 years . . . . . . $29
5 years . . . . . . $50
10 years. . . . . . $110

- --------------------------------------------------------------------------------
6 Prospectus - Cash Management Funds
<PAGE>

FUND DESCRIPTIONS

TAX-EXEMPT MONEY MARKET FUND (CONTINUED)
- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS The following information has been audited by KPMG Peat
Marwick LLP, independent auditors.

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

Period from
Fiscal year ended September 30, 7/5/88(1) to
1997 1996 1995 1994 1993 1992 1991 1990 1989 9/30/88
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
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 . . . . . . . . 0.03 0.03 0.03 0.02 0.02 0.03 0.04 0.05 0.06 0.01
Distributions to shareholders:
From net investment income(2) . . . . (0.03) (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 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- ----- ----- ----- -----

SELECTED INFORMATION

Total return(3) [GRAPH] . . . . . . . . . 2.77% 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) . . . . . . . . . . . . . $ 235 $ 210 $ 206 $ 178 $ 169 $ 158 $ 134 $ 116 $ 84 $ 36
Ratio of expenses to average daily
net assets. . . . . . . . . . . . . . . 0.90% 0.90% 0.91% 0.90% 0.92% 0.88% 0.87% 0.89% 0.90% 0.90%(4)
Ratio of net investment income to
average daily net assets. . . . . . . . 2.75% 2.76% 2.97% 1.80% 1.83% 2.91% 4.37% 5.34% 5.63% 4.99%(4)
Ratios before waivers by the
distributor:
Of expenses to average daily
net assets. . . . . . . . . . . . . 1.00% 1.00% 1.01% 1.00% 1.02% 0.98% 0.96% 0.98% 1.04% 1.44%(4)
Of net investment income to
average daily net assets. . . . . . 2.65% 2.66% 2.87% 1.70% 1.73% 2.81% 4.28% 5.25% 5.49% 4.45%(4)

</TABLE>

(1) Commencement of operations.
(2) Includes distributions which are taxable for federal and state income tax
purposes of $0.0001, $0.0001 and $0.0001 per share for fiscal 1997, 1995
and 1992, respectively.
(3) Total return assumes reinvestment of distributions and does not reflect a
sales charge.
(4) Annualized.

- --------------------------------------------------------------------------------
7 Prospectus - Cash Management Funds

<PAGE>

FUND DESCRIPTIONS

RISK FACTORS
- --------------------------------------------------------------------------------

CREDIT RISK

Each fund is subject to the risk that the issuer of a security or a financial
institution guaranteeing payment of principal or interest on a security could
default on its financial obligation, causing a loss in a fund's portfolio. In
addition, changes in credit rating or in the perceived credit quality of an
issuer could affect the market value of a fund's investments. Each fund is also
subject to credit risk when it enters into repurchase agreements. In a
repurchase agreement, a fund purchases securities on the condition that the
seller will buy them back at a set time and price, plus interest. If the seller
defaults on its obligation, there could be a loss to
the fund.

FOREIGN ISSUER RISK

Money Market Fund may invest without limitation in U.S. dollar-denominated
securities of foreign issuers. Tax-Exempt Money Market Fund may invest up to 5%
of its total assets in these securities. Securities of foreign issuers, even
when dollar-denominated and publicly traded in the United States, may involve
risks not associated with the securities of domestic issuers. For certain
foreign countries, political or social instability or diplomatic developments
could adversely affect the securities. There is also the risk of loss due to
governmental actions such as a change in tax statutes or the modification of
individual property rights. In addition, individual foreign economies may differ
favorably or unfavorably from the U.S. economy.

INTEREST RATE RISK

Each fund is subject to interest rate risk. Generally, rising interest rates
cause a decline in market prices of existing debt securities, because investors
may purchase new debt securities at a higher rate of interest. Falling interest
rates generally cause market prices of existing debt securities to rise.

LEVERAGE RISK

Leverage is a speculative technique that involves the use of a relatively small
amount of money to produce a potentially large gain or loss. Securities or
practices that can multiply small index or market movements into large changes
in value involve leverage risk. Each fund has the ability to borrow, which may
subject it to leverage risk. In addition, Tax-Exempt Money Market Fund may
purchase and sell securities on a when-issued or forward commitment basis. This
practice, which involves the purchase or sale of a security at a future date for
a predetermined price, may involve leverage risk as well as the risk that
purchased securities may decrease in value prior to their delivery.

LIQUIDITY RISK

Each fund may invest up to 10% of its net assets in illiquid securities. A fund
may not be able to sell an illiquid security at the desired time and price. It
may have to accept a lower price or sell other securities instead at a time when
the sale of those securities might not be advantageous. The sale of illiquid
securities often requires more time and results in higher selling expenses than
the sale of liquid securities.

Each fund may invest without limitation in certain types of securities which
historically have been considered illiquid, but only if they are determined to
be liquid under procedures adopted by the board of directors. These include
unregistered securities which can be resold, without registration, to qualified
institutional buyers (Rule 144A securities). Investing in Rule 144A 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.

- --------------------------------------------------------------------------------
8 Prospectus - Cash Management Funds
<PAGE>

MANAGING YOUR INVESTMENT

BUYING SHARES
- --------------------------------------------------------------------------------

CALCULATING YOUR PURCHASE PRICE
- --------------------------------------------------------------------------------
Your purchase price will be equal to the next net asset value of your shares
calculated after your broker receives your purchase order. The net asset value
of each share is equal to the market value of the fund's investments and other
assets, less any liabilities, divided by the number of fund shares. Each fund's
net asset value is normally expected to be $1 per share.

Money Market Fund offers class A and class B shares. Tax-Exempt Money Market
Fund and U.S. Government Money Market Fund offer a single class of shares called
"class A shares" in this prospectus.

CLASS A SHARES

Class A shares of the cash management funds are offered at net asset value with
no initial or contingent deferred sales charge. They are, however, subject to
annual 12b-1 fees of 0.30% of average daily net assets. Piper Jaffray is
currently voluntarily limiting the 12b-1 fees it receives from class A shares to
0.20% of average daily net assets.

CLASS B SHARES

MONEY MARKET FUND CLASS B SHARES ARE AVAILABLE ONLY IN EXCHANGE FOR CLASS B
SHARES OF ANOTHER PIPER FUND.

Money Market Fund class B shares are offered at net asset value with no initial
sales charge. However, class B shares are subject to a contingent deferred sales
charge of up to 4% and are subject to annual 12b-1 fees of 1% of average daily
net assets.

INVESTING AUTOMATICALLY
- --------------------------------------------------------------------------------

CASH MANAGEMENT PROGRAM

If you are a Piper Jaffray client with a signed Piper Automated Transfer (PAT)
agreement, you may purchase class A shares of the cash management funds through
your PAT account or PAT Plus account. Each of these accounts is a conventional
securities account that may be used to buy and sell securities. Available cash
in the account is automatically invested in shares of the cash management fund
you specify. Shares of the fund are redeemed automatically at net asset value if
cash is needed to pay debits in your account. See your PAT or PAT Plus account
agreement for details of the account.

AUTOMATIC MONTHLY INVESTMENT PROGRAMS

To purchase class A shares of the cash management funds as part of a savings
discipline, you may automatically transfer $100 or more each month to any fund
from your bank, savings and loan, or other financial institution.

- --------------------------------------------------------------------------------
9 Prospectus - Cash Management Funds
<PAGE>

MANAGING YOUR INVESTMENT

HOLDING SHARES
- --------------------------------------------------------------------------------

RECEIVING DIVIDENDS AND OTHER DISTRIBUTIONS

- --------------------------------------------------------------------------------
Dividends from a fund's net investment income will be declared daily and
reinvested in additional shares of the fund monthly. Shares begin accruing
dividends on the settlement date for their purchase and continue through the day
before the settlement date for their sale. Net realized capital gains of each
fund, if any, will be declared and reinvested in additional fund shares at least
annually.

CLASS B SHAREHOLDERS GENERALLY WILL RECEIVE LOWER DIVIDENDS FROM NET
INVESTMENT INCOME THAN CLASS A SHAREHOLDERS BECAUSE OF THE HIGHER
EXPENSES APPLICABLE TO CLASS B SHARES.

For Money Market Fund and U.S. Government Money Market Fund, dividends you
receive from the fund are generally taxable as ordinary income whether you
reinvest them or take them in cash. Dividends attributable to income from U.S.
government securities may be exempt from state personal income taxes. You should
consult your tax advisor for more information.

Tax-Exempt Money Market Fund intends to meet certain federal tax requirements so
that distributions of tax-exempt interest income may be treated as
"exempt-interest dividends." These dividends are not subject to regular federal
tax. However, the fund may invest up to 20% of its net assets in municipal
securities subject to the federal alternative minimum tax. Any portion of
exempt-interest dividends attributable to interest on these securities may
increase some shareholders' alternative minimum tax.

You may exchange your class A shares only for class A shares of another Piper
fund. Your class B Money Market Fund shares may be exchanged only for class B
shares of another fund. However, please note that not all Piper funds offer
class B shares.

Exchanges between the cash management funds are made based on the net asset
value per share of each fund at the time of the exchange. Exchanges from a cash
management fund into a fund which imposes a front-end sales charge will
generally require payment of the sales charge, except in cases where you
originally purchased shares of a Piper fund subject to a sales charge and then
exchanged into a cash management fund. In that case, you will be required to pay
a sales charge equal to the difference between the sales charge on the exchange
purchase and the sales charge on the original purchase. If you exchange less
than all of your shares of a cash management fund, shares which may be exchanged
at net asset value without payment of any sales charge will be exchanged first.

Before exchanging into any fund, be sure to read its
prospectus carefully. A fund may change or cancel its exchange policies at any
time, upon 60 days' notice to its shareholders.

For your protection, IFTC will attempt to verify your identity by asking for
your account number, social security number or other form of personal
identification. If reasonable care is taken to identify you as the caller,
neither IFTC nor the funds will be liable for losses to your account resulting
from an unauthorized telephone transaction. Payments which result from telephone
transactions will be made only to the address of record or the bank account
designated on your Account Application and Services form.

SHAREHOLDER REPORTS

STATEMENTS

Statements are mailed monthly (quarterly if your account has no activity) and
include information on each purchase or sale of fund shares. Separate
confirmations are not sent out.

- --------------------------------------------------------------------------------
10 Prospectus - Cash Management Funds
<PAGE>

MANAGING YOUR INVESTMENT

SELLING SHARES
- --------------------------------------------------------------------------------

YOU MAY SELL ANY OR ALL OF YOUR SHARES FOR THEIR NET ASSET VALUE (LESS ANY
CONTINGENT DEFERRED SALES CHARGES APPLICABLE TO CLASS B SHARES) ON ANY DAY WHEN
THE NEW YORK STOCK EXCHANGE IS OPEN. SIMPLY CALL YOUR BROKER. YOUR REQUEST WILL
BE EXECUTED AT THE NEXT NET ASSET VALUE CALCULATED AFTER YOUR BROKER RECEIVES
YOUR REQUEST.

RECEIVING THE PROCEEDS
- --------------------------------------------------------------------------------
Proceeds from a sale of shares normally will be transferred to your account --
if you are a Piper Jaffray client with a signed PAT agreement -- or sent to you
or your broker the next business day. If you sell shares that were recently
purchased by check, payment may be delayed until the check has cleared (normally
up to 15 days from the purchase date).

Remember to keep at least $200 in your account. If your account falls below $200
due to a sale of shares or an exchange request, your account may be liquidated
following 30 days written notice.

PAYING THE CONTINGENT DEFERRED SALES CHARGE ON CLASS B SHARES
- --------------------------------------------------------------------------------

MONEY MARKET FUND CLASS B SHARES ARE AVAILABLE ONLY IN EXCHANGE
FOR CLASS B SHARES OF ANOTHER PIPER FUND.

The exchange from class B shares of another Piper fund (your "original Piper
fund shares") into class B shares of Money Market Fund will not be subject to a
contingent deferred sales charge (CDSC). However, if you sell your class B
shares of Money Market Fund, you will be assessed a CDSC based on the date you
purchased your original Piper fund shares.

The CDSC is based on the value of your original Piper fund shares when they were
purchased or on the value of the Money Market Fund class B shares at the time of
sale, whichever is less. The charge does not apply to shares you acquired by
reinvesting your dividend or capital gain distributions.

If sold during this period the CDSC would be
(as a % of net asset value)
- --------------------------------------------------------------------------------
Calendar year of 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%

Your CDSC is based on the calendar years in which you purchase your original
Piper fund shares and sell your class B Money Market Fund shares, rather than on
the number of years since you purchased your original Piper fund shares.

FOR EXAMPLE:

If you buy class B shares of another Piper fund on December 31, 1997, exchange
them for class B Money Market Fund shares and then sell the class B Money Market
Fund shares on January 1, 1999, you will pay a 3% CDSC, even though you
purchased the original Piper fund shares just over one year ago.

If you exchange your class B Money Market Fund shares for class B shares of
another Piper fund and later sell the "new" class B shares, the date you
purchased the original Piper fund shares will be used to determine your CDSC
(and to determine when your new class B shares convert to class A shares, as
discussed below).

To help you minimize your CDSC, class B shares that are not subject to a CDSC
will be sold first. Other class B shares will then be sold in the order
purchased.

CONVERSION FEATURE

Your class B shares will automatically convert to class A shares on January 1
of the sixth calendar year following the year in which you purchased original
Piper fund shares. The conversion will be based on the net asset values of
the two classes. Whenever any of your class B shares convert to class A
shares, a proportionate number of class B shares purchased by reinvested
distributions will also convert.

CDSC WAIVERS

The CDSC on class B shares will be waived:

- - Due to death or disability of the shareholder.

- - To allow a lump-sum distribution from a qualified employee benefit plan.

- - To allow systematic withdrawals from a qualified employee benefit plan, if
you are at least 59 1/2 years old.

- - To allow for a tax-free return of an excess contribution to your IRA.

- - If your account balance falls below $200 and your account is liquidated.

- --------------------------------------------------------------------------------
11 Prospectus - Cash Management Funds
<PAGE>

GENERAL INFORMATION
- --------------------------------------------------------------------------------

HOW THE FUNDS ARE ORGANIZED
- --------------------------------------------------------------------------------
Money Market Fund, U.S. Government Money Market Fund, and Tax-Exempt Money
Market Fund are diversified series of Piper Funds Inc., an open-end
investment company.

VOTING RIGHTS

RIGHTS OF DIFFERENT CLASSES

The different classes of shares of a fund have the same rights and are identical
in all respects except that:

- - Expenses related to the distribution of each class of shares are borne
solely by that class.

- - 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.

- - Only class B shares carry a conversion feature.

- - Each class has different exchange privileges.

FUND OBJECTIVES

INVESTMENT ADVISOR

Piper Capital Management Incorporated
222 South Ninth Street
Minneapolis, MN 55402-3804

Piper Capital also is investment advisor to other Piper open-end funds, to a
number of closed-end investment companies and to various institutions,
corporations and individuals. Piper Capital has approximately $12 billion under
management and is a wholly owned subsidiary of Piper Jaffray Companies Inc., a
full-service investment company.

DISTRIBUTOR

Piper Jaffray Inc.
222 South Ninth Street
Minneapolis, MN 55402-3804

CUSTODIAN AND ACCOUNTING AGENT

Investors Fiduciary Trust Company
801 Pennsylvania Avenue
Kansas City, MO 64105-1307

As the funds' custodian and accounting agent, IFTC holds the funds' portfolio
securities, settles trades, collects data needed to calculate net asset values,
and provides record-keeping.

TRANSFER AND DIVIDEND DISBURSING AGENTS

Investors Fiduciary Trust Company
1004 Baltimore Avenue
Kansas City, MO 64105-1802

PIPER JAFFRAY (address listed above)

Piper Trust Company
222 South Ninth Street
Minneapolis, MN 55402-3804

IFTC provides transfer agent services and pays dividends and other distributions
for the funds. Piper Jaffray and Piper Trust provide these services for
shareholders whose accounts they maintain.

- --------------------------------------------------------------------------------
12 Prospectus - Cash Management Funds
<PAGE>

GENERAL INFORMATION (CONTINUED)
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PORTFOLIO MANAGERS
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NANCY OLSEN is director of the cash management team and a senior vice president
of Piper Capital. She joined the advisor in 1987 and has managed Money Market
Fund and U.S. Government Money Market Fund since their inceptions. She has 19
years of financial experience.

CATHERINE STIENSTRA is a vice president of Piper Capital. She joined the advisor
in 1990 and has managed Tax-Exempt Money Market Fund since 1991. She has six
years of financial experience.

SHAISTA TAJAMAL is a vice president of Piper Capital. She joined the advisor in
1990 and has managed Money Market Fund and U.S. Government Money Market Fund
since 1990. She has seven years of financial experience.

DOUG WHITE, CFA, is a senior vice president of Piper Capital. He joined the
advisor in 1987 and has managed Tax-Exempt Money Market Fund since inception. He
has 14 years of financial experience.

SALES COMMISSIONS

Piper Jaffray receives any CDSC imposed when you sell your class B shares.

12b-1 FEES

Piper Jaffray receives 12b-1 fees from each fund for providing
distribution-related services and for servicing shareholder accounts. Fees are
established under each fund's 12b-1 plan, which is approved by the board, and
vary by class. Class A and class B shares pay 12b-1 fees at annual rates equal
to 0.30% and 1% respectively, of average daily net assets. Piper Jaffray is
currently voluntarily limiting the 12b-1 fees it receives from class A shares to
0.20% of average daily net assets.

PORTFOLIO TRANSACTIONS
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The funds purchase most of their portfolio securities directly from the issuer
or from an underwriter or market maker, and not from a broker acting as an
agent. However, the funds may from time to time use brokers when buying
portfolio securities. When deciding which brokers to use, Piper Capital may
consider whether brokers have sold shares of these or any other Piper funds.
Piper Capital may place trades through Piper Jaffray in compliance with
Investment Company Act of 1940 rules.

NET ASSET VALUE

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Net asset value per share is calculated by dividing the total market value of a
fund's investments and other assets, less any liabilities, by the number of fund
shares. The securities held by the funds are valued on the basis of amortized
cost. This 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.

Each fund attempts to maintain a net asset value of $1 per share. Under the
direction of the board of directors, procedures have been adopted to monitor and
stabilize each fund's price per share.

Net asset value is calculated as of the close of regular trading on the New York
Stock Exchange (typically 4 p.m. Eastern Time) on each day the exchange is open
for trading.

2) Filed June 22, 1995, by Beverly Muth, in the Montana Thirteenth Judicial
District Court, Yellowstone County. Filed against Piper Jaffray and an
affiliated person.

Piper Capital and Piper Jaffray are also subject to an investigation by the
Securities and Exchange Commission which began
February 21, 1995, related to various funds and assets managed by
Piper Capital.

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13 Prospectus - Cash Management Funds
<PAGE>

Prospectus - Cash Management Funds

FOR MORE INFORMATION
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Annual/Semiannual Reports

Shareholder reports include financial statements and performance information on
the funds, a message from your portfolio managers, and, on an annual basis, the
auditor's report.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

The SAI contains more detailed information about the funds. A current SAI has
been filed with the SEC and is incorporated by reference into this prospectus.

To order free copies, please write or call:

PIPER CAPITAL MANAGEMENT
ATTN: MUTUAL FUND SERVICES
222 SOUTH NINTH STREET
MINNEAPOLIS, MN 55402-3804

800 866-7778

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[LOGO] PIPER FUNDS 222 South Ninth Street
Minneapolis, MN 55402-3804

#30600 11/1997 224-97
<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
November 24, 1997

Table of Contents
Page
----

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Characteristics and Risks of Securities and
Special Investment Methods . . . . . . . . . . . . . . . . . . . . . . . 2
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . 21
Directors and Executive Officers . . . . . . . . . . . . . . . . . . . . . 23
Investment Advisory and Other Services . . . . . . . . . . . . . . . . . . 27
Portfolio Transactions and Allocation of Brokerage . . . . . . . . . . . .
Capital Stock and Ownership of Shares. . . . . . . . . . . . . . . . . . .
Net Asset Value and Public Offering Price. . . . . . . . . . . . . . . . .
Performance Comparisons. . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pending Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 the following four Prospectuses
each dated November 24, 1997: (1) Prospectus for the Class A and B shares of
Growth Fund, Emerging Growth Fund and Small Company Growth Fund; (2) Prospectus
for the Class Y shares of Emerging Growth Fund; (3) Prospectus for the Class A
and B shares of Growth and Income Fund and Balanced Fund; and (4) Prospectus for
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.

<PAGE>

INTRODUCTION

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.

CHARACTERISTICS AND RISKS OF SECURITIES
AND SPECIAL INVESTMENT METHODS

The types of securities and investment techniques used by the Funds are
described in the Funds' Prospectuses. Additional information about certain of
these securities and investment techniques is set forth below.

In the view of Piper Capital Management Incorporated (the "Adviser"), 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 small capitalization companies in which
Small Company Growth Fund invests will generally be positioned in the first
phase of corporate growth, or early in the second phase. For Emerging Growth
Fund, the Adviser intends to focus on companies which it believes are 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.

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.

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[GRAPH]

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 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

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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.

U.S. GOVERNMENT SECURITIES

Growth and Income Fund and Balanced Fund may invest in U.S. government
securities (in addition to the short-term money market securities discussed
above). 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 Funds 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.

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MORTGAGE-RELATED SECURITIES

Growth and Income Fund and Balanced 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 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 U.S. 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
("FHMLC"); (b) those issued by non-governmental issuers that represent interests
in, or are collateralized by, mortgage-related securities issued or guaranteed
by the U.S. government or one of its agencies or instrumentalities; and (c)
those issued by non-governmental issuers that represent an interest on, or are
collateralized by, whole mortgage loans or mortgage-related securities without a
government guaranty 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.

(a) GUARANTEED MORTGAGE PASS-THROUGH SECURITIES. The government
guaranteed mortgage pass-through securities in which Growth and Income Fund and
Balanced 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

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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.

(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.

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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.

(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.

(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 re backed by a
pool of conventional fixed rate or adjustable loans.

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Since Private Pass-Throughs typically are not guaranteed by an entity
having the credit status of GNMA, FNMA or FHMLC, such securities generally are
structured with one or more types of credit enhancement. 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.

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.

(c) ADJUSTABLE RATE MORTGAGE SECURITIES. Growth and Income Fund and
Balanced 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 interest and may be
subject to certain limits. While the values of ARMS, like other debt
securities,

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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 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 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. Growth and Income Fund and
Balanced Fund may invest, within the limits discussed below, in CMOs
(collateralized mortgage obligations and multiclass pass-through securities
unless the context otherwise indicates), which are derivative mortgage
securities. Collateralized mortgage obligations are debt instruments issued by
special purpose entities which are secured by pools of mortgage loans or other
mortgage-related securities. Multiclass 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 multiclass 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.

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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.

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 the
volatility in the cash flows on the underlying mortgage loans. The yields on
these tranches, which may include inverse floaters, interest only and principal
only tranches and 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.

An inverse floater is a CMO tranche with a coupon rate that moves inversely
to a designated index, such as LIBOR (London Inter-Bank Offered Rate) or COFI
(Cost of Funds Index). Like most other fixed-income securities, the value of
inverse floaters will decrease as interest rates increase. Inverse floaters,
however, may exhibit greater price volatility than the majority of mortgage
pass-through securities or CMOs. Coupon rates on inverse floaters typically
change at a multiple of the changes in the relevant index rate. Thus, any rise
in the index rate (as a consequence of an increase in interest rates) causes a
correspondingly greater drop in the coupon rate of an inverse floater while any
drop in the index rate causes a correspondingly greater increase in the coupon
of an inverse floater. Some inverse floaters also exhibit extreme sensitivity
to changes in prepayments.

Z tranches of CMOs 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. 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.

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Balanced Fund will limit its aggregate investments in inverse floaters,
interest only, principal only, inverse interest only and Z tranches of CMOs,
and stripped mortgage-backed securities (discussed below) to 5% of the Fund's
net assets. Growth and Income Fund will not invest in such securities.

(e) STRIPPED MORTGAGE-BACKED SECURITIES. Balanced Fund may invest in
stripped mortgage-backed securities ("SMBS"), which are derivative multiclass
mortgage securities. SMBS may be issued by agencies or instrumentalities of the
U.S. government or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage bankers, commercial banks,
investment banks and special purpose subsidiaries of the foregoing.

There are generally two classes of SMBS, one of which (the interest only or
"IO" class) entitles the holders thereof to receive distributions consisting
solely or primarily of all or a portion of the interest on the underlying pool
of mortgage loans or mortgage-related securities ("Mortgage Assets") and the
other of which (the principal only or "PO" class) entitles the holders thereof
to receive distributions consisting solely or primarily of all or a portion of
the principal of the underlying pool of Mortgage Assets. The cash flows and
yields on IO and PO classes are extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying Mortgage Assets. For
example, a rapid or slow rate of principal payments may have a material adverse
effect on the yield to maturity of IOs or POs, respectively. If the underlying
Mortgage Assets experience greater than anticipated prepayments of principal, an
IO investor may incur substantial losses. Conversely, if the underlying Mortgage
Assets experience slower than anticipated prepayments of principal, the yield on
a PO class will be affected more severely than would be the case with a
traditional mortgage-related security.

OPTIONS

As set forth in the Funds' respective Prospectuses, 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 the investment objective of such Fund.

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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 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 securities having a value equal to or
greater than the exercise price of the option.

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 also may purchase call options solely for the purpose of hedging
against an increase in prices of securities that the Fund ultimately wants to
buy. Such protection is provided during the life of the call option because the
Fund may buy the underlying security at the call exercise price regardless of
any increase in the underlying security's market price. In order for a call
option to be profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and transaction
costs. By using call options in this manner, a Fund will reduce any profit it
might have realized had it bought the underlying security at the time it
purchased the call option by the premium paid for the call option and by
transaction costs.

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<PAGE>

option should generally offset changes in the value of the securities to be
hedged, 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 Fund 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

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<PAGE>

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 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 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

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<PAGE>

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 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.

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<PAGE>

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.

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.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

Each Fund may purchase and sell stock index futures contracts and Growth
and Income Fund and Balanced Fund may purchase and sell 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.

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<PAGE>

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
contracts 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 B and Appendix C to
this 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 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. 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 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 this
Statement of Additional Information.

ILLIQUID SECURITIES

As a nonfundamental investment restriction that may be changed at any time
without shareholder approval, 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.

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<PAGE>

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 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 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.
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). 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 interest-only and principal-only classes of mortgage-related securities
issued by the U.S. government or its agencies or instrumentalities.

WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES

Growth and Income Fund and Balanced 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. 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 securities 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.

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<PAGE>

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.

MORTGAGE DOLLAR ROLLS

In connection with their ability to purchase securities on a when-issued or
forward commitment basis, Growth and Income Fund and Balanced 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. 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. 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 on 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, mortgage dollar rolls are
considered as two separate transactions: one involving the purchase of a
security and a separate transactions involving a sale. The Funds do not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.

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

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<PAGE>

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. 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.

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
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.

LENDING OF PORTFOLIO SECURITIES

Each of the Funds may lend its portfolio securities. However, none of
the Funds have done so in the past nor do the Funds currently intend to do
so. In order to generate additional income, each Fund may lend portfolio
securities up to one-third of the value of its total assets to
broker-dealers, banks or other financial borrowers of securities. As with
other extensions of credit, there are risks of delay in recovery or even loss
of rights in the collateral should the borrower of the securities fail
financially. However, the Funds will only enter into loan arrangements with
broker-dealers, banks or other institutions which the Adviser has determined
are creditworthy under guidelines established by the Company's Board of
Directors and will receive collateral in the form of cash, U.S. government
securities or other high-grade debt obligations equal to at least 100% of the
value of the securities loaned. The value of the collateral and of the
securities loaned will be marked to market on a daily basis. During the time
portfolio securities are on loan, the borrower pays the Fund an amount
equivalent to any dividends or interest paid on the securities and the Fund
may invest the cash collateral and earn additional income or may receive

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<PAGE>

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.

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 "--Mortgage Dollar Rolls" above.

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 Prospectuses, 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 this Statement of Additional
Information, means the lesser of (a) 67% of a Fund's outstanding shares present
at a meeting of the holders if more than 50% of the outstanding shares are
present in person or by proxy or (b) more than 50% of a Fund's outstanding
shares.

No Fund will:

(1) Invest 25% or more of the value of its total assets in the securities
of issuers conducting their principal business activities in any one industry.
This restriction does not apply to securities of the U.S. government or its
agencies and instrumentalities and repurchase agreements relating thereto. The
various types of utilities companies, such as gas, electric, telephone,
telegraph, satellite and microwave communications companies, are considered as
separate industries.

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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, 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.

(8) 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.

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.

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<PAGE>

(4) Invest more than 5% (25% for Balanced Fund) of total assets in the
securities of foreign issuers.

(5) Invest more than 15% of net assets in illiquid securities.

Any investment restriction or limitation referred to above or in a Fund's
Prospectus which involves a maximum percentage of securities or assets, except
the borrowing policy and the Fund's policy with respect to investing in illiquid
securities, 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* (55) Chairman of the Board of Directors
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402

David T. Bennett (57) Director
3400 City Center
33 South Sixth Street
Minneapolis, Minnesota 55402

Jaye F. Dyer (70) Director
4670 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402

Karol D. Emmerich (48) Director
7302 Claredon Drive
Edina, Minnesota 55439

Luella G. Goldberg (60) Director
7019 Tupa Drive
Edina, Minnesota 55435

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<PAGE>

David A. Hughey (66) Director
134 Powers Road
Meredith, NH 03253

George Latimer (62) Director
754 Linwood Avenue
St. Paul, MN 55105

Paul A. Dow (46) President
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402

Robert H. Nelson (34) Vice President
Piper Jaffray Tower and Treasurer
222 South Ninth Street
Minneapolis, Minnesota 55402

Susan S. Miley (40) 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 retired. Prior to September 1997, he was President of
Piper Jaffray Companies Inc., President, Director and Chairman of the Board of
Piper Capital Management Incorporated ("the Adviser") and Director of Piper
Jaffray Inc..

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 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

-24-
<PAGE>

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 of the Adviser and has been Chief
Executive Officer of the Adviser since 1997, prior to which he was a 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.

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.

-25-
<PAGE>

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.

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.

-26-
<PAGE>

registered investment companies managed by the Adviser or affiliates of the
Adviser during the calendar year ended December 31, 1996. 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 $16,067 $56,250
Jaye F. Dyer $14,567 $58,750
Karol D. Emmerich $16,067 $58,750
Luella G. Goldberg $15,317 $60,750
George Latimer $14,567 $56,750
David A. Hughey $11,676 $-0-

- ---------------------------
* Currently consists of 20 registered investment companies managed by the
Adviser or an affiliate of the Adviser, including the Company. 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.

INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT

Pursuant to an Investment Advisory and Management Agreement with the
Company, 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.

-27-
<PAGE>

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:

Advisory fees Advisory fees Advisory fees
for the fiscal for the fiscal for the fiscal
year ended year ended year ended
Fund September 30, 1995 September 30, 1996 September 30, 1997
- ---- ------------------ ------------------- ------------------
<S> <C> <C> <C>
Growth Fund $1,232,856 $1,248,175 $1,314,478
Emerging Growth Fund 1,525,105 1,875,662 2,034,041
Small Company Growth Fund 463,332 307,937 223,793
Growth and Income Fund 512,370 639,184 901,743
Balanced Fund 324,086 342,187 362,819

</TABLE>

The Adviser intends, although not required under the Investment Advisory
and Management Agreement, to reimburse Small Company Growth Fund, Balanced Fund
and Growth and Income Fund for the amount, if any, by which the

-28-
<PAGE>

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, 1998, 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.

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 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

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<PAGE>

distribution, and also requires that all agreements with any person relating to
the implementation of the plan must be in writing. Because some of the payments
described below to be made by the Funds are distribution expenses within the
meaning of Rule 12b-1, the Company has entered into an Underwriting and
Distribution Agreement with the Distributor pursuant to a Distribution Plan
adopted in accordance with such Rule.

Rule 12b-1(b)(1) requires that such plan be approved by a majority of a
Fund's outstanding shares, and Rule 12b-1(b)(2) requires that such plan,
together with any related agreements, be approved by a vote of the Board of
Directors and of the directors who are not interested persons of the Company and
who have no direct or indirect interest in the operation of the plan or in the
agreements related to the plan, cast in person at a meeting called for the
purpose of voting on such plan or agreement. Rule 12b-1(b)(3) requires that the
plan or agreement provide, in substance:

(a) that it shall continue in effect for a period of more than one
year from the date of its execution or adoption only so long as such
continuance is specifically approved at least annually in the manner
described in paragraph (b)(2) of Rule 12b-1;

(b) that any person authorized to direct the disposition of moneys
paid or payable by the Company pursuant to the plan or any related
agreement shall provide to the Company's Board of Directors, and the
directors shall review, at least quarterly, a written report of the amounts
so expended and the purposes for which such expenditures were made; and

(c) in the case of a plan, that it may be terminated at any time by a
vote of a majority of the members of the Board of Directors of the Company
who are not interested persons of the Company and who have no direct or
indirect financial interest in the operation of the plan or in any
agreements related to the plan or by a vote of a majority of the
outstanding voting securities of a Fund.

Rule 12b-1(b)(4) requires that such a plan may not be amended to increase
materially the amount to be spent for distribution without shareholder approval
and that all material amendments of the plan must be approved in the manner
described in paragraph (b)(2) of Rule 12b-1.

-30-
<PAGE>

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.

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"). 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 (i) 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.

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.

-31-
<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, 1995 September 30, 1996 September 30, 1997
- ---- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Growth Fund $ 552,509 $ 546,436 $ 635,340
Emerging Growth Fund 692,842 845,637 917,512
Small Company Growth Fund 196,463 127,005 101,905
Growth and Income Fund 216,333 263,642 399,106
Balanced Fund 137,063 141,132 164,585

</TABLE>

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, 1996 and, for each Fund's
Class A shares, to an annual rate of .34% of average daily net assets for the
fiscal year ended December 31, 1997. The voluntary limitations for the fiscal
year ending September 30, 1998 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, 1997, 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 $74,680 $107,553 $11,866 $46,617 $19,345
Printing and mailing
of prospectuses to
other than current
shareholders -0- -0- -0- -0- -0-
Compensation to
underwriters (trail
fees to investment
executives) 560,660 809,959 90,039 352,489 145,240
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)
-------- -------- -------- -------- --------
Total $635,340 $917,512 $101,905 $399,106 $164,585

</TABLE>

UNDERWRITING AND DISTRIBUTION AGREEMENT

Pursuant to an Underwriting and Distribution Agreement, the Distributor has
agreed to act as the principal underwriter for the Funds in the sale and
distribution to the public of shares of the Funds, either through dealers or
otherwise. The Distributor has agreed to offer such shares for sale at all
times when such shares are available for sale and may lawfully be offered for
sale and sold. As

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<PAGE>

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, 1995 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1995 Sept. 30, 1996 Sept. 30, 1997
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>

Growth Fund $133,585 $169,574 $51,963 $77,479 $100,049 $32,231
Emerging
Growth Fund 288,665 695,309 141,407 167,426 410,232 91,669
Small Company
Growth Fund 39,339 23,234 51,378 22,817 13,708 32,467
Growth and
Income Fund 67,532 187,370 91,403 39,169 110,548 58,323
Balanced Fund 42,214 73,382 12,460 24,484 43,295 8,122

</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
Sept. 30, 1995 Sept. 30, 1996 Sept. 30, 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Growth Fund $ 0 $ 0 $ 0
Emerging Growth Fund 15,314 3,726 0
Small Company Growth Fund 125,638 65,924 4,020
Growth and Income Fund 0 0 0
Balanced Fund 0 0 0

</TABLE>

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

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<PAGE>

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, 1997, the Funds paid the
following amounts to the Distributor and Piper Trust under the Shareholder
Account Servicing Agreements.

Amount paid Amount paid
to Distributor to Piper Trust
-------------- --------------
Growth Fund $ 76,219 $ 29,219
Emerging Growth Fund 131,958 26,866
Small Company Growth Fund 28,521 840
Growth and Income Fund 58,500 2,843
Balanced Fund 16,141 11,429

PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE

The Adviser is responsible for decisions to buy and sell securities for the
Funds, the selection of broker-dealers to effect the transactions and the
negotiation of brokerage commissions, if any. In placing orders for securities
transactions, the primary criterion for the selection of a broker-dealer is the
ability of the broker-dealer, in the opinion of the Adviser, to secure prompt
execution of the transactions on favorable terms, including the reasonableness
of the commission and considering the state of the market at the time.

When consistent with these objectives, business may be placed with
broker-dealers who furnish investment research or services to the Adviser. Such

-34-
<PAGE>

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

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<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:

<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
September 30, 1995 September 30, 1996 September 30, 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Growth Fund $451,281 $104,995 $260,274
Emerging Growth Fund 193,809 208,245 277,894
Small Company Growth Fund 325,156 110,776 41,832
Growth and Income Fund 38,430 50,309 152,970
Balanced Fund 16,115 8,592 29,465

</TABLE>

The following table sets forth additional information with respect to
brokerage commissions paid by each Fund during the fiscal year ended
September 30, 1997:

% 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 $260,274 $ 0 0 0
Emerging Growth Fund 277,894 0 0 0
Small Company Growth Fund 41,832 4,020 9.6 8.4
Growth and Income Fund 152,970 0 0 0
Balanced Fund 29,465 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. Balanced
Fund held $533,145 of securities issued by Morgan Stanley at fiscal year end.
No other Fund purchased securities of its regular brokers or dealers or parent
companies of such brokers or dealers during the 1997 fiscal year.

-36-
<PAGE>

OPTION TRADING LIMITS

The writing by the Funds of options on securities will be subject to
limitations established by each of the registered securities exchanges on which
such options are traded. Such limitations govern the maximum number of options
in each class which may be written by a single investor or group of investors
acting in concert, regardless of whether the options are written on the same or
different securities exchanges or are held or written in one or more accounts or
through one or more brokers. Thus, the number of options which one Fund may
write may be affected by options written by the other Funds and other series of
the Companies and by other investment advisory clients of the Adviser. An
exchange may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions.

CAPITAL STOCK AND OWNERSHIP OF SHARES

The Company, which was organized under the laws of the State of Minnesota
in 1986, is authorized to issue a total of 10 trillion shares of common stock,
with a par value of $.01 per share. Three hundred and ninety billion of these
shares have been authorized by the Board of Directors to be issued in twelve
separate series, as follows: Growth Fund, Emerging Growth Fund, Small Company
Growth Fund, Growth and Income Fund, Balanced Fund, Government Income Fund,
Intermediate Bond Fund, National Tax-Exempt Fund and Minnesota Tax-Exempt Fund,
each of which has ten billion authorized shares, and Money Market Fund,
Tax-Exempt Money Market Fund and U.S. Government Money Market Fund, each of
which has one hundred billion authorized shares.

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.

The Board of Directors is empowered under the 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 each Fund, as well as
within any series of the Company created in the future.

All shares, when issued, will be fully paid and nonassessable and will be
redeemable. All shares have equal voting rights. They can be issued as full or

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<PAGE>

fractional shares. A fractional share has pro-rata the same kind of rights and
privileges as a full share. The shares possess no preemptive or conversion
rights.

Each share of a series has one vote (with proportionate voting for
fractional shares) irrespective of the relative net asset value of the series'
shares. On some issues, such as the election of directors, all shares of the
Company vote together as one series. On an issue affecting only a particular
series, the shares of the affected series vote separately. Cumulative voting is
not authorized. This means that the holders of more than 50% of the shares
voting for the election of directors can elect 100% of the directors if they
choose to do so, and, in such event, the holders of the remaining shares will be
unable to elect any directors.

As of November 14, 1997, shareholders who owned of record or were known by
the Funds to own beneficially 5% or more of the outstanding shares of any class
of any of the Funds are listed below. The directors and officers of the Company
as a group owned less than 1% of the outstanding shares of each Fund, and of
each class thereof, as of such date.

Growth Fund--Class B shares: Piper Jaffray, custodian for the benefit of
Douglas Dearden, 8968 East Gail Road, Scottsdale, AZ 85260, 2,705 shares
(12.36%), Wayne A. and Cathy A. Miller, NSA Box 293, Westhope ND 58793, 1,795
shares (8.20%), Piper Jaffray, custodian for the benefit of Shanta Shenoy IRA,
430C Costa Mesa Terrace, Sunnyvale, CA 94086, 1,094 shares (5.00%), Steel West
Inc., Employee Profit Sharing Trust Plan, Carl Hoehner, Trustee, P.O. Box 5427,
Pocatello ID 83202, 2,260 shares (10.33%) and Robert and Shannon Swanson, 2470
Michaud Creek Road, Pocatello ID 83204, 1,285 shares (5.87%).

Growth and Income Fund--Class B shares: Eunice Osborn Burton, Trustee,
Eunice O. Burton Revocable Living Trust, 1003 10th Street NW, Austin, MN 55912,
4,335 shares (7.17%) and Elaine W. Raleigh, 2341 Benton Avenue, Richland, WA
99352, 3,036 shares (5.02%). Growth and Income Fund--Class Y shares: Piper
Capital Management, ADV Norwest Bank Trustee, Blue Cross/Blue Shield Defined
Benefit Pension Plan, 733 Marquette Ave., Minneapolis, MN 55479, 65,521 shares
(7.56%), Piper Capital Management, ADV Delta Dental, 7807 Creekridge Circle,
Minneapolis, MN, 122,544 shares (14.13%), Piper Trust Company, trustee for the
benefit of Colon & Rectal Surgery Associates, 222 S. 9th Street, Minneapolis, MN
55402, 63,032 shares (7.27%), Piper Trust Company, trustee for the benefit of
Bannock Regional Medical Center Retirement & Incentive Savings Plan, 222 S. 9th
Street, Minneapolis, MN 55402, 73,648 shares (8.49%) and Piper Trust Company
Inc., 222 S. 9th Street, Minneapolis, MN 55402, 431,967 shares (49.82%).

Emerging Growth Fund--Class B shares: Ronald J. Gardner DDS, P.O. Box 832,
Blackfoot, ID 83221, 11,082 shares (12.15%). Emerging Growth Fund--Class Y
shares: Piper Trust Company, trustee for the benefit of Piper Jaffray Companies
Inc. 401(k), 222 S. 9th Street, Minneapolis, MN 55402, 1,977,652 shares (47.12%)
and Piper Trust Company, trustee for the benefit of Bannock Regional Medical
Center

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<PAGE>

Retirement & Incentive Savings Plan, 222 S. 9th Street, Minneapolis, MN 55402,
264,038 shares (6.29%).

Small Company Growth Fund--Class B shares: Piper Jaffray, custodian for
the benefit of Gerald R. Allen IRA, 2825 White Blvd., Butte, MT 59701, 5,306
shares (7.76%), Piper Jaffray, custodian for the benefit of John A. James SEP,
1032 W. 81st S., Idaho Falls, ID 83402, 3,926 shares (5.75%) and Life Spring
Women's Clinic PA, 1660 John Adams Pkwy, Idaho Falls, ID 83401, 5,313 shares
(7.77%).

Balanced Fund--Class A shares: Piper Trust Company, trustee for the
benefit of Bannock Regional Medical Center Retirement & Incentive Savings Plan,
222 S. 9th Street, Minneapolis, MN 55402, 224,369 shares (6.68%). Balanced
Fund--Class B shares: Piper Jaffray Companies Inc., 222 S. 9th Street,
Minneapolis, MN 55402, 754 shares (29.19%), Mark Larry Torbert, P.O. Box 44,
Dupont, WA 98327, 149 shares (5.75%), Robert G. and Lynda W. Bakula, P.O. Box
3232, Ballwin, MO 63022, 365 shares (14.12%), Piper Jaffray, custodian for the
benefit of Julie L. Thorsen IRA, 630 Boyd Drive, Grand Forks, ND 58203, 435
shares (16.85%) and Piper Jaffray, custodian for the benefit of Raeola Rhead
IRA, 421 N. 8th, Pocatello, ID 83201, 758 shares (29.34%).

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, 1997, the net asset value per share for each Fund was
calculated as follows:

GROWTH FUND--CLASS A SHARES

Net Assets ($201,954,257) = Net Asset Value Per Share
- ------------------------------- ($12.79)
Shares Outstanding (15,788,836)

GROWTH FUND--CLASS B SHARES

Net Assets ($209,387) = Net Asset Value Per Share
- ------------------------------- ($12.75)
Shares Outstanding (16,426)

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<PAGE>

EMERGING GROWTH FUND--CLASS A SHARES

Net Assets ($274,779,473) = Net Asset Value Per Share
- ------------------------------- ($15.25)
Shares Outstanding (18,019,878)

EMERGING GROWTH FUND--CLASS B SHARES

Net Assets ($1,028,098) = Net Asset Value Per Share
- ------------------------------- ($15.20)
Shares Outstanding (67,644)

EMERGING GROWTH FUND--CLASS Y SHARES

Net Assets ($59,392,793 ) = Net Asset Value Per Share
- ------------------------------- ($15.29)
Shares Outstanding (3,885,302)

SMALL COMPANY GROWTH FUND--CLASS A SHARES

Net Assets ($35,647,823) = Net Asset Value Per Share
- ------------------------------- ($9.57)
Shares Outstanding (3,725,085)

SMALL COMPANY GROWTH FUND--CLASS B SHARES

Net Assets ($479,635) = Net Asset Value Per Share
- ------------------------------- ($9.54)
Shares Outstanding (50,254)

GROWTH AND INCOME FUND--CLASS A SHARES

Net Assets ($127,063,831) = Net Asse t Value Per Share
- ------------------------------- ($18.37)
Shares Outstanding (6,917,087)

GROWTH AND INCOME FUND--CLASS B SHARES

Net Assets ($904,550) = Net Asset Value Per Share
- ------------------------------- ($18.33)
Shares Outstanding (49,355)

GROWTH AND INCOME FUND--CLASS Y SHARES

Net Assets ($13,925,598) = Net Asset Value Per Share
- ------------------------------- ($18.36)
Shares Outstanding (758,360)

BALANCED FUND--CLASS A SHARES

Net Assets ($48,871,577) = Net Asset Value Per Share
- ------------------------------- ($15.54)
Shares Outstanding (3,145,651)

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<PAGE>

BALANCED FUND--CLASS B SHARES

Net Assets ($37,144) = Net Asset Value Per Share
- ------------------------------- ($15.51)
Shares Outstanding (2,395)

PERFORMANCE COMPARISONS

Advertisements and other sales literature for the Funds may refer to a
Fund's "average annual total return" and "cumulative total return." In
addition, each Fund may provide yield calculations in advertisements and other
sales literature. All such yield and total return quotations are based on
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. Average annual total return figures are computed 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.

The following tables set forth the average annual total returns for the
Class A shares of each Fund for one year, five years and ten years (since
inception with respect to Emerging Growth Fund and Growth and Income Fund) for
the period ending September 30, 1997 and for the Class B and Class Y shares of
the Funds for the period since inception through September 30, 1997.

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<PAGE>

Average Annual Total Returns--Class A Shares
--------------------------------------------

1 Year 5 Years 10 Years/Inception
------ ------- ------------------
Growth Fund 28.72% 15.26% 13.45% (1)
Emerging Growth Fund 16.20% 19.76% 18.71% (3)
Small Company Growth Fund 39.83% 16.36% 11.28% (1)
Growth and Income Fund 26.59% 16.07% 15.50% (2)
Balanced Fund 15.43% 11.15% 10.00% (1)

- -----------------------
(1) Inception date: 3/16/87. The performance information provided is for ten
years. 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.

Total Return Since Inception (1)
---------------------------------------
Class B Shares Class Y Shares
-------------- --------------

Growth Fund 17.08% N/A
Emerging Growth Fund 17.21% 21.93%
Small Company Growth Fund 27.77% N/A
Growth and Income Fund 9.93% 14.51%
Balanced Fund 5.08% N/A
- ---------------------
(1) Inception date: 2/18/97.

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 ten years (since inception with
respect to Emerging Growth Fund and Growth and Income Fund) for the period
ending September 30, 1997 and for the Class B and Class Y shares of the Funds
for the period since inception through September 30, 1997 would have been:

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<PAGE>

Average Annual Total Returns--Class A Shares
(absent voluntary fee waivers and expense payments)

1 Year 5 Years 10 Years/Inception
------ ------- ------------------
Growth Fund 28.52% 15.09% 13.27% (1)
Emerging Growth Fund 16.04% 19.60% 18.55% (3)
Small Company Growth Fund 39.25% 15.95% 10.78% (1)
Growth and Income Fund 26.39% 15.46 15.28% (2)
Balanced Fund 14.99% 10.84% 9.59% (1)
- --------------------
(1) Inception date: 3/16/87. The performance information provided is for ten
years. 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

Total Return Since Inception (1)
(absent voluntary fee waivers and expense payments)
Class B Shares Class Y Shares
-------------- --------------
Growth Fund 17.08% N/A
Emerging Growth Fund 17.21% 21.93%
Small Company Growth Fund 27.49% N/A
Growth and Income Fund 9.93% 14.51%
Balanced Fund 4.94% N/A
- --------------------
(1) Inception date: 2/18/97.

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. Cumulative total return is computed 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.

-43-
<PAGE>

The following table sets forth the cumulative total returns for each Fund
from inception to September 30, 1997.

Cumulative Total Returns
(absent voluntary fee waivers
Cumulative Total Returns and expense payments)
------------------------------------- -------------------------------------
Class A Class B Class Y Class A Class B Class Y
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Growth Fund (1) 290.38% 17.08% N/A 283.36% * N/A
Emerging Growth Fund (3) 258.56% 17.21% 21.93% 254.80% * *
Small Company Growth Fund (1) 213.35% 27.77% N/A 198.61% 27.49% N/A
Growth and Income Fund (2) 110.94% 9.93% 14.51% 108.87% * *
Balanced Fund (1) 159.60% 5.08% N/A 149.24% 4.94% N/A
- --------------------
</TABLE>
* No fees waived.
(1) Inception date: 3/16/87 (Class A shares), 2/18/97 (Class B shares). 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 (Class A shares), 2/18/97 (Class B and Class Y
shares).
(3) Inception date: 4/23/90 (Class A shares), 2/18/97 (Class B and Class Y
shares).

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
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. Yield is
computed 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, 1997, the Class A shares of
Balanced Fund and Growth and Income Fund had yields of 0.58% and 2.55%,
respectively, Class B shares had yields of (0.04)% and 2.00%, respectively, and
Class Y shares of Growth and Income Fund had a yield of 0.94%. Had the
Distributor not voluntarily waived a portion of its Rule 12b-1 fees, the 30-day
yield as of September 30, 1997 would have been 0.39% and 2.16%, respectively,
for the Class A shares of Balanced Fund and Growth Fund, (0.05)% and 1.89%,
respectively, for the Class B shares, and 0.93% for the Class Y shares of Growth
and Income Fund.

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<PAGE>

In addition to advertising total return and yield, comparative performance
information may be used from time to time in advertising the Funds' shares,
including data from Lipper Analytical Services, Inc. ("Lipper"), Morningstar,
other industry publications and other entities or organizations which track the
performance of investment companies. The performance of each Fund may be
compared to that of its unmanaged benchmark index and to the performance of
similar funds as reported by Lipper. Each Fund's benchmark index and comparison
group are set forth below.

Performance information for the Funds also may be compared to other
unmanaged indices. Unmanaged indices do not reflect deductions for
administrative and management costs and expenses. The Funds may also include in
advertisements and communications to Fund shareholders evaluations of a Fund
published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as BARRON'S, BUSINESS WEEK,
FORBES, INSTITUTIONAL INVESTOR, INVESTOR'S DAILY, MONEY, KIPLINGER'S PERSONAL
FINANCE MAGAZINE, MORNINGSTAR MUTUAL FUND VALUES, THE NEW YORK TIMES, USA TODAY
and THE WALL STREET JOURNAL.

The performance of Growth Fund may be compared to the performance of the
Growth Funds Average, as reported by Lipper, and to the performance of the S&P
500 Index. The performance of Emerging Growth Fund may be compared to the
performance of the MidCap Funds Average, as reported by Lipper, and to the
performance of the S&P MidCap 400 Index. The performance of Small Company
Growth Fund may be compared to the performance of the Small Company Growth Funds
Average, as reported by Lipper, and to the performance of the S&P SmallCap 600
Index. The performance of Growth and Income Fund may be compared to the
performance of the Growth and Income Funds Average, as reported by Lipper, and
to the performance of the S&P 500 Index. The performance of Balanced Fund may
be compared to the performance of the Balanced Funds Average, as reported by
Lipper, and to the performance of the Lehman Brothers Government Corporate Index
and the S&P 500 Index.

PURCHASE OF SHARES

For Class A shares of the Funds, an investor may qualify for a reduced
sales charge through one or more of several plans. An investor must notify his
or her Piper Jaffray Investment Executive or broker-dealer at the time of
purchase to take advantage of these plans.

COMBINED PURCHASE PLAN

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<PAGE>

adding the dollar amount of the investor's current purchase to the higher of the
cost or current value of Class A shares of any Piper fund sold with a front-end
sales charge that are currently held by the investor and the investor's related
accounts or by other members of the organized group.

QUALIFIED GROUPS. Purchases in the following personal accounts may be
grouped together:

- The investor's individual account.

- The account of the investor's spouse.

- Accounts of the investor's children.

- The investor's employee benefit plan accounts if they are exclusively
for his or her benefit. This includes accounts such as IRAs, individual
403(b) plans or single-participant Keogh-type plans but does not include
plans that cover more than one participant.

- A trust or trusts created for the primary benefit of the investor, his
or her spouse or his or her children.

Additionally, purchases made by members of any organized group meeting the
requirements listed below may be aggregated for purposes of determining sales
charges:

- The group has been in existence for more than six months.

- It is not organized for the purpose of buying redeemable securities of a
registered investment company.

- Purchases must be made through a central administration, or through a
single dealer, or by other means that results 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.

ACCUMULATION PRIVILEGE

Initial sales charges for purchases of Class A Fund shares into Piper
Jaffray accounts will be automatically calculated taking into account the dollar
amount of any new purchases along with the higher of current value or cost of
Class A shares previously purchased in any other mutual fund managed by the
Adviser, provided

-46-
<PAGE>

such shares were sold with an initial sales charge. For other broker-dealer
accounts, an investor should notify his or her Investment Executive at the time
of purchase of additional Piper fund shares the investor owns.

LETTER OF INTENT

An investor's initial sales charge may be reduced by signing a non-binding
Letter of Intent, which the investor can obtain by contacting his or her Piper
Jaffray Investment Executive or other broker-dealer. This Letter of Intent will
state the investor's intention to invest $100,000 or more in Class A shares of
any of the mutual funds managed by the Adviser that are sold with an initial
sales charge over a 13-month period, beginning not earlier than 90 days prior to
the date the investor signs the Letter. The investor will pay the lower sales
charge applicable to the total amount he or she plans to invest over the
13-month period.

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.

SPECIAL PURCHASE PLANS

Class A shares of the Funds are available without a sales charge in the
following situations:

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.

- Sales representatives and their spouses.

-47-
<PAGE>

- Children, grandchildren, parents, grandparents or siblings of any of the
above, or spouses of any of these persons.

- Any trust, pension, profit-sharing or other benefit plan for any of the
above.

All persons in the first four groups set forth above may continue to add to
their accounts even after their company relationships have ended.

PURCHASES BY BROKER-DEALERS

Employees of broker-dealers who have entered into sales agreements with the
Distributor, and spouses and children under the age of 21 of such employees, may
buy 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 may also buy Class A Fund
shares without paying a sales charge:

- Clients of the Adviser buying shares of the Funds in their advisory
accounts.

- Trust companies, including Piper Trust Company, and bank trust
departments using funds over which they exercise discretionary investment
authority and which are held in a fiduciary, agency, advisory, custodial or
similar capacity.

- Former shareholders of American Government Term Trust Inc. may invest
the distributions received by them in connection with the dissolution of
such fund in shares of the Funds without payment of a sales charge.

- Investors purchasing shares through a wrap fee account established by
the Distributor or by another broker-dealer who has entered into a selected
dealer agreement with the Distributor.

PURCHASES BY EMPLOYEE BENEFIT PLANS

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,

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<PAGE>

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 a 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.

REDEMPTION OF SHARES

GENERAL

Redemption of shares, or payment, may be suspended at times (a) when the
New York Stock Exchange is closed for other than customary weekend or holiday
closings, (b) when trading on said Exchange is restricted, (c) when an emergency
exists, as a result of which disposal by the Funds of securities owned by them
is not reasonably practicable, or it is not reasonably practicable for the Funds
fairly to determine the value of their net assets, or (d) during any other
period when the Securities and Exchange Commission, by order, so permits,
provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist.

Shareholders who purchased shares through a broker-dealer other than the
Distributor may also redeem such shares by written request to IFTC at the
address set forth in the Prospectus. To be considered in proper form, written
requests for redemption should indicate the dollar amount or number of shares to
be redeemed, refer to the shareholder's Fund account number, and give either a
social security or tax identification number. The request should be signed in
exactly the same way the account is registered. If there is more than one owner
of the shares, all owners must sign. If shares to be redeemed have a value of
$10,000 or more or redemption proceeds are to be paid to someone other than the
shareholder at the shareholder's address of record, the signature(s) must be
guaranteed by an "eligible guarantor institution," which includes a commercial
bank that is a member of the Federal Deposit Insurance Corporation, a trust
company, a member firm of a domestic stock exchange, a savings association or a
credit union that is authorized by its charter to provide a signature guarantee.
IFTC may reject redemption instructions if the guarantor is neither a member of
nor a participant in a signature guarantee program. Signature guarantees by
notaries public are not acceptable. The purpose of a signature guarantee is to
protect shareholders against the possibility of fraud. Further documentation
will be requested from corporations, administrators, executors, personal
representatives, trustees and custodians. Redemption requests given by
facsimile will not be accepted. Unless other instructions are given in proper
form, a check for the proceeds of the redemption will be sent to the
shareholder's address of record.

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REINVESTING AFTER A SALE

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
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 ($1 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.

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<PAGE>

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 is treated as a separate corporation for federal income tax
purposes under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). Therefore, each Fund is treated separately in determining whether
it qualifies as a regulated investment company under the Code and for purposes
of determining the net ordinary income (or loss), net realized capital gains (or
losses) and distributions necessary to relieve such Fund of any federal income
tax liability. Each Fund qualified as a regulated investment company during its
last taxable year and each Fund intends to so qualify during the current taxable
year. To qualify as a regulated investment company a Fund must, among other
things, receive at least 90% of its gross income each year from dividends,
interest, gains from the sale or other disposition of securities and certain
other types of income, including income from options and futures contracts.

The Code 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.

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<PAGE>

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.

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

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<PAGE>

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 to fundamental investment policies and restrictions, for all
amendments to investment advisory contracts and for certain amendments to Rule
12b-1 distribution plans.

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.

FINANCIAL STATEMENTS

The audited financial statements for the Funds as of September 30, 1997
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

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<PAGE>

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.

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 Court has granted final approval to a Settlement Agreement which
became effective on September 20, 1997. The Settlement Agreement provides $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

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<PAGE>

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. Shareholders received
notice of the offers to repurchase in October 1997, and the offers to repurchase
expired on November 17, 1997.

Four additional complaints are pending which involve the funds named as
defendants in the Nelson/Christian Fellowship Consolidated Action and are based
on claims similar to that action. The first additional complaint was filed
against the Distributor and Richard Tallent in Montana State District Court,
Silver Bow County on November 1, 1995 by plaintiff John Darlington. The second
complaint was filed against the Distributor and Richard Tallent on April 11,
1996 in Montana State District Court, Silver Bow County by plaintiff Kenneth
Schneider. The third complaint was filed against the Distributor and Richard
Tallent on April 11, 1996 in Montana State District Court, Silver Bow County by
plaintiff Margaret Nagel. The fourth complaint was filed against the
Distributor on August 7, 1996 by plaintiff Kenneth Gennerman as Trustee of the
Nicole Bowlin Trust in Wisconsin Circuit Court, Waukesha County. In addition to
the above complaints, a number of arbitrations have been commenced by individual
investors in the funds named as defendants in the Nelson/Christian Fellowship
Consolidated Action.

Complaints have also been filed relating to two open-end funds for which
the Adviser has acted as sub-adviser, Managers Intermediate Mortgage Fund and
Managers Short Government Fund. A complaint was filed on September 26, 1994 in
the United States District Court, District of Connecticut, by Florence R. Hosea,
Bobby 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. The named plaintiffs and defendants have entered
into a settlement agreement which is subject to approval by the court and a
sufficiently large percentage of class members. Pursuant to the terms of the
settlement agreement, defendants collectively have agreed to pay a total amount
of up to $6,942,733.66. The Piper defendants have agreed to pay up to
$4,592,220.59, consisting of up to $923,930.23 in cash and three notes, each
bearing interest of six percent per annum, to be paid as follows:

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<PAGE>

$1,199,908.06 six months from the settlement effective date; $1,097,058.80 to be
paid twelve months from the effective date; and $1,371,323.50 to be paid
eighteen months from the effective date. The settlement of this putative class
action is contingent on the settlement of related actions involving claims by
First Commercial Trust Company, an investor in Managers Intermediate and other
funds. 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 Court granted final approval to a settlement agreement
which will provide to class members up to a total of $1.5 million collectively
from The Managers Funds, L.P. and the Adviser. The effective date of the
settlement was September 2, 1997. 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 parties have entered into a settlement
agreement to resolve this matter. Pursuant to the settlement agreement, the
share of the settlement to be paid by the Piper defendants is a total of
$1,995,968.75 consisting of $314.259.10 in cash and three notes, bearing simple
interest of six percent per annum, to be paid as follows: $550,091.95 to be paid
six months from the effective date; $502,941.20 to be paid 12 months from the
effective date; $628,676.50 to be paid 18 months from the effective date. The
settlement of this matter is contingent on the settlement of the related
Hosea/Kopelman Consolidated Action and the settlement will not be effective
until the effective date of the settlement in the Hosea/Kopelman Consolidated
Action.

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.

A-1
<PAGE>

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.

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:

A-2
<PAGE>

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."

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

B-1
<PAGE>

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 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

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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 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

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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.

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.

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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 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.

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

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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.

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

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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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<PAGE>

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

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involve borrowing funds by a Fund to finance the transactions. Rather, the
initial 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

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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 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.

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<PAGE>

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 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

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<PAGE>

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.

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

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<PAGE>

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.

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

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<PAGE>

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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<PAGE>

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
November 24, 1997

Table of Contents
Page
----
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Characteristics and Risks of Securities and
Special Investment Methods . . . . . . . . . . . . . . . . . . . . 2
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . 22
Directors and Executive Officers . . . . . . . . . . . . . . . . . . 25
Investment Advisory and Other Services . . . . . . . . . . . . . . . 29
Portfolio Transactions and Allocation of Brokerage . . . . . . . . . 37
Capital Stock and Ownership of Shares. . . . . . . . . . . . . . . . 39
Net Asset Value and Public Offering Price. . . . . . . . . . . . . . 41
Performance Comparisons. . . . . . . . . . . . . . . . . . . . . . . 41
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . 45
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . 48
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
General Information. . . . . . . . . . . . . . . . . . . . . . . . . 52
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 53
Pending Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 53
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 each dated
November 24, 1997. One Prospectus 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 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>

INTRODUCTION

This Statement of Additional Information relates to Government Income Fund
("Government Fund") and Intermediate Bond Fund ("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 ("ARMS
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."

On September 1, 1995, four closed-end investment companies, American
Adjustable Rate Term Trust Inc.--1996, American Adjustable Rate Term Trust
Inc.--1997, American Adjustable Rate Term Trust Inc.--1998 and American
Adjustable Rate Term Trust Adjustable Rate Term Trust Inc.--1999, merged into
ARMS Fund (the "Merger"). ARMS Fund had no history of operations prior to the
Merger. In this Statement of Additional Information, certain performance and
financial information is provided for ARMS 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.

CHARACTERISTICS AND RISKS OF SECURITIES
AND SPECIAL INVESTMENT METHODS

U.S. GOVERNMENT SECURITIES

Each 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 Funds 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.

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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 1986, as amended. Because such income may not be
matched by a corresponding cash distribution to a Fund, a Fund may be required
to borrow money or dispose of other securities to be able to make distributions
to shareholders. ARMS Fund will limit its investments in zero-coupon securities
to those issued by the U.S. Treasury through its STRIPS program, which
securities constitute direct obligations of the U.S. government, and will invest
no more than 10% of its net assets in such securities. Government Fund and Bond
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 Funds' investment policies, although
the underlying bond represented by such receipt is a debt obligation of the U.S.
Treasury.

MORTGAGE-RELATED SECURITIES

Each 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 the Prospectuses and this
Statement of Additional Information, 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
U.S. 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 ("FHMLC"); (b) those issued
by non-governmental issuers that represent interests in, or are collateralized
by, mortgage-related securities issued or guaranteed by the U.S. government or
one of its agencies or instrumentalities; and (c) those issued by
non-governmental issuers that represent an interest on, or are collateralized
by, whole mortgage loans or mortgage-related securities without a government
guaranty but usually with over-collateralization or some other form of private

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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 the
Prospectuses and this Statement of Additional Information.

(a) GUARANTEED MORTGAGE PASS-THROUGH SECURITIES. The government
guaranteed mortgage pass-through securities in which each 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.

(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.

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<PAGE>

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.

(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>

(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.

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<PAGE>

(c) ADJUSTABLE RATE MORTGAGE SECURITIES. Each Fund may also invest in
adjustable rate mortgage securities ("ARMS") and ARMS Fund must invest at least
65% of its total assets in such securities under normal market conditions. (For
purposes of ARMS Fund's 65% requirement, adjustable rate tranches of CMOs,
discussed below, are also considered 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 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 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. Each Fund may invest, within the
limits noted in the Funds' Prospectuses, in CMOs (collateralized mortgage
obligations and multiclass pass-through securities unless the context otherwise
indicates), which are derivative mortgage securities. Collateralized mortgage
obligations are debt instruments issued by special purpose entities which are
secured by pools of mortgage loans or other mortgage-related securities.
Multiclass 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
multiclass pass-through security. CMOs may be issued by agencies or
instrumentalities of the U.S. government or by private organizations.

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<PAGE>

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 and others may be stripped
securities which provide only the principal or interest feature of the
underlying security. See "Stripped Mortgage-Backed Securities," below.
Tranches with variable or floating interest rates are considered ARMS for
purposes of the requirement that ARMS Fund invest at least 65% of its total
assets in ARMS under normal market conditions. 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.

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<PAGE>

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.

(e) STRIPPED MORTGAGE-BACKED SECURITIES. Government Fund may invest in
stripped mortgage-backed securities ("SMBS"), which are derivative multiclass
mortgage securities. Neither Bond Fund nor ARMS Fund may invest in SMBS. SMBS
may be issued by agencies or instrumentalities of the U.S. government or by
private originators of, or investors in, mortgage loans, including savings and
loan associations, mortgage bankers, commercial banks, investment banks and
special purpose subsidiaries of the foregoing.

(f) RESTRICTIONS ON INVESTMENTS BY ARMS FUND. As set forth in its
Prospectus, ARMS Fund will not invest in any inverse floating, interest only,
principal only or Z tranches of CMOs or in stripped mortgage-backed 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.

(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

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<PAGE>

(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.

CORPORATE FIXED-INCOME SECURITIES

Bond Fund and ARMS 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 Bond 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 Funds 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.

Bond 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 values 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, Bond 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
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.

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<PAGE>

ASSET-BACKED SECURITIES

Bond Fund and ARMS 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

Bond 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 prominent 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 also may 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

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<PAGE>

growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payment position.

SHORT-TERM MONEY MARKET SECURITIES

As set forth in the Funds' 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.

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. (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>

Adviser to be of comparable quality to those rated obligations which may be
purchased by the Funds.

REPURCHASE AGREEMENTS

Each 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. 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.

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.

REVERSE REPURCHASE AGREEMENTS

Government Fund and ARMS Fund may engage in reverse repurchase agreements
with banks and securities dealers. Bond Fund may not enter into such
agreements. Reverse repurchase agreements are ordinary repurchase agreements in
which the Fund is the seller of, rather than the investor in, securities and
agrees to repurchase them at an agreed upon time and price. Use of a reverse
repurchase

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<PAGE>

agreement may be preferable to a regular sale and later repurchase of the
securities because it avoids certain market risks and transaction costs.
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, cash or liquid securities having a
value sufficient to make payments for the securities to be repurchased will be
segregated, and will be maintained throughout the period of the obligation. No
more than 25% of the total assets of Government Fund will be subject to reverse
repurchase agreements. In the case of ARMS Fund, reverse repurchase agreements
are subject to the Fund's limitations on borrowing, set forth below under
"Investment Restrictions," and may be entered into only for temporary or
emergency purposes. In the case of Government Fund, reverse repurchase
agreements may 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
the Fund's portfolio. Money borrowed for leveraging will be subject to
interests costs which may or may not be recovered by income from or appreciation
of the securities purchased.

To attempt to minimize the risk to principal associated with leverage,
Government Fund will enter into reverse repurchase agreements only if such
agreements have terms of one year or less, and only if the Fund is able to
invest the proceeds in securities which the Adviser believes have limited
volatility and a higher interest rate than that payable on the reverse
repurchase agreements. The Adviser believes such limited use of leverage will
facilitate Government Fund's ability to provide high current income without
adversely affecting the Fund's ability to preserve capital.

LENDING OF PORTFOLIO SECURITIES

Government Fund and ARMS Fund may lend their portfolio securities. However,
neither Fund has done so in the past, nor do the Funds currently intend to do
so. In order to generate additional income, Government Fund may lend portfolio
securities representing up to one-third of the value of its total assets and
ARMS Fund may lend portfolio securities representing up to 30% 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 their respective
Boards 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 respective 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

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<PAGE>

amounts received by the Fund may be reduced by finders' fees paid to
broker-dealers and related expenses.

WHEN-ISSUED AND FORWARD COMMITMENT 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. 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 securities 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.

MORTGAGE DOLLAR ROLLS

In connection with their ability to purchase securities on a when-issued or
forward commitment basis, Government Fund and Bond 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. ARMS Fund may not enter into such transactions. 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. 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 on 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

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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.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

Government Fund and ARMS Fund may enter into contracts for the purchase or
sale for future delivery of fixed-income securities or contracts based on
financial indices including any index of securities in which the respective Fund
may invest ("futures contracts"). A "sale" of a futures contract means the
acquisition of a contractual obligation to deliver the securities called for by
the contract at a specified price on a specified date. The purchaser of a
futures contract on an index agrees to take or make delivery of an amount of
cash equal to the difference between a specified dollar multiple of the value of
the index on the expiration date of the contract ("current contract value") and
the price at which the contract was originally struck. Generally, no physical
delivery of the fixed-income securities underlying the index is made. The
futures contracts which the Funds may enter into have been developed by and are
traded on national commodity exchanges.

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, a 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. Government Fund and ARMS 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 to this Statement
of Additional Information.

Government Fund and ARMS Fund may purchase and sell put and call options on
futures contracts and enter into closing transactions with respect to such

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options to terminate existing positions. The Funds 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 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 futures contracts,
together with information regarding options on such contracts, is set forth in
Appendix B to this Statement of Additional Information.

EURODOLLAR INSTRUMENTS

ARMS Fund may make investments in Eurodollar instruments for hedging
purposes only. Eurodollar instruments are essentially U.S. dollar denominated
futures contracts or options thereon that are linked to LIBOR. Eurodollar
futures contracts enable purchasers to obtain a fixed rate for the lending of
funds and sellers to obtain a fixed rate for borrowings. ARMS Fund uses
Eurodollar futures contracts and options thereon to hedge against changes in
LIBOR, to which many short-term borrowings and floating rate securities are
linked. Eurodollar instruments are subject to the same limitations and risks as
other futures contracts and options thereon.

INTEREST RATE TRANSACTIONS

ARMS Fund may purchase or sell interest rate caps and floors to preserve a
return or spread on a particular investment or portion of its portfolio or for
other non-speculative purposes. The aggregate purchase price of caps and floors
held by ARMS Fund may not exceed 5% of the Fund's total assets. ARMS Fund may
sell, I.E., write, caps and floors without limitation, subject to the segregated
account requirement described below. The Fund does not intend to use these
transactions for speculative purposes. The purchase of an interest rate cap
entitles the purchaser, to the extent a specified index exceeds a predetermined
interest rate, to receive payments of interest on a contractually-based
principal amount from the party selling such interest rate cap. The purchase of
an interest rate floor entitles the purchaser, to the extent a specified index
falls below a predetermined interest rate, to receive payments of interest on a
contractually-based principal amount from the party selling such interest rate
floor.

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<PAGE>

ARMS Fund may enter into interest rate caps and floors on either an
asset-based on liability-based basis, depending on whether it is hedging its
assets or its liabilities. To the extent the Fund sells caps and floors, it
will maintain in a segregated account cash or high quality liquid securities
having an aggregate net asset value at least equal to the full amount, accrued
on a daily basis, of the Fund's obligations with respect to any caps or floors.
ARMS Fund will not enter into any interest rate cap or floor transaction unless
the unsecured senior debt or the claims-paying ability of the other party
thereto is rated at least A by Standard & Poor's or Moody's or is comparably
rated by any other nationally recognized statistical rating organization. If
there is a default by the other party to such a transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction.
Interest rate caps and floors are somewhat recent innovations for which
standardized documentation has not yet been developed and, accordingly, they are
less liquid than many other investments.

OPTIONS

WRITING COVERED OPTIONS. Each of Government Fund and ARMS 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 the investment objective of such Fund.

The principal reason for writing call or put options is to obtain, through
the receipt of premiums, a greater current return than would be realized on the
underlying securities alone. Each Fund receives 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.

PURCHASING OPTIONS. Government Fund and ARMS 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

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<PAGE>

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.

Government Fund and ARMS Fund also may purchase call options solely for the
purpose of hedging against an increase in prices of securities that the
respective Fund ultimately wants to buy. Such protection is provided during the
life of the call option because a Fund may buy the underlying security at the
call exercise price regardless of any increase in the underlying security's
market price. In order for a call option to be profitable, the market price of
the underlying security must rise sufficiently above the exercise price to cover
the premium and transaction costs. By using call options in this manner, a Fund
will reduce any profit it might have realized had it bought the underlying
security at the time it purchased the call option by the premium paid for the
call option and by transaction costs.

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, the correlation will be less than in transactions in which the
Funds purchase put options on underlying securities they own.

OVER-THE-COUNTER OPTIONS. In addition to exchange-traded put and call
options, Government Fund may also purchase and write over-the-counter ("OTC")
put and call options in negotiated transactions with the writers of the options
since options on many of the portfolio securities held by the Fund are not
traded on an exchange. Government Fund will purchase OTC options only from
investment dealers and other financial institutions (such as commercial banks or
savings and

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<PAGE>

loan associations) deemed creditworthy by the Adviser. ARMS Fund will purchase
and write only exchange-traded put and call options.

OTC options are two-party contracts with price and terms negotiated between
buyer and seller. In contrast, exchange-traded options are third-party
contracts with standardized strike prices and expiration dates, and are
purchased from a clearing corporation. Exchange-traded options have a
continuous liquid market while OTC options may not. 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 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

As nonfundamental investment restrictions that may be changed at any time
without shareholder approval, neither Government Fund nor ARMS Fund will invest
more than 15% of its net assets in illiquid securities and Bond Fund will not
invest in such 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.

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<PAGE>

"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 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 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.
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). 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-related securities issued by the U.S. government or its
agencies and instrumentalities.

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.

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<PAGE>

INVESTMENT RESTRICTIONS

In addition to the investment objectives and policies set forth in the
Funds' Prospectuses, 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 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 Fund, as fundamental investment restrictions,
the Fund will not:

(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.

-22-
<PAGE>

(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 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.

(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 ARMS 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

-23-
<PAGE>

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.

(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.

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,

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<PAGE>

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) Invest more than 5% of total assets in the securities of foreign
issuers, provided that Bond Fund will not invest in the securities of foreign
issuers other than U.S. dollar-denominated Yankee bonds and ARMS Fund will not
invest in the securities of foreign issuers.

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

Any investment restriction or limitation referred to above or in the
Prospectus which involves a maximum percentage of securities or assets, except
the borrowing policy and the Funds' policy with respect to investing in illiquid
securities, 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 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* (55) Chairman of the Board of Directors
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402

David T. Bennett (57) Director
3400 City Center
33 South Sixth Street
Minneapolis, Minnesota 55402

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<PAGE>

Jaye F. Dyer (70) Director
4670 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402

Karol D. Emmerich (48) Director
7302 Claredon Drive
Edina, Minnesota 55439

Luella G. Goldberg (60) Director
7019 Tupa Drive
Edina, Minnesota 55435

David A. Hughey (66) Director
134 Powers Road
Meredith, NH 03253

George Latimer (62) Director
754 Linwood Avenue
St. Paul, MN 55105

Paul A. Dow (46) President
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402

Robert H. Nelson (34) Vice President
Piper Jaffray Tower and Treasurer
222 South Ninth Street
Minneapolis, Minnesota 55402

Susan S. Miley (40) 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>

Paul A. Dow is Chief Investment Officer of the Adviser and has been Chief
Executive Officer of the Adviser since 1997, prior to which he was a 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

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<PAGE>

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.

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

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<PAGE>

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 and Piper Funds--II for the fiscal year ended September 30,
1997, and 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, 1996. 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.

Compensation Compensation Total Compensation
From Piper Funds from Piper Funds--II from Fund Complex*
---------------- -------------------- ------------------
<S> <C> <C> <C>
Jaye F. Dyer $14,567 $2,906 $58,750
Karol D. Emmerich $16,067 $3,031 $58,750
Luella G. Goldberg $15,317 $2,968 $60,750
George Latimer $14,567 $2,906 $56,750
David T. Bennett $16,067 $3,031 $56,250
David A. Hughey $11,676 $2,242 $-0-
</TABLE>

* Currently consists of 20 open-end and closed-end investment companies
managed by the Adviser, including the Companies. 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

Pursuant to an Investment Advisory and Management Agreement with each
Company, 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

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<PAGE>

addition, the Adviser pays the salaries and fees of all officers and directors
of the Companies who are affiliated with the Adviser.

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 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%

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

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<PAGE>

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

Advisory fees Advisory fees Advisory fees
for the fiscal for the fiscal for the fiscal
year ended year ended year ended
Fund September 30, 1995 September 30, 1996 September 30, 1997
- ---- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Government Fund $576,359 $474,589 $377,386
Bond Fund 959,379 634,796 303,718
</TABLE>

With respect to ARMS Fund, the Adviser received compensation of $1,487,059
for the fiscal year ended August 31, 1996, $76,672 for the fiscal period from
September 1, 1996 to September 30, 1996 and $766,709 for the fiscal year ended
September 30, 1997. 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 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 $1,462,719 for the fiscal year
ended August 31, 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 $626,880
for the fiscal year ended August 31, 1995. ARMS 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 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

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<PAGE>

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 expressly assumed by the Adviser
under the applicable Investment Advisory and Management Agreement. Any general
expenses of the Companies that are not readily identifiable as belonging to a
particular series of a 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, 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:

(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

-32-
<PAGE>

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(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 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 Fund's 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 Fund,
.30% of the average daily net assets of Bond Fund attributable to such Fund's
Class A shares and .15% of the average daily net assets of ARMS Fund. The Class
Y shares of Bond Fund do not pay fees under such Fund's Distribution Plan.

Except with respect to ARMS 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"). With
respect to Government Fund and Bond Fund, a portion of each Fund's total fee
equal to .25% and .05%, respectively, of average daily net assets is categorized
as a distribution fee and the remaining portion of the fee, equal to .25% of
each Fund's average daily net assets, is categorized as a servicing fee. All of
the Rule 12b-1 fee paid by ARMS Fund is categorized as a servicing fee.

-33-
<PAGE>

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
Fund and Bond Fund for the periods indicated.

Distribution fees Distribution fees Distribution fees
for the fiscal for the fiscal for the fiscal
year ended year ended year ended
Fund September 30, 1995 September 30, 1996 September 30, 1997
- ---- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Government Fund $365,759 $292,676 $258,975
Bond Fund 781,067 475,345 217,661
</TABLE>

With respect to ARMS Fund, distribution fees paid by the Fund for the
fiscal year ended August 31, 1996, the fiscal period from September 1, 1996 to
September 30, 1996, and the fiscal year ended September 30, 1997 were $638,422,
$32,843 and $337,359, respectively. The Distribution Plan for ARMS Fund was not
in effect during prior fiscal years.

For the fiscal years ended September 30, 1995 and 1996, the Distributor
voluntarily limited the amounts payable under the Distribution Plan to annual
rates of .20% and .32% of average daily net assets for Bond Fund and Government
Fund, respectively. The voluntary limitations for the fiscal year ended
September 30, 1997 were .34% of Government Fund's average daily net assets and
.22% of Bond Fund's average daily net assets attributable to such Fund's Class A
shares. The same limitations remain in place for the fiscal year ending
September 30, 1998.

-34-
<PAGE>

Fees payable under the Piper Funds Distribution Plan for the fiscal year
ended September 30, 1997 were used by the Distributor as follows:

Government Fund Bond Fund ARMS
--------------- --------- ----
<S> <C> <C> <C>
Advertising $ 30,191 $ 18,807 $ -0-
Printing and mailing of prospectuses to
other than current shareholders $ -0- $ -0- $ -0-
Compensation to underwriters (trail
fees to investment executives) $228,784 $198,854 $337,359
Compensation to dealers $ -0- $ -0- $ -0-
Compensation to sales personnel $ -0- $ -0- $ -0-
Interest, carrying or other
financing charge $ -0- $ -0- $ -0-
Other (specify) $ -0- $ -0- $ -0-
-------- -------- --------

Total $258,975 $217,661 $337,359
</TABLE>

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 tables set 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.

Underwriting
Total Underwriting Commissions Commissions Retained by Distributor
------------------------------------------- -------------------------------------------
Fiscal year Fiscal year Fiscal year Fiscal year Fiscal year Fiscal year
Ended 9/30/95 ended 9/30/96 ended 9/30/97 ended 9/30/95 ended 9/30/96 ended 9/30/97
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Government Fund $111,536 $42,651 $6,707 $64,691 $17,487 $4,509
Bond Fund 43,458 12,517 1,615 25,206 5,132 1,489

<CAPTION>
Underwriting
Total Underwriting Commissions Commissions Retained by Distributor
------------------------------------------- -------------------------------------------
Fiscal period Fiscal period
Fiscal year from 9/1/96 Fiscal year Fiscal year from 9/1/96 Fiscal year
Ended 8/31/96 to 9/30/96 ended 9/30/97 ended 8/31/96 to 9/30/96 ended 9/30/97
------------- ---------- ------------- ------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
ARMS Fund $ 9,280 $ 3,805 $6,503 $ 0 $ 0 $5,712
</TABLE>

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.

-35-
<PAGE>

Brokerage Commissions Paid to Distributor
------------------------------------------------------------
Fiscal year ended Fiscal year ended Fiscal year ended
September 30, 1995 September 30, 1996 September 30, 1997
------------------ ------------------ ------------------

Government Fund $1,700 $ 0 $ -0-
Bond Fund 0 0 -0-

ARMS Fund did not pay any brokerage commissions to the Distributor during
the fiscal year ended August 31, 1996, the fiscal period from September 1, 1996
to September 30, 1996 or the fiscal year ended September 30, 1997.

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
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.

-36-
<PAGE>

During the fiscal year ended September 30, 1997, Government Fund, Bond Fund
and ARMS Fund paid $38,499, $16,406 and $60,613, respectively, to the
Distributor and $6,162, $2,737 and $0, respectively, to Piper Trust under the
Shareholder Account Servicing Agreements.

PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE

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.

-37-
<PAGE>

which the Adviser anticipates will be useful to it. Because the list is merely
a general guide, which is to be used only after the primary criterion for the
selection of broker-dealers (discussed above) has been met, substantial
deviations from the list are permissible and may be expected to occur. The
Adviser will authorize the Funds to pay an amount of commission for effecting a
securities transaction in excess of the amount of commission another
broker-dealer would have charged only if the Adviser determines in good faith
that such amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in terms
of either that particular transaction or the Adviser's overall responsibilities
with respect to the accounts as to which it exercises investment discretion.
Generally, the Funds pay higher than the lowest commission rates available.

Portfolio transactions for the Funds, including transactions in futures
contracts and options thereon, may be effected through the Distributor. In
determining the commissions to be paid to the Distributor in connection with
transactions effected on a securities exchange, it is the policy of the Funds
that such commissions will, in the judgment of the Adviser, subject to review by
the Board of Directors, be both (a) at least as favorable as those which would
be charged by other qualified brokers or futures commission merchants in
connection with comparable transactions involving similar securities or similar
futures contracts or options on futures contracts being purchased or sold on an
exchange during a comparable period of time, and (b) at least as favorable as
commissions contemporaneously charged by the Distributor on comparable
transactions for its most favored 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, 1995 September 30, 1996 September 30, 1997
------------------ ------------------ ------------------

Government Fund $15,300 $7,650 $850
Bond Fund 11,833 0 0

The following table sets forth additional information with respect to
brokerage commissions paid during the fiscal year ended September 30, 1997:

% 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 Fund $850 $ 0 0% 0%
Bond Fund 0 0 0% 0%
</TABLE>

-38-
<PAGE>

For the fiscal year ended August 31, 1995, DDJ paid aggregate brokerage
commissions of $3,740, of which $1,700 was paid to the Distributor. For the
fiscal year ended August 31, 1996, the fiscal period from September 1, 1996 to
September 30, 1996, and the fiscal year ended September 30, 1997, ARMS 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. At fiscal
year end, Bond Fund held $1,066,290 of securities issued by Morgan Stanley,
$2,110,840 issued by Lehman Brothers, $2,037,380 issued by Smith Barney and
$1,048,610 issued by First Chicago. During the year, Bond Fund purchased
$1,058,190 issued by Morgan Stanley, $2,043,360 issued by Lehman Brothers,
$1,976,780 issued by Smith Barney and $1,976,780 issued by First Chicago. The
other Funds did not hold any such securities at fiscal year end or purchase any
such securities during the fiscal year.

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

Piper Funds, which was organized under the laws of the State of Minnesota
in 1986, is authorized to issue a total of 10 trillion shares of common stock,
with a par value of $.01 per share. Three hundred and ninety billion of these
shares have been authorized by the Board of Directors to be issued in twelve
separate series, as follows: Growth Fund, Emerging Growth Fund, Small Company
Growth Fund, Growth and Income Fund, Balanced Fund, Government Income Fund,
Intermediate Bond Fund, National Tax-Exempt Fund and Minnesota Tax-Exempt Fund,
each of which has ten billion authorized shares, and Money Market Fund,
Tax-Exempt Money Market Fund and U.S. Government Money Market Fund, each of
which has one hundred billion authorized shares.

Piper Funds II, which was organized under the laws of the State of
Minnesota on April 10, 1995, is authorized to issue a total of 100 billion
shares of common stock, with a par value of $.01 per share. Ten billion of
those shares have been designated as Series A Common Shares, which are the
shares of common stock of Adjustable Rate Mortgage Securities Fund. Currently,
Series A is the only outstanding series of Piper Funds II.

-39-
<PAGE>

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.

For both Piper Funds and Piper Funds II, the Board of Directors is
empowered under the 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 each Fund, as well as within any series of Piper Funds
or Piper Funds II created in the future.

All shares, when issued, will be fully paid and nonassessable and will be
redeemable. All shares have equal voting rights. They can be issued as full or
fractional shares. A fractional share has pro-rata the same kind of rights and
privileges as a full share. The shares possess no preemptive or conversion
rights.

Each share of a series has one vote (with proportionate voting for
fractional shares) irrespective of the relative net asset value of the series'
shares. On some issues, such as the election of directors, all shares of Piper
Funds or Piper Funds II vote together as one series. On an issue affecting only
a particular series, the shares of the affected series vote separately.
Cumulative voting is not authorized. This means that the holders of more than
50% of the shares voting for the election of directors can elect 100% of the
directors if they choose to do so, and, in such event, the holders of the
remaining shares will be unable to elect any directors.

As of November 14, 1997, shareholders who owned of record or were known by
the Funds to own beneficially 5% or more of the outstanding shares of any class
of the Funds are listed below. The directors and officers of the Company as a
group owned less than 1% of the outstanding shares of each Fund, and of each
class thereof, as of such date.

Intermediate Bond Fund--Class Y shares: Marshall & Ilsley Trust Company,
for the benefit of Phillips Plastics Corporation, 1000 N. Water Street,
Milwaukee, WI 53202, 641,681 shares (35.48%), Piper Capital ADV, United
Healthcare Corporation 401(k) Savings Plan, c/o First Trust, P.O. Box 64010, St.
Paul, MN 55101, 215,817 shares (11.93%), Dakota County Institutional Account,
1590 Highway 55, Hastings, MN 55033, 503,305 shares (27.83%) and Piper Trust
Company, trustee for the benefit of Rural Municipal, 222 S. 9th Street,
Minneapolis, MN 55402, 257,115 shares (14.22%).

-40-
<PAGE>

NET ASSET VALUE AND PUBLIC OFFERING PRICE

The method for determining the public offering price of Fund shares is
summarized in the Prospectuses in the text following the heading "Managing Your
Investment--Buying 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, 1997, the net asset value per share for each Fund was calculated
as follows:

GOVERNMENT FUND

Net Assets ($67,268,377) = Net Asset Value Per Share
- -------------------------------------
Shares Outstanding (7,340,354) ($9.16)

BOND FUND--CLASS A SHARES

Net Assets ($64,401,442) = Net Asset Value Per Share
- -------------------------------------
Shares Outstanding (8,391,288) ($7.83)

BOND FUND--CLASS Y SHARES

Net Assets ($13,985,303) = Net Asset Value Per Share
- -------------------------------------
Shares Outstanding (1,821,360) ($7.68)

ARMS FUND

Net Assets ($184,697,788) = Net Asset Value Per Share
- -------------------------------------
Shares Outstanding (22,661,426 ($8.15)

PERFORMANCE COMPARISONS

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

-41-
<PAGE>

period. Average annual total return figures are computed according to the
following formula:

n
P(1+T) = ERV

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 Prospectuses, and includes all recurring fees, such as investment
advisory and management fees, charged to all shareholder accounts. Average
annual total return quotations may be accompanied by quotations which do not
reflect the reduction in value of the initial investment due to the sales
charge, and which thus will be higher.

The following table sets forth the average annual total returns for each
Fund for one year, five years and since inception (ten years for Government
Fund) for the period ending September 30, 1997.

Average Annual Total Returns
----------------------------------------
1 Year 5 Years Since Inception
------ ------- ---------------

Government Fund (1) 8.28% 5.48% 8.35%
Bond Fund, Class A Shares (2) 6.13% 2.26% 7.06%
Bond Fund, Class Y Shares (3) N/A N/A 4.58%
ARMS Fund (4) 5.02% 4.01% 4.60%

- ------------------
(1) Inception date: 3/16/87. The performance information provided is for ten
years.
(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: 2/18/97.
(4) 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.

-42-
<PAGE>

inception (ten years for Government Fund) for the period ending September 30,
1997 would have been.

Average Annual Total Returns
----------------------------
(absent voluntary waivers and reimbursements)
1 Year 5 Years Since Inception
------ ------- ---------------

Government Fund (1) 8.05% 5.30% 8.14%
Bond Fund, Class A Shares (2) 5.99% 2.21% 6.83%
Bond Fund, Class Y Shares (3) N/A N/A 4.58%

- ----------------
(1) Inception date: 3/16/87. The performance information provided is for ten
years.
(2) Inception date: 7/11/88.
(3) Inception date: 2/18/97.
+ There were no voluntary expense waivers or payments by the Adviser during
this period.

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 Prospectuses and includes all recurring fees, such as investment advisory
and management fees, charged to all shareholder accounts. Cumulative total
return quotations may be accompanied by quotations which do not reflect the
reduction in value of the initial investment due to the sales charge, and which
thus will be higher.

The following table sets forth the cumulative total returns for each Fund
from inception to September 30, 1997.

Cumulative Total Returns
Cumulative (absent voluntary fee waivers
Total Returns And Expense Reimbursements)
------------- ---------------------------

Government Fund (1) 109.13% 104.36%
Bond Fund, Class A Shares (2) 87.68% 84.03%
Bond Fund, Class Y Shares (3) 4.58% *
ARMS Fund (4) 29.04% *

- ---------------
* No fees waived.
(1) Inception date: 3/16/87

-43-
<PAGE>

(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: 2/18/97.
(4) 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 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. Yield is computed according to the
following formula:

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

For the 30-day period ended September 30, 1997, Government Fund, Bond Fund,
Class A shares, Bond Fund, Class Y Shares and ARMS Fund had yields of 6.19%,
5.74%, 6.08% and 5.77%, respectively. Absent voluntary expense payments or fee
waivers, the 30-day yields as of September 30, 1997 would have been 6.03%,
5.66%, 6.00% and 5.77%, respectively.

In addition to advertising total return and yield, comparative performance
information may be used from time to time in advertising the Funds' shares,
including data from Lipper Analytical Services, Inc. ("Lipper"), Morningstar,
other industry publications and other entities or organizations which track the
performance of investment companies. The performance of each Fund may be
compared to that of its 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.

-44-
<PAGE>

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 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 ARMS 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 Fund and ARMS Fund, and Class A shares of Bond
Fund, an investor may qualify for a reduced sales charge through one or more of
several plans. An investor must notify his or her Piper Jaffray Investment
Executive or broker-dealer at the time of purchase to take advantage of these
plans.

COMBINED PURCHASE PLAN

An investor may reduce or eliminate front-end or initial sales charges by
aggregating his or her purchase with purchases of certain related personal
accounts. In addition, purchases made by members of certain organized groups
will be aggregated for purposes of determining sales charges. Sales charges are
calculated by adding the dollar amount of the investor's current purchase to the
higher of the cost or current value of shares of any Piper fund sold with a
front-end sales charge that are currently held by the investor and the
investor's related accounts or by other members of the organized group.

QUALIFIED GROUPS. Purchases in the following personal accounts may be
grouped together:

- The investor's individual account.
- The account of the investor's spouse.
- Accounts of the investor's children.
The investor's employee benefit plan accounts if they are exclusively
for his or her benefit. This includes accounts such as IRAs,
individual 403(b) plans or single-participant Keogh-type plans but
does not include plans that cover more than one participant.
- A trust or trusts created for the primary benefit of the investor, his
or her spouse or his or her children.

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<PAGE>

Additionally, purchases made by members of any organized group meeting the
requirements listed below may be aggregated for purposes of determining sales
charges:

- The group has been in existence for more than six months.
- It is not organized for the purpose of buying redeemable securities of
a registered investment company.
- Purchases must be made through a central administration, or through a
single dealer, or by other means that results in economy of sales
effort or expense.

ACCUMULATION PRIVILEGE

Initial sales charges for purchases of Fund shares into Piper Jaffray
accounts will be automatically calculated taking into account the dollar amount
of any new purchases along with the higher of current value or cost of Class A
shares previously purchased in any other mutual fund managed by the Adviser,
provided such shares were sold with an initial sales charge. For other
broker-dealer accounts, an investor should notify his or her Investment
Executive at the time of purchase of additional Piper fund shares the investor
owns.

LETTER OF INTENT

An investor's initial sales charge may be reduced by signing a non-binding
Letter of Intent, which the investor can obtain by contacting his or her Piper
Jaffray Investment Executive or other broker-dealer. This Letter of Intent will
state the investor's intention to invest $100,000 or more in any of the mutual
funds managed by the Adviser that are sold with an initial sales charge over a
13-month period, beginning not earlier than 90 days prior to the date the
investor signs the Letter. The investor will pay the lower sales charge
applicable to the total amount he or she plans to invest over the 13-month
period.

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<PAGE>

paid on his or her aggregate purchases if the total of such purchases had been
made at a single time.

SPECIAL PURCHASE PLANS

Shares of Government Fund and ARMS Fund, and Class A shares of Bond Fund,
are available without a sales charge in the following situations:

PURCHASES BY PIPER JAFFRAY COMPANIES, INC., ITS SUBSIDIARIES AND ASSOCIATED
PERSONS

Piper Jaffray Companies Inc. and its subsidiaries may buy shares of the
Funds without incurring a sales charge. The following persons associated with
such entities also may buy Fund shares without paying a sales charge:

- Officers, directors and their spouses.

- Employees, retirees and their spouses.

- Sales representatives and their spouses.

- Children, grandchildren, parents, grandparents or siblings of any of the
above, or spouses of any of these persons.

- Any trust, pension, profit-sharing or other benefit plan for any of the
above.

All persons in the first four groups set forth above may continue to add to
their accounts even after their company relationships have ended.

PURCHASES BY BROKER-DEALERS

Employees of broker-dealers who have entered into sales agreements with the
Distributor, and spouses and children under the age of 21 of such employees, may
buy shares of the Funds without incurring a sales charge.

PURCHASES BY OTHER INDIVIDUALS WITHOUT A SALES CHARGE

The following other individuals and entities may also buy Fund shares
without paying a sales charge:

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<PAGE>

- 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 fund that is
not managed by the Adviser. This privilege is available for 30 days
after the sale.
- Former shareholders of American Government Term Trust Inc. may invest
the distributions received by them in connection with the dissolution
of such fund in shares of the Funds without payment of a sales charge.
- Investors purchasing shares through a wrap fee account established by
the Distributor or by another broker-dealer who has entered into a
selected dealer agreement with the Distributor.

PURCHASES BY EMPLOYEE BENEFIT PLANS

Shares of the Funds will be sold at net asset value, without a sales
charge, to employee benefit plans containing an actively maintained qualified
cash or deferred arrangement under Section 401(k) of the Internal Revenue Code
of 1986, as amended (the "Code") (a "401(k) Plan"). In the event a 401(k) Plan
of an employer has purchased shares in the Funds or any other series of the
Company (other than a money market fund) during a calendar quarter, any other
employee benefit plan of such employer that is a qualified plan under Section
401(a) of the Code also may purchase shares of the Funds during such quarter
without incurring a sales charge.

REDEMPTION OF SHARES

GENERAL

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<PAGE>

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.

REINVESTING AFTER A SALE

A shareholder who has redeemed shares of a Fund (Class A shares of 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

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 ($1 million or
more in the case of Class Y shares of Bond Fund). 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 in the case of 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.

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<PAGE>

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

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<PAGE>

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.

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

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<PAGE>

Fund, such Fund may be required to borrow money or dispose of other securities
to be able to make distributions to shareholders.

For federal income tax purposes, Government Fund, Bond Fund and ARMS Fund
had capital loss carryovers at September 30, 1997 of $17,784,819, $276,491,719
and $148,112,793, respectively. ARMS 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 Bond Fund and September 30,
1997-2004 for ARMS 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

The Bylaws of both Piper Funds and Piper Funds II 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 to fundamental investment
policies and restrictions, for all amendments to investment advisory contracts
and for certain amendments to Rule 12b-1 distribution plans.

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<PAGE>

elimination or limitation of a director's liability under the Securities Act of
1933 or the Securities Exchange Act of 1934, and the 1940 Act prohibits
elimination or limitation of a director's liability for acts involving willful
malfeasance, bad faith, gross negligence or reckless disregard of the duties of
a director. The Articles of Incorporation of the Company limit the liability of
directors to the fullest extent permitted by Minnesota law and the 1940 Act.

FINANCIAL STATEMENTS

The audited financial statements and supplementary schedules for the Funds
as of September 30, 1997 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.

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<PAGE>

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 Court has granted final approval to a
Settlement Agreement which became effective on September 20, 1997. The
Settlement Agreement provides $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. Shareholders received notice of the offers
to repurchase in October 1997, and the offers to repurchase expired on
November 17, 1997.

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<PAGE>

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. The named plaintiffs and defendants have entered
into a settlement agreement which is subject to approval by the court and a
sufficiently large percentage of class members. Pursuant to the terms of the
settlement agreement, defendants collectively have agreed to pay a total amount
of up to $6,942,733.66. The Piper defendants have agreed to pay up to
$4,592,220.59, consisting of up to $923,930.23 in cash and three notes, each
bearing interest of six percent per annum, to be paid as follows: $1,199,908.06
six months from the settlement effective date; $1,097,058.80 to be paid twelve
months from the effective date; and $1,371,323.50 to be paid eighteen months
from the effective date. The settlement of this putative class action is
contingent on the settlement of related actions involving claims by First
Commercial Trust Company, an investor in Managers Intermediate and other funds.
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 Court granted final approval to a settlement agreement
which will provide to class members up to a total of $1.5 million collectively
from The Managers Funds, L.P. and the Adviser. The effective date of the
settlement was September 2, 1997. 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

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<PAGE>

Connecticut Securities Act and the Connecticut Unfair and Deceptive Trade
Practices Act. The parties have entered into a settlement agreement to resolve
this matter. Pursuant to the settlement agreement, the share of the settlement
to be paid by the Piper defendants is a total of $1,995,968.75 consisting of
$314.259.10 in cash and three notes, bearing simple interest of six percent per
annum, to be paid as follows: $550,091.95 to be paid six months from the
effective date; $502,941.20 to be paid 12 months from the effective date;
$628,676.50 to be paid 18 months from the effective date. The settlement of
this matter is contingent on the settlement of the related Hosea/Kopelman
Consolidated Action and the settlement will not be effective until the effective
date of the settlement in the Hosea/Kopelman Consolidated Action.

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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:

A-2

<PAGE>

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.

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 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

B-2

<PAGE>

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 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

B-3

<PAGE>

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.

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

B-4

<PAGE>

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

B-5

<PAGE>

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.

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

B-6

<PAGE>

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-7
<PAGE>
PART B

NATIONAL TAX-EXEMPT FUND
MINNESOTA TAX-EXEMPT FUND

Series of Piper Funds Inc.

STATEMENT OF ADDITIONAL INFORMATION

November 24, 1997

Table of Contents
Page
----

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Characteristics and Risks of Securities and Special
Investment Methods. . . . . . . . . . . . . . . . . . . . . . 2
Investment Restrictions . . . . . . . . . . . . . . . . . . . . 12
Directors and Executive Officers . . . . . . . . . . . . . . . . 14
Investment Advisory and Other Services . . . . . . . . . . . . . 18
Portfolio Transactions and Allocation of Brokerage . . . . . . . 24
Capital Stock and Ownership of Shares. . . . . . . . . . . . . . 26
Net Asset Value and Public Offering Price. . . . . . . . . . . . 27
Performance Comparisons. . . . . . . . . . . . . . . . . . . . . 28
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . 33
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . 36
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
General Information. . . . . . . . . . . . . . . . . . . . . . . 42
Financial Statements . . . . . . . . . . . . . . . . . . . . . . 43
Pending Litigation . . . . . . . . . . . . . . . . . . . . . . . 43
Appendix A - Ratings of Tax-Exempt Securities and
Commercial Paper . . . . . . . . . . . . . . . . . . . . . . . A-1
Appendix B - Futures Contracts and Options . . . . . . . . . . . B-1

This Statement of Additional Information is not a prospectus. This Statement
of Additional Information relates to two Prospectuses each dated November 24,
1997. One Prospectus relates to National Tax-Exempt Fund and the Class A shares
of Minnesota Tax-Exempt Fund. The other Prospectus relates to the Class Y
shares of Minnesota Tax-Exempt 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>

INTRODUCTION

The shares of Piper Funds Inc. (the "Company") are currently offered in
twelve series. This Statement of Additional Information relates to two of those
series, National Tax-Exempt Fund ("National Fund") and Minnesota Tax-Exempt Fund
("Minnesota Fund") (sometimes referred to herein as a "Fund" or, collectively,
as the "Funds").

CHARACTERISTICS AND RISKS OF SECURITIES
AND SPECIAL INVESTMENT METHODS

MUNICIPAL SECURITIES

Municipal securities include debt obligations issued by states, cities,
local authorities, and possessions and certain territories of the United States,
to obtain funds for various public purposes, including the construction of such
public facilities as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets, and water and sewer works. Other public
purposes for which municipal securities may be issued include the refinancing of
other outstanding municipal securities and the obtaining of funds for general
operating expenses and for loans to other public institutions and facilities.
In addition, certain industrial development, private activity and pollution
control bonds may be included within the term "municipal securities" if the
interest paid thereon qualifies as exempt from federal income tax. Municipal
securities include long-term obligations, often called municipal bonds, as well
as short-term municipal notes and tax-exempt commercial paper. As noted in the
Prospectuses, however, the Funds intend to emphasize investments in municipal
securities with long-term maturities.

The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source. Industrial
development, private activity and pollution control bonds are in most cases
revenue bonds and do not generally constitute the pledge of the credit or taxing
power of the issuer of such bonds. There are, of course, variations in the
security of municipal securities, both within a particular classification and
between classifications, depending on numerous factors.

Certain municipal securities may carry variable or floating rates of
interest whereby the rate of interest is not fixed but varies with changes in
specified market rates or indexes, such as a bank prime rate or a tax-exempt
money market index. Accordingly, the yield on such securities can be expected to
fluctuate with changes in prevailing interest rates.

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<PAGE>

Other municipal securities are zero coupon securities, which are debt
obligations which do not entitle the holder to any periodic payments prior to
maturity and are issued and traded at a discount from their face amounts. The
discount varies depending on the time remaining until maturity, prevailing
interest rates, liquidity of the security and perceived credit quality of the
issuer. The market prices of zero coupon securities are generally more volatile
than the market prices of securities that pay interest periodically and are
likely to respond to changes in interest rates to a greater degree than do
securities having similar maturities and credit quality that do pay periodic
interest.

DERIVATIVE MUNICIPAL SECURITIES. Each Fund may also acquire derivative
municipal securities, which are custodial receipts or certificates underwritten
by securities dealers or banks that evidence ownership of future interest
payments, principal payments or both on certain municipal securities. The
underwriter of these certificates or receipts typically purchases municipal
securities and deposits them in an irrevocable trust or custodial account with a
custodian bank, which then issues receipts or certificates that evidence
ownership of the periodic unmatured coupon payments and the final principal
payment on the obligations. Although under the terms of a custodial receipt a
Fund typically would be authorized to assert its rights directly against the
issuer of the underlying obligation, the Fund could be required to assert
through the custodian bank those rights as may exist against the underlying
issuer. Thus, in the event the underlying issuer fails to pay principal and/or
interest when due, a Fund may be subject to delays, expenses and risks that are
greater than those that would have been involved if the Fund had purchased a
direct obligation of the issuer. In addition, in the event the trust or
custodial account in which the underlying security has been deposited is
determined to be an association taxable as a corporation, instead of a
non-taxable entity, it would be subject to state income tax (but not federal
income tax) on the income it earned on the underlying security, and the yield on
the security paid to the Fund and its shareholders would be reduced by the
amount of taxes paid. Furthermore, amounts paid by the trust or custodial
account to a Fund would lose their tax-exempt character and become taxable, for
federal and state purposes, in the hands of the Fund and its shareholders.
However, custodial receipts in which the Funds will invest will be accompanied
by a tax opinion stating that interest payable on the receipts is tax exempt.
If a Fund invests in custodial receipts, it is possible that a portion of the
discount at which the Fund purchases the receipts might have to be accrued as
taxable income during the period that the Fund holds the receipts. See
"Taxation."

The principal and interest payments on the municipal securities underlying
custodial receipts may be allocated in a number of ways. For example, payments
may be allocated such that certain custodial receipts may have variable or
floating interest rates and others may be stripped securities which pay only the
principal or interest due on the underlying municipal securities. The Funds
currently do not invest in "interest only" or "principal only" custodial
receipts. The Funds may invest in floating rate custodial receipts without
limitation. Each Fund may also invest up to 20% of its total assets in
custodial receipts which are "inverse floating obligations" (also sometimes
referred to as "residual interest bonds"). These

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<PAGE>

securities pay interest rates that vary inversely to changes in the interest
rates of specified short-term municipal securities or an index of short-term
municipal securities. The interest rates on inverse floating obligations will
typically decline as short-term tax-exempt market interest rates increase and
increase as short-term tax-exempt market rates decline. Such securities have
the effect of providing a degree of investment leverage, since the interest
rates on such securities will generally change at a rate which is a multiple
(typically two) of the change in the interest rates of the specified short-term
municipal securities or index. As a result, the market values of inverse
floating obligations will generally be more volatile than the market values of
fixed-rate municipal securities and investments in these types of obligations
will increase the volatility of the net asset value of shares of the Funds.

MUNICIPAL LEASE OBLIGATIONS. Also included within the general category of
"municipal securities" are lease obligations or installment purchase contract
obligations and participations therein issued by tax-exempt issuers such as
state and local governments and their agencies and instrumentalities to finance
the acquisition of equipment and facilities (hereinafter collectively called
"municipal lease obligations"). Each Fund may invest up to 20% of the value of
its net assets in municipal lease obligations. Although municipal lease
obligations do not constitute general obligations of the issuer for which such
issuer's taxing power is pledged, a municipal lease obligation is ordinarily
backed by the issuer's covenant to budget for, appropriate and make the payments
due under the obligation. However, certain municipal lease obligations contain
"non-appropriation" clauses which provide that the issuer has no obligation to
make lease or installment purchase payments in future years unless money is
appropriated for such purpose on a yearly basis. In the case of a
"non-appropriation" lease, the Fund's ability to recover under the lease in the
event of non-appropriation or default will be limited solely to the repossession
of the leased property, without recourse to the general credit of the lessee,
and disposition of the property in the event of foreclosure might prove
difficult. In determining municipal lease obligations in which the Funds will
invest, the Adviser will carefully evaluate the outstanding credit rating of the
issuer (and the probable secondary market acceptance of such credit rating).
Additionally, the Adviser may require that certain municipal lease obligations
be issued or backed by a letter of credit or put arrangement with an independent
financial institution.

SPECIAL CONSIDERATIONS REGARDING INVESTMENTS IN MINNESOTA MUNICIPAL SECURITIES

Minnesota Fund is particularly susceptible to political, economic or
regulatory factors affecting issuers of Minnesota municipal securities. The
following information provides only a brief summary of the complex factors
affecting the financial situation in Minnesota. This information is derived
from sources that are generally available to investors and is based in part on
information obtained from various state and local agencies in Minnesota. It
should be noted that the creditworthiness of obligations issued by local
Minnesota issuers may be unrelated to the creditworthiness of obligations issued
by the State of Minnesota, and that there is no obligation on the part of the
state to make payment on such local obligations in the event of default.

-4-
<PAGE>

Minnesota's constitutionally prescribed fiscal period is a biennium, and
Minnesota operates on a biennial budget basis. Legislative appropriations for
each biennium are prepared and adopted during the final legislative session of
the immediately preceding biennium. Prior to each fiscal year of a biennium,
the state's Department of Finance allots a portion of the applicable biennial
appropriation to each agency or other entity for which an appropriation has been
made. An agency or other entity may not expend moneys in excess of its
allotment. If revenues are insufficient to balance total available resources
and expenditures, the state's Commissioner of Finance, with the approval of the
Governor, is required to reduce allotments to the extent necessary to balance
expenditures and forecasted available resources for the then current biennium.
The Governor may prefer legislative action when a large reduction in
expenditures appears necessary, and if the state's legislature is not in session
the Governor is empowered to convene a special session.

Diversity and a significant natural resource base are two important
characteristics of the Minnesota economy. Generally, the structure of the
state's economy parallels the structure of the United States economy as a whole.
There are, however, employment concentrations in durable goods and non-durable
goods manufacturing, particularly industrial machinery, instruments and
miscellaneous, food, paper and related industries, and printing and publishing.
During the period from 1980 to 1990, overall employment growth in Minnesota
lagged behind national employment growth, in large part due to declining
agricultural employment. The rate of non-farm employment growth in Minnesota
exceeded the rate of national growth, however, in the period of 1990 to 1996.
Job growth in Minnesota is expected to lag the national averages in 1997, due to
widespread labor shortages. Minnesota continues to have one of the lowest
unemployment rates in the nation. Since 1980, Minnesota per-capita income
generally had remained above the national average.

The state relies heavily on a progressive individual income tax and a
retail sales tax for revenue, which results in a fiscal system that is sensitive
to economic conditions. Frequently in recent years, legislation has been
required to eliminate projected budget deficits by raising additional revenue,
reducing expenditures, including aids to political subdivisions and higher
education, reducing the state's budget reserve, imposing a sales tax on
purchases by local governmental units, and making other budgetary adjustments.
The Minnesota Department of Finance June 1997 Estimates project that, under
current laws, the state will complete its current biennium June 30, 1999 with a
$32 million surplus, plus a $350 million cash flow account balance and a $522
million budget reserve. Total General Fund expenditures and transfers for the
biennium are projected to be $20.9 billion. The state is a party to a variety
of civil actions that could adversely affect the state's General Fund. In
addition, substantial portions of state and local revenues are derived from
federal expenditures, and reductions in federal aid to the state and its
political subdivisions and other federal spending cuts may have substantial
adverse effects on the economic and fiscal condition of the state and its local
governmental units. Risks are inherent in making revenue and expenditure
forecasts. Economic or fiscal conditions less favorable than those reflected in
state budget forecasts and planning estimates may create additional budgetary
pressures.

-5-
<PAGE>

State grants and aids represent a large percentage of the total revenues of
cities, towns, counties and school districts in Minnesota. Even with respect to
bonds that are revenue obligations of the issuer and not general obligations of
the state, there can be no assurance that the fiscal problems referred to above
will not adversely affect the market value or marketability of the bonds or the
ability of the respective obligors to pay interest on and principal of the
bonds.

There can be no assurance that Minnesota's economy and fiscal condition
will not materially change in the future or that future difficulties will not
occur. Economic difficulties and the resultant impact on State and local
government finances may adversely affect the market value of obligations in the
portfolio of Minnesota Fund or the ability of respective obligors to make timely
payment of the principal and interest on such obligations.

Both possible future changes in federal and state income tax laws,
including rate reductions, and recent Minnesota tax legislation could adversely
affect the value and marketability of Minnesota municipal bonds that are held by
the Fund. See "Taxation" below.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

The Funds may purchase and sell municipal bond 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.
Municipal bond index futures contracts are based upon The Bond Buyer Municipal
Bond Index, an index comprised of tax-exempt bonds rated A- or higher by
Standard & Poor's or A or higher by Moody's, with remaining maturities of 19
years or more. A buyer entering into a municipal bond 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 index on the last day of the
contract and the value of the index established by the contract. An interest
rate futures contract is an agreement to purchase or sell an agreed upon 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 interest rates are expected to
increase, a Fund might sell futures contracts. If interest rates did increase,
the value of the 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 interest
rate or municipal bond index futures contracts. 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

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<PAGE>

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 to this Statement
of Additional Information.

The Funds 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. However, the Funds do not currently purchase or sell put or
call options on futures contracts and they do not intend to do so during the
coming year. 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 municipal bond index futures contracts,
the degree of correlation will depend, among other things, upon the differences
between the municipal securities being hedged and the municipal securities
underlying the municipal bond index futures contract. 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.

REPURCHASE AGREEMENTS

Each Fund may enter into repurchase agreements. 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. 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.

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<PAGE>

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

The Funds may engage in reverse repurchase agreements with banks and
securities dealers. However, the Funds do not currently enter into reverse
repurchase agreements and they do not intend to do so during the coming year.
Reverse repurchase agreements are ordinary repurchase agreements in which the
Fund is the seller of, rather than the investor in, securities and agrees to
repurchase them at an agreed upon time and price. Use of a reverse repurchase
agreement may be preferable to a regular sale and later repurchase of the
securities because it avoids certain market risks and transaction costs.
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, cash or liquid securities having a
value sufficient to make payments for the securities to be repurchased will be
segregated, and will be maintained throughout the period of the obligation.
Reverse repurchase agreements may 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 interests costs which may not be deductible for tax purposes and
which could possible exceed interest income earned by the Fund on the investment
of such borrowed money. No more than 25% of the total assets of either Fund
will at any time be subject to reverse repurchase agreements.

WHEN-ISSUED SECURITIES

Each Fund may purchase and sell municipal securities on a when-issued or
delayed delivery basis. When-issued and delayed delivery 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 obligations and the interest rate are
fixed at the time the buyer enters into the commitment. Pending delivery of the
securities, each

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<PAGE>

Fund maintains in a segregated account cash or liquid securities in an amount
sufficient to meet its purchase commitments. The commitment to purchase
securities on a when-issued or delayed delivery basis involves 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 and
at the time of delivery the market value of the securities may be less than
cost. Purchasing securities on a when-issued or delayed delivery 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. These
risks could result in increased volatility of a Fund's net asset value to the
extent the Fund purchases securities on a when-issued or delayed delivery basis
while remaining substantially fully invested. Although the Funds will only make
commitments to purchase such obligations with the intention of actually
acquiring the securities, the Funds may each sell these securities before the
settlement date. If a Fund sells a when-issued or delayed delivery security
before the settlement date, any gain or loss would not be exempt from federal or
Minnesota income tax. For purposes of the Funds' 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 delayed delivery purchase.

PUTS

To help assure appropriate liquidity, each Fund may acquire municipal
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 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. Each Fund may pay a higher price for a municipal
security with a put than would be paid for the same security without a put. The
primary purpose of purchasing municipal securities with puts is to permit each
Fund to be as fully invested as practicable in municipal securities while at the
same time providing the Fund with appropriate liquidity. If an issuer, bank or
broker-dealer should default on its obligation to repurchase a security, a Fund
might be unable to recover all or a portion of any loss sustained from having to
sell the security elsewhere.

DIVERSIFICATION

Although Minnesota Fund is characterized as a nondiversified fund under the
Investment Company Act of 1940, as amended (the "1940 Act"), the Fund must meet
certain diversification requirements in order to qualify as a regulated
investment company for federal income tax purposes. To so qualify, the Fund
must diversify its holdings so that, at the close of each quarter of its taxable
year, (a) at least 50% of the value of its total assets consists of cash, cash
items, securities issued by the U.S. government, its agencies and
instrumentalities, the securities of other regulated investment companies, and
other securities limited generally with respect to any one issuer to not more
than 5% of the total assets of the Fund and not more than 10% of the outstanding
voting securities of such issuer, and (b) not more than 25% of the value of its
total assets is invested in the securities of any issuer (other

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<PAGE>

than securities issued by the U.S. government, its agencies or instrumentalities
or the securities of other regulated investment companies), or in two or more
issuers that the Fund controls and that are engaged in the same or similar
trades or businesses.

ILLIQUID SECURITIES

As nonfundamental investment restrictions that may be changed at any time
without shareholder approval, 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.

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<PAGE>

FOREIGN SECURITIES

The Funds may invest up to 5% of their total assets in foreign securities.
However, neither Fund currently invests in such securities or intends to invest
in such securities during the coming year.

RATINGS

Each Fund will invest in securities rated, at the time of purchase, within
the following grades assigned by either Moody's Investors Services, Inc.
("Moody's") (Aaa, Aa, A or Baa for long-term bonds; MIG-1 or MIG-2 for notes and
other short-term obligations having fixed maturities; VMIG-1 or VMIG-2 for notes
and other short-term obligations having a demand feature; and Prime-1 and
Prime-2 for commercial paper) or Standard & Poor's Ratings Services ("Standard &
Poor's") (AAA, AA, A or BBB for municipal bonds; SP-1 or SP-2 for state and
municipal notes; and A-1 and A-2 for commercial paper) or will be unrated
securities which, at the time of purchase, are judged by the Adviser to be of
comparable quality. If the rating of a bond held by one of the Funds drops
below Baa or BBB, the Fund will conduct a credit analysis of the bond prior to
determining whether to retain or dispose of it. In no event, however, will more
than 5% of a Fund's net assets consist of securities that have been down-graded
to a rating lower than BBB or Baa or, if unrated, that are no longer of a
quality comparable to at least a BBB or Baa rating, as determined by the
Adviser. The ratings of Moody's and Standard & Poor's represent their opinions
as to the quality of the securities which they undertake to rate. It should be
emphasized, however, that ratings are general, and not absolute, standards of
quality. Consequently, securities of the same maturity, interest rate and
rating may have different yields, while securities of the same maturity and
interest rate with different ratings may have the same yield. For a discussion
of the various ratings assigned by Moody's and Standard & Poor's, see Appendix A
hereto.

When a Fund is restricted to investing in securities which have received at
least a particular credit rating, the fund may invest in securities of the
lowest gradation within that rating category. For example, if a Fund may
purchase only securities rated BBB or better, the purchase of a security rated
BBB- is permitted.

CONCENTRATION

National 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, neither Fund will 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.

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PORTFOLIO TURNOVER

INVESTMENT RESTRICTIONS

In addition to the investment objectives and policies set forth in the
Prospectuses, 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 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.

As fundamental investment restrictions, neither Fund will:

(1) Issue any senior securities (as defined in the 1940 Act) other than as
set forth in restriction #2 below and except to the extent that using options
and futures contracts or purchasing or selling securities on a when-issued or
delayed delivery basis may be deemed to constitute issuing a senior security.

(2) Borrow money (provided that each Fund may enter into reverse
repurchase agreements) except from banks for temporary or emergency purposes.
Each Fund may borrow money in an amount up to 10% of the value of its total
assets. With respect to each Fund, interest paid on borrowed funds will
decrease the net earnings of the Fund. Neither Fund will purchase portfolio
securities while outstanding borrowing exceeds 5% of the value of such Fund's
total assets. Neither Fund will borrow money for leverage purposes (provided
that each Fund may enter into reverse repurchase agreements for such purposes).

(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. For purposes of this restriction, 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.

(4) Purchase or sell commodities or commodities futures contracts,
provided that each of the Funds may enter into financial futures contracts and
engage in related options transactions.

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

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(6) 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.

(7) 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.

As nonfundamental investment restrictions that may be changed at any time
without shareholder approval, neither Fund will:

(1) Make short sales of securities, provided that each Fund for hedging
purposes may enter into financial futures contracts and engage in related
options transactions.

(2) 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.

(3) Invest more than 15% of the value of its net assets in illiquid
securities.

(4) Invest more than 5% of the value of its total assets in foreign
securities.

(5) Invest in warrants.

The identification of the issuer of a municipal 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 non-governmental 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 and the policy with respect to
investments in illiquid securities, 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.

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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 directors or officers of various closed-end and open-end
investment companies managed by the Adviser.

Name, Address and (Age) Position with the Company
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