PIPER FUNDS INC, 485APOS, 1997-09-12

PIPER FUNDS INC
485APOS, 1997-09-12

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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 SEPTEMBER 12, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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. 40
----
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
(Registration No. 811-4905)
Amendment No. 40
----
(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: (612) 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

- ----- 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
X on November 11, 1997 pursuant to paragraph (a) of rule 485
- -----
The Registrant has registered an indefinite number of its common
shares pursuant to Regulation 270.24f-2 under the Investment Company Act of
1940. A Rule 24f-2 Notice for the fiscal year ended September 30, 1996 was
filed on or about November 27, 1996.
<PAGE>

PIPER FUNDS INC.

Registration Statement on Form N-1A

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

CROSS REFERENCE SHEET
Pursuant to Rule 481(a)

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

Item No. Prospectus Heading
-------- ------------------

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

2. Synopsis. . . . . . . . . . Introduction; Fund Expenses

3. Financial Highlights. . . . Financial Highlights

4. General Description of
Registrant. . . . . . . . Introduction; Investment Objective and
Policies; Special Investment Methods

5. Management of the Fund. . . Management

6. Capital Stock and Other
Securities. . . . . . . . General Information; Introduction; Dividends
and Distributions; Tax Status

7. Purchase of Securities
Being Offered . . . . . . How to Purchase Shares; Shareholder
Services; Valuation of Shares

8. Redemption or Repurchase. . How to Redeem Shares; Shareholder Services

9. Pending Legal Proceedings . General Information

Statement of Additional Information Heading
-------------------------------------------

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

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

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

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

14. Management of the Fund. . . Directors and Executive Officers

<PAGE>

15. Control Persons and
Principal Holders of
Securities. . . . . . . . Capital Stock and Ownership of Shares

16. Investment Advisory and
Other Services. . . . . . Investment Advisory and Other Services

17. Brokerage Allocation. . . . Portfolio Transactions and Allocation of
Brokerage

18. Capital Stock and Other
Securities. . . . . . . . Capital Stock and Ownership of Shares

19. Purchase, Redemption and
Pricing of Securities
Being Purchased . . . . . Net Asset Value and Public Offering Price;
Performance Comparisons; Purchase of Shares;
Redemption of Shares

20. Tax Status. . . . . . . . . Taxation

21. Underwriters. . . . . . . . Investment Advisory and Other Services;
Portfolio Transactions and Allocation of
Brokerage

22. Calculations of
Performance Data. . . . . Performance Comparisons

23. Financial Statements. . . . Financial Statements

<PAGE>

EXPLANATORY NOTE

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

<PAGE>

U.S. Growth Funds - 1997 Prospectus
- -------------------------------------------------------------------------------

___________, 1997

[LOGO]

U.S. GROWTH
FUNDS

SMALL COMPANY GROWTH FUND (Class A and Class B Shares)
- -----------------------------------------------------------

EMERGING GROWTH FUND (Class A and Class B Shares)
- -----------------------------------------------------------

GROWTH 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.

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

FUND DESCRIPTIONS
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
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
Making Transactions by Phone
Staying Informed
SELLING SHARES 14
Receiving the Proceeds
Paying the CDSC
Taking Systematic Withdrawals
Reinvesting After a Sale

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

INVESTING IN PIPER
- -------------------------------------------------------------------------------
U.S. GROWTH
FUNDS
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
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 taking more 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. The 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.
Additional information is available from your broker or by calling Piper Capital
at 1 800 866-7778.

- -------------------------------------------------------------------------------
1 Prospectus - U.S. Growth Funds

<PAGE>

FUND DESCRIPTIONS

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

GENERALLY SPEAKING, SMALL COMPANIES MAY PROVIDE GREATER GROWTH POTENTIAL THAN
LARGER, MORE MATURE COMPANIES. HOWEVER, THEY MAY 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 appear
to 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 ($__ million to
$__ billion as of _____).

Generally, the fund will be fully invested in 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 defensive measure.

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.

RISK CONSIDERATIONS
- -------------------------------------------------------------------------------
MARKET RISK Stocks may decline 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 issuer, industry or sector of the market.

Stocks of small companies generally carry greater market risk than stocks of
larger companies. This is because 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.

Because this fund invests primarily in stocks of small companies, it will
probably be more volatile than Emerging Growth Fund, Growth Fund, or other
more conservative stock funds.

OTHER RISKS The investment securities and techniques used by this fund
present other risks as well. See pages 8-10 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 managed the fund since
September 1996. She joined Piper Jaffray in 1987, moved to Piper Capital in
1993 and has 14 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 . . . . . . . . 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) . . . . . . . ____% ____%
Total operating expenses
(after fee limitation and expense reimbursements)(3) . . . % %

(1) Except for investments of $500,000 or more. See "Selling Shares: Paying
the CDSC."

(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.

- -------------------------------------------------------------------------------
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 . . . . . . . . . $ $ $
3 years. . . . . . . . . $ $ $
5 years. . . . . . . . . $ $ $
10 years . . . . . . . . $ $(4) $(4)

(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 ____%,
other expenses would have been 0.54% for both classes of shares, and total
operating expenses would have been ___% for class A shares and ___% 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.

- -------------------------------------------------------------------------------
2 Prospectus - U.S. Growth Funds

<PAGE>

FUND DESCRIPTIONS

SMALL COMPANY GROWTH FUND (CONTINUED)
- -------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
Fiscal year ended September 30,
1997 1996(2) 1995 1994 1993 1992 1991 1990
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA(3)
Net asset value, beginning of period . . $ 9.73 8.59 8.42 6.79 6.41 4.59 5.03
- ----- ----- ----- ----- ---- ----- -----
Operations:
Net investment income(4) . . . . . . . 0.03 0.05 0.04 0.01 0.04 0.04 0.05
Net realized and unrealized
gains (losses) on investments . . . . 0.48 1.14 0.15 1.65 0.36 1.82 (0.37)
----- ----- ----- ----- ---- ----- -----
Total from operations . . . . . . . . . 0.51 1.19 0.19 1.66 0.40 1.86 (0.32)
----- ----- ----- ----- ---- ----- -----
Distributions:
From net investment income . . . . . . (0.04) (0.05) (0.02) (0.03) (0.02) (0.04) (0.12)
From net realized gains . . . . . . . . (0.79) -- -- -- -- -- --
----- ----- ----- ----- ---- ----- -----
Total distributions . . . . . . . . . . (0.83) (0.05) (0.02) (0.03) (0.02) (0.04) (0.12)
----- ----- ----- ----- ---- ----- -----
Net asset value, end of period . . . . . $ 9.41 9.73 8.59 8.42 6.79 6.41 4.59

TOTAL RETURN(5) [BAR GRAPH]. . . . . . . 5.38% 13.88% 2.12% 24.56% 6.18% 40.71% (6.61%)

SELECTED INFORMATION
Net assets, end of period (in millions). $ 31 48 78 84 9 9 8
Ratio of expenses to average daily net
assets . . . . . . . . . . . . . . . % 1.32% 1.40% 1.32% 1.28% 1.47% 1.32% 1.49%
Ratio of net investment income to
average daily net assets . . . . . . % 0.20% 0.43% 0.37% 0.50% 0.56% 0.61% 1.03%
Ratio of expenses to average daily net
assets before waivers(7) . . . . . . % 1.79% 1.63% 1.54% 1.86% 2.49% 2.39% 2.55%
Ratio of net investment income to
average daily net assets before
waivers(7) . . . . . . . . . . . . . % (0.27%) 0.20% 0.15% (0.08%) (0.46%) (0.46%) (0.03%)
Portfolio turnover rate (excluding
short-term securities) . . . . . . . % 125% 182% 177% 154% 420% 507% 514%
Average brokerage commission rate(8) . . $ 0.06 -- -- -- -- -- --

<CAPTION>
Period from Year Period from
11/1/88 to Ended 3/16/87(1) to
9/30/89 10/31/88 10/31/87
----------------------------------
<C> <C> <C>
PER SHARE DATA(3)
Net asset value, beginning of period . . 4.04 3.95 5.00
----- ---- -----
Operations:
Net investment income(4) . . . . . . . 0.19 0.05 0.04
Net realized and unrealized
gains (losses) on investments . . . . 0.93 0.10 (1.05)
----- ---- -----
Total from operations . . . . . . . . . 1.12 0.15 (1.01)
----- ---- -----
Distributions:
From net investment income . . . . . . (0.13) (0.06) (0.04)
From net realized gains . . . . . . . . -- -- --
----- ---- -----
Total distributions . . . . . . . . . . (0.13) (0.06) (0.04)
----- ---- -----
Net asset value, end of period . . . . . 5.03 4.04 3.95

TOTAL RETURN(5) [BAR GRAPH]. . . . . . . 27.86% 3.47% (20.48%)

SELECTED INFORMATION
Net assets, end of period (in millions). 13 19 28
Ratio of expenses to average daily net
assets . . . . . . . . . . . . . . . 1.30%(6) 1.52% 1.02%(6)
Ratio of net investment income to
average daily net assets . . . . . . 3.95%6 1.13% 1.51%(6)
Ratio of expenses to average daily net
assets before waivers(7) . . . . . . 2.23% 2.20% 2.24%
Ratio of net investment income to
average daily net assets before
waivers(7) . . . . . . . . . . . . . 3.02% 0.45% 0.29%
Portfolio turnover rate (excluding
short-term securities) . . . . . . . 375% 202% 200%
Average brokerage commission rate(8) . . -- -- --
</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 restated to reflect the effect of the stock
dividend paid on 10/21/96.

(4) For the years ended 9/30/92 and 10/31/88, gross expenses included $0.01 per
share of income tax expense.

(5) Total return is based on the change in net asset value, assumes
reinvestment of all distributions and does not reflect a sales charge.

(6) Annualized.

(7) During the periods shown, the adviser and distributor voluntarily waived
fees and expenses. Had the fund paid all expenses and had the maximum 12b-1
fee been in effect, the ratios of expenses and net investment income to
average daily net assets would have been as shown. Beginning in fiscal
1995, the expense ratio reflects the effect of gross expenses paid
indirectly by the fund. Prior period expense ratios have not been adjusted.

(8) Per portfolio share traded. Required beginning in 1996.

- -------------------------------------------------------------------------------
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 appear
to 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
($__ million to $__ billion as of _____).

Additionally, the fund intends to invest at least 65% of its assets in common
stocks of companies headquartered or maintaining offices or manufacturing
facilities in states where Piper Jaffray maintains offices - primarily states
from the Midwest to the Pacific Coast. This regional focus allows the fund to
draw on Piper Jaffray's local expertise and research capabilities.

Generally, the fund will be fully invested in 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 defensive measure.

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.

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

MARKET RISK Stocks may decline 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 issuer, industry or sector of the market.

While emerging growth stocks may be slightly less volatile than small company
stocks, they do carry greater market risk than large company stocks. 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.

Because this fund invests primarily in emerging growth company stocks, it
probably will be more volatile than Growth Fund and other more conservative
stock funds. In addition, it may be less diversified by industry and company
than other funds with a similar investment objective and no geographic
limitation.

OTHER RISKS The investment securities and techniques used by this fund
present other risks as well. See pages 8-10 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
the fund since its inception, and was given primary responsibility for the fund
in 1993. She joined Piper Jaffray in 1987, moved to Piper Capital in 1993 and
has 14 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 . . . . . . . . . . . . . . . . . . . . 0.69% 0.69%
12b-1 fee (after class A share fee limitation)(2,3) . . 0.34% 1.00%
Other expenses . . . . . . . . . . . . . . . . . . . . ____% ____%
Total operating expenses (after fee limitation)(3) . . % %

(1) Except for investments of $500,000 or more. See "Selling Shares: Paying
the CDSC."

(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.

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 . . . . . . . . . $ $ $
3 years. . . . . . . . . $ $ $
5 years. . . . . . . . . $ $ $
10 years . . . . . . . . $ $(4) $(4)

(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,
___%. 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.
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Fiscal year ended September 30,
1997 1996(2) 1995 1994 1993 1992 1991 1990(1)
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA(2)
Net asset value, beginning of period . . . . $ 12.97 9.63 9.87 7.21 6.93 4.30 5.00
----- ----- ----- ----- ----- ----- -----
Operations:
Net investment income (loss). . . . . . . . (0.05) (0.06) (0.04) (0.03) -- 0.01 0.01
Net realized and unrealized
gains (losses) on investments. . . . . . . 2.18 3.40 (0.20) 2.69 0.32 2.64 (0.71)
----- ----- ----- ----- ----- ----- -----
Total from operations . . . . . . . . . . . 2.13 3.34 (0.24) 2.66 0.32 2.65 (0.70)
----- ----- ----- ----- ----- ----- -----
Distributions:
From net investment income. . . . . . . . . -- -- -- -- -- (0.02) --
From net realized gains . . . . . . . . . . (1.24) -- -- -- (0.04) -- --
----- ----- ----- ----- ----- ----- -----
Total distributions . . . . . . . . . . . . (1.24) -- -- -- (0.04) (0.02) --
----- ----- ----- ----- ----- ----- -----
Net asset value, end of period . . . . . . . $ 13.86 12.97 9.63 9.87 7.21 6.93 4.30

TOTAL RETURN(5) [BAR GRAPH]. . . . . . . . . 17.84% 34.68% (2.38%) 36.92% 4.55% 61.80% (14.01%)

SELECTED INFORMATION
Net assets, end of period (in millions) . . $ 304 253 224 191 110 56 21
Ratio of expenses to average daily net
assets . . . . . . . . . . . . . . . . . % 1.18% 1.24% 1.24% 1.29% 1.30% 1.30% 1.30%(4)
Ratio of net investment income to average
daily net assets. . . . . . . . . . . . . % (0.41%) (0.51%) (0.38%) (0.34%) (0.14%) 0.11% 0.71%(4)
Ratio of expenses to average daily net
assets before waivers(5) . . . . . . . . % 1.37% 1.42% 1.44% 1.49% 1.56% 1.70% 1.95%
Ratio of net investment income to average
daily net assets before waivers(5) . . . % (0.60%) (0.69%) (0.58%) (0.54%) (0.40%) (0.29%) 0.06%
Portfolio turnover rate (excluding
short-term securities). . . . . . . . . . % 44% 33% 31% 30% 21% 27% 6%
Average brokerage commission rate(6) . . . . $ 0.06 -- -- -- -- -- --
</TABLE>

(1) Period from 4/23/90 (commencement of operations) to 9/30/90.

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

(3) Total return is based on the change in net asset value, assumes
reinvestment of all distributions and does not reflect a sales
charge.

(4) Annualized.

(5) During the periods shown, the adviser and distributor voluntarily
waived fees and expenses. Had the fund paid all expenses and had the
maximum 12b-1 fee been in effect, the ratios of expenses and net
investment income to average daily net assets would have been as shown.
Beginning in fiscal 1995, the expense ratio reflects the effect of gross
expenses paid indirectly by the fund. Prior period expense ratios have not
been adjusted.

(6) Per portfolio share traded. Required beginning in 1996.

- -------------------------------------------------------------------------------
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 adviser seeks companies which have the potential for long-term
earnings growth, a cyclical earnings rebound or above-average dividend yield
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, some of which may be
considered speculative in nature. The adviser looks for companies which could
generate high levels of future revenue and earnings growth, but which trade at
a price that does 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 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 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.

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

MARKET RISK The value of your investment will fluctuate in response to stock
market movements. Stocks may decline 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 issuer, industry or sector of the market.

OTHER RISKS 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 director of the large-cap equity team and a senior vice
president of Piper Capital. He has managed this fund since December 1994. He
joined the adviser in 1993. From 1989 through 1993, he was an equity portfolio
manager with Investment Advisers, Inc. He has 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 . . . . . . . . . . . . . . . . . . . . . . 0.71% 0.71%
12b-1 fee (after class A share fee limitation)(2,3) . . . 0.34% 1.00%
Other expenses . . . . . . . . . . . . . . . . . . . . . . ____% ____%
Total operating expenses (after fee limitation )(3) . . . % %

(1) Except for investments of $500,000 or more. See "Selling Shares: Paying
the CDSC."

(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.

- -------------------------------------------------------------------------------
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 . . . . . . . $ $ $
3 years. . . . . . . $ $ $
5 years. . . . . . . $ $ $
10 years . . . . . . $ $(4) $(4)

(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.
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Fiscal year ended September 30,
1997 1996(2) 1995 1994 1993 1992 1991 1990
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA(2)
Net asset value, beginning of period . . $ 10.20 9.45 9.65 8.53 8.43 5.85 6.23
----- ----- ----- ----- ----- ----- -----
Operations:
Net investment income . . . . . . . . . 0.03 0.04 0.04 0.06 0.09 0.09 0.10
Net realized and unrealized
gains (losses) on investments. . . . . 1.55 1.80 (0.18) 1.12 0.38 2.59 (0.38)
----- ----- ----- ----- ----- ----- -----
Total from operations . . . . . . . . . 1.58 1.84 (0.14) 1.18 0.47 2.68 (0.28)
----- ----- ----- ----- ----- ----- -----
Distributions:
From net investment income. . . . . . . (0.03) (0.04) (0.06) (0.06) (0.08) (0.10) (0.10)
From net realized gains . . . . . . . . (1.17) (1.05) -- -- (0.29) -- --
----- ----- ----- ----- ----- ----- -----
Total distributions . . . . . . . . . . (1.20) (1.09) (0.06) (0.06) (0.37) (0.10) (0.10)
----- ----- ----- ----- ----- ----- -----
Net asset value, end of period . . . . . $ 10.58 10.20 9.45 9.65 8.53 8.43 5.85

TOTAL RETURN(5) [BAR GRAPH]. . . . . . . 16.87% 20.60% (1.51%) 13.85% 5.76% 46.23% (4.81%)

SELECTED INFORMATION
Net assets, end of period (in millions). $ 178 172 195 252 200 107 47
Ratio of expenses to average daily net
assets . . . . . . . . . . . . . . . % 1.24% 1.27% 1.23% 1.26% 1.29% 1.32% 1.31%
Ratio of net investment income to
average daily net assets . . . . . . % 0.28% 0.40% 0.43% 0.66% 1.04% 1.25% 1.57%
Ratio of expenses to average daily net
assets before waivers(5) . . . . . . % 1.43% 1.45% 1.42% 1.44% 1.47% 1.55% 1.64%
Ratio of net investment income to
average daily net assets before
waivers(5) . . . . . . . . . . . . . % 0.09% 0.22% 0.24% 0.48% 0.86% 1.02% 1.24%
Portfolio turnover rate (excluding
short-term securities) . . . . . . . % 19% 80% 11% 45% 36% 36% 37%
Average brokerage commission rate(6) . . $ 0.06 -- -- -- -- -- --

<CAPTION>
Period from Year Period from
11/1/88 to Ended 3/16/87(1) to
9/30/89 10/31/88 10/31/87
-----------------------------------
<C> <C> <C>
PER SHARE DATA(2)
Net asset value, beginning of period . . 4.80 4.31 5.00
----- ----- -----
Operations:
Net investment income . . . . . . . . . 0.09 0.09 0.05
Net realized and unrealized
gains (losses) on investments. . . . . 1.43 0.49 (0.69)
----- ----- -----
Total from operations . . . . . . . . . 1.52 0.58 (0.64)
----- ----- -----
Distributions:
From net investment income. . . . . . . (0.09) (0.09) (0.05)
From net realized gains . . . . . . . . -- -- --
----- ----- -----
Total distributions . . . . . . . . . . (0.09) (0.09) (0.05)
----- ----- -----
Net asset value, end of period . . . . . 6.23 4.80 4.31

TOTAL RETURN(5) [BAR GRAPH]. . . . . . . 31.90% 13.79% (13.16%)

SELECTED INFORMATION
Net assets, end of period (in millions). 37 19 18
Ratio of expenses to average daily net
assets . . . . . . . . . . . . . . . 1.30%(4) 1.30% 1.00%(4)
Ratio of net investment income to
average daily net assets . . . . . . 1.75%(4) 2.06% 1.84%(4)
Ratio of expenses to average daily net
assets before waivers(5) . . . . . . 1.89% 1.96% 2.29%
Ratio of net investment income to
average daily net assets before
waivers(5) . . . . . . . . . . . . . 1.16% 1.40% 0.55%
Portfolio turnover rate (excluding
short-term securities) . . . . . . . 48% 52% 32%
Average brokerage commission rate(6) . . -- -- --
</TABLE>

(1) Commencement of operations.

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

(3) Total return is based on the change in net asset value, assumes
reinvestment of all distributions and does not reflect a sales charge.

(4) Annualized.

(5) During the periods shown, the adviser and distributor voluntarily waived
fees and expenses. Had the fund paid all expenses and had the maximum 12b-1
fee been in effect, the ratios of expenses and net investment income to
average daily net assets would have been as shown. Beginning in fiscal
1995, the expense ratio reflects the effect of gross expenses paid
indirectly by the fund. Prior period expense ratios have not been adjusted.

(6) Per portfolio share traded. Required beginning in 1996.

- -------------------------------------------------------------------------------
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, which are explained in greater detail on the
following pages.

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

<TABLE>
<CAPTION>
SMALL COMPANY EMERGING GROWTH GROWTH
GROWTH FUND FUND FUND
<S> <C> <C> <C>
INVESTMENT SECURITIES
- -----------------------------------------------------------------------------------------------------------------------------
FUTURES CONTRACTS (D). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y y
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 as protection
against fluctuations in the value of its portfolio without actually buying or
selling securities.
Leverage, Liquidity, Market, Correlation, Opportunity

OPTIONS ON FUTURES CONTRACTS (D) . . . . . . . . . . . . . . . . . . . . . . . . y y y
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.
Leverage, Liquidity, Market, Correlation, Opportunity

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. This includes Rule 144A
securities unless they are determined to be liquid under procedures adopted by
the board of directors. Liquidity, Market

OPTIONS ON SECURITIES (D). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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, upon
payment of 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. Market, Leverage, Correlation, Liquidity, Credit, Opportunity

OPTIONS ON STOCK INDEXES (D) . . . . . . . . . . . . . . . . . . . . . . . . . . . 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.
Market, Leverage, Correlation, Liquidity, Credit, Opportunity

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

- -------------------------------------------------------------------------------
8 Prospectus - U.S. Growth Funds

<PAGE>

PORTFOLIO OVERVIEW

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

<TABLE>
<S> <C> <C> <C>
INVESTMENT TECHNIQUES
- -----------------------------------------------------------------------------------------------------------------------------
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

INDUSTRY CONCENTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . n(1) n(1) n(1)
The investment by a fund of 25% or more of its total assets in any one industry.
Market, Opportunity

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
</TABLE>

(D) These securities 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.

(1) This restriction does not apply to securities of the U.S. government, or
its agencies or instrumentalities, or to repurchase agreements relating to
those securities. Gas, electric, telephone, telegraph, satellite and microwave
communications companies are considered separate industries.

- -------------------------------------------------------------------------------
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.

CORRELATION RISK

Sometimes, changes in the price of a hedging instrument do 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.

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.

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 magnifies exposure to the potential risks and rewards of a particular
investment. If a security or investment practice involves leverage, small
market movements can result in large changes in market value.

LIQUIDITY RISK

A fund may not be able to sell a 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. 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 and bonds may decline 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 issuer, industry or sector of the market.

OPPORTUNITY RISK

The risk of having to forego an investment opportunity because assets are tied
up in a less beneficial investment.

- -------------------------------------------------------------------------------
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
1 800 866-7778.

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.
As a % of As a % of
Purchase amount purchase price net asset value

Up to $100,000 . . . . . . . . . . . . . . 4.00% . . . . . . . . . .4.17%
$100,000-249,999 . . . . . . . . . . . . . 3.25% . . . . . . . . . .3.36%
$250,000-499,999 . . . . . . . . . . . . . 2.50% . . . . . . . . . .2.56%
$500,000 and more. . . . . . . . . . . . . None* . . . . . . . . . .None*

- - A contingent deferred sales charge will be assessed if you redeem within 24
months. See "Selling Shares," page 14.

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

You may combine your purchase of class A shares with purchases from another
account, such as your spouse's or child's account or your IRA. Qualified
groups which 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 other qualified plans which 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 which 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 (other than our money market funds) at net asset value, provided you hold
a minimum balance in that fund.

- -------------------------------------------------------------------------------
12 Prospectus - U.S. Growth Funds

<PAGE>
MANAGING YOUR INVESTMENT

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

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.

CLASS B SHAREHOLDERS GENERALLY WILL RECEIVE LOWER PER SHARE DIVIDENDS
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 may be required to designate certain capital gain dividends that you
must treat as mid-term capital gains if you are an individual shareholder).
Dividends from a fund's net investment income and short-term capital gain
distributions are taxable as ordinary income.

If you sell or exchange your fund shares, it 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 for individuals who have held
their shares for more than 18 months and mid-term for individuals who have held
their 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 your
shares 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 Piper Funds class A
shares, 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.

MAKING TRANSACTIONS BY PHONE
- -------------------------------------------------------------------------------
You may buy or sell shares over the phone by calling your broker. If you hold
your shares with IFTC or with a brokerage firm other than Piper Jaffray, you may
also buy or sell shares by calling IFTC at 1 800 874-6205, 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 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.

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 1 800 866-7778. 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 auditor's report.

To reduce shareholder costs and help eliminate duplication, only one report is
sent to each address which 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 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 at any time for their net asset value
(less any applicable contingent deferred sales charges). Simply call your
broker. Your request will be executed at the next net asset value calculated
after your request is received by your broker.

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 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).

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 1 800 874-6205 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 (CDSC)
- -------------------------------------------------------------------------------

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 CDSC if you sell your shares within 24 months.
The CDSC is equal to 1% of the net asset 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 net asset 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
----------- -----------------
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.

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.

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' adviser. Although the board may include individuals
who are affiliated with the adviser, the majority of board members must be
independent. The board has retained the companies listed below to manage the
funds' operations.

Investment Adviser

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

As investment adviser, 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 adviser to the other Piper Funds, to a number
of closed-end investment companies and to various institutions, corporations and
individuals. Piper Capital has approximately $9 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 Record Keeping Agent

Investors Fiduciary Trust Company (IFTC)
127 West Tenth Street
Kansas City, MO 64105

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

Transfer Agents

IFTC (address listed above)
Piper Jaffray (address listed above)
Piper Trust Company
222 South Ninth Street
Minneapolis, MN 55402-3804

The funds' transfer agents pay dividends and other distributions. Piper Jaffray
and Piper Trust provide transfer agent services for shareholders whose
accounts are held at those companies. IFTC provides these services for all other
shareholder accounts.

- -------------------------------------------------------------------------------
15 Prospectus - U.S. Growth Funds

<PAGE>
GENERAL INFORMATION (CONTINUED)
- -------------------------------------------------------------------------------

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. If your purchase of class A shares
was not subject to a front-end sales charge, Piper Jaffray may receive a fee
from Piper Capital equal to a percentage 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 equal to a percentage of the amount
invested to its Investment Executives and to other brokerage firms which sell
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 1.00%, 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 also uses 12b-1 fees to pay other distribution expenses
and shareholder servicing costs, such as printing and promotional costs.

Other Compensation

In addition to the compensation discussed above, Piper Jaffray and Piper Capital
may provide promotional incentives to brokers. These incentives, which may be
available only to brokers who have sold significant amounts of fund shares, may
include payment for travel expenses in connection with sales seminars, including
lodging at luxury resorts.

PORTFOLIO TRANSACTIONS
- -------------------------------------------------------------------------------
When deciding which brokers to use for the funds' portfolio transactions, Piper
Capital may consider whether brokers have sold shares of the funds or any other
Piper Funds. Piper Capital may place trades through Piper Jaffray in compliance
with 1940 Act 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 a fund's portfolio are determined
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 regular close of 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), a
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>

U.S. Growth Funds - Prospectus

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
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

1 800 866-7778

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

#30200 11/1997 220-97
<PAGE>
- --------------------------------------------------------------------------------
Growth and Income Funds - Prospectus
- --------------------------------------------------------------------------------

___________, 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.

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
- --------------------------------------------------------------------------------
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 8 and investment techniques
that may be used by the
funds and their risks

MANAGING YOUR INVESTMENT
- --------------------------------------------------------------------------------
BUYING SHARES 10 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 12
Receiving Dividends and Other Distributions
Taxing of Dividends and Other Distributions
Exchanging Shares
Making Transactions by Phone
Staying Informed
SELLING SHARES 13
Receiving the Proceeds
Paying the Contingent Deferred Sales Charge
Taking Systematic Withdrawals
Reinvesting After a Sale

- --------------------------------------------------------------------------------
GENERAL INFORMATION 14

<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 THE 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 to your principal.

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. The 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.
Additional information is available from your broker or by calling Piper Capital
at 1 800 866-7778.

- --------------------------------------------------------------------------------
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 adviser 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 adviser to be of comparable quality.

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. Under unusual circumstances, as a defensive measure, the fund may
retain cash or invest part or all of its assets in short-term money market
securities.

RISK CONSDERATIONS
- --------------------------------------------------------------------------------
Market Risk Stocks and bonds may decline 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 issuer, industry or sector of the market.

Interest Rate Risk The value of debt securities in the fund will fluctuate with
changing interest rates. If rates rise, prices likely will fall and vice versa.

Credit 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. The fund may invest in securities rated as low as BBB by Standard
& Poor's or Baa by Moody's, or in comparable unrated securities.These securities
have speculative characteristics. See "Credit Risk" on page 8 for more
information.

OTHER RISKS The investment securities and techniques used by this fund present
other risks as well. See pages 6-9 for more information.

PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
PAUL DOW,CFA, chief investment officer and a senior vice president of Piper
Capital, has managed the fund since its inception in 1992. He joined the adviser
in 1989 and has 23 years of financial experience.

STEVE MARKUSEN, CFA, is director of the large-cap equity team and a senior vice
president of Piper Capital. He joined the adviser 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 adviser in 1993 and has four 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 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. . . . . . . . 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) . . . . . . ____% ____%
Total operating expenses
(after fee limitation and expense reimbursements)(3) . % %

(1) Except for investments of $500,000 or more. See "Selling Shares: Paying
the CDSC."

(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.

CLASS A CLASS B CLASS B
Assuming redemption Assuming
at end of period no redemption
------------------------------------------------
1 year. . . . . . . . $ $ $
3 years . . . . . . . $ $ $
5 years . . . . . . . $ $ $
10 years. . . . . . . $ $(4) $(4)

(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 ___% for both classes of shares, and total
operating expenses would have been ___% for class A shares and ___% 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.

- --------------------------------------------------------------------------------
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,

1997 1996 1995 1994 1993 1992(1)
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period. . . . . $ 12.93 10.27 10.30 10.01 10.00
----- ----- ----- ----- -----
Operations:
Net investment income . . . . . . . . . . . 0.18 0.19 0.24 0.24 0.03
Net realized and unrealized
gains (losses) on investments . . . . . . 2.31 2.70 0.02 0.29 (0.02)
----- ----- ----- ----- -----
Total from operations . . . . . . . . . . . 2.49 2.89 0.26 0.53 0.01
----- ----- ----- ----- -----
Distributions:
From net investment income. . . . . . . . . (0.20) (0.19) (0.24) (0.24) --
----- ----- ----- ----- -----
From net realized gains . . . . . . . . . . (0.18) (0.04) (0.05) -- --
----- ----- ----- ----- -----
Total distributions . . . . . . . . . . . . (0.38) (0.23) (0.29) (0.24) --
----- ----- ----- ----- -----
Net asset value, end of period. . . . . . . . $ 15.04 12.93 10.27 10.30 10.01

TOTAL RETURN(2)[BAR GRAPH]. . . . . . . . . . 19.56% 28.81% 2.53% 5.41% 0.10%

SELECTED INFORMATION
Net assets, end of period (in millions) . . . $ 97 73 73 96 52
Ratio of expenses to average daily net assets % 1.32% 1.32% 1.29% 1.32% 1.28%(3)
Ratio of net investment income to average
daily net assets . . . . . . . . . . . . . % 1.26% 1.93% 2.26% 2.51% 3.00%(3)
Ratio of expenses to average daily net assets
before waivers(4). . . . . . . . . . . . . % 1.56% 1.60% 1.62% 1.58% 2.06%(3)
Ratio of net investment income to average
daily net assets before waivers(4) . . . . % 1.02% 1.65% 1.93% 2.25% 2.22%(3)
Portfolio turnover rate (excluding
short-term securities) . . . . . . . . . . % 22% 14% 20% 26% 1%
Average brokerage commission rate(5). . . . . $ 0.06 -- -- -- --

</TABLE>
(1) Period from 7/21/92 (commencement of operations) to 9/30/92.

(2) Total return is based on the change in net asset value, assumes
reinvestment of all distributions and does not reflect a sales charge.

(3) Annualized.

(4) During the periods shown, the adviser and distributor voluntarily waived
fees and expenses. Had the fund paid all expenses and had the maximum 12b-1
fee been in effect, the ratios of expenses and net investment income to
average daily net assets would have been as shown. Beginning in fiscal
1995, the expense ratio reflects the effect of gross expenses paid
indirectly by the fund. Prior period expense ratios have not been adjusted.

(5) Per portfolio share traded. Required beginning in 1996.

- --------------------------------------------------------------------------------
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. TO PURSUE THIS OBJECTIVE, THE FUND'S
ADVISER INVESTS IN COMMON STOCKS AND FIXED INCOME SECURITIES.

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

At least 35% of the fund's total assets must be invested in fixed income
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 adviser 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 invest in mortgage-related securities, including collateralized
mortgage obligations. However, it will not invest more than 5% of net assets, in
the aggregate, in inverse floating rate, interest-only, principal-only, inverse
interest-only and Z tranches of collateralized mortgage obligations, and
stripped mortgage-backed securities.

The fund also 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.

RISK CONSIDERATIONS
- --------------------------------------------------------------------------------
MARKET RISK Stocks and bonds may decline 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 issuer, industry or sector of the market.

INTEREST RATE RISK 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 8 under "Interest Rate Risk." This fund generally maintains an average
effective duration of 3 to 6-1/2 years for the fixed income portion of its
portfolio.

CREDIT RISK The fund is 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 by Standard & Poor's or Baa by Moody's, or in comparable unrated
securities. These securities have speculative characteristics. See "Credit Risk"
on page 8 for more information.

OTHER RISKS 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. See pages 6-8 for
more information.

P0RTFOLIO MANAGERS
- --------------------------------------------------------------------------------
PAUL DOW,CFA, chief investment officer and a senior vice president of Piper
Capital, has managed the equity portion of the fund since joining the adviser in
1989. He has 23 years of financial experience.

STEVE MARKUSEN, CFA, a senior vice president of Piper Capital, has managed the
equity portion since March 1997. For four years prior to joining the adviser in
1993, he was an equity portfolio manager with Investment Advisers, Inc. He has
13 years of financial experience.

BRUCE SALVOG AND DAVID STEELE have shared responsibility for the fixed income
portion of the fund since 1992. Both are senior vice presidents of Piper
Capital. They have 27 and 18 years of financial experience, respectively.

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). . . . . . . ____% ____%
Total operating expenses
(after fee limitation and expense reimbursements)(3) . % %

(1) Except for investments of $500,000 or more. See "Selling Shares: Paying
the CDSC."

(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.

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. . . . . . . . . $ $ $
3 years . . . . . . . . $ $ $
5 years . . . . . . . . $ $ $
10 years. . . . . . . . $ $(4) $(4)

(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.
- --------------------------------------------------------------------------------

Fiscal year ended September 30,
1997 1996(2) 1995 1994 1993 1992 1991 1990
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period . . . . $ 13.74 11.81 12.23 11.88 10.77 8.87 10.00
----- ----- ----- ----- ----- ---- -----
Operations:
Net investment income . . . . . . . . . . . 0.44 0.47 0.38 0.34 0.38 0.43 0.42
Net realized and unrealized
gains (losses) on investments. . . . . . . 0.89 1.93 (0.26) 0.65 1.17 1.89 (1.14)
----- ----- ----- ----- ----- ---- -----
Total from operations . . . . . . . . . . . 1.33 2.40 0.12 0.99 1.55 2.32 (0.72)
----- ----- ----- ----- ----- ---- -----
Distributions:
From net investment income. . . . . . . . . (0.44) (0.35) (0.37) (0.34) (0.39) (0.42) (0.41)
From net realized gains . . . . . . . . . . (0.55) (0.12) (0.17) (0.30) (0.05) -- --
----- ----- ----- ----- ----- ---- -----
Total distributions . . . . . . . . . . . . (0.99) (0.47) (0.54) (0.64) (0.44) (0.42) (0.41)
----- ----- ----- ----- ----- ---- -----
Net asset value, end of period. . . . . . . . $ 14.08 13.74 11.81 12.23 11.88 10.77 8.87

TOTAL RETURN(2) [BAR GRAPH] . . . . . . . . . $ 10.16% 21.78% 1.00% 8.51% 14.75% 26.61% (7.42%)

<CAPTION>
Period from Year Period from
11/1/88 to Ended 3/16/87(1) to
9/30/89 10/31/88 10/31/87
---------------------------------------
<S> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period. . . . . 9.19 8.97 10.00
---- ---- -----
Operations:
Net investment income. . . . . . . . . . . 0.44 0.51 0.28
Net realized and unrealized
gains (losses) on investments. . . . . . . 0.83 0.22 (1.09)
----
Total from operations . . . . . . . . . . . 1.27 0.73 (0.81)
---- ---- -----
Distributions:
From net investment income. . . . . . . . . (0.46) (0.51) (0.22)
From net realized gains . . . . . . . . . . -- -- --
----- ----- -----
Total distributions . . . . . . . . . . . . (0.46) (0.51) (0.22)
----- ----- -----
Net asset value, end of period. . . . . . . . 10.00 9.19 8.97

TOTAL RETURN(5) [BAR GRAPH] . . . . . . . . . 14.20% 8.53% (8.24%)

<CAPTION>
Fiscal year ended September 30,
1997 1996(2) 1995 1994 1993 1992 1991 1990
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED INFORMATION
Net assets, end of period (in millions) . . . $ 45 44 46 57 28 15 14
Ratio of expenses to average daily net assets % 1.32% 1.32% 1.32% 1.32% 1.32% 1.32% 1.31%
Ratio of net investment income to average
daily net assets . . . . . . . . . . . . . % 3.16% 3.54% 3.03% 3.13% 3.57% 4.15% 4.32%
Ratio of expenses to average daily net assets
before waivers(4). . . . . . . . . . . . . % 1.69% 1.65% 1.60% 1.62% 1.77% 1.98% 1.96%
Ratio of net investment income to average
daily net assets before waivers(4) . . . . % 2.79% 3.21% 2.75% 2.83% 3.12% 3.49% 3.67%
Portfolio turnover rate (excluding
short-term securities) . . . . . . . . . . % 27% 39% 62% 41% 58% 44% 105%
Average brokerage commission rate(5). . . . . $ 0.06 -- -- -- -- -- --

<CAPTION>
Period from Year Period from
11/1/88 to Ended 3/16/87(1) to
9/30/89 10/31/88 10/31/87
---------------------------------------
<S> <C> <C> <C>
SELECTED INFORMATION
Net assets, end of period (in millions) . . . 16 13 13
Ratio of expenses to average daily net assets 1.30%(3) 1.30% 0.99%(3)
Ratio of net investment income to average
daily net assets . . . . . . . . . . . . . 5.15%(3) 5.58% 5.46%(3)
Ratio of expenses to average daily net assets
before waivers(4). . . . . . . . . . . . . 2.29%(3) 2.09% 1.96%(3)
Ratio of net investment income to average
daily net assets before waivers(4) . . . . 4.16%(3) 4.79% 4.49%(3)
Portfolio turnover rate (excluding
short-term securities) . . . . . . . . . . 95% 73% 95%
Average brokerage commission rate(5). . . . . -- -- --

</TABLE>

(1) Commencement of operations.

(2) Total return is based on the change in net asset value, assumes
reinvestment of all distributions and does not reflect a sales charge.

(3) Annualized.

(5) Per portfolio share traded. Required beginning in 1996.

- --------------------------------------------------------------------------------
5 Prospectus - Growth and Income Funds

<PAGE>

PORTFOLIO OVERVIEW

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

10 Percent of total assets
/10/ Percent of net assets
y Permitted without limitation
/y/ Permitted, but not typically used
n Not permitted

<TABLE>
<CAPTION>
GROWTH AND BALANCED
INCOME FUND FUND
INVESTMENT SECURITIES
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FOREIGN SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 25
are securities issued by foreign companies, as well as American or European Depository
Receipts. The latter are dollar-denominated securities designed for use in the U.S.
and European securities markets, respectively, which represent underlying securities
issued by foreign companies. Market, Currency, Foreign Issuer

FUTURES CONTRACTS(D) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y
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 as protection against fluctuations in
the value of its portfolio without actually buying or selling securities. Interest Rate,
Leverage, Liquidity, Market, Correlation, Opportunity

OPTIONS ON FUTURES CONTRACTS(D). . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y
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. Interest Rate, Leverage, Liquidity, Market, Correlation,
Opportunity

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. This includes Rule 144A securities unless they are
determined to be liquid under procedures adopted by the board of directors. Liquidity,
Market

MORTGAGE-RELATED SECURITIES(D) 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(D) . . . . . . . . . . . . . . . . . . . . . . . . . y y
pay interest rates which change periodically based on changes in an underlying
interest rate index. Interest Rate, Credit, Market, Extension, Prepayment

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs)(D). . . . . . . . . . . . . . . . . . . . . . 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 tranches have different risk/return characteristics. Tranches with more
predictable cash flows generally have lower yields. Interest Rate, Credit, Market,
Extension, Prepayment, Liquidity, Leverage

INVERSE FLOATING RATE, INVERSE INTEREST ONLY, INTEREST ONLY, AND PRINCIPAL ONLY
SECURITIES(D). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . n /5/
are CMO tranches or multiclass mortgage securities with less predictable cash flows.
These securities are extremely sensitive to interest rate changes and are 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. Interest Rate,
Credit, Market, Extension, Prepayment, Liquidity, Leverage

PASS-THROUGHS(D) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y
pass principal and interest payments through to investors, net of fees. Interest Rate,
Credit, Market, Extension, Prepayment

Z BONDS(D) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . n y
are CMO tranches which defer interest and principal payments until other tranches have
been paid. Prices fluctuate more widely with changes in interest rates than prices of
securities with similar maturities that pay interest currently. Interest Rate, Credit,
Market, Extension, Prepayment, Liquidity, Leverage

</TABLE>

- --------------------------------------------------------------------------------
6 Prospectus - Growth and Income Funds

<PAGE>

PORTFOLIO OVERVIEW

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

<S> <C> <C>
OPTIONS ON SECURITIES(D) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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, upon payment of the option
exercise price. The writer of the option is then obligated to either deliver or purchase
the securities. Interest Rate, Market, Leverage, Correlation, Liquidity, Credit, Opportunity

OPTIONS ON STOCK INDEXES(D). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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. Market, Leverage,
Correlation, Liquidity, Credit, Opportunity

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

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).
Interest Rate, Credit, Market

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

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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y(1) y(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. Market,
Opportunity, 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. Credit

WHEN-ISSUED AND FORWARD COMMITMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . y(1) y(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. Market, Opportunity, Leverage

</TABLE>
(D) These securities 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.

(1) No more than one-third of a fund's total assets may be committed to the
purchase of securities on a when-issued or forward commitment basis,
including mortgage dollar roll purchases.

- --------------------------------------------------------------------------------
7 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.

CORRELATION 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 rated as low as BBB by Standard & Poor's or
Baa by Moody's, or in unrated securities of comparable quality. Although these
securities are investment grade, they are viewed as having 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 adviser's investment analysis more heavily
than usual.

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.

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

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

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.

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.

- --------------------------------------------------------------------------------
8 Prospectus - Growth and Income Funds

<PAGE>

PORTFOLIO OVERVIEW

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

LEVERAGE RISK

Leverage magnifies exposure to the potential risks and rewards of a particular
investment. If a security or investment practice involves leverage, small market
movements can result in large changes in market value.

LIQUIDITY RISK

A fund may not be able to sell a 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. 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 and bonds may decline 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 issuer, industry or sector of the market.

OPPORTUNITY RISK

The risk of having to forego an investment opportunity because assets are tied
up in a less beneficial investment.

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.

- --------------------------------------------------------------------------------
9 Prospectus - Growth and Income Funds

<PAGE>

MANAGING YOUR INVESTMENT

BUYING SHARES
- --------------------------------------------------------------------------------

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 1 800
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.

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.

As a % of As a % of
Purchase amount purchase price net asset value

Up to $100,000. . . . . . . . . . . . . 4.00%. . . . . . . . . . 4.17%
$100,000-249,999. . . . . . . . . . . . 3.25%. . . . . . . . . . 3.36%
$250,000-499,999. . . . . . . . . . . . 2.50%. . . . . . . . . . 2.56%
$500,000 and more . . . . . . . . . . . None*. . . . . . . . . . None*

* A contingent deferred sales charge will be assessed if you redeem within 24
months. See "Selling Shares," page 14.

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 13.

- --------------------------------------------------------------------------------
10 Prospectus - Growth and Income 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

You may combine your purchase of class A shares with purchases from another
account, such as your spouse's or child's account or your IRA. Qualified groups
which 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 other qualified plans which 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 which 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
(other than our money market funds) at net asset value, provided you hold a
minimum balance in that fund.

- --------------------------------------------------------------------------------
11 Prospectus - Growth and Income Funds

<PAGE>

MANAGING YOUR INVESTMENT

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

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.

CLASS B SHAREHOLDERS GENERALLY WILL RECEIVE LOWER PER SHARE DIVIDENDS 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 may be required to designate certain capital gain dividends that you must
treat as mid-term capital gains if you are an individual shareholder). Dividends
from a fund's net investment income and short-term capital gain distributions
are taxable as ordinary income.

EXCHANGING SHARES
- --------------------------------------------------------------------------------
If your investment goals or your financial needs change, you may move your
shares 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 and income fund assets into a Piper money
market fund. If you later exchange those money market shares for Piper Funds
class A shares, 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.

MAKING TRANSACTIONS BY PHONE
- --------------------------------------------------------------------------------
You may buy or sell shares over the phone by calling your broker. If you hold
your shares with IFTC or with a brokerage firm other than Piper Jaffray, you may
also buy or sell shares by calling IFTC at 1 800 874-6205, provided you have
authorized telephone privileges in 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 1 800 866-7778. As a shareholder, you automatically receive the
following:

Shareholder Reports

Statements and Confirmations

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

- --------------------------------------------------------------------------------
12 Prospectus - Growth and Income Funds

<PAGE>

MANAGING YOUR INVESTMENT

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

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

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 net
asset 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 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
- ----------------------------------------------------------------------------
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.

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.

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.

- --------------------------------------------------------------------------------
13 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

Each fund's investment objective is fundamental and may be changed only with
shareholder approval.

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' adviser. Although the board may include individuals
who are affiliated with the adviser, the majority of board members must be
independent. The board has retained the companies listed below to manage the
funds' operations.

Investment Adviser

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 Record Keeping Agent

Investors Fiduciary Trust Company (IFTC)
127 West Tenth Street
Kansas City, MO 64105

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

Transfer Agents

IFTC (address listed above)
Piper Jaffray (address listed above)
Piper Trust Company
222 South Ninth Street
Minneapolis, MN 55402-3804

- --------------------------------------------------------------------------------
14 Prospectus - Growth and Income Funds

<PAGE>

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

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

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 1.00%, 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.

Other Compensation

PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
When deciding which brokers to use for the funds' portfolio transactions, Piper
Capital may consider whether brokers have sold shares of the funds or any other
Piper Funds. Piper Capital may place trades through Piper Jaffray in compliance
with 1940 Act 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 a fund's portfolio are determined
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 regular close of 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.

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, instituted on February 21, 1995, related to
various funds and assets managed by Piper Capital.

- --------------------------------------------------------------------------------
15 Prospectus - Growth and Income Funds

<PAGE>

Growth and Income Funds - Prospectus

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

Annual/Semiannual Reports

Shareholder reports include financial statements and performance information on
the funds, a message from your portfolios manager, 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

1 800 866-7778

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

#30300 11/1997 221-97
<PAGE>
Prospectus
- --------------------------------------------------------------------------------

___________, 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
ADJUSTABLE RATE MORTGAGE 6 considerations, portfolio
SECURITIES FUND managers, shareholder
expenses and financial
highlights

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

MANAGING YOUR INVESTMENT
- -------------------------------------------------------------------------------
BUYING SHARES 12 Practical information to
Calculating Your Purchase Price help you manage your
Reducing Your Sales Charge investment in Piper Funds
Investing Automatically
HOLDING SHARES 13
Receiving Dividends and Other Distributions
Taxing of Dividends and Other Distributions
Exchanging Shares
Making Transactions by Phone
Staying Informed
SELLING SHARES 14
Receiving the Proceeds
Paying the CDSC
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 to your principal.

If you require absolute stability of your principal-or if you have a
long-term investment horizon and want maximum return-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. The 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. Additional information is available from your broker or by
calling Piper Capital at 1 800 866-7778.

- --------------------------------------------------------------------------------
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.

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.

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.

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 adviser. 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.

To provide flexibility and liquidity, the fund may invest up to 35% of total
assets in cash and short-term money market securities. It could temporarily
exceed this limit in abnormal market conditions, as a defensive measure.

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

INTEREST RATE RISK 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."
Generally, this fund maintains an average effective duration of three to eight
years. That's longer than other funds in this prospectus, making this fund
potentially more volatile.

CREDIT RISK An issuer of a security in this fund could 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. When the fund purchases unrated securities, it will depend on the
adviser's investment analysis more heavily than usual.

OTHER RISKS 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. 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, director of the taxable fixed income team and a senior vice
president of Piper Capital, has managed the fund since March 1995. He joined
the adviser in 1992 and has 25 years of financial experience.

DAVID STEELE, a senior vice president of Piper Capital, also began managing
the fund in March 1995. He joined the adviser in 1992 and has 16 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ____%
Total operating expenses (after fee limitation)(2). . . . . . . . . . . %

(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, ____%. Voluntary limitations may
be discontinued at any time after fiscal 1998 year end.

- --------------------------------------------------------------------------------
EXPENSES ON A $1,000 INVESTMENT
- --------------------------------------------------------------------------------

1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
5 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
10 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

- --------------------------------------------------------------------------------
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 Year Period from
Fiscal year ended September 30, 11/1/88 to Ended 3/16/87(1) 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. . $ 8.99 8.42 . 10.01 9.86 9.69 9.02 9.18 9.50 9.40 10.00
---- ----- ----- ----- ----- ----- ----- ----- ---- -----
Operations:
Net investment income . . . . . . . . 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. . . . (0.16) 0.60 (1.58) 0.15 0.17 0.67 (0.16) (0.32) 0.10 (0.60)
----- ----- ------ ----- ----- ----- ----- ----- ---- ----
Total from operations . . . . . . . . 0.44 1.20 (0.89) 0.95 1.07 1.51 0.65 0.44 0.92 (0.15)
----- ----- ------ ----- ----- ----- ----- ----- ---- ----
Distributions:
From net investment income. . . . . . (0.60) (0.63) (0.68) (0.80) (0.90) (0.84) (0.81) (0.76) (0.82) (0.45)
From net realized gains . . . . . . . -- -- (0.02) -- -- -- -- -- -- --
----- ----- ------ ----- ----- ----- ----- ----- ---- -----
Total distributions . . . . . . . . (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 . . . . $ 8.83 8.99 8.42 10.01 9.86 9.69 9.02 9.18 9.50 9.40

TOTAL RETURN(2) [BAR GRAPH]. . . . . . 4.99% 14.87% (9.26%) 10.06% 11.57% 17.51% 7.31% 4.78% 10.18% 1.41%

SELECTED INFORMATION
Net assets, end of period (in
millions) . . . . . . . . . . . . . $ 84 106 126 160 124 76 73 85 62 75
Ratio of expenses to average daily
net assets. . . . . . . . . . . . . % 1.09% 1.11% 1.05% 1.09% 1.11% 1.18% 1.08% 1.15%(4) 1.23% 0.70%(4)
Ratio of net investment income to
average daily net assets. . . . . . % 6.66% 7.02% 7.43% 8.10% 9.15% 9.00% 8.87% 8.81%(4) 8.68% 8.07%(4)
Ratio of expenses to average daily net
assets before waivers(3). . . . . . % 1.28% 1.29% 1.24% 1.27% 1.29% 1.36% 1.27% 1.35% 1.43% 1.48%(4)
Ratio of net investment income to
average daily net assets before
waivers(3). . . . . . . . . . . . . % 6.47% 6.84% 7.24% 7.92% 8.97% 8.82% 8.68% 8.61% 8.48% 7.29%(4)
Portfolio turnover rate (excluding
short-term securities). . . . . . . % 32% 87% 121% 191% 118% 110% 202% 149% 217% 281%
</TABLE>

(1) Commencement of operations.

(2) Total return is based on the change in net asset value, assumes
reinvestment of all distributions and does not reflect a sales charge.

(3) During the periods shown, the distributor voluntarily waived fees. Had the
maximum 12b-1 fee of 0.50% been in effect, the ratios of expenses and net
investment income to average daily net assets would have been as shown.
Beginning in fiscal 1995, the expense ratios reflect the effect of gross
expenses paid indirectly by the fund. Prior period expense ratios have not
been adjusted.

(4) 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.

- - 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 adviser.

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. In abnormal
market conditions, the fund may temporarily exceed this limit as a defensive
measure.

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. The fund will
not purchase or sell options on securities, or enter into futures contracts.

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

INTEREST RATE RISK 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." This fund
generally maintains an average effective duration of two to six years. It also
attempts to maintain a dollar-weighted average maturity of three to 10 years.

CREDIT RISK This fund is 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 by Standard & Poor's Ratings Services or Baa by Moody's
Investors Service or in unrated securities of comparable quality. Although
these securities are investment grade, they are viewed as having 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 adviser's investment analysis more
heavily than usual.

OTHER RISKS 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. See pages 8-11 for more information.

PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------

WORTH BRUNTJEN, a senior vice president of Piper Capital, has managed the fund
since its inception in 1988. He has 28 years of financial experience.

BRUCE SALVOG, director of the taxable fixed income team and a senior vice
president of Piper Capital, became a manager of the fund in September 1996. He
joined the adviser in 1992 and has 25 years of financial experience.

DAVID STEELE, a senior vice president of Piper Capital, also began managing
the fund in September 1996. He joined the adviser in 1992 and has 16 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.25%
12b-1 fee (after fee limitation)(1). . . . . . . . . . . . . . . . . . 0.22%
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . ____%
Total operating expenses (after fee limitation)(1) . . . . . . . . . . %

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

- --------------------------------------------------------------------------------
EXPENSES ON A $1,000 INVESTMENT
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
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 . . $ 8.12 7.98 12.22 11.51 10.71 10.02 9.96 10.08 10.00
----- ----- ------ ----- ----- ----- ----- ----- -----
Operations:
Net investment income. . . . . . . . 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 . (0.11) 0.31 (3.96) 0.56 0.73 0.67 0.08 (0.12) 0.08
----- ----- ------ ----- ----- ----- ----- ----- -----
Total from operations. . . . . . . . 0.42 1.19 (3.06) 1.85 1.80 1.61 0.99 0.70 0.29
Distributions: ----- ----- ------ ----- ----- ----- ----- ----- -----

From net investment income . . . . . (1.04) (1.05) (0.95) (0.90) (0.91) (0.90) (0.90) (0.81) (0.21)
From net realized gains. . . . . . . -- -- (0.23) (0.24) (0.09) (0.02) (0.03) (0.01) --
----- ----- ------ ----- ----- ----- ----- ----- -----
Total distributions . . . . . . (1.04) (1.05) (1.18) (1.14) (1.00) (0.92) (0.93) (0.82) (0.21)
----- ----- ------ ----- ----- ----- ----- ----- -----
Net asset value, end of period . . . . . $ 7.50 8.12 7.98 12.22 11.51 10.71 10.02 9.96 10.08

TOTAL RETURN(4) [BAR GRAPH]. . . . . . . 5.68% 16.15% (26.65%) 17.04% 17.70% 16.80% 10.30% 7.38% 3.09%

SELECTED INFORMATION
Net assets, end of period (in
millions) . . . . . . . . . . . . . . $ 136 319 564 792 470 132 36 28 18
Ratio of expenses to average daily
net assets(6,7) . . . . . . . . . . . % 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. . . . . . . % 6.65% 8.02% 9.33% 12.51% 11.01% 9.29% 9.00% 9.03%(5) 7.91%(5)
Ratio of expenses to average daily net
assets before waivers(6). . . . . . . % 0.82% 1.07% 0.85% 0.77% 0.72% 0.82% 0.91% 1.40% 1.53%(5)
Ratio of net investment income to
average daily net assets before
waivers(6). . . . . . . . . . . . . . % 6.55% 7.92% 9.26% 12.44% 10.94% 9.22% 8.87% 8.48% 7.13%(5)
Portfolio turnover rate (excluding
short-term securities). . . . . . . . % 89% 136% 169% 109% 64% 29% 76% 23% 14%
</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 is based on the change in net asset value, assumes
reinvestment of all distributions and does not reflect a sales charge.

(5) Annualized.

(6) During the periods shown, the adviser and distributor voluntarily waived
fees and expenses. Had the fund paid all expenses and had the maximum 12b-1
fee been in effect, the ratios of expenses and net investment income to
average daily net assets would have been as shown. Beginning in fiscal 1995,
the expense ratio reflects the effect of gross expenses paid indirectly by
the fund. Prior period expense ratios have not been adjusted.

(7) Includes federal excise taxes of 0.08%, 0.37%, 0.23%, 0.09% and 0.02% for
the fiscal years ended 9/30/96 through 9/30/92, 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.
- - 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 up to 10% in zero-coupon 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 as well as reverse repurchase agreements.

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 (Standard & Poor's) or Aa (Moody's) or
equivalent at the time of purchase, or unrated securities of comparable
quality as determined by the adviser. 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
- --------------------------------------------------------------------------------
INTEREST RATE RISK 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 will
generally 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 to
reflect the fact that interest rates payable on the underlying mortgages have
not yet changed to reflect current market rates.

CREDIT RISK The fund is 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 adviser's investment analysis more heavily
than usual.

OTHER RISKS 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. See pages 8-11 for more information.

PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------

TOM MCGLINCH, CFA, is a senior vice president of Piper Capital. He has managed
this fund since its inception in September 1995. He joined the adviser in 1992
and has 16 years of financial experience.

WAN-CHONG KUNG, CFA, vice president, began managing this 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.

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. . . . . . . . . . . . . . . . . . . . . . . . . . . . ____%
Total operating expenses. . . . . . . . . . . . . . . . . . . . . . . %

- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------

Year Month Year Year Year Year Period
Ended Ended Ended Ended Ended Ended Ended
9/30/97 9/30/96 8/31/96 8/31/95 8/31/94 8/31/93 8/31/92(1)
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA(2)
Net asset value, beginning of period. . . $ 8.03 7.99 8.10 8.88 8.95 8.80
----- ----- ----- ----- ----- -----
Operations:
Net investment income. . . . . . . . . . 0.04 0.49 0.47 0.55 0.63 0.40
Net realized and unrealized
gains (losses) on investments . . . . . 0.03 0.01 (0.05) (0.82) (0.09) 0.07
----- ----- ----- ----- ----- -----
Total from operations. . . . . . . . . . 0.07 0.50 0.42 (0.27) 0.54 0.47
----- ----- ----- ----- ----- -----
Distributions:
From net investment income . . . . . . . (0.04) (0.46) (0.53) (0.51) (0.61) (0.32)
----- ----- ----- ----- ----- -----
Net asset value, end of period. . . . . . $ 8.06 8.03 7.99 8.10 8.88 8.95

TOTAL RETURN(5) [BAR GRAPH] . . . . . . . 0.85% 6.40% 5.43% (3.18%) 6.24% 5.49%

SELECTED INFORMATION(2)
Net assets, end of period (in
millions). . . . . . . . . . . . . . . $ 263 270 409 500 551 555
Ratio of expenses to average daily net
assets(4). . . . . . . . . . . . . . . % 0.82%(5) 0.60% 0.63% 0.60% 0.58% 0.58%(5)
Ratio of net investment income to
average daily net assets(4). . . . . . % 5.82%(5) 5.74% 5.62% 6.39% 7.25% 7.70%(5)
Portfolio turnover rate (excluding
short-term securities) . . . . . . . . % 2% 51% 36% 39% 39% 41%
Amount of borrowings outstanding at end
of period (in millions)(6) . . . . . . $ -- -- -- 145 145 145
Average amount of borrowings outstanding
during the period (in millions)(6) . . $ -- -- 57 145 149 90
Average number of shares outstanding
during the period (in millions)(6) . . -- -- 53 62 62 52
Average per-share amount of borrowings
outstanding during the period(6) . . . $ -- -- 1.09 2.34 2.41 1.67
</TABLE>

(1) Commencement of operations of DDJ was 1/30/92.

(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 adjusted 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 is based on the change in net asset value, assumes
reinvestment of all distributions and does not reflect a sales charge.

(4) During the year ended 8/31/96, the adviser voluntarily waived or absorbed
various fees and expenses. 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. Beginning in the year ended 8/31/96, the
expense ratios reflects the effect of gross expenses paid indirectly by the
fund. Prior period expense ratios have not been adjusted.

(5) Annualized.

(6) 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.

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

<PAGE>

PORTFOLIO OVERVIEW

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

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

<TABLE>
<CAPTION>
ADJUSTABLE RATE
GOVERNMENT INTERMEDIATE MORTGAGE SECURITIES
INCOME FUND BOND FUND FUND
INVESTMENT SECURITIES
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>

ASSET-BACKED SECURITIES . . . . . . . . . . . . . . . . . . . . . . n y y
generally are backed by shorter-term unsecured debt,
such as credit card and auto loan debt.
These securities are often guaranteed or over-collateralized
to improve credit quality. Credit, Interest Rate, Market

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

EURODOLLAR INSTRUMENTS. . . . . . . . . . . . . . . . . . . . . . . n n y
are U.S. dollar denominated futures contracts or options on
futures contracts that are used to protect against changes in
LIBOR (the London Interbank Offered Rate). Interest Rate,
Leverage, Liquidity, Market, Correlation, Opportunity

FUTURES CONTRACTS (D) . . . . . . . . . . . . . . . . . . . . . . . y n y
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 as protection
against fluctuations in the value of its portfolio without actually
buying or selling securities. Interest Rate, Leverage, Liquidity,
Market, Correlation, Opportunity

OPTIONS ON FUTURES CONTRACTS (D). . . . . . . . . . . . . . . . y n y
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. Interest Rate, Leverage, Liquidity, Market,
Correlation, Opportunity

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. This
includes Rule 144A securities unless they are determined to be
liquid under procedures adopted by the board of directors.
Liquidity, Market

INTEREST RATE CAPS AND FLOORS (D) . . . . . . . . . . . . . . . . . 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. Correlation, Credit,
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 (D) . . . . . . . . . . . . y y y
pay interest rates which change periodically based on changes
in an underlying interest rate index Interest Rate, Credit,
Market, Extension, Prepayment

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) (D). . . . . . . . . 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
tranches have different risk/return characteristics.
Tranches with more predictable cash flows generally have
lower yields. Interest Rate, Credit, Market, Extension,
Prepayment, Liquidity, Leverage

</TABLE>

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

<PAGE>

PORTFOLIO OVERVIEW

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

MORTGAGE-RELATED SECURITIES (CONTINUED)

INVERSE FLOATING RATE, INVERSE INTEREST ONLY, INTEREST
ONLY, AND PRINCIPAL ONLY SECURITIES (D) . . . . . . . . . . . . 10 n n
are CMO tranches or multiclass mortgage securities with
less predictable cash flows. These securities are extremely
sensitive to interest rate changes and are 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.
Interest Rate, Credit, Market, Extension, Prepayment,
Liquidity, Leverage

PASS-THROUGHS (D) . . . . . . . . . . . . . . . . . . . . . . . y y y
pass principal and interest payments through to investors,
net of fees. Interest Rate, Credit, Market, Extension,
Prepayment

Z BONDS (D) . . . . . . . . . . . . . . . . . . . . . . . . . . y y n
are CMO tranches which defer interest and principal
payments until other tranches have been paid. Prices
fluctuate more widely with changes in interest rates than
prices of securities with similar maturities that pay
interest currently. Interest Rate, Credit, Market,
Extension, Prepayment, Liquidity, Leverage

OPTIONS ON SECURITIES (D) . . . . . . . . . . . . . . . . . . . . . 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, upon payment of the option exercise price.
The writer of the option is then obligated to either deliver or
purchase the securities. Interest Rate, Market, Leverage,
Correlation, Liquidity, Credit, Opportunity

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

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). Interest Rate, Credit, Market

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. Interest Rate, Credit,
Market, Foreign Issuer

ZERO COUPON, PAY-IN-KIND AND DELAYED INTEREST SECURITIES. . . . . . y y 10
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.(1)
Interest Rate, Credit, Market

</TABLE>

(D) These securities 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.

(1) 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

<TABLE>
<CAPTION>
ADJUSTABLE RATE
GOVERNMENT INTERMEDIATE MORTGAGE SECURITIES
INCOME FUND BOND FUND 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

INDUSTRY CONCENTRATION. . . . . . . . . . . . . . . . . . . . . . . n n n(1)
The investment by a fund of 25% or more of its total assets in
any one industry. Market, Opportunity

MORTGAGE DOLLAR ROLLS . . . . . . . . . . . . . . . . . . . . . . . 33.3 25 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. Market,
Opportunity, 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. Market

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

REVERSE REPURCHASE AGREEMENTS . . . . . . . . . . . . . . . . . . . 25 n 10
The fund sells securities and agrees to buy them back at a set
time and price, plus interest. Leverage

WHEN-ISSUED AND FORWARD COMMITMENTS . . . . . . . . . . . . . . . . y 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. Market, Opportunity, Leverage

</TABLE>

(1) Adjustable Rate Mortgage Securities Fund will invest 25% or
more of its total assets in ARM securities issued or guaranteed
by the U.S. government or its agencies or instrumentalities or
by private organizations.

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

<PAGE>

PORTFOLIO OVERVIEW

RISK FACTORS
- --------------------------------------------------------------------------------

CORRELATION 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.

EXTENSION RISK

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.

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

MARKET RISK

OPPORTUNITY RISK

The risk of having to forego an investment opportunity because assets are tied
up in a less beneficial investment.

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

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.

As a % of As a % of
Purchase amount purchase price net asset value
Up to $100,000 . . . . . . . . . . . . . 2.00% . . . . . . . . . . . 2.04%
$100,000-249,999 . . . . . . . . . . . . 1.25% . . . . . . . . . . . 1.27%
$250,000-499,999 . . . . . . . . . . . . 0.50% . . . . . . . . . . . 0.50%
$500,000 and more. . . . . . . . . . . . None* . . . . . . . . . . . None*

*A contingent deferred sales charge will be assessed if you redeem within 12
months. See "Selling Shares," page 14.

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

You may combine your purchase with purchases from another account, such as
your spouse's or child's account or your IRA. Qualified groups which invest as
a unit may also combine purchases to reduce sales charges.

LETTER OF INTENT

SPECIAL PURCHASE PLANS

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

- - Investors in 401(k) or other qualified plans which 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 which 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

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 (other than our money market funds) without paying a sales charge,
provided you hold a minimum balance in that fund.

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, AN INSTITUTIONAL CLASS OF SHARES CALLED "CLASS Y 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 1 800 866-7778.

- --------------------------------------------------------------------------------
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. They begin accruing on the settlement date for the purchase of your
shares and continue through the day before the sale of your shares is settled.
Capital gains, if any, are distributed at least once annually.

If you sell or exchange your fund shares, it 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 for individuals who have
held their shares for more than 18 months and mid-term for individuals who have
held their 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 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 Piper Funds class A
shares, 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.

MAKING TRANSACTIONS BY PHONE
- --------------------------------------------------------------------------------
You may buy or sell shares over the phone by calling your broker. If you hold
your shares with IFTC or with a brokerage firm other than Piper Jaffray, you
may also buy or sell shares by calling IFTC at 1 800 874-6205, 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 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 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
- --------------------------------------------------------------------------------

YOU MAY SELL ANY OR ALL OF YOUR SHARES AT ANY TIME FOR THEIR NET ASSET VALUE
(LESS ANY APPLICABLE CONTINGENT DEFERRED SALES CHARGES). SIMPLY CALL YOUR
BROKER. YOUR REQUEST WILL BE EXECUTED AT THE NEXT NET ASSET VALUE CALCULATED
AFTER YOUR REQUEST IS RECEIVED BY YOUR BROKER.

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 net asset 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.

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 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

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.

FUND OBJECTIVES

Each fund's investment objective is fundamental and may be changed only with
shareholder approval.

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' adviser. Although the board may include
individuals who are affiliated with the adviser, the majority of board members
must be independent. The board has retained the companies listed below to
manage the funds' operations.

INVESTMENT ADVISER

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

As investment adviser, 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 adviser to the other Piper Funds, to a number
of closed-end investment companies and to various institutions, corporations
and individuals. Piper Capital has approximately $9 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 RECORD KEEPING AGENT

Investors Fiduciary Trust Company (IFTC)
127 West Tenth Street
Kansas City, MO 64105

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

TRANSFER AGENTS

IFTC (address listed above)
Piper Jaffray (address listed above)
Piper Trust Company
222 South Ninth Street
Minneapolis, MN 55402-3804

The funds' transfer agents pay dividends and other distributions. Piper
Jaffray and Piper Trust provide transfer agent services for
shareholders whose accounts are held at those companies. IFTC provides these
services for all other shareholder accounts.

- --------------------------------------------------------------------------------
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. If your purchase of fund shares was not
subject to a front-end sales charge, Piper Jaffray may receive a fee from Piper
Capital equal to a percentage of the purchase price. Piper Jaffray also receives
any CDSC imposed when you sell your 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.
Piper Jaffray is currently voluntarily limiting the 12b-1 fees it receives
from Government Income Fund and Intermediate Bond Fund. The funds 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 also uses 12b-1 fees
to pay other distribution expenses and shareholder servicing costs, such as
printing and promotional costs.

OTHER COMPENSATION

In addition to the compensation discussed above, Piper Jaffray and Piper
Capital may provide promotional incentives to brokers. These incentives, which
may be available only to brokers who have sold significant amounts of fund
shares, may include payment for travel expenses in connection with sales
seminars, including lodging at luxury resorts.

PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
The income 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 the funds or any other Piper
Funds. Piper Capital may place trades through Piper Jaffray in compliance with
1940 Act 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 a fund's portfolio are
determined 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 regular close of the New York Stock
Exchange (typically 4 p.m. Eastern Time) on each day the exchange is open for
trading.

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 - Income Funds

<PAGE>

INCOME FUNDS - PROSPECTUS
- --------------------------------------------------------------------------------

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
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

1 800 866-7778

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

#30400 11/1997 222-97

<PAGE>

Tax-Exempt Income Funds - Prospectus
- --------------------------------------------------------------------------------

__________, 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.

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
- --------------------------------------------------------------------------------
INVESTING IN PIPER TAX-EXEMPT INCOME FUNDS 1

FUND DESCRIPTIONS
- --------------------------------------------------------------------------------
NATIONAL TAX-EXEMPT FUND 2 Investment objectives and
MINNESOTA TAX-EXEMPT FUND 4 policies, risk considerations,
portfolio managers,
shareholder expenses and
financial highlights

PORTFOLIO OVERVIEW
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES AND TECHNIQUES 6 An overview of securities and
RISK FACTORS 8 investment techniques that may
be used by the funds and their
risks

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

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.

- --------------------------------------------------------------------------------
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 from federal income tax,
including the federal alternative minimum tax (AMT).

Municipal securities are 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 adviser determines
are of comparable quality.

The fund may invest up to 20% of its net assets in taxable obligations. In
addition, during periods of abnormal market conditions, the fund temporarily may
invest up to 100% of its net assets in taxable obligations. 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 Services 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.

CREDIT RISK This fund 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 are viewed as having 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 adviser's investment
analysis more heavily than usual.

CALL 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.

POLITICAL AND ECONOMIC RISK The value of municipal securities owned by the fund
may be adversely affected by local political and economic conditions and
developments.

OTHER RISKS The investment securities and techniques used by this fund present
other risks as well. See pages 6-8 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 adviser in 1986 and has 28 years
of financial experience.

DOUGLAS WHITE, CFA, is a senior vice president of Piper Capital. He joined the
adviser in 1987 and has managed the fund since inception. He has 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . ____%
Total operating expenses (after fee limitation)(2). . . . . . . . . . %

(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 0.31% and total operating expenses, ___%. Voluntary 12b-1 fee
limitations may be discontinued at any time after fiscal 1998 year end.

1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
5 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
10 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

- --------------------------------------------------------------------------------
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,

1997 1996 1995 1994 1993 1992 1991 1990 1989 1988(1)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

PER SHARE DATA
Net asset value, beginning of
period. . . . . . . . . . . . . . . . $ 10.69 10.22 11.76 10.94 10.51 9.91 9.99 10.03 10.00
----- ----- ----- ----- ----- ---- ---- ----- -----
Operations:
Net investment income. . . . . . . . 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 . . . 0.12 0.47 (1.21) 0.94 0.43 0.60 (0.08) (0.04) 0.03
----- ----- ----- ----- ----- ---- ---- ----- -----
Total from operations. . . . . . . . 0.68 1.07 (0.64) 1.55 1.09 1.28 0.60 0.67 0.15
----- ----- ----- ----- ----- ---- ---- ----- -----
Distributions:
From net investment income(2). . . . (0.56) (0.60) (0.57) (0.61) (0.66) (0.68) (0.68) (0.71) (0.12)
From net realized gains. . . . . . . -- -- (0.33) (0.12) -- -- -- -- --
----- ----- ----- ----- ----- ---- ---- ----- -----
Total distributions. . . . . . . . . (0.56) (0.60) (0.90) (0.73) (0.66) (0.68) (0.68) (0.71) (0.12)
----- ----- ----- ----- ----- ---- ---- ----- -----
Net asset value, end of period . . . . $ 10.81 10.69 10.22 11.76 10.94 10.51 9.91 9.99 10.03

TOTAL RETURN(3) [BAR GRAPH]. . . . . . 6.42% 10.30% (5.72%) 14.76% 10.68% 13.31% 6.15% 6.82% 1.50%

SELECTED INFORMATION
Net assets, end of period
(in millions) . . . . . . . . . . . . $ 46 57 68 79 59 46 36 36 5
Ratio of expenses to average
daily net assets. . . . . . . . . . . % 1.03% 1.01% 0.93% 0.94% 0.94% 0.92% 0.86% 0.80% 0.80%(5)
Ratio of net investment income to
average daily net assets. . . . . . . % 5.15% 5.37% 5.25% 5.42% 6.13% 6.59% 6.78% 6.56% 5.90%(5)
Ratio of expenses to average daily
net assets before waivers(4). . . . . % 1.13% 1.09% 1.03% 1.04% 1.10% 1.15% 1.13% 1.62% 2.76%(5)
Ratio of net investment income
to average daily net assets
before waivers(4) . . . . . . . . . . % 5.05% 5.29% 5.15% 5.32% 5.97% 6.36% 6.51% 5.74% 3.94%(5)
Portfolio turnover rate (excluding
short-term securities) . . . . . . . % 43% 28% 65% 43% 35% 59% 80% 57% 10%

</TABLE>

(1) Period from 7/11/88 (commencement of operations) to 9/30/88.

(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 the years ended 9/30/91, 9/30/90, 9/30/89 and the
period ended 9/30/88, respectively.

(3) Total return is based on the change in net asset value, assumes
reinvestment of all distributions and does not reflect a sales charge.

(4) During the periods shown, the adviser and distributor voluntarily waived
fees and expenses. Had the fund paid all fees and expenses and had the
maximum 12b-1 fee of 0.30% been in effect, the ratios of expenses and net
investment income to average daily net assets would have been as shown.
Beginning in fiscal 1995, the expense ratio reflects the effect of gross
expenses paid indirectly by the fund. Prior period expense ratios have not
been adjusted.

(5) 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 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 LOCAL POLITICAL, ECONOMIC AND
REGULATORY CONDITIONS AND DEVELOPMENTS. SEE THE STATEMENT OF ADDITIONAL
INFORMATION FOR DETAILS.

Municipal securities are 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 adviser
determines are of comparable quality.

The fund may invest up to 20% of its net assets in taxable obligations. During
periods of abnormal market conditions, it temporarily may invest up to 100% of
its net assets in taxable obligations of the types described for National Tax-
Exempt Fund.

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

INTEREST RATE RISK 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.

POLITICAL AND ECONOMIC RISK The value of municipal securities owned by the fund
may be adversely affected by local political and economic conditions and
developments.

OTHER RISKS The investment securities and techniques used by this fund present
other risks as well. See pages 8-11 for more information. Because the fund is
not diversified, it will be subject to additional risk. See "Non-Diversification
Risk," page 8.

PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------

RONALD REUSS, chief economist and a senior vice president of Piper Capital, has
managed the fund since inception. He joined the adviser in 1986 and has 28 years
of financial experience.

DOUGLAS WHITE, CFA, is a senior vice president of Piper Capital. He joined the
adviser in 1987 and has also managed the fund since inception. He has 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . ____%
Total operating expenses (after fee limitation)(2) . . . . . . . . . %

(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 0.31% and total operating expenses, ____%. Voluntary 12b-1 fee
limitations may be discontinued at any time after fiscal 1998 year end.

- --------------------------------------------------------------------------------
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.

- --------------------------------------------------------------------------------
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,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988(1)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period . . $ 10.81 10.28 11.43 10.79 10.46 9.92 10.06 9.94 10.00
----- ----- ----- ----- ----- ---- ----- ---- -----
Operations:
Net investment income. . . . . . . . . 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 . . . . 0.07 0.53 (0.95) 0.68 0.33 0.54 (0.14) 0.12 (0.06)
----- ----- ----- ----- ----- ---- ----- ---- -----
Total from operations. . . . . . . . . 0.66 1.19 (0.34) 1.30 0.97 1.20 0.52 0.80 0.06
----- ----- ----- ----- ----- ---- ----- ---- -----
Distributions:
From net investment income(2). . . . . (0.58) (0.66) (0.61) (0.62) (0.64) (0.66) (0.66) (0.68) (0.12)
From net realized gains. . . . . . . . -- (0.20) (0.04) -- -- -- -- -- --
----- ----- ----- ----- ----- ---- ----- ---- -----
Total distributions . . . . . . . . . (0.58) (0.66) (0.81) (0.66) (0.64) (0.66) (0.66) (0.68) (0.12)
----- ----- ----- ----- ----- ---- ----- ---- -----
Net asset value, end of period . . . . . $ 10.89 10.81 10.28 11.43 10.79 10.46 9.92 10.06 9.94

TOTAL RETURN(3) [BAR GRAPH]. . . . . . . 6.42% 11.38% (3.14%) 12.52% 9.56% 12.49% 5.30% 8.23% 0.58%

SELECTED INFORMATION
Net assets, end of period
(in millions) . . . . . . . . . . . . . $ 126 134 162 169 132 83 63 51 9
Ratio of expenses to average daily
net assets. . . . . . . . . . . . . . . % 0.90% 0.91% 0.89% 0.91% 0.93% 0.92% 0.87% 0.80% 0.80%(5)
Ratio of net investment income
to average daily net assets . . . . . . % 5.38% 5.80% 5.61% 5.62% 6.00% 6.44% 6.58% 6.45% 5.91%(5)
Ratio of expenses to average
daily net assets before
waivers(4). . . . . . . . . . . . . . . % 0.99% 0.99% 0.99% 1.00% 1.01% 1.05% 1.06% 1.33% 1.97%(5)
Ratio of net investment income
to average daily net assets
before waivers(4). . . . . . . . . . . . % 5.29% 5.72% 5.51% 5.53% 5.92% 6.31% 6.39% 5.92% 4.74%(5)
Portfolio turnover rate (excluding
short-term securities) . . . . . . . . % 35% 30% 44% 29% 35% 22% 41% 54% 12%
</TABLE>

(1) Period from 7/11/88 (commencement of operations) to 9/30/88.

(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 the years ended 9/30/92, 9/30/91, 9/30/90, 9/30/89
and the period ended 9/30/88, respectively.

(3) Total return is based on the change in net asset value, assumes
reinvestment of all distributions and does not reflect a sales charge.

(5) Annualized.

- --------------------------------------------------------------------------------
5 Prospectus - Tax-Exempt Income Funds
<PAGE>

PORTFOLIO OVERVIEW

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

10 Percent of total assets
/10/ Percent of net assets
y Permitted without limitation
/y/ Permitted, but not typically used
n Not permitted

<TABLE>
<CAPTION>
NATIONAL MINNESOTA
TAX-EXEMPT FUND TAX-EXEMPT FUND
<S> <C> <C>
INVESTMENT SECURITIES
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y
include debt obligations issued by states, cities, local authorities, and possessions
and certain territorial possessions of the United States to obtain funds for public
purposes. There are two principal classifications of municipal securities: 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 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

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

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, 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

DERIVATIVE MUNICIPAL SECURITIES (D). . . . . . . . . . . . . . . . . . . . . . . . . . y y
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. Call, Credit, Information, Interest Rate, Leverage,
Liquidity, Political and Economic

INTEREST ONLY AND PRINCIPAL ONLY CUSTODIAL RECEIPTS (D) . . . . . . . . . . . . . y /y/
pay only the interest or principal due on the underlying municipal securities.

FLOATING RATE CUSTODIAL RECEIPTS (D) . . . . . . . . . . . . . . . . . . . . . . . y y
pay variable or floating rates of interest.

INVERSE FLOATING RATE CUSTODIAL RECEIPTS (D) . . . . . . . . . . . . . . . . . . . 20 20
pay interest at a rate that varies inversely to changes in the interest rate of
specified municipal securities or a specified index.

</TABLE>

- --------------------------------------------------------------------------------
6 Prospectus - Tax-Exempt Income Funds
<PAGE>

PORTFOLIO OVERVIEW

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

<TABLE>
<S> <C> <C>
FUTURES CONTRACTS (D) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y
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 as protection against
fluctuations in the value of its portfolio without actually buying or selling
securities. Interest Rate, Leverage, Liquidity, Market, Correlation, Opportunity

OPTIONS ON FUTURES CONTRACTS (D). . . . . . . . . . . . . . . . . . . . . . . . . . . y y
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. Interest Rate, Leverage, Liquidity, Market, Correlation,
Opportunity

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. This includes Rule 144A securities unless they are
determined to be liquid under procedures adopted by the board of directors. Liquidity,
Market

PUTS (D) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y y
provide the right to resell securities at a specified price within a specified period
of time prior to the maturity date. A fund may pay a higher price to purchase a
municipal security with a put than it would pay for the same security without a put.
Puts provide a fund with potential liquidity. Credit, Opportunity

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. Market, Opportunity, Political and Economic

INDUSTRY CONCENTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . n(1) n(1)
The investment by a fund of 25% or more of its total assets in any one industry. Market,
Opportunity

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

REVERSE REPURCHASE AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . y(2) /y/(2)
The fund sells securities and agrees to buy them back at a set time and price,
plus interest. Leverage

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. Market, Opportunity, Leverage

</TABLE>

(1) 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. Gas, electric, water and telephone companies will be
considered separate industries.

(2) The funds' investment policies allow investment of up to 25% of total
assets in reverse repurchase agreements.

- -------------------------------------------------------------------------------
6 Prospectus - Tax-Exempt Income Funds
<PAGE>

PORTFOLIO OVERVIEW

RISK FACTORS
- --------------------------------------------------------------------------------

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.

CORRELATION 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.

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

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 magnifies exposure to the potential risks and rewards of a particular
investment. If a security or investment practice involves leverage, small market
movements can result in large changes in market value.

LIQUIDITY RISK

A fund may not be able to sell a 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. 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

NON-DIVERSIFICATION RISK

Because the 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.

OPPORTUNITY RISK

The risk of having to forego an investment opportunity because assets are tied
up in a less beneficial investment.

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).

- --------------------------------------------------------------------------------
8 Prospectus - Tax-Exempt Income Funds
<PAGE>

MANAGING YOUR INVESTMENT

BUYING SHARES
- --------------------------------------------------------------------------------

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.

As a % of As a % of
Purchase amount purchase price net asset value

Up to $100,000 . . . . . . . . . . .2.00% . . . . . . . . . . . . . . 2.04%

$100,000-249,999 . . . . . . . . . .1.25% . . . . . . . . . . . . . . 1.27%

$250,000-499,999. . . . . . . . . .0.50% . . . . . . . . . . . . . . 0.50%

$500,000 and more. . . . . . . . . .None*. . . . . . . . . . . . . . .None*

*A contingent deferred sales charge will be assessed if you redeem within 12
months. See "Selling Shares," page 11.

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

You may combine your purchase with purchases from another account, such as your
spouse's or child's account or your IRA. Qualified groups which invest as a unit
may also combine purchases 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 charges.)

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, 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 which 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
(other than our money market funds) without paying a sales charge, provided you
hold a minimum balance in that fund.

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 1 800 866-7778.

- -------------------------------------------------------------------------------
9 Prospectus - Tax-Exempt 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. They begin accruing on the settlement date for the purchase of your
shares and continue through the day before the sale of your shares is settled.
Capital gains, if any, are distributed at least once annually.

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.

TAXING OF 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.

If you sell or exchange your fund shares, it 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 the 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 Piper Funds class
A shares, 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.

Shareholder Reports

Statements and Confirmations

Statements 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
- --------------------------------------------------------------------------------

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 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 CDSC
- --------------------------------------------------------------------------------
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 net asset 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
in class A shares of 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

Each fund's investment objective is fundamental and may be changed only with
shareholder approval.

Investment Adviser

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 Record Keeping Agent

Investors Fiduciary Trust Company (IFTC)
127 West Tenth Street
Kansas City, MO 64105

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

Transfer Agents

IFTC (address listed above)
Piper Jaffray (address listed above)
Piper Trust Company
222 South Ninth Street
Minneapolis, MN 55402-3804

The funds' transfer agents pay dividends and other distributions. Piper
Jaffray and Piper Trust provide transfer agent services for shareholders
whose accounts are held at those companies. IFTC provides these services for
all other shareholder accounts.

- --------------------------------------------------------------------------------
12 Prospectus - Tax-Exempt Income Funds
<PAGE>

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

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. Piper Jaffray is
currently voluntarily limiting the 12b-1 fees it receives from the funds. The
funds pay 12b-1 fees to Piper Jaffray quarterly, at the following annual rates:

12b-1 Fee
-----------------------------------------
Before Limitation After Limitation
-----------------------------------------

As a % of net assets. . . . . . . . 0.30% 0.24%

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 also uses 12b-1 fees to pay other distribution expenses
and shareholder servicing costs, such as printing and promotional costs.

Other Compensation

PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
The tax-exempt income 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 the funds or any other Piper
funds. Piper Capital may place trades through Piper Jaffray in compliance with
1940 Act rules.

- - 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 regular close of 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>

Tax-Exempt Income Funds - Prospectus

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
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

1 800 866-7778

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

#30500 11/1997 223-97
<PAGE>

PROSPECTUS
Prospectus - Cash Management Funds
- --------------------------------------------------------------------------------

___________, 1997

[LOGO]

CASH MANAGEMENT FUNDS

MONEY MARKET FUND (Class A and Class B Shares)
- ---------------------------------------------------

TAX-EXEMPT MONEY MARKET FUND (Class A Shares)
- ---------------------------------------------------

U.S. GOVERNMENT 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.

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
- --------------------------------------------------------------------------------
INVESTING IN PIPER CASH MANAGEMENT FUNDS . . . . 1

FUND DESCRIPTIONS
- --------------------------------------------------------------------------------
MONEY MARKET FUND . . . . . . . . . . . . . . . 2 Investment objectives and
TAX-EXEMPT MONEY MARKET FUND . . . . . . . . . . 4 policies, risk
U.S. GOVERNMENT MONEY MARKET FUND. . . . . . . . 6 considerations, portfolio
managers, shareholder
expenses and financial
highlights

PORTFOLIO OVERVIEW
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES AND TECHNIQUES . . . . . . 8 An overview of securities
RISK FACTORS . . . . . . . . . . . . . . . . . . 9 and investment techniques
that may be used by the
funds and their risks

MANAGING YOUR INVESTMENT

- --------------------------------------------------------------------------------
BUYING SHARES. . . . . . . . . . . . . . . . . . 10 Practical information to
Calculating Your Purchase Price help you manage your
Investing Automatically investment in Piper Funds
HOLDING SHARES . . . . . . . . . . . . . . . . . 11
Receiving Dividends and Other Distributions
Taxing of Dividends and Other Distributions
Exchanging Shares
Making Transactions by Phone
Staying Informed
SELLING SHARES . . . . . . . . . . . . . . . . . 12
Receiving the Proceeds
Paying the Contingent Deferred Sales Charge
(CDSC) on Class B Shares

GENERAL INFORMATION. . . . . . . . . . . . . . . 13

<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. The risks associated with these funds are outlined in the
following pages.

- --------------------------------------------------------------------------------
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 and its agencies and
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

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
adviser 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 adviser 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 and
it maintains an average weighted maturity of 90 days or less. The fund's
investments include securities with variable or floating interest rates. The
maturities of these securities are determined according to federal rules which
allow the fund to consider some variable or floating rate securities as having
maturities shorter than their stated maturity dates.

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, as may other investment securities and techniques
used by the fund. See pages 8-9 for more information.

PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
NANCY OLSEN is director of the cash management team and a senior vice president
of Piper Capital. She joined the adviser in 1987 and has managed the fund since
its inception. She has 19 years of financial experience.

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 . . . . . . . . . . . . . . . . . . . . . . . 0.38% 0.38%
12b-1 fee (after class A share fee limitation)(1). . . . . . 0.20% 1.00%
Other expenses . . . . . . . . . . . . . . . . . . . . . . . % %
----- -----
Total operating expenses (after fee limitation)(1) . . . . . % %

(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 ___%
for class A shares. The 12b-1 fees for class B shares have not been
voluntarily limited. Fee limitations and expense reimbursements reflected
in the table may be discontinued at any time after fiscal 1998 year end.

- --------------------------------------------------------------------------------
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 . . . . . . . $ $ $
3 years. . . . . . . $ $ $
5 years. . . . . . . $ $ $
10 years . . . . . . $ $(2) $(2)

(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.
- --------------------------------------------------------------------------------

Fiscal year ended September 30,
1997 1996 1995 1994 1993 1992 1991 1990 1989
-----------------------------------------------------------------------------------
<S> <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
Operations:
Net investment income . . . . . . . . . . . . 0.05 0.05 0.03 0.02 0.04 0.06 0.08 0.08
Distributions from net investment income . . . (0.05) (0.05) (0.03) (0.02) (0.04) (0.06) (0.08) (0.08)

Net asset value, end of period . . . . . . . . $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

TOTAL RETURN(2) [BAR GRAPH]. . . . . . . . . . 4.79% 5.05% 2.98% 2.45% 3.87% 6.34% 7.88% 8.60%

SELECTED INFORMATION
Net assets, end of period (in millions). . . . $ 1,966 1,703 1,185 1,106 1,096 1,242 1,176 1,004
Ratio of expenses to average daily net
assets. . . . . . . . . . . . . . . . . . . . % 0.84% 0.92% 0.93% 0.96% 0.90% 0.89% 0.91% 1.00%

Ratio of net investment income to average
daily net assets. . . . . . . . . . . . . . . % 4.73% 4.94% 2.90% 2.42% 3.66% 6.06% 7.56% 8.32%

Ratio of expenses to average daily net
assets before waivers(4). . . . . . . . . . . % 0.94% 1.02% 1.03% 1.06% 1.00% 0.98% 1.00% 1.10%

Ratio of net investment income to average
daily net assets before waivers(4). . . . . . % 4.63% 4.84% 2.80% 2.32% 3.56% 5.97% 7.47% 8.22%

<CAPTION>
Period from Period from
11/1/87 to 3/16/87(1) to
9/30/88 10/31/87
-------------------------
<S> <C> <C>
PER SHARE DATA
Net asset value, beginning of period . . . . . 1.00 1.00
Operations:
Net investment income . . . . . . . . . . . . 0.06 0.04
Distributions from net investment income . . . (0.06) (0.04)

Net asset value, end of period . . . . . . . . 1.00 1.00

TOTAL RETURN(2) [BAR GRAPH]. . . . . . . . . . 6.02% 3.70%

SELECTED INFORMATION
Net assets, end of period (in millions). . . . 583 215
Ratio of expenses to average daily net
assets. . . . . . . . . . . . . . . . . . . . 1.05%(3) 0.74%(3)
Ratio of net investment income to average
daily net assets. . . . . . . . . . . . . . . 6.45%(3) 6.29%(3)
Ratio of expenses to average daily net
assets before waivers(4). . . . . . . . . . . 1.10%(3) 1.35%(3)
Ratio of net investment income to average
daily net assets before waivers(4). . . . . . 6.40%(3) 5.68%(3)
</TABLE>

(1) Commencement of operations.

(2) Total return is based on the change in net asset value, assumes
reinvestment of all distributions and does not reflect a sales charge.

(3) Annualized.

(4) During the periods shown, the distributor voluntary limited the fund's
distribution fee. In addition, other various fees and expenses were
voluntary waived or absorbed by the adviser during fiscal 1987. Had the
minimum distribution fee been in effect and the fund paid all fees and
expenses, the ratios of expenses and net investment income to average daily
net assets would have been as shown.

- --------------------------------------------------------------------------------
3 Prospectus - Cash Management Funds
<PAGE>

FUND DESCRIPTIONS

TAX-EXEMPT MONEYMARKET 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
exempt from federal income tax, including the federal alternative minimum tax.
Municipal securities are 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 airports, highways, hospitals and
schools.

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's investment in these securities may
exceed 20% when, in the opinion of the adviser, 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 adviser judges them to be comparable in quality.

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.)

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. See pages 8-9 for more information.

PORTFOLIO MANAGER
- --------------------------------------------------------------------------------

DOUG WHITE, CFA, is a senior vice president of Piper Capital. He joined the
adviser 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
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 class A share fee limitation)(1) . . . . . . . 0.20%
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . %
-----
Total operating expenses (after fee limitation)(1) . . . . . . . %

(1) If Piper Jaffray had not voluntarily limited fees, the12b-1 fee would have
been 0.30% and total operating expenses, ___%. Voluntary 12b-1 fee
limitations may be discontinued at any time after fiscal 1998 year end.

1 year . . . . . . . . . $
3 years. . . . . . . . . $
5 years. . . . . . . . . $
10 years . . . . . . . . $

- --------------------------------------------------------------------------------
4 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
Operations:
Net investment income . . . . . . . . . . 0.03 0.03 0.02 0.02 0.03 0.04 0.05 0.06 0.01
Distributions from net investment
income(2) . . . . . . . . . . . . . . . . (0.03) (0.03) (0.02) (0.02) (0.03) (0.04) (0.05) (0.06) (0.01)

Net asset value, end of period . . . . . . $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

TOTAL RETURN(3) [BAR GRAPH]. . . . . . . . 2.80% 3.02% 1.82% 1.87% 3.07% 4.54% 5.41% 5.76% 1.21%

SELECTED INFORMATION
Net assets, end of period (in millions). . $ 210 206 178 169 158 134 116 84 36
Ratio of expenses to average daily net
assets. . . . . . . . . . . . . . . . . . % 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. . . . . . . . . . . . . % 2.76% 2.97% 1.80% 1.83% 2.91% 4.37% 5.34% 5.63% 4.99%(4)
Ratio of expenses to average daily net
assets before waivers(5). . . . . . . . . % 1.00% 1.01% 1.00% 1.02% 0.98% 0.96% 0.98% 1.04% 1.44%(4)
Ratio of net investment income to average
daily net assets before waivers(5). . . % 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) Distribution for net investment income that are taxable for federal and
state income tax purposes were: $0.000, $0.0001, $0.000, $0.000, $0.0001,
$0.0002, $$0.0003, $0.0010 and $0.0030 per share for the years ended
September 30, 1996 through 1989, respectively and for the period ended
September 30, 1988.

(3) Total return is based on the change in net asset value, assumes
reinvestment of all distributions and does not reflect a sales charge.

(4) Annualized.

(5) During the periods shown, the distributor voluntary limited the fund's
distribution fee. In addition, other various fees and expenses were
voluntary waived or absorbed by the adviser during fiscal 1990. Had the
minimum distribution fee been in effect and the fund paid all fees and
expenses, the ratios of expenses and net investment income to average daily
net assets would have been as shown.

- --------------------------------------------------------------------------------
5 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 investment 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.

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. See pages 8-9 for more information.

PORTFOLIO MANAGER
- --------------------------------------------------------------------------------

NANCY OLSEN is director of the cash management team and a senior vice president
of Piper Capital. She joined the adviser in 1987 and has managed the fund since
its inception. She has 19 years of financial experience.

SHAREHOLDER TRANSACTION EXPENSES

(1) If Piper Jaffray had not voluntarily limited fees, the 12b-1 fee would have
been 0.30% and total operating expenses, ___%. Voluntary 12b-1 fee
limitations may be discontinued at any time after fiscal 1998 year end.

1 year . . . . . . . . . $
3 years. . . . . . . . . $
5 years. . . . . . . . . $
10 years . . . . . . . . $

- --------------------------------------------------------------------------------
6 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
Operations:
Net investment income . . . . . . . . . 0.05 0.05 0.03 0.02 0.04 0.06 0.08 0.08 0.01
Distributions from net investment income (0.05) (0.05) (0.03) (0.02) (0.04) (0.06) (0.08) (0.08) (0.01)

Net asset value, end of period . . . . . $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

TOTAL RETURN(2) [BAR GRAPH]. . . . . . . 4.72 4.99% 2.98% 2.51% 3.78% 6.05% 7.80% 8.37% 1.28%

SELECTED INFORMATION
Net assets, end of period (in millions). $ 291 256 185 195 191 199 112 46 17
Ratio of expenses to average daily
net assets. . . . . . . . . . . . . . % 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. . . . . . . . . . . % 4.62% 4.90% 2.88% 2.41% 3.58% 5.84% 7.35% 8.17% 7.16%(3)
Ratio of expenses to average daily
net assets before waivers(4). . . . . % 1.00% 1.01% 1.02% 1.03% 1.00% 0.97% 1.05% 1.29% 2.08%(3)
Ratio of net investment income to average
daily net assets before waivers(4). . % 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 is based on the change in net asset value, assumes
reinvestment of all distributions and does not reflect a sales charge.
(3) Annualized.
(4) During the periods shown, the distributor voluntary limited the fund's
distribution fee. In addition, other various fees and expenses were
voluntary waived or absorbed by the adviser during fiscal 1991. Had the
minimum distribution fee been in effect and the fund paid all fees and
expenses, the ratios of expenses and net investment income to average daily
net assets would have been as shown.

7 Prospectus - Cash Management Funds

<PAGE>

PORTFOLIO OVERVIEW

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

10 Percent of total assets
/10/ Percent of net assets
y Permitted without limitation
/y/ Permitted, but not typically used
n Not permitted

U.S. GOVERNMENT TAX-EXEMPT MONEY
MONEY MARKET FUND MARKET FUND MONEY MARKET FUND
----------------- ---------------- ------------------
<S> <C> <C> <C>
INVESTMENT SECURITIES
- -------------------------------------------------------------------------------------------------------------------------------

ILLIQUID SECURITIES . . . . . . . . . . . . . . . . /10/ /10/ /10/
cannot be sold in the ordinary course of business
within seven days at approximately the price at
which they are valued. This includes Rule 144A
securities unless they are determined to be
liquid under procedures adopted by the board of
directors. Liquidity, Market

INVESTMENT TECHNIQUES
- --------------------------------------------------------------------------------------------------------------------------------
BORROWING . . . . . . . . . . . . . . . . . . . . . 33 1/3 20 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

INDUSTRY CONCENTRATION. . . . . . . . . . . . . . . n n(1) n
The investment by a fund of 25% or more of its
total assets in any one industry. Market, Opportunity

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

REVERSE REPURCHASE AGREEMENTS . . . . . . . . . . . /y/ /y/ /y/
The fund sells securities and agrees to buy them back
at a set time and price, plus interest. Leverage

WHEN-ISSUED AND FORWARD COMMITMENTS . . . . . . . . n y n
The purchase or sale of a security at a future date
for a predetermined price. Securities may decrease
in value prior to their delivery. Market,
Opportunity, Leverage

</TABLE>

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

8 Prospectus - Cash Management Funds
<PAGE>

FUND DETAILS

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 MONEY MARKET 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.

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.

LEVERAGE RISK
Leverage magnifies exposure to the potential risks and rewards of a particular
investment. If a security or investment practice involves leverage, small market
movements can result in large changes in market value.

LIQUIDITY RISK
A fund may not be able to sell a 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. 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 and bonds may decline 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 issuer, industry or sector of the market.

OPPORTUNITY RISK
The risk of having to forego an investment opportunity because assets are tied
up in a less beneficial investment.

9 Prospectus - Cash Management 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 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.

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 1.00% 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 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.

10 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. Net investment income for
Saturdays, Sundays, and other days the New York Stock Exchange is closed will be
declared as dividends on the prior business day. Each daily dividend is payable
to fund shareholders of record at the time it is declared. 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 PER SHARE DIVIDENDS
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 adviser 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.

EXCHANGING SHARES
- --------------------------------------------------------------------------------

If your investment goals or your financial needs change, you may move your
shares 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 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.

MAKING 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 1 800 874-6205, 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 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.

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 1 800 866-7778. As a shareholder, you automatically receive the
following:

SHAREHOLDER REPORTS

STATEMENTS AND CONFIRMATIONS

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

11 Prospectus - Cash Management Funds

<PAGE>

MANAGING YOUR INVESTMENT

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

YOU MAY SELL ANY OR ALL OF YOUR SHARES AT ANY TIME FOR THEIR NET ASSET VALUE
(LESS ANY CONTINGENT DEFERRED SALES CHARGES APPLICABLE TO CLASS B SHARES).
SIMPLY CALL YOUR BROKER. YOUR REQUEST WILL BE EXECUTED AT THE NEXT NET ASSET
VALUE CALCULATED AFTER YOUR REQUEST IS RECEIVED BY YOUR BROKER.

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 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 (CDSC) 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 "exchange shares")
into class B shares of Money Market Fund will not be subject to a CDSC. However,
when you sell your class B shares of Money Market Fund, you will be assessed a
CDSC based on the date you purchased your exchange shares.

The CDSC is based on the net asset value of your exchange shares when they were
initially purchased or on the net asset 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
- --------------------------------------------------------------------------------

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 exchange
shares and sell your class B Money Market Fund shares, rather than on the number
of years since you purchased your exchange shares.

FOR EXAMPLE:

If you buy 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
exchange 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 exchange shares will be used for determining your CDSC
(and for determining when your new class B shares convert to class A shares, as
discussed below).

To help you minimize your CDSC, shares that are not subject to a CDSC will be
sold first. Other 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 your exchange
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.

12 Prospectus - Cash Management Funds
<PAGE>

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

HOW THE FUNDS ARE ORGANIZED
- --------------------------------------------------------------------------------
Money Market Fund, Tax-Exempt Money Market Fund and U.S. Government 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.

- - 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.

INVESTMENT ADVISER

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

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 RECORD KEEPING AGENT

Investors Fiduciary Trust Company (IFTC)
127 West Tenth Street
Kansas City, MO 64105

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

TRANSFER AGENTS

IFTC (address listed above)
Piper Jaffray (address listed above)
Piper Trust Company
222 South Ninth Street
Minneapolis, MN 55402-3804

The funds' transfer agents pay dividends and other distributions. Piper Jaffray
and Piper Trust provide transfer agent services for shareholders whose accounts
are held at those companies. IFTC provides these services for all other
shareholder accounts.

13 Prospectus - Cash Management Funds

<PAGE>

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

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 of each fund pay 12b-1 fees at annual
rates equal to 0.30% and 1.00% 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.

For each fund, Piper Jaffray pays a portion of its 12b-1 fee to brokerage firms
who 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
broker-dealer. Piper Jaffray also uses 12b-1 fees to pay other distribution
expenses and shareholder servicing costs, such as printing and promotional
costs.

OTHER COMPENSATION

PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
The cash management 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 for the funds'
portfolio transactions, Piper Capital may consider whether brokers have sold
shares of the funds or any other Piper Funds. Piper Capital may place trades
through Piper Jaffray in compliance with 1940 Act 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 securities held by the funds are valued on the basis of
amortized cost.

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 regular close of 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.

14 Prospectus - Cash Management Funds
<PAGE>

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
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

1 800 866-7778

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

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

<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 __, 1997

Table of Contents
PAGE

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Characteristics and Risks of Securities and
Special Investment Methods . . . . . . . . . . . . . . . . . . . .
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . .
Directors and Executive Officers . . . . . . . . . . . . . . . . . .
Investment Advisory and Other Services . . . . . . . . . . . . . . .
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:
(1) Prospectus dated November __, 1997, for the Class A and B shares of Growth
Fund, Emerging Growth Fund and Small Company Growth Fund; (2) Prospectus dated
February 18, 1997, for the Class Y shares of Emerging Growth Fund; (3)
Prospectus dated November __, 1997, for the Class A and B shares of Growth and
Income Fund and Balanced Fund; and (4) Prospectus dated February 18, 1997, 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.

-2-
<PAGE>

[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

-3-
<PAGE>

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.

-4-
<PAGE>

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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<PAGE>

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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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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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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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.

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

(1) Invest in warrants.

(2) Make short sales of securities.

(3) Purchase any securities on margin except to obtain such short-term
credits as may be necessary for the clearance of transactions and except that
the Funds may make margin deposits in connection with futures contracts.

(4) 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.

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<PAGE>

Any investment restriction or limitation referred to above or in a Fund's
Prospectus which involves a maximum percentage of securities or assets, shall
not be considered to be violated unless an excess over the percentage occurs
immediately after an acquisition of securities or utilization of assets and such
excess results therefrom.

DIRECTORS AND EXECUTIVE OFFICERS

The directors and officers of the Company and their principal occupations
during the past five years are set forth below. Unless otherwise indicated, all
positions have been held for more than five years. The Company's directors and
officers also serves as a director or officer of various closed-end and open-end
investment companies managed by the Adviser.

NAME, ADDRESS AND (AGE) POSITION WITH THE COMPANY
----------------------- -------------------------

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

David T. Bennett (56) Director
3400 City Center
33 South Sixth Street
Minneapolis, Minnesota 55402

Jaye F. Dyer (69) Director
4670 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402

Karol D. Emmerich (47) Director
7302 Claredon Drive
Edina, Minnesota 55439

Luella G. Goldberg (59) Director
7019 Tupa Drive
Edina, Minnesota 55435

David A. Hughey (65) Director
134 Powers Road
Meredith, NH 03253

George Latimer (61) Director
754 Linwood Avenue
St. Paul, MN 55105

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<PAGE>

Paul A. Dow (45) President
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402

Robert H. Nelson (33) Vice President
Piper Jaffray Tower and Treasurer
222 South Ninth Street
Minneapolis, Minnesota 55402

Susan S. Miley (39) Secretary
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402

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

William H. Ellis is President of Piper Jaffray Companies Inc.; Director and
Chairman of the Board of Piper Capital Management Incorporated ("the Adviser");
President of the Adviser since 1994; Director of Piper Jaffray Inc..

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 School of Business and serves on the board of directors of a number of
privately held and nonprofit organizations.

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<PAGE>

Minnesota Foundation and the Minnesota Orchestral Association. Ms. Goldberg was
Chairman of the Board of Trustees of Wellesley College from 1985 to 1993 and
acting President from July 1, 1993 to October 1, 1993.

David A. Hughey is a Trustee of Bentley College. Prior to September 1996,
he was Executive Vice President and Chief Administrative Officer of Dean Witter
InterCapital Inc., Dean Witter Services Company Inc. and Dean Witter
Distributors Inc.; Director, Executive Vice President and Chief Administrative
Officer of Dean Witter Trust Company; Vice President of Dean Witter Family of
Funds and TCW/DW Family of Funds; and Director of ICI Mutual Insurance Company.

George Latimer has been Chief Executive Officer of National Equity Fund,
Chicago, Illinois since November 1995; prior thereto, Mr. Latimer was Director,
Special Actions Office, Office of the Secretary, Department of Housing and Urban
Development since 1993, and prior thereto he had been Dean of Hamline Law
School, Saint Paul, Minnesota from 1990 to 1993. Mr. Latimer also serves on the
board of directors of Digital Biometrics, Inc. and Payless Cashways, Inc.

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

Robert H. Nelson has been a Senior Vice President of the Adviser since
1993; prior thereto he had been a Vice President of the Adviser from 1991 to
1993.

Susan S. Miley has been Senior Vice President and General Counsel of the
Adviser since 1995 and Secretary of the Adviser since 1996; prior thereto she
was counsel for American Express Financial Advisors, Minneapolis, Minnesota from
1994 to 1995 and an attorney at Simpson Thatcher & Bartlett, New York, New York
from 1984 to 1992.

Ms. Emmerich, Ms. Goldberg and Mr. Hughey are members of the Audit
Committee of the Board of Directors. Ms. Emmerich acts as the chairperson of
such committee. The Audit Committee oversees the Company's financial reporting
process, reviews audit results and recommends annually to the Company a firm of
independent certified public accountants.

The Board of Directors also has a Committee of the Independent Directors,
consisting of Mr. Bennett, who serves as chairperson, Messrs. Dyer, Hughey and
Latimer, Ms. Emmerich and Ms. Goldberg, and a Derivatives Subcommittee
consisting of Ms. Emmerich, who serves as chairperson, Ms. Goldberg and Mr.
Dyer.

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<PAGE>

other joint insurance policies and premium allocation; (e) review of, and
monitoring of compliance with, procedures adopted pursuant to certain rules
promulgated under the 1940 Act; and (f) such other duties as the independent
directors shall, from time to time, conclude are necessary or appropriate to
carry out their duties under the 1940 Act. The functions of the Derivatives
Subcommittee are: (a) to oversee practices, policies and procedures of the
Adviser in connection with the use of derivatives; (b) to receive periodic
reports from management; and (c) to report periodically to the Committee of the
Independent Directors and the Board of Directors.

The directors of 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 assets 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.

The following table sets forth the compensation received by each director
from the Company during the fiscal year ended September 30, 1997, as well as the
total compensation received by each director from the Company and all other
registered investment companies managed by the Adviser or affiliates of the
Adviser during the calendar year ended December 31, 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.

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<PAGE>

Aggregate Compensation Total Compensation
Director from the Company from Fund Complex*
- -------- ---------------------- ------------------

David T. Bennett $ $56,250
Jaye F. Dyer $ $58,750
Karol D. Emmerich $ $58,750
Luella G. Goldberg $ $60,750
George Latimer $ $56,250
David A. Hughey $ $ 984

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

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

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<PAGE>

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

Growth Fund $1,232,856 $1,248,175 $
Emerging Growth Fund 1,525,105 1,875,662
Small Company Growth Fund 463,332 307,937
Growth and Income Fund 512,370 639,184
Balanced Fund 324,086 342,187

The Adviser intends, although not required under the Investment Advisory
and Management Agreement, to reimburse Small Company Growth Fund, Balanced Fund
and Growth and Income Fund for the amount, if any, by which the total operating
and management expenses of each Fund (including the Adviser's compensation and
amounts paid pursuant to the Company's Rule 12b-1 plan, but excluding interest,
taxes, brokerage fees and commissions, and extraordinary expenses) for the
fiscal year ending September 30, 1998, exceed ____% of average

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<PAGE>

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

Rule 12b-1(b) under the 1940 Act provides that any payments made by the
Funds in connection with financing the distribution of their shares may only be
made pursuant to a written plan describing all aspects of the proposed financing
of distribution, and also requires that all agreements with any person relating
to the implementation of the plan must be in writing. Because some of the
payments described below to be made by the Funds are distribution expenses
within the meaning of Rule 12b-1, the Company has entered into an Underwriting
and

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<PAGE>

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.

Rule 12b-1(c) provides that the Company may rely upon Rule 12b-1(b) only if
the selection and nomination of the Company's disinterested directors are
committed to the discretion of such disinterested directors. Rule 12b-1(e)
provides that the Company may implement or continue a plan pursuant to Rule
12b-1(b) only if the directors who vote to approve such implementation or
continuation conclude, in the exercise of reasonable business judgment and in
light of their fiduciary duties under state law, and under Sections 36(a) and
(b) of the Investment Company Act of 1940, that there is a reasonable likelihood
that the plan will benefit the Company and its shareholders. The Board of
Directors has concluded that there is a reasonable likelihood that the
Distribution Plan will benefit the Company and its shareholders.

-30-
<PAGE>

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

Growth Fund $ 552,509 $ 546,436 $
Emerging Growth Fund 692,842 845,637
Small Company Growth Fund 196,463 127,005
Growth and Income Fund 216,333 263,642
Balanced Fund 137,063 141,132

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:
<TABLE>
<CAPTION>
Growth Emerging Small Company Growth and Balanced
Fund Growth Fund Growth Fund Income Fund Fund
------ ----------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Advertising $ $ $ $ $
Printing and mailing
of prospectuses to
other than current
shareholders
Compensation to
underwriters (trail
fees to investment
executives)
Compensation to
dealers
Compensation to
sales personnel
Interest, carrying or
other financing charge
Other (specify) _____ _____ _____ _____ _____
Total $ $ $ $ $
</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

-32-
<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.
<TABLE>
<CAPTION>

Total Underwriting Commissions Underwriting Commissions Retained by Distributor
------------------------------ ------------------------------------------------
Fiscal year ended Fiscal year ended Fiscal year ended Fiscal year ended Fiscal year ended Fiscal year ended
Sept. 30, 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 $ $ 77,479 $100,049 $
Emerging
Growth Fund 288,665 695,309 167,426 410,232
Small Company
Growth Fund 39,339 23,234 22,817 13,708
Growth and
Income Fund 67,532 187,370 39,169 110,548
Balanced Fund 42,214 73,382 24,484 43,295
</TABLE>

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

Brokerage Commissions Paid to Distributor
----------------------------------------------------------
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
September 30, 1995 September 30, 1996 September 30, 1997
------------------ ------------------ ------------------

Growth Fund $ 0 $ 0 $
Emerging Growth Fund 15,314 3,726
Small Company Growth Fund 125,638 65,924
Growth and Income Fund 0 0
Balanced Fund 0 0

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Investors Fiduciary Trust Company ("IFTC"), the transfer agent for the
Company, maintains certain omnibus shareholder accounts for each of the Funds.
Each such omnibus account represents the accounts of a number of individual
shareholders of a Fund. The Company has entered into Shareholder Account
Servicing Agreements with the Distributor and Piper Trust Company ("Piper
Trust"), pursuant to which the Distributor and Piper Trust provide certain
transfer agent and dividend disbursing agent services for the underlying
individual shareholder accounts held at the respective companies. Pursuant to
such Agreements, the Distributor and Piper Trust have agreed to perform the
usual and ordinary services of transfer agent and dividend disbursing agent not
performed by IFTC with respect to the underlying individual shareholder
accounts, including, without limitation, the following: maintaining all
shareholder accounts, preparing shareholder meeting lists, mailing shareholder
reports and prospectuses, tracking

-33-
<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 $ $
Emerging Growth Fund
Small Company Growth Fund
Growth and Income Fund
Balanced Fund

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.

-34-
<PAGE>

When consistent with these objectives, business may be placed with
broker-dealers who furnish investment research or services to the Adviser. Such
research or services include advice, both directly and in writing, as to the
value of securities; the advisability of investing in, purchasing or selling
securities; and the availability of securities, or purchasers or sellers of
securities; as well as analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts. This allows the Adviser to supplement its own investment research
activities and enables the Adviser to obtain the views and information of
individuals and research staffs of many different securities firms prior to
making investment decisions for the Funds. To the extent portfolio transactions
are effected with broker-dealers who furnish research services to the Adviser,
the Adviser receives a benefit, not capable of evaluation in dollar amounts,
without providing any direct monetary benefit to the Funds from these
transactions. The Adviser believes that most research services obtained by it
generally benefit several or all of the investment companies and private
accounts which it manages, as opposed to solely benefiting one specific managed
fund or account. Normally, research services obtained through managed funds or
accounts investing in common stocks would primarily benefit the managed funds or
accounts which invest in common stock; similarly, services obtained from
transactions in fixed-income securities would normally be of greater benefit to
the managed funds or accounts which invest in debt securities. The Funds will
not purchase at a higher price or sell at a lower price in connection with
transactions effected with a director, acting as principal, who furnishes
research services to the Adviser than would be the case if no weight were given
by the Adviser to the dealer's furnishing of such services.

The Adviser has not entered into any formal or informal agreements with any
broker-dealers, nor does it maintain any "formula" which must be followed in
connection with the placement of the Funds' portfolio transactions in exchange
for research services provided the Adviser, except as noted below. However, the
Adviser does maintain an informal list of broker-dealers, which is used from
time to time as a general guide in the placement of the Funds' business, in
order to encourage certain broker-dealers to provide the Adviser with research
services which the Adviser anticipates will be useful to it. Because the list
is merely a general guide, which is to be used only after the primary criterion
for the selection of broker-dealers (discussed above) has been met, substantial
deviations from the list are permissible and may be expected to occur. The
Adviser will authorize the Funds to pay an amount of commission for effecting a
securities transaction in excess of the amount of commission another
broker-dealer would have charged only if the Adviser determines in good faith
that such amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in terms
of either that particular transaction or the Adviser's overall responsibilities
with respect to the accounts as to which it exercises investment discretion.
Generally, the Funds pay higher than the lowest commission rates available.

-35-
<PAGE>

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

Growth Fund $ 451,281 $ 104,995 $
Emerging Growth Fund 193,809 208,245
Small Company Growth Fund 325,156 110,776
Growth and Income Fund 38,430 50,309
Balanced Fund 16,115 8,592

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>
Growth Fund $ $
Emerging Growth Fund
Small Company Growth Fund
Growth and Income Fund
Balanced Fund

</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. _______
Fund held $______ of securities issued by ________ at fiscal year end. During
the fiscal

-36-
<PAGE>

year, _____________ Fund purchased securities issued by _____________ and held
$______ of securities issued by ______ at fiscal year end.

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.

-37-
<PAGE>

All shares, when issued, will be fully paid and nonassessable and will be
redeemable. All shares have equal voting rights. They can be issued as full or
fractional shares. A fractional share has pro-rata the same kind of rights and
privileges as a full share. The shares possess no preemptive or conversion
rights.

Each share of a series has one vote (with proportionate voting for
fractional shares) irrespective of the relative net asset value of the series'
shares. On some issues, such as the election of directors, all shares of the
Company vote together as one series. On an issue affecting only a particular
series, the shares of the affected series vote separately. Cumulative voting is
not authorized. This means that the holders of more than 50% of the shares
voting for the election of directors can elect 100% of the directors if they
choose to do so, and, in such event, the holders of the remaining shares will be
unable to elect any directors.

As of ________, 1997, no shareholder owned of record or was known by the
Funds to own beneficially 5% or more of the outstanding shares of any class of
any of the Funds except as follows: __________________. The directors and
officers of the Company as a group owned less than 1% of the outstanding shares
of each Fund, and of each class thereof, as of such date.

NET ASSET VALUE AND PUBLIC OFFERING PRICE

The method for determining the public offering price of Fund shares is
summarized in each Prospectus in the text following the headings "How to
Purchase Shares--Purchase Price" and "Valuation of Shares." The net asset value
of each Fund's shares is determined on each day on which the New York Stock
Exchange is open, provided that the net asset value need not be determined on
days when no Fund shares are tendered for redemption and no order for Fund
shares is received. The New York Stock Exchange is not open for business on the
following holidays (or on the nearest Monday or Friday if the holiday falls on a
weekend): New Year's Day, Presidents' Day, Good Friday, Memorial Day, July 4th,
Labor Day, Thanksgiving and Christmas.

The portfolio securities in which each Fund invests fluctuate in value, and
hence the net asset value per share of each Fund also fluctuates. On
September 30, 1997, the net asset value per share for each Fund was calculated
as follows:

GROWTH FUND--CLASS A SHARES

Net Assets ($__________) = Net Asset Value Per Share
______________________________________
Shares Outstanding (________) ($_____)

GROWTH FUND--CLASS B SHARES

Net Assets ($__________) = Net Asset Value Per Share
______________________________________
Shares Outstanding (________) ($_____)

-38-
<PAGE>

EMERGING GROWTH FUND--CLASS A SHARES

Net Assets ($_________) = Net Asset Value Per Share
______________________________________
Shares Outstanding (________) ($_____)

EMERGING GROWTH FUND--CLASS B SHARES

Net Assets ($_________) = Net Asset Value Per Share
______________________________________
Shares Outstanding (________) ($_____)

EMERGING GROWTH FUND--CLASS Y SHARES

Net Assets ($_________) = Net Asset Value Per Share
______________________________________
Shares Outstanding (________) ($_____)

SMALL COMPANY GROWTH FUND--CLASS A SHARES

Net Assets ($________) = Net Asset Value Per Share
______________________________________
Shares Outstanding (________) ($_____)

SMALL COMPANY GROWTH FUND--CLASS B SHARES

Net Assets ($________) = Net Asset Value Per Share
______________________________________
Shares Outstanding (________) ($_____)

GROWTH AND INCOME FUND--CLASS A SHARES

Net Assets ($_________) = Net Asset Value Per Share
______________________________________
Shares Outstanding (________) ($_____)

GROWTH AND INCOME FUND--CLASS B SHARES

Net Assets ($_________) = Net Asset Value Per Share
______________________________________
Shares Outstanding (________) ($_____)

GROWTH AND INCOME FUND--CLASS Y SHARES

Net Assets ($_________) = Net Asset Value Per Share
______________________________________
Shares Outstanding (________) ($_____)

BALANCED FUND--CLASS A SHARES

Net Assets ($_________) = Net Asset Value Per Share
______________________________________
Shares Outstanding (________) ($_____)

-39-
<PAGE>

BALANCED FUND--CLASS B SHARES

Net Assets ($_________) = Net Asset Value Per Share
______________________________________
Shares Outstanding (________) ($_____)

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.

This calculation deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and capital gains distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the applicable Prospectus, and includes all recurring fees, such as
investment advisory and management fees, charged to all shareholder accounts.

The following tables set forth the average annual total returns for the
Class A shares of each Fund for one year, five years and since inception (ten
years with respect to Growth 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.

-40-
<PAGE>

Average Annual Total Returns--Class A Shares
--------------------------------------------
1 Year 5 Years Since Inception
------ ------- ---------------

Growth Fund % % % (1)
Emerging Growth Fund % % % (3)
Small Company Growth Fund % % % (1)
Growth and Income Fund % % % (2)
Balanced Fund % % % (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.

Average Annual Total Return Since Inception (1)
-----------------------------------------------
Class B Shares Class Y Shares
-------------- --------------

Growth Fund % N/A
Emerging Growth Fund % %
Small Company Growth Fund % N/A
Growth and Income Fund % %
Balanced Fund % N/A

- ------------------
(1) Inception date: ________.

The Distributor has voluntarily limited Rule 12b-1 fees and the Adviser has
paid certain expenses of some of the Funds, thereby increasing total return and
yield. These fees and expenses may or may not waived or paid in the future in
the Distributor's and the Adviser's discretion. Absent any voluntary expense
payments or fee waivers, the average annual total returns for the Class A shares
of such Funds for one year, five years and since inception (ten years with
respect to Growth 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:

-41-
<PAGE>

Average Annual Total Returns--Class A Shares
--------------------------------------------
(absent voluntary fee waivers and expense payments)
1 Year 5 Years Since Inception
------ ------- ---------------

Growth Fund 11.99% 9.72% 11.60%(1)
Emerging Growth Fund 12.88% 15.99% 18.01%(3)
Small Company Growth Fund 0.68% 8.77% 7.85%(1)
Growth and Income Fund 14.47% N/A 11.62%(2)
Balanced Fund 5.38% 9.78% 7.93%(1)

Average Annual Total Return Since Inception (1)
-----------------------------------------------
(absent voluntary fee waivers and expense payments)
Class B Shares Class Y Shares
-------------- --------------

Growth Fund % N/A
Emerging Growth Fund % %
Small Company Growth Fund % N/A
Growth and Income Fund % %
Balanced Fund % N/A

- -----------------
(1) Inception date: ________.

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.

-42-
<PAGE>

The following table sets forth the cumulative total returns for each Fund
from inception to September 30, 1997.
<TABLE>
<CAPTION>

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) % % N/A % % N/A
Emerging Growth Fund (3) % % % % % %
Small Company Growth Fund (1) % % N/A % % N/A
Growth and Income Fund (2) % % % % % %
Balanced Fund (1) % % N/A % % N/A

</TABLE>

- ----------------
(1) Inception date: 3/16/87 (Class A shares), ________ (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), ______ (Class B and Class Y
shares).
(3) Inception date: 4/23/90 (Class A shares), ______ (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:

YIELD = 2[(a-b + 1)(6) - 1]
___
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of
the period.

For the 30-day period ended September 30, 1997, the Class A shares of
Balanced Fund and Growth and Income Fund had yields of ___% and ___%,
respectively, Class B shares had yields of ___% and ___%, respectively, and
Class Y shares of Growth and Income Fund had a yield of ___%. 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 ___% and ___%, respectively, for
the Class A shares of Balanced Fund and Growth Fund, ___% and ___%,
respectively, for the Class B shares, and ___% for the Class Y shares of Growth
and Income Fund.

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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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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

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<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.

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<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.

- 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

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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LITIGATION. The Amended Consolidated Class Action Complaint was filed on
October 5, 1994, in the United States District Court, District of Minnesota,
against Institutional Government Income Portfolio (a series of Piper Funds
Inc.), the Adviser, the Distributor, William H. Ellis and Edward J. Kohler, and
had alleged the making of materially misleading statements in the prospectus,
common law negligent misrepresentation and breach of fiduciary duty. The
Settlement Agreement will provide approximately $67.5 million, together with
interest earned, less certain disbursements and attorney fees, to class members
in payments scheduled over approximately three years. Such payments will be
made by Piper Jaffray Companies Inc. and the Adviser and will not be an
obligation of Piper Funds Inc.

Two additional complaints relating to the Institutional Government Income
Portfolio remain pending. These complaints were brought by investors who
requested exclusion from the settlement class and are based on claims similar to
those asserted in the consolidated Class Action complaint. The first pending
complaint was brought on April 11, 1995, and filed in the Minnesota State
District Court, Hennepin County. This action was removed to United States
District Court, District of Minnesota. The plaintiff, Frank R. Berman, Trustee
of Frank R. Berman Professional CP Pension Plan Trust, sued individually and not
on behalf of any putative class. Defendants are the Distributor, Piper Funds
Inc., Morton Silverman and Worth Bruntjen. A second pending complaint relating
to the Institutional Government Income Portfolio was filed on June 22, 1995 in
the Montana Thirteenth Judicial District Court, Yellowstone County by Beverly
Muth against the Distributor and Teresa L. Darnielle. In addition to the above
complaints, actions have been commenced in arbitration by some of individual
investors who requested exclusion from the settlement class in the IN RE: PIPER
FUNDS INC. action.

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<PAGE>

consolidated. Plaintiffs filed a second amended complaint on February 5, 1996
and a third amended complaint on June 4, 1996. The third amended third
complaint alleges generally that the prospectus and financial statements of each
investment company were false and misleading. Specific violations of various
federal securities laws are alleged with respect to each investment company.
The complaint also alleges that the defendants violated the Racketeer Influenced
and Corrupt Organizations Act, the Washington State Securities Act and the
Washington Consumer Protection Act. The named plaintiffs and defendants have
executed a Settlement Agreement and the Court has granted preliminary approval
of such Settlement Agreement. The Final Order of Judgment is under advisement
pending a decision on the motion for an award of attorneys' fees. 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.

Four additional complaints are pending which involve the funds named as
defendants in the Nelson/Christian Fellowship Consolidated Action and are based
on claims similar to that action. The first additional complaint was filed
against the Distributor and Richard Tallent in Montana State District Court,
Silver Bow County on November 1, 1995 by plaintiff John Darlington. The second
complaint was filed against the Distributor and Richard Tallent on April 11,
1996 in Montana State District Court, Silver Bow County by plaintiff Kenneth
Schneider. The third complaint was filed against the Distributor and Richard
Tallent on April 11, 1996 in Montana State District Court, Silver Bow County by
plaintiff Margaret Nagel. The fourth complaint was filed against the
Distributor on August 7, 1996 by plaintiff Kenneth Gennerman as Trustee of the
Nicole Bowlin Trust in Wisconsin Circuit Court, Waukesha County. In addition to
the above complaints, a number of arbitrations have been commenced by individual
investors in the funds named as defendants in the Nelson/Christian Fellowship
Consolidated Action.

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Intermediate Mortgage Fund. The complaint, which is a putative class action,
alleges certain violations of federal securities laws, including the making of
false and misleading statements in the prospectus, and alleges negligent
misrepresentation, breach of fiduciary duty and common law fraud. A similar
complaint was filed as a putative class action in the same court on November 4,
1994. The complaint was filed by Karen E. Kopelman against The Managers Fund,
The Managers Funds, L.P., Robert P. Watson, the Adviser, the Distributor, Worth
Bruntjen, Evaluation Associates, Inc. and Managers Intermediate Mortgage Fund.
The two putative class actions were consolidated by court order on December 13,
1994. Plaintiffs filed an Amended and Restated Complaint on July 19, 1995. A
complaint relating to the Managers Short Government Fund was filed on
November 18, 1994 in the United States District Court, District of Minnesota.
The complaint was filed by Robert Fleck as a putative class action against The
Managers Funds, The Managers Funds, L.P., the Adviser, the Distributor, Worth
Bruntjen, Evaluation Associates, Inc., Robert P. Watson, John E. Rosati, William
M. Graulty, Madeline H. McWhinney, Steven J. Pasggioli, Thomas R. Schneeweis and
Managers Short Government Fund, F/K/A/ Managers Short Government Income Fund.
The complaint alleges certain violations of federal securities laws, including
the making of false and misleading statements in the prospectus, and negligent
misrepresentation. The named plaintiff and defendants have entered into a
Settlement Agreement. If granted final approval by the Court, the settlement
agreement will provide to class members up to a total of $1.5 million
collectively from The Managers Funds, L.P. and the Adviser on the effective date
of the settlement. A third complaint relating to both the Managers Intermediate
Mortgage Fund and the Managers Short Government Fund was filed on October 26,
1995 in Connecticut State Superior Court, Stamford/Norwalk District. The
complaint was filed by First Commercial Trust Company, N.A. against the Managers
Funds, Managers Short Government Fund, Managers Intermediate Mortgage Fund,
Managers Short and Intermediate Bond Fund, The Managers Funds, L.P., EAIMC
Holdings Corporation, Evaluation Associates Holding Corporation, EAI Partners,
L.P., Evaluation Associates, Inc., Robert P. Watson, William W. Graulty,
Madeline H. McWhinney, Steven J. Paggioli, Thomas R. Schneeweis, William J.
Crerend, the Adviser, Piper Jaffray Companies Inc., Worth Bruntjen, Standish,
Ayer & Wood, Inc., TCW Funds Managements, Inc., and TCW Management Company. The
complaint alleges claims under Connecticut common law and violation of the
Connecticut Securities Act and the Connecticut Unfair and Deceptive Trade
Practices Act.

The Adviser and Distributor do not believe that the settlements described
above, or any of the above lawsuits and arbitrations, will have a material
adverse effect upon their ability to perform under their agreements with the
Company, and they intend to defend the remaining lawsuits vigorously.

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APPENDIX A
CORPORATE BOND, PREFERRED STOCK AND
COMMERCIAL PAPER RATINGS

COMMERCIAL PAPER RATINGS

STANDARD & POOR'S RATINGS SERVICES. Commercial paper ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues assigned the A rating are regarded as having the
greatest capacity for timely payment. Issues in this category are further
refined with designation 1, 2 and 3 to indicate the relative degree of safety.
The "A-1" designation indicates that the degree of safety regarding timely
payment is very strong. Those issues determined to possess overwhelming safety
characteristics will be denoted with a plus sign designation.

MOODY'S INVESTORS SERVICE, INC. Moody's commercial paper ratings are
opinions of the ability of the issuers to repay punctually promissory
obligations not having an original maturity in excess of nine months. Moody's
makes no representation that such obligations are exempt from registration under
the Securities Act of 1933, nor does it represent that any specific note is a
valid obligation of a rated issuer or issued in conformity with any applicable
law. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:

Prime-1 Superior capacity for repayment of short-term promissory
obligations

Prime-2 Strong capacity for repayment of short-term promissory
obligations

Prime-3 Acceptable capacity for repayment of short-term promissory
obligations

CORPORATE BOND RATINGS

STANDARD & POOR'S RATINGS SERVICES. Standard & Poor's ratings for
corporate bonds have the following definitions:

Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in a small degree.

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:

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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.

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APPENDIX B
INTEREST RATE FUTURES CONTRACTS AND RELATED OPTIONS

INTEREST RATE FUTURES CONTRACTS

Balanced Fund and Growth and Income Fund may purchase and sell interest
rate futures contracts and options thereon. An interest rate futures contract
creates an obligation on the part of the seller (the "short") to deliver, and an
offsetting obligation on the part of the purchaser (the "long") to accept
delivery of, the type of financial instrument called for in the contract in a
specified delivery month for a stated price. A majority of transactions in
interest rate futures contracts, however, do not result in the actual delivery
of the underlying instrument, but are settled through liquidation, i.e., by
entering into an offsetting transaction. The interest rate futures contracts to
be traded by the Funds are traded only on commodity exchanges--known as
"contract markets"--approved for such trading by the Commodity Futures Trading
Commission and must be executed through a futures commission merchant or
brokerage firm which is a member of the relevant contract market. These
contract markets, through their clearing corporations, guarantee that the
contracts will be performed. Presently, futures contracts are based upon such
debt securities as long-term U.S. Treasury bonds, Treasury notes, Government
National Mortgage Association modified pass-through mortgage-backed securities,
three-month U.S. Treasury bills and bank certificates of deposit. In addition,
futures contracts are traded in the Moody's Investment Grade Corporate Bond
Index and the Long Term Corporate Bond Index.

Although most futures contracts by their terms call for actual delivery or
acceptance of commodities or securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery.
Closing out a short position is effected by purchasing a futures contract for
the same aggregate amount of the specific type of financial instrument or
commodity and the same delivery month. If the price of the initial sale of the
futures contract exceeds the price of the offsetting purchase, the seller is
paid the difference and realizes a gain. Conversely, if the price of the
offsetting purchase exceeds the price of the initial sale, the trader realizes a
loss. Similarly, the closing out of a long position is effected by the
purchaser entering into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the purchaser realizes a gain and, if the purchase
price exceeds the offsetting sale price, the purchaser realizes a loss.

The purchase or sale of a futures contract differs from the purchase or
sale of a security in that no price or premium is paid or received. Instead, an
amount of cash or securities acceptable to the Adviser and the relevant contract
market, which varies but is generally about 5% of the contract amount, must be
deposited with the custodian in the name of the broker. This amount is known as
"initial margin," and represents a "good faith" deposit assuring the performance
of both the purchaser and the seller under the futures contract. Subsequent
payments to and from the broker, known as "variation margin," are required to be
made on a daily

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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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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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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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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

C-5
<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.

C-7
<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 __, 1997

Table of Contents
Page
----
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Characteristics and Risks of Securities and
Special Investment Methods . . . . . . . . . . . . . . . . . . . .
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . .
Directors and Executive Officers . . . . . . . . . . . . . . . . . .
Investment Advisory and Other Services . . . . . . . . . . . . . . .
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

This Statement of Additional Information is not a prospectus. This
Statement of Additional Information relates to two prospectuses. One
Prospectus, dated November__, 1997, relates to Government Income Fund and the
Class A shares of Intermediate Bond Fund (series of Piper Funds Inc.) and
Adjustable Rate Mortgage Securities Fund (a series of Piper Funds Inc.--II), and
the other, dated February 18, 1997, relates to the Class Y shares of
Intermediate Bond Fund. This Statement of Additional Information should be read
in conjunction with the applicable Prospectus. Copies of these Prospectuses may
be obtained from the Funds at Piper Jaffray Tower, 222 South Ninth Street,
Minneapolis, Minnesota 55402-3804.

<PAGE>

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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<PAGE>

issuer to borrow from the Treasury. Still others, such as those issued by the
Federal National Mortgage Association, are backed by the discretionary authority
of the U.S. government to purchase certain obligations of the agency or
instrumentality. Finally, obligations of other agencies or instrumentalities
are backed only by the credit of the agency or instrumentality issuing the
obligations.

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

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<PAGE>

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. 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.

-4-

<PAGE>

investment long before the maturity of the mortgages in the pool. Foreclosures
impose no risk to principal investment because of the GNMA guarantee.

(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>

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. 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

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<PAGE>

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.

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>

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.

(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

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<PAGE>

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

(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.

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<PAGE>

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.

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.

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<PAGE>

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 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.

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<PAGE>

the U.S. government or its agencies or instrumentalities that mature within 397
days are considered money market securities for purposes of the Funds'
investment policies.

Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits are not transferable and are therefore illiquid prior to their
maturity. The Funds will not invest more than 15% of their net assets in time
deposits and other illiquid securities. (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.

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.

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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 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 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

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<PAGE>

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 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.

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<PAGE>

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, 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
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

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<PAGE>

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
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.

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<PAGE>

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.

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.

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<PAGE>

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 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

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<PAGE>

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 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.

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<PAGE>

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>

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.

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

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<PAGE>

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.

(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.

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<PAGE>

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 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

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<PAGE>

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.

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

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

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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, 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
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