1933 Act Registration No.
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 18, 1998
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. _____ [ ]
Post-Effective Amendment No. _____ [ ]
(Check appropriate box or boxes)
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Exact name of Registrant as Specified in Charter:
FIRST AMERICAN INVESTMENT FUNDS, INC.
Area Code and Telephone Number:
(610) 676-1924
Address of Principal Executive Offices:
Oaks, Pennsylvania 19456
Name and Address of Agent for Service:
Kathryn Stanton, Esq.
c/o SEI Investments Company
Oaks, Pennsylvania 19456
COPIES TO:
Kathleen L. Prudhomme, Esq.
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
It is proposed that this filing shall become effective on June 17, 1998
(30 days after filing) pursuant to Rule 488
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No filing fee is required because an indefinite number of shares have previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940.
Registrant is filing as an exhibit to this Registration Statement a copy of its
earlier declaration under Rule 24f-2. Registrant files its Rule 24f-2 Notice on
December 9, 1997 for its fiscal year ended September 30, 1997.
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<PAGE>
FIRST AMERICAN INVESTMENT FUNDS, INC.
REGISTRATION STATEMENT ON FORM N-14
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481 (a))
<TABLE>
<CAPTION>
PART A OF FORM N-14 PROSPECTUS/PROXY STATEMENT CAPTION
<S> <C>
1. Beginning of Registration Statement and
Outside Front Cover Page of Prospectus................ Cross Reference Sheet and Cover Page
2. Beginning and Outside Back Cover Page of
Prospectus............................................ Table of Contents
3. Fee Table, Synopsis Information
and Risk Factors...................................... Summary; Principal Risk Factors; Comparison of
FAIF and the Piper Funds; Appendix VIII
4. Information about the Transaction..................... Summary; Information Relating to the Interim
Agreements; Information Relating to the Proposed
Reorganization; Comparison of FAIF and the Piper
Funds
5. Information about the Registrant...................... Comparison of FAIF and the Piper Funds; Additional
Information about FAIF; Appendix VI
6. Information about the Company Being
Acquired.............................................. Inside Front Cover (Incorporation by Reference);
Comparison of FAIF and the Piper Funds; Additional
Information about the Piper Funds; Appendix VI
7. Voting Information.................................... Summary; Information about the Reorganization;
Information Relating to Voting Matters
8. Interest of Certain Persons and Experts............... Information Relating to Voting Matters
9. Additional Information................................ Not Applicable
PART B OF FORM N-14 STATEMENT OF ADDITIONAL INFORMATION
CAPTION
10. Cover Page............................................ Cover Page
11. Table of Contents..................................... Table of Contents
12. Additional Information about the
Registrant............................................ Cover Page (Incorporation by Reference);
13. Additional Information about the Company
Being Acquired........................................ Cover Page (Incorporation by Reference);
Investment Objectives and Policies; Tender Offers
and Share Repurchases; Directors and Executive
Officers; Investment Advisory and Other Services;
Brokerage and Portfolio Transactions; Taxation;
Additional Information
14. Financial Statements.................................. Cover Page (Incorporation by Reference) Pro Forma
Financial Statements, Appendix A to the Statement
of Additional Information
</TABLE>
PART C OF FORM N-14
Information required to be included in Part C is set forth
under the appropriate item in Part C of this Registration
Statement.
<PAGE>
FIRST AMERICAN INVESTMENT FUNDS, INC.
REGISTRATION STATEMENT ON FORM N-14
PART A
PRESIDENT'S LETTER
SHAREHOLDER Q & A
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
PROSPECTUS/PROXY STATEMENT
<PAGE>
AMERICAN GOVERNMENT INCOME FUND INC.
AMERICAN GOVERNMENT INCOME PORTFOLIO, INC.
AMERICAN OPPORTUNITY INCOME FUND INC.
222 SOUTH NINTH STREET
MINNEAPOLIS, MINNESOTA 55402-3804
June ___, 1998
Dear Shareholder:
On behalf of the Board of Directors of American Government Income Fund
Inc., American Government Income Portfolio, Inc., and American Opportunity
Income Fund Inc. (the "Funds"), we are pleased to invite you to a
special meeting in lieu of the annual meeting of shareholders. The meeting will
be held at the offices of the Funds, 222 South Ninth Street, 11th floor,
Minneapolis, Minnesota, on August 10, 1998 at 10:00 a.m. central time.
At the meeting, you will be asked to consider the following proposals: (1)
the approval of an interim advisory agreement with Piper Capital Management
Incorporated ("Piper Capital"), which became effective on May 1, 1998 (when
Piper Jaffray Companies Inc. merged with U.S. Bancorp, as discussed below) and
(2) a proposed reorganization of the Piper Funds into Fixed Income Fund, an
open-end fund of First American Investment Funds, Inc. ("FAIF"). THE BOARD OF
DIRECTORS RECOMMENDS THAT YOU VOTE TO APPROVE EACH PROPOSAL.
The merger of Piper Jaffray Companies, Inc. and U.S. Bancorp resulted in
the automatic termination of the Funds' investment advisory agreements with
Piper Capital. To avoid disruption of the investment advisory services provided
to the Funds, the Board approved interim investment advisory agreements with
Piper Capital which went into effect on the date of the merger. The terms of the
advisory agreements are substantially identical to the terms of the Funds'
previous advisory agreements. At the upcoming meeting, you will be asked to
approve the interim advisory agreement applicable to your Fund. By approving
these agreements, you also will be approving the receipt of investment advisory
fees by Piper Capital under such agreements. These fees are currently being held
in escrow.
You also will be asked to approve at the meeting the reorganization of your
Fund into Fixed Income Fund, which is advised by U.S. Bank National Association
("U.S. Bank"). If required approvals are obtained, the Funds are expected to be
reorganized into Fixed Income Fund on or about August 31, 1998 when your Fund
shares will be exchanged for shares of Fixed Income Fund of equal value.
The formal Notice of Special Meeting, a Combined Proxy Statement/Prospectus
and a Proxy Ballot are enclosed. If you own shares in more than one of the
Funds, more than one Proxy Ballot accompanies these proxy materials. You will
receive additional proxy materials if you are a shareholder of one or more of
the other mutual funds managed by Piper Capital.
YOUR VOTE IS VERY IMPORTANT TO US. WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY BALLOT
PROMPTLY, USING THE ENCLOSED POSTAGE-PAID ENVELOPE. YOU MAY ALSO HAVE YOUR VOTE
RECORDED BY TELEPHONE BY CALLING 1-800-733-8481, EXT. 487.
<PAGE>
The interim investment advisory agreements, the proposed reorganization and
the reasons for the recommendation of the Board are discussed in detail in the
enclosed materials, which you should read carefully. If you have any questions
about the new investment advisory arrangements or the reorganization, please do
not hesitate to call Mutual Fund Services toll free at 1-800-866-7778.
Very truly yours,
Paul A. Dow
President
<PAGE>
PIPER CAPITAL
American Government Income Fund
American Government Income Portfolio
American Opportunity Income Fund
SHAREHOLDER Q&A
Shareholders of American Government Income Fund, American Government Income
Portfolio and American Opportunity Income Fund are being asked to approve the
following proposals:
1 Shareholders of each fund are being asked to approve an interim advisory
agreement with Piper Capital Management;
2 Shareholders of each fund are being asked to approve a reorganization of
their fund into First American Fixed Income Fund, an open-end fund advised
by First American Asset Management.
WHY AM I BEING ASKED TO APPROVE AN ADVISORY ARRANGEMENT WITH PIPER CAPITAL AT
THE SAME TIME I'M BEING ASKED TO APPROVE THE REORGANIZATION OF MY FUND INTO AN
OPEN-END FUND FUND ADVISED BY FIRST AMERICAN ASSET MANAGEMENT?
As you may know, Piper Jaffray Companies, the parent company of Piper Capital,
was acquired by U.S. Bancorp, parent company of First American Asset Management,
on May 1, 1998. By law, this acquisition resulted in the termination of the
advisory arrangements the funds had with Piper Capital. To keep the funds'
management in place and running smoothly until the proposed reorganization of
these funds, the board of directors approved interim advisory agreements, which
you now are being asked to approve. These agreements are substantially identical
to those in place prior to the acquisition, and the fee rates are unchanged. By
approving the agreements, you also will be approving the receipt of investment
advisory fees by Piper Capital under the agreements. (These fees are currently
being held in escrow.)
WHY ARE THE FUNDS BEING REORGANIZED?
Piper Capital and First American Asset Management currently act as advisors to
two separate fund families. Our goal is to consolidate similar funds in the two
families into a single, broadly diversified fund family. Fixed Income Fund is an
open-end fund with an investment objective similar to those of your closed-end
funds. The proposed reorganization is scheduled to take place on or about July
31, 1998, pending the outcome of the shareholder vote.
WHAT ARE THE ADVANTAGES OF REORGANIZING THESE CLOSED-END FUNDS INTO AN OPEN-END
FUND?
These funds have been trading at market prices that are less than their net
asset values. If this proposal is approved, this discount will be eliminated. In
addition, shareholders who want to redeem the shares they receive in the
reorganization will be able to do so at net asset value without paying a
brokerage commission.
<PAGE>
WILL THERE BE ANY COST TO ME?
The costs of the reorganization are the responsibility of U.S. Bancorp, to the
extent they exceed the costs of last year's annual shareholder meeting. The
reorganization will be tax-free, in the opinion of First American Funds'
counsel, and will not involve any sales charges, commissions or transaction
fees.
WHAT EXPERIENCE WILL FIRST AMERICAN ASSET MANAGEMENT BRING TO THE MANAGEMENT OF
THE FUNDS?
First American had more than $78 billion under management as of May 1 (including
$13 billion in assets that came through the Piper Capital acquisition). The firm
employs 41 portfolio managers, averaging 20 years of experience. It was formed
in 1967 and is a multidiscipline, multiproduct investment firm.
IS THERE ANYTHING I NEED TO DO TO CONVERT MY SHARES? COMPLETE A SPECIAL FORM?
SUBMIT SOME SORT OF ORDER?
Soon after the reorganization (expected August 31), the funds' transfer agent,
Investors Fiduciary Trust Company (IFTC), will send a notice and transmittal
form to shareholders, which will give instructions for surrendering shares. You
should not send in your share certificate until you receive your notice and
instructions from IFTC.
WHEN IS MY PROXY DUE?
We would like to receive your vote as soon as possible. You may cast your vote
...
BY MAIL: Please note that you received one proxy ballot for each fund you own.
All ballots must be marked with your vote and returned in the business reply
envelope included in this package. If you have misplaced your envelope, please
mail your proxy to:
Attn: Piper Funds
SEI Fund Resources
530 E. Swedesford Rd.
Wayne, PA 19087
BY PHONE: Call 800 733-8481, ext. 487, and follow the recorded instructions.
If you have not returned your ballot as the August 10 meeting date approaches,
you may receive a call from Shareholder Communications Corporation (SCC)
reminding you to vote. U.S. Bank has hired SCC to assist with the solicitation
of proxies.
WHEN AND WHERE WILL THE SHAREHOLDER MEETING TAKE PLACE?
The shareholder meeting will be held at 10 a.m. on August 10, 1998, on the 11th
floor of the Piper Jaffray Tower, 222 South Ninth Street, Minneapolis,
Minnesota. Piper Capital will validate parking for the Energy Center Ramp
located at South Ninth Street and Third Avenue South. Please bring your parking
ticket to the meeting for validation. Regardless of whether you plan to attend
the meeting, you should vote by phone or return your proxy card(s) in the mail
as soon as possible.
Please read the full text of the attached proxy statement/prospectus for further
information. If you have additional questions, please call your investment
professional or Mutual Fund Services at 800 866-7778.
<PAGE>
AMERICAN GOVERNMENT INCOME FUND INC.
AMERICAN GOVERNMENT INCOME PORTFOLIO, INC.
AMERICAN OPPORTUNITY INCOME FUND INC.
222 SOUTH NINTH STREET
MINNEAPOLIS, MINNESOTA 55402-3804
NOTICE OF SPECIAL MEETING IN LIEU OF ANNUAL SHAREHOLDER MEETING
TO BE HELD ON AUGUST 10, 1998
NOTICE IS HEREBY GIVEN THAT a Special Meeting in Lieu of the Annual Meeting
(the "Meeting") of the Shareholders of American Government Income Fund Inc.
("AGF"), American Government Income Portfolio, Inc. ("AAF"), and American
Opportunity Income Fund Inc. ("OIF") (each a "Piper Fund"), will be held at the
offices of the Piper Funds, 222 South Ninth Street, 11th floor, Minneapolis,
Minnesota on August 10, 1998, at 10:00 a.m. central time for the purpose of
considering and voting upon:
1. FOR EACH PIPER FUND, a proposal to ratify and approve an interim
investment advisory agreement between such Piper Fund and Piper
Capital Management Incorporated ("Piper Capital"), and the
receipt of investment advisory fees by Piper Capital under such
agreement.
2. FOR EACH PIPER FUND, a proposal to approve an Agreement and Plan
of Reorganization providing for the transfer of the assets and
liabilities of each Piper Fund to Fixed Income Fund, an open-end
fund of First American Investment Funds, Inc. ("FAIF"), in
exchange for Class A Shares of Fixed Income Fund.
3. FOR EACH PIPER FUND, such other business as may properly come
before the Meeting or any adjournment(s).
The proposals are described in the attached Combined Proxy
Statement/Prospectus. THE DIRECTORS OF EACH PIPER FUND RECOMMEND THAT YOU VOTE
IN FAVOR OF EACH OF THESE PROPOSALS.
Shareholders of record as of the close of business on ______, 1998 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment(s)
thereof.
SHAREHOLDERS ARE REQUESTED TO MARK, DATE, SIGN AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE THE ACCOMPANYING PROXY CARD, WHICH IS BEING SOLICITED BY THE
BOARD OF DIRECTORS OF THE PIPER FUNDS. THIS IS IMPORTANT TO ENSURE A QUORUM AT
THE MEETING. SHAREHOLDERS MAY ALSO HAVE THEIR VOTES RECORDED BY TELEPHONE BY
CALLING 1-800-733-8481, EXT. 487. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY
ARE EXERCISED BY SUBMITTING TO THE PIPER FUNDS A WRITTEN NOTICE OF REVOCATION OR
A SUBSEQUENTLY EXECUTED PROXY OR BY ATTENDING THE MEETING AND VOTING IN PERSON.
HOWEVER, ATTENDANCE AT THE MEETING WILL NOT BY ITSELF SERVE TO REVOKE A PROXY.
[Secretary]
Secretary
June __, 1998
<PAGE>
COMBINED PROXY STATEMENT/PROSPECTUS
DATED JUNE __, 1998
AMERICAN GOVERNMENT INCOME FUND INC.
AMERICAN GOVERNMENT INCOME PORTFOLIO, INC.
AMERICAN OPPORTUNITY INCOME FUND INC.
222 SOUTH NINTH STREET
MINNEAPOLIS, MINNESOTA 55402-3804
FIRST AMERICAN INVESTMENT FUNDS, INC.
OAKS, PENNSYLVANIA 19456
1-800-637-2548
This Combined Proxy Statement/Prospectus is furnished in connection with
the solicitation of proxies by the Boards of Directors (the "Piper Boards") of
American Government Income Fund Inc. ("AGF"), American Government Income
Portfolio, Inc. ("AAF"), and American Opportunity Income Fund Inc. ("OIF") (AGF,
AAF and OIF are sometimes referred to collectively as the "Piper Funds" and
individually as a "Piper Fund") in connection with a Special Meeting in lieu of
the Annual Meeting of Shareholders of Piper Funds to be held at 10:00 a.m.
central time on August 10, 1998 at the offices of the Piper Funds, 222 South
Ninth Street, 11th floor, Minneapolis, Minnesota.
At the meeting, shareholders will be asked to vote on the following
proposals: (1) for each Piper Fund, the ratification and approval of an interim
advisory agreement with Piper Capital Management Incorporated ("Piper Capital"),
and the receipt of investment advisory fees by Piper Capital under such
agreement, and (2) for each Piper Fund, approval of a proposed Agreement and
Plan of Reorganization with First American Investment Funds, Inc. ("FAIF").
Copies of the interim investment advisory agreements and the Reorganization
Agreement are attached as Appendices to this Combined Proxy
Statement/Prospectus.
AGF and AAF are non-diversified, closed-end management investment
companies. OIF is a diversified, closed-end management investment company. FAIF
is open-end management investment company that offers its shares in a number of
different investment portfolios, or "funds." The Reorganization Agreement
provides for the transfer of the assets and liabilities of the Piper Funds with
and into FAIF's Fixed Income Fund in exchange for Class A shares of Fixed Income
Fund having an aggregate net asset value equal to the aggregate net asset value
of the common shares of the Piper Funds that are outstanding immediately prior
the date of such exchange (the "Reorganization"). As a result of the
Reorganization, shareholders of the Piper Funds will become shareholders of
Fixed Income Fund.
This Combined Proxy Statement/Prospectus sets forth concisely the
information that a shareholder of the Piper Funds should know before voting, and
should be retained for future reference. This Combined Proxy
Statement/Prospectus is accompanied by the following additional documents: (i)
the 1997 Annual Report for the FAIF funds, including Fixed Income Fund, and (ii)
the current Prospectus for the Class A Shares of Fixed Income Fund dated January
31, 1998, as supplemented through the date hereof. Additional information
relating to this Combined Proxy Statement/ Prospectus is set forth in the
Statement of Additional Information dated the date hereof, which is incorporated
herein by reference. This document is on file with the Securities and Exchange
Commission (the "SEC"), and is available without charge by calling or writing
the Piper Funds or FAIF at the respective telephone numbers or addresses stated
above. The information contained in the Prospectus for the Class A Shares of
Fixed Income Fund dated January 31, 1998, as supplemented through the date
hereof, is incorporated by reference into this Combined Proxy
Statement/Prospectus.
<PAGE>
This Combined Proxy Statement/Prospectus is expected to be first sent to
shareholders on or about June __, 1998.
THE SECURITIES OF FIXED INCOME FUND OFFERED HEREBY HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS COMBINED
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROXY
STATEMENT/PROSPECTUS AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY
REFERENCE AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE PIPER FUNDS, FAIF FIXED
INCOME FUND OR THEIR RESPECTIVE ADVISERS OR THE DISTRIBUTOR FOR FIXED INCOME
FUND.
SHARES OF THE PIPER FUNDS AND FAIF ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED BY U.S. BANK NATIONAL ASSOCIATION OR ANY OTHER BANK, AND ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY .................................................................... 5
INTERIM ADVISORY AGREEMENTS .......................................... 5
PIPER BOARD CONSIDERATIONS ........................................... 6
PROPOSED REORGANIZATION .............................................. 6
OVERVIEW OF FIXED INCOME FUND AND PIPER FUNDS ........................ 6
PIPER FUND AND FAIF BOARD CONSIDERATIONS ............................. 9
VOTING INFORMATION ................................................... 9
DISSENTERS' APPRAISAL RIGHTS ......................................... 10
PRINCIPAL RISK FACTORS ..................................................... 10
INTEREST RATE RISK ................................................... 10
CREDIT RISK .......................................................... 10
RISKS ASSOCIATED WITH MORTGAGE-BACKED SECURITIES ..................... 11
RISKS ASSOCIATED WITH FOREIGN SECURITIES ............................. 12
CALL RISK ............................................................ 12
USE OF BORROWINGS AND WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS .. 12
DIFFERENCES OF CLOSED-END AND OPEN-END FUNDS ......................... 13
INFORMATION RELATING TO THE INTERIM ADVISORY AGREEMENTS .................... 14
THE MERGER OF PIPER JAFFRAY COMPANIES INC. AND U.S. BANCORP .......... 14
THE INTERIM ADVISORY AGREEMENTS ...................................... 15
INFORMATION ABOUT PIPER CAPITAL ...................................... 16
ADMINISTRATION AGREEMENTS ............................................ 18
AFFILIATED BROKER COMMISSIONS ........................................ 18
SECTION 15(f) OF THE 1940 ACT ........................................ 18
APPROVAL OF THE PIPER BOARDS ......................................... 19
INFORMATION RELATING TO THE PROPOSED REORGANIZATION ........................ 20
DESCRIPTION OF THE REORGANIZATION AGREEMENT .......................... 20
PIPER BOARD CONSIDERATIONS ........................................... 21
CAPITALIZATION ....................................................... 22
FEDERAL INCOME TAX TREATMENT ......................................... 23
COMPARISON OF FIXED INCOME FUND AND THE PIPER FUNDS ........................ 23
INVESTMENT OBJECTIVES AND POLICIES ................................... 23
INVESTMENT ADVISORY FEES AND TOTAL EXPENSE RATIOS .................... 24
FEES AND EXPENSES OF THE PIPER FUNDS AND FIXED INCOME FUND ........... 24
INVESTMENT ADVISORY AGREEMENTS. ...................................... 26
PORTFOLIO MANAGEMENT ................................................. 26
INFORMATION ABOUT U.S. BANK AND OTHER SERVICE PROVIDERS .............. 26
SERVICE PROVIDERS FOR PIPER FUNDS AND FIXED INCOME FUND .............. 27
ADMINISTRATION AGREEMENT ............................................. 27
SHARE STRUCTURE ...................................................... 27
HISTORY OF PUBLIC TRADING OF THE PIPER FUNDS' COMMON SHARES .......... 29
DISTRIBUTION PLAN .................................................... 30
SHAREHOLDER TRANSACTIONS AND SERVICES ................................ 30
<PAGE>
INFORMATION RELATING TO VOTING MATTERS ..................................... 31
GENERAL INFORMATION .................................................. 31
SHAREHOLDER AND BOARD APPROVALS ...................................... 31
PIPER FUNDS -- 5% OWNERSHIP AS OF , 1998 ..................... 33
FIXED INCOME FUND -- 5% OWNERSHIP AS OF , 1998 .................... 33
QUORUM ............................................................... 33
ANNUAL MEETINGS ...................................................... 34
DISSENTERS' RIGHTS ................................................... 34
INTERESTS OF CERTAIN PERSONS ......................................... 34
ADDITIONAL INFORMATION ABOUT FAIF .......................................... 35
ADDITIONAL INFORMATION ABOUT THE PIPER FUNDS ............................... 35
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE .................... 35
FINANCIAL STATEMENTS ....................................................... 36
OTHER BUSINESS ............................................................. 36
SHAREHOLDER INQUIRIES ...................................................... 36
APPENDICES:
I - FORM OF INTERIM INVESTMENT ADVISORY AGREEMENT BETWEEN PIPER
CAPITAL MANAGEMENT INCORPORATED AND AMERICAN GOVERNMENT INCOME
FUND INC.
II - FORM OF INTERIM INVESTMENT ADVISORY AGREEMENT BETWEEN PIPER
CAPITAL MANAGEMENT INCORPORATED AND AMERICAN GOVERNMENT INCOME
PORTFOLIO, INC.
III - FORM OF INTERIM INVESTMENT ADVISORY AGREEMENT BETWEEN PIPER
CAPITAL MANAGEMENT INCORPORATED AND AMERICAN OPPORTUNITY INCOME
FUND INC.
IV - PRINCIPAL EXECUTIVE OFFICERS AND DIRECTORS OF THE ADVISER
V - FORM OF AGREEMENT AND PLAN OF REORGANIZATION
VI - COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
VII - COMPARISON OF THE INTERIM ADVISORY AGREEMENTS AND FIXED INCOME
INCOME FUND'S ADVISORY AGREEMENT
VIII - SHAREHOLDER TRANSACTIONS AND SERVICES
IX - PORTFOLIO MANAGERS OF THE PIPER FUNDS
X - DISSENTING SHAREHOLDERS' RIGHTS OF APPRAISAL
<PAGE>
SUMMARY
The following is a summary of certain information relating to the interim
investment advisory agreements and the proposed Reorganization, and is qualified
by reference to the more complete information contained elsewhere in this
Combined Proxy Statement/Prospectus and the Appendices attached hereto.
INTERIM ADVISORY AGREEMENTS. On May 1, 1998, pursuant to an Agreement and
Plan of Merger, U.S. Bancorp acquired Piper Jaffray Companies Inc. ("Piper
Jaffray") and its direct and indirect subsidiaries (including Piper Capital) by
merging a wholly owned subsidiary of U.S. Bancorp with and into Piper Jaffray as
the surviving corporation (the "Holding Company Merger"). As a result of the
Holding Company Merger, Piper Capital, the investment adviser to the Piper
Funds, became an indirect wholly owned subsidiary of U.S. Bancorp. In accordance
with the terms of the then current investment advisory agreements between Piper
Capital and the Piper Funds (the "Old Advisory Agreements"), and consistent with
the requirements of the Investment Company Act of 1940, as amended (the "1940
Act"), this change in control of Piper Capital resulted in the automatic and
immediate termination of the Old Advisory Agreements.
To better ensure that the Holding Company Merger and this automatic
termination would not disrupt the investment advisory services provided to Piper
Funds, the Piper Funds and Piper Capital obtained an exemptive order from the
SEC (the "Order") permitting Piper Capital to act as investment adviser to the
Piper Funds after the termination of the Old Advisory Agreements, but prior to
obtaining shareholder approval, under new, interim investment advisory
agreements with each Piper Fund (the "Interim Advisory Agreements"). In
accordance with the Order, the Interim Advisory Agreements are subject to
ratification and approval by the shareholders of the applicable Piper Funds at a
meeting to be held within 120 days after May 1, 1998 (the "Interim Period").
The Piper Boards now are proposing that the shareholders of each Piper Fund
ratify and approve their fund's Interim Advisory Agreement. The Interim Advisory
Agreements each became effective on May 1, 1998, the effective date of the
Holding Company Merger. Pending the ratification and approval of the Interim
Advisory Agreements, all fees payable under each agreement are being held in
escrow. Any escrowed fees relating to a Piper Fund will be received by Piper
Capital only if the respective Interim Advisory Agreement is ratified and
approved by the shareholders of such Piper Fund.
The terms of the Interim Advisory Agreements are substantially identical to
the terms of the respective Old Advisory Agreements, except for (i) the
effective date, (ii) the termination date, and (iii) inclusion of a provision
requiring that all fees payable by each Piper Fund under each Interim Advisory
Agreement be held in escrow until such Interim Advisory Agreement is approved by
the applicable Piper Fund's shareholders. The advisory fee rates payable under
the Interim Advisory Agreements are identical to those previously payable under
the Old Advisory Agreements. A description of Piper Capital, the Interim
Advisory Agreements and the services provided by Piper Capital thereunder is set
forth below under the heading "Information Relating to the Interim Advisory
Agreements." Copies of the Interim Advisory Agreements are attached to this
Combined Proxy Statement/Prospectus as Appendices I, II and III. The
descriptions of the Interim Advisory Agreements are qualified in their entirety
by reference to the copies of the Interim Advisory Agreements attached hereto.
If ratified and approved, each Interim Advisory Agreement will continue in
effect either (i) for an initial period of two years from the effective date of
such Interim Advisory Agreement and thereafter for successive one-year terms,
subject to certain annual approval
<PAGE>
requirements, or (ii) until the Reorganization is completed (which, subject to
various conditions described herein, is expected to occur on or about August 31,
1998) (the "Closing"), whichever occurs earlier. In the event that an Interim
Advisory Agreement is not ratified and approved with respect to a Piper Fund,
the fees applicable to such Interim Advisory Agreement held in escrow with
respect to that fund will be returned to the fund, and that fund's Board of
Directors will consider what actions should be taken with respect to management
of the assets of the Piper Fund until a new investment advisory agreement is
approved by the shareholders of the fund or the Reorganization occurs.
PIPER BOARD CONSIDERATIONS. In approving the Interim Advisory Agreements
and recommending their ratification and approval to the shareholders of each
Piper Fund, the Piper Boards considered, among other things, that the provisions
of the Interim Advisory Agreements are substantially identical to those of the
Old Advisory Agreements, and that the advisory fee rates are exactly the same as
those of the Old Advisory Agreements. In addition, Piper Capital provided
assurances that the investment advisory services provided to the Piper Funds
during the Interim Period would not be diminished in scope or quality, and
agreed to certain conditions that were intended to protect the interests of
shareholders. See "Information Relating to the Interim Advisory Agreements --
Approval of the Piper Boards." THE PIPER BOARDS RECOMMEND THAT EACH PIPER FUND'S
SHAREHOLDERS RATIFY AND APPROVE THE APPLICABLE INTERIM ADVISORY AGREEMENT AND
THE RECEIPT OF INVESTMENT ADVISORY FEES BY PIPER CAPITAL FOR THE PERIOD UNDER
SUCH AGREEMENT.
PROPOSED REORGANIZATION. The Reorganization Agreement provides for: (i) the
transfer of all of the assets and liabilities of each of the Piper Funds to
Fixed Income Fund in exchange for Class A Shares of Fixed Income Fund; and (ii)
the distribution of these Fixed Income Fund Class A shares to the shareholders
of the Piper Funds in liquidation of the Piper Funds. The Reorganization is
subject to a number of conditions with respect to each Piper Fund, including the
shareholder approvals described below. Following the Reorganization, it is
contemplated that there will be a winding up of the affairs of each Piper Fund,
including the deregistration of each Piper Fund as a closed-end investment
company under the 1940 Act.
As a result of the proposed Reorganization, each shareholder of a Piper
Fund will become a shareholder of Fixed Income Fund and will hold, immediately
after the Closing, Class A Shares of Fixed Income Fund having an aggregate net
asset value equal to the aggregate net asset value of the common shares of the
Piper Fund the shareholder holds immediately before the Closing.
The Reorganization Agreement provides that the Reorganization may be
abandoned at any time prior to the Closing upon the mutual consent of each Piper
Fund and FAIF, among other reasons. For further information, see "Information
Relating to the Proposed Reorganization."
OVERVIEW OF FIXED INCOME FUND AND PIPER FUNDS. The investment objectives of
the Piper Funds are, in general, similar to those of Fixed Income Fund. The
investment objective of each of AGF and AAF is high current income consistent
with preservation of capital. OIF's primary investment objective is to provide a
high level of current income; its secondary objective is to seek capital
appreciation. Fixed Income Fund has an objective of providing a high level of
current income consistent with limited risk to capital.
The investment objective of each Piper Fund is fundamental, which
means that it cannot be changed without a vote of shareholders. The investment
objective of Fixed Income Fund is non-fundamental, which means that it can be
changed without a vote of shareholders. Shareholders will receive written
notification at least 30 days prior to any change in Fixed Income Fund's
investment objective.
<PAGE>
There also are certain differences in the investment policies and
restrictions of AGF, AAF, OIF and Fixed Income Fund. These differences are set
forth in detail in Appendix VI to this Combined Proxy Statement/Prospectus,
which shareholders should review carefully. Certain of these differences are
summarized in the following four paragraphs.
AGF has a fundamental policy to invest at least 65% of its total assets in
"U.S. Government Securities" and repurchase agreements pertaining to such
securities. "U.S. Government Securities" are defined as securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. These
include (i) U.S. Treasury bills, notes, and bonds, all of which are backed by
the full faith and credit of the United States; and (ii) obligations issued or
guaranteed by U.S. Government agencies or instrumentalities, including
government guaranteed mortgage-related securities, some of which are backed by
the full faith and credit of the U.S. Treasury, others of which are supported by
the right of the issuer to borrow from the U.S. Government, and others of which
are backed only by the credit of the issuer itself. AGF also may invest up to
35% of its total assets in securities other than U.S. Government Securities,
including, subject to limitations further described in Appendix VI, (a) U.S.
dollar denominated Canadian government securities rated AA or better by Standard
& Poor's Corporation ("Standard & Poor's"); (b) corporate debt securities
(including collateralized mortgage obligations) rated AA or better by Standard &
Poor's; (c) certain certificates of deposit, time deposits and banker's
acceptances of domestic banks and certain commercial paper; and (d) put and call
options, futures contracts and options on futures contracts related to fixed
income securities and financial indices. All debt securities in which AGF
invests must be rated AA or better by Standard & Poor's.
AAF has a fundamental policy to invest at least 65% of its total assets in
"U.S. Government Securities," as defined in the preceding paragraph, and
repurchase agreements pertaining to such securities. AAF also may invest up to
35% of its total assets in securities other than U.S. Government Securities,
including, subject to limitations further described in Appendix VI, (i) U.S.
dollar denominated Canadian government securities rated AA or better by Standard
& Poor's; (ii) corporate debt securities (including collateralized mortgage
obligations) rated AA or better by Standard & Poor's; (iii) certain certificates
of deposit, time deposits and banker's acceptances of domestic banks and certain
commercial paper; and (iv) put and call options, futures contracts and options
on futures contracts related to fixed income securities and financial indices.
All debt securities in which AAF invests must be rated AA or better by Standard
& Poor's.
OIF has a nonfundamental policy to invest at least 50% of its total assets
in mortgage-backed securities that are (i) issued or guaranteed by the U.S.
Government or one of its agencies or instrumentalities; or (ii) issued by
private issuers and rated, at the time of investment, AA or better by Standard &
Poor's. At least 65% of OIF's total assets must be invested in securities issued
or guaranteed by the U.S. Government or one of its agencies or instrumentalities
(including but not limited to mortgage-backed securities); and at least 75% of
its total assets must be invested in securities rated AA or better by Standard &
Poor's or direct obligations of the U.S. Government. Up to 15% of OIF's total
assets may be invested in securities rated A (but not lower) by Standard &
Poor's; but to the extent that OIF invests in any securities rated A, it must
hold at least an equal weighting of securities rated AAA. Subject to the
foregoing limitations and to limitations further described in Appendix VI, up to
35% of OIF's total assets may be collectively invested in corporate debt
securities, foreign debt securities, unregistered securities, certain types of
derivative mortgage-backed securities, and whole mortgage loans and
participation mortgages.
Fixed Income Fund invests in investment grade debt securities, at least 65%
of which are U.S. Government obligations and corporate debt obligations and
mortgage-backed and asset-backed securities rated at least A by Standard &
Poor's or Moody's Investor Services ("Moody's") or which have been assigned an
equivalent rating by another nationally recognized statistical rating
<PAGE>
organization. Under normal market conditions, the weighted average maturity of
the securities held by Fixed Income Fund will not exceed 15 years. Fixed Income
Fund's permitted investments include notes, bonds and discount notes of U.S.
Government agencies or instrumentalities; domestic issues or corporate debt
obligations rated at least BBB by Standard & Poor's or Baa by Moody's, or which
have been assigned an equivalent rating by another nationally recognized
statistical rating organization, or which are of comparable quality in the
judgment of the fund's investment adviser; other fixed income securities,
including mortgage-backed securities, which are rated in one of the four highest
categories by a nationally recognized statistical rating organization (i.e.,
Standard & Poor's BBB or its equivalent) or which are of comparable quality in
the judgment of the fund's investment adviser; and certain commercial paper. At
least 65% of the total assets of Fixed Income Fund will be invested in fixed
rate obligations, and up to 15% of its total assets may be invested in foreign
securities payable in U.S. dollars.
Shareholders also should review the section captioned "Principal Risk
Factors" below, which provides information concerning certain risks associated
with investments in the respective Piper Funds and Fixed Income Fund.
Comparative information concerning the effective durations, holdings of
mortgage-backed securities, and use of certain investment techniques of the
Piper Funds and Fixed Income Fund also is set forth in that section.
In addition to the differences outlined above, there are other differences
between the Piper Funds and Fixed Income Fund that should be considered. As
discussed under "Comparison of Fixed Income Fund and the Piper Funds --
Investment Advisory Fees and Total Expense Ratios," U.S. Bank serves as the
investment adviser to Fixed Income Fund. As discussed under "Comparison of Fixed
Income Fund and the Piper Funds -- Information About U.S. Bank and Other Service
Providers," the Piper Funds and Fixed Income Fund have different administrators,
transfer agents, custodians and other service providers. In addition, Fixed
Income Fund has a distributor, unlike the Piper Funds which do not have a
distributor because they are closed-end investment companies.
As discussed under "Comparison of Fixed Income and the Piper Funds -- Share
Structure," Fixed Income Fund will issue Class A Shares in connection with the
Reorganization. Fixed Income Fund also offers Class B and Class Y Shares. Class
A Shares of Fixed Income Fund are sold to the general public as well as to
retail customers of banks and other institutions. Class A Shares are sold with a
front-end sales charge and are subject to a Rule 12b-1 shareholder servicing fee
computed at an annual rate of 0.25% of average net assets of that class. Class B
Shares are sold at net asset value without a front-end sales load, but are
subject to a contingent deferred sales charge if sold during the first six years
after purchase. Class B Shares also are subject to Rule 12b-1 distribution and
shareholder servicing fees computed at an annual rate of 1.00% of average net
assets of that class. Class Y Shares are offered through banks and certain other
institutions for the investment of their own funds and funds for which they act
in a fiduciary, agency or custodial capacity. Such shares are offered at net
asset value without any front-end or contingent deferred sales charge and are
not subject to any Rule 12b-1 fees. Each of the Piper Funds has only one
outstanding class of common shares which are publicly traded on the New York
Stock Exchange.
The dividend and distribution policies and procedures of Fixed Income Fund
and the Piper Funds are generally similar. Because of the differences between
shares of a closed-end investment company and shares of an open-end investment
company, the purchase and redemption polices of the Piper Funds and Fixed Income
Fund are different. Shares of the Piper Funds are traded on the New York Stock
Exchange at market price, which price may be at either a discount or a premium
to net asset value, whereas shares of Fixed Income Fund are purchased and
redeemed at net asset value, less any applicable front-end or contingent
deferred sales charge. Additional information concerning these
<PAGE>
policies and procedures for the Piper Funds and Fixed Income Fund is discussed
further under "Comparison of Fixed Income Fund and the Piper Funds --
Shareholder Transactions and Services" and in Appendix VIII to this Combined
Proxy Statement/Prospectus. NO FRONT-END OR CONTINGENT DEFERRED SALES CHARGE
WILL BE IMPOSED ON ANY OF THE FIXED INCOME FUND SHARES THAT ARE ISSUED TO PIPER
FUNDS' SHAREHOLDERS IN CONNECTION WITH THE REORGANIZATION.
PIPER FUND AND FAIF BOARD CONSIDERATIONS. In reviewing the proposed
Reorganization, the Boards of each Piper Fund and FAIF considered, among other
things: (i) the potential effect of the Reorganizations on the shareholders of
the Piper Funds; (ii) the investment management capabilities of U.S. Bank; (iii)
the capabilities of the administrator, distributor and other service providers
to Fixed Income Fund; (iv) the systems capabilities of U.S. Bank to provide
shareholder servicing, reporting and systems integration with related programs
for Piper Funds shareholders; (v) the distribution channels used and to be used
by Fixed Income Fund; (vi) the investment advisory and other fees paid by Fixed
Income Fund, and the projected expense ratios (contractual) of Fixed Income Fund
as compared to the historical expense ratios of the Piper Funds; (vii) the
expected cost savings for the Piper Funds as a result of the Reorganization;
(viii) the investment objectives, policies, limitations and risks of Fixed
Income Fund and their relative compatibility with those of the Piper Funds as
discussed further in this Combined Proxy Statement/Prospectus; (ix) the
historical investment performance records of the Piper Funds and Fixed Income
Fund; (x) the prospects for asset growth and market viability of the Piper Funds
and Fixed Income Fund; (xi) the terms and conditions of the Reorganization
Agreement, including those provisions that were intended to avoid dilution of
the interests of the Piper Funds shareholders; (xii) the anticipated tax
treatment of the Reorganizations for the respective Piper Funds and their
shareholders; and (xiii) the effect on Piper Fund shareholders of a change from
a closed-end investment company to a series of an open-end investment company,
including the potential benefits to shareholders associated with elimination
through the Reorganization of the market discount at which the shares of the
Piper Funds currently trade. See "Information Relating to the Proposed
Reorganization -- Piper Board Considerations."
Based upon their evaluations of the information presented to them, and in
light of their fiduciary duties under Federal and state law, the Piper Boards
and the Board of Directors of FAIF, including all of the members of each Board
who are not interested persons, as that term is defined in the 1940 Act, of the
Piper Funds or FAIF, have determined that the proposed Reorganization is in the
best interests of the shareholders of each Piper Fund and Fixed Income Fund,
respectively, and that the interests of the shareholders of the respective Piper
Funds and Fixed Income Fund will not be diluted as a result of the
Reorganization. THE PIPER BOARDS RECOMMEND THAT THE SHAREHOLDERS OF EACH PIPER
FUND APPROVE THE REORGANIZATION AGREEMENT.
VOTING INFORMATION. This Combined Proxy Statement/Prospectus is being
furnished in connection with the solicitation of proxies by the Piper Boards for
a Special Meeting in Lieu of Annual Meeting of Shareholders to be held at the
offices of the Piper Funds, 222 South Ninth Street, 11th floor, Minneapolis,
Minnesota, on August 10, 1998 at 10:00 a.m. Central time. (This meeting and any
adjournment(s) thereof are referred to as the "Meeting.") Only shareholders of
record at the close of business on ______, 1998 will be entitled to vote at the
Meeting. Each shareholder is entitled to one vote for each share held. Shares
represented by a properly executed proxy will be voted in accordance with the
instructions thereon or, if no specification is made, the persons named as
proxies will vote in favor of each proposal set forth in the Notice of Meeting.
Proxies may be revoked at any time before they are exercised by submitting to
the Piper Funds a written notice of revocation or a subsequently executed proxy
or by attending the Meeting and voting in person. However, attendance at the
Meeting will not by itself serve to revoke a proxy. For additional information,
including a description of the
<PAGE>
shareholder votes required for approval of the Interim Advisory Agreements and
the Reorganization Agreement, see "Information Relating to Voting Matters."
DISSENTERS' APPRAISAL RIGHTS. Although under Minnesota law shareholders of
a company acquired in a merger who do not vote to approve the merger generally
have "appraisal rights" (where they may elect to have the "fair market value" of
their shares (determined in accordance with Minnesota law) judicially
appraised and paid to them), the Division of Investment Management of the SEC
has taken the position that Rule 22c-1 under the 1940 Act supersedes appraisal
provisions in state statues. This rule provides that no open-end investment
company may redeem its shares other than at net asset value next computed after
receipt of a tender of such securities for redemption. See "Information Relating
to Voting Matters -- Dissenters' Rights" and Appendix X.
PRINCIPAL RISK FACTORS
Because of the differences in the investment policies and restrictions of
AGF, AAF, OIF and Fixed Income Fund, an investment in Fixed Income Fund may
involve risks that differ in some respects from those associated with the
respective Piper Funds. This section is intended to highlight certain of those
risks. Further information concerning the risks associated with an investment in
Fixed Income Fund is set forth in the Class A Shares prospectus for Fixed Income
Fund which accompanies this Combined Proxy Statement/Prospectus.
INTEREST RATE RISK. Interest rate risk is the risk that the value of a debt
security will decline due to changes in market interest rates. Because the Piper
Funds and Fixed Income Fund invest in such securities, they are subject to
interest rate risk. In general, when interest rates rise, the value of a
fixed-rate debt instrument declines. Conversely, when interest rates decline,
the value of a fixed-rate debt instrument generally increases. In general, the
value of fixed-rate debt securities with longer maturities or durations is more
sensitive to changes in market interest rates than the value of such securities
with shorter maturities or durations.
Under normal market conditions, the weighted average maturity of the
securities held by Fixed Income Fund will not exceed 15 years. The Piper Funds
do not have a policy regarding the weighted average maturity or duration of the
securities held by them. At April 30, 1998, AGF, AAF and OIF had effective
durations of 4.01 years, 3.70 years and 5.39 years, respectively, while Fixed
Income Fund had an effective duration of 6.18 years. "Effective duration"
represents an estimate of how much the value of a security is expected to change
with a given change in interest rates, and longer effective durations indicate
greater sensitivity to changes in interest rates. Effective duration is
difficult to calculate precisely for mortgage-backed securities, and can be
greatly affected by interest rate changes. Based on the effective durations of
the respective Piper Funds and of Fixed Income Fund at the date set forth above,
Fixed Income Fund may be expected to have greater sensitivity to changes in
interest rates than the Piper Funds.
CREDIT RISK. Credit risk is the risk that the issuer of a debt security
will fail to make payments on the security when due. Securities issued or
guaranteed by the U.S. government generally are viewed as carrying minimal
credit risk. Securities issued by governmental entities but not backed by the
full faith and credit of the U.S. government, and securities issued by private
entities, are subject to higher levels of credit risk.
As described above under "Summary -- Overview of Fixed Income Fund and
Piper Funds," AGF and AAF each has a fundamental policy to invest at least 65%
of its total assets in U.S. Government Securities, as defined therein. The
remainder of their assets generally may be invested in securities
<PAGE>
rated as low as AA by Standard & Poor's. OIF must invest at least 65% of its
total assets in securities issued or guaranteed by the U.S. government or one of
its agencies or instrumentalities, and at least 75% of its total assets must be
invested in securities rated AA or better by Standard & Poor's or direct
obligations of the U.S. government. Up to 15% of its assets generally may be
invested in securities rated as low as A by Standard & Poor's.
Fixed Income Fund, on the other hand, must invest at least 65% of its
assets in U.S. Government obligations and privately issued securities rated at
least A by Standard & Poor's or Moody's or which have been assigned an
equivalent rating by another nationally recognized statistical rating
organization. The remainder of its assets generally may be invested in
securities rated as low as BBB by Standard & Poor's or which carry a comparable
rating from another rating organization. Thus, although Fixed Income Fund
generally may invest only in investment grade securities (i.e., those rated in
one of the four highest rating categories), its rating requirements are somewhat
less stringent than those of the Piper Funds. Fixed Income Fund therefore may be
subject to somewhat higher credit risk than the Piper Funds.
RISKS ASSOCIATED WITH MORTGAGE-BACKED SECURITIES. Because residential
mortgage loans generally can be prepaid in whole or in part by the borrowers at
any time without any prepayment penalty, the holder of a mortgage-backed
security which represents an interest in a pool of such mortgage loans is
subject to a form of call risk which is generally called "prepayment risk." In
general, it is more difficult to predict the effect of changes in market
interest rates on the return of mortgage-backed securities than to predict the
effect of such changes on the return of a conventional fixed-rate debt
instrument, and the magnitude of such effects may be greater in some cases. In
addition, although the extent of prepayments on a pool of mortgage loans depends
on various economic and other factors, as a general rule prepayments on fixed
rate mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Accordingly, amounts
available for reinvestment by a Fund are likely to be greater during a period of
declining interest rates and, as a result, likely to be reinvested at lower
interest rates than during a period of rising interest rates.
The Piper Funds and Fixed Income Fund can invest without limitation in
mortgage-backed securities, subject to the requirements described elsewhere
herein regarding U.S. Government or agency backing or rating requirements.
Historically, however, the Piper Funds have engaged in purchases of
mortgage-backed securities to a much greater extent than Fixed Income Fund. At
April 30, 1998, AGF, AAF and OIF had 79%, 78%, and 85%, respectively, of their
total assets invested in mortgage-backed securities. At the same date, Fixed
Income Fund had 14% of its total assets invested in mortgage-backed securities.
Thus, at that date Fixed Income Fund was less exposed to the risks associated
with mortgage-backed securities than were the Piper Funds.
In addition, the Piper Funds and Fixed Income Fund may, with various
limitations, invest in specific types of mortgage-backed securities including
interest-only, principal-only and inverse floating rate mortgage-backed
securities. Such mortgage-backed securities can be extremely sensitive to
interest rate changes and therefore more volatile than standard mortgage-backed
securities. Unless issued by an agency of the U.S. government, such types of
mortgage-backed securities are not considered U.S. Government Securities for
purposes of the fundamental policy of AGF and AAF of investing at least 65% of
their total assets in U.S. Government Securities. Therefore, AGF and AAF may not
invest more than 35% of its assets in such types of mortgage-backed securities
issued by such issuers except if such security is issued by an agency of the
U.S. government. OIF will invest no more that 15% of its assets in such types of
mortgage-backed securities. In addition, for OIF such obligations will be rated
A or higher by Standard & Poor's. Fixed Income Fund will not invest more that
10% of its total assets in such obligations.
<PAGE>
RISKS ASSOCIATED WITH FOREIGN SECURITIES. Investment in foreign securities
is subject to special investment risks that differ in some respects from those
related to investments in securities of United States domestic issuers. These
risks include political, social or economic instability in the country of the
issuer, the difficulty of predicting international trade patterns, the
possibility of the imposition of exchange controls, expropriation, limits on
removal of currency or other assets, nationalization of assets, foreign
withholding and income taxation, and foreign trading practices (including higher
trading commissions, custodial charges and delayed settlements). Foreign
securities also may be subject to greater fluctuations in price than securities
issued by United States corporations. In addition, the value of a Fund's
portfolio securities computed in U.S. dollars will vary with changes in the
exchange rate between currencies in which a Fund has invested and the U.S.
dollar. In addition, foreign branches of United States banks, foreign banks and
foreign issuers may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and record keeping standards than
those applicable to domestic branches of United States banks and United States
domestic issuers.
AGF and AAF do not invest in foreign securities, except that AGF and AAF
may invest up to 20% of their assets in U.S. dollar denominated securities
issued by the Canadian federal or provincial governments or agencies thereof.
OIF may invest up to 25% of its total assets in debt securities issued by
foreign corporations or foreign governments and non-dollar denominated debt
securities issued by U.S. corporations and agencies and instrumentalities of the
U.S. government. In addition, OIF may not invest more than 7.5% of its total
assets in securities of issuers located in any one foreign country, except
issuers located in Canada in which up to 10% of its total assets may be
invested. Fixed Income Fund may invest up to 15% of its total assets in foreign
securities payable in U.S. dollars.
CALL RISK. Many corporate bonds may be redeemed at the option of the issuer
("called") at a specified price prior to their stated maturity date. In general,
it is advantageous for a corporate issuer to call its bonds if they can be
refinanced through the issuance of new bonds which bear a lower interest rate
than that of the called bonds. Call risk is the risk that corporate bonds will
be called during a period of declining market interest rates so that such
refinancings may take place.
Most U.S. Government Securities are not callable before their stated
maturity, although U.S. agency securities and private issuer securities often
are. If a bond held by a Piper Fund or Fixed Income Fund is called during a
period of declining interest rates, such fund probably will have to reinvest the
proceeds received by it at a lower interest rate than that borne by the called
bond, thus resulting in a decrease in such fund's income. To the extent that the
funds invest in callable corporate or government agency bonds, shareholders bear
the risk that reductions in income will result from the call of bonds in a
declining interest rate environment.
USE OF BORROWINGS AND WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. As
described elsewhere herein, each of the Piper Funds is permitted to borrow
(including entering into reverse repurchase agreements) for purposes other than
temporary or emergency purposes, while Fixed Income Fund is not. In addition,
although each of the Piper Funds and Fixed Income Fund is permitted to engage in
when-issued and delayed-delivery transactions as described elsewhere herein, the
Piper Funds historically have utilized this investment technique to a greater
extent than Fixed Income Fund. A fund's use of borrowings and its purchase of
securities on a when-issued or delayed-delivery basis at a time when it is
substantially fully invested may be expected to increase the volatility of its
net asset value during times of changing market conditions. At April 30, 1998,
the total liabilities for securities purchased on a when-issued or delayed
delivery basis and for borrowings of AGF, AAF and OIF as a percentage of their
total assets were 16%, 14% and 15%, respectively, while the total liabilities of
Fixed Income Fund for such items as a percentage of its total assets was 0%.
Thus, at such date the Piper Funds were exposed to the risks associated
with the use of these investment techniques while Fixed Income Fund was not.
<PAGE>
DIFFERENCES OF CLOSED-END AND OPEN-END FUNDS. The Piper Funds are
closed-end investment companies. Fixed Income Fund is a series of an open-end
investment company. The differences between closed-end and open-end investment
companies are described below.
ELIMINATION OF POTENTIAL FOR PURCHASE DISCOUNT OR SALE PREMIUM. To the
extent shares of the Piper Funds trade at a discount from net asset value, a
shareholder currently may purchase shares at this discounted price and
potentially may be able to sell such shares at a later date at net asset value
or a premium thereto. Of course, there is also the possibility that such
discount will remain in place or increase. Shares of Fixed Income Fund will be
purchased and redeemed daily at their net asset value (plus any applicable
front-end or contingent deferred sales load), thereby eliminating the potential
of purchasing at a discount from net asset value and later selling at net asset
value, or at a premium thereto.
In addition, shareholders of Fixed Income Fund who wish to realize the
value of their shares acquired in the Reorganization will be able to do so by
redeeming their shares at net asset value. While this will eliminate any
discount from the net asset value, it also will eliminate any possibility that a
shareholder will be able to sell his or her shares at a premium over net asset
value. Also, there is a possibility that the net asset value of shares of Fixed
Income Fund may be lower on the day a shareholder redeems his or her shares than
on the day the shares were purchased.
SALES CHARGES. Shares of AGF, AAF and OIF are currently traded on the New
York Stock Exchange. Investors thus generally pay brokerage commissions when
purchasing and selling shares of the Piper Funds. Investors in Fixed Income Fund
are not required to pay brokerage commissions; however, investors in certain
classes of shares of Fixed Income Fund pay or may pay a sales charge upon the
purchase or sale of shares of such classes. (However, shareholders of the Piper
Funds will not incur such a charge for the Class A Shares of Fixed Income Fund
they receive in the Reorganization). Sales charges could tend to discourage
future investment in Fixed Income Fund and restrict its size, thereby limiting
the investment opportunities available to Fixed Income Fund and possibly
adversely affecting performance.
PORTFOLIO MANAGEMENT. Unlike open-end funds, closed-end investment
companies are not subject to pressures to sell portfolio securities at
disadvantageous times to meet net redemptions. Most open-end funds maintain
adequate reserves of cash or cash equivalents to meet net redemptions as they
arise. Because closed-end investment companies do not have to meet redemptions,
their cash reserves can be substantial or minimal, depending primarily on
management's perception of market conditions and on decisions to use fund assets
to repurchase shares. The larger reserves of cash or cash equivalents required
to operate prudently as an open-end fund when net redemptions are anticipated
could reduce Fixed Income Fund's investment flexibility and the scope of its
investment opportunities. Fixed Income Fund may have to sell portfolio
securities to accommodate the need for large reserves of cash or cash
equivalents, resulting in an increase in transaction costs, taxable
distributions and portfolio turnover.
EXPENSES. Open-end funds generally have higher fund operating expenses than
closed-end funds, primarily as a result of: (i) ongoing distribution and
shareholder serving costs paid by many open-end funds (including Fixed Income
Fund) pursuant to plans adopted pursuant to Rule 12b-1 under the 1940 Act, which
closed-end funds are not permitted to adopt, and (ii) higher transfer agency
costs associated with, among other things, continuing shareholder purchases and
redemptions. U.S. Bank has committed that, for a period of two years following
the reorganization, it will waive fees and reimburse expenses to the extent
necessary so that Class A Shares of Fixed Income Fund will not have an annual
total fund operating expense ratio in excess of 0.95% of average daily net
assets. For the fiscal year ended October 31, 1997, AGF, AAF and OIF had total
fund operating expense ratios (excluding
<PAGE>
interest expense) of 1.02%, 0.98% and 0.92%, respectively, and total fund
operating expense ratios (including interest expense) of 1.49%, 1.47% and 1.71%,
respectively.
SENIOR SECURITIES. The 1940 Act prohibits open-end investment companies
from issuing "senior securities" representing indebtedness (i.e. bonds,
debentures, notes and other similar securities), other than indebtedness to
banks where there is an asset coverage of at least 300% for all borrowings.
Closed-end investment companies, on the other hand, are permitted to issue
senior securities representing indebtedness to any lender if the requirement of
300% asset coverage is met. In addition, closed-end investment companies may
issue preferred stock (subject to various limitations), whereas open-end
investment companies generally may not issue preferred stock. Currently, AGF,
AAF and OIF have fundamental investment restrictions providing that they may
borrow money in an amount up to 20%, 25%, and 33-1/3%, respectively, of their
total assets, plus, in the case of OIF, up to 5% of total assets for temporary
defensive purposes. Fixed Income Fund has a fundamental investment restriction
providing that it may borrow money only from banks and only for temporary or
emergency purposes in an amount up to 10% of the value of its total assets.
ILLIQUID SECURITIES. Under current SEC Staff positions, open-end funds may
not invest more than 15% of their net assets in illiquid securities, while
closed-end funds are not subject to such a restriction. Each of the Piper Funds
has a nonfundamental investment restriction permitting it to invest up to 35% of
its total assets in illiquid securities. Fixed Income Fund has a nonfundamental
investment restriction permitting it to invest up to 15% of its net assets in
illiquid securities. Certain "restricted" securities issued pursuant to
exemptions from registration may be deemed liquid for purposes of these
restrictions.
VALUATION TIMING. The Piper Funds currently calculate net asset values of
their shares on a weekly basis as of the closing time on the New York Stock
Exchange. Fixed Income Fund computes its net asset value as of the earlier of
the close of the NYSE or 3:00 p.m. central time on each day the NYSE and
federally-chartered banks are open for business, provided that net asset value
need not be determined for shares of Fixed Income Fund on days when no shares of
Fixed Income Fund are tendered for redemption and no order for shares of Fixed
Income Fund is received and on days on which changes in the value of portfolio
securities will not materially affect the current net asset value of Fixed
Income Fund's shares. The price per share for purchases or redemptions is such
value next computed after the transfer agent for Fixed Income Fund or authorized
financial institution receives a purchase order or redemption request.
INFORMATION RELATING TO THE INTERIM ADVISORY AGREEMENTS
THE MERGER OF PIPER JAFFRAY COMPANIES INC. AND U.S. BANCORP. On May 1,
1998, pursuant to an Agreement and Plan of Merger dated as of December 14, 1997
(the "Merger Agreement"), U.S. Bancorp acquired Piper Jaffray and its direct and
indirect subsidiaries (including Piper Capital) by merging Cub Acquisition
Corporation (the "Merger Subsidiary") with and into Piper Jaffray. The Merger
Subsidiary was a wholly owned subsidiary of U.S. Bancorp, organized for the
purpose of participating in the Holding Company Merger. On the date and at the
time when the Holding Company Merger became effective (the "Effective Time"),
the Merger Subsidiary merged into Piper Jaffray with Piper Jaffray as the
surviving corporation and a wholly owned subsidiary of U.S. Bancorp.
At the Effective Time, each issued and outstanding share of the common
stock, $1.00 par value, of Piper Jaffray, other than treasury shares and
dissenters' shares, was converted into the right to receive $37.25 in cash,
without interest thereon. Shares of Piper Jaffray common stock held by Piper
Jaffray or any of its subsidiaries and shares of Piper Jaffray common stock the
holders of which perfected their dissenters' rights to payment under Delaware
law immediately prior to the Effective Time were excluded from this conversion.
<PAGE>
The officers and directors of Piper Capital had no interest in the Holding
Company Merger other than as a result of their ownership of shares of Piper
Jaffray common stock. The officers and directors of U.S. Bank had no interest in
the Holding Company Merger.
As a result of the Holding Company Merger, Piper Capital, the investment
adviser to the Piper Funds, became an indirect wholly owned subsidiary of U.S.
Bancorp. In accordance with the terms of the Old Advisory Agreements, and
consistent with the requirements of the 1940 Act, this change in control of
Piper Capital resulted in the automatic and immediate termination of the Old
Advisory Agreements. The Old Advisory Agreement for AGF was dated March 14,
1988, was adopted by the sole shareholder of AGF prior to commencement of
operations, and was last approved by the Board of Directors of AGF on May 23,
1997. The Old Advisory Agreement for AAF was dated July 27, 1988, was adopted by
the sole shareholder of AAF prior to commencement of operations, and was last
approved by the Board of Directors of AAF on May 23, 1997. The Old Advisory
Agreement for OIF was dated September 1, 1989, was adopted by the sole
shareholder of OIF prior to commencement of operations, and was last approved by
the Board of Directors of OIF on May 23, 1997. The table under "Comparison of
Fixed Income Fund and Piper Funds -- Investment Advisory Fees and Total Expense
Ratios" shows the contractual rate that Piper Capital is entitled to receive
under the Old Advisory Agreements. (Piper Capital did not waive any fees during
such fiscal year under the Old Advisory Agreements.) For the advisory fees paid
to Piper Capital for the latest fiscal year, see "-- Information about Piper
Capital."
To better ensure that the automatic termination of the Old Advisory
Agreements would not disrupt the investment advisory services provided to the
Piper Funds, Piper Capital and the Piper Funds filed an exemptive application
with the SEC on March 12, 1998. This Application requested that the SEC permit
Piper Capital to act as investment adviser to the Piper Funds after the
termination of the Old Advisory Agreements, but prior to obtaining shareholder
approval, under the Interim Advisory Agreements. The application also requested
that the SEC permit Piper Capital to receive fees (which are currently held in
escrow) under the respective Interim Advisory Agreement, subject to approval of
such agreements by the shareholders of the respective Piper Funds at a meeting
to be held no later than August 31, 1998. In connection with this application,
Piper Capital agreed to take steps to ensure that the scope and quality of the
investment advisory services will be the same during the Interim Period as
previously provided under the Old Advisory Agreements. The requested Order was
granted by the SEC on April 21, 1998.
THE INTERIM ADVISORY AGREEMENTS. As a result of the automatic termination
of the Old Advisory Agreements as described above, the Directors of the Piper
Boards are proposing that the shareholders of AGF, AAF and OIF ratify and
approve the respective Interim Advisory Agreements. The Interim Advisory
Agreements each became effective on May 1, 1998, the effective time of the
Holding Company Merger. Pending such ratification and approval, in accordance
with the conditions of the Order, all fees payable by the Piper Funds under the
Interim Advisory Agreements are being held in escrow. Such escrowed fees
attributable to a Piper Fund under an Interim Advisory Agreement will be
received by Piper Capital only if the applicable Interim Advisory Agreement is
ratified and approved by the shareholders of that Piper Fund. If ratified and
approved, the Interim Advisory Agreements will continue in effect for an initial
period of two years and thereafter for successive one-year terms, subject to
certain annual approval requirements, or until the Closing (which, subject to
various conditions described herein, is expected to occur on or about August
31, 1998), whichever occurs earlier. In the event that one of the Interim
Advisory Agreements is not ratified and approved with respect to the applicable
Piper Fund, in accordance with the conditions of the Order the escrowed fees
payable by that Piper Fund will be returned to such Piper Fund and the
applicable Piper Board will consider what actions should be taken with respect
to management of the assets of such Piper Fund until a new investment advisory
agreement is approved by the shareholders of such Piper Fund or the
Reorganization occurs.
<PAGE>
The terms of the Interim Advisory Agreements, which are more fully
described below, are substantially identical to the terms of the Old Advisory
Agreements, except for (i) the effective date, (ii) the termination date, and
(iii) inclusion of a provision requiring that all fees payable by each Piper
Fund under the Interim Advisory Agreements be held in escrow until the Agreement
is approved by that Piper Fund's shareholders. The advisory fee rates payable
under the Interim Advisory Agreements are identical to those payable under the
Old Advisory Agreements. Copies of the Interim Advisory Agreements are attached
to this Combined Proxy Statement/Prospectus as Appendices I, II and III.
Pursuant to the Interim Advisory Agreements, Piper Capital agrees to manage
the affairs, business and the investment of the assets of the Piper Funds. Piper
Capital, at its own expense, furnishes suitable office space, equipment and
personnel for servicing the investments of the Piper Funds. In addition, Piper
Capital arranges for officers, employees or other "affiliated persons" (as
defined in the 1940 Act) of Piper Capital to serve without compensation from the
Piper Funds as directors, officers or employees of the Piper Funds, if duly
elected to such positions by the shareholders or directors of the Piper Funds.
Under the Interim Advisory Agreements, Piper Capital is free to render
services to others similar to those rendered under such Interim Advisory
Agreements or of a different nature except as such services may conflict with
the services to be rendered or duties to be assumed thereunder.
Each Interim Advisory Agreement provides that it will terminate immediately
in the event of an assignment and that each is terminable at any time without
penalty by such Piper Fund (either by vote of the applicable Piper Board or by
vote of a majority of the outstanding shares of such Piper Fund), or by Piper
Capital, on 60 days' written notice. To the extent required by the 1940 Act, the
Interim Advisory Agreements may not be amended as to a Piper Fund without the
approval of the shareholders of such Piper Fund.
Each Interim Advisory Agreement will continue in effect only so long as
such continuance is specifically approved at least annually (i) by a vote of a
majority of those members of the Board of Directors of the applicable Piper Fund
who are not parties to the Agreement or "interested persons" (as defined in the
1940 Act) of any party to the Agreement, cast in person at a meeting called for
the purpose of voting on such approval, and (ii) by the vote of a majority of
the Board of Directors or a vote of a majority of the outstanding shares of the
applicable Piper Fund.
As investment adviser to the Piper Funds, Piper Capital receives research
services from broker-dealers that execute portfolio transactions for the Piper
Funds. In selecting brokers to execute portfolio transactions for the Piper
Funds, Piper Capital seeks to obtain the best price and execution of orders.
When consistent with these criteria, business may be placed with broker-dealers
who furnish investment research services to Piper Capital. Such research
services are used by Piper Capital in carrying out its investment management
responsibilities with respect to its client accounts generally, but not
necessarily in connection with the applicable Piper Fund.
INFORMATION ABOUT PIPER CAPITAL. In addition to acting as the investment
adviser for the Piper Funds, Piper Capital also serves as investment adviser to
other investment companies, and to various other concerns, including pension and
profit-sharing funds, corporate funds and individuals. Piper Capital is a
registered investment adviser under the Investment Advisers Act of 1940 and is
an indirect wholly owned subsidiary of U.S. Bancorp, 601 Second Avenue South,
Minneapolis, Minnesota 55402. U.S. Bancorp is a multi-state bank holding company
headquartered in Minneapolis, Minnesota with a geographic service area spanning
17 states.
<PAGE>
In addition to serving as the investment adviser to the Piper Funds, Piper
Capital acts as the investment adviser to a number of other closed-end
investment companies and series of open-end investment companies that have
investment objectives similar to those of the Piper Funds. For the closed-end
investment companies listed below, Piper Capital also serves as the companies'
administrator. Piper Capital is entitled to receive advisory and administration
fees from such investment companies or series thereof as follows:
<TABLE>
<CAPTION>
Advisory Fee Administration Fee
Net Assets as of (as a percentage (as a percentage
Name of Fund March 31, 1998 of net assets) of net assets)
- ------------ --------------- -------------- --------------
(in thousands)
<S> <C> <C> <C>
American Strategic Income
Portfolio Inc. ("ASP") $61,193 *see below 0.20%
American Strategic Income
Portfolio Inc.--II ("BSP") $234,151 *see below 0.20%
American Strategic Income
Portfolio Inc.--III ("CSP") $299,349 *see below 0.20%
Government Income Fund
(Series of Piper Funds Inc.) $62,602 **see below N/A
Intermediate Bond Fund
(Series of Piper Funds Inc.) $59,184 ***see below N/A
The Americas Income Trust Inc. $29,515 0.50% 0.20%
Highlander Income Fund Inc. $60,118 0.60% 0.15%
American Select Portfolio Inc. $154,317 0.50% 0.20%
</TABLE>
- ---------------
* Piper Capital receives a monthly management fee from each of ASP, BSP and
CSP equal to the sum of .01667% of the average weekly net assets of such
fund during the month (approximately .20 of 1% on an annual basis) and
4.50% of the daily gross income (i.e., income other than gains from the
sale of securities or gains received from options and futures contracts
less interest on money borrowed by such fund) accrued by such fund during
the month, but such monthly management fee shall not exceed in the
aggregate 1/12 of 0.725% of the fund's average weekly net assets during the
month (approximately 0.725% on an annual basis).
** Annual rate of 0.50% on first $250,000,000; 0.45% on next $250,000,000; and
0.40% on average daily net assets over $500,000,000.
*** Annual rate of 0.30% on first $100,000,000; 0.25% on next $150,000,000; and
0.20% on average daily net assets over $250,000,000.
Piper Capital has not waived, reduced or otherwise agreed to reduce its
compensation under any contract applicable to the above investment companies or
series thereof.
Under its investment advisory agreements with AGF and AAF, Piper Capital
receives a monthly investment management fee in an amount equal to an annualized
rate of 0.30% of the fund's average weekly net assets and 5.25% of the daily
gross income (i.e., investment income, including amortization of discount and
premium, other than gains from the sale of securities or gains from options and
futures contracts less interest on money borrowed by the fund) accrued by the
fund during the month,
<PAGE>
subject to a monthly maximum of 1/12th of 0.60% of the fund's average weekly net
assets during the month (approximately 0.60% on an annual basis). Under its
investment advisory agreement with OIF, Piper Capital receives a monthly
investment management fee in an amount equal to an annualized rate of 0.20% of
the fund's average weekly net assets and 4.50% of the daily gross income accrued
by the fund during the month, subject to a monthly maximum of 1/12th of 0.725%
of the fund's average weekly net assets during the month (approximately 0.725%
on an annual basis). For fiscal year ended October 31, 1997, AGF, AAF and OIF
paid investment advisory fees in the respective amounts of $734,734, $994,849
and $785,369 to Piper Capital.
As of March 31, 1998, Piper Capital had approximately $12.8 billion under
management. The address of Piper Capital is 222 South Ninth Street, Minneapolis,
Minnesota 55402. Appendix IV to this Combined Proxy Statement/Prospectus
identifies the principal executive officer and the directors of Piper Capital.
No officer or director of the Piper Funds is an officer, employee,
director, general partner or shareholder of Piper Capital or any of its
affiliates. In addition, no officer or director of the Piper Funds has any
material interest in any material transaction in which Piper Capital or its
affiliates is a party.
ADMINISTRATION AGREEMENTS. Piper Capital also serves as each Piper Fund's
administrator pursuant to an Administration Agreement between Piper Capital and
each Piper Fund. Under each Administration Agreement, Piper Capital is required
to manage the respective Piper Fund's business affairs, supervise its overall
day-to-day operations (other than providing investment advice) and provide other
administrative services.
For the services rendered to the Piper Funds and related expenses borne by
Piper Capital in its capacity as the Piper Funds' administrator and not paid by
the Piper Funds, each Piper Fund currently pays Piper Capital an administrative
fee, calculated weekly and paid monthly, at an annual rate of 0.20% of such
Piper Fund's average weekly net assets. For fiscal year ended October 31, 1997,
AGF, AAF and OIF paid administration fees in the respective amounts of $244,911,
$331,616 and $294,871 to Piper Capital.
AFFILIATED BROKER COMMISSIONS. During the fiscal year ended October 31,
1997, the Piper Funds paid no brokerage commissions to affiliates of Piper
Capital.
SECTION 15(f) OF THE 1940 ACT. Piper Capital and U.S. Bank have agreed to
use their best efforts to meet the requirements for the statutory exemption
offered by Section 15(f) of the 1940 Act to an investment adviser that receives
"any amount or benefit" in connection with the sale of interests that constitute
a "change in control" of the adviser. The statutory exemption under Section
15(f) is available provided two conditions are satisfied: (1) for a three-year
period following the transaction, each of the Piper Funds or their successors
(which, assuming the Reorganization is consummated, may include FAIF) maintains
a Board of Directors at least 75% of whose members are not "interested persons,"
as that term is defined in the 1940 Act, of the predecessor or successor
investment adviser; and (2) no "unfair burden" is imposed on the Piper Funds as
a result of the transaction. As defined in the 1940 Act, an "unfair burden"
includes any arrangement during the two-year period after the change in control
whereby the investment adviser (or predecessor or successor adviser), or any
interested person of such adviser, receives or is entitled to receive any
compensation directly or indirectly, from the investment company or its security
holders (other than fees for bona fide investment advisory or other services),
or from any person in connection with the purchase or sale of securities or
other property to, from, or on behalf of, the investment company (other than
fees for bona fide principal underwriting services provided to the investment
company). Piper Capital and U.S. Bank have agreed that no such
<PAGE>
prohibited compensation arrangements will be entered into in connection with
either the Holding Company Merger or the Reorganization.
APPROVAL OF THE PIPER BOARDS. As described above, the Old Advisory
Agreements that were previously in effect for the Piper Funds automatically
terminated on May 1, 1998 as a result of the Holding Company Merger. In
anticipation of this termination, and in order to minimize any potential
disruption of the advisory services provided to the Piper Funds, on January 21,
1998 the Piper Boards authorized the filing of the exemptive application
described above with the SEC in order to permit Piper Capital to act as
investment adviser to the Piper Funds on and after May 1, 1998 but prior to
obtaining shareholder approval. In addition, at a meeting held April 13, 1998,
the Piper Boards, including all of the Directors who are not interested persons
(as that term is defined in the 1940 Act) of Piper Capital or the Piper Funds
(the "Non-Interested Directors"), approved each Interim Advisory Agreement with
Piper Capital that became effective upon the consummation of the Holding Company
Merger on May 1, 1998. If approved by shareholders of the respective Piper Funds
at the Meeting, these Interim Advisory Agreements will continue in effect either
(i) for an initial period of two years from the effective date of such
agreements and thereafter for successive one-year terms, subject to certain
annual approval requirements, or (ii) until the consummation of the
Reorganization applicable to such Piper Fund.
In considering whether to approve the Interim Advisory Agreements and
submit them to shareholders for their approval, the Piper Boards considered the
following factors: (i) representations of Piper Capital that it would provide
investment advisory and other services to the Piper Funds of a scope and quality
at least the scope and quality previously provided by it to the Piper Funds;
(ii) the substantially identical terms and conditions contained in the Interim
Advisory Agreements as compared to the corresponding Old Advisory Agreements;
and (iii) representations by Piper Capital that in the event of any material
change in personnel providing services under an Interim Advisory Agreement
during the Interim Period, the Piper Boards would be consulted for the purpose
of assuring themselves that the services provided would not be diminished in
scope or quality. Additionally, the Piper Boards considered the benefits that
would be obtained by the Piper Funds in maintaining continuity of investment
advisory services for the Piper Funds during the Interim Period, and determined
that continuity was advantageous to the Piper Funds as it would minimize any
potential disruption in the advisory services provided to the Piper Funds
resulting from the Holding Company Merger.
Based on the foregoing factors, the Piper Boards concluded that approval of
the Interim Advisory Agreements was in the best interests of the Piper Funds and
their shareholders. The Piper Boards further concluded that entering into the
Interim Advisory Agreements would be reasonable and fair considering that: (i)
the fees to be paid, and the services to be provided therefor, would be
unchanged from the Old Advisory Agreements; (ii) the fees would be maintained in
an interest-bearing escrow account until payment was approved or disapproved by
shareholders of the Piper Funds; (iii) because of the relatively short period
for the consummation of the Holding Company Merger, there was insufficient time
to seek prior shareholder approval of the Interim Advisory Agreements; and (iv)
the non-payment of investment advisory fees during the Interim Period would be
an unduly harsh result to Piper Capital in view of the services provided by it
to the Piper Funds, and the expenses incurred in connection with such services,
under the Interim Advisory Agreements.
AGF, AAF and OIF will vote separately with respect to the approval of their
respective Interim Advisory Agreements. THE PIPER BOARDS RECOMMEND THAT
SHAREHOLDERS OF EACH PIPER FUND RATIFY AND APPROVE THE APPLICABLE INTERIM
ADVISORY AGREEMENT AND THE RECEIPT OF INVESTMENT ADVISORY FEES BY PIPER CAPITAL
UNDER SUCH AGREEMENT.
<PAGE>
INFORMATION RELATING TO THE PROPOSED REORGANIZATION
The terms and conditions of the Reorganization are set forth in the
Reorganization Agreement. Significant provisions of the Reorganization Agreement
are summarized below; however, this summary is qualified in its entirety by
reference to the Reorganization Agreement, a copy of which is attached as
Appendix V to this Combined Proxy Statement/Prospectus.
DESCRIPTION OF THE REORGANIZATION AGREEMENT. The Reorganization Agreement
provides that at the Closing the assets and liabilities of each of the Piper
Funds will be transferred to Fixed Income Fund in exchange for full and
fractional Class A Shares of Fixed Income Fund.
The Class A Shares issued by Fixed Income Fund in the Reorganization will
have an aggregate net asset value equal to the aggregate net asset value of the
common shares of the Piper Funds that are outstanding immediately before the
Closing. Immediately after the Closing, the Piper Funds will distribute the
shares of Fixed Income Fund received in the Reorganization to their shareholders
in liquidation of the Piper Funds. Each shareholder owning common shares of a
Piper Fund at the Closing will receive Class A Shares of Fixed Income Fund of
equal net aggregate asset value.
Prior to the Reorganization, each of the Piper Funds will make one or more
distributions of all of its net income and net realized capital gains for the
current taxable year that have not previously been distributed. For shareholders
participating in the dividend reinvestment plans of the Piper Funds, these
distributions will be reinvested in shares of the applicable Piper Fund only if
they are made prior to the suspension of share trading on the New York Stock
Exchange. (Trading will be suspended for a period of time prior to the Closing.)
Otherwise, the distributions will be made in cash. These cash distributions will
be taxable to all Piper Fund shareholders who are subject to taxation.
As soon as practicable after the Closing, Investors Fiduciary Trust Company
("IFTC"), the transfer agent for the Piper Funds, will send a notice and
transmittal form to each record holder of Piper Fund common shares as of the
Closing advising such holder of the effectiveness of the Reorganization and of
the procedure for surrendering to IFTC his or her certificates formerly
evidencing common shares of the applicable Piper Fund. SHAREHOLDERS SHOULD NOT
SEND IN THEIR SHARE CERTIFICATES UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL
FORM AND INSTRUCTIONS FROM IFTC. Ownership of Fixed Income Fund shares by former
Piper Fund shareholders will be recorded in book-entry form, and Fixed Income
Fund will issue confirmations to such shareholders setting forth the number and
net asset value of Fixed Income Fund shares held by such shareholders. Fixed
Income Fund will not issue share certificates. Any share certificates not
submitted to IFTC within three months after the Closing will be automatically
deemed submitted and then canceled and recorded in book-entry form.
After the Closing, the Piper Funds will wind up their affairs and be
deregistered as investment companies under the 1940 Act.
The Reorganization is subject to a number of conditions, including:
approval of the Reorganization Agreement by the shareholders of at least one of
the Piper Funds; the receipt of certain legal opinions described in the
Reorganization Agreement (which include an opinion of counsel to FAIF that the
Fixed Income Fund shares issued in the Reorganization will be validly issued,
fully paid and non-assessable); the receipt of certain certificates from the
parties concerning the continuing accuracy of the representations and warranties
in the Reorganization Agreement; and the parties' performance in all material
respects of their respective agreements and undertakings in the Reorganization
Agreement. Assuming satisfaction of the conditions in the Reorganization
Agreement, the Closing will be effective on August 31, 1998 or such other date
as agreed to by the parties.
<PAGE>
U.S. Bank has undertaken to bear any Reorganization expenses incurred by
the Piper Funds and Fixed Income Fund, not including the standard costs related
to an annual meeting of the Piper Funds (based on the costs related to the 1997
Annual Meeting of the Piper Funds) and share registration expenses.
The Reorganization of each of the Piper Funds may be abandoned at any time
prior to the Closing upon the mutual consent of such Piper Fund and FAIF, or by
such Piper Fund or FAIF if determined by the applicable Board of Directors that
proceeding with the Reorganization is inadvisable. The Reorganization Agreement
provides further that at any time before or (to the extent permitted by law)
after approval of the agreement by the shareholders of a Piper Fund (i) the
parties may, by written agreement authorized by their respective Boards of
Directors and with or without the approval of their shareholders, amend any of
the provisions of the Reorganization Agreement, and (ii) either party may waive
any default by the other party or the failure to satisfy any of the conditions
to its obligations (the waiver to be in writing and authorized by the Board of
Directors of the waiving party with or without the approval of such party's
shareholders).
PIPER BOARD CONSIDERATIONS. At a meeting held February 13, 1998, the Piper
Boards were advised that U.S. Bank was considering the possibility of
consolidating the Piper Funds with Fixed Income Fund following the Holding
Company Merger. Following that meeting, U.S. Bank provided information requested
by the Piper Boards relating to the possible consolidation of the two fund
groups. This information was reviewed in detail by the Piper Boards at a meeting
held on April 27, 1998, at which the proposal that the Piper Funds be
reorganized into Fixed Income Fund, as set forth in the Reorganization
Agreement, was approved by the Piper Boards.
During its deliberations, the Piper Boards (with the advice and assistance
of independent counsel) reviewed, among other things: (i) the potential effect
of the Reorganizations on the shareholders of the Piper Funds; (ii) the
investment management capabilities of U.S. Bank; (iii) the capabilities of the
administrator, distributor and other service providers to Fixed Income Fund;
(iv) the systems capabilities of U.S. Bank to provide shareholder servicing,
reporting and systems integration with related programs for Piper Funds
shareholders; (v) the distribution channels used and to be used by Fixed Income
Fund; (vi) the investment advisory and other fees paid by Fixed Income Fund, and
the projected expense ratios (contractual) of Fixed Income Fund as compared to
the historical expense ratios of the Piper Funds; (vii) the expected cost
savings for AFG and AAF as a result of the Reorganization; (viii) the investment
objectives, policies, limitations and risks of Fixed Income Fund and their
relative compatibility with those of the Piper Funds as discussed further in
this Combined Proxy Statement/Prospectus; (ix) the historical investment
performance records of the Piper Funds and Fixed Income Fund; (x) the prospects
for asset growth and market viability of the Piper Funds and Fixed Income Fund;
(xi) the terms and conditions of the Reorganization Agreement, including those
provisions that were intended to avoid dilution of the interests of the Piper
Funds shareholders; (xii) the anticipated tax treatment of the Reorganization
for the respective Piper Funds and their shareholders; and (xiii) the effect on
Piper Fund shareholders of a change from a closed-end investment company to a
series of an open-end investment company, including the potential benefits to
shareholders associated with elimination through the Reorganization of the
market discount at which the shares of the Piper Funds currently trade.
The Piper Boards also noted U.S. Bank's offer to pay the expenses incurred
by the Piper Funds and FAIF in connection with the Reorganization (not including
the standard costs related to an annual meeting of the Piper Funds). In
addition, the Piper Boards considered U.S. Bank's written commitment that, for
two years following the closing, it will waive fees and reimburse expenses to
the extent necessary so that Class A Shares of Fixed Income Fund will not have
an annual total fund operating expense ratio in excess of 0.95% of average daily
net assets. For the fiscal year ended October 31, 1997, AGF, AAF and OIF had
total fund operating expense ratios (excluding interest expense) of
<PAGE>
1.02%, 0.98% and 0.92%, respectively, and total fund operating expense ratios
(including interest expense) of 1.49%, 1.47% and 1.71%, respectively. In their
deliberations, the Piper Boards also considered that: (i) generally open-end
funds have higher total fund operating expense ratios than closed-end funds;
(ii) alternative structures such as reorganizing each Piper Fund into separate
open-end investment companies; and (iii) the fact that FAIF already had a
distribution plan pursuant to Rule 12b-1 of the 1940 Act in effect.
The Piper Boards also considered the limitations on the use of the capital
loss carryovers of AGF, AAF and OIF that would result from the Reorganization
(see "Federal Income Tax Treatment" below) and the likelihood that such
capital loss carryovers would be utilized by each Piper Fund.
After consideration of all of the factors described above, the Piper Boards
determined that the Reorganization Agreement was in the best interests of the
shareholders of the respective Piper Funds, and that the interests of the
shareholders of the Piper Funds would not be diluted as a result of the
Reorganization. The Piper Boards considered the confluence of all the factors
mentioned above in arriving at its decision to approve the Reorganization and no
one factor was given any greater weight than any of the others.
The Board of Directors of FAIF also determined after considering the
factors discussed above with respect to the Piper Board's deliberations, that
the Reorganization is in the best interest of Fixed Income Fund and that the
interests of the existing shareholders of Fixed Income Fund will not be diluted
as a result thereof.
CAPITALIZATION. The following table sets forth the unaudited capitalization
of the Piper Funds as of March 31, 1998 and as adjusted to give effect to the
Reorganization of all of the Piper Funds into Fixed Income Fund. The pro forma
financial information is based on the assumption that each Piper Fund will
approve the Reorganization.
<TABLE>
<CAPTION>
Fixed
Income Pro Forma
Fund AGF AAF OIF Combined
---- --- --- --- --------
<S> <C> <C> <C> <C> <C>
Class A Shares/Common
Shares (1)
Net assets (in thousands) .............................. $ 11,435 $ 94,212 $ 127,794 $ 113,905 $ 347,346
Net asset value per share .............................. $ 11.12 $ 5.86 $ 6.96 $ 6.70 $ 11.12
Shares outstanding (in thousands) ...................... 1,028 16,081 18,358 16,990 31,237
Class B Shares (2)
Net assets (in thousands) .............................. $ 16,068 -- -- -- $ 16,068
Net asset value per share .............................. $ 11.07 -- -- -- $ 11.07
Shares outstanding (in thousands) ...................... 1,452 -- -- -- 1,452
Class Y Shares (2)
Net assets (in thousands) .............................. $1,131,938 -- -- -- $1,131,938
Net asset value per share .............................. $ 11.12 -- -- -- $ 11.12
Shares outstanding (in thousands) ...................... 101,784 -- -- -- 101,784
Total Net Assets........................................... $1,159,441 $ 94,212 $ 127,794 $ 113,905 $1,495,352
</TABLE>
(1)Class A Shares of Fixed Income Fund and Common Shares of AGF, AAF and OIF.
(2)Not offered by the Piper Funds.
Based on the above capitalization table, shareholders holding one share of AGF,
AAF and OIF would receive .53, .63 and .60 shares, respectively, of Fixed Income
Fund upon effectiveness of Reorganization.
<PAGE>
FEDERAL INCOME TAX TREATMENT. Consummation of the Reorganization with
respect to each of the Piper Funds is subject to the condition that each of the
Piper Funds and FAIF receive an opinion from Dorsey & Whitney LLP, counsel to
FAIF, to the effect that, for federal income tax purposes: (i) the transfer of
all of the assets and liabilities of each of the Piper Funds to Fixed Income
Fund in exchange for shares of Fixed Income Fund and the distribution of these
shares of Fixed Income Fund to shareholders of each of the Piper Funds, as
described in the Reorganization Agreement, will constitute a reorganization
within the meaning of Section 368(a)(1)(C) or Section 368(a)(1)(D) of the
Internal Revenue Code of 1986, as amended (the "Code"); (ii) no income, gain or
loss will be recognized by any of the Piper Funds as a result of these
transactions; (iii) no income, gain or loss will be recognized by Fixed Income
Fund as a result of these transactions; (iv)no income, gain or loss will be
recognized by the shareholders of each of the Piper Funds on the distribution to
them of shares of Fixed Income Fund in exchange for their shares of the Piper
Funds (but shareholders of a Piper Fund subject to taxation will recognize
income upon receipt of any net investment income or net capital gains of such
Piper Fund which are distributed by such Piper Fund prior to the Closing); (v)
the tax basis of Fixed Income Fund shares received by a shareholder of a Piper
Fund will be the same as the tax basis of the shareholder's Piper Fund shares
immediately before the Reorganization; (vi) the tax basis to Fixed Income Fund
of the assets of the Piper Funds received pursuant to the Reorganization will be
the same as the tax basis of the assets in the hands of the Piper Funds
immediately before the Reorganization; (vii) a shareholder's holding period for
Fixed Income Fund shares will be determined by including the period for which
the shareholder held the Piper Funds shares exchanged therefor, provided the
shareholder held the Piper Funds shares as a capital asset; (viii) Fixed Income
Fund's holding period with respect to the assets received in the Reorganization
will include the period for which the assets were held by each of the Piper
Funds provided that the Piper Funds held such assets as capital assets; and (ix)
Fixed Income Fund will succeed to and take into account the earnings and
profits, or deficit in earnings and profits, of each of the Piper Funds
immediately before the Reorganization.
As of October 31, 1997, AGF had capital loss carryovers of $36,864,653, due
to expire between 2002 and 2005, AAF had capital loss carryovers of $61,197,539,
due to expire between 2002 and 2004, and OIF had capital loss carryovers of
$63,766,560, due to expire between 2001 and 2005. As a result of the
Reorganization, each fund's ability to use these capital loss carryovers to
offset its net capital gains will be limited. Generally, the amount of a Piper
Fund's capital loss carryovers that Fixed Income Fund will be able to use to
offset net capital gains in any future year will be limited to the value of the
outstanding shares of the Piper Fund at the time of its Reorganization
multiplied by the federal long-term tax-exempt interest rate in effect at the
time of the reorganization. Based on the value of each Piper Fund's outstanding
shares as of March 31, 1998, and the long-term tax-exempt interest rate in
effect for May 1998, the maximum amount of each Piper Fund's capital loss
carryovers that Fixed Income Fund will be able to use in any post-
Reorganization taxable year is $4,804,832 for AGF, $6,517,478 for AAF and
$5,809,135 for OIF.
FAIF and the Piper Funds have not sought, and do not intend to seek, a
ruling from the Internal Revenue Service ("IRS") concerning the tax treatment of
the Reorganization. The opinion of counsel is not binding on the IRS and does
not preclude the IRS from adopting a contrary position. Shareholders may wish to
consult their own tax advisors concerning the potential tax consequences of the
Reorganization to them, including state and local income tax consequences.
COMPARISON OF FIXED INCOME FUND AND THE PIPER FUNDS
INVESTMENT OBJECTIVES AND POLICIES. The investment objectives of Fixed
Income Fund are, in general, similar to those of the Piper Funds. However, the
policies and restrictions of AGF, AAF, OIF and Fixed Income Fund are different,
as noted above under "Summary -- Overview of Fixed Income Fund
<PAGE>
and Piper Funds." Other differences in the investment objectives, and in certain
significant investment policies and restrictions, are discussed in Appendix VI
to this Combined Proxy Statement/Prospectus.
Additional information with respect to the investment policies and
restrictions of Fixed Income Fund is included in the prospectus for the Class A
Shares of Fixed Income Fund, which accompanies this Combined Proxy
Statement/Prospectus.
Shareholders also should review the section captioned "Principal Risk
Factors" above, which provides information concerning certain risks associated
with investments in the respective Piper Funds and Fixed Income Fund.
Comparative information concerning the effective durations, holdings of
mortgage-backed securities, and use of certain investment techniques of the
Piper Funds and Fixed Income Fund also is set forth in that section.
INVESTMENT ADVISORY FEES AND TOTAL EXPENSE RATIOS. After the
Reorganization, U.S. Bank will serve as the investment adviser to Fixed Income
Fund, at the fee rates stated in the table below.
The table below shows the current fees and expenses that the shareholders
of the Piper Funds incurred during the most recent fiscal year, and that
shareholders of Fixed Income Fund can expect to bear if shareholders of the
Piper Funds approve the Merger. U.S. Bank has agreed that, for two years
following the Closing, it will waive fees and reimburse expenses of Fixed Income
Fund to the extent necessary to maintain Class A Shares of Fixed Income Fund's
total fund operating expense ratio not in excess of 0.95% of average daily net
assets. THE EXAMPLES CONTAINED IN THE TABLES SHOULD NOT BE CONSIDERED
REPRESENTATIONS OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
FEES AND EXPENSES OF THE PIPER FUNDS AND FIXED INCOME FUND
<TABLE>
<CAPTION>
Pro Forma
Fixed Income Fund Fixed Income Fund
Class A Shares AGF AAF OIF Class A Shares
---------------- --- --- --- -----------------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) ........................... 3.75% (2) (1) (1) (1) 3.75% (2)
Maximum Sales Charge Imposed on Reinvested
Dividends ..................................................... None N/A N/A N/A None
Deferred Sales Charge (as a percentage of redemption
proceeds) ..................................................... None N/A N/A N/A None
Redemption Fees ................................................. None N/A N/A N/A None
Exchange Fees ................................................... None N/A N/A N/A None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment Advisory Fees ........................................ 0.52% (5) 0.60% (3) 0.60% (3) 0.53% (4) 0.52% (5)
Rule 12b-1 Fees ................................................. 0.25% (6) N/A N/A N/A 0.25% (6)
Other Expenses (excluding interest expense) ..................... 0.18% 0.42% 0.38% 0.39% 0.18%
Other Expenses (including interest expense) ..................... 0.18% 0.89% 0.87% 1.18% 0.18%
Total Fund Operating Expenses (excluding
interest expense) (after fee waivers for Fixed Income Fund) ... 0.95% (5) 1.02% 0.98% 0.92% 0.95% (5)
Total Fund Operating Expenses (including
interest expense) (after fee waivers for Fixed Income Fund) ... 0.95% (5) 1.49% 1.47% 1.71% 0.95% (5)
</TABLE>
- --------
1 Shareholders purchasing shares of a Piper Fund in the initial public
offering paid a sales load of 7.00%. Thereafter, shares have been purchased
through brokers at market price plus brokerage commission.
<PAGE>
2 No sales charge will be imposed on Fixed Income Fund Class A Shares
acquired pursuant to the Reorganization. Subsequent purchases of Fixed
Income Fund Class A Shares will be subject to a maximum front-end sales
charge of 3.75%.
3 For AGF and AAF, Piper Capital receives a monthly investment management fee
in an amount equal to an annualized rate of 0.30% of the fund's average
weekly net assets and 5.25% of the daily gross income (i.e., investment
income, including amortization of discount and premium, other than gains
from the sale of securities or gains from options and futures contracts
less interest on money borrowed by the fund) accrued by the fund during the
month, subject to a monthly maximum of 1/12th of 0.60% of the fund's
average weekly net assets during the month (approximately 0.60% on an
annual basis).
4 For OIF, Piper Capital receives a monthly investment management fee in an
amount equal to an annualized rate of 0.20% of the fund's average weekly
net assets and 4.50% of the daily gross income accrued by the fund during
the month, subject to a monthly maximum of 1/12th of 0.725% of the fund's
average weekly net assets during the month (approximately 0.725% on an
annual basis).
5 After voluntary fee waivers by U.S. Bank. Absent such fee waivers,
investment advisory fees as an annualized percentage of average daily net
assets would be 0.70% and total fund operating expenses would be 1.13%.
6 Of this amount, 0.25% is designated as a shareholder servicing fee and none
as a distribution fee.
Examples:
Excluding interest expense for the Piper Funds, an investor would pay the
following expenses on a $1,000 investment, assuming (1) for Fixed Income Fund,
payment of the maximum applicable sales charge, (2) 5% annual return and (3) for
Fixed Income Fund, redemption at the end of each time period:
<TABLE>
<CAPTION>
Pro Forma
Fixed Income Fund Fixed Income Fund
Class A Shares AGF(1) AAF(1) OIF(1) Class A Shares
------------ ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
1 year .............................................................. $ 47 $ 10 $ 10 $ 9 $ 47
3 years ............................................................. $ 67 $ 32 $ 31 $ 29 $ 67
5 years ............................................................. $ 88 $ 56 $ 54 $ 51 $ 88
10 years ............................................................ $150 $125 $120 $113 $150
</TABLE>
1 The dollar amounts do not reflect any sales charge because shares of
closed-end funds are purchased without a sales charge. However, purchases
of such shares are normally subject to a brokerage commission. If purchases
included a 7.00% sales load, similar to the underwriting discount on shares
purchased in the initial public offering, the dollar amounts for the 1, 3,
5 and 10-year periods would be as follows: for AGF, $80, $100, $122 and
$186; for AAF, $79, $99, $120 and $182; and for OIF, $79, $97, $117 and
$175.
Including interest expense for the Piper Funds, an investor would pay the
following expenses on a $1,000 investment, assuming (1) for Fixed Income Fund,
payment of the maximum applicable sales charge, (2) 5% annual return and (3) for
Fixed Income Fund, redemption at the end of each time period:
<TABLE>
<CAPTION>
Pro Forma
Fixed Income Fund Fixed Income Fund
Class A Shares AGF(1) AAF(1) OIF(1) Class A Shares
-------------- ------ ------ ------ --------------
<S> <C> <C> <C> <C> <C>
1 year .............................................................. $ 47 $ 15 $ 15 $ 17 $ 47
3 years ............................................................. $ 67 $ 47 $ 46 $ 54 $ 67
5 years ............................................................. $ 88 $ 81 $ 80 $ 93 $ 88
10 years ............................................................ $150 $178 $176 $202 $150
</TABLE>
1 The dollar amounts do not reflect any sales charge because shares of
closed-end funds are purchased without a sales charge. However, purchases
of such shares are normally subject to a brokerage commission. If purchases
included a 7.00% sales load, similar to the underwriting discount on shares
purchased in the initial public offering, the dollar amounts for the 1, 3,
5 and 10-year periods would be as follows: for AGF, $84, $114, $146 and
$235; for AAF, $84, $113, $145 and $233; and for OIF, $86, $120, $156 and
$258.
<PAGE>
INVESTMENT ADVISORY AGREEMENTS. After the Closing, U.S. Bank will serve as
the investment adviser for Fixed Income Fund pursuant to Fixed Income Fund's
investment advisory agreement. As set forth in table above, the contractual
advisory fee rate of Fixed Income Fund is higher than the maximum amount payable
under AGF's and AAF's investment advisory agreements. In addition, there are
certain differences between the Interim Advisory Agreements and Fixed Income
Fund's investment advisory agreement. The significant differences between these
agreements are summarized and compared in Appendix VII to this Combined Proxy
Statement/Prospectus.
PORTFOLIO MANAGEMENT. Bruce Salvog and Tom McGlinch are primarily
responsible for the management of AGF, AAF and OIF. Following the
Reorganization, Bruce Salvog, David Steele, Martin Jones, Lucille Rehkamp, and
Mark Green will be primarily responsible for the management of Fixed Income
Fund. Information about the management of Fixed Income Fund is contained in the
Class A Shares prospectus for Fixed Income Fund which accompanies this Combined
Proxy Statement/Prospectus.
INFORMATION ABOUT U.S. BANK AND OTHER SERVICE PROVIDERS. U.S. Bank acts as
the investment adviser to Fixed Income Fund through its First American Asset
Management group. U.S. Bank has acted as an investment adviser to FAIF since its
inception in 1987 and has acted as investment adviser to First American Funds,
Inc. since 1982 and to First American Strategy Funds, Inc. since 1996. As of
December 31, 1997, U.S. Bank managed more than $55 billion in assets, including
approximately $20.5 billion in assets of the First American Fund family. U.S.
Bank is a wholly-owned subsidiary of U.S. Bancorp. The address of U.S. Bank and
U.S. Bancorp is 601 Second Avenue South, Minneapolis, MN 55402. U.S. Bank is a
national banking association organized under the laws of the United States and,
as such, is exempt from registration as an investment adviser under the
Investment Advisers Act of 1940.
The Glass-Steagall Act generally prohibits banks from engaging in the
business of underwriting, selling or distributing securities and from being
affiliated with companies principally engaged in those activities. In addition,
administrative and judicial interpretations of the Glass-Steagall Act prohibit
bank holding companies and their bank and nonbank subsidiaries from organizing,
sponsoring or controlling registered open-end investment companies that are
continuously engaged in distributing their shares. Bank holding companies and
their bank and nonbank subsidiaries may serve, however, as investment advisers
to registered investment companies, subject to a number of terms and conditions.
Although the scope of the prohibitions and limitations imposed by the
Glass-Steagall Act has not been fully defined by the courts or the appropriate
regulatory agencies, FAIF has received an opinion from its counsel that U.S.
Bank and its affiliates are not prohibited from performing the services
contemplated by Fixed Income Fund's investment advisory agreement and the
prospectus for Fixed Income Fund. In the event of changes in federal or state
statutes or regulations or judicial and administrative interpretations or
decisions pertaining to permissible activities of bank holding companies and
their bank and nonbank subsidiaries, U.S. Bank and its affiliates might be
prohibited from continuing these arrangements. In that event, it is expected
that the FAIF Board of Directors would make other arrangements and that
shareholders would not suffer adverse financial consequences.
<PAGE>
The Piper Funds and Fixed Income Fund employ the same independent auditors,
but the other service providers for the Piper Funds and Fixed Income Fund are
different, as set forth in the following table.
SERVICE PROVIDERS FOR PIPER FUNDS AND FIXED INCOME FUND
<TABLE>
<CAPTION>
PIPER FUNDS FIXED INCOME FUND
----------- -----------------
<S> <C> <C>
Adviser Piper Capital U.S. Bank
Distributor None SEI Investments Distribution Co.
Administrator Piper Capital SEI Investments Management Corporation
Transfer Agent Investors Fiduciary Trust Company DST Systems, Inc./Piper Jaffray, Inc.
Custodian Investors Fiduciary Trust Company U.S. Bank
Independent
Auditors KPMG Peat Marwick LLP KPMG Peat Marwick LLP
</TABLE>
Piper Capital maintains offices at 222 South Ninth Street, Minneapolis,
Minnesota 55402-3804. SEI Investments Distribution Co. and SEI Investments
Management Corporation, wholly owned subsidiaries of SEI Investments Company,
are located at Oaks, Pennsylvania 19456. Investors Fiduciary Trust Company's
custodian and accounting agent offices are located at 801 Pennsylvania Avenue,
Kansas City, Missouri 64105. Its transfer agent offices are located at 1004
Baltimore Avenue, Kansas City, Missouri 64105. DST Systems, Inc. is located at
1004 Baltimore, Kansas City, Missouri 64105.
ADMINISTRATION AGREEMENT. Under FAIF's Amended and Restated Administration
Agreement, dated July 1, 1997 (the Administration Agreement"), SEI Investments
Management Corporation (the "Administrator") performs administrative services in
connection with the operation of the funds of FAIF, including providing each
fund with regulatory reporting, accounting services, all necessary office space,
equipment, personnel, compensation and facilities for handling the affairs of
the funds. The Administration Agreement has an initial term of two years (the
"Initial Term") and will automatically renew for an additional one year upon
achievement of certain written service level standards (as described in the
Administration Agreement). The Administration Agreement may be terminated by
FAIF: (i) for any reason on six months prior written notice; (ii) in the event
of the Administrator's bankruptcy or insolvency; (iii) in the event of a
conviction of the Administrator for criminal activity; (iv) if in any
consecutive six-month period the average cumulative Service Level Percentage (as
defined in the Administration Agreement) is less than 50%; (v) if the
Administrator has materially failed to perform its responsibilities under the
Administration Agreement; or (vi) by delivery to the Administrator of written
notice of termination delivered no less than 180 days prior to the end of the
Initial Term. The Administration Agreement may be terminated by the
Administrator by delivery to FAIF of written notice: (i) if FAIF has materially
failed to perform its responsibilities under the Administration Agreement and
such material failure has not been cured within 45 days after written notice is
received by FAIF specifying the nature of the failure; or (ii) by delivery to
FAIF of written notice of termination delivered no less than 180 days prior to
the end of the Initial Term.
U.S. Bank assists the Administrator and provides sub-administration
services for the FAIF funds, including Fixed Income Fund. For these services,
the Administrator compensates the sub-administrator at an annual rate of up to
0.05% of the applicable fund's average daily net assets.
SHARE STRUCTURE. AGF and AAF are registered as non-diversified closed-end
management investment companies. OIF is registered as a diversified closed-end
management investment company. FAIF is registered as an open-end management
investment company under the 1940 Act and offers its
<PAGE>
shares in a number of separate investment portfolios, or "funds." Fixed Income
Fund is a diversified fund under the 1940 Act.
Each Piper Fund is organized as a corporation under the laws of the State
of Minnesota and is subject to the provisions of its Articles of Incorporation
and Bylaws, as amended. AGF and AAF each is authorized to issue up to
1,000,000,000 shares of capital stock, $.01 par value, all of which are
classified as common stock. The common stock is listed on the New York Stock
Exchange under the respective symbols "AGF" and "AAF." OIF is authorized to
issue up to 250,000,000 shares of capital stock, $.01 par value, all of which
are classified as common stock. The common stock is listed on the New York Stock
Exchange under the symbol "OIF."
FAIF is organized as a corporation under the laws of the State of Maryland
and is subject to the provisions of its Amended and Restated Articles of
Incorporation, as amended and supplemented, and Bylaws. FAIF is authorized to
issue 250 billion shares, par value $.0001 per share, which may be divided into
separate funds and separate classes of shares. The attributes of a share of
common stock in FAIF are comparable to those of a share of common stock of a
Piper Fund, except for those differences attributable to the differences between
closed-end and open-end investment companies. For a description of the
differences between closed-end and open-end investment companies, see "Certain
Risk Factors -- Differences of Closed-End and Open End Funds."
Each share of a Piper Fund and of Fixed Income Fund is fully paid,
nonassessable and transferrable when issued for payment or in accordance with
the applicable Fund's dividend reinvestment plan. In addition, such shares have
no preemptive or conversion rights, and shares of the Piper Funds have no
exchange or redemption rights. Shares of Fixed Income Fund have such conversion
and exchange rights as the Board of Directors of FAIF may grant in its
discretion. Shares of the Piper Funds and Fixed Income Fund have one vote per
share. For Fixed Income Fund, shares may be issued as either full or fractional
shares, with fractional shares having pro rata the same rights and privileges as
full shares. For the Piper Funds and Fixed Income Fund, shares do not have
cumulative voting rights. Consequently, the holders of more than 50% of the
shares voting for the election of directors are able to elect all of the
directors if they choose to do so. Shares of FAIF will vote in the aggregate and
not by series or class except as otherwise required by law or when series or
class voting is permitted by the FAIF Board of Directors. Each Piper Fund
currently has only one class of shares outstanding.
Fixed Income Fund offers separate share classes in order to provide for
different sales load structures and to allocate certain expenses, such as
distribution payments, shareholder servicing fees and other "class" expenses, to
the different shareholder groups for which the fees and expenses are incurred.
In this regard, FAIF's Board of Directors has authorized the issuance of three
classes of shares in Fixed Income Fund (Class A, Class B and Class Y shares). No
shareholders of the Piper Funds will receive Class B or Class Y shares in the
Reorganization. Each share of a class of Fixed Income Fund represents an equal
proportionate interest in the Fund with other shares of the same class and is
entitled to cash dividends and distributions earned on such shares as are
declared in the discretion of the FAIF Board of Directors.
Shares of each class of Fixed Income Fund bear a pro rata portion of all
operating expenses paid by the Fund except for distribution payments and
shareholder servicing fees paid on Class A or Class B shares and other "class"
expenses that are allocated to a particular share class. Class Y shares do not
have a distribution or shareholder servicing plan.
Additional information concerning the attributes of the shares issued by
Fixed Income Fund is included in the Class A Shares prospectus for Fixed Income
Fund which accompanies this Combined Proxy Statement/Prospectus. Shareholders
may obtain copies of FAIF's Amended and Restated Articles of
<PAGE>
Incorporation and Bylaws and the Piper Funds' Articles of Incorporation and
By-Laws from FAIF or the Piper Funds respectively upon written request at their
principal office.
HISTORY OF PUBLIC TRADING OF THE PIPER FUNDS' COMMON SHARES. The following
table shows the history of public trading of the common shares of each Piper
Fund, by quarter for the last two fiscal years, and for each full fiscal quarter
since the beginning of the current fiscal year, as reported on the New York
Stock Exchange.
<TABLE>
<CAPTION>
Net Asset Market Percentage Percentage
Value Price Discount Premium
-------------- -------------- -------------- -------------
Quarter Ended High Low High Low High Low High Low
- -------------------------- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
American Government Income Fund Inc.
1/31/96 5.890 5.840 5.875 5.250 7.96% 2.04% n/a n/a
4/30/96 5.880 5.630 5.313 4.875 13.87% 9.33% n/a n/a
7/31/96 5.630 5.520 5.125 4.750 14.10% 10.07% n/a n/a
10/31/96 5.730 5.530 5.125 4.875 12.95% 8.15% n/a n/a
1/31/97 5.770 5.660 5.250 5.125 11.18% 8.85% n/a n/a
4/30/97 5.730 5.580 5.375 5.000 10.40% 5.91% n/a n/a
7/31/97 5.820 5.630 5.375 5.000 11.19% 6.91% n/a n/a
10/31/97 5.840 5.720 5.563 5.313 8.09% 6.09% n/a n/a
1/31/98 5.910 5.810 5.500 5.250 10.26% 5.50% n/a n/a
4/30/98 5.890 5.820 5.750 5.375 8.74% 2.94% n/a n/a
American Government Income Portfolio, Inc.
1/31/96 7.030 6.890 7.000 6.250 4.26% 0.43% 0.86% 0.86%
4/30/96 6.960 6.730 6.250 5.500 16.42% 9.55% n/a n/a
7/31/96 6.690 6.550 6.125 5.500 15.67% 9.50% n/a n/a
10/31/96 6.780 6.560 6.000 5.875 12.31% 10.31% n/a n/a
1/31/97 6.840 6.720 6.250 6.000 12.15% 8.85% n/a n/a
4/30/97 6.790 6.620 6.250 6.000 10.19% 7.41% n/a n/a
7/31/97 6.920 6.680 6.375 6.000 10.31% 6.72% n/a n/a
10/31/97 6.940 6.800 6.563 6.250 8.49% 5.39% n/a n/a
1/31/98 7.020 6.900 6.563 6.188 9.68% 5.03% n/a n/a
4/30/98 7.010 6.920 6.813 6.375 9.06% 2.26% n/a n/a
American Opportunity Income Fund Inc.
1/31/96 6.700 6.610 6.375 5.750 12.05% 3.85% n/a n/a
4/30/96 6.690 6.410 5.875 5.375 16.15% 11.92% n/a n/a
7/31/96 6.420 6.290 5.750 5.250 18.22% 9.59% n/a n/a
10/31/96 6.530 6.280 5.875 5.625 12.52% 9.74% n/a n/a
1/31/97 6.580 6.440 6.000 5.750 11.81% 6.83% n/a n/a
4/30/97 6.500 6.320 6.000 5.750 11.13% 7.04% n/a n/a
7/31/97 6.690 6.410 6.188 5.750 10.30% 6.40% n/a n/a
10/31/97 6.690 6.520 6.313 6.063 7.48% 6.53% n/a n/a
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1/31/98 6.770 6.650 6.313 6.000 9.53% 5.08% n/a n/a
4/30/98 6.760 6.650 6.500 6.125 9.39% 3.13% n/a n/a
</TABLE>
The market prices, net asset values and discounts of the common shares of the
Piper Funds as of June ___, 1998, were as follows:
<TABLE>
<CAPTION>
AGF AAF OIF
--- --- ---
<S> <C> <C> <C>
Market Price per Share ................................................ $xx.xx $xx.xx $xx.xx
Net Asset Value per Share ............................................. $xx.xx $xx.xx $xx.xx
Percentage Discount ................................................... xx.x% xx.x% xx.x%
</TABLE>
DISTRIBUTION PLAN. An open-end investment company, unlike a closed-end
investment company, is permitted to finance the distribution of its shares by
adopting a plan of distribution pursuant to Rule 12b-1 under the 1940 Act. Fixed
Income Fund has adopted a distribution plan pursuant to Rule 12b-1 under the
1940 Act (the "Distribution Plan"). Pursuant to the Distribution Plan adopted
for the Class A Shares, Fixed Income Fund pays the distributor of the Fund's
shares a shareholder servicing fee monthly at an annual rate of 0.25% of the
average daily net assets of the Fund's Class A shares. The shareholder servicing
fee is intended to compensate the distributor for ongoing servicing and/or
maintenance of shareholder accounts and may be used by the distributor to
provide compensation to institutions through which shareholders hold their
shares for ongoing servicing and/or maintenance of shareholder accounts. The
shareholder servicing fee may be used to provide compensation for shareholder
servicing provided by "one-stop" mutual fund networks through which the FAIF
funds are made available. Because the Piper Funds are closed-end investment
companies, they do not have a distribution plan and do not bear distribution
expenses.
SHAREHOLDER TRANSACTIONS AND SERVICES. The respective purchase, redemption
and exchange policies of the Piper Funds and Fixed Income Fund differ
significantly because of the differences between open-end investment companies
and closed-end investment companies. Dividend polices of the Piper Funds and
Fixed Income Fund are similar.
Shares of the Piper Funds trade on the New York Stock Exchange. Shares of
Fixed Income Fund are offered to the public on a continuous basis and are not
listed on a stock exchange. Unlike shares of the Piper Funds, which are
purchased at current market price (which may be higher or lower than their
current net asset value) plus a brokerage commission, Class A Shares of Fixed
Income Fund are available for purchase at the net asset value per share next
calculated after receipt of an order, plus a front-end sales charge of 3.75% of
the offering price on purchases of less than $50,000. The sales charge is
reduced on a graduated scale on purchases of $50,000 or more. For purchases of
$1 million or more, there is no front-end sales charge, but redemptions of Class
A Shares within 24 months following such purchases are subject to a contingent
deferred sales charge of 1.00%. Shares of the Piper Funds may be sold through a
broker-dealer on any business day and a commission is generally charged. After
the Reorganization, shares of Fixed Income Fund will be redeemable on any
business day at the net asset value next calculated after the receipt of
redemption instructions. No fee or other charge is imposed on the redemption of
Class A Shares of Fixed Income Fund except as described above.
Holders of Class A Shares of Fixed Income Fund may exchange such shares for
Class A Shares of other series of FAIF, First American Funds, Inc. and First
American Strategy Funds, Inc. at net asset value without a sales charge. Fixed
Income Fund also has other shareholder services available. For a complete
description of procedures for share purchases, redemptions, exchanges and other
shareholder services, see the Class A Shares prospectus for Fixed Income Fund
which accompanies this Combined Proxy Statement/Prospectus.
<PAGE>
DIVIDENDS. Each Piper Fund under normal circumstances distributes monthly
dividends from its net investment income (non-capital gain income less
expenses). Net short-term capital gains and net long-term gains, if any, are
distributed at least once annually. Shareholders may elect to participate in
their Piper Funds' dividend reinvestment plan.
Similarly, dividends with respect to Fixed Income Fund are declared monthly
to all shareholders of record. Distributions of any net realized long-term
capital gains will be made at least once every 12 months. Dividends and
distributions are automatically reinvested in additional shares of Fixed Income
Fund, unless shareholders request cash payments.
Additional information with respect to shareholder transactions and
services is included in Appendix VIII to this Combined Proxy
Statement/Prospectus.
INFORMATION RELATING TO VOTING MATTERS
GENERAL INFORMATION. This Combined Proxy Statement/Prospectus is being
furnished in connection with the solicitation of proxies for the Meeting by the
Piper Board. Officers and service contractors of the Piper Funds and FAIF may,
without cost to the Piper Funds, solicit proxies on behalf of management of the
Piper Funds personally or by mail, telephone, telegraph or otherwise. In
addition, the Piper Funds have retained Shareholder Communications Corporation
to assist in the solicitation of proxies. The cost of solicitation is estimated
to be ____________ . U.S. Bank has agreed to pay any costs in excess of the
standard costs related to an annual meeting of the Piper Funds (based on the
costs related to the 1997 annual meeting of the Piper Funds).
Shareholder Communications Corporation may call shareholders to ask if they
would be willing to have their votes recorded by telephone. The telephone voting
procedure is designed to authenticate shareholders' identities, to allow
shareholders to authorize the voting of their shares in accordance with their
instructions, and to confirm that their instructions have been recorded
properly. The Piper Funds have been advised by counsel that these procedures are
consistent with the requirements of applicable law. Shareholders voting by
telephone will be asked for their social security number or other identifying
information and will be given an opportunity to authorize proxies to vote their
shares in accordance with their instructions. To ensure that the shareholders'
instructions have been recorded correctly, they will receive a confirmation of
their instructions in the mail. A special toll-free number will be available in
case the information contained in the confirmation is incorrect. Although a
shareholder's vote may be taken by telephone, each shareholder will receive a
copy of this Proxy Statement/Prospectus and may vote by mail using the enclosed
proxy card. If you have any questions or need assistance in voting, please
contact Mutual Fund Services at its toll-free number, 1-800-866-7778.
Any shareholder giving a proxy may revoke it at any time before it is
exercised by submitting to the Piper Funds a written notice of revocation or a
subsequently executed proxy or by attending the Meeting and voting in person.
Only shareholders of record at the close of business on ____________, 1998
will be entitled to vote at the Meeting. On that date, _____ shares of AGF,
_____ shares of AAF, and _____ shares of OIF were outstanding and entitled to be
voted. Shares are entitled to one vote per common share.
SHAREHOLDER AND BOARD APPROVALS. Pursuant to the Order granted by the SEC,
the Interim Advisory Agreements are being submitted for the ratification and
approval of the shareholders of the applicable Piper Fund. Each Interim Advisory
Agreement must be ratified and approved by a majority of the outstanding shares
(as defined below) of the respective Piper Fund. In the event an Interim
Advisory
<PAGE>
Agreement is not ratified and approved, such agreement will terminate, the
investment advisory fees accrued under such agreement and held in escrow with
respect to that Piper Fund will be returned to the applicable Piper Fund, and
the applicable Piper Board will consider what actions should be taken with
respect to management of the assets of such Piper Fund until a new investment
advisory agreement is approved by the shareholders of that Piper Fund or the
Reorganization occurs.
The Reorganization Agreement is being submitted for approval at the Meeting
by the shareholders of the Piper Funds pursuant to the provisions of their
respective Articles of Incorporation. The Reorganization Agreement must be
approved by a majority of the outstanding shares (as defined below) of each
Piper Fund. The Reorganization Agreement provides that in the event the
Reorganization Agreement is approved with respect to one or more but not all of
the Piper Funds, the Boards of Directors of FAIF and the Piper Funds may, in the
exercise of their reasonable business judgment, either abandon the
Reorganization Agreement with respect to all of the Piper Funds or direct that
the Reorganization and the other transactions described in the Reorganization
Agreement be consummated with respect to the approving Piper Funds to the extent
they deem advisable.
With respect to approval of the Interim Advisory Agreements, the term
"majority of the outstanding shares" of a particular Piper Fund thereof means
the lesser of (i) 67% of the shares of the Fund present at the Meeting if the
holders of more than 50% of the outstanding shares of such Fund are present, or
(ii) more than 50% of the outstanding shares of the Fund. With respect to
approval of the Reorganization Agreement, the term "majority of the outstanding
shares" of a particular Piper Fund means more than 50% of the outstanding shares
of such Fund. The vote of the shareholders of the FAIF Funds is not being
solicited, since their approval or consent is not necessary for the
Reorganization.
The approval of the Reorganization Agreement by the Piper Boards is
discussed above under "Information Relating to the Proposed Reorganization --
Piper Board Considerations." The Reorganization was unanimously approved by the
Board of Directors of FAIF at a meeting held on February 23, 1998.
As of __________________, 1998, the officers and Directors of each of the
Piper Funds as a group owned less than 1% of each Piper Fund. The table below
shows the name, address and share ownership of each person known to the Piper
Funds to have beneficial or record ownership with respect to 5% or more of a
Piper Fund as of ____________, 1998.
<PAGE>
PIPER FUNDS -- 5% OWNERSHIP AS OF _______________, 1998
AMOUNT OF PERCENTAGE PERCENTAGE
PIPER NAME AND SHARES OWNED AND OF OF FUND
FUNDS ADDRESS TYPE OF OWNERSHIP FUND POST-CLOSING
- ----- ------- ----------------- ---- ------------
AGF
AAF
OIF
As of ______________, 1998, the officers and Directors of FAIF as a group
owned less than 1% of any class of shares of Fixed Income Fund. The table below
shows the name, address and share ownership of each person known to Fixed Income
Fund to have beneficial or record ownership with respect to 5% or more of any
class of shares of Fixed Income Fund as of ____________, 1998.
FIXED INCOME FUND -- 5% OWNERSHIP AS OF _______________, 1998
AMOUNT OF PERCENTAGE PERCENTAGE
NAME AND SHARES OWNED AND OF OF FUND
ADDRESS TYPE OF OWNERSHIP FUND POST-CLOSING
------- ----------------- ---- ------------
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company. Under this definition, __________ and its
affiliates may be deemed to be controlling persons of the Piper Funds, and
________________________ and its affiliates may be deemed to be controlling
persons of Fixed Income Fund.
QUORUM. In the event that a quorum is not present at the Meeting, or in the
event that a quorum is present at the Meeting but sufficient votes to approve
the Interim Advisory Agreements or the Reorganization Agreement are not received
with respect to one or more of the Piper Funds, the persons named as proxies may
propose one or more adjournments of the Meeting to permit further solicitation
of proxies. Any such adjournment(s) will require the affirmative vote of a
majority of those shares affected by the adjournment(s) that are represented at
the Meeting in person or by proxy. If a quorum is present, the persons named as
proxies will vote those proxies which they are entitled to vote FOR the
particular proposal for which a quorum exists in favor of such adjournment(s),
and will vote those proxies required to be voted AGAINST such proposal against
any adjournment(s). A shareholder vote may be taken with respect to one Piper
Fund (but not the other Piper Funds) on some or all matters before any such
adjournment(s) if sufficient votes have been received for approval. A quorum is
constituted with respect to a Piper Fund by the presence in person or by proxy
of the holders of more than 50% of the outstanding shares of the applicable
Piper Fund entitled to vote at the Meeting. For purposes of determining the
presence of a quorum for transacting business at the Meeting, abstentions will
be treated as shares that are present at the Meeting but which have not been
voted. Abstentions will have the effect of a "no" vote for
<PAGE>
purposes of obtaining the requisite approvals. Broker "non-votes" (that is,
proxies from brokers or nominees indicating that such persons have not received
instructions from the beneficial owners or other persons entitled to vote shares
on a particular matter with respect to which the brokers or nominees do not have
discretionary power) will not be treated as shares that are present at the
Meeting and, accordingly, could make it more difficult to obtain the requisite
approvals.
ANNUAL MEETINGS. With respect to annual meetings, the Piper Funds are
subject to the rules and regulations of the New York Stock Exchange, which
require a company whose shares are listed on such exchange to hold an annual
meeting each fiscal year. The Bylaws of FAIF provide that annual shareholders'
meetings are not required and that meetings of shareholders need be held only
with such frequency as required under Minnesota law and the 1940 Act.
DISSENTERS' RIGHTS. Pursuant to Sections 302A.471 and 302A.473 of the
Minnesota Business Corporation Act (the "MBCA Sections"), record holders of
shares of the Piper Funds on August , 1998 are entitled to assert dissenters'
rights in connection with the Reorganization and obtain payment of the "fair
value" of their shares, provided that such shareholders comply with the
requirements of the MBCA Sections. NOTWITHSTANDING THE PROVISIONS OF THE MBCA
SECTIONS, THE DIVISION OF INVESTMENT MANAGEMENT OF THE SEC HAS TAKEN THE
POSITION THAT ADHERENCE TO STATE APPRAISAL PROCEDURES BY A REGISTERED INVESTMENT
COMPANY ISSUING REDEEMABLE SECURITIES WOULD CONSTITUTE A VIOLATION OF RULE 22c-1
UNDER THE 1940 ACT. THIS RULE PROVIDES THAT NO OPEN-END INVESTMENT COMPANY MAY
REDEEM ITS SHARES OTHER THAN AT NET ASSET VALUE NEXT COMPUTED AFTER RECEIPT OF A
TENDER OF SUCH SECURITY FOR REDEMPTION. IT IS THE VIEW OF THE DIVISION OF
INVESTMENT MANAGEMENT THAT RULE 22c-1 SUPERSEDES APPRAISAL PROVISIONS IN STATE
STATUTES.
In the interests of ensuring equal valuation of all interests in the Piper
Funds, the Piper Funds will determine dissenters' rights in accordance with the
Division interpretation. Accordingly, in the event that any shareholder elects
to exercise dissenters' rights under Minnesota law, the Piper Funds intend to
submit this question to a court of competent jurisdiction. In such event, a
dissenting shareholder would not receive any payment until disposition of any
such court proceeding. It should be emphasized that Piper Fund shareholders may
sell their shares in the open market prior to the Closing Date, provided that it
is expected that trading of shares will be suspended for a period of time prior
to the Closing Date. In addition, shareholders will be able to redeem Fixed
Income Fund shares immediately after the Closing Date at their net asset value.
A summary of the statutory procedures to be followed by Piper Fund
shareholders electing to exercise their dissenters' rights, along with copies of
the relevant MBCA Sections, is set forth in Appendix X. Shareholders who wish to
assert their dissenters' rights or who wish to preserve the right to do so
should review the MBCA Sections carefully, since failure to comply with the
procedures set forth in the MBCA Sections will result in the loss of such
dissenters' rights.
INTERESTS OF CERTAIN PERSONS. The following receive payments from Fixed
Income Fund for services rendered pursuant to contractual arrangements with
Fixed Income Fund: U.S. Bank, as the adviser of Fixed Income Fund, receives
payments for its investment advisory services; SEI Investments Distribution Co.,
as the distributor for Fixed Income Fund, receives payments for providing
distribution services; SEI Investments Management Corporation, in its capacity
as the administrator for Fixed Income Fund, receives payments for providing
shareholder servicing, legal and accounting and other administrative personnel
and services; DST Systems, Inc., in its capacity as transfer and dividend
disbursing agent for Fixed Income Fund, receives payments for providing transfer
agency and dividend disbursing services; and U.S. Bank receives payments for
providing custodial services for Fixed Income Fund and may also act as
securities lending agent in connection with Fixed Income Fund's securities
lending transactions and receive, as compensation for such services, fees equal
to 40% of the fund's income from such securities lending
<PAGE>
transactions. U.S. Bank also acts as sub-administrator to SEI Investments
Management Corporation, for which it receives fees from SEI Investments
Management Corporation. Piper Jaffray, a subsidiary of U.S. Bancorp, acts as a
servicing agent to perform certain transfer agent and dividend disbursing agent
services with respect to Class A Shares of Fixed Income Fund held through
accounts at Piper Jaffray Inc. and its affiliates.
ADDITIONAL INFORMATION ABOUT FAIF
Additional information about Fixed Income Fund is included in the Class A
Shares prospectus which accompanies this Combined Proxy Statement/Prospectus and
in the related Statement of Additional Information, copies of which may be
obtained without charge by writing to FAIF, c/o SEI Investments Distribution
Co., Oaks, Pennsylvania 19456, or by calling 1-800-637-2548. FAIF is subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended, and the 1940 Act, and in accordance therewith it files reports, proxy
materials and other information with the SEC. Reports and other information
filed by FAIF can be inspected and copied at the Public Reference Facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, these materials can be inspected and copied at the SEC's Regional
Offices at 7 World Trade Center, Suite 1300, New York, New York 10048, and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials also can be obtained from the Public
Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20549, at prescribed rates.
Information included in this Combined Proxy Statement/Prospectus concerning
Fixed Income Fund and FAIF was provided by FAIF.
ADDITIONAL INFORMATION ABOUT THE PIPER FUNDS
The Piper Funds are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and the 1940 Act, and in accordance
therewith, are required to file reports, proxy statement and other information
with the SEC. Any such reports, proxy statements and other information filed by
the Piper Funds can be inspected and copied at the Public Reference Facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the offices of the Piper Funds listed above. In addition, these materials can be
inspected and copied at the SEC's Regional Offices at 7 World Trade Center,
Suite 1300, New York, New York 10048, and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
also can be obtained from the Public Reference Branch, Office of Consumer
Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549, at prescribed rates. The common shares of the Piper
Funds are listed on the New York Stock Exchange, and such reports, proxy
statements and other information concerning the Piper Funds can also be
inspected at the offices of the New York Stock Exchange at 20 Broad Street, New
York, New York 10005.
Information included in this Combined Proxy Statement/Prospectus concerning
the Piper Funds was provided by the respective Piper Funds.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on the records of the Piper Funds and other information, each Piper
Fund believes that all SEC filing requirements applicable to their respective
directors, officers, Piper Capital and companies affiliated with Piper Capital,
pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended,
with respect to the Piper Funds' most recent fiscal year end, were satisfied,
except that Chris Newharth and Momchilo Vucenich each failed to timely report a
transaction on Form 4.
<PAGE>
FINANCIAL STATEMENTS
The audited statements of assets and liabilities, including the schedules
of investments in securities, of the Piper Funds as of October 31, 1997, and the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the years in the two year period ended October
31, 1997, and the financial highlights for each of the periods indicated
therein, as included in the October 31, 1997 Annual Reports of the respective
Piper Funds, have been incorporated by reference into this Combined Proxy
Statement/Prospectus in reliance on the respective reports of KPMG Peat Marwick
LLP, independent auditors for the Piper Funds, given on the authority of such
firms as experts in accounting and auditing.
The audited statement of assets and liabilities, including the schedule of
investments in securities, of Fixed Income Fund as of September 30, 1997, and
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the years in the two year period ended
September 30, 1997, and the financial highlights for each of the periods
indicated therein, as included in the September 30, 1997 Annual Report of FAIF,
have been incorporated by reference into this Combined Proxy
Statement/Prospectus in reliance on the respective reports of KPMG Peat Marwick
LLP, independent auditors for FAIF, given on the authority of such firms as
experts in accounting and auditing. In addition, the unaudited financial
statements of Fixed Income Fund as of March 31, 1998 included in the March 31,
1998 Semi-Annual Reports of FAIF are incorporated herein by reference.
OTHER BUSINESS
The Piper Boards know of no other business to be brought before the
Meeting. However, if any other matters come before the Meeting, it is the
intention that proxies which do not contain specific restrictions to the
contrary will be voted on such matters in accordance with the judgment of the
persons named in the enclosed form of proxy.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Piper Funds or to First
American Investment Funds, Inc. in writing at the appropriate addresses on the
cover page of this Combined Proxy Statement/Prospectus or by telephoning the
Piper Funds at 1-800-866-7778 or FAIF at 1-800-637-2548.
* * *
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE REQUESTED
TO MARK, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. SHAREHOLDERS
ALSO MAY RETURN PROXIES BY TELEFAX OR VOTE BY TELEPHONE.
THE PIPER FUNDS WILL FURNISH, WITHOUT CHARGE, COPIES OF THEIR RESPECTIVE
OCTOBER 31, 1997 ANNUAL SHAREHOLDERS REPORTS TO ANY SHAREHOLDER UPON REQUEST
ADDRESSED TO 222 SOUTH NINTH STREET, MINNEAPOLIS, MINNESOTA 55402-3804 OR BY
TELEPHONE AT 1-800-866-7778.
<PAGE>
APPENDIX I
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This AGREEMENT, made this 1st day of May 1998, by and between American
Government Income Fund Inc., a Minnesota corporation (the "Fund") and Piper
Capital Management Incorporated, a Delaware corporation (the "Adviser").
1. Investment Advisory and Management Services. The Fund hereby engages the
Adviser, and the Adviser hereby agrees to act as investment adviser for, and to
manage the affairs, business and the investment of the assets of the Fund.
The investment of the assets of the Fund shall at all times be subject to
the applicable provisions of the Articles of Incorporation, Bylaws, Registration
Statement on Form N-2 and any representations contained in the Prospectus of the
Fund and shall conform to the policies and purposes of the Fund as set forth in
such Registration Statement and Prospectus and (i) as interpreted from time to
time by the Board of Directors of the Fund and (ii) as may be amended from time
to time by the Board of Directors and/or the shareholders of the Fund as
permitted by the Investment Company Act of 1940, as amended (the "1940 Act").
Within the framework of the investment policies of the Fund, the Adviser shall
have the sole and exclusive responsibility for the management of the Fund's
assets and the making and execution of all investment decisions for the Fund.
The Adviser shall report to the Board of Directors of the Fund regularly at such
times and in such detail as the Board may from time to time determine to be
appropriate, in order to permit the Board to determine the adherence of the
Adviser to the investment policies of the Fund.
The Adviser shall, at its own expense, furnish the Fund suitable office
space, and all necessary office facilities, equipment and personnel for
servicing the investments of the Fund. The Adviser shall arrange, if requested
by the Fund, for officers, employees or other Affiliated Persons (as defined in
Section 2(a)(3) of the 1940 Act and the rules, regulations and releases relating
thereto) of the Adviser to serve without compensation from the Fund as
directors, officers or employees of the Fund if duly elected to such positions
by the shareholders or directors of the Fund.
The Adviser hereby acknowledges that all records necessary in the operation
of the Fund, including records pertaining to its shareholders and investments,
are the property of the Fund, and in the event that a transfer of management or
investment advisory services to someone other than the Adviser should ever
occur, the Adviser will promptly, and at its own cost, take all steps necessary
to segregate such records and deliver them to the Fund.
2. Compensation for Services. In payment for all services, facilities,
equipment and personnel, and for other costs of the Adviser hereunder, the Fund
shall pay to the Adviser a monthly investment advisory fee in an amount equal to
the sum of .025% of the Fund's average weekly net assets during the month and
5.25% of the Fund's daily gross income (i.e., income other than gain from the
sale of securities or gain received from options and futures contracts less
interest on money borrowed by the Fund) accrued by the Fund during the month but
such monthly management fee shall not exceed in the aggregate 1/12th of 1% of
the Fund's average weekly net assets during the month (approximately 1% on an
annual basis).
For purposes of the calculation of such fee, average weekly net assets
shall be determined on the basis of the Fund's average net assets for each
weekly period ending during the month. The net assets for each weekly period are
determined by averaging the net assets on the last day of such weekly period
with the net assets on the last day of the immediately preceding weekly period.
When the last day of a weekly period is not a business day for the Fund, then
the calculation will be based on the Fund's net assets on the immediately
preceding Fund business day. Such fee shall be payable on the fifth day of each
calendar month for services performed hereunder during the preceding month. If
this Agreement becomes effective after the beginning of a month or terminates
prior
<PAGE>
to the end of a month, such fee shall be prorated according to the proportion
which such portion of the month bears to the full month.
Pursuant to the terms of an order of exemption granted by the Securities
and Exchange Commission in PIPER FUNDS INC., ET AL., Investment Company Act Rel.
No. 23120 (April 21 , 1998), all fees payable under this Agreement by the Fund
shall be payable to an independent escrow agent to be maintained in an
interest-bearing escrow account until this Agreement is approved by shareholders
in accordance with the provisions of Section 5 of this Agreement. If
shareholders of the Fund fail to approve this Agreement, the escrow agent will
pay to the Fund the applicable escrowed amounts (including interest earned). The
escrow agent will release the escrowed funds only upon receipt of a certificate
from officers of the Fund stating whether the escrowed funds are to be delivered
to the Adviser or the Fund.
3. Allocation of Expenses. In addition to the fees described in Section 2
hereof, the Fund shall pay all its expenses which are not assumed by the Adviser
in its capacity as the Fund's investment adviser or in its capacity as the
Fund's administrator. These Fund expenses include, by way of example, but not by
way of limitation, (a) brokerage and commission expenses; (b) Federal, state,
local and foreign taxes, including issue and transfer taxes incurred by or
levied on the Fund; (c) interest charges on borrowings; (d) the Fund's
organizational and offering expenses, whether or not advanced by the Adviser;
(e) the cost of other personnel providing services to the Fund; (f) fees and
expenses of registering the Fund's shares under the appropriate Federal
securities laws and qualifying the Fund's shares under applicable state
securities laws; (g) fees and expenses of listing and maintaining the listing of
the Fund's shares on the principal securities exchanges where listed, or, if the
Fund's shares are not so listed, fees and expenses of listing and maintaining
the quotation of the Fund's shares on the principal over-the-counter market
where traded; (h) expenses of printing and distributing reports to shareholders;
(i) costs of shareholders' meetings and proxy solicitation; (j) charges and
expenses of the Fund's Administrator, custodian and registrar, transfer agent
and dividend disbursing agent; (k) compensation of the Fund's officers,
directors and employees that are not Affiliated Persons or Interested Persons
(as defined in Section 2(a)(19) of the 1940 Act and the rules, regulations and
releases relating thereto) of the Adviser; (l) legal and auditing expenses; (m)
cost of certificates representing common shares of the Fund; (n) costs of
stationery and supplies; (o) insurance expenses; and (p) association membership
dues.
4. Freedom to Deal with Third Parties. The Adviser shall be free to render
services to others similar to those rendered under this Agreement or of a
different nature except as such services may conflict with the services to be
rendered or the duties to be assumed hereunder.
5. Effective Date, Duration and Termination of Agreement. The effective
date of this Agreement shall be the date first set forth above. Wherever
referred to in this Agreement, the vote or approval of the holders of a majority
of the outstanding shares of the Fund shall mean the vote of the lesser of (i)
67% or more of the shares represented at a meeting at which more than 50% of the
outstanding shares of the Fund are present in person or by proxy or (ii) more
than 50% of the outstanding shares of the Fund.
Unless sooner terminated as hereinafter provided, this Agreement shall
continue in effect for a period of two years from the date of its execution, and
thereafter shall continue in effect only so long as such continuance is
specifically approved at least annually (a) by the Board of Directors of the
Fund or by a vote of the holders of a majority of the Fund's outstanding shares,
and (b) by the vote of a majority of the directors who are not parties to this
Agreement or Interested Persons of the Adviser or of the Fund cast in person at
a meeting called for the purpose of voting on such approval.
This Agreement may be terminated at any time without the payment of any
penalty by the vote of the Board of Directors of the Fund or by the vote of the
holders of a majority of the outstanding shares of the Fund, or by the Adviser,
upon sixty (60) days written notice to the other party. Any such termination may
be made effective with respect to both the investment advisory and management
services provided for in this Agreement or with respect to either of such kinds
of services.
<PAGE>
This Agreement shall automatically terminate in the event of its assignment as
defined in the 1940 Act and the rules thereunder. This Agreement shall
automatically terminate upon completion of the dissolution, liquidation or
winding up of the Fund.
6. Amendments to Agreement. No material amendment to this Agreement shall
be effective until approved by vote of the holders of a majority of the
outstanding shares of the Fund.
7. Notices. Any notice under this Agreement shall be in writing, addressed,
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate in writing for receipt of such notice.
IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to
be executed by their duly authorized officers as of the day and year first above
written.
AMERICAN GOVERNMENT INCOME FUND INC.
By /s/ Paul A. Dow
----------------------------------------
Its President
-------------------------------------
PIPER CAPITAL MANAGEMENT INCORPORATED
By /s/ Robert H. Nelson
----------------------------------------
Its Senior Vice President
-------------------------------------
<PAGE>
APPENDIX II
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This AGREEMENT, made this 1st day of May 1998, by and between American
Government Income Portfolio, Inc., a Minnesota corporation (the "Fund") and
Piper Capital Management Incorporated, a Delaware corporation (the "Adviser").
1. Investment Advisory and Management Services. The Fund hereby engages
the Adviser, and the Adviser hereby agrees to act as investment adviser for, and
to manage the affairs, business and the investment of the assets of the Fund.
The investment of the assets of the Fund shall at all times be
subject to the applicable provisions of the Articles of Incorporation, Bylaws,
Registration Statement on Form N-2 and any representations contained in the
Prospectus of the Fund and shall conform to the policies and purposes of the
Fund as set forth in such Registration Statement and Prospectus and (i) as
interpreted from time to time by the Board of Directors of the Fund and (ii) as
may be amended from time to time by the Board of Directors and/or the
shareholders of the Fund as permitted by the Investment Company Act of 1940, as
amended (the "1940 Act"). Within the framework of the investment policies of the
Fund, the Adviser shall have the sole and exclusive responsibility for the
management of the Fund's assets and the making and execution of all investment
decisions for the Fund. The Adviser shall report to the Board of Directors of
the Fund regularly at such times and in such detail as the Board may from time
to time determine to be appropriate, in order to permit the Board to determine
the adherence of the Adviser to the investment policies of the Fund.
The Adviser shall, at its own expense, furnish the Fund suitable
office space, and all necessary office facilities, equipment and personnel for
servicing the investments of the Fund. The Adviser shall arrange, if requested
by the Fund, for officers, employees or other Affiliated Persons (as defined in
Section 2(a)(3) of the 1940 Act and the rules, regulations and releases relating
thereto) of the Adviser to serve without compensation from the Fund as
directors, officers or employees of the Fund if duly elected to such positions
by the shareholders or directors of the Fund.
The Adviser hereby acknowledges that all records necessary in the
operation of the Fund, including records pertaining to its shareholders and
investments, are the property of the Fund, and in the event that a transfer of
management or investment advisory services to someone other than the Adviser
should ever occur, the Adviser will promptly, and at its own cost, take all
steps necessary to segregate such records and deliver them to the Fund.
2. Compensation for Services. In payment for all services, facilities,
equipment and personnel, and for other costs of the Adviser hereunder, the Fund
shall pay to the Adviser a monthly investment advisory fee in an amount equal to
the sum of .025% of the Fund's average weekly net assets during the month and
5.25% of the Fund's daily gross income (i.e., income other than gain from the
sale of securities or gain received from options and futures contracts less
interest on money borrowed by the Fund) accrued by the Fund during the month but
such monthly management fee shall not exceed in the aggregate 1/12th of 1% of
the Fund's average weekly net assets during the month (approximately 1% on an
annual basis).
For purposes of the calculation of such fee, average weekly net
assets shall be determined on the basis of the Fund's average net assets for
each weekly period ending during the month. The net assets for each weekly
period are determined by averaging the net assets on the last day of such weekly
period with the net assets on the last day of the immediately preceding weekly
period. When the last day of a weekly period is not a business day for the Fund,
then the calculation will be based on the Fund's net assets on the immediately
preceding Fund business day. Such fee shall be payable on the fifth day of each
calendar month for services performed hereunder during the preceding month. If
this Agreement becomes effective after the beginning of a month or terminates
prior
<PAGE>
to the end of a month, such fee shall be prorated according to the proportion
which such portion of the month bears to the full month.
Pursuant to the terms of an order of exemption granted by the Securities
and Exchange Commission in PIPER FUNDS INC., ET AL., Investment Company Act Rel.
No. 23120 (April 21, 1998), all fees payable under this Agreement by the Fund
shall be payable to an independent escrow agent to be maintained in an
interest-bearing escrow account until this Agreement is approved by shareholders
in accordance with the provisions of Section 5 of this Agreement. If
shareholders of the Fund fail to approve this Agreement, the escrow agent will
pay to the Fund the applicable escrowed amounts (including interest earned). The
escrow agent will release the escrowed funds only upon receipt of a certificate
from officers of the Fund stating whether the escrowed funds are to be delivered
to the Adviser or the Fund.
3. Allocation of Expenses. In addition to the fees described in Section 2
hereof, the Fund shall pay all its expenses which are not assumed by the Adviser
in its capacity as the Fund's investment adviser or in its capacity as the
Fund's administrator. These Fund expenses include, by way of example, but not by
way of limitation, (a) brokerage and commission expenses; (b) Federal, state,
local and foreign taxes, including issue and transfer taxes incurred by or
levied on the Fund; (c) interest charges on borrowings; (d) the Fund's
organizational and offering expenses, whether or not advanced by the Adviser;
(e) the cost of other personnel providing services to the Fund; (f) fees and
expenses of registering the Fund's shares under the appropriate Federal
securities laws and qualifying the Fund's shares under applicable state
securities laws; (g) fees and expenses of listing and maintaining the listing of
the Fund's shares on the principal securities exchanges where listed, or, if the
Fund's shares are not so listed, fees and expenses of listing and maintaining
the quotation of the Fund's shares on the principal over-the-counter market
where traded; (h) expenses of printing and distributing reports to shareholders;
(i) costs of shareholders' meetings and proxy solicitation; (j) charges and
expenses of the Fund's Administrator, custodian and registrar, transfer agent
and dividend disbursing agent; (k) compensation of the Fund's officers,
directors and employees that are not Affiliated Persons or Interested Persons
(as defined in Section 2(a)(19) of the 1940 Act and the rules, regulations and
releases relating thereto) of the Adviser; (l) legal and auditing expenses; (m)
cost of certificates representing common shares of the Fund; (n) costs of
stationery and supplies; (o) insurance expenses; and (p) association membership
dues.
4. Freedom to Deal with Third Parties. The Adviser shall be free to render
services to others similar to those rendered under this Agreement or of a
different nature except as such services may conflict with the services to be
rendered or the duties to be assumed hereunder.
5. Effective Date, Duration and Termination of Agreement. The effective
date of this Agreement shall be the date first set forth above. Wherever
referred to in this Agreement, the vote or approval of the holders of a majority
of the outstanding shares of the Fund shall mean the vote of the lesser of (i)
67% or more of the shares represented at a meeting at which more than 50% of the
outstanding shares of the Fund are present in person or by proxy or (ii) more
than 50% of the outstanding shares of the Fund.
Unless sooner terminated as hereinafter provided, this Agreement
shall continue in effect for a period of two years from the date of its
execution, and thereafter shall continue in effect only so long as such
continuance is specifically approved at least annually (a) by the Board of
Directors of the Fund or by a vote of the holders of a majority of the Fund's
outstanding shares, and (b) by the vote of a majority of the directors who are
not parties to this Agreement or Interested Persons of the Adviser or of the
Fund cast in person at a meeting called for the purpose of voting on such
approval.
This Agreement may be terminated at any time without the payment of
any penalty by the vote of the Board of Directors of the Fund or by the vote of
the holders of a majority of the outstanding shares of the Fund, or by the
Adviser, upon sixty (60) days written notice to the other party. Any such
termination may be made effective with respect to both the investment advisory
and management services provided for in this Agreement or with respect to either
of such kinds of services.
<PAGE>
This Agreement shall automatically terminate in the event of its assignment as
defined in the 1940 Act and the rules thereunder. This Agreement shall
automatically terminate upon completion of the dissolution, liquidation or
winding up of the Fund.
6. Amendments to Agreement. No material amendment to this Agreement shall
be effective until approved by vote of the holders of a majority of the
outstanding shares of the Fund.
7. Notices. Any notice under this Agreement shall be in writing,
addressed, delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate in writing for receipt of such notice.
IN WITNESS WHEREOF, the Fund and the Adviser have caused this
Agreement to be executed by their duly authorized officers as of the day and
year first above written.
AMERICAN GOVERNMENT INCOME
PORTFOLIO, INC.
By /s/ Paul A. Dow
----------------------------------------
Its President
-------------------------------------
PIPER CAPITAL MANAGEMENT
INCORPORATED
By /s/ Robert H. Nelson
----------------------------------------
Its Senior Vice President
-------------------------------------
<PAGE>
APPENDIX III
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This AGREEMENT, made this 1st day of May 1998, by and between American
Opportunity Income Fund Inc., a Minnesota corporation (the "Fund") and Piper
Capital Management Incorporated, a Delaware corporation (the "Adviser").
1. Investment Advisory and Management Services. The Fund hereby engages
the Adviser, and the Adviser hereby agrees to act as investment adviser for, and
to manage the affairs, business and the investment of the assets of the Fund.
The investment of the assets of the Fund shall at all times be
subject to the applicable provisions of the Articles of Incorporation, Bylaws,
Registration Statement on Form N-2 and any representations contained in the
Prospectus of the Fund and shall conform to the policies and purposes of the
Fund as set forth in such Registration Statement and Prospectus and (i) as
interpreted from time to time by the Board of Directors of the Fund and (ii) as
may be amended from time to time by the Board of Directors and/or the
shareholders of the Fund as permitted by the Investment Company Act of 1940, as
amended (the "1940 Act"). Within the framework of the investment policies of the
Fund, the Adviser shall have the sole and exclusive responsibility for the
management of the Fund's assets and the making and execution of all investment
decisions for the Fund. The Adviser shall report to the Board of Directors of
the Fund regularly at such times and in such detail as the Board may from time
to time determine to be appropriate, in order to permit the Board to determine
the adherence of the Adviser to the investment policies of the Fund.
The Adviser shall, at its own expense, furnish the Fund suitable
office space, and all necessary office facilities, equipment and personnel for
servicing the investments of the Fund. The Adviser shall arrange, if requested
by the Fund, for officers, employees or other Affiliated Persons (as defined in
Section 2(a)(3) of the 1940 Act and the rules, regulations and releases relating
thereto) of the Adviser to serve without compensation from the Fund as
directors, officers or employees of the Fund if duly elected to such positions
by the shareholders or directors of the Fund.
The Adviser hereby acknowledges that all records necessary in the
operation of the Fund, including records pertaining to its shareholders and
investments, are the property of the Fund, and in the event that a transfer of
management or investment advisory services to someone other than the Adviser
should ever occur, the Adviser will promptly, and at its own cost, take all
steps necessary to segregate such records and deliver them to the Fund.
2. Compensation for Services. In payment for all services, facilities,
equipment and personnel, and for other costs of the Adviser hereunder, the Fund
shall pay to the Adviser a monthly investment advisory fee in an amount equal to
the sum of .01667% of the Fund's average weekly net assets during the month and
4.5% of the Fund's daily gross income (i.e., income other than gain from the
sale of securities or gain received from options and futures contracts less
interest on money borrowed by the Fund) accrued by the Fund during the month but
such monthly management fee shall not exceed in the aggregate 1/12th of .725% of
the Fund's average weekly net assets during the month (approximately .725% on an
annual basis).
For purposes of the calculation of such fee, average weekly net
assets shall be determined on the basis of the Fund's average net assets for
each weekly period ending during the month. The net assets for each weekly
period are determined by averaging the net assets on the last day of such weekly
period with the net assets on the last day of the immediately preceding weekly
period. When the last day of a weekly period is not a business day for the Fund,
then the calculation will be based on the Fund's net assets on the immediately
preceding Fund business day. Such fee shall be payable on the fifth day of each
calendar month for services performed hereunder during the preceding month. If
this Agreement becomes effective after the beginning of a month or terminates
prior
<PAGE>
to the end of a month, such fee shall be prorated according to the proportion
which such portion of the month bears to the full month.
Pursuant to the terms of an order of exemption granted by the Securities
and Exchange Commission in PIPER FUNDS INC., ET AL., Investment Company Act Rel.
No. 23120 (April 21, 1998), all fees payable under this Agreement by the Fund
shall be payable to an independent escrow agent to be maintained in an
interest-bearing escrow account until this Agreement is approved by shareholders
in accordance with the provisions of Section 5 of this Agreement. If
shareholders of the Fund fail to approve this Agreement, the escrow agent will
pay to the Fund the applicable escrowed amounts (including interest earned). The
escrow agent will release the escrowed funds only upon receipt of a certificate
from officers of the Fund stating whether the escrowed funds are to be delivered
to the Adviser or the Fund.
3. Allocation of Expenses. In addition to the fees described in Section 2
hereof, the Fund shall pay all its expenses which are not assumed by the Adviser
in its capacity as the Fund's investment adviser or in its capacity as the
Fund's administrator. These Fund expenses include, by way of example, but not by
way of limitation, (a) brokerage and commission expenses; (b) Federal, state,
local and foreign taxes, including issue and transfer taxes incurred by or
levied on the Fund; (c) interest charges on borrowings; (d) the Fund's
organizational and offering expenses, whether or not advanced by the Adviser;
(e) the cost of other personnel providing services to the Fund; (f) fees and
expenses of registering the Fund's shares under the appropriate Federal
securities laws and qualifying the Fund's shares under applicable state
securities laws; (g) fees and expenses of listing and maintaining the listing of
the Fund's shares on the principal securities exchanges where listed, or, if the
Fund's shares are not so listed, fees and expenses of listing and maintaining
the quotation of the Fund's shares on the principal over-the-counter market
where traded; (h) expenses of printing and distributing reports to shareholders;
(i) costs of shareholders' meetings and proxy solicitation; (j) charges and
expenses of the Fund's Administrator, custodian and registrar, transfer agent
and dividend disbursing agent; (k) compensation of the Fund's officers,
directors and employees that are not Affiliated Persons or Interested Persons
(as defined in Section 2(a)(19) of the 1940 Act and the rules, regulations and
releases relating thereto) of the Adviser; (l) legal and auditing expenses; (m)
costs of certificates representing common shares of the Fund; (n) costs of
stationery and supplies; (o) insurance expenses; and (p) association membership
dues.
4. Freedom to Deal with Third Parties. The Adviser shall be free to render
services to others similar to those rendered under this Agreement or of a
different nature except as such services may conflict with the services to be
rendered or the duties to be assumed hereunder.
5. Effective Date, Duration and Termination of Agreement. The effective
date of this Agreement shall be the date first set forth above. Wherever
referred to in this Agreement, the vote or approval of the holders of a majority
of the outstanding shares of the Fund shall mean the vote of the lesser of (i)
67% or more of the shares represented at a meeting at which more than 50% of the
outstanding shares of the Fund are present in person or by proxy or (ii) more
than 50% of the outstanding shares of the Fund.
Unless sooner terminated as hereinafter provided, this Agreement
shall continue in effect for a period of two years from the date of its
execution, and thereafter shall continue in effect only so long as such
continuance is specifically approved at least annually (a) by the Board of
Directors of the Fund or by a vote of the holders of a majority of the Fund's
outstanding shares, and (b) by the vote of a majority of the directors who are
not parties to this Agreement or Interested Persons of the Adviser or of the
Fund cast in person at a meeting called for the purpose of voting on such
approval.
This Agreement may be terminated at any time without the payment of
any penalty by the vote of the Board of Directors of the Fund or by the vote of
the holders of a majority of the outstanding shares of the Fund, or by the
Adviser, upon sixty (60) days written notice to the other party. Any such
termination may be made effective with respect to both the investment advisory
and management services provided for in this Agreement or with respect to either
of such kinds of services.
<PAGE>
This Agreement shall automatically terminate in the event of its assignment as
defined in the 1940 Act and the rules thereunder. This Agreement shall
automatically terminate upon completion of the dissolution, liquidation or
winding up of the Fund.
6. Amendments to Agreement. No material amendment to this Agreement shall
be effective until approved by vote of the holders of a majority of the
outstanding shares of the Fund.
7. Notices. Any notice under this Agreement shall be in writing,
addressed, delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate in writing for receipt of such notice.
IN WITNESS WHEREOF, the Fund and the Adviser have caused this
Agreement to be executed by their duly authorized officers as of the day and
year first above written.
AMERICAN OPPORTUNITY INCOME FUND INC.
By /s/ Paul A. Dow
----------------------------------------
Its President
-------------------------------------
PIPER CAPITAL MANAGEMENT
INCORPORATED
By /s/ Robert H. Nelson
----------------------------------------
Its Senior Vice President
-------------------------------------
<PAGE>
APPENDIX IV
PRINCIPAL EXECUTIVE OFFICER AND DIRECTORS OF
THE ADVISER
PIPER CAPITAL MANAGEMENT INCORPORATED
The directors and the principal executive officer of Piper Capital
are listed below, together with their addresses and principal occupations.
<TABLE>
<CAPTION>
Positions and Offices Other Positions and Offices
Name with Piper Capital and Principal Business Address
- ---------------- ---------------------------------- ------------------------------
<S> <C> <C>
Paul A. Dow Director, Chief Executive Officer *
and Chief Investment Officer
Robert H. Nelson Director and Senior Vice President *
</TABLE>
- ------------------------------
* Address: 222 South Ninth Street, Minneapolis, Minnesota 55402-3804
<PAGE>
APPENDIX V
AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
FIRST AMERICAN INVESTMENT FUNDS, INC.
AND
AMERICAN GOVERNMENT INCOME FUND INC.
AND
AMERICAN GOVERNMENT INCOME PORTFOLIO, INC.
AND
AMERICAN OPPORTUNITY INCOME FUND INC.
DATED: AS OF __________ __, 1998
TABLE OF CONTENTS
SECTION PAGE
1. Conveyance of Assets of the Piper Funds ............................... 2
2. Liquidation of the Piper Funds ........................................ 3
3. Effective Time of the Reorganization .................................. 3
4. Certain Representations, Warranties and Agreements of the Piper Funds . 4
5. Certain Representations, Warranties and Agreements of FAIF ............ 7
6. Shareholder Action .................................................... 8
7. Regulatory Filings .................................................... 9
8. FAIF Conditions ....................................................... 9
9. The Piper Funds Conditions ............................................ 12
10. Further Assurances .................................................... 13
11. Indemnification ....................................................... 13
12. Survival of Representations and Warranties ............................ 13
13. Termination of Agreement .............................................. 13
14. Amendment and Waiver. ................................................. 14
15. Governing Law. ........................................................ 14
16. Successors and Assigns ................................................ 14
17. Beneficiaries ......................................................... 14
18. Brokerage Fees and Expenses ........................................... 14
19. Notices ............................................................... 14
20. Announcements ......................................................... 15
21. Entire Agreement ...................................................... 15
22. Counterparts .......................................................... 15
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this ____ day of _____, 1998 by and between American Government Income Fund
Inc., a Minnesota Corporation ("AGF"), American Government Income Portfolio,
Inc., a Minnesota Corporation ("AAF"), and American Opportunity Income Fund
Inc., a Minnesota Corporation ("OIF") (AGF, AAF and OIF are sometimes referred
to collectively as the "Piper Funds" and individually as a "Piper Fund"), and
First American Investment Funds, Inc. ("FAIF"), a Maryland corporation
consisting of multiple investment portfolios including, among others, Fixed
Income Fund (the "FAIF Fund").
<PAGE>
WHEREAS, each of the Piper Funds is a closed-end management investment
company and FAIF is an open-end management investment company, each registered
with the Securities and Exchange Commission (the "SEC") under the Investment
Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the parties desire that the assets and liabilities of the Piper
Funds be conveyed to, and be acquired and assumed by, the FAIF Fund, in exchange
for Class A Shares of the FAIF Fund which shall thereafter promptly be
distributed by the Piper Funds to the shareholders of the Piper Funds in
connection with their liquidation as described in this Agreement (the
"Reorganization");
WHEREAS, FAIF also maintains twenty-eight additional investment portfolios
- -- Micro Cap Value Fund, Regional Equity Fund, Small Cap Value Fund, Mid Cap
Value Fund, Equity Income Fund, Equity Index Fund, Health Sciences Fund, Real
Estate Securities Fund, Technology Fund, Emerging Markets Fund, International
Fund, International Index Fund, Minnesota Intermediate Tax Free Fund, California
Intermediate Tax Free Fund, Colorado Intermediate Tax Free Fund, Intermediate
Tax Free Fund, Limited Term Income Fund, Intermediate Government Bond Fund,
Small Cap Growth Fund, Mid Cap Growth Fund, Large Cap Growth Fund, Large Cap
Value Fund, Balanced Fund, Intermediate Term Income Fund, Strategic Income Fund,
Tax Free Fund, Minnesota Tax Free Fund and Adjustable Rate Mortgage Securities
Fund -- that are not parties to the Reorganization.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth and subject to the terms and conditions hereof, the
parties hereto, intending to be legally bound, agree as follows:
1. CONVEYANCE OF ASSETS OF THE PIPER FUNDS. (a) At the Effective Time of
the Reorganization, as defined in Section 3, all assets of every kind, and all
interests, rights, privileges and powers of the Piper Funds, subject to all
liabilities of the Piper Funds, whether accrued, absolute, contingent or
otherwise existing as of the Effective Time of the Reorganization, which
liabilities shall include any obligation of a Piper Fund to indemnify the
directors and officers of such Piper Fund, acting in their capacities as such,
to the fullest extent permitted by law and the Articles of Incorporation of the
applicable Piper Fund as in effect on the date hereof (such assets subject to
such liabilities are herein referred to as the "Fund Assets"), shall be
transferred and conveyed by the Piper Funds to the FAIF Fund and shall be
accepted and assumed by the FAIF Fund as more particularly set forth in this
Agreement, such that at and after the Effective Time of the Reorganization: (i)
all assets of each Piper Fund shall become and be the assets of the FAIF Fund;
and (ii) all liabilities of each Piper Fund shall attach to the FAIF Fund as
aforesaid and may thenceforth be enforced against the FAIF Fund to the same
extent as if incurred by it.
(b) Without limiting the generality of the foregoing, it is understood
that the Fund Assets shall include all property and assets of any nature
whatsoever, including, without limitation, all cash, cash equivalents,
securities, claims (whether absolute or contingent, known or unknown, accrued or
unaccrued) and receivables (including dividend and interest receivables) owned
by each Piper Fund, and any deferred or prepaid expenses shown as an asset on
each Piper Fund's books, at the Effective Time of the Reorganization, and all
goodwill, all other intangible property and all books and records belonging to
the Piper Funds. Notwithstanding anything herein to the contrary, FAIF shall not
be deemed to have assumed any liability of a Piper Fund to FAIF that arises as a
result of the breach of any of the representations, warranties and agreements of
the Piper Funds set forth in Section 4, hereof.
(c) In exchange for the transfer of the Fund Assets, the FAIF Fund shall
simultaneously issue to the Piper Funds at the Effective Time of the
Reorganization full and fractional shares of Class A Shares of common stock in
the FAIF Fund having an aggregate net asset value equal to the net value of the
Fund Assets so
<PAGE>
conveyed, all determined and adjusted as provided in this Section 1. In
particular, the FAIF Fund shall deliver to each Piper Fund the number of shares,
including fractional shares, determined by dividing the value of the Fund Assets
of such Piper Fund that are so conveyed, computed in the manner and as of the
time and date set forth in this Section, by the net asset value of one FAIF Fund
share, computed in the manner and as of the time and date set forth in this
Section.
(d) The net asset value of shares to be delivered by the FAIF Fund, and
the net value of the Fund Assets to be conveyed by each Piper Fund, shall, in
each case, be determined as of the Effective Time of the Reorganization. The net
asset value of shares of the FAIF Fund shall be computed in the manner set forth
in the FAIF Fund's then current prospectuses under the Securities Act of 1933,
as amended (the "1933 Act"). The net value of the Fund Assets to be transferred
by each Piper Fund shall be computed by such Piper Fund and shall be subject to
adjustment by the amount, if any, agreed to by FAIF and such Piper Fund. In
determining the value of the securities transferred by the Piper Funds to the
FAIF Fund, each security shall be priced in accordance with the pricing policies
and procedures of the Piper Funds as previously adopted by the Piper Funds. For
such purposes, price quotations and the security characteristics relating to
establishing such quotations shall be determined by the Piper Funds, provided
that such determination shall be subject to the approval of FAIF. The Piper
Funds and FAIF agree to use all commercially reasonable efforts to resolve any
material pricing differences between the prices of portfolio securities
determined in accordance with the pricing policies and procedures of the Piper
Funds and those determined in accordance with the pricing policies and
procedures of FAIF prior to the Effective Time of the Reorganization.
2. LIQUIDATION OF THE PIPER FUNDS. At the Effective Time of the
Reorganization, each Piper Fund shall make a liquidating distribution to its
shareholders as follows. Shareholders of record of a Piper Fund shall be
credited with full and fractional shares of the common stock that is issued by
the FAIF Fund in connection with the Reorganization. In addition, each
shareholder of record of a Piper Fund shall have the right to receive any unpaid
dividends or other distributions which were declared before the Effective Time
of the Reorganization with respect to the shares of such Piper Fund that are
held by the shareholder at the Effective Time of the Reorganization. As soon as
practicable after the Effective Time, Investors Fiduciary Trust Company
("IFTC"), the transfer agent for the Piper Funds, will send a notice and
transmittal form to each record holder of a Piper Fund's common share at the
Effective Time advising such holder of the effectiveness of the Reorganization
and of the procedure for surrendering to IFTC his or her certificates formerly
evidencing common shares of such Piper Fund. Ownership of the FAIF Fund shares
by former shareholders of the Piper Funds will be recorded in book-entry form,
and the FAIF Fund will issue confirmations to such shareholder setting forth the
number and net asset value of the FAIF Fund common shares held by such
shareholders. Fractional shares of the FAIF Fund will be carried to the third
decimal place. The FAIF Fund will not issue share certificates. Any share
certificates not submitted to IFTC within three months of the Effective Time of
the Reorganization will be automatically deemed submitted and then canceled and
recorded in book-entry form. After the Effective Time of the Reorganization, the
Piper Funds shall wind up their affairs and shall file any final regulatory
reports, including but not limited to any Form N-SAR filings with respect to
each Piper Fund and an application pursuant to Section 8(f) of the 1940 Act for
an order declaring that each Piper Fund has ceased to be an investment company.
3. EFFECTIVE TIME OF THE REORGANIZATION. (a) Delivery of the Fund Assets
and the shares of the FAIF Fund to be issued pursuant to Section 1 and the
liquidation of the Piper Funds pursuant to Section 2 (the "Closing") shall occur
as of the close of normal trading on the New York Stock Exchange (the
"Exchange") (currently, 4:00 p.m. Eastern time), and after the declaration of
any dividends or distributions on such date, on August 31, 1998, or at such time
on such later date as provided herein or as the parties otherwise may agree in
writing. (The date and time at which such actions are taken are referred to
herein as the "Effective Time of the Reorganization.") To the extent any Fund
Assets are, for any reason, not transferred at the Effective Time of the
Reorganization, each Piper Fund shall cause such Fund Assets to be transferred
in accordance with this Agreement at the earliest practicable date thereafter.
All acts taking place at the Closing shall be deemed to take place
simultaneously as of the
<PAGE>
Effective Time of the Reorganization unless otherwise agreed to by the parties.
The Closing shall be held at the offices of Dorsey & Whitney LLP, 220 South
Sixth Street, Minneapolis, Minnesota 55402, or at such other place as the
parties may agree.
(b) In the event the Effective Time of the Reorganization occurs on a day
on which (i) the Exchange or another primary trading market for portfolio
securities of the FAIF Fund or the Piper Funds shall be closed to trading or
trading thereon shall be restricted, or (ii) trading or the reporting of trading
on the Exchange or elsewhere shall be disrupted so that accurate appraisal of
the value of the net assets of the FAIF Fund or the Piper Funds is
impracticable, the Effective Time of the Reorganization shall be postponed until
the close of normal trading on the Exchange on the first business day when
trading shall have been fully resumed and reporting shall have been restored.
4. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE PIPER FUNDS.
Each Piper Fund, on behalf of itself, represents and warrants to, and agrees
with, FAIF as follows:
(a) It is a Minnesota corporation duly created pursuant to its
Articles of Incorporation for the purpose of acting as a management
investment company under the 1940 Act, and is validly existing under the
laws of the State of Minnesota. It is registered as an closed-end
management investment company under the 1940 Act, and its registration
with the SEC as an investment company is in full force and effect.
(b) It has the power to own all of its properties and assets and,
subject to the approvals of shareholders referred to in Section 6, to
carry out and consummate the transactions contemplated herein, and has all
necessary federal, state and local authorizations to carry on its business
as now being conducted and, except as stated in Section 4(j), below, to
consummate the transactions contemplated by this Agreement.
(c) This Agreement has been duly authorized, executed and delivered
by it, and represents a valid and binding contract, enforceable in
accordance with its terms, subject as to enforcement to bankruptcy,
insolvency, reorganization, moratorium or other similar laws of general
application relating to or affecting creditors' rights and to the
application of general principles of equity. The execution and delivery of
this Agreement does not, and, subject to the approval of shareholders
referred to in Section 6, the consummation of the transactions
contemplated by this Agreement will not, violate its Articles of
Incorporation or By-Laws or any agreement or arrangement to which it is a
party or by which it is bound.
(d) It has elected to qualify and has qualified as a regulated
investment company under Part I of Subchapter M of Subtitle A, Chapter 1,
of the Internal Revenue Code of 1986, as amended (the "Code"), as of and
since its first taxable year; it has been a regulated investment company
under such Part of the Code at all times since the end of its first
taxable year when it so qualified; and it qualifies and shall continue to
qualify as a regulated investment company for its taxable year ending upon
its liquidation.
(e) (1) For AGF, the audited financial statements for its fiscal
year ended October 31, 1997 and the unaudited financial statements as of
April 30, 1998, copies of which have been previously furnished to FAIF,
present fairly the financial position of AGF as of such dates and the
results of its operations and changes in its net assets for the periods
indicated, in conformity with generally accepted accounting principles
applied on a consistent basis. To the best of the knowledge of AGF, there
are no liabilities of a material amount of AGF, whether accrued, absolute,
contingent or otherwise existing, other than: (i) as of April 30, 1998,
liabilities disclosed or provided for in the unaudited financial
statements for the period ended April 30, 1998 and liabilities incurred in
the ordinary course of business subsequent to April 30, 1998; and (ii) as
of the Effective Time of the Reorganization, liabilities disclosed or
provided for in the
<PAGE>
statement of assets and liabilities of AGF that is delivered to FAIF
pursuant to Section 8(b) of this Agreement and liabilities incurred in the
ordinary course of business.
(2) For AAF, the audited financial statements for its fiscal
year ended October 31, 1997 and the unaudited financial statements as of
April 30, 1998, copies of which have been previously furnished to FAIF,
present fairly the financial position of AAF as of such dates and the
results of its operations and changes in its net assets for the periods
indicated, in conformity with generally accepted accounting principles
applied on a consistent basis. To the best of the knowledge of AAF, there
are no liabilities of a material amount of AAF, whether accrued, absolute,
contingent or otherwise existing, other than: (i) as of April 30, 1998,
liabilities disclosed or provided for in the unaudited financial
statements for the period ended April 30, 1998 and liabilities incurred in
the ordinary course of business subsequent to April 30, 1998; and (ii) as
of the Effective Time of the Reorganization, liabilities disclosed or
provided for in the statement of assets and liabilities of AAF that is
delivered to FAIF pursuant to Section 8(b) of this Agreement and
liabilities incurred in the ordinary course of business.
(3) For OIF, the audited financial statements for its fiscal
year ended October 31, 1997 and the unaudited financial statements as of
April 30, 1998, copies of which have been previously furnished to FAIF,
present fairly the financial position of OIF as of such dates and the
results of its operations and changes in its net assets for the periods
indicated, in conformity with generally accepted accounting principles
applied on a consistent basis. To the best of the knowledge of OIF, there
are no liabilities of a material amount of OIF, whether accrued, absolute,
contingent or otherwise existing, other than: (i) as of April 30, 1998,
liabilities disclosed or provided for in the unaudited financial
statements for the period ended April 30, 1998 and liabilities incurred in
the ordinary course of business subsequent to April 30, 1998; and (ii) as
of the Effective Time of the Reorganization, liabilities disclosed or
provided for in the statement of assets and liabilities of OIF that is
delivered to FAIF pursuant to Section 8(b) of this Agreement and
liabilities incurred in the ordinary course of business.
(f) Since the end of its most recently concluded fiscal year, there
have been no material changes by it in accounting methods, principles or
practices, including those required by generally accepted accounting
principles, except as disclosed in writing to FAIF.
(g) It has valued, and will continue to value, its portfolio
securities and other assets in accordance with applicable legal
requirements.
(h) Except as disclosed in its most recent Annual Report or as
otherwise disclosed in writing to FAIF, there are no material legal,
administrative or other proceedings pending or, to its knowledge,
threatened, against it which could result in liability on its part and it
knows of no facts that might form the basis of a legal, administrative or
other proceeding which, if adversely determined, would materially and
adversely affect its financial condition or the conduct of its business
and it is not a party to or subject to the provisions of any order, decree
or judgment of any court or governmental body that materially and
adversely affects, or is reasonably likely to materially and adversely
affect, its business or its ability to consummate the transactions
contemplated herein.
(i) At the Effective Time of the Reorganization, all federal and
other tax returns and reports of the Piper Funds required by law to have
been filed by such time shall have been filed, and all federal and other
taxes shall have been paid so far as due, or provision shall have been
made for the payment thereof and, to the best of its knowledge, no such
return or report shall be currently under audit and no assessment shall
have been asserted with respect to such returns or reports.
<PAGE>
(j) Subject to the approvals of shareholders referred to in Section
6, at the Effective Time of the Reorganization, it shall have full right,
power and authority to sell, assign, transfer and deliver the Fund Assets
and, upon delivery and payment for the Fund Assets as contemplated herein,
the FAIF Fund shall acquire good and marketable title thereto, subject to
no restrictions on the ownership or transfer thereof, except as imposed by
federal or state securities laws or as disclosed to FAIF in writing prior
to the Effective Time of the Reorganization.
(k) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by it of the
transactions contemplated by this Agreement, except such as may be
required under the 1933 Act, the Securities Exchange Act of 1934, as
amended (the "1934 Act"), the 1940 Act, the rules and regulations under
those Acts, or state securities laws, all of which shall have been
received prior to the Effective Time of the Reorganization, except for
such consents, approvals, authorizations or orders as may be required
subsequent to the Effective Time of the Reorganization.
(l) Insofar as the following relate to it, (i) the registration
statement filed by FAIF on Form N-14 relating to the shares of the FAIF
Fund that will be registered with the SEC pursuant to this Agreement,
which shall include or incorporate by reference the proxy statement of the
Piper Funds and prospectus of the FAIF Fund with respect to the
transactions contemplated by this Agreement, and any supplement or
amendment thereto or to the documents contained or incorporated therein by
reference (the "N-14 Registration Statement"), and (ii) the proxy
materials of the Piper Funds included in the N-14 Registration Statement
and filed with the SEC pursuant to Section 14(a) of the 1934 Act and
Section 20(a) of the 1940 Act with respect to the transactions
contemplated by this Agreement, and any supplement or amendment thereto or
the documents appended thereto (the "Reorganization Proxy Materials"),
from their respective effective and clearance dates with the SEC, through
the time of the shareholders meeting referred to in Section 6 and at the
Effective Time of the Reorganization: (i) shall comply in all material
respects with the provisions of the 1933 Act, 1934 Act and the 1940 Act,
and the rules and regulations thereunder; and (ii) shall not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; provided, that the representations and warranties made by
it in this subsection shall not apply to statements in or omissions from
the N-14 Registration Statement or the Reorganization Proxy Materials made
in reliance upon and in conformity with information furnished by or on
behalf of FAIF for use therein as provided in Section 7. For these
purposes, information shall be considered to have been provided "on
behalf" of FAIF if furnished by its investment adviser, administrator,
custodian or transfer agent, acting in their capacity as such.
(m) All of its issued and outstanding shares have been validly
issued and are fully paid and non-assessable, and were offered for sale
and sold in conformity with the registration requirements of all
applicable federal and state securities laws.
(n) It shall not sell or otherwise dispose of any shares of the FAIF
Fund to be received in the transactions contemplated herein, except in
distribution to its shareholders as contemplated herein.
(o) It shall operate its business in the ordinary course between the
date hereof and the Effective Time of the Reorganization. It is understood
that such ordinary course of business will include the declaration and
payment of customary dividends and distributions and any other dividends
and distributions deemed advisable.
<PAGE>
(p) Any reporting responsibility of the Piper Fund is and shall
remain the responsibility of the Piper Fund for all periods before and
including the Effective Time of the Reorganization and such later date on
which the Piper Fund is terminated.
(q) Except for agreements or other arrangements relating to the
purchase and sale of portfolio securities, it has furnished FAIF with
copies or descriptions of all contracts to which it is a party.
(r) It shall provide a list of all portfolio securities held by it
to FAIF at least fifteen days before the Effective Time of the
Reorganization and shall immediately notify FAIF's investment adviser of
any portfolio security thereafter acquired or sold by it. At the Effective
Time of the Reorganization, it shall not hold any portfolio security that
is impermissible under the investment policies, objectives and limitations
of the FAIF Fund.
5. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF FAIF. FAIF, on
behalf of the FAIF Fund, represents and warrants to, and agrees with, Piper as
follows:
(a) It is a Maryland corporation duly created pursuant to its
Articles of Incorporation for the purpose of acting as a management
investment company under the 1940 Act, and is validly existing under the
laws of the State of Maryland. It is registered as an open-end management
investment company under the 1940 Act and its registration with the SEC as
an investment company is in full force and effect.
(b) It has the power to own all of its properties and assets and to
consummate the transactions contemplated herein, and has all necessary
federal, state and local authorizations to carry on its business as now
being conducted and, except as stated in Section 5(j) below, to consummate
the transactions contemplated by this Agreement.
(c) This Agreement has been duly authorized, executed and delivered
by it, and represents a valid and binding contract, enforceable in
accordance with its terms, subject as to enforcement to bankruptcy,
insolvency, reorganization, moratorium or other similar laws of general
application relating to or affecting creditors' rights and to the
application of general principles of equity. The execution and delivery of
this Agreement does not, and the consummation of the transactions
contemplated by this Agreement will not, violate FAIF's Articles of
Incorporation or By-Laws or any agreement or arrangement to which it is a
party or by which it is bound.
(d) The FAIF Fund intends to qualify as a regulated investment
company under Part I of Subchapter M of the Code, and has elected to
qualify and has qualified as a regulated investment company under Part I
of Subchapter M of Subtitle A, Chapter 1, of the Code, as of and since its
first taxable year; has been a regulated investment company under such
Part of the Code at all times since the end of its first taxable year when
it so qualified; and qualifies and shall continue to qualify as a
regulated investment company for its current taxable year.
(e) The audited financial statements for its fiscal year ended
September 30, 1997, and the unaudited financial statements for the period
ended March 31, 1998, copies of which have been previously furnished to
Piper, present fairly the financial position of the FAIF Fund as of such
dates and the results of their operations for the periods indicated, in
conformity with generally accepted accounting principles applied on a
consistent basis. To the best of FAIF's knowledge, there are no
liabilities of a material amount of the FAIF Fund, whether accrued,
absolute, contingent or otherwise existing, other than, as of March 31,
1998, liabilities disclosed or provided for in the unaudited financial
statements for the period ended March 31, 1998, and liabilities incurred
in the ordinary course of business subsequent to March 31, 1998.
(f) It has valued, and will continue to value, its portfolio
securities and other assets in accordance with applicable legal
requirements.
(g) There are no material contracts outstanding with respect to the
FAIF Fund that have not been disclosed in FAIF's current registration
statement and which under applicable law are required to be disclosed
therein.
(h) At the Effective Time of the Reorganization, all federal and
other tax returns and reports of the FAIF Fund required by law to have
been filed by such time shall have been filed, and all federal and other
taxes shall have been paid so far as due, or provisions shall have been
made for the payment thereof and, to the best knowledge of the FAIF Fund,
no such return or report shall be currently under audit and no assessment
shall have been asserted with respect to such returns or reports.
<PAGE>
(i) There are no material legal, administrative or other proceedings
pending or, to its knowledge threatened, against it or the FAIF Fund which
could result in liability on the part of FAIF or the FAIF Fund and FAIF
knows of no facts that might form the basis of a legal, administrative or
other proceeding which, if adversely determined, would materially and
adversely affect the FAIF Fund's financial condition or the conduct of its
business and FAIF is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body that
materially and adversely affects, or is reasonably likely to materially
and adversely affect, its business or its ability to consummate the
transactions contemplated herein.
(j) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by FAIF of the
transactions contemplated by this Agreement, except such as may be
required under the 1933 Act, the 1934 Act, the 1940 Act, the rules and
regulations under those Acts, or state securities laws, all of which shall
have been received prior to the Effective Time of the Reorganization,
except for such consents, approvals, authorizations or orders as may be
required subsequent to the Effective Time of the Reorganization.
(k) The N-14 Registration Statement and the Reorganization Proxy
Materials, from their respective effective and clearance dates with the
SEC, through the time of the shareholders meeting referred to in Section 6
and at the Effective Time of the Reorganization, insofar as they relate to
FAIF (i) shall comply in all material respects with the provisions of the
1933 Act, the 1934 Act and the 1940 Act, and the rules and regulations
thereunder, and (ii) shall not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein not misleading; provided,
that the representations and warranties in this subsection shall not apply
to statements in or omissions from the N-14 Registration Statement or the
Reorganization Proxy Materials made in reliance upon and in conformity
with information furnished by or on behalf of the Piper Funds for use
therein as provided in Section 7. For those purposes, information shall be
considered to have been provided "on behalf" of the Piper Funds if
furnished by their investment adviser, administrator, custodian or
transfer agent, acting in their capacity as such.
(l) The shares of the FAIF Fund to be issued and delivered to the
Piper Funds for the account of the shareholders of the Piper Funds,
pursuant to the terms hereof, shall have been duly authorized as of the
Effective Time of the Reorganization and, when so issued and delivered,
shall be duly and validly issued, fully paid and non-assessable, and no
shareholder of FAIF shall have any preemptive right of subscription or
purchase in respect thereto.
(m) All of the issued and outstanding shares of the FAIF Fund have
been validly issued and are fully paid and non-assessable, and were
offered for sale and sold in conformity with the registration requirements
of all applicable federal and state securities laws.
(n) It shall operate its business in the ordinary course between the
date hereof and the Effective Time of the Reorganization. It is understood
that such ordinary course of business will include the declaration and
payment of customary dividends and distributions and any other dividends
and distributions deemed advisable.
6. SHAREHOLDER ACTION. As soon as practicable after the effective date of
the N-14 Registration Statement and SEC clearance of the proxy solicitation
materials referred to in Section 7, but in any event prior to the Effective Time
of the Reorganization and as a condition thereto, the Board of Directors of the
Piper Funds shall call, and Piper shall hold, a meeting of the shareholders of
each Piper Fund for the purpose of considering and voting upon:
<PAGE>
(a) a proposal, in connection with the merger between U.S. Bancorp
and Piper Jaffray Companies Inc., to ratify and approve an investment
advisory agreement between each Piper Fund and Piper Capital Management
Incorporated ("Piper Capital");
(b) approval of this Agreement and the transactions contemplated
hereby; and
(c) such other matters as may be determined by the Boards of
Directors of Piper and FAIF.
7. REGULATORY FILINGS. FAIF shall file an N-14 Registration Statement,
which shall include the Reorganization Proxy Materials of the Piper Funds, with
the SEC, and with the appropriate state securities commissions, relating to the
matters described in Section 6 as promptly as practicable. FAIF and the Piper
Funds have cooperated and shall continue to cooperate with each other, and have
furnished and shall continue to furnish each other with the information relating
to itself that is required by the 1933 Act, the 1934 Act, the 1940 Act, and the
rules and regulations under each of those Acts, to be included in the N-1A Post-
Effective Amendment, the N-14 Registration Statement and the Reorganization
Proxy Materials.
8. FAIF CONDITIONS. The obligations of FAIF hereunder shall be subject to
the following conditions precedent:
(a) This Agreement and the transactions contemplated by this
Agreement (which shall not be deemed to include, for these purposes, the
matters described in Section 6(a)) shall have been approved by the Board
of Directors of each Piper Fund and by the shareholders of each Piper Fund
in the manner required by law and this Agreement.
(b) Each Piper Fund shall have delivered to FAIF a statement of
assets and liabilities of such Piper Fund, together with a list of the
portfolio securities of such Piper Fund showing the tax costs of such
securities by lot and the holding periods of such securities, as of the
Effective Time of the Reorganization, certified by the Treasurer of such
Piper Fund as having been prepared in accordance with generally accepted
accounting principles consistently applied.
(c) Each Piper Fund shall have duly executed and delivered to FAIF
such bills of sale, assignments, certificates and other instruments of
transfer ("Transfer Documents") as FAIF may reasonably deem necessary or
desirable to transfer all of the Piper Funds' right, title and interest in
and to the Fund Assets. Such Fund Assets shall be accompanied by all
necessary state stock transfer stamps or cash for the appropriate purchase
price therefor.
(d) All representations and warranties of each Piper Fund made in
this Agreement shall be true and correct in all material respects as if
made at and as of the Effective Time of the Reorganization.
(e) Each Piper Fund shall have delivered to FAIF a certificate
executed in its name by its President or Vice President and its Treasurer
or Assistant Treasurer, in a form reasonably satisfactory to FAIF and
dated as of the Effective Time of the Reorganization, to the effect that
the representations and warranties of the Piper Fund made in this
Agreement are true and correct at and as of the Effective Time of the
Reorganization, except as they may be affected by the transactions
contemplated by this Agreement.
(f) Each Piper Fund shall have delivered to FAIF written
instructions to the custodian for the Piper Fund, acknowledged and agreed
to in writing by such custodian, irrevocably instructing such custodian to
transfer to the FAIF Fund all of such Piper Fund's portfolio
<PAGE>
securities, cash and any other assets to be acquired by the FAIF Fund
pursuant to this Agreement.
(g) Each Piper Fund shall have delivered to FAIF a certificate of
such Piper Fund's transfer agent stating that the records maintained by
the transfer agent (which shall be made available to FAIF) contain the
names and addresses of the shareholders of such Piper Fund and the numbers
and classes of the outstanding shares of such Piper Fund owned by each
such shareholder as of the Effective Time of the Reorganization.
(h) At or prior to the Effective Time of the Reorganization, the
expenses incurred by each Piper Fund (or accrued up to the Effective Time
of the Reorganization) shall have been maintained by such Piper Fund's
investment adviser or otherwise so as not to exceed any contractual
expense limitations or any expense limitations set forth in each Piper
Fund's Annual Report, dated October 31, 1997.
(i) At or prior to the Effective Time of the Reorganization,
appropriate action shall have been taken by each Piper Fund's investment
adviser or otherwise such that no unamortized organizational expenses
shall be reflected in such Piper Fund's statement of assets and
liabilities delivered pursuant to Section 8(b).
(j) FAIF shall have received an opinion of Dorsey & Whitney LLP,
counsel to the Piper Funds, in form reasonably satisfactory to FAIF and
dated the Effective Time of the Reorganization, substantially to the
effect that (i) each Piper Fund is a Minnesota corporation duly
established and validly existing under the laws of the State of Minnesota;
(ii) this Agreement and the Transfer Documents have been duly authorized,
executed and delivered by each Piper Fund and represent legal, valid and
binding contracts, enforceable in accordance with their terms, subject as
to enforcement to bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws of general application
relating to or affecting creditors' rights and to the application of
general principles of equity; (iii) the execution and delivery of this
Agreement did not, and the consummation of the transactions contemplated
by this Agreement will not, violate the Articles of Incorporation or
Bylaws of each Piper Fund or any material contract known to such counsel
to which either Piper Fund is a party or by which it is bound; (iv) the
only Piper Funds shareholder approval required with respect to the
consummation of the transactions contemplated by this Agreement is the
approval of a majority of the outstanding shares of the Piper Funds; and
(v) no consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Piper Funds
of the transactions contemplated by this Agreement, except such as have
been obtained under the 1933 Act, the 1934 Act, the 1940 Act, the rules
and regulations under those Acts and such as may be required under the
state securities laws or such as may be required subsequent to the
Effective Time of the Reorganization. Such opinion may rely on the opinion
of other counsel to the extent set forth in such opinion, provided such
other counsel is reasonably acceptable to FAIF.
(k) FAIF shall have received an opinion of Dorsey & Whitney LLP
addressed to FAIF and the Piper Funds in form reasonably satisfactory to
them, and dated the Effective Time of the Reorganization, substantially to
the effect that, for federal income tax purposes (i) the transfer by each
Piper Fund of all of its Fund Assets to the FAIF Fund in exchange for
shares of the FAIF Fund, and the distribution of such shares to the
shareholders of the Piper Funds, as provided in this Agreement, will
constitute a reorganization within the meaning of Section 368(a)(1)(C) or
(D) of the Code; (ii) no income, gain or loss will be recognized by any
Piper Fund as a result of such transactions; (iii) no income, gain or loss
will be recognized by the FAIF Fund as a result of such transactions; (iv)
no income, gain or loss will be recognized by the shareholders of any
Piper Fund on the distribution to them by the Piper Funds of shares of the
FAIF Fund in exchange for their shares of the Piper Funds (but
shareholders of the Piper Funds subject to taxation will recognize income
upon receipt of any net investment income or net capital
<PAGE>
gains of the Piper Funds which are distributed by the Piper Funds prior to
the Effective Time of the Reorganization); (v) the tax basis of the FAIF
Fund shares received by each shareholder of the Piper Funds will be the
same as the tax basis of the shareholder's Piper Funds shares exchanged
therefor; (vi) the tax basis of the Fund Assets received by the FAIF Fund
will be the same as the basis of such Fund Assets in the hands of the
Piper Funds immediately prior to the transactions; (vii) a shareholder's
holding period for FAIF Fund shares will be determined by including the
period for which the shareholder held the shares of the Piper Funds
exchanged therefor, provided that the shareholder held such shares of the
Piper Funds as a capital asset at the Effective Time of the
Reorganization; (viii) the holding period of the FAIF Fund with respect to
the Fund Assets will include the period for which such Fund Assets were
held by the Piper Funds, provided that the Piper Funds held such assets as
capital assets; and (ix) the FAIF Fund will succeed to and take into
account the earnings and profits, or deficit in earnings and profits, of
the Piper Funds as of the Effective Time of the Reorganization.
(l) The Fund Assets to be transferred to the FAIF Fund under this
Agreement shall include no assets which the FAIF Fund may not properly
acquire pursuant to its investment limitations or objectives or may not
otherwise lawfully acquire.
(m) The N-14 Registration Statement shall have become effective
under the 1933 Act and no stop order suspending such effectiveness shall
have been instituted or, to the knowledge of FAIF, contemplated by the SEC
and the parties shall have received all permits and other authorizations
necessary under state securities laws to consummate the transactions
contemplated by this Agreement.
(n) No action, suit or other proceeding shall be threatened or
pending before any court or governmental agency in which it is sought to
restrain or prohibit or obtain damages or other relief in connection with
this Agreement or the transactions contemplated herein.
(o) The SEC shall not have issued any unfavorable advisory report
under Section 25(b) of the 1940 Act nor instituted any proceeding seeking
to enjoin consummation of the transactions contemplated by this Agreement
under Section 25(c) of the 1940 Act.
(p) Prior to the Effective Time of the Reorganization, each Piper
Fund shall have declared a dividend or dividends, with a record date and
ex-dividend date prior to the Effective Time of the Reorganization, which,
together with all previous dividends, shall have the effect of
distributing to its shareholders all of its net investment company taxable
income, if any, for the taxable years ending October 31, 1997 and for the
taxable periods from said date to and including the Effective Time of the
Reorganization (computed without regard to any deduction for dividends
paid), and all of its net capital gain, if any, realized in taxable years
ending October 31, 1997 and in the taxable periods from said date to and
including the Effective Time of Reorganization.
(q) Each Piper Fund shall have performed and complied in all
material respects with each of its agreements and covenants required by
this Agreement to be performed or complied with by it prior to or at the
Effective Time of the Reorganization.
(r) FAIF shall have been furnished at the Effective Time of the
Reorganization with a certificate signed by an appropriate officer of
Piper Capital dated as of such date stating that all statistical and
research data, clerical, accounting and bookkeeping records, periodic
reports to the SEC and any state securities agencies, tax returns and
other tax filings, shareholder lists and other material shareholder data,
complaint files and all other information, books, records and documents
maintained by Piper Capital and belonging to the Piper Fund, including
those required to be maintained by Section 31(a) of the 1940 Act and Rules
31a-1 to 31a-3 thereunder, have been delivered to FAIF.
<PAGE>
9. THE PIPER FUNDS CONDITIONS. The obligations of the Piper Funds
hereunder shall be subject to the following conditions precedent:
(a) This Agreement and the transactions contemplated by this
Agreement (which shall not be deemed, for these purposes, to include the
matter described in Section 6(a)) shall have been approved by the Board of
Directors of FAIF and by the shareholders of the Piper Fund in the manner
required by law and this Agreement.
(b) All representations and warranties of FAIF made in this
Agreement shall be true and correct in all material respects as if made at
and as of the Effective Time of the Reorganization.
(c) FAIF shall have delivered to Piper a certificate executed in its
name by its President or Vice President and its Treasurer or Assistant
Treasurer, in a form reasonably satisfactory to the Piper Funds and dated
as of the Effective Time of the Reorganization, to the effect that the
representations and warranties of the FAIF Fund made in this Agreement are
true and correct at and as of the Effective Time of the Reorganization,
except as they may be affected by the transactions contemplated by this
Agreement and that, to its best knowledge, the Fund Assets to be
transferred to the FAIF Fund under this Agreement as set forth in
Subsection 8(b) include only assets which the FAIF Fund may properly
acquire under its investment policies, limitations and objectives and may
otherwise be lawfully acquired by the FAIF Fund.
(d) Each Piper Fund shall have received an opinion of Dorsey &
Whitney LLP in form reasonably satisfactory to the Piper Funds and dated
the Effective Time of the Reorganization, substantially to the effect that
(i) FAIF is a Maryland corporation duly established and validly existing
under the laws of the State of Maryland; (ii) the shares of the FAIF Fund
to be delivered to the Piper Funds as provided for by this Agreement are
duly authorized and upon delivery will be validly issued, fully paid and
non-assessable by FAIF; (iii) this Agreement has been duly authorized,
executed and delivered by FAIF, and represents a legal, valid and binding
contract, enforceable in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization, moratorium or other
similar laws of general application relating to or affecting creditors'
rights generally and to the application of general principles of equity;
(iv) the execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated by this Agreement will not,
violate the Articles of Incorporation or By-Laws of FAIF or any material
contract known to such counsel to which FAIF is a party or by which it is
bound; and (v) no consent, approval, authorization or order of any court
or governmental authority is required for the consummation by FAIF of the
transactions contemplated by this Agreement, except such as have been
obtained under the 1933 Act, the 1934 Act, the 1940 Act, the rules and
regulations under those Acts and such as may be required by state
securities laws or such as may be required subsequent to the Effective
Time of the Reorganization. Such opinion may rely on the opinion of other
counsel to the extent set forth in such opinion, provided such other
counsel is reasonably acceptable to the Piper Funds.
(e) The Piper Funds shall have received an opinion of Dorsey &
Whitney LLP addressed to FAIF and the Piper Funds in form reasonably
satisfactory to them, and dated the Effective Time of Reorganization, with
respect to the matters specified in Subsection 9(k).
(f) The N-14 Registration Statement shall have become effective
under the 1933 Act and no stop order suspending the effectiveness shall
have been instituted, or to the knowledge of FAIF, contemplated by the SEC
and the parties shall have received all permits and other authorizations
necessary under state securities laws to consummate the transactions
contemplated herein.
<PAGE>
(g) No action, suit or other proceeding shall be threatened or
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection
with, this Agreement or the transactions contemplated herein.
(h) The SEC shall not have issued any unfavorable advisory report
under Section 25(b) of the 1940 Act nor instituted any proceeding seeking
to enjoin consummation of the transactions contemplated by this Agreement
under Section 25(c) of the 1940 Act.
(i) FAIF shall have performed and complied in all material respects
with each of its agreements and covenants required by this Agreement to be
performed or complied with by it prior to or at the Effective Time of the
Reorganization.
(j) The Piper Funds shall have received from FAIF a duly executed
instrument whereby the FAIF Fund assumes all of the liabilities of the
Piper Funds.
10. FURTHER ASSURANCES. Subject to the terms and conditions herein
provided, each of the parties hereto shall use its best efforts to take, or
cause to be taken, such action, to execute and deliver, or cause to be executed
and delivered, such additional documents and instruments and to do, or cause to
be done, all things necessary, proper or advisable under the provisions of this
Agreement and under applicable law to consummate and make effective the
transactions contemplated by this Agreement, including without limitation,
delivering and/or causing to be delivered to the other party hereto each of the
items required under this Agreement as a condition to such party's obligations
hereunder.
11. INDEMNIFICATION. (a) FAIF agrees to indemnify and hold harmless each
Piper Fund and each director and officer of each Piper Fund from and against any
and all losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which, jointly or severally, the Piper Funds and any director
and officer of a Piper Fund may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of or
is based on any breach by FAIF of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
(b) Each Piper Fund agrees to indemnify and hold harmless FAIF and each of
FAIF's directors and officers from and against any and all losses, claims,
damages, liabilities or expenses (including, without limitation, the payment of
reasonable legal fees and reasonable costs of investigation) to which, jointly
or severally, FAIF or any of its directors or officers may become subject,
insofar as any such loss, claim, damage, liability or expense (or actions with
respect thereto) arises out of or is based on any breach by such Piper Fund of
any of its representation, warranties, covenants or agreements set forth in this
Agreement.
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the parties set forth in this Agreement shall survive the delivery
of the Fund Assets to the FAIF Fund and the issuance of the shares of the FAIF
Fund at the Effective Time of the Reorganization.
13. TERMINATION OF AGREEMENT. This Agreement may be terminated by a party
at or, in the case of Subsections 13(c) or (d), below, at any time prior to, the
Effective Time of the Reorganization by a vote of a majority of its Board of
Directors as provided below:
(a) by FAIF if the conditions set forth in Section 8 are not
satisfied as specified in said Section;
(b) by the Piper Funds if the conditions set forth in Section 9 are
not satisfied as specified in said Section;
(c) by mutual consent of both parties; and
<PAGE>
(d) by the Piper Funds or FAIF if determined by its Board of
Directors that proceeding with the transactions contemplated herein is
inadvisable.
14. AMENDMENT AND WAIVER. At any time prior to or (to the fullest extent
permitted by law) after approval of this Agreement by the shareholders of the
Piper Funds (a) the parties hereto may, by written agreement authorized by their
respective Boards of Directors and with or without the further approval of their
shareholders, amend any of the provisions of this Agreement, and (b) either
party may waive any breach by the other party or the failure to satisfy any of
the conditions to its obligations (such waiver to be in writing and authorized
by the Board of Directors of the waiving party with or without the approval of
such party's shareholders).
15. GOVERNING LAW. This Agreement and the transactions contemplated hereby
shall be governed, construed and enforced in accordance with the laws of the
State of Minnesota.
16. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
respective successors and permitted assigns of the parties hereto. This
Agreement and the rights, obligations and liabilities hereunder may not be
assigned by either party without the consent of the other party.
17. BENEFICIARIES. Except as set forth in Section 11 hereof with respect
to the directors and officers of the Piper Funds and of FAIF, nothing contained
in this Agreement shall be deemed to create rights in persons not parties
hereto, other than the successors and permitted assigns of the parties.
18. BROKERAGE FEES AND EXPENSES. FAIF and each Piper Fund each represents
and warrants to the other that there are no brokers or finders entitled to
receive any payments in connection with the transactions provided for herein.
19. NOTICES. All notices required or permitted herein shall be in writing
and shall be deemed to be properly given when delivered personally or by
facsimile to the party entitled to receive the notice or when sent by certified
or registered mail, postage prepaid, or delivered to an internationally
recognized overnight courier service, in each case properly addressed to the
party entitled to receive such notice at the address or facsimile number stated
below or to such other address or facsimile number as may hereafter be furnished
in writing by notice similarly given by one party to the other party hereto:
If to FAIF: First American Investment Funds, Inc.
Oaks, Pennsylvania 19456
With copies to: Kathleen L. Prudhomme
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402
Facsimile Number: (612) 340-8738
If to AGF, AAF or OIF: American Government Income Fund Inc.
American Government Income Portfolio, Inc.
American Opportunity Income Fund Inc.
222 South Ninth Street
Minneapolis, MN 55402-3804
With copies to: Robert H. Nelson
Piper Capital Management Incorporated
222 South Ninth Street
Minneapolis, MN 55402-3804
<PAGE>
Facsimile Number: (612) 342-1673
Stuart Strauss, Esq.
Gordon Altman Butowsky Weitzen
Shalov & Wein
114 W. 47th Street
New York, New York 10036
Facsimile Number: (212) 626-0799
20. ANNOUNCEMENTS. Any announcement or similar publicity with respect to
this Agreement or the transactions contemplated herein shall be made only at
such time and in such manner as the parties shall agree; provided that nothing
herein shall prevent either party upon notice to the other party from making
such public announcements as such party's counsel may consider advisable in
order to satisfy the party's legal and contractual obligations in such regard.
21. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding of the parties hereto and supersedes any and all prior agreements,
arrangements and understandings relating to matters provided for herein.
22. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed to be an
original, but all of which together shall constitute one and the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed by their duly authorized officers designated below as of the date
first written above.
AMERICAN GOVERNMENT FUND INC.
ATTEST:
______________________________________ ______________________________________
Secretary President
AMERICAN GOVERNMENT PORTFOLIO, INC.
ATTEST:
______________________________________ ______________________________________
Secretary President
AMERICAN OPPORTUNITY INCOME FUND INC.
ATTEST:
______________________________________ ______________________________________
Secretary President
FIRST AMERICAN INVESTMENT FUNDS, INC.
ATTEST:
______________________________________ ______________________________________
Michael J. Radmer President
Secretary
<PAGE>
APPENDIX VI
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
This Appendix compares the investment objectives and certain investment
policies and restrictions of American Government Income Fund Inc. ("AGF"),
American Government Income Portfolio, Inc. ("AAF"), and American Opportunity
Income Fund Inc. ("OIF," and collectively with AGF and AAF, the "Piper Funds")
and of the Fixed Income Fund series of First American Investment Funds, Inc.,
into which the Piper Funds are proposed to be combined. The following as it
relates to Fixed Income Fund is qualified in its entirety by the more detailed
information included in the Class A Shares prospectus for Fixed Income Fund
which accompanies the Combined Proxy Statement/Prospectus.
The investment objective of each Piper Fund is fundamental, which means
that it may not be changed without a vote of the holders of a majority, as that
term is defined in the Investment Company Act of 1940, as amended, of the
outstanding shares of that fund. The investment objective of Fixed Income Fund
is not fundamental and therefore may be changed without a vote of shareholders.
Such a change could result in Fixed Income Fund having an investment objective
different from that which shareholders considered appropriate at the time of
approving the Reorganization. Shareholders will receive written notification at
least 30 days prior to any change in Fixed Income Fund's investment objective.
INVESTMENT OBJECTIVES
The investment objective of each of AGF and AAF is high current income
consistent with preservation of capital.
OIF's primary investment objective is to provide a high level of current
income; its secondary objective is to seek capital appreciation.
Fixed Income Fund has an objective of providing a high level of current
income consistent with limited risk to capital.
INVESTMENT POLICIES AND RESTRICTIONS
Principal Investments
AGF has a fundamental policy to invest at least 65% of its total assets in
"U.S. Government Securities" and repurchase agreements pertaining to such
securities. "U.S. Government Securities" are defined as securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities. These
include: (i) U.S. Treasury bills, notes, and bonds, all of which are backed by
the full faith and credit of the United States; and (ii) obligations issued or
guaranteed by U.S. government agencies or instrumentalities, including
government guaranteed mortgage-related securities, some of which are backed by
the full faith and credit of the U.S. Treasury, others of which are supported by
the right of the issuer to borrow from the U.S. government, and others of which
are backed only by the credit of the issuer itself.
AAF has a fundamental policy to invest at least 65% of its total assets in
"U.S. Government Securities," as defined in the preceding paragraph, and
repurchase agreements pertaining to such securities.
OIF has a nonfundamental policy to invest at least 50% of its total assets
in mortgage-backed securities that are (i) issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities or (ii) issued by private
issuers and rated, at the time of investment, AA or better by Standard & Poor's.
At least 65% of OIF's total assets must be invested in securities issued or
guaranteed
<PAGE>
by the U.S. government or one of its agencies or instrumentalities (including
but not limited to mortgage-backed securities); and at least 75% of its total
assets must be invested in securities rated AA or better by Standard & Poor's or
direct obligations of the U.S. government. Up to 15% of OIF's total assets may
be invested in securities rated A (but not lower) by Standard & Poor's; but to
the extent that OIF invests in any securities rated A, it must hold at least an
equal weighting of securities rated AAA.
Fixed Income Fund invests in investment grade debt securities, at least
65% of which are U.S. government obligations and corporate debt obligations and
mortgage-backed and asset-backed securities rated at least A by Standard &
Poor's or Moody's or which have been assigned an equivalent rating by another
nationally recognized statistical rating organization. At least 65% of the total
assets of Fixed Income Fund will be invested in fixed rate obligations.
Under normal market conditions, the weighted average maturity of the
securities held by Fixed Income Fund will not exceed 15 years. AGF, AAF and OIF
do not have a policy regarding the weighted average maturity or duration of the
securities held by them.
Other Investments
In addition to the securities described above under "-- Principal
Investments," AGF may invest up to 35% of its total assets in securities other
than U.S. Government Securities, including: (i) U.S. dollar denominated Canadian
government securities rated AA or better by Standard & Poor's, provided that no
more than 20% of the fund's total assets may be invested in such securities;
(ii) corporate debt securities (including collateralized mortgage obligations)
rated AA or better by Standard & Poor's; (iii) certificates of deposit, time
deposits and banker's acceptances of any term to maturity of any domestic bank
having total assets of $1 billion or more which is a member of the Federal
Deposit Insurance Corporation (the "FDIC") and the long-term unsecured debt
obligations of which are rated AA or better by Standard & Poor's; (iv) banker's
acceptances with a term to maturity of one year or less with any domestic bank
having total assets of $1 billion or more which is a member of the FDIC and the
unsecured commercial paper of which is rated A-1+ by Standard & Poor's; (v)
commercial paper (having original maturities of not more than 365 days) rated
A-1+ by Standard & Poor's and commercial paper (having original maturities of
not more than 365 days) rated A-1 by Standard & Poor's issued by companies whose
long-term unsecured debt is rated AA or better by Standard & Poor's; and (vi)
put and call options, futures contracts and options on futures contracts, as
discussed below under the caption "Investment Techniques."
In addition to the securities described above under "-- Principal
Investments," AAF may invest up to 35% of its total assets in securities of the
kinds described immediately above with respect to AGF.
In addition to the securities described above under "-- Principal
Investments," and subject to the percentage limitations stated therein, up to
35% of OIF's total assets may be collectively invested in: (i) corporate debt
securities; (ii) foreign debt securities; (iii) unregistered securities; (iv)
interest-only and principal-only mortgage-backed securities and subordinated
interests in private pass-through pools; and (v) whole mortgage loans and
participation mortgages. The corporate debt securities in which OIF may invest
must be rated at the time of investment A or higher by Standard & Poor's, and no
more than 15% of OIF's total assets may be invested in such securities. The
foreign debt securities in which OIF may invest may be denominated in U.S.
dollars or in other currencies; they must be rated at the time of investment AA-
or higher by Standard & Poor's; no more than 25% of OIF's total assets may be
invested in such securities; and no more than 7.5% of OIF's total assets may be
invested in securities of issuers located in any one country (10% in the case of
Canadian issuers). With respect to unregistered securities, no more than 15% of
OIF's total assets may be invested in such securities. The interest-only and
principal-only mortgage-backed securities and subordinated interests in private
pass-through pools in which OIF may invest must be rated at the time of
investment A or higher by Standard & Poor's, and OIF may purchase other types of
mortgage-backed securities, such as inverse floating collateralized mortgage
obligations, outside of the foregoing 35% limitation. The whole loan
<PAGE>
mortgages (entire ownership interests in mortgage loans on residential
properties) and participation mortgages (fractional interests in mortgage loans
on residential properties) in which OIF may invest must be rated A or higher by
Standard & Poor's or, if unrated, be considered by OIF's investment adviser to
be of comparable quality, and no more than 25% of OIF's total assets may be
invested in such whole mortgage loans and participating mortgages.
Subject to the two 65% requirements stated above under "-- Principal
Investments," Fixed Income Fund's permitted investments include notes, bonds and
discount notes of U.S. government agencies or instrumentalities; domestic issues
or corporate debt obligations rated at least BBB by Standard & Poor's or Baa by
Moody's, or which have been assigned an equivalent rating by another nationally
recognized statistical rating organization or which are of comparable quality
in the judgment of the fund's investment adviser; other fixed income securities,
including mortgage-backed securities, which are rated in one of the four highest
categories by a nationally recognized statistical rating organization (i.e.,
Standard & Poor's BBB or its equivalent) or which are of comparable quality in
the judgment of the fund's investment adviser; and commercial paper which is
rated A-1 by Standard & Poor's or P-1 by Moody's or which has been assigned an
equivalent rating by another nationally recognized statistical rating
organization. Fixed Income Fund may invest up to 15% of its total assets in
foreign securities payable in U.S. dollars, provided that such securities meet
the rating requirement set forth in the preceding sentence. The mortgage-backed
securities in which Fixed Income Fund may invest include interest-only,
principal-only, inverse floating rate, and inverse interest-only mortgage-backed
securities, provided that the fund's aggregate investments in these four types
of securities will not exceed 10% of its total assets.
For temporary defensive purposes, Fixed Income Fund may without limitation
hold cash or invest in cash items. Fixed Income Fund also may invest up to 35%
of its total assets in cash and cash items in order to utilize assets awaiting
normal investment. Cash items may include short-term obligations such as rated
commercial paper and variable amount master demand notes; U.S.
dollar-denominated time and savings deposits (including certificates of
deposit); bankers' acceptances; U.S. government securities; repurchase
agreements; and securities of other mutual funds which invest primarily in debt
obligations with remaining maturities of 13 months or less.
Unlike OIF, Fixed Income Fund is not permitted to invest in whole mortgage
loans or participating mortgages. Unlike OIF, there is no limitation on Fixed
Income Fund's purchases of unregistered securities; but to the extent such
securities are illiquid, they are subject to the limitation regarding illiquid
securities set forth below under "-- Investment Restrictions."
The Piper Funds and Fixed Income Fund also may engage in the investment
techniques set forth in the following subsection.
Investment Techniques
The Piper Funds and Fixed Income Fund may engage in the following
investment techniques to the extent indicated.
REPURCHASE AGREEMENTS. Each of the Piper Funds and Fixed Income Fund may
invest in repurchase agreements without limitation, except that AGF and AAF may
not invest more than 10%, and Fixed Income Fund may not invest more than 15%, of
their net assets in repurchase agreements not terminable within seven days.
PUT AND CALL OPTIONS. AGF and AAF may sell covered put and call options
and purchase put and call options on U.S. and Canadian government securities.
OIF may sell covered put and call options and purchase put and call options on
the securities in which it may invest. AGF, AAF and OIF also may write call
options that are not covered for cross-hedging purposes. Fixed Income Fund may,
in order to reduce risk, invest in exchange traded put and call options on
interest rate indices.
<PAGE>
FUTURES CONTRACTS. Each of the Piper Funds may enter into contracts for
the purchase or sale for future delivery of fixed-income securities or contracts
based on financial indices ("futures contracts") and may purchase and write put
and call options to buy or sell futures contracts. Fixed Income Fund may enter
into interest rate futures contracts and invest in exchange traded put and call
options on interest rate futures contracts.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. Each of the Piper Funds and
Fixed Income Fund may purchase securities on a when-issued or delayed-delivery
basis.
MORTGAGE DOLLAR ROLLS. Each of the Piper Funds and Fixed Income Fund may
enter into mortgage dollar rolls in which the fund sells securities for delivery
in the current month and simultaneously contracts with the same counterparty to
purchase similar but not identical securities on a specified future date.
REVERSE REPURCHASE AGREEMENTS. Each of the Piper Funds may engage in
reverse repurchase agreement transactions, subject to the respective funds'
limitations on borrowing set forth under "-- Investment Restrictions" below.
Fixed Income Fund may not engage in reverse repurchase agreement transactions.
LENDING OF PORTFOLIO SECURITIES. Each of the Piper Funds may lend
portfolio securities representing up to 30% of the value of its total assets
to broker-dealers, banks or other institutional borrowers of securities. Fixed
Income Fund may lend portfolio securities representing up to one-third of the
value of it total assets to such borrowers.
FOREIGN CURRENCY TRANSACTIONS. OIF may engage in a variety of foreign
currency transactions in connection with its investments in foreign debt
securities. None of AGF, AAF or Fixed Income Fund may engage in foreign currency
transactions.
Investment Restrictions
BORROWING. AGF, AAF and OIF have fundamental investment restrictions
providing that they may borrow money in an amount up to 20%, 25% and 33-1/3%,
respectively, of their total assets, plus, in the case of OIF, up to 5% of total
assets for temporary defensive purposes. Fixed Income Fund has a fundamental
investment restriction providing that it may borrow money only from banks and
only for temporary or emergency purposes in an amount up to 10% of the value of
its total assets.
ILLIQUID SECURITIES. Each of the Piper Funds has a nonfundamental
investment restriction permitting it to invest up to 35% of its total assets in
illiquid securities. Fixed Income Fund has a nonfundamental investment
restriction permitting it to invest up to 15% of its net assets in illiquid
securities. Certain "restricted" securities issued pursuant to exemptions from
registration may be deemed liquid for purposes of these restrictions.
<PAGE>
APPENDIX VII
COMPARISON OF INTERIM ADVISORY AGREEMENTS AND
FIXED INCOME FUND'S ADVISORY AGREEMENT
This Appendix summarizes and compares certain significant provisions of
the Interim Advisory Agreements (the "Interim Agreements") against corresponding
provisions of the FAIF Fixed Income Fund's Investment Advisory Agreement (the
"FAIF Agreement"). Advisory fees payable under the Agreements are set forth in
the Combined Proxy Statement/Prospectus.
ADVISORY SERVICES. The Interim Agreements provide that Piper Capital will
manage the affairs, business and the investment of the assets of each Piper Fund
in accordance with the applicable provisions of the articles of incorporation,
bylaws, registration statement, and any representations contained in the
Prospectuses of the Piper Funds. Under each Interim Agreement, Piper Capital has
the sole and exclusive responsibility for the management of the respective
Fund's assets and the making and execution of all investment decisions for the
Fund. Under each Interim Agreement, Piper Capital will, at its own expense,
furnish to the respective Piper Fund suitable office space and all necessary
office facilities, equipment and personnel for serving the investments of such
Piper Fund. Piper Capital will arrange, if requested, for officers, employees
and "affiliated persons" of Piper Capital to serve without compensation from a
Piper Fund as directors, officers, or employees of such Piper Fund.
Similarly, the FAIF Agreement provides that U.S. Bank agrees to act as the
investment adviser for, and to manage the investment of the assets of, Fixed
Income Fund. Under the FAIF Agreement, U.S. Bank is required, at its own
expense, to provide Fixed Income Fund with all office space, personnel and
facilities necessary and incident to the performance of the adviser's services
under the Agreement. In addition, under the FAIF Agreement, U.S. Bank is
required to pay or be responsible for the payment of all compensation to
personnel of Fixed Income Fund and the officers and directors of the Fixed
Income Fund who are affiliated with U.S. Bank or any entity which controls, is
controlled by or is under common control with U.S. Bank.
Under the Interim Agreements and the FAIF Agreement, the respective
advisers will report to the Board of Directors for each Fund regularly at such
times and in such detail as the Board of Directors may determine.
FEE AND EXPENSE LIMITATIONS. The FAIF Agreement requires that if, in any
fiscal year, the aggregate expenses of any Fund exceed the expense limitations
imposed under the securities regulations of a state, U.S. Bank will reimburse
Fixed Income Fund. Such reimbursement shall not exceed the advisory fees paid to
U.S. Bank during the year, unless otherwise required by the state and unless the
adviser agrees to be bound by such state requirement. Under federal law, states
may no longer impose expense limitations on mutual funds.
STANDARD OF CARE. The FAIF Agreement provides that U.S. Bank will be
liable to Fixed Income Fund and its shareholders or former shareholders for any
negligence or willful misconduct on the part of U.S. Bank or any of its
directors, officers, employees, representatives or agents in connection with the
responsibilities assumed by it under the FAIF Agreement, provided that U.S. Bank
shall not be liable for any investments made by U.S. Bank in accordance with the
explicit or implicit direction of the Board of Directors of FAIF or the
investment objectives and policies of Fixed Income Fund, and provided further
that any liability of U.S. Bank resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services shall be limited to the
period and amount set forth in Section 36(b)(3) of the 1940 Act. In addition,
U.S. Bank agrees in the FAIF Agreement to indemnify FAIF and Fixed Income Fund
with respect to any loss, liability, judgment, cost or penalty which FAIF or
Fixed Income Fund may directly or indirectly suffer or incur in any way arising
out of or in connection with any breach of the FAIF Agreement by U.S. Bank. The
Interim Agreements do not contain provisions pertaining to standard of care.
<PAGE>
DURATION AND TERMINATION. The Interim Agreements will continue in effect
for a period of two years from the date of execution, and thereafter will
continue in effect only so long as such continuance is specifically approved at
least annually by: (a) the Board of Directors of the Fund or by the vote of a
majority of the outstanding voting securities of the Fund, and (b) the vote of a
majority of the directors who are not parties to the Interim Agreements or
interested persons of such parties. Similarly, the FAIF Agreement will remain in
force for successive annual periods, subject to the same annual approval
requirements. Besides automatic termination in the event of its assignment (as
defined in the 1940 Act), the Interim Agreements and the FAIF Agreement may be
terminated at any time without the payment of any penalty by the vote of the
Board of Directors of the applicable fund or by the vote of the holders of a
majority of the outstanding shares of such fund, or by the applicable adviser,
upon 60 days' written notice to the other party.
<PAGE>
APPENDIX VIII
SHAREHOLDER TRANSACTIONS AND SERVICES
This Appendix compares the shareholder transactions and services of the
Piper Funds and Fixed Income Fund. The following as it applies to Fixed Income
Fund is qualified in its entirety by the more detailed information included in
the prospectus for the Class A Shares of Fixed Income Fund, which accompanies
and is incorporated by reference into the Combined Proxy Statement/Prospectus.
PURCHASE, EXCHANGE AND REDEMPTION PROCEDURES
The common shares of the Piper Funds currently trade on the New York Stock
Exchange. Shares of Fixed Income Fund will be offered to the public on a
continuous basis and will not be listed on any stock exchange. Common shares of
the Piper Funds may only be purchased through a broker. Class A Shares of Fixed
Income Fund may be purchased at the net asset value plus applicable sales charge
through a financial institution which has a sales agreement with the Funds'
distributor, by mail directly through the Funds' transfer agent, or by wire. In
addition, Fixed Income Fund has an automatic investment program which allows
shareholders to make regular purchases of shares through automatic deduction
from a shareholder's account in the same class of shares of the Prime
Obligations Fund, a series of First American Funds, Inc.
PURCHASE PRICE. Shares of the Piper Funds may be purchased at their
current market price (which may be higher or lower than their current net asset
value) plus brokerage commission. Class A Shares of Fixed Income Fund will be
available for purchase at the net asset value per share next calculated after
receipt of an order, plus the applicable front sales charge as set forth in the
table below.
Sales Charges for Fixed Income Fund
Fixed Income Fund
Sales Charge as
--------------------------------
% of % of Net
Size of Transaction at Offering Price Offering Price Asset Value
- ------------------------------------- -------------- -----------
Less than $50,000........................... 3.75 % 3.90 %
$50,000 but less than $100,000.............. 3.25 % 3.36 %
$100,000 but less than $250,000............. 2.75 % 2.83 %
$250,000 but less than $500,000............. 2.00 % 2.04 %
$500,000 but less than $1,000,000........... 1.00 % 1.01 %
$1,000,000 and over*........................ 0.00 % 0.00 %
- --------------------
* No initial sales charge applies to purchases of Class A shares of $1,000,000
or more. However, a 1.00% contingent deferred sales charge will be imposed
if those shares are redeemed within 24 months of purchase.
The minimum initial investment for Fixed Income Fund is $1,000 unless the
investment is in a retirement plan, in which case the minimum investment is
$250. The minimum subsequent investment is $100. The Piper Funds have no minimum
investment requirement.
PURCHASES AT REDUCED OR NO SALES CHARGE. For the Class A shares of Fixed
Income Fund, various persons, entities and groups may qualify for reduced sales
charges, or for purchases at net asset value without a sales charge.
EXCHANGES. Shareholders of Fixed Income Fund will be able to exchange
their Class A shares for shares of the same class of other mutual funds of FAIF,
First American Funds, Inc. and First American Strategy Funds, Inc.
<PAGE>
REDEMPTIONS. Shares of the Piper Funds may be sold through broker-dealers
on any business day. A commission is generally charged for each sale. Class A
Shares of Fixed Income Fund are redeemable, in whole or in part, on any day on
which Fixed Income Fund computes its net asset value. No fee or other charge is
imposed on the redemption of Fixed Income Fund Class A Shares, except that a
contingent deferred sales charge will be imposed upon redemption of certain
shares initially purchased without a sales charge. No contingent deferred sales
charge will be imposed on sales of shares acquired as a result of the
Reorganization. Fixed Income Fund reserves the right to redeem an account at any
time the net asset value of that account falls below $500 as a result of a
redemption request or exchange request. Shareholders will be notified in writing
prior to any such redemption and will be allowed 60 days to make additional
investments before the redemption is processed.
Additional information regarding share purchases, sales charges, exchange
procedures and redemption procedures, is set forth in the prospectus for Class A
Shares of Fixed Income Fund, which accompanies and is incorporated by reference
to the Combined Proxy Statement/Prospectus.
DIVIDENDS AND DISTRIBUTIONS.
Each Piper Fund under normal circumstances distribute monthly dividends
from its net investment income (non-capital gain income less expenses). Each
Piper Fund may at times pay out more or less than the entire amount of net
investment income in any particular period to permit such fund to maintain a
stable level of distributions. As a result the distributions paid by a Piper
Fund for any particular period may be more or less than the amount of net
investment income earned by such fund during such period. This may result in
a portion of the monthly distributions constituting a return of capital. Net
short term capital gains and net long-term gains, if any, are distributed at
least once annually.
Similar to the Piper Funds, dividends with respect to Fixed Income Fund
are declared and paid monthly to all shareholders of record on the record date.
Distributions of any net realized long-term capital gains will be made at least
once every 12 months. Dividends and distributions will be automatically
reinvested in additional shares of Fixed Income Fund unless shareholders request
cash payments.
Additional information regarding dividends and distributions for Fixed
Income Fund is set forth in the prospectus for Class A Shares of Fixed Income
Fund, which accompanies and is incorporated by reference to the Combined Proxy
Statement/Prospectus.
<PAGE>
APPENDIX IX
PORTFOLIO MANAGERS OF
THE PIPER FUNDS
AGF, AAF and OIF are managed primarily by Bruce Salvog and Tom McGlinch.
BRUCE SALVOG. Mr. Salvog has over 28 years of investment industry
experience and serves as a portfolio manager for, and Senior Vice President of,
Piper Capital. Mr. Salvog received his bachelor's degree from Harvard
University.
TOM MCGLINCH. Mr. McGlinch has over 17 years of investment industry
experience and serves as a portfolio co-manager for, and Senior Vice President
of, Piper Capital overseeing the management of several funds for which Piper
Capital acts as adviser. Mr. McGlinch received his bachelor's degree in
accounting from St. John's University and master's degree in business
administration from the University of St. Thomas. Mr. McGlinch is a Chartered
Financial Analyst.
<PAGE>
APPENDIX X
DISSENTING SHAREHOLDERS' RIGHTS OF APPRAISAL
Shareholders who elect to exercise dissenters' rights must satisfy each of
the following conditions: (a) dissenting holders must file with the AGF, AAF, or
OIF before the vote on the Reorganization is taken, written notice of their
intention to demand payment of the fair value of their shares (this written
notice must be in addition to and separate from any proxy or vote against the
Reorganization--voting against or failing to vote for the Reorganization will
not constitute such a notice); and (b) dissenting holders must not vote in favor
of the Reorganization (a failure to vote will satisfy this requirement, but a
vote in favor of the Reorganization, by proxy or in person, will constitute a
waiver of dissenters' rights and will nullify any previously filed written
notice of intent to demand payment). Shareholders who fail to comply with either
of these conditions will have no dissenters' rights with respect to their
shares.
SHAREHOLDERS SHOULD BE AWARE THAT THE DIVISION OF INVESTMENT MANAGEMENT OF
THE SEC HAS TAKEN THE POSITION THAT ADHERENCE TO STATE APPRAISAL PROCEDURES BY A
REGISTERED INVESTMENT COMPANY ISSUING REDEEMABLE SECURITIES WOULD CONSTITUTE A
VIOLATION OF RULE 22c-1 UNDER THE 1940 ACT. THIS RULE PROVIDES THAT NO OPEN-END
INVESTMENT COMPANY MAY REDEEM ITS SHARES OTHER THAN AT NET ASSET VALUE NEXT
COMPUTED AFTER RECEIPT OF A TENDER OF SUCH SECURITY FOR REDEMPTION. IT IS THE
VIEW OF THE DIVISION OF INVESTMENT MANAGEMENT THAT RULE 22c-1 SUPERSEDES
APPRAISAL PROVISIONS IN STATE STATUTES. IN THE INTERESTS OF ENSURING EQUAL
VALUATION OF ALL INTERESTS IN THE AGF, AAF, AND OIF, SUCH FUNDS WILL DETERMINE
DISSENTERS' RIGHTS IN ACCORDANCE WITH THE DIVISION INTERPRETATION. ACCORDINGLY,
IN THE EVENT THAT ANY SHAREHOLDER ELECTS TO EXERCISE DISSENTERS' RIGHTS UNDER
MINNESOTA LAW, AGF, AAF, OR OIF INTENDS TO SUBMIT THIS QUESTION TO A COURT OF
COMPETENT JURISDICTION.
All written notices should be addressed to AAF, AGF or OIF at their
offices, 222 South Ninth Street, Minneapolis, Minnesota 55402, Attention:
Corporate Secretary, and should be executed by, or with the consent of, the
holder of record. The notice must identify the shareholder and indicate the
intention of such shareholder to demand payment of fair value of his or her
shares. In the notice the shareholder's name should be stated as it appears on
his or her stock certificates, if any, or in the manner in which his or her
shares are registered. A beneficial owner of shares who is not the registered
owner may assert dissenters' rights as to shares held on such person's behalf,
provided that such beneficial owner submits a written consent of the registered
owner to AGF, AAF or OIF at or before the time such rights are asserted.
A Piper Fund shareholder may not assert dissenters' rights as to less than
all of the shares registered in such shareholder's name, except in the situation
in which certain shares are beneficially owned by another person but registered
in such shareholder's name. If a shareholder wishes to dissent with respect to
shares beneficially owned by another person, such shareholder must dissent with
respect to all of such shares and disclose the name and address of the
beneficial owner on whose behalf the holder is dissenting.
After a vote approving the Reorganization, and assuming the Reorganization
is consummated, each Piper Fund must give written notice that the Reorganization
has been approved to each shareholder who filed a written notice of intent to
demand payment for such shareholder's shares and who did not vote in favor of
the Reorganization. This notice sent by the Piper Funds shall specify the
address to which a demand for payment and stock certificates, if any, must be
sent by such shareholder in order to obtain payment and shall include a form for
demanding payment to be completed by the shareholder. In order to receive the
fair value of his or her shares, a dissenting shareholder must, within 30 days
after the date of such notice, send such holder's share certificates, if any,
together with
<PAGE>
certain information concerning such shareholder's shares, on the form supplied
by the Piper Funds. After a valid demand for payment and the related
certificates, if any, are received, the Piper Funds must remit to each
dissenting shareholder who has complied with the above-referenced requirements
the amount it deems to be the fair value of that shareholder's shares, plus
interest from the fifth day after the effective date of the Reorganization to
the date of such payment, together with a brief description of the method used
to reach such estimate and certain updated interim financial data of the Piper
Funds, if available.
If a dissenting shareholder believes that the amount remitted by a Piper
Fund is less than the fair value of such shareholder's shares, plus interest,
the shareholder may give written notice to such Piper Fund of his own estimate
of fair value of his Piper Fund shares within 30 days after the mailing date of
the remittance and demand payment of the difference. If the shareholder fails to
give written notice of such estimate and demand for the difference with the
30-day time period, the shareholder will be entitled only to the amount
remitted.
If such Piper Fund and the dissenting shareholder are unable to settle the
shareholder's demand within 60 days, such Piper Fund shall file in court a
petition requesting that the court determine the fair value of the shares, plus
interest. All shareholders whose demands are not settled within the applicable
60- day settlement periods shall be made parties to this proceeding. The court,
after determining that the shareholder has complied with all statutory
requirements, may use any valuation method or combination of methods it deems
appropriate, whether or not used by such Piper Fund or the dissenting
shareholder, or may appoint appraisers to determine the fair value of the
shares. The court's determination is binding on all shareholders of the Piper
Funds, and the court must enter judgment for any amount by which the court
determines fair value exceeds the amount remitted to the shareholders by the
Company.
The costs and expenses of such a proceeding, including the expenses and
compensation of any appraisers, will be assessed against the applicable Piper
Fund unless the court, in its discretion, determines that the dissenting
shareholder's action in demanding supplemental payment was arbitrary, vexatious,
or not in good faith, in which event the court may assess all or a part of such
costs against the shareholder. Fees and expenses of counsel for the dissenting
shareholder may be awarded by the court out of the amount, if any, awarded to
such shareholder.
The following sections of the Minnesota Business Corporation Act set forth
the rights of dissenting shareholders and the procedures to be followed for
asserting dissenters' rights:
302A.471. RIGHTS OF DISSENTING SHAREHOLDERS
Subdivision 1. Actions creating rights. A shareholder of a corporation may
dissent from, and obtain payment for the fair value of the shareholder's shares
in the event of, any of the following corporate actions:
(a) An amendment of the articles that materially and adversely
affects the rights or preferences of the shares of the dissenting shareholder in
that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the
redemption of the shares, including a provision respecting a sinking fund for
the redemption or repurchase of the shares;
<PAGE>
(3) alters or abolishes a preemptive right of the holder of the
shares to acquire shares, securities other than shares, or rights to purchase
shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a
matter, or to cumulate votes, except as the right may be excluded or limited
through the authorization or issuance of securities of an existing or new class
or series with similar or different voting rights; except that an amendment to
the articles of an issuing public corporation that provides that section
302A.671 does not apply to a control share acquisition does not give rise to the
right to obtain payment under this section;
(b) A sale, lease, transfer, or other disposition of all or
substantially all of the property and assets of the corporation, but not
including a transaction permitted without shareholder approval in section
302A.661, subdivision 1, or a disposition in dissolution described in section
302A.725, subdivision 2, or a disposition pursuant to an order of a court, or a
disposition for cash on terms requiring that all or substantially all of the net
proceeds of disposition be distributed to the shareholders in accordance with
their respective interests within one year after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter
322B, to which the corporation is a party, except as provided in subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter
322B, to which the corporation is a party as the corporation whose shares will
be acquired by the acquiring corporation, if the shares of the shareholder are
entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote
with respect to which the articles, the bylaws, or a resolution approved by the
board directs that dissenting shareholders may obtain payment for their shares.
Subd. 2. Beneficial owners. (a) A shareholder shall not assert dissenters'
rights as to less than all of the shares registered in the name of the
shareholder, unless the shareholder dissents with respect to all the shares that
are beneficially owned by another person but registered in the name of the
shareholder and discloses the name and address of each beneficial owner on whose
behalf the shareholder dissents. In that event, the rights of the dissenter
shall be determined as if the shares as to which the shareholder has dissented
and the other shares were registered in the names of different shareholders.
(b) The beneficial owner of shares who is not the shareholder may
assert dissenters' rights with respect to shares held on behalf of the
beneficial owner, and shall be treated as a dissenting shareholder under the
terms of this section and section 302A.473, if the beneficial owner submits to
the corporation at the time of or before the assertion of the rights a written
consent of the shareholder.
Subd. 3. Rights not to apply. (a) Unless the articles, the bylaws, or a
resolution approved by the board otherwise provide, the right to obtain payment
under this section does not apply to a shareholder of the surviving corporation
in a merger, if the shares of the shareholder are not entitled to be voted on
the merger.
(b) If a date is fixed according to section 302A.445, subdivision 1,
for the determination of shareholders entitled to receive notice of and to vote
on an action described in subdivision 1, only shareholders as of the date fixed,
and beneficial owners as of the date fixed who hold through shareholders, as
provided in subdivision 2, may exercise dissenters' rights.
<PAGE>
Subd. 4. Other rights. The shareholders of a corporation who have a right
under this section to obtain payment for their shares do not have a right at law
or in equity to have a corporate action described in subdivision 1 set aside or
rescinded, except when the corporate action is fraudulent with regard to the
complaining shareholder or the corporation.
302A.473. PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS
Subdivision 1. Definitions. (a) For purposes of this section, the terms
defined in this subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action referred to in section 302A.471, subdivision 1 or
the successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the
effective date of the corporate action referred to in section 302A.471,
subdivision 1, up to and including the date of payment, calculated at the rate
provided in section 549.09 for interest on verdicts and judgments.
Subd. 2. Notice of action. If a corporation calls a shareholder meeting at
which any action described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
Subd. 3. Notice of dissent. If the proposed action must be approved by the
shareholders, a shareholder who is entitled to dissent under section 302A.471
and who wishes to exercise dissenters' rights must file with the corporation
before the vote on the proposed action a written notice of intent to demand the
fair value of the shares owned by the shareholder and must not vote the shares
in favor of the proposed action.
Subd. 4. Notice of procedure; deposit of shares. (a) After the proposed
action has been approved by the board and, if necessary, the shareholders, the
corporation shall send to all shareholders who have complied with subdivision 3
and to all shareholders entitled to dissent if no shareholder vote was required,
a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will
apply after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder,
or the beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief
description of the procedures to be followed under these sections.
<PAGE>
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30 days after the
notice required by paragraph (a) was given, but the dissenter retains all other
rights of a shareholder until the proposed action takes effect.
Subd. 5. Payment; return of shares. (a) After the corporate action takes
effect, or after the corporation receives a valid demand for payment, whichever
is later, the corporation shall remit to each dissenting shareholder who has
complied with subdivisions 3 and 4 the amount the corporation estimates to be
the fair value of the shares, plus interest, accompanied by:
(1) The corporation's closing balance sheet and statement of income
for a fiscal year ending not more than 16 months before the effective date of
the corporate action, together with the latest available interim financial
statements;
(2) An estimate by the corporation of the fair value of the shares
and a brief description of the method used to reach the estimate; and
(3) A copy of section 302A.471 and this section, and a brief
description of the procedure to be followed in demanding supplemental payment.
(b) The corporation may withhold the remittance described in
paragraph (a) from a person who was not a shareholder on the date the action
dissented from was first announced to the public or who is dissenting on behalf
of a person who was not a beneficial owner on that date. If the dissenter has
complied with subdivisions 3 and 4, the corporation shall forward to the
dissenter the materials described in paragraph (a) a statement of the reason for
withholding the remittance, and an offer to pay to the dissenter the amount
listed in the materials if the dissenter agrees to accept that amount in full
satisfaction. The dissenter may decline the offer and demand payment under
subdivision 6. Failure to do so entitles the dissenter only to the amount
offered. If the dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the
deposit of certificates or the imposition of transfer restrictions on
uncertificated shares, it shall return all deposited certificates and cancel all
transfer restrictions. However, the corporation may again give notice under
subdivision 4 and require deposit or restrict transfer at a later time.
Subd. 6. Supplemental payment; demand. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest, within
30 days after the corporation mails the remittance under subdivision 5, and
demand payment of the difference. Otherwise, a dissenter is entitled only to the
amount remitted by the corporation.
Subd. 7. Petition; determination. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand, either
pay to the dissenter the amount demanded or agreed to by the dissenter after
discussion with the corporation or file in court a petition requesting that the
court determine the fair value of the shares, plus interest. The petition shall
be filed in the county in which the registered office of the corporation is
located, except that a surviving foreign corporation that receives a demand
relating to the shares of a constituent domestic corporation shall file the
petition in the county in this state in which the last registered office of the
constituent corporation was located. The petition shall name as parties all
dissenters who have demanded payment under subdivision 6 and who have not
reached agreement with the corporation. The corporation shall, after filing the
petition, serve all parties with a summons and copy of the petition under the
rules of civil
<PAGE>
procedure. Nonresidents of this state may be served by registered or certified
mail or by publication as provided by law. Except as otherwise provided, the
rules of civil procedure apply to this proceeding. The jurisdiction of the court
is plenary and exclusive. The court may appoint appraisers, with powers and
authorities the court deems proper, to receive evidence on and recommend the
amount of the fair value of the shares. The court shall determine whether the
shareholder or shareholders in question have fully complied with the
requirements of this section, and shall determine the fair value of the shares,
taking into account any and all factors the court finds relevant, computed by
any method or combination of methods that the court, in its discretion, sees fit
to use, whether or not used by the corporation or by a dissenter. The fair value
of the shares as determined by the court is binding on all shareholders,
wherever located. A dissenter is entitled to judgment in cash for the amount by
which the fair value of the shares as determined by the court, plus interest,
exceeds the amount, if any, remitted under subdivision 5, but shall not be
liable to the corporation for the amount, if any, by which the amount, if any,
remitted to the dissenter under subdivision 5 exceeds the fair value of the
shares as determined by the court, plus interest.
Subd. 8. Costs; fees; expenses. (a) The court shall determine the costs
and expenses of a proceeding under subdivision 7, including the reasonable
expenses and compensation of any appraisers appointed by the court, and shall
assess those costs and expenses against the corporation, except that the court
may assess part or all of those costs and expenses against a dissenter whose
action in demanding payment under subdivision 6 is found to be arbitrary,
vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and expenses
may also be assessed against a person who has acted arbitrarily, vexatiously, or
not in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an
attorney for the dissenters out of the amount awarded to the dissenters, if any.
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
DATED ________________, 1998
PROPOSED ACQUISITION OF ASSETS OF
AMERICAN GOVERNMENT INCOME FUND INC.,
AMERICAN GOVERNMENT INCOME PORTFOLIO, INC. AND
AMERICAN OPPORTUNITY INCOME FUND INC.
PIPER CAPITAL MANAGEMENT INCORPORATED
222 SOUTH NINTH STREET
MINNEAPOLIS, MINNESOTA 55402-3894
1-800-866-7778 EXT. 6786
BY AND IN EXCHANGE FOR SHARES OF
FIXED INCOME FUND
A PORTFOLIO OF FIRST AMERICAN INVESTMENT FUNDS, INC.
OAKS, PENNSYLVANIA 19456
1-800-637-2548
This Statement of Additional Information relates to the proposed
Agreement and Plan of Reorganization providing for (a) the acquisition of all of
the assets and the assumptions of all liabilities of American Government Income
Fund Inc. ("AGF"), American Government Income Portfolio, Inc. ("AAF") and
American Opportunity Income Fund Inc. ("OIF"), each closed-end investment
companies, by Fixed Income Fund ("Fixed Income Fund"), a separately managed
series of First American Investment Funds, Inc. ("FAIF"), in exchange for Class
A Shares of common stock of Fixed Income Fund having an aggregate net asset
value equal to the aggregate value of the assets acquired (less the liabilities
assumed) of AGF, AAF and OIF (collectively, the "Piper Funds") and (b) the
liquidation of the Piper Funds and the pro rata distribution of the Piper Funds
common shares to Fixed Income Fund shareholders. This Statement of Additional
Information consists of (a) the combined Statement of Additional Information of
the Piper Funds, and (b) the Pro Forma Financial Statements of the Piper Funds
and Fixed Income Fund, which are attached as Appendix A to this Statement of
Additional Information, and the following documents, each of which is
incorporated by reference herein:
1. Statement of Additional Information of FAIF dated January 31,
1998, containing information concerning the Class A Shares of
Fixed Income Fund.
2. Annual report of AGF for the fiscal year ended October 31,
1997.
3. Annual report of AAF for the fiscal year ended October 31,
1997.
4. Annual report of OIF for the fiscal year ended October 31,
1997.
5. Financial Statements required by Form N-14, Item 14 (to the
extent not included in Items 1 and 2 above).
This Statement of Additional Information is not a prospectus. The
Combined Proxy Statement/Prospectus dated the date hereof relating to the
above-referenced transaction may be obtained without charge by writing or
calling the Piper Funds or FAIF at the addresses or telephone numbers noted
above. This Statement of Additional Information relates to, and should be read
in conjunction with, such combined Proxy Statement/Prospectus.
<PAGE>
Table of Contents
INVESTMENT OBJECTIVES AND POLICIES ...................................... 1
Description of Portfolio Securities ............................... 1
U.S. Government Securities .................................. 1
Canadian Government Securities .............................. 1
Mortgage-Backed Securities .................................. 1
Zero Coupon Securities ...................................... 5
Corporate Debt Securities ................................... 5
Foreign Debt Securities ..................................... 6
Other Investment Management Practices ............................. 6
Options Transactions ........................................ 6
Options on Securities ....................................... 6
Futures Contracts and Options on Futures Contracts .......... 6
Foreign Currency Exchange Transactions ...................... 7
Lending of Portfolio Securities ............................. 9
When-Issued and Forward Commitment Securities ............... 10
Repurchase Agreements ....................................... 10
Portfolio Turnover .......................................... 10
Investment Restrictions ........................................... 10
TENDER OFFERS AND SHARE REPURCHASES ..................................... 12
DIRECTORS AND EXECUTIVE OFFICERS ........................................ 13
INVESTMENT ADVISORY AND OTHER SERVICES .................................. 15
Adviser ..................................................... 15
Control of the Adviser ...................................... 15
Investment Advisory Agreements .............................. 15
Fund Administration ......................................... 16
Independent Auditors ........................................ 17
BROKERAGE AND PORTFOLIO TRANSACTIONS .................................... 17
TAXATION................................................................. 18
General ..................................................... 18
Federal Tax Treatment of Shareholders ....................... 19
Consequences of Certain Fund Investments .................... 20
ADDITIONAL INFORMATION .................................................. 20
RATINGS ................................................................. 21
Ratings of Corporate Debt Obligations and Municipal Bonds ... 21
Standard & Poor's...................................... 21
Moody's................................................ 22
Ratings of Preferred Stock .................................. 23
Standard & Poor's...................................... 23
Moody's................................................ 23
Ratings of Municipal Notes .................................. 24
Standard & Poor's...................................... 24
Moody's................................................ 24
Ratings of Commercial Paper ................................. 24
Standard & Poor's...................................... 24
Moody's................................................ 24
Best's Rating System for Insurance Companies ............... 25
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of the Piper Funds are set forth in
the Combined Proxy Statement/Prospectus. Certain additional investment
information is set forth below. Defined terms used herein and not otherwise
defined shall have the meanings ascribed to them in the Combined Proxy
Statement/Prospectus.
Description of Portfolio Securities
U.S. Government Securities
U.S. Government Securities are securities issued or guaranteed by the
United States Government, its agencies or instrumentalities and include: (i)
U.S. Treasury obligations, which differ only in their interest rates, maturities
and times of issuance: U.S. Treasury bills (maturity of one year or less), U.S.
Treasury notes (maturities of one to ten years) and U.S. Treasury bonds
(generally maturities of greater than ten years), all of which are backed by the
full faith and credit of the United States; and (ii) obligations issued or
guaranteed by United States Government agencies or instrumentalities, including
government guaranteed mortgage-related securities, some of which are backed by
the full faith and credit of the U.S. Treasury; some of which are supported by
the right of the issuer to borrow from the U.S. government and some of which are
backed only the credit of the issuer itself.
Canadian Government Securities
Canadian Government Securities consist of securities issued by the
Canadian federal government, Canadian provincial government and political
subdivisions, agencies or instrumentalities of the Canadian federal government
and Canadian provincial government, including corporations wholly or
substantially owned or controlled by the Canadian federal government or one or
more Canadian provincial governments. Piper Capital Management Incorporated
("Piper Capital" or the "Adviser") does not believe that the credit risk
inherent in investing in Canadian Government Securities is significantly greater
than that of U.S. Government Securities. However, investing in Canadian
Government Securities involves considerations and possible risks not typically
associated with investing in U.S. Government Securities including possible
application of Canadian tax laws, including possible future withholding taxes,
potential difficulties in enforcing contractual regulations, changes in
governmental administrations or economic or monetary policy changed
circumstances in dealing between the United States and Canada. Canadian
brokerage commissions may be higher than those in the United States and Canadian
securities markets may be less liquid, more volatile and less subject to
governmental supervision than those in the United States.
Mortgage-Backed Securities
Mortgage-backed securities are securities that, directly or indirectly,
represent participations in, or are securities by and payable from, loans
secured by real property or other assets, including pass-through securities such
as Ginnie Mae, Fannie Mae and Freddie Mae Certificates, private pass-through
securities, commercial mortgage-backed securities, certain collateralized
mortgage obligations and asset-backed securities.
GUARANTEED MORTGAGE PASS-THROUGH SECURITIES. The guaranteed mortgage
pass-through securities include certificates issued or guaranteed by Ginnie Mae,
Fannie Mae and Freddie Mac, 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 services 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, which collection may
take up to one year.
<PAGE>
Ginnie Mae Certificates are direct obligations of the United States
Government and as such are backed by the full faith and credit of the United
States. Fannie Mae is a federally chartered and privately owned corporation and
Freddie Mac is a corporate instrumentality of the United States. Fannie Mae and
Freddie Mac Certificates are solely obligations of the issuing entity and are
not backed by the full faith and credit of the United States.
GINNIE MAE CERTIFICATES--Ginnie Mae is a wholly-owned corporate
instrumentality of the United States within the Department of Housing and Urban
Development. The National Housing Act of 1934, as amended (the "Housing Act"),
authorizes Ginnie Mae to guarantee the timely payment of the principal of and
interest on certificates that are based on and backed by a pool of mortgage
loans insured by the Federal Housing Administration under the Housing Act, or
Title V of the Housing Act of 1949 ("FHA Loans"), or guaranteed by the Veterans'
Administration under the Servicemen's Readjustment Act of 1944, as amended ("VA
Loans"), or by pools of other eligible mortgage loans. The Housing Act provides
that the full faith and credit of the United States Government is pledged to the
payment of all amounts that may be required to be paid under any guaranty. In
order to meet its obligations under such guaranty, Ginnie Mae is authorized to
borrow from the U.S. Treasury with no limitations as to amount.
The Ginnie Mae Certificates will represent a pro rata interest in one or
more pools of the following types of mortgage loans: (i) fixed rate level
payment mortgage loans; (ii) fixed rate graduated payment mortgage loans; (iii)
fixed rate growing equity mortgage loans; (iv) fixed rate mortgage loans secured
by manufactured (mobile) homes; (v) mortgage loans on multifamily residential
properties under construction; (vi) mortgage loans on completed multifamily
projects; (vii) fixed rate mortgage loans as to which escrowed funds are used to
reduce the borrower's monthly payments during the early years of the mortgage
loans ("buydown" mortgage loans); (viii) mortgage loans that provide for
adjustments in payments based on periodic changes in interest rates or in other
payment terms of the mortgage loans; and (ix) mortgage-backed serial notes. All
of these mortgage loans will be FHA Loans or VA Loans and, except as otherwise
specified above, will be fully-amortizing loans secured by first liens on one-
to four-family housing units.
FANNIE MAE CERTIFICATES--Fannie Mae is a federally chartered and privately
owned corporation organized and existing under the Federal National Mortgage
Association Charter Act of 1938. The obligations of FNMA are obligations solely
of FNMA and are not backed by the full faith and credit of the U.S.
government.
Each Fannie Mae Certificate will represent a pro-rata interest in one or
more pools of FHA Loans, VA Loans or conventional mortgage loans (i.e., mortgage
loans that are not insured or guaranteed by any governmental agency) of the
following types: (i) fixed rate level payment mortgage loans; (ii) fixed rate
growing equity mortgage loans; (iii) fixed rate graduated payment mortgage
loans; (iv) fixed rate and adjustable mortgage loans secured by multifamily
projects.
FREDDIE MAC CERTIFICATES--Freddie Mac is a corporate instrumentality of
the United States created pursuant to the Emergency Home Finance Act of 1970, as
amended (the "FHLMC Act"). The obligations of Freddie Mac are obligations solely
of Freddie Mac and are not backed by the full faith and credit of the U.S.
government.
Freddie Mac Certificates represent a pro-rata interest in a group of
mortgage loans (a "Freddie Mac Certificate Group") purchased by Freddie Mac. The
mortgage loans underlying the Freddie Mac Certificates will consist of fixed
rate or adjustable rate mortgage loans with original terms to maturity of
between ten and thirty years, substantially all of which are secured by first
liens on one to four-family residential properties or multifamily projects. Each
mortgage loan must meet the applicable standards set forth in the FHLMC Act. A
Freddie Mac Certificate Group may include whole loans, interests in whole loans
and participations comprising another Freddie Mac Certificate Group.
<PAGE>
PRIVATE MORTGAGE PASS-THROUGH SECURITIES. Private Mortgage Pass-Through
Securities ("Private Pass-Throughs") are structured similarly to the Ginnie
Mae, Fannie Mae and Freddie Mac mortgage pass-through securities described above
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. Private Pass Throughs
constituting adjustable rate mortgage securities are backed by a pool of
conventional adjustable rate mortgage loans. Since Private Pass-Throughs
typically are not guaranteed by an entity having the credit status of Ginnie
Mae, Fannie Mae or Freddie Mac, such securities generally are structured with
one or more types of credit enhancement. See "--Types of Credit Support" below.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS PASS-THROUGH
SECURITIES. Collateralized mortgage obligations ("CMOs") are debt instruments
issued by special purpose entities which are secured by pools of mortgage loans
or other Mortgage-Backed Securities. Multi-class pass-through securities are
equity interests in a trust composed of mortgage loans or other Mortgage-Backed
Securities. Payments of principal and interest on underlying collateral provide
the funds to pay debt service on the CMO or make scheduled distributions on the
multi-class pass-through security. CMOs and multi-class pass-through securities
(collectively "CMOs" unless the context indicates otherwise) may be issued by
agencies or instrumentalities of the U.S. government or by private
organizations. The issuer of a CMO may elect to be treated as a Real Estate
Mortgage Investment Conduit ("REMIC").
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of a CMO, often referred to as a "tranche," is issued at a specified
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.
Interest is paid or accrues on all classes of a CMO on a monthly, quarterly or
semi-annual basis. The principal and interest on the underlying mortgages may be
allocated among the several classes of a series of a CMO in many ways. In a
common structure, payments of principal, including any principal prepayments, on
the underlying mortgages are applied to the classes of the series of a CMO in
the order of their respective stated maturities or final distribution dates, so
that no payment of principal will be made on any class of a CMO until all other
classes having an earlier stated maturity or final distribution date have been
paid in full.
OIF may also invest in inverse or reverse floating CMOs. Inverse or
reverse floating CMOs constitute a tranche of a CMO with a coupon rate that
moves in the reverse direction to an applicable index such as the London
Interbank Offered Rate ("LIBOR"). Accordingly, the coupon rate thereon will
increase as interest rates decrease. Inverse or reverse floating CMOs are
typically more volatile than fixed or adjustable rate tranches of CMOs.
Investments in inverse or reverse floating CMOs would be purchased by the Piper
Funds to attempt to protect against a reduction in the income earned on a Piper
Fund's investments due to a decline in interest rates. A Piper Fund would be
adversely affected by the purchase of such CMOs in the event of an increase in
interest rates since the coupon rate thereon will decrease as interest rates
increase, and, like other Mortgage-Backed Securities, the value will decrease as
interest rates increase. See "--Derivative
Mortgage-Backed Securities."
DERIVATIVE MORTGAGE-BACKED SECURITIES. Derivative Mortgage-Backed
Securities are securities, such as interest-only and principal-only stripped
mortgage-backed securities and subordinated interests in private pass-through
pools, that directly or indirectly represent a participation in, or are secured
by and payable from, mortgage loans on real property or mortgage-backed
securities.
The yields on Derivative Mortgage-Backed Securities are generally higher
than prevailing market yields on mortgage backed securities because their market
prices are more volatile and there is a greater risk that the initial investment
will not be fully recouped. The Adviser (as defined herein) will seek to manage
these risks (and potential benefits) by investing in a variety of such
securities and by using hedging techniques.
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Although Derivative Mortgage-Backed Securities are purchased and sold by
institutional investors through several investment banking firms acting as
brokers or dealers, these securities were only recently developed. As a result,
established trading markets have not yet developed and, accordingly, these
securities are still less liquid than most other types of investments.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped Mortgage-Backed Securities
("SMBS") 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 types of classes of SMBS, one of which (the "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-backed securities ("Mortgage Assets") and the other
of which (the "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 investor may
incur substantial losses, even if the IO class is rated AAA. 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-backed security.
Under the Internal Revenue Code of 1986, as amended (the "Code"), SMBS
generate taxable income from the current accrual of original issue discount,
without a corresponding distribution of cash to the Piper Funds. In addition,
the Staff of the Division of Investment Management of the Securities Exchange
Commission considers privately issued SMBS to be illiquid securities.
SUBORDINATED MORTGAGE-BACKED SECURITIES. Credit enhancement in the form of
subordination provides for the issuance of a senior class of certificates that
are generally rated at least AA by Standard & Poor's and one or more classes of
subordinated certificates that bear ratings lower than the senior certificates
or are non-rated. Holders of either the senior or the subordinated certificates
will ordinarily be entitled to a pro-rata share of distributions of principal
and interest. However, in the event that delinquencies and defaults on the
underlying mortgage loans cause a shortfall in the distributions to the senior
certificates, distributions otherwise payable to the subordinated certificates
will be distributed to the senior certificates to the extent required. The
characteristics of the mortgage loans and other credit enhancement features will
determine the size of the subordinated interest required to obtain the desired
rating on the senior securities.
To the extent that actual delinquency and loss experience is greater than
that anticipated, the return on the subordinated certificates will be adversely
affected and, in extreme cases, a portion of the principal could be lost; to the
extent that such experience is more favorable than anticipated, the return on
the subordinated certificates will be increased. The Piper Funds may invest in
subordinated certificates, which securities, at the time of investment, are
rated BBB or higher by Standard & Poor's, or, if unrated, determined by the
Adviser to be of comparable quality. Descriptions of the rating categories are
set forth in this Statement of Additional Information under "Ratings."
ASSET-BACKED SECURITIES. The securitization techniques used to develop
mortgage-backed securities are also applied to a broad range of assets,
including, but not limited to, interest in pools of receivables, such as credit
card and accounts receivable and motor vehicle and other installment purchase
obligations and leases. These securities may be in the form of pass-through
instruments or asset-backed obligations. The securities are all issued by
non-governmental entities and carry no direct
<PAGE>
or indirect government guarantee. Asset-backed securities do not have the
benefit of the same security interest in the related collateral as do
mortgage-backed securities. Credit card receivables are generally unsecured and
the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due. Most
issuers of automobile receivables permit the servicers to retain possession of
the underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related automobile receivables. In
addition, because of the large number of vehicles involved in a typical
issuance, and technical requirements under state laws, the trustee for the
holders of the automobile receivables may not have a perfected security interest
in all of the obligations backing such receivables. Therefore, there is the
possibility that recovered on repossessed collateral may not, in some cases, be
available to support payments on these securities.
TYPES OF CREDIT SUPPORT. To lessen the effect of failures by obligors on
underlying mortgages to make payments, Mortgage-Backed Securities may contain
elements of credit support. Such credit support falls into two categories: (i)
liquidity protection and (ii) protection against losses resulting from ultimate
default by an obligor on the underlying assets. Liquidity protection refers to
the provision of advances, generally by the entity administering the pool
of-assets, to ensure that the pass-through of payments due on the underlying
pool occurs in a timely fashion. Protection against losses resulting from
ultimate default enhances the likelihood of ultimate payment of the obligations
on at least a portion of the assets in the pool. Such protection may be provided
through guarantees, insurance policies or letters of credit obtained by the
issuer or sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches. The Piper 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 credit worthiness 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.
Zero Coupon Securities
Each Piper Fund may invest in zero coupon securities. A fund accrues
income on such securities for tax and accounting purposes, which is
distributable to shareholders and which, because no cash is received at the time
of accrual, may require the liquidation of other portfolio securities to satisfy
such Piper Fund's distribution obligations. Certain zero coupon obligations are
issued by the United States Treasury and others are issued by government
agencies or instrumentalities. Investment banks may also strip Treasury
securities and sell them under proprietary names. Only "stripped" U.S.
Government Securities which are issued through the United States Treasury's
STRIPS program are considered to be direct obligations of the United States
Government.
Corporate Debt Securities
Corporate Debt Securities, in which OIF may invest, are fixed income
securities of United States corporations, which securities are, at the time of
investment, are either rated BBB or higher by Standard & Poor's. The values of
Corporate Debt 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-backed securities, to business conditions affecting the
specific industries in which the issuers are engaged. OIF may invest in certain
types of Corporate Debt 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 OIF as
such securities generate taxable income from the current accrual of original
issue discount, without a corresponding distribution of cash to OIF.
<PAGE>
Foreign Debt Securities
Foreign Debt Securities are debt securities issued by foreign corporations
and foreign governments considered stable by the Adviser and non-U.S. dollar
denominated securities issued by United States corporations and by agencies and
instrumentalities of the United States government. OIF will invest only in
Foreign Debt Securities rated AAA or AA by Standard & Poor's at the time of
investment. The foreign government securities in which OIF will invest generally
consist of obligations supported by national, state and provincial governments
or similar political subdivisions through their authority to levy taxes.
Other Investment Management Practices
Options Transactions
Options on Securities
The Piper Funds may purchase put and call options on securities and may
write covered call options on securities which they own or have the right to
acquire. A fund may purchase put options to hedge against a decline in the value
of its portfolio. By using put options in this way, a fund would reduce any
profit it might otherwise have realized in the underlying security by the amount
of the premium paid for the put option and by transaction costs. In similar
fashion, a fund may purchase call options to hedge against an increase in the
price of securities that the fund anticipates purchasing in the future. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by the fund upon exercise of the option, and, unless
the price of the underlying security rises sufficiently, the option may expire
unexercised.
The writer (seller) of a call option has no control over when the
underlying securities must be sold; the writer may be assigned an exercise
notice at any time prior to the termination of the option. If a call option is
exercised, the writer experiences a profit or loss from the sale of the
underlying security. The writer of a call option that wishes to terminate its
obligation may effect a "closing purchase transaction." This is accomplished by
buying an option on the same security as the option previously written. If a
fund was unable to effect a closing purchase transaction in a secondary market,
it would not be able to sell the underlying security until the option expires or
it delivers the underlying security upon exercise.
Futures Contracts and Options on Futures Contracts
The Piper Funds may enter into contacts for the purchase or sale for
future delivery of fixed income securities or contracts based on financial
indices including any index of U.S. Government Securities and may purchase and
write put and call options to buy or sell futures contracts. These investment
techniques are designed primarily to hedge against anticipated future changes in
market conditions or foreign exchange rates which otherwise might adversely
affect the value of securities which a fund holds or intends to purchase.
At the same time a futures contract is purchased or sold, a fund generally
must allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1-1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the fund would
provide or receive cash that reflects any decline or increase in the contract's
value. Futures transactions also involve brokerage costs and require a Fund to
segregate liquid assets, such as cash, U.S. Government Securities or other
liquid high grade debt obligations, to cover its performance under such
contracts.
A fund may lose the expected benefit of futures transactions if interest
rates, securities prices or foreign exchange rates move in an unanticipated
manner. Such unanticipated changes may also result in
<PAGE>
poorer overall performance than if the fund had not entered into any futures
transactions. In addition, the value of a fund's futures positions may not prove
to be perfectly or even highly correlated with the value of its portfolio
securities and foreign currencies, limiting the fund's ability to hedge
effectively against interest rate, foreign exchange rate and/or market risk and
giving rise to additional risks. Because of the low margin requirements in the
futures markets, they may be subject to market forces, including speculative
activity, which do not affect the cash markets. There also is no assurance of
liquidity in the secondary market for purposes of closing out futures positions.
Foreign Currency Exchange Transactions
OIF, in connection with its investment activity in Foreign Debt
Securities, may engage in foreign currency exchange transactions to protect
against uncertainty in the level of the rate of exchange between the U.S. dollar
and foreign currencies. OIF may engage in such transactions in connection with
the purchase and sale of portfolio securities ("transaction hedging"), and to
protect the value of specific portfolio positions ("position hedging").
OIF may engage in "transaction hedging" to protect against a change in the
exchange rate between the date on which OIF contracts to purchase or sell the
security and the settlement date, or to "lock in" the U.S. dollar equivalent of
a dividend or interest payment in a foreign currency. For that purpose, OIF may
purchase or sell any foreign currency on a spot (or cash) basis at the
prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in such foreign currencies. If conditions
warrant, OIF may also enter into contracts to purchase or sell foreign
currencies at a future date ("forward contracts") and purchase and sell foreign
currencies or futures contracts as a hedge against changes in foreign currencies
or exchange rates between the trade and settlement dates on particular
transactions and not for speculation.
A foreign currency forward contract is a negotiated agreement to exchange
currency at a future time at a rate or rates that may be higher or lower than
the spot rate. Foreign currency futures contracts are standardized
exchange-traded contracts and have margin requirements. For transaction hedging
purposes, OIF may also purchase exchange-listed and over-the-counter call and
put options on foreign currencies or future contracts thereon. A put option on a
futures contract gives OIF the right to assume a short position in the futures
contract until expiration of the option. A put option on currency gives OIF the
right to sell a currency at an exercise price until the expiration of the
option. A call option on a futures contract gives OIF the right to assume a long
position in the futures contract until the expiration of the option. A call
option on currency gives OIF the right to purchase a currency at the exercise
price until the expiration of the option.
OIF may engage in "position hedging" to protect against a decline in the
value relative to the U.S. dollar in its securities denominated in foreign
currencies (or an increase in the value of the foreign currency for securities
which OIF intends to buy, when it holds cash reserves and short-term
investments). For position hedging purposes, OIF may purchase or sell foreign
currency futures contracts and forward contracts, and may purchase put or call
options on foreign currencies or on futures contracts thereon on exchanges or
over-the-counter markets. In connection with position hedging, OIF may also
purchase or sell foreign currencies on a spot basis.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, it may be necessary for OIF to purchase additional amounts of
foreign currencies on the spot market (and bear the expenses of such purchase)
if the market value of the security or securities being hedged is less than the
amount of such foreign currencies OIF is obligated to deliver and if a decision
is made to sell the security or securities and make delivery of the foreign
currencies. Conversely, it may be necessary to sell on the spot market some of
the foreign currencies received upon the sale of the portfolio security or
securities if the market value of such security or securities exceeds the amount
of foreign currencies OIF is obligated to deliver.
<PAGE>
Hedging transactions involve costs and may result in losses. OIF may write
covered call options on foreign currencies to offset some of such costs. OIF may
engage in over-the-counter transactions only when appropriate exchange-traded
transactions are unavailable and when, in the opinion of the Adviser, the
pricing mechanism and liquidity are satisfactory and the participants are
responsible parties likely to meet their contractual obligations. OIF's ability
to engage in hedging and related option transactions may be limited to tax
considerations. See "Taxation-Consequences of Certain Piper Funds Investments."
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which OIF owns or intends to purchase or
sell. They simply establish a rate of exchange which one can achieve at some
future point in time. Additionally, although these techniques tend to minimize
the risk of loss due to a decline in the value of the hedged currency, they tend
to limit any potential gain which might result from the increase in the value of
such currency.
A forward foreign currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract as agreed by the parties, at a
price set at the time of the contract. In the case of a cancelable forward
contract, the holder has the unilateral right to cancel the contract at maturity
by paying a specified fee. The contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades. A foreign currency futures
contract is a standardized contract for the future delivery of a specified
amount of a foreign currency at a future date at a price set at the time of the
contract. Foreign currency futures contracts traded in the United States are
designated by and traded on exchanges regulated by the Commodities Futures
Trading Commission (the "CFTC") such as the New York Mercantile Exchange. OIF
would enter into foreign currency futures contracts solely for hedging or other
appropriate risk management purposes as defined in CFTC regulations.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. For example, the maturity date of a
forward contract may be any fixed number of days from the date of the contract
agreed upon by the parties, rather than a predetermined date in any given month.
Forward contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, OIF may either accept or
make delivery of the currency specified ln the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
Positions in foreign currency futures contracts may be closed out only on
an exchange or board of trade which provides a secondary market in such
contracts. Although OIF intends to purchase or sell foreign currency futures
contracts only on exchanges or boards of trade where there appears to be an
active secondary market, there is no assurance that a secondary market on an
exchange or board of trade will exist for any particular contract or at any
particular time. In such event, it may not be possible to close a futures
position and, in the event of adverse price movements, OIF would continue to be
required to make daily cash payments of variation margin.
Options on foreign currencies operate similarly to options on securities,
and are traded primarily in the over-the-counter market, although options on
foreign currencies have recently been listed on several exchanges. Options
traded in the over-the-counter market are illiquid and it may not be possible
for OIF to dispose of an option it has purchased or terminate its obligations
under an option it has written
<PAGE>
at a time when the Adviser believes it would be advantageous to do so. Options
on foreign currencies are affected by all of those factors which influence
foreign exchange rates and investments generally.
The value of a foreign currency option is dependent upon the value of the
foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign debt security. Because foreign currency
transactions occurring in the interbank market involve substantially larger
amounts than those that may be involved in the use of foreign currency options,
investors may be disadvantaged by having to deal in an odd lot market (generally
consisting of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options market.
Although foreign exchange dealers do not charge a fee for currency
conversion, they do realize a profit based upon the difference (the "spread")
between prices at which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to OIF at one rate, while offering a
lesser rate of exchange should OIF desire to resell that currency to the dealer.
Lending of Portfolio Securities
When a fund lends portfolio securities, it must receive 100% collateral as
described in the Prospectuses. This collateral must be valued daily by the
Adviser and, if the market value of the loaned securities increases, the
borrower must furnish additional collateral to the lending fund. During the time
portfolio securities are on loan, the borrower pays the lending fund any
dividends or interest paid on the securities. Loans are subject to termination
by the lending fund or the borrower at any time. While a fund does not have the
right to vote securities on loan, it would terminate the loan and regain the
right to vote if that were considered important with respect to the investment.
The Piper Funds will not lend portfolio securities in excess of 30% of the value
of their total assets (including such loan), nor will the Piper Funds lend their
portfolio securities to an officer, director, employee or affiliate of such fund
or the Adviser.
<PAGE>
When-Issued and Forward Commitment Securities
Each Piper Fund may purchase securities offered on a "when-issued" basis
and may purchase or sell securities on a "forward commitment" basis. When a fund
purchase securities on a when-issued or forward commitment basis, it will
maintain in a segregated account with its custodian cash or liquid high-grade
debt obligations having an aggregate value equal to the amount of such purchase
commitments, marked to the market daily, until payment is made; the Piper Funds
will likewise segregate securities it sells on a forward commitment basis. On
the delivery date, a fund will meet their obligations from securities that are
then maturing or sales of the securities held in the segregated asset account
and/or from the available cash flow.
Repurchase Agreements
Each Piper Fund may invest in repurchase agreements. Each Piper Fund's
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 Piper Funds will promptly receive additional collateral (so the
total collateral is an amount at least equal to the repurchase price plus
accrued interest).
Pursuant to an exemptive order received from the Securities and Exchange
Commission, the Piper Funds may, along with any open-end investment companies or
series thereof and any other closed-end investment companies currently managed
by Piper Capital, and all future investment companies or series thereof advised
by the Adviser or its affiliates, deposit uninvested cash balances into one
joint account to be used to enter into one or more large repurchase agreements.
Portfolio Turnover
Because the Piper Funds will actively manage their portfolio to benefit
from yield disparities among different issues of securities or otherwise to
achieve its investment objectives and policies, the Piper Funds may be subject
to a greater degree of portfolio turnover and, thus, a higher incidence of
short-term capital gain than might be expected from investment companies that
invest substantially all of their funds on a long-term basis. Correspondingly
larger transaction costs can be expected to be borne by each Piper Fund. The
Piper Funds cannot accurately predict their portfolio turnover rate, but it is
anticipated that the annual turnover rate of each Piper Fund generally will not
exceed 200% (excluding turnover of securities having a maturity of one year or
less). An annual turnover rate of 200% occurs, for example, when all of the
securities in a fund's portfolio are replaced once in a period of one
year. A greater turnover rate can be expected to result in a higher incidence of
short-term capital gain and will also result in correspondingly greater
transaction costs (I.E., underwriters' commissions and the spread of the bid and
asked prices quoted by dealers) to be borne by such Piper Fund.
Investment Restrictions
The investment objectives and the following investment restrictions of the
Piper Funds are fundamental and cannot be changed without the approval of the
holders of a majority of the applicable Piper Fund's outstanding voting
securities (defined in the Investment Company Act of 1940, as amended (the "1940
Act") as the lesser of (a) more than 50% of the outstanding shares or (b) 67% or
more of the shares represented at a meeting where more than 50% of the
outstanding shares are represented). All other investment policies or practices
are considered by the Piper Funds not to be fundamental and, accordingly, may be
changed without shareholder approval. If a percentage restriction on investment
or use of assets set forth below is adhered to at the time a transaction is
<PAGE>
effected, later changes in percentage resulting from changing market values will
not be considered a deviation from policy. Each Piper Fund may not:
(1) invest 25% or more of the value of its total assets in the
securities of issuers conducting their principal business activities in
the same industry or in the obligations of any one government and, for
OIF, (i) invest 25% or more of the value of its total assets in the
securities of any one issuer or (ii) with respect to 75% of its total
assets, invest more than 5% of the value of its total assets in the
outstanding securities of any one issuer, or own more than 10% of the
outstanding voting securities of any one issuer; provided, however, that
this limitation does not apply to U.S. Government Securities;
(2) issue senior securities in the form of indebtedness and borrow
money (including on margin if marginable securities are owned), except (i)
for AGF, (a) it may borrow from a bank or other entity in a privately
arranged transaction and issue commercial paper, bonds, debenture or
notes, with such interest rates, conversion rights and other terms and
provisions as are determined by AGF's Board of Directors, if after each
borrowing there is asset coverage of at least 300% (including the proceeds
of such senior securities issued and money borrowed) and (b) it may borrow
for temporary purposes in an amount not exceeding 20% of the value of its
total assets; (ii) for AAF, it may borrow from banks or other entities to
finance repurchases of or tenders for its shares, for temporary or
emergency purposes, or for investment purposes,provided that the aggregate
outstanding principal of all borrowings by AAF may not exceed 25% of the
value of its total assets; and (iii) for OIF, it may borrow in an amount
not exceeding 33 1/3% of the value of its total assets;
(3) pledge, hypothecate, mortgage or otherwise encumber its assets,
except to secure issuances or borrowings permitted by restriction (2)
above (collateral arrangements with respect to reverse repurchase
agreements or to margin for futures contracts and options are not deemed
to be pledges or other encumbrances for purposes of this restriction);
(4) make loans of money or property to any person, except through
loans of portfolio securities, the purchase of debt obligations in which a
fund may invest consistently with a fund's investment objectives and
policies or the acquisition of securities subject to repurchase
agreements;
(5) underwrite the securities of other issuers, except to the extent
that in connection with the disposition of portfolio securities or the
sale of its own shares a fund may be deemed to be an underwriter;
(6) invest for the purpose of exercising control over management of
any company;
(7) purchase, hold, sell or deal in real estate or interests therein
other than mortgage-backed securities and similar instruments;
(8) purchase or sell commodities or commodity contracts except that
a fund may purchase and sell futures contracts and options on futures
contracts for hedging or for other non-speculative purposes;
<PAGE>
(9) make any short sale of securities, unless, for AGF and AAF, at
all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable for, without
payment of any further consideration, securities of the same issue as, and
equal in amount to, the securities sold short, and unless not more then
10% of such Piper Fund's net assets is held as collateral for such sales
at any one time;
(10) for AGF and AAF, purchase any security or evidence therein on
margin, except that such short-term credit may be obtained as may be
necessary for the clearance of purchases and sales of securities; or
(11) for AGF and AAF, invest interests in oil, gas, or other mineral
exploration or development programs.
TENDER OFFERS AND SHARE REPURCHASES
Under certain circumstances, the Piper Funds may make a tender offer for
their shares. If a tender offer has been made, it is each Piper Fund's policy,
which may be changed by the Board, not to accept tenders or effect repurchases
if (1) such transactions, if consummated, would either (a) result in the
delisting of the shares of the applicable Piper Fund by the New York Stock
Exchange (the exchange having advised the applicable Piper Fund that it would
consider delisting if the aggregate market value of the outstanding shares is
less than $5,000,000, the number of publicly held shares falls below 600,000 or
the number of round-lot holders falls below 1,200) or (b) impair a fund's status
as a regulated investment company under the Code (which would make a fund a
taxable entity, causing such fund's income to be taxed at the corporate level in
addition to the taxation of shareholders who receive dividends from such fund);
(2) a fund would not be able to borrow money or liquidate portfolio securities
in an orderly manner to fund such purchases consistent with a fund's investment
objectives and policies without creating a negative impact on the net asset
value of such fund to the detriment of non-tendering shareholders; or (3) there
is, in the judgment of the Board of Directors, any material (a) legal action or
proceeding instituted or threatened challenging such transactions or otherwise
materially adversely affecting a fund, (b) suspension of or limitation on prices
for trading securities generally on the New York Stock Exchange, or any other
exchange on which portfolio securities of the fund is traded, (c) declaration of
a banking moratorium by federal or state authorities or any suspension of
payment by banks in the United States, (d) limitation affecting a fund or the
issuers of its portfolio securities imposed by federal or state authorities on
the extension of credit by lending institutions, (e) commencement of war, armed
hostilities or other international or national calamity directly or indirectly
involving the United States, or (f) other event or condition that would have a
material adverse effect on a fund or its shareholders if shares of the
applicable Piper Fund were repurchased. The Board of Directors of the Piper
Funds may modify these conditions in light of experience and in light of then
applicable federal and state securities laws and regulations and interpretations
thereof.
It is currently anticipated that when a tender offer is authorized to be
made by a fund's Board of Directors, a shareholder wishing to accept the offer
will be required to tender all (but not less than all) of the shares owned by
such shareholder (or attributed to him for federal income tax purposes under
Section 318 of the Code). Each person tendering shares will pay to the
applicable fund a service charge of $25.00 to help defray certain costs,
including the processing of tender forms, effecting payment, postage and
handling. Such fund's transfer agent will receive the service charge as an
offset to these costs. The service charge will not be deducted from the proceeds
of the purchase. The Piper Funds expect the cost to the Piper Funds of effecting
a tender offer will exceed the aggregate of all service charges received from
those who tender their shares of the Piper Funds. Costs associated with the
tender will be charged against capital. The Board of Directors may modify these
procedures in light of experience and in light of then applicable federal and
state securities laws and regulations and interpretations thereof.
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The names, addresses and principal occupations during the past five
years of the directors and executive officers of the Piper Funds are given
below. Each of the Piper Funds' directors and officers also serves as a director
and/or officer of each of the open-end and closed-end investment companies
managed by the Adviser.
Name, Address and (Age) Position
- ------------------------- -------------------------------
David T. Bennett* (57) Chairman of Board of Directors
3400 City Center
33 South Sixth Street
Minneapolis, MN 55402
Jaye F. Dyer (70) Director
4670 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
William H. Ellis* (55) Director
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, MN 55402-3804
Karol D. Emmerich (48) Director
7302 Clarendon Drive
Edina, MN 55439
Luella G. Goldberg (60) Director
7019 Tupa Drive
Edina, MN 55435
David A. Hughey (66) Director
134 Powers Road
Meridith, NH 55105
George Latimer (62) Director
1536 Hewitt Avenue
Saint Paul, MN 55105
Paul A. Dow (46) President
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, MN 55402-3804
Robert H. Nelson (34) Senior Vice President
Piper Jaffray Tower and Treasurer
222 South Ninth Street
Minneapolis, MN 55402-3804
<PAGE>
- ---------------
* Directors of the Company who are interested persons (as that term is
defined by the 1940 Act) of Piper Capital Management Incorporated and the
Piper Funds.
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
investment management company, since 1991. Mr. Dyer serves on the board of
directors various privately held and nonprofit corporations.
William H. Ellis is retired. Prior to September 1997, he was President of
Piper Jaffray Companies Inc., President, Director and Chairman of the Board of
Piper Capital and Director of Piper Jaffray Inc.
Karol D. Emmerich has been a President of Paraclete Group, a consultant to
nonprofit and other organizations, since May 1993. Ms. Emmerich is an Executive
Fellow at the University of St. Thomas Graduate School of Business and serves on
the board of directors of a number of privately held and nonprofit
organizations.
Luella G. Goldberg has served as a director of Northwestern National Life
Insurance Company (since 1976), The Reliastar Financial Corp. (since 1989), TCF
bank Savings fsb (since 1985), TCF Financial Corp. (since 1988), and Hormel
Foods Corp. (since 1993). Ms. Goldberg also serves as Trustee of Wellesley
College and as a director of a number of other organizations, including the
University of Minnesota Foundation and the Minnesota Orchestral Association, Ms.
Goldberg was Chairman of the Board of Trustees of Wellesley College from 1985 to
1993 and acting President from July 1, 1993 to October 1, 1993.
David A. Hughey is a trustee of Bentley College. Prior to September 1996,
he was Executive Vice President and Chief Administrative Officer of Dean Witter
InterCapital Inc., Dean Witter Services Company Inc. and Dean Witter
Distributors Inc.; Director, Executive Vice President and Chief Administrative
Officer of Dean Witter Trust Company; Vice President of Dean Witter Family of
Funds and TCW/DW Family of Funds; and Director of ISI 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. Mr. Latimer also serves on the board of director of
Digital Biometrics, Inc. and Payless Cashways, Inc.
Paul A. Dow is Chief Investment Officer of the Adviser and has been Chief
Executive Officer of the Adviser since 1997, prior to which he served as Senior
Vice President of Piper Capital.
Robert H. Nelson has been Senior Vice President of Piper Capital since
1993.
Ms. Emmerich, Ms. Goldberg and Mr. Hughey are members of the Audit
Committee of the Piper Funds. Ms. Emmerich acts as the chairperson of such
committee. The Audit Committee oversees the financial reporting process of the
Piper Funds, reviews audit results and recommends annually to the Piper Funds, a
firm of independent certified public accountants.
<PAGE>
The directors of the Piper Funds who are officers or employees of the
Adviser or any of its affiliates receive no remuneration from the Piper Funds.
The Piper Funds, together with all closed-end investment companies managed by
the Adviser, pays each of the other directors an aggregate quarterly retainer of
$5,000, which is allocated among the Piper Funds and such other investment
companies on the basis of each company's net assets. In addition, the Piper
Funds pay each such director a fee for each in-person meeting of the Board of
Directors he or she attends. Such fee will be based upon the net asset value of
the Piper Funds and could range from $250 (net assets under $200 million) to
$1,500 (net assets of $5 billion or more). Members of the Audit Committee who
are not affiliated with the Adviser receive $1,000 per meeting attended ($2,000
for the Chairperson of such Committee) with such fee being allocated among all
closed-and open-end investment companies managed by the Adviser on the basis of
relative net asset values. 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 AGF, AAF and OIF during the fiscal years ended October 31, 1997, as well as
the total compensation received by each director from the Piper Funds and all
other registered investment companies managed by the Adviser or affiliates of
the Adviser during the calendar year ended December 31, 1997 (the "Fund
Complex"). Directors who are officer or employees of the Adviser or any of its
affiliates did not receive any such compensation and are not included in the
table.
Compensation Compensation Compensation Total Compensation
Director from AGF from AAF from OIF from Fund Complex*
------- ------- ------- -------
David T. Bennett $ 2,031 $ 2,031 $ 2,031 $59,000
Jaye F. Dyer $ 1,906 $ 1,906 $ 1,906 $55,000
Karol D. Emmerich $ 2,031 $ 2.031 $ 2.031 $59,000
Luella G. Goldberg $ 1,969 $ 1,969 $ 1,969 $57,000
George Latimer $ 1.969 $ 1,906 $ 1,906 $55,000
David A. Hughey $ 1,969 $ 1,906 $ 1,906 $57,000
------- ------- ------- -------
- ---------------
*Currently consists of 20 registered investment companies managed by Piper
Capital or an affiliate of Piper Capital. 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
Adviser
The investment adviser of Piper Funds is Piper Capital Management
Incorporated. It acts as such pursuant to a written agreement with each Piper
Fund which is periodically approved by the directors or the shareholders of the
Funds. The address of the Adviser is Piper Jaffray Tower, 222 South Ninth
Street, Minneapolis, Minnesota 55402-3804.
Control of the Adviser
The Adviser is a wholly-owned subsidiary of Piper Jaffray Companies Inc.,
a publicly held corporation which is engaged through its subsidiaries in various
aspects of the financial services industry. As a result of the Holding Company
Merger, the Adviser became an indirect wholly-owned subsidiary of U.S. Bancorp,
a bank holding company. The principal business address of U.S. Bancorp is 601
Second Avenue South, Minneapolis, Minnesota 55402.
Investment Advisory Agreements
<PAGE>
The Old Investment Advisory Agreements (the "Old Advisory Agreements")
were approved by the Directors of each Piper Fund and its initial shareholder.
As more completely described in the Combined Proxy Statement/Prospectus, on the
date of the Holding Company Merger, in accordance with the terms of the Old
Advisory Agreements, and consistent with the requirements of the 1940 Act, the
Old Advisory Agreements terminated.
Pursuant to an Exemptive Order filed by Piper Jaffray Inc., the Piper
Funds and the Adviser, the Adviser was permitted to enter into interim
Investment Advisory Agreements with the Piper Funds (the "Interim Advisory
Agreements"). The Interim Advisory Agreements are subject to approval of the
shareholders of each Piper Fund. At the Meeting to which the Combined Proxy
Statement/Prospectus is related, shareholders will vote on a proposal to approve
the Interim Advisory Agreement. If ratified and approved, the Interim Advisory
Agreements will continue in effect with respect to the Piper Funds either (i)
for successive one-year terms, subject to certain annual approval requirements,
or (ii) until the Reorganization is completed (which, subject to various
conditions described herein, is expected to occur on or about July 31, 1998).
Fund Administration
The Administration Agreements for each Piper Fund were approved by the
directors and initial shareholder. The Administration Agreements may continue in
effect only so long as such continuance is specifically approved at least
annually by the Board of Directors, including the specific approval of a
majority of the directors who neither are interested persons (as defined in the
1940 Act) of the Piper Funds or of the Adviser nor have any direct or indirect
financial interest in the Administration Agreement, cast in person at a meeting
called for the purpose of voting on such approval or by the vote of the holders
of a majority of the outstanding shares (as defined in the 1940 Act) of the
Piper Funds.
In its capacity as administrator and in consideration of its
administrative fee, the Adviser (i) will prepare all semi-annual and annual
reports required to be sent to shareholders and arrange for the printing and
dissemination of such reports to shareholders; (ii) will assemble all reports
required to be filed with the Securities and Exchange Commission (the "SEC") on
Form N-SAR, or such other form as the SEC may substitute for Form N-SAR, and
file such completed form with the SEC; (iii) will review the provision of
services by the independent accountants of the Piper Funds, including, but not
limited to, the auditing by such accountants of the Piper Funds' annual
financial statements and the preparation of the Piper Funds' federal, state and
local tax returns, and will make such reports and recommendations to the Board
of Directors concerning the performance of the independent accountants as the
Board of Directors reasonably requests or as it deems appropriate; (iv) will
file with the appropriate authorities all required federal, state and local tax
returns; (v) will arrange for the dissemination to shareholders of the Piper
Funds' proxy materials, and will oversee the tabulation of proxies by the Piper
Funds' transfer agent; (vi) will negotiate the terms and conditions under which
custodian services will be provided to the Piper Funds and the fees to be paid
by the Piper Funds in connection therewith; (vii) will recommend an accounting
agent (which may or may not be the same party as the Piper Funds' custodian or
an affiliate of the Piper Funds' custodian) to the Board of Directors, which
agent would be responsible for computing the Piper Funds' net asset value in
accordance with the Piper Funds' registration statement under the 1940 Act and
Securities Act of 1933, will negotiate the terms and conditions under which such
accounting agent would compute the Piper Funds' net asset value, and the fees to
be paid by the Piper Funds in connection therewith, will review the provision of
such accounting services to the Piper Funds, and will make such reports and
recommendations to the Board of Directors concerning the provision of such
services as the Board reasonably requests or it deems appropriate; (viii) will
negotiate the terms and conditions under which transfer agency and dividend
disbursing services will be provided to the Piper Funds and the fees to be paid
by the Piper Funds in connection therewith, will review the provision of
transfer agency and dividend disbursing services to the Piper Funds, and will
make such reports and recommendations to the Board of Directors concerning the
provision of such services as the Board of Directors reasonably requests or
deems appropriate; (ix) will establish the accounting policies of the Piper
Funds, will reconcile accounting issues which may arise with respect to the
Piper Funds' operations, and will
<PAGE>
consult with the Piper Funds' independent accountants, legal counsel, custodian,
accounting agent and transfer and dividend disbursing agent as necessary in
connection therewith; (x) will determine the amount of all dividends and
distributions to be paid by the Piper Funds to its shareholders, will prepare
and arrange for the printing of dividend notices to shareholders, and will
provide the Piper Funds' transfer and dividend disbursing agent and custodian
with such information as is required for such parties to effect the payment of
dividends and distributions and to implement the Piper Funds' dividend
reinvestment plan; and (xi) will review the Piper Funds' bills and make payment
of such bills for reimbursement by the Piper Funds' custodian.
The Adviser reserves the right to voluntarily reduce or waive fees under
the Advisory Agreement or Administration Agreement, based upon such terms and
conditions as the Adviser may determine. Any such reduction or waiver of fees
may be discontinued by the Adviser at any time.
Independent Auditors
KPMG Peat Marwick LLP, 4200 Norwest Center, Minneapolis, Minnesota 55402,
acts as the independent certified accountants for the Piper Funds and in such
capacity will examine each Piper Fund's annual financial statements.
BROKERAGE AND PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Board of Directors of the Piper
Funds, the Adviser is responsible for the investment decisions and the placing
of the orders for portfolio transactions for the Piper Funds. The Piper Funds'
portfolio transactions in debt securities occur primarily with issuers,
underwriters or major dealers acting as principals. Such transactions are
normally on a net basis that do not involve payment of brokerage commissions.
The cost of securities purchased from an underwriter usually includes a
commission paid by the issuer to the underwriters; transactions with dealers
normally reflect the spread between bid and asked prices. Commissions are paid
with respect to the purchase of certain other securities in which the Piper
Funds may invest, and with respect to options on securities, futures contracts
and options on futures contracts purchased by the Piper Funds.
The Piper Funds have no obligation to enter into transactions in portfolio
securities with any dealer, issuer, underwriter or other entity. The Piper Funds
will not purchase securities from, or sell securities to, the Adviser or its
respective affiliates acting as principal. In placing orders, it is the policy
of the Piper Funds to obtain the best price and execution for its transactions.
Where best price and execution may be obtained from more than one dealer, the
Adviser may, in its discretion, purchase and sell securities through dealers who
provide research, statistical and other information to the Adviser. The
investment information provided to the Adviser is of the types described in
Section 28(e)(3) of the Securities Exchange Act of 1934 and is designed to
augment the Adviser's own internal research and investment strategy
capabilities. Research and statistical services furnished by brokers through
which the Piper Funds effects securities transactions are used by the Adviser in
carrying out its investment management responsibilities with respect to all its
client accounts but not all such services may be used by the Adviser in
connection with the Piper Funds. The Piper Funds will not purchase at a higher
price or sell at a lower price in connection with transactions effected with a
dealer, acting as principal, who furnishes research services to the Piper Funds
than would be the case if no weight were given by the Adviser to the dealer's
furnishing of services.
The supplemental information received from a dealer is in addition to the
services required to be performed by the Adviser under the Interim Advisory
Agreements, and the expenses of the Adviser will not necessarily be reduced as a
result of the receipt of such information.
Certain clients of the Adviser may have investment objectives and policies
similar to those of the Piper Funds. The Adviser may, from time to time, make
recommendations that result in the purchase or sale of a particular security by
its other clients simultaneously with the Piper Funds.
<PAGE>
("Security" is defined for these purposes to include options, futures contracts
and options on futures contracts.) If transactions on behalf of more than one
client during the same period increase the demand for securities being purchased
or the supply of securities being sold, there may be an adverse effect on price
or quantity. In addition, it is possible that the number of options or futures
transactions that the Piper Funds may enter into may be affected by options or
futures transactions entered into by other investment advisory clients of the
Adviser. It is the policy of the Adviser to allocate advisory recommendations
and the placing of orders in a manner that is deemed equitable by the Adviser to
the accounts involved, including the Piper Funds. When two or more of the
clients of the Adviser (including one of the Piper Funds) are purchasing or
selling the same security on a given day from the same broker-dealer, such
transactions may be averaged as to price.
Transactions in securities, options on securities, futures contracts and
options on futures contracts may be effected through Piper Jaffray Inc. if the
commissions, fees or other remuneration received by Piper Jaffray Inc. are
reasonable and fair compared to the commissions, fees or other remuneration paid
to other brokers or other futures commission merchants in connection with
comparable transactions involving similar securities or similar futures
contracts or options thereon being purchased or sold on an exchange or contract
market during a comparable period of time. In effecting portfolio transactions
through Piper Jaffray Inc., the Piper Funds intend to comply with Section
17(e)(i) of the 1940 Act.
TAXATION
General
Each Piper Fund intends to qualify under Subchapter M for tax treatment as
a regulated investment company for federal income tax purposes. In order to so
qualify, each Piper Fund must meet certain requirements imposed by the Internal
Revenue Code of 1986, as amended (the "Code"), as to the sources of its income
and the diversification of its assets. Each Piper Fund must, among other things,
(a) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to loans of securities, gains from the sale or
other disposition of securities or other income derived with respect to its
business of investing in such securities (including, but not limited to, gains
from options, futures or forward contracts); and (b) diversify its holdings so
that, at the end of each fiscal quarter, (i) at least 50% of the value of its
assets is represented by (A) cash, United States government securities or
securities of other regulated investment companies, and (B) other securities
that, with respect to any one issuer, do not represent more than 5% of the value
of its assets or more than 10% of the voting securities of such issuer, and (ii)
not more than 25% of the value of its assets is invested in the securities of
any issuer (other than U.S. Government Securities or the securities of other
regulated investment companies) or two or more issuers controlled by the Piper
Fund and determined to be engaged in the same trade or business.
If a fund qualifies as a regulated investment company and satisfies a
minimum distribution requirement, such fund will not be subject to federal
income tax on income and gains to the extent that it distributes such income and
gains to its shareholders. The minimum distribution requirement is satisfied if
a fund distributes at least 90% of its net investment income (including
tax-exempt interest) and net short-term capital gains for the taxable year.
Although each Piper Fund intends to satisfy the above minimum distribution
requirement, it may elect to retain its remaining net investment income and net
short-term capital gains. In such an event, a fund would be subject to corporate
tax (currently at a 35% rate) on any undistributed income. Each Piper Fund will
be subject to a nondeductible 4% excise tax to the extent that it does not
distribute by the end of each calendar year (or is not subjected to regular
corporate tax in such year on) an amount equal to the sum of (a) 98% of its
ordinary income for such calendar year; (b) 98% of the excess of capital gains
over capital losses for the one-year period generally ending on October 31 of
each year; and (c) the undistributed income and gains from the preceding years
(if any).
<PAGE>
As discussed above, each Piper Fund intends to continue to distribute
sufficient income to qualify as a regulated investment company. However, each
Piper Fund may retain all or a portion of its net investment income in excess of
such amount, which net investment income may be subject to the corporate income
or the excise tax. In addition, each Piper Fund may in the future decide to
retain all or a portion of its net capital gain, as described under "Federal Tax
Treatment of Shareholders" below.
Federal Tax Treatment of Shareholders
DISTRIBUTIONS TO SHAREHOLDERS. Distributions to shareholders attributable
to the Piper Funds' net investment income (including interest income and net
short-term capital gains) are taxable as ordinary income whether paid in cash or
reinvested in additional shares of a fund. In general, distributions will
qualify for the dividends received deduction for corporate shareholders only to
the extent that such distributions are attributable to dividends which are
received from U.S. corporations and which satisfy certain other requirements.
Distributions of any net capital gain (i.e., the excess of net long-term
capital gain over net short-term capital loss, if any) that are designated as
capital gain dividends generally are taxable as long-term capital gains, whether
paid in cash or additional shares of a fund, regardless of how long the shares
have been held. In the case of shareholders who are individuals, estates, or
trusts, each Fund will designate the portion of each capital gain dividend that
must be treated as mid-term capital gain ("28% gain") and the portion that must
be treated as long-term capital gain ("20% gain"). For corporations, long-term
capital gains are currently subject to the same rates of tax as ordinary income
(maximum rate of 35%).
Each Piper Fund may elect to retain all or a portion of its net capital
gain and be taxed at the corporate tax rate for such capital gains, which is
currently 35%. In such event, such fund would most likely make an election that
would require each shareholder of record on the last day of the fund's taxable
year to include in income for tax purposes his proportionate share of the fund's
undistributed net capital gain. If such an election is made, each shareholder
would be entitled to credit his proportionate share of the tax paid by the fund
against his federal income tax liabilities and to claim refunds to the extent
that the credit exceeds such liabilities. In addition, the shareholder would be
entitled to increase the basis of his shares for federal tax purposes by an
amount equal to 65% of his proportionate share of the undistributed net capital
gain.
Dividends and distributions by the Piper Funds are generally taxable to
the shareholders at the time the dividend or distribution is made (even if
reinvested in additional shares of the Piper Funds). However, any dividend
declared by the Piper Funds in October, November or December of any calendar
year which is payable to shareholders of record on a specified date in such a
month will be treated as received by the shareholders as of December 31 of such
year if the dividend is paid during January of the following year. The accrual
by the Piper Funds of original issue or market discount will increase the
investment income of the Piper Funds and the amount required to be distributed.
With respect to distributions received in cash or reinvested in shares of
common stock purchased under the dividend reinvestment plan on the open market,
the amount of the distribution for tax purposes is the amount of cash
distributed or allocated to the shareholder. In such case, a participating
shareholder's tax basis in each share is its cost, including applicable
brokerage commissions. With respect to distributions received in shares issued
by the Piper Funds, the amount of the distribution for tax purposes is generally
the fair market value of the issued shares. In such case, a participating
shareholder's tax basis in each share received is generally its fair market
value.
Shareholders will normally have to pay federal income taxes on the
dividends they receive from a fund to the extent of the fund's earnings and
profits. Any distributions by a fund in excess of its current and accumulated
earnings and profits will be treated as a nontaxable return
<PAGE>
of capital to the extent of the shareholder's basis in his or her shares (with a
corresponding reduction in such basis) and the remainder would generally be
treated as capital gains.
SALE OF SHARES. In general, if a share of common stock is sold or
exchanged, the seller will recognize gain or loss equal to the difference
between the amount received in the sale or exchange and the seller's adjusted
basis in the share of common stock. For corporate shareholders, such gain or
loss will be long-term gain or loss if the shares were held more than one year.
For shareholders who are individuals, estates, or trusts the gain or loss will
be considered long-term if the shareholder has held the shares for more than 18
months and mid-term if the shareholder has held the shares for more than one
year but not more than 18 months. Further, if such shares are held for six
months or less, loss realized by a shareholder will be treated as long-term
capital loss to the extent of the total of any capital gain dividend received by
the shareholder. In addition, any loss realized on a sale or exchange of shares
of common stock will be disallowed to the extent the shares disposed of are
replaced within a period of 61 days beginning 30 days before and ending 30 days
after disposition of the shares. In such case, the basis of the shares acquired
will be adjusted to reflect the disallowed loss.
OTHER TAXES. Distributions may also be subject to state, local and foreign
taxes depending on each shareholder's particular situation.
FOREIGN SHAREHOLDERS. The foregoing discussion relates solely to United
States federal income tax law as applicable to "U.S. persons" (i.e., U.S.
citizens and residents and U.S. domestic corporations, partnerships, trusts and
estates). Shareholders who are not U.S. persons should consult their tax
advisers regarding the U.S. and non-U.S. tax consequences of ownership of shares
of the Piper Funds, including the fact that such a shareholder may be subject to
U.S. withholding tax at a rate of 30% (or at a lower rate under an applicable
U.S. income tax treaty) on amounts constituting ordinary income from U.S.
sources, including ordinary dividends paid by the Piper Funds.
Consequences of Certain Fund Investments
The Piper Funds may engage in various hedging transactions. Under various
provisions of the Code, the result of such transactions may be to change the
character of recognized gains and losses, accelerate the recognition of certain
gains and losses, and defer the recognition of certain losses.
Under Section 988 of the Code, all or a portion of gains and losses from
certain transactions is treated as ordinary income or loss. These rules
generally apply to transactions in certain securities denominated in foreign
currencies, forward contracts in foreign currencies, futures contracts in
foreign currencies that are not "regulated futures contracts," certain unlisted
options and foreign currency swaps. The rules under Section 988 may also affect
the timing of income recognized by the Piper Funds.
The Piper Funds may be subject to U.S. taxes resulting from holdings in a
passive foreign investment company ("PFIC"). A foreign corporation is a PFIC
when 75% or more of its gross income for the taxable year is passive income or
50% or more of the average value of its assets consists of assets that produce
or could produce passive income. Because of the expansive definition of a PFIC,
it is possible that a portion of the a Piper Fund's assets will be invested in
PFICs. However, such portion (if any) is not expected to be significant.
ADDITIONAL INFORMATION
Under Minnesota law, each director owes certain fiduciary duties to the
Piper Funds and their shareholders. Minnesota law provides that a director
"shall discharge the duties of the position of director in good faith, in a
manner the director reasonably believes to be in the best interest of the
corporation, and with the care an ordinarily prudent person in a like position
would exercise under similar circumstances." Fiduciary duties of a director of a
Minnesota corporation include, therefore, a duty of "loyalty" (to act in good
faith and in a manner reasonably believed to be in the best interest of
<PAGE>
the corporation) and a duty of "care" (to act with the care an ordinarily
prudent person in a like position would exercise under similar circumstances).
Minnesota law 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." 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, (b) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of the 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. The Articles of Incorporation of each Piper Fund limit the
liability of directors to the fullest extent permitted by Minnesota law and the
1940 Act.
Minnesota law does not eliminate the duty of "care" imposed upon a
director. It only authorizes a corporation to eliminate monetary liabilities for
violations of that duty. Minnesota law, further, does not permit elimination or
limitation of liability of "officers" to the corporation for breach of their
duties as officers (including the liability of directors who serve as officers
for breach of their duties as officers). Minnesota law does not permit
elimination or limitation of the availability of equitable relief, such as
injunctive or rescissionary relief. These remedies, however, may be ineffective
in situations where shareholders become aware of such a breach after a
transaction has been consummated and rescission has become impractical.
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.
RATINGS
A rating of a rating service represents that service's opinion as to the
credit quality of the rated security. However, such ratings are general and
cannot be considered absolute standards of quality or guarantees as to the
creditworthiness of an issuer. A rating is not a recommendation to purchase,
sell or hold a security, because it does not take into account market value or
suitability for a particular investor. Markets values of debt securities may
change as a result of a variety of factors unrelated to credit quality,
including changes in market interest rates.
When a security has been rated by more than one service, the ratings may
not coincide, and each rating should be evaluated independently. Ratings are
based on current information furnished by the issuer or obtained by the rating
services from other sources which they consider reliable. Ratings may be
changed, suspended or withdrawn as a result of changes in or unavailability of
such information, or for other reasons. In general, the Funds are not required
to dispose of a security if its rating declines after it is purchased, although
they may consider doing so.
RATINGS OF CORPORATE DEBT OBLIGATIONS AND MUNICIPAL BONDS
STANDARD & POOR'S
AAA: Securities rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal
is extremely strong.
AA: Securities rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only to a small
degree.
A: Securities rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to adverse effects
of changes in circumstances and economic conditions than bonds in higher
rated categories.
<PAGE>
BBB: Securities rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Although such securities normally
exhibit adequate protection standards, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to
pay interest and repay principal for securities in this category than for
those in higher rated categories.
Debt rated BB, B, CCC, CC, and C by Standard & Poor's is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
BB: Securities rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The BB rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BBB- rating.
B: Securities rated B have a greater vulnerability to default but
currently have the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will
likely impair capacity or willingness to pay interest and repay principal.
The B rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BB or BB- rating.
CCC: Securities rated CCC have a currently identifiable vulnerability to
default, and are dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, they are not likely to have the capacity to pay interest and
repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or B-
rating.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
MOODY'S
Aaa: Securities 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
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.
Aa: Securities 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 securities. They are rated lower than the best
securities because margins of protection may not be as large as in Aaa
securities, or fluctuation of protective elements may be of greater
magnitude, or there may be other elements present which make the long-term
risks appear somewhat greater than in Aaa securities.
A: Securities which are rated A possess many favorable investment
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.
<PAGE>
Baa: Securities which are rated Baa are considered as medium grade
obligations, being 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 securities lack outstanding
investment characteristics, and in fact have some speculative
characteristics.
Ba: An issue which is rated Ba is judged to have speculative elements; its
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes issues in this class.
B: An issue which is rated B generally lacks characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa: An issue which is rated Caa is of poor standing. Such an issue may be
in default or there may be present elements of danger with respect to
principal or interest.
Those securities in the Aa, A and Baa groups which Moody's believes possess the
strongest investment attributes are designated by the symbols Aa-1, A-1 and
Baa-1. Other Aa, A and Baa securities comprise the balance of their respective
groups. These rankings (1) designate the securities which offer the maximum in
security within their quality groups, (2) designate securities which can be
bought for possible upgrading in quality and (3) additionally afford the
investor an opportunity to gauge more precisely the relative attractiveness of
offerings in the marketplace.
RATINGS OF PREFERRED STOCK
STANDARD & POOR'S.
AAA: 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.
AA: A preferred stock issue rated "AA" also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is
very strong, although not as overwhelming as for issues rated "AAA."
A: 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.
BBB: 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
category.
MOODY'S. Moody's ratings for preferred stock include the following:
aaa: 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.
<PAGE>
aa: 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.
a: 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.
baa: 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.
RATINGS OF MUNICIPAL NOTES
STANDARD & POOR'S
SP-1: Very strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are given a plus
(+) designation.
SP-2: Satisfactory capacity to pay principal and interest.
SP-3: Speculative capacity to pay principal and interest.
None of the Funds will purchase SP-3 municipal notes.
MOODY'S. Generally, Moody's ratings for state and municipal short-term
obligations are designated Moody's Investment Grade ("MIG"); however, where an
issue has a demand feature which makes the issue a variable rate demand
obligation, the applicable Moody's rating is "VMIG."
MIG 1/VMIG 1: This designation denotes the best quality. There is strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2: This designation denotes high quality, with margins of
protection ample although not so large as available in the preceding
group.
MIG 3/VMIG 3: This designation denotes favorable quality, with all
security elements accounted for, but lacking the strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access
for refinancing is likely to be less well established.
None of the Funds will purchase MIG 3/VMIG 3 municipal notes.
RATINGS OF COMMERCIAL PAPER
STANDARD & POOR'S. 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
the 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 (+) symbol designation. None of the Funds will
purchase commercial paper rated A-3 or lower.
MOODY'S. Moody's commercial paper ratings are opinions as to the ability
of the issuers to timely repay promissory obligations not having an original
maturity in excess of nine months. Moody's
<PAGE>
makes no representation that such obligations are exempt from registration under
the Securities Act of 1933, and it does not represent that any specific
instrument 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.
PRIME-2: Strong capacity for repayment .
PRIME-3: Acceptable capacity for repayment .
None of the Funds will purchase Prime-3 commercial paper.
BEST'S RATING SYSTEM FOR INSURANCE COMPANIES
The objective of Best's Rating System is to evaluate the various factors
affecting the overall performance of an insurance company in order to provide an
opinion as to the company's relative financial strength and ability to meet its
contractual obligations. The procedure includes both a quantitative and
qualitative review of the company.
The quantitative evaluation is based on an analysis of the company's
financial condition and operating performance utilizing a series of financial
tests. These tests measure a company's performance in the three critical areas
of Profitability, Leverage and Liquidity in comparison to the norms established
by the A.M. Best Company. These norms are based on an evaluation of the actual
performance of the insurance industry.
Best's review also includes a qualitative evaluation of the adequacy and
soundness of a company's reinsurance, the adequacy of its reserves and the
experience of its management. In addition, various other factors of importance
are considered such as the composition of the company's book of business and the
quality and diversification of its assets.
Upon completion of analysis, Best's Ratings are assigned to those
companies that meet the qualifications for rating. The Best's Rating
classifications are A+ (Superior); A & A- (Excellent); B+ (Very Good); B & B-
(Good); C+ (Fairly Good); and C & C- (Fair). Those not qualifying for a current
Best's Rating are classified in the "Not Assigned" category that has ten
classifications which identify why a company is not eligible for a Best's
Rating. Care should be exercised in the use of Best's Ratings without further
reference to additional Best's publications.
<PAGE>
APPENDIX A
FIRST AMERICAN FIXED INCOME FUND
INTRODUCTION TO PRO FORMA COMBINING STATEMENTS
MARCH 31, 1998
The accompanying unaudited pro forma combining Statement of Assets and
Liabilities, Statement of Operations and Schedule of Investments, reflect the
accounts of American Government Income Portfolio, Inc. (AAF), American
Government Income Fund Inc. (AGF) and American Opportunity Income Fund Inc.
(OIF) (the Piper Funds) and the First American Fixed Income Fund (collectively,
the Funds).
These statements have been derived from the underlying accounting records for
the Funds used in calculating net asset values for the twelve-month period ended
March 31, 1998. The pro forma combining Statement of Operations has been
prepared based upon the fee and expense structure of the First American Fixed
Income Fund (Fixed Income Fund), a fund within First American Investment Funds,
Inc.
The pro forma combining statements have been prepared assuming that each of the
Piper Funds are merged into the Fixed Income Fund. However, it is possible that
one or more of the Piper Funds will not approve the merger, in which case the
resulting FAIF Fund will be comprised of only itself and the Piper Fund(s) that
approve the merger, if any. Included with the proforma combining financial
statements, is a proforma combining schedule of total returns and expense ratios
reflecting all possible combination scenarios for each of the years in the
three-year period ended March 31, 1998.
Under the proposed agreement and plan of reorganization, all outstanding shares
of the Piper Funds will be exchanged for Class A Shares of the Fixed Income
Fund.
<PAGE>
First American Investment Funds, Inc.
Fixed Income Fund
Pro Forma Combining Statement of Assets and Liabilities
March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
American American American
Government Government Opportunity Fixed Pro Forma
Income Income Income Income Adjustments Pro Forma
Portfolio Fund Fund Fund (Note 2) Combined
(000) (000) (000) (000) (000) (000)
---------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Total investments (Cost $140,291,
$108,348, $126,646, $1,126,655
and $1,501,908, respectively) $ 144,040 $ 111,018 $ 130,675 $ 1,145,023 $ (16,000)(a) $ 1,514,756
Cash -- -- 1 66 -- 67
Collateral for securities lending transactions -- -- -- 566,266 -- 566,266
Receivables:
Accrued income 745 582 772 15,318 -- 17,417
Capital shares sold -- -- -- 752 -- 752
Investment securities sold 6,218 3,316 6,291 8 -- 15,833
Income and other receivables 218 74 148 31 -- 471
Other assets -- -- -- 14 -- 14
---------- ---------- ---------- ----------- ---------- -----------
Total Assets 151,221 114,990 137,887 1,727,478 (16,000) 2,115,576
---------- ---------- ---------- ----------- ---------- -----------
Liabilities:
Payables
Payable upon return of securities loaned -- -- -- 566,266 -- 566,266
Investment securities purchased -- -- -- 41 -- 41
Investment securities purchased on
a when-issued basis 16,482 16,022 18,741 -- -- 51,245
Reverse repurchase agreements 6,500 4,500 5,000 -- (16,000)(a) --
Capital shares redeemed -- -- -- 987 -- 987
Accrued interest 43 30 33 -- -- 106
Accrued expenses 231 190 202 743 -- 1,366
Other liabilities 171 36 6 -- -- 213
---------- ---------- ---------- ----------- ---------- -----------
Total Liabilities 23,427 20,778 23,982 568,037 (16,000) 620,224
---------- ---------- ---------- ----------- ---------- -----------
Net Assets:
Fixed Income Fund Class Y capital based on
101,783,524 outstanding shares -- -- -- 1,102,813 -- 1,102,813
Fixed Income Fund Class A capital based on 1,028,016
and 31,236,676 outstanding shares, respectively -- -- -- 11,387 482,200 (b) 493,587
Fixed Income Fund Class B capital based on
1,452,144 outstanding shares -- -- -- 15,833 -- 15,833
American Government Income Portfolio capital
based on 18,357,911 outstanding shares 183,181 -- -- -- (183,181)(b) --
American Government Income Fund capital
based on 16,080,953 outstanding shares -- 127,291 -- -- (127,291)(b) --
American Opportunity Income Fund capital
based on 16,990,546 outstanding shares -- -- 171,728 -- (171,728)(b) --
Undistributed (Distribution in excess of) net
investment income 526 169 176 (268) -- 603
Accumulated net realized gain (loss)
on investments (59,662) (35,918) (62,028) 11,308 -- (146,300)
Net unrealized appreciation of investments 3,749 2,670 4,029 18,368 -- 28,816
---------- ---------- ---------- ----------- ---------- -----------
Total Net Assets $ 127,794 $ 94,212 $ 113,905 $ 1,159,441 $ -- $ 1,495,352
========== ========== ========== =========== ========== ===========
Net Asset Value,
offering price and redemption price per share -
Class Y $ 11.12 $ 11.12
=========== ===========
Net Asset Value
and redemption price per share - Class A $ 11.12 $ 11.12
=========== ===========
Net Asset Value
and offering price per share - Class B $ 11.07 $ 11.07
=========== ===========
Net Asset Value per share $ 6.96 $ 5.86 $ 6.70
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
First American Investment Funds, Inc.
Fixed Income Fund
Pro Forma Combining Statement of Operations
For the Year Ended March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
American American American
Government Government Opportunity Fixed Pro Forma Adjustments
Income Income Income Income (Note 2) Pro Forma
Portfolio Fund Fund Fund Debit Credit Combined
(000) (000) (000) (000) (000) (000) (000)
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Interest, net $ 10,889 $ 7,992 $ 9,900 $ 52,413 $ -- $ -- $ 83,238
--------- --------- --------- --------- --------- --------- ---------
Expenses:
Investment advisory fees 925 681 720 5,910 2,833(c) 2,326(c) 8,743
Less: waiver of investment advisory fees -- -- -- (1,518) -- 630(c) (2,148)
Administrative, accounting and custodian fees 420 317 372 1,196 573(c) 1,109(c) 1,769
Transfer agent fees 16 15 15 58 31(d) 46(d) 89
Directors' fees 12 13 13 11 5(d) 38(d) 16
Registration fees -- -- -- 85 41(d) -- 126
Professional fees 48 49 51 49 23(d) 148(d) 72
Printing 51 40 31 36 17(d) 122(d) 53
Distribution fees - FAIF Retail Class A -- -- -- 23 1,012(c) -- 1,035
Distribution fees - FAIF Retail Class B -- -- -- 155 -- -- 155
Other 43 44 43 15 7(d) 130(d) 22
--------- --------- --------- --------- --------- --------- ---------
Net expenses before expenses paid indirectly 1,515 1,159 1,245 6,020 4,543 4,549 9,932
Less: expenses paid indirectly (1) -- -- -- -- -- (1)
--------- --------- --------- --------- --------- --------- ---------
Total net expenses 1,514 1,159 1,245 6,020 4,543 4,549 9,931
--------- --------- --------- --------- --------- --------- ---------
Investment income - net 9,375 6,833 8,655 46,393 (4,543) (4,549) 71,263
--------- --------- --------- --------- --------- --------- ---------
Realized and Unrealized Gains on Investments
Net realized gain on investments and closed
futures contracts 2,866 1,250 2,053 12,342 -- -- 18,511
Net change in unrealized appreciation/
(depreciation) of investments 5,551 4,596 6,998 29,917 -- -- 47,062
--------- --------- --------- --------- --------- --------- ---------
Net gain on investments 8,417 5,846 9,051 42,259 -- -- 65,573
--------- --------- --------- --------- --------- --------- ---------
Net increase in net assets resulting from
operations $ 17,792 $ 12,679 $ 17,706 $ 88,652 $ (4,543) $ (4,549) $ 136,836
========= ========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
First American Investment Funds, Inc
Fixed Income Fund
Pro Forma Combining Schedule of Investments
March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Par/Shares
- -------------------------------------------------------------------
American American American Fixed
Government Government Opportunity Income Pro Forma
Income Portfolio Income Fund Income Fund Fund Combined
(000) (000) (000) (000) (000) Security Coupon Maturity
----- ----- ----- ----- ----- ------------------------------- ------ --------
U.S. TREASURY OBLIGATIONS- 52.3% (Percentages represent pro forma value of investments compared to pro forma net assets)
<S> <C> <C> <C> <C> <C> <C> <C>
$ - $ - $ - $ 159,185 $ 159,185 U.S. TREASURY BOND 7.125% 2/15/23
- - - 99,410 99,410 U.S. TREASURY BOND 6.875 8/15/25
- - 2,000 - 2,000 U.S. TREASURY BOND 7.500 11/15/16
- - - 48,950 48,950 U.S. TREASURY NOTE 5.625 11/30/99
- - - 56,745 56,745 U.S. TREASURY NOTE 6.250 2/15/03
- - - 14,850 14,850 U.S. TREASURY NOTE 7.500 10/31/99
- - - 82,270 82,270 U.S. TREASURY NOTE 6.500 8/15/05
- - - 78,530 78,530 U.S. TREASURY NOTE 6.875 5/15/06
- - - 78,995 78,995 U.S. TREASURY NOTE 6.500 5/31/01
- - - 91,515 91,515 U.S. TREASURY NOTE 6.250 10/31/01
5,600 5,000 1,600 - 12,200 U.S. TREASURY NOTE 5.625 11/30/00
- - 3,000 - 3,000 U.S. TREASURY NOTE 5.875 2/15/04
5,420 1,000 - - 6,420 U.S. TREASURY NOTE 6.125 9/30/00
TOTAL U.S. TREASURY OBLIGATIONS
CORPORATE OBLIGATIONS-17.2%
- - - 38,210 38,210 ASSET SECURITY CORP 6.880 11/13/26
- - - 120 120 BANK AMERICA 8.375 5/1/07
- - - 23,835 23,835 BEAR STEARNS 6.560 6/20/00
- - - 45,945 45,945 CHRYSLER FINANCE 5.850 5/15/00
- - - 10,726 10,726 CIGNA 7.400 1/15/03
- - - 29,100 29,100 CIT GROUP HOLDINGS 6.200 10/20/00
- - 3,500 - 3,500 COCA-COLA ENTERPRISES 6.700 10/15/36
- - - 938 938 CONRAIL 6.760 5/25/15
- - - 1,000 1,000 ENRON 7.125 5/15/07
- - 3,000 - 3,000 KOREA ELECTRIC POWER 6.375 12/1/03
- - 3,000 - 3,000 LEHMAN BROS 7.500 8/1/26
- - - 25,200 25,200 LEHMAN BROS 6.000 3/23/00
- - - 15,900 15,900 NABISCO 6.300 8/26/99
- - - 1,000 1,000 SAFECO 7.875 4/1/05
- - - 25,890 25,890 SANTANDER FINANCIAL 7.250 5/30/06
- - - 26,550 26,550 THE MONEY STORE 7.300 12/1/02
TOTAL CORPORATE OBLIGATIONS
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED OBLIGATIONS-25.5%
- 897 - - 897 FHLMC 6.500 1/1/26
- 649 - - 649 FHLMC 6.500 3/1/26
- 767 - - 767 FHLMC 6.500 4/1/26
- 3,159 - - 3,159 FHLMC 6.500 4/1/26
2,051 1,547 - - 3,598 FHLMC 9.500 6/1/21
2,369 1,808 - - 4,177 FHLMC 10.000 12/1/19
1,705 - - - 1,705 FHLMC 9.000 3/1/21
- 3,403 9,406 - 12,809 FHLMC 7.500 8/1/25
2,244 - - - 2,244 FHLMC 6.500 11/1/25
- - 2,530 - 2,530 FHLMC 6.500 1/1/26
- - 110 - 110 FHLMC 6.500 3/1/26
- - 1,429 - 1,429 FHLMC 6.500 4/1/26
- - 2,533 - 2,533 FHLMC 6.500 4/1/26
- 3,610 4,061 - 7,671 FHLMC 6.500 4/1/26
4,942 - - - 4,942 FHLMC 6.500 5/1/26
2,113 3,521 3,521 - 9,155 FHLMC 7.000 9/1/10
- - 1,069 - 1,069 FHLMC 7.000 9/1/10
3,806 - - - 3,806 FHLMC 7.000 9/1/10
3,557 - - - 3,557 FHLMC 6.500 2/1/26
- - 3,037 - 3,037 FHLMC 6.000 7/15/21
1,000 1,000 3,000 - 5,000 FHLMC 6.250 4/15/23
- - 4,695 - 4,695 FHLMC 6.000 5/15/23
4,000 3,000 3,000 - 10,000 FHLMC 6.000 3/15/24
- 4,071 - - 4,071 FHLMC 6.500 8/1/26
- 1,891 - - 1,891 FHLMC 7.000 8/1/10
- - - 7,538 7,538 FHLMC 6.500 1/15/24
- - - 7,133 7,133 FHLMC 7.000 2/15/24
- - - 5,046 5,046 FHLMC CMO/REMIC 6.750 12/15/05
- - - 12,752 12,752 FHLMC 7.000 4/17/06
- - - 5,439 5,439 FHLMC 6.500 12/15/23
641 - - - 641 FNMA 7.000 1/1/08
2,018 - - - 2,018 FNMA 7.000 5/1/09
3,044 2,174 - - 5,218 FNMA 7.000 10/1/25
4,441 4,862 3,620 - 12,923 FNMA 7.000 5/1/26
4,234 5,081 3,387 - 12,702 FNMA 6.500 5/1/11
2,488 - - - 2,488 FNMA 6.500 4/1/11
8,748 6,043 - - 14,791 FNMA 7.000 4/1/26
- - 1,684 - 1,684 FNMA 6.500 4/1/11
2,008 1,607 803 - 4,418 FNMA 6.500 4/1/11
- - 4,132 - 4,132 FNMA 6.500 4/1/11
5,246 - - - 5,246 FNMA 6.500 7/1/26
4,441 - - - 4,441 FNMA 7.500 10/1/26
5,358 - - - 5,358 FNMA 7.500 10/1/26
4,000 3,000 3,000 - 10,000 FNMA 6.500 3/25/21
- - 6,740 - 6,740 FNMA Z-BOND 7.000 7/25/26
7,391 9,492 10,188 - 27,071 FNMA (a) 6.000 2/18/13
9,000 6,500 8,500 - 24,000 FNMA (a) 7.000 1/1/08
- 4,196 - - 4,196 FNMA 7.500 10/1/26
- - - 3,958 3,958 FNMA REMIC 6.750 12/25/21
2,500 2,000 3,000 - 7,500 FNMA REMIC 6.250 1/25/08
- - 2,000 - 2,000 FNMA 7.000 10/25/21
- - 3,000 - 3,000 FNMA 6.500 12/18/11
4,500 3,500 - - 8,000 FNMA 6.500 2/18/04
3,532 2,989 2,536 - 9,057 GNMA 9.000 11/15/21
1,031 - 3,259 - 4,290 GNMA 8.000 7/15/26
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
Value
- ---------------------------------------------------------------------
American American American Fixed
Government Government Opportunity Income Pro Forma
Income Portfolio Income Fund Income Fund Fund Combined
(000) (000) (000) (000) (000)
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
$ - $ - $ - $ 181,602 $ 181,602
- - - 110,814 110,814
- - 2,330 - 2,330
- - - 48,956 48,956
- - - 58,088 58,088
- - - 15,266 15,266
- - - 85,925 85,925
- - - 84,142 84,142
- - - 80,886 80,886
- - - 93,149 93,149
5,600 5,000 1,600 - 12,200
- - 3,032 - 3,032
5,482 1,011 - - 6,493
- ---------------------------------------------------------------------
11,082 6,011 6,962 758,828 782,883
- ---------------------------------------------------------------------
- - - 39,364 39,364
- - - 121 121
- - - 24,103 24,103
- - - 45,773 45,773
- - - 11,155 11,155
- - - 29,173 29,173
- - 3,640 - 3,640
- - - 963 963
- - - 1,038 1,038
- - 2,591 - 2,591
- - 3,214 - 3,214
- - - 25,137 25,137
- - - 16,002 16,002
- - - 1,076 1,076
- - - 26,926 26,926
- - - 27,413 27,413
- ---------------------------------------------------------------------
- - 9,445 248,244 257,689
- ---------------------------------------------------------------------
- 892 - - 892
- 645 - - 645
- 760 - - 760
- 3,140 - - 3,140
2,226 1,679 - - 3,905
2,596 1,981 - - 4,577
1,824 - - - 1,824
- 3,499 9,670 - 13,169
2,234 - - - 2,234
- - 2,514 - 2,514
- - 109 - 109
- - 1,418 - 1,418
- - 2,512 - 2,512
- 3,580 4,027 - 7,607
4,912 - - - 4,912
2,151 3,585 3,585 - 9,321
- - 1,088 - 1,088
3,875 - - - 3,875
3,535 - - - 3,535
- - 2,890 - 2,890
996 996 2,988 - 4,980
- - 4,392 - 4,392
3,741 2,806 2,806 - 9,353
- 4,037 - - 4,037
- 1,925 - - 1,925
- - - 7,255 7,255
- - - 7,405 7,405
- - - 5,132 5,132
- - - 13,044 13,044
- - - 5,446 5,446
654 - - - 654
2,057 - - - 2,057
3,088 2,205 - - 5,293
4,496 4,923 3,665 - 13,084
4,247 5,096 3,398 - 12,741
2,496 - - - 2,496
8,858 6,119 - - 14,977
- - 1,689 - 1,689
2,015 1,612 806 - 4,433
- - 4,147 - 4,147
5,197 - - - 5,197
4,557 - - - 4,557
5,498 - - - 5,498
3,921 2,940 2,940 - 9,801
- - 6,693 - 6,693
7,275 9,344 10,028 - 26,647
9,155 6,612 8,646 - 24,413
- 4,306 - - 4,306
- - - 4,021 4,021
2,491 1,993 2,989 - 7,473
- - 2,010 - 2,010
- - 3,021 - 3,021
4,546 3,536 - 8,082
3,805 3,220 2,732 - 9,757
1,068 - 3,378 - 4,446
</TABLE>
<TABLE>
<CAPTION>
Par/Shares
- -------------------------------------------------------------------
American American American Fixed
Government Government Opportunity Income Pro Forma
Income Portfolio Income Fund Income Fund Fund Combined
(000) (000) (000) (000) (000) Security Coupon Maturity
----- ----- ----- ----- ----- ------------------------------- ------ --------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED OBLIGATIONS (CONTINUED)
<S> <C> <C> <C> <C> <C> <C> <C>
$ 3,594 $ - $ - $ - $ 3,594 GNMA 8.%00 7/15/26
6,660 - - - 6,660 GNMA 7.500 11/15/27
- - 4,625 - 4,625 GNMA 7.500 11/15/27
2,889 3,249 - - 6,138 GNMA 7.000 12/15/10
4,061 2,854 3,568 - 10,483 GNMA 9.000 4/15/21
2,504 1,788 2,146 - 6,438 GNMA 9.000 10/15/22
- 2,801 - - 2,801 GNMA 8.000 7/15/26
- 3,923 - - 3,923 GNMA 7.500 12/15/27
- 1,861 - - 1,861 GNMA 7.500 12/15/27
4,602 3,452 4,027 - 12,081 VENDE TRUST Z-BOND (VA BACKED) 6.750 2/15/26
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED OBLIGATIONS
OTHER MORTGAGE-BACKED OBLIGATIONS-5.3%
- - - 69 69 COLLATERALIZED MORTGAGE CORP 8.000 9/20/19
- - - 2,380 2,380 COUNTRYWIDE MTGE-BACKED SEC'S 6.500 4/25/24
- - - 421 421 DREXEL BURNHAM LAMBERT REMIC 9.000 8/1/18
- - - 7,000 7,000 GE CAPITAL MTGE REMIC 7.000 5/25/24
- - - 5,179 5,179 GE CAPITAL MTGE REMIC 7.000 5/25/24
- - - 3,759 3,759 GE CAPITAL MTGE REMIC 6.500 3/25/24
- - - 34,535 34,535 GMAC COMMERCIAL MTGE SEC'S 6.918 9/15/07
- - - 10,329 10,329 J.P. MORGAN COMMERCIAL MTGE 5.568 7/25/10
- - - 6,000 6,000 MERRILL LYNCH MTGE INVESTORS 6.688 3/15/18
- - 1,988 - 1,988 PACIFIC CMO SUPER Z-BOND 8.500 5/1/17
- - - 5,771 5,771 PRUDENTIAL HOME MTGE SECURITIES 6.755 9/25/01
- - - 65 65 RESIDENTIAL FUNDING 5.700 11/25/07
TOTAL OTHER MORTGAGE-BACKED OBLIGATIONS
ASSET-BACKED SECURITIES-0.0%
- - - 4,100 4,100 ZALE FUNDING 7.500 5/15/03
TAXABLE MUNICIPAL BONDS-0.0%
- - - 2,675 2,675 MPLS, MINN, SINGLE-FAMILY MTGE 6.920 4/1/09
REPURCHASE AGREEMENTS-0.7%
- 3,099 - - 3,099 GOLDMAN SACHS 6.000 4/1/98
4,438 - - - 4,438 GOLDMAN SACHS 6.000 4/1/98
- - 3,304 - 3,304 GOLDMAN SACHS 6.000 4/1/98
TOTAL REPURCHASE AGREEMENTS
RELATED PARTY MONEY MARKET FUND0-0.8%
- - - 11,500 11,500 FIRST AM PRIME OBLIGATIONS 5.300
TOTAL INVESTMENTS (Cost $140,291, $108,348,
$126,646, $1,126,655 and $1,501,908, respectively)
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
Value
- ---------------------------------------------------------------------
American American American Fixed
Government Government Opportunity Income Pro Forma
Income Portfolio Income Fund Income Fund Fund Combined
(000) (000) (000) (000) (000)
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
$ 3,725 $ - $ - $ - $ 3,725
6,830 - - - 6,830
- - 4,744 - 4,744
2,952 3,320 - - 6,272
4,402 3,094 3,867 - 11,363
2,702 1,930 2,316 - 6,948
- 2,904 - - 2,904
- 4,024 - - 4,024
- 1,909 - - 1,909
4,395 3,296 3,846 - 11,537
- ---------------------------------------------------------------------
128,520 101,908 108,914 42,303 381,645
- ---------------------------------------------------------------------
- - - 71 71
- - - 2,358 2,358
- - - 421 421
- - - 7,032 7,032
- - - 5,149 5,149
- - - 3,754 3,754
- - - 35,424 35,424
- - - 11,109 11,109
- - - 6,062 6,062
- - 2,050 - 2,050
- - - 5,882 5,882
- - - 65 65
- ---------------------------------------------------------------------
- - 2,050 77,327 79,377
- ---------------------------------------------------------------------
- - - 4,145 4,145
- ---------------------------------------------------------------------
- - - 2,676 2,676
- ---------------------------------------------------------------------
- 3,099 - - 3,099
4,438 - - - 4,438
- - 3,304 - 3,304
- ---------------------------------------------------------------------
4,438 3,099 3,304 - 10,841
- ---------------------------------------------------------------------
- - - 11,500 11,500
- ---------------------------------------------------------------------
$ 144,040 $ 111,018 $ 130,675 $ 1,145,023 1,530,756
========================================================
(16,000)(b)
----------
$1,514,756
==========
</TABLE>
Note to Schedule of Investments
(a) At March 31, 1998, the cost of securities purchased on a when-issued basis
was $16,482,494, $16,022,078, $18,740,513, and $51,245,085 for American
Government Income Portfolio, American Government Income Fund, American
Opportunity Income Fund, and Pro Forma Combined, respectively.
(b) The Fixed Income Fund currently does not intend to engage in reverse
repurchase agreements. For purposes of the proforma combining statement of
assets and liabilities and schedule of investments, it is presumed the reduction
of the reverse repurchase agreement liability will correspond to an equal amount
of reduction to investments in securities. Since the specific securities to be
sold have not been identifed and would only represent approximately 1% of the
total proforma combined investment in securities, the reduction is presented in
aggregate to the total proforma amount in this schedule.
<PAGE>
FIRST AMERICAN INVESTMENT FUNDS, INC. - FIXED INCOME FUND
PRO FORMA COMBINING SCHEDULE OF TOTAL RETURNS AND EXPENSE RATIOS (UNAUDITED)
As discussed in footnote 1 to the Pro Forma Combining Financial Statements, it
is possible that one or more of the Funds will not approve the merger, in which
case the resulting Fixed Income Fund (the FAIF fund) will be comprised only of
the FAIF Fund and any of the Piper Funds (AGF, AAF and OIF) that approve the
merger. Presented below is combining pro forma total return and expense ratio
information for historical periods under all possible combination scenarios.
<TABLE>
<CAPTION>
Twelve month period
ended March 31,
------------------------------------------
1998 1997 1996
----- ---- -----
<S> <C> <C> <C>
SCENARIO 1- FAIF FUND, AGF, AAF AND OIF
Total Return (a) 11.13% 4.38% 14.32%
Expense Ratio, net of investment advisory fees waived (b) 0.95% 0.95% 0.95%
Expense Ratio, absent waivers of investment advisory fees (b) 1.12% 1.12% 1.10%
SCENARIO 2- FAIF FUND, AGF AND AAF
Total Return (a) 10.89% 4.34% 13.79%
Expense Ratio, net of investment advisory fees waived (b) 0.95% 0.95% 0.95%
Expense Ratio, absent waivers of investment advisory fees (b) 1.12% 1.12% 1.10%
SCENARIO 3- FAIF FUND, AGF AND OIF
Total Return (a) 11.08% 4.37% 13.34%
Expense Ratio, net of investment advisory fees waived (b) 0.95% 0.95% 0.95%
Expense Ratio, absent waivers of investment advisory fees (b) 1.12% 1.12% 1.10%
SCENARIO 4- FAIF FUND, AAF AND OIF
Total Return (a) 11.10% 4.29% 13.71%
Expense Ratio, net of investment advisory fees waived (b) 0.95% 0.95% 0.95%
Expense Ratio, absent waivers of investment advisory fees (b) 1.12% 1.12% 1.10%
SCENARIO 5- FAIF FUND AND AGF
Total Return (a) 10.78% 4.32% 12.21%
Expense Ratio, net of investment advisory fees waived (b) 0.95% 0.95% 0.95%
Expense Ratio, absent waivers of investment advisory fees (b) 1.12% 1.12% 1.10%
SCENARIO 6- FAIF FUND AND AAF
Total Return (a) 10.82% 4.22% 12.81%
Expense Ratio, net of investment advisory fees waived (b) 0.95% 0.95% 0.95%
Expense Ratio, absent waivers of investment advisory fees (b) 1.12% 1.12% 1.10%
SCENARIO 7- FAIF FUND AND OIF
Total Return (a) 11.03% 4.25% 12.17%
Expense Ratio, net of investment advisory fees waived (b) 0.95% 0.95% 0.95%
Expense Ratio, absent waivers of investment advisory fees (b) 1.12% 1.12% 1.10%
</TABLE>
(a) Total return is based on the change in net asset value during the period,
assumes reinvestment of distributions at actual reinvestment prices and
does not reflect a sales charge. The combining pro forma total returns
were computed assuming the applicable Funds had been combined for the
period presented and reflect the revised investment management fee
structure of the FAIF Fund as described in note 2(b) to the Pro Forma
Combining Financial Statements.
<PAGE>
(b) Represents the ratio of expenses to average net assets.
The combining pro forma expense ratios were computed assuming the
applicable funds had been combined for the periods presented and reflect
the revised investment management fee structure of the FAIF Fund as
described in note 2(c) to the Pro Forma Combining Financial Statements.
U.S. Bank National Association has agreed to waive fees and expenses for
two years following the reorganization to the extent necessary to maintain
the overall total expenses of the FAIF Fund at 0.95% for Class A Shares.
<PAGE>
FIRST AMERICAN FIXED INCOME FUND
NOTES TO PRO FORMA STATEMENTS
(UNAUDITED)
1. BASIS OF COMBINATION
The unaudited pro forma combining Statement of Assets and Liabilities, Statement
of Operations and Schedule of Investments give effect to the proposed
acquisition of American Government Income Portfolio, Inc. (AAF), American
Government Income Fund Inc. (AGF) and American Opportunity Income Fund Inc.
(OIF) (the Piper Funds) by the First American Fixed Income Fund (Fixed Income
Fund), a fund within First American Investment Funds, Inc. (FAIF) and reflect
the accounts for the twelve-month period ended March 31, 1998. The acquisition
will be accomplished by an exchange of all outstanding shares of each Piper Fund
for Class A Shares of the Fixed Income Fund.
With the exception of the reduction to the reverse repurchase agreement
liability described in Note 2.(a), below, the pro forma combining schedule of
investments does not reflect any changes which could occur before or after the
acquisition closing date due to changes in market conditions or differences in
investment management practices of the Fixed Income Fund compared with the Piper
Funds. However, aside from portfolio decisions made as a result of market
condition changes that have or may occur between the date of the pro forma
financial statements and the acquisition closing date, management does not have
any specific plans at this time regarding the disposition of investments
presented in the pro forma schedules of investments that would have a material
impact on the presentation of such schedules. The accompanying Pro Forma
Combining Schedule of Total Return and Expense Ratios presents combining pro
forma total return and expense ratio information for historical periods under
all possible combination scenarios.
The pro forma combining financial statements and accompanying schedules should
be read in conjunction with the historical financial statements of the
constituent funds and the notes thereto incorporated by reference in the
Statement of Additional Information.
Fixed Income Fund is a portfolio offered by First American Investment Funds,
Inc., a diversified, open-end, management investment company registered under
the Investment Company Act of 1940, as amended. FAIF presently includes a series
of twenty-six funds.
2. PRO FORMA ADJUSTMENTS
(a) The Fixed Income Fund currently does not intend to engage in reverse
repurchase agreements. For purposes of the proforma combining
statement of assets and liabilities and schedule of investments, it
is
<PAGE>
presumed the reduction of the reverse repurchase agreement liability
will correspond to an equal amount of reduction to investments in
securities.
(b) The pro forma combining statement of assets and liabilities assumes
the issuance of shares of the Fixed Income Fund as if the
reorganization were to have taken place on March 31, 1998 and is
based on the net asset value of the Fixed Income Fund. Transactions
in shares of capital stock are as follows: 18,357,911 shares of AAF,
16,080,953 shares of AGF and 16,990,546 shares of OIF exchanged for
30,207,795 Class A Shares of Fixed Income Fund.
(c) The pro forma adjustments to investment advisory fees,
administrative, accounting and custodian fees, and distribution fees
reflect the difference in fees charged by the Fixed Income Fund
based upon the effective fee schedule.
U.S. Bank National Association has agreed to waive fees and
reimburse expenses through August 31, 2000, to the extent necessary
to maintain the overall total Fund operating expense ratio at the
pro forma expense level of 0.95% for Class A Shares.
(d) The pro forma adjustments to transfer agent fees, directors' fees,
professional fees, printing expenses and other expenses reflect the
expected savings (or in the case of registration fees, additional
costs) due to the combination of the funds.
<PAGE>
FIRST AMERICAN INVESTMENT FUNDS, INC.
PART C - OTHER INFORMATION
Item 15. Indemnification.
The first four paragraphs of Item 27 of Part C of Pre-Effective Amendment
No. 1 to the Registrant's Registration Statement on Form N-1A, dated November
27, 1987, are incorporated herein by reference.
On February 18, 1988 the indemnification provisions of the Maryland
General Corporation Law (the "Law") were amended to permit, among other things,
corporations to indemnify directors and officers unless it is proved that the
individual (1) acted in bad faith or with active and deliberate dishonesty, (2)
actually received an improper personal benefit in money, property or services,
or (3) in the case of a criminal proceeding, had reasonable cause to believe
that his act or omission was unlawful. The Law was also amended to permit
corporations to indemnify directors and officers for amounts paid in settlement
of stockholders' derivative suits.
The Registrant undertakes that no indemnification or advance will be made
unless it is consistent with Sections 17(h) or 17(i) of the Investment Company
Act of 1940, as now enacted or hereafter amended, and Securities and Exchange
Commission rules, regulations, and releases (including, without limitation,
Investment Company Act of 1940 Release No. 11330, September 2, 1980).
Insofar as the indemnification for liability arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers, and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in such Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933, as amended, and will be governed by the final
adjudication of such issue.
The Registrant maintains officers' and directors' liability insurance
providing coverage, with certain exceptions, for acts and omissions in the
course of the covered persons' duties as officers and directors.
ITEM 16. EXHIBITS.
1.1 Amended and Restated Articles of Incorporation, as supplemented
through March 30, 1998. (Incorporated by reference to Post-Effective
Amendment No. 36 to the Registrant's Registration Statement on Form
N-1A, File No. 33-16905.)
2. Bylaws, as amended through February 23, 1998. (Incorporated by
reference to Post-Effective Amendment No. 36 to the Registrant's
Registration Statement on Form N-1A, File No. 33-16905.)
<PAGE>
3. Not applicable.
* 4. Agreement and Plan of Reorganization by and between the Registrant
and Piper Global Funds Inc. attached as Appendix V to the Proxy
Statement/Prospectus included in Part A of this Registration
Statement on Form N-14.
5. Not applicable.
6.1 Investment Advisory Agreement dated April 2, 1991 between Registrant
and First Bank National Association, as amended and supplemented
through August 1994. (Incorporated by reference to Post-Effective
Amendment No. 21 to the Registrant's Registration Statement on Form
N-1A, File No. 33-16905.)
6.2 Sub-Advisory Agreement dated March 28, 1994 relating to
International Fund between First Bank National Association and
Marvin & Palmer Associates, Inc. (Incorporated by reference to
Post-Effective Amendment No. 21 to the Registrant's Registration
Statement on Form N-1A, File No. 33-16905.)
6.3 Amendment No. 8 to Investment Advisory Agreement. (Incorporated by
reference to Post-Effective Amendment No. 34 to the Registrant's
Registration Statement on Form N-1A, File No. 33-16905.)
6.4 Amendment No. 1 to Sub-Advisory Agreement. (Incorporated by
reference to Post-Effective Amendment No. 34 to the Registrant's
Registration Statement on Form N-1A, File No. 33-16905.)
7.1 Distribution Agreement [Class A and Class C shares] dated February
10, 1994 between Registrant and SEI Financial Services Company.
(Incorporated by reference to Post-Effective Amendment No. 21 to the
Registrant's Registration Statement on Form N-1A, File No.
33-16905.)
7.2 Distribution and Service Agreement [Class B shares] dated August 1,
1994, as amended September 14, 1994, between Registrant and SEI
Financial Services Company. (Incorporated by reference to Post-
Effective Amendment No. 21 to the Registrant's Registration
Statement on Form N-1A, File No. 33-16905.)
7.3 Form of Dealer Agreement. (Incorporated by reference to
Post-Effective Amendment No. 21 to the Registrant's Registration
Statement on Form N-1A, File No. 33-16905.)
8. Not applicable.
9.1 Custodian Agreement dated September 20, 1993, between Registrant and
First Trust National Association, as supplemented through August
1994. (Incorporated by reference to Post-Effective Amendment No. 18
to the Registrant's Registration Statement on Form N-1A, File No.
33-16905.)
9.2 Compensation Agreement dated June 1, 1995, pursuant to Custodian
Agreement. (Incorporated by reference to Post-Effective Amendment
No. 24 to the Registrant's Registration Statement on Form N-1A, File
No. 33-16905.)
<PAGE>
9.3 Compensation Agreement dated January 1, 1997, pursuant to Custodian
Agreement. (Incorporated by reference to Post-Effective Amendment
No. 27 to the Registrant's Registration Statement on Form N-1A, File
No. 33-16905.)
9.4 Compensation Agreement dated January 1, 1997, pursuant to Custodian
Agreement. (Incorporated by reference to Post-Effective Amendment
No. 27 to the Registrant's Registration Statement on Form N-1A, File
No. 33-16905.)
9.5 Compensation Agreement dated August 5, 1997, pursuant to Custodian
Agreement. (Incorporated by reference to Post-Effective Amendment
No. 34 to the Registrant's Registration Statement on Form N-1A, File
No. 33-16905.)
9.6 Compensation Agreement dated November 21, 1997, pursuant to
Custodian Agreement. (Incorporated by reference to Post-Effective
Amendment No. 34 to the Registrant's Registration Statement on Form
N-1A, File No. 33-16905.)
10.1 Form of Distribution Plan [Class A shares]. (Incorporated by
reference to Exhibit (15)(a) to the Post-Effective Amendment No. 21
to the Registrant's Registration Statement on Form N-1A, File No.
33-16905.)
10.2 Distribution Plan [Class B shares]. (Incorporated by reference to
Post-Effective Amendment No. 21 to the Registrant's Registration
Statement on Form N-1A, File No. 33-16905.)
10.3 Service Plan [Class B shares]. (Incorporated by reference to Post-
Effective Amendment No. 21 to the Registrant's Registration
Statement on Form N-1A, File No. 33-16905.)
10.4 Multiple Class Plan Pursuant to Rule 18f-3. (Incorporated by
reference to Post-Effective Amendment No. 23 to the Registrant's
Registration Statement on Form N-1A, File No. 33-16905.)
* 11. Opinion and Consent of Dorsey & Whitney LLP with respect to the
legality of the securities being registered.
** 12. Opinion and Consent of Dorsey & Whitney LLP with respect to tax
matters.
13.1 Administration Agreement dated January 1, 1995 between Registrant
and SEI Financial Management Corporation. (Incorporated by reference
to Post-Effective Amendment No. 23 to the Registrant's Registration
Statement on Form N-1A, File No. 33-16905.)
13.2 Transfer Agent Agreement dated March 31, 1994 between Registrant and
Supervised Service Company, Inc. [superseded] (Incorporated by
reference to Post-Effective Amendment No. 23 to the Registrant's
Registration Statement on Form N-1A, File No. 33-16905.)
13.3 Assignment of Transfer Agency Agreement to DST Systems, Inc.
[superseded] (Incorporated by reference to Post-Effective Amendment
No. 24 to the Registrant's Registration Statement on Form N-1A, File
No. 33-16905.)
<PAGE>
13.4 Form of Transfer Agency Agreement dated October 1, 1996 between
Registrant and DST Systems, Inc. (Incorporated by reference to Post-
Effective Amendment No. 27 to the Registrant's Registration
Statement on Form N-1A, File No. 33-16905.)
13.5 Sub-Administration Agreement effective January 1, 1998 between SEI
and First Bank National Association. (Incorporated by reference to
Post-Effective Amendment No. 31 to the Registrant's Registration
Statement on Form N-1A, File No. 33-16905.)
13.6 Amended and Restated Administration Agreement dated July 1, 1997
between Registrant and SEI Investments Management Corporation.
(Incorporated by reference to Post-Effective Amendment No. 31 to the
Registrant's Registration Statement on Form N-1A, File No.
33-16905.)
13.7 Agreement dated July 1, 1997 between SEI and First Bank National
Association. (Incorporated by reference to Post-Effective Amendment
No. 31 to the Registrant's Registration Statement on Form N-1A, File
No. 33-16905.)
13.8 Agreement dated July 1, 1997 between First Bank National Association
and SEI Investments Management Corporation. (Incorporated by
reference to Post-Effective Amendment No. 31 to the Registrant's
Registration Statement on Form N-1A, File No. 33-16905.)
* 14.1 Consent of KPMG Peat Marwick LLP.
* 14.2 Consent of KPMG Peat Marwick LLP.
15. Not applicable.
* 16. Powers of Attorney of Directors signing the Registration
Statement.
* 17.1 Rule 24f-2 Election of Registrant.
* 17.2 Form of Proxy Card.
* Filed herewith.
** To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is a part of
this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act, the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered
<PAGE>
therein, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering of them.
(3) The undersigned Registrant agrees to file, by post-effective
amendment, an opinion of counsel or a copy of a ruling of the Internal Revenue
Service supporting the tax consequences of the proposed reorganization within a
reasonable time after receipt of such opinion or ruling.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this registration statement has
been signed on behalf of the registrant, in the City of Oaks, Commonwealth of
Pennsylvania, on the 18th day of May, 1998.
FIRST AMERICAN INVESTMENT FUNDS, INC.
ATTEST: /s/ Michael Beattie By: /s/ Kathryn L. Stanton
Michael Beattie Kathryn L. Stanton
Acting President and
Vice President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacity and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Michael Beattie Controller (Principal **
Michael Beattie Financial and
Accounting Officer)
* Director **
Robert J. Dayton
* Director **
Roger A. Gibson
* Director **
Andrew M. Hunter III
* Director **
Leonard W. Kedrowski
* Director **
Robert L. Spies
* Director **
Joseph D. Strauss
* Director **
Virginia L. Stringer
*By: /s/Kathryn L. Stanton
Kathryn L. Stanton
Attorney in Fact
**May 18, 1998
Exhibit 11
[LETTERHEAD OF DORSEY & WHITNEY LLP]
May 18, 1998
First American Investment Funds, Inc.
Oaks, Pennsylvania 19456
Re: First American Investment Funds, Inc.
Shares to be Issued Pursuant to Agreement and Plan of Reorganization
Ladies and Gentlemen:
We have acted as counsel to First American Investment Funds, Inc., a
Maryland corporation ("FAIF"), in connection with FAIF's authorization and
proposed issuance of its Class A common shares, par value $.0001 per share, of
Fixed Income Fund (the "Shares"). The Shares are to be issued pursuant to
Agreement and Plan of Reorganization (the "Agreement"), by and between FAIF (the
"Acquiring Fund"), and American Government Income Fund Inc., American Government
Income Portfolio, Inc. and American Opportunities Income Fund Inc. (the
"Acquired Funds"), the form of which Agreement is included as Appendix V, to the
Combined Proxy Statement/Prospectus relating to the transactions contemplated by
the Agreement included in FAIF's Registration Statement on Form N-14 filed with
the Securities and Exchange Commission (the "Registration Statement").
In rendering the opinions hereinafter expressed, we have reviewed the
corporate proceedings taken by FAIF in connection with the authorization and
issuance of the Shares, and we have reviewed such questions of law and examined
copies of such corporate records of FAIF, certificates of public officials and
of responsible officers of FAIF, and other documents as we have deemed necessary
as a basis for such opinions. As to the various matters of fact material to such
opinions, we have, when such facts were not independently established, relied to
the extent we deem proper on certificates of public officials and of responsible
officers of FAIF. In connection with such review and examination, we have
assumed that all copies of documents provided to us conform to the originals;
that all signatures are genuine; and that prior to the consummation of the
transactions contemplated thereby, the Agreement will have been duly and validly
executed and delivered on behalf of each of the parties thereto in substantially
the form included in the Registration Statement.
<PAGE>
Based on the foregoing, it is our opinion that:
1. FAIF is validly existing as a corporation in good standing under the
laws of the State of Maryland.
2. The Shares, when issued and delivered by the Acquiring Fund pursuant
to, and upon satisfaction of the conditions contained in, the Agreement, will be
duly authorized, validly issued, fully paid and non-assessable.
In rendering the foregoing opinions (a) we express no opinion as to the
laws of any jurisdiction other than the State of Maryland and (b) we have
assumed, with your concurrence, that the conditions to closing set forth in the
Agreement will have been satisfied.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Information Relating to the Proposed Reorganization-Federal Income Tax
Consequences" in FAIF's final Combined Proxy Statement/Prospectus relating to
the Shares included in the Registration Statement.
Very truly yours,
/s/ Dorsey & Whitney LLP
Exhibit 14.1
Independent Auditors' Consent
The Board of Directors
American Government Income Portfolio, Inc.
American Government Income Fund, Inc.
American Opportunity Income Fund, Inc.:
We consent to the incorporation by reference in the registration Statement on
Form N-14 (the "Registration Statement") of First American Investment Funds,
Inc. (the "FAIF Funds") of each of our reports dated December 5, 1997, relating
to the financial statements and financial highlights of American Government
Income Portfolio, Inc., American Government Income Fund Inc. and American
Opportunity Income Fund Inc. We also consent to the references to our Firm under
the headings "Financial Statements" and "Service Providers for Piper Funds and
Fixed Income Fund" in the Registration Statement.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
May 14, 1998
Exhibit 14.2
Independent Auditors' Consent
The Board of Directors
First American Investment Funds, Inc.:
We consent to the incorporation by reference in the registration statement on
Form N-14 (the "Registration Statement") of First American Investment Funds,
Inc. (the "FAIF Funds") of our report, dated November 7, 1997, relating to the
financial statements and financial highlights of the FAIF Funds. We also consent
to the references to our Firm under the headings (a) "Financial Statements" and
"Service Providers for Piper Funds and Fixed Income Fund" in the Registration
Statement, (b) "Financial Highlights" in the prospectuses of the FAIF Funds
dated January 31, 1998, which are incorporated by reference in the Registration
Statement and (c) "Custodian; Transfer Agent; Counsel; Accountants" in the
statement of additional information of the FAIF Funds dated January 31, 1998,
which is incorporated by reference in the Registration Statement.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
May 14, 1998
Exhibit 16
FIRST AMERICAN INVESTMENT FUNDS, INC.
POWER OF ATTORNEY -- N-14 REGISTRATION STATEMENT
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Kathryn L. Stanton, Michael J.
Radmer, and Donna Rafa, and each of them, his or her true and lawful
attorneys-in-fact and agents, each acting alone, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign a Registration Statement on Form N-14 of First
American Investment Funds, Inc. ("FAIF"), relating to the combination of each of
American Government Income Fund Inc., American Government Income Portfolio,
Inc., and American Opportunity Income Fund Inc., with and into FAIF's Fixed
Income Fund, and any and all amendments thereto, including post-effective
amendments, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, each acting alone, full power and
authority to do and perform to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or the substitutes for such
attorneys-in-fact and agents, may lawfully do or cause to be done by virtue
hereof.
Signature Title Date
--------- ----- ----
/s/Robert J. Dayton Director May 7, 1998
Robert J. Dayton
/s/Roger A. Gibson Director May 7, 1998
Roger A. Gibson
/s/Andrew M. Hunter III Director May 11, 1998
Andrew M. Hunter III
/s/Leonard W. Kedrowski Director May 6, 1998
Leonard W. Kedrowski
/s/Robert L. Spies Director May 6, 1998
Robert L. Spies
/s/Joseph D. Strauss Director May 7, 1998
Joseph D. Strauss
/s/Virginia L. Stringer Director May 8, 1998
Virginia L. Stringer
Exhibit 17(a)
APPENDIX 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 24F-2
Annual Notice of Securities Sold
Pursuant to Rule 24f-2
OMB APPROVAL
OMB Number: 3235-0456
Expires: August 31, 2000
Estimated average burden
hours per response . . . . . 1
1. Name and address of issuer:
First American Investment Funds, Inc.
530 East Swedesford Road
Wayne, PA 19087
2. The name of each series or class of securities for which this notice is
filed (if the form is being filed for all series and classes of securities
of the issuer, check the box but do not list series or classes): [ ]
Intermediate Government Bond Fund
Intermediate Tax Free Fund
Fixed Income Fund
Stock Fund
Special Equity Fund
Equity Index Fund
Regional Equity Fund
Limited Term Income Fund
Intermediate Term Income Fund
Balanced Fund
Asset Allocation Fund
Colorado Intermediate Tax Free Fund
Minnesota Insured Intermediate Tax Free Fund
Technology Fund
Emerging Growth Fund
Equity Income Fund
Diversified Growth Fund
Real Estate Securities Fund
Health Sciences Fund
California Intermediate Tax Free Fund
Oregon Intermediate Tax Free Fund
Micro Cap Value Fund
International Fund
<PAGE>
3. Investment Company Act File Number: 811-5309
Securities Act File Number: 033-16905
4(a). Last day of fiscal year for which this Form is filed: September 30, 1997
4(b). Check box if this Form is being filed late (i.e., more than 90 calendar
days after the end of the issuer's fiscal year). (See Instruction A-2)
[ ]
Note: If the Form is being filed late, interest must be paid on the
registration fee due.
4(c). Check box if this is the last time the issuer will be filing this Form.
[ ]
5. Calculation of registration fee:
(i) Aggregate sale price of securities sold during the fiscal year pursuant to
section 24(f): $4,901,403,931
(ii) Aggregate price of securities redeemed or repurchased during the fiscal
year: $1,555,720,311
(iii) Aggregate price of securities redeemed or repurchased during any prior
fiscal year ending no earlier than October 11, 1995 that were not
previously used to reduce registration fees payable to the commission:
$ 0
(iv) Total available redemption credits [add Items 5(ii) and 5(iii)]:
$4,901,403,931
(v) Net Sales - if Item 5(i) is greater than Item 5(iv) [subtract Item 5(iv)
from Item 5(i)] $3,345,683,620
(vi) Redemption credits available for use in future years __if Item 5(i) is
less than Item 5 (iv) [subtract Item 5(iv) from Item 5(i)]: $ 0
(vii) Multiplier for determining registration fee (See Instruction C.9):
x .000295
(viii) Registration fee due [multiply item 5(v) by Item 5(vii)] (enter "0" if no
fee is due): + $986,976.67
6. If the response to Item 5(i) was determined by deducting an amount of
securities that were registered under the Securities Act of 1933 pursuant
to rule 24e-2 as in effect before October 11, 1997, then report the amount
of securities (number of shares or other units) deducted here:
_____0_____. If there is a number of shares or other units that were
registered pursuant to rule 24e-2 remaining unsold at the end of the
fiscal
<PAGE>
year for which this form is filed that are available for use by the issuer
in future fiscal years, then state that number here: __0___.
7. Interest due - if this Form is being filed more than 90 days after the end
of the issuer's fiscal year (see instruction D):
+ $
---------
8. Total of the amount of the registration fee due plus any interest due
[line 5(viii) plus line 7]:
= $986,976.67
9. Date the registration fee and any interest payment was sent to the
Commission's lockbox depository:
Method of Delivery:
[x] Wire Transfer
[ ] Mail or other means
SIGNATURES
This report has been signed below by the following person on behalf of the
issuer and in the capacities and on the dates indicated.
By (Signature and Title)* /s/Stephen G. Meyer, Controller
Stephen G. Meyer, Controller and Chief Financial Officer
Date: December 9, 1997
Exhibit 17(b) - Proxy Card
FORM OF PROXY
[FUND]
OAKS, PENNSYLVANIA 19456
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF QUALIVEST FUNDS
The undersigned hereby appoints Kathryn L. Stanton, Michael J. Radmer and
Donna Rafa, and each of them, with power to act without the other and with the
right of substitution in each, as proxies of the undersigned and hereby
authorizes each of them to represent and to vote, as designated below, all the
shares of _______________________________ Fund (the "Piper Fund"), held of
record by the undersigned on _______________ , 1998, at the Special Meeting of
Shareholders of the Fund to be held on _____________, 1998, or any adjournments
or postponements thereof, with all powers the undersigned would possess if
present in person. All previous proxies given with respect to the Special
Meeting hereby are revoked.
THE PROXIES ARE INSTRUCTED TO VOTE AS FOLLOWS:
1. PROPOSAL TO RATIFY AND APPROVE AN INTERIM ADVISORY AGREEMENT between the
Piper Fund, and Piper Capital Management Incorporated ("Piper Capital"),
and the receipt of investment advisory fees by Piper Capital under such
agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. PROPOSAL TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION providing for
the transfer of the assets and liabilities of the Piper Fund to Fixed
Income Fund, a fund of First American Investment Funds, Inc. ("FAIF"), in
exchange for Class A Shares of Fixed Income Fund.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the annual meeting or any adjournments or
postponements thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL
BE VOTED "FOR" THE PROPOSALS ABOVE. RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE PROXY STATEMENT RELATING TO THE MEETING IS ACKNOWLEDGED BY
YOUR EXECUTION OF THIS PROXY.
PLEASE SIGN THIS PROXY EXACTLY AS YOUR NAME APPEARS BELOW. WHEN SHARES ARE
HELD BY JOINT TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A
CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED
OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY PARTNER OR OTHER
AUTHORIZED PERSON.
DATED: _______________________, 1998
<PAGE>
___________________________________________
Signature
___________________________________________
Signature if held jointly
TO SAVE FURTHER SOLICITATION EXPENSE, PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY PROMPTLY USING THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
