Shareholder Q&A
American Government Income Fund
American Government Income Portfolio
American Opportunity Income Fund
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 August
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.
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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: Please call the toll-free number on your ballot or voting instruction
form 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
June 17, 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 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 THE TOLL-FREE NUMBER ON YOUR BALLOT.
<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,
/s/ Paul A. Dow
Paul A. Dow
President
<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 June 12, 1998 are
entitled to notice of, and to vote at, the 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 THE TOLL-FREE NUMBER ON THEIR BALLOT. 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.
Kathleen L. Prudhomme
Secretary
June 17, 1998
<PAGE>
COMBINED PROXY STATEMENT/PROSPECTUS
DATED JUNE 17, 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, a diversified 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 29, 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 .................... 24
INVESTMENT OBJECTIVES AND POLICIES ................................ 24
INVESTMENT ADVISORY FEES AND TOTAL EXPENSE RATIOS ................. 24
FEES AND EXPENSES OF THE PIPER FUNDS AND FIXED INCOME FUND ........ 25
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 ................................................... 28
HISTORY OF PUBLIC TRADING OF THE PIPER FUNDS' COMMON SHARES ....... 29
DISTRIBUTION PLAN ................................................. 30
SHAREHOLDER TRANSACTIONS AND SERVICES ............................. 30
INFORMATION RELATING TO VOTING MATTERS ................................. 31
<PAGE>
GENERAL INFORMATION ............................................... 31
SHAREHOLDER AND BOARD APPROVALS ................................... 32
PIPER FUNDS-- 5% OWNERSHIP AS OF JUNE 1, 1998 ..................... 33
FIXED INCOME FUND-- 5% OWNERSHIP AS OF JUNE 11, 1998 .............. 34
QUORUM ............................................................ 34
ANNUAL MEETINGS ................................................... 35
DISSENTERS' RIGHTS ................................................ 35
INTERESTS OF CERTAIN PERSONS ...................................... 36
ADDITIONAL INFORMATION ABOUT FAIF ...................................... 36
ADDITIONAL INFORMATION ABOUT THE PIPER FUNDS ........................... 36
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE ................ 37
FINANCIAL STATEMENTS ................................................... 37
OTHER BUSINESS ......................................................... 37
SHAREHOLDER INQUIRIES .................................................. 37
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 OFFICER 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
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 requirements, or (ii) until
<PAGE>
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 such 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.
A principal difference between the Piper Funds and Fixed Income Fund
involves the extent to which they are required to invest in U.S. Government
Securities (securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities). Each Piper Fund is required to invest at least 65% of its
total assets in U.S. Government Securities (or, for AGF and AAF, repurchase
agreements for U.S. Government Securities). Fixed Income Fund, however, is
subject to no such requirement. Fixed Income Fund invests in investment grade
debt securities, at least 65% of which are either (i) U.S. Government
Securities, or (ii) corporate debt obligations and mortgage-backed and
asset-backed securities rated at least A by Standard & Poor's Corporation
("Standard & Poor's") or Moody's Investor Services ("Moody's") or which have
been assigned an equivalent rating by another nationally recognized statistical
rating organization. There is no minimum amount of Fixed Income Fund's assets
which must be invested in U.S. Government Securities, and it is possible that
the Fund might not hold any such securities. Historically, however, Fixed Income
Fund has invested a significant percentage of its assets in U.S. Government
Securities. As of April 30, 1998, 67.9% of Fixed Income Fund's assets were
invested in such securities. As discussed below under "Principal Risk Factors --
Credit Risk," securities issued or guaranteed by the U.S. Government generally
are viewed as carrying minimal credit risk. Obligations of government agencies
are somewhat riskier, although they generally do not involve as much credit risk
as obligations of private issuers.
In addition to U.S. Government Securities, AGF and AAF may each invest
up to 35% of their total assets in (i) U.S. dollar denominated Canadian
government securities rated AA or better by Standard & Poor's, (ii) corporate
debt securities (including collateralized mortgage obligations), (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 AGF and AAF invest must be
rated AA or better by Standard & Poor's.
OIF may invest up to 35% of its total assets in a slightly wider range
of securities, including corporate debt securities, foreign debt securities,
unregistered securities, certain types of derivative mortgage-backed securities,
and whole mortgage loans and participation mortgages. At least 75% of OIF's
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's permitted investments include (i) notes, bonds and
discount notes of U.S. Government agencies or instrumentalities, (ii) 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, (iii) 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 (iv)
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. Under normal
market conditions, the dollar-weighted average maturity of the securities held
by Fixed Income Fund will not exceed 15 years.
<PAGE>
There are also differences in the extent to which the Piper Funds and
Fixed Income Fund invest in mortgage-backed securities. OIF is required 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. Although neither AGF nor AAF has
such a policy, both funds historically have invested significantly in
mortgage-backed securities. Fixed Income Fund, on the other hand, has not. As of
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.
The risks associated with mortgage-backed securities are discussed below under
"Principal Risk Factors -- Risks Associated With Mortgage-Backed Securities."
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. Investors generally pay brokerage commissions when purchasing
and selling such shares. Because the Piper Funds are closed-end investment
companies, they do not have Rule 12b-1 distribution plans and shareholders are
not subject to Rule 12b-1 distribution and shareholder servicing fees.
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
<PAGE>
applicable front-end or contingent deferred sales charge. Additional information
concerning these 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 June 12, 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. Although the Piper Funds
are closed-end investment companies, because shareholders will be able to redeem
their Fixed Income Fund shares immediately after the Closing at their net asset
value, the Piper Funds will determine dissenters' rights in accordance with the
Division interpretation. 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. Obligations of government agencies are somewhat riskier, although
they generally do not involve as much credit risk as obligations of private
issuers.
<PAGE>
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 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. In addition, Fixed Income Fund is
not required to invest any minimum percentage of its assets in U.S. Government
Securities. 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
<PAGE>
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.
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
<PAGE>
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.
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
<PAGE>
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 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 policy, 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 (the "NYSE"). 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
<PAGE>
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.
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
<PAGE>
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.
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
<PAGE>
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.
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 **0.50% N/A
Intermediate Bond Fund
(Series of Piper Funds Inc.) $59,184 ***0.30% 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.
<PAGE>
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, 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
<PAGE>
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 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 considered the confluence
of all the factors mentioned above in arriving at their conclusion and no one
factor was given any greater weight than any of the others. 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.
<PAGE>
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.
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
<PAGE>
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.
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.
<PAGE>
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 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 their decision to approve the Reorganization and
no one factor was given any greater weight than any of the others.
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
<PAGE>
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.
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
<PAGE>
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 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.
<PAGE>
FEES AND EXPENSES OF THE PIPER FUNDS AND FIXED INCOME FUND
<TABLE>
<CAPTION>
Pro Forma
Fixed Income
Fixed Income Fund 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 (7).......................... 0.18% 0.42% 0.38% 0.39% 0.18%
Total Fund Operating Expenses (7)
(after fee waivers for Fixed
Income Fund).............................. 0.95% (5) 1.02% 0.98% 0.92% 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.
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.
7 Does not include interest expense of AGF, AAF and OIF.
<PAGE>
Examples:
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.
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
<PAGE>
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.
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.
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
<PAGE>
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 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
<PAGE>
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
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
<PAGE>
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
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 11, 1998, were as follows:
<TABLE>
<CAPTION>
AGF AAF OIF
--- --- ---
<S> <C> <C> <C>
Market Price per Share............................... $5.69 $6.75 $6.50
Net Asset Value per Share............................ $5.87 $6.97 $6.73
Percentage Discount.................................. 3.11% 3.16% 3.42%
</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
<PAGE>
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.
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 $80,000. 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
<PAGE>
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 June 12, 1998
will be entitled to vote at the Meeting. On that date, 16,080,953 shares of AGF,
18,357,911 shares of AAF, and 16,990,546 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 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.
<PAGE>
As of June 1, 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 June 1, 1998.
PIPER FUNDS -- 5% OWNERSHIP AS OF JUNE 1, 1998
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
AMOUNT OF OF OF FUND
NAME OF OWNER ADDRESS OF OWNER SHARES OWNED FUND POST-CLOSING****
- ------------- ---------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
American Government Income Fund Inc.
**Magten Asset 35 East 21st Street 1,164,453 5.4% ***
Management Corp. New York, NY 10010
**Yale University 230 Prospect Street 2,775,334 17.3% ***
New Haven, CT 06511-2107
American Government Income Portfolio, Inc.
**Yale University 230 Prospect Street 3,137,316 17.1% ***
New Haven, CT 06511-2107
American Opportunity Income Fund Inc.
**Karpus Management, Inc. 14 Tobey Village Office Park 1,188,115 7.0% ***
d/b/a Karpus Investment Pittsford, NY 14534
Management
**Yale University 230 Prospect Street 2,990,046 17.6% ***
New Haven, CT 06511-2107
</TABLE>
- --------------------
* Record holder only.
** Known to the Piper Funds to be beneficial owner.
*** Less than 0.1%
**** Based on shares outstanding of the Piper Funds as of June 1, 1998 and
shares outstanding of Fixed Income Fund as of June 11, 1998.
<PAGE>
As of June 11, 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 June 11, 1998.
FIXED INCOME FUND -- 5% OWNERSHIP AS OF JUNE 11, 1998
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
AMOUNT OF OF OF FUND
NAME OF OWNER ADDRESS OF OWNER SHARES OWNED CLASS POST-CLOSING****
- ------------- ---------------- ------------ ----- ------------
<S> <C> <C> <C> <C>
Class A
**Bethany Lutheran College 601 2nd Avenue South 70,536 6.54% ***
Endowment Minneapolis, MN 55402
First Asset Management Attn: Arlene Kielley
MPFP1607
Class Y
*VAR & Co P.O. Box 64482 78,521,041 75.94% 57.66%
St. Paul, MN 55164
*U.S. Bank Trust National 180 East 5th Street 5,939,497 5.74% ***
Association St. Paul, MN 55101
As Fiduciary for First Retirement Attn: Reconciliation
SPFT0401
**U.S. Bank American Strategy P. O. Box 64010 6,207,316 6.00% ***
Income Fund St. Paul, MN 55164
c/o First Trust National Attn: Greg Wilhelmy
Association SPFT 000912
**U.S. Bank American Strategy P. O.Box 64010 9,423,697 9.11% ***
Growth and Income Fund St. Paul, MN 55164-0010
c/o U.S. Bank Trust National Attn: Greg Wilhelmy
Association SPFT 0912
</TABLE>
- --------------------
* Record holder only.
** Known to FAIF to be beneficial owner.
*** Less than 0.1%
**** Based on shares outstanding of the Piper Funds as of June 1, 1998 and
shares outstanding of Fixed Income Fund as of June 11, 1998.
For purposes of the 1940 Act, any person who beneficially 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, no person may be deemed to be controlling persons of the Piper Funds
or 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
<PAGE>
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 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 June 12, 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.
Although the Piper Funds are closed-end investment companies, because
shareholders will be able to redeem their Fixed Income Fund shares immediately
after the Closing Date at their net asset value, 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,
as mentioned above, 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.
<PAGE>
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 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.
<PAGE>
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 Worth Bruntjen failed to timely report two transactions
on Form 4.
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.
<PAGE>
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 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 *
Sandra K. Shrewsbury 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 ............................................ 11
10. Further Assurances .................................................... 13
11. Indemnification ....................................................... 13
12. Survival of Representations and Warranties ............................ 13
13. Termination of Agreement .............................................. 13
14. Amendment and Waiver. ................................................. 13
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 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"); and
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 common stock in the FAIF Fund
having an aggregate net asset value equal to the net value of the Fund Assets so
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
<PAGE>
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 common share of one of the Piper
Funds 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 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 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.
<PAGE>
(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 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
<PAGE>
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.
(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
<PAGE>
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.
(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.
<PAGE>
(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.
(e) It will value its portfolio securities and other assets in
accordance with applicable legal requirements.
(f) 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.
(g) 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.
(h) 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
<PAGE>
materially and adversely affect, its business or its ability to
consummate the transactions contemplated herein.
(i) 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.
(j) 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.
(k) 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.
(l) 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.
(m) 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:
(a) a proposal, in connection with the merger between U.S.
Bancorp and Piper Jaffray Companies Inc., to ratify and approve an
investment advisory agreements 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.
<PAGE>
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 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.
<PAGE>
(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 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
<PAGE>
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-1A Post-Effective Amendment and 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.
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.
<PAGE>
(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-1A Post-Effective Amendment and 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.
(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.
<PAGE>
(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
(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
<PAGE>
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
Facsimile Number: (612) 342-1673
<PAGE>
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.
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:
- ------------------------------------ ---------------------------------------
Secretary President
<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 the 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.
<PAGE>
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.
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. He joined Piper Capital Management Incorporated in 1992 and serves
as Senior Vice President and a portfolio co-manager, overseeing the management
of several Piper funds. Mr. Salvog received his bachelor's degree from Harvard
University.
TOM MCGLINCH. Mr. McGlinch has over 17 years of investment industry
experience. He joined Piper Capital Management Incorporated in 1992 and serves
as Senior Vice President and a portfolio co-manager, overseeing the management
of several Piper funds. 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 OR 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 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
<PAGE>
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;
(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
<PAGE>
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.
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.
<PAGE>
(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.
(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;
<PAGE>
(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 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
<PAGE>
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>
BACK COVER
FACEPROX2 6/1998 094-98
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
DATED JUNE 17, 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, as supplemented on May 15, 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 ...................... 9
Repurchase Agreements .............................................. 9
Portfolio Turnover ................................................. 10
Investment Restrictions ................................................ 10
TENDER OFFERS AND SHARE REPURCHASES ......................................... 11
DIRECTORS AND EXECUTIVE OFFICERS ............................................ 12
INVESTMENT ADVISORY AND OTHER SERVICES ...................................... 15
Adviser ............................................................ 15
Control of the Adviser ............................................. 15
Investment Advisory Agreements ..................................... 15
Fund Administration ................................................ 15
Independent Auditors ............................................... 16
BROKERAGE AND PORTFOLIO TRANSACTIONS ........................................ 16
TAXATION .................................................................... 17
General ............................................................ 17
Federal Tax Treatment of Shareholders .............................. 18
Consequences of Certain Fund Investments ........................... 19
ADDITIONAL INFORMATION ...................................................... 20
RATINGS ..................................................................... 20
Ratings of Corporate Debt Obligations and Municipal Bonds .......... 21
Standard & Poor's ............................................. 21
Moody's ....................................................... 22
Ratings of Preferred Stock ......................................... 22
Standard & Poor's ............................................. 22
Moody's ....................................................... 23
Ratings of Municipal Notes ......................................... 23
Standard & Poor's ............................................. 23
Moody's ....................................................... 23
Ratings of Commercial Paper ........................................ 24
Standard & Poor's ............................................. 24
Moody's ....................................................... 24
Best's Rating System for Insurance Companies ...................... 24
<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 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 or indirect
<PAGE>
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 the fund
or the Adviser.
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
<PAGE>
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
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
<PAGE>
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;
(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
<PAGE>
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 a 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 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.
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
<PAGE>
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
- --------------------
* 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
<PAGE>
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.
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.
<TABLE>
<CAPTION>
Compensation Compensation Compensation Total Compensation
Director from AGF from AAF from OIF from Fund Complex*
- -------- ------------ ------------ ------------ ------------------
<S> <C> <C> <C> <C>
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
</TABLE>
- ------------------
* 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.
<PAGE>
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
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
<PAGE>
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 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
<PAGE>
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. ("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
<PAGE>
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 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).
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.
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
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 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>
AMERICAN GOVERNMENT INCOME FUND INC.
222 SOUTH NINTH STREET
MINNEAPOLIS, MN 55402-3804
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF AMERICAN
GOVERNMENT INCOME FUND INC.
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 American Government Income Fund Inc. (The "Fund"), held of record by
the undersigned on June 12, 1998, at the Annual Meeting of Shareholders of the
Fund to be held on August 10, 1998, or to vote upon such other business as may
properly come before the Annual Meeting, 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 Meeting hereby are revoked.
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 ANNUAL
MEETING OF SHAREHOLDERS AND THE PROXY STATEMENT RELATING TO THE MEETING IS
ACKNOWLEDGED BY YOU 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
AUTHORIZEDOFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY PARTNER
OR OTHER AUTHORIZED PERSON.
TO SAVE FURTHER SOLICITATION EXPENSES, PLEASE MARK, SIGN, DATE AND
RETURN THIS PROXY PROMPTLY USING THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
A Low Cost Way to Vote Your Proxy. Save Time, Save Money.
1. Read the Proxy Statement and have your Proxy Card at hand.
2. Call toll-free 1-800-690-6903
3. Enter the 12-digit Control Number found on your Proxy Card.
4. Follow the simple recorded instructions.
<PAGE>
THE PROXIES ARE INSTRUCTED TO VOTE AS FOLLOWS:
Vote on Proposals
1. PROPOSAL TO RATIFY AND APPROVE AN INTERIM ADVISORY AGREEEMENT between
the 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 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.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
DATED: _______________, 1998
- ------------------------------------
Signature
- ------------------------------------
Signature if held jointly
<PAGE>
AMERICAN GOVERNMENT INCOME PORTFOLIO, INC.
222 SOUTH NINTH STREET
MINNEAPOLIS, MN 55402-3804
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF AMERICAN
GOVERNMENT INCOME PORTFOLIO, INC.
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 American Government Income Portfolio, Inc. (The "Fund"), held of
record by the undersigned on June 12, 1998, at the Annual Meeting of
Shareholders of the Fund to be held on August 10, 1998, or to vote upon such
other business as may properly come before the Annual Meeting, 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
Meeting hereby are revoked.
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 ANNUAL
MEETING OF SHAREHOLDERS AND THE PROXY STATEMENT RELATING TO THE MEETING IS
ACKNOWLEDGED BY YOU 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
AUTHORIZEDOFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY PARTNER
OR OTHER AUTHORIZED PERSON.
TO SAVE FURTHER SOLICITATION EXPENSES, PLEASE MARK, SIGN, DATE AND
RETURN THIS PROXY PROMPTLY USING THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
A Low Cost Way to Vote Your Proxy. Save Time, Save Money.
1. Read the Proxy Statement and have your Proxy Card at hand.
2. Call toll-free 1-800-690-6903
3. Enter the 12-digit Control Number found on your Proxy Card.
4. Follow the simple recorded instructions.
<PAGE>
THE PROXIES ARE INSTRUCTED TO VOTE AS FOLLOWS:
Vote on Proposals
1. PROPOSAL TO RATIFY AND APPROVE AN INTERIM ADVISORY AGREEEMENT between
the 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 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.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
DATED: _______________, 1998
- ------------------------------------
Signature
- ------------------------------------
Signature if held jointly
<PAGE>
AMERICAN OPPORTUNITY INCOME FUND INC.
222 SOUTH NINTH STREET
MINNEAPOLIS, MN 55402-3804
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF AMERICAN
OPPORTUNITY INCOME FUND INC.
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 American Opportunity Income Fund Inc. (The "Fund"), held of record by
the undersigned on June 12, 1998, at the Annual Meeting of Shareholders of the
Fund to be held on August 10, 1998, or to vote upon such other business as may
properly come before the Annual Meeting, 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 Meeting hereby are revoked.
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 ANNUAL
MEETING OF SHAREHOLDERS AND THE PROXY STATEMENT RELATING TO THE MEETING IS
ACKNOWLEDGED BY YOU 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.
TO SAVE FURTHER SOLICITATION EXPENSES, PLEASE MARK, SIGN, DATE AND
RETURN THIS PROXY PROMPTLY USING THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
A Low Cost Way to Vote Your Proxy. Save Time, Save Money.
1. Read the Proxy Statement and have your Proxy Card at hand.
2. Call toll-free 1-800-690-6903
3. Enter the 12-digit Control Number found on your Proxy Card.
4. Follow the simple recorded instructions.
<PAGE>
THE PROXIES ARE INSTRUCTED TO VOTE AS FOLLOWS:
Vote on Proposals
1. PROPOSAL TO RATIFY AND APPROVE AN INTERIM ADVISORY AGREEEMENT between
the 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 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.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
DATED: _______________, 1998
- ------------------------------------
Signature
- ------------------------------------
Signature if held jointly
