<PAGE>
As filed with the Securities and Exchange Commission on October 28, 1996
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Registration No. 33-48299)
Pre-Effective Amendment No. _____
Post-Effective Amendment No. 7
-----
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
(Registration No. 811-06046)
Amendment No. 8
-----
(Check appropriate box or boxes)
PIPER GLOBAL FUNDS INC.
(Exact Name of Registrant as Specified in Charter)
Piper Jaffray Tower
222 South Ninth Street, Minneapolis, Minnesota 55402
(Address of Principal Executive Offices) (Zip Code)
(612) 342-6387
(Registrant's Telephone Number, including Area Code)
Paul A. Dow
222 South Ninth Street
Minneapolis, Minnesota 55402
(Name and Address of Agent for Service)
Copy to:
Kathleen L. Prudhomme, Esq.
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
X immediately upon filing pursuant to paragraph (b) of rule 485
--------
________ on (specify date) pursuant to paragraph (b) of rule 485
________ 75 days after filing pursuant to paragraph (a) of rule 485
________ on (specify date) pursuant to paragraph (a) of rule 485
The Registrant has registered an indefinite number or amount of common stock
under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment
Company Act of 1940. A Rule 24f-2 Notice was filed by the Registrant on or
about October 24, 1996.
<PAGE>
PIPER GLOBAL FUNDS INC.
Registration Statement on Form N-1A
---------------
Cross Reference Sheet
Pursuant to Rule 481(a)
---------------
<TABLE>
<CAPTION>
Item No. Prospectus Heading
- -------- ------------------
<S> <C> <C>
1. Cover Page...................................... Cover Page (no caption)
2. Synopsis........................................ Introduction; Fund Expenses
3. Condensed Financial Information................. Financial Highlights
4. General Description of Registrant............... Introduction; Investment Objectives
and Policies; Special Investment Methods
5. Management of the Fund.......................... Management
6. Capital Stock and Other Securities.............. General Information; Introduction;
Dividends and Distributions; Tax Status
7. Purchase of Securities Being Offered............ Dividends and Distributions; How
to Purchase Shares; Valuation of Shares
8. Redemption or Repurchase........................ How to Redeem Shares
9. Pending Legal Proceedings....................... General Information
Statement of Additional Information Heading
-------------------------------------------
10. Cover Page...................................... Cover Page (no caption)
11. Table of Contents............................... Table of Contents
12. General Information and History................. Not Applicable
13. Investment Objectives and Policies.............. Investment Objectives and Policies; Investment
Restrictions
14. Management of the Fund.......................... Directors and Executive Officers
15. Control Persons and Principal
Holders of Securities........................... Capital Stock and Ownership of Shares
16. Investment Advisory and Other
Services........................................ Investment Advisory and Other Services
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
17. Brokerage Allocation and Other
Practices....................................... Portfolio Transactions and Allocation of Brokerage
18. Capital Stock and Other Securities.............. Capital Stock and Ownership of Shares
19. Purchase, Redemption and Pricing
of Securities Being Offered................... Net Asset Value and Public Offering Price;
Redemption of Shares
20. Tax Status...................................... Taxation
21. Underwriters.................................... Investment Advisory and Other Services; Portfolio
Transactions and Allocation of Brokerage
22. Calculations of Performance Data................ Performance Comparisons
23. Financial Statements............................ Financial Statements
</TABLE>
<PAGE>
PROSPECTUS DATED OCTOBER 28, 1996
PACIFIC-EUROPEAN GROWTH FUND
EMERGING MARKETS GROWTH FUND
SERIES OF PIPER GLOBAL FUNDS INC.
PIPER JAFFRAY TOWER
222 SOUTH NINTH STREET, MINNEAPOLIS, MINNESOTA 55402-3804
(800) 866-7778 (TOLL FREE)
Piper Global Funds Inc. ("Piper Global") is an open-end management
investment company the shares of which are currently offered in two series:
Pacific-European Growth Fund ("Pacific-European Fund") and Emerging Markets
Growth Fund ("Emerging Markets Fund"). The investment objective of each Fund
is long-term capital appreciation. Current income is incidental to this
objective. Pacific-European Fund seeks to achieve its investment objective
through investments primarily in Common Stock (as herein defined) of companies
in the Pacific Basin or in Europe (including Eastern Europe). Up to 25% of the
Fund's total assets may be invested in other areas of the world to the extent
significant opportunities for long-term capital appreciation outside of the
Pacific Basin and Europe become available. Emerging Markets Fund seeks to
achieve its investment objective through investments primarily in Common Stock
of issuers in the world's emerging securities markets. The Funds do not invest
in Common Stock of U.S. companies. No assurance can be given that the Funds'
investment objectives will be achieved.
PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. SAFETY OF
PRINCIPAL IS NOT GUARANTEED. Investment in the Funds involves certain risks
and requires consideration of factors not typically associated with investment
in securities of U.S. issuers. See "Risk Factors."
This Prospectus concisely describes the information about the Funds that you
should know before investing. Please read the Prospectus carefully before
investing and retain it for future reference.
A Statement of Additional Information about the Funds dated October 28, 1996
is available free of charge. Write to the Funds at Piper Jaffray Tower, 222
South Ninth Street, Minneapolis, Minnesota 55402-3804 or telephone (800) 866-
7778 (toll free). The Statement of Additional Information has been filed with
the Securities and Exchange Commission and is incorporated in its entirety by
reference in this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
INTRODUCTION
Pacific-European Growth Fund ("Pacific-European Fund") is a diversified
series and Emerging Markets Growth Fund ("Emerging Markets Fund") is a non-
diversified series of Piper Global Funds Inc. ("Piper Global"), an open-end
management investment company, or mutual fund, the shares of which can be
offered in more than one series. Each series in effect represents a separate
fund with its own investment objective and policies. The investment objective
of each Fund is long-term capital appreciation. Current income is incidental to
this objective.
THE INVESTMENT ADVISER
The Funds are managed by Piper Capital Management Incorporated (the
"Adviser"), a wholly owned subsidiary of Piper Jaffray Companies Inc.
Pacific-European Fund pays the Adviser a basic management fee calculated and
paid monthly at an annual rate of 1% on net assets up to $100 million, with the
fee scaled downward as assets increase in size (the "Basic Fee"). The Basic Fee
(as a percentage of net assets) is higher than that paid by most other mutual
funds. The Basic Fee may be increased or decreased by up to a maximum, on an
annual basis, of .25% of Pacific-European Fund's average daily net assets
depending upon the extent to which the Fund outperforms or underperforms the
Morgan Stanley Capital International European, Australian and Far East Index
(the "EAFESM Index").
Emerging Markets Fund pays the Adviser a monthly management fee at an annual
rate of 1% of the Fund's average daily net assets. This fee is higher than that
paid by most other mutual funds. See "Management--Investment Adviser."
THE SUB-ADVISER
Edinburgh Fund Managers plc acts as each Fund's sub-adviser (the "Sub-
Adviser") under agreements with the Adviser. The Sub-Adviser is a public
limited company that was incorporated in 1969. For its services to Pacific-
European Fund, the Sub-Adviser is paid a fee by the Adviser equal to 65% of the
Basic Fee plus or minus 90% of the performance fee adjustment. The Adviser and
Sub-Adviser also have entered into an Expense Reimbursement Agreement pursuant
to which the Sub-Adviser pays the Adviser a monthly fee equal to 10% of the
Basic Fee to reimburse the Adviser for certain expenses it bears in connection
with the administration of Pacific-European Fund. For its services to Emerging
Markets Fund, the Sub-Adviser is paid a fee by the Adviser equal, on an annual
basis, to .50% of the Fund's average daily net assets. See "Management--Sub-
Adviser."
THE DISTRIBUTOR
Piper Jaffray Inc. ("Piper Jaffray" or the "Distributor"), a wholly owned
subsidiary of Piper Jaffray Companies Inc. and an affiliate of the Adviser,
serves as Distributor of the Funds' shares.
CERTAIN RISK FACTORS TO CONSIDER
An investment in the Funds is subject to certain risks, as set forth in
detail under "Investment Objectives and Policies," "Special Investment Methods"
and "Risk Factors." As with other mutual funds, there can be no assurance that
either Fund will achieve its objective. Because the Funds invest in foreign
securities, an investment in either Fund requires consideration of certain risk
factors that are not typically associated with investing in securities of U.S.
companies. These factors include risks relating to adverse currency
fluctuations, potential political and economic instability of certain
countries, limited liquidity and volatile prices of certain securities of non-
U.S. companies, and foreign taxation. These risks are particularly significant
for the Emerging Markets Fund. Investing in emerging markets involves exposure
to economic structures that are generally less diverse and mature than, and to
political systems that can be expected to have less stability than, those of
developed countries. The Emerging Markets Fund is a non-diversified fund, which
means that it may invest a greater portion of its assets in securities
2
<PAGE>
of individual issuers than a diversified fund. As a result, changes in the
market value of a single issuer could cause greater fluctuations in share value
than would occur in a more diversified fund. In addition, the Funds may engage
in the following investment practices which involve certain special risks:
entering into currency exchange transactions, forward foreign currency exchange
transactions and foreign currency futures and options, entering into options
transactions on securities in which the Funds may invest, the use of repurchase
agreements, the lending of portfolio securities, entering into futures
contracts and options on futures contracts, the purchase of securities on a
"when-issued" basis and the purchase or sale of securities on a "forward
commitment" basis. The use of these investment practices may increase the
volatility of a Fund's net asset value. Each Fund may invest in illiquid
securities which will involve greater risk than investments in other securities
and may increase Fund expenses.
OFFERING PRICE
Shares of the Funds are offered to the public at the next determined net
asset value after receipt of an order by a shareholder's Piper Jaffray
Investment Executive or other broker-dealer plus a maximum sales charge of 4%
of the offering price (4.17% of the net asset value) on purchases of less than
$100,000. The sales charge is reduced on a graduated scale on purchases of
$100,000 or more. In connection with purchases of $500,000 or more, there is no
initial sales charge; however, a 1% contingent deferred sales charge ("CDSC")
will be imposed in the event of a redemption transaction occurring within 24
months following such a purchase. DURING THE SPECIAL OFFERING PERIOD, WHICH
EXTENDS THROUGH DECEMBER 31, 1996, SHARES OF THE FUNDS WILL BE OFFERED TO THE
PUBLIC WITHOUT AN INITIAL SALES CHARGE. FOR ANY PURCHASE THAT WOULD BE SUBJECT
TO A SALES CHARGE OUTSIDE THE SPECIAL OFFERING PERIOD, THE FUNDS WILL IMPOSE A
CDSC OF 2% ON REDEMPTIONS DURING THE FIRST 12 MONTHS AFTER PURCHASE, AND 1% ON
REDEMPTIONS DURING THE SECOND 12 MONTHS. SEE "HOW TO PURCHASE SHARES--PURCHASE
PRICE" AND "HOW TO REDEEM SHARES--CONTINGENT DEFERRED SALES CHARGE."
MINIMUM INITIAL AND SUBSEQUENT INVESTMENTS
The minimum initial investment for each Fund is $250. There is no minimum for
subsequent investments. See "How to Purchase Shares--Minimum Investments."
EXCHANGES
You may exchange your shares for shares of any other mutual fund managed by
the Adviser which is eligible for sale in your state of residence. All
exchanges are subject to the minimum investment requirements and other
applicable terms set forth in the prospectus of the fund whose shares you
acquire. Exchanges are made on the basis of the net asset values of the funds
involved, except that investors exchanging into a fund which has a higher sales
charge must pay the difference. You may make four exchanges per year without
payment of a service charge. Thereafter, there is a $5 service charge for each
exchange. See "Shareholder Services--Exchange Privilege."
REDEMPTION PRICE
Shares of the Funds may be redeemed at any time at their net asset value next
determined after a redemption request is received by your Piper Jaffray
Investment Executive or other broker-dealer. A contingent deferred sales charge
will be imposed upon the redemption of certain shares initially purchased
without a sales charge. See "How to Redeem Shares--Contingent Deferred Shares
Charge." Each Fund reserves the right, upon 30 days written notice, to redeem
an account if the net asset value of the shares falls below $200. See "How to
Redeem Shares--Involuntary Redemption."
SHAREHOLDER INQUIRIES
Any questions or communications regarding a shareholder account should be
directed to your Piper Jaffray Investment Executive or, in the case of shares
held through another broker-dealer, to IFTC at (800) 874-6205. General
inquiries regarding the Funds should be directed to the Funds at the telephone
number set forth on the cover page of this Prospectus.
3
<PAGE>
FUND EXPENSES
<TABLE>
<CAPTION>
PACIFIC- EMERGING
EUROPEAN MARKETS
FUND FUND
-------- --------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)....................... 4.00% 4.00%
Exchange Fee(1)............................................ $0 $0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees............................................ .90% 1.00%
Rule 12b-1 Fees (after voluntary fee limitations).......... .33% .33%
Other Expenses (after voluntary expense reimbursements for
Emerging Markets Fund).................................... .43% .67%
---- ----
Total Fund Operating Expenses (after voluntary fee
limitations and expense reimbursements)................... 1.66% 2.00%
</TABLE>
- --------
(1) There is a $5.00 fee for each exchange in excess of four exchanges per
year. See "How to Purchase Shares--Exchange Privilege."
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming a 5%
annual return and redemption at the end of each time period:
<TABLE>
<CAPTION>
PACIFIC- EMERGING
EUROPEAN MARKETS
FUND FUND
-------- --------
<S> <C> <C>
1 year................................................. $ 56 $ 59
3 years................................................ $ 90 $100
5 years................................................ $127 $143
10 years................................................ $229 $263
</TABLE>
The purpose of the above Fund Expenses table is to assist you in
understanding the various costs and expenses that investors in the Funds will
bear directly or indirectly. THE EXAMPLE CONTAINED IN THE TABLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESSER THAN THOSE SHOWN.
The information set forth in the table for Pacific-European Fund is based on
actual expenses incurred by the Fund during the fiscal period from March 1
through September 30, 1996, except that Rule 12b-1 Fees reflect a voluntary
limitation by the Distributor of amounts payable to it under the Fund's Rule
12b-1 Plan to .33% of average daily net assets for the fiscal year ending
September 30, 1997. For the fiscal period ended September 30, 1996, the
Distributor voluntarily limited Rule 12b-1 payments to .31% of average daily
net assets. Absent such limitation, Total Fund Operating Expenses for Pacific-
European Fund for the fiscal period ended September 30, 1996 would have been
1.83% of average daily net assets.
4
<PAGE>
The information set forth for Emerging Markets Fund is based on the
Adviser's undertaking to reimburse Total Fund Operating Expenses in excess of
2.00% of the Fund's average daily net assets for the fiscal year ending
September 30, 1997, and reflects a voluntary limitation by the Distributor of
the fee payable to it under the Fund's Rule 12b-1 Plan to .33% of average
daily net assets. Without any expense reimbursements or fee limitations, Other
Expenses and Total Fund Operating Expenses for the fiscal period from July 1
through September 30, 1996 would have been, on an annualized basis, 2.59% and
4.09%, respectively, of Emerging Markets Fund's average daily net assets.
Voluntary limitations and reimbursements for the Funds may be revised or
terminated at any time after September 30, 1997. The Adviser may or may not
assume additional expenses of the Funds from time to time, in its discretion,
while retaining the ability to be reimbursed by the Funds for expenses assumed
during a fiscal year prior to the end of such year. The foregoing policy will
have the effect of lowering a Fund's overall expense ratio and increasing
yield to investors when such amounts are assumed or the inverse when such
amounts are reimbursed.
Pacific-European Fund's management fees for fiscal 1997 may be more or less
than those set forth in the table to the extent that the Fund outperforms or
underperforms the EAFE Index. For the seven months ended September 30, 1996,
the performance fee adjustment resulted in a reduction of management fees for
Pacific-European Fund by 0.05% of average daily net assets. Absent such
reduction, management fees would have been 0.95% of average daily net assets.
See "Management--Investment Adviser."
As a result of each Fund's payment of its Rule 12b-1 fee, a portion of which
is considered an asset-based sales charge, long-term shareholders of the Funds
may pay more than the economic equivalent of the maximum 6.25% front end sales
charge permitted under the rules of the National Association of Securities
Dealers, Inc. For additional information, including a more complete
explanation of management and Rule 12b-1 fees, see "Management--Investment
Adviser" and "Distribution of Fund Shares."
5
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights show certain per share data and selected
information for a share of capital stock outstanding during the indicated
periods for each Fund. This information has been audited by KPMG Peat Marwick
LLP, independent auditors and should be read in conjunction with the financial
statements of each Fund contained in its annual report. An annual report of
each Fund is available without charge by contacting the Funds at 800-866-7778
(toll free). In addition to financial statements, the Funds' annual reports
contain further information about the performance of the Funds.
Effective with the close of business on June 21 1996, Emerging Markets Fund
acquired the assets and assumed all identified liabilities of Hercules Latin
American Value Fund, a series of Hercules Funds Inc., in a tax-free
reorganization by issuing new shares. Emerging Markets Fund had no assets or
liabilities prior to the acquisition. Consequently, the information presented
for Emerging Markets Fund prior to June 21, 1996 represents the financial
history of Hercules Latin American Value Fund. The information presented for
Pacific-European Fund relates to fiscal periods ended both before and after
the conversion of the Fund from a closed-end to an open-end fund on August 31,
1992.
PACIFIC-EUROPEAN FUND
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED PERIOD FROM
3/1/96 TO --------------------------------------------- 4/27/90(A)
9/30/96 (F) 2/29/96 2/28/95 2/28/94 2/28/93(E) 2/29/92 TO 2/28/91
PER SHARE DATA ----------- ------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.. $ 13.86 12.73 15.44 10.81 10.53 10.18 10.97
------- ----- ------ ----- ----- ----- -----
Operations:
Net investment income (loss)......... 0.07 0.05 (0.03) (0.03) -- 0.06 0.20
Net realized and unrealized gains
(losses)............................ (0.28) 2.03 (1.63) 4.72 0.28 0.37 (0.79)
------- ----- ------ ----- ----- ----- -----
Total from operations............... (0.21) 2.08 (1.66) 4.69 0.28 0.43 (0.59)
------- ----- ------ ----- ----- ----- -----
Distributions to shareholders:
From net investment income........... -- (0.05) -- -- -- (0.06) (0.20)
Tax return of capital................ -- -- -- -- -- (0.02) --
From net realized gains on invest-
ments............................... (0.71) (0.90) (1.05) (0.06) -- -- --
------- ----- ------ ----- ----- ----- -----
Total distributions to shareholders. (0.71) (0.95) (1.05) (0.06) -- (0.08) (0.20)
------- ----- ------ ----- ----- ----- -----
Net asset value, end of period........ $12.94 13.86 12.73 15.44 10.81 10.53 10.18
======= ===== ====== ===== ===== ===== =====
SELECTED INFORMATION
Total return(c) ...................... (1.66)% 16.70% (11.09)% 43.45% 2.66% 4.44% (5.03)%
Net assets at end of period
(in millions)........................ $ 172 163 154 166 60 36 34
Ratio of expenses to average daily net
assets(d)............................ 1.64%(b) 1.55% 1.76% 1.81% 2.25% 1.92% 1.77%(b)
Ratio of net investment income (loss)
to average daily net assets(d)....... 0.29%(b) 0.36% (0.19)% (0.29)% 0.03% 0.60% 2.36%(b)
Average brokerage commission rate (g). $0.0173 n/a n/a n/a n/a n/a n/a
Portfolio turnover rate (excluding
short-term securities)............... 49% 65% 57% 52% 59% 69% 10%
</TABLE>
(a) Commencement of operations.
(b) Adjusted to an annual basis.
(c) Total return is based on the change in net asset value during the period,
assumes reinvestment of all distributions and does not reflect a sales
charge.
(d) During the periods reflected above, the Adviser and Distributor
voluntarily waived fees and/or reimbursed expenses. Had the Fund paid all
expenses and the maximum distribution fee been in effect, the ratios of
expenses and net investment income (loss) to average daily net assets
would have been as follows: 1.83%/0.10% for the period from March 1, 1996
to September 30, 1996, 1.73%/0.18%, 1.98%/(0.41%), 2.01%/(0.49%) and
2.59%/(0.31%) in fiscal years 1996, 1995, 1994 and 1993, respectively.
Beginning in fiscal 1996, the expense ratio reflects the effect of gross
expenses paid indirectly by the Fund. Prior period expense ratios have not
been adjusted.
(e) The Fund converted from a closed-end investment company to an open-end
investment company on August 31, 1992. Information for periods prior to
conversion are based on the Fund's operations as a closed-end fund. Fiscal
1993 expenses include 0.32% related to the conversion.
(f) On June 21, 1996, the Fund acquired the net assets of Hercules European
Value Fund and Hercules Pacific Basin Value Fund via a tax-free
reorganization.
(g) Beginning in the seven month period ended September 30, 1996, the Fund is
required to disclose an average brokerage commission rate. The rate is
calculated by dividing total brokerage commissions paid on purchases and
sales of portfolio securities by the total number of related shares
purchased and sold. The comparability of this information may be affected
by the fact that commission rates per share vary significantly among
foreign countries.
6
<PAGE>
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED PERIOD FROM
7/1/96 TO ------------------ 11/9/93(B)
9/30/96 6/30/96(A) 6/30/95 TO 6/30/94
----------- ---------- ------- -----------
<S> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of
period......................... $8.84 $7.20 $ 9.14 $10.00
------- ----- ------ ------
Operations:
Net investment income.......... -- 0.01 -- 0.01
Net realized and unrealized
gains (losses)................ 0.01 1.63 (1.94) (0.87)
------- ----- ------ ------
Total from operations......... 0.01 1.64 (1.94) (0.86)
------- ----- ------ ------
Net asset value, end of period.. $8.85 $8.84 $ 7.20 $ 9.14
======= ===== ====== ======
SELECTED INFORMATION
Total return (c) ............... 0.11% 22.8% (21.23)% (8.60)%
Net assets at end of period (in
millions)...................... $ 14 $ 14 $ 23 $ 28
Ratio of expenses to average
daily net assets (e)........... 2.00%(d) 2.00% 2.00% 2.00%(d)
Ratio of net investment income
(loss) to average daily net as-
sets (e)....................... 0.26%(d) 0.15% (0.03)% 0.14%(d)
Average brokerage commission
rate (f)....................... $0.0009 n/a n/a n/a
Portfolio turnover rate
(excluding
short-term securities)......... 0% 140% 161% 78%
</TABLE>
(a) Emerging Markets Growth Fund commenced operations and acquired the net
assets of Hercules Latin American Value Fund on June 21, 1996, via a tax-
free reorganization. Emerging Markets Growth Fund had no assets or
liabilities prior to the acquisition. Consequently, the information
presented for Emerging Markets Growth Fund prior to June 21, 1996
represents the financial history of Hercules Latin American Value Fund. As
a result of the reorganization, the Fund's sub-adviser changed from
Bankers Trust Company to Edinburgh Fund Managers plc. On July 18, 1995,
shareholders approved a change in the Fund's investment manager from
Hercules International Management LLC to the Adviser.
(b) Commencement of operations of Hercules Latin American Value Fund.
(c) Total return is based on the change in net asset value during the period,
assumes reinvestment of all distributions and does not reflect a sales
charge.
(d) Adjusted to an annual basis.
(e) During the periods reflected above, the Adviser and Distributor
voluntarily waived fees and/or reimbursed expenses. Had the Fund paid all
expenses, the annualized ratios of expenses and net investment income
(loss) to average daily net assets would have been 4.09%/(1.83)% for the
period from July 1, 1996 to September 30, 1996, 3.54%/(1.39%) for the
fiscal year ended June 30, 1996, 3.47%/(1.50%) for the fiscal year ended
June 30, 1995 and 3.10%/(0.96%) for the fiscal period ended June 30, 1994.
(f) Beginning in the three month period ended September 30, 1996, the Fund is
required to disclose an average brokerage commission rate. The rate is
calculated by dividing total brokerage commissions paid on purchases and
sales of portfolio securities by the total number of related shares
purchased and sold. The comparability of this information may be affected
by the fact that commission rates per share vary significantly among
foreign countries.
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
PACIFIC-EUROPEAN FUND
Pacific-European Fund's investment objective is long-term capital
appreciation. Current income is incidental to this objective. Pacific-European
Fund seeks to achieve its investment objective through investments primarily
(under normal circumstances, at least 65% of its total assets) in Common Stock
of companies in the Pacific Basin or in Europe (including Eastern Europe).
"Common Stock" means common stock and foreign equity securities which are
substantially similar to common stock in the U.S. and does not include
preferred stock or convertible debt securities (such foreign equity securities
may have voting and distribution rights which differ from those of common
stock in the U.S.). The Pacific Basin is generally defined as those countries
bordering the Pacific Ocean. Pacific-European Fund may invest in the following
countries within the region: Malaysia, Pakistan, Sri Lanka, the Philippines,
Singapore, South Korea, Thailand, India, Indonesia, Hong Kong, Japan, Taiwan,
Australia and New Zealand. In addition, to the extent that suitable investment
opportunities become available, the Fund may invest in any other country
within the region, including, but not limited to, China. For purposes of this
Prospectus, unless otherwise indicated, Europe consists of Austria, Belgium,
Denmark, Germany, Finland, France, Greece, the Republic of Ireland, Italy, the
Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey and the
United Kingdom (together, "Western Europe"), plus Albania, Bulgaria, the Czech
and Slovak Republics, Hungary, Poland, Romania, the successor states to the
former Yugoslavia, and the Commonwealth of Independent States (formerly, the
Union of Soviet Socialist Republics) (together, "Eastern Europe"). As the
securities markets of additional continental European countries develop, such
countries may be considered part of the Fund's definition of Europe and
appropriate countries for investment by the Fund.
As of September 30, 1996, approximately 58% of Pacific-European Fund's
investments were in companies in the Pacific Basin (including Japan) and
approximately 35% were in companies in Europe. While the Fund has no specific
policy or restriction on the allocation of its funds between Europe and the
Pacific Basin, the Adviser and the Sub-Adviser (collectively, "Management")
believe that the opportunities for long-term capital appreciation in the
Pacific Basin are generally superior to those currently available in the
economically more mature areas of the world. The relative emphasis of the
Fund's investments between the Pacific Basin and Europe may change over time
to the extent Management identifies greater investment opportunities in Europe
as a result of more attractive values, recent developments in Eastern Europe,
the removal of most intra-European trade barriers as a result of the adoption
of the Single European Act in 1992 or other factors. In normal market
conditions, the Fund's investments will be allocated among at least three
different countries in the Pacific Basin and/or Europe. For additional
information regarding the allocation of Fund investments, see "Investment
Objectives and Policies--Allocation Among Countries" in the Statement of
Additional Information.
A company is considered to be in the Pacific Basin or in Europe, as the case
may be, if (a) it is organized under the laws of a country within the Pacific
Basin or in Europe (including the United Kingdom); (b) at least 50% of its
assets are located in the Pacific Basin or in Europe; (c) it derives at least
50% of its total revenues from goods produced, sales made, services performed
or investment in companies in the Pacific Basin or in Europe; or (d) its
securities are traded principally on stock exchanges in a Pacific Basin or
European country. The Fund's definition of companies in the Pacific Basin or
in Europe may include companies that reflect economic and market forces
applicable to other regions as well as the Pacific Basin or Europe.
Nevertheless, Management believes that investment in such companies is
appropriate in light of the Fund's investment objective because Management
selects among
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such companies those which, in its view, have sufficiently strong exposure to
economic and market forces in the Pacific Basin or in Europe, as the case may
be, such that the value of the securities of such companies will tend to
reflect Pacific Basin or European developments to a greater extent than
developments in other regions. With respect to the investment by the Fund in
companies that receive 50% or more of their revenues from investments in
companies located in the Pacific Basin or Europe (e.g., investment companies
and trusts), the Fund believes that securities of such companies will
similarly reflect the development of the region in which it invests and, in
addition, the purchase of such securities is currently one of the few
mechanisms through which the Fund may invest in securities of South Korean,
Taiwanese and Indian companies.
In selecting individual securities within a country, emphasis is placed on
identifying securities of companies believed to be undervalued in the
marketplace in relation to such factors as the company's assets, earnings and
growth potential or which are believed best positioned within a particular
industry to take advantage of specific economic and political factors likely
to result in growth for such industry. Pacific-European Fund does not,
however, concentrate its investments in companies of a particular asset size
or in a particular industry, but instead selects its investments based on the
characteristics of the particular markets and economies of the countries in
which it invests.
Up to 25% of Pacific-European Fund's total assets may be invested in other
areas of the world to the extent significant opportunities for long-term
capital appreciation outside of the Pacific Basin and Europe become available.
The Fund currently invests a portion of its assets in certain countries in
Latin America, including Mexico, Brazil, Argentina, Chile, Peru, Venezuela,
Colombia and Ecuador. The Fund may invest in other Latin American countries as
opportunities develop. As of September 30, 1996, approximately 5% of the
Fund's investments were in companies in Latin America. The Fund does not
invest in Common Stock of U.S. companies.
The investment objective of the Fund is not fundamental and may be changed
without shareholder approval. If there is a change in investment objective,
shareholders should consider whether the Fund remains an appropriate
investment in light of their then current financial position and needs. No
assurance can be given that the Fund's investment objective will be achieved.
EMERGING MARKETS FUND
Emerging Markets Fund's investment objective is long-term capital
appreciation. Current income is incidental to this objective. Emerging Markets
Fund seeks to achieve its investment objective through investments primarily
(under normal circumstances, at least 65% of its total assets) in Common Stock
(as defined above) of issuers in the world's emerging securities markets.
Emerging securities markets can be found in regions such as Latin America,
Asia, Eastern Europe, the Middle East, Southern Europe and Africa. The Fund's
investment objective is fundamental and cannot be changed without shareholder
approval.
In attempting to achieve the Fund's investment objective, Management will
focus primarily on asset allocation among selected emerging markets and,
secondarily, on issuer selection within those markets. Because the Emerging
Markets Fund is the successor to the Hercules Latin American Value Fund (see
"General Information") the Fund's portfolio consisted primarily of securities
of Latin American issuers as of the date of this Prospectus. This may cause
the Fund's performance to be more volatile than that of a more geographically
diversified fund. See "Risk Factors" for a discussion of the risks of
investments in Latin
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America. As investment opportunities arise, however, Management expects to
allocate new investments among emerging markets in other geographic areas of
the world.
The Fund's assets will be allocated among emerging markets in accordance with
Management's judgment as to where the best investment opportunities exist.
Criteria for determining the appropriate distribution of investments among
various countries and regions include the prospects for relative growth among
the countries, expected levels of inflation, government policies influencing
business conditions, the outlook for currency relationships and the range of
alternative opportunities available to international investors. Criteria for
selection of individual securities within an emerging market include the
issuer's competitive position, prospects for growth, managerial strength,
earnings quality, underlying asset value, relative market value and overall
marketability. The Fund may invest in securities of companies having various
levels of net worth, including smaller companies whose securities generally are
more volatile than securities offered by larger companies with higher levels of
net worth.
Countries with emerging markets include those that have an emerging stock
market as defined by the International Finance Corporation, those with low- to
middle-income economies according to the International Bank for Reconstruction
and Development (the World Bank), and those listed in World Bank publications
as developing. The Fund will emphasize countries with relatively low gross
national product per capita compared to the world's major economies, and with
the potential for rapid economic growth. An issuer in an emerging market is
defined as a company: (1) the principal securities trading market for which is
an emerging market; (2) which is organized under the laws of an emerging market
country; or (3) which derives a significant proportion (at least 50%) of its
revenues or profits from goods produced or sold, investments made, or services
performed in the emerging market country or which has at least 50% of its
assets situated in such a country.
The Fund currently intends to select its investments from the following
countries with emerging markets:
ASIA: China, India, Indonesia, Korea, Malaysia,
Pakistan, Phillipines, Sri Lanka, Taiwan,
Thailand
EUROPE: Czech Republic, Greece, Hungary, Poland,
Portugal
LATIN AMERICA: Argentina, Brazil, Chile, Colombia, Mexico,
Peru, Venezuela
AFRICA: Nigeria, South Africa, Zimbabwe
MIDDLE EAST: Jordan, Turkey
The foregoing list of emerging markets is not exhaustive; the Fund may invest
in countries other than those listed above when such investments are consistent
with the Fund's investment objective and policies. The Fund will at all times,
except during defensive periods, maintain investments in at least three
countries having emerging markets.
Developing or emerging markets tend to be in less economically developed
regions of the world. General characteristics of developing market countries
also include lower degrees of political stability, a high demand for capital
investment, a high dependence on export markets for their major industries, a
need to develop basic economic infrastructures, and rapid economic growth.
Management believes that investments in Common Stock of companies in emerging
markets offer the opportunity for significant long-term investment returns.
However, these investments involve certain risks. See "Risk Factors" below.
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TYPES OF SECURITIES IN WHICH THE FUNDS MAY INVEST
The Funds invest primarily in Common Stock. In addition, up to 10% of each
Fund's assets may be invested in rights, options or warrants to purchase Common
Stock. In addition to investing directly in Common Stock, the Funds may invest
in American Depository Receipts ("ADRs") and European Depository Receipts
("EDRs"). Generally, ADRs in registered form are U.S. dollar denominated
securities designed for use in the U.S. securities markets, which represent and
may be converted into the underlying foreign security. The Funds do not
currently intend to invest in ADRs sponsored by persons other than the
underlying issuers. EDRs are typically issued in bearer form and are designed
for use in the European securities markets. The Funds also may purchase shares
of investment companies or trusts which invest principally in securities in
which the Funds are authorized to invest. The purchase of investment company
stock currently is one of the few mechanisms through which the Funds may invest
in securities of companies located in a number of countries. For a discussion
of the risks of investing in investment companies, see "Risk Factors--
Investment and Repatriation Restrictions."
For temporary defensive purposes, the Funds may invest without limitation in
U.S. dollar denominated or foreign currency denominated cash or in high quality
debt securities with remaining maturities of one year or less. Such securities
may include commercial paper, certificates of deposit, bankers' acceptances and
securities issued by the U.S. or a foreign government, their agencies or
instrumentalities. All securities in which the Funds invest for defensive
purposes (other than securities issued or guaranteed by the U.S. or a foreign
government, their agencies or instrumentalities) must be rated AA or better by
Standard & Poor's Ratings Services or be of comparable quality as determined by
the Adviser. For an explanation of ratings, see Appendix A to the Statement of
Additional Information.
SPECIAL INVESTMENT METHODS
The following discussion describes some of the investment management
practices that the Funds may employ from time to time to facilitate portfolio
management and mitigate risk. Certain of these practices could be considered
"derivative" transactions. The term "derivatives" has been used to identify a
variety of financial instruments; there is no discrete class of instruments
that is covered by the term. A "derivative" is commonly defined as a financial
instrument whose value is based upon, or derived from, an underlying index,
reference rate (e.g., interest rates or currency exchange rates), security,
commodity or other asset. Forward currency transactions, options on securities,
futures contracts, options on futures contracts and when-issued securities
transactions are derivative contracts. These derivative contracts involve
varying degrees and types of risk as set forth below.
FOREIGN CURRENCY TRANSACTIONS
The Funds may engage in currency exchange transactions in connection with the
purchase and sale of their investments. Currency exchange transactions are
necessary to enable the Funds to purchase securities denominated in a foreign
currency and to convert interest and dividend payments or sales proceeds paid
in a foreign currency into U.S. dollars or into another currency. In addition,
the Funds may engage in forward foreign currency exchange transactions and
foreign currency futures and options transactions to protect against
uncertainty with respect to future currency exchange rates. Forward currency
exchange and futures and options transactions are used only for hedging and not
for speculation. The Funds conduct currency exchange transactions either on a
spot (cash) basis at the rate prevailing in the currency exchange market or
through entering into forward or futures contracts to purchase or sell foreign
currencies.
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The Funds may engage in "transaction hedging" to protect against a change in
the foreign currency exchange rate between the date on which a Fund contracts
to purchase or sell the security and the settlement date or to "lock in" the
U.S. dollar equivalent (or other foreign currency equivalent to the extent
needed for purposes of purchasing securities) of a dividend or interest payment
in a foreign currency. For that purpose, the Funds may purchase or sell a
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 that foreign currency.
If conditions warrant, the Funds may also enter into contracts to purchase or
sell foreign currencies at a future date ("forward contracts") and purchase or
sell foreign currency futures contracts as a hedge against changes in foreign
currency 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, the Funds may also purchase exchange-listed
and over-the-counter call and put options on foreign currency futures contracts
and on foreign currencies. A put option on a futures contract gives a Fund the
right to assume a short position in the futures contract until expiration of
the option. A put option on currency gives a Fund the right to sell a currency
at an exercise price until the expiration of the option. A call option on a
futures contract gives a Fund the right to assume a long position in the
futures contract until the expiration of the option. A call option on currency
gives a Fund the right to purchase a currency at the exercise price until the
expiration of the option.
The Funds may engage in "position hedging" to protect against a decline in
the value relative to the U.S. dollar of the currencies in which portfolio
securities are denominated or quoted (or an increase in the value of currency
for securities which a Fund intends to buy, when it holds cash reserves and
short-term investments). For position hedging purposes, the Funds may purchase
or sell foreign currency futures contracts and foreign currency forward
contracts, and may purchase put or call options on foreign currency futures
contracts and in foreign currencies on exchanges or over-the-counter markets.
In connection with position hedging, the Funds may also purchase or sell
foreign currency on a spot basis.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the Funds own or intend 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. In addition, hedging transactions involve costs and may
result in losses. The Funds may write covered call options on foreign
currencies to offset some of the costs of hedging those currencies. The Funds
will 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. Each Fund's
ability to engage in hedging and related option transactions may be limited by
tax considerations. See "Taxation--Consequences of Certain Fund Investments" in
the Statement of Additional Information.
For additional information regarding foreign currency transactions, see
"Investment Objectives and Policies--Foreign Currency Transactions" in the
Statement of Additional Information.
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HEDGING
The Funds may engage in various futures and put and call transactions
(collectively, "Hedging Transactions"). Hedging Transactions may be used to
attempt to protect against possible declines in the market value of a Fund's
portfolio, to protect a Fund's unrealized gains in the value of its portfolio
securities, to facilitate the sale of such securities for investment purposes
or to establish a position in the securities markets as a temporary substitute
for purchasing particular securities. Any or all of these techniques may be
used at any time. There is no overall limitation on the percentage of a Fund's
portfolio securities which may be subject to a hedge position. There is no
particular strategy that requires use of one technique rather than another. Use
of any Hedging Transaction is a function of market conditions. The Hedging
Transactions that the Funds may use are described below. Additional Hedging
Transactions may be used by the Funds in the future as they are developed to
the extent deemed appropriate by the Board of Directors of Piper Global.
Options on Securities. In seeking to reduce fluctuations in net asset value,
the Funds may write (i.e., sell), covered put and call options and purchase put
and call options on the securities in which they may invest. Such options are
traded on U.S. and foreign securities exchanges and in the over-the-counter
markets.
A put option gives the buyer of such option, upon payment of a premium, the
right to deliver a specified amount of a security to the writer of the option
on or before a fixed date at a predetermined price. A call option gives the
purchaser of the option, upon payment of a premium, the right to call upon the
writer to deliver a specified amount of a security on or before a fixed date,
at a predetermined price. A call option written by a Fund is "covered" if the
Fund owns the underlying security covered by the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or for additional cash consideration held in a segregated account by its
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also covered if a Fund holds a call on the same
security and in the same principal amount as the call written where the
exercise price of the call held (a) is equal to or less than the exercise price
of the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Fund in cash and high grade
liquid debt securities in a segregated account with its custodian. A put option
written by a Fund is "covered" if the Fund maintains cash and high grade liquid
debt securities with a value equal to the exercise price in a segregated
account with its custodian, or else holds a put on the same security and in the
same principal amount as the put written where the exercise price of the put
held is equal to or greater than the exercise price of the put written. The
Funds will not write puts if, as a result, more than 50% of a Fund's assets
would be required to be segregated. The premium paid by the purchaser of an
option will reflect, among other things, the relationship of the exercise price
to the market price and volatility of the underlying security, the remaining
term of the option, supply and demand and interest rates.
In purchasing a call option, a Fund would be in a position to realize a gain
if, during the option period, the price of the security increased above the
call option price by an amount in excess of the cost of the option. Otherwise,
it would realize a loss. In purchasing a put option, a Fund would be in a
position to realize a gain if, during the option period, the price of the
security declined below the put option price by an amount in excess of the cost
of the option. Otherwise, it would realize a loss. If a put or call option
purchased by a Fund were permitted to expire without being sold or exercised,
its premium would be lost by the Fund.
If a put option written by a Fund were exercised, the Fund would be obligated
to purchase the underlying security at the exercise price. If a call option
written by a Fund were exercised, the Fund
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<PAGE>
would be obligated to sell the underlying security at the exercise price. The
risk involved in writing a put option is that there could be a decrease in the
market value of the underlying security caused by rising interest rates or
other factors. If this occurred, the option could be exercised and the
underlying security would then be sold to the Fund at a higher price than its
current value. The risk involved in writing a call option is that there could
be an increase in the market value of the underlying security caused by
declining interest rates or other factors. If this occurred, the option could
be exercised and the underlying security would then be sold by the Fund at a
lower price than its current market value. These risks could be reduced by
entering into a closing transaction as described in Appendix B to the Statement
of Additional Information. A Fund retains the premium received from writing a
put or call option whether or not the option is exercised. See Appendix B to
the Statement of Additional Information for a further discussion of the use,
risks and costs of option trading.
The exchanges have established position limits governing the maximum number
of options which may be written by an investor or group of investors acting in
concert. Similarly, the Commodities Futures Trading Commission and the Chicago
Board of Trade have established futures position limits for an investor or
group of investors acting in concert. (A discussion of the Funds' ability to
invest in futures contracts and options thereon is set forth below.) The
position limits may restrict a Fund's ability to purchase or write options on a
particular security or to enter into futures contracts. It is possible that the
Funds and other clients of the Adviser, including closed-end and other open-end
investment companies managed by the Adviser, may be considered to be a group of
investors acting in concert. Thus, the number of options or futures
transactions which a Fund may enter into may be affected by options or futures
transactions of other investment advisory clients of the Adviser.
Over-the-counter options are purchased or written by a Fund in privately
negotiated transactions. Such options are illiquid and it may not be possible
for a Fund to dispose of an option it has purchased or terminate its
obligations under an option it has written at a time when the Adviser believes
it would be advantageous to do so.
Futures Contracts and Options on Futures Contracts. The Funds may enter into
contracts for the purchase or sale for future delivery of securities or
contracts based on financial indices including any index of securities in which
the Funds may invest ("futures contracts") and may purchase and write put and
call options to buy or sell futures contracts ("options on futures contracts").
A "sale" of a futures contract means the acquisition of a contractual
obligation to deliver the securities called for by the contract at a specified
price on a specified date. The purchaser of a futures contract on an index
agrees to take or make delivery of an amount of cash equal to the difference
between a specified dollar multiple of the value of the index on the expiration
date of the contract ("current contract value") and the price at which the
contract was originally struck. No physical delivery of the securities
underlying the index is made. Options on futures contracts to be written or
purchased by the Funds will be traded on exchanges or over-the-counter. These
investment techniques are used only to hedge against declines in the value of a
Fund's portfolio securities or increases in the prices of securities which a
Fund intends to purchase at a later date. The successful use of such
instruments relies upon Management's experience with respect to such
instruments. Should prices move in an unexpected manner, a Fund may not achieve
the anticipated benefits of futures contracts or options on futures contracts
or may realize losses and would thus be in a worse position than if such
strategies had not been used. In addition, the correlation between movements in
the price of futures contracts or options on futures contracts and movements in
the prices of the securities hedged or used for cover will not be perfect. See
Appendix B to the Statement of Additional Information for further discussion of
the use, risks and costs of futures contracts and options on futures contracts.
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<PAGE>
Futures contracts and options on futures contracts are used only as a hedge
and not for speculation. In addition, the Funds do not enter into any futures
contracts or options on futures contracts if immediately thereafter the amount
of initial margin deposits on all the futures contracts of a Fund and premiums
paid on options on futures contracts would exceed 5% of the market value of the
total assets of such Fund. This restriction will not be changed by the Board of
Directors without considering the policies and concerns of the various
applicable federal and state regulatory agencies.
The Funds limit their activities in options and futures contracts to the
extent necessary to prevent disqualification of a Fund as a regulated
investment company under the Internal Revenue Code. For a discussion of the tax
treatment of futures contracts and options on futures contracts, see
"Taxation--Consequences of Certain Fund Investments" in the Statement of
Additional Information.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES
Each Fund may purchase securities on a "when-issued" basis and may purchase
or sell securities on a "forward commitment" basis. The Funds may make such
purchases in order to lock-in the purchase price of a security which Management
believes will appreciate in value. There is always the risk, however, that the
security will decrease in value prior to its delivery. When such transactions
are negotiated, the price is fixed at the time the commitment is made, but
delivery and payment for the securities take place at a later date, which can
be a month or more after the date of the transaction. At the time a Fund makes
the commitment to purchase securities on a when-issued or forward commitment
basis, it will record the transaction and thereafter reflect the value of such
securities in determining its net asset value. At the time a Fund enters into a
transaction on a when-issued or forward commitment basis, a segregated account
consisting of cash or high grade liquid debt securities equal to the value of
the when-issued or forward commitment securities will be established and
maintained with the custodian and will be marked to the market daily. On the
delivery date, the Fund will meet its obligations from securities that are then
maturing or sale of the securities held in the segregated asset account and/or
from then available cash flow. If a Fund disposes of the right to acquire a
when-issued security prior to its acquisition or disposes of its right to
deliver or receive against a forward commitment, it can incur a gain or loss
due to market fluctuation.
There is always a risk that the securities may not be delivered and that a
Fund may incur a loss or will have lost the opportunity to invest the amount
set aside for such transaction in the segregated asset account. The purchase of
securities on a when-issued or forward commitment basis can result in increased
volatility of a Fund's net asset value to the extent the Fund makes such
purchases while remaining substantially fully invested. Settlements in the
ordinary course, which may take substantially more than three business days for
non-U.S. securities, are not treated by the Funds as when-issued or forward
commitment transactions and, accordingly, are not subject to the foregoing
limitations even though some of the risks described above may be present in
such transactions.
REPURCHASE AGREEMENTS
Each Fund may enter, without limitation, into repurchase agreements
pertaining to the securities in which it may invest with securities dealers or
member banks of the Federal Reserve System. A repurchase agreement arises when
a buyer such as a Fund purchases a security and simultaneously agrees to resell
it to the vendor at an agreed-upon future date, normally one day or a few days
later. The resale price is greater than the purchase price, reflecting an
agreed upon interest rate which is effective for the period
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<PAGE>
of time the buyer's money is invested in the security and which is related to
the current market rate rather than the coupon rate on the purchased security.
Such agreements permit a Fund to keep all of its assets at work while retaining
"overnight" flexibility in pursuit of investments of a longer-term nature. A
Fund requires continual maintenance by its custodian for its account in the
Federal Reserve/Treasury Book Entry System of collateral in an amount equal to,
or in excess of, the resale price. In the event a vendor defaults on its
repurchase obligation, a Fund might suffer a loss to the extent that the
proceeds from the sale of the collateral are less than the repurchase price. In
the event of a vendor's bankruptcy, a Fund might be delayed in, or prevented
from, selling the collateral for the Fund's benefit. The Board of Directors has
established procedures, which are periodically reviewed by the Board, pursuant
to which the Adviser will monitor the creditworthiness of the dealers and banks
with which the Funds enter into repurchase agreement transactions.
LENDING OF SECURITIES
In order to facilitate achievement of its investment objective, the Funds may
from time to time lend securities from its portfolio to brokers, dealers and
financial institutions and receive collateral in the form of cash or U.S.
government securities. Securities lending may be used to generate income to
cushion a Fund against declines in stock prices without requiring the Fund to
sell portfolio securities which it believes will appreciate in value. As with
other extensions of credit, there are risks of delay in recovery or even loss
of rights in the collateral should the borrower of the securities fail
financially. However, a Fund will enter into loan arrangements only with
brokers, dealers or financial institutions which the Adviser has determined are
creditworthy under guidelines established by the Board of Directors. In
addition, collateral for such loans must be maintained at all times in an
amount equal to at least 100% of the current market value of the loaned
securities (including interest on the loaned securities). The interest accruing
on the loaned securities will be paid to the Fund and the Fund will have the
right, on demand, to call back the loaned securities. A Fund may pay fees to
arrange the loans. Each Fund will not lend portfolio securities in excess of
30% of the value of its total assets (including such loans), nor does a Fund
lend its portfolio securities to any officer, director, employee or affiliate
of the Fund or the Adviser or Sub-Adviser.
ILLIQUID SECURITIES
Neither Fund will invest more than 15% of its net assets in illiquid
securities. For Pacific-European Fund, this a fundamental investment
restriction that may not be changed without the approval of a majority of the
Fund's shares. The restriction is non-fundamental for Emerging Markets Funds,
and thus may be changed without shareholder approval. A security is considered
illiquid if it cannot be sold in the ordinary course of business within seven
days at approximately the price at which it is valued. Illiquid securities may
offer a higher yield than securities which are more readily marketable, but
they may not always be marketable on advantageous terms.
The sale of illiquid securities often requires more time and results in
higher brokerage charges or dealer discounts and other selling expenses than
does the sale of securities eligible for trading on national securities
exchanges or in the over-the-counter markets. A Fund may be restricted in its
ability to sell such securities at a time when the Adviser or Sub-Adviser deems
it advisable to do so. In addition, in order to meet redemption requests, a
Fund may have to sell other assets, rather than such illiquid securities, at a
time which is not advantageous.
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"Restricted securities" are securities which were originally sold in private
placements and which have not been registered under the Securities Act of 1933
(the "1933 Act"). Such securities generally have been considered illiquid,
since they may be resold only subject to statutory restrictions and delays or
if registered under the 1933 Act. In 1990, however, the Securities and
Exchange Commission adopted Rule 144A under the 1933 Act, which provides a
safe harbor exemption from the registration requirements of the 1933 Act for
resales of restricted securities to "qualified institutional buyers," as
defined in the rule. The result of this rule has been the development of a
more liquid and efficient institutional resale market for restricted
securities. Thus, restricted securities are no longer necessarily illiquid.
The Funds may therefore invest in Rule 144A securities and treat them as
liquid when they have been determined to be liquid by the Board of Directors
or by the Adviser or Sub-Adviser subject to the oversight of and pursuant to
procedures adopted by the Board of Directors. See "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
Similar determinations may be made with respect to commercial paper issued in
reliance on the so-called "private placement" exemption from registration
under Section 4(2) of the 1933 Act.
BORROWING
Each Fund may borrow money only from banks for temporary or emergency
purposes in an amount up to 10% of the value of the Fund's total assets,
provided that reverse repurchase agreements entered into by the Fund are not
subject to such limitation. Reverse repurchase agreements are subject,
however, to the asset coverage requirements of the Investment Company Act of
1940 (the "1940 Act") and to certain segregated account requirements. The
Funds have not entered into reverse repurchase agreements in the past and have
no current intention of entering into such agreements in the future. See
"Investment Objectives and Policies--Reverse Repurchase Agreements" in the
Statement of Additional Information. Interest paid by a Fund on borrowed funds
will decrease the net earnings of that Fund. A Fund will not purchase
portfolio securities while outstanding borrowings (other than reverse
repurchase agreements) exceed 5% of the value of such Fund's total assets.
Each Fund may mortgage, pledge or hypothecate its assets only to secure such
temporary or emergency borrowing. The policies set forth in this paragraph are
fundamental and may not be changed without shareholder approval.
PORTFOLIO TURNOVER
The Funds intend to acquire and hold securities for long-term capital
appreciation and normally do not intend to trade in securities for short-term
gains; however, securities may be purchased and sold at such times as
Management deems to be in the best interests of a Fund and its shareholders. A
higher turnover rate may result in higher expenses for a Fund. The method of
calculating portfolio turnover rate is set forth in the Statement of
Additional Information under "Investment Objectives and Policies--Portfolio
Turnover." Portfolio turnover rates for the Funds are set forth in "Financial
Highlights."
INVESTMENT RESTRICTIONS
The Funds have adopted certain fundamental and nonfundamental investment
restrictions in addition to those set forth above. Fundamental investment
restrictions which may not be changed without shareholder approval include the
following: (1) With respect to 75% of its total assets, Pacific-European Fund
will not invest more than 5% of the value of its total assets in any one
issuer, or own more than 10% of the outstanding voting securities of any one
issuer. (These restrictions do not apply to securities issued or guaranteed by
the U.S. government or any agency or instrumentality thereof. For
17
<PAGE>
purposes of these restrictions, the government of any country (other than the
U.S.), including its governmental subdivisions, is each considered a single
issuer.) (2) The Funds will not invest 25% or more of the value of their total
assets in the same industry. (This restriction does not apply to securities
issued or guaranteed by the U.S. government or its agencies or
instrumentalities.) In addition, as nonfundamental investment restrictions
which may be changed at any time without shareholder approval, the Funds will
not invest more than 5% of their net assets in warrants or more than 5% of
their total assets in the securities of issuers which, with their predecessors,
have a record of less than three years' continuous operation. A list of the
fundamental and nonfundamental investment restrictions is set forth in the
Statement of Additional Information.
RISK FACTORS
Investment in foreign securities requires consideration of factors not
typically associated with investment in securities of U.S. issuers. Those
include the following:
Currency Fluctuations. The value of a Fund's portfolio securities computed in
U.S. dollars will vary with increases and decreases in the exchange rate
between the currencies in which the Fund has invested and the U.S. dollar. A
decline in the value of any particular currency against the U.S. dollar will
cause a decline in the U.S. dollar value of a Fund's holdings of securities
denominated in such currency and, therefore, will cause an overall decline in
the Fund's net asset value and net investment income and capital gains, if any,
to be distributed in U.S. dollars to shareholders by the Fund.
The rate of exchange between the U.S. dollar and other currencies is
determined by several factors, including the supply and demand for particular
currencies, central bank efforts to support particular currencies, the movement
of interest rates, the price of oil, the pace of activity in the industrial
countries, including the United States, and other economic and financial
conditions affecting the world economy.
Political and Economic Risks. Investing in securities of non-U.S. companies
may entail additional risks. Nationalization, expropriation or confiscatory
taxation, currency blockage, political changes, government regulation, social
instability or diplomatic developments could affect adversely the economy of a
country or the Fund's investment in such country. The Funds may also be
adversely affected by exchange control regulations.
Corporate Disclosure Standards and Governmental Regulation. Non-U.S.
companies are not generally subject to uniform accounting, auditing and
financial reporting standards or to other regulatory requirements comparable to
those applicable to U.S. companies. Thus, there may be less available
information concerning non-U.S. issuers of securities held by a Fund than is
available concerning U.S. companies.
Applicable accounting and financial reporting standards in emerging markets
may be substantially different from U.S. accounting standards and, in certain
emerging markets, no reporting standards currently exist. Consequently,
substantially less information on emerging markets companies is available to
investors and the information that is available may not be conceptually
comparable to, or prepared on the same basis as that available in more
developed capital markets, which may make it difficult to assess the financial
status of particular companies. However, in order to become attractive to
Western
18
<PAGE>
international investors such as the Fund, some emerging markets companies may
submit to reviews of their financial condition conducted in accordance with
accounting standards employed in Western countries. Management believes that
such information, together with the application of other analytical techniques,
can provide an adequate basis on which to assess the financial viability of
such companies.
Market Characteristics. Securities of many non-U.S. companies may be less
liquid and their prices more volatile than securities of comparable U.S.
companies. In addition, securities of companies traded in many countries
outside the U.S., particularly those of emerging securities markets, may be
subject to further risks due to the inexperience of local brokers and financial
institutions in less developed markets, the possibility of permanent or
temporary termination of trading, and greater spreads between bid and asked
prices for securities. The typically small size of the markets for securities
issued by issuers located in emerging markets and the possibility of a low or
nonexistent volume of trading in those securities may also result in a lack of
liquidity and in price volatility of those securities. Non-U.S. stock exchanges
and brokers are subject to less governmental supervision and regulation than in
the U.S. and non-U.S. stock exchange transactions are usually subject to fixed
commissions, which are generally higher than negotiated commissions on U.S.
transactions. In addition, there may in certain instances be delays in the
settlement of non-U.S. stock exchange transactions.
Investment and Repatriation Restrictions. Some countries, particularly
emerging markets, restrict, to varying degrees, foreign investments in their
securities markets. Government and private restrictions take a variety of
forms, including (a) limitations on the amount of funds that may be introduced
into or repatriated from the country (including limitations on repatriation of
investment income and capital gains); (b) prohibitions or substantial
restrictions on foreign investment in certain industries or market sectors,
such as defense, energy and transportation; (c) restrictions (whether contained
in the charter of an individual company or mandated by the government) on the
percentage of securities of a single issuer which may be owned by a foreign
investor; (d) limitations on the types of securities which a foreign investor
may purchase; and (e) restrictions on a foreign investor's right to invest in
companies whose securities are not publicly traded. In some circumstances,
these restrictions may limit or preclude investment in certain countries or may
increase the cost of investing in securities of particular companies.
The governments of some countries may require that a governmental or quasi-
governmental authority act as custodian of the Fund's assets invested in such
countries. These authorities may not be qualified to act as foreign custodians
under the 1940 Act and, as a result, the Fund will not be able to invest in
these countries in the absence of exemptive relief from the Securities and
Exchange Commission. In addition, the risk of loss through government
confiscation may be increased in such countries.
Foreign Taxes. Each Fund's interest and dividend income from foreign issuers
may be subject to non-U.S. withholding taxes. Each Fund also may be subject to
taxes on trading profits in some countries. In addition, some countries have a
transfer or stamp duties tax on certain securities transactions. The imposition
of these taxes will increase the cost to a Fund of investing in any country
imposing such taxes. For U.S. tax purposes, U.S. shareholders may be entitled
to a credit or deduction to the extent of any foreign income taxes paid by the
Fund. See "Tax Status."
Risks of Investments in Emerging Markets. Investing in securities of issuers
in emerging markets involves exposure to economic structures that are generally
less diverse and mature than, and to political systems that can be expected to
have less stability than, those of developed countries. Other characteristics
of emerging markets that may affect investment in their markets include certain
national policies that may restrict investment by foreigners and the absence of
developed legal structures
19
<PAGE>
governing private and foreign investments and private property. The typically
small size of the markets for securities issued by issuers located in emerging
markets and the possibility of a low or nonexistent volume of trading in those
securities may also result in a lack of liquidity and in price volatility of
those securities. In addition, issuers in emerging markets typically are
subject to a greater degree of change in earnings and business prospects than
are companies in developed markets.
Included among the emerging markets in which both Funds may invest are the
formerly communist countries of Eastern Europe and the People's Republic of
China. Emerging Markets Fund may also invest in the Commonwealth of
Independent States (formerly the Soviet Union). (These countries are referred
to collectively as the "Communist Countries.") Upon the accession to power of
Communist regimes approximately 40 to 70 years ago, the governments of a
number of Communist Countries expropriated a large amount of property. The
claims of many property owners against those governments were never finally
settled. There can be no assurance that any Fund investments in Communist
Countries would not also be expropriated, nationalized or otherwise
confiscated. In the event of such expropriation, nationalization or other
confiscation, a Fund could lose its entire investment in the country involved.
In addition, any change in the leadership or policies of Communist Countries
may halt the expansion of or reverse the liberalization of foreign investment
policies now occurring and adversely affect existing investment opportunities.
Risks of Investments in Latin America. Because the Emerging Markets Fund is
the successor to the Hercules Latin American Value Fund (see "General
Information") the Fund's portfolio consisted primarily of securities of Latin
American issuers as of the date of this Prospectus. Many of the currencies of
Latin American and certain other emerging market countries have experienced
steady devaluations relative to the U.S. dollar, and major devaluations have
historically occurred in certain countries. Devaluations in the currencies in
which Emerging Markets Fund's portfolio securities are denominated may have a
detrimental impact on the Fund.
Some Latin American countries also may have managed currencies which are not
free-floating against the U.S. dollar. In addition, there is a risk that
certain Latin American and other emerging market countries may restrict the
free conversion of their currencies into other currencies. Further, certain
currencies issued by Latin American countries may not be internationally
traded.
Most Latin American countries have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very
negative effects on the economies and securities markets of certain Latin
American countries.
Many Latin American governments have exercised and continue to exercise a
significant influence over many aspects of the private sector. Government
actions concerning the economy could have a significant effect on market
conditions and prices and/or yields of securities in which Emerging Markets
Fund invests. For more information on investment in Latin American and other
emerging market countries, see "Investment Objectives and Policies--Additional
Risks of Investments in Latin America" in the Statement of Additional
Information.
Other Investment Practices. The Funds may engage in investment practices
which involve certain special risks. These include foreign currency
transactions, purchasing and selling options on securities, entering into
futures contracts, purchasing and selling put and call options on futures
contracts, and the purchase and sale of securities on a "when-issued" or
"forward commitment" basis, all of which could
20
<PAGE>
be considered "derivative transactions," the use of repurchase agreements, the
lending of portfolio securities, investing in illiquid securities, and
borrowing from banks (but only for temporary or emergency purposes in an
amount up to 10% of the value of a Fund's total assets). The use of these
techniques may increase the volatility of a Fund's net asset value. See
"Special Investment Methods" for a discussion of the risks involved with these
investment practices.
DIVERSIFICATION STATUS
Pacific-European Fund operates as a "diversified" management investment
company, as defined in the 1940 Act, which means that with respect to at least
75% of its total assets, it will not invest more than 5% of the value of its
total assets in any one issuer or own more than 10% of the outstanding voting
securities of any one issuer. Emerging Markets Fund is "non-diversified" and,
accordingly, will be able to invest more than 5% of the value of its assets in
the obligations of a single issuer, subject to the diversification
requirements of subchapter M of the Internal Revenue Code of 1986, as amended.
To the extent that Emerging Markets Fund invests a relatively high percentage
of its assets in obligations of a limited number of issuers, the Fund may be
more susceptible than more widely diversified funds to any single economic,
political or regulatory occurrence or to changes in an issuer's financial
condition or in the market's assessment of the issuers.
MANAGEMENT
BOARD OF DIRECTORS
The Board of Directors of Piper Global has the primary responsibility for
overseeing the overall management of Piper Global and electing its officers.
INVESTMENT ADVISER
Piper Capital Management Incorporated (the "Adviser") has been retained
under an Investment Advisory and Management Agreement (the "Advisory
Agreement") with Piper Global to act as each Fund's investment adviser subject
to the authority of the Board of Directors.
In addition to acting as the investment adviser for the Funds, the Adviser
serves as investment adviser to a number of other open-end and closed-end
investment companies and to various other concerns, including pension and
profit sharing funds, corporate funds and individuals. As of September 30,
1996, the Adviser rendered investment advice regarding approximately $9
billion of assets. The Adviser is a wholly owned subsidiary of Piper Jaffray
Companies Inc., a publicly held corporation which is engaged through its
subsidiaries in various aspects of the financial services industry. The
address of the Adviser is Piper Jaffray Tower, 222 South Ninth Street,
Minneapolis, Minnesota 55402-3804.
The Adviser supervises, directs and monitors the day to day operations of
the Funds in accordance with each Fund's investment objective, policies and
restrictions, as well as the implementation of investment programs formulated
by the Sub-Adviser. The Adviser reviews investment and allocation
determinations of the Sub-Adviser. In addition, the Sub-Adviser must obtain
the Adviser's approval prior to (a) any investment of the assets of Pacific-
European Fund in any country outside of the Pacific Basin or Europe and (b)
any investment by the Sub-Adviser which would result in reallocation of in
excess of 5% of Pacific-European Fund's total assets. The Adviser determines
the broker-dealers which are eligible to execute transactions on behalf of the
Funds. The Adviser furnishes at its own expense all necessary
21
<PAGE>
administrative services, office space, equipment and clerical personnel for
providing the foregoing services. In addition, the Adviser pays the salaries
and fees of all officers and directors of the Funds who are affiliated with the
Adviser. The Adviser is liable to the Funds for losses resulting from willful
misconduct, bad faith or gross negligence in the performance of its duties or
from its reckless disregard of its duties under the Advisory Agreement.
Complaints have been brought against the Adviser relating to several other
investment companies for which the Adviser acts or has acted as investment
adviser or subadviser. These lawsuits do not involve the Funds. See "General
Information--Pending Legal Proceedings."
Pacific-European Fund. Under the Advisory Agreement, Pacific-European Fund
pays the Adviser a monthly management fee. The fee is paid at an annual rate of
1% on average daily net assets up to $100 million, .875% on net assets over
$100 million and up to $200 million, and .75% on net assets over $200 million
(the "Basic Fee"), and is subject to adjustment as described below. The
adjustment is based upon the investment performance of the Fund in relation to
the investment record of the Morgan Stanley Capital International EAFESM Index
(the "EAFE Index"). The Basic Fee is higher than fees paid by most other
investment companies.
Adjustments to the Basic Fee are made by comparison of the Fund's investment
performance for the applicable period with the investment record of the EAFE
Index. The Basic Fee for each month may be increased or decreased by up to .25%
(on an annualized basis) of the Fund's average daily net assets depending upon
the extent (as set forth below) by which the Fund's performance varies from the
EAFE Index over the applicable performance period. For purposes of calculation
of the performance adjustment, average daily net assets are equal to the Fund's
average daily net assets during the month for which the calculation is being
made.
The following table illustrates the full range of permitted increases or
decreases to the Basic Fee on an annualized basis:
<TABLE>
<CAPTION>
ADJUSTMENT
TO BASIC FEE
PERFORMANCE OF FUND RELATIVE TO EAFE INDEX (ANNUALIZED)
------------------------------------------ ------------
<S> <C>
+5 Percentage Points or more................................. +.25
+4........................................................... +.20
+3........................................................... +.15
+2........................................................... +.10
+1........................................................... +.05
0.......................................................... 0
-1........................................................... -.05
-2........................................................... -.10
-3........................................................... -.15
-4........................................................... -.20
-5 Percentage Points or more................................. -.25
</TABLE>
The Basic Fee, plus or minus the performance adjustments calculated as
described herein, is paid monthly. The applicable performance period is a
rolling 12-month period consisting of the most recent calendar month plus the
immediately preceding 11 months.
22
<PAGE>
In calculating the investment performance of Pacific-European Fund as
compared with the investment record of the EAFE Index, dividends and other
distributions of the Fund and dividends and other distributions made with
respect to component securities of the EAFE Index during the performance
period are treated as having been reinvested. The investment performance of
the Fund is calculated based upon the total return of the Fund for the
applicable period, which consists of the total net asset value of the Fund at
the end of the applicable period, including reinvestment of dividends and
distributions, less the net asset value of the Fund at the commencement of the
applicable period divided by the net asset value of the Fund at the
commencement of the applicable period. Fractions of a percentage point are
rounded to the nearest whole point (to the higher whole point if exactly one-
half).
The EAFE Index is a market capitalization weighted index containing (as of
September 30, 1996) 1,100 companies representing approximately 60% of the
market capitalization of each of the following 20 countries: Australia,
Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland,
Italy, Japan, The Netherlands, New Zealand, Norway, Singapore, Malaysia,
Spain, Sweden, Switzerland and the United Kingdom. The EAFE Index is an
unmanaged index of common stocks, whereas Pacific-European Fund, under normal
circumstances, may invest up to 35% of its assets in securities other than
common stock. Additionally, the largest percentages of the EAFE Index are
currently represented by the Japanese and United Kingdom markets, which
currently represent approximately 37% and 17.5%, respectively, of the EAFE
Index. Consequently, the extent to which the EAFE Index increases or decreases
in any one year will be affected significantly by the performance of these
markets. Pacific-European Fund had approximately 46% and 10%, respectively, of
its total assets invested in Japan and the United Kingdom as of September 30,
1996. Because the Fund's weighting in these two markets is not as significant
as that of the EAFE Index, the performance of the other markets in which the
Fund invests, as compared to that of the Japanese and United Kingdom markets,
will affect to a significant degree whether the Fund outperforms or
underperforms the EAFE Index.
Emerging Markets Fund. Emerging Markets Fund pays the Adviser a monthly
management fee at an annual rate of 1% of the Fund's average daily net assets.
This fee is higher than that paid by most other mutual funds.
SUB-ADVISER
Edinburgh Fund Managers plc, Donaldson House, 97 Haymarket Terrace,
Edinburgh, Scotland EH12, 5HD, is the Sub-Adviser for each Fund under an
agreement with the Adviser (the "Sub-Advisory Agreement"). The Sub-Adviser is
responsible for the investment and reinvestment of the Funds' assets and the
placement of brokerage transactions in connection therewith. For its services
to Pacific-European Fund, the Sub-Adviser is paid a fee by the Adviser equal
to 65% of the Basic Fee plus or minus 90% of the performance fee adjustment
described above. Such fee is paid over the same time periods and calculated in
the same manner as the investment advisory fee described above under "--
Investment Adviser." The Adviser and Sub-Adviser also have entered into an
Expense Reimbursement Agreement pursuant to which the Sub-Adviser pays the
Adviser a monthly fee equal to 10% of the Basic Fee to reimburse the Adviser
for certain expenses it bears in connection with the administration of
Pacific-European Fund. For its services to Emerging Markets Fund, the Sub-
Adviser is paid a fee by the Adviser equal, on an annual basis, to .50% of the
Fund's average daily net assets.
The Sub-Adviser is a public limited company that was incorporated in 1969.
The British Investment Trust PLC, a Scottish closed-end investment company
founded in 1889 for which the Sub-Adviser serves as investment manager and
adviser, is a controlling shareholder of the Sub-Adviser. The Sub-Adviser, an
23
<PAGE>
investment adviser registered under the Investment Advisers Act of 1940,
currently furnishes investment management services, directly or through
subsidiaries, to 10 closed-end investment companies, 18 open-end investment
companies, 13 pension plans, 4 charitable organizations and 13 other
individual/corporate clients. As of September 30, 1996, the Sub-Adviser
managed approximately $12 billion of assets.
PORTFOLIO MANAGEMENT
The day-to-day management of each Fund is primarily the responsibility of
the Sub-Adviser. Pacific-European Fund is co-managed by Michael W. Balfour and
Lloyd A. Beat. Mr. Balfour, who is a director of Piper Global, is Chief
Investment Director and Joint Managing Director of the Sub-Adviser.
Previously, he was director of overseas investments for the Sub-Adviser from
1992 to 1995 and the assistant director and head of the Pacific Department of
the Sub-Adviser from 1988 to 1992. Mr. Beat joined the Sub-Adviser in 1987 and
is currently an executive director of the Sub-Adviser. He is head of the Sub-
Adviser's Investment Strategy Department and a member of the Asset Allocation
Committee. Mr. Balfour has managed the Pacific-European Fund since its
inception and Mr. Beat has managed such Fund since December 1993.
The Sub-Adviser's management of the Emerging Markets Fund commenced on June
21, 1996. Since that time, Richard D. Muckart and Gavin S. Grant have co-
managed the Fund. Mr. Muckart is an investment director and the head of
emerging markets investing for the Sub-Adviser. He joined the Sub-Adviser in
March 1996 in connection with the Sub-Adviser's acquisition of Dunedin Fund
Managers Limited, where Mr. Muckart had been Investment Director since August
1995. Prior to that, he had been with Ivory and Sime since 1983 and had served
most recently as Global Investment Director. He has 24 years of financial
experience. Mr. Grant joined the Sub-Adviser in 1991 and serves as the manager
of the Latin American department. He has five years of financial experience.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND CUSTODIAN
First Trust National Association, 180 East Fifth Street, St. Paul, Minnesota
55101, serves as Custodian for Pacific-European Fund's portfolio securities
and cash. Investors Fiduciary Trust Company ("IFTC"), 127 West Tenth Street,
Kansas City, Missouri 64105, serves as Custodian for Emerging Markets Fund and
serves as each Fund's Transfer Agent and Dividend Disbursing Agent.
Rules adopted under the 1940 Act permit the Funds to maintain securities and
cash in the custody of certain eligible banks and securities depositories. The
Funds' foreign securities are held by its sub-custodians who are approved by
the directors in accordance with such rules. Such determination is made
pursuant to such rules following a consideration of a number of factors
including, but not limited to, the reliability and financial stability of the
institution; the ability of the institution to perform custodial services for
the Funds; the reputation of the institution in its national market; the
political and economic stability of the country in which the institution is
located; and the risks of potential nationalization or expropriation of Fund
assets.
Piper Global has entered into Shareholder Account Servicing Agreements with
the Distributor and Piper Trust Company, an affiliate of the Distributor and
the Adviser. Under these agreements, the Distributor and Piper Trust Company
provide transfer agent and dividend disbursing agent services for certain
shareholder accounts. For more information, see "Investment Advisory and Other
Services--Transfer Agent and Dividend Disbursing Agent" in the Statement of
Additional Information.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Adviser and Sub-Adviser select brokers and futures commission merchants
to use for the Funds' portfolio transactions. In making its selection, the
Adviser may consider a number of factors, which are
24
<PAGE>
more fully discussed in the Statement of Additional Information, including but
not limited to, research services, the reasonableness of commissions and
quality of services and execution. A broker's sales of Fund shares may also be
considered a factor if the Adviser or Sub-Adviser is satisfied that the Fund
would receive from that broker the most favorable price and execution then
available for a transaction. Portfolio transactions for a Fund may be effected
through the Distributor on a securities exchange in compliance with Section
17(e) of the 1940 Act. For more information, see "Portfolio Transactions and
Allocation of Brokerage" in the Statement of Additional Information.
DISTRIBUTION OF FUND SHARES
Piper Jaffray acts as the principal distributor of each Fund's shares. Each
Fund has adopted a Distribution Plan (the "Plan") as required by Rule 12b-1
under the 1940 Act. With respect to Pacific-European Fund, the Distributor is
reimbursed quarterly for its actual expenses incurred in connection with
servicing of the Fund's shareholder accounts and in connection with
distribution related services provided with respect to the Fund, in an amount
not to exceed, on an annualized basis, .50% of the average daily net assets of
the Fund. With respect to Emerging Markets Fund, the Distributer is paid a
total fee in connection with the servicing of the Fund's shareholder accounts
and in connection with distribution related services provided with respect to
the Fund. This fee is calculated daily and paid quarterly at an annual rate
equal to .50% of the average daily net assets of the Fund. Payments under
Emerging Markets Fund's Plan are not tied exclusively to expenses actually
incurred by the Distributor and may exceed such expenses.
For each Fund, a portion of the Rule 12b-1 payments equal to .25% of average
daily net assets is categorized as a servicing fee intended to reimburse or
compensate the Distributor for the ongoing servicing and/or maintenance of
shareholder accounts. The remainder is categorized as a distribution fee
intended to reimburse or compensate the Distributor for its expenses incurred
in connection with the sale of Fund shares. The Distributor has voluntarily
agreed to limit the total fee payable under each Fund's Plan to .33% of such
Fund's average daily net assets. These limitations may be revised or terminated
at any time after September 30, 1997. The Adviser and the Distributor, out of
their own assets, may pay for certain expenses incurred in connection with the
distribution of shares of the Funds. In particular, the Adviser may make
payments out of its own assets to Piper Jaffray Investment Executives and other
broker dealers in connection with their sales of shares of the Funds. See "How
to Purchase Shares--Purchase Price." Further information regarding the
Distribution Plans is contained in the Statement of Additional Information.
The Distributor uses all or a portion of its Rule 12b-1 fee to make payments
to Investment Executives of the Distributor and broker-dealers which have
entered into sales agreements with the Distributor. If shares of a Fund are
sold by a representative of a broker-dealer other than the Distributor, the
broker-dealer is paid .30% of the average daily net assets of such Fund
attributable to shares sold by the broker-dealer's representative. If shares of
a Fund are sold by an Investment Executive of the Distributor, compensation is
paid to the Investment Executive in the manner set forth in a written
agreement, in an amount not to exceed .30% of the average daily net assets of
such Fund attributable to shares sold by the Investment Executive.
Complaints have been brought against the Distributor relating to several
investment companies for which the Adviser acts or has acted as investment
adviser or subadviser. These lawsuits do not involve the Funds. See "General
Information--Pending Legal Proceedings."
25
<PAGE>
Shareholder Guide to Investing
HOW TO PURCHASE SHARES
GENERAL
Fund shares may be purchased at the public offering price from the
Distributor and from other broker-dealers who have sales agreements with the
Distributor. The address of the Distributor is that of the Fund. The
Distributor reserves the right to reject any purchase order. You should be
aware that, because the Funds do not issue stock certificates, Fund shares
must be kept in an account with the Distributor or with IFTC. All investments
must be arranged through your Piper Jaffray Investment Executive or other
broker-dealer.
PURCHASE PRICE
You may purchase shares of the Funds at the net asset value per share next
calculated after receipt of your order by your Piper Jaffray Investment
Executive or other broker-dealer, plus a front-end sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE
AMOUNT OF TRANSACTION AT OFFERING AS A PERCENTAGE OF AS A PERCENTAGE OF
PRICE OFFERING PRICE NET ASSET VALUE
--------------------------------- ------------------ ------------------
<S> <C> <C>
Less than $100,000................ 4.00% 4.17%
$100,000 but less than $250,000... 3.25% 3.36%
$250,000 but less than $500,000... 2.50% 2.56%
$500,000 and over................. 0.00% 0.00%
</TABLE>
This table sets forth total sales charges or underwriting commissions. The
Distributor may reallow up to the entire sales charge to broker-dealers in
connection with their sales of shares. These broker-dealers may, by virtue of
such reallowance, be deemed to be "underwriters" under the 1933 Act.
During the Special Offering Period, which extends through December 31, 1996,
you may purchase shares of the Funds without an initial sales charge. For any
purchase that would be subject to a sales charge outside of the Special
Offering Period, the Funds will impose a contingent deferred sales charge of
2% on redemptions during the first 12 months after purchase, and 1% on
redemptions during the second 12 months. See "How to Redeem Shares--Contingent
Deferred Sales Charge." The Adviser will pay the Distributor, out of its own
assets, a fee equal to 2% of the net asset value of any shares sold during
this period that would be subject to a sales charge outside of the Special
Offering Period. This fee also will be paid in connection with certain sales
that are not subject to a sales charge outside of the Special Offering Period,
including (a) purchases by 401(k) plans, by certain plans which are qualified
plans under Section 401(a) of the Internal Revenue Code and by tax-sheltered
annuities, (b) purchases funded by the proceeds from the sale of shares of any
non-money market open-end mutual fund within 30 days after such sale, (c)
purchases of $500,000 or more, (d) exchanges of shares of Adjustable Rate
Mortgage Securities Fund, a series of Piper Funds Inc.--II, that were
originally acquired in the American Adjustable Rate Term Trust merger, and (e)
purchases made with distributions received in connection with the dissolution
of American Government Term Trust Inc., a closed-end fund previously managed
by the Adviser. The Distributor will pay a portion of its 2% fee to Piper
Jaffray Investment Executives and other broker-dealers selling shares of the
Funds. Please contact your Piper Jaffray Investment Executive or other broker-
dealer for more information.
26
<PAGE>
Shareholder Guide to Investing
The Distributor will make certain payments to its Investment Executives and
to other broker-dealers in connection with their sales of Fund shares. See
"Distribution of Fund Shares," above. In addition, the Distributor or the
Adviser, at their own expense, provide promotional incentives to investment
executives of the Distributor and to broker-dealers who have sales agreements
with the Distributor in connection with sales of shares of the Funds and other
mutual funds for which the Adviser acts as investment adviser. In some
instances, these incentives may be made available only to certain Investment
Executives or broker-dealers who have sold or may sell significant amounts of
such shares. The incentives may include payment for travel expenses, including
lodging at luxury resorts, incurred in connection with sales seminars.
PURCHASES OF $500,000 OR MORE
If you make a purchase of $500,000 or more (including purchases made under a
Letter of Intent), a 1% contingent deferred sales charge will be assessed in
the event you redeem shares within 24 months following the purchase. This sales
charge will be paid to the Distributor. For more information, please refer to
the Contingent Deferred Sales Charge section of "How To Redeem Shares." The
Distributor currently pays its Investment Executives and other broker-dealers
fees in connection with these purchases as follows:
<TABLE>
<CAPTION>
FEE AS
A PERCENTAGE
AMOUNT OF TRANSACTION OF OFFERING PRICE
--------------------- -----------------
<S> <C>
First $1,000,000........................................ 1.00%
Next $2,000,000......................................... 0.75%
Next $2,000,000......................................... 0.50%
Next $5,000,000......................................... 0.25%
Above $10,000,000....................................... 0.15%
</TABLE>
Piper Jaffray Investment Executives and other broker-dealers generally will
not receive a fee in connection with purchases on which the contingent deferred
sales charge is waived. However, the Distributor, in its discretion, may pay a
fee out of its own assets to its Investment Executives and other broker-dealers
in connection with purchases by employee benefit plans on which no sales charge
is imposed. Please see the Special Purchase Plans section of "Reducing Your
Sales Charge."
MINIMUM INVESTMENTS
A minimum initial investment of $250 is required. There is no minimum for
subsequent investments. The Distributor, in its discretion, may waive the
minimum.
REDUCING YOUR SALES CHARGE
You may qualify for a reduced sales charge through one or more of several
plans. You must notify your Piper Jaffray Investment Executive or broker-dealer
at the time of purchase to take advantage of these plans.
AGGREGATION
Front-end or initial sales charges may be reduced or eliminated by
aggregating your purchase with purchases of certain related personal accounts.
In addition, purchases made by members of certain
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Shareholder Guide to Investing
organized groups will be aggregated for purposes of determining sales charges.
Sales charges are calculated by adding the dollar amount of your current
purchase to the higher of the cost or current value of shares of any Piper fund
sold with a sales charge that are currently held by you and your related
accounts or by other members of your group.
Qualified Groups. You may group purchases in the following personal accounts
together:
. Your individual account.
. Your spouse's account.
. Your children's accounts (if they are under the age of 21).
. Your employee benefit plan accounts if they are exclusively for your
benefit. This includes accounts such as IRAs, individual 403(b) plans or
single-participant Keogh-type plans.
. A single trust estate or single fiduciary account if you are the trustee
or fiduciary.
Additionally, purchases made by members of any organized group meeting the
requirements listed below may be aggregated for purposes of determining sales
charges:
. The group has been in existence for more than six months;
. It is not organized for the purpose of buying redeemable securities of a
registered investment company; and
. Purchases must be made through a central administration, or through a
single dealer, or by other means that result in economy of sales effort
or expense.
An organized group does not include a group of individuals whose sole
organizational connection is participation as credit card holders of a company,
policyholders of an insurance company, customers of either a bank or broker-
dealer or clients of an investment adviser.
RIGHT OF ACCUMULATION
Sales charges for purchases of Fund shares into Piper Jaffray accounts will
be automatically calculated taking into account the dollar amount of any new
purchases along with the higher of current value or cost of shares previously
purchased in any other mutual fund managed by the Adviser. For other broker-
dealer accounts, you should notify your Investment Executive at the time of
purchase of additional Piper fund shares you may own.
LETTER OF INTENT
Your sales charge may be reduced by signing a non-binding Letter of Intent.
This Letter of Intent will state your intention to invest $100,000 or more in
any of the mutual funds managed by the Adviser that are sold with a sales
charge over a 13-month period, beginning not earlier than 90 days prior to the
date you sign the Letter. You will pay the lower sales charge applicable to the
total amount you plan to invest over the 13-month period. Part of your shares
will be held in escrow to cover additional sales charges that may be due if you
do not invest the planned amount. Please see "Purchase of Shares" in the
Statement of Additional Information for more details. You can contact your
Piper Jaffray Investment Executive or other broker-dealer for an application.
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Shareholder Guide to Investing
SPECIAL PURCHASE PLANS
For more information on any of the following special purchase plans, contact
your Piper Jaffray Investment Executive or other broker-dealer.
PURCHASE BY PIPER JAFFRAY COMPANIES INC., ITS SUBSIDIARIES AND THE SUB-ADVISER
Piper Jaffray Companies Inc., its subsidiaries and the Sub-Adviser may buy
shares of the Funds without incurring a sales charge. The following persons
associated with such entities also may buy Fund shares without paying a sales
charge:
. Officers, directors and their spouses.
. Employees, retirees and their spouses.
. Sales representatives and their spouses.
. Children, grandchildren, parents, grandparents or siblings of any of the
above, or spouses of any of these persons.
. Any trust, pension, profit-sharing or other benefit plan for any of the
above.
All persons in the first four groups set forth above may continue to add to
their account even after their company relationships have ended.
PURCHASES BY BROKER-DEALERS
Employees of broker-dealers who have entered into sales agreements with the
Distributor, and spouses and children under the age of 21 of such employees,
may buy shares of the Funds without incurring a sales charge.
PURCHASES BY OTHER INDIVIDUALS WITHOUT A SALES CHARGE
The following other individuals and entities also may buy Fund shares
without paying a sales charge:
. Clients of the Adviser buying shares of the Funds in their advisory
accounts.
. Discretionary accounts at Piper Trust Company and participants in
investment companies exempt from registration under the 1940 Act that are
managed by the Adviser.
. Accounts at Piper Trust Company established at the request of, and in
connection with an advisory relationship with, the Adviser.
. Trust companies and bank trust departments using funds over which they
exercise exclusive discretionary investment authority and which are held
in a fiduciary, agency, advisory, custodial or similar capacity.
. Investors purchasing shares through a Piper Jaffray Investment Executive
if the purchase of such shares is funded by the proceeds from the sale of
shares of any non-money market open-end mutual fund that is not managed
by the Adviser. This privilege is available for 30 days after the sale.
. Former shareholders of American Government Term Trust Inc. may invest the
distributions received by them in connection with the dissolution of such
fund in shares of the Funds without payment of a sales charge.
PURCHASES BY EMPLOYEE BENEFIT PLANS AND TAX-SHELTERED ANNUITIES
. Shares of the Funds will be sold at net asset value, without a sales
charge, to employee benefit plans containing an actively maintained
qualified cash or deferred arrangement under Section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code") (a "401(k) Plan").
In the
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Shareholder Guide to Investing
event a 401(k) Plan of an employer has purchased shares in the Funds or in
any other mutual fund managed by the Adviser (other than a money market
fund) during any calendar quarter, any other employee benefit plan of such
employer that is a qualified plan under Section 401(a) of the Code also
may purchase shares of the Funds during such quarter without incurring a
sales charge.
. Custodial accounts under Section 403(b) of the Code (known as tax-
sheltered annuities) also may buy shares of the Funds without incurring a
sales charge.
HOW TO REDEEM SHARES
NORMAL REDEMPTION
You may redeem all or a portion of your shares on any day that a Fund values
its shares. (Please refer to "Valuation of Shares" below for more
information.) Your shares will be redeemed at the net asset value next
calculated after the receipt of your instructions in good form by your Piper
Jaffray Investment Executive or other broker-dealer as explained below.
Piper Jaffray Inc. Accounts. To redeem your shares, please contact your
Piper Jaffray Investment Executive with an oral request to redeem your shares.
Other Broker-Dealer Accounts. To redeem your shares, you may either contact
your broker-dealer with an oral request or send a written request directly to
the Funds' transfer agent, IFTC. This request should contain: the dollar
amount or number of shares to be redeemed, your Fund account number and either
a social security or tax identification number (as applicable). You should
sign your request in exactly the same way the account is registered. If there
is more than one owner of the shares, all owners must sign. A signature
guarantee is required for redemptions over $25,000. Please contact IFTC or
refer to "Redemption of Shares" in the Statement of Additional Information for
more details.
CONTINGENT DEFERRED SALES CHARGE
If you invest $500,000 or more and, as a result, pay no front-end sales
charge, or if you purchased shares during the Special Offering Period, you may
incur a contingent deferred sales charge if you redeem within 24 months. In
the case of investments of $500,000 or more, for all redemptions made during
the 24-month period this charge will be equal to 1% of the lesser of the net
asset value of the shares at the time of purchase or at the time of
redemption. In the case of purchases made during the Special Offering Period
that otherwise would be subject to a front-end sales charge, the contingent
deferred sales charge will be equal to 2% of the lesser of the net asset value
of the shares at the time of purchase or at the time of redemption for
redemptions made during the first 12 months, and 1% during the second 12
months. In both cases, the contingent deferred sales charge does not apply to
amounts representing an increase in the value of Fund shares due to capital
appreciation or to shares acquired through reinvestment of dividend or capital
gain distributions. In determining whether a contingent deferred sales charge
is payable, shares that are not subject to any deferred sales charge will be
redeemed first, and other shares will then be redeemed in the order purchased.
Letter of Intent. In the case of a Letter of Intent, the 24-month period
begins on the date the Letter of Intent is completed.
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Shareholder Guide to Investing
Special Purchase Plans. If you purchased your shares through one of the plans
described above under "Special Purchase Plans," the contingent deferred sales
charge will be waived. In addition, the contingent deferred sales charge will
be waived in the event of:
. The death or disability (as defined in Section 72(m)(7) of the Code) of
the shareholder. (This waiver will be applied to shares held at the time
of death or the initial determination of disability of either an
individual shareholder or one who owns the shares as a joint tenant with
the right of survivorship or as a tenant in common.)
. A lump sum distribution from an employee benefit plan qualified under
Section 401(a) of the Code, an individual retirement account under
Section 408(a) of the Code or a simplified employee pension plan under
Section 408(k) of the Code.
. Systematic withdrawals from any such plan or account if the shareholder
is at least 59 1/2 years old.
. A tax-free return of the excess contribution to an individual retirement
account under Section 408(a) of the Code.
. Involuntary redemptions effected pursuant to the right to liquidate
shareholder accounts having an aggregate net asset value of less than
$200.
Exchanges. If you exchange your shares, no contingent deferred sales charge
will be imposed. However, the charge will apply if you subsequently redeem the
new shares within 24 months of the original purchase.
Reinstatement Privilege. If you elect to use the Reinstatement Privilege
(please see "Shareholder Services" below), any contingent deferred sales charge
you paid will be credited to your account (proportional to the amount
reinvested). Please see "Redemption of Shares" in the Statement of Additional
Information for more details.
PAYMENT OF REDEMPTION PROCEEDS
After your shares have been redeemed, the cash proceeds will normally be sent
to you or your broker-dealer within three business days. In no event will
payment be made more than seven days after receipt of your order in good form.
However, payment may be postponed or the right of redemption suspended for more
than seven days under unusual circumstances, such as when trading is not taking
place on the New York Stock Exchange. Payment of redemption proceeds may also
be delayed if the shares to be redeemed were purchased by a check drawn on a
bank which is not a member of the Federal Reserve System, until such check has
cleared the banking system (normally up to 15 days from the purchase date).
INVOLUNTARY REDEMPTION
Each Fund reserves the right to redeem your account at any time if the net
asset value of the account falls below $200 as the result of a redemption or
exchange request. You will be notified in writing prior to any such redemption
and will be allowed 30 days to make additional investments before the
redemption is processed.
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Shareholder Guide to Investing
SHAREHOLDER SERVICES
AUTOMATIC MONTHLY INVESTMENT PROGRAM
You may arrange to make additional automated purchases of shares of the Funds
or certain other mutual funds managed by the Adviser. You can automatically
transfer $100 or more per month from your bank, savings and loan or other
financial institution to purchase additional shares. In addition, if you hold
your shares in a Piper Jaffray account you may arrange to make such additional
purchases by having $25 or more automatically transferred each month from any
of the money market fund series of Piper Funds. You should contact your Piper
Jaffray Investment Executive or IFTC to obtain authorization forms or for
additional information.
REINSTATEMENT PRIVILEGE
If you have redeemed shares of either Fund, you may be eligible to reinvest
in shares of any fund managed by the Adviser without payment of an additional
sales charge. The reinvestment request must be made within 30 days of the
redemption. This privilege is subject to the eligibility of share purchases
in your state as well as the minimum investment requirements and any other
applicable terms in the prospectus of the fund being acquired.
EXCHANGE PRIVILEGE
If your investment goals change, you may prefer a fund with a different
objective. If you are considering an exchange into another mutual fund managed
by the Adviser, you should carefully read the appropriate prospectus for
additional information about that fund. A prospectus may be obtained through
your Piper Jaffray Investment Executive, your broker-dealer or the Distributor.
To exchange your shares, please contact your Piper Jaffray Investment
Executive, your broker-dealer or IFTC.
You may exchange your shares for shares of any other mutual fund managed by
the Adviser. All exchanges are subject to the eligibility of share purchases in
your state as well as the minimum investment requirements and any other
applicable terms in the prospectus of the fund being acquired. Exchanges are
made on the basis of net asset values of the funds involved, except that
investors exchanging into a fund which has a higher sales charge must pay the
difference.
You may make four exchanges per year without payment of a service charge.
Thereafter, you will pay a $5 service charge for each exchange. Piper Global
reserves the right to change or discontinue the exchange privilege, or any
aspect of the privilege, upon 60 days' written notice.
TELEPHONE TRANSACTION PRIVILEGES
Piper Jaffray Inc. Accounts. If you hold your shares in a Piper Jaffray
account, you may telephone your Investment Executive to execute any transaction
or to apply for many shareholder services. In some cases, you may be required
to complete a written application.
Other Broker-Dealer Accounts. If you hold your shares in an account with your
broker-dealer or at IFTC, you may authorize telephone privileges by completing
the Account Application and Services Form. Please contact your broker-dealer or
IFTC (800-874-6205) for an application or for more details. The
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Shareholder Guide to Investing
Funds will employ reasonable procedures to confirm that a telephonic request
is genuine, including requiring that payment be made only to the address of
record or the bank account designated on the Account Application and Services
Form and requiring certain means of telephonic identification. A Fund
employing such procedures, will not be liable for following instructions
communicated by telephone that it reasonably believes to be genuine. If the
Fund does not employ such procedures, it may be liable for any losses due to
unauthorized or fraudulent telephone instructions. It may be difficult to
reach the Funds by telephone during periods when market or economic conditions
lead to an unusually large volume of telephone requests. If you cannot reach
the Funds by telephone, you should contact your broker-dealer or issue written
instructions to IFTC at the address set forth herein. See "Management--
Transfer Agent, Dividend Disbursing Agent and Custodian." The Funds reserve
the right to suspend or terminate their telephone services at any time without
notice.
DIRECTED DIVIDENDS
You may direct income dividends and capital gains distributions to be
invested in any other mutual fund managed by the Adviser (other than a money
market fund) that is offered in your state. This investment will be made at
net asset value. It will not be subject to a minimum investment amount except
that you must hold shares in such fund (including the shares being acquired
with the dividend or distribution) with a value at least equal to such fund's
minimum initial investment amount.
SYSTEMATIC WITHDRAWAL PLAN
If your account has a value of $5,000 or more, you may establish a
Systematic Withdrawal Plan for either of the Funds. This plan will allow you
to receive regular periodic payments by redeeming as many shares from your
account as necessary. As with other redemptions, a redemption to make a
withdrawal is a sale for federal income tax purposes. Payments made under a
Systematic Withdrawal Plan cannot be considered as actual yield or income
since part of the payments may be a return of capital.
A request to establish a Systematic Withdrawal Plan must be submitted in
writing to your Piper Jaffray Investment Executive or other broker-dealer.
There are no service charges for maintenance; the minimum amount that you may
withdraw each period is $100. You will be required to have any income
dividends and any capital gains distributions reinvested. You may choose to
have withdrawals made monthly, quarterly or semi-annually. Please contact your
Piper Jaffray Investment Executive, other broker-dealer or IFTC for more
information.
You should be aware that additional investments in an account that has an
active Systematic Withdrawal Plan may be inadvisable due to sales charges and
tax liabilities. Please refer to "Redemption of Shares" in the Statement of
Additional Information for additional details.
ACCOUNT PROTECTION
If you purchased your shares of the Funds through a Piper Jaffray Investment
Executive, you may choose from several account options. Your investments in
the Funds held in a Piper Jaffray account (except for non-"PAT" accounts)
would be protected up to $25 million. Investments held in non-"PAT"
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Shareholder Guide to Investing
Piper Jaffray accounts are protected up to $2.5 million. In each case, the
Securities Investor Protection Corporation ("SIPC") provides $500,000 of
protection; the additional coverage is provided by The Aetna Casualty & Surety
Company. This protection does not cover any declines in the net asset value of
Fund shares.
CONFIRMATION OF TRANSACTIONS AND REPORTING OF OTHER INFORMATION
Each time there is a transaction involving your Fund shares, such as a
purchase, redemption or dividend reinvestment, you will receive a confirmation
statement describing that activity. This information will be provided to you
from either Piper Jaffray, your broker-dealer or IFTC. In addition, you will
receive various IRS forms after the first of each year detailing important tax
information and each Fund is required to supply annual and semi-annual reports
that list securities held by the Fund and include the current financial
statements of the Fund.
Householding. If you have multiple accounts with Piper Jaffray, you may
receive some of the above information in combined mailings. This will not only
help to reduce Fund expenses, it will help the environment by saving paper.
Please contact your Piper Jaffray Investment Executive for more information.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income and distributions of net realized
capital gains, if any, will be payable to Fund shareholders at least once
annually.
Buying a Dividend. On the record date for a distribution, each Fund's share
price is reduced by the amount of the distribution. If you buy shares just
before the record date ("buying a dividend"), you will pay the full price for
the shares and then receive a portion of the price back as a taxable
distribution.
Distribution Options. All net investment income dividends and net realized
capital gains distributions for each Fund generally will be payable in
additional shares of that Fund at net asset value ("Reinvestment Option"). If
you wish to receive your distributions in cash, you must notify your Piper
Jaffray Investment Executive or other broker-dealer. You may elect either to
receive income dividends in cash and capital gains distributions in additional
shares of the Fund at net asset value ("Split Option"), or to receive both
income dividends and capital gains distributions in cash ("Cash Option"). You
may also direct income dividends and capital gains distributions to be
invested in another mutual fund managed by the Adviser. See "Shareholder
Services--Directed Dividends" above. The taxable status of income dividends
and/or net capital gains distributions is not affected by whether they are
reinvested or paid in cash.
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VALUATION OF SHARES
The Funds compute their net asset value on each day the New York Stock
Exchange (the "Exchange") is open for business. The calculation is made as of
the regular close of the Exchange (currently 4:00 p.m. New York time) after the
Fund has declared any applicable dividends. In valuing each Fund's assets, all
securities for which market quotations are readily available are valued under
normal circumstances at the last sales price prior to the time of
determination, or if no sale is reported at that time, the mean between the
closing asked price and the closing bid price. If no bid and asked prices are
available, then the Adviser will use quotations obtained from broker-dealers or
a widely used quotation system. With respect to a security which is listed or
traded on more than one exchange, a Fund normally looks to the exchange on
which trading is more extensive. In instances where market quotations are not
readily available and in certain other circumstances, fair value is determined
according to methods selected in good faith by the Board of Directors. Short-
term investments having a maturity of 60 days or less are valued at cost with
any premium amortized or discount credited over the period remaining until
maturity. Options will be valued at market value or fair value, as determined
in good faith by or under the direction of the Board of Directors, if no market
exists. Futures contracts will be valued at the settlement price established
each day by the board of trade or exchange on which they are traded. Securities
and assets for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the Board
of Directors.
Any assets or liabilities initially expressed in terms of foreign currencies
are translated into U.S. dollars by the pricing service retained by the Fund
or, to the extent that an exchange rate is not available through such pricing
service, at the mean of current bid and asked prices of such currencies against
the U.S. dollar last quoted by a major bank that is a regular participant in
the foreign exchange market. The Funds have been advised that the pricing
service translates foreign currencies into U.S. dollars on the basis of the
official exchange rate or by taking into account the quotes provided by a
number of major banks that are regular participants in the foreign exchange
market. Trading in securities on foreign securities exchanges and in over-the-
counter markets is normally completed well before the close of business on each
business day. In addition, foreign securities trading generally or in a
particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place in various foreign markets on days which
are not business days of the Funds and on which the Funds' net asset value is
not calculated. Therefore, the net asset value of a Fund might be significantly
affected on days when the investor has no access to the Fund. The Funds
calculate net asset value per share as of the close of the regular trading
session on the Exchange. Such calculation does not take place contemporaneously
with the determination of the prices of the majority of the portfolio
securities used in such calculation. If events materially affecting the value
of such securities occur between the time when their price is determined and
the time when a Fund's net asset value is calculated, such securities will be
valued at fair value as determined in good faith by or under the direction of
the Board of Directors.
TAX STATUS
Each Fund qualified as a regulated investment company under Subchapter M of
the Internal Revenue Code of 1986, as amended, during its last taxable year and
intends to qualify as a regulated investment company during the current taxable
year. If so qualified, a Fund will not be liable for federal income taxes to
the extent it distributes its taxable income to shareholders.
Distributions by the Funds are generally taxable to the shareholders, whether
received in cash or additional shares of a Fund (or shares of another mutual
fund managed by the Adviser). Distributions of
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<PAGE>
net capital gains (designated as "capital gain dividends") are taxable to
shareholders as long-term capital gains, regardless of the length of time the
shareholder has held shares of the Fund.
A shareholder will recognize a capital gain or loss upon the sale or
exchange of shares in a Fund if, as is normally the case, the shares are
capital assets in the shareholder's hands. This capital gain or loss will be
long-term if the shares have been held for more than one year.
Each Fund's investments may be subject to taxes in foreign countries which
would reduce the total return on such investments. In addition, if a Fund is
deemed to be a resident of the United Kingdom for United Kingdom tax purposes
or if a Fund is treated as being engaged in a trading activity through an
agent in the United Kingdom, there is a risk that the United Kingdom will
attempt to tax all or a portion of such Fund's gains or income. In light of
the structure of the Funds and the terms and conditions of the Advisory and
Sub-Advisory Agreements, the Adviser believes that any such risk is minimal.
If a Fund has more than 50% of its assets invested in the stock or
securities of foreign corporations at the end of the Fund's taxable year, the
Fund may make an election to allow shareholders either to claim U.S. foreign
tax credits with respect to foreign taxes paid by the Fund or to deduct such
amounts as an itemized deduction on their tax return. In the event such an
election is made, shareholders would have to increase their taxable income by
the amount of such taxes and the Fund would not be able to deduct such taxes
in computing its taxable income.
The foregoing relates to federal income taxation as in effect as of the date
of this Prospectus. For a more detailed discussion of the federal income tax
consequences of investing in shares of the Funds, see "Taxation" in the
Statement of Additional Information. Before investing in the Funds, you should
check the consequences of your local and state tax laws.
PERFORMANCE COMPARISONS
Advertisements and other sales literature for the Funds may refer to a
Fund's "average annual total return" and "cumulative total return." All such
total return quotations are based upon historical earnings and are not
intended to indicate future performance. The return on and principal value of
an investment in the Fund will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
Average annual return is the average annual compounded rate of return on a
hypothetical $1,000 investment made at the beginning of the advertised period.
Cumulative total return is calculated by subtracting a hypothetical $1,000
payment to the Fund from the redeemable value of such payment at the end of
the advertised period, dividing such difference by $1,000 and multiplying the
quotient by 100. In calculating average annual and cumulative total return,
the maximum sales charge is deducted from the hypothetical investment and all
dividends and distributions are assumed to be reinvested.
In addition to advertising total return, comparative performance information
may be used from time to time in advertising a Fund's shares including data
from Lipper Analytical Services, Inc. and other entities or organizations
which track the performance of investment companies. Performance of Pacific-
European Fund may be compared to the EAFE Index and to the performance of
Lipper International Funds Average. Performance of Emerging Markets Fund may
be compared to the Morgan Stanley Capital International Emerging Markets Free
Index and the Lipper Emerging Markets Fund Average.
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For additional information regarding the calculation of average annual total
return and cumulative total return, see "Performance Comparisons" in the
Statement of Additional Information.
GENERAL INFORMATION
Piper Global was organized under the laws of the State of Minnesota in 1990
as a closed-end investment company and converted into an open-end investment
company on August 31, 1992. At that time, Pacific-European Fund was the only
outstanding series of Piper Global. The Board of Directors designated a second
series of Piper Global, Emerging Markets Fund, in April 1996. Effective with
the close of business on June 21, 1996, Emerging Markets Fund acquired the
assets and assumed all identified liabilities of Hercules Latin American Value
Fund, a series of Hercules Funds Inc., in a tax-free exchange by issuing new
shares. Emerging Markets Fund had no assets or liabilities prior to the
acquisition.
Piper Global is authorized to issue a total of 100 billion shares of common
stock, with a par value of $.01 per share. These shares can be issued in more
than one class or series. Each designated series of stock will represent a
separate portfolio of investments, each with a different investment objective.
The Board of Directors has authorized two billion shares to be issued as
Series A Common Shares and two billion shares to be issued as Series B Common
Shares, which are the shares of common stock of Pacific-European Fund and
Emerging Markets Fund, respectively.
The Board of Directors is empowered under the Company's Articles of
Incorporation to issue additional series of common stock without shareholder
approval. The Board of Directors may, without shareholder approval, create and
issue one or more additional classes of shares within each Fund, as well as
within any series of Piper Global created in the future. See "Capital Stock and
Ownership of Shares" in the Statement of Additional Information.
All shares, when issued, will be fully paid and nonassessable and will be
redeemable. All shares have equal voting rights. They can be issued as full or
fractional shares. A fractional share has pro rata the same kind of rights and
privileges as a full share. The shares possess no preemptive or conversion
rights.
Each share of a series has one vote (with proportionate voting for fractional
shares) irrespective of the relative net asset value of the series' shares. On
some issues, such as the election of directors, all shares of Piper Global vote
together as one series. On an issue affecting only a particular series, the
shares of the affected series vote separately. Cumulative voting is not
authorized. This means that the holders of more than 50% of the shares voting
for the election of directors can elect 100% of the directors if they choose to
do so, and, in such event, the holders of the remaining shares will be unable
to elect any directors.
The Bylaws of Piper Global provide that shareholder meetings need be held
only with such frequency as required under Minnesota law. Minnesota corporation
law requires only that the Board of Directors convene shareholders meetings
when it deems appropriate. In addition, Minnesota law provides that if a
regular meeting of shareholders has not been held during the immediately
preceding 15 months, a shareholder or shareholders holding 3% or more of the
voting shares of Piper Global may demand a regular meeting of shareholders by
written notice given to the chief executive officer or chief financial officer
of Piper Global. Within 30 days after receipt of the demand, the Board of
Directors shall cause a regular meeting of shareholders to be called, which
meeting shall be held no later than 90 days
37
<PAGE>
after receipt of the demand, all at the expense of Piper Global. In addition,
the 1940 Act requires a shareholder vote for all amendments to fundamental
investment policies and restrictions, for all amendments to investment
advisory contracts and for certain amendments to Rule 12b-1 distribution
plans.
PENDING LEGAL PROCEEDINGS
Complaints have been brought against the Adviser and the Distributor
relating to several other investment companies for which the Adviser acts or
has acted as investment adviser or subadviser. These lawsuits do not involve
the Funds. A number of complaints have been brought in federal and state court
against the Institutional Government Income Portfolio ("PJIGX") series of
Piper Funds Inc., the Adviser, the Distributor, and certain individuals
affiliated or formerly affiliated with the Adviser and the Distributor. In
addition, complaints have been filed in state and federal court relating to a
number of closed-end investment companies managed by the Adviser and two open-
end investment companies for which the Adviser has acted as sub-adviser. The
complaints, which ask for rescission of plaintiff shareholders' purchases or
compensatory damages, plus interest, costs and expenses, generally allege,
among other things, certain violations of federal and/or state securities
laws, including the making of materially misleading statements in prospectuses
concerning investment policies and risks. The Adviser and the Distributor also
are subject to regulatory inquiries related to various funds or assets managed
by the Adviser. See "Pending Litigation" in the Statement of Additional
Information.
On February 13, 1996, a Settlement Agreement became effective for the
consolidated class action lawsuit, titled In Re: Piper Funds Inc.
Institutional Government Income Portfolio Litigation. The Amended Consolidated
Class Action Complaint was filed on October 5, 1994, in the United States
District Court, District of Minnesota, against PJIGX, the Adviser, the
Distributor, William H. Ellis and Edward J. Kohler, and had alleged the making
of materially misleading statements in the prospectus, common law negligent
misrepresentation and breach of fiduciary duty. The Settlement Agreement will
provide approximately $67.5 million, together with interest earned, less
certain disbursements and attorney fees, to class members in payments
scheduled over approximately three years. Such payments will be made by Piper
Jaffray Companies Inc. and the Adviser and will not be an obligation of Piper
Funds Inc. A number of lawsuits and arbitrations brought by some of the
investors who requested exclusion from the settlement class remain pending. An
additional Settlement Agreement has become effective for litigation involving
certain closed-end investment companies managed by the Adviser, and
agreements-in-principle have been reached to settle certain other complaints.
See "Pending Litigation" in the Statement of Additional Information.
The Adviser and the Distributor do not believe that the PJIGX settlement,
any other settlement or agreement-in-principle to settle, or any outstanding
complaint, action in arbitration or regulatory inquiry will have a material
adverse effect on their ability to perform under their agreements with Piper
Global or a material adverse effect on the Funds.
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS (AND/OR IN THE STATEMENT OF ADDITIONAL INFORMATION REFERRED TO
ON THE COVER PAGE OF THIS PROSPECTUS) AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
FUNDS OR PIPER JAFFRAY INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.
38
<PAGE>
Pacific-European Growth Fund
Emerging Markets Growth Fund
Series of Piper Global Funds Inc.
Investment Adviser
Piper Capital Management Incorporated
Sub-Adviser
Edinburgh Fund Managers plc
Distributor
Piper Jaffray Inc.
Custodian
First Trust National Association
Transfer Agent
Investors Fiduciary Trust Company
Legal Counsel
Dorsey & Whitney LLP
Table of Contents
<TABLE>
<CAPTION>
page
<S> <C>
Introduction............................................................. 2
Fund Expenses............................................................ 4
Financial Highlights..................................................... 6
Investment Objectives and Policies....................................... 8
Special Investment Methods............................................... 11
Risk Factors............................................................. 18
Management............................................................... 21
Distribution of Fund Shares.............................................. 25
SHAREHOLDER GUIDE TO INVESTING
How to Purchase Shares................................................. 26
Reducing Your Sales Charge............................................. 27
Special Purchase Plans................................................. 29
How to Redeem Shares................................................... 30
Shareholder Services................................................... 32
Dividends and Distributions............................................ 34
Valuation of Shares...................................................... 35
Tax Status............................................................... 35
Performance Comparisons.................................................. 36
General Information...................................................... 37
</TABLE>
- -------------------------------------------
Prospectus
- -------------------------------------------
[LOGO OF PIPER FUNDS APPEARS HERE]
---------------------------------------
International Growth Funds
Emerging Markets Growth Fund
Pacific-European Growth Fund
---------------------------------------
30100
October 28, 1996
<PAGE>
PART B
PACIFIC-EUROPEAN GROWTH FUND
EMERGING MARKETS GROWTH FUND
Series of Piper Global Funds Inc.
STATEMENT OF ADDITIONAL INFORMATION
October 28, 1996
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Introduction............................................ 2
Investment Objectives and Policies...................... 2
Investment Restrictions................................. 7
Directors and Executive Officers........................ 10
Investment Advisory and Other Services.................. 14
Portfolio Transactions and Allocation of Brokerage...... 23
Capital Stock and Ownership of Shares................... 25
Net Asset Value and Public Offering Price............... 26
Performance Comparisons................................. 27
Purchase of Shares...................................... 29
Redemption of Shares.................................... 29
Taxation................................................ 31
General Information..................................... 34
Financial Statements.................................... 35
Pending Litigation...................................... 35
Appendix A - Corporate Bond, Preferred Stock and
Commercial Paper Ratings.............................. A-1
Appendix B - General Characteristics and Risks of
Options and Futures................................... B-1
</TABLE>
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information relates to the prospectus dated October 28,
1996, and should be read in conjunction therewith. A copy of the prospectus may
be obtained from the Funds at Piper Jaffray Tower, 222 South Ninth Street,
Minneapolis, Minnesota 55402-3804.
1
<PAGE>
INTRODUCTION
------------
The shares of Piper Global Funds Inc. (the "Company") are currently offered
in two series: Pacific-European Growth Fund ("Pacific-European Fund") and
Emerging Markets Growth Fund ("Emerging Markets Fund") (sometimes referred to
herein as a "Fund" or, collectively, as the "Funds"). On June 21, 1996, Emerging
Markets Fund acquired the assets and assumed all identified liabilities of
Hercules Latin American Value Fund, a series of Hercules Funds Inc., in a tax-
free reorganization by issuing new shares. Emerging Markets Fund had no assets
or liabilities prior to the acquisition. Certain financial and performance
information for Emerging Markets Fund set forth herein represents historical
information of Hercules Latin American Value Fund.
INVESTMENT OBJECTIVES AND POLICIES
----------------------------------
The investment objectives and policies of the Funds are set forth in the
Prospectus. Certain additional investment information is set forth below.
ALLOCATION AMONG COUNTRIES.
For each Fund, investment is made in those countries where Management
believes that economic and political factors, including currency movements, are
likely to produce above average investment returns. There is no limitation on
the percentage of either Fund's assets that may be invested at any one time in
securities of companies in one or more of the countries in the Pacific Basin or
Europe (with respect to Pacific-European Fund) or in emerging markets (with
respect to Emerging Markets Fund), except insofar as each Fund is limited in its
ability to invest in other investment companies; provided, however, that in
normal market conditions each Fund's investments will be allocated among at
least three different countries in the Pacific Basin and/or Europe (with respect
to Pacific-European Fund) or having emerging markets (with respect to Emerging
Markets Fund). To the extent a Fund invests a significant portion of its assets
in any one country, it will be more susceptible to factors adversely affecting
issuers in such country than would a comparable fund having a lesser percentage
of its assets so invested.
ADDITIONAL RISKS OF INVESTMENTS IN EMERGING MARKETS
Investing in securities of issuers located in emerging market countries may
entail risks relating to the potential political and economic instability of
those countries and the risks of expropriation, nationalization, confiscation or
the imposition of restrictions on foreign investment and on repatriation of
capital invested. In the event of expropriation, nationalization or other
confiscation by any country, a Fund could lose its entire investment in any such
country.
The securities markets of emerging market countries are substantially
smaller, less developed, less liquid and more volatile than the major securities
markets in the United States. Disclosure and regulatory standards are in many
2
<PAGE>
respects less stringent than U.S. standards. Furthermore, there is a lower level
of monitoring and regulation of the markets and the activities of investors in
such markets.
The limited size of many emerging market securities markets and limited
trading volume in the securities of emerging market issuers compared to volume
of trading in the securities of U.S. issuers could cause prices to be erratic
for reasons apart from factors that affect the soundness and competitiveness of
the issuers. For example, limited market size may cause prices to be unduly
influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on in-depth fundamental analysis,
may decrease the value and liquidity of portfolio securities.
ADDITIONAL RISKS OF INVESTMENTS IN LATIN AMERICA
Because the Emerging Markets Fund is the successor to the Hercules Latin
American Value Fund (see "General Information" in the Prospectus), the portfolio
consisted primarily of securities of Latin American issuers as of the date of
this Statement of Additional Information. In addition, the Pacific-European
Fund currently invests a portion of its assets in certain countries in Latin
America. The economies of individual countries in Latin America may differ
favorably or unfavorably from the U.S. economy in such respects as the rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments positions. Certain Latin
American countries have experienced high levels of inflation which can have a
debilitating effect on an economy. Furthermore, certain Latin American
countries may impose withholding taxes on dividends payable to the Fund at a
higher rate than those imposed by other foreign countries. This may reduce the
Fund's investment income available for distribution to shareholders.
Although a number of Latin American countries are currently experiencing
lower rates of inflation and higher rates of real growth in gross domestic
product than they have in the past, other such countries continue to experience
significant problems, including high inflation rates and high interest rates.
Capital flight has proven a persistent problem and external debt has been
forcibly rescheduled. Political turmoil, high inflation, capital repatriation
restrictions and nationalization have further exacerbated conditions.
Governments of many Latin American countries have exercised and continue to
exercise substantial influence over many aspects of the private sector through
the ownership or control of many companies, including some of the largest in
those countries. As a result, government actions in the future could have a
significant effect on economic conditions which may adversely affect prices of
certain portfolio securities. Political, economic or social instability or
other similar developments, such as military coups, have occurred in the past
and could also adversely affect the Fund's investments in these countries.
3
<PAGE>
Changes in political leadership, the implementation of market oriented
economic policies, such as privatization, trade reform and fiscal and monetary
reform are among the recent steps taken to renew economic growth in Latin
American countries. External debt is being restructured and flight capital
(domestic capital that has left home country) has begun to return. Inflation
control efforts have also been implemented. Free Trade Zones are being
discussed in various areas in Latin America, the most notable being a free zone
between Mexico and the U.S. Latin American equity markets can be extremely
volatile and in the past have shown little correlation with the U.S. market.
Currencies are typically weak, but most are now relatively free floating, and it
is not unusual for the currencies to undergo wide fluctuations in value over
short periods of time due to changes in the market.
FOREIGN CURRENCY TRANSACTIONS
As discussed in the prospectus, the Funds engage in currency exchange
transactions in connection with the purchase and sale of their investments. 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 Commodity Futures Trading
Commission ("CFTC"), such as the New York Mercantile Exchange. The Funds 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, a Fund may either accept
or make delivery of the currency specified in 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
usually effected with the currency trader who is a party to the original forward
contract. Closing
4
<PAGE>
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 the Funds 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, a Fund 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 a Fund to dispose of an option it has purchased or terminate its obligations
under an option it has written 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 provided 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 markets.
Although foreign exchange dealers do not charge a fee for currency
conversion, they do realize a profit based upon the difference between prices at
which they are buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to a Fund at one rate, while offering a lesser rate
of exchange should the Fund desire to resell that currency to the dealer.
5
<PAGE>
REVERSE REPURCHASE AGREEMENTS
Each Fund may enter into reverse repurchase agreement transactions with the
same parties with whom it may enter into repurchase agreements. However, the
Funds do not currently enter into or intend to enter into such transactions
during the coming year. Under a reverse repurchase agreement, a Fund sells
securities and agrees to repurchase them at a mutually agreed date and price.
Because certain of the incidents of ownership of the security are retained by a
Fund, reverse repurchase agreements are considered a form of borrowing by the
Fund from the buyer, collateralized by the security. At the time a Fund enters
into a reverse repurchase agreement, it will establish and maintain a segregated
account with an approved custodian containing high-grade liquid debt securities
having a value not less than the repurchase price (including accrued interest).
Reverse repurchase agreements involve the risk that the market value of the
securities retained in lieu of sale by a Fund may decline below the price of the
securities a Fund has sold but is obligated to repurchase. In the event the
buyer of securities under a reverse repurchase agreement files for bankruptcy or
becomes insolvent, such buyer or its trustee or receiver may receive an
extension of time to determine whether to enforce a Fund's obligation to
repurchase the securities and a Fund's use of the proceeds of the reverse
repurchase agreement may effectively be restricted pending such decisions.
Reverse repurchase agreements will be used as a means of borrowing for
investment purposes. This speculative technique is referred to as leveraging.
Leveraging may exaggerate the effect on net asset value of any increase or
decrease in the market value of a Fund's portfolio. Money borrowed for
leveraging will be subject to interest costs which may or may not be recovered
by income from or appreciation of the securities purchased. The Company's Board
of Directors has established procedures, which are periodically reviewed by the
Board, pursuant to which the Adviser and Sub-Adviser will monitor the
creditworthiness of the dealers and banks with which the Funds enter into
reverse repurchase agreement transactions.
The Securities and Exchange Commission views reverse repurchase agreement
transactions as collateralized borrowings by a Fund. Therefore, pursuant to the
Investment Company Act of 1940 (the "1940 Act"), each Fund must maintain
continuous asset coverage (that is, total assets including borrowings, less
liabilities exclusive of borrowings) of at least 300% of the amount borrowed.
ILLIQUID SECURITIES
As discussed in the prospectus, each Fund may invest no more than 15% of
its net assets in illiquid securities. "Restricted securities" are securities
which were originally sold in private placements and which have not been
registered under the Securities Act of 1933 (the "1933 Act"). Such securities
generally have been considered illiquid, since they may be resold only subject
to statutory restrictions and delays or if registered under the 1933 Act. In
1990, however, the Securities and Exchange Commission adopted Rule 144A under
the 1933 Act, which provides a safe harbor exemption from the registration
requirements of the 1933 Act for resales of
6
<PAGE>
restricted securities to "qualified institutional buyers," as defined in the
rule. The result of this rule has been the development of a more liquid and
efficient institutional resale market for restricted securities. Thus,
restricted securities are no longer necessarily illiquid. The Funds may
therefore invest in Rule 144A securities and treat them as liquid when they have
been determined to be liquid by the Board of Directors of the Company or by the
Adviser or Sub-Adviser subject to the oversight of and pursuant to procedures
adopted by the Board of Directors (as discussed below). Similar determinations
may be made with respect to securities issued in reliance on the so-called
"private placement" exemption from registration under Section 4(2) of the 1933
Act.
Under the procedures adopted by the Board of Directors, factors taken into
account in determining the liquidity of a security include (a) the frequency of
trades and quotes for the security; (b) the number of dealers willing to
purchase or sell the security and the number of other potential purchasers; (c)
dealer undertakings to make a market in the security; and (d) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
transfer). With respect to Rule 144A securities, investing in such securities
could have the effect of increasing the level of Fund illiquidity to the extent
that qualified institutional buyers become, for a time, uninterested in
purchasing these securities.
PORTFOLIO TURNOVER
Portfolio turnover is the ratio of the lesser of annual purchases or sales
of portfolio securities to the average monthly value of portfolio securities,
not including securities maturing in less than 12 months. A 100% portfolio
turnover rate would occur, for example, if the lesser of the value of purchases
or sales of portfolio securities for a particular year were equal to the average
monthly value of the portfolio securities owned during such year. Portfolio
turnover rates are set forth in "Financial Highlights" in the Prospectus.
INVESTMENT RESTRICTIONS
-----------------------
In addition to the investment objectives and policies set forth in the
Prospectus, each Fund is subject to certain fundamental and nonfundamental
investment restrictions, as set forth below. Fundamental investment
restrictions may not be changed without the approval of the holders of a
majority of a Fund's outstanding voting securities (defined in 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 Funds to be nonfundamental 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.
7
<PAGE>
As fundamental investment restrictions:
(1) With respect to 75% of its total assets, Pacific-European Fund may not
invest more than 5% of the value of its total assets (taken at market value at
the time of purchase) in the outstanding securities of any one issuer, or own
more than 10% of the outstanding voting securities of any one issuer, in each
case other than securities issued or guaranteed by the United States government
or any agency or instrumentality thereof. For purposes of these restrictions,
the government of any country (other than the U.S.), including its governmental
subdivisions, is each considered a single issuer.
(2) No Fund may invest 25% or more of the value of its total assets in the
securities of issuers in the same industry, provided that this limitation does
not apply to securities issued or guaranteed by the United States government or
its agencies or instrumentalities.
(3) No Fund may borrow money (provided that the Funds may enter into
reverse repurchase agreements) except from banks for temporary or emergency
purposes. The amount of such borrowing may not exceed 10% of the value of a
Fund's total assets. A Fund will not purchase portfolio securities while
outstanding borrowing exceeds 5% of the value of the Fund's total assets. The
Funds will not borrow money for leverage purposes (provided that the Funds may
enter into reverse repurchase agreements for such purposes).
(4) No Fund may pledge, hypothecate, mortgage or otherwise encumber its
assets, except to secure issuances or borrowings permitted by restriction 3
above (collateral arrangements with respect to reverse repurchase agreements or
to margin for future contracts and options are not deemed to be pledges or other
encumbrances for purposes of this restriction).
(5) No Fund may make loans of money or property to any person, except
through loans of portfolio securities, the purchase of debt obligations in which
the Fund may invest consistently with the Fund's investment objective and
policies or the acquisition of securities subject to repurchase agreements.
(6) No Fund may 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.
(7) No Fund may invest for the purpose of exercising control over
management of any company.
(8) No Fund may purchase real estate or interests therein other than
securities backed by mortgages and similar instruments.
(9) No Fund may purchase or sell commodities or commodity contracts except
for hedging purposes.
8
<PAGE>
(10) No Fund may make any short sales of securities.
(11) No Fund may issue any senior securities (as defined in the 1940 Act),
other than as set forth in restriction number 3 above and except to the extent
that using options and futures contracts or purchasing or selling securities on
a when-issued or forward commitment basis may be deemed to constitute issuing a
senior security.
(12) Pacific-European Fund may not invest more than 15% of the value of its
net assets in illiquid securities.
In addition, the following are non-fundamental investment restrictions of
the Funds which may be changed without shareholder approval:
(a) Emerging Markets Fund will not invest more than 15% of the value of its
net assets in illiquid securities.
(b) The Funds will not purchase or sell interests in oil, gas or mineral
leases or interests in oil, gas or other mineral exploration or development
programs.
(c) Each Fund will not invest more than 5% of the value of its total assets
in the securities of any issuers which, with their predecessors, have a record
of less than three years' continuous operation. (Securities of such issuers
will not be deemed to fall within this limitation if they are guaranteed by an
entity in continuous operation for more than three years. The value of all
securities issued or guaranteed by such guarantor and owned by a Fund shall not
exceed 10% of the value of the total assets of such Fund.)
(d) The Funds will not purchase any securities on margin except to obtain
such short-term credits as may be necessary for the clearance of transactions
and except that the Funds may make margin deposits in connection with futures
contracts.
(e) The Funds will not purchase or retain the securities of any issuer if,
to a Fund's knowledge, those officers or directors of the Company or its
affiliates or of its investment adviser who individually own beneficially more
than 0.5% of the outstanding securities of such issuer, together own more than
5% of such outstanding securities.
(f) The Funds will not invest in real estate limited partnerships.
(g) The Funds will treat repurchase agreements with remaining maturities in
excess of seven days as illiquid securities.
(h) Each Fund will not invest more than 5% of its net assets in warrants,
valued at the lower of cost or market. Included within this amount, but not to
9
<PAGE>
exceed 2% of the value of a Fund's net assets, may be warrants which are not
listed on the New York Stock Exchange or the American Stock Exchange.
(i) The Funds will not purchase put or call options on securities if
immediately thereafter the premiums paid on such options would exceed 5% of the
value of the total assets of the Fund. (This policy does not apply to put and
call options on futures contracts.)
DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
The directors and officers of the Company and their principal occupations
during the past five years are set forth below. Unless otherwise indicated, all
positions have been held for more than five years. Each of the Company's
directors and officers, other than Mr. Watt and Mr. Balfour, also serves as a
director or officer of various closed-end and open-end investment companies
managed by the Adviser.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
POSITION WITH DURING THE PAST FIVE YEARS
NAME AND ADDRESS (AGE) THE COMPANY AND OTHER AFFILIATIONS
- ---------------------- ------------- -----------------------------
<S> <C> <C>
William H. Ellis* (54) Chairman of President of Piper Jaffray Companies Inc.;
Piper Jaffray Tower the Board of Director and Chairman of the Board of Piper
222 South Ninth Street Directors Capital Management Incorporated (the
Minneapolis, MN 55402 "Adviser") and President of the Adviser since
1994; Director of Piper Jaffray Inc.
David T. Bennett (56) Director Of counsel to the law firm of Gray, Plant, Mooty, Mooty & Bennett, P.A., located
3400 City Center in Minneapolis. Mr. Bennett is chairman of a group of privately held companies
33 South Sixth Street and serves on the board of directors of a number of nonprofit organizations.
Minneapolis, MN 55402
Jaye F. Dyer (69) Director President of Dyer Management Company, a private management company, since 1991;
4670 Norwest Center prior thereto, Mr. Dyer was President and Chief Executive Officer of Dyco
90 South Seventh Street Petroleum Corporation, a Minneapolis based oil and natural gas development
Minneapolis, MN 55402 company he founded, from 1971 to March 1, 1989, and Chairman of the Board until
December 31, 1990. Mr. Dyer serves on the board of directors of Northwestern
National Life Insurance Company, The ReliaStar Financial Corp. (the holding
company of Northwestern National Life Insurance Company) and various privately
held and nonprofit corporations.
Karol D. Emmerich (47) Director President of The Paraclete Group, a consultant
7302 Claredon Drive to nonprofit organizations, since 1993; prior
Edina, MN 55439 thereto, Ms. Emmerich was Vice President,
Chief Accounting Officer and Treasurer of
Dayton Hudson Corporation from 1980 to 1993.
Ms. Emmerich is an Executive Fellow at the
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
POSITION WITH DURING THE PAST FIVE YEARS
NAME AND ADDRESS THE COMPANY AND OTHER AFFILIATIONS
- ---------------- ------------- --------------------------
<S> <C> <C>
University of St. Thomas Graduate School of
Business and serves on the board of directors of a
number of privately held and nonprofit
corporations.
Luella G. Goldberg (59) Director Ms. Goldberg serves on the board of directors of
7019 Tupa Drive Northwestern National Life Insurance Company
Edina, MN 55435 (since 1976), The ReliaStar Financial Corp.
(since 1989), TCF Bank Savings fsb (since 1985),
TCF Financial Corporation (since 1988) and
Hormel Foods Corp. (since 1993). Ms. Goldberg
also serves as a Trustee of Wellesley College and
as a director of a number of other organizations,
including the University of Minnesota
Foundation and the Minnesota Orchestral
Association. Ms. Goldberg was Chairman of the
Board of Trustees of Wellesley College from 1985
to 1993 and acting President from July 1, 1993 to
October 1, 1993.
David A. Hughey (65) Director Trustee of Bentley College; formerly Executive Vice President
134 Powers Road and Chief Administrative Officer of Dean Witter InterCapital Inc.,
Meredith, NH 03253 Dean Witter Services Company Inc. and Dean Witter Distributors Inc.,
Director, Executive VicePresident and Chief Administrative Officer
of Dean Witter Trust Company, Vice President of Dean Witter Family
of Funds and TCW/DW Family of Funds, and Director of ICI Mutual
Insurance Company.
George Latimer (51) Director Chief Executive Officer of National Equity Fund, Chicago, Illinois
754 Linwood since November 1995; prior thereto, Mr. Latimer was Director,
St. Paul, MN 55105 Special Actions Office, Office of the Secretary, Department of
Housing and Urban Development since 1993, and prior thereto,
he had been Dean of Hamline Law School, Saint Paul, Minnesota,
from 1990 to 1993. Mr. Latimer serves on the board of directors
of Digital Biometrics, Inc. and Payless Cashways, Inc.
Iain A. Watt* (51) Director Executive Chairman of the Sub-Adviser since
Edinburgh Fund Managers plc 1995; prior thereto, Managing Director of the
Donaldson House Sub-Adviser since 1991. Mr Watt is also a
97 Haymarket Terrace director of Edinburgh Dragon Trust plc,
Edinburgh, EH12 5HD Edinburgh New Tiger Trust plc, Edinburgh Unit
Trust Managers Limited, Edinburgh Oil
Management Limited and Private Fund
Managers Limited.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
POSITION WITH DURING THE PAST FIVE YEARS
NAME AND ADDRESS THE COMPANY AND OTHER AFFILIATIONS
- ---------------- ------------- --------------------------
<S> <C> <C>
Michael W. Balfour* (36) Director Chief Investment Director since January 1995
Edinburgh Fund Managers plc and Joint Managing Director since July 1995 of
Donaldson House the Sub-Adviser; prior thereto, Director of
97 Haymarket Terrace Overseas Investments of the Sub-Adviser from
Edinburgh, EH12 5HD 1992 -1995 and assistant director and head of the
Pacific Department of the Sub-Adviser from
1988 to 1992. Mr. Balfour is also a director of
Edinburgh Inca Trust plc, Edinburgh Java Trust
plc, DFM Holdings Limited and Dunedin Fund
Managers Limited.
Paul A. Dow (45) President Chief Investment Officer and Senior Vice
Piper Jaffray Tower President of the Adviser.
222 South Ninth Street
Minneapolis, MN 55402
Robert H. Nelson (33) Vice President Senior Vice President of the Adviser since 1993;
Piper Jaffray Tower and Treasurer prior thereto he had been a Vice President of the
222 South Ninth Street Adviser from 1991 to 1993.
Minneapolis, MN 55402
Susan S. Miley (39) Secretary Senior Vice President and General Counsel of the
Piper Jaffray Tower Adviser since 1995 and Secretary of the Advisor
222 South Ninth Street since 1996; prior to which Ms. Miley was counsel
Minneapolis, MN 55402 for American Express Financial Advisors, Minneapolis,
from 1994 to 1995 and an attorney at Simpson Thacher
& Bartlett, New York, New York from 1984 to 1992.
</TABLE>
_________________________
* Directors who are "interested persons," as defined in the 1940 Act, of
Piper Capital and the Funds.
Two of the Fund's directors, Mr. Balfour and Mr. Watt, reside outside of
the United States and substantially all of the assets of such persons are
located outside of the United States. Neither Mr. Balfour nor Mr. Watt has
appointed an agent for service of process in the United States. It may not be
possible, therefore, for investors to effect service of process within the
United States upon such persons or to enforce against them, in the United States
courts or foreign courts, judgments obtained in the United States courts
predicated upon the civil liability provisions of the federal securities laws of
the United States. In addition, it is not certain that a foreign court would
enforce, in original actions, liabilities against such persons predicated solely
upon United States securities laws.
Ms. Goldberg, Ms. Emmerich and Mr. Dyer are members of the Audit Committee
of the Board of Directors. Ms. Goldberg acts as the chairperson of such
committee. The Audit Committee oversees the Company's financial reporting
process, reviews audit results and recommends annually to the Company a firm of
12
<PAGE>
independent certified public accountants.
The Board of Directors also has a Committee of the Independent Directors,
consisting of Messrs. Bennett, Dyer, Hughey and Latimer, Ms. Emmerich and Ms.
Goldberg, and a Derivatives Subcommittee consisting of Ms. Emmerich, who serves
as chairperson, Ms. Goldberg and Mr. Dyer.
The functions of the Committee of the Independent Directors are: (a)
recommendation to the full Board of approval of any management, advisory, sub-
advisory and/or administration agreements; (b) recommendation to the full Board
of approval of any underwriting and/or distribution agreements; (c) review of
the fidelity bond and premium allocation; (d) review of errors and omissions and
any other joint insurance policies and premium allocation; (e) review of, and
monitoring of compliance with, procedures adopted pursuant to certain rules
promulgated under the 1940 Act; and (f) such other duties as the independent
directors shall, from time to time, conclude are necessary or appropriate to
carry out their duties under the 1940 Act. The functions of the Derivatives
Subcommittee are: (a) to oversee practices, policies and procedures of the
Adviser in connection with the use of derivatives; (b) to receive periodic
reports from management and independent accountants; and (c) to report
periodically to the Committee of the Independent Directors and the Board of
Directors.
The directors of the Company who are officers or employees of the Adviser
or Sub-Adviser or any of their affiliates receive no remuneration from the
Company. Each of the other directors currently receives a quarterly retainer of
$3,625 that is allocated among the Funds and all other open-end funds managed by
the Adviser on the basis of the total assets of each such fund. In addition,
each director receives a fee from the Company for each regular quarterly and in-
person special meeting of the Board of Directors attended. Such fee is based on
the net asset value of the Company and ranges from $250 (net assets of less than
$200 million) to $1,500 (net assets of $5 billion or more). Members of the Audit
Committee who are not affiliated with the Adviser or Sub-Adviser receive $1,000
for each Audit Committee meeting attended ($2,000 for the chairperson of the
Committee), and the chairperson of the Committee of the Independent Directors
receives $1,000 for each meeting of such committee attended, with such fees
being allocated evenly between the Company and all other closed-end and open-end
investment companies managed by the Adviser. Members of the Committee of the
Independent Directors and the Derivatives Subcommittee (other than the
chairperson of the Committee of the Independent Directors) currently receive no
additional compensation. In addition, each Director who is not affiliated with
the Adviser is reimbursed for expenses incurred in connection with attending
meetings.
The following table sets forth the aggregate compensation received by each
director from the Funds for the indicated periods, as well as the total
compensation received by each director from the Company and all other registered
investment companies managed by the Adviser or affiliates of the Adviser during
the calendar year ended December 31, 1995. Directors who are officers or
employees of the
13
<PAGE>
Adviser or Sub-Adviser or any of their affiliates did not receive any such
compensation and are not included in the table. No other individuals received
compensation from the Company during the indicated periods. Mr. Bennett and Mr.
Hughey became directors of the Company on August 9, 1996 and September 3, 1996,
respectively.
<TABLE>
<CAPTION>
Compensation from Compensation from Total
Pacific-European Fund Emerging Markets Fund Compensation
------------------------------------ ---------------------------------
Seven-Months Year Ended Three-Months Year Ended from Fund
Director Ended 09/30/96 02/29/96 Ended 09/30/96 06/30/96* Complex**
- --------------------- ---------------- --------------- ---------------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Jaye F. Dyer $ 906 $ 2,023 $ 125 $ 738 $ 67,700
Karol D. Emmerich 906 2,023 125 738 67,700
Luella G. Goldberg 938 2,046 125 761 70,700
George Latimer 875 2,000 125 714 64,700
David T. Bennett 0 0 0 714 61,700
David A. Hughey 0 0 0 0 0
</TABLE>
_______________
* Includes compensation received from Hercules Latin American Value Fund.
** Currently consists of 20 open-end and closed-end investment companies
managed by the Adviser, including the Company. During the 1995 calendar
year, the Fund Complex consisted of up to 27 such investment companies,
managed by the Adviser or an affiliate of the Adviser, several of which
were merged or consolidated during the year. Each director included in the
table serves on the board of each such open-end and closed-end investment
company.
INVESTMENT ADVISORY AND OTHER SERVICES
--------------------------------------
GENERAL
The investment adviser for the Funds is Piper Capital Management
Incorporated (the "Adviser"). Its affiliate, Piper Jaffray Inc. (the
"Distributor"), acts as the Funds' distributor. The Sub-Adviser for the Funds
is Edinburgh Fund Managers plc (the "Sub-Adviser"). Each of the Adviser and
Sub-Adviser acts as such pursuant to written agreements which are periodically
approved by the directors or the shareholders of the Funds. The address of both
the Adviser and the Distributor is Piper Jaffray Tower, 222 South Ninth Street,
Minneapolis, Minnesota 55402-3804. The address of the Sub-Adviser is Donaldson
House, 97 Haymarket Terrace, Edinburgh, Scotland, EH12 5HD.
CONTROL OF THE ADVISER, THE SUB-ADVISER AND THE DISTRIBUTOR
The Adviser and the Distributor are both wholly owned subsidiaries of Piper
Jaffray Companies Inc., a publicly held corporation which is engaged through its
subsidiaries in various aspects of the financial services industry. The Sub-
Adviser is a public limited company incorporated in 1969. The British
Investment Trust plc, a Scottish closed-end investment company, for which the
Sub-Adviser serves as investment manager and adviser, is a controlling
shareholder of the Sub-Adviser.
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
The Adviser acts as the investment adviser of the Funds under an Investment
Advisory and Management Agreement which has been approved by the Board of
Directors (including a majority of the directors who are not parties to the
agreement, or interested persons of any such party, other than as directors of
the
14
<PAGE>
Company) and the shareholders of the Funds.
The Investment Advisory and Management Agreement will terminate
automatically in the event of its assignment. In addition, the agreement is
terminable at any time, without penalty, by the Board of Directors of the
Company or by vote of a majority of the Company's outstanding voting securities
on not more than 60 days' written notice to the Adviser, and by the Adviser on
60 days' written notice to the Company. The agreement may be terminated with
respect to a particular Fund at any time by a vote of the holders of a majority
of the outstanding voting securities of such Fund, upon 60 days' written notice
to the Adviser. Unless sooner terminated, the agreement shall continue in
effect for more than two years after its execution only so long as such
continuance is specifically approved at least annually by either the Board of
Directors or by a vote of a majority of the outstanding voting securities of the
Company, provided that in either event such continuance is also approved by a
vote of a majority of the directors who are not parties to such agreement, or
interested persons of such parties, cast in person at a meeting called for the
purpose of voting on such approval. If a majority of the outstanding voting
securities of either Fund approves the agreement, the agreement shall continue
in effect with respect to such approving Fund whether or not the shareholders of
the other Fund approve the agreement.
Pursuant to the Investment Advisory and Management Agreement, Pacific-
European Fund pays the Adviser monthly advisory fees as set forth in the
prospectus. Adjustments to the Basic Fee are made by comparison of Pacific-
European Fund's investment performance for the applicable period with the
investment record of the EAFE Index. The Basic Fee for each month may be
increased or decreased by up to .25% (on an annualized basis) of the Fund's
average daily net assets depending upon the extent by which the Fund's
performance varies from the EAFE Index over the applicable performance period.
For each percentage point by which the investment performance of the Fund
exceeds that of the EAFE Index for the applicable performance period, the Basic
Fee is increased by .05% (on an annualized basis) of the Fund's average daily
net assets, and for each percentage point amount by which the Fund underperforms
the EAFE Index, the Basic Fee is decreased by .05% (on an annualized basis) of
the Fund's average daily net assets. The maximum monthly increase for
performance is 1/12 of .25% of the Fund's average daily net assets and will be
payable if the investment performance of the Fund exceeds that of the EAFE Index
by five or more percentage points for the performance period, and the maximum
decrease for performance is 1/12 of .25% of the Fund's average daily net assets,
which will occur if the Fund underperforms the EAFE Index by five or more
percentage points for the performance period. For purposes of calculation of
the performance adjustment, average daily net assets are equal to the Fund's
average daily net assets during the month for which the calculation is being
made. The advisory fees paid by Pacific-European Fund for the fiscal years
ended February 28, 1994 and 1995 and February 29, 1996 and the seven-month
fiscal period ended September 30, 1996 were $1,068,330, $1,731,719, $1,216,305
and $898,235, respectively.
15
<PAGE>
Pursuant to the Investment Advisory and Management Agreement, Emerging
Markets Fund pays the Adviser a monthly advisory fee equal on an annual basis to
1.00% of average daily net assets. This fee is higher than fees paid by most
other investment companies. Emerging Market Fund commenced operations on June
21, 1996, on which date it acquired the assets of Hercules Latin American Value
Fund, which was also managed by the Adviser. The investment advisory fee paid
by Hercules Latin American Value Fund under its investment advisory agreement
with the Advisor was calculated at the same rate and in the same manner as the
fee for Emerging Markets Fund. Advisory fees paid under such agreement for the
fiscal period from November 9, 1993 (commencement of operations to June 30, 1994
(fiscal year end) and for the fiscal years ended June 30, 1995 and 1996 and the
three-month fiscal period ended September 30, 1996 were $133,200, $280,401,
$188,400, and $34,087, respectively.
The Adviser and Sub-Adviser intend, although not required under the
Investment Advisory and Management Agreement and Sub-Investment Advisory
Agreement (discussed below), to reimburse Emerging Markets Fund for the amount,
if any, by which the total operating and management expenses of such Fund
(including the Adviser's compensation and amounts paid pursuant to the Company's
Rule 12b-1 plan, but excluding interest, taxes, brokerage fees and commissions,
and extraordinary expenses) for the fiscal year exceed 2.00% of average daily
net assets. This arrangement may be modified or discontinued at any time after
the Fund's fiscal 1997 year end, at the Adviser's discretion. In addition, the
Funds are subject to the laws of certain states, which require that if a mutual
fund's expenses (including advisory fees but excluding interest, taxes,
brokerage commissions and extraordinary expenses) exceed certain percentages of
average net assets, the fund must be reimbursed for such excess expenses. The
Investment Advisory and Management Agreement provides that the Adviser must make
any expense reimbursements to the Funds required under state law. The laws of
California provide that aggregate annual expenses of a mutual fund shall not
normally exceed 2-1/2% of the first $30 million of the average net assets, 2% of
the next $70 million of the average net assets and 1-1/2% of the remaining
average net assets. Such expenses include the Adviser's compensation, but
exclude interest, taxes, brokerage fees and commissions, extraordinary expenses
and amounts paid under the Fund's Rule 12b-1 Plan. The Adviser does not believe
that the laws of any other state in which the Funds' shares may be offered for
sale contain expense reimbursement requirements.
Under the Investment Advisory and Management Agreement, the Adviser
provides each Fund with advice and assistance in the selection and disposition
of that Fund's investments. All investment decisions are subject to review by
the Board of Directors of the Company. The Adviser is obligated to pay the
salaries and fees of any affiliates of the Adviser serving as officers or
directors of the Funds.
The same security may be suitable for both Funds and/or other funds or
private accounts managed by the Adviser, the Sub-Adviser or their affiliates.
If and when two or more funds or accounts simultaneously purchase or sell the
same
16
<PAGE>
security, the transactions will be allocated as to price and amount in
accordance with arrangements equitable to each fund or account. The simultaneous
purchase or sale of the same securities by a Fund and other funds or accounts
may have a detrimental effect on the Fund, as this may affect the price paid or
received by that Fund or the size of the position obtainable or able to be sold
by that Fund.
SUB-ADVISORY AGREEMENT
The Adviser has entered into Sub-Investment Advisory Agreements with
respect to each Fund. Under such agreements, the Sub-Adviser is responsible for
the investment and reinvestment of the respective Fund's assets and the
placement of brokerage transactions in connection therewith. For its services
to Pacific-European Fund, the Sub-Adviser is paid a fee by the Adviser, payable
over the same time periods and calculated in the same manner as the Adviser's
fee, equal to 65% of the Adviser's Basic Fee plus or minus 90% of the
performance fee adjustment. For its services to Emerging Markets Fund, the Sub-
Adviser is paid a monthly fee by the Adviser equal to .50% of the Fund's average
daily net assets. For each Fund, the fee received by the Sub-Adviser will be
reduced by a portion of the excess, if any, of certain of such Fund's annual
expenses over the expense limitations set by California law, as described above,
and any other applicable state expense limitations. The Sub-Adviser's fee shall
be reduced by an amount which bears the same ratio to the fee reductions
absorbed by the Adviser under the Investment Advisory and Management Agreement
as the sub-advisory fees which the Sub-Adviser would otherwise be entitled to
receive bear to the advisory fees which the Adviser would be entitled to receive
had such Fund not exceeded state expense limitations.
The Adviser and Sub-Adviser also have entered into an Expense Reimbursement
Agreement pursuant to which the Sub-Adviser pays the Adviser a monthly fee equal
to 10% of the Basic Fee to reimburse the Adviser for certain expenses it bears
in connection with the administration of Pacific-European Fund.
The fees paid by the Adviser to the Sub-Adviser for Pacific-European Fund
(such amounts are payable out of the advisory fees received by the Adviser for
the same periods and are not in addition to such amounts) for the fiscal years
ended February 28, 1994 and 1995 and February 29, 1996 and the seven-month
fiscal period ended September 30, 1996 were $691,438, $1,149,751, $706,276 and
$570,444, respectively. In addition, for the fiscal year ended February 29,
1996 and the seven-month fiscal period ended September 30, 1996, the Sub-Adviser
paid $155,359 and $95,187, respectively, to the Adviser under the Expense
Reimbursement Agreement.
Bankers Trust ("Bankers Trust") Company, a New York banking corporation and
a wholly owned subsidiary of Bankers Trust New York Corporation, acted as the
Sub-Adviser to Hercules Latin American Value Fund prior to its acquisition by
Emerging Markets Fund. Bankers Trust was paid monthly compensation, over the
same time periods and calculated in the same manner as the investment advisory
fee, of .50% of net assets of such Fund. Fees paid by the Adviser to Bankers
Trust for
17
<PAGE>
the fiscal period from November 9, 1993 (commencement of operations) to June 30,
1994 and the fiscal years ended June 30, 1995 and 1996 were $66,600, $140,200
and $92,822.
From the commencement of operations of Emerging Markets Fund on June 22,
1996 through June 30, 1996, the Adviser paid the Sub-Adviser fees of $1,378.
For the three-month fiscal period ended September 30, 1996, fees paid by the
Adviser to the Sub-Adviser for Emerging Markets Fund were $17,044.
Each Sub-Investment Advisory Agreement will terminate automatically in the
event of its assignment. In addition, each Sub-Investment Advisory Agreement is
terminable at any time, without penalty, by the Board of Directors on 60 days'
written notice to the Adviser and the Sub-Adviser or by a vote of the holders of
a majority of the outstanding shares of the respective Fund. Unless sooner
terminated, each Sub-Investment Advisory Agreement shall continue in effect
until two years from the date of its execution and thereafter from year to year
provided it is specifically approved at least annually by either the Board of
Directors or by a vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the respective Fund, provided that, in either
event, such continuance is also approved by a vote of a majority of the
Directors who are not parties to such Sub-Investment Advisory Agreement, or
interested persons of such parties, cast in person at a meeting called for the
purpose of voting on such approval.
EXPENSES
The expenses of each Fund are deducted from their income before dividends
are paid. These expenses include, but are not limited to, organizational costs,
fees paid to the Adviser, fees and expenses of officers and directors who are
not affiliated with the Adviser, taxes, interest, legal fees, transfer agent,
dividend disbursing agent and custodian fees, audit fees, brokerage fees and
commissions, fees and expenses of registering and qualifying the Funds and their
shares for distribution under federal and state securities laws, expenses of
preparing prospectuses and statements of additional information and of printing
and distributing prospectuses and statements of additional information annually
to existing shareholders, the expenses of reports to shareholders, shareholders'
meetings and proxy solicitations, distribution expenses pursuant to the Fund's
Rule 12b-1 plan, and other expenses which are not expressly assumed by the
Adviser under the Investment Advisory and Management Agreement. Any general
expenses of the Company that are not readily identifiable as belonging to either
Fund will be allocated between each Fund based upon the relative net assets of
each Fund at the time such expenses were incurred.
DISTRIBUTION PLAN
Rule 12b-1(b) under the 1940 Act provides that any payments made by the
Funds in connection with financing the distribution of their shares may only be
made pursuant to a written plan describing all aspects of the proposed financing
of distribution, and also requires that all agreements with any person relating
to the
18
<PAGE>
implementation of the plan must be in writing.
Rule 12b-1(b)(1) requires that such plan be approved by a majority of a
Fund's outstanding shares, and Rule 12b-1(b)(2) requires that such plan,
together with any related agreements, be approved by a vote of the Board of
Directors and of the Directors who are not interested persons of the Company and
who have no direct or indirect interest in the operation of the plan or in the
agreements related to the plan, cast in person at a meeting called for the
purpose of voting on such plan or agreement. Rule 12b-1(b)(3) requires that the
plan or agreement provide, in substance:
(a) that it shall continue in effect for a period of more than one
year from the date of its execution or adoption only so long as such
continuance is specifically approved at least annually in the manner
described in paragraph (b)(2) of Rule 12b-1;
(b) that any person authorized to direct the disposition of moneys
paid or payable by the Company pursuant to the plan or any related
agreement shall provide to the Company's Board of Directors, and the
directors shall review, at least quarterly, a written report of the amounts
so expended and the purposes for which such expenditures were made; and
(c) in the case of a plan, that it may be terminated at any time by a
vote of a majority of the members of the Board of Directors of the Company
who are not interested persons of the Company and who have no direct or
indirect financial interest in the operation of the plan or in any
agreements related to the plan or by a vote of a majority of the
outstanding voting securities of a Fund.
Rule 12b-1(b)(4) requires that such a plan may not be amended to increase
materially the amount to be spent for distribution without shareholder approval
and that all material amendments of the plan must be approved in the manner
described in paragraph (b)(2) of Rule 12b-1.
Rule 12b-1(c) provides that the Company may rely upon Rule 12b-1(b) only if
the selection and nomination of the Company's disinterested directors are
committed to the discretion of such disinterested directors. Rule 12b-1(e)
provides that the Company may implement or continue a plan pursuant to Rule 12b-
1(b) only if the directors who vote to approve such implementation or
continuation conclude, in the exercise of reasonable business judgment and in
light of their fiduciary duties under state law, and under Sections 36(a) and
(b) of the 1940 Act, that there is a reasonable likelihood that the plan will
benefit the Company and its shareholders. The Board of Directors has concluded
that there is a reasonable likelihood that each Fund's Rule 12b-1 plan
("Distribution Plan") will benefit such Fund and its shareholders.
Pursuant to the provisions of their respective Distribution Plans, each
Fund
19
<PAGE>
pays a quarterly fee to the Distributor in connection with servicing of
shareholder accounts and in connection with distribution-related services
provided with respect to each Fund. Pacific-European Fund pays a quarterly
reimbursement fee to the Distributor equal, on an annual basis, to up to .50% of
the Fund's average daily net assets to reimburse the Distributor for its actual
expenses incurred in providing such services. In the event expenses for Pacific-
European Fund for any one year exceed the maximum reimbursable under the Plan,
such expenses may not be carried forward to the following year.
Emerging Markets Fund pays a quarterly fee to the Distributor for providing
such services at an annual rate of .50% of the Fund's average daily net assets.
Such payments are not tied exclusively to expenses actually incurred by the
Distributor and may exceed such expenses.
Shareholder servicing costs which are reimbursed or intended to be covered
under the Plans include all expenses of the Distributor incurred in connection
with providing administrative services to shareholders, including, but not
limited to, an allocation of the Distributor's overhead and payments made to
persons, including employees of the Distributor, who respond to inquiries of
shareholders of the Funds regarding their ownership of shares or their accounts
with the Funds, or who provide other administrative or accounting services not
otherwise required to be provided by the Funds' Adviser or transfer agent.
Distribution expenses include, but are not limited to, initial and ongoing sales
compensation (in addition to sales charges) paid to Investment Executives of the
Distributor and to other broker-dealers; expenses incurred in the printing of
prospectuses, statements of additional information and reports used for sales
purposes; expenses of preparation and distribution of sales literature; expenses
of advertising of any type; an allocation of the Distributor's overhead; and
payments to and expenses of persons who provide support services in connection
with the distribution of Fund shares.
Amounts paid by Pacific-European Fund under its Distribution Plan for the
fiscal years ended February 28, 1994 and 1995 and February 29, 1996 and for the
seven-month fiscal period ended September 30, 1996, were $323,166, $476,639,
$514,242 and $311,253, respectively. During these periods, the Distributor
voluntarily agreed to limit amounts paid under the Plan to annual rates of .30%,
.28%, .32% and .31% of average daily net assets for fiscal years 1994, 1995 and
1996 and the seven-month fiscal period ended September 30, 1996, respectively.
Of the Rule 12b-1 fees paid for the fiscal year ended February 29, 1996, the
Distributor used $489,784 for compensation to underwriters (fees to investment
executives) and $24,458 for advertising, printing and mailing of prospectuses to
other than current shareholders. Of the Rule 12b-1 fees paid for the seven-
month fiscal period ended September 30, 1996, the Distributor used $301,213 for
compensation to underwriters (fees to investment executives) and $10,040 for
advertising, printing and mailing of prospectuses to other than current
shareholders.
The amount paid by Emerging Markets Fund under its Distribution Plan for
the three-month fiscal period ended September 30, 1996, was $10,567. During
this
20
<PAGE>
period, the Distributor voluntarily agreed to limit amounts paid under the
Plan to an annual rate of .31% of average daily net assets. Of the Rule 12b-1
fees paid for the three-month fiscal period ended September 30, 1996, the
Distributor used $10,226 for compensation to underwriters (fees to investment
executives) and $341 for advertising, printing and mailing of prospectuses to
other than current shareholders.
Prior to its acquisition by Emerging Markets Fund on June 21, 1996,
Hercules Latin American Value Fund had a Rule 12b-1 Plan under which the Fund
paid a monthly fee to the Distributor at the annual rate of up to .70% of the
Fund's average daily net assets in order to reimburse the Distributor for actual
expenses incurred in the distribution and promotion of the Fund's shares. Rule
12b-1 fees incurred by Hercules Latin American Value Fund for the fiscal period
from November 9, 1993 (commencement of operations) to June 30, 1994 and the
fiscal years ended June 30, 1995 and 1996 were $93,240, $196,280 and $131,002,
respectively. However, the reimbursement was voluntarily limited to .50% per
annum of average daily net assets during each of these fiscal periods. The
amounts actually paid by the Fund were $66,600 for fiscal 1994, $140,200 for
fiscal 1995 and $93,573 for fiscal 1996. The Distributor used all of the Rule
12b-1 fees paid for the fiscal year ended June 30, 1996, for compensation to
underwriters (fees to investment executives)
UNDERWRITING AND DISTRIBUTION AGREEMENT
Pursuant to an Amended Underwriting and Distribution Agreement, the
Distributor has agreed to act as the principal underwriter for the Funds in the
sale and distribution to the public of shares of the Funds, either through
dealers or otherwise. The Distributor has agreed to offer such shares for sale
at all times when such shares are available for sale and may lawfully be offered
for sale and sold. As compensation for its services, in addition to receiving
its distribution fees pursuant to the Distribution Plan discussed above, the
Distributor receives the sales load on sales of Funds shares as set forth in the
prospectus. The total underwriting commissions paid in connection with sales of
Pacific-European Fund shares during the fiscal years ended February 28, 1994 and
1995 and February 29, 1996 and the seven-month fiscal period ended September 30,
1996 were $556,904, $459,632, $400,830 and $164,075, respectively, and the
Distributor retained underwriting commissions of $323,004, $459,632, $400,766
and $163,384, respectively. Prior to its acquisition by Emerging Markets Fund on
June 21, 1996, Hercules Latin American Value Fund did not charge an initial
sales charge, and therefore, no underwriting commissions were paid in prior
fiscal periods. The total underwriting commissions paid in connection with sales
of Emerging Markets Fund during the three-month fiscal period ended September
30, 1996 were $23,154, and the Distributor retained underwriting commissions of
$23,154.
21
<PAGE>
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Investors Fiduciary Trust Company ("IFTC"), the transfer agent for the
Company, maintains certain omnibus shareholder accounts for each Fund. Each
such omnibus account represents the accounts of a number of individual
shareholders of a Fund. The Company has entered into Shareholder Account
Servicing Agreements with the Distributor and Piper Trust Company ("Piper
Trust"), pursuant to which they provide certain transfer agent and dividend
disbursing agent services for the underlying individual shareholder accounts
held at the Distributor or Piper Trust, as applicable. Pursuant to such
Agreements, the Distributor and Piper Trust have agreed to perform the usual and
ordinary services of transfer agent and dividend disbursing agent not performed
by IFTC with respect to the respective underlying individual shareholder
accounts, including, without limitation, the following: maintaining all
shareholder accounts, preparing shareholder meeting lists, mailing shareholder
reports and prospectuses, tracking shareholder accounts for blue sky and Rule
l2b-1 purposes, withholding taxes on nonresident alien and foreign corporation
accounts, preparing and mailing checks for disbursement of income dividends and
capital gains distributions, preparing and filing U.S. Treasury Department Form
1099 for all shareholders, preparing and mailing confirmation forms to
shareholders and dealers with respect to all purchases, exchanges and
liquidations of series shares and other transactions in shareholder accounts for
which confirmations are required, recording reinvestments of dividends and
distributions in series shares, recording redemptions of series shares, and
preparing and mailing checks for payments upon redemption and for disbursements
to withdrawal plan holders. As compensation for such services, the Distributor
and Piper Trust are paid annual fees of $6.00 per active shareholder account
(defined as an account that has a balance of shares) and $1.60 per closed
account (defined as an account that does not have a balance of shares, but has
had activity within the past 12 months). Such fees are payable on a monthly
basis at a rate of 1/12 of the annual per-account charge. Such fees cover all
services listed above, with the exception of preparing shareholder meeting lists
and mailing shareholder reports and prospectuses. These services, along with
proxy processing (if applicable) and other special service requests, are
billable as performed at a mutually agreed upon fee in addition to the annual
fee noted above, provided that such mutually agreed upon fee shall be fair and
reasonable in light of the usual and customary charges made by others for
services of the same nature and quality. Under such Agreements, Pacific-European
Fund paid $120,739 and $57,518 to the Distributor and $15,139 and $11,252 to
Piper Trust for the fiscal year ended February 29, 1996 and the seven-month
fiscal period ended September 30, 1996 and Emerging Markets Fund paid $6,431 to
the Distributor and $0 to Piper Trust during the three-month fiscal period ended
September 30, 1996. Hercules Latin American Value Fund was not a party to
similar agreements with the Distributor and Piper Trust.
22
<PAGE>
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
--------------------------------------------------
Transactions on stock exchanges involve the payment of brokerage
commissions. In transactions on stock exchanges in the United States,
commissions are negotiated whereas on many foreign stock exchanges, commissions
are fixed, often at levels higher than those available in the United States. In
the case of securities traded on the over-the-counter markets, there is
generally no stated commission but the price usually includes a commission paid
by the issuer to the underwriters. Commissions are paid with respect to the
purchase of certain other securities in which the Funds may invest, and with
respect to options on securities, futures contracts and options on futures
contracts purchased by the Funds. Subject to the general supervision of the
Directors of the Company, the Adviser and the Sub-Adviser are responsible for
the investment decisions and the placing of the orders for portfolio
transactions for the Funds.
The Funds have no obligation to enter into transactions in portfolio
securities with any dealer, issuer, underwriter or other entity. The Funds do
not purchase securities from, or sell securities to, the Adviser, the Sub-
Adviser or their respective affiliates acting as principal. In placing orders,
it is the policy of the Funds to obtain the best price and execution for its
transactions. Where best price and execution may be obtained from more than one
broker-dealer, the Adviser or the Sub-Adviser may, in their discretion, purchase
and sell securities through broker-dealers who provide research, statistical and
other information to the Adviser or the Sub-Adviser, as the case may be. The
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 Adviser or Sub-Adviser than would be the case if no
weight were given by the Adviser or Sub-Adviser, as the case may be, to the
dealer's furnishing of such services.
The supplemental information received from a broker-dealer is in addition
to the services required to be performed by the Adviser under the Advisory
Agreement, and by the Sub-Adviser under the respective Sub-Advisory Agreement,
and the expenses of the Adviser and/or the Sub-Adviser will not necessarily be
reduced as a result of the receipt of such information. Consistent with the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.,
and subject to seeking the best price and execution, the Funds may consider
sales of shares of the Funds as a factor in the selection of broker-dealers to
enter into portfolio transactions with the Funds.
The investment information provided to the Adviser or the Sub-Adviser, as
the case may be, 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 or the Sub-
Adviser's own internal research and investment strategy capabilities. Research
and statistical services furnished by brokers through which the Funds effect
securities transactions are used by the Adviser or the Sub-Adviser in carrying
out its investment management responsibilities with respect to all its client
accounts, but not all such
23
<PAGE>
services may be used by the Adviser or the Sub-Adviser in connection with the
Funds.
Certain other clients of the Adviser and/or the Sub-Adviser may have
investment objectives and policies similar to those of the Funds. The Adviser
and/or the Sub-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 a Fund. ("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 affect on price or quantity. In addition, it is
possible that the number of options or futures transactions that a Fund 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 and the Sub-Adviser to allocate advisory recommendations and the placing
of orders in a manner that is deemed equitable by the Adviser or the Sub-Adviser
to the accounts involved, including the Funds. When two or more of the clients
of the Adviser or Sub-Adviser (including the 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 Funds intend to comply with Section 17(e)(1) of
the 1940 Act.
Pacific-European Fund paid brokerage commissions for the fiscal years ended
February 28, 1994 and 1995 and February 29, 1996 and the seven-month fiscal
period ended September 30, 1996 of $735,400, $683,910, $940,635 and $557,103,
respectively. No commissions were paid to affiliates of the Fund, the Adviser or
the Sub-Adviser, or to affiliates of such affiliates during such periods.
Emerging Markets Fund paid brokerage commissions for the fiscal period from
November 9, 1993 (commencement of operations) to June 30, 1994 and the fiscal
years ended June 30, 1995 and 1996 and the three-month fiscal period ended
September 30, 1996 of $160,209, $217,281, $185,521 and $1,424, respectively. Of
such amounts, $4,208, $10,523, $0 and $0, respectively, were paid to affiliated
brokers which was equal to 3%, 4.84%, 0% and 0%, respectively, of total
brokerage commissions. The total dollar amount of transactions involving
commissions paid to an affiliate were $1,661,720 (3%), $3,105,766 (6.28%), $0
and $0, respectively.
From time to time the Funds may acquire the securities of their regular
brokers or dealers or affiliates of such brokers or dealers. During the fiscal
year
24
<PAGE>
ended June 30, 1996 and the three-month fiscal period ended September 30, 1996
no such securities were acquired by Emerging Markets Fund and during the fiscal
year ended February 29, 1996 and the seven-month fiscal period ended September
30, 1996, no such securities were acquired by Pacific-European Fund,
respectively.
OPTION TRADING LIMITS
The writing by the Funds of options on securities will be subject to
limitations established by each of the registered securities exchanges on which
such options are traded. Such limitations govern the maximum number of options
in each class which may be written by a single investor or group of investors
acting in concert, regardless of whether the options are written on the same or
different securities exchanges or are held or written in one or more accounts or
through one or more brokers. Thus, the number of options which the Funds may
write may be affected by options written by other investment companies managed
by and other investment advisory clients of the Adviser and the Sub-Adviser. An
exchange may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions.
CAPITAL STOCK AND OWNERSHIP OF SHARES
-------------------------------------
The Board of Directors is empowered under the Company's Articles of
Incorporation to issue additional series of the Company's common stock without
shareholder approval. On an issue affecting only a particular series, the
shares of the affected series vote separately. An example of such an issue
would be a fundamental investment restriction pertaining to only one series. In
voting on the Investment Advisory and Management Agreement (the "Agreement"),
approval of the Agreement by the shareholders of a particular series would make
the Agreement effective as to that series whether or not it had been approved by
the shareholders of the other series.
If the Company issues shares in additional series, the assets received by
the Company for the issue or sale of shares of each series, and all income,
earnings, profits and proceeds thereof, subject only to the rights of creditors,
are allocated to such series, and constitute the underlying assets of such
series. The underlying assets of each series are required to be segregated on
the books of account, and are to be charged with the expenses in respect to such
series and with a share of the general expenses of the Company. Any general
expenses of the Company not readily identifiable as belonging to a particular
series shall be allocated among the series based upon the relative net assets of
the series at the time such expenses were accrued.
The Board of Directors may, without shareholder approval, create and issue
one or more additional classes of shares within each Fund, as well as within any
series of the Company created in the future. All classes of shares in a Fund
would be identical except that each class of shares would be available through a
different distribution channel and certain classes might incur different
expenses for the
25
<PAGE>
provision of distribution services or the provision of shareholder services or
administration assistance by institutions. Shares of each class would share
equally in the gross income of a series, but any variation in expenses would be
charged separately against the income of the particular class incurring such
expenses. This would result in variations in net investment income accrued and
dividends paid by and in the net asset value of the different classes of a
series. This ability to create multiple classes of shares within each series of
the Company will allow the Company in the future the flexibility to better
tailor its methods of marketing, administering and distributing shares of the
Funds to the needs of particular investors and to allocate expenses related to
such marketing, administration and distribution methods to the particular
classes of shareholders of the Fund incurring such expenses.
As of October 22, 1996, no shareholder was known to own beneficially 5% or
more of the outstanding shares of either Fund. The directors and officers of
the Funds as a group owned less than 1% of the outstanding shares of each Fund
as of such date.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
-----------------------------------------
The method for determining the public offering price of Fund shares is
summarized in the prospectus in the text following the headings "How to Purchase
Shares -- Public Offering Price" and "Valuation of Shares." The net asset value
of each Fund's shares is determined on each day on which the New York Stock
Exchange is open, provided that the net asset value need not be determined on
days when no Fund shares are tendered for redemption and no order for Fund
shares is received. The New York Stock Exchange is not open for business on the
following holidays (or on the nearest Monday or Friday if the holiday falls on a
weekend): New Year's Day, Presidents' Day, Good Friday, Memorial Day, July 4th,
Labor Day, Thanksgiving and Christmas.
The portfolio securities in which the Funds invest fluctuate in value, and
hence the net asset value per share of the Funds also fluctuates. On September
30, 1996, the net asset values per share of each Fund were calculated as
follows:
Pacific-European Fund
---------------------
Net Assets ($172,453,670) = Net Asset Value Per Share ($12.94)
-------------------------------
Shares Outstanding (13,329,471)
Emerging Markets Fund
---------------------
Net Assets ($13,771,898) = Net Asset Value Per Share ($8.85)
-------------------------
Shares Outstanding (1,555,403)
A sales charge of 4% of the net asset value (in the case of sales of less
than $100,000) will be added to the net asset value per share to determine the
public
26
<PAGE>
offering price per share.
PERFORMANCE COMPARISONS
-----------------------
Advertisements and other sales literature for the Funds may refer to
"average annual total return" and "cumulative total return."
Average annual total return figures are computed by finding the average
annual compounded rates of return over the periods indicated in the
advertisement that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
P(1+T)/n/ = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the
period of a hypothetical $1,000 payment
made at the beginning of such period.
This calculation deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and capital gains distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the prospectus, and includes all recurring fees, such as investment advisory
and management fees, charged to all shareholder accounts.
The following table sets forth the average annual total returns of each
Fund for various periods ended September 30, 1996:
<TABLE>
<CAPTION>
Average Annual Total Returns
-----------------------------------------------------------
1 Year 5 Years Since Inception
-------------------------- -------------- ---------------
<S> <C> <C> <C>
Pacific-European Fund 0.75% 9.05% 5.73% *
Emerging Markets Fund *** 16.52% N/A (5.44)% **
</TABLE>
- --------------------
* Inception date: 4/27/90
** Inception date: 11/9/93
*** Results are based on historical performance of Hercules Latin American
Value Fund, but deduct the 4% maximum sales charge applicable to Emerging
Markets Fund.
The Adviser has waived or paid certain expenses of the Funds, thereby
increasing total return and yield. These expenses may or may not waived or paid
in the future in the Adviser's discretion. Absent any voluntary expense
payments or waivers, the average annual total returns for one year, five years
and since inception for the period ended September 30, 1996, for the Funds were:
27
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Returns
----------------------------
(absent voluntary expense waivers)
1 Year 5 Years Since Inception
------ ------- ---------------
<S> <C> <C> <C>
Pacific-European Fund 0.59% 8.83% 5.56% *
Emerging Markets Fund *** 14.67% N/A (6.90)%**
</TABLE>
- --------------------
* Inception date: 4/27/90
** Inception date: 11/9/93
*** Results are based on historical performance of Hercules Latin American
Value Fund, but deduct the 4% maximum sales charge applicable to Emerging
Markets Fund.
Cumulative total return is computed by finding the cumulative compounded
rate of return over the period indicated in the advertisement that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
CTR = (/ERV-P/) 100
------
/P/
Where: CTR = Cumulative total return;
ERV = ending redeemable value at the end of the
period of a hypothetical $1,000 payment
made at the beginning of such period; and
P = initial payment of $1,000.
This calculation assumes all dividends and capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus and includes all recurring fees, such as investment advisory
and management fees, charged to all shareholder accounts.
The following table sets forth the cumulative total returns for the periods
from inception to September 30, 1996 for each Fund:
<TABLE>
<CAPTION>
Cumulative Total Returns
Cumulative (absent voluntary
Total Returns expense waivers)
------------- -------------------------------------
<S> <C> <C>
Pacific-European Fund 43.07% 41.63 %
(inception date: 4/27/90)
Emerging Markets Fund * (14.94)% (18.69)%
(inception date: 11/9/93)
</TABLE>
- --------------------
* Results are based on historical performance of Hercules Latin American
Value Fund, but deduct the 4% maximum sales charge applicable to Emerging
Markets Fund.
In addition to advertising total return, comparative performance
information
28
<PAGE>
may be used from time to time in advertising the Funds' shares, including data
from Lipper Analytical Services, Inc. ("Lipper"), Morningstar, other industry
publications and other entities or organizations which track the performance of
investment companies. Performance information for the Funds also may be compared
to various unmanaged indices. Unmanaged indices do not reflect deductions for
administrative and management costs and expenses. The Funds ma also include in
advertisements and communications to Fund shareholders evaluations of a Fund
published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as Barron's, Business Week,
Forbes, Institutional Investor, Investor's Daily, Money, Kiplinger's Personal
Finance Magazine, Morningstar Mutual Fund Values, The New York Times, USA Today
and The Wall Street Journal.
PURCHASE OF SHARES
------------------
An investor may qualify for a reduced sales charge immediately by signing a
nonbinding Letter of Intent stating the investor's intention to invest within a
13-month period, beginning not earlier than 90 days prior to the date of
execution of the Letter, a specified amount which, if made at one time, would
qualify for a reduced sales charge. Reinvested dividends will be treated as
purchases of additional shares. Any redemptions made during the term of the
Letter of Intent will be subtracted from the amount of purchases in determining
whether the Letter of Intent has been completed. During the term of a Letter of
Intent, IFTC will hold shares representing 5% of the amount that the investor
intends to invest during the 13-month period in escrow for payment of a higher
sales charge if the full amount indicated in the Letter of Intent is not
purchased. Dividends on the escrowed shares will be paid to the shareholder.
The escrowed shares will be released when the full amount indicated has been
purchased. If the full indicated amount is not purchased within the 13-month
period, the investor will be required to pay, either in cash or by liquidating
escrowed shares, an amount equal to the difference in the dollar amount of sales
charge actually paid and the amount of sales charge the investor would have paid
on his or her aggregate purchases if the total of such purchases had been made
at a single time.
REDEMPTION OF SHARES
--------------------
GENERAL
Redemption of shares, or payment, may be suspended at times (a) when the
New York Stock Exchange is closed for other than customary weekend or holiday
closings, (b) when trading on said Exchange is restricted, (c) when an emergency
exists, as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable, or it is not reasonably practicable for a Fund
fairly to determine the value of its net assets, or (d) during any other period
when the Securities and Exchange Commission, by order, so permits, provided that
applicable rules and regulations of the Securities and Exchange Commission shall
govern as to whether the conditions prescribed in (b) or (c) exist.
29
<PAGE>
Shareholders who purchased Fund shares through a broker-dealer other than
the Distributor may redeem such shares either by oral request to such broker-
dealer or by written request to IFTC at the address set forth in the Prospectus.
To be considered in proper form, written requests for redemption should indicate
the dollar amount or number of shares to be redeemed, refer to the shareholder's
Fund account number, and give either a social security or tax identification
number. The request should be signed in exactly the same way the account is
registered. If there is more than one owner of the shares, all owners must
sign. If shares to be redeemed have a value of $10,000 or more or redemption
proceeds are to be paid to someone other than the shareholder at the
shareholder's address of record, the signature(s) must be guaranteed by an
"eligible guarantor institution," which includes a commercial bank that is a
member of the Federal Deposit Insurance Corporation, a trust company, a member
firm of a domestic stock exchange, a savings association or a credit union that
is authorized by its charter to provide a signature guarantee. IFTC may reject
redemption instructions if the guarantor is neither a member of nor a
participant in a signature guarantee program. Signature guarantees by notaries
public are not acceptable. The purpose of a signature guarantee is to protect
shareholders against the possibility of fraud. Further documentation will be
requested from corporations, administrators, executors, personal
representatives, trustees and custodians. Redemption requests given by
facsimile will not be accepted. Unless other instructions are given in proper
form, a check for the proceeds of the redemption will be sent to the
shareholder's address of record.
REINSTATEMENT PRIVILEGE
A shareholder who has redeemed shares of a Fund may reinvest all or part of
the redemption proceeds in shares of any Fund managed by the Adviser within 30
days without payment of an additional sales charge, provided that a shareholder
may reinvest in a fund through a broker-dealer other than the Distributor only
if there is a valid sales agreement for such fund between such broker-dealer and
the Distributor. The Distributor will refund to any shareholder a pro rata
amount of any contingent deferred sales charge paid by such shareholder in
connection with a redemption of Fund shares if and to the extent that the
redemption proceeds are reinvested within 30 days of such redemption in any
mutual fund managed by the Adviser. Such refund will be based upon the ratio of
the net asset value of shares purchased in the reinvestment to the net asset
value of shares redeemed. Reinvestments will be allowed at net asset value
without the payment of a front-end sales charge, irrespective of the amounts of
the reinvestment, but shall be subject to the same pro rata contingent deferred
sales charge that was applicable to the earlier investment; however, the period
during which the contingent deferred sales charge shall apply on the newly
issued shares shall be the period applicable to the redeemed shares extended by
the number of days between the redemption and the reinvestment dates
(inclusive).
30
<PAGE>
SYSTEMATIC WITHDRAWAL PLAN
To establish a Systematic Withdrawal Plan for a Fund and receive regular
periodic payments, an account must have a value of $5,000 or more. A request to
establish a Systematic Withdrawal Plan must be submitted in writing to an
investor's Piper Jaffray Investment Executive or other broker-dealer. There are
no service charges for maintenance; the minimum amount that may be withdrawn
each period is $100. (This is merely the minimum amount allowed and should not
be interpreted as a recommended amount.) The holder of a Systematic Withdrawal
Plan will have any income dividends and any capital gains distributions
reinvested in full and fractional shares at net asset value. To provide funds
for payment, the appropriate Fund will redeem as many full and fractional shares
as necessary at the redemption price, which is net asset value. Redemption of
shares may reduce or possibly exhaust the shares in your account, particularly
in the event of a market decline. As with other redemptions, a redemption to
make a withdrawal payment is a sale for federal income tax purposes. Payments
made pursuant to a Systematic Withdrawal Plan cannot be considered as actual
yield or income since part of such payments may be a return of capital.
The maintenance of a Systematic Withdrawal Plan for a Fund concurrent with
purchases of additional shares of the Fund would be disadvantageous because of
the sales commission involved in the additional purchases. A confirmation of
each transaction showing the sources of the payment and the share and cash
balance remaining in the account will be sent. The plan may be terminated on
written notice by the shareholder or the Fund, and it will terminate
automatically if all shares are liquidated or withdrawn from the account or upon
the death or incapacity of the shareholder. The amount and schedule of
withdrawal payments may be changed or suspended by giving written notice to your
Piper Jaffray Investment Executive or other broker-dealer at least seven
business days prior to the end of the month preceding a scheduled payment.
TAXATION
--------
GENERAL
Each Fund qualified during its last taxable year and intends to qualify in
the future as a regulated investment company for federal income tax purposes.
In order to so qualify, a Fund must meet certain requirements imposed by the
Code as to the sources of the Fund's income and the diversification of the
Fund's assets. A 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); (b) generally derive in each taxable year less than 30% of
its gross income from gains from the sale or other disposition of securities,
options, futures or forward contracts held for less than three months; and (c)
diversify its holdings so that, at the end of each fiscal quarter, (i) at least
50% of the value of the Fund's assets is represented by (A) cash, United States
government
31
<PAGE>
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 the Fund's assets or more than 10% of the voting securities of
such issuer, and (ii) not more than 25% of the value of the Fund's assets is
invested in the securities of any issuer (other than United States 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, the 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
Fund intends to satisfy the above minimum distribution requirement, it may elect
to retain its remaining net investment income. A Fund would be subject to
corporate tax (at rates up to 35%) on any undistributed income. In addition, a
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 -- Distributions
to Shareholders," below.
Each 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 the Fund's ordinary income for such calendar year; (b) 98% of the
excess of capital gains over capital losses for the one-year period ending on
October 31 of each year; and (c) the undistributed income and gains from the
preceding years (if any).
FEDERAL TAX TREATMENT OF SHAREHOLDERS
Distributions to Shareholders. Distributions to shareholders attributable
to a Fund's 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 the Fund. It is not anticipated that any of the Funds'
distributions will qualify for the dividends received deduction for corporate
shareholders.
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 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.
Each 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, the 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
32
<PAGE>
proportionate share of the tax paid by a Fund against his federal income tax
liabilities and to claim refunds to the extent that the credit exceeds such
liabilities. In addition, the shareholder would be entitled to increase the
basis of his shares for federal tax purposes by an amount equal to 65% of his
proportionate share of the undistributed net capital gain.
Dividends and distributions by each Fund are generally taxable to the
shareholders at the time the dividend or distribution is made (even if
reinvested in additional shares of the Fund). However, any dividend declared by
a Fund 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 on December 31 of such year if the dividend is paid
during January of the following year. The realization by a Fund of original
issue or market discount will increase the investment income of such Fund and
the amount required to be distributed.
Foreign Tax Credit Election. Each Fund may be subject to taxes on its
income imposed by foreign countries. If at the end of a Fund's fiscal year more
than 50% of its total assets consist of securities of foreign corporations, such
Fund will be eligible to file an election with the Internal Revenue Service
pursuant to which shareholders of the Fund will be required to include their
respective pro rata portions of such foreign taxes as gross income, treat such
amounts as foreign taxes paid by them, and deduct such amounts in computing
their taxable incomes or, alternatively, use them as foreign tax credits against
their federal income taxes.
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 realized in the sale or exchange and the seller's adjusted
basis in the share of common stock. Any gain or loss realized upon a sale or
exchange of shares of common stock will be treated as long-term capital gain or
loss if the shares have been held for more than one year, and otherwise as
short-term capital gain or loss. 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.
Backup Withholding. Each Fund may be required to withhold federal income
tax at the rate of 31% of all taxable distributions payable to shareholders who
fail to provide such Fund with their correct taxpayer identification number or
to make required certifications, or who have been notified by the Internal
Revenue Service that they are subject to backup withholding. Corporate
shareholders and certain other shareholders specified in the Code are generally
exempt from such backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the shareholder's federal
income tax liability.
33
<PAGE>
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
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 Funds.
CONSEQUENCES OF CERTAIN FUND INVESTMENTS
The Funds 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. The extent to which a Fund
may be able to use such hedging techniques may be limited by the requirement
that generally less than 30% of a Fund's gross income consist of gains from the
sale or disposition of certain assets held for less than three months.
Under Section 988 of the Code, all or a portion of gains and losses from
certain transactions is treated as ordinary income or loss. These rules
generally apply to transactions in certain securities denominated in foreign
currencies, forward contracts in foreign currencies, futures contracts in
foreign currencies that are not "regulated futures contracts," certain unlisted
options and foreign currency swaps. The rules under Section 988 may also affect
the timing of income recognized by the Fund.
Each Fund 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. The Funds have no current intention to invest in PFICs.
GENERAL INFORMATION
-------------------
Minnesota has enacted legislation which authorizes corporations to
eliminate or limit the personal liability of a director to the corporation or
its shareholders for monetary damages for breach of the fiduciary duty of "care"
(the duty to act with the care an ordinarily prudent person in a like position
would exercise under similar circumstances). Minnesota law does not, however,
permit a corporation to eliminate or limit the liability of a director (a) for
any breach of the director's duty of "loyalty" to the corporation or its
shareholders (the duty to act in good faith and in a
34
<PAGE>
manner reasonably believed to be in the best interest of the corporation), (b)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (c) for authorizing a dividend, stock repurchase
or redemption or other distribution in violation of Minnesota law or for
violation of certain provisions of Minnesota securities laws, or (d) for any
transaction from which the director derived an improper personal benefit.
Minnesota law does not permit elimination or limitation of a director's
liability under the 1933 Act or the Securities Exchange Act of 1934, and the
1940 Act prohibits elimination or limitation of a director's liability for acts
involving willful malfeasance, bad faith, gross negligence or reckless disregard
of the duties of a director. The Articles of Incorporation of the Company limit
the liability of directors to the fullest extent permitted by Minnesota law and
the 1940 Act.
FINANCIAL STATEMENTS
--------------------
The audited financial statements of Pacific-European Fund and Emerging
Markets Fund dated September 30, 1996, as set forth in the Funds' Annual Report,
are incorporated by reference into this Statement of Additional Information.
The audited financial statements are provided in reliance on the report of KPMG
Peat Marwick LLP, 4200 Norwest Center, Minneapolis, Minnesota 55402, independent
auditors of the Funds, given on the authority of such firm as experts in
accounting and auditing.
PENDING LITIGATION
------------------
Complaints have been brought in federal and state court relating to one
open-end and twelve closed-end investment companies managed by the Adviser and
to two open-end funds for which the Adviser has acted as sub-adviser. On
February 13, 1996, a Settlement Agreement became effective for the consolidated
class action lawsuit, titled In Re: Piper Funds Inc. Institutional Government
Income Portfolio Litigation. The Amended Consolidated Class Action Complaint
was filed on October 5, 1994, in the United States District Court, District of
Minnesota, against Institutional Government Income Portfolio (a series of Piper
Funds Inc.), the Adviser, the Distributor, William H. Ellis and Edward J.
Kohler, and had alleged the making of materially misleading statements in the
prospectus, common law negligent misrepresentation and breach of fiduciary duty.
The Settlement Agreement will provide approximately $67.5 million, together with
interest earned, less certain disbursements and attorney fees, to class members
in payments scheduled over approximately three years. Such payments will be
made by Piper Jaffray Companies Inc. and the Adviser and will not be an
obligation of Piper Funds Inc.
Two additional complaints relating to the Institutional Government Income
Portfolio remain pending. These complaints were brought by investors who
requested exclusion from the settlement class and are based on claims similar to
those asserted in the consolidated Class Action complaint. The first pending
complaint was brought on April 11, 1995, and filed in the Minnesota State
District
35
<PAGE>
Court, Hennepin County. This action was removed to United States District Court,
District of Minnesota. The plaintiff, Frank R. Berman, Trustee of Frank R.
Berman Professional CP Pension Plan Trust, sued individually and not on behalf
of any putative class. Defendants are the Distributor, Piper Funds Inc., Morton
Silverman and Worth Bruntjen. A second pending complaint relating to the
Institutional Government Income Portfolio was filed on June 22, 1995 in the
Montana Thirteenth Judicial District Court, Yellowstone County by Beverly Muth
against the Distributor and Teresa L. Darnielle. In addition to the above
complaints, a number of actions have been commenced in arbitration by some of
individual investors who requested exclusion from the settlement class in the In
Re: Piper Funds Inc. action.
A complaint was filed by Herman D. Gordon on October 20, 1994, in the
United States District Court, District of Minnesota, against American Adjustable
Rate Term Trust Inc.--1998, American Adjustable Rate Term Trust Inc.--1999, the
Adviser, the Distributor, Piper Jaffray Companies Inc., Benjamin Rinkey, Jeffrey
Griffin, Charles N. Hayssen and Edward J. Kohler. A second complaint was filed
by Frank Donio, I.R.A. and other plaintiffs on April 14, 1995, in the United
States District Court, District of Minnesota, against American Adjustable Rate
Term Trust Inc.--1996, American Adjustable Rate Term Trust Inc.--1997, American
Adjustable Rate Term Trust Inc.--1998, American Adjustable Rate Term Trust
Inc.--1999, the Adviser, the Distributor, Piper Jaffray Companies Inc. and
certain associated individuals. Plaintiffs in both actions filed a Consolidated
Amended Class Action Complaint on May 23, 1995 and by Order dated June 8, 1995,
the Court consolidated the two putative class actions. The consolidated amended
complaint, which purports to be a class action, alleges certain violations of
federal and state securities laws, breach of fiduciary duty and negligent
misrepresentation. On August 23, 1996, the Court granted final approval to the
parties' agreement to settle all outstanding claims of the purported class
action. The Effective Date of the Settlement Agreement was September 23, 1996.
The Settlement Agreement provides for $14 million in principal payments
consisting of $500,000 which was paid upon the Court's preliminary approval,
$1.5 million which was paid on the Effective Date of the Settlement Agreement,
and payments of $3 million on each anniversary of the Effective Date for the
next four years, with accrued interest payments of up to $1.8 million.
Two additional complaints relating to the American Adjustable Rate Term
Trusts, which are based on claims similar to those asserted in the Gordon/Donio
Consolidated Complaint, remain pending. The first of these additional complaints
was filed against the Distributor on August 11, 1995 in Washington State
District Court, King County, by plaintiff Ernest Volinn. The second complaint
was filed against the Distributor on November 1, 1995 in the United States
District Court, District of Idaho, by plaintiff Ewing Company Profit Sharing
Plan. In addition to the above complaints, a number of actions have been
commenced in arbitration by individual investors in the American Adjustable Rate
Term Trusts.
A complaint was filed by Gary E. Nelson on June 28, 1995 in the United
States District Court for the Western District of Washington at Seattle against
American
36
<PAGE>
Strategic Income Portfolio Inc. -- II ("BSP"), the Adviser, the Distributor,
Piper Jaffray Companies Inc., Worth Bruntjen, Charles N. Hayssen, Michael
Jansen, William H. Ellis and Edward J. Kohler. A second complaint was filed by
the same individual in the same court on July 12, 1995 against American
Opportunity Income Fund Inc. ("OIF"), the Adviser, the Distributor, Piper
Jaffray Companies Inc., Worth Bruntjen, Charles N. Hayssen, Michael Jansen,
William H. Ellis and Edward J. Kohler. On September 7, 1995, Christian
Fellowship Foundation Peace United Church of Christ, Gary E. Nelson and Lloyd
Schmidt filed an amended complaint purporting to be a class action in the United
States District Court for the District of Washington. The complaint was filed
against American Government Income Portfolio, Inc. ("AAF"), American Government
Income Fund Inc. ("AGF"), American Government Term Trust, Inc., American
Strategic Income Portfolio Inc. ("ASP"), American Strategic Income Portfolio
Inc. -- II, American Strategic Income Portfolio Inc. -- III ("CSP"), American
Opportunity Income Fund Inc., American Select Portfolio Inc., Piper Jaffray
Companies Inc., the Distributor, the Adviser and certain associated individuals.
By Order filed October 5, 1995, the complaints were consolidated. Plaintiffs
filed a second amended complaint on February 5, 1996 and a third amended
complaint on June 4, 1996. The third amended third complaint alleges generally
that the prospectus and financial statements of each investment company were
false and misleading. Specific violations of various federal securities laws are
alleged with respect to each investment company. The complaint also alleges that
the defendants violated the Racketeer Influenced and Corrupt Organizations Act,
the Washington State Securities Act and the Washington Consumer Protection Act.
The named plaintiffs and defendants have reached an agreement-in-principle on a
proposed settlement. If approved by the Court, a settlement agreement consistent
with the terms of the agreement-in-principle would provide $15.5 million to
class members in payments by Piper Jaffray Companies Inc. and the Adviser over
the next four years. The settlement also includes an agreement that each of OIF,
AAF, and AGF would offer to repurchase up to 25% of their outstanding shares
from current shareholders at net asset value. If the discounts between net asset
value and market price of these funds do not decrease to 5% or less within
approximately two years after the effective date of the settlement, the fund
boards may submit shareholder proposals to convert these funds to an open-end
format. Finally, the agreement stipulates that each of ASP, BSP, CSP and SLA
would offer to repurchase up to 10% of their outstanding shares from current
shareholders at net asset value.
Four additional complaints are pending which involve the funds named as
defendants in the Nelson/Christian Fellowship Consolidated Action and are based
on claims similar to that action. The first additional complaint was filed
against the Distributor and Richard Tallent in Montana State District Court,
Silver Bow County on November 1, 1995 by plaintiff John Darlington. The second
complaint was filed against the Distributor and Richard Tallent on April 11,
1996 in Montana State District Court, Silver Bow County by plaintiff Kenneth
Schneider. The third complaint was filed against the Distributor and Richard
Tallent on April 11, 1996 in Montana State District Court, Silver Bow County by
plaintiff Margaret Nagel. The fourth complaint was filed against the Distributor
on August 7, 1996 by plaintiff
37
<PAGE>
Kenneth Gennerman as Trustee of the Nicole Bowlin Trust in Wisconsin Circuit
Court, Waukesha County. In addition to the above complaints, a number of
arbitrations have been commenced by individual investors in the funds named as
defendants in the Nelson/Christian Fellowship Consolidated Action.
Complaints have also been filed relating to two open-end funds for which
the Adviser has acted as sub-adviser, Managers Intermediate Mortgage Fund and
Managers Short Government Fund. A complaint was filed on September 26, 1994 in
the United States District Court, District of Connecticut, by Florence R. Hosea,
Bobby W. Hosea, Getrud B. Dale and Peter M. Dale, Andrew Poffel and Diane Poffel
as tenants by the Entireties, Myrone Sarone, Donna M. DiPalo, Bernard B. Geltner
and Gail Geltner and Paul Delman. The complaint was filed against The Managers
Funds, The Managers Funds, L.P., Robert P. Watson, the Adviser, the Distributor,
an individual associated with the Adviser, Evaluation Associates, Inc. and
Managers Intermediate Mortgage Fund. The complaint, which is a putative class
action, alleges certain violations of federal securities laws, including the
making of false and misleading statements in the prospectus, and alleges
negligent misrepresentation, breach of fiduciary duty and common law fraud. A
similar complaint was filed as a putative class action in the same court on
November 4, 1994. The complaint was filed by Karen E. Kopelman against The
Managers Fund, The Managers Funds, L.P., Robert P. Watson, the Adviser, the
Distributor, Worth Bruntjen, Evaluation Associates, Inc. and Managers
Intermediate Mortgage Fund. The two putative class actions were consolidated by
court order on December 13, 1994. Plaintiffs filed an Amended and Restated
Complaint on July 19, 1995. A complaint relating to the Managers Short
Government Fund was filed on November 18, 1994 in the United States District
Court, District of Minnesota. The complaint was filed by Robert Fleck as a
putative class action against The Managers Funds, The Managers Funds, L.P., the
Adviser, the Distributor, Worth Bruntjen, Evaluation Associates, Inc., Robert P.
Watson, John E. Rosati, William M. Graulty, Madeline H. McWhinney, Steven J.
Pasggioli, Thomas R. Schneeweis and Managers Short Government Fund, F/K/A/
Managers Short Government Income Fund. The complaint alleges certain violations
of federal securities laws, including the making of false and misleading
statements in the prospectus, and negligent misrepresentation. The named
plaintiff and defendants have reached an agreement-in-principle on a proposed
settlement. If approved by the Court and a sufficiently large percentage of the
putative class members, a settlement agreement consistent with the terms of the
agreement-in-principle would provide to class members up to a total of $1.5
million collectively from The Managers Funds, L.P. and the Adviser on the
effective date of the settlement. A third complaint relating to both the
Managers Intermediate Mortgage Fund and the Managers Short Government Fund was
filed on October 26, 1995 in Connecticut State Superior Court, Stamford/Norwalk
District. The complaint was filed by First Commercial Trust Company, N.A.
against the Managers Funds, Managers Short Government Fund, Managers
Intermediate Mortgage Fund, Managers Short and Intermediate Bond Fund, The
Managers Funds, L.P., EAIMC Holdings Corporation, Evaluation Associates Holding
Corporation, EAI Partners, L.P., Evaluation Associates, Inc., Robert P. Watson,
William W. Graulty, Madeline H. McWhinney, Steven J.
38
<PAGE>
Paggioli, Thomas R. Schneeweis, William J. Crerend, the Adviser, Piper Jaffray
Companies Inc., Worth Bruntjen, Standish, Ayer & Wood, Inc., TCW Funds
Managements, Inc., and TCW Management Company. The complaint alleges claims
under Connecticut common law and violation of the Connecticut Securities Act and
the Connecticut Unfair and Deceptive Trade Practices Act.
The Adviser and Distributor do not believe that the settlements described
above, or any of the above lawsuits and arbitrations, will have a material
adverse effect upon their ability to pe rform under their agreements with the
Company, and they intend to defend the remaining lawsuits vigorously.
39
<PAGE>
APPENDIX A
CORPORATE BOND, PREFERRED STOCK AND
COMMERCIAL PAPER RATINGS
Commercial Paper Ratings
- ------------------------
Standard & Poor's Ratings Services. Commercial paper ratings are graded
----------------------------------
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues assigned the A rating are regarded as having the
greatest capacity for timely payment. Issues in this category are further
refined with designation 1, 2 and 3 to indicate the relative degree of safety.
The "A-1" designation indicates that the degree of safety regarding timely
payment is very strong. Those issues determined to possess overwhelming safety
characteristics will be denoted with a plus sign designation.
Moody's Investors Service, Inc. Moody's commercial paper ratings are
------------------------------
opinions of the ability of the issuers to repay punctually promissory
obligations not having an original maturity in excess of nine months. Moody's
makes no representation that such obligations are exempt from registration under
the Securities Act of 1933, nor does it represent that any specific note is a
valid obligation of a rated issuer or issued in conformity with any applicable
law. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Superior capacity for repayment of short-term
promissory obligations
Prime-2 Strong capacity for repayment of short-term promissory
obligations
Prime-3 Acceptable capacity for repayment of short-term
promissory obligations
Corporate Bond Ratings
- ----------------------
Standard & Poor's Ratings Services. Standard & Poor's ratings for
-----------------------------------
corporate bonds have the following definitions:
Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in a small degree.
Debt rated "A" has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
A-1
<PAGE>
Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Moody's Investors Service, Inc. Moody's ratings for corporate bonds
-------------------------------
include the following:
Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than in Aaa securities.
Bonds which are rated "A" possess many favorable attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Bonds which are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Preferred Stock Rating
- ----------------------
Standard & Poor's Ratings Services. Standard & Poor's ratings for
-----------------------------------
preferred stock have the following definitions:
An issue rated "AAA" has the highest rating that may be assigned by
Standard & Poor's to a preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.
A preferred stock issue rated "AA" also qualifies as a high-quality fixed
income security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA."
A-2
<PAGE>
An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
Moody's Investors Service, Inc. Moody's ratings for preferred stock
-------------------------------
include the following:
An issue which is rated "aaa" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
An issue which is rated "aa" is considered a high grade preferred stock.
This rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue which is rate "a" is considered to be an upper medium grade
preferred stock. While risks are judged to be somewhat greater than in the "aaa"
and "aa" classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
An issue which is rated "baa" is considered to be medium grade,
neither highly protected nor poorly secured. Earnings and asset protection
appear adequate at present but may be questionable over any great length of
time.
A-3
<PAGE>
APPENDIX B
GENERAL CHARACTERISTICS AND RISKS
OF OPTIONS AND FUTURES
OPTIONS ON SECURITIES
The Funds may write covered put and call options and purchase put and call
options on the securities in which it may invest that are traded on U.S. and
foreign securities exchanges and in over-the-counter markets.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the case
of a put option; the writer may be assigned an exercise notice at any time prior
to the termination of the obligation. Whether or not an option expires
unexercised, the writer retains the amount of the premium. This amount, of
course, may, in the case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period. If a call
option is exercised, the writer experiences a profit or loss from the sale of
the underlying security. If a put option is exercised, the writer must fulfill
the obligation to purchase the underlying security at the exercise price which
will usually exceed the then market value of the underlying security.
The writer of an option that wishes to terminate its obligation may effect
a "closing purchase transaction." This is accomplished by buying an option of
the same series as the option previously written. The effect of the purchase is
that the writer's position will be canceled by the clearing corporation.
However, a writer may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, an investor who is the holder
of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously purchased. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.
Effecting a closing transaction in the case of a written call option will
permit a Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case of
a written put option will permit a Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or short-
term securities. Also, effecting a closing transaction will permit the cash or
proceeds from the concurrent sale of any securities subject to the option to be
used for other Fund investments. If a Fund desires to sell a particular security
from its portfolio on which it has written a call option, it will effect a
closing transaction prior to or concurrent with the sale of the security.
A Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option or is more
than the premium paid to purchase the option; a Fund will realize a loss from a
closing transaction if the price of the transaction is more than the premium
received from writing the option or is less than the premium paid to purchase
the option.
B-1
<PAGE>
Because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the repurchase of a call option is likely to be offset in whole or in part
by appreciation of the underlying security owned by a Fund.
An option position may be closed out only where there exists a secondary
market for an option of the same series. If a secondary market does not exist,
it might not be possible to effect closing transactions in particular options
with the result that a Fund would have to exercise the options in order to
realize any profit. If a Fund is unable to effect a closing purchase transaction
in a secondary market, it will not be able to sell the underlying security until
the option expires or it delivers the underlying security upon exercise. Reasons
for the absence of a liquid secondary market include the following: (i) there
may be insufficient trading interest in certain options, (ii) restrictions may
be imposed by a national securities exchange ("Exchange") on opening
transactions or closing transactions or both, (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities, (iv) unusual or unforeseen
circumstances may interrupt normal operations on an Exchange, (v) the facilities
of an Exchange or the Options Clearing Corporation may not at all times be
adequate to handle current trading volume, or (vi) one or more Exchanges could,
for economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of options),
in which event the secondary market on that Exchange (or in that class or series
of options) would cease to exist, although outstanding options on that Exchange
that had been issued by the Options Clearing Corporation as a result of trades
on that Exchange would continue to be exercisable in accordance with their
terms.
The Funds may purchase put options to hedge against a decline in the value
of its portfolio. By using put options in this way, a Fund will 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.
The Funds 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 a Fund upon exercise of the option, and, unless the
price of the underlying security rises sufficiently, the option may expire
worthless to the Fund.
FUTURES CONTRACTS
The Funds may, for hedging purposes, enter into contracts for the purchase
or sale for future delivery of securities or foreign currencies, or contracts
based on securities or financial indices including any index of the types of
securities in which the Fund may invest. U.S. futures contracts have been
designed by exchanges which have been designated "contracts markets" by the
Commodity Futures Trading Commission and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the relevant
contract market. Futures contracts trade on a number of exchange markets, and,
through their clearing
B-2
<PAGE>
corporations, the exchanges guarantee performance of the contracts as between
the clearing members of the exchange.
At the same time a futures contract is purchased or sold, a Fund 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 a Fund would
provide or receive cash that reflects any decline or increase in the contract's
value.
At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from the delivery
of securities with a different interest rate from that specified in the
contract. In some (but not many) cases, securities called for by a futures
contract may not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the securities. Since all transactions in the futures market are
made, offset or fulfilled through a clearing house associated with the exchange
on which the contracts are traded, a Fund will incur brokerage fees when it
purchases or sells futures contracts.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by Management may still not
result in a successful transaction.
In addition, futures contracts entail risks. Although Management will only
enter into futures contracts if it believes that use of such contracts will
benefit a Fund, if Management's investment judgment about the general direction
of securities prices is incorrect, a Fund's overall performance would be poorer
than if it had not entered into any such contract. For example, if a Fund has
hedged against
B-3
<PAGE>
the possibility of a decrease in securities prices which would adversely affect
the price of securities held in its portfolio and securities prices increase
instead, a Fund will lose part or all of the benefit of the increased value of
its securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if a Fund has insufficient
cash, it may have to sell securities from its portfolio to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. A Fund may have to sell
securities at a time when it may be disadvantageous to do so.
OPTIONS ON FUTURES CONTRACTS
The Funds may purchase and write options on futures contracts for hedging
purposes. The purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security. Depending
on the pricing of the option compared to either the price of the futures
contract upon which it is based or the price of the underlying debt securities,
it may or may not be less risky than ownership of the futures contract or
underlying debt securities. As with the purchase of futures contracts, when a
Fund is not fully invested it may purchase a call option on a futures contract
to hedge against an anticipated increase in securities prices.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, a Fund will retain the full amount of the
option premium which provides a partial hedge against any decline that may have
occurred in the Fund's portfolio holdings. The writing of a put option on a
futures contract constitutes a partial hedge against increasing prices of the
security which is deliverable upon exercise of the futures contract. If the
futures price at expiration of the option is higher than the exercise price, a
Fund will retain the full amount of the option premium which provides a partial
hedge against any increase in the price of securities which the Fund intends to
purchase. If a put or call option a Fund has written is exercised, the Fund will
incur a loss which will be reduced by the amount of the premium it receives.
Depending on the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its futures positions, a Fund's
losses from existing options may to some extent be reduced or increased by
changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Fund may purchase a put option on a futures contract to hedge the
Fund's portfolio against the risk of a decline in securities prices.
The amount of risk a Fund assumes when it purchases an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
B-4
<PAGE>
The Funds' ability to engage in the options and futures strategies
described above will depend on the availability of liquid markets in such
instruments. Markets in options and futures with respect to many types of
securities in which the Funds invest are relatively new and still developing. It
is impossible to predict the amount of trading interest that may exist in
various types of options or futures. Therefore no assurance can be given that a
Fund will be able to utilize these instruments effectively for the purposes set
forth above. Furthermore, a Fund's ability to engage in options and futures
transactions may be limited by tax considerations. See "Taxation--Consequences
of Certain Fund Investments."
ADDITIONAL RISKS OF OPTIONS ON SECURITIES AND OPTIONS ON FUTURES CONTRACTS
Options on securities may be traded over-the-counter. In an over-the-
counter trading environment, much of the protection afforded to exchange
participants will not be available. For example, there are no daily price
fluctuation limits, and adverse market movements could therefore continue to an
unlimited extent over a period of time. Although the purchaser of an option
cannot lose more than the amount of the premium plus related transaction costs,
this entire amount could be lost. Moreover, the option writer could lose amounts
substantially in excess of its initial investment, due to the margin
requirements associated with such positions.
In addition, options on securities, futures contracts and options on
futures contracts may be traded on foreign exchanges. Such transactions are
subject to the risk of governmental actions affecting trading in or the prices
of foreign currencies or securities. The value of such positions also could be
adversely affected by (a) other complex foreign political and economic factors;
(b) lesser availability than in the United States of data on which to make
trading decisions; (c) delays in the Fund's ability to act upon economic events
occurring in foreign markets during nonbusiness hours in the United States; (d)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the United States; and (e) lesser trading volume.
FUTURE DEVELOPMENTS
The Funds may, following written notice thereof to its shareholders, take
advantage of opportunities in the area of options and futures contracts and
options on futures contracts which are not currently contemplated for use by the
Funds or which are not currently available but which may be developed, to the
extent such opportunities are both consistent with a Fund's investment objective
and legally permissible for a Fund. Such opportunities, if they arise, may
involve risks which exceed those involved in the options and futures activities
described above.
B-5
<PAGE>
PART C
PART C
PIPER GLOBAL FUNDS INC.
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
- -------------------------------------------
(a) Audited financial statements are incorporated by reference to the
Registrant's Annual Report for the seven-months ended September 30, 1996
for Pacific-European Fund and the three-months ended September 30, 1996 for
Emerging Markets Growth Fund.
(b) Exhibits:
1.1 Articles of Incorporation (2)
1.2 Articles of Amendment to Articles of Incorporation (4)
1.3 Certificate of Designation of Series B (5)
2.1 Amended and Restated Bylaws (4)
2.2 Amendment to the Bylaws (7/6/95) (5)
2.3 Amendment to the Amended and Restated Bylaws (4/8/96) (5)
3. Not applicable
4. Not applicable
5.1 Investment Advisory and Management Agreement (4)
5.2 Supplement to Investment Advisory and Management Agreement (5)
5.3 Sub-Investment Advisory Agreement (Series A) (4)
5.4 Sub-Advisory Agreement (Series B) (5)
6. Amended Underwriting and Distribution Agreement (5)
7. Not applicable
8.1 Custody and Investment Accounting Agreement (6)
9.1 Shareholder Account Servicing Agreement with Piper Trust Company (5 )
9.2 Shareholder Account Servicing Agreement with Piper Jaffray Inc. (5)
10. Opinion and Consent of Dorsey & Whitney LLP with respect to Series B
(5)
11. Consent of KPMG Peat Marwick LLP (7)
12. Not applicable
13. Not applicable
14. Not applicable
15.1 Amended and Restated Plan of Distribution (Series A) (4)
15.2 Plan of Distribution (Series B) (5)
16. Computation of Performance Quotations (1)
17. Power of Attorney (2)
- ------------------------------
(1) Previously filed
(2) Incorporated by reference to the Registrant's Registration Statement on
Form N-2, filed February 16, 1990, File No. 33-33534.
1
<PAGE>
(3) Incorporated by reference to Amendment No. 2 to the Registrant's
Registration Statement on Form N-2, filed April 19, 1990, File No. 33-
33534.
(4) Incorporated by reference to Post-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form N-1A filed June 28, 1993.
(5) Incorporated by reference to Post-Effective Amendment No. 6 to the
Registrant's Registration Statement on Form N-1A filed July 1, 1996.
(6) Incorporated by reference to Registrant's Registration Statement on Form N-
14 filed April 6, 1996.
(7) Filed herewith.
Item 25. Persons Controlled by or Under Common Control with Registrant
- ----------------------------------------------------------------------
No person is directly or indirectly controlled by or under common control
with the Registrant.
Item 26. Number of Holders of Securities
- -----------------------------------------
As of October 22, 1996:
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
-------------- --------------
<S> <C> <C>
Pacific-European Growth Fund Common Shares 16,415
Emerging Markets Growth Fund Common Shares 3,250
</TABLE>
Item 27. Indemnification
- -------------------------
The Articles of Incorporation and Bylaws of the Registrant provide that the
Registrant shall indemnify such persons for such expenses and liabilities, in
such manner and under such circumstances, to the full extent permitted by
Section 302A.521, Minnesota Statutes, as now enacted or hereafter amended,
provided that no such indemnification may be made if it would be in violation of
Section 17(h) of the Investment Company Act of 1940, as now enacted or hereafter
amended. Section 302A.521 of the Minnesota Statutes, as now enacted, provides
that a corporation shall indemnify a person made or threatened to be made a
party to a proceeding of the person against judgments, penalties, fines,
settlements, and reasonable expenses, including attorneys' fees and
disbursements, incurred by the person in connection with the proceeding if, with
respect to the acts or omissions of the person complained of in the proceeding,
the person has not been indemnified by another organization for the same
judgments, penalties, fines, settlements, and reasonable expenses incurred by
the person in connection with the proceeding with respect to the same acts or
omissions; acted in good faith, received no improper personal benefit and the
Minnesota Statutes dealing with directors' conflicts of interest, if applicable,
have been satisfied; in the case of a criminal proceeding, had no reasonable
cause to believe that the conduct was unlawful;
2
<PAGE>
and reasonably believed that the conduct was in the best interests of the
corporation or, in certain circumstances, reasonably believed that the conduct
was not opposed to the best interests of the corporation.
Insofar as the indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The Registrant will comply with the indemnification requirements of
Investment Company Act Releases 7221 (June 9, 1972) and 11330 (September 2,
1980).
Item 28. Business and Other Connections of Investment Adviser
- --------------------------------------------------------------
Information on the business of the Adviser is described in the section of
the Prospectus, incorporated by reference in this Registration Statement,
entitled "Management -- Investment Adviser."
The officers and directors of the Adviser and their titles are as follow:
Name Title
---- -----
William H. Ellis President, Director and Chairman of
the Board
Charles N. Hayssen Director
Bruce C. Huber Director
David E. Rosedahl Director
Momchilo Vucenich Director
Paul A. Dow Senior Vice President and
Chief Investment Officer
Susan S. Miley Senior Vice President, General Counsel
and Secretary
Worth Bruntjen Senior Vice President
Michael C. Derck Senior Vice President
Richard W. Filippone Senior Vice President
John J. Gibas Senior Vice President
Marijo A. Goldstein Senior Vice President
Mark R. Grotte Senior Vice President
3
<PAGE>
Jerry F. Gudmundson Senior Vice President
Robert C. Hannah Senior Vice President
Lynne Harrington Senior Vice President
Kim Jenson Senior Vice President
Lisa A. Kenyon Senior Vice President
Mark S. Lee Senior Vice President
Thomas S. McGlinch Senior Vice President
Curt D. McLeod Senior Vice President
Steven V. Markusen Senior Vice President
Paula Meyer Senior Vice President
Robert H. Nelson Senior Vice President
Gary Norstrem Senior Vice President
Nancy S. Olsen Senior Vice President
Ronald R. Reuss Senior Vice President
Bruce D. Salvog Senior Vice President
John K. Schonberg Senior Vice President
Sandra K. Shrewsbury Senior Vice President
David M. Steele Senior Vice President
Robert H. Weidenhammer Senior Vice President
John G. Wenker Senior Vice President
Douglas J. White Senior Vice President
Cynthia K. Castle Vice President
Richard Daly Vice President
Molly Destro Vice President
Julie Deutz Vice President
Joyce A. K. Halbe Vice President
Joan L. Harrod Vice President
Mary M. Hoyme Vice President
Amy K. Johnson Vice President
Russell J. Kappenman Vice President
Kimberly F. Kaul Vice President
John D. Kightlinger Vice President
Wan-Chong Kung Vice President
Steven Meyer Vice President
Thomas Moore Vice President
Chris Neuharth Vice President
Paul D. Pearson Vice President
Eric L. Siedband Vice President
Catherine M. Stienstra Vice President
Shaista Tajamal Vice President
Jill A. Thompson Vice President
Jane K. Welter Vice President
Marcy K. Winson Vice President
Fong P. Woo Vice President
Principal occupations of Messrs. Ellis, Dow, Nelson and Ms. Miley are set
forth in the Statement of Additional Information under the heading "Directors
and Officers."
4
<PAGE>
Mr. Hayssen is a Director of the Adviser and has been Chief Information Officer
- -----------
of Piper Jaffray Companies Inc. since January 1996 and a Managing Director of
Piper Jaffray Inc. ("Piper Jaffray") since 1986, prior to which he was a
Managing Director of Piper Jaffray Companies Inc. from 1987 to 1995, Chief
Financial Officer of Piper Jaffray from 1988 to 1995, Chief Financial Officer of
the Adviser from 1989 to 1995 and Chief Operating Officer of the Adviser from
1994 to 1995. Mr. Huber has been a Director of the Adviser since 1985 and a
---------
Managing Director of Piper Jaffray since 1986. Mr. Rosedahl is a Director of the
------------
Adviser and Managing Director and Secretary for Piper Jaffray and Managing
Director, Secretary and General Counsel for Piper Jaffray Companies Inc. Mr.
---
Vucenich has been a Director of the Adviser since 1994 and a Managing Director
- --------
of Piper Jaffray Inc. since 1993.
Mr. Bruntjen has been a Senior Vice President of the Adviser since 1988.
------------
Mr. Derck has been a Vice President of the Adviser since November 1992, prior to
- ---------
which he had been a manager of Advisory Accounts Services with the Adviser since
April 1992 and, before that, an Assistant Vice President at First Trust since
1976. Mr. Filippone has been a Senior Vice President of the Adviser since 1991.
-------------
Mr. Gibas has been a Senior Vice President of the Adviser since 1992, prior to
- ---------
which he had been a Vice President of the Adviser from 1987 to 1992. Ms.
---
Goldstein has been a Senior Vice President of the Adviser since 1993, prior to
- ---------
which she was a Vice President of the Adviser from 1991 to 1993. Mr. Grotte has
----------
been a Senior Vice President of the Adviser since 1992, prior to which he had
been a Vice President of the Adviser from 1988 to 1992. Mr. Gudmundson has been
--------------
a Senior Vice President of the Adviser since 1995, prior to which he was an
Executive Vice President at Resource Capital Advisers from 1991 to 1995. Mr.
---
Hannah has been a Senior Vice President of the Adviser since 1995, prior to
- ------
which he was manager of Craig and Associates in Seattle, Washington from 1993 to
1994, and prior thereto, he was manager of Exvere in Seattle from January 1993
to August 1993 and a registered representative at Geneva in Irvine, California
from 1991 to 1992. Ms. Harrington has been a Senior Vice President of the
--------------
Adviser since 1995, prior to which she was a Managing Director at Piper Jaffray
Inc. in the Public Finance Department. Ms. Kenyon has been a Senior Vice
----------
President of the Adviser since 1992, prior to which she had been a financial
adviser for a private family in Los Angeles. Ms. Jenson has been a Senior Vice
----------
President of the Adviser since 1996, prior to which she was a Managing Director
at Piper Trust since 1991. Mr. Lee has been a Senior Vice President of the
-------
Adviser since 1995, prior to which he had been a Vice President of the Adviser
since 1990. Mr. McGlinch has been a Senior Vice President of the Adviser since
------------
1995, prior to which he had been a Vice President of the Adviser since 1992 and,
prior thereto, he had been a specialty products trader at FBS Investment
Services from 1990 to 1992. Mr. McLeod has been a Senior Vice President of the
----------
Adviser since 1995, prior to which he had been an analyst at the Adviser since
1988. Mr. Markusen has been a Senior Vice President of the Adviser since 1993,
------------
prior to which had been a senior vice president of Investment Advisers, Inc., in
Minneapolis, Minnesota from 1989 to 1993. Ms. Meyer has been a Senior Vice
---------
President of the Adviser since 1994, prior to which she had been a Vice
President of Secura Insurance, Appleton, Wisconsin from 1988 to 1994. Mr.
---
Norstrem has been a Senior Vice President of the Adviser since 1993, prior to
- --------
which he was Treasurer of the City of Saint Paul, Minnesota for twenty-eight
years. Ms. Olsen has been a Senior Vice President of the Adviser since 1991.
---------
Mr. Reuss has been a Senior Vice
- ---------
5
<PAGE>
President of the Adviser since 1989. Mr. Salvog has been a Senior Vice President
----------
of the Adviser since 1992, prior to which he had been a portfolio manager at
Kennedy & Associates in Seattle, Washington from 1984 to 1992. Mr. Schonberg has
-------------
been a Senior Vice President of the Adviser since 1995, prior to which he was a
Vice President of the Adviser from 1992 to 1995 and a portfolio manager for the
Adviser since 1989. Ms. Shrewsbury has been a Senior Vice President of the
--------------
Adviser since 1993, prior to which she had been a Managing Director of Piper
Jaffray since 1992, and a Vice President of Piper Jaffray since 1990. Mr. Steele
----------
has been a Senior Vice President of the Adviser since 1992, prior to which he
had been a portfolio manager at Kennedy & Associates in Seattle, Washington from
1987 to 1992. Mr. Weidenhammer has been a Senior Vice President of the Adviser
----------------
since 1991. Mr. Wenker has been a Senior Vice President of the Adviser since
----------
1993, prior to which he had been a Managing Director of Piper Jaffray from 1992
to 1993, and prior thereto, the Director of Revitalization Resources of the
Minneapolis Community Development Agency from 1990 to 1992. Mr. White has been a
---------
Senior Vice President of the Adviser since 1991.
Ms. Castle has been a Vice President of the Adviser since 1994, prior to
----------
which she was a client service associate of the Adviser since 1990. Mr. Daly
--------
has been a Vice President of the Adviser since 1992, prior to which he was an
Assistant Vice President of the Piper Jaffray since 1990 and a broker with Piper
Jaffray from 1987 to 1992. Ms. Destro has been aVice President of the Adviser
----------
since 1994, prior to which she was an Accounting Manager from 1993 to 1994 and
mutual fund accountant from 1991 to 1993 with the Adviser. Ms. Deutz has been a
---------
Vice President of the Adviser since September 1995, prior to which she was an
Assistant Vice President at Daiwa Bank, Ltd. from 1992 to September 1995 and a
manager of financial reporting at The Churchill Companies from 1991 to 1992.
Ms. Halbe has been a Vice President of the Adviser since 1996, prior to which
- ---------
she was a Vice President at First Asset Management since 1990. Ms. Harrod has
----------
been a Vice President of the Adviser since 1992 and has been a trader for the
Adviser since 1989. Ms. Hoyme has been a Vice President of the Adviser since
---------
1996, prior to which she had been a Vice President at First Asset Management
since 1989. Ms. Johnson has been aVice President of the Adviser since 1994,
-----------
prior to which she was an Accounting Manager from 1993 to 1994 and mutual fund
accountant from 1991 to 1993 with the Adviser. Mr. Kappenman has been a Vice
-------------
President of the Adviser since 1991. Ms. Kaul has been a Vice President and
--------
Director of Corporate Communications of the Adviser since 1991. Mr. Kightlinger
---------------
has been a Vice President of the Adviser since 1991. Ms. Kung has been a Vice
--------
President of the Adviser since 1993, prior to which she had been a Senior
Consultant at Cytrol Inc. from 1989 to 1992. Mr. Meyer has been a Vice
---------
President of the Adviser since 1994 and manager of Systems Integration for the
Adviser since 1991. Mr. Moore has been a Vice President of the Adviser since
---------
1992, prior to which he was a Portfolio Manager at Alpine Capital Management
from 1990 to 1992 and a broker at Hanifen Capital Management from 1990 to 1992.
Mr. Neuharth has been a Vice President of the Adviser since 1996, prior to which
- ------------
he had been a senior mortgage trader at FBS Mortgage since 1995, and prior
thereto, a fixed income portfolio manager at Fortis Financial since 1987. Mr.
---
Pearson has been a Vice President of the Adviser since 1995, prior to which he
- -------
was Mutual Funds Accounting Manager of the Adviser from 1994 to 1995 and prior
thereto, Director of Fund Operations at Norwest Bank, Minneapolis from 1992 to
1994. Mr. Siedband has been a Vice President of the Adviser
------------
6
<PAGE>
since 1992. Ms. Stienstra has been a Vice President of the Adviser since
-------------
November 1995 and a municipal bond trader of the Adviser since June 1995, prior
to which she was an assistant analyst of the Adviser from 1991 to 1994. Ms.
---
Tajamal has been a Vice President of the Adviser since 1995 and a portfolio
- -------
manager of the Adviser since 1993, prior to which she was a money market analyst
of the Adviser from 1990 to 1993. Ms. Thompson has been a Vice President of the
------------
Adviser since 1994, prior to which she had been a Vice President at First Asset
Management since 1991. Ms. Welter has been a Vice President of the Adviser since
1994, prior to which she was a client service associate of the Adviser since
1993 and a mutual fund accountant with the Adviser from 1990 to 1993. Ms. Winson
----------
has been a Vice President of the Adviser since November 1993, prior to which she
was an Assistant Vice President of the Adviser since March 1993 and an educator
from 1990 to 1992. Mr. Woo has been a Vice President of the Adviser since 1994,
-------
prior to which he was a municipal credit analyst of the Adviser since 1992 and a
credit specialist at a commercial trading firm from 1991 to 1992.
The officers and directors of the Sub-Adviser and their titles are as
follow:
Name Title
---- -----
Iain A. Watt Chairman
Peter A.K. Arthur Joint Managing Director
Michael W. Balfour Joint Managing Director
Lloyd A. Beat Executive Director
Graham M. Brock Executive Director
Graham C. Campbell Executive Director
Alistair M.T. Currie Executive Director
David W. Currie Executive Director
Alex J. Gowans Executive Director
William S. Johnstone Executive Director
David McCraw Executive Director
Robert G.H. McGeorge Executive Director
Ian E. Massie Executive Director
Ken McKenna Executive Director
Catherine C.J. Miller Executive Director
Richard D. Muckart Executive Director
Colin F. Peters Executive Director
Principal occupations of Mr. Watt and Mr. Balfour are set forth in the
Statement of Additional Information under the heading "Directors and Executive
Officers." Messrs. Beat, Brock, A. Currie, D. Currie and McKenna and Ms. Miller
have no other principal occupations other than as executive directors of the
Sub-Adviser. Mr. Arthur currently serves as a director of Edinburgh Fund
----------
Managers plc, Edinburgh Oil Management Limited, Drayton Asia Finance Limited,
DFM Holdings Limited and Dunedin Fund Managers Limited. Mr. Johnstone currently
-------------
serves as a director of Edinburgh Fund Managers plc and Broadgate Marketing
Limited. Mr. Campbell currently serves as a director of Edinburgh Fund Managers
------------
plc and Scottish Judo Federation. Mr. Gowans currently serves as a director of
----------
Edinburgh Fund Managers plc, Edinburgh Income Trust
7
<PAGE>
plc and Edinburgh Small Companies Trust plc. Mr. Johnstone currently serves as a
-------------
director of Edinburgh Fund Managers plc and Broadgate Marketing Limited. Mr.
---
Massie currently serves as a director of Edinburgh Fund Managers plc and Dunedin
- ------
Fund Managers Limited. Mr. McCraw currently serves as a director of Edinburgh
----------
Fund Managers plc, Dunedin Fund Managers Limited and DFM Holdings Limited. Mr.
---
McGeorge currently serves as a director of Edinburgh Fund Mangers plc, Dunedin
- --------
Fund Managers Limited, Dunedin Pension Fund Managers Limited, Dunedin Financial
Services Limited, Dunedin Portfolio Managers Limited and Trustcto Finance plc.
Mr. Muckart currently serves as a director of Edinburgh Fund Managers plc,
- -----------
Dunedin Fund Managers Limited, DFM Holdings Limited and LTS International
Limited. Mr. Peters currently serves as a director of Edinburgh Fund Managers
----------
plc, Dunedin Fund Managers Limited and Taytem Nominees Limited.
Item 29. Principal Underwriters
- --------------------------------
(a) Piper Jaffray Inc. acts as principal underwriter for the Registrant
and also for three other open-end investment companies, Piper Funds Inc., the
shares of which are currently offered in twelve series, Piper Funds Inc. -- II
the shares of which are currently offered in one series and Piper Institutional
Funds Inc., the shares of which are currently offered in one series. Piper
Jaffray has acted as principal underwriter in connection with the initial public
offering of shares of 23 closed-end investment companies.
(b) The name, positions and offices with Piper Jaffray Inc., and positions
and offices with the Registrant of each director and officer of Piper Jaffray
Inc. are as follow:
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
---- --------------------- ---------------------
<S> <C> <C>
Addison L. Piper Chairman of the Board of None
Directors and Chief Executive
Officer
Ralph W. Burnet Member of the Board None
of Directors
William H. Ellis Member of the Board None
of Directors
John L. McElroy, Jr. Member of the Board None
of Directors
Kathy Halbreich Member of the Board None
of Directors
Robert S. Slifka Member of the Board None
of Directors
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
---- --------------------- ---------------------
<S> <C> <C>
David Stanley Member of the board None
of Directors
AnnDrea M. Benson Managing Director and None
General Counsel
Lloyd K. Benson Managing Director None
Gary J. Blauer Managing Director None
Karen M. Bohn Managing Director None
Sean K. Boyea Managing Director None
Ronald O. Braun Managing Director None
Jay A. Brunkhorst Managing Director None
Kenneth S. Cameranesi Managing Director None
Stephen M. Carnes Managing Director None
Joseph V. Caruso Managing Director None
Antonio J. Cecin Managing Director None
Joyce E. Chaney Managing Director None
Kenneth P. Clark Managing Director None
Linda A. Clark Managing Director None
Stephen B. Clark Managing Director None
David P. Crosby Managing Director None
Mark A. Curran Managing Director None
George S. Dahlman Managing Director None
Jack C. Dillingham Managing Director None
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
---- --------------------- ---------------------
<S> <C> <C>
Mark T. Donahoe Managing Director None
Darci L. Doneff Managing Director None
Andrew S. Duff Managing Director None
Andrew W. Dunleavy Managing Director None
Richard A. Edstrom Managing Director None
Fred R. Eoff, Jr. Managing Director None
Richard D. Estenson Managing Director None
Francis E. Fairman IV Managing Director None
John R. Farrish Managing Director None
G. Richard Ferguson Managing Director None
Paul Ferry Managing Director None
Mark E. Fisler Managing Director None
Michael W. Follett Managing Director None
Daniel P. Gallaher Managing Director None
Peter M. Gill Managing Director None
Kevin D. Grahek Managing Director None
Paul D. Grangaard Managing Director None
James S. Harrington Managing Director None
Charles N. Hayssen Managing Director None
William P. Henderson Managing Director None
Allan F. Hickok Managing Director None
Richard L. Hines Managing Director None
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
---- --------------------- ---------------------
<S> <C> <C>
David B. Holden Managing Director None
Charles E. Howell Managing Director None
Bruce C. Huber Managing Director None
Elizabeth A. Huey Managing Director None
John R. Jacobs Managing Director None
Earl L. Johnson Managing Director None
Richard L. Johnson Managing Director None
Nicholas P. Karos Managing Director None
Paul P. Karos Managing Director None
Richard G. Kiss Managing Director None
Gordon E. Knudsvig Managing Director None
Jerome P. Kohl Managing Director None
Eric W. Larson Managing Director None
Dan L. Lastavich Managing Director None
Robert J. Magnuson Managing Director None
Robert E. Mapes Managing Director None
Peter T. Mavroulis Managing Director None
Michael P. McMahon Managing Director None
G. Terry McNellis Managing Director None
Thomas A. Medlin Managing Director None
Darryl L. Meyers Managing Director None
Joseph E. Meyers Managing Director None
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
---- ---------------------- ---------------------
<S> <C> <C>
John V. Miller Managing Director None
Dennis V. Mitchell Managing Director None
Edward P. Nicoski Managing Director None
Barry J. Nordstrand Managing Director None
Benjamin S. Oehler Managing Director None
Brooks G. O'Neil Managing Director None
John P. O'Neill Managing Director None
John Otterlei Managing Director None
Robin C. Pfister Managing Director None
Laurence S. Podobinski Managing Director None
Steven J. Proeschel Managing Director None
Rex W. Ramsay Managing Director None
Brian J. Ranallo Managing Director None
Roger W. Redmond Managing Director None
Robert P. Rinek Managing Director None
Wesley L. Ringo Managing Director None
Jim M. Roane Managing Director None
Deborah K. Roesler Managing Director None
Russ E. Rogers Managing Director None
David E. Rosedahl Managing Director None
and Secretary
Terry D. Sandven Managing Director None
Thomas P. Schnettler Managing Director None
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
---- --------------------- ---------------------
<S> <C> <C>
Steven R. Schroll Managing Director None
Joyce Nelson Schuette Managing Director None\
Lawrence M. Schwartz, Jr. Managing Director None
Morton D. Silverman Managing Director None
Linda E. Singer Managing Director None
David P. Sirianni Managing Director None
Arch C. Smith Managing Director None
Robert L. Sonnek Managing Director None
Thomas E. Stanberry Managing Director None
DeLos V. Steenson Managing Director None
D. Greg Sundberg Managing Director None
Robert D. Swerdling Managing Director None
William H. Teeter Managing Director None
Ann C. Tillotson Managing Director None
Marie Uhrich Managing Director None
Momchilo Vucenich Managing Director None
Charles M. Webster, Jr. Managing Director None
Darrell L. Westby Managing Director None
David R. Westcott Managing Director None
Douglas R. Whitaker Managing Director None
James H. Wilford Managing Director None
Stephen W. Woodard Managing Director None
</TABLE>
13
<PAGE>
Mark Wren Managing Director None
Saul Yaari Managing Director None
Beverly J. Zimmer Managing Director None
The principal business address of each of the individuals listed above is Piper
Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402-3804.
Item 30. Location of Accounts and Records
- ------------------------------------------
The physical possession of the accounts, books, and other documents
required to be maintained by Section 31(a) of the Investment Company Act of 1940
and Rules 3la-1 to 3la-3 promulgated thereunder is maintained by the Registrant
at Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402-
3804, except that the physical possession of certain accounts, books and other
documents related to the custody of the Pacific-European Fund's securities may
be maintained by it custodian, First Trust National Association, 180 East Fifth
Street, St. Paul, Minnesota 55101, and certain documents related the custody of
Emerging Markets Fund's securities may be maintained by its custodian, Investors
Fiduciary Trust Company, 127 West Tenth Street, Kansas City, Missouri 64105.
Investors Fiduciary Trust Company may also maintain documents for each Fund in
its capacity as Transfer and Dividend Disbursing Agent.
Item 31. Management Services
- -----------------------------
Not applicable.
Item 32. Undertakings
- ----------------------
(a) Not applicable.
(b) Not applicable.
(c) Each recipient of a prospectus of any series of the Registrant may
request the latest Annual Report and such Annual Report will be furnished by the
Registrant without charge.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement on Form N-1A pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused this Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Minneapolis and State of Minnesota on the 28th day of October 1996.
PIPER GLOBAL FUNDS INC.
(Registrant)
By /s/ Paul A. Dow
----------------------------------
Paul A. Dow, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
/s/ Paul A. Dow President (principal October 28, 1996
- -------------------------------
Paul A. Dow executive officer)
/s/ Robert H. Nelson Treasurer (principal October 28, 1996
- -------------------------------
Robert H. Nelson financial and
accounting officer)
David T. Bennett* Director
Jaye F. Dyer* Director
William H. Ellis* Director
Karol D. Emmerich* Director
Luella G. Goldberg* Director
Director
- -------------------------------
David A. Hughey
George Latimer* Director
*By /s/ William H. Ellis October 28, 1996
---------------------------
William H. Ellis, Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
TO
REGISTRATION STATEMENT
OF
PIPER GLOBAL FUNDS INC.
Exhibit
- -------
11 Consent of KPMG Peat Marwick LLP
<PAGE>
EXHIBIT 11
----------
[KPMG Peat Marwick LLP Letterhead]
Independent Auditors' Consent
-----------------------------
The Board of Directors
Piper Global Funds Inc.:
We consent to the use of our report dated October 18, 1996 incorporated by
reference herein and to the references to our Firm under the headings "FINANCIAL
HIGHLIGHTS" in Part A and "FINANCIAL STATEMENTS" in Part B of the Registration
Statement.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
October 24, 1996
