<PAGE>
1933 Act Registration No. 33-53718
1940 Act Registration No. 811-7320
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 1, 1995
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
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Post-Effective Amendment No. 5
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AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 6
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(Check appropriate box or boxes)
PIPER INSTITUTIONAL 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) 342-6418
(Registrant's Telephone Number, including Area Code)
Charles N. Hayssen
222 South Ninth Street
Minneapolis, Minnesota 55402
(Name and Address of Agent for Service)
COPY TO:
Kathleen L. Prudhomme, Esq.
Dorsey & Whitney
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
It is proposed that this filing will become effective (check appropriate box):
X immediately upon filing pursuant to paragraph (b) of Rule 485
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on (date) pursuant to paragraph (b) of Rule 485
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75 days after filing pursuant to paragraph (a) of Rule 485
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on (date) pursuant to paragraph (a) of Rule 485
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The Registrant has registered an indefinite number of shares 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
August 30, 1995.
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<PAGE>
PIPER INSTITUTIONAL FUNDS INC.
Registration Statement on Form N-1A
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CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A)
---------------------------
Item No. Prospectus Heading
- -------- ------------------
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 . Introduction; Dividends and
Distributions; Tax Status; General
Information
7. Purchase of Securities Being
Offered . . . . . . . . . . . . . How to Purchase Shares; Valuation of
Shares; Reducing Your Sales Charge;
Special Purchase Plans
8. Redemption or Repurchase . . . . . . How to Redeem Shares; Shareholder
Services
9. Pending Legal Proceedings. . . . . . General Information
Heading Statement of Additional Information
- ------- -----------------------------------
10. Cover Page . . . . . . . . . . . . . Cover Page (no caption)
11. Table of Contents. . . . . . . . . . Table of Contents
12. General Information and History. . . Pending Litigation
13. Investment Objectives and Policies . Investment Objectives, Policies and
Restrictions
14. Management of the Fund . . . . . . . Directors and Executive Officers
15. Control Persons and Principal
<PAGE>
Holders of Securities. . . . . . . Capital Stock and Ownership of Shares
16. Investment Advisory and Other
Services . . . . . . . . . . . . . Investment Advisory and Other
Services
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
20. Tax Status . . . . . . . . . . . . . Taxation
21. Underwriters . . . . . . . . . . . . Investment Advisory and Other
Services; Portfolio Transactions and
Allocation of Brokerage
22. Calculations of Performance Data . . Performance Comparisons
23. Financial Statements . . . . . . . . Financial Statements
<PAGE>
PROSPECTUS DATED NOVEMBER 1, 1995
PIPER INSTITUTIONAL FUNDS INC.
PIPER JAFFRAY TOWER
222 SOUTH NINTH STREET, MINNEAPOLIS, MINNESOTA 55402-3804
(612) 342-6387 (LOCAL CALLS), (800) 866-7778 (TOLL FREE)
---------------------
Piper Institutional Funds Inc. (the "Company") is an open-end mutual fund
whose shares are currently offered in two series: Institutional Money Market
Fund and Institutional Government Adjustable Portfolio (the "Funds"). Each Fund
has its own investment objective and policies designed to meet different
investment goals.
INSTITUTIONAL MONEY MARKET FUND has an investment objective of maximum
current income consistent with preservation of capital and maintenance of
liquidity. Institutional Money Market Fund will invest only in securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities and
repurchase agreements and reverse repurchase agreements with respect to such
securities.
INSTITUTIONAL GOVERNMENT ADJUSTABLE PORTFOLIO has an investment objective of
high current income consistent with low principal volatility. The Fund will seek
to achieve that objective by investing primarily (at least 65% of its total
assets under normal market conditions) in adjustable rate mortgage securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. The Fund's investments in mortgage-related securities include
derivative mortgage securities.
INVESTMENTS IN THE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT INSTITUTIONAL MONEY MARKET FUND WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. INSTITUTIONAL
GOVERNMENT ADJUSTABLE PORTFOLIO MAY INVEST IN "RESTRICTED SECURITIES." SEE
"SPECIAL INVESTMENT METHODS -- ILLIQUID SECURITIES".
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 November 1, 1995
is available free of charge. Write to the Funds at Piper Jaffray Tower, 222
South Ninth Street, Minneapolis, Minnesota 55402-3804 or telephone (612)
342-6387 (local calls) or (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
Institutional Money Market Fund ("Money Market Fund") and Institutional
Government Adjustable Portfolio ("Adjustable Portfolio") (sometimes individually
referred to herein as a "Fund" or, collectively, as the "Funds") are series of
Piper Institutional Funds Inc. (the "Company"), an open-end management
investment company organized under the laws of the State of Minnesota in 1992.
Each Fund has a different investment objective, as described on the cover page
of this Prospectus, and is designed to meet different investment needs. The
Funds are classified as diversified mutual funds.
THE INVESTMENT ADVISER
The Funds are managed by Piper Capital Management Incorporated (the
"Adviser"), a wholly owned subsidiary of Piper Jaffray Companies Inc. Each Fund
pays the Adviser a fee for managing its investment portfolio. The fees for Money
Market Fund and Adjustable Portfolio are paid at annual rates of .15% and .30%,
respectively, of each Fund's average daily net assets. See "Management --
Investment 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.
OFFERING PRICES
Shares of Money Market Fund are offered to the public at their net asset
value of $1.00 per share with no sales charge. There can be no assurance,
however, that the net asset value per share of Money Market Fund will be
maintained at $1.00.
Shares of Adjustable Portfolio 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 1.00% of the offering price (1.01% of the net amount invested) on purchases
of less than $250,000. The sales charge is reduced to .50% of the offering price
on purchases of $250,000 or more, with no sales charge incurred on purchases of
$500,000 or more.
MINIMUM INITIAL AND SUBSEQUENT INVESTMENTS
The minimum initial investment for each Fund is $100,000. There is no
minimum for subsequent investments. The minimum initial investment for
Adjustable Portfolio may be waived by the Distributor for 401(k) employee
benefit plans administered by Piper Trust Company. 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 open to new investors and 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.
2
<PAGE>
The Funds reserve the right, upon 30 days' written notice, to redeem an account
if the net asset value of the shares in that account falls below $50,000. See
"How to Redeem Shares -- Involuntary Redemption."
CERTAIN RISK FACTORS TO CONSIDER
An investment in either of the Funds is subject to certain risks, as set
forth in detail under "Investment Objectives and Policies" and "Special
Investment Methods." As with other mutual funds, there can be no assurance that
either Fund will achieve its objective. There is no assurance Money Market Fund
will be able to maintain a stable net asset value of $1.00 per share. Adjustable
Portfolio is subject to interest rate risk (the risk that rising interest rates
will make bonds issued at lower interest rates worth less). As a result, the
value of Adjustable Portfolio's shares will vary. Adjustable Portfolio is also
subject to credit risk (the risk that a bond issuer will fail to make timely
payments of interest or principal) to the extent it invests in non-U.S.
Government securities. Adjustable Portfolio may engage in the following
investment practices: the use of repurchase agreements, the lending of portfolio
securities, borrowing from banks, the use of reverse repurchase agreements
(reverse repurchase agreements involve the speculative technique known as
leverage), the use of hedging techniques, including interest rate transactions,
options, futures contracts and options on futures contracts, and the purchase or
sale of securities on a "when-issued" or "forward commitment" basis, including
the use of mortgage dollar rolls. These techniques may increase the volatility
of the Fund's net asset value. Adjustable Portfolio purchases mortgage-related
securities which, in addition to interest rate risk, are subject to prepayment
risk. Adjustable Portfolio's investments in mortgage-related securities include
securities commonly referred to as derivative mortgage securities. Recent market
experience has shown that certain derivative mortgage securities may be
extremely sensitive to changes in interest rates and in prepayment rates on the
underlying mortgage assets and, as a result, the prices of such securities may
be highly volatile. Adjustable Portfolio may also invest up to 10% of its total
assets in securities denominated in Canadian dollars. Money Market Fund may
engage in the use of repurchase agreements and, with respect to 5% of its net
assets, reverse repurchase agreements fully collateralized by securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities. All
of these transactions involve certain special risks, as set forth under
"Investment Objectives and Policies" and "Special Investment Methods."
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 of this Prospectus.
3
<PAGE>
FUND EXPENSES
<TABLE>
<CAPTION>
MONEY MARKET ADJUSTABLE
FUND PORTFOLIO
------------ ----------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price).................. None 1.00%(1)
Exchange Fee (2)................................ $0 $0
ANNUAL FUND OPERATING EXPENSES (as a percentage of
average net assets)
Management Fees................................. .15% .30%
Rule 12b-1 Fees................................. None None
Other Expenses (after voluntary expense
reimbursements)................................ .20% .30%
--
---
Total Fund Operating Expenses (after voluntary
expense reimbursements)........................ .35% .60%
<FN>
- ------------------------
(1) The sales charge is reduced to .50% of the offering price on purchases of
$250,000 or more. In connection with purchases of $500,000 or more, there
is no initial sales charge. See "How to Purchase Shares -- Public Offering
Price."
(2) There is a $5.00 fee for each exchange in excess of four exchanges per
year. See "How to Purchase Shares -- Exchange Privilege."
</TABLE>
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>
MONEY MARKET ADJUSTABLE
FUND PORTFOLIO
------------ ----------
<S> <C> <C>
1 Year......................................... $ 4 $16
3 Years........................................ $11 $29
5 Years........................................ $20 $43
10 Years........................................ $44 $84
</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 LESS THAN THOSE SHOWN.
Under an Investment Advisory and Management Agreement between the Funds and
the Adviser, the Adviser is entitled to receive fees from Money Market Fund and
Adjustable Portfolio equal on an annual basis to .15% and .30%, respectively, of
each Fund's average daily net assets. The Adviser has voluntarily agreed, for
the fiscal year ending June 30, 1996, to reimburse Money Market Fund and
Adjustable Portfolio to the extent that total operating expenses exceed .35% and
.60% per annum, respectively, of average daily net assets. The Total Fund
Operating Expenses set forth in the above table are based on this agreement.
Voluntary reimbursements by the Adviser may be discontinued at any time
following the Funds' fiscal year end, at the Adviser's discretion. For the
fiscal year ended June 30, 1995, the Adviser voluntarily agreed to pay all
operating expenses of Money Market Fund and Adjustable Portfolio which exceeded
.35% and .55%, respectively, of average daily net assets. Absent such voluntary
expense reimbursements, Total Fund Operating Expenses would have been .49% and
.75% of average daily net assets, respectively. For additional information,
including a more complete explanation of management fees, see "Management --
Investment Adviser" and "Management -- Expenses."
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights have been audited by KPMG Peat Marwick
LLP, independent auditors, and should be read in conjunction with the financial
statements and the related notes thereto appearing in the Fund's annual report
to shareholders. An annual report of the Funds can be obtained without charge by
contacting the Funds at (612) 342-6387 (local calls) or (800) 866-7778 (toll
free). In addition to financial statements, the annual report contains further
information about the performance of the Funds.
MONEY MARKET FUND
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED JUNE 30
--------------- PERIOD FROM
1995 1994 2/2/93* TO 6/30/93
------ ------ ------------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $1.00 $1.00 $1.00
Operations:
Net investment income................. 0.05 0.03 0.01
------ ------ -----
Total from operations............... 0.05 0.03 0.01
------ ------ -----
Distributions from net investment
income................................. (0.05) (0.03) (0.01)
------ ------ -----
Net asset value, end of period.......... $1.00 $1.00 $1.00
------ ------ -----
------ ------ -----
Total return+........................... 5.26% 3.23% 1.24%
Net assets, end of period (in
millions).............................. $ 52 $ 35 $ 40
Ratio of expenses to average daily net
assets++............................... 0.35% 0.35% 0.35%**
Ratio of net investment income to
average daily net assets++............. 5.17% 3.26% 3.02%**
<FN>
- ------------------------
* Commencement of operations.
** Adjusted to an annual basis.
+ Total return is based on the change in net asset value during the period,
assumes reinvestment of all distributions at net asset value and does not
reflect a sales charge.
++ Various fees and expenses were voluntarily waived or absorbed by the
Adviser during the years ended June 30, 1995 and 1994. Had the Fund paid
all expenses, the ratios of expenses and net investment income to average
daily net assets would have been 0.49%/5.03% in fiscal 1995 and 0.61%/3.00%
in fiscal 1994.
</TABLE>
5
<PAGE>
ADJUSTABLE PORTFOLIO
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JUNE 30
----------------- PERIOD FROM
1995 1994 2/2/93* TO 6/30/93
------- ------- ------------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 9.46 $10.04 $10.00
Operations:
Net investment income................. 0.52 0.49 0.18
Net realized and unrealized gains
(losses) on investments.............. (0.04) (0.57) 0.04
------- ------- -------
Total from operations............... 0.48 (0.08) 0.22
------- ------- -------
Distributions to shareholders:
From net investment income............ (0.41) (0.50) (0.18)
Tax return of capital................. (0.09) -- --
------- ------- -------
Total distributions................. (0.50) (0.50) (0.18)
------- ------- -------
Net asset value, end of period.......... $ 9.44 $ 9.46 $10.04
------- ------- -------
------- ------- -------
Total return+........................... 5.26% (0.91%) 2.18%
Net assets, end of period (in
millions).............................. $ 15 $ 35 $ 41
Ratio of expenses to average daily net
assets++............................... 0.55% 0.55% 0.74%**
Ratio of net investment income to
average daily net assets++............. 5.54% 5.13% 4.73%**
Portfolio turnover rate (excluding
short-term securities)................. 43% 110% 26%
<FN>
- ------------------------
* Commencement of operations.
** Adjusted to an annual basis.
+ Total return is based on the change in net asset value during the period,
assumes reinvestment of all distributions at net asset value and does not
reflect a sales charge.
++ Various fees and expenses were voluntarily waived or absorbed by the
Adviser during the years ended June 30, 1995 and 1994. Had the Fund paid
all expenses, the ratios of expenses and net investment income to average
daily net assets would have been 0.75%/5.34% in fiscal 1995 and 0.60%/5.08%
in fiscal 1994.
</TABLE>
6
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives listed below cannot be changed without shareholder
approval. In view of the risks inherent in all investments in securities, there
is no assurance that these objectives will be achieved. The investment policies
and techniques employed in pursuit of the Funds' objectives may be changed
without shareholder approval, unless otherwise noted.
INSTITUTIONAL MONEY MARKET FUND
RULE 2A-7. Money Market Fund will be subject to the investment restrictions
of Rule 2a-7 under the Investment Company Act of 1940 in addition to its other
policies and restrictions discussed below. Rule 2a-7 requires that the Fund
invest exclusively in securities that mature within 397 days and that the Fund
maintain an average weighted maturity of not more than 90 days. Rule 2a-7 also
requires that all investments by the Fund be limited to United States
dollar-denominated investments that: (1) present "minimal credit risks," and (2)
are at the time of acquisition "Eligible Securities." Eligible Securities
include, among others, securities that are rated by two Nationally Recognized
Statistical Rating Organizations ("NRSROs") in one of the two highest categories
for short-term debt obligations, such as A-1 or A-2 by Standard & Poor's
Corporation ("Standard & Poor's") or P-1 or P-2 by Moody's Investors Service,
Inc. ("Moody's"). It is the responsibility of the Adviser to determine that the
Fund's investments present only "minimal credit risks" and are Eligible
Securities. The Funds' Board of Directors has established written guidelines and
procedures for the Adviser and oversees the Adviser's determination that Money
Market Fund's portfolio securities present only "minimal credit risks" and are
Eligible Securities.
Under Rule 2a-7, 95% of the assets of non-tax-exempt money funds (such as
Money Market Fund) must be invested in Eligible Securities that are deemed First
Tier Securities, which include, among others, securities rated by two NRSROs in
the highest category (such as A-1 and P-1). Rule 2a-7 requires that (1) a fund
may not invest more than 5% of its total assets in securities of a single
issuer, other than U.S. Government securities, (2) a fund may not invest more
than 5% of its total assets in Second Tier Securities (I.E., Eligible Securities
that are not First Tier Securities) and (3) a fund's investment in Second Tier
Securities of a single issuer may not exceed the greater of 1% of the fund's
total assets or $1,000,000.
INVESTMENT OBJECTIVE. Money Market Fund has an investment objective of
maximum current income consistent with preservation of capital and maintenance
of liquidity.
INVESTMENT POLICIES AND TECHNIQUES. Money Market Fund will invest only in
U.S. Government Securities (as defined below) and in repurchase agreements and
reverse repurchase agreements with respect to such securities. See "Special
Investment Methods -- Repurchase Agreements" and "-- Reverse Repurchase
Agreements." The Fund will purchase only those securities with a remaining
effective maturity of 397 calendar days or less on the date of purchase and will
maintain a dollar-weighted average maturity of its portfolio of 90 days or less.
U.S. Government Securities are obligations issued or guaranteed as to
payment of principal and interest by the U.S. Government or its agencies or
instrumentalities. These securities include direct obligations of the U.S.
Treasury, such as U.S. Treasury bills, notes and bonds, and obligations of U.S.
Government agencies or instrumentalities, including, but not limited to, Federal
Home Loan Banks, the Farmers Home Administration, Federal Farm Credit Banks, the
Federal National Mortgage Association, the Government National Mortgage
Association, the Federal Home Loan Mortgage Corporation, the Financing
Corporation and the Student Loan Marketing Association. Obligations of
7
<PAGE>
U.S. Government agencies or instrumentalities are backed in a variety of ways by
the U.S. Government or its agencies or instrumentalities. Some of these
obligations, such as Government National Mortgage Association mortgage-backed
securities, are backed by the full faith and credit of the U.S. Treasury.
Others, such as those of the Federal Home Loan Banks, are backed by the right of
the issuer to borrow from the Treasury. Still others, such as those issued by
the Federal National Mortgage Association, are backed by the discretionary
authority of the U.S. Government to purchase certain obligations of the agency
or instrumentality. Other obligations may be backed by an irrevocable letter of
credit of an agency or instrumentality of the U.S. Government. Finally,
obligations of other agencies or instrumentalities are only backed by the credit
of the agency or instrumentality issuing the obligations.
INSTITUTIONAL GOVERNMENT ADJUSTABLE PORTFOLIO
INVESTMENT OBJECTIVE. Adjustable Portfolio has an investment objective of
high current income consistent with low principal volatility. Despite the Fund's
investment objective of low principal volatility, investors should expect some
fluctuation in the net asset value of their shares. See "Investment Risks"
below.
INVESTMENT POLICIES AND TECHNIQUES. Adjustable Portfolio, under normal
conditions, will seek to achieve its investment objective by investing primarily
(at least 65% of its total assets) in a portfolio of Mortgage-Backed Securities
(as defined herein) having adjustable interest rates which reset at periodic
intervals ("adjustable rate mortgage securities" or "ARMS") and which are U.S.
Government Securities, as defined above under "Investment Objectives and
Policies -- Institutional Money Market Fund." ARMS include both pass-through
securities representing interests in adjustable rate mortgage loans and floating
rate collateralized mortgage obligations. The balance of the Fund's assets (up
to 35% of total assets) may be invested in ARMS issued by private organizations,
Mortgage-Backed Securities other than ARMS, other types of U.S. Government
Securities, Canadian Government Securities, Foreign Index Linked Instruments and
Corporate Debt Securities. Investments in each of Canadian Government
Securities, Foreign Index Linked Instruments and Corporate Debt Securities are
limited to 10% of total assets. Securities in which Adjustable Portfolio invests
(other than U.S. Government Securities) must be rated, as of the date of
purchase, AAA or better by Standard & Poor's or, if unrated, be of a comparable
quality as determined by the Adviser. In the event that a security held by
Adjustable Portfolio is downgraded to a rating below AAA or, if unrated, is no
longer of a quality comparable to a security rated AAA, as determined by the
Adviser, the Fund will sell such a security as promptly as possible. For a
discussion of Standard & Poor's ratings, see Appendix A to the Statement of
Additional Information.
The Fund may engage in options and financial futures transactions which
relate to the securities in which it invests, may engage in foreign currency
exchange transactions with respect to its investments in Canadian Government
Securities, may enter into interest rate swaps and purchase and sell interest
rate caps and floors, may purchase or sell securities on a when-issued or
forward commitment basis, including the use of mortgage dollar rolls, and may
lend its portfolio securities. The Fund's investments in options and futures
contracts will not be included in the 65% of total assets that must be invested
in ARMS which are U.S. Government Securities, even if they relate to such
securities. For temporary defensive purposes, the Fund may invest without
limitation in cash or in high-quality debt securities with remaining maturities
of one year or less. Such securities may include (a) commercial paper rated A-1+
by Standard & Poor's, (b) certificates of deposit, time deposits and bankers'
8
<PAGE>
acceptances with any bank the unsecured commercial paper of which is rated A-1+
by Standard & Poor's (or, in the case of the principal bank in a bank holding
company, the unsecured commercial paper of the bank holding company), and (c)
U.S. Government Securities.
INVESTMENT RISKS. Adjustable Portfolio is subject to certain risks which
could result in fluctuation of the net asset value of the Fund's shares. The
Fund is subject to interest rate risk, which is the potential for a decline in
bond prices due to rising interest rates. In general, bond prices vary inversely
with interest rates. When interest rates rise, bond prices generally fall.
Conversely, when interest rates fall, bond prices generally rise. Although the
ARMS in the Fund's portfolio should generally be more resistant to price swings
than other debt securities because the interest rates of ARMS move with market
interest rates, the adjustable rate feature of ARMS will not eliminate price
fluctuations. See "Adjustable Rate Mortgage Securities -- Interest Rate Risk"
below. The Fund's investments in ARMS and other Mortgage-Backed Securities are
also subject to prepayment risk. See "Adjustable Rate Mortgage Securities --
Prepayment Risk" below. In addition, the Fund is subject to credit risk to the
extent it invests in non-U.S. Government securities. Credit risk, also known as
default risk, is the possibility that a bond issuer will fail to make timely
payments of interest or principal. These and other risks of Adjustable
Portfolio's investments are described in detail below.
Adjustable Portfolio's investments in mortgage-related securities include
derivative mortgage securities such as collateralized mortgage obligations and
stripped mortgage-backed securities which may involve risks in addition to those
found in other mortgage-related securities. Recent market experience has shown
that certain derivative mortgage securities may be highly sensitive to changes
in interest and prepayment rates and, as a result, the prices of such securities
may be highly volatile. In addition, recent market experience has shown that
during periods of rising interest rates, the market for certain derivative
mortgage securities may become more unstable and such securities may become more
difficult to sell as market makers choose not to repurchase such securities or
offer prices, based on current market conditions, which are unacceptable to
Adjustable Portfolio.
Adjustable Portfolio also may engage in investment practices which involve
certain special risks. See "Special Investment Methods" below. The use of these
investment practices may increase the volatility of Adjustable Portfolio's net
asset value.
ADJUSTABLE RATE MORTGAGE SECURITIES
U.S. GOVERNMENT MORTGAGE PASS-THROUGH SECURITIES. Adjustable Portfolio may
invest in ARMS which are "pass-through" securities issued or guaranteed by the
U.S. Government or one of its agencies or instrumentalities ("U.S. Government
Pass-Throughs"). Pass-through securities constituting ARMS represent ownership
interests in underlying pools of adjustable rate mortgage loans originated by
private lenders. Such securities differ from conventional debt securities, which
provide for periodic payment of interest in fixed amounts (usually
semi-annually) and principal payments at maturity or on specified call dates, in
that pass-through securities provide for monthly payments that are a
pass-through of the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees paid to the guarantor of such securities and the servicers of the
underlying mortgage loans.
The U.S. Government Pass-Throughs in which Adjustable Portfolio may invest
are issued or guaranteed by the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA") and the Federal
Home Loan Mortgage Corporation ("FHLMC"). Each of GNMA, FNMA and FHLMC guarantee
timely distributions of interest to securities holders. GNMA and FNMA also
guarantee timely distribution of scheduled principal. FHLMC generally
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guarantees only ultimate collection of principal on the underlying loans, which
collection may take up to one year. GNMA is a wholly owned corporate
instrumentality of the U.S. Government within the Department of Housing and
Urban Development and its guarantee is backed by the full faith and credit of
the U.S. Government. FNMA and FHLMC are federally chartered corporations and
their respective guarantees are not backed by the full faith and credit of the
U.S. Government.
The mortgages underlying ARMS issued by GNMA are fully guaranteed by the
Federal Housing Administration ("FHA") or Veterans Administration ("VA"). The
mortgages underlying ARMS issued by FNMA or FHLMC may be backed by conventional
adjustable rate mortgages not guaranteed by FHA or VA.
PRIVATE MORTGAGE PASS-THROUGH SECURITIES. Private Mortgage Pass-Through
Securities ("Private Pass-Throughs") are structured similarly to the GNMA, FNMA
and FHLMC mortgage pass-through securities described above and are issued by
originators of and investors in mortgage loans, including savings and loan
associations, mortgage bankers, commercial banks, investment banks and special
purpose subsidiaries of the foregoing. Private Pass-Throughs constituting ARMS
are backed by a pool of conventional adjustable rate mortgage loans. Since
Private Pass-Throughs are not guaranteed by an entity having the credit status
of GNMA, FNMA or FHLMC, such securities generally are structured with one or
more types of credit enhancement. See "Investment Objectives, Policies and
Restrictions -- Mortgage-Backed Securities -- Credit Support" in the Statement
of Additional Information.
CMOS AND MULTI-CLASS PASS-THROUGH SECURITIES. ARMS in which Adjustable
Portfolio may invest also include adjustable rate tranches of collateralized
mortgage obligations and multi-class pass-through securities, which are
derivative mortgage securities. Collateralized mortgage obligations are debt
instruments issued by special purpose entities which are secured by pools of
mortgage loans or other Mortgage-Backed Securities. Multi-class pass-through
securities are equity interests in a trust composed of mortgage loans or other
Mortgage-Backed Securities. Payments of principal and interest on underlying
collateral provide the funds to pay debt service on the collateralized mortgage
obligation or make scheduled distributions on the multi-class pass-through
security. Collateralized mortgage obligations and multi-class pass-through
securities (collectively "CMOs" unless the context indicates otherwise) may be
issued by agencies or instrumentalities of the U.S. Government or by private
organizations.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMO, often referred to as a "tranche," is issued at a specified
coupon rate and has a stated maturity or final distribution date. Principal
prepayments on collateral underlying a CMO may cause it to be retired
substantially earlier than the stated maturities or final distribution dates.
The principal and interest on the mortgages underlying a CMO may be
allocated among the CMO's tranches in many ways. See "Mortgage-Backed Securities
- -- CMOs," below. One or more tranches of a CMO may have coupon rates which reset
periodically at a specified increment over an index such as the London Interbank
Offered Rate ("LIBOR"). These adjustable rate tranches, known as "floating rate
CMOs," will be considered as ARMS by Adjustable Portfolio. Floating rate CMOs
may be backed by fixed rate or adjustable rate mortgages; to date, fixed rate
mortgages have been more commonly utilized for this purpose. Floating rate CMOs
are typically issued with lifetime caps on the coupon rate thereon. These caps,
similar to the caps on adjustable rate mortgages, represent a
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ceiling beyond which the coupon rate on a floating rate CMO may not be increased
regardless of increases in the interest rate index to which the floating rate
CMO is geared, which may cause the security to be valued at a greater discount
than if the security was not subject to a ceiling.
HOW INTEREST RATES ARE SET. The interest rates on ARMS are reset at
periodic intervals (generally one year or less) to an increment over some
predetermined interest rate index. There are two main categories of indices:
those based on U.S. Treasury securities and those derived from a calculated
measure such as a cost of funds index or a moving average of mortgage rates.
Commonly utilized indices include the one-year and five-year constant maturity
Treasury note rates, the three-month Treasury bill rate, the 180-day Treasury
bill rate, rates on longer-term Treasury securities, the 11th District Federal
Home Loan Bank Cost of Funds Index, the National Median Cost of Funds, the one-
month or three-month LIBOR, the prime rate of a specific bank, or commercial
paper rates. Some indices, such as the one-year constant maturity Treasury note
rate, closely mirror changes in market interest rate levels. Others, such as the
11th District Home Loan Bank Cost of Funds Index (often related to ARMS issued
by FNMA), tend to lag changes in market rate levels and tend to be somewhat less
volatile. The Adviser will seek to diversify Adjustable Portfolio's investments
in ARMS among a variety of indices and reset periods to reduce the Fund's
exposure to the risk of interest rate fluctuations. In selecting a type of ARMS
for investment, the Adviser will also consider the liquidity of the market for
such ARMS.
The underlying adjustable rate mortgages which back ARMS in which Adjustable
Portfolio invests will frequently have caps and floors which limit the maximum
amount by which the loan rate to the residential borrower may change up or down
(1) per reset or adjustment interval and (2) over the life of the loan. Some
residential adjustable rate mortgage loans restrict periodic adjustments by
limiting changes in the borrower's monthly principal and interest payments
rather than limiting interest rate changes. These payment caps may result in
negative amortization; i.e., increase in the balance of the mortgage loan.
Floating rate CMOs are generally backed by fixed rate mortgages and generally
have lifetime caps on the coupon rate thereon.
INTEREST RATE RISK. The values of ARMS, like other debt securities,
generally vary inversely with changes in market interest rates (increasing in
value during periods of declining interest rates and decreasing in value during
periods of increasing interest rates); however, the values of ARMS should
generally be more resistant to price swings than other debt securities because
the interest rates of ARMS move with market interest rates. The adjustable rate
feature of ARMS will not, however, eliminate fluctuations in the prices of ARMS,
particularly during periods of extreme fluctuations in interest rates. Also,
since many adjustable rate mortgages only reset on an annual basis, it can be
expected that the prices of ARMS will fluctuate to the extent that changes in
prevailing interest rates are not immediately reflected in the interest rates
payable on the underlying adjustable rate mortgages.
PREPAYMENT RISK. ARMS, like other Mortgage-Backed Securities, differ from
conventional bonds in that principal is paid back over the life of the ARMS
rather than at maturity. As a result, the holder of the ARMS (I.E., Adjustable
Portfolio) receives monthly scheduled payments of principal and interest, and
may receive unscheduled principal payments representing prepayments on the
underlying mortgages. When the holder reinvests the payments and any unscheduled
prepayments of principal it receives, it may receive a rate of interest which is
lower than the rate on the existing ARMS. For this reason, ARMS are less
effective than longer-term debt securities as a means of "locking-in" long-term
interest rates.
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ARMS, while having less risk of price decline during periods of rapidly
rising rates than other investments of comparable maturities, will have less
potential for capital appreciation due to the likelihood of increased
prepayments of mortgages as interest rates decline. In addition, to the extent
ARMS are purchased at a premium, mortgage foreclosures and unscheduled principal
prepayments will result in a loss of some or all of the premium paid. On the
other hand, if ARMS are purchased at a discount, both a scheduled payment of
principal and an unscheduled prepayment of principal will increase current and
total returns and will accelerate the recognition of income which, when
distributed to shareholders, will be taxable as ordinary income.
MORTGAGE-BACKED SECURITIES
In addition to ARMS, Adjustable Portfolio may invest in other types of
Mortgage-Backed Securities. Mortgage-Backed Securities are securities which
represent interests in or are collateralized by mortgages. Such securities are
issued by GNMA, FNMA, FHLMC and by private organizations and take the same
structure as ARMS, i.e., pass-through securities and CMOs. Adjustable Portfolio
may invest in any type of Mortgage-Backed Security, including traditional fixed
rate Mortgage-Backed Securities and more recently developed instruments such as
Stripped Mortgage-Backed Securities and CMOs. Adjustable Portfolio may also
invest in Mortgage-Backed Securities backed by fixed rate mortgages and, in
conjunction therewith, pursuant to an interest rate swap, exchange its right to
receive payments at fixed rates of interest for floating rate payments. The
intended net effect of the transaction would be the creation of a security with
the economic characteristics of an adjustable rate mortgage security. Such
"synthetic ARMS" will not be considered as ARMS for purposes of the requirement
that the Fund invest at least 65% of its total assets in ARMS.
Adjustable Portfolio's investments in Mortgage-Backed Securities other than
ARMS, together with its investments in ARMS issued by private organizations,
U.S. Government Securities other than ARMS and Mortgage-Backed Securities, and
Canadian Government Securities, are limited to 35% of its total assets.
CMOS. As discussed above, Adjustable Portfolio's investments in ARMS
include floating rate CMOs. Adjustable Portfolio's investments in
Mortgage-Backed Securities other than ARMS may include any other tranche of a
CMO, provided that Adjustable Portfolio may not invest in the residual interests
of CMOs.
The principal and interest on the mortgages underlying a CMO may be
allocated among the CMO's several tranches in many ways. For example, certain
tranches may have variable or floating interest rates and others may be stripped
securities which provide only the principal or interest feature of the
underlying security. See "Stripped Mortgage-Backed Securities," below.
Generally, the purpose of the allocation of the cash flow of a CMO to the
various tranches is to obtain a more predictable cash flow to certain of the
individual tranches than exists with the underlying collateral of the CMO. As a
general rule, the more predictable the cash flow is on a CMO tranche, the lower
the anticipated yield will be on that tranche at the time of issuance relative
to prevailing market yields on mortgage-related securities. As part of the
process of creating more predictable cash flows on most of the tranches of a
CMO, one or more tranches generally must be created that absorb most of the
volatility in the cash flows on the underlying mortgage loans. The yields on
these tranches are generally higher than prevailing market yields on
mortgage-related securities with similar maturities. However, as a result of the
uncertainty of the cash flows of these tranches, market prices and yields may be
more volatile than for other CMO tranches. The more volatile CMO tranches
include inverse floaters, IOs, POs and Z tranches, discussed below.
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Adjustable Portfolio's investments in CMO tranches may include "inverse
floaters" and "Z tranches." An inverse floater is a CMO tranche with a coupon
rate that moves inversely to a designated index, such as LIBOR or COFI (Cost of
Funds Index). Like most other fixed-income securities, the value of inverse
floaters will decrease as interest rates increase and increase as interest rates
decrease. Inverse floaters, however, may exhibit greater price volatility with
changes in interest rates than the majority of mortgage pass-through securities
or CMOs. Coupon rates on inverse floaters typically change at a multiple of the
changes in the relevant index rate. Thus, any rise in the index rate (as a
consequence of an increase in interest rates) causes a correspondingly greater
drop in the coupon rate of an inverse floater while any drop in the index rate
causes a correspondingly greater increase in the coupon of an inverse floater.
Some inverse floaters also exhibit extreme sensitivity to changes in
prepayments.
Z tranches of CMOs defer interest and principal payments until one or more
other classes of the CMO have been paid in full. Interest accretes on the Z
tranche, being added to principal, and is compounded through the accretion
period. After the other classes have been paid in full, interest payments begin
and continue through maturity. Z tranches have characteristics similar to zero
coupon bonds. See "Zero Coupon Treasury Securities," below. Like a zero coupon
bond, during its accretion period a Z tranche has the advantage of eliminating
the risk of reinvesting interest payments at lower rates during a period of
declining market interest rates. At the same time, however, and also like a zero
coupon bond, the market value of a Z tranche can be expected to fluctuate more
widely with changes in market interest rates than would the market value of a
tranche which pays interest currently. In addition, changes in prepayment rates
on the underlying mortgage loans will affect the accretion period of a Z
tranche, and therefore also are likely to influence its market value.
STRIPPED MORTGAGE-BACKED SECURITIES. Adjustable Portfolio's investments in
Mortgage-Backed Securities other than ARMS may include Stripped Mortgage-Backed
Securities ("SMBS"), which are derivative multi-class mortgage securities. SMBS
may be issued by agencies or instrumentalities of the U.S. Government or by
private originators of, or investors in, mortgage loans, including savings and
loan associations, mortgage bankers, commercial banks, investment banks and
special purpose subsidiaries of the foregoing.
There are generally two types of classes of SMBS, one of which (the interest
only or "IO" class) entitles the holders thereof to receive distributions
consisting solely or primarily of all or a portion of the interest on the
underling pool of mortgage loans or Mortgage-Backed Securities ("Mortgage
Assets") and the other of which (the principal only or "PO" class) entitles the
holders thereof to receive distributions consisting solely or primarily of all
or a portion of the principal of the underlying pool of Mortgage Assets. IOs and
POs issued by the U.S. Government or its agencies and instrumentalities may be
determined to be liquid pursuant to procedures adopted by the Board of
Directors. Otherwise, Adjustable Portfolio will treat IOs and POs as illiquid
and subject to Adjustable Portfolio's restriction of investing no more than 15%
of its net assets in illiquid securities. See "Special Investment Methods --
Illiquid Securities."
The cash flows and yields on IO and PO classes are extremely sensitive to
the rate of principal payments (including prepayments) on the related underlying
Mortgage Assets. For example, a rapid or slow rate of principal payments will
have a material adverse effect on the yield to maturity of IOs or POs,
respectively. If the underlying Mortgage Assets experience greater than
anticipated prepayments of principal, an investor in an IO class may incur
substantial losses, even if the IO class is rated AAA.
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Conversely, if the underlying Mortgage Assets experience slower than anticipated
prepayments of principal, the yield on a PO class will be affected more severely
than would be the case with a traditional Mortgage-Backed Security.
Under the Internal Revenue Code, Adjustable Portfolio will be required to
accrue a portion of the original issue discount on a PO as income each year even
though Adjustable Portfolio receives no cash distribution on the security during
the year.
RISKS OF MORTGAGE-BACKED SECURITIES. Mortgage-Backed Securities (other than
ARMS) are subject generally to the same risks as ARMS; however, such other
Mortgage-Backed Securities can be expected to be affected to a greater extent
than ARMS by fluctuating interest rates and prepayments and to have different
yield characteristics, due to the fact that fixed rate rather than adjustable
rate mortgages underlie such securities. Generally, prepayments on fixed rate
mortgages will increase during a period of falling interest rates and decrease
during a period of rising interest rates. Accordingly, amounts available for
reinvestment are likely to be greater during a period of declining interest
rates than during a period of rising interest rates and the yield on the
securities in which such amounts are reinvested is likely to be lower than the
yield on the securities that were prepaid or the yield that could be achieved if
such amounts were reinvested during a period of rising interest rates. If
Adjustable Portfolio purchases Mortgage-Backed Securities at a premium, a
prepayment rate that is faster than expected will reduce both the market value
and the yield to maturity from that which was anticipated, while a prepayment
rate that is slower than expected will have the opposite effect of increasing
yield to maturity and market value. Conversely, if Adjustable Portfolio
purchases Mortgage-Backed Securities at a discount, faster than expected
prepayments will increase, while slower than expected prepayments will reduce,
yield to maturity and market value. Mortgage-Backed Securities may decrease in
value as a result of increases in interest rates and may benefit less than other
fixed income securities from declining interest rates because of the risk of
prepayment.
Mortgage-Backed Securities derive their value from underlying pools of
mortgages and, as such, could be considered "derivative" securities. Certain
derivative mortgage securities, such as the more volatile CMO tranches and
Stripped Mortgage-Backed Securities, discussed above, may involve risks in
addition to those found in other Mortgage-Backed Securities. Recent market
experience has shown that certain derivative mortgage securities may be highly
sensitive to changes in interest and prepayment rates and, as a result, the
prices of such securities may be highly volatile. In addition, recent market
experience has shown that during periods of rising interest rates, the market
for certain derivative mortgage securities may become more unstable and such
securities may become more difficult to sell as market makers either choose not
to repurchase such securities or offer prices, based on current market
conditions, which are unacceptable to Adjustable Portfolio.
ZERO COUPON TREASURY SECURITIES
Adjustable Portfolio may invest in "zero coupon" Treasury securities which
are U.S. Treasury bills, notes and bonds which have been stripped of their
unmatured interest coupons and receipts or certificates representing interests
in such stripped debt obligations and coupons. A zero coupon security pays no
interest to its holder during its life. Its value to an investor consists of the
difference between its face value at the time of maturity and the price for
which it was acquired, which is generally an amount significantly less than its
face value (sometimes referred to as a "deep discount" price).
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Currently U.S. Treasury securities issued without coupons include Treasury
bills and Treasury STRIPS. In addition, a number of banks and brokerage firms
separate the principal portions from the coupon portions of U.S. Treasury bonds
and notes and sell them separately in the form of receipts or certificates
representing undivided interests in these instruments (which instruments are
generally held by a bank in a custodial or trust account). Such securities are
currently not deemed by the Fund to be U.S. Government Securities but rather
securities issued by the bank or brokerage firm involved.
Zero coupon Treasury securities do not entitle the holder to any periodic
payments of interest prior to maturity. Accordingly, those securities usually
trade at a deep discount from their face or par value and will be subject to
greater fluctuations of market value in response to changing interest rates than
debt obligations of comparable maturities which make current distributions of
interest. In certain circumstances, Adjustable Portfolio could fail to recoup
its initial investment in those securities. Current federal tax law requires
that a holder (such as Adjustable Portfolio) of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year
even though Adjustable Portfolio receives no interest payment in cash on the
security during the year. In addition, as a registered investment company,
Adjustable Portfolio will be required to distribute this income to shareholders.
See "Dividends, Distributions and Tax Status." These distributions will be made
from the Fund's cash assets or, if necessary, from the proceeds of sales of
portfolio securities. Adjustable Portfolio will not be able to purchase
additional income producing securities with cash used to make such
distributions, and the Fund's current income ultimately may be reduced as a
result.
CANADIAN GOVERNMENT SECURITIES
Adjustable Portfolio may invest up to 10% of its total assets in Canadian
Government Securities. Canadian Government Securities are debt securities issued
or guaranteed by the Canadian federal government, Canadian provincial
governments and political subdivisions, agencies or instrumentalities thereof.
The Adviser anticipates that the Fund's portfolio of Canadian Government
Securities will consist primarily of Mortgage-Backed Securities issued or
guaranteed by the Canadian government or an agency or instrumentality thereof.
Investing in Canadian Government Securities involves considerations and possible
risks not typically associated with investing in U.S. securities, including
possible application of Canadian tax laws (including possible future withholding
taxes), potential difficulties in enforcing contractual obligations, changes in
governmental administrations or economic or monetary policy (in this country or
Canada) or changed circumstances in dealing between the United States and
Canada. Canadian brokerage commissions may be higher than those in the United
States and Canadian securities markets may be less liquid, more volatile and
less subject to governmental supervision than those in the United States.
The value of Adjustable Portfolio's investments denominated in Canadian
dollars could be adversely affected by a decline in the value of the Canadian
dollar relative to the U.S. dollar. In connection with such investments, the
Fund may from time to time enter into foreign exchange transactions, currency
forward and futures contracts and foreign currency options. These investment
techniques, and the risks incident thereto, are explained in Appendix A to this
Prospectus.
FOREIGN INDEX LINKED INSTRUMENTS
Adjustable Portfolio may invest up to 10% of its total assets in Foreign
Index Linked Instruments. Foreign Index Linked Instruments are fixed income
securities which are issued by U.S. issuers (including U.S. subsidiaries of
foreign issuers) and are denominated in U.S. dollars but return principal and/or
pay interest to investors in amounts which are linked to the level of a
particular foreign index. Foreign Index Linked Instruments may offer higher
yields than comparable securities linked to
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purely domestic indices but also may be more volatile. Foreign Index Linked
Instruments are relatively recent innovations for which the market has not yet
been fully developed and, accordingly, they typically are less liquid than
comparable securities linked to purely domestic indices. In addition, the value
of Foreign Index Linked Instruments will be affected by fluctuations in foreign
exchange rates or in foreign interest rates, factors which do not typically bear
on the values of ARMS or most other securities in which the Fund invests. If the
Adviser is incorrect in its prediction as to the movements in the direction of
particular foreign currencies or foreign interest rates, the return realized by
the Fund on a Foreign Index Linked Instrument may be lower than if the Fund had
invested in a similarly rated domestic security. The skills needed to predict
foreign currency and foreign interest rates are different from those needed to
select domestic portfolio securities. Foreign currency gains and losses with
respect to Foreign Index Linked Instruments may affect the amount and timing of
income recognized by the Fund.
CORPORATE DEBT SECURITIES
Adjustable Portfolio may invest up to 10% of its total assets in Corporate
Debt Securities. Corporate Debt Securities are debt obligations of U.S.
corporations (other than ARMS or Mortgage-Backed Securities). The values of
Corporate Debt Securities typically will fluctuate in response to general
economic conditions, to changes in interest rates and, to a greater extent than
the values of ARMS or Mortgage-Backed Securities, to business conditions
affecting the specific industries in which the issuers are engaged. Corporate
Debt Securities will typically decrease in value of a result of increases in
interest rates.
Adjustable Portfolio may invest in certain types of Corporate Debt
Securities that have been issued with original issue discount or market
discount. An investment in such securities poses certain economic risks and may
have certain adverse cash flow consequences to the Fund.
NEW INSTRUMENTS
Investors should note that new types of ARMS, other Mortgage-Backed
Securities, hedging instruments and other securities in which Adjustable
Portfolio may invest are developed and marketed from time to time and that,
consistent with its investment limitations, Adjustable Portfolio expects to
invest in those securities and instruments that the Adviser believes may assist
the Fund in achieving its investment objective. Adjustable Portfolio will
provide written notice to shareholders in advance of investments to a
significant degree (I.E., in excess of 5% of the Fund's net assets) in any type
of security other than the types disclosed in this Prospectus.
SPECIAL INVESTMENT METHODS
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with respect to U.S.
Government Securities. A repurchase agreement involves the purchase by a Fund of
securities with the condition that after a stated period of time the original
seller (a member bank of the Federal Reserve System or a recognized securities
dealer) will buy back the same securities ("collateral") at a predetermined
price or yield. Repurchase agreements involve certain risks not associated with
direct investments in securities. In the event the original seller defaults on
its obligation to repurchase, as a result of its bankruptcy or otherwise, the
Fund will seek to sell the collateral, which action could involve costs or
delays. In such case, the Fund's ability to dispose of the collateral to recover
such investment may be restricted or delayed. While collateral will at all times
be maintained in an amount equal to the repurchase price under the agreement
(including accrued interest due thereunder), to the extent proceeds from the
sale
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of collateral were less than the repurchase price, a Fund would suffer a loss.
In the event of a seller's bankruptcy, a Fund might be delayed in, or prevented
from, selling the collateral to the Fund's benefit. Repurchase agreements
maturing in more than seven days are considered illiquid and subject to each
Fund's restriction on investing in illiquid securities. See "Illiquid
Securities," below.
REVERSE REPURCHASE AGREEMENTS
Each Fund may engage in "reverse repurchase agreements" with banks and
securities dealers. Reverse repurchase agreements are ordinary repurchase
agreements in which the Fund is the seller of, rather than the investor in,
securities and agrees to repurchase them at an agreed upon time and price. Use
of a reverse repurchase agreement may be preferable to a regular sale and later
repurchase of the securities because it avoids certain market risks and
transactions costs. Because certain of the incidents of ownership of the
security are retained by the Fund, reverse repurchase agreements are considered
a form of borrowing by the Fund from the buyer, collateralized by the security.
At the time the Fund enters into a reverse repurchase agreement, cash, U.S.
Government Securities or other liquid high-grade debt obligations having a value
sufficient to make payments for the securities to be repurchased will be
segregated, and will be maintained throughout the period of the obligation.
Reverse repurchase agreements 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 the Fund's portfolio. Money borrowed for
leveraging will be subject to interest costs which could possibly exceed
interest income earned by the Fund on the investment of such borrowed money, and
therefore could adversely affect yield. No more than 25% of the total assets of
Adjustable Portfolio and 5% of the net assets of Money Market Fund will be
subject to reverse repurchase agreements.
BORROWING
Each Fund may borrow money from banks for temporary or emergency purposes in
an amount up to one-third of the value of its total assets in order to meet
redemption requests without immediately selling any of its portfolio securities.
Reverse repurchase agreements are not included in this limitation. If, for any
reason, the current value of either Fund's total assets falls below an amount
equal to three times the amount of its indebtedness from money borrowed, such
Fund will, within three days, reduce its indebtedness to the extent necessary.
To do this, the Fund may have to sell a portion of its investments at a time
when it may be disadvantageous to do so. Interest paid by a Fund on borrowed
funds would decrease the net earnings of that Fund. Neither Fund will purchase
portfolio securities while outstanding borrowings (other than reverse repurchase
agreements) exceed 5% of the value of the Fund's total assets. Each Fund may
mortgage, pledge or hypothecate its assets to secure permitted temporary or
emergency borrowing. The policies set forth in this paragraph are fundamental
and may not be changed with respect to a Fund without the approval of a majority
of that Fund's shares.
WHEN-ISSUED SECURITIES
Adjustable Portfolio may purchase securities on a "when-issued" basis and
may purchase or sell securities on a "forward commitment" basis. When such
transactions are negotiated, the price is fixed at the time the commitment is
made, but delivery and payment for the securities take place at a later date.
Adjustable Portfolio will not accrue income with respect to when-issued or
forward commitment securities prior to their stated delivery date. Pending
delivery of the securities, the Fund maintains in a segregated account cash or
liquid high-grade debt obligations in an amount sufficient to meet its purchase
commitments. The Fund will likewise segregate securities it sells on a forward
commitment basis.
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The purchase of securities on a when-issued or forward commitment basis
exposes Adjustable Portfolio to risk because the securities may decrease in
value prior to their delivery. Purchasing securities on a when-issued or forward
commitment basis involves the additional risk that the return available in the
market when the delivery takes place will be higher than that obtained in the
transaction itself. The Fund's purchase of securities on a when-issued or
forward commitment basis while remaining substantially fully invested increases
the amount of the Fund's assets that are subject to market risk to an amount
that is greater than the Fund's net asset value, which could result in increased
volatility of the price of the Fund's shares.
MORTGAGE DOLLAR ROLLS
In connection with its ability to purchase securities on a when-issued or
forward commitment basis, Adjustable Portfolio may enter into mortgage "dollar
rolls" in which the Fund sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase similar (same
type, coupon and maturity) but not identical securities on a specified future
date. The Fund gives up the right to receive principal and interest paid on the
securities sold. However, the Fund would benefit to the extent of any difference
between the price received for the securities sold and the lower forward price
for the future purchase plus any fee income received. Unless such benefits
exceed the income, capital appreciation and gain or loss due to mortgage
prepayments that would have been realized on the securities sold as part of the
mortgage dollar roll, the use of this technique will diminish the investment
performance of the Fund compared with what such performance would have been
without the use of mortgage dollar rolls. Adjustable Portfolio will hold and
maintain in a segregated account until the settlement date cash or liquid
high-grade debt securities in an amount equal to the forward purchase price. The
benefits derived from the use of mortgage dollar rolls may depend upon the
Adviser's ability to predict correctly mortgage prepayments and interest rates.
There is no assurance that mortgage dollar rolls can be successfully employed.
In addition, the use of mortgage dollar rolls by the Fund while remaining
substantially fully invested increases the amount of the Fund's assets that are
subject to market risk to an amount that is greater than the Fund's net asset
value, which could result in increased volatility of the price of the Fund's
shares.
For financial reporting and tax purposes, Adjustable Portfolio treats
mortgage dollar rolls as two separate transactions: one involving the purchase
of a security and a separate transaction involving a sale. The Fund does not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.
No more than one-third of Adjustable Portfolio's total assets may be
committed to the purchase of securities on a when-issued or forward commitment
basis, including mortgage dollar roll purchases.
LENDING OF PORTFOLIO SECURITIES
In order to generate income, Adjustable Portfolio may lend portfolio
securities up to one-third of the value of its total assets to broker-dealers,
banks or other financial borrowers of securities. As with other extensions of
credit, there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However, the
Fund will only enter into loan arrangements with broker-dealers, banks or other
institutions which the Adviser has determined are creditworthy under guidelines
established by the Fund's Board of Directors and will receive collateral in the
form of cash, U.S. Government Securities or other high-grade debt obligations
equal to at least 100% of the value of the securities loaned. The value of the
collateral and of the securities loaned will be marked to market on a daily
basis. During the time portfolio securities are on loan, the borrower pays the
Fund an amount equivalent to any interest paid on the securities and the Fund
may invest
18
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the cash collateral and earn income or may receive an agreed upon amount of
interest income from the borrower. However, the amounts received by the Fund may
be reduced by finders' fees paid to broker-dealers. Collateral (including any
securities purchased with cash collateral) will be maintained by the Fund's
custodian in a segregated account.
INTEREST RATE TRANSACTIONS
To preserve a return or spread on a particular investment or portion of its
portfolio, to create synthetic adjustable rate mortgage securities (see
"Investment Objective and Policies -- Institutional Government Adjustable
Portfolio -- Mortgage-Backed Securities") or for other non-speculative purposes,
Adjustable Portfolio may enter into interest rate swaps and may purchase or sell
interest rate caps and floors. The Fund does not intend to use these
transactions for speculative purposes. Interest rate swaps involve the exchange
by the Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments.
The purchase of an interest rate cap entitles the purchaser, to the extent a
specified index exceeds a predetermined interest rate, to receive payments of
interest on a contractually-based principal amount from the party selling such
interest rate cap. The purchase of an interest rate floor entitles the
purchaser, to the extent a specified index falls below a predetermined interest
rate, to receive payments of interest on a contractually-based principal amount
from the party selling such interest rate floor.
Adjustable Portfolio may enter into interest rate swaps, caps and floors on
either an asset-based or liability-based basis, depending upon whether it is
hedging its assets or its liabilities, and will usually enter into interest rate
swaps on a net basis, i.e., the two payment streams are netted out, with the
Fund receiving or paying, as the case may be, only the net amount of the two
payments. The net amount of the excess, if any, of the Fund's obligations over
its entitlements with respect to each interest rate swap will be accrued on a
daily basis and an amount of cash or high quality liquid securities having an
aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Fund's custodian. If the Fund enters
into an interest rate swap on other than a net basis, the Fund would maintain a
segregated account in the full amount accrued on a daily basis of the Fund's
obligations with respect to the swap. To the extent Adjustable Portfolio sells
(I.E., writes) caps and floors, it will maintain in a segregated account cash or
high quality liquid debt securities having an aggregate net asset value at least
equal to the full amount, accrued on a daily basis, of the Fund's obligations
with respect to any caps or floors. The Fund will not enter into any interest
rate swap, cap or floor transaction unless the unsecured senior debt or the
claims-paying ability of the other party thereto is rated at least AA by
Standard & Poor's. The Adviser will monitor the creditworthiness of
contra-parties on an ongoing basis. If there is a default by the other party to
such a transaction, the Fund will have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown substantially
in recent years with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized swap documentation. The
Adviser has determined that, as a result, the swap market has become relatively
liquid. Caps and floors are more recent innovations for which standardized
documentation has not yet been developed and, accordingly, they are less liquid
than swaps.
There is no limit on the amount of interest rate swap transactions that may
be entered into by Adjustable Portfolio. These transactions do not involve the
delivery of securities or other underlying assets or principal. Accordingly, the
risk of loss with respect to interest rate swaps is limited to the net amount of
interest payments that the Fund is contractually obligated to make. If the other
party to an interest rate swap defaults, the Fund's risk of loss consists of the
net amount of interest payments
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<PAGE>
that the Fund contractually is entitled to receive. The aggregate purchase price
of caps and floors held by the Fund may not exceed 5% of the Fund's total
assets. The Fund may sell (I.E., write) caps and floors without limitation,
subject to the segregated account requirement described above.
OPTIONS TRANSACTIONS
WRITING COVERED OPTIONS. Adjustable Portfolio may write (I.E., sell)
covered put and call options with respect to the securities in which it may
invest. By writing a call option, the Fund becomes obligated during the term of
the option to deliver the securities underlying the option upon payment of the
exercise price if the option is exercised. By writing a put option, the Fund
becomes obligated during the term of the option to purchase the securities
underlying the option at the exercise price if the option is exercised. With
respect to put options written by Adjustable Portfolio, there will have been a
predetermination that acquisition of the underlying security is in accordance
with the investment objective of the Fund.
The principal reason for writing call or put options is to obtain, through
the receipt of premiums, a greater current return than would be realized on the
underlying securities alone. The Fund receives premiums from writing call or put
options, which it retains whether or not the options are exercised. By writing a
call option, the Fund might lose the potential for gain on the underlying
security while the option is open, and by writing a put option the Fund might
become obligated to purchase the underlying security for more than its current
market price upon exercise.
PURCHASING OPTIONS. Adjustable Portfolio may purchase put options, solely
for hedging purposes, in order to protect portfolio holdings in an underlying
security against a substantial decline in the market value of such holdings
("protective puts"). Such protection is provided during the life of the put
because the Fund may sell the underlying security at the put exercise price,
regardless of a decline in the underlying security's market price. Any loss to
the Fund is limited to the premium paid for, and transaction costs paid in
connection with, the put plus the initial excess, if any, of the market price of
the underlying security over the exercise price. However, if the market price of
such security increases, the profit the Fund realizes on the sale of the
security will be reduced by the premium paid for the put option less any amount
for which the put is sold.
Adjustable Portfolio may also purchase call options solely for the purpose
of hedging against an increase in prices of securities that the Fund ultimately
wants to buy. Such protection is provided during the life of the call option
because the Fund may buy the underlying security at the call exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. By using call options in this manner, Adjustable Portfolio
will reduce any profit it might have realized had it bought the underlying
security at the time it purchased the call option by the premium paid for the
call option and by transaction costs.
Adjustable Portfolio may purchase and write exchange-traded put and call
options, and over-the-counter ("OTC") put and call options in negotiated
transactions with the writers of the options since options on many of the
portfolio securities held by the Fund are not traded on an exchange. The Fund
will purchase OTC options only from investment dealers and other financial
institutions (such as commercial banks or savings and loan associations) deemed
creditworthy by the Adviser.
OTC options are two-party contracts with price and terms negotiated between
buyer and seller. In contrast, exchange-traded options are third-party contracts
with standardized strike prices and expiration dates, and are purchased from a
clearing corporation. Exchange-traded options have a continuous liquid market
while OTC options may not. The staff of the SEC has taken the position that
20
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purchased OTC options and the assets used to "cover" written OTC options are
illiquid securities, provided that the entire amount of assets used to cover OTC
options written by Adjustable Portfolio will not be treated as illiquid in
certain circumstances, as set forth in the Statement of Additional Information.
Adjustable Portfolio will treat OTC options, to the extent set forth in the
Statement of Additional Information, as subject to the Fund's limitation on
investments in illiquid securities. See "Investment Restrictions," below.
For further information concerning the characteristics and risks of options
transactions, see "Investment Objectives, Policies and Restrictions -- Options"
in the Statement of Additional Information.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Adjustable Portfolio may enter into contracts for the purchase or sale for
future delivery of fixed-income securities or contracts based on financial
indices including any index of securities in which the Fund may invest ("futures
contracts"). A "sale" of a futures contract means the acquisition of a
contractual obligation to deliver the securities called for by the contract at a
specified price on a specified date. The purchaser of a futures contract on an
index agrees to take or make delivery of an amount of cash equal to the
difference between a specified dollar multiple of the value of the index on the
expiration date of the contract ("current contract value") and the price at
which the contract was originally struck. No physical delivery of the
fixed-income securities underlying the index is made. The futures contracts in
which the Fund may invest have been developed by and are traded on national
commodity exchanges.
The purpose of the acquisition or sale of a futures contract by Adjustable
Portfolio is to hedge against fluctuations in the value of its portfolio without
actually buying or selling securities. For example, if the Fund owns long-term
debt securities and interest rates are expected to increase, the Fund might sell
futures contracts. If interest rates did increase, the value of the debt
securities in the Fund's portfolio would decline, but the value of the Fund's
futures contracts would increase at approximately the same rate, thereby keeping
the net asset value of the Fund from declining as much as it otherwise would
have. If, on the other hand, the Fund held cash reserves and short-term
investments pending anticipated investment in long-term obligations and interest
rates were expected to decline, the Fund might purchase futures contracts for
U.S. Government Securities. Since the behavior of such contracts would generally
be similar to that of long-term securities, the Fund could take advantage of the
anticipated rise in the value of long-term securities without actually buying
them until the market had stabilized. At that time, the Fund could accept
delivery under the futures contracts or the futures contracts could be
liquidated and the Fund's reserves could then be used to buy long-term
securities in the cash market. The Fund will engage in such transactions only
for hedging purposes, on either an asset-based or a liability-based basis, in
each case in accordance with the rules and regulations of the Commodity Futures
Trading Commission. See Appendix B to the Statement of Additional Information.
Adjustable Portfolio may purchase and sell put and call options on futures
contracts and enter into closing transactions with respect to such options to
terminate existing positions. The Fund may use such options on futures contracts
in connection with its hedging strategies in lieu of purchasing and writing
options directly on the underlying securities or purchasing and selling the
underlying futures contracts.
There are risks in using futures contracts and options on futures contracts
as hedging devices. The primary risks associated with the use of futures
contracts and options thereon are (a) the prices of
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<PAGE>
futures contracts and options may not correlate perfectly with the market value
of the underlying security held by the Fund and (b) the possible lack of a
liquid secondary market for a futures contract and the resulting inability to
close a futures position prior to its maturity date. The risk that the Fund will
be unable to close out a futures position will be minimized by entering into
such transactions on a national exchange with an active and liquid secondary
market.
Additional information with respect to futures contracts and options on
futures contracts is set forth in Appendix B to the Statement of Additional
Information.
The effective use of futures contracts, options on futures contracts and the
other hedging techniques discussed above is dependent upon the Adviser's
judgment regarding interest rate movements and other economic factors. To the
extent that this judgment is incorrect, the Fund will be in a worse position
than if such hedging techniques had not been used.
ILLIQUID SECURITIES
Adjustable Portfolio may invest up to 15% of its net assets in illiquid
securities and Money Market Fund may invest up to 10% of its net assets in
illiquid securities. 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 than does the sale of securities
eligible for trading on national securities exchanges or in the over-the-counter
markets. A Fund may be restricted in its ability to sell such securities at a
time when the Adviser deems it advisable to do so. In addition, in order to meet
redemption requests, a Fund may have to sell other assets, rather than such
illiquid securities, at a time which is not advantageous.
"Restricted securities" are securities which were originally sold in private
placements and which have not been registered under the Securities Act of 1933
(the "1933 Act"). Such securities generally have been considered illiquid, since
they may be resold only subject to statutory restrictions and delays or if
registered under the 1933 Act. In 1990, however, the SEC adopted Rule 144A under
the 1933 Act, which provides a safe harbor exemption from the registration
requirements of the 1933 Act for resales of restricted securities to "qualified
institutional buyers," as defined in the rule. The result of this rule has been
the development of a more liquid and efficient institutional resale market for
restricted securities. Thus, restricted securities are no longer necessarily
illiquid. Neither Fund is subject to any limitation on its ability to invest in
securities simply because such securities are restricted. (Money Market Fund,
however, will invest only in U.S. Government Securities, which are not
considered restricted securities.) These securities will be treated as liquid
when they have been determined to be liquid by the Board of Directors of the
Funds or by the Adviser subject to the oversight of and pursuant to procedures
adopted by the Board of Directors. See "Investment Objectives, Policies and
Restrictions -- Illiquid Securities" in the Statement of Additional Information.
Similar determinations may be made with respect to commercial paper issued in
reliance upon the so-called "private placement" exemption from registration
under Section 4(2) of the 1933 Act and with respect to IO and PO classes of
Mortgage-Backed Securities issued by the U.S. Government or its agencies and
instrumentalities.
INVESTMENT RESTRICTIONS
Each Fund has adopted certain investment restrictions, which are set forth
in detail in the Statement of Additional Information under "Investment
Objectives, Policies and Restrictions." Certain of these restrictions are
fundamental and may not be changed without shareholder approval,
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<PAGE>
including the following: (1) Neither Fund will invest 25% or more of its total
assets in any one industry. (This restriction does not apply to securities of
the U.S. Government or its agencies and instrumentalities and repurchase
agreements relating thereto or to obligations of United States banks, domestic
branches thereof and United States branches of foreign banks subject to United
States regulation. The various types of utility companies, such as gas,
electric, telephone, telegraph, satellite and microwave communications
companies, are considered as separate industries.) (2) Neither Fund will, with
respect to 75% of its total assets, invest more than 5% of the value of its
total assets in the securities of any one issuer or acquire more than 10% of the
outstanding voting securities of an issuer, in each case other than securities
issued or guaranteed by the U.S. Government or any agency or instrumentality
thereof and securities of other investment companies.
Except with respect to each Fund's policy concerning borrowing, if a
percentage restriction set forth in this Prospectus is adhered to at the time of
an investment, a later increase or decrease in percentage resulting from changes
in values or assets will not constitute a violation of such restriction.
PORTFOLIO TURNOVER
While it is not the policy of Adjustable Portfolio to trade actively for
short-term profits, the Fund will dispose of securities without regard to the
time they have been held when such action appears advisable to the Adviser.
Frequent changes may result in higher transaction and other costs for the Fund.
The method of calculating portfolio turnover rate is set forth in the Statement
of Additional Information under "Investment Objectives, Policies and
Restrictions -- Portfolio Turnover." Portfolio turnover rates for Adjustable
Portfolio are set forth in "Financial Highlights."
MANAGEMENT
BOARD OF DIRECTORS
The Company's Board of Directors has the primary responsibility for
overseeing the overall management of the Company and electing its officers.
INVESTMENT ADVISER
Piper Capital Management Incorporated (the "Adviser") has been retained
under an Investment Advisory and Management Agreement with the Company to act as
the Funds' investment adviser subject to the authority of the Board of
Directors.
In addition to acting as the investment adviser for the Funds, the Adviser
also 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, 1995, the
Adviser rendered investment advice regarding approximately $9.4 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 furnishes each Fund with investment advice and, in general,
supervises the management and investment programs of the Funds. The Adviser
furnishes at its own expense all necessary administrative services, office
space, equipment and clerical personnel for servicing the investments of the
Funds. The Adviser also provides investment advisory facilities and executive
and supervisory personnel for managing the investments and effecting the
portfolio transactions of the Funds. In addition, the Adviser pays the salaries
and fees of all officers and directors of the Company who are affiliated with
the Adviser.
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Under the Investment Advisory and Management Agreement, the Adviser receives
a monthly fee computed separately for each Fund. Such fees are paid at an annual
rate of .15% and .30%, respectively, of the average daily net assets of Money
Market Fund and Adjustable Portfolio.
PORTFOLIO MANAGEMENT
Nancy S. Olsen has been primarily responsible for the day-to-day management
of Money Market Fund's portfolio since the Fund's inception in 1993. Ms. Olsen,
who joined the Adviser in 1987, is a Senior Vice President and fixed income
portfolio manager for the Adviser and directs the Adviser's cash reserve
management department. Ms. Olsen has an M.B.A. from the University of Minnesota.
Thomas S. McGlinch has been primarily responsible for the day-to-day
management of Adjustable Portfolio's investment portfolio since October 1994.
Mr. McGlinch is a vice president and fixed-income portfolio manager for the
Adviser. Prior to joining the Adviser in 1992, Mr. McGlinch was an institutional
mortgage-backed securities trader for Piper Jaffray Inc. during 1992. From 1988
to January 1992, Mr. McGlinch was a specialty products trader at FBS Investment
Services. He is a Chartered Financial Analyst ("C.F.A.") with an M.B.A. from the
University of St. Thomas.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND CUSTODIAN
Investors Fiduciary Trust Company ("IFTC"), 127 West Tenth Street, Kansas
City, Missouri 64105, (800) 874-6205, serves as Custodian for the Funds'
portfolio securities and cash and as Transfer Agent and Dividend Disbursing
Agent for the Funds.
The Company has entered into a Shareholder Account Servicing Agreement with
the Distributor pursuant to which the Distributor provides certain transfer
agent and dividend disbursing agent services for the underlying individual
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 selects brokers and futures commission merchants to use for the
Fund's portfolio transactions. In making its selection, the Adviser may consider
a number of factors, which are 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 either of the Funds' shares may also be considered a factor if the
Adviser is satisfied that a Fund would receive from that broker the most
favorable price and execution then available for a transaction. Portfolio
transactions for the Funds 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.
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SHAREHOLDER GUIDE TO INVESTING
HOW TO PURCHASE SHARES
GENERAL
The Funds' 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 Funds. 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
Shares of Money Market Fund are offered without a sales charge at the net
asset value per share next calculated after receipt of your order by your Piper
Jaffray Investment Executive or other broker-dealer. The net asset value per
share of such Fund is normally expected to be $1.00. See "Valuation of Shares".
Shares of Adjustable Portfolio are offered 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>
DEALER
SALES CHARGE AS SALES CHARGE AS CONCESSION AS
PERCENTAGE OF PERCENTAGE OF NET PERCENTAGE OF
AMOUNT OF TRANSACTION AT OFFERING PRICE OFFERING PRICE ASSET VALUE OFFERING PRICE
- ----------------------------------------------------- ----------------- ------------------- ---------------
<S> <C> <C> <C>
Less than $250,000................................... 1.00% 1.01% .75%
$250,000 but less than $500,000...................... .50% .50% .375%
$500,000 and over.................................... 0% 0% 0%
</TABLE>
The Adviser and/or 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, in connection with sales of Adjustable Portfolio of
$500,000 or more, Piper Jaffray Investment Executives and other broker-dealers
are paid an amount equal to .15% of the offering price of Fund shares purchased
by their clients. In addition, Piper Jaffray Investment Executives and other
broker-dealers receive ongoing payments for their servicing and/or maintenance
of shareholder accounts in an amount equal to .06% of the average daily net
assets of Money Market Fund attributable to shares sold by them and .15% of the
average daily net assets of Adjustable Portfolio attributable to shares sold by
them.
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.
MINIMUM INVESTMENTS
A minimum initial investment of $100,000 is required for each Fund. There is
no minimum for subsequent investments. The Distributor may waive the minimum
initial investment for clients of Piper Trust Company.
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SHAREHOLDER GUIDE TO INVESTING
REDUCING YOUR SALES CHARGE
Purchasers of Adjustable Portfolio 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 of Adjustable Portfolio may be reduced or
eliminated by aggregating your purchase with purchases of certain related
personal accounts. In addition, purchases made by members of certain organized
groups will be aggregated for purposes of determining sales charges. Sales
charges are calculated by adding the dollar amount of 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.
- 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 Adjustable Portfolio 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 the Piper funds that were sold with a sales
charge. 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 for Adjustable Portfolio 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 Piper
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SHAREHOLDER GUIDE TO INVESTING
funds 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.
SPECIAL PURCHASE PLANS
For more information on any of the following special purchase plans, contact
your Piper Jaffray Investment Executive or other broker-dealer.
PURCHASES BY PIPER JAFFRAY COMPANIES INC., ITS SUBSIDIARIES AND ASSOCIATED
PERSONS
Piper Jaffray Companies Inc. and its subsidiaries may buy shares of
Adjustable Portfolio without incurring a sales charge. The following persons
associated with such entities also may buy such shares without paying a sales
charge:
- Officers, directors and partners.
- Employees and retirees.
- Sales representatives.
- Spouses or children under the age of 21 of any of the above.
- Any trust, pension, profit-sharing or other benefit plan for any of the
above.
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 Adjustable Portfolio without incurring a sales charge.
PURCHASES BY OTHER INDIVIDUALS WITHOUT A SALES CHARGE
The following other individuals and entities also may buy shares of
Adjustable Portfolio without paying a sales charge:
- Clients of the Adviser buying shares 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.
- 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. This privilege is
available for 30 days after the sale.
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SHAREHOLDER GUIDE TO INVESTING
PURCHASES BY EMPLOYEE BENEFIT PLANS AND TAX-SHELTERED ANNUITIES
- Shares of Adjustable Portfolio will be sold at net asset value, without a
sales charge, to employee benefit plans containing an actively maintained
qualified cash or deferred arrangement under Section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code") (a "401(k) Plan").
In the event a 401(k) Plan of an employer has purchased shares in the 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 Fund 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 Adjustable Portfolio
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.
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 checks have
cleared the banking system (normally up to 15 days from the purchase date).
REDEMPTION IN KIND
Although it is the current policy of Adjustable Portfolio to pay redemption
proceeds in cash, redemption proceeds for redemption requests of $100,000 or
more may be paid, at the sole option of Adjustable Portfolio, in whole or in
part by a distribution in kind of securities or other assets held by Adjustable
Portfolio. The determination of which of Adjustable Portfolio's assets will be
distributed to
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SHAREHOLDER GUIDE TO INVESTING
meet such redemption requests will be made by the Adviser, in consultation with
the redeeming shareholder. Securities or other assets so distributed will be
valued in the same manner as Adjustable Portfolio's securities. In order to
dispose of such securities or other assets, the redeeming shareholder would most
likely be required to bear transaction costs.
INVOLUNTARY REDEMPTION
Each Fund reserves the right to redeem your account at any time the net
asset value of the account falls below $50,000 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.
SHAREHOLDER SERVICES
REINSTATEMENT PRIVILEGE
If you have redeemed shares of Adjustable Portfolio, you may reinvest in
shares of Adjustable Portfolio without payment of an additional sales charge.
The reinvestment request must be made within 120 days of the redemption. You may
also reinvest within this time period in shares of any other mutual fund managed
by the Adviser except that, if that fund has a higher sales charge than
Adjustable Portfolio, you must pay the difference. 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 that is open to new investors. 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 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, you will pay a $5 service charge for each exchange. The Company
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.
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SHAREHOLDER GUIDE TO INVESTING
The 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 a Fund does not employ
such procedures, it may be liable for any losses due to unauthorized or
fraudulent telephone transactions. 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 semiannually. Please contact your Piper Jaffray Investment
Executive, other broker-dealer or IFTC for more information.
With respect to Adjustable Portfolio, 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 either Fund through a Piper Jaffray
Investment Executive, you may choose from several account options. Your
investments in a Fund held in a Piper Jaffray account (except for non-"PAT"
accounts) would be protected up to $25 million. Investments held in non-"PAT"
Piper Jaffray accounts are protected up to $2.5 million. In each case, the
Securities Investor
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SHAREHOLDER GUIDE TO INVESTING
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. Each Fund is required to supply annual and semiannual 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
The net investment income of each Fund will be declared as dividends daily
and will be paid monthly. Net realized capital gains, if any, will be
distributed on an annual basis. For Adjustable Portfolio, shares begin accruing
dividends on the date on which payment for such shares has been received by the
Distributor or IFTC, as appropriate, and shares redeemed will earn dividends
through the day prior to settlement of the redemption. For Money Market Fund,
shares will begin accruing dividends on the date on which payment is received,
provided such payment is received by 12:00 noon, New York time. If a redemption
request for shares of Money Market Fund is received by 12:00 noon, New York
time, shares will be redeemed that day and a dividend will not be earned.
Adjustable Portfolio may at times pay out less than the entire amount of net
investment income earned in any particular period in order to permit the Fund to
maintain a more stable level of distributions. Any such amount retained by the
Fund would be available to stabilize future distributions. As a result, the
distributions paid by the Fund for any particular period may be more or less
than the amount of net investment income earned by the Fund during such period.
DISTRIBUTION OPTIONS. All net investment income dividends and net realized
capital gains distributions for a 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 determine 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
Funds have declared any applicable dividends. The net asset value of Money
Market Fund is also determined each business day at 12:00 noon (New York time).
The net asset value per share for Adjustable Portfolio is determined by
dividing the value of the securities owned by the Fund plus any cash and other
assets (including interest accrued and dividends declared but not collected)
less all liabilities by the number of Fund shares outstanding. For the purpose
of determining the aggregate net assets of Adjustable Portfolio, cash and
receivables will be valued at their face amounts. Interest will be recorded as
accrued and dividends will be recorded on the ex-dividend date.
The value of certain fixed-income securities held by Adjustable Portfolio
will be provided by an independent pricing service, which determines these
valuations at a time earlier than the close of the Exchange. Pricing services
consider such factors as security prices, yields, maturities, call features,
rating and developments relating to specific securities in arriving at
securities valuations. Fixed-income securities for which prices are not
available from an independent pricing service but where an active market exists
will be valued using market quotations obtained from one or more dealers that
make markets in the securities. Occasionally events affecting the value of such
securities may occur between the time valuations are determined and the close of
the Exchange. If events materially affecting the value of such securities occur
during such period, or if management determines for any other reason that
valuations provided by the pricing service are inaccurate, such securities will
be valued at their fair value according to procedures decided upon in good faith
by the Company's Board of Directors. In addition, any securities or other assets
of Adjustable Portfolio for which market prices are not readily available will
be valued at their fair value in accordance with such procedures.
It is the policy of Money Fund to attempt to maintain a net asset value per
share of $1.00. The securities held are valued on the basis of amortized cost,
in accordance with the Fund's election to operate under the provisions of Rule
2a-7 under the 1940 Act. The amortized cost method of valuation involves valuing
an instrument at its cost and thereafter assuming a constant amortization to
maturity of a discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value as
determined by amortized cost is higher or lower than the price the Fund would
receive if it sold the instrument. Under the direction of the Board of
Directors, procedures have been adopted to monitor and stabilize the price per
share. Calculations are made to compare the value of the Fund's portfolio valued
at amortized cost with market values. In the event that a deviation of one-half
of 1% or more exists between the $1.00 per share net asset value for the Fund
and the net asset value calculated by reference to market quotations, or if
there is any other deviation which the Board of Directors believes would result
in a material dilution to shareholders or purchasers, the Board of Directors
will promptly consider what action, if any, should be initiated. See "Net Asset
Value and Public Offering Price" in the Statement of Additional Information.
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TAX STATUS
Each Fund is treated as a separate corporation for federal tax purposes.
Therefore, each Fund is treated separately in determining whether it qualifies
as a regulated investment company and for purposes of determining the net
ordinary income (or loss), net realized capital gains (or losses) and
distributions necessary to relieve such Fund of any federal income tax
liability. Each Fund qualified as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
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 a Fund are generally taxable to shareholders, whether
received in cash or additional shares of the Fund (or shares of another mutual
fund managed by the Adviser). Distributions of net capital gains (designated as
"capital gain dividends") by Adjustable Portfolio, if any, are taxable to
shareholders as long-term capital gains, regardless of the length of time the
shareholder has held the shares of the Fund.
A shareholder will recognize a capital gain or loss upon the sale or
exchange of Fund shares 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.
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 either of the Funds,
you should check the consequences of your local and state tax laws.
PERFORMANCE COMPARISONS
Advertisements and other sales literature for Adjustable Portfolio may refer
to the Fund's "average annual total return" and "cumulative total return." In
addition, both Funds may provide yield calculations in advertisements and other
sales literature. All such yield and total return quotations are based upon
historical earnings and are not intended to indicate future performance.
Yield calculations for Adjustable Portfolio will be based upon a 30-day
period stated in the advertisement and will be calculated by dividing the net
investment income per share (as defined under SEC rules and regulations) earned
during the advertised period by the offering price per share (including the
maximum sales charge) on the last day of the period. The result will then be
"annualized" using a formula that provides for semi-annual compounding of
income. Money Market Fund may advertise its "yield" and "effective yield." The
"yield" of Money Market Fund refers to the income generated by an investment in
the Fund over a seven-day period stated in the advertisement. This income is
then "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the Fund
is assumed to be reinvested. The "effective yield" will be slightly higher than
the "yield" because of the compounding effect of this assumed reinvestment.
Average annual total return is the average annual compounded rate of return
on a hypothetical $1,000 investment made at the beginning of the advertised
period. Cumulative total return is calculated by subtracting a hypothetical
$1,000 payment to the Fund from the redeemable value of such
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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 and yield, comparative performance
information may be used from time to time in advertising the Funds' shares. For
example, advertisements may compare a Fund's performance to that of various
unmanaged market indices, or may include performance data from Lipper Analytical
Services, Inc., Morningstar, Inc. or other entities or organizations which track
the performance of investment companies.
For additional information regarding comparative performance information and
the calculation of yield, average annual total return and cumulative total
return, see "Performance Comparisons" in the Statement of Additional
Information.
Advertisements and other sales literature may also refer to Adjustable
Portfolio's effective duration. Effective duration estimates the interest rate
risk (price volatility) of a security, I.E., how much the value of the security
is expected to change with a given change in interest rates. The longer a
security's effective duration, the more sensitive its price is to changes in
interest rates. For example, if interest rates were to increase by 1%, the
market value of a bond with an effective duration of five years would decrease
by about 5%, with all other factors being constant. It is important to
understand that, while a valuable measure, effective duration is based on
certain assumptions and has several limitations. It is most useful as a measure
of interest rate risk when interest rate changes are small, rapid and occur
equally across all the different points of the yield curve. In addition,
effective duration is difficult to calculate precisely for bonds with prepayment
options, such as mortgage-backed securities, because the calculation requires
assumptions about prepayment rates. For example, when interest rates go down,
homeowners may prepay their mortgages at a higher rate than assumed in the
initial effective duration calculation, thereby shortening the effective
duration of Adjustable Portfolio's mortgage-backed securities. Conversely, if
rates increase, prepayments may decrease to a greater extent than assumed,
extending the effective duration of such securities. For these reasons, the
effective durations of funds which invest a significant portion of their assets
in mortgage-backed securities, particularly mortgage derivative securities, can
be greatly affected by changes in interest rates.
GENERAL INFORMATION
The Company is authorized to issue a total of 10 trillion shares of common
stock with a par value of $.01 per share. One hundred and ten billion of these
shares have been authorized by the Board of Directors to be issued in two
separate series: ten billion shares designated as Series A Common Shares, which
are the shares of common stock of Adjustable Portfolio, and one hundred billion
shares designated as Series B Common Shares, which are the shares of common
stock of Money Market Fund.
The Board of Directors is empowered under the Company's Articles of
Incorporation to issue other series of the Company's common stock without
shareholder approval. In addition, the Board of Directors may, without
shareholder approval, create and issue one or more additional classes of shares
within each Fund, as well as within any series of the Company created in the
future. See "Capital Stock and Ownership of Shares" in the Statement of
Additional Information.
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All shares, when issued, will be fully paid and nonassessable and will be
redeemable. All shares have equal voting rights. They can be issued as full or
fractional shares. A fractional share has pro-rata the same kind of rights and
privileges as a full share. The shares possess no preemptive or conversion
rights.
Each share of a series has one vote (with proportionate voting for
fractional shares) irrespective of the relative net asset value of the series'
shares. On some issues, such as the election of directors, all shares of the
Company vote together as one series. On an issue affecting only a particular
series, the shares of the affected series vote separately. Cumulative voting is
not authorized. This means that the holders of more than 50% of the shares
voting for the election of directors can elect 100% of the directors if they
choose to do so, and, in such event, the holders of the remaining shares will be
unable to elect any directors.
The Bylaws of the Company provide that shareholder meetings be held only
with such frequency as required under Minnesota law. Minnesota corporation law
requires only that the Board of Directors convene shareholder meetings when it
deems appropriate. In addition, Minnesota law provides that if a regular meeting
of shareholders has not been held during the immediately preceding 15 months, a
shareholder or shareholders holding 3% or more of the voting shares of the
Company may demand a regular meeting of shareholders by written notice given to
the chief executive officer or chief financial officer of the Company. Within 30
days after receipt of the demand, the Board of Directors shall cause a regular
meeting of shareholders to be called, which meeting shall be held no later than
90 days after receipt of the demand, all at the expense of the Company. In
addition, the 1940 Act requires a shareholder vote for all amendments to
fundamental investment policies and restrictions and for all amendments to
investment advisory contract. The 1940 Act also provides that Directors of the
Company may be removed by action of the record holders of two-thirds or more of
the outstanding shares of the Company. The Directors are required to call a
meeting of shareholders for the purpose of voting upon the question of removal
of any Director when so requested in writing by the record holders of at least
10% of the Company's outstanding shares.
PENDING LEGAL PROCEEDINGS
Complaints have been brought against the Adviser and the Distributor
relating to certain 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 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.
See "Pending Litigation" in the Statement of Additional Information.
A settlement agreement has been reached with respect to one of the
complaints involving PJIGX. An Amended Consolidated Class Action Complaint,
which represents a consolidation of claims previously brought by 11 persons or
entities, was filed on October 5, 1994 in the United States District Court,
District of Minnesota. The named plaintiffs in this putative class action (the
"PJIGX action")
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purport to represent a class of individuals and groups who purchased shares of
PJIGX during the period from July 1, 1991 through May 9, 1994. The named
plaintiffs and defendants have entered into a settlement agreement which has
received preliminary approval from the Court. The terms of the settlement are
set forth in a Settlement Agreement dated July 20, 1995 (as modified by an
Addendum filed on July 28, 1995). The Settlement Agreement contained a provision
which would have permitted the defendants to cancel the Agreement if
shareholders who had incurred a cumulative "loss" (as defined under the
Agreement) of more than 10% of the loss sustained by the entire class had opted
out. The October 2, 1995 deadline for requesting exclusion from the class has
passed, and the loss sustained by persons requesting exclusion is less than 10%.
If granted final approval by the Court, the settlement agreement would provide
up to $70 million to class members in payments scheduled over approximately
three years. Such payments would be made by Piper Jaffray Companies and the
Adviser and would not be an obligation of Piper Funds Inc. Six additional
complaints have been brought and a number of actions have been commenced in
arbitration relating to PJIGX. The complaints generally have been consolidated
with the PJIGX action for pretrial purposes and the arbitrations and litigations
have been stayed pending entry of an order by the Court permitting those class
members who have requested exclusion to proceed with their actions.
The Adviser and the Distributor to not believe that the PJIGX settlement or
any outstanding complaint or action in arbitration will have a material adverse
effect on their ability to perform under their agreements with the Company or a
material adverse effect on the Funds, and they intend to defend such lawsuits
and actions vigorously.
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS 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.
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APPENDIX A
FOREIGN CURRENCY TRANSACTIONS
As noted in the Prospectus, Adjustable Portfolio may invest up to 10% of its
assets in securities denominated in Canadian dollars. Adjustable Portfolio may
engage in foreign currency exchange transactions to protect against uncertainty
in the level of the rate of exchange between Canadian and U.S. dollars. The Fund
may engage in such transactions in connection with the purchase and sale of
portfolio securities ("transaction hedging") and to protect the value of
specific portfolio positions ("position hedging").
Adjustable Portfolio may engage in transaction hedging to protect against a
change in the exchange rate between the date on which the Fund contracts to
purchase or sell the security and the settlement date, or to "lock in" the U.S.
dollar equivalent of a dividend or interest payment in Canadian dollars. For
that purpose, Adjustable Portfolio may purchase or sell Canadian dollars on a
spot (or cash) basis at the prevailing spot rate in connection with the
settlement of transactions in portfolio securities denominated in Canadian
dollars. If conditions warrant, Adjustable Portfolio may also enter into
contracts to purchase or sell Canadian dollars at a future date ("forward
contracts") and purchase and sell Canadian dollars or futures contracts as a
hedge against changes in Canadian dollars or exchange rates between the trade
and settlement dates on particular transactions and not for speculation. A
foreign currency forward contract is a negotiated agreement to exchange currency
at a future time at a rate or rates that may be higher or lower than the spot
rate. Foreign currency futures contracts are standardized exchange-traded
contracts and have margin requirements. For transaction hedging purposes,
Adjustable Portfolio may also purchase exchange-listed and over-the-counter call
and put options on Canadian dollars or futures contracts thereon. A put option
on a futures contract gives the Fund the right to assume a short position in the
futures contract until expiration of the option. A put option on currency gives
the 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 the Fund the right to
assume a long position in the futures contract until the expiration of the
option. A call option on currency gives the Fund the right to purchase a
currency at the exercise price until the expiration of the option.
Adjustable Portfolio may engage in position hedging to protect against a
decline in the value relative to the U.S. dollar in its securities, denominated
in Canadian dollars (or an increase in the value of the Canadian dollar for
securities which the Fund intends to buy, when it holds cash reserves and
short-term investments). For position hedging purposes, Adjustable Portfolio may
purchase or sell Canadian dollar futures contracts and forward contracts, and
may purchase put or call options on Canadian dollars or on futures contracts
thereon on exchanges or over-the-counter markets. In connection with position
hedging, Adjustable Portfolio may also purchase or sell Canadian dollars on a
spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
these securities between the dates the currency exchange transactions are
entered into and the dates they mature.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, it may be necessary for Adjustable Portfolio
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to purchase additional Canadian dollars on the spot market (and bear the
expenses of such purchase) if the market value of the security or securities
being hedged is less than the amount of Canadian dollars the Fund is obligated
to deliver and if a decision is made to sell the security or securities and make
delivery of the Canadian dollars. Conversely, it may be necessary to sell on the
spot market some of the Canadian dollars received upon the sale of the portfolio
security or securities if the market value of such security or securities
exceeds the amount of Canadian dollars the Fund is obligated to deliver.
Hedging transactions involve costs and may result in losses. Adjustable
Portfolio may write covered call options on Canadian dollars to offset some of
such costs. The Fund may engage in over-the-counter transactions only when
appropriate exchange-traded transactions are unavailable and when, in the
opinion of the Adviser, the pricing mechanism and liquidity are satisfactory and
the participants are responsible parties likely to meet their contractual
obligations. Adjustable Portfolio's ability to engage in hedging and related
option transactions may be limited by tax considerations. See "Taxation" in the
Statement of Additional Information.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which Adjustable Portfolio owns or intends
to purchase or sell. They simply establish a rate of exchange which one can
achieve at some future point in time. Additionally, although these techniques
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, they tend to limit any potential gain which might result from the
increase in the value of such currency.
A forward foreign currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract as agreed by the parties, at a
price set at the time of the contract. In the case of a cancellable 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 (the "CFTC"), such as the New York Mercantile Exchange. Adjustable
Portfolio would enter into foreign currency futures contracts solely for hedging
or other appropriate risk management purposes as defined in CFTC regulations.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. For example, the maturity date of a
forward contract may be any fixed number of days from the date of the contract
agreed upon by the parties, rather than a predetermined date in any given month.
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, Adjustable Portfolio 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 effected with the currency trader who is a party to the original
forward contract. Closing transactions with respect to futures contracts are
effected on a commodities exchange; a clearing corporation associated with the
exchange assumes responsibility for closing out such contracts.
A-2
<PAGE>
Positions in foreign currency futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market for such contracts.
Although Adjustable Portfolio intends to purchase or sell foreign currency
futures contracts only on exchanges or boards of trade where there appears to be
an active secondary market, there is no assurance that a secondary market on an
exchange or board of trade will exist for any particular contract or at any
particular time. In such event, it may not be possible to close a futures
position and, in the event of adverse price movements, Adjustable Portfolio
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 Adjustable Portfolio 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 futures contracts are
affected by all of those factors which influence foreign exchange rates and
investments generally.
The value of a foreign currency option is dependent upon the value of the
foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign debt security. Because foreign currency
transactions occurring in the interbank market involve substantially larger
amounts than those that may be involved in the use of foreign currency options,
investors may be disadvantaged by having to deal in an odd lot market (generally
consisting of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent 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.
In addition, significant price and rate movements that take place while U.S.
markets are closed will not be reflected in the price of Fund shares until net
asset value is next determined (as of the primary closing time of the New York
Stock Exchange).
Although foreign exchange dealers do not charge a fee for currency
conversion, they do realize a profit based upon the difference (the "spread")
between prices at which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to Adjustable Portfolio at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
A-3
<PAGE>
PIPER INSTITUTIONAL FUNDS INC.
INVESTMENT ADVISER
PIPER CAPITAL MANAGEMENT INCORPORATED
DISTRIBUTOR
PIPER JAFFRAY INC.
CUSTODIAN AND TRANSFER AGENT
INVESTORS FIDUCIARY TRUST COMPANY
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
LEGAL COUNSEL
DORSEY & WHITNEY P.L.L.P.
Table of Contents
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Introduction................................... 2
Fund Expenses.................................. 4
Financial Highlights........................... 5
Investment Objectives and Policies............. 7
Special Investment Methods..................... 16
Management..................................... 23
SHAREHOLDER GUIDE TO INVESTING
How to Purchase Shares....................... 25
Reducing Your Sales Charge................... 26
Special Purchase Plans....................... 27
How to Redeem Shares......................... 28
Shareholder Services......................... 29
Dividends and Distributions.................. 31
Valuation of Shares............................ 32
Tax Status..................................... 33
Performance Comparisons........................ 33
General Information............................ 34
Appendix A -- Foreign Currency Transactions.... A-1
</TABLE>
INSTITUTIONAL MONEY MARKET FUND
INSTITUTIONAL GOVERNMENT ADJUSTABLE PORTFOLIO
NOVEMBER 1, 1995
PIF-05
<PAGE>
PART B
INSTITUTIONAL MONEY MARKET FUND
INSTITUTIONAL GOVERNMENT ADJUSTABLE PORTFOLIO
Series of Piper Institutional Funds Inc.
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1995
Table of Contents
Page
----
Investment Objectives, Policies and Restrictions . . . . . . . . 2
Directors and Executive Officers . . . . . . . . . . . . . . . . 9
Investment Advisory and Other Services . . . . . . . . . . . . . 14
Portfolio Transactions and Allocation of Brokerage . . . . . . . 18
Capital Stock and Ownership of Shares. . . . . . . . . . . . . . 19
Net Asset Value and Public Offering Price. . . . . . . . . . . . 20
Performance Comparisons. . . . . . . . . . . . . . . . . . . . . 21
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . 24
Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
General Information. . . . . . . . . . . . . . . . . . . . . . . 27
Financial Statements . . . . . . . . . . . . . . . . . . . . . . 29
Pending Litigation . . . . . . . . . . . . . . . . . . . . . . . 29
Appendix A - Commercial Paper and Corporate Bond Ratings . . . . A-1
Appendix B - Interest Rate Futures Contracts
and Related Options. . . . . . . . . . . . . . . . . . . . . . B-1
This Statement of Additional Information is not a prospectus.
This Statement of Additional Information relates to the Prospectus dated
November 1, 1995, 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.
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The shares of Piper Institutional Funds Inc. (the "Company") are
currently offered in two series: Institutional Money Market Fund ("Money
Market Fund") and Institutional Government Adjustable Portfolio ("Adjustable
Portfolio") (sometimes referred to herein individually as a "Fund" or,
collectively, as the "Funds"). The investment objectives and policies of the
Funds are set forth in the Prospectus. Certain additional investment
information is set forth below.
REPURCHASE AGREEMENTS
Each Fund may invest in repurchase agreements. The Funds' custodian
will hold the securities underlying any repurchase agreement or such
securities will be part of the Federal Reserve Book Entry System. The market
value of the collateral underlying the repurchase agreement will be
determined on each business day. If at any time the market value of the
collateral falls below the repurchase price of the repurchase agreement
(including any accrued interest), the respective Fund will promptly receive
additional collateral (so the total collateral is an amount at least equal to
the repurchase price plus accrued interest).
The Funds have received from the Securities and Exchange Commission
an exemptive order permitting the Funds, along with other investment
companies currently managed by Piper Capital Management Incorporated (the
"Adviser"), and all future investment companies or series thereof advised by
the Adviser or its affiliates, to deposit uninvested cash balances into a
large single joint account to be used to enter into one or more large
repurchase agreements.
MORTGAGE-BACKED SECURITIES
Many Mortgage-Backed Securities (principally CMOs secured by GNMA,
FNMA and/or FHLMC Certificates) are issued by entities that operate under
orders from the Securities and Exchange Commission (the "SEC") exempting such
issuers from the provisions of the Investment Company Act of 1940, as amended
(the "1940 Act"). Until recently, the staff of the Division of Investment
Management of the SEC had taken the position that such issuers were
investment companies pursuant to Section 3 of the 1940 Act and that,
accordingly, an investment by an investment company (such as Adjustable
Portfolio) in the securities of such issuers was subject to limitations
imposed by Section 12 of the 1940 Act. However, in reliance on a recent SEC
staff interpretation, Adjustable Portfolio may investment in securities
issued by certain "exempted issuers" without regard to the limitations of
Section 12 of the 1940 Act. In its interpretation, the SEC staff defined
"exempted issuers" as unmanaged, fixed asset issuers that (a) invest
primarily in Mortgage-Backed Securities, (b) do not issue redeemable
securities as defined in Section 2(a)(32) of the Act, (c) operate under
general exemptive orders exempting them from "all provisions of the [1940]
Act" and (d) are not registered or regulated under the 1940 Act as investment
companies.
-2-
<PAGE>
TYPES OF CREDIT SUPPORT
To lessen the effect of failures by mortgagors to make payments on
underlying mortgages, ARMS and other Mortgage-Backed Securities may contain
elements of credit support. Such credit support falls into two categories:
(a) liquidity protection and (b) protection against losses resulting from
ultimate default by an obligor on the underlying assets. Liquidity
protection refers to the provision of advances, generally by the entity
administering the pool of assets, to ensure that the pass-through of payments
due on the underlying pool occurs in a timely fashion. Protection against
losses resulting from ultimate default enhances the likelihood of ultimate
payment of the obligations on at least a portion of the assets in the pool.
Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties,
through various means of structuring the transaction or through a combination
of such approaches. Adjustable Portfolio will not pay any additional fees for
such credit support, although the existence of credit support may increase
the price of a security.
The ratings of securities for which third-party credit enhancement
provides liquidity protection or protection against losses from default are
generally dependent upon the continued creditworthiness of the enhancement
provider. The ratings of such securities could be downgraded in the event of
deterioration in the creditworthiness of the credit enhancement provider even
in cases where the delinquency and loss experience on the underlying pool of
assets is better than expected.
Examples of credit support arising out of the structure of the
transaction include "senior-subordinated securities" (multiple class
securities with one or more classes subordinate to other classes as to the
payment of principal thereof and interest thereon, with the result that
defaults on the underlying assets are borne first by the holders of the
subordinated class), creation of "reserve funds" (where cash or investments,
sometimes funded from a portion of the payments on the underlying assets, are
held in reserve against future losses) and "over-collateralization" (where
the scheduled payments on, or the principal amount of, the underlying assets
exceed those required to make payment on the securities and pay any servicing
or other fees). The degree of credit support provided for each issue is
generally based on historical information with respect to the level of credit
risk associated with the underlying assets. Other information which may be
considered includes demographic factors, loan underwriting practices and
general market and economic conditions. Delinquency or loss in excess of
that which is anticipated (and in excess of the degree of credit support
provided) will adversely affect the return on an investment in such a
security by decreasing the yield and value of such security.
OPTIONS
As set forth in the Prospectus, Adjustable Portfolio may write
covered options and purchase options on securities. The principal reason for
writing call or put options is to obtain, through the receipt of premiums, a
greater current return than would be realized on the underlying securities
alone. Adjustable Portfolio receives premiums from writing call or put
options, which it retains whether or not the
-3-
<PAGE>
options are exercised. Adjustable Portfolio will write only covered options.
This means that so long as the Fund is obligated as the writer of a call
option, it will own the underlying securities subject to the option (or
comparable securities satisfying the cover requirements of securities
exchanges). The Fund will be considered covered with respect to a put option
it writes if, so long as it is obligated as the writer of a put option, it
deposits and maintains with its custodian cash, U.S. Government securities or
other liquid high-grade debt obligations having a value equal to or greater
than the exercise price of the option.
Adjustable Portfolio may wish to protect certain portfolio securities
against a decline in market value at a time when no put options on those
particular securities are available for purchase. The Fund may therefore
purchase a put option on securities other than those it wishes to protect
even though it does not hold such other securities in its portfolio. While
the Fund will only purchase put options on securities where, in the opinion
of the Adviser, changes in the value of the put option should generally
offset changes in the value of the securities to be hedged, the correlation
will be less than in transactions in which the Fund purchases put options on
underlying securities it owns.
The writing by Adjustable Portfolio 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 Fund may write may be affected by options written
by other investment companies managed by and other investment advisory
clients of the Adviser. An exchange may order the liquidation of positions
found to be in excess of these limits, and it may impose certain other
sanctions.
OVER-THE-COUNTER OPTIONS
Adjustable Portfolio may purchase and write over-the-counter ("OTC")
put and call options in negotiated transactions. OTC options are two-party
contracts with price and terms negotiated between buyer and seller. In
contrast, exchange-traded options are third-party contracts with standardized
strike prices and expiration dates, and are purchased from a clearing
corporation. Exchange-traded options have a continuous liquid market while
OTC options may not. The staff of the Securities and Exchange Commission has
previously taken the position that the value of purchased OTC options and the
assets used as "cover" for written OTC options are illiquid securities and,
as such, are to be included in the calculation of a fund's 15% limitation on
illiquid securities. However, the staff has eased its position somewhat in
certain limited circumstances. Although the Adviser disagrees with the
position of the staff, pending resolution of this issue Adjustable Portfolio
will treat OTC options, to the extent set forth below, as subject to the
Fund's limitation on illiquid securities. Adjustable Portfolio will attempt
to enter into contracts with certain dealers with which it writes OTC
options. Each such contract will provide that the Fund has the absolute
right to repurchase the options
-4-
<PAGE>
it writes at any time at a repurchase price which represents the fair market
value, as determined in good faith through negotiation between the parties,
but which in no event will exceed a price determined pursuant to a formula
contained in the contract. Although the specific details of such formula may
vary among contracts, the formula will generally be based upon a multiple of
the premium received by the Fund for writing the option, plus the amount, if
any, of the option's intrinsic value. The formula will also include a factor
to account for the difference between the price of the security and the
strike price of the option if the option is written out-of-the-money. With
respect to each OTC option for which such a contract is entered into, the
Fund will count as illiquid only the initial formula price minus the option's
intrinsic value.
Adjustable Portfolio will enter into such contracts only with primary
U.S. Government securities dealers recognized by the Federal Reserve Bank of
New York. Moreover, such primary dealers will be subject to the same
standards as are imposed upon dealers with which the Fund enters into
repurchase agreements.
ILLIQUID SECURITIES
As set forth in the Prospectus, the Funds may invest in Rule 144A
securities, commercial paper issued pursuant to Rule 4(2) under the
Securities Act of 1933, and, with respect to Adjustable Portfolio,
interest-only and principal-only classes of Mortgage-Backed Securities issued
by the U.S. Government or its agencies or instrumentalities and treat such
securities as liquid when they have been determined to be liquid by the Board
of Directors of the Fund or by the Adviser subject to the oversight of and
pursuant to procedures adopted by the Board of Directors. Under these
procedures, factors taken into account in determining the liquidity of a
security include (a) the frequency of trades and quotes for the security; (b)
the number of dealers willing to purchase or sell the security and the number
of other potential purchasers; (c) dealer undertakings to make a market in
the security; and (d) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer). 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.
FOREIGN INDEX LINKED INSTRUMENTS
As set forth in the Prospectus, Adjustable Portfolio may invest up to
10% of its total assets in Foreign Index Linked Instruments. Foreign Index
Linked Instruments are fixed income securities which are issued by U.S.
issuers (including U.S. subsidiaries of foreign issuers) and are denominated
in U.S. dollars but return principal and/or pay interest to investors in
amounts which are linked to the level of a particular foreign index. A
foreign index may be based upon the exchange rate of a particular currency or
currencies or the differential between two currencies, or the level of
interest rates in a particular country or countries or the differential in
interest rates between particular countries. In the case of Foreign Index
Linked Instruments linking the principal amount to a foreign index, the
amount of
-5-
<PAGE>
principal payable by the issuer at maturity will increase or decrease in
response to changes in the level of the foreign index during the term of the
Foreign Index Linked Instrument. In the case of Foreign Index Linked
Instruments linking the interest component to a foreign index, the amount of
interest payable will adjust periodically in response to changes in the level
of the foreign index during the term of the Foreign Index Linked Instrument.
Foreign Index Linked Instruments may be issued by a U.S. governmental agency
or instrumentality or by a private issuer. The Foreign Index Linked
Instruments in which the Fund has invested to date have been debt instruments
closely resembling corporate bonds. However, Foreign Index Linked
Instruments present certain risks in addition to those presented by corporate
bonds. See "Special Investment Methods--Foreign Index Linked Instruments" in
the Prospectus.
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.
Money Market Fund, consistent with its objective, may attempt to
maximize yield through portfolio trading. This may involve selling portfolio
instruments and purchasing different instruments to take advantage of
disparities of yield in different segments of the high-grade money market or
among particular instruments within the same segment of the market. Since
the Fund's assets will be invested in securities with short maturities and
the Fund will manage its portfolio as described above, the portfolio will
turn over several times a year. However, this will not generally increase
Money Market Fund's brokerage costs, since brokerage commissions as such are
not usually paid in connection with the purchase or sale of the instruments
in which the Fund invests. Because securities with maturities of less than
one year are excluded from required portfolio turnover rate calculations, the
portfolio turnover rate for Money Market Fund will be zero.
While it is not the policy of Adjustable Portfolio to trade actively
for short-term (less than six months) profits, the Fund will dispose of
securities without regard to the time they have been held when such action
appears advisable to the Adviser. In the case of Adjustable Portfolio,
frequent changes may result in higher transaction and other costs for the
Fund. For purposes of calculating portfolio turnover, the maturity of
investment purchases and sales related to "rollover" transactions of
Adjustable Portfolio is considered to be less than 12 months. See "Special
Investment Methods--When-Issued Securities" in the Prospectus. The portfolio
turnover rate is not expected to exceed 100% for Adjustable Portfolio,
although the turnover rate will not be a limiting factor when management
deems portfolio changes appropriate.
-6-
<PAGE>
INVESTMENT RESTRICTIONS
In addition to the investment objectives and policies set forth in
the Prospectus, each Fund is subject to certain investment restrictions, as
set forth below, which may not be changed without the vote of a majority of a
Fund's outstanding shares. "Majority," as used in the Prospectus and in this
Statement of Additional Information, means the lesser of (a) 67% of a Fund's
outstanding shares present at a meeting of the holders if more than 50% of
the outstanding shares are present in person or by proxy or (b) more than 50%
of a Fund's outstanding shares.
Unless otherwise specified below, neither Fund will:
1. With respect to 75% of its total assets, invest more than 5% of
the value of its total assets in the securities of any one issuer or own more
than 10% of the outstanding voting securities of any one issuer, in each case
other than securities issued or guaranteed by the U.S. Government or any
agency or instrumentality thereof and securities of other investment
companies.
2. Invest 25% or more of the value of its total assets in the
securities of issuers conducting their principal business activities in any
one industry. This restriction does not apply to securities of the U.S.
Government or its agencies and instrumentalities and repurchase agreements
relating thereto or to obligations of U.S. banks, domestic branches thereof
and U.S. branches of foreign banks subject to United States regulation. The
various types of utilities companies, such as gas, electric, telephone,
telegraph, satellite and microwave communications companies, are considered
as separate industries.
3. Issue any senior securities (as defined in the 1940 Act), other
than as set forth in restriction number 4 below and except to the extent that
using options, forward foreign currency exchange contracts, futures contracts
and options on futures contracts, purchasing or selling securities on a
when-issued or forward commitment basis or using similar investment
strategies may be deemed to constitute issuing a senior security.
4. Borrow money (provided that either of the Funds may enter into
reverse repurchase agreements) except from banks for temporary or emergency
purposes. Each Fund may borrow money in an amount up to one-third of the
value of its total assets in order to meet redemption requests without
immediately selling any of its portfolio securities. If, for any reason, the
current value of the Fund's total assets falls below an amount equal to three
times the amount of its indebtedness from money borrowed, the Fund will,
within three business days, reduce its indebtedness to the extent necessary.
Neither Fund will purchase portfolio securities while outstanding borrowings
(other than reverse repurchase agreements) exceed 5% of the value of the
Fund's total assets. Neither Fund will borrow money for leverage purposes
(provided that each Fund may enter into reverse repurchase agreements for
such purposes).
5. Mortgage, pledge or hypothecate its assets except to secure
permitted indebtedness. For purposes of this policy, collateral arrangements
for margin
-7-
<PAGE>
deposits on forward foreign currency exchange contracts, futures contracts
and options on futures contracts, with respect to the writing of options,
with respect to reverse repurchase agreements or with respect to similar
investment techniques are not deemed to be a pledge or hypothecation of
assets.
6. Purchase any securities on margin except to obtain such
short-term credits as may be necessary for the clearance of transactions and
except that Adjustable Portfolio may make margin deposits in connection with
permitted transactions in options, forward foreign currency exchange
contracts, futures contracts, options on futures contracts and similar
investment techniques.
7. Write, purchase or sell puts, calls or combinations thereof,
provided that Money Market Fund may purchase securities with demand or put
features and, except that Adjustable Portfolio may write put and call options
with respect to the securities in which it may invest; may purchase put and
call options; and may engage in financial futures contracts and related
options transactions.
8. Purchase or sell commodities or commodity futures contracts
except that Adjustable Portfolio may do so for hedging purposes.
9. Purchase or sell real estate or real estate mortgage loans,
except that the Funds may invest in securities secured by real estate or
interests therein (including ARMS, other Mortgage-Backed Securities and
similar securities) or issued by companies that invest in real estate or
interests therein.
10. Act as an underwriter of securities of other issuers, except
insofar as a Fund may be technically deemed an underwriter under the federal
securities laws in connection with the disposition of portfolio securities.
11. Make loans of money or property to any person, except for loans
of portfolio securities and except through the use of repurchase agreements
or the purchase of debt obligations in which such Fund may invest
consistently with the Fund's investment objective and policies.
In addition, as non-fundamental investment restrictions that may be
changed at any time without shareholder approval, neither Fund will:
(a) 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.)
(b) Make short sales of securities.
(c) Purchase or retain the securities of any issuer if, to the
Fund's knowledge, those officers or directors of the Company or its
affiliates or of its investment
-8-
<PAGE>
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.
(d) Invest for the purpose of exercising control or management.
(e) Purchase or sell oil, gas or mineral leases or interests in oil,
gas or other mineral exploration or development programs.
(f) Invest in the securities of other investment companies except as
part of a merger, consolidation or acquisition of assets, except that
Adjustable Portfolio may invest in money market funds to the extent permitted
by the 1940 Act.
(g) Invest more than 15% of its net assets, with respect to
Adjustable Portfolio, or 10% of its net assets, with respect to Money Market
Fund, in illiquid securities.
(h) Invest in real estate limited partnerships.
(i) 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 exceed 2%
of the value of a Fund's net assets, may be warrants which are not listed on
the New York or American Stock Exchange. For purposes of this investment
restriction, warrants acquired by a Fund in units or attached to securities
may be deemed to be without value.
Any investment restriction or limitation referred to above or in the
Prospectus, except the borrowing policy, which involves a maximum percentage
of securities or assets, shall not be considered to be violated unless an
excess over the percentage occurs immediately after an acquisition of
securities or utilization of assets and such excess results therefrom.
DIRECTORS AND EXECUTIVE OFFICERS
The names, addresses and principal occupations during the past five
years of the directors and executive officers of the Company are given below.
The officers and directors of the Company also serve as officers and
directors of various closed- and open-end investment companies managed by the
Adviser.
Name and Address Position with the Company
---------------- -------------------------
William H. Ellis* Chairman of the Board of Directors
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
David T. Bennett Director
3400 City Center
33 South Sixth Street
Minneapolis, Minnesota 55402
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<PAGE>
Name and Address Position with the Company
---------------- -------------------------
Jaye F. Dyer Director
4670 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402
Karol D. Emmerich Director
7302 Claredon Drive
Edina, Minnesota 55439
Luella G. Goldberg Director
7019 Tupa Drive
Edina, Minnesota 55435
George Latimer Director
754 Linwood Avenue
St. Paul, MN 55105
Paul A. Dow President
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
David E. Rosedahl Secretary
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Charles N. Hayssen Treasurer
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Robert H. Nelson Senior Vice President
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Nancy S. Olsen Senior Vice President
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Thomas S. McGlinch Vice President
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
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<PAGE>
John Schonberg Vice President
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
- ------------------
* Directors of the Company who are interested persons (as that term
is defined by the 1940 Act) of Piper Capital Management
Incorporated and the Funds.
William H. Ellis has been President of Piper Jaffray Companies Inc.
and Piper Jaffray Inc. (the "Distributor") since September 1982, Chief
Operating Officer of the same two companies since August 1983, Director and
Chairman of the Board of Piper Capital Management Incorporated ("the
Adviser") since October 1985 and President of the Adviser since December
1994.
David T. Bennett is of counsel to the law firm of Gray, Plant,
Mooty, Mooty & Bennett, P.A., located in Minneapolis, Minnesota. Mr. Bennett
is chairman of a group of privately held companies and serves on the board of
directors of a number of nonprofit organizations.
Jaye F. Dyer has been President of Dyer Management Company, a
private management company, since January 1991. Prior to that he was
President and Chief Executive Officer of Dyco Petroleum Corporation, a
Minneapolis based oil and natural gas development company he founded, from
1971 to March 1, 1989, and Chairman of the Board until December 31, 1990.
Mr. Dyer serves on the board of directors of 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 has been President of The Paraclete Group, a
consultant to nonprofit organizations, since 1993. Prior to that she had
been Vice President, Chief Accounting Officer and Treasurer of Dayton Hudson
Corporation from 1980 to May 1993. Ms. Emmerich is an Executive Fellow at
the University of St. Thomas Graduate School of Business and serves on the
board of directors of a number of privately held and nonprofit organizations.
Luella G. Goldberg has served on the board of directors of
Northwestern National Life Insurance Company (since 1976), The ReliaStar
Financial Corp. (since 1989), TCF Financial Corporation (since 1988), the
holding company of TCF Bank Savings fsb, 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.
George Latimer is Director, Special Actions Office, Office of the
Secretary, Department of Housing and Urban Development since 1993, prior to
which he had been Dean of Hamline Law School, Saint Paul, Minnesota from 1990
to 1993. Mr. Latimer also serves on the board of directors of Digital
Biometrics, Inc. and Payless Cashways, Inc.
-11-
<PAGE>
Paul A. Dow has been a Senior Vice President of the Adviser since
1989 and Chief Investment Officer of the Adviser since 1989.
David E. Rosedahl has been Secretary and a Director of the Adviser
since 1985, a Managing Director of the Distributor since 1986, a Managing
Director of Piper Jaffray Companies Inc. since 1987, Secretary of the
Distributor since 1993 and General Counsel for the Distributor and Piper
Jaffray Companies Inc. since 1979.
Charles N. Hayssen has been a Managing Director of the Distributor
since 1986 and of Piper Jaffray Companies Inc. since 1987, Chief Financial
Officer of the Distributor since 1988, Director and Chief Financial Officer
of the Adviser since 1989 and Chief Operating Officer of the Adviser since
1994.
Robert H. Nelson has been a Senior Vice President of the Adviser
since November 1993, prior to which he had been a Vice President of the
Adviser from 1991 to 1993 and Assistant Vice President from 1989 to 1991.
Nancy S. Olsen has been a Senior Vice President of the Adviser since
November 1991, prior to which she had been a Vice President of the Adviser
from 1987 to 1991.
Mr. McGlinch has been a Vice President of the Adviser since November
1992, prior to which he had been a specialty products trader at FBS
Investment Services from January 1990 to January 1992.
Mr. Schonberg has been a Vice President of the Adviser since
November 1992 and a portfolio manager for the Adviser since July 1989.
Ms. Goldberg, Ms. Emmerich and Mr. Dyer are members of the Company's
Audit Committee. Ms. Goldberg acts as the chairperson of such committee.
The Audit Committee oversees the Funds' financial reporting process, reviews
audit results and recommends annually to the Company a firm of independent
certified public accountants.
The functions to be performed by the Audit Committee are to
recommend annually to the Board a firm of independent certified public
accountants to audit the books and records of the Funds for the ensuing year;
to monitor that firm's performance; to review with the firm the scope and
results of each audit and determine the need, if any, to extend audit
procedures; to confer with the firm and representatives of the Funds on
matters concerning the Funds' financial statements and reports including the
appropriateness of its accounting practices and of its financial controls and
procedures; to evaluate the independence of the firm; to review procedures to
safeguard portfolio securities; to review the purchase by the Funds from the
firm of non-audit services; to review all fees paid to the firm; and to
facilitate communications between the firm and the Funds' officers and
Directors.
The Board of Directors also has a Committee of the Independent
Directors, consisting of Mr. Bennett, who serves as chairperson, Messrs.
Dyer, and Latimer, Ms.
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<PAGE>
Emmerich and Ms. Goldberg, and a Derivatives Committee 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 Committee 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 any of its affiliates receive no remuneration from the Company.
Each of the other directors receives fees that are allocated among the series
of the Company on the basis of the total assets of each series. Each
director receives from the Company and Piper Funds Inc., collectively, an
annual retainer of $1,000, plus a fee of $250 for each regular quarterly
Board of Directors meeting attended. (The per-meeting fee is based on the
total assets of the Company and Piper Funds Inc. and will increase to $500
per meeting in the event total assets exceed $200 million, with continuing
increases to as high as $1,500 per meeting in the event total assets reach $5
billion or more. In addition, members of the Audit Committee not affiliated
with the Adviser receive $1,000 for each Audit Committee meeting attended
($2,000 with respect to the chairperson of the Committee), with such fee
being allocated among all open-end and closed-end investment companies
managed by the Adviser. Members of the Committee of the Independent
Directors and the Derivatives Committee currently receive no additional
compensation. Directors are also reimbursed for expenses incurred in
connection with attending meetings.
The following table sets forth the aggregate compensation received
by each director from the Company during the fiscal year ended June 30, 1995,
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, 1994.
Directors who are officers or employees of the Adviser or any of its
affiliates did not receive any such compensation and are not included in the
table.
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<PAGE>
<TABLE>
<CAPTION>
Pension or
Retirement Estimated Total
Aggregate Benefits Annual Benefits Compensation
Compensation Accrued as Part Upon from Fund
Director from the Company of Fund Expenses Retirement Complex*
- -------- ---------------- ---------------- ---------------- -------------
<S> <C> <C> <C> <C>
David T. Bennett $1,200 None None $57,500
Jaye F. Dyer $1,358 None None $68,250
Karol D. Emmerich $1,358 None None $68,250
Luella G. Goldberg $1,516 None None $71,250
George Latimer $1,200 None None $65,250
</TABLE>
- -----------------
* Consists of 21 registered investment companies managed by the Adviser or an
affiliate of the Adviser, including Piper Institutional. Each director
included in the table, other than Mr. Bennet, serves on the board of each
such registered investment company. Mr. Bennett serves on the board of 20
such companies.
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. Each acts as such pursuant
to a written agreement which is periodically approved by the directors or the
shareholders of the Funds. The address of both the Adviser and the
Distributor is Piper Jaffray Tower, 222 South Ninth Street, Minneapolis,
Minnesota 55402-3804.
CONTROL OF THE ADVISER AND THE DISTRIBUTOR
The Adviser and the Distributor are both wholly owned subsidiaries
of Piper Jaffray Companies Inc., a publicly held corporation which is engaged
through its subsidiaries in various aspects of the financial services
industry.
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
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 Company) and the initial shareholder of the Company.
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 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
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<PAGE>
execution only so long as such continuance is specifically approved at least
annually by either the Board of Directors or by a vote of a majority of the
outstanding voting securities of the Company, provided that in either event
such continuance is also approved by a vote of a majority of the directors
who are not parties to such agreement, or interested persons of such parties,
cast in person at a meeting called for the purpose of voting on such
approval. If a majority of the outstanding voting securities of any series
of the Company approves the agreement, the agreement shall continue in effect
with respect to such approving series whether or not the shareholders of the
other series approve the agreement.
Pursuant to the Investment Advisory and Management Agreement, Money
Market Fund and Adjustable Portfolio pay the Adviser monthly advisory fees
equal on an annual basis to .15% and .30%, respectively, of the Fund's
average daily net assets. The advisory fees paid by Money Market Fund for
the fiscal period from February 2, 1993 (commencement of operations) through
June 30, 1993 and for the fiscal years ended June 30, 1994 and 1995 and were
$18,155, $44,077 and $51,262, respectively. The fees paid by Adjustable
Portfolio for the fiscal period from February 2, 1993 (commencement of
operations) through June 30, 1993 and for the fiscal years ended June 30,
1994 and 1995 were $37,934, $165,558 and $70,330, respectively.
Although not required under the Investment Advisory and Management
Agreement, the Adviser voluntarily agreed, for the fiscal year ended June 30,
1995, to reimburse Money Market Fund and Adjustable Portfolio to the extent
that total operating expenses (including the Adviser's compensation but
excluding interest, taxes, brokerage fees and commissions and extraordinary
expenses) exceeded .35% and .55% per annum, respectively, of average daily
net assets. Voluntary fee waivers and reimbursements by the Adviser may be
discontinued at any time following the Funds' fiscal year end, at the
Adviser's discretion. For the fiscal year ending June 30, 1996, the Adviser
intends to reimburse Money Market Fund and Adjustable Portfolio for all
expenses in excess of .35% and .60%, respectively. Even in the event of
discontinuance of this arrangement, the Funds will still be 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 and extraordinary
expenses. 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
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<PAGE>
Company's Board of Directors. The Adviser is obligated to pay the salaries
and fees of any affiliates of the Adviser serving as officers or directors of
the Company.
The same security may be suitable for both of the Funds and/or for
other funds or private accounts managed by the Adviser or its affiliates. If
and when two or more funds or accounts simultaneously purchase or sell the
same security, the transactions will be allocated as to price and amount in
accordance with arrangements equitable to each fund or account. The
simultaneous purchase or sale of the same securities by both Funds or by
either of the Funds and other funds or accounts managed by the Adviser or its
affiliates may have a detrimental effect on a Fund, as this may affect the
price paid or received by that Fund or the size of the position obtainable or
able to be sold by that Fund.
EXPENSES
The expenses of each Fund are deducted from their total 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 and other expenses which are not expressly assumed by the
Adviser under the Investment Advisory and Management Agreement. Any general
expenses of the Company that are not readily identifiable as belonging to a
particular Fund will be allocated between the Funds based upon the relative
net assets of the Funds at the time such expenses were accrued.
DISTRIBUTION PLAN
Rule 12b-1(b) under the 1940 Act provides that any payments made by
a fund in connection with financing the distribution of its shares may only
be made pursuant to a written plan describing all aspects of the proposed
financing of distribution. The Company had adopted a Distribution Plan for
Adjustable Portfolio in accordance with such Rule; however, the plan was
terminated by the Board of Directors on June 2, 1993 (effective June 24,
1993). The amount paid by the Fund pursuant to this plan from February 2,
1993 (commencement of operations) to June 24, 1993 was $23,771.
UNDERWRITING AND DISTRIBUTION AGREEMENT
Pursuant to an Underwriting and Distribution Agreement, the
Distributor has agreed to act as the principal underwriter for the Funds in
the sale and distribution to the public of shares of the Funds, either
through dealers or otherwise. The Distributor has agreed to offer such
shares for sale at all times when such shares are available for sale and may
lawfully be offered for sale and sold. As
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<PAGE>
compensation for its services, the Distributor receives the sales load on
sales of Adjustable Portfolio shares set forth in the Prospectus. For the
period from February 2, 1993 (commencement of operations) through June 30,
1993 and for the fiscal years ended June 30, 1994 and 1995, Adjustable
Portfolio paid $4,383, $54,430 and $0, respectively in sales charges to the
Distributor. The Distributor receives no compensation from the Fund for its
sales of Money Market Fund shares.
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 the Fund. The Company has entered into a Shareholder Account
Servicing Agreement with the Distributor, pursuant to which the Distributor
provides certain transfer agent and dividend disbursing agent services for
the underlying individual shareholder accounts. Pursuant to such Agreement,
the Distributor has agreed to perform the usual and ordinary services of
transfer agent and dividend disbursing agent not performed by IFTC with
respect to the underlying individual shareholder accounts, including, without
limitation, the following: maintaining all shareholder accounts, preparing
shareholder meeting lists, mailing shareholder reports and prospectuses,
tracking shareholder accounts for blue sky and Rule l2b-1 purposes,
withholding taxes on nonresident alien and foreign corporation accounts,
preparing and mailing checks for disbursement of income dividends and capital
gains distributions, preparing and filing U.S. Treasury Department Form 1099
for all shareholders, preparing and mailing confirmation forms to
shareholders and dealers with respect to all purchases, exchanges and
liquidations of series shares and other transactions in shareholder accounts
for which confirmations are required, recording reinvestments of dividends
and distributions in series shares, recording redemptions of series shares,
and preparing and mailing checks for payments upon redemption and for
disbursements to withdrawal plan holders. As compensation for such services,
the Distributor is paid an annual fee of $9.00 per active shareholder account
for the Money Market Fund and $7.50 per active account for the Adjustable
Portfolio. The Distributor is paid an annual fee of $6.00 per inactive
account (defined as an account that has a balance of shares in a Fund but
that does not require a client statement for the current month) for the Money
Market Fund and $7.50 per inactive account for the Adjustable Portolio. There
is no charge for a closed shareholder account (defined as an account that has
been inactive for at least three consecutive months). Such fee is payable on
a monthly basis at a rate of 1/12 of the annual per-account charge. Such fee
covers 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. The
Agreement was in effect for a portion of the fiscal year ended June 30, 1995.
Fees paid during the fiscal year ended June 30, 1995 were $211 for
Adjustable Portfolio and $256 for Money Market Fund.
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<PAGE>
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
The Adviser is responsible for decisions to buy and sell securities
for the Funds, the selection of broker-dealers to effect the transactions and
the negotiation of brokerage commissions, if any. In placing orders for
securities transactions, the primary criterion for the selection of a
broker-dealer is the ability of the broker-dealer, in the opinion of the
Adviser, to secure prompt execution of the transactions on favorable terms,
including the reasonableness of the commission and considering the state of
the market at the time.
When consistent with these objectives, business may be placed with
broker-dealers who furnish investment research or services to the Adviser.
Such research or services include advice, both directly and in writing, as to
the value of securities; the advisability of investing in, purchasing or
selling securities; and the availability of securities, or purchasers or
sellers of securities; as well as analyses and reports concerning issues,
industries, securities, economic factors and trends, portfolio strategy and
the performance of accounts. This allows the Adviser to supplement its own
investment research activities and enables the Adviser to obtain the views
and information of individuals and research staffs of many different
securities firms prior to making investment decisions for the Funds. To the
extent portfolio transactions are effected with broker-dealers who furnish
research services to the Adviser, the Adviser receives a benefit, not capable
of evaluation in dollar amounts, without providing any direct monetary
benefit to the Funds from these transactions. The Adviser believes that most
research services obtained by it generally benefit several or all of the
investment companies and private accounts which it manages, as opposed to
solely benefiting one specific managed fund or account. Normally, research
services obtained through managed funds or accounts investing in common
stocks would primarily benefit the managed funds or accounts which invest in
common stock; similarly, services obtained from transactions in fixed-income
securities would normally be of greater benefit to the managed funds or
accounts which invest in debt securities. The Funds will not purchase at a
higher price or sell at a lower price in connection with transactions
effected with a dealer, acting as principal, who furnishes research services
to the Adviser than would be the case if no weight were given by the Adviser
to the dealer's furnishing of such services.
The Adviser has not entered into any formal or informal agreements
with any broker-dealers, nor does it maintain any "formula" which must be
followed in connection with the placement of the Funds' portfolio
transactions in exchange for research services provided the Adviser, except
as noted below. However, the Adviser does maintain an informal list of
broker-dealers, which is used from time to time as a general guide in the
placement of the Funds' business, in order to encourage certain
broker-dealers to provide the Adviser with research services which the
Adviser anticipates will be useful to it. Because the list is merely a
general guide, which is to be used only after the primary criterion for the
selection of broker-dealers (discussed above) has been met, substantial
deviations from the list are permissible and may be expected to occur. The
Adviser will authorize the Funds to pay an amount of commission for effecting
a securities transaction in excess of the amount of commission another
broker-dealer would have charged only if the
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<PAGE>
Adviser determines in good faith that such amount of commission is reasonable
in relation to the value of the brokerage and research services provided by
such broker-dealer, viewed in terms of either that particular transaction or
the Adviser's overall responsibilities with respect to the accounts as to
which it exercises investment discretion. Generally, the Funds pay higher
than the lowest commission rates available.
Portfolio transactions for the Funds, including transactions in
futures contracts and options thereon, may be effected through the
Distributor. In determining the commissions to be paid to the Distributor in
connection with transactions effected on a securities exchange, it is the
policy of the Funds that such commissions will, in the judgment of the
Adviser, subject to review by the Board of Directors, be both (a) at least as
favorable as those which would be charged by other qualified brokers or
futures commission merchants in connection with comparable transactions
involving similar securities or similar futures contracts or options on
futures contracts being purchased or sold on an exchange during a comparable
period of time, and (b) at least as favorable as commissions
contemporaneously charged by the Distributor on comparable transactions for
its most favored comparable unaffiliated customers. While the Funds do not
deem it practicable and in their best interest to solicit competitive bids
for commission rates on each transaction, consideration will regularly be
given to posted commission rates as well as to other information concerning
the level of commissions charged on comparable transactions by other
qualified brokers and futures commission merchants. Money Market Fund did
not pay any brokerage commissions and Adjustable Portfolio paid brokerage
commissions of $5,185 for the period from February 2, 1993 (commencement of
operations) through June 30, 1993. For the fiscal year ending June 30, 1994,
Money Market Fund did not pay any brokerage commissions and Adjustable
Portfolio paid brokerage commissions of $20,188. For the fiscal year ending
June 30, 1995, Money Market Fund did not pay any brokerage commissions and
Adjustable Portfolio paid total brokerage commissions of $2,975 from which
$2,550 was paid to Piper Jaffray Inc., an affiliate of the Fund and the
Adviser.
From time to time the Funds may acquire the securities of their
regular brokers or dealers or affiliates of such brokers or dealers. As of
June 30, 1995, Money Market Fund held securities issued by Federal National
Mortgage Association in the amount of $7,369,104 and Adjustable Portfolio did
not hold any such securities. During the fiscal year ended June 30, 1995,
Money Market Fund purchased securities issued by Federal National Mortgage
Association, Goldman Sachs and Lehman Brothers and Adjustable Portfolio did
not purchase any such securities.
CAPITAL STOCK AND OWNERSHIP OF SHARES
Each Fund's shares of common stock have a par value of $.01 per
share, and have equal rights to share in dividends and assets. The shares
possess no preemptive or conversion rights. 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.
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<PAGE>
As of October 16, 1995, no shareholders were beneficial owners of 5%
or more of the outstanding shares of Money Market Fund. As of October 16,
1995, the following shareholders were beneficial owners of 5% or more of the
outstanding shares of Adjustable Portfolio: St. Louis Park Methodist
Hospital, Attn: Janis Williams, 6th & Marquette, Minneapolis, MN (13.6%);
Fairview Hospital & Health Care Service General Fund, Attn: Katrina Jaworski,
2312 S. 6th Street, Minneapolis, MN (7.2%); Hitchcock Industries, 8701 Harriet
Ave, Bloomington, MN (20.3%) and Helath Care Group Self Insurance
Association, Berkley Administrators, Trust Account No. 7, P.O. Box 59143,
Minneapolis, MN (10.2%). The Funds' officers and directors 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 "Purchase of 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.
Money Market Fund values its portfolio securities at amortized cost
in accordance with Rule 2a-7 under the 1940 Act. This method involves
valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the impact
of fluctuations in interest rates on the market value of the instrument and
regardless of any unrealized capital gains or losses. While this method
provides certainty in valuation, it may result in periods during which value,
as determined by amortized cost, is higher or lower than the price the Fund
would receive if it sold the instrument. During periods of declining
interest rates, the daily yield on shares of the Fund computed by dividing
the annualized daily income of the Fund by the net asset value computed as
described above may tend to be higher than a like computation made by the
Fund with identical investments utilizing a method of valuation based upon
market prices and estimates of market prices for all of its securities.
Pursuant to Rule 2a-7, the Board of Directors of the Company has
determined, in good faith based upon a full consideration of all material
factors, that it is in the best interests of Money Market Fund and its
shareholders to maintain a stable net asset value per share by virtue of the
amortized cost method of valuation. Money Market Fund will continue to use
this method only so long as the Board of Directors believes that it fairly
reflects the market-based net asset value per share. In accordance with Rule
2a-7, the Board of Directors has undertaken, as a particular responsibility
within the overall duty of care owed to Fund shareholders, to establish
procedures reasonably designed, taking into account current market conditions
and Money Market Funds' investment objectives, to stabilize such Fund's net
asset value per share at a single value. These procedures include the
periodic determination of any deviation of current net asset value per share,
calculated using available market quotations, from such Fund's amortized cost
price
-20-
<PAGE>
per share, the periodic review by the Board of the amount of any such
deviation and the method used to calculate any such deviation, the
maintenance of records of such determinations and the Board's review thereof,
the prompt consideration by the Board if any such deviation exceeds 1/2 of
1%, and the taking of such remedial action by the Board as it deems
appropriate where it believes the extent of any such deviation may result in
material dilution or other unfair results to investors or existing
shareholders. Such remedial action may include redemptions in kind, selling
portfolio instruments prior to realizing capital gains or losses, shortening
the average portfolio maturity, withholding dividends or utilizing a net
asset value per share as determined by using available market quotations.
Money Market Fund will, in further compliance with Rule 2a-7, maintain a
dollar-weighted average portfolio maturity appropriate to its objective of
maintaining a stable net asset value and not exceeding 90 days, will not
purchase any instrument with a remaining maturity of greater than 397
calendar days, will limit its portfolio investments to those U.S.
dollar-denominated instruments which the Board determines present minimal
credit risks and which are at the time of acquisition Eligible Securities (as
defined in Rule 2a-7), and will record, maintain and preserve a written copy
of the above-described procedures and a written record of the Board's
considerations and actions taken in connection with the discharge of its
above-described responsibilities.
On June 30, 1995, the net asset value per share of the Funds was
calculated as follows:
MONEY MARKET FUND
Net Assets ($52,488,862) = Net Asset Value per Share ($1.00)
---------------------------------
Shares Outstanding (52,488,862)
ADJUSTABLE PORTFOLIO
Net Assets ($14,969,773) = Net Asset Value per Share ($9.44)
--------------------------------
Shares Outstanding (1,585,696)
PERFORMANCE COMPARISONS
Advertisements and other sales literature for Adjustable Portfolio
may refer to "yield," "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:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return;
n = number of years; and
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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 average annual total return for Adjustable Portfolio was 4.21%
for the one-year period ended June 30, 1995 and 2.26% for the period from
February 2, 1993 (commencement of operations) to June 30, 1995.
The Adviser has waived or paid certain expenses of the Fund, thereby
increasing total return and yield. These expenses may or may not be waived
or paid in the future in the Adviser's discretion. Absent any voluntary
expense payments or waivers, the average annual total returns would have been
4.17% and 2.22%, respectively.
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 cumulative total return for Adjustable Portfolio from inception
(February 2, 1993) to June 30, 1995 was 5.52%. Absent any voluntary expense
payments or waivers, the cumulative total return would have been 5.48%.
Adjustable Portfolio may issue yield quotations. Yield is computed
by dividing the net investment income per share (as defined under Securities
and Exchange Commission rules and regulations) earned during the computation
period by the maximum offering price per share on the last day of the period
(based on a 30-day or one month period), according to the following formula:
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YIELD = 2 [ (a-b + 1) 6 - 1]
---
c-d
Where: a = dividends and interest earned during the
period;
b = expenses accrued for the period ( net of
reimbursements);
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends; and
d = the maximum offering price per share on the
last day of the period.
The yield for Adjustable Portfolio for the 30-day period ended June
30, 1995 was 6.31%. Absent any voluntary expense payments or waivers, the
30-day yield would have been 6.11%.
Money Market Fund may issue current yield quotations. Simple yields
are computed by determining the net change, exclusive of capital changes, in
the value of a hypothetical pre-existing account having a balance of one
share at the beginning of a recent seven calendar day period, subtracting a
hypothetical charge reflecting deductions from shareholder accounts, and
dividing the difference by the value of the account at the beginning of the
base period to obtain the base period return, and then multiplying the base
period return by 365/7. The resulting yield figure will be carried to at
least the nearest hundredth of one percent. Effective yields are computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one share at the
beginning of a recent seven calendar day period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7, and
subtracting 1 from the result, according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN +1)365/7] -1
The seven-day yield and effective yield for Money Market Fund as of
June 30, 1995 were 5.67% and 5.83%, respectively. Absent any voluntary
expense payments or waivers, the seven-day yield and effective yield would
have been 5.53% and 5.69%, respectively.
When calculating the foregoing yield or effective yield quotations,
the calculation of net change in account value will include the value of
additional shares purchased with dividends from the original share and
dividends declared on both the original share and any such additional shares,
and all fees, other than nonrecurring accounts or sales charges, that are
charged to all shareholder accounts in proportion to the length of the base
period. Realized gains and losses from the sale of securities and unrealized
appreciation and depreciation are excluded from the calculation of yield and
effective yield.
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PURCHASE OF SHARES
An investor in Adjustable Portfolio 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
GENERAL
Redemption of shares, or payment, may be suspended at times (a) when
the New York Stock Exchange is closed for other than customary weekend or
holiday closings, (b) when trading on said Exchange is restricted, (c) when
an emergency exists, as a result of which disposal by the Funds of securities
owned by them is not reasonably practicable, or it is not reasonably
practicable for the Funds fairly to determine the value of their net assets,
or (d) during any other period when the Securities and Exchange Commission,
by order, so permits, provided that applicable rules and regulations of the
Securities and Exchange Commission shall govern as to whether the conditions
prescribed in (b) or (c) exist.
Shareholders who purchased shares through a broker-dealer other than
the Distributor may also redeem such shares by written request to IFTC at the
address set forth in the Prospectus. To be considered in proper form,
written requests for redemption should indicate the dollar amount or number
of shares to be redeemed, refer to the shareholder's Fund account number, and
give either a social security or tax identification number. The request
should be signed in exactly the same way the account is registered. If there
is more than one owner of the shares, all owners must sign. If shares to be
redeemed have a value of $10,000 or more or redemption proceeds are to be
paid to someone other than the shareholder at the shareholder's address of
record, the signature(s) must be guaranteed by an "eligible guarantor
institution," which includes a commercial bank that is a member of the
Federal Deposit Insurance Corporation, a trust company, a member firm of a
domestic stock exchange, a savings association or a credit union that is
authorized by its charter to provide a signature guarantee. IFTC may reject
redemption instructions if the
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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.
SYSTEMATIC WITHDRAWAL PLAN
To establish a Systematic Withdrawal Plan for either 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 Adjustable
Portfolio 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
Each Fund qualified during its last taxable year and intends to
qualify each year as a "regulated investment company" under Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a
regulated investment company a Fund must, among other things, receive at
least 90% of its gross income each year from dividends, interest, gains from
the sale or other
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disposition of securities and certain other types of income, including income
from options and futures contracts.
The Code also forbids a regulated investment company from earning
30% or more of its gross income from the sale or other disposition of
securities held less than three months. This restriction may limit the
extent to which Adjustable Portfolio may purchase futures contracts and
options. To the extent such Fund engages in short-term trading and enter
into futures and options transactions, the likelihood of violating this 30%
requirement is increased.
The Code also requires a regulated investment company to diversify
its holdings. The Internal Revenue Service has not made its position clear
regarding the treatment of futures contracts and options for purposes of the
diversification test, and the extent to which Adjustable Portfolio can buy or
sell futures contracts and options may be limited by this requirement.
If for any taxable year one of the Funds does not qualify as a
regulated investment company, all of its taxable income will be subject to
tax at regular corporate rates without any deduction for distributions to
shareholders, and such distributions will be taxable to the Fund's
shareholders as ordinary dividends to the extent of the Fund's current or
accumulated earnings and profits. To qualify again as a regulated investment
company in a subsequent year the Fund would be required to distribute to
shareholders its undistributed earnings and profits and to pay an interest
charge on 50% of such earnings and profits. In addition, if immediately
after qualifying as a regulated investment company for any taxable year the
Fund failed to qualify for a period greater than one taxable year, the Fund
would be required to recognize any net built-in gains (the excess of
aggregate gains over aggregate losses that would have been realized if it had
been liquidated) in order to again qualify as a regulated investment company.
Each Fund will be subject to a non-deductible excise tax equal to 4%
of the excess, if any, of the amount required to be distributed pursuant to
the Code for each calendar year over the amount actually distributed. No
amount of such excess, however, will be subject to the excise tax to the
extent it is subject to the corporate-level income tax. In order to avoid
the imposition of this excise tax, each Fund generally must declare dividends
by the end of a calendar year representing 98% of the Fund's ordinary income
for the calendar year and 98% of its capital gain net income (both long-term
and short-term capital gains) for the 12-month period ending October 31 of
the calendar year.
Gain or loss on futures contracts and options is taken into account
when realized by entering into a closing transaction or by exercise. In
addition, with respect to many types of futures contracts and options held at
the end of Adjustable Portfolio's taxable year, unrealized gain or loss on
such contracts is taken into account at the then current fair market value
thereof under a special "marked-to-market, 60/40 system," and such gain or
loss is recognized for tax purposes. The gain or loss from such futures
contracts and options (including premiums on certain options that expire
unexercised) is treated as 60% long-term and 40% short-term capital gain or
loss, regardless of their holding period. The
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amount of any capital gain or loss actually realized by the Fund in a
subsequent sale or other disposition of such futures contracts will be
adjusted to reflect any capital gain or loss taken into account by the Fund
in a prior year as a result of the constructive sale under the
"marked-to-market, 60/40 system." Notwithstanding the rules described above,
with respect to certain futures contracts, the Fund may make an election that
will have the effect of exempting all or a part of those identified futures
contracts from being treated for federal income tax purposes as sold on the
last business day of the Fund's taxable year. All or part of any loss
realized by the Fund on any closing of a futures contract may be deferred
until all of the Fund's offsetting positions with respect to the futures
contract are closed.
Ordinarily, distributions and redemption proceeds earned by a
shareholder of either of the Funds are not subject to withholding of federal
income tax. However, 31% of a Fund shareholder's distributions and
redemption proceeds must be withheld if a Fund shareholder fails to supply
the Fund or its agent with such shareholder's taxpayer identification number
or if a Fund shareholder who is otherwise exempt from withholding fails to
properly document such shareholder's status as an exempt recipient.
Corporations are generally exempt from these requirements.
Any loss on the sale or exchange of shares of either Fund generally
will be disallowed to the extent that a shareholder acquires or contracts to
acquire shares of the same Fund within 30 days before or after such sale or
exchange. In addition, if a shareholder disposes of shares within 90 days of
acquiring such shares and purchases other shares of the Company or of a
series of another investment company managed by the Adviser at a reduced
sales charge, the shareholder's tax basis for determining gain or loss on the
shares which are disposed of is reduced by the lesser of the amount of the
sales charge that was paid when the shares disposed of were acquired or the
amount by which the sales charge for the new shares is reduced. If a
shareholder's tax basis is so reduced, the amount of the reduction is treated
as part of the tax basis of the new shares.
For federal income tax purposes, Adjustable Portfolio had capital
loss carryovers in the amount of $3,291,023 at June 30, 1995, which, if not
offset by subsequent capital gains, will expire in 2002-2004. It is unlikely
the Board of Directors will authorize a distribution of any net realized
capital gains until the available capital loss carryovers have been offset or
expired.
Interest income from direct investment by noncorporate taxpayers in
U.S. Government obligations (but not repurchase agreements) generally is not
subject to state taxation. However, certain states attempt to tax mutual
fund dividends attributable to such income. This treatment has been
challenged in a number of lawsuits. Shareholders are encouraged to consult
their tax advisors concerning this matter.
GENERAL INFORMATION
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
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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 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.
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.
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.
Minnesota has enacted legislation which authorizes corporations to
eliminate or limit the personal liability of a director to the corporation or
its shareholders for monetary damages for breach of the fiduciary duty of
"care" (the duty to act with the care an ordinarily prudent person in a like
position would exercise under similar circumstances). Minnesota law does
not, however, permit a corporation to eliminate or limit the liability of a
director (a) for any breach of the director's duty of "loyalty" to the
corporation or its shareholders (the duty to act in good faith and in a
manner reasonably believed to be in the best interest of the corporation),
(b) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (c) for authorizing a dividend,
stock repurchase or redemption or other distribution in violation of
Minnesota law or for violation of certain provisions of Minnesota securities
laws, or (d) for any transaction from which the director derived an improper
personal benefit. Minnesota law does not permit elimination or limitation of
a director's liability under the 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
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or reckless disregard of the duties of a director. The Articles of
Incorporation of Piper Global limit the liability of directors to the fullest
extent permitted by Minnesota law and the 1940 Act.
FINANCIAL STATEMENTS
The audited financial statements and supplementary schedules for
Money Market Fund and Adjustable Portfolio as of June 30, 1995, have been
incorporated by reference into this Statement of Additional Information from
the Funds' annual report to shareholders 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. An Amended Consolidated Class Action Complaint was filed on
October 5, 1994 in the United States District Court, District of Minnesota,
against the Institutional Government Income Portfolio (a series of Piper
Funds Inc.), the Adviser, the Distributor, William H. Ellis and Edward J.
Kohler alleging certain violations of federal and state securities laws,
including the making of materially misleading statements in the prospectus,
common law negligent misrepresentation and breach of fiduciary duty. This is
a consolidated putative class action in which claims brought by 11 persons or
entities have been consolidated under the title IN RE: PIPER FUNDS INC.
INSTITUTIONAL GOVERNMENT INCOME PORTFOLIO LITIGATION. The named plaintiffs
in the complaint purport to represent a class of individuals and groups who
purchased shares of Institutional Government Income Portfolio during the
putative class period of July 1, 1991 through May 9, 1994. The named
plaintiffs and defendants have entered into a settlement agreement which has
received preliminary approval from the Court. The terms of the settlement
are set forth in a Settlement Agreement dated July 20, 1995 (as modified by
an Addendum filed on July 28, 1995). The Settlement Agreement contained a
provision which would have permitted the defendants to cancel the Agreement
if shareholders who had incurred a cumulative "Loss" (as defined under the
Agreement) more than 10% of the Loss sustained by the entire class had opted
out. The deadline for requesting exclusion from the class has passed, and
the Loss sustained by persons requesting exclusion is less than 10%. If
granted final approval by the Court, the Settlement Agreement would provide
up to $70 million, together with interest earned, less certain disbursements
and attorneys fees as approved by the Court, to class members in payments
scheduled over approximately three years. Such payments would be made by
Piper Jaffray Companies Inc. and the Adviser and would not be an obligation
of the Institutional Government Income Portfolio or Piper Funds Inc.
Six additional complaints, which are based on claims similar to
those asserted in the first complaint, have been brought relating to the
Institutional Government Income Portfolio. The first of such complaints was
filed in the same court against the same parties on October 21, 1994, by
Eltrax Systems, Inc. A second additional
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complaint was filed against the Company, the Adviser, the Distributor and
Piper Jaffray Companies Inc. on September 30, 1994 in the United States
District Court, District of Colorado. Plaintiffs in the complaint are Gary
Pashel and Gregg S. Hayutin, Trustees of the Mae Pashel Trust; Mae Pashel,
individually; Gary Pashel and Michael H. Feinstein, Trustees of the Robert
Hayutin Insurance Trust; and Dennis E. Hayutin, Gregg S. Hayutin and Gary
Pashel, Trustees of the Marie Ellen Hayutin Trust. The third additional
complaint, a putative class action, was filed on November 1, 1994 in the
United States District Court, District of Idaho by the Idaho Association of
Realtors, Inc., a non-profit Idaho corporation. The complaint was filed
against the Institutional Government Income Portfolio, the Adviser, the
Distributor, Piper Jaffray Companies Inc., William H. Ellis and Edward J.
Kohler. The fourth complaint, also a putative class action, was filed in the
United States District Court for the District of Minnesota, Third Division,
on January 25, 1995. The Complaint was brought by Louise S. Maher and John
A. Raetz against Piper Funds Inc., Institutional Government Income Portfolio,
the Adviser, the Distributor, Piper Jaffray Companies Inc., William H. Ellis
and Edward J. Kohler. The fifth complaint was brought on April 11, 1995, and
in the future may be filed in the Minnesota State District Court, Hennepin
County. 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 sixth complaint relating to 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
individual investors in the Institutional Government Income Portfolio. The
complaints discussed in this paragraph generally have been consolidated with
the IN RE: PIPER FUNDS INC. action for pretrial purposes and the arbitrations
and litigation have been stayed pending entry of an order by the Court
permitting those class members who have requested exclusion to proceed with
their actions.
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.
A complaint was filed by Carson H. Bradley on February 3, 1995 in
the Sixth Judicial District of the State of Idaho against American Government
Income Fund
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Inc., American Government Income Portfolio Inc., the Adviser, the Distributor
and Worth Bruntjen. The complaint alleges negligent misrepresentation,
breach of fiduciary duty and breach of contract. The action has been removed
to Federal District Court for the District of Idaho.
A complaint was filed by Gary E. Nelson on June 28, 1995 in the
United States District Court for the Western District of Washington at
Seattle against American Strategic Income Portfolio Inc. - II, 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., 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., American Government Income Fund Inc., American Government
Term Trust, Inc., American Strategic Income Portfolio Inc., American
Strategic Income Portfolio Inc. -- II, American Strategic Income Portfolio
Inc. -- III, American Opportunity Income Fund Inc., American Select Portfolio
Inc., Piper Jaffray Companies Inc., Piper Jaffray Inc., the Adviser and
certain associated individuals. By Order filed October 5, 1995, the
complaints were consolidated. The amended 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.
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 Adviser and Distributor do not believe that the settlement
reached in connection with the first lawsuit described above, or any other of
the above lawsuits, will have a material adverse effect upon their ability to
perform under their agreements with the Fund, and they intend to defend the
remaining lawsuits vigorously.
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APPENDIX A
COMMERCIAL PAPER AND CORPORATE BOND RATINGS
COMMERCIAL PAPER RATINGS
Set forth below are descriptions of the two highest commercial paper
and other short-term rating categories assigned by Standard & Poor's Ratings
Services ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch
Investors Service, Inc. ("Fitch") and Duff & Phelps, Inc. ("Duff"):
The designation A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted with a
plus sign (+) designation. Capacity for timely payment on issues with an A-2
designation is strong. However, the relative degree of safety is not as high
as for issues designated A-1.
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity for
repayment of short-term promissory obligations, and ordinarily will be
evidenced by leading market positions in well established industries, high
rates of return on funds employed, conservative capitalization structures
with moderate reliance on debt and ample asset protection, broad margins in
earnings coverage of fixed financial charges and high internal cash
generation, and well established access to a range of financial markets and
assured sources of alternate liquidity. Issues rated Prime-2 (P-2) have a
strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
The rating Fitch-1 (Highest Grade) is the highest commercial paper
rating assigned by Fitch. Paper rated Fitch-1 is regarded as having the
strongest degree of assurance for timely payment. The rating Fitch-2 (Very
Good Grade) is the second highest commercial paper rating assigned by Fitch
which reflects an assurance of timely payment only slightly less in degree
than the strongest issues.
The rating Duff-1 is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of timely
payment with excellent liquidity factors which are supported by ample asset
protection. Risk factors are minor. Paper rated Duff-2 is regarded as
having good certainty of timely payment, good access to capital markets and
sound liquidity factors and company fundamentals. Risk factors are small.
A-1
<PAGE>
S&P CORPORATE BOND RATINGS
S&P's ratings for corporate bonds have the following definitions:
Debt rated "AAA" has the highest rating assigned by S&P. 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.
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.
A-2
<PAGE>
APPENDIX B
INTEREST RATE FUTURES CONTRACTS AND RELATED OPTIONS
INTEREST RATE FUTURES CONTRACTS
Adjustable Portfolio may purchase and sell interest rate futures
contracts and options thereon. An interest rate futures contract creates an
obligation on the part of the seller (the "short") to deliver, and an
offsetting obligation on the part of the purchaser (the "long") to accept
delivery of, the type of financial instrument called for in the contract in a
specified delivery month for a stated price. A majority of transactions in
interest rate futures contracts, however, do not result in the actual
delivery of the underlying instrument, but are settled through liquidation
(I.E., by entering into an offsetting transaction). The interest rate
futures contracts to be traded by the Fund are traded only on commodity
exchanges--known as "contract markets"--approved for such trading by the
Commodity Futures Trading Commission and must be executed through a futures
commission merchant or brokerage firm which is a member of the relevant
contract market. These contract markets, through their clearing
corporations, guarantee that the contracts will be performed. Presently,
futures contracts are based upon such debt securities as long-term U.S.
Treasury bonds, Treasury notes, Government National Mortgage Association
modified pass-through mortgage-backed securities, three-month U.S. Treasury
bills and bank certificates of deposit. In addition, futures contracts are
traded in the Moody's Investment Grade Corporate Bond Index and the Long Term
Corporate Bond Index.
Although most futures contracts by their terms call for actual
delivery or acceptance of commodities or securities, in most cases the
contracts are closed out before the settlement date without the making or
taking of delivery. Closing out a short position is effected by purchasing a
futures contract for the same aggregate amount of the specific type of
financial instrument or commodity and the same delivery month. If the price
of the initial sale of the futures contract exceeds the price of the
offsetting purchase, the seller is paid the difference and realizes a gain.
Conversely, if the price of the offsetting purchase exceeds the price of the
initial sale, the trader realizes a loss. Similarly, the closing out of a
long position is effected by the purchaser entering into a futures contract
sale. If the offsetting sale price exceeds the purchase price, the purchaser
realizes a gain and, if the purchase price exceeds the offsetting sale price,
the purchaser realizes a loss.
The purchase or sale of a futures contract differs from the purchase
or sale of a security in that no price or premium is paid or received.
Instead, an amount of cash or securities acceptable to the Adviser and the
relevant contract market, which varies but is generally about 5% of the
contract amount, must be deposited with the custodian in the name of the
broker. This amount is known as "initial margin," and represents a "good
faith" deposit assuring the performance of both the purchaser and the seller
under the futures contract. Subsequent payments to and from the broker,
known as "variation margin," are required to be made on a daily basis as the
price of the futures contract fluctuates, making the long or short positions
in the futures contract more or less valuable, a process known as "marking
B-1
<PAGE>
to the market." Prior to the settlement date of the futures contract, the
position may be closed out by taking an opposite position which will operate
to terminate the position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid to or
released by the broker, and the purchaser realizes a loss or gain. In
addition, a commission is paid on each completed purchase and sale
transaction.
The purpose of the acquisition or sale of a futures contract by the
Fund, as the holder of long-term fixed-income securities, is to hedge against
fluctuations in rates on such securities without actually buying or selling
long-term fixed-income securities. For example, if the Fund owns long-term
bonds and interest rates are expected to increase, the Fund might sell
futures contracts. Such a sale would have much the same effect as selling
some of the long-term bonds in the Fund's portfolio. If interest rates
increase as anticipated by the Adviser, the value of certain long-term
securities in the portfolio would decline, but the value of the Fund's
futures contracts would increase at approximately the same rate, thereby
keeping the net asset value of the Fund from declining as much as it
otherwise would have. Of course, since the value of the securities in the
Fund's portfolio will far exceed the value of the futures contracts sold by
the Fund, an increase in the value of the futures contracts could only
mitigate--but not totally offset--the decline in the value of the portfolio.
Similarly, when it is expected that interest rates may decline,
futures contracts could be purchased to hedge against the Fund's anticipated
purchases of long-term fixed-income securities, such as bonds, at higher
prices. Since the rate of fluctuation in the value of futures contracts
should be similar to that of long-term bonds, the Fund could take advantage
of the anticipated rise in the value of long-term bonds without actually
buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Fund's cash could then be used to buy
long-term bonds on the cash market. The Fund could accomplish similar
results by selling bonds with long maturities and investing in bonds with
short maturities when interest rates are expected to increase or by buying
bonds with long maturities and selling bonds with short maturities when
interest rates are expected to decline. However, in circumstances when the
market for bonds may not be as liquid as that for futures contracts, the
ability to invest in such contracts could enable the Fund to react more
quickly to anticipated changes in market conditions or interest rates.
OPTIONS ON INTEREST RATE FUTURES CONTRACTS
Adjustable Portfolio may purchase and sell put and call options on
interest rate futures contracts which are traded on a United States exchange
or board of trade as a hedge against changes in interest rates, and will
enter into closing transactions with respect to such options to terminate
existing positions. An interest rate futures contract provides for the
future sale by one party and the purchase by the other party of a certain
amount of a specific financial instrument (debt security) at a specified
price, date, time and place. An option on an interest rate futures contract,
as contrasted with the direct investment in such a contract, gives the
purchaser the right, in return for the premium paid, to assume a position in
an interest rate futures contract at a specified exercise price at any time
prior to the expiration date of the option. Options on interest rate futures
contracts are similar to options on securities, which give the purchaser the
right, in return for the premium paid, to purchase or sell securities. A
call option gives the purchaser of such option the right to buy, and obliges
its writer to sell, a specified underlying futures contract at a specified
exercise price at any time prior to the expiration date of
B-2
<PAGE>
the option. A purchaser of a put option has the right to sell, and the
writer has the obligation to buy, such contract at the exercise price during
the option period. Upon exercise of an option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's future
margin account, which represents the amount by which the market price of the
futures contract exceeds, in the case of a call, or is less than, in the case
of a put, the exercise price of the option on the futures contract. If an
option is exercised on the last trading day prior to the expiration date of
the option, the settlement will be made entirely in cash equal to the
difference between the exercise price of the option and the closing price of
the interest rate futures contract on the expiration date. The Fund will pay
a premium for purchasing options on interest rate futures contracts. Because
the value of the option is fixed at the point of sale, there are no daily
cash payments to reflect changes in the value of the underlying contract;
however, the value of the option does change daily and that change would be
reflected in the net asset value of the Fund. In connection with the writing
of options on interest rate futures contracts, the Fund will make initial
margin deposits and make or receive maintenance margin payments that reflect
changes in the market value of such options. Premiums received from the
writing of an option are included in initial margin deposits.
PURCHASE OF PUT OPTIONS ON FUTURES CONTRACTS. Adjustable Portfolio
may purchase put options on interest rate futures contracts if the Adviser
anticipates a rise in interest rates. Because the value of an interest rate
futures contract moves inversely in relation to changes in interest rates, a
put option on such a contract becomes more valuable as interest rates rise.
By purchasing put options on interest rate futures contracts at a time when
the Adviser expects interest rates to rise, the Fund will seek to realize a
profit to offset the loss in value of its portfolio securities. If interest
rates remain steady or fall such that the futures contract price at
expiration of the option is above the option exercise price, the put option
will expire worthless.
PURCHASE OF CALL OPTIONS ON FUTURES CONTRACTS. Adjustable Portfolio
may purchase call options on interest rate futures contracts if the Adviser
anticipates a decline in interest rates. The purchase of a call option on an
interest rate futures contract represents a means of obtaining temporary
exposure to market appreciation at limited risk. Because the value of an
interest rate futures contract moves inversely in relation to changes to
interest rates, a call option on such a contract becomes more valuable as
interest rates decline. The Fund may purchase a call option on an interest
rate futures contract to hedge against a decline in interest rates in a
market advance when the Fund is holding cash. The Fund can take advantage of
the anticipated rise in the value of long-term securities without actually
buying them until the market is stabilized. At that time, the options can be
liquidated and the Fund's cash can be used to buy long-term securities. If
interest rates remain steady or rise such that the futures contract price at
expiration of the option is below the option exercise price, the call option
will expire worthless.
B-3
<PAGE>
WRITING CALL OPTIONS ON FUTURES CONTRACTS. Adjustable Portfolio may
write call options on interest rate futures contracts if the Adviser
anticipates a rise in interest rates. As interest rates rise, a call option
on such a contract becomes less valuable. If the futures contract price at
expiration of the option is below the exercise price, the option will not be
exercised and the Fund will retain the full amount of the option premium.
Such amount provides a partial hedge against any decline that may have
occurred in the Fund's portfolio securities. If interest rates decline such
that the futures contract price is above the option exercise price and the
option is exercised, the Fund will be liable for the amount by which the
market price of the futures contract exceeds the exercise price of the option.
WRITING PUT OPTIONS ON FUTURES CONTRACTS. Adjustable Portfolio may
write put options on interest rate futures contracts if the Adviser
anticipates a decline in interest rates. As interest rates decline, a put
option on an interest rate futures contract becomes less valuable. If the
futures contract price at expiration of the option has risen due to declining
interest rates and is above the exercise price, the option will not be
exercised and the Fund will retain the full amount of the option premium.
Such amount can then be used by the Fund to buy long-term securities when the
market has stabilized. If interest rates rise such that the futures contract
price is below the option exercise price and the option is exercised, the
Fund will be liable for the amount by which the exercise price of the option
exceeds the market price of the futures contract.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
HEDGING RISKS IN FUTURES CONTRACTS TRANSACTIONS. There are several
risks in using futures contracts as hedging devices. One risk arises because
the prices of futures contracts may not correlate perfectly with movements in
the underlying fixed-income security due to certain market distortions.
First, all participants in the futures market are subject to initial margin
and variation margin requirements. Rather than making additional variation
margin payments, investors may close the contracts through offsetting
transactions which could distort the normal relationship between the security
and the futures market. Second, the margin requirements in the futures
market are lower than margin requirements in the securities market, and as a
result the futures market may attract more speculators than does the
securities market. Increased participation by speculators in the futures
market may also cause temporary price distortions. Because of possible price
distortion in the futures market and because of imperfect correlation between
movements in securities and movements in the prices of futures contracts,
even a correct forecast of general market trends may not result in a
successful hedging transaction over a very short period. Another risk arises
because of imperfect correlation between movements in the value of the
futures contracts and movements in the value of securities subject to the
hedge.
Successful use of futures contracts by Adjustable Portfolio is
subject to the ability of the Adviser to predict correctly movements in the
direction of interest rates. If the Fund has hedged against the possibility
of an increase in interest rates adversely affecting the value of
fixed-income securities held in its portfolio and
B-4
<PAGE>
interest rates decrease instead, the Fund will lose part or all of the
benefit of the increased value of its security which it has hedged because it
will have offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to sell securities
to meet daily variation margin requirements. Such sales of securities may,
but will not necessarily, be at increased prices which reflect the decline in
interest rates. The Fund may have to sell securities at a time when it may
be disadvantageous to do so.
LIQUIDITY OF FUTURES CONTRACTS. Adjustable Portfolio may elect to
close some or all of its contracts prior to expiration. The purpose of
making such a move would be to reduce or eliminate the hedge position held by
the Fund. The Fund may close its positions by taking opposite positions.
Final determinations of variation margin are then made, additional cash as
required is paid by or to the Fund, and the Fund realizes a loss or a gain.
Positions in futures contracts may be closed only on an exchange or
board of trade providing a secondary market for such futures contracts.
Although the Fund intends to enter into futures contracts only on exchanges
or boards of trade where there appears to be an active secondary market,
there is no assurance that a liquid secondary market will exist for any
particular contract at any particular time.
In addition, most domestic futures exchanges and boards of trade
limit the amount of fluctuation permitted in futures contract prices during a
single trading day. The daily limit establishes the maximum amount that the
price of a futures contract may vary either up or down from the previous
day's settlement price at the end of a trading session. Once the daily limit
has been reached in a particular contract, no trades may be made that day at
a price beyond that limit. The daily limit governs only price movement
during a particular trading day and therefore does not limit potential losses
because the limit may prevent the liquidation of unfavorable positions. It
is possible that futures contract prices could move to the daily limit for
several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, it will not be
possible to close a futures position and, in the event of adverse price
movements, the Fund would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the
portion of the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. However, as described above, there is
no guarantee that the price of the securities being hedged will, in fact,
correlate with the price movements in the futures contract and thus provide
an offset to losses on a futures contract.
RISKS OF OPTIONS ON FUTURES CONTRACTS. The use of options on
futures contracts also involves additional risk. Compared to the purchase or
sale of futures contracts, the purchase of call or put options on futures
contracts involves less potential risk to the Fund because the maximum amount
at risk is the premium paid for the options (plus transactions costs). The
writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of the Fund's portfolio assets. By
writing a call option, the Fund becomes obligated to sell a futures contract,
which may have a value higher than the exercise
B-5
<PAGE>
price. Conversely, the writing of a put option on a futures contract
generates a premium, but the Fund becomes obligated to purchase a futures
contract, which may have a value lower than the exercise price. Thus, the
loss incurred by the Fund in writing options on futures contracts may exceed
the amount of the premium received.
The effective use of options strategies is dependent, among other
things, on the Fund's ability to terminate options positions at a time when
the Adviser deems it desirable to do so. Although the Fund will enter into
an option position only if the Adviser believes that a liquid secondary
market exists for such option, there is no assurance that the Fund will be
able to effect closing transactions at any particular time or at an
acceptable price. The Funds' transactions involving options on futures
contracts will be conducted only on recognized exchanges.
Adjustable Portfolio's purchase or sale of put or call options on
futures contracts will be based upon predictions as to anticipated interest
rates by the Adviser, which could prove to be inaccurate. Even if the
expectations of the Adviser are correct, there may be an imperfect
correlation between the change in the value of the options and of the Fund's
portfolio securities.
REGULATORY MATTERS
To the extent required to comply with applicable Securities and
Exchange Commission releases and staff positions, when entering into futures
contracts, Adjustable Portfolio will maintain, in a segregated account, cash
or liquid high-grade debt securities equal to the value of such contracts.
The Commodity Futures Trading Commission (the "CFTC"), a federal
agency, regulates trading activity on the exchanges pursuant to the Commodity
Exchange Act, as amended. The CFTC requires the registration of "commodity
pool operators," defined as any person engaged in a business which is of the
nature of an investment trust, syndicate or a similar form of enterprise, and
who, in connection therewith, solicits, accepts or receives from others,
funds, securities or property for the purpose of trading in any commodity for
future delivery on or subject to the rules of any contract market. The CFTC
has adopted Rule 4.5, which provides an exclusion from the definition of
commodity pool operator for any registered investment company which meets the
requirements of the Rule. Rule 4.5 requires, among other things, that an
investment company wishing to avoid commodity pool operator status use
futures and options positions only (a) for "bona fide hedging purposes" (as
defined in CFTC regulations) or (b) for other purposes so long as aggregate
initial margins and premiums required in connection with non-hedging
positions do not exceed 5% of the liquidation value of the investment
company's portfolio. Any investment company wishing to claim the exclusion
provided in Rule 4.5 must file a notice of eligibility with both the CFTC and
the National Futures Association. Before engaging in transactions involving
futures contracts, the Adjustable Portfolio will file such notices and meet
the requirements of Rule 4.5, or such other requirements as the CFTC or its
staff may from time to time issue, in order to render registration as a
commodity pool operator unnecessary.
B-6
<PAGE>
PART C
Piper Institutional Funds Inc.
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements are incorporated by reference to the Registrant's
Annual Report filed with the Commission on August 30, 1995.
(b) Exhibits:
(1) Restated Articles of Incorporation (1)
(2) Amended Bylaws (1)
(5) Investment Advisory and Management Agreement (1)
(6) Amended Underwriting and Distribution Agreement (1)
(8) Custody Agreement (1)
(9) Agency Agreement (1)
(10) Opinion and Consent of Dorsey & Whitney (1)
(11) Consent of KPMG Peat Marwick LLP (1)
(13) Letter of Investment Intent (1)
(15) Plan of Distribution (1)
(16) Performance Computations (1)
(17) Powers of Attorney (1)
(18) Shareholder Account Servicing Agreement with Piper Trust (1)
(19) Shareholder Account Servicing Agreement with Piper Jaffray (1)
(1) 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 1, 1995:
<TABLE>
<CAPTION>
Number of
Fund Title of Class Record Holders
---- -------------- --------------
<S> <C> <C>
Institutional Money Market Fund Common Shares 102
Institutional Government Adjustable
Portfolio Common Shares 48
</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.
<PAGE>
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; 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.
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, Chief Financial Officer and
Chief Operating Officer
David E. Rosedahl Director, Secretary and General
Counsel
2
<PAGE>
Bruce C. Huber Director
DeLos V. Steenson Director
Momchilo Vucenich Director
Beverly J. Zimmer Director
Paul A. Dow Senior Vice President and Chief
Investment Officer
James A. Berman Senior Vice President
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
Michael P. Jansen Senior Vice President
Lisa A. Kenyon 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
Maxine D. Rossini Senior Vice President
Bruce D. Salvog Senior Vice President
Sandra K. Shrewsbury Senior Vice President
David M. Steele Senior Vice President
Randall J. Sukovich 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
Joan L. Harrod Vice President
Newby Herrod Vice President
Kevin A. Jansen Vice President
Amy K. Johnson Vice President
Kimberly F. Kaul Vice President
Russell Kappenman Vice President
John D. Kightlinger Vice President
Wan-Chong Kung Vice President
Mark S. Lee Vice President
Thomas S. McGlinch Vice President
Thomas Moore Vice President
Siobann Nelson Vice President
Edward P. Nicoski Vice President
Daniel Phillips Vice President
3
<PAGE>
John K. Schonberg Vice President
Eric L. Siedband Vice President
J. Bradley Stone Vice President
Bonnie L. Theis Vice President
Jane K. Welter Vice President
John G. Wenker Vice President
Marcy K. Winson Vice President
Fong P. Woo Vice President
Principal occupations of Messrs. Ellis, Dow, Hayssen, McGlinch, Nelson,
Schonberg, and Rosedahl and Ms. Olsen are set forth in the Statement of
Additional Information under the heading "Directors and Officers." MR. HUBER
has been a Director of the Adviser since October 1985 and was a Vice
President of the Adviser from October 1985 until April 1992, and a Managing
Director of Piper Jaffray Inc. ("Piper Jaffray") since November 1986. MR.
BERMAN has been a Senior Vice President of the Adviser since 1993; prior to
which he was a Managing Director of Piper Jaffray Inc. from 1992 to 1993,
Vice President of Acquisitions at Sandia Mortgage Corporation from 1991 to
1992 and a Director of Investment Analysis and Acquisitions for Larken
Properties, Inc. from 1987 to 1991. MR. BRUNTJEN has been a Senior Vice
President of the Adviser since January 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 November
1991, prior to which he had been a Vice President of the Adviser from 1987 to
1991. MR. GIBAS has been a Senior Vice President of the Adviser since
November 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 November 1993, prior to which she was a Vice President of the
Adviser from 1991 to 1993 and a fixed income analyst of the Adviser since
1988. MR. GROTTE has been a Senior Vice President of the Adviser since
November 1992, prior to which he had been a Vice President of the Adviser
from 1988 to 1992. MR. MICHAEL JANSEN has been a Senior Vice President of
the Adviser since October 1993, prior to which he was a Managing Director of
Piper Jaffray since 1987, an Executive Vice President of Piper Mortgage
Acceptance Corporation since 1991 and an Executive Vice President and
Director of Premier Acceptance Corporation since 1988. MS. KENYON has been a
Senior Vice President of the Adviser since January 1992, prior to which she
had been a financial adviser for a private family in Los Angeles. MR.
MARKUSEN has been a Senior Vice President of the Adviser since December 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 December 1994, prior to which she had
been a Vice President of Secura Insurance, Appleton, Wisconsin from 1988 to
1994. MR. NICOSKI has been a Senior Vice President of the Adviser since
October 1985 and a Managing Director of the Distributor since November 1986.
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. MR.
4
<PAGE>
REUSS has been a Senior Vice President of the Adviser since January 1989.
MS. ROSSINI has been a Senior Vice President of the Adviser since September
1993, prior to which she had been a managing Director of the Distributor
since November 1989. MR. SALVOG has been a Senior Vice President of the
Adviser since January 1992, prior to which he had been a portfolio manager at
Kennedy & Associates in Seattle, Washington from 1984 to 1992.
SANDRA K. SHREWSBURY has been a Senior Vice President of the Adviser
since September 1993, prior to which she had been a Managing Director of
Piper Jaffray since November 1992, a Vice President of Piper Jaffray since
November 1990. MR. STEELE has been a Senior Vice President of the Adviser
since January 1992, prior to which he had been a portfolio manager at Kennedy
& Associates in Seattle, Washington from 1987 to 1992. MR. STEENSON has been
a Director of the Adviser since December 1994 and a Managing Director of the
Underwriter since 1982. MR. SUKOVICH has been a Senior Vice President of the
Adviser since January 1989. MR. VUCENICH has been a Director of the Adviser
since December 1994 and a managing director of regional sales for Piper
Jaffray Companies Inc. since February 1993. MR. WEIDENHAMMER has been a
Senior Vice President of the Adviser since November 1991, prior to which he
had been a Vice President of the Adviser from 1987 to 1991. MR. WENKER has
been a Senior Vice President of the Adviser since October 1993, prior to
which he was a Managing Director of Piper Jaffray from 1992 to 1993 and 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 November 1991, prior to which he had been a Vice President of
the Adviser from 1989 to 1991. MS. ZIMMER has been a Director of the Adviser
since December 1994, prior to which she was Chief Operating Officer of the
Adviser from May 1992 to December 1994 and Senior Vice President of the
Adviser from December 1990 to December 1994.
MS. CASTLE has been a Vice President of the Adviser since November 1994,
prior to which she was a client sservice asociate 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 a Vice
President of the Adviser since 1994, prior to which she was Accounting
Manager from 1993 to 1994 and mutual fund accountant from 1991 to 1993 with
the Adviser, and prior thereto, mutual fund accountant at Voyageur Fund
Managers in Minneapolis from 1989 to 1991. MS. HARROD has been a Vice
President of the Adviser since November 1992 and has been a trader for the
Adviser since October 1989. MR. HERROD has been a Vice President of the
Adviser since 1992, prior to which he was a Vice President of Capital Markets
at Washington Square Capital Management from 1987 to 1992. MR. KEVIN JANSEN
has been a Vice President of the Adviser since November 1993, prior to which
he was an Assistant Vice President of Piper Jaffray from 1992 to 1993 and an
analyst at Piper Jaffray from 1991 to 1992. MS. JOHNSON has been a Vice
President of the Adviser since 1994, prior to which she was Accounting
Manager from 1993 to 1994 and a mutual fund accountant from 1991 to 1993 with
the Adviser, and prior thereto,
5
<PAGE>
audit senior with KPMG Peat Marwick in Minneapolis from 1990 to 1992. 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 November 1991, prior to which she was Copy Director and Assistant Vice
President in the advertising department of Piper Jaffray since 1986. MR.
KIGHTLINGER has been a Vice President of the Adviser since 1991, prior to
which he had been a department head and portfolio manager for TCF Bank
Savings. MS. KUNG has been a Vice President of the Adviser since May 1993,
prior to which she had been a Senior Consultant at Cytrol Inc. from 1989 to
December 1992. MR. LEE has been a Vice President of the Adviser since 1990.
MR. MCGLINCH has been a Vice President of the Adviser since November 1992,
prior to which he had been a specialty products trader at FBS Investment
Services from January 1990 to January 1992. 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. MS. NELSON has been a Vice
President of the Adviser since November 1994, prior to which she was a
supervisor for the Adviser since 1991 and an operations coordinator for the
Adviser from 1990 to 1991. MR. PHILLIPS has been a Vice President of the
Adviser since 1993 and has been an insurance product manager at Piper Jaffray
since 1987. MR. SCHONBERG has been a Vice President of the Adviser since
November 1992 and a portfolio manager for the Adviser since July 1989. MR.
SIEDBAND has been a Vice President of the Adviser since 1992. MR. STONE has
been a Vice President of the Adviser since November 1991 and a fixed-income
analyst of the Adviser since March 1990. MS. THEIS has been a Vice President
of the Adviser since November 1992, prior to which she had been an Assistant
Vice President of the Adviser since 1989. MS. WELTER has been a Vice
President of the Adviser since November 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. MR. WENKER has been a Vice President of the
Adviser since November 1994 and a Managing Director of Piper Jaffray since
1995, prior to which he had been a Managing Director of Piper Jaffray from
1992 to 1993, and prior thereto, a Director of Revitalization Resources of
the Minneapolis Community Development Agency from 1990 to 1992. 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 November 1994, prior to which he was a municipal credit analyst of the
Adviser since 1992.
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 thirteen series, Piper Funds
Inc. -- II, the shares of which are currently offered in one series and Piper
Global 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.
6
<PAGE>
(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:
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
---- --------------------- ----------------------
Addison L. Piper Chairman of the Board of None
Directors and Chief
Executive Officer
William H. Ellis President, Chief Operating Chairman of
Officer and Member of the Board of
Board of Directors Directors
Karen M. Bohn Member of the Board None
of Directors
Ralph W. Burnet 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
David Stanley Member of the Board None
of Directors
James J. Bellus Managing Director None
AnnDrea M. Benson Managing Director None
Lloyd K. Benson Managing Director None
James L. Bergtold Managing Director None
Carol A. Bertsch Managing Director None
Peter A. Bessette Managing Director None
7
<PAGE>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
---- --------------------- ----------------------
Gary J. Blauer Managing Director None
Sean K. Boyea Managing Director None
Ronald O. Braun Managing Director None
Paul E. Brodsky Managing Director None
Edward M. Caillier 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
Linda A. Clark Managing Director None
Stephen B. Clark Managing Director None
David P. Crosby Managing Director None
George S. Dahlman Managing Director None
Michael D. Deede Managing Director None
Jack C. Dillingham Managing Director None
Mark T. Donahoe Managing Director None
Andrew W. Donleavy Managing Director None
Philip S. Dow Managing Director None
Andrew S. Duff Managing Director None
Michael D. Duffy Managing Director None
Richard A. Edstrom Managing Director None
Fred R. Eoff, Jr. Managing Director None
8
<PAGE>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
---- --------------------- ----------------------
Bradley A. Erickson Managing Director None
Richard D. Estenson Managing Director None
Francis E. Fairman IV Managing Director None
John R. Farrish Managing Director None
Gordon R. Ferguson Managing Director None
Paul Ferry Managing Director None
Mark E. Fisler Managing Director None
Michael W. Follett Managing Director None
Peter M. Gill Managing Director None
E. Peter Gillette Jr. Managing Director None
Kevin D. Grahek Managing Director None
Paul D. Grangaard Managing Director None
R. Hunt Greene Managing Director None
Daniel J. Hagen Managing Director None
James S. Harrington Managing Director None
Charles N. Hayssen Managing Director, Chief Treasurer
Financial Officer &
Treasurer
William P. Henderson Managing Director None
Allan F. Hickok Managing Director None
Richard L. Hines Managing Director None
John E. Houlihan Managing Director None
Charles E. Howell Managing Director None
9
<PAGE>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
---- --------------------- ----------------------
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
Jerome P. Kohl Managing Director None
Charles B. Lannin Managing Director None
Eric W. Larson Managing Director None
Dan L. Lastavich Managing Director None
Robert J. Magnuson Managing Director None
James M. Manire Jr. Managing Director None
Robert E. Mapes Managing Director None
Peter T. Mavroulis Managing Director None
Michael P. McMahon Managing Director None
Gregory T. McNellis Managing Director None
Thomas A. Medlin Managing Director None
Joseph E. Meyers Managing Director None
John V. Miller Managing Director None
Dennis V. Mitchell Managing Director None
Susan D. Musselman Managing Director None
10
<PAGE>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
---- --------------------- ----------------------
Edward P. Nicoski Managing Director None
Benjamin S. Oehler Managing Director None
Joseph J. Olchefske Managing Director None
Brooks G. O Neil Managing Director None
John P. O Neill Managing Director None
John Otterlei Managing Director None
Gary M. Petrucci Managing Director None
Robin C. Pfister Managing Director None
Rex W. Ramsay Managing Director None
Roger W. Redmond Managing Director None
Ronald N. Reiches Managing Director None
Robert P. Rinek Managing Director None
Jim M. Roane Managing Director None
Deborah K. Roesler Managing Director None
David E. Rosedahl Managing Director, General Secretary
Counsel and Secretary
Thomas P. Schnettler Managing Director None
Steven R. Schroll Managing Director None
Joyce Nelson Schuette Managing Director None
Morton D. Silverman Managing Director None
Linda E. Singer Managing Director None
David P. Sirianni Managing Director None
11
<PAGE>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
---- --------------------- ----------------------
Arch C. Smith Managing Director None
Robert L. Sonnek Managing Director None
Sandra G. Sponea Managing Director None
Thomas E. Stanberry Managing Director None
DeLos V. Steenson Managing Director None
Richard J. Stream Managing Director None
D. Greg Sundberg Managing Director None
William H. Teeter Managing Director None
Ann C. Tillotson Managing Director None
Marie A. Urich Managing Director None
Momchilo Vucenich Managing Director None
John G. Wenker Managing Director None
Darrell L. Westby Managing Director None
David R. Westcott Managing Director None
Douglas R. Whitaker Managing Director None
Douglas H. Wilford Managing Director None
Stephen W. Woodard Managing Director None
Mark Wren Managing Director None
Saul Yaari 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.
12
<PAGE>
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
Registrant's securities is maintained by Investors Fiduciary Trust Company,
127 West Tenth Street, Kansas City, Missouri 64105.
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 of such series, and such Annual Report will
be furnished by the Registrant without charge.
13
<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 Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Minneapolis and State of Minnesota on the
26th day of October 1995
PIPER INSTITUTIONAL FUNDS INC.
(Registrant)
By /s/Paul A. Dow
-----------------------------
Paul A. Dow
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated:
/s/ Paul A. Dow
- ----------------------- President (principal October 26, 1995
Paul A. Dow executive officer)
/s/ Charles N. Hayssen Treasurer (principal
- ----------------------- financial and October 26, 1995
Charles N. Hayssen accounting officer)
David T. Bennett* Director
Jaye F. Dyer* Director
William H. Ellis* Director
Karol D. Emmerich* Director
Luella G. Goldberg* Director
George Latimer* Director
*By /s/ William H. Ellis
--------------------------
William H. Ellis, Attorney-in-Fact
Dated: October 26, 1995
<PAGE>
EXHIBIT INDEX
TO
REGISTRATION STATEMENT
OF
PIPER INSTITUTIONAL FUNDS INC.
Exhibit Page No.
- ------- --------
1 Restated Articles of Incorporation
2 Amended Bylaws
5 Investment Advisory and Management Agreement
6 Amended Underwriting and Distribution Agreement
8 Custody Agreement
9 Agency Agreement
10 Opinion and Consent of Dorsey & Whitney
11 Consent of KPMG Peat Marwick LLP
13 Letter of Investment Intent
15 Plan of Distribution
17 Power of Attorney
18 Shareholder Account Servicing Agreement With Piper Trust
19 Shareholder Account Servicing Agreement With Piper Jaffray
<PAGE>
ARTICLES OF AMENDMENT
OF
RESTATED ARTICLES OF INCORPORATION
OF
PIPER INSTITUTIONAL FUNDS INC.
The undersigned, David Evans Rosedahl, the Secretary of Piper Institutional
Funds Inc. (the "Corporation"), a Minnesota corporation, hereby certifies as
follows:
1. The name of the Corporation is Piper Institutional Funds Inc.
2. Pursuant to a Joint Written Action dated January 26, 1993, the
Corporation's sole shareholder and Board of Directors adopted and
approved the following Amended and Restated Articles of
Incorporation of the Corporation to replace the Corporation's
existing Restated Articles of Incorporation in their entirety,
and directed that the officers of the Corporation file the following
Amended and Restated Articles of Incorporation in the office of the
Minnesota Secretary of State.
3. The Amended and Restated Articles of Incorporation have been adopted
pursuant to Chapter 302A of the Minnesota Business Corporation Act.
_______________
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
PIPER INSTITUTIONAL FUNDS INC.
For the purpose of forming a corporation pursuant to the provisions of
Minnesota Statutes, Chapter 302A, the following Restated Articles of
Incorporation are adopted:
1. The name of the corporation (the "Corporation") is Piper Institutional
Funds Inc.
2. The Corporation shall have general business purposes and shall have
unlimited power to engage in and do any lawful act concerning any and all lawful
businesses for which corporations may be organized under the Minnesota Statutes,
Chapter 302A. Without limiting the generality of the foregoing, the Corporation
shall have specific power:
(a) To conduct, operate and carry on the business of a so-called
"open-end" management investment company pursuant to applicable state and
federal regulatory statutes, and exercise all the powers necessary and
appropriate to the conduct of such operations.
(b) To purchase, subscribe for, invest in or otherwise acquire, and
to own, hold, pledge, mortgage, hypothecate, sell, possess, transfer or
otherwise dispose of, or turn to account or realize upon, and generally
deal in, all forms of securities of every kind, nature, character, type and
form, and other financial instruments which may not be deemed to be
securities, including but not limited to futures contracts and options
thereon. Such securities and other financial instruments may include but
are not limited to shares, stocks, bonds, debentures, notes, script,
participation certificates, rights to subscribe, warrants, options,
certificates of deposit, bankers' acceptances, repurchase agreements,
commercial paper, choses in action, evidences of indebtedness, certificates
of indebtedness and certificates of interest of any and every kind and
nature whatsoever, secured and unsecured, issued or to be issued, by any
corporation, company, partnership (limited or general), association, trust,
entity or person, public or private, whether organized under the laws of
the United States, or any state, commonwealth, territory or possession
thereof, or organized under the laws of any foreign country, or any state,
province, territory or possession thereof, or issued or to be issued by the
United States government or any
<PAGE>
agency or instrumentality thereof, options on stock indexes, stock index
and interest rate futures contracts and options thereon, and other
futures contracts and options thereon.
(c) In the above provisions of this Article 2, purposes shall also be
construed as powers and powers shall also be construed as purposes, and the
enumeration of specific purposes or powers shall not be construed to limit
other statements of purposes or to limit purposes or powers which the
Corporation may otherwise have under applicable law, all of the same being
separate and cumulative, and all of the same may be carried on, promoted
and pursued, transacted or exercised in any place whatsoever.
3. The Corporation shall have perpetual existence.
4. The location and post office address of the registered office in
Minnesota is Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota
55402-3804.
5. The total authorized number of shares of the Corporation is 10
trillion (10,000,000,000,000), all of which shall be common shares of the par
value of $.01 per share (individually, a "Share" and collectively, the
"Shares"). The Corporation may issue and sell any of its Shares in fractional
denominations to the same extent as its whole Shares, and Shares and fractional
denominations shall have, in proportion to the relative fractions represented
thereby, all the rights of whole Shares, including, without limitation, the
right to vote, the right to receive dividends and distributions, and the right
to participate upon liquidation of the Corporation.
(a) Ten billion (10,000,000,000) of the Shares may be issued by the
Corporation in a series designated "Series A Common Shares;" one hundred
billion (100,000,000,000) of the Shares may be issued by the Corporation in
a series designated "Series B Common Shares;" ten billion (10,000,000,000)
of the Shares may be issued by the Corporation in a series designated
"Series C Common Shares;" and the remaining nine trillion, eight hundred
eighty billion (9,880,000,000,000) Shares authorized by this Article 5
shall initially be undesignated Shares (the "Undesignated Shares"). Any
series of the Shares shall be referred to herein individually as a Series"
and collectively herein, together with any further series from time to time
created by the Board of Directors, as "Series." The Undesignated Shares may
be issued in such Series with such designations, preferences and relative,
participating, optional or other special rights, or qualifications,
limitations or restrictions thereof, as shall be stated or expressed in a
resolution or resolutions providing for the issue of any Series as may be
adopted from time to time by the Board of Directors of the Corporation
pursuant to the authority hereby vested in the Board of Directors. Each
Series of Shares which the Board of Directors may establish, as provided
herein, may evidence, if the Board of Directors shall so determine by
resolution, an interest in a separate and distinct portion of the
Corporation's assets, which shall take the form of a separate portfolio of
investment securities cash and other assets. Authority to establish such
separate portfolios is hereby vested in the Board of Directors of the
Corporation, and such separate portfolios may be established by the Board
of Directors without the authorization or approval of the holders of any
Series of Shares of the Corporation. Such investment portfolios in which
Shares of the Series represent interests are also hereinafter referred to
as "Series."
(b) The Shares of each Series may be classified by the Board of
Directors in one or more classes (individually, a "Class" and,
collectively, together with any other class or classes within any Series,
the "Classes") with such relative rights and preferences as shall be stated
or expressed in a resolution or resolutions providing for the issue of any
such Class or Classes as may be adopted from time to time by the Board of
Directors of the Corporation pursuant to the authority hereby vested in the
Board of Directors and Minnesota Statutes, Section 302A.401, Subd. 3, or
any successor provision. The Shares of each Class within a Series may be
subject to such charges and expenses (including by way of example, but not
by way of limitation, front-end and deferred sales charges, expenses under
Rule 12b-1 plans, administration plans, service
2
<PAGE>
plans, or other plans or arrangements, however designated) adopted from
time to time by the Board of Directors in accordance, to the extent
applicable, with the Investment Company Act of 1940, as amended
(together with the rules and regulations promulgated thereunder,
the "1940 Act"), which charges and expenses may differ from those
applicable to another Class within such Series, and all of the charges
and expenses to which a Class is subject shall be borne by such Class
and shall be appropriately reflected (in the manner determined by
the Board of Directors in the resolution or resolutions providing for
the issue of such Class) in determining the net asset value and the amounts
payable with respect to dividends and distributions on and redemptions or
liquidations of, such Class. Subject to compliance with the requirements
of the 1940 Act, the Board of Directors shall have the authority to
provide that Shares of any Class shall be convertible (automatically,
optionally or otherwise) into Shares of one or more other Classes in
accordance with such requirements and procedures as may be established
by the Board of Directors.
6. The shareholders of each Series (or Class thereof) of common shares of
the Corporation:
(a) shall not have the right to cumulate votes for the election of
directors; and
(b) shall have no preemptive right to subscribe to any issue of
shares of any Series (or Class thereof) of the Corporation now or
hereafter created, designated or classified.
7. A description of the relative rights and preferences of all Series of
Shares (and Classes thereof) is as follows, unless otherwise set forth in one or
more amendments to these Articles of Incorporation or in the resolution
providing for the issue of such Series (and Classes thereof):
(a) On any matter submitted to a vote of shareholders of the
Corporation, all Shares of the Corporation then issued and outstanding and
entitled to vote, irrespective of Series or Class, shall be voted in the
aggregate and not by Series or Class, except: (i) when otherwise required
by Minnesota Statutes, Chapter 302A, in which case shares will be voted by
individual Series or Class, as applicable; (ii) when otherwise required by
the 1940 Act or the rules adopted thereunder, in which case shares shall be
voted by individual Series or Class, as applicable; and (iii) when the
matter does not affect the interests of a particular Series or Class
thereof, in which case only shareholders of the Series or Class thereof
affected shall be entitled to vote thereon and shall vote by individual
Series or Class, as applicable.
(b) All consideration received by the Corporation for the issue or
sale of Shares of any Series, together with all assets, income, earnings,
profits and proceeds derived therefrom (including all proceeds derived from
the sale, exchange or liquidation thereof and, if applicable, any assets
derived from any reinvestment of such proceeds in whatever form the same
may be) shall become part of the assets of the portfolio to which the
Shares of that Series relate, for all purposes, subject only to the rights
of creditors, and shall be so treated upon the books of account of the
Corporation. Such assets, income, earnings, profits and proceeds
(including any proceeds derived from the sale, exchange or liquidation
thereof and, if applicable, any assets derived from any reinvestment
of such proceeds in whatever form the same may be) are herein referred
to as "assets belonging to" such Series of Shares of the Corporation.
(c) Assets of the Corporation not belonging to any particular Series
are referred to herein as "General Assets." General Assets shall be
allocated to each Series in proportion to the respective net assets
belonging to such Series. The determination of the Board of Directors
shall be conclusive as to the amount of assets, as to the characterization
of assets as those belonging to a Series or as General Assets, and as to
the allocation of General Assets.
3
<PAGE>
(d) The assets belonging to a particular Series of Shares shall be
charged with the liabilities incurred specifically on behalf of such Series
of Shares ("Special Liabilities"). Such assets shall also be charged with
a share of the general liabilities of the Corporation ("General
Liabilities") in proportion to the respective net assets belonging to such
Series of common shares. The determination of the Board of Directors shall
be conclusive as to the amount of liabilities, including accrued expenses
and reserves, as to the characterization of any liability as a Special
Liability or General Liability, and as to the allocation of General
Liabilities among Series.
(e) The Board of Directors may, to the extent permitted by Minnesota
Statutes, Chapter 302A or any successor provision thereto, declare and pay
dividends or distributions in Shares, cash or other property on any or all
Series (or Classes thereof) of Shares, the amount of such dividends and the
payment thereof being wholly in the discretion of the Board of Directors.
(f) In the event of the liquidation or dissolution of the
Corporation, holders of the Shares of any Series shall have priority over
the holders of any other Series with respect to, and shall be entitled to
receive, out of the assets of the Corporation available for distribution to
holders of shares, the assets belonging to such Series of Shares and the
General Assets allocated to such Series of Shares, and the assets so
distributable to the holders of the Shares of any Series shall be
distributed among such holders in proportion to the number of Shares of
such Series held by each such shareholder and recorded on the books of the
Corporation, except that, in the case of a Series with more than one Class
of Shares, such distributions shall be adjusted to appropriately reflect
any charges and expenses borne by each individual Class.
(g) With the approval of a majority of the shareholders of each of
the affected Series of Shares present in person or by proxy at a meeting
called for the following purpose (provided that at least 10% of the issued
and outstanding Shares of the affected Series is present at such meeting in
person or by proxy), the Board of Directors may transfer the assets of any
Series to any other Series. Upon such a transfer, the Corporation shall
issue Shares representing interests in the Series to which the assets were
transferred in exchange for all Shares representing interests in the Series
from which the assets were transferred. Such Shares shall be exchanged at
their respective net asset values.
8. The following additional provisions, when consistent with law, are
hereby established for the management of the business, for the conduct of the
affairs of the Corporation, and for the purpose of describing certain specific
powers of the Corporation and of its directors and shareholders.
(a) In furtherance and not in limitation of the powers conferred by
statute and pursuant to these Articles of Incorporation, the Board of
Directors is expressly authorized to do the following:
(i) to make, adopt, alter, amend and repeal Bylaws of the
Corporation unless reserved to the shareholders by the Bylaws or by
the laws of the State of Minnesota, subject to the power of the
shareholders to change or repeal such Bylaws;
(ii) to distribute, in its discretion, for any fiscal year (in
the year or in the next fiscal year) as ordinary dividends and as
capital gains distributions, respectively, amounts sufficient to
enable each Series to qualify under the Internal Revenue Code as a
regulated investment company to avoid any liability for federal income
tax in respect of such year. Any distribution or dividend paid to
shareholders from any capital source shall be accompanied by a written
statement showing the source or sources of such payment;
4
<PAGE>
(iii) to authorize, subject to such vote, consent, or
approval of shareholders and other conditions, if any, as may be
required by any applicable statute, rule or regulation, the execution
and performance by the Corporation of any agreement or agreements with
any person, corporation, association, company, trust, partnership
(limited or general) or other organization whereby, subject to the
supervision and control of the Board of Directors, any such other
person, corporation, association, company, trust, partnership (limited
or general), or other organization shall render managerial, investment
advisory, distribution, transfer agent, accounting and/or other
services to the Corporation (including, if deemed advisable, the
management or supervision of the investment portfolios of the
Corporation) upon such terms and conditions as may be provided in such
agreement or agreements;
(iv) to authorize any agreement of the character described in
subparagraph 3 of this paragraph (a) with any person, corporation,
association, company, trust, partnership (limited or general) or other
organization, although one or more of the members of the Board of
Directors or officers of the Corporation may be the other party to any
such agreement or an officer, director, employee, shareholder, or
member of such other party, and no such agreement shall be invalidated
or rendered voidable by reason of the existence of any such
relationship;
(v) to allot and authorize the issuance of the authorized but
unissued Shares of any Series, or Class thereof, of the Corporation;
(vi) to accept or reject subscriptions for Shares of any Series,
or Class thereof, made after incorporation;
(vii) to fix the terms, conditions and provisions of and
authorize the issuance of options to purchase or subscribe for Shares
of any Series, or Class thereof, including the option price or prices
at which Shares may be purchased or subscribed for;
(viii) to take any action which might be taken at a meeting
of the Board of Directors, or any duly constituted committee thereof,
without a meeting pursuant to a writing signed by that number of
directors or committee members that would be required to take the same
action at a meeting of the Board of Directors or committee thereof at
which all directors or committee members were present; provided,
however, that, if such action also requires shareholder approval, such
writing must be signed by all of the directors or committee members
entitled to vote on such matter; and
(ix) to determine what constitutes net income, total assets and
the net asset value of the Shares of each Series (or Class thereof) of
the Corporation. Any such determination made in good faith shall be
final and conclusive, and shall be binding upon the Corporation, and
all holders (past, present and future) of Shares of each Series and
Class thereof.
(b) Except as provided in the next sentence of this paragraph (b),
Shares of any Series, or Class thereof, hereafter issued which are
redeemed, exchanged, or otherwise acquired by the Corporation shall
return to the status of authorized and unissued Shares of such Series
or Class. Upon the redemption, exchange, or other acquisition by the
Corporation of all outstanding Shares of any Series (or Class thereof),
hereafter issued, such Shares will return to the status of authorized
and unissued Shares without designation as to series (if no Shares of
the Series remains
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outstanding) or with the same designation as to Series, but no
designation as to class within such Series (if Shares of such
Series remain outstanding, but no Shares of such Class thereon
remain outstanding), and all provisions of these articles of
incorporation relating to such Series, or Class thereof (including,
without limitation, any statement establishing or fixing the rights and
preferences of such Series, or Class thereof), shall cease to be of
further effect and shall cease to be a part of these articles. Upon the
occurrence of such events, the Board of Directors of the Corporation
shall have the power, pursuant to Minnesota Statutes Section 302A.135,
Subdivision 5 or any successor provision and without shareholder action,
to cause restated articles of incorporation of the Corporation to be
prepared and filed with the Secretary of State of the State of Minnesota
which reflect such removal from these articles of all such provisions
relating to such Series, or Class thereof.
(c) The determination as to any of the following matters made by or
pursuant to the direction of the Board of Directors consistent with these
Articles of Incorporation and in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of duties, shall be final and
conclusive and shall be binding upon the Corporation and every holder of
shares of its capital stock: namely, the amount of the assets, obligations,
liabilities and expenses of each Series (or Class thereof) of the
Corporation; the amount of the net income of each Series (or Class thereof)
of the Corporation from dividends and interest for any period and the
amount of assets at any time legally available for the payment of dividends
in each Series (or Class thereof); the amount of paid-in surplus, other
surplus, annual or other net profits, or net assets in excess of capital,
undivided profits, or excess of profits over losses on sales of securities
of each Series (or Class thereof); the amount, purpose, time of creation,
increase or decrease, alteration or cancellation of any reserves or charges
and the propriety thereof (whether or not any obligation or liability for
which such reserves or charges shall have been created shall have been paid
or discharged); the market value, or any sale, bid or asked price to be
applied in determining the market value, of any security owned or held by
or in each Series of the Corporation; the fair value of any other asset
owned by or in each Series of the Corporation; the number of Shares of each
Series (or Class thereof) of the Corporation issued or issuable; any matter
relating to the acquisition, holding and disposition of securities and
other assets by each Series of the Corporation; and any question as to
whether any transaction constitutes a purchase of securities on margin, a
short sale of securities, or an underwriting of the sale of, or
participation in any underwriting or selling group in connection with the
public distribution of any securities.
(d) The Board of Directors or the shareholders of the Corporation may
adopt, amend, affirm or reject investment policies and restrictions upon
investment or the use of assets of each Series of the Corporation and may
designate some such policies as fundamental and not subject to change other
than by a vote of a majority of the outstanding voting securities, as such
phrase is defined in the 1940 Act, of the affected Series of the
Corporation.
9. The Corporation shall indemnify such persons for such expenses and
liabilities, in such manner, under such circumstances, and to the full extent
permitted by Section 302A.521 of the Minnesota Statutes, as now enacted or
hereafter amended, provided, however, that no such indemnification may be made
if it would be in violation of Section 17(h) of the 1940 Act, as now enacted or
hereafter amended.
10. To the fullest extent permitted by the Minnesota Statutes Chapter
302A, as the same exists or may hereafter be amended (except as prohibited by
the 1940 Act, as the same exists or may hereafter be amended), a director of the
Corporation shall not be liable to the Corporation or its shareholders for
monetary damages for breach of fiduciary duty as a director.
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_______________
IN WITNESS WHEREOF, the undersigned has executed this document on
January 27, 1993.
/s/ David Evans Rosedahl
-------------------------------
David Evans Rosedahl, Secretary
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BYLAWS
OF
PIPER INSTITUTIONAL FUNDS INC.
(as adopted by the Board of Directors on October 28, 1992)
ARTICLE I
OFFICES, CORPORATE SEAL
Section 1.01. NAME. The name of the corporation is "PIPER
INSTITUTIONAL FUNDS INC." The name of the series represented by Series A
Common Shares shall be "INSTITUTIONAL GOVERNMENT ADJUSTABLE PORTFOLIO," the
name of the series represented by Series B Common Shares shall be
"INSTITUTIONAL GOVERNMENT MONEY MARKET FUND" and the name of the series
represented by Series C Common Shares shall be "ENHANCED 500 FUND."
Section 1.02. REGISTERED OFFICE. The registered office of the
corporation in Minnesota shall be that set forth in the Articles of
Incorporation or in the most recent amendment of the Articles of
Incorporation or resolution of the directors filed with the Secretary of
State of Minnesota changing the registered office.
Section 1.03. OTHER OFFICES. The corporation may have such other
offices, within or without the State of Minnesota, as the directors shall,
from time to time, determine.
Section 1.04. NO CORPORATE SEAL. The corporation shall have no
corporate seal.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.01. PLACE AND TIME OF MEETING. Except as provided
otherwise by Minnesota Statutes Chapter 302A, meetings of the shareholders
may be held at any place, within or without the State of Minnesota,
designated by the directors and, in the absence of such designation, shall be
held at the registered office of the corporation in the State of Minnesota.
The directors shall designate the time of day for each meeting and, in the
absence of such designation, every meeting of shareholders shall be held at
ten o'clock a.m.
Section 2.02. REGULAR MEETINGS. Annual meetings of shareholders
are not required by these Bylaws. Regular meetings shall be held only with
such frequency and at such times and places as provided in and required by
Minnesota Statutes Section 302A.431.
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Section 2.03. SPECIAL MEETINGS. Special meetings of the
shareholders may be held at any time and for any purpose and may be called by
the Chairman of the Board, the President, any two directors, or by one or
more shareholders holding ten percent (10%) or more of the shares entitled to
vote on the matters to be presented to the meeting.
Section 2.04. QUORUM, ADJOURNED MEETINGS. The holders of ten
percent (10%) of the shares outstanding and entitled to vote shall constitute
a quorum for the transaction of business at any regular or special meeting.
In case a quorum shall not be present at a meeting, those present in person
or by proxy shall adjourn the meeting to such day as they shall, by majority
vote, agree upon without further notice other than by announcement at the
meeting at which such adjournment is taken. If a quorum is present, a
meeting may be adjourned from time to time without notice other than
announcement at the meeting. At adjourned meetings at which a quorum is
present, any business may be transacted which might have been transacted at
the meeting as originally noticed. If a quorum is present, the shareholders
may continue to transact business until adjournment notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
Section 2.05. VOTING. At each meeting of the shareholders, every
shareholder having the right to vote shall be entitled to vote either in
person or by proxy. Each shareholder, unless the Articles of Incorporation
provide otherwise, shall have one vote for each share having voting power
registered in his name on the books of the corporation. Except as otherwise
specifically provided by these Bylaws or as required by provisions of the
Investment Company Act of 1940 or other applicable laws, all questions shall
be decided by a majority vote of the number of shares entitled to vote and
represented at the meeting at the time of the vote. If the matter(s) to be
presented at a regular or special meeting relates only to particular classes
or series of the corporation, then only the shareholders of such classes or
series are entitled to vote on such matter(s).
Section 2.06. VOTING - PROXIES. The right to vote by proxy shall
exist only if the instrument authorizing such proxy to act shall have been
executed in writing by the shareholder himself or by his attorney thereunto
duly authorized in writing. No proxy shall be voted after eleven months from
its date unless it provides for a longer period.
Section 2.07. CLOSING OF BOOKS. The Board of Directors may fix a
time, not exceeding sixty (60) days preceding the date of any meeting of
shareholders, as a record date for the determination of the shareholders
entitled to notice of, and to vote at, such meeting, notwithstanding any
transfer of shares on the books of the corporation after any record date so
fixed. The Board of Directors may close the books of the corporation against
the transfer of shares during the whole or any part of such period. If the
Board of Directors fails to fix a record date for determination of the
shareholders entitled to notice of, and to vote at, any meeting of
shareholders, the record date shall be the thirtieth (30th) day preceding the
date of such meeting.
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Section 2.08. NOTICE OF MEETINGS. There shall be mailed to each
shareholder, shown by the books of the corporation to be a holder of record
of voting shares, at his address as shown by the books of the corporation, a
notice setting out the date, time and place of each regular meeting and each
special meeting, except where the meeting is an adjourned meeting and the
date, time and place of the meeting were announced at the time of
adjournment, which notice shall be mailed within the period required by law.
Every notice of any special meeting shall state the purpose or purposes for
which the meeting has been called, pursuant to Section 2.03, and the business
transacted at all special meetings shall be confined to the purpose stated in
such notice.
Section 2.09. WAIVER OF NOTICE. Notice of any regular or special
meeting may be waived either before, at or after such meeting orally or in a
writing signed by each shareholder or representative thereof entitled to vote
the shares so represented. A shareholder by his attendance at any meeting of
shareholders, shall be deemed to have waived notice of such meeting, except
where the shareholder objects at the beginning of the meeting to the
transaction of business because the item may not lawfully be considered at
that meeting and does not participate at that meeting in the consideration of
the item at that meeting.
Section 2.10. WRITTEN ACTION. Any action which might be taken at
a meeting of the shareholders may be taken without a meeting if done in
writing and signed by all of the shareholders entitled to vote on that
action. If the action to be taken relates to particular classes or series of
the corporation, then only shareholders of such classes or series are
entitled to vote on such action.
ARTICLE III
DIRECTORS
Section 3.01. NUMBER, QUALIFICATION AND TERM OF OFFICE. Until the
first meeting of shareholders, the number of directors shall be the number
named in the Articles of Incorporation. Thereafter, the number of directors
shall be established by resolution of the shareholders (subject to the
authority of the Board of Directors to increase or decrease the number of
directors as permitted by law). In the absence of such shareholder
resolution, the number of directors shall be the number last fixed by the
shareholders, the Board of Directors or the Articles of Incorporation.
Directors need not be shareholders. Each of the directors shall hold office
until the regular meeting of shareholders next held after his election and
until his successor shall have been elected and shall qualify, or until the
earlier death, resignation, removal or disqualification of such director.
Section 3.02. ELECTION OF DIRECTORS. Except as otherwise provided
in Sections 3.11 and 3.12 hereof, the directors shall be elected at the
regular shareholders' meeting. In the event that directors are not elected
at a regular shareholders' meeting, then directors may be elected at a
special shareholders'
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meeting, provided that the notice of such meeting shall contain mention of
such purpose. At each shareholders' meeting for the election of directors,
the directors shall be elected by a plurality of the votes validly cast at
such election. Each holder of shares of each class or series of stock of the
corporation shall be entitled to vote for directors and shall have equal
voting power for each share of each class or series of the corporation.
Section 3.03. GENERAL POWERS.
(a) Except as otherwise permitted by statute, the property,
affairs and business of the corporation shall be managed by the Board of
Directors, which may exercise all the powers of the corporation except those
powers vested solely in the shareholders of the corporation by statute, the
Articles of Incorporation or these Bylaws, as amended.
(b) All acts done by any meeting of the Directors or by any person
acting as a director, so long as his successor shall not have been duly
elected or appointed, shall, notwithstanding that it be afterwards discovered
that there was some defect in the election of the directors or such person
acting as aforesaid or that they or any of them were disqualified, be as
valid as if the directors or such other person, as the case may be, had been
duly elected and were or was qualified to be directors or a director of the
corporation.
Section 3.04. POWER TO DECLARE DIVIDENDS.
(a) The Board of Directors, from time to time as they may deem
advisable, may declare and pay dividends in cash or other property of the
corporation, out of any source available for dividends, to the shareholders
of each class or series of stock of the corporation according to their
respective rights and interests in the investment portfolio of the
corporation issuing such class or series of stock.
(b) The Board of Directors shall cause to be accompanied by a
written statement any dividend payment wholly or partly from any source other
than
(i) the accumulated and accrued undistributed net income of each
class or series (determined in accordance with generally accepted
accounting practice and the rules and regulations of the Securities and
Exchange Commission then in effect) and not including profits or losses
realized upon the sale of securities or other properties; or
(ii) the net income of each class or series so determined for the
current or preceding fiscal year.
Such statement shall adequately disclose the source or sources of such
payment and the basis of calculation and shall be in such form as the
Securities and Exchange Commission may prescribe.
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(c) Notwithstanding the above provisions of this Section 3.04, the
Board of Directors may at any time declare and distribute pro rata among the
shareholders of each class or series of stock a "stock dividend" out of the
authorized but unissued shares of stock of each class or series, including
any shares previously purchased by a class or series of the corporation.
Section 3.05. BOARD MEETINGS. Meetings of the Board of Directors
may be held from time to time at such time and place within or without the
State of Minnesota as may be designated in the notice of such meeting.
Section 3.06. CALLING MEETINGS, NOTICE. A director may call a
board meeting by giving ten (10) days notice to all directors of the date,
time and place of the meeting; provided that if the day or date, time and
place of a board meeting have been announced at a previous meeting of the
board, no notice is required.
Section 3.07. WAIVER OF NOTICE. Notice of any meeting of the
Board of Directors may be waived by any director either before, at or after
such meeting orally or in a writing signed by such director. A director, by
his attendance and participation in the action taken at any meeting of the
Board of Directors, shall be deemed to have waived notice of such meeting,
except where the director objects at the beginning of the meeting to the
transaction of business because the item may not lawfully be considered at
that meeting and does not participate at that meeting in the consideration of
the item at that meeting.
Section 3.08. QUORUM. A majority of the directors holding office
immediately prior to a meeting of the Board of Directors shall constitute a
quorum for the transaction of business at such meeting; provided however,
notwithstanding the above, if the Board of Directors is taking action
pursuant to the Investment Company Act of 1940, as now enacted or hereafter
amended, a majority of directors who are not "interested persons" (as defined
by the Investment Company Act of 1940, as now enacted or hereafter amended)
of the corporation shall constitute a quorum for taking such action.
Section 3.09. ADVANCE CONSENT OR OPPOSITION. A director may give
advance written consent or opposition to a proposal to be acted on at a
meeting of the Board of Directors. If such director is not present at the
meeting, consent or opposition to a proposal does not constitute presence for
purposes of determining the existence of a quorum, but consent or opposition
shall be counted as a vote in favor of or against the proposal and shall be
entered in the minutes or other record of action at the meeting, if the
proposal acted on at the meeting is substantially the same or has
substantially the same effect as the proposal to which the director has
consented or objected. This procedure shall not be used to act on any
investment advisory agreement or plan of distribution adopted under Rule
12b-1 of the Investment Company Act of 1940, as amended.
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Section 3.10. CONFERENCE COMMUNICATIONS. Any or all directors may
participate in any meeting of the Board of Directors, or of any duly
constituted committee thereof, by any means of communication through which
the directors may simultaneously hear each other during such meeting. For
the purposes of establishing a quorum and taking any action at the meeting,
such directors participating pursuant to this Section 3.10 shall be deemed
present in person at the meeting, and the place of the meeting shall be the
place of origination of the conference communication. This procedure shall
not be used to act on any investment advisory agreement or plan of
distribution adopted under Rule 12b-1 of the Investment Company Act of 1940,
as amended.
Section 3.11. VACANCIES; NEWLY CREATED DIRECTORSHIPS. Vacancies
in the Board of Directors of this corporation occurring by reason of death,
resignation, removal or disqualification shall be filled for the unexpired
term by a majority of the remaining directors of the Board although less than
a quorum; newly created directorships resulting from an increase in the
authorized number of directors by action of the Board of Directors as
permitted by Section 3.01 may be filled by a two-thirds (2/3) vote of the
directors serving at the time of such increase; and each person so elected
shall be a director until his successor is elected by the shareholders at
their next regular or special meeting; provided, however, that no vacancy can
be filled as provided above if prohibited by the provisions of the Investment
Company Act of 1940.
Section 3.12. REMOVAL. The entire Board of Directors or an
individual director may be removed from office, with or without cause, by a
vote of the shareholders holding a majority of the shares entitled to vote at
an election of directors. In the event that the entire Board or any one or
more directors be so removed, new directors shall be elected at the same
meeting, or the remaining directors may, to the extent vacancies are not
filled at such meeting, fill any vacancy or vacancies created by such
removal. A director named by the Board of Directors to fill a vacancy may be
removed from office at any time, with or without cause, by the affirmative
vote of the remaining directors if the shareholders have not elected
directors in the interim between the time of the appointment to fill such
vacancy and the time of the removal.
Section 3.13. COMMITTEES. A resolution approved by the
affirmative vote of a majority of the Board of Directors may establish
committees having the authority of the board in the management of the
business of the corporation to the extent provided in the resolution. A
committee shall consist of one or more persons, who need not be directors,
appointed by affirmative vote of a majority of the directors present.
Committees are subject to the direction and control of, and vacancies in the
membership thereof shall be filled by, the Board of Directors.
A majority of the members of the committee present at a meeting is
a quorum for the transaction of business, unless a larger or smaller
proportion or number is provided in a resolution approved by the affirmative
vote of a majority of the directors present.
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Section 3.14. WRITTEN ACTION. Except as provided in the
Investment Company Act of 1940, as amended, any action which might be taken
at a meeting of the Board of Directors, or any duly constituted committee
thereof, may be taken without a meeting if done in writing and signed by that
number of directors or committee members that would be required to take the
same action at a meeting of the board or committee thereof at which all
directors or committee members were present; provided, however, that any
action which also requires shareholder approval may be taken by written
action only if such writing is signed by all of the directors or committee
members entitled to vote on such matter .
Section 3.15. COMPENSATION. Directors shall receive such fixed
sum per meeting attended and/or such fixed annual sum as shall be determined,
from time to time, by resolution of the Board of Directors. All directors
shall receive their expenses, if any, of attendance at meetings of the Board
of Directors or any committee thereof. Nothing herein contained shall be
construed to preclude any director from serving this corporation in any other
capacity and receiving proper compensation therefor.
ARTICLE IV
OFFICERS
Section 4.01. NUMBER. The officers of the corporation shall
consist of a Chairman of the Board (if one is elected by the Board), the
President, one or more Vice Presidents (if desired by the Board), a
Secretary, a Treasurer and such other officers and agents as may, from time
to time, be elected by the Board of Directors. Any number of offices may be
held by the same person.
Section 4.02. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The
Board of Directors shall elect, from within or without their number, the
officers referred to in Section 4.01 of these Bylaws, each of whom shall have
the powers, rights, duties, responsibilities and terms in office provided for
in these Bylaws or a resolution of the Board not inconsistent therewith. The
President and all other officers who may be directors shall continue to hold
office until the election and qualification of their successors,
notwithstanding an earlier termination of their directorship.
Section 4.03. RESIGNATION. Any officer may resign his office at
any time by delivering a written resignation to the corporation. Unless
otherwise specified therein, such resignation shall take effect upon delivery.
Section 4.04. REMOVAL AND VACANCIES. Any officer may be removed
from his office by a majority of the Board of Directors with or without
cause. Such removal, however, shall be without prejudice to the contract
rights of the person so removed. If there be a vacancy among the officers of
the corporation by reason of death, resignation or otherwise, such vacancy
shall be filled for the unexpired term by the Board of Directors.
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Section 4.05. CHAIRMAN OF THE BOARD. The Chairman of the Board,
if one is elected, shall preside at all meetings of the shareholders and
directors and shall have such other duties as may be prescribed, from time to
time, by the Board of Directors.
Section 4.06. PRESIDENT. The President shall have general active
management of the business of the corporation. In the absence of the
Chairman of the Board, he shall preside at all meetings of the shareholders
and directors. He shall be the chief executive officer of the corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect. He shall be ex officio a member of all standing
committees. He may execute and deliver, in the name of the corporation, any
deeds, mortgages, bonds, contracts or other instruments pertaining to the
business of the corporation and, in general, shall perform all duties usually
incident to the office of the President. He shall have such other duties as
may, from time to time, be prescribed by the Board of Directors.
Section 4.07. VICE PRESIDENT. Each Vice President shall have such
powers and shall perform such duties as may be specified in the Bylaws or
prescribed by the Board of Directors or by the President. In the event of
absence or disability of the President, Vice Presidents shall succeed to his
power and duties in the order designated by the Board of Directors.
Section 4.08. SECRETARY. The Secretary shall be secretary of, and
shall attend, all meetings of the shareholders and Board of Directors and
shall record all proceedings of such meetings in the minute book of the
corporation. He shall give proper notice of meetings of shareholders and
directors. He shall perform such other duties as may, from time to time, be
prescribed by the Board of Directors or by the President.
Section 4.09. TREASURER. The Treasurer shall be the chief
financial officer and shall keep accurate accounts of all money of the
corporation received or disbursed. He shall deposit all moneys, drafts and
checks in the name of, and to the credit of, the corporation in such banks
and depositories as a majority of the Board of Directors shall, from time to
time, designate. He shall have power to endorse, for deposit, all notes,
checks and drafts received by the corporation. He shall disburse the funds
of the corporation, as ordered by the Board of Directors, making proper
vouchers therefor. He shall render to the President and the directors,
whenever required, an account of all his transactions as Treasurer and of the
financial condition of the corporation, and shall perform such other duties
as may, from time to time, be prescribed by the Board of Directors or by the
President.
Section 4.10. ASSISTANT SECRETARIES. At the request of the
Secretary, or in his absence or disability, any Assistant Secretary shall
have power to perform all the duties of the Secretary, and, when so acting,
shall have all the powers of, and be subject to all restrictions upon, the
Secretary. The Assistant Secretaries shall
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perform such other duties as from time to time may be assigned to them by the
Board of Directors or the President.
Section 4.11. ASSISTANT TREASURERS. At the request of the
Treasurer, or in his absence or disability, any Assistant Treasurer shall
have power to perform all the duties of the Treasurer, and when so acting,
shall have all the powers of, and be subject to all the restrictions upon,
the Treasurer. The Assistant Treasurers shall perform such other duties as
from time to time may be assigned to them by the Board of Directors or the
President.
Section 4.12. COMPENSATION. The officers of this corporation
shall receive such compensation for their services as may be determined, from
time to time, by resolution of the Board of Directors.
Section 4.13. SURETY BONDS. The Board of Directors may require any
officer or agent of the corporation to execute a bond (including, without
limitation, any bond required by the Investment Company Act of 1940 and the
rules and regulations of the Securities and Exchange Commission) to the
corporation in such sum and with such surety or sureties as the Board of
Directors may determine, conditioned upon the faithful performance of his
duties to the corporation, including responsibility for negligence and for
the accounting of any of the corporation's property, funds or securities that
may come into his hands. In any such case, a new bond of like character
shall be given at least every six years, so that the dates of the new bond
shall not be more than six years subsequent to the date of the bond
immediately preceding.
ARTICLE V
SHARES AND THEIR TRANSFER AND REDEMPTION
Section 5.01. NO CERTIFICATES. The corporation shall not issue
share certificates for any classes or series.
Section 5.02. ISSUANCE OF SHARES. The Board of Directors is
authorized to cause to be issued shares of the corporation up to the full
amount authorized by the Articles of Incorporation in such classes or series
and in such amounts as may be determined by the Board of Directors and as may
be permitted by law. No shares shall be allotted except in consideration of
cash or other property, tangible or intangible, received or to be received by
the corporation under a written agreement, of services rendered or to be
rendered to the corporation under a written agreement, or of an amount
transferred from surplus to stated capital upon a share dividend. At the
time of such allotment of shares, the Board of Directors making such
allotments shall state, by resolution, their determination of the fair value
to the corporation in monetary terms of any consideration other than cash for
which shares are alloted. No shares of stock issued by the corporation shall
be issued, sold or exchanged by or on behalf of the corporation for any
amount less than the net
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asset value per share of the shares outstanding as determined pursuant to
Article X hereunder.
Section 5.03. REDEMPTION OF SHARES. Upon the demand of any
shareholder, this corporation shall redeem any share of stock issued by it
held and owned by such shareholder at the net asset value thereof as
determined pursuant to Article X hereunder. The Board of Directors may
suspend the right of redemption or postpone the date of payment during any
period when: (a) trading on the New York Stock Exchange is restricted or
such Exchange is closed for other than weekends or holidays; (b) the
Securities and Exchange Commission has by order permitted such suspension; or
(c) an emergency as defined by rules of the Securities and Exchange
Commission exists, making disposal of portfolio securities or valuation of
net assets of the corporation not reasonably practicable.
If following a redemption request by any shareholder of this
corporation, the value of such shareholder's interest in the corporation
falls below the required minimum investment, as may be set from time to time
by the Board of Directors, the corporation's officers are authorized, in
their discretion and on behalf of the corporation, to redeem such
shareholder's entire interest and remit such amount, provided that such a
redemption will only be effected by the corporation following: (a) a
redemption by a shareholder, which causes the value of such shareholder's
interest in the corporation to fall below the required minimum investment;
(b) the mailing by the corporation to such shareholder of a "notice of
intention to redeem"; and (c) the passage of at least sixty (60) days from
the date of such mailing, during which time the shareholder will have the
opportunity to make an additional investment in the corporation to increase
the value of such shareholder's account to at least the required minimum
investment.
Section 5.04. TRANSFER OF SHARES. Transfer of shares on the books
of the corporation may be authorized only by the shareholder, or the
shareholder's legal representative, or the shareholder's duly authorized
attorney-in-fact, and upon the surrender of a duly executed assignment
covering such shares. The corporation may treat, as the absolute owner of
shares of the corporation, the person or persons in whose name shares are
registered on the books of the corporation.
Section 5.05. REGISTERED SHAREHOLDERS. The corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and accordingly shall not be bound to recognize any
equitable or other claim to or interest in such share on the part of any
other person, whether or not it shall have express or other notice thereof,
except as otherwise expressly provided by the laws of Minnesota.
Section 5.06. TRANSFER OF AGENTS AND REGISTRARS. The Board of
Directors may from time to time appoint or remove transfer agents and/or
registrars of transfers of shares of stock of the corporation, and it may
appoint the same person as both transfer agent and registrar.
-10-
<PAGE>
Section 5.07. TRANSFER REGULATIONS. The shares of stock of the
corporation may be freely transferred, and the Board of Directors may from
time to time adopt rules and regulations with reference to the method of
transfer of shares of stock of the corporation.
ARTICLE VI
DIVIDENDS
Section 6.01. The net investment income of each class or series of
the corporation will be determined, and its dividends shall be declared and
made payable at such time(s) as the Board of Directors shall determine.
Dividends shall be payable to shareholders of record as of the date of
declaration.
It shall be the policy of each series of the corporation to qualify
for and elect the tax treatment applicable to regulated investment companies
under the Internal Revenue Code, so that such series will not be subjected to
federal income tax on such part of its income or capital gains as it
distributes to shareholders.
ARTICLE VII
BOOKS AND RECORDS, AUDIT, FISCAL YEAR
Section 7.01. SHARE REGISTER. The Board of Directors of the
corporation shall cause to be kept at its principal executive office, or at
another place or places within the United States determined by the board:
(1) a share register not more than one year old, containing the
names and addresses of the shareholders and the number and
classes or series of shares held by each shareholder; and
(2) a record of the dates on which transaction statements
representing shares were issued.
Section 7.02. OTHER BOOKS AND RECORDS. The Board of Directors
shall cause to be kept at its principal executive office, or, if its
principal executive office is not in Minnesota, shall make available at its
registered office within ten days after receipt by an officer of the
corporation of a written demand for them made by a shareholder or other
person authorized by Minnesota Statutes Section 302A.461, originals or copies
of:
(1) records of all proceedings of shareholders for the last three
years;
(2) records of all proceedings of the Board of Directors for the
last three years;
-11-
<PAGE>
(3) its articles and all amendments currently in effect;
(4) its bylaws and all amendments currently in effect;
(5) financial statements required by Minnesota Statutes Section
302A.463 and the financial statement for the most recent interim
period prepared in the course of the operation of the
corporation for distribution to the shareholders or to a
governmental agency as a matter of public record;
(6) reports made to shareholders generally within the last three
years;
(7) a statement of the names and usual business addresses of its
directors and principal officers;
(8) any shareholder voting or control agreements of which the
corporation is aware; and
(9) such other records and books of account as shall be necessary
and appropriate to the conduct of the corporate business.
Section 7.03. AUDIT; ACCOUNTANT.
(a) The Board of Directors shall cause the records and books of
account of the corporation to be audited at least once in each fiscal year
and at such other times as it may deem necessary or appropriate.
(b) The corporation shall employ an independent public accountant
or firm of independent public accountants to examine the accounts of the
corporation and to sign and certify financial statements filed by the
corporation. The independent accountant's certificates and reports shall be
addressed both to the Board of Directors and to the shareholders.
Section 7.04. FISCAL YEAR. The fiscal year of the corporation
shall be determined by the Board of Directors.
ARTICLE VIII
INDEMNIFICATION OF CERTAIN PERSONS
Section 8.01. The corporation shall indemnify such persons, for such
expenses and liabilities, in such manner, under such circumstances, and to
such extent as permitted by Section 302A.521 of the Minnesota Statutes, as
now enacted or hereafter amended, provided, however, 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 hereinafter amended.
-12-
<PAGE>
ARTICLE IX
VOTING OF STOCK HELD
Section 9.01. Unless otherwise provided by resolution of the Board
of Directors, the President, any Vice President, the Secretary or the
Treasurer, may from time to time appoint an attorney or attorneys or agent or
agents of the corporation, in the name and on behalf of the corporation, to
cast the votes which the corporation may be entitled to cast as a stockholder
or otherwise in any other corporation or association, any of whose stock or
securities may be held by the corporation, at meetings of the holders of the
stock or other securities of any such other corporation or association, or to
consent in writing to any action by any such other corporation or
association, and may instruct the person or persons so appointed as to the
manner of casting such votes or giving such consent, and may execute or cause
to be executed on behalf of the corporation and under its corporate seal, or
otherwise, such written proxies, consents, waivers or other instruments as it
may deem necessary or proper; or any of such officers may themselves attend
any meeting of the holders of stock or other securities of any such
corporation or association and thereat vote or exercise any or all other
rights of the corporation as the holder of such stock or other securities of
such other corporation or association, or consent in writing to any action by
any such other corporation or association.
ARTICLE X
VALUATION OF NET ASSET VALUE
10.01. The net asset value per share of each class or series of
stock of the corporation shall be determined in good faith by or under
supervision of the officers of the corporation as authorized by the Board of
Directors as often and on such days and at such time(s) as the Board of
Directors shall determine, or as otherwise may be required by law, rule,
regulation or order of the Securities and Exchange Commission.
ARTICLE XI
CUSTODY OF ASSETS
Section 11.01. All securities and cash owned by this corporation
shall, as hereinafter provided, be held by or deposited with a bank or trust
company having (according to its last published report) not less than Two
Million Dollars ($2,000,000) aggregate capital, surplus and undivided profits
(the "Custodian").
This corporation shall enter into a written contract with the
custodian regarding the powers, duties and compensation of the Custodian with
respect to the cash and securities of this corporation held by the Custodian.
Said contract and all amendments thereto shall be approved by the Board of
Directors of this corporation. In the event of the Custodian's resignation
or termination, the corporation shall use
-13-
<PAGE>
its best efforts promptly to obtain a successor Custodian and shall require
that the cash and securities owned by this corporation held by the Custodian
be delivered directly to such successor Custodian.
ARTICLE XII
AMENDMENTS
Section 12.01. These Bylaws may be amended or altered by a vote of
the majority of the Board of Directors at any meeting provided that notice of
such proposed amendment shall have been given in the notice given to the
directors of such meeting. Such authority in the Board of Directors is
subject to the power of the shareholders to change or repeal such bylaws by a
majority vote of the shareholders present or represented at any regular or
special meeting of shareholders called for such purpose, and the Board of
Directors shall not make or alter any Bylaws fixing a quorum for meetings of
shareholders, prescribing procedures for removing directors or filling
vacancies in the Board of Directors, or fixing the number of directors or
their classifications, qualifications or terms of office, except that the
Board of Directors may adopt or amend any Bylaw to increase or decrease their
number.
ARTICLE XIII
MISCELLANEOUS
Section 13.01. INTERPRETATION. When the context in which words
are used in these Bylaws indicates that such is the intent, singular words
will include the plural and vice versa, and masculine words will include the
feminine and neuter genders and vice versa.
Section 13.02. ARTICLE AND SECTION TITLES. The titles of Sections
and Articles in these Bylaws are for descriptive purposes only and will not
control or alter the meaning of any of these Bylaws as set forth in the text.
-14-
<PAGE>
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This Agreement, made this 2nd day of February, 1993, by and between
Piper Institutional Funds Inc., a Minnesota corporation (the "Fund"), on
behalf of the three series of shares of common stock of the Fund that adopt
this Agreement (such series being Institutional Money Market Fund,
Institutional Government Adjustable Portfolio and Enhanced 500 Fund) (the
"Series"), (which Agreement shall be supplemented from time to time to
reflect the addition of new series of the Fund), and Piper Capital Management
Incorporated, a Delaware corporation (the "Adviser").
1. INVESTMENT ADVISORY AND MANAGEMENT SERVICES. The Fund hereby
engages the Adviser on behalf of the Series, and the Adviser hereby agrees to
act as investment adviser for, and to manage the affairs, business and the
investment of the assets of the Series.
The investment of the assets of each Series shall at all times be
subject to the applicable provisions of the Articles of Incorporation,
Bylaws, Registration Statement on Form N-1A and any representations contained
in the Prospectus and Statement of Additional Information of such Series and
shall conform to the policies and purposes of each Series as set forth in
such documents and (a) as interpreted from time to time by the Board of
Directors of the Fund and (b) as may be amended from time to time by the
Board of Directors and/or the shareholders of each Series as permitted by the
Investment Company Act of 1940, as amended (the "1940 Act"). Within the
framework of the investment policies of each Series, the Adviser shall have
the sole and exclusive responsibility for the management of the assets of
each Series and the making and execution of all investment decisions for each
Series. The Adviser shall report to the Board of Directors regularly at such
times and in such detail as the Board may from time to time determine to be
appropriate, in order to permit the Board to determine the adherence of the
Adviser to the investment policies of the Series.
The Adviser shall, at its own expense, furnish suitable office space
and all necessary office facilities, equipment and personnel for servicing
the investments of the Series. The Adviser shall arrange, if requested by
the Fund, for officers, employees or other Affiliated Persons (as defined in
Section 2(a)(3) of the 1940 Act and the rules, regulations and releases
relating thereto) of the Adviser to serve without compensation from the Fund
as directors, officers, or employees of the Fund if duly elected to such
positions by the shareholders or directors of the Fund.
The Adviser hereby acknowledges that all records necessary in the
operation of each Series, including records pertaining to shareholders and
investments, are the property of the Fund, and in the event that a transfer
of management or investment advisory services to someone other than the
Adviser
<PAGE>
should ever occur, the Adviser will promptly, and at its own cost, take all
steps necessary to segregate such records and deliver them to the Fund.
2. COMPENSATION FOR SERVICES. In payment for all services,
facilities, equipment and personnel, and for other costs of the Adviser
hereunder, the Fund shall pay to the Adviser a monthly investment advisory
fee for each Series. The monthly fee payable by each Series shall be as set
forth below and may be updated from time to time by an amendment to this
Agreement to reflect the creation of future Series of the Fund. The
investment advisory fee for any future Series shall be as determined by the
Board of Directors of the Fund upon the creation of such Series. The monthly
fee payable by each Series shall be based on the average net asset values of
all of the issued and outstanding shares of such Series as determined at the
close of each business day of the month pursuant to the Articles and Bylaws
of the Fund and the currently effective Prospectus and Statement of
Additional Information of such Series. The fees shall be prorated for any
fraction of a month at the commencement or termination of this Agreement.
The following table sets forth the fees on a monthly and annual basis:
<TABLE>
<CAPTION>
Equivalent
Monthly Rate Annual Rate
------------ -----------
<S> <C> <C>
Series A- Institutional 1/12 of .15% .15%
Money Market Fund
Series B- Institutional Government 1/12 of .30% .30%
Adjustable Portfolio
Series C- Enhanced 500 Fund 1/12 of .50% .50%
</TABLE>
3. ALLOCATION OF EXPENSES.
(a) In addition to the fees described in Section 2 hereof, each
Series shall pay all its expenses which are not assumed by the Adviser or
Piper Jaffray Inc. (the "Distributor"). These expenses include, by way of
example, but not by way of limitation, (i) brokerage and commission expenses;
(ii) federal, state, local and foreign taxes, including issue and transfer
taxes incurred by or levied on the Fund; (iii) interest charges on
borrowings; (iv) the Fund's organizational and offering expenses, whether or
not advanced by the Adviser; (v) the cost of other personnel providing
services to the Fund; (vi) fees and expenses of registering shares under
applicable state securities laws; (vii) expenses of printing and distributing
reports to shareholders; (viii) costs of shareholders' meetings and proxy
solicitation; (ix) charges and expenses of the Fund's custodian and
registrar, transfer agent and
-2-
<PAGE>
dividend disbursing agent; (x) compensation of the Fund's officers, directors
and employees that are not Affiliated Persons or Interested Persons (as
defined in Section 2(a)(19) of the 1940 Act and the rules, regulations and
releases relating thereto) of the Adviser; (xi) legal and auditing expenses;
(xii) costs of stationery and supplies; (xiii) expenses of preparing
prospectuses and of printing and distributing prospectuses and statements of
additional information annually to existing shareholders; (xiv) insurance
expenses; (xv) association membership dues; (xvi) Rule 12b-1 Plan of
Distribution fees (when applicable); and (xvii) the fees and expenses of
registering and maintaining the registration of the Series and its shares
with the Securities and Exchange Commission.
The Distributor or the Adviser shall bear all advertising and promotional
expenses in connection with the distribution of each Series' shares,
including paying for prospectuses, statements of additional information and
shareholder reports for new shareholders and the costs of sales literature
and advertising. No Series shall use any of its assets to finance costs
incurred in connection with the distribution of its shares except pursuant to
a Plan of Distribution, if any, adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940.
4. LIMIT ON EXPENSES. It is understood that the laws of certain states
in which the shares of each Series are offered for sale may require that such
Series be reimbursed for excess expenses of such Series, and the Adviser
agrees to make such reimbursement.
5. FREEDOM TO DEAL WITH THIRD PARTIES. The Adviser shall be free to
render services to others similar to those rendered under this Agreement or
of a different nature except as such services may conflict with the services
to be rendered or the duties to be assumed hereunder.
6. EFFECTIVE DATE, DURATION AND TERMINATION OF AGREEMENT. This
Agreement shall become effective as of the effective date of the Fund's
Registration Statement on Form N-1A. Wherever referred to in this Agreement,
the vote or approval of the holders of a majority of the outstanding voting
securities or shares of a Series shall mean the vote of 67% or more of such
shares if the holders of more than 50% of such shares are present in person
or by proxy or the vote of more than 50% of such shares, whichever is less.
Unless sooner terminated as hereinafter provided, this Agreement
shall continue in effect with respect to each Series for a period of two
years from the date of its execution, and thereafter shall continue in effect
only so long as such continuance is specifically approved at least annually
(a) by the Board of Directors of the Fund or by the vote of a majority of the
outstanding voting securities of the applicable Series, and (b) by the vote
of a majority of the directors who are not
-3-
<PAGE>
parties to this Agreement or Interested Persons of the Adviser or of the
Fund, cast in person at a meeting called for the purpose of voting on such
approval.
This Agreement may be terminated with respect to any Series at any
time without the payment of any penalty by the vote of the Board of Directors
of the Fund or by the vote of the holders of a majority of the outstanding
voting securities of such Series, or by the Adviser, upon 60 days' written
notice to the other party. Any such termination may be made effective with
respect to both the investment advisory and management services provided for
in this Agreement or with respect to either of such kinds of services. This
Agreement shall automatically terminate in the event of its assignment as
defined in the l940 Act and the rules thereunder. This Agreement shall
automatically terminate upon completion of the dissolution, liquidation or
winding up of the Fund.
7. AMENDMENTS TO AGREEMENT. No material amendment to this Agreement
shall be effective until approved by a vote of the holders of a majority of the
outstanding shares of the applicable series of the Fund.
8. NOTICES. Any notice under this Agreement shall be in writing,
addressed, delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate in writing for receipt of such
notice.
IN WITNESS WHEREOF, the Fund and the Adviser have caused this
Agreement to be executed by their duly authorized officers as of the day and
year first above written.
PIPER INSTITUTIONAL FUNDS INC.
By /s/ Edward J. Kohler
-------------------------------------------
Its President
---------------------------------------
PIPER CAPITAL MANAGEMENT
INCORPORATED
By /s/ Edward J. Kohler
-------------------------------------------
Its President
---------------------------------------
-4-
<PAGE>
AMENDED UNDERWRITING AND DISTRIBUTION AGREEMENT
THIS AGREEMENT, made this 25th day of August, 1993, by and among
Piper Institutional Funds Inc., a Minnesota corporation (the "Piper Funds"),
Piper Jaffray Inc., a Delaware corporation (the "Distributor") and Piper
Capital Management Incorporated, a Delaware corporation (the "Adviser")
(the "Agreement").
WITNESSETH:
1. UNDERWRITING SERVICES. Piper Funds hereby engages the
Distributor, and the Distributor hereby agrees to act, as principal
underwriter for Piper Funds in the sale and distribution to the public of
Piper Funds shares of common stock, $.01 par value (the "Shares"), either
through dealers or otherwise. The Distributor agrees 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. The Shares may be offered in one or
more series (the "Series"), with each designated Series representing a
separate portfolio of investments. The three Series currently outstanding
are Institutional Money Market Fund, Institutional Government Adjustable
Portfolio and Enhanced 500 Fund. Other Series may be created in the future
by Piper Fund's Board of Directors.
2. SALE OF PIPER FUNDS SHARES. Such Shares are to be sold only on
the following terms:
(a) All subscriptions, offers or sales shall be subject to
acceptance or rejection by Piper Funds. Any offer or sale shall be
conclusively presumed to have been accepted by Piper Funds if Piper Funds
shall fail to notify the Distributor of the rejection of such offer or sale
prior to the computation of the net asset value of the Shares next following
receipt by Piper Funds of notice of such offer or sale.
(b) No Share shall be sold by the Distributor for any
consideration other than cash or for any amount less than the net asset value
of such Share, computed as provided in the currently effective prospectus of
Piper Funds. With respect to Institutional Money Market Fund, the net asset
value per Share is normally expected to be $1.00. All Shares sold by the
Distributor shall be sold at the public offering price, as hereinafter
defined, provided that, with respect to a Series sold with a Sales Load (as
hereinafter defined), the Distributor may allow, or sell at, a discount from
said public offering price to broker-dealers that have entered into sales
agreements with the Distributor, which discount shall be no greater than the
Sales Load.
(c) The public offering price of the Shares shall be the net asset
value thereof next determined following receipt of an order by the
Distributor plus the
<PAGE>
sales load or loading charge, if any, which shall be such percentage of the
public offering price, computed to the nearest cent, as is set forth in
Section 7(a) hereof, or as otherwise may be agreed upon in writing by Piper
Funds and the Distributor and specifically approved by the Board of Directors
of Piper Funds (the "Sales Load"), provided that no schedule of Sales Loads
shall be effective until set forth in a prospectus of Piper Funds meeting the
requirements of the Securities Act of 1933. Said Sales Load may be graduated
on a scale based upon the dollar amount of Shares sold.
(d) The Sales Load may, at the discretion of Piper Funds and the
Distributor, be reduced or eliminated as permitted by the Investment Company
Act of 1940, and the rules and regulations thereunder, as they may be amended
from time to time, provided that such reduction or elimination shall be set
forth in the currently effective prospectus for Piper Funds, and provided
that Piper Funds shall in no event receive for any Shares sold an amount less
than the net asset value thereof.
3. INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. Piper Funds may
extend to its shareholders the right to purchase Shares of any Series (or
Shares of any series of Piper Jaffray Investment Trust Inc. or Piper Global
Funds Inc. or any other open-end investment management companies or series
thereof managed by the Adviser) at the net asset value thereof with the
proceeds of any dividend or capital gain distribution paid or payable by a
Series of Piper Funds to its shareholders.
4. REGISTRATION OF SHARES. Piper Funds agrees to make prompt and
reasonable efforts to effect and keep in effect, at its own expense, the
registration or qualification of its Shares for sale in such jurisdictions as
Piper Funds may designate.
5. INFORMATION TO BE FURNISHED TO DISTRIBUTOR. Piper Funds agrees
that it will furnish the Distributor with such information with respect to
the affairs and accounts of Piper Funds as the Distributor may from time to
time reasonably require, and further agrees that the Distributor, at all
reasonable times, shall be permitted to inspect the books and records of
Piper Funds.
6. ALLOCATION OF EXPENSES. During the period of this agreement,
Piper Funds shall pay or cause to be paid all expenses, costs and fees
incurred by Piper Funds which are not assumed by the Adviser. The Adviser
shall pay all costs of distributing the Shares, including any direct costs
incurred by the Distributor under this Agreement.
2
<PAGE>
7. COMPENSATION TO DISTRIBUTOR. As compensation for all of its
services provided under this Agreement, the Distributor shall receive the
following forms and amounts of compensation:
(a) With respect to Institutional Government Adjustable Portfolio,
the Distributor shall receive the difference between the total amount charged
and received by the Distributor as the purchase price for the Shares and the
net asset value thereof. Such difference shall be equal to the Sales Loads
indicated below as a percentage of the public offering price and the net
asset value. As indicated, the Sales Loads are reduced on a graduated scale
on single purchases of $500,000 or more. Sales Loads for any future Series
shall be set forth in an amendment to this Agreement.
<TABLE>
<CAPTION>
Sales Load as a Sales Load as a Sales Load as a Dealer Reallowance
Amount of Transaction Percentage of Percentage of as a Percentage of
at Offering Offering Price Net Asset Value Offering Price
- --------------------- -------------- --------------- --------------------
<S> <C> <C> <C>
Less than $250,000 1.00% 1.01% .75%
$250,000 but less than
$500,000 0.50% 0.50% .375%
$500,000 and over 0% 0% .0%
</TABLE>
A percentage of the offering price, as set forth above, may be
reallowed by the Distributor to broker-dealers in connection with the sale of
Institutional Government Adjustable Portfolio Shares. The amount of the
Sales Loads set forth above may be retained or deducted by the Distributor
from any sums received by it in payment for Shares so sold. If such amount
is not deducted by the Distributor from such payments, such amount shall be
paid to the Distributor by Piper Funds not later than five business days
after the close of any month during which any such sales were made by the
Distributor and payment received by Piper Funds.
(b) It is understood and agreed by the parties hereto that sales of
Institutional Money Market Fund Shares and Enhanced 500 Fund Shares will
benefit the Adviser, an affiliate of the Distributor; therefore the
Distributor will receive no additional compensation for services it performs
hereunder in connection with sales of such Shares. However, the Adviser may
from time to time, from its own resources, pay the Distributor funds from
which the Distributor may compensate its investment executives or other
broker-dealers for sales of Shares of Institutional Government Adjustable
Portfolio, Institutional Money Market Fund and Enhanced 500 Fund or any other
Series of Piper Funds established in the future.
8. LIMITATION OF DISTRIBUTOR'S AUTHORITY. The Distributor shall be
deemed to be an authorized independent contractor and, except as specifically
provided or authorized herein, shall have no authority to act for or
represent Piper Funds. In connection with its role as underwriter of the
Shares of Piper Funds, the
3
<PAGE>
Distributor shall at all times be deemed an agent of Piper Funds and shall
sell Piper Funds Shares to purchasers thereof as agent and not as principal.
9. SUBSCRIPTION FOR SHARES; REFUND FOR CANCELED ORDERS. The
Distributor shall subscribe for the Shares of Piper Funds only for the
purpose of covering purchase orders already received by it or for the purpose
of investment for its own account. In the event that an order for the
purchase of Shares is placed with the Distributor by a customer or dealer and
subsequently canceled, the Distributor shall forthwith cancel the
subscription for such Shares entered on the book of Piper Funds and, if the
Distributor has paid Piper Funds for such Shares, shall be entitled to
receive from Piper Funds in refund of such payment the lesser of:
(a) the consideration received by Piper Funds for said Shares; or
(b) the Net Asset Value of such Shares at the time of cancellation
by the Distributor.
10. INDEMNIFICATION OF PIPER FUNDS. The Distributor agrees to
indemnify Piper Funds against any and all litigation and other legal
proceedings of any kind or nature and against any liability, judgment, cost
or penalty imposed as a result of such litigation or proceedings in any way
arising out of or in connection with the sale or distribution of the Shares
of Piper Funds by the Distributor. In the event of the threat or institution
of any such litigation or legal proceedings against Piper Funds, the
Distributor shall defend such action on behalf of Piper Funds at its own
expense, and shall pay any such liability, judgment, cost or penalty
resulting therefrom, whether imposed by legal authority or agreed upon by way
of compromise and settlement; provided, however, that the Distributor shall
not be required to pay or reimburse Piper Funds for any liability, judgment,
cost or penalty incurred as a result of information supplied to the
Distributor by or as a result of an omission to supply information to the
Distributor by Piper Funds or a director, officer or employee of Piper Funds
who is not an Interested Person of the Distributor (as defined in Section
2(a)(19) of the Investment Company Act of 1940 and the rules, regulations and
releases relating thereto), unless the information so supplied or omitted was
available to the Distributor or Piper Fund's investment adviser without
recourse to Piper Funds or any such Interested Person of Piper Funds.
11. FREEDOM TO DEAL WITH THIRD PARTIES. The Distributor shall be
free to render to others services of a nature either similar to or different
from those rendered under this contract, except such as may impair its
performance of the services and duties to be rendered by it hereunder.
12. EFFECTIVE DATE, DURATION AND TERMINATION OF AGREEMENT. The
effective date of this Agreement shall be the date first set forth above.
Wherever referred to in this Agreement, the vote or approval of the holders
of a majority of
4
<PAGE>
the outstanding Shares of Piper Funds or of a Series of Piper Funds shall
mean the vote of 67% or more of such Shares if the holders of more than 50%
of such Shares are present in person or by proxy or the vote of more than 50%
of such Shares, whichever is less.
Unless sooner terminated as hereinafter provided, this Agreement
shall continue in effect from year to year with respect to each Series, but
only so long as such continuance is specifically approved at least annually
(a) by the Board of Directors of Piper Funds or by the vote of a majority of
the outstanding voting securities of the applicable Series, and (b) by the
vote of a majority of the directors who are not Interested Persons of Piper
Funds or of the Distributor and who have no direct or indirect financial
interest in the operation of this Agreement, or in any agreements relating to
this Agreement, cast in person at a meeting called for the purpose of voting
on such approval.
This Agreement may be terminated at any time without the payment of
any penalty by the vote of a majority of the members of the Board of
Directors of Piper Funds who are not Interested Persons of Piper Funds and
who have no direct or indirect financial interest in the operation of this
Agreement or in any agreements relating to this Agreement, or by the
Distributor, upon not more than 60 days' written notice to the other party.
This Agreement may be terminated with respect to a particular Series at any
time without the payment of any penalty by the vote of the holders of a
majority of the outstanding Shares of such Series, upon 60 days' written
notice to the Distributor. This Agreement shall automatically terminate in
the event of its assignment.
13. AMENDMENTS TO AGREEMENT. No material amendment to this
Agreement shall be effective until approved by the Distributor and by the
vote of a majority of the Board of Directors of Piper Funds who are not
Interested Persons of the Distributor.
14. NOTICES. Any notices under this Agreement shall be in writing,
addressed, delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate in writing for the receipt of such
notice.
5
<PAGE>
IN WITNESS WHEREOF, Piper Funds, the Distributor and the Adviser
have caused this Agreement to be executed by their duly authorized officers
as of the day and year first above written.
PIPER INSTITUTIONAL FUNDS INC.
By /s/ Edward J. Kohler
-------------------------------------------
Its President
---------------------------------------
PIPER JAFFRAY INC.
By /s/ David Evans Rosedahl
-------------------------------------------
Its Secretary
---------------------------------------
PIPER CAPITAL MANAGEMENT
INCORPORATED
By /s/ Edward J. Kohler
-------------------------------------------
Its President
---------------------------------------
6
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CUSTODY AGREEMENT
THIS AGREEMENT made the 2nd day of February, 1993, by and
between INVESTORS FIDUCIARY TRUST COMPANY ("Custodian"), a trust company
chartered under the laws of the state of Missouri, having its trust office
located at 127 West 10th Street, Kansas City, Missouri 64105, and PIPER
INSTITUTIONAL FUNDS INC., a Minnesota corporation having its principal office
and place of business at 222 South Ninth Street, Minneapolis, Minnesota
55402 ("Fund").
WITNESSETH:
WHEREAS, Fund desires to appoint Investors Fiduciary Trust Company
as Custodian of the securities and monies of Fund's investment portfolio; and
WHEREAS, Investors Fiduciary Trust Company is willing to accept such
appointment;
NOW THEREFORE, for and in consideration of the mutual promises
contained herein, the parties hereto, intending to be legally bound, mutually
covenant and agree as follows:
1. APPOINTMENT OF CUSTODIAN. Fund hereby constitutes and appoints
Custodian as custodian of the Fund which is to include:
A. Appointment as custodian of the securities and
monies at any time owned by the Fund; and
B. Appointment as agent to perform certain accounting and
recordkeeping functions required of a duly registered
investment company in compliance with applicable provisions of
federal, state and local laws, rules and regulations
including, as may be required:
1. Providing information necessary for Fund to file required
financial reports; maintaining and preserving required
books, accounts and records as the basis for such
reports; and performing certain daily functions in
connection with such accounts and records.
2. Calculating daily net asset value of the Fund, and
3. Acting as liaison with independent auditors.
2. DELIVERY OF CORPORATE DOCUMENTS. Fund has delivered or will deliver
to Custodian prior to the effective date of this Agreement, copies
of the following documents and all amendments or supplements thereto,
properly certified or authenticated:
A. Resolutions of the Board of Directors of Fund appointing
Custodian as custodian hereunder and approving the form of this
Agreement; and
B. Resolutions of the Board of Directors of Fund designating
certain persons to give instructions on behalf of Fund to
Custodian and authorizing Custodian to rely upon written
instructions over their signatures.
3. DUTIES AND RESPONSIBILITIES OF CUSTODIAN.
A. DELIVERY OF ASSETS
Fund will deliver or cause to be delivered to Custodian on the
effective date of this Agreement, or as soon thereafter as
practicable, and from time to time thereafter, all portfolio
securities acquired by it and monies then owned by it except
as permitted by the Investment Company Act of 1940 or
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from time to time coming into its possession during the time this
Agreement shall continue in effect. Custodian shall have no
responsibility or liability whatsoever for or on account
of securities or monies not so delivered. All securities
so delivered to Custodian (other than bearer securities) shall be
registered in the name of Fund or its nominee, or of a nominee
of Custodian, or shall be properly endorsed and in form
for transfer satisfactory to Custodian.
B. DELIVERY OF ACCOUNTS AND RECORDS
Fund shall turn over to Custodian all of the Fund's relevant
accounts and records previously maintained by it, if any.
Custodian shall be entitled to rely conclusively on the
completeness and correctness of the accounts and records
turned over to it by Fund, and Fund shall indemnify and hold
Custodian harmless of and from any and all expenses, damages
and losses whatsoever arising out of or in connection with any
error, omission, inaccuracy or other deficiency of such
accounts and records or in the failure of Fund to provide any
portion of such or to provide any information needed by the
Custodian knowledgeably to perform its function hereunder.
C. DELIVERY OF ASSETS TO THIRD PARTIES
Custodian will receive delivery of and keep safely the assets
of Fund delivered to it from time to time segregated in a
separate account. Custodian will not deliver, assign, pledge
or hypothecate any such assets to any person except as
permitted by the provisions of this Agreement or any agreement
executed by it according to the terms of Section 3.S. of this
Agreement. Upon delivery of any such assets to a subcustodian
pursuant to Section 3.S.2 of this agreement, Custodian will
create and maintain records identifying those assets which
have been delivered to the subcustodian as belonging to Fund.
The Custodian is responsible for the securities and monies of
Fund only until they have been transmitted to and received by
other persons as permitted under the terms of this Agreement,
except for securities and monies transmitted to United
Missouri Bank of Kansas City, N.A. (UMBKC) and United Missouri
Trust Company of New York (UMBNY) as provided for by Section
3.S., for which Custodian remains responsible. Custodian
shall be responsible only for the monies and securities of
Fund held by it or its nominees or UMBKC under this Agreement.
Custodian may participate directly or indirectly through a
subcustodian in the Depository Trust Company, Treasury/Federal
Reserve Book Entry System, or Participant Trust Company (as
such entities are defined at 17 CFR Section 270.17f-4(b))
provided that (i) the securities of the Fund held at such an
entity shall not include any assets of the Custodian other
than assets held as a fiduciary, custodian or otherwise for
customers; (ii) the records of the Custodian with respect to
securities of the Fund which are maintained in such an entity
shall identify by book-entry those securities belonging to the
Fund; (iii) the Custodian shall pay for securities purchased
for the account of the Fund upon (a) receipt of advice
from such entity that the Fund's securities have been transferred
to the Custodian's account, and (b) the making of an entry on
the records of the Custodian to reflect such payment and
transfer for the account of the Fund; the Custodian shall
transfer securities sold for the account of the Fund upon (a)
receipt of advice
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from such entity that payment for the Fund's securities
has been transferred to the Custodians's account,
and (b) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account
of the Fund; (v) copies of all advices from such entity(ies)
of transfers of securities for the account of the Fund shall
be maintained for the Fund by the Custodian and the Custodian
shall furnish the Fund with confirmation of each transfer to
or from the account of the Fund; (vi) the Custodian shall
provide the Fund with any report obtained by the Custodian on
the entity(ies) accounting system, internal accounting control
and procedures for safeguarding securities deposited with such
entity.
D. REGISTRATION OF SECURITIES
Custodian will hold stocks and other registerable portfolio
securities of Fund registered in the name of Fund or in the
name of any nominee of Custodian for whose fidelity and
liability Custodian will be fully responsible, or in street
certificate form, so-called, with or without any indication of
fiduciary capacity. Unless otherwise instructed, Custodian
will register all such portfolio securities in the name of its
authorized nominee. All securities, and the ownership thereof
by Fund, which are held by Custodian hereunder, however, shall
at all times be identifiable on the records of the Custodian.
The Fund agrees to hold Custodian and its nominee harmless for
any liability as a record holder of securities held in custody.
E. EXCHANGE OF SECURITIES
Upon receipt of instructions as defined herein in Section
4.A, Custodian will exchange, or cause to be exchanged,
portfolio securities held by it for the account of Fund for
other securities or cash issued or paid in connection with any
reorganization, recapitalization, merger, consolidation,
split-up of shares, change of par value, conversion or
otherwise, and will deposit any such securities in accordance
with the terms of any reorganization or protective plan.
Without instructions, Custodian is authorized to exchange
securities held by it in temporary form for securities in
definitive form, to effect an exchange of shares when the par
value of the stock is changed, and, upon receiving payment
therefor, to surrender bonds or other securities held by it at
maturity or when advised of earlier call for redemption,
except that Custodian shall receive instructions prior to
surrendering any convertible security.
F. PURCHASES OF INVESTMENTS OF THE FUND
Fund will, on each business day on which a purchase of
securities shall be made by it, deliver to Custodian
instructions which shall specify with respect to each such
purchase:
1. The name of the issuer and description of the security;
2. The number of shares or the principal amount purchased,
and accrued interest, if any;
3. The trade date;
4. The settlement date;
5. The purchase price per unit and the brokerage commission,
taxes and other expenses payable in connection with the
purchase;
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6. The total amount payable upon such purchase; and
7. The name of the person from whom or the broker or dealer
through whom the purchase was made.
In accordance with such instructions, Custodian will pay for
out of monies held for the account of Fund, but only insofar
as monies are available therein for such purpose, and receive
the portfolio securities so purchased by or for the account of
Fund. Such payment will be made only upon receipt by
Custodian of the securities so purchased in form for transfer
satisfactory to Custodian.
G. SALES AND DELIVERIES OF INVESTMENTS OF THE
FUND - OTHER THAN OPTIONS AND FUTURES
Fund will, on each business day on which a sale of investment
securities of Fund has been made, deliver to Custodian
instructions specifying with respect to each such sale:
1. The name of the issuer and description of the securities;
2. The number of shares or principal amount sold, and accrued
interest, if any;
3. The date on which the securities sold were purchased or
other information identifying the securities sold and to
be delivered;
4. The trade date;
5. The settlement date;
6. The sale price per unit and the brokerage commission, taxes
or other expenses payable in connection with such sale;
7. The total amount to be received by Fund upon such sale; and
8. The name and address of the broker or dealer through whom
or person to whom the sale was made.
In accordance with such instructions, Custodian will deliver
or cause to be delivered the securities thus designated as
sold for the account of Fund to the broker or other person
specified in the instructions relating to such sale, such
delivery to be made only upon receipt of payment therefor in
such form as is satisfactory to Custodian, with the
understanding that Custodian may deliver or cause to be
delivered securities for payment in accordance with the
customs prevailing among dealers in securities.
H. PURCHASES OR SALES OF SECURITY OPTIONS, OPTIONS ON INDICES
AND SECURITY INDEX FUTURES CONTRACTS
Fund will, on each business day on which a purchase or sale of
the following options and/or futures shall be made by it,
deliver to Custodian instructions which shall specify with
respect to each such purchase or sale:
1. Security Options
a. The underlying security;
b. The price at which purchased or sold;
c. The expiration date;
d. The number of contracts;
e. The exercise price;
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f. Whether the transaction is an opening, exercising,
expiring or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased;
i. Market on which option traded;
j. Name and address of the broker or dealer through
whom the sale or purchase was made.
2. Options on Indices
a. The index;
b. The price at which purchased or sold;
c. The exercise price;
d. The premium;
e. The multiple;
f. The expiration date;
g. Whether the transaction is an opening, exercising,
expiring or closing transaction;
h. Whether the transaction involves a put or call;
i. Whether the option is written or purchased;
j. The name and address of the broker or dealer through
whom the sale or purchase was made, or other
applicable settlement instructions.
3. Security Index Futures Contracts
a. The last trading date specified in the contract and,
when available, the closing level, thereof;
b. The index level on the date the contract is entered
into;
c. The multiple;
d. Any margin requirements;
e. The need for a segregated margin account (in addition
to instructions, and if not already in the possession
of Custodian, Fund shall deliver a substantially
complete and executed custodial safekeeping account
and procedural agreement which shall be incorporated
by reference into this Custody Agreement); and
f. The name and address of the futures commission merchant
through whom the sale or purchase was made, or other
applicable settlement instructions.
4. Option on Index Future Contracts
a. The underlying index futures contract;
b. The premium;
c. The expiration date;
d. The number of options;
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e. The exercise price;
f. Whether the transaction involves an opening,
exercising, expiring or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased; and
i. The market on which the option is traded.
I. SECURITIES PLEDGED OR LOANED
If specifically allowed for in the prospectus of Fund:
1. Upon receipt of instructions, Custodian will release or
cause to be released securities held in custody to the
pledgee designated in such instructions by way of pledge
or hypothecation to secure any loan incurred by Fund;
provided, however, that the securities shall be released
only upon payment to Custodian of the monies borrowed,
except that in cases where additional collateral is
required to secure a borrowing already made, further
securities may be released or caused to be released for
that purpose upon receipt of instructions. Upon receipt
of instructions, Custodian will pay, but only from funds
available for such purpose, any such loan upon redelivery
to it of the securities pledged or hypothecated therefor and
upon surrender of the note or notes evidencing such loan.
2. Upon receipt of instructions, Custodian will release
securities held in custody to the borrower designated in
such instructions; provided, however, that the securities
will be released only upon deposit with Custodian of full
cash collateral as specified in such instructions, and that
Fund will retain the right to any dividends, interest or
distribution on such loaned securities. Upon receipt of
instructions and the loaned securities, Custodian will
release the cash collateral to the borrower.
J. ROUTINE MATTERS
Custodian will, in general, attend to all routine and
mechanical matters in connection with the sale, exchange,
substitution, purchase, transfer, or other dealings with
securities or other property of Fund except as may be
otherwise provided in this Agreement or directed from time to
time by the Board of Directors of Fund.
K. DEPOSIT ACCOUNT
Custodian will open and maintain a special purpose deposit
accounts in the name of Custodian ("Account"), subject only to
draft or order by Custodian upon receipt of instructions. All
monies received by Custodian from or for the account of a
portfolio shall be deposited in said Account, barring events
not in the control of the Custodian such as strikes, lockouts
or labor disputes, riots, war or equipment or transmission
failure or damage, fire, flood, earthquake or other natural
disaster, action or inaction of governmental authority or
other causes beyond its control, at 9:00 a.m., Kansas City
time, on the second business day after deposit of any check
into Fund's Account. Custodian may open and maintain an
Account in such other banks or trust companies as may be
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designated by it or by properly authorized resolution of the
Board of Directors of Fund, such Account, however, to be in
the name of custodian and subject only to its draft or order.
L. INCOME AND OTHER PAYMENTS TO FUND
Custodian will:
1. Collect, claim and receive and deposit for the Account of
Fund all income and other payments which become due and
payable on or after the effective date of this Agreement
with respect to the securities deposited under this
Agreement, and credit the account of Fund with such
income on the date received;
2. Execute ownership and other certificates and affidavits
for all foreign, federal, state and local tax purposes
in connection with the collection of bond and note
coupons; and
3. Take such other action as may be necessary or proper in
connection with:
a. the collection, receipt and deposit of such income
and other payments, including but not limited
to the presentation for payment of:
1. all coupons and other income items requiring
presentation; and
2. all other securities which may mature or be
called, redeemed, retired or otherwise become
payable and regarding which the Custodian has
actual knowledge, or notice of which is
contained in publications of the type to which
it normally subscribes for such purpose; and
b. the endorsement for collection, in the name of Fund,
of all checks, drafts or other negotiable instruments.
Custodian, however, will not be required to institute suit or
take other extraordinary action to enforce collection except
upon receipt of instructions and upon being indemnified to its
satisfaction against the costs and expenses of such suit or
other actions. Custodian will receive, claim and collect all
stock dividends, rights and other similar items and will deal
with the same pursuant to instructions. Unless prior
instructions have been received to the contrary, Custodian
will, without further instructions, sell any rights held for
the account of Fund on the last trade date prior to the date
of expiration of such rights.
M. PAYMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS
On the declaration of any dividend or other distribution on
the shares of Capital Stock of Fund ("Fund Shares") by the
Board of Directors of Fund, Fund shall deliver to Custodian
instructions with respect thereto wherein there shall be set
forth the record date as of which shareholders entitled to
receive such dividend or other distribution shall be
determined, the date of payment of such dividend or
distribution, and the amount payable per share on such
dividend or distribution. Except if the ex-dividend date and
the reinvestment date of any dividend are the same, in which
case funds shall remain in the Custody Account, on the date
specified in such Resolution for the payment of such dividend
or other distribution, Custodian will pay out of the monies
held for the account of Fund, insofar as the same shall be
available for such purposes, and credit to the account of the
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Dividend Disbursing Agent for Fund, such amount as may be
necessary to pay the amount per share payable in cash on Fund
Shares issued and outstanding on the record date established
by such Resolution.
N. SHARES OF FUND PURCHASED BY FUND
Whenever any Fund Shares are repurchased or redeemed by Fund,
Fund or its agent shall advise Custodian of the aggregate
dollar amount to be paid for such shares and shall confirm
such advice in writing. Upon receipt of such advice,
Custodian shall charge such aggregate dollar amount to the
Account of Fund and either deposit the same in the account
maintained for the purpose of paying for the repurchase or
redemption of Fund Shares or deliver the same in accordance
with such advice. Custodian shall not have any duty or
responsibility to determine that Fund Shares have been removed
from the proper shareholder account or accounts or that the
proper number of such shares have been cancelled and removed
from the shareholder records.
O. SHARES OF FUND PURCHASED FROM FUND
Whenever Fund Shares are purchased from Fund, Fund will
deposit or cause to be deposited with Custodian the amount
received for such shares.
Custodian shall not have any duty or responsibility to
determine that Fund Shares purchased from Fund have been added
to the proper shareholder account or accounts or that the
proper number of such shares have been added to the
shareholder records.
P. PROXIES AND NOTICES
Custodian will promptly deliver or mail or have delivered or
mailed to Fund all proxies properly signed, all notices of
meetings, all proxy statements and other notices, requests or
announcements affecting or relating to securities held by
Custodian for Fund and will, upon receipt of instructions,
execute and deliver or cause its nominee to execute and
deliver or mail or have delivered or mailed such proxies or
other authorizations as may be required. Except as provided
by this Agreement or pursuant to instructions hereafter
received by Custodian, neither it nor its nominee will
exercise any power inherent in any such securities, including
any power to vote the same, or execute any proxy, power of
attorney, or other similar instrument voting any of such
securities, or give any consent, approval or waiver with
respect thereto, or take any other similar action.
Q. DISBURSEMENTS
Custodian will pay or cause to be paid insofar as funds are
available for the purpose, bills, statements and other
obligations of Fund (including but not limited to obligations
in connection with the conversion, exchange or surrender of
securities owned by Fund, interest charges, dividend
disbursements, taxes, management fees, custodian fees, legal
fees, auditors' fees, transfer agents' fees, brokerage
commissions, compensation to personnel, and other operating
expenses of Fund) pursuant to instructions of Fund setting
forth the name of the person to whom payment is to be made,
the amount of the payment, and the purpose of the payment.
R. DAILY STATEMENT OF ACCOUNTS
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Custodian will, within a reasonable time, render to Fund as of
the close of business on each day, a detailed statement of the
amounts received or paid and of securities received or
delivered for the account of Fund during said day in
compliance with 31a-1(b)(1) of the Investment Company Act of
1940, as amended. Custodian will, from time to time, upon
request by Fund, render a detailed statement of the securities
and monies held for Fund under this Agreement, and Custodian
will maintain such books and records as are necessary to
enable it to do so and will permit such persons as are
authorized by Fund including Fund's independent public
accountants, access to such records or confirmation of the
contents of such records; and if demanded, will permit federal
and state regulatory agencies to examine the securities, books
and records. Upon the written instructions of Fund or as
demanded by federal or state regulatory agencies, Custodian
will instruct any subcustodian to give such persons as are
authorized by Fund including Fund's independent public
accountants, access to such records or confirmation of the
contents of such records; and if demanded, to permit federal
and state regulatory agencies to examine the books, records
and securities held by subcustodian which relate to Fund.
S. APPOINTMENT OF SUBCUSTODIANS
1. Notwithstanding any other provisions of this Agreement,
all or any of the monies or securities of Fund may be
held in Custodian's own custody or in the custody of one
or more other banks or trust companies selected by
Custodian or as directed by the Fund. Any such
subcustodian must have the qualifications required for
custodian under the Investment Company Act of 1940, as
amended. The Custodian or subcustodian may participate
directly or indirectly in the Depository Trust Company,
Treasury/Federal Reserve Book Entry System, or
Participant Trust Company (as such entities are defined
at 17 CFR Sec. 270.17f-4(b)), or other depository
approved by the Fund. Custodian will appoint UMBKC and
UMBNY as subcustodians and Custodian shall be responsible
for UMBKC and UMBNY to the same extent it is responsible
to the Fund under Section 5 of this Agreement. Custodian
is not responsible for DTC, the Federal Reserve Book
Entry System, and PTC except to the extent such entities
are responsible to Custodian. Upon instruction of the
Fund, the Custodian shall be willing to contract with
such entities as Bank of New York (BONY), Morgan Guaranty
and Trust Company (MGTC), Chemical Bank (CB), and Bankers
Trust Company (BT) for variable rate securities and
Custodian will be responsible to the Fund to the same
extent those entities are responsible to Custodian. The
Fund shall be entitled to review Custodian's contracts
with BONY, MGTC, CB, and BT.
2. Notwithstanding any other provisions of this Agreement,
Fund's foreign securities (as defined in Rule 17f-5(c)(1)
under the Investment Company Act of 1940) and Fund's cash
or cash equivalents, in amounts reasonably necessary to
effect Fund's foreign securities transactions, may be
held in the custody of one or more banks or trust
companies acting
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as subcustodians, according to Section 3.S.1; and
thereafter, pursuant to a written contract or contracts
as approved by Fund's Board of Directors, may be
transferred to an account maintained by such
subcustodian with an eligible foreign custodian, as
defined in Rule 17f-5(c)(2), provided that any such
arrangement involving a foreign custodian shall be in
accordance with the provisions of Rule 17f-5 under the
Investment Company Act of 1940 as that Rule may be
amended from time to time.
T. ACCOUNTS AND RECORDS
Custodian, with the direction and as interpreted by the Fund,
Fund's accountants and/or other tax advisors, will prepare and
maintain as complete, accurate and current all accounts and
records required to be maintained by Fund under the Internal
Revenue Code of 1986 ("Code") as amended and under the general
Rules and Regulations under the Investment Company Act of 1940
("Rules") as amended with particular attention to Rules 31a-1.
and 31a-2., and as agreed upon between the parties and will
preserve said records in the manner and for the periods
prescribed in said Code and Rules, or for such longer period
as is agreed upon by the parties.
Custodian relies upon Fund to furnish, in writing, accurate
and timely information to complete Fund's records and perform
daily calculation of the Fund's net asset value, as provided
in Section 3.W. below.
Custodian shall incur no liability and Fund shall indemnify
and hold harmless Custodian from and against any liability
arising from any failure of Fund to furnish such information
in a timely and accurate manner, even if Fund subsequently
provides accurate but untimely information. It shall be the
responsibility of Fund to furnish Custodian with the
declaration, record and payment dates and amounts of any
dividends or income and any other special actions required
concerning each of its securities when such information is not
readily available from generally accepted securities industry
services or publications.
U. ACCOUNTS AND RECORDS PROPERTY OF FUND
Custodian acknowledges that all of the accounts and records
maintained by Custodian pursuant to this Agreement are the
property of Fund, and will be made available to Fund for
inspection or reproduction within a reasonable period of time,
upon demand. Custodian will assist Fund's independent
auditors, or upon approval of Fund, or upon demand, any
regulatory body, in any requested review of Fund's accounts
and records but shall be reimbursed for all expenses and
employee time invested in any such review outside of routine
and normal periodic reviews. Upon receipt from Fund of the
necessary information, Custodian will supply necessary data
for Fund's completion of any necessary tax returns,
questionnaires, periodic reports to Shareholders and such
other reports and information requests as Fund and Custodian
shall agree upon from time to time.
V. ADOPTION OF PROCEDURES
Custodian and Fund may from time to time adopt procedures as
they agree upon, and Custodian may conclusively assume that no
procedure approved by Fund, or directed by Fund, conflicts with
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or violates any requirements of its prospectus, "Articles
of Incorporation", Bylaws, or any rule or regulation of any
regulatory body or governmental agency. Fund will be
responsible to notify Custodian of any changes in statutes,
regulations, rules or policies which might necessitate changes
in Custodian's responsibilities or procedures.
W. CALCULATION OF NET ASSET VALUE
Custodian will calculate Fund's net asset value, in accordance
with Fund's prospectus, once daily. Custodian will prepare and
maintain a daily evaluation of securities for which market
quotations are available by the use of outside services
normally used and contracted for this purpose; all other
securities will be evaluated in accordance with Fund's
instructions. Custodian will have no responsibility for the
accuracy of the prices quoted by these outside services or for
the information supplied by Fund or upon instructions.
X. OVERDRAFTS
If Custodian shall in its sole discretion advance funds to the
account of the Fund which results in an overdraft because the
monies held by Custodian on behalf of the Fund are
insufficient to pay the total amount payable upon a purchase
of securities as specified in Fund's instructions or for some
other reason, the amount of the overdraft shall be payable by
the Fund to Custodian upon demand and shall bear an interest
rate determined by Custodian from the date advanced until the
date of payment.
4. INSTRUCTIONS.
A. The term "instructions", as used herein, means written or
oral instructions to Custodian from a designated
representative of Fund. Certified copies of resolutions of
the Board of Directors of Fund naming one or more designated
representatives to give instructions in the name and on behalf
of Fund, may be received and accepted from time to time by
Custodian as conclusive evidence of the authority of any
designated representative to act for Fund and may be
considered to be in full force and effect (and Custodian will
be fully protected in acting in reliance thereon) until
receipt by Custodian of notice to the contrary. Unless the
resolution delegating authority to any person to give
instructions specifically requires that the approval of anyone
else will first have been obtained, Custodian will be under no
obligation to inquire into the right of the person giving such
instructions to do so. Notwithstanding any of the foregoing
provisions of this Section 4. no authorizations or
instructions received by Custodian from Fund, will be deemed
to authorize or permit any Trustee, officer, employee, or
agent of Fund to withdraw any of the securities or similar
investments of Fund upon the mere receipt of such
authorization or instructions from such director, officer,
employee or agent.
Notwithstanding any other provision of this Agreement,
Custodian, upon receipt (and acknowledgement if required at
the discretion of Custodian) of the instructions of a
designated representative of Fund will undertake to deliver
for Fund's account monies, (provided such monies are on hand
or available) in connection with Fund's transactions and to
wire transfer such monies
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to such broker, dealer, subcustodian, bank or other agent
specified in such instructions by a designated representative
of Fund.
B. No later than the next business day immediately following each
oral instruction, Fund will send Custodian written
confirmation of such oral instruction. At Custodian's sole
discretion, Custodian may record on tape, or otherwise, any
oral instruction whether given in person or via telephone,
each such recording identifying the parties, the date and the
time of the beginning and ending of such oral instruction.
5. LIMITATION OF LIABILITY OF CUSTODIAN.
A. Custodian shall hold harmless and indemnify Fund from and
against any loss or liability arising out of
Custodian's failure to comply with the terms of this Agreement
or arising out of Custodian's negligence, willful misconduct,
or bad faith. Custodian shall not be liable for
consequential, special or punitive damages. Custodian may
reasonably request and obtain the advice and opinion of
counsel for Fund, or of its own counsel with respect to
questions or matters of law, and it shall be without liability
to Fund for any action taken or omitted by it in good faith,
in conformity with such advice or opinion.
B. Custodian may rely upon the advice of Fund and upon statements of
Fund's accountants and other persons believed by it in good
faith, to be expert in matters upon which they are consulted,
and Custodian shall not be liable for any actions taken, in
good faith without negligence upon such statements.
C. If Fund requires Custodian in any capacity to take, with respect
to any securities, any action which involves the payment of
money by it, or which in Custodian's opinion might make it or
its nominee liable for payment of monies or in any other way,
Custodian, upon notice to Fund given prior to such actions,
shall be and be kept indemnified by Fund in an amount and form
satisfactory to Custodian against any liability on account of
such action.
D. Custodian shall be entitled to receive, and Fund agrees to pay to
Custodian, on demand, reimbursement for such cash
disbursements, costs and expenses as may be agreed upon from
time to time by Custodian and Fund.
E. Custodian shall be protected in acting as custodian hereunder
upon any instructions, advice, notice, request, consent,
certificate or other instrument or paper reasonably appearing
to it to be genuine and to have been properly executed and
shall, unless otherwise specifically provided herein, be
entitled to receive as conclusive proof of any fact or matter
required to be ascertained from Fund hereunder, a certificate
signed by the Fund's President, or other officer specifically
authorized for such purpose.
F. Without limiting the generality of the foregoing, Custodian shall
be under no duty or obligation to inquire into, and shall not be
liable for:
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1. The validity of the issue of any securities purchased by or
for Fund, the legality of the purchase thereof or evidence
of ownership required by Fund to be received by Custodian, or
the propriety of the decision to purchase or amount paid
therefor;
2. The legality of the sale of any securities by or for Fund,
or the propriety of the amount for which the same are sold;
3. The legality of the issue or sale of any shares of the
Capital Stock of Fund, or the sufficiency of the amount
to be received therefor;
4. The legality of the repurchase or redemption of any shares
of Fund Shares, or the propriety of the amount to be paid
therefor; or
5. The legality of the declaration of any dividend by Fund,
or the legality of the issue of any Fund Shares in payment
of any stock dividend.
G. Custodian shall not be liable for, or considered to be Custodian
of, any money represented by any check, draft, wire transfer,
clearing house funds, uncollected funds, or instrument for the
payment of money received by it on behalf of Fund, until
Custodian actually receives such money, provided only that it
shall advise Fund promptly if it fails to receive any such
money in the ordinary course of business, and use its best
efforts and cooperate with Fund toward the end that such money
shall be received.
H. Except for any subcustodians appointed under Section 3.S.,
Custodian shall not be responsible for loss occasioned by the
acts, neglects, defaults or insolvency of any broker, bank,
trust company, or any other person with whom Custodian may
deal in the absence of negligence, or bad faith on the part of
Custodian.
I. Notwithstanding anything herein to the contrary, Custodian may,
and with respect to any foreign subcustodian appointed under
Section 3.S.2. must, provide Fund for its approval, agreements
with banks or trust companies which will act as subcustodians
for Fund pursuant to Section 3.S of this Agreement.
6. COMPENSATION. Fund will pay to Custodian such compensation as is
stated in the Fee Schedule attached hereto as Exhibit A which
may be changed from time to time as agreed to in writing by
Custodian and Fund. Custodian may charge such compensation
against monies held by it for the account of Fund. Custodian
will also be entitled, notwithstanding the provisions of
Sections 5.C. or 5.D. hereof, to charge against any monies
held by it for the account of Fund or to place a lien upon the
securities or monies of the Fund the amount of any loss,
damage, liability, or expense for which it shall be entitled
to reimbursement under the provisions of this Agreement
including fees or expenses due to Custodian for other services
provided to the Fund by the Custodian or advance and interest
due to IFTC under Section 3.X. Custodian will not be entitled
to reimbursement by Fund for any loss or expenses of any
subcustodian.
7. TERMINATION. The term of this Agreement shall be continuous for
one year terms unless terminated. Either party to this
Agreement may terminate the same by notice in writing,
delivered or mailed, postage prepaid, to the other party
hereto and received not less than ninety (90) days prior to
the date upon which
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<PAGE>
such termination will take effect. Upon termination of this
Agreement, Fund will pay to Custodian such compensation for
its reimbursable disbursements, costs and expenses paid
or incurred to such date and Fund will use its best efforts
to obtain a successor custodian. Unless the holders of a
majority of the outstanding shares of "Capital Stock" of Fund
vote to have the securities, funds and other properties held
under this Agreement delivered and paid over to some other person,
firm or corporation specified in the vote, having not less the
Two Million Dollars ($2,000,000) aggregate capital, surplus
and undivided profits, as shown by its last published report,
and meeting such other qualifications for custodian as set
forth in the Bylaws of Fund, the Board of Directors of Fund
will, forthwith upon giving or receiving notice of termination
of this Agreement, appoint as successor custodian a bank or trust
company having such qualifications. Custodian will, upon termination
of this Agreement, deliver to the successor custodian so specified or
appointed, at Custodian's office, all securities then held by
Custodian hereunder, duly endorsed and in form for transfer,
all funds and other properties of Fund deposited with or held
by Custodian hereunder, or will co-operate in effecting
changes in book-entries at the Depository Trust Company or in
the Treasury/Federal Reserve Book-Entry System pursuant to 31
CFR Sec. 306.118. In the event no such vote has been adopted
by the stockholders of Fund and no written order designating a
successor custodian has been delivered to Custodian on or
before the date when such termination becomes effective, then
Custodian will deliver the securities, funds and properties of
Fund to a bank or trust company at the selection of Custodian
and meeting the qualifications for custodian, if any, set
forth in the Bylaws of Fund and having not less that Two
Million Dollars ($2,000,000) aggregate capital, surplus and
undivided profits, as shown by its last published report.
Upon either such delivery to a successor custodian, Custodian
will have no further obligations or liabilities under this
Agreement. Thereafter such bank or trust company will be the
successor custodian under this Agreement and will be entitled
to reasonable compensation for its services. In the event
that no such successor custodian can be found, Fund will
submit to its shareholders, before permitting delivery of the
cash and securities owned by Fund to anyone other than a
successor custodian, the question of whether Fund will be
liquidated or function without a custodian. Notwithstanding
the foregoing requirement as to delivery upon termination of
this Agreement, Custodian may make any other delivery of the
securities, funds and property of Fund which is permitted by
the Investment Company Act of 1940, Fund's Certificate of
Incorporation and Bylaws then in effect or apply to a court of
competent jurisdiction for the appointment of a successor
custodian.
8. NOTICES. Notices, requests, instructions and other writings
received by Fund at 222 South Ninth Street, Minneapolis, Minnesota
55402 or at such other address as Fund may have designated to
Custodian in writing, will be deemed to have been properly given
to Fund hereunder; and notices, requests, instructions and other
writings received by Custodian at its offices at 127 West 10th
Street, Kansas City, Missouri 64105, or to such other address as
it may have designated to Fund in writing, will be deemed to have
been properly given to Custodian hereunder.
9. MISCELLANEOUS.
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<PAGE>
A. This Agreement is executed and delivered in the State of Missouri
and shall be governed by the laws of said state.
B. All the terms and provisions of this Agreement shall be binding
upon, inure to the benefit of, and be enforceable by the
respective successor and assigns of the parties hereto.
C. No provisions of the Agreement may be amended or modified, in any
manner except by a written agreement properly authorized and
executed by both parties hereto.
D. The captions in this Agreement are included for convenience of
reference only, and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or
effect.
E. This Agreement shall become effective at the close of business
on the _____ day of _____________, 19___.
F. This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original but
all of which together will constitute one and the same
instrument.
G. If any part, term or provision of this Agreement is by the
courts held to be illegal, in conflict with any law or
otherwise invalid, the remaining portion or portions shall
be considered severable and not be affected, and the rights
and obligations of the parties shall be construed and enforced
as if the Agreement did not contain the particular part,
term or provision held to be illegal or invalid.
H. This Agreement may not be assigned by either party without
prior written consent of the other party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly respective authorized officers.
INVESTORS FIDUCIARY TRUST COMPANY
By: /s/ Allen A. Straus
------------------------------------------------
Title: Senior Vice President
---------------------------------------------
PIPER INSTITUTIONAL FUNDS INC.
By: /s/ Beverly Zimmer
------------------------------------------------
Title: Senior Vice President
---------------------------------------------
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<PAGE>
AGENCY AGREEMENT
THIS AGREEMENT made the 2nd day of February, 1993, by and between PIPER
INSTITUTIONAL FUNDS INC., a corporation existing under the laws of the State of
Minnesota, having its principal place of business at 222 South Ninth Street,
Minneapolis, Minnesota 55402 ("Fund"), and INVESTORS FIDUCIARY TRUST COMPANY, a
state chartered trust company organized and existing under the laws of the State
of Missouri, having its principal place of business at 127 West 10th Street,
Kansas City, Missouri 64105 ("IFTC"):
WITNESSETH:
WHEREAS, Fund desires to appoint IFTC as Transfer Agent and Dividend
Disbursing Agent, and IFTC desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. DOCUMENTS TO BE FILED WITH APPOINTMENT.
In connection with the appointment of IFTC as Transfer Agent and Dividend
Disbursing Agent for Fund, there will be filed with IFTC the following
documents:
A. A certified copy of the resolutions of the Board of Directors of
Fund appointing IFTC as Transfer Agent and Dividend Disbursing Agent,
approving the form of this Agreement, and designating certain persons
to sign stock certificates, if any, and give written instructions and
requests on behalf of Fund;
B. A certified copy of the Articles of Incorporation of Fund and all
amendments thereto;
C. A certified copy of the Bylaws of Fund;
D. Copies of Registration Statements filed with the Securities and
Exchange Commission;
E. Specimens of all forms of outstanding stock certificates, in the
forms approved by the Board of Directors of Fund, with a
certificate of the Secretary of Fund, as to such approval;
F. Specimens of the signatures of the officers of the Fund authorized to
sign stock certificates and individuals authorized to sign written
instructions and requests;
G. An opinion of counsel for Fund with respect to:
1. Fund's organization and existence under the laws of its
state of organization;
2. Status of all shares of stock of Fund covered by the appointment
under the Securities Act of 1933, as amended, and any other
applicable federal or state statute; and
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3. That all issued shares are, and all unissued shares will be, when
issued, validly issued, fully paid and non-assessable.
2. CERTAIN REPRESENTATIONS AND WARRANTIES OF IFTC. IFTC represents and
warrants to Fund that:
A. It is a trust company duly organized and existing and in good
standing under the laws of Missouri.
B. It is duly qualified to carry on its business in the State of
Missouri.
C. It is empowered under applicable laws and by its Articles of
Incorporation and bylaws to enter into and perform the services
contemplated in this Agreement.
D. All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
E. It has and will continue to have and maintain the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
3. CERTAIN REPRESENTATIONS AND WARRANTIES OF FUND. Fund represents and
warrants to IFTC that:
A. It is a corporation duly organized and existing and in good
standing under the laws of the State of Minnesota.
B. It is an open-end management investment company registered under the
Investment Company Act of 1940, as amended.
C. A registration statement under the Securities Act of 1933 has been
filed and will be effective with respect to all shares of Fund
being offered for sale to the public.
D. All requisite steps have been or will be taken to register Fund's
shares for sale in all states in which the Fund Shares are offered.
E. Fund is empowered under applicable laws and by its charter and bylaws
to enter into and perform this Agreement.
4. SCOPE OF APPOINTMENT.
A. Subject to the conditions set forth in this Agreement, Fund
hereby employs and appoints IFTC as Transfer Agent and Dividend
Disbursing Agent effective the 2nd day of February, 1993.
B. IFTC hereby accepts such employment and appointment and agrees that it
will act as Fund's Transfer Agent and Dividend Disbursing Agent.
C. IFTC agrees to provide the necessary facilities, equipment and
personnel to perform its duties and obligations hereunder in
accordance with industry practice.
D. Fund agrees to use its best efforts to deliver to IFTC in Kansas City,
Missouri, as soon as they are available, all of its shareholder
account records, if any.
E. Subject to the provisions of Sections 19. and 20. hereof, IFTC agrees
that it will perform all of the usual and ordinary services of a
Transfer Agent and Dividend
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Disbursing Agent for a open-end management investment company and as
Agent for the various shareholder accounts, including, without
limitation, the following: issuing, transferring and cancelling stock
certificates, maintaining all shareholder accounts, preparing
shareholder meeting lists, mailing proxies, receiving and tabulating
proxies, mailing shareholder reports and prospectuses, withholding
taxes on non-resident 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
transactions in shareholder accounts for which confirmations are
required, recording reinvestments of dividends and distributions in
Fund shares.
5. LIMIT OF AUTHORITY
Unless otherwise expressly limited by the resolution of appointment
or by subsequent action by the Fund, the appointment of IFTC as
Transfer Agent will be construed to cover the full amount of
authorized stock of the class or classes for which IFTC is
appointed.
6. COMPENSATION AND EXPENSES.
A. In consideration for its services hereunder as Transfer Agent and
Dividend Disbursing Agent, Fund will pay to IFTC on a monthly basis
a reasonable compensation for all services rendered as Agent, and
also, all its reasonable out-of-pocket expenses, charges, counsel
fees, and other disbursements incurred in connection with the
agency. Such compensation will be set forth in a separate schedule
to be agreed to by Fund and IFTC, a copy of which is attached
hereto and incorporated herein by reference as though fully set out
at this point.
B. Fund agrees to promptly reimburse IFTC for all reasonable
out-of-pocket expenses or advances incurred by IFTC in connection
with the performance of services under this Agreement, for postage
(and first class mail insurance in connection with mailing stock
certificates), envelopes, check forms, continuous forms, forms for
reports and statements, stationery, and other similar items,
telephone and telegraph charges incurred in answering inquiries
from dealers or shareholders, microfilm used each year to record
the previous year's transaction in shareholder accounts and
computer tapes used for permanent storage of records and cost of
insertion of materials in mailing envelopes by outside firms.
7. EFFICIENT OPERATION OF IFTC SYSTEM.
A. In connection with the performance of its services under this
Agreement, IFTC is responsible for the accurate and efficient
functioning of its system at all times, including:
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<PAGE>
1. The accuracy of all entries in IFTC's records reflecting
orders and instructions received by IFTC from dealers,
shareholder, Fund or its principal underwriter;
2. The continuous availability and the accuracy of shareholder
lists, shareholder account verifications, confirmations and
other shareholder account information to be produced from its
records or data;
3. The accurate and timely issuance of dividend and distribution
checks in accordance with instructions received from Fund;
4. The requiring of proper forms of instructions, signatures and
signature guarantees and any necessary documents supporting the
legality of transfers and other shareholder account
transactions, all in conformance with IFTC's present procedures
with such changes as may be required or approved by Fund; and
5. The maintenance of a current duplicate set of Fund's essential
records at a secure distant location, in form available and
usable forthwith in the event of any breakdown or disaster
disrupting its main operation.
8. INDEMNIFICATION.
A. Except to the extent that IFTC is covered by and receives payment
from any insurance required hereunder, IFTC will not be
responsible for, and Fund will hold harmless and indemnify IFTC
from and against any loss by or liability to the Fund or a
third party, including reasonable attorney's fees, in
connection with any claim or suit asserting any such liability
arising out of or attributable to actions taken by IFTC
pursuant to this Agreement, unless IFTC has acted negligently
or in bad faith. The matters covered by this indemnification
include but are not limited to those of Section 14 hereof.
Fund will be responsible for, and will have the right to
conduct or control the defense of any litigation asserting
liability against which IFTC is indemnified hereunder. IFTC
will not be under any obligation to prosecute or defend any
action or suit in respect of the agency relationship hereunder,
which, in its opinion, may involve it in expense or liability,
unless Fund will, as often as requested, furnish IFTC with
reasonable, satisfactory security and indemnity against such
expense or liability.
B. IFTC will hold harmless and indemnify Fund from and against any
loss or liability arising out of IFTC's failure to comply with
the terms of this Agreement or arising out of IFTC's
negligence, willful misconduct, or bad faith.
9. CERTAIN COVENANTS OF IFTC AND FUND.
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<PAGE>
A. All requisite steps will be taken by Fund from time to time when
and as necessary to register the Fund's shares for sale in all
states in which Fund's shares shall at the time be offered for
sale and require registration. If at any time Fund will receive
notice of any stop order or other proceeding in any such state
affecting such registration or the sale of Fund's shares, or of
any stop order or other proceeding under the Federal securities
laws affecting the sale of Fund's shares, Fund will give prompt
notice thereof to IFTC.
B. IFTC hereby agrees to perform such transfer agency functions as are
attached hereto as Exhibit B and establish and maintain
facilities and procedures reasonably acceptable to Fund for
safekeeping of stock certificates, check forms, and facsimile
signature imprinting devices, if any; and for the preparation
or use, and for keeping account of, such certificates, forms
and devices, and to carry insurance as specified in Exhibit A
which will not be lowered without notice to Fund.
C. To the extent required by Section 31 of the Investment Company Act of
1940 as amended and Rules thereunder and in particular Rule
31a-1(b)(D), IFTC agrees that all records maintained by IFTC
relating to the services to be performed by IFTC under this
Agreement are the property of Fund and will be preserved and
will be surrendered promptly to Fund on request.
D. IFTC agrees to furnish Fund semi-annual reports of its financial
condition, consisting of a balance sheet, earnings statement
and any other financial information reasonably requested by
Fund. The annual financial statements will be certified by
IFTC's independent certified public accountants.
E. IFTC represents and agrees that it will use its best efforts to keep
current on the trends of the investment company industry
relating to shareholder services and will use its best efforts
to continue to modernize and improve its system without
additional cost to Fund.
F. IFTC will permit Fund and its authorized representatives to make
periodic inspections of its operations at reasonable time during
business hours.
10. RECAPITALIZATION OR READJUSTMENT.
In case of any recapitalization, readjustment or other change in the
capital structure of Fund requiring a change in the form of stock
certificates, IFTC will issue or register certificates in the new form
in exchange for, or in transfer of, the outstanding certificates in the
old form, upon receiving:
A. Written instructions from an officer of Fund;
B. Certified copy of the amendment to the Articles of Incorporation
or other document effecting the change;
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<PAGE>
C. Certified copy of the order or consent of each governmental or
regulatory authority, required by law to the issuance of the stock
in the new form, and an opinion of counsel that the order or consent
of no other government or regulatory authority is required;
D. Specimens of the new certificates in the form approved by the Board
of Directors of Fund, with a certificate of the Secretary of Fund as
to such approval;
E. Opinion of counsel for Fund stating:
1. The status of the shares of stock of Fund in the new form
under the Securities Act of 1933, as amended and any other
applicable federal or state statute; and
2. That the issued shares in the new form are, and all unissued
shares will be, when issued, validly issued, fully paid and
non-assessable.
11. STOCK CERTIFICATES.
Fund will furnish IFTC with a sufficient supply of blank stock
certificates and from time to time will renew such supply upon the
request of IFTC. Such certificates will be signed manually or by
facsimile signatures of the officers of Fund authorized by law and by
bylaws to sign stock certificates, and if required, will bear the
corporate seal or facsimile thereof.
12. DEATH, RESIGNATION OR REMOVAL OF SIGNING OFFICER.
Fund will file promptly with IFTC written notice of any change in the
officers authorized to sign stock certificates, written instructions
or requests, together with two signature cards bearing the specimen
signature of each newly authorized officer. In case any officer of
Fund who will have signed manually or whose facsimile signature will
have been affixed to blank stock certificates will die, resign, or be
removed prior to the issuance of such certificates, IFTC may issue or
register such stock certificates as the stock certificates of Fund
notwithstanding such death, resignation, or removal, until
specifically directed to the contrary by Fund in writing. In the
absence of such direction, Fund will file promptly with IFTC such
approval, adoption, or ratification as may be required by law.
13. FUTURE AMENDMENTS OF CHARTER AND BYLAWS.
Fund will promptly file with IFTC copies of all material amendments to
its Articles of Incorporation or bylaws made after the date of this
Agreement.
14. INSTRUCTIONS, OPINION OF COUNSEL AND SIGNATURES.
IFTC may reasonably apply to any officer of Fund for instructions, and
may reasonably consult with legal counsel for Fund or its own legal
counsel at the expense of Fund, with respect to any matter arising in
connection with the agency and it will not be liable for any action
taken or omitted by it in good faith in reliance upon such
instructions or upon the opinion of such counsel. IFTC will be
protected in acting upon any paper or document
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<PAGE>
reasonably believed by it to be genuine and to have been signed by the
proper person or persons and will not be held to have notice of any change
of authority of any person, until receipt of written notice thereof from
Fund. It will also be protected in recognizing stock certificates which it
reasonably believes to bear the proper manual or facsimile signatures
of the officers of Fund, and the proper countersignature of any former
Transfer Agent or Registrar, or of a Co-Transfer Agent or Co-Registrar.
15. PAPERS SUBJECT TO APPROVAL OF COUNSEL.
The acceptance by IFTC, of its appointment as Transfer Agent and
Dividend Disbursing Agent and all documents filed in connection with
such appointment and thereafter in connection with the agencies, will
be subject to the approval of legal counsel for IFTC (which approval
will be not unreasonably withheld).
16. CERTIFICATION OF DOCUMENTS.
The required copy of the Articles of Incorporation of Fund and copies
of all amendments thereto will be certified by the Secretary of State
(or other appropriate official) of the State of Incorporation, and if
such Articles of Incorporation and amendments are required by law to
be also filed with a county, city or other officer of official body, a
certificate of such filing will appear on the certified copy submitted
to IFTC. A copy of the order to consent of each governmental or
regulatory authority required by law to the issuance of the stock will
be certified by the Secretary or Clerk of such governmental or
regulatory authority, under proper seal of such authority. The copy
of the Bylaws and copies of all amendments thereto, and copies of
resolutions of the Board of Directors of Fund, will be certified by
the Secretary or an Assistant Secretary of Fund under the corporate
seal.
17. RECORDS.
IFTC will maintain customary records in connection with its agency,
and particularly will maintain those records required to be maintained
pursuant to Rule 31a-1(b)(D) under the Investment Company Act of 1940,
as amended.
18. DISPOSITION OF BOOKS, RECORDS AND CANCELLED CERTIFICATES.
IFTC will send periodically to Fund, or to where designated by the
Secretary or an Assistant Secretary of Fund, all books, documents, and
all records no longer deemed needed for current purposes and stock
certificates which have been cancelled in transfer or in exchange,
upon the understanding that such books, documents, records, and stock
certificates will not be destroyed by Fund without the consent of IFTC
(which consent will not be unreasonably withheld), but will be safely
stored for possible future reference.
19. PROVISIONS RELATING TO IFTC AS TRANSFER AGENT.
A. IFTC will make original issues of stock certificates upon written
request of an officer of Fund and upon being furnished with a
certified copy of a resolution of the Board of Directors
authorizing such original issue, an opinion of counsel as
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outlined in paragraphs 1.D. and G. of this Agreement, any documents
required by paragraphs 5. or 10. of this Agreement, and necessary
funds for the payment of any original issue tax.
B. Before making any original issue of certificates Fund will furnish
IFTC with sufficient funds to pay all required taxes on the
original issue of the stock, if any. Fund will furnish IFTC such
evidence as may be required by IFTC to show the actual value of the
stock.
C. Shares of stock will be transferred and new certificates issued in
transfer, upon surrender of the old certificates in form deemed by
IFTC properly endorsed for transfer accompanied by such documents
as IFTC may deem necessary to evidence that authority of the person
making the transfer and bearing satisfactory evidence of the
payment of any applicable stock transfer taxes. IFTC reserves the
right to refuse to transfer shares until it is satisfied that the
endorsement or signature on the certificate or any other document
is valid and genuine, and for that purpose it may require a
guaranty of signature by a firm having membership in the New York
Stock Exchange, Midwest Stock Exchange, American Stock Exchange
Securities Corporation, Pacific Coast Stock Exchange, or any other
exchange acceptable to IFTC or by a bank or trust company approved
by it. IFTC also reserves the right to refuse to transfer shares
until it is satisfied that the requested transfer is legally
authorized, and it will incur no liability for the refusal in good
faith to make transfers which, in its judgment, are improper or
unauthorized. IFTC may, in effecting transfers rely upon
Simplification Acts or other statutes which protect it and Fund in
not requiring complete fiduciary documentation. In cases in which
IFTC is not directed or otherwise required to maintain the
consolidated records of shareholder's accounts, IFTC will not be
liable for any loss which may arise by reason of not having such
records, provided that such loss could not have been prevented by
the exercise of ordinary diligence. IFTC will be under no duty to
use a greater degree of diligence by reason of not having such
records.
D. When mail is used for delivery of stock certificates IFTC will
forward stock certificates in "nonnegotiable" form by first
class or registered mail and stock certificates in
"negotiable" form by registered mail, all such mail deliveries
to be covered while in transit to the addressee by insurance
arranged for by IFTC.
E. IFTC will issue and mail subscription warrants, certificates
representing stock dividends, exchanges or split ups, or act
as Conversion Agent upon receiving written instructions from
any officer of Fund and such other documents as IFTC deems
necessary.
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F. IFTC will issue, transfer, and split up certificates and will issue
certificates of stock representing full shares upon surrender
of scrip certificates aggregating one full share or more when
presented to IFTC for that purpose upon receiving written
instructions from an officer of Fund and such other documents
as IFTC may deem necessary.
G. IFTC may issue new certificates in place of certificates represented
to have been lost, destroyed, stolen or otherwise wrongfully
taken upon receiving instructions from Fund and indemnity
satisfactory to IFTC and Fund, and may issue new certificates
in exchange for, and upon surrender of, mutilated
certificates. Such instructions from Fund will be in such
form as will be approved by the Board of Directors of Fund and
will be in accordance with the provisions of law and the
bylaws of Fund governing such matter.
H. IFTC will supply a shareholder's list to Fund for its annual meeting
upon receiving a request from an officer of Fund. It will
also supply lists at such other times as may be requested by
an officer of Fund.
I. Upon receipt of written instructions of an officer of Fund, IFTC will
address and mail notices to shareholders.
J. In case of any request or demand for the inspection of the stock books
of Fund or any other books in the possession of IFTC, IFTC
will endeavor to notify Fund and to secure instructions as to
permitting or refusing such inspection. IFTC reserves the
right, however, to exhibit the stock books or other books to
any person in case it is advised by its counsel that it may be
held responsible for the failure to exhibit the stock books or
other books to such person.
20. PROVISIONS RELATING TO DIVIDEND DISBURSING AGENCY.
A. IFTC will, at the expense of Fund, provide a special form of
check containing the imprint of any device or other matter
desired by Fund. Said checks must, however, be of a form and
size convenient for use by IFTC.
B. If Fund desires to include additional printed matter, financial
statements, etc., with the dividend checks, the same will be
furnished IFTC within a reasonable time prior to the date of
mailing of the dividend checks, at the expense of Fund.
C. If Fund desires its distributions mailed in any special form of
envelopes, sufficient supply of the same will be furnished to
IFTC but the size and form of said envelopes will be subject
to the approval of IFTC. If stamped envelopes are used, they
must be furnished by Fund; or if postage stamps are to be
affixed to the envelopes, the stamps or the cash necessary for
such stamps must be furnished by Fund.
9
<PAGE>
D. IFTC will maintain one or more deposit accounts as Agent for Fund,
into which the funds for payment of dividends, distributions,
or other disbursements provided for hereunder will be
deposited, and against which checks will be drawn.
E. IFTC is authorized and directed to stop payment of checks theretofore
issued hereunder, but not presented for payment, when the
payees thereof allege either that they have not received the
checks or that such checks have been mislaid, lost, stolen,
destroyed or through no fault of theirs, are otherwise beyond
their control, and cannot be produced by them for presentation
and collection, and, to issue and deliver duplicate checks in
replacement thereof.
F. IFTC will act as Plan Agent of the Fund's dividend reinvestment plan.
21. TERMINATION OF AGREEMENT.
A. The term of this Agreement shall be continuous for one year terms
unless terminated. This Agreement may be terminated by either
party upon receipt of ninety (90) days written notice from the
other party.
B. Fund, in addition to any other rights and remedies, shall have the
right to terminate this Agreement forthwith upon the
occurrence at any time of any of the following events:
1. Any interruption or cessation of operations by IFTC or its
assigns which materially interferes with the business operation
of Fund;
2. The bankruptcy of IFTC or its assigns or the appointment of
a receiver for IFTC or its assigns;
3. Any merger, consolidation or sale of substantially all the
assets of IFTC or its assigns;
4. The acquisition of a controlling interest in IFTC or its
assigns, by any broker, dealer, investment adviser or
investment company except as may presently exist; or
5. Failure by IFTC or its assigns to perform its duties in
accordance with the Agreement, which failure materially
adversely affects the business operations of Fund and
which failure continues for thirty (30) days after
receipt of written notice from Fund.
C. If at any time this Agreement will be terminated by Fund pursuant
to clause (1), (2) or (5) of Section 21.B., Fund will have and
is hereby granted the right, at its option, to use or cause
its agents, employees or independent contractors to use, for
as long as Fund deems necessary for its own operations, and no
other, and without payment of any compensation or
reimbursement to IFTC, IFTC's system including
10
<PAGE>
all of the programs, manuals and other materials and information
necessary to operate the system.
D. In the event of termination, Fund will promptly pay IFTC all amounts
due to IFTC hereunder.
22. ASSIGNMENT.
A. Neither this Agreement nor any rights or obligations hereunder
may be assigned by IFTC without the written consent of Fund;
provided, however, no assignment will relieve IFTC of any of
its obligations hereunder.
B. This Agreement will inure to the benefit of and be binding upon the
parties and their respective successors and assigns.
23. CONFIDENTIALITY.
A. IFTC agrees that, except as provided in the last sentence of
Section 19.J hereof, or as otherwise required by law, IFTC
will keep confidential all records of and information in its
possession relating to Fund or its shareholders or shareholder
accounts and will not disclose the same to any person except
at the request or with the consent of Fund.
B. Fund agrees that, subject to Section 21.C. and except as otherwise
required by law, Fund will keep confidential all financial
statements and other financial records (other than statements
and records relating solely to Fund's business dealings with
IFTC) and all manuals, systems and other technical information
and data, not publicly disclosed, relating to IFTC's
operations and programs furnished to it by IFTC pursuant to
this Agreement and will not disclose the same to any person
except at the request or with the consent of IFTC.
24. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
A. All representations and warranties by either party herein
contained will survive the execution and delivery of this
Agreement.
25. MISCELLANEOUS.
A. This Agreement is executed and delivered in the State of Missouri
and shall be governed by the laws of said state.
B. All the terms and provisions of this Agreement shall be binding upon,
inure to the benefit of, and be enforceable by the respective
successor and assigns of the parties hereto.
C. No provisions of the Agreement may be amended or modified, in any
manner except by a written agreement properly authorized and
executed by both parties hereto.
11
<PAGE>
D. The captions in this Agreement are included for convenience of
reference only, and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or
effect.
E. This Agreement shall become effective at the close of business on
the ______ day of ____________, 199___.
F. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original but
all of which together shall constitute one and the same
instrument.
G. If any part, term or provision of this Agreement is by the courts
held to be illegal, in conflict with any law or otherwise
invalid, the remaining portion or portions shall be considered
severable and not be affected, and the rights and obligations
of the parties shall be construed and enforced as if the
Agreement did not contain the particular part, term or
provision held to be illegal or invalid.
H. This Agreement may not be assigned by either party without prior
written consent of the other party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officers.
INVESTORS FIDUCIARY TRUST COMPANY
By: /s/ Allen A. Straus
-----------------------------------
Title: Senior Vice President
--------------------------------
PIPER INSTITUTIONAL FUNDS INC.
By: /s/ Beverly Zimmer
-----------------------------------
Title: Senior Vice President
--------------------------------
12
<PAGE>
EXHIBIT A
INSURANCE COVERAGE
Insurance coverages maintained by IFTC effective January 1, 1991.
DESCRIPTION OF POLICY:
BROKERS BLANKET BOND, STANDARD FORM 14
Covering losses caused by dishonesty of employees, physical
loss of securities on or outside of premises while in
possession of authorized person, loss caused by forgery or
alteration of checks or similar instruments.
Coverage: $75,000,000
ERRORS AND OMISSIONS INSURANCE
Covering replacement of destroyed records and computer
errors and omissions.
Coverage: $10,000,000
SPECIAL FORGERY BOND
Covering losses through forgery or alteration of checks or
drafts of customers processed by insured but drawn on or
against them.
Coverage: $500,000
MAIL INSURANCE (APPLIES TO ALL FULL SERVICE OPERATIONS)
Provides indemnity for security lost in the mails.
Coverage: $10,000,000 non-negotiable securities mailed to
domestic locations via registered mail.
$1,000,000 non-negotiable securities mailed to
domestic locations via first-class or certified
mail.
$1,000,000 non-negotiable securities mailed
to foreign locations via registered mail.
$1,000,000 negotiable securities mailed to
all locations via registered mail.
<PAGE>
EXHIBIT B
TRANSFER AGENCY SERVICES AND SYSTEMS FEATURES
FUNCTIONS
A. Issuance of stock certificates
B. Recording of non-certificate shares
C. Transfers and legals
D. Changes of address, etc.
E. Daily balancing of fund
F. Dividend calculation and disbursement
G. Mailing of quarterly and annual reports
H. Filing of 1099/1042 information to shareholders and
government
I. Provide N1R information
J. Reconcilement of dividend and disbursement accounts
K. Provide research and correspondence to shareholder's inquiries
L. Daily communication of reports to funds
M. Provide listings, labels and other special reports
N. Proxy issuance and tabulation
O. Annual statements of shareholders on microfilm
P. Plan agent dividend reinvestment plan
<PAGE>
[DORSEY & WHITNEY LETTERHEAD]
Piper Institutional Funds Inc.
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Dear Sir/Madam:
Reference is made to the Registration Statement on Form N-1A (File No. 33-
53718) which you have filed with the Securities and Exchange Commission pursuant
to the Securities Act of 1933 for the purpose of registering for sale by Piper
Institutional Funds Inc. (the "Company") an indefinite number of the Company's
Common Shares, par value $.01 per share (the "Shares").
We are familiar with the proceedings to date with respect to the proposed
sale of the Shares by the Company and have examined such records, documents and
matters of law and have satisfied ourselves as to such matters of fact as we
consider relevant for the purposes of this opinion.
We are of the opinion that:
(1) The Company has been duly incorporated and is validly existing in good
standing under the laws of the State of Minnesota.
(2) The Shares to be sold by the Company will be duly and validly issued,
fully paid and nonassessable when issued and sold upon the terms and in the
manner set forth in said Registration Statement of the Company.
We consent to the use of this opinion as an exhibit to the Registration
Statement.
Dated: January 14, 1993
Very truly yours,
/s/ Dorsey & Whitney
<PAGE>
[KPMG PEAT MARKWICK LLP LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Piper Institutional Funds Inc.:
We consent to the use of our reports included herein and the references to our
Firm under the headings "Financial Highlights" in Part A and "Financial
Statements" in Part B of the Registration Statement.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
October 30, 1995
<PAGE>
LETTER OF INVESTMENT INTENT
January 13, 1993
Piper Institutional Funds Inc.
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Gentlemen/Ladies:
In connection with the purchase by Piper Jaffray Companies Inc. (the
"Purchaser") of 3,333 Series A Common Shares, 33,333 Series B Common Shares and
3,333 Series C Common Shares, par value $.01 per share, of Piper Institutional
Funds Inc. (the "Stock"), the Purchaser hereby represents that it is acquiring
the Stock for investment with no intention of selling or otherwise disposing or
transferring it or any interest in it. The Purchaser hereby further agrees that
any transfer of any of the Stock or any interest in it shall be subject to the
following conditions:
(1) The Purchaser shall furnish you and counsel satisfactory to you
prior to the time of transfer, a written description of the proposed
transfer specifying its nature and consequence and giving the name of the
proposed transferee.
(2) You shall have obtained from your counsel a written opinion
stating whether in the opinion of such counsel the proposed transfer may be
effected without registration or qualification under the Securities Act of
1933 and applicable state securities laws. If such opinion states that
such transfer may be so effected, the Purchaser shall then be entitled to
transfer the Stock in accordance with the terms specified in its
description of the transaction to you. If such opinion states that the
proposed transfer may not be so effected, the Purchaser will not be
entitled to transfer the Stock unless the Stock is so registered or
qualified.
The Purchaser hereby authorizes you to take such other action as you
shall reasonably deem appropriate to prevent any violation of the Securities Act
of 1933 in connection with the transfer of the Stock, including the imposition
of a requirement that any transferee of the Stock sign a letter agreement
similar to this one.
Very truly yours,
PIPER JAFFRAY COMPANIES INC.
By /s/William H. Ellis
------------------------
Its President
----------------------
<PAGE>
PIPER INSTITUTIONAL FUNDS INC.
PLAN OF DISTRIBUTION
This Plan of Distribution (the "Plan") is adopted by Piper Institutional
Funds Inc., a Minnesota corporation (the "Piper Funds"), with respect to the
Institutional Government Adjustable Portfolio (the "Portfolio") series of
Piper Funds and any other series of Piper Funds established in the future
(together, the "Series"), as may be determined by the Board of Directors of
Piper Funds and set forth in an amendment to this Plan, pursuant to Rule
12b-1 (the "Rule") under the Investment Company Act of 1940, as amended (the
"1940 Act"), subject to the following terms and conditions:
1. COMPENSATION. The Portfolio will pay Piper Jaffray Inc. (the
"Distributor") a total fee in connection with the servicing of Portfolio
shareholder accounts and in connection with distribution-related services
provided in respect of the Portfolio, calculated daily and paid monthly at
the annual rate of .25% of the value of the average daily net assets of the
Portfolio. A portion of such total fee will be payable as a Servicing
Fee and a portion will be payable as a Distribution Fee, as determined from
time to time by Piper Funds' Board of Directors.
2. Expenses Covered by the Plan.
(a) The Servicing Fee may be used by the Distributor to cover all
expenses incurred by the Distributor in connection with the ongoing
servicing and/or maintenance of shareholder accounts with respect to the
Portfolio. Such expenses include, but are not limited to, an allocation
of the Distributor's overhead and payments made to persons, including
employees of the Distributor, and institutions who respond to inquiries
of shareholders of the Portfolio regarding their ownership of shares or
their accounts with Portfolio or who provide other administrative or
accounting services not otherwise required to be provided by the
Portfolio's investment adviser, transfer agent or other agents of the
Portfolio.
(b) The Distribution Fee may be used by the Distributor to provide
initial and ongoing sales compensation to its investment executives and
to other broker-dealers in respect of sales of Portfolio shares and to
pay for other advertising and promotional expenses in connection with the
distribution of shares of the Portfolio. These advertising and
promotional expenses include, by way of example but not by way of
limitation, costs of printing and mailing prospectuses, statements of
additional information and shareholder reports to prospective investors;
preparation and distribution of sales literature; advertising of any type;
an allocation of overhead and other expenses of the Distributor related
to the distribution of Portfolio shares; and payments to, and expenses of,
officers, employees or representatives of the Distributor, of other
broker-dealers, banks or other financial institutions, and of any other
persons who provide support services in connection with the distribution
of Portfolio shares, including travel, entertainment and telephone
expenses.
(c) Payments under the Plan are not tied exclusively to the
expenses for shareholder servicing and distribution-related activities
actually incurred by the Distributor, so that such payments may exceed
expenses actually incurred by the Distributor. Piper Funds' Board of
Directors will evaluate the appropriateness of the Plan and its payment
terms on a continuing basis and in doing so will consider all relevant
factors, including expenses borne by the Distributor and amounts it
receives under the Plan.
3. PAYMENTS BY ADVISER. The adviser to the Portfolio may, at its
option, make payments from its own resources to cover the costs of additional
distribution activities.
4. APPROVAL BY DIRECTORS. The Plan shall continue in effect for a
period of more than one year from the date of its adoption only so long as
the Plan, together with any related agreements, has
<PAGE>
been approved by a majority vote of both (a) the full Board of Directors of
Piper Funds and (b) those Directors who are not interested persons of Piper
Funds and who have no direct or indirect financial interest in the operation
of the Plan or in any agreements related to it (the "Independent Directors"),
cast in person at a meeting called for the purpose of voting on the Plan and
the related agreements.
5. CONTINUANCE OF THE PLAN. The Plan will continue in effect from
year to year so long as its continuance is specifically approved annually by
vote of Piper Funds' Board of Directors in the manner described in Section 4
above.
6. TERMINATION. The Plan may be terminated at any time, without
penalty, by vote of a majority of the Independent Directors or, with respect
to the Portfolio or any future series of Piper Funds, by a vote of a majority
of the outstanding voting securities of the Portfolio or such future series.
7. AMENDMENTS. The Plan may not be amended to increase materially the
amount of the fees payable by the Portfolio, as described in Section 1 above,
or any future series of Piper Funds, unless the amendment is approved by a
vote of at least a majority of the outstanding voting securities of the
Portfolio or that series, and all material amendments to the Plan must also
be approved by Piper Funds' Board of Directors in the manner described in
Section 4 above.
8. SELECTION OF CERTAIN DIRECTORS. While the Plan is in effect, the
selection and nomination of Piper Funds' Directors who are not interested
persons of Piper Funds will be committed to the discretion of the Directors
then in office who are not interested persons of Piper Funds.
9. WRITTEN REPORTS. In each year during which the Plan remains in
effect, the Distributor and any person authorized to direct the disposition
of monies paid or payable by Portfolio or any future series of Piper Funds'
pursuant to the Plan or any related agreement will prepare and furnish to
Piper Funds' Board of Directors, and the Board will review, at least
quarterly, written reports, complying with the requirements of the Rule,
which set out the amounts expended under the Plan and the purposes for which
those expenditures were made.
10. PRESERVATION OF MATERIALS. Piper Funds will preserve copies of the
Plan, any agreement relating to the Plan and any report made pursuant to
Section 9 above, for a period of not less than six years (the first two years
in an easily accessible place) from the date of the Plan, agreement or report.
11. MEANINGS OF CERTAIN TERMS. As used in the Plan, the terms
"interested person" and "majority of the outstanding voting securities" will
be deemed to have the same meaning that those terms have under the 1940 Act
and the rules and regulations under the 1940 Act, subject to any exemption
that may be granted to Piper Funds under the 1940 Act by the Securities and
Exchange Commission.
2
<PAGE>
EXHIBIT 17
PIPER INSTITUTIONAL FUNDS INC.
POWER OF ATTORNEY TO SIGN REGISTRATION STATEMENTS
The undersigned, members of the Board of Directors of Piper
Institutional Funds Inc. (the "Institutional Fund"), hereby appoint Edward J.
Kohler and William H. Ellis, and each of them individually, as attorneys-in-fact
for purposes of signing in their names and on their behalf as Directors of the
Institutional Fund and filing with the Securities and Exchange Commission a
Registration Statement on Form N-1A, or any and all amendments and post-
effective amendments thereto, for the purpose of registering shares of the
common stock, $.01 per share par value, of the Institutional Fund under the
Securities Act of 1933 and registering the Institutional Fund under the
Investment Company Act of 1940.
<TABLE>
<CAPTION>
<S> <C>
/s/ William H. Ellis September 24, 1992
- ------------------------------
William H. Ellis
/s/ Edward J. Kohler September 24, 1992
- ------------------------------
Edward J. Kohler
/s/ David T. Bennett January 12, 1993
- ------------------------------
David T. Bennett
/s/ Jaye F. Dyer September 24, 1992
- ------------------------------
Jaye F. Dyer
/s/ Luella G. Goldberg September 24, 1992
- ------------------------------
Luella G. Goldberg
/s/ John T. Golle September 24, 1992
- ------------------------------
John T. Golle
/s/ George Latimer January 12, 1993
- ------------------------------
George Latimer
</TABLE>
<PAGE>
SHAREHOLDER ACCOUNT SERVICING AGREEMENT
THIS AGREEMENT, made this 1st day of December, 1994, by and between Piper
Institutional Funds Inc., a Minnesota corporation (the "Company"), on behalf of
each series of the Company's common stock set forth in Exhibit A hereto (such
series are referred to herein individually as a "Fund" and collectively as the
"Funds"), and Piper Trust Company, a Minnesota corporation ("Piper Trust").
WITNESSETH:
WHEREAS, the Company has entered into an Agency Agreement with Investors
Fiduciary Trust Company ("IFTC") pursuant to which IFTC was appointed as
Transfer Agent and Dividend Disbursing Agent for the Funds; and
WHEREAS, management of the Company has determined that it would be in the
best interests of each Fund and its shareholders to maintain with IFTC certain
omnibus accounts, with each such account representing the accounts of individual
shareholders who are participants in a defined contribution plan for which Piper
Trust acts as Trustee, and to have Piper Trust provide transfer agent and
dividend disbursing agent services for such underlying individual shareholder
accounts.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto agree as follows:
1. SCOPE OF APPOINTMENT.
(a) Subject to the conditions set forth in this Agreement, the Company
hereby appoints Piper Trust to perform certain transfer agent and dividend
disbursing agent services, and Piper Trust accepts such appointment.
(b) Such services shall be provided with respect to all individual
shareholder accounts encompassed within the omnibus accounts which represent
defined contribution plans for which Piper Trust acts as trustee.
(c) Piper Trust agrees to provide the necessary facilities, equipment and
personnel to perform its duties and obligations hereunder in accordance with
industry practice.
(d) Piper Trust agrees to perform the usual and ordinary services of
transfer agent and dividend disbursing agent not performed by IFTC with respect
to the shareholder accounts outlined in Section 1(b), including, as appropriate
and 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 12b-1
purposes; withholding taxes on non-resident alien and foreign corporation
accounts; preparing and mailing checks
<PAGE>
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 Fund shares and other transactions in
shareholder accounts for which confirmations are required; recording
reinvestments of dividends and distributions in Fund shares; recording
redemptions of Fund shares; and preparing and mailing checks for payments upon
redemption and for disbursements to withdrawal plan holders.
2. COMPENSATION. As compensation for the services to be provided by Piper
Trust hereunder, each Fund will pay to Piper Trust an annual per-account fee as
set forth in Exhibit A hereto. Such fee shall be payable on a monthly basis at
a rate of 1/12th of the annual per-account charge, with payment being made
within ten business days following the end of the month covered by such payment.
Such fee covers all services outlined in Section 1(d) 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, will be billable as performed at a mutually
agreed upon fee in addition to the annual fee as noted, 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.
3. RECORDS.
(a) Piper Trust will maintain customary records in connection with its
agency appointment hereunder, and in particular will maintain those records
required to be maintained pursuant to subparagraph 2(iv) of paragraph (b) of
Rule 31a-1 under the Investment Company Act of 1940, as amended (the "1940
Act").
(b) To the extent required by Section 31 of the 1940 Act and the rules and
regulations thereunder, Piper Trust agrees that all records maintained by Piper
Trust relating to the services to be performed by it under this Agreement are
the property of the Company and will be preserved in accordance with Rule 31a-2
under the 1940 Act and will be surrendered promptly to the Company upon request.
4. INDEMNIFICATION.
(a) Piper Trust will not be responsible for, and the Company will hold
harmless and indemnify Piper Trust from and against, any loss by or liability to
the Company or a third party, including attorneys' fees, in connection with any
claim or suit asserting any such liability arising out of or attributable to
actions taken by Piper Trust pursuant to this Agreement, unless Piper Trust has
acted negligently or in bad faith. Without limitation of the foregoing:
2
<PAGE>
(i) at any time Piper Trust may apply to any officer of the Company
for instructions, and may consult with legal counsel for the Company or its
own legal counsel at the expense of the Company, with respect to any matter
arising in connection with its agency, and Piper Trust will not be liable
for any action taken or omitted by it in good faith reliance upon such
instructions or upon the opinion of such counsel; and
(ii) Piper Trust may rely upon and will be protected in acting upon
any paper or document reasonably believed by it to be genuine and to have
been signed by the proper person or persons and will not be held to have
notice of any change of authority of any person until receipt of written
notice thereof from the Company.
(b) Piper Trust will hold harmless and indemnify the Company from and
against any loss or liability arising out of Piper Trust's failure to comply
with the terms of this Agreement or arising out of Piper Trust's negligence,
misconduct or bad faith.
5. INTERPRETATION; GOVERNING LAW. This Agreement shall be subject to and
interpreted in accordance with all applicable provisions of law, including,
without limitation, the 1940 Act and the rules and regulations promulgated
thereunder. To the extent the provisions herein contained conflict with any
such applicable provisions of law, the latter shall control. The laws of the
State of Minnesota shall otherwise govern the construction, validity and effect
of this Agreement.
6. EFFECTIVE DATE; DURATION; TERMINATION.
(a) This Agreement shall be effective as of the date first set forth
above.
(b) Unless sooner terminated as hereinafter provided, this Agreement shall
continue in effect from year to year but only so long as such continuance is
specifically approved at least annually by the Board of Directors of the
Company, including a majority of the Directors who are not parties to this
Agreement or "interested persons" of any such party (as defined in the 1940
Act), by vote cast in person at a meeting called for the purpose of voting on
such approval.
(c) This Agreement may be terminated at any time without the payment of
any penalty by either party upon not less than 60 days' written notice to the
other party. Upon the effective termination date, subject to payment by the
Company to Piper Trust of all amounts due to Piper Trust as of said date, Piper
Trust shall make available to the Company or its designated record keeping
successor all of the records of the Company maintained under this Agreement then
in Piper Trust's possession.
3
<PAGE>
(d) This Agreement shall automatically terminate in the event of its
assignment (as defined by the provisions of the 1940 Act) unless such assignment
is approved in advance by the Board of Directors, including a majority of the
directors of the Company who are not parties to this Agreement or "interested
persons" of any such party (as defined in the 1940 Act).
7. AMENDMENTS. No material amendment to this Agreement shall be effective
until approved by Piper Trust and by a vote of the Board of Directors of the
Company, including a majority of the Directors who are not parties to this
Agreement or "interested persons" of any such party (as defined in the 1940
Act).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers as of the day and year first above
written.
ATTEST: PIPER INSTITUTIONAL FUNDS INC.
By /s/
- ------------------------------ ---------------------------------
Its
------------------------------
ATTEST: PIPER TRUST COMPANY
By /s/
- ------------------------------ ---------------------------------
Its
------------------------------
4
<PAGE>
EXHIBIT A TO SHAREHOLDER ACCOUNT SERVICING AGREEMENT
SCHEDULE OF CHARGES
DAILY DIVIDEND ACCRUAL FUND ACCOUNTS (NOT INCLUDING MONEY MARKET FUNDS)
$7.50 per active account
$1.60 per closed account
NON-DAILY ACCRUAL FUND ACCOUNTS
$6.00 per active account
$1.60 per closed account
For Money Market Fund Accounts: An active account is defined as an account that
has a balance of shares and requires a statement for the current month. An
inactive account is defined as an account that has a balance of shares but does
not require a statement for the current month.
For Non-Money Market Fund Accounts: An active account is defined as an account
that has a balance of shares. A closed account is defined as an account that
does not have a balance of shares but has had activity within the past 12
months.
5
<PAGE>
SHAREHOLDER ACCOUNT SERVICING AGREEMENT
THIS AGREEMENT, made this 1st day of December, 1994, by and between Piper
Institutional Funds Inc., a Minnesota corporation (the "Company"), on behalf of
each series of the Company's common stock set forth in Exhibit A hereto (such
series are referred to herein individually as a "Fund and collectively as the
"Funds"), and Piper Jaffray Inc., a Delaware corporation ("Piper Jaffray").
WITNESSETH:
WHEREAS, the Company has entered into an Agency Agreement with Investors
Fiduciary Trust Company ("IFTC") pursuant to which IFTC was appointed as
Transfer Agent and Dividend Disbursing Agent for the Funds; and
WHEREAS, management of the Company has determined that it would be in the
best interests of each Fund and its shareholders to maintain with IFTC certain
omnibus accounts, with each such account representing the accounts of a number
of individual shareholders who maintain accounts with Piper Jaffray, and to have
Piper Jaffray provide transfer agent and dividend disbursing agent services for
such underlying individual shareholder accounts.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto agree as follows:
1. SCOPE OF APPOINTMENT.
(a) Subject to the conditions set forth in this Agreement, the Company
hereby appoints Piper Jaffray to perform certain transfer agent and dividend
disbursing agent services, and Piper Jaffray accepts such appointment.
(b) Such services shall be provided with respect to all individual
shareholder accounts encompassed within the omnibus accounts referenced above.
(c) Piper Jaffray agrees to provide the necessary facilities, equipment
and personnel to perform its duties and obligations hereunder in accordance with
industry practice.
(d) Piper Jaffray agrees to perform the usual and ordinary services of
transfer agent and dividend disbursing agent not performed by IFTC with respect
to the shareholder accounts outlined in Section 1(b), 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 12b-1 purposes; withholding
taxes on non-resident alien and foreign corporation accounts; preparing and
mailing checks for disbursement of
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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 Fund shares and other transactions in shareholder
accounts for which confirmations are required; recording reinvestments of
dividends and distributions in Fund shares; recording redemptions of Fund
shares; and preparing and mailing checks for payments upon redemption and for
disbursements to withdrawal plan holders.
2. COMPENSATION. As compensation for the services to be provided by Piper
Jaffray hereunder, each Fund will pay to Piper Jaffray an annual per-account fee
as set forth in Exhibit A hereto. Such fee shall be payable on a monthly basis
at a rate of 1/12th of the annual per-account charge, with payment being made
within ten business days following the end of the month covered by such payment.
Such fee covers all services outlined in Section 1(d) 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, will be billable as performed at a mutually
agreed upon fee in addition to the annual fee as noted, 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.
3. RECORDS.
(a) Piper Jaffray will maintain customary records in connection with its
agency appointment hereunder, and in particular will maintain those records
required to be maintained pursuant to subparagraph 2(iv) of paragraph (b) of
Rule 31a-1 under the Investment Company Act of 1940, as amended (the "1940
Act").
(b) To the extent required by Section 31 of the 1940 Act and the rules and
regulations thereunder, Piper Jaffray agrees that all records maintained by
Piper Jaffray relating to the services to be performed by it under this
Agreement are the property of the Company and will be preserved in accordance
with Rule 31a-2 under the 1940 Act and will be surrendered promptly to the
Company upon request.
4. INDEMNIFICATION.
(a) Piper Jaffray will not be responsible for, and the Company will hold
harmless and indemnify Piper Jaffray from and against, any loss by or liability
to the Company or a third party, including attorneys' fees, in connection with
any claim or suit asserting any such liability arising out of or attributable to
actions taken by Piper Jaffray pursuant to this Agreement, unless Piper Jaffray
has acted negligently or in bad faith. Without limitation of the foregoing:
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(i) at any time Piper Jaffray may apply to any officer of the Company
for instructions, and may consult with legal counsel for the Company or its
own legal counsel at the expense of the Company, with respect to any matter
arising in connection with its agency, and Piper Jaffray will not be liable
for any action taken or omitted by it in good faith reliance upon such
instructions or upon the opinion of such counsel; and
(ii) Piper Jaffray may rely upon and will be protected in acting upon
any paper or document reasonably believed by it to be genuine and to have
been signed by the proper person or persons and will not be held to have
notice of any change of authority of any person until receipt of written
notice thereof from the Company.
(b) Piper Jaffray will hold harmless and indemnify the Company from and
against any loss or liability arising out of Piper Jaffrays failure to comply
with the terms of this Agreement or arising out of Piper Jaffrays negligence,
misconduct or bad faith.
5. INTERPRETATION; GOVERNING LAW. This Agreement shall be subject to and
interpreted in accordance with all applicable provisions of law, including,
without limitation, the 1940 Act and the rules and regulations promulgated
thereunder. To the extent the provisions herein contained conflict with any
such applicable provisions of law, the latter shall control. The laws of the
State of Minnesota shall otherwise govern the construction, validity and effect
of this Agreement.
6. EFFECTIVE DATE; DURATION; TERMINATION.
(a) This Agreement shall be effective as of the date first set forth
above.
(b) Unless sooner terminated as hereinafter provided, this Agreement shall
continue in effect from year to year but only so long as such continuance is
specifically approved at least annually by the Board of Directors of the
Company, including a majority of the Directors who are not parties to this
Agreement or "interested persons" of any such party (as defined in the 1940
Act), by vote cast in person at a meeting called for the purpose of voting on
such approval.
(c) This Agreement may be terminated at any time without the payment of
any penalty by either party upon not less than 60 days written notice to the
other party. Upon the effective termination date, subject to payment by the
Company to Piper Jaffray of all amounts due to Piper Jaffray as of said date,
Piper Jaffray shall make available to the Company or its designated record
keeping successor all of the records of the Company maintained under this
Agreement then in Piper Jaffray's possession.
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<PAGE>
(d) This Agreement shall automatically terminate in the event of its
assignment (as defined by the provisions of the 1940 Act) unless such assignment
is approved in advance by the Board of Directors, including a majority of the
directors of the Company who are not parties to this Agreement or "interested
persons" of any such party (as defined in the 1940 Act).
7. AMENDMENTS. No material amendment to this Agreement shall be effective
until approved by Piper Jaffray and by a vote of the Board of Directors of the
Company, including a majority of the Directors who are not parties to this
Agreement or "interested persons" of any such party (as defined in the 1940
Act).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers as of the day and year first above
written.
ATTEST: PIPER INSTITUTIONAL FUNDS INC.
By /s/
- ------------------------------ ---------------------------------
Its
---------------------------
ATTEST: PIPER JAFFRAY INC.
By /s/
- ------------------------------ ---------------------------------
Its
---------------------------
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EXHIBIT A TO SHAREHOLDER ACCOUNT SERVICING AGREEMENT
SCHEDULE OF CHARGES
MONEY MARKET FUND ACCOUNTS
$9.00 per active account
$6.00 per inactive account
DAILY DIVIDEND ACCRUAL FUND ACCOUNTS (NOT INCLUDING MONEY MARKET FUNDS)
$7.50 per active account
$1.60 per closed account
NON-DAILY ACCRUAL FUND ACCOUNTS
$6.00 per active account
$1.60 per closed account
For Money Market Fund Accounts: An active account is defined as an account that
has a balance of shares and requires a statement for the current month. An
inactive account is defined as an account that has a balance of shares but does
not require a statement for the current month.
For Non-Money Market Fund Accounts: An active account is defined as an account
that has a balance of shares. A closed account is defined as an account that
does not have a balance of shares but has had activity within the past 12
months.
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