As filed with the Securities and Exchange Commission on June 23, 1995
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Registration No. 33- )
Pre-Effective Amendment No. ___
Post-Effective Amendment No. __
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
(Registration No. 811- )
Amendment No. ___
(Check appropriate box or boxes)
PIPER FUNDS INC.--II
(Exact Name of Registrant as Specified in Charter)
Piper Jaffray Tower, 222 South 9th Street, Minneapolis, MN 55402
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (800) 866-7778
Charles N. Hayssen
Piper Jaffray Tower
222 South 9th Street, Minneapolis, Minnesota 55402
(Name and Address of Agent for Service)
Copy to:
Kathleen L. Prudhomme
Dorsey & Whitney P.L.L.P.
220 South Sixth Street
Minneapolis, Minnesota 55402
<TABLE>
<CAPTION>
Title of Amount Proposed Maximum Proposed Maximum Amount of
Securities Being Being Offering Price Aggregate Registration
Registered Registered Per Unit Offering Price Fee
<S> <C> <C> <C> <C>
Common Shares,
par value $.01
per share $500*
</TABLE>
* Pursuant to Regulation 270.24f-2 under the Investment Company Act of 1940, the
Registrant hereby elects to register an indefinite number of its common
shares.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PIPER FUNDS INC.--II
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
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<CAPTION>
Item No. Prospectus Heading
<S> <C> <C>
1. Cover Page............................................ Cover Page
2. Synopsis.............................................. Introduction; Fund Expenses
3. Condensed Financial Information....................... Not Applicable
4. General Description of Registrant..................... Introduction; Investment Objective and Policies
5. Management of the Fund................................ Management
5A. Management's Discussion of
Fund Performance...................................... Not Applicable
6. Capital Stock and Other Securities.................... General Information; Introduction; Dividends and
Distributions; Tax Status
7. Purchase of Securities Being Offered.................. Distribution of Fund Shares; How to Purchase
Shares; Reducing Your Sales Charge; Special
Purchase Plans; Valuation of Shares; Shareholder
Services
8. Redemption or Repurchase.............................. How to Redeem Shares; Shareholder Services
9. Pending Legal Proceedings............................. General Information
Statement of Additional
Information Heading
10. Cover Page............................................ Cover Page
11. Table of Contents..................................... Cover Page
12. General Information and History....................... Not Applicable
13. Investment Objectives and Policies.................... Investment Objective, Policies and Restrictions
14. Management of the Fund................................ Directors and Executive Officers
15. Control Persons and Principal
Holders of Securities................................. Capital Stock and Ownership of Shares
16. Investment Advisory and Other
Services.............................................. Investment Advisory and Other Services
17. Brokerage Allocation.................................. Portfolio Transactions and Allocation of Brokerage
18. Capital Stock and Other Securities.................... Capital Stock and Ownership of Shares
19. Purchase, Redemption and Pricing
of Securities Being Purchased......................... Net Asset Value and Public Offering Price;
Performance Comparisons; Purchase of Shares;
Redemption of Shares
20. Tax Status............................................ Taxation
21. Underwriters.......................................... Investment Advisory and Other Services; Portfolio
Transactions and Allocation of Brokerage
22. Calculations of Performance Data...................... Performance Comparisons
23. Financial Statements.................................. Not Applicable
</TABLE>
Prospectus dated , 1995
PIPER FUNDS INC. -- II
ADJUSTABLE RATE MORTGAGE SECURITIES FUND
PIPER JAFFRAY TOWER
222 SOUTH NINTH STREET,
MINNEAPOLIS, MINNESOTA 55402-3804
(800) 866-7778 (TOLL FREE)
Adjustable Rate Mortgage Securities Fund (the "Fund") is a diversified
series of Piper Funds Inc. -- II (the "Company"), an open-end management
investment company the shares of which can be offered in more than one series.
The Fund is the only series of the Company currently outstanding. The investment
objective of the Fund is to provide the maximum current income that is
consistent with low volatility of principal. 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 ("ARMS"). ARMS include
both pass-through securities representing interests in adjustable rate mortgage
loans and floating rate collateralized mortgage obligations.
AN INVESTMENT IN THE FUND MAY INVOLVE CERTAIN RISKS, INCLUDING THE LOSS OF
PRINCIPAL. THE MARKET VALUE OF THE SECURITIES IN WHICH THE FUND INVESTS WILL
FLUCTUATE WITH CHANGING INTEREST RATES, AS WILL THE FUND'S NET ASSET VALUE. THE
FUND MAY INVEST IN ILLIQUID SECURITIES WHICH WILL INVOLVE GREATER RISK THAN
INVESTMENTS IN OTHER SECURITIES AND MAY INCREASE FUND EXPENSES. SEE "SPECIAL
INVESTMENTS METHODS." THE FUND INVESTS A SIGNIFICANT PORTION OF ITS ASSETS IN
MORTGAGE-RELATED SECURITIES, WHICH MAY INCLUDE DERIVATIVE MORTGAGE SECURITIES.
SEE "INVESTMENT OBJECTIVE AND POLICIES."
This Prospectus concisely describes the information about the Fund that you
should know before investing. Please read it carefully before investing and
retain it for future reference.
A Statement of Additional Information about the Fund dated , 1995 is
available free of charge. Write to the Fund at Piper Jaffray Tower, 222 South
Ninth Street, Minneapolis, Minnesota 55402-3804 or telephone (800) 866-7778
(toll free). The Statement of Additional Information has been filed with the
Securities and Exchange Commission and is incorporated in its entirety by
reference in this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
INTRODUCTION
Adjustable Rate Mortgage Securities Fund (the "Fund") is a diversified
series of Piper Funds Inc. -- II (the "Company"), an open-end management
investment company the shares of which can be offered in more than one series.
The Fund is the only series of the Company currently outstanding. The Company
was organized under the laws of the State of Minnesota on April 10, 1995. It is
anticipated that, on or about September 1, 1995, four closed-end investment
companies, American Adjustable Rate Term Trust Inc. -- 1996 ("BDJ"), American
Adjustable Rate Term Trust Inc. -- 1997 ("CDJ"), American Adjustable Rate Term
Trust Inc. -- 1998 ("DDJ") and American Adjustable Rate Term Trust Inc. -- 1999
("EDJ") will merge into the Company (the "Merger"). The investment objective of
the Fund is to provide the maximum current income that is consistent with low
volatility of principal.
THE INVESTMENT ADVISER
The Fund is managed by Piper Capital Management Incorporated (the
"Adviser"), a wholly owned subsidiary of Piper Jaffray Companies Inc. The Fund
pays the Adviser a fee for managing its investment portfolio. The fee for the
Fund is paid at an annual rate of .35% on the first $500 million of average
daily net assets and .30% on average daily net assets in excess of $500 million.
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 Fund's shares.
OFFERING PRICE
Shares of the Fund 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 1.50%
of the offering price (1.52% of the net asset value) on purchases of less than
$100,000. The sales charge is reduced on a graduated scale on purchases of
$100,000 or more. In connection with purchases of $500,000 or more, there is no
initial sales charge; however, a .20% contingent deferred sales charge will be
imposed in the event of a redemption transaction occurring within 24 months
following such a purchase. See "How to Purchase Shares -- Public Offering
Price."
MINIMUM INITIAL AND SUBSEQUENT INVESTMENTS
The minimum initial investment for the Fund is $250. There is no minimum
for subsequent investments. The Distributor, in its discretion, may waive the
minimum. See "How to Purchase Shares -- Minimum Investments."
EXCHANGES
You may exchange your Fund 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, provided that, if you hold your Fund shares through a
broker-dealer other than the Distributor, the exchange privilege may not be
available. Exchanges will be permitted only if there is a valid sales agreement
between your broker-dealer and the Distributor for the fund into which the
exchange will be made. 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. 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 Fund may be redeemed at any time at their net asset value
next determined after a redemption request is received by your Piper Jaffray
investment executive or other broker-dealer. A contingent deferred sales charge
will be imposed upon the redemption of certain shares initially purchased
without a sales charge. See "How to Redeem Shares -- Contingent Deferred Shares
Charge." The Fund reserves the right, upon 30 days written notice, to redeem an
account if the net asset value of the shares falls below $200. See "How to
Redeem Shares -- Involuntary Redemption."
CERTAIN RISK FACTORS TO CONSIDER
An investment in the Fund is subject to certain risks, as set forth in
detail under "Investment Objective and Policies" and "Special Investment
Methods." As with other mutual funds, there can be no assurance that the Fund
will achieve its objective. The Fund 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 the Fund's shares will vary. The Fund 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. The Fund may engage in the following investment practices
which involve certain special risks: the use of repurchase agreements and
reverse repurchase agreements, the lending of portfolio securities, borrowing
from banks, the use of hedging techniques, including interest rate transactions,
options, futures contracts, options on futures contracts and investments in
Eurodollar instruments, and the purchase or sale of securities on a
"when-issued" or "forward commitment" basis. These techniques may increase the
volatility of the Fund's net asset value.
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 Fund should be directed to the Fund at the telephone number set
forth on the cover page of this Prospectus.
FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of the offering
price) 1.50%
Exchange Fee $ 0*
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
Management Fee .32%**
Rule 12b-1 Fee .15%
Other Expenses (after voluntary expense reimbursement)*** .13%
Total Fund Operating Expenses (after voluntary expense reimbursement)*** .60%
</TABLE>
* There is a $5.00 fee for each exchange in excess of four exchanges per year.
See "Shareholder Services -- Exchange Privilege."
** .35% on the first $500 million of net assets and .30% on net assets in
excess of $500 million. The .32% fee is based on estimated net assets of the
Fund as of the effective date of the Merger.
*** See the discussion below for an explanation of voluntary expense
reimbursements.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming 5%
annual return and redemption at the end of each time period:
1 year $21 3 years $34
The purpose of the above Fund Expenses table is to assist you in
understanding the various costs and expenses that investors in the Fund 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.
The Adviser intends, although not required under the Advisory Agreement, to
reimburse the Fund for the amount, if any, by which the total operating and
management expenses of the Fund (including the Adviser's compensation and
amounts paid pursuant to the Fund's Rule 12b-1 Plan, but excluding interest,
taxes, brokerage fees and commissions, and extraordinary expenses) for the
fiscal year ending August 31, 1996, exceed .60% of average net assets. The
Adviser's limitation on expenses is voluntary and may be modified or
discontinued at any time after August 31, 1996. The foregoing policy will have
the effect of lowering the Fund's overall expense ratio and increasing yield to
investors when such amounts are assumed or the inverse when such amounts are
reimbursed. It is estimated that, absent any voluntary expense reimbursements,
the Fund will have Other Expenses as a percentage of average net assets
(adjusted to an annual basis) of approximately $. % for the fiscal year ending
August 31, 1996, resulting in Total Fund Operating Expenses of . %. For
additional information, including a more complete explanation of management and
Rule 12b-1 fees, see "Management -- Investment Adviser" and "Distribution of
Fund Shares."
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide the maximum current income
that is consistent with low volatility of principal. This investment objective
cannot be changed without shareholder approval. The investment policies and
techniques employed in pursuit of the Fund's objective may be changed without
shareholder approval, unless otherwise noted. In view of the risks inherent in
all investments in securities, there is no assurance that the Fund will achieve
its objective.
The Fund seeks to achieve its investment objective by investing primarily
(at least 65% of total assets under normal market conditions) 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"). 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 (a) Mortgage-Backed Securities (other than ARMS), (b) U.S.
Government Securities (including, with respect to 10% of the Fund's net assets,
U.S. Government zero coupon securities); (c) Asset-Backed Securities; and (d)
Corporate Debt Securities (each as defined below). At least 85% of the Fund's
total assets (other than U.S. Government Securities) must be rated, as of the
date of purchase, AA or better by Standard & Poor's Ratings Group ("Standard &
Poor's"), Aa or better by Moody's Investors Service, Inc. ("Moody's"),
comparably rated by any other nationally recognized statistical rating
organization ("NRSRO") or, if unrated, of a comparable quality as determined by
the Adviser. Up to 15% of the Fund's total assets may be invested in securities
rated, as of the date of purchase, A by Standard & Poor's or Moody's, comparably
rated by any other NRSRO or, if unrated, of comparable quality as determined by
the Adviser. The Fund may not invest in any security rated, as of the date of
purchase, lower than A by Standard & Poor's or Moody's (or below a comparable
rating by any other NRSRO) or, if unrated, of a quality lower than A as
determined by the Adviser. In the event that a security is downgraded to a
rating below A or, if unrated, is no longer of a quality comparable to a
security rated A, as determined by the Adviser, the Fund will sell such a
security as promptly as possible. For a discussion of Standard & Poor's and
Moody'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 purchase and sell interest
rate caps and floors, may make investments in Eurodollar instruments for hedging
purposes, may purchase or sell securities on a when-issued or forward commitment
basis and may lend its portfolio 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, P-1 by Moody's or comparably rated by any other NRSRO; (b) certificates
of deposit, time deposits and bankers' acceptances with any bank the unsecured
commercial paper of which is rated A-1+ by Standard & Poor's, P-1 by Moody's or
comparably rated by any other NRSRO (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. Time deposits maturing in more
than seven days are considered illiquid and subject to the Fund's limitation on
investments in illiquid securities. See "Other Investment Techniques -- Illiquid
Securities" below.
ADJUSTABLE RATE MORTGAGE SECURITIES
Under normal market conditions, the Fund must invest at least 65% of its
total assets in adjustable rate mortgage securities or ARMS, which include the
types of securities discussed below.
U.S. Government Mortgage Pass-Through Securities. Arms include
"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 the Fund 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 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 the 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 Objective, Policies and
Restrictions -- Mortgage-Backed Securities -- Types of Credit Support" in the
Statement of Additional Information.
CMOS and Multiclass Pass-Through Securities. ARMS in which the Fund may
invest also include adjustable rate tranches of collateralized mortgage
obligations and multiclass 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. Multiclass 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 multiclass pass-through security. Collateralized
mortgage obligations and multiclass 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 "Other Eligible Investments
- - -- 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," are considered ARMS by the Fund.
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 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 seeks to diversify investments in ARMS among a variety of
indices and reset periods to reduce the exposure to the risk of interest rate
fluctuations. In selecting a type of ARMS for investment, the Adviser also
considers the liquidity of the market for such ARMS.
The underlying adjustable rate mortgages which back ARMS 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 (a) per reset or adjustment
interval and (b) 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 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 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.
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.
OTHER ELIGIBLE INVESTMENTS
The balance of the Fund's assets (35% of total assets) may be invested in
the following types of securities to the extent set forth below.
Mortgage-Backed Securities.
* General. In addition to ARMS, the Fund 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. The Fund will not invest in inverse floating, interest-only,
principal-only or Z tranches of CMOs, in residual interests of CMOs, or
in stripped Mortgage-Backed Securities.
* CMOs. As discussed above, investments in ARMS include floating rate CMOs.
The Fund's investments in Mortgage-Backed Securities other than ARMS may
include certain other tranches 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 provide only the principal or
interest feature of the underlying security. 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 CMOs, one or more tranches generally must be created that
absorb most of the volatility in the cash flows on the underlying
mortgage loans. 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. As noted above, the Fund will not invest in inverse
floating, interest-only, principal-only or Z tranches of CMOs, which can
be among the more volatile CMO tranches.
* 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 the Fund 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
the Fund 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.
U.S. Government Securities. In addition to U.S. Government ARMS and other
U.S. Government Mortgage-Backed Securities, the Fund may invest in other
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, including up to 10% of its net assets in U.S. Government zero
coupon securities. U.S. Government Securities include a variety of Treasury
securities, which differ in their interest rates, maturities and times of
issuance. Treasury bills have maturities of one year or less, Treasury notes
have maturities of one to ten years, and Treasury bonds generally have
maturities of greater than ten years. Some obligations issued or guaranteed by
U.S. Government agencies or instrumentalities, for example, GNMA pass-through
certificates, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Federal Home Loan Banks, by the right of the issuer
to borrow from the Treasury; others, such as those issued by FNMA, by the
discretionary authority of the U.S. Government to purchase certain obligations
of the agency or instrumentality; finally, obligations of other agencies or
instrumentalities are backed only by the credit of the agency or instrumentality
issuing the obligations. While the U.S. Government provides financial support to
such U.S. Government-sponsored agencies and instrumentalities, no assurance can
be given that it will always do so since it is not so obligated by law.
* U.S. Government Zero Coupon Securities. The Fund may invest up to 10% of
its net assets in zero coupon securities which are issued by the U.S.
Treasury through its STRIPS program and constitute direct obligations of
the U.S. Government. Zero coupon securities are debt obligations which do
not entitle the holder to any periodic payments of interest prior to
maturity; rather, they offer the right to receive a fixed cash payment at
maturity but without any payments before that date. As a result, zero
coupon securities are issued and traded at a discount from their face
amounts. Through investment in zero coupon securities, an investor is
able to in effect lock in a return of principal to the extent such
instruments are held to maturity.
* Risks of Zero Coupon Securities. Zero coupon securities do not entitle
the holder to any periodic payments of interest prior to maturity and
therefore are issued and trade at a discount from their face or par
value. The discount, in the absence of financial difficulties of the
issuer, decreases as the final maturity of the security approaches. Zero
coupon securities can be sold prior to their due date in the secondary
market at the then prevailing market value, which depends primarily on
the time remaining to maturity, prevailing levels of interest rates and
the perceived credit quality of the issuer. The market prices of zero
coupon securities are more volatile than the market prices of securities
of comparable quality and similar maturity that pay interest periodically
and may respond to a greater degree to fluctuations in interest rates
than do such non-zero coupon securities. Although holders of zero coupon
securities do not receive periodic payments of interest, income accretes
on such securities and is subject to the distribution requirements of the
Internal Revenue Code of 1986, as amended. Because such income may not be
matched by a corresponding cash distribution to the Fund, the Fund may be
required to borrow money or dispose of other securities to be able to
make distributions to shareholders.
Asset-Backed Securities. The Fund may invest in Asset-Backed Securities,
which are securities that directly or indirectly represent a participation in or
are secured by and payable from a pool of assets representing the obligations of
a number of different parties. The Fund will only invest in Asset-Backed
Securities rated, as of the date of purchase, AAA by Standard & Poor's, Aaa by
Moody's, comparably rated by any other NRSRO or, if unrated, of comparable
quality as determined by the Adviser.
The securitization techniques used to develop Mortgage-Backed Securities
are now being applied to a broad range of assets. Through the use of trusts and
special purpose corporations, various types of assets, primarily automobile and
credit card receivables, are being securitized in pass-through structures
similar to the mortgage pass-through structures described above or in a
pay-through structure similar to the CMO structure.
In general, the collateral supporting Asset-Backed Securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. As with Mortgage-Backed Securities, Asset-Backed Securities are
often backed by a pool of assets representing the obligations of a number of
different parties and use similar credit enhancement techniques.
Asset-Backed Securities do not have the benefit of the same security
interest in the related collateral as do Mortgage-Backed Securities. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. Most issuers of automobile receivables permit
the servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have a
perfected security interest in all of the obligations backing such receivables.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.
Corporate Debt Securities. The Fund may invest in Corporate Debt
Securities, which 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 as a result of increases in interest rates. The Fund
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 investor.
New Instruments. The Fund expects that, consistent with its investment
limitations, it will invest in those new types of ARMS, other Mortgage-Backed
Securities, U.S. Government Securities, Asset-Backed Securities, hedging
instruments and other securities in which it may invest that the Adviser
believes may assist the Fund in achieving its objective. Shareholders will
receive written notice in advance of a significant investment, i.e., in excess
of 5% of the Fund's net assets, in such newly developed securities.
OTHER INVESTMENT TECHNIQUES
Hedging Transactions. The Fund may enter into certain interest rate,
options and futures transactions and may make investments in Eurodollar
instruments for hedging purposes as described below.
* Interest Rate Transactions. The Fund may purchase or sell interest
rate caps and floors to preserve a return or spread on a particular
investment or portion of its portfolio or for other non-speculative
purposes. The aggregate purchase price of caps and floors held by 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 below. The Fund does not
intend to use these transactions for speculative purposes. The
purchase of an interest rate cap entitles the purchaser, to the extent
a specified index exceeds a predetermined interest rate, to receive
payments of interest on a contractually-based principal amount from
the party selling such interest rate cap. The purchase of an interest
rate floor entitles the purchaser, to the extent a specified index
falls below a predetermined interest rate, to receive payments of
interest on a contractually-based principal amount from the party
selling such interest rate floor.
The Fund may enter into interest rate caps and floors on either an
asset-based or liability-based basis, depending on whether it is
hedging its assets or its liabilities. To the extent the Fund 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 cap or floor
transaction unless the unsecured senior debt or the claims-paying
ability of the other party thereto is rated at least A by Standard &
Poor's or Moody's or is comparably rated by any other NRSRO. 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. Interest rate caps and floors
are somewhat recent innovations for which standardized documentation
has not yet been developed and, accordingly, they are less liquid than
many other investments.
* Options Transactions. The Fund may write, i.e., sell, covered put and
call options with respect to the securities in which it may invest. A
put option is sometimes referred to as a "standby commitment" and a
call option is sometimes referred to as a "reverse standby
commitment." 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. The Fund may not write puts
if, as a result, more than 50% of its assets would be required to be
segregated.
The principal reason for writing call or put options is to obtain,
through the receipt of premiums, a greater 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.
The Fund may purchase put options, solely for hedging purposes, in
order to protect portfolio holdings in an underlying security against
a substantial decline in the market value of such holdings
("protective puts"). Such protection is provided during the life of
the put because 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 and
transaction costs paid for 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.
The Fund also may purchase call options solely for the purpose of
hedging against an increase in prices of securities that the Fund
ultimately wants to buy. Such protection is provided during the life
of the call options 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, the Fund will
reduce any profit it might have realized had it bought the underlying
security at the time it purchased the call option by the premium paid
for the call option and by transaction costs.
The Fund 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.
Purchased OTC options and the assets used to "cover" written OTC
options are considered illiquid securities and subject to the Fund's
limitation on investments in illiquid securities. See "Illiquid
Securities" below.
For further information concerning the characteristics and risks of
options transactions, see "Investment Objective, Policies and
Restrictions -- Options" in the Statement of Additional Information.
* Futures Contracts and Options on Futures Contracts. The Fund may enter
into contracts for the purchase or sale for future delivery of
fixed-income securities or contracts based on financial indices
including any index of securities in which the 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 the
Fund is to hedge against fluctuations in the value of the Fund's
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.
The Fund may purchase and sell put and call options on futures
contracts and enter into closing transactions with respect to such
options to terminate existing positions. The 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
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 this judgment is incorrect, the Fund
will be in a worse position than if such hedging techniques had not
been used.
* Eurodollar Instruments. The Fund may make investments in Eurodollar
instruments for hedging purposes only. Eurodollar instruments are
essentially U.S. dollar denominated futures contracts or options
thereon that are linked to LIBOR. Eurodollar futures contracts enable
purchasers to obtain a fixed rate for the lending of funds and sellers
to obtain a fixed rate for borrowings. The Fund uses Eurodollar
futures contracts and options thereon to hedge against changes in
LIBOR, to which many short-term borrowings and floating rate
securities are linked. Eurodollar instruments are subject to the same
limitations and risks as other futures contracts and options thereon.
When-Issued Securities. The Fund may purchase securities on a "when-issued"
basis and may purchase or sell securities on a "forward commitment" basis. When
such transactions are negotiated, the price is fixed at the time the commitment
is made, but delivery and payment for the securities take place at a later date.
The Fund does 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 likewise segregates securities it sells on a forward
commitment basis. The Fund will purchase securities on a when-issued or forward
commitment basis with the intention of acquiring such securities for its
portfolio. The Fund may dispose of a commitment prior to settlement, however, if
the Adviser deems it appropriate to do so.
The purchase of securities on a when-issued or forward commitment basis
exposes the Fund 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 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.
Illiquid Securities. The Fund may invest up to 15% 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. The 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, the Fund may have to sell other
assets, rather than such illiquid securities, at a time which is not
advantageous.
"Restricted securities" are securities which were originally sold in
private placements and which have not been registered under the Securities Act
of 1933 (the "1933 Act"). Such securities generally have been considered
illiquid, since they may be resold only subject to statutory restrictions and
delays or if registered under the 1933 Act. In 1990, however, the SEC adopted
Rule 144A under the 1933 Act, which provides a safe harbor exemption from the
registration requirements of the 1933 Act for resales of restricted securities
to "qualified institutional buyers," as defined in the rule. The result of this
rule has been the development of a more liquid and efficient institutional
resale market for restricted securities. Thus, restricted securities are no
longer necessarily illiquid. The Fund is not subject to any limitation on its
ability to invest in securities simply because such securities are restricted.
These securities will be treated 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. See
"Investment Objective, 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.
Investing in Rule 144A securities could have the effect of increasing the level
of illiquidity of the Fund to the extent that qualified institutional buyers
become, for a time, uninterested in purchasing these securities.
Lending Of Portfolio Securities. In order to generate income, the Fund may
lend portfolio securities representing up to 30% of the value of its total
assets to broker-dealers, banks or other financial borrowers of securities. As
with other extensions of credit, there are risks of delay in recovery or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, the 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 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 is
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 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.
Repurchase Agreements. The Fund may enter into repurchase agreements
pertaining to the securities in which it may invest. A repurchase agreement
involves the purchase by the 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 of collateral were less than the repurchase price,
the Fund would suffer a loss. In the event of a seller's bankruptcy, the 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 the Fund's restriction on investing in illiquid
securities. See "Illiquid Securities" above.
Borrowing. The Fund may borrow money only for temporary or emergency
purposes in an amount up to 10% of the value of its total assets. The Fund may
borrow from a financial institution unrelated to the Fund or by entering into
reverse repurchase agreements with the same parties with whom it may enter into
repurchase agreements (as discussed above). Interest paid by the Fund on
borrowed funds would decrease the net earnings of the Fund. The Fund will not
purchase portfolio securities while outstanding borrowings exceed 5% of the
value of the Fund's total assets. The Fund may mortgage, pledge or hypothecate
its assets to secure permitted borrowings. The policies set forth in this
paragraph are fundamental and may not be changed without a majority vote of the
Fund's shares.
Under a reverse repurchase agreement, the Fund sells securities and agrees
to repurchase them at a mutually agreed date and price. Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Fund may decline below the price at which the Fund is obligated to repurchase
such securities. In the event the buyer of securities under a reverse repurchase
agreement files for bankruptcy or becomes insolvent, such buyer or its trustee
or receiver may receive an extension of time to determine whether to enforce the
Fund's obligation to repurchase the securities, and the Fund's use of the
proceeds of the reverse repurchase agreement may effectively be restricted
pending such decisions. Reverse repurchase agreements create leverage, a
speculative factor, and are considered borrowings for purposes of the Fund's
limitation on borrowing.
DURATION
The Adviser will attempt to maintain an average effective duration for the
Fund's portfolio of one to four years. 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 price 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 the Fund'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 can be greatly affected by changes in interest rates.
INVESTMENT RESTRICTIONS
The Fund has adopted certain investment restrictions, which are set forth
in detail in the Statement of Additional Information under "Investment
Objective, Policies and Restrictions." Fundamental restrictions which may not be
changed without a majority vote of shareholders include, among others, the
following: (1) The Fund will not invest 25% or more of its total assets in the
securities of issuers conducting their principal business activities in the same
industry, except that, under normal market conditions, the Fund will invest 25%
or more of the value of its total assets in ARMS issued or guaranteed by the
U.S. Government or its agencies or instrumentalities or by private
organizations. Except for the requirement that the Fund invest 25% or more of
its total assets in ARMS, the foregoing restriction does not apply to securities
of the U.S. Government or its agencies or instrumentalities or repurchase
agreements relating thereto. The Fund will determine the industry classification
of Asset-Backed Securities in its portfolio based on the type of collateral
underlying the securities and will consider ARMS issued by the U.S. Government
or its agencies or instrumentalities and ARMS issued by private organizations to
be securities of issuers in the same industry. (2) With respect to 75% of its
total assets, the Fund will not invest more than 5% of the value of its total
assets (taken at market value at the time of purchase) in the outstanding
securities of any one issuer, or own more than 10% of the outstanding voting
securities of any one issuer, in each case other than securities issued or
guaranteed by the U.S. Government or any agency or instrumentality thereof. As a
nonfundamental investment restriction which may be changed at any time without
shareholder approval, the Fund will not invest more than 5% of its total assets
in the securities of issuers which, with their predecessors, have a record of
less than three years' continuous operation.
PORTFOLIO TURNOVER
The Fund actively uses trading to benefit from yield disparities among
different issues of securities or otherwise to achieve its investment objective
and policies. This strategy may result in a greater degree of portfolio turnover
and, thus, a higher incidence of short-term capital gain than might be expected
from investment companies that invest substantially all of their funds on a
long-term basis. Such a strategy will also result in higher transaction costs.
It is estimated that the Fund's annual portfolio turnover rate will not exceed
100%. The method of calculating portfolio turnover rate is set forth in the
Statement of Additional Information under "Investment Objective, Policies and
Restrictions -- Portfolio Turnover."
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 Fund's investment adviser subject to the authority of the Board of
Directors.
In addition to acting as the investment adviser for the Company, the
Adviser, which was incorporated in 1983, 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 May 31, 1995, the Adviser rendered investment advice
regarding approximately $10 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 the Fund with investment advice and supervises the
management and investment program of the Fund. The Adviser furnishes at its own
expense all necessary administrative services, office space, equipment and
clerical personnel for servicing the investments of the Fund, and investment
advisory facilities and executive and supervisory personnel for managing the
Fund's investments and effecting its portfolio transactions. In addition, the
Adviser pays the salaries and fees of all officers and directors of the Company
who are affiliated persons of the Adviser.
Under the Investment Advisory and Management Agreement, the Fund pays the
Adviser a monthly fee at an annual rate of .35% on the first $500 million of the
Fund's average daily net assets and .30% on average daily net assets in excess
of $500 million.
PORTFOLIO MANAGEMENT
Michael P. Jansen and Thomas S. McGlinch are primarily responsible for the
day-to-day management of the Fund's portfolio. Mr. Jansen has been a Senior Vice
President of the Adviser since October 14, 1993, prior to which he had been a
Managing Director of the Distributor since 1987. He has been an Executive Vice
President and Director of Piper Mortgage Acceptance Corporation, a wholly owned
subsidiary of Piper Jaffray Companies Inc., since 1991 and served as an
Executive Vice President and Director of Premier Acceptance Corporation, a
wholly owned subsidiary of Piper Jaffray Companies Inc. issuing mortgage-backed
securities, from 1988 to 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
the Distributor during 1992. From 1988 to January 1992, Mr. McGlinch was a
specialty products trader at FBS Investment Services, Inc. He is a Chartered
Financial Analyst 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 Fund's
portfolio securities and cash and as Transfer Agent and Dividend Disbursing
Agent for the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSION
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 shares may also be considered a factor if the Adviser is satisfied that
the Fund would receive from that broker the most favorable price and execution
then available for a transaction. Portfolio transactions for the Fund may be
effected through the Distributor on a securities exchange in compliance with
Section 17(e) of the Investment Company Act of 1940, as amended (the "1940
Act"). For more information, see "Portfolio Transactions and Allocation of
Brokerage" in the Statement of Additional Information.
DISTRIBUTION OF FUND SHARES
Piper Jaffray acts as the principal distributor of the Fund's shares. The
Company has adopted a Distribution Plan (the "Plan") as required by Rule 12b-1
under the 1940 Act. Pursuant to the provisions of the Plan, the Fund pays a
monthly service fee to the Distributor at an annual rate of .15% of the Fund's
average daily net assets in connection with servicing of the Fund's shareholder
accounts. This fee is intended to compensate the Distributor for the ongoing
servicing and/or maintenance of Fund shareholder accounts and the costs incurred
in connection therewith ("Shareholder Servicing Costs"). Shareholder Servicing
Costs include all expenses of the Distributor incurred in connection with
providing shareholder liaison services, including, but not limited to, an
allocation of the Distributor's overhead and payments made to persons, including
employees of the Distributor, who respond to inquiries of shareholders regarding
their ownership of shares or their accounts with the Fund, and who provide
information on shareholders' investments.
The Distributor uses all or a portion of its Rule 12b-1 service fee to make
payments to investment executives of the Distributor and broker-dealers which
have entered into sales agreements with the Distributor. If shares of the Fund
are sold by a representative of a broker-dealer other than the Distributor, the
broker-dealer is paid .15% of the average daily net assets of the Fund
attributable to shares sold by the broker-dealer's representative. If shares of
the Fund are sold by an investment executive of the Distributor, compensation is
paid to the investment executive in the manner set forth in a written agreement,
in an amount not to exceed .15% of the average daily net assets of the Fund
attributable to shares sold by the investment executive. Further information
regarding the Plan is contained in the Statement of Additional Information.
SHAREHOLDER GUIDE TO INVESTING
HOW TO PURCHASE SHARES
GENERAL
The Fund's shares may be purchased at the public offering price from the
Distributor and from other broker-dealers who have sales agreements with the
Distributor. The address of the Distributor is that of the Fund. The Distributor
reserves the right to reject any purchase order. You should be aware that,
because the Fund does not issue stock certificates, Fund shares must be kept in
an account with the Distributor or with IFTC. All investments must be arranged
through your Piper Jaffray investment executive or other broker-dealer.
PURCHASE PRICE
You may purchase shares of the Fund 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:
SALES CHARGE SALES CHARGE
AS A PERCENTAGE OF AS A PERCENTAGE OF
AMOUNT OF TRANSACTION AT OFFERING PRICE OFFERING PRICE NET ASSET VALUE
Less than $100,000 1.50% 1.52%
$100,000 but less than $250,000 1.25% 1.27%
$250,000 but less than $500,000 1.00% 1.01%
$500,000 and over 0.00% 0.00%
This table sets forth total sales charges or underwriting commissions. The
Distributor may reallow up to the entire sales charge to broker-dealers in
connection with their sales of shares. Broker-dealers who are reallowed 90% or
more of the sales charge may, by virtue of such reallowance, be deemed to be
"underwriters" under the 1933 Act.
The Distributor will make certain payments to its investment executives and
to other broker-dealers in connection with their sales of Fund shares. See
"Distribution of Fund Shares" above. In addition, the Distributor or the
Adviser, at their own expense, will 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 Fund and other
mutual funds for which the Adviser acts as investment adviser. In some
instances, these incentives may be made available only to certain investment
executives or broker-dealers who have sold or may sell significant amounts of
such shares. The incentives may include payment for travel expenses, including
lodging at luxury resorts, incurred in connection with sales seminars.
PURCHASES OF $500,000 OR MORE
If you make a purchase of $500,000 or more (including purchases made under
a Letter of Intent), a .20% contingent deferred sales charge will be assessed in
the event you redeem shares within 24 months following the purchase. This sales
charge will be paid to the Distributor. For more information, please refer to
the Contingent Deferred Sales Charge section of "How to Redeem Shares." The
Distributor will pay its investment executives and other broker-dealers in
connection with these purchases as follows:
FEE AS
A PERCENTAGE
AMOUNT OF TRANSACTION OF OFFERING PRICE
First $3,000,000 .20%
Next $2,000,000 .15%
Next $5,000,000 .10%
Above $10,000,000 .05%
Piper Jaffray investment executives and other broker-dealers generally will
not receive a fee in connection with purchases on which the contingent deferred
sales charge is waived. However, the Distributor, in its discretion, may pay a
fee out of its own assets to its investment executives and other broker-dealers
in connection with purchases by employee benefit plans on which no sales charge
is imposed. Please see the Special Purchase Plans section of "Reducing Your
Sales Charge."
MINIMUM INVESTMENTS
A minimum initial investment of $250 is required. There is no minimum for
subsequent investments. The Distributor, in its discretion, may waive the
minimum.
REDUCING YOUR SALES CHARGE
You may qualify for a reduced sales charge through one or more of several
plans. You must notify your Piper Jaffray investment executive or broker-dealer
at the time of purchase to take advantage of these plans.
AGGREGATION
Front-end or initial sales charges may be reduced or eliminated by
aggregating your purchase with purchases of certain related personal accounts.
In addition, purchases made by members of certain 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 Fund shares into Piper Jaffray accounts will
be automatically calculated taking into account the dollar amount of any new
purchases along with the higher of current value or cost of shares previously
purchased in 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 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 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 the
Fund without incurring a sales charge. The following persons associated with
such entities also may buy Fund shares without paying a sales charge:
* Officers, directors and 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 the Fund without incurring a sales charge.
PURCHASES BY OTHER INDIVIDUALS WITHOUT A SALES CHARGE
The following other individuals and entities may also buy Fund shares
without paying a sales charge:
* Clients of the Adviser may buy shares of the Fund 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.
PURCHASES BY EMPLOYEE BENEFIT PLANS AND TAX-SHELTERED ANNUITIES
* Shares of the Fund 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") ("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 the Fund 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 the 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 Fund's transfer agent, IFTC. This request should contain the dollar amount
or number of shares to be redeemed, your Fund account number and either a social
security or tax identification number (as applicable). You should sign your
request in exactly the same way the account is registered. If there is more than
one owner of the shares, all owners must sign. A signature guarantee is required
for redemptions over $25,000. Please contact IFTC or refer to "Redemption of
Shares" in the Statement of Additional Information for more details.
CONTINGENT DEFERRED SALES CHARGE
If you invest $500,000 or more and, as a result, pay no front-end sales
charge, you may incur a contingent deferred sales charge if you redeem within 24
months. This charge will be equal to .20% of the lesser of the net asset value
of the shares at the time of purchase or at the time of redemption. This charge
does not apply to amounts representing an increase in the value of Fund shares
due to capital appreciation or to shares acquired through reinvestment of
dividend or capital gain distributions. In determining whether a contingent
deferred sales charge is payable, shares that are not subject to any deferred
sales charge will be redeemed first, and other shares will then be redeemed in
the order purchased.
Letter Of Intent. In the case of a Letter of Intent, the 24-month period
begins on the date the Letter of Intent is completed.
Special Purchase Plans. If you purchased your shares through one of the
plans described above under "Special Purchase Plans," the contingent deferred
sales charge will be waived. In addition, the contingent deferred sales charge
will be waived in the event of:
* The death or disability (as defined in Section 72(m) (7) of the Code) of
the shareholder. (This waiver will be applied to shares held at the time
of death or the initial determination of disability of either an
individual shareholder or one who owns the shares as a joint tenant with
the right of survivorship or as a tenant in common.)
* A lump sum distribution from an employee benefit plan qualified under
Section 401(a) of the Code, an individual retirement account under
Section 408(a) of the Code or a simplified employee pension plan under
Section 408(k) of the Code.
* Systematic withdrawals from any such plan or account if the shareholder
is at least 59 1/2 years old.
* A tax-free return of the excess contribution to an individual retirement
account under Section 408(a) of the Code.
* Involuntary redemptions effected pursuant to the right to liquidate
shareholder accounts having an aggregate net asset value of less than
$200.
Exchanges. If you exchange your shares, no contingent deferred sales charge
will be imposed. However, the charge will apply if you subsequently redeem the
new shares within 24 months of the original purchase.
Reinstatement Privilege. If you elect to use the Reinstatement Privilege
(please see "Shareholder Services" below), any contingent deferred sales charge
you paid will be credited to your account (proportional to the amount
reinvested). Please see "Redemption of Shares" in the Statement of Additional
Information for more details.
PAYMENT OF REDEMPTION PROCEEDS
After your shares have been redeemed, 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).
INVOLUNTARY REDEMPTION
The Fund reserves the right to redeem your account at any time the net
asset value of the account falls below $200 as the result of a redemption or
exchange request. You will be notified in writing prior to any such redemption
and will be allowed 30 days to make additional investments before the redemption
is processed.
SHAREHOLDER SERVICES
AUTOMATIC MONTHLY INVESTMENT PROGRAM
You may arrange to make additional automated purchases of shares of the
Fund or certain other mutual funds managed by the Adviser. You can automatically
transfer $100 or more per month from your bank, savings and loan or other
financial institution to purchase additional shares. In addition, if you hold
your shares in a Piper Jaffray account you may arrange to make such additional
purchases by having $25 or more automatically transferred each month from any
Piper money market fund. You should contact your Piper Jaffray investment
executive or IFTC to obtain authorization forms or for additional information.
REINSTATEMENT PRIVILEGE
If you have redeemed shares of the Fund, you may be eligible to reinvest in
shares of any fund managed by the Adviser without payment of an additional sales
charge. The reinvestment request must be made within 30 days of the redemption.
This privilege is subject to the eligibility of share purchases in your state as
well as the minimum investment requirements and any other applicable terms in
the prospectus of the fund being acquired. You may reinvest through a
broker-dealer other than the Distributor only if there is a valid sales
agreement between your broker-dealer and the Distributor for the fund in which
you wish to invest.
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 generally must pay the difference. However, exchanges of Fund shares
received in the Merger will be permitted without payment of an additional sales
charge.
If you hold your Fund shares through a broker-dealer other than the
Distributor, the exchange privilege may not be available. Exchanges will be
permitted only if there is a valid sales agreement between your broker-dealer
and the Distributor for the fund into which you wish to exchange.
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 Fund 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 (800-874-6025) for an application or for more details. The
Fund will employ reasonable procedures to confirm that a telephone 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. If the Fund follows such
procedures, it will not be liable for following instructions communicated by
telephone that it reasonably believes to be genuine. If the Fund does not employ
such procedures, it may be liable for any losses due to unauthorized or
fraudulent telephone instructions. It may be difficult to reach the Fund by
telephone during periods when market or economic conditions lead to an unusually
large volume of telephone requests. If you cannot reach the Fund 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 Fund reserves the right to suspend or
terminate its 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. This privilege may not be available if you hold your
Fund shares through a broker-dealer other than the Distributor. Distributions
may be invested in another mutual fund managed by the Adviser only if there is a
valid sales agreement for that fund between your broker-dealer and the
Distributor.
SYSTEMATIC WITHDRAWAL PLAN
If your account has a value of $5,000 or more, you may establish a
Systematic Withdrawal Plan. This plan will allow you to receive regular periodic
payments by redeeming as many shares from your account as necessary. As with
other redemptions, a redemption to make a withdrawal is a sale for federal
income tax purposes. Payments made under a Systematic Withdrawal Plan cannot be
considered as actual yield or income since part of the payments may be a return
of capital.
A request to establish a Systematic Withdrawal Plan must be submitted in
writing to your Piper Jaffray investment executive or other broker-dealer. There
are no service charges for maintenance; the minimum amount that you may withdraw
each period is $100. You will be required to have any income dividends and any
capital gains distributions reinvested. You may choose to have withdrawals made
monthly, quarterly or semi-annually. Please contact your Piper Jaffray
investment executive, other broker-dealer or IFTC for more information.
You should be aware that additional investments in an account that has an
active Systematic Withdrawal Plan may be inadvisable due to sales charges and
tax liabilities. As a result, you will not be allowed to make additional
investments of less than $5,000 or three times the annual withdrawals while you
have the plan in effect. Please refer to "Redemption of Shares" in the Statement
of Additional Information for additional details.
ACCOUNT PROTECTION
If you purchased your shares of the Fund through a Piper Jaffray investment
executive, you may choose from several account options. Your investments in the
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
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. The Fund is required to supply annual and semi-annual reports that
list securities held by the Fund and include the current financial statements of
the Fund.
Householding. If you have multiple accounts with Piper Jaffray, you may
receive some of the above information in combined mailings. This will not only
help to reduce Fund expenses, it will help the environment by saving paper.
Please contact your Piper Jaffray investment executive for more information.
DIVIDENDS AND DISTRIBUTIONS
The net investment income of the Fund will be declared as dividends daily
and will be paid monthly. Net realized capital gains, if any, will be
distributed at least once annually. Each daily dividend is payable to Fund
shareholders of record at the time of its declaration. The term "shareholders of
record" includes holders of shares purchased for which payment has been received
by the Distributor or IFTC, as appropriate, and excludes holders of shares
redeemed on that day. Shares redeemed will earn dividends through the day prior
to the day of redemption. The Fund will not attempt to stabilize distributions,
and intends to distribute to its shareholders substantially all of the net
investment income earned during any period. Thus, dividends can be expected to
vary from month to month.
Distributions Options. All net investment income dividends and net realized
capital gains distributions for the Fund generally will be payable in additional
shares of the 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, subject to certain restrictions. 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.
VALUATION OF SHARES
The Fund computes its net asset value on each day the New York Stock
Exchange (the "Exchange") is open for business. The calculation is made as of
the regular close of the Exchange (currently 4:00 p.m. New York time) after the
Fund has declared any applicable dividends.
The net asset value per share for the Fund 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 purposes of
determining the aggregate net assets of the Fund, cash and receivables will be
valued at their face amounts. Interest will be recorded as accrued.
The value of certain fixed-income securities 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, ratings and developments
relating to specific securities in arriving at securities valuations.
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 Board of
Directors. In addition, any securities or other assets of the Fund for which
market prices are not readily available will be valued at their fair value in
accordance with such procedures.
TAX STATUS
The Fund intends to qualify for treatment as a regulated investment company
under the Internal Revenue Code of 1986, as amended (the "Code") during its
current taxable year. If so qualified, the Fund will not be liable for federal
income taxes to the extent it distributes its taxable income to shareholders.
Distributions by the Fund are generally taxable to the 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") are taxable to shareholders as
long-term capital gains, regardless of the length of time the shareholder has
held the shares of the Fund. The Fund will send written notices to shareholders
regarding the tax status of all distributions made during each year.
A shareholder will recognize a capital gain or loss upon the sale or
exchange of shares in the Fund if, as is normally the case, the shares are
capital assets in the shareholder's hands. This capital gain or loss will be
long-term if the shares have been held for more than one year.
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 Fund, see "Taxation" in the
Statement of Additional Information. Before investing in the Fund, you should
check the consequences of your local and state tax laws.
PERFORMANCE COMPARISONS
Advertisements and other sales literature for the Fund may refer to
"average annual total return," "cumulative total return" and "yield". When the
Fund advertises its yield, it will also advertise its total return as required
by the rules of the Securities and Exchange Commission. All such yield and total
return quotations are based upon historical earnings and are not intended to
indicate future performance. The return on and principal value of an investment
in the Fund will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
Yield calculations 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 Securities and Exchange Commission rules and
regulations) earned during the advertised period by the offering price per share
(including the maximum sales charge) on the last day of the period. The result
will then be "annualized" using a formula that provides for semi-annual
compounding of income.
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 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. Such total return
quotations may be accompanied by quotations which do not reflect the reduction
in value of the initial investment due to the sales charge, and which thus will
be higher.
Comparative performance information also may be used from time to time in
advertising the Fund's shares. For example, advertisements may compare the
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.
GENERAL INFORMATION
The Company is authorized to issue a total of 100 billion shares of common
stock, with a par value of $.01 per share. Ten billion of those shares have been
designated as Series A Common Shares, which are the shares of common stock of
the Fund. Currently, Series A is the only outstanding series of shares of the
Company.
The Board of Directors is empowered under the Company's Articles of
Incorporation to issue additional series of the Company's common stock without
shareholder approval. In addition, the Board of Directors may, without
shareholder approval, create and issue one or more additional classes of shares
within the 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.
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 values 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, 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 contracts and Rule 12b-1 distribution plans. 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
American Adjustable Rate Term Trust Inc. -- 1996 ("BDJ"), American
Adjustable Rate Term Trust Inc. -- 1997 ("CDJ"), American Adjustable Rate Term
Trust Inc. -- 1998 ("DDJ") and American Adjustable Rate Term Trust Inc. -- 1999
("EDJ") (collectively, the "Trusts") are expected to merge into the Company on
or about September 1, 1995. The Company may be deemed to be a successor by
merger to such Trusts and, as such, may succeed to their liabilities, including
damages sought in any litigation.
On October 20, 1994, Herman D. Gordon filed a complaint purporting to be a
class action in the U.S. District Court for the District of Minnesota against
DDJ and EDJ, the Adviser, the Distributor, Piper Jaffray Companies Inc.
("Piper") and certain associated individuals (the "Gordon Litigation"). The
complaint (No. 3-94-CV-1377), alleges that the defendants violated certain
federal securities laws by making materially misleading statements in
prospectuses and other disclosures concerning risks associated with an
investment in the Trusts and compliance with the Trusts' investment policies.
Damages are being sought in an unspecified amount. The defendants intend to
defend the Gordon Litigation vigorously.
On April 14, 1995, Frank Donio, I.R.A., and other plaintiffs filed a
complaint purporting to be a class action in the U.S. District Court for the
District of Minnesota against BDJ, CDJ, DDJ and EDJ, the Adviser, the
Distributor, Piper and certain associated individuals (the "Donio Litigation").
The complaint alleges that the defendants violated certain federal and state
securities laws by making materially misleading statements in prospectuses and
other disclosures concerning risks associated with investing in the Trusts,
compliance with the Trusts' investment policies, and the reasons for proposing
and the benefits to be obtained by shareholders from the Merger and by allegedly
breaching their fiduciary duties. Damages are being sought in an unspecified
amount. The defendants intend to defend the Donio Litigation vigorously.
Piper and the Adviser have agreed, pursuant to an indemnification agreement
between and among Piper, the Adviser and the Company (the "Indemnification
Agreement"), to indemnify the Company against any losses incurred in connection
with such Litigations.
In addition to the complaints against the Trusts described above,
complaints also have been brought against the Adviser and the Distributor
relating to several other investment companies for which the Adviser acts or has
acted as investment adviser or subadviser. See "Pending Litigation" in the
Statement of Additional Information. These lawsuits do not involve the Trusts or
the Company. The Adviser and Distributor do not believe the lawsuits will have a
material adverse effect on their ability to perform under their agreements with
the Company, and they intend to defend the lawsuits 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 FUND
OR PIPER JAFFRAY INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN THE 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.
PIPER FUNDS INC. -- II
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
Page
Introduction 2
Fund Expenses 4
Investment Objective and
Policies 5
Management 17
Distribution of Fund Shares 18
SHAREHOLDER GUIDE TO
INVESTING
How to Purchase Shares 19
Reducing Your Sales Charge 20
Special Purchase Plans 21
How to Redeem Shares 22
Shareholder Services 24
Dividends and Distributions 26
Valuation of Shares 27
Tax Status 27
Performance Comparisons 27
General Information 28
PART B
ADJUSTABLE RATE MORTGAGE SECURITIES FUND
A series of Piper Funds Inc.--II
STATEMENT OF ADDITIONAL INFORMATION
, 1995
Table of Contents
Page
Investment Objective, Policies and Restrictions................. 2
Directors and Executive Officers................................ 10
Investment Advisory and Other Services.......................... 14
Portfolio Transactions and Allocation of Brokerage.............. 18
Capital Stock and Ownership of Shares........................... 20
Net Asset Value and Public Offering Price....................... 21
Performance Comparisons......................................... 21
Purchase of Shares.............................................. 23
Redemption of Shares............................................ 23
Taxation........................................................ 25
General Information............................................. 27
Pending Litigation.............................................. 28
Appendix A - Corporate Bond and Commercial Paper Ratings........ A-1
Appendix B - Interest Rate Futures Contracts and Related Options B-1
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information relates to the Prospectus dated _____, 1995,
and should be read in conjunction therewith. A copy of the Prospectus may be
obtained without charge by mailing a written request to the Fund at Piper
Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402-3804, or by
calling (800) 866-7778.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
This Statement of Additional Information relates to Adjustable Rate
Mortgage Securities Fund (the "Fund"), the only outstanding series of Piper
Funds Inc.--II (the "Company"). The Fund and the Company have no prior history.
The investment objective and policies of the Fund are set forth in the
Prospectus. Certain additional investment information is set forth below.
Repurchase Agreements
The Fund may invest in repurchase agreements pertaining to the securities
in which it may invest. The Fund's custodian will hold the securities underlying
any repurchase agreement or such securities will be part of the Federal Reserve
Book Entry System. The market value of the collateral underlying the repurchase
agreement will be determined on each business day. If at any time the market
value of the collateral falls below the repurchase price of the repurchase
agreement (including any accrued interest), the Fund will promptly receive
additional collateral (so the total collateral is an amount at least equal to
the repurchase price plus accrued interest).
The closed-end and open-end investment companies currently managed by Piper
Capital Management Incorporated (the "Adviser") and all future investment
companies advised by the Adviser or its affiliates have received from the
Securities and Exchange Commission an exemptive order permitting them 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
GENERAL. Many Mortgage-Backed Securities (principally collateralized
mortgage obligations ("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 the Fund) 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, the Fund may invest 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.
PASS-THROUGH SECURITIES. The investments of the Fund in Mortgage-Backed
Securities include government guaranteed pass-through securities. These
obligations are described below.
(1) GNMA Certificates. Certificates of the Government National Mortgage
Association ("GNMA Certificates") are Mortgage-Backed Securities which evidence
an ownership interest in a pool of mortgage loans. GNMA Certificates differ from
bonds in that principal is paid back monthly by the borrower over the term of
the loan rather than returned in a lump sum at maturity.
GNMA Guarantee -- The National Housing Act authorizes GNMA to guarantee the
timely payment of principal and interest on securities backed by a pool of
mortgages insured by the Federal Housing Administration ("FHA") or the Farmers'
Home Administration ("FHA") or guaranteed by the Veterans Administration ("VA").
The GNMA guarantee is backed by the full faith and credit of the United States.
GNMA is also empowered to borrow without limitation from the U.S. Treasury if
necessary to make any payments required under its guarantee.
Life of GNMA Certificates -- The average life of a GNMA Certificate is
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of principal
investment long before the maturity of the mortgages in the pool. Foreclosures
impose no risk to principal investment because of the GNMA guarantee.
Because prepayment rates of individual mortgage pools vary widely, it is
not possible to predict accurately the average life of a particular issue of
GNMA Certificates. However, statistics published by the FHA indicate that the
average life of single-family dwelling mortgages with 25- to 30-year maturities,
the type of mortgages backing the vast majority of GNMA Certificates, is
approximately 12 years. Therefore, it is customary to treat GNMA Certificates as
30-year mortgage-backed securities which prepay fully in the twelfth year.
Yield Characteristics of GNMA Certificates -- The coupon rate of interest
on GNMA Certificates is lower than the interest rate paid on the VA-guaranteed
or FHA-insured mortgages underlying the Certificates by the amount of the fees
paid to GNMA and the issuer.
The coupon rate by itself, however, does not indicate the yield which will
be earned on GNMA Certificates. First, GNMA Certificates may be issued at a
premium or discount, rather than at par and, after issuance, GNMA Certificates
may trade in the secondary market at a premium or discount. Second, interest is
earned monthly, rather than semi-annually as with traditional bonds; monthly
compounding raises the effective yield earned. Finally, the actual yield of a
GNMA Certificate is influenced by the prepayment experience of the mortgage pool
underlying it. For example, if the higher-yielding mortgages from the pool are
prepaid, the yield on the remaining pool will be reduced.
(2) FHLMC Securities. The Federal Home Loan Mortgage Corporation ("FHLMC")
was created in 1970 through enactment of Title III of the Emergency Home Finance
Act of 1970. Its purpose is to promote development of a nationwide secondary
market in conventional residential mortgages.
FHLMC issues two types of mortgage pass-through securities, mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA Certificates in that each PC represents a pro rata
share of all interest and principal payments made and owed on the underlying
pool. FHLMC guarantees timely payment of interest on PCs and the full return of
principal. Like GNMA Certificates, PCs are assumed to be prepaid fully in their
twelfth year.
GMCs also represent a pro rata interest in a pool of mortgages. However,
these instruments pay interest semi-annually and return principal once a year in
guaranteed minimum payments. The expected average life of these securities is
approximately ten years.
(3) FNMA Securities. The Federal National Mortgage Association was
established in 1938 to create a secondary market in mortgages insured by the
FHA.
FNMA issues guaranteed mortgage pass-through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA Certificates in that each FNMA
Certificate represents a pro rata share of all interest and principal payments
made and owed on the underlying pool. FNMA guarantees timely payment of interest
on FNMA Certificates and the full return of principal. Like GNMA Certificates,
FNMA Certificates are assumed to be prepaid fully in their twelfth year.
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. The
Fund will not pay any additional fees for such credit support, although the
existence of credit support may increase the price of a security.
The ratings of securities for which third-party credit enhancement provides
liquidity protection or protection against losses from default are generally
dependent upon the continued creditworthiness of the enhancement provider. The
ratings of such securities could be subject to reduction in the event of
deterioration in the creditworthiness of the credit enhancement provider even in
cases where the delinquency and loss experience on the underlying pool of assets
is better than expected.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments, sometimes funded from a portion of the
payments on the underlying assets, are held in reserve against future losses)
and "over-collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceed those required to make payment on the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based on historical information with
respect to the level of credit risk associated with the underlying assets. Other
information which may be considered includes demographic factors, loan
underwriting practices and general market and economic conditions. Delinquency
or loss in excess of that which is anticipated could adversely affect the return
on an investment in such a security.
RESTRICTIONS ON INVESTMENTS IN MORTGAGE-BACKED SECURITIES. As set forth in
the Prospectus, the Fund will not invest in any inverse floating, interest-only,
principal-only or Z tranches of CMOs or in stripped Mortgage-Backed Securities.
In addition, the Fund will not invest in any other Mortgage-Backed Securities
that are considered "high risk" under applicable supervisory policies of the
Office of the Comptroller of the Currency (the "OCC"). In OCC Banking Circular
228 (Rev.) (January 10, 1992), the OCC defined a "high-risk mortgage security"
as any mortgage derivative product that at the time of purchase, or at a
subsequent testing date, meets any of the following three tests:
(a) Average Life Test. The mortgage derivative product has an expected
weighted average life greater than 10.0 years.
(b) Average Life Sensitivity Test. The expected weighted average life
of the mortgage derivative product:
(i) extends by more than 4.0 years, assuming an immediate and
sustained parallel shift in the yield curve of plus 300 basis points;
or
(ii) shortens by more than 6.0 years, assuming an immediate and
sustained parallel shift in the yield curve of minus 300 basis points.
(c) Price Sensitivity Test. The estimated change in the price of the
mortgage derivative product is more than 17%, due to an immediate and
sustained parallel shift in the yield curve of plus or minus 300 basis
points.
Examples of certain "high-risk mortgage securities" include interest-only and
principal-only classes of stripped mortgage-backed securities, inverse floating
CMOs and certain zero coupon Treasury securities.
Options
As set forth in the Prospectus, the Fund may write covered put and call
options with respect to the securities in which it may invest. The principal
reason for writing call or put options is to obtain, through 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 option is exercised. The Fund 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.
The Fund may wish to protect certain portfolio securities against a decline
in market value at a time when no put options on those particular securities are
available for purchase. 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 the Fund of options on securities will be subject to
limitations established by each of the registered securities exchanges on which
such options are traded. Such limitations govern the maximum number of options
in each class which may be written by a single investor or group of investors
acting in concert, regardless of whether the options are written on the same or
different securities exchanges or are held or written on one or more accounts or
through one or more brokers. Thus, the number of options which 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.
Illiquid Securities
As set forth in the Prospectus, the Fund may invest in Rule 144A securities
and commercial paper issued pursuant to Rule 4(2) under the Securities Act of
1933, and treat such securities as liquid when they have been determined to be
liquid by the Board of Directors 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).
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.
Investment Restrictions
In addition to the investment objective and policies set forth in the
Prospectus, the Fund is subject to certain fundamental and nonfundamental
investment restrictions, as set forth below. Fundamental investment restrictions
may not be changed without the vote of a majority of the Fund's outstanding
shares. "Majority," as used in the Prospectus and in this Statement of
Additional Information, means the lesser of (a) 67% of the 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 the Fund's
outstanding shares.
As fundamental investment restrictions, the Fund will not:
1. With respect to 75% of its total assets, invest more than 5% of the
value of its total assets (taken at market value at the time of purchase) in the
outstanding securities of any one issuer, or own more than 10% of the
outstanding voting securities of any one issuer, in each case other than
securities issued or guaranteed by the U. S. Government or any agency or
instrumentality thereof.
2. Invest 25% or more of the value of its total assets in the securities of
issuers conducting their principal business activities in any one industry,
except that, under normal market conditions, the Fund will invest 25% or more of
the value of its total assets in ARMS issued or guaranteed by the U.S.
Government or its agencies or instrumentalities or by private organizations.
Except for the requirement that the Fund invest 25% or more of its total assets
in ARMS, the foregoing restriction does not apply to securities of the U.S.
Government or its agencies or instrumentalities or repurchase agreements
relating thereto.
3. Issue any senior securities, as defined in the 1940 Act, other than as
set forth in restriction #4 below and except to the extent that using options
and futures contracts or purchasing or selling securities on a when-issued or
forward commitment basis may be deemed to constitute issuing a senior security.
4. Borrow money, except for temporary or emergency purposes. The amount of
such borrowing (including borrowing through reverse repurchase agreements) may
not exceed 10% of the value of the Fund's total assets. The Fund will not
purchase portfolio securities while outstanding borrowings exceeds 5% of the
value of the Fund's total assets. The Fund will not borrow for leverage
purposes.
5. Mortgage, pledge or hypothecate its assets, except in an amount not
exceeding 10% of the value of its total assets to secure temporary or emergency
borrowing. For purposes of this policy, collateral arrangements for margin
deposits on futures contracts or with respect to the writing of options are not
deemed to be a pledge of assets.
6. Purchase or sell commodities or commodity futures contracts, except that
the Fund may enter into financial futures contracts and engage in related
options transactions.
7. Purchase or sell real estate or interests therein (other than securities
backed by mortgages and similar instruments).
8. Act as an underwriter of securities of other issuers, except insofar as
the Fund may be technically deemed an underwriter under the federal securities
laws in connection with the disposition of portfolio securities.
9. Make loans of money or property to any person, except through loans of
portfolio securities, the purchase of debt obligations in which the Fund may
invest consistent with the Fund's investment objective and policies or the
acquisition of securities subject to repurchase agreements.
For purposes of determining compliance with fundamental investment
restriction number 2, relating to industry concentration, the various types of
utilities companies, such as gas, electric, telephone, telegraph, satellite and
microwave communications companies, are considered separate industries and ARMS
issued by private organizations are considered to be securities of issuers in
the same industry. In addition, the industry classification of Asset-Backed
Securities will be determined based on the type of collateral underlying the
securities. For example, Asset-Backed Securities backed by automobile
receivables will be considered to be in a different industry than Asset-Backed
Securities backed by credit card receivables.
As nonfundamental investment restrictions that may be changed at any time
without shareholder approval, the Fund will not:
1. Invest in warrants.
2. 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 the Fund shall not exceed 10% of the
value of the total assets of the Fund).
3. Make short sales of securities.
4. Purchase any securities on margin except to obtain such short-term
credits as may be necessary for the clearance of transactions and except that
the Fund may make margin deposits in connection with futures and options
contracts.
5. 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 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.
6. Invest for the purpose of exercising control or management.
7. Purchase or sell oil, gas or other mineral leases, rights or royalty
contracts, except that the Fund may purchase or sell securities of companies
investing in the foregoing.
8. Purchase the securities of other investment companies except as part of
a merger, consolidation or acquisition of assets.
9. Invest in real estate limited partnerships.
10. Invest in the securities of foreign issuers.
11. Invest more than 15% of its net assets in illiquid securities.
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 Funds are given below.
Name, Address and Age Position with the Fund
William H. Ellis* (53) Chairman of the Board
Piper Jaffray Tower of Directors
222 South Ninth Street
Minneapolis, Minnesota 55402
David T. Bennett (54) Director
3400 City Center
33 South Sixth Street
Minneapolis, Minnesota 55402
Jaye F. Dyer (68) Director
4670 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402
Karol D. Emmerich (46) Director
7302 Claredon Drive
Edina, MN 55439
Luella G. Goldberg (58) Director
7019 Tupa Drive
Edina, Minnesota 55439
George Latimer (59) Director
754 Linwood Avenue
St. Paul, Minnesota 55105
Paul A. Dow (44) President
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Michael P. Jansen (35) Senior Vice President
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Robert H. Nelson (31) Senior Vice President
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Amy K. Johnson (29) Vice President
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Thomas S. McGlinch (38) Vice President
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
David E. Rosedahl (48) Secretary
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Charles N. Hayssen (44) Treasurer
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
* Directors of the Fund who are interested persons (as that term is defined
by the 1940 Act) of Piper Capital Management Incorporated and the Fund.
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 also serves on
the board of directors of a number of privately held and nonprofit corporations.
Jaye F. Dyer has been President of Dyer Management Company, a private
management company, since January 1, 1991. Prior thereto, he was President and
Chief Executive Officer of Dyco Petroleum Corporation, a Minneapolis based oil
and natural gas development subsidiary of Arkla, Inc. from 1971, when he founded
the company, until March 1, 1989, and Chairman of the Board until December 31,
1990. Mr. Dyer also 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 and other organizations, since May 1993. Prior thereto, she was
Vice President and Treasurer of Dayton Hudson Corporation from 1980 to May 1993.
Ms. Emmerich also serves on the board of directors of a number of privately held
and nonprofit corporations.
Luella G. Goldberg has served on the board of directors of Northwestern
National Life Insurance Company (since 1976), The ReliaStar Financial Corp.
(since January 1989), TCF Bank Savings fsb (since 1986), TCF Financial
Corporation, the holding company of TCF Bank Savings fsb (since 1988) and Hormel
Foods Corp. (since 1993). Ms. Goldberg also serves as a Trustee of Wellesley
College, and as a director of a number of other organizations, including the
University of Minnesota Foundation and the Minnesota Orchestral Association. Ms.
Goldberg was Chairman of the Board of Trustees of Wellesley College from 1985 to
1993 and acting President from July 1, 1993 to October 1, 1993.
George Latimer has been Director, Special Actions Office, Office of the
Secretary, Department of Housing and Urban Development since 1993. Prior
thereto, he had been Dean of Hamline Law School, Saint Paul, Minnesota since
1990. Mr. Latimer serves on the Board of Directors of Digital Biometrics, Inc.
and Payless Cashways, Inc.
Paul A. Dow has been Chief Investment Officer of the Adviser since December
1989 and Senior Vice President of the Adviser since February 1989.
Michael P. Jansen has been a Senior Vice President of the Adviser since
October 1993, prior to which he had been a Managing Director of Piper Jaffray
since 1987. He has been an Executive Vice President and Director of Piper
Mortgage Acceptance Corporation since 1991 and served as an Executive Vice
President and Director of Premier Acceptance Corporation from 1988 to October
1994.
Robert H. Nelson joined the Adviser in 1988 and has been a Senior Vice
President of the Adviser since November 1993, prior to which he had been a Vice
President of the Adviser since November 1991 and an employee of the Adviser
since 1988.
Amy K. Johnson has been a Vice President of the Adviser since November 1994
and an employee of the Adviser since 1992. Prior to joining the Adviser, she was
an audit senior with KPMG Peat Marwick LLP where she was employed form 1990 to
1992.
Thomas S. McGlinch has been a Vice President of the Adviser since November
1992, prior to which he had been an Assistant Vice President of the Adviser
since January 1992 and a specialty products trader at FBS Investment Services,
Inc. from 1988 to January 1992.
David E. Rosedahl has been Secretary and a Director of the Adviser since
October 1985, a Managing Director of the Distributor since November 1986, a
Managing Director of Piper Jaffray Companies Inc. since November 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
November 1986 and of Piper Jaffray Companies Inc. since November 1987, Chief
Financial Officer of the Distributor since January 1988, Director and Chief
Financial Officer of the Adviser since January 1989 and Chief Operating Officer
of the Adviser since December 1994.
Ms. Goldberg and Ms. Emmerich and Mr. Dyer are members of the Audit
Committee of the Board of Directors. Ms. Goldberg acts as the chairperson of
such committee. The Audit Committee oversees the Company's financial reporting
process, reviews audit results and recommends annually to the Company a firm of
independent certified public accountants.
The Board of Directors also has a Committee of the Independent Directors,
consisting of Mr. Bennett, who serves as chairperson of such committee, Messrs.
Dyer and Latimer, Ms. Emmerich and Ms. Goldberg, and a Derivatives Subcommittee
consisting of Ms. Emmerich, who serves as chairperson of such committee, Ms.
Goldberg and Mr. Dyer. The functions of the Committee of the Independent
Directors are: (a) recommendation to the full Board of approval of any
management, advisory, sub-advisory and/or administration agreements; (b)
recommendation to the full Board of approval of any underwriting and/or
distribution agreements; (c) review of the fidelity bond and premium allocation;
(d) review of errors and omissions and any other joint insurance policies and
premium allocation; (e) review of, and monitoring of compliance with, procedures
adopted pursuant to certain rules promulgated under the 1940 Act; and (f) such
other duties as the independent directors shall, from time to time, conclude are
necessary or appropriate to carry out their duties under the 1940 Act. The
functions of the Derivatives Subcommittee are: (a) to oversee practices,
policies and procedures of the Adviser in connection with the use of
derivatives; (b) to receive periodic reports from management and independent
accountants; and (c) to report periodically to the Committee of the Independent
Directors and the Board of Directors.
The directors of the Company who are officers or employees of the Adviser
or any of its affiliates receive no remuneration from the Company. Each of the
other directors receives from the Company a quarterly retainer of $1,000, plus a
fee of $1,000 for each regular quarterly Board of Directors meeting attended.
(The per-meeting fee will increase to $1,500 in the event total Company 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 the Company and all other publicly-held investment
companies managed by the Adviser on the basis of relative net asset values.
Members of the Committee of the Independent Directors and the Derivatives
Subcommittee currently receive no additional compensation. Directors are also
reimbursed for expenses incurred in connection with attending meetings.
The following table sets forth the total compensation received by each
Director from all open-end and closed-end investment companies managed by the
Adviser or an affiliate of the Adviser during the calendar year ended December
31, 1994. Mr. Ellis, as an officer of the Adviser, did not receive any such
compensation and is not included in the table.
Pension or Estimated Total
Retirement Benefits Annual Benefits Compensation
Accrued as Part of Upon from Fund
Director Fund Expenses Retirement Complex*
David T. Bennett None None $57,500
Jaye F. Dyer None None $68,250
Karol D. Emmerich None None $68,250
Luella G. Goldberg None None $71,250
George Latimer None None $65,250
* Consists of 26 open-end and closed-end investment companies managed by the
Adviser or an affiliate of the Adviser. Each director included in the
table, other than Mr. Bennett, served on the board of each such investment
company for all of 1994. Mr. Bennett served on the board of 24 of such
companies during 1994.
INVESTMENT ADVISORY AND OTHER SERVICES
The investment adviser for the Fund is Piper Capital Management
Incorporated (the "Adviser"). Its affiliate, Piper Jaffray Inc. (the
"Distributor"), acts as the Fund's distributor. Each acts as such pursuant to a
written agreement which is periodically approved by the directors or the
shareholders of the Fund. 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 Fund 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 Fund) and by the Fund's initial sole shareholder.
The Investment Advisory and Management Agreement will terminate
automatically in the event of its assignment. In addition, the agreement is
terminable at any time, without penalty, by the Board of Directors of the
Company or by vote of a majority of the Company's outstanding voting securities
on not more than 60 days' written notice to the Adviser, and by the Adviser on
60 days' written notice to the Company. The agreement may be terminated at any
time by a vote of the holders of a majority of the outstanding voting securities
of the Fund upon 60 days' written notice to the Adviser. Unless sooner
terminated, the agreement shall continue in effect for more than two years after
its execution only so long as such continuance is specifically approved at least
annually by either the Board of Directors or by a vote of a majority of the
outstanding voting securities of the Company, provided that in either event such
continuance is also approved by a vote of a majority of the directors who are
not parties to such agreement, or interested persons of such parties, cast in
person at a meeting called for the purpose of voting on such approval.
Pursuant to the Investment Advisory and Management Agreement, the Fund pays
the Adviser a monthly advisory fee equal on an annual basis to .35% of the first
$500 million of average daily net assets and .30% of average daily net assets in
excess of $500 million.
The Adviser intends, although not required under the Investment Advisory
and Management Agreement, to reimburse the Fund for the amount, if any, by which
the total operating and management expenses of the Fund (including the Adviser's
compensation and amounts paid pursuant to the Fund's Rule 12b-1 plan, but
excluding interest, taxes, brokerage fees and commissions, and extraordinary
expenses) for the fiscal year ending August 31, 1996, exceed .60% of average net
assets. This arrangement is voluntary and may be modified or discontinued at any
time after August 31, 1996, at the Adviser's discretion. In the event of
discontinuance of this arrangement, the Fund 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 Fund required under state law. The laws of California
provide that aggregate annual expenses of a mutual fund shall not normally
exceed 2-1/2% of the first $30 million of the average net assets, 2% of the next
$70 million of the average net assets and 1-1/2% of the remaining average net
assets. Such expenses include the Adviser's compensation, but exclude interest,
taxes, brokerage fees and commissions, extraordinary expenses and amounts paid
under the Fund's Rule 12b-1 plan. The Adviser does not believe that the laws of
any other state in which the Fund's shares may be offered for sale contain
expense reimbursement requirements.
Under the Investment Advisory and Management Agreement, the Adviser
provides the Fund with advice and assistance in the selection and disposition of
the Fund's investments. All investment decisions are subject to review by the
Board of Directors of the Fund. The Adviser is obligated to pay the salaries and
fees of any affiliates of the Adviser serving as officers or directors of the
Fund.
The same security may be suitable for the Fund and/or other funds or
private accounts managed by the Adviser or its affiliates. If and when two or
more funds or accounts simultaneously purchase or sell the same security, the
transactions will be allocated as to price and amount in accordance with
arrangements equitable to each fund or account. The simultaneous purchase or
sale of the same securities by the Fund and other funds or accounts may have a
detrimental effect on the Fund, as this may affect the price paid or received by
the Fund or the size of the position obtainable or able to be sold by the Fund.
Expenses
The expenses of the Fund are deducted from its 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 Fund and its
shares for distribution under federal and state securities laws, expenses of
preparing the prospectus and statement of additional information and of printing
and distributing the prospectus and statement of additional information annually
to existing shareholders, the expenses of reports to shareholders, shareholders'
meetings and proxy solicitations, distribution expenses pursuant to the Rule
12b-1 plan, and other expenses which are not expressly assumed by the Adviser
under the Investment Advisory and Management Agreement.
Distribution Plan
Rule 12b-1(b) under the 1940 Act provides that any payments made by the
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, and also requires that all agreements with any person relating
to the implementation of the plan must be in writing.
Rule 12b-1(b)(1) requires that such plan be approved by a majority of the
Fund's outstanding shares, and Rule 12b-1(b)(2) requires that such plan,
together with any related agreements, be approved by a vote of the Board of
Directors and of the directors who are not interested persons of the Company and
who have no direct or indirect interest in the operation of the plan or in the
agreements related to the plan, cast in person at a meeting called for the
purpose of voting on such plan or agreement. The Fund's Distribution Plan has
been approved by the Board of Directors and by the Fund's initial sole
shareholder in accordance with the Rule. Rule 12b-1(b)(3) requires that the plan
or agreement provide, in substance:
(a) that it shall continue in effect for a period of more than one
year from the date of its execution or adoption only so long as such
continuance is specifically approved at least annually in the manner
described in paragraph (b)(2) of Rule 12b-1;
(b) that any person authorized to direct the disposition of moneys
paid or payable by the Fund pursuant to the plan or any related agreement
shall provide to the Board of Directors, and the directors shall review, at
least quarterly, a written report of the amounts so expended and the
purposes for which such expenditures were made; and
(c) in the case of a plan, that it may be terminated at any time by a
vote of a majority of the members of the Board of Directors who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the plan or in any agreements related to the
plan or by a vote of a majority of the outstanding voting securities of the
Fund.
Rule 12b-1(b)(4) requires that such a plan may not be amended to increase
materially the amount to be spent for distribution without shareholder approval
and that all material amendments of the plan must be approved in the manner
described in paragraph (b)(2) of Rule 12b-1.
Rule 12b-1(c) provides that the Fund may rely upon Rule 12b-1(b) only if
the selection and nomination of the disinterested directors are committed to the
discretion of such disinterested directors. Rule 12b-1(e) provides that the Fund
may implement or continue a plan pursuant to Rule 12b-1(b) only if the directors
who vote to approve such implementation or continuation conclude, in the
exercise of reasonable business judgment and in light of their fiduciary duties
under state law, and under Sections 36(a) and (b) of the 1940 Act, that there is
a reasonable likelihood that the plan will benefit the Fund and its
shareholders. The Board of Directors has concluded that there is a reasonable
likelihood that the Distribution Plan will benefit the Fund and its
shareholders.
Pursuant to the provisions of the Distribution Plan, the Fund pays the
Distributor a monthly service fee equal, on an annual basis, to .15% of the
Fund's average daily net assets in connection with the servicing of the Fund's
shareholder accounts. This fee is intended to compensate the Distributor for
ongoing servicing and/or maintenance of shareholder accounts and the costs
incurred in connection therewith ("Shareholder Servicing Costs"). Shareholder
Servicing Costs include all expenses of the Distributor incurred in connection
with providing shareholder liaison services, including, but not limited to, an
allocation of the Distributor's overhead and payments made to persons, including
employees of the Distributor, who respond to inquiries of shareholders regarding
their ownership of shares or their accounts with the Fund and who provide
information on shareholders' investments.
Underwriting and Distribution Agreement
Pursuant to the Underwriting and Distribution Agreement, the Distributor
has agreed to act as the principal underwriter for the Fund in the sale and
distribution to the public of shares of the Fund, either through dealers or
otherwise. The Distributor has agreed to offer such shares for sale at all times
when such shares are available for sale and may lawfully be offered for sale and
sold. As compensation for its services, in addition to receiving its service
fees pursuant to the Distribution Plan discussed above, the Distributor receives
the sales load on sales of the Fund shares set forth in the Prospectus.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
The Adviser is responsible for decisions to buy and sell securities, the
selection of broker-dealers to effect the transactions and the negotiation of
brokerage commissions, if any, with respect to the Fund. 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 information and statistical and
other 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 Fund. 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 Fund 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 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 Fund's portfolio transactions in exchange
for research services provided the Adviser. 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 Fund's 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 Fund to pay an amount of commission for effecting a securities transaction
in excess of the amount of commission another broker-dealer would have charged
only if the Adviser determines in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either that particular
transaction or the Adviser's overall responsibilities with respect to the
accounts as to which it exercises investment discretion. Generally, the Fund
pays higher than the lowest commission rates available. The Fund will not
purchase at a higher price or sell at a lower price in connection with
transactions effected with a director, acting as principal, who furnishes
research services to the Adviser than would be the case if no weight were given
by the Adviser to the dealer's furnishing of such services.
Transactions in securities, options on securities, futures contracts and
options on futures contracts, may be effected through the Distributor. In
determining the commissions to be paid to the Distributor in connection with
portfolio transactions on national securities exchanges or commodity exchanges,
it is the policy of the Fund 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 in
connection with comparable transactions 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 Fund does not deem it practicable and in its
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.
CAPITAL STOCK AND OWNERSHIP OF SHARES
The Board of Directors is empowered under the Company's Articles of
Incorporation to issue additional series of the Company's common stock without
shareholder approval. On an issue affecting only a particular series, the shares
of the affected series vote separately. An example of such an issue would be a
fundamental investment restriction pertaining to only one series. In voting on
the Investment Advisory and Management Agreement (the "Agreement"), approval of
the Agreement by the shareholders of a particular series would make the
Agreement effective as to that series whether or not it had been approved by the
shareholders of any other series.
If the Company issues shares in additional series, the assets received by
the Company for the issue or sale of shares of each series, and all income,
earnings, profits and proceeds thereof, subject only to the rights of creditors,
will be allocated to such series, and constitute the underlying assets of such
series. The underlying assets of each series are required to be segregated on
the books of account, and are to be charged with the expenses relating to such
series and with a share of the general expenses of the Company. Any general
expenses of the Company not readily identifiable as belonging to a particular
series shall be allocated among the series based on the relative net assets of
the series at the time such expenses were accrued.
The Board of Directors may, without shareholder approval, create and issue
one or more additional classes of shares within the Fund, as well as within any
series of the Company created in the future. All classes of shares in a series
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 Fund to the needs of particular investors and to
allocate expenses related to such marketing, administration and distribution
methods to the particular classes of shareholders of the Fund incurring such
expenses.
As of , 1995, no shareholder was known by the Fund to own beneficially 5%
or more of the outstanding shares of the Fund.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the public offering price of Fund shares is
summarized in the Prospectus in the text following the headings "How to Purchase
Shares -- Public Offering Price" and "Valuation of Shares." The net asset value
of the 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 on which changes in the value of its portfolio securities will not
materially affect the current net asset value of the Fund's shares and 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.
PERFORMANCE COMPARISONS
Advertisements and other sales literature for the Fund may refer to
"average annual total return," "cumulative total return" and "yield." The
Adviser may waive or pay 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. No performance data is provided for the Fund since
no shares were outstanding as of the date of this Statement of Additional
Information.
Average annual total return figures are computed by finding the average
annual compounded rates of return over the periods indicated in the
advertisement that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
P(1+T)(nth power) = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the
period of a hypothetical $1,000 payment made
at the beginning of such period.
This calculation deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and capital gains distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus, and includes all recurring fees, such as investment advisory
and management fees, charged to all shareholder accounts.
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)/P] 100
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.
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, according to the following formula:
YIELD = 2[((a-b)/cd) + 1)(6th power) - 1]
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.
In addition to advertising total return and yield, comparative performance
information may be used from time to time in advertising the Fund's shares,
including data from Lipper Analytical Services, Inc. ("Lipper"), Morningstar,
Inc. and other entities or organizations which track the performance of
investment companies. The Fund's performance may be compared to that of the ARM
Fund Average, as reported by Lipper, and to the performance of the Lehman
Brothers ARM Index, an unmanaged index. Unmanaged indices generally do not
reflect deductions for administrative and management costs and expenses.
PURCHASE OF SHARES
An investor may qualify for a reduced sales charge immediately by signing a
nonbinding Letter of Intent stating the investor's intention to invest within a
13-month period, beginning not earlier than 90 days prior to the date of
execution of the Letter, a specified amount which, if made at one time, would
qualify for a reduced sales charge. Reinvested dividends will be treated as
purchases of additional shares. Any redemptions made during the term of the
Letter of Intent will be subtracted from the amount of purchases in determining
whether the Letter of Intent has been completed. During the term of a Letter of
Intent, IFTC will hold shares representing 5% of the amount that the investor
intends to invest during the 13-month period in escrow for payment of a higher
sales charge if the full amount indicated in the Letter of Intent is not
purchased. Dividends on the escrowed shares will be paid to the shareholder. The
escrowed shares will be released when the full amount indicated has been
purchased. If the full indicated amount is not purchased within the 13-month
period, the investor will be required to pay, either in cash or by liquidating
escrowed shares, an amount equal to the difference in the dollar amount of sales
charge actually paid and the amount of sales charge the investor would have paid
on his or her aggregate purchases if the total of such purchases had been made
at a single time.
REDEMPTION OF SHARES
General
Redemption of shares, or payment, may be suspended at times (a) when the
New York Stock Exchange is closed for other than customary weekend or holiday
closings, (b) when trading on said Exchange is restricted, (c) when an emergency
exists, as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable, or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or (d) during any other period
when the Securities and Exchange Commission, by order, so permits, provided that
applicable rules and regulations of the Securities and Exchange Commission shall
govern as to whether the conditions prescribed in (b) or (c) exist.
Shareholders who purchased Fund shares through a broker-dealer other than
the Distributor may redeem such shares either by oral request to such
broker-dealer or by written request to IFTC at the address set forth in the
Prospectus. To be considered in proper form, written requests for redemption
should indicate the dollar amount or number of shares to be redeemed, refer to
the shareholder's Fund account number, and give either a social security or tax
identification number. The request should be signed in exactly the same way the
account is registered. If there is more than one owner of the shares, all owners
must sign. If shares to be redeemed have a value of $10,000 or more or
redemption proceeds are to be paid to someone other than the shareholder at the
shareholder's address of record, the signature(s) must be guaranteed by an
"eligible guarantor institution," which includes a commercial bank that is a
member of the Federal Deposit Insurance Corporation, a trust company, a member
firm of a domestic stock exchange, a savings association or a credit union that
is authorized by its charter to provide a signature guarantee. IFTC may reject
redemption instructions if the guarantor is neither a member of nor a
participant in a signature guarantee program. Signature guarantees by notaries
public are not acceptable. The purpose of a signature guarantee is to protect
shareholders against the possibility of fraud. Further documentation will be
requested from corporations, administrators, executors, personal
representatives, trustees and custodians. Redemption requests given by facsimile
will not be accepted. Unless other instructions are given in proper form, a
check for the proceeds of the redemption will be sent to the shareholder's
address of record.
Reinstatement Privilege
A shareholder who has redeemed shares of the Fund may reinvest all or part
of the redemption proceeds in shares of any Fund managed by the Adviser within
30 days without payment of an additional sales charge, provided that a
shareholder may reinvest in a fund through a broker-dealer other than the
Distributor only if there is a valid sales agreement for such fund between such
broker-dealer and the Distributor. The Distributor will refund to the
shareholder a pro rata amount of any contingent deferred sales charge paid by
such shareholder in connection with a redemption of Fund shares if and to the
extent that the redemption proceeds are reinvested within 30 days of such
redemption in any mutual fund managed by the Adviser. Such refund will be based
upon the ratio of the net asset value of shares purchased in the reinvestment to
the net asset value of shares redeemed. Reinvestments will be allowed at net
asset value without the payment of a front-end sales charge, irrespective of the
amounts of the reinvestment, but shall be subject to the same pro rata
contingent deferred sales charge that was applicable to the earlier investment;
however, the period during which the contingent deferred sales charge shall
apply on the newly issued shares shall be the period applicable to the redeemed
shares extended by the number of days between the redemption and the
reinvestment dates (inclusive).
Systematic Withdrawal Plan
To establish a Systematic Withdrawal Plan for the 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 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 an 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 the Fund concurrent
with purchases of additional shares of the Fund would be disadvantageous because
of the sales commission involved in the additional purchases. Additional
investments of less than $5,000 or three times the annual withdrawals under the
Systematic Withdrawal Plan will ordinarily not be allowed during the time the
plan is in effect. 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
The Fund 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 the Fund must, among other
things, receive at least 90% of its gross income each year from dividends,
interest, gains from the sale or other disposition of securities and certain
other types of income, including income from options and futures contracts.
The Code 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 the Fund
may purchase futures contracts and options. To the extent the Fund engages in
short-term trading and enters into futures and options transactions, the
likelihood of violating this 30% requirement is increased.
The Code requires a regulated investment company to diversify its holdings.
The Internal Revenue Service has not made its position clear regarding the
treatment of futures contracts and options for purposes of the diversification
test, and the extent to which the Fund can buy or sell futures contracts and
options may be limited by this requirement.
If for any taxable year the Fund 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.
The Fund will be subject to a nondeductible excise tax equal to 4% of the
excess, if any, of the amount required to be distributed pursuant to the Code
for each calendar year over the amount actually distributed. No amount of such
excess, however, will be subject to the excise tax to the extent it is subject
to the corporate-level income tax. In order to avoid the imposition of this
excise tax, the 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
the Fund'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
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
are not subject to withholding of federal income tax. However, 31% of a
shareholder's distributions and redemption proceeds must be withheld if a
shareholder fails to supply the Fund or its agent with such shareholder's
taxpayer identification number or if a shareholder, who is otherwise exempt from
withholding, fails to properly document such shareholder's status as an exempt
recipient.
The Fund may make investments that produce income that is not matched by a
corresponding distribution to the Fund, such as investments in obligations
having original issue discount, such as zero coupon securities, or market
discount (if the Fund elects to accrue the market discount on a current basis
with respect to such instruments). Such income would be treated as income earned
by the Fund and therefore would be subject to the distribution requirements of
the Code. Because such income may not be matched by a corresponding cash
distribution to the Fund, the Fund may be required to borrow money or dispose of
other securities to be able to make distributions to shareholders.
Any loss on the sale or exchange of shares of the Fund generally will be
disallowed to the extent that a shareholder acquires or contracts to acquire
shares of the 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 shares of another mutual fund managed by the Adviser at a
reduced sales charge, the shareholder's tax basis for determining gain or loss
on the shares which are disposed of is reduced by the lesser of the amount of
the sales charge that was paid when the shares disposed of were acquired or the
amount by which the sales charge for the new shares is reduced. If a
shareholder's tax basis is so reduced, the amount of the reduction is treated as
part of the tax basis of the new shares.
Additionally, distributions may be subject to state and local income taxes,
and the treatment thereof may differ from the federal income tax consequences
discussed above.
GENERAL INFORMATION
Minnesota has enacted legislation which authorizes corporations to
eliminate or limit the personal liability of a director to the corporation or
its shareholders for monetary damages for breach of the fiduciary duty of "care"
(the duty to act with the care an ordinarily prudent person in a like position
would exercise under similar circumstances). Minnesota law does not, however,
permit a corporation to eliminate or limit the liability of a director (a) for
any breach of the director's duty of "loyalty" to the corporation or its
shareholders (the duty to act in good faith and in a manner reasonably believed
to be in the best interest of the corporation), (b) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law,
(c) for authorizing a dividend, stock repurchase or redemption or other
distribution in violation of Minnesota law or for violation of certain
provisions of Minnesota securities laws, or (d) for any transaction from which
the director derived an improper personal benefit. Minnesota law does not permit
elimination or limitation of a director's liability under the Securities Act of
1933 or the Securities Exchange Act of 1934, and the 1940 Act prohibits
elimination or limitation of a director's liability for acts involving willful
malfeasance, bad faith, gross negligence or reckless disregard of the duties of
a director. The Articles of Incorporation of the Company limit the liability of
directors to the fullest extent permitted by Minnesota law and the 1940 Act.
PENDING LITIGATION
Complaints have been filed in federal court relating to one open-end and
six 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 13 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 are Richard J. Rodney, Jr., Doug Shonka, Carl
Patrick Monahan, Jerry Hoehnen, Rosemary Boris, Thomas W. Newcome, Delvin D.
Junker, Printing Mailing Trade District (affiliated with the Newspaper Drivers'
Division of the International Brotherhood of the Teamsters), The History
Theatre, Inc., Paul Gold, and Bernard Friedman. These named plaintiffs 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
reached an agreement-in-principle on a proposed settlement and are negotiating
the terms of a definitive settlement agreement. If approved by the Court and a
sufficiently large percentage of the class, a definitive settlement agreement
consistent with the terms of the agreement-in-principle 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 Inc. and the Adviser and
would not be an obligation of the Institutional Government Income Portfolio or
Piper Funds Inc.
Four 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 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 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. 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 have been
stayed pending the decision by class members to either participate in the
settlement or opt out of the In Re: Piper Funds Inc. action.
A complaint was filed by Herman D. Gordon on October 20, 1994, in the
United States District Court, District of Minnesota, against American Adjustable
Rate Term Trust Inc.--1998, American Adjustable Rate Term Trust Inc.--1999, the
Adviser, the Distributor, Piper Jaffray Companies Inc., Benjamin Rinkey, Jeffrey
Griffin, Charles N. Hayssen and Edward J. Kohler. The complaint, which purports
to be a class action, alleges that the defendants violated the federal
securities laws by making materially misleading statements in prospectuses and
other disclosure documents.
A 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. The complaint, which
purports to be a class action, alleges that the defendants violated certain
federal and state securities laws by making materially misleading statements in
prospectuses and other disclosure documents and by breaching their fiduciary
duties.
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
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.
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 filed as a putative class action in the same court on November
4, 1994 was consolidated with the first complaint on December 13, 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 Intermediated Mortgage Fund. A
complaint 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.
APPENDIX A
CORPORATE BOND AND
COMMERCIAL PAPER RATINGS
Commercial Paper Ratings
Standard & Poor's Corporation. Commercial paper ratings are graded into
four categories, ranging from "A" for the highest quality obligations to "D" for
the lowest. Issues assigned the A rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
designation 1, 2 and 3 to indicate the relative degree of safety. The "A-1"
designation indicates that the degree of safety regarding timely payment is very
strong. Those issues determined to possess overwhelming safety characteristics
will be denoted with a plus sign designation.
Moody's Investors Service, Inc. Moody's commercial paper ratings are
opinions of the ability of the issuers to repay punctually promissory
obligations not having an original maturity in excess of nine months. Moody's
makes no representation that such obligations are exempt from registration under
the Securities Act of 1933, nor does it represent that any specific note is a
valid obligation of a rated issuer or issued in conformity with any applicable
law. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Superior capacity for repayment of short-term promissory
obligations
Prime-2 Strong capacity for repayment of short-term promissory
obligations
Prime-3 Acceptable capacity for repayment of short-term promissory
obligations
Corporate Bond Ratings
Standard & Poor's Corporation. Standard & Poor's ratings for corporate
bonds have the following definitions:
Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in a small degree.
Debt rated "A" has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Moody's Investors Service, Inc. Moody's ratings for corporate bonds include
the following:
Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than in Aaa securities.
Bonds which are rated "A" possess many favorable attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Bonds which are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
APPENDIX B
INTEREST RATE FUTURES CONTRACTS AND RELATED OPTIONS
Interest Rate Futures Contracts
The Fund may purchase and sell interest rate futures contracts and options
thereon. An interest rate futures contract creates an obligation on the part of
the seller (the "short") to deliver, and an offsetting obligation on the part of
the purchaser (the "long") to accept delivery of, the type of financial
instrument called for in the contract in a specified delivery month for a stated
price. A majority of transactions in interest rate futures contracts, however,
do not result in the actual delivery of the underlying instrument, but are
settled through liquidation, i.e., by entering into an offsetting transaction.
The interest rate futures contracts to be traded by the 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 2% 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 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
The Fund 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 the
option. A purchaser of a put option has the right to sell, and the writer has
the obligation to buy, such contract at the exercise price during the option
period. Upon exercise of an option, the delivery of the futures position by the
writer of the option to the holder of the option will be accompanied by delivery
of the accumulated balance in the writer's future margin account, which
represents the amount by which the market price of the futures contract exceeds,
in the case of a call, or is less than, in the case of a put, the exercise price
of the option on the futures contract. If an option is exercised on the last
trading day prior to the expiration date of the option, the settlement will be
made entirely in cash equal to the difference between the exercise price of the
option and the closing price of the interest rate futures contract on the
expiration date. A Fund will pay a premium for purchasing options on interest
rate futures contracts. Because the value of the option is fixed at the point of
sale, there are no daily cash payments to reflect changes in the value of the
underlying contract; however, the value of the option does change daily and that
change would be reflected in the net asset value of the Fund. In connection with
the writing of options on interest rate futures contracts, a Fund will make
initial margin deposits and make or receive maintenance margin payments that
reflect changes in the market value of such options. Premiums received from the
writing of an option are included in initial margin deposits.
Purchase of Put Options on Futures Contracts. The Fund will purchase put
options on interest rate futures contracts if the Adviser anticipates a rise in
interest rates. Because the value of an interest rate futures contract moves
inversely in relation to changes in interest rates, a put option on such a
contract becomes more valuable as interest rates rise. By purchasing put options
on interest rate futures contracts at a time when the Adviser expects interest
rates to rise, the Fund will seek to realize a profit to offset the loss in
value of its portfolio securities.
Purchase of Call Options on Futures Contracts. The Fund will purchase call
options on interest rate futures contracts if the Adviser anticipates a decline
in interest rates. The purchase of a call option on an interest rate futures
contract represents a means of obtaining temporary exposure to market
appreciation at limited risk. Because the value of an interest rate futures
contract moves inversely in relation to changes to interest rates, a call option
on such a contract becomes more valuable as interest rates decline. The Fund
will 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.
Writing Call Options on Futures Contracts. The Fund will write call options
on interest rate futures contracts if the Adviser anticipates a rise in interest
rates. As interest rates rise, a call option on such a contract becomes less
valuable. If the futures contract price at expiration of the option is below the
exercise price, the option will not be exercised and the Fund will retain the
full amount of the option premium. Such amount provides a partial hedge against
any decline that may have occurred in the Fund's portfolio securities.
Writing Put Options on Futures Contracts. The Fund will write put options
on interest rate futures contracts if the Adviser anticipates a decline in
interest rates. As interest rates decline, a put option on an interest rate
futures contract becomes less valuable. If the futures contract price at
expiration of the option has risen due to declining interest rates and is above
the exercise price, the option will not be exercised and the Fund will retain
the full amount of the option premium. Such amount can then be used by the Fund
to buy long-term securities when the market has stabilized.
Risks of Transactions in Futures Contracts and Options on Futures Contracts
Hedging Risks in Futures Contracts Transactions. There are several risks in
using futures contracts as hedging devices. One risk arises because the prices
of futures contracts may not correlate perfectly with movements in the
underlying fixed-income security due to certain market distortions. First, all
participants in the futures market are subject to initial margin and variation
margin requirements. Rather than making additional variation margin payments,
investors may close the contracts through offsetting transactions which could
distort the normal relationship between the security and the futures market.
Second, the margin requirements in the futures market are lower than margin
requirements in the securities market, and as a result the futures market may
attract more speculators than does the securities market. Increased
participation by speculators in the futures market may also cause temporary
price distortions. Because of possible price distortion in the futures market
and because of imperfect correlation between movements in securities and
movements in the prices of futures contracts, even a correct forecast of general
market trends may not result in a successful hedging transaction over a very
short period. Another risk arises because of imperfect correlation between
movements in the value of the futures contracts and movements in the value of
securities subject to the hedge.
Successful use of futures contracts by the Fund 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 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. The Fund may elect to close some or all of
its contracts prior to expiration. The purpose of making such a move would be to
reduce or eliminate the hedge position held by the Fund. 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 intend 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 a Fund because the maximum amount at risk is the
premium paid for the options (plus transactions costs). The writing of a call
option on a futures contract generates a premium which may partially offset a
decline in the value of the Fund's portfolio assets. By writing a call option,
the Fund becomes obligated to sell a futures contract, which may have a value
higher than the exercise 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 a 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 option positions
only if the Adviser believes that a liquid secondary market exists for such
options, there is no assurance that the Fund will be able to effect closing
transactions at any particular time or at an acceptable price. The Fund's
transactions involving options on futures contracts will be conducted only on
recognized exchanges. The Fund's purchase or sale of put or call options on
futures contracts will be based upon predictions as to anticipated interest
rates by the Adviser, which could prove to be inaccurate. Even if the
expectations of the Adviser are correct, there may be an imperfect correlation
between the change in the value of the options and of the Fund's portfolio
securities.
Regulatory Matters
To the extent required to comply with applicable Securities and Exchange
Commission releases and staff positions, when entering into futures contracts,
the Fund will maintain, in a segregated account, cash or liquid high-grade debt
securities equal to the value of such contracts.
The Commodity Futures Trading Commission (the "CFTC"), a federal agency,
regulates trading activity on the exchanges pursuant to the Commodity Exchange
Act, as amended. The CFTC requires the registration of "commodity pool
operators," defined as any person engaged in a business which is of the nature
of an investment company, syndicate or a similar form of enterprise, and who, in
connection therewith, solicits, accepts or receives from others, funds,
securities or property for the purpose of trading in any commodity for future
delivery on or subject to the rules of any contract market. The CFTC has adopted
Rule 4.5, which provides an exclusion from the definition of commodity pool
operator for any registered investment company which meets the requirements of
the Rule. Rule 4.5 requires, among other things, that an investment company
wishing to avoid commodity pool operator status use futures and options
positions only (a) for "bona fide hedging purposes" (as defined in CFTC
regulations) or (b) for other purposes so long as aggregate initial margins and
premiums required in connection with non-hedging positions do not exceed 5% of
the liquidation value of the investment company's portfolio. Any investment
company wishing to claim the exclusion provided in Rule 4.5 must file a notice
of eligibility with both the CFTC and the National Futures Association. Before
engaging in transactions involving interest rate futures contracts, the Funds
will file such notices and meet the requirements of Rule 4.5, or such other
requirements as the CFTC or its staff may from time to time issue, in order to
render registration as a commodity pool operator unnecessary.
PART C
PIPER FUNDS INC. -- II
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial statements--None
(b) Exhibits:
1.1 Articles of Incorporation (1)
1.2 Amendment to Articles of Incorporation (1)
2 Bylaws (1)
5 Investment Advisory and Management Agreement
6.1 Underwriting and Distribution Agreement
6.2 Form of Selling Agreement
8 Custody and Investment Accounting Agreement
9 Agency Agreement
10 Opinion and Consent of Dorsey & Whitney P.L.L.P.
15 Plan of Distribution (1)
16 Computation of Performance Quotations (2)
25 Power of Attorney
(1) Incorporated by reference to the Registrant's Registration Statement on
Form N-14, File No. 33-58849.
(2) To be filed by amendment.
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 June 15, 1995, there were no record holders of the common shares of
the Fund.
Item 27. Indemnification
The Articles of Incorporation and Bylaws of the Registrant provide that the
Registrant shall indemnify such persons for such expenses and liabilities, in
such manner and under such circumstances, to the full extent permitted by
Section 302A.521, Minnesota Statutes, as now enacted or hereafter amended,
provided that no such indemnification may be made if it would be in violation of
Section 17(h) of the Investment Company Act of 1940, as now enacted or hereafter
amended. Section 302A.521 of the Minnesota Statutes, as now enacted, provides
that a corporation shall indemnify a person made or threatened to be made a
party to a proceeding of the person against judgments, penalties, fines,
settlements, and reasonable expenses, including attorneys' fees and
disbursements, incurred by the person in connection with the proceeding if, with
respect to the acts or omissions of the person complained of in the proceeding,
the person has not been indemnified by another organization for the same
judgments, penalties, fines, settlements, and reasonable expenses incurred by
the person in connection with the proceeding with respect to the same acts or
omissions; acted in good faith, received no improper personal benefit and the
Minnesota Statutes dealing with directors' conflicts of interest, if applicable,
have been satisfied; in the case of a criminal proceeding, had no reasonable
cause to believe that the conduct was unlawful; and reasonably believed that the
conduct was in the best interests of the corporation or, in certain
circumstances, reasonably believed that the conduct was not opposed to the best
interests of the corporation.
Insofar as the indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The Registrant will comply with the indemnification requirements of
Investment Company Act Releases 7221 (June 9, 1972) and 11330 (September 2,
1980).
Item 28. Business and Other Connections of Investment Adviser
Information on the business of the Adviser is described in the section of
the Prospectus, incorporated by reference in this Registration Statement,
entitled "Management -- Investment Adviser."
The officers and directors of the Adviser and their titles are as follow:
Name Title
William H. Ellis President, Director and Chairman of
the Board
Charles N. Hayssen Director, Senior Vice President, Chief
Financial Officer and Chief
Operating Officer
David E. Rosedahl Director and Secretary
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
Worth Bruntjen Senior Vice President
Richard W. Filippone Senior Vice President
John J. Gibas Senior Vice President
Marijo A. Goldstein Senior Vice President
Jeffrey B. Griffin 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
Richard Daly Vice President
Michael C. Derck Vice President
Joan L. Harrod Vice President
Newby Herrod Vice President
Amy K. Johnson Vice President
Kevin A. Jansen Vice President
Russell Kappenman Vice President
Kimberly F. Kaul 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
Edward P. Nicoski Vice President
Daniel Phillips Vice President
John K. Schonberg Vice President
Eric L. Siedband Vice President
J. Bradley Stone Vice President
Bonnie L. Theis Vice President
Eric H. Wesman Vice President
Marcy K. Winson Vice President
Principal occupations of Messrs. Ellis, Dow, Hayssen, Michael Jansen,
McGlinch, Nelson and Rosedahl and Ms. Johnson 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. Steenson has been a
Director of the Adviser since December 1994 and a Managing Director of the
Underwriter since 1982. 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. 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. Mr. Bruntjen has been a Senior Vice
President of the Adviser since January 1988. 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 since May 1987. 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 since May 1987. 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 since 1991 and a fixed income analyst of the Adviser
since 1988. Mr. Griffin has been a Senior Vice President of the Adviser since
November 1991, prior to which he had been a Vice President of the Adviser since
October 1989. 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 since
June 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 since 1989. 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 since
1988. Mr. Norstrem has been a Senior Vice President of the Adviser since 1993,
prior to which he was Treasurer of the City of Saint Paul, Minnesota for
twenty-eight years. Ms. Olsen has been a Senior Vice President of the Adviser
since November 1991, prior to which she had been a Vice President of the Adviser
since May 1987. Mr. 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. Ms. 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 and an Assistant Vice President
of Piper Jaffray since November 1989. 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. Mr.
Sukovich has been a Senior Vice President of the Adviser since January 1989. 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 since July
1987. 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 since 1992, the
Director of Revitalization Resources of the Minneapolis Community Development
Agency from September 1990 to January 1992 and a Vice President of Miller &
Schroeder Financial Inc. from 1986 to 1990. 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 since November 1989. 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.
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. 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 since 1987. 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 since 1992 and an
analyst at Piper Jaffray from 1991 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 November 1990, prior to which he had been the
National Sales Manager and Regional Vice President of Shurgard Capital Group,
Seattle, Washington, for eight years. Mr. Moore has been a Vice President of the
Adviser since 1992, prior to which he was a Portfolio Manager at Alpine Capital
Management from 1990 to 1992 and a broker at Hanifen Capital Management from
1990 to 1992. Mr. Nicoski has been a Senior Vice President of the Adviser since
October 1985 and a Managing Director of the Distributor since November 1986. 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. Mr.
Wesman has been a Vice President of the Adviser since January 1992. During 1991,
Mr. Wesman was self-employed, prior to which he had been the Regional Marketing
Director of Keyport Life Insurance Company (formerly Keystone Provident Life
Insurance Company) since January 1987. 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. Prior to March 1993, Ms. Winson was
an educator from 1990 to 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 Institutional Funds
Inc., the shares of which are currently offered in three 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 22 closed-end investment companies managed by the Adviser.
(b) The name, positions and offices with Piper Jaffray Inc., and positions
and offices with the Registrant of each director and officer of Piper Jaffray
Inc. are as follow:
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
<S> <C> <C>
Addison L. Piper Chairman of the Board of None
Directors and Chief Executive
Officer
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
Bruce D. Aamoth Managing Director None
Craig W. Agneberg Managing Director None
Larry E. Bare Managing Director None
James J. Bellus Managing Director None
AnnDrea M. Benson Managing Director None
Lloyd K. Benson Managing Director None
James L. Bergtold Managing Director None
Peter A. Bessette Managing Director None
Gary J. Blauer Managing Director None
Ronald O. Braun Managing Director None
Barney Brenner 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
Thomas S. Cousins Managing Director None
George S. Dahlman Managing Director None
Leslie E. Danford Jr. Managing Director None
Michael D. Deede Managing Director None
Thomas M. Delmoor Managing Director None
Jack C. Dillingham Managing Director None
Mark T. Donahoe Managing Director None
Andrew S. Duff Managing Director None
Michael D. Duffy Managing Director None
Neil Dunn Managing Director None
Jeffrey M. Eggemeyer Managing Director None
Fred R. Eoff, Jr. Managing Director None
Richard D. Estenson Managing Director None
Francis E. Fairman IV Managing Director None
Gordon R. Ferguson Managing Director None
Paul Ferry Managing Director None
Deanne W. Fewel Managing Director None
Mark E. Fisler Managing Director None
Michael W. Follett Managing Director None
Dean A. Frederickson Managing Director None
Marvin P. Geisness Managing Director None
Peter M. Gill Managing Director None
E. Peter Gillette Jr. Managing Director None
Robert S. Gilman Managing Director None
Paul D. Grangaard Managing Director None
R. Hunt Greene Managing Director None
G. Jeffrey Hamilton Managing Director None
James S. Harrington Managing Director None
Lynne M. 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
Bruce C. Huber Managing Director None
Elizabeth A. Huey Managing Director None
Richard M. Hufnagel Managing Director None
John R. Jacobs Managing Director None
Nicholas P. Karos Managing Director None
Alan W. Kennebeck Managing Director None
John S. Kennefick Managing Director None
Charles B. Lannin Managing Director None
Eric W. Larson Managing Director None
Dan L. Lastavich Managing Director None
Douglas G. Lingafelter Managing Director None
Brian J. Luedtke Managing Director None
Anthony A. Lusvardi Managing Director None
Robert J. Magnuson Managing Director None
James M. Manire Jr. Managing Director None
Robert E. Mapes Managing Director None
Andrew E. Marks 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
John V. Miller Managing Director None
Dennis V. Mitchell Managing Director None
Susan D. Musselman Managing Director None
Barry J. Nordstrand 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
James M. Palmer Managing Director None
John F. Pellicci Managing Director None
Gary M. Petrucci Managing Director None
Robin C. Pfister Managing Director None
Rex W. Ramsay Managing Director None
Savino J. Ranallo 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
Bryan C. Roche Managing Director None
Deborah K. Roesler Managing Director None
David E. Rosedahl Managing Director, General Secretary
Counsel and Secretary
James J. Rude Managing Director None
Thomas P. Schnettler Managing Director None
Steven R. Schroll Managing Director None
Joyce Nelson Schuette Managing Director None
Michael A. Schultz Managing Director None
Lawrence M. Schwartz Jr. Managing Director None
Sandra K. Shrewsbury Managing Director None
John C. Siegler Managing Director None
Jay Silver Managing Director None
David P. Sirianni Managing Director None
Arch C. Smith Managing Director None
Robert L. Sonnek Managing Director None
Thomas E. Stanberry Managing Director None
DeLos V. Steenson Managing Director None
John P. Sten 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
Darrell L. Westby Managing Director None
David R. Westcott Managing Director None
Douglas R. Whitaker Managing Director None
Douglas H. Wilford Managing Director None
Eric P. Wilson Managing Director None
Stephen W. Woodard Managing Director None
Mark Wren Managing Director None
Laura P. Wright Managing Director None
Saul Yaari Managing Director None
Gary L. Zanin Managing Director None
</TABLE>
The principal business address of each of the individuals listed above is Piper
Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402-3804.
Item 30. Location of Accounts and Records
The physical possession of the accounts, books, and other documents
required to be maintained by Section 31(a) of the Investment Company Act of 1940
and Rules 3la-1 to 3la-3 promulgated thereunder is maintained by the Registrant
at Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota
55402-3804, except that the physical possession of certain accounts, books and
other documents related to the custody of the 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) The Registrant, on behalf of Adjustable Rate Mortgage Securities Fund,
a new series of the Registrant, undertakes to file a Post-Effective Amendment,
using financial statements which need not be certified, within four to six
months after the commencement of operations of such series.
(c) Each recipient of a prospectus of any series of the Registrant may
request the latest Annual Report and such Annual Report will be furnished by the
Registrant without charge.
(d) Registrant undertakes that it will not offer any Adjustable Rate
Mortgage Securities Fund shares registered pursuant to this Registration
Statement prior to the effectiveness of the merger of one or more of American
Adjustable Rate Term Trust Inc.--1996, American Adjustable Rate Term Trust
Inc.--1997, American Adjustable Rate Term Trust Inc.--1998 and American
Adjustable Rate Term Trust Inc.--1999 into Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-1A to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Minneapolis and State of Minnesota on the 21st
day of June 1995.
PIPER FUNDS INC.--II
(Registrant)
By /s/ Paul A. Dow
Paul A. Dow
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Paul A. Dow President (principal June 21, 1995
Paul A. Dow executive officer)
/s/ Charles N. Hayssen Treasurer (principal June 21, 1995
Charles N. Hayssen financial and
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
</TABLE>
*By /s/ Paul A. Dow
Paul A. Dow
Attorney-in-Fact
Dated: June 21, 1995
Exhibit 5
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This Agreement, made this 21st day of June, 1995, by and between
Piper Funds Inc. -- II, a Minnesota corporation (the "Company") and Piper
Capital Management Incorporated, a Delaware corporation (the "Adviser").
1. Investment Advisory and Management Services. The Company hereby
engages the Adviser and the Adviser hereby agrees to act as investment adviser
for, and to manage the affairs, business and the investment of the assets of the
Adjustable Rate Mortgage Securities Fund series of the Company and any other
series of the Company established in the future (the "Funds").
The investment of the assets of each Fund 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 the Company and shall
conform to the policies and purposes of the respective Fund as set forth in such
documents and (a) as interpreted from time to time by the Board of Directors of
the Company and (b) as may be amended from time to time by the Board of
Directors and/or the shareholders of the Company as permitted by the Investment
Company Act of 1940, as amended (the "1940 Act"). Within the framework of the
investment policies of the Funds, the Adviser shall have the sole and exclusive
responsibility for the management of the assets of the Funds and the making and
execution of all investment decisions for the Funds. 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
Funds.
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 Funds. The Adviser shall arrange, if requested by the
Company, 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 Company as
directors, officers, or employees of the Company if duly elected to such
positions by the shareholders or directors of the Company.
The Adviser hereby acknowledges that all records necessary in the
operation of the Funds, including records pertaining to shareholders and
investments, are the property of the Company, and in the event that a transfer
of management or investment advisory services to someone other than the Adviser
should ever occur, the Adviser will promptly, and at its own cost, take all
steps necessary to segregate such records and deliver them to the Company.
2. Compensation for Services. In payment for all services,
facilities, equipment and personnel, and for other costs of the Adviser
hereunder, the Company shall pay to the Adviser a monthly investment advisory
fee on behalf of each Fund. The monthly fee payable with respect to Adjustable
Rate Mortgage Securities Fund shall be equivalent to an annual rate of .35% of
the first $500 million of the Fund's average daily net assets and .30% of
average daily net assets in excess of $500 million. The monthly fee payable with
respect to any Fund established in the future shall by set forth in a supplement
to this Agreement. The monthly fee payable by each Fund shall be based on the
average net asset values of all of the issued and outstanding shares of such
Fund as determined at the close of each business day of the month pursuant to
the Articles and Bylaws of the Company and the currently effective Prospectus
and Statement of Additional Information of the Company applicable to such Fund.
The fee shall be prorated for any fraction of a month at the commencement or
termination of this Agreement.
3. Allocation of Expenses.
(a) In addition to the fee described in Section 2 hereof, each
Fund 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
Company's custodian and registrar, transfer agent and dividend disbursing agent
applicable to the Fund; (x) that portion allocable to the Fund of any
compensation of the Company'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
Fund 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 the Company's
shares, including paying for prospectuses, statements of additional information
and shareholder reports for new shareholders and the costs of sales literature
and advertising. The Company shall not 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 1940 Act.
4. Limit on Expenses. It is understood that the laws of certain
states in which the shares of a Fund are offered for sale may require that such
Fund be reimbursed for its excess expenses, 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 Company'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 Fund 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 for a period of two years from the date of its
execution, and thereafter shall continue in effect with respect to a Fund only
so long as such continuance is specifically approved at least annually (a) by
the Board of Directors of the Company or by the vote of a majority of the
outstanding voting securities of such Fund, and (b) by the vote of a majority of
the directors who are not parties to this Agreement or Interested Persons of the
Adviser or of the Company, cast in person at a meeting called for the purpose of
voting on such approval.
This Agreement may be terminated with respect to any Fund at any
time without the payment of any penalty by the vote of the Board of Directors of
the Company or by the vote of the holders of a majority of the outstanding
voting securities of such Fund, 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
1940 Act and the rules thereunder. This Agreement shall automatically terminate
upon completion of the dissolution, liquidation or winding up of the Company.
7. Amendments to Agreement. No material amendment to this Agreement
shall be effective with respect to a Fund until approved by a vote of the
holders of a majority of the outstanding shares of such 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 Company 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 FUNDS INC. -- II
By /s/ Paul A. Dow
Its President
PIPER CAPITAL MANAGEMENT INCORPORATED
By /s/ William H. Ellis
Its President and Chairman of the Board
Exhibit 6.1
UNDERWRITING AND DISTRIBUTION AGREEMENT
THIS AGREEMENT, made this 21st day of June, 1995, by and among Piper Funds
Inc. -- II, a Minnesota corporation ("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 sole Series currently
outstanding is Adjustable Rate Mortgage Securities Fund. Other Series may be
created in the future by Piper Funds'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 the appropriate
Series of Piper Funds. 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 Front-End 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 Front-End 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 a
front-end 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 (the "Front-End Sales Load"), provided that no
schedule of Front-End Sales Loads shall be effective until set forth in a
prospectus of Piper Funds meeting the requirements of the Securities Act of
1933, as amended. Said Front-End Sales Load may be graduated on a scale based
upon the dollar amount of Shares sold.
(d) A sales load payable upon redemption (a "Contingent Deferred Sales
Load") may be imposed in connection with redemptions of Shares of any Series of
Piper Funds, to the extent set forth in the currently effective prospectus for
such Series and agreed upon in writing by Piper Funds and the Distributor.
(e) The Front-End Sales Load and/or Contingent Deferred Sales Load for any
Series of Piper Funds may, at the discretion of Piper Funds and the Distributor,
be reduced or eliminated as permitted by the Investment Company Act of 1940, as
amended, 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 such Series, 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 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 Distributor or the Adviser. The Distributor
agrees to provide, and shall pay costs which it incurs in connection with,
ongoing servicing and/or maintenance of shareholder accounts with respect to
each Series (such costs are referred to as "Shareholder Servicing Costs"). The
Distributor shall also pay all costs of distributing the Shares of each Series
("Distribution Expenses"). Distribution Expenses include, but are not limited
to, initial and ongoing sales compensation (in addition to sales loads) paid to
investment executives of the Distributor and to other broker-dealers in respect
of sales of Shares of a Series and other advertising and promotional expenses in
connection with the distribution of Shares of a Series. These advertising and
promotional expenses include, by way of example and not by way of limitation,
costs of printing and mailing prospectuses, statements of additional information
and shareholders reports to prospective investors; expenses of preparation and
distribution of sales literature; expenses of advertising of any type; an
allocation of the Distributor's overhead and other expenses related to the
distribution of Shares of a Series; 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 Shares of a Series, including
travel, entertainment and telephone expenses. Shareholder Servicing Costs
include, but not limited to, an allocation of the Distributor's overhead and
payments made to persons, including employees of the Distributor, who respond to
inquiries of shareholders regarding their ownership of Shares or their accounts
with a Series, and provide information of shareholders' investments. The
Adviser, rather than the Distributor, may bear the expenses referred to in this
section, but the Distributor shall be liable for such expenses until paid.
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 from Adjustable Rate Mortgage Securities Fund:
(a) The Distributor shall receive the difference between the total amount
charged and received by the Distributor as the purchase price for Adjustable
Rate Mortgage Securities Fund Shares and the net asset value thereof. Such
difference shall be equal to the Front-End Sales Loads indicated below as a
percentage of the public offering price and the net asset value. As indicated,
the Front-End Sales Loads are reduced on a graduated scale on single purchases
of $100,000 or more.
Front-End Sales Load Front-End Sales Load
Amount of Transaction as a Percentage of as a Percentage of
at Offering Offering Price Net Asset Value
Less than $100,000 1.50% 1.52%
$100,000 but less than $250,000 1.25% 1.27%
$250,000 but less than $500,000 1.00% 1.01%
$500,000 and over 0% 0%
Up to the entire amount of the Front-End Sales Load set forth above may be
reallowed by the Distributor to broker-dealers in connection with the sale of
Adjustable Rate Mortgage Securities Fund 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) In connection with sales of $500,000 and over, a Contingent Deferred
Sales Load will be imposed on the shareholder and paid to the Distributor in the
event of a redemption transaction occurring within 24 months following such
purchase. Such Contingent Deferred Sales Load shall be equal to .20% of the
offering price of Adjustable Rate Mortgage Securities Fund Shares.
No Contingent Deferred Sales Load will be imposed when a shareholder
redeems (i) shares held for longer than 24 months, (ii) amounts representing an
increase in the value of shares due to capital appreciation, or (iii) shares
purchased through reinvestment of dividends or capital gain distributions. In
determining whether a Contingent Deferred Sales Load is payable, shares that are
not subject to any Contingent Deferred Sales Load will be redeemed first, and
other shares will then be redeemed in the order purchased.
In connection with cumulative purchases of Adjustable Rate Mortgage
Securities Fund shares in excess of $500,000, the Distributor will pay its
investment executives and other broker-dealers a fee of up to .20% of the first
$3,000,000 of the offering price, .15% of the next $2,000,000 of the offering
price, .10% of the next $5,000,000 of the offering price, and .05% of the
offering price in excess of $10,000,000. Such payments may be revised from time
to time as agreed upon by Piper Funds and the Distributor and are not
reimbursable under Piper Funds' Rule 12b-1 plan.
(c) Pursuant to Piper Funds' Distribution Plan adopted in accordance with
Rule 12b-1 under the Investment Company Act of 1940, as amended (the "Plan"),
Adjustable Rate Mortgage Securities Fund shall pay the Distributor a shareholder
servicing fee each month equal to .15% per annum of Adjustable Rate Mortgage
Securities Fund's average daily net assets to cover Shareholder Servicing Costs.
Average daily net assets shall be computed in accordance with Adjustable Rate
Mortgage Securities Fund's currently effective prospectus.
Amounts payable to the Distributor under the Plan may exceed or be less
than the Distributor's actual Shareholder Servicing Costs. In the event such
Costs exceed amounts payable to the Distributor under the Plan, the Distributor
shall not be entitled to reimbursement by Piper Funds.
(d) In each year during which this Agreement remains in effect, the
Distributor will prepare and furnish to the Board of Directors of Piper Funds,
and the Board will review, on a quarterly basis, written reports complying with
the requirements of Rule 12b-1 under the Investment Company Act of 1940, as
amended, that set forth the amounts expended under this Agreement and the Plan
and the purposes for which those expenditures were made.
(e) Compensation payable to the Distributor with respect to any future
Series shall be set forth in an amendment to this Agreement.
(f) 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 Adjustable Rate
Mortgage Securities Fund or any other Series 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 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 books 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, as amended, and the
rules, regulations and releases relating thereto), unless the information so
supplied or omitted was available to the Distributor or Jaffray 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 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.
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 FUNDS INC. -- II
By /s/Paul A. Dow
Its President
PIPER JAFFRAY INC.
By /s/ William H. Ellis
Its President and Chief Operating
Officer
PIPER CAPITAL MANAGEMENT
INCORPORATED
By /s/ William H. Ellis
Its President and Chairman of the
Board
Exhibit 6.2
PIPER JAFFRAY INC.
222 South Ninth Street, Minneapolis, Minnesota 55402
DEALER AGREEMENT
ADJUSTABLE RATE MORTGAGE SECURITIES FUND
Ladies and Gentlemen:
We are the principal underwriter and distributor for the shares of
Adjustable Rate Mortgage Securities Fund (the "Fund"), the sole series of Piper
Funds Inc.--II. As principal underwriter and distributor, we have the right to
distribute the shares of common stock of the Fund (the "Shares") for resale. The
Fund is a diversified series of an open-end management investment company
registered under the Investment Company Act of 1940, as amended, and the Shares
are registered under the Securities Act of 1933, as amended. Shares are offered
pursuant to the current prospectus of the Fund. To the extent that the
prospectus for the Fund contains provisions that are inconsistent with the terms
of this Agreement, the terms of the prospectus shall be controlling. As
principal underwriter and distributor, we offer to appoint you a nonexclusive
dealer for the sale of Shares in those states and jurisdictions in which the
Shares may legally be offered for sale, pursuant to the following terms:
(1) In all sales of Shares to the public you shall act as dealer for your
own account, and in no transaction shall you have any authority to act as agent
for the Fund, for us or for any other member of the selling group.
(2) We will not accept from you any conditional orders for the purchase,
sale or redemption of Shares. All orders received from you for the purchase of
Shares will be accepted by us only based upon the public offering price
applicable to each order, as established by the current prospectus of the Fund.
The procedure relating to the handling of orders shall be subject to
instructions which we shall forward from time to time to you. All orders are
subject to acceptance or rejection by us in our sole discretion. Orders must be
received by us by 3:00 p.m., Minneapolis time, to obtain the purchase price for
that day.
(3) You may offer and sell Shares to your customers only at the public
offering price determined in the manner described in the Fund's current
prospectus. The public offering price is the net asset value per Share plus, in
certain circumstances, a sales charge as set forth in the prospectus. The sales
charge is subject to reduction or waiver as set forth in the prospectus. We must
be notified by you each time a purchase qualifies for a reduced sales charge,
either as a result of the investor's existing holdings or otherwise. In
connection with each sale of Shares by you to which a sales charge applies, you
will be entitled to retain that portion of the sales proceeds that constitutes
the dealer reallowance. You will also receive additional compensation in
connection with certain other sales of Shares through you to which a sales
charge does not apply. Such additional compensation will be payable by us within
ten business days following the end of the month in which each such sale is
effected. Such dealer reallowances and additional compensation amounts are set
forth in Exhibit A hereto. You understand that reallowances and additional
compensation amounts are subject to change at any time in our sole discretion.
(4) We expect you to provide distribution and marketing services in the
promotion of the Fund's Shares and services and assistance to your customers who
own Fund Shares, including but not limited to answering inquiries regarding the
Fund or the status of a customer's account, assisting in changing dividend
options, account designations and addresses, and providing information to
customers relating to maintaining their investment in the Funds. For such
services we will pay you a fee with respect to each Fund, as established by us
from time to time, based upon a portion of the net asset value of the accounts
of your clients in the Fund. Such fee will be paid on a quarterly basis and,
subject to the last sentence of this section (4), will be paid so long as the
accounts of your clients in the Fund remain on the books and this Agreement has
not been terminated. We are permitted to make this payment under the terms of
the Fund's Distribution Plan under Rule 12b-1 (the "12b-1 Plan"), as such Plan
may be in effect from time to time. The current fee payable under the Fund's
12b-1 Plan is set forth in Exhibit A hereto. Exhibit A may be amended in whole
or in part without notice from time to time. Upon your request, we will provide
you with a copy of the Fund's current Rule 12b-1 Plan. The Fund reserves the
right to terminate or suspend its 12b-1 Plan, at any time as specified in such
Plan and we reserve the right, at any time, without notice, to modify, suspend
or terminate payments hereunder in connection with such 12b-1 Plan. You will
furnish the Fund and us with such information as may be reasonably requested by
the Fund or its directors or by us with respect to such fees paid to you
pursuant to this Agreement.
(5) You agree to purchase Shares of the Fund only in transactions
contemplating the simultaneous resale of such Shares to investors and in no
event shall you place orders for Shares unless you have already received
purchase orders for Shares at the applicable public offering prices and subject
to the terms hereof. You agree that you will purchase Shares from no person
other than us, and that you will not offer or sell any Shares except under
circumstances that will result in compliance with the applicable United States
federal and state securities laws, and all rules thereunder, as well as the
rules and regulations of all authorized agencies having jurisdiction. You agree
that in connection with sales and offers to sell Shares you will furnish to each
person to whom any such sale or offer is made, at or prior to the time of
offering or sale, a copy of the prospectus and if requested, the statement of
additional information as then amended or supplemented, and will not furnish to
any person any information relating to the Fund that is inconsistent in any
respect with the information contained in the prospectus and statement of
additional information or cause any written materials to be used in connection
with sales of Shares or any advertisement to be published in any newspaper,
broadcast by television, radio or other means or posted in any public place
without the prior written consent of us and the Fund.
(6) You shall not withhold placing orders received from your customers so
as to profit yourself as a result of such withholding, e.g., by a change in the
net asset value from that used in determining the offering price to your
customers.
(7) If any Shares sold to you by us under the terms of this Agreement are
repurchased by the issuer or by us as agent for the issuer or are tendered for
redemption within seven business days after the date of our confirmation of the
original purchase by you, it is agreed that you shall forfeit your right to any
compensation received by you or allowed to you on such Shares hereunder, as well
as the right to any payment made pursuant to the Fund's 12b-1 Plan. We will
notify you of any such repurchase or redemption within ten business days from
the date thereof, and you shall promptly refund to us the full reallowance
received by or allowed to you, and we agree to pay such refund promptly to the
issuer, along with our share of the sales charge on such Shares.
(8) Payment for Shares ordered from us shall be in New York clearing house
funds and must be received by the Fund's agent, Investors Fiduciary Trust
Company, 127 West Tenth Street, Kansas City, Missouri 64105, within five
business days after our acceptance of your order. If such payment is not
received within said time period, interest at the reference rate then in effect
at First Bank National Association, Minneapolis office, may be added to the
amount due us and we reserve the right, without notice, to sell such Shares back
to the issuer, in which case we may hold you responsible for any loss, including
loss of profit, suffered by us resulting from your failure to make such payment.
Account registration instructions, including certified tax identification
numbers, must accompany your payment. Certificates representing the Shares will
not be issued.
(9) No person is authorized to make any representations concerning Shares
except those contained in the Fund's current prospectus and statement of
additional information and in such printed information as is issued by us for
use as information supplemental to such prospectus and statement of additional
information. In purchasing Shares from us you shall rely solely upon the
representations contained in such prospectus and statement of additional
information and in the above-mentioned supplemental information. Qualification
of Shares in the various states, including the filing of any state or further
state notices respecting such Shares, and any printed information which we
furnish you other than the Fund's current prospectus, statement of additional
information and periodic reports are our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall have no liability
or responsibility to you in these respects. A list of the states in which Shares
of the Fund may legally be offered for sale on the date of this Agreement is
attached hereto as Exhibit B.
(10) Additional copies of the Fund's prospectus and statement of additional
information and any printed information issued supplementing such prospectus and
statement of additional information will be supplied by us in reasonable
quantities upon request.
(11) We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Shares entirely. Each party hereto has the
right to cancel this Agreement upon ten days' notice to the other party. We
reserve the right to amend this Agreement at any time and you agree that an
order to purchase Shares placed by you after notice of any such amendment has
been sent to you shall constitute your agreement to any such amendment. Modified
forms of the 12b-1 Plan may be included in this Agreement from time to time.
This Agreement shall automatically terminate in the event of its assignment, as
such term is defined under the Investment Company Act of 1940, as amended.
(12) You represent that you are a member in good standing of the National
Association of Securities Dealers, Inc. and agree that termination or suspension
of such membership at any time shall terminate this Agreement forthwith,
notwithstanding the provisions of paragraph (11) hereof, and that if you are a
foreign dealer (a) you are registered under the Securities Exchange Act of 1934
and you agree that in making sales of Shares to purchasers within the United
States you will conform to the Rules of Fair Practice, including the
Interpretation with Respect to Free-Riding and Withholding of such Association,
or (b) if you are not so registered, you will make sales of Shares only outside
of the jurisdiction of the United States to persons who are not citizens or
residents of the United States. You agree that you will immediately advise us of
any termination or suspension of such membership or registration.
(13) You shall immediately inform the Fund or us of all written complaints
received by you from Fund shareholders relating to the maintenance of their
accounts and shall promptly answer all such complaints and other similar
correspondence. You shall provide the Fund and us on a timely basis with such
information as may be required to complete various regulatory forms.
(14) The parties to this Agreement hereby agree to indemnify and hold
harmless each other, their officers and directors, and any person who is or may
be deemed to be a controlling person of such other, from and against any losses,
claims, damages, liabilities or expenses (including reasonable fees of counsel),
whether joint or several, to which any such person or entity may become subject
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) arise out of or are based upon (a) any untrue statement or
alleged untrue statement of material fact, or any omission or alleged omission
to state a material fact made or omitted by it herein, or (b) any willful
misfeasance or gross misconduct by it in the performance of its duties and
obligations hereunder.
(15) All communications to us should be sent to the above address. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below. This Agreement shall be governed by and construed in
accordance with the laws of the Minnesota.
(16) This Agreement shall become effective upon receipt by us of your
acceptance hereof and supersedes any prior agreement between us with respect to
the sale of Shares of the Fund.
(17) You appoint the transfer agent for the Fund as your agent to execute
the purchase transactions of Shares of the Fund in accordance with the terms and
provisions of any account, program, plan or service established or used by your
customers and to confirm each purchase to your customers on your behalf, and you
guarantee to us and the Fund the legal capacity of your customers so purchasing
such Shares and any other person in whose name the Shares are to be registered.
DEALER AGREEMENT SIGNATURE PAGE
FOR
ADJUSTABLE RATE MORTGAGE SECURITIES FUND
PIPER JAFFRAY INC.
By __________________ ___________________
Please sign here Please type name
Its __________________
(Title)Please type
Date _________________
The undersigned hereby accepts the
offer set forth in the above letter.
__________________________
FIRM Please type name
By ________________________ ________________________
Please sign here Please type name
Its ________________________
(Title) Please type
Date _______________________
Exhibit A
SALES CHARGE AND DEALER REALLOWANCE SCHEDULE
ADJUSTABLE RATE MORTGAGE SECURITIES FUND
Amount of Sale Sales Charge Dealer Reallowance
Less than $100,000 1.50% 1.25%
$100,000 but less than $250,000 1.25% 1.00%
$250,000 but less than $500,000 1.00% 0.75%
$500,000 and over 0.00%* 0.00%**
* For purchases of $500,000 and over, a .20% Contingent Deferred Sales Charge
("CDSC") will be imposed on shares held less than 24 months.
** For purchases of $500,000 and over, broker-dealers will receive a fee of up
to .20% of the first $3 million of the offering price, .15% of the next $2
million of the offering price, .10% of the next $5 million of the offering price
and .05% of the offering price in excess of $10 million.
Under the Rule 12b-l Plan of Distribution, broker-dealers and
representatives of broker-dealers will receive that portion of .15% of the
average daily net assets of the Fund which is attributable to shares sold by
such representatives and broker-dealers.
As set forth in the current prospectus, all purchases by 401(k) plans are
at net asset value without a CDSC. If, during any calendar quarter, a 401(k)
plan has purchased shares of the Fund, then any other employee benefit plan of
that employer qualified under Internal Revenue Code section 401(a) may also
purchase shares at net asset value during that quarter. Participating
broker-dealers will receive up to .10% on all such contributions.
Exhibit B
BLUE SKY: STATES IN WHICH SHARES MAY LEGALLY BE SOLD
Exhibit 8
CUSTODY AND INVESTMENT ACCOUNTING AGREEMENT
THIS AGREEMENT made the 21st day of June 1995, by and between INVESTORS
FIDUCIARY TRUST COMPANY, a trust company chartered under the laws of the state
of Missouri, having its trust office located at l27 West 10th Street, Kansas
City, Missouri 64105 ("Custodian"), and PIPER FUNDS INC. - II, a Minnesota
corporation, having its principal office and place of business at Piper Jaffray
Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402-3804 ("Fund").
WITNESSETH:
WHEREAS, Fund desires to appoint Investors Fiduciary Trust Company as
custodian of the securities and monies of Fund's investment portfolio and as its
agent to perform certain investment accounting and recordkeeping functions; 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:
A. Custodian of the securities and monies at any time owned by the Fund;
and
B. Agent to perform certain accounting and recordkeeping functions
relating to portfolio transactions required of a duly registered
investment company under Rule 31a of the Investment Company Act of 1940
(the "1940 Act") and to calculate the net asset value of the Fund.
2. REPRESENTATIONS AND WARRANTIES.
A. Fund hereby represents, warrants and acknowledges to Custodian:
1. That it is a corporation or trust (as specified above) duly
organized and existing and in good standing under the laws of its
state of organization, and that it is registered under the 1940
Act; and
2. That it has the requisite power and authority under applicable
law, its articles of incorporation and its bylaws to enter into
this Agreement; that it has taken all requisite action necessary
to appoint Custodian as custodian and investment accounting and
recordkeeping agent for the Fund; that this Agreement has been
duly executed and delivered by Fund; and that this Agreement
constitutes a legal, valid and binding obligation of Fund,
enforceable in accordance with its terms subject, as to
enforcement, to applicable bankruptcy, reorganization, insolvency
or other similar laws relating to or affecting creditors' rights
generally and to equitable principles and principles of public
policy that may restrict the availability of remedies.
B. Custodian hereby represents, warrants and acknowledges to Fund:
1. That it is a trust company duly organized and existing and in good
standing under the laws of the State of Missouri; and
2. That it has the requisite power and authority under applicable
law, its charter and its bylaws to enter into and perform this
Agreement; that this Agreement has been duly executed and
delivered by Custodian; and that this Agreement constitutes a
legal, valid and binding obligation of Custodian, enforceable in
accordance with its terms subject, as to enforcement, to
applicable bankruptcy, reorganization, insolvency or other similar
laws relating to or affecting creditors' rights generally and to
equitable principles and principles of public policy that may
restrict the availability of remedies.
3. DUTIES AND RESPONSIBILITIES OF CUSTODIAN.
A. Delivery of Assets
Except as permitted by the 1940 Act, 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 or 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 or cause to be turned over to Custodian all of the
Fund's relevant accounts and records previously maintained. Custodian
shall be entitled to rely conclusively on the completeness and
correctness of the accounts and records turned over to it, 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, or to
provide in a timely manner, any accounts, records or information needed
by the Custodian to perform its functions 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, and
if Fund is comprised of more than one portfolio of investment
securities (each a "Portfolio") Custodian shall keep the assets of each
Portfolio 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.
of this Agreement, Custodian will create and maintain records
identifying those assets which have been delivered to the subcustodian
as belonging to the Fund, by Portfolio if applicable. The Custodian is
responsible for the safekeeping of 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 subcustodians appointed under Section 3.S. of
this Agreement, for which Custodian remains responsible to the extent
provided in Section 3.S. hereof. Custodian may participate directly or
indirectly through a subcustodian in the Depository Trust Company
(DTC), Treasury/Federal Reserve Book Entry System (Fed System),
Participant Trust Company (PTC) or other depository approved by the
Fund (as such entities are defined at 17 CFR Section 270.17f-4(b))
(each a "Depository" and collectively, the "Depositories").
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 name," 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. If, however, the Fund directs the Custodian to maintain
securities in "street name", notwithstanding anything contained herein
to the contrary, the Custodian shall be obligated only to utilize its
best efforts to timely collect income due the Fund on such securities
and to notify the Fund of relevant corporate actions including, without
limitation, pendency of calls, maturities, tender or exchange offers.
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 shareholder of record 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. If applicable, the name of the Portfolio making such purchase;
2. The name of the issuer and description of the security;
3. The number of shares or the principal amount purchased, and
accrued interest, if any;
4. The trade date;
5. The settlement date;
6. The purchase price per unit and the brokerage commission, taxes
and other expenses payable in connection with the purchase;
7. The total amount payable upon such purchase; and
8. 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 such monies
are available for such purpose, and receive the portfolio securities so
purchased by or for the account of Fund, except that Custodian may in
its sole discretion advance funds to the Fund which may result in an
overdraft because the monies held by the Custodian on behalf of the
Fund are insufficient to pay the total amount payable upon such
purchase. 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 (other than options and futures) of Fund has been made,
deliver to Custodian instructions specifying with respect to each such
sale:
1. If applicable, the name of the Portfolio making such sale;
2. The name of the issuer and description of the securities;
3. The number of shares or principal amount sold, and accrued
interest, if any;
4. The date on which the securities sold were purchased or other
information identifying the securities sold and to be delivered;
5. The trade date;
6. The settlement date;
7. The sale price per unit and the brokerage commission, taxes or
other expenses payable in connection with such sale;
8. The total amount to be received by Fund upon such sale; and
9. 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 Options and Futures
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. If applicable, the name of the Portfolio making such purchase or
sale;
2. 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;
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; and
j. Name and address of the broker or dealer through whom the
sale or purchase was made.
3. 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; and
j. The name and address of the broker or dealer through whom the
sale or purchase was made, or other applicable settlement
instructions.
4. 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.
5. Options on Index Future Contracts
a. The underlying index future contract;
b. The premium;
c. The expiration date;
d. The number of options;
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, and subject to
such additional terms and conditions as Custodian may require:
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 Fund in writing.
K. Deposit Accounts
Custodian will open and maintain one or more special purpose deposit
accounts in the name of Custodian ("Accounts"), subject only to draft
or order by Custodian upon receipt of instructions. All monies received
by Custodian from or for the account of Fund shall be deposited in said
Accounts. 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 an Account,
Custodian agrees to make Fed Funds available to the Fund in the amount
of the check. Deposits made by Federal Reserve wire will be available
to the Fund immediately and ACH wires will be available to the Fund on
the next business day. Income earned on the portfolio securities will
be credited to the Fund based on the schedule attached as Exhibit A.
The Custodian will be entitled to reverse any credited amounts where
credits have been made and monies are not finally collected. If monies
are collected after such reversal, the Custodian will credit the Fund
in that amount. Custodian may open and maintain Accounts in its own
banking department, or in such other banks or trust companies as may be
designated by it or by Fund in writing, all such Accounts, however, to
be in the name of Custodian and subject only to its draft or order.
Funds received and held for the account of different Portfolios shall
be maintained in separate Accounts established for each Portfolio.
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 in accordance with the schedule attached hereto as Exhibit
A. If, for any reason, the Fund is credited with income that is
not subsequently collected, Custodian may reverse that credited
amount.
2. Execute ownership and other certificates and affidavits for all
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
should reasonably be expected to have knowledge; 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. On the date specified in such instructions 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 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 Fund
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
Custodian will, within a reasonable time, render to Fund a detailed
statement of the amounts received or paid and of securities received or
delivered for the account of Fund during each business day. 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. Custodian will permit such persons as
are authorized by Fund, including Fund's independent public
accountants, reasonable access to such records or will provide
reasonable confirmation of the contents of such records, and if
demanded, Custodian 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 permit such
persons as are authorized by Fund, including Fund's independent public
accountants, reasonable access to such records or to provide reasonable
confirmation of the contents of such records, and to permit such
agencies to examine the books, records and securities held by such
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 acting as subcustodians as may be selected by Custodian.
Any such subcustodian selected by the Custodian must have the
qualifications required for a custodian under the 1940 Act, as
amended. Custodian shall be responsible to the Fund for any loss,
damage or expense suffered or incurred by the Fund resulting from
the actions or omissions of any subcustodians selected and
appointed by Custodian (except subcustodians appointed at the
request of Fund and as provided in Subsection 2 below) to the same
extent Custodian would be responsible to the Fund under Section 5.
of this Agreement if it committed the act or omission itself. Upon
request of the Fund, Custodian shall be willing to contract with
other subcustodians reasonably acceptable to the Custodian for
purposes of (i) effecting third-party repurchase transactions with
banks, brokers, dealers, or other entities through the use of a
common custodian or subcustodian, or (ii) providing depository and
clearing agency services with respect to certain variable rate
demand note securities, or (iii) for other reasonable purposes
specified by Fund; provided, however, that the Custodian shall be
responsible to the Fund for any loss, damage or expense suffered
or incurred by the Fund resulting from the actions or omissions of
any such subcustodian only to the same extent such subcustodian is
responsible to the Custodian. The Fund shall be entitled to review
the Custodian's contracts with any such subcustodians appointed at
the request of Fund. Custodian shall be responsible to the Fund
for any loss, damage or expense suffered or incurred by the Fund
resulting from the actions or omissions of any Depository only to
the same extent such Depository is responsible to Custodian.
2. Notwithstanding any other provisions of this Agreement, Fund's
foreign securities (as defined in Rule 17f-5(c)(1) under the 1940
Act) and Fund's cash or cash equivalents, in amounts deemed by the
Fund to be reasonably necessary to effect Fund's foreign
securities transactions, may be held in the custody of one or more
banks or trust companies acting as subcustodians, and thereafter,
pursuant to a written contract or contracts as approved by Fund's
Board of Directors, may be transferred to accounts maintained by
any such subcustodian with eligible foreign custodians, as defined
in Rule 17f-5(c)(2). Custodian shall be responsible to the Fund
for any loss, damage or expense suffered or incurred by the Fund
resulting from the actions or omissions of any foreign
subcustodians or a domestic subcustodian contracting with such
foreign subcustodians only to the same extent such domestic
subcustodian is responsible to the Custodian.
T. Accounts and Records
Custodian will prepare and maintain, with the direction and as
interpreted by the Fund, Fund's accountants and/or other advisors, in
complete, accurate and current form all accounts and records (i)
required to be maintained by Fund with respect to portfolio
transactions under Rule 31a of the 1940 Act, including but not limited
to the records needed to comply with Rule 31a-1(b)(1) of the 1940 Act,
(ii) required to be maintained as a basis for calculation of the Fund's
net asset value, and (iii) as otherwise agreed upon between the
parties. Custodian will preserve said records in the manner and for the
periods prescribed in the 1940 Act or for such longer period as is
agreed upon by the parties. Custodian relies upon Fund to furnish, in
writing or its electronic or digital equivalent, accurate and timely
information needed by Custodian to complete Fund's records and perform
daily calculation of the Fund's net asset value. 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 by Fund 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 or
instructions, Custodian will supply information from the books and
records it maintains for Fund that Fund needs for 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
or directed by Fund or its accountants or other advisors conflicts with
or violates any requirements of its prospectus, articles of
incorporation, bylaws, any applicable law, rule or regulation, or any
order, decree or agreement by which Fund may be bound. Fund will be
responsible to notify Custodian of any changes in statutes,
regulations, rules, requirements 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. Custodian will price the securities and foreign
currency holdings of Fund for which market quotations are available by
the use of outside services designated by Fund which are normally used
and contracted with for this purpose; all other securities and foreign
currency holdings will be priced 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 for acting upon such instructions.
X. Advances
In the event Custodian or any subcustodian shall, in its sole
discretion, advance cash or securities for any purpose (including but
not limited to securities settlements, purchase or sale of foreign
exchange or foreign exchange contracts and assumed settlement) for the
benefit of any Portfolio, the advance shall be payable by the Fund on
demand. Any such cash advance shall be subject to an overdraft charge
at the rate set forth in the then-current fee schedule from the date
advanced until the date repaid. As security for each such advance, Fund
hereby grants Custodian and such subcustodian a lien on and security
interest in all property at any time held for the account of the
applicable Portfolio, including without limitation all assets acquired
with the amount advanced. Should the Fund fail to promptly repay the
advance, the Custodian and such subcustodian shall be entitled to
utilize available cash and to dispose of such Portfolio's assets
pursuant to applicable law to the extent necessary to obtain
reimbursement of the amount advanced and any related overdraft charges.
4. INSTRUCTIONS.
A. The term "instructions", as used herein, means written (including
telecopied or telexed) or oral instructions which Custodian reasonably
believes were given by a designated representative of Fund. Fund shall
deliver to Custodian, prior to delivery of any assets to Custodian and
thereafter from time to time as changes therein are necessary, written
instructions naming one or more designated representatives to give
instructions in the name and on behalf of Fund, which instructions may
be received and accepted 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 such written instructions delegating
authority to any person to give instructions specifically limit such
authority to specific matters or require that the approval of anyone
else will first have been obtained, Custodian will be under no
obligation to inquire into the right of such person, acting alone, to
give any instructions whatsoever which Custodian may receive from such
person. If Fund fails to provide Custodian any such instructions naming
designated representatives, any instructions received by Custodian from
a person reasonably believed to be an appropriate representative of
Fund shall constitute valid and proper instructions hereunder.
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 at all times use reasonable care and due diligence and
act in good faith in performing its duties under this Agreement.
Custodian shall not be responsible for, and the Fund shall indemnify
and hold Custodian harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and liability
which may be asserted against Custodian, incurred by Custodian or for
which Custodian may be held to be liable, arising out of or
attributable to:
1. All actions taken by Custodian pursuant to this Agreement or any
instructions provided to it hereunder, provided that Custodian has
acted in good faith and with due diligence and reasonable care;
and
2. The Fund's refusal or failure to comply with the terms of this
Agreement (including without limitation the Fund's failure to pay
or reimburse Custodian under this indemnification provision), the
Fund's negligence or willful misconduct, or the failure of any
representation or warranty of the Fund hereunder to be and remain
true and correct in all respects at all times.
B. Custodian may request and obtain at the expense of Fund 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. If Custodian reasonably believes that it could
not prudently act according to the instructions of the Fund or the
Fund's accountants or counsel, it may in its discretion, with notice to
the Fund, not act according to such instructions.
C. Custodian may rely upon the advice and statements of Fund, Fund's
accountants and officers or other authorized individuals, 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, upon such advice and statements.
D. If Fund requests Custodian in any capacity to take any action which
involves the payment of money by Custodian, or which might make it or
its nominee liable for payment of monies or in any other way, Custodian
shall be indemnified and held harmless by Fund against any liability on
account of such action; provided, however, that nothing herein shall
obligate Custodian to take any such action except in its sole
discretion.
E. Custodian shall be protected in acting as custodian hereunder upon any
instructions, advice, notice, request, consent, certificate or other
instrument or paper appearing to it to be genuine and to have been
properly executed and shall be entitled to receive upon request as
conclusive proof of any fact or matter required to be ascertained from
Fund hereunder a certificate signed by an officer or designated
representative of Fund.
F. Custodian shall be under no duty or obligation to inquire into, and
shall not be liable for:
1. The validity of the issue of any securities purchased by or for
Fund, the legality of the purchase of any securities or foreign
currency positions 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 or foreign currency
positions 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 Fund Shares, or the
sufficiency of the amount to be received therefor;
4. The legality of the repurchase or redemption of any 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, clearinghouse
funds, uncollected funds, or instrument for the payment of money to be
received by it on behalf of Fund until Custodian actually receives such
money; provided, however, that it shall advise Fund promptly if it
fails to receive any such money in the ordinary course of business and
shall cooperate with Fund toward the end that such money shall be
received.
H. Except as provided in 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.
I. Custodian shall not be responsible or liable for the failure or delay
in performance of its obligations under this Agreement, or those of any
entity for which it is responsible hereunder, arising out of or caused,
directly or indirectly, by circumstances beyond the affected entity's
reasonable control, including, without limitation: any interruption,
loss or malfunction of any utility, transportation, computer (hardware
or software) or communication service; inability to obtain labor,
material, equipment or transportation, or a delay in mails;
governmental or exchange action, statute, ordinance, rulings,
regulations or direction; war, strike, riot, emergency, civil
disturbance, terrorism, vandalism, explosions, labor disputes, freezes,
floods, fires, tornados, acts of God or public enemy, revolutions, or
insurrection.
J. EXCEPT FOR VIOLATIONS OF SECTION 9, IN NO EVENT AND UNDER NO
CIRCUMSTANCES SHALL EITHER PARTY TO THIS AGREEMENT BE LIABLE TO ANYONE,
INCLUDING, WITHOUT LIMITATION TO THE OTHER PARTY, FOR CONSEQUENTIAL
DAMAGES FOR ANY ACT OR FAILURE TO ACT UNDER ANY PROVISION OF THIS
AGREEMENT EVEN IF ADVISED OF THIS POSSIBILITY THEREOF.
6. COMPENSATION. In consideration for its services hereunder as Custodian and
investment accounting and recordkeeping agent, Fund will pay to Custodian
such compensation as shall be set forth in a separate fee schedule to be
agreed to by Fund and Custodian from time to time. A copy of the initial
fee schedule is attached hereto and incorporated herein by reference.
Custodian shall also be entitled to receive, and Fund agrees to pay to
Custodian, on demand, reimbursement for Custodian's cash disbursements and
reasonable out-of-pocket costs and expenses, including attorney's fees,
incurred by Custodian in connection with the performance of services
hereunder. Custodian may charge such compensation against monies held by it
for the account of Fund. Custodian will also be entitled to charge against
any monies held by it for the account of Fund the amount of any loss,
damage, liability, advance, overdraft or expense for which it shall be
entitled to reimbursement from Fund, including but not limited to fees and
expenses due to Custodian for other services provided to the Fund by
Custodian. Custodian will be entitled to reimbursement by the Fund for the
losses, damages, liabilities, advances, overdrafts and expenses of
subcustodians only to the extent that (i) Custodian would have been
entitled to reimbursement hereunder if it had incurred the same itself
directly, and (ii) Custodian is obligated to reimburse the subcustodian
therefor.
7. TERM AND TERMINATION. The initial term of this Agreement shall be for a
period of one (1) year. Thereafter, 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 such termination will take effect. Upon
termination of this Agreement, Fund will pay Custodian its fees and
compensation due hereunder and its reimbursable disbursements, costs and
expenses paid or incurred to such date and Fund shall designate a successor
custodian by notice in writing to Custodian by the termination date. In the
event no written order designating a successor custodian has been delivered
to Custodian on or before the date when such termination becomes effective,
then Custodian may, at its option, 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 set forth in the
1940 Act and having not less that Two Million Dollars ($2,000,000)
aggregate capital, surplus and undivided profits, as shown by its last
published report, or apply to a court of competent jurisdiction for the
appointment of a successor custodian or other proper relief, or take any
other lawful action under the circumstances; provided, however, that Fund
shall reimburse Custodian for its costs and expenses, including reasonable
attorney's fees, incurred in connection therewith. Custodian will, upon
termination of this Agreement and payment of all sums due to Custodian from
Fund hereunder or otherwise, deliver to the successor custodian so
specified or appointed, or as specified by the court, at Custodian's
office, all securities then held by Custodian hereunder, duly endorsed and
in form for transfer, and all funds and other properties of Fund deposited
with or held by Custodian hereunder, and Custodian will co-operate in
effecting changes in book-entries at all Depositories. Upon delivery to a
successor custodian or as specified by the court, Custodian will have no
further obligations or liabilities under this Agreement. Thereafter such
successor will be the successor custodian under this Agreement and will be
entitled to reasonable compensation for its services. In the event that
securities, funds and other properties remain in the possession of the
Custodian after the date of termination hereof owing to failure of the Fund
to appoint a successor custodian, the Custodian shall be entitled to
compensation as provided in the then-current fee schedule hereunder for its
services during such period as the Custodian retains possession of such
securities, funds and other properties, and the provisions of this
Agreement relating to the duties and obligations of the Custodian shall
remain in full force and effect.
8. NOTICES. Notices, requests, instructions and other writings addressed to
Fund at Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota
55402-3804, 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 addressed
to Custodian at its offices at 127 West 10th Street, Kansas City, Missouri
64105, Attention: Custody Department, 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. CONFIDENTIALITY.
A. Fund shall preserve the confidentiality of the computerized investment
portfolio recordkeeping and accounting system used by Custodian (the
"Portfolio Accounting System") and the tapes, books, reference manuals,
instructions, records, programs, documentation and information of, and
other materials relevant to, the Portfolio Accounting System and the
business of Custodian ("Confidential Information"). Fund shall not
voluntarily disclose any such Confidential Information to any other
person other than its own employees who reasonably have a need to know
such information pursuant to this Agreement. Fund shall return all such
Confidential Information to Custodian upon termination or expiration of
this Agreement.
B. Fund has been informed that the Portfolio Accounting System is licensed
for use by Custodian from DST Systems, Inc. ("Licensor"), and Fund
acknowledges that Custodian and Licensor have proprietary rights in and
to the Portfolio Accounting System and all other Custodian or Licensor
programs, code, techniques, know-how, data bases, supporting
documentation, data formats, and procedures, including without
limitation any changes or modifications made at the request or expense
or both of Fund (collectively, the "Protected Information"). Fund
acknowledges that the Protected Information constitutes confidential
material and trade secrets of Custodian and Licensor. Fund shall
preserve the confidentiality of the Protected Information, and Fund
hereby acknowledges that any unauthorized use, misuse, disclosure or
taking of Protected Information, residing or existing internal or
external to a computer, computer system, or computer network, or the
knowing and unauthorized accessing or causing to be accessed of any
computer, computer system, or computer network, may be subject to civil
liabilities and criminal penalties under applicable law. Fund shall so
inform employees and agents who have access to the Protected
Information or to any computer equipment capable of accessing the same.
Licensor is intended to be and shall be a third party beneficiary of
the Fund's obligations and undertakings contained in this paragraph.
C. Custodian agrees that, except as otherwise required by law, Custodian
will keep confidential all records of and information in its possession
relating to Fund and will not disclose the same to any person except at
the request or with the consent of Fund.
10. MULTIPLE PORTFOLIOS. If Fund is comprised of more than one Portfolio:
A. Each Portfolio shall be regarded for all purposes hereunder as a
separate party apart from each other Portfolio. Unless the context
otherwise requires, with respect to every transaction covered by this
Agreement, every reference herein to the Fund shall be deemed to relate
solely to the particular Portfolio to which such transaction relates.
Under no circumstances shall the rights, obligations or remedies with
respect to a particular Portfolio constitute a right, obligation or
remedy applicable to any other Portfolio. The use of this single
document to memorialize the separate agreement of each Portfolio is
understood to be for clerical convenience only and shall not constitute
any basis for joining the Portfolios for any reason.
B. Additional Portfolios may be added to this Agreement, provided that
Custodian consents to such addition. Rates or charges for each
additional Portfolio shall be as agreed upon by Custodian and Fund in
writing.
11. MISCELLANEOUS.
A. This Agreement shall be construed according to, and the rights and
liabilities of the parties hereto shall be governed by, the laws of the
State of Missouri, without reference to the choice of laws principles
thereof.
B. All terms and provisions of this Agreement shall be binding upon, inure
to the benefit of and be enforceable by the parties hereto and their
respective successors and permitted assigns.
C. The representations and warranties, the indemnifications extended
hereunder, and the provisions of Section 9. hereof are intended to and
shall continue after and survive the expiration, termination or
cancellation of this Agreement.
D. No provisions of the Agreement may be amended or modified in any manner
except by a written agreement properly authorized and executed by each
party hereto.
E. The failure of either party to insist upon the performance of any terms
or conditions of this Agreement or to enforce any rights resulting from
any breach of any of the terms or conditions of this Agreement,
including the payment of damages, shall not be construed as a
continuing or permanent waiver of any such terms, conditions, rights or
privileges, but the same shall continue and remain in full force and
effect as if no such forbearance or waiver had occurred. No waiver,
release or discharge of any party's rights hereunder shall be effective
unless contained in a written instrument signed by the party sought to
be charged.
F. The captions in the 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.
G. This Agreement may be executed 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.
H. If any part, term or provision of this Agreement is determined by the
courts or any regulatory authority 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.
I. This Agreement may not be assigned by either party hereto without the
prior written consent of the other party.
J. Neither the execution nor performance of this Agreement shall be deemed
to create a partnership or joint venture by and between Custodian and
Fund.
K. Except as specifically provided herein, this Agreement does not in any
way affect any other agreements entered into among the parties hereto
and any actions taken or omitted by either party hereunder shall not
affect any rights or obligations of the other party hereunder.
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 R. Strain
Title: Executive Vice President
PIPER FUNDS INC. - II
By: /s/ Paul A. Dow
Title: President
EXHIBIT A
INVESTORS FIDUCIARY TRUST COMPANY
AVAILABILITY SCHEDULE BY TRANSACTION TYPE
<TABLE>
<CAPTION>
TRANSACTION DTC PHYSICAL FED
TYPE CREDIT DATE FUNDS TYPE CREDIT DATE FUNDS TYPE CREDIT DATE FUNDS TYPE
<S> <C> <C> <C> <C> <C> <C>
Calls Puts As Received C or F* As Received C or F*
Maturities As Received C or F* Mat. Date C or F* Mat. Date F
Tender Reorgs. As Received C As Received C N/A
Dividends Paydate C Paydate C N/A
Floating Rate Int. Paydate C Paydate C N/A
Floating Rate Int. N/A As Rate Received C N/A
(No Rate)
Mtg. Backed P&I Paydate C Paydate + 1 Bus. Day C Paydate F
Fixed Rate Int. Paydate C Paydate C Paydate F
Euroclear N/A C Paydate C
</TABLE>
Legend
C = Clearinghouse Funds
F = Fed Funds
N/A = Not Applicable
* Availability based on how received.
Exhibit 9
AGENCY AGREEMENT
THIS AGREEMENT made as of the 21st day of June, 1995, by and between PIPER
FUNDS INC. - II, a corporation existing under the laws of the State of
Minnesota, having its principal place of business at Piper Jaffray Tower, 222
South Ninth Street, Minneapolis, Minnesota 55402-3804 ("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 Paying 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 Paying
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 Paying 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 and amendments thereto, 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; and
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) The 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
(3) That all issued shares are, and all unissued shares will be, when
issued, validly issued, fully paid and nonassessable.
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. It is registered as a transfer agent to the extent required under the
Securities Exchange Act of 1934.
E. All requisite corporate proceedings have been taken to authorize it to
enter into and perform 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 a closed-end diversified 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.
D. All requisite steps have been and will continue to be taken to register
Fund's shares for sale in all applicable states and such registration
will be effective at all times shares are offered for sale in such
state.
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
appoints IFTC as Transfer Agent and Paying Agent.
B. IFTC hereby accepts such appointment and agrees that it will act as
Fund's Transfer Agent and Paying Agent. IFTC agrees that it will also
act as agent in connection with Fund's periodic withdrawal payment
accounts and other open accounts or similar plans for shareholders, if
any, and in connection with the Fund's dividend reinvestment plan, if
any.
C. Fund agrees to deliver or to cause to be delivered to IFTC in Kansas
City, Missouri, all of its shareholder account records.
D. IFTC agrees that it will perform the following services as transfer,
paying and shareholders' servicing agent for the Fund, and as agent of
the Fund for shareholder accounts thereof, in a timely manner: issuing
(including countersigning), transferring and canceling share
certificates; answering and responding to telephone inquiries from
shareholders and broker-dealers; maintaining all shareholder accounts;
providing transaction journals; preparing shareholder meeting lists,
mailing proxies and proxy materials, receiving and tabulating proxies,
and certifying the shareholder votes in the Fund; mailing shareholder
reports and prospectuses; withholding, as required by Federal law,
taxes on shareholder accounts, disbursing income dividends and capital
gains distributions to shareholders, preparing, filing and mailing U.S.
Treasury Department Forms 1099, W2-P, 1042S and backup withholding as
required for all shareholders; preparing and mailing confirmation forms
to shareholders and dealers, as instructed, for all transfers of shares
of the Fund and other confirmable transactions in shareholders'
accounts; recording reinvestment of dividends and distributions in
shares of the Fund; providing or making available on-line daily and
monthly reports as provided by the mutual fund processing system
utilized by IFTC (the "System") and as requested by the Fund or its
management company; maintaining those records necessary to carry out
IFTC's duties hereunder, including all information reasonably required
by the Fund to account for all transactions in Fund shares; receiving
correspondence pertaining to any former, existing or new shareholder
account, processing such correspondence for proper recordkeeping, and
responding promptly to shareholder correspondence; mailing copies of
shareholder statements to shareholders and registered representatives
of dealers in accordance with the shareholders' or the Fund's
instructions; and processing, generally on the date of receipt,
transfers and other instructions received in proper order as set forth
in the prospectus, and rejecting promptly any requests or instructions
not received in proper order (as defined by the Fund or its agents).
E. IFTC shall use reasonable efforts to provide, reasonably promptly under
the circumstances, services with respect to any new, additional Fund
functions or features or any changes or improvements to existing Fund
functions or features provided for in Fund's instructions or
prospectus, as amended from time to time, provided (i) IFTC is advised,
a reasonable time in advance, by the Fund of any changes therein and
(ii) the System and mode of operations utilized by IFTC as then
constituted supports such additional functions and features. If any
addition to, improvement of or change in the Fund features and
functions currently provided or the operations as requested by the Fund
requires an enhancement or modification to the System or to operations
as then conducted by IFTC, IFTC shall not be liable therefor until such
modification or enhancement is installed on the System or new mode of
operation is instituted. If any new or additional Fund function or
feature, change or improvement to existing Fund functions or features,
or new service or change in mode of operation required by the Fund
increases IFTC's cost of performing the services required hereunder at
the then current level of service, IFTC shall advise the Fund of the
amount of such increase and if the Fund elects to utilize such
function, feature or changed method of service, IFTC shall be
entitled to increase its fees by the amount of the increase in costs.
5. Compensation and Expenses.
A. In consideration for its services hereunder as Transfer Agent and
Paying Agent, Fund will pay to IFTC such compensation as shall be set
forth in a separate fee schedule to be agreed to by Fund and IFTC from
time to time. A copy of the initial fee schedule is attached hereto and
incorporated herein by reference.
B. The Fund also agrees to reimburse IFTC promptly for all reasonable
out-of-pocket expenses and disbursements incurred by IFTC in connection
with the performance of services under this Agreement including, but
not limited to, expenses for postage, express delivery services,
freight charges, envelopes, checks, drafts, forms (continuous or
otherwise), specially requested reports and statements, telephone
calls, telegraphs, stationery supplies, counsel fees, outside printing
and mailing firms (including Output Technology, Inc. and Support
Resources, Inc.), magnetic tapes, reels or cartridges (if sent to a
Fund or to third party at the Fund's request) and magnetic tape
handling charges, off-site record storage, media for storage of records
(e.g., microfilm, microfiche, optical platters, computer tapes),
computer equipment installed at the Fund's request at the Fund's or a
third party's premises, telecommunications equipment,
telephone/telecommunication lines between Fund and its agents, on one
hand, and IFTC on the other, proxy soliciting, processing and/or
tabulating costs, second-site backup computer facility, transmission of
statement data for remote printing or processing, and NSCC transaction
fees to the extent any of the foregoing are paid by IFTC. The Fund
agrees to pay postage expenses at least one day in advance if so
requested. In addition, any other expenses incurred by IFTC at the
request or with the consent of the Fund will be promptly reimbursed by
the Fund.
C. Amounts due hereunder shall be due and paid by the Fund on or before
the thirtieth (30th) day after the date of the statement therefor (the
"Due Date"). The Fund is aware that its failure to pay all amounts in a
timely fashion so that they will be received by IFTC on or before the
Due Date will give rise to costs to IFTC not contemplated by this
Agreement, including but not limited to carrying, processing and
accounting charges. Accordingly, subject to Section 5.D. hereof, in the
event that any amounts due hereunder are not received by IFTC by the
Due Date, the Fund shall pay a late charge equal to the rate set forth
in the Fee Schedule. The parties hereby agree that such late charge
represents a fair and reasonable computation of the costs incurred by
reason of late payment or payment of amounts not properly due.
Acceptance of such late charge shall in no event constitute a waiver of
the Fund's or IFTC's default or prevent the nondefaulting party from
exercising any other rights and remedies available to it.
D. In the event that any charges are disputed, the Fund shall, on or
before the Due Date, pay all undisputed amounts due hereunder and
notify IFTC in writing of any disputed charges for out-of-pocket
expenses which it is disputing in good faith. Payment for such disputed
charges shall be due on or before the close of the fifth (5th) business
day after the day on which IFTC provides to the Fund documentation
which an objective observer would agree reasonably supports the
disputed charges (the "Revised Due Date"). Late charges shall not begin
to accrue as to charges disputed in good faith until the first day
after the Revised Due Date.
6. Operation of IFTC System.
In connection with the performance of its services under this Agreement,
IFTC is responsible for such items as:
A. The accuracy of entries made by IFTC in IFTC's records in accordance
with orders and instructions received by IFTC from dealers,
shareholders, Fund or its principal underwriter;
B. The availability and the accuracy of shareholder lists, shareholder
account verifications, confirmations and other shareholder account
information to be produced from its records or data;
C. The accurate and timely issuance of dividend and distribution checks in
accordance with instructions received from Fund;
D. The deposit daily in Fund's appropriate special bank account of all
checks and payments received from dealers or shareholders for
investment in shares;
E. 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 written procedures and such changes as may be
directed by Fund in a particular case; and
F. The maintenance of a current duplicate set of Fund's essential records
at a secure distant location, in a form available and usable forthwith
in the event of any breakdown or disaster disrupting its main
operation.
G. Notwithstanding anything herein to the contrary, with respect to "as
of" adjustments, IFTC will not assume one hundred percent (100%)
responsibility for losses resulting from "as ofs" due to clerical
errors or interpretations of shareholder instructions and will not be
liable for "as of" adjustments except as set forth in Section 7.B.
hereof.
7. Indemnification.
A. IFTC shall at all times use reasonable care and due diligence and act
in good faith in performing its duties under this Agreement. IFTC shall
not be responsible for, and the Fund shall indemnify and hold IFTC
harmless from and against, any and all losses, damages, costs, charges,
counsel fees, payments, expenses and liability which may be asserted
against IFTC, incurred by IFTC or for which IFTC may be held to be
liable, arising out of or attributable to:
(1) All actions of IFTC required to be taken by IFTC pursuant to this
Agreement, provided that IFTC has acted in good faith and with due
diligence and reasonable care;
(2) The Fund's refusal or failure to comply with the terms of this
Agreement (including without limitation the Fund's failure to pay
or reimburse IFTC under this indemnification provision), the
Fund's negligence or willful misconduct, or the breach of any
representation or warranty of the Fund hereunder;
(3) The good faith reliance on, or the carrying out of, any written or
recorded oral instructions or requests of persons designated by
the Fund in writing from time to time as authorized to give
instructions on its behalf or representatives of the Fund's
investment advisor, sponsor or principal underwriter or IFTC's
good faith reliance on, or use of, information, data, records and
documents received from, or which have been prepared and/or
maintained by the Fund, its investment advisor, its sponsor or its
principal underwriter;
(4) Defaults by dealers or shareowners with respect to payment for
share orders previously entered;
(5) The offer or sale of the Fund's shares in violation of any
requirement under federal or state securities laws or regulations
or in violation of any stop order or other determination or ruling
by any federal or state agency with respect to the offer or sale
of such shares (unless such violation results from IFTC's failure
to comply with written instructions of the Fund or of any officer
of the Fund that no offers or sales to residents of such state be
input into the Fund's securityholder records);
(6) The Fund's errors and mistakes in the use of the System, the data
center, computer and related equipment used to access the System
(the "Facilities"), and control procedures relating thereto in the
verification of output and in the remote input of data;
(7) With respect to any pre-existing investment companies which may
hereafter become part of the Fund, errors, inaccuracies,
out-of-balance conditions and omissions in, or errors,
inaccuracies or omissions of IFTC arising out of or resulting from
such errors, inaccuracies, out-of-balance conditions and omissions
in, the shareholder and other records delivered to IFTC; and
(8) Actions or omissions to act by the Fund or agents designated by
the Fund with respect to duties assumed thereby as provided for in
Section 20 hereof.
B. Except where IFTC is entitled to indemnification under Section 7.A.
hereof, IFTC shall indemnify and hold the Fund harmless from and
against any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of IFTC's failure to
comply with the terms of this Agreement or arising out of or
attributable to IFTC's negligence or willful misconduct or breach of
any representation or warranty of IFTC hereunder. Notwithstanding
anything herein to the contrary, IFTC will not indemnify or hold the
Fund harmless as to losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or resulting from "as
of's" due to clerical errors or misinterpretations of shareholder
instructions, but IFTC will discuss with the Fund on a case-by-case
basis the possibility of IFTC's accepting liability for a particular
"as of" and may accept financial responsibility for a particular
situation resulting in a financial loss to the Fund where IFTC in its
discretion deems that to be appropriate.
C. EXCEPT FOR VIOLATIONS OF SECTION 22, IN NO EVENT AND UNDER NO
CIRCUMSTANCES SHALL EITHER PARTY TO THIS AGREEMENT BE LIABLE TO ANYONE,
INCLUDING, WITHOUT LIMITATION TO THE OTHER PARTY, FOR CONSEQUENTIAL
DAMAGES FOR ANY ACT OR FAILURE TO ACT UNDER ANY PROVISION OF THIS
AGREEMENT EVEN IF ADVISED OF THE POSSIBILITY THEREOF.
8. Certain Covenants of IFTC and Fund.
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 set
forth in section 4.D. above; to establish and maintain facilities and
procedures 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 such insurance as it considers adequate and
reasonably available. IFTC shall initially maintain insurance in at
least the minimum amounts set forth on Exhibit A hereto, which minimum
amounts will not be lowered without notice to the Fund.
C. To the extent required by Section 31 of the Investment Company Act of
1940 (the "1940 Act") as amended and Rules thereunder, 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, will be
preserved for the period required by the 1940 Act or such longer period
as the Fund may require in writing and will be surrendered promptly to
Fund on request.
D. IFTC will permit Fund and its authorized accountants, upon the
execution of IFTC's Confidentiality Agreement, to make periodic
inspections and audits of its operations as such would involve the Fund
at reasonable times during business hours.
9. 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; and
B. Specimens and a sufficient working supply 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.
10. 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.
11. 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.
12. 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.
13. Instructions, Opinion of Counsel and Signatures.
At any time IFTC may apply to any person authorized by the Fund to give
instructions to IFTC, or, at the expense of the Fund and with the approval
of a Fund officer, may consult with legal counsel for Fund or, at the
expense of the Fund, may consult with its own legal counsel 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 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.
14. Papers Subject to Approval of Counsel.
The acceptance by IFTC of its appointment as transfer agent and paying
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).
15. 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 or official body, a certificate
of such filing will appear on the certified copy submitted to IFTC. A copy
of the order or 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 Fund's seal.
16. Records.
IFTC will maintain customary records in connection with its agency, and
particularly 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, if any.
17. Disposition of Books, Records and Canceled Certificates.
IFTC may send periodically to Fund, or to where designated by the Fund, all
books, documents, and records no longer deemed needed for current purposes
and stock certificates which have been canceled in transfer or in exchange,
upon the understanding that such books, documents, records, and stock
certificates will be maintained by the Fund under and in accordance with
the requirements of Section 17Ad-7 adopted under the Securities Exchange
Act of 1934. Such materials 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.
18. 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 and other documents as outlined
in paragraph 1. of this Agreement, a sufficient supply of blank stock
certificates 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. Fund shall be
responsible for ascertaining if any taxes are required to be paid and,
if so, for paying such taxes.
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 an eligible
guarantor institution, as that term is defined in Rule 17Ad-15, adopted
under the Securities Exchange Act of 1934, and as implemented by IFTC's
Signature Guarantee Procedures. 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.
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.
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.
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.
19. Provisions Relating to Paying 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
to 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.
D. IFTC will open and maintain one or more non-interest bearing deposit
accounts as agent for Fund, into which the moneys received for the
account of the Fund and moneys for payment of dividends, distributions,
or other disbursements provided for hereunder will be deposited, and
against which checks will be drawn. If IFTC shall in its sole
discretion advance funds to or for the account of Fund which results in
an overdraft in any such account because the monies held therein by
IFTC on behalf of Fund are insufficient to pay the total amount payable
from such account for any reason, the amount of the overdraft shall be
payable by Fund to IFTC upon demand together with the overdraft charge
set forth in the then-current fee schedule from the date advanced until
the date final payment is received. IFTC may charge against any monies
held by it for the Fund the amount of any overdraft for which it shall
be entitled to reimbursement from the Fund.
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.
20. Assumption of Duties By the Fund or Agents Designated By the Fund.
A. The Fund, its designated agents other than IFTC or any subcontractor
employed by the Fund or IFTC at the direction or request of the Fund
may assume certain duties and responsibilities of IFTC or those
services of Transfer Agent and Paying Agent as those terms are referred
to in Section 4.D. of this Agreement including but not limited to:
answering and responding to telephone inquiries from shareholders and
broker-dealers; accepting shareholder and broker instructions (both
oral and written) and transmitting orders or directions based on such
instructions to IFTC; preparing and mailing confirmations; obtaining
certified TIN numbers; establishing shareholder accounts on the System,
classifying the status of shareholders and shareholder accounts under
applicable tax law and assigning social codes and Taxpayer
Identification Number codes thereto; and disbursing monies of the Fund.
Any assumption of duties and responsibilities and any amendments
thereto must be embodied in writing and signed by both parties.
B. To the extent the Fund or its agent or affiliate assumes such duties
and responsibilities, IFTC shall be relieved from all responsibility
and liability therefor and is hereby indemnified and held harmless
against any liability therefrom and in the same manner and degree as
provided for in Section 7 hereof.
21. Termination of Agreement.
A. The initial term of this Agreement shall be a period of one (1) year.
Thereafter, this Agreement shall remain in full force and effect until
terminated by either party by delivery of ninety (90) days prior
written notice to the other party; provided, however, that no
termination shall become effective during the period from December 15
of any year to March 15 of the succeeding year without IFTC's written
consent.
B. Each party, 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 with respect to the other
party:
(1) Any interruption or cessation of operations by the other party or
its assigns which materially interferes with the business
operation of the first party;
(2) The bankruptcy of the other party or its assigns or the
appointment of a receiver for the other party or its assigns;
(3) Any merger, consolidation or sale of substantially all the assets
of the other party or its assigns;
(4) The acquisition of a controlling interest in the other party or
its assigns, by any broker, dealer or investment adviser except as
may presently exist; or
(5) Failure by the other party or its assigns to perform its duties in
accordance with the Agreement, which failure materially adversely
affects the business operations of the first party and which
failure continues for thirty (30) days after receipt of written
notice from the first party.
C. In the event of termination, Fund will promptly pay IFTC all amounts
due to IFTC hereunder.
D. In the event of termination, IFTC will use its best efforts to transfer
the books and records of the Fund to the designated successor transfer
agent and to provide other information relating to its service provided
hereunder for reasonable compensation therefore.
22. Confidentiality.
A. IFTC agrees that, except as provided in the last sentence of Section
18.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 to keep confidential all financial statements and other
financial records 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.
C. The Fund acknowledges that IFTC and DST Systems, Inc. (DST) have
proprietary rights in and to the System, including, without limitation
any changes or modifications thereto and any other IFTC or DST
programs, code, techniques, know-how, data bases, supporting
documentation, data formats, or procedures ("IFTC Protected
Information") which the Fund's access to the System or Facilities may
permit the Fund or its employees or agents to become aware of or to
access and that the IFTC Protected Information constitutes confidential
material and trade secrets of IFTC. The Fund agrees to maintain the
confidentiality of the IFTC Protected Information. The Fund
acknowledges that any unauthorized use, misuse, disclosure or taking of
IFTC Protected Information which is confidential as provided by law, or
which is a trade secret, residing or existing internal or external to a
computer, computer system, or computer network, or the knowing and
unauthorized accessing or causing to be accessed of any computer,
computer system, or computer network, may be subject to civil
liabilities and criminal penalties under applicable law. The Fund will
advise all of its employees and agents who have access to any IFTC
Protected Information or to any computer equipment capable of accessing
IFTC or DST hardware or software of the foregoing. DST is intended to
be, and shall be, a third party beneficiary of the Fund's obligations
and undertakings contained in this Section.
23. Changes and Modifications.
A. During the term of this Agreement IFTC will use on behalf of the Fund
without additional cost all modifications, enhancements, or changes
which DST or IFTC may make to its shareholder/transfer agent processing
system in the normal course of its business and which are applicable to
functions and features offered by the Fund, unless substantially all
DST or IFTC clients are charged separately for such modifications,
enhancements or changes, including, without limitation, substantial
system revisions or modifications necessitated by changes in existing
laws, rules or regulations. The Fund agrees to pay IFTC promptly for
modifications and improvements which are charged for separately at the
rate provided for in DST's or IFTC's standard pricing schedule which
shall be identical for substantially all clients, if a standard pricing
schedule shall exist. If there is no standard pricing schedule, the
parties shall mutually agree upon the rates to be charged.
B. IFTC shall have the right, at any time and from time to time, to alter
and modify any systems, programs, procedures or facilities used or
employed in performing its duties and obligations hereunder; provided
that the Fund will be notified as promptly as possible prior to
implementation of such alterations and modifications and that no such
alteration or modification or deletion shall materially adversely
change or affect the operations and procedures of the Fund in using or
employing the System or the Facilities hereunder or the reports to be
generated by such system and facilities hereunder, unless the Fund is
given thirty (30) days prior notice to allow the Fund to change its
procedures and IFTC provides the Fund with revised operating procedures
and controls.
C. All enhancements, improvements, changes, modifications or new features
added to the System or otherwise made available by IFTC for use in
connection with the business of the Fund however developed or paid for
shall be, and shall remain, the confidential and exclusive property of,
and proprietary to, DST Systems, Inc. and IFTC.
24. Subcontractors.
The Fund acknowledges that IFTC intends to subcontract certain obligations
hereunder to affiliated entities and consents to such subcontracting on
condition that IFTC shall remain fully responsible and liable for the
complete and proper performance of IFTC's obligations hereunder, that all
acts and omissions of any such subcontractor hereunder shall for all
purposes hereof be considered and deemed to be acts or omissions of IFTC
and that the Fund shall be fully responsible and liable hereunder to IFTC
as if no subcontract had occurred and such obligations had been performed
by IFTC itself. Nothing herein shall impose any duty upon IFTC in
connection with or make IFTC liable for the actions or omissions to act of
unaffiliated third parties such as, by way of example and not limitation,
courier or next day delivery services, shipping companies, the U.S. mails
or telecommunication companies, provided that, if IFTC selected such
company, IFTC shall have exercised due care in selecting the same.
25. Force Majeure
IFTC shall not be responsible or liable for its failure or delay in
performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its reasonable
control, including, without limitation: any interruption, loss or
malfunction of any utility, transportation, computer (hardware or software)
or communication service; inability to obtain labor, material, equipment or
transportation, or a delay in mails; governmental or exchange action,
statute, ordinance, rulings, regulations or direction; war, strike, riot,
emergency, civil disturbance, terrorism, vandalism, explosions, labor
disputes, freezes, floods, fires, tornados, acts of God or public enemy,
revolutions, or insurrection.
26. Miscellaneous
A. This Agreement shall be construed according to, and the rights and
liabilities of the parties hereto shall be governed by, the laws of
the State of Missouri, without reference to the choice of law
provisions thereof.
B. All terms and provisions of this Agreement shall be binding upon,
inure to the benefit of and be enforceable by the parties hereto and
their respective successors and permitted assigns.
C. The representations and warranties, the indemnification extended
hereunder, and the provisions of Section 22 are intended to and shall
continue after and survive the expiration, termination or cancellation
of this Agreement.
D. No provisions of the Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed
by each party hereto.
E. The captions in the 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.
F. This Agreement may be executed 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 determined by the
courts or any regulatory authority having jurisdiction over the issue
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 hereto without the
prior written consent of the other party.
I. Neither the execution nor performance of this Agreement shall be deemed
to create a partnership or joint venture by and between Fund and IFTC.
It is understood and agreed that all services performed hereunder by
IFTC shall be as an independent contractor and not as an employee of
the Fund. This Agreement is between IFTC and the Fund and neither this
Agreement nor the performance of services under it shall create any
rights in any third parties. There are no third party beneficiaries
hereto.
J. Except as specifically provided herein, this Agreement does not in any
way affect any other agreements entered into among the parties hereto
and any actions taken or omitted by any party hereunder shall not
affect any rights or obligations of any other party hereunder.
K. The failure of either party to insist upon the performance of any terms
or conditions of this Agreement or to enforce any rights resulting from
any breach of any of the terms or conditions of this Agreement,
including the payment of damages, shall not be construed as a
continuing or permanent waiver of any such terms, conditions, rights or
privileges, but the same shall continue and remain in full force and
effect as if no such forbearance or waiver had occurred.
L. This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement, draft or agreement or
proposal with respect to the subject matter hereof, whether oral or
written, and this Agreement may not be modified except by written
instrument executed by both parties.
WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective duly authorized officers.
INVESTORS FIDUCIARY TRUST COMPANY
By: /s/ Allen R. Strain
Title: Executive Vice President
PIPER FUNDS INC. - II
By: /s/ Paul A. Dow
Title: President
EXHIBIT A
INSURANCE COVERAGE
Minimum Insurance Coverages:
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.
Minimum Coverage: $75,000,000
ERRORS AND OMISSIONS INSURANCE
Indemnifies against loss in providing shareholder accounting services
by reason of neglect, error or omission.
Minimum Coverage: $10,000,000
MAIL INSURANCE (APPLIES TO ALL FULL SERVICE OPERATIONS)
Provides indemnity for security lost in the mails.
Minimum Coverage:
$10,000,000 per envelope nonnegotiable securities mailed to domestic
locations via registered mail.
$1,000,000 per envelope nonnegotiable securities mailed to domestic
locations via first-class or certified mail.
$1,000,000 per envelope nonnegotiable securities mailed to foreign
locations via registered mail.
$1,000,000 per envelope negotiable securities mailed to all locations
via registered mail.
All the foregoing are subject to deductibles.
Exhibit 10
Piper Funds Inc. -- II
222 South Ninth Street
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
We have acted as counsel to Piper Funds Inc. -- II, a Minnesota corporation
(the "Fund"), in connection with a Registration Statement on Form N-1A (the
"Registration Statement") relating to the sale by the Fund of an indefinite
number of shares of the Fund's Series A common stock, par value of $.01 per
share (the "Shares").
We have examined such documents and have reviewed such questions of law as
we have considered necessary and appropriate for the purposes of our opinions
set forth below. In rendering our opinions set forth below, we have assumed the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures and the conformity to authentic originals of all documents
submitted to us as copies. We have also assumed the legal capacity for all
purposes relevant hereto of all natural persons and, with respect to all parties
to agreements or instruments relevant hereto other than the Fund, that such
parties had the requisite power and authority (corporate or otherwise) to
execute, deliver and perform such agreements or instruments, that such
agreements or instruments have been duly authorized by all requisite action
(corporate or otherwise), executed and delivered by such parties and that such
agreements or instruments are the valid, binding and enforceable obligations of
such parties. As to questions of fact material to our opinions, we have relied
upon certificates of officers of the Fund and of public officials. We have also
assumed that the Shares will be issued and sold as described in the Registration
Statement.
Based on the foregoing, we are of the opinion that the Shares have been
duly authorized by all requisite corporate action and, upon issuance, delivery
and payment therefor as described in the Registration Statement, will be validly
issued, fully paid and nonassessable.
Our opinions expressed above are limited to the laws of the State of
Minnesota.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm on the back cover of the
Prospectus constituting part of the Registration Statement.
Dated: June 21, 1995
Very truly yours,
/s/ Dorsey & Whitney P.L.L.P.
KLP
Exhibit 25
PIPER FUNDS INC.--II
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Paul A. Dow, William H. Ellis and
Charles N. Hayssen, and each of them, his or her true and lawful
attorneys-in-fact and agents, each acting alone, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign a Registration Statement on Form N-1A of Piper
Funds Inc.--II, and any and all amendments thereto, including post-effective
amendments, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, each acting alone, full power and
authority to do and perform to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or the substitutes for such
attorneys-in-fact and agents, may lawfully do or cause to be done by virtue
hereof.
Signature Title Date
/s/ Paul A. Dow President June 19, 1995
Paul A. Dow
/s/ Charles N. Hayssen Treasurer June 19, 1995
Charles N. Hayssen
/s/ David T. Bennett Director June 19, 1995
David T. Bennett
/s/ Jaye F. Dyer Director June 19, 1995
Jaye F. Dyer
/s/ William H. Ellis Director June 19, 1995
William H. Ellis
/s/ Karol D. Emmerich Director June 19, 1995
Karol D. Emmerich
/s/ Luella G. Goldberg Director June 19, 1995
Luella G. Goldberg
/s/ George Latimer Director June 19, 1995
George Latimer
