<PAGE>
PIPER CAPITAL MANAGEMENT
222 South Ninth Street
Minneapolis, Minnesota 55402-3804
800 866-7778
August 26, 1996
Dear Shareholder:
A special meeting of shareholders of Institutional Government Adjustable
Portfolio (the "Fund") will be held at the offices of the Fund on September 12,
1996 at 10:00 a.m., central time, at 222 South Ninth Street, Eleventh Floor,
Minneapolis, Minnesota.
This meeting has been called to seek shareholder approval of the merger
of the Fund into Adjustable Rate Mortgage Securities Fund ("Adjustable Rate
Fund"), a series of Piper Funds Inc. -- II. The merger will be accomplished
by selling the assets of the Fund to Adjustable Rate Fund in exchange for
shares of Adjustable Rate Fund. If approved, Fund shareholders will become
shareholders of Adjustable Rate Fund and will receive shares with a value
equal to the value of their Fund shares.
Piper Capital proposed this reorganization to the Fund's Board of Directors
because the Fund has been unable to attract and retain sufficient assets to make
its continued operation economically viable. We urge you to read all of the
enclosed materials carefully but direct your attention to the following
important points:
- The Board of Directors has unanimously approved the reorganization and
recommends that you vote FOR the reorganization.
- The two funds have nearly identical investment objectives. The Fund's
objective is high current income consistent with low principal
volatility. The investment objective of Adjustable Rate Fund is
to provide the maximum current income that is consistent with low
volatility of principal.
- Tom McGlinch currently manages both funds and would remain responsible
for the Adjustable Rate Fund's day-to-day management.
- Shareholders will not incur any commissions, sales loads or other
charges in connection with the reorganization and Piper Capital has
agreed to pay for all direct expenses including the proxy
solicitation.
- While reimbursements currently keep the expense ratios of both the
Fund and the Adjustable Rate Fund artificially
<PAGE>
low, Piper Capital does not currently intend to continue reimbursing
expenses for either fund in fiscal 1997. Absent any such expense
reimbursements, the expense ratio for Adjustable Rate Fund is lower
than the Fund's expense ratio.
- The reorganization will not result in any federal taxable income to
the Fund or its shareholder.
PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS
POSSIBLE, AS YOUR PROMPT RESPONSE WILL ELIMINATE THE NEED FOR ADDITIONAL
MAILINGS. A postage-paid envelope is enclosed with each proxy mailing for your
convenience. As the meeting date approaches, if you haven't voted you may
receive a telephone call reminding you to vote.
Attached are the formal Notice of Special Meeting and the Proxy
Statement/Prospectus. Also enclosed are a number of other documents that will
provide you with more information about the Fund and Adjustable Rate Fund. If
you have additional questions, please contact your investment professional or
call Piper Capital at 1 800 866-7778 and press 2.
Sincerely,
William H. Ellis
President
<PAGE>
PIPER INSTITUTIONAL FUNDS INC.
Institutional Government Adjustable Portfolio
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402-3804
-----------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 12, 1996
-----------------------------
TO THE SHAREHOLDERS OF INSTITUTIONAL GOVERNMENT ADJUSTABLE PORTFOLIO, A SERIES
OF PIPER INSTITUTIONAL FUNDS INC.
Notice is hereby given that a Special Meeting (the "Meeting") of
shareholders of Institutional Government Adjustable Portfolio (the "Fund"), one
of two portfolios of Piper Institutional Funds Inc. (the "Company"), will be
held at the offices of the Company, 222 South Ninth Street, Eleventh Floor,
Minneapolis, Minnesota 55402, on September 12, 1996 at 10:00 a.m., central time.
The purposes of the Meeting are:
I. To consider and vote upon an Agreement and Plan of Reorganization,
dated as of August 22, 1996 (the "Plan"), by and between the Company, on
behalf of the Fund, and Piper Funds Inc. -- II ("Piper Funds II"), on
behalf of Adjustable Rate Mortgage Securities Fund ("Adjustable Rate
Fund"), pursuant to which substantially all of the assets of the Fund will
be acquired by Adjustable Rate Fund and shareholders of the Fund will
become shareholders of Adjustable Rate Fund receiving shares of Adjustable
Rate Fund with a value equal to the value of their holdings in the Fund.
A vote in favor of the Plan will be considered a vote in favor of an
amendment to the articles of incorporation of the Company required to
effect the reorganization as contemplated by the Plan.
II. To consider and act upon such other matters as may properly come
before the Meeting or any adjournment thereof.
YOUR DIRECTORS UNANIMOUSLY RECOMMEND THAT YOU
VOTE IN FAVOR OF THE ABOVE PROPOSAL.
The attached Proxy Statement/Prospectus describes the above proposal in
detail and is being sent to shareholders of record as of the close of business
on July 22, 1996, who are the shareholders entitled to notice of and to vote at
the Meeting. Please read the Proxy Statement/Prospectus carefully before
telling us through your proxy or in person how you wish your shares to be voted.
By Order of the Board of Directors
SUSAN SHARP MILEY
SECRETARY
August 26, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IMPORTANT
THE BOARD OF DIRECTORS URGES YOU TO MARK, SIGN AND RETURN THE
ENCLOSED PROXY AS SOON AS POSSIBLE WHETHER OR NOT YOU EXPECT
TO ATTEND THE MEETING IN PERSON. THE ENCLOSED ADDRESSED
ENVELOPE REQUIRES NO POSTAGE AND IS PROVIDED FOR YOUR CONVENIENCE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ADJUSTABLE RATE MORTGAGE SECURITIES FUND
A SERIES OF PIPER FUNDS INC. -- II
PIPER JAFFRAY TOWER
222 SOUTH NINTH STREET
MINNEAPOLIS, MINNESOTA 55402-3804
(800) 866-7778 (TOLL FREE)
---------------------------
ACQUISITION OF THE ASSETS OF INSTITUTIONAL GOVERNMENT ADJUSTABLE PORTFOLIO
A SERIES OF PIPER INSTITUTIONAL FUNDS INC.
BY AND IN EXCHANGE FOR SHARES OF ADJUSTABLE RATE MORTGAGE SECURITIES FUND
A SERIES OF PIPER FUNDS INC. -- II
---------------------------
This Proxy Statement/Prospectus is being furnished to shareholders of
Institutional Government Adjustable Portfolio (the "Fund"), a series of Piper
Institutional Funds Inc. (the "Company"), in connection with an Agreement and
Plan of Reorganization dated as of August 22, 1996 (the "Plan") pursuant to
which substantially all of the assets of the Fund will be combined with those
of Adjustable Rate Mortgage Securities Fund ("Adjustable Rate Fund"), a
series of Piper Funds Inc. -- II ("Piper Funds II"), in exchange for shares
of Adjustable Rate Fund. As a result of this transaction, shareholders of
the Fund will become shareholders of Adjustable Rate Fund and will receive
shares of Adjustable Rate Fund with a value equal to the value of their
holdings in the Fund as of the date of the transaction. The terms and
conditions of this transaction are more fully described in this Proxy
Statement/ Prospectus and in the Plan, attached hereto as Exhibit A.
Adjustable Rate Fund is a diversified series of Piper Funds II, an open-end
management investment company the shares of which may be offered in more than
one series. The investment objective of Adjustable Rate Fund is to provide the
maximum current income that is consistent with low volatility of principal.
Adjustable Rate Fund seeks to achieve that objective by investing primarily (at
least 65% of its total assets under normal market conditions) in adjustable rate
mortgage securities (as herein defined).
This Proxy Statement/Prospectus sets forth concisely information about
Adjustable Rate Fund that shareholders of the Fund should know before voting
on the Plan. This Proxy Statement also constitutes a Prospectus of
Adjustable Rate Fund filed with the Securities and Exchange Commission (the
"Commission") as part of its Registration Statement on Form N-14. The
following documents accompany this Proxy Statement/Prospectus: Adjustable
Rate Fund's Prospectus dated December 18, 1995; the Company's Prospectus
dated November 1, 1995, as supplemented June 24, 1996; a Statement of
Additional Information relating to the reorganization described in this Proxy
Statement/ Prospectus dated August 26, 1996; Adjustable Rate Fund's Statement
of Additional Information dated
<PAGE>
December 18, 1995; Adjustable Rate Fund's Annual Report for the fiscal year
ended August 31, 1995; Adjustable Rate Fund's Semiannual Report for the six
months ended February 29, 1996; the Company's Statement of Additional
Information dated November 1, 1995; and the Company's Annual Report for the
fiscal year ended June 30, 1996. Adjustable Rate Fund's Prospectus dated
December 18, 1995, and the Company's Prospectus dated November 1, 1995, as
supplemented June 24, 1996, are incorporated herein by reference.
INVESTORS ARE ADVISED TO READ AND RETAIN THIS PROXY STATEMENT/PROSPECTUS
FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
PROXY STATEMENT/PROSPECTUS
Page
----
INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . 1
General. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Record Date; Share Information . . . . . . . . . . . . . . 2
Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Expenses of Solicitation . . . . . . . . . . . . . . . . . 3
Vote Required. . . . . . . . . . . . . . . . . . . . . . . 3
SYNOPSIS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Reorganization . . . . . . . . . . . . . . . . . . . . 4
Fee Table. . . . . . . . . . . . . . . . . . . . . . . . . 4
Tax Consequences of the Reorganization . . . . . . . . . . 6
Dissenting Shareholders' Rights of Appraisal . . . . . . . 6
Comparison of the Fund and Adjustable Rate Fund. . . . . . 6
PRINCIPAL RISK FACTORS. . . . . . . . . . . . . . . . . . . . . 10
Risks of Investments . . . . . . . . . . . . . . . . . . . 10
Litigation Risk. . . . . . . . . . . . . . . . . . . . . . 12
THE REORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . 14
Background . . . . . . . . . . . . . . . . . . . . . . . . 14
The Board's Consideration. . . . . . . . . . . . . . . . . 14
The Plan . . . . . . . . . . . . . . . . . . . . . . . . . 16
Tax Aspects of the Reorganization. . . . . . . . . . . . . 18
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . 20
Description of Shares. . . . . . . . . . . . . . . . . . . 20
Capitalization Table (unaudited) . . . . . . . . . . . . . 21
Interests of Certain Persons . . . . . . . . . . . . . . . 21
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND
RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 21
Investment Objectives. . . . . . . . . . . . . . . . . . . 21
Investment Policies. . . . . . . . . . . . . . . . . . . . 21
Investment Restrictions. . . . . . . . . . . . . . . . . . 24
ADDITIONAL INFORMATION ABOUT THE FUND AND
ADJUSTABLE RATE FUND. . . . . . . . . . . . . . . . . . . . . . 25
General. . . . . . . . . . . . . . . . . . . . . . . . . . 25
Financial Information. . . . . . . . . . . . . . . . . . . 25
Management . . . . . . . . . . . . . . . . . . . . . . . . 25
Description of Securities and Shareholder Inquiries. . . . 25
Dividends, Distributions and Taxes . . . . . . . . . . . . 25
Purchases and Redemptions. . . . . . . . . . . . . . . . . 25
Pending Legal Proceedings. . . . . . . . . . . . . . . . . 25
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE . . . . . . . . . . 26
FINANCIAL STATEMENTS AND EXPERTS. . . . . . . . . . . . . . . . 26
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . 26
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . 26
OTHER BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . 27
EXHIBIT A--Agreement and Plan of Reorganization, dated as
of August 22, 1996, by and between the Company,
on behalf of the Fund, and Piper Funds II, on
behalf of Adjustable Rate Fund . . . . . . . . . . A-1
<PAGE>
--------------------------
PROXY STATEMENT/PROSPECTUS
INSTITUTIONAL GOVERNMENT ADJUSTABLE PORTFOLIO
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 12, 1996
--------------------------
INTRODUCTION
GENERAL
This Proxy Statement/Prospectus is being furnished to shareholders of
Institutional Government Adjustable Portfolio (the "Fund"), a diversified series
of Piper Institutional Funds Inc. (the "Company"), an open-end management
investment company, in connection with the solicitation by the Board of
Directors of the Company (the "Board") of proxies to be used at the Special
Meeting of Shareholders of the Fund to be held at the offices of the Fund, 222
South Ninth Street, Eleventh Floor, Minneapolis, Minnesota 55402-3804 on
September 12, 1996 at 10:00 a.m., central time, and any adjournments thereof
(the "Meeting"). It is expected that this Proxy Statement/Prospectus will be
mailed on or about August 28, 1996.
At the Meeting, Fund shareholders will consider and vote upon an Agreement
and Plan of Reorganization, dated as of August 22, 1996 (the "Plan") by and
between the Company, on behalf of the Fund, and Piper Funds Inc. -- II ("Piper
Funds II"), on behalf of Adjustable Rate Mortgage Securities Fund ("Adjustable
Rate Fund"), pursuant to which substantially all of the assets of the Fund will
be acquired by Adjustable Rate Fund in exchange for shares of Adjustable Rate
Fund. As a result of this transaction, shareholders of the Fund will become
shareholders of Adjustable Rate Fund and will receive shares in Adjustable Rate
Fund equal to the value of their holdings in the Fund on the date of such
transaction (the transactions described above are referred to as the
"Reorganization"). The shares to be issued by Adjustable Rate Fund pursuant to
the Reorganization ("Adjustable Rate Fund Shares") will be issued at net asset
value without a sales charge. Further information relating to Adjustable Rate
Fund is set forth in the current Prospectus of Adjustable Rate Fund accompanying
this Proxy Statement/Prospectus and is incorporated herein by reference. A vote
in favor of the Plan will be considered a vote in favor of an amendment to the
articles of incorporation of the Company required to effect the reorganization
as contemplated by the Plan.
1
<PAGE>
RECORD DATE; SHARE INFORMATION
The Board has fixed the close of business on July 22, 1996 as the record
date (the "Record Date") for the determination of the holders of shares of the
Fund entitled to notice of, and to vote at, the Meeting. As of the Record Date,
there were 538,180 shares of the Fund issued and outstanding. The holders of
record on the Record Date of shares of the Fund are entitled to one vote per
share held and a fractional vote with respect to fractional shares held on each
matter submitted to a vote at the Meeting. The holders of 10% of the shares
outstanding and entitled to vote will constitute a quorum at the meeting.
The following table sets forth information concerning those persons
known to Fund management to own of record or beneficially 5% or more of the
outstanding shares of the Fund as of the record date. The persons named below
have both record and beneficial ownership.
Name and Address of Record Holder Percentage Ownership
--------------------------------- --------------------
Norwest Bank Minnesota, N.A. 37.8%
as Trustee for St. Louis Park/Methodist Hospital
733 Marquette Avenue South, Mail Stop 0036
Minneapolis, Minnesota 55479-0031
Midsouth National Bank 18.5%
Attention: Karen L. Hail, Executive Vice President
102 Versailles
Lafayette, Louisiana 70501-6750
Greer State Bank 18.5%
1111 West Poinsett Street
P.O. Box 1029
Greer, South Carolina 29650-1395
As of the Record Date, the directors and officers of the Company, as
a group, owned less than 1% of the outstanding shares of the Fund.
To the knowledge of Piper Fund II's management, as of the Record Date no
person owned of record or beneficially 5% or more of the outstanding shares of
Adjustable Rate Fund. As of the Record Date, the directors and officers of
Piper Funds II, as a group, owned less than 1% of the outstanding shares of
Adjustable Rate Fund.
PROXIES
The enclosed form of proxy, if properly executed and returned, will be
voted in accordance with the choice specified thereon. The proxy will be voted
in favor of the Plan unless a choice is indicated to vote against or to abstain
from voting on the Plan. The Board knows of no business, other than that set
forth in the Notice of Special Meeting, to be presented for consideration at the
Meeting. However, the proxy confers discretionary authority upon the persons
named therein to vote as they determine on other business, not currently
contemplated, which may come before the Meeting.
Abstentions will be included for purposes of determining whether a quorum
is present at the Meeting and for purposes of calculating the vote but shall not
be deemed to have been voted in favor of such matters. Broker non-votes are
shares held in street name for which the broker indicates that instructions have
not been received from the beneficial owners or other persons entitled to vote
and for which the broker does not have discretionary voting authority. Broker
non-votes will be included for purposes of determining whether a quorum is
present at the Meeting, but will not be deemed to be represented at the Meeting
for purposes of calculating whether matters to be voted upon at the Meeting have
been approved. Because approval of the Plan requires an affirmative vote by a
majority of the outstanding shares, abstentions and broker non-votes all have
the same effect as a negative vote.
2
<PAGE>
If a shareholder executes and returns a Proxy Card but fails to indicate
how the votes should be cast, the proxy will be voted in favor of the Plan. The
proxy may be revoked at any time prior to the voting thereof by: (a) delivering
written notice or revocation to the Secretary of the Company at 222 South Ninth
Street, Minneapolis, Minnesota 55402-3804; (b) attending the Meeting and voting
in person; or (c) signing and returning a new Proxy Card (if returned and
received in time to be voted). Attendance at the Meeting will not in and of
itself revoke a proxy.
In the event that sufficient votes to approve the Plan are not obtained by
the Meeting date, or, subject to approval of the Board, for other reasons, an
adjournment or adjournments of the Meeting may be sought. Any adjournment would
require a vote in favor of the adjournment by the holders of a majority of the
shares present at the Meeting (or any adjournment thereof) in person or by
proxy. The persons named as proxies will vote all shares represented by proxies
which they are required to vote in favor of the Plan, in favor of an
adjournment, and will vote all shares which they are required to vote against
the Plan, against an adjournment. Approval of the Plan will be deemed approval
of the amendment to the articles of incorporation of the Company attached to the
Plan.
EXPENSES OF SOLICITATION
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement/Prospectus, will be borne by Piper Capital
Management Incorporated ("Piper Capital"), investment manager to the Company and
Piper Funds II. In addition to the solicitation of proxies by mail, proxies may
be solicited by officers and regular employees of the Company, Piper Capital or
the Fund's distributor, without compensation other than regular compensation,
personally or by mail, telephone, telegraph or otherwise. Brokerage houses,
banks and other fiduciaries may be requested to forward soliciting material to
the beneficial owners of shares and to obtain authorization for the execution of
proxies. For those services, if any, they will be reimbursed by Piper Capital
for their reasonable out-of-pocket expenses.
VOTE REQUIRED
Approval of the Plan by the Fund's shareholders requires the affirmative
vote of a majority (I.E., more than 50%) of the outstanding shares of the Fund.
If the Plan is not approved by shareholders, the Fund will continue in existence
and the Board will consider alternative actions.
3
<PAGE>
SYNOPSIS
THE FOLLOWING IS A SYNOPSIS OF CERTAIN INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS. THIS SYNOPSIS IS
ONLY A SUMMARY AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS AND
THE PLAN. SHAREHOLDERS SHOULD CAREFULLY REVIEW THIS PROXY STATEMENT/PROSPECTUS
AND THE PLAN IN THEIR ENTIRETY AND, IN PARTICULAR, THE CURRENT PROSPECTUS OF
ADJUSTABLE RATE FUND WHICH ACCOMPANIES THIS PROXY STATEMENT/PROSPECTUS AND WHICH
IS INCORPORATED HEREIN BY REFERENCE.
THE REORGANIZATION
The Plan provides for the transfer of substantially all of the assets of
the Fund, subject to stated liabilities, to Adjustable Rate Fund in exchange for
Adjustable Rate Fund Shares. The aggregate net asset value of Adjustable Rate
Fund Shares issued in the exchange will equal the aggregate value of the net
assets of the Fund received by Adjustable Rate Fund. On or after the closing
date scheduled for the Reorganization (the "Closing Date"), the Fund will
distribute Adjustable Rate Fund Shares received by the Fund to holders of shares
of the Fund issued and outstanding as of the Valuation Date (as hereinafter
defined) in complete liquidation of the Fund. As a result of the
Reorganization, each Fund shareholder will receive that number of full and
fractional Adjustable Rate Fund Shares equal in value to such shareholder's
shares of the Fund. The Board has determined that the interests of existing
Fund shareholders will not be diluted as a result of the Reorganization.
FOR THE REASONS SET FORTH BELOW UNDER "THE REORGANIZATION -- THE BOARD'S
CONSIDERATION," THE BOARD, INCLUDING ALL OF THE DIRECTORS WHO ARE NOT
"INTERESTED PERSONS" OF THE COMPANY ("INDEPENDENT DIRECTORS"), AS THAT TERM IS
DEFINED IN THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE "1940 ACT"), HAS
UNANIMOUSLY CONCLUDED THAT THE REORGANIZATION IS IN THE BEST INTERESTS OF THE
FUND AND ITS SHAREHOLDERS AND RECOMMENDS APPROVAL OF THE PLAN.
FEE TABLE
The funds each pay a variety of expenses for management of their assets,
distribution of their shares and other services, and those expenses are
reflected in the net asset value per share of each of the Fund and Adjustable
Rate Fund. The following table sets forth the expenses and fees that
shareholders of the Fund incurred during the fiscal year ended June 30, 1996
and that shareholders of Adjustable Rate Fund are expected to incur for the
fiscal year ending August 31, 1996, provided that expenses are set forth absent
any expense reimbursements by Piper Capital. Piper Capital has voluntarily
limited Total Fund Operating Expenses for the Fund and Adjustable Rate Fund to
.60% of average daily net assets for the Fund's fiscal year ended June 30, 1996
and Adjustable Rate Fund's fiscal year ending August 31, 1996. Piper Capital
does not intend to continue expense reimbursements
4
<PAGE>
for either Fund during the 1997 fiscal year. The Pro Forma Combined fees
reflect the estimated fee schedule for the fiscal year ending August 31, 1996
assuming the Reorganization had occurred 12 months prior to that date and
assuming no voluntary expense reimbursements by Piper Capital.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Adjustable Pro Forma
Fund Rate Fund Combined
------ ---------- ---------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) (1) 1.00% 1.50% 1.50%
Exchange Fee (2) $ 0 $ 0 $ 0
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES AS A PERCENTAGE OF AVERAGE NET ASSETS
Adjustable Pro Forma
Fund Rate Fund Combined
------ ---------- ---------
<S> <C> <C> <C>
Management Fees. . . . . . . . . . . . . . . . . 0.30% 0.35% 0.35%
12b-1 Fees (3) . . . . . . . . . . . . . . . . . 0.00% 0.15% 0.15%
Other Expenses . . . . . . . . . . . . . . . . . 1.45% 0.24% 0.24%
Total Fund Operating Expenses (4). . . . . . . . 1.75% 0.74% 0.74%
</TABLE>
_______________
(1) No sales charge will be imposed on Shares acquired in the Reorganization.
On unrelated purchases, the front-end sales charge of 1.00% for the Fund and
1.50% for Adjustable Rate Fund applies to purchases of less than $250,000 for
the Fund and $100,000 for Adjustable Rate Fund and scales down to 0% for each
fund on purchases of $500,000 or more.
(2) For each fund, there is a $5 fee for each exchange in excess of four
exchanges per year.
(3) Adjustable Rate Fund's Rule 12b-1 fee is characterized as a service fee
within the meaning of the National Association of Securities Dealers, Inc.
("NASD") guidelines.
(4) Total Fund Operating Expenses are set forth absent any expense
reimbursements by Piper Capital. Piper Capital has voluntarily limited Total
Fund Operating Expenses for the Fund and Adjustable Rate Fund to .60% of average
daily net assets for the Fund's fiscal year ended June 30, 1996 and Adjustable
Rate Fund's fiscal year ending August 31, 1996.
EXAMPLE
To attempt to show the effect of these expenses on an investment over time,
the example shown below has been created. You would pay the following expenses
on a $1,000 investment over various time periods assuming (a) 5% annual return
and (b) redemption at the end of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
The Fund . . . . . . . . $28 $65 $104 $214
Adjustable Rate Fund . . $22 $38 $56 $105
Pro Forma Combined . . . $22 $38 $56 $105
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL OPERATING EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
TAX CONSEQUENCES OF THE REORGANIZATION
As a condition to the Reorganization, the Fund will receive an opinion of
the law firm of Dorsey & Whitney LLP that, upon the Reorganization, no gain or
loss will be recognized by the Fund or its shareholders for federal income tax
purposes. The holding period and aggregate tax basis of Adjustable Rate Fund
shares that are received by each Fund shareholder will be the same as the
holding period and aggregate tax basis of the Fund shares previously held by
such shareholders. In addition, the holding period and tax basis of the assets
of the Fund in the hands of Adjustable Rate Fund as a result of the
Reorganization will be the same as in the hands of the Fund immediately prior to
the Reorganization. For further information about the tax consequences of the
Reorganization see "The Reorganization -- Tax Aspects of the Reorganization"
below.
DISSENTING SHAREHOLDERS' RIGHTS OF APPRAISAL
Although under Minnesota law shareholders of a company acquired in a
reorganization who do not vote to approve the reorganization generally have
"appraisal rights" (where they may elect to have the "fair value" of their
shares (determined in accordance with Minnesota law) judicially appraised and
paid to them), the Division of Investment Management of the Commission has taken
the position that Rule 22c-1 under the 1940 Act preempts appraisal provisions in
state statutes. This rule provides that no open-end investment company may
redeem its shares other than at net asset value next computed after receipt of a
tender of such security for redemption. For further information about rights of
appraisal, see "The Reorganization -- Dissenters' Rights."
COMPARISON OF THE FUND AND ADJUSTABLE RATE FUND
INVESTMENT OBJECTIVES AND POLICIES. The Fund and Adjustable Rate Fund have
nearly identical investment objectives. The Fund's investment objective is high
current income consistent with low principal volatility. The investment
objective of Adjustable Rate Fund is to provide the maximum current income that
is consistent with low volatility of principal. The investment objectives of the
Fund and Adjustable Rate Fund are fundamental and may not be changed without
shareholder approval.
6
<PAGE>
The Fund seeks to achieve its investment objective by investing, under
normal circumstances, at least 65% of its total assets in a portfolio of
Mortgage-Backed Securities (securities which represent interests in or are
collateralized by mortgages) that have adjustable interest rates which reset at
periodic intervals ("adjustable rate mortgage securities" or "ARMS") and that
are issued or guaranteed as to payment of principal and interest by the U.S.
Government or its agencies or instrumentalities ("U.S. Government Securities").
Adjustable Rate Fund seeks to achieve its investment objective by investing,
under normal circumstances, at least 65% of its total assets in a portfolio of
ARMS. Thus, the principal difference between the two funds is that the Fund
invests primarily in ARMS which are U.S. Government Securities, whereas
Adjustable Rate Fund's ARMS investments, for purposes of meeting its 65% test,
may be both U.S. Government Securities and ARMS issued by private organizations.
The balance of the Fund's assets (up to 35% of total assets) may be
invested in ARMS issued by private organizations, Mortgage-Backed Securities
other than ARMS, other types of U.S. Government Securities, Canadian government
securities, foreign index linked instruments and corporate debt securities.
Investments in each of Canadian government securities, foreign index linked
instruments and corporate debt securities are limited to 10% of total assets.
The balance of Adjustable Rate Fund' assets (up to 35% of total assets) may be
invested in Mortgage-Backed Securities other than ARMS, U.S. Government
Securities (including, with respect to 10% of net assets, U.S. Government
zero-coupon securities), asset-backed securities and corporate debt securities.
Adjustable Rate Fund's investments in Mortgage-Backed Securities are more
restricted than are the Fund's. Adjustable Rate Fund will not invest in inverse
floating, interest-only, principal-only or Z tranches of collateralized mortgage
obligations ("CMOs"), in residual interests of CMOs, or in stripped
Mortgage-Backed Securities. The Fund's investments in Mortgage-Backed
Securities may include any tranche of a CMO, provided that the Fund may not
invest in residual interests of CMOs, and the Fund may invest in stripped
Mortgage-Backed Securities.
Securities in which the Fund invests (other than U.S. Government
Securities) must be rated, as of the date of purchase, AAA by Standard & Poor's
Rating Group ("S&P") or, if unrated, be of a comparable quality as determined by
Piper Capital. Adjustable Rate Fund may invest in securities rated lower than
AAA. At least 85% of Adjustable Rate Fund's total assets (other than U.S.
Government Securities) must be rated, as of the date of purchase, AA or better
by S&P, 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 comparable quality as determined by Piper Capital.
Adjustable Rate Fund may not invest in any security rated, as of the date of
purchase, lower than A by S&P or Moody's (or below a comparable rating by any
other NRSRO) or, if unrated, of a quality lower than A as determined by Piper
Capital.
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The Fund may engage in options and financial futures transactions which
relate to the securities in which it invests, may engage in foreign currency
exchange transactions with respect to its investments in Canadian government
securities, may enter into interest rate swaps and purchase and sell interest
rate caps and floors, may purchase or sell securities on a when-issued or
forward commitment basis, including the use of mortgage dollar rolls, and may
lend its portfolio securities. Adjustable Rate Fund may also engage in such
transactions, except that Adjustable Rate Fund may not engage in foreign
currency exchange transactions, enter into interest rate swaps, or enter into
mortgage dollar roll transactions (although Adjustable Rate Fund may otherwise
purchase or sell securities on a when-issued or forward commitment basis). In
addition, Adjustable Rate Fund may make investments in Eurodollar instruments
for hedging purposes.
For a more detailed comparison of the investment objectives and policies of
the Fund and Adjustable Rate Fund, see "Comparison of Investment Objectives,
Policies and Restrictions" below.
INVESTMENT MANAGEMENT AND DISTRIBUTION PLAN FEES. The Fund and Adjustable
Rate Fund have the same Board of Directors. In addition, the Fund and
Adjustable Rate Fund obtain management services from Piper Capital. For each
fund, fees are payable monthly based on the average net asset value of such fund
as of the close of business each day. The Fund pays a management fee at an
annual rate of .30% of its average daily net asset value and Adjustable Rate
Fund pays at the annual rate of 0.35% 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.
Adjustable Rate Fund has adopted a distribution plan ("12b-1 Plan")
pursuant to Rule 12b-1 under the 1940 Act pursuant to which Adjustable Rate 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 Adjustable Rate Fund shareholder
accounts and the costs incurred in connection therewith. Payments made under
Adjustable Rate Fund's 12b-1 Plan are not tied exclusively to expenses actually
incurred by the Distributor and may exceed such expenses. The Fund does not
have a 12b-1 Plan.
OTHER SIGNIFICANT FEES. Both the Fund and Adjustable Rate Fund pay
additional fees in connection with their operations, including legal, auditing,
transfer agent and custodial fees. See "Fee Table" above for the percentage of
average net assets represented by such Other Expenses.
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PURCHASES, REDEMPTIONS AND EXCHANGES.
PURCHASES. The Fund and Adjustable Rate Fund each continuously issue their
shares to investors at a price equal to net asset value at the time of such
issuance, plus a maximum sales charge of 1.00% for the Fund and 1.50% for
Adjustable Rate Fund. The sales charge is reduced on a graduated scale on
purchases of $250,000 or more for the Fund and $100,000 or more for Adjustable
Rate Fund. For each fund, there is no initial sales charge in connection with
purchases of $500,000 or more. For Adjustable Rate Fund, however, a .20%
contingent deferred sales charge ("CDSC") will be imposed in the event of a
redemption transaction occurring within 24 months following such a purchase.
The Fund does not impose a CDSC in connection with initial purchases of $500,000
or more. Shareholders of the Fund who acquire Adjustable Rate Fund Shares in
the Reorganization will not pay the front-end sales charge on such Shares;
however, such sales charge will be applied to additional purchases of Adjustable
Rate Fund Shares. Shares of the Fund and Adjustable Rate Fund are distributed
by the Distributor and other broker-dealers who have entered into selected
broker-dealer agreements with the Distributor. Purchase orders for shares of
the Fund will not be accepted after the date on which the Plan is approved by
Fund shareholders. The minimum initial investments for the Fund and Adjustable
Rate Fund are $100,000 and $250, respectively. Neither Fund imposes a minimum
on subsequent investments.
REDEMPTIONS. Shareholders of the Fund and Adjustable Rate Fund may redeem
their shares for cash at any time at the net asset value per share next
determined. With respect to Adjustable Rate Fund, however, shareholders who
invested more than $500,000 and accordingly paid no front-end sales charge are
in most circumstances subject to a CDSC if shares are redeemed within 24 months.
The CDSC is 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. No CDSC will be applied to
Adjustable Rate Fund Shares acquired in the Reorganization on redemption of such
shares. The Fund and Adjustable Rate Fund offer reinstatement privileges
whereby a shareholder whose shares have been redeemed may, within 120 days or 30
days, respectively, after the date of redemption, invest any portion or all of
the proceeds thereof in another fund managed by Piper Capital without payment of
an additional sales charge, or, in the case of Adjustable Rate Fund, if such
redemption was subject to a CDSC, a pro rata credit will be given for such CDSC.
The Fund and Adjustable Rate Fund may redeem involuntarily, at net asset value,
accounts valued at less than $50,000 and $200, respectively.
EXCHANGES. Each of the Fund and Adjustable Rate Fund makes available to
its shareholders exchange privileges allowing exchange of shares for shares of
certain other funds. Shares of the Fund and Adjustable Rate Fund Shares may be
exchanged for shares of any of the other open-end funds open to new investors
that are advised by Piper Capital. Both the Fund and Adjustable Rate Fund
provide telephone exchange privileges to their shareholders.
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For a more detailed discussion of purchasing, redeeming and exchanging
Adjustable Rate Fund shares, see "Shareholder Guide to Investing -- How to
Purchase Shares," "-- How to Redeem Shares" and "-- Shareholder Services" in
Adjustable Rate Fund's current Prospectus.
DIVIDENDS. For each fund net investment income is declared as dividends
daily and paid monthly. Net realized capital gains, if any, are distributed
annually by the Fund and at least once annually by Adjustable Rate Fund.
Dividends and capital gains distributions of both the Fund and Adjustable Rate
Fund are automatically reinvested in additional shares of such fund or another
fund managed by Piper Capital at net asset value unless the shareholder elects
to receive cash.
PRINCIPAL RISK FACTORS
RISKS OF INVESTMENTS
Because Adjustable Rate Fund and the Fund each seek to achieve their
investment objective by investing primarily (at least 65% of total assets under
normal market conditions) in ARMS, they are subject to many of the same risks.
Each fund is subject to interest rate risk, which is the potential for a decline
in bond prices due to rising interest rates. In addition, each fund is subject
to credit risk to the extent it invests in non-U.S. Government Securities.
Credit risk, also known as default risk, is the possibility that a bond issuer
will fail to make timely payments of interest or principal. The Fund is required
to invest primarily in ARMS that are U.S. Government Securities. Because
Adjustable Rate Fund is not subject to this requirement, it may have more
exposure to credit risk than the Fund. In addition, Adjustable Rate Fund's
credit quality standards may expose it to more credit risk than the Fund.
Adjustable Rate Fund's non-U.S. Government Securities may be rated as low as A
at the time of purchase (or, if unrated, be of comparable quality as determined
by Piper Capital), whereas the Fund may not invest in any non-U.S. Government
Securities rated lower than AAA by S&P (or, if unrated, of comparable quality as
determined by Piper Capital). Each Fund's investments in ARMS and other
Mortgage-Backed Securities are also subject to prepayment risk and extension
risk. Prepayment risk results because, as interest rates fall, homeowners are
more likely to refinance their home mortgages. When home mortgages are
refinanced, the principal on Mortgage-Backed Securities is "prepaid" earlier
than expected. The unanticipated principal payments must then be reinvested at
a time when interest rates on new mortgage investments are falling. Extension
risk is the possibility that rising interest rates may cause prepayments to
occur at a slower than expected rate. This particular risk may effectively
change a security which was considered short- or intermediate-duration at the
time of purchase into a long-duration security. Long-duration securities
generally fluctuate more widely in response to changes in interest rates than
short- or intermediate-duration securities.
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The funds may invest the balance of their assets in many of the same types
of securities and therefore are subjected to the same risks with respect to such
investments. Unlike Adjustable Rate Fund, however, the Fund may invest up to
10% of its total assets in foreign index linked instruments. Foreign index
linked instruments are fixed income securities which are issued by U.S. issuers
(including U.S. subsidiaries of foreign issuers) and are denominated in U.S.
dollars but return principal and/or pay interest to investors in amounts which
are linked to the level of a particular foreign index. Foreign index linked
instruments may offer higher yields than comparable securities linked to purely
domestic indices but also may be more volatile.
Only the Fund may enter into mortgage "dollar rolls" in which the Fund
sells securities for delivery in the current month and simultaneously contracts
with the same counterparty to repurchase similar (same type, coupon and
maturity) but not identical securities on a specified future date. The use of
mortgage dollar rolls by the Fund while remaining substantially fully invested
increases the amount of the Fund's assets that are subject to market risk to an
amount that is greater than the Fund's net asset value, which could result in
increased volatility of the price of the Fund's shares.
The Fund may invest in certain Mortgage-Backed Securities which are not
permissible investments for Adjustable Rate Fund. Adjustable Rate Fund may not
invest in inverse floating, interest-only, principal-only or Z tranches of
collateralized mortgage obligations or in stripped Mortgage-Backed Securities,
whereas the Fund may invest in such securities. Such securities may be more
volatile than other Mortgage-Backed Securities and involve other additional
risks.
The Fund may engage in foreign currency exchange transactions in connection
with its investments in Canadian government securities and may enter into
interest rate swaps. These transactions involve certain risks as set forth in
detail in the Fund's Prospectus under "Special Investment Methods -- Interest
Rate Transactions" and in Appendix A to the Fund's Prospectus. Adjustable Rate
Fund does not engage in such transactions.
In addition to ARMS that are U.S. Government Securities, each of the funds
may invest in other types of U.S. Government Securities. Adjustable Rate Fund's
investments in U.S. Government zero-coupon securities are limited to 10% of net
assets, whereas the Fund's investments are not so limited. 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. Because
such income may not be matched by a corresponding cash distribution to a fund
holding such
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securities, the fund may be required to borrow money or dispose of other
securities to be able to make distributions to shareholders.
Only Adjustable Rate Fund may purchase 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. Through the use of trusts and special purpose
corporations, various types of assets, primarily automobile and credit card
receivables, are securitized in structures similar to those of Mortgage-Backed
Securities. However, 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 law, 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 of repossessed collateral may not, in some cases, be available to
support payments on these securities.
In addition, only Adjustable Rate Fund may invest in Eurodollar
instruments. Such investments are made for hedging purposes only. Eurodollar
instruments are essentially U.S. dollar denominated futures contracts or options
thereon that are linked to the London Interbank Offered Rate ("LIBOR").
Eurodollar instruments are subject to the same limitations and risks as other
futures contracts and options thereon, which are set forth in Adjustable Rate
Fund's Prospectus.
The foregoing discussion is a summary of the principal risk factors. For a
more complete discussion of the risks of each fund, see "Investment Objectives
and Policies -- Institutional Government Adjustable Portfolio" in the Fund's
Prospectus and "Investment Objective, Policies and Risk Factors" in Adjustable
Rate Fund's Prospectus.
LITIGATION RISK
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") merged into Adjustable Rate Fund on
September 1, 1995. Adjustable Rate Fund may be deemed to be a successor by
merger to the Trusts and, as such, may succeed to their liabilities, including
damages sought in any litigation.
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A complaint was filed by Herman D. Gordon on October 20, 1994, in the
United States District Court, District of Minnesota, against DDJ, EDJ, Piper
Capital, the Distributor, Piper Jaffray Companies Inc. and certain associated
individuals. A second complaint was filed by Frank Donio, I.R.A. and other
plaintiffs on April 14, 1995, in the United States District Court, District of
Minnesota, against BDJ, CDJ, DDJ, EDJ, Piper Capital, the Distributor, Piper
Jaffray Companies Inc. and certain associated individuals. Plaintiffs in both
actions filed a Consolidated Amended Class Action Complaint on May 23, 1995 and
by Order dated June 8, 1995, the Court consolidated the two putative class
actions. The consolidated amended complaint, which purports to be a class
action, alleges certain violations of federal and state securities laws, breach
of fiduciary duty and negligent misrepresentation. The parties have reached an
agreement-in-principle to settle all outstanding claims of the purported class
action. If approved by the Court and a sufficiently large percentage of the
class, a settlement agreement consistent with the terms of the
agreement-in-principle would provide $14 million in principal payments
consisting of $500,000 payable upon execution of the settlement agreement, $1.5
million payable upon final approval by the Court, and payments of $3 million on
each anniversary of the final court approval for the next four years, with
accrued interest payments of up to $1.8 million. These payments would be made
by Piper Capital and Piper Jaffray Companies Inc. and would not be an obligation
of Adjustable Rate Fund.
Two additional complaints relating to the Trusts, which are based on claims
similar to those asserted in the Gordon/Donio Consolidated Complaint, remain
pending. The first of these additional complaints was filed against the
Distributor on August 11, 1995 in Washington State District Court, King County,
by plaintiff Ernest Volinn. The second complaint was filed against the
Distributor on November 1, 1995 in the United States District Court, District of
Idaho, by plaintiff Ewing Company Profit Sharing Plan. In addition to the above
complaints, a number of actions have been commenced in arbitration by individual
investors in the Trusts.
Piper Capital and Piper Jaffray Companies Inc. have agreed, pursuant to an
indemnification agreement between and among Piper Capital, Piper Jaffray
Companies Inc. and Piper Funds II, to indemnify Piper Funds II against any
losses incurred in connection with such litigation. This indemnification
agreement will also protect Fund shareholders who become Adjustable Rate Fund
shareholders pursuant to the Reorganization.
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<PAGE>
THE REORGANIZATION
BACKGROUND
The Fund began operations in February 1993 and reached its peak net assets
of approximately $67 million in January 1994. Since that time, the Fund has
experienced a steady decline in assets, with net assets of approximately $6
million as of the date of this Proxy Statement/Prospectus. From February 1994
to February 1995, the Federal Reserve Board increased short-term rates seven
times. Resets on ARMS did not keep pace with these rate increases and, as a
result, the Fund performed poorly and experienced significant redemptions.
Since that time, shareholder redemptions have continued to exceed shareholder
purchases. Because of the continuing inability to attract and retain assets,
Piper Capital believes that the continued operation of the Fund is not
economically viable. In addition, Piper Capital believes that, because
Adjustable Rate Fund has a nearly identical investment objective and similar
investment policies, the likelihood of increased sales of Fund shares in the
future is remote. Accordingly, Piper Capital recommended to the Board of
Directors of the Company that substantially all of the assets of the Fund be
acquired by Adjustable Rate Fund in exchange for shares of Adjustable Rate Fund.
THE BOARD'S CONSIDERATION
At a meeting of the Board of Directors held on June 18, 1996, Piper Capital
reviewed for the Board the basis for its recommendation and the Board, including
all of the Independent Directors, unanimously approved the Reorganization. The
Plan was unanimously approved by the Board, including all of the Independent
Directors, on August 9, 1996, and the Board recommended that shareholders
approve the Plan.
In determining whether to recommend that shareholders of the Fund approve
the Plan, the Board, with the advice and assistance of independent legal
counsel, inquired into a number of matters. In particular, the Board considered
the Fund's prospects for future growth and the effect upon shareholders should
assets remain at current levels or continue to be reduced further. The Board
considered in this regard that Piper Capital has voluntarily limited total
expenses of the Fund and of Adjustable Rate Fund and that Piper Capital does not
currently intend to continue these limitations. The Board noted that absent any
expense limitations, total operating expenses are significantly lower for
Adjustable Rate Fund than for the Fund.
The Board carefully considered the compatibility of the investment
objectives, policies, restrictions and portfolios of the Fund and Adjustable
Rate Fund. The Board noted that the funds have nearly identical investment
objectives and noted that the most significant difference between the two, as
discussed more fully below in "Comparison of Investment Objectives, Policies and
Restrictions --
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Investment Policies," is that the Fund invests primarily in ARMS that are U.S.
Government Securities whereas Adjustable Rate Fund invests primarily in ARMS
that may be either privately issued or U.S. Government Securities.
Consequently, the Reorganization will result in the potential for greater
exposure to privately issued ARMS for Fund shareholders.
The Board also considered that, as discussed in more detail above under
"Principal Risk Factors," Piper Funds II may succeed to the liabilities of
certain closed-end funds that were merged into Piper Funds II and that are
subject to litigation. Piper Capital and Piper Jaffray Companies Inc. have
agreed, pursuant to an indemnification agreement between and among Piper
Capital, Piper Jaffray Companies Inc. and Piper Funds II, to indemnify Piper
Funds II against any losses incurred in connection with such litigation. The
Board noted that, to the extent there are claims against Adjustable Rate Fund as
a result of such litigation, this indemnification agreement would also protect
Fund shareholders who become Adjustable Rate Fund shareholders pursuant to the
Reorganization.
In addition, the Board considered the terms and conditions of the proposed
Reorganization, the comparative performance of the funds, the indirect costs
(E.G., brokerage) likely to be incurred by the Fund in the Reorganization, and
Piper Capital's undertaking to pay all the direct costs (E.G., proxy
solicitation) of the Reorganization and any unamortized organizational expenses
on the books of the Fund. In recommending the Reorganization to the
shareholders of the Fund, the Board considered that the Reorganization would
have the following benefits for shareholders of the Fund:
(1) Absent any expense reimbursements, the total expenses borne by
shareholders of the combined fund should be lower on a percentage basis
than the total expenses per share of the Fund. As a result of expense
reimbursements that Piper Capital has undertaken to make, the Fund's
expense ratio for its fiscal year ended June 30, 1996 was, and Adjustable
Rate Fund's expense ratio for its fiscal year ending August 31, 1996 will
be, .60% of average daily net assets. Piper Capital does not intend to
continue expense reimbursements for either Fund during the 1997 fiscal
year. Absent such reimbursements, the expense ratio for the Fund would have
been 1.75% for the fiscal year ended June 30, 1996. By contrast, the
expense ratio for Adjustable Rate Fund for its fiscal year ending August
31, 1996 is expected to be approximately .74% of total assets absent any
voluntary expense reimbursements (based on the semiannual period ended
February 29, 1996). Thus, despite the fact that Adjustable Rate Fund has a
12b-1 Plan and a slightly higher advisory fee than the Fund, because
Adjustable Rate Fund is significantly larger than the Fund its total
operating expenses, absent any expense reimbursements, are significantly
lower than those of the Fund.
(2) Shareholders of the Fund will be able to acquire Adjustable Rate
Fund Shares, which are otherwise subject to a maximum 1.50% front-end
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sales charge, at net asset value and pursue a nearly identical investment
objective in a larger and more economically viable fund without having to
sell their shares.
(3) The Fund's shareholders will retain the capabilities and
resources of Piper Capital and its affiliates in the areas of management,
operations, distribution, shareholder servicing and marketing.
(4) It is anticipated that the Reorganization will constitute a
tax-free reorganization for federal income tax purposes, and no gain or
loss will be recognized by the Fund or its shareholders for federal income
tax purposes as a result of the Reorganization.
Based on the foregoing, the Board determined that the Reorganization is in
the best interests of the shareholders of the Fund and that the interests of
Fund shareholders will not be diluted as a result thereof.
The Board of Directors of Adjustable Rate Fund, including all of the
Independent Directors, has also determined, after considering the aforementioned
factors, that the Reorganization is in the best interests of Adjustable Rate
Fund and that the interests of existing shareholders of Adjustable Rate Fund
will not be diluted as a result thereof. The transaction will enable Adjustable
Rate Fund to acquire investment securities which are consistent with its
objectives without the brokerage costs attendant to the purchase of such
securities in the market. Also, the addition of the Fund's assets should result
in some cost savings to the extent that fixed expenses of Adjustable Rate Fund
can be spread over a larger asset base. A larger asset base could also lead to
reduced management fees as a result of "breakpoints" in the management fees
payable by Adjustable Rate Fund.
THE PLAN
The terms and conditions under which the Reorganization would be
consummated are set forth in the Plan and are summarized below. This summary is
qualified in its entirety by reference to the Plan, a copy of which is attached
as Exhibit A to this Proxy Statement/Prospectus.
The Plan provides that (a) the Fund will transfer all of its assets,
including appropriate portfolio securities, cash, cash equivalents, securities,
commodities, futures and interest receivables, to Adjustable Rate Fund on the
Closing Date in exchange for the assumption by Adjustable Rate Fund of the
Fund's stated liabilities, including all expenses, costs, charges and reserves,
as reflected on an unaudited statement of assets and liabilities of the Fund
prepared by the Treasurer of the Company as of the Valuation Date in accordance
with generally accepted accounting principles consistently applied from the
prior audited period, and the delivery of Adjustable Rate Fund Shares; and (b)
such Adjustable Rate Fund Shares will be distributed to the shareholders of the
Fund on the Closing Date or as soon as
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practicable thereafter and outstanding Fund shares will be cancelled and
retired. The distribution of Adjustable Rate Fund Shares and the cancellation
and retirement of outstanding Fund shares is to be accomplished under the Plan
by amending the articles of incorporation of the Company in the manner provided
in the amendment set forth in Exhibit 1 to the Plan.
For technical reasons, certain of the Fund's existing investment
limitations may be deemed to preclude the Fund from consummating the
Reorganization to the extent that the Reorganization would involve the Fund
holding all of its assets as shares of Adjustable Rate Fund until such shares
are distributed to the Fund's shareholders. By approving the Plan, the Fund's
shareholders will be deemed to have agreed to waive each of these limitations.
The number of Adjustable Rate Fund Shares to be delivered to the Fund
will be determined by dividing the value of the Fund assets acquired by
Adjustable Rate Fund (net of stated liabilities assumed by Adjustable Rate
Fund) by the net asset value of an Adjustable Rate Fund Share; these values
will be calculated as of the close of business of the New York Stock Exchange
on a business day not later than the fifth business day following the receipt
of the requisite approval of the Plan by the shareholders of the Fund or at
such other time as the Fund and Adjustable Rate Fund may agree (the
"Valuation Date"). The net asset value of an Adjustable Rate Fund Share
shall be the net asset value per share computed on the Valuation Date, using
the valuation procedures set forth in Adjustable Rate Fund's then-current
Prospectus and Statement of Additional Information. As an illustration, if
on the Valuation Date the Fund were to have securities with a market value of
$95,000 and cash in the amount of $5,000, the value of the assets which would
be transferred to Adjustable Rate Fund would be $100,000. If the net asset
value per share of Adjustable Rate Fund were $10 per share at the close of
business on the Valuation Date, the number of Adjustable Rate Fund Shares to
be issued would be 10,000 ($100,000 DIVIDED BY $10). These 10,000 shares of
Adjustable Rate Fund would be distributed to the former shareholders of the
Fund. This example is given for illustration purposes only and does not bear
any relationship to the dollar amounts or shares expected to be involved in
the Reorganization. Adjustable Rate Fund will cause its transfer agent to
credit and confirm an appropriate number of Adjustable Rate Fund Shares to
each Fund shareholder. Neither the Fund nor Adjustable Rate Fund issues
stock certificates.
The Closing Date will be 5:00 p.m., Eastern Time, on the Valuation Date, or
at such other time as the Fund and Adjustable Rate Fund may agree. The
consummation of the Reorganization is contingent upon the approval of the
Reorganization by the shareholders of the Fund and the receipt of the other
opinions and certificates set forth in Sections 6, 7 and 8 of the Plan and the
occurrence of the events described in those Sections, certain of which may be
waived by the Fund or Adjustable Rate Fund. The Plan may be amended in any
mutually agreeable manner, except that no amendment may be made subsequent to
the Meeting which would detrimentally affect the value of the Adjustable Rate
Fund
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Shares to be distributed. Piper Capital will bear all direct costs associated
with the Reorganization, including preparation, printing, filing and proxy
solicitation expenses incurred in connection with obtaining requisite
shareholder approval of the Reorganization. In addition, Piper Capital will pay
any unamortized organizational expenses on the books of the Fund immediately
prior to the Reorganization.
The Plan may be terminated and the Reorganization abandoned at any time,
before or after approval by the Fund's shareholders, by mutual consent of the
Fund and Adjustable Rate Fund. In addition, either party may terminate the Plan
upon the occurrence of a material breach of the Plan by the other party or if,
by December 31, 1996, any condition set forth in the Plan has not been fulfilled
or waived by the party entitled to its benefits.
Prior to the Valuation Date, the Fund will declare and pay a dividend to
distribute all of its investment company taxable income and net capital gain, if
any, for the taxable year during which the Reorganization occurs. The proceeds
of such distribution will be taxable to Fund shareholders subject to taxation.
See "Tax Aspects of the Reorganization" below. All contracts entered into by or
on behalf of the Fund will terminate upon consummation of the Reorganization.
Shareholders of the Fund will continue to be able to redeem their shares at
net asset value next determined after receipt of the redemption request until
the close of business on the business day next preceding the Closing Date.
Redemption requests received by the Fund thereafter will be treated as requests
for redemption of shares of Adjustable Rate Fund.
TAX ASPECTS OF THE REORGANIZATION
At least one but not more than 20 business days prior to the Valuation
Date, the Fund will declare and pay a dividend or dividends which, together with
all previous such dividends, will have the effect of distributing to the Fund's
shareholders all of the Fund's investment company taxable income for the current
taxable year (computed without regard to any dividends-paid deduction), and all
of the Fund's net capital gain, if any, realized in such year (after reduction
for any capital loss carry-forward).
For federal income tax purposes, as of June 30, 1996 the Fund had
capital loss carryovers of $3,355,290, which are due to expire between 2002
and 2005. As a result of the Reorganization, Adjustable Rate Fund's ability
to use these capital loss carryovers to offset its net capital gains will be
limited. Generally, the amount of the Fund's capital loss carryovers that
Adjustable Rate Fund will be able to use to offset net capital gains in any
future year will be limited to the value of the outstanding shares of the
Fund at the time of the Reorganization multiplied by the federal long-term
tax-exempt interest rate in effect at the time of the Reorganization.
Assuming the value of the outstanding shares of the Fund as of June 30, 1996
($5,774,472) and the federal long-term tax-exempt interest rate in effect for
September 1996, the maximum amount of the Fund's capital loss carryovers that
Adjustable Rate Fund will be able to use in any post-Reorganization taxable
year is $334,919. But for the Reorganization, the full amount of the Fund's
remaining capital loss carryovers would be available in any such year (until
expiration) to offset any net capital gains realized by the Fund.
It is intended that the Reorganization will qualify for federal income
tax purposes as a tax-free reorganization under Section 368(a)(1)(C) of the
Internal Revenue Code of 1986, as amended (the "Code"), and that, for federal
income tax purposes, no income, gain or loss will be recognized by the Fund's
shareholders (except that the dividend or dividends discussed in the first
paragraph of this section will be taxable to Fund shareholders subject to
taxation). The Fund has not asked, nor does it plan to ask, the Internal
Revenue Service to rule on the tax consequences of the Reorganization.
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<PAGE>
As a condition to the closing of the Reorganization, the two funds will
receive an opinion from Dorsey & Whitney LLP, counsel to the funds, based in
part on certain representations to be furnished by each fund, substantially to
the effect that the federal income tax consequences of the Reorganization will
be as follows:
(i) the Reorganization will constitute a reorganization within the
meaning of Section 368(a)(1)(C) of the Code, and Adjustable Rate
Fund and the Fund each will qualify as a party to the Reorganization
under Section 368(b) of the Code;
(ii) Fund shareholders will recognize no income, gain or loss upon
receipt, pursuant to the Reorganization, of Adjustable Rate Fund
shares. Fund shareholders subject to taxation will recognize income
upon receipt of any net investment income or net capital gains of
the Fund which are distributed by the Fund prior to the
Reorganization;
(iii) the tax basis of Adjustable Rate Fund shares received by each Fund
shareholder pursuant to the Reorganization will be equal to the tax
basis of the Fund shares exchanged therefor;
(iv) the holding period of Adjustable Rate Fund shares received by each
Fund shareholder pursuant to the Reorganization will include the
period during which the Fund shareholder held the Fund shares
exchanged therefor, provided that the Fund shares were held as a
capital asset on the date of the Reorganization;
(v) the Fund will recognize no income, gain or loss by reason of the
Reorganization;
(vi) Adjustable Rate Fund will recognize no income, gain or loss by
reason of the Reorganization;
(vii) the tax basis of the assets received by the Fund pursuant to the
Reorganization will be the same as the basis of those assets in the
hands of the Fund immediately prior to the Reorganization;
(viii) the holding period of the assets received by Adjustable Rate Fund
pursuant to the Reorganization will include the period during which
such assets were held by the Fund; and
(ix) Adjustable Rate Fund will succeed to and take into account the
earnings and profits, or deficit in earnings and profits, of the
Fund immediately prior to the Reorganization.
The foregoing advice is based in part upon certain representations
furnished by the Fund, Piper Capital and certain 5% shareholders of the Fund, of
which two
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principal ones are: (a) that assets representing at least 90% of the fair
market value of the Fund's net assets and at least 70% of the fair market value
of the Fund's gross assets immediately prior to the Reorganization are exchanged
solely for Adjustable Rate Fund shares with unrestricted voting rights, and (b)
that there is no plan or intention by the shareholders of the Fund who own 5% or
more of the Fund's shares and, to the best knowledge of management of the Fund,
there is no plan or intention on the part of the remaining Fund shareholders to
sell, exchange or otherwise dispose of a number of Adjustable Rate Fund shares
to be received pursuant to the Reorganization that would reduce such
shareholders' interest to a number of Adjustable Rate Fund shares having, in the
aggregate, a value as of the Closing Date of less than 50% of the total value of
Fund shares outstanding immediately prior to the consummation of the
Reorganization.
SHAREHOLDERS OF THE FUND SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE
EFFECT, IF ANY, OF THE PROPOSED REORGANIZATION IN LIGHT OF THEIR INDIVIDUAL
CIRCUMSTANCES. SINCE THE FOREGOING DISCUSSION RELATES ONLY TO THE FEDERAL
INCOME TAX CONSEQUENCES OF THE REORGANIZATION, SHAREHOLDERS OF THE FUND SHOULD
CONSULT THEIR TAX ADVISORS AS TO STATE AND LOCAL TAX CONSEQUENCES, IF ANY, OF
THE REORGANIZATION.
DISSENTERS' RIGHTS
Pursuant to Sections 302A.471 and 302A.473 of the Minnesota Business
Corporation Act (the "MBCA Sections"), record holders of shares of the Company
are entitled to assert dissenters' rights in connection with the Reorganization
and obtain payment of the "fair value" of their shares, provided such
shareholders comply with the requirements of the MBCA Sections. NOTWITHSTANDING
THE PROVISIONS OF THE MBCA SECTIONS, THE DIVISION OF INVESTMENT MANAGEMENT OF
THE COMMISSION HAS TAKEN THE POSITION THAT ADHERENCE TO STATE APPRAISAL
PROCEDURES BY A REGISTERED INVESTMENT COMPANY ISSUING REDEEMABLE SECURITIES
WOULD CONSTITUTE A VIOLATION OF RULE 22c-1 UNDER THE 1940 ACT. THIS RULE
PROVIDES THAT NO OPEN-END INVESTMENT COMPANY MAY REDEEM ITS SHARES OTHER THAN AT
NET ASSET VALUE NEXT COMPUTED AFTER RECEIPT OF A TENDER OF SUCH SECURITY FOR
REDEMPTION. IT IS THE VIEW OF THE DIVISION OF INVESTMENT MANAGEMENT THAT RULE
22c-1 PREEMPTS APPRAISAL PROVISIONS IN STATE STATUTES.
In the interests of ensuring equal valuation of all interests in the Fund,
the Company will determine dissenters' rights in accordance with the Division's
interpretation. It should be emphasized that Fund shareholders may sell their
shares at net asset value at any time prior to the Closing Date.
DESCRIPTION OF SHARES
Shares of Adjustable Rate Fund to be issued pursuant to the Plan will, when
issued, be fully paid and nonassessable by Adjustable Rate Fund and transferable
without restrictions and will have no preemptive or conversion rights.
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<PAGE>
CAPITALIZATION TABLE (UNAUDITED)
The following table sets forth the capitalization of Adjustable Rate Fund
and the Fund as of June 30, 1996 and on a pro forma combined basis as if the
Reorganization had occurred on that date:
Shares Net Asset
Net Assets Outstanding Value Per
(000s omitted) (000s omitted) Share
-------------- -------------- ---------
Fund . . . . . . . . . . $ 5,774 609 $9.48
Adjustable Rate Fund . . $307,424 38,291 $8.03
Pro Forma Combined . . . $313,198 38,997 $8.03
INTERESTS OF CERTAIN PERSONS
The following persons affiliated with the Fund and Adjustable Rate Fund
receive payments from the Fund and Adjustable Rate Fund for services rendered
pursuant to contractual arrangements with both funds: (a) Piper Capital, as the
investment adviser and manager to each fund, (b) the Distributor, as the
distributor of shares of each fund and for providing certain transfer agent and
dividend disbursing agent services for shareholder accounts held at the
Distributor, and (c) Piper Trust Company, an affiliate of Piper Capital and the
Distributor, for providing certain transfer agent and dividend disbursing agent
services for shareholder accounts held at Piper Trust Company.
COMPARISON OF INVESTMENT OBJECTIVES,
POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES
The Fund and Adjustable Rate Fund have nearly identical investment
objectives. The Fund's objective is high current income consistent with low
principal volatility. The investment objective of Adjustable Rate Fund is to
provide the maximum current income that is consistent with low volatility of
principal. The investment objectives of the Fund and Adjustable Rate Fund are
fundamental and may not be changed without shareholder approval.
INVESTMENT POLICIES
GENERAL. The Fund seeks to achieve its investment objective by investing,
under normal circumstances, at least 65% of its total assets in a portfolio of
Mortgage-Backed Securities (securities which represent interests in or are
collateralized by mortgages) that have adjustable interest rates which reset at
periodic intervals ("adjustable rate mortgage securities" or "ARMS") and that
are issued or guaranteed as to payment of principal and interest by the U.S.
Government or its agencies or instrumentalities ("U.S. Government Securities").
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Adjustable Rate Fund seeks to achieve its investment objective by investing,
under normal circumstances, at least 65% of its total assets in a portfolio of
ARMS. Thus, the principal difference between the two funds is that the Fund
invests primarily in ARMS which are U.S. Government Securities, whereas
Adjustable Rate Fund's ARMS investments, for purposes of meeting its 65% test,
may be both U.S. Government Securities and ARMS issued by private organizations.
The balance of the Fund's assets (up to 35% of total assets) may be
invested in ARMS issued by private organizations, Mortgage-Backed Securities
other than ARMS, other types of U.S. Government Securities, Canadian government
securities, foreign index linked instruments and corporate debt securities.
Investments in each of Canadian government securities, foreign index linked
instruments and corporate debt securities are limited to 10% of total assets.
The balance of Adjustable Rate Fund' assets (up to 35% of total assets) may be
invested in Mortgage-Backed Securities other than ARMS, U.S. Government
Securities (including, with respect to 10% of net assets, U.S. Government
zero-coupon securities), asset-backed securities and corporate debt securities.
The investment policies of both the Fund and Adjustable Rate Fund are
non-fundamental and may be changed by their respective Boards of Directors
unless otherwise noted herein.
Despite differences in the investment policies of the Fund and
Adjustable Rate Fund, the Fund does not currently hold any securities that
are not permissible investments for Adjustable Rate Fund. Piper Capital does
not anticipate that significant sales of either fund's portfolio securities
will be required as a result of the Reorganization (except to the extent
required to meet any redemption requests).
MORTGAGE-BACKED SECURITIES. Adjustable Rate Fund's investments in
Mortgage-Backed Securities are more restricted than are the Fund's. Adjustable
Rate Fund will not invest in inverse floating, interest-only, principal-only or
Z tranches of collateralized mortgage obligations ("CMOs"), in residual
interests of CMOs, or in stripped Mortgage-Backed Securities. The Fund's
investments in Mortgage-Backed Securities may include any tranche of a CMO,
provided that the Fund may not invest in residual interests of CMOs, and the
Fund may invest in stripped Mortgage-Backed Securities. Inverse floating,
interest-only, principal-only and Z tranches of CMOs and stripped
Mortgage-Backed Securities may be more volatile than other Mortgage-Backed
Securities and involve certain additional risks. See "Investment Objectives and
Policies" in the Fund's Prospectus.
U.S. GOVERNMENT SECURITIES. In addition to ARMS that are U.S. Government
Securities, each of the funds may invest in other types of U.S. Government
Securities. Adjustable Rate Fund's investments in U.S. Government zero-coupon
securities are limited to 10% of net assets, whereas the Fund's investments are
not so limited. 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. See
"Principal Risk Factors" above and "Investment Objective, Policies and Risk
Factors" in Adjustable Rate Fund's Prospectus.
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<PAGE>
CANADIAN GOVERNMENT SECURITIES. The Fund may invest up to 10% of its total
assets in Canadian government securities, which are debt securities issued or
guaranteed by the Canadian federal government, Canadian provincial governments
and political subdivisions, agencies or instrumentalities thereof. Adjustable
Rate Fund may not invest in such securities. Investing in Canadian government
securities involves considerations and possible risks not typically associated
with investing in U.S. securities. See "Investment Objectives and Policies" in
the Fund's Prospectus.
FOREIGN INDEX LINKED INSTRUMENTS. The Fund may invest up to 10% of its
total assets in foreign index linked instruments. Adjustable Rate Fund may not
invest in such securities. Foreign index linked instruments are fixed income
securities which are issued by U.S. issuers (including U.S. subsidiaries of
foreign issuers) and are denominated in U.S. dollars but return principal and/or
pay interest to investors in amounts which are linked to the level of a
particular foreign index. Foreign index linked instruments may offer higher
yields than comparable securities linked to purely domestic indices but also may
be more volatile. See "Investment Objectives and Policies" in the Fund's
Prospectus.
CORPORATE DEBT SECURITIES. Each Fund may invest in corporate debt
securities. The Fund may invest up to 10% of its total assets in such
securities; Adjustable Rate Fund is not subject to this limitation and thus
could invest up to 35% of its total assets in corporate debt securities.
Corporate debt securities are debt obligations of U.S. corporations (other than
ARMS or Mortgage-Backed Securities). The values of corporate debt securities
typically will fluctuate in response to general economic conditions, to changes
in interest rates and, to a greater extent than the values of ARMS or
Mortgage-Backed Securities, to business conditions affecting the specific
industries in which the issuers are engaged. Corporate debt securities will
typically decrease in value as a result of increases in interest rates.
ASSET-BACKED SECURITIES. Only Adjustable Rate Fund may purchase
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.
Through the use of trusts and special purpose corporations, various types of
assets, primarily automobile and credit card receivables, are securitized in
structures similar to those of Mortgage-Backed Securities. However,
asset-backed securities do not have the benefit of the same security interest
in the related collateral as do Mortgage-Backed Securities and are subject to
different risks. See "Principal Risk Factors" above and "Investment
Objective, Policies and Risk Factors" in Adjustable Rate Fund's Prospectus.
SECURITIES RATINGS. Securities in which the Fund invests (other than U.S.
Government Securities) must be rated, as of the date of purchase, AAA by
Standard & Poor's Rating Group ("S&P") or, if unrated, be of a comparable
quality as determined by Piper Capital. In the event that a security held by
the Fund is downgraded to a rating below AAA or, if unrated, is no longer of a
quality
23
<PAGE>
comparable to a security rated AAA, as determined by Piper Capital, the Fund
will sell such a security as promptly as possible. Adjustable Rate Fund may
invest in securities rated lower than AAA. At least 85% of Adjustable Rate
Fund's total assets (other than U.S. Government Securities) must be rated, as of
the date of purchase, AA or better by S&P, 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 comparable quality
as determined by Piper Capital. Adjustable Rate Fund may not invest in any
security rated, as of the date of purchase, lower than A by S&P or Moody's (or
below a comparable rating by any other NRSRO) or, if unrated, of a quality lower
than A as determined by Piper Capital. 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 Piper Capital, Adjustable
Rate Fund will sell such a security as promptly as possible.
OTHER INVESTMENT PRACTICES. The Fund may engage in options and
financial futures transactions which relate to the securities in which it
invests, may engage in foreign currency exchange transactions with respect to
its investments in Canadian government securities, may enter into interest
rate swaps and purchase and sell interest rate caps and floors, may purchase
or sell securities on a when-issued or forward commitment basis, including
the use of mortgage dollar rolls, may lend its portfolio securities and may
enter into repurchase agreements and reverse repurchase agreements.
Adjustable Rate Fund may also engage in such transactions, except that
Adjustable Rate Fund may not engage in foreign currency exchange
transactions, enter into interest rate swaps, or enter into mortgage dollar
roll transactions (although Adjustable Rate Fund may otherwise purchase or
sell securities on a when-issued or forward commitment basis). In addition,
Adjustable Rate Fund may make investments in Eurodollar instruments for
hedging purposes.
The foregoing discussion is a summary of the principal differences and
similarities between the investment policies of the funds. For a more
complete discussion of each fund's policies, see "Investment Objectives and
Policies" in the Fund's Prospectus, "Investment Objective, Policies and Risk
Factors" in Adjustable Rate Fund's Prospectus, "Investment Objectives,
Policies and Restrictions" in the Fund's Statement of Additional Information
and "Investment Objective, Policies and Restrictions" in Adjustable Rate
Fund's Statement of Additional Information.
INVESTMENT RESTRICTIONS
Each fund has adopted certain fundamental and non-fundamental investment
restrictions. A fundamental investment restriction cannot be changed without
the vote of a majority of the fund's outstanding voting securities, as defined
in the 1940 Act. As fundamental investment restrictions, the Fund may borrow
money only from banks for temporary or emergency purposes in an amount up to one
third of the value of its total assets, and the Fund may not mortgage, pledge or
hypothecate its assets except to secure temporary or emergency borrowing. As
fundamental investment restrictions, Adjustable Rate Fund may borrow only for
temporary or emergency purposes (including borrowing through reverse repurchase
agreements) in an amount up to 10% of the value of its total assets, and
Adjustable
24
<PAGE>
Rate Fund may not 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. Complete descriptions of the other fundamental and
non-fundamental investment restrictions adopted by the Fund and Adjustable
Rate Fund appear under the caption "Special Investment Methods -- Investment
Restrictions" in each fund's Prospectus and under the captions "Investment
Objectives, Policies and Restrictions" in the Fund's Statement of Additional
Information and "Investment Objective, Policies and Restrictions" in
Adjustable Rate Fund's Statement of Additional Information.
ADDITIONAL INFORMATION ABOUT THE FUND
AND ADJUSTABLE RATE FUND
GENERAL
For a discussion of the organization and operation of the Fund, see
"Introduction," "Management," "Investment Objectives and Policies," "Special
Investment Methods" and "General Information" in its Prospectus. For a
discussion of the organization and operation of Adjustable Rate Fund, see
"Introduction," "Management," "Investment Objective, Policies and Risk Factors,"
and "General Information" in its Prospectus.
FINANCIAL INFORMATION
For certain financial information about Adjustable Rate Fund and the Fund,
see "Financial Highlights" and "Performance Comparisons" in their respective
Prospectuses.
MANAGEMENT
For information about Adjustable Rate Fund's and the Fund's Board of
Directors, investment manager and distributor, see "Management" and
"Distribution of Fund Shares" in Adjustable Rate Fund's Prospectus and
"Introduction" and "Management" in the Fund's Prospectus.
DESCRIPTION OF SECURITIES AND SHAREHOLDER INQUIRIES
For a description of the nature and most significant attributes of shares
of the Fund and Adjustable Rate Fund, and information regarding shareholder
inquiries, see "General Information" and "Introduction -- Shareholder Inquiries"
in their respective Prospectuses.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of Adjustable Rate Fund's and the Fund's policies with
respect to dividends, distributions and taxes, see "Shareholder Guide to
Investing -- Dividends and Distributions" and "Tax Status" in their respective
Prospectuses.
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<PAGE>
PURCHASES AND REDEMPTIONS
For a discussion of how each fund's shares may be purchased and redeemed,
see "Shareholder Guide to Investing" in the funds' respective Prospectuses.
PENDING LEGAL PROCEEDINGS
For a discussion of pending legal proceedings see "General Information --
Pending Legal Proceedings" in the funds' respective Prospectuses.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
For management's discussion of Adjustable Rate Fund's performance as of the
fiscal year ended August 31, 1995 and six-month period ended February 29, 1996,
see Adjustable Rate Fund's Annual and Semiannual Reports for such periods
accompanying this Proxy Statement/Prospectus. For management's discussion of
the Fund's performance, see the Company's Annual Report for the fiscal year
ended June 30, 1996 accompanying this Proxy Statement/Prospectus.
FINANCIAL STATEMENTS AND EXPERTS
The annual financial statements of Adjustable Rate Fund and the Fund
incorporated by reference in the Statement of Additional Information have been
audited by KPMG Peat Marwick LLP, independent accountants, for the periods
indicated in its respective reports thereon. Such financial statements have
been incorporated by reference in reliance upon such reports given upon the
authority of KPMG Peat Marwick LLP as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Adjustable Rate
Fund will be passed upon by Dorsey & Whitney LLP, Minneapolis, Minnesota.
AVAILABLE INFORMATION
ADDITIONAL INFORMATION ABOUT THE FUND AND ADJUSTABLE RATE FUND IS
AVAILABLE, AS APPLICABLE, IN THE FOLLOWING DOCUMENTS WHICH ACCOMPANY THIS PROXY
STATEMENT/PROSPECTUS: (a) ADJUSTABLE RATE FUND'S PROSPECTUS DATED DECEMBER 18,
1995, WHICH PROSPECTUS FORMS A PART OF POST-EFFECTIVE AMENDMENT NO. 2 TO PIPER
FUND II'S REGISTRATION STATEMENT ON FORM N-1A (FILE NOS. 33-60515; 811-07279);
(b) ADJUSTABLE RATE FUND'S STATEMENT OF ADDITIONAL INFORMATION DATED DECEMBER
18, 1995; (c) ADJUSTABLE RATE FUND'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED
AUGUST 31, 1995; (d) ADJUSTABLE RATE FUND'S SEMIANNUAL REPORT FOR THE SIX MONTHS
ENDED FEBRUARY 29, 1996; (e) THE COMPANY'S PROSPECTUS DATED NOVEMBER 1, 1995, AS
SUPPLEMENTED JUNE 24, 1996, WHICH PROSPECTUS FORMS A PART OF POST-EFFECTIVE
AMENDMENT NO. 5 TO THE COMPANY'S REGISTRATION STATEMENT ON FORM N-1A (FILE
26
<PAGE>
NOS. 33-53718; 811-7320); (f) THE COMPANY'S STATEMENT OF ADDITIONAL INFORMATION
DATED NOVEMBER 1, 1995; AND (g) THE COMPANY'S ANNUAL REPORT FOR THE FISCAL YEAR
ENDED JUNE 30, 1996.
The Company and Piper Funds II are subject to the informational
requirements of the Securities and Exchange Act of 1934, as amended, and, in
accordance therewith, file reports and other information with the Commission.
Proxy materials, reports and other information about the Fund and Adjustable
Rate Fund which are of public record can be inspected and copied at public
reference facilities maintained by the Commission at Room 1204, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and certain of its regional
offices, and copies of such materials can be obtained at prescribed rates from
the Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, Washington, D.C. 20549.
OTHER BUSINESS
Management of the Company knows of no business other than the matters
specified above which will be presented at the Meeting. Since matters not known
at the time of the solicitation may come before the Meeting, the proxy as
solicited confers discretionary authority with respect to such matters as
properly come before the Meeting, including any adjournment or adjournments
thereof, and it is the intention of the persons named as attorneys-in-fact in
the proxy to vote this proxy in accordance with their judgment on such matters.
By Order of the Board of Directors,
SUSAN SHARP MILEY
SECRETARY
August 26, 1996
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<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
INSTITUTIONAL GOVERNMENT ADJUSTABLE PORTFOLIO AND
ADJUSTABLE RATE MORTGAGE SECURITIES FUND
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made as of the
22nd day of August, 1996, by and between Piper Institutional Funds Inc.
("Piper Institutional"), on behalf of its series Institutional Government
Adjustable Portfolio ("Institutional Fund"), and Piper Funds Inc. -- II
("Piper Funds II"), on behalf of its series Adjustable Rate Mortgage
Securities Fund ("Adjustable Rate Fund"). Piper Institutional and Piper
Funds II are Minnesota corporations. As used in this Agreement, the terms
"Adjustable Rate Fund" and "Institutional Fund" shall be construed to mean,
respectively, "Piper Funds II on behalf of Adjustable Rate Fund" and "Piper
Institutional on behalf of Institutional Fund," where necessary to reflect
the fact that a corporate series is generally considered the beneficiary of
corporate level actions taken with respect to the series and is not itself
recognized as a person under law.
This Agreement is intended to be and is adopted as a "plan of
reorganization," within the meaning of Treas. Reg. 1.368-2(g), for a
reorganization under Section 368(a)(1)(C) of the Internal Revenue Code of 1986,
as amended (the "Code"). The reorganization (the "Reorganization") will consist
of the transfer to Adjustable Rate Fund of substantially all of the assets of
Institutional Fund in exchange for the assumption by Adjustable Rate Fund of all
stated liabilities of Institutional Fund and the issuance by Adjustable Rate
Fund of shares of common stock, par value $0.01 per share ("Adjustable Rate Fund
Shares"), to be distributed, after the Closing Date hereinafter determined, to
the shareholders of Institutional Fund in liquidation of Institutional Fund as
provided herein, all upon the terms and conditions hereinafter set forth in this
Agreement. The distribution of Adjustable Rate Fund Shares to Institutional
Fund shareholders and the retirement and cancellation of Institutional Fund
shares will be effected pursuant to an amendment to the Articles of
Incorporation of Piper Institutional in the form attached hereto as Exhibit 1
(the "Amendment"), to be adopted by Piper Institutional in accordance with the
Minnesota Business Corporation Act.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. REORGANIZATION AND LIQUIDATION OF INSTITUTIONAL FUND
1.1. Subject to the terms and conditions set forth herein and in the
Amendment and on the basis of the representations and warranties contained
herein, Institutional Fund agrees to assign, deliver and otherwise transfer the
Institutional Fund Assets (as defined in paragraph 1.2(a)) to Adjustable Rate
Fund
A-1
<PAGE>
and Adjustable Rate Fund agrees in exchange therefor to assume all stated
liabilities of Institutional Fund on the Closing Date (as defined in paragraph
3.1) as set forth in paragraph 1.3 and to deliver to Institutional Fund
Shareholders (as defined in paragraph 1.5) the number of Adjustable Rate Fund
Shares, including fractional Adjustable Rate Fund Shares, determined in
accordance with paragraph 2.2. Such transactions shall take place at the
closing provided for in paragraph 3.1 (the "Closing").
1.2. (a) The "Institutional Fund Assets" shall consist of all property,
including, without limitation, all cash, cash equivalents, securities,
futures and interest receivables owned by Institutional Fund, and any
deferred or prepaid expenses shown as an asset on Institutional Fund's
books, on the Valuation Date (as defined in paragraph 2.1).
(b) Institutional Fund reserves the right to sell any of the
securities in its portfolio but will not, from the date on which the Proxy
Materials (as defined in paragraph 4.3) are mailed to Institutional Fund
shareholders, acquire without the prior written approval of Adjustable Rate
Fund any additional securities or other instruments other than securities
or instruments of the type in which Adjustable Rate Fund is permitted to
invest and in amounts agreed to by Adjustable Rate Fund. In the event that
Institutional Fund holds any assets that Adjustable Rate Fund is not
permitted to hold, Institutional Fund will dispose of such assets on or
prior to the Valuation Date. In addition, if it is determined that the
portfolios of Institutional Fund and Adjustable Rate Fund, when aggregated,
would contain investments exceeding certain percentage limitations imposed
upon Adjustable Rate Fund with respect to investments (including, among
others, percentage limitations necessary to satisfy the diversification
requirements of the Code), Institutional Fund if requested by Adjustable
Rate Fund will, on or prior to the Valuation Date, dispose of and/or
reinvest a sufficient amount of such investments as may be necessary to
avoid violating such limitations as of the Closing Date.
1.3. Institutional Fund will endeavor to discharge all of its liabilities
and obligations on or prior to the Valuation Date. Adjustable Rate Fund will
assume all stated liabilities, which include, without limitation, all expenses,
costs, charges and reserves reflected on an unaudited Statement of Assets and
Liabilities of Institutional Fund prepared by the Treasurer of Institutional
Fund as of the Valuation Date in accordance with generally accepted accounting
principles consistently applied from the prior audited period ("Valuation Date
Statement").
1.4. In order for Institutional Fund to comply with Section 852(a)(1) of
the Code and to avoid having any investment company taxable income or any net
capital gain subject to tax in the taxable year ending with its dissolution,
Institutional Fund will, on or before the Valuation Date, declare and distribute
dividends in an amount large enough so that it will have declared dividends of
all
A-2
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of its investment company taxable income and net capital gain, if any, for such
taxable year (determined without regard to any deduction for dividends paid).
1.5. On the Closing Date or as soon as practicable thereafter, pursuant
to paragraph 1.1 hereof and the Amendment, Institutional Fund will distribute
Adjustable Rate Fund Shares received by Institutional Fund pro rata to its
shareholders of record determined as of the close of business on the
Valuation Date ("Institutional Fund Shareholders"). Thereafter, no
additional shares representing interests in Institutional Fund shall be
issued. Such distribution will be accomplished by an instruction, signed by
Institutional Fund's Secretary, to transfer Adjustable Rate Fund Shares then
credited to Institutional Fund's account on the books of Adjustable Rate Fund
to open accounts on the books of Piper Funds II in the names of the
Institutional Fund Shareholders and representing the respective pro rata
number of Adjustable Rate Fund Shares due each such Institutional Fund
Shareholder. All issued and outstanding shares of Institutional Fund
simultaneously will be canceled on Institutional Fund's books.
1.6. Ownership of Adjustable Rate Fund Shares will be shown on the books
of Piper Fund II's transfer agent. Adjustable Rate Fund Shares will be issued
in the manner described in Piper Fund II's then-current Prospectus and Statement
of Additional Information, except no front-end sales charges will be incurred by
Institutional Fund Shareholders in connection with Adjustable Rate Fund Shares
received in the Reorganization.
1.7. Any transfer taxes payable upon issuance of Adjustable Rate Fund
Shares in a name other than the registered holder of Institutional Fund Shares
on Institutional Fund's books as of the close of business on the Valuation Date
shall, as a condition of such issuance and transfer, be paid by the person to
whom Adjustable Rate Fund Shares are to be issued and transferred.
1.8. Any reporting responsibility of Institutional Fund is and shall
remain the responsibility of Institutional Fund.
1.9. All books and records maintained on behalf of Institutional Fund will
be delivered to Adjustable Rate Fund and, after the Closing, will be maintained
by Adjustable Rate Fund or its designee in compliance with applicable record
retention requirements under the 1940 Act.
2. VALUATION
2.1. The "Valuation Date" shall be a business day not later than the 5th
business day following the receipt of the requisite approval of this Agreement
by shareholders of Institutional Fund or such other date after such shareholder
approval as may be mutually agreed upon. The value of the Institutional Fund
Assets shall be the value of such assets computed as of 4:00 p.m., Eastern time,
on
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the Valuation Date, using the valuation procedures set forth in Piper Fund II's
then current Prospectus and Statement of Additional Information.
2.2. The net asset value of an Adjustable Rate Fund Share shall be the net
asset value per share computed on the Valuation Date, using the valuation
procedures set forth in Piper Fund II's then-current Prospectus and Statement of
Additional Information.
2.3. The number of Adjustable Rate Fund Shares (including fractional
shares, if any) to be issued hereunder shall be determined by dividing the value
of the Institutional Fund Assets, net of the liabilities of Institutional Fund
assumed by Adjustable Rate Fund pursuant to paragraph 1.1, determined in
accordance with paragraph 2.1, by the net asset value of an Adjustable Rate Fund
Share determined in accordance with paragraph 2.2.
2.4. All computations of value shall be made by Piper Capital Management
Incorporated ("PCM") in accordance with its regular practice in pricing
Adjustable Rate Fund. Adjustable Rate Fund shall cause PCM to deliver a copy of
its valuation report at the Closing.
3. CLOSING AND CLOSING DATE
3.1. The Closing shall take place on the Valuation Date as of 5:00 p.m.,
Eastern time, or at such other day or time as the parties may agree (the
"Closing Date"). The Closing shall be held in a location mutually agreeable to
the parties hereto. All acts taking place at the Closing shall be deemed to
take place simultaneously as of 5:00 p.m., Eastern time, on the Closing Date
unless otherwise provided.
3.2. Portfolio securities held by Institutional Fund (together with any
cash or other assets) shall be delivered by Institutional Fund to Investors
Fiduciary Trust Company (the "Custodian"), as custodian for Adjustable Rate
Fund, for the account of Adjustable Rate Fund on or before the Closing Date in
conformity with applicable custody provisions under the 1940 Act and duly
endorsed in proper form for transfer in such condition as to constitute good
delivery thereof in accordance with the custom of brokers. The portfolio
securities shall be accompanied by all necessary federal and state stock
transfer stamps or a check for the appropriate purchase price of such stamps.
Portfolio securities and instruments deposited with a securities depository (as
defined in Rule 17f-4 under the 1940 Act) shall be delivered on or before the
Closing Date by book-entry in accordance with customary practices of such
depository and the Custodian. The cash delivered shall be in the form of a
Federal Funds wire, payable to the order of "Investors Fiduciary Trust Company,
Custodian for Adjustable Rate Mortgage Securities Fund, a series of Piper Funds
Inc. -- II."
3.3. In the event that on the Valuation Date, (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be restricted or
(b) trading or the reporting of trading on such Exchange or elsewhere shall be
disrupted
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so that, in the judgment of both Adjustable Rate Fund and Institutional Fund,
accurate appraisal of the value of the net assets of Adjustable Rate Fund or the
Institutional Fund Assets is impracticable, the Valuation Date shall be
postponed until the first business day after the day when trading shall have
been fully resumed without restriction or disruption and reporting shall have
been restored.
3.4. At the Closing, each party shall deliver to the other such bills of
sale, checks, assignments, share certificates, if any, receipts or other
documents as such other party or its counsel may reasonably request.
4. COVENANTS OF ADJUSTABLE RATE FUND AND INSTITUTIONAL FUND
4.1. Except as otherwise expressly provided herein with respect to
Institutional Fund, Adjustable Rate Fund and Institutional Fund each will
operate its business in the ordinary course between the date hereof and the
Closing Date, it being understood that such ordinary course will include
customary dividends and other distributions.
4.2. Piper Funds II will prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement on Form N-14 under the
Securities Act of 1933, as amended (the "1933 Act"), relating to Adjustable Rate
Fund Shares (the "Registration Statement"). Piper Institutional will provide
Piper Funds II with the Proxy Materials as described in paragraph 4.3 below for
inclusion in the Registration Statement. Piper Institutional will further
provide Piper Funds II with such other information and documents relating to
Institutional Fund as are reasonably necessary for the preparation of the
Registration Statement.
4.3. Institutional Fund will call a meeting of its shareholders to
consider and act upon this Agreement and the Amendment and to take all other
action necessary to obtain approval of the transactions contemplated herein,
including, if necessary, the waiver of any existing investment limitations that
might otherwise preclude Institutional Fund from holding all of its assets as
Adjustable Rate Fund Shares until such shares are distributed to Institutional
Fund shareholders. Piper Institutional will prepare the notice of meeting, form
of proxy and proxy statement (collectively, "Proxy Materials") to be used in
connection with such meeting. Piper Funds II will furnish Piper Institutional
with a currently effective Prospectus relating to Adjustable Rate Fund Shares
for inclusion in the Proxy Materials and with such other information relating to
Adjustable Rate Fund as is reasonably necessary for the preparation of the Proxy
Materials.
4.4. Subject to the provisions of this Agreement, Adjustable Rate Fund and
Institutional Fund will each take, or cause to be taken, all action, and do or
cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement.
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4.5. As soon after the Closing Date as is reasonably practicable, Piper
Institutional (a) shall prepare and file all federal and other tax returns and
reports of Institutional Fund required by law to be filed with respect to all
periods ending on or before the Closing Date but not theretofore filed, and (b)
shall pay all federal and other taxes shown as due thereon and/or all federal
and other taxes that were unpaid as of the Closing Date, including without
limitation, all taxes for which the provision for payment was made as of the
Closing Date (as represented in paragraph 5.2(l)).
4.6. Adjustable Rate Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act and such
of the state blue sky and securities laws as it may deem appropriate in order to
continue its operations after the Closing Date.
5. REPRESENTATIONS AND WARRANTIES
5.1. Piper Funds II represents and warrants to Piper Institutional as
follows:
(a) Adjustable Rate Fund is a series of Piper Funds II. Piper Funds
II is a corporation validly existing and in good standing under the laws of
Minnesota with corporate power to carry on its business as presently
conducted.
(b) Piper Funds II is a duly registered management investment company,
and its registration with the Commission as an investment company under the
1940 Act and the registration of its shares under the 1933 Act are in full
force and effect.
(c) All of the issued and outstanding shares of common stock of
Adjustable Rate Fund have been offered and sold in compliance in all
material respects with applicable registration requirements of the 1933 Act
and state securities laws. Shares of Adjustable Rate Fund are registered
in all jurisdictions in which they are required to be registered under
state securities laws and other laws, and Piper Funds II is not subject to
any stop order and is fully qualified to sell Adjustable Rate Fund shares
in each state in which such shares have been registered.
(d) The current Prospectus and Statement of Additional Information of
Adjustable Rate Fund conform in all materials respects to the applicable
requirements of the 1933 Act and the 1940 Act and the regulations
thereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they are made, not misleading.
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(e) Adjustable Rate Fund is not in, and the execution, delivery and
performance of this Agreement will not result in, a material violation of
any provision of Piper Funds II's Articles of Incorporation or Bylaws or of
any agreement, indenture, instrument, contract, lease or other undertaking
to which Adjustable Rate Fund is a party or by which it is bound.
(f) Other than as disclosed in Piper Fund II's currently effective
Prospectus and Statement of Additional Information or in the Proxy
Materials, no material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or, to its knowledge, threatened against Piper Funds II or
Adjustable Rate Fund or any of its properties or assets which, if adversely
determined, would materially and adversely affect its financial condition
or the conduct of its business; and Adjustable Rate Fund is not a party to
or subject to the provisions of any order, decree or judgment of any court
or governmental body which materially and adversely affects, or is
reasonably likely to materially and adversely affect, its business or its
ability to consummate the transactions herein contemplated.
(g) Piper Fund II's Statement of Assets and Liabilities, Statement of
Operations, Statement of Changes in Net Assets and Financial Highlights as
of August 31, 1995, and for the year then ended, certified by KPMG Peat
Marwick LLP, and Piper Fund II's unaudited Statement of Assets and
Liabilities, Statement of Operations, Statement of Changes in Net Assets
and Financial Highlights as of February 29, 1996 and for the six-month
period then ended (copies of which have been furnished to Institutional
Fund), fairly present, in all material respects, Piper Fund II's financial
condition as of such dates in accordance with generally accepted accounting
principles, and its results of operations, changes in its net assets and
financial highlights for such periods, and as of such dates there were no
known liabilities of Adjustable Rate Fund (contingent or otherwise) not
disclosed therein that would be required in accordance with generally
accepted accounting principles to be disclosed therein.
(h) Since the date of the most recent unaudited financial statements,
there has not been any material adverse change in Piper Fund II's financial
condition, assets, liabilities or business, other than changes occurring in
the ordinary course of business, or any incurrence by Adjustable Rate Fund
of indebtedness maturing more than one year from the date such indebtedness
was incurred, except indebtedness incurred in the ordinary course of
business. For the purpose of this subparagraph (h), neither a decline in
Piper Fund II's net asset value per share nor a decrease in Piper Fund II's
size due to redemptions by Adjustable Rate Fund shareholders shall
constitute a material adverse change.
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(i) All issued and outstanding Adjustable Rate Fund shares are, and
at the Closing Date will be, duly and validly issued and outstanding, fully
paid and nonassessable with no personal liability attaching to the
ownership thereof. Adjustable Rate Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of its
shares, nor is there outstanding any security convertible into any of its
shares.
(j) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary action on the part of Piper Funds II,
and this Agreement constitutes a valid and binding obligation of Adjustable
Rate Fund enforceable in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other laws relating to or affecting creditors
rights and to general equity principles. No other consents, authorizations
or approvals are necessary in connection with Piper Fund II's performance
of this Agreement, except such as have been obtained under the 1933 Act,
the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the
1940 Act and such as may be required under state securities laws;
(k) Adjustable Rate Fund Shares to be issued and delivered to
Institutional Fund, for the account of the Institutional Fund Shareholders,
pursuant to the terms of this Agreement will at the Closing Date have been
duly authorized and, when so issued and delivered, will be duly and validly
issued Adjustable Rate Fund Shares, and will be fully paid and
nonassessable with no personal liability attaching to the ownership
thereof;
(l) All material federal and other tax returns and reports of
Adjustable Rate Fund required by law to be filed on or before the Closing
Date have been filed and are correct, and all federal and other taxes shown
as due or required to be shown as due on said returns and reports have been
paid or provision has been made for the payment thereof and, to the best of
Piper Fund II's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to any such return and there are
no facts that might form the basis for such proceedings
(m) For each taxable year since its inception, Adjustable Rate Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a "regulated investment company" and neither the execution or
delivery of, nor the performance of its obligations under, this Agreement
will adversely affect, and no other events, to the best of Piper Fund II's
knowledge, are reasonably likely to occur which will adversely affect the
ability of Adjustable Rate Fund to continue to meet the requirements of
Subchapter M of the Code;
(n) Since Piper Fund II's most recent fiscal year-end, there has been
no change by Adjustable Rate Fund in accounting methods, principles or
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practices, including those required by generally accepted accounting
principles;
(o) The information furnished or to be furnished by Adjustable Rate
Fund for use in registration statements, proxy materials and other
documents which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete in all material respects
and shall comply in all material respects with federal securities and other
laws and regulations applicable thereto.
(p) The Proxy Materials to be included in the Registration Statement
(only insofar as they relate to Adjustable Rate Fund) will, on the
effective date of the Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were
made, not materially misleading.
5.2 Piper Institutional represents and warrants to Piper Funds II as
follows:
(a) Institutional Fund is a series of Piper Institutional. Piper
Institutional is a corporation validly existing and in good standing under
the laws of Minnesota.
(b) Piper Institutional is a duly registered management investment
company, and its registration with the Commission as an investment company
under the 1940 Act and the registration of its shares under the 1933 Act
are in full force and effect.
(c) All of the issued and outstanding shares of common stock of
Institutional Fund have been offered and sold in compliance in all material
respects with applicable registration requirements of the 1933 Act and
state securities laws. Shares of Institutional Fund are registered in all
jurisdictions in which they are required to be registered under state
securities laws and other laws, and Piper Institutional is not subject to
any stop order and is fully qualified to sell Institutional Fund shares in
each state in which such shares have been registered.
(d) The current Prospectus and Statement of Additional Information of
Institutional Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the regulations
thereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading.
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(e) Institutional Fund is not in, and the execution, delivery and
performance of this Agreement will not result in, a material violation of
any provision of Piper Institutional's Articles of Incorporation or Bylaws
or of any agreement, indenture, instrument, contract, lease or other
undertaking to which Institutional Fund is a party or by which it is bound.
(f) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or, to its knowledge, threatened against Institutional Fund or any
of its properties or assets which, if adversely determined, would
materially and adversely affect its financial condition or the conduct of
its business; and Institutional Fund knows of no facts that might form the
basis for the institution of such proceedings and is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects, or is reasonably
likely to materially and adversely affect, its business or its ability to
consummate the transactions herein contemplated.
(g) Institutional Fund's Statement of Assets and Liabilities,
Statement of Operations, Statement of Changes in Net Assets and Financial
Highlights of Institutional Fund as of June 30, 1996 and for the year then
ended, certified by KPMG Peat Marwick LLP, fairly present, in all material
respects, Institutional Fund's financial condition as of such date, and its
results of operations, changes in its net assets and financial highlights
for such period in accordance with generally accepted accounting
principles, and as of such date there were no known liabilities of
Institutional Fund (contingent or otherwise) not disclosed therein that
would be required in accordance with generally accepted accounting
principles to be disclosed therein.
(h) Since the date of the most recent audited financial statements,
there has not been any material adverse change in Institutional Fund's
financial condition, assets, liabilities or business, other than changes
occurring in the ordinary course of business, or any incurrence by
Institutional Fund of indebtedness maturing more than one year from the
date such indebtedness was incurred, except as otherwise disclosed in
writing to and acknowledged by Adjustable Rate Fund prior to the date of
this Agreement and prior to the Closing Date. All liabilities of
Institutional Fund (contingent and otherwise) are reflected in the
Valuation Date Statement. For the purpose of this subparagraph (h),
neither a decline in Institutional Fund's net asset value per share nor a
decrease in Institutional Fund's size due to redemptions by Institutional
Fund shareholders shall constitute a material adverse change.
(i) Institutional Fund has no material contracts or other commitments
(other than this Agreement) that will be terminated with liability to it
prior to the Closing Date.
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(j) All issued and outstanding shares of Institutional Fund are, and
at the Closing Date will be, duly and validly issued and outstanding, fully
paid and nonassessable with no personal liability attaching to the
ownership thereof. Institutional Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of its
shares, nor is there outstanding any security convertible into any of its
shares. All such shares will, at the time of Closing, be held by the
persons and in the amounts recorded by Institutional Fund's transfer agent.
(k) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary action
on the part of Piper Institutional and, subject to the approval of
Institutional Fund's shareholders, this Agreement constitutes a valid and
binding obligation of Institutional Fund enforceable in accordance with its
terms, subject as to enforcement to bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and other laws relating to or affecting
creditors' rights and to general equity principles. No other consents,
authorizations or approvals are necessary in connection with Institutional
Fund's performance of this Agreement, except such as have been obtained
under the 1933 Act, the 1934 Act and the 1940 Act and such as may be
required under state securities laws.
(l) All material federal and other tax returns and reports of
Institutional Fund required by law to be filed on or before the Closing
Date shall have been filed and are correct and all federal and other taxes
shown as due or required to be shown as due on said returns and reports
have been paid or provision has been made for the payment thereof and, to
the best of Institutional Fund's knowledge, no such return is currently
under audit and no assessment has been asserted with respect to any such
return and there are no facts that might form the basis for such
proceedings.
(m) For each taxable year since its inception, Institutional Fund has
met all the requirements of Subchapter M of the Code for qualification and
treatment as a "regulated investment company" and neither the execution or
delivery of, nor the performance of its obligations under, this Agreement
will adversely affect, and no other events, to the best of Institutional
Fund's knowledge, are reasonably likely to occur which will adversely
affect the ability of Institutional Fund to continue to meet the
requirements of Subchapter M of the Code.
(n) At the Closing Date, Institutional Fund will have good and valid
title to the Institutional Fund Assets, subject to no liens (other than the
obligation, if any, to pay the purchase price of portfolio securities
purchased by Institutional Fund which have not settled prior to the Closing
Date), security interests or other encumbrances, and full right, power and
authority to assign,
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deliver and otherwise transfer such assets hereunder, and upon delivery and
payment for such assets, Adjustable Rate Fund will acquire good and
marketable title thereto, subject to no restrictions on the full transfer
thereof, including any restrictions as might arise under the 1933 Act.
(o) On the effective date of the Registration Statement, at the time
of the meeting of Institutional Fund's shareholders and on the Closing
Date, the Proxy Materials will (i) comply in all material respects with the
provisions of the 1933 Act, the 1934 Act and the 1940 Act and the
regulations thereunder and (ii) not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
Neither Institutional Fund nor Piper Institutional shall be construed to
have made the foregoing representation with respect to portions of the
Proxy Materials furnished by Adjustable Rate Fund. Any other information
furnished by Institutional Fund for use in the Registration Statement or in
any other manner that may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete and shall comply in all
material respects with the applicable federal securities and other laws and
regulations thereunder.
(p) Institutional Fund has maintained or has caused to be maintained
on its behalf all books and accounts as required of a registered investment
company in compliance with the requirements of Section 31 of the 1940 Act
and the Rules thereunder.
(q) Institutional Fund is not acquiring Adjustable Rate Fund Shares
to be issued hereunder for the purpose of making any distribution thereof
other than in accordance with the terms of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF INSTITUTIONAL FUND
The obligations of Institutional Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
Adjustable Rate Fund of all the obligations to be performed by it hereunder on
or before the Closing Date and, in addition thereto, the following conditions:
6.1. All representations and warranties of Adjustable Rate Fund contained
in this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions contemplated
by this Agreement, as of the Closing Date with the same force and effect as if
made on and as of the Closing Date.
6.2. Adjustable Rate Fund shall have delivered to Institutional Fund a
certificate of its President and Treasurer, in a form reasonably satisfactory to
Institutional Fund and dated as of the Closing Date, to the effect that the
representations and warranties of Piper Funds II made in this Agreement are true
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and correct at and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters as
Piper Institutional shall reasonably request.
6.3. As of the Closing Date, there shall have been no material change in
the investment objective, policies and restrictions, nor any increase in the
investment management fees or annual fees payable pursuant to Piper Fund II's
12b-1 plan of distribution, from those described in the Prospectus and Statement
of Additional Information of Adjustable Rate Fund in effect on the date of this
Agreement.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF ADJUSTABLE RATE FUND
The obligations of Adjustable Rate Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance by
Institutional Fund of all the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following conditions:
7.1. All representations and warranties of Piper Institutional contained
in this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions contemplated
by this Agreement, as of the Closing Date with the same force and effect as if
made on and as of the Closing Date.
7.2. Institutional Fund shall have delivered to Adjustable Rate Fund at
the Closing a certificate of its President and its Treasurer, in form and
substance satisfactory to Adjustable Rate Fund and dated as of the Closing Date,
to the effect that the representations and warranties of Institutional Fund made
in this Agreement are true and correct at and as of the Closing Date, except as
they may be affected by the transactions contemplated by this Agreement, and as
to such other matters as Adjustable Rate Fund shall reasonably request.
7.3. Institutional Fund shall have delivered to Adjustable Rate Fund a
statement, certified by the Treasurer of Piper Institutional, of the
Institutional Fund Assets and its liabilities, together with a list of
Institutional Fund's portfolio securities and other assets showing the
respective adjusted bases and holding periods thereof for income tax purposes,
such statement to be prepared as of the Closing Date and in accordance with
generally accepted accounting principles consistently applied.
7.4. On the Closing Date, the Institutional Fund Assets shall include no
assets that Adjustable Rate Fund, by reason of Piper Funds II's Articles of
Incorporation, investment limitations or otherwise, may not properly acquire.
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8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF ADJUSTABLE RATE FUND AND
INSTITUTIONAL FUND.
The obligations of Institutional Fund and Adjustable Rate Fund hereunder
are each subject to the further conditions that on or before the Closing Date:
8.1. This Agreement and the Amendment and the transactions contemplated
herein and therein shall have been approved by the requisite vote of the holders
of the outstanding shares of Institutional Fund in accordance with the
provisions of Piper Institutional's Articles of Incorporation, and certified
copies of the resolutions evidencing such approval shall have been delivered to
Adjustable Rate Fund.
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
8.3. All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those of
the Commission and of state blue sky and securities authorities, including
"no-action" positions of and exemptive orders from such federal and state
authorities) deemed necessary by Adjustable Rate Fund or Institutional Fund to
permit consummation, in all material respects, of the transactions contemplated
herein shall have been obtained, except where failure to obtain any such
consent, order or permit would not involve risk of a material adverse effect on
the assets or properties of Adjustable Rate Fund or Institutional Fund.
8.4. The Registration Statement shall have become effective under the 1933
Act, no stop orders suspending the effectiveness thereof shall have been issued
and, to the best knowledge of the parties hereto, no investigation or proceeding
for that purpose shall have been instituted or be pending, threatened or
contemplated under the 1933 Act.
8.5. On or prior to the Valuation Date, Institutional Fund shall have
declared and paid a dividend or dividends and/or other distribution or
distributions that, together with all previous such dividends or distributions,
shall have the effect of distributing to its shareholders all of Institutional
Fund's investment company taxable income (computed without regard to any
deduction for dividends paid) and all of its net capital gain (after reduction
for any capital loss carry-forward and computed without regard to any deduction
for dividends paid) for the taxable year during which the Reorganization occurs.
8.6 The parties shall have received an opinion of the law firm of Dorsey &
Whitney LLP (based on such representations as such law firm shall reasonably
request), addressed to Piper Funds II and Piper Institutional, which opinion may
be
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relied upon by the shareholders of Institutional Fund, substantially to the
effect that the federal income tax consequences of the Reorganization will be as
follows:
(i) the Reorganization will constitute a reorganization within the meaning
of Section 368(a)(1)(C) of the Code, and Adjustable Rate Fund and
Institutional Fund each will qualify as a party to the Reorganization
under Section 368(b) of the Code;
(ii) Institutional Fund shareholders will recognize no income, gain or loss
upon receipt, pursuant to the Reorganization, of Adjustable Rate Fund
shares. Institutional Fund shareholders subject to taxation will
recognize income upon receipt of any net investment income or net
capital gains of Institutional Fund which are distributed by
Institutional Fund prior to the Reorganization;
(iii) the tax basis of Adjustable Rate Fund shares received by each
Institutional Fund shareholder pursuant to the Reorganization will be
equal to the tax basis of Institutional Fund shares exchanged
therefor;
(iv) the holding period of Adjustable Rate Fund shares received by each
Institutional Fund shareholder pursuant to the Reorganization will
include the period during which the Institutional Fund shareholder
held the Institutional Fund shares exchanged therefor, provided that
the Institutional Fund shares were held as a capital asset on the date
of the Reorganization;
(v) Institutional Fund will recognize no income, gain or loss by reason of
the Reorganization;
(vi) Adjustable Rate Fund will recognize no income, gain or loss by reason
of the Reorganization;
(vii) the tax basis of the assets received by Adjustable Rate Fund pursuant
to the Reorganization will be the same as the basis of those assets in
the hands of Institutional Fund immediately prior to the
Reorganization;
(viii) the holding period of the assets received by Adjustable Rate Fund
pursuant to the Reorganization will include the period during which
such assets were held by Institutional Fund; and
(ix) Adjustable Rate Fund will succeed to and take into account the
earnings and profits, or deficit in earnings and profits, of
Institutional Fund immediately prior to the Reorganization.
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Notwithstanding anything herein to the contrary, neither Adjustable Rate
Fund nor Institutional Fund may waive the condition set forth in this paragraph
8.6.
8.7 The Amendment shall have been filed in accordance with applicable
provisions of Minnesota law.
9. FEES AND EXPENSES
9.1. (a) PCM shall bear all direct expenses incurred in connection with
entering into and carrying out the provisions of this Agreement, including
expenses incurred in connection with the preparation, printing, filing and
solicitation of proxies to obtain requisite shareholder approvals.
(b) PCM shall pay any unamortized organizational expenses on the
books of Institutional Fund immediately prior to the Reorganization.
(c) In the event the transactions contemplated herein are not
consummated by reason of Institutional Fund's being either unwilling or
unable to go forward (other than by reason of the nonfulfillment or failure
of any condition to Institutional Fund's obligations specified in this
Agreement), PCM's obligations, on behalf of Institutional Fund, shall be
limited to reimbursement of Adjustable Rate Fund for all reasonable
out-of-pocket fees and expenses incurred by Adjustable Rate Fund in
connection with those transactions.
(d) In the event the transactions contemplated herein are not
consummated by reason of Piper Fund II's being either unwilling or unable
to go forward (other than by reason of the nonfulfillment or failure of any
condition to Piper Fund II's obligations specified in the Agreement), Piper
Fund II's only obligation hereunder shall be to reimburse Institutional
Fund for all reasonable out-of-pocket fees and expenses incurred by
Institutional Fund in connection with those transactions.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1. This Agreement constitutes the entire agreement between the parties.
10.2. The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated herein.
A-16
<PAGE>
11. TERMINATION
11.1. This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing:
(a) by the mutual written consent of Piper Institutional and Piper
Funds II;
(b) by either Piper Funds II or Piper Institutional by notice to the
other, without liability to the terminating party on account of such
termination (providing the terminating party is not otherwise in material
default or breach of this Agreement) if the Closing shall not have occurred
on or before December 31, 1996; or
(c) by either Adjustable Rate Fund or Institutional Fund, in writing
without liability to the terminating party on account of such termination
(provided the terminating party is not otherwise in material default or
breach of this Agreement), if (i) the other party shall fail to perform in
any material respect its agreements contained herein required to be
performed on or prior to the Closing Date, (ii) the other party materially
breaches any of its representations, warranties or covenants contained
herein, (iii) the Institutional Fund shareholders fail to approve this
Agreement at any meeting called for such purpose at which a quorum was
present, or (iv) any other condition herein expressed to be precedent to
the obligations of the terminating party has not been met and it reasonably
appears that it will not or cannot be met.
11.2. (a) Termination of this Agreement pursuant to paragraphs 11.1(a) or
(b) shall terminate all obligations of the parties hereunder and there
shall be no liability for damages on the part of Adjustable Rate Fund or
Institutional Fund or the directors or officers of Adjustable Rate Fund or
Institutional Fund, to any other party or its directors or officers.
(b) Termination of this Agreement pursuant to paragraph 11.1(c) shall
terminate all obligations of the parties hereunder and there shall be no
liability for damages on the part of Adjustable Rate Fund or Institutional
Fund or the directors or officers of Adjustable Rate Fund or Institutional
Fund, except that any party in breach of this Agreement shall, upon demand,
reimburse the non-breaching party for all reasonable out-of-pocket fees and
expenses incurred in connection with the transactions contemplated by this
Agreement, including legal, accounting and filing fee.
A-17
<PAGE>
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the parties; PROVIDED, HOWEVER, that
following the meeting of Institutional Fund's shareholders called by
Institutional Fund pursuant to paragraph 4.3, no such amendment may have the
effect of changing the provisions for determining the number of Adjustable Rate
Fund shares to be issued to the Institutional Fund Shareholders under this
Agreement to the detriment of such Institutional Fund Shareholders without their
further approval.
13 MISCELLANEOUS
13.1. The article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2. This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
13.3. This Agreement shall be governed by and construed in accordance with
the laws of the State of Minnesota.
13.4. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
13.5. The obligations and liabilities of Piper Funds II hereunder are
solely those of Adjustable Rate Fund. It is expressly agreed that no
shareholder, nominee, director, officer, agent or employee of Piper Funds II on
behalf of Adjustable Rate Fund shall be personally liable hereunder. The
execution and delivery of this Agreement have been authorized by the directors
of Piper Funds II and signed by authorized officers of Piper Funds II acting as
such, and neither such authorization by such directors nor such execution and
delivery by such officers shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally.
13.6. The obligations and liabilities of Piper Institutional hereunder are
solely those of Institutional Fund. It is expressly agreed that no shareholder,
nominee, director, officer, agent or employee of Institutional Fund shall be
personally liable hereunder. The execution and delivery of this Agreement have
been authorized by the directors of Piper Institutional and signed by authorized
officers of Piper
A-18
<PAGE>
Institutional acting as such, and neither such authorization by such directors
nor such execution and delivery by such officers shall be deemed to have been
made by any of them individually or to impose any liability on any of them
personally.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by a duly authorized officer.
PIPER INSTITUTIONAL FUNDS
INC., on behalf of Institutional
Government Adjustable Portfolio
By /s/ William H. Ellis
-----------------------------
Name: William H. Ellis
Title: President
PIPER FUNDS INC. -- II, on behalf of
Adjustable Rate Mortgage Securities
Fund
By /s/ Robert H. Nelson
------------------------------
Name: Robert H. Nelson
Title: Senior Vice President
A-19
<PAGE>
EXHIBIT 1 TO AGREEMENT AND PLAN OF REORGANIZATION
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
PIPER INSTITUTIONAL FUNDS INC.
The undersigned officer of Piper Institutional Funds Inc. ("Piper
Institutional"), a corporation subject to the provisions of Chapter 302A of the
Minnesota statutes, hereby certifies that Piper Institutional's (a) Board of
Directors, at a meeting held August 9, 1996, and (b) shareholders, at a meeting
held September 12, 1996, adopted the resolutions hereinafter set forth; and such
officer further certifies that the amendments to Piper Institutional's Articles
of Incorporation set forth in such resolutions were adopted pursuant to Chapter
302A.
WHEREAS, Piper Institutional is registered as an open-end management
investment company (I.E., a mutual fund) under the Investment Company Act of
1940 and offers its shares to the public in more than one series, each of which
represents a separate and distinct portfolio of assets;
WHEREAS, it is desirable and in the best interest of the holders of the
Institutional Government Adjustable Portfolio ("Institutional Fund"), a series
of Piper Institutional, that the assets belonging to such series, subject to its
stated liabilities, be sold to Adjustable Rate Mortgage Securities Fund
("Adjustable Rate Fund"), a series of Piper Funds Inc. -- II ("Piper Funds II"),
a Minnesota corporation and an open-end management investment company registered
under the Investment Company Act of 1940, in exchange for shares of Adjustable
Rate Fund;
WHEREAS, Piper Institutional wishes to provide for the PRO RATA
distribution of such shares of Adjustable Rate Fund received by it to holders of
shares of Institutional Fund and the simultaneous cancellation and retirement of
the outstanding shares of Institutional Fund;
WHEREAS, Piper Institutional and Piper Funds II have entered into an
Agreement and Plan of Reorganization providing for the foregoing transactions;
and
WHEREAS, the Agreement and Plan of Reorganization requires that, in order
to bind all shareholders of Institutional Fund to the foregoing transactions,
and in particular to bind such shareholders to the cancellation and retirement
of the outstanding shares of Institutional Fund, it is necessary to adopt an
amendment to Piper Institutional's Articles of Incorporation.
1
<PAGE>
NOW, THEREFORE, BE IT RESOLVED, that Piper Institutional's Articles of
Incorporation be, and the same hereby are, amended to add the following Article
5A immediately following Article 5 thereof:
5A. (a) For purposes of this Article 5A, the following terms shall
have the following meanings:
"PIPER INSTITUTIONAL" means the Corporation.
"PIPER FUNDS II" means Piper Funds Inc. -- II, a Minnesota
corporation.
"ACQUIRED FUND" means Institutional Government Adjustable Portfolio,
the Series A Shares of the Corporation.
"ACQUIRING FUND" means Piper Fund II's Adjustable Rate Mortgage
Securities Fund.
"VALUATION DATE" means the day established in the Agreement and Plan
of Reorganization as the day upon which the value of the Acquired Fund's
assets is determined for purposes of the reorganization.
"CLOSING DATE" means 5:00 p.m., Eastern time, on the Valuation Date or
such other date and time upon which Piper Funds II and Piper Institutional
agree.
(b) At the Closing Date, the assets belonging to the Acquired Fund,
the Special Liabilities associated with such assets, and the General Assets
and General Liabilities allocated to the Acquired Fund shall be sold to and
assumed by the Acquiring Fund in return for Acquiring Fund shares, all
pursuant to the Agreement and Plan of Reorganization. For purposes of the
foregoing, the terms "Assets belonging to," "Special Liabilities," "General
Assets" and "General Liabilities" have the meanings assigned to them in
Article 7(b), (c) and (d) of Piper Institutional's Articles of
Incorporation.
(c) The number of Acquiring Fund shares to be received by the
Acquired Fund and distributed by it to the Acquired Fund shareholders shall
be determined as follows:
(i) The value of the Acquired Fund's assets and the net asset
value per share of the Acquiring Fund's shares shall be computed as of
the Valuation Date using the valuation procedures set forth in the
Acquiring Fund's then-current Prospectus and Statement of Additional
Information, and as may be required by the Investment Company Act of
1940, as amended (the "1940 Act").
2
<PAGE>
(ii) The total number of Acquiring Fund shares to be issued
(including fractional shares, if any) in exchange for assets and
liabilities of the Acquired Fund shall be determined as of the
Valuation Date by dividing the value of the Acquired Fund's assets,
net of its stated liabilities on the Closing Date to be assumed by the
Acquiring Fund, by the net asset value of the Acquiring Fund's shares,
each as determined pursuant to (i) above.
(iii) On the Closing Date, or as soon as practicable thereafter,
the Acquired Fund shall distribute PRO RATA to its shareholders of
record as of the Valuation Date the full and fractional Acquiring Fund
shares received by the Acquired Fund pursuant to (ii) above.
(d) The distribution of Acquiring Fund shares to Acquired Fund
shareholders provided for in paragraph (c) above shall be accomplished by
an instruction, signed by Piper Institutional's Secretary, to transfer
Acquiring Fund shares then credited to the Acquired Fund's account on the
books of the Acquiring Fund to open accounts on the books of the Acquiring
Fund in the names of the Acquired Fund shareholders in amounts representing
the respective PRO RATA number of Acquiring Fund shares due each such
shareholder pursuant to the foregoing provisions. All issued and
outstanding shares of the Acquired Fund shall simultaneously be canceled on
the books of the Acquired Fund and retired.
(e) From and after the Closing Date, the Acquired Fund shares
canceled and retired pursuant to paragraph (d) above shall have the status
of authorized and unissued Shares of Piper Institutional, without
designation as to series.
IN WITNESS WHEREOF, the undersigned officer of Piper Institutional has
executed these Articles of Amendment on behalf of Piper Institutional on
__________, 1996.
PIPER INSTITUTIONAL FUNDS INC.
By
------------------------------
Its
---------------------------
3
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
dated August 26, 1996
ADUSTABLE RATE MORTGAGE SECURITIES FUND
A Series of Piper Funds Inc. -- II
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402-3804
(800) 866-7778
__________________________________
Acquisition of the Assets of Institutional Government Adjustable Portfolio
A Series of Piper Institutional Funds Inc.
By and in Exchange for Shares of Adjustable Rate Mortgage Securities Fund
a Series of Piper Funds Inc. -- II
__________________________________
This Statement of Additional Information relates to the proposed Agreement
and Plan of Reorganization providing for the acquisition of substantially all of
the assets and the assumption of all stated liabilities of Institutional
Government Adjustable Portfolio ("Adjustable Portfolio"), a series of Piper
Institutional Funds Inc. ("Piper Institutional") by Adjustable Rate Mortgage
Securities Fund ("Adjustable Rate Fund"), a series of Piper Funds Inc. -- II
("Piper Funds II"), in exchange for shares of common stock of Adjustable Rate
Fund.
This Statement of Additional Information consists of this cover page and
the following documents which are incorporated by reference herein:
1. The Statement of Additional Information dated December 18, 1995 of
Piper Funds II.
2. The Annual Report of Piper Funds II for the fiscal year ended August
31, 1995.
3. The Semiannual Report of Piper Funds II for the six months ended
February 29, 1996.
4. The Statement of Additional Information dated November 1, 1995 of
Piper Institutional.
5. The Annual Report of Piper Institutional for the fiscal year ended
June 30, 1996.
Financial statements required pursuant to Form N-14 are included in the
above documents which have been incorporated by reference herein. Pro forma
financial statements are not required because the net asset value of Adjustable
Portfolio does not exceed ten percent of the net asset value of Adjustable Rate
Fund, measured as of the June 30, 1996.
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement dated August 26, 1996 relating to the
above-referenced transaction accompanies this Statement of Additional
Information and should be read in conjunction herewith.
