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American Strategic Income Portfolio II - 1996 Semiannual Report
1996 Semiannual Report
AMERICAN
STRATEGIC
INCOME
PORTFOLIO II
BSP
[LOGO]
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[LOGO]
CONTENTS
President's Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Financial Statements and Notes . . . . . . . . . . . . . . . . . . . . . . . 9
Investments in Securities. . . . . . . . . . . . . . . . . . . . . . . . . .24
Shareholder Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
AMERICAN STRATEGIC INCOME PORTFOLIO II
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PRIMARY INVESTMENTS
Mortgage-related assets that directly or indirectly represent a participation in
or are secured by and payable from mortgage loans. It may also invest in
asset-backed securities, U.S. government securities, corporate debt securities,
municipal obligations, unregistered securities, mortgage-backed securities and
mortgage servicing rights. The fund may borrow, including through the use of
reverse repurchase agreements, and may purchase securities through the
dollar-roll program. Use of certain of these investments and investment
techniques may cause the fund's net asset value to fluctuate to a greater extent
than would be expected from interest rate movements alone.
FUND OBJECTIVE
High level of current income. Its secondary objective is to seek capital
appreciation. As with other investment companies, there can be no assurance this
fund will achieve its objective.
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AVERAGE ANNUALIZED TOTAL RETURNS
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Based on net asset value for the periods ended November 30, 1996.
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[CHART]
THE AVERAGE ANNUALIZED TOTAL RETURN FIGURES FOR AMERICAN STRATEGIC INCOME
PORTFOLIO II ARE BASED ON THE CHANGE IN ITS NET ASSET VALUE (NAV), ASSUME ALL
DISTRIBUTIONS WERE REINVESTED AND DO NOT REFLECT SALES CHARGES. NAV-BASED
PERFORMANCE IS USED TO MEASURE INVESTMENT MANAGEMENT RESULTS.
TOTAL RETURNS BASED ON THE CHANGE IN MARKET PRICE FOR THE ONE-YEAR, THREE-YEAR
AND SINCE INCEPTION PERIODS ENDED NOVEMBER 30, 1996, WERE 7.99%, -0.90% AND
2.76%, RESPECTIVELY. THESE FIGURES ALSO ASSUME REINVESTED DISTRIBUTIONS AND DO
NOT REFLECT SALES CHARGES.
PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. NEITHER SAFETY OF
PRINCIPAL NOR STABILITY OF INCOME IS GUARANTEED. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT WILL FLUCTUATE SO THAT FUND SHARES, WHEN SOLD, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST.
THE LEHMAN BROTHERS MUTUAL FUND GOVERNMENT/MORTGAGE INDEX IS COMPRISED OF ALL
U.S. GOVERNMENT AGENCY AND TREASURY SECURITIES AND AGENCY MORTGAGE-BACKED
SECURITIES. DEVELOPED BY LEHMAN BROTHERS FOR COMPARATIVE USE BY THE MUTUAL FUND
INDUSTRY, THIS INDEX IS UNMANAGED AND DOES NOT INCLUDE ANY FEES OR EXPENSES IN
ITS TOTAL RETURN FIGURES.
THE LIPPER CLOSED-END U.S. MORTGAGE FUNDS AVERAGE REPRESENTS THE AVERAGE
ANNUALIZED TOTAL RETURN, WITH DISTRIBUTIONS REINVESTED, OF SIMILAR CLOSED-END
FUNDS AS CHARACTERIZED BY LIPPER ANALYTICAL SERVICES.
THE SINCE INCEPTION NUMBERS FOR THE LEHMAN INDEX AND LIPPER AVERAGE ARE
CALCULATED FROM THE MONTH END FOLLOWING THE FUND'S INCEPTION THROUGH NOVEMBER
30, 1996.
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1996 Semiannual Report 1 American Strategic Income Portfolio II
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PRESIDENT'S LETTER
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[PHOTO]
WILLIAM H. ELLIS
President
Piper Capital
Management
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January 16, 1997
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DEAR SHAREHOLDERS:
Check out the best sellers' list at your local bookstore. You'll notice a
number of books about companies that have gone through dramatic changes in
recent years. Surprising? Not really. Every company experiences change
periodically. And we're no exception. At Piper Capital Management, we've made
significant changes to enhance our ability to achieve consistent, competitive
performance and provide a higher level of quality service.
We've upgraded our toll-free telephone system so you spend less time
listening to voice response and more time receiving information you can put to
use. Also, when calling our toll-free number, you now have the option to listen
to our portfolio managers talk about their current investment strategies. Find
out the many ways to reach us on the back page of this report.
Take a close look at the semiannual report in your hand. We've made our
portfolio managers' commentaries simpler and more inviting, and added a glossary
of terms at the back to help you understand commonly used financial terms.
Whenever you see this symbol***, it indicates a term defined in the glossary.
You'll hear the word "team" more often when we talk about our portfolio
managers. We've enhanced our approach, allowing managers to interact more
frequently and share their best ideas to improve the investment capabilities of
Piper Capital.
The recent changes we have made represent a new way of doing business at
Piper Capital - an approach we believe will enable us to establish an
unparalleled reputation for prudent investing and high-quality service.
That said, we look forward to serving your future financial needs and
exceeding your expectations in every way we can. Thank you for your investment.
Sincerely,
/s/ William H. Ellis
William H. Ellis
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
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1996 Semiannual Report 2 American Strategic Income Portfolio II
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AMERICAN STRATEGIC INCOME PORTFOLIO II
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[PHOTO]
JOHN WENKER
is primarily responsible for the management of American Strategic Income
Portfolio II. He has 11 years of financial experience.
January 16, 1997
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DEAR SHAREHOLDERS:
AMERICAN STRATEGIC INCOME PORTFOLIO II PAID AN ATTRACTIVE LEVEL OF CURRENT
INCOME FOR SHAREHOLDERS DURING THE SIX-MONTH PERIOD ENDED NOVEMBER 30, 1996.
The fund paid $0.5075 per share in dividends, which is an annualized
distribution rate of 9.23% on the November 30 market price of $11 per share,
and 6.77% on the initial public offering price of $15 per share. As discussed
below, the fund's dividend was reduced to bring it in line with the fund's
earnings. Current monthly earnings of 8.26 cents per share (based on an
average of the three months ended November 30) would result in an annualized
earnings rate of 9.01% on the November 30 market price and 6.61% on the
initial public offering price. Keep in mind that past performance does not
guarantee future results, and these rates will fluctuate.
FOR THE SIX-MONTH PERIOD, THE FUND HAD A NET ASSET VALUE TOTAL RETURN OF 4.78%.*
This compares to a 7.06% return for the Lehman
* ALL RETURNS INCLUDE REINVESTED DISTRIBUTIONS, BUT NOT SALES CHARGES. PAST
PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT FUND SHARES, WHEN SOLD,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
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PORTFOLIO COMPOSITION
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As a percentage of total assets on November 30, 1996.
[CHART]
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1996 Semiannual Report 3 American Strategic Income Portfolio II
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AMERICAN STRATEGIC INCOME PORTFOLIO II (CONTINUED)
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[PHOTO]
DAVID STEELE
assists with the management of American Strategic Income Portfolio II. He has 18
years of financial experience.
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Brothers Mutual Fund Government/Mortgage Index and an 8.28% return for the
Lipper Closed-End U.S. Mortgage Funds Average during this same period. For the
six-month period ended November 30, the fund's total return based on its market
price was 8.46%.* The fund continued to trade at a discount*** to net asset
value during the year, with a market price of $11 and a net asset value of
$12.87 per share as of November 30. Reducing the difference between the fund's
market price and net asset value has been challenging, but we believe the fund's
reduced net asset value volatility and earnings stability could help improve the
fund's market price over time.
THE FUND'S NET ASSET VALUE UNDERPERFORMANCE WAS DUE LARGELY TO HAVING MORTGAGE
LOANS IN THE PORTFOLIO. These loans are generally less sensitive to interest
rate changes than securities in the index and securities held by other U.S.
mortgage funds. So when interest rates fall, as they did during the last six
months, these loans tend not to go up in value as much as the index or other
U.S. mortgage
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GEOGRAPHICAL DISTRIBUTION
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Percentages reflect principal value of whole loans and real estate owned as of
November 30, 1996.
[MAP]
SHADED AREAS WITHOUT VALUES INDICATE STATES IN WHICH THE FUND HAS INVESTED LESS
THAN 0.50% OF ITS ASSETS.
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
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1996 Semiannual Report 4 American Strategic Income Portfolio II
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AMERICAN STRATEGIC INCOME PORTFOLIO II (CONTINUED)
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[PHOTO]
RUSS KAPPENMAN
assists with the management of American Strategic Income Portfolio II. He has 11
years of financial experience.
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funds. However, when rates increase, our loans generally do not decline as much,
giving the fund downside protection in a rising-rate environment. Another
contributing factor to our underperformance was our emphasis on short-term
Treasury securities. During a declining interest rate environment, short-term
securities generally do not go up in value as much as long-term issues.
DURING THE PERIOD, WE REMAINED FOCUSED ON STABILIZING THE FUND'S INCOME STREAM.
When the dividend was reduced in July 1996, we stated that we felt we could
maintain an 8.25 cents per share monthly dividend for 12 months. As of November
30, 1996, we were on track to accomplish this goal. While unexpected credit
problems or severe prepayments could adversely affect the fund's ability to
maintain its 8.25 cents per share monthly dividend, we remain optimistic we will
achieve this objective.
THE FUND'S ASSETS ARE LARGELY CONCENTRATED IN MORTGAGE LOANS. As of November 30,
46% of the fund's total assets were invested in single family (home) loans, 33%
in multifamily (apartment) loans, 7% in commercial loans and 9% in Treasury
securities. (See portfolio composition chart on page 3.) Assuming a market
environment that is similar to the past year, we intend to maintain the fund's
investments in mortgage loans and Treasuries near these levels. The greater
concentration in mortgage loans is consistent with our strategy of focusing on
securities subject to more credit risk and reducing our exposure to securities
more sensitive to changing interest rates. General improvements in housing
markets and a continued strong market for rental housing should have a positive
impact on the credit worthiness of our single and multifamily portfolios. To
date, we have experienced loan prepayments at expected levels and have been able
to reinvest these funds at historically attractive rates. If we experience
heavier prepayments, we may have to reinvest the proceeds at lower interest
rates, which would ultimately decrease the fund's income.
WE CONTINUED TO BORROW IN THE FUND THROUGH REVERSE REPURCHASE AGREEMENTS*** AND
INVESTED THE PROCEEDS IN TREASURY SECURITIES OR NEW MORTGAGE LOANS. The
Treasuries and mortgage loans acted as collateral for the reverse repurchase
agreements. These reverse
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
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1996 Semiannual Report 5 American Strategic Income Portfolio II
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AMERICAN STRATEGIC INCOME PORTFOLIO II (CONTINUED)
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repurchase agreements, expressed as a percentage of total assets, were
approximately 9% as of November 30. While borrowing can potentially increase the
fund's income, it can also increase the fund's net asset value volatility.
WE SUCCESSFULLY MANAGED THE RISKS*** INVOLVED WITH MORTGAGE LOANS DURING THE
PERIOD. (See the glossary for more on the specific risks associated with
mortgage loans.) One of the ways we did this was by focusing on moderately
valued homes, which have less credit risk than do higher valued homes. As of
November 30, the fund held 2,241 single family loans on properties which, on
average, had a value of approximately $74,000. The average balance remaining on
these loans was approximately $59,000. Since the fund's inception, we have kept
its principal losses from foreclosed single family loans to 6 cents per share.
We followed a similar philosophy when purchasing multifamily and commercial
loans. We believe that smaller loans spread out in many states are less likely
to cause losses in the fund. On November 30, we had 41 multifamily loans with an
average loan balance of approximately $2,246,000 and eight commercial loans with
an average balance of approximately $2,294,000. Through November, there were no
realized foreclosure losses to the fund from our investments in multifamily or
commercial loans. However, in June 1996 we took possession of one multifamily
property, and another is delinquent. Going forward, we will
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DELINQUENCY PROFILE
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The chart below shows what percentage of loans in the portfolio are 30, 60, 90
or 120 days delinquent as of November 30, 1996.
CURRENT 90.5%
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30 Days 3.5%
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60 Days 1.0%
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90 Days 0.4%
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120+ Days 4.6%
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*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
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1996 Semiannual Report 6 American Strategic Income Portfolio II
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AMERICAN STRATEGIC INCOME PORTFOLIO II (CONTINUED)
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continue to focus on moderately valued home loans and smaller multifamily and
commercial loans.
ALTHOUGH WE CONDUCT EXTENSIVE RISK ANALYSIS ON EVERY LOAN PURCHASED, DELINQUENT
LOANS ARE LIKELY. Because delinquent loans require a high level of attention, we
place them with loan servicers who work hard to convey to borrowers that their
first responsibility each month is to make their payments. If a loan forecloses,
our loan servicers will proceed with the process as quickly as possible.
Although we would hope to receive all of the principal and interest owed to us
on a foreclosed loan, it is likely that we may not be repaid in full.
WE BELIEVE GEOGRAPHIC DIVERSIFICATION IS ESSENTIAL TO THE FUND. The fund is
invested in mortgage loans backed by properties located throughout the country.
(See map on page 4.) We attempt to buy mortgage loans in many parts of the
country to avoid the risk of concentrating in one area. The greatest
concentration of loans is in Texas, California and Minnesota. Texas and
California have more loans due to their large populations. Moreover, the adverse
economic conditions experienced by these two states a few years ago enabled us
to purchase loans at what we believe are attractive prices. Our concentration of
loans in Minnesota results from our in-depth knowledge of some markets in that
state and generally favorable economic conditions there.
LOOKING AHEAD, WE BELIEVE THE FUND'S NET ASSET VALUE AND EARNINGS SHOULD BE
FAIRLY STABLE RELATIVE TO CHANGES IN THE INTEREST RATE ENVIRONMENT. We believe
we have reduced interest rate risk and focused the fund's investments where we
feel we can currently add the most value - in the mortgage loan area. This focus
on mortgage loans should allow the fund to provide more consistent income
levels. We hope this will attract more investors to the fund, which, in turn,
could reduce the current discount of market price to net asset value. We
anticipate more investments in commercial mortgage loans in the future.
Commercial loans may involve more risk than multifamily or single family
mortgage loans. (For more on the specific risks associated with mortgage loans,
see the glossary.)
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1996 Semiannual Report 7 American Strategic Income Portfolio II
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AMERICAN STRATEGIC INCOME PORTFOLIO II (CONTINUED)
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THE PROPOSED SETTLEMENT OF A CLASS ACTION LAWSUIT AGAINST THE FUND SHOULD BE
PRESENTED TO THE COURT FOR PRELIMINARY APPROVAL EARLY THIS YEAR. Shareholders
received details of the proposed settlement in the annual report that was mailed
in July. At that time, we anticipated preliminary court approval in late 1996.
Due to delays in the process, we now expect the approval early this year. There
can, however, be no assurance as to the timing of preliminary court approval or
the settlement itself.
The efforts of the fund's management team continue to be dedicated to reaching
the fund's objectives and helping you achieve your financial goals. Thank you
for your investment in American Strategic Income Portfolio II. We look forward
to serving your financial needs in the coming months.
Sincerely,
/s/John Wenker
John Wenker
Portfolio Manager
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1996 Semiannual Report 8 American Strategic Income Portfolio II
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Financial Statements (Unaudited)
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STATEMENT OF ASSETS AND LIABILITIES November 30, 1996
..................................................................
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (note 2)
(including a repurchase agreement of $805,000) ........... $274,138,026
Real estate owned (identified cost: $4,829,818) (note 2) ... 4,068,214
Cash in bank on demand deposit ............................. 1,264,139
Accrued interest receivable ................................ 2,552,386
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Total assets ............................................. 282,022,765
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LIABILITIES:
Reverse repurchase agreements payable ...................... 25,000,000
Accrued investment management fee .......................... 129,924
Accrued administrative fee ................................. 42,017
Accrued interest ........................................... 109,865
Other accrued expenses ..................................... 20,862
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Total liabilities ........................................ 25,302,668
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Net assets applicable to outstanding capital stock ......... $256,720,097
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REPRESENTED BY:
Capital stock - authorized 1 billion shares of $0.01 par
value; outstanding, 19,940,735 shares .................... $ 199,407
Additional paid-in capital ................................. 281,680,763
Undistributed net investment income ........................ 1,382,973
Accumulated net realized loss on investments ............... (30,028,587)
Unrealized appreciation of investments ..................... 3,485,541
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Total - representing net assets applicable to outstanding
capital stock .......................................... $256,720,097
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Net asset value per share of outstanding capital stock ..... $ 12.87
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* Investments in securities at identified cost ............. $269,890,881
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</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1996 Semiannual Report 9 American Strategic Income Portfolio II
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Financial Statements (Unaudited) (continued)
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STATEMENT OF OPERATIONS For the Six Months Ended November 30, 1996
..................................................................
<TABLE>
<S> <C>
INCOME:
Interest (net of interest expense of $1,255,822) ........... $11,384,450
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EXPENSES (NOTE 3):
Investment management fee .................................. 769,354
Administrative fee ......................................... 254,182
Custodian and accounting fees .............................. 85,329
Transfer agent fees ........................................ 20,734
Reports to shareholders .................................... 30,684
Mortgage servicing fees .................................... 344,449
Directors' fees ............................................ 4,320
Audit and legal fees ....................................... 55,008
Other expenses ............................................. 54,375
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Total expenses ........................................... 1,618,435
Less expenses paid indirectly .............................. (4,570)
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Total net expenses ....................................... 1,613,865
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Net investment income .................................... 9,770,585
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NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized loss on investments (note 4) .................. (184,101)
Net change in unrealized appreciation or depreciation of
investments .............................................. 2,389,743
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Net gain on investments .................................. 2,205,642
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Net increase in net assets resulting from operations ..... $11,976,227
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</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1996 Semiannual Report 10 American Strategic Income Portfolio II
<PAGE>
Financial Statements (Unaudited) (continued)
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STATEMENT OF CASH FLOWS For the Six Months Ended November 30, 1996
..................................................................
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest income ............................................ $11,384,450
Net expenses ............................................... (1,613,865)
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Net investment income .................................... 9,770,585
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Adjustments to reconcile net investment income to net cash
provided by operating activities:
Change in accrued interest receivable and principal
receivable on mortgage securities ...................... 49,773
Net amortization of bond discount and premium ............ (84,080)
Change in accrued fees and expenses ...................... (95,602)
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Total adjustments ...................................... (129,909)
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Net cash provided by operating activities .............. 9,640,676
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments ......................... 46,925,503
Purchases of investments ................................... (19,430,102)
Net sales of short-term securities ......................... 572,000
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Net cash provided by investing activities .............. 28,067,401
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments for reverse repurchase agreements ............. (28,000,000)
Distributions paid to shareholders ......................... (10,119,925)
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Net cash used by financing activities .................. (38,119,925)
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Net decrease in cash ....................................... (411,848)
Cash at beginning of period ................................ 1,675,987
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Cash at end of period .................................. $ 1,264,139
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Supplemental disclosure of cash flow information:
Cash paid for interest on reverse repurchase
agreements ............................................. $ 1,378,960
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</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1996 Semiannual Report 11 American Strategic Income Portfolio II
<PAGE>
Financial Statements (continued)
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STATEMENTS OF CHANGES IN NET ASSETS
..................................................................
<TABLE>
<CAPTION>
SIX MONTHS ENDED
11/30/96 YEAR ENDED
(UNAUDITED) 5/31/96
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<S> <C> <C>
OPERATIONS:
Net investment income ...................................... $ 9,770,585 $19,897,041
Net realized gain (loss) on investments .................... (184,101) 4,450,724
Net change in unrealized appreciation or depreciation of
investments .............................................. 2,389,743 (4,821,939)
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Net increase in net assets resulting from operations ..... 11,976,227 19,525,826
----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ................................. (10,119,925) (24,290,403)
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CAPITAL SHARE TRANSACTIONS:
Payments for retirement of 250,800 shares (note 6) ......... -- (2,827,026)
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Total increase (decrease) in net assets .................. 1,856,302 (7,591,603)
Net assets at beginning of period .......................... 254,863,795 262,455,398
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Net assets at end of period ................................ $256,720,097 $254,863,795
----------------- -----------------
----------------- -----------------
Undistributed net investment income ........................ $ 1,382,973 $ 1,732,313
----------------- -----------------
----------------- -----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1996 Semiannual Report 12 American Strategic Income Portfolio II
<PAGE>
Notes to Financial Statements (Unaudited)
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(1) ORGANIZATION
................................................................................
American Strategic Income Portfolio Inc. II (the fund) is
registered under the Investment Company Act of 1940 (as amended)
as a diversified, closed-end management investment company. The
fund emphasizes investments in mortgage-related assets that
directly or indirectly represent a participation in or are
secured by and payable from mortgage loans. It may also invest in
asset-backed securities, U.S. government securities, corporate
debt securities, municipal obligations, unregistered securities
and mortgage servicing rights. The fund may borrow, including
through the use of reverse repurchase agreements, and may
purchase securities through the sale-forward (dollar-roll)
program. Fund shares are listed on the New York Stock Exchange
under the symbol BSP.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
................................................................................
INVESTMENTS IN SECURITIES
The fund's mortgage related investments such as whole loans,
participation mortgages and mortgage servicing rights are
initially valued at cost and their values are subsequently
monitored and adjusted pursuant to a pricing model approved by
the board of directors and implemented by Piper Capital
Management. The pricing model is designed to reflect the present
value of the projected stream of cash flows on such investments.
The pricing model takes into account a number of relevant factors
including the projected rate of prepayments, the projected rate
and severity of defaults, the delinquency profile, the expected
yield at purchase, changes in prevailing interest rates and
changes in the real or perceived liquidity of whole loans,
participation mortgages or mortgage servicing rights as the case
may be. Certain elements of the pricing model involve subjective
judgment. Additionally, certain other factors will be considered
in the determination of the valuation of investments in
multifamily properties, including but not limited to, results of
annual inspections of the multifamily property by the adviser or
a servicing agent retained by the adviser, reviews of annual
unaudited financial statements of the multifamily property,
monitoring of local and other economic conditions and their
impact on local real estate values and analyses
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1996 Semiannual Report 13 American Strategic Income Portfolio II
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
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of rental vacancy rates at the multifamily property. Subjective
adjustments to the valuation of such investments in multifamily
properties may be made based upon the adviser's analysis of such
information. The actual values that may be realized upon the sale
of whole loans, participation mortgages and mortgage servicing
rights can only be determined in negotiations between the fund
and third parties.
The values of other fixed income securities will be provided by
an independent pricing service, which determines these valuations
at a time earlier than the close of the New York Stock Exchange.
Fixed income securities for which prices are not available from
an independent pricing service but where an active market exists
will be valued using market quotations obtained from one or more
dealers that make markets in the securities.
Occasionally, events affecting the value of such securities may
occur between the time valuations are determined and the close of
the New York Stock Exchange. If events materially affecting the
value of such securities occur, if the fund's management
determines for any other reason that valuations provided by the
pricing service or market quotations from dealers are inaccurate
or when market quotations are not readily available, securities
will be valued at their fair value according to procedures
decided upon in good faith by the board of directors. Short-term
securities with maturities of 60 days or less are valued at
amortized cost, which approximates market value.
Exchange-traded options are valued at the last sales price on the
exchange prior to the time when assets are valued. If no sales
were reported that day, the options will be valued at the mean
between the current closing bid and asked prices.
Over-the-counter options are valued using market quotations
obtained from independent dealers that make markets in the
securities. Financial futures are valued at the last settlement
price established each day by the board of trade or exchange on
which they are traded.
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1996 Semiannual Report 14 American Strategic Income Portfolio II
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
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Securities transactions are accounted for on the date the
securities are purchased and sold. Realized gains and losses are
calculated on the identified-cost basis. Interest income,
including amortization of bond discount and premium computed on a
level-yield basis, is accrued weekly. Costs associated with
acquiring whole loans, participation mortgages and mortgage
servicing rights are capitalized and included in the cost basis
of the loans purchased.
OPTIONS TRANSACTIONS
For hedging purposes, the fund may buy and sell put and call
options, write covered call options on portfolio securities, and
write cash-secured puts. The risk in writing a call option is
that the fund gives up the opportunity for profit if the market
price of the security increases. The risk in writing a put option
is that the fund may incur a loss if the market price of the
security decreases and the option is exercised. The risk of
buying an option is that the fund pays a premium whether or not
the option is exercised. The fund also has the additional risk of
not being able to enter into a closing transaction if a liquid
secondary market does not exist.
The fund will realize a gain or loss upon expiration or closing
of the option transaction. When an option is exercised, the
proceeds on the sale of a written call option, the purchase cost
of a written put option, or the cost of a security for purchased
put and call options is adjusted by the amount of premium
received or paid.
FUTURES TRANSACTIONS
In order to gain exposure to or protect against changes in the
market, the fund may buy and sell financial futures contracts and
related options. Risks of entering into futures contracts and
related options include the possibility there may be an illiquid
market and that a change in the value of the contract or option
may not correlate with changes in the value of the underlying
securities.
Upon entering into a futures contract, the fund is required to
deposit either cash or securities in an amount (initial margin)
equal to a certain percentage of the contract value. Subsequent
payments
- ---------------------------------------------------------------------
1996 Semiannual Report 15 American Strategic Income Portfolio II
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- ---------------------------------------------------------------------
(variation margin) are made or received by the fund each day. The
variation margin payments are equal to the daily changes in the
contract value and are recorded as unrealized gains and losses.
The fund recognizes a realized gain or loss when the contract is
closed or expires.
INTEREST RATE TRANSACTIONS
To preserve a return or spread on a particular investment or
portion of its portfolio or for other non-speculative purposes,
the fund may enter into various hedging transactions, such as
interest rate swaps and the purchase of interest rate caps and
floors. Interest rate swaps involve the exchange of commitments
to pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments. The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified
index exceeds a predetermined interest rate, to receive payments
of interest on a contractually based notional principal amount
from the party selling the interest rate cap. The purchase of an
interest rate floor entitles the purchaser, to the extent that a
specified index falls below a predetermined interest rate, to
receive payments of interest on a contractually based notional
principal amount from the party selling the interest rate floor.
If forecasts of interest rates and other market factors are
incorrect, investment performance will diminish compared to what
performance would have been if these investment techniques were
not used. Even if the forecasts are correct, there is risk that
the positions may correlate imperfectly with the asset or
liability being hedged. Other risks of entering into these
transactions are that a liquid secondary market may not always
exist or that the other party to the transaction may not perform.
For interest rate swaps, caps and floors, the fund accrues
weekly, as an increase or decrease to interest income, the
current net amount due to or owed by the fund. Interest rate
swaps, caps and floors are
- ---------------------------------------------------------------------
1996 Semiannual Report 16 American Strategic Income Portfolio II
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- ---------------------------------------------------------------------
valued from prices quoted by independent brokers. These
valuations represent the present value of all future cash
settlement amounts based on implied forward interest rates.
WHOLE LOANS AND PARTICIPATION MORTGAGES
Whole loans and participation mortgages may bear a greater risk
of loss arising from a default on the part of the borrower of the
underlying loans than do traditional mortgage-backed securities.
This is because whole loans and participation mortgages, unlike
most mortgage-backed securities, generally are not backed by any
government guarantee or private credit enhancement. Such risk may
be greater during a period of declining or stagnant real estate
values. In addition, the individual loans underlying whole loans
and participation mortgages may be larger than the loans
underlying mortgage-backed securities. With respect to
participation mortgages, the fund generally will not be able to
unilaterally enforce its rights in the event of a default, but
rather will be dependent on the cooperation of the other
participation holders.
At November 30, 1996, loans representing 6.0% of the outstanding
principal value of whole loans, or 5.6% of net assets were
considered by the fund to be delinquent as to the timely monthly
payment of principal. A loan is considered delinquent when a
borrower has missed two or more payments. The fund does not
record past due interest as income until received. The fund may
incur certain costs and delays in the event of a foreclosure.
Also, there is no assurance that the subsequent sale of the
property will produce an amount equal to the sum of the unpaid
principal balance of the loan as of the date the borrower went
into default, the accrued unpaid interest and all of the
foreclosure expenses. In this case, the fund may suffer a loss.
Real estate acquired through foreclosure, if any, is recorded at
estimated fair value. On November 30, 1996, the fund owned 23
homes with an aggregate value of $1,793,336 and one apartment
building with a value of $2,274,878, for a total of 1.6% of net
- ---------------------------------------------------------------------
1996 Semiannual Report 17 American Strategic Income Portfolio II
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- ---------------------------------------------------------------------
assets. The fund recognized net realized losses of $252,084, or
$0.013 per share, on real estate sold during the six months ended
November 30, 1996.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities that have been purchased by
the fund on a when-issued or forward-commitment basis can take
place a month or more after the transaction date. During this
period, such securities do not earn interest, are subject to
market fluctuation and may increase or decrease in value prior to
their delivery. The fund segregates, with its custodian, assets
with a market value equal to the amount of its purchase
commitments. The purchase of securities on a when-issued or
forward-commitment basis may increase the volatility of the
fund's net asset value if the fund makes such purchases while
remaining substantially fully invested. As of November 30, 1996,
the fund had no outstanding when-issued or forward commitments.
In connection with its ability to purchase securities on a when-
issued or forward-commitment basis, the fund may enter into
mortgage "dollar rolls" in which the fund sells securities
purchased on a forward commitment basis and simultaneously
contracts with a counterparty to repurchase similar (same type,
coupon and maturity) but not identical securities on a specified
future date. As an inducement to "roll over" its purchase
commitments, the fund receives negotiated fees. For the six
months ended November 30, 1996, the fund earned no such fees.
FEDERAL TAXES
The fund intends to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and not
be subject to federal income tax. Therefore, no income tax
provision is required. For calendar year 1996, the fund intends
to distribute substantially all of its taxable net investment
income and realized gains, if any, to avoid the payment of any
federal excise taxes.
- ---------------------------------------------------------------------
1996 Semiannual Report 18 American Strategic Income Portfolio II
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- ---------------------------------------------------------------------
The character of distributions made during the year from net
investment income or net realized gains may differ from its
ultimate characterization for federal income tax purposes. In
addition, due to the timing of dividend distributions, the fiscal
year in which amounts are distributed may differ from the year
that the income or realized gains (losses) were recorded by the
fund.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income are made monthly and
realized capital gains, if any, will be distributed at least
annually. These distributions are recorded as of the close of
business on the ex-dividend date. Such distributions are payable
in cash or, pursuant to the fund's dividend reinvestment plan,
reinvested in additional shares of the fund's capital stock.
Under the plan, fund shares will be purchased in the open market
unless the market price plus commissions exceeds the net asset
value by 5% or more. If, at the close of business on the dividend
payment date, the shares purchased in the open market are
insufficient to satisfy the dividend reinvestment requirement,
the fund will issue new shares at a discount of up to 5% from the
current market price.
REPURCHASE AGREEMENTS
For repurchase agreements entered into with certain
broker-dealers, the fund, along with other affiliated registered
investment companies, may transfer uninvested cash balances into
a joint trading account, the daily aggregate of which is invested
in repurchase agreements secured by U.S. government or agency
obligations. Securities pledged as collateral for all individual
and joint repurchase agreements are held by the fund's custodian
bank until maturity of the repurchase agreement. Provisions for
all agreements ensure that the daily market value of the
collateral is in excess of the repurchase amount, including
accrued interest, to protect the fund in the event of a default.
- ---------------------------------------------------------------------
1996 Semiannual Report 19 American Strategic Income Portfolio II
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- ---------------------------------------------------------------------
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
in the financial statements. Actual results could differ from
these estimates.
(3) EXPENSES
................................................................................
The fund has entered into the following agreements with Piper
Capital Management Incorporated (the adviser and the
administrator):
The investment advisory agreement provides the adviser with a
monthly investment management fee in an amount equal to an
annualized rate of 0.20% of the fund's average weekly net assets
and 4.50% of the daily gross income accrued by the fund during
the month (i.e., investment income, including amortization of
discount and premium, other than gains from the sale of
securities or gains from options and futures contracts less
interest on money borrowed by the fund). The monthly investment
management fee shall not exceed in the aggregate 1/12 of 0.725%
of the fund's average weekly net assets during the month
(approximately 0.725% on an annual basis). For the six months
ended November 30, 1996, the effective investment management fee
incurred by the fund was 0.61% on annual basis. For its fee, the
adviser provides investment advice and conducts the management
and investment activity of the fund.
The administration agreement provides the administrator with a
monthly fee in an amount equal to an annualized rate of 0.20% of
the fund's average weekly net assets. For its fee, the
administrator will provide regulatory, reporting and
record-keeping services for the fund.
When acquiring whole loans and participation mortgages, the fund
enters into mortgage servicing agreements with mortgage
servicers.
- ---------------------------------------------------------------------
1996 Semiannual Report 20 American Strategic Income Portfolio II
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- ---------------------------------------------------------------------
For a fee, mortgage servicers maintain loan records, such as
insurance and taxes and the proper allocation of payments between
principal and interest.
In addition to the investment management, administrative and
mortgage servicing fees, the fund is responsible for paying most
other operating expenses, including: outside directors' fees and
expenses; custodian fees; registration fees; printing and
shareholder reports; transfer agent fees and expenses; legal,
auditing and accounting services; insurance; interest; fees to
outside parties retained to assist in conducting due diligence;
taxes and other miscellaneous expenses.
Expenses paid indirectly represent a reduction of custodian fees
for earnings on miscellaneous cash balances maintained by the
fund.
(4) INVESTMENT SECURITY TRANSACTIONS
................................................................................
Cost of purchases and proceeds from sales of securities, other
than temporary investments in short-term securities, for the six
months ended November 30, 1996, aggregated $19,514,182 and
$46,925,503, respectively. Included in proceeds from sales are
$1,349,037 from sales of real estate owned. For the six months
ended November 30, 1996, no brokerage commissions were paid to
Piper Jaffray Inc., an affiliated broker.
(5) CAPITAL LOSS CARRYOVER
................................................................................
For federal income tax purposes, the fund had capital loss
carryovers of $29,844,486 as of May 31, 1996, which, if not
offset by subsequent capital gains, will expire in 2003 through
2005. It is unlikely the board of directors will authorize a
distribution of any net realized capital gains until the
available capital loss carryover has been offset or expires.
(6) RETIREMENT OF FUND SHARES
................................................................................
The fund's board of directors voted to discontinue the share
repurchase program effective February 6, 1996. Pursuant to the
plan, the fund had cumulatively repurchased and retired 502,800
shares as of November 30, 1996, which represents 2.5% of the
shares originally issued.
- ---------------------------------------------------------------------
1996 Semiannual Report 21 American Strategic Income Portfolio II
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- ---------------------------------------------------------------------
(7) PENDING LITIGATION
................................................................................
An amended complaint purporting to be a class action was filed on
September 7, 1995, in the United States District Court for the
Western District of Washington against the fund, seven other
closed-end investment companies for which Piper Capital
Management Incorporated acts as investment adviser, Piper Jaffray
Companies Inc., Piper Jaffray Inc., Piper Capital Management
Incorporated and certain individuals. The named plaintiffs and
defendants in this putative class action have reached an
agreement-in-principle on a proposed settlement and are
negotiating the terms of a definitive settlement agreement. If
approved by the Court, a definitive settlement agreement
consistent with the terms of the agreement-in-principle would
provide $15.5 million to class members in payments by Piper
Jaffray Companies Inc. and Piper Capital Management Incorporated
scheduled during the next four years. The agreement stipulates,
among other things, that BSP would offer to repurchase up to 10
percent of its outstanding shares from current shareholders at
net asset value. The repurchase offer would occur after the
effective date of the settlement following Court approval.
- ---------------------------------------------------------------------
1996 Semiannual Report 22 American Strategic Income Portfolio II
<PAGE>
Notes to Financial Statements (continued)
- ---------------------------------------------------------------------
(8) FINANCIAL HIGHLIGHTS
................................................................................
Per-share data for a share of capital stock outstanding
throughout each period and selected information for each period
are as follows:
<TABLE>
<CAPTION>
Six Months
Ended Year Year Year Period
11/30/96 Ended Ended Ended Ended
(Unaudited) 5/31/96 5/31/95 5/31/94 5/31/93(f)
----------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ........ $ 12.78 $13.00 $12.97 $14.54 $14.07
----------- ------- ------- ------- ----------
Operations:
Net investment income ..................... 0.49 0.99 1.21 1.56 1.07
Net realized and unrealized gain (loss) on
investments ............................. 0.11 -- 0.17 (1.78) 0.41
----------- ------- ------- ------- ----------
Total from operations ................... 0.60 0.99 1.38 (0.22) 1.48
----------- ------- ------- ------- ----------
Distributions to shareholders:
From net investment income ................ (0.51) (1.21) (1.35) (1.31) (1.01)
In excess of net realized gains on
investments ............................. -- -- -- (0.04) --
----------- ------- ------- ------- ----------
Total distributions to shareholders ..... (0.51) (1.21) (1.35) (1.35) (1.01)
----------- ------- ------- ------- ----------
Net asset value, end of period .............. $ 12.87 $12.78 $13.00 $12.97 $14.54
----------- ------- ------- ------- ----------
----------- ------- ------- ------- ----------
Per-share market value, end of period ....... $ 11.00 $10.63 $11.50 $13.63 $15.75
----------- ------- ------- ------- ----------
----------- ------- ------- ------- ----------
SELECTED INFORMATION
Total return, net asset value (a) ........... 4.78% 7.84% 11.56% (2.15)% 10.97%
Total return, market value (b) .............. 8.46% 2.95% (5.38)% (5.38)% 12.57%
Net assets at end of period (in millions) ... $ 257 $ 255 $ 262 $ 265 $ 297
Ratio of expenses to average weekly net
assets (c)(g) ............................. 1.28%(h) 1.26% 1.27% 1.20% 1.09%(h)
Ratio of net investment income to average
weekly net assets ......................... 7.71%(h) 7.63% 9.60% 10.68% 9.08%(h)
Portfolio turnover rate (excluding short-term
securities) ............................... 7% 105% 52% 117% 64%
Amount of borrowings outstanding at end of
period (in millions) (d) .................. $ 25 $ 53 $ 53 $ 85 $ 76
Per-share amount of borrowings outstanding at
end of period ............................. $ 1.26 $ 2.66 $ 2.61 $ 4.16 $ 3.71
Per-share amount of net assets, excluding
borrowings, at end of period .............. $ 14.13 $15.44 $15.61 $17.13 $18.25
Asset coverage ratio (e) .................... 1127% 581% 598% 412% 491%
</TABLE>
(A) BASED ON THE CHANGE IN NET ASSET VALUE OF A SHARE DURING THE PERIOD AND
ASSUMES REINVESTMENT OF DISTRIBUTIONS AT NET ASSET VALUE.
(B) BASED ON THE CHANGE IN MARKET PRICE OF A SHARE DURING THE PERIOD AND
ASSUMES REINVESTMENT OF DISTRIBUTIONS AT ACTUAL PRICES PURSUANT TO THE
FUND'S DIVIDEND REINVESTMENT PLAN.
(C) INCLUDES 0.01%, 0.07%, AND 0.04% FROM FEDERAL EXCISE TAXES IN FISCAL YEARS
1996, 1995 AND 1994, RESPECTIVELY. BEGINNING IN FISCAL 1995, THE EXPENSE
RATIOS REFLECT THE EFFECT OF GROSS EXPENSES PAID INDIRECTLY BY THE FUND.
PRIOR PERIOD EXPENSE RATIOS HAVE NOT BEEN ADJUSTED.
(D) SECURITIES PURCHASED ON A WHEN-ISSUED BASIS FOR WHICH LIQUID ASSETS ARE
SEGREGATED ARE NOT CONSIDERED BORROWINGS. SEE NOTE 2 IN THE NOTES TO
FINANCIAL STATEMENTS.
(E) REPRESENTS NET ASSETS, EXCLUDING BORROWINGS, AT END OF PERIOD DIVIDED BY
BORROWINGS OUTSTANDING AT END OF PERIOD.
(F) COMMENCEMENT OF OPERATIONS WAS JULY 30, 1992.
(G) THE RATIO OF EXPENSES TO AVERAGE WEEKLY NET ASSETS EXCLUDES INTEREST
EXPENSE THAT HAS BEEN PRESENTED NET OF THE RELATED INTEREST INCOME IN THE
FINANCIAL STATEMENTS. IF INTEREST EXPENSE HAD BEEN INCLUDED IN TOTAL
EXPENSES, THE RATIOS OF EXPENSES TO AVERAGE WEEKLY NET ASSETS WOULD HAVE
BEEN: 2.27%, 2.39%, 3.51%, 2.33% AND 1.74% FOR THE SIX MONTHS ENDED
11/30/96 AND FISCAL 1996, 1995, 1994 AND 1993, RESPECTIVELY.
(H) ADJUSTED TO AN ANNUAL BASIS.
- ---------------------------------------------------------------------
1996 Semiannual Report 23 American Strategic Income Portfolio II
<PAGE>
Investments in Securities (Unaudited)
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN STRATEGIC INCOME PORTFOLIO II November 30, 1996
.......................................................................................
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
U.S. GOVERNMENT AND AGENCY SECURITIES (12.1%):
U.S. AGENCY MORTGAGE-BACKED SECURITIES (1.8%):
FIXED RATE (1.8%):
6.50%, FNMA, 1/1/11 ............................... $ 4,633,941 $ 4,607,666
------------
U.S. GOVERNMENT SECURITIES (10.3%):
5.13%, U.S. Treasury Note, 4/30/98 ................ 26,500,000(b) 26,369,885
------------
Total U.S. Government and Agency Securities
(cost: $31,064,229) .......................... 30,977,551
------------
PRIVATE MORTGAGE-BACKED SECURITIES (E) (0.9%):
SUBORDINATED FIXED RATE (0.9%):
6.00%, CMI Trust 1, Series 1991-1, 3/1/22
(cost: $2,050,371) .............................. 2,339,094 2,189,976
------------
WHOLE LOANS AND PARTICIPATION MORTGAGES (C,D,E) (93.6%):
COMMERCIAL LOANS (7.3%):
Canton Commerce Center, 9.25%, 7/1/01 ............. 3,369,710 3,471,813
Jamboree Building, 9.05%, 12/1/06 ................. 2,000,000 1,980,000
Oak Knoll Village Shopping Center, 8.80%,
12/1/03 ......................................... 1,150,000 1,150,000
PennMont Office Building, 8.88%, 5/1/01 ........... 1,692,144 1,711,603
PMG Center, 9.05%, 9/1/03 ......................... 2,422,855 2,489,726
Provident Bank Building, 8.80%, 11/1/01 ........... 2,800,000 2,841,160
Ridgewood Estates Mobile Home Park, 8.55%,
12/1/00 ......................................... 2,128,663 2,167,618
Wellington Professional Center, 8.80%, 11/1/01 .... 2,800,000 2,800,000
------------
18,611,920
------------
MULTIFAMILY LOANS (35.9%):
Autumnwood, Southern Woods, Hilton Hollow, 9.10%,
6/1/03 .......................................... 6,411,095 6,635,487
Casa Carranza Apartments, 8.35%, 12/1/02 .......... 4,057,984 4,077,056
Chase Hill Apartments, 9.00%, 4/1/01 .............. 3,059,958 3,167,057
Claridge Apartments, 9.52%, 9/1/01 ................ 5,523,368 5,716,686
Colony Square Apartments, 10.25%, 12/1/01 ......... 1,341,253 1,388,197
Crows Landing Apartments, 9.13%, 8/1/02 ........... 4,117,506 4,261,618
Deering Manor, 9.50%, 12/8/22 ..................... 1,295,195 1,340,526
Gables Apartments, 8.50%, 8/1/00 .................. 5,572,559 5,670,079
Green Acres Apartments, 9.75%, 10/1/01 ............ 1,077,311 1,115,016
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1996 Semiannual Report 24 American Strategic Income Portfolio II
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
AMERICAN STRATEGIC INCOME PORTFOLIO II
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
Harbor View Apartments, 9.50%, 1/25/18 ............ $ 781,410 $ 808,759
Jaccard Apartments, 8.83%, 12/1/03 ................ 2,800,000 2,800,000
Kenyon Place Apartments, 8.13%, 2/1/03 ............ 2,320,249 2,321,409
Kona Kai Apartments, 8.45%, 11/1/05 ............... 1,172,797 1,185,932
Lexington Apartments, 9.13%, 6/1/02 ............... 1,462,542 1,513,731
Minnesota Multifamily, 9.88%, 12/1/22 ............. 1,705,761 1,765,462
Newport Apartments, 9.75%, 4/1/02 ................. 1,378,754 1,427,010
Normandale Lake Estates, 8.13%, 2/1/03 ............ 2,461,737 2,462,722
Northwood Village Apartments, 8.85%, 8/1/02 ....... 942,724 970,534
Park Dale Lane Apartments, 9.50%, 6/1/01 .......... 960,122 993,727
Park Place of Venice Apartments, 10.75%, 4/1/02 ... 2,665,225 2,758,508
Park Terrace Apartments, 8.45%, 11/1/05 ........... 2,634,342 2,650,675
Partridge Court Apartments, 7.96%, 3/1/03 ......... 2,332,240 2,317,080
Pine Village Apartments, 8.75%, 10/1/02 ........... 3,077,718 3,157,123
Plainfield Apartments, 8.05%, 1/1/01 .............. 2,479,930 2,490,097
Primrose Apartments, 8.63%, 11/1/07 ............... 1,107,493 1,125,766
Railview Apartments, 9.50%, 12/8/22 ............... 1,503,095 1,555,703
Rhode Island Chateau Apartments, 10.07%, 9/1/01 ... 2,389,122 2,472,742
Rockwell Plaza Apartments, 9.59%, 8/1/01 .......... 4,266,823 3,481,727
Skyline Apartments, 8.80%, 12/1/03 ................ 2,100,000 2,096,499
Sunland Manor Apartments, 9.44%, 11/1/01 .......... 1,284,440 1,329,395
The Hedges Apartments, 9.59%, 8/1/01 .............. 2,388,022 2,471,603
Vintage Apartments, 9.00%, 8/1/05 ................. 2,926,307 3,028,728
Wahpeton Apartments, 8.63%, 11/1/07 ............... 1,767,772 1,803,481
Weatheridge Apartments, 9.63%, 4/1/04 ............. 1,460,840 1,511,969
Westview Apartments, 7.80%, 3/1/03 ................ 1,094,514 1,074,375
Whispering Hills Apartments, 8.80%, 10/1/02 ....... 2,146,038 2,193,466
Willmar Multifamily, 10.25%, 1/20/18 .............. 1,080,377 1,070,222
Windgate Apartments, 9.38%, 8/1/01 ................ 3,157,999(g) 2,210,599
Woodoaks Apartments, 8.88%, 11/1/02 ............... 1,857,345 1,819,269
------------
92,240,035
------------
SINGLE FAMILY LOANS (50.4%):
Amerivest Mortgage, 9.33%, 5/1/12 ................. 2,879,787 2,890,444
CTX Mortgage, 9.51%, 11/23/22 ..................... 2,652,639(b) 2,560,327
Energy Park Loans, 12.20%, 12/1/22 ................ 315,666(b) 323,684
Fairbanks III, 9.66%, 1/1/07 ...................... 2,016,578 1,783,386
Fairbanks IV, 9.07%, 7/3/11 ....................... 1,125,286 1,069,022
First Federal of Delaware, 8.54%, 2/1/18 .......... 5,575,124(b) 5,303,546
Greenwich, 9.33%, 6/16/05 ......................... 2,958,787 2,955,237
Heartland Federal Savings & Loan, 10.14%,
11/17/22 ........................................ 590,456(b) 573,451
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1996 Semiannual Report 25 American Strategic Income Portfolio II
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
AMERICAN STRATEGIC INCOME PORTFOLIO II
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
Kentucky Central Life, 9.35%, 5/1/22 .............. $ 6,497,138(b) $ 6,448,407
Kislak, 9.98%, 6/30/20 ............................ 7,221,613 7,109,799
Maryland National Bank, 9.98%, 9/1/18 ............. 1,129,520 1,156,741
McDowell, 9.99%, 12/1/20 .......................... 4,000,881 4,036,088
Merchants Bank, 10.22%, 12/1/20 ................... 2,188,551 2,236,821
Meridian, 9.60%, 10/15/22 ......................... 1,490,478(b) 1,529,230
Meridian III, 9.56%, 12/1/20 ...................... 4,911,528(b) 4,943,426
Minneapolis Employees Retirement Fund, 8.47%,
2/10/14 ......................................... 5,627,860 5,509,675
NationsBank, 8.25%, 10/1/07 ....................... 150,452 152,513
Neslund Properties, 9.87%, 2/1/23 ................. 6,269,152 6,450,958
Nomura I, 9.95%, 12/16/23 ......................... 11,304,908 11,338,744
Nomura II, 8.78%, 3/22/15 ......................... 13,534,457 12,461,121
Nomura III, 8.45%, 8/29/17 ........................ 20,223,577 18,542,575
Norwest IV, 8.23%, 4/23/25 ........................ 7,769,639 7,566,090
Norwest II, 7.78%, 11/27/22 ....................... 4,913,791 4,732,963
Old Hickory Credit Union, 9.99%, 10/15/22 ......... 2,303,896 2,356,885
Paine Webber, 12.22%, 10/15/20 .................... 687,272 679,094
PHH U.S. Mortgage, 9.12%, 1/1/12 .................. 7,743,154 7,789,818
President Homes 92-4, Sales Inventory, 8.28%,
10/15/20 ........................................ 174,068 174,085
President Homes 92-5, Sales Inventory, 9.38%,
10/15/20 ........................................ 104,212 75,282
President Homes 92-6, Sales Inventory, 8.43%,
10/15/20 ........................................ 171,892 156,542
President Homes 92-8, Sales Inventory, 8.44%,
11/24/22 ........................................ 126,688 114,919
President Homes 94-1A, Sales Inventory, 9.00%,
12/28/22 ........................................ 95,127 97,981
Progressive Consumers Federal Credit Union, 11.04%,
10/15/22 ........................................ 732,661(b) 742,845
Salomon, 8.08%, 12/28/16 .......................... 4,715,441 4,628,205
Sears Mortgage, 8.65%, 11/18/22 ................... 809,156(b) 823,640
------------
129,313,544
------------
Total Whole Loans and Participation Mortgages
(cost: $235,971,281) ......................... 240,165,499
------------
SHORT-TERM SECURITIES (0.3%):
Repurchase agreement with Goldman Sachs, acquired
on 11/29/96, accrued interest of $378, 5.64%,
12/2/96
(cost: $805,000) ................................ 805,000(f) 805,000
------------
Total Investments in Securities
(cost: $269,890,881) (h) ..................... $274,138,026
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1996 Semiannual Report 26 American Strategic Income Portfolio II
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES:
(A) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(B) ON NOVEMBER 30, 1996, SECURITIES VALUED AT $27,200,898 WERE PLEDGED AS
COLLATERAL FOR THE FOLLOWING OUTSTANDING REVERSE REPURCHASE AGREEMENTS:
<TABLE>
<CAPTION>
NAME OF BROKER AND
ACQUISITION ACCRUED DESCRIPTION OF
AMOUNT DATE RATE* DUE INTEREST COLLATERAL
- ------------ ----------- --------- ---------- --------- -------------------
<S> <C> <C> <C> <C> <C>
$ 1,500,000 11/1/96 6.25% 12/2/96 $ 7,813 (1)
1,500,000 11/14/96 6.25% 12/2/96 4,427 (1)
22,000,000 11/1/96 5.33% 12/2/96 97,625 (2)
- ------------ ---------
$ 25,000,000 $ 109,865
- ------------ ---------
- ------------ ---------
</TABLE>
* INTEREST RATE IS AS OF NOVEMBER 30, 1996. RATES ARE BASED ON THE LONDON
INTERBANK OFFERED RATE (LIBOR) AND RESET MONTHLY.
NAME OF BROKER AND DESCRIPTION OF COLLATERAL:
(1) NOMURA;
CTX MORTGAGE, 9.51%, 11/23/22, $1,109,185 PAR
ENERGY PARK LOANS, 12.20%, 12/1/22, $171,442 PAR
FIRST FEDERAL OF DELAWARE, 8.54%, 2/1/18, $36,986 PAR
HEARTLAND FEDERAL SAVINGS & LOAN, 10.14%, 11/17/22, $406,140 PAR
KENTUCKY CENTRAL LIFE, 9.35%, 5/1/22, $1,356,425 PAR
MERIDIAN, 9.60%, 10/15/22, $1,358,141 PAR
MERIDIAN III, 9.56%, 12/1/20, $67,462 PAR
PROGRESSIVE CONSUMERS FEDERAL CREDIT UNION, 11.04%, 10/15/22,
$222,534 PAR
SEARS MORTGAGE, 8.65%, 11/18/22, $370,247 PAR
(2) NOMURA;
U.S. TREASURY NOTE, 5.13%, 4/30/98, $22,225,000 PAR
(C) INTEREST RATES ON COMMERCIAL AND MULTIFAMILY LOANS ARE THE RATES IN EFFECT
ON NOVEMBER 30, 1996. INTEREST RATES AND MATURITY DATES DISCLOSED ON SINGLE
FAMILY LOANS REPRESENT THE WEIGHTED AVERAGE COUPON AND WEIGHTED AVERAGE
MATURITY FOR THE UNDERLYING MORTGAGE LOANS AS OF NOVEMBER 30, 1996.
(D) COMMERCIAL AND MULTIFAMILY LOANS ARE DESCRIBED BY THE NAME OF THE MORTGAGED
PROPERTY. POOLS OF SINGLE FAMILY LOANS ARE DESCRIBED BY THE NAME OF THE
INSTITUTION FROM WHICH THE LOANS WERE PURCHASED. THE GEOGRAPHICAL LOCATION
OF THE MORTGAGED PROPERTIES AND, IN THE CASE OF SINGLE FAMILY, THE NUMBER
OF LOANS, IS PRESENTED BELOW.
COMMERCIAL LOANS:
CANTON COMMERCE CENTER - CANTON, MA
JAMBOREE BUILDING - COLORADO SPRINGS, CO
OAK KNOLL VILLAGE SHOPPING CENTER - AUSTIN, TX
PENNMONT OFFICE BUILDING - ALBUQUERQUE, NM
PMG CENTER - FORT LAUDERDALE, FL
PROVIDENT BANK BUILDING - DESOTO, TX
RIDGEWOOD ESTATES MOBILE HOME PARK - LAYTON, UT
WELLINGTON PROFESSIONAL CENTER - WELLINGTON, FL
MULTIFAMILY LOANS:
AUTUMNWOOD, SOUTHERN WOODS, HINTON HOLLOW - KNOXVILLE, TN
CASA CARRANZA APARTMENTS - MESA, AZ
CHASE HILL APARTMENTS - SAN ANTONIO, TX
CLARIDGE APARTMENTS - HOUSTON, TX
COLONY SQUARE APARTMENTS - FORT WORTH, TX
CROWS LANDING APARTMENTS - FRESNO, CA
DEERING MANOR - NASHWAUK, MN
GABLES APARTMENTS - OKLAHOMA CITY, OK
- ---------------------------------------------------------------------
1996 Semiannual Report 27 American Strategic Income Portfolio II
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
<TABLE>
<S> <C> <C>
GREEN ACRES APARTMENTS -YOUNGSTOWN, OH
HARBOR VIEW APARTMENTS - GRAND MARAIS, MN
JACCARD APARTMENTS - UNIVERSITY CITY, MO
KENYON PLACE APARTMENTS - ENGLEWOOD, CO
KONA KAI APARTMENTS - PUEBLO, CO
LEXINGTON APARTMENTS - EAST POINT, GA
MINNESOTA MULTIFAMILY - MINNEAPOLIS, MN
NEWPORT APARTMENTS - WHITE SETTLEMENT, TX
NORMANDALE LAKE ESTATES - BLOOMINGTON, MN
NORTHWOOD VILLAGE APARTMENTS - CORSICANA, TX
PARK DALE LANE APARTMENTS - FORT WORTH, TX
PARK PLACE OF VENICE APARTMENTS - VENICE, FL
PARK TERRACE APARTMENTS - PUEBLO, CO
PARTRIDGE COURT APARTMENTS - BROOMFIELD, CO
PINE VILLAGE APARTMENTS - ATLANTA, GA AND SMYRNA, GA
PLAINFIELD APARTMENTS - PLAINFIELD, NJ
PRIMROSE APARTMENTS - GRAND FALLS, ND
RAILVIEW APARTMENTS - PROCTOR, MN
RHODE ISLAND CHATEAU APARTMENTS - ST. LOUIS PARK, MN
ROCKWELL PLAZA APARTMENTS - OKLAHOMA CITY, OK
SKYLINE APARTMENTS - KANSAS CITY, KS
SUNLAND MANOR APARTMENTS - MESA, AZ
THE HEDGES APARTMENTS - GREENSBORO, NC
VINTAGE APARTMENTS - KERMAN, CA
WAHPETON APARTMENTS - WAHPETON, ND
WEATHERIDGE APARTMENTS - HOUSTON, TX
WESTVIEW APARTMENTS - AUSTIN, TX
WHISPERING HILLS APARTMENTS - NASHVILLE, TN
WILMAR MULTIFAMILY - WILMAR, MN
WINDGATE APARTMENTS - LOUISVILLE, KY
WOODOAKS APARTMENTS - YUKON, OK
</TABLE>
SINGLE FAMILY LOANS:
AMERIVEST MORTGAGE - 44 LOANS, MASSACHUSETTS
CTX MORTGAGE - 25 LOANS, UNITED STATES
ENERGY PARK LOANS - 5 LOANS, ST. PAUL, MINNESOTA
FAIRBANKS III - 33 LOANS, THE WESTERN UNITED STATES
FAIRBANKS IV - 21 LOANS, UNITED STATES
FIRST FEDERAL OF DELAWARE - 116 LOANS, UNITED STATES
GREENWICH - 35 LOANS, COLORADO
HEARTLAND FEDERAL SAVINGS & LOAN - 6 LOANS, CALIFORNIA
KENTUCKY CENTRAL LIFE - 128 LOANS, KENTUCKY
KISLAK - 130 LOANS, CENTRAL AND SOUTHERN UNITED STATES
MARYLAND NATIONAL BANK - 22 LOANS, THE EASTERN UNITED STATES
MCDOWELL - 76 LOANS, GEORGIA
MERCHANTS BANK - 74 LOANS, VERMONT
MERIDIAN - 13 LOANS, CALIFORNIA AND FLORIDA
MERIDIAN III - 82 LOANS, CALIFORNIA
MINNEAPOLIS EMPLOYEES RETIREMENT FUND - 149 LOANS, MINNESOTA
NATIONSBANK - 13 LOANS, GEORGIA
NESLUND PROPERTIES - 164 LOANS, MINNESOTA
NOMURA I - 245 LOANS, CALIFORNIA AND TEXAS
NOMURA II - 223 LOANS, UNITED STATES
NOMURA III - 313 LOANS, MIDWESTERN UNITED STATES
NORWEST IV - 54 LOANS, MIDWESTERN UNITED STATES
- ---------------------------------------------------------------------
1996 Semiannual Report 28 American Strategic Income Portfolio II
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
<TABLE>
<S> <C> <C>
NORWEST II - 43 LOANS, MIDWESTERN UNITED STATES
OLD HICKORY CREDIT UNION - 72 LOANS, TENNESSEE
PAINE WEBBER - 18 LOANS, NEW JERSEY
PHH U.S. MORTGAGE - 57 LOANS, UNITED STATES
PRESIDENT HOMES, SALES INVENTORY - 8 LOANS, MIDWESTERN UNITED
STATES
PROGRESSIVE CONSUMERS FEDERAL CREDIT UNION - 6 LOANS,
MASSACHUSETTS
SALOMON - 56 LOANS, NEW JERSEY
SEARS MORTGAGE - 10 LOANS, UNITED STATES
(E) SECURITIES PURCHASED AS PART OF A PRIVATE PLACEMENT WHICH HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES
ACT OF 1933.
(F) REPURCHASE AGREEMENT IN A JOINT TRADING ACCOUNT WHICH IS COLLATERALIZED BY
U.S. GOVERNMENT AGENCY SECURITIES. ACCRUED INTEREST SHOWN REPRESENTS
INTEREST DUE AT MATURITY OF THE REPURCHASE AGREEMENT.
(G) MULTIFAMILY LOAN REPRESENTING A TOTAL MARKET VALUE OF $2,210,599, OR 0.9%
OF TOTAL NET ASSETS IS IN DEFAULT ON PRINCIPAL AND INTEREST PAYMENTS.
(H) ON NOVEMBER 31, 1996, THE COST OF INVESTMENTS IN SECURITIES, INCLUDING REAL
ESTATE OWNED, FOR FEDERAL INCOME TAX PURPOSES WAS APPROXIMATELY
$274,720,699. THE AGGREGATE GROSS UNREALIZED APPRECIATION AND DEPRECIATION
OF INVESTMENTS IN SECURITIES BASED ON THIS COST WERE AS FOLLOWS:
</TABLE>
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 7,312,423
GROSS UNREALIZED DEPRECIATION ...... (3,826,882)
------------
NET UNREALIZED APPRECIATION ...... $ 3,485,541
------------
------------
</TABLE>
- ---------------------------------------------------------------------
1996 Semiannual Report 29 American Strategic Income Portfolio II
<PAGE>
Shareholder Update
- ----------------------------------------
ANNUAL MEETING RESULTS
An annual meeting of the fund's shareholders was held on August
23, 1996. Each matter voted upon at that meeting, as well as the
number of votes cast for, against or withheld, the number of
abstentions, and the number of broker non-votes with respect to
such matters, are set below.
(1) The fund's shareholders elected the following directors:
<TABLE>
<CAPTION>
SHARES
WITHHOLDING
SHARES AUTHORITY
VOTED FOR TO VOTE
----------- --------
<S> <C> <C>
David T. Bennett ............................ 17,515,114 810,247
Jaye F. Dyer ................................ 17,515,685 809,676
William H. Ellis ............................ 17,502,475 822,886
Karol D. Emmerich ........................... 17,514,036 811,325
Luella G. Goldberg .......................... 17,495,405 829,956
George Latimer .............................. 17,513,676 811,685
</TABLE>
(2) The fund's shareholders ratified the selection by a majority
of the independent members of the fund's Board of Directors
of KPMG Peat Marwick LLP as the independent public
accountants for the fund for the fiscal year ended May 31,
1997. The following votes were cast regarding this matter:
<TABLE>
<CAPTION>
SHARES
SHARES VOTED BROKER
VOTED FOR AGAINST ABSTENTIONS NON-VOTES
---------- ------- ----------- ----------
<S> <C> <C> <C>
17,595,394 545,948 184,018 --
</TABLE>
- ---------------------------------------------------------------------
1996 Semiannual Report 30 American Strategic Income Portfolio II
<PAGE>
Directors and Officers
- ----------------------------------------
DIRECTORS
David T. Bennett, CHAIRMAN, HIGHLAND HOMES, INC., USL PRODUCTS,
INC., KIEFER BUILT, INC., OF COUNSEL, GRAY, PLANT, MOOTY,
MOOTY & BENNETT, P.A.
Jaye F. Dyer, PRESIDENT, DYER MANAGEMENT COMPANY
William H. Ellis, PRESIDENT, PIPER JAFFRAY COMPANIES INC., PIPER
CAPITAL MANAGEMENT INCORPORATED
Karol D. Emmerich, PRESIDENT, THE PARACLETE GROUP
Luella G. Goldberg, DIRECTOR, TCF FINANCIAL, RELIASTAR FINANCIAL
CORP., HORMEL FOODS CORP.
David A. Hughey, RETIRED EXECUTIVE VICE PRESIDENT AND CHIEF
ADMINISTRATIVE OFFICER OF DEAN WITTER INTERCAPITAL INC. AND
DEAN WITTER TRUST CO.
George Latimer, CHIEF EXECUTIVE OFFICER, NATIONAL EQUITY FUNDS
OFFICERS
William H. Ellis,
CHAIRMAN OF THE BOARD
Paul A. Dow,
PRESIDENT
John G. Wenker,
SENIOR VICE PRESIDENT
Russ K. Kappenman,
VICE PRESIDENT AND ASSISTANT SECRETARY
Amy Ayd,
VICE PRESIDENT
Julene R. Melquist,
VICE PRESIDENT
Robert H. Nelson,
VICE PRESIDENT AND TREASURER
Daniel W. Schroer,
VICE PRESIDENT AND ASSISTANT SECRETARY
Susan S. Miley,
SECRETARY
INVESTMENT ADVISER
Piper Capital Management Incorporated
222 SOUTH NINTH STREET, MINNEAPOLIS, MN 55402-3804
ACCOUNTING AND TRANSFER AGENT
Investors Fiduciary Trust Company
127 WEST 10TH STREET, KANSAS CITY, MO 64105-1716
CUSTODIAN
First Trust National Association
180 EAST FIFTH STREET, ST. PAUL, MN 55101
LEGAL COUNSEL
Dorsey & Whitney LLP
220 SOUTH SIXTH STREET, MINNEAPOLIS, MN 55402
- ---------------------------------------------------------------------
1996 Semiannual Report 31 American Strategic Income Portfolio II
<PAGE>
GLOSSARY OF TERMS ***
- --------------------------------------------------------------------------------
DISCOUNT
Closed-end fund shares may trade in the market at prices that are equal to,
above or below their net asset value (NAV). When investors purchase or sell
shares at a price that is below current NAV, the shares are said to be trading
at a discount.
REVERSE REPURCHASE AGREEMENTS
A reverse repurchase agreement is an agreement between a seller of securities
(the fund) and a buyer, whereby the fund receives cash and pays interest and
agrees to buy back the same securities at an agreed on price at a stated date.
Reverse repurchase agreements are considered a form of borrowing.
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
1996 Semiannual Report 32 American Strategic Income Portfolio II
<PAGE>
GLOSSARY OF TERMS ***
- --------------------------------------------------------------------------------
RISK
All funds that invest in mortgage-related securities are subject to certain
risks. Following is a brief summary of some of the primary risks associated with
mortgage-related assets. It does not include all risks related to mortgage
securities.
Among these risks is PREPAYMENT RISK in which principal payments are prepaid at
unexpected rates. Prepayment rates are influenced by changes in interest rates
and a variety of other factors. If the fund buys a mortgage loan at a premium, a
faster-than-anticipated prepayment rate will reduce the fund's yield and a
slower-than-anticipated prepayment rate will increase its yield. If a mortgage
loan is purchased at a discount, the opposite will occur. There is also the
chance that proceeds from prepaid loans will have to be reinvested in
lower-yielding investments (REINVESTMENT RISK).
Like all fixed income investments, the prices of securities in the fund are
sensitive to changing interest rates - otherwise known as INTEREST RATE
RISK. When rates increase, the value of these securities decreases. Conversely,
when rates decline, the value of these securities rises. However,
mortgage-related assets may benefit less from declining interest rates than
other fixed income securities because of prepayment risk.
The fund's mortgage loans are subject to some unique risks such as credit risk
and real estate risk. Since the fund's mortgage loans generally aren't backed by
any government guarantee or private credit enhancement, they face CREDIT RISK.
This is the risk of loss arising from default if the borrower fails to make
payments on the loan. This risk may be greater during periods of declining or
stagnant real estate values. Mortgage loans are also subject to REAL ESTATE
RISKS including property risk (the risk that the physical condition and value of
the property will decline) and the legal risk of holding any mortgage loan.
FOR MORE INFORMATION
BY PHONE [GRAPHIC]
1 800 866-7778
FOR GENERAL INFORMATION
press 5, our Mutual Fund Services representatives are ready to answer your
questions.
TO LISTEN TO MONTHLY FUND UPDATES
press 3, press 2, then press:
31 American Strategic Income Portfolio II
TO ORDER LITERATURE
press 5, ask a service representative to mail you additional literature,
including a Quarterly Update. You can also request to be put on a mailing list
to receive this information automatically each quarter.
BY MAIL [GRAPHIC]
Piper Capital Management
Attn: Mutual Fund Services
222 South Ninth Street
Minneapolis, MN 55402-3804
In an effort to reduce costs to our shareholders, we have implemented a process
to reduce duplicate mailings of the fund's shareholder reports. This
householding process should allow us to mail one report to each address where
one or more registered shareholders with the same last name reside. If you
would like to have additional reports mailed to your address, please call our
Mutual Fund Services area at 1 800 866-7778, or mail a request to us.
ON-LINE [GRAPHIC]
http://www.piperjaffray.com/
money_management/
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
33
<PAGE>
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MINNEAPOLIS, MN 55402-3804
[LOGO] THIS DOCUMENT IS PRINTED ON PAPER MADE FROM 100% TOTAL RECOVERED FIBER,
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#21520 1/1997 058-97
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