<PAGE>
AMERICAN
SELECT
PORTFOLIO
* * *
ANNUAL REPORT
1995
<PAGE>
TABLE OF CONTENTS
AVERAGE ANNUALIZED TOTAL RETURNS . . . . . 1
LETTER TO SHAREHOLDERS . . . . . . . . . . 2
MANAGING RISK . . . . . . . . . . . . . . 7
FINANCIAL STATEMENTS AND NOTES . . . . . . 8
INVESTMENTS IN SECURITIES . . . . . . . . 23
INDEPENDENT AUDITORS' REPORT . . . . . . . 29
FEDERAL TAX INFORMATION . . . . . . . . . 30
SHAREHOLDER UPDATE . . . . . . . . . . . . 31
AMERICAN SELECT PORTFOLIO
American Select Portfolio is a diversified, closed-end investment management
company. The fund's primary objective is to provide a high level of current
income; its secondary objective is to seek capital appreciation. To realize
its objectives, 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, 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 sale-forward
(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. As with
other mutual funds, there can be no assurance the fund will achieve its
objectives. The fund's credit rating was downgraded from Af to BBBf by
Standard & Poor's Ratings Group (S&P) on December 29, 1994.* Fund shares
trade on the New York Stock Exchange under the symbol SLA.
*THE FUND IS RATED BBBf, WHICH MEANS THE FUND'S INVESTMENTS HAVE AN OVERALL
CREDIT QUALITY OF BBB. CREDIT QUALITIES ARE ASSESSED BY STANDARD & POOR'S
MUTUAL FUNDS RATING GROUP. S&P DOES NOT EVALUATE THE MARKET RISK OF AN
INVESTMENT WHEN ASSIGNING A CREDIT RATING. SEE STANDARD & POOR'S CORPORATE
AND MUNICIPAL RATING DEFINITIONS FOR AN EXPLANATION OF BBB.
THE FUND HAS ALSO BEEN GIVEN A MARKET RISK RATING BY S&P, WHICH WE CANNOT
PUBLISH DUE TO NASD REGULATIONS. RISK RATINGS EVALUATE VARIOUS INVESTMENT
RISKS THAT CAN AFFECT THE PERFORMANCE OF A BOND FUND AND INDICATE THE FUND'S
OVERALL STABILITY AND SENSITIVITY TO CHANGING MARKET CONDITIONS. THESE
RATINGS ARE AVAILABLE BY CALLING S&P AT 1-800-424-FUND.
<PAGE>
AVERAGE ANNUALIZED TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1995
[GRAPH]
THE AVERAGE ANNUALIZED TOTAL RETURN FIGURES FOR AMERICAN SELECT PORTFOLIO 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 AND SINCE
INCEPTION PERIODS ENDED NOVEMBER 30, 1995, WERE 17.36% AND -4.85%,
RESPECTIVELY. THESE FIGURES ALSO ASSUME REINVESTED DISTRIBUTIONS AND DO NOT
REFLECT SALES CHARGES.
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 DIVIDENDS REINVESTED, OF SIMILAR CLOSED-END
MUTUAL FUNDS AS CHARACTERIZED BY LIPPER ANALYTICAL SERVICES.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND
MARKET VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT FUND SHARES, WHEN SOLD,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
1
<PAGE>
AMERICAN SELECT PORTFOLIO
[PHOTO]
John Wenker
[PHOTO]
David Steele
JOHN WENKER ASSUMED THE ROLE OF PRIMARY PORTFOLIO MANAGER OF AMERICAN SELECT
PORTFOLIO IN NOVEMBER 1995. JOHN, WHO HAS ASSISTED WITH THE FUND'S MANAGEMENT
SINCE 1992, HAS BEEN RESPONSIBLE FOR THE ACQUISITION AND DUE DILIGENCE OF
MANY OF THE SINGLE-FAMILY, MULTIFAMILY AND COMMERCIAL MORTGAGE LOANS IN THE
FUND. PRIOR TO JOINING PIPER CAPITAL MANAGEMENT, JOHN MANAGED SINGLE-FAMILY
AND MULTIFAMILY REVENUE BOND FINANCINGS FOR A FINANCIAL FIRM. RUSS KAPPENMAN
WILL ASSIST PRIMARILY WITH THE ACQUISITION OF THE FUND'S MORTGAGE LOANS.
DAVID STEELE WILL ASSIST WITH THE MANAGEMENT OF THE FUND'S OTHER SECURITIES.
MIKE JANSEN, WHO PREVIOUSLY MANAGED THE FUND, AND KEVIN JANSEN, AN ASSISTANT
FUND MANAGER, LEFT PIPER CAPITAL TO PURSUE OTHER CAREER OPPORTUNITIES.
January 26, 1996
Dear Shareholders:
FOR THE ONE-YEAR PERIOD ENDED NOVEMBER 30, 1995, AMERICAN SELECT PORTFOLIO
HAD A NET ASSET VALUE TOTAL RETURN OF 21.22%.* This return includes
reinvested distributions but not sales charges. This compares to a 17.01%
return for the Lehman Brothers Mutual Fund Government/Mortgage Index and a
20.84% return for the Lipper Closed-End U.S. Mortgage Funds Average during
this same period. While the fund continues to trade at a discount to net
asset value, we believe the changes we've made to reduce its net asset value
volatility and stabilize earnings, as discussed below, could help improve the
fund's market price over time. (See page 4 for an explanation of premium vs.
discount.) As of January 18, the fund's market price was $11.00 and its net
asset value was $12.87 per share. For the one-year period ended November 30,
1995, the fund's total return based on market price was 17.36%, including
reinvested distributions but not sales charges.
THE MARKET ENVIRONMENT DURING THE YEAR PLAYED A MAJOR ROLE IN THE FUND'S
STRONG NET ASSET VALUE PERFORMANCE. Interest rates have declined since the
beginning of 1995 due to signs of slowing economic growth. As a result, bond
prices in general increased. In addition, an
* PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN
AND MARKET VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT FUND SHARES, WHEN
SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
2
<PAGE>
AMERICAN SELECT PORTFOLIO
PORTFOLIO COMPOSITION
NOVEMBER 30, 1995
[GRAPH]
improved market for rental housing during the year increased the value of the
fund's holdings of multifamily loans. If rates remain at current levels or
decline further for a sustained period of time, the prepayment rates for
mortgage loans in the fund may accelerate. However, most of the fund's fixed
rate mortgages have fairly stiff prepayment penalties which decreases the
likelihood of prepayments. If these loans are prepaid, it's likely we would
have to reinvest these prepayments at lower interest rates which would
ultimately decrease the fund's earnings.
DURING THE YEAR, OUR GOAL HAS BEEN TO STABILIZE THE FUND'S NET ASSET VALUE
AND EARNINGS. We did this by selling all of the fund's Z-bonds, inverse
floaters, principal-only, interest-only and inverse interest-only securities.
As interest rates fell, the fund benefited from the increase in value of
these mortgage-backed derivatives following their lows in 1994. Also, as of
December 31, we had sold all of the fund's subordinated mortgage-backed
securities.
AS WE SOLD THE MORTGAGE-BACKED SECURITIES LISTED ABOVE, WE REINVESTED THE
PROCEEDS IN U.S. TREASURY SECURITIES. As of November 30, 77% of the fund's
total assets were invested in multifamily (apartment) loans and 18% in
Treasury securities. It is our goal to maintain the fund's investments in
mortgage loans and Treasuries at approximately
3
<PAGE>
AMERICAN SELECT PORTFOLIO
PREMIUM VS. DISCOUNT
The underlying value of a fund's securities and other assets, minus its
liabilities, is the fund's "net asset value." Closed-end funds may trade in
the market at a price that is equal to, above, or below this net asset value.
Shares are trading at a "premium" when investors purchase or sell shares in
the market at a price that is greater than the shares' net asset value.
Conversely, when investors purchase or sell shares in the market at a price
that is lower than the shares' net asset value, shares are said to be trading
at a "discount."
these levels. This is consistent with our strategy of focusing on securities
that may involve more credit risk and moving away from those that are more
sensitive to changing interest rates. We continue to borrow in the fund
through reverse repurchase agreements, which as of November 30 accounted for
27% of the fund's total assets, and invest the proceeds in Treasury
securities and mortgage loans. While borrowing can potentially increase the
fund's earnings, it can also increase the fund's net asset value volatility.
DURING THE YEAR, WE SUCCESSFULLY MANAGED THE RISKS INVOLVED WITH MORTGAGE
LOANS. (See page 7 for a discussion of risks.) When purchasing multifamily
loans, we believe that smaller loans spread out in several states are less
likely to cause losses in the fund. To date, there have been no losses to the
fund from our investments in multifamily loans. On November 30, we had 73
multifamily loans with an average loan balance of $2,402,062. We follow this
same philosophy when purchasing single-family loans; however, we will focus
the fund on multifamily loans. Although we conduct extensive risk analysis on
loans we purchase, delinquent loans are an inherent risk in the fund.
Currently, there are no delinquent loans in the fund. A loan is considered
delinquent when a borrower has missed two or more payments. Because we only
purchase multifamily loans that meet our strict standards, it is rare for one
of these loans to become delinquent. However, if it becomes necessary to put
a loan in foreclosure, we will proceed with the process as quickly as
possible. Any losses from these loans will first go against the
4
<PAGE>
AMERICAN SELECT PORTFOLIO
GEOGRAPHICAL DISTRIBUTION
NOVEMBER 30, 1995
[MAP]
borrower's investment. Although we would generally receive all of the
principal and interest owed to us on a foreclosed loan, there is a risk that
we will not be repaid in full.
WE BELIEVE GEOGRAPHIC DIVERSIFICATION IS ESSENTIAL TO THE FUND. The mortgage
loans in which the fund invests are backed by property located throughout the
country. (See map above.) Our largest concentration of loans is in Texas.
Because this state has a large population, it offers more loans. In addition,
the strong economic recovery that many areas of Texas are currently
experiencing has helped the rental market stabilize and increase in value.
5
<PAGE>
AMERICAN SELECT PORTFOLIO
ALTHOUGH THE FUND'S EARNINGS HAVE DECLINED FROM THEIR HIGHS IN PREVIOUS
YEARS, THE FUND CONTINUES TO GENERATE ATTRACTIVE EARNINGS LEVELS. The fund's
current monthly earnings of 8.73 cents per share (based on a three-month
average) would result in an annualized earnings rate of 9.52% on the
November 30 market price and 6.98% on the initial public offering price of
$15 per share. Keep in mind that past performance does not guarantee future
results and these rates will fluctuate.
LOOKING AHEAD, WE BELIEVE THE FUND'S NET ASSET VALUE AND EARNINGS SHOULD BE
MORE CONSISTENT THAN IN THE PAST. By selling the fund's Z-bonds, inverse
floaters, principal-only, interest-only and inverse interest-only securities,
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. We will continue to emphasize mortgage loans in an effort
to achieve high current income.
Although I have assisted with the fund's management in the past, I am pleased
to be addressing you for the first time as the fund's manager. My efforts and
those 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 Select Portfolio.
Sincerely,
/s/ John Wenker
John Wenker
Portfolio Manager
6
<PAGE>
MANAGING RISK
MANAGING THE RISKS OF MORTGAGE-RELATED ASSETS
All funds that invest in mortgage-related securities are subject to certain
risks. This list briefly summarizes some of the primary risks associated with
mortgage-related assets and 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 fast prepayment rate will reduce the fund's yield and a slow
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.
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 securities can decrease. Conversely, when
rates decline, the value of securities can rise. However, mortgage-related
assets may benefit less than other fixed income securities from declining
interest rates 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. Because the fund invests
primarily in multifamily loans, it is also subject to certain risks inherent
in these types of loans. Multifamily loans generally involve large loans to
single borrowers or groups of related borrowers. These loans are dependent on
the success of the underlying real estate project. Additional risks include
the ability of tenants to make rent payments and the ability of property to
attract and retain tenants.
To date, we have successfully managed the unique risks of mortgage loans
through extensive risk analysis. We review the loan's legal documents and the
borrower's mortgage payment history; assess the local market and property
value; and obtain a drive-by assessment of the property. As part of our
strategy to manage the real estate risk of the fund's multifamily (apartment)
loans, we perform a detailed inspection of each property; study the competing
properties in the area; interview property managers; and obtain engineering
and environmental reports from experts.
7
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1995
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (note 2)
(including a repurchase agreement of $6,184,000) ..... $ 234,676,713
Cash in bank on demand deposit ........................... 1,160,349
Mortgage security paydowns receivable .................... 12,908
Accrued interest receivable .............................. 1,600,359
----------------
Total assets ......................................... 237,450,329
----------------
LIABILITIES:
Payable for interest rate swap transactions at market
value (note 2) ......................................... 215,710
Reverse repurchase agreements payable .................... 65,000,000
Payable for fund shares retired .......................... 77,350
Accrued investment management fee ........................ 70,096
Accrued administrative fee ............................... 28,039
Accrued interest ......................................... 177,361
Payable for federal excise taxes (note 2) ................ 38,784
Other accrued expenses ................................... 69
----------------
Total liabilities .................................... 65,607,409
----------------
Net assets applicable to outstanding capital stock ....... $ 171,842,920
----------------
----------------
REPRESENTED BY:
Capital stock - authorized 1 billion shares of $0.01 par
value; outstanding, 13,358,467 shares ................ $ 133,585
Additional paid-in capital ............................... 188,445,489
Undistributed net investment income ...................... 2,532,894
Accumulated net realized loss on investments ............. (25,324,887)
Unrealized appreciation of investments ................... 6,055,839
----------------
Total - representing net assets applicable to
outstanding capital stock ........................ $ 171,842,920
----------------
----------------
Net asset value per share of outstanding capital stock ... $ 12.86
----------------
----------------
* Investments in securities at identified cost ........... $ 228,405,164
----------------
----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1995
<TABLE>
<S> <C>
INCOME:
Interest (net of interest expense of $4,405,234) ....... $ 16,332,838
----------------
EXPENSES (NOTE 3):
Investment management fee ................................ 822,786
Administrative fee ....................................... 329,115
Custodian, accounting and transfer agent fees ............ 147,662
Reports to shareholders .................................. 60,585
Mortgage servicing fees .................................. 230,572
Directors' fees .......................................... 11,099
Audit and legal fees ..................................... 83,186
Federal excise taxes (note 2) ............................ 38,784
Other expenses ........................................... 53,821
----------------
Total expenses ....................................... 1,777,610
Less expenses paid indirectly ............................ (2,870)
----------------
Total net expenses ................................... 1,774,740
----------------
Net investment income ................................ 14,558,098
----------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized loss on investments (note 4) ................ (13,740,596)
Net realized gain on closed or expired option contracts
written (note 6) ....................................... 270,041
----------------
Net realized loss on investments ....................... (13,470,555)
Net change in unrealized appreciation or depreciation of
investments ............................................ 30,594,300
----------------
Net gain on investments ................................ 17,123,745
----------------
Net increase in net assets resulting from
operations ....................................... $ 31,681,843
----------------
----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED NOVEMBER 30, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest income ........................................ $ 16,332,838
Net expenses ............................................. (1,774,740)
----------------
Net investment income ................................ 14,558,098
----------------
Adjustments to reconcile net investment income to net cash
provided by operating activities:
Change in accrued interest and mortgage security
paydowns receivable .................................. (44,655)
Net amortization of bond discount and premium .......... 9,717
Change in accrued fees and expenses .................... (19,177)
----------------
Total adjustments .................................... (54,115)
----------------
Net cash provided by operating activities ............ 14,503,983
----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments ....................... 171,215,183
Purchases of investments ................................. (164,255,316)
Net purchases of short-term securities ................... (4,551,000)
Net premiums received from option contracts written ...... 266,057
----------------
Net cash provided by investing activities ............ 2,674,924
----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of fund shares ................................ (2,043,569)
Distributions paid to shareholders ....................... (15,141,310)
----------------
Net cash used by financing activities ................ (17,184,879)
----------------
Net decrease in cash ..................................... (5,972)
Cash at beginning of year ................................ 1,166,321
----------------
Cash at end of year .................................... $ 1,160,349
----------------
----------------
Supplemental disclosure of cash flow information:
Cash paid for interest on reverse repurchase
agreements ........................................... $ 4,404,140
----------------
----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
11/30/95 11/30/94
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income .................................. $ 14,558,098 16,509,450
Net realized loss on investments ......................... (13,470,555) (10,842,749)
Net change in unrealized appreciation or depreciation of
investments ............................................ 30,594,300 (19,368,250)
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations ........................................... 31,681,843 (13,701,549)
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ............................... (15,141,310) (15,304,416)
---------------- ----------------
CAPITAL SHARE TRANSACTIONS:
Payments for retirement of 188,300 and 59,900 shares,
respectively (note 7) .................................. (2,050,601) (637,852)
---------------- ----------------
Total increase (decrease) in net assets .............. 14,489,932 (29,643,817)
Net assets at beginning of year ............................ 157,352,988 186,996,805
---------------- ----------------
Net assets at end of year ................................ $ 171,842,920 157,352,988
---------------- ----------------
---------------- ----------------
Undistributed net investment income ...................... $ 2,532,894 3,062,625
---------------- ----------------
---------------- ----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION
American Select Portfolio Inc. (the fund) is registered under
the Investment Company Act of 1940 (as amended) as a
diversified, closed-end management investment company. The
fund's primary objective is to provide a high level of current
income; its secondary objective is to seek capital appreciation.
To realize its objectives, 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. The fund commenced operations on September 21, 1993, upon
completion of its initial public offering of common stock.
Shares of the fund are listed on the New York Stock Exchange
under the symbol SLA.
(2) 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 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 loans, 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 of rental vacancy rates at the multifamily property.
Subjective adjustments to the valuation of such investments in
multifamily loans may be made based upon the adviser's analysis
of such information. The actual values 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 are determined using
pricing services or prices quoted by independent brokers.
Exchange-listed options are valued at the last sales price and
open financial
12
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
futures contracts are valued at the last settlement price. When
market quotations for other fixed income securities are not
readily available, such securities are valued at fair value
according to methods selected in good faith by the board of
directors.
Securities transactions are accounted for on the date the
securities are purchased or 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 daily. Costs associated with
acquiring whole loans, participation mortgages and mortgage
servicing rights are capitalized and included in the cost basis
of the loans purchased.
OPTION 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 and the option is exercised. 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 in 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 also may write over-the-counter options where the
completion of the obligation is dependent upon the credit
standing of the other party.
Option contracts are valued daily and unrealized appreciation or
depreciation is recorded. 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
security cost of a purchased put or call option 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
13
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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 (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 or sale 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 another party to a 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
swap, cap and floor
14
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
valuations are based on prices quoted by independent brokers.
These valuations represent the present value of all future cash
settlement amounts based upon implied forward interest rates.
As of November 30, 1995, SLA had entered into the following
interest rate swap agreement. The terms provide for the interest
rate differential to be settled on a monthly basis.
<TABLE>
<CAPTION>
Swap Rate Paid by Rate Received Floating Net
Counter- Notional the Fund at by the Fund Rate Termination Unrealized
Party Principal 11/30/95 at 11/30/95 Index Date Loss
- --------- ------------ ------------- ------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Morgan 1-Month
Stanley $ 15,000,000 6.08%(a) 5.81%(b) LIBOR 3/15/99 $ 215,710
-----------
-----------
</TABLE>
(a) Fixed Rate
(b) Floating Rate
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,
individual loans underlying whole loans and participation
mortgages may be larger than those underlying mortgage-backed
securities. At November 30, 1995, no loans were considered by
the fund to be delinquent as to the timely monthly payment of
principal and interest. The fund does not record past due
interest as income until received.
There may be 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 upon default as well as
the accrued unpaid interest and all foreclosure expenses. In
this case, the fund may suffer a loss. Real estate acquired
through foreclosure, if any, is recorded at estimated fair
value. At November 30, 1995, the fund owned no real estate.
Additionally, with respect to participation
15
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
mortgages, the fund generally will not be able to unilaterally
enforce its rights in the event of a default but, rather, will
depend on the cooperation of the other participation holders.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities that have been purchased by
the fund on a forward-commitment or when-issued 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 maintains, in a segregated account
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 NAV to the extent the fund makes such
purchases while remaining substantially fully invested. As of
November 30, 1995, 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 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. As an inducement to "roll over" its purchase commitments,
the fund receives negotiated fees. For the year ended November
30, 1995, 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. However, the fund incurred federal excise
taxes of $38,784, or $0.003 per share on income retained during
the excise tax year ended December 1995.
Net investment income and net realized gains (losses) may differ
for financial statement and tax purposes primarily because of
the non-deductibility of excise tax payments for purposes of
computing taxable income and the recognition of losses deferred
due to "wash sale" transactions. The character of distributions
made during the year from net investment income or net realized
gains may therefore
16
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
differ from their 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.
On the statement of assets and liabilities, as a result of
permanent book-to-tax differences a reclassification adjustment
has been made to increase undistributed net investment income by
$53,481, increase accumulated net realized loss on investments
by $19,130 and decrease additional paid-in capital by $34,351.
DISTRIBUTIONS
The fund pays monthly distributions from net investment income.
Realized capital gains, if any, will be distributed on an annual
basis. 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 commission 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 and
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 in the event of default.
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
of assets and liabilities and disclosure of contingent assets
and liabilities at the
17
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results
could differ from those 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 based on the fund's average
weekly net assets computed at the per annum rate of 0.50%. For
its fee, the adviser will provide investment advice and, in
general, will conduct the management and investment activities
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.
Expenses paid indirectly represent a reduction of custodian fees
for earnings on cash balances maintained with the custodian by
the fund.
When acquiring whole loans and participation mortgages, the fund
enters into mortgage servicing agreements with mortgage
servicers. For a fee, mortgage servicers maintain loan records
such as insurance, taxes and the proper allocation of payments
between principal and interest.
In addition to the advisory, 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, organizational costs,
insurance, interest, fees to outside parties retained to assist
in conducting due diligence, taxes, and other miscellaneous
expenses.
18
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(4) SECURITIES
TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other
than short-term securities) aggregated $164,245,599 and
$171,215,183 respectively, for the year ended November 30, 1995.
During the year ended November 30, 1995, the fund paid no
brokerage commissions to Piper Jaffray Inc., an affiliated
broker.
(5) CAPITAL LOSS
CARRYOVER
For federal income tax purposes, the fund had a capital loss
carryover at November 30, 1995 of $25,324,887, which, if not
offset by subsequent capital gains, will expire in the years
2001 through 2003. 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) OPTION
CONTRACTS
WRITTEN
The number of contracts and premium amounts associated with call
option contracts written for the year ended November 30, 1995,
were as follows:
<TABLE>
<CAPTION>
Number of Premium
Contracts Amount
------------- ----------
<S> <C> <C>
Balance at 11/30/94.......................... 10 $ 3,984
Opened..................................... 1,566 771,953
Closed or expired.......................... (965) (403,281)
Exercised.................................. (611) (372,656)
------ ----------
Balance at 11/30/95.......................... -- $ --
------ ----------
------ ----------
</TABLE>
(7) RETIREMENT OF
FUND SHARES
The fund's board of directors has approved a plan to repurchase
shares of the fund in the open market and retire those shares.
Repurchases may only be made when the previous day's closing
market price was at a discount from net asset value. Daily
repurchases are limited to 25% of the previous four weeks
average daily trading volume on the New York Stock Exchange.
Under the current plan, cumulative repurchases in the fund
cannot exceed 3% of the total shares originally issued. The
board of directors will review the plan quarterly and may change
the amount which may be repurchased. The plan was last reviewed
and reapproved by the board of directors on November 30, 1995.
Pursuant to the plan, the fund has cumulatively repurchased and
retired 248,200 shares as of November 30, 1995, which represents
1.83% of the shares
originally issued.
19
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(8) 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 complaint
alleges, among other things, violations of federal and state
securities laws. Damages are being sought in an unspecified
amount. The fund intends to defend this lawsuit vigorously.
Although it is impossible to predict the outcome, management
believes, based on the facts currently available, that there
will be no material adverse effect on the financial results of
the fund.
20
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(9) 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>
Period from
Year Ended Year Ended 9/21/93* to
11/30/95 11/30/94 11/30/93
------------ ----------- --------------
<S> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ............. $ 11.62 13.74 14.07
------ ----------- ------
Operations:
Net investment income ............................ 1.09 1.22 0.22
Net realized and unrealized gain (loss) on
investments .................................... 1.28 (2.21) (0.46)
------ ----------- ------
Total from operations .......................... 2.37 (0.99) (0.24)
------ ----------- ------
Distributions to shareholders from:
Net investment income ............................ (1.13) (1.13) (0.09)
------ ----------- ------
Net asset value, end of period ................... $ 12.86 11.62 13.74
------ ----------- ------
------ ----------- ------
Per-share market value, end of period ............ $ 11.00 10.38 14.38
------ ----------- ------
------ ----------- ------
SELECTED INFORMATION
Total return, net asset value*** ................... 21.22% (7.48%) (1.75%)
Total return, market value** ....................... 17.36% (20.78%) (3.54%)
Net assets at end of period (in millions) ........ $ 172 157 187
Ratio of expenses to average weekly net
assets+++ ........................................ 1.08% 1.12% 0.79%+
Ratio of net investment income to average weekly net
assets ........................................... 8.85% 9.61% 8.23%+
Portfolio turnover rate (excluding short-term
securities) ...................................... 73% 110% 9%
Amount of borrowings outstanding at end of period
(in millions) TRIANGLE ........................ $ 65 65 --
Per-share amount of borrowings outstanding at end
of period ...................................... $ 4.87 4.80 --
Per-share amount of net assets, excluding
borrowings,
at end of period++ ............................. $ 17.73 16.42 --
Asset coverage ratio TRIANGLE TRIANGLE ........... 364 % 342 % --
</TABLE>
* COMMENCEMENT OF OPERATIONS.
** BASED ON THE CHANGE IN MARKET PRICE OF A SHARE DURING THE PERIOD. ASSUMES
REINVESTMENT OF DISTRIBUTIONS AT ACTUAL PRICES PURSUANT TO THE FUND'S
DIVIDEND REINVESTMENT PLAN.
*** BASED ON THE CHANGE IN NET ASSET VALUE OF A SHARE DURING THE PERIOD. ASSUMES
REINVESTMENT OF DISTRIBUTIONS AT NET ASSET VALUE.
+ ADJUSTED TO AN ANNUAL BASIS.
++ REPRESENTS THE FUND'S NET ASSETS (EXCLUDING BORROWINGS) DIVIDED BY SHARES
OUTSTANDING.
+++ INCLUDES 0.02% AND 0.05% FROM FEDERAL EXCISE TAXES IN FISCAL 1995 AND FISCAL
1994, RESPECTIVELY. BEGINNING IN FISCAL 1995, THE EXPENSE RATIO REFLECTS THE
EFFECT OF GROSS EXPENSES PAID INDIRECTLY BY THE FUND. PRIOR PERIOD EXPENSE
RATIOS HAVE NOT BEEN ADJUSTED.
TRIANGLE SECURITIES PURCHASED ON A WHEN-ISSUED BASIS FOR WHICH LIQUID, HIGH
GRADE DEBT OBLIGATIONS ARE MAINTAINED IN A SEGREGATED ACCOUNT ARE NOT
CONSIDERED BORROWINGS. SEE FOOTNOTE 2 IN THE NOTES TO FINANCIAL
STATEMENTS.
TRIANGLE TRIANGLE REPRESENTS NET ASSETS, EXCLUDING BORROWINGS, AT END OF
PERIOD DIVIDED BY BORROWINGS OUTSTANDING AT END OF PERIOD.
21
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(10) QUARTERLY DATA (UNAUDITED)
DOLLAR AMOUNTS
<TABLE>
<CAPTION>
Net Increase in Distributions
Total Net Net Realized and Net Assets from Net
Investment Investment Unrealized Gains Resulting from Investment
Income Income on Investments Operations Income
----------- ----------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
2/28/95 $ 4,240,439 3,836,581 3,106,333 6,942,914 (3,802,341)
5/31/95 4,203,516 3,747,565 8,786,430 12,533,995 (3,786,956)
8/31/95 3,989,021 3,507,353 2,727,392 6,234,745 (3,779,447)
11/30/95 3,899,862 3,466,599 2,503,590 5,970,189 (3,772,566)
----------- ----------- ----------------- --------------- ---------------
$ 16,332,838 14,558,098 17,123,745 31,681,843 (15,141,310)
----------- ----------- ----------------- --------------- ---------------
----------- ----------- ----------------- --------------- ---------------
</TABLE>
PER-SHARE AMOUNTS
<TABLE>
<CAPTION>
Net Increase
Net Realized and in Net Assets Distributions
Net Investment Unrealized Gains on Resulting from from Net Investment Quarter End
Income Investments Operations Income Net Asset Value
--------------- ------------------- ----------------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
2/28/95 $ 0.28 0.23 0.51 (0.28) 11.85
5/31/95 0.28 0.66 0.94 (0.28) 12.51
8/31/95 0.26 0.20 0.46 (0.28) 12.69
11/30/95 0.27 0.19 0.46 (0.29) 12.86
----- ----- ----- -----
$ 1.09 1.28 2.37 (1.13)
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
22
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
AMERICAN SELECT PORTFOLIO
NOVEMBER 30, 1995
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- ---------- -----------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
U.S. GOVERNMENT SECURITIES (25.2%):
U.S. Treasury Note, 5.75%, 10/31/00
(cost: $42,894,034) ............................... $ 43,000,000(b) 43,387,430
-----------
MORTGAGE-BACKED SECURITIES (1.4%):
SUBORDINATED MORTGAGE-BACKED SECURITIES (1.4%):
8.60%, Chemical Mortgage Securities, Series 1991-1,
Class B, 9/25/21 .................................... 440,561(e) 420,185
9.20%, FBS Mortgage Corporation, Series 1991-B, Class
D, 11/1/21 .......................................... 752,329(e) 715,418
9.35%, GMBS Inc., Series 1990-4, Class S, 10/25/20 ... 493,482(e) 476,673
9.25%, Salomon Brothers Mortgage Securities VII,
Series 1990-1, Class G-1, 8/25/20 ................... 449,838(e) 432,548
9.25%, Salomon Brothers Mortgage Securities VII,
Series 1990-1, Class G-2, 8/25/20 ................... 448,911(e) 431,656
-----------
Total Mortgage-Backed Securities
(cost: $2,461,628) ................................ 2,476,480
-----------
WHOLE LOANS (C,D,E) (106.3%):
MULTIFAMILY LOANS (106.0%):
Aldrich Apartments, 9.75%, 5/31/01 ................... 789,320 814,973
Allumbaugh Square Apartments, 9.68%, 4/1/99 .......... 1,764,418 1,800,589
Ashewood Apartments, 9.94%, 4/1/99 ................... 1,303,103 1,344,933
Autumn Chase Apartments, 10.30%, 5/1/09 .............. 3,057,718 3,164,739
Braesforest Apartments, 9.00%, 4/1/01 ................ 990,139 1,022,120
Brandywine II Apartments, 9.88%, 7/1/01 .............. 3,575,501 3,700,643
Brentwood Highlands Apartments, 8.63%, 4/1/01 ........ 4,446,119(b) 4,534,152
Briarcliff Apartments, 9.25%, 5/1/01 ................. 664,554 687,813
Bridge Court Apartments, 10.13%, 5/1/09 .............. 1,835,500 1,835,500
Bryant Square Apartments, 8.75%, 4/1/01 .............. 1,393,567 1,424,782
Candlelite Apartments, 8.75%, 3/1/01 ................. 1,539,705(b) 1,581,585
Cape Cod Apartments, 8.75%, 1/1/01 ................... 1,529,842(b) 1,570,689
Casa Del Vista Apartments, 8.75%, 1/1/01 ............. 2,122,039(b) 2,168,087
Centre Court Apartments, 8.75%, 1/1/01 ............... 1,174,780(b) 1,199,920
Chapel Hill Apartments, 9.63%, 8/1/01 ................ 918,150 950,285
Chouteau Trace/Bay Apartments, 8.75%, 4/1/01 ......... 2,489,481(b) 2,544,747
Collegeview Apartments, 9.63%, 8/1/01 ................ 1,185,508 1,227,001
Collegeview Towers, 9.63%, 8/1/01 .................... 4,566,674 4,726,508
Concordia Place Apartments, 9.38%, 5/1/01 ............ 984,833 1,019,302
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
23
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
AMERICAN SELECT PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- ---------- -----------
<S> <C> <C>
Continental Gardens Apartments, 8.90%, 3/1/04 ...... $ 1,977,331(b) 2,046,538
Country Club Apartments, 8.75%, 1/1/01 ............... 2,072,689(b) 2,128,030
Country Village Apartments, 8.75%, 4/1/01 ............ 1,339,668(b) 1,369,676
El Conquistador Apartments, 8.75%, 4/1/01 ............ 2,596,063(b) 2,667,195
El Portal Apartments, 10.00%, 7/1/01 ................. 2,319,628 2,400,815
Emerald Shores Apartments, 8.75%, 2/1/01 ............. 3,164,391(b) 3,275,144
Evergreen Square Apartments, 8.75%, 12/1/00 .......... 2,194,573(b) 2,241,756
Evergreen Village Apartments, 8.75%, 11/1/00 ......... 4,009,391 4,114,036
Fairway Hills Apartments, 8.50%, 12/1/98 ............. 1,652,112 1,672,433
Foothills West Apartments, 8.75%, 2/1/01 ............. 2,165,015(b) 2,223,904
Garcia Apartments, 10.00%, 6/1/01 .................... 1,389,045 1,437,662
Glen Hollow Apartments, 9.00%, 4/1/01 ................ 5,538,711(b) 5,715,566
Goose Creek Apartments, 9.75%, 5/1/01 ................ 3,201,702 3,297,112
Green Acres Apartments, 8.75%, 1/1/01 ................ 1,370,576(b) 1,406,759
Greenwood Apartments, 9.25%, 5/1/01 .................. 615,328 636,864
Heritage Apartments, 9.25%, 4/1/01 ................... 2,044,445 2,116,001
Heritage Green Apartments, 8.75%, 3/1/01 ............. 1,416,214(b) 1,455,018
Hickory Ridge Apartments, 9.63%, 8/1/99 .............. 1,224,322 1,267,173
Hidden Colony Apartments, 9.00%, 4/1/01 .............. 3,304,981 3,410,410
High Vista Apartments, 9.00%, 4/1/01 ................. 4,230,178(b) 4,378,234
Jackson Manor Townhomes, 9.38%, 5/1/01 ............... 668,828 692,237
Kingston Square Apartments, 8.75%, 4/1/01 ............ 4,150,947 4,264,683
La Arboleda Apartments, 8.75%, 1/1/01 ................ 4,118,730 4,228,700
Lakeville Apartments, 8.50%, 2/1/99 .................. 2,220,824 2,169,745
Lasalle Crossing Apartments, 8.75%, 1/1/01 ........... 2,882,025(b) 2,958,975
Meadow Glen Apartments, 9.00%, 1/1/01 ................ 1,412,306(b) 1,461,737
Mount Vernon Apartments, 8.75%, 1/1/01 ............... 940,940 960,511
Old Orchard Apartments, 8.75%, 12/1/00 ............... 9,919,692(b) 10,134,751
Parc Du Lac Apartments, 8.50%, 2/1/99 ................ 5,304,038(b) 5,369,995
Park Apartments, 8.75%, 2/1/01 ....................... 1,333,341(b) 1,369,208
Philippe Landing Apartments, 9.63%, 5/1/99 ........... 3,267,207 3,370,124
Quail Bluff Apartments, 9.69%, 4/1/99 ................ 2,867,768(b) 2,925,124
Quail Bluff II Apartments, 13.00%, 4/1/99 ............ 400,000 376,000
Revere Apartments, 8.75%, 4/1/01 ..................... 810,961(b) 833,181
Rush Creek Apartments, 9.63%, 4/1/99 ................. 2,557,669 2,619,308
Shadowood Apartments, 8.50%, 3/1/99 .................. 5,209,454(b) 5,277,375
Sherwood Lake Apartments, 9.63%, 8/1/01 .............. 2,420,924 2,505,656
Sierra Vista Apartments, 9.50%, 2/1/01 ............... 1,372,774(b) 1,420,821
Skyline Place Apartments, 8.75%, 4/1/01 .............. 4,351,496(b) 4,450,275
Somerset Place Apartments, 9.00%, 4/1/04 ............. 2,336,720 2,418,505
Sunset Rill Apartments, 9.88%, 5/1/99 ................ 3,075,758 3,183,409
Sunview Apartments, 10.00%, 2/1/01 ................... 1,835,524 1,899,768
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
24
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
AMERICAN SELECT PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- ---------- -----------
<S> <C> <C>
Terrace Gardens Apartments, 9.80%, 5/1/04 .......... $ 2,479,045 2,565,812
The Oaks of Lake Bluff Apartments, 8.75%, 4/1/01 ..... 2,769,134(b) 2,831,163
Timber Forest Apartments, 8.75%, 2/1/01 .............. 1,185,197 1,211,153
Tralee Terrace Apartments, 10.13%, 5/1/09 ............ 2,083,540 2,083,540
Trinity Place Apartments, 8.75%, 4/1/01 .............. 608,220 624,886
Waterford Apartments, 9.80%, 1/1/19 .................. 4,606,075(b) 4,375,771
Westmont Apartments, 9.75%, 7/1/01 ................... 2,182,254 2,253,177
White Oaks Apartments, 8.75%, 1/1/01 ................. 832,136 854,104
Willow Brooke Apartments, 8.75%, 4/1/01 .............. 4,821,260(b) 4,929,256
Willow Creek Apartments, 9.00%, 1/1/01 ............... 3,767,796 3,883,844
Willow Creek Apartments, 8.75%, 4/1/01 ............... 1,286,663(b) 1,321,917
Willows Apartments, 10.00%, 6/1/01 ................... 3,570,363 3,695,326
-----------
182,098,731
-----------
SINGLE FAMILY LOANS (0.3%):
President Homes 94-1B, Sales Inventory, 10.00%,
3/29/24 ............................................. 281,378 288,891
President Homes 94-1D, Sales Inventory, 10.00%,
5/7/24 .............................................. 234,909 241,181
-----------
530,072
-----------
Total Whole Loans
(cost: $176,865,502) .............................. 182,628,803
-----------
SHORT-TERM SECURITIES (3.6%):
Repurchase agreement with Goldman Sachs in a joint
trading account collateralized by U.S. government
agency securities, acquired on 11/30/95, accrued
interest at repurchase date of $1,005, 5.85%, 12/1/95
(cost: $6,184,000) .................................. 6,184,000 6,184,000
-----------
Total Investments in Securities
(cost: $228,405,164)(f) .......................... $ 234,676,713
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
25
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
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, 1995, SECURITIES VALUED AT $133,535,959 WERE PLEDGED AS
COLLATERAL FOR THE FOLLOWING OUTSTANDING REVERSE REPURCHASE AGREEMENTS:
<TABLE>
<CAPTION>
NAME
OF BROKER AND
ACQUISITION ACCRUED DESCRIPTION
AMOUNT DATE RATE* DUE INTEREST OF COLLATERAL
----------- ----------- ----- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
$25,000,000 3/15/95 6.66% 3/15/96 $ 74,028 (1)
3,500,000 3/15/95 5.81% 3/15/96 9,042 (2)
16,000,000 4/3/95 5.81% 3/15/96 41,333 (2)
1,500,000 4/15/95 5.81% 3/15/96 3,875 (2)
4,000,000 4/24/95 5.81% 3/15/96 10,333 (2)
6,000,000 4/10/95 5.81% 3/15/96 15,500 (2)
5,000,000 5/22/95 5.81% 3/15/96 12,917 (2)
4,000,000 5/9/95 5.81% 3/15/96 10,333 (2)
----------- --------
$65,000,000 $177,361
----------- --------
----------- --------
</TABLE>
*INTEREST RATE IS AS OF NOVEMBER 30, 1995. RATES ARE BASED ON THE LONDON
INTERBANK OFFERED RATE (LIBOR) AND RESET MONTHLY.
<TABLE>
<S> <C>
NAME OF BROKER AND DESCRIPTION OF COLLATERAL:
(1) MORGAN STANLEY; BRENTWOOD HIGHLANDS APARTMENTS, 8.63%, 4/1/01, $4,446,119 PAR
CANDLELITE APARTMENTS, 8.75%, 3/1/01, $1,539,705 PAR
CAPE COD APARTMENTS, 8.75%, 1/1/01, $1,529,842 PAR
CASA DEL VISTA APARTMENTS, 8.75%, 1/1/01, $2,122,039 PAR
CENTRE COURT APARTMENTS, 8.75%, 1/1/01, $1,174,780 PAR
CHOUTEAU TRACE/BAY APARTMENTS, 8.75%, 4/1/01, $2,489,481 PAR
CONTINENTAL GARDENS APARTMENTS, 8.90%, 3/1/04, $1,977,331 PAR
COUNTRY CLUB APARTMENTS, 8.75%, 1/1/01, $2,072,689 PAR
COUNTRY VILLAGE APARTMENTS, 8.75%, 4/1/01, $1,339,668 PAR
EL CONQUISTADOR APARTMENTS, 8.75%, 4/1/01, $2,596,063 PAR
EMERALD SHORES APARTMENTS, 8.75%, 2/1/01, $3,164,391 PAR
EVERGREEN SQUARE APARTMENTS, 8.75%, 12/1/00, $2,194,573 PAR
FOOTHILLS WEST APARTMENTS, 8.75%, 2/1/01, $2,165,015 PAR
GLEN HOLLOW APARTMENTS, 9.00%, 4/1/01, $5,538,711 PAR
GREEN ACRES APARTMENTS, 8.75%, 1/1/01, $1,370,576 PAR
HERITAGE GREEN APARTMENTS, 8.75%, 3/1/01, $1,416,214 PAR
HIGH VISTA APARTMENTS, 9.00%, 4/1/01, $4,230,178 PAR
LASALLE CROSSING APARTMENTS, 8.75%, 1/1/01, $2,882,025 PAR
MEADOW GLEN APARTMENTS, 9.00%, 1/1/01, $1,412,306 PAR
OLD ORCHARD APARTMENTS, 8.75%, 12/1/00, $9,919,692 PAR
PARC DU LAC APARTMENTS, 8.50%, 2/1/99, $5,304,038 PAR
PARK APARTMENTS, 8.75%, 2/1/01, $1,333,341 PAR
QUAIL BLUFF APARTMENTS, 9.69%, 4/1/99, $2,867,768 PAR
REVERE APARTMENTS, 8.75%, 4/1/01, $810,961 PAR
SHADOWOOD APARTMENTS, 8.50%, 3/1/99, $5,299,453 PAR
SIERRA VISTA APARTMENTS, 9.50%, 2/1/01, $1,372,774 PAR
SKYLINE PLACE APARTMENTS, 8.75%, 4/1/01, $4,351,496 PAR
</TABLE>
26
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
<TABLE>
<S> <C>
THE OAKS OF LAKE BLUFF APARTMENTS, 8.75%, 4/1/01, $2,769,134 PAR
WATERFORD APARTMENTS, 9.80%, 1/1/19, $4,606,075 PAR
WILLOW BROOKE APARTMENTS, 8.75%, 4/1/01, $4,821,260 PAR
WILLOW CREEK APARTMENTS, 8.75%, 4/1/01, $1,286,663 PAR
(2) MORGAN STANLEY: U.S. TREASURY NOTE, 5.75%, 10/31/00, $41,000,000 PAR
</TABLE>
(C) INTEREST RATE AND MATURITY DATE DISCLOSED REPRESENT THE WEIGHTED AVERAGE
COUPON AND WEIGHTED AVERAGE MATURITY FOR THE UNDERLYING MORTGAGE LOANS AS
OF NOVEMBER 30, 1995.
(D) FOR INVESTMENT SCHEDULE PRESENTATION, MULTIFAMILY MORTGAGES PURCHASED ARE
SUMMARIZED BY THE PROPERTY NAME AND LOCATION TO WHICH THEY APPLY. SINGLE
FAMILY MORTGAGES ARE SUMMARIZED BY THE INSTITUTION FROM WHICH THEY WERE
PURCHASED AND DESCRIBE THE NUMBER OF LOANS AND GEOGRAPHICAL LOCATION.
MULTIFAMILY LOANS:
ALDRICH APARTMENTS - MINNEAPOLIS, MN
ALLUMBAUGH SQUARE APARTMENTS - BOISE, ID
ASHEWOOD APARTMENTS - DENVER, CO
AUTUMN CHASE APARTMENTS - JACKSONVILLE, FL
BRAESFOREST APARTMENTS - HOUSTON, TX
BRANDYWINE II APARTMENTS - WILMINGTON, DE
BRENTWOOD HIGHLANDS APARTMENTS - BRENTWOOD, TN
BRIARCLIFF APARTMENTS - ATLANTA, GA
BRIDGE COURT APARTMENTS - OWATONNA, MN
BRYANT SQUARE APARTMENTS - EDMUND, OK
CANDLELITE APARTMENTS - GRANDVIEW, MO
CAPE COD APARTMENTS - OKLAHOMA CITY, OK
CASA DEL VISTA APARTMENTS - CARSON CITY, NV
CENTRE COURT APARTMENTS - NORTH CANTON, OH
CHAPEL HILL APARTMENTS - KANSAS CITY, MO
CHOUTEAU TRACE/BAY APARTMENTS - PONTOON BEACH, IL
COLLEGEVIEW APARTMENTS - POUGHKEEPSIE, NY
COLLEGEVIEW TOWERS - POUGHKEEPSIE, NY
CONCORDIA PLACE APARTMENTS - AUSTIN, TX
CONTINENTAL GARDENS APARTMENTS - GRAND ISLAND, NE
COUNTRY CLUB APARTMENTS - EL RENO, OK
COUNTRY VILLAGE APARTMENTS - MORTON, IL
EL CONQUISTADOR APARTMENTS - TUCSON, AZ
EL PORTAL APARTMENTS - SWEETWATER, FL
EMERALD SHORES APARTMENTS - PHOENIX, AZ
EVERGREEN SQUARE APARTMENTS - BUFFALO, MN
EVERGREEN VILLAGE APARTMENTS - DENVER, CO
FAIRWAY HILLS APARTMENTS - RAPID CITY, SD
FOOTHILLS WEST APARTMENTS - EL PASO, TX
GARCIA APARTMENTS - MIAMI, FL
GLEN HOLLOW APARTMENTS - CHARLOTTE, NC
GOOSE CREEK APARTMENTS - BLOOMINGTON, IL
GREEN ACRES APARTMENTS - MASSILLON, OH
GREENWOOD APARTMENTS - ATLANTA, GA
HERITAGE APARTMENTS - TULSA, OK
HERITAGE GREEN APARTMENTS - NEWARK, OH
HICKORY RIDGE APARTMENTS - HOPKINSVILLE, TN
HIDDEN COLONY APARTMENTS - DORAVILLE, GA
27
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
<TABLE>
<S> <C>
HIGH VISTA APARTMENTS - EL PASO, TX
JACKSON MANOR TOWNHOMES - GREENVILLE, TX
KINGSTON SQUARE APARTMENTS - KNOXVILLE, TN
LA ARBOLEDA APARTMENTS - SAN ANTONIO, TX
LAKEVILLE APARTMENTS - LAKEVILLE, MN
LASALLE CROSSING APARTMENTS - SHERMAN, TX
MEADOW GLEN APARTMENTS - MIDWEST CITY, OK
MOUNT VERNON APARTMENTS - OKLAHOMA CITY, OK
OLD ORCHARD APARTMENTS - GRAND RAPIDS, MI
PARC DU LAC APARTMENTS - NEW ORLEANS, LA
PARK APARTMENTS - COLORADO SPRINGS, CO
PHILIPPE LANDING APARTMENTS - SAFETY HARBOR, FL
QUAIL BLUFF APARTMENTS - OKLAHOMA CITY, OK
QUAIL BLUFF II APARTMENTS - OKLAHOMA CITY, OK
REVERE APARTMENTS - REVERE, MA
RUSH CREEK APARTMENTS - HOUSTON, TX
SHADOWOOD APARTMENTS - NASHVILLE, TN
SHERWOOD LAKE APARTMENTS - TAMPA, FL
SIERRA VISTA APARTMENTS - BOISE, ID
SKYLINE PLACE APARTMENTS - DALLAS, TX
SOMERSET PLACE APARTMENTS - TUCSON, AZ
SUNSET RILL APARTMENTS - KNOXVILLE, TN
SUNVIEW APARTMENTS - RAYMOND, NH
TERRACE GARDENS APARTMENTS - DENVER, CO
THE OAKS OF LAKE BLUFF APARTMENTS - LAKE BLUFF, IL
TIMBER FOREST APARTMENTS - PLANO, TX
TRALEE TERRACE APARTMENTS - COON RAPIDS, MN
TRINITY PLACE APARTMENTS - DEL CITY, OK
WATERFORD APARTMENTS - ZION, IL
WESTMONT APARTMENTS - NASHVILLE, TN
WHITE OAKS APARTMENTS - MASSILLON, OH
WILLOW BROOKE APARTMENTS - TAMPA, FL
WILLOW CREEK APARTMENTS - LITTLE ROCK, AR
WILLOW CREEK APARTMENTS - MIDWEST CITY, OK
WILLOWS APARTMENTS - BAKERSFIELD, CA
SINGLE FAMILY LOANS:
PRESIDENT HOMES, SALES INVENTORY - 4 SINGLE FAMILY LOANS LOCATED IN THE
MIDWEST.
(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) ON NOVEMBER 30, 1995, THE COST OF INVESTMENTS IN SECURITIES FOR FEDERAL
INCOME TAX PURPOSES, INCLUDING INTEREST RATE SWAP TRANSACTIONS, WAS
$228,405,164. 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 .... $ 6,483,723
GROSS UNREALIZED DEPRECIATION ...... (427,884)
----------
NET UNREALIZED APPRECIATION .... $ 6,055,839
----------
----------
</TABLE>
28
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
AMERICAN SELECT PORTFOLIO INC.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of American Select Portfolio Inc. as
of November 30, 1995, the related statements of operations and cash flows for
the year then ended, the statements of changes in net assets for each of the
years in the two-year period ended November 30, 1995 and the financial
highlights for the periods presented in footnote 9. These financial statements
and the financial highlights are the responsibility of the fund's management.
Our responsibility is to express an opinion on these financial statements and
the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
American Select Portfolio Inc. as of November 30, 1995, the results of its
operations and cash flows for the year then ended, the changes in its net assets
for each of the years in the two-year period ended November 30, 1995 and the
financial highlights for the periods presented in footnote 9, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 19, 1996
29
<PAGE>
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
Fiscal Year Ended November 30, 1995
Distributions shown below are taxable as dividend
income. None qualify for the corporate dividends
received deduction. In February 1996, each shareholder
will receive a breakdown of income earned by investment
category for calendar year 1995.
Information for federal income tax purposes is presented
as an aid to shareholders in reporting distributions.
Shareholders should consult a tax adviser on how to
report these distributions on the state and local
levels.
<TABLE>
<CAPTION>
Payable Date Per Share
- ----------------------------------------------- -----------
<S> <C>
December 28, 1994 ........................... $ 0.09375
January 13, 1995 .............................. 0.09375
February 22, 1995 ............................. 0.09375
March 29, 1995 ................................ 0.09375
April 26, 1995 ................................ 0.09375
May 24, 1995 .................................. 0.09375
June 28, 1995 ................................. 0.09375
July 26, 1995 ................................. 0.09375
August 23, 1995 ............................... 0.09375
September 27, 1995 ............................ 0.09375
October 25, 1995 .............................. 0.09375
November 22, 1995 ............................. 0.09375
-----------
$ 1.12500
-----------
-----------
</TABLE>
30
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER UPDATE
ANNUAL MEETING RESULTS
An annual meeting of the fund's shareholders was held on August 17, 1995. Each
matter voted upon at the 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 forth below.
1. The fund's shareholders elected the following six directors:
<TABLE>
<CAPTION>
Shares Shares Withholding
Voted "For" Authority to Vote
----------- ------------------
<S> <C> <C>
David T. Bennett..... 12,510,036 286,028
Jaye F. Dyer......... 12,509,272 283,444
William H. Ellis..... 12,511,190 286,694
Karol D. Emmerich.... 12,509,836 288,048
Luella G. Goldberg... 12,508,136 289,748
George Latimer....... 12,510,036 286,028
</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 November 30, 1995. The following votes were cast
regarding this matter:
<TABLE>
<CAPTION>
Shares Shares Voted Broker
Voted "For" "Against" Abstentions non-votes
- ----------- ----------------- ----------- ---------------
<S> <C> <C> <C>
12,500,597 81,456 214,512 --
</TABLE>
SHARE REPURCHASE PROGRAM
Your fund's board of directors has reapproved the fund's share repurchase
program, which enables the fund to "buy back" shares of its common stock in the
open market. Repurchases may only be made when the previous day's closing market
price per share was at a discount from net asset value. Repurchases cannot
exceed 3% of the fund's originally issued shares.
WHAT EFFECT WILL THIS PROGRAM HAVE ON SHAREHOLDERS?
- - We do not expect any adverse impact on the adviser's ability to manage the
fund.
- - Because repurchases will be at a price below net asset value, remaining shares
outstanding may experience a slight increase in net asset value.
- - Although the effect of share repurchases on market price is less certain, the
board of directors believes the program may have a favorable effect on the
market price of fund shares.
- - We do not anticipate any material increase in the fund's expense ratio.
31
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER UPDATE
WHEN WILL SHARES BE REPURCHASED?
Share repurchases may be made from time to time and may be discontinued at any
time. Share repurchases are not mandatory when fund shares are trading at a
discount from net asset value; all repurchases will be at the discretion of the
fund's investment adviser. The board of directors will consider whether to
continue the share repurchase program on at least a semiannual basis and will
notify shareholders of its determination in the next semiannual or annual
report.
HOW WILL SHARES BE REPURCHASED?
We expect to finance the repurchase of shares by liquidating portfolio
securities or using current cash balances. We do not anticipate borrowing in
order to finance
share repurchases.
TERMS AND CONDITIONS OF THE DIVIDEND REINVESTMENT PLAN
As a shareholder, you may choose to participate in the Dividend Reinvestment
Plan. It is a convenient and economical way to buy additional shares of the fund
by automatically reinvesting dividends and capital gains. The plan is
administered by Investors Fiduciary Trust Company (IFTC), the plan agent.
ELIGIBILITY/PARTICIPATION
You may join the plan at any time. Reinvestment of distributions will begin with
the next distribution paid, provided your request is received at least 10 days
before the record date for that distribution.
If your shares are in certificate form, you may join the plan directly and have
your distributions reinvested in additional shares of the fund. To enroll in
this plan, call IFTC at 1-800-543-1627. If your shares are registered in your
brokerage firm's name or another name, ask the holder of your shares how you may
participate.
Banks, brokers or nominees, on behalf of their beneficial owners who wish to
reinvest dividend and capital gain distributions, may participate in the plan by
informing IFTC at least 10 days before each share's dividend and/or capital
gains distribution.
PLAN ADMINISTRATION
Beginning no more than five business days before the dividend payment date, IFTC
will buy shares of the fund on the New York Stock Exchange or elsewhere on the
open market only when the price of the fund's shares on the NYSE plus
commissions is less than a 5% premium over the fund's most recently calculated
net asset value (NAV) per share. 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
32
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER UPDATE
requirement, IFTC will accept payment of the dividend, or the remaining portion,
in authorized but unissued shares of the fund. These shares will be issued at a
per-share price equal to the higher of (a) the NAV per share as of the close of
business on the payment date or (b) 95% of the closing market price per share on
the payment date.
By participating in the dividend reinvestment plan, you may receive benefits not
available to shareholders who elect not to participate. For example, if the
market price plus commissions of the fund's shares is 5% or more above the NAV,
you will receive shares at a discount of up to 5% from the current market value.
However, if the market price plus commissions is below the NAV, you will receive
distributions in shares with a NAV greater than the value of any cash
distributions you would
have received.
There is no direct charge for reinvestment of dividends and capital gains, since
IFTC fees are paid for by the fund. However, if fund shares are purchased in the
open market, each participant pays a pro rata portion of the brokerage
commissions. Brokerage charges are expected to be lower than those for
individual transactions because shares are purchased for all participants in
blocks. As long as you continue to participate in the plan, distributions paid
on the shares in your account will
be reinvested.
IFTC maintains accounts for plan participants holding shares in certificate
form. You will receive a monthly statement detailing total dividend and capital
gain distributions, date of investment, shares acquired, price per share, and
total shares held in your account, both certificate-form shares and unissued
shares acquired through the plan.
TAX INFORMATION
Distributions reinvested in additional shares of the fund are subject to income
tax, just as they would be if received in cash. When shares are issued by the
fund at a discount from market value, shareholders will be treated as having
received distributions of an amount equal to the full market value of those
shares. Shareholders, as required by the Internal Revenue Service, will receive
Form 1099 regarding the federal tax status of the prior year's distributions.
PLAN WITHDRAWAL
If you hold your shares in certificate form, you may terminate your
participation in the plan at any time by giving written notice to IFTC. If your
shares are registered in your brokerage firm's name, you may terminate your
participation via verbal or written instructions to your investment
professional. Written instructions should include your name and address as they
appear on the certificate or account.
33
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER UPDATE
If notice is received at least 10 days before the record date, all future
distributions will be paid directly to the shareholder of record.
If your shares are in certificate form and you discontinue your participation in
the plan, you (or your nominee) will receive an additional certificate for all
full shares and a check for any fractional shares in your account.
PLAN AMENDMENT/TERMINATION
The fund reserves the right to amend or terminate the plan. Should the plan be
amended or terminated, participants will be notified in writing at least 90 days
before the record date for such dividend or distribution. The plan may also be
amended or terminated by IFTC with at least 90 days written notice to
participants in the plan.
Any questions about the plan should be directed to your investment professional
or to Investors Fiduciary Trust Company, P.O. Box 419432, Kansas City, Missouri
64141, 1-800-543-1627.
34
<PAGE>
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
<TABLE>
<S> <C>
DIRECTORS David T. Bennett, CHAIRMAN, HIGHLAND HOMES, INC., USL
PRODUCTS, INC., KIEFER BUILT, INC., OF COUNSEL, PRINCIPAL
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.
George Latimer, CHIEF EXECUTIVE OFFICER, NATIONAL EQUITY
FUNDS
OFFICERS William H. Ellis, CHAIRMAN OF THE BOARD
John Wenker, PRESIDENT
Worth Bruntjen, SENIOR VICE PRESIDENT
Marijo Goldstein, SENIOR VICE PRESIDENT
Robert H. Nelson, SENIOR VICE PRESIDENT AND TREASURER
James A. Berman, VICE PRESIDENT
Thomas S. McGlinch, VICE PRESIDENT
David E. Rosedahl, SECRETARY
INVESTMENT Piper Capital Management Incorporated
ADVISER 222 SOUTH 9TH STREET, MINNEAPOLIS, MN 55402
TRANSFER AGENT Investors Fiduciary Trust Company
AND RECORD 127 WEST 10TH STREET, KANSAS CITY, MO 64105-1716
KEEPER
LEGAL COUNSEL Dorsey & Whitney P.L.L.P.
220 SOUTH SIXTH STREET, MINNEAPOLIS, MN 55402
CUSTODIAN First Trust
180 EAST FIFTH STREET, ST. PAUL, MN 55101
INDEPENDENT KPMG Peat Marwick LLP
AUDITORS 4200 NORWEST CENTER, MINNEAPOLIS, MN 55402
</TABLE>
35
<PAGE>
PIPER CAPITAL BULK RATE
MANAGEMENT U.S. POSTAGE
PAID
PIPER CAPITAL MANAGEMENT INCORPORATED PERMIT NO. 3008
222 SOUTH NINTH STREET MPLS., MN
MINNEAPOLIS, MN 55402-3804
PIPER JAFFRAY INC., FUND SPONSOR AND NASD MEMBER.
[LOGO] THIS DOCUMENT IS PRINTED ON PAPER MADE FROM
100% TOTAL RECOVERED FIBER, INCLUDING 15% POST-CONSUMER WASTE.
In an effort to reduce costs to our shareholders, we have
implemented a process to reduce duplicate mailings of
the fund's annual and semiannual 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 Shareholder Services area at
1 800 866-7778, or mail your request to:
Corporate Communications
Piper Capital Management
222 South Ninth Street
Minneapolis, MN 55402-3804
057-96 SLA01 1/96
STAPLES
