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American Select Portfolio - 1996 Annual Report
1996 Annual Report
American
Select
Portfolio
SLA
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[LOGO]
CONTENTS
President's Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Financial Statements and Notes . . . . . . . . . . . . . . . . . . . . . . 8
Investments in Securities. . . . . . . . . . . . . . . . . . . . . . . . .22
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . .28
Federal Tax Information . . . . . . . . . . . . . . . . . . . . . . . . .29
Shareholder Update . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . .34
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
AMERICAN SELECT PORTFOLIO
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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. The fund will focus primarily
on multifamily 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 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, THREE-YEAR
AND SINCE INCEPTION PERIODS ENDED NOVEMBER 30, 1996, WERE 10.53%, 0.92% AND
- -0.27%, 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 Annual Report 1 American Select Portfolio
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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 annual 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 Annual Report 2 American Select Portfolio
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AMERICAN SELECT PORTFOLIO
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[PHOTO]
JOHN WENKER
is primarily responsible for the management of American Select Portfolio. He has
11 years of financial experience.
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January 16, 1997
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DEAR SHAREHOLDERS:
AMERICAN SELECT PORTFOLIO PAID AN ATTRACTIVE LEVEL OF CURRENT INCOME FOR
SHAREHOLDERS DURING THE YEAR ENDED NOVEMBER 30, 1996. The fund paid $1.08125
per share in dividends, an annualized distribution rate of 9.83% based on the
November 30 market price of $11 per share, and 7.21% 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 8.83 cents per share (based on an average of the three months
ended November 30) would result in an annualized earnings rate of 9.63% on
the November 30 market price and 7.06% on the initial public offering price.
Keep in mind that past performance does not guarantee future results, and
these rates will fluctuate.
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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 Annual Report 3 American Select Portfolio
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AMERICAN SELECT PORTFOLIO (CONTINUED)
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[PHOTO]
DAVID STEELE
assists with the management of American Select Portfolio. He has 18 years of
financial experience.
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FOR THE YEAR, THE FUND HAD A NET ASSET VALUE TOTAL RETURN OF 7.27%.* This
compares to a 5.98% return for the Lehman Brothers Mutual Fund
Government/Mortgage Index and a 7.36% return for the Lipper Closed-End U.S.
Mortgage Funds Average during this same period. The fund's total return based on
its market price was 10.53%.* The fund continued to trade at a discountv to net
asset value during the year, with a market price of $11 and a net asset value of
$12.66 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.
* 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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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 Annual Report 4 American Select Portfolio
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AMERICAN SELECT PORTFOLIO (CONTINUED)
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[PHOTO]
RUSS KAPPENMAN
assists with the management of American Select Portfolio. He has 11 years of
financial experience.
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THE FUND'S GENERALLY GOOD NET ASSET VALUE PERFORMANCE WAS LARGELY DUE TO THE
CONTINUED PRICE STABILITY OF OUR INVESTMENTS IN MORTGAGE LOANS DESPITE VOLATILE
INTEREST RATES THROUGHOUT THE YEAR. Interest rates increased substantially
during the first half of 1996, but then, with the exception of August, moved
lower through the end of November -- ending about 0.40% higher than they were at
the start of the year.
OUR MULTIFAMILY LOANS ROSE IN VALUE DUE TO A STRONG RENTAL HOUSING MARKET, AND
SOME OF THE FUND'S LOANS PREPAID. We reinvested the proceeds at approximately
the same interest rate as the old loans and collected more than $300,000, or 2.3
cents per share, in prepayment penalties. Going forward, we have lower
prepayment penalties on a substantial portion of our loan portfolio. If the fund
experiences heavier loan prepayments and we have to reinvest them at lower
interest rates, it would ultimately decrease the fund's earnings.
WE WERE SUCCESSFUL IN STABILIZING THE FUND'S INCOME STREAM DURING THE PERIOD.
When the dividend was reduced in July 1996, we stated that we felt we could
maintain an 8.5 cents per share monthly dividend for 12 months. As of November
30, 1996, we were on track to accomplish this goal. Additionally, in December,
we paid a 2 cent per share additional dividend from income. While unexpected
credit problems or severe prepayments could adversely affect the fund's ability
to maintain its 8.5 cents per share monthly dividend, we remain optimistic we
will achieve this objective.
OUR ASSET ALLOCATION REMAINED VIRTUALLY UNCHANGED OVER THE REPORTING PERIOD,
WITH 76% OF THE FUND'S TOTAL ASSETS INVESTED IN MULTIFAMILY (APARTMENT) OR
COMMERCIAL LOANS AND 18% IN TREASURY SECURITIES. On November 30, we had 70
multifamily and commercial loans with an average loan balance of $2,467,000.
Assuming a market environment that is similar to the past year, we intend to
maintain these levels, which is consistent with our strategy of focusing on
securities subject to more credit risk and reducing our exposure in securities
more sensitive to changing interest rates.
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1996 Annual Report 5 American Select Portfolio
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AMERICAN SELECT PORTFOLIO (CONTINUED)
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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. As of November 30, reverse repurchase agreements, expressed as a
percentage of total assets, were approximately 28%. While borrowing may increase
the fund's net asset volatility, it can potentially increase the fund's income.
DURING THE YEAR, WE SUCCESSFULLY MANAGED THE RISKS*** INVOLVED WITH MORTGAGE
LOANS. (See the glossary for more on the risks associated with mortgage loans.)
When purchasing multifamily and commercial loans, we continued to invest mainly
in smaller loans in many states. Diversifying among these smaller loans and
loans on various property types, in our judgment, helps minimize risk. To date,
the fund has had no realized losses from its investments in multifamily and
commercial loans. Although we conduct extensive risk analysis on every loan
purchased, delinquent loans are likely. Currently, we have no delinquent loans.
Should a loan foreclose, we will expedite the process as quickly as possible.
Any losses will first go against the borrower's investment. 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 mortgage
loans in which the fund invests are backed by properties located throughout the
country. (See map on page 4.) Our largest concentration of loans is in Texas,
which has more loans available due to its large population. Moreover, improving
economic conditions experienced by this state over the last couple of years have
increased rental rates and occupancy levels in many of the markets where our
investments are located.
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. We will
continue to emphasize mortgage loans in our effort to achieve high current
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
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1996 Annual Report 6 American Select Portfolio
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AMERICAN SELECT PORTFOLIO (CONTINUED)
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income. Depending on prepayment levels and our ability to find appropriate
multifamily loans, the fund may include more of a single family and commercial
loan component. 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.)
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 semiannual 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 fund's management team continues to be dedicated to reaching the fund's
objectives and helping you achieve your financial goals. We thank you for your
continued investment in American Select Portfolio, and we look forward to
serving your financial needs throughout the coming fiscal year.
Sincerely,
/s/ John Wenker
John Wenker
Portfolio Manager
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1996 Annual Report 7 American Select Portfolio
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Financial Statements
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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 $9,043,000) ......... $231,828,279
Cash in bank on demand deposit ............................. 436,364
Accrued interest receivable ................................ 1,427,222
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Total assets ............................................. 233,691,865
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LIABILITIES:
Reverse repurchase agreements payable ...................... 65,250,000
Accrued investment management fee .......................... 68,400
Accrued administrative fee ................................. 27,360
Accrued interest ........................................... 167,097
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Total liabilities ........................................ 65,512,857
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Net assets applicable to outstanding capital stock ......... $168,179,008
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REPRESENTED BY:
Capital stock - authorized 1 billion shares of $0.01 par
value; outstanding, 13,283,967 shares .................... $ 132,840
Additional paid-in capital ................................. 187,628,195
Undistributed net investment income ........................ 1,649,628
Accumulated net realized loss on investments ............... (23,947,303)
Unrealized appreciation of investments ..................... 2,715,648
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Total - representing net assets applicable to outstanding
capital stock .......................................... $168,179,008
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Net asset value per share of outstanding capital stock ..... $ 12.66
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* Investments in securities at identified cost ............. $229,112,631
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</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1996 Annual Report 8 American Select Portfolio
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Financial Statements (continued)
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STATEMENT OF OPERATIONS For the Year Ended November 30, 1996
..................................................................
<TABLE>
<S> <C>
INCOME:
Interest (net of interest expense of $3,777,155) ........... $15,205,665
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EXPENSES (NOTE 3):
Investment management fee .................................. 832,043
Administrative fee ......................................... 332,817
Custodian and accounting fees .............................. 108,674
Transfer agent fees ........................................ 31,903
Reports to shareholders .................................... 56,359
Mortgage servicing fees .................................... 223,270
Directors' fees ............................................ 11,518
Audit and legal fees ....................................... 72,897
Other expenses ............................................. 49,337
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Total expenses ........................................... 1,718,818
Less expenses paid indirectly .............................. (4,923)
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Total net expenses ....................................... 1,713,895
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Net investment income .................................... 13,491,770
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NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on investments (note 4) .................. 1,377,584
Net change in unrealized appreciation or depreciation of
investments .............................................. (3,340,191)
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Net loss on investments .................................. (1,962,607)
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Net increase in net assets resulting from operations ..... $11,529,163
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</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1996 Annual Report 9 American Select Portfolio
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Financial Statements (continued)
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STATEMENT OF CASH FLOWS For the Year Ended November 30, 1996
..................................................................
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest income ............................................ $ 15,205,665
Net expenses ............................................... (1,713,895)
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Net investment income .................................... 13,491,770
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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 ...................... 186,045
Net amortization of bond discount and premium ............ (85,987)
Change in accrued fees and expenses ...................... (51,492)
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Total adjustments ...................................... 48,566
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Net cash provided by operating activities .............. 13,540,336
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments ......................... 71,873,183
Purchases of investments ................................... (68,258,079)
Net purchases of short-term securities ..................... (2,859,000)
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Net cash provided by investing activities .............. 756,104
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from reverse repurchase agreements ............ 250,000
Retirement of fund shares .................................. (895,389)
Distributions paid to shareholders ......................... (14,375,036)
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Net cash used by financing activities .................. (15,020,425)
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Net decrease in cash ....................................... (723,985)
Cash at beginning of year .................................. 1,160,349
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Cash at end of year .................................... $ 436,364
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Supplemental disclosure of cash flow information:
Cash paid for interest on reverse repurchase
agreements ............................................. $ 3,787,419
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</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1996 Annual Report 10 American Select Portfolio
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Financial Statements (continued)
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STATEMENTS OF CHANGES IN NET ASSETS
..................................................................
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
11/30/96 11/30/95
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<S> <C> <C>
OPERATIONS:
Net investment income ...................................... $ 13,491,770 $ 14,558,098
Net realized gain (loss) on investments .................... 1,377,584 (13,470,555)
Net change in unrealized appreciation or depreciation of
investments .............................................. (3,340,191) 30,594,300
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Net increase in net assets resulting from operations ..... 11,529,163 31,681,843
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DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ................................. (14,375,036) (15,141,310)
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CAPITAL SHARE TRANSACTIONS:
Payments for retirement of 74,500 and 188,300 shares,
respectively (note 6) .................................... (818,039) (2,050,601)
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Total increase (decrease) in net assets .................. (3,663,912) 14,489,932
Net assets at beginning of year ............................ 171,842,920 157,352,988
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Net assets at end of year .................................. $168,179,008 $171,842,920
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Undistributed net investment income ........................ $ 1,649,628 $ 2,532,894
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</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1996 Annual Report 11 American Select Portfolio
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Notes to Financial Statements
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(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 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
SLA.
(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 of rental vacancy
rates at the multifamily property. Subjective
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1996 Annual Report 12 American Select Portfolio
<PAGE>
Notes to Financial Statements (continued)
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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 ask 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. Such valuations are determined using independent
pricing services or prices quoted by independent brokers.
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1996 Annual Report 13 American Select Portfolio
<PAGE>
Notes to Financial Statements (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 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 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
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1996 Annual Report 14 American Select Portfolio
<PAGE>
Notes to Financial Statements (continued)
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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 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 Annual Report 15 American Select Portfolio
<PAGE>
Notes to Financial Statements (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, no loans were considered by the fund to be
delinquent as to the timely monthly payment of principal and
interest. 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 no
real estate.
- ---------------------------------------------------------------------
1996 Annual Report 16 American Select Portfolio
<PAGE>
Notes to Financial Statements (continued)
- ---------------------------------------------------------------------
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-committment 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 year
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.
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
- ---------------------------------------------------------------------
1996 Annual Report 17 American Select Portfolio
<PAGE>
Notes to Financial Statements (continued)
- ---------------------------------------------------------------------
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.
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.
- ---------------------------------------------------------------------
1996 Annual Report 18 American Select Portfolio
<PAGE>
Notes to Financial Statements (continued)
- ---------------------------------------------------------------------
(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 0.50% of the fund's average weekly net assets.
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. 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 year
ended November 30, 1996 aggregated $68,344,066 and $71,873,183,
respectively. For the year ended November 30, 1996, no brokerage
commissions were paid to Piper Jaffray Inc., an affiliated
broker.
- ---------------------------------------------------------------------
1996 Annual Report 19 American Select Portfolio
<PAGE>
Notes to Financial Statements (continued)
- ---------------------------------------------------------------------
(5) CAPITAL LOSS CARRYOVER
................................................................................
For federal income tax purposes, the fund had capital loss
carryovers of $23,947,303 as of November 30, 1996, which, if not
offset by subsequent capital gains, will expire in 2002 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) 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 322,700
shares as of February 5, 1996, which represents 2.4% of the
shares originally issued.
(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 SLA 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 Annual Report 20 American Select Portfolio
<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>
Year Ended Year Ended Year Ended Period Ended
11/30/96 11/30/95 11/30/94 11/30/93(f)
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ........ $ 12.86 $ 11.62 $ 13.74 $ 14.07
----------- ----------- ----------- ------------
Operations:
Net investment income ..................... 1.02 1.09 1.22 0.22
Net realized and unrealized gain (loss) on
investments ............................. (0.14) 1.28 (2.21) (0.46)
----------- ----------- ----------- ------------
Total from operations ................... 0.88 2.37 (0.99) (0.24)
----------- ----------- ----------- ------------
Distributions to shareholders:
From net investment income ................ (1.08) (1.13) (1.13) (0.09)
----------- ----------- ----------- ------------
Net asset value, end of period .............. $ 12.66 $ 12.86 $ 11.62 $ 13.74
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Per-share market value, end of period ....... $ 11.00 $ 11.00 $ 10.38 $ 14.38
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
SELECTED INFORMATION
Total return, net asset value (a) ........... 7.27% 21.22% (7.48)% (1.75)%
Total return, market value (b) .............. 10.53% 17.36% (20.78)% (3.54)%
Net assets at end of period (in millions) ... $ 168 $ 172 $ 157 $ 187
Ratio of expenses to average weekly net
assets (c)(h) ............................. 1.03% 1.08% 1.12% 0.79%(g)
Ratio of net investment income to average
weekly net assets ......................... 8.11% 8.85% 9.61% 8.23%(g)
Portfolio turnover rate (excluding short-term
securities) ............................... 30% 73% 110% 9%
Amount of borrowings outstanding at end of
period (in millions) (d) .................. $ 65 $ 65 $ 65 $ --
Per-share amount of borrowings outstanding at
end of period ............................. $ 4.91 $ 4.87 $ 4.80 $ --
Per-share amount of net assets, excluding
borrowings, at end of period .............. $ 17.57 $ 17.73 $ 16.42 $ --
Asset coverage ratio (e) .................... 358% 364% 342% --
</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 0.02% AND 0.05% FROM FEDERAL EXCISE TAXES IN FISCAL YEARS 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 SEPTEMBER 21, 1993.
(G) ADJUSTED TO AN ANNUAL BASIS.
(H) THE RATIO OF EXPENSES TO AVERAGE WEEKLY NET ASSETS EXCLUDES INTEREST
EXEPENSE 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 3.30%, 3.76% AND 2.66% IN FISCAL 1996, 1995 AND 1994, RESPECTIVELY.
- ---------------------------------------------------------------------
1996 Annual Report 21 American Select Portfolio
<PAGE>
Investments in Securities
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN SELECT PORTFOLIO 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 (27.4%):
U.S. AGENCY MORTGAGE-BACKED SECURITIES (1.6%):
FIXED RATE (1.6%):
6.50%, FNMA, 1/1/11 ............................... $ 2,780,386 $ 2,764,621
-------------
U.S. GOVERNMENT SECURITIES (25.8%):
5.13%, U.S. Treasury Note, 4/30/98 ................ 43,500,000(b) 43,286,415
-------------
Total U.S. Government and Agency Securities
(cost: $46,155,035) .......................... 46,051,036
-------------
WHOLE LOANS (C,D,E) (105.1%):
COMMERCIAL LOANS (6.7%):
Advance Circuits and Hopkins II Business Center,
8.71%, 11/1/01 .................................. 3,400,000 3,453,720
Broadway Place, 9.00%, 6/1/01 ..................... 3,288,093 3,357,143
Community Coffee Office Building, 8.90%, 6/1/01 ... 4,340,187 4,394,874
-------------
11,205,737
-------------
MULTIFAMILY LOANS (98.4%):
Aldrich Apartments, 9.50%, 5/31/01 ................ 779,974 718,044
Allumbaugh Square Apartments, 9.50%, 4/1/99 ....... 1,751,664 1,798,784
Ashewood Apartments, 9.75%, 4/1/99 ................ 1,287,909 1,332,986
Autumn Chase Apartments, 9.93%, 5/1/09 ............ 2,774,285 2,605,053
Braesforest Apartments, 9.00%, 4/1/01 ............. 982,381 1,016,765
Brandywine II Apartments, 9.84%, 7/1/01 ........... 3,551,088 3,675,376
Brentwood Highlands Apartments, 8.63%, 4/1/01 ..... 4,408,111(b) 4,495,832
Bridge Court Apartments, 9.00%, 5/1/09 ............ 1,823,221 1,187,828
Bryant Square Apartments, 8.75%, 4/1/01 ........... 1,382,023 1,412,428
Candlelite Apartments, 8.75%, 3/1/01 .............. 1,526,849(b) 1,567,616
Cape Cod Apartments, 8.75%, 1/1/01 ................ 1,516,865 1,556,455
Cape Cod Apartments, 13.00%, 1/1/01 ............... 150,000 145,650
Casa Del Vista Apartments, 8.75%, 1/1/01 .......... 2,104,038 2,148,433
Castle Arms Apartments, 8.13%, 1/1/03 ............. 792,378 788,812
Centre Court Apartments, 8.75%, 1/1/01 ............ 1,158,544 1,188,434
Chapel Hill Apartments, 9.59%, 8/1/01 ............. 911,507 943,410
Chouteau Trace/Bay Apartments, 8.75%, 4/1/01 ...... 2,468,696(b) 2,522,266
Collegeview Apartments, 9.59%, 8/1/01 ............. 1,171,295 1,212,290
Collegeview Towers, 9.59%, 8/1/01 ................. 4,533,718 4,692,398
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1996 Annual Report 22 American Select Portfolio
<PAGE>
Investments in Securities (continued)
- ---------------------------------------------------------------------
AMERICAN SELECT PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ------------ -------------
<S> <C> <C>
Continental Gardens Apartments, 8.90%, 3/1/04 ..... $ 1,961,284(b) $ 2,028,752
Country Club Apartments, 8.75%, 1/1/01 ............ 2,055,107 2,108,745
Country Village Apartments, 8.75%, 4/1/01 ......... 1,328,571(b) 1,357,799
El Conquistador Apartments, 8.75%, 4/1/01 ......... 2,574,559(b) 2,644,072
El Portal Apartments, 9.75%, 7/1/01 ............... 2,293,198 2,373,460
Emerald Shores Apartments, 8.75%, 2/1/01 .......... 3,137,760(b) 3,220,597
Evergreen Square Apartments, 8.75%, 12/1/00 ....... 2,175,808 2,224,764
Fairway Hills Apartments, 8.50%, 12/1/98 .......... 1,637,426 1,653,800
Foothills West Apartments, 8.75%, 2/1/01 .......... 2,146,939(b) 2,204,262
Garcia Apartments, 9.75%, 6/1/01 .................. 1,379,677 1,427,966
Glen Hollow Apartments, 9.00%, 4/1/01 ............. 5,491,811(b) 5,684,973
Goose Creek Apartments, 9.38%, 5/1/01 ............. 3,178,950 3,290,213
Green Acres Apartments, 8.75%, 1/1/01 ............. 1,351,634(b) 1,379,748
Heritage Green Apartments, 8.75%, 3/1/01 .......... 1,404,483(b) 1,435,382
Hickory Ridge Apartments, 9.59%, 8/1/99 ........... 1,199,264 1,241,238
Hidden Colony Apartments, 9.00%, 4/1/01 ........... 3,278,877 3,393,638
High Vista Apartments, 9.00%, 4/1/01 .............. 4,196,767(b) 4,323,089
Hunters Meadows Apartments, 8.25%, 2/1/03 ......... 5,305,739 5,335,451
Kingston Square Apartments, 8.75%, 4/1/01 ......... 4,116,290 4,206,848
La Arboleda Apartments, 8.75%, 1/1/01 ............. 4,083,791 4,190,378
La Maison Apartments, 9.13%, 5/1/03 ............... 2,842,300 2,941,781
Lakeville Apartments, 8.50%, 2/1/99 ............... 2,201,236 2,223,909
Lasalle Crossing Apartments, 8.75%, 1/1/01 ........ 2,857,578(b) 2,932,160
Meadow Glen Apartments, 9.00%, 1/1/01 ............. 1,400,877 1,448,366
Meadow Glen Apartments, 13.00%, 1/1/01 ............ 224,900 232,771
Old Orchard Apartments, 8.75%, 12/1/00 ............ 9,829,885 10,087,646
Parc Du Lac Apartments, 8.50%, 2/1/99 ............. 5,254,443(b) 5,308,745
Park Apartments, 8.75%, 2/1/01 .................... 1,322,120(b) 1,357,024
Revere Apartments, 8.75%, 4/1/01 .................. 804,243(b) 825,958
Rush Creek Apartments, 9.35%, 4/1/99 .............. 2,539,578 2,607,131
Shadowood Apartments, 8.50%, 3/1/99 ............... 5,160,958(b) 5,243,354
Sherwood Lake Apartments, 9.59%, 8/1/01 ........... 2,394,601 1,958,305
Sierra Vista Apartments, 9.50%, 2/1/01 ............ 1,362,756(b) 1,410,453
Skyline Place Apartments, 8.75%, 4/1/01 ........... 4,315,451(b) 4,432,832
Somerset Place Apartments, 9.00%, 4/1/04 .......... 2,318,413 2,397,934
Sunset Rill Apartments, 9.60%, 5/1/99 ............. 3,055,092 3,162,020
Sunview Apartments, 8.88%, 2/1/01 ................. 1,823,145 1,886,955
The Oaks of Lake Bluff Apartments, 8.75%,
4/1/01 .......................................... 2,746,196(b) 2,820,344
Timber Forest Apartments, 8.75%, 2/1/01 ........... 1,175,223 1,200,373
Tralee Terrace Apartments, 10.13%, 5/1/09 ......... 2,070,421 1,286,353
Trinity Place Apartments, 8.75%, 4/1/01 ........... 603,619 529,193
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1996 Annual Report 23 American Select Portfolio
<PAGE>
Investments in Securities (continued)
- ---------------------------------------------------------------------
AMERICAN SELECT PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ------------ -------------
<S> <C> <C>
Waterford Apartments, 9.80%, 1/1/19 ............... $ 4,571,862(b) $ 4,114,676
White Oaks Apartments, 8.75%, 1/1/01 .............. 820,635 837,704
Willow Brooke Apartments, 8.75%, 4/1/01 ........... 4,781,324(b) 4,886,513
Willow Creek Apartments, 9.00%, 1/1/01 ............ 3,737,304 3,863,998
Willow Creek Apartments, 13.00%, 1/1/01 ........... 999,555 1,034,539
Willows Apartments, 9.60%, 6/1/01 ................. 3,546,595 3,670,728
-------------
165,435,800
-------------
SINGLE FAMILY LOANS (0.0%):
President Homes 94-1B, Sales Inventory, 8.25%,
3/29/24 ......................................... 93,538 92,706
-------------
Total Whole Loans
(cost: $173,914,596) ......................... 176,734,243
-------------
SHORT-TERM SECURITIES (5.4%):
Repurchase agreement with Goldman Sachs acquired on
11/29/96, accrued interest of $4,250, 5.64%,
12/2/96
(cost: $9,043,000) .............................. 9,043,000(f) 9,043,000
-------------
Total Investments in Securities
(cost: $229,112,631)(g) ...................... $ 231,828,279
-------------
-------------
</TABLE>
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 $106,995,137 WERE PLEDGED AS
COLLATERAL FOR THE FOLLOWING OUTSTANDING REVERSE REPURCHASE AGREEMENTS:
<TABLE>
<CAPTION>
NAME OF BROKER
ACQUISITION ACCRUED AND DESCRIPTION
AMOUNT DATE RATE* DUE INTEREST OF COLLATERAL
- ------------ ---------- --------- ---------- --------- -------------------
<S> <C> <C> <C> <C> <C>
$ 40,000,000 3/15/96 5.38% 3/17/97 $ 95,556 (1)
18,500,000 3/15/96 6.38% 3/14/97 52,417 (2)
2,000,000 4/23/96 6.38% 3/17/97 5,667 (2)
1,500,000 5/15/96 6.38% 3/12/97 4,250 (2)
750,000 5/30/96 6.38% 3/17/97 2,125 (2)
2,500,000 11/15/96 6.38% 3/17/97 7,082 (2)
- ------------ ---------
$ 65,250,000 $ 167,097
- ------------ ---------
- ------------ ---------
</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) MORGAN; U.S. TREASURY NOTE, 5.13%, 4/30/98, $41,000,000 PAR
- ---------------------------------------------------------------------
1996 Annual Report 24 American Select Portfolio
<PAGE>
Investments in Securities (continued)
- ---------------------------------------------------------------------
<TABLE>
<S> <C>
(2) MORGAN; BRENTWOOD HIGHLANDS APARTMENTS, 8.63%, 4/1/01, $4,408,111
PAR
CANDLELITE APARTMENTS, 8.75%, 3/1/01, $1,526,849 PAR
CHOUTEAU TRACE/BAY APARTMENTS, 8.75%, 4/1/01, $2,468,696 PAR
CONTINENTAL GARDENS APARTMENTS, 8.90%, 3/1/04, $1,961,284 PAR
COUNTRY VILLAGE APARTMENTS, 8.75%, 4/1/01, $1,328,571 PAR
EL CONQUISTADOR APARTMENTS, 8.75%, 4/1/01, $2,574,559 PAR
EMERALD SHORES APARTMENTS, 8.75%, 2/1/01, $3,137,760 PAR
FOOTHILLS WEST APARTMENTS, 8.75%, 2/1/01, $2,146,939 PAR
GLEN HOLLOW APARTMENTS, 9.00%, 4/1/01, $5,491,811 PAR
GREEN ACRES APARTMENTS, 8.75%, 1/1/01, $1,351,634 PAR
HERITAGE GREEN APARTMENTS, 8.75%, 3/1/01, $1,404,483 PAR
HIGH VISTA APARTMENTS, 9.00%, 4/1/01, $4,196,767 PAR
LASALLE CROSSING APARTMENTS, 8.75%, 1/1/01, $2,857,578 PAR
PARC DU LAC APARTMENTS, 8.50%, 2/1/99, $5,254,443 PAR
PARK APARTMENTS, 8.75%, 2/1/01, $1,322,120 PAR
REVERE APARTMENTS, 8.75%, 4/1/01, $804,243 PAR
SHADOWOOD APARTMENTS, 8.50%, 3/1/99, $5,160,958 PAR
SIERRA VISTA APARTMENTS, 9.50%, 2/1/01, $1,362,756 PAR
SKYLINE PLACE APARTMENTS, 8.75%, 4/1/01, $4,315,451 PAR
THE OAKS OF LAKE BLUFF APARTMENTS, 8.75%, 4/1/01, $2,746,196 PAR
WATERFORD APARTMENTS, 9.80%, 1/1/19, $4,571,862 PAR
WILLOW BROOKE APARTMENTS, 8.75%, 4/1/01, $4,781,324 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.
</TABLE>
COMMERCIAL LOANS:
ADVANCE CIRCUITS AND HOPKINS II BUSINESS CENTER - HOPKINS, MN
BROADWAY PLACE - ALBUQUERQUE, NM
COMMUNITY COFFEE OFFICE BUILDING - BATON ROUGE, LA
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
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
CASTLE ARMS APARTMENTS - AUSTIN, TX
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
- ---------------------------------------------------------------------
1996 Annual Report 25 American Select Portfolio
<PAGE>
Investments in Securities (continued)
- ---------------------------------------------------------------------
<TABLE>
<S> <C> <C>
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
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
HERITAGE GREEN APARTMENTS - NEWARK, OH
HICKORY RIDGE APARTMENTS - HOPKINSVILLE, TN
HIDDEN COLONY APARTMENTS - DORAVILLE, GA
HIGH VISTA APARTMENTS - EL PASO, TX
HUNTERS MEADOWS APARTMENTS - COLORADO SPRINGS, CO
KINGSTON SQUARE APARTMENTS - KNOXVILLE, TN
LA ARBOLEDA APARTMENTS - SAN ANTONIO, TX
LA MAISON APARTMENTS - SEABROOK, TX
LAKEVILLE APARTMENTS - LAKEVILLE, MN
LASALLE CROSSING APARTMENTS - SHERMAN, TX
MEADOW GLEN APARTMENTS - MIDWEST CITY, OK
OLD ORCHARD APARTMENTS - GRAND RAPIDS, MI
PARC DU LAC APARTMENTS - NEW ORLEANS, LA
PARK APARTMENTS - COLORADO SPRINGS, CO
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
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
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
</TABLE>
SINGLE FAMILY LOANS:
PRESIDENT HOMES, SALES INVENTORY - 1 LOAN, MIDWESTERN 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.
- ---------------------------------------------------------------------
1996 Annual Report 26 American Select Portfolio
<PAGE>
Investments in Securities (continued)
- ---------------------------------------------------------------------
<TABLE>
<S> <C> <C>
(G) ON NOVEMBER 30, 1996, THE COST OF INVESTMENTS IN SECURITIES FOR FEDERAL
INCOME TAX PURPOSES WAS $229,112,631. 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 ...... $ 5,303,909
GROSS UNREALIZED DEPRECIATION ...... (2,588,261)
------------
NET UNREALIZED APPRECIATION ...... $ 2,715,648
------------
------------
</TABLE>
- ---------------------------------------------------------------------
1996 Annual Report 27 American Select Portfolio
<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, 1996, 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 then ended and the financial highlights for the
periods presented in note 8 to the financial statements. 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, 1996, and the results of its
operations and cash flows, the changes in its net assets and the financial
highlights for the periods stated in the first paragraph above, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 10, 1997
- ---------------------------------------------------------------------
1996 Annual Report 28 American Select Portfolio
<PAGE>
Federal Income Tax Information
- ----------------------------------------
The following per-share information describes the federal tax
treatment of distributions made during the fiscal year.
Distributions for the calendar year will be reported to you on
Form 1099-DIV. Please consult a tax adviser on how to report
these distributions at the state and local levels.
INCOME DISTRIBUTIONS (TAXABLE AS ORDINARY DIVIDENDS, NONE
QUALIFYING FOR DEDUCTION BY CORPORATIONS)
<TABLE>
<CAPTION>
PAYABLE DATE AMOUNT
- --------------------------------------------- ---------
<S> <C>
December 27, 1995 ........................... $ 0.09375
January 11, 1996 ............................ 0.09375
February 21, 1996 ........................... 0.09375
March 27, 1996 .............................. 0.09375
April 24, 1996 .............................. 0.09375
May 29, 1996 ................................ 0.09375
June 26, 1996 ............................... 0.09375
July 24, 1996 ............................... 0.08500
August 28, 1996 ............................. 0.08500
September 25, 1996 .......................... 0.08500
October 23, 1996 ............................ 0.08500
November 27, 1996 ........................... 0.08500
---------
Total ................................... $ 1.08125
---------
---------
</TABLE>
- ---------------------------------------------------------------------
1996 Annual Report 29 American Select Portfolio
<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 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 directors:
<TABLE>
<CAPTION>
SHARES
SHARES WITHHOLDING
VOTED AUTHORITY TO
"FOR" VOTE
---------- ------------
<S> <C> <C>
David T. Bennett ......................... 12,381,279 437,361
Jaye F. Dyer ............................. 12,375,362 443,278
William H. Ellis ......................... 12,371,396 447,244
Karol D. Emmerich ........................ 12,379,091 439,549
Luella G. Goldberg ....................... 12,376,642 441,998
George Latimer ........................... 12,370,449 448,191
</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 ending November
30, 1996. The following votes were cast regarding this
matter:
<TABLE>
<CAPTION>
SHARES
SHARES VOTED VOTED BROKER
"FOR" "AGAINST" ABSTENTIONS NON-VOTES
------------ --------- ----------- ---------
<S> <C> <C> <C>
12,432,981 205,699 179,960 --
</TABLE>
TERMS AND CONDITIONS OF THE DIVIDEND REINVESTMENT PLAN
As a shareholder, you may choose to participate in the Dividend
Reinvestment Plan. It's 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.
- ---------------------------------------------------------------------
1996 Annual Report 30 American Select Portfolio
<PAGE>
Shareholder Update (continued)
- ---------------------------------------------------------------------
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 gains 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 5 business days before the dividend
payment date, IFTC will buy shares of the fund on the New York
Stock Exchange (NYSE) 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
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
- ---------------------------------------------------------------------
1996 Annual Report 31 American Select Portfolio
<PAGE>
Shareholder Update (continued)
- ---------------------------------------------------------------------
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 invested 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
- ---------------------------------------------------------------------
1996 Annual Report 32 American Select Portfolio
<PAGE>
Shareholder Update (continued)
- ---------------------------------------------------------------------
instructions to your investment professional. Written
instructions should include your name and address as they appear
on the certificate or account.
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 issued 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 question 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.
- ---------------------------------------------------------------------
1996 Annual Report 33 American Select Portfolio
<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
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
4200 NORWEST CENTER, MINNEAPOLIS, MN 55402
- ---------------------------------------------------------------------
1996 Annual Report 34 American Select Portfolio
<PAGE>
GLOSSARY OF TERMS ***
- --------------------------------------------------------------------------------
DISCOUNT
Closed-end funds 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 Annual Report 35 American Select Portfolio
<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:
32 American Select Portfolio
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.
36
<PAGE>
[LOGO]
PIPER CAPITAL MANAGEMENT INCORPORATED
222 SOUTH NINTH STREET
MINNEAPLOIS, MN 55402-3804
[LOGO] THIS DOCUMENT IS PRINTED ON PAPER MADE FROM
100% TOTAL RECOVERED FIBER, INCLUDING 15% POST-CONSUMER WASTE.
#11540 1/1997 060-97
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STAPLES
