<PAGE>
[PHOTO]
AMERICAN STRATEGIC
[PHOTO]
INCOME PORTFOLIO
* * *
SEMIANNUAL REPORT
[PHOTO]
1995
[PHOTO]
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TABLE OF CONTENTS
AMERICAN STRATEGIC INCOME PORTFOLIO
American Strategic Income Portfolio is a diversified, closed-end
management investment company. The fund's primary objective is to
provide a high level of current income, and 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
derivative securities and mortgage servicing rights. The fund may
also borrow by entering into reverse repurchase agreements and may
purchase securities through the sale-forward (dollar-roll) program.
Use of these investments and investment techniques may cause the
fund's net asset value (NAV) 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. Since the fund's inception, December 27, 1991, it has
been rated A-F by Standard & Poor's Corporation (S&P).* Fund shares
trade on the New York Stock Exchange under the symbol ASP.
<TABLE>
<S> <C>
FUND PERFORMANCE.................1
LETTER TO SHAREHOLDERS...........2
FINANCIAL STATEMENTS AND NOTES...9
INVESTMENTS IN SECURITIES.......23
SHAREHOLDER UPDATE..............28
</TABLE>
*THE FUND IS RATED A-F, WHICH MEANS INVESTMENTS IN THE FUND HAVE AN
OVERALL CREDIT QUALITY OF A. 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 A.
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>
FUND PERFORMANCE
AVERAGE ANNUALIZED TOTAL RETURNS FOR THE PERIODS ENDED MAY 31, 1995
[BAR GRAPH]
The average annual total returns for American Strategic Income 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.
Average annual total returns based on the change in market price for the
one-year and since inception periods ended May 31, 1995, were 0.81% and 4.58%,
respectively. These figures assume reinvestment of all 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 figure.
The Lipper Closed-End U.S. Mortgage Funds Average represents the average total
return, with distributions reinvested, of similar closed-end mutual funds as
characterized by Lipper Analytical Services.
Past performance does not guarantee future results. The return and principal
value of your investment will fluctuate so that shares, when sold, may be worth
more or less than their original cost.
1
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AMERICAN STRATEGIC INCOME PORTFOLIO
July 10, 1995
[PHOTO OF MIKE JANSEN]
Mike Jansen, (above) IS PRIMARILY RESPONSIBLE FOR THE MANAGEMENT OF AMERICAN
STRATEGIC INCOME PORTFOLIO. HE HAS 14 YEARS OF FINANCIAL EXPERIENCE.
Kevin Jansen, (below) ASSISTS WITH THE MANAGEMENT OF AMERICAN STRATEGIC
INCOME PORTFOLIO. HE HAS SEVEN YEARS OF FINANCIAL EXPERIENCE.
[PHOTO OF KEVIN JANSEN]
Dear Shareholders:
LONG-TERM INTEREST RATES HAVE COME DOWN CONSIDERABLY SINCE THE END OF LAST YEAR,
PROMPTED BY A SLOWDOWN IN U.S. ECONOMIC GROWTH AND LOW TO MODERATE INFLATION.
Due to declining interest rates, American Strategic Income Portfolio's net asset
value (NAV) return has been favorable for the six-month period ended May 31,
1995, at 12.35%. The fund's market price return for that period, however, was
2.99%.* (All returns include reinvested distributions and do not include sales
charges.) I am disappointed that the market price has not kept pace with the
fund's improvement in NAV. I believe this is due to the fun's erratic
performance over the past year, which was largely related to the fund's holdings
of mortgage-backed derivative securities. For performance comparison purposes
during the six-month period ended May 31, 1995, the Lehman Brothers Mutual Fund
Government/Mortgage Index return was 11.01% and the Lipper Closed-End U.S.
Mortgage Funds Average return was 13.39%.
AS I MENTIONED IN LAST JANUARY'S ANNUAL REPORT, WE HAVE REDUCED THE INTEREST
RATE SENSITIVITY OF THE FUND. To do so, we suspended the sale-forward program,
reduced the amount of borrowing and allowed some of the fund's mortgage-backed
derivatives to pay off. We redirected these investments into mortgage loans and
Treasury securities, investments that should be less sensitive to changes in
interest rates.
*PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE RETURN AND PRINCIPAL
VALUE OF YOUR INVESTMENT WILL FLUCTUATE SO THAT SHARES, WHEN SOLD, MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST.
2
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AMERICAN STRATEGIC INCOME PORTFOLIO
TO PROVIDE GREATER NAV AND INCOME STABILITY, WE RECENTLY SOLD MOST OF THE
PORTFOLIO'S MORTGAGE-BACKED DERIVATIVE SECURITIES. While there is no definition
for derivatives that is universally agreed upon, as of June 30 the fund no
longer owned any inverse floaters, principal-only strips, interest-only strips,
inverse interest-only securities or Z-bonds. (Please note that the portfolio
composition at left is as of May 31.) The fund still holds some subordinated
mortgage-backed securities which, although are referred to as derivatives in the
fund's prospectus, are not typically considered derivatives in the securities
market nor are they perceived by us to have the same volatility characteristics
as the derivative securities we sold. We currently do not intend to sell these
subordinated bonds and may make additional investments in these securities in
the future. While the derivative securities we sold offer potentially greater
income than more traditional mortgage securities, their prices and income can
also be much more volatile, as we experienced in 1994. The prices of ASP's
mortgage-backed derivative securities dropped significantly last year and
accounted for a disproportionate share of the fund's poor performance during
1994. This year, the prices of these derivative securities improved in response
to the recovery of the bond market. Yet the income from some of these
securities, such as the inverse floaters, declined. Consequently, we selectively
sold these derivatives at improved prices and invested the proceeds into
mortgage loans.
PORTFOLIO COMPOSITION
MAY 31, 1995
[PIE CHART]
3
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AMERICAN STRATEGIC INCOME PORTFOLIO
LOWER PORTFOLIO EARNINGS HAVE CAUSED THE FUND TO RELY ON ITS DIVIDEND RESERVE TO
PAY ITS 12.5 CENTS PER SHARE MONTHLY DIVIDEND. On June 30, the fund's monthly
earnings were approximately 9.2 cents per share, and its accumulated
undistributed net investment income (dividend reserve) remained quite large at
approximately 76 cents per share. The dividend reserve should continue to
decline in the coming months since we believe portfolio earnings will remain at
approximately the current level in the near term. In the future, we intend to
maintain a small dividend reserve in the fund. So as the reserve declines, the
fund's dividend committee will make gradual changes to the dividend to bring it
in line with the fund's earnings. Once the dividend reserve reaches our targeted
range, the dividend committee will set a dividend level that it believes is
sustainable, given the fund's income level at that time. Of course, the dividend
is not fixed and may fluctuate. Keep in mind that any reduction in the dividend
reserve reduces the fund's NAV penny for penny.
NET ASSET VALUE SUMMARY
DECEMBER 27, 1991, TO MAY 31, 1995
<TABLE>
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Initial Offering Price (12/27/91)........ $15.00
Initial Offering and
Underwriting Expenses....................($1.02)
Accumulated
Realized Losses (5/31/95)................($1.79)
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Subtotal................................. $12.19
Undistributed Net
Investment Income/
Dividend Reserve (5/31/95).................$0.80
Unrealized Appreciation
on Investments (5/31/95)...................$0.40
-------
NET ASSET VALUE (5/31/95)................$13.39
</TABLE>
ALTHOUGH THE DERIVATIVE SECURITIES WE SOLD WERE AT IMPROVED PRICES, WE REALIZED
LOSSES THAT MAY KEEP THE FUND FROM RETURNING TO ITS NAV LEVELS OF EARLY LAST
YEAR. We are currently managing significantly less per share from ASP's original
offering price of $15, due to the fund's realized losses since inception and its
initial offering and underwriting expenses. (See chart at left.) While the NAV
could one day return to the $14 to $15 range, it would most likely take many
years because of the fund's realized losses. Even though the NAV of the fund had
improved to $13.39 on May 31, 1995, from a low of $12.28 on February 2, 1995,
you should not expect future increases, should they occur, to be as significant.
4
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AMERICAN STRATEGIC INCOME PORTFOLIO
WE DO NOT PLAN TO INVEST IN INVERSE FLOATERS, PRINCIPAL-ONLY STRIPS,
INTEREST-ONLY STRIPS, INVERSE INTEREST-ONLY SECURITIES OR Z-BONDS IN THE FUTURE.
We intend to focus our efforts on mortgage loans, which have consistently
performed well for the fund. Also, we do not have any immediate plans to
reinstate the sale-forward (dollar-roll) program. In the event that we will
again invest in these types of mortgage-backed derivatives or reinstate the
sale-forward program, we will notify you in advance.
DISTRIBUTION HISTORY
SINCE INCEPTION (DECEMBER 1991) THROUGH
MAY 31, 1995
<TABLE>
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Monthly Income
Dividends Paid.................................40
Total Monthly
Income Dividends............................$4.53
Capital Gains
Distributions Paid..............................2
Total Capital
Gains Distributions.........................$0.20
Total Distributions
Per Share...................................$4.73
</TABLE>
GOING FORWARD, THE FUND'S INVESTMENTS WILL BE MORE FOCUSED ON MORTGAGE LOANS AND
TREASURY SECURITIES. As of the end of June, 33% of the fund's total assets were
invested in single family (home) loans, 22% in multifamily (apartment) loans, 6%
in private mortgage-backed securities and 31% in Treasuries. Our current
strategy is to eventually have approximately 80% invested in mortgage loans and
private mortgage-backed securities, and 20% in Treasury securities. We will
continue to use borrowing in the fund through reverse repurchase agreements,
which as of June 30 accounted for 17% of the fund's total assets, and invest the
proceeds in Treasury securities. Keep in mind that while borrowing can
potentially increase the fund's income, it can also increase the fund's NAV
volatility, which can in turn be reflected in the fund's market price.
OUR STRATEGY FOR INVESTING IN MORTGAGE LOANS REMAINS THE SAME. We purchase pools
of home loans from mortgage lending organizations at a discount from their face
values. We also purchase apartment loans and may purchase commercial loans that
meet our strict underwriting standards.
5
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AMERICAN STRATEGIC INCOME PORTFOLIO
Because we assume and manage the real estate risk of these loans and purchase
many of them at discounts, the potential yields from these investments are
typically much greater than those offered by securities backed by mortgages,
which frequently are guaranteed or backed by a letter of credit.
WE CAN BUY HOME LOANS AT A DISCOUNT FOR A NUMBER OF REASONS. Lenders find it
difficult to sell loans that do not conform to industry standards. For example,
many buyers will not purchase loans that have missing loan documents, unusual
loan terms, delinquent payments or loans in bankruptcy or foreclosure. Unlike
many buyers, we agree to purchase loan pools that may include such mortgages.
Based on our credit analysis, we purchase these mortgages below what we believe
to be the market value of the home backing the mortgage. For example, a loan
with delinquent payments will typically be purchased at a deep discount to our
estimated market value because of its greater potential for default. If we
purchase the mortgage loans at an appropriate price, mortgage defaults will not
have a negative impact on the fund. Of course, depending on the purchase price
of the loan, we could recognize losses.
WE ALSO BUY APARTMENT LOANS AND MAY PURCHASE COMMERCIAL LOANS. These loans are
purchased at a level where we believe the property value exceeds the mortgage
amount by a wide margin. We also require borrowers to have a significant amount
of their own money (equity) at risk. Any losses from these loans will first go
against the borrowers' investment (equity), which helps limit our risk with
these investments.
NOW THAT WE ARE FOCUSING EVEN MORE ON MORTGAGE LOANS, WE BELIEVE THE FUND'S
PRIMARY RISKS ARE CREDIT RISK AND THE OTHER RISKS ASSOCIATED WITH INVESTMENTS
IN REAL ESTATE. By selling most of the fund's mortgage-backed derivative
securities, the fund has less market risk (the risk associated with changes
in interest rates). But because most of the mortgages we purchase are not
backed by the U.S. government or
6
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AMERICAN STRATEGIC INCOME PORTFOLIO
one of its agencies, they are subject to credit risk or the risk of failure to
make payments. Apart from credit risk, these mortgages are also subject to
property risk (physical condition and value of the property), prepayment risk
(the risk that mortgages will be prepaid and the proceeds will have to be
invested in lower-yielding loans), and the legal risks associated with holding
any mortgage. Part of our strategy to manage the real estate risks of our
home loans is to purchase mortgages located throughout the country, which
helps reduce the potential impact of a regional economic recession or natural
disaster. Many of the home loans we purchase are older mortgages secured by
smaller homes. These loans usually have an established history of timely
payments and are less likely to be delinquent, and the homeowners have often
built up a considerable amount of equity. We also purchase home loans on
which the borrowers have not made all of their mortgage payments on time, if
we can obtain the loans at a price that we believe compensates us for the
higher risk for default. We believe there are good opportunities to invest in
these types of loans because many potential buyers are unwilling to buy
delinquent loans. Consequently, we have increased the percentage of
delinquent loans in the fund over the past year. As part of our home loan
risk analysis, we also review the loan's legal documents, review the
borrower's mortgage payment history, assess the local market, and assess the
property value. We perform a drive-by assessment of the property or we have a
local real estate agent do the assessment for us when it is difficult or
impossible for us to perform the assessment ourselves.
AS PART OF OUR RISK MANAGEMENT STRATEGY FOR OUR APARTMENT AND COMMERCIAL LOANS,
WE PERFORM A DETAILED INSPECTION OF EACH PROPERTY; STUDY THE COMPETING
PROPERTIES IN THE AREA; INTERVIEW THE PROPERTY MANAGER; AND OBTAIN ENGINEERING
AND ENVIRONMENTAL REPORTS FROM EXPERTS. While we focus on smaller apartment and
commercial loans, these loans are still much larger than the fund's home loans.
As a result, defaults on our apartment and
7
<PAGE>
AMERICAN STRATEGIC INCOME PORTFOLIO
commercial loans could have a much greater impact on the fund than defaults
on our home loans. Our extensive risk analysis has helped keep the fund's
realized net losses from home mortgage foreclosures and write-offs to a
minimum (less than one cent per share since the fund's inception through May
31). We have not suffered any realized losses on our apartment or commercial
loans.
THE CREDITWORTHINESS OF THE FUND'S LOANS ARE ANALYZED BY STANDARD & POOR'S
CORPORATION (S&P), WHICH ISSUES A CREDIT RATING FOR THE FUND'S ENTIRE PORTFOLIO.
The final step of our risk analysis is a credit rating by S&P. Each quarter we
submit a report of the fund's loans to S&P for review. Since its inception in
December 1991, ASP has maintained a credit rating of A-F. Keep in mind that S&P
does not evaluate the market risk of an investment when assigning a credit
rating.
NOW THAT THE FUND IS FOCUSING EVEN MORE ON MORTGAGE LOANS, I BELIEVE IT WILL BE
LESS VOLATILE AND EARN MORE CONSISTENT INCOME LEVELS THAN IN THE PAST. I hope
this will attract more buyers to the fund and help narrow the current gap
between the NAV and market price. Going forward, we intend to follow the
investment strategy we have implemented during the past few months. If you have
questions about your investment in American Strategic Income Portfolio, don't
hesitate to contact your investment professional.
Sincerely,
/s/ MIKE JANSEN
Mike Jansen
Portfolio Manager
8
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FINANCIAL STATEMENTS (UNAUDITED)
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (note 2)
(including a repurchase agreement of $2,778,000) ....... $ 83,514,958
Real estate owned (identified cost: $2,428,212) (note
2) ..................................................... 1,557,100
Cash in bank on demand deposit ........................... 533,197
Accrued interest receivable .............................. 950,425
----------------
Total assets ......................................... 86,555,680
----------------
LIABILITIES:
Open option contracts written at market value (premium
received of $132,500) (note 5) ......................... 305,000
Reverse repurchase agreements payable .................... 15,000,000
Payable for fund shares retired .......................... 8,698
Accrued investment management fee ........................ 36,987
Accrued administrative fee ............................... 11,924
Accrued interest ......................................... 50,168
Other accrued expenses ................................... 143
----------------
Total liabilities .................................... 15,412,920
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Net assets applicable to outstanding capital stock ....... $ 71,142,760
----------------
----------------
REPRESENTED BY:
Capital stock - authorized 1 billion shares of $0.01 par
value; outstanding, 5,313,421 shares ................. $ 53,134
Additional paid-in capital ............................... 74,128,355
Undistributed net investment income ...................... 4,252,509
Accumulated net realized loss on investments ............. (9,424,119)
Unrealized appreciation of investments ................... 2,132,881
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Total - representing net assets applicable to
outstanding capital stock ........................ $ 71,142,760
----------------
----------------
Net asset value per share of outstanding capital stock ... $ 13.39
----------------
----------------
* Investments in securities at identified cost ........... $ 80,338,465
----------------
----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
9
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FINANCIAL STATEMENTS (UNAUDITED)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MAY 31, 1995
<TABLE>
<S> <C>
INCOME:
Interest (net of interest expense of $604,283) ......... $ 3,612,942
----------------
EXPENSES (NOTE 3):
Investment management fee ................................ 227,627
Administrative fee ....................................... 67,777
Custodian, accounting and transfer agent fees ............ 117,131
Reports to shareholders .................................. 14,142
Mortgage servicing fees .................................. 87,895
Directors' fees .......................................... 5,832
Audit and legal fees ..................................... 36,276
Federal excise taxes (note 2) ............................ 6,035
Other expenses ........................................... 28,083
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Total expenses ....................................... 590,798
----------------
Net investment income ................................ 3,022,144
----------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized loss on investments (note 4) ................ (7,994,436)
Net realized loss on closed or expired option contracts
written (note 5) ....................................... (789,316)
----------------
Net realized loss on investments ....................... (8,783,752)
Net change in unrealized appreciation or depreciation of
investments ............................................ 13,806,777
----------------
Net gain on investments ................................ 5,023,025
----------------
Net increase in net assets resulting from
operations ....................................... $ 8,045,169
----------------
----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
10
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FINANCIAL STATEMENTS (UNAUDITED)
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MAY 31, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest income ........................................ $ 3,612,942
Expenses ................................................. (590,798)
----------------
Net investment income ................................ 3,022,144
----------------
Adjustments to reconcile net investment income to net cash
provided by operating activities:
Change in accrued interest receivable .................. 25,492
Net amortization of bond discount and premium .......... (87,210)
Change in accrued fees and expenses .................... (222,091)
----------------
Total adjustments .................................... (283,809)
----------------
Net cash provided by operating activities ............ 2,738,335
----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments ....................... 54,818,338
Purchases of investments ................................. (37,607,436)
Net purchases of short-term securities ................... (2,190,000)
Net premiums paid for option contracts written ........... (853,457)
----------------
Net cash provided by investing activites ............. 14,167,445
----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments for reverse repurchase agreements ........... (12,500,000)
Distributions paid to shareholders ....................... (3,993,729)
Retirement of fund shares ................................ (193,363)
----------------
Net cash used by financing activities ................ (16,687,092)
----------------
Net increase in cash ....................................... 218,688
Cash at beginning of period ................................ 314,509
----------------
Cash at end of period .................................... $ 533,197
----------------
----------------
Supplemental disclosure of cash flow information:
Cash paid for interest on reverse
repurchase agreements ................................ $ 637,992
----------------
----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
11
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FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended 5/31/95 Year Ended
(Unaudited) 11/30/94
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income .................................. $ 3,022,144 7,535,718
Net realized loss on investments ......................... (8,783,752) (640,366)
Net change in unrealized appreciation or depreciation of
investments ............................................ 13,806,777 (16,574,443)
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations ........................................... 8,045,169 (9,679,091)
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ............................... (3,993,729) (6,159,085)
From net realized gains .................................. -- (1,052,194)
---------------- ----------------
Total distributions .................................... (3,993,729) (7,211,279)
---------------- ----------------
CAPITAL SHARE TRANSACTIONS:
Payments for retirement of 14,900 and 14,100 shares,
respectively (note 7) .................................. (185,583) (170,705)
---------------- ----------------
Total increase (decrease) in net assets .............. 3,865,857 (17,061,075)
Net assets at beginning of period .......................... 67,276,903 84,337,978
---------------- ----------------
Net assets at end of period .............................. $ 71,142,760 67,276,903
---------------- ----------------
---------------- ----------------
Undistributed net investment income ...................... $ 4,252,509 5,224,094
---------------- ----------------
---------------- ----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
12
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(1) ORGANIZATION
American Strategic Income 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 commenced operations on December 27, 1991, 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
ASP.
(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 age of the underlying mortgages, the
historical payment record thereon, 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 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 are determined using
pricing services or prices quoted by independent brokers.
Exchange-listed options are valued at the last sales price and
open financial futures contracts are valued at the last
settlement price. When
13
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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
may 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
14
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 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
15
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
due to or owed by the fund. Interest rate swaps, caps and floors
are valued from prices quoted by independent brokers. These
valuations represent the present value of all future cash
settlement amounts based upon 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,
individual loans underlying whole loans and participation
mortgages may be larger than those underlying mortgage-backed
securities. At May 31, 1995, loans representing % of net
assets 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 as of the date the
borrower went into default, 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 May 31, 1995, the fund owned four homes
with an aggregate value of $1,557,100, or 2% of net assets. The
fund recognized net realized losses of $5,074 on real estate
sold during the six months ended May 31, 1995. Additionally,
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 upon the cooperation of
the other participation holders.
MORTGAGE SERVICING RIGHTS
The fund may acquire interests in the cash flow from servicing
fees through contractual arrangements with mortgage servicers.
In no event will the fund actually service mortgages, be the
mortgage servicer of record, or enter into any arrangement
pursuant to which
16
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
the fund could be liable to third parties in the event the
mortgage servicer defaulted on its obligations. Mortgage
servicing rights, similar to interest-only securities, generate
no further cash flow when a mortgage is prepaid or goes into
default. Mortgage servicing rights are accounted for on a
level-yield basis with recognized income based on the estimated
amounts and timing of cash flows. Such estimates are adjusted
periodically as the underlying market conditions change.
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
May 31, 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 six months ended May
31, 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 $6,035, or $0.001 per share, on income retained by the
fund during the excise tax year ended December 31, 1994.
17
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Net investment income and net realized gains (losses) may differ
for financial statement and tax purposes primarily because of
losses deferred due to "wash sale" and "straddle" transactions,
the timing of recognition of income on certain interest-only and
principal-only securities and the non-deductibility of excise
tax payments made. The character of distributions made during
the year from net investment income or net realized gains may
therefore 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.
DISTRIBUTIONS
The fund pays monthly distributions from net investment income,
and 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. However, if the market price plus commission exceeds the
net asset value by 5% or more, 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.
18
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(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 the sum
of an annualized rate of 0.20% of the fund's average weekly net
assets and 4.5% of the daily gross income accrued by the fund
during the month (i.e., investment income, including
amortization of discount and premium, other than gains from the
sale of securities or gains received from options and futures
contracts, less interest on money borrowed by the fund). Such
monthly management fee shall not exceed in the aggregate 1/12 of
0.725% of the fund's average weekly net assets during the month
(approximately 0.725% on an annual basis). For its fee, the
adviser will provide investment advice and, in general, will
conduct 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 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, insurance, interest, fees to
outside parties retained to assist in conducting due diligence,
taxes, and other miscellaneous expenses.
19
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(4) SECURITIES
TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other
than short-term securities) aggregated $37,694,646 and
$54,818,338, respectively, for the six months ended May 31,
1995.
(5) OPTION
CONTRACTS
WRITTEN
The number of contracts and premium amounts associated with call
option contracts written during the six months ended May 31,
1995, were as follows:
<TABLE>
<CAPTION>
Call Options
--------------------------
Number of Premium
Contracts Amount
------------- -----------
<S> <C> <C>
Balance at 11/30/94........................ 360 $ 196,641
Opened................................... 1,255 1,200,254
Closed or expired........................ (1,280) (1,040,176)
Exercised................................ (175) (224,219)
------ -----------
Balance at 5/31/95......................... 160 $ 132,500
------ -----------
------ -----------
</TABLE>
(6) CAPITAL LOSS
CARRYOVER
For federal income tax purposes, the fund had capital loss
carryover of $640,367 on November 30, 1994, which if not offset
by subsequent capital gains, will expire in 2002. 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.
(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 every six months and may
change the amount which may be repurchased. The plan was last
reviewed and reapproved by the board of directors on May 19,
1995. Pursuant to the plan, the fund has cumulatively
repurchased and retired 29,000 shares as of May 31, 1995, which
represents 0.56% of the shares originally issued.
20
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(8) FINANCIAL
HIGHLIGHTS
Per-share data for a share of capital stock outstanding
throughout each period and selected information for each period
are as follows:
<TABLE>
<CAPTION>
Six Months Year Year Period from
Ended 5/31/95 Ended Ended 12/27/91* to
(Unaudited) 11/30/94 11/30/93 11/30/92
------------- -------- -------- -------------
<S> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ........... $ 12.63 15.79 14.89 13.98
------ -------- -------- ------
Operations:
Net investment income .......................... 0.57 1.41 1.79 1.49
Net realized and unrealized gains (losses) on
investments .................................. 0.94 (3.22) 0.61 0.55
------ -------- -------- ------
Total from operations ........................ 1.51 (1.81) 2.40 2.04
------ -------- -------- ------
Distributions to shareholders from:
Net investment income .......................... (0.75) (1.15) (1.50) (1.13)
Net realized gains ............................. -- (0.20) -- --
------ -------- -------- ------
Total distributions to shareholders .......... (0.75) (1.35) (1.50) (1.13)
------ -------- -------- ------
Net asset value, end of period ................. $ 13.39 12.63 15.79 14.89
------ -------- -------- ------
------ -------- -------- ------
Per-share market value, end of period .......... $ 12.63 13.00 16.38 16.25
------ -------- -------- ------
------ -------- -------- ------
SELECTED INFORMATION
Total return, net asset value** .................. 12.35% (11.87%) 16.80% 15.20%
Total return, market value*** .................... 2.99% (12.59%) 10.75% 16.92%
Net assets at end of period (in millions) ...... $ 71 67 84 79
Ratio of expenses to average weekly net
assets++ ....................................... 1.74% TRIANGLE 1.69% 1.69% 1.45% TRIANGLE
Ratio of net investment income to average weekly
net assets ..................................... 8.92% TRIANGLE 10.00% 11.52% 11.49% TRIANGLE
Portfolio turnover rate (excluding short-term
securities) .................................... 44% 74% 50% 72%
Amount of borrowings outstanding at end of period
(in millions)+ ............................... $ 15 28 32 32
Per-share amount of borrowings outstanding at end
of period .................................... $ 2.82 5.16 6.04 6.05
Per-share asset coverage of borrowings outstanding
at end of period+++ .......................... $ 16.21 17.79 21.83 20.94
<FN>
* COMMENCEMENT OF OPERATIONS.
** BASED ON THE CHANGE IN NET ASSET VALUE OF A SHARE DURING THE PERIOD.
ASSUMES REINVESTMENT OF DISTRIBUTIONS AT NET ASSET VALUE.
*** 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.
+ 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.
++ INCLUDES 0.02%, 0.23% AND 0.22% FROM FEDERAL EXCISE TAXES IN THE SIX MONTHS
ENDED 5/31/95 AND IN FISCAL 1994 AND 1993, RESPECTIVELY.
+++ REPRESENTS THE FUND'S NET ASSETS (EXCLUDING BORROWINGS) DIVIDED BY CAPITAL
SHARES OUTSTANDING.
TRIANGLE ADJUSTED TO AN ANNUAL BASIS.
</TABLE>
21
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(9) QUARTERLY DATA
DOLLAR AMOUNTS
<TABLE>
<CAPTION>
Net Realized Net Increase in Distributions
Total Net and Unrealized Net Assets from Net
Investment Investment Gains on Resulting from Investment
Income Income Investments Operations Income
---------- ---------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
2/28/95 $ 1,823,546 1,595,268 1,555,186 3,150,454 (1,997,746)
5/31/95 1,789,396 1,426,876 3,467,839 4,894,715 (1,995,983)
---------- ---------- -------------- --------------- -------------
$ 3,612,942 3,022,144 5,023,025 8,045,169 (3,993,729)
---------- ---------- -------------- --------------- -------------
---------- ---------- -------------- --------------- -------------
</TABLE>
PER-SHARE AMOUNTS
<TABLE>
<CAPTION>
Net Realized Net Increase Distributions Quarter
Net and Unrealized in Net Assets from Net End
Investment Gains on Resulting from Investment Net Asset
Income Investments Operations Income Value
---------- -------------- -------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
2/28/95 $ 0.30 0.30 0.60 (0.38) 12.85
5/31/95 0.27 0.64 0.91 (0.37) 13.39
--- --- --- -----
$ 0.57 0.94 1.51 (0.75)
--- --- --- -----
--- --- --- -----
</TABLE>
22
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES (UNAUDITED)
AMERICAN STRATEGIC INCOME PORTFOLIO
MAY 31, 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 (37.6%):
U.S. Treasury Note, 6.25%, 2/15/03 ................. $ 2,000,000(d) 1,998,780
U.S. Treasury Note, 6.88%, 3/31/00 ................... 23,000,000(b,d) 23,761,990
U.S. Treasury Strip, 7.06%, 5/15/18 .................. 4,800,000 977,184
-----------
Total U.S. Government Securities
(cost: $25,782,775) ................................ 26,737,954
-----------
MORTGAGE-BACKED SECURITIES (11.4%):
COLLATERALIZED MORTGAGE OBLIGATIONS (C) (11.4%):
PRIVATE FIXED RATE (6.8%):
8.60%, Chemical Mortgage Securities, Series 1991-1,
Subordinated Class B, 9/25/21 ....................... 238,980(g) 227,703
9.25%, FBS Mortgage Corporation, Series 1991-B,
Subordinated Class D, 11/1/31 ....................... 966,889(g) 930,026
10.10%, First Boston, Series 1992-1, Subordinated
Class B-2, 1/15/01 .................................. 1,000,000(g) 1,001,700
8.83%, First Boston, Series 1993-2, Subordinated Class
B, 11/28/22 ......................................... 1,988,358(g) 1,744,188
9.35%, GMBS Inc., Series 1990-4, Subordinated Class S,
10/25/20 ............................................ 496,454(g) 479,854
9.25%, Salomon Brothers Mortgage Securities VII,
Series 1990-1, Class G-1, 8/25/20 ................... 239,800(g) 230,358
9.25%, Salomon Brothers Mortgage Securities VII,
Series 1990-1, Class G-2, 8/25/20 ................... 231,390(g) 222,351
-----------
4,836,180
-----------
U.S. AGENCY INVERSE FLOATER (4.6%):
7.90%, FHLMC, Series 1552, Class LA, LIBOR,
8/15/23 ............................................. 899,205 701,380
8.08%, FHLMC, Series 1552, Class LH, LIBOR,
5/15/22 ............................................. 944,165 708,124
7.29%, FNMA, Series 1993-117, Class S, COFI,
7/25/08 ............................................. 2,306,930 1,880,148
-----------
3,289,652
-----------
Total Mortgage-Backed Securities
(cost: $9,138,336) ................................. 8,125,832
-----------
WHOLE LOANS AND PARTICIPATION MORTGAGES (E,F,G) (63.1%):
MULTIFAMILY LOANS (24.6%):
Applewood Manor, 8.75%, 1/1/01 ....................... 693,641 692,462
Boca Bend Apartments, 11.75%, 5/1/00 ................. 600,000 597,720
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
23
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES (UNAUDITED)
AMERICAN STRATEGIC INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- -------------- -----------
<S> <C> <C>
Colorado Springs Multifamily, 10.00%, 1/30/08 ...... $ 2,486,401 2,573,425
Essex Place I, 10.00%, 9/30/12 ....................... 2,166,083 2,166,083
Franklin Woods Apartments, 9.90%, 3/1/10 ............. 1,348,199 1,395,386
Fremont Plaza Apartments, 9.75%, 4/1/02 .............. 748,980 775,194
Kings Creek Apartments, 10.00%, 5/1/96 ............... 1,300,000 1,327,820
Maple Crest Apartments, 10.38%, 1/1/02 ............... 1,496,792 1,549,179
Mustang Crossings, 9.00%, 2/1/01 ..................... 1,001,888 1,009,803
Normandie Square Apartments, 8.75%, 4/1/01 ........... 1,858,162 1,845,527
The Establishment, 8.75%, 2/1/01 ..................... 956,758 950,347
Twelfth Street Apartments, 9.25%, 6/1/05 ............. 1,200,000 1,196,500
Westgate Apartments, 10.00%, 2/1/08 .................. 1,406,783 1,420,852
-----------
17,500,298
-----------
SINGLE FAMILY LOANS (38.5%):
American Bank, Mankato, 9.23%, 12/10/12 .............. 243,304 250,535
Bluebonnet Savings and Loan, 11.54%, 8/31/10 ......... 350,804 347,826
Bluebonnet Savings and Loan, 7.94%, 8/31/10 .......... 1,992,053 2,023,913
CLSI Allison Williams, 9.74%, 8/1/17 ................. 889,079 993,221
Crossroads Savings and Loan, 9.25%, 1/1/21 ........... 879,696 898,002
Crossroads Savings and Loan, 9.26%, 1/1/21 ........... 765,743 753,682
Equity Lending, 20.00%, 9/30/12 ...................... 55,421 57,361
Fairbanks I, Utah, 9.33%, 9/23/15 .................... 730,637 673,143
Fairbanks II, Utah, 7.28%, 8/20/10 ................... 333,313 320,824
First Boston Mortgage Pool #5, 9.82%, 6/29/03 ........ 725,027 740,775
Hamilton Financial, 8.67%, 6/29/10 ................... 941,030 836,670
Huntington MEWS, 9.33%, 8/1/17 ....................... 2,147,468 2,100,284
Knutson Mortgage Portfolio #1, 9.02%, 8/1/17 ......... 2,231,609 2,460,255
Knutson Mortgage Portfolio #2, 9.36%, 9/25/17 ........ 1,863,627 2,074,725
McClemore, 10.59%, 9/30/12 ........................... 3,785,270 4,050,421
Meridian, 9.40%, 12/1/20 ............................. 1,323,453 1,474,282
Minnesota Mortgage Corporation, 12.97%, 7/25/14 ...... 82,051 84,103
Minnesota Mortgage Corporation, 12.26%, 10/25/14 ..... 56,237 57,642
Minnesota Mortgage Corporation, 12.95%, 3/25/15 ...... 122,236 125,292
President Homes, 7.07%, 8/1/17 ....................... 210,497 142,613
President Homes 93-1, Sales Inventory, 8.49%,
3/1/23 .............................................. 2,521,914 2,528,093
President Homes 93-1, Warehouse Inventory, 10.00%,
3/1/23 147,363 132,627
President Homes 94-1A, Sales Inventory, 8.49%,
1/27/23 ............................................. 265,614 266,264
President Homes 94-1A, Warehouse Inventory, 10.00%,
1/27/23 ............................................. 324,835 292,352
Rand Mortgage Corporation, 9.53%, 8/1/17 ............. 671,905 690,369
Salomon II, 9.86%, 11/23/14 .......................... 2,254,738 2,317,735
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
24
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES (UNAUDITED)
AMERICAN STRATEGIC INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- -------------- -----------
<S> <C> <C>
Valley Bank of Commerce, N.M., 8.53%, 8/31/10 ...... $ 686,336 679,361
-----------
27,372,370
-----------
Total Whole Loans and Participation Mortgages
(cost: $41,626,790) ................................ 44,872,668
-----------
MORTGAGE SERVICING RIGHTS (1.4%):
Matrix Servicing Rights, 14.00%, 7/10/22
(cost: $1,012,564) .................................. 107,136,718 1,000,504
-----------
SHORT-TERM SECURITIES (3.9%):
Repurchase agreement with Morgan Stanley in a joint
trading account, collateralized by U.S. government
agency securities, acquired on 5/31/95, accrued
interest at repurchase date of $445, 5.85%, 6/1/95
(cost: $2,778,000) .................................. 2,778,000 2,778,000
-----------
Total Investments in Securities
(cost: $80,338,465) (h) .......................... $ 83,514,958
-----------
-----------
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES:
<TABLE>
<S> <C>
(A) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO THE
FINANCIAL STATEMENTS.
(B) ON MAY 31, 1995, SECURITIES VALUED AT $15,744,901 WERE PLEDGED AS COLLATERAL FOR THE
FOLLOWING OUTSTANDING REVERSE REPURCHASE AGREEMENTS:
</TABLE>
<TABLE>
<CAPTION>
NAME
OF BROKER AND
ACQUISITION ACCRUED DESCRIPTION OF
AMOUNT DATE RATE* DUE INTEREST COLLATERAL
- ------------ ---------- ----------- ---------- --------- -------------------
<S> <C> <C> <C> <C> <C>
$ 7,750,000 6/22/94 6.01% 6/1/95 $ 12,944 (1)
3,750,000 3/1/95 5.96% 8/1/95 19,254 (2)
3,500,000 4/3/95 5.96% 6/30/95 17,970 (3)
- ------------ ---------
$ 15,000,000 $ 50,168
- ------------ ---------
- ------------ ---------
</TABLE>
*INTEREST RATE IS AS OF MAY 31, 1995. RATES ARE BASED ON THE LONDON INTERBANK
OFFERED RATE (LIBOR) AND RESET MONTHLY.
NAME OF BROKER AND DESCRIPTION OF COLLATERAL:
<TABLE>
<S> <C>
(1) MORGAN STANLEY; U.S. TREASURY NOTE, 6.88%, 3/31/00, $8,000,000 PAR
(2) NOMURA; U.S. TREASURY NOTE, 6.88%, 3/31/00, $3,745,000 PAR
(3) NOMURA; U.S. TREASURY NOTE, 6.88%, 3/31/00, $3,495,000 PAR
</TABLE>
25
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES (UNAUDITED)
<TABLE>
<S> <C>
(C) DESCRIPTIONS OF CERTAIN COLLATERALIZED MORTGAGE OBLIGATIONS ARE AS FOLLOWS:
LIBOR - LONDON INTERBANK OFFERED RATE.
COFI (11TH DISTRICT) - COST OF FUNDS INDEX OF THE FEDERAL RESERVE'S 11TH DISTRICT.
INVERSE FLOATER - REPRESENTS SECURITIES THAT PAY INTEREST AT RATES THAT INCREASE
(DECREASE) WITH A DECLINE (INCREASE) IN THE SPECIFIED INDEX. THE INTEREST RATE
PAID BY THE INVERSE FLOATER WILL GENERALLY CHANGE AT A MULTIPLE OF ANY CHANGE IN
THE INDEX. INTEREST RATES DISCLOSED ARE IN EFFECT ON MAY 31, 1995.
(D) ISSUE IS IDENTIFIED IN CONNECTION WITH THE FOLLOWING OPEN CALL OPTIONS WRITTEN:
</TABLE>
<TABLE>
<CAPTION>
EXERCISE EXPIRATION MARKET
TYPE OF CONTRACT NUMBER OF CALLS PRICE DATE VALUE
- ----------------- --------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
U.S. TREASURY
NOTE
6.72% 3/31/00 160 101.45 6/15/95 $ 305,000
</TABLE>
<TABLE>
<S> <C>
(E) INTEREST RATE AND MATURITY DATE DISCLOSED REPRESENT THE WEIGHTED AVERAGE COUPON AND
WEIGHTED AVERAGE MATURITY FOR THE UNDERLYING MORTGAGE LOANS AS OF MAY 31, 1995.
(F) FOR INVESTMENT SCHEDULE PRESENTATION, DIRECT MORTGAGE PURCHASES ARE SUMMARIZED BY
THE INSTITUTION FROM WHICH THEY WERE PURCHASED. TOTAL NUMBER OF LOANS AND GENERAL
GEOGRAPHICAL LOCATION ASSOCIATED WITH EACH LOAN GROUP ARE AS FOLLOWS:
MULTIFAMILY LOANS:
APPLEWOOD MANOR - 1 MULTIFAMILY LOAN LOCATED IN DULUTH, MINNESOTA.
BOCA BEND APARTMENTS - 1 MULTIFAMILTY LOAN LOCATED IN BOCA RATON, FORIDA.
COLORADO SPRINGS MULTIFAMILY - 2 LOANS LOCATED IN COLORADO SPRINGS, COLORADO.
ESSEX PLACE I - 1 MULTIFAMILY LOAN LOCATED IN ROCHESTER, MINNESOTA.
FRANKLIN WOODS APARTMENTS - 1 MULTIFAMILY LOAN LOCATED IN FRANKLIN, NEW
HAMPSHIRE.
FREMONT PLAZA APARTMENTS - 1 MULTIFAMILY LOAN LOCATED IN LAS VEGAS, NEVADA.
KINGS CREEK APARTMENTS - 1 MULTIFAMILY LOAN LOCATED IN DALLAS, TEXAS.
MAPLE CREST APARTMENTS - 1 MULTIFAMILY LOAN LOCATED IN NASHVILLE, TENNESSEE.
MUSTANG CROSSINGS - 1 MULTIFAMILTY LOAN LOCATED IN RICHMOND, TEXAS.
NORMANDIE SQUARE APARTMENTS - 1 MULTIFAMILY LOAN LOCATED IN SAN ANTONIO, TEXAS.
THE ESTABLISHMENT - 1 MULTIFAMILY LOAN LOCATED IN DALLAS, TEXAS.
TWELFTH STREET APARTMENTS - 1 MULTIFAMILY LOAN LOCATED IN ATLANTA, GEORGIA.
WESTGATE APARTMENTS - 1 MULTIFAMILY LOAN LOCATED IN BISMARCK, NORTH DAKOTA.
SINGLE FAMILY LOANS:
AMERICAN BANK, MANKATO - 10 LOANS LOCATED IN SOUTHWESTERN MINNESOTA.
BLUEBONNET SAVINGS AND LOAN - 93 LOANS LOCATED IN THE VICINITY OF SAN ANTONIO,
TEXAS.
CLSI ALLISON WILLIAMS - 54 LOANS LOCATED AROUND LAS MESA, SEMINOLE AND ANDREWS,
TEXAS.
CROSSROADS SAVINGS AND LOAN - 47 LOANS LOCATED IN THE VICINITY OF TULSA,
OKLAHOMA.
EQUITY LENDING - 2 LOANS LOCATED IN AND AROUND MINNEAPOLIS, MINNESOTA.
FAIRBANKS I - 13 LOANS LOCATED IN THE VICINITY OF FAIRBANKS AND SALT LAKE CITY,
UTAH.
FAIRBANKS II - 3 LOANS LOCATED IN THE VICINITY OF FAIRBANKS AND SALT LAKE CITY,
UTAH.
FIRST BOSTON MORTGAGE POOL #5 - 19 LOANS LOCATED THROUGHOUT THE UNITED STATES.
HAMILTON FINANCIAL - 7 LOANS LOCATED IN CALIFORNIA.
HUNTINGTON MEWS - 52 LOANS LOCATED IN THE VICINITY OF CAMDEN, NEW JERSEY.
KNUTSON MORTGAGE PORTFOLIO #1 - 39 LOANS LOCATED THROUGHOUT THE MIDWESTERN
STATES.
KNUTSON MORTGAGE PORTFOLIO #2 - 27 LOANS LOCATED THROUGHOUT THE MIDWESTERN
STATES.
MCCLEMORE - 49 LOANS LOCATED IN NORTH CAROLINA.
</TABLE>
26
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES (UNAUDITED)
<TABLE>
<S> <C>
MERIDIAN - 24 LOANS LOCATED THROUGHOUT CALIFORNIA.
MINNESOTA MORTGAGE CORPORATION - 16 LOANS LOCATED IN MINNESOTA.
PRESIDENT HOMES, SALES INVENTORY - 31 LOANS LOCATED THROUGHOUT THE MIDWESTERN
STATES.
PRESIDENT HOMES, WAREHOUSE INVENTORY - 2 LOANS LOCATED THROUGHOUT THE MIDWESTERN
STATES.
RAND MORTGAGE CORPORATION - 13 LOANS LOCATED NEAR HOUSTON AND AUSTIN, TEXAS.
SALOMON II - 46 LOANS LOCATED THROUGHOUT THE MIDWESTERN STATES.
VALLEY BANK OF COMMERCE - 34 LOANS LOCATED THROUGHOUT NEW MEXICO.
(G) 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.
(H) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. 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 .... $ 4,355,721
GROSS UNREALIZED DEPRECIATION ...... (2,222,840)
----------
NET UNREALIZED APPRECIATION .... $ 2,132,881
----------
----------
</TABLE>
27
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER UPDATE
ANNUAL MEETING RESULTS
An annual meeting of the fund's shareholders was held on August 22, 1994. Each
matter voted upon at the meeting, as well as the number of votes cast for,
against or withheld, the number of absentions, and the number of broker
non-votes with respect to such matter, are set forth below.
1. The fund's shareholders elected the following eight directors:
<TABLE>
<CAPTION>
Shares Shares Withholding
Voted "For" Authority to Vote
----------- -------------------
<S> <C> <C>
David T. Bennett..... 3,014,928 65,672
Jaye F. Dyer......... 3,014,203 66,397
William H. Ellis..... 3,013,678 66,922
Karol D. Emmerich.... 3,015,428 65,172
Luella G. Goldberg... 3,013,609 66,990
John T. Golle*....... 3,013,063 67,536
Edward J. Kohler*.... 3,014,678 65,922
George Latimer....... 3,009,801 70,798
<FN>
* MR. KOHLER RESIGNED AS DIRECTOR OF THE FUND, EFFECTIVE NOVEMBER 30, 1994.
MR. GOLLE RESIGNED AS DIRECTOR OF THE FUND, EFFECTIVE JUNE 1, 1995.
</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, 1994. The following votes were cast
regarding this matter:
<TABLE>
<CAPTION>
Shares Shares Voted Broker
Voted "For" "Against" Absentions Non-Votes
- ----------- ----------------- ----------- ---------------
<S> <C> <C> <C>
2,960,015 31,672 138,466 --
</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.
28
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER UPDATE
- - 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.
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.
29
<PAGE>
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
<TABLE>
<S> <C>
DIRECTORS David T. Bennett, CHAIRMAN, HIGHLAND HOMES, INC.,
USL PRODUCTS, INC., AND 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 CORP., HORMEL FOODS CORP.
George Latimer, DIRECTOR, SPECIAL ACTIONS OFFICE, OFFICE
OF THE SECRETARY, DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT
OFFICERS William H. Ellis, CHAIRMAN OF THE BOARD
Michael P. Jansen, PRESIDENT
Worth Bruntjen, SENIOR VICE PRESIDENT
Marijo A. Goldstein, SENIOR VICE PRESIDENT
Robert H. Nelson, SENIOR VICE PRESIDENT
Kevin A. Jansen, VICE PRESIDENT
John G. Wenker, VICE PRESIDENT
Charles N. Hayssen, TREASURER
David E. Rosedahl, SECRETARY
INVESTMENT Piper Capital Management Incorporated
ADVISER 222 SOUTH NINTH 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
</TABLE>
30
<PAGE>
[PIPER CAPITAL LOGO] Bulk Rate
U.S. Postage
PAID
Permit No. 3008
Mpls., MN
PIPER CAPITAL MANAGEMENT INCORPORATED
222 SOUTH NINTH STREET
MINNEAPOLIS, MN 55402-3804
PIPER JAFFREY INC., FUND SPONSOR AND NASD MEMBER
[RECYCLED PAPER LOGO] THIS DOCUMENT IS PRINTED ON PAPER MADE FROM
100% TOTAL RECOVERED FIBER, INCLUDING 15% POST-
CONSUMER WASTE.
238-95 ASP-02
STAPLES
