<PAGE>
AMERICAN
STRATEGIC
INCOME
PORTFOLIO
* * *
SEMIANNUAL
REPORT
1996
<PAGE>
TABLE OF CONTENTS
AVERAGE ANNUALIZED TOTAL RETURNS . . . .1
PRESIDENT'S LETTER . . . . . . . . . . .2
PORTFOLIO MANAGERS' LETTER . . . . . . .5
MANAGING RISK. . . . . . . . . . . . . 10
FINANCIAL STATEMENTS AND NOTES . . . . 11
INVESTMENTS IN SECURITIES. . . . . . . 24
AMERICAN STRATEGIC INCOME PORTFOLIO
American Strategic Income Portfolio is a diversified, closed-end investment
management company. The fund's primary objective is to provide a high level of
current income; its secondary objective is to seek capital appreciation. To
realize its objectives, the fund emphasizes investments in mortgage-related
assets that directly or indirectly represent a participation in or are secured
by and payable from mortgage loans. It may also invest in asset-backed
securities, U.S. government securities, corporate debt securities, municipal
obligations, unregistered securities, mortgage-backed securities and mortgage
servicing rights. The fund may borrow, including through the use of reverse
repurchase agreements, and may purchase securities through the dollar-roll
program. Use of certain of these investments and investment techniques may cause
the fund's net asset value to fluctuate to a greater extent than would be
expected from interest rate movements alone. As with other mutual funds, there
can be no assurance the fund will achieve its objectives. Since the fund's
inception on Dec. 27, 1991, it has been rated Af by Standard & Poor's Ratings
Group (S&P).* Fund shares trade on the New York Stock Exchange under the symbol
ASP.
* THE FUND IS RATED Af, WHICH MEANS THE FUND'S INVESTMENTS 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.
CALL FOR MORE INFORMATION
If you would like to be put on our mailing list to receive quarterly fund
summaries for American Strategic Income Portfolio (ASP), call our Mutual Fund
Services Department at 1 800 866-7778. In addition, beginning in August, you can
call that same number and listen to portfolio manager commentaries for the fund,
which will be updated monthly.
<PAGE>
AVERAGE ANNUALIZED TOTAL RETURNS
PERIODS ENDED MAY 31, 1996
[GRAPH]
THE AVERAGE ANNUALIZED TOTAL RETURN FIGURES 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.
TOTAL RETURNS BASED ON THE CHANGE IN MARKET PRICE FOR THE ONE-YEAR, THREE-YEAR
AND SINCE INCEPTION PERIODS ENDED MAY 31, 1996, WERE -2.29%, -2.10% AND 2.99%,
RESPECTIVELY. THESE FIGURES ALSO ASSUME REINVESTED DISTRIBUTIONS AND DO NOT
REFLECT SALES CHARGES.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND
MARKET VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT FUND SHARES, WHEN SOLD, MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
THE LEHMAN BROTHERS MUTUAL FUND GOVERNMENT/MORTGAGE INDEX IS COMPRISED OF ALL
U.S. GOVERNMENT AGENCY AND TREASURY SECURITIES AND AGENCY MORTGAGE-BACKED
SECURITIES. DEVELOPED BY LEHMAN BROTHERS FOR COMPARATIVE USE BY THE MUTUAL FUND
INDUSTRY, THIS INDEX IS UNMANAGED AND DOES NOT INCLUDE ANY FEES OR EXPENSES IN
ITS TOTAL RETURN FIGURES.
THE LIPPER CLOSED-END U.S. MORTGAGE FUNDS AVERAGE REPRESENTS THE AVERAGE
ANNUALIZED TOTAL RETURN, WITH DIVIDENDS REINVESTED, OF SIMILAR CLOSED-END MUTUAL
FUNDS AS CHARACTERIZED BY LIPPER ANALYTICAL SERVICES.
THE SINCE INCEPTION NUMBERS FOR THE LEHMAN INDEX AND LIPPER AVERAGE ARE
CALCULATED FROM THE MONTH END CLOSEST TO THE FUND'S INCEPTION THROUGH
MAY 31, 1996.
1
<PAGE>
PRESIDENT'S LETTER
[PHOTO]
WILLIAM H. ELLIS
PRESIDENT, PIPER CAPITAL MANAGEMENT
July 19, 1996
Dear Shareholders:
On June 21, 1996, Piper Jaffray Companies announced it had reached an agreement
in principle to settle a class action lawsuit brought on behalf of shareholders
of American Strategic Income Portfolio and seven other Piper Capital closed-end
funds. We believe this settlement is a timely and reasonable resolution to this
issue that will benefit shareholders. The settlement, if approved by the court,
would result in payment to eligible fund investors by Piper Jaffray Companies
and Piper Capital Management of $15.5 million, less attorney's fees, over a
four-year schedule. Investors who acquired shares during the alleged class
period (the fund's inception through May 1, 1995) would be eligible to submit
claims to recover losses regardless of whether they are current shareholders in
the funds.
Under the agreement in principle, American Strategic Income Portfolio would also
offer to repurchase up to 10% of its outstanding shares from current
shareholders at net asset value. The repurchase offer would be made as soon as
possible after the effective date of the settlement, which follows final court
approval. This could take many months.
The repurchase offer was considered carefully by the fund's board of directors
and was approved because they considered it to be in shareholders' best
interest. Existing shareholders, many of whom we believe are class members,
would have an opportunity to sell at least a portion of their shares at net
asset value less a small repurchase fee. Currently, the fund is trading at a
significant discount to net asset value. Shares that are repurchased by the fund
would be retired, reducing
2
<PAGE>
PRESIDENT'S LETTER
the number of fund shares outstanding. In the event that holders of more than
10% of shares subscribe to the offer, the fund may only be able to accept a
prorated portion of shares tendered for repurchase.
We expect that the settlement agreement will be presented to the court for
preliminary approval this fall. If preliminary court approval is given, notices
of the settlement will be mailed to all known class members. Legal notices also
will be published in major newspapers at approximately the same time. The next
step is for final court approval to be given and an effective date to be
established.
PREMIUM VS. DISCOUNT
The underlying value of a fund's securities and other assets, minus its
liabilities, is the fund's "net asset value." Closed-end funds may trade in the
market at a price that is equal to, above, or below this net asset value. Shares
are trading at a "premium" when investors purchase or sell shares in the market
at a price that is greater than the shares' net asset value. Conversely, when
investors purchase or sell shares in the market at a price that is lower than
the shares' net asset value, they are said to be trading at a "discount."
Class members can expect to learn more about the settlement proposal via mail
and/or newspaper advertising in late 1996 or early 1997 or by contacting Steve
Berman, Hagens & Berman, counsel for the plaintiffs, at 206 623-7292.
Unrelated to the settlement, since we last reported to you the fund's Dividend
Committee reduced the monthly dividend from 10 cents per share to 8 cents per
share. This reduction was part of Piper Capital's effort to bring the fund's
dividends in line with its earnings. Because the fund's dividends exceeded
earnings by 38 cents per share during the six-month period, it was necessary to
rely on the fund's dividend reserve to pay these dividends, which reduced the
fund's net asset value by that same amount. As of June 30, the dividend reserve
for this fund was 2.9 cents per share. We do not currently anticipate any need
for further dividend reductions in the next 12 months based on current fund
earnings.
3
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PRESIDENT'S LETTER
Despite the dividend cuts, the fund continues to generate an attractive income
stream, especially given market conditions and yields on comparable investments.
For example, you are receiving a 9.25% current annualized yield (based on the
fund's July dividend rate) at the June 30 market price of $10.375 compared to a
6.89% yield for the Lehman Brothers Mutual Fund Government/Mortgage Index, the
fund's unmanaged benchmark which excludes any fees or expenses. Keep in mind
that past performance does not guarantee future results, and these rates will
fluctuate.
Thank you for your investment in the fund. We remain committed to providing you
with quality service and look forward to helping you achieve your financial
goals.
Sincerely,
/s/ William H. Ellis
William H. Ellis
President, Piper Capital Management
4
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AMERICAN STRATEGIC INCOME PORTFOLIO
[PHOTO]
JOHN WENKER
[PHOTO]
DAVID STEELE
JOHN WENKER, (TOP)
IS PRIMARILY RESPONSIBLE FOR THE MANAGEMENT OF AMERICAN STRATEGIC INCOME
PORTFOLIO. HE HAS 10 YEARS OF FINANCIAL EXPERIENCE.
DAVID STEELE, (BOTTOM)
ASSISTS WITH THE MANAGEMENT OF AMERICAN STRATEGIC INCOME PORTFOLIO. HE HAS 17
YEARS OF FINANCIAL EXPERIENCE.
RUSS KAPPENMAN,
(NOT PICTURED)
ASSISTS WITH THE MANAGEMENT OF AMERICAN STRATEGIC INCOME PORTFOLIO. HE HAS 10
YEARS OF FINANCIAL EXPERIENCE.
July 19, 1996
Dear Shareholders:
FOR THE SIX-MONTH PERIOD ENDED MAY 31, 1996, AMERICAN STRATEGIC INCOME PORTFOLIO
HAD A NET ASSET VALUE TOTAL RETURN OF 1.37%.* This compares to a -1.01% return
for the Lehman Brothers Mutual Fund Government/Mortgage Index and a
- -0.79% return for the Lipper Closed-End U.S. Mortgage Funds Average during this
same period. As of May 31, the fund's market price was $10.625 and its net asset
value was $12.46 per share. For the six-month period ended May 31, the fund's
total return based on its market price was -6.60%.* While the fund continues to
trade at a discount to net asset value, we believe its reduced net asset value
volatility and stability of earnings could help improve the fund's market price
over time.
THE FUND'S FAVORABLE NET ASSET VALUE PERFORMANCE COMPARED TO THE BENCHMARKS WAS
PRIMARILY DUE TO THE PRICE STABILITY OF OUR MORTGAGE LOANS AS INTEREST RATES
INCREASED. After falling sharply in 1995, interest rates began to rise in 1996
due to signs of stronger economic growth and fears of renewed inflationary
pressures. The most significant inflationary sign was the government's release
of a higher-than-expected employment report in early March. While bonds, in
general, were negatively affected by the increase in rates, the higher rate
environment gave us the opportunity to purchase mortgages at historically
attractive yields.
* ALL RETURNS ABOVE 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.
5
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AMERICAN STRATEGIC INCOME PORTFOLIO
DURING THE PERIOD, WE REMAINED FOCUSED ON STABILIZING THE FUND'S INCOME STREAM.
Our most significant strategic move to help us work toward this goal was to
reduce our allocation to subordinated mortgages and use the proceeds to purchase
higher-yielding mortgage loan products. On balance, the higher-yielding
mortgages produced more income than the subordinated mortgages and performed
relatively well compared to other mortgage products.
PORTFOLIO COMPOSITION
MAY 31, 1996
[GRAPH]
THE FUND'S TOTAL ASSETS ARE LARGELY CONCENTRATED IN MORTGAGE LOANS. As of May
31, 44% of the fund's total assets were invested in single-family (home) loans,
25% in multifamily (apartment) loans and 21% in Treasury securities. (See
portfolio composition chart on this page.) We intend to maintain the fund's
investments in mortgage loans and Treasuries near these levels. The greater
concentration in mortgage loans is consistent with our strategy of focusing on
securities that may involve more credit risk and moving away from those that are
more sensitive to changing interest rates. Recently, we also began making
investments in commercial mortgage loans due to the opportunities in this market
sector. As of June 30, 2% of the fund's total assets were invested in
commercial loans.
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, which were 21% of the fund's total
6
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AMERICAN STRATEGIC INCOME PORTFOLIO
assets as of May 31. While borrowing can potentially increase the fund's
earnings, it can also increase the fund's net asset value volatility.
DURING THE SIX MONTHS, WE SUCCESSFULLY MANAGED THE RISKS INVOLVED WITH MORTGAGE
LOANS. We believe we are better able to manage and analyze credit risk and loss
on loans for moderately valued homes than for higher valued homes. As of May 31,
the fund held 665 single-family loans on properties which, on average, had a
value of approximately $70,000. The average balance remaining on these loans was
approximately $56,000. Through May 31, we have kept our cumulative foreclosure
losses from our single-family loans to less than seven cents per share since the
fund's inception. We follow a similar philosophy when purchasing multifamily
loans. We believe that smaller loans spread out in several states are less
likely to cause losses in the fund. On May 31, we had 17 multifamily loans with
an average loan balance of approximately $1,290,000. Through May 31, there have
been no realized foreclosure losses to the fund from our investments in
multifamily loans. Although we conduct extensive risk analysis on loans we
purchase, delinquent loans are an inherent risk in the fund. We consider a loan
delinquent when a borrower has missed two or more payments. As of May 31,
mortgage loans representing 5% of total net assets were delinquent. Because
delinquent loans require a high level of attention, we place them with loan
servicers who work hard to convey to borrowers that their first responsibility
each month is to make their payments. If it becomes necessary to put a loan in
foreclosure, our loan servicers will proceed with the process as quickly as
possible.
7
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AMERICAN STRATEGIC INCOME PORTFOLIO
GEOGRAPHICAL DISTRIBUTION
MAY 31, 1996
[MAP]
PERCENTAGES REFLECT PRINCIPAL VALUE OF WHOLE LOANS AND REAL ESTATE OWNED.
SHADED AREAS WITHOUT VALUES INDICATE STATES IN WHICH THE FUND HAS INVESTED LESS
THAN 0.50% OF ITS ASSETS.
THE FUND IS INVESTED IN MORTGAGE LOANS BACKED BY PROPERTIES LOCATED THROUGHOUT
THE COUNTRY. We attempt to buy mortgage loans in many parts of the country to
diversify the risks presented by any one area. The greatest concentration of
loans is in Texas, California and Minnesota. Texas and California have more
loans due to their large populations. Moreover, the adverse economic conditions
experienced by these two states a few years ago enabled us to purchase loans at
what we believe are attractive prices. Our concentration of loans in Minnesota
results from our in-depth knowledge of some markets in that state and generally
favorable economic conditions there.
8
<PAGE>
AMERICAN STRATEGIC INCOME PORTFOLIO
LOOKING AHEAD, WE BELIEVE THE FUND'S NET ASSET VALUE AND EARNINGS SHOULD BE MORE
CONSISTENT THAN IN THE PAST. 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 feel this increased focus on mortgage loans
will allow the fund to provide more consistent income levels. We hope this will
attract more investors to the fund, which, in turn, could reduce the current
discount of market price to net asset value. The efforts of the fund's
management team continue to be dedicated to reaching the fund's objectives and
helping you achieve your financial goals.
We would like to express our sincere appreciation to you, our valued
shareholders, for your investment in American Strategic Income
Portfolio. We look forward to continuing our relationship with you and helping
you meet your investment goals.
Sincerely,
/s/ John Wenker
John Wenker
Portfolio Manager
9
<PAGE>
MANAGING RISK
MANAGING THE RISKS OF MORTGAGE-RELATED ASSETS
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.
To date, we have successfully managed the unique risks of mortgage loans through
extensive risk analysis. We review the loan's legal documents and the borrower's
mortgage payment history; assess the local market and property value; and obtain
a physical assessment of the property. As part of our strategy to manage the
real estate risk of the fund's multifamily (apartment) loans, we perform a
detailed inspection of each property; study the competing properties in the
area; interview property managers; and obtain engineering and environmental
reports from experts.
10
<PAGE>
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FINANCIAL STATEMENTS (Unaudited)
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (note 2)
(including a repurchase agreement of $1,377,000) ..... $ 81,109,596
Real estate owned (identified cost: $118,231) ............ 113,791
Cash in bank on demand deposit ........................... 594,250
Mortgage security paydowns receivable .................... 13,067
Accrued interest receivable .............................. 671,386
----------------
Total assets ......................................... 82,502,090
----------------
LIABILITIES:
Reverse repurchase agreements payable .................... 17,000,000
Accrued investment management fee ........................ 31,913
Accrued administrative fee ............................... 11,112
Accrued interest ......................................... 70,630
Other accrued expenses ................................... 4,213
----------------
Total liabilities .................................... 17,117,868
----------------
Net assets applicable to outstanding capital stock ....... $ 65,384,222
----------------
----------------
REPRESENTED BY:
Capital stock - authorized 1 billion shares of $0.01 par
value; outstanding, 5,247,721 shares ................. $ 52,477
Additional paid-in capital ............................... 73,315,141
Undistributed net investment income ...................... 257,625
Accumulated net realized loss on investments ............. (8,800,753)
Unrealized appreciation of investments ................... 559,732
----------------
Total - representing net assets applicable to
outstanding capital stock ........................ $ 65,384,222
----------------
----------------
Net asset value per share of outstanding capital stock ... $ 12.46
----------------
----------------
* Investments in securities at identified cost ........... $ 80,545,424
----------------
----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
11
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FINANCIAL STATEMENTS (UNAUDITED)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MAY 31, 1996
<TABLE>
<S> <C>
INCOME:
Interest (net of interest expense of $431,369) ......... $ 2,974,000
----------------
EXPENSES (NOTE 3):
Investment management fee ................................ 201,235
Administrative fee ....................................... 67,147
Custodian, accounting and transfer agent fees ............ 63,210
Reports to shareholders .................................. 19,982
Mortgage servicing fees .................................. 104,393
Directors' fees .......................................... 8,448
Audit and legal fees ..................................... 31,740
Other expenses ........................................... 20,907
----------------
Total expenses ....................................... 517,062
Less expenses paid indirectly ............................ (1,498)
----------------
Total net expenses ................................... 515,564
----------------
Net investment income ................................ 2,458,436
----------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on investments (note 4) ................ 326,195
Net change in unrealized appreciation or depreciation of
investments ............................................ (1,889,278)
----------------
Net loss on investments ................................ (1,563,083)
----------------
Net increase in net assets resulting from
operations ....................................... $ 895,353
----------------
----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
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FINANCIAL STATEMENTS (UNAUDITED)
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MAY 31, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest income ........................................ $ 2,974,000
Net expenses ............................................. (515,564)
----------------
Net investment income ................................ 2,458,436
----------------
Adjustments to reconcile net investment income to net cash
provided by operating activities:
Change in accrued interest and mortgage security
paydowns receivable .................................. 47,148
Net amortization of bond discount and premium .......... (21,513)
Change in accrued fees and expenses .................... (18,172)
----------------
Total adjustments .................................... 7,463
----------------
Net cash provided by operating activities ............ 2,465,899
----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments ....................... 38,433,070
Purchases of investments ................................. (39,425,765)
Net sales of short-term securities ....................... 1,756,000
----------------
Net cash provided by investing activities ............ 763,305
----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from reverse repurchase agreements .......... 2,000,000
Retirement of fund shares ................................ (451,437)
Distributions paid to shareholders ....................... (4,473,751)
----------------
Net cash used by financing activities ................ (2,925,188)
----------------
Net increase in cash ..................................... 304,016
Cash at beginning of period .............................. 290,234
----------------
Cash at end of period .............................. $ 594,250
----------------
----------------
Supplemental disclosure of cash flow information:
Cash paid for interest on reverse repurchase
agreements ........................................... $ 432,989
----------------
----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
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FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended
5/31/96 Year Ended
(Unaudited) 11/30/95
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income .................................. $ 2,458,436 5,722,222
Net realized gain (loss) on investments .................. 326,195 (8,136,410)
Net change in unrealized appreciation or depreciation of
investments ............................................ (1,889,278) 14,122,906
---------------- ----------------
Net increase in net assets resulting from operations ... 895,353 11,708,718
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ............................... (4,473,751) (9,035,764)
---------------- ----------------
CAPITAL SHARE TRANSACTIONS:
Payments for retirement of 35,100 and 45,500 shares,
respectively (note 6) .................................. (413,787) (573,450)
---------------- ----------------
Total increase (decrease) in net assets .............. (3,992,185) 2,099,504
Net assets at beginning of period .......................... 69,376,407 67,276,903
---------------- ----------------
Net assets at end of period .............................. $ 65,384,222 69,376,407
---------------- ----------------
---------------- ----------------
Undistributed net investment income ...................... $ 257,625 2,272,940
---------------- ----------------
---------------- ----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
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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 investment management 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 ASP.
(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 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 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 are determined using
pricing services or prices quoted by independent brokers.
Exchange-
15
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
listed options are valued at the last sales price and open
financial futures contracts are valued at the last settlement
price. When market quotations for other fixed income securities
are not readily available, such securities are valued at fair
value according to methods selected in good faith by the board
of directors.
Securities transactions are accounted for on the date the
securities are purchased and sold. Realized gains and losses are
calculated on the identified-cost basis. Interest income,
including amortization of bond discount and premium, 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.
OPTIONS TRANSACTIONS
For hedging purposes, the fund may buy and sell put and call
options, write covered call options on portfolio securities, and
write cash-secured puts. The risk in writing a call option is
that the fund gives up the opportunity for profit if the market
price of the security increases. The risk in writing a put
option is that the fund may incur a loss if the market price of
the security decreases and the option is exercised. The risk of
buying an option is that the fund pays a premium whether or not
the option is exercised. The fund also has the additional risk
of not being able to enter into a closing transaction if a
liquid secondary market does not exist. The fund 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 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
16
<PAGE>
- --------------------------------------------------------------------------------
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 due to or owed by the fund. Interest rate
swaps, caps and floors are
17
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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. At May 31, 1996, loans representing
5% of net assets 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 May 31, 1996, the fund
owned 4 homes with an aggregate value of $113,791, or 0.17% of
net assets. The fund recognized net realized losses of $1,281 on
real estate sold during the year ended May 31, 1996.
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 on 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.
The fund will not service mortgages, be the mortgage servicer of
record or enter into any arrangement pursuant to where the fund
could be liable to third parties in the event the mortgage
servicer defaulted on
18
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 net asset value if the fund makes such
purchases while remaining substantially fully invested. As of
May 31, 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 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, 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.
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" transactions.
19
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
The character of distributions made during the year from net
investment income or net realized gains may differ from its
ultimate characterization for federal income tax purposes. In
addition, due to the timing of dividend distributions, the
fiscal year in which amounts are distributed may differ from the
year that the income or realized gains (losses) were recorded by
the fund.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income are made monthly and
realized capital gains, if any, will be distributed at least
annually. These distributions are recorded as of the close of
business on the ex-dividend date. Such distributions are payable
in cash or, pursuant to the fund's dividend reinvestment plan,
reinvested in additional shares of the fund's capital stock.
Under the plan, fund shares will be purchased in the open market
unless the market price plus commissions exceeds the net asset
value by 5% or more. If, at the close of business on the
dividend payment date, the shares purchased in the open market
are insufficient to satisfy the dividend reinvestment
requirement, the fund will issue new shares at a discount of up
to 5% from the current market price.
REPURCHASE AGREEMENTS
For repurchase agreements entered into with certain
broker-dealers, the fund, along with other affiliated registered
investment companies, may transfer uninvested cash balances into
a joint trading account, the daily aggregate of which is
invested in repurchase agreements secured by U.S. government or
agency obligations. Securities pledged as collateral for all
individual and joint repurchase agreements are held by the
fund's custodian bank until maturity of the repurchase
agreement. Provisions for all agreements ensure that the daily
market value of the collateral is in excess of the repurchase
amount, including accrued interest, to protect the fund in the
event of a default.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities. Management is also required to make
disclosures of contingent assets and liabilities at the date of
the financial statements and the reported results of operations
during the reporting period. Actual results could differ from
those estimates.
20
<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 an
annualized rate of 0.20% of the fund's average weekly net assets
and 4.50% of the daily gross income accrued by the fund during
the month (i.e., investment income, including amortization of
discount and premium, other than gains from the sale of
securities or gains from options and futures contracts, less
interest on money borrowed by the fund). The monthly investment
management fee shall not exceed in the aggregate 1/12 of 0.725%
of the fund's average weekly net assets during the month
(approximately 0.725% on an annual basis). For 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 cash balances maintained by the fund.
21
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(4) INVESTMENT SECURITY TRANSACTIONS
Cost of purchases and proceeds from sales of securities, other
than temporary investments in short-term securities, for the six
months ended May 31, 1996, aggregated $39,447,278 and
$38,433,070, respectively. Included in proceeds from sales are
$319,721 from sales of real estate owned.
During the six months ended May 31, 1996, no brokerage
commissions were paid to Piper Jaffray Inc., an affiliated
broker.
(5) CAPITAL LOSS CARRYOVER
For federal income tax purposes, the fund had capital loss
carryovers of $9,113,614 as of November 30, 1995, which, if not
offset by subsequent capital gains, will expire in 2002 and
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
On February 6, 1996, the fund's board of directors voted to
discontinue the share repurchase program. Pursuant to the plan,
the fund has cumulatively repurchased and retired 94,700 shares
as of February 7, 1996, which represents 1.8% 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 complaint
alleges, among other things, violations of federal and state
securities laws. 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 ASP
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 of the
settlement following Court approval.
22
<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
Ended Year Year Year Period
5/31/96 Ended Ended Ended Ended
(Unaudited) 11/30/95 11/30/94 11/30/93 11/30/92(f)
------------ -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ......... $ 13.13 12.63 15.79 14.89 13.98
------ -------- -------- -------- ------
Operations:
Net investment income .......................... 0.47 1.09 1.41 1.79 1.49
Net realized and unrealized gain (loss) on
investments .................................. (0.29) 1.11 (3.22) 0.61 0.55
------ -------- -------- -------- ------
Total from operations ..................... 0.18 2.20 (1.81) 2.40 2.04
------ -------- -------- -------- ------
Distributions to shareholders:
From net investment income ..................... (0.85) (1.70) (1.15) (1.50) (1.13)
From net realized gains on investments ......... -- -- (0.20) -- --
------ -------- -------- -------- ------
Total distributions to shareholders ....... (0.85) (1.70) (1.35) (1.50) (1.13)
------ -------- -------- -------- ------
Net asset value, end of period ........... $ 12.46 13.13 12.63 15.79 14.89
------ -------- -------- -------- ------
------ -------- -------- -------- ------
Per-share market value, end of period .... $ 10.63 12.25 13.00 16.38 16.25
------ -------- -------- -------- ------
------ -------- -------- -------- ------
SELECTED INFORMATION
Total return, net asset value (a) .............. 1.37% 18.27% (11.87)% 16.80% 15.20%
Total return, market value (b) ................. (6.60)% 7.75% (12.59)% 10.75% 16.92%
Net assets at end of period (in millions) .... $ 65 69 67 84 79
Ratio of expenses to average weekly net assets
(c)(g) ....................................... 1.54%(h) 1.72% 1.69% 1.69% 1.45%(h)
Ratio of net investment income to average weekly
net assets ................................... 7.31%(h) 8.26% 10.00% 11.52% 11.49%(h)
Portfolio turnover rate (excluding short-term
securities) .................................. 48% 120% 74% 50% 72%
Amount of borrowings outstanding at end of
period (in millions) (d) ................... $ 17 15 28 32 32
Per-share amount of borrowings outstanding at
end of period .............................. $ 3.24 2.84 5.16 6.04 6.05
Per-share amount of net assets, excluding
borrowings, at end of period ............... $ 15.70 15.97 17.79 21.83 20.94
Asset coverage ratio (e) ....................... 485% 563% 345% 361% 346%
</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%, 0.23%, AND 0.22% FROM FEDERAL EXCISE TAXES IN FISCAL 1995,
1994 AND 1993, 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, HIGH-GRADE
DEBT OBLIGATIONS ARE MAINTAINED IN A SEGREGATED ACCOUNT 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 DECEMBER 27, 1991.
(G) THE RATIO OF EXPENSES TO AVERAGE WEEKLY NET ASSETS EXCLUDES INTEREST
EXPENSE THAT HAS BEEN PRESENTED NET OF THE RELATED INTEREST INCOME IN THE
FINANCIAL STATEMENTS. IF THE INTEREST EXPENSE HAD BEEN INCLUDED IN TOTAL
EXPENSES, THE RATIOS OF EXPENSES TO AVERAGE WEEKLY NET ASSETS WOULD HAVE
BEEN 2.82%, 3.29%, 3.34%, 3.00% AND 2.86% IN THE SIX MONTHS ENDED 5/31/96,
FISCAL 1995, 1994, 1993 AND 1992, RESPECTIVELY.
(H) ADJUSTED TO AN ANNUAL BASIS.
23
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES (Unaudited)
AMERICAN STRATEGIC INCOME PORTFOLIO
MAY 31, 1996
<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 AND AGENCY SECURITIES (31.9%):
U.S. Government Treasury Securities (27.0%):
U.S. Treasury Note, 5.13%, 4/30/98 ................. $ 16,500,000(b) 16,180,725
U.S. Treasury Note, 6.13%, 5/15/98 ................... 1,500,000 1,496,970
-----------
17,677,695
-----------
U.S. Agency Mortgage-Backed Securities (4.9%):
Fixed Rate (4.9%):
7.00%, GNMA, 7/15/23 ................................. 1,661,674 1,585,835
7.00%, GNMA, 7/15/23 ................................. 1,667,106 1,591,019
-----------
3,176,854
-----------
Total U.S. Government and Agency Securities
(cost: $21,170,221) ............................... 20,854,549
-----------
PRIVATE MORTGAGED-BACKED SECURITIES (1.5%):
Subordinated Fixed Rate (1.5%):
10.10%, First Boston, Series 1992-1, Class B-2,
1/15/01
(cost: $962,851) .................................... 1,000,000(e) 982,969
-----------
WHOLE LOANS AND PARTICIPATION MORTGAGES (C,D,E) (87.3%):
Multifamily Loans (31.8%):
Applewood Manor, 8.75%, 1/1/01 ....................... 688,030 688,168
Boca Bend Apartments, 11.75%, 5/1/00 ................. 592,752 586,173
Dorchester Garden Apartments, 8.50%, 7/1/02 .......... 1,488,080 1,471,563
Essex Place I, 9.58%, 9/30/12 ........................ 2,150,403 1,401,417
Franklin Woods Apartments, 9.90%, 3/1/10 ............. 1,325,393 1,371,781
Fremont Plaza Apartments, 9.75%, 4/1/02 .............. 736,072 761,835
Garden Oaks Apartments, 8.55%, 4/1/06 ................ 1,865,000 1,821,919
Kings Creek Apartments, 10.00%, 5/1/96 ............... 1,300,000 1,302,080
Normandie Square Apartments, 8.75%, 4/1/01 ........... 1,834,336 1,825,347
Park Place Apartments, 8.38%, 7/1/02 ................. 1,565,949 1,540,893
Royal Knight Apartments, 8.50%, 4/1/06 ............... 1,600,000 1,565,920
Stanley Court Apartments, 8.50%, 11/1/02 ............. 1,096,621 1,078,417
The Establishment, 8.75%, 2/1/01 ..................... 944,284 939,751
Twelfth Street Apartments, 9.25%, 6/1/05 ............. 1,181,980 1,201,955
Vanderbilt Condominiums, 8.50%, 8/1/00 ............... 820,901 816,222
Westgate Apartments, 10.00%, 2/1/08 .................. 1,396,954 1,408,409
Westhollow Place Apartments, 8.58%, 4/1/03 ........... 1,000,000 990,800
-----------
20,772,650
-----------
</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>
Single Family Loans (55.5%):
Aegis, 9.66%, 3/26/10 .............................. $ 727,237 722,728
Aegis II, 9.84%, 1/28/14 ............................. 589,428 593,378
American Bank, Mankato, 9.58%, 12/10/12 .............. 156,543 158,750
American Portfolio, 7.88%, 10/18/15 .................. 1,489,782 1,261,547
Bank of New Mexico, 9.08%, 3/31/10 ................... 2,003,229 1,965,629
Bluebonnet Savings and Loan, 9.58%, 8/31/10 .......... 281,994 269,699
Bluebonnet Savings and Loan, 9.58%, 8/31/10 .......... 1,929,507 1,852,905
CLSI Allison Williams, 10.47%, 8/1/17 ................ 997,795 1,009,070
Crossroads Savings and Loan, 9.57%, 1/1/21 ........... 660,426 670,399
Crossroads Savings and Loan, 9.57%, 1/1/21 ........... 730,323 717,908
Fairbanks II, Utah, 9.58%, 8/20/10 ................... 208,765 142,190
Fairbanks, Utah, 9.58%, 9/23/15 ...................... 495,272(b) 428,906
First Boston Mortgage Pool #5, 9.66%, 6/29/03 ........ 511,536 506,983
Hamilton Financial, 9.66%, 6/29/10 ................... 719,843(b) 639,580
Huntington MEWS, 8.93%, 8/1/17 ....................... 1,813,242 1,701,909
Knutson Mortgage Portfolio #1, 8.76%, 8/1/17 ......... 2,179,399(b) 2,163,708
Knutson Mortgage Portfolio #2, 9.55%, 9/25/17 ........ 1,763,587 1,809,201
McClemore, 9.58%, 9/30/12 ............................ 3,307,395(b) 3,290,527
Meridian, 9.54%, 12/1/20 ............................. 1,514,031 1,524,478
Minnesota Mortgage Corporation, 12.97%, 7/25/14 ...... 80,911 82,529
Minnesota Mortgage Corporation, 12.26%, 10/25/14 ..... 55,542 56,653
Minnesota Mortgage Corporation, 13.23%, 3/25/15 ...... 90,338 92,145
Nomura III, 8.40%, 4/29/17 ........................... 6,228,123 5,807,717
Norwest II, 7.71%, 11/27/22 .......................... 3,766,902 3,560,904
Norwest III, 7.63%, 11/27/22 ......................... 2,009,013 1,890,982
President Homes, 8.46%, 8/1/17 ....................... 76,783 78,902
President Homes 93-1, Sales Inventory, 10.00%,
3/1/23 .............................................. 427,286 424,039
Rand Mortgage Corporation, 9.52%, 8/1/17 ............. 598,507 600,063
Salomon II, 9.86%, 11/23/14 .......................... 1,708,250 1,727,724
Valley Bank of Commerce, N.M., 9.58%, 8/31/10 ........ 589,874 576,072
-----------
36,327,225
-----------
Total Whole Loans and Participation Mortgages
(cost: $56,294,912) ............................... 57,099,875
-----------
MORTGAGE SERVICING RIGHTS (1.2%):
Matrix Servicing Rights, 14.00%, 7/10/22
(cost: $740,440) .................................... -- 795,203
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
25
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES (UNAUDITED)
AMERICAN STRATEGIC INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- ---------- -----------
<S> <C> <C>
SHORT-TERM SECURITIES (2.1%):
Repurchase agreement with State Street in a joint
trading account, collateralized by U.S. government
agency securities, acquired on 5/31/96, accrued
interest at repurchase date of $606, 5.28%, 6/3/96
(cost: $1,377,000) ................................ $ 1,377,000 1,377,000
-----------
Total Investments in Securities
(cost: $80,545,424) (f) .......................... $ 81,109,596
-----------
-----------
</TABLE>
<TABLE>
<S> <C>
NOTES TO INVESTMENTS IN SECURITIES:
(A) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(B) ON MAY 31, 1996, SECURITIES VALUED AT $18,463,959 WERE PLEDGED AS
COLLATERAL FOR THE FOLLOWING OUTSTANDING REVERSE REPURCHASE AGREEMENTS:
</TABLE>
<TABLE>
<CAPTION>
NAME OF BROKER
ACQUISITION ACCRUED AND DESCRIPTION
AMOUNT DATE RATE* DUE INTEREST OF COLLATERAL
- ------------ ---------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C>
$ 15,000,000 5/1/96 5.39% 6/03/96 $ 69,588 (1)
2,000,000 5/29/96 6.25% 6/03/96 1,042 (2)
- ------------ ---------
$ 17,000,000 $ 70,630
- ------------ ---------
- ------------ ---------
</TABLE>
*INTEREST RATE IS AS OF MAY 31, 1996. RATES ARE BASED ON THE LONDON INTERBANK
OFFERED RATE (LIBOR) AND RESET MONTHLY.
<TABLE>
<S> <C> <C>
NAME OF BROKER AND DESCRIPTION OF COLLATERAL:
(1) NOMURA;
U.S. TREASURY NOTE, 5.13%, 4/30/98, $15,305,000 PAR
(2) NOMURA;
FAIRBANKS, UTAH, 9.58%, 9/23/15, $110,280 PAR
HAMILTON FINANCIAL, 9.66%, 6/29/10, $144,309 PAR
KNUTSON #1, 8.76%, 8/1/17, $39,869 PAR
MCLEMORE, 9.58%, 9/30/12, $3,208,171 PAR
(C) INTEREST RATE AND MATURITY DATE DISCLOSED REPRESENT THE WEIGHTED AVERAGE COUPON AND WEIGHTED
AVERAGE MATURITY FOR THE UNDERLYING MORTGAGE LOANS AS OF MAY 31, 1996.
(D) 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 MULTIFAMILY LOAN LOCATED IN BOCA RATON, FLORIDA.
DORCHESTER GARDEN APARTMENTS - 1 MULTIFAMILY LOAN LOCATED IN NORTH CHARLESTON, SOUTH
CAROLINA.
ESSEX PLACE I - 1 MULTIFAMILY LOAN LOCATED IN ROCHESTER, MINNESOTA.
</TABLE>
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INVESTMENTS IN SECURITIES (UNAUDITED)
<TABLE>
<S> <C> <C>
FRANKLIN WOODS APARTMENTS - 1 MULTIFAMILY LOAN LOCATED IN FRANKLIN, NEW HAMPSHIRE.
FREMONT PLAZA APARTMENTS - 1 MULTIFAMILY LOAN LOCATED IN LAS VEGAS, NEVADA.
GARDEN OAKS APARTMENTS - 1 MULTIFAMILY LOAN LOCATED IN COON RAPIDS, MINNESOTA.
KINGS CREEK APARTMENTS - 1 MULTIFAMILY LOAN LOCATED IN DALLAS, TEXAS.
NORMANDIE SQUARE APARTMENTS - 1 MULTIFAMILY LOAN LOCATED IN SAN ANTONIO, TEXAS.
PARK PLACE APARTMENTS - 1 MULTIFAMILY LOAN LOCATED IN GRAND FORKS, NORTH DAKOTA.
ROYAL KNIGHT APARTMENTS - 1 MULTIFAMILY LOAN LOCATED IN MEMPHIS, TENNESSEE.
STANLEY COURT APARTMENTS - 1 MULTIFAMILY LOAN LOCATED IN BLOOMINGTON, MINNESOTA.
THE ESTABLISHMENT - 1 MULTIFAMILY LOAN LOCATED IN DALLAS, TEXAS.
TWELFTH STREET APARTMENTS - 1 MULTIFAMILY LOAN LOCATED IN ATLANTA, GEORGIA.
VANDERBILT CONDOMINIUMS - 1 MULTIFAMILY LOAN LOCATED IN AUSTIN, TEXAS
WESTGATE APARTMENTS - 1 MULTIFAMILY LOAN LOCATED IN BISMARCK, NORTH DAKOTA.
WESTHOLLOW PLACE APARTMENTS - 1 MULTIFAMILY LOAN LOCATED IN HOUSTON, TEXAS.
SINGLE FAMILY LOANS:
AEGIS - 34 LOANS LOCATED THROUGHOUT THE MIDWESTERN STATES.
AEGIS II - 9 LOANS LOCATED THROUGHTOUT THE MIDWESTERN STATES.
AMERICAN BANK, MANKATO - 6 LOANS LOCATED IN SOUTHWESTERN MINNESOTA.
AMERICAN PORTFOLIO - 15 LOANS LOCATED IN TEXAS AND CALIFORNIA.
BANK OF NEW MEXICO - 35 LOANS LOCATED IN NEW MEXICO.
BLUEBONNET SAVINGS AND LOAN - 77 LOANS LOCATED IN THE VICINITY OF SAN ANTONIO, TEXAS.
CLSI ALLISON WILLIAMS - 45 LOANS LOCATED AROUND LAS MESA, SEMINOLE AND ANDREWS, TEXAS.
CROSSROADS SAVINGS AND LOAN - 39 LOANS LOCATED IN THE VICINITY OF TULSA, OKLAHOMA.
FAIRBANKS II - 2 LOANS LOCATED IN THE VICINITY OF FAIRBANKS AND SALT LAKE CITY, UTAH.
FAIRBANKS - 10 LOANS LOCATED IN THE VICINITY OF FAIRBANKS AND SALT LAKE CITY, UTAH.
FIRST BOSTON MORTGAGE POOL #5 - 17 LOANS LOCATED THROUGHOUT THE UNITED STATES.
HAMILTON FINANCIAL - 5 LOANS LOCATED IN CALIFORNIA.
HUNTINGTON MEWS - 37 LOANS LOCATED IN THE VICINITY OF CAMDEN, NEW JERSEY.
KNUTSON MORTGAGE PORTFOLIO #1 - 34 LOANS LOCATED THROUGHOUT THE MIDWESTERN STATES.
KNUTSON MORTGAGE PORTFOLIO #2 - 23 LOANS LOCATED THROUGHOUT THE MIDWESTERN STATES.
MCCLEMORE - 35 LOANS LOCATED IN NORTH CAROLINA.
MERIDIAN - 22 LOANS LOCATED THROUGHOUT CALIFORNIA.
MINNESOTA MORTGAGE CORPORATION - 16 LOANS LOCATED IN MINNESOTA.
NOMURA III - 82 LOANS LOCATED THROUGHOUT THE MIDWESTERN STATES.
NORWEST II - 33 LOANS LOCATED THROUGHTOUT THE MIDWESTERN STATES.
NORWEST III - 20 LOANS LOCATED THROUGHTOUT THE MIDWESTERN STATES.
PRESIDENT HOMES - 5 LOANS LOCATED THROUGHOUT THE MIDWESTERN STATES.
RAND MORTGAGE CORPORATION - 12 LOANS LOCATED NEAR HOUSTON AND AUSTIN, TEXAS.
SALOMON II - 36 LOANS LOCATED THROUGHOUT THE MIDWESTERN STATES.
VALLEY BANK OF COMMERCE, N.M. - 32 LOANS LOCATED THROUGHOUT NEW MEXICO.
(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 1993.
(F) AT MAY 31, 1996, THE COST OF SECURITIES, INCLUDING REAL ESTATE OWNED, FOR FEDERAL INCOME TAX
PURPOSES WAS APPROXIMATELY $80,663,655. 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 .... $ 2,230,425
GROSS UNREALIZED DEPRECIATION ...... (1,670,693)
-----------
NET UNREALIZED APPRECIATION .... $ 559,732
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27
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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.
George Latimer, CHIEF EXECUTIVE OFFICER, NATIONAL
EQUITY FUNDS
OFFICERS William H. Ellis, CHAIRMAN OF THE BOARD
John G. Wenker, PRESIDENT
Russ K. Kappenman, SENIOR VICE PRESIDENT AND
ASSISTANT SECRETARY
Robert H. Nelson, SENIOR VICE PRESIDENT AND
TREASURER
David M. Steele, SENIOR VICE PRESIDENT
Amy K. Johnson, VICE PRESIDENT
Amy Konicke, VICE PRESIDENT
Julene R. Melquist, VICE PRESIDENT
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
TRANSFER AGENT AND Investors Fiduciary Trust Company
RECORD KEEPER 127 WEST 10TH STREET, KANSAS CITY, MO 64105-1716
LEGAL COUNSEL Dorsey & Whitney LLP
220 SOUTH SIXTH STREET, MINNEAPOLIS, MN 55402
CUSTODIAN First Trust
180 EAST FIFTH STREET, ST. PAUL, MN 55101
28
<PAGE>
PIPER CAPITAL ----------------
MANAGEMENT Bulk Rate
U.S. Postage
PIPER CAPITAL MANAGEMENT INCORPORATED PAID
222 SOUTH NINTH STREET Permit No. 3008
MINNEAPOLIS, MN 55402-3804 Mpls., MN
----------------
THIS DOCUMENT IS PRINTED ON PAPER MADE FROM
[LOGO] 100% TOTAL RECOVERED FIBER, INCLUDING 15% POST-CONSUMER WASTE.
In an effort to reduce costs to our shareholders, we have
implemented a process to reduce duplicate mailings of
the fund's 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
Shareholder Services area at 1 800 866-7778, or mail
your request to:
Piper Capital Management
Attn: Communications Department
222 South Ninth Street
Minneapolis, MN 55402-3804
#21510 8/96 156-96
