<PAGE>
AMERICAN
STRATEGIC
INCOME
PORTFOLIO
* * *
ANNUAL REPORT
1995
<PAGE>
TABLE OF CONTENTS
AVERAGE ANNUALIZED TOTAL RETURNS. . 1
LETTER TO SHAREHOLDERS. . . . . . . 2
MANAGING RISK . . . . . . . . . . . 8
FINANCIAL STATEMENTS AND NOTES. . . 9
INVESTMENTS IN SECURITIES . . . . .24
INDEPENDENT AUDITORS' REPORT. . . .28
FEDERAL TAX INFORMATION . . . . . .29
SHAREHOLDER UPDATE. . . . . . . . .30
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 sale-forward
(dollar-roll) program. Use of certain of these investments and investment
techniques may cause the fund's net asset value to fluctuate to a greater extent
than would be expected from interest rate movements alone. As with other mutual
funds, there can be no assurance the fund will achieve its objectives. Since the
fund's inception on December 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.
<PAGE>
AVERAGE ANNUALIZED TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1995
[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 NOVEMBER 30, 1995, WERE 7.75%, 1.43% AND
5.19%, RESPECTIVELY. THESE FIGURES ALSO ASSUME REINVESTED DISTRIBUTIONS AND DO
NOT REFLECT SALES CHARGES.
THE LEHMAN BROTHERS MUTUAL FUND GOVERNMENT/MORTGAGE INDEX IS COMPRISED OF ALL
U.S. GOVERNMENT AGENCY AND TREASURY SECURITIES AND AGENCY MORTGAGE-BACKED
SECURITIES. DEVELOPED BY LEHMAN BROTHERS FOR COMPARATIVE USE BY THE MUTUAL FUND
INDUSTRY, THIS INDEX IS UNMANAGED AND DOES NOT INCLUDE ANY FEES OR EXPENSES IN
ITS TOTAL RETURN FIGURES.
THE LIPPER CLOSED-END U.S. MORTGAGE FUNDS AVERAGE REPRESENTS THE AVERAGE
ANNUALIZED TOTAL RETURN, WITH DIVIDENDS REINVESTED, OF SIMILAR CLOSED-END MUTUAL
FUNDS AS CHARACTERIZED BY LIPPER ANALYTICAL SERVICES.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND
MARKET VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT FUND SHARES, WHEN SOLD,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
1
<PAGE>
AMERICAN STRATEGIC INCOME PORTFOLIO
[PHOTO]
JOHN WENKER
[PHOTO]
DAVID STEELE
JOHN WENKER ASSUMED THE ROLE OF PRIMARY PORTFOLIO MANAGER OF AMERICAN STRATEGIC
INCOME PORTFOLIO IN NOVEMBER 1995. JOHN, WHO HAS ASSISTED WITH THE FUND'S
MANAGEMENT SINCE 1992, HAS BEEN RESPONSIBLE FOR THE ACQUISITION AND DUE
DILIGENCE OF MANY OF THE SINGLE-FAMILY, MULTIFAMILY AND COMMERCIAL MORTGAGE
LOANS IN THE FUND. PRIOR TO JOINING PIPER CAPITAL MANAGEMENT, JOHN MANAGED
SINGLE-FAMILY AND MULTIFAMILY REVENUE BOND FINANCINGS FOR A FINANCIAL FIRM. RUSS
KAPPENMAN WILL ASSIST PRIMARILY WITH THE ACQUISITION OF THE FUND'S MORTGAGE
LOANS. DAVID STEELE WILL ASSIST WITH THE MANAGEMENT OF THE FUND'S OTHER
SECURITIES. MIKE JANSEN, WHO PREVIOUSLY MANAGED THE FUND, AND KEVIN JANSEN, AN
ASSISTANT FUND MANAGER, HAVE LEFT PIPER CAPITAL TO PURSUE OTHER CAREER
OPPORTUNITIES.
January 26, 1996
Dear Shareholders:
FOR THE ONE-YEAR PERIOD ENDED NOVEMBER 30, 1995, AMERICAN STRATEGIC INCOME
PORTFOLIO HAD A NET ASSET VALUE TOTAL RETURN OF 18.27%.* This return includes
reinvested distributions but not sales charges. This compares to a 17.01% return
for the Lehman Brothers Mutual Fund Government/Mortgage Index and a 20.84%
return for the Lipper Closed-End U.S. Mortgage Funds Average during this same
period. The fund's slight underperformance of the Lipper average is primarily
due to price caps on the mortgage loans in the fund. These caps limited the
price increase on these mortgage loans as interest rates fell. The average did
not contain mortgage loans and was not restricted by these caps. While the fund
continues to trade at a discount to net asset value, we believe the changes
we've made to reduce its net asset value volatility and stabilize earnings, as
discussed below, could help improve the fund's market price over time. (See page
4 for an explanation of premium vs. discount.) As of January 18, the fund's
market price was $11.88 and its net asset value was $12.99 per share. For the
one-year period ended November 30, 1995, the fund's total return based on market
price was 7.75%, including reinvested distributions but not 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.
2
<PAGE>
AMERICAN STRATEGIC INCOME PORTFOLIO
[GRAPH]
THE MARKET ENVIRONMENT DURING THE YEAR PLAYED A MAJOR ROLE IN THE FUND'S
STRONG NET ASSET VALUE PERFORMANCE. Interest rates have declined since the
beginning of 1995 due to signs of slowing economic growth. As a result, bond
prices in general increased. In addition, an improved market for rental
housing during the year increased the value of the fund's holdings of
multifamily loans. If rates remain at current levels or decline further for a
sustained period of time, the prepayment rates for mortgage loans in the fund
may accelerate. Because most of the mortgages in the fund are purchased at a
discount and prepay at face value, prepayments could temporarily increase
earnings in the fund. However, we would then have to reinvest these
prepayments at lower interest rates which would ultimately decrease the
fund's earnings.
DURING THE YEAR, OUR GOAL HAS BEEN TO STABILIZE THE FUND'S NET ASSET VALUE
AND EARNINGS. We did this by selling all of the fund's Z-bonds, inverse
floaters, principal-only, interest-only and inverse interest-only securities.
As interest rates fell, the fund benefited from the increase in value of
these mortgage-backed derivatives following their lows in 1994. Also, in
December we significantly decreased the fund's position in subordinated
mortgage-backed securities; however, the fund does still own a small position
in these securities.
AS WE SOLD THE MORTGAGE-BACKED SECURITIES LISTED ABOVE, WE REINVESTED THE
PROCEEDS IN MORTGAGE LOANS AND U.S. TREASURY SECURITIES. As of November 30, 37%
of the fund's total assets were invested in single-family (home) loans, 22% in
3
<PAGE>
AMERICAN STRATEGIC INCOME PORTFOLIO
PREMIUM VS. DISCOUNT
The underlying value of a fund's securities and other assets, minus its
liabilities, is the fund's "net asset value." Closed-end funds may trade in
the market at a price that is equal to, above, or below this net asset value.
Shares are trading at a "premium" when investors purchase or sell shares in
the market at a price that is greater than the shares' net asset value.
Conversely, when investors purchase or sell shares in the market at a price
that is lower than the shares' net asset value, shares are said to be trading
at a "discount."
multifamily (apartment) loans, and 23% in Treasury securities. It is our goal to
maintain the fund's investments in mortgage loans and Treasuries at
approximately these levels. This is consistent with our strategy of focusing on
securities that may involve more credit risk and moving away from those that are
more sensitive to changing interest rates. We continue to borrow in the fund
through reverse repurchase agreements, which as of November 30 accounted for 18%
of the fund's total assets, and invest the proceeds in Treasury securities.
While borrowing can potentially increase the fund's earnings, it can also
increase the fund's net asset value volatility.
ON JANUARY 26, PIPER CAPITAL ANNOUNCED THAT BEGINNING IN FEBRUARY, THE FUND'S
MONTHLY DIVIDEND WILL BE REDUCED FROM 12.5 CENTS PER SHARE TO 10 CENTS PER
SHARE. Because the fund is only earning 8.51 cents per share (based on a three-
month average), it has been relying on its dividend reserve to help pay its
monthly dividend. Therefore, the fund's Dividend Committee lowered the monthly
dividend to bring it closer to the fund's monthly earnings. While we believe the
recent changes we've made to the fund have resulted in more stable monthly
earnings, the fund is still earning less than the 10 cents per share dividend we
will begin paying in February. If the fund continues to earn less than its
monthly dividend, further reductions will be made until the fund has reached an
appropriate dividend level given its monthly earnings. In addition, the dividend
reserve, which was approximately 43 cents per share on November 30, is rapidly
being depleted. (As of December 31, the dividend reserve was approximately 28
cents per share.) Not only are we using the dividend reserve to help pay the
fund's regular dividend, but we also paid out from the
4
<PAGE>
AMERICAN STRATEGIC INCOME PORTFOLIO
GEOGRAPHICAL DISTRIBUTION
NOVEMBER 30, 1995
[MAP]
dividend reserve four special income dividends of 10 cents per share
beginning in October. These special dividends were declared to reduce the
amount of excise tax the fund must pay for 1995. Tax laws require that a fund
declare dividends by the end of each calendar year representing 98% of the
fund's ordinary income for the calendar year, plus 98% of its capital gains
for the 12-month period ending October 31. If a fund does not declare and
distribute the required amount, it must pay a 4% excise tax on any
undistributed income and capital gains. Keep in mind that the dividend
reserve is reflected in the fund's net asset value and any reduction in the
dividend reserve will reduce the fund's net asset value penny for penny.
5
<PAGE>
AMERICAN STRATEGIC INCOME PORTFOLIO
ALTHOUGH THE FUND'S EARNINGS HAVE DECLINED FROM THEIR HIGHS IN PREVIOUS
YEARS, THE FUND CONTINUES TO GENERATE ATTRACTIVE EARNINGS LEVELS. The fund's
current monthly earnings of 8.51 cents per share (based on a three-month
average) would result in an annualized earnings rate of 8.34% on the November
30 market price and 6.81% on the initial public offering price of $15 per
share. Keep in mind that past performance does not guarantee future results
and these rates will fluctuate.
DURING THE YEAR, WE SUCCESSFULLY MANAGED THE RISKS INVOLVED WITH MORTGAGE
LOANS. (See page 8 for a discussion of risks.) We believe we are better able
to manage and predict credit risk and loss on loans for moderately valued
homes than on higher valued homes. As of November 30, the fund held 619
single-family loans which, on average, had a relatively modest value of
approximately $70,000. The average balance remaining on these loans was
approximately $53,800. To date, our losses from single-family loans have been
about five cents per share. 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 November 30, we had 15
multifamily loans with an average loan balance of approximately $1,213,000.
To date, there have been no 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. A loan is
considered delinquent when a borrower has missed two or more payments. As of
November 30, 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 house payments. If it
becomes necessary to put a loan in foreclosure, our loan servicers will
proceed with the process as quickly as possible.
6
<PAGE>
AMERICAN STRATEGIC INCOME PORTFOLIO
WE BELIEVE GEOGRAPHIC DIVERSIFICATION IS ESSENTIAL TO THE FUND. The mortgage
loans in which the fund invests are backed by property located throughout the
country. (See map on page 5.) Our largest concentrations of loans are in
Texas and California. Because these states have large populations, they offer
more loans. In addition, these states experienced adverse economic conditions
during the past several years, and we have been able to purchase loans at
what we believe are attractive price levels. Texas and California are
currently experiencing economic recoveries.
LOOKING AHEAD, WE BELIEVE THE FUND'S NET ASSET VALUE AND EARNINGS SHOULD BE
MORE CONSISTENT THAN IN THE PAST. By selling the fund's Z-bonds, inverse
floaters, principal-only, interest-only and inverse interest-only securities,
we believe we have reduced interest rate risk and focused the fund's
investments where we feel we can currently add the most value - in the
mortgage loan area. We will continue to emphasize mortgage loans in an effort
to achieve high current income.
Although I have assisted with the fund's management in the past, I am pleased
to be addressing you for the first time as the fund's manager. My efforts and
those of the fund's management team continue to be dedicated to reaching the
fund's objectives and helping you achieve your financial goals. Thank you for
your investment in American Strategic Income Portfolio.
Sincerely,
/s/ John Wenker
John Wenker
Portfolio Manager
7
<PAGE>
MANAGING RISK
MANAGING THE RISKS OF MORTGAGE-RELATED ASSETS
All funds that invest in mortgage-related securities are subject to certain
risks. This list briefly summarizes some of the primary risks associated with
mortgage-related assets and does not include all risks related to mortgage
securities.
Among these risks is PREPAYMENT RISK in which principal payments are prepaid at
unexpected rates. Prepayment rates are influenced by changes in interest rates
and a variety of other factors. If the fund buys a mortgage loan at a premium, a
fast prepayment rate will reduce the fund's yield and a slow prepayment rate
will increase its yield. If a mortgage loan is purchased at a discount, the
opposite will occur. There is also the chance that proceeds from prepaid loans
will have to be reinvested in lower-yielding investments.
Like all fixed income investments, the prices of securities in the fund are
sensitive to changing interest rates - otherwise known as INTEREST RATE RISK.
When rates increase, the value of securities can decrease. Conversely, when
rates decline, the value of securities can rise. However, mortgage-related
assets may benefit less than other fixed income securities from declining
interest rates because of prepayment risk.
The fund's mortgage loans are subject to some unique risks such as credit risk
and real estate risk. Since the fund's mortgage loans generally aren't backed by
any government guarantee or private credit enhancement, they face CREDIT RISK.
This is the risk of loss arising from default if the borrower fails to make
payments on the loan. This risk may be greater during periods of declining or
stagnant real estate values. Mortgage loans are also subject to REAL ESTATE
RISKS such as: property risk (the risk that the physical condition and value of
the property will decline) and the legal risk of holding any mortgage.
To date, we have successfully managed the unique risks of mortgage loans through
extensive risk analysis. We review the loan's legal documents and the borrower's
mortgage payment history; assess the local market and property value; and obtain
a drive-by assessment of the property. As part of our strategy to manage the
real estate risk of the fund's multifamily (apartment) loans, we perform a
detailed inspection of each property; study the competing properties in the
area; interview property managers; and obtain engineering and environmental
reports from experts.
8
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1995
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (note 2)
(including a repurchase agreement of $3,133,000) ..... $ 83,213,929
Real estate owned (note 2) (identified cost: $400,325) ... 314,333
Cash in bank on demand deposit ........................... 290,234
Mortgage security paydowns receivable .................... 12,322
Accrued interest receivable .............................. 719,279
----------------
Total assets ......................................... 84,550,097
----------------
LIABILITIES:
Reverse repurchase agreements payable .................... 15,000,000
Payable for fund shares retired .......................... 37,650
Accrued investment management fee ........................ 40,027
Accrued administrative fee ............................... 11,369
Accrued interest ......................................... 72,250
Payable for federal excise taxes (note 2) ................ 6,178
Other accrued expenses ................................... 6,216
----------------
Total liabilities .................................... 15,173,690
----------------
Net assets applicable to outstanding capital stock ....... $ 69,376,407
----------------
----------------
REPRESENTED BY:
Capital stock - authorized 1 billion shares of $0.01 par
value; outstanding, 5,282,821 shares ................. $ 52,828
Additional paid-in capital ............................... 73,728,577
Undistributed net investment income ...................... 2,272,940
Accumulated net realized loss on investments ............. (9,126,948)
Unrealized appreciation of investments ................... 2,449,010
----------------
Total - representing net assets applicable to
outstanding capital stock ........................ $ 69,376,407
----------------
----------------
Net asset value per share of outstanding capital stock ... $ 13.13
----------------
----------------
* Investments in securities at identified cost ........... $ 80,678,927
----------------
----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1995
<TABLE>
<S> <C>
INCOME:
Interest (net of interest expense of $1,085,802) ....... $ 6,913,161
------------------
EXPENSES (NOTE 3):
Investment management fee ................................ 449,605
Administrative fee ....................................... 138,512
Custodian, accounting and transfer agent fees ............ 173,646
Reports to shareholders .................................. 54,119
Mortgage servicing fees .................................. 244,823
Directors' fees .......................................... 11,099
Audit and legal fees ..................................... 53,489
Federal excise taxes (note 2) ............................ 12,213
Other expenses ........................................... 55,636
------------------
Total expenses ....................................... 1,193,142
Less expenses paid indirectly ............................ (2,203)
------------------
Total net expenses ................................... 1,190,939
------------------
Net investment income ................................ 5,722,222
------------------
NET REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS:
Net realized loss on investments (note 4) ................ (7,099,321)
Net realized loss on closed or expired option contracts
written (note 5) ....................................... (1,037,089)
------------------
Net realized loss on investments ....................... (8,136,410)
Net change in unrealized appreciation or depreciation of
investments ............................................ 14,122,906
------------------
Net gain on investments ................................ 5,986,496
------------------
Net increase in net assets resulting from
operations ....................................... $ 11,708,718
------------------
------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED NOVEMBER 30, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest income ........................................ $ 6,913,161
Net expenses ............................................. (1,190,939)
----------------
Net investment income ................................ 5,722,222
----------------
Adjustments to reconcile net investment income to net cash
provided by operating activities:
Change in accrued interest and mortgage security
paydowns receivable .................................. 256,638
Net amortization of bond discount and premium .......... (84,927)
Change in accrued fees and expenses .................... (185,273)
----------------
Total adjustments .................................... (13,562)
----------------
Net cash provided by operating activities ............ 5,708,660
----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments ....................... 120,106,547
Purchases of investments ................................. (99,972,710)
Net purchases of short-term securities ................... (2,545,000)
Net premiums paid for option contracts written ........... (1,233,730)
----------------
Net cash provided by investing activities ............ 16,355,107
----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments for reverse repurchase agreements ........... (12,500,000)
Retirement of fund shares ................................ (552,278)
Distributions paid to shareholders ....................... (9,035,764)
----------------
Net cash used by financing activities ................ (22,088,042)
----------------
Net decrease in cash ..................................... (24,275)
Cash at beginning of year ................................ 314,509
----------------
Cash at end of year ................................ $ 290,234
----------------
----------------
Supplemental disclosure of cash flow information:
Cash paid for interest on reverse repurchase
agreements ........................................... $ 1,097,429
----------------
----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
11/30/95 11/30/94
---------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income .................................. $ 5,722,222 7,535,718
Net realized loss on investments ......................... (8,136,410) (640,366)
Net change in unrealized appreciation or depreciation of
investments ............................................ 14,122,906 (16,574,443)
---------------- -----------------
Net increase (decrease) in net assets resulting from
operations ........................................... 11,708,718 (9,679,091)
---------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ............................... (9,035,764) (6,159,085)
From net realized gains .................................. -- (1,052,194)
---------------- -----------------
Total distributions .................................... (9,035,764) (7,211,279)
---------------- -----------------
CAPITAL SHARE TRANSACTIONS:
Payments for retirement of 45,500 and 14,100 shares,
respectively (note 7) .................................. (573,450) (170,705)
---------------- -----------------
Total increase (decrease) in net assets .............. 2,099,504 (17,061,075)
Net assets at beginning of year ............................ 67,276,903 84,337,978
---------------- -----------------
Net assets at end of year ................................ $ 69,376,407 67,276,903
---------------- -----------------
---------------- -----------------
Undistributed net investment income ...................... $ 2,272,940 5,224,094
---------------- -----------------
---------------- -----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(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's primary objective is to provide a high level of current
income; its secondary objective is to seek capital appreciation.
To realize its objectives, the fund emphasizes investments in
mortgage-related assets that directly or indirectly represent a
participation in or are secured by and payable from mortgage
loans. The fund commenced operations on 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 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.
13
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
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 market quotations for other fixed income
securities are not readily available, such securities are valued
at fair value according to methods selected in good faith by the
board of directors.
Securities transactions are accounted for on the date the
securities are purchased or sold. Realized gains and losses are
calculated on the identified-cost basis. Interest income,
including amortization of bond discount and premium computed on
a level-yield basis, is accrued daily. Costs associated with
acquiring whole loans, participation mortgages and mortgage
servicing rights are capitalized and included in the cost basis
of the loans purchased.
OPTION TRANSACTIONS
For hedging purposes, the fund may buy and sell put and call
options, write covered call options on portfolio securities and
write cash-secured puts. The risk in writing a call option is
that the fund gives up the opportunity for profit if the market
price of the security increases and the option is exercised. The
risk in writing a put option is that the fund may incur a loss
if the market price of the security decreases and the option is
exercised. The risk in buying an option is that the fund pays a
premium whether or not the option is exercised. The fund also
has the additional risk of not being able to enter into a
closing transaction if a liquid secondary market does not exist.
The fund also may write over-the-counter options where the
completion of the obligation is dependent upon the credit
standing of the other party.
Option contracts are valued daily and unrealized appreciation or
depreciation is recorded. The fund will realize a gain or loss
upon expiration or closing of the option transaction. When an
option is exercised, the proceeds on the sale of a written call
option, the purchase cost of a written put option or the
security cost of a purchased put or call option is adjusted by
the amount of premium received or paid.
14
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
FUTURES TRANSACTIONS
In order to gain exposure to or protect against changes in the
market, the fund may buy and sell financial futures contracts
and related options. Risks of entering into futures contracts
and related options include the possibility there may be an
illiquid market and that a change in the value of the contract
or option may not correlate with changes in the value of the
underlying securities.
Upon entering into a futures contract, the fund is required to
deposit either cash or securities in an amount (initial margin)
equal to a certain percentage of the contract value. Subsequent
payments (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
15
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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 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 November 30, 1995, loans representing 5% 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 November 30, 1995, the fund owned six
homes with an aggregate value of $314,333, or 0.45% of net
assets. The fund recognized net realized losses of $132,519 on
real estate sold during the year ended November 30, 1995.
Additionally, with respect to participation mortgages, the fund
16
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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 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
November 30, 1995, the fund had no outstanding when-issued or
forward commitments.
In connection with its ability to purchase securities on a
when-issued or forward-commitment basis, the fund may enter into
mortgage "dollar rolls" in which the fund sells securities for
delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future
date. As an
17
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
inducement to "roll over" its purchase commitments, the fund
receives negotiated fees. For the year ended November 30, 1995,
the fund earned no such fees.
FEDERAL TAXES
The fund intends to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and
not be subject to federal income tax. Therefore, no income tax
provision is required. However, the fund incurred federal excise
taxes of $12,213, or $0.002 per share, on income retained by the
fund during the excise tax year ended December 31, 1995.
Net investment income and net realized gains (losses) may differ
for financial statement and tax purposes primarily because of
the non-deductibility of excise tax payments for purposes of
computing taxable income, recognition of losses deferred due to
"wash sale" transactions, and the timing of recognition of
income on certain interest-only and principal-only securities.
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.
On the statement of assets and liabilities, as a result of
permanent book-to-tax differences, a reclassification adjustment
has been made to increase undistributed net investment income by
$362,388, increase accumulated net realized loss on investments
by $350,171 and decrease additional paid-in capital by $12,217.
DISTRIBUTIONS
The fund pays monthly distributions from net investment income.
Realized capital gains, if any, will be distributed on an annual
basis. These distributions are recorded as of the close of
business on the ex-dividend date. Such distributions are payable
in cash or, pursuant to the fund's dividend reinvestment plan,
reinvested in additional shares of the fund's capital stock.
Under the plan, fund shares will be purchased in the open market
unless the market price plus commission exceeds the net asset
value by 5% or more. If, at the
18
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
close of business on the dividend payment date, the shares
purchased in the open market are insufficient to satisfy the
dividend reinvestment requirement, the fund will issue new
shares at a discount of up to 5% from the current market price.
REPURCHASE AGREEMENTS
For repurchase agreements entered into with certain
broker-dealers, the fund, along with other affiliated registered
investment companies, may transfer uninvested cash balances into
a joint trading account, the daily aggregate of which is
invested in repurchase agreements secured by U.S. government and
agency obligations. Securities pledged as collateral for all
individual and joint repurchase agreements are held by the
fund's custodian bank until maturity of the repurchase
agreement. Provisions for all agreements ensure that the daily
market value of the collateral is in excess of the repurchase
amount in the event of default.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
(3) EXPENSES
The fund has entered into the following agreements with Piper
Capital Management Incorporated (the adviser and the
administrator):
The investment advisory agreement provides the adviser with a
monthly investment management fee 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
19
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
annual basis). For its fee, the adviser will provide investment
advice and, in general, will conduct the management and
investment activities of the fund.
The administration agreement provides the administrator with a
monthly fee in an amount equal to an annualized rate of 0.20% of
the fund's average weekly net assets. For its fee, the
administrator will provide regulatory, reporting and
record-keeping services for the fund.
When acquiring whole loans and participation mortgages, the fund
enters into mortgage servicing agreements with mortgage
servicers. For a fee, mortgage servicers maintain loan records
such as insurance, taxes and the proper allocation of payments
between principal and interest.
In addition to the advisory, administrative and mortgage
servicing fees, the fund is responsible for paying most other
operating expenses including outside directors' fees and
expenses, custodian fees, registration fees, printing and
shareholder reports, transfer agent fees and expenses, legal,
auditing and accounting services, 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 with the custodian by
the fund.
(4) SECURITIES
TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other
than short-term securities) aggregated $100,045,315 and
$120,106,547, respectively, for the year ended November 30,
1995. During the year ended November 30, 1995, the fund paid no
brokerage commissions to Piper Jaffray Inc., an affiliated
broker.
20
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(5) OPTION
CONTRACTS
WRITTEN
The number of contracts and premium amounts associated with call
option contracts written during the year ended November 30,
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................................... 1,745 1,192,051
Closed or expired........................ (1,930) (1,164,473)
Exercised................................ (175) (224,219)
------ -----------
Balance at 11/30/95........................ -- $ --
------ -----------
------ -----------
</TABLE>
(6) CAPITAL LOSS
CARRYOVER
For federal income tax purposes, the fund had a capital loss
carryover of $9,113,614 on 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.
(7) RETIREMENT OF
FUND SHARES
The fund's board of directors has approved a plan to repurchase
shares of the fund in the open market and retire those shares.
Repurchases may only be made when the previous day's closing
market price was at a discount from net asset value. Daily
repurchases are limited to 25% of the previous four weeks
average daily trading volume on the New York Stock Exchange.
Under the current plan, cumulative repurchases in the fund
cannot exceed 3% of the total shares originally issued. The
board of directors will review the plan quarterly and may change
the amount which may be repurchased. The plan was last reviewed
and approved by the board of directors on November 30, 1995.
Pursuant to the plan, the fund has cumulatively repurchased and
retired 59,600 shares as of November 30, 1995, which represents
1.15% of the shares originally issued.
21
<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>
Period from
Year Ended Year Ended Year Ended 12/27/91* to
11/30/95 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 ........................ 1.09 1.41 1.79 1.49
Net realized and unrealized gains (losses) on
investments ................................ 1.11 (3.22) 0.61 0.55
----------- ------ ------ ------
Total from operations ...................... 2.20 (1.81) 2.40 2.04
----------- ------ ------ ------
Distributions to shareholders from:
Net investment income ........................ (1.70) (1.15) (1.50) (1.13)
Net realized gains ........................... -- (0.20) -- --
----------- ------ ------ ------
Total distributions to shareholders ........ (1.70) (1.35) (1.50) (1.13)
----------- ------ ------ ------
Net asset value, end of period ............... $ 13.13 12.63 15.79 14.89
----------- ------ ------ ------
----------- ------ ------ ------
Per-share market value, end of period ........ $ 12.25 13.00 16.38 16.25
----------- ------ ------ ------
----------- ------ ------ ------
SELECTED INFORMATION
Total investment return, net asset value*** .... 18.27% (11.87%) 16.80% 15.20%
Total investment return, market value** ........ 7.75% (12.59%) 10.75% 16.92%
Net assets at end of period (in millions) .... $ 69 67 84 79
Ratio of expenses to average weekly net
assets++ ..................................... 1.72% 1.69% 1.69% 1.45% TRIANGLE
Ratio of net investment income to average weekly
net assets ................................... 8.26% 10.00% 11.52% 11.49% TRIANGLE
Portfolio turnover rate (excluding short-term
securities) .................................. 120% 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 .............................. $ 2.84 5.16 6.04 6.05
Per-share amount of net assets, excluding
borrowings, at end of period ............... $ 15.97 17.79 21.83 20.94
Asset coverage ratio+++ ........................ 563% 345% 361% 346%
</TABLE>
* COMMENCEMENT OF OPERATIONS.
** BASED ON THE CHANGE IN MARKET PRICE OF A SHARE DURING THE PERIOD. ASSUMES
REINVESTMENT OF DISTRIBUTIONS AT ACTUAL PRICES PURSUANT TO THE FUND'S
DIVIDEND REINVESTMENT PLAN.
*** BASED ON THE CHANGE IN NET ASSET VALUE OF A SHARE DURING THE PERIOD.
ASSUMES REINVESTMENT OF DISTRIBUTIONS AT NET ASSET VALUE.
+ 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 FISCAL 1995,
1994 AND 1993, RESPECTIVELY. BEGINNING IN FISCAL 1995, THE EXPENSE RATIO
REFLECTS THE EFFECT OF GROSS EXPENSES PAID INDIRECTLY BY THE FUND. PRIOR
PERIOD EXPENSE RATIOS HAVE NOT BEEN ADJUSTED.
+++ REPRESENTS NET ASSETS, EXCLUDING BORROWINGS, AT END OF PERIOD DIVIDED BY
BORROWINGS OUTSTANDING AT END OF PERIOD.
TRIANGLE ADJUSTED TO AN ANNUAL BASIS.
22
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(9) PENDING
LITIGATION
An amended complaint purporting to be a class action was filed
on September 7, 1995, in the United States District Court for
the Western District of Washington against the fund, seven other
closed-end investment companies for which Piper Capital
Management Incorporated acts as investment adviser, Piper
Jaffray Companies Inc., Piper Jaffray Inc., Piper Capital
Management Incorporated and certain individuals. The complaint
alleges, among other things, violations of federal and state
securities laws. Damages are being sought in an unspecified
amount. The fund intends to defend this lawsuit vigorously.
Although it is impossible to predict the outcome, management
believes, based on the facts currently available, that there
will be no material adverse effect on the financial results of
the fund.
(10) QUARTERLY DATA (UNAUDITED)
DOLLAR AMOUNTS
<TABLE>
<CAPTION>
Net Realized
and Net Increase Distributions
Total Net Unrealized in 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)
8/31/95 1,607,875 1,347,719 760,959 2,108,678 (1,992,308)
11/30/95 1,692,344 1,352,359 202,512 1,554,871 (3,049,727)
----------- ----------- ------------ -------------- ------------
$ 6,913,161 5,722,222 5,986,496 11,708,718 (9,035,764)
----------- ----------- ------------ -------------- ------------
----------- ----------- ------------ -------------- ------------
</TABLE>
PER-SHARE AMOUNTS
<TABLE>
<CAPTION>
Net Increase in Distributions
Net Net Realized and Net Assets from Net Quarter End
Investment Unrealized Gains Resulting from Investment Net Asset
Income on 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
8/31/95 0.26 0.13 0.39 (0.37) 13.41
11/30/95 0.26 0.04 0.30 (0.58) 13.13
--- ----- ----- -----
$ 1.09 1.11 2.20 (1.70)
--- ----- ----- -----
--- ----- ----- -----
</TABLE>
23
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
AMERICAN STRATEGIC INCOME PORTFOLIO
NOVEMBER 30, 1995
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- ---------- ----------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
U.S. GOVERNMENT SECURITIES (28.4%):
U.S. Treasury Note, 6.75%, 2/28/97 ................. $ 1,000,000 1,016,340
U.S. Treasury Note, 6.13%, 5/15/98 ................... 1,500,000 1,525,035
U.S. Treasury Note, 5.75%, 10/31/00 .................. 17,000,000(b) 17,153,170
----------
Total U.S. Government Securities
(cost: $19,482,266) ............................... 19,694,545
----------
MORTGAGE-BACKED SECURITIES (14.8%):
U.S. AGENCY FIXED RATE MORTGAGES (5.1%):
7.00%, GNMA, 7/15/23 ................................. 1,735,700 1,740,560
7.00%, GNMA, 7/15/23 ................................. 1,769,091 1,774,045
----------
3,514,605
----------
SUBORDINATED MORTGAGE-BACKED (9.7%):
8.60%, Chemical Mortgage Securities, Series 1991-1,
Class B, 9/25/21 .................................... 220,280(e) 210,092
10.00%, Citibank, Series 1986-J, Class 1, 7/25/16 .... 1,981,431(e) 1,978,954
9.50%, Citibank, Series 1986-L, Class 1, 8/25/16 ..... 902,188(e) 897,677
9.50%, Citibank, Series 1986-P, Class 1, 10/25/16 .... 1,029,474(e) 1,027,544
9.20%, FBS Mortgage Corporation, Series 1991-B, Class
D, 11/1/21 .......................................... 752,329(e) 715,418
10.10%, First Boston, Series 1992-1, Class B-2,
1/15/01 ............................................. 1,000,000(e) 1,026,250
9.35%, GMBS Inc., Series 1990-4, Class S, 10/25/20 ... 493,482(e) 476,673
9.25%, Salomon Brothers Mortgage Securities VII,
Series 1990-1, Class G-1, 8/25/20 ................... 224,919(e) 216,274
9.25%, Salomon Brothers Mortgage Securities VII,
Series 1990-1, Class G-2, 8/25/20 ................... 224,455(e) 215,828
----------
6,764,710
----------
Total Mortgage-Backed Securities
(cost: $10,186,426) ............................... 10,279,315
----------
WHOLE LOANS AND PARTICIPATION MORTGAGES (C,D,E) (70.9%):
MULTIFAMILY LOANS (26.6%):
Applewood Manor, 8.75%, 1/1/01 ....................... 690,896 709,343
Boca Bend Apartments, 11.75%, 5/1/00 ................. 596,802 605,455
Dorchester Garden Apartments, 8.50%, 7/1/02 .......... 1,497,083 1,527,474
Essex Place I, 10.00%, 9/30/12 ....................... 2,054,970 2,072,158
Franklin Woods Apartments, 9.90%, 3/1/10 ............. 1,337,077 1,383,874
Fremont Plaza Apartments, 9.75%, 4/1/02 .............. 742,683 768,677
Kings Creek Apartments, 10.00%, 5/1/96 ............... 1,300,000 1,300,000
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
24
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
AMERICAN STRATEGIC INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- ---------- ----------
<S> <C> <C>
Mustang Crossings, 9.00%, 2/1/01 ................... $ 998,144 1,033,079
Normandie Square Apartments, 8.75%, 4/1/01 ........... 1,846,509 1,887,316
Park Place Apartments, 8.38%, 7/1/02 ................. 1,572,046 1,595,626
Stanley Court Apartments, 8.50%, 11/1/02 ............. 1,100,000 1,117,160
The Establishment, 8.75%, 2/1/01 ..................... 950,657 971,191
Twelfth Street Apartments, 9.25%, 6/1/05 ............. 1,192,957 1,234,711
Vanderbuilt Condominiums, 8.50%, 8/1/00 .............. 823,997 834,297
Westgate Apartments, 10.00%, 2/1/08 .................. 1,401,991 1,401,991
----------
18,442,352
----------
SINGLE FAMILY LOANS (44.3%):
Aegis, 9.66%, 3/26/10 ................................ 959,018 897,880
American Bank, Mankato, 9.58%, 12/10/12 .............. 162,627 166,628
American Portfolio, 7.88%, 10/18/15 .................. 1,509,224 1,393,316
Bluebonnet Savings and Loan, 12.48%, 8/31/10 ......... 312,722 302,934
Bluebonnet Savings and Loan, 9.32%, 8/31/10 .......... 2,105,300 2,023,825
CLSI Allison Williams, 10.47%, 8/1/17 ................ 1,051,822 1,069,178
Crossroads Savings and Loan, 9.57%, 1/1/21 ........... 856,106 876,995
Crossroads Savings and Loan, 9.57%, 1/1/21 ........... 755,429 753,012
Fairbanks II, Utah, 9.58%, 8/20/10 ................... 210,608 145,193
Fairbanks I, Utah, 9.58%, 9/23/15 .................... 556,024 490,246
First Boston Mortgage Pool #5, 9.66%, 6/29/03 ........ 532,074 542,662
Hamilton Financial, 9.66%, 6/29/10 ................... 937,232 820,547
Huntington MEWS, 9.92%, 8/1/17 ....................... 1,918,929 1,839,101
Knutson Mortgage Portfolio #1, 9.68%, 8/1/17 ......... 2,167,817 2,212,598
Knutson Mortgage Portfolio #2, 9.55%, 9/25/17 ........ 2,069,861 2,146,664
McClemore, 9.58%, 9/30/12 ............................ 3,506,279 3,502,569
Meridian, 9.54%, 12/1/20 ............................. 1,528,023 1,558,278
Minnesota Mortgage Corporation, 12.97%, 7/25/14 ...... 81,430 83,466
Minnesota Mortgage Corporation, 12.26%, 10/25/14 ..... 55,901 57,298
Minnesota Mortgage Corporation, 12.97%, 3/25/15 ...... 119,560 122,549
Nomura III, 8.40%, 4/29/17 ........................... 6,637,266 5,750,170
President Homes, 8.80%, 8/1/17 ....................... 210,054 143,761
President Homes 93-1, Sales Inventory, 10.00%,
3/1/23 .............................................. 518,350 531,154
Rand Mortgage Corporation, 9.52%, 8/1/17 ............. 604,594 620,677
Salomon II, 9.86%, 11/23/14 .......................... 2,037,757 2,083,198
Valley Bank of Commerce, N.M., 9.58%, 8/31/10 ........ 631,419 623,904
----------
30,757,803
----------
Total Whole Loans and Participation Mortgages
(cost: $47,010,362) ............................... 49,200,155
----------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
25
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
AMERICAN STRATEGIC INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- ---------- ----------
<S> <C> <C>
MORTGAGE SERVICING RIGHTS (1.3%):
Matrix Servicing Rights, 14.00%, 7/10/22
(cost: $866,873) .................................. $ -- 906,914
----------
SHORT-TERM SECURITIES (4.5%):
Repurchase agreement with Goldman Sachs in a joint
trading account, collateralized by U.S. government
agency securities, acquired on 11/30/95, accrued
interest at repurchase date of $509, 5.85%, 12/1/95
(cost: $3,133,000) .................................. 3,133,000 3,133,000
----------
Total Investments in Securities
(cost: $80,678,927)(f) ........................... $ 83,213,929
----------
----------
</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 NOVEMBER 30, 1995, SECURITIES VALUED AT $15,135,150 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>
$ 5,000,000 6/22/94 5.78% 1/2/96 $ 24,083 (1)
5,000,000 3/1/95 5.78% 2/1/96 24,083 (2)
5,000,000 4/3/95 5.78% 12/1/95 24,084 (3)
- ------------ ---------
$ 15,000,000 $ 72,250
- ------------ ---------
- ------------ ---------
</TABLE>
*INTEREST RATE IS AS OF MAY 31, 1995. RATES ARE BASED ON THE LONDON INTERBANK
OFFERED RATE (LIBOR) AND RESET MONTHLY.
<TABLE>
<S> <C> <C> <C>
NAME OF BROKER AND DESCRIPTION OF COLLATERAL:
(1) NOMURA; U.S. TREASURY NOTE, 5.75%, 10/31/00, $5,000,000 PAR
(2) NOMURA; U.S. TREASURY NOTE, 5.75%, 10/31/00, $5,000,000 PAR
(3) NOMURA; U.S. TREASURY NOTE, 5.75%, 10/31/00, $5,000,000 PAR
</TABLE>
<TABLE>
<S> <C>
(C) INTEREST RATE AND MATURITY DATE DISCLOSED REPRESENT THE WEIGHTED AVERAGE COUPON AND
WEIGHTED AVERAGE MATURITY FOR THE UNDERLYING MORTGAGE LOANS AS OF NOVEMBER 30, 1995.
(D) FOR INVESTMENT SCHEDULE PRESENTATION, 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.
</TABLE>
26
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
<TABLE>
<S> <C>
DORCHESTER GARDEN APARTMENTS - 1 MULTIFAMILY LOAN LOCATED IN NORTH CHARLESTON, SOUTH
CAROLINA.
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.
MUSTANG CROSSINGS - 1 MULTIFAMILY LOAN LOCATED IN RICHMOND, TEXAS.
PARK PLACE APARTMENTS - 1 MULTIFAMILY LOAN LOCATED IN GRAND FORKS, NORTH DAKOTA.
NORMANDIE SQUARE APARTMENTS - 1 MULTIFAMILY LOAN LOCATED IN SAN ANTONIO, TEXAS.
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.
SINGLE-FAMILY LOANS:
AEGIS POOL - 40 LOANS LOCATED THROUGHOUT THE MIDWESTERN STATES.
AMERICAN BANK, MANKATO - 6 LOANS LOCATED IN SOUTHWESTERN MINNESOTA.
AMERICA PORTFOLIO SERVICES POOL - 16 LOANS LOCATED IN TEXAS AND CALIFORNIA.
BLUEBONNET SAVINGS AND LOAN - 82 LOANS LOCATED IN THE VICINITY OF SAN ANTONIO,
TEXAS.
CLSI ALLISON WILLIAMS - 47 LOANS LOCATED AROUND LAS MESA, SEMINOLE AND ANDREWS,
TEXAS.
CROSSROADS SAVINGS AND LOAN - 44 LOANS LOCATED IN THE VICINITY OF TULSA, OKLAHOMA.
FAIRBANKS I - 11 LOANS LOCATED IN THE VICINITY OF FAIRBANKS AND SALT LAKE CITY,
UTAH.
FAIRBANKS II - 2 LOANS LOCATED IN THE VICINITY OF FAIRBANKS AND SALT LAKE CITY,
UTAH.
FIRST BOSTON MORTGAGE POOL #5 - 18 LOANS LOCATED THROUGHOUT THE UNITED STATES.
HAMILTON FINANCIAL - 6 LOANS LOCATED IN CALIFORNIA.
HUNTINGTON MEWS - 39 LOANS LOCATED IN THE VICINITY OF CAMDEN, NEW JERSEY.
KNUTSON MORTGAGE PORTFOLIO #1 - 37 LOANS LOCATED THROUGHOUT THE MIDWESTERN STATES.
KNUTSON MORTGAGE PORTFOLIO #2 - 25 LOANS LOCATED THROUGHOUT THE MIDWESTERN STATES.
MCCLEMORE - 42 LOANS LOCATED IN NORTH CAROLINA.
MERIDIAN - 22 LOANS LOCATED THROUGHOUT CALIFORNIA.
MINNESOTA MORTGAGE CORPORATION - SENIOR DEBT SECURITY COLLATERLIZED BY A POOL OF
LOANS LOCATED IN MINNESOTA.
NOMURA III WHOLE LOAN POOL - 90 LOANS LOCATED THROUGHOUT THE MIDWESTERN STATES.
PRESIDENT HOMES - 2 LOANS LOCATED IN THE MIDWEST.
PRESIDENT HOMES, SALES INVENTORY - 5 LOANS LOCATED THROUGHOUT THE MIDWESTERN STATES.
RAND MORTGAGE CORPORATION - 12 LOANS LOCATED NEAR HOUSTON AND AUSTIN, TEXAS.
SALOMON II - 40 LOANS LOCATED THROUGHOUT THE MIDWESTERN STATES.
VALLEY BANK OF COMMERCE - 33 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 1933.
(F) ON NOVEMBER 30, 1995, THE COST OF INVESTMENTS IN SECURITIES, INCLUDING REAL ESTATE
OWNED, FOR FEDERAL INCOME TAX PURPOSES WAS $81,079,252. 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 .... $ 2,699,401
GROSS UNREALIZED DEPRECIATION ...... (250,391)
----------
NET UNREALIZED APPRECIATION .... $ 2,449,010
----------
----------
</TABLE>
27
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
AMERICAN STRATEGIC INCOME PORTFOLIO INC.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of American Strategic Income
Portfolio Inc. as of November 30, 1995, the related statements of operations and
cash flows for the year then ended, the statements of changes in net assets for
each of the years in the two-year period ended November 30, 1995, and the
financial highlights for the periods presented in footnote 8 to the financial
statements. These financial statements and the financial highlights are the
responsibility of the fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
American Strategic Income Portfolio Inc. as of November 30, 1995, the results of
its operations and its cash flows for the year then ended, the changes in its
net assets for each of the years in the two-year period ended November 30, 1995,
and the financial highlights for the periods presented in footnote 8 to the
financial statements, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 19, 1996
28
<PAGE>
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION
Fiscal Year Ended November 30, 1995
Distributions shown below are taxable as dividend
income. None qualify for the corporate dividends
received deduction. In February 1996, each shareholder
will receive a breakdown of income earned by investment
category for calendar year 1995.
Information for federal income tax purposes is presented
as an aid to shareholders in reporting distributions.
Shareholders should consult a tax advisor on how to
report these distributions on the state and local
levels.
<TABLE>
<CAPTION>
Payable Date Per Share
- ----------------------------------------------- -----------
<S> <C>
December 28, 1994 ........................... $ 0.125
January 13, 1995 .............................. 0.125
February 22, 1995 ............................. 0.125
March 29, 1995 ................................ 0.125
April 26, 1995 ................................ 0.125
May 24, 1995 .................................. 0.125
June 28, 1995 ................................. 0.125
July 26, 1995 ................................. 0.125
August 23, 1995 ............................... 0.125
September 27, 1995 ............................ 0.125
October 25, 1995 .............................. 0.225
November 22, 1995 ............................. 0.225
-----------
$ 1.700
-----------
-----------
</TABLE>
29
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER UPDATE
ANNUAL MEETING RESULTS
An annual meeting of the fund's shareholders was held on August 17, 1995. Each
matter voted upon at the meeting as well as the number of votes cast for,
against or withheld, the number of abstentions, and the number of broker
non-votes with respect to such matters, are set forth below.
1. The fund's shareholders elected the following six directors:
<TABLE>
<CAPTION>
Shares Shares Withholding
Voted "For" Authority to Vote
----------- -------------------
<S> <C> <C>
David T. Bennett..... 4,876,403 98,478
Jaye F. Dyer......... 4,876,203 98,678
William H. Ellis..... 4,876,403 98,478
Karol D. Emmerich.... 4,876,403 98,478
Luella G. Goldberg... 4,876,403 98,478
George Latimer....... 4,876,403 98,478
</TABLE>
2. The fund's shareholders ratified the selection by a majority of the
independent members of the fund's Board of Directors of KPMG Peat
Marwick LLP as the independent public accountants for the fund for the
fiscal year ended November 30, 1995. The following votes were cast
regarding this matter:
<TABLE>
<CAPTION>
Shares Shares Voted Broker
Voted "For" "Against" Abstentions Non-Votes
- ----------- ----------------- ------------- ---------------
<S> <C> <C> <C>
4,884,632 34,798 55,449 --
</TABLE>
SHARE REPURCHASE PROGRAM
Your fund's board of directors has reapproved the fund's share repurchase
program, which enables the fund to "buy back" shares of its common stock in the
open market. Repurchases may only be made when the previous day's closing market
price per share was at a discount from net asset value. Repurchases cannot
exceed 3% of the fund's originally issued shares.
WHAT EFFECT WILL THIS PROGRAM HAVE ON SHAREHOLDERS?
- - We do not expect any adverse impact on the adviser's ability to manage the
fund.
- - Because repurchases will be at a price below net asset value, remaining shares
outstanding may experience a slight increase in net asset value.
- - Although the effect of share repurchases on market price is less certain, the
board of directors believes the program may have a favorable effect on the
market price of fund shares.
- - We do not anticipate any material increase in the fund's expense ratio.
30
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER UPDATE
WHEN WILL SHARES BE REPURCHASED?
Share repurchases may be made from time to time and may be discontinued at any
time. Share repurchases are not mandatory when fund shares are trading at a
discount from net asset value; all repurchases will be at the discretion of the
fund's investment adviser. The board of directors will consider whether to
continue the share repurchase program on at least a semiannual basis and will
notify shareholders of its determination in the next semiannual or annual
report.
HOW WILL SHARES BE REPURCHASED?
We expect to finance the repurchase of shares by liquidating portfolio
securities or using current cash balances. We do not anticipate borrowing in
order to finance share repurchases.
TERMS AND CONDITIONS OF THE DIVIDEND REINVESTMENT PLAN
As a shareholder, you may choose to participate in the Dividend Reinvestment
Plan. It's a convenient and economical way to buy additional shares of the fund
by automatically reinvesting dividends and capital gains. The plan is
administered by Investors Fiduciary Trust Company (IFTC), the plan agent.
ELIGIBILITY/PARTICIPATION
You may join the plan at any time. Reinvestment of distributions will begin with
the next distribution paid, provided your request is received at least 10 days
before the record date for that distribution.
If your shares are in certificate form, you may join the plan directly and have
your distributions reinvested in additional shares of the fund. To enroll in
this plan, call IFTC at 1-800-543-1627. If your shares are registered in your
brokerage firm's name or another name, ask the holder of your shares how you may
participate.
Banks, brokers or nominees, on behalf of their beneficial owners who wish to
reinvest dividend and capital gain distributions, may participate in the plan by
informing IFTC at least 10 days before each share's dividend and/or capital
gains distribution.
PLAN ADMINISTRATION
Beginning no more than five business days before the dividend payment date, IFTC
will buy shares of the fund on the New York Stock Exchange or elsewhere on the
open market only when the price of the fund's shares on the NYSE plus
commissions is less than a 5% premium over the fund's most recently calculated
net asset value (NAV) per share. If, at the close of business on the dividend
payment date, the shares purchased in the open market are insufficient to
satisfy the dividend reinvestment
31
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER UPDATE
requirement, IFTC will accept payment of the dividend, or the remaining portion,
in authorized but unissued shares of the fund. These shares will be issued at a
per-share price equal to the higher of (a) the NAV per share as of the close of
business on the payment date or (b) 95% of the closing market price per share on
the payment date.
By participating in the dividend reinvestment plan, you may receive benefits not
available to shareholders who elect not to participate. For example, if the
market price plus commissions of the fund's shares is 5% or more above the NAV,
you will receive shares at a discount of up to 5% from the current market value.
However, if the market price plus commissions is below the NAV, you will receive
distributions in shares with a NAV greater than the value of any cash
distributions you would
have received.
There is no direct charge for reinvestment of dividends and capital gains, since
IFTC fees are paid for by the fund. However, if fund shares are purchased in the
open market, each participant pays a pro rata portion of the brokerage
commissions. Brokerage charges are expected to be lower than those for
individual transactions because shares are purchased for all participants in
blocks. As long as you continue to participate in the plan, distributions paid
on the shares in your account will
be reinvested.
IFTC maintains accounts for plan participants holding shares in certificate
form. You will receive a monthly statement detailing total dividend and capital
gain distributions, date of investment, shares acquired, price per share, and
total shares held in your account, both certificate-form shares and unissued
shares acquired through the plan.
TAX INFORMATION
Distributions reinvested in additional shares of the fund are subject to income
tax, just as they would be if received in cash. When shares are issued by the
fund at a discount from market value, shareholders will be treated as having
received distributions of an amount equal to the full market value of those
shares. Shareholders, as required by the Internal Revenue Service, will receive
Form 1099 regarding the federal tax status of the prior year's distributions.
PLAN WITHDRAWAL
If you hold your shares in certificate form, you may terminate your
participation in the plan at any time by giving written notice to IFTC. If your
shares are registered in your brokerage firm's name, you may terminate your
participation via verbal or written instructions to your investment
professional. Written instructions should include your name and address as they
appear on the certificate or account.
32
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER UPDATE
If notice is received at least 10 days before the record date, all future
distributions will be paid directly to the shareholder of record.
If your shares are in certificate form and you discontinue your participation in
the plan, you (or your nominee) will receive an additional certificate for all
full shares and a check for any fractional shares in your account.
PLAN AMENDMENT/TERMINATION
The funds reserve the right to amend or terminate the plan. Should the plan be
amended or terminated, participants will be notified in writing at least 90 days
before the record date for such dividend or distribution. The plan may also be
amended or terminated by IFTC with at least 90 days written notice to
participants in the plan.
Any questions about the plan should be directed to your investment professional
or to Investors Fiduciary Trust Company, P.O. Box 419432, Kansas City, Missouri
64141, 1-800-543-1627.
33
<PAGE>
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
<TABLE>
<S> <C>
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
Worth Bruntjen, SENIOR VICE PRESIDENT
Marijo A. Goldstein, SENIOR VICE PRESIDENT
Robert H. Nelson, SENIOR VICE PRESIDENT AND TREASURER
James A. Berman, VICE PRESIDENT
David E. Rosedahl, SECRETARY
INVESTMENT Piper Capital Management Incorporated
ADVISER 222 SOUTH 9TH STREET, MINNEAPOLIS, MN 55402
TRANSFER AGENT Investors Fiduciary Trust Company
AND RECORD 127 WEST 10TH STREET, KANSAS CITY, MO 64105-1716
KEEPER
LEGAL COUNSEL Dorsey & Whitney P.L.L.P.
220 SOUTH SIXTH STREET, MINNEAPOLIS, MN 55402
CUSTODIAN First Trust
180 EAST FIFTH STREET, ST. PAUL, MN 55101
INDEPENDENT KPMG Peat Marwick LLP
AUDITORS 4200 NORWEST CENTER, MINNEAPOLIS, MN 55402
</TABLE>
34
<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
PIPER JAFFRAY INC., FUND SPONSOR AND NASD MEMBER.
[LOGO] THIS DOCUMENT IS PRINTED ON PAPER MADE FROM
100% TOTAL RECOVERED FIBER, INCLUDING 15% POST-CONSUMER WASTE.
In an effort to reduce costs to our shareholders, we have
implemented a process to reduce duplicate mailings of
the fund's annual and semiannual reports. This
householding process should allow us to mail one report
to each address where one or more registered
shareholders with the same last name reside. If you
would like to have additional reports mailed to your
address, please call our Shareholder Services area at
1 800 866-7778, or mail your request to:
Corporate Communications
Piper Capital Management
222 South Ninth Street
Minneapolis, MN 55402-3804
054-96 ASP01 1/96
STAPLES
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