<PAGE>
American Strategic Income Portfolio -- 1997 Semiannual Report
1997 Semiannual Report
AMERICAN
STRATEGIC
INCOME
PORTFOLIO
[LOGO]
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[LOGO]
CONTENTS
Average Annualized Total Returns . . . . . . . 1
Portfolio Managers' Letter . . . . . . . . . . 2
Financial Statements and Notes . . . . . . . . 7
Investments in Securities . . . . . . . . . 20
Shareholder Update . . . . . . . . . . . . . 25
Glossary***. . . . . . . . . . . . . . . . . 27
*** This report includes a glossary to help you understand financial terms
used in the portfolio managers' letter. When you see this symbol, it
indicates a word that is defined in the glossary.
AMERICAN STRATEGIC INCOME PORTFOLIO
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PRIMARY INVESTMENTS
Mortgage-related assets that directly or indirectly represent a participation
in or are secured by and payable from mortgage loans. 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. Use of certain of these
investments and investment techniques may cause the fund's net asset value to
fluctuate to a greater extent than would be expected from interest rate
movements alone.
FUND OBJECTIVE
High level of current income. Its secondary objective is to seek capital
appreciation. As with other investment companies, there can be no assurance
this fund will achieve its objective.
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AVERAGE ANNUALIZED TOTAL RETURNS
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Based on net asset value for the periods ended May 31, 1997
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[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.
Average annualized total returns based on the change in market price for the
one-year, five-year and since inception periods ended May 31, 1997, were
15.81%, 4.69% and 5.24%, respectively. These figures also assume reinvested
distributions and do not reflect sales charges.
PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. NEITHER SAFETY OF
PRINCIPAL NOR STABILITY OF INCOME IS GUARANTEED. Past performance does not
guarantee future results. The investment return and principal value of an
investment will fluctuate so that fund shares, when sold, may be worth more
or less than their original cost. Closed-end funds, such as this fund, often
trade at discounts to net asset value. Therefore, you may be unable to
realize the full net asset value of your shares when you sell.
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 since inception number for the Lehman index is calculated from the month
end following the fund's inception through May 31, 1997.
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1997 Semiannual Report 1 American Strategic Income Portfolio
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PORTFOLIO MANAGERS' LETTER
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[PHOTO]
JOHN WENKER
is primarily responsible for the management of American Strategic Income
Portfolio. He has 11 years of financial experience.
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July 18, 1997
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DEAR SHAREHOLDERS:
FOR THE SIX-MONTH PERIOD ENDED MAY 31, 1997, AMERICAN STRATEGIC INCOME
PORTFOLIO HAD A NET ASSET VALUE TOTAL RETURN OF 3.09%.* This compares to a
1.08% return for the fund's benchmark,*** the Lehman Brothers Mutual Fund
Government/Mortgage Index. The fund's total return based on market price was
6.79% for the six-month period, and it continued to trade at a discount*** to
net asset value (NAV), with a market price of $11.25 and an NAV of $12.55 per
share as of May 31.
WE ATTRIBUTE THE FUND'S POSITIVE NAV PERFORMANCE TO LOWER TREASURY YIELDS AND
MORTGAGE SPREADS.*** During this reporting period, yields on Treasuries in the
medium-term portion of the yield curve*** decreased approximately 0.60%. At the
same time, mortgage market spreads moved lower on a wide range of mortgage
products. The combined effect, along with the attractive level of income the
fund paid, caused the fund's positive performance relative to its benchmark.
* All returns include reinvested distributions, but not sales charges. Past
performance does not guarantee future results. The investment return and
principal value of an investment will fluctuate so that fund shares, when sold,
may be worth more or less than their original cost.
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PORTFOLIO COMPOSITION
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As a percentage of total assets on May 31, 1997
[CHART]
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1997 Semiannual Report 2 American Strategic Income Portfolio
<PAGE>
PORTFOLIO MANAGERS' LETTER (CONTINUED)
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[PHOTO]
DAVID STEELE
assists with the management of American Strategic Income Portfolio. He has 18
years of financial experience.
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THE FUND'S MONTHLY DIVIDEND HAS REMAINED STEADY SINCE JULY 1996. One year
ago, the fund's dividend was reduced. At that time, we set a goal of
maintaining the dividend at 8 cents per share for 12 months, and we are
pleased that we have met that goal. The loans in the fund's portfolio have
provided high relative income for the fund over the past year. The fund also
continues to maintain a dividend reserve, which increased from 2 cents per
share to 5 cents per share over the past year.
DURING THE REPORTING PERIOD, PREPAYMENT LEVELS REMAINED STABLE. We were
somewhat concerned about prepayments at the end of 1996, and indicated to
shareholders at that time that borrowers prepaying on their mortgages due to
a lower interest rate environment might force the fund to reinvest at lower
rates and ultimately decrease the fund's income. To date, the higher level of
prepayments has not materialized, and we have continued to add mortgages at
historically attractive interest rates. However, prepayment risk*** remains a
concern in the current lower interest rate environment.
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GEOGRAPHICAL DISTRIBUTION
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We attempt to buy mortgage loans in many parts of the country to help avoid
the risks of concentrating in one area. These percentages reflect principal
value of whole loans and real estate owned as of May 31, 1997. Shaded areas
without values indicate states in which the fund has invested less than 0.50%
of its assets.
[MAP]
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1997 Semiannual Report 3 American Strategic Income Portfolio
<PAGE>
PORTFOLIO MANAGERS' LETTER (CONTINUED)
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[PHOTO]
RUSS KAPPENMAN
assists with the management of American Strategic Income Portfolio. He has 11
years of financial experience.
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IN OUR LAST REPORT TO YOU, WE SAID WE ANTICIPATED INCREASING THE FUND'S
HOLDINGS IN COMMERCIAL LOANS,*** AND WE HAVE DONE SO. Commercial loans are
currently available at attractive prices compared to single family and
multifamily loans. The market for multifamily and commercial loans is
approximately $1 trillion in size, providing us with a large number of loans
to search through for the credit quality, price and yield we want for the
fund. (For more information about the specific risks associated with mortgage
loans, see the glossary at the back of this report.)
ALTHOUGH WE CONDUCT EXTENSIVE RISK ANALYSIS ON LOANS WE PURCHASE,
DELINQUENT*** LOANS AND CREDIT LOSSES ARE INHERENT RISKS IN THE FUND. As of
May 31, the fund held approximately 550 single family loans on properties
with an average principal balance remaining of approximately $56,000. The
chart below shows the percentage of those single family loans in delinquency.
On the same date, we had 17 multifamily loans with an average principal
balance of approximately $1,256,000 and five commercial loans with an average
principal balance of approximately $1,264,000. There were no multifamily or
commercial loans delinquent. Since the
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DELINQUENT LOAN PROFILE
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The chart below shows what percentage of single family loans* in the
portfolio are 30, 60, 90 or 120 days delinquent as of May 31, 1997, based on
principal amounts outstanding.
Current 83.5%
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30 Days 8.4%
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60 Days 2.6%
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90 Days 0.7%
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120+ Days 4.8%
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* As of May 31, 1997, there were no multifamily or commercial loans
delinquent.
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1997 Semiannual Report 4 American Strategic Income Portfolio
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PORTFOLIO MANAGERS' LETTER (CONTINUED)
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fund's inception, we have kept its principal losses due to foreclosure on
single family loans to 7 cents per share. There have been no realized
foreclosure losses to the fund from its investments in multifamily or
commercial loans.
THE FUND CONTINUES TO BORROW THROUGH REVERSE REPURCHASE AGREEMENTS*** AND
INVEST THE PROCEEDS IN TREASURY SECURITIES AND NEW MORTGAGE LOANS. The
Treasuries and mortgage loans act as collateral for the reverse repurchase
agreements. The amount of reverse repurchase agreements was equal to 14% of
the fund's total assets as of May 31. It is important to note that borrowing
can potentially increase the fund's earnings, but it can also increase the
fund's net asset value volatility. We attempt to moderate this potential
volatility by purchasing short- to medium-term Treasuries.
IN THE COMING MONTHS, WE ANTICIPATE MODERATE ECONOMIC GROWTH, WITH INFLATION
REMAINING FAIRLY WELL CONTAINED. We believe the mortgage portfolio will
continue to perform well in this type of environment, and we continue to
watch for opportunities to add high-quality loans to the fund's holdings. In
addition to focusing on the details of individual loan purchases, we remain
vigilant for changes in the broader real estate market environment. Real
estate markets are cyclical in nature. Since the fund's inception, it has
been a favorable time to be active in real estate. We believe that, in
general, the real estate markets are in equilibrium, and that this situation
could exist for some time. It is too soon to tell whether increased
competition for real estate investments will lead to relaxed underwriting
standards and oversupply of new properties.
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1997 Semiannual Report 5 American Strategic Income Portfolio
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PORTFOLIO MANAGERS' LETTER (CONTINUED)
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ON FEBRUARY 28, 1997, THE COURT GRANTED PRELIMINARY APPROVAL OF THE
SETTLEMENT AGREEMENT IN THE CLASS ACTION LAWSUIT AGAINST THE FUND, AND A
FINAL ORDER OF JUDGMENT IS NOW UNDER ADVISEMENT. In addition to cash payments
over the next four years, the settlement includes an offer by the fund to
repurchase up to 10% of its outstanding shares at net asset value. Class
members will receive notices regarding this offer within 45 days of the
effective date of the settlement. A repurchase fee of approximately 1 to 2
cents per share will be charged on all shares that are repurchased. This fee
will be paid to the fund and used to pay for repurchase offer costs, which
include legal, printing, mailing and other miscellaneous expenses.
Thank you 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
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1997 Semiannual Report 6 American Strategic Income Portfolio
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Financial Statements (Unaudited)
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STATEMENT OF ASSETS AND LIABILITIES May 31, 1997
..................................................................
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (note 2)
(including a repurchase agreement of $1,470,000) ......... $75,522,318
Real estate owned (identified cost: $127,644) (note 2) ..... 102,148
Cash in bank on demand deposit ............................. 199,099
Other assets ............................................... 46,718
Accrued interest receivable ................................ 1,105,185
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Total assets ............................................. 76,975,468
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LIABILITIES:
Reverse repurchase agreements payable ...................... 11,000,000
Accrued investment management fee .......................... 33,326
Accrued administrative fee ................................. 11,080
Accrued interest ........................................... 53,400
Other accrued expenses ..................................... 16,737
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Total liabilities ........................................ 11,114,543
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Net assets applicable to outstanding capital stock ....... $65,860,925
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COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital ............... $73,367,618
Undistributed net investment income ........................ 319,948
Accumulated net realized loss on investments ............... (8,685,952)
Unrealized appreciation of investments ..................... 859,311
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Total - representing net assets applicable to capital
stock .................................................. $65,860,925
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* Investments in securities at identified cost ............. $74,637,511
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NET ASSET VALUE AND MARKET PRICE:
Net assets ................................................. $65,860,925
Shares outstanding ......................................... 5,247,721
Net asset value ............................................ $ 12.55
Market price ............................................... $ 11.25
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1997 Semiannual Report 7 American Strategic Income Portfolio
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Financial Statements (Unaudited) (continued)
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STATEMENT OF OPERATIONS For the Six Months Ended May 31, 1997
..................................................................
<TABLE>
<S> <C>
INCOME:
Interest (net of interest expense of $386,134) ............. $ 3,088,416
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EXPENSES (NOTE 3):
Investment management fee .................................. 202,917
Administrative fee ......................................... 65,231
Custodian and accounting fees .............................. 46,181
Transfer agent fees ........................................ 11,146
Reports to shareholders .................................... 18,827
Mortgage servicing fees .................................... 87,058
Directors' fees ............................................ 6,023
Audit and legal fees ....................................... 26,664
Other expenses ............................................. 31,970
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Total expenses ........................................... 496,017
Less expenses paid indirectly .......................... (3,103)
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Total net expenses ....................................... 492,914
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Net investment income .................................... 2,595,502
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NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
(NOTE 4):
Net realized gain on investments in securities ............. 234,047
Net realized loss on real estate owned ..................... (11,754)
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Net realized gain on investments ......................... 222,293
Net change in unrealized appreciation or depreciation of
investments .............................................. (830,353)
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Net loss on investments .................................. (608,060)
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Net increase in net assets resulting from operations ... $ 1,987,442
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</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1997 Semiannual Report 8 American Strategic Income Portfolio
<PAGE>
Financial Statements (Unaudited) (continued)
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STATEMENT OF CASH FLOWS For the Six Months Ended May 31, 1997
..................................................................
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income ..................................................... $ 3,088,416
Net expenses ............................................... (492,914)
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Net investment income .................................... 2,595,502
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Adjustments to reconcile net investment income to net cash
provided by operating activities:
Change in accrued interest receivable .................... (300,273)
Net amortization of bond discount and premium ............ (34,371)
Change in accrued fees and expenses ...................... (1,316)
Change in other assets ................................... (46,718)
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Total adjustments ...................................... (382,678)
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Net cash provided by operating activities .............. 2,212,824
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments ......................... 28,780,249
Purchases of investments ................................... (26,416,643)
Net sales of short-term securities ......................... 622,000
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Net cash provided by investing activities .............. 2,985,606
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments for reverse repurchase agreements ............. (3,000,000)
Distributions paid to shareholders ......................... (2,518,906)
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Net cash used by financing activities .................. (5,518,906)
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Net decrease in cash ....................................... (320,476)
Cash at beginning of period ................................ 519,575
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Cash at end of period .................................. $ 199,099
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Supplemental disclosure of cash flow information:
Cash paid for interest on reverse repurchase
agreements ............................................. $ 401,026
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</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1997 Semiannual Report 9 American Strategic Income Portfolio
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Financial Statements (continued)
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STATEMENTS OF CHANGES IN NET ASSETS
..................................................................
<TABLE>
<CAPTION>
SIX MONTHS ENDED
5/31/97 YEAR ENDED
(UNAUDITED) 11/30/96
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<S> <C> <C>
OPERATIONS:
Net investment income ...................................... $ 2,595,502 $ 5,068,023
Net realized gain on investments ........................... 222,293 218,703
Net change in unrealized appreciation or depreciation of
investments .............................................. (830,353) (759,346)
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Net increase in net assets resulting from operations ..... 1,987,442 4,527,380
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DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ................................. (2,518,906) (7,097,611)
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CAPITAL SHARE TRANSACTIONS:
Decrease in net assets from capital share transactions (note
5) ....................................................... -- (413,787)
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Total decrease in net assets ............................. (531,464) (2,984,018)
Net assets at beginning of period .......................... 66,392,389 69,376,407
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Net assets at end of period ................................ $65,860,925 $66,392,389
----------------- -----------------
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Undistributed net investment income ........................ $ 319,948 $ 243,352
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</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1997 Semiannual Report 10 American Strategic Income Portfolio
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Notes to Financial Statements (Unaudited)
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(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
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 purchase securities
through the dollar-roll program. In addition, the fund may borrow
through the use of reverse repurchase agreements. Fund shares are
listed on the New York Stock Exchange under the symbol ASP.
(2) SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES
................................
INVESTMENTS IN SECURITIES
Portfolio securities for which market quotations are readily
available are valued at current market value. If market
quotations or valuations are not available, or if Piper Capital
Management Incorporated believes such quotations or valuations
are inaccurate, unreliable or not reflective of market value,
portfolio securities are valued according to procedures adopted
by the fund's board of directors in good faith at "fair value",
that is, a price that the fund might reasonably expect to receive
for the security or other asset upon its current sale.
The current market value of certain fixed income securities is
provided by an independent pricing service. Fixed income
securities for which prices are not available from an independent
pricing service but where an active market exists are valued
using market quotations obtained from one or more dealers that
make markets in the securities or from a widely-used quotation
system. Short-term securities with maturities of 60 days or less
are valued at amortized cost, which approximates market value.
The fund's investments in whole loans (single family, multifamily
and commercial), participation mortgages and mortgage servicing
rights are generally not traded in any organized market. These
investments are initially valued at cost and their values are
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1997 Semiannual Report 11 American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
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subsequently monitored and adjusted pursuant to a pricing model
designed to incorporate, among other things, 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 delinquency
profile, the historical payment record, 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.
Changes in prevailing interest rates, real or perceived
liquidity, yield spreads, and creditworthiness are factored into
the pricing model each week. Certain mortgage loan information is
received once a month. This information includes, but is not
limited to, the projected rate of prepayments, projected rate and
severity of defaults, the delinquency profile and the historical
payment record. Valuations of whole loans, mortgage
participations and mortgage servicing rights are determined no
less frequently than weekly.
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, is recorded
on an accrual basis.
WHOLE LOANS AND PARTICIPATION MORTGAGES
Whole loans and participation mortgages may bear a greater risk
of loss arising from a default on the part of the borrower of the
underlying loans than do traditional mortgage-backed securities.
This is because whole loans and participation mortgages, unlike
most mortgage-backed securities, generally are not backed by any
government guarantee or private credit enhancement. Such risk may
be greater during a period of declining or stagnant real estate
values. In addition, the individual loans underlying whole loans
and participation mortgages may be larger than the loans
underlying mortgage-backed securities. With respect to
participation mortgages, the fund generally will not be able to
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1997 Semiannual Report 12 American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
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unilaterally enforce its rights in the event of a default, but
rather will be dependent on the cooperation of the other
participation holders.
At May 31, 1997, loans representing 3.7% of net assets were 60
days or more delinquent as to the timely monthly payment of
principal. Such delinquicies relate solely to single family whole
loans and represent 8.0% of total single family principal
outstanding at May 31, 1997. 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. The fund may receive rental or other income
as a result of holding real estate and may incur expenses
associated with maintaining real estate. On May 31, 1997, the
fund owned 3 homes with an aggregate value of $102,148, or 0.2%
of net assets. The fund recognized net realized losses of $11,754
or $0.002 per share on real estate sold during the six months
ended May 31, 1997.
MORTGAGE SERVICING RIGHTS
The fund may acquire interests in the cash flow from servicing
fees through contractual arrangements with mortgage servicers.
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.
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1997 Semiannual Report 13 American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
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SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities that have been purchased by
the fund on a when-issued or forward-commitment basis can take
place a month or more after the transaction date. During this
period, such securities do not earn interest, are subject to
market fluctuation and may increase or decrease in value prior to
their delivery. The fund segregates, with its custodian, assets
with a market value equal to the amount of its purchase
commitments. The purchase of securities on a when-issued or
forward-commitment basis may increase the volatility of the
fund's net asset value if the fund makes such purchases while
remaining substantially fully invested. As of May 31, 1997, the
fund had no outstanding when-issued or forward commitments.
In connection with its ability to purchase securities on a when-
issued or forward-commitment basis, the fund may enter into
mortgage dollar rolls in which the fund sells securities
purchased on a forward commitment basis and simultaneously
contracts with a counterparty to repurchase similar (same type,
coupon and maturity) but not identical securities on a specified
future date. As an inducement to "roll over" its purchase
commitments, the fund receives negotiated fees. For the six
months ended May 31, 1997, 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. The fund also intends to distribute its
taxable net investment income and realized gains, if any, to
avoid the payment of any federal excise taxes.
The character of distributions made during the year from net
investment income or net realized gains may differ from its
ultimate characterization for federal income tax purposes. In
addition, due to the timing of dividend distributions, the fiscal
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1997 Semiannual Report 14 American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
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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
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1997 Semiannual Report 15 American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
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make estimates and assumptions that affect the reported amounts
in the financial statements. Actual results could differ from
these estimates.
(3) EXPENSES
................................
INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES
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 the six months
ended May 31, 1997, the effective investment management fee
incurred by the fund was 0.62% of average weekly net assets. For
its fee, the adviser provides investment advice and conducts the
management and investment activity of the fund.
The administration agreement provides the administrator with a
monthly fee in an amount equal to an annualized rate of 0.20% of
the fund's average weekly net assets. For its fee, the
administrator will provide regulatory, reporting and
record-keeping services for the fund.
MORTGAGE SERVICING FEES
The fund enters into mortgage servicing agreements with mortgage
servicers for whole loans and participation mortgages. For a fee,
mortgage servicers maintain loan records, such as insurance and
taxes and the proper allocation of payments between principal and
interest.
- ---------------------------------------------------------------------
1997 Semiannual Report 16 American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- ---------------------------------------------------------------------
OTHER FEES AND EXPENSES
In addition to the investment management, administrative and
mortgage servicing fees, the fund is responsible for paying most
other operating expenses, including: outside directors' fees and
expenses; custodian fees; registration fees; printing and
shareholder reports; transfer agent fees and expenses; legal,
auditing and accounting services; insurance; interest; fees to
outside parties retained to assist in conducting due diligence;
taxes and other miscellaneous expenses.
Expenses paid indirectly represent a reduction of custodian fees
for earnings on miscellaneous cash balances maintained by the
fund.
(4) INVESTMENT
SECURITY
TRANSACTIONS
................................
Cost of purchases and proceeds from sales of securities, other
than temporary investments in short-term securities and dollar
roll transactions, for the six months ended May 31, 1997,
aggregated $26,451,014 and $28,780,249, respectively. Included in
proceeds from sales are $802,173 from sales of real estate owned.
(5) CAPITAL SHARE
TRANSACTIONS
................................
Capital share transactions for the fund were as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
MAY 31, 1997 NOVEMBER 30, 1996
------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
------- ------- ------- ----------
<S> <C> <C> <C> <C>
Authorized one billion shares of $0.01 par
value:
Payments for retirement of shares ......... -- -- 35,100 $ (413,787)
</TABLE>
- ---------------------------------------------------------------------
1997 Semiannual Report 17 American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- ---------------------------------------------------------------------
(6) CAPITAL LOSS
CARRYOVER
................................
For federal income tax purposes, the fund had capital loss
carryovers at November 30, 1996, which, if not offset by
subsequent capital gains, will expire as indicated below. It is
unlikely the board of directors will authorize a distribution of
any net realized capital gains until the available capital loss
carryovers have been offset or expire.
<TABLE>
<CAPTION>
CAPITAL LOSS
CARRYOVER EXPIRATION DATE
------------- ----------------
<S> <C> <C>
$ 434,997 2002
8,473,248 2003
-------------
$ 8,908,245
-------------
-------------
</TABLE>
(7) PENDING
LITIGATION
................................
An amended complaint purporting to be a class action was filed on
September 7, 1995, in the United States District Court for the
Western District of Washington against the fund, seven other
closed-end investment companies for which Piper Capital
Management Incorporated acts as investment adviser, Piper Jaffray
Companies Inc., Piper Jaffray Inc., Piper Capital Management
Incorporated and certain individuals. The named plaintiffs and
defendants have executed a settlement agreement which the Court
has preliminarily approved. If approved by a sufficiently large
percentage of the class and granted final approval by the Court,
the settlement agreement will 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 settlement also includes an agreement that ASP will
offer to repurchase up to 10 percent of its outstanding shares
from current shareholders at net asset value. The repurchase
offer will occur after the effective date of the settlement
following final Court approval.
- ---------------------------------------------------------------------
1997 Semiannual Report 18 American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
- ---------------------------------------------------------------------
(8) FINANCIAL
HIGHLIGHTS
................................
Per-share data for a share of capital stock outstanding
throughout each period and selected information for each period
are as follows:
<TABLE>
<CAPTION>
Six Months
Ended Year Year Year Year Period
5/31/97 Ended Ended Ended Ended Ended
(Unaudited) 11/30/96 11/30/95 11/30/94 11/30/93 11/30/92(f)
----------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ........ $ 12.65 $13.13 $12.63 $15.79 $14.89 $ 13.98
----------- -------- -------- -------- -------- -----------
Operations:
Net investment income ..................... 0.49 0.97 1.09 1.41 1.79 1.49
Net realized and unrealized gain (loss) on
investments ............................. (0.11) (0.10) 1.11 (3.22) 0.61 0.55
----------- -------- -------- -------- -------- -----------
Total from operations ................... 0.38 0.87 2.20 (1.81) 2.40 2.04
----------- -------- -------- -------- -------- -----------
Distributions to shareholders:
From net investment income ................ (0.48) (1.35) (1.70) (1.15) (1.50) (1.13)
From net realized gains on investments .... -- -- -- (0.20) -- --
----------- -------- -------- -------- -------- -----------
Total distributions to shareholders . (0.48) (1.35) (1.70) (1.35) (1.50) (1.13)
----------- -------- -------- -------- -------- -----------
Net asset value, end of period .............. $ 12.55 $12.65 $13.13 $12.63 $15.79 $ 14.89
----------- -------- -------- -------- -------- -----------
----------- -------- -------- -------- -------- -----------
Per-share market value, end of period ....... $ 11.25 $11.00 $12.25 $13.00 $16.38 $ 16.25
----------- -------- -------- -------- -------- -----------
----------- -------- -------- -------- -------- -----------
SELECTED INFORMATION
Total return, net asset value (a) ........... 3.09% 7.12% 18.27% (11.87)% 16.80% 15.20%
Total return, market value (b) .............. 6.79% 1.29% 7.75% (12.59)% 10.75% 16.92%
Net assets at end of period (in millions) . $ 66 $ 66 $ 69 $ 67 $ 84 $ 79
Ratio of expenses to average weekly net
assets (c) ................................ 1.52%(g) 1.50% 1.72% 1.69% 1.69% 1.45%(g)
Ratio of expenses to average weekly net
assets including interest expense (c) ..... 2.70%(g) 2.94% 3.29% 3.34% 3.00% 2.86%(g)
Ratio of net investment income to average
weekly net assets ......................... 7.96%(g) 7.67% 8.26% 10.00% 11.52% 11.49%(g)
Portfolio turnover rate (excluding short-term
securities) ............................... 35% 63% 120% 74% 50% 72%
Amount of borrowings outstanding at end of
period (in millions) (d) .................. $ 11 $ 14 $ 15 $ 28 $ 32 $ 32
Per-share amount of borrowings outstanding at
end of period ............................. $ 2.10 $ 2.67 $ 2.84 $ 5.16 $ 6.04 $ 6.05
Per-share amount of net assets, excluding
borrowings, at end of period .............. $ 14.65 $15.32 $15.97 $17.79 $21.83 $ 20.94
Asset coverage ratio (e) .................... 698% 574% 563% 345% 361% 346%
</TABLE>
(A) ASSUMES REINVESTMENT OF DISTRIBUTIONS AT NET ASSET VALUE AND DOES NOT
REFLECT A SALES CHARGE.
(B) 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.
(D) SECURITIES PURCHASED ON A WHEN-ISSUED BASIS FOR WHICH LIQUID ASSETS ARE
SEGREGATED ARE NOT CONSIDERED BORROWINGS. SEE NOTE 2 IN THE NOTES TO
FINANCIAL STATEMENTS.
(E) REPRESENTS NET ASSETS, EXCLUDING BORROWINGS, AT END OF PERIOD DIVIDED BY
BORROWINGS OUTSTANDING AT END OF PERIOD.
(F) COMMENCEMENT OF OPERATIONS WAS DECEMBER 27, 1991.
(G) ANNUALIZED.
- ---------------------------------------------------------------------
1997 Semiannual Report 19 American Strategic Income Portfolio
<PAGE>
Investments in Securities (Unaudited)
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN STRATEGIC INCOME PORTFOLIO May 31, 1997
.......................................................................................
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
U.S. GOVERNMENT AND AGENCY SECURITIES (22.8%):
U.S. AGENCY MORTGAGE-BACKED SECURITIES (4.7%):
FIXED RATE (4.7%):
7.00%, GNMA, 7/15/23 .............................. $ 1,558,999 $ 1,526,853
7.00%, GNMA, 7/15/23 .............................. 1,574,129 1,541,670
------------
3,068,523
------------
U.S. GOVERNMENT SECURITIES (18.1%):
6.13%, U.S. Treasury Note, 7/31/00 ................ 12,000,000(b) 11,919,600
------------
Total U.S. Government and Agency Securities
(cost: $14,964,741) .......................... 14,988,123
------------
PRIVATE MORTGAGE-BACKED SECURITIES (E) (1.8%):
FIXED RATE (1.8%):
10.10%, First Boston, Series 1992-1, Class B-2,
Subordinated Note, 1/15/01 ...................... 1,000,000 991,875
12.97%, Minnesota Mortgage Corporation, 7/25/14 ... 79,646 80,841
12.26%, Minnesota Mortgage Corporation,
10/25/14 ........................................ 54,752 55,573
12.38%, Minnesota Mortgage Corporation, 3/25/15 ... 31,552 32,025
------------
Total Private Mortgage-Backed Securities
(cost: $1,139,212) ........................... 1,160,314
------------
WHOLE LOANS AND PARTICIPATION MORTGAGES (C,D,E) (86.9%):
COMMERCIAL LOANS (9.6%):
James Plaza, 8.55%, 12/1/01 ....................... 1,195,338 1,170,366
Rice St Convention Center, 9.10%, 2/1/04 .......... 848,503 850,707
Shallowford Business Park, 9.25%, 7/1/01 .......... 1,636,897 1,651,537
Sherwin Williams, 8.63%, 1/1/04 ................... 1,445,841 1,435,430
Stephens Retail Center, 9.35%, 8/1/03 ............. 1,193,824 1,209,688
------------
6,317,728
------------
MULTIFAMILY LOANS (31.9%):
Applewood Manor, 8.75%, 1/1/01 .................... 681,908 686,844
Boca Bend Apartments, 11.75%, 5/1/00 .............. 583,908 569,696
Dorchester Garden Apartments, 8.50%, 7/1/02 ....... 1,468,890 1,468,066
Essex Place I, 9.58%, 9/30/12 ..................... 2,130,558 1,714,395
Franklin Woods Apartments, 9.90%, 3/1/10 .......... 1,300,223 1,345,731
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1997 Semiannual Report 20 American Strategic Income Portfolio
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
AMERICAN STRATEGIC INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
Fremont Plaza Apartments, 9.75%, 4/1/02 ........... $ 721,848 $ 747,113
Garden Oaks Apartments, 8.55%, 4/1/06 ............. 1,842,630 1,827,647
Kings Creek Apartments, 10.00%, 5/1/97 ............ 1,300,000 1,300,000
Normandie Square Apartments, 8.75%, 4/1/01 ........ 1,808,338 1,821,900
Park Place Apartments, 8.38%, 7/1/02 .............. 1,552,963 1,537,612
Royal Knight Apartments, 8.50%, 4/1/06 ............ 1,587,905 1,578,739
Stanley Court Apartments, 8.50%, 11/1/02 .......... 1,088,006 1,081,746
The Establishment, 8.75%, 2/1/01 .................. 930,674 937,442
Twelfth Street Apartments, 9.25%, 6/1/05 .......... 1,158,447 1,194,268
Vanderbilt Condominiums, 8.50%, 8/1/00 ............ 814,302 814,409
Westgate Apartments, 10.00%, 2/1/08 ............... 1,386,096 1,434,610
Westhollow Place Apartments, 8.58%, 4/1/03 ........ 992,561 989,596
------------
21,049,814
------------
SINGLE FAMILY LOANS (45.4%):
Aegis, 9.66%, 3/26/10 ............................. 404,547 384,482
Aegis II, 9.84%, 1/28/14 .......................... 518,826 533,021
American Bank, Mankato, 9.58%, 12/10/12 ........... 142,029 144,269
American Portfolio, 7.88%, 10/18/15 ............... 317,363 306,487
Anivan, 9.29%, 4/14/12 ............................ 414,659 423,264
Bank of New Mexico, 9.08%, 3/31/10 ................ 1,701,892 1,684,499
Bluebonnet Savings and Loan, 9.58%, 8/31/10 ....... 159,965 151,583
Bluebonnet Savings and Loan, 9.58%, 8/31/10 ....... 1,521,944 1,466,536
CLSI Allison Williams, 10.47%, 8/1/17 ............. 847,662 846,585
Crossroads Savings and Loan, 9.57%, 1/1/21 ........ 478,946 486,795
Crossroads Savings and Loan, 9.57%, 1/1/21 ........ 570,584 574,696
Fairbanks II, Utah, 9.58%, 8/20/10 ................ 204,427 169,248
Fairbanks, Utah, 9.58%, 9/23/15 ................... 289,836 252,689
First Boston Mortgage Pool #5, 9.66%, 6/29/03 ..... 478,980 474,548
Hamilton Financial, 9.66%, 6/29/10 ................ 190,618 180,013
Huntington MEWS, 0.10%, 8/1/17 .................... 1,635,772 1,514,234
Knutson Mortgage Portfolio #1, 0.10%, 8/1/17 ...... 1,744,974 1,673,776
Knutson Mortgage Portfolio #2, 9.55%, 9/25/17 ..... 1,520,776 1,556,968
McClemore, 9.58%, 9/30/12 ......................... 2,026,691 2,004,800
Meridian, 9.54%, 12/1/20 .......................... 1,155,632 1,168,218
Nomura III, 8.40%, 4/29/17 ........................ 2,582,397 2,376,777
Norwest II, 7.71%, 11/27/22 ....................... 3,348,810 3,130,978
Norwest III, 7.63%, 11/27/22 ...................... 1,910,610 1,819,107
Norwest V, 8.84%, 2/3/25 .......................... 4,279,064 4,169,232
President Homes 93-1, Sales Inventory, 10.00%,
3/1/23 .......................................... 79,717 82,108
Rand Mortgage Corporation, 9.52%, 8/1/17 .......... 411,564 420,171
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1997 Semiannual Report 21 American Strategic Income Portfolio
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
AMERICAN STRATEGIC INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
Salomon II, 9.86%, 11/23/14 ....................... $ 1,444,859 $ 1,460,863
Valley Bank of Commerce, N.M., 9.58%, 8/31/10 ..... 445,724 442,717
------------
29,898,664
------------
Total Whole Loans and Participation Mortgages
(cost: $56,512,703) .......................... 57,266,206
------------
MORTGAGE SERVICING RIGHTS (E) (1.0%):
Matrix Servicing Rights, 17.04%, 7/10/22
(cost: $550,855) ................................ 68,462,687 637,675
------------
SHORT-TERM SECURITIES (2.2%):
Repurchase agreement with Goldman Sachs, acquired
on 5/30/97, accrued interest of $679, 5.55%,
6/2/97
(cost: $1,470,000) .............................. 1,470,000(f) 1,470,000
------------
Total Investments in Securities
(cost: $74,637,511) (g) ...................... $ 75,522,318
------------
------------
</TABLE>
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, 1997, SECURITIES VALUED AT $10,926,300 WERE SEGREGATED OR
PLEDGED AS COLLATERAL FOR THE FOLLOWING OUTSTANDING REVERSE REPURCHASE
AGREEMENT:
<TABLE>
<CAPTION>
NAME OF BROKER
ACQUISITION ACCRUED AND DESCRIPTION
AMOUNT DATE RATE* DUE INTEREST OF COLLATERAL
- ------------ ---------- --------- --------- --------- -------------------
<S> <C> <C> <C> <C> <C>
$ 11,000,000 5/1/97 5.64% 6/2/97 $ 53,400 (1)
</TABLE>
* INTEREST RATE AS OF MAY 31, 1997. RATES ARE BASED ON THE LONDON INTERBANK
OFFERED RATE (LIBOR) AND RESET MONTHLY.
NAME OF BROKER AND DESCRIPTION OF COLLATERAL
(1) NOMURA; U. S. TREASURY NOTE, 6.13%, 7/31/00, $11,000,000 PAR
(C) INTEREST RATES ON COMMERCIAL AND MULTIFAMILY LOANS ARE THE RATES IN EFFECT
ON MAY 31, 1997. INTEREST RATES AND MATURITY DATES DISCLOSED ON
SINGLE-FAMILY LOANS REPRESENT THE WEIGHTED AVERAGE COUPON AND WEIGHTED
AVERAGE MATURITY FOR THE UNDERLYING MORTGAGE LOANS AS OF MAY 31, 1997.
(D) COMMERCIAL AND MULTIFAMILY LOANS ARE DESCRIBED BY THE NAME OF THE MORTGAGED
PROPERTY. POOLS OF SINGLE FAMILY LOANS ARE DESCRIBED BY THE NAME OF THE
INSTITUTION FROM WHICH THE LOANS WERE PURCHASED. THE GEOGRAPHICAL LOCATION
OF THE MORTGAGED PROPERTIES AND, IN THE CASE OF SINGLE FAMILY, THE NUMBER
OF LOANS, IS PRESENTED BELOW.
- ---------------------------------------------------------------------
1997 Semiannual Report 22 American Strategic Income Portfolio
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
<TABLE>
<S> <C>
COMMERCIAL LOANS:
JAMES PLAZA - HOUSTON, TX
RICE ST CONVENTION CENTER - ROSEVILLE, MN
SHALLOWFORD BUSINESS PARK - CHATTANOOGA, TN
SHERWIN WILLIAMS - ORLANDO, FL
STEPHENS RETAIL CENTER - MISSOULA, MT
MULTIFAMILY LOANS:
APPLEWOOD MANOR - DULUTH, MN
BOCA BEND APARTMENTS - BOCA RATON, FL
DORCHESTER GARDEN APARTMENTS - NORTH CHARLESTON, SC
ESSEX PLACE I - ROCHESTER, MN
FRANKLIN WOODS APARTMENTS - FRANKLIN, NH
FREMONT PLAZA APARTMENTS - LAS VEGAS, NV
GARDEN OAKS APARTMENTS - COON RAPIDS, MN
KINGS CREEK APARTMENTS - DALLAS, TX
NORMANDIE SQUARE APARTMENTS - SAN ANTONIO, TX
PARK PLACE APARTMENTS - GRAND FORKS, ND
ROYAL KNIGHT APARTMENTS - MEMPHIS, TN
STANLEY COURT APARTMENTS - BLOOMINGTON, MN
THE ESTABLISHMENT - DALLAS, TX
TWELFTH STREET APARTMENTS - ATLANTA, GA
VANDERBILT CONDOMINIUMS - AUSTIN, TX
WESTGATE APARTMENTS - BISMARCK, ND
WESTHOLLOW PLACE APARTMENTS - HOUSTON, TX
SINGLE FAMILY LOANS:
AEGIS - 25 LOANS, TEXAS
AEGIS II - 8 LOANS, THE MIDWESTERN UNITED STATES
AMERICAN BANK, MANKATO - 5 LOANS, MINNESOTA
AMERICAN PORTFOLIO - 8 LOANS, TEXAS AND CALIFORNIA
ANIVAN - 5 LOANS, UNITED STATES
BANK OF NEW MEXICO - 30 LOANS, NEW MEXICO
BLUEBONNET SAVINGS AND LOAN - 59 LOANS, TEXAS
CLSI ALLISON WILLIAMS - 41 LOANS, TEXAS
CROSSROADS SAVINGS AND LOAN - 30 LOANS, OKLAHOMA
FAIRBANKS II, UTAH - 2 LOANS, UTAH
FAIRBANKS, UTAH - 6 LOANS, UTAH
FIRST BOSTON MORTGAGE POOL #5 - 17 LOANS, UNITED STATES
HAMILTON FINANCIAL - 2 LOANS, CALIFORNIA
HUNTINGTON MEWS - 33 LOANS, NEW JERSEY
KNUTSON MORTGAGE PORTFOLIO #1 - 28 LOANS, MIDWESTERN UNITED STATES
KNUTSON MORTGAGE PORTFOLIO #2 - 19 LOANS, MIDWESTERN UNITED STATES
MCCLEMORE - 23 LOANS, NORTH CAROLINA
MERIDIAN - 17 LOANS, CALIFORNIA
NOMURA III - 44 LOANS, MIDWESTERN UNITED STATES
NORWEST II - 29 LOANS, MIDWESTERN UNITED STATES
NORWEST III - 18 LOANS, MIDWESTERN UNITED STATES
NORWEST V - 34 LOANS, MIDWESTERN UNITED STATES
PRESIDENT HOMES - 1 LOAN, MIDWESTERN UNITED STATES
RAND MORTGAGE CORPORATION - 9 LOANS, TEXAS
SALOMON II - 30 LOANS, MIDWESTERN UNITED STATES
VALLEY BANK OF COMMERCE, N.M. - 28 LOANS, 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 AND ARE CONSIDERED TO BE ILLIQUID. ON MAY 31, 1997
</TABLE>
- ---------------------------------------------------------------------
1997 Semiannual Report 23 American Strategic Income Portfolio
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
<TABLE>
<S> <C>
THE TOTAL MARKET VALUE OF THESE INVESTMENTS WAS $59,064,195 OR 89.7% OF
TOTAL NET ASSETS,
(F) REPURCHASE AGREEMENT IN A JOINT TRADING ACCOUNT WHICH IS COLLATERALIZED BY
U.S. GOVERNMENT AGENCY SECURITIES. ACCRUED INTEREST SHOWN REPRESENTS
INTEREST DUE AT MATURITY OF THE REPURCHASE AGREEMENT.
(G) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS
UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES,
INCLUDING REAL ESTATE OWNED, BASED ON THIS COST WERE AS FOLLOWS:
</TABLE>
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 1,732,123
GROSS UNREALIZED DEPRECIATION ...... (847,315)
------------
NET UNREALIZED APPRECIATION ...... $ 884,808
------------
------------
</TABLE>
- ---------------------------------------------------------------------
1997 Semiannual Report 24 American Strategic Income Portfolio
<PAGE>
Shareholder Update
- ----------------------------------------
CLARIFICATION OF CREDIT QUALITY CRITERIA
The fund's board of directors has approved a clarification of the
credit quality criteria that must be met by individual whole
mortgage loans purchased for the fund.
As you know, rather than focusing on traditional mortgage-backed
securities, we make direct investments in single-family,
multifamily (apartment) and/or commercial mortgage loans. We do
this so we can pass along to investors the higher rates, or
"spread", we may earn on these mortgage loans compared to
traditional mortgage-backed securities. Unlike most
mortgage-backed securities, however, these loans are not backed
by any government guarantee or private credit enhancement and, as
a result, are subject to greater credit risk. Credit risk is the
risk that the borrower will default, or fail to make payments on
the loan. We attempt to manage credit risk in the fund through
the use of an extensive risk analysis process. Among other
things, we review each 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. In
addition, for multifamily and commercial properties we perform a
detailed inspection of each property; study competing properties
in the area; interview property managers; and obtain engineering
and environmental reports from experts. We also perform a
significant financial analysis of each property.
The fund's prospectus requires that each security in which the
fund invests (other than certain corporate debt securities and
subordinated derivative mortgage-backed securities) be rated A or
higher by Standard & Poor's Ratings Group (S&P) or, if unrated,
be determined by the fund's investment adviser to be of
comparable quality. S&P has quantitative criteria for rating
mortgage loans pooled to form A-rated mortgage-backed securities.
Loans which we believe would be appropriate investments for the
fund, and of suitable credit quality using our risk analysis
process outlined above, may not always meet these quantitative
criteria. Therefore, in order to avoid confusion as to whether
S&P's
- ---------------------------------------------------------------------
1997 Semiannual Report 25 American Strategic Income Portfolio
<PAGE>
Shareholder Update (continued)
- ---------------------------------------------------------------------
quantitative rating criteria are applied to individual whole
loans in which the fund invests, we have requested, and your
fund's board of directors has approved, clarification that the
rating requirements do not apply to individual whole loans in the
fund. (Other mortgage-related securities in which the fund
invests, with the exceptions noted above, will continue to be
rated A or higher by S&P or determined to be of equivalent
quality.)
This clarification does not represent a change in our investment
strategy. When selecting individual mortgage loan investments for
the fund, we will continue to utilize the risk analysis process
outlined above in an attempt to manage the credit risk inherent
in these investments. In addition, we intend to maintain the
fund's current S&P rating.
Since inception, the fund has been rated AF by S&P's Ratings
Group, which means the fund's investments have an overall credit
quality of A. S&P does not evaluate the market risk (the risk of
price volatility and a decline in value) of the fund when
assigning a credit rating. S&P has also given the fund a market
risk rating, which we cannot publish due to NASD regulations.
This rating, and a definition of AF, are available by calling S&P
at
1 800 424-FUND.
- ---------------------------------------------------------------------
1997 Semiannual Report 26 American Strategic Income Portfolio
<PAGE>
GLOSSARY OF TERMS***
- --------------------------------------------------------------------------------
BENCHMARK
A benchmark is an established basis of comparison for an investment's
performance. A benchmark may be an unmanaged market index or a group of
similar investments.
COMMERCIAL LOANS
Mortgage loan secured by commercial developments such as shopping centers,
office buildings and warehouses.
DELINQUENT
When there is failure to make payment on a loan when due, the loan is said to
be delinquent.
DISCOUNT
Closed-end fund shares may trade in the market at prices that are equal to,
above or below their net asset value (NAV). When investors purchase or sell
shares at a price that is below current NAV, the shares are said to be
trading at a discount.
REVERSE REPURCHASE AGREEMENTS
A reverse repurchase agreement is an agreement between a seller of securities
(the fund) and a buyer, whereby the fund receives cash and pays interest and
agrees to buy back the same securities at an agreed on price at a stated
date. Reverse repurchase agreements are considered a form of borrowing.
RISK
All funds that invest in mortgage-related securities are subject to certain
risks. Following is a brief summary of some of the primary risks associated
with mortgage-related assets. It does not include all risks related to
mortgage securities.
Among these risks is PREPAYMENT RISK in which principal payments are prepaid
at unexpected rates. Prepayment rates are influenced by changes in interest
rates and a variety of other factors. If the fund buys a mortgage loan at a
premium, a faster-than-anticipated prepayment rate will reduce the fund's
yield and a slower-than-anticipated prepayment rate will increase its yield.
If a mortgage loan is purchased at a discount, the opposite will occur. There
is also the chance that proceeds from prepaid loans will have to be
reinvested in lower-yielding investments (REINVESTMENT RISK).
Like all fixed income investments, the prices of securities in the fund are
sensitive to changing interest rates - otherwise known as INTEREST RATE RISK.
When rates increase, the value of these securities decreases. Conversely,
when rates decline,
- --------------------------------------------------------------------------------
1997 Semiannual Report 27 American Strategic Income Portfolio
<PAGE>
GLOSSARY OF TERMS (continued)
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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.
This particular fund's mortgage loans are subject to real estate risk and
credit risk. Since the fund's mortgage loans generally aren't backed by any
government guarantee or private credit enhancement, they face more
significant CREDIT RISK than other mortgage-related securities. Credit risk
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 and could also occur following natural disasters
such as flood or earthquake, for which a property may be uninsured. 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.
SPREAD
The difference between the yields of an investment and the corresponding term
Treasury security.
YIELD CURVE
A graph that shows the relationship between the interest rates paid on bonds
and their maturities, ranging from the shortest maturities to the longest
available (assuming the bonds are all of the same quality). The resulting
curve indicates whether short-term interest rates are higher or lower than
long-term rates.
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1997 Semiannual Report 28 American Strategic Income Portfolio
<PAGE>
DIRECTORS
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DAVID T. BENNETT, Chairman, Highland Homes, Inc., USL Products, Inc., Kiefer
Built, Inc., of Counsel, Gray, Plant, Mooty, Mooty & Bennett, P.A.
JAYE F. DYER, President, Dyer Management Company
WILLIAM H. ELLIS, President, Piper Jaffray Companies Inc., Piper Capital
Management Incorporated
KAROL D. EMMERICH, President, The Paraclete Group
LUELLA G. GOLDBERG, Director, TCF Financial, ReliaStar Financial Corp., Hormel
Foods Corp.
DAVID A. HUGHEY, Retired Executive Vice President and Chief Administrative
Officer of Dean Witter InterCapital Inc. and Dean Witter Trust Co.
GEORGE LATIMER, Chief Executive Officer, National Equity Funds
OFFICERS
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WILLIAM H. ELLIS, Chairman of the Board
PAUL A. DOW, President
JOHN G. WENKER, Senior Vice President
RUSS J. KAPPENMAN, Vice President and Assistant Secretary
AMY AYD, Vice President
JULENE R. MELQUIST, Vice President
WILLIAM T. NIMMO, Vice President
ROBERT H. NELSON, Vice President and Treasurer
DANIEL W. SCHROER, Vice President and Assistant Secretary
SUSAN S. MILEY, Secretary
INVESTMENT ADVISER
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PIPER CAPITAL MANAGEMENT INCORPORATED
222 South Ninth Street, Minneapolis, MN 55402-3804
ACCOUNTING AND TRANSFER AGENT
- --------------------------------------------------------------------------------
INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street, Kansas City, MO 64105-1716
CUSTODIAN
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FIRST TRUST NATIONAL ASSOCIATION
180 East Fifth Street, St. Paul, MN 55101
LEGAL COUNSEL
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DORSEY & WHITNEY LLP
220 South Sixth Street, Minneapolis, MN 55402
FOR MORE INFORMATION
BY PHONE [GRAPH]
1 800 866-7778
FOR GENERAL INFORMATION
press 5, our Mutual Fund Services representatives are ready to answer your
questions.
TO LISTEN TO MONTHLY FUND UPDATES
press 3, press 2, then press:
31 American Strategic
Income Portfolio
TO ORDER LITERATURE
press 5, ask a service representative to mail you additional literature,
including a Quarterly Update. You can also request to be put on a mailing
list to receive this information automatically each quarter.
By Mail [GRAPH]
Piper Capital Management
Attn: Mutual Fund Services
222 South Ninth Street
Minneapolis, MN 55402-3804
In an effort to reduce costs to our shareholders, we have implemented a
process to reduce duplicate mailings of the fund's shareholder reports. This
householding process should allow us to mail one report to each address where
one or more registered shareholders with the same last name reside. If you
would like to have additional reports mailed to your address, please call our
Mutual Fund Services area at 1 800 866-7778, or mail a request to us.
On-Line [GRAPH]
http://www.piperjaffray.com/
<PAGE>
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