<PAGE>
American Strategic Income Portfolio - 1996 Annual Report
1996 Annual Report
AMERICAN
STRATEGIC
INCOME
PORTFOLIO
ASP
[LOGO]
<PAGE>
[LOGO]
CONTENTS
President's Letter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Letter to Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Financial Statements and Notes. . . . . . . . . . . . . . . . . . . . . . . . 9
Investments in Securities . . . . . . . . . . . . . . . . . . . . . . . . . .24
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . . . .29
Federal Tax Information . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Shareholder Update. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Directors and Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Glossary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
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, and may purchase securities through the dollar-
roll program. Use of certain of these investments and investment techniques may
cause the fund's net asset value to fluctuate to a greater extent than would be
expected from interest rate movements alone.
FUND OBJECTIVE
High level of current income. Its secondary objective is to seek capital
appreciation. As with other investment companies, there can be no assurance this
fund will achieve its objective.
<PAGE>
AVERAGE ANNUALIZED TOTAL RETURNS
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Based on net asset value for the periods ended November 30, 1996.
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[CHART]
THE AVERAGE ANNUALIZED TOTAL RETURN FIGURES FOR AMERICAN 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, 1996, WERE 1.29%, -1.55% AND
4.38%, RESPECTIVELY. THESE FIGURES ALSO ASSUME REINVESTED DISTRIBUTIONS AND DO
NOT REFLECT SALES CHARGES.
PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. NEITHER SAFETY OF
PRINCIPAL NOR STABILITY OF INCOME IS GUARANTEED. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT WILL FLUCTUATE SO THAT FUND SHARES, WHEN SOLD, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST.
THE LEHMAN BROTHERS MUTUAL FUND GOVERNMENT/MORTGAGE INDEX IS COMPRISED OF ALL
U.S. GOVERNMENT AGENCY AND TREASURY SECURITIES AND AGENCY MORTGAGE-BACKED
SECURITIES. DEVELOPED BY LEHMAN BROTHERS FOR COMPARATIVE USE BY THE MUTUAL FUND
INDUSTRY, THIS INDEX IS UNMANAGED AND DOES NOT INCLUDE ANY FEES OR EXPENSES IN
ITS TOTAL RETURN FIGURES.
THE LIPPER CLOSED-END U.S. MORTGAGE FUNDS AVERAGE REPRESENTS THE AVERAGE
ANNUALIZED TOTAL RETURN, WITH DISTRIBUTIONS REINVESTED, OF SIMILAR CLOSED-END
FUNDS AS CHARACTERIZED BY LIPPER ANALYTICAL SERVICES.
THE SINCE INCEPTION NUMBERS FOR THE LEHMAN INDEX AND LIPPER AVERAGE ARE
CALCULATED FROM THE MONTH END FOLLOWING THE FUND'S INCEPTION THROUGH NOVEMBER
30, 1996.
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1996 Annual Report 1 American Strategic Income Portfolio
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PRESIDENT'S LETTER
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[PHOTO]
WILLIAM H. ELLIS
President
Piper Capital
Management
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January 16, 1997
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DEAR SHAREHOLDERS:
Check out the best sellers' list at your local bookstore. You'll notice a
number of books about companies that have gone through dramatic changes in
recent years. Surprising? Not really. Every company experiences change
periodically. And we're no exception. At Piper Capital Management, we've made
significant changes to enhance our ability to achieve consistent, competitive
performance and provide a higher level of quality service.
We've upgraded our toll-free telephone system so you spend less time
listening to voice response and more time receiving information you can put to
use. Also, when calling our toll-free number, you now have the option to listen
to our portfolio managers talk about their current investment strategies. Find
out the many ways to reach us on the back page of this report.
Take a close look at the annual report in your hand. We've made our
portfolio managers' commentaries simpler and more inviting, and added a glossary
of terms at the back to help you understand commonly used financial terms.
Whenever you see this symbol,*** it indicates a term defined in the glossary.
You'll hear the word "team" more often when we talk about our portfolio
managers. We've enhanced our approach, allowing managers to interact more
frequently and share their best ideas to improve the investment capabilities of
Piper Capital.
The recent changes we have made represent a new way of doing business at
Piper Capital -- an approach we believe will enable us to establish an
unparalleled reputation for prudent investing and high-quality service.
That said, we look forward to serving your future financial needs and
exceeding your expectations in every way we can. Thank you for your investment.
Sincerely,
/s/ William H. Ellis
William H. Ellis
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
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1996 Annual Report 2 American Strategic Income Portfolio
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AMERICAN STRATEGIC INCOME PORTFOLIO
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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.
January 16, 1997
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DEAR SHAREHOLDERS:
AMERICAN STRATEGIC INCOME PORTFOLIO PAID AN ATTRACTIVE LEVEL OF CURRENT
INCOME FOR SHAREHOLDERS DURING THE ONE-YEAR PERIOD ENDED NOVEMBER 30, 1996.
The fund paid $1.35 per share in dividends, which is an annualized
distribution rate of 12.27% on the November 30 market price of $11 per share,
and 9% on the initial public offering price of $15 per share. The fund's
distribution included 20 cents in special dividends, which are not likely to
occur in the future. In addition, as discussed below, the fund's dividend was
reduced to bring it in line with the fund's earnings. Current monthly
earnings of 8.49 cents per share (based on an average of the three months
ended November 30) would result in an annualized earnings rate of 9.26% on
the November 30 market price and 6.79% on the initial public offering price.
Keep in mind that past performance does not guarantee future results, and
these rates will fluctuate.
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PORTFOLIO COMPOSITION
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[CHART]
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1996 Annual Report 3 American Strategic Income Portfolio
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AMERICAN STRATEGIC INCOME PORTFOLIO (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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FOR THE YEAR, THE FUND HAD A NET ASSET VALUE TOTAL RETURN OF 7.12%.* This
compares to a 5.98% return for the Lehman Brothers Mutual Fund
Government/Mortgage Index and a 7.36% return for the Lipper Closed-End U.S.
Mortgage Funds Average during this same. For the year ended November 30, the
fund's total return based on its market price was 1.29%.* The fund continued to
trade at a discount*** to net asset value during the year, with a market price
of $11 and a net asset value of $12.65 per share as of November 30. Reducing the
difference between the fund's market price and net asset value has been
challenging, but we believe the fund's reduced net asset value volatility and
earnings stability could help improve the fund's market price over time.
* ALL RETURNS INCLUDE REINVESTED DISTRIBUTIONS, BUT NOT SALES CHARGES. PAST
PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT FUND SHARES, WHEN SOLD,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
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GEOGRAPHICAL DISTRIBUTION
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Percentages reflect principal value of whole loans and real estate owned as of
November 30, 1996.
[MAP]
SHADED AREAS WITHOUT VALUES INDICATE STATES IN WHICH THE FUND HAS INVESTED LESS
THAN 0.50% OF ITS ASSETS.
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1996 Annual Report 4 American Strategic Income Portfolio
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AMERICAN STRATEGIC INCOME PORTFOLIO (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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THE FUND'S GENERALLY GOOD NET ASSET VALUE PERFORMANCE WAS LARGELY DUE TO THE
CONTINUED PRICE STABILITY OF OUR INVESTMENTS IN MORTGAGE LOANS DESPITE VOLATILE
INTEREST RATES THROUGHOUT THE YEAR. Interest rates increased substantially
during the first half of 1996, but then, with the exception of August, moved
lower through the end of November -- ending about 0.40% higher than they were
at the start of the year.
DURING THE PERIOD, WE REMAINED FOCUSED ON STABILIZING THE FUND'S NET ASSET VALUE
AND INCOME STREAM. The fund's income stream has been stable since the last
dividend reduction in July 1996. At that time, we felt we could maintain the
monthly dividend at 8 cents per share for 12 months. As of November 30, 1996,
the fund's earnings are on track to accomplish this goal. While unexpected
credit problems or severe prepayments could adversely affect the fund's ability
to maintain its 8 cents per share monthly dividend, we remain optimistic we will
achieve this objective.
THE FUND'S ASSETS ARE LARGELY CONCENTRATED IN MORTGAGE LOANS. As of November
30, 48% of the fund's total assets were invested in single family (home) loans,
26% in multifamily (apartment) loans, 6% in commercial loans and 9% in Treasury
securities. (See portfolio composition chart on page 3.) Assuming a market
environment that is similar to the past year, we intend to maintain the fund's
investments in mortgage loans and Treasuries near these levels. The greater
concentration in mortgage loans is consistent with our strategy of focusing on
securities subject to more credit risk and reducing our exposure to securities
more sensitive to changing interest rates. General improvements in housing
markets and a continued strong market for rental housing should have a positive
impact on the credit worthiness of our single and multifamily portfolios. To
date, we have experienced loan prepayments at expected levels and have been able
to reinvest these funds at historically attractive rates. If we experience
heavier prepayments, we may have to reinvest the proceeds at lower interest
rates, which would ultimately decrease the fund's income.
WE CONTINUED TO BORROW IN THE FUND THROUGH REVERSE REPURCHASE AGREEMENTS*** AND
INVESTED THE PROCEEDS IN TREASURY SECURITIES OR NEW MORTGAGE LOANS. The
Treasuries and mortgage loans acted as
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
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1996 Annual Report 5 American Strategic Income Portfolio
<PAGE>
AMERICAN STRATEGIC INCOME PORTFOLIO (CONTINUED)
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collateral for the reverse repurchase agreements. These reverse repurchase
agreements, expressed as a percentage of total assets, were approximately 17% as
of November 30. While borrowing can potentially increase the fund's income, it
can also increase the fund's net asset value volatility.
DURING THE PERIOD, WE SUCCESSFULLY MANAGED THE RISKS*** INVOLVED WITH MORTGAGE
LOANS. (See the glossary for more on the specific risks associated with
mortgage loans.) One of the ways we did this was by focusing on moderately
valued homes, which have less credit risk than do higher valued homes. As of
November 30, the fund held 651 single family loans on properties which, on
average, had a value of approximately $77,000. The average balance remaining on
these loans was approximately $61,000. Since the fund's inception, we have kept
its principal losses from foreclosed single family loans to 7 cents per share.
We followed a similar philosophy when purchasing multifamily and commercial
loans. We believe that smaller loans spread out in many states are less likely
to cause losses in the fund. On November 30, we had 17 multifamily loans with an
average loan balance of approximately $1,291,000 and three commercial loans with
an average balance of approximately $1,375,000. Through November, there were no
realized foreclosure losses to the fund from its investments in multifamily and
commercial loans. Going forward, we will continue to focus on moderately valued
home loans and smaller multifamily and commercial loans.
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DELINQUENCY PROFILE
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The chart below shows what percentage of loans in the portfolio are 30, 60, 90
or 120 days delinquent as of November 30, 1996.
CURRENT 90.6%
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30 DAYS 3.8%
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60 DAYS 1.1%
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90 DAYS 0.6%
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120+ DAYS 3.9%
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*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
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1996 Annual Report 6 American Strategic Income Portfolio
<PAGE>
AMERICAN STRATEGIC INCOME PORTFOLIO (CONTINUED)
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ALTHOUGH WE CONDUCT EXTENSIVE RISK ANALYSIS ON EVERY LOAN PURCHASED, DELINQUENT
LOANS ARE LIKELY. Because delinquent loans require a high level of attention, we
place them with loan servicers who work hard to convey to borrowers that their
first responsibility each month is to make their payments. Should a loan be
foreclosed, we will expedite the process as quickly as possible. Any losses will
first go against the borrower's investment, or equity. Although we would hope to
receive all of the principal and interest owed to us on a foreclosed loan, it is
likely that we may not be repaid in full.
THE FUND IS INVESTED IN MORTGAGE LOANS BACKED BY PROPERTIES LOCATED THROUGHOUT
THE COUNTRY. (See map on page 4.) We attempt to buy mortgage loans in many parts
of the country to avoid the risks of concentrating in one area. Our greatest
concentration of loans is in Texas, California and Minnesota. Texas and
California have more loans due to their large populations. Moreover, the adverse
economic conditions experienced by these two states a few years ago enabled us
to purchase loans at what we believe are attractive prices. Our concentration of
loans in Minnesota results from our in-depth knowledge of some markets in that
state and generally favorable economic conditions there.
LOOKING AHEAD, WE BELIEVE THE FUND'S NET ASSET VALUE AND EARNINGS SHOULD BE
FAIRLY STABLE RELATIVE TO CHANGES IN THE INTEREST RATE ENVIRONMENT. We
believe we have reduced interest rate risk and focused the fund's investments
where we feel we can currently add the most value -- in the mortgage loan
area. This focus on mortgage loans should allow the fund to provide more
consistent income levels. We hope this will attract more investors to the
fund, which, in turn, could reduce the current discount of market price to
net asset value. We anticipate more investments in commercial mortgage loans
in the future. Commercial loans may involve more risk than multifamily or
single family mortgage loans. (For more on the specific risks associated with
mortgage loans, see the glossary.)
THE PROPOSED SETTLEMENT OF A CLASS ACTION LAWSUIT AGAINST THE FUND SHOULD BE
PRESENTED TO THE COURT FOR PRELIMINARY APPROVAL EARLY THIS YEAR. Shareholders
received details of the proposed settlement in the semiannual report that was
mailed in July. At that time, we
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1996 Annual Report 7 American Strategic Income Portfolio
<PAGE>
AMERICAN STRATEGIC INCOME PORTFOLIO (CONTINUED)
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anticipated preliminary court approval in late 1996. Due to delays in the
process, we now expect the approval early this year. There can, however, be no
assurance as to the timing of preliminary court approval or the settlement
itself.
We would like to express our sincere appreciation to you, our valued
shareholders, for your investment in American Strategic Income Portfolio. We
look forward to continuing our relationship with you and helping you meet your
investment goals in the new fiscal year and beyond.
Sincerely,
/s/ John Wenker
John Wenker
Portfolio Manager
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1996 Annual Report 8 American Strategic Income Portfolio
<PAGE>
Financial Statements
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STATEMENT OF ASSETS AND LIABILITIES November 30, 1996
..................................................................
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (note 2)
(including a repurchase agreement of $2,092,000) ......... $78,438,435
Real estate owned (identified cost: $701,934) (note 2) ..... 745,326
Cash in bank on demand deposit ............................. 519,575
Accrued interest receivable ................................ 804,912
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Total assets ............................................. 80,508,248
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LIABILITIES:
Reverse repurchase agreements payable ...................... 14,000,000
Accrued investment management fee .......................... 33,810
Accrued administrative fee ................................. 10,792
Accrued interest ........................................... 68,292
Other accrued expenses ..................................... 2,965
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Total liabilities ........................................ 14,115,859
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Net assets applicable to outstanding capital stock ......... $66,392,389
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REPRESENTED BY:
Capital stock - authorized 1 billion shares of $0.01 par
value; outstanding, 5,247,721 shares ..................... $ 52,477
Additional paid-in capital ................................. 73,315,141
Undistributed net investment income ........................ 243,352
Accumulated net realized loss on investments ............... (8,908,245)
Unrealized appreciation of investments ..................... 1,689,664
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Total - representing net assets applicable to outstanding
capital stock .......................................... $66,392,389
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Net asset value per share of outstanding capital stock ..... $ 12.65
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* Investments in securities at identified cost ............. $76,792,163
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</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1996 Annual Report 9 American Strategic Income Portfolio
<PAGE>
Financial Statements (continued)
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STATEMENT OF OPERATIONS For the Year Ended November 30, 1996
..................................................................
<TABLE>
<S> <C>
INCOME:
Interest (net of interest expense of $955,550) ............. $ 6,053,168
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EXPENSES (NOTE 3):
Investment management fee .................................. 403,149
Administrative fee ......................................... 132,146
Custodian and accounting fees .............................. 86,332
Transfer agent fees ........................................ 27,006
Reports to shareholders .................................... 38,049
Mortgage servicing fees .................................... 203,403
Directors' fees ............................................ 11,518
Audit and legal fees ....................................... 48,539
Other expenses ............................................. 38,130
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Total expenses ........................................... 988,272
Less expenses paid indirectly .............................. (3,127)
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Total net expenses ....................................... 985,145
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Net investment income .................................... 5,068,023
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NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on investments (note 4) .................. 218,703
Net change in unrealized appreciation or depreciation of
investments .............................................. (759,346)
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Net loss on investments .................................. (540,643)
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Net increase in net assets resulting from operations ..... $ 4,527,380
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</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1996 Annual Report 10 American Strategic Income Portfolio
<PAGE>
Financial Statements (continued)
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STATEMENT OF CASH FLOWS For the Year Ended November 30, 1996
..................................................................
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest income ............................................ $ 6,053,168
Net expenses ............................................... (985,145)
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Net investment income .................................... 5,068,023
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Adjustments to reconcile net investment income to net cash
provided by operating activities:
Change in accrued interest receivable and principal
receivable on mortgage securities ...................... (73,311)
Net amortization of bond discount and premium ............ (48,291)
Change in accrued fees and expenses ...................... (20,181)
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Total adjustments ...................................... (141,783)
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Net cash provided by operating activities .............. 4,926,240
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments ......................... 51,924,359
Purchases of investments ................................... (49,113,210)
Net sales of short-term securities ......................... 1,041,000
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Net cash provided by investing activities .............. 3,852,149
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments for reverse repurchase agreements ............. (1,000,000)
Retirement of fund shares .................................. (451,437)
Distributions paid to shareholders ......................... (7,097,611)
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Net cash used by financing activities .................. (8,549,048)
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Net increase in cash ....................................... 229,341
Cash at beginning of year .................................. 290,234
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Cash at end of year .................................... $ 519,575
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Supplemental disclosure of cash flow information:
Cash paid for interest on reverse repurchase
agreements ............................................. $ 959,508
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</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1996 Annual Report 11 American Strategic Income Portfolio
<PAGE>
Financial Statements (continued)
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STATEMENTS OF CHANGES IN NET ASSETS
..................................................................
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
11/30/96 11/30/95
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income ...................................... $ 5,068,023 $ 5,722,222
Net realized gain (loss) on investments .................... 218,703 (8,136,410)
Net change in unrealized appreciation or depreciation of
investments .............................................. (759,346) 14,122,906
----------------- -----------------
Net increase in net assets resulting from operations ..... 4,527,380 11,708,718
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DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ................................. (7,097,611) (9,035,764)
----------------- -----------------
CAPITAL SHARE TRANSACTIONS:
Payments for retirement of 35,100 and 45,500 shares,
respectively (note 6) .................................... (413,787) (573,450)
----------------- -----------------
Total increase (decrease) in net assets .................. (2,984,018) 2,099,504
Net assets at beginning of year ............................ 69,376,407 67,276,903
----------------- -----------------
Net assets at end of year .................................. $66,392,389 $69,376,407
----------------- -----------------
----------------- -----------------
Undistributed net investment income ........................ $ 243,352 $ 2,272,940
----------------- -----------------
----------------- -----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1996 Annual Report 12 American Strategic Income Portfolio
<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
emphasizes investments in mortgage-related assets that directly
or indirectly represent a participation in or are secured by and
payable from mortgage loans. It may also invest in asset-backed
securities, U.S. government securities, corporate debt
securities, municipal obligations, unregistered securities and
mortgage servicing rights. The fund may borrow, including through
the use of reverse repurchase agreements, and may purchase
securities through the sale-forward (dollar-roll) program. Fund
shares are listed on the New York Stock Exchange under the symbol
ASP.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
................................................................................
INVESTMENTS IN SECURITIES
The fund's mortgage related investments such as whole loans,
participation mortgages and mortgage servicing rights are
initially valued at cost and their values are subsequently
monitored and adjusted pursuant to a pricing model approved by
the board of directors and implemented by Piper Capital
Management. The pricing model is designed to reflect the present
value of the projected stream of cash flows on such investments.
The pricing model takes into account a number of relevant factors
including the projected rate of prepayments, the projected rate
and severity of defaults, the delinquency profile, the expected
yield at purchase, changes in prevailing interest rates and
changes in the real or perceived liquidity of whole loans,
participation mortgages or mortgage servicing rights as the case
may be. Certain elements of the pricing model involve subjective
judgment. Additionally, certain other factors will be considered
in the determination of the valuation of investments in
multifamily properties, including but not limited to, results of
annual inspections of the multifamily property by the adviser or
a servicing agent retained by the adviser, reviews of annual
unaudited financial statements of the multifamily property,
monitoring of local and other economic conditions and their
impact on local real estate values and analyses
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1996 Annual Report 13 American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
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of rental vacancy rates at the multifamily property. Subjective
adjustments to the valuation of such investments in multifamily
properties may be made based upon the adviser's analysis of such
information. The actual values that may be realized upon the sale
of whole loans, participation mortgages and mortgage servicing
rights can only be determined in negotiations between the fund
and third parties.
The values of other fixed income securities will be provided by
an independent pricing service, which determines these valuations
at a time earlier than the close of the New York Stock Exchange.
Fixed income securities for which prices are not available from
an independent pricing service but where an active market exists
will be valued using market quotations obtained from one or more
dealers that make markets in the securities.
Occasionally, events affecting the value of such securities may
occur between the time valuations are determined and the close of
the New York Stock Exchange. If events materially affecting the
value of such securities occur, if the fund's management
determines for any other reason that valuations provided by the
pricing service or market quotations from dealers are inaccurate
or when market quotations are not readily available, securities
will be valued at their fair value according to procedures
decided upon in good faith by the board of directors. Short-term
securities with maturities of 60 days or less are valued at
amortized cost, which approximates market value.
Exchange-traded options are valued at the last sales price on the
exchange prior to the time when assets are valued. If no sales
were reported that day, the options will be valued at the mean
between the current closing bid and asked prices.
Over-the-counter options are valued using market quotations
obtained from independent dealers that make markets in the
securities. Financial futures are valued at the last settlement
price established each day by the board of trade or exchange on
which they are traded.
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1996 Annual Report 14 American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
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Securities transactions are accounted for on the date the
securities are purchased and sold. Realized gains and losses are
calculated on the identified-cost basis. Interest income,
including amortization of bond discount and premium computed on a
level-yield basis, is accrued weekly. Costs associated with
acquiring whole loans, participation mortgages and mortgage
servicing rights are capitalized and included in the cost basis
of the loans purchased.
OPTIONS TRANSACTIONS
For hedging purposes, the fund may buy and sell put and call
options, write covered call options on portfolio securities, and
write cash-secured puts. The risk in writing a call option is
that the fund gives up the opportunity for profit if the market
price of the security increases and the option is exercised. The
risk in writing a put option is that the fund may incur a loss if
the market price of the security decreases and the option is
exercised. The risk of buying an option is that the fund pays a
premium whether or not the option is exercised. The fund also has
the additional risk of not being able to enter into a closing
transaction if a liquid secondary market does not exist.
The fund will realize a gain or loss upon expiration or closing
of the option transaction. When an option is exercised, the
proceeds on the sale of a written call option, the purchase cost
of a written put option, or the cost of a security for purchased
put and call options is adjusted by the amount of premium
received or paid.
FUTURES TRANSACTIONS
In order to gain exposure to or protect against changes in the
market, the fund may buy and sell financial futures contracts and
related options. Risks of entering into futures contracts and
related options include the possibility there may be an illiquid
market and that a change in the value of the contract or option
may not correlate with changes in the value of the underlying
securities.
Upon entering into a futures contract, the fund is required to
deposit either cash or securities in an amount (initial margin)
equal
- ---------------------------------------------------------------------
1996 Annual Report 15 American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
- ---------------------------------------------------------------------
to a certain percentage of the contract value. Subsequent
payments (variation margin) are made or received by the fund each
day. The variation margin payments are equal to the daily changes
in the contract value and are recorded as unrealized gains and
losses. The fund recognizes a realized gain or loss when the
contract is closed or expires.
INTEREST RATE TRANSACTIONS
To preserve a return or spread on a particular investment or
portion of its portfolio or for other non-speculative purposes,
the fund may enter into various hedging transactions, such as
interest rate swaps and the purchase of interest rate caps and
floors. Interest rate swaps involve the exchange of commitments
to pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments. The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified
index exceeds a predetermined interest rate, to receive payments
of interest on a contractually based notional principal amount
from the party selling the interest rate cap. The purchase of an
interest rate floor entitles the purchaser, to the extent that a
specified index falls below a predetermined interest rate, to
receive payments of interest on a contractually based notional
principal amount from the party selling the interest rate floor.
If forecasts of interest rates and other market factors are
incorrect, investment performance will diminish compared to what
performance would have been if these investment techniques were
not used. Even if the forecasts are correct, there is risk that
the positions may correlate imperfectly with the asset or
liability being hedged. Other risks of entering into these
transactions are that a liquid secondary market may not always
exist or that the other party to the transaction may not perform.
For interest rate swaps, caps and floors, the fund accrues
weekly, as an increase or decrease to interest income, the
current net amount due to or owed by the fund. Interest rate
swaps, caps and floors are
- ---------------------------------------------------------------------
1996 Annual Report 16 American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
- ---------------------------------------------------------------------
valued from prices quoted by independent brokers. These
valuations represent the present value of all future cash
settlement amounts based on implied forward interest rates.
WHOLE LOANS AND PARTICIPATION MORTGAGES
Whole loans and participation mortgages may bear a greater risk
of loss arising from a default on the part of the borrower of the
underlying loans than do traditional mortgage-backed securities.
This is because whole loans and participation mortgages, unlike
most mortgage-backed securities, generally are not backed by any
government guarantee or private credit enhancement. Such risk may
be greater during a period of declining or stagnant real estate
values. In addition, the individual loans underlying whole loans
and participation mortgages may be larger than the loans
underlying mortgage-backed securities. With respect to
participation mortgages, the fund generally will not be able to
unilaterally enforce its rights in the event of a default, but
rather will be dependent on the cooperation of the other
participation holders.
At November 30, 1996, loans representing 5.6% of the outstanding
principal value of whole loans, or 5.5% of net assets were
considered by the fund to be delinquent as to the timely monthly
payment of principal and interest. A loan is considered
delinquent when a borrower has missed two or more payments. The
fund does not record past due interest as income until received.
The fund may incur certain costs and delays in the event of a
foreclosure. Also, there is no assurance that the subsequent sale
of the property will produce an amount equal to the sum of the
unpaid principal balance of the loan as of the date the borrower
went into default, the accrued unpaid interest and all of the
foreclosure expenses. In this case, the fund may suffer a loss.
Real estate acquired through foreclosure, if any, is recorded at
estimated fair value. On November 30, 1996, the fund owned
- ---------------------------------------------------------------------
1996 Annual Report 17 American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
- ---------------------------------------------------------------------
3 homes with an aggregate value of $745,326, or 1.1% of net
assets. The fund recognized net realized losses of $98,534 or
$0.019 per-share on real estate sold during the year ended
November 30, 1996.
MORTGAGE SERVICING RIGHTS
The fund may acquire interests in the cash flow from servicing
fees through contractual arrangements with mortgage servicers.
The fund will not service mortgages, be the mortgage servicer of
record or enter into any arrangement pursuant to where the fund
could be liable to third parties in the event the mortgage
servicer defaulted on 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 when-issued or forward-commitment basis can take
place a month or more after the transaction date. During this
period, such securities do not earn interest, are subject to
market fluctuation and may increase or decrease in value prior to
their delivery. The fund segregates, with its custodian, assets
with a market value equal to the amount of its purchase
commitments. The purchase of securities on a when-issued or
forward-commitment basis may increase the volatility of the
fund's net asset value if the fund makes such purchases while
remaining substantially fully invested. As of November 30, 1996,
the fund had no outstanding when-issued or forward commitments.
In connection with its ability to purchase securities on a when-
issued or forward-commitment basis, the fund may enter into
mortgage "dollar rolls" in which the fund sells securities
purchased on a forward commitment basis and simultaneously
contracts with
- ---------------------------------------------------------------------
1996 Annual Report 18 American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
- ---------------------------------------------------------------------
a counterparty to repurchase similar (same type, coupon and
maturity) but not identical securities on a specified future
date. As an inducement to "roll over" its purchase commitments,
the fund receives negotiated fees. For the year ended November
30, 1996, the fund earned no such fees.
FEDERAL TAXES
The fund intends to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and not
be subject to federal income tax. Therefore, no income tax
provision is required. For calendar year 1996, the fund intends
to distribute substantially all of its taxable net investment
income and realized gains, if any, to avoid the payment of any
federal excise taxes.
Net investment income and net realized gains (losses) may differ
for financial statement and tax purposes primarily because of
losses deferred due to "straddle" transactions. The character of
distributions made during the year from net investment income or
net realized gains may differ from its ultimate characterization
for federal income tax purposes. In addition, due to the timing
of dividend distributions, the fiscal year in which amounts are
distributed may differ from the year that the income or realized
gains (losses) were recorded by the fund.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income are made monthly and
realized capital gains, if any, will be distributed at least
annually. These distributions are recorded as of the close of
business on the ex-dividend date. Such distributions are payable
in cash or, pursuant to the fund's dividend reinvestment plan,
reinvested in additional shares of the fund's capital stock.
Under the plan, fund shares will be purchased in the open market
unless the market price plus commissions exceeds the net asset
value by 5% or more. If, at the close of business on the dividend
payment date, the shares
- ---------------------------------------------------------------------
1996 Annual Report 19 American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
- ---------------------------------------------------------------------
purchased in the open market are insufficient to satisfy the
dividend reinvestment requirement, the fund will issue new shares
at a discount of up to 5% from the current market price.
REPURCHASE AGREEMENTS
For repurchase agreements entered into with certain
broker-dealers, the fund, along with other affiliated registered
investment companies, may transfer uninvested cash balances into
a joint trading account, the daily aggregate of which is invested
in repurchase agreements secured by U.S. government or agency
obligations. Securities pledged as collateral for all individual
and joint repurchase agreements are held by the fund's custodian
bank until maturity of the repurchase agreement. Provisions for
all agreements ensure that the daily market value of the
collateral is in excess of the repurchase amount, including
accrued interest, to protect the fund in the event of a default.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
in the financial statements. Actual results could differ from
these estimates.
(3) EXPENSES
................................................................................
The fund has entered into the following agreements with Piper
Capital Management Incorporated (the adviser and the
administrator):
The investment advisory agreement provides the adviser with a
monthly investment management fee in an amount equal to an
annualized rate of 0.20% of the fund's average weekly net assets
and 4.50% of the daily gross income accrued by the fund during
the month (i.e., investment income, including amortization of
discount and premium, other than gains from the sale of
securities or gains from options and futures contracts less
interest on money borrowed by the fund). The monthly investment
management fee
- ---------------------------------------------------------------------
1996 Annual Report 20 American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
- ---------------------------------------------------------------------
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 year ended November 30, 1996, the
effective investment management fee incurred by the fund was
0.61%. For its fee, the adviser provides investment advice and
conducts the management and investment activity of the fund.
The administration agreement provides the administrator with a
monthly fee in an amount equal to an annualized rate of 0.20% of
the fund's average weekly net assets. For its fee, the
administrator will provide regulatory, reporting and
record-keeping services for the fund.
When acquiring whole loans and participation mortgages, the fund
enters into mortgage servicing agreements with mortgage
servicers. For a fee, mortgage servicers maintain loan records,
such as insurance and taxes and the proper allocation of payments
between principal and interest.
In addition to the investment management, administrative and
mortgage servicing fees, the fund is responsible for paying most
other operating expenses, including: outside directors' fees and
expenses; custodian fees; registration fees; printing and
shareholder reports; transfer agent fees and expenses; legal,
auditing and accounting services; insurance; interest; fees to
outside parties retained to assist in conducting due diligence;
taxes and other miscellaneous expenses.
Expenses paid indirectly represent a reduction of custodian fees
for earnings on miscellaneous cash balances maintained by the
fund.
(4) INVESTMENT SECURITY TRANSACTIONS
................................................................................
Cost of purchases and proceeds from sales of securities, other
than temporary investments in short-term securities, for the year
ended November 30, 1996, aggregated $49,161,501 and $51,924,359,
respectively. Included in proceeds from sales are $763,936 from
sales of real estate owned. For the year ended November 30, 1996,
no brokerage commissions were paid to Piper Jaffray Inc., an
affiliated broker.
- ---------------------------------------------------------------------
1996 Annual Report 21 American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
- ---------------------------------------------------------------------
(5) CAPITAL LOSS CARRYOVER
................................................................................
For federal income tax purposes, the fund had capital loss
carryovers of $8,908,245 as of November 30, 1996, which, if not
offset by subsequent capital gains, will expire in 2002 and 2003.
It is unlikely the board of directors will authorize a
distribution of any net realized capital gains until the
available capital loss carryover has been offset or expires.
(6) RETIREMENT OF FUND SHARES
................................................................................
The fund's board of directors voted to discontinue the share
repurchase program effective February 6, 1996. Pursuant to the
plan, the fund had cumulatively repurchased and retired 94,700
shares as of February 6, 1996, which represents 1.8% of the
shares originally issued.
(7) PENDING LITIGATION
................................................................................
An amended complaint purporting to be a class action was filed on
September 7, 1995, in the United States District Court for the
Western District of Washington against the fund, seven other
closed-end investment companies for which Piper Capital
Management Incorporated acts as investment adviser, Piper Jaffray
Companies Inc., Piper Jaffray Inc., Piper Capital Management
Incorporated and certain individuals. The named plaintiffs and
defendants in this putative class action have reached an
agreement-in-principle on a proposed settlement and are
negotiating the terms of a definitive settlement agreement. If
approved by the Court, a definitive settlement agreement
consistent with the terms of the agreement-in-principle would
provide $15.5 million to class members in payments by Piper
Jaffray Companies Inc. and Piper Capital Management Incorporated
scheduled during the next four years. The agreement stipulates,
among other things, that ASP would offer to repurchase up to 10
percent of its outstanding shares from current shareholders at
net asset value. The repurchase offer would occur after the
effective date of the settlement following Court approval.
- ---------------------------------------------------------------------
1996 Annual Report 22 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>
Year Year Year Year Period
Ended Ended Ended Ended Ended
11/30/96 11/30/95 11/30/94 11/30/93 11/30/92(f)
-------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ........ $13.13 $12.63 $15.79 $14.89 $13.98
-------- -------- -------- -------- -----------
Operations:
Net investment income ..................... 0.97 1.09 1.41 1.79 1.49
Net realized and unrealized gain (loss) on
investments ............................. (0.10) 1.11 (3.22) 0.61 0.55
-------- -------- -------- -------- -----------
Total from operations ................... 0.87 2.20 (1.81) 2.40 2.04
-------- -------- -------- -------- -----------
Distributions to shareholders:
From net investment income ................ (1.35) (1.70) (1.15) (1.50) (1.13)
From net realized gains on investments .... -- -- (0.20) -- --
-------- -------- -------- -------- -----------
Total distributions to shareholders ..... (1.35) (1.70) (1.35) (1.50) (1.13)
-------- -------- -------- -------- -----------
Net asset value, end of period .............. $12.65 $13.13 $12.63 $15.79 $14.89
-------- -------- -------- -------- -----------
-------- -------- -------- -------- -----------
Per-share market value, end of period ....... $11.00 $12.25 $13.00 $16.38 $16.25
-------- -------- -------- -------- -----------
-------- -------- -------- -------- -----------
SELECTED INFORMATION
Total return, net asset value (a) ........... 7.12% 18.27% (11.87)% 16.80% 15.20%
Total return, market value (b) .............. 1.29% 7.75% (12.59)% 10.75% 16.92%
Net assets at end of period (in millions) . $ 66 $ 69 $ 67 $ 84 $ 79
Ratio of expenses to average weekly net
assets (c)(g) ............................. 1.50% 1.72% 1.69% 1.69% 1.45%(h)
Ratio of net investment income to average
weekly net assets ......................... 7.67% 8.26% 10.00% 11.52% 11.49%(h)
Portfolio turnover rate (excluding short-term
securities) ............................... 63% 120% 74% 50% 72%
Amount of borrowings outstanding at end of
period (in millions) (d) .................. $ 14 $ 15 $ 28 $ 32 $ 32
Per-share amount of borrowings outstanding at
end of period ............................. $ 2.67 $ 2.84 $ 5.16 $ 6.04 $ 6.05
Per-share amount of net assets, excluding
borrowings, at end of period $15.32 $15.97 $17.79 $21.83 $20.94
Asset coverage ratio (e) .................... 574% 563% 345% 361% 346%
</TABLE>
(A) BASED ON THE CHANGE IN NET ASSET VALUE OF A SHARE DURING THE PERIOD AND
ASSUMES REINVESTMENT OF DISTRIBUTIONS AT NET ASSET VALUE.
(B) BASED ON THE CHANGE IN MARKET PRICE OF A SHARE DURING THE PERIOD AND
ASSUMES REINVESTMENT OF DISTRIBUTIONS AT ACTUAL PRICES PURSUANT TO THE
FUND'S DIVIDEND REINVESTMENT PLAN.
(C) INCLUDES 0.02%, 0.23%, AND 0.22% FROM FEDERAL EXCISE TAXES IN FISCAL 1995,
1994 AND 1993, RESPECTIVELY. BEGINNING IN FISCAL 1995, THE EXPENSE RATIOS
REFLECT THE EFFECT OF GROSS EXPENSES PAID INDIRECTLY BY THE FUND. PRIOR
PERIOD EXPENSE RATIOS HAVE NOT BEEN ADJUSTED.
(D) SECURITIES PURCHASED ON A WHEN-ISSUED BASIS FOR WHICH LIQUID 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) THE RATIO OF EXPENSES TO AVERAGE WEEKLY NET ASSETS EXCLUDES INTEREST
EXPENSE THAT HAS BEEN PRESENTED NET OF THE RELATED INTEREST INCOME IN THE
FINANCIAL STATEMENTS. IF THE INTEREST EXPENSE HAD BEEN INCLUDED IN TOTAL
EXPENSES, THE RATIOS OF EXPENSES TO AVERAGE WEEKLY NET ASSETS WOULD HAVE
BEEN 2.94%, 3.29%, 3.34%, 3.00% AND 2.86% IN FISCAL 1996, 1995, 1994, 1993
AND 1992, RESPECTIVELY.
(H) ADJUSTED TO AN ANNUAL BASIS.
- ---------------------------------------------------------------------
1996 Annual Report 23 American Strategic Income Portfolio
<PAGE>
Investments in Securities
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN STRATEGIC INCOME PORTFOLIO November 30, 1996
.......................................................................................
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
U.S. GOVERNMENT AND AGENCY SECURITIES (16.1%):
U.S. AGENCY MORTGAGE-BACKED SECURITIES (4.9%):
FIXED RATE (4.9%):
7.00%, GNMA, 7/15/23 .............................. $ 1,611,533 $ 1,612,516
7.00%, GNMA, 7/15/23 .............................. 1,631,294 1,634,329
------------
3,246,845
------------
U.S. GOVERNMENT SECURITIES (11.2%):
5.13%, U.S. Treasury Note, 4/30/98 ................ 7,500,000(b) 7,463,175
------------
Total U.S. Government and Agency Securities
(cost: $10,694,242) .......................... 10,710,020
------------
PRIVATE MORTGAGE-BACKED SECURITIES (E) (1.8%):
FIXED RATE (1.8%):
10.10%, First Boston, Series 1992-1, Class B-2,
1/15/01 ......................................... 1,000,000 1,013,438
12.97%, Minnesota Mortgage Corporation, 7/25/14 ... 80,304 81,910
12.26%, Minnesota Mortgage Corporation,
10/25/14 ........................................ 55,160 56,263
12.92%, Minnesota Mortgage Corporation, 3/25/15 ... 50,530 51,540
------------
Total Private Mortgage-Backed Securities
(cost: $1,156,424) ........................... 1,203,151
------------
WHOLE LOANS AND PARTICIPATION MORTGAGES (C,D,E) (96.0%):
COMMERCIAL LOANS (6.3%):
James Plaza, 8.55%, 12/1/01 ....................... 1,200,000 1,200,000
Shallowford Business Park, 9.25%, 7/1/01 .......... 1,645,733 1,703,333
Stephens Retail Center, 9.35%, 8/1/03 ............. 1,200,000 1,242,000
------------
4,145,333
------------
MULTIFAMILY LOANS (31.6%):
Applewood Manor, 8.75%, 1/1/01 .................... 685,036 699,490
Boca Bend Apartments, 11.75%, 5/1/00 .............. 588,459 586,047
Dorchester Garden Apartments, 8.50%, 7/1/02 ....... 1,478,688 1,501,312
Essex Place I, 9.00%, 9/30/12 ..................... 2,141,124 1,316,577
Franklin Woods Apartments, 9.90%, 3/1/10 .......... 1,313,118 1,359,077
Fremont Plaza Apartments, 9.75%, 4/1/02 ........... 729,133 754,652
Garden Oaks Apartments, 8.55%, 4/1/06 ............. 1,854,053 1,875,560
Kings Creek Apartments, 10.00%, 5/1/96 ............ 1,300,000 1,300,000
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1996 Annual Report 24 American Strategic Income Portfolio
<PAGE>
Investments in Securities (continued)
- ---------------------------------------------------------------------
AMERICAN STRATEGIC INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
Normandie Square Apartments, 8.75%, 4/1/01 ........ $ 1,821,620 $ 1,861,149
Park Place Apartments, 8.38%, 7/1/02 .............. 1,559,591 1,568,325
Royal Knight Apartments, 8.50%, 4/1/06 ............ 1,594,080 1,616,716
Stanley Court Apartments, 8.50%, 11/1/02 .......... 1,092,405 1,103,984
The Establishment, 8.75%, 2/1/01 .................. 937,627 965,194
Twelfth Street Apartments, 9.25%, 6/1/05 .......... 1,170,484 1,211,451
Vanderbilt Condominiums, 8.50%, 8/1/00 ............ 817,671 827,892
Westgate Apartments, 10.00%, 2/1/08 ............... 1,391,660 1,440,369
Westhollow Place Apartments, 8.58%, 4/1/03 ........ 996,360 1,016,089
------------
21,003,884
------------
SINGLE FAMILY LOANS (58.1%):
Aegis, 9.57%, 3/26/10 ............................. 603,828 579,252
Aegis II, 9.85%, 1/28/14 .......................... 580,548 596,919
American Bank, Mankato, 9.18%, 12/10/12 ........... 149,995 153,655
American Portfolio, 8.16%, 10/18/15 ............... 826,985 611,079
Anivan, 9.27%, 4/14/12 ............................ 496,645 509,409
Bank of New Mexico, 8.96%, 3/31/10 ................ 1,867,236 1,860,140
Bluebonnet Savings and Loan, 11.78%, 8/31/10 ...... 254,516 247,338
Bluebonnet Savings and Loan, 8.32%, 8/31/10 ....... 1,805,735(b) 1,759,147
CLSI Allison Williams, 9.76%, 8/1/17 .............. 919,883(b) 934,601
Crossroads Savings and Loan, 9.12%, 1/1/21 ........ 575,216(b) 584,240
Crossroads Savings and Loan, 9.44%, 1/1/21 ........ 627,420(b) 637,396
Fairbanks II, Utah, 8.46%, 8/20/10 ................ 206,607(b) 160,327
Fairbanks, Utah, 9.42%, 9/23/15 ................... 472,288(b) 416,794
First Boston Mortgage Pool #5, 9.56%, 6/29/03 ..... 494,666(b) 498,624
Hamilton Financial, 8.27%, 6/29/10 ................ 464,133(b) 458,053
Huntington MEWS, 9.32%, 8/1/17 .................... 1,652,642(b) 1,540,593
Knutson Mortgage Portfolio #1, 8.99%, 8/1/17 ...... 1,826,505(b) 1,833,785
Knutson Mortgage Portfolio #2, 9.41%, 9/25/17 ..... 1,730,255(b) 1,774,550
McClemore, 10.56%, 9/30/12 ........................ 2,741,207(b) 2,725,347
Meridian, 9.53%, 12/1/20 .......................... 1,398,276(b) 1,424,424
Nomura III, 8.64%, 4/29/17 ........................ 6,010,851 5,565,364
Norwest II, 7.72%, 11/27/22 ....................... 3,697,777 3,571,756
Norwest III, 7.69%, 11/27/22 ...................... 2,003,167 1,953,088
Norwest V, 8.84%, 2/3/25 .......................... 5,062,508 5,084,778
President Homes, 8.50%, 8/1/17 .................... 76,368 78,659
President Homes 93-1, Sales Inventory, 8.91%,
3/1/23 .......................................... 283,906(b) 288,420
Rand Mortgage Corporation, 9.54%, 8/1/17 .......... 531,954(b) 539,348
Salomon II, 9.58%, 11/23/14 ....................... 1,602,338 1,633,584
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1996 Annual Report 25 American Strategic Income Portfolio
<PAGE>
Investments in Securities (continued)
- ---------------------------------------------------------------------
AMERICAN STRATEGIC INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
Valley Bank of Commerce, N.M., 8.39%, 8/31/10 ..... $ 564,009(b) $ 552,392
------------
38,573,062
------------
Total Whole Loans and Participation Mortgages
(cost: $62,211,715) .......................... 63,722,279
------------
MORTGAGE SERVICING RIGHTS (E,G) (1.1%):
Matrix Servicing Rights, 14.65%, 7/10/22
(cost: $637,782) ................................ -- 710,985
------------
SHORT-TERM SECURITIES (3.2%):
Repurchase agreement with Goldman Sachs, acquired
on 11/29/96, accrued interest of $983, 5.64%,
12/2/96
(cost: $2,092,000) .............................. 2,092,000(f) 2,092,000
------------
Total Investments in Securities
(cost: $76,792,163) (h) ...................... $ 78,438,435
------------
------------
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES:
(A) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(B) ON NOVEMBER 30, 1996, SECURITIES VALUED AT $18,124,515 WERE PLEDGED AS
COLLATERAL FOR THE FOLLOWING OUTSTANDING REVERSE REPURCHASE AGREEMENTS:
<TABLE>
<CAPTION>
NAME OF BROKER
ACQUISITION ACCRUED AND DESCRIPTION
AMOUNT DATE RATE* DUE INTEREST OF COLLATERAL
- ------------ ---------- --------- ---------- --------- -------------------
<S> <C> <C> <C> <C> <C>
$ 1,000,000 11/1/96 6.25% 12/2/96 $ 5,208 (1)
2,000,000 11/1/96 6.25% 12/2/96 10,417 (1)
5,000,000 11/1/96 6.25% 12/2/96 26,042 (1)
6,000,000 11/1/96 5.33% 12/2/96 26,625 (2)
- ------------ ---------
$ 14,000,000 $ 68,292
- ------------ ---------
- ------------ ---------
</TABLE>
* INTEREST RATE IS AS OF NOVEMBER 30, 1996. RATES ARE BASED ON THE LONDON
INTERBANK OFFERED RATE (LIBOR) AND RESET MONTHLY.
NAME OF BROKER AND DESCRIPTION OF COLLATERAL:
(1) NOMURA;
BLUEBONNET SAVINGS AND LOAN, 8.32%, 8/31/10, $1,420,628 PAR
CLSI ALLISON WILLIAMS, 9.76%, 8/1/17, $440,690 PAR
CROSSROADS SAVINGS AND LOAN, 9.12%, 1/1/21, $571,097 PAR
CROSSROADS SAVINGS AND LOAN, 9.44%, 1/1/21, $265,906 PAR
FAIRBANKS II, UTAH, 8.46%, 8/20/10, $53,773 PAR
FAIRBANKS, UTAH, 9.42%, 9/23/15, $335,644 PAR
FIRST BOSTON MORTGAGE POOL #5, 9.56%, 6/29/03, $466,783 PAR
- ---------------------------------------------------------------------
1996 Annual Report 26 American Strategic Income Portfolio
<PAGE>
Investments in Securities (continued)
- ---------------------------------------------------------------------
<TABLE>
<S> <C> <C>
HAMILTON FINANCIAL, 8.27%, 6/29/10, $271,317 PAR
HUNTINGTON MEWS, 9.32%, 8/1/17, $237,022 PAR
KNUTSON MORTGAGE PORTFOLIO #1, 8.99%, 8/1/17, $1,640,888 PAR
KNUTSON MORTGAGE PORTFOLIO #2, 9.41%, 9/25/17, $1,552,712 PAR
MCCLEMORE, 10.56%, 9/30/12, $2,741,207 PAR
MERIDIAN, 9.53%, 12/1/20, $1,398,276 PAR
PRESIDENT HOMES 93-1, SALES INVENTORY, 8.91%, 3/1/23, $64,606 PAR
RAND MORTGAGE CORPORATION, 9.54%, 8/1/17, $450,426 PAR
VALLEY BANK OF COMMERCE, N.M., 8.39%, 8/31/10, $207,489 PAR
(2) NOMURA;
U.S. TREASURY NOTE, 5.13%, 4/30/98, $6,060,000 PAR
</TABLE>
(C) INTEREST RATES ON COMMERCIAL AND MULTIFAMILY LOANS ARE THE RATES IN EFFECT
ON NOVEMBER 30, 1996. INTEREST RATES AND MATURITY DATES DISCLOSED ON SINGLE
FAMILY LOANS REPRESENT THE WEIGHTED AVERAGE COUPON AND WEIGHTED AVERAGE
MATURITY FOR THE UNDERLYING MORTGAGE LOANS AS OF NOVEMBER 30, 1996.
(D) COMMERCIAL AND MULTIFAMILY LOANS ARE DESCRIBED BY THE NAME OF THE MORTGAGED
PROPERTY. POOLS OF SINGLE FAMILY LOANS ARE DESCRIBED BY THE NAME OF THE
INSTITUTION FROM WHICH THE LOANS WERE PURCHASED. THE GEOGRAPHICAL LOCATION
OF THE MORTGAGED PROPERTIES AND, IN THE CASE OF SINGLE FAMILY, THE NUMBER
OF LOANS, IS PRESENTED BELOW.
COMMERCIAL LOANS:
JAMES PLAZA - HOUSTON, TEXAS
SHALLOWFORD BUSINESS PARK - CHATTANOOGA, TENNESSEE
STEPHENS RETAIL CENTER - MISSOULA, MONTANA
MULTIFAMILY LOANS:
APPLEWOOD MANOR - DULUTH, MINNESOTA
BOCA BEND APARTMENTS - BOCA RATON, FLORIDA
DORCHESTER GARDEN APARTMENTS - NORTH CHARLESTON, SOUTH CAROLINA
ESSEX PLACE I - ROCHESTER, MINNESOTA
FRANKLIN WOODS APARTMENTS - FRANKLIN, NEW HAMPSHIRE
FREMONT PLAZA APARTMENTS - LAS VAGAS, NEVADA
GARDEN OAKS APARTMENTS - COON RAPIDS, MINNESOTA
KINGS CREEK APARTMENTS - DALLAS, TEXAS
NORMANDIE SQUARE APARTMENTS - SAN ANTONIO, TEXAS
PARK PLACE APARTMENTS - GRAND FORKS, NORTH DAKOTA
ROYAL KNIGHT APARTMENTS - MEMPHIS, TENNESSEE
STANLEY COURT APARTMENTS - BLOOMINGTON, MINNESOTA
THE ESTABLISHMENT - DALLAS, TEXAS
TWELFTH STREET APARTMENTS - ATLANTA, GEORGIA
VANDERBILT CONDOMINIUMS - AUSTIN, TEXAS
WESTGATE APARTMENTS - BISMARCK, NORTH DAKOTA
WESTHOLLOW PLACE APARTMENTS - HOUSTON, TEXAS
SINGLE FAMILY LOANS:
AEGIS - 31 LOANS LOCATED THROUGHOUT THE MIDWESTERN STATES.
AEGIS II - 9 LOANS LOCATED THROUGHOUT THE MIDWESTERN STATES.
AMERICAN BANK, MANKATO - 6 LOANS LOCATED IN SOUTHWESTERN
MINNESOTA.
AMERICAN PORTFOLIO - 14 LOANS LOCATED IN TEXAS AND CALIFORNIA.
ANIVAN - 6 LOANS LOCATED THROUGHOUT THE UNITED STATES.
BANK OF NEW MEXICO - 32 LOANS LOCATED IN NEW MEXICO.
BLUEBONNET SAVINGS AND LOAN - 71 LOANS LOCATED IN VICINITY OF SAN
ANTONIO, TEXAS.
CLSI ALLISON WILLIAMS - 42 LOANS LOCATED AROUND LAS MESA, SEMINOLE
AND ANDREWS, TEXAS.
CROSSROADS SAVINGS AND LOAN - 34 LOANS LOCATED IN VICINITY OF
TULSA, OKLAHOMA.
FAIRBANKS II, UTAH - 2 LOANS LOCATED IN THE VICINITY OF FAIRBANKS
AND SALT LAKE CITY, UTAH.
- ---------------------------------------------------------------------
1996 Annual Report 27 American Strategic Income Portfolio
<PAGE>
Investments in Securities (continued)
- ---------------------------------------------------------------------
<TABLE>
<S> <C> <C>
FAIRBANKS, UTAH - 8 LOANS LOCATED. IN THE VICINITY OF FAIRBANKS
AND SALT LAKE CITY, UTAH.
FIRST BOSTON MORTGAGE POOL #5 - 17 LOANS LOCATED THROUGHOUT THE
UNITED STATES.
HAMILTON FINANCIAL - 4 LOANS LOCATED IN CALIFORNIA.
HUNTINGTON MEWS - 34 LOANS LOCATED IN THE VICINITY OF CAMDEN, NEW
JERSEY.
KNUTSON MORTGAGE PORTFOLIO #1 - 31 LOANS LOCATED THROUGHOUT THE
MIDWESTERN STATES.
KNUTSON MORTGAGE PORTFOLIO #2 - 22 LOANS LOCATED THROUGHOUT THE
MIDWESTERN STATES.
MCCLEMORE - 31 LOANS LOCATED IN NORTH CAROLINA.
MERIDIAN - 20 LOANS LOCATED THROUGHOUT CALIFORNIA
NOMURA III - 73 LOANS LOCATED THROUGHOUT THE MIDWESTERN STATES.
NORWEST II - 30 LOANS LOCATED THROUGHOUT THE MIDWESTERN STATES.
NORWEST III - 19 LOANS LOCATED THROUGHOUT THE MIDWESTERN STATES.
NORWEST V - 36 LOANS LOCATED THROUGHOUT THE MIDWESTERN STATES.
PRESIDENT HOMES - 5 LOANS LOCATED THROUGHOUT THE MIDWESTERN
STATES.
RAND MORTGAGE CORPORATION - 11 LOANS LOCATED NEAR HOUSTON AND
AUSTIN, TEXAS.
SALOMON II - 33 LOANS LOCATED THROUGHOUT THE MIDWESTERN STATES.
VALLEY BANK OF COMMERCE, N.M. - 30 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) 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) INTEREST RATE DISCLOSED REPRESENTS THE CURRENT YIELD BASED ON THE CURRENT
COST BASIS AND ESTIMATED FUTURE CASH FLOWS.
(H) ON NOVEMBER 30, 1996, THE COST OF INVESTMENTS IN SECURITIES, INCLUDING REAL
ESTATE OWNED, FOR FEDERAL INCOME TAX PURPOSES WAS $77,494,097. 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 ...... $ 2,810,702
GROSS UNREALIZED DEPRECIATION ...... (1,121,038)
------------
NET UNREALIZED APPRECIATION ...... $ 1,689,664
------------
------------
</TABLE>
- ---------------------------------------------------------------------
1996 Annual Report 28 American Strategic Income Portfolio
<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, 1996, and the related statements of operations
and cash flows for the year then ended, the statements of changes in net assets
for each of the years in the two-year period then ended and the financial
highlights for the periods presented in note 8 to the financial statements.
These financial statements and the financial highlights are the responsibility
of the fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
American Strategic Income Portfolio Inc. as of November 30, 1996, and the
results of its operations and cash flows, the changes in its net assets and the
financial highlights for the periods stated in the first paragraph above, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 10,1997
- ---------------------------------------------------------------------
1996 Annual Report 29 American Strategic Income Portfolio
<PAGE>
Federal Income Tax Information
- ----------------------------------------
The following per-share information describes the federal tax
treatment of distributions made during the fiscal year.
Distributions for the calendar year will be reported to you on
Form 1099-DIV. Please consult a tax adviser on how to report
these distributions at the state and local levels.
INCOME DISTRIBUTIONS (TAXABLE AS ORDINARY DIVIDENDS, NONE
QUALIFYING FOR DEDUCTION BY CORPORATIONS)
<TABLE>
<CAPTION>
PAYABLE DATE AMOUNT
- --------------------------------------------- --------
<S> <C>
December 27, 1995 ........................... $ 0.2250
January 11, 1996 ............................ 0.2250
February 21, 1996 ........................... 0.1000
March 27, 1996 .............................. 0.1000
April 24, 1996 .............................. 0.1000
May 29, 1996 ................................ 0.1000
June 26, 1996 ............................... 0.1000
July 24, 1996 ............................... 0.0800
August 28, 1996 ............................. 0.0800
September 25, 1996 .......................... 0.0800
October 23, 1996 ............................ 0.0800
November 27, 1996 ........................... 0.0800
--------
Total ................................... $ 1.3500
--------
--------
</TABLE>
- ---------------------------------------------------------------------
1996 Annual Report 30 American Strategic Income Portfolio
<PAGE>
Shareholder Update
- ----------------------------------------
ANNUAL MEETING RESULTS
An annual meeting of the fund's shareholders was held on August
23, 1996. Each matter voted upon at the meeting, as well as the
number of votes cast for, against or withheld, the number of
abstentions, and the number of broker non-votes with respect to
such matters, are set forth below.
1. The fund's shareholders elected the following directors:
<TABLE>
<CAPTION>
SHARES
SHARES WITHHOLDING
VOTED "FOR" AUTHORITY TO VOTE
----------- -----------------
<S> <C> <C>
David T. Bennett ............................ 4,744,778 194,123
Jaye F. Dyer ................................ 4,746,453 192,448
William H. Ellis ............................ 4,745,658 193,243
Karol D. Emmerich ........................... 4,748,278 190,623
Luella G. Goldberg .......................... 4,742,602 196,299
George Latimer .............................. 4,745,717 193,184
</TABLE>
2. The fund's shareholders ratified the selection by a majority
of the independent members of the fund's board of directors
of KPMG Peat Marwick LLP as the independent public
accountants for the fund for the fiscal year ending November
30, 1996. The following votes were cast regarding this
matter:
<TABLE>
<CAPTION>
SHARES
VOTED SHARES BROKER
"FOR" VOTED "AGAINST" ABSTENTIONS NON-VOTES
---------- ----------------- ----------- ---------
<S> <C> <C> <C>
4,705,932 112,496 120,473 --
</TABLE>
TERMS AND CONDITIONS OF THE DIVIDEND REINVESTMENT PLAN
As a shareholder, you may choose to participate in the Dividend
Reinvestment Plan. It's a convenient and economical way to buy
additional shares of the fund by automatically reinvesting
dividends and capital gains. The plan is administered by
Investors Fiduciary Trust Company (IFTC), the plan agent.
- ---------------------------------------------------------------------
1996 Annual Report 31 American Strategic Income Portfolio
<PAGE>
Shareholder Update (continued)
- ---------------------------------------------------------------------
ELIGIBILITY/PARTICIPATION
You may join the plan at any time. Reinvestment of distributions
will begin with the next distribution paid, provided your request
is received at least 10 days before the record date for that
distribution.
If your shares are in certificate form, you may join the plan
directly and have your distributions reinvested in additional
shares of the fund. To enroll in this plan, call IFTC at
1-800-543-1627. If your shares are registered in your brokerage
firm's name or another name, ask the holder of your shares how
you may participate.
Banks, brokers or nominees, on behalf of their beneficial owners
who wish to reinvest dividend and capital gains distributions,
may participate in the plan by informing IFTC at least 10 days
before each share's dividend and/or capital gains distribution.
PLAN ADMINISTRATION
Beginning no more than 5 business days before the dividend
payment date, IFTC will buy shares of the fund on the New York
Stock Exchange (NYSE) or elsewhere on the open market only when
the price of the fund's shares on the NYSE plus commissions is
less than a 5% premium over the fund's most recently calculated
net asset value (NAV) per share. If, at the close of business on
the dividend payment date, the shares purchased in the open
market are insufficient to satisfy the dividend reinvestment
requirement, IFTC will accept payment of the dividend, or the
remaining portion, in authorized but unissued shares of the fund.
These shares will be issued at a per-share price equal to the
higher of (a) the NAV per share as of the close of business on
the payment date or (b) 95% of the closing market price per share
on the payment date.
By participating in the dividend reinvestment plan, you may
receive benefits not available to shareholders who elect not to
participate. For example, if the market price plus commissions of
the fund's shares is 5% or more above the NAV, you will receive
- ---------------------------------------------------------------------
1996 Annual Report 32 American Strategic Income Portfolio
<PAGE>
Shareholder Update (continued)
- ---------------------------------------------------------------------
shares at a discount of up to 5% from the current market value.
However, if the market price plus commissions is below the NAV,
you will receive distributions in shares with a NAV greater than
the value of any cash distributions you would have received.
There is no direct charge for reinvestment of dividends and
capital gains, since IFTC fees are paid for by the fund. However,
if fund shares are purchased in the open market, each participant
pays a pro rata portion of the brokerage commissions. Brokerage
charges are expected to be lower than those for individual
transactions because shares are purchased for all participants in
blocks. As long as you continue to participate in the plan,
distributions paid on the shares in your account will be
reinvested.
IFTC maintains accounts for plan participants holding shares in
certificate form. You will receive a monthly statement detailing
total dividend and capital gain distributions, date of
investment, shares acquired, price per share, and total shares
held in your account, both certificate-form shares and unissued
shares acquired through the plan.
TAX INFORMATION
Distributions invested in additional shares of the fund are
subject to income tax, just as they would be if received in cash.
When shares are issued by the fund at a discount from market
value, shareholders will be treated as having received
distributions of an amount equal to the full market value of
those shares. Shareholders, as required by the Internal Revenue
Service, will receive Form 1099 regarding the federal tax status
of the prior year's distributions.
PLAN WITHDRAWAL
If you hold your shares in certificate form, you may terminate
your participation in the plan at any time by giving written
notice to IFTC. If your shares are registered in your brokerage
firm's name, you may terminate your participation via verbal or
written
- ---------------------------------------------------------------------
1996 Annual Report 33 American Strategic Income Portfolio
<PAGE>
Shareholder Update (continued)
- ---------------------------------------------------------------------
instructions to your investment professional. Written
instructions should include your name and address as they appear
on the certificate or account.
If notice is received at least 10 days before the record date,
all future distributions will be paid directly to the shareholder
of record.
If your shares are issued in certificate form and you discontinue
your participation in the plan, you (or your nominee) will
receive an additional certificate for all full shares and a check
for any fractional shares in your account.
PLAN AMENDMENT/TERMINATION
The fund reserves the right to amend or terminate the plan.
Should the plan be amended or terminated, participants will be
notified in writing at least 90 days before the record date for
such dividend or distribution. The plan may also be amended or
terminated by IFTC with at least 90 days written notice to
participants in the plan.
Any question about the plan should be directed to your investment
professional or to Investors Fiduciary Trust Company, P.O. Box
419432, Kansas City, Missouri 64141, 1-800-543-1627.
- ---------------------------------------------------------------------
1996 Annual Report 34 American Strategic Income Portfolio
<PAGE>
Directors and Officers
- ----------------------------------------
DIRECTORS
David T. Bennett, CHAIRMAN, HIGHLAND HOMES, INC., USL PRODUCTS,
INC., KIEFER BUILT, INC., OF COUNSEL, GRAY, PLANT, MOOTY,
MOOTY & BENNETT, P.A.
Jaye F. Dyer, PRESIDENT, DYER MANAGEMENT COMPANY
William H. Ellis, PRESIDENT, PIPER JAFFRAY COMPANIES INC., PIPER
CAPITAL MANAGEMENT INCORPORATED
Karol D. Emmerich, PRESIDENT, THE PARACLETE GROUP
Luella G. Goldberg, DIRECTOR, TCF FINANCIAL, RELIASTAR FINANCIAL
CORP., HORMEL FOODS CORP.
David A. Hughey, RETIRED EXECUTIVE VICE PRESIDENT AND CHIEF
ADMINISTRATIVE OFFICER OF DEAN WITTER INTERCAPITAL INC. AND
DEAN WITTER TRUST CO.
George Latimer, CHIEF EXECUTIVE OFFICER, NATIONAL EQUITY FUNDS
OFFICERS
William H. Ellis,
CHAIRMAN OF THE BOARD
Paul A. Dow,
PRESIDENT
John G. Wenker,
SENIOR VICE PRESIDENT
Russ K. Kappenman,
VICE PRESIDENT AND ASSISTANT SECRETARY
Amy Ayd,
VICE PRESIDENT
Julene R. Melquist,
VICE PRESIDENT
Robert H. Nelson,
VICE PRESIDENT AND TREASURER
Daniel W. Schroer,
VICE PRESIDENT AND ASSISTANT SECRETARY
Susan S. Miley,
SECRETARY
INVESTMENT ADVISER
Piper Capital Management Incorporated
222 SOUTH NINTH STREET, MINNEAPOLIS, MN 55402-3804
ACCOUNTING AND TRANSFER AGENT
Investors Fiduciary Trust Company
127 WEST 10TH STREET, KANSAS CITY, MO 64105-1716
LEGAL COUNSEL
Dorsey & Whitney LLP
220 SOUTH SIXTH STREET, MINNEAPOLIS, MN 55402
CUSTODIAN
First Trust National Association
180 EAST FIFTH STREET, ST. PAUL, MN 55101
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
4200 NORWEST CENTER, MINNEAPOLIS, MN 55402
- ---------------------------------------------------------------------
1996 Annual Report 35 American Strategic Income Portfolio
<PAGE>
GLOSSARY OF TERMS ***
- --------------------------------------------------------------------------------
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.
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
1996 Annual Report 36 American Strategic Income Portfolio
<PAGE>
GLOSSARY OF TERMS ***
- --------------------------------------------------------------------------------
RISK
All funds that invest in mortgage-related securities are subject to certain
risks. Following is a brief summary of some of the primary risks associated with
mortgage-related assets. It does not include all risks related to mortgage
securities.
Among these risks is PREPAYMENT RISK in which principal payments are prepaid at
unexpected rates. Prepayment rates are influenced by changes in interest rates
and a variety of other factors. If the fund buys a mortgage loan at a premium, a
faster-than-anticipated prepayment rate will reduce the fund's yield and a
slower-than-anticipated prepayment rate will increase its yield. If a mortgage
loan is purchased at a discount, the opposite will occur. There is also the
chance that proceeds from prepaid loans will have to be reinvested in lower-
yielding investments (REINVESTMENT RISK).
Like all fixed income investments, the prices of securities in the fund are
sensitive to changing interest rates -- otherwise known as INTEREST RATE
RISK. When rates increase, the value of these securities decreases. Conversely,
when rates decline, the value of these securities rises. However, mortgage-
related assets may benefit less from declining interest rates than other fixed
income securities because of prepayment risk.
The fund's mortgage loans are subject to some unique risks such as credit risk
and real estate risk. Since the fund's mortgage loans generally aren't backed by
any government guarantee or private credit enhancement, they face CREDIT RISK.
This is the risk of loss arising from default if the borrower fails to make
payments on the loan. This risk may be greater during periods of declining or
stagnant real estate values. Mortgage loans are also subject to REAL ESTATE
RISKS including property risk (the risk that the physical condition and value of
the property will decline) and the legal risk of holding any mortgage loan.
FOR MORE INFORMATION
BY PHONE [GRAPHIC]
1 800 866-7778
FOR GENERAL INFORMATION
press 5, our Mutual Fund Services representatives are ready to answer your
questions.
TO LISTEN TO MONTHLY FUND UPDATES
press 3, press 2, then press:
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 [GRAPHIC]
Piper Capital Management
Attn: Mutual Fund Services
222 South Ninth Street
Minneapolis, MN 55402-3804
In an effort to reduce costs to our shareholders, we have implemented a process
to reduce duplicate mailings of the fund s shareholder reports. This
householding process should allow us to mail one report to each address where
one or more registered shareholders with the same last name reside. If you would
like to have additional reports mailed to your address, please call our Mutual
Fund Services area at 1 800 866-7778, or mail a request to us.
ON-LINE [GRAPHIC]
http://www.piperjaffray.com/
money_management/
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
37
<PAGE>
[LOGO]
PIPER CAPITAL MANAGEMENT INCORPORATED
222 SOUTH NINTH STREET
MINNEAPOLIS, MN 55402-3804
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STAPLES
