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American Strategic Income Portfolio - 1998 Semiannual Report
1998 Semiannual Report
AMERICAN STRATEGIC
INCOME PORTFOLIO
ASP
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CONTENTS
Portfolio Manager's Letter . . . . . . . . . . . . . . . . . . . . . . . . .1
Financial Statements and Notes . . . . . . . . . . . . . . . . . . . . . . .4
Investments in Securities. . . . . . . . . . . . . . . . . . . . . . . . . 14
Glossary***. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
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, 1998
<TABLE>
<CAPTION>
AMERICAN STRATEGIC Lehman Brothers Mutual
INCOME PORTFOLIO Fund Gov't/Mortgage Index
------------------ -------------------------
<S> <C> <C>
ONE YEAR 11.41% 10.65%
FIVE YEAR 6.50% 6.92%
SINCE INCEPTION
12/27/91 8.85% 7.27%
</TABLE>
The average annualized total returns for American Strategic Income Portfolio are
based on the change in its net asset value (NAV), assume all distributions were
reinvested and do not reflect sales charges. NAV-based performance is used to
measure investment management results.
Average annualized total returns based on the change in market price for the
one-year, five-year and since inception periods ended May 31, 1998, were 12.07%,
4.02% and 6.27%, respectively. These returns assume reinvestment of all
distributions and reflect sales charges on distributions as described in the
fund's dividend reinvestment plan, but not on initial purchases.
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 calculations.
The since inception number for the Lehman index is calculated from the month end
following the fund's inception through May 31, 1998.
*** This report includes a glossary to help you understand financial terms used
in the report. When you see this symbol, it indicates a word that is defined in
the glossary.
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PORTFOLIO MANAGER'S LETTER
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July 19, 1998
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[PHOTO]
JOHN WENKER
is primarily responsible for the management of American Strategic Income
Portfolio. He has 12 years of financial experience.
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DEAR SHAREHOLDERS:
FOR THE SIX-MONTH PERIOD ENDED MAY 31, 1998, AMERICAN STRATEGIC INCOME PORTFOLIO
HAD A NET ASSET VALUE (NAV) TOTAL RETURN OF 4.57%.* This compares to a 3.99%
return for the Lehman Brothers Mutual Fund Government/Mortgage Index. Over the
same period, the fund's total return based on its market price was 1.93%. The
fund continued to trade at a discount to its net asset value, with a market
price of $11.63 and a net asset value of $12.98 as of May 31.
WE ARE PLEASED TO REPORT THAT THE FUND MAINTAINED ITS MONTHLY DIVIDEND AT 8
CENTS PER SHARE OVER THE REPORTING PERIOD. As you know, providing a high level
of income is a primary objective of the fund. Despite a generally declining
interest rate environment, the fund not only provided competitive and attractive
income, but was able to add to its dividend reserve as well. The fund has held
the dividend steady for the past 24 months.
THE MAJORITY OF THE FUND'S POSITIVE NAV PERFORMANCE IS ATTRIBUTABLE TO FALLING
TREASURY YIELDS. Intermediate-term interest rates declined over the reporting
period as inflation remained under control. During the six months ended May 31,
the yield on three- to five-year Treasury securities fell by about 0.30%.
Federal Reserve policymakers kept short-term interest rates steady despite
vigorous growth within the U.S. economy.
WE REMAIN CONCERNED ABOUT PREPAYMENTS***, ESPECIALLY IN LIGHT OF THE DECLINING
INTEREST RATE ENVIRONMENT IN WHICH THE FUND CURRENTLY OPERATES. Prepayments are
occurring, and over time will impact the fund's income and dividend levels. Our
first alternative for prepayments is to reinvest in additional mortgage
products. However, in the absence of attractive investment alternatives, dollars
received through prepayments are being used to pay down the fund's leverage
position.
* All returns assume reinvestment of distributions and do not reflect sales
charges, except the fund's total return based on market price, which does
reflect sales charges on distributions as described in the fund's dividend
reinvestment plan, but not on initial purchases. 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, 1998
[CHART]
Mortgage Servicing Rights 1%
Short-Term Securities 1%
Commercial Loans 19%
Multifamily Loans 23%
Single Family Loans 38%
Other Assets 1%
Private Fixed Rate Mortgage-Backed Securities 2%
U.S. Treasury Securities 15%
DELINQUENT LOAN PROFILE
The chart below shows the percentage of single family loans** in the portfolio
that are 30, 60, 90 or 120 days delinquent as of May 31, 1998, based on
principal amounts outstanding.
Current 89.8%
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30 Days 4.2%
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60 Days 2.9%
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90 Days 0.1%
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120+ Days 3.0%
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* *As of May 31, 1998, there were no multifamily or commercial loans delinquent.
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*** This report includes a glossary to help you understand financial terms used
in the report. When you see this symbol, it indicates a word that is defined in
the glossary.
1 1998 Semiannual Report - American Strategic Income Portfolio
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PORTFOLIO MANAGER'S LETTER (Continued)
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[PHOTO]
DAVID STEELE
assists with the management of American Strategic Income Portfolio. He has 19
years of financial experience.
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WE ARE PLEASED WITH OUR ASSET ALLOCATION STRATEGY. The fund has maintained a
diversified mix between single family, multifamily and commercial loans. As of
May 31, the fund held approximately 470 single family loans on properties with
an average remaining principal balance of approximately $62,000. On the same
date, the fund had 15 multifamily loans with an average principal balance of
approximately $1,156,000 and 12 commercial loans with an average principal
balance of approximately $1,199,000.
ALTHOUGH CREDIT RISK IS INHERENT IN A FUND OF THIS NATURE, TO DATE WE HAVE BEEN
ABLE TO MINIMIZE THE IMPACT OF SUCH RISK THROUGH EXTENSIVE RESEARCH. As of May
31, 89.8% of the fund's single family loans were current, and only 3% of such
mortgages were 120 days or more overdue. As of the same date, none of the fund's
multifamily or commercial mortgages were delinquent. The chart on the previous
page displays delinquency rates. During the reporting period, principal credit
gains on single family loans amounted to 0.76 cents per share. There were no
losses on multifamily or commercial loans. Since the fund's inception, we have
kept its principal losses due to foreclosure on single family loans to 6 cents
per share. Also since inception, we have experienced no foreclosure losses on
multifamily or commercial loans. When loans are foreclosed, we attempt to
complete 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 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
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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 as of May 31, 1998. Shaded areas without values indicate states in
which the fund has invested less than 0.50% of its assets.
<TABLE>
<CAPTION>
<S> <C>
Arizona 3%
California 8%
Colorado 4%
Florida 7%
Illinois 2%
Maryland 1%
Massachusetts 3%
Michigan 1%
Minnesota 14%
Missouri 1%
Montana 2%
Nevada 2%
New Hampshire 2%
New Jersey 3%
New Mexico 2%
New York 1%
North Carolina 3%
North Dakota 5%
Oklahoma 2%
Oregon 4%
Tennessee 6%
Texas 14%
Utah 3%
Virginia 1%
Washington 5%
</TABLE>
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2 1998 Semiannual Report - American Strategic Income Portfolio
<PAGE>
PORTFOLIO MANAGER'S 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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repurchase agreements. As of May 31, the amount of reverse repurchase agreements
was equal to 21% of total assets. Please note that borrowing can potentially
increase the fund's earnings, but it can also increase the volatility of the
fund's net asset value. We attempt to moderate this potential volatility by
purchasing short- to medium-term Treasuries.
THANK YOU FOR YOUR INVESTMENT IN AMERICAN STRATEGIC INCOME PORTFOLIO. During
the last few years the multifamily and commercial loans in the portfolio have
performed well and been positively impacted by positive trends in the real
estate industry. Most analysts would agree that real estate markets have
returned to equilibrium. The big question facing the real estate industry is
whether it will maintain the discipline required to stay in equilibrium or
revisit the excesses of the late 1980s and early 1990s. Certainly the criteria
we use for purchasing loans remain intact and hopefully will hold up should
industry trends turn negative. However, we would like to remind you that the
fund is exposed to the ups and downs of real estate cycles. To the extent the
real estate markets deteriorate, credit risk and the potential for credit losses
will increase.
We believe that the fund's strategy will continue to provide attractive returns
relative to other fixed-income investments, and we appreciate the opportunity to
serve your investment needs.
Sincerely,
/s/ John Wenker
John Wenker
Portfolio Manager
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VALUATION OF WHOLE LOAN INVESTMENTS
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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 and therefore, market quotations
are not readily available. These investments are valued at "fair value"
according to procedures adopted by the fund's board of directors. Pursuant to
these procedures, whole loan investments are initially valued at cost and their
values are subsequently monitored and adjusted pursuant to a Piper Capital
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 on a monthly basis and 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 mortgage
participations are determined no less frequently than weekly.
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3 1998 Semiannual Report - American Strategic Income Portfolio
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Financial Statements (Unaudited)
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STATEMENT OF ASSETS AND LIABILITIES May 31, 1998
................................................................................
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (note 2)
(including a repurchase agreement of $1,015,000) ........ $76,340,943
Real estate owned (identified cost: $134,514) (note 2) .... 137,567
Accrued interest receivable ............................... 982,505
Other assets .............................................. 17,521
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Total assets ............................................ 77,478,536
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LIABILITIES:
Reverse repurchase agreements payable ..................... 16,000,000
Accrued investment management fee ......................... 33,537
Bank overdraft ............................................ 65,381
Accrued administrative fee ................................ 10,364
Accrued interest .......................................... 81,035
Other accrued expenses .................................... 3,944
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Total liabilities ....................................... 16,194,261
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Net assets applicable to outstanding capital stock ...... $61,284,275
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COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital .............. $66,614,922
Undistributed net investment income ....................... 358,954
Accumulated net realized loss on investments .............. (8,252,340)
Unrealized appreciation of investments .................... 2,562,739
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Total - representing net assets applicable to capital
stock ................................................. $61,284,275
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* Investments in securities at identified cost ............ $73,781,257
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NET ASSET VALUE AND MARKET PRICE:
Net assets ................................................ $61,284,275
Shares outstanding (authorized 1 billion shares of $0.01 par
value) .................................................. 4,723,026
Net asset value ........................................... $ 12.98
Market price .............................................. $ 11.63
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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4 1998 Semiannual Report - American Strategic Income Portfolio
<PAGE>
Financial Statements (Unaudited) (continued)
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STATEMENT OF OPERATIONS For the Six Months Ended May 31,
1998
................................................................................
<TABLE>
<S> <C>
INCOME:
Interest (net of interest expense of $454,775) ............ $ 2,821,293
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EXPENSES (NOTE 3):
Investment management fee ................................. 187,138
Administrative fee ........................................ 61,086
Custodian and accounting fees ............................. 27,692
Transfer agent fees ....................................... 11,078
Reports to shareholders ................................... 23,330
Mortgage servicing fees ................................... 109,575
Directors' fees ........................................... 7,733
Audit and legal fees ...................................... 48,736
Other expenses ............................................ 10,577
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Total expenses .......................................... 486,945
Less expenses paid indirectly ......................... (4,012)
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Total net expenses ...................................... 482,933
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Net investment income ................................... 2,338,360
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NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
(NOTE 4):
Net realized gain on investments in securities ............ 370,266
Net realized gain on real estate owned .................... 35,910
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Net realized gain on investments ........................ 406,176
Net change in unrealized appreciation or depreciation of
investments ............................................. (53,328)
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Net gain on investments ................................. 352,848
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Net increase in net assets resulting from operations
...................................................... $ 2,691,208
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</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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5 1998 Semiannual Report - American Strategic Income Portfolio
<PAGE>
Financial Statements (Unaudited) (continued)
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STATEMENT OF CASH FLOWS For the Six Months Ended May 31,
1998
................................................................................
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest income ........................................... $ 2,821,293
Net expenses .............................................. (482,933)
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Net investment income ................................... 2,338,360
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Adjustments to reconcile net investment income to net cash
provided by operating activities:
Change in accrued interest receivable ................... (149,393)
Net amortization of bond discount and premium ........... 8,676
Change in accrued fees and expenses ..................... 30,981
Change in other assets .................................. 3,994
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Total adjustments ..................................... (105,742)
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Net cash provided by operating activities ............. 2,232,618
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments ........................ 18,773,910
Purchases of investments .................................. (20,943,707)
Net sales of short-term securities ........................ 915,000
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Net cash used by investing activities ................. (1,254,797)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from reverse repurchase agreements ........... 5,000,000
Retirement of fund shares ................................. (6,752,825)
Distributions paid to shareholders ........................ (2,267,052)
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Net cash used by financing activities ................. (4,019,877)
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Net decrease in cash ...................................... (3,042,056)
Cash at beginning of period ............................... 2,976,675
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Cash at end of period ................................. $ (65,381)
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Supplemental disclosure of cash flow information:
Cash paid for interest on reverse repurchase agreements
....................................................... $ 421,651
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</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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6 1998 Semiannual Report - 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
5/31/98 YEAR ENDED
(UNAUDITED) 11/30/97
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<S> <C> <C>
OPERATIONS:
Net investment income ..................................... $ 2,338,360 $ 5,082,236
Net realized gain on investments .......................... 406,176 249,729
Net change in unrealized appreciation or depreciation of
investments ............................................. (53,328) 926,403
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Net increase in net assets resulting from operations .... 2,691,208 6,258,368
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DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ................................ (2,267,052) (5,037,813)
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CAPITAL SHARE TRANSACTIONS (NOTE 6):
Decrease in net assets from capital share transactions .... (6,752,825) --
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Total increase (decrease) in net assets ................. (6,328,669) 1,220,555
Net assets at beginning of period ......................... 67,612,944 66,392,389
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Net assets at end of period ............................... $61,284,275 $67,612,944
----------------- -----------------
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Undistributed net investment income ....................... $ 358,954 $ 287,646
----------------- -----------------
----------------- -----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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7 1998 Semiannual Report - American Strategic Income Portfolio
<PAGE>
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 enter into
dollar roll transactions. 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 readily available,
or if such quotations or valuations are believed to be
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 and therefore, market quotations are not
readily available. These investments are valued at "fair
value" according to procedures adopted by the fund's board
of directors. Pursuant to these procedures, whole loan
investments are initially valued at cost and their values
are subsequently monitored and adjusted pursuant to a
Piper Capital 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
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.
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8 1998 Semiannual Report - American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
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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 May 31, 1998, loans representing 2.9% of net assets
were 60 days or more delinquent as to the timely monthly
payment of principal. Such delinquencies relate solely to
single family whole loans and represent 6.0% of total
single family principal outstanding at May 31, 1998. 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. The
fund recognized net realized gains of $35,910 or $0.01 per
share on real estate sold during the six months ended May
31, 1998.
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.
In addition, the fund may incur expenses associated with
maintaining any real estate owned. On May 31, 1998, the
fund owned two single family homes with an aggregate value
of $137,567, or 0.2% of net assets.
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.
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, 1998, the fund had no outstanding
when-issued or forward commitments.
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9 1998 Semiannual Report - American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
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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, 1998,
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 year in which amounts are
distributed may differ from the year that the income or
realized gains or 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.
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10 1998 Semiannual Report - American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
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
................................
INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES
The fund has entered into an investment advisory agreement
with Piper Capital Management Incorporated. In addition,
Piper Capital provided services under an administration
agreement through April 30, 1998. Effective May 1, 1998,
the fund entered into an administration agreement with
U.S. Bank, an affiliate of the advisor.
The investment advisory agreement provides the advisor
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, 1998, the effective annualized
investment management fee incurred by the fund was 0.61%.
For its fee, the advisor 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.
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; real estate owned; fees to
outside parties retained to assist in conducting due
diligence; taxes and other miscellaneous expenses.
During the six months ended May 31, 1998, the fund paid
$5,034 for custody services to U.S. Bank N.A., an
affiliate of the fund's advisor. 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, 1998, aggregated $20,935,031 and $18,773,910,
respectively. Included in proceeds from sales are $35,910
from sales of real estate owned.
- --------------------------------------------------------------------------------
11 1998 Semiannual Report - American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
(5) CAPITAL LOSS
CARRYOVER
................................
For federal income tax purposes, the fund had capital loss
carryovers at November 30, 1997, which, if not offset by
subsequent capital gains, will expire on the fund's fiscal
year-ends 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
------------- ----------
<S> <C> <C>
$ 185,268 2002
8,473,248 2003
-------------
$8,658,516
-------------
-------------
</TABLE>
(6) REPURCHASE OFFER
................................
The fund's board of directors concluded that an offer to
repurchase up to 10% of the fund's outstanding shares
would be in the best interests of shareholders.
Accordingly, the board authorized such an offer as part of
a settlement agreement reached in connection with class
action litigation involving the fund and seven other
closed-end investment companies managed by Piper Capital
Management Incorporated.
The repurchase offer was sent to shareholders in October
1997, and the deadline for submitting shares for
repurchase was 5 p.m. Central Time on November 17, 1997.
The repurchase price was determined on December 1, 1997 at
the close of regular trading on the New York Stock
Exchange (4 p.m. Eastern Time). The percentage of
outstanding shares and the number of shares accepted for
tender, the repurchase price per share and proceeds
(including tender fees) paid by the fund were as follows:
<TABLE>
<CAPTION>
PERCENTAGE SHARES REPURCHASE PROCEEDS
TENDERED TENDERED PRICE PAID
---------- ----------- ----------- ------------
<S> <C> <C> <C>
10% 524,695 $12.87 $6,752,825
</TABLE>
(7) ADVISOR
ACQUISITION
................................
On May 1, 1998, Piper Jaffray Companies Inc., the parent
company of the fund's investment advisor, was acquired by
U.S. Bancorp.
U.S. Bancorp is a multi-state bank holding company
headquartered in Minneapolis, Minnesota with a geographic
service area spanning 17 states. As of March 31, 1998,
U.S. Bancorp was the 15th largest U.S. commercial bank
holding company, with assets of nearly $70.9 billion. U.S.
Bank National Association ("U.S. Bank"), a wholly owned
subsidiary of U.S. Bancorp, currently acts as the
investment advisor to 32 mutual funds (the "First American
Funds"). As of March 31, 1998, U.S. Bank, acting through
its First American Asset Management group, managed more
than $65.3 billion in assets, including approximately
$23.3 billion in assets of the First American Funds.
Under the Investment Company Act of 1940, as amended,
consummation of the acquisition of Piper Jaffray Companies
by U.S. Bancorp resulted in the assignment and automatic
termination of the fund's investment advisory agreement
with Piper Capital Management Incorporated. The fund has
entered into a new investment advisory agreement with
Piper Capital Management, which shareholders will be asked
to approve at the fund's annual meeting in August.
Shareholders will also be asked to approve a new
investment advisory agreement with U.S. Bank which, if
approved, will replace the agreement between the fund and
Piper Capital Management.
- --------------------------------------------------------------------------------
12 1998 Semiannual Report - 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:
AMERICAN STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
Six Months
Ended Year Year Year Year Year
5/31/98 Ended Ended Ended Ended Ended
(Unaudited) 11/30/97 11/30/96 11/30/95 11/30/94 11/30/93
------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ... $12.88 $12.65 $13.13 $12.63 $15.79 $14.89
------------ --------- --------- --------- --------- ---------
Operations:
Net investment income ................ 0.50 0.97 0.97 1.09 1.41 1.79
Net realized and unrealized gains
(losses) on investments ............ 0.08 0.22 (0.10) 1.11 (3.22) 0.61
------------ --------- --------- --------- --------- ---------
Total from operations .............. 0.58 1.19 0.87 2.20 (1.81) 2.40
------------ --------- --------- --------- --------- ---------
Distributions to shareholders:
From net investment income ........... (0.48) (0.96) (1.35) (1.70) (1.15) (1.50)
From net realized gains on
investments ........................ -- -- -- -- (0.20) --
------------ --------- --------- --------- --------- ---------
Total distributions to
shareholders ..................... (0.48) (0.96) (1.35) (1.70) (1.35) (1.50)
------------ --------- --------- --------- --------- ---------
Net asset value, end of period ......... $12.98 $12.88 $12.65 $13.13 $12.63 $15.79
------------ --------- --------- --------- --------- ---------
------------ --------- --------- --------- --------- ---------
Per-share market value, end of
period ............................... $11.63 $11.88 $11.00 $12.25 $13.00 $16.38
------------ --------- --------- --------- --------- ---------
------------ --------- --------- --------- --------- ---------
SELECTED INFORMATION
Total return, net asset value (a) ...... 4.57% 9.83% 7.12% 18.27% (11.87)% 16.80%
Total return, market value (b) ......... 1.93% 17.41% 1.29% 7.75% (12.59)% 10.75%
Net assets at end of period (in
millions) ............................ $ 61 $ 68 $ 66 $ 69 $ 67 $ 84
Ratio of expenses to average weekly net
assets including interest expense
(c) .................................. 3.08%(f) 2.56% 2.94% 3.29% 3.34% 3.00%
Ratio of expenses to average weekly net
assets excluding interest expense
(c) .................................. 1.59%(f) 1.47% 1.50% 1.72% 1.69% 1.69%
Ratio of net investment income to
average weekly net assets ............ 7.66%(f) 7.68% 7.67% 8.26% 10.00% 11.52%
Portfolio turnover rate (excluding
short-term securities) ............... 25% 61% 63% 120% 74% 50%
Amount of borrowings outstanding at end
of period (in millions) (d) .......... $ 16 $ 11 $ 14 $ 15 $ 28 $ 32
Per-share amount of borrowings
outstanding at end of period ......... $ 3.39 $ 2.10 $ 2.67 $ 2.84 $ 5.16 $ 6.04
Per-share amount of net assets,
excluding borrowings, at end of
period ............................... $16.37 $14.98 $15.32 $15.97 $17.79 $21.83
Asset coverage ratio (e) ............... 483% 715% 574% 563% 345% 361%
</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) ANNUALIZED.
- --------------------------------------------------------------------------------
13 1998 Semiannual Report - American Strategic Income Portfolio
<PAGE>
Investments in Securities (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN STRATEGIC INCOME PORTFOLIO May 31, 1998
...................................................................................................................
Date
Description of Security Acquired Par Value Cost Market Value
- --------------------------------------------------------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
U.S. GOVERNMENT AND AGENCY SECURITIES (19.4%):
U.S. GOVERNMENT SECURITIES (19.4%):
6.63%, U.S. Treasury Note, 3/31/02 .................. 5/12/98 $11,500,000(b) $ 11,863,949 $ 11,898,475
------------ ------------
PRIVATE MORTGAGE-BACKED SECURITIES (E) (1.9%):
FIXED RATE (1.9%):
10.10%, First Boston, Series 1992-1, Class B-2,
1/15/01 ........................................... 5/1/92 1,000,000 976,626 1,005,000
12.97%, Minnesota Mortgage Corporation, 7/25/14 5/18/92 78,313 80,125 79,487
12.26%, Minnesota Mortgage Corporation, 10/25/14 5/18/92 53,853 55,094 54,661
12.38%, Minnesota Mortgage Corporation, 3/25/15 5/18/92 31,695 32,437 31,695
------------ ------------
Total Private Mortgage-Backed Securities .......... 1,144,282 1,170,843
------------ ------------
WHOLE LOANS AND PARTICIPATION MORTGAGES (C,D,E) (100.8%):
COMMERCIAL LOANS (24.6%):
Bekins Building, 8.50%, 10/1/04 ..................... 9/2/97 1,142,032 1,142,032 1,197,129
James Plaza, 8.55%, 12/1/01 ......................... 11/15/96 1,179,238 1,179,238 1,218,515
Main Street Office Building, 8.50%, 11/1/07 ......... 10/21/97 894,674 893,183 939,408
One Eastern Heights Office Building, 8.33%,
12/1/07 ........................................... 11/7/97 1,094,443 1,094,443 1,149,166
Pacific Periodicals Building, 8.15%, 1/1/08 ......... 12/9/97 1,374,278 1,374,278 1,431,128
Pine Island Office Building, 8.15%, 11/2/02 ......... 10/8/97 1,617,805 1,617,805 1,661,112
Rice Street Convention Center, 9.10%, 2/1/04 . 1/23/97 838,202 838,202 880,112
Schendel Office Building, 8.32%, 10/1/07 ............ 9/30/97 1,191,440 1,191,440 1,250,254
Schendel Retail Center, 8.70%, 9/1/07 ............... 8/28/97 839,152 839,152 881,110
Shallowford Business Park, 9.25%, 7/1/01 ............ 6/25/96 1,616,298 1,616,119 1,697,113
Sherwin Williams, 8.63%, 1/1/04 ..................... 12/20/96 1,426,751 1,426,751 1,498,089
Stephens Retail Center, 9.35%, 8/1/03 ............... 9/6/96 1,179,413 1,174,499 1,238,383
------------ ------------
14,387,142 15,041,519
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
Date
Description of Security Acquired Par Value Cost Market Value
- --------------------------------------------------------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
MULTIFAMILY LOANS (28.9%):
Applewood Manor, 8.75%, 1/1/01 ...................... 12/23/93 $ 674,645 $ 671,272 $ 698,497
Boca Bend Apartments, 11.75%, 5/1/00 ................ 4/25/95 573,084 564,010 559,237
Essex Place I, 9.58%, 9/30/12 ....................... 9/25/92 2,105,971 2,084,911 1,970,748
Franklin Woods Apartments, 9.90%, 3/1/10 ............ 2/24/95 1,270,004 1,266,571 1,333,505
Fremont Plaza Apartments, 9.75%, 4/1/02 ............. 2/28/95 704,797 697,749 732,989
Garden Oaks Apartments, 8.55%, 4/1/06 ............... 3/7/96 1,816,145 1,812,737 1,906,952
Kings Creek Apartments, 10.00%, 5/1/97 .............. 10/14/94 1,300,000 1,283,100 1,300,000
Mark Twain Apartments, 8.00%, 2/1/03 ................ 1/9/98 996,824 996,824 1,031,322
Park Place Apartments, 8.38%, 7/1/02 ................ 6/13/95 1,537,617 1,523,095 1,596,267
Royal Knight Apartments, 8.50%, 4/1/06 .............. 3/4/96 1,573,592 1,570,150 1,652,271
Rush Oaks Apartments, 7.90%, 12/1/07 ................ 11/26/97 551,995 551,995 576,064
Stanley Court Apartments, 8.50%, 11/1/02 ............ 10/31/95 1,077,813 1,074,383 1,125,609
Vanderbilt Condominiums, 8.50%, 8/1/00 .............. 7/13/95 806,493 803,072 827,387
Westgate Apartments, 10.00%, 2/1/08 ................. 1/28/93 1,373,047 1,359,316 1,386,777
Westhollow Place Apartments, 8.58%, 4/1/03 .......... 3/20/96 983,751 973,914 1,032,723
------------ ------------
17,233,099 17,730,348
------------ ------------
SINGLE FAMILY LOANS (47.3%):
Aegis, 9.00%, 3/26/10 . 10/26/95 243,291 230,217 245,580
Aegis II, 9.55%, 1/28/14 . 12/28/95 479,847 439,659 493,971
American Bank, Mankato, 9.21%, 12/10/12 ............. 12/15/92 104,048 84,945 106,535
American Portfolio, 7.57%, 10/18/15 ................. 7/18/95 259,224 246,928 255,920
Anivan, 8.69%, 4/14/12 .............................. 6/14/96 265,573 265,328 270,921
Bank of New Mexico, 9.21%, 3/31/10 .................. 5/31/96 947,972(b) 930,501 953,360
Bluebonnet Savings and Loan, 11.35%, 8/31/10 ........ 5/12/92 106,973 104,816 101,826
Bluebonnet Savings and Loan, 8.43%, 8/31/10 . 5/12/92 1,230,736 1,127,571 1,237,186
CLSI Allison Williams, 9.92%, 8/1/17 ................ 2/28/92 584,366 537,472 600,241
Crossroads Savings and Loan, 9.08%, 1/1/21 . 12/23/91 443,119 416,730 454,043
Crossroads Savings and Loan, 9.28%, 1/1/21 . 12/23/91 398,469 376,837 396,910
Fairbanks II, Utah, 8.00%, 8/20/10 .................. 7/30/92 52,210 44,037 53,140
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
14 1998 Semiannual Report - American Strategic Income Portfolio
<PAGE>
Investments in Securities (Unaudited) (continued)
- --------------------------------------------------------------------------------
AMERICAN STRATEGIC INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Date
Description of Security Acquired Par Value Cost Market Value
- --------------------------------------------------------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Fairbanks, Utah, 10.24%, 9/23/15 .................... 5/21/92 $ 110,203 $ 93,535 $ 110,529
First Boston Mortgage Pool #5, 9.12%, 6/29/03 ....... 6/23/92 363,144 296,786 368,434
Hamilton Financial, 8.22%, 6/29/10 .................. 7/8/92 121,998 111,933 118,602
Huntington MEWS, 9.26%, 8/1/17 ...................... 1/17/92 1,308,539(b) 1,119,637 1,225,010
Knutson Mortgage Portfolio #1, 8.77%, 8/1/17 ........ 2/19/92 1,068,394 1,019,489 1,032,103
Knutson Mortgage Portfolio #2, 9.39%, 9/25/17 ....... 5/26/92 1,368,351(b) 1,261,620 1,406,757
McClemore, Matrix Funding Corporation, 10.62%,
9/30/12 ........................................... 9/9/92 1,228,977 1,167,528 1,216,846
Meridian, 9.77%, 12/1/20 ............................ 12/21/92 852,911 813,464 873,693
Nomura III, 8.94%, 4/29/17 .......................... 9/29/95 2,113,345 1,910,334 2,052,212
Norwest II, 7.66%, 11/27/22 ......................... 2/27/96 2,470,642(b) 2,458,337 2,459,428
Norwest III, 7.67%, 11/27/22 ........................ 2/27/96 1,578,810 1,578,867 1,573,263
Norwest V, 8.54%, 2/3/25 ............................ 9/3/96 3,552,317(b) 3,488,020 3,586,593
Norwest X, 7.84%, 2/1/22 ............................ 3/12/98 6,254,897 6,265,530 6,234,944
Rand Mortgage Corporation, 9.71%, 8/1/17 ............ 2/21/92 287,225 235,418 294,994
Salomon II, 9.55%, 11/23/14 ......................... 12/23/94 908,095 790,443 928,654
Valley Bank of Commerce, N.M., 8.62%, 8/31/10 ....... 5/6/92 359,827 306,092 358,601
------------ ------------
27,722,074 29,010,296
------------ ------------
Total Whole Loans and Participation Mortgages ..... 59,342,315 61,782,163
------------ ------------
MORTGAGE SERVICING RIGHTS (E,G) (0.8%):
Matrix Servicing Rights, 18.07%, 7/10/22 ............ 7/10/92 415,711 474,462
------------ ------------
SHORT-TERM SECURITIES (1.7%):
Repurchase agreement with Goldman Sachs, interest of
$474, 5.60%, 6/1/98 ............................... 5/29/98 1,015,000(b) 1,015,000 1,015,000
------------ ------------
Total Investments in Securities (h) ............... $ 73,781,257 $ 76,340,943
------------ ------------
------------ ------------
</TABLE>
(a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(b) ON MAY 31, 1998, SECURITIES VALUED AT $20,129,973 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>
$ 11,000,000 5/1/98 5.59% 6/1/98 $ 52,914 (1)
5,000,000* 5/1/98 6.53% 6/1/98 28,121 (2)
- ------------ ---------
$ 16,000,000 $ 81,035
- ------------ ---------
- ------------ ---------
</TABLE>
* THE FUND HAS ENTERED INTO A LENDING COMMITMENT WITH NOMURA. THE AGREEMENT
PERMITS THE FUND TO ENTER INTO REVERSE REPURCHASE AGREEMENTS UP TO
$15,000,000 USING WHOLE LOANS AS COLLATERAL. THE FUND PAYS A FEE OF 0.25%
TO NOMURA ON ANY UNUSED PORTION OF THE $15,000,000 LENDING COMMITMENT.
** INTEREST RATE AS OF MAY 31, 1998. RATES ARE BASED ON THE LONDON INTERBANK
OFFERED RATE (LIBOR).
NAME OF BROKER AND DESCRIPTION OF COLLATERAL:
(1) NOMURA; U.S. TREASURY NOTE, 6.63%, 3/31/02, $10,650,000 PAR
(2) NOMURA; BANK OF NEW MEXICO, 9.21%, 3/31/10, $872,816 PAR
HUNTINGTON MEWS, 9.26%, 8/1/17, $1,308,539 PAR
KNUTSON MORTGAGE PORTFOLIO #2, 9.39%, 9/25/17, $1,368,351 PAR
NORWEST II, 7.66%, 11/27/22, $2,456,521 PAR
NORWEST V, 8.54%, 2/3/25, $3,125,874 PAR
(C) INTEREST RATES ON COMMERCIAL AND MULTIFAMILY LOANS ARE THE RATES IN EFFECT
ON MAY 31, 1998. 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, 1998.
(D) 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:
BEKINS BUILDING - COLORADO SPRINGS, CO
JAMES PLAZA - HOUSTON, TX
MAIN STREET OFFICE BUILDING - PARK CITY, UT
ONE EASTERN HEIGHTS OFFICE BUILDING - WOODBURY, MN
PACIFIC PERIODICALS BUILDING - LAKEWOOD, WA
PINE ISLAND OFFICE BUILDING - PLANTATION, FL
RICE STREET CONVENTION CENTER - ROSEVILLE, MN
SCHENDEL OFFICE BUILDING - BEAVERTON, OR
SCHENDEL RETAIL CENTER - BEAVERTON, OR
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
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
MARK TWAIN APARTMENTS - MESA, AZ
PARK PLACE APARTMENTS - GRAND FORKS, ND
ROYAL KNIGHT APARTMENTS - MEMPHIS, TN
RUSH OAKS APARTMENTS - LA PORTE, TX
STANLEY COURT APARTMENTS - BLOOMINGTON, MN
VANDERBILT CONDOMINIUMS - AUSTIN, TX
WESTGATE APARTMENTS - BISMARCK, ND
WESTHOLLOW PLACE APARTMENTS - HOUSTON, TX
SINGLE FAMILY LOANS:
AEGIS - 14 LOANS, MIDWESTERN UNITED STATES
AEGIS II - 7 LOANS, MIDWESTERN UNITED STATES
AMERICAN BANK, MANKATO - 4 LOANS, SOUTHWESTERN MINNESOTA
AMERICAN PORTFOLIO - 7 LOANS, TEXAS AND CALIFORNIA
ANIVAN - 4 LOANS, UNITED STATES
BANK OF NEW MEXICO - 20 LOANS, NEW MEXICO
- --------------------------------------------------------------------------------
15 1998 Semiannual Report - American Strategic Income Portfolio
<PAGE>
Investments in Securities (Unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
BLUEBONNET SAVINGS AND LOAN - 46 LOANS, SAN ANTONIO, TEXAS
CLSI ALLISON WILLIAMS - 30 LOANS, LAS MESA, SEMINOLE AND ANDREWS, TEXAS
CROSSROADS SAVINGS AND LOAN - 24 LOANS, TULSA, OKLAHOMA
FAIRBANKS II, UTAH - 1 LOAN, FAIRBANKS AND SALT LAKE CITY, UTAH
FAIRBANKS, UTAH - 3 LOANS, FAIRBANKS AND SALT LAKE CITY, UTAH
FIRST BOSTON MORTGAGE POOL #5 - 13 LOANS, UNITED STATES
HAMILTON FINANCIAL - 1 LOAN, CALIFORNIA
HUNTINGTON MEWS - 28 LOANS, CAMDEN, NEW JERSEY
KNUTSON MORTGAGE PORTFOLIO #1 - 21 LOANS, MIDWESTERN UNITED STATES
KNUTSON MORTGAGE PORTFOLIO #2 - 17 LOANS, MIDWESTERN UNITED STATES
MCCLEMORE, MATRIX FUNDING CORPORATION - 14 LOANS, NORTH CAROLINA
MERIDIAN - 13 LOANS, CALIFORNIA
NOMURA III - 35 LOANS, MIDWESTERN UNITED STATES
NORWEST II - 26 LOANS, MIDWESTERN UNITED STATES
NORWEST III - 15 LOANS, MIDWESTERN UNITED STATES
NORWEST V - 27 LOANS, MIDWESTERN UNITED STATES
NORWEST X - 47 LOANS, MIDWESTERN UNITED STATES
RAND MORTGAGE CORPORATION - 7 LOANS, HOUSTON AND AUSTIN, TEXAS
SALOMON II - 21 LOANS, MIDWESTERN UNITED STATES
VALLEY BANK OF COMMERCE, N.M. - 23 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, 1998, THE TOTAL
MARKET VALUE OF THESE INVESTMENTS WAS $63,427,468 OR 103.5% 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) INTEREST RATE DISCLOSED REPRESENTS THE CURRENT YIELD BASED ON THE CURRENT
COST BASIS AND ESTIMATED FUTURE CASH FLOWS.
(H) 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 ...... $ 2,722,667
GROSS UNREALIZED DEPRECIATION ...... (159,928)
------------
NET UNREALIZED APPRECIATION ...... $ 2,562,739
------------
------------
</TABLE>
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19 1998 Semiannual Report - American Strategic Income Portfolio
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GLOSSARY OF TERMS***
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BENCHMARK INDEX
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. This particular fund carries more credit risk than the securities
in its benchmark index. Therefore, during favorable real estate markets, the
fund should outperform its benchmark (barring foreclosures). At the same time,
unfavorable real estate markets could cause underperformance.
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.
NET ASSET VALUE
Net asset value (or NAV) is the value of the fund's assets less its liabilities
divided by the number of shares outstanding.
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 upon price on 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, 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 also 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 a 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.
*** This report includes a glossary to help you understand financial terms used
in the report. When you see this symbol, it indicates a word that is defined in
the glossary.
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20 1998 Semiannual Report - American Strategic Income Portfolio
<PAGE>
FOR MORE INFORMATION
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FOR GENERAL INFORMATION
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questions.
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press 5, ask a service representative to mail you additional literature,
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BY MAIL [GRAPHIC]
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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 funds' 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 800 866-7778, or mail a request to us.
ON-LINE [GRAPHIC]
http://www.piperjaffray.com/
<PAGE>
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#21510 7/1998 158-98
