<PAGE>
1998 ANNUAL REPORT
AMERICAN STRATEGIC
INCOME PORTFOLIO
ASP
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<PAGE>
CONTENTS
1 Fund Overview
4 Financial Statements and Notes
14 Investments in Securities
17 Independent Auditors' Report
18 Federal Income Tax Information
19 Shareholder Update
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AMERICAN STRATEGIC INCOME PORTFOLIO
PRIMARY INVESTMENTS Mortgage-related assets that directly or indirectly
represent a participation in or are secured by and payable from mortgage loans.
The fund may also invest in asset-backed securities, U.S. government securities,
corporate-debt securities, municipal obligations, unregistered securities and
mortgage-servicing rights. The fund borrows 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 November 30, 1998
[GRAPH]
<TABLE>
Since Inception
One Year Five Year 12/27/91
<S> <C> <C> <C>
American Strategic
Income Portfolio 8.56% 5.88% 8.77%
Lehman Brothers Mutual Fund
Government/Mortgage Index 9.47% 7.24% 7.52%
</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 November 30, 1998, were
10.69%, 4.40% and 7.07%, 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 fund uses the Lehman Brothers Mutual Fund Government/Mortgage Index as a
benchmark. Although we believe this is the most appropriate benchmark available,
it is not a perfect match. The benchmark index is comprised of U.S. government
securities while American Strategic Income Portfolio is comprised primarily of
non-securitized, illiquid whole loans. This limits the ability of the fund to
respond quickly to market changes.
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 November 30, 1998.
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NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
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<PAGE>
FUND MANAGEMENT
JOHN WENKER
is primarily responsible for the management of American Strategic Income
Portfolio. He has 13 years of financial experience.
DAVID STEELE
assists with the management of American Strategic Income Portfolio. He has 20
years of financial experience.
RUSS KAPPENMAN
assists with the management of American Strategic Income Portfolio. He has 13
years of financial experience.
FUND OVERVIEW
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JANUARY 15, 1999
FOR THE ONE-YEAR PERIOD ENDED NOVEMBER 30, 1998, AMERICAN STRATEGIC INCOME
PORTFOLIO HAD A NET ASSET VALUE TOTAL RETURN OF 8.56%, WITH MUCH OF THE RETURN
ATTRIBUTABLE TO INCOME GENERATED BY THE FUND.* This compares to a 9.47% return
for the Lehman Brothers Mutual Fund Government/Mortgage Index. The fund's total
return based on market price was 10.69%.* As of November 30, 1998, the fund
continued to trade at a discount to net asset value; the market price was $12.13
per share with a net asset value of $12.98 per share.
ALONG WITH ITS STABLE SHARE PRICE, THE FUND CONTINUED TO PROVIDE AN ATTRACTIVE
DIVIDEND. For the year, dividends paid amounted to $0.97 per share. The fund's
current annualized distribution rate is 8.16% on the November 30 market price of
$12.13 per share. Current monthly earnings of $0.0844 per share (based on an
average of the three months ended November 30) would result in an annualized
earnings rate of 8.35% based on the November 30 market price. Of course, past
performance is no guarantee of future results, and those rates will fluctuate.
THE FUND'S MONTHLY DIVIDEND WAS INCREASED BY 0.25 CENTS PER SHARE, BEGINNING
WITH THE DIVIDEND PAID IN AUGUST, TO 8.25 CENTS PER SHARE. For most of the
year, we continued to benefit from high income generated by loans held in the
portfolio. This has played a major role in allowing us to hold the dividend
fairly steady, even through a turbulent market.
A SMOOTH START TO THE FISCAL YEAR GAVE WAY TO MUCH MORE VOLATILITY IN THE
FIXED-INCOME MARKET BY SUMMER. Global economic turmoil, primarily in Asia,
Russia and Brazil, was a major contributor to significant declines in the
equity, corporate-debt and commercial mortgage-backed securities markets,
particularly in August and September. Fears arose about the ability of the U.S.
economy
* 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.
[CHART]
<TABLE>
<CAPTION>
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PORTFOLIO COMPOSITION
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As a percentage of total assets on November 30, 1998
<S> <C>
Single-family Loans 35%
Private Fixed-rate
Mortgage-backed
Securities 1%
U.S. Treasury
Securities 16%
Mortgage Servicing
Rights 1%
Commercial Loans 20%
Other 1%
Multifamily Loans 26%
<CAPTION>
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Delinquent Loan Profile
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The chart below shows the percentage of single family loans** in the portfolio
that are 30, 60, 90 or 120 days delinquent as of November 30, 1998, based on
principal amounts outstanding.
<S> <C>
Current 89.3%
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30 Days 6.8%
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60 Days 0.9%
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90 Days 0.0%
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120+ Days 3.0%
- ------------------------------
</TABLE>
** As of November 30, 1998, there were no multifamily or commercial loans
delinquent.
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1 1998 ANNUAL REPORT American Strategic Income Portfolio
<PAGE>
FUND OVERVIEW CONTINUED
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to weather the storm. As a result, investors fled to the relative security of
U.S. Treasury bonds. However, in October and November, the Federal Reserve took
action to reduce interest rates, which helped to neutralize many of the concerns
on domestic and international fronts. As a result, the markets rebounded late in
the year.
DESPITE THE TEMPORARY VOLATILITY IN THE MARKET, THE FUND MAINTAINED ITS FOCUSED
STRATEGY. We continued to emphasize single-family, multifamily and commercial
whole loans. These types of investments represent approximately 81% of total
assets, with the remainder invested primarily in U.S. Treasury securities.
Volatility in the commercial mortgage-backed securities market provided an
opportunity for us to invest in mortgages with attractive yields and good credit
quality.
THE HIGHER-YIELD ENVIRONMENT THAT RESULTED FROM THE MARKET'S DECLINE SLOWED
MORTGAGE PREPAYMENTS IN THE PORTFOLIO. As loans in the portfolio prepay, we
reinvest assets into other, often lower-yielding loans. The volatility during
the summer and early fall slowed prepayment activity, which helped maintain
income at attractive levels.
AN ADDITIONAL BENEFIT OF THE MARKET'S VOLATILITY WAS THE STABILIZING EFFECT IT
SEEMED TO HAVE ON THE REAL ESTATE MARKET. In the first several months of 1998,
equity and debt capital was flowing freely to real estate, increasing the risk
of an overbuilt market. The correction in August and September slowed commercial
new construction and property sales, which should help to extend the real estate
cycle. That creates a better outlook in the near term for the fund.
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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 November 30, 1998. Shaded areas without values indicate
states in which the fund has invested less than 0.50% of its assets.
[MAP]
<TABLE>
<S> <C>
Arizona 6%
California 7%
Colorado 4%
Delaware 1%
Florida 6%
Georgia 1%
Illinois 1%
Massachusetts 1%
Michigan 1%
Minnesota 10%
Missouri 1%
Montana 2%
Nevada 4%
New Hampshire 2%
New Jersey 3%
New Mexico 2%
New York 4%
North Carolina 3%
North Dakota 5%
Ohio 1%
Oklahoma 4%
Oregon 10%
Tennessee 3%
Texas 8%
Utah 3%
Virginia 1%
Washington 5%
</TABLE>
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2 1998 ANNUAL REPORT American Strategic Income Portfolio
<PAGE>
FUND OVERVIEW CONTINUED
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LOOKING AHEAD, OUR GREATEST CONCERN IS THE IMPACT THAT PREPAYMENTS WILL HAVE ON
THE FUND'S INCOME. As we have stated in the past, loan prepayments occurring in
today's interest rate environment are typically reinvested in lower-yielding
securities. This will eventually result in a reduced dividend. Of course, this
all depends on interest rate and market trends in the months and years to come.
We continue to do all we can to find securities that offer attractive yields. In
addition, the current dividend level will be supported in the short run by the
fund's dividend reserve of $0.0948 per share.
WE WILL CONTINUE TO FOCUS ON CREDIT QUALITY. We always look for ways to boost
the overall quality of the fund's holdings without making any significant
sacrifices in income. Our active management approach has helped us to take
advantage of the income potential of the whole loan market to maintain an
attractive dividend yield for shareholders. We remain committed to our past
practice of avoiding loans that offer a yield premium while significantly
sacrificing quality. We value the confidence you, our shareholders, have put in
our focus on keeping credit risk to a minimum.
OVER THE PAST YEAR, GAINS DUE TO FORECLOSURE AMOUNTED TO $0.008 PER SHARE. Since
the fund's inception, accumulated net losses from forclosure have amounted to
$0.06 per share.
THANK YOU FOR YOUR INVESTMENT IN AMERICAN STRATEGIC INCOME PORTFOLIO. We are
pleased that the fund generated a competitive return and stable income through a
volatile period for the markets. We appreciate your faith in our abilities and
look forward to continuing to serve you in the coming year.
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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 First American Asset
Management 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 whole
loans are determined no less frequently than weekly.
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3 1998 ANNUAL REPORT American Strategic Income Portfolio
<PAGE>
Financial Statements
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STATEMENT OF ASSETS AND LIABILITIES November 30, 1998
................................................................................
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (note 2) ....... $76,471,370
Real estate owned (identified cost: $79,820) (note 2) ..... 80,221
Cash in bank on demand deposit ............................ 724,334
Accrued interest receivable ............................... 625,183
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Total assets ............................................ 77,901,108
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LIABILITIES:
Reverse repurchase agreements payable ..................... 16,500,000
Accrued investment management fee ......................... 30,534
Accrued administrative fee ................................ 10,018
Accrued interest .......................................... 70,247
Other accrued expenses .................................... 4,733
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Total liabilities ....................................... 16,615,532
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Net assets applicable to outstanding capital stock ...... $61,285,576
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COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital .............. $66,594,471
Undistributed net investment income ....................... 447,537
Accumulated net realized loss on investments .............. (8,243,967)
Unrealized appreciation of investments .................... 2,487,535
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Total - representing net assets applicable to capital
stock ................................................. $61,285,576
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* Investments in securities at identified cost ............ $73,984,236
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NET ASSET VALUE AND MARKET PRICE:
Net assets ................................................ $61,285,576
Shares outstanding (authorized 1 billion shares of $0.01 par
value) .................................................. 4,721,326
Net asset value ........................................... $12.98
Market price .............................................. $12.13
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1 1998 Annual Report - American Strategic Income Portfolio
<PAGE>
Financial Statements (continued)
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STATEMENT OF OPERATIONS For the Year Ended November 30,
1998
................................................................................
<TABLE>
<S> <C>
INCOME:
Interest (net of interest expense of $874,391) ................................ $5,635,306
-----------
EXPENSES (NOTE 3):
Investment management fee ..................................................... 374,305
Administrative fee ............................................................ 122,606
Custodian and accounting fees ................................................. 70,869
Transfer agent fees ........................................................... 22,271
Reports to shareholders ....................................................... 48,244
Mortgage servicing fees ....................................................... 170,766
Directors' fees ............................................................... 9,386
Audit and legal fees .......................................................... 57,714
Other expenses ................................................................ 23,780
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Total expenses .............................................................. 899,941
Less expenses paid indirectly ............................................. (5,861)
-----------
Total net expenses .......................................................... 894,080
-----------
Net investment income ....................................................... 4,741,226
-----------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS (NOTE 4):
Net realized gain on investments in securities ................................ 376,687
Net realized gain on real estate owned ........................................ 37,862
-----------
Net realized gain on investments ............................................ 414,549
Net change in unrealized appreciation or depreciation of investments .......... (128,532)
-----------
Net gain on investments ..................................................... 286,017
-----------
Net increase in net assets resulting from operations ...................... $5,027,243
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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2 1998 Annual Report - American Strategic Income Portfolio
<PAGE>
Financial Statements (continued)
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STATEMENT OF CASH FLOWS For the Year Ended November 30,
1998
................................................................................
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest income ..................................................... $ 5,635,306
Net expenses ........................................................ (894,080)
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Net investment income ............................................. 4,741,226
-------------
Adjustments to reconcile net investment income to net cash provided by
operating activities:
Change in accrued interest receivable ............................. 207,929
Net amortization of bond discount and premium ..................... 47,981
Change in accrued fees and expenses ............................... 17,633
Change in other assets ............................................ 21,515
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Total adjustments ............................................... 295,058
-------------
Net cash provided by operating activities ....................... 5,036,284
-------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments .................................. 28,229,828
Purchases of investments ............................................ (31,593,842)
Net sales of short-term securities .................................. 1,930,000
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Net cash used by investing activities ........................... (1,434,014)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from reverse repurchase agreements ..................... 5,500,000
Retirement of fund shares ........................................... (6,773,276)
Distributions paid to shareholders .................................. (4,581,335)
-------------
Net cash used by financing activities ........................... (5,854,611)
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Net decrease in cash ................................................ (2,252,341)
Cash at beginning of year ........................................... 2,976,675
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Cash at end of year ............................................. $ 724,334
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Supplemental disclosure of cash flow information:
Cash paid for interest on reverse repurchase agreements ........... $ 852,055
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-------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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3 1998 Annual Report - American Strategic Income Portfolio
<PAGE>
Financial Statements (continued)
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STATEMENTS OF CHANGES IN NET ASSETS
................................................................................
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
11/30/98 11/30/97
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income ..................................... $ 4,741,226 $ 5,082,236
Net realized gain on investments .......................... 414,549 249,729
Net change in unrealized appreciation or depreciation of
investments ............................................. (128,532) 926,403
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Net increase in net assets resulting from operations .... 5,027,243 6,258,368
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DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ................................ (4,581,335) (5,037,813)
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CAPITAL SHARE TRANSACTIONS (NOTE 6):
Decrease in net assets from capital share transactions .... (6,773,276) --
----------------- -----------------
Total increase (decrease) in net assets ................. (6,327,368) 1,220,555
Net assets at beginning of year ........................... 67,612,944 66,392,389
----------------- -----------------
Net assets at end of year ................................. $61,285,576 $67,612,944
----------------- -----------------
----------------- -----------------
Undistributed net investment income ....................... $ 447,537 $ 287,646
----------------- -----------------
----------------- -----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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4 1998 Annual Report - American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements
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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. In addition, the fund
borrows 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
First American Asset Management 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.
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5 1998 Annual Report - American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
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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.
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, 1998, loans representing 1.75% 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 3.94% of
total single family principal outstanding at November 30,
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 a net realized gain of $37,862,
or $0.008 per share, on real estate sold during the year
ended November 30, 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 November 30, 1998,
the fund owned one home with an aggregate value of
$80,221, or 0.13% 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.
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.
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6 1998 Annual Report - American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
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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 AND OTHER SHORT-TERM SECURITIES
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. In addition to repurchase
agreements, the fund may invest in money market funds
advised by the fund's advisor.
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
On August 10, 1998, the fund entered into an investment
advisory agreement with U.S. Bank National Association
(U.S. Bank), acting through its division, First American
Asset Management. Prior thereto, Piper Capital Management
Incorporated, which was aquired by U.S. Bank on May 1,
1998, had served as the fund's advisor. U.S. Bank also
serves as the fund's administrator under an administration
agreement effective May 1, 1998. Prior thereto, Piper
Capital provided services under an administration
agreement through April 30, 1998.
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
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7 1998 Annual Report - American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
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 November 30, 1998, the effective 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 expenses related to real
estate owned; fees to outside parties retained to assist
in conducting due diligence; taxes and other miscellaneous
expenses.
During the year ended November 30, 1998, the fund paid
$30,130 for custody services to U.S. Bank Trust, 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,
for the year ended November 30, 1998, aggregated
$31,545,861 and $28,229,828, respectively. Included in
proceeds from sales is $172,377 from sales of real estate
owned. Included from net realized gain on investments is
$194,238 from prepayment penalties.
- --------------------------------------------------------------------------------
8 1998 Annual Report - 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 $8,243,967 as of November 30, 1998, which if
not offset by subsequent capital gains, will expire in
2003. 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.
(6) CAPITAL SHARE
TRANSACTIONS
............................
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 tendered 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>
RETIREMENT OF FUND SHARES
The fund's board of directors has approved a plan to
repurchase shares of the fund in the open market and
retire those shares. Repurchases may only be made when the
previous days closing market value was at a discount from
net asset value. Daily repurchases are limited to 25% of
the previous four weeks average daily trading volume on
the New York Stock Exchange. Under the current plan,
cumulative repurchases in the fund cannot exceed 5% of the
outstanding shares as of September 9, 1998. The board of
directors will review the plan every six months. The plan
was last reviewed and approved by the board of directors
on September 9, 1998. Pursuant to the plan, the fund
repurchased and retired 1,700 shares during the year ended
November 30, 1998, which represents .04% of the shares
outstanding. The total cost of repurchasing these shares
was $20,451. The weighted average discount per share on
shares purchased during the year ended November 30, 1998
was 6.76%.
- --------------------------------------------------------------------------------
9 1998 Annual Report - American Strategic Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
(7) 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>
Year Year Year Year Year
Ended Ended Ended Ended Ended
11/30/98(e) 11/30/97 11/30/96 11/30/95 11/30/94
--------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ... $12.88 $12.65 $13.13 $12.63 $15.79
------ --------- --------- --------- ---------
Operations:
Net investment income ................ 1.01 0.97 0.97 1.09 1.41
Net realized and unrealized gains
(losses) on investments ............ 0.06 0.22 (0.10) 1.11 (3.22)
------ --------- --------- --------- ---------
Total from operations .............. 1.07 1.19 0.87 2.20 (1.81)
------ --------- --------- --------- ---------
Distributions to shareholders:
From net investment income ........... (0.97) (0.96) (1.35) (1.70) (1.15)
From net realized gains on
investments ........................ -- -- -- -- (0.20)
------ --------- --------- --------- ---------
Total distributions to
shareholders ..................... (0.97) (0.96) (1.35) (1.70) (1.35)
------ --------- --------- --------- ---------
Net asset value, end of period ......... $12.98 $12.88 $12.65 $13.13 $12.63
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
Per-share market value, end of
period ............................... $12.13 $11.88 $11.00 $12.25 $13.00
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
SELECTED INFORMATION
Total return, net asset value (a) ...... 8.56% 9.83% 7.12% 18.27% (11.87)%
Total return, market value (b) ......... 10.69% 17.41% 1.29% 7.75% (12.59)%
Net assets at end of period (in
millions) ............................ $ 61 $ 68 $ 66 $ 69 $ 67
Ratio of expenses to average weekly net
assets including interest
expense(c) ........................... 2.89% 2.56% 2.94% 3.29% 3.34%
Ratio of expenses to average weekly net
assets excluding interest
expense(c) ........................... 1.47% 1.47% 1.50% 1.72% 1.69%
Ratio of net investment income to
average weekly net assets ............ 7.74% 7.68% 7.67% 8.26% 10.00%
Portfolio turnover rate (excluding
short-term securities) ............... 38% 61% 63% 120% 74%
Amount of borrowings outstanding at end
of period (in millions) .............. $ 17 $ 11 $ 14 $ 15 $ 28
Per-share amount of borrowings
outstanding at end of period ......... $ 3.49 $ 2.10 $ 2.67 $ 2.84 $ 5.16
Per-share amount of net assets,
excluding borrowings, at end of
period ............................... $16.47 $14.98 $15.32 $15.97 $17.79
Asset coverage ratio (d) ............... 471% 715% 574% 563% 345%
</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% AND 0.23% FROM FEDERAL EXCISE TAXES IN FISCAL 1995 AND 1994,
RESPECTIVELY.
(d) REPRESENTS NET ASSETS, EXCLUDING BORROWINGS, AT END OF PERIOD DIVIDED BY
BORROWINGS OUTSTANDING AT END OF PERIOD.
(e) EFFECTIVE AUGUST 10, 1998, THE ADVISOR WAS CHANGED FROM PIPER CAPITAL
MANAGEMENT TO U.S. BANK.
- --------------------------------------------------------------------------------
10 1998 Annual Report - American Strategic Income Portfolio
<PAGE>
Investments in Securities
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN STRATEGIC INCOME PORTFOLIO November 30, 1998
......................................................................................................................
Date Market
Description of Security Acquired Par Value Cost Value(a)
- ------------------------------------------------------------ -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
U.S. GOVERNMENT AND AGENCY SECURITIES (19.9%):
U.S. GOVERNMENT SECURITIES (19.9%):
6.63%, U.S. Treasury Note, 3/31/02 ..................... 9/22/98 $11,500,000(b) $ 11,820,719 $ 12,195,750
------------ ------------
PRIVATE MORTGAGE-BACKED SECURITIES (e) (1.8%):
FIXED RATE (1.8%):
10.10%, First Boston, Series 1992-1, Class B-2,
1/15/01 .............................................. 5/1/92 1,000,000 980,572 1,000,000
13.06%, Minnesota Mortgage Corporation, 7/25/14 . 5/18/92 37,773 38,639 38,339
12.26%, Minnesota Mortgage Corporation, 10/25/14 5/18/92 53,358 54,575 54,158
------------ ------------
Total Private Mortgage-Backed Securities ............. 1,073,786 1,092,497
------------ ------------
WHOLE LOANS AND PARTICIPATION MORTGAGES (c,d,e) (102.5%):
COMMERCIAL LOANS (25.2%):
Bekins Building, 8.50%, 10/1/04 ........................ 9/2/97 1,134,883 1,134,883 1,169,760
James Plaza, 8.55%, 12/1/01 ............................ 11/15/96 1,171,290 1,171,290 1,192,076
Main Street Office Building, 8.50%, 11/1/07 ............ 10/21/97 889,118 887,636 923,280
One Eastern Heights Office Building, 8.33%, 12/1/07 .... 11/7/97 1,087,517 1,087,517 1,114,789
Pacific Periodicals Building, 8.15%, 1/1/08 ............ 12/9/97 1,365,399 1,365,399 1,387,418
Pine Island Office Building, 8.15%, 11/2/02 ............ 10/8/97 1,607,188 1,607,188 1,630,454
Rice Street Convention Center, 9.10%, 2/1/04 ........... 1/23/97 833,095 833,095 874,750
Schendel Office Building, 8.32%, 10/1/07 ............... 9/30/97 1,183,767 1,183,767 1,212,437
Schendel Retail Center, 8.70%, 9/1/07 .................. 8/28/97 818,765 818,765 852,452
Shallowford Business Park, 9.25%, 7/1/01 . 6/25/96 1,606,075 1,605,897 1,686,379
Sherwin Williams, 8.63%, 1/1/04 ........................ 12/20/96 1,417,323 1,417,323 1,470,125
</TABLE>
<TABLE>
<CAPTION>
Date Market
Description of Security Acquired Par Value Cost Value(a)
- ------------------------------------------------------------ -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Stephens Retail Center, 9.35%, 8/1/03 .................. 9/6/96 $ 1,172,255 $ 1,167,371 $ 1,230,868
Union Hill Village Office, 8.00%, 10/1/08 .............. 9/30/98 675,546 675,546 681,868
------------ ------------
14,955,677 15,426,656
------------ ------------
MULTIFAMILY LOANS (32.9%):
Applewood Manor, 8.75%, 1/1/01 ......................... 12/23/93 671,055 667,699 683,810
Charleston Plaza Apartments, 7.50%, 7/1/08 ............. 7/1/98 1,592,636 1,592,636 1,572,877
Franklin Woods Apartments, 9.90%, 3/1/10 ............... 2/24/95 1,254,931 1,251,538 1,317,677
Garden Oaks Apartments, 8.55%, 4/1/06 .................. 3/7/96 1,803,072 1,799,688 1,876,963
Kings Creek Apartments, 10.00%, 5/1/96 ................. 10/14/94 1,300,000 1,283,100 1,300,000
Mark Twain Apartments, 8.00%, 2/1/03 ................... 1/9/98 990,280 990,280 995,294
Park Place Apartments, 8.38%, 7/1/02 ................... 6/13/95 1,530,052 1,515,601 1,553,523
Royal Knight Apartments, 8.50%, 4/1/06 ................. 3/4/96 1,566,530 1,563,103 1,628,443
Rush Oaks Apartments, 7.90%, 12/1/07 ................... 11/26/97 548,257 548,257 552,892
Sadletree Apartments, 9.00%, 12/1/01 ................... 11/18/98 2,375,000 2,351,250 2,398,750
Stanley Court Apartments, 8.50%, 11/1/02 ............... 10/31/95 1,072,783 1,069,370 1,099,614
Union Hill Village Townhomes, 8.00%, 10/1/08 ........... 9/30/98 957,357 957,357 966,315
Vanderbilt Condominiums, 8.50%, 8/1/00 ................. 7/13/95 802,640 799,235 816,251
Westgate Apartments, 10.00%, 2/1/08 .................... 1/28/93 1,366,532 1,352,867 1,380,198
Westhollow Place Apartments, 8.58%, 4/1/03 ............. 3/20/96 979,402 969,608 1,002,992
Woodland Garden Apartments, 7.50%, 9/1/08 .............. 8/26/98 1,063,414 1,063,414 1,044,148
------------ ------------
19,775,003 20,189,747
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
11 1998 Annual Report - American Strategic Income Portfolio
<PAGE>
Investments in Securities (continued)
- --------------------------------------------------------------------------------
AMERICAN STRATEGIC INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Date Market
Description of Security Acquired Par Value Cost Value(a)
- ------------------------------------------------------------ -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
SINGLE FAMILY LOANS (44.4%):
Aegis, 9.01%, 3/26/10 .................................. 10/26/95 $ 226,255 $ 213,742 $ 230,196
Aegis II, 9.57%, 1/28/14 ............................... 12/28/95 378,605 346,897 387,496
American Bank, Mankato, 9.24%, 12/10/12 ................ 12/15/92 100,559 82,096 99,586
American Portfolio, 7.43%, 10/18/15 .................... 7/18/95 235,147 223,993 234,896
Anivan, 8.65%, 4/14/12 6/14/96 257,537 259,203 263,519
Bank of New Mexico, 9.23%, 3/31/10 ..................... 5/31/96 776,640(b) 762,182 761,224
Bluebonnet Savings and Loan, 11.00%, 8/31/10 ........... 5/12/92 54,726 53,623 52,190
Bluebonnet Savings and Loan, 8.19%, 8/31/10 ............ 5/12/92 1,131,767 1,036,897 1,138,254
CLSI Allison Williams, 9.89%, 8/1/17 ................... 2/28/92 545,801 502,002 558,795
Crossroads Savings and Loan, 9.11%, 1/1/21 12/23/91 377,808 355,308 388,258
Crossroads Savings and Loan, 9.50%, 1/1/21 12/23/91 260,070 245,951 266,335
Fairbanks II, Utah, 8.00%, 8/20/10 ..................... 7/30/92 51,699 43,606 53,250
Fairbanks, Utah, 10.24%, 9/23/15 ....................... 5/21/92 108,688 92,248 110,248
First Boston Mortgage Pool #5, 9.11%, 6/29/03 .......... 6/23/92 342,147 279,626 350,914
Hamilton Financial, 8.22%, 6/29/10 ..................... 7/8/92 120,768 110,805 121,705
Huntington MEWS, 8.51%, 8/1/17 ......................... 1/17/92 772,786(b) 667,161 661,260
Knutson Mortgage Portfolio #1, 8.51%, 8/1/17 ........... 2/19/92 900,709 859,480 890,572
Knutson Mortgage Portfolio #2, 9.31%, 9/25/17 .......... 5/26/92 997,249(b) 919,464 1,027,167
McClemore, Matrix Funding Corporation, 10.64%,
9/30/12 .............................................. 9/9/92 1,061,039 1,007,987 1,052,306
Meridian, 9.64%, 12/1/20 ............................... 12/21/92 783,923 747,666 802,642
Nomura III, 9.49%, 4/29/17 ............................. 9/29/95 2,021,962 1,827,741 2,016,000
Norwest II, 7.71%, 11/27/22 ............................ 2/27/96 1,738,330(b) 1,729,674 1,759,751
Norwest III, 7.57%, 11/27/22 ........................... 2/27/96 1,457,007(b) 1,457,060 1,462,360
Norwest V, 8.66%, 2/3/25 ............................... 9/3/96 1,954,838(b) 1,919,666 1,997,014
Norwest X, 7.71%, 2/1/22 ............................... 3/12/98 5,230,909 5,239,802 5,249,987
</TABLE>
<TABLE>
<CAPTION>
Date Market
Description of Security Acquired Par Value Cost Value(a)
- ------------------------------------------------------------ -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Norwest XIII, 7.65%, 12/1/25 ........................... 10/28/98 $ 4,013,355 $ 3,993,288 $ 4,031,344
Rand Mortgage Corporation, 9.58%, 8/1/17 ............... 2/21/92 244,563 200,451 251,900
Salomon II, 9.22%, 11/23/14 ............................ 12/23/94 650,583 566,294 664,069
Valley Bank of Commerce, N.M., 8.48%, 8/31/10 .......... 5/6/92 299,840 255,063 299,016
------------ ------------
25,998,976 27,182,254
------------ ------------
Total Whole Loans and Participation Mortgages ........ 60,729,656 62,798,656
------------ ------------
MORTGAGE SERVICING RIGHTS (e,f) (0.6%):
Matrix Servicing Rights, 14.00%, 7/10/22 ............... 7/10/92 -- 360,075 384,466
------------ ------------
Total Investments in Securities (g) .................. $ 73,984,236 $ 76,471,370
------------ ------------
------------ ------------
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES:
(a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS
(b) NOVEMBER 30, 1998, SECURITIES VALUED AT $18,576,218 WERE PLEDGED AS
COLLATERAL FOR THE FOLLOWING OUTSTANDING REVERSE REPURCHASE AGREEMENT:
<TABLE>
<CAPTION>
NAME OF
BROKER AND
ACQUISITION ACCRUED DESCRIPTION
AMOUNT DATE RATE** DUE INTEREST OF COLLATERAL
- ----------- ----------- ----------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
$11,000,000 11/2/98 5.18% 12/1/98 $ 45,900 (1)
4,500,000* 11/2/98 6.13% 12/1/98 22,203 (2)
1,000,000* 11/18/98 5.94% 12/1/98 2,144 (2)
- ----------- ---------
$16,500,000 $ 70,247
- ----------- ---------
- ----------- ---------
</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 NOVEMBER 30, 1998. RATES ARE BASED ON THE LONDON
INTERBANK OFFERED RATE (LIBOR) AND RESET MONTHLY.
Name of broker and description of collateral:
(1) NOMURA;
U.S. TREASURY NOTE, 6.63%, 3/31/02, $10,550,000 PAR
(2) NOMURA;
BANK OF NEW MEXICO, 9.23%, 3/31/10, $704,198 PAR
HUNTINGTON MEWS, 8.51%, 8/1/17, $772,786 PAR
KNUTSON MORTGAGE PORTFOLIO #2, 9.31%, 9/25/17, $991,949 PAR
NORWEST II, 7.71%, 11/27/22, $1,720508 PAR
NORWEST III, 7.57%, 11/27/22, $1,457,007 PAR
NORWEST V, 8.66%, 2/3/25, $1,772,477 PAR
- --------------------------------------------------------------------------------
12 1998 Annual Report - American Strategic Income Portfolio
<PAGE>
Investments in Securities (continued)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
(c) INTEREST RATES ON COMMERCIAL AND MULTIFAMILY LOANS ARE THE RATES IN EFFECT
ON NOVEMBER 30, 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 NOVEMBER 30, 1998.
(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.< /NOTE>
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 - BEAVERTIN, OR
SHALLOWFORD BUSINESS PARK - CHATANOOGA, TN
SHERWIN WILLIAMS - ORLANDO, FL
STEPHENS RETAIL CENTER - MISSOULA, MT
UNION HILL VILLAGE OFFICE - SPENCERPORT, NY
Multifamily Loans:
APPLEWOOD MANOR - DULUTH, MN
CHARLESTON PLAZA APARTMENTS - LAS VEGAS, NV
FRANKLIN WOODS APARTMENTS - FRANKLIN, NH
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 - LAPORTE, TX
SADLETREE APARTMENTS - SCOTTSDALE, AZ
STANLEY COURT APARTMENTS - BLOOMINGTON, MN
UNION HILL VILLAGE TOWNHOMES - SPENCERPORT, NY
VANDERBILT CONDOMINIUMS - AUSTIN, TX
WESTGATE APARTMENTS - BISMARCK, ND
WESTHOLLOW PLACE APARTMENTS - HOUSTON, TX
WOODLAND GARDEN APARTMENTS - ARLINGTON, WA
Single Family Loans:
AEGIS - 12 LOANS, MIDWESTERN UNITED STATES
AEGIS II - 6 LOANS, MIDWESTERN UNITED STATES
AMERICAN BANK, MANKATO - 4 LOANS, SOUTHWESTERN MINNESOTA
AMERICAN PORTFOLIO - 6 LOANS, TEXAS AND CALIFORNIA
ANIVAN - 4 LOANS, UNITED STATES
BANK OF NEW MEXICO - 18 LOANS, NEW MEXICO
BLUEBONNET SAVINGS AND LOAN - 40 LOANS, VICINITY OF SAN ANTONIO, TEXAS
CLSI ALLISON WILLIAMS - 29 LOANS, LAS MESA, SEMINOLE AND ANDREWS, TEXAS
CROSSROADS SAVINGS AND LOAN - 20 LOANS, VICINITY OF TULSA, OKLAHOMA
FAIRBANKS II, UTAH - 1 LOAN, VICINITY OF FAIRBANKS, UTAH
FAIRBANKS, UTAH - 3 LOANS, VICINITY OF FAIRBANKS AND SALT LAKE CITY,
UTAH
FIRST BOSTON MORTGAGE POOL #5 - 12 LOANS, UNITED STATES
HAMILTON FINANCIAL - 1 LOAN, CALIFORNIA
HUNTINGTON MEWS - 17 LOANS, CAMDEN, NEW JERSEY
KNUTSON MORTGAGE PORTFOLIO #1 - 17 LOANS, MIDWESTERN UNITED STATES
KNUTSON MORTGAGE PORTFOLIO #2 - 14 LOANS, MIDWESTERN UNITED STATES
MCCLEMORE, MATRIX FUNDING CORPORATION - 12 LOANS, NORTH CAROLINA
MERIDIAN - 11 LOANS, CALIFORNIA
NOMURA III - 34 LOANS, MIDWESTERN UNITED STATES
NORWEST II - 21 LOANS, MIDWESTERN UNITED STATES
NORWEST III - 14 LOANS, MIDWESTERN UNITED STATE
NORWEST V - 20 LOANS, MIDWESTERN UNITED STATES
NORWEST X - 41 LOANS, MIDWESTERN UNITED STATES
NORWEST XIII - 33 LOANS, MIDWESTERN UNITED STATES
RAND MORTGAGE CORPORATION - 6 LOANS, HOUSTON AND AUSTIN, TEXAS
SALOMON II - 16 LOANS, MIDWESTERN UNITED STATES
VALLEY BANK OF COMMERCE, N.M. - 20 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 NOVEMBER 30, 1998, THE
TOTAL MARKET VALUE OF THESE INVESTMENTS WAS $64,275,620 OR 104.9% OF TOTAL
NET ASSETS.
(f) INTEREST RATE DISCLOSED REPRESENTS THE CURRENT YIELD BASED ON THE CURRENT
COST BASIS AND ESTIMATED FUTURE CASH FLOWS.
(g) ON NOVEMBER 30, 1998, THE COST OF INVESTMENTS IN SECURITIES, INCLUDING REAL
ESTATE OWNED, FOR FEDERAL INCOME TAX PURPOSES WAS $74,064,056. 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................................... $2,535,569
GROSS UNREALIZED DEPRECIATION................................... (48,034)
----------
NET UNREALIZED APPRECIATION..................................... $2,487,535
----------
----------
</TABLE>
- --------------------------------------------------------------------------------
13 1998 Annual Report - 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, 1998, 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 each of the years in the five-year period
then ended. 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, 1998,
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 8, 1999
- --------------------------------------------------------------------------------
14 1998 Annual Report - 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 advisor 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 22, 1997 ....... $0.0800
January 12, 1998 ........ 0.0800
February 25, 1998 ....... 0.0800
March 25, 1998 .......... 0.0800
April 22, 1998 .......... 0.0800
May 27, 1998 ............ 0.0800
June 24, 1998 ........... 0.0800
July 29, 1998 ........... 0.0800
August 26, 1998 ......... 0.0825
September 23, 1998 ...... 0.0825
October 28, 1998 ........ 0.0825
November 24, 1998 ....... 0.0825
-------
Total ................. $0.9700
-------
-------
</TABLE>
- --------------------------------------------------------------------------------
15 1998 Annual Report - American Strategic Income Portfolio
<PAGE>
Shareholder Update
- --------------------------------------------------------------------------------
ANNUAL MEETING RESULTS
An annual meeting of the fund's shareholders was held on
August 10, 1998. Each matter voted upon at that 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
WITHHOLDING
SHARES AUTHORITY TO
VOTED "FOR" VOTE
---------------- ----------------
<S> <C> <C>
David T. Bennett ........ 3,731,294 117,562
Robert J. Dayton ........ 3,731,829 117,027
Roger A. Gibson ......... 3,731,274 117,582
Andrew M. Hunter III .... 3,732,246 116,610
Leonard W. Kedrowski .... 3,732,246 116,610
Robert L. Spies ......... 3,731,618 117,238
Joseph D. Strauss ....... 3,732,331 116,525
Virginia L. Stringer .... 3,732,331 116,525
</TABLE>
(2) The fund's shareholders approved an interim advisory
agreement between the fund and Piper Capital
Management Incorporated ("Piper Capital"), and the
receipt of investment advisory fees by Piper Capital
under such agreement. The following votes were cast
regarding this matter:
<TABLE>
<CAPTION>
SHARES SHARES BROKER
VOTED "FOR" VOTED "AGAINST" ABSTENTIONS NON VOTES
------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
3,714,250 57,277 77,328 --
</TABLE>
(3) The fund's shareholders approved a new investment
advisory agreement between the fund and U.S. Bank
National Association. The following votes were cast
regarding this matter:
<TABLE>
<CAPTION>
SHARES SHARES BROKER
VOTED "FOR" VOTED "AGAINST" ABSTENTIONS NON VOTES
------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
3,716,824 52,724 79,308 --
</TABLE>
(4) The fund's shareholders ratified the selection by a
majority of the independent members of the fund's
Boards of Directors of KPMG Peat Marwick LLP as the
independent public accountants for the fund for the
fiscal year ending November 30, 1998. The following
votes were cast regarding this matter:
<TABLE>
<CAPTION>
SHARES
SHARES BROKER
VOTED "FOR" VOTED "AGAINST" ABSTENTIONS NON VOTES
------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
3,775,773 23,946 49,136 --
</TABLE>
SHARE REPURCHASE PROGRAM
Your fund's board of directors has approved a share
repurchase program, which enables the fund to "buy back"
shares of its common stock in the open market. Repurchases
may only be made when the previous day's closing market
price per share was at a discount from net asset value.
Repurchases cannot exceed 5% of the fund's outstanding
shares as of September 9, 1998.
WHAT EFFECT WILL THIS PROGRAM HAVE ON SHAREHOLDERS?
We do not expect any adverse impact on the advisor's
ability to manage the fund. Because repurchases will be at
a price below net asset value, remaining shares
outstanding may experience
- --------------------------------------------------------------------------------
16 1998 Annual Report - American Strategic Income Portfolio
<PAGE>
Shareholder Update (continued)
- --------------------------------------------------------------------------------
a slight increase in net asset value. Although the effect
of share repurchases on the market price is less certain,
the board of directors believes the program may have a
favorable effect on the market price of fund shares. We do
not anticipate any material increase in the fund's expense
ratio.
WHEN WILL SHARES BE REPURCHASED?
Share repurchases may be made from time to time and may be
discontinued at any time. Share repurchases are not
mandatory when fund shares are trading at a discount from
net asset value; all repurchases will be at the discretion
of the fund's investment advisor. The board of directors
decision whether to continue the share repurchase program
will be reported in the next shareholder report.
HOW WILL SHARES BE REPURCHASED?
We expect to finance the repurchase of shares by
liquidating portfolio securities or using current cash
balances. We do not anticipate borrowing in order to
finance share repurchases.
TERMS AND CONDITIONS OF THE DIVIDEND REINVESTMENT PLAN
As a shareholder, you may choose to participate in the
Dividend Reinvestment Plan. It's a convenient and
economical way to buy additional shares of the fund by
automatically reinvesting dividends and capital gains. The
plan is administered by Investors Fiduciary Trust Company
(IFTC), the plan agent.
ELIGIBILITY/PARTICIPATION
You may join the plan at any time. Reinvestment of
distributions will begin with the next distribution paid,
provided your request is received at least 10 days before
the record date for that distribution.
If your shares are in certificate form, you may join the
plan directly and have your distributions reinvested in
additional shares of the fund. To enroll in this plan,
call IFTC at 1-800-543-1627. If your shares are registered
in your brokerage firm's name or another name, ask the
holder of your shares how you may participate.
Banks, brokers or nominees, on behalf of their beneficial
owners who wish to reinvest dividend and capital gains
distributions, may participate in the plan by informing
IFTC at least 10 days before the next dividend and/or
capital gains distribution.
PLAN ADMINISTRATION
Beginning no more than five business days before the
dividend payment date, IFTC will buy shares of the fund on
the New York Stock Exchange (NYSE) or elsewhere on the
open market only when the price of the fund's shares on
the NYSE plus commissions is at 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.
- --------------------------------------------------------------------------------
17 1998 Annual Report - American Strategic Income Portfolio
<PAGE>
Shareholder Update (continued)
- --------------------------------------------------------------------------------
By participating in the dividend reinvestment plan, you
may receive benefits not available to shareholders who
elect not to participate. For example, if the market price
plus commissions of the fund's shares is 5% or more above
the NAV, you will receive shares at a discount of up to 5%
from the current market value. However, if the market
price plus commissions is below the NAV, you will receive
distributions in shares with an 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 and will furnish written
confirmation of all transactions, including information
you need for tax records. Reinvested shares in your
account will be held by IFTC in noncertificated form in
your name.
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
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.
- --------------------------------------------------------------------------------
18 1998 Annual Report - American Strategic Income Portfolio
<PAGE>
[LOGO]
American Strategic Income Portfolio
1998 ANNUAL REPORT
1/1999 121-99
[LOGO] This document is printed on paper
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