N-30D 1 a2036159zn-30d.txt N-30D AMERICAN STRATEGIC INCOME PORTFOLIO ASP ANNUAL REPORT NOVEMBER 30, 2000 [LOGO]FIRST AMERICAN-Registered Trademark- Asset Management [LOGO]FIRST AMERICAN-Registered Trademark- Asset Management ------------------------------------------------------------------------------
TABLE OF CONTENTS 1 Fund Overview 4 Financial Statements and Notes 14 Investments in Securities 18 Independent Auditors' Report 19 Federal Income Tax Information 20 Shareholder Update
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. ------------------------------------------------------------------------------ AVERAGE ANNUALIZED TOTAL RETURNS ------------------------------------------------------------------------------ Based on net asset value for the periods ended November 30, 2000
One Year Five Year Since Inception 12/27/1991 American Strategic Income Portfolio 9.55% 7.58% 8.19% Lehman Brothers Mutual Fund Government/Mortgage Index 9.81% 6.55% 6.93%
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, 2000, were 6.68%, 7.60%, and 6.53%, 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 nonsecuritized, 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, 2000. ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE ------------------------------------------------------------------------------ FUND OVERVIEW ------------------------------------------------------------------------------ FUND MANAGEMENT JOHN WENKER is primarily responsible for the management of American Strategic Income Portfolio. He has 15 years of financial experience. DAVID STEELE assists with the management of American Strategic Income Portfolio. He has 22 years of financial experience. RUSS KAPPENMAN assists with the management of American Strategic Income Portfolio. He has 15 years of financial experience. ------------------------------------------------------------------------------ January 15, 2001 AMERICAN STRATEGIC INCOME PORTFOLIO HAD A TOTAL RETURN OF 9.55% FOR THE YEAR ENDING NOVEMBER 30, 2000, BASED ON ITS NET ASSET VALUE (NAV). This is in line with the 9.81% return for its benchmark, the Lehman Brothers Mutual Fund Government/Mortgage Index. The fund returned 6.68% based on its market price over the same time frame. Increases in both the fund's income levels and the prices of its holdings due to loan purchases and falling interest rates contributed to its positive performance. THE RECENT DOWNWARD TREND IN INTEREST RATES AND THE FEDERAL RESERVE'S RATE CUTS AFTER THE PERIOD END PROVED TO BE BENEFICIAL TO THE FUND'S INCOME STREAM. Lower short-term rates decreased our borrowing costs, which helped increase the income levels of the fund and also the fund's NAV. The fund paid out $0.9575 cents per share in dividends for the year, resulting in an annualized distribution rate of 8.58% based on the November 30, 2000 market price. In January 2001 after the fiscal year-end, we raised the monthly dividend of the fund from 7.25 cents per share to 8.25 cents per share. The fund's new dividend level will result in an annualized earnings rate of 8.85% based on the November 30, 2000 market price. The increasing income stream also allowed the fund's dividend reserve to increase to 8.88 cents per share as of the end of the reporting period. THE NAV OF THE FUND WAS ALSO POSITIVELY IMPACTED AS THE LOWER TREASURY RATE ENVIRONMENT INCREASED THE PRICES OF OUR WHOLE LOANS AND MORTGAGE-BACKED SECURITIES. The NAV of the fund ended the year at $12.51 per share, up from $12.35 per share a year ago. The fund's market price of $11.19 per share continued to trade at a discount to its NAV. However, in the past two months share prices have increased, narrowing the discount to -7.34% as of the date of this letter. Keep in mind that past performance is no guarantee of future results, and the fund's NAV, market price and distribution rate will fluctuate. *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. ------------------------------------------------------------------------------ PORTFOLIO COMPOSITION ------------------------------------------------------------------------------ As a percentage of total assets on November 30, 2000 Short-term Securities 1% Commercial Loans 26% Other Assets 1% Multifamily Loans 28% Single-family Loans 12% U.S. Agency Mortgage- backed Securities 32%
------------------------------------------------------------------------------ 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 November 30, 2000, based on principal amounts outstanding. Current 84.4% ---------------------------- 30 Days 8.2% ---------------------------- 60 Days 1.0% ---------------------------- 90 Days 0.2% ---------------------------- 120+ Days 6.2% ----------------------------
** As of November 30, 2000, there were no multifamily or commercial loans delinquent. ------------------------------------------------------------------------------ 1 Annual Report 2000 - American Strategic Income Portfolio FUND OVERVIEW CONTINUED BECAUSE OF SIGNS OF A WEAKENING ECONOMY IN OCTOBER AND NOVEMBER, WE SOLD ABOUT HALF OF OUR SINGLE-FAMILY WHOLE LOANS AT FAVORABLE PRICES AND PRIMARILY REPLACED THEM WITH U.S. AGENCY MORTGAGE-BACKED SECURITIES. These agency securities, mainly Freddie Macs (Federal Home Loan Mortgage Corporation) and Fannie Maes (Federal National Mortgage Association), currently offer attractive net income to the fund and they reduce the overall credit risk in the portfolio because they are AAA-rated. Agency securities represented about 32% of the fund's total assets at period end, up from 22% on May 31, 2000. We also slightly increased the weighting in commercial loans to 26% of the fund's total assets. We currently find the commercial loan market offers more opportunities than single-family or multifamily loans. Therefore, the board of directors recently approved an increase to the limit of commercial loans in the fund from 25% to 35% of total assets. Whole loans-including single-family, multifamily, and commercial-continued to represent the majority of the portfolio with 66% of total assets collectively. WE MAINTAINED OUR EMPHASIS ON GEOGRAPHICAL DIVERSIFICATION AS A WAY TO HELP US MANAGE THE CREDIT RISK THAT IS INHERENT TO THIS FUND. We spread out our loan investments in a variety of states to help avoid the risk of an economic downturn in any one region. The recent release of the year 2000 U.S. census results confirmed that we are heavily weighted in states which are experiencing the most population and job growth, especially in the Southern and Southwestern regions of the United States. WE BELIEVE THE FEDERAL RESERVE'S DILIGENCE WITH MONETARY POLICY WILL KEEP THE ECONOMY HEALTHY AND OUT OF A RECESSION WHICH WILL BENEFIT THE FUND OVER THE LONG TERM. The only downfall to lower rates ------------------------------------------------------------------------------ Geographical Distribution ------------------------------------------------------------------------------ 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, 2000. Shaded areas without values indicate states in which the fund has invested less than 0.50% of its assets. [MAP OF THE UNITED STATES] Alabama Alaska Less than 0.50% Arizona 7% Arkansas Less than 0.50% California 5% Colorado 3% Connecticut Less than 0.50% Delaware Florida 8% Georgia Hawaii Idaho Illinois Less than 0.50% Indiana Iowa Less than 0.50% Kansas Less than 0.50% Kentucky Louisiana Less than 0.50% Maine Less than 0.50% Maryland Less than 0.50% Massachusetts Less than 0.50% Michigan Less than 0.50% Minnesota 13% Mississippi Missouri Less than 0.50% Montana 3% Nebraska 3% Nevada 7% New Hampshire 3% New Jersey 2% New Mexico 1% New York 5% North Carolina 1% North Dakota Ohio Less than 0.50% Oklahoma 1% Oregon 5% Pennsylvania Rhode Island South Carolina South Dakota Tennessee 8% Texas 13% Utah 2% Vermont Virginia Less than 0.50% Washington 6% West Virginia Wisconsin Wyoming
------------------------------------------------------------------------------ 2 Annual Report 2000 - American Strategic Income Portfolio going forward is that the fund may start to see a higher level of prepayments as people refinance their mortgages to lock in lower rates. We would then have to reinvest these proceeds into lower-yielding investments for the fund. To help offset some of this risk, the fund's multifamily and commercial loans have prepayment penalties for good portions of a loan's life. In the past year the fund received $26,793 in prepayment penalties from these borrowers. A recession would be the most harmful environment for the fund, as the risk of credit losses from loans defaulting would increase. The fund would suffer losses if the proceeds from the sales of foreclosed properties were less than the loan prices that the fund paid. Since inception, the fund has had net credit losses of $0.05 per share. AT THE UPCOMING ANNUAL MEETING, WE WILL AGAIN ASK SHAREHOLDERS TO APPROVE THE FUND'S INVESTMENT IN THE PREFERRED STOCK OF REAL ESTATE INVESTMENT TRUST (REIT) COMPANIES RATED INVESTMENT GRADE. REIT companies manage portfolios of real estate to earn profits for shareholders and their preferred stock pays out a specific dividend rate. We still see good values in this market and are asking shareholders to approve investing in these securities. We hope you will take a few minutes to read, vote on, and return the proxy you will receive in the mail. The proxy contains complete information about the proposal. WE APPRECIATE YOUR INVESTMENT IN AMERICAN STRATEGIC INCOME PORTFOLIO AND THE TRUST YOU HAVE PLACED IN OUR MANAGEMENT TEAM. In this volatile market and interest rate environment, we will remain diligent in monitoring the fund's holdings to avoid credit losses and maintain an attractive income stream. ------------------------------------------------------------------------------ VALUATION OF WHOLE LOAN INVESTMENTS 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. The results of the pricing model may be further subject to price ceilings due to the illiquid nature of the loans. Changes in prevailing interest rates, real or perceived liquidity, yield spreads, and credit worthiness 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. POTENTIAL TENDER OFFER The fund has completed two of three potential tender offers for up to 10% of the fund's shares. The first tender was in 1997 and the second in 1999. The next tender, for up to 10% of the fund's shares, may occur in late fourth quarter 2001. This tender offer would be at net asset value (NAV), less expenses of the tender offer, and is contingent upon the discount between the fund's market price and NAV per share exceeding five percent during the twelve weeks preceding September 30, 2001, and upon the board determining at the time that the tender offer continues to be in the best interest of the fund's shareholders. ------------------------------------------------------------------------------ 3 Annual Report 2000 - American Strategic Income Portfolio FINANCIAL STATEMENTS -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES November 30, 2000 ................................................................................ ASSETS: Investments in securities at market value* (note 2) ....... $64,007,733 Real estate owned (identified cost: $257,865) (note 2) ..... 262,438 Cash in bank on demand deposit ............................ 47,519 Accrued interest receivable ............................... 466,584 Other assets .............................................. 4,910 ----------- Total assets ............................................ 64,789,184 ----------- LIABILITIES: Reverse repurchase agreements payable (note 2) ............ 11,705,000 Accrued investment management fee ......................... 27,339 Accrued administrative fee ................................ 18,204 Accrued interest .......................................... 34,209 Other accrued expenses .................................... 94,787 ----------- Total liabilities ....................................... 11,879,539 ----------- Net assets applicable to outstanding capital stock ...... $52,909,645 =========== COMPOSITION OF NET ASSETS: Capital stock and additional paid-in capital .............. $60,517,426 Undistributed net investment income ....................... 375,581 Accumulated net realized loss on investments .............. (9,131,413) Unrealized appreciation of investments .................... 1,148,051 ----------- Total - representing net assets applicable to capital stock ................................................. $52,909,645 =========== * Investments in securities at identified cost ............ $62,864,255 =========== NET ASSET VALUE AND MARKET PRICE: Net assets ................................................ $52,909,645 Shares outstanding (authorized 1 billion shares of $0.01 par value) .................................................. 4,230,294 Net asset value ........................................... $ 12.51 Market price .............................................. $ 11.19
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. -------------------------------------------------------------------------------- 4 2000 Annual Report - American Strategic Income Portfolio Financial Statements (continued) -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS For the Year Ended November 30, 2000 ................................................................................ INCOME: Interest (net of interest expense of $1,219,450) ........... $4,849,162 ---------- Total investment income .................................. 4,849,162 ---------- EXPENSES (NOTE 3): Investment management fee ................................. 320,705 Administrative fee ........................................ 126,374 Custodian and accounting fees ............................. 48,304 Transfer agent fees ....................................... 22,560 Reports to shareholders ................................... 47,266 Mortgage servicing fees ................................... 106,960 Directors' fees ........................................... 3,009 Audit and legal fees ...................................... 59,070 Other expenses ............................................ 68,023 ---------- Total expenses .......................................... 802,271 ---------- Net investment income ................................... 4,046,891 ---------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS (NOTE 4): Net realized loss on investments in securities ............ (991,504) Net realized gain on real estate owned .................... 27,010 ---------- Net realized loss on investments ........................ (964,494) Net change in unrealized appreciation or depreciation of investments ............................................. 1,651,870 ---------- Net gain on investments ................................. 687,376 ---------- Net increase in net assets resulting from operations .......................................... $4,734,267 ==========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. -------------------------------------------------------------------------------- 5 2000 Annual Report - American Strategic Income Portfolio Financial Statements (continued) -------------------------------------------------------------------------------- STATEMENT OF CASH FLOWS For the Year Ended November 30, 2000 ................................................................................ CASH FLOWS FROM OPERATING ACTIVITIES: Interest income ............................................ $ 4,849,162 Net expenses ............................................... (802,271) ------------ Net investment income .................................... 4,046,891 ------------ Adjustments to reconcile net investment income to net cash provided by operating activities: Change in accrued interest receivable .................... 55,830 Net amortization of bond discount and premium ............ 2,161 Change in accrued fees and expenses ...................... 12,989 Change in other assets ................................... 6,622 ------------ Total adjustments ...................................... 77,602 ------------ Net cash provided by operating activities .............. 4,124,493 ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of investments ......................... 30,617,011 Purchases of investments ................................... (22,034,568) Net sales of short-term securities ......................... 6,836,303 ------------ Net cash provided by investing activities .............. 15,418,746 ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net payments for reverse repurchase agreements ............. (9,420,000) Retirement of fund shares .................................. (5,828,397) Distributions paid to shareholders ......................... (4,050,507) ------------ Net cash used by financing activities .................. (19,298,904) ------------ Net increase in cash ....................................... 244,335 Cash at beginning of year .................................. (196,816) ------------ Cash at end of year .................................... $ 47,519 ============ Supplemental disclosure of cash flow information: Cash paid for interest on reverse repurchase agreements .................................. $ 1,280,106 ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. -------------------------------------------------------------------------------- 6 2000 Annual Report - American Strategic Income Portfolio Financial Statements (continued) -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS ................................................................................
YEAR ENDED YEAR ENDED 11/30/00 11/30/99 ---------------- ---------------- OPERATIONS: Net investment income ..................................... $ 4,046,891 $ 4,698,186 Net realized gain (loss) on investments ................... (964,494) 77,048 Net change in unrealized appreciation or depreciation of investments ............................................. 1,651,870 (2,991,354) ----------- ----------- Net increase in net assets resulting from operations .... 4,734,267 1,783,880 ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income ................................ (4,050,507) (4,766,526) ----------- ----------- CAPITAL SHARE TRANSACTIONS (NOTE 6): Decrease in net assets from capital share transactions .... (5,828,397) (248,648) ----------- ----------- Total decrease in net assets ............................ (5,144,637) (3,231,294) Net assets at beginning of year ........................... 58,054,282 61,285,576 ----------- ----------- Net assets at end of year ................................. $52,909,645 $58,054,282 =========== =========== Undistributed net investment income ....................... $ 375,581 $ 379,197 =========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. -------------------------------------------------------------------------------- 7 2000 Annual Report - American Strategic Income Portfolio NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (1) ORGANIZATION ............................ American Strategic Income Portfolio Inc. (the fund) is registered under the Investment Company Act of 1940 (as amended) as a diversified, closed-end management investment company. The fund emphasizes investments in mortgage-related assets that directly or indirectly represent a participation in or are secured by and payable from mortgage loans. It may also invest in asset-backed securities, U.S. government securities, corporate debt securities, municipal obligations, unregistered securities and mortgage servicing rights. In addition, the fund may borrow using reverse repurchase agreements and revolving credit facilities. 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. The pricing service may employ methodologies that utilize actual market transactions, broker-dealer supplied valuations, or other electronic data processing techniques. These techniques generally consider such factors as yields or prices of bonds of comparable quality, type of issue, coupon, maturity, ratings and general market conditions. 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. The results of the pricing model may be further subject to price ceilings due to the illiquid nature of the loans. 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. -------------------------------------------------------------------------------- 8 2000 Annual Report - American Strategic Income Portfolio Notes to Financial Statements (continued) -------------------------------------------------------------------------------- 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, 2000, loans representing 1.1% 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 7.4% of total single family principal outstanding at November 30, 2000. 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 $27,010 or $0.006 per share on real estate sold during the year ended November 30, 2000. 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, 2000, the fund owned three single family homes with an aggregate value of $262,438, or 0.50% of net assets. REVERSE REPURCHASE AGREEMENTS Reverse repurchase agreements involve the sale of a portfolio-eligible security by the fund, coupled with an agreement to repurchase the security at a specified date and price. Reverse repurchase agreements may increase volatility of the fund's net asset value and involve the risk that interest costs on money borrowed may exceed the return on securities purchased with that borrowed money. Reverse repurchase agreements are considered to be borrowings by the fund, and are subject to the fund's overall restriction on borrowing under which it must maintain asset coverage of at least 300%. For the year ended November 30, 2000, the average borrowings outstanding were $17,538,083 and the average rate was 6.85%. 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 -------------------------------------------------------------------------------- 9 2000 Annual Report - American Strategic Income Portfolio Notes to Financial Statements (continued) -------------------------------------------------------------------------------- when-issued or forward-commitment basis may increase the volatility of the fund's net asset value if the fund makes such purchases while remaining substantially fully invested. As of November 30, 2000, the fund had no outstanding when-issued or forward commitments. 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. 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. -------------------------------------------------------------------------------- 10 2000 Annual Report - American Strategic Income Portfolio Notes to Financial Statements (continued) -------------------------------------------------------------------------------- USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 the following agreements with U.S. Bank National Association (U.S. Bank) acting through its division, First American Asset Management (the advisor and administrator): 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 year ended November 30, 2000, the effective investment management fee incurred by the fund was 0.62%. 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 based on an annual percentage of the fund's average weekly net assets (computed by subtracting liabilities from the value of the total assets of the fund). For its fee, the administrator provides reporting, regulatory and record-keeping services for the fund. For the fiscal period from December 1, 1999 through December 31, 1999, the fund paid the administrator a monthly fee in an amount equal to an annual rate of 0.20% of the fund's average weekly net assets. Effective January 1, 2000, the administrator's fee increased to an annual rate of 0.25% of the fund's average weekly net assets. The new administrative fee includes 0.05% for accounting expenses which were previously charged to and paid separately by 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, 2000, the fund paid $14,869 for custody services to U.S. Bank. -------------------------------------------------------------------------------- 11 2000 Annual Report - American Strategic Income Portfolio Notes to Financial Statements (continued) -------------------------------------------------------------------------------- (4) INVESTMENT SECURITY TRANSACTIONS ............................ Cost of purchases and proceeds from sales of securities and real estate, other than temporary investments in short-term securities, for the year ended November 30, 2000 aggregated $22,032,407 and $30,617,011, respectively. Included in proceeds from sales are $335,518 from sales of real estate owned and $26,793 from prepayment penalties. (5) CAPITAL LOSS CARRYOVER ............................ For federal income tax purposes, the fund had capital loss carryovers at November 30, 2000, 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.
CAPITAL LOSS CARRYOVER EXPIRATION ------------ ---------- $8,166,919 2003 964,494 2008 ---------- $9,131,413 ==========
(6) CAPITAL SHARE TRANSACTIONS ............................ RETIREMENT OF FUND SHARES The fund's board of directors has approved continuation of the plan to repurchase shares of the fund in the open market and retire those shares. Repurchases may only be made when the previous day's closing market value was at a discount from net asset value (NAV). 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 236,151 shares (5% of the outstanding shares as of September 9, 1998). Pursuant to the plan, the fund repurchased and retired the following:
WEIGHTED AVERAGE PERIOD % OUTSTANDING DISCOUNT FROM ENDED SHARES SHARES COST NAV --------------- --------- ----------------------- ---------------- ------------------------------------- 11/30/99 21,000 0.45% $248,648 7.82%
No shares were repurchased during the current fiscal year. REPURCHASE OFFER During the last fiscal year, the fund completed an offer to shareholders to repurchase up to 10% of its outstanding shares at net asset value. The deadline for submitting shares for repurchase was 5:00 p.m. Eastern Time on November 29, 1999. The repurchase price was determined on December 6, 1999, at the close of regular trading on the New York Stock Exchange (4 p.m. Eastern Time). The percentage of outstanding shares repurchased, the number of shares repurchased, the repurchase price per share (net asset value less two cents per share repurchase fee) and proceeds paid on December 10, 1999, by the fund were as follows:
PERCENTAGE SHARES REPURCHASE PROCEEDS REPURCHASED REPURCHASED PRICE PAID ----------- ----------- ---------- ----------- 10% 470,032 $12.38 $5,818,996
-------------------------------------------------------------------------------- 12 2000 Annual Report - American Strategic Income Portfolio NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------------------------------------------------- (7) PENDING ACQUISITION ............................ On October 4, 2000, U.S. Bancorp, the parent company of the fund's investment advisor, announced that it had entered into an agreement to be acquired by Firstar Corporation. It is anticipated that this acquisition will be completed in the first quarter of 2001, subject to regulatory approval, the approval of U.S. Bancorp shareholders, and the satisfaction of customary closing conditions. (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
Year Year Year Year Year Ended Ended Ended Ended Ended 11/30/00 11/30/99 11/30/98(d) 11/30/97 11/30/96 -------- -------- -------------- -------- -------- PER-SHARE DATA Net asset value, beginning of period ............................ $12.35 $12.98 $12.88 $12.65 $13.13 ------ ------ ------ ------ ------ Operations: Net investment income ................ 0.97 1.00 1.01 0.97 0.97 Net realized and unrealized gains (losses) on investments ............ 0.15 (0.62) 0.06 0.22 (0.10) ------ ------ ------ ------ ------ Total from operations .............. 1.12 0.38 1.07 1.19 0.87 ------ ------ ------ ------ ------ Distributions to shareholders: From net investment income ........... (0.96) (1.01) (0.97) (0.96) (1.35) ------ ------ ------ ------ ------ Net asset value, end of period ......... $12.51 $12.35 $12.98 $12.88 $12.65 ====== ====== ====== ====== ====== Per-share market value, end of period ............................... $11.19 $11.44 $12.13 $11.88 $11.00 ====== ====== ====== ====== ====== SELECTED INFORMATION Total return, net asset value (a) ...... 9.55% 3.03% 8.56% 9.83% 7.12% Total return, market value (b) ......... 6.68% 2.76% 10.69% 17.41% 1.29% Net assets at end of period (in millions) ........................ $ 53 $ 58 $ 61 $ 68 $ 66 Ratio of expenses to average weekly net assets including interest expense .... 3.92% 3.83% 2.89% 2.56% 2.94% Ratio of expenses to average weekly net assets excluding interest expense .... 1.56% 1.52% 1.47% 1.47% 1.50% Ratio of net investment income to average weekly net assets ............ 7.85% 7.86% 7.74% 7.68% 7.67% Portfolio turnover rate (excluding short-term securities) ............... 32% 22% 38% 61% 63% Amount of borrowings outstanding at end of period (in millions) .............. $ 12 $ 21 $ 17 $ 11 $ 14 Per-share amount of borrowings outstanding at end of period ......... $ 2.77 $ 4.50 $ 3.49 $ 2.10 $ 2.67 Per-share amount of net assets, excluding borrowings, at end of period ............................ $15.28 $16.85 $16.47 $14.98 $15.32 Asset coverage ratio (c) ............... 552% 375% 471% 715% 574%
(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) REPRESENTS NET ASSETS, EXCLUDING BORROWINGS, AT END OF PERIOD DIVIDED BY BORROWINGS OUTSTANDING AT END OF PERIOD. (d) EFFECTIVE AUGUST 10, 1998, THE ADVISOR WAS CHANGED FROM PIPER CAPITAL TO U.S. BANK. -------------------------------------------------------------------------------- 13 2000 Annual Report - American Strategic Income Portfolio INVESTMENTS IN SECURITIES -------------------------------------------------------------------------------- AMERICAN STRATEGIC INCOME PORTFOLIO November 30, 2000 ............................................................................................................... Date Market Description of Security Acquired Par Value Cost Value (a) --------------------------------------------------------- -------- ----------- ----------- ----------- (PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS) U.S. GOVERNMENT AND AGENCY SECURITIES (38.9%): U.S. AGENCY MORTGAGE-BACKED SECURITIES (38.9%): FIXED RATE (38.9%): 9.00%, FHLMC, 7/1/30 .............................. 7/17/00 $ 5,835,882(b) $ 5,996,902 $ 6,021,930 6.50%, FNMA, 6/1/29 ............................... 5/4/99 2,767,571 2,747,610 2,689,747 7.50%, FNMA, 3/1/30 ............................... 3/22/00 6,929,451(b) 6,811,086 6,974,926 7.50%, FNMA, 5/1/30 ............................... 5/9/00 2,418,457(b) 2,333,280 2,435,095 8.00%, FNMA, 5/1/30 ............................... 5/9/00 2,437,620(b) 2,405,402 2,484,861 ----------- ----------- 20,294,280 20,606,559 ----------- ----------- Total U.S. Government and Agency Securities .... 20,294,280 20,606,559 ----------- ----------- PRIVATE MORTGAGE-BACKED SECURITIES (0.2%): FIXED RATE (0.2%): 12.34%, Minnesota Mortgage Corporation, 7/25/14 ............................ 5/19/92 36,046(e) 36,835 36,530 12.47%, Minnesota Mortgage Corporation, 10/25/14 ........................... 5/19/92 50,074(e) 51,161 50,747 ----------- ----------- 87,996 87,277 ----------- ----------- Total Private Mortgage-Backed Securities ....... 87,996 87,277 ----------- ----------- WHOLE LOANS AND PARTICIPATION MORTGAGES (c,d,e) (80.5%): COMMERCIAL LOANS (31.6%): Advance Self Storage, 8.88%, 12/1/05 .............. 11/29/00 1,320,000 1,320,000 1,320,000 Bekins Building, 8.38%, 10/1/04 ................... 9/2/97 1,103,053 1,103,053 1,112,911 El Centro Market Place, 9.63%, 9/1/01 ............. 8/5/99 741,293 741,293 746,160 James Plaza, 8.43%, 12/1/01 11/15/96 1,135,890 1,135,890 1,140,711 Main Street Office Building, 8.38%, 11/1/07 ....... 10/21/97 864,384 862,943 882,658 One Eastern Heights Office Building, 8.21%, 12/1/07 .................................. 11/7/97 1,056,747 1,056,747 1,070,480 Pacific Periodicals Building, 8.03%, 1/1/08 ....... 12/9/97 1,326,047 1,326,047 1,328,264 Pine Island Office Building, 8.03%, 11/2/02 ....... 10/8/97 1,560,130 1,560,130 1,561,755 Rice Street Convention Center, 8.98%, 2/1/04 ...... 1/23/97 810,188 810,188 821,691 Schendel Office Building, 8.20%, 10/1/07 .......... 9/30/97 1,148,923 1,148,923 1,157,047 Schendel Retail Center, 8.58%, 9/1/07 ............. 8/28/97 753,697 753,697 761,667 Shallowford Business Park, 9.13%, 7/1/01 .......... 6/25/96 1,560,129 1,559,956 1,599,870 Sherwin Williams, 8.50%, 1/1/04 ................... 12/20/96 1,375,283 1,375,283 1,381,249 Stephens Retail Center, 9.23%, 8/1/03 ............. 9/6/96 1,140,046 1,135,296 1,165,559
Date Market Description of Security Acquired Par Value Cost Value (a) --------------------------------------------------------- -------- ----------- ----------- ----------- Union Hill Village Office Buliding, 7.88%, 10/1/08 .................................. 9/30/98 $ 663,705 $ 663,705 $ 657,400 ----------- ----------- 16,553,151 16,707,422 ----------- ----------- MULTIFAMILY LOANS (34.2%): Applewood Manor, 8.63%, 1/1/01 .................... 12/23/93 655,020 651,745 655,020 Cedar Lake and Riverbend Apartments, 19.88%, 7/1/03 6/27/00 1,900,000 1,900,000 1,938,000 Charleston Plaza Apartments, 7.38%, 7/1/08 ........ 7/1/98 1,544,380 1,544,380 1,522,526 Franklin Woods Apartments, 9.78%, 3/1/10 .......... 2/24/95 1,186,625 1,183,417 1,245,956 Garden Oaks Apartments, 8.43%, 4/1/06 ............. 3/7/96 1,744,838 1,741,563 1,800,130 Garden Park Apartments, 9.75%, 6/1/02 ............. 5/2/00 900,000 900,000 918,000 Mark Twain Apartments, 7.88%, 2/1/03 .............. 1/9/98 961,331 961,331 824,797 Royal Knight Apartments, 8.38%, 4/1/06 ............ 3/4/96 1,535,091 1,531,733 1,574,373 Rush Oaks Apartments, 7.78%, 12/1/07 .............. 11/26/97 531,740 531,740 532,653 Sadletree Apartments, 10.23%, 12/1/01 ............. 11/18/98 1,891,902 1,872,983 1,891,902 Stanley Court Apartments, 8.38%, 11/1/02 .......... 10/31/95 1,050,393 1,047,051 1,062,961 Union Hill Village Townhomes, 7.88%, 10/1/08 ...... 9/30/98 940,576 940,576 946,919 Vanderbilt Condominiums, 8.06%, 10/1/09 ........... 9/29/99 1,189,444 1,189,444 1,208,746 Westhollow Place Apartments, 8.46%, 4/1/03 ........ 3/20/96 960,868 951,260 976,912 Woodland Garden Apartments, 7.38%, 9/1/08 ......... 8/26/98 1,042,761 1,042,761 1,021,768 ----------- ----------- 17,989,984 18,120,663 ----------- ----------- SINGLE FAMILY LOANS (14.7%): Aegis, 9.22%, 3/26/10 ............................. 10/26/95 160,975 152,073 159,364 Aegis II, 9.65%, 1/28/14 .......................... 12/28/95 310,842 284,809 319,402 American Bank, Mankato, 10.00%, 12/10/12 .......... 12/15/92 38,044 31,059 39,185 American Portfolio, 7.32%, 10/18/15 ............... 7/18/95 200,653 191,135 192,633 Anivan, 8.25%, 4/14/12 ............................ 6/14/96 234,904 236,423 234,013 Bank of New Mexico, 9.32%, 3/31/10 ................ 5/31/96 356,392 349,757 356,733 Bluebonnet Savings and Loan II, 11.60%, 8/31/10 ................................. 5/22/92 25,941 25,418 24,594 Bluebonnet Savings and Loan, 8.29%, 8/31/10 ....... 5/22/92 699,872 641,205 690,218 CLSI Allison Williams, 10.26%, 8/1/17 ............. 2/28/92 312,017 286,978 318,285 Crossroads Savings and Loan, 9.33%, 1/1/21 ........ 1/7/92 255,932 240,691 260,446 Crossroads Savings and Loan II, 10.05%, 1/1/21 .... 1/7/92 159,346 150,695 154,464 Fairbanks, Utah, 10.35%, 9/23/15 .................. 5/21/92 49,142 41,709 48,500 First Boston Mortgage Pool #5, 9.12%, 6/29/03 ..... 6/23/92 289,848 236,896 292,864
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES. -------------------------------------------------------------------------------- 14 2000 Annual Report - American Strategic Income Portfolio INVESTMENTS IN SECURITIES (continued) -------------------------------------------------------------------------------- AMERICAN STRATEGIC INCOME PORTFOLIO (CONTINUED) Date Shares/ Market Description of Security Acquired Par Value Cost Value (a) --------------------------------------------------------- -------- ----------- ----------- ----------- Hamilton Financial, 8.68%, 6/29/10 ................ 7/8/92 $ 112,762 $ 103,459 $ 112,278 Huntington MEWS, 9.87%, 8/1/17 .................... 1/22/92 576,935 498,079 558,635 Knutson Mortgage Portfolio #1, 8.78%, 8/1/17 ...... 2/26/92 607,352 579,550 611,566 Knutson Mortgage Portfolio #2, 9.28%, 9/25/17 ..... 5/28/92 371,958 342,946 381,903 McClemore, Matrix Funding Corporation, 10.86%, 9/30/12 ................................. 9/9/92 465,919 442,623 454,386 Meridian, 9.59%, 12/1/20 .......................... 12/21/92 515,301 491,468 529,676 Nomura III, 8.92%, 4/29/17 ........................ 9/29/95 1,248,490 1,130,219 1,179,750 Rand Mortgage Corporation, 9.58%, 8/1/17 .......... 2/21/92 185,362 151,928 190,807 Salomon II, 9.21%, 11/23/14 ....................... 12/23/94 476,687 414,928 482,416 Valley Bank of Commerce, N.M., 8.44%, 8/31/10 ..... 5/7/92 167,328 142,340 165,945 ----------- ----------- 7,166,388 7,758,063 ----------- ----------- Total Whole Loans and Participation Mortgages (c,d,e) ...................................... 41,709,523 42,586,148 ----------- ----------- MORTGAGE SERVICING RIGHTS (e,f) (0.3%): Matrix Servicing Rights, 0.12%, 7/10/22 ........... 7/10/92 25,935,646 217,205 172,498 ----------- ----------- RELATED PARTY MONEY MARKET FUND (1.1%): First American Prime Obligations Fund ............. 11/30/00 555,251(g) 555,251 555,251 ----------- ----------- Total Investments in Securities (h) ............ $62,864,255 $64,007,733 =========== ===========
NOTES TO INVESTMENTS IN SECURITIES (a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO THE FINANCIAL STATEMENTS. (b) ON NOVEMBER 30, 2000, SECURITIES VALUED AT $17,916,812 WERE PLEDGED AS COLLATERAL FOR THE FOLLOWING OUTSTANDING REVERSE REPURCHASE AGREEMENTS:
NAME OF BROKER ACQUISITION ACCRUED AND DESCRIPTION AMOUNT DATE RATE* DUE INTEREST OF COLLATERAL ----------- ----------- ----- -------- -------- --------------- $ 1,018,000 11/15/00 6.58% 12/15/00 2,977 (1) 5,985,000 11/15/00 6.58% 12/15/00 17,502 (2) 2,382,000 11/15/00 6.57% 12/15/00 6,956 (3) 2,320,000 11/15/00 6.57% 12/15/00 6,774 (4) ----------- ------- $11,705,000 $34,209 =========== =======
* INTEREST RATE AS OF NOVEMBER 30, 2000. RATES ARE BASED ON THE LONDON INTERBANK OFFERED RATE (LIBOR) AND RESET MONTHLY. Name of broker and description of collateral: (1) MORGAN STANLEY DEAN WITTER; FNMA, 7.50%, 3/1/30, $6,929,451 PAR (2) MORGAN STANLEY DEAN WITTER; FHLMC, 9.00%, 7/1/30, $5,835,882 PAR (3) NOMURA; FNMA, 8.00%, 5/1/30, $2,437,620 PAR (4) NOMURA; FNMA, 7.50%, 5/1/30, $2,418,457 PAR 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. (c) INTEREST RATES ON COMMERCIAL AND MULTIFAMILY LOANS ARE THE RATES IN EFFECT ON NOVEMBER 30, 2000. 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, 2000. (d) COMMERCIAL AND MULTIFAMILY LOANS ARE DESCRIBED BY THE NAME OF THE MORTGAGED PROPERTY. POOLS OF SINGLE FAMILY LOANS ARE DESCRIBED BY THE NAME OF THE INSTITUTION FROM WHICH THE LOANS WERE PURCHASED. THE GEOGRAPHICAL LOCATION OF THE MORTGAGED PROPERTIES AND, IN THE CASE OF SINGLE FAMILY, THE NUMBER OF LOANS, IS PRESENTED BELOW. Commercial Loans: ADVANCE SELF STORAGE - LINCOLN, NE BEKINS BUILDING - COLORADO SPRINGS, CO EL CENTRO MARKET PLACE - TX 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 - CHATANOOGA, TN SHERWIN WILLIAMS - ORLANDO, FL STEPHENS RETAIL CENTER - MISSOULA, MT UNION HILL VILLAGE OFFICE BUILDING - SPENCERPORT, NY Multifamily Loans: APPLEWOOD MANOR - DULUTH, MN CEDAR LAKE AND RIVERBEND APARTMENTS - NORMAN, OK CHARLESTON PLAZA APARTMENTS - LAS VEGAS, NV FRANKLIN WOODS APARTMENTS - FRANKLIN, NH GARDEN OAKS APARTMENTS - COON RAPIDS, MN GARDEN PARK APARTMENTS - LAS VEGAS, NV MARK TWAIN APARTMENTS - MESA, AZ 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 WESTHOLLOW PLACE APARTMENTS - HOUSTON, TX WOODLAND GARDEN APARTMENTS - ARLINGTON, WA Single Family Loans: AEGIS - 9 LOANS, MIDWESTERN UNITED STATES AEGIS II - 4 LOANS, MIDWESTERN UNITED STATES AMERICAN BANK, MANKATO - 1 LOAN, MINNESOTA AMERICAN PORTFOLIO - 5 LOANS, TEXAS AND CALIFORNIA ANIVAN - 3 LOANS, MARYLAND, NEW JERSEY, VIRGINIA BANK OF NEW MEXICO - 9 LOANS, NEW MEXICO BLUEBONNET SAVINGS AND LOAN - 20 LOANS, TEXAS BLUEBONNET SAVINGS AND LOAN II - 4 LOANS, TEXAS CLSI ALLISON WILLIAMS - 23 LOANS, TEXAS CROSSROADS SAVINGS AND LOAN - 8 LOANS, OKLAHOMA CROSSROADS SAVINGS AND LOAN II - 7 LOANS, OKLAHOMA FAIRBANKS, UTAH - 2 LOANS, UTAH FIRST BOSTON MORTGAGE POOL #5 - 10 LOANS, UNITED STATES HAMILTON FINANCIAL - 1 LOAN, CALIFORNIA HUNTINGTON MEWS - 14 LOANS, NEW JERSEY KNUTSON MORTGAGE PORTFOLIO #1 - 12 LOANS, MIDWESTERN UNITED STATES KNUTSON MORTGAGE PORTFOLIO #2 - 7 LOANS, MIDWESTERN UNITED STATES MCCLEMORE, MATRIX FUNDING CORPORATION - 6 LOANS, NORTH CAROLINA -------------------------------------------------------------------------------- 15 2000 Annual Report - American Strategic Income Portfolio INVESTMENTS IN SECURITIES (continued) -------------------------------------------------------------------------------- MERIDIAN - 8 LOANS, CALIFORNIA NOMURA III - 23 LOANS, MIDWESTERN UNITED STATES RAND MORTGAGE CORPORATION - 5 LOANS, TEXAS SALOMON II - 12 LOANS, MIDWESTERN UNITED STATES VALLEY BANK OF COMMERCE, N.M. - 12 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, 2000, THE TOTAL MARKET VALUE OF THESE INVESTMENTS WAS $42,845,923 OR 81.0% OF TOTAL NET ASSETS. (f) INTEREST RATE DISCLOSED REPRESENTS THE CURRENT YIELD BASED ON THE CURRENT COST BASIS AND ESTIMATED FUTURE CASH FLOWS. (g) THIS MONEY MARKET FUND IS ADVISED BY U.S. BANK WHO ALSO SERVES AS THE ADVISOR FOR THIS FUND. SEE NOTE 2 IN THE NOTES TO FINANCIAL STATEMENTS. (h) ON NOVEMBER 30, 2000, THE COST OF INVESTMENTS IN SECURITIES, INCLUDING REAL ESTATE OWNED, FOR INCOME TAX PURPOSES WAS $63,122,120. THE AGGREGATE GROSS UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES, INCLUDING REAL ESTATE OWNED, BASED ON THIS COST WERE AS FOLLOWS: GROSS UNREALIZED APPRECIATION....... $1,440,261 GROSS UNREALIZED DEPRECIATION....... (292,210) ---------- NET UNREALIZED APPRECIATION....... $1,148,051 ==========
-------------------------------------------------------------------------------- 16 2000 Annual Report - American Strategic Income Portfolio INDEPENDENT AUDITORS' REPORT -------------------------------------------------------------------------------- THE BOARD OF DIRECTORS AND SHAREHOLDERS AMERICAN STRATEGIC INCOME PORTFOLIO INC. We have audited the accompanying statement of assets and liabilities of American Strategic Income Portfolio Inc., including the schedule of investments in securities, as of November 30, 2000, and the related statements of operations and cash flows for the year then ended, and the statements of changes in net assets and the financial highlights for each of the two years in the period then ended. These financial statements and 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. The financial highlights for each of the three years in the period ended November 30, 1998, were audited by other auditors whose report dated January 8, 1999, expressed an unqualified opinion. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 and financial highlights. Our procedures included examination or confirmation of securities owned as of November 30, 2000, with the custodians. 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 2000 and 1999 financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of American Strategic Income Portfolio Inc. at November 30, 2000, and the results of its operations and cash flows for the year then ended, and changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP Minneapolis, Minnesota January 8, 2001 -------------------------------------------------------------------------------- 17 2000 Annual Report - American Strategic Income Portfolio SHAREHOLDER UPDATE -------------------------------------------------------------------------------- ANNUAL MEETING RESULTS An annual meeting of the fund's shareholders was held on August 3, 2000. 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 to decrease the size of its Board of Directors to eight directors. The following votes were cast regarding this matter:
SHARES SHARES BROKER VOTED "FOR" VOTED "AGAINST" ABSTENTIONS NON-VOTES ------------- ----------------- ----------- --------- 4,096,122 17,922 44,667 --
(2) The fund's shareholders elected the following directors:
SHARES SHARES WITHHOLDING VOTED "FOR" AUTHORITY TO VOTE ------------- ------------------ Robert J. Dayton ....................... 4,114,889 43,822 Roger A. Gibson ........................ 4,114,889 43,822 Andrew M. Hunter III ................... 4,114,889 43,822 Leonard W. Kedrowski ................... 4,115,022 43,689 John M. Murphy, Jr. .................... 4,114,342 44,369 Robert L. Spies ........................ 4,110,870 47,841 Joseph D. Strauss ...................... 4,114,603 44,108 Virginia L. Stringer ................... 4,112,576 46,135
(3) The fund's shareholders ratified the selection by the fund's Board of Directors of Ernst & Young as the independent public accountants for the fund for the fiscal year ending November 30, 2000. The following votes were cast regarding this matter:
SHARES SHARES BROKER VOTED "FOR" VOTED "AGAINST" ABSTENTIONS NON-VOTES ------------- ----------------- ----------- --------- 4,112,111 8,093 38,506 --
(4) The fund's shareholders voted on a proposal to change the fund's investment restriction governing investments in real estate. This proposal did not pass. The following votes were cast regarding this matter:
SHARES SHARES BROKER VOTED "FOR" VOTED "AGAINST" ABSTENTIONS NON-VOTES ------------- ----------------- ----------- --------- 1,321,156 1,413,183 47,553 --
SHARE REPURCHASE PROGRAM Your fund's board of directors has approved the continuation of the Fund's share repurchase program, which enables the fund to "buy back" shares of its common stock in the open market. Repurchases may only be made when the previous day's closing market price per share was at a discount from net asset value. Cumulative repurchases under the program cannot exceed 5% of the fund's outstanding shares as of September 9, 1998 (236,151 shares). WHAT EFFECT WILL THIS PROGRAM HAVE ON SHAREHOLDERS? We do not expect any adverse impact on the advisor's ability to manage the fund. -------------------------------------------------------------------------------- 18 2000 Annual Report - American Strategic Income Portfolio Shareholder Update (continued) -------------------------------------------------------------------------------- Because repurchases will be at a price below net asset value, remaining shares outstanding may experience a slight increase in net asset value per share. 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 EquiServe, 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 EquiServe 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 EquiServe at least 10 days before the next dividend and/or capital gains distribution. PLAN ADMINISTRATION Beginning no more than 5 business days before the dividend payment date, EquiServe 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, EquiServe will accept payment of the dividend, -------------------------------------------------------------------------------- 19 2000 Annual Report - American Strategic Income Portfolio Shareholder Update (continued) -------------------------------------------------------------------------------- or the remaining portion, in authorized but unissued shares of the fund. These shares will be issued at a per-share price equal to the higher of (a) the NAV per share as of the close of business on the payment date or (b) 95% of the closing market price per share on the payment date. By participating in the dividend reinvestment plan, you may receive benefits not available to shareholders who elect not to participate. For example, if the market price plus commissions of the fund's shares is 5% or more above the NAV, you will receive shares at a discount of up to 5% from the current market value. However, if the market price plus commissions is below the NAV, you will receive distributions in shares with 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 EquiServe 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. EquiServe 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 EquiServe in noncertificated form in your name. TAX INFORMATION Distributions invested in additional shares of the fund are subject to income tax, to the same extent as 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 EquiServe. 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. -------------------------------------------------------------------------------- 20 2000 Annual Report - American Strategic Income Portfolio Shareholder Update (continued) -------------------------------------------------------------------------------- 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 EquiServe with at least 90 days written notice to participants in the plan. Any questions about the plan should be directed to your investment professional or to EquiServe LP, P.O. Box 8218, Boston, Massachusetts 02266, 1-800-543-1627. -------------------------------------------------------------------------------- 21 2000 Annual Report - American Strategic Income Portfolio FEDERAL INCOME TAX INFORMATION AMERICAN STRATEGIC INCOME PORTFOLIO -------------------------------------------------------------------------------- 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)
PAYABLE DATE AMOUNT ------------ ------- December 27, 1999 ...................... $0.0850 January 12, 2000 ....................... 0.0850 February 23, 2000 ...................... 0.0850 March 29, 2000 ......................... 0.0850 April 26, 2000 ......................... 0.0850 May 24, 2000 ........................... 0.0850 June 28, 2000 .......................... 0.0850 July 26, 2000 .......................... 0.0725 August 23, 2000 ........................ 0.0725 September 27, 2000 ..................... 0.0725 October 25, 2000 ....................... 0.0725 November 21, 2000 ...................... 0.0725 ------- Total ................................ $0.9575 =======
-------------------------------------------------------------------------------- 22 2000 Annual Report - American Strategic Income Portfolio [LOGO]FIRST AMERICAN-Registered Trademark- Asset Management American Strategic Income Portfolio 2000 ANNUAL REPORT [LOGO] This document is printed on paper containing 30% post-consumer waste. 1/2001 3205-00