AMERICAN STRATEGIC
INCOME PORTFOLIO
ASP
ANNUAL REPORT
NOVEMBER 30, 2001
[U.S. BANCORP ASSET MANAGEMENT LOGO]
[U.S. BANCORP ASSET MANAGEMENT LOGO]
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, 2001
[CHART]
SINCE
INCEPTION
ONE YEAR FIVE YEAR 12/27/1991
---------- ---------- ----------
American Strategic Income Portfolio 9.85% 8.13% 8.30%
Lehman Brothers Mutual Fund Government/Mortgage Index 10.35% 7.41% 7.05%
The average annualized total returns for American Strategic Income Portfolio are
based on the change in its net asset value, 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, 2001, were 24.73%, 12.18%, and 8.24%, 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 NAV; therefore, you may be unable to
realize the full NAV 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, 2001.
[SIDENOTE]
TABLE OF CONTENTS
1 Fund Overview
6 Financial Statements
and Notes
16 Investments in
Securities
19 Independent Auditors'
Report
20 Federal Income
Tax Information
21 Shareholder Update
NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
FUND OVERVIEW
January 15, 2002
DURING THIS ANNUAL REPORTING PERIOD FOR AMERICAN STRATEGIC INCOME PORTFOLIO, THE
FIXED-INCOME MARKETS EXPERIENCED AN ALMOST UNPRECEDENTED LOOSENING OF MONETARY
POLICY BY THE FEDERAL RESERVE. In an effort to jumpstart the U.S. economy, the
Fed lowered short-term interest rates 10 times during the fund's fiscal year and
once more after the period end. The cuts--from 6.5% to 1.75%--set a record for
the most in a calendar year by the central bank and left rates at their lowest
level in 40 years. Despite the Fed's efforts, the National Bureau of Economic
Research recently reported that the country has been in a recession since March
of last year.
BECAUSE OF THE SHAKY ECONOMY, THE VOLATILE STOCK MARKET, AND THE TERRORIST
ATTACKS, INVESTORS FLOCKED TO FIXED-INCOME INVESTMENTS IN A "FLIGHT TO QUALITY."
This flight to quality, along with falling interest rates, benefited the
fixed-income market across the board. Whole loans and mortgage-backed securities
were no exception and performed well during the period. As rates fell and the
yield curve steepened, prices moved inversely and increased. However, keep in
mind that the pricing models we use for this fund limit the amount that our
whole loans can increase in value due to falling interest rates.
AMERICAN STRATEGIC INCOME PORTFOLIO HAD A TOTAL RETURN OF 9.85% BASED ON ITS NET
ASSET VALUE FOR THE YEAR ENDED NOVEMBER 30, 2001. The fund slightly
underperformed its benchmark, the Lehman Brothers Mutual Fund
Government/Mortgage Index, which had a return of 10.35% for the same timeframe.
Based on its market price, the fund returned 24.73% for the year. We believe the
fund's market price performance was driven by investors' demand for more stable,
income-oriented investments. This demand increased the fund's market price to
$12.79, a 1.25%
PORTFOLIO COMPOSITION
As a percentage of total assets on November 30,2001
[CHART]
Short-term Securities 4%
Commercial Loans 27%
Single-family Loans 5%
Multifamily Loans 14%
Private Fixed-rate Mortgage-backed Securities 9%
U.S. Agency Mortgage-backed Securities 39%
Preferred Stock 1%
Other Assets 1%
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, 2001, based on
principal amounts outstanding.
Current 94.9%
30 Days 5.1%
60 Days 0.0%
90 Days 0.0%
120+ Days 0.0%
** As of November 30, 2001, there were no multifamily or commercial loans
delinquent.
[SIDENOTE]
FUND MANAGEMENT
JOHN WENKER
is primarily responsible for the management of American Strategic Income
Portfolio. He has 16 years of financial experience.
CHRIS NEUHARTH
assists with the management of American Strategic Income Portfolio. He has 21
years of financial experience.
RUSS KAPPENMAN
assists with the management of American Strategic Income Portfolio. He has 16
years of financial experience.
1
premium over its net asset value of $12.63 as of November 30. As always, past
performance is no guarantee of future results, and the fund's net asset value
and market price will fluctuate.*
FALLING SHORT-TERM INTEREST RATES LED TO SUBSTANTIALLY LOWER BORROWING COSTS AND
INCREASED INCOME LEVELS FOR THE FUND. The lower rates allowed us to borrow money
at decreased costs and invest those borrowed funds in higher-yielding mortgage
investments. Although the use of borrowing (otherwise known as leverage) has
resulted in more income for shareholders, it does increase reinvestment and
interest-rate risks in the fund.**
IN RESPONSE TO THE HIGHER LEVEL OF INCOME AND IN AN EFFORT TO DECREASE THE
FUND'S DIVIDEND RESERVE, THE FUND INCREASED ITS MONTHLY DIVIDEND TWICE DURING
THE FISCAL YEAR. In May 2001, we raised the monthly dividend of the fund from
8.25 cents to 8.5 cents per share. We increased it again to 9.5 cents per share
in July. During the year, the fund paid out $1.0575 per share in dividends,
resulting in an annualized distribution rate of 8.25% based on the November 30
market price. The fund's dividend reserve has dropped to 7.65 cents per share as
of the end of the reporting period. Keep in mind that the fund's distribution
rate and dividend reserve levels will fluctuate.
*All returns assume reinvestment of distributions at prices pursuant to the
fund's dividend reinvestment plan. 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.
**Reinvestment risk is the risk that when the investments come due, we will have
to re-deploy the proceeds into lower-yielding whole loans or securities.
(Alternatively, we could decrease the amount of leverage.) Interest-rate risk is
the risk that the value of these investments will go down when rates rise again,
resulting in a lower net asset value for the fund.
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, 2001. 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
Arizona
Arkansas Less than 0.50%
California 13%
Colorado 6%
Connecticut
Delaware Less than 0.50%
Florida 8%
Georgia
Hawaii
Idaho
Illinois Less than 0.50%
Indiana 2%
Iowa
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 14%
Mississippi
Missouri 2%
Montana 3%
Nebraska 4%
Nevada 7%
New Hampshire 3%
New Jersey 2%
New Mexico 1%
New York 6%
North Carolina Less than 0.50%
North Dakota 3%
Ohio Less than 0.50%
Oklahoma 1%
Oregon 5%
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee 4%
Texas 10%
Utah 3%
Vermont
Virginia Less than 0.50%
Washington 7%
West Virginia
Wisconsin
Wyoming
2
DUE TO THE WEAK ECONOMIC ENVIRONMENT, REAL ESTATE MARKETS ACROSS THE COUNTRY
BEGAN TO EXPERIENCE A FALL OFF IN DEMAND. However, unlike the recession of the
early 1990s, this decrease in demand is not accompanied by oversupply in the
market. We believe supply remains constrained overall and especially in the
areas where we invest. We continue to focus on whole loans from areas of the
country like Texas and Florida that are experiencing the highest employment and
population growth. The weakest real estate markets continue to be in Northern
California and the Northeastern part of the United States. We have no
investments in Northern California and very limited exposure in the Northeast.
Of the various property types the fund invests in, we believe multifamily
housing will hold up best in the current environment because of moderate supply
and continued demand even during rough economic times.
AS THE ECONOMY WEAKENED DURING THE SUMMER MONTHS, WE TOOK STEPS TO SELL THE
SINGLE-FAMILY WHOLE LOANS WITH HIGHER CREDIT RISK AT ATTRACTIVE PRICES. The
delinquencies in these loan pools were approaching 18% to 20%. Because we found
it difficult to find multifamily and commercial whole loans that were the
appropriate size with good credit characteristics, we invested the proceeds from
the sales primarily in agency mortgage-backed securities. This move actually
enhanced the credit profile of the fund as agency securities have a higher
credit rating than whole loans. We did keep a small portion of higher quality
single-family loans in the fund.
DUE TO THE RECESSION, THE FUND MAY EXPERIENCE AN INCREASED LEVEL OF CREDIT
LOSSES FROM LOANS DEFAULTING. However, losses would only result if the proceeds
from the sales of foreclosed properties were less than the loan prices that the
fund paid. As of November 30, the fund had one commercial and one multifamily
loan in default. We expect to own these assets during the first quarter of 2002.
The anticipated unrealized losses from these loans are already reflected in the
net asset value of the fund.
ALTHOUGH WE HAVE SAID IN THE PAST THAT A RECESSION WOULD BE POTENTIALLY HARMFUL
TO THE FUND, WE BELIEVE THIS RECESSION WILL BE RELATIVELY MILD COMPARED TO
HISTORICAL STANDARDS. Our outlook calls for an end to the Federal Reserve easing
followed by an improvement in the U.S. economy in mid- to late-2002. We believe
we will continue to see some level of loan defaults and prepayments in this
environment but that the portfolio should hold up well based on its current
credit profile.
AFTER THE PERIOD END, THE MANAGEMENT TEAM AND BOARD OF DIRECTORS OF THIS
FUND--AS WELL AS AMERICAN STRATEGIC INCOME PORTFOLIOS II (BSP), III (CSP), AND
AMERICAN SELECT PORTFOLIO (SLA)--ANNOUNCED THAT THEY ARE CONSIDERING A NUMBER OF
STRATEGIC ALTERNATIVES FOR THE FUNDS IN AN EFFORT TO ENHANCE SHAREHOLDER VALUE.
Options include a possible reorganization of the funds into a specialty finance
company that would be taxed as a real estate investment trust, the possible
3
combination of the funds, stock repurchases, and other business strategies. At
this time, no decision has been made by fund management or the boards to pursue
any particular alternative or to change the current strategy of the funds. There
can be no assurance that a change will result from this exploration process.
AS A RESULT OF THIS EXPLORATION PROCESS, THE FUND'S BOARD DECIDED NOT TO OFFER
TO REPURCHASE UP TO 10% OF THE FUND'S SHARES IN THE FOURTH QUARTER OF THIS YEAR.
Although the fund was trading at a slightly greater discount than 5% during the
12 weeks prior to October 1, 2001, the management and board decided to consider
any future repurchases as part of their ongoing review.
THANK YOU FOR YOUR INVESTMENT IN AMERICAN STRATEGIC INCOME PORTFOLIO AND THE
TRUST YOU HAVE PLACED IN US AS INVESTMENT MANAGERS FOR THE FUND. As the U.S.
economy struggles to make a comeback in 2002, we will continue to diligently
monitor our whole loan investments and other holdings in order to help meet our
goal of paying attractive monthly income while minimizing credit losses. If you
have any questions about the fund or need help with your overall investment
plan, please call us at 800-677-FUND.
Sincerely,
/s/ Mark Jordahl
Mark Jordahl
Chief Investment Officer
U.S. Bancorp Asset Management
4
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; 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 U.S. Bancorp Asset
Management, Inc., 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.
5
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES November 30, 2001
................................................................................
ASSETS:
Investments in securities at market value* (note 2) ....... $75,076,416
Accrued interest receivable ............................... 424,174
Other assets .............................................. 62,117
-----------
Total assets ............................................ 75,562,707
-----------
LIABILITIES:
Reverse repurchase agreements payable (note 2) ............ 21,951,256
Accrued investment management fee ......................... 34,565
Bank overdraft ............................................ 26,448
Accrued administrative fee ................................ 12,983
Accrued interest .......................................... 33,374
Other accrued expenses .................................... 77,343
-----------
Total liabilities ....................................... 22,135,969
-----------
Net assets applicable to outstanding capital stock ...... $53,426,738
===========
COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital .............. $60,517,426
Undistributed net investment income ....................... 326,533
Accumulated net realized loss on investments .............. (8,681,235)
Unrealized appreciation of investments .................... 1,264,014
-----------
Total -- representing net assets applicable to capital
stock ................................................. $53,426,738
===========
*Investments in securities at identified cost ........... $73,812,402
===========
NET ASSET VALUE AND MARKET PRICE OF CAPITAL STOCK:
Net assets applicable to outstanding capital stock ........ $53,426,738
Shares of capital stock outstanding (authorized 1 billion
shares of $0.01 par value) .............................. 4,230,294
Net asset value ........................................... $ 12.63
Market price .............................................. $ 12.79
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
6 2001 Annual Report - American Strategic Income Portfolio
Financial Statements (continued)
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS For the Year Ended November 30,
2001
................................................................................
INCOME:
Interest (net of interest expense of $726,631) ............. $5,145,278
----------
EXPENSES (NOTE 3):
Investment management fee ................................. 343,400
Administrative fee ........................................ 137,784
Custodian fees ............................................ 9,674
Transfer agent fees ....................................... 30,877
Registration fees ......................................... 37,256
Reports to shareholders ................................... 29,031
Mortgage servicing fees ................................... 67,094
Directors' fees ........................................... 3,044
Audit and legal fees ...................................... 29,332
Other expenses ............................................ 33,297
----------
Total expenses .......................................... 720,789
----------
Net investment income ................................... 4,424,489
----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS IN
SECURITIES (NOTE 4):
Net realized gain on investments in securities ............ 450,178
Net change in unrealized appreciation or depreciation of
investments ............................................. 115,963
----------
Net gain on investments ................................. 566,141
----------
Net increase in net assets resulting from
operations .......................................... $4,990,630
==========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
7 2001 Annual Report - American Strategic Income Portfolio
Financial Statements (continued)
--------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS For the Year Ended November 30,
2001
................................................................................
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest income ............................................ $ 5,145,278
Net expenses ............................................... (720,789)
------------
Net investment income .................................... 4,424,489
------------
Adjustments to reconcile net investment income to net cash
provided by operating activities:
Change in accrued interest receivable .................... 42,410
Net amortization of bond discount and premium ............ (732)
Change in accrued fees and expenses ...................... (16,274)
Change in other assets ................................... (57,207)
------------
Total adjustments ...................................... (31,803)
------------
Net cash provided by operating activities .............. 4,392,686
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments ......................... 20,249,355
Purchases of investments ................................... (27,952,506)
Net purchases of short-term securities ..................... (2,536,221)
------------
Net cash used by investing activities .................. (10,239,372)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from reverse repurchase agreements ............ 10,246,256
Distributions paid to common shareholders .................. (4,473,537)
------------
Net cash provided by financing activities .............. 5,772,719
------------
Net decrease in cash ....................................... (73,967)
Cash at beginning of year .................................. 47,519
------------
Bank overdraft at end of year .......................... $ (26,448)
============
Supplemental disclosure of cash flow information:
Cash paid for interest on reverse
repurchase agreements .................................. $ 727,466
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
8 2001 Annual Report - American Strategic Income Portfolio
Financial Statements (continued)
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
................................................................................
YEAR YEAR
ENDED ENDED
11/30/01 11/30/00
---------------- ----------------
OPERATIONS:
Net investment income ..................................... $ 4,424,489 $ 4,046,891
Net realized gain (loss) on investments ................... 450,178 (964,494)
Net change in unrealized appreciation or depreciation of
investments ............................................. 115,963 1,651,870
----------- -----------
Net increase in net assets resulting from operations .... 4,990,630 4,734,267
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2):
From net investment income ................................ (4,473,537) (4,050,507)
----------- -----------
CAPITAL SHARE TRANSACTIONS (NOTE 6):
Decrease in net assets from capital share transactions .... -- (5,828,397)
----------- -----------
Total increase (decrease) in net assets ................. 517,093 (5,144,637)
Net assets at beginning of year ........................... 52,909,645 58,054,282
----------- -----------
Net assets at end of year ................................. $53,426,738 $52,909,645
=========== ===========
Undistributed net investment income ....................... $ 326,533 $ 375,581
=========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
9 2001 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 formula-driven valuation 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.
Pricing services value domestic and foreign equity
securities (and occasionally fixed-income securities)
traded on a securities exchange or Nasdaq at the last
reported sale price, up to the time of valuation. If there
are no reported sales of a security on the valuation date,
it is valued at the mean between the published bid and
asked prices reported by the exchange or Nasdaq. If there
are no sales and no published bid and asked quotations for
a security on the valuation date or the security is not
traded on an exchange of Nasdaq, the pricing service may
obtain market quotations directly from broker-dealers.
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 U.S.
Bancorp Asset Management, Inc. 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
--------------------------------------------------------------------------------
10 2001 Annual Report - American Strategic Income Portfolio
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
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.
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, 2001, no loans were 60 days or more
delinquent. The fund does not record past due interest as
income until received. The fund may incur certain costs
and delays in the event of a foreclosure. Also, there is
no assurance that the subsequent sale of the property will
produce an amount equal to the sum of the unpaid principal
balance of the loan as of the date the borrower went into
default, the accrued unpaid interest, and all of the
foreclosure expenses. In this case, the fund may suffer a
loss.
Real estate acquired through foreclosure, if any, is
recorded at estimated fair value. The fund may receive
rental or other income as a result of holding real estate.
In addition, the fund may incur expenses associated with
maintaining any real estate owned. On November 30, 2001,
the fund owned no real estate.
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
--------------------------------------------------------------------------------
11 2001 Annual Report - American Strategic Income Portfolio
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
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, 2001, the average
borrowings outstanding were $15,422,521 and the average
rate was 4.69%.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities that have been
purchased by the fund on a when-issued or
forward-commitment basis can take place a month or more
after the transaction date. During this period, such
securities do not earn interest, are subject to market
fluctuation, and may increase or decrease in value prior
to their delivery. The fund segregates, with its
custodian, assets with a market value equal to the amount
of its purchase commitments. The purchase of securities on
a when-issued or forward-commitment basis may increase the
volatility of the fund's net asset value if the fund makes
such purchases while remaining substantially fully
invested. As of November 30, 2001, 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.
--------------------------------------------------------------------------------
12 2001 Annual Report - American Strategic Income Portfolio
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
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
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
Pursuant to an investment advisory agreement (the
"agreement"), U.S. Bancorp Asset Management, Inc., (the
advisor), a subsidiary of U.S. Bank National Association
(U.S. Bank) and successor to First American Asset
Management, manages the fund's assets and furnishes
related office facilities, equipment, research, and
personnel. The 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, 2001, the effective investment management fee
incurred by the fund was 0.64%. For its fee, the advisor
provides investment advice and conducts the management and
investment activity of the fund.
Pursuant to an administration agreement, U.S. Bank
provides administrative services, including certain legal
and shareholder services to the fund. Under this
agreement, the administrator receives a monthly fee in an
amount equal to an annualized rate of 0.25% of the fund's
average weekly net assets (computed by subtracting
liabilities from the value of the total assets of 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
--------------------------------------------------------------------------------
13 2001 Annual Report - American Strategic Income Portfolio
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
expenses, custodian fees, registration fees, printing and
shareholder reports, transfer agent fees and expenses;
legal and auditing 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, 2001, the fund paid
$14,721 for custody services to U.S. Bank.
(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, 2001, aggregated
$27,952,506 and $20,249,355, respectively. Included in
proceeds from sales are $380,610 from prepayment
penalties.
(5) CAPITAL LOSS
CARRYOVER
............................
For federal income tax purposes, the fund had capital loss
carryovers at November 30, 2001, 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
------------ ----------
$7,716,741 2003
964,494 2008
----------
$8,681,235
==========
(6) CAPITAL SHARE
TRANSACTIONS
............................
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 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). No shares were repurchased during the
current year ended November 30, 2001.
REPURCHASE OFFER
The fund's Board of Directors concluded that an additional
offer to purchase up to 10% of the fund's outstanding
shares at net asset value would be in the best interests
of shareholders. Accordingly, the repurchase offer was
sent to shareholders in November 1999, and 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 by the fund on December 10, 1999,
were as follows:
PERCENTAGE SHARES REPURCHASE PROCEEDS
REPURCHASED REPURCHASED PRICE PAID
----------- ----------- ---------- -----------
10% 470,032 $12.38 $5,818,996
--------------------------------------------------------------------------------
14 2001 Annual Report - American Strategic Income Portfolio
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
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
11/30/01 11/30/00 11/30/99 11/30/98(D) 11/30/97
--------- --------- --------- ------------ ---------
PER-SHARE DATA
Net asset value, beginning
of period ............................ $12.51 $12.35 $12.98 $12.88 $12.65
------ ------ ------ ------ ------
Operations:
Net investment income ................ 1.05 0.97 1.00 1.01 0.97
Net realized and unrealized gains
(losses) on investments ............ 0.13 0.15 (0.62) 0.06 0.22
------ ------ ------ ------ ------
Total from operations .............. 1.18 1.12 0.38 1.07 1.19
------ ------ ------ ------ ------
Distributions to shareholders:
From net investment income ........... (1.06) (0.96) (1.01) (0.97) (0.96)
------ ------ ------ ------ ------
Net asset value, end of period ......... $12.63 $12.51 $12.35 $12.98 $12.88
====== ====== ====== ====== ======
Per-share market value, end of
period ............................... $12.79 $11.19 $11.44 $12.13 $11.88
====== ====== ====== ====== ======
SELECTED INFORMATION
Total return, net asset value (a) ...... 9.85% 9.55% 3.03% 8.56% 9.83%
Total return, market value (b) ......... 24.73% 6.68% 2.76% 10.69% 17.41%
Net assets at end of period
(in millions) ........................ $ 53 $ 53 $ 58 $ 61 $ 68
Ratio of expenses to average weekly net
assets including interest expense .... 2.70% 3.92% 3.83% 2.89% 2.56%
Ratio of expenses to average weekly net
assets excluding interest expense .... 1.34% 1.56% 1.52% 1.47% 1.47%
Ratio of net investment income to
average weekly net assets ............ 8.25% 7.85% 7.86% 7.74% 7.68%
Portfolio turnover rate (excluding
short-term securities) ............... 30% 32% 22% 38% 61%
Amount of borrowings outstanding at end
of period (in millions) .............. $ 22 $ 12 $ 21 $ 17 $ 11
Per-share amount of borrowings
outstanding at end of period ......... $ 5.19 $ 2.77 $ 4.50 $ 3.49 $ 2.10
Per-share amount of net assets,
excluding borrowings, at end
of period ............................ $17.82 $15.28 $16.85 $16.47 $14.98
Asset coverage ratio (c) ............... 343% 552% 375% 471% 715%
(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
MANAGEMENT TO U.S. BANK.
--------------------------------------------------------------------------------
15 2001 Annual Report - American Strategic Income Portfolio
INVESTMENTS IN SECURITIES
--------------------------------------------------------------------------------
AMERICAN STRATEGIC INCOME PORTFOLIO November 30, 2001
..............................................................................................................
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 (54.6%):
U.S. AGENCY MORTGAGE-BACKED SECURITIES (54.6%):
FIXED RATE (54.6%):
9.00%, FHLMC, 7/1/30............................... 7/17/00 $3,109,055(b) $ 3,194,195 $ 3,306,293
6.50%, FNCL, 11/1/31............................... 11/5/01 5,000,500 5,115,702 5,062,158
6.50%, FNMA, 6/1/29................................ 5/17/99 2,407,136(b) 2,389,989 2,438,718
7.50%, FNMA, 3/1/30................................ 3/22/00 5,807,800(b) 5,709,541 5,996,553
7.50%, FNMA, 5/1/30................................ 5/9/00 1,371,515(b) 1,323,650 1,425,950
6.00%, FNMA, 5/1/31................................ 11/5/01 4,999,503(b) 5,029,186 4,952,767
8.00%, FNMA, 5/1/30................................ 5/9/00 872,710(b) 861,274 919,069
6.00%, FNMA, 10/1/16............................... 11/5/01 5,000,498(b) 5,117,935 5,065,861
----------- -----------
28,741,472 29,167,369
----------- -----------
Total U.S. Government and Agency Securities...... 28,741,472 29,167,369
----------- -----------
PRIVATE MORTGAGE-BACKED SECURITIES
(e) (12.5%):
FIXED RATE (12.5%):
13.04%, Minnesota Mortgage Corporation, 7/25/14.... 5/19/92 35,115 35,860 35,642
9.25%, Oly Holigan, LP, 1/1/04..................... 12/26/00 2,500,000 2,500,000 2,550,000
8.00%, Value Enhancement Fund IV, 6/27/04.......... 6/27/01 4,000,000 4,000,000 4,080,000
----------- -----------
6,535,860 6,665,642
----------- -----------
Total Private Mortgage-Backed Securities ........ 6,535,860 6,665,642
----------- -----------
WHOLE LOANS AND PARTICIPATION MORTGAGES
(c,d,e) (65.5%):
COMMERCIAL LOANS (38.2%):
Advance Self Storage, 8.88%, 12/1/05............... 11/29/00 1,299,845 1,299,845 1,364,837
Bekins Building, 8.38%, 10/1/04.................... 9/2/97 1,084,999 1,084,999 1,117,549
Buca Restaurant, 8.63%, 1/1/11..................... 12/27/00 941,807 941,807 988,897
Dietzgen Industrial Building, 9.00%, 1/1/06........ 12/14/00 1,596,036 1,596,036 1,675,837
El Centro Market Place, 9.63%, 9/1/04.............. 8/5/99 733,002 733,002 733,002
Main Street Office Building, 8.38%, 11/1/07........ 10/21/97 850,353 848,936 892,871
One Eastern Heights Office Building,
8.21%, 12/1/07................................... 11/7/97 1,039,337 1,039,337 1,091,304
Orchard Commons, 8.63%, 4/1/11..................... 3/28/01 1,016,809 1,016,809 1,067,650
Pacific Periodicals Building, 8.03%, 1/1/08........ 12/9/97 1,303,839 1,303,839 1,369,031
Date Market
Description of Security Acquired Par Value Cost Value (a)
--------------------------------------------------------- -------- ---------- ----------- -----------
Pine Island Office Building, 8.03%, 11/2/02........ 10/8/97 $1,533,575 $ 1,533,575 $ 1,548,911
Rice Street Convention Center, 8.98%, 2/1/04....... 1/23/97 569,697 569,697 592,485
Schendel Office Building, 8.20%, 10/1/07........... 9/30/97 1,120,100 1,120,100 1,062,979
Schendel Retail Center, 8.58%, 9/1/07.............. 8/28/97 716,636 716,636 734,552
Shallowford Business Park, 9.13%, 7/1/03........... 6/25/96 1,533,779 1,533,609 1,564,455
Sherwin Williams, 8.50%, 1/1/04.................... 12/20/96 1,351,393 1,351,393 1,391,935
Stephens Retail Center, 9.23%, 8/1/03.............. 9/6/96 1,121,547 1,116,874 1,143,978
Union Hill Village Office Building,
8.00%, 10/1/08................................... 9/30/98 660,438 660,438 462,306
Voit Office Building, 8.25%, 9/1/08................ 8/17/01 1,536,000 1,536,000 1,612,800
----------- -----------
20,002,932 20,415,379
----------- -----------
MULTIFAMILY LOANS (19.3%):
Applewood Manor, 8.63%, 1/1/02..................... 12/23/93 647,273 644,037 647,273
Charleston Plaza Apartments, 7.38%, 7/1/08......... 7/1/98 1,517,408 1,517,408 1,584,332
Franklin Woods Apartments, 9.78%, 3/1/10........... 2/24/95 1,150,523 1,147,412 1,208,049
Garden Oaks Apartments, 8.43%, 4/1/06.............. 3/7/96 1,711,781 1,708,569 1,797,370
Garden Park Apartments, 9.00%, 6/1/02.............. 5/2/00 900,000 900,000 630,000
Rush Oaks Apartments, 7.78%, 12/1/07............... 11/26/97 522,453 522,453 548,576
Union Hill Village Townhomes, 8.00%, 10/1/08....... 9/30/98 935,946 935,946 655,162
Vanderbilt Condominiums, 8.06%, 10/1/09............ 9/29/99 1,178,839 1,178,839 1,237,781
Westhollow Place Apartments, 8.46%, 4/1/03......... 3/20/96 949,965 940,466 968,965
Woodland Garden Apartments, 7.38%, 9/1/08.......... 8/26/98 1,031,217 1,031,217 1,071,149
----------- -----------
10,526,347 10,348,657
----------- -----------
SINGLE FAMILY LOANS (8.0%):
Aegis, 9.21%, 3/26/10.............................. 10/26/95 50,649 47,848 52,168
Aegis II, 9.65%, 1/28/14........................... 12/28/95 295,433 270,691 304,296
American Bank, Mankato, 10.00%, 12/10/12........... 12/15/92 35,771 29,203 36,844
American Portfolio, 7.32%, 10/18/15................ 7/18/95 30,892 29,427 31,819
Anivan, 7.77%, 4/14/12............................. 6/14/96 135,890 136,768 139,966
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
--------------------------------------------------------------------------------
16 2001 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)
--------------------------------------------------------- -------- ---------- ----------- -----------
Bank of New Mexico, 9.29%, 3/31/10................. 5/31/96 $ 131,367 $ 128,923 $ 135,294
Bluebonnet Savings and Loan, 8.06%, 8/31/10........ 5/22/92 284,475 260,629 291,841
Bluebonnet Savings and Loan II, 11.63%, 8/31/10.... 5/22/92 20,049 19,645 19,612
CLSI Allison Williams, 10.27%, 8/1/17.............. 2/28/92 219,564 201,945 225,878
Cross Roads Savings and Loan, 9.44%, 1/1/21........ 1/7/92 123,699 116,984 127,410
Cross Roads Savings and Loan II, 9.20%, 1/1/21..... 1/7/92 118,417 111,364 121,965
Fairbanks, Utah, 10.02%, 9/23/15................... 5/21/92 26,727 22,684 27,528
First Boston Mortgage Pool, 9.12%, 6/29/03......... 6/23/92 118,630 96,958 121,896
Hamilton Financial, 8.68%, 6/29/10................. 7/8/92 107,850 98,952 109,352
Huntington MEWS, 9.66%, 8/1/17..................... 1/22/92 456,002 393,676 469,683
Knutson Mortgage Portfolio I, 8.78%, 8/1/17........ 2/26/92 294,551 281,068 303,387
Knutson Mortgage Portfolio II, 9.28%, 9/25/17...... 5/28/92 21,794 20,094 22,448
McClemore, Matrix Funding Corporation,
10.86%, 9/30/12.................................. 9/9/92 140,266 133,253 144,474
Meridian, 9.59%, 12/1/20........................... 12/21/92 386,356 368,487 397,947
Nomura III, 9.39%, 4/29/17......................... 9/29/95 697,369 630,383 700,547
Rand Mortgage Corporation, 9.58%, 8/1/17........... 2/21/92 125,648 102,985 129,418
Salomon II, 9.21%, 11/23/14........................ 12/23/94 297,732 259,158 306,664
Valley Bank of Commerce, N.M., 8.34%, 8/31/10...... 5/7/92 60,627 51,573 62,444
----------- -----------
3,812,698 4,282,881
----------- -----------
Total Whole Loans and Participation Mortgages ... 34,341,977 35,046,917
----------- -----------
MORTGAGE SERVICING RIGHTS (e,f) (0.2%):
Matrix Servicing Rights, 0.12%, 7/10/22............ 7/10/92 17,304,998 144,925 121,360
----------- -----------
PREFERRED STOCK (1.8%):
REAL ESTATE INVESTMENT TRUST (1.8%):
Archstone Community Trust, Series C................ 4/23/01 5,000 126,550 127,750
Archstone Community Trust, Series D................ 4/23/01 3,525 91,861 90,593
CarrAmerica Realty Trust, Series B................. 4/23/01 5,000 118,849 122,500
Date Market
Description of Security Acquired Shares Cost Value(a)
--------------------------------------------------------- -------- ---------- ----------- -----------
CarrAmerica Realty Trust, Series C................. 4/23/01 5,000 $ 117,737 $ 122,250
CarrAmerica Realty Trust, Series D................. 4/23/01 5,000 118,823 125,500
Centerpoint Properties, Series A................... 3/26/01 5,000 123,103 125,150
Duke Realty Investments, Series E.................. 4/23/01 625 15,506 16,063
New Plan Excel Realty Trust, Series B.............. 3/26/01 5,000 118,868 125,850
AMB Property....................................... 3/26/01 5,000 125,399 128,000
----------- -----------
956,696 983,656
----------- -----------
Total Preferred Stock ........................... 956,696 983,656
----------- -----------
RELATED PARTY MONEY MARKET FUND (5.8%):
First American Prime Obligations Fund.............. 11/30/01 3,091,472(g) 3,091,472 3,091,472
----------- -----------
Total Investments in Securities (h) ............. $73,812,402 $75,076,416
=========== ===========
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, 2001, SECURITIES VALUED AT $26,728,651 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
----------- ----------- ----- -------- -------- ---------------
$ 8,000,000 4/12/01 4.65% 4/12/03 $19,633 (1)
1,200,000 11/15/01 2.08% 12/17/01 1,109 (2)
2,933,026 11/19/01 2.25% 12/19/01 2,200 (3)
9,818,230 11/14/01 2.25% 12/19/01 10,432 (4)
----------- -------
$21,951,256 $33,374
=========== =======
* INTEREST RATE AS OF NOVEMBER 30, 2001. 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, $4,184,731 PAR
FNMA, 7.50%,5/1/30, $1,371,515 PAR
FNMA, 8.00%, 5/1/30, $872,710 PAR
(2) MORGAN STANLEY DEAN WITTER;
FHLMC, 9.00%, 7/1/30, $1,165,896 PAR
(3) MORGAN STANLEY DEAN WITTER;
FNMA, 6.00%, 10/1/16, $3,000,299 PAR
(4) MORGAN STANLEY DEAN WITTER;
FNMA, 6.00%, 5/1/31, $4,999,503 PAR
FNMA, 6.50%, 6/1/29, $2,407,136 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.
--------------------------------------------------------------------------------
17 2001 Annual Report - American Strategic Income Portfolio
INVESTMENTS IN SECURITIES (continued)
--------------------------------------------------------------------------------
(c) INTEREST RATES ON COMMERCIAL AND MULTIFAMILY LOANS ARE THE RATES IN EFFECT
ON NOVEMBER 30, 2001. 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, 2001.
(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
BUCA RESTAURANT - MAPLE GROVE, MN
DIETZGEN INDUSTRIAL BUILDING - GARDENA, CA
EL CENTRO MARKET PLACE - EL CENTRO, CA
MAIN STREET OFFICE BUILDING - PARK CITY, UT
ONE EASTERN HEIGHTS OFFICE BUILDING - WOODBURY, MN
ORCHARD COMMONS - ENGLEWOOD, CO
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
VOIT OFFICE BUILDING - ORANGE, CA
MULTIFAMILY LOANS:
APPLEWOOD MANOR - DULUTH, MN
CHARLESTON PLAZA APARTMENTS - LAS VEGAS, NV
FRANKLIN WOODS APARTMENTS - FRANKLIN, NH
GARDEN OAKS APARTMENTS - COON RAPIDS, MN
GARDEN PARK APARTMENTS - LAS VEGAS, NV
RUSH OAKS APARTMENTS - LAPORTE, TX
UNION HILL VILLAGE TOWNHOMES - SPENCERPORT, NY
VANDERBILT CONDOMINIUMS - AUSTIN, TX
WESTHOLLOW PLACE APARTMENTS - HOUSTON, TX
WOODLAND GARDEN APARTMENTS - ARLINGTON, WA
SINGLE FAMILY LOANS:
AEGIS - 1 LOAN, MIDWESTERN UNITED STATES
AEGIS II - 3 LOANS, MIDWESTERN UNITED STATES
AMERICAN BANK, MANKATO - 1 LOAN, MINNESOTA
AMERICAN PORTFOLIO - 1 LOAN, TEXAS AND CALIFORNIA
ANIVAN - 2 LOANS, MARYLAND, NEW JERSEY, VIRGINIA
BANK OF NEW MEXICO - 5 LOANS, NEW MEXICO
BLUEBONNET SAVINGS AND LOAN - 10 LOANS, TEXAS
BLUEBONNET SAVINGS AND LOAN II - 2 LOANS, TEXAS
CLSI ALLISON WILLIAMS - 19 LOANS, TEXAS
CROSSROADS SAVINGS AND LOAN - 5 LOANS, OKLAHOMA
CROSSROADS SAVINGS AND LOAN II - 6 LOANS, OKLAHOMA
FAIRBANKS, UTAH - 1 LOAN, UTAH
FIRST BOSTON MORTGAGE POOL - 6 LOANS, UNITED STATES
HAMILTON FINANCIAL - 1 LOAN, CALIFORNIA
HUNTINGTON MEWS - 12 LOANS, NEW JERSEY
KNUTSON MORTGAGE PORTFOLIO #1 - 5 LOANS, MIDWESTERN UNITED STATES
KNUTSON MORTGAGE PORTFOLIO #2 - 1 LOAN, MIDWESTERN UNITED STATES
MCCLEMORE, MATRIX FUNDING CORPORATION - 2 LOANS, NORTH CAROLINA
MERIDIAN - 6 LOANS, CALIFORNIA
NOMURA III - 11 LOANS, MIDWESTERN UNITED STATES
RAND MORTGAGE CORPORATION - 3 LOANS, TEXAS
SALOMON II - 7 LOANS, MIDWESTERN UNITED STATES
VALLEY BANK OF COMMERCE, N.M. - 5 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, 2001, THE
TOTAL MARKET VALUE OF THESE INVESTMENTS WAS $41,833,919 OR 78.3% 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. BANCORP ASSET MANAGEMENT, WHO
ALSO SERVES AS THE ADVISOR FOR THIS FUND. SEE NOTE 2 IN THE NOTES TO
FINANCIAL STATEMENTS.
(h) ON NOVEMBER 30, 2001, THE COST OF INVESTMENTS IN SECURITIES FOR INCOME TAX
PURPOSES WAS $73,812,402. THE AGGREGATE GROSS UNREALIZED APPRECIATION AND
DEPRECIATION OF INVESTMENTS IN SECURITIES WERE AS FOLLOWS:
GROSS UNREALIZED APPRECIATION....... $ 2,277,172
GROSS UNREALIZED DEPRECIATION....... (1,013,158)
-----------
NET UNREALIZED APPRECIATION......... $ 1,264,014
===========
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18 2001 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, 2001, 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 two
years in the period then ended, and the financial
highlights for each of the three 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 financial highlights based on our audits.
The financial highlights for each of the two 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, 2001,
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 financial statements and financial
highlights audited by us as referred to above present
fairly, in all material respects, the financial position
of American Strategic Income Portfolio Inc. at
November 30, 2001, the results of its operations and its
cash flows for the year then ended, and changes in its net
assets for each of the two years in the period then ended,
and the financial highlights for each of the three years
in the period then ended, in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
January 4, 2002
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19 2001 Annual Report - American Strategic Income Portfolio
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)
PAYABLE DATE AMOUNT
------------ -------
December 15, 2000 ...................... $0.0825
January 11, 2001 ....................... 0.0825
February 21, 2001 ...................... 0.0825
March 28, 2001 ......................... 0.0825
April 25, 2001 ......................... 0.0825
May 23, 2001 ........................... 0.0850
June 27, 2001 .......................... 0.0850
July 25, 2001 .......................... 0.0950
August 22, 2001 ........................ 0.0950
September 26, 2001 ..................... 0.0950
October 24, 2001 ....................... 0.0950
November 20, 2001 ...................... 0.0950
-------
Total ................................ $1.0575
=======
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20 2001 Annual Report - American Strategic Income Portfolio
SHAREHOLDER UPDATE
--------------------------------------------------------------------------------
SHAREHOLDER MEETING RESULTS
A special meeting of the fund's shareholders was held on
March 15, 2001. Each matter voted upon at that meeting, as
well as the number of votes cast for, against or withheld,
and 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 approved a change in the
fund's investment restriction governing investments in
real estate. The following votes were cast regarding
this matter:
SHARES SHARES BROKER
VOTED "FOR" VOTED "AGAINST" ABSTENTIONS NON VOTES
------------- ----------------- ----------- ---------
2,434,442 79,657 37,775 --
ANNUAL MEETING RESULTS
An annual meeting of the fund's shareholders was held on
August 27, 2001. 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 ten
directors:
SHARES SHARES WITHHOLDING
VOTED "FOR" AUTHORITY TO VOTE
------------- ------------------
Robert J. Dayton ....................... 3,521,349 595,074
Andrew S. Duff ......................... 4,080,027 36,396
Roger A. Gibson ........................ 4,082,561 33,862
Andrew M. Hunter III ................... 4,082,773 33,650
Leonard W. Kedrowski ................... 4,082,809 33,614
John M. Murphy, Jr. .................... 4,078,695 37,728
Richard K. Riederer .................... 4,082,609 33,814
Joseph D. Strauss ...................... 4,082,942 33,481
Virginia L. Stringer ................... 4,082,694 33,729
James M. Wade .......................... 4,082,338 34,085
(2) 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, 2001. The following
votes were cast regarding this matter:
SHARES SHARES BROKER
VOTED "FOR" VOTED "AGAINST" ABSTENTIONS NON VOTES
------------- ----------------- ----------- ---------
4,068,784 31,019 16,619 1
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.
--------------------------------------------------------------------------------
21 2001 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 believe 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.
For the year ended November 30, 2001, no shares were
repurchased.
TERMS AND CONDITIONS OF THE DIVIDEND REINVESTMENT PLAN
As a shareholder, you may choose to participate in the
Dividend Reinvestment Plan. It is 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 each share's 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
--------------------------------------------------------------------------------
22 2001 Annual Report - American Strategic Income Portfolio
Shareholder Update (continued)
--------------------------------------------------------------------------------
to satisfy the dividend reinvestment requirement,
EquiServe will accept payment of the dividend, or the
remaining portion, in authorized but unissued shares of
the fund. These shares will be issued at a per-share price
equal to the higher of (a) the NAV per share as of the
close of business on the payment date or (b) 95% of the
closing market price per share on the payment date.
By participating in the dividend reinvestment plan, you
may receive benefits not available to shareholders who
elect not to participate. For example, if the market price
plus commissions of the fund's shares is 5% or more above
the NAV, you will receive 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.
--------------------------------------------------------------------------------
23 2001 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
43011, Providence, RI 02940-3011, 1-800-543-1627.
--------------------------------------------------------------------------------
24 2001 Annual Report - American Strategic Income Portfolio
AMERICAN STRATEGIC INCOME PORTFOLIO
2001 ANNUAL REPORT
U.S. Bancorp Asset Management, Inc., is a subsidiary of U.S. Bank National
Association. U.S. Bank National Association is a separate entity and wholly
owned subsidiary of U.S. Bancorp.
[RECYCLE LOGO] This document is printed on paper containing 30% postconsumer
waste.
1/2002 2003-02 ASP-AR