SEC File No: 333-85338
CLOSED-END FUND UPDATE
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THE PROPOSED MERGER OF ASP, BSP, CSP, AND SLA
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o American Strategic Income Portfolio Inc. ("ASP")
o American Strategic Income Portfolio Inc.--II ("BSP")
o American Strategic Income Portfolio Inc.--III ("CSP")
o American Select Portfolio Inc. ("SLA")
Shareholders are being asked to consider and vote on a proposal that will
combine each of ASP, BSP, CSP, and SLA, closed-end management investment
companies (each a "Fund" and together the "Funds"), into American Real Estate
Finance Corporation (the "Company"), a specialty finance company that will elect
to be taxed as a real estate investment trust (a "REIT") for federal income tax
purposes. This Closed-End Fund Update highlights selected information that is
contained in the preliminary joint proxy statement/prospectus filed by the Funds
and the Company with the Securities and Exchange Commission (the "SEC") as part
of a registration statement on Form S-4. Please read the joint proxy
statement/prospectus carefully before making a decision concerning the merger.
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QUESTIONS AND ANSWERS
Q: WHY A MERGER NOW?
A: The management team and the board of directors of each Fund believe that the
merger is a natural evolution designed to maintain investment processes in the
mainstream of commercial real estate finance. They believe the Company will be
able to provide more effective diversification through enhanced access to better
borrowers, properties, and markets. The new corporate structure may provide the
potential for better risk management processes through expanded balance sheet
management techniques.
Q: WHY DOES THE BOARD OF DIRECTORS OF EACH FUND RECOMMEND VOTING FOR THE MERGER?
A: The board of directors of each Fund has determined that the merger is fair
to, and in the best interests of, the shareholders of that Fund, and has
recommended that the shareholders of that Fund vote "for" the approval of the
merger. In reaching this determination, the board of directors of each Fund
considered the findings and recommendations of a special committee of
independent directors of the Funds (the "Special Committee"). The boards of
directors and the Special Committee also consulted with Friedman, Billings,
Ramsey & Co. Inc. (the "Financial Advisor"), legal counsel, and the Funds'
accountants, and received fairness opinions from the Financial Advisor.
Q: WHAT ARE THE POTENTIAL BENEFITS OF THE MERGER?
A: Positive factors considered by the board of directors of each Fund and the
Special Committee include:
o The potential for increased earnings and dividend distributions.
o The potential for enhanced liquidity.
o The opportunity for greater investment diversification.
o A more flexible operating structure and decreased regulatory burden.
o The opportunity to increase borrowings used in investment activities.
o The opportunity for shareholders to exchange their shares in a tax-deferred
transaction.
o The potential for growth and enhanced access to capital.
o The receipt of fairness opinions from a financial advisor.
Q: WHAT ARE THE POTENTIAL DRAWBACKS OF THE MERGER?
A: Negative factors considered by the board of directors of each Fund and the
Special Committee include:
o Uncertain market price of Company common stock after the merger.
o Volatility of the REIT market.
The Proposed Merger of ASP, BSP, CSP, and SLA CONTINUED
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o Increased leverage may increase exposure to loss.
o Increased compensation is payable to the REIT's investment advisor.
o A termination fee may be payable to the REIT's investment advisor upon
termination or nonrenewal of the advisory agreement.
o Shareholders will no longer enjoy certain protections afforded by the
Investment Company Act of 1940, as amended.
o Benefits of the merger may be reduced if less than all the Funds participate
in the merger.
o Expenses of the merger.
Q: WHAT WILL SHAREHOLDERS RECEIVE IN THE MERGER?
A: Shareholders will receive either Company common stock and/or cash in the
merger.
COMPANY COMMON STOCK
Each outstanding share of common stock in each participating Fund (other than
dissenting shares) will be converted into a number of shares of Company common
stock having a net asset value equal to the net asset value of the converted
share.
CASH ELECTION OPTION
Shareholders of each Fund may elect to receive, in lieu of Company common stock,
cash in an amount equal to the net asset value of their Fund shares. Cash
available to fund cash elections for shareholders in each Fund is limited to 15%
of its net asset value. Excess cash elections in any Fund will be prorated in
accordance with the ownership interests of electing shareholders.
Q: WHO WILL BE THE MANAGEMENT TEAM IF THE MERGER IS COMPLETED?
A: If the merger proceeds, the management team of the Company will be the same
as the current management team of the Funds. The senior members of the
management team have been co-managers of the Funds since 1992 and lead managers
since December 1995.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER?
A: The merger is intended to qualify as a tax-free reorganization. Neither the
Funds nor the Funds' shareholders (with the exception of those shareholders
receiving cash payments in the merger) should recognize taxable gain or loss as
a result of the merger. You should consult with your tax advisors regarding the
tax consequences of the merger to you.
Q: WHAT WILL THE COMPANY DO?
A: The Company's business plan will continue to focus on providing high levels
of current income. The business strategy of the Company will be to grow its
investment portfolio and net income over time through additional investments in
mortgage-related assets, which will enable it to capitalize on the spread
between the yield on its assets (net of credit losses) and the cost of its
borrowing and hedging activities. The Company will continue to invest in many of
the same types of assets held by the Funds and will thus emphasize direct
ownership of commercial, multifamily, and residential mortgage loans. If all of
the Funds participate in the merger, the Company will initially own nearly $1.0
billion in mortgage-related assets consisting primarily of whole loans and
participating mortgages secured by commercial and multifamily properties and, to
a lesser extent, U.S. agency mortgage-backed securities.
Q: WHAT HAPPENS IF THE MERGER DOES NOT OCCUR?
A: If the merger of any individual Fund is not consummated for any reason, the
Fund expects to continue to operate in its current form. There will be no change
in that Fund's investment objectives, policies, or restrictions. No other
transaction is currently being considered by the board of directors of any Fund
as an alternative to the merger, although other alternatives may be explored in
the future.
Q: WHAT IS A REIT?
A: A REIT is essentially a corporation or business trust that combines the
capital of many investors to acquire or provide financing for all forms of real
estate. A REIT functions much like a mutual fund for real estate in that
investors obtain the benefit of a diversified portfolio under professional
management. Its shares are freely traded, often on a major stock exchange. A
corporation or trust that qualifies as a REIT generally does not pay corporate
income tax to the extent that it distributes its net income to shareholders.
The Proposed Merger of ASP, BSP, CSP, and SLA CONTINUED
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Q: WILL THE COMPANY QUALIFY AS A REIT?
A: Yes. The Company will seek to qualify and elect to be taxed as a REIT.
Additionally, the Company will apply to list its common stock on the New York
Stock Exchange.
Q: WHAT WILL BE THE DIVIDEND POLICY OF THE COMPANY?
A: The Company intends to make quarterly dividend and distribution payments to
its shareholders. Under the applicable REIT requirements of the Internal Revenue
Code of 1986, as amended, the Company is required to distribute at least 90% of
its taxable income. The Company intends to make quarterly distributions to its
shareholders at minimum amounts that will enable it to comply with these
provisions. The actual amount of such distributions will be determined on a
quarterly basis by the Company's board of directors, taking into account, in
addition to the REIT requirements, the cash needs and net income of the Company,
the market price for its common stock, and other factors the board of directors
considers relevant.
Q: WHAT IS THE CONSIDERATION OFFERED IN THE MERGER?
A: In the merger, you will receive one newly issued share of common stock in the
Company for each $10.00 of Fund net asset value your holdings of Fund shares
represent. For this purpose, net asset value of the Funds will be calculated as
of the last business day of the week immediately preceding the closing of the
merger. The net asset value of each Fund will be determined under the existing
net asset value policies of the Funds and will take into account the estimated
expenses of the merger. The merger also provides that shareholders of each Fund
may elect to receive, in lieu of Company common stock, cash in an amount equal
to the net asset value of their shares. Cash available to fund cash elections
for shareholders in each Fund is limited to 15% of its net asset value.
Q: WHAT WILL THE TAX BASIS OF THE FUNDS' SHAREHOLDERS BE IN THE COMPANY COMMON
STOCK THEY RECEIVE IN THE MERGER?
A: The tax basis of the shareholders of the Funds in the Company common stock
they receive in the merger will equal their current tax basis in their Fund
shares plus the amount of gain, if any, recognized as a result of the merger.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: Subject to regulatory and shareholder approvals, we anticipate approval of
the merger in late summer/early fall 2002.
Q: WHO CAN HELP ANSWER MY ADDITIONAL QUESTIONS?
A: Shareholders of any Fund with additional questions should contact our
Investor Services at 800-677-3863.
For more complete information, see the Form S-4 Registration Statement of
American Real Estate Finance Corporation online at
http://sec.freeedgar.com/displayText.asp?ID=1819717
THE COMPANY HAS FILED A REGISTRATION STATEMENT ON FORM S-4 WITH THE SEC, WHICH
INCLUDES A JOINT PROXY STATEMENT OF THE FUNDS AND A PROSPECTUS OF THE COMPANY,
EACH IN PRELIMINARY FORM, AND OTHER RELEVANT DOCUMENTS CONCERNING THE MERGER. WE
URGE INVESTORS TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND ANY OTHER
RELEVANT DOCUMENTS TO BE FILED WITH THE SEC BECAUSE THEY CONTAIN IMPORTANT
INFORMATION. INVESTORS MAY OBTAIN THESE DOCUMENTS FREE OF CHARGE AT THE SEC'S
WEB SITE, WWW.SEC.GOV. IN ADDITION, DOCUMENTS FILED BY THE FUNDS OR THE COMPANY
WILL BE AVAILABLE FREE OF CHARGE FROM INVESTOR SERVICES, U.S. BANCORP ASSET
MANAGEMENT, INC., 800 NICOLLET MALL, MINNEAPOLIS, MINNESOTA 55402; TELEPHONE:
800-677-3863.
PLEASE READ THE JOINT PROXY STATEMENT/PROSPECTUS CAREFULLY BEFORE MAKING A
DECISION CONCERNING THE MERGER.
THIS CLOSED-END FUND UPDATE DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES FOR
SALE.
Each of the Funds and its board of directors and executive officers and U.S.
Bancorp Asset Management, Inc. and its executive officers may be deemed to be
participants in the solicitation of proxies from Fund shareholders in favor of
the merger. It is expected that certain current officers of U.S. Bancorp Asset
Management, Inc. will be executive officers and directors of the Company and of
its newly formed investment advisor. Information regarding the interests of the
Funds' officers and directors in the transaction is included in the joint proxy
statement/prospectus. Information regarding the interests of U.S. Bancorp Asset
Management, Inc., and its officers and directors in the transaction is included
in the joint proxy statement/prospectus. In addition to the joint proxy
statement/prospectus to be mailed to the shareholders of the Funds in connection
with the merger, each Fund files reports, proxy and information statements, and
other information with the SEC. Investors may read and copy any of these
reports, statements and other information at the SEC's public reference rooms
located at 450 Fifth Street, N.W., Room 1200, Washington, D.C. 20549. Investors
should call the SEC at 800-SEC-0330 for further information on the public
reference room. The reports, statements, and other information filed by the
Funds with the SEC are also available free of charge at the SEC's Web site at
www.sec.gov. A free copy of these reports, statements, and other information may
also be obtained from U.S. Bancorp Asset Management, Inc., as set forth above.
2118-02