<PAGE>
[GRAPHIC]
1999 ANNUAL REPORT
AMERICAN STRATEGIC
INCOME PORTFOLIO II
BSP
[LOGO] -SM- FIRST AMERICAN
ASSET MANAGEMENT
<PAGE>
[LOGO] -SM- FIRST AMERICAN
ASSET MANAGEMENT
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
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AMERICAN STRATEGIC INCOME PORTFOLIO II
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 may borrow using reverse repurchase
agreements and revolving credit facilities. 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 ANNUAL TOTAL RETURNS
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Based on net asset value for the periods ended May 31, 1999
[CHART]
<TABLE>
<CAPTION>
Since Inception
One Year Five Year 7/30/1992
-------- --------- ---------------
<S> <C> <C> <C>
American Strategic Income
Portfolio II 6.82% 8.94% 7.74%
Lehman Brothers Mutual Fund
Government/Mortgage Index 4.66% 7.76% 6.17%
</TABLE>
The average annual total returns for American Strategic Income Portfolio II 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 annual total returns Based on the change in market price for the
one-year, five-year and since-inception periods ended May 31, 1999, were 10.06%,
7.26% and 6.23%, 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 II is comprised primarily
of non-securitized, illiquid whole loans. This limits the ability of the fund to
respond quickly to market changes.
The Lehman Brothers Mutual Fund Government/Mortgage Index is comprised of all
U.S. government agency and Treasury securities and agency mortgage-backed
securities. Developed by Lehman Brothers for comparative use by the mutual fund
industry, this index is unmanaged and does not include any fees or expenses in
its total return calculations.
The since-inception number for the Lehman index is calculated from the month end
following the fund's inception through May 31, 1999.
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NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
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<PAGE>
FUND OVERVIEW
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FUND MANAGEMENT
JOHN WENKER
is primarily responsible for the management of American Strategic Income
Portfolio II. He has 13 years of financial experience.
DAVID STEELE
assists with the management of American Strategic Income Portfolio II. He has 20
years of financial experience.
RUSS KAPPENMAN
assists with the management of American Strategic Income Portfolio II. He has 13
years of financial experience.
JULY 15, 1999
FOR THE ONE-YEAR PERIOD ENDED MAY 31, 1999, AMERICAN STRATEGIC INCOME PORTFOLIO
II HAD A NET ASSET VALUE TOTAL RETURN OF 6.82%, WITH MUCH OF THE RETURN
ATTRIBUTABLE TO INCOME GENERATED BY THE FUND.* This compares to a 4.66% return
for the Lehman Brothers Mutual Fund Government/Mortgage Index. The fund's total
return based on market price was 10.06%.* As of May 31, 1999, the fund traded at
a discount to net asset value; the market price was $11.94 per share with a net
asset value of $12.92 per share.
ALONG WITH ITS STABLE SHARE PRICE, THE FUND CONTINUED TO PROVIDE AN ATTRACTIVE
DIVIDEND. For the one-year period, dividends paid amounted to $1.021 per share.
The fund's annualized distribution rate was 8.54% based on the May 31 market
price of $11.94 per share. Current monthly earnings of $0.0909 per share (based
on an average of the three months ended May 31) would result in an annualized
earnings rate of 9.14% based on the May 31 market price. Of course, past
performance is no guarantee of future results, and those rates will fluctuate.
THE FUND'S MONTHLY DIVIDEND WAS INCREASED BY 0.25 CENTS PER SHARE, BEGINNING
WITH THE DIVIDEND PAID IN AUGUST 1998, TO $0.0850 PER SHARE, AND WILL BE
INCREASED AGAIN TO $0.0875 PER SHARE FOR THE DIVIDEND PAYABLE IN JULY 1999. The
dividend reserve grew from $0.0939 per share to $0.1299 per share over the
reporting period. This reserve continues to support dividend levels. For most of
the year, we continued to benefit from high income generated by loans held in
the portfolio. This has played a major role in allowing us to hold the dividend
fairly steady.
* 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 COPOSITION
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As a percentage of total assets on May 31, 1999
<TABLE>
<S> <C>
Single Family Loans 31%
U.S. Treasury Securities 17%
U.S. Agency Mortgage-backed
Securities 5%
Other Assets 1%
Commercial Loans 18%
Multifamily Loans 25%
Private Fixed-rate
Mortgage-backed Securities 3%
</TABLE>
DELINQUENT LOAN PROFILE
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The chart below shows the percentage of single family loans** in the portfolio
that are 30, 60, 90 or 120 days delinquent as of May 31, 1999, based on
principal amounts outstanding.
<TABLE>
<S> <C>
Current 90.9%
- --------------------------------
30 Days 4.3%
- --------------------------------
60 Days 2.0%
- --------------------------------
90 Days 0.1%
- --------------------------------
120+ Days 2.7%
- --------------------------------
</TABLE>
** As of May 31, 1999, there were no multifamily or commercial loans delinquent.
1 1999 ANNUAL REPORT AMERICAN STRATEGIC INCOME PORTFOLIO II
<PAGE>
FUND OVERVIEW CONTINUED
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THE FUND MAINTAINED ITS FOCUSED STRATEGY. We continued to emphasize single
family, multifamily and commercial whole loans. These types of mortgage
securities represent approximately 74% of total assets, with the remainder
invested primarily in U.S. Treasury securities and FNMA mortgage-backed
securities. The higher interest rate environment of the last six months slowed
mortgage prepayments in the portfolio. This has helped maintain income at
attractive levels.
SINCE THE CAPITAL MARKETS VOLATILITY IN THE FALL OF 1998, THE COMMERCIAL REAL
ESTATE MARKET HAS BEEN RELATIVELY STABLE. Commercial new construction has slowed
for most property types and property sales have slowed as well. Generally, real
estate markets across the country are in equilibrium with supply and demand in
balance. This should help extend the real estate cycle and create a better
outlook in the near term for the real estate risk associated with the fund.
AS WE HAVE STATED IN THE PAST, LOAN PREPAYMENTS OCCURRING IN TODAY'S INTEREST
RATE ENVIRONMENT ARE TYPICALLY REINVESTED IN LOWER-YIELDING SECURITIES.
Depending on interest rate and market trends in the months and years to come,
this may eventually result in a reduced dividend. We continue to do all we can
to find securities that offer current attractive yields within proper
risk/reward relationships.
GEOGRAPHICAL DISTRIBUTION
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We attempt to by mortgage loans in many parts of the country to help avoid the
risks of concentrating in one area. These percentages reflect principal value of
whole loans as of May 31, 1999. Shaded areas without values indicate states in
which the fund has invested less than 0.50% of its assets.
[MAP]
<TABLE>
<S> <C>
Alabama less than 0.50%
Alaska less than 0.50%
Arizona 3%
Arkansas less than 0.50%
California 13%
Colorado 6%
Connecticut less than 0.50%
Delaware less than 0.50%
Florida 8%
Georgia 1%
Hawaii less than 0.50%
Idaho less than 0.50%
Illinois 1%
Indiana 2%
Iowa less than 0.50%
Kansas less than 0.50%
Kentucky 2%
Louisiana less than 0.50%
Maine less than 0.50%
Maryland less than 0.50%
Massachusetts 4%
Michigan less than 0.50%
Minnesota 13%
Mississippi less than 0.50%
Missouri 2%
Montana 1%
Nebraska less than 0.50%
New Hampshire less than 0.50%
New Jersey 3%
New Mexico 1%
New York 2%
Nevada 3%
North Carolina less than 0.50%
North Dakota 2%
Ohio 1%
Oklahoma 4%
Oregon 1%
Pennsylvania 1%
Rhode Island less than 0.50%
South Carolina less than 0.50%
South Dakota
Tennessee 4%
Texas 17%
Utah 1%
Vermont less than 0.50%
Virginia 1%
Washington 2%
West Virginia
Wisconsin less than 0.50%
Wyoming
</TABLE>
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2 1999 ANNUAL REPORT AMERICAN STRATEGIC INCOME PORTFOLIO II
<PAGE>
FUND OVERVIEW CONTINUED
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THE FUND ACCEPTS CREDIT RISK THROUGH ITS INVESTMENT IN WHOLE LOANS. The fund
bears the risk of loss that could arise from defaults on the underlying loans.
To the extent that proceeds from the sale are less than the fund paid for the
loan, the fund could suffer a loss. Net credit losses since the fund's inception
have amounted to $0.21 per share. Over the past year, net gains due to
foreclosure amounted to $0.006 per share. One advantage of the fund's
investments in whole loans is that it can benefit from prepayment penalties on
multifamily and commercial loans and from mortgage discount paydowns (loans
purchased at a discount paying off at par). Since-inception gains from
prepayment penalties have amounted to $0.22 per share and gains from mortgage
discount paydowns have amounted to $0.34 per share. Through the reporting
period, gains from prepayment penalties amounted to $0.03 per share and gains
from mortgage discount paydowns amounted to $0.07 per share.
THANK YOU FOR YOUR INVESTMENT IN AMERICAN STRATEGIC INCOME PORTFOLIO II. We are
pleased that the fund continues to generate a competitive return and stable
income. Our attempts to control the credit risk inherent in this fund will
continue. We appreciate your faith in our abilities and look forward to serving
you in the coming year.
VALUATION OF WHOLE LOAN INVESTMENTS
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The fund's investments in whole loans (single family, multifamily and
commercial), participation mortgages and mortgage servicing rights are generally
not traded in any organized market and therefore, market quotations are not
readily available. These investments are valued at "fair value" according to
procedures adopted by the fund's board of directors. Pursuant to these
procedures, whole loan investments are initially valued at cost and their values
are subsequently monitored and adjusted pursuant to a First American Asset
Management pricing model designed to incorporate, among other things, the
present value of the projected stream of cash flows on such investments. The
pricing model takes into account a number of relevant factors including the
projected rate of prepayments, the delinquency profile, the historical payment
record, the expected yield at purchase, changes in prevailing interest rates and
changes in the real or perceived liquidity of whole loans, participation
mortgages or mortgage servicing rights, as the case may be. 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 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.
POSSIBLE REPURCHASE OFFER
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First American Asset Management intends to recommend that the fund's board of
directors authorize the repurchase by the fund of up to 10% of its outstanding
shares at net asset value if the average discount between the fund's net asset
value and market price exceeds 5% during the 12 weeks preceding October 1. If
the recommendation is approved by the fund's board, repurchase offers are
expected to be mailed to shareholders in October, with share repurchases
occurring in December.
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3 1999 ANNUAL REPORT AMERICAN STRATEGIC INCOME PORTFOLIO II
<PAGE>
FINANCIAL STATEMENTS
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STATEMENT OF ASSETS AND LIABILITIES May 31, 1999
................................................................................
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (note 2) ....... $331,365,947
Real estate owned (identified cost: $314,572) (note 2) .... 296,605
Accrued interest receivable ............................... 2,787,483
Other assets .............................................. 44,957
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Total assets ............................................ 334,494,992
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LIABILITIES:
Reverse repurchase agreements payable ..................... 103,925,000
Accrued investment management fee ......................... 130,527
Bank overdraft ............................................ 98,684
Accrued administrative fee ................................ 39,374
Accrued interest .......................................... 393,494
Other accrued expenses .................................... 65,047
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Total liabilities ....................................... 104,652,126
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Net assets applicable to outstanding capital stock ...... $229,842,866
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COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital .............. $254,116,250
Undistributed net investment income ....................... 2,310,497
Accumulated net realized loss on investments .............. (30,499,438)
Net unrealized appreciation of investments ................ 3,915,557
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Total - representing net assets applicable to capital
stock ................................................. $229,842,866
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-----------------
* Investments in securities at identified cost ............ $327,432,423
-----------------
-----------------
NET ASSET VALUE AND MARKET PRICE:
Net assets ................................................ $229,842,866
Shares outstanding (authorized 1 billion shares of $0.01 par
value) .................................................. 17,790,520
Net asset value ........................................... $ 12.92
Market price .............................................. $ 11.94
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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4 1999 Annual Report - American Strategic Income Portfolio II
<PAGE>
Financial Statements (continued)
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STATEMENT OF OPERATIONS For the Year Ended May 31, 1999
................................................................................
<TABLE>
<S> <C>
INCOME:
Interest (net of interest expense of $4,082,332) ........... $21,659,270
Rental income from real estate owned (note 2) .............. 459
-----------------
Total investment income .................................. 21,659,729
-----------------
EXPENSES (NOTE 3):
Investment management fee ................................. 1,444,941
Administrative fee ........................................ 469,265
Custodian and accounting fees ............................. 150,197
Transfer agent fees ....................................... 22,504
Reports to shareholders ................................... 86,788
Mortgage servicing fees ................................... 438,659
Directors' fees ........................................... 3,149
Audit and legal fees ...................................... 99,278
Other expenses ............................................ 64,262
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Total expenses .......................................... 2,779,043
Less expenses paid indirectly ......................... (30,291)
-----------------
Total net expenses ...................................... 2,748,752
-----------------
Net investment income ................................... 18,910,977
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NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
(NOTE 4):
Net realized gain on investments in securities ............ 653,786
Net realized gain on real estate owned .................... 112,865
-----------------
Net realized gain on investments ........................ 766,651
Net change in unrealized appreciation or depreciation of
investments ............................................. (4,169,354)
-----------------
Net loss on investments ................................. (3,402,703)
-----------------
Net increase in net assets resulting from operations
..................................................... $15,508,274
-----------------
-----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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5 1999 Annual Report - American Strategic Income Portfolio II
<PAGE>
Financial Statements (continued)
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STATEMENT OF CASH FLOWS For the Year Ended May 31, 1999
................................................................................
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and rental income ................................. $21,659,729
Net expenses ............................................... (2,748,752)
-----------------
Net investment income .................................... 18,910,977
-----------------
Adjustments to reconcile net investment income to net cash
provided by operating activities:
Change in accrued interest receivable .................... 547,915
Net amortization of bond discount and premium ............ 414,201
Change in accrued fees and expenses ...................... 86,848
Change in other assets ................................... (7,496)
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Total adjustments ...................................... 1,041,468
-----------------
Net cash provided by operating activities .............. 19,952,445
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments ......................... 56,096,212
Purchases of investments ................................... (86,241,713)
Net sales of short-term securities ......................... 2,212,640
-----------------
Net cash used by investing activities .................. (27,932,861)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from reverse repurchase agreements ............ 27,925,000
Retirement of fund shares .................................. (1,862,964)
Distributions paid to shareholders ......................... (18,286,254)
-----------------
Net cash provided by financing activities .............. 7,775,782
-----------------
Net decrease in cash ....................................... (204,634)
Cash at beginning of year .................................. 105,950
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Cash at end of year .................................... $ (98,684)
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Supplemental disclosure of cash flow information:
Cash paid for interest on reverse repurchase
agreements ............................................. $ 4,073,143
-----------------
-----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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6 1999 Annual Report - American Strategic Income Portfolio II
<PAGE>
Financial Statements (continued)
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STATEMENTS OF CHANGES IN NET ASSETS
................................................................................
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
5/31/99 5/31/98
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income ..................................... $18,910,977 $19,289,902
Net realized gain on investments .......................... 766,651 952,274
Net change in unrealized appreciation or depreciation of
investments ............................................. (4,169,354) 7,156,805
----------------- -----------------
Net increase in net assets resulting from operations .... 15,508,274 27,398,981
----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ................................ (18,286,254) (18,933,808)
----------------- -----------------
CAPITAL SHARE TRANSACTIONS (NOTE 6):
Decrease in net assets from capital share transactions .... (1,862,964) (25,900,956)
----------------- -----------------
Total decrease in net assets ............................ (4,640,944) (17,435,783)
Net assets at beginning of year ........................... 234,483,810 251,919,593
----------------- -----------------
Net assets at end of year ................................. $229,842,866 $234,483,810
----------------- -----------------
----------------- -----------------
Undistributed net investment income ....................... $ 2,310,497 $ 1,685,774
----------------- -----------------
----------------- -----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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7 1999 Annual Report - American Strategic Income Portfolio II
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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(1) ORGANIZATION
............................
American Strategic Income Portfolio Inc. II (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 BSP.
(2) SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES
............................
INVESTMENTS IN SECURITIES
Portfolio securities for which market quotations are
readily available are valued at current market value. If
market quotations or valuations are not readily available,
or if such quotations or valuations are believed to be
inaccurate, unreliable or not reflective of market value,
portfolio securities are valued according to procedures
adopted by the fund's board of directors in good faith at
"fair value", that is, a price that the fund might
reasonably expect to receive for the security or other
asset upon its current sale.
The current market value of certain fixed income
securities is provided by an independent pricing service.
Fixed income securities for which prices are not available
from an independent pricing service but where an active
market exists are valued using market quotations obtained
from one or more dealers that make markets in the
securities or from a widely-used quotation system.
Short-term securities with maturities of 60 days or less
are valued at amortized cost, which approximates market
value.
The fund's investments in whole loans (single family,
multifamily and commercial), participation mortgages and
mortgage servicing rights are generally not traded in any
organized market and therefore, market quotations are not
readily available. These investments are valued at "fair
value" according to procedures adopted by the fund's board
of directors. Pursuant to these procedures, whole loan
investments are initially valued at cost and their values
are subsequently monitored and adjusted pursuant to a
First American Asset Management pricing model designed to
incorporate, among other things, the present value of the
projected stream of cash flows on such investments. The
pricing model takes into account a number of relevant
factors including the projected rate of prepayments, the
delinquency profile, the historical payment record, the
expected yield at purchase, changes in prevailing interest
rates, and changes in the real or perceived liquidity of
whole loans, participation mortgages or mortgage servicing
rights, as the case may be. 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.
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8 1999 Annual Report - American Strategic Income Portfolio II
<PAGE>
Notes to Financial Statements (continued)
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Securities transactions are accounted for on the date
securities are purchased or sold. Realized gains and
losses are calculated on the identified-cost basis.
Interest income, including amortization of bond discount
and premium, is recorded on an accrual basis.
WHOLE LOANS AND PARTICIPATION MORTGAGES
Whole loans and participation mortgages may bear a greater
risk of loss arising from a default on the part of the
borrower of the underlying loans than do traditional
mortgage-backed securities. This is because whole loans
and participation mortgages, unlike most mortgage-backed
securities, generally are not backed by any government
guarantee or private credit enhancement. Such risk may be
greater during a period of declining or stagnant real
estate values. In addition, the individual loans
underlying whole loans and participation mortgages may be
larger than the loans underlying mortgage-backed
securities. With respect to participation mortgages, the
fund generally will not be able to unilaterally enforce
its rights in the event of a default, but rather will be
dependent on the cooperation of the other participation
holders.
At May 31, 1999, loans representing 2.4% 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 4.8% of total
single family principal outstanding at May 31, 1999. 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 $112,865 or $0.006
per share on real estate sold during the year ended May
31, 1999.
Real estate acquired through foreclosure, if any, is
recorded at estimated fair value. The fund may receive
rental or other income as a result of holding real estate.
In addition, the fund may incur expenses associated with
maintaining any real estate owned. On May 31, 1999, the
fund owned seven single family homes with an aggregate
value of $296,605, or 0.13% of net assets.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities that have been
purchased by the fund on a when-issued or
forward-commitment basis can take place a month or more
after the transaction date. During this period, such
securities do not earn interest, are subject to market
fluctuation and may increase or decrease in value prior to
their delivery. The fund segregates, with its custodian,
assets with a market value equal to the amount of its
purchase commitments. The purchase of securities on a
when-issued or forward-commitment basis may increase the
volatility of the fund's net asset value if the fund makes
such purchases while remaining substantially fully
invested. As of May 31, 1999, the fund had no outstanding
when-issued or forward commitments.
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9 1999 Annual Report - American Strategic Income Portfolio II
<PAGE>
Notes to Financial Statements (continued)
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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 funds.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income are made monthly
and realized capital gains, if any, will be distributed at
least annually. These distributions are recorded as of the
close of business on the ex-dividend date. Such
distributions are payable in cash or, pursuant to the
fund's dividend reinvestment plan, reinvested in
additional shares of the fund's capital stock. Under the
plan, fund shares will be purchased in the open market
unless the market price plus commissions exceeds the net
asset value by 5% or more. If, at the close of business on
the dividend payment date, the shares purchased in the
open market are insufficient to satisfy the dividend
reinvestment requirement, the fund will issue new shares
at a discount of up to 5% from the current market price.
REPURCHASE AGREEMENTS AND OTHER SHORT-TERM SECURITIES
For repurchase agreements entered into with certain
broker-dealers, the fund, along with other affiliated
registered investment companies, may transfer uninvested
cash balances into a joint trading account, the daily
aggregate of which is invested in repurchase agreements
secured by U.S. government or agency obligations.
Securities pledged as collateral for all individual and
joint repurchase agreements are held by the fund's
custodian bank until maturity of the repurchase agreement.
Provisions for all agreements ensure that the daily market
value of the collateral is in excess of the repurchase
amount, including accrued interest, to protect the fund in
the event of a default. In addition to repurchase
agreements, the fund may invest in money market funds
advised by the fund's advisor.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts in the financial statements. Actual
results could differ from these estimates.
(3) EXPENSES
............................
INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES
On August 10, 1998, the fund entered into an investment
advisory agreement with U.S. Bank National Association
(U.S. Bank), acting through its division, First American
Asset Management. Prior thereto, Piper Capital Management
Incorporated (Piper Capital), which was acquired by U.S.
- --------------------------------------------------------------------------------
10 1999 Annual Report - American Strategic Income Portfolio II
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
Bancorp on May 1, 1998, had served as the fund's advisor.
U.S. Bank also serves as the fund's administrator under an
administration agreement effective May 1, 1998. Prior
thereto, Piper Capital provided services under an
administration agreement through April 30, 1998.
The investment advisory agreement provides the advisor
with a monthly investment management fee in an amount
equal to an annualized rate of 0.20% of the fund's average
weekly net assets and 4.50% of the daily gross income
accrued by the fund during the month (i.e., investment
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 May 31, 1999, 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 in an amount equal to an annualized
rate of 0.20% of the fund's average weekly net assets. For
its fee, the administrator will provide regulatory,
reporting and record-keeping services for the fund.
MORTGAGE SERVICING FEES
The fund enters into mortgage servicing agreements with
mortgage servicers for whole loans and participation
mortgages. For a fee, mortgage servicers maintain loan
records, such as insurance and taxes and the proper
allocation of payments between principal and interest.
OTHER FEES AND EXPENSES
In addition to the investment management, administrative
and mortgage servicing fees, the fund is responsible for
paying most other operating expenses, including: outside
directors' fees and expenses; custodian fees; registration
fees; printing and shareholder reports; transfer agent
fees and expenses; legal, auditing and accounting
services; insurance; interest; expenses related to real
estate owned; fees to outside parties retained to assist
in conducting due diligence; taxes and other miscellaneous
expenses. During the year ended May 31, 1999, the fund
paid $51,962 for custody services to U.S. Bank.
EXPENSES PAID INDIRECTLY
Expenses paid indirectly represent a reduction of
custodian fees for earnings on miscellaneous cash balances
maintained by the fund and reimbursements of custodian
fees received from mortgage servicers of $5,343 and
$24,948, respectively.
(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 May 31, 1999,
aggregated $85,827,512 and $56,096,212, respectively.
Included in proceeds from sales are $1,125,266 from sales
of real estate owned and $562,488 from prepayment
penalties.
- --------------------------------------------------------------------------------
11 1999 Annual Report - American Strategic Income Portfolio II
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
(5) CAPITAL LOSS
CARRYOVER
............................
For federal income tax purposes, the fund had capital loss
carryovers at May 31, 1999, which, if not offset by
subsequent capital gains, will expire on the fund's fiscal
year-ends as indicated below. It is unlikely the board of
directors will authorize a distribution of any net
realized capital gains until the available capital loss
carryovers have been offset or expire.
<TABLE>
<CAPTION>
CAPITAL LOSS
CARRYOVER EXPIRATION
------------- ----------
<S> <C> <C>
$ 5,344,866 2003
22,965,560 2004
922,669 2005
1,266,343 2006
-------------
$ 30,499,438
-------------
-------------
</TABLE>
(6) CAPITAL SHARE
TRANSACTIONS
............................
REPURCHASE OFFER
In 1997, the fund offered to purchase up to 10% of its
outstanding shares at net asset value. The percentage of
outstanding shares tendered, the number of shares
tendered, the repurchase price per share and proceeds
(including tender fees) paid by the fund were as follows:
<TABLE>
<CAPTION>
PERCENTAGE SHARES REPURCHASE
TENDERED TENDERED PRICE PROCEEDS PAID
---------- ------------ ----------- -------------
<S> <C> <C> <C>
10% 1,993,915 $12.99 $ 25,900,956
</TABLE>
RETIREMENT OF FUND SHARES
The fund's board of directors has approved a plan to
repurchase shares of the fund in the open market and
retire those shares. Repurchases may only be made when the
previous day's closing market value was at a discount from
net asset value. Daily repurchases are limited to 25% of
the previous four weeks average daily trading volume on
the New York Stock Exchange. Under the current plan,
cumulative repurchases in the fund cannot exceed 897,341
shares (5% of the outstanding shares as of September 9,
1998). The board of directors will review the plan every
six months. The plan was last reviewed and reapproved by
the board of directors on June 3, 1999. Pursuant to the
plan, the fund repurchased and retired 156,300 shares
during the year ended May 31, 1999, which represents 0.87%
of the shares outstanding. The total cost of repurchasing
these shares was $1,862,964. The weighted average discount
per share from net asset value on shares purchased during
the year ended May 31, 1999 was 8.85%.
- --------------------------------------------------------------------------------
12 1999 Annual Report - American Strategic Income Portfolio II
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
(7) FINANCIAL
HIGHLIGHTS
............................
Per-share data for a share of capital stock outstanding
throughout each period and selected information for each
period are as follows:
AMERICAN STRATEGIC INCOME PORTFOLIO II
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
5/31/99(e) 5/31/98 5/31/97 5/31/96 5/31/95
-------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ... $13.07 $12.63 $12.78 $13.00 $12.97
------ -------- -------- -------- --------
Operations:
Net investment income .................. 1.06 1.03 0.98 0.99 1.21
Net realized and unrealized gains
(losses) on investments .............. (0.19) 0.41 (0.13) -- 0.17
------ -------- -------- -------- --------
Total from operations .............. 0.87 1.44 0.85 0.99 1.38
------ -------- -------- -------- --------
Distributions to shareholders:
From net investment income ............. (1.02) (1.00) (1.00) (1.21) (1.35)
------ -------- -------- -------- --------
Total distributions to
shareholders ..................... (1.02) (1.00) (1.00) (1.21) (1.35)
------ -------- -------- -------- --------
Net asset value, end of period ......... $12.92 $13.07 $12.63 $12.78 $13.00
------ -------- -------- -------- --------
------ -------- -------- -------- --------
Per-share market value, end of
period ............................... $11.94 $11.81 $11.38 $10.63 $11.50
------ -------- -------- -------- --------
------ -------- -------- -------- --------
SELECTED INFORMATION
Total return, net asset value (a) ...... 6.82% 11.74% 6.90% 7.84% 11.56%
Total return, market value (b) ......... 10.06% 13.02% 17.19% 2.95% (5.38)%
Net assets at end of period (in
millions) ............................ $ 230 $ 234 $ 252 $ 255 $ 262
Ratio of expenses to average weekly net
assets including interest expense
(c) .................................. 2.92% 3.39% 2.56% 2.39% 3.51%
Ratio of expenses to average weekly net
assets excluding interest expense
(c) .................................. 1.18% 1.38% 1.45% 1.26% 1.27%
Ratio of net investment income to
average weekly net assets ............ 8.06% 7.86% 7.73% 7.63% 9.60%
Portfolio turnover rate (excluding
short-term securities) ............... 18% 48% 51% 105% 52%
Amount of borrowings outstanding at end
of period (in millions) .............. $ 104 $ 76 $ 84 $ 53 $ 53
Per-share amount of borrowings
outstanding at end of period ......... $ 5.84 $ 4.23 $ 4.21 $ 2.66 $ 2.61
Per-share amount of net assets,
excluding borrowings, at end of
period ............................... $18.76 $17.30 $16.84 $15.44 $15.61
Asset coverage ratio (d) ............... 321% 409% 400% 581% 598%
</TABLE>
(a) ASSUMES REINVESTMENT OF DISTRIBUTIONS AT NET ASSET VALUE AND DOES NOT
REFLECT A SALES CHARGE.
(b) ASSUMES REINVESTMENT OF DISTRIBUTIONS AT ACTUAL PRICES PURSUANT TO THE
FUND'S DIVIDEND REINVESTMENT PLAN.
(c) INCLUDES 0.01% AND 0.07% FROM FEDERAL EXCISE TAXES IN FISCAL YEARS 1996 AND
1995, RESPECTIVELY. FISCAL 1998 AND 1997 RATIOS INCLUDE 0.08% AND 0.18%,
RESPECTIVELY, OF OPERATING EXPENSES ASSOCIATED WITH REAL ESTATE OWNED.
(d) REPRESENTS NET ASSETS, EXCLUDING BORROWINGS, AT END OF PERIOD DIVIDED BY
BORROWINGS OUTSTANDING AT END OF PERIOD.
(e) EFFECTIVE AUGUST 10, 1998, THE ADVISOR WAS CHANGED FROM PIPER CAPITAL TO
U.S. BANK.
- --------------------------------------------------------------------------------
13 1999 Annual Report - American Strategic Income Portfolio II
<PAGE>
INVESTMENTS IN SECURITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN STRATEGIC INCOME PORTFOLIO II May 31, 1999
...................................................................................................................
Date Market
Description of Security Acquired Par Value Cost Value (a)
- --------------------------------------------------------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
U.S. GOVERNMENT AND AGENCY SECURITIES (32.9%):
U.S. AGENCY MORTGAGE-BACKED SECURITIES (8.5%):
FIXED RATE (8.5%):
6.50%, FNMA, 5/17/29 .............................. 5/4/99 20,000,000(b) $ 19,853,239 $ 19,531,200
------------ ------------
U.S. GOVERNMENT SECURITIES (24.4%):
6.63%, U.S. Treasury Note, 3/31/02 ................ 9/22/98 54,500,000(b) 55,810,002 55,986,215
------------ ------------
Total U.S. Government and Agency Securities . 75,663,241 75,517,415
------------ ------------
PRIVATE MORTGAGE-BACKED SECURITIES (E) (4.3%):
FIXED RATE (4.3%):
8.74%, RFC 1997-NPC1, 8/27/23 ..................... 3/27/97 9,817,428 9,850,818 9,800,372
------------ ------------
WHOLE LOANS AND PARTICIPATION MORTGAGES (C,D,E) (106.3%):
COMMERCIAL LOANS (25.7%):
1336 and 1360 Energy Park Drive, 7.65%, 10/1/08 ... 9/29/98 2,976,180 2,976,180 2,871,525
Bigelow Office Building, 9.00%, 4/1/07 ............ 3/31/97 1,365,803 1,365,803 1,423,473
Canton Commerce Center, 9.25%, 7/1/01 ............. 6/27/96 3,307,284 3,307,284 3,400,040
Centre Point Commerce Park, 9.00%, 6/1/12 ......... 5/2/97 775,163 767,411 803,829
Cottonwood Square, 9.30%, 5/1/04 .................. 4/16/97 2,774,031 2,774,031 2,874,514
Doctors Medical Plaza, 8.00%, 2/1/08 .............. 1/27/98 875,980 875,980 866,205
Fortune Park V, VI, VII, 8.00%, 1/1/04 ............ 12/29/98 3,739,834 3,739,834 3,720,214
Hillside Crossing South Shopping Center, 8.05%,
1/1/05 .......................................... 12/22/97 1,768,402 1,768,402 1,744,333
Hillside Office Park, 7.75%, 8/1/08 ............... 7/9/98 989,887 989,887 956,570
Hollywood Plaza, 7.95%, 11/1/03 ................... 11/4/98 1,341,270 1,341,270 1,330,841
Jamboree Building, 9.05%, 12/1/06 ................. 11/15/96 1,942,892 1,923,463 2,008,566
Minikadha Mini Storage III, 8.72%, 8/1/09 ......... 8/1/97 2,936,652 2,936,652 2,973,689
Minikahda Mini Storage V, 8.87%, 9/1/09 ........... 8/28/98 1,885,782 1,885,782 1,926,824
Oak Knoll Village Shopping Center, 8.80%,
7/1/05 .......................................... 6/10/98 1,386,656 1,386,656 1,420,653
One Columbia, 8.00%, 1/1/08 ....................... 1/2/98 1,334,759 1,334,759 1,316,758
PennMont Office Building, 8.88%, 5/1/01 ........... 4/29/96 1,343,714 1,343,714 1,371,132
</TABLE>
<TABLE>
<CAPTION>
Date Market
Description of Security Acquired Par Value Cost Value (a)
- --------------------------------------------------------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
PMG Center, 9.05%, 9/1/03 ......................... 8/29/96 2,347,694 $ 2,347,694 $ 2,420,576
Provident Bank Building, 8.80%, 11/1/01 ........... 10/4/96 2,713,714 2,686,577 2,770,570
Rapid Park Parking Lot, 9.00%, 9/1/07 ............. 8/7/97 3,678,115 3,678,115 3,826,255
Ridgehill Professional Building, 7.50%, 1/1/09 12/7/98 2,687,573 2,687,573 2,566,207
Ridgewood Estates Mobile Home Park, 8.55%,
12/1/00 ......................................... 11/14/95 2,052,019 2,048,678 2,076,930
Rimrock Plaza, 7.75%, 12/1/08 ..................... 12/2/98 3,241,920 3,241,920 3,113,574
Rubin Center, 8.90%, 7/1/07 ....................... 6/13/97 3,228,767 3,228,767 3,324,235
Stevenson Office Building, Port Orchard Cinema and
Jensen Industrial Building, 8.00%, 2/1/09 1/21/99 3,476,792 3,476,792 3,413,456
Sundance Plaza, 7.25%, 11/1/08 .................... 10/29/98 1,158,347 1,158,347 1,112,906
Wellington Professional Center, 8.80%, 11/1/01 11/1/96 2,683,340 2,683,340 2,739,457
Westwood Business Park II, 13.00%, 6/1/99 5/7/99 700,000 693,000 652,511
------------ ------------
58,647,911 59,025,843
------------ ------------
MULTIFAMILY LOANS (35.8%):
Arbor at Dairy Ashford Apartments I, 8.00%,
3/1/01 .......................................... 2/6/98 4,015,419 4,015,419 4,055,573
Arbor at Dairy Ashford Apartments II, 10.00%,
3/1/01 .......................................... 2/6/98 804,167 804,167 713,461
Autumnwood, Southern Woods, Hinton Hollow, 9.10%,
6/1/03 .......................................... 5/31/96 6,287,819 6,287,819 6,518,211
Beverly Palms Apartments, 7.75%, 4/1/04 ........... 3/25/99 12,200,000 12,200,000 12,096,376
Casa Carranza Apartments, 8.35%, 12/1/02 .......... 12/1/95 3,907,578 3,868,503 3,978,423
Chardonnay Apartments, 8.70%, 1/1/07 .............. 12/18/96 4,271,809 4,250,450 4,431,690
Deering Manor, 9.50%, 12/8/22 ..................... 12/8/92 1,234,539 1,222,194 1,239,516
Fremont Plaza Apartments, 7.50%, 7/1/08 ........... 7/1/98 2,643,635 2,643,635 2,575,819
Harbor View Apartments, 9.50%, 1/25/18 ............ 1/22/93 745,129 737,678 748,123
Jaccard Apartments, 8.83%, 12/1/03 ................ 11/1/96 2,748,988 2,748,988 2,847,897
Kona Kai Apartments, 8.45%, 11/1/05 ............... 10/24/95 1,129,605 1,123,447 1,160,096
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
14 1999 Annual Report - American Strategic Income Portfolio II
<PAGE>
INVESTMENTS IN SECURITIES (continued)
- --------------------------------------------------------------------------------
AMERICAN STRATEGIC INCOME PORTFOLIO II
(CONTINUED)
<TABLE>
<CAPTION>
Date Market
Description of Security Acquired Par Value Cost Value (a)
- --------------------------------------------------------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Newport Apartments, 9.75%, 4/1/02 ................. 3/10/95 1,334,062 $ 1,317,386 $ 1,374,084
Normandale Lake Estates, 8.13%, 2/1/03 ............ 1/16/96 2,403,015 2,399,616 2,428,994
Park Place of Venice Apartments, 10.75%, 4/1/02 ... 3/2/95 2,590,551 2,576,803 2,668,267
Park Terrace Apartments, 8.45%, 11/1/05 ........... 10/24/95 2,537,325 2,530,981 2,593,128
Primrose Apartments, 8.63%, 11/1/07 ............... 10/19/95 1,082,858 1,081,158 1,120,513
Rhode Island Chateau Apartments, 8.85%, 6/1/02 .... 5/21/97 2,784,932 2,784,932 2,768,524
Sierra Madre Apartments, 8.40%, 7/1/02 ............ 6/16/97 1,793,332 1,793,332 1,817,702
Skyline Apartments, 8.80%, 12/1/03 ................ 11/6/96 2,061,516 2,058,080 2,133,170
The Gables at Westlake Apartments, 7.40%,
2/1/08 .......................................... 1/16/98 6,422,906 6,422,906 6,222,375
The Meadows, Fairfield Manor, Auburn Apartments,
8.63%, 11/1/07 .................................. 10/19/95 1,662,019 1,660,404 1,725,304
Vintage Apartments, 9.00%, 8/1/05 ................. 8/15/95 2,864,130 2,859,675 2,998,283
Westview Apartments, 7.80%, 3/1/03 ................ 2/16/96 1,066,992 1,052,927 1,062,189
Whispering Hills Apartments, 8.80%, 10/1/02 ....... 9/8/95 2,043,193 2,019,480 2,095,742
Whispering Hollow Apartments I, 8.00%, 3/1/01 ..... 2/6/98 5,559,172 5,559,172 5,614,764
Whispering Hollow Apartments II, 10.00%, 3/1/01 ... 2/6/98 1,113,333 1,113,333 987,754
Windgate Apartments, 9.00%, 1/1/05 ................ 12/23/97 2,675,088 2,675,088 2,675,088
Winterland Apartments I, 9.35%, 7/1/12 ............ 6/6/97 592,721 592,721 622,357
Winterland Apartments II, 9.35%, 7/1/12 ........... 6/6/97 1,136,049 1,136,049 1,192,851
------------ ------------
81,536,343 82,466,274
------------ ------------
SINGLE FAMILY LOANS (44.8%):
Aegis III, 8.77%, 6/13/11 5/13/97 1,655,588 1,614,780 1,676,385
Amerivest Mortgage, 9.04%, 5/1/12 ................. 9/28/93 2,147,325 1,589,020 2,175,989
CTX Mortgage, 9.21%, 11/23/22 ..................... 11/23/92 1,264,637 1,126,425 1,279,705
Energy Park Loans, 12.20%, 12/1/22 ................ 12/1/92 202,019 193,589 208,079
Fairbanks III, 10.18%, 1/1/07 ..................... 3/18/94 499,836 458,987 492,515
Fairbanks IV, 8.75%, 7/3/11 ....................... 11/3/94 575,309 494,283 564,970
</TABLE>
<TABLE>
<CAPTION>
Date Market
Description of Security Acquired Par Value Cost Value (a)
- --------------------------------------------------------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
First Federal of Delaware, 8.09%, 2/1/18 .......... 1/29/93 3,304,861(b) $ 3,029,460 $ 3,305,830
Greenwich, 9.50%, 6/16/05 ......................... 2/16/96 595,048 580,223 605,060
Heartland Federal Savings & Loan, 11.38%,
11/17/22 ........................................ 11/17/92 131,764 126,437 102,275
Kentucky Central Life, 9.39%, 5/1/22 .............. 2/12/93 2,435,479(b) 2,354,544 2,459,554
Kislak, 10.02%, 6/30/20 . 4/14/93 3,844,737(b) 3,615,072 3,855,282
Maryland National Bank, 9.79%, 9/1/18 ............. 1/29/93 673,167 646,406 689,355
McDowell, 9.82%, 12/1/20 .......................... 12/11/92 2,265,589 2,266,582 2,327,024
Merchants Bank, 10.41%, 12/1/20 ................... 12/18/92 935,165 942,853 960,296
Meridian, 9.32%, 10/15/22 ......................... 10/15/92 633,302 651,510 651,986
Meridian III, 9.32%, 12/1/20 ...................... 12/21/92 2,941,268(b) 2,804,723 2,991,568
Minneapolis Employees Retirement Fund, 7.91%,
2/10/14 ......................................... 4/10/96 3,314,816(b) 3,075,856 3,229,414
NationsBank, 8.66%, 10/1/07 ....................... 12/10/92 50,926 47,362 51,930
Neslund Properties, 9.88%, 2/1/23 ................. 1/27/93 2,666,186 2,652,961 2,744,558
Nomura I, 9.90%, 12/16/23 ......................... 12/16/93 6,611,159(b) 6,852,789 6,707,339
Nomura II, 8.61%, 3/22/15 ......................... 8/22/94 8,203,560 7,807,567 7,617,373
Nomura III, 8.23%, 8/29/17 ........................ 9/29/95 12,678,332(b) 10,971,441 12,144,579
Norwest II, 7.97%, 11/27/22 ....................... 2/27/96 2,490,369(b) 2,477,883 2,481,937
Norwest IV, 8.22%, 4/23/25 ........................ 5/23/96 4,420,113(b) 4,392,830 4,355,601
Norwest VII, 7.82%, 9/24/25 ....................... 2/24/97 4,773,344(b) 4,639,833 4,727,469
Norwest X, 7.88%, 4/1/25 .......................... 3/12/98 1,180,872 1,183,703 1,171,691
Norwest XIII, 7.61%, 11/1/25 ...................... 10/28/98 3,732,033(b) 3,713,373 3,676,367
Norwest XIV, 7.25%, 3/1/25 ........................ 12/3/98 11,521,305 11,406,092 11,158,787
Norwest XV, 7.24%, 2/1/26 ......................... 12/23/98 3,622,791 3,577,507 3,521,660
Norwest XVI, 7.18%, 1/27/27 ....................... 3/4/99 3,412,779 3,317,221 3,341,452
Norwest XVII, 6.90%, 7/11/24 ...................... 5/20/99 4,745,805 4,570,834 4,594,692
Old Hickory Credit Union, 10.20%, 10/15/22 ........ 10/28/92 989,120 991,683 1,004,049
Paine Webber, 12.39%, 10/15/20 .................... 9/17/92 231,365 206,213 212,846
PHH U.S. Mortgage, 8.75%, 1/1/12 .................. 12/30/92 2,877,269 2,799,906 2,808,217
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
15 1999 Annual Report - American Strategic Income Portfolio II
<PAGE>
INVESTMENTS IN SECURITIES (continued)
- --------------------------------------------------------------------------------
AMERICAN STRATEGIC INCOME PORTFOLIO II
(CONTINUED)
<TABLE>
<CAPTION>
Date Shares/ Market Value
Description of Security Acquired Par Value Cost (a)
- --------------------------------------------------------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
President Homes 92-4, Sales Inventory, 6.88%,
10/15/20 ........................................ 12/1/92 65,853 $ 64,557 $ 65,367
President Homes 92-8, Sales Inventory, 8.13%,
11/24/22 ........................................ 3/1/93 122,264 121,327 106,239
Progressive Consumers Federal Credit Union, 11.63%,
10/15/22 ........................................ 11/5/92 149,587 140,934 152,454
Salomon, 7.64%, 12/28/16 .......................... 7/28/94 2,510,812(b) 2,404,102 2,496,031
Sears Mortgage, 9.10%, 11/18/22 ................... 11/18/92 225,004 214,882 231,758
------------ ------------
100,125,750 102,947,683
------------ ------------
Total Whole Loans and Participation Mortgages
............................................. 240,310,004 244,439,800
------------ ------------
SHORT-TERM SECURITIES (0.7%):
First American Prime Obligations Fund ............. 5/31/99 1,608,360(f) 1,608,360 1,608,360
------------ ------------
Total Investments in Securities: (g) ........... $327,432,423 $331,365,947
------------ ------------
------------ ------------
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES:
(a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(b) ON MAY 31, 1999, SECURITIES VALUED AT $111,608,252 WERE PLEDGED AS
COLLATERAL FOR THE FOLLOWING OUTSTANDING REVERSE REPURCHASE AGREEMENTS:
<TABLE>
<CAPTION>
NAME OF BROKER
ACQUISITION ACCRUED AND DESCRIPTION
AMOUNT DATE RATE* DUE INTEREST OF COLLATERAL
- ------------ --------- ---------- --------- --------- -------------------
<S> <C> <C> <C> <C> <C>
$ 18,925,000 5/17/99 4.87% 5/15/00 $ 38,413 (1)
53,000,000 5/3/99 4.83% 6/1/99 206,214 (2)
32,000,000 5/3/99 5.78% 6/1/99 148,867 (3)
- ------------ ---------
$103,925,000 $ 393,494
- ------------ ---------
- ------------ ---------
</TABLE>
* INTEREST RATE AS OF MAY 31, 1999. 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, 6.50%, 5/17/29, $20,000,000 PAR
(2) NOMURA;
U.S. TREASURY NOTE, 6.63%, 3/31/02, $51,090,000 PAR
(3) NOMURA;
FIRST FEDERAL OF DELAWARE, 8.09%, 2/1/18, $2,050,833 PAR
KENTUCKY CENTRAL LIFE, 9.39%, 5/1/22, $2,136,321 PAR
KISLAK, 10.02%, 6/30/20, $2,937,232 PAR
MERIDIAN III, 9.32%, 12/1/20, $2,392,800 PAR
MINNEAPOLIS EMPLOYEES RETIREMENT FUND, 7.91%, 2/10/14,
$3,066,194 PAR
NOMURA I, 9.90%, 12/16/23, $5,186,988 PAR
NOMURA III, 8.23%, 8/29/17, $6,386,390 PAR
NORWEST II, 7.97%, 11/27/22, $2,412,121 PAR
NORWEST IV, 8.22%, 4/23/25, $4,222,603 PAR
NORWEST VII, 7.82%, 9/24/25, $3,211,950 PAR
NORWEST XIII, 7.61%, 11/1/25, $3,732,033 PAR
SALOMON, 7.64%, 12/28/16, $2,257,547 PAR
THE FUND HAS ENTERED INTO A LENDING COMMITMENT WITH NOMURA. THE
AGREEMENT PERMITS THE FUND TO ENTER INTO REVERSE REPURCHASE AGREEMENTS
UP TO $50,000,000 USING WHOLE LOANS AS COLLATERAL. THE FUND PAYS A FEE
OF 0.25% TO NOMURA ON THE UNUSED PORTION OF A $50,000,000 LENDING
COMMITMENT.
(c) INTEREST RATES ON COMMERCIAL AND MULTIFAMILY LOANS ARE THE RATES IN EFFECT
ON MAY 31, 1999. INTEREST RATES AND MATURITY DATES DISCLOSED ON SINGLE
FAMILY LOANS REPRESENT THE WEIGHTED AVERAGE COUPON AND WEIGHTED AVERAGE
MATURITY FOR THE UNDERLYING MORTGAGE LOANS AS OF MAY 31, 1999.
(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:
1336 AND 1360 ENERGY PARK DRIVE - ST. PAUL, MN
BIGELOW OFFICE BUILDING - LAS VEGAS, NV
CANTON COMMERCE CENTER - CANTON, MA
CENTRE POINT COMMERCE PARK - ORLANDO, FL
COTTONWOOD SQUARE - COLORADO SPRINGS, CO
DOCTORS MEDICAL PLAZA - COLORADO SPRINGS, CO
FORTUNE PARK V, VI, VII - INDIANAPOLIS, IN
HILLSIDE CROSSING SOUTH SHOPPING CENTER - ELK RIVER, MN
HILLSIDE OFFICE PARK - ELK RIVER, MN
HOLLYWOOD PLAZA - MILWAUKIE, OR
JAMBOREE BUILDING - COLORADO SPRINGS, CO
MINIKADHA MINI STORAGE III - ST. PAUL, MN
MINIKADHA MINI STORAGE V - ST. PAUL, MN
OAK KNOLL VILLAGE SHOPPING CENTER - AUSTIN, TX
ONE COLUMBIA - ALISO VIEJO, CA
PENNMONT OFFICE BUILDING - ALBUQUERQUE, NM
PMG CENTER - FORT LAUDERDALE, FL
PROVIDENT BANK BUILDING - DESOTO, TX
RAPID PARK PARKING LOT - MINNEAPOLIS, MN
RIDGEHILL PROFESSIONAL BUILDING - MINNETONKA, MN
RIDGEWOOD ESTATES MOBILE HOME PARK - LAYTON, UT
RIMROCK PLAZA - BILLINGS, MT
RUBIN CENTER - CLEARWATER, FL
STEVENSON OFFICE BUILDING, PORT ORCHARD CINEMA AND JENSEN BUILDING -
STEVENSON, PORT ORCHARD AND ARLINGTON, WA
SUNDANCE PLAZA - COLORADO SPRINGS, CO
WELLINGTON PROFESSIONAL CENTER - WELLINGTON, FL
WESTWOOD BUSINESS PARK II - FARMERS BRANCH, TX
- --------------------------------------------------------------------------------
16 1999 Annual Report - American Strategic Income Portfolio II
<PAGE>
INVESTMENTS IN SECURITIES (continued)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Multifamily Loans:
ARBOR AT DAIRY ASHFORD APARTMENTS I - HOUSTON, TX
ARBOR AT DAIRY ASHFORD APARTMENTS II - HOUSTON, TX
AUTUMNWOOD, SOUTHERN WOODS, HINTON HOLLOW - KNOXVILLE, TN
BEVERLY PALMS APARTMENTS - HOUSTON, TX
CASA CARRANZA APARTMENTS - MESA, AZ
CHARDONNAY APARTMENTS - TULSA, OK
DEERING MANOR - NASHWAUK, MN
FREMONT PLAZA APARTMENTS - PHOENIX, AZ
HARBOR VIEW APARTMENTS - GRAND MARAIS, MN
JACCARD APARTMENTS - UNIVERSITY CITY, MO
KONA KAI APARTMENTS - PUEBLO, CO
NEWPORT APARTMENTS - WHITE SETTLEMENT, TX
NORMANDALE LAKE ESTATES - BLOOMINGTON, MN
PARK PLACE OF VENICE APARTMENTS - VENICE, FL
PARK TERRACE APARTMENTS - PUEBLO, CO
PRIMROSE APARTMENTS - GRAND FALLS, ND
RHODE ISLAND CHATEAU APARTMENTS - ST. LOUIS PARK, MN
SIERRA MADRE APARTMENTS - LAS VEGAS, NV
SKYLINE APARTMENTS - KANSAS CITY, KS
THE GABLES AT WESTLAKE APARTMENTS - OKLAHOMA CITY, OK
THE MEADOWS, FAIRFIELD MANOR, AUBURN APARTMENTS - WAHPETON, ND
VINTAGE APARTMENTS - KERMAN, CA
WESTVIEW APARTMENTS - AUSTIN, TX
WHISPERING HILLS APARTMENTS - NASHVILLE, TN
WHISPERING HOLLOW APARTMENTS I - DALLAS, TX
WHISPERING HOLLOW APARTMENTS II - DALLAS, TX
WINDGATE APARTMENTS - LOUISVILLE, KY
WINTERLAND APARTMENTS I - GRAND FORKS, ND
WINTERLAND APARTMENTS II - GRAND FORKS, ND
Single Family Loans:
AEGIS III - 59 LOANS, TEXAS
AMERIVEST MORTGAGE - 34 LOANS, MASSACHUSETTS
CTX MORTGAGE - 16 LOANS, UNITED STATES
ENERGY PARK LOANS - 3 LOANS, MINNESOTA
FAIRBANKS III - 7 LOANS, WESTERN UNITED STATES
FAIRBANKS IV - 10 LOANS, UNITED STATES
FIRST FEDERAL OF DELAWARE - 71 LOANS, UNITED STATES
GREENWICH - 8 LOANS, COLORADO
HEARTLAND FEDERAL SAVINGS & LOAN - 2 LOANS, CALIFORNIA
KENTUCKY CENTRAL LIFE - 77 LOANS, KENTUCKY
KISLAK - 74 LOANS, CENTRAL AND SOUTHERN UNITED STATES
MARYLAND NATIONAL BANK - 13 LOANS, EASTERN UNITED STATES
MCDOWELL - 46 LOANS, GEORGIA
MERCHANTS BANK - 32 LOANS, VERMONT
MERIDIAN - 9 LOANS, CALIFORNIA AND FLORIDA
MERIDIAN III - 58 LOANS, CALIFORNIA
MINNEAPOLIS EMPLOYEES RETIREMENT FUND - 94 LOANS, MINNESOTA
NATIONSBANK - 6 LOANS, GEORGIA
NESLUND PROPERTIES - 105 LOANS, MINNESOTA
NOMURA I - 161 LOANS, CALIFORNIA AND TEXAS
NOMURA II - 146 LOANS, UNITED STATES
NOMURA III - 197 LOANS, MIDWESTERN UNITED STATES
NORWEST II - 26 LOANS, MIDWESTERN UNITED STATES
NORWEST IV - 30 LOANS, MIDWESTERN UNITED STATES
NORWEST VII - 36 LOANS, MIDWESTERN UNITED STATES
NORWEST X - 9 LOANS, MIDWESTERN UNITED STATES
NORWEST XIII - 32 LOANS, MIDWESTERN UNITED STATES
NORWEST XIV - 68 LOANS, MIDWESTERN UNITED STATES
NORWEST XV - 24 LOANS, MIDWESTERN UNITED STATES
NORWEST XVI - 27 LOANS, MIDWESTERN UNITED STATES
NORWEST XVII - 44 LOANS, MIDWESTERN UNITED STATES
OLD HICKORY CREDIT UNION - 33 LOANS, TENNESSEE
PAINE WEBBER - 7 LOANS, NEW JERSEY
PHH U.S. MORTGAGE - 25 LOANS, UNITED STATES
PRESIDENT HOMES 92-4, SALES INVENTORY - 1 LOAN, MICHIGAN
PRESIDENT HOMES 92-8, SALES INVENTORY - 2 LOANS, KANSAS
PROGRESSIVE CONSUMERS FEDERAL CREDIT UNION - 2 LOANS, MASSACHUSETTS
SALOMON - 34 LOANS, NEW JERSEY
SEARS MORTGAGE - 4 LOANS, UNITED STATES
(e) SECURITIES PURCHASED AS PART OF A PRIVATE PLACEMENT WHICH HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES
ACT OF 1933 AND ARE CONSIDERED TO BE ILLIQUID. ON MAY 31, 1999, THE TOTAL
MARKET VALUE OF THESE INVESTMENTS WAS $254,240,172 OR 110.6% OF TOTAL NET
ASSETS.
(f) THIS MONEY MARKET FUND IS ADVISED BY U.S. BANK WHICH ALSO SERVES AS ADVISOR
FOR THE FUND. SEE NOTE 2 IN THE NOTES TO FINANCIAL STATEMENTS.
(g) ON MAY 31, 1999, THE COST OF INVESTMENTS IN SECURITIES, INCLUDING REAL
ESTATE OWNED, FOR FEDERAL INCOME TAX PURPOSES WAS $327,746,995. THE
AGGREGATE GROSS UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN
SECURITIES, INCLUDING REAL ESTATE OWNED, BASED ON THIS COST WERE AS
FOLLOWS:
</TABLE>
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 6,305,551
GROSS UNREALIZED DEPRECIATION ...... (2,389,994)
------------
NET UNREALIZED APPRECIATION ...... $ 3,915,557
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
17 1999 Annual Report - American Strategic Income Portfolio II
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS AND SHAREHOLDERS
AMERICAN STRATEGIC INCOME PORTFOLIO INC. II:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments in
securities, of American Strategic Income Portfolio Inc. II
as of May 31, 1999, and the related statements of
operations, cash flows, changes in net assets and the
financial highlights for the year then ended. These
financial statements and the financial highlights are the
responsibility of the fund's management. Our
responsibility is to express an opinion on these financial
statements and the financial highlights based on our
audit. The statement of changes in net assets for the year
ended May 31, 1998 and the financial highlights for each
of the four years in the period then ended were audited by
other auditors whose report dated July 10, 1998, expressed
an unqualified opinion.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and the
financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures
included confirmation of securities owned as of May 31,
1999, by correspondence with the custodian. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements and the financial
highlights referred to above present fairly, in all
material respects, the financial position of American
Strategic Income Portfolio Inc. II at May 31, 1999, and
the results of its operations and its cash flows, the
changes in its net assets and the financial highlights for
the year then ended, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
July 1, 1999
- --------------------------------------------------------------------------------
18 1999 Annual Report - American Strategic Income Portfolio II
<PAGE>
FEDERAL INCOME TAX INFORMATION
- --------------------------------------------------------------------------------
The following per-share information describes the federal
tax treatment of distributions made during the fiscal
year. Distributions for the calendar year will be reported
to you on
Form 1099-DIV. Please consult a tax advisor on how to
report these distributions at the state and local levels.
INCOME DISTRIBUTIONS (TAXABLE AS ORDINARY DIVIDENDS, NONE
QUALIFYING FOR DEDUCTION BY CORPORATIONS)
<TABLE>
<CAPTION>
PAYABLE DATE AMOUNT
- ---------------------------------------- -------
<S> <C>
June 24, 1998 .......................... $0.0825
July 29, 1998 .......................... 0.0825
August 26, 1998 ........................ 0.0850
September 23, 1998 ..................... 0.0850
October 28, 1998 ....................... 0.0850
November 24, 1998 ...................... 0.0850
December 16, 1998 ...................... 0.0910
January 13, 1999 ....................... 0.0850
February 24, 1999 ...................... 0.0850
March 24, 1999 ......................... 0.0850
April 28, 1999 ......................... 0.0850
May 26, 1999 ........................... 0.0850
-------
Total ................................ $1.0210
-------
-------
</TABLE>
- --------------------------------------------------------------------------------
19 1999 Annual Report - American Strategic Income Portfolio II
<PAGE>
SHAREHOLDER UPDATE
- --------------------------------------------------------------------------------
ANNUAL MEETING RESULTS
An annual meeting of the fund's shareholders was held on
August 10, 1998. Each matter voted upon at that meeting,
as well as the number of votes cast for, against or
withheld, the number of abstentions, and the number of
broker non-votes with respect to such matters, are set
forth below.
(1) The fund's shareholders elected the following
directors:
<TABLE>
<CAPTION>
SHARES SHARES WITHHOLDING
VOTED "FOR" AUTHORITY TO VOTE
------------- ------------------
<S> <C> <C>
David T. Bennett ....................... 13,145,145 1,608,859
Robert J. Dayton ....................... 13,159,410 1,594,594
Roger A. Gibson ........................ 13,160,094 1,593,910
Andrew M. Hunter III ................... 13,171,527 1,582,477
Leonard W. Kedrowski ................... 13,171,710 1,582,294
Robert L. Spies ........................ 13,171,442 1,582,562
Joseph D. Strauss ...................... 13,171,383 1,582,621
Virginia L. Stringer ................... 13,171,977 1,582,027
</TABLE>
(2) The fund's shareholders approved an interim advisory
agreement between the fund and Piper Capital
Management Incorporated ("Piper Capital"), and the
receipt of investment advisory fees by Piper Capital
under such agreement. The following votes were cast
regarding this matter:
<TABLE>
<CAPTION>
SHARES SHARES BROKER
VOTED "FOR" VOTED "AGAINST" ABSTENTIONS NON-VOTES
-------------- ----------------- ----------- ---------
<S> <C> <C> <C>
13,701,373 792,387 260,242 --
</TABLE>
(3) The fund's shareholders approved a new investment
advisory agreement between the fund and U.S. Bank. The
following votes were cast regarding this matter:
<TABLE>
<CAPTION>
SHARES SHARES BROKER
VOTED "FOR" VOTED "AGAINST" ABSTENTIONS NON-VOTES
-------------- ----------------- ----------- ---------
<S> <C> <C> <C>
13,698,589 778,115 277,299 --
</TABLE>
(4) The fund's shareholders ratified the selection by a
majority of the independent members of the fund's
Board of Directors of KPMG LLP as the independent
public accountants for the fund for the fiscal year
ending May 31, 1999. The following votes were cast
regarding this matter:
<TABLE>
<CAPTION>
SHARES SHARES BROKER
VOTED "FOR" VOTED "AGAINST" ABSTENTIONS NON-VOTES
-------------- ----------------- ----------- ---------
<S> <C> <C> <C>
14,487,288 92,379 174,337 --
</TABLE>
CHANGE OF ACCOUNTANTS
On March 12, 1999, KPMG LLP ("KPMG") resigned as
independent accountants for the fund. KPMG's reports on
the fund's financial statements for the past two years
have not contained an adverse opinion or a disclaimer of
opinion, and have not been qualified as to uncertainty,
audit scope, or accounting principles. In addition, there
have not been any disagreements with KPMG during the
fund's two most recent fiscal years on any matter of
accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not
resolved to the satisfaction of KPMG, would have caused it
to make a reference to the subject matter of the
- --------------------------------------------------------------------------------
20 1999 Annual Report - American Strategic Income Portfolio II
<PAGE>
Shareholder Update (continued)
- --------------------------------------------------------------------------------
disagreement in connection with its reports. The fund's
board of directors, upon the recommendation of the audit
committee, appointed Ernst & Young LLP as the independent
accountants for the funds for the fiscal year ending May
31, 1999.
SHARE REPURCHASE PROGRAM
Your funds 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 days closing market
price per share was at a discount from net asset value.
Repurchases cannot exceed 5% of the funds outstanding
shares as of September 9, 1998.
WHAT EFFECT WILL THIS PROGRAM HAVE ON SHAREHOLDERS?
We do not expect any adverse impact on the advisors
ability to manage the fund.
Because repurchases will be at a price below net asset
value, remaining shares outstanding may experience a
slight increase in net asset value. Although the effect of
share repurchases on the market price is less certain, the
board of directors believes the program may have a
favorable effect on the market price of fund shares. We do
not anticipate any material increase in the funds 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 funds investment advisor. The board of directors'
decision whether to continue the share repurchase program
will be reported in the next shareholder report.
HOW WILL SHARES BE REPURCHASED?
We expect to finance the repurchase of shares by
liquidating portfolio securities or using current cash
balances. We do not anticipate borrowing in order to
finance share repurchases.
TERMS AND CONDITIONS OF THE DIVIDEND REINVESTMENT PLAN
As a shareholder, you may choose to participate in the
Dividend Reinvestment Plan. It's a convenient and
economical way to buy additional shares of the fund by
automatically reinvesting dividends and capital gains. The
plan is administered by Investors Fiduciary Trust Company
("IFTC"), the plan agent.
ELIGIBILITY/PARTICIPATION
You may join the plan at any time. Reinvestment of
distributions will begin with the next distribution paid,
provided your request is received at least 10 days before
the record date for that distribution.
- --------------------------------------------------------------------------------
21 1999 Annual Report - American Strategic Income Portfolio II
<PAGE>
Shareholder Update (continued)
- --------------------------------------------------------------------------------
If your shares are in certificate form, you may join the
plan directly and have your distributions reinvested in
additional shares of the fund. To enroll in this plan,
call IFTC at 1-800-543-1627. If your shares are registered
in your brokerage firm's name or another name, ask the
holder of your shares how you may participate.
Banks, brokers or nominees, on behalf of their beneficial
owners who wish to reinvest dividend and capital gains
distributions, may participate in the plan by informing
IFTC at least 10 days before each shares dividend and/or
capital gains distribution.
PLAN ADMINISTRATION
Beginning no more than five business days before the
dividend payment date, IFTC will buy shares of the fund on
the New York Stock Exchange (NYSE) or else where on the
open market only when the price of the fund's shares on
the NYSE plus commissions is at less than a 5% premium
over the fund's most recently calculated net asset value
("NAV") per share. If, at the close of business on the
dividend payment date, the shares purchased in the open
market are insufficient to satisfy the dividend
reinvestment requirement, IFTC will accept payment of the
dividend, or the remaining portion, in authorized but
unissued shares of the fund. These shares will be issued
at a per-share price equal to the higher of (a) the NAV
per share as of the close of business on the payment date
or (b) 95% of the closing market price per share on the
payment date.
By participating in the dividend reinvestment plan, you
may receive benefits not available to shareholders who
elect not to participate. For example, if the market price
plus commissions of the fund's shares is 5% or more above
the NAV, you will receive shares at a discount of up to 5%
from the current market value. However, if the market
price plus commissions is below the NAV, you will receive
distributions in shares with an NAV greater than the value
of any cash distributions you would have received.
There is no direct charge for reinvestment of dividends
and capital gains, since IFTC fees are paid for by the
fund. However, if fund shares are purchased in the open
market, each participant pays a pro rata portion of the
brokerage commissions. Brokerage charges are expected to
be lower than those for individual transactions because
shares are purchased for all participants in blocks. As
long as you continue to participate in the plan,
distributions paid on the shares in your account will be
reinvested.
IFTC maintains accounts for plan participants holding
shares in certificate form and will furnish written
confirmation of all transactions, including information
you need for tax records. Reinvested shares in your
account will be held by IFTC in noncertificated form in
your name.
TAX INFORMATION
Distributions invested in additional shares of the fund
are subject to income tax, to the same extent if received
as 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.
- --------------------------------------------------------------------------------
22 1999 Annual Report - American Strategic Income Portfolio II
<PAGE>
Shareholder Update (continued)
- --------------------------------------------------------------------------------
PLAN WITHDRAWAL
If you hold your shares in certificate form, you may
terminate your participation in the plan at any time by
giving written notice to IFTC. If your shares are
registered in your brokerage firm's name, you may
terminate your participation via verbal or written
instructions to your investment professional. Written
instructions should include your name and address as they
appear on the certificate or account.
If notice is received at least 10 days before the record
date, all future distributions will be paid directly to
the shareholder of record.
If your shares are issued in certificate form and you
discontinue your participation in the plan, you (or your
nominee) will receive an additional certificate for all
full shares and a check for any fractional shares in your
account.
PLAN AMENDMENT/TERMINATION
The fund reserves the right to amend or terminate the
plan. Should the plan be amended or terminated,
participants will be notified in writing at least 90 days
before the record date for such dividend or distribution.
The plan may also be amended or terminated by IFTC with at
least 90 days written notice to participants in the plan.
Any questions about the plan should be directed to your
investment professional or to Investors Fiduciary Trust
Company, P.O. Box 419432, Kansas City, Missouri 64141,
1-800-543-1627.
YEAR 2000 UPDATE
Like other mutual funds and business and financial
organizations, the fund could be adversely affected if the
computer systems used by the funds advisor, other service
providers and entities with computer systems that are
linked to fund records do not properly process and
calculate date-related information from and after January
1, 2000. While year 2000-related computer problems could
have a negative effect on the fund, the fund s
administrator has undertaken a program designed to assess
and monitor the steps being taken by the funds service
providers to address year 2000 issues. This program
includes seeking assurances from service providers that
their systems are or will be year 2000 compliant and
reviewing service providers test results for year 2000
compliance. The administrator and the advisor also report
regularly to the funds board of directors concerning their
own and other service providers progress toward year 2000
readiness. Although these reports indicate that service
providers are or expect to be year 2000 compliant, there
can be no assurance that this will be the case in all
instances or that year 2000 difficulties experienced by
others in the financial services industry will not impact
the fund.
In addition, there can be no assurance that year 2000
difficulties will not have an adverse effect on the funds
investments or on global markets or economies, generally.
The fund is not bearing any of the expenses incurred by
its service providers in preparing for the year 2000 or in
reporting on these matters to the funds board of
directors.
- --------------------------------------------------------------------------------
23 1999 Annual Report - American Strategic Income Portfolio II
<PAGE>
[LOGO] -SM- FIRST AMERICAN
ASSET MANAGEMENT
AMERICAN STRATEGIC INCOME PORTFOLIO II
1999 ANNUAL REPORT
7/1999 296-99
[LOGO] This document is printed on paper made from 100% total recovered fiber,
including 15% post-consumer waste.
