American Strategic Income Portfolio, Inc. (NYSE:BSP) is yet another mortgage-related closed-end investment company being targeted by hedge funds because they are trading well below net asset value (NAV). These hedge funds are attempting to unlock this "hidden" NAV by either converting them to an open-end fund or by establishing a real estate investment trust (REIT). Unlike closed-end funds, open-end funds are tied to NAV by definition. Meanwhile, REITs provide additional tax benefits and flexibility, which would theoretically make it easier for company's to realize the value of their assets. However, actually assigning numbers to these assets can be exceedingly difficult, as mortgage-backed securities are one of the most complex financial instruments in the marketplace.

Sit Investment Associates a 14% holder that is attempting to make such changes at BSP, according to their Schedule 13D/A filing with the SEC. On January 28, 1998, the hedge fund sent a letter to company's management team making several proposals that were eventually carried out two months later. These proposals eventually led to the company repurchasing 10% of its outstanding shares at NAV in an effort to bridge the gap between market price and intrinsic value. Later, SIA proposed that the company reorganize as a REIT, which was approved but never carried out. Now SIA is seeking to obtain the adoption of policies or strategies by the company that would tend to reduce or eliminate the discount at which the shares of the company will trade in the future, such as the re-purchase policies discussed above, or that would otherwise enable shareholders to liquidate shares of the company at the company's net asset value. If SIA is successful in obtaining any adoption of these policies, it could mean significant share appreciation from the company's current levels. This makes BSP a stock worth watching over the next few months!