<PAGE>
1998 ANNUAL REPORT
PIPER CAPITAL
MANAGEMENT
American Strategic Income Portfolio III - 1998 Annual Report
[LOGO]
AMERICAN STRATEGIC
INCOME PORTFOLIO III
CSP
<PAGE>
CONTENTS
Portfolio Manager's Letter . . . . . . . . . . . . . . . . . . . . . . . . . 1
Financial Statements and Notes . . . . . . . . . . . . . . . . . . . . . . . 4
Investments in Securities. . . . . . . . . . . . . . . . . . . . . . . . . . 14
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . 17
Federal Income Tax Information . . . . . . . . . . . . . . . . . . . . . . . 18
Shareholder Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Glossary***. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
*** This report includes a glossary to help you understand financial terms used
in the report. When you see this symbol, it indicates a word that is defined in
the glossary.
AMERICAN STRATEGIC INCOME PORTFOLIO III
- ---------------------------------------
PRIMARY INVESTMENTS
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, mortgage-backed securities and
mortgage servicing rights. The fund may borrow, including through the use of
reverse repurchase agreements***. Use of certain of these investments and
investment techniques may cause the fund's net asset value*** to fluctuate to a
greater extent than would be expected from interest rate movements alone.
FUND OBJECTIVE
High level of current income. Its secondary objective is to seek capital
appreciation. As with other investment companies, there can be no assurance this
fund will achieve its objective.
AVERAGE ANNUALIZED TOTAL RETURNS
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Based on net asset value for the periods ended May 31, 1998
[GRAPH]
<TABLE>
<CAPTION>
ONE YEAR FIVE YEAR SINCE INCEPTION
3/25/93
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
AMERICAN STRATEGIC INCOME PORTFOLIO III 11.86% 6.97% 6.89%
Lehman Brothers Mutual Fund Gov't/Mortgage 10.65% 6.92% 6.85%
Index
</TABLE>
The average annualized total returns for American Strategic Income Portfolio III
are based on the change in its net asset value (NAV), assume all distributions
were reinvested and do not reflect sales charges. NAV-based performance is used
to measure investment management results.
Average annualized total returns based on the change in market price for the
one-year, five-year and since inception periods ended May 31, 1998, were 12.05%,
4.01% and 4.51%, 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 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, 1998.
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 III is comprised primarily
of non-securitized, illiquid whole loans. This limits the ability of the fund to
respond quickly to market changes.
<PAGE>
PORTFOLIO MANAGER'S LETTER
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[PHOTO]
JOHN WENKER
is primarily responsible for the management of American Strategic Income
Portfolio III. He has 12 years of financial experience.
July 19, 1998
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DEAR SHAREHOLDERS:
FOR THE 12-MONTH PERIOD ENDED MAY 31, 1998, AMERICAN STRATEGIC INCOME PORTFOLIO
III HAD A NET ASSET VALUE (NAV) TOTAL RETURN OF 11.86%.* This compares to a
10.65% return for the Lehman Brothers Mutual Fund Government/Mortgage Index.
Over the same period, the fund's total return based on its market price was
12.05%. The fund continued to trade at a discount*** to its net asset value,
with a market price of $11.38 and a net asset value of $12.46 as of May 31.
WE ARE PLEASED TO REPORT THAT THE FUND MAINTAINED ITS MONTHLY DIVIDEND AT 8.25
CENTS PER SHARE OVER THE REPORTING PERIOD. As you know, providing a high level
of income is a primary objective of the fund. Despite a generally declining
interest rate environment, the fund not only provided competitive and attractive
income, but was able to add to its dividend reserve as well. The fund has held
the dividend steady for the past 24 months. In addition, the fund paid a special
dividend of 6 cents per share.
THE MAJORITY OF THE FUND'S POSITIVE NAV PERFORMANCE IS ATTRIBUTABLE TO FALLING
TREASURY YIELDS. Intermediate-term interest rates declined over the reporting
period as inflation remained under control. During the 12 months ended May 31,
the yield on three- to five-year Treasury securities fell by about 0.90%.
Federal Reserve policymakers kept short-term interest rates steady despite
vigorous growth within the U.S. economy.
WE REMAIN CONCERNED ABOUT PREPAYMENTS***, ESPECIALLY IN LIGHT OF THE DECLINING
INTEREST RATE ENVIRONMENT IN WHICH THE FUND CURRENTLY OPERATES. Prepayments are
occurring, and over time will impact the fund's income and dividend levels. Our
first alternative for prepayments is to reinvest in additional mortgage
products. However, in the absence of attractive investment alternatives, dollars
received through prepayments will be used to pay down the fund's leverage
position.
* 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.
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PORTFOLIO COMPOSITION
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As a percentage of total assets on May 31, 1998
[CHART]
<TABLE>
<S> <C>
Commercial Loans 17%
Multifamily Loans 29%
U.S. Treasury Securities 20%
Single Family Loans 32%
Short-Term Securities 1%
Other Assets 1%
</TABLE>
DELINQUENT LOAN PROFILE
The chart below shows the percentage of single family loans** in the portfolio
that are 30, 60, 90 or 120 days delinquent as of May 31, 1998, based on
principal amounts outstanding.
<TABLE>
<S> <C>
Current 89.3%
30 Days 5.7%
60 Days 1.5%
90 Days 0.6%
120+ Days 2.9%
</TABLE>
** As of May 31, 1998, there were no multifamily or commercial loans delinquent.
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
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1 1998 Annual Report - American Strategic Income Portfolio III
<PAGE>
PORTFOLIO MANAGER'S LETTER (CONTINUED)
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[PHOTO]
DAVID STEELE
assists with the management of American Strategic Income Portfolio III. He has
19 years of financial experience.
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WE ARE PLEASED WITH THE RESULTS OF OUR ASSET ALLOCATION STRATEGY. The fund has
maintained a diversified mix between single family, multifamily and commercial
loans, and we anticipate this strategy will continue. As of May 31, the fund
held approximately 2,080 single family loans on properties with an average
remaining principal balance of approximately $60,500. On the same date, the fund
had 37 multifamily loans with an average principal balance of approximately
$3,040,000 and 24 commercial loans with an average principal balance of
approximately $2,650,000.
ALTHOUGH CREDIT RISK IS INHERENT IN A FUND OF THIS NATURE, WE HAVE BEEN ABLE TO
MINIMIZE THE IMPACT OF SUCH RISK THROUGH EXTENSIVE RESEARCH. As of May 31, 89.2%
of the fund's single family loans were current, and only 3% of such mortgages
were 120 days or more overdue. As of the same date, none of the fund's
multifamily or commercial mortgages were delinquent. The chart on the previous
page displays delinquency rates. During the reporting period, principal credit
losses on mortgage loans amounted to 2.50 cents per share. Since the fund's
inception, we have kept its principal losses due to foreclosure on single family
and multi-family loans to 5.9 cents per share and .06 cents per share,
respectively. To date, we have experienced no foreclosure losses on commercial
loans. When loans are foreclosed, we attempt to complete the process as quickly
as possible. Any losses will first go against the borrower's investment, or
equity. Although we would hope to receive all of the principal and interest owed
to us on a foreclosed loan, it is likely that we may not be repaid in full.
THE FUND CONTINUES TO BORROW THROUGH REVERSE REPURCHASE AGREEMENTS AND INVEST
THE PROCEEDS IN TREASURY SECURITIES AND NEW MORTGAGE LOANS. The Treasuries and
mortgage loans act as collateral for the reverse repurchase agreements. As of
May 31, the amount of reverse repurchase agreements was equal to 25% of total
assets. Please note that borrowing can potentially increase the fund's earnings,
but it can also increase the volatility of the fund's net asset value. We
attempt to moderate this potential volatility by purchasing short- to
medium-term Treasuries.
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GEOGRAPHICAL DISTRIBUTION
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We attempt to buy mortgage loans in many parts of the country to help avoid the
risks of concentrating in one area. These percentages reflect principal value of
whole loans and real estate owned as of May 31, 1998. Shaded areas without
values indicate states in which the fund has invested less than 0.50% of its
assets.
[MAP]
<TABLE>
<S> <C>
Arizona 7%
California 14%
Colorado 5%
Connecticut 2%
Florida 6%
Georgia 1%
Illinois 1%
Louisiana 1%
Maryland 1%
Massachussetts 1%
Minnesota 7%
Nevada 5%
New Jersey 3%
New Mexico 1%
New York 6%
North Carolina 1%
North Dakota 1%
Ohio 1%
Oklahoma 6%
Oregon 6%
Pennsylvania 1%
Tennessee 2%
Texas 14%
Utah 3%
Washington 3%
</TABLE>
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2 1998 Annual Report - American Strategic Income Portfolio III
<PAGE>
PORTFOLIO MANAGER'S LETTER (CONTINUED)
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[PHOTO]
RUSS KAPPENMAN
assists with the management of American Strategic Income Portfolio III. He has
12 years of financial experience.
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THANK YOU FOR YOUR INVESTMENT IN AMERICAN STRATEGIC INCOME PORTFOLIO III. During
the last few years the multifamily and commercial loans in the portfolio have
performed well and been positively impacted by positive trends in the real
estate industry. Most analysts would agree that real estate markets have
returned to equilibrium. The big question facing the real estate industry is
whether it will maintain the discipline required to stay in equilibrium or
revisit the excesses of the late 1980s and early 1990s. Certainly the criteria
we use for purchasing loans remain intact and hopefully will hold up should
industry trends turn negative. However, we would like to remind you that the
fund is exposed to the ups and downs of real estate cycles. To the extent the
real estate markets deteriorate, credit risk and the potential for credit
losses, will increase.
We believe that the fund's strategy will continue to provide attractive returns
relative to other fixed-income investments, and we appreciate the opportunity to
serve your investment needs.
Sincerely,
/s/ John Wenker
John Wenker
Portfolio Manager
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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 Piper Capital 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. 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 mortgage
participations and mortgage servicing rights are determined no less frequently
than weekly.
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3 1998 Annual Report - American Strategic Income Portfolio III
<PAGE>
Financial Statements
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STATEMENT OF ASSETS AND LIABILITIES May 31, 1998
................................................................................
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (note 2)
(including a repurchase agreement of $5,253,000) ........ $395,059,245
Real estate owned (identified cost: $488,886) (note 2) .... 409,726
Cash in bank on demand deposit ............................ 191,432
Accrued interest receivable ............................... 3,875,434
Other assets .............................................. 80,778
------------------
Total assets ............................................ 399,616,615
------------------
LIABILITIES:
Reverse repurchase agreements payable ..................... 99,000,000
Accrued investment management fee ......................... 156,535
Accrued administrative fee ................................ 50,722
Accrued interest .......................................... 494,944
Other accrued expenses .................................... 1,007
------------------
Total liabilities ....................................... 99,703,208
------------------
Net assets applicable to outstanding capital stock ...... $299,913,407
------------------
------------------
COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital .............. $344,862,882
Undistributed net investment income ....................... 2,208,110
Accumulated net realized loss on investments .............. (56,513,172)
Unrealized appreciation of investments .................... 9,355,587
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Total - representing net assets applicable to capital
stock ................................................. $299,913,407
------------------
------------------
* Investments in securities at identified cost ............ $385,624,498
------------------
------------------
NET ASSET VALUE AND MARKET PRICE:
Net assets ................................................ $299,913,407
Shares outstanding (authorized 1 billion shares of $0.01 par
value) .................................................. 24,068,468
Net asset value ........................................... $ 12.46
Market price .............................................. $ 11.38
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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4 1998 Annual Report - American Strategic Income Portfolio III
<PAGE>
Financial Statements (continued)
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STATEMENT OF OPERATIONS For the Year Ended May 31, 1998
................................................................................
<TABLE>
<S> <C>
INCOME:
Interest (net of interest expense of $6,435,914) .......... $30,135,304
Rental income from real estate owned (note 2) ............. 110,395
-----------------
Total investment income ................................. 30,245,699
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EXPENSES (NOTE 3):
Investment management fee ................................. 1,974,380
Administrative fee ........................................ 627,739
Custodian and accounting fees ............................. 176,399
Transfer agent fees ....................................... 22,262
Reports to shareholders ................................... 124,022
Mortgage servicing fees ................................... 1,160,331
Directors' fees ........................................... 25,646
Audit and legal fees ...................................... 102,698
Operating expenses from real estate owned ................. 161,216
Other expenses ............................................ 81,552
-----------------
Total expenses .......................................... 4,456,245
Less expenses paid indirectly ......................... (7,561)
-----------------
Total net expenses ...................................... 4,448,684
-----------------
Net investment income ................................... 25,797,015
-----------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
(NOTE 4):
Net realized gain on investments in securities ............ 2,493,304
Net realized loss on real estate owned .................... (607,296)
-----------------
Net realized gain on investments ........................ 1,886,008
Net change in unrealized appreciation or depreciation of
investments ............................................. 7,937,243
-----------------
Net gain on investments ................................. 9,823,251
-----------------
Net increase in net assets resulting from operations
...................................................... $35,620,266
-----------------
-----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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5 1998 Annual Report - American Strategic Income Portfolio III
<PAGE>
Financial Statements (continued)
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STATEMENT OF CASH FLOWS For the Year Ended May 31, 1998
................................................................................
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and rental income ................................ $ 30,245,699
Net expenses .............................................. (4,448,684)
-------------------
Net investment income ................................... 25,797,015
-------------------
Adjustments to reconcile net investment income to net cash
provided by operating activities:
Change in accrued interest receivable ................... 998,097
Net amortization of bond discount and premium ........... 24,017
Change in accrued fees and expenses ..................... (29,794)
Change in other assets .................................. 192,267
-------------------
Total adjustments ..................................... 1,184,587
-------------------
Net cash provided by operating activities ............. 26,981,602
-------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments ........................ 253,993,159
Purchases of investments .................................. (240,419,939)
Net sales of short-term securities ........................ 3,065,000
-------------------
Net cash provided by investing activities ............. 16,638,220
-------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from reverse repurchase agreements ........... 15,500,000
Retirement of fund shares ................................. (33,292,271)
Distributions paid to shareholders ........................ (26,595,561)
-------------------
Net cash used by financing activities ................. (44,387,832)
-------------------
Net decrease in cash ...................................... (768,010)
Cash at beginning of year ................................. 959,442
-------------------
Cash at end of year ................................... $ 191,432
-------------------
-------------------
Supplemental disclosure of cash flow information:
Cash paid for interest on reverse repurchase agreements
....................................................... $ 6,351,892
-------------------
-------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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6 1998 Annual Report - American Strategic Income Portfolio III
<PAGE>
Financial Statements (continued)
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STATEMENTS OF CHANGES IN NET ASSETS
................................................................................
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
5/31/98 5/31/97
------------------ ------------------
<S> <C> <C>
OPERATIONS:
Net investment income ..................................... $ 25,797,015 $ 26,680,519
Net realized gain (loss) on investments ................... 1,886,008 (989,331)
Net change in unrealized appreciation or depreciation of
investments ............................................. 7,937,243 (2,268,134)
------------------ ------------------
Net increase in net assets resulting from operations .... 35,620,266 23,423,054
------------------ ------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ................................ (26,595,561) (26,842,831)
------------------ ------------------
CAPITAL SHARE TRANSACTIONS (NOTE 6):
Decrease in net assets from capital share transactions .... (33,292,271) --
------------------ ------------------
Total decrease in net assets ............................ (24,267,566) (3,419,777)
Net assets at beginning of year ........................... 324,180,973 327,600,750
------------------ ------------------
Net assets at end of year ................................. $299,913,407 $324,180,973
------------------ ------------------
------------------ ------------------
Undistributed net investment income ....................... $ 2,208,110 $ 3,006,656
------------------ ------------------
------------------ ------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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7 1998 Annual Report - American Strategic Income Portfolio III
<PAGE>
Notes to Financial Statements
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(1) ORGANIZATION
................................
American Strategic Income Portfolio Inc. III (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. The fund may enter into
dollar roll transactions. In addition, the fund may borrow
through the use of reverse repurchase agreements. Fund
shares are listed on the New York Stock Exchange under the
symbol CSP.
(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
Piper Capital 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. Changes in prevailing interest rates,
real or perceived liquidity, yield spreads, and
creditworthiness are factored into the pricing model each
week. Certain mortgage loan information is received once a
month. This information includes, but is not limited to,
the projected rate of prepayments, projected rate and
severity of defaults, the delinquency profile and the
historical payment record. Valuations of whole loans,
mortgage participations and mortgage servicing rights are
determined no less frequently than weekly.
Securities transactions are accounted for on the date
securities are purchased or sold. Realized gains and
losses are calculated on the identified-cost basis.
Interest income, including amortization of bond discount
and premium, is recorded on an accrual basis.
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8 1998 Annual Report - American Strategic Income Portfolio III
<PAGE>
Notes to Financial Statements (continued)
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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, 1998, loans representing 2.2% 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 5.0% of total
single family principal outstanding at May 31, 1998. 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 losses of $607,296 or $0.025
per share on real estate sold during the year ended May
31, 1998, including a loss of $149,815 or $0.006 per
share, on one multifamily property.
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, 1998, the
fund owned 10 single family homes with an aggregate value
of $409,726, or 0.1% 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, 1998, the fund had no outstanding
when-issued or forward-commitments.
In connection with its ability to purchase securities on a
when-issued or forward-commitment basis, the fund may
enter into mortgage dollar rolls in which the fund sells
securities purchased on a forward commitment basis and
simultaneously contract with a counterparty to repurchase
similar (same type, coupon and maturity) but not identical
securities on a specified future date. As an inducement to
"roll over" its purchase commitments, the fund receives
negotiated fees. For year ended May 31, 1998, the fund
earned no such fees.
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9 1998 Annual Report - American Strategic Income Portfolio III
<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. Distributions which exceed net realized gains
for financial statement purposes are presented as an
"excess distribution" in the financial highlights. In
addition, due to the timing of dividend distributions, the
fiscal year in which amounts are distributed may differ
from the year that the income or realized gains or losses
were recorded by the fund.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income are made monthly
and realized capital gains, if any, will be distributed at
least annually. These distributions are recorded as of the
close of business on the ex-dividend date. Such
distributions are payable in cash or, pursuant to the
fund's dividend reinvestment plan, reinvested in
additional shares of the fund's capital stock. Under the
plan, fund shares will be purchased in the open market
unless the market price plus commissions exceeds the net
asset value by 5% or more. If, at the close of business on
the dividend payment date, the shares purchased in the
open market are insufficient to satisfy the dividend
reinvestment requirement, the fund will issue new shares
at a discount of up to 5% from the current market price.
REPURCHASE AGREEMENTS
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.
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
The fund has entered into an investment advisors agreement
with Piper Capital Management Incorporated. In addition,
Piper Capital provided services under an administration
agreement through April 30, 1998. Effective May 1, 1998,
the fund entered into an administration agreement with
U.S. Bank, an affiliate of the advisor.
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%
- --------------------------------------------------------------------------------
10 1998 Annual Report - American Strategic Income Portfolio III
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
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, 1998, the effective
investment management fee incurred by the fund was 0.63%.
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; 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, 1998, the fund paid $33,336
for custody services to U.S. Bank, an affiliate of the
fund's advisor. Expenses paid indirectly represent a
reduction of custodian fees for earnings on miscellaneous
cash balances maintained by the fund.
(4) INVESTMENT
SECURITY
TRANSACTIONS
................................
Cost of purchases and proceeds from sales of securities,
other than temporary investments in short-term securities,
for the year ended May 31, 1998, aggregated $240,395,922
and $253,993,159, respectively. Included in proceeds from
sales are $1,810,765 from sales of real estate owned.
(5) CAPITAL LOSS
CARRYOVER
................................
For federal income tax purposes, the fund had capital loss
carryovers at May 31, 1998, 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>
$ 19,152,863 2003
34,420,675 2004
871,623 2005
1,167,977 2006
900,034 2007
-------------
$ 56,513,172
-------------
-------------
</TABLE>
- --------------------------------------------------------------------------------
11 1998 Annual Report - American Strategic Income Portfolio III
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
(6) REPURCHASE OFFER
................................
The fund's board of directors concluded that an offer to
repurchase up to 10% of the fund's outstanding shares
would be in the best interests of shareholders.
Accordingly, the board authorized such an offer as part of
a settlement agreement reached in connection with class
action litigation involving the fund and seven other
closed-end investment companies managed by Piper Capital
Management Incorporated.
The repurchase offer was sent to shareholders in October
1997, and the deadline for submitting shares for
repurchase was 5 p.m. Central Time on November 17, 1997.
The repurchase price was determined on December 1, 1997 at
the close of regular trading on the New York Stock
Exchange (4 p.m. Eastern Time). The percentage of
outstanding shares and the number of shares accepted for
tender, the repurchase price per share and proceeds
(including tender fees) paid by the fund were as follows:
<TABLE>
<CAPTION>
PERCENTAGE SHARES REPURCHASE PROCEEDS
TENDERED TENDERED PRICE PAID
---------- ------------ ----------- -------------
<S> <C> <C> <C>
10% 2,674,078 $12.45 $33,292,271
</TABLE>
(7) ADVISOR
ACQUISITION
................................
On May 1, 1998, Piper Jaffray Companies Inc., the parent
company of the fund's investment advisor, was acquired by
U.S. Bancorp.
U.S. Bancorp is a multi-state bank holding company
headquartered in Minneapolis, Minnesota with a geographic
service area spanning 17 states. As of March 31, 1998,
U.S. Bancorp was the 15th largest U.S. commercial bank
holding company, with assets of nearly $70.9 billion. U.S.
Bank National Association ("U.S. Bank"), a wholly owned
subsidiary of U.S. Bancorp, currently acts as the
investment advisor to 32 mutual funds (the "First American
Funds"). As of March 31, 1998, U.S. Bank, acting through
its First American Asset Management division, managed more
than $65.3 billion in assets, including approximately
$23.3 billion in assets of the First American Funds.
Under the Investment Company Act of 1940, as amended,
consummation of the acquisition of Piper Jaffray Companies
by U.S. Bancorp resulted in the assignment and automatic
termination of the fund's investment advisory agreement
with Piper Capital Management Incorporated. The fund has
entered into a new investment advisory agreement with
Piper Capital Management, which shareholders will be asked
to approve at the fund's annual meeting in August.
Shareholders will also be asked to approve a new
investment advisory agreement with U.S. Bank which, if
approved, will replace the agreement between the fund and
Piper Capital Management.
- --------------------------------------------------------------------------------
12 1998 Annual Report - American Strategic Income Portfolio III
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
(8) FINANCIAL
HIGHLIGHTS
................................
Per-share data for a share of capital stock outstanding
throughout each period and selected information for each
period are as follows:
AMERICAN STRATEGIC INCOME PORTFOLIO III
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
5/31/98 5/31/97 5/31/96 5/31/95 5/31/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ... $12.12 $12.25 $12.50 $12.61 $14.04
-------- -------- -------- -------- --------
Operations:
Net investment income ................ 1.02 1.00 0.99 1.18 1.37
Net realized and unrealized gains
(losses) on investments ............ 0.37 (0.13) -- (0.01) (1.52)
-------- -------- -------- -------- --------
Total from operations .............. 1.39 0.87 0.99 1.17 (0.15)
-------- -------- -------- -------- --------
Distributions to shareholders:
From net investment income ........... (1.05) (1.00) (1.24) (1.28) (1.07)
In excess of net realized gains on
investments ........................ -- -- -- -- (0.21)
-------- -------- -------- -------- --------
Total distributions to
shareholders ..................... (1.05) (1.00) (1.24) (1.28) (1.28)
-------- -------- -------- -------- --------
Net asset value, end of period ......... $12.46 $12.12 $12.25 $12.50 $12.61
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Per-share market value, end of
period ............................... $11.38 $11.13 $10.25 $11.13 $12.75
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
SELECTED INFORMATION
Total return, net asset value (a) ...... 11.86% 7.43% 8.17% 10.03% (1.78)%
Total return, market value (b) ......... 12.05% 19.18% 3.20% (2.42)% (9.52)%
Net assets at end of period (in
millions) ............................ $ 300 $ 324 $ 328 $ 338 $ 346
Ratio of expenses to average weekly net
assets including interest expense
(c) .................................. 3.47% 3.84% 2.66% 3.55% 2.13%
Ratio of expenses to average weekly net
assets excluding interest expense
(c) .................................. 1.42% 1.34% 1.29% 1.29% 1.19%
Ratio of net investment income to
average weekly net assets ............ 8.22% 8.22% 7.92% 9.48% 9.57%
Portfolio turnover rate (excluding
short-term securities) ............... 58% 46% 121% 49% 155%
Amount of borrowings outstanding at end
of period (in millions)(d) ........... $ 99 $ 84 $ 81 $ 75 $ 159
Per-share amount of borrowings
outstanding at end of period ......... $ 4.11 $ 3.12 $ 3.03 $ 2.77 $ 5.79
Per-share amount of net assets,
excluding borrowings, at end of
period ............................... $16.57 $15.24 $15.28 $15.27 $18.40
Asset coverage ratio (e) ............... 403% 488% 504% 551% 317%
</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 0.02%, 0.09%, AND 0.06% FROM FEDERAL EXCISE TAXES IN FISCAL YEARS
1996, 1995 AND 1994, RESPECTIVELY. FISCAL 1998 AND 1997 RATIOS INCLUDE
0.05% AND 0.08%, RESPECTIVELY, OF OPERATING EXPENSES ASSOCIATED WITH REAL
ESTATE OWNED.
(d) SECURITIES PURCHASED ON A WHEN-ISSUED BASIS FOR WHICH LIQUID ASSETS ARE
SEGREGATED ARE NOT CONSIDERED BORROWINGS. SEE NOTE 2 IN THE NOTES TO
FINANCIAL STATEMENTS.
(e) REPRESENTS NET ASSETS, EXCLUDING BORROWINGS, AT END OF PERIOD DIVIDED BY
BORROWINGS OUTSTANDING AT END OF PERIOD.
- --------------------------------------------------------------------------------
13 1998 Annual Report - American Strategic Income Portfolio III
<PAGE>
Investments in Securities
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN STRATEGIC INCOME PORTFOLIO III May 31, 1998
...................................................................................................................
Date
Description of Security Acquired Par Value Cost Market Value
- --------------------------------------------------------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
U.S. GOVERNMENT AND AGENCY SECURITIES (27.1%):
U.S. GOVERNMENT SECURITIES (27.1%):
6.63%, U.S. Treasury Note, 3/31/02 .................. 5/12/98 $78,500,000(b) $ 80,984,344 $ 81,220,025
------------ ------------
PRIVATE MORTGAGE-BACKED SECURITIES (E) (0.0%):
FIXED RATE (0.0%):
0.00%, First Gibralter, Series 1992-MM, Class B,
10/25/21 .......................................... 7/15/93 1,841,206(f) 679,820 18,412
------------ ------------
WHOLE LOANS AND PARTICIPATION MORTGAGES (C,D,E) (102.9%):
COMMERCIAL LOANS (22.1%):
7th Street & Lincoln Parking Lot, 8.00%, 4/1/08 ..... 3/3/98 1,098,843 1,098,843 1,141,818
Airport Plaza Offices, 8.88%, 5/1/01 ................ 5/1/96 732,134 732,134 758,958
Blacklake Place I and II, 8.78%, 9/1/07 ............. 8/12/97 4,937,162 4,937,162 5,184,021
Blacklake Place III, 8.78%, 9/1/07 .................. 8/12/97 2,468,581 2,468,581 2,592,010
Brookhollow West and Northwest Technical Center,
8.21%, 8/1/02 ..................................... 7/29/97 3,665,236 3,665,236 3,758,012
Commerce Center, 8.88%, 5/1/01 ...................... 5/1/96 1,903,550 1,903,550 1,979,692
CUBB Properties Mobile Home Park, 8.15%, 11/1/07 .... 11/4/97 2,920,001 2,920,001 3,066,001
Disco Print Warehouse, 8.90%, 2/1/04 ................ 2/7/97 1,351,741 1,351,741 1,419,328
Duncan Office Building, 8.00%, 6/1/08 ............... 5/19/98 750,000 750,000 778,468
Jackson Street Warehouse, 8.63%, 7/1/07 ............. 7/1/97 4,870,117 4,870,117 5,113,622
John Brown Office Building, 8.90%, 6/1/03 ........... 7/23/97 4,957,956 4,957,956 5,205,854
Lake Pointe Corporate Center, 8.67%, 7/1/07 ......... 7/7/97 3,915,522 3,915,522 4,111,298
LAX Air Freight Center, 8.00%, 1/1/08 ............... 12/29/97 3,445,301 3,445,301 3,560,092
Meridian Corporate Center, 8.10%, 8/1/02 ............ 8/1/97 2,362,300 2,362,300 2,415,452
North Austin Business Center, 9.15%, 5/1/07 ......... 4/10/97 3,066,247 3,066,247 3,219,559
One Metro Square Office Building, 8.20%, 10/1/02 .... 9/24/97 2,978,183 2,978,183 3,067,529
Pacific Shores Mobile Home Park II, 11.12%,
10/1/06 ........................................... 9/27/96 2,929,491 2,914,843 3,075,965
Parkside Office Building, 8.30%, 12/1/01 ............ 11/19/96 1,693,955 1,677,016 1,738,435
Paseo Verde Plaza, 8.63%, 5/1/01 .................... 4/12/96 1,804,182 1,804,182 1,828,960
Pilot Knob Service Center, 9.07%, 7/1/07 ............ 6/20/97 $ 1,511,089 $ 1,511,089 $ 1,586,643
</TABLE>
<TABLE>
<CAPTION>
Date
Description of Security Acquired Par Value Cost Market Value
- --------------------------------------------------------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
PMG Plaza, 9.05%, 4/1/04 ............................ 3/20/97 2,568,711 2,568,711 2,697,146
Santa Monica Center, 8.35%, 11/1/04 ................. 11/17/97 3,482,377 3,482,377 3,552,025
Seventh Street Parking Ramp, 8.63%, 9/1/07 8/25/97 1,990,313 1,990,313 2,089,828
Turf Mobile Manor, 8.25%, 1/1/06 .................... 2/2/96 2,325,474 2,322,567 2,441,747
------------ ------------
63,693,972 66,382,463
------------ ------------
MULTIFAMILY LOANS (38.3%):
Ambassador House Apartments, 10.13%, 12/1/01 ........ 11/3/94 2,349,613 2,347,394 2,443,597
Boardwalk Apartments, 7.40%, 2/1/08 ................. 1/16/98 5,387,659 5,387,659 5,454,580
Briarwood Apartments, 10.24%, 12/1/01 ............... 11/22/94 979,475 976,047 1,018,654
Champlin Drive Apartments, 10.00%, 7/15/08 .......... 7/15/93 2,177,754 2,155,977 1,858,299
Clackamas Trail Apartments, 8.50%, 7/1/01 ........... 7/3/97 14,112,080 14,112,080 14,394,322
El Camino Apartments, 10.65%, 2/1/02 ................ 1/5/95 4,714,393 4,710,955 4,808,681
El Toro Blanco Apartments, 10.05%, 1/1/02 ........... 1/3/95 1,322,880 1,291,155 1,375,795
Essex II, 10.00%, 8/1/08 ............................ 7/23/93 2,032,571 2,012,245 1,916,875
Everhard Road Apartments, 9.31%, 9/1/01 ............. 8/4/94 479,235 471,035 488,820
Falls Apartments, 9.88%, 7/1/03 ..................... 5/12/93 3,865,860 3,827,202 4,059,153
Faronia Square Apartments, 10.40%, 1/1/02 ........... 12/30/94 3,530,470 3,495,165 3,671,689
Geneva Village Apartments, 9.50%, 11/1/04 ........... 10/14/94 1,264,003 1,259,345 1,327,203
Grand Forks Multifamily, 9.94%, 12/1/01 ............. 11/9/94 2,359,585 2,349,122 2,406,776
Harpers Ferry Apartments, 10.56%, 12/1/01 ........... 12/1/94 1,804,566 1,787,599 1,894,795
Heritage Park Apartments, 9.00%, 2/1/04 ............. 1/31/97 1,922,495 1,922,495 2,018,620
Huntington Hills Apartments, 8.75%, 11/1/05 ......... 10/2/95 1,329,074 1,322,428 1,395,527
Johanson Arms Apartments, 9.35%, 6/1/04 ............. 5/16/96 2,024,274 2,024,274 1,993,311
Johnson/Wilson Apartments, 10.00%, 9/1/18 ........... 9/17/93 777,102 769,331 784,873
Kingstown Colony Apartments, 9.98%, 11/1/01 ......... 10/31/94 1,759,997 1,737,215 1,830,397
Lake Conway Woods, 9.55%, 8/1/01 .................... 8/1/94 $ 2,929,942 $ 2,924,310 $ 2,988,541
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
14 1998 Annual Report - American Strategic Income Portfolio III
<PAGE>
Investments in Securities (continued)
- --------------------------------------------------------------------------------
AMERICAN STRATEGIC INCOME PORTFOLIO III
(CONTINUED)
<TABLE>
<CAPTION>
Date
Description of Security Acquired Par Value Cost Market Value
- --------------------------------------------------------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Maple Village Apartments, 9.50%, 11/1/04 ............ 10/14/94 1,320,864 1,315,922 1,386,907
Meadowview Apartments, 9.50%, 11/1/04 ............... 10/14/94 937,287 934,263 984,151
Meridian Pointe Apartments, 8.85%, 2/1/12 ........... 3/7/97 1,190,809 1,190,809 1,250,350
Mission Village Apartments, 8.94%, 9/1/01 ........... 8/11/94 2,171,912 2,161,052 2,215,350
Oak Grove Apartments, 10.05%, 12/2/01 ............... 11/15/94 881,716 863,262 925,802
Palm Court Apartments, 10.00%, 9/1/98 ............... 9/16/93 6,785,053 6,717,202 6,852,903
Parkway Village Apartments, 9.50%, 11/1/04 .......... 10/14/94 909,734 906,847 955,221
Quail Lakes Apartments, 8.95%, 11/1/03 .............. 11/1/96 8,904,685 8,901,123 9,349,919
Regency Manor Apartments, 10.30%, 1/1/00 ............ 12/16/94 5,226,238 5,222,803 4,266,245
Riverbrook Apartments, 10.38%, 1/1/02 ............... 12/29/94 2,029,425 2,006,715 2,110,602
Rose Park Apartments, 9.50%, 11/1/04 ................ 10/14/94 787,298 784,908 826,662
Royal Court Apartments, 9.00%, 10/1/04 .............. 9/11/97 1,434,457 1,434,457 1,491,835
Shelter Island Apartments, 10.00%, 10/1/01 .......... 9/20/94 12,704,072 12,584,941 13,339,275
Southlake Villa Apartments, 9.50%, 11/1/04 .......... 10/14/94 1,214,104 1,209,453 1,274,809
The Timbers Apartments, 8.31%, 6/1/99 ............... 5/5/94 2,671,254 2,644,542 2,697,967
Valley Manor Apartments, 8.45%, 11/1/02 ............. 10/26/95 3,313,664 3,301,993 3,453,237
Westree Apartments, 10.00%, 9/1/03 .................. 8/30/93 3,172,797 3,146,357 3,331,437
------------ ------------
112,209,682 114,843,180
------------ ------------
SINGLE FAMILY LOANS (42.5%):
Arbor, 9.27%, 8/16/17 . 2/16/96 3,754,202 3,762,821 3,754,202
Barclays, 8.52%, 6/7/25 ............................. 11/7/95 1,902,388 1,809,758 1,913,525
Bayview Financial, 6.72%, 2/21/20 ................... 7/21/95 759,734 650,642 734,056
Delaware II, 8.73%, 11/27/07 ........................ 6/30/96 6,527,385(b) 6,038,780 6,486,146
Fairbanks IV, 8.03%, 4/3/19 ......................... 11/3/94 2,381,116 2,032,935 2,262,772
Federal Mortgage, 8.37%, 12/15/20 ................... 6/15/93 3,219,725 2,448,186 3,028,293
First Boston II, 9.51%, 7/31/09 ..................... 4/30/93 2,113,904 1,887,157 2,033,323
First Boston III, 9.08%, 2/1/13 ..................... 7/29/93 2,618,060 2,246,378 2,551,708
First Boston IV, 9.21%, 3/1/12 ...................... 12/17/93 $ 2,368,980 $ 2,177,700 $ 2,353,299
</TABLE>
<TABLE>
<CAPTION>
Date
Description of Security Acquired Par Value Cost Market Value
- --------------------------------------------------------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
First Boston V, 8.36%, 5/26/16 ...................... 4/26/95 2,009,162 1,981,536 2,021,759
Greenwich, 9.19%, 4/16/05 ........................... 2/16/96 1,942,350 1,894,165 1,961,820
Kidder Peabody I, 9.89%, 9/1/10 ..................... 9/30/93 3,053,377(b) 2,733,492 3,076,335
Kidder Peabody II, 9.85%, 5/1/13 .................... 3/17/94 535,596 504,430 549,497
Knutson III, 9.28%, 4/1/15 .......................... 3/26/93 1,179,627 1,109,580 1,208,907
Maryland National, 9.34%, 9/1/19 .................... 10/6/93 1,370,368 1,240,183 1,348,819
Meridian IV, 8.33%, 8/16/16 ......................... 1/20/95 6,416,308 5,971,722 6,347,704
Meridian V, 8.18%, 10/6/17 .......................... 4/6/95 4,096,299(b) 3,909,605 4,057,886
Minneapolis Employees Retirement Fund, 8.47%,
2/10/14 ........................................... 4/10/96 3,929,897(b) 3,646,424 3,832,250
Mortgage Access, 9.81%, 9/30/19 ..................... 6/30/93 716,889 677,003 666,835
Nomura, 9.94%, 12/16/23 ............................. 12/1/93 26,990,930(b) 27,941,990 27,236,132
Nomura III, 8.49%, 12/29/17 ......................... 9/29/95 15,271,518 13,317,402 14,364,337
Norwest II, 7.73%, 11/27/22 ......................... 2/27/96 6,166,880 6,136,474 6,101,920
Norwest IV, 8.24%, 2/23/25 .......................... 5/23/96 6,073,036 6,036,455 6,092,066
Norwest VI, 8.30%, 3/6/26 ........................... 12/6/96 5,664,151(b) 5,553,700 5,699,235
Norwest VII, 7.91%, 7/24/25 ......................... 2/24/97 5,945,465(b) 5,781,965 5,940,702
Norwest X, 7.90%, 1/1/25 ............................ 3/12/98 6,912,758 6,930,731 6,843,154
President Homes 93-6C, Sales Inventory, 9.13%,
8/1/23 ............................................ 12/13/93 108,308 107,225 109,475
President Homes 93-6E, Sales Inventory, 9.21%,
11/1/22 ........................................... 5/19/94 168,967 167,275 167,615
President Homes 94-1B, Sales Inventory, 9.00%,
11/18/23 .......................................... 10/31/94 186,350 183,706 188,453
Sears Mortgage, 8.11%, 10/1/17 ...................... 7/16/93 553,252 520,057 553,557
Shearson Lehman, 9.36%, 6/1/17 ...................... 5/26/93 3,365,448 2,967,574 3,411,108
The Crossings, 10.75%, 10/1/11 ...................... 4/16/93 432,306 436,629 445,275
------------ ------------
122,803,680 127,342,165
------------ ------------
Total Whole Loans and Participation Mortgages ..... 298,707,334 308,567,808
------------ ------------
SHORT-TERM SECURITIES (1.7%):
Repurchase agreement with Goldman Sachs, interest of
$2,451, 5.60%, 6/1/98 ............................. 5/29/98 5,253,000(g) 5,253,000 5,253,000
------------ ------------
Total Investments in Securities (h) ............... $385,624,498 $395,059,245
------------ ------------
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
15 1998 Annual Report - American Strategic Income Portfolio III
<PAGE>
Investments in Securities (continued)
- --------------------------------------------------------------------------------
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, 1998, SECURITIES VALUED AT $115,264,397 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>
$ 76,000,000 5/1/98 5.59% 6/1/98 $ 365,589 (1)
23,000,000 5/1/98 6.53% 6/1/98 129,355 (2)
- ------------ ---------
$ 99,000,000 $ 494,944
- ------------ ---------
- ------------ ---------
</TABLE>
* INTEREST RATE AS OF MAY 31, 1998. RATES ARE BASED ON THE LONDON INTERBANK
OFFERED RATE (LIBOR).
** THE FUND HAS ENTERED INTO A LENDING COMMITMENT WITH NOMURA. THE AGREEMENT
PERMITS THE FUND TO ENTER INTO REVERSE REPURCHASE AGREEMENTS UP TO
$30,000,000 USING WHOLE LOANS AS COLLATERAL. THE FUND PAYS A FEE OF 0.25%
TO NOMURA ON ANY UNUSED PORTION OF THE $30,000,000 LENDING COMMITMENT.
NAME OF BROKER AND DESCRIPTION OF COLLATERAL:
(1) NOMURA;
U.S. TREASURY NOTE, 6.63%, 3/31/02, $73,350,000 PAR
(2) NOMURA;
DELAWARE II, 8.73%, 11/27/07, $2,554,359 PAR
KIDDER PEABODY I, 9.89%, 9/1/10, $2,267,447 PAR
MERIDIAN V, 8.18%, 10/6/17, $143,953 PAR
MINNEAPOLIS EMPLOYEES RETIREMENT FUND, 8.47%, 2/10/14, $745,891 PAR
NOMURA, 9.94%, 12/16/23, $22,408,240 PAR
NORWEST VI, 8.30%, 3/6/26, $5,664,151 PAR
NORWEST VII, 7.91%, 7/24/25, $5,945,465 PAR
(C) INTEREST RATES ON COMMERCIAL AND MULTIFAMILY LOANS ARE THE RATES IN EFFECT
ON MAY 31, 1998. 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, 1998.
(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:
7TH STREET & LINCOLN PARKING LOT - PHOENIX, AZ
AIRPORT PLAZA OFFICES - ALBUQUERQUE, NM
BLACKLAKE PLACE I AND II - OLYMPIA, WA
BLACKLAKE PLACE III - OLYMPIA, WA
BROOKHOLLOW WEST AND NORTHWEST TECHNICAL CENTER - HOUSTON, TX
COMMERCE CENTER - ALBUQUERQUE, NM
CUBB PROPERTIES MOBILE HOME PARK - NEW YORK, NY
DISCO PRINT WAREHOUSE - SUGARLAND, TX
DUNCAN OFFICE BUILDING - OLYMPIA, WA
JACKSON STREET WAREHOUSE - PHOENIX, TX
JOHN BROWN OFFICE BUILDING - HOUSTON, TX
LAKE POINTE CORPORATE CENTER - MINNEAPOLIS, MN
LAX AIR FREIGHT CENTER - INGLEWOOD, CA
MERIDIAN CORPORATE CENTER - BOCA RATON, FL
NORTH AUSTIN BUSINESS CENTER - AUSTIN, TX
ONE METRO SQUARE OFFICE BUILDING - FARMERS BRANCH, TX
PACIFIC SHORES MOBILE HOME PARK II - NEWPORT, OR
PARKSIDE OFFICE BUILDING - SAN ANTONIO, TX
PASEO VERDE PLAZA - PHOENIX, AZ
PILOT KNOB SERVICE CENTER - MENDOTA HEIGHTS, MN
PMG PLAZA - FORT LAUDERDALE, FL
SANTA MONICA CENTER - WEST HOLLYWOOD, CA
SEVENTH STREET PARKING RAMP - PHOENIX, AZ
TURF MOBILE MANOR - PHOENIX, AZ
MULTIFAMILY LOANS:
AMBASSADOR HOUSE APARTMENTS - OKLAHOMA CITY, OK
BOARDWALK APARTMENTS - OKLAHOMA CITY, OK
BRIARWOOD APARTMENTS - GREELEY, CO
CHAMPLIN DRIVE APARTMENTS - CHAMPLIN, MN
CLACKAMAS TRAIL APARTMENTS - CLACKAMAS, OR
EL CAMINO APARTMENTS - PHOENIX, AZ
EL TORO BLANCO APARTMENTS - COLORADO SPRINGS, CO
ESSEX II - ROCHESTER, MN
EVERHARD ROAD APARTMENTS - NORTH CANTON, OH
FALLS APARTMENTS - COLORADO SPRINGS, CO
FARONIA SQUARE APARTMENTS - MEMPHIS, TN
GENEVA VILLAGE APARTMENTS - WEST JORDAN, UT
GRAND FORKS MULTIFAMILY - GRAND FORKS, ND
HARPERS FERRY APARTMENTS - LAFAYETTE, LA
HERITAGE PARK APARTMENTS - LIVERPOOL, NY
HUNTINGTON HILLS APARTMENTS - MANKATO, MN
JOHANSON ARMS APARTMENTS - KINGSBURG, CA
JOHNSON/WILSON APARTMENTS - ST. PAUL, MN
KINGSTOWN COLONY APARTMENTS - MARYVILLE, TN
LAKE CONWAY WOODS - ORLANDO, FL
MAPLE VILLAGE APARTMENTS - AMERICAN FORK, UT
MEADOWVIEW APARTMENTS - WEST JORDAN, UT
MERIDIAN POINTE APARTMENTS - KALISPELL, MT
MISSION VILLAGE APARTMENTS - TUCSON, AZ
OAK GROVE APARTMENTS - MINNEAPOLIS, MN
PALM COURT APARTMENTS - LOS ANGELES, CA
PARKWAY VILLAGE APARTMENTS - WEST JORDAN, UT
QUAIL LAKES APARTMENTS - OKLAHOMA CITY,OK
REGENCY MANOR APARTMENTS - GRAND ISLAND, NY
RIVERBROOK APARTMENTS - TAMPA, FL
ROSE PARK APARTMENTS - VERNAL, UT
ROYAL COURT APARTMENTS - MIAMI BEACH, FL
SHELTER ISLAND APARTMENTS - LAS VEGAS, NV
SOUTHLAKE VILLA APARTMENTS - SALT LAKE CITY, UT
THE TIMBERS APARTMENTS - HOUSTON, TX
VALLEY MANOR APARTMENTS - HASTINGS, MN
WESTREE APARTMENTS - COLORADO SPRINGS, CO
SINGLE FAMILY LOANS:
ARBOR - 44 LOANS, NEW YORK
BARCLAYS - 14 LOANS, MIDWESTERN UNITED STATES
BAYVIEW FINANCIAL - 9 LOANS, MARYLAND
DELAWARE II - 167 LOANS, TEXAS
FAIRBANKS IV - 25 LOANS, UNITED STATES
FEDERAL MORTGAGE - 45 LOANS, CONNECTICUT
FIRST BOSTON II - 54 LOANS, UNITED STATES, PRIMARILY IN TEXAS
FIRST BOSTON III - 72 LOANS, TEXAS AND FLORIDA
FIRST BOSTON IV - 61 LOANS, TEXAS, OKLAHOMA, AND MASSACHUSETTS
FIRST BOSTON V - 28 LOANS, UNITED STATES
GREENWICH - 24 LOANS, COLORADO
KIDDER PEABODY I - 93 LOANS, UNITED STATES
KIDDER PEABODY II - 6 LOANS, ARIZONA AND COLORADO
KNUTSON III - 21 LOANS, UNITED STATES
MARYLAND NATIONAL - 17 LOANS, UNITED STATES
MERIDIAN IV - 84 LOANS, MIDWESTERN UNITED STATES
MERIDIAN V - 59 LOANS, UNITED STATES
MINNEAPOLIS EMPLOYEES RETIREMENT FUND - 113 LOANS, MINNESOTA
MORTGAGE ACCESS - 5 LOANS, NEW JERSEY
NOMURA - 644 LOANS, CALIFORNIA AND TEXAS
NOMURA III - 218 LOANS, MIDWESTERN UNITED STATES
NORWEST II - 56 LOANS, MIDWESTERN UNITED STATES
NORWEST IV - 47 LOANS, MIDWESTERN UNITED STATES
NORWEST VI - 36 LOANS, MIDWESTERN UNITED STATES
NORWEST VII - 43 LOANS, MIDWESTERN UNITED STATES
NORWEST X - 47 LOANS, MIDWESTERN UNITED STATES
PRESIDENT HOMES, 93-6C SALES INVENTORY - 2 LOANS, MIDWESTERN UNITED
STATES
PRESIDENT HOMES, 93-6E SALES INVENTORY - 2 LOANS, MIDWESTERN UNITED
STATES
PRESIDENT HOMES, 94-1B SALES INVENTORY - 1 LOAN, MIDWESTERN UNITED
STATES
SEARS MORTGAGE - 9 LOANS, MIDWESTERN UNITED STATES
SHEARSON LEHMAN - 79 LOANS, UNITED STATES
THE CROSSINGS - 9 LOANS, MINNESOTA
(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, 1998, THE TOTAL
MARKET VALUE OF THESE INVESTMENTS WAS $308,586,220, OR 102.9% OF TOTAL NET
ASSETS.
(F) BASED UPON ESTIMATED TIMING AND AMOUNT OF FUTURE CASH FLOWS, INCOME IS
CURRENTLY NOT BEING RECOGNIZED ON THIS SECURITY WITH A MARKET VALUE OF
$18,412.
(G) REPURCHASE AGREEMENT IN A JOINT TRADING ACCOUNT WHICH IS COLLATERALIZED BY
U.S. GOVERNMENT AGENCY SECURITIES. ACCRUED INTEREST SHOWN REPRESENTS
INTEREST DUE AT MATURITY OF THE REPURCHASE AGREEMENT
(H) ON MAY 31, 1998, THE COST OF INVESTMENTS IN SECURITIES, INCLUDING REAL
ESTATE OWNED, FOR FEDERAL INCOME TAX PURPOSES WAS $386,113,384. THE
AGGREGATE GROSS UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN
SECURITIES BASED ON THIS COST WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 12,263,992
GROSS UNREALIZED DEPRECIATION ...... (2,908,405)
------------
NET UNREALIZED APPRECIATION ...... $ 9,355,587
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
16 1998 Annual Report - American Strategic Income Portfolio III
<PAGE>
Independent Auditors' Report
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS AND SHAREHOLDERS
AMERICAN STRATEGIC INCOME PORTFOLIO INC. III:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments in
securities, of American Strategic Income Portfolio Inc.
III as of May 31, 1998, and the related statements of
operations and cash flows for the year then ended, the
statements of changes in net assets for each of the years
in the two-year period ended May 31, 1998, and the
financial highlights for each of the years in the
five-year period ended May 31, 1998. 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
audits.
We conducted our audits 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. Investment securities held in custody are
confirmed to us by 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 audits provide 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. III as of May 31, 1998,
and the results of its operations and cash flows, the
changes in its net assets and the financial highlights for
the periods stated in the first paragraph above, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
July 10, 1998
- --------------------------------------------------------------------------------
17 1998 Annual Report - American Strategic Income Portfolio III
<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 25, 1997 .......................... $0.0825
July 23, 1997 .......................... 0.0825
August 27, 1997 ........................ 0.0825
September 24, 1997 ..................... 0.0825
October 15, 1997 ....................... 0.0825
November 24, 1997 ...................... 0.0825
December 22, 1997 ...................... 0.1425
January 12, 1998 ....................... 0.0825
February 25, 1998 ...................... 0.0825
March 25, 1998 ......................... 0.0825
April 22, 1998 ......................... 0.0825
May 27, 1998 ........................... 0.0825
-------
Total ................................ $1.0500
-------
-------
</TABLE>
- --------------------------------------------------------------------------------
18 1998 Annual Report - American Strategic Income Portfolio III
<PAGE>
Shareholder Update
- --------------------------------------------------------------------------------
ANNUAL MEETING RESULTS
An annual meeting of the fund's shareholders was held on
August 20, 1997. 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 Bennett .......................... 15,478,296 473,181
Jaye F. Dyer ........................... 15,479,021 472,456
William H. Ellis ....................... 15,480,668 470,809
Karol D. Emmerich ...................... 15,483,843 467,634
Luella G. Goldberg ..................... 15,479,021 472,456
David A. Hughey ........................ 15,474,190 477,287
George Latimer ......................... 15,474,937 476,541
</TABLE>
2. The fund's shareholders ratified the selection by a
majority of the independent members of the fund's
board of directors of KPMG Peat Marwick LLP as the
independent public accountants for the fund for the
fiscal year ending May 31, 1998. The following votes
were cast regarding this matter:
<TABLE>
<CAPTION>
SHARES SHARES BROKER
VOTED "FOR" VOTED "AGAINST" ABSTENTIONS NON-VOTES
------------ ----------------- ----------- ---------
<S> <C> <C> <C>
15,627,197 65,990 258,290 --
</TABLE>
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.
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 share's dividend and/or
capital gains distribution.
PLAN ADMINISTRATION
Beginning no more than 5 business days before the dividend
payment date, IFTC will buy shares of the fund on the New
York Stock Exchange (NYSE) or elsewhere on the open market
only when the price of the fund's shares on the NYSE plus
commissions is at less than a 5% premium over the fund's
most recently calculated net asset value (NAV) per share.
If, at the close of business on the dividend
- --------------------------------------------------------------------------------
19 1998 Annual Report - American Strategic Income Portfolio III
<PAGE>
Shareholder Update (continued)
- --------------------------------------------------------------------------------
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 noncertified form in your
name.
TAX INFORMATION
Distributions invested in additional shares of the fund
are subject to income tax, just as they would be if
received in cash. When shares are issued by the fund at a
discount from market value, shareholders will be treated
as having received distributions of an amount equal to the
full market value of those shares. Shareholders, as
required by the Internal Revenue Service, will receive
Form 1099 regarding the federal tax status of the prior
year's distributions.
PLAN WITHDRAWAL
If you hold your shares in certificate form, you may
terminate your participation in the plan at any time by
giving written notice to 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.
- --------------------------------------------------------------------------------
20 1998 Annual Report - American Strategic Income Portfolio III
<PAGE>
Shareholder Update (continued)
- --------------------------------------------------------------------------------
PLAN AMENDMENT/TERMINATION
The fund reserves the right to amend or terminate the
plan. Should the plan be amended or terminated,
participants will be notified in writing at least 90 days
before the record date for such dividend or distribution.
The plan may also be amended or terminated by IFTC with at
least 90 days written notice to participants in the plan.
Any question 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.
- --------------------------------------------------------------------------------
21 1998 Annual Report - American Strategic Income Portfolio III
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
- --------------------------------------------------------------------------------
22 1998 Annual Report - American Strategic Income Portfolio III
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
- --------------------------------------------------------------------------------
23 1998 Annual Report - American Strategic Income Portfolio III
<PAGE>
GLOSSARY OF TERMS***
- --------------------------------------------------------------------------------
BENCHMARK INDEX
A benchmark is an established basis of comparison for an investment's
performance. A benchmark may be an unmanaged market index or a group of similar
investments. This particular fund carries more credit risk than the securities
in its benchmark index. Therefore, during favorable real estate markets, the
fund should outperform its benchmark (barring foreclosures). At the same time,
unfavorable real estate markets could cause underperformance.
DISCOUNT
Closed-end fund shares may trade in the market at prices that are equal to,
above or below their net asset value (NAV). When investors purchase or sell
shares at a price that is below current NAV, the shares are said to be trading
at a discount.
NET ASSET VALUE
Net asset value (or NAV) is the value of the fund's assets less its liabilities
divided by the number of shares outstanding.
REVERSE REPURCHASE AGREEMENTS
A reverse repurchase agreement is an agreement between a seller of securities
(the fund) and a buyer, whereby the fund receives cash and pays interest and
agrees to buy back the same securities at an agreed upon price on a stated date.
Reverse repurchase agreements are considered a form of borrowing.
RISK
All funds that invest in mortgage-related securities are subject to certain
risks. Following is a brief summary of some of the primary risks associated with
mortgage-related assets. It does not include all risks related to mortgage
securities.
Among these risks is PREPAYMENT RISK in which principal payments are prepaid at
unexpected rates. Prepayment rates are influenced by changes in interest rates
and a variety of other factors. If the fund buys a mortgage loan at a premium, a
faster-than-anticipated prepayment rate will reduce the fund's yield and a
slower-than-anticipated prepayment rate will increase its yield. If a mortgage
loan is purchased at a discount, the opposite will occur. There is also the
chance that proceeds from prepaid loans will have to be reinvested in
lower-yielding investments (REINVESTMENT RISK).
Like all fixed income investments, the prices of securities in the fund are
sensitive to changing interest rates - otherwise known as INTEREST RATE RISK.
When rates increase, the value of these securities decreases. Conversely, when
rates decline, the value of these securities rises. However, mortgage-related
assets may benefit less from declining interest rates than other fixed income
securities because of prepayment risk.
This particular fund's mortgage loans are also subject to real estate risk and
credit risk. Since the fund's mortgage loans generally aren't backed by any
government guarantee or private credit enhancement, they face more significant
CREDIT RISK than other mortgage-related securities. Credit risk is the risk of
loss arising from default if the borrower fails to make payments on the loan.
This risk may be greater during periods of declining or stagnant real estate
values and could also occur following natural disasters such as a flood or
earthquake, for which a property may be uninsured. Mortgage loans are also
subject to REAL ESTATE RISKS including property risk (the risk that the physical
condition and value of the property will decline) and the legal risk of holding
any mortgage loan.
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
24 1998 Annual Report - American Strategic Income Portfolio III
<PAGE>
FOR MORE INFORMATION
BY PHONE [GRAPHIC]
800 866-7778
FOR GENERAL INFORMATION
press 5, our Mutual Fund Services representatives are ready to answer your
questions.
TO ORDER LITERATURE
press 5, ask a service representative to mail you additional literature,
including a Quarterly Update. You can also request to be put on a mailing list
to receive this information automatically each quarter.
BY MAIL [GRAPHIC]
Piper Capital Management
Attn: Mutual Fund Services
222 South Ninth Street Minneapolis, MN 55402-3804
In an effort to reduce costs to our shareholders, we have implemented a process
to reduce duplicate mailings of the funds' shareholder reports. This
householding process should allow us to mail one report to each address where
one or more registered shareholders with the same last name reside. If you would
like to have additional reports mailed to your address, please call our Mutual
Fund Services area at 800 866-7778, or mail a request to us.
ON-LINE [GRAPHIC]
http://www.piperjaffray.com/
<PAGE>
[LOGO] NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
[GRAPHIC] THIS DOCUMENT IS PRINTED ON PAPER INCLUDING 15% POST-CONSUMER WASTE.
#11530 7/1998 160-98
