<PAGE>
1997 Semiannual Report
[LOGO]
AMERICAN STRATEGIC INCOME PORTFOLIO III
AMERICAN STRATEGIC INCOME PORTFOLIO III - 1997 SEMIANNUAL REPORT
CSP
<PAGE>
[LOGO]
CONTENTS
- --------------------------------------------------------------------------------
Average Annualized Total Returns . . . . . . . . . . . . . . . . . . . . . 1
Portfolio Managers' Letter . . . . . . . . . . . . . . . . . . . . . . . . 2
Financial Statements and Notes . . . . . . . . . . . . . . . . . . . . . . 7
Investments in Securities. . . . . . . . . . . . . . . . . . . . . . . . . 20
Shareholder Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Glossary*. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
* This report includes a glossary to help you understand financial terms used
in the portfolio managers' letter. 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.
<PAGE>
AVERAGE ANNUALIZED TOTAL RETURNS
- --------------------------------------------------------------------------------
BASED ON NET ASSET VALUE FOR THE PERIODS ENDED NOVEMBER 30, 1997
- --------------------------------------------------------------------------------
[GRAPH]
Lehman Brothers
American Strategic Mutual Fund Gov't/
Income Portfolio III Mortgage Index
ONE YEAR 9.98% 7.56%
THREE YEAR 11.48% 10.09%
SINCE INCEPTION 6.65% 6.72%
3/25/93
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, three-year and since inception periods ended November 30, 1997, were
19.56%, 13.27% and 4.41%, respectively. These returns assume reinvestment of all
distributions and reflect sales charges on those distributions 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 November 30, 1997.
- --------------------------------------------------------------------------------
1997 Semiannual Report 1 American Strategic Income Portfolio III
<PAGE>
PORTFOLIO MANAGERS' LETTER
- --------------------------------------------------------------------------------
January 16, 1998
- --------------------------------------------------------------------------------
[PHOTO]
JOHN WENKER is primarily responsible for the management of American Strategic
Income Portfolio III. He has 11 years of financial experience.
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
FOR THE SIX-MONTH PERIOD ENDED NOVEMBER 30, 1997, AMERICAN STRATEGIC INCOME
PORTFOLIO III HAD A NET ASSET VALUE TOTAL RETURN OF 7.08%.* This compares to a
6.41% return for the Lehman Brothers Mutual Fund Government/Mortgage Index. The
fund's total return based on its market price was 9.14%. The fund continued to
trade at a discount*** to net asset value, with a market price of $11.625 and a
net asset value of $12.47 per share as of November 30.
IN ADDITION TO ITS STRONG NAV PERFORMANCE, THE FUND PAID AN ATTRACTIVE LEVEL
OF CURRENT INCOME TO SHAREHOLDERS DURING THE PERIOD. The fund paid 49.5 cents
per share in dividends, an annualized distribution rate of 8.52% on the
November 30 market price of $11.625 per share. Current monthly earnings of
8.62 cents per share (based
* 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 those distributions 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 COMPOSITION
- --------------------------------------------------------------------------------
As a percentage of total assets on November 30, 1997
[CHART]
Commercial Loans 16%
Multifamily Loans 30%
Other Assets 2%
Short-Term Securities 1%
Single Family Loans 32%
U.S. Treasury Securities 19%
- --------------------------------------------------------------------------------
1997 Semiannual Report 2 American Strategic Income Portfolio III
<PAGE>
PORTFOLIO MANAGERS' LETTER (CONTINUED)
- --------------------------------------------------------------------------------
[PHOTO]
DAVID STEELE assists with the management of American Strategic Income Portfolio
III. He has 18 years of financial experience.
- --------------------------------------------------------------------------------
on an average of the three months ended November 30) would result in an
annualized earnings rate of 8.90% on the November 30 market price. Keep in mind
that past performance does not guarantee future results, and these rates will
fluctuate.
THE FUND'S MONTHLY DIVIDEND REMAINED UNCHANGED AT 8.25 CENTS PER SHARE. The
loans in the fund's portfolio have provided relatively high income for the fund,
allowing us to hold the dividend steady for the past 18 months. In addition,
the fund paid a special dividend of 6 cents per share in December 1997.
WE ATTRIBUTE THE FUND'S POSITIVE NAV PERFORMANCE TO LOWER TREASURY YIELDS AND
MORTGAGE YIELD SPREADS.*** During this reporting period, yields on
Treasuries in the medium-term portion of the yield curve*** decreased
approximately 0.60%. At the same time, mortgage market spreads moved lower on
a wide range of mortgage products, particularly multifamily and commercial
loans where spreads decreased approximately 0.40% to 0.60%.
- --------------------------------------------------------------------------------
GEOGRAPHICAL DISTRIBUTION
- --------------------------------------------------------------------------------
We attempt to buy mortgage loans in many parts of the country to help avoid the
risks of concentrating in one area. These percentages reflect principal value of
whole loans and real estate owned as of November 30, 1997. Shaded areas without
values indicate states in which the fund has invested less than 0.50% of its
assets.
[MAP]
Arizona. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7%
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12%
Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5%
Connecticut. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2%
Florida. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7%
Georgia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1%
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1%
Louisiana. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1%
Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1%
Massachusetts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2%
Minnesota. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8%
New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3%
New Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1%
New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5%
Nevada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5%
North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1%
North Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1%
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2%
Oklahoma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7%
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6%
Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1%
Tennesee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2%
Texas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14%
Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3%
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2%
- --------------------------------------------------------------------------------
1997 Semiannual Report 3 American Strategic Income Portfolio III
<PAGE>
PORTFOLIO MANAGERS' LETTER (CONTINUED)
- --------------------------------------------------------------------------------
[PHOTO]
RUSS KAPPENMANN assists with the management of American Strategic Income
Portfolio III. He has 11 years of financial experience.
- --------------------------------------------------------------------------------
This effect, along with the attractive level of income earned by the fund,
caused the fund's positive performance relative to its benchmark.***
AS WE HAVE TOLD SHAREHOLDERS IN THE PAST, PREPAYMENTS ARE A CONCERN FOR THIS
FUND, ESPECIALLY IN THE LOWER INTEREST RATE ENVIRONMENT WE CURRENTLY FACE. Lower
rates are expected to continue, and the fund is likely to experience prepayments
as borrowers prepay or refinance their loans. Over time, prepayments invested at
lower interest rates will impact the fund's income and dividend levels.
Prepayments are sometimes positive, since the fund can collect prepayment
penalties on multifamily and commercial loans.
DURING THE PERIOD, WE CONTINUED TO INCREASE THE FUND'S HOLDINGS IN COMMERCIAL
LOANS.*** While commercial loans are subject to more credit risk*** than other
mortgage loans, their price and supply have been attractive in recent months.
The market for multifamily and commercial loans is approximately $1 trillion in
size, providing us with a large number of loans to search through for the credit
quality, price and yield we want for the fund.
DELINQUENT LOANS AND CREDIT LOSSES ARE INHERENT RISKS IN THIS FUND, EVEN THOUGH
WE CONDUCT EXTENSIVE RISK ANALYSIS ON THE LOANS WE BUY. As of November 30, the
fund held approximately 2,000 single family loans on properties with an average
remaining principal balance of approximately $60,000. On the same date, the fund
had 44 multifamily loans with an average principal balance of approximately
$2,917,000 and 23 commercial loans with an average principal balance of
approximately $2,820,000. The chart on the opposite page shows the percentage of
single family loans in delinquency. No multifamily or commercial loans were
delinquent. Since the fund's inception, we have kept its principal losses due to
foreclosure on single family and multifamily loans to $0.04 per share and $0.01
per share, respectively. To date, we have experienced no foreclosure losses on
commercial loans. When loans are foreclosed, we expedite the process as quickly
as
- --------------------------------------------------------------------------------
1997 Semiannual Report 4 American Strategic Income Portfolio III
<PAGE>
PORTFOLIO MANAGERS' LETTER (CONTINUED)
- --------------------------------------------------------------------------------
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. The
amount of reverse repurchase agreements was equal to 23% of the fund's total
assets as of November 30. Please note that borrowing can potentially increase
the fund's earnings, but it can also increase the fund's net asset value
volatility. We attempt to moderate this potential volatility by purchasing
short- to medium-term Treasuries.
SETTLEMENT OF THE CLASS ACTION LAWSUIT AGAINST THE FUND AND SEVEN OTHER
CLOSED-END MANAGEMENT COMPANIES MANAGED BY PIPER CAPITAL MANAGEMENT BECAME
EFFECTIVE IN SEPTEMBER, AND THE FUND COMPLETED A SHARE REPURCHASE. The
settlement included payments by Piper Jaffray Companies totaling $15.5 million
over a four-year period. It also included an agreement by the fund to repurchase
up to 10% of its outstanding shares. Proceeds of this
- --------------------------------------------------------------------------------
DELINQUENT LOAN PROFILE
- --------------------------------------------------------------------------------
The chart below shows what percentage of single family loans* in the portfolio
are 30, 60, 90 or 120 days delinquent as of November 30, 1997, based on
principal amounts outstanding.
[CHART]
Current 88.7%
- -------------------------------------------------------------------------------
30 Days 6.9%
- -------------------------------------------------------------------------------
60 Days 1.1%
- -------------------------------------------------------------------------------
90 Days 0.3%
- -------------------------------------------------------------------------------
120+ Days 3.0%
- -------------------------------------------------------------------------------
* As of November 30, 1997, there were no multifamily or commercial loans
delinquent.
- --------------------------------------------------------------------------------
1997 Semiannual Report 5 American Strategic Income Portfolio III
<PAGE>
PORTFOLIO MANAGERS' LETTER (CONTINUED)
- --------------------------------------------------------------------------------
repurchase were paid out on December 5. We funded the repurchase by using loan
prepayments and selling some of the fund's less attractive mortgage assets.
Thank you for your investment in American Strategic Income Portfolio III. We are
pleased that the fund provided you with a competitive return for the period, and
we appreciate the opportunity to serve your investment needs.
Sincerely,
/s/ John Wenker
John Wenker
Portfolio Manager
- --------------------------------------------------------------------------------
VALUATION OF WHOLE LOAN INVESTMENTS
- --------------------------------------------------------------------------------
THE FUND'S INVESTMENTS IN WHOLE LOANS (SINGLE FAMILY, MULTIFAMILY AND
COMMERCIAL), PARTICIPATION MORTGAGES AND MORTGAGE SERVICING RIGHTS ARE GENERALLY
NOT TRADED IN ANY ORGANIZED MARKET 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.
- --------------------------------------------------------------------------------
1997 Semiannual Report 6 American Strategic Income Portfolio III
<PAGE>
Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES November 30, 1997
................................................................................
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (note 2)
(including a repurchase agreement of $3,733,000) ......... $422,906,929
Real estate owned (identified cost: $508,892) (note 2) ..... 584,321
Cash in bank on demand deposit ............................. 3,998,632
Accrued interest receivable ................................ 4,376,029
Other assets ............................................... 209,365
------------------
Total assets ............................................. 432,075,276
------------------
LIABILITIES:
Reverse repurchase agreements payable ...................... 98,000,000
Accrued investment management fee .......................... 169,690
Accrued administrative fee ................................. 54,613
Accrued interest ........................................... 442,779
Other accrued expenses ..................................... 1,785
------------------
Total liabilities ........................................ 98,668,867
------------------
Net assets applicable to outstanding capital stock ....... $333,406,409
------------------
------------------
COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital ............... $378,155,153
Undistributed net investment income ........................ 3,354,806
Accumulated net realized loss on investments ............... (58,368,990)
Unrealized appreciation of investments ..................... 10,265,440
------------------
Total - representing net assets applicable to capital
stock .................................................. $333,406,409
------------------
------------------
* Investments in securities at identified cost ............. $412,716,918
------------------
------------------
NET ASSET VALUE AND MARKET PRICE:
Net assets ................................................. $333,406,409
Shares outstanding (authorized 1 billion shares of $0.01 par
value) ................................................... 26,742,546
Net asset value ............................................ $ 12.47
Market price ............................................... $ 11.63
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- ---------------------------------------------------------------------
1997 Semiannual Report 7 American Strategic Income Portfolio III
<PAGE>
Financial Statements (Unaudited) (continued)
- ---------------------------------------------------------------------
STATEMENT OF OPERATIONS For the Six Months Ended November 30, 1997
................................................................................
<TABLE>
<S> <C>
INCOME:
Interest (net of interest expense of $2,956,439) ........... $15,683,478
-----------------
EXPENSES (NOTE 3):
Investment management fee .................................. 1,029,541
Administrative fee ......................................... 328,872
Custodian and accounting fees .............................. 108,313
Transfer agent fees ........................................ 12,943
Reports to shareholders .................................... 65,967
Mortgage servicing fees .................................... 422,609
Directors' fees ............................................ 13,413
Audit and legal fees ....................................... 68,664
Other expenses ............................................. 51,644
-----------------
Total expenses ........................................... 2,101,966
Less expenses paid indirectly .......................... (4,199)
-----------------
Total net expenses ....................................... 2,097,767
-----------------
Net investment income .................................... 13,585,711
-----------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
(NOTE 4):
Net realized gain on investments in securities ............. 496,534
Net realized loss on real estate owned ..................... (466,344)
-----------------
Net realized gain on investments ......................... 30,190
Net change in unrealized appreciation or depreciation of
investments .............................................. 8,847,096
-----------------
Net gain on investments .................................. 8,877,286
-----------------
Net increase in net assets resulting from operations ... $22,462,997
-----------------
-----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- ---------------------------------------------------------------------
1997 Semiannual Report 8 American Strategic Income Portfolio III
<PAGE>
Financial Statements (Unaudited) (continued)
- ---------------------------------------------------------------------
STATEMENT OF CASH FLOWS For the Six Months Ended November 30, 1997
................................................................................
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest income ............................................ $15,683,478
Net expenses ............................................... (2,097,767)
-----------------
Net investment income .................................... 13,585,711
-----------------
Adjustments to reconcile net investment income to net cash
provided by operating activities:
Change in accrued interest receivable .................... 497,502
Net amortization of bond discount and premium ............ (46,483)
Change in accrued fees and expenses ...................... (64,135)
Change in other assets ................................... 63,680
-----------------
Total adjustments ...................................... 450,564
-----------------
Net cash provided by operating activities .............. 14,036,275
-----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments ......................... 123,068,601
Purchases of investments ................................... (139,913,125)
Net sales of short-term securities ......................... 4,585,000
-----------------
Net cash used by investing activities .................. (12,259,524)
-----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from reverse repurchase agreements ............ 14,500,000
Distributions paid to shareholders ......................... (13,237,561)
-----------------
Net cash provided by financing activities .............. 1,262,439
-----------------
Net increase in cash ....................................... 3,039,190
Cash at beginning of period ................................ 959,442
-----------------
Cash at end of period .................................. $ 3,998,632
-----------------
-----------------
Supplemental disclosure of cash flow information:
Cash paid for interest on reverse repurchase
agreements ............................................. $ 2,924,582
-----------------
-----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- ---------------------------------------------------------------------
1997 Semiannual Report 9 American Strategic Income Portfolio III
<PAGE>
Financial Statements (continued)
- ---------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
................................................................................
<TABLE>
<CAPTION>
SIX MONTHS ENDED
11/30/97 YEAR ENDED
(UNAUDITED) 5/31/97
------------------ ------------------
<S> <C> <C>
OPERATIONS:
Net investment income ...................................... $ 13,585,711 $ 26,680,519
Net realized gain (loss) on investments .................... 30,190 (989,331)
Net change in unrealized appreciation or depreciation of
investments .............................................. 8,847,096 (2,268,134)
------------------ ------------------
Net increase in net assets resulting from operations ..... 22,462,997 23,423,054
------------------ ------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ................................. (13,237,561) (26,842,831)
------------------ ------------------
Total increase (decrease) in net assets .................. 9,225,436 (3,419,777)
Net assets at beginning of period .......................... 324,180,973 327,600,750
------------------ ------------------
Net assets at end of period ................................ $333,406,409 $324,180,973
------------------ ------------------
------------------ ------------------
Undistributed net investment income ........................ $ 3,354,806 $ 3,006,656
------------------ ------------------
------------------ ------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- ---------------------------------------------------------------------
1997 Semiannual Report 10 American Strategic Income Portfolio III
<PAGE>
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
(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 values of certain fixed income securities are
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
- ---------------------------------------------------------------------
1997 Semiannual Report 11 American Strategic Income Portfolio III
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
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.
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
- ---------------------------------------------------------------------
1997 Semiannual Report 12 American Strategic Income Portfolio III
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
underlying mortgage-backed securities. With respect to
participation mortgages, the fund generally will not be able to
unilaterally enforce its rights in the event of a default, but
rather will be dependent on the cooperation of the other
participation holders.
At November 30, 1997, loans representing 1.9% 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 4.4% of total single family principal
outstanding at November 30, 1997. 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 $466,344 or $0.017 per share on real estate
sold during the six months ended November 30, 1997.
Real estate acquired through foreclosure, if any, is recorded at
estimated fair value. The fund may receive rental or other income
as a result of holding real estate. In addition, the fund may
incur expenses associated with maintaining any real estate owned.
On November 30, 1997, the fund owned 9 homes with an aggregate
value of $584,321, or 0.2% 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-
- ---------------------------------------------------------------------
1997 Semiannual Report 13 American Strategic Income Portfolio III
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
commitment basis may increase the volatility of the fund's net
asset value if the fund makes such purchases while remaining
substantially fully invested. As of November 30, 1997, 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
contracts 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 the six
months ended November 30, 1997, the fund earned no such fees.
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 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 (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
- ---------------------------------------------------------------------
1997 Semiannual Report 14 American Strategic Income Portfolio III
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
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 the following agreements with Piper
Capital Management Incorporated (the advisor and the
administrator):
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
- ---------------------------------------------------------------------
1997 Semiannual Report 15 American Strategic Income Portfolio III
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
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 six months
ended November 30, 1997, 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.
- ---------------------------------------------------------------------
1997 Semiannual Report 16 American Strategic Income Portfolio III
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
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 six
months ended November 30, 1997, aggregated $139,959,608 and
$123,068,601, respectively. Included in proceeds from sales is
$3,305,565 from sales of real estate owned.
(5) CAPITAL LOSS
CARRYOVER
................................
For federal income tax purposes, the fund had capital loss
carryovers at May 31, 1997, 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>
$ 22,404,381 2003
34,420,675 2004
871,623 2005
1,167,977 2006
-------------
$ 58,864,656
-------------
-------------
</TABLE>
(6) SUBSEQUENT
EVENT -
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
- ---------------------------------------------------------------------
1997 Semiannual Report 17 American Strategic Income Portfolio III
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
percentage of outstanding shares tendered, the number of shares
tendered, the repurchase price per share and proceeds paid by the
fund on December 5, 1997 were as follows:
<TABLE>
<CAPTION>
PERCENTAGE SHARES REPURCHASE PROCEEDS
TENDERED TENDERED PRICE PAID
---------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
10% 2,674,078 $12.45 $ 33,292,271
</TABLE>
(7) SUBSEQUENT
EVENT -
PENDING
ACQUISITION
................................
On December 15, 1997, Piper Jaffray Companies Inc., the parent
company of the fund's investment advisor, announced that it had
entered into an agreement to be acquired by U.S. Bancorp. It is
anticipated that this acquisition will be completed in the second
quarter of 1998, subject to regulatory approval, the approval of
Piper Jaffray Companies shareholders and the satisfaction of
customary closing conditions.
U.S. Bancorp is a multi-state bank holding company headquartered
in Minneapolis, Minnesota with a geographic service area spanning
17 states. As of September 30, 1997, U.S. Bancorp was the 15th
largest U.S. commercial bank holding company, with assets of
approximately $70 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 December 31, 1997, U.S. Bank, acting through its
First American Asset Management group, managed more than $55
billion in assets, including approximately $20.5 billion in
assets of the First American Funds.
Under the Investment Company Act of 1940, as amended (the "1940
Act"), consummation of the acquisition of Piper Jaffray Companies
by U.S. Bancorp will result in the assignment and automatic
termination of the fund's investment advisory agreement with
Piper Capital Management Incorporated. The 1940 Act requires that
any new investment advisory agreement for the fund be approved by
the fund's board of directors and shareholders.
- ---------------------------------------------------------------------
1997 Semiannual Report 18 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:
<TABLE>
<CAPTION>
Six Months
Ended Year Year Year Year Period
11/30/97 Ended Ended Ended Ended Ended
(Unaudited) 5/31/97 5/31/96 5/31/95 5/31/94 5/31/93(f)
------------ -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ... $12.12 $12.25 $12.50 $12.61 $14.04 $14.07
------------ -------- -------- -------- -------- -------
Operations:
Net investment income ................ 0.51 1.00 0.99 1.18 1.37 0.19
Net realized and unrealized losses on
investments ........................ 0.34 (0.13) -- (0.01) (1.52) (0.11)
------------ -------- -------- -------- -------- -------
Total from operations .............. 0.85 0.87 0.99 1.17 (0.15) 0.08
------------ -------- -------- -------- -------- -------
Distributions to shareholders:
From net investment income ........... (0.50) (1.00) (1.24) (1.28) (1.07) (0.11)
In excess of net realized gains ...... -- -- -- -- (0.21) --
------------ -------- -------- -------- -------- -------
Total distributions to
shareholders ..................... (0.50) (1.00) (1.24) (1.28) (1.28) (0.11)
------------ -------- -------- -------- -------- -------
Net asset value, end of period ..... $12.47 $12.12 $12.25 $12.50 $12.61 $14.04
------------ -------- -------- -------- -------- -------
------------ -------- -------- -------- -------- -------
Per-share market value, end of
period . $11.63 $11.13 $10.25 $11.13 $12.75 $15.38
------------ -------- -------- -------- -------- -------
------------ -------- -------- -------- -------- -------
SELECTED INFORMATION
Total return, net asset value (a) ...... 7.08% 7.43% 8.17% 10.03% (1.78)% 0.54%
Total return, market value (b) ......... 9.14% 19.18% 3.20% (2.42)% (9.52)% 3.23%
Net assets at end of period (in
millions) ............................ $ 333 $ 324 $ 328 $ 338 $ 346 $ 384
Ratio of expenses to average weekly net
assets including interest expense
(c) .................................. 3.07%(g) 3.84% 2.66% 3.55% 2.13% 1.06%(g)
Ratio of expenses to average weekly net
assets excluding interest expense
(c) .................................. 1.27%(g) 1.34% 1.29% 1.29% 1.19% 1.01%(g)
Ratio of net investment income to
average weekly net assets ............ 8.25%(g) 8.22% 7.92% 9.48% 9.57% 7.46%(g)
Portfolio turnover rate (excluding
short-term securities) ............... 29% 46% 121% 49% 155% 2%
Amount of borrowings outstanding at end
of period (in millions) (d) .......... $ 98 $ 84 $ 81 $ 75 $ 159 $ 15
Per-share amount of borrowings
outstanding at end of period ......... $ 3.66 $ 3.12 $ 3.03 $ 2.77 $ 5.79 $ 0.55
Per-share amount of net assets,
excluding borrowings, at end of
period ............................... $16.13 $15.24 $15.28 $15.27 $18.40 $14.59
Asset coverage ratio (e) ............... 440% 488% 504% 551% 317% 2,659%
</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 1997 RATIO INCLUDES 0.08% 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.
(f) COMMENCEMENT OF OPERATIONS WAS MARCH 25, 1993.
(g) ANNUALIZED.
- ---------------------------------------------------------------------
1997 Semiannual Report 19 American Strategic Income Portfolio III
<PAGE>
Investments in Securities (Unaudited)
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN STRATEGIC INCOME PORTFOLIO III November 30, 1997
.......................................................................................
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
U.S. GOVERNMENT AND AGENCY SECURITIES (24.7%):
U.S. GOVERNMENT SECURITIES (24.7%):
6.38%, U.S. Treasury Note, 9/30/01
(cost: $81,529,154) ............................... $81,000,000(b) $ 82,437,750
------------
PRIVATE MORTGAGE-BACKED SECURITIES (E) (0.0%):
FIXED RATE (0.0%):
0.00%, First Gibralter, Series 1992-MM, Class B,
10/25/21
(cost: $735,472) .................................. 2,034,800(f) 20,348
------------
WHOLE LOANS AND PARTICIPATION MORTGAGES (C,D,E) (101.0%):
COMMERCIAL LOANS (20.2%):
Airport Plaza Offices, 8.88%, 5/1/01 ................ 736,901 764,689
Berry Hill Shopping Center, 8.95%, 8/1/02 ........... 2,289,525 2,404,002
Blacklake Place I and II, 8.78%, 9/1/07 ............. 4,984,884 5,234,129
Blacklake Place III, 8.78%, 9/1/07 .................. 2,492,442 2,617,064
Brookhollow West and Northwest Technical Center,
8.21%, 8/1/02 ..................................... 3,688,648 3,766,888
Commerce Center, 8.88%, 5/1/01 ...................... 1,915,943 1,992,581
CUBB Properties Mobile Home Park, 8.15%, 11/1/07 .... 2,950,000 3,040,761
Disco Print Warehouse, 8.90%, 2/1/04 ................ 1,359,798 1,427,788
Jackson Street Warehouse, 8.63%, 7/1/07 ............. 4,888,303 5,132,718
John Brown Office Building, 8.90%, 6/1/03 ........... 4,986,295 5,235,610
Lake Pointe Corporate Center, 8.67%, 7/1/07 ......... 3,938,755 4,135,692
Meridian Corporate Center, 8.10%, 8/1/02 ............ 2,375,060 2,417,997
Merrill Lynch / Northern Trust Building, 9.05%,
6/1/03 ............................................ 3,762,891 3,951,036
North Austin Business Center, 9.15%, 5/1/07 ......... 3,083,508 3,237,683
One Metro Square Office Building, 8.20%, 10/1/02 .... 2,996,947 3,074,563
Pacific Shores Mobile Home Park II, 11.12%,
10/1/06 ........................................... 2,953,106 3,100,761
Parkside Office Building, 8.30%, 12/1/01 ............ 1,705,330 1,747,747
Paseo Verde Plaza, 8.63%, 5/1/01 .................... 1,816,385 1,830,164
Pilot Knob Service Center, 9.07%, 7/1/07 ............ 1,519,561 1,595,539
PMG Plaza, 9.05%, 4/1/04 ............................ 2,583,532 2,712,709
Santa Monica Center, 8.35%, 11/1/04 ................. 3,500,000 3,603,770
Seventh Street Parking Ramp, 8.63%, 9/1/07 .......... 1,997,630 1,997,630
Turf Mobile Manor, 8.25%, 1/1/06 .................... 2,342,668 2,418,932
------------
67,440,453
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1997 Semiannual Report 20 American Strategic Income Portfolio III
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
AMERICAN STRATEGIC INCOME PORTFOLIO III
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
MULTIFAMILY LOANS (39.1%):
Ambassador House Apartments, 10.13%, 12/1/01 ........ $ 2,358,113 $ 2,476,019
Berryhill Apartments, 9.59%, 9/1/01 ................. 1,565,023 1,365,911
Boardwalk Apartments, 9.00%, 9/1/01 ................. 4,711,851 4,915,927
Briarwood Apartments, 10.24%, 12/1/01 ............... 982,943 1,032,090
Champlin Drive Apartments, 10.00%, 7/15/08 .......... 2,187,065 1,798,750
Clackamas Trail Apartments, 8.50%, 7/1/01 ........... 14,165,223 14,448,528
Concord Apartments, 10.00%, 5/1/01 .................. 2,051,081 2,092,103
El Camino Apartments, 10.65%, 2/1/02 ................ 4,729,557 4,871,444
El Toro Blanco Apartments, 10.05%, 1/1/02 ........... 1,327,647 1,394,029
Essex II, 10.00%, 8/1/08 ............................ 2,041,261 1,864,927
Everhard Road Apartments, 9.84%, 9/1/01 ............. 482,489 492,138
Falls Apartments, 9.88%, 7/1/03 ..................... 3,882,690 3,882,690
Faronia Square Apartments, 10.40%, 1/1/02 ........... 3,542,489 3,719,614
Geneva Village Apartments, 9.50%, 11/1/04 ........... 1,293,670 1,358,354
Grand Forks Multifamily, 10.00%, 12/1/01 ............ 2,374,821 2,446,066
Harpers Ferry Apartments, 10.56%, 12/1/01 ........... 1,810,580 1,901,109
Heritage Park Apartments, 9.00%, 2/1/04 ............. 1,933,868 2,030,562
Huntington Hills Apartments, 8.75%, 11/1/05 ......... 1,348,877 1,416,321
Johanson Arms Apartments, 9.35%, 6/1/04 ............. 2,031,539 1,963,827
Johnson/Wilson Apartments, 10.00%, 9/1/18 ........... 782,788 790,616
Karrington of Bexley Apartments, 9.73%, 11/1/01 ..... 3,920,236 4,037,843
Kingstown Colony Apartments, 9.98%, 11/1/01 ......... 1,766,598 1,854,928
Lake Conway Woods, 10.14%, 8/1/01 ................... 2,940,897 2,999,715
Maple Village Apartments, 9.50%, 11/1/04 ............ 1,351,865 1,419,458
Meadowview Apartments, 9.50%, 11/1/04 ............... 959,286 1,007,250
Meridian Pointe Apartments, 8.85%, 2/1/12 ........... 1,195,160 1,254,918
Mission Village Apartments, 9.59%, 9/1/01 ........... 2,180,154 2,223,757
Oak Grove Apartments, 10.05%, 12/2/01 ............... 887,325 931,692
Ocean Cove Apartments, 9.59%, 10/1/04 ............... 3,036,762 3,097,497
Palm Court Apartments, 10.00%, 9/1/98 ............... 6,813,543 6,881,679
Parkway Village Apartments, 9.50%, 11/1/04 .......... 931,086 977,640
Quail Lakes Apartments, 8.95%, 11/1/03 .............. 8,937,883 9,384,777
Regency Manor Apartments, 10.30%, 1/1/00 ............ 5,241,137 4,294,637
Riverbrook Apartments, 10.38%, 1/1/02 ............... 2,041,620 2,143,701
Rose Park Apartments, 9.50%, 11/1/04 ................ 816,752 857,590
Royal Court Apartments, 9.00%, 10/1/04 .............. 1,447,829 1,505,742
Shelter Island Apartments, 10.00%, 10/1/01 .......... 12,751,966 13,389,565
Southlake Villa Apartments, 9.50%, 11/1/04 .......... 1,318,242 1,384,154
The Timbers Apartments, 9.75%, 6/1/99 ............... 2,682,282 2,709,105
Timberlea Terrace Apartments, 10.00%, 11/1/08 ....... 876,620 613,634
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1997 Semiannual Report 21 American Strategic Income Portfolio III
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
AMERICAN STRATEGIC INCOME PORTFOLIO III
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
Twin Lakes Apartments, 9.80%, 11/1/01 ............... $ 3,169,813 $ 3,328,304
Valley Manor Apartments, 8.45%, 11/1/02 ............. 3,337,844 3,437,837
Village Green Apartments, 10.00%, 8/1/08 ............ 923,428 927,843
Westree Apartments, 10.00%, 9/1/03 .................. 3,215,556 3,376,335
------------
130,300,626
------------
SINGLE FAMILY LOANS (41.7%):
Arbor, 9.27%, 8/16/17 ............................... 4,595,841 4,595,841
Barclays, 8.60%, 6/7/25 ............................. 2,130,217 2,170,297
Bayview Financial, 7.10%, 2/21/20 ................... 1,011,875 982,801
Delaware II, 8.74%, 11/27/07 ........................ 7,185,083 7,116,902
Fairbanks IV, 8.03%, 4/3/19 ......................... 2,418,807 2,283,539
Federal Mortgage, 8.37%, 12/15/20 ................... 3,421,662 3,148,562
First Boston II, 9.55%, 7/31/09 ..................... 2,392,091 2,284,161
First Boston III, 9.05%, 2/1/13 ..................... 3,138,921 2,966,921
First Boston IV, 9.28%, 3/1/12 ...................... 2,872,321 2,810,266
First Boston V, 8.10%, 5/26/16 ...................... 2,679,080 2,694,998
Greenwich, 9.22%, 4/16/05 ........................... 2,181,341 2,186,090
Kidder Peabody I, 9.84%, 9/1/10 ..................... 3,747,371 3,753,923
Kidder Peabody II, 10.04%, 5/1/13 ................... 892,836 903,180
Knutson III, 9.17%, 4/1/15 .......................... 1,476,966 1,507,028
Maryland National, 9.54%, 9/1/19 .................... 1,478,453 1,429,417
Meridian IV, 8.38%, 8/16/16 ......................... 6,543,119 6,501,046
Meridian V, 8.26%, 10/6/17 .......................... 4,747,116 4,691,624
Minneapolis Employees Retirement Fund, 8.48%,
2/10/14 ........................................... 4,588,281 4,466,962
Mortgage Access, 9.25%, 9/30/19 ..................... 1,066,098 1,005,079
Nomura, 9.96%, 12/16/23 ............................. 30,589,942(b) 30,800,596
Nomura III, 8.51%, 12/29/17 ......................... 16,788,487(b) 15,850,431
Norwest II, 7.76%, 11/27/22 ......................... 7,467,234(b) 7,347,917
Norwest IV, 8.27%, 2/23/25 .......................... 7,371,859(b) 7,351,169
Norwest VI, 8.30%, 3/6/26 ........................... 7,937,541(b) 7,926,410
Norwest VII, 7.92%, 7/24/25 ......................... 7,028,195(b) 6,978,295
President Homes 93-6C, Sales Inventory, 9.13%,
8/1/23 ............................................ 108,883 110,321
President Homes 93-6E, Sales Inventory, 9.21%,
11/1/22 ........................................... 169,655 172,458
President Homes 94-1B, Sales Inventory, 9.00%,
11/18/23 .......................................... 187,679 193,309
Sears Mortgage, 7.97%, 10/1/17 ...................... 564,253 563,244
Shearson Lehman, 9.36%, 6/1/17 ...................... 3,621,452(b) 3,650,874
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1997 Semiannual Report 22 American Strategic Income Portfolio III
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
AMERICAN STRATEGIC INCOME PORTFOLIO III
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
The Crossings, 10.75%, 10/1/11 ...................... $ 516,721 $ 531,091
------------
138,974,752
------------
Total Whole Loans and Participation Mortgages
(cost: $326,719,292) ........................... 336,715,831
------------
SHORT-TERM SECURITIES (1.1%):
Repurchase agreement with Credit Suisse First Boston,
acquired on 11/28/97, interest of $1,767, 5.68%,
12/1/97
(cost: $3,733,000) ................................ 3,733,000(g) 3,733,000
------------
Total Investments in Securities
(cost: $412,716,918)(h) ........................ $422,906,929
------------
------------
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES:
(a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(b) ON NOVEMBER 30, 1997, SECURITIES VALUED AT $132,625,219 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 11/3/97 5.60% 12/1/97 $ 331,022 (1)
22,000,000 11/3/97 6.53% 12/1/97 111,757 (2)
- ------------ ---------
$ 98,000,000 $ 442,779
- ------------ ---------
- ------------ ---------
</TABLE>
THE FUND PAYS A FEE OF 0.25% TO NOMURA ON THE UNUSED PORTION OF A $30,000,000
LENDING COMMITMENT.
* INTEREST RATE AS OF NOVEMBER 30, 1997. RATES ARE BASED ON THE LONDON
INTERBANK OFFERED RATE (LIBOR).
NAME OF BROKER AND DESCRIPTION OF COLLATERAL:
(1) NOMURA; U.S. TREASURY NOTE, 6.38%, 9/30/01, $74,330,000 PAR
(2) NOMURA; NOMURA, 9.96%, 12/16/23, $27,809,367 PAR
NOMURA III, 8.51%, 12/29/17, $3,624,259 PAR
NORWEST II, 7.76%, 11/27/22, $2,956,694 PAR
NORWEST IV, 8.27%, 2/23/25, $6,897,501 PAR
NORWEST VI, 8.30%, 3/6/26, $7,351,170 PAR
NORWEST VII, 7.92%, 7/24/25, $5,942,348 PAR
SHEARSON LEHMAN, 9.36%, 6/1/17, $2,504,278 PAR
(C) INTEREST RATES ON COMMERCIAL AND MULTIFAMILY LOANS ARE THE RATES IN EFFECT
ON NOVEMBER 30, 1997. INTEREST RATES AND MATURITY DATES DISCLOSED ON SINGLE
FAMILY LOANS REPRESENT THE WEIGHTED AVERAGE COUPON AND WEIGHTED AVERAGE
MATURITY FOR THE UNDERLYING MORTGAGE LOANS AS OF NOVEMBER 30, 1997.
- ---------------------------------------------------------------------
1997 Semiannual Report 23 American Strategic Income Portfolio III
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
<TABLE>
<S> <C>
(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:
AIRPORT PLAZA OFFICES - ALBUQUERQUE, NM
BERRY HILL SHOPPING CENTER - OREGON CITY, OR
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 - NORTHEASTERN UNITED STATES
DISCO PRINT WAREHOUSE - SUGARLAND, TX
JACKSON STREET WAREHOUSE - PHOENIX, TX
JOHN BROWN OFFICE BUILDING - HOUSTON, TX
LAKE POINTE CORPORATE CENTER - MINNEAPOLIS, MN
MERIDIAN CORPORATE CENTER - BOCA RATON, FL
MERRILL LYNCH/NORTHERN TRUST BUILDING - FORT LAUDERDALE, 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
BERRYHILL APARTMENTS - OREGON CITY, OR
BOARDWALK APARTMENTS - OKLAHOMA CITY, OK
BRIARWOOD APARTMENTS - GREELEY, CO
CHAMPLIN DRIVE APARTMENTS - CHAMPLIN, MN
CLACKAMAS TRAIL APARTMENTS - CLACKAMAS, OR
CONCORD APARTMENTS - MIDWEST CITY, OK
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
KARRINGTON OF BEXLEY APARTMENTS - BEXLEY, OH
KINGSTOWN COLONY APARTMENTS - MARYVILLE, TN
LAKE CONWAY WOODS - ORLANDO, FL
MAPLE VILLAGE APARTMENTS - AMERICAN FORK, UT
</TABLE>
- ---------------------------------------------------------------------
1997 Semiannual Report 24 American Strategic Income Portfolio III
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
<TABLE>
<S> <C>
MEADOWVIEW APARTMENTS - WEST JORDAN, UT
MERIDIAN POINTE APARTMENTS - KALISPELL, MT
MISSION VILLAGE APARTMENTS - TUCSON, AZ
OAK GROVE APARTMENTS - MINNEAPOLIS, MN
OCEAN COVE APARTMENTS - PINNELLAS CITY, FL
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
TIMBERLEA TERRACE APARTMENTS - WACONIA, MN
TWIN LAKES APARTMENTS - WARR ACRES, OK
VALLEY MANOR APARTMENTS - HASTINGS, MN
VILLAGE GREEN APARTMENTS - FAIRBAULT, MN
WESTREE APARTMENTS - COLORADO SPRINGS, CO
SINGLE FAMILY LOANS:
ARBOR - 54 LOANS, NEW YORK
BARCLAYS - 16 LOANS, MIDWESTERN UNITED STATES
BAYVIEW FINANCIAL - 10 LOANS, MARYLAND
DELAWARE II - 183 LOANS, TEXAS
FAIRBANKS IV - 26 LOANS, UNITED STATES
FEDERAL MORTGAGE - 46 LOANS, CONNECTICUT
FIRST BOSTON II - 66 LOANS, UNITED STATES, PRIMARILY IN TEXAS
FIRST BOSTON III - 82 LOANS, TEXAS AND FLORIDA
FIRST BOSTON IV - 71 LOANS, TEXAS, OKLAHOMA, AND MASSACHUSETTS
FIRST BOSTON V - 33 LOANS, UNITED STATES
GREENWICH - 26 LOANS, COLORADO
KIDDER PEABODY I - 116 LOANS, UNITED STATES
KIDDER PEABODY II - 11 LOANS, ARIZONA AND COLORADO
KNUTSON III - 23 LOANS, UNITED STATES
MARYLAND NATIONAL - 18 LOANS, UNITED STATES
MERIDIAN IV - 86 LOANS, MIDWESTERN UNITED STATES
MERIDIAN V - 66 LOANS, UNITED STATES
MINNEAPOLIS EMPLOYEES RETIREMENT FUND - 126 LOANS, MINNESOTA
MORTGAGE ACCESS - 7 LOANS, NEW JERSEY
NOMURA - 709 LOANS, CALIFORNIA AND TEXAS
NOMURA III - 242 LOANS, MIDWESTERN UNITED STATES
NORWEST II - 64 LOANS, MIDWESTERN UNITED STATES
NORWEST IV - 53 LOANS, MIDWESTERN UNITED STATES
NORWEST VI - 46 LOANS, MIDWESTERN UNITED STATES
NORWEST VII - 51 LOANS, MIDWESTERN UNITED STATES
PRESIDENT HOMES, SALES INVENTORY - 5 LOANS, MIDWESTERN UNITED STATES
SEARS MORTGAGE - 10 LOANS, MIDWESTERN UNITED STATES
SHEARSON LEHMAN - 83 LOANS, UNITED STATES
THE CROSSINGS - 10 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 NOVEMBER 30, 1997, THE
TOTAL MARKET VALUE OF THESE INVESTMENTS WAS $336,736,179, OR 101.00% OF
TOTAL NET ASSETS.
</TABLE>
- ---------------------------------------------------------------------
1997 Semiannual Report 25 American Strategic Income Portfolio III
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
<TABLE>
<S> <C>
(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
$20,348.
(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) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. 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 ...... $ 13,914,415
GROSS UNREALIZED DEPRECIATION ...... (3,648,975)
------------
NET UNREALIZED APPRECIATION ...... $ 10,265,440
------------
------------
</TABLE>
- ---------------------------------------------------------------------
1997 Semiannual Report 26 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
VOTED SHARES BROKER
"FOR" VOTED "AGAINST" ABSTENTIONS NON-VOTES
---------- ----------------- ----------- ---------
<S> <C> <C> <C>
15,627,197 65,900 258,200 --
</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.
- ---------------------------------------------------------------------
1997 Semiannual Report 27 American Strategic Income Portfolio III
<PAGE>
Shareholder Update (continued)
- --------------------------------------------------------------------------------
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 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
- ---------------------------------------------------------------------
1997 Semiannual Report 28 American Strategic Income Portfolio III
<PAGE>
Shareholder Update (continued)
- --------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------
1997 Semiannual Report 29 American Strategic Income Portfolio III
<PAGE>
Shareholder Update (continued)
- --------------------------------------------------------------------------------
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 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.
- ---------------------------------------------------------------------
1997 Semiannual Report 30 American Strategic Income Portfolio III
<PAGE>
GLOSSARY OF TERMS***
- --------------------------------------------------------------------------------
BENCHMARK
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.
COMMERCIAL LOANS
Mortgage loans secured by commercial developments such as shopping centers,
office buildings and warehouses.
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.
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,
- -------------------------------------------------------------------------------
1997 Semiannual Report 31 American Strategic Income Portfolio III
<PAGE>
GLOSSARY OF TERMS (CONTINUED)
- -------------------------------------------------------------------------------
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.
YIELD CURVE
A graph that shows the relationship between the interest rates paid on bonds and
their maturities, ranging from the shortest maturities to the longest available
(assuming the bonds are all of the same quality). The resulting curve indicates
whether short-term interest rates are higher or lower than long-term rates.
YIELD SPREADS
The difference between the yields of an investment and the corresponding term
Treasury security.
- --------------------------------------------------------------------------------
1997 Semiannual Report 32 American Strategic Income Portfolio III
<PAGE>
DIRECTORS
- --------------------------------------------------------------------------------
DAVID T. BENNETT, Chairman, Highland Homes, Inc., Usl Products, Inc., Kiefer
Built, Inc., of Counsel, Gray, Plant, Mooty, Mooty & Bennett, P.A.
JAYE F. DYER, President, Dyer Management Company
WILLIAM H. ELLIS, Retired President, Piper Jaffray Companies Inc., Piper Capital
Management Incorporated
KAROL D. EMMERICH, President, The Paraclete Group
LUELLA G. GOLDBERG, Director, TCF Financial, ReliaStar Financial Corp., Hormel
Foods Corp.
DAVID A. HUGHEY, Retired Executive Vice President and Chief Administrative
Officer of Dean Witter InterCapital Inc. And Dean Witter Trust Co.
GEORGE LATIMER, Chief Executive Officer, National Equity Funds
OFFICERS
- --------------------------------------------------------------------------------
WILLIAM H. ELLIS, Chairman of the Board
PAUL A. DOW, President
JOHN G. WENKER, Senior Vice President
RUSS J. KAPPENMAN, Vice President and Assistant Secretary
JULENE R. MELQUIST, Vice President
WILLIAM T. NIMMO, Vice President
ROBERT H. NELSON, Vice President and Treasurer
SUSAN S. MILEY, Secretary
INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
PIPER CAPITAL MANAGEMENT INCORPORATED
222 South Ninth Street, Minneapolis, MN 55402-3804
ACCOUNTING AND TRANSFER AGENT
- --------------------------------------------------------------------------------
INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street, Kansas City, MO 64105-1716
CUSTODIAN
- --------------------------------------------------------------------------------
FIRST TRUST NATIONAL ASSOCIATION
180 East Fifth Street, St. Paul, MN 55101
LEGAL COUNSEL
- --------------------------------------------------------------------------------
DORSEY & WHITNEY LLP
220 South Sixth Street, Minneapolis, MN 55402
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 fund's 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]
[GRAPHIC]
THIS DOCUMENT IS PRINTED ON PAPER MADE FROM 100% TOTAL RECOVERED FIBER,
INCLUDING 15% POST-CONSUMER WASTE.
#21530 1/1998 049-98
