<PAGE>
1998 SEMIANNUAL REPORT
AMERICAN STRATEGIC
INCOME PORTFOLIO III
CSP
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CONTENTS
<S> <C>
1 Fund Overview
4 Financial Statements and Notes
14 Investments in Securities
18 Shareholder Update
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[LOGO]
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.
The fund may also invest in asset-backed securities, U.S. government securities,
corporate-debt securities, municipal obligations, unregistered securities and
mortgage servicing rights. The fund borrows 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.
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Average Annualized Total Returns
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Based on net asset value for the periods ended November 30, 1998
[GRAPH]
<TABLE>
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Since Inception
One Year Five Year 3/25/93
<S> <C> <C> <C>
American Strategic Income
Portfolio III 9.09% 6.26% 7.07%
Lehman Brothers Mutual Fund
Government/Mortgage Index 9.47% 7.24% 7.20%
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</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 November 30, 1998, were
12.44%, 5.37% and 5.78%, respectively. These returns assume reinvestment of all
distributions and reflect sales charges on distributions as described in the
fund's dividend reinvestment plan, but not on initial purchases.
PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. NEITHER SAFETY OF
PRINCIPAL NOR STABILITY OF INCOME IS GUARANTEED. Past performance does not
guarantee future results. The investment return and principal value of an
investment will fluctuate so that fund shares, when sold, may be worth more or
less than their original cost. Closed-end funds, such as this fund, often trade
at discounts to net asset value.
Therefore, you may be unable to realize the full net asset value of your shares
when you sell.
The fund uses the Lehman Brothers Mutual Fund Government/Mortgage Index as a
benchmark. Although we believe this is the most appropriate benchmark available,
it is not a perfect match. The benchmark index is comprised of U.S. government
securities while American Strategic Income Portfolio III is comprised primarily
of non-securitized, illiquid whole loans. This limits the ability of the fund to
respond quickly to market changes.
The Lehman Brothers Mutual Fund Government/Mortgage Index is comprised of all
U.S. government agency and Treasury securities and agency mortgage-backed
securities. Developed by Lehman Brothers for comparative use by the mutual fund
industry, this index is unmanaged and does not include any fees or expenses in
its total return calculations.
The since-inception number for the Lehman index is calculated from the month end
following the fund's inception through November 30, 1998.
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NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
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<PAGE>
FUND MANAGEMENT
JOHN WENKER
is primarily responsible for the management of American Strategic Income
Portfolio III. He has 13 years of financial experience.
DAVID STEELE
assists with the management of American Strategic Income Portfolio III. He has
20 years of financial experience.
RUSS KAPPENMAN
assists with the management of American Strategic Income Portfolio III. He has
13 years of financial experience.
FUND OVERVIEW
JANUARY 15, 1999
FOR THE SIX-MONTH PERIOD ENDED NOVEMBER 30, 1998, AMERICAN STRATEGIC INCOME
PORTFOLIO III HAD A NET ASSET VALUE TOTAL RETURN OF 4.43%, WITH MUCH OF THE
RETURN ATTRIBUTABLE TO INCOME GENERATED BY THE FUND.* This compares to a 5.27%
return for the Lehman Brothers Mutual Fund Government/Mortgage Index. The
fund's total return based on market price was 9.52%.* As of November 30, 1998,
the fund continued to trade at a discount to net asset value; the market price
was $11.94 per share with a net asset value of $12.50 per share.
ALONG WITH ITS STABLE SHARE PRICE, THE FUND CONTINUED TO PROVIDE AN ATTRACTIVE
DIVIDEND. For the six-month period, dividends paid amounted to $0.505 per share.
The fund's annualized distribution rate was 8.54% on the November 30 market
price of $11.94 per share. Current monthly earnings of $0.0908 per share (based
on an average of the three months ended November 30) would result in an
annualized earnings rate of 9.13% based on the November 30 market price. Of
course, past performance is no guarantee of future results, and those rates will
fluctuate.
THE FUND'S MONTHLY DIVIDEND WAS INCREASED BY 0.25 CENTS PER SHARE BEGINNING WITH
THE DIVIDEND PAID IN AUGUST, TO 8.5 CENTS PER SHARE. For most of the year, we
continued to benefit from high income generated by loans held in the portfolio.
This has played a major role in allowing us to hold the dividend fairly steady,
even through a turbulent market.
THROUGH MUCH OF THE PERIOD, THE MARKETS WERE EXTREMELY VOLATILE. Global economic
turmoil, primarily in Asia, Russia and Brazil, was a major contributor to
significant declines in the equity, corporate-debt and commercial
mortgage-backed securities markets, particularly in August and September. Fears
arose about the ability of the U.S. economy to weather the storm. As a result,
investors fled
* 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 November 30, 1998
[CHART]
<TABLE>
<S> <C>
Single-family Loans 32%
U.S. Treasury Securities 18%
Other Assets 2%
Commercial Loans 16%
Multifamily Loans 32%
</TABLE>
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Delinquent Loan Profile
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The chart below shows the percentage of single family loans** in the portfolio
that are 30, 60, 90 or 120 days delinquent as of November 30, 1998, based on
principal amounts outstanding.
<TABLE>
<S> <C>
Current 88.0%
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30 Days 5.7%
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60 Days 2.8%
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90 Days 0.7%
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120+ Days 2.0%
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</TABLE>
** As of November 30, 1998, there were no
multifamily or commercial loans delinquent.
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1 1998 SEMIANNUAL REPORT AMERICAN STRATEGIC INCOME PORTFOLIO III
<PAGE>
FUND OVERVIEW CONTINUED
to the relative security of U.S. Treasury bonds. However, in October and
November, the Federal Reserve took action to reduce interest rates, which helped
to neutralize many of the concerns on domestic and international fronts. As a
result, the markets rebounded during those months.
DESPITE THE TEMPORARY VOLATILITY IN THE MARKET, THE FUND MAINTAINED ITS FOCUSED
STRATEGY. We continued to emphasize single-family, multifamily and commercial
whole loans. These types of mortgage securities represent approximately 80% of
total assets, with the remainder invested primarily in U.S. Treasury securities.
Volatility in the commercial mortgage-backed securities market provided an
opportunity for us to invest in mortgages with attractive yields and good credit
quality.
THE HIGHER-YIELD ENVIRONMENT THAT RESULTED FROM THE MARKET'S DECLINE SLOWED
MORTGAGE PREPAYMENTS IN THE PORTFOLIO. As loans in the portfolio prepay, we
reinvest assets into other, often lower-yielding loans. The volatility during
the summer and early fall slowed prepayment activity, which helped maintain
income at attractive levels.
AN ADDITIONAL BENEFIT OF THE MARKET'S VOLATILITY WAS THE STABILIZING EFFECT IT
SEEMED TO HAVE ON THE REAL ESTATE MARKET. In the first several months of 1998,
equity and debt capital was flowing freely to real estate, increasing the risk
of overbuilt markets. The correction in August and September slowed commercial
new construction and property sales, which should help to extend the real estate
cycle. That creates a better outlook in the near term for the fund.
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Geographic 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 as of November 30, 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 6%
California 11%
Colorado 6%
Connecticut 1%
Florida 4%
Georgia 1%
Illinois 1%
Louisiana 1%
Maryland 1%
Massachusetts 1%
Minnesota 5%
Montana 1%
Nevada 5%
New Jersey 3%
New Mexico 1%
New York 5%
North Carolina 1%
North Dakota 1%
Ohio 1%
Oklahoma 6%
Oregon 5%
Pennsylvania 1%
Tennessee 2%
Texas 23%
Utah 2%
Virginia 1%
Washington 4%
</TABLE>
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2 1998 SEMIANNUAL REPORT AMERICAN STRATEGIC INCOME PORTFOLIO III
<PAGE>
FUND OVERVIEW CONTINUED
LOOKING AHEAD, OUR GREATEST CONCERN IS THE IMPACT THAT PREPAYMENTS WILL HAVE ON
THE FUND'S INCOME. As we have stated in the past, loan prepayments occurring in
today's interest rate environment are typically reinvested in lower-yielding
securities. This will eventually result in a reduced dividend. Of course, this
all depends on interest rate and market trends in the months and years to come.
We continue to do all we can to find securities that offer attractive yields. In
addition, the current dividend level will be supported in the short run by the
fund's dividend reserve of $0.1150 per share.
WE WILL CONTINUE TO FOCUS ON CREDIT QUALITY. We always look for ways to boost
the overall quality of the fund's holdings without making any significant
sacrifices in income. Our active management approach has helped us to take
advantage of the income potential of the whole loan market to maintain an
attractive dividend yield for shareholders. We remain committed to our past
practice of avoiding loans that offer a yield premium while significantly
sacrificing quality. We value the faith you, our shareholders, have put in our
focus on keeping credit risk to a minimum.
OVER THE PAST SIX MONTHS LOSSES DUE TO FORECLOSURE AMOUNTED TO $0.008 PER SHARE.
Since the fund's inception losses have amounted to $0.08 per share
THANK YOU FOR YOUR INVESTMENT IN AMERICAN STRATEGIC INCOME PORTFOLIO III. We
are pleased that the fund generated a competitive return and stable income
through a volatile period for the markets. We appreciate your faith in our
abilities, and look forward to continuing to serve you in the coming year.
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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 First American Asset
Management pricing model designed to incorporate, among other things, the
present value of the projected stream of cash flows on such investments. The
pricing model takes into account a number of relevant factors including the
projected rate of prepayments, the delinquency profile, the historical payment
record, the expected yield at purchase, changes in prevailing interest rates and
changes in the real or perceived liquidity of whole loans, participation
mortgages or mortgage servicing rights, as the case may be. Changes in
prevailing interest rates, real or perceived liquidity, yield spreads and
creditworthiness are factored into the pricing model each week. Certain mortgage
loan information is received on a monthly basis and includes, but is not limited
to, the projected rate of prepayments, projected rate and severity of defaults,
the delinquency profile and the historical payment record. Valuations of whole
loans are determined no less frequently than weekly.
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3 1998 SEMIANNUAL REPORT AMERICAN STRATEGIC INCOME PORTFOLIO III
<PAGE>
Financial Statements (Unaudited)
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STATEMENT OF ASSETS AND LIABILITIES November 30, 1998
................................................................................
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ASSETS:
Investments in securities at market value* (note 2) ....... $414,075,878
Real estate owned (identified cost: $758,794) (note 2) .... 668,025
Cash in bank on demand deposit ............................ 3,333,055
Accrued interest receivable ............................... 4,113,075
Other assets .............................................. 12,115
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Total assets ............................................ 422,202,148
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LIABILITIES:
Reverse repurchase agreements payable ..................... 121,000,000
Accrued investment management fee ......................... 166,658
Accrued administrative fee ................................ 49,219
Accrued interest .......................................... 543,730
Other accrued expenses .................................... 2,819
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Total liabilities ....................................... 121,762,426
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Net assets applicable to outstanding capital stock ...... $300,439,722
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COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital .............. $344,439,421
Undistributed net investment income ....................... 2,764,768
Accumulated net realized loss on investments .............. (55,723,083)
Unrealized appreciation of investments .................... 8,958,616
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Total - representing net assets applicable to capital
stock ................................................. $300,439,722
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* Investments in securities at identified cost ............ $405,026,493
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NET ASSET VALUE AND MARKET PRICE:
Net assets ................................................ $300,439,722
Shares outstanding (authorized 1 billion shares of $0.01 par
value) .................................................. 24,032,468
Net asset value ........................................... $ 12.50
Market price .............................................. $ 11.94
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1 1998 Semiannual Report - American Strategic Income Portfolio III
<PAGE>
Financial Statements (Unaudited) (continued)
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STATEMENT OF OPERATIONS For the Six Months Ended November
30, 1998
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<S> <C>
INCOME:
Interest (net of interest expense of $3,362,880) .................... $14,508,450
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EXPENSES (NOTE 3):
Investment management fee ........................................... 950,167
Administrative fee .................................................. 301,322
Custodian and accounting fees ....................................... 99,158
Transfer agent fees ................................................. 11,360
Reports to shareholders ............................................. 64,813
Mortgage servicing fees ............................................. 318,023
Directors' fees ..................................................... 1,653
Audit and legal fees ................................................ 59,035
Other expenses ...................................................... 657
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Total expenses .................................................... 1,806,188
Less expenses paid indirectly ................................... (8,973)
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Total net expenses ................................................ 1,797,215
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Net investment income ............................................. 12,711,235
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NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS (NOTE 4):
Net realized gain on investments in securities ...................... 971,689
Net realized loss on real estate owned .............................. (181,600)
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Net realized gain on investments .................................. 790,089
Net change in unrealized appreciation or depreciation of investments
................................................................... (396,971)
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Net gain on investments ........................................... 393,118
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Net increase in net assets resulting from operations ............ $13,104,353
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SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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2 1998 Semiannual Report - American Strategic Income Portfolio III
<PAGE>
Financial Statements (Unaudited) (continued)
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STATEMENT OF CASH FLOWS For the Six Months Ended November
30, 1998
................................................................................
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest income ..................................................... $14,508,450
Net expenses ......................................................... (1,797,215)
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Net investment income ............................................. 12,711,235
-----------------
Adjustments to reconcile net investment income to net cash provided by
operating activities:
Change in accrued interest receivable .............................. (237,641)
Net amortization of bond discount and premium ..................... 272,680
Change in accrued fees and expenses ............................... 59,218
Change in other assets ............................................ 68,663
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Total adjustments ............................................... 162,920
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Net cash provided by operating activities ........................ 12,874,155
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments .................................. 72,707,950
Purchases of investments ............................................ (97,115,444)
Net sales of short-term securities .................................. 5,253,000
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Net cash used by investing activities ........................... (19,154,494)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from reverse repurchase agreements ..................... 22,000,000
Retirement of fund shares ........................................... (423,461)
Distributions paid to shareholders ................................... (12,154,577)
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Net cash provided by financing activities ....................... 9,421,962
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Net increase in cash ................................................ 3,141,623
Cash at beginning of period ......................................... 191,432
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Cash at end of period ........................................... $ 3,333,055
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Supplemental disclosure of cash flow information:
Cash paid for interest on reverse repurchase agreements ........... $ 3,314,094
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</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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3 1998 Semiannual Report - American Strategic Income Portfolio III
<PAGE>
Financial Statements (continued)
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STATEMENTS OF CHANGES IN NET ASSETS
................................................................................
<TABLE>
<CAPTION>
-------------------------------------
Six Months Ended
11/30/98 Year Ended
(Unaudited) 5/31/98
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<S> <C> <C>
OPERATIONS:
Net investment income ..................................... $12,711,235 $25,797,015
Net realized gain on investments .......................... 790,089 1,886,008
Net change in unrealized appreciation or depreciation of
investments ............................................. (396,971) 7,937,243
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Net increase in net assets resulting from operations .... 13,104,353 35,620,266
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DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ................................ (12,154,577) (26,595,561)
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CAPITAL SHARE TRANSACTIONS (NOTE 6):
Decrease in net assets from capital share transactions .... (423,461) (33,292,271)
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Total increase (decrease) in net assets ................. 526,315 (24,267,566)
Net assets at beginning of period ......................... 299,913,407 324,180,973
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Net assets at end of period ............................... $300,439,722 $299,913,407
----------------- -----------------
----------------- -----------------
Undistributed net investment income ....................... $ 2,764,768 $ 2,208,110
----------------- -----------------
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</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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4 1998 Semiannual Report - American Strategic Income Portfolio III
<PAGE>
Notes to Financial Statements (Unaudited)
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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
First American Asset Management pricing model designed to
incorporate, among other things, the present value of the
projected stream of cash flows on such investments. The
pricing model takes into account a number of relevant
factors including the projected rate of prepayments, the
delinquency profile, the historical payment record, the
expected yield at purchase, changes in prevailing interest
rates, and changes in the real or perceived liquidity of
whole loans, participation mortgages or mortgage servicing
rights, as the case may be. Changes in prevailing interest
rates, real or perceived liquidity, yield spreads, and
creditworthiness are factored into the pricing model each
week. Certain mortgage loan information is received once a
month. This information includes, but is not limited to,
the projected rate of prepayments, projected rate and
severity of defaults, the delinquency profile and the
historical payment record. Valuations of whole loans,
mortgage participations and mortgage servicing rights are
determined no less frequently than weekly.
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5 1998 Semiannual Report - American Strategic Income Portfolio III
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
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Securities transactions are accounted for on the date
securities are purchased or sold. Realized gains and
losses are calculated on the identified-cost basis.
Interest income, including amortization of bond discount
and premium, is recorded on an accrual basis.
WHOLE LOANS AND PARTICIPATION MORTGAGES
Whole loans and participation mortgages may bear a greater
risk of loss arising from a default on the part of the
borrower of the underlying loans than do traditional
mortgage-backed securities. This is because whole loans
and participation mortgages, unlike most mortgage-backed
securities, generally are not backed by any government
guarantee or private credit enhancement. Such risk may be
greater during a period of declining or stagnant real
estate values. In addition, the individual loans
underlying whole loans and participation mortgages may be
larger than the loans underlying mortgage-backed
securities. With respect to participation mortgages, the
fund generally will not be able to unilaterally enforce
its rights in the event of a default, but rather will be
dependent on the cooperation of the other participation
holders.
At November 30, 1998, loans representing 2.7% 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 6.3% of
total single family principal outstanding at November 30,
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 $181,600
or $0.008 per share on real estate sold during the six
months ended November, 30 1998.
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, 1998,
the fund owned 8 single family homes with an aggregate
value of $668,025, or 0.22% of net assets.
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.
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6 1998 Semiannual Report - American Strategic Income Portfolio III
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
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DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income are made monthly
and realized capital gains, if any, will be distributed at
least annually. These distributions are recorded as of the
close of business on the ex-dividend date. Such
distributions are payable in cash or, pursuant to the
fund's dividend reinvestment plan, reinvested in
additional shares of the fund's capital stock. Under the
plan, fund shares will be purchased in the open market
unless the market price plus commissions exceeds the net
asset value by 5% or more. If, at the close of business on
the dividend payment date, the shares purchased in the
open market are insufficient to satisfy the dividend
reinvestment requirement, the fund will issue new shares
at a discount of up to 5% from the current market price.
REPURCHASE AGREEMENTS AND OTHER SHORT-TERM SECURITIES
For repurchase agreements entered into with certain
broker-dealers, the fund, along with other affiliated
registered investment companies, may transfer uninvested
cash balances into a joint trading account, the daily
aggregate of which is invested in repurchase agreements
secured by U.S. government or agency obligations.
Securities pledged as collateral for all individual and
joint repurchase agreements are held by the fund's
custodian bank until maturity of the repurchase agreement.
Provisions for all agreements ensure that the daily market
value of the collateral is in excess of the repurchase
amount, including accrued interest, to protect the fund in
the event of a default. In addition to repurchase
agreements the fund may invest in money market funds
advised by the fund's advisor.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts in the financial statements. Actual
results could differ from these estimates.
(3) EXPENSES
............................
INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES
On August 10, 1998, the fund entered into an investment
advisory agreement with U.S. Bank National Association
(U.S. Bank), acting through its division, First American
Asset Management. Prior thereto, Piper Capital Management
Incorporated, which was acquired by U.S. Bank on May 1,
1998, had served as the fund's advisor. U.S. Bank also
serves as the fund's administrator under an administration
agreement effective May 1, 1998. Prior thereto, Piper
Capital provided services under an administration
agreement through April 30, 1998.
The investment advisory agreement provides the advisor
with a monthly investment management fee in an amount
equal to an annualized rate of 0.20% of the fund's average
weekly net assets and 4.50% of the daily gross income
accrued by the fund during the month (i.e., investment
income, including amortization of discount and premium,
other than gains from the sale of securities or gains from
options and futures contracts less interest on money
borrowed by the fund). The monthly investment management
fee shall not exceed in the aggregate 1/12 of 0.725% of
the fund's average weekly net assets during the month
(approximately 0.725% on an annual basis). For the six
months ended November 30, 1998, the effective investment
management fee incurred by the fund was 0.63% on an
annualized basis. For its fee, the advisor provides
investment advice and conducts the management and
investment activity of the fund.
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7 1998 Semiannual Report - American Strategic Income Portfolio III
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
The administration agreement provides the administrator
with a monthly fee in an amount equal to an annualized
rate of 0.20% of the fund's average weekly net assets. For
its fee, the administrator will provide regulatory,
reporting and record-keeping services for the fund.
MORTGAGE SERVICING FEES
The fund enters into mortgage servicing agreements with
mortgage servicers for whole loans and participation
mortgages. For a fee, mortgage servicers maintain loan
records, such as insurance and taxes and the proper
allocation of payments between principal and interest.
OTHER FEES AND EXPENSES
In addition to the investment management, administrative
and mortgage servicing fees, the fund is responsible for
paying most other operating expenses, including: outside
directors' fees and expenses; custodian fees; registration
fees; printing and shareholder reports; transfer agent
fees and expenses; legal, auditing and accounting
services; insurance; interest; expenses related to real
estate owned; fees to outside parties retained to assist
in conducting due diligence; taxes and other miscellaneous
expenses.
During the six months ended November 30, 1998, the fund
paid $27,715 for custody services to U.S. Bank Trust, 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 six months ended November 30, 1998 aggregated
$96,842,764 and $72,707,950, respectively. Included in
proceeds from sales are $203,009 from sales of real estate
owned and $667,315 from prepayment penalties.
(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>
(6) CAPITAL SHARE
TRANSACTIONS
............................
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.
- --------------------------------------------------------------------------------
8 1998 Semiannual Report - American Strategic Income Portfolio III
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
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 tendered 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> <C>
10% 2,674,078 $12.45 $ 33,292,271
</TABLE>
RETIREMENT OF FUND SHARES
The fund's board of directors has approved a plan to
repurchase shares of the fund in the open market and
retire those shares. Repurchases may only be made when the
previous day's closing market value was at a discount from
net asset value. Daily repurchases are limited to 25% of
the previous four weeks average daily trading volume on
the New York Stock Exchange. Under the current plan,
cumulative repurchases in the fund cannot exceed 5% of the
outstanding shares as of September 9, 1998. The board of
directors will review the plan every six months. The plan
was last reviewed and reapproved by the board of directors
on September 9, 1998. Pursuant to the plan, the fund
repurchased and retired 36,000 shares as of November 30,
1998, which represents 0.15% of the shares outstanding.
The total cost of repurchasing these shares was $423,461.
The weighted average discount per share on shares
purchased during the six months ended November 30, 1998,
was 5.52%.
- --------------------------------------------------------------------------------
9 1998 Semiannual Report - American Strategic Income Portfolio III
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
(7) FINANCIAL
HIGHLIGHTS
............................
Per-share data for a share of capital stock outstanding
throughout each period and selected information for each
period are as follows:
<TABLE>
<CAPTION>
Six Months
Ended Year Year Year Year Year
11/30/98 Ended Ended Ended Ended Ended
(Unaudited)(e) 5/31/98 5/31/97 5/31/96 5/31/95 5/31/94
------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ... $12.46 $12.12 $12.25 $12.50 $12.61 $14.04
------ -------- -------- -------- -------- --------
Operations:
Net investment income .................. 0.53 1.02 1.00 0.99 1.18 1.37
Net realized and unrealized gains
(losses) on investments .............. 0.02 0.37 (0.13) -- (0.01) (1.52)
------ -------- -------- -------- -------- --------
Total from operations .............. 0.55 1.39 0.87 0.99 1.17 (0.15)
------ -------- -------- -------- -------- --------
Distributions to shareholders:
From net investment income ............. (0.51) (1.05) (1.00) (1.24) (1.28) (1.07)
In excess of net realized gains on
investments .......................... -- -- -- -- -- (0.21)
------ -------- -------- -------- -------- --------
Total distributions to
shareholders ..................... (0.51) (1.05) (1.00) (1.24) (1.28) (1.28)
------ -------- -------- -------- -------- --------
Net asset value, end of period ......... $12.50 $12.46 $12.12 $12.25 $12.50 $12.61
------ -------- -------- -------- -------- --------
------ -------- -------- -------- -------- --------
Per-share market value, end of
period ............................... $11.94 $11.38 $11.13 $10.25 $11.13 $12.75
------ -------- -------- -------- -------- --------
------ -------- -------- -------- -------- --------
SELECTED INFORMATION
Total return, net asset value (a) ...... 4.43% 11.86% 7.43% 8.17% 10.03% (1.78)%
Total return, market value (b) ......... 9.52% 12.05% 19.18% 3.20% (2.42)% (9.52)%
Net assets at end of period (in
millions) ............................ $ 300 $ 300 $ 324 $ 328 $ 338 $ 346
Ratio of expenses to average weekly net
assets including interest expense
(c) .................................. 3.43%(f) 3.47% 3.84% 2.66% 3.55% 2.13%
Ratio of expenses to average weekly net
assets excluding interest expense
(c) .................................. 1.20%(f) 1.42% 1.34% 1.29% 1.29% 1.19%
Ratio of net investment income to
average weekly net assets ............ 8.43%(f) 8.22% 8.22% 7.92% 9.48% 9.57%
Portfolio turnover rate (excluding
short-term securities) ............... 18% 58% 46% 121% 49% 155%
Amount of borrowings outstanding at end
of period (in millions) .............. $ 121 $ 99 $ 84 $ 81 $ 75 $ 159
Per-share amount of borrowings
outstanding at end of period ......... $ 5.03 $ 4.11 $ 3.12 $ 3.03 $ 2.77 $ 5.79
Per-share amount of net assets,
excluding borrowings, at end of
period ............................... $17.53 $16.57 $15.24 $15.28 $15.27 $18.40
Asset coverage ratio (d) ............... 348% 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 YEAR 1998 AND 1997 RATIOS INCLUDE
0.05% AND 0.08%, RESPECTIVELY, OF OPERATING EXPENSES ASSOCIATED WITH REAL
ESTATE OWNED.
(d) REPRESENTS NET ASSETS, EXCLUDING BORROWINGS, AT END OF PERIOD DIVIDED BY
BORROWINGS OUTSTANDING AT END OF PERIOD.
(e) EFFECTIVE AUGUST 10, 1998, THE ADVISOR WAS CHANGED FROM PIPER CAPITAL
MANAGEMENT TO U.S. BANK.
(f) ANNUALIZED.
- --------------------------------------------------------------------------------
10 1998 Semiannual Report - American Strategic Income Portfolio III
<PAGE>
Investments in Securities (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN STRATEGIC INCOME PORTFOLIO III November 30, 1998
...................................................................................................................
Date Market
Description of Security Acquired Par Value Cost Value (a)
- --------------------------------------------------------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
U.S. GOVERNMENT AND AGENCY SECURITIES (25.4%):
U.S. GOVERNMENT SECURITIES (25.4%):
6.63%, U.S. Treasury Note, 3/31/02 .................. 9/22/98 $72,000,000(b) $ 74,007,984 $ 76,356,000
------------ ------------
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 1,633,747(f) 616,198 --
------------ ------------
WHOLE LOANS AND PARTICIPATION MORTGAGES (C,D,E) (112.4%):
COMMERCIAL LOANS (23.3%):
7th Street & Lincoln Parking Lot, 8.00%, 4/1/08 ..... 3/3/98 1,091,740 1,091,740 1,090,099
Academy Spectrum Building, 8.72%, 7/1/00 ............ 6/23/98 2,992,977 2,992,977 3,022,907
Airport Plaza Offices, 8.88%, 5/1/01 ................ 5/1/96 727,152 727,152 744,530
Blacklake Place I and II, 8.78%, 9/1/07 ............. 8/12/97 4,886,950 4,886,950 5,106,685
Blacklake Place III, 8.78%, 9/1/07 .................. 8/12/97 2,443,475 2,443,475 2,553,343
Brookhollow West and Northwest Technical Center,
8.21%, 8/1/02 ..................................... 7/29/97 3,640,846 3,640,846 3,760,524
Commerce Center, 8.88%, 5/1/01 ...................... 5/1/96 1,890,596 1,890,596 1,935,778
CUBB Properties Mobile Home Park, 8.15%, 11/1/07 .... 11/4/97 2,888,758 2,888,758 2,947,235
Disco Print Warehouse, 8.90%, 2/1/04 ................ 2/7/97 1,343,319 1,343,319 1,401,467
Duncan Office Building, 8.00%, 6/1/08 ............... 5/19/98 743,548 743,548 753,582
Jackson Street Parking Lot, 8.63%,
7/1/07 ............................................ 6/30/98 1,882,300 1,882,300 1,932,614
Jackson Street Warehouse, 8.63%, 7/1/07 ............. 6/30/98 2,972,053 2,972,053 3,093,617
Jefferson Office Building, 7.50%, 12/1/13 ........... 11/5/98 1,149,760 1,149,760 1,136,418
John Brown Office Building, 8.90%, 6/1/03 ........... 7/23/97 4,928,333 4,928,333 5,148,421
</TABLE>
<TABLE>
<CAPTION>
Date Market
Description of Security Acquired Par Value Cost Value (a)
- --------------------------------------------------------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Kimball Professional Office Building, 8.00%,
7/1/08 ............................................ 7/2/98 $ 2,340,017 $ 2,340,017 $ 2,360,905
Lake Pointe Corporate Center, 8.67%, 7/1/07 ......... 7/7/97 3,891,264 3,891,264 4,051,104
LAX Air Freight Center, 8.00%, 1/1/08 ............... 12/29/97 3,422,507 3,422,507 3,451,711
Meridian Corporate Center, 8.10%, 8/1/02 ............ 8/1/97 2,349,014 2,349,014 2,407,877
North Austin Business Center, 9.15%, 5/1/07 ......... 4/10/97 3,048,181 3,048,181 3,200,590
One Metro Square Office Building, 8.20%, 10/1/02 .... 9/24/97 2,958,638 2,958,638 3,017,810
Pacific Shores Mobile Home Park II, 11.12%,
10/1/06 ........................................... 9/27/96 2,904,532 2,890,010 3,049,759
Parkside Office Building, 8.30%, 12/1/01 ............ 11/19/96 1,682,100 1,665,279 1,701,350
Pilot Knob Service Center, 9.07%, 7/1/07 ............ 6/20/97 1,502,225 1,502,225 1,577,336
PMG Plaza, 9.05%, 4/1/04 ............................ 3/20/97 2,553,206 2,553,206 2,679,514
Santa Monica Center, 8.35%, 11/1/04 ................. 11/17/97 3,460,407 3,460,407 3,529,615
Seventh Street Parking Ramp, 8.63%, 9/1/07 .......... 8/25/97 1,982,674 1,982,674 2,071,962
Turf Mobile Manor, 8.25%, 1/1/06 .................... 2/2/96 2,307,557 2,304,673 2,370,463
------------ ------------
67,949,902 70,097,216
------------ ------------
MULTIFAMILY LOANS (44.6%):
Ambassador House Apartments, 10.13%, 12/1/01 ........ 11/3/94 2,340,673 2,338,462 2,434,300
Arbor Parks and Woodridge Apartments, 7.48%,
9/1/03 ............................................ 8/27/98 17,464,000 17,464,000 17,375,031
Boardwalk Apartments, 7.40%, 2/1/08 ................. 1/16/98 5,362,283 5,362,283 5,193,101
Briarwood Apartments, 10.24%, 12/1/01 ............... 11/22/94 975,825 972,410 1,014,858
Clackamas Trail Apartments, 8.50%, 7/1/01 ........... 7/3/97 14,057,068 14,057,068 14,197,639
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
11 1998 Semiannual Report - American Strategic Income Portfolio III
<PAGE>
Investments in Securities (Unaudited) (continued)
- --------------------------------------------------------------------------------
AMERICAN STRATEGIC INCOME PORTFOLIO III
(CONTINUED)
<TABLE>
<CAPTION>
Date Market
Description of Security Acquired Par Value Cost Value (a)
- --------------------------------------------------------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
El Camino Apartments, 10.65%, 2/1/02 ................ 1/5/95 $ 4,698,403 $ 4,694,977 $ 4,792,371
El Toro Blanco Apartments, 10.05%, 1/1/02 ........... 1/3/95 1,317,868 1,286,263 1,370,582
Everhard Road Apartments, 9.31%, 9/1/01 ............. 8/4/94 475,751 467,610 480,508
Falls Apartments, 9.88%, 7/1/03 ..................... 5/12/93 3,848,171 3,809,690 4,002,098
Faronia Square Apartments, 10.40%, 1/1/02 ........... 12/30/94 3,517,813 3,482,634 3,658,525
Geneva Village Apartments, 9.50%, 11/1/04 ........... 10/14/94 1,232,899 1,228,355 1,294,543
Grand Forks Multifamily, 9.94%, 12/1/01 ............. 11/9/94 2,343,552 2,333,160 2,390,423
Harpers Ferry Apartments, 10.56%, 12/1/01 ........... 12/1/94 1,798,229 1,781,321 1,888,140
Heritage Park Apartments, 9.00%, 2/1/04 ............. 1/31/97 1,910,600 1,910,600 1,999,397
Huntington Hills Apartments, 8.75%, 11/1/05 ......... 10/2/95 1,308,386 1,301,844 1,368,103
Johanson Arms Apartments, 9.35%, 6/1/04 ............. 5/16/96 2,016,663 2,016,663 2,117,496
Johnson/Wilson Apartments, 10.00%, 9/1/18 ........... 9/17/93 771,126 763,414 771,126
Kingstown Colony Apartments, 9.98%, 11/1/01 ......... 10/31/94 1,753,060 1,730,367 1,823,182
Maple Village Apartments, 9.50%, 11/1/04 ............ 10/14/94 1,288,361 1,283,540 1,352,779
Meadowview Apartments, 9.50%, 11/1/04 ............... 10/14/94 914,222 911,272 959,934
Meridian Pointe Apartments, 8.85%, 2/1/12 ........... 3/7/97 1,186,262 1,186,262 1,245,575
Mission Village Apartments, 8.94%, 9/1/01 ........... 8/11/94 2,162,248 2,151,437 2,183,870
Oak Grove Apartments, 10.05%, 12/2/01 ............... 11/15/94 875,818 857,488 919,609
Parkway Village Apartments, 9.50%, 11/1/04 .......... 10/14/94 887,348 884,532 931,715
</TABLE>
<TABLE>
<CAPTION>
Date Market
Description of Security Acquired Par Value Cost Value (a)
- --------------------------------------------------------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Quail Lakes Apartments, 8.95%, 11/1/03 .............. 11/1/96 $ 8,869,973 $ 8,866,425 $ 9,257,060
Regency Manor Apartments, 10.30%, 1/1/00 ............ 12/16/94 5,204,281 5,200,860 4,137,631
Riverbrook Apartments, 10.38%, 1/1/02 ............... 12/29/94 2,016,583 1,994,016 2,097,246
Rose Park Apartments, 9.50%, 11/1/04 ................ 10/14/94 756,416 754,120 794,236
Royal Court Apartments, 9.00%, 10/1/04 .............. 9/11/97 1,420,471 1,420,471 1,477,290
Shelter Island Apartments, 7.70%, 12/1/08 ........... 11/4/98 13,456,890 13,456,890 13,359,498
Southlake Villa Apartments, 9.50%, 11/1/04 .......... 10/14/94 1,156,931 1,152,499 1,214,778
The Timbers Apartments, 8.31%, 6/1/99 ............... 5/5/94 2,659,336 2,632,742 2,144,685
Tradewinds I, 8.25%, 10/1/01 ........................ 9/30/98 12,032,323 12,032,323 11,693,090
Tradewinds II, 14.00%, 10/1/01 ...................... 9/30/98 4,280,000 4,280,000 4,365,600
Valley Manor Apartments, 8.45%, 11/1/05 ............. 7/14/98 3,738,932 3,738,932 3,861,202
Westree Apartments, 10.00%, 9/1/03 .................. 8/30/93 3,127,855 3,101,790 3,252,970
Westree Apartments, 10.00%, 1/1/00 .................. 6/19/98 500,000 500,000 464,253
------------ ------------
133,406,720 133,884,444
------------ ------------
SINGLE FAMILY LOANS (44.5%):
Arbor, 9.27%, 8/16/17 ............................... 2/16/96 3,515,546 3,523,617 3,515,546
Barclays, 8.48%, 6/7/25 ............................. 11/7/95 1,629,575 1,550,228 1,572,436
Bayview Financial, 5.73%, 2/21/20 ................... 7/21/95 625,613 535,779 616,477
Delaware II, 8.64%, 11/27/07 ........................ 6/30/93 5,385,633(b) 4,982,493 5,371,849
Fairbanks IV, 7.58%, 4/3/19 ......................... 11/3/94 2,342,070(b) 1,999,599 2,248,046
Federal Mortgage, 8.11%, 12/15/20 ................... 6/15/93 498,548 378,996 350,598
First Boston II, 8.60%, 7/31/09 ..................... 4/30/93 1,950,308 1,741,109 1,907,951
First Boston III, 8.41%, 2/1/13 ..................... 7/29/93 2,080,460(b) 1,784,919 2,072,506
First Boston IV, 8.92%, 3/1/12 ...................... 12/17/93 1,979,463 1,819,634 1,959,483
First Boston V, 8.10%, 5/26/16 ...................... 4/26/95 1,871,854 1,846,116 1,899,148
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
12 1998 Semiannual Report - American Strategic Income Portfolio III
<PAGE>
Investments in Securities (Unaudited) (continued)
- --------------------------------------------------------------------------------
AMERICAN STRATEGIC INCOME PORTFOLIO III
(CONTINUED)
<TABLE>
<CAPTION>
Date Market
Description of Security Acquired Par Value Cost Value (a)
- --------------------------------------------------------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Greenwich, 9.31%, 4/16/05 ........................... 2/16/96 $ 1,355,713(b) $ 1,322,081 $ 1,376,582
Kidder Peabody I, 10.10%, 9/1/10 .................... 9/30/93 2,779,834(b) 2,488,606 2,833,597
Kidder Peabody II, 9.78%, 5/1/13 .................... 3/17/94 443,218 417,428 456,456
Knutson III, 8.30%, 4/1/15 .......................... 3/26/93 805,063 757,258 826,294
Maryland National, 9.52%, 9/1/19 .................... 10/6/93 1,287,492 1,165,180 1,283,537
Meridian IV, 7.62%, 8/16/16 ......................... 1/20/95 5,462,086(b) 5,083,627 5,447,634
Meridian V, 7.77%, 10/6/17 .......................... 4/6/95 3,251,862(b) 3,103,784 3,271,895
Minneapolis Employees Retirement Fund, 8.56%,
2/10/14 ........................................... 4/10/96 3,630,471(b) 3,368,597 3,603,589
Mortgage Access, 9.03%, 9/30/19 ..................... 6/30/93 711,396 671,816 732,738
Nomura, 10.00%, 12/16/23 . 12/16/93 22,318,169(b) 23,104,534 22,747,344
Nomura III, 8.48%, 12/29/17 ......................... 9/29/95 13,843,651(b) 12,071,659 13,325,342
Norwest II, 7.79%, 11/27/22 ......................... 2/27/96 4,976,016(b) 4,951,480 5,039,557
Norwest IV, 8.31%, 2/23/25 .......................... 5/23/96 5,104,226(b) 5,073,480 5,188,207
Norwest VI, 8.32%, 3/6/26 ........................... 12/6/96 4,047,100(b) 3,969,355 4,068,129
Norwest VII, 8.07%, 7/24/25 ......................... 2/24/97 5,422,266(b) 5,273,154 5,465,224
Norwest X, 7.89%, 1/1/25 ............................ 3/12/98 6,242,997 6,259,229 6,248,031
Norwest XI, 8.00%, 4/1/23 ........................... 6/15/98 10,799,646(b) 10,754,824 10,813,046
Norwest XII, 7.59%, 8/1/24 .......................... 8/27/98 9,089,994 9,020,001 9,003,485
Norwest XIII, 7.64%, 10/1/25 ........................ 10/28/98 5,849,345 5,818,891 5,783,102
President Homes 93-6C, Sales Inventory, 6.76%,
8/1/23 ............................................ 12/13/93 107,682 106,605 107,737
President Homes 93-6E, Sales Inventory, 6.65%,
11/1/22 ........................................... 5/19/94 167,894 166,212 172,930
President Homes 94-1B, Sales Inventory, 10.00%,
11/18/23 . 10/31/94 184,528 181,911 190,064
Sears Mortgage, 8.19%, 10/1/17 ...................... 7/16/93 541,744 509,240 546,039
Shearson Lehman, 9.55%, 6/1/17 ...................... 5/26/93 3,176,753 2,801,139 3,241,735
</TABLE>
<TABLE>
<CAPTION>
Date Market
Description of Security Acquired Par Value Cost Value (a)
- --------------------------------------------------------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
The Crossings, 10.38%, 10/1/11 ...................... 4/16/93 $ 438,721 $ 443,108 $ 451,884
------------ ------------
129,045,689 133,738,218
------------ ------------
Total Whole Loans and Participation Mortgages .... 330,402,311 337,719,878
------------ ------------
Total Investments in Securities (g) ............... $405,026,493 $414,075,878
------------ ------------
------------ ------------
</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, 1998, SECURITIES VALUED AT $149,313,596 WERE PLEDGED AS
COLLATERAL FOR THE FOLLOWING OUTSTANDING REVERSE REPURCHASE AGREEMENTS:
<TABLE>
<CAPTION>
NAME OF
BROKER AND
ACQUISITION ACCRUED DESCRIPTION
AMOUNT DATE RATE* DUE INTEREST OF COLLATERAL
- ------------ ----------- ---------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C>
$ 51,000,000 11/2/98 6.13% 12/1/98 $ 251,635 (1)
70,000,000 11/2/98 5.18% 12/1/98 292,095 (2)
- ------------ ---------
$121,000,000 $ 543,730
- ------------ ---------
- ------------ ---------
</TABLE>
* INTEREST RATE AS OF NOVEMBER 30, 1998. RATES ARE BASED ON THE LONDON
INTERBANK OFFERED RATE (LIBOR) AND RESET MONTHLY.
** 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, $65,825,000 PAR
(2) NOMURA:
DELAWARE II, 8.64%, 11/27/07, $3,901,946 PAR
FAIRBANKS IV, 7.58%,4/3/19, $872,380 PAR
FIRST BOSTON III, 8.41%, 2/1/13, $855,262 PAR
GREENWICH, 9.31%, 4/16/05, $1,288,658 PAR
KIDDER PEABODY I, 10.10%, 9/1/10, $2,088,702 PAR
MERIDIAN IV, 7.62%, 8/16/16, $4,729,186 PAR
MERIDIAN V, 7.77%, 10/6/17, $2,613,669 PAR
MINNEAPOLIS EMPLOYEES RETIREMENT FUND, 8.56%, 2/10/14, $3,436,944
PAR
NOMURA, 10.00%, 12/16/23, $18,011,635 PAR
NOMURA III, 8.48%, 12/29/17, $11,692,372 PAR
NORWEST II, 7.79%, 11/27/22, $4,705,050 PAR
NORWEST IV, 8.31%, 2/23/25, $4,924,659 PAR
NORWEST VI, 8.32%, 3/6/26, $4,047,100 PAR
NORWEST VII, 8.07%, 7/24/25, $5,422,266 PAR
NORWEST XI, 8.00%, 4/1/23, $10,799,646 PAR
(c) INTEREST RATES ON COMMERCIAL AND MULTIFAMILY LOANS ARE THE RATES IN EFFECT
ON NOVEMBER 30, 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 NOVEMBER 30,1998.
(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
ACADEMY SPECTRUM BUILDING - COLORADO SPRINGS, CO
AIRPORT PLAZA OFFICES - ALBUQUERQUE, NM
- --------------------------------------------------------------------------------
13 1998 Semiannual Report - American Strategic Income Portfolio III
<PAGE>
Investments in Securities (Unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
BLACKLAKE PLACE I & 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, TX
JACKSON STREET PARKING LOT - PHOENIX, TX
JACKSON STREET WAREHOUSE - PHOENIX, TX
JEFFERSON OFFICE BUILDING - OLYMPIA, WA
JOHN BROWN OFFICE BUILDING - HOUSTON, TX
KIMBALL PROFESSIONAL OFFICE BUILDING - GIG HARBOR, WA
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
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
ARBOR PARKS AND WOODRIDGE APARTMENTS - DALLAS AND FORT WORTH, TX
BOARDWALK APARTMENTS - OKLAHOMA CITY, OK
BRIARWOOD APARTMENTS - GREELEY, CO
CLACKAMAS TRAIL APARTMENTS - CLACKAMAS, OR
EL CAMINO APARTMENTS - PHOENIX, AZ
EL TORO BLANCO APARTMENTS - COLORADO SPRINGS, CO
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
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
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
TRADEWINDS I - DALLAS, TX
TRADEWINDS II - DALLAS, TX
VALLEY MANOR APARTMENTS - HASTINGS, MN
WESTREE APARTMENTS - COLORADO SPRINGS, CO
SINGLE FAMILY LOANS:
ARBOR - 41 LOANS, NEW YORK
BARCLAYS - 12 LOANS, MIDWESTERN UNITED STATES
BAYVIEW FINANCIAL - 8 LOANS, MARYLAND
DELAWARE II - 145 LOANS, TEXAS
FAIRBANKS IV - 25 LOANS, UNITED STATES
FEDERAL MORTGAGE - 8 LOANS, CONNECTICUT
FIRST BOSTON II - 50 LOANS, UNITED STATES, PRIMARILY IN TEXAS
FIRST BOSTON III - 62 LOANS, TEXAS AND FLORIDA
FIRST BOSTON IV - 54 LOANS, TEXAS, OKLAHOMA, AND MASSACHUSETTS
FIRST BOSTON V - 26 LOANS, UNITED STATES
GREENWICH - 17 LOANS, COLORADO
KIDDER PEABODY I - 82 LOANS, UNITED STATES
KIDDER PEABODY II - 5 LOANS, ARIZONA AND COLORADO
KNUTSON III - 16 LOANS, UNITED STATES
MARYLAND NATIONAL - 16 LOANS, UNITED STATES
MERIDIAN IV - 74 LOANS, MIDWESTERN UNITED STATES
MERIDIAN V - 49 LOANS, UNITED STATES
MINNEAPOLIS EMPLOYEES RETIREMENT FUND - 103 LOANS, MINNESOTA
MORTGAGE ACCESS - 5 LOANS, NEW JERSEY
NOMURA - 565 LOANS, CALIFORNIA AND TEXAS
NOMURA III - 201 LOANS, MIDWESTERN UNITED STATES
NORWEST II - 49 LOANS, MIDWESTERN UNITED STATES
NORWEST IV - 41 LOANS, MIDWESTERN UNITED STATES
NORWEST VI - 26 LOANS, MIDWESTERN UNITED STATES
NORWEST VII - 38 LOANS, MIDWESTERN UNITED STATES
NORWEST X - 41 LOANS, MIDWESTERN UNITED STATES
NORWEST XI - 91 LOANS, MIDWESTERN UNITED STATES
NORWEST XII - 68 LOANS, MIDWESTERN UNITED STATES
NORWEST XIII - 38 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, KANSAS
SEARS MORTGAGE - 9 LOANS, MIDWESTERN UNITED STATES
SHEARSON LEHMAN - 76 LOANS, UNITED STATES
THE CROSSINGS - 9 LOANS, MIDWESTERN UNITED STATES
(e) SECURITIES PURCHASED AS PART OF A PRIVATE PLACEMENT WHICH HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES
ACT OF 1933 AND ARE CONSIDERED TO BE ILLIQUID. ON NOVEMBER 30, 1998, THE
TOTAL MARKET VALUE OF THESE INVESTMENTS WAS $337,719,878 OR 112.4% 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 NO MARKET VALUE.
(g) 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 ...... $ 12,426,422
GROSS UNREALIZED DEPRECIATION ...... (3,467,806)
------------
NET UNREALIZED APPRECIATION ...... $ 8,958,616
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
14 1998 Semiannual Report - American Strategic Income Portfolio III
<PAGE>
Shareholder Update
- --------------------------------------------------------------------------------
ANNUAL MEETING RESULTS
An annual meeting of the fund's shareholders was held on
August 10, 1998. Each matter voted upon at that meeting,
as well as the number of votes cast for, against or
withheld, the number of abstentions, and the number of
broker non-votes with respect to such matters, are set
forth below.
(1) The fund's shareholders elected the following
directors:
<TABLE>
<CAPTION>
SHARES SHARES WITHHOLDING
VOTED "FOR" AUTHORITY TO VOTE
------------- ------------------
<S> <C> <C>
David T. Bennett ....................... 19,887,330 654,253
Robert J. Dayton ....................... 19,888,150 653,433
Roger A. Gibson ........................ 19,895,343 646,240
Andrew M. Hunter III ................... 19,889,959 651,624
Leonard W. Kedrowski ................... 19,895,191 646,392
Robert L. Spies ........................ 19,891,517 650,066
Joseph D. Strauss ...................... 19,895,901 645,682
Virginia L. Stringer ................... 19,892,945 648,638
</TABLE>
(2) The fund's shareholders approved an interim advisory
agreement between the fund and Piper Capital
Management Incorporated ("Piper Capital"), and the
receipt of investment advisory fees by Piper Capital
under such agreement. The following votes were cast
regarding this matter:
<TABLE>
<CAPTION>
SHARES SHARES BROKER
VOTED "FOR" VOTED "AGAINST" ABSTENTIONS NON-VOTES
---------------- ----------------- ----------- ---------
<S> <C> <C> <C>
19,779,432 348,921 413,230 --
</TABLE>
(3) The fund's shareholders approved a new investment
advisory agreement between the fund and U.S. Bank
National Association. The following votes were cast
regarding this matter:
<TABLE>
<CAPTION>
SHARES SHARES BROKER
VOTED "FOR" VOTED "AGAINST" ABSTENTIONS NON-VOTES
---------------- ----------------- ----------- ---------
<S> <C> <C> <C>
19,802,382 326,740 412,461 --
</TABLE>
(4) The fund's shareholders ratified the selection by a
majority of the independent members of the fund's
Boards of Directors of KPMG Peat Marwick 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>
20,082,865 181,554 277,164 --
</TABLE>
SHARE REPURCHASE PROGRAM
Your fund's board of directors has approved the fund's
share repurchase program, which enables the fund to "buy
back" shares of its common stock in the open market.
Repurchases may only be made when the previous day's
closing market price per share was at a discount from net
asset value. Repurchases cannot exceed 5% of the fund's
outstanding shares as of Septemer 9, 1998.
- --------------------------------------------------------------------------------
15 1998 Semiannual Report - American Strategic Income Portfolio III
<PAGE>
Shareholder Update (continued)
- --------------------------------------------------------------------------------
WHAT EFFECT WILL THIS PROGRAM HAVE ON SHAREHOLDERS?
We do not expect any adverse impact on the advisor's
ability to manage the fund.
Because repurchases will be at a price below net asset
value, remaining shares outstanding may experience a
slight increase in net asset value.
Although the effect of share repurchases on the market
price is less certain, the board of directors believes the
program may have a favorable effect on the market price of
fund shares.
We do not anticipate any material increase in the fund's
expense ratio.
WHEN WILL SHARES BE REPURCHASED?
Share repurchases may be made from time to time and may be
discontinued at any time. Share repurchases are not
mandatory when fund shares are trading at a discount from
net asset value; all repurchases will be at the discretion
of the fund's investment advisor. The board of directors'
decision whether to continue the share repurchase program
will be reported in the next semiannual or annual report.
HOW WILL SHARES BE REPURCHASED?
We expect to finance the repurchase of shares by
liquidating portfolio securities or using current cash
balances. We do not anticipate borrowing in order to
finance share repurchases.
- --------------------------------------------------------------------------------
16 1998 Semiannual Report - American Strategic Income Portfolio III
<PAGE>
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American Strategic Income Portfolio III
1998 SEMIANNUAL REPORT
1/1999 123-99
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