<PAGE>
[GRAPHIC]
AMERICAN STRATEGIC
INCOME PORTFOLIO III
CSP
ANNUAL REPORT
2000
[LOGO] FIRST AMERICAN-Registered Trademark-
ASSET MANAGEMENT
<PAGE>
[LOGO] FIRST AMERICAN-Registered Trademark-
ASSET MANAGEMENT
AMERICAN STRATEGIC INCOME PORTFOLIO III
TABLE OF CONTENTS
1 Fund Overview
4 Financial Statements
and Notes
14 Investments in
Securities
18 Independent Auditors'
Report
19 Federal Income Tax
Information
20 Shareholder Update
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
Based on net asset value for the periods ended May 31, 2000
[CHART]
<TABLE>
<CAPTION>
Since Inception
One Year Five Year 3/25/93
-------- --------- ---------------
<S> <C> <C> <C>
American Strategic Income
Portfolio III 3.99% 7.57% 6.44%
Lehman Brothers Mutual Fund
Government/Mortgage Index 2.75% 6.09% 5.96%
</TABLE>
The average annualized total returns for American Strategic Income Portfolio III
are based on the change in its net asset value (NAV), assume all distributions
were reinvested, and do not reflect sales charges. NAV-based performance is used
to measure investment management results.
Average annualized total returns based on the change in market price for the
one-year, five-year, and since-inception periods ended May 31, 2000, were 2.20%,
8.92%, and 4.78%, 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 nonsecuritized, illiquid whole loans. This limits the
ability of the fund to respond quickly to market changes.
The Lehman Brothers Mutual Fund Government/Mortgage Index is comprised of all
U.S. government agency and Treasury securities and agency mortgage-backed
securities. Developed by Lehman Brothers for comparative use by the mutual fund
industry, this index is unmanaged and does not include any fees or expenses in
its total return calculations.
The since inception number for the Lehman index is calculated from the month end
following the fund's inception through May 31, 2000.
NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
<PAGE>
FUND OVERVIEW
July 15, 2000
FOR THE ANNUAL REPORTING PERIOD ENDED MAY 31, 2000, AMERICAN STRATEGIC INCOME
PORTFOLIO III HAD A TOTAL RETURN OF 3.99% BASED ON ITS NET ASSET VALUE (NAV).
This compares to a 2.75% return for its benchmark, the Lehman Brothers Mutual
Fund Government/Mortgage Index. The total return based on the fund's market
price was 2.20% over the same time frame. The fund's NAV performance
benefited from multifamily and commercial prepayment penalties paid by
property owners during the year that helped to boost its NAV. The fund
receives these penalties on certain loans when a property owner wants to
repay the mortgage before it is due. Before we discuss the reporting period
in more detail, we would like to tell you about a recent proxy proposal that
you should have received.
AT THE AUGUST 3, 2000, ANNUAL MEETING, WE ARE ASKING FUND SHAREHOLDERS TO
APPROVE THE FUND'S INVESTMENT IN ALL TYPES OF SECURITIES BACKED BY REAL
ESTATE OR ISSUED BY COMPANIES THAT DEAL IN REAL ESTATE. IN PARTICULAR, REAL
ESTATE INVESTMENT TRUSTS (REITS), PREFERREDS. REIT companies manage
portfolios of real estate to earn profits for shareholders, and their
preferred stock pays out a specific dividend rate. We currently see good
values in this market. They offer investment-grade quality (BBB rated and
above), attractive income potential, more liquidity than mortgage loans
because they are bought and sold on the New York Stock Exchange, and they
have a real estate orientation that we believe suits the fund. Plus, they
offer immediate diversification. For example, one security we've considered
represents 240,000 apartment units all across the country. However, because
these securities will have long durations, they will be more volatile and
more interest rate sensitive than the mortgage loans in the portfolio.
THE FUND'S BOARD HAS APPROVED AN INCREASE IN THE LIMIT ON COMMERCIAL LOANS IN
THE FUND FROM 25% TO 35% OF TOTAL ASSETS. We currently find the commercial
loan market to be more attractive than single-family or multifamily loans. An
increase in commercial loans would broaden the exposure of the fund to
office, industrial, warehouse, and retail markets.
Fund Management
JOHN WENKER
is primarily responsible for the management of American Strategic Income
Portfolio. He has 14 years of financial experience.
DAVID STEELE
assists with the management of American Strategic Income Portfolio. He has 21
years of financial experience.
RUSS KAPPENMAN
assists with the management of American Strategic Income Portfolio. He has 14
years of financial experience.
*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
As a percentage of total assets on May 31, 2000
[CHART]
<TABLE>
<S> <C>
Other Assets 1%
Commercial Loans 21%
Multifamily Loans 39%
Single-family
Loans 23%
U.S. Agency
Mortgage-backed
Securities 15%
Short-term Securities 1%
</TABLE>
DELINQUENT LOAN PROFILE
The chart below shows the percentage of single-family loans** in the portfolio
that are 30, 60, 90, or 120 days delinquent as of May 31, 2000, based on
principal amounts outstanding.
<TABLE>
<S> <C>
Current 83.90%
---------------------------
30 Days 8.60%
---------------------------
60 Days 2.10%
---------------------------
90 Days 0.80%
---------------------------
120+ Days 4.60%
---------------------------
</TABLE>
**As of May 31, 2000, there were no multifamily or commercial loans delinquent.
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1 2000 Annual Report - American Strategic Income Portfolio III
<PAGE>
FUND OVERVIEW CONTINUED
During the reporting period, the Federal Reserve's interest rate hikes became a
challenge for the fund. On the positive side, higher rates have slowed the level
of refinancings and loan prepayments. Also, rising rates mean that we can find
new mortgage investments that pay income equal to or higher than the average
coupon in the fund. However, the Fed has raised short-term rates so much that
high borrowing costs are beginning to erode the income levels of the fund. In
June 2000, after the end of this semiannual reporting period, we had to decrease
the monthly dividend of the fund from 8.75 cents per share to 8.5 cents per
share beginning with the July dividend as a result. Even with the decrease, the
dividend reserve of 7.57 cents per share continues to support part of the fund's
monthly distribution.
Because of this challenging interest rate environment, the fund also experienced
more net asset volatility than is typical, but was still able to pay an
attractive income stream. The NAV of the fund began the year at $12.25 and ended
at $11.67 per share. At the end of the reporting period, the fund's market price
of $10.56 per share continued to trade at a discount to its net asset value.
Dividends for the year totaled $1.048 per share, for an annualized distribution
rate of 9.92% based on the May 31 market price. The fund's new dividend level
would result in an annualized earnings rate of 9.66% based on the May 31 market
price. Keep in mind that past performance is no guarantee of future results, and
the fund's NAV and distribution rate will fluctuate.
During December, the fund paid out proceeds from its share repurchase offer,
which brought short-term securities from 8% down to 1% of the fund's total
assets. In the last shareholder report, the level of short-term securities
was elevated to prepare for the repurchase offer payout. Single-family,
multifamily, and commercial loans continue to represent the majority of the
portfolio with 83% of total assets collectively. (See the chart on the
previous page for individual percentages for
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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 as of May 31, 2000. Shaded areas without values indicate
states in which the fund has invested less than 0.50% of its total principal
value.
[MAP]
<TABLE>
<S> <C>
Alabama less than 0.50%
Alaska less than 0.50%
Arizona 3%
Arkansas less than 0.50%
California 9%
Colorado 6%
Connecticut 1%
Delaware less than 0.50%
Florida 7%
Georgia less than 0.50%
Hawaii less than 0.50%
Idaho less than 0.50%
Illinois less than 0.50%
Indiana less than 0.50%
Iowa less than 0.50%
Kansas less than 0.50%
Kentucky less than 0.50%
Louisiana 1%
Maine less than 0.50%
Maryland less than 0.50%
Massachusetts 1%
Michigan less than 0.50%
Minnesota 5%
Mississippi less than 0.50%
Missouri less than 0.50%
Montana 1%
Nebraska less than 0.50%
New Hampshire less than 0.50%
New Jersey 2%
New Mexico 1%
New York 3%
Nevada 5%
North Carolina less than 0.50%
North Dakota 1%
Ohio less than 0.50%
Oklahoma 11%
Oregon 6%
Pennsylvania 1%
Rhode Island less than 0.50%
South Carolina less than 0.50%
South Dakota less than 0.50%
Tennessee 1%
Texas 27%
Utah 2%
Vermont
Virginia less than 0.50%
Washington 4%
West Virginia less than 0.50%
Wisconsin less than 0.50%
Wyoming less than 0.50%
</TABLE>
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2 2000 Annual Report - American Strategic Income Portfolio III
<PAGE>
each loan category.) In addition, we have moved about 12% of total assets out of
whole loans during the period and into agency mortgage securities, mainly,
Fannie Maes (Federal National Mortgage Association) and Freddie Macs (Federal
Home Loan Mortgage Corporation). We currently believe agency securities offer
good cash flows, better values, and that they have AAA-rated credit quality. The
fund owned no Treasury securities as of May 31.
ALTHOUGH THE INCREASING RATE ENVIRONMENT HAS BECOME SOMEWHAT PAINFUL FOR THE
FUND, THE FED'S ACTION IS HELPING TO KEEP THE ECONOMY HEALTHY, WHICH IS
BENEFICIAL FOR THE REAL ESTATE MARKETS AND THE FUND OVER THE LONG TERM. In the
multifamily and commercial markets, increased rates mean less new construction,
which translates into higher rent levels and occupancy levels in existing
properties. Since this fund only buys loans on existing properties, less new
supply is a positive factor for the fund. Also, with the U.S. economy continuing
to grow, we are seeing increased values for single-family housing, lower
foreclosure rates, and very low credit losses. As you can see on the map on the
previous page, our mortgage loans are diversified across the majority of states
to help avoid the risk of an economic downturn in one region. We are
overweighted in states that are experiencing the most population and job growth,
such as Texas and California. We believe the Federal Reserve's moves will be
successful in orchestrating a "soft landing" for the economy without putting it
into a recession, which would be the worst-case scenario for this fund.
THE HEALTHY ECONOMY HAS HELPED THE FUND HAVE MINOR CREDIT LOSSES DURING THE
PERIOD; HOWEVER, PREPAYMENT LEVELS WERE HIGH. Keep in mind that the risk of
credit losses (i.e. loans defaulting) is the primary risk of investing in
mortgage loans. If the proceeds from the sale of the foreclosed property are
less than the loan price that the fund paid, the fund would suffer a loss. Since
inception, the fund has had net credit losses of $0.08 per share. The fund
experienced 14 multifamily or commercial loan prepayments during the year and
received prepayment penalties of $507,075 from these borrowers. Although the
fund's net asset value benefits from the penalties, prepayments can be somewhat
detrimental to the fund as it takes some time to find new mortgage loans with
income levels that are as attractive as the loans that are retired.
THANK YOU FOR YOUR INVESTMENT IN AMERICAN STRATEGIC INCOME PORTFOLIO III AND THE
TRUST YOU HAVE PLACED IN US AS MANAGERS. We hope you will take a few minutes to
read, vote on, and return the proxy that you received in the mail. We believe
the new investment option described in the proxy will help the fund to maintain
an attractive income level and total return. We will continue to closely monitor
the fund's credit risk and income levels to help you achieve your financial
goals.
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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 First
American Asset Management pricing model designed to incorporate, among other
things, the present value of the projected stream of cash flows on such
investments. The pricing model takes into account a number of relevant
factors including the projected rate of prepayments, the delinquency profile,
the historical payment record, the expected yield at purchase, changes in
prevailing interest rates, and changes in the real or perceived liquidity of
whole loans, participation mortgages, or mortgage servicing rights, as the
case may be. The results of the pricing model may be further subject to price
ceilings due to the illiquid nature of the loans. Changes in prevailing
interest rates, real or perceived liquidity, yield spreads and credit
worthiness 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 2000 Annual Report - American Strategic Income Portfolio III
<PAGE>
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES May 31, 2000
................................................................................
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (note 2) ....... $321,987,723
Real estate owned (identified cost: $537,107) (note 2) ..... 486,941
Cash in bank on demand deposit ............................ 390,255
Accrued interest receivable ............................... 2,416,164
Other assets .............................................. 15,094
------------
Total assets ............................................ 325,296,177
------------
LIABILITIES:
Reverse repurchase agreements payable (note 2) ............ 75,596,000
Accrued investment management fee ......................... 147,393
Accrued administrative fee ................................ 74,558
Accrued interest .......................................... 307,582
Other accrued expenses .................................... 26,299
------------
Total liabilities ....................................... 76,151,832
------------
Net assets applicable to outstanding capital stock ...... $249,144,345
============
COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital .............. $312,303,603
Undistributed net investment income ....................... 1,614,929
Accumulated net realized loss on investments .............. (58,410,086)
Unrealized depreciation of investments .................... (6,364,101)
------------
Total - representing net assets applicable to capital
stock ................................................. $249,144,345
============
* Investments in securities at identified cost .......... $328,301,658
============
NET ASSET VALUE AND MARKET PRICE:
Net assets ................................................ $249,144,345
Shares outstanding (authorized 1 billion shares of $0.01 par
value) .................................................. 21,343,292
Net asset value ........................................... $ 11.67
Market price .............................................. $ 10.56
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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4 2000 Annual Report - American Strategic Income Portfolio III
<PAGE>
Financial Statements (continued)
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STATEMENT OF OPERATIONS For the Year Ended May 31, 2000
................................................................................
<TABLE>
<S> <C>
INCOME:
Interest (net of interest expense of $6,285,388) ........... $ 25,546,817
Rental income from real estate owned ....................... 5,734
------------
Total investment income .................................. 25,552,551
------------
EXPENSES (NOTE 3):
Investment management fee ................................. 1,702,642
Administrative fee ........................................ 589,083
Custodian and accounting fees ............................. 132,457
Transfer agent fees ....................................... 22,864
Reports to shareholders ................................... 85,834
Mortgage servicing fees ................................... 473,915
Directors' fees ........................................... 3,009
Audit and legal fees ...................................... 81,797
Other expenses ............................................ 162,438
------------
Total expenses .......................................... 3,254,039
Less expenses paid indirectly ......................... (12,789)
------------
Total net expenses ...................................... 3,241,250
------------
Net investment income ................................... 22,311,301
------------
NET REALIZED AND UNREALIZED LOSSES ON INVESTMENTS (NOTE 4):
Net realized loss on investments in securities ............ (4,135,297)
Net realized loss on real estate owned .................... (211,313)
------------
Net realized loss on investments ........................ (4,346,610)
Net change in unrealized appreciation or depreciation of
investments ............................................. (7,397,947)
------------
Net loss on investments ................................. (11,744,557)
------------
Net increase in net assets resulting from
operations .......................................... $ 10,566,744
============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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5 2000 Annual Report - American Strategic Income Portfolio III
<PAGE>
Financial Statements (continued)
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STATEMENT OF CASH FLOWS For the Year Ended May 31, 2000
................................................................................
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and rental income ................................. $ 25,552,551
Net expenses ............................................... (3,241,250)
------------
Net investment income .................................... 22,311,301
------------
Adjustments to reconcile net investment income to net cash
provided by operating activities:
Change in accrued interest receivable .................... 1,707,392
Net amortization of bond discount and premium ............ 443,662
Change in accrued fees and expenses ...................... (240,482)
Change in other assets ................................... 49,507
------------
Total adjustments ...................................... 1,960,079
------------
Net cash provided by operating activities .............. 24,271,380
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments ......................... 189,803,703
Purchases of investments ................................... (102,909,927)
Net purchases of short-term securities ..................... (1,522,977)
------------
Net cash provided by investing activities .............. 85,370,799
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on reverse repurchase agreements .............. (56,129,000)
Retirement of fund shares .................................. (29,861,618)
Distributions paid to shareholders ......................... (23,620,197)
------------
Net cash used by financing activities .................. (109,610,815)
------------
Net increase in cash ....................................... 31,364
Cash at beginning of year .................................. 358,891
------------
Cash at end of year .................................... $ 390,255
============
Supplemental disclosure of cash flow information:
Cash paid for interest on reverse
repurchase agreements .................................. $ 6,494,317
============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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6 2000 Annual Report - American Strategic Income Portfolio III
<PAGE>
Financial Statements (continued)
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STATEMENTS OF CHANGES IN NET ASSETS
................................................................................
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
5/31/00 5/31/99
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income ..................................... $ 22,311,301 $ 25,086,042
Net realized gain (loss) on investments ................... (4,346,610) 2,449,696
Net change in unrealized appreciation or depreciation of
investments ............................................. (7,397,947) (8,321,741)
------------ ------------
Net increase in net assets resulting from operations .... 10,566,744 19,213,997
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ................................ (23,620,197) (24,370,327)
------------ ------------
CAPITAL SHARE TRANSACTIONS (NOTE 6):
Decrease in net assets from capital share transactions .... (29,861,618) (2,697,661)
------------ ------------
Total decrease in net assets ............................ (42,915,071) (7,853,991)
Net assets at beginning of year ........................... 292,059,416 299,913,407
------------ ------------
Net assets at end of year ................................. $249,144,345 $292,059,416
============ ============
Undistributed net investment income ....................... $ 1,614,929 $ 2,923,825
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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7 2000 Annual Report - American Strategic Income Portfolio III
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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(1) ORGANIZATION
............................
American Strategic Income Portfolio Inc. III (the fund) is
registered under the Investment Company Act of 1940 (as
amended) as a diversified, closed-end management
investment company. The fund emphasizes investments in
mortgage-related assets that directly or indirectly
represent a participation in or are secured by and payable
from mortgage loans. It may also invest in asset-backed
securities, U.S. government securities, corporate debt
securities, municipal obligations, unregistered securities
and mortgage servicing rights. The fund may enter into
dollar roll transactions. In addition, the fund may borrow
using reverse repurchase agreements and revolving credit
facilities. 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. The results of the pricing
model may be further subject to price ceilings due to the
illiquid nature of the loans. Changes in prevailing
interest rates, real or perceived liquidity, yield
spreads, and creditworthiness are factored into the
pricing model each week. Certain mortgage loan information
is received once a month. This information includes, but
is not limited to, the projected rate of prepayments,
projected rate and severity of defaults, the delinquency
profile and the historical payment record. Valuations of
whole loans, mortgage participations and mortgage
servicing rights are determined no less frequently than
weekly.
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8 2000 Annual Report - American Strategic Income Portfolio III
<PAGE>
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
Securities transactions are accounted for on the date
securities are purchased or sold. Realized gains and
losses are calculated on the identified-cost basis.
Interest income, including amortization of bond discount
and premium, is recorded on an accrual basis.
WHOLE LOANS AND PARTICIPATION MORTGAGES
Whole loans and participation mortgages may bear a greater
risk of loss arising from a default on the part of the
borrower of the underlying loans than do traditional
mortgage-backed securities. This is because whole loans
and participation mortgages, unlike most mortgage-backed
securities, generally are not backed by any government
guarantee or private credit enhancement. Such risk may be
greater during a period of declining or stagnant real
estate values. In addition, the individual loans
underlying whole loans and participation mortgages may be
larger than the loans underlying mortgage-backed
securities. With respect to participation mortgages, the
fund generally will not be able to unilaterally enforce
its rights in the event of a default, but rather will be
dependent on the cooperation of the other participation
holders.
At May 31, 2000, loans representing 2.3% 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 7.5% of total
single family principal outstanding at May 31, 2000. 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 $211,313 or $0.01
per share on real estate sold during the year ended May
31, 2000.
Real estate acquired through foreclosure, if any, is
recorded at estimated fair value. The fund may receive
rental or other income as a result of holding real estate.
In addition, the fund may incur expenses associated with
maintaining any real estate owned. On May 31, 2000, the
fund owned five single family homes with an aggregate
value of $486,941, or 0.2% of net assets.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements involve the sale of a
portfolio-eligible security by the fund, coupled with an
agreement to repurchase the security at a specified date
and price. Reverse repurchase agreements may increase
volatility of the fund's net asset value and involve the
risk that interest costs on money borrowed may exceed the
return on securities purchased with that borrowed money.
Reverse repurchase agreements are considered to be
borrowings by the fund, and are subject to the fund's
overall restriction on borrowing under which it must
maintain asset coverage of at least 300%. For the year
ended May 31, 2000, the average borrowings outstanding
were $101,655,917 and the average rate was 6.28%.
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
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9 2000 Annual Report - American Strategic Income Portfolio III
<PAGE>
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
decrease in value prior to their delivery. The fund
segregates, with its custodian, assets with a market value
equal to the amount of its purchase commitments. The
purchase of securities on a when-issued or
forward-commitment basis may increase the volatility of
the fund's net asset value if the fund makes such
purchases while remaining substantially fully invested. As
of May 31, 2000, the fund had no outstanding when-issued
or forward commitments.
FEDERAL TAXES
The fund intends to comply with the requirements of the
Internal Revenue Code applicable to regulated investment
companies and not be subject to federal income tax.
Therefore, no income tax provision is required. The fund
also intends to distribute its taxable net investment
income and realized gains, if any, to avoid the payment of
any federal excise taxes.
The character of distributions made during the year from
net investment income or net realized gains may differ
from its ultimate characterization for federal income tax
purposes. In addition, due to the timing of dividend
distributions, the fiscal year in which amounts are
distributed may differ from the year that the income or
realized gains or losses were recorded by the fund.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income are made monthly
and realized capital gains, if any, will be distributed at
least annually. These distributions are recorded as of the
close of business on the ex-dividend date. Such
distributions are payable in cash or, pursuant to the
fund's dividend reinvestment plan, reinvested in
additional shares of the fund's capital stock. Under the
plan, fund shares will be purchased in the open market
unless the market price plus commissions exceeds the net
asset value by 5% or more. If, at the close of business on
the dividend payment date, the shares purchased in the
open market are insufficient to satisfy the dividend
reinvestment requirement, the fund will issue new shares
at a discount of up to 5% from the current market price.
REPURCHASE AGREEMENTS 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
accounting principles generally accepted in the United
States requires management to make estimates and
assumptions that affect the reported amounts in the
financial statements. Actual results could differ from
these estimates.
--------------------------------------------------------------------------------
10 2000 Annual Report - American Strategic Income Portfolio III
<PAGE>
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
(3) EXPENSES
............................
INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES
The fund has entered into the following agreements with
U.S. Bank National Association (U.S. Bank) acting through
its division, First American Asset Management (the advisor
and 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 and 4.50% of the daily gross income
accrued by the fund during the month (i.e., investment
income, including amortization of discount and premium,
other than gains from the sale of securities or gains from
options and futures contracts less interest on money
borrowed by the fund). The monthly investment management
fee shall not exceed in the aggregate 1/12 of 0.725% of
the fund's average weekly net assets during the month
(approximately 0.725% on an annual basis). For the year
ended May 31, 2000, 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 based on an annual percentage of the
fund's average weekly net assets (computed by subtracting
liabilities from the value of the total assets of the
fund). For its fee, the adminstrator provides reporting,
regulatory and record-keeping services for the fund. For
the period from June 1, 1999, through December 31, 1999,
the fund paid the adminstrator a monthly fee in an amount
equal to an annual rate of 0.20% of the fund's average
weekly net assets. Effective January 1, 2000, the
administrator's fee increased to an annual rate of 0.25%
of the fund's average weekly net assets. The new
adminstrative fee includes 0.05% for accounting expenses
which were previously charged to and paid separately by
the fund.
MORTGAGE SERVICING FEES
The fund enters into mortgage servicing agreements with
mortgage servicers for whole loans and participation
mortgages. For a fee, mortgage servicers maintain loan
records, such as insurance and taxes and the proper
allocation of payments between principal and interest.
OTHER FEES AND EXPENSES
In addition to the investment management, administrative
and mortgage servicing fees, the fund is responsible for
paying most other operating expenses, including: outside
directors' fees and expenses; custodian fees; registration
fees; printing and shareholder reports; transfer agent
fees and expenses; legal, auditing and accounting
services; insurance; interest; expenses related to real
estate owned; fees to outside parties retained to assist
in conducting due diligence; taxes and other miscellaneous
expenses.
During the year ended May 31, 2000, the fund paid $66,697
to U.S. Bank for custody services.
EXPENSES PAID INDIRECTLY
Expenses paid indirectly represent reimbursements of
custodian fees received from mortgage servicers of
$12,789.
--------------------------------------------------------------------------------
11 2000 Annual Report - American Strategic Income Portfolio III
<PAGE>
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
(4) INVESTMENT
SECURITY
TRANSACTIONS
............................
Cost of purchases and proceeds from sales of securities
and real estate, other than temporary investments in
short-term securities, for the year ended May 31, 2000
aggregated $102,466,265 and $189,803,703, respectively.
Included in proceeds from sales are $1,357,850 from sales
of real estate owned and $507,075 from prepayment
penalties.
(5) CAPITAL LOSS
CARRYOVER
............................
For federal income tax purposes, the fund had capital loss
carryovers at May 31, 2000, 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>
$18,771,178 2003
34,420,675 2004
871,623 2005
69,740 2008
-----------
$54,133,216
===========
</TABLE>
(6) CAPITAL SHARE
TRANSACTIONS
............................
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 (NAV). 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
1,203,423 shares (5% of the outstanding shares as of
September 9, 1998).
Pursuant to the plan, the fund repurchased and retired the
following:
<TABLE>
<CAPTION>
% OF
YEAR OUTSTANDING WEIGHTED AVERAGE
ENDED SHARES SHARES COST DISCOUNT FROM NAV
-------- ------- ----------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
5/31/00 122,700 0.51% $1,403,906 5.03%
5/31/99 231,000 0.96% $2,697,661 6.23%
</TABLE>
REPURCHASE OFFER
The fund's board of directors concluded that an additional
offer to purchase up to 10% of the fund's outstanding
shares at net asset value would be in the best interests
of shareholders. Accordingly, the repurchase offer was
sent to shareholders in November 1999, and the deadline
for submitting shares for repurchase was 5:00 p.m. Eastern
Time on November 29, 1999. The repurchase price was
determined on December 6, 1999, at the close of regular
trading on the New York Stock Exchange (4 p.m. Eastern
Time). The percentage of outstanding shares repurchased,
the number of shares repurchased, the repurchase price per
share (net asset value less two cents per share repurchase
fee) and proceeds paid by the fund on December 10, 1999,
were as follows:
<TABLE>
<CAPTION>
PERCENTAGE SHARES REPURCHASE PROCEEDS
REPURCHASED REPURCHASED PRICE PAID
----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
10% 2,371,476 $11.98 $28,410,282
</TABLE>
--------------------------------------------------------------------------------
12 2000 Annual 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>
Year Year Year Year Year
Ended Ended Ended Ended Ended
5/31/00 5/31/99(e) 5/31/98 5/31/97 5/31/96
------- ------------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning
of period ............................ $12.25 $12.46 $12.12 $12.25 $12.50
------ ------ ------ ------ ------
Operations:
Net investment income ................ 1.00 1.05 1.02 1.00 0.99
Net realized and unrealized gains
(losses) on investments ............ (0.53) (0.24) 0.37 (0.13) --
------ ------ ------ ------ ------
Total from operations .............. 0.47 0.81 1.39 0.87 0.99
------ ------ ------ ------ ------
Distributions to shareholders:
From net investment income ........... (1.05) (1.02) (1.05) (1.00) (1.24)
------ ------ ------ ------ ------
Net asset value, end of period ......... $11.67 $12.25 $12.46 $12.12 $12.25
====== ====== ====== ====== ======
Per-share market value, end of
period ............................... $10.56 $11.88 $11.38 $11.13 $10.25
====== ====== ====== ====== ======
SELECTED INFORMATION
Total return, net asset value (a) ...... 3.99% 6.61% 11.86% 7.43% 8.17%
Total return, market value (b) ......... (2.20)% 13.80% 12.05% 19.18% 3.20%
Net assets at end of period
(in millions) ........................ $ 249 $ 292 $ 300 $ 324 $ 328
Ratio of expenses to average weekly net
assets including interest
expense (c) .......................... 3.55% 3.39% 3.47% 3.84% 2.66%
Ratio of expenses to average weekly net
assets excluding interest
expense (c) .......................... 1.21% 1.19% 1.42% 1.34% 1.29%
Ratio of net investment income to
average weekly net assets ............ 8.30% 8.39% 8.22% 8.22% 7.92%
Portfolio turnover rate (excluding
short-term securities) ............... 28% 44% 58% 46% 121%
Amount of borrowings outstanding at end
of period (in millions) .............. $ 76 $ 132 $ 99 $ 84 $ 81
Per-share amount of borrowings
outstanding at end of period ......... $ 3.54 $ 5.53 $ 4.11 $ 3.12 $ 3.03
Per-share amount of net assets,
excluding borrowings, at end
of period ............................ $15.21 $17.78 $16.57 $15.24 $15.28
Asset coverage ratio (d) ............... 430% 322% 403% 488% 504%
</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% FROM FEDERAL EXCISE TAXES IN FISCAL YEAR 1996. FISCAL 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 TO
U.S. BANK.
--------------------------------------------------------------------------------
13 2000 Annual Report - American Strategic Income Portfolio III
<PAGE>
INVESTMENTS IN SECURITIES
--------------------------------------------------------------------------------
<TABLE>
AMERICAN STRATEGIC INCOME PORTFOLIO III May 31, 2000
.................................................................................................................
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 (19.5%):
U.S. AGENCY MORTGAGE-BACKED SECURITIES (19.5%):
FIXED RATE (19.5%):
6.50%, FNMA, 6/1/29 ............................... 5/17/99 $13,431,975(b) $ 13,334,514 $ 12,424,577
8.00%, FNMA, 5/1/30 ............................... 5/9/00 9,000,000(b) 8,880,561 8,924,063
7.50%, FNMA, 4/1/30 ............................... 5/9/00 9,850,092(b) 9,500,902 9,560,696
7.50%, FNMA, 5/1/30 ............................... 5/9/00 8,964,998(b) 8,647,885 8,701,607
8.00%, FNMA, 5/1/30 ............................... 5/9/00 9,000,000(b) 8,880,561 8,921,250
------------
49,244,423 48,532,193
------------
Total U.S. Government and Agency Securities 49,244,423 48,532,193
------------
PRIVATE MORTGAGE-BACKED SECURITIES (0.0%):
FIXED RATE (0.0%):
8.79%, First Gibralter, Series 1992-MM,
Class B, 10/25/21 ............................... 7/15/93 1,122,082(e) 427,731 --
------------
WHOLE LOANS AND PARTICIPATION MORTGAGES (C,D,E) (108.9%):
COMMERCIAL LOANS (28.1%):
Academy Spectrum, 7.80%, 5/9/01 ................... 4/20/99 4,490,631 4,490,631 4,146,088
Airport Plaza Offices, 8.88%, 5/1/01 .............. 5/1/96 710,813 710,813 708,639
Blacklake Place I and II, 8.78%, 9/1/07 ........... 8/12/97 4,723,572 4,723,572 4,621,848
Blacklake Place III, 8.78%, 9/1/07 ................ 8/12/97 2,361,786 2,361,786 2,308,192
Brookhollow West and Northwest Technical Center,
8.71%, 8/1/02 ................................... 7/29/97 3,562,348 3,562,348 3,519,017
Commerce Center, 8.88%, 5/1/01 .................... 5/1/96 1,848,114 1,848,114 1,827,817
CUBB Properties Mobile Home Park,
8.15%, 11/1/07 .................................. 11/4/97 2,787,043 2,787,043 2,684,178
Denmark House Office Building I, 8.88%, 2/1/05 1/28/00 5,400,000 5,400,000 5,344,613
Denmark House Office Building II,
11.50%, 2/1/05 .................................. 1/28/00 1,060,000 1,060,000 963,289
Disco Print Warehouse, 8.90%, 2/1/04 .............. 2/7/97 1,315,691 1,315,691 1,297,006
Duncan Office Building, 8.00%, 6/1/08 ............. 5/19/98 718,463 718,463 678,069
Indian Street Shoppes, 8.00%, 2/1/09 .............. 1/27/99 2,275,739 2,275,739 2,118,388
Jackson Street Parking Lot, 8.63%, 7/1/07 ......... 6/30/98 248,887 248,887 244,653
Jackson Street Warehouse, 8.63%, 7/1/07 ........... 6/30/98 2,934,302 2,934,302 2,869,912
Jefferson Office Building, 7.50%, 12/1/13 ......... 11/5/98 1,087,910 1,087,910 996,267
John Brown Office Building, 8.90%, 6/1/03 ......... 7/23/97 4,807,376 4,807,376 4,768,381
Kimball Professional Office Building,
8.00%, 7/1/08 ................................... 7/2/98 2,291,658 2,291,658 2,146,433
</TABLE>
<TABLE>
Date Market
Description of Security Acquired Par Value Cost Value (a)
--------------------------------------------------------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Lake Pointe Corporate Center, 8.67%, 7/1/07 ....... 7/7/97 $ 3,811,874 $ 3,811,874 $ 3,728,084
LAX Air Freight Center, 8.00%, 1/1/08 ............. 12/29/97 3,348,410 3,348,410 3,170,913
Meridian Corporate Center, 8.61%, 8/1/02 .......... 8/1/97 2,306,369 2,306,369 2,277,136
North Austin Business Center, 9.15%, 5/1/07 ....... 4/10/97 2,988,769 2,988,769 2,990,544
One Metro Square Office Building, 8.88%, 10/1/02 . 9/24/97 2,895,673 2,895,673 2,878,336
Pacific Shores Mobile Home Park II,
11.12%, 10/1/06 . 9/27/96 1,850,962 1,841,707 1,937,939
Pilot Knob Service Center, 9.07%, 7/1/07 .......... 6/20/97 1,473,100 1,473,100 1,470,514
PMG Plaza, 9.05%, 4/1/04 .......................... 3/20/97 2,502,268 2,502,268 2,431,909
Santa Monica Center, 8.72%, 11/1/04 ............... 11/17/97 4,985,870 4,985,870 4,996,948
Shoppes at Jonathan's Landing, 8.05%, 5/1/10 ...... 4/12/00 3,000,000 3,000,000 2,798,103
------------
71,778,373 69,923,216
------------
MULTIFAMILY LOANS (50.8%):
Ambassador House Apartments, 8.20%, 12/1/01 ....... 11/3/94 3,493,189 3,493,189 3,342,243
Arbor Parks and Woodridge Apartments,
7.60%, 9/1/03 ................................... 8/27/98 17,278,640 17,278,639 16,650,870
Bluff Creek Apartments I, 7.75%, 4/1/04 ........... 3/5/99 7,923,685 7,923,685 7,556,599
Bluff Creek Apartments II, 15.00%, 4/1/04 ......... 2/16/00 1,499,564 1,499,564 1,469,005
Boardwalk Apartments, 7.40%, 2/1/08 ............... 1/16/98 5,280,289 5,280,289 4,792,050
Clackamas Trail Apartments, 8.63%, 7/1/01 ......... 7/3/97 13,877,112 13,877,112 13,338,963
El Toro Blanco Apartments, 10.05%, 1/1/02 ......... 1/3/95 1,301,235 1,270,030 1,324,418
Falls Apartments, 10.00%, 7/1/03 .................. 5/12/93 3,789,500 3,748,747 3,851,538
Faronia Square Apartments, 10.40%, 1/1/02 ......... 12/30/94 3,475,659 3,440,902 3,545,172
Geneva Village Apartments, 9.50%, 11/1/04 ......... 10/14/94 1,130,247 1,126,082 1,139,773
Grand Forks Multifamily, 10.07%, 12/1/01 .......... 11/9/94 2,290,670 2,280,513 2,313,577
Green Valley Apartments I, 9.54%, 5/1/03 .......... 4/14/00 8,100,000 8,100,000 8,358,439
Green Valley Apartments II, 13.50%, 5/1/03 ........ 4/14/00 1,300,000 1,300,000 1,139,679
Harpers Ferry Apartments, 10.56%, 12/1/01 ......... 12/1/94 1,777,087 1,760,379 1,820,160
Heritage Park Apartments, 9.00%, 2/1/04 ........... 1/31/97 1,871,542 1,871,542 1,868,217
Huntington Hills Apartments, 8.75%, 11/1/05 ....... 10/2/95 1,240,629 1,234,425 1,228,293
Johanson Arms Apartments, 9.35%, 6/1/04 ........... 5/16/96 1,991,203 1,991,577 1,997,300
Maple Village Apartments, 9.50%, 11/1/04 .......... 10/14/94 1,181,094 1,176,675 1,191,049
Meadowview Apartments, 9.50%, 11/1/04 ............. 10/14/94 838,105 835,401 845,169
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
--------------------------------------------------------------------------------
14 2000 Annual Report - American Strategic Income Portfolio III
<PAGE>
INVESTMENTS IN SECURITIES (continued)
--------------------------------------------------------------------------------
AMERICAN STRATEGIC INCOME PORTFOLIO III
(CONTINUED)
<TABLE>
Date Market
Description of Security Acquired Par Value Cost Value (a)
--------------------------------------------------------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Meridian Pointe Apartments, 8.85%, 2/1/12 ......... 3/7/97 $ 1,171,353 $ 1,171,353 $ 1,169,661
Mission Village Apartments, 10.08%, 9/1/01 ........ 8/11/94 2,130,350 2,119,699 2,151,654
Parkway Village Apartments, 9.50%, 11/1/04 ........ 10/14/94 813,469 810,888 820,325
Quail Lakes Apartments I, 8.95%, 11/1/03 .......... 11/1/96 8,756,050 8,752,548 8,696,918
Quail Lakes Apartments II, 13.00%, 11/1/03 ........ 3/5/99 548,254 548,254 542,384
Riverbrook Apartments, 8.65%, 1/1/02 .............. 12/29/94 3,094,118 3,094,118 3,044,415
Rose Park Apartments, 9.50%, 11/1/04 .............. 10/14/94 654,499 652,513 658,760
Royal Court Apartments, 9.00%, 10/1/04 ............ 9/11/97 1,374,548 1,374,548 1,052,117
Shelter Island Apartments, 7.70%, 12/1/08 ......... 11/4/98 13,285,147 13,285,146 12,437,018
Southlake Villa Apartments, 9.50%, 11/1/04 ........ 10/14/94 859,067 855,776 867,627
Tradewinds I, 9.03%, 10/1/01 ...................... 9/30/98 9,755,020 9,755,020 9,794,353
Valley Manor Apartments, 8.45%, 11/1/05 ........... 7/14/98 3,667,399 3,667,399 3,589,338
Westree Apartments, 10.00%, 9/1/03 ................ 8/30/93 2,978,788 2,953,965 3,044,390
Westree Apartments II, 10.00%, 1/1/01 ............. 6/19/98 1,000,000 1,000,000 909,950
------------
129,529,978 126,551,424
------------
SINGLE FAMILY LOANS (30.0%):
Arbor, 9.27%, 8/16/17 ............................. 2/16/96 2,525,871 2,531,671 2,525,871
Barclays, 8.96%, 6/7/25 ........................... 11/7/95 932,868(b) 888,623 861,116
Bayview Financial, 7.13%, 2/21/20 ................. 7/21/95 299,779(b) 256,733 279,745
Delaware II, 8.61%, 11/27/07 ...................... 6/30/93 3,396,532(b) 3,142,741 3,256,740
Fairbanks IV, 8.09%, 4/3/19 11/3/94 2,011,724(b) 1,717,558 1,869,461
Federal Mortgage, 4.17%, 12/15/20 ................. 6/15/93 38,870 32,652 37,355
First Boston II, 9.19%, 7/31/09 ................... 4/30/93 1,389,771(b) 1,240,741 1,278,630
First Boston III, 8.97%, 2/1/13 ................... 7/29/93 1,588,301(b) 1,362,414 1,557,570
First Boston IV, 9.02%, 3/1/12 .................... 12/17/93 1,423,876(b) 1,308,885 1,360,634
First Boston V, 8.15%, 5/26/16 .................... 4/26/95 1,169,486(b) 1,153,406 1,143,572
Greenwich, 9.31%, 4/16/05 . 2/16/96 457,517(b) 446,167 448,948
Kidder Peabody I, 9.43%, 9/1/10 ................... 9/30/93 1,673,422(b) 1,498,107 1,612,214
Kidder Peabody II, 8.77%, 5/1/13 .................. 3/17/94 198,578 187,023 197,856
Knutson III, 9.18%, 4/1/15 ........................ 3/26/93 646,537(b) 608,146 645,644
Maryland National, 9.36%, 9/1/19 .................. 10/6/93 905,554(b) 818,998 876,137
Meridian IV, 7.85%, 8/16/16 1/20/95 4,278,896(b) 3,982,619 4,020,653
Meridian V, 7.95%, 10/6/17 . 4/6/95 2,159,067(b) 2,061,334 2,100,636
Minneapolis Employees Retirement Fund,
8.20%, 2/10/14 .................................. 4/10/96 2,592,125(b) 2,405,149 2,450,159
Mortgage Access, 10.04%, 9/30/19 .................. 6/30/93 310,087 292,835 316,615
Nomura, 9.88%, 12/16/23 ........................... 12/16/93 15,117,422(b) 15,648,573 14,922,817
</TABLE>
<TABLE>
Date Shares/ Market
Description of Security Acquired Par Value Cost Value (a)
--------------------------------------------------------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Nomura III, 8.27%, 12/29/17 9/29/95 $ 9,190,862(b) $ 8,009,094 $ 8,469,522
Norwest II, 8.01%, 11/27/22 2/27/96 1,945,331(b) 1,935,740 1,844,893
Norwest IV, 8.32%, 2/23/25 . 5/23/96 2,628,122(b) 2,612,291 2,531,301
Norwest VI, 8.19%, 3/6/26 ......................... 12/6/96 1,528,073(b) 1,498,938 1,462,891
Norwest VII, 8.22%, 7/24/25 2/24/97 2,465,798(b) 2,397,988 2,384,114
Norwest X, 8.15%, 1/1/25 .......................... 3/12/98 3,262,492(b) 3,270,975 2,920,327
Norwest XI, 8.23%, 4/1/23 ......................... 6/15/98 3,279,313(b) 3,260,826 3,127,500
Norwest XII, 7.96%, 8/1/24 . 8/27/98 4,139,176(b) 4,105,158 3,863,476
Norwest XIII, 8.02%, 10/1/25 ...................... 10/28/98 2,218,728(b) 2,207,175 1,980,448
Norwest XVI, 7.65%, 6/16/27 ....................... 3/4/99 456,131(b) 443,115 423,367
Norwest XVII, 7.77%, 5/28/25 ...................... 5/20/99 921,761(b) 887,586 858,340
President Homes 93-6E, Sales Inventory,
8.19%, 11/1/22 .................................. 5/19/94 164,661 163,012 140,542
President Homes 94-1B, Sales Inventory,
8.50%, 11/18/23 ................................. 10/31/94 100,184 98,763 94,377
Sears Mortgage, 8.17%, 10/1/17 .................... 7/16/93 445,434 418,708 427,784
Shearson Lehman, 9.30%, 6/1/17 .................... 5/26/93 2,399,500(b) 2,114,797 2,375,294
The Crossings, 10.75%, 10/1/11 .................... 4/16/93 146,855(b) 148,323 150,052
------------
75,156,864 74,816,601
------------
Total Whole Loans and Participation Mortgages ... 276,465,215 271,291,241
------------
RELATED PARTY MONEY MARKET FUND (0.8%):
First American Prime Obligations Fund ............. 5/31/00 2,164,289(f) 2,164,289 2,164,289
------------
Total Investments in Securities (g) ............. $328,301,658 $321,987,723
============
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES
(a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(b) ON MAY 31, 2000, SECURITIES VALUED AT $117,066,478 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> <C>
$11,908,000 5/15/00 6.53% 6/15/00 $ 34,560 (1)
10,500,000 5/1/00 7.13% 6/1/00 62,387 (2)
16,000,000 5/1/00 7.29% 6/1/00 97,200 (2)
1,500,000 5/1/00 7.15% 6/1/00 8,938 (2)
1,000,000 5/12/00 7.54% 6/1/00 3,979 (2)
9,178,000 5/15/00 6.52% 6/15/00 26,596 (3)
8,353,000 5/15/00 6.52% 6/15/00 24,205 (4)
8,577,000 5/15/00 6.52% 6/15/00 24,854 (5)
8,580,000 5/15/00 6.52% 6/15/00 24,863 (6)
----------- --------
$75,596,000 $307,582
=========== ========
</TABLE>
--------------------------------------------------------------------------------
15 2000 Annual Report - American Strategic Income Portfolio III
<PAGE>
INVESTMENTS IN SECURITIES (continued)
--------------------------------------------------------------------------------
* INTEREST RATE AS OF MAY 31, 2000. RATES ARE BASED ON THE LONDON
INTERBANK OFFERED RATE (LIBOR) AND RESET MONTHLY.
Name of broker and description of collateral:
(1) MORGAN STANLEY DEAN WITTER:
FNMA, 6.50%, 6/1/29, $13,431,975 PAR
(2) NOMURA:
BARCLAYS, 8.96%, 6/7/25, $932,868 PAR
BAYVIEW FINANCIAL, 7.13%, 2/21/20, $299,779 PAR
DELAWARE II, 8.61%, 11/27/07, $3,377,218 PAR
FAIRBANKS IV, 8.09%, 4/3/19, $2,011,724 PAR
FIRST BOSTON II, 9.19%, 7/31/09, $1,389,771 PAR
FIRST BOSTON III, 8.97%, 2/1/13, $1,554,884 PAR
FIRST BOSTON IV, 9.02%, 3/1/12, $1,307,477 PAR
FIRST BOSTON V, 8.15%, 5/26/16, $1,169,486 PAR
GREENWICH, 9.31%, 4/16/05, $392,634 PAR
KIDDER PEABODY I, 9.43%, 9/1/10, $1,673,422 PAR
KNUTSON III, 9.18%, 4/1/15, $646,537 PAR
MARYLAND NATIONAL, 9.36%, 9/1/19, $905,554 PAR
MERIDIAN IV, 7.85%, 8/16/16, $3,859,423 PAR
MERIDIAN V, 7.95%, 10/6/17, $2,159,067 PAR
MINNEAPOLIS EMPLOYEES RETIREMENT FUND, 8.20%, 2/10/14,
$2,463,179 PAR
NOMURA, 9.88%, 12/16/23, $14,995,699 PAR
NOMURA III, 8.27%, 12/29/17, $8,994,048 PAR
NORWEST II, 8.01%, 11/27/22, $1,810,003 PAR
NORWEST IV, 8.32%, 2/23/25, $2,628,122 PAR
NORWEST VI, 8.19%, 3/6/26, $1,528,073 PAR
NORWEST VII, 8.22%, 7/24/25, $2,300,576 PAR
NORWEST X, 8.15%, 1/1/25, $3,262,492 PAR
NORWEST XI, 8.23%, 4/1/23, $1,846,187 PAR
NORWEST XII, 7.96%, 8/1/24, $3,362,982 PAR
NORWEST XIII, 8.02%, 10/1/25, $1,468,198 PAR
NORWEST XVI, 7.65%, 6/16/27, $456,131 PAR
NORWEST XVII, 7.77%, 5/28/25, $799,735 PAR
SHEARSON LEHMAN, 9.30%, 6/1/17, $2,399,500 PAR
THE CROSSINGS, 10.75%, 10/1/11, $146,855 PAR
(3) NOMURA:
FNMA, 7.50%, 4/1/30, $9,850,092 PAR
(4) NOMURA:
FNMA 7.50%, 5/1/30, $8,964,998 PAR
(5) NOMURA:
FNMA 8.00%, 5/1/30, $9,000,000 PAR
(6) NOMURA:
FNMA 8.00%, 5/1/30, $9,000,000 PAR
THE FUND HAS ENTERED INTO A LENDING COMMITMENT WITH NOMURA. THE
AGREEMENT PERMITS THE FUND TO ENTER INTO REVERSE REPURCHASE AGREEMENTS
UP TO $40,000,000 USING WHOLE LOANS AS COLLATERAL. THE FUND PAYS A FEE
OF 0.25% TO NOMURA ON ANY UNUSED PORTION OF THE $40,000,000 LENDING
COMMITMENT.
(c) INTEREST RATES ON COMMERCIAL AND MULTIFAMILY LOANS ARE THE RATES IN
EFFECT MAY 31, 2000. INTEREST RATES AND MATURITY DATES DISCLOSED ON
SINGLE FAMILY LOANS REPRESENT THE WEIGHTED AVERAGE COUPON AND WEIGHTED
AVERAGE MATURITY FOR THE UNDERLYING MORTGAGE LOANS AS OF MAY 31, 2000.
(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:
ACADEMY SPECTRUM - COLORADO SPRINGS, CO
AIRPORT PLAZA OFFICES - ALBUQUERQUE, NM
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
DENMARK HOUSE OFFICE BUILDING I - HOUSTON, TX
DENMARK HOUSE OFFICE BUILDING II - HOUSTON, TX
DISCO PRINT WAREHOUSE - SUGARLAND, TX
DUNCAN OFFICE BUILDING - OLYMPIA, TX
INDIAN STREET SHOPPES - STUART, FL
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
PILOT KNOB SERVICE CENTER - MENDOTA HEIGHTS, MN
PMG PLAZA - FORT LAUDERDALE, FL
SANTA MONICA CENTER - WEST HOLLYWOOD, CA
SHOPPES AT JONATHAN'S LANDING - JUPITER, FL
Multifamily Loans:
AMBASSADOR HOUSE APARTMENTS - OKLAHOMA CITY, OK
ARBOR PARKS AND WOODRIDGE APARTMENTS - DALLAS AND FORT WORTH, TX
BLUFF CREEK APARTMENTS I - OKLAHOMA CITY, OK
BLUFF CREEK APARTMENTS II - OKLAHOMA CITY, OK
BOARDWALK APARTMENTS - OKLAHOMA CITY, OK
CLACKAMAS TRAIL APARTMENTS - CLACKAMAS, OR
EL TORO BLANCO APARTMENTS - COLORADO SPRINGS, CO
FALLS APARTMENTS - COLORADO SPRINGS, CO
FARONIA SQUARE APARTMENTS - MEMPHIS, TN
GENEVA VILLAGE APARTMENTS - WEST JORDAN, UT
GRAND FORKS MULTIFAMILY - GRAND FORKS, ND
GREEN VALLEY APARTMENTS I - RICHARDSON, TX
GREEN VALLEY APARTMENTS II - RICHARDSON, TX
HARPERS FERRY APARTMENTS - LAFAYETTE, LA
HERITAGE PARK APARTMENTS - LIVERPOOL, NY
HUNTINGTON HILLS APARTMENTS - MANKATO, MN
JOHANSON ARMS APARTMENTS - KINGSBURG, CA
MAPLE VILLAGE APARTMENTS - AMERICAN FORK, UT
MEADOWVIEW APARTMENTS - WEST JORDAN, UT
MERIDIAN POINTE APARTMENTS - KALISPELL, MT
MISSION VILLAGE APARTMENTS - TUCSON, AZ
PARKWAY VILLAGE APARTMENTS - WEST JORDAN, UT
QUAIL LAKES APARTMENTS I - OKLAHOMA CITY, OK
QUAIL LAKES APARTMENTS II - OKLAHOMA CITY, OK
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
TRADEWINDS I - DALLAS, TX
VALLEY MANOR APARTMENTS - HASTINGS, MN
WESTREE APARTMENTS - COLORADO SPRINGS, CO
WESTREE APARTMENTS II - COLORADO SPRINGS, CO
--------------------------------------------------------------------------------
16 2000 Annual Report - American Strategic Income Portfolio III
<PAGE>
INVESTMENTS IN SECURITIES (continued)
--------------------------------------------------------------------------------
Single Family Loans:
ARBOR - 29 LOANS, NEW YORK
BARCLAYS - 6 LOANS, MIDWESTERN UNITED STATES
BAYVIEW FINANCIAL - 4 LOANS, MARYLAND
DELAWARE II - 102 LOANS, TEXAS
FAIRBANKS IV - 20 LOANS, UNITED STATES
FEDERAL MORTGAGE - 2 LOANS, CONNECTICUT
FIRST BOSTON II - 34 LOANS, UNITED STATES, PRIMARILY IN TEXAS
FIRST BOSTON III - 52 LOANS, TEXAS AND FLORIDA
FIRST BOSTON IV - 39 LOANS, TEXAS, OKLAHOMA, AND MASSACHUSETTS
FIRST BOSTON V - 20 LOANS, UNITED STATES
GREENWICH - 6 LOANS, COLORADO
KIDDER PEABODY I - 52 LOANS, UNITED STATES
KIDDER PEABODY II - 2 LOANS, ARIZONA AND COLORADO
KNUTSON III - 13 LOANS, UNITED STATES
MARYLAND NATIONAL - 13 LOANS, UNITED STATES
MERIDIAN IV - 61 LOANS, MIDWESTERN UNITED STATES
MERIDIAN V - 36 LOANS, UNITED STATES
MINNEAPOLIS EMPLOYEES RETIREMENT FUND - 73 LOANS, MINNESOTA
MORTGAGE ACCESS - 2 LOANS, NEW JERSEY
NOMURA - 402 LOANS, CALIFORNIA AND TEXAS
NOMURA III - 150 LOANS, MIDWESTERN UNITED STATES
NORWEST II - 25 LOANS, MIDWESTERN UNITED STATES
NORWEST IV - 27 LOANS, MIDWESTERN UNITED STATES
NORWEST VI - 16 LOANS, MIDWESTERN UNITED STATES
NORWEST VII - 21 LOANS, MIDWESTERN UNITED STATES
NORWEST X - 23 LOANS, MIDWESTERN UNITED STATES
NORWEST XI - 35 LOANS, MIDWESTERN UNITED STATES
NORWEST XII - 31 LOANS, MIDWESTERN UNITED STATES
NORWEST XIII - 16 LOANS, MIDWESTERN UNITED STATES
NORWEST XVI - 3 LOANS, MIDWESTERN UNITED STATES
NORWEST XVII - 9 LOANS, MIDWESTERN UNITED STATES
PRESIDENT HOMES, 93-6E SALES INVENTORY - 2 LOANS, IOWA
PRESIDENT HOMES, 94-1B SALES INVENTORY - 1 LOAN, KANSAS
SEARS MORTGAGE - 8 LOANS, MIDWESTERN UNITED STATES
SHEARSON LEHMAN - 61 LOANS, UNITED STATES
THE CROSSINGS - 4 LOANS, MINNESOTA
(e) SECURITIES PURCHASED AS PART OF A PRIVATE PLACEMENT WHICH HAVE NOT
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES ACT OF 1933 AND ARE CONSIDERED TO BE ILLIQUID. ON MAY 31,
2000, THE TOTAL MARKET VALUE OF THESE INVESTMENTS WAS $271,291,241 OR
108.9% OF TOTAL NET ASSETS.
(f) THIS MONEY MARKET FUND IS ADVISED BY U.S. BANK WHICH ALSO SERVES AS
ADVISOR FOR THE FUND. SEE NOTE 2 IN THE NOTES TO FINANCIAL STATEMENTS
(g) ON MAY 31, 2000, THE COST OF INVESTMENTS IN SECURITIES, INCLUDING REAL
ESTATE OWNED, FOR FEDERAL INCOME TAX PURPOSES WAS $333,115,635. THE
AGGREGATE GROSS UNREALIZED APPRECIATION AND DEPRECIATION OF
INVESTMENTS IN SECURITIES BASED ON THIS COST WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 2,818,491
GROSS UNREALIZED DEPRECIATION ...... (13,459,462)
------------
NET UNREALIZED DEPRECIATION ...... $(10,640,971)
============
</TABLE>
--------------------------------------------------------------------------------
17 2000 Annual Report - American Strategic Income Portfolio III
<PAGE>
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS AND SHAREHOLDERS
AMERICAN STRATEGIC INCOME PORTFOLIO INC. III:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments in
securities, of American Strategic Income Portfolio
Inc. III as of May 31, 2000, and the related statements of
operations and cash flows for the year then ended, the
statements of changes in net assets and the financial
highlights for each of the two years in the period then
ended. These financial statements and financial highlights
are the responsibility of the fund's management. Our
responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
The financial highlights for each of the three years in
the period ended May 31, 1998, were audited by other
auditors whose report dated July 10, 1998, expressed an
unqualified opinion.
We conducted our audits in accordance with auditing
standards generally accepted in the United States. Those
standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements and the financial highlights are free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the financial statements and financial
highlights. Our procedures included examination or
confirmation of securities owned as of May 31, 2000, with
the custodians. An audit also includes assessing the
accounting principles used and significant estimates made
by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of American
Strategic Income Portfolio Inc. III at May 31, 2000, and
the results of its operations and its cash flows for the
year then ended, and changes in its net assets and the
financial highlights for each of the two years in the
period then ended, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
July 12, 2000
--------------------------------------------------------------------------------
18 2000 Annual Report - American Strategic Income Portfolio III
<PAGE>
FEDERAL INCOME TAX INFORMATION
--------------------------------------------------------------------------------
The following per-share information describes the federal
tax treatment of distributions made during the fiscal
year. Distributions for the calendar year will be reported
to you on Form 1099-DIV. Please consult a tax advisor on
how to report these distributions at the state and local
levels.
INCOME DISTRIBUTIONS (TAXABLE AS ORDINARY DIVIDENDS, NONE
QUALIFYING FOR DEDUCTION BY CORPORATIONS)
<TABLE>
<CAPTION>
PAYABLE DATE AMOUNT
------------ -------
<S> <C>
June 23, 1999 .......................... $0.0850
July 28, 1999 .......................... 0.0875
August 25, 1999 ........................ 0.0875
September 22, 1999 ..................... 0.0875
October 27, 1999 ....................... 0.0875
November 23,1999 ....................... 0.0875
December 27, 1999 ...................... 0.0875
January 12, 2000 ....................... 0.0875
February 23, 2000 ...................... 0.0875
March 29, 2000 ......................... 0.0875
April 26, 2000 ......................... 0.0875
May 24, 2000 ........................... 0.0875
-------
Total ................................ $1.0475
=======
</TABLE>
--------------------------------------------------------------------------------
19 2000 Annual Report - American Strategic Income Portfolio III
<PAGE>
SHAREHOLDER UPDATE
--------------------------------------------------------------------------------
ANNUAL MEETING RESULTS
An annual meeting of the fund's shareholders was held on
August 16, 1999. 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* ...................... 20,630,683 54,605
Robert J. Dayton ....................... 20,629,983 55,305
Roger A. Gibson ........................ 20,630,683 54,605
Andrew M. Hunter III ................... 20,629,983 55,305
Leonard W. Kedrowski ................... 20,630,683 54,605
John M. Murphy, Jr. .................... 20,630,550 54,738
Robert L. Spies ........................ 20,630,350 54,938
Joseph D. Strauss ...................... 20,630,167 55,121
Virginia L. Stringer ................... 20,630,167 55,121
</TABLE>
* David Bennett passed away in September, 1999.
(2) The fund's shareholders ratified the selection by the
fund's Board of Directors of Ernst and Young LLP as
the independent public accountants for the fund for
the fiscal year ending May 31, 2000. The following
votes were cast regarding this matter:
<TABLE>
<CAPTION>
SHARES
VOTED SHARES BROKER
"FOR" VOTED "AGAINST" ABSTENTIONS NON-VOTES
---------- ----------------- ----------- ---------
<S> <C> <C> <C>
20,623,885 27,830 33,572 --
</TABLE>
SHARE REPURCHASE PROGRAM
Your fund's board of directors has approved the
continuation of 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 September 9,
1998.
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 per share, remaining shares
outstanding may experience a slight increase in net asset
value per share. 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 upon six months notice to shareholders. Share
repurchases are not mandatory when fund shares are trading
at a
--------------------------------------------------------------------------------
20 2000 Annual Report - American Strategic Income Portfolio III
<PAGE>
Shareholder Update (continued)
--------------------------------------------------------------------------------
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
shareholder report.
HOW WILL SHARES BE REPURCHASED?
We expect to finance the repurchase of shares by
liquidating portfolio securities or using current cash
balances. We do not anticipate borrowing in order to
finance share repurchases.
TERMS AND CONDITIONS OF THE DIVIDEND REINVESTMENT PLAN
As a shareholder, you may choose to participate in the
Dividend Reinvestment Plan. It's a convenient and
economical way to buy additional shares of the fund by
automatically reinvesting dividends and capital gains. The
plan is administered by EquiServe, the plan agent.
ELIGIBILITY/PARTICIPATION
You may join the plan at any time. Reinvestment of
distributions will begin with the next distribution paid,
provided your request is received at least 10 days before
the record date for that distribution.
If your shares are in certificate form, you may join the
plan directly and have your distributions reinvested in
additional shares of the fund. To enroll in this plan,
call EquiServe 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
EquiServe at least 10 days before the next dividend and/or
capital gains distribution.
PLAN ADMINISTRATION
Beginning no more than five business days before the
dividend payment date, EquiServe 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, EquiServe will accept payment of
the dividend, or the remaining portion, in authorized but
unissued shares of the fund. These shares will be issued
at a per-share price equal to the higher of (a) the NAV
per share as of the close of business on the payment date
or (b) 95% of the closing market price per share on the
payment date.
By participating in the dividend reinvestment plan, you
may receive benefits not available to shareholders who
elect not to participate. For example, if the market price
plus commissions of the fund's shares is 5% or more above
the NAV, you will receive shares at a discount of up to 5%
from the current market value. However, if the market
price plus commissions is below the NAV, you will receive
distributions in share's with an NAV greater than the
value of any cash distributions you would have received.
--------------------------------------------------------------------------------
21 2000 Annual Report - American Strategic Income Portfolio III
<PAGE>
Shareholder Update (continued)
--------------------------------------------------------------------------------
There is no direct charge for reinvestment of dividends
and capital gains, since EquiServe 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.
EquiServe 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 EquiServe in noncertificated form
in your name.
TAX INFORMATION
Distributions invested in additional shares of the fund
are subject to income tax, to the same extent as if
received as cash. When shares are issued by the fund at a
discount from market value, shareholders will be treated
as having received distributions of an amount equal to the
full market value of those shares. Shareholders, as
required by the Internal Revenue Service, will receive
Form 1099 regarding the federal tax status of the prior
year's distributions.
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 EquiServe. If your shares are
registered in your brokerage firm's name, you may
terminate your participation via verbal or written
instructions to your investment professional. Written
instructions should include your name and address as they
appear on the certificate or account.
If notice is received at least 10 days before the record
date, all future distributions will be paid directly to
the shareholder of record.
If your shares are issued in certificate form and you
discontinue your participation in the plan, you (or your
nominee) will receive an additional certificate for all
full shares and a check for any fractional shares in your
account.
PLAN AMENDMENT/TERMINATION
The fund reserves the right to amend or terminate the
plan. Should the plan be amended or terminated,
participants will be notified in writing at least 90 days
before the record date for such dividend or distribution.
The plan may also be amended or terminated by EquiServe
with at least 90 days written notice to participants in
the plan.
Any questions about the plan should be directed to your
investment professional or to EquiServe LP, P.O. Box 8218,
Boston, Massachusetts 02266, 1-800-543-1627.
--------------------------------------------------------------------------------
22 2000 Annual Report - American Strategic Income Portfolio III
<PAGE>
[LOGO] FIRST AMERICAN-Registered Trademark-
ASSET MANAGEMENT
AMERICAN STRATEGIC INCOME PORTFOLIO III
2000 ANNUAL REPORT
[LOGO] This document is printed on paper
containing 30% post-consumer waste.
7/2000 3043-00
