<Page>
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hours per response....... 5.0
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-7444
---------------------------------------------
American Strategic Income Portfolio Inc. III
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
800 Nicollet Mall Minneapolis, MN 55402
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Robert H. Nelson 800 Nicollet Mall Minneapolis, MN 55402
- -------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 800-677-3863
----------------------------
Date of fiscal year end: May 31, 2003
--------------------------
Date of reporting period: May 31, 2003
-------------------------
Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its
regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street,
NW, Washington, DC 20549-0609. The OMB has reviewed this collection of
information under the clearance requirements of 44 U.S.C. Section 3507.
<Page>
Item 1. Report to Shareholders
<Page>
[GRAPHIC]
[FIRST AMERICAN(TM) LOGO]
AMERICAN STRATEGIC INCOME PORTFOLIO INC. III
CSP
MAY 31, 2003
ANNUAL REPORT
<Page>
[FIRST AMERICAN(TM) LOGO]
AMERICAN STRATEGIC INCOME PORTFOLIO INC. III
PRIMARY INVESTMENTS
American Strategic Income Portfolio Inc. III (the "Fund") invests in
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
U.S. government securities and corporate debt securities. The Fund borrows
through the use of reverse repurchase agreements and revolving credit
facilities. Use of borrowing and certain other investments and investment
techniques may cause the Fund's net asset value ("NAV") 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 objectives.
OUR IMAGE-GEORGE WASHINGTON
HIS RICH LEGACY AS PATRIOT AND LEADER IS WIDELY RECOGNIZED AS EMBODYING THE
SOUND JUDGMENT, RELIABILITY, AND STRATEGIC VISION THAT ARE CENTRAL TO OUR BRAND.
FASHIONED IN A STYLE REMINISCENT OF AN 18TH CENTURY ENGRAVING, THE ILLUSTRATION
CONVEYS THE SYMBOLIC STRENGTH AND VITALITY OF WASHINGTON, WHICH ARE ATTRIBUTES
THAT WE VALUE AT FIRST AMERICAN.
TABLE OF CONTENTS
2 Fund Overview
7 Financial Statements
11 Notes to Financial Statements
23 Investments in Securities
33 Independent Auditors' Report
34 Federal Income Tax Information
35 Shareholder Update
NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
<Page>
[CHART]
AVERAGE ANNUALIZED TOTAL RETURNS
Based on NAV for the period ended May 31, 2003
<Table>
<Caption>
ONE YEAR FIVE YEAR TEN YEAR
-------- --------- --------
American Strategic Income Portfolio Inc. III 8.44% 8.85% 7.91%
Lehman Brothers Mutual Fund Government/Mortgage Index 9.82% 7.52% 7.22%
</Table>
The average annualized total returns for the Fund are based on the change in its
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 ten-year periods ended May 31, 2003, were 11.01%,
11.63%, and 7.75%, respectively. These returns assume reinvestment of all
distributions and reflect commissions on reinvestment of 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 NAV; therefore, you may be unable to realize the full NAV 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 the Fund 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.
2003 ANNUAL REPORT 1 American Strategic Income Portfolio III
<Page>
FUND OVERVIEW
FUND MANAGEMENT
JOHN WENKER is primarily responsible for the management of the Fund. He has 20
years of financial experience.
CHRIS NEUHARTH, CFA is responsible for the management of the mortgage-backed
securities portion of the Fund. He has 22 years of financial experience.
RUSS KAPPENMAN is responsible for the acquisition and management of the whole
loans portion of the Fund. He has 17 years of financial experience.
FOR THE FISCAL YEAR ENDED MAY 31, 2003, THE FUND HAD A TOTAL RETURN OF 8.44%,
BASED ON ITS NAV. The Fund's benchmark, the Lehman Brothers Mutual Fund
Government/Mortgage Index, had a return of 9.82% during the period.
WHEN COMPARING THE FUND'S RETURN TO ITS BENCHMARK, NOTE THAT THE BENCHMARK IS
COMPRISED OF SECURITIES THAT GENERALLY HAVE NO CEILING, OR "CAP," ON HOW MUCH
THEY CAN APPRECIATE. The Fund is primarily comprised of nonsecuritized
mortgage loans that do not trade in any organized market. Since market
quotations are not readily available for these securities, they are valued
according to a pricing model. The Fund's pricing model for these mortgage
loans contains a maximum price level of 105. In the falling interest-rate
environment experienced during the reporting period, the Fund can be expected
to underperform relative to the benchmark, at least in part, due to the
maximum price level allowed by the pricing model. As Treasury rates fell, an
increasing number of the Fund's loans were valued at the maximum price
allowed by the pricing model, inhibiting further NAV appreciation. As of
May 31, 2003, 87.68% of the Fund's multifamily and commercial loan portfolio
was priced at the maximum level allowed by the pricing model.
A PORTION OF THE FUND'S RETURN DURING THE PERIOD WAS FROM INCOME RELATED TO THE
PAYOFF OF A COMMERCIAL LOAN AND INTEREST INCOME FROM TWO LOANS, EACH HAVING
PARTICIPATING FEATURES. The Fund held a mortgage loan with a $1,363,500 original
principal balance for Mission View, a commercial property. This loan contained a
participating feature that provided $93,201 in participating interest income and
$892,901 in appreciation interest income at payoff. In addition, the Fund held
mortgage loans for Atwood Oceanics Office Building and Timber Ridge Apartments,
which provided $96,770 and $712,200, respectively, in participating interest
income during the period. The combined income from these three loans was
$1,795,072, which amounted to 0.67% of the Fund's return.
THE PERIOD SAW STRENGTH IN THE FIXED-INCOME MARKETS, AS INVESTORS SOUGHT
STABLE, INCOME-ORIENTED INVESTMENTS. Although the fixed-income sector showed
strength overall, real estate
2003 ANNUAL REPORT 2 American Strategic Income Portfolio III
<Page>
markets were fundamentally weaker with demand for multifamily units and
commercial space decreasing over the last 12 months. Typically real estate
markets are a lagging indicator of the economy, taking longer to weaken and
longer to recover than the overall economy. Currently, we do not see an
appreciable increase in demand for apartments or commercial space. We remain
optimistic because, to date, the current decrease in demand is not
accompanied by an oversupply in new construction, as was the case in the
recession of the early 1990s.
IN SPITE OF THE WEAKNESS IN REAL ESTATE MARKETS, THE FUND CURRENTLY HAS NO
MULTIFAMILY OR COMMERCIAL LOANS IN DEFAULT. During the period, the Fund paid
a consistent monthly dividend of 8.75 cents per share. The dividend reserve
for this Fund was at approximately 13.0 cents per share as of the period end.
Generally, we believe that the lower interest-rate environment makes it more
likely that loans will prepay and that reinvestment will be at lower rates.
However, during the reporting period 14 loans in the portfolio paid off with
a net weighted average coupon of 7.76%. We added 10 loans with a net weighted
average coupon of 8.83%. During this fiscal year, the Fund paid out $1.05 per
share in dividends resulting in an annualized distribution
[CHART]
PORTFOLIO COMPOSITION
AS A PERCENTAGE OF TOTAL ASSETS ON MAY 31, 2003
<Table>
Other Assets 2%
Short-Term Securities 1%
U.S. Government Agency Mortgage-Backed Securities 11%
Corporate Notes 8%
Commercial Loans 25%
Multifamily Loans 53%
</Table>
2003 ANNUAL REPORT 3 American Strategic Income Portfolio III
<Page>
rate of 8.29% based on the May 31, 2003, market price. Please keep in mind
that the Fund's distribution rate and dividend reserve levels will fluctuate.
THE FUND CONTINUED TO UTILIZE LEVERAGE (OR BORROWING) DURING THE PERIOD. Low
short-term interest rates allowed the Fund to borrow at attractive rates. The
borrowed money was then invested in higher-yielding mortgage investments,
which added to the income levels in the Fund. While the use of leverage has
resulted in more income for shareholders, it does increase interest-rate risk
in the Fund and will increase the volatility of the Fund's NAV and market
price.
WE BELIEVE THAT THE REAL ESTATE MARKETS WILL CONTINUE TO POSE CHALLENGES AND
THAT THE LOW INTEREST-RATE ENVIRONMENT MAY MEAN CONTINUED LOAN PREPAYMENTS. The
weaker real estate markets could lead to increased levels of default. However,
we continue to diligently manage the credit risk in the Fund and feel that its
current credit profile is acceptable. We believe that as the U.S. economy
improves there should be increased demand for space and that occupancy levels
should rise.
AS YOU ARE PROBABLY AWARE, THE BOARD OF DIRECTORS FOR THE FUND, AS WELL AS
AMERICAN STRATEGIC INCOME PORTFOLIO INC., AMERICAN STRATEGIC INCOME PORTFOLIO
INC. II, AND AMERICAN SELECT PORTFOLIO INC. (COLLECTIVELY, THE "EXISTING
FUNDS"), HAS APPROVED A PROPOSAL TO REORGANIZE THESE FOUR FUNDS INTO THE FIRST
AMERICAN STRATEGIC REAL ESTATE PORTFOLIO, INC., A SPECIALTY FINANCE COMPANY THAT
WOULD ELECT TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST ("REIT").
DELINQUENT LOAN PROFILE
The tables below show the percentages of single-family loans and multifamily or
commercial loans in the portfolio that are 30, 60, 90, or 120 or more days
delinquent as of May 31, 2003, based on the value outstanding.
SINGLE-FAMILY LOANS
<Table>
Current 100.0%
30 Days 0.0%
60 Days 0.0%
90 Days 0.0%
120+ Days 0.0%
</Table>
MULTIFAMILY OR COMMERCIAL LOANS
<Table>
Current 100.0%
30 Days 0.0%
60 Days 0.0%
90 Days 0.0%
120+ Days 0.0%
</Table>
2003 ANNUAL REPORT 4 American Strategic Income Portfolio III
<Page>
Shareholders of the Existing Funds who do not wish to receive shares of the
REIT will have the option, subject to certain limitations, of electing to
exchange their shares for shares of First American Strategic Income Portfolio
Inc., a newly formed closed-end management investment company with investment
policies, restrictions, and strategies substantially similar to those of the
Existing Funds. This transaction is subject to review by the Securities and
Exchange Commission, approval by the Fund's shareholders, and certain other
conditions. There is no assurance that the transaction will be completed.
Thank you for your investment in the Fund and your trust during this
difficult economic environment. If you have any questions about the Fund,
please call us at 800.677.FUND.
Sincerely,
/s/ Mark Jordahl
Mark Jordahl
Chief Investment Officer
U.S. Bancorp Asset Management, Inc.
/s/ John Wenker
John Wenker
Managing Director, Head of Real Estate
U.S. Bancorp Asset Management, Inc.
2003 ANNUAL REPORT 5 American Strategic Income Portfolio III
<Page>
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 the market of
whole loans and participation mortgages as of May 31, 2003. Shaded areas without
values indicate states in which the Fund has invested less than 0.50% of its
assets.
[GRAPHIC]
<Table>
Alabama
Alaska
Arizona 8%
Arkansas
California 13%
Colorado 4%
Connecticut
Delaware
Florida 9%
Georgia 1%
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota 6%
Mississippi
Missouri
Montana
Nebraska
New Hampshire
New Jersey
New Mexico 2%
New York 1%
Nevada 5%
North Carolina
North Dakota
Ohio
Oklahoma 10%
Oregon 1%
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee 2%
Texas 30%
Utah 3%
Vermont
Virginia
Washington 5%
West Virginia
Wisconsin
Wyoming
</Table>
VALUATION OF WHOLE LOAN INVESTMENTS
The Fund's investments in whole loans (single-family, multifamily, and
commercial) and participation mortgages are generally not traded in any
organized market; 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 pricing model designed by U.S. Bancorp
Asset Management, Inc., 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 and participation
mortgages, 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 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 and participation mortgages are
determined no less frequently than weekly. Although we believe the pricing
model to be reasonable and appropriate, the actual values that may be
realized upon the sale of whole loans and participation mortgages can only be
determined in a negotiation between the Fund and third parties.
2003 ANNUAL REPORT 6 American Strategic Income Portfolio III
<Page>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES May 31, 2003
.................................................................................
<Table>
ASSETS:
Investments in securities at value* (note 2)...... $ 323,470,336
Cash in bank on demand deposit.................... 5,014,961
Accrued interest receivable....................... 1,505,150
Other assets...................................... 234,692
--------------
Total assets.................................... 330,225,139
--------------
LIABILITIES:
Reverse repurchase agreements payable (note 2).... 62,505,640
Accrued investment management fee................. 109,632
Accrued administrative fee........................ 56,656
Accrued interest expense.......................... 76,346
Accrued reorganization expenses (notes 3 and 6)... 218,479
Other accrued expenses............................ 24,904
--------------
Total liabilities............................... 62,991,657
--------------
Net assets applicable to outstanding capital
stock......................................... $ 267,233,482
==============
COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital...... $ 298,322,958
Undistributed net investment income............... 2,756,030
Accumulated net realized loss on investments...... (39,418,291)
Unrealized appreciation of investments............ 5,572,785
--------------
Total-representing net assets applicable to
capital stock................................. $ 267,233,482
==============
*Investments in securities at identified cost..... $ 317,897,551
==============
NET ASSET VALUE AND MARKET PRICE OF CAPITAL STOCK:
Net assets outstanding............................ $ 267,233,482
Shares outstanding (authorized 1 billion shares of
$0.01 par value)................................ 21,343,292
Net asset value per share......................... $ 12.52
Market price per share............................ $ 12.67
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
2003 ANNUAL REPORT 7 American Strategic Income Portfolio III
<Page>
FINANCIAL STATEMENTS continued
STATEMENT OF OPERATIONS For the Year Ended May 31, 2003
.................................................................................
<Table>
INCOME:
Interest (net of interest expense of
$3,034,010)..................................... $ 27,332,237
Dividends......................................... 73,316
Dividends from affiliated money market fund....... 49,478
--------------
Total investment income......................... 27,455,031
--------------
EXPENSES (NOTE 3):
Investment management fee......................... 1,732,342
Administrative fee................................ 667,405
Custodian fees.................................... 53,392
Transfer agent fees............................... 57,060
Exchange listing and registration fees............ 303,463
Reports to shareholders........................... 90,590
Mortgage servicing fees........................... 255,232
Directors' fees................................... 93,773
Audit and legal fees.............................. 707,731
Financial advisory and accounting fees............ 571,051
Other expenses.................................... 35,495
--------------
Total expenses.................................. 4,567,534
--------------
Net investment income........................... 22,887,497
--------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS (NOTE 4):
Net realized gain on investments in securities.... 356,292
Net change in unrealized appreciation or
depreciation of investments..................... (1,541,973)
--------------
Net loss on investments......................... (1,185,681)
--------------
Net increase in net assets resulting from
operations.................................. $ 21,701,816
==============
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
2003 ANNUAL REPORT 8 American Strategic Income Portfolio III
<Page>
STATEMENT OF CASH FLOWS For the Year Ended May 31, 2003
.................................................................................
<Table>
CASH FLOWS FROM OPERATING ACTIVITIES:
Investment income................................. $ 27,455,031
Expenses.......................................... (4,567,534)
-------------
Net investment income........................... 22,887,497
-------------
Adjustments to reconcile net investment income to
net cash provided by operating activities:
Net accretion of bond discounts and amortization
of premiums................................... 50,625
Change in accrued interest receivable........... 417,511
Change in accrued fees and expenses............. 43,935
Change in other assets.......................... 421,398
-------------
Total adjustments............................. 933,469
-------------
Net cash provided by operating activities..... 23,820,966
-------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments................ 112,040,797
Purchases of investments.......................... (72,226,566)
Net sales of short-term securities................ 836,951
-------------
Net cash provided by investing activities..... 40,651,182
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments for reverse repurchase agreements.... (36,948,732)
Distributions paid to shareholders................ (22,410,463)
-------------
Net cash used by financing activities......... (59,359,195)
-------------
Net increase in cash.............................. 5,112,953
Bank overdraft at beginning of year............... (97,992)
-------------
Cash at end of year........................... $ 5,014,961
=============
Supplemental disclosure of cash flow information:
Cash paid for interest.......................... $ 3,190,951
=============
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
2003 ANNUAL REPORT 9 American Strategic Income Portfolio III
<Page>
FINANCIAL STATEMENTS continued
STATEMENTS OF CHANGES IN NET ASSETS
.................................................................................
<Table>
<Caption>
YEAR ENDED YEAR ENDED
5/31/03 5/31/02
------------- -------------
OPERATIONS:
Net investment income................... $ 22,887,497 $ 23,080,382
Net realized gain on investments........ 356,292 3,881,376
Net change in unrealized appreciation or
depreciation of investments........... (1,541,973) (737,013)
------------ ------------
Net increase in net assets resulting
from operations..................... 21,701,816 26,224,745
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2):
From net investment income.............. (22,410,463) (22,357,105)
------------ ------------
Total increase (decrease) in net
assets.............................. (708,647) 3,867,640
Net assets at beginning of year......... 267,942,129 264,074,489
------------ ------------
Net assets at end of year............... $267,233,482 $267,942,129
============ ============
Undistributed net investment income..... $ 2,756,030 $ 2,278,996
============ ============
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
2003 ANNUAL REPORT 10 American Strategic Income Portfolio III
<Page>
NOTES TO FINANCIAL STATEMENTS
(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 U.S. government securities and corporate debt securities. 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
.............................
SECURITY VALUATIONS
Security valuations for the Fund's investments (other than whole
loans) are furnished by one or more independent pricing services
that have been approved by the Fund's board of directors.
Investments in equity securities that are traded on a national
securities exchange (or reported on the NASDAQ national market
system) are stated at the last quoted sales price if readily
available for such securities on each business day. For
securities traded on the NASDAQ national market system, the Fund
utilizes the NASDAQ Official Closing Price which compares the
last trade to the bid/ask price of a security. If the last trade
is outside the bid/ask range, and falls above the ask, the ask
price will be the closing price. If the last trade is below the
bid, the bid will be the closing price. Other equity securities
traded in the over-the-counter market and listed equity
securities for which no sale was reported on that date are
stated at the last quoted bid price.
Debt obligations exceeding 60 days to maturity are valued by an
independent pricing service. The pricing service may employ
methodologies that utilize actual
2003 ANNUAL REPORT 11 American Strategic Income Portfolio III
<Page>
NOTES TO FINANCIAL STATEMENTS continued
market transactions, broker-dealer supplied valuations, or other
formula driven valuation techniques. These techniques generally
consider such factors as yields or prices of bonds of comparable
quality, type of issue, coupon, maturity, ratings, and general
market conditions. 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. When market quotations are not
readily available, securities are valued at fair value as
determined in good faith by procedures established and approved
by the Fund's board of directors. Debt obligations with 60 days
or less remaining until maturity may be valued at their
amortized cost which approximates market value. Security
valuations are performed once a week and at the end of each
month.
The Fund's investments in whole loans (single family,
multifamily, and commercial) and participation mortgages 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
U.S. Bancorp Asset Management, Inc. ("USBAM") 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
2003 ANNUAL REPORT 12 American Strategic Income Portfolio III
<Page>
or participation mortgages, 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 and participation mortgages are
determined no less frequently than weekly. Although we believe
the pricing model to be reasonable and appropriate, the actual
values that may be realized upon the sale of whole loans and
participation mortgages can only be determined in a negotiation
between the Fund and third parties.
As of May 31, 2003, the Fund held fair valued securities with a
fair value of $285,590,965 or 106.9% of total net assets.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are accounted for on the date securities
are purchased or sold. Realized gains and losses are calculated
on the identified-cost basis. Dividend income is recorded on the
ex-dividend date. Interest income, including accretion of bond
discounts and amortization of premiums, 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
2003 ANNUAL REPORT 13 American Strategic Income Portfolio III
<Page>
NOTES TO FINANCIAL STATEMENTS continued
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.
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. At May 31, 2003, no loans were 60 or more days
delinquent as to the timely monthly payment of principal and
interest.
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. As of and for the year ended May 31, 2003, the Fund owned
no real estate.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements involve the sale of a
portfolio-eligible security by the Fund, coupled with an
2003 ANNUAL REPORT 14 American Strategic Income Portfolio III
<Page>
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
fiscal year ended May 31, 2003, the weighted average borrowings
outstanding were $89,559,218 and the weighted average interest
rate was 3.04%.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities that have been purchased by
the Fund on a when-issued or forward-commitment basis can take
place a month or more after the transaction date. During this
period, such securities do not earn interest, are subject to
market fluctuation, and may increase or decrease in value prior
to their delivery. The Fund segregates, with its custodian,
assets with a market value equal to the amount of its purchase
commitments. The purchase of securities on a when-issued or
forward-commitment basis may increase the volatility of the
Fund's net asset value if the Fund makes such purchases while
remaining substantially fully invested. As of May 31, 2003, 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
2003 ANNUAL REPORT 15 American Strategic Income Portfolio III
<Page>
NOTES TO FINANCIAL STATEMENTS continued
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.
Net investment income and net realized gains and losses may
differ for financial statement and tax purposes primarily
because of the timing of recognition of income on certain debt
securities. 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.
The tax character of distributions paid during the fiscal years
ended May 31, 2003 and 2002 was as follows:
<Table>
<Caption>
2003 2002
----------- -----------
Distribution paid from ordinary
income................................ $22,410,463 $22,357,105
=========== ===========
</Table>
At May 31, 2003, the components of accumulated earnings
(deficit) on a tax basis were as follows:
<Table>
Undistributed ordinary income..................... $ 2,756,030
Accumulated realized losses on investments........ (35,362,038)
Unrealized appreciation of investments............ 1,516,532
-------------
Accumulated deficit............................... $ (31,089,476)
=============
</Table>
The difference between book basis and tax basis unrealized
appreciation and accumulated realized losses is attributable to
a one time tax election whereby the Fund marked appreciated
securities to market creating capital gains that were used to
reduce capital loss carryovers and increase tax cost basis.
Due to permanent book-to-tax differences, the following
reclassifications have been made on the Statement of Assets and
Liabilities:
<Table>
<Caption>
ACCUMULATED NET ADDITIONAL
REALIZED LOSS PAID-IN CAPITAL
- --------------- ---------------
$13,980,645 $(13,980,645)
</Table>
2003 ANNUAL REPORT 16 American Strategic Income Portfolio III
<Page>
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 balance 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 USBAM.
2003 ANNUAL REPORT 17 American Strategic Income Portfolio III
<Page>
NOTES TO FINANCIAL STATEMENTS continued
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.
(3) EXPENSES
.............................
INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES
Pursuant to an investment advisory agreement (the "Agreement"),
USBAM, a subsidiary of U.S. Bank National Association ("U.S.
Bank") manages the Fund's assets and furnishes related office
facilities, equipment, research, and personnel. The Agreement
provides USBAM with a monthly investment management fee 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 accretion
of bond discounts and amortization of premiums, 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 fiscal year ended May 31, 2003, the effective investment
management fee incurred by the Fund was 0.65%. For its fee,
USBAM provides investment advice and, in general, conducts the
management and investment activities of the Fund.
Pursuant to a co-administration agreement (the
"Co-Administration Agreement"), USBAM serves as co-administrator
for the Fund (U.S. Bancorp Fund Services, LLC, a subsidiary of
U.S. Bancorp is also co-administrator but currently has no
functional
2003 ANNUAL REPORT 18 American Strategic Income Portfolio III
<Page>
responsibilities related to the Fund) and provides
administrative services, including legal and shareholder
services, to the Fund. Under the Co-Administration Agreement,
USBAM receives a monthly administrative fee equal to an
annualized rate of 0.25% of the Fund's average weekly net
assets. For its fee, USBAM provides numerous services to the
Fund including, but not limited to, handling the general
business affairs, financial and regulatory reporting and various
record-keeping services. Separate from the Co-Administration
Agreement, USBAM (from its own resources) has retained SEI
Investments, Inc. as a sub-administrator to perform, among other
services, net asset value calculations.
The Fund may invest in money market funds that are series of
First American Funds, Inc. ("FAF"), subject to certain
limitations. The terms of such investments are identical to
those of investments by non-related entities except that, to
avoid duplicative investment advisory fees, USBAM reimburses the
Fund an amount equal to the investment advisory fee paid by FAF
to USBAM related to such investments. For financial statement
purposes, this reimbursement is recorded as investment income.
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.
PROPOSED REORGANIZATION EXPENSES
As discussed in Note 6, the Fund has taken certain steps to
reorganize along with certain other similar entities
2003 ANNUAL REPORT 19 American Strategic Income Portfolio III
<Page>
NOTES TO FINANCIAL STATEMENTS continued
managed by USBAM. As set forth below, certain costs and expenses
incurred in connection with the proposed reorganization of the
Fund (including, but not limited to, the preparation of all
necessary registration statements, proxy materials and other
documents, preparation for and attendance at board and
committee, shareholder, planning, organizational, and other
meetings, and costs and expenses of accountants, attorneys,
financial advisors, and other experts engaged in connection with
the reorganization) shall be borne by the Fund, American
Strategic Income Portfolio Inc., American Strategic Income
Portfolio Inc. II, and American Select Portfolio Inc.
(collectively, the "Existing Funds"). The Existing Funds as a
group will bear the first $3,400,000 of such expenses and will,
subject to certain exceptions, equally share all transaction
expenses in excess of $3,400,000 with USBAM. Such costs and
expenses will be allocated among the Existing Funds based on
their relative net asset values whether or not an Existing Fund
participates in the reorganization. Additionally, costs and
expenses incurred in connection with the legal representation of
USBAM's interests with respect to the reorganization and related
matters will be borne by USBAM. The current estimated costs and
expenses related to the reorganization are $4,500,000. Based on
the net asset values of the Existing Funds as of May 31, 2003,
the Fund would bear approximately 40% of the total expenses of
the reorganization. During the fiscal year ended May 31, 2003,
the Fund incurred $1,584,337 in reorganization expenses.
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
2003 ANNUAL REPORT 20 American Strategic Income Portfolio III
<Page>
fees, exchange listing and registration fees, printing and
shareholder reports, transfer agent fees and expenses, financial
advisory, 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 fiscal year ended May 31, 2003, fees for custody
services were paid to U.S. Bank.
(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 fiscal year ended May 31, 2003, aggregated
$72,175,941 and $112,040,797, respectively. Included in proceeds
from sales are $561,380 from prepayment penalties.
(5) CAPITAL LOSS CARRYOVER
.............................
For federal income tax purposes, the Fund had capital loss
carryovers at May 31, 2003, which, if not offset by subsequent
capital gains, will expire on the Fund's fiscal year-ends as
indicated below.
<Table>
<Caption>
CAPITAL LOSS
CARRYOVER EXPIRATION
- ------------ ----------
$34,420,675 2004
871,623 2005
69,740 2008
- -----------
$35,362,038
===========
</Table>
(6) PROPOSED
REORGANIZATION
.............................
A combined proxy statement/registration statement, last amended
on April 22, 2003, has been filed with the Securities and
Exchange Commission ("SEC") in which it is proposed that the
Fund, along with American Strategic Income Portfolio Inc.
("ASP"), American Strategic Income Portfolio Inc. II ("BSP"),
and American Select Portfolio Inc. ("SLA"), reorganize into
First American Strategic Real Estate Portfolio, Inc., a
2003 ANNUAL REPORT 21 American Strategic Income Portfolio III
<Page>
NOTES TO FINANCIAL STATEMENTS continued
specialty real estate finance company that would elect to be
taxed as a real estate investment trust ("REIT"). Shareholders
of the Fund, ASP, BSP and SLA who do not wish to receive shares
of the REIT will have the option, subject to certain
limitations, of electing to exchange their shares for shares in
First American Strategic Income Portfolio Inc., a newly formed
closed-end management investment company with investment
policies, restrictions and strategies substantially similar to
those of the Fund, ASP, BSP and SLA. This transaction is subject
to review by the SEC, approval by the Fund's shareholders, and
certain other conditions. There is no assurance that the
transaction will be completed.
2003 ANNUAL REPORT 22 American Strategic Income Portfolio III
<Page>
(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:
AMERICAN STRATEGIC INCOME PORTFOLIO III
<Table>
<Caption>
YEAR ENDED MAY 31,
--------------------------------------
2003 2002 2001 2000 1999
------ ------ ------ ------ ------
PER-SHARE DATA
Net asset value, beginning of period.... $12.55 $12.37 $11.67 $12.25 $12.46
------ ------ ------ ------ ------
Operations:
Net investment income................. 1.07 1.08 1.02 1.00 1.05
Net realized and unrealized gains
(losses) on investments............. (0.05) 0.15 0.70 (0.53) (0.24)
------ ------ ------ ------ ------
Total from operations............... 1.02 1.23 1.72 0.47 0.81
------ ------ ------ ------ ------
Distributions to shareholders:
From net investment income............ (1.05) (1.05) (1.02) (1.05) (1.02)
------ ------ ------ ------ ------
Net asset value, end of period.......... $12.52 $12.55 $12.37 $11.67 $12.25
====== ====== ====== ====== ======
Market value, end of period............. $12.67 $12.43 $11.88 $10.56 $11.88
====== ====== ====== ====== ======
SELECTED INFORMATION
Total return, net asset value (a)....... 8.44% 10.29% 15.28% 3.99% 6.61%
Total return, market value (b).......... 11.01% 14.04% 23.05% (2.20)% 13.80%
Net assets at end of period (in
millions)............................. $ 267 $ 268 $ 264 $ 249 $ 292
Ratio of expenses to average weekly net
assets including interest expense..... 2.85% 2.30% 3.43% 3.55% 3.39%
Ratio of expenses to average weekly net
assets excluding interest expense..... 1.71% 1.15% 1.16% 1.21% 1.19%
Ratio of net investment income to
average weekly net assets............. 8.55% 8.68% 8.44% 8.30% 8.39%
Portfolio turnover rate (excluding
short-term securities)................ 20% 42% 23% 28% 44%
Amount of borrowings outstanding at end
of period (in millions)............... $ 63 $ 99 $ 72 $ 76 $ 132
Per-share amount of borrowings
outstanding at end of period.......... $ 2.93 $ 4.66 $ 3.39 $ 3.54 $ 5.53
Per-share amount of net assets,
excluding borrowings, at end of
period................................ $15.45 $17.21 $15.76 $15.21 $17.78
Asset coverage ratio (c)................ 527% 369% 465% 430% 322%
</Table>
(a) Assumes reinvestment of distributions at net asset value.
(b) Assumes reinvestment of distributions at actual prices pursuant to the
Fund's dividend reinvestment plan.
(c) Represents net assets, excluding borrowings, at end of period divided by
borrowings outstanding at end of period.
2003 ANNUAL REPORT 23 American Strategic Income Portfolio III
<Page>
INVESTMENTS IN SECURITIES
<Table>
<Caption>
AMERICAN STRATEGIC INCOME PORTFOLIO III May 31, 2003
Date Par
Description of Security Acquired Value Cost Value (a)
- ------------------------------ -------- ---------------- ------------ ------------
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (b) (13.3%):
FIXED RATE (13.3%):
FHLMC, 5.50%,
1/1/18.............. $ 13,733,270 $ 14,211,800 $ 14,222,179
FHLMC, 9.00%,
7/1/30.............. 2,012,884 2,067,310 2,178,323
FNMA, 6.00%,
10/1/16............. 1,700,255 1,710,850 1,771,429
FNMA, 5.50%, 2/1/17... 2,196,331 2,190,344 2,281,184
FNMA, 5.50%, 6/1/17... 1,566,172 1,575,087 1,626,683
FNMA, 5.00%, 9/1/17... 1,696,695 1,701,814 1,761,025
FNMA, 5.00%,
11/1/17............. 2,838,470 2,855,506 2,946,091
FNMA, 6.50%, 6/1/29... 4,943,437 4,908,942 5,162,827
FNMA, 7.50%, 4/1/30... 785,115 758,078 836,391
FNMA, 7.50%, 5/1/30... 1,086,038 1,048,713 1,156,967
FNMA, 8.00%, 5/1/30... 348,710 344,207 375,952
FNMA, 8.00%, 6/1/30... 1,100,408 1,086,194 1,186,372
------------ ------------
Total U.S. Government
Agency
Mortgage-Backed
Securities.......... 34,458,845 35,505,422
------------ ------------
CORPORATE NOTES (e) (9.9%):
FIXED RATE (9.9%):
Lone Star Fund III,
8.00%, 3/30/04...... 06/04/01 15,000,000 14,977,937 15,111,000
Oly Holigan, LP,
9.25%, 1/1/04....... 12/26/00 4,000,000 4,000,000 4,000,000
Oly McKinney, 9.25%,
8/31/04............. 11/09/01 7,500,000 7,500,000 7,500,000
------------ ------------
Total Corporate
Notes............... 26,477,937 26,611,000
------------ ------------
PRIVATE MORTGAGE-BACKED SECURITY (e) (0.0%):
FIXED RATE (0.0%):
First Gibralter,
Series 1992-MM,
Class B, 8.79%,
10/25/21............ 07/30/93 514,469 236,460 --
------------ ------------
</Table>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
2003 ANNUAL REPORT 24 American Strategic Income Portfolio III
<Page>
<Table>
<Caption>
AMERICAN STRATEGIC INCOME PORTFOLIO III
(CONTINUED)
Date Par
Description of Security Acquired Value Cost Value (a)
- ------------------------------ -------- ---------------- ------------ ------------
WHOLE LOANS AND PARTICIPATION MORTGAGES (c,d,e) (97.0%):
COMMERCIAL LOANS (31.6%):
1200 Washington,
9.65%, 12/1/05........ 11/21/00 $ 2,874,483 $ 2,874,483 $ 2,960,717
4295/4299 San Felipe
Associates LP,
9.33%, 8/1/06......... 11/01/02 5,130,197 5,130,197 5,335,405
Academy Spectrum,
7.73%, 5/1/09......... 12/18/02 5,235,183(b) 5,235,183 5,496,942
Atwood Oceanics I,
7.29%, 6/1/04......... 05/22/01 2,900,000(b) 2,900,000 2,958,000
Atwood Oceanics II,
9.88%, 6/1/04......... 05/22/01 720,000 720,000 697,580
Blacklake Place I and
II,
8.66%, 9/1/07......... 08/12/97 4,324,877(b) 4,324,877 4,541,121
Blacklake Place III,
8.66%, 9/1/07......... 08/12/97 2,162,438(b) 2,162,438 2,270,560
Brookhollow West and
Northwest Technical
Center,
8.11%, 12/1/03........ 11/01/01 2,385,999(b) 2,385,999 2,385,999
CUBB Properties Mobile
Home Park,
8.03%, 11/1/07........ 11/04/97 2,542,367 2,542,367 2,669,486
Denmark House Office
Building I,
8.80%, 2/1/05......... 01/28/00 5,400,000 5,400,000 5,400,000
Denmark House Office
Building II,
11.38%, 2/1/05........ 01/28/00 1,060,000 1,060,000 1,078,373
Duncan Office Building,
7.88%, 6/1/08......... 05/19/98 658,326 658,326 691,243
France Avenue Business
Park II,
7.40%, 10/1/12........ 09/12/02 4,577,626(b) 4,577,626 4,806,507
</Table>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
2003 ANNUAL REPORT 25 American Strategic Income Portfolio III
<Page>
INVESTMENTS IN SECURITIES continued
<Table>
<Caption>
AMERICAN STRATEGIC INCOME PORTFOLIO III
(CONTINUED)
Date Par
Description of Security Acquired Value Cost Value (a)
- ------------------------------ -------- ---------------- ------------ ------------
Holiday Village Shopping
Center,
7.15%, 11/1/07........ 11/12/02 $ 4,871,590(b) $ 4,871,590 $ 5,115,170
Indian Street Shoppes,
7.88%, 2/1/09......... 01/27/99 2,206,627(b) 2,206,627 2,316,958
Jackson Street
Warehouse,
8.53%, 7/1/07......... 06/30/98 2,842,502(b) 2,842,502 2,984,627
Jefferson Office
Building,
7.38%, 12/1/13........ 11/05/98 932,569 932,569 979,197
Kimball Professional
Office Building,
7.88%, 7/1/08......... 07/02/98 2,175,728(b) 2,175,728 2,284,514
Lake Pointe Corporate
Center,
8.57%, 7/1/07......... 07/07/97 3,618,622(b) 3,618,622 3,799,553
LAX Air Freight Center,
7.90%, 1/1/08......... 12/29/97 3,170,779(b) 3,170,779 3,329,318
NCGR Office Building,
8.65%, 2/1/06......... 01/08/01 4,236,669(b) 4,236,669 4,363,770
North Austin Business
Center,
9.05%, 5/1/07......... 04/10/97 2,842,556(b) 2,842,555 2,984,683
Pacific Shores Mobile
Home Park II,
11.00%, 10/1/06....... 09/27/96 578,916 576,022 607,862
Pilot Knob Service
Center,
8.95%, 7/1/07......... 06/20/97 1,401,552(b) 1,401,552 1,471,630
PMG Plaza,
8.95%, 4/1/04......... 03/20/97 2,377,196(b) 2,377,196 2,400,968
Rancho Bernardo
Financial Plaza,
8.88%, 1/1/05......... 12/26/00 2,380,000 2,380,000 2,320,859
Rockwall Technology
Building I,
7.40%, 11/1/06........ 10/16/02 3,800,000(b) 3,800,000 3,952,000
Rockwall Technology
Building II,
9.58%, 11/1/06........ 10/16/02 1,100,000 1,100,000 969,721
</Table>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
2003 ANNUAL REPORT 26 American Strategic Income Portfolio III
<Page>
<Table>
<Caption>
AMERICAN STRATEGIC INCOME PORTFOLIO III
(CONTINUED)
Date Par
Description of Security Acquired Value Cost Value (a)
- ------------------------------ -------- ---------------- ------------ ------------
Shoppes at Jonathan's
Landing,
7.95%, 5/1/10......... 04/12/00 $ 2,919,168(b) $ 2,919,168 $ 3,065,127
------------ ------------
81,423,075 84,237,889
------------ ------------
MULTIFAMILY LOANS (65.0%):
Ambassador House
Apartments,
8.10%, 2/1/10......... 01/05/00 3,399,624(b) 3,399,624 3,569,605
Barclay Square
Apartments,
7.83%, 9/1/04......... 08/21/01 8,800,000 8,800,000 8,403,266
Bellewood Apartments,
9.13%, 12/1/05........ 06/13/01 1,980,325 1,980,325 2,019,932
Boardwalk Apartments,
7.33%, 2/1/08......... 01/16/98 5,086,394(b) 5,086,394 5,340,714
Brays Village
Apartments,
9.88%, 4/1/05......... 03/15/02 1,394,000 1,394,000 1,394,000
Clearwater Creek
Apartments,
9.93%, 3/1/08......... 02/18/03 8,920,000 8,920,000 8,920,000
Concorde Apartments,
6.28%, 5/1/10......... 04/30/03 4,900,000 4,900,000 5,145,000
Country Place Village I,
6.93%, 3/1/05......... 02/06/02 10,300,000 10,300,000 10,506,000
Country Place Village
II,
9.88%, 3/1/05......... 02/06/02 2,300,000 2,300,000 2,065,535
Geneva Village
Apartments,
9.38%, 11/1/04........ 10/14/94 875,594 872,367 893,106
Grand Courtyard
Apartment I,
7.18%, 11/1/03........ 10/15/01 19,125,000 19,125,000 19,125,000
Grand Courtyard
Apartment II,
9.90%, 11/1/03........ 10/15/01 4,490,000 4,490,000 3,961,303
Granite Lake Apartments
I,
6.68%, 5/1/05......... 04/26/02 12,450,000 12,450,000 12,699,000
Granite Lake Apartments
II,
11.88%, 5/1/05........ 04/26/02 778,000 778,000 733,573
Hartford Apartments,
14.88%, 6/1/05........ 06/24/02 2,290,000 2,290,000 2,358,700
</Table>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
2003 ANNUAL REPORT 27 American Strategic Income Portfolio III
<Page>
INVESTMENTS IN SECURITIES continued
<Table>
<Caption>
AMERICAN STRATEGIC INCOME PORTFOLIO III
(CONTINUED)
Date Par
Description of Security Acquired Value Cost Value (a)
- ------------------------------ -------- ---------------- ------------ ------------
Maple Village
Apartments,
9.38%, 11/1/04........ 10/14/94 $ 914,990 $ 911,566 $ 933,289
Meadowview Apartments,
9.38%, 11/1/04........ 10/14/94 649,274 647,179 662,259
Meridian,
8.93%, 9/1/04......... 08/22/01 16,465,384 16,465,384 16,465,384
Meridian Pointe
Apartments,
8.73%, 2/1/12......... 03/07/97 1,134,912 1,134,912 1,191,658
Northaven Terrace
Apartments,
7.43%, 6/1/07......... 05/07/02 6,798,239(b) 6,798,239 7,138,151
Park Lane Townhomes I,
7.18%, 12/1/04........ 11/29/01 12,600,000(b) 12,600,000 12,852,000
Park Lane Townhomes II,
11.88%, 12/1/04....... 11/29/01 800,000 800,000 763,240
Park Woods Apartments,
19.88%, 3/1/05........ 02/05/02 1,300,000 1,300,000 1,326,000
Parkway Village
Apartments,
9.38%, 11/1/04........ 10/14/94 630,191 628,191 642,795
Riverbrook Apartments I,
8.55%, 3/1/10......... 03/01/00 2,972,428(b) 2,972,428 3,121,050
Riverbrook Apartments
II,
10.88%, 3/1/10........ 02/13/01 318,977 318,977 334,926
Rose Park Apartments,
9.38%, 11/1/04........ 10/14/94 401,667 400,447 409,700
Shelter Island
Apartments,
7.63%, 12/1/08........ 11/04/98 12,853,538(b) 12,853,538 13,496,215
Southlake Villa
Apartments,
9.38%, 11/1/04........ 10/14/94 317,441 316,225 323,789
Tulsa Apartment
Portfolio I,
9.93%, 3/1/07......... 02/27/03 6,790,000 6,790,000 7,061,600
Tulsa Apartment
Portfolio II,
9.93%, 3/1/07......... 02/27/03 6,130,000 6,130,000 5,785,667
Valley Manor Apartments,
8.35%, 11/1/05........ 07/14/98 3,494,146(b) 3,494,146 3,598,971
Warwick West Apartments
II,
9.90%, 7/1/04......... 06/27/01 2,856,000 2,856,000 2,766,889
WesTree Apartments,
8.90%, 11/1/10........ 10/12/00 4,764,262(b) 4,764,262 5,002,475
</Table>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
2003 ANNUAL REPORT 28 American Strategic Income Portfolio III
<Page>
<Table>
<Caption>
AMERICAN STRATEGIC INCOME PORTFOLIO III
(CONTINUED)
Date Par Value/ Market Value
Description of Security Acquired Shares Cost (a)
- ------------------------------ -------- ---------------- ------------ ------------
Willamette Oaks,
9.15%, 12/1/05........ 06/13/01 $ 2,574,423 $ 2,574,423 $ 2,625,911
------------ ------------
171,841,627 173,636,702
------------ ------------
SINGLE FAMILY LOANS (0.4%):
Arbor, 9.27%,
8/16/17............. 02/16/96 1,105,374 1,107,912 1,105,374
------------ ------------
Total Whole Loans and
Participation
Mortgages........... 254,372,614 258,979,965
------------ ------------
PREFERRED STOCKS (0.2%):
REAL ESTATE INVESTMENT TRUSTS (0.2%):
AMB Property.......... 5,000 125,399 126,550
Archstone Community
Trust, Series D..... 3,525 91,862 95,845
CarrAmerica Realty
Trust, Series B..... 665 15,807 16,825
CarrAmerica Realty
Trust, Series C..... 5,000 117,737 125,950
CarrAmerica Realty
Trust, Series D..... 5,000 118,823 126,000
Duke Realty
Investments, Series
E................... 625 15,506 16,219
------------ ------------
Total Preferred
Stocks.............. 485,134 507,388
------------ ------------
RELATED PARTY MONEY MARKET FUND (f) (0.7%):
First American Prime
Obligations Fund...... 1,866,561 1,866,561 1,866,561
------------ ------------
Total Investments in
Securities (g)...... $317,897,551 $323,470,336
------------ ------------
------------ ------------
</Table>
NOTES TO INVESTMENTS IN SECURITIES:
(a) Securities are valued in accordance with procedures described in note 2 in
Notes to Financial Statements.
2003 ANNUAL REPORT 29 American Strategic Income Portfolio III
<Page>
INVESTMENTS IN SECURITIES continued
(b) On May 31, 2003, securities valued at $148,552,050 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
- --------------------- ----------- -------- -------- -------- ---------------
$33,005,640 5/15/03 1.33%* 6/10/03 $20,729 (1)
29,500,000 5/1/03 2.19%** 6/2/03 55,617 (2)
----------- -------
$62,505,640 $76,346
=========== =======
</Table>
* RATE IS A NEGOTIATED FIXED RATE.
** INTEREST RATE AS OF MAY 31, 2003. RATES ARE BASED ON THE LONDON INTERBANK
OFFERED RATE (LIBOR) AND RESET MONTHLY.
NAME OF BROKER AND DESCRIPTION OF COLLATERAL:
(1) MORGAN STANLEY:
FHLMC, 5.50%, 1/1/18, $12,188,277 PAR
FHLMC, 9.00%, 7/1/30, $2,012,884 PAR
FNMA, 5.00%, 9/1/17, $1,696,695 PAR
FNMA, 5.00%, 11/1/17, $2,838,470 PAR
FNMA, 5.50%, 2/1/17, $2,196,331 PAR
FNMA, 5.50%, 6/1/17, $1,566,172 PAR
FNMA, 6.00%, 10/1/16, $1,700,255 PAR
FNMA, 6.50%, 6/1/29, $4,943,437 PAR
FNMA, 7.50%, 4/1/30, $785,115 PAR
FNMA, 7.50%, 5/1/30, $1,086,038 PAR
FNMA, 8.00%, 5/1/30, $348,710 PAR
FNMA, 8.00%, 6/1/30, $1,100,408 PAR
(2) MORGAN STANLEY:
ACADEMY SPECTRUM, 7.73%, 5/1/09, $5,235,183 PAR
AMBASSADOR HOUSE, 8.10%, 2/1/10, $3,399,624 PAR
ATWOOD OCEANICS I, 7.29%, 6/1/04, $2,900,000 PAR
BLACKLAKE PLACE I AND II, 8.66%, 9/1/07, $4,324,877 PAR
BLACKLAKE PLACE III, 8.66%, 9/1/07, $2,162,438 PAR
BOARDWALK APARTMENTS, 7.33%, 2/1/08, $5,086,394 PAR
BROOKHOLLOW WEST AND NORTHERN TECHNICAL CENTER, 8.11%, 12/1/03,
$2,385,999 PAR
FRANCE AVENUE BUSINESS PARK II, 7.40%, 10/1/12, $4,577,626 PAR
HOLIDAY VILLAGE SHOPPING CENTER, 7.15%, 11/1/07, $4,871,590 PAR
INDIAN STREET SHOPPES, 7.88%, 2/1/09, $2,206,627 PAR
JACKSON STREET WAREHOUSE, 8.53%, 7/1/07, $2,842,502 PAR
KIMBALL PROFESSIONAL OFFICE BUILDING, 7.88%, 7/1/08, $2,175,728 PAR
LAKE POINTE CORPORATE CENTER, 8.57%, 7/1/07, $3,618,622 PAR
LAX AIR FREIGHT CENTER, 7.90%, 1/1/08, 3,170,779 PAR
NCGR OFFICE BUILDING, 8.65%, 2/1/06, $4,236,669 PAR
NORTH AUSTIN BUSINESS CENTER, 9.05%, 5/1/07, $2,842,556 PAR
NORTHHAVEN TERRACE APARTMENTS, 7.43%, 6/1/07, $6,798,239 PAR
PARK LANE TOWNHOMES I, 7.18%, 12/1/04, $12,600,000 PAR
2003 ANNUAL REPORT 30 American Strategic Income Portfolio III
<Page>
PILOT KNOB SERVICE CENTER, 8.95%, 7/1/07, $1,401,552 PAR
PMG PLAZA, 8.95%, 4/1/04, $2,377,196 PAR
RIVERBROOK APARTMENTS I, 8.55%, 3/1/10, $2,972,428 PAR
ROCKWALL TECHNOLOGY BUILDING I, 7.40%, 11/1/06, $3,800,000 PAR
SHELTER ISLAND APARTMENTS, 7.63%, 12/1/08, $12,853,538 PAR
SHOPPES AT JONATHAN'S LANDING, 7.95%, 5/1/10, $2,919,168 PAR
VALLEY MANOR APARTMENTS, 8.35%, 11/1/05, $3,494,146 PAR
WESTREE APARTMENTS, 8.90%, 11/1/10, $4,764,262 PAR
THE FUND HAS ENTERED INTO A LENDING AGREEMENT WITH MORGAN STANLEY. THE
AGREEMENT PERMITS THE FUND TO ENTER INTO REVERSE REPURCHASE AGREEMENTS UP TO
$80,000,000 USING WHOLE LOANS AS COLLATERAL. THE FUND PAYS A FEE OF 0.15% TO
MORGAN STANLEY ON ANY UNUSED PORTION OF THE $80,000,000 LENDING COMMITMENT.
(c) Interest rates on commercial and multifamily loans are the rates in effect
May 31, 2003. 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, 2003.
(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:
1200 WASHINGTON - MINNEAPOLIS, MN
4295/4299 SAN FELIPE ASSOCIATES LP - HOUSTON, TX
ACADEMY SPECTRUM - COLORADO SPRINGS, CO
ATWOOD OCEANICS I - HOUSTON, TX
ATWOOD OCEANICS II - HOUSTON, TX
BLACKLAKE PLACE I AND II - OLYMPIA, WA
BLACKLAKE PLACE III - OLYMPIA, WA
BROOKHOLLOW WEST AND NORTHWEST TECHNICAL CENTER - HOUSTON, TX
CUBB PROPERTIES MOBILE HOME PARK - NEW YORK, NY
DENMARK HOUSE OFFICE BUILDING I - HOUSTON, TX
DENMARK HOUSE OFFICE BUILDING II - HOUSTON, TX
DUNCAN OFFICE BUILDING - OLYMPIA, WA
FRANCE AVENUE BUSINESS PARK II - BROOKLYN PARK, MN
HOLIDAY VILLAGE SHOPPING CENTER - PARK CITY, UT
INDIAN STREET SHOPPES - STUART, FL
JACKSON STREET WAREHOUSE - PHOENIX, AZ
JEFFERSON OFFICE BUILDING - OLYMPIA, WA
KIMBALL PROFESSIONAL OFFICE BUILDING - GIG HARBOR, WA
LAKE POINTE CORPORATE CENTER - MINNEAPOLIS, MN
LAX AIR FREIGHT CENTER - INGLEWOOD, CA
NCGR OFFICE BUILDING - SANTA FE, NM
NORTH AUSTIN BUSINESS CENTER - AUSTIN, TX
PACIFIC SHORES MOBILE HOME PARK II - NEWPORT, OR
PILOT KNOB SERVICE CENTER - MENDOTA HEIGHTS, MN
PMG PLAZA - FORT LAUDERDALE, FL
RANCHO BERNARDO FINANCIAL PLAZA - SAN DIEGO, CA
2003 ANNUAL REPORT 31 American Strategic Income Portfolio III
<Page>
INVESTMENTS IN SECURITIES continued
ROCKWALL TECHNOLOGY BUILDING I - ROCKWALL, TX
ROCKWALL TECHNOLOGY BUILDING II - ROCKWALL, TX
SHOPPES AT JONATHAN'S LANDING - JUPITER, FL
MULTIFAMILY LOANS:
AMBASSADOR HOUSE APARTMENTS - OKLAHOMA CITY, OK
BARCLAY SQUARE APARTMENTS - HOUSTON, TX
BELLEWOOD APARTMENTS - ISSAQUAH, WA
BOARDWALK APARTMENTS - OKLAHOMA CITY, OK
BRAYS VILLAGE APARTMENTS - HOUSTON, TX
CLEARWATER CREEK APARTMENTS - RICHARDSON, TX
CONCORDE APARTMENTS - CHATTANOOGA, TN
COUNTRY PLACE VILLAGE I - CLEARWATER, FL
COUNTRY PLACE VILLAGE II - CLEARWATER, FL
GENEVA VILLAGE APARTMENTS - WEST JORDAN, UT
GRAND COURTYARD APARTMENTS I - GRAND PRAIRIE, TX
GRAND COURTYARD APARTMENTS II - GRAND PRAIRIE, TX
GRANITE LAKE APARTMENTS I - FULLERTON, CA
GRANITE LAKE APARTMENTS II - FULLERTON, CA
HARTFORD APARTMENTS - ATLANTA, GA
MAPLE VILLAGE APARTMENTS - AMERICAN FORK, UT
MEADOWVIEW APARTMENTS - WEST JORDAN, UT
MERIDIAN - PHOENIX, AZ
MERIDIAN POINTE APARTMENTS - KALISPELL, MT
NORTHAVEN TERRACE APARTMENTS - DALLAS, TX
PARK LANE TOWNHOMES I - WESTMINSTER, CA
PARK LANE TOWNHOMES II - WESTMINSTER, CA
PARK WOODS APARTMENTS - DALLAS, TX
PARKWAY VILLAGE APARTMENTS - WEST JORDAN, UT
RIVERBROOK APARTMENTS I - TAMPA, FL
RIVERBROOK APARTMENTS II - TAMPA, FL
ROSE PARK APARTMENTS - VERNAL, UT
SHELTER ISLAND APARTMENTS - LAS VEGAS, NV
SOUTHLAKE VILLA APARTMENTS - SALT LAKE CITY, UT
TULSA APARTMENT PORTFOLIO I - TULSA, OK
TULSA APARTMENT PORTFOLIO II - TULSA, OK
VALLEY MANOR APARTMENTS - HASTINGS, MN
WARWICK WEST APARTMENTS II - OKLAHOMA CITY, OK
WESTREE APARTMENTS - COLORADO SPRINGS, CO
WILLAMETTE OAKS - EUGENE, OR
SINGLE FAMILY LOANS:
ARBOR - 13 LOANS, NEW YORK
(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. These securities are fair
valued in accordance with the board approved valuation procedures. On
May 31, 2003, the total value of fair valued securities was $285,590,965 or
106.9% of total net assets.
2003 ANNUAL REPORT 32 American Strategic Income Portfolio III
<Page>
(f) This money market fund is advised by U.S. Bancorp Asset Management, Inc.,
which also serves as advisor for the Fund. See note 3 in Notes to Financial
Statements.
(g) On May 31, 2003, the cost of investments in securities for federal income
tax purposes was $321,953,802. Cost basis for federal income tax purposes
was $4,056,251 greater than the cost basis for book purposes due to a
one-time mark to market election made pursuant to Section 311 of the Tax
Payer Relief Act of 1997. The aggregate gross unrealized appreciation and
depreciation of investments in securities based on this cost were as
follows:
<Table>
<Caption>
GROSS UNREALIZED APPRECIATION..................... $ 3,641,896
GROSS UNREALIZED DEPRECIATION..................... (2,125,364)
-------------
NET UNREALIZED APPRECIATION................... $ 1,516,532
=============
</Table>
FHLMC-FEDERAL HOME LOAN MORTGAGE CORPORATION
FNMA-FEDERAL NATIONAL MORTGAGE ASSOCIATION
2003 ANNUAL REPORT 33 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 of American
Strategic Income Portfolio Inc. III, including the schedule of investments in
securities, as of May 31, 2003, and the related statements of operations and
cash flows for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the five 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.
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, 2003, with the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
American Strategic Income Portfolio Inc. III at May 31, 2003, the results of its
operations and its cash flows for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended, in conformity
with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
July 2, 2003
2003 ANNUAL REPORT 34 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
- ------------ -------
June 26, 2002..................................... $0.0875
July 24, 2002..................................... 0.0875
August 28, 2002................................... 0.0875
September 25, 2002................................ 0.0875
October 23, 2002.................................. 0.0875
November 20, 2002................................. 0.0875
December 18, 2002................................. 0.0875
January 9, 2003................................... 0.0875
February 26, 2003................................. 0.0875
March 26,2003..................................... 0.0875
April 23, 2003.................................... 0.0875
May 28, 2003...................................... 0.0875
-------
Total....................................... $1.0500
=======
</Table>
2003 ANNUAL REPORT 35 American Strategic Income Portfolio III
<Page>
SHAREHOLDER UPDATE
ANNUAL MEETING RESULTS
An annual meeting of the Fund's shareholders was held on October
1, 2002. 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 eight directors:
<Table>
<Caption>
SHARES SHARES WITHHOLDING
VOTED "FOR" AUTHORITY TO VOTE
------------- ------------------
Roger A. Gibson......................... 19,715,642 581,718
Andrew M. Hunter III*................... 20,008,291 289,069
Leonard W. Kedrowski.................... 20,006,493 290,867
John M. Murphy, Jr.**................... 19,713,058 584,302
Richard K. Riederer..................... 20,008,072 289,288
Joseph D. Strauss....................... 20,007,394 289,966
Virginia L. Stringer.................... 20,001,242 296,118
James M. Wade........................... 20,009,704 287,656
</Table>
* ANDREW M. HUNTER III TENDERED HIS RESIGNATION FROM THE BOARD OF
DIRECTORS, EFFECTIVE DECEMBER 2002.
** JOHN M. MURPHY, JR. TENDERED HIS RESIGNATION FROM THE BOARD OF
DIRECTORS, EFFECTIVE MAY 2003.
2. The Fund's shareholders ratified the selection by the Fund's
board of directors of Ernst & Young as the independent
public accountants for the fund for the fiscal year ending
May 31, 2003. The following votes were cast regarding this
matter:
<Table>
<Caption>
SHARES SHARES BROKER
VOTED "FOR" VOTED "AGAINST" ABSTENTIONS NON VOTES
- ------------- ----------------- ----------- ---------
19,764,169 384,613 148,577 --
</Table>
TERMS AND CONDITIONS OF THE DIVIDEND REINVESTMENT PLAN
As a shareholder, you may choose to participate in the Dividend
Reinvestment Plan, which is 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.
2003 ANNUAL REPORT 36 American Strategic Income Portfolio III
<Page>
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
800-426-5523. 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 5 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.
2003 ANNUAL REPORT 37 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 in
cash. When shares are issued by the Fund at a discount from
market value, shareholders will be treated as having received
distributions of an amount equal to the full market value of
those shares. Shareholders, as required by the Internal Revenue
Service, will receive Form 1099 regarding the federal tax status
of the prior year's distributions.
PLAN WITHDRAWAL
If you hold your shares in certificate form, you may terminate
your participation in the plan at any time by giving written
notice to 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.
2003 ANNUAL REPORT 38 American Strategic Income Portfolio III
<Page>
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 such amendment or
termination is effected. 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 43011,
Providence, RI 02940-3011, 800-426-5523.
HOW TO OBTAIN A COPY OF THE PROXY VOTING POLICY
A description of the policies and procedures that the Fund uses
to determine how to vote proxies relating to portfolio
securities is available (1) without charge upon request by
calling 800.677.FUND; (2) at www.firstamericanfunds.com; and (3)
on the U.S. Securities and Exchange Commission's website at
http://www.sec.gov.
2003 ANNUAL REPORT 39 American Strategic Income Portfolio III
<Page>
SHAREHOLDER UPDATE continued
DIRECTORS AND OFFICERS OF THE FUND
INDEPENDENT DIRECTORS
<Table>
<Caption>
POSITION(S)
HELD WITH
NAME, ADDRESS, AND AGE FUND TERM OF OFFICE AND LENGTH OF TIME SERVED
- ----------------------------------------------------------------------------------------------
Roger A. Gibson (56) Director Directors serve for a one-year term that
U.S. Bancorp Asset expires at the next annual meeting of
Management, Inc. shareholders. Director of CSP since
800 Nicollet Mall August 1998.
Minneapolis, Minnesota 55402
- ----------------------------------------------------------------------------------------------
Leonard W. Kedrowski (61) Director Directors serve for a one-year term that
U.S. Bancorp Asset expires at the next annual meeting of
Management, Inc. shareholders. Director of CSP since
800 Nicollet Mall August 1998.
Minneapolis, Minnesota 55402
- ----------------------------------------------------------------------------------------------
Richard K. Riederer (59) Director Directors serve for a one-year term that
U.S. Bancorp Asset expires at the next annual meeting of
Management, Inc. shareholders. Director of CSP since
800 Nicollet Mall August 2001.
Minneapolis, Minnesota 55402
- ----------------------------------------------------------------------------------------------
Joseph D. Strauss (63) Director Directors serve for a one-year term that
U.S. Bancorp Asset expires at the next annual meeting of
Management, Inc. shareholders. Director of CSP since
800 Nicollet Mall August 1998.
Minneapolis, Minnesota 55402
- ----------------------------------------------------------------------------------------------
Virginia L. Stringer (58) Chair; Director Directors serve for a one-year term that
U.S. Bancorp Asset expires at the next annual meeting of
Management, Inc. shareholders. Chair term three years,
800 Nicollet Mall assuming reelection as a director. Chair
Minneapolis, Minnesota 55402 of CSP's board since 1998; current term
expires September 2003. Director of CSP
since August 1998.
- ----------------------------------------------------------------------------------------------
James M. Wade (59) Director Directors serve for a one-year term that
U.S. Bancorp Asset expires at the next annual meeting of
Management, Inc. 800 Nicollet shareholders. Director of CSP since
Mall August 2001.
Minneapolis, Minnesota 55402
</Table>
2003 ANNUAL REPORT 40 American Strategic Income Portfolio III
<Page>
<Table>
<Caption>
OTHER
NUMBER OF PORTFOLIOS IN DIRECTORSHIPS
PRINCIPAL OCCUPATION(S) FUND COMPLEX HELD BY
NAME, ADDRESS, AND AGE DURING PAST 5 YEARS OVERSEEN BY DIRECTOR DIRECTOR*
-----------------------------------------------------------------------------------------------------------------------
Roger A. Gibson (56) Vice President, Cargo-United First American Funds None
U.S. Bancorp Asset Airlines, since July 2001; Complex: twelve
Management, Inc. Vice President, North registered investment
800 Nicollet Mall America-Mountain Region for companies, including
Minneapolis, Minnesota 55402 United Airlines from 1995 to sixty-two portfolios.
2001.
-----------------------------------------------------------------------------------------------------------------------
Leonard W. Kedrowski (61) Owner, Executive and First American Funds None
U.S. Bancorp Asset Management Consulting, Inc., a Complex: twelve
Management, Inc. management consulting firm, registered investment
800 Nicollet Mall since 1992; Chief Executive companies, including
Minneapolis, Minnesota 55402 Officer, Creative Promotions sixty-two portfolios.
International, LLC, a
promotional award programs and
products company, since 1999;
Board member, GC McGuiggan
Corporation (DBA Smyth
Companies), a label printer,
since 1993; Advisory Board
member, Designer Doors,
manufacturer of designer doors
from 1998 to 2002; acted as
CEO of Graphics Unlimited from
1996 to 1998.
-----------------------------------------------------------------------------------------------------------------------
Richard K. Riederer (59) Retired; President and Chief First American Funds None
U.S. Bancorp Asset Executive Officer, Weirton Complex: twelve
Management, Inc. Steel from 1995 to 2001; registered investment
800 Nicollet Mall Director, Weirton Steel from companies, including
Minneapolis, Minnesota 55402 1993 to 2001. sixty-two portfolios.
-----------------------------------------------------------------------------------------------------------------------
Joseph D. Strauss (63) Chairman of FAF's and FAIF's First American Funds None
U.S. Bancorp Asset Boards from 1993 to September Complex: twelve
Management, Inc. 1997 and of FASF's Board from registered investment
800 Nicollet Mall June 1996 to September 1997; companies, including
Minneapolis, Minnesota 55402 President of FAF and FAIF from sixty-two portfolios.
June 1989 to November 1989;
Owner and Executive Officer,
Excensus-TM- LLC, a consulting
firm, since 2001; Owner and
President, Strauss Management
Company, a Minnesota holding
company for various
organizational management
business ventures, since 1993;
Owner, Chairman and Chief
Executive Officer, Community
Resource Partnerships, Inc., a
strategic planning, operations
management, government
relations, transportation
planning and public relations
organization, since 1993;
attorney at law.
-----------------------------------------------------------------------------------------------------------------------
Virginia L. Stringer (58) Owner and President, Strategic First American Funds None
U.S. Bancorp Asset Management Resources, Inc., a Complex: twelve
Management, Inc. management consulting firm, registered investment
800 Nicollet Mall since 1993; Executive companies, including
Minneapolis, Minnesota 55402 Consultant for State Farm sixty-two portfolios.
Insurance Company since 1997;
formerly President and
Director, The Inventure Group,
a management consulting and
training company; President,
Scott's, Inc., a
transportation company, and
Vice President of Human
Resources, The Pillsbury
Company.
-----------------------------------------------------------------------------------------------------------------------
James M. Wade (59) Owner and President, Jim Wade First American Funds None
U.S. Bancorp Asset Homes, a homebuilding company, Complex: twelve
Management, Inc. 800 Nicollet since 1999. registered investment
Mall companies, including
Minneapolis, Minnesota 55402 sixty-two portfolios.
</Table>
2003 ANNUAL REPORT 41 American Strategic Income Portfolio III
<Page>
SHAREHOLDER UPDATE continued
OFFICERS
<Table>
<Caption>
POSITION(S)
HELD WITH
NAME, ADDRESS, AND AGE FUND TERM OF OFFICE AND LENGTH OF TIME SERVED
- --------------------------------------------------------------------------------------------------------------------------
Thomas S. Schreier, Jr. (40)** President Re-elected by the board annually; President of CSP since
U.S. Bancorp Asset Management, Inc. February 2001.
800 Nicollet Mall
Minneapolis, Minnesota 55402
- --------------------------------------------------------------------------------------------------------------------------
John G. Wenker (51)** Senior Vice Re-elected by the board annually; Senior Vice President of
U.S. Bancorp Asset Management, Inc. President CSP since May 2001.
800 Nicollet Mall
Minneapolis, Minnesota 55402
- --------------------------------------------------------------------------------------------------------------------------
Mark S. Jordahl (43)** Vice Re-elected by the board annually; Vice President-Investments
U.S. Bancorp Asset Management, Inc. President- of CSP since September 2001.
800 Nicollet Mall Investments
Minneapolis, Minnesota 55402
- --------------------------------------------------------------------------------------------------------------------------
Jeffery M. Wilson (47)** Vice Re-elected by the board annually; Vice
U.S. Bancorp Asset Management, Inc. President- President-Administration of CSP since March 2000.
800 Nicollet Mall Administration
Minneapolis, Minnesota 55402
- --------------------------------------------------------------------------------------------------------------------------
Russell J. Kappenman (38)** Vice Re-elected by the board annually; Vice President and
U.S. Bancorp Asset Management, Inc. President Assistant Secretary of CSP since May 2001.
800 Nicollet Mall and
Minneapolis, Minnesota 55402 Assistant
Secretary
- --------------------------------------------------------------------------------------------------------------------------
Julene R. Melquist (36)** Vice Re-elected by the board annually; Vice President of CSP
U.S. Bancorp Asset Management, Inc. President since May 2001.
800 Nicollet Mall
Minneapolis, Minnesota 55402
- --------------------------------------------------------------------------------------------------------------------------
Robert H. Nelson (39)** Treasurer Re-elected by the board annually; Treasurer of CSP since
U.S. Bancorp Asset Management, Inc. March 2000.
800 Nicollet Mall
Minneapolis, Minnesota 55402
- --------------------------------------------------------------------------------------------------------------------------
James D. Alt (51) Secretary Re-elected by the board annually; Secretary of CSP since
50 South Sixth Street, Suite 1500 June 2002; Assistant Secretary of CSP from September 1999 to
Minneapolis, Minnesota 55402 June 2002.
- --------------------------------------------------------------------------------------------------------------------------
Michael J. Radmer (58) Assistant Re-elected by the board annually; Assistant Secretary of CSP
50 South Sixth Street, Suite 1500 Secretary since March 2000; Secretary of CSP from September 1999 to
Minneapolis, Minnesota 55402 March 2000.
- --------------------------------------------------------------------------------------------------------------------------
Kathleen L. Prudhomme (50) Assistant Re-elected by the board annually; Assistant Secretary of CSP
50 South Sixth Street, Suite 1500 Secretary since September 1999.
Minneapolis, Minnesota 55402
</Table>
2003 ANNUAL REPORT 42 American Strategic Income Portfolio III
<Page>
<Table>
<Caption>
NAME, ADDRESS, AND AGE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- --------------------------------------------------------------------------------
Thomas S. Schreier, Jr. Chief Executive Officer of U.S. Bancorp Asset
(40)** Management, Inc. since May 2001; Chief Executive
U.S. Bancorp Asset Officer of First American Asset Management from
Management, Inc. December 2000 to May 2001 and of Firstar
800 Nicollet Mall Investment & Research Management Company from
Minneapolis, Minnesota 55402 February 2001 to May 2001; Senior Managing
Director and Head of Equity Research of U.S.
Bancorp Piper Jaffray from October 1998 to
December 2000; Senior Airline Analyst and a
Director of Equity Research of Credit Suisse First
Boston through 1998.
- --------------------------------------------------------------------------------
John G. Wenker (51)** Managing Director of U.S. Bancorp Asset
U.S. Bancorp Asset Management, Inc. since May 2001; Managing Director
Management, Inc. of First American Asset Management from 1998 to
800 Nicollet Mall May 2001; Managing Director of the Fixed Income
Minneapolis, Minnesota 55402 Department at Piper Jaffray Inc. from 1992 to
1998.
- --------------------------------------------------------------------------------
Mark S. Jordahl (43)** Chief Investment Officer of U.S. Bancorp Asset
U.S. Bancorp Asset Management, Inc. since September 2001; President
Management, Inc. and Chief Investment Officer, ING Investment
800 Nicollet Mall Management-Americas from September 2000 to June
Minneapolis, Minnesota 55402 2001; Senior Vice President and Chief Investment
Officer, ReliaStar Financial Corp. from January
1998 to September 2000; Executive Vice President
and Managing Director, Washington Square Advisers
from January 1996 to December 1997.
- --------------------------------------------------------------------------------
Jeffery M. Wilson (47)** Senior Managing Director of U.S. Bancorp Asset
U.S. Bancorp Asset Management, Inc. since May 2001; Senior Vice
Management, Inc. President of First American Asset Management
800 Nicollet Mall through May 2001.
Minneapolis, Minnesota 55402
- --------------------------------------------------------------------------------
Russell J. Kappenman (38)** Managing Director of U.S. Bancorp Asset
U.S. Bancorp Asset Management, Inc. since May 2001; Vice President of
Management, Inc. First American Asset Management from 1998 to May
800 Nicollet Mall 2001; tax manager and fixed income analyst with
Minneapolis, Minnesota 55402 Piper Jaffray Inc. through 1998.
- --------------------------------------------------------------------------------
Julene R. Melquist (36)** Vice President of U.S. Bancorp Asset
U.S. Bancorp Asset Management, Inc. since May 2001; analyst with
Management, Inc. First American Asset Management from 1998 to May
800 Nicollet Mall 2001; Assistant Vice President with Piper Capital
Minneapolis, Minnesota 55402 Management Inc. through 1998.
- --------------------------------------------------------------------------------
Robert H. Nelson (39)** Chief Operating Officer and Senior Vice President
U.S. Bancorp Asset of U.S. Bancorp Asset Management, Inc. since May
Management, Inc. 2001; Senior Vice President of First American
800 Nicollet Mall Asset Management from 1998 to May 2001 and of
Minneapolis, Minnesota 55402 Firstar Investment & Research Management Company
from February 2001 to May 2001; Senior Vice
President of Piper Capital Management Inc. through
1998.
- --------------------------------------------------------------------------------
James D. Alt (51) Partner, Dorsey & Whitney LLP, a Minneapolis-based
50 South Sixth Street, law firm.
Suite 1500
Minneapolis, Minnesota 55402
- --------------------------------------------------------------------------------
Michael J. Radmer (58) Partner, Dorsey & Whitney LLP, a Minneapolis-based
50 South Sixth Street, law firm.
Suite 1500
Minneapolis, Minnesota 55402
- --------------------------------------------------------------------------------
Kathleen L. Prudhomme (50) Partner, Dorsey & Whitney LLP, a Minneapolis-based
50 South Sixth Street, law firm.
Suite 1500
Minneapolis, Minnesota 55402
</Table>
*Includes only directorships in a company with a class of securities registered
pursuant to Section 12 of the Securities Act or subject to the requirements of
Section 15(d) of the Securities Exchange Act, or any company registered as an
investment company under the Investment Company Act.
**Messrs. Schreier, Wenker, Jordahl, Wilson, Kappenman, and Nelson and Ms.
Melquist are each officers of U.S. Bancorp Asset Management, Inc., which
serves as investment advisor for CSP.
FAF First American Funds, Inc.
FAIF First American Investment Funds, Inc.
FASF First American Strategy Funds, Inc.
2003 ANNUAL REPORT 43 American Strategic Income Portfolio III
<Page>
BOARD OF DIRECTORS
ROGER GIBSON
Director of American Strategic Income Portfolio Inc. III
Vice President, Cargo-United Airlines
LEONARD KEDROWSKI
Director of American Strategic Income Portfolio Inc. III
Owner and President of Executive and Management Consulting, Inc.
RICHARD RIEDERER
Director of American Strategic Income Portfolio Inc. III
Retired; former President and Chief Executive Officer of Weirton Steel
JOSEPH STRAUSS
Director of American Strategic Income Portfolio Inc. III
Former Chairperson of First American Investment Funds, Inc.
Owner and President of Strauss Management Company
VIRGINIA STRINGER
Chairperson of American Strategic Income Portfolio Inc. III
Owner and President of Strategic Management Resources, Inc.
JAMES WADE
Director of American Strategic Income Portfolio Inc. III
Owner and President of Jim Wade Homes
<Page>
[FIRST AMERICAN(TM) LOGO]
AMERICAN STRATEGIC INCOME PORTFOLIO INC. III
2003 ANNUAL REPORT
U.S. Bancorp Asset Management, Inc., a subsidiary of U.S. Bank National
Association, is a separate entity and wholly owned subsidiary of U.S. Bancorp.
[RECYCLED SYMBOL]
This document is printed on paper containing 10% postconsumer waste.
7/2003 0098-03 CSP-AR
<Page>
ITEM 2 - Code of Ethics
RESPONSE: Not applicable at this time
ITEM 3 - Audit Committee Financial Expert
RESPONSE: Not applicable at this time
ITEM 4 - Principal Accountant Fees and Services
RESPONSE: Not applicable at this time
ITEM 5 - Audit Committee of Listed Registrant
RESPONSE: Not applicable at this time
ITEM 6 - Reserved
ITEM 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
RESPONSE:
GENERAL PRINCIPLES
U.S. Bancorp Asset Management, Inc. ("USBAM") is the investment manager
for the First American family of mutual funds and for other separately managed
accounts. As such, USBAM has been delegated the authority to vote proxies with
respect to the investments held in client accounts, unless the client has
specifically retained such authority in writing. It is USBAM's duty to vote
proxies in the best interests of clients in a timely and responsive manner. In
voting proxies, USBAM also seeks to maximize total investment return for
clients.
USBAM's Investment Policy Committee, comprised of the firm's most
senior investment professionals, is charged with oversight of the proxy voting
policies and procedures. The Investment Policy Committee is responsible for (1)
approving the proxy voting policies and procedures, (2) for overseeing the proxy
voting process, and (3) for reviewing the proxy voting record on a regular
basis.
POLICIES AND PROCEDURES
POLICIES. The Investment Policy Committee, after reviewing and
concluding that such policies are reasonably designed to vote proxies in the
best interests of clients, has approved and adopted the proxy voting policies of
ISS, a leading national provider of proxy voting administrative and research
services. As a result, such policies set forth USBAM's positions on recurring
proxy issues and criteria for addressing non-recurring issues. A summary of
these policies is attached. These policies are reviewed periodically and
therefore are subject to change. Even though it has adopted ISS's policies,
USBAM maintains the fiduciary responsibility for all proxy voting decisions. In
extraordinary situations, the Investment Policy Committee may decide to override
a standard policy position for a particular vote, depending on the specific
factual circumstances.
<Page>
PROCEDURES. Responsibility for certain administrative aspects of proxy
voting rests with USBAM's Proxy Voting Administration Committee, which reports
to the Investment Policy Committee. The Proxy Voting Administration Committee
also supervises the relationship with two outside firms that assist with the
process, ISS and ADP Financial Services. These firms apprise USBAM of
shareholder meeting dates, forward proxy voting materials, provide USBAM with
research on proxy proposals and voting recommendations and cast the actual proxy
votes. ISS also serves as USBAM's proxy voting record keeper and generates
reports on how proxies were voted.
CONFLICTS OF INTEREST. As an affiliate of U.S. Bancorp, currently the
eighth largest financial services holding company in the United States, USBAM
recognizes that there are numerous situations wherein it may have a theoretical
or real conflict of interest in voting the proxies of issuers or proxy
proponents (e.g., a special interest group) who are clients or potential clients
of some part of the U.S. Bancorp enterprise. Directors and officers of such
companies also may have personal or familial relationships with the U.S. Bancorp
enterprise and its employees that could give rise to conflicts of interest.
Although USBAM strongly believes that, regardless of such real or
theoretical conflicts of interest, it would always vote proxies in its clients'
best interests, by adopting ISS's policies and generally deferring to ISS's
recommendations, USBAM believes the risk related to conflicts will be minimized.
To further minimize this risk, the Investment Policy Committee has also
reviewed ISS's conflict avoidance policy and has concluded that it adequately
addresses both the theoretical and actual conflicts of interest the proxy voting
service may face.
In the event an extraordinary situation arises in which (1) the
Investment Policy Committee determines it is necessary in clients' best
interests to override a standard policy or (2) it is determined that ISS faces a
material conflict of interest with respect to a specific vote, the Investment
Policy Committee will direct ISS how to vote. Before doing so, however, the
Proxy Voting Administration Committee will confirm that USBAM and the Investment
Policy Committee face no material conflicts of the nature discussed above.
If the Proxy Voting Administration Committee concludes a material
conflict does exist, it will recommend a course of action designed to address
the conflict to the Investment Policy Committee. Such actions could include, but
are not limited to:
- - Obtaining instructions from the affected clients on how to vote the proxy;
- - Disclosing the conflict to the affected clients and seeking their consent
to permit USBAM to vote the proxy;
- - Voting in proportion to the other shareholders;
- - Recusing an Investment Policy Committee member from all discussion or
consideration of the matter, if the material conflict is due to such
person's actual or potential conflict of interest; or
<Page>
- - Following the recommendation of a different independent third party.
In addition to all of the above, members of the Investment Policy
Committee and the Proxy Voting Administration Committee must notify USBAM's
Chief Compliance Officer of any direct, indirect or perceived improper influence
made by any employee, officer or director within the U.S. Bancorp enterprise or
First American Fund complex with regard to how USBAM should vote proxies. The
Chief Compliance Officer will investigate the allegations and will report the
findings to the USBAM Chief Executive Officer and the General Counsel. If it is
determined that improper influence was attempted, appropriate action shall be
taken. Such appropriate action may include disciplinary action, notification of
the appropriate senior managers within the U.S. Bancorp enterprise, or
notification of the appropriate regulatory authorities. In all cases, the
Investment Policy Committee shall not consider any improper influence in
determining how to vote proxies and will vote in the best interests of clients.
REVIEW AND REPORTS
On a calendar quarterly basis, the Proxy Voting Administration Committee
will review the proxy voting record to assess a number of matters, including the
following:
- - Whether proxy statements were timely forwarded to ISS;
- - Whether proxy votes were cast on a timely basis;
- - Whether proxy votes were cast consistent with the policies; and
- - Where the guidelines were overridden, whether such vote was communicated to
ISS in a timely manner and voted consistent with the communication.
The Proxy Voting Administration Committee will prepare a report on this
review for submission to the Investment Policy Committee. Such report will also
review all identified conflicts and how they were addressed during the quarter.
The Investment Policy Committee, on a calendar quarterly basis, will review
the report of the Proxy Voting Administration Committee, as well as ISS's proxy
voting policies and conflict of interest policies. The purpose of this review is
to ensure USBAM is voting proxies in a timely and responsive manner in the best
interests of clients. With respect to the review of votes cast on behalf of
investments by the First American family of mutual funds, such review will also
be reported to the independent Board of Directors of the First American Funds.
The actual proxy voting records of the First American Funds will be filed
with the U.S. Securities Exchange Commission and will be available to
shareholders after June 30, 2004. Such records will be available on the First
American Funds' website at www.firstamericanfunds.com and on the SEC's website
at www.sec.gov.
USBAM's separately managed account clients should contact their
relationship manager for more information on USBAM's policies and the proxy
voting record for their account.
<Page>
ISS PROXY VOTING GUIDELINES SUMMARY
The following is a concise summary of ISS's proxy voting policy guidelines.
1. AUDITORS
Vote FOR proposals to ratify auditors, unless any of the following apply:
- - An auditor has a financial interest in or association with the company, and
is therefore not independent
- - Fees for non-audit services are excessive, or
- - There is reason to believe that the independent auditor has rendered an
opinion which is neither accurate nor indicative of the company's financial
position.
2. BOARD OF DIRECTORS
VOTING ON DIRECTOR NOMINEES IN UNCONTESTED ELECTIONS
Votes on director nominees should be made on a CASE-BY-CASE basis, examining the
following factors: independence of the board and key board committees,
attendance at board meetings, corporate governance provisions and takeover
activity, long-term company performance, responsiveness to shareholder
proposals, any egregious board actions, and any excessive non-audit fees or
other potential auditor conflicts.
CLASSIFICATION/DECLASSIFICATION OF THE BOARD
Vote AGAINST proposals to classify the board.
Vote FOR proposals to repeal classified boards and to elect all directors
annually.
INDEPENDENT CHAIRMAN (SEPARATE CHAIRMAN/CEO)
Vote on a CASE-BY-CASE basis shareholder proposals requiring that the positions
of chairman and CEO be held separately. Because some companies have governance
structures in place that counterbalance a combined position, certain factors
should be taken into account in determining whether the proposal warrants
support. These factors include the presence of a lead director, board and
committee independence, governance guidelines, company performance, and annual
review by outside directors of CEO pay.
MAJORITY OF INDEPENDENT DIRECTORS/ESTABLISHMENT OF COMMITTEES
Vote FOR shareholder proposals asking that a majority or more of directors be
independent unless the board composition already meets the proposed threshold by
ISS's definition of independence.
Vote FOR shareholder proposals asking that board audit, compensation, and/or
nominating committees be composed exclusively of independent directors if they
currently do not meet that standard.
3. SHAREHOLDER RIGHTS
<Page>
SHAREHOLDER ABILITY TO ACT BY WRITTEN CONSENT
Vote AGAINST proposals to restrict or prohibit shareholder ability to take
action by written consent.
Vote FOR proposals to allow or make easier shareholder action by written
consent.
SHAREHOLDER ABILITY TO CALL SPECIAL MEETINGS
Vote AGAINST proposals to restrict or prohibit shareholder ability to call
special meetings.
Vote FOR proposals that remove restrictions on the right of shareholders to act
independently of management.
SUPERMAJORITY VOTE REQUIREMENTS
Vote AGAINST proposals to require a supermajority shareholder vote.
Vote FOR proposals to lower supermajority vote requirements.
CUMULATIVE VOTING
Vote AGAINST proposals to eliminate cumulative voting.
Vote proposals to restore or permit cumulative voting on a CASE-BY-CASE basis
relative to the company's other governance provisions.
CONFIDENTIAL VOTING
Vote FOR shareholder proposals requesting that corporations adopt confidential
voting, use independent vote tabulators and use independent inspectors of
election, as long as the proposal includes a provision for proxy contests as
follows: In the case of a contested election, management should be permitted to
request that the dissident group honor its confidential voting policy. If the
dissidents agree, the policy remains in place. If the dissidents will not agree,
the confidential voting policy is waived.
Vote FOR management proposals to adopt confidential voting.
4. PROXY CONTESTS
VOTING FOR DIRECTOR NOMINEES IN CONTESTED ELECTIONS
Votes in a contested election of directors must be evaluated on a CASE-BY-CASE
basis, considering the factors that include the long-term financial performance,
management's track record, qualifications of director nominees (both slates),
and an evaluation of what each side is offering shareholders.
REIMBURSING PROXY SOLICITATION EXPENSES
Vote CASE-BY-CASE. Where ISS recommends in favor of the dissidents, we also
recommend voting for reimbursing proxy solicitation expenses.
5. POISON PILLS
<Page>
Vote FOR shareholder proposals that ask a company to submit its poison
pill for shareholder ratification. Review on a CASE-BY-CASE basis shareholder
proposals to redeem a company's poison pill and management proposals to ratify a
poison pill.
6. MERGERS AND CORPORATE RESTRUCTURINGS
Vote CASE-BY-CASE on mergers and corporate restructurings based on such features
as the fairness opinion, pricing, strategic rationale, and the negotiating
process.
7. REINCORPORATION PROPOSALS
Proposals to change a company's state of incorporation should be evaluated on a
CASE-BY-CASE basis, giving consideration to both financial and corporate
governance concerns, including the reasons for reincorporating, a comparison of
the governance provisions, and a comparison of the jurisdictional laws. Vote FOR
reincorporation when the economic factors outweigh any neutral or negative
governance changes.
8. CAPITAL STRUCTURE
COMMON STOCK AUTHORIZATION
Votes on proposals to increase the number of shares of common stock authorized
for issuance are determined on a CASE-BY-CASE basis using a model developed by
ISS.
Vote AGAINST proposals at companies with dual-class capital structures to
increase the number of authorized shares of the class of stock that has superior
voting rights.
Vote FOR proposals to approve increases beyond the allowable increase when a
company's shares are in danger of being delisted or if a company's ability to
continue to operate as a going concern is uncertain.
DUAL-CLASS STOCK
Vote AGAINST proposals to create a new class of common stock with superior
voting rights.
Vote FOR proposals to create a new class of nonvoting or subvoting common stock
if:
- - It is intended for financing purposes with minimal or no dilution to
current shareholders
- - It is not designed to preserve the voting power of an insider or
significant shareholder
9. EXECUTIVE AND DIRECTOR COMPENSATION
Votes with respect to compensation plans should be determined on a CASE-BY-CASE
basis. Our methodology for reviewing compensation plans primarily focuses on the
transfer of shareholder wealth (the dollar cost of pay plans to shareholders
instead of simply focusing on voting power dilution). Using the expanded
compensation data disclosed under the SEC's rules, ISS will value every award
type. ISS will include in its analyses an estimated dollar cost for the proposed
plan and all continuing plans. This
<Page>
cost, dilution to shareholders' equity, will also be expressed as a percentage
figure for the transfer of shareholder wealth, and will be considered long with
dilution to voting power. Once ISS determines the estimated cost of the plan, we
compare it to a company-specific dilution cap.
Vote AGAINST equity plans that explicitly permit repricing or where the company
has a history of repricing without shareholder approval.
MANAGEMENT PROPOSALS SEEKING APPROVAL TO REPRICE OPTIONS
Votes on management proposals seeking approval to reprice options are evaluated
on a CASE-BY-CASE basis giving consideration to the following:
- - Historic trading patterns
- - Rationale for the repricing
- - Value-for-value exchange
- - Option vesting
- - Term of the option
- - Exercise price
- - Participation
EMPLOYEE STOCK PURCHASE PLANS
Votes on employee stock purchase plans should be determined on a CASE-BY-CASE
basis.
Vote FOR employee stock purchase plans where all of the following apply:
- - Purchase price is at least 85 percent of fair market value
- - Offering period is 27 months or less, and
- - Potential voting power dilution (VPD) is ten percent or less.
Vote AGAINST employee stock purchase plans where any of the opposite conditions
obtain.
SHAREHOLDER PROPOSALS ON COMPENSATION
Vote on a CASE-BY-CASE basis for all other shareholder proposals regarding
executive and director pay, taking into account company performance, pay level
versus peers, pay level versus industry, and long term corporate outlook.
10. SOCIAL AND ENVIRONMENTAL ISSUES
These issues cover a wide range of topics, including consumer and public safety,
environment and energy, general corporate issues, labor standards and human
rights, military business, and workplace diversity.
In general, vote CASE-BY-CASE. While a wide variety of factors goes into each
analysis, the overall principal guiding all vote recommendations focuses on how
the proposal will enhance the economic value of the company.
ITEM 8 -- Reserved
<Page>
ITEM 9 Controls and Procedures
RESPONSE:
(a) The registrant's Principal Executive Officer and Principal Financial
Officer have evaluated the registrant's disclosure controls and procedures
within 90 days of the date of this filing and have concluded that the
registrant's disclosure controls and procedures were effective, as of that
date, in ensuring that information required to be disclosed by the
registrant in this Form N-CSR was recorded, processed, summarized and
reported timely. Notwithstanding this conclusion, the registrant's
Principal Executive Officer and Principal Financial Officer seek continuous
improvements to its disclosure controls and procedures.
(b) There were no significant changes in registrant's internal controls or in
other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
ITEM 10 - EXHIBITS
10(a) - Code of Ethics
RESPONSE: Not applicable.
10(b) - Attach certifications (4 in total pursuant to Sections 302 and 906 for
PEO/PFO).
RESPONSE: Attached hereto.
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
American Strategic Income Portfolio Inc. III
By /s/ THOMAS S. SCHREIER, JR.
----------------------------
Thomas S. Schreier, Jr.
President
Date: August 5, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ THOMAS S. SCHREIER, JR.
----------------------------
Thomas S. Schreier, Jr.
President
Date: August 5, 2003
By /s/ ROBERT H. NELSON
---------------------
Robert H. Nelson
Treasurer
Date: August 5, 2003