AMERICAN GOVERNMENT INCOME FUND INC, N-30D, 1998-06-18

AMERICAN GOVERNMENT INCOME FUND INC
N-30D, 1998-06-18

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AGF, AAF, OIF - 1998 Semiannual Report

1998 Semiannual Report

[LOGO]

American Government Income Fund
American Government Income Portfolio
American Opportunity Income Portfolio

AGF
AAF
OIF

<PAGE>

[LOGO]

CONTENTS

AMERICAN GOVERNMENT INCOME FUND (AGF)

Average Annualized Total Returns . . . . . . . . . . . . . . . . . . . . . . 2

Portfolio Managers' Letter . . . . . . . . . . . . . . . . . . . . . . . . . 5

Financial Statements and Notes . . . . . . . . . . . . . . . . . . . . . . . 9

Investments in Securities. . . . . . . . . . . . . . . . . . . . . . . . . .21

AMERICAN GOVERNMENT INCOME PORTFOLIO (AAF)

Average Annualized Total Returns . . . . . . . . . . . . . . . . . . . . . . 3

Portfolio Managers' Letter . . . . . . . . . . . . . . . . . . . . . . . . . 5

Financial Statements and Notes . . . . . . . . . . . . . . . . . . . . . . .24

Investments in Securities. . . . . . . . . . . . . . . . . . . . . . . . . .36

AMERICAN OPPORTUNITY INCOME FUND (OIF)

Average Annualized Total Returns . . . . . . . . . . . . . . . . . . . . . . 4

Portfolio Managers' Letter . . . . . . . . . . . . . . . . . . . . . . . . . 5

Financial Statements and Notes . . . . . . . . . . . . . . . . . . . . . . .39

Investments in Securities. . . . . . . . . . . . . . . . . . . . . . . . . .51

Glossary*** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56

*** This report includes a glossary to help you understand financial terms used
in the portfolio managers' letter. When you see this symbol, it indicates a word
that is defined in the glossary.

AMERICAN GOVERNMENT INCOME FUND
- -------------------------------

PRIMARY INVESTMENTS
Obligations issued or guaranteed by the U.S. government, its agencies and
instrumentalities, including mortgage-backed derivative securities. The fund may
purchase securities through the dollar-roll program or enter into reverse
repurchase agreements. Investments in certain mortgage-backed derivative
securities, dollar-roll transactions and the use of reverse repurchase
agreements may cause the fund's net asset value to fluctuate to a greater extent
than would be expected from interest rate movements alone.

FUND OBJECTIVE
High current income consistent with preservation of capital. As with other
investment companies, there can be no assurance this fund will achieve its
objective.

<PAGE>

AMERICAN GOVERNMENT INCOME PORTFOLIO

PRIMARY INVESTMENTS
Obligations issued or guaranteed by the U.S. government, its agencies and
instrumentalities, including mortgage-backed derivative securities. The fund may
purchase securities through the dollar-roll program and enter into reverse
repurchase agreements. Investments in certain mortgage-backed derivative
securities, dollar-roll transactions and the use of reverse repurchase
agreements may cause the fund's net asset value to fluctuate to a greater extent
than would be expected from interest rate movements alone.

FUND OBJECTIVE
High current income consistent with preservation of capital. As with other
investment companies, there can be no assurance this fund will achieve its
objective.

AMERICAN OPPORTUNITY INCOME FUND

PRIMARY INVESTMENTS
Mortgage-backed securities, including U.S. government and agency securities and
privately issued securities. The fund's investments in mortgage-backed
securities include derivative securities, and the fund may purchase securities
through the dollar-roll program and enter into reverse repurchase agreements.
Investments in certain mortgage-backed derivative securities, dollar-roll
transactions and the use of reverse repurchase agreements may cause the fund's
net asset value to fluctuate to a greater extent than would be expected from
interest rate movements alone.

FUND OBJECTIVE
High level of current income. Its secondary objective is capital appreciation.
As with other investment companies, there can be no assurance this fund will
achieve its objective.

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1998 Semiannual Report 1 AGF, AAF, OIF

<PAGE>

AVERAGE ANNUALIZED TOTAL RETURNS
- --------------------------------------------------------------------------------

Based on net asset value for the periods ended April 30, 1998
- --------------------------------------------------------------------------------

[GRAPH]

American Government Lehman Brothers U.S.
Income Fund Mortgage Index
<S> <C> <C>
One Year 10.32 10.02
Ten Year 9.42 9.13
Since Inception 4/28/88 9.42 9.13
</TABLE>

American Government Income Fund's average annualized total returns are based on
the change in its net asset value (NAV), assume all distributions were
reinvested and do not reflect sales charges. NAV-based performance is used to
measure investment management results.

Average annualized total returns based on the change in market price for the
one-year, ten-year and since inception periods ended April 30, 1998, were
21.45%, 7.99%, and 7.99%, respectively. These returns assume reinvestment of all
distributions and reflect sales charges on those reinvestments as described in
the fund's dividend reinvestment plan, but not on initial purchases.

PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. NEITHER SAFETY OF
PRINCIPAL NOR STABILITY OF INCOME IS GUARANTEED. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. The investment return and principal value of an
investment will fluctuate so that fund shares, when sold, may be worth more or
less than their original cost. Closed-end funds, such as this fund, often trade
at discounts to net asset value. Therefore, you may be unable to realize the
full net asset value of your shares when you sell.

The Lehman Brothers U.S. Mortgage Index is an unmanaged index that represents
the total return, with distributions reinvested, of U.S. government agency
mortgage-backed securities with up to 30 years to maturity. The index does not
reflect expenses or transaction costs. The since inception number for the Lehman
index is calculated from the month end following the fund's inception through
April 30, 1998.

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1998 Semiannual Report 2 AGF, AAF, OIF

<PAGE>

AVERAGE ANNUALIZED TOTAL RETURNS
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Based on net asset value for the periods ended April 30, 1998
- --------------------------------------------------------------------------------

[GRAPH]

American Government Lehman Brothers U.S.
Income Fund Mortgage Index
<S> <C> <C>
One Year 10.21 10.02
Ten Year 2.68 694
Since Inception 4/28/88 9.52 9.04
</TABLE>

American Government Income Portfolio's average annualized total returns are
based on the change in its net asset value (NAV), assume all distributions were
reinvested and do not reflect sales charges. NAV-based performance is used to
measure investment management results.

Average annualized total returns based on the change in market price for the
one-year, five-year and since inception periods ended April 30, 1998, were
17.55%, 0.73%, and 8.15%, respectively. These returns assume reinvestment of all
distributions and reflect sales charges on those reinvestments as described in
the fund's dividend reinvestment plan, but not on initial purchases.

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1998 Semiannual Report 3 AGF, AAF, OIF

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AVERAGE ANNUALIZED TOTAL RETURNS
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Based on net asset value for the periods ended April 30, 1998
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[GRAPH]

American Opportunity Lehman Brothers Mutual Fund
Income Fund 5-10 Year Government Index
<S> <C> <C>
One Year 11.01 11.42
Five Year 2.35 6.70
Since Inception 9/29/89 9.25 9.04
</TABLE>

American Opportunity Income Fund's average annualized total returns are based on
the change in its net asset value (NAV), assume all distributions were
reinvested and do not reflect sales charges. NAV-based performance is used to
measure investment management results.

Average annualized total returns based on the change in market price for the
one-year, five-year and since inception periods ended April 30, 1998, were
19.94%, -0.77%, and 7.56%, respectively. These returns assume reinvestment of
all distributions and reflect sales charges on those reinvestments as described
in the fund's dividend reinvestment plan, but not on initial purchases.

The Lehman Brothers Mutual Fund 5-10 Year Government Index is an index of all
U.S. government agency and Treasury securities with maturities of 5-10 years.
The index does not reflect expenses or transaction costs. The since inception
number for the Lehman index is calculated from the month end following the
fund's inception through April 30, 1998.

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1998 Semiannual Report 4 AGF, AAF, OIF

<PAGE>

PORTFOLIO MANAGERS' LETTER
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[PHOTO]
BRUCE SALVOG shares responsibility for the management of the funds. He has 28
years od financial experience.
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June 10, 1998
- --------------------------------------------------------------------------------

DEAR SHAREHOLDERS:

FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 1998, AMERICAN GOVERNMENT INCOME FUND
ACHIEVED A NET ASSET VALUE TOTAL RETURN OF 3.29%* COMPARED TO 3.48% FOR THE
FUND'S BENCHMARK,*** THE LEHMAN BROTHERS U.S. MORTGAGE INDEX. Over the same
period, the fund returned 5.59% based on its market price.

FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 1998, AMERICAN GOVERNMENT INCOME
PORTFOLIO ACHIEVED A NET ASSET VALUE TOTAL RETURN OF 3.35%* COMPARED TO 3.48%
FOR THE FUND'S BENCHMARK, THE LEHMAN BROTHERS U.S. MORTGAGE INDEX. Over the same
period, the fund returned 6.17% based on its market price.

FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 1998, AMERICAN OPPORTUNITY INCOME FUND
ACHIEVED A NET ASSET VALUE TOTAL RETURN OF 3.33%* COMPARED TO 3.46% FOR THE
FUND'S BENCHMARK, THE LEHMAN BROTHERS MUTUAL FUND 5-10 YEAR GOVERNMENT INDEX.
Over the same period, the fund returned 5.39% based on its market price.

ENTERING THE REPORTING PERIOD, EACH FUND WAS POSITIONED TO MINIMIZE THE
IMPACT OF LOWER INTEREST RATES AND FASTER PREPAYMENTS. Specifically, the
funds were overweighted in mortgage securities with coupons below 7% while
underweighting the higher-coupon issues which are more likely to be
refinanced during periods of lower interest rates. In addition, American
Opportunity Income Fund added fixed rate

* All returns assume reinvestment of distributions and do not reflect sales
charges, except the fund's total return based on market price, which does
reflect sales charges on those reinvestments as described in the fund's dividend
reinvestment plan, but not on initial purchases. Past performance does not
guarantee future results. The investment return and principal value of an
investment will fluctuate so that fund shares, when sold, may be worth more or
less than their original cost.

*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.

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1998 Semiannual Report 5 AGF, AAF, OIF

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PORTFOLIO MANAGERS' LETTER (CONTINUED)
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PORTFOLIO COMPOSITIONS
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As a percentage of total assets on April 30, 1998

AMERICAN GOVERNMENT INCOME FUND
<S> <C>
U.S. Agency Fixed Rate Motgage-Backed Securities 88%
U.S Treasury Securities 5%
U.S. Agency Z-Bond Securities 3%
Short-Term 3%
Other Assets 1%

AMERICAN GOVERNMENT INCOME PORTFOLIO

U.S. Agency Fixed Rate Motgage-Backed Securities 85%
U.S Treasury Securities 7%
U.S. Agency Z-Bond Securities 3%
Other Assets 1%
Short-Term 4%

AMERICAN OPPORTUNITY INCOME PORTFOLIO

U.S. Agency Fixed Rate Motgage-Backed Securities 76%
Other 1%
Short-Term 2%
U.S. Agency Z-Bond Securities 8%
Private Z-Bond Securities 1%
U.S Treasury Securities 5%
Corporate Bonds 7%

</TABLE>

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1998 Semiannual Report 6 AGF, AAF, OIF

<PAGE>

PORTFOLIO MANAGERS' LETTER (CONTINUED)
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[PHOTO]
TOM MCGLINCH, CFA shares responsibility for the management of the funds. He has
17 years of financial experience.
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collateralized mortgage obligation bonds (CMOs) with
relatively long maturities. These securities are not expected to make principal
payments for a number of years, thereby reducing the reinvestment risk
associated with the prepayments and helping to maintain the fund's income
stream. We maintained each funds' effective duration*** at roughly four years to
enhance their portfolios' income stream.

BONDS TRADED WITHIN A NARROW RANGE AS THE ULTIMATE IMPACT OF THE ASIAN RECESSION
ON U.S. ECONOMIC GROWTH REMAINED UNCLEAR. After beginning the reporting period
at 6.14%, the yield on the Treasury's benchmark 30-year bond fell to 5.66% in
January as the deepening crisis in Asia reassured investors that domestic
inflation would remain under control. However, as the U.S. economy continued to
show strength, the long-term Treasury yield rose modestly to close the reporting
period at 5.94%.

DESPITE STRONG ECONOMIC GROWTH AND A TIGHT LABOR MARKET, INFLATION REMAINED
BENIGN. With no evidence of inflation, the Federal Reserve Board (Fed) kept
short-term interest rates unchanged. The negative impact of a rate hike on Asian
currencies may also have played a role in the Fed's decision to keep the key
federal funds rate unchanged at 5.50%.

MORTGAGE PREPAYMENTS COULD BECOME A CONCERN FOR THE FUNDS IF INTEREST RATES
DROP SIGNIFICANTLY FROM PRESENT LEVELS. While the mortgage market is broadly
affected by any acceleration in the rate of prepayments, the funds have
positioned their portfolios in a way that minimizes the impact of a drop in
interest rates. While we have taken steps to reduce the risk of mortgage
prepayments, the funds are not immune to such refinancings,

*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.

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1998 Semiannual Report 7 AGF, AAF, OIF

<PAGE>

PORTFOLIO MANAGERS' LETTER (CONTINUED)
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and the ongoing possibility of prepayments influences the valuation of mortgage
securities. As always, we will continue to focus on maintaining a high level of
current income for our shareholders.

On May 1, Piper Jaffray Companies Inc., the parent company of Piper Capital, was
acquired by U.S. Bancorp. As a result of this acquisition, the funds' boards of
directors have approved a proposal to merge the funds into the First American
Fixed Income Fund, an open-end fund with similar investment objectives, which is
managed by First American Asset Management, U.S. Bancorp's asset management arm.
This proposal is subject to shareholder approval and will be voted on at the
funds' annual meeting in August.

Thank you for your investment. We appreciate the opportunity to help you reach
your financial goals.

Sincerely,

/s/ Bruce Salvog

Bruce Salvog
Portfolio Manager

/s/ Tom McGlinch

Tom McGlinch
Portfolio Manager

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1998 Semiannual Report 8 AGF, AAF, OIF

<PAGE>
Financial Statements (Unaudited)

- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES April 30, 1998
................................................................................

<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (note 2)
(including a repurchase agreement of $3,036,000) ......... $112,133,725
Cash in bank on demand deposit ............................. 25,921
Accrued interest receivable ................................ 648,547
-----------------
Total assets ............................................. 112,808,193
-----------------

LIABILITIES:
Payable for investment securities purchased on a when-issued
basis (note 2) ........................................... 13,939,336
Reverse repurchase agreements payable ...................... 4,500,000
Accrued interest ........................................... 50,735
Other accrued expenses ..................................... 107,206
-----------------
Total liabilities ........................................ 18,597,277
-----------------
Net assets applicable to outstanding capital stock ....... $94,210,916
-----------------
-----------------

COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital ............... $127,291,132
Undistributed net investment income ........................ 106,878
Accumulated net realized loss on investments ............... (35,958,799)
Unrealized appreciation of investments ..................... 2,771,705
-----------------

Total - representing net assets applicable to capital
stock .................................................. $94,210,916
-----------------
-----------------
* Investments in securities at identified cost ............. $109,362,020
-----------------
-----------------

NET ASSET VALUE AND MARKET PRICE:
Net assets ................................................. $94,210,916
Shares outstanding (authorized 1 billion shares of $0.01 par
value) ................................................... 16,080,953
Net asset value ............................................ $ 5.86
Market price ............................................... $ 5.69
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

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1998 Semi-Annual Report 9 AMERICAN GOVERNMENT INCOME FUND
<PAGE>
Financial Statements (Unaudited) (continued)
- ---------------------------------------------------------------------

STATEMENT OF OPERATIONS For the Six Months Ended April 30, 1998
................................................................................

<TABLE>
<S> <C>
INCOME:
Interest (net of interest expense of $156,119) ............. $ 3,409,106
Fee income (note 2) ........................................ 70,400
-----------------

Total investment income .................................. 3,479,506
-----------------

EXPENSES (NOTE 3):
Investment management fee .................................. 296,895
Administrative fee ......................................... 98,965
Custodian and accounting fees .............................. 45,229
Transfer agent fees ........................................ 9,072
Reports to shareholders .................................... 39,282
Directors' fees ............................................ 6,207
Audit and legal fees ....................................... 33,343
Other expenses ............................................. 27,507
-----------------
Total expenses ........................................... 556,500
Less expenses paid indirectly .......................... (1,793)
-----------------

Total net expenses ....................................... 554,707
-----------------

Net investment income .................................... 2,924,799
-----------------

NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on investments (note 4) .................. 943,552
Net realized loss on closed futures contracts .............. (37,698)
-----------------

Net realized gain on investments ......................... 905,854
Net change in unrealized appreciation or depreciation of
investments .............................................. (662,651)
-----------------

Net gain on investments .................................. 243,203
-----------------

Net increase in net assets resulting from operations ... $ 3,168,002
-----------------
-----------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

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1998 Semi-Annual Report 10 AMERICAN GOVERNMENT INCOME FUND
<PAGE>
Financial Statements (Unaudited) (continued)
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STATEMENT OF CASH FLOWS For the Six Months Ended April 30, 1998
................................................................................

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and fee income .................................... $ 3,479,506
Net expenses ............................................... (554,707)
-----------------
Net investment income .................................... 2,924,799
-----------------

Adjustments to reconcile net investment income to net cash
provided by operating activities:
Change in accrued interest receivable and principal
receivable on mortgage securities ...................... 371,386
Net amortization of bond discount and premium ............ (23,680)
Change in accrued fees and expenses ...................... (13,012)
-----------------
Total adjustments ...................................... 334,694
-----------------

Net cash provided by operating activities .............. 3,259,493
-----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments ......................... 59,905,729
Purchases of investments ................................... (28,229,186)
Net purchases of short-term securities ..................... (680,000)
Net variation margin paid for futures contracts ............ (37,698)
-----------------

Net cash provided by investing activities .............. 30,958,845
-----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments for reverse repurchase agreements ............. (6,000,000)
Retirement of fund shares .................................. (31,250,526)
Distributions paid to shareholders ......................... (3,055,380)
-----------------

Net cash used by financing activities .................. (40,305,906)
-----------------
Net decrease in cash ....................................... (6,087,568)
Cash at beginning of period ................................ 6,113,489
-----------------

Cash at end of period .................................. $ 25,921
-----------------
-----------------

Supplemental disclosure of cash flow information:
Cash paid for interest on reverse repurchase
agreements ............................................. $ 191,872
-----------------
-----------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

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1998 Semi-Annual Report 11 AMERICAN GOVERNMENT INCOME FUND
<PAGE>
Financial Statements (continued)
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STATEMENTS OF CHANGES IN NET ASSETS
................................................................................

<TABLE>
<CAPTION>
SIX MONTHS ENDED
4/30/98 YEAR ENDED
(UNAUDITED) 10/31/97
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income ...................................... $ 2,924,799 $ 7,405,411
Net realized gain (loss) on investments .................... 905,854 (427,926)
Net change in unrealized appreciation or depreciation of
investments .............................................. (662,651) 3,201,771
----------------- -----------------

Net increase in net assets resulting from operations ..... 3,168,002 10,179,256
----------------- -----------------

DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ................................. (3,055,380) (7,718,849)
----------------- -----------------

CAPITAL SHARE TRANSACTIONS (NOTE 6):
Decrease in net assets from capital share transactions ..... (31,250,526) --
----------------- -----------------
Total increase (decrease) in net assets .................. (31,137,904) 2,460,407

Net assets at beginning of period .......................... 125,348,820 122,888,413
----------------- -----------------

Net assets at end of period ................................ $94,210,916 $125,348,820
----------------- -----------------
----------------- -----------------

Undistributed net investment income ........................ $ 106,878 $ 237,459
----------------- -----------------
----------------- -----------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

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1998 Semi-Annual Report 12 AMERICAN GOVERNMENT INCOME FUND
<PAGE>
Notes to Financial Statements (Unaudited)
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(1) ORGANIZATION
................................
American Government Income Fund Inc. (the fund) is registered
under the Investment Company Act of 1940 (as amended) as a
non-diversified, closed-end management investment company. The
fund invests primarily in obligations issued or guaranteed by
the U.S. government, its agencies and instrumentalities,
including mortgage-backed securities. The fund may engage in
dollar-roll transactions. In addition, the fund may borrow
through the use of reverse repurchase agreements. Fund shares
are listed on the New York Stock Exchange under the symbol AGF.

(2) SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES
................................
INVESTMENTS IN SECURITIES
Portfolio securities for which market quotations are readily
available are valued at current market value. If market
quotations or valuations are not readily available, or if such
quotations or valuations are believed to be inaccurate,
unreliable or not reflective of market value, portfolio
securities are valued according to procedures adopted by the
fund's board of directors in good faith at "fair value", that
is, a price that the fund might reasonably expect to receive
for the security or other asset upon its current sale.

The current market value of certain fixed income securities is
provided by an independent pricing service. Fixed income
securities for which prices are not available from an
independent pricing service but where an active market exists
are valued using market quotations obtained from one or more
dealers that make markets in the securities or from a
widely-used quotation system. Short-term securities with
maturities of 60 days or less are valued at amortized cost,
which approximates market value.

Exchange-traded options are valued at the last sales price on
the exchange prior to the time when assets are valued. If no
sales were reported that day, the options are valued at the
mean between the current closing bid and asked prices.
Over-the-counter options are valued using market quotations
obtained

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1998 Semi-Annual Report 13 AMERICAN GOVERNMENT INCOME FUND
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
from broker-dealers. Financial futures are valued at the last
settlement price established each day by the board of trade or
exchange on which they are traded.

Securities transactions are accounted for on the date
securities are purchased or sold. Realized gains and losses are
calculated on the identified-cost basis. Interest income,
including amortization of bond discount and premium, is
recorded on an accrual basis.

FUTURES TRANSACTIONS
In order to gain exposure to or protect against changes in the
market, the fund may buy and sell financial futures contracts
and related options. Risks of entering into futures contracts
and related options include the possibility there may be an
illiquid market and that a change in the value of the contract
or option may not correlate with changes in the value of the
underlying securities.

Upon entering into a futures contract, the fund is required to
deposit either cash or securities in an amount (initial margin)
equal to a certain percentage of the contract value. Subsequent
payments (variation margin) are made or received by the fund
each day. The variation margin payments are equal to the daily
changes in the contract value and are recorded as unrealized
gains and losses. The fund recognizes a realized gain or loss
when the contract is closed or expires.

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

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1998 Semi-Annual Report 14 AMERICAN GOVERNMENT INCOME FUND
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
fund's net asset value if the fund makes such purchases while
remaining substantially fully invested. As of April 30, 1998,
the fund had entered into outstanding when-issued or forward
commitments of $13,939,336.

In connection with its ability to purchase securities on a
when-issued or forward-commitment basis, the fund may enter
into mortgage dollar rolls in which the fund sells securities
purchased on a forward commitment basis and simultaneously
contracts with a counterparty to repurchase similar (same type,
coupon and maturity) but not identical securities on a
specified future date. As an inducement to "roll over" its
purchase commitments, the fund receives negotiated fees. For
the six months ended April 30, 1998, such fees earned by the
fund amounted to $70,400.

FEDERAL TAXES
The fund intends to comply with the requirements of the
Internal Revenue Code applicable to regulated investment
companies and not be subject to federal income tax. Therefore,
no income tax provision is required. The fund also intends to
distribute its taxable net investment income and realized
gains, if any, to avoid the payment of any federal excise
taxes.

Net investment income and net realized gains (losses) may
differ for financial statement and tax purposes. The character
of distributions made during the year from net investment
income or net realized gains may differ from its ultimate
characterization for federal income tax purposes. In addition,
due to the timing of dividend distributions, the fiscal year in
which amounts are distributed may differ from the year that the
income or realized gains or losses were recorded by the fund.

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1998 Semi-Annual Report 15 AMERICAN GOVERNMENT INCOME FUND
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
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 10% or more. If, at
the close of business on the dividend payment date, the shares
purchased in the open market are insufficient to satisfy the
dividend reinvestment requirement, the fund will issue new
shares at a discount of up to 5% from the current market price.

REPURCHASE AGREEMENTS
For repurchase agreements entered into with certain broker-
dealers, the fund, along with other affiliated registered
investment companies, may transfer uninvested cash balances
into a joint trading account, the daily aggregate of which is
invested in repurchase agreements secured by U.S. government or
agency obligations. Securities pledged as collateral for all
individual and joint repurchase agreements are held by the
fund's custodian bank until maturity of the repurchase
agreement. Provisions for all agreements ensure that the daily
market value of the collateral is in excess of the repurchase
amount, including accrued interest, to protect the fund in the
event of a default.

USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
in the financial statements. Actual results could differ from
these estimates.

(3) EXPENSES
................................
INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES
The fund has entered into the following agreements with Piper
Capital Management Incorporated (the advisor and
administrator):

- ---------------------------------------------------------------------

1998 Semi-Annual Report 16 AMERICAN GOVERNMENT INCOME FUND
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------

The investment advisory agreement provides the advisor with a
monthly investment management fee in an amount equal to an
annualized rate of 0.30% of the fund's average weekly net
assets and 5.25% of the daily gross income (i.e., investment
income, including amortization of discount and premium, other
than gains from the sale of securities or gains from options
and futures contracts less interest on money borrowed by the
fund) accrued by the fund during the month. The monthly
investment management fee shall not exceed in the aggregate
1/12th of 0.60% of the fund's average weekly net assets during
the month (approximately 0.60% on an annual basis). For the six
months ended April 30, 1998, the effective annualized
investment management fee incurred by the fund was 0.60%. For
its fee, the advisor provides investment advice and conducts
the management and investment activities of the fund.

The administration agreement provides the administrator with a
monthly fee in an amount equal to an annualized rate of 0.20%
of the fund's average weekly net assets. For its fee, the
administrator provides reporting, regulatory and record-keeping
services for the fund.

OTHER FEES AND EXPENSES
In addition to the investment management and administrative
fees, the fund is responsible for paying most other operating
expenses including: outside directors' fees and expenses;
custodian fees; registration fees; printing and shareholder
reports; transfer agent fees and expenses; legal, auditing and
accounting services; insurance; interest; taxes and other
miscellaneous expenses.

Expenses paid indirectly represent a reduction of custodian
fees for earnings on miscellaneous cash balances maintained by
the fund.

- ---------------------------------------------------------------------

1998 Semi-Annual Report 17 AMERICAN GOVERNMENT INCOME FUND
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------

(4) INVESTMENT
SECURITY
TRANSACTIONS
................................
Cost of purchases and proceeds from sales of securities, other
than temporary investments in short-term securities and dollar
roll transactions, for the six months ended April 30, 1998,
aggregated $22,055,874 and $59,905,729, respectively. Including
dollar rolls, such purchases and sales aggregated $71,738,765
and $109,588,620, respectively.

(5) CAPITAL LOSS
CARRYOVER
................................
For federal income tax purposes, the fund had capital loss
carryovers at October 31, 1997, which, if not offset by
subsequent capital gains, will expire on the fund's fiscal
year-ends as indicated below. It is unlikely the board of
directors will authorize a distribution of any net realized
capital gains until the available capital loss carryovers have
been offset or expire.

<TABLE>
<CAPTION>
CAPITAL LOSS
CARRYOVER EXPIRATION
------------- ----------
<S> <C> <C>
$ 16,702,453 2002
17,460,619 2003
2,269,909 2004
431,672 2005
-------------
$ 36,864,653
-------------
-------------
</TABLE>

(6) REPURCHASE OFFER
................................
The fund's board of directors concluded that an offer to
repurchase up to 25% of the fund's outstanding shares would be
in the best interests of shareholders. Accordingly, the board
authorized such an offer as part of a settlement agreement
reached in connection with class action litigation involving
the fund and seven other closed-end investment companies
managed by Piper Capital Management Incorporated.

- ---------------------------------------------------------------------

1998 Semi-Annual Report 18 AMERICAN GOVERNMENT INCOME FUND
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
percentage of outstanding shares and the number of shares
accepted for tender, the repurchase price per share and
proceeds (including tender fees) paid by the fund were as
follows:

<TABLE>
<CAPTION>
PERCENTAGE SHARES REPURCHASE PROCEEDS
TENDERED TENDERED PRICE PAID
---------- ------------ ----------- --------------
<S> <C> <C> <C>
25% 5,360,296 $5.81 $ 31,250,526
</TABLE>

(7) ADVISOR
ACQUISITION
................................
On May 1, 1998, Piper Jaffray Companies Inc., the parent
company of the fund's investment advisor, was acquired by U.S.
Bancorp.

U.S. Bancorp is a multi-state bank holding company
headquartered in Minneapolis, Minnesota with a geographic
service area spanning 17 states. As of March 31, 1998, U.S.
Bancorp was the 15th largest U.S. commercial bank holding
company, with assets of nearly $70.9 billion. U.S. Bank
National Association ("U.S. Bank"), a wholly owned subsidiary
of U.S. Bancorp, currently acts as the investment advisor to 32
mutual funds (the "First American Funds"). As of March 31,
1998, U.S. Bank, acting through its First American Asset
Management group, managed more than $65.3 billion in assets,
including approximately $23.3 billion in assets of the First
American Funds.

Under the Investment Company Act of 1940, as amended,
consummation of the acquisition of Piper Jaffray Companies by
U.S. Bancorp resulted in the assignment and automatic
termination of the fund's investment advisory agreement with
Piper Capital Management Incorporated. The fund has entered
into a new investment advisory agreement with Piper Capital
Management, which shareholders will vote on at the fund's
annual meeting in August.

(8) REORGANIZATION OF
THE FUND
................................
On April 27, 1998, the fund's board of directors approved the
merger of the fund into an existing open-end fund in the First
American family of funds. Shareholders will vote on the
proposal at the fund's annual meeting in August.

- ---------------------------------------------------------------------

1998 Semi-Annual Report 19 AMERICAN GOVERNMENT INCOME FUND
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------

(9) FINANCIAL
HIGHLIGHTS
................................
Per-share data for a share of capital stock outstanding
throughout each period and selected information for each period
are as follows:

<TABLE>
<CAPTION>
Six Months
Ended Year Ended October 31,
4/30/98 -----------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
----------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ... $ 5.85 $ 5.73 $ 5.91 $ 5.58 $ 8.82 $ 8.39
----------- -------- -------- -------- --------- --------
Operations:
Net investment income ................ 0.18 0.35 0.36 0.44 0.64 1.27
Net realized and unrealized gains
(losses) on investments ............ 0.01 0.13 0.03 0.71 (2.81) 0.39
----------- -------- -------- -------- --------- --------
Total from operations .............. 0.19 0.48 0.39 1.15 (2.17) 1.66
----------- -------- -------- -------- --------- --------
Distributions to shareholders:
From net investment income ........... (0.18) (0.36) (0.57) (0.82) (0.84) (0.93)
From net realized gains on
investments ........................ -- -- -- -- (0.01) (0.30)
In excess of net realized gains on
investments -- -- -- -- (0.22) --
----------- -------- -------- -------- --------- --------
Total distributions to
shareholders ..................... (0.18) (0.36) (0.57) (0.82) (1.07) (1.23)
----------- -------- -------- -------- --------- --------
Net asset value, end of period ......... $ 5.86 $ 5.85 $ 5.73 $ 5.91 $ 5.58 $ 8.82
----------- -------- -------- -------- --------- --------
----------- -------- -------- -------- --------- --------
Market value, end of period ............ $ 5.69 $ 5.56 $ 5.13 $ 5.75 $ 6.00 $ 9.38
----------- -------- -------- -------- --------- --------
----------- -------- -------- -------- --------- --------
SELECTED INFORMATION
Total return, net asset value (a) ...... 3.29% 8.70% 7.02% 22.31% (26.43)% 21.34%
Total return, market value (b) ......... 5.59% 16.07% (0.75)% 10.96% (26.54)% 22.64%
Net assets at end of period (in
millions) ............................ $ 94 $ 125 $ 123 $ 127 $ 121 $ 187
Ratio of expenses to average weekly net
assets excluding interest expense
(c) .................................. 1.13%(f) 1.02% 1.11% 1.40% 1.32% 0.99%
Ratio of expenses to average weekly net
assets including interest expense
(c) .................................. 1.44%(f) 1.49% 1.35% 1.40% 2.49% 2.34%
Ratio of net investment income to
average weekly net assets ............ 5.91%(f) 6.05% 6.37% 7.86% 9.44% 14.87%
Portfolio turnover rate (excluding
short-term securities and dollar roll
transactions) ........................ 19% 62% 111% 149% 199% 93%
Amount of borrowings outstanding at end
of period (in millions) (d) .......... $ 5 $ 11 $ 11 -- -- $ 69
Per-share amount of borrowings
outstanding at end of period ......... $ 0.28 $ 0.49 $ 0.49 -- -- $ 3.27
Per-share amount of net assets,
excluding borrowings, at end of
period ............................... $ 6.14 $ 6.34 $ 6.22 -- -- $ 12.09
Asset coverage ratio (e) ............... 2,194% 1,294% 1,270% -- -- 370%
</TABLE>

(a) ASSUMES REINVESTMENT OF DISTRIBUTIONS AT NET ASSET VALUE AND DOES NOT
REFLECT A SALES CHARGE.
(b) ASSUMES REINVESTMENT OF DISTRIBUTIONS AT ACTUAL PRICES PURSUANT TO THE
FUND'S DIVIDEND REINVESTMENT PLAN.
(c) INCLUDES 0.07%, 0.32%, AND 0.31% FROM FEDERAL EXCISE TAXES IN FISCAL YEARS
1996, 1995, AND 1994, RESPECTIVELY.
(d) SECURITIES PURCHASED ON A WHEN-ISSUED BASIS FOR WHICH LIQUID SECURITIES ARE
SEGREGATED ARE NOT CONSIDERED BORROWINGS. SEE NOTE 2 IN THE NOTES TO
FINANCIAL STATEMENTS.
(e) REPRESENTS NET ASSETS, EXCLUDING BORROWINGS, AT END OF PERIOD DIVIDED BY
BORROWINGS OUTSTANDING AT END OF PERIOD.
(f) ANNUALIZED.

- ---------------------------------------------------------------------

1998 Semi-Annual Report 20 AMERICAN GOVERNMENT INCOME FUND
<PAGE>
Investments in Securities (Unaudited)
- ---------------------------------------------------------------------

<TABLE>
<CAPTION>
AMERICAN GOVERNMENT INCOME FUND April 30, 1998
.......................................................................................

Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)

U.S. GOVERNMENT AND AGENCY SECURITIES (115.8%):
U.S. AGENCY MORTGAGE-BACKED SECURITIES (b) (109.4%):
FIXED RATE (105.9%):
7.00%, FHLMC, 8/1/10 .............................. $ 1,863,223 $ 1,899,333
6.50%, FHLMC, 3/1/26 .............................. 648,308 644,664
6.50%, FHLMC, 4/1/26 .............................. 3,544,577 3,524,656
6.50%, FHLMC, 4/1/26 .............................. 765,810 760,702
6.50%, FHLMC, 4/1/26 .............................. 2,989,892 2,973,088
9.50%, FHLMC, 6/1/21 .............................. 1,520,786 1,650,053
10.00%, FHLMC, 12/1/19 ............................ 1,764,663 1,933,400
7.50%, FHLMC, 8/1/25 .............................. 3,269,066 3,367,138
6.50%, FHLMC, 1/1/26 .............................. 889,667 884,667
6.50%, FHLMC, 8/1/26 .............................. 4,011,282 3,984,526
7.00%, FHLMC, 9/1/10 .............................. 3,453,104 3,520,025
6.25%, FHLMC, Series 1638, Class E, 4/15/23 ....... 1,000,000 995,710
6.00%, FHLMC, Series 1699, Class TD, 3/15/24 ...... 3,000,000 2,800,080
7.00%, FNMA, 10/1/25 .............................. 2,128,617 2,161,206
7.00%, FNMA, 5/1/26 ............................... 4,775,729 4,839,915
6.50%, FNMA, 5/1/11 ............................... 5,002,306 5,024,216
7.00%, FNMA, 4/1/26 ............................... 5,965,000 6,045,169
6.50%, FNMA, 4/1/11 ............................... 1,571,446 1,578,816
7.50%, FNMA, 10/1/26 .............................. 4,018,782 4,131,790
6.00%, FNMA, 4/1/13 ............................... 1,010,000 995,163
6.00%, FNMA, 4/1/13 ............................... 1,009,221 994,396
6.00%, FNMA, 4/1/13 ............................... 1,004,200 989,448
6.00%, FNMA, 4/1/13 ............................... 994,855 980,241
6.00%, FNMA, 4/1/13 ............................... 998,000 983,339
6.50%, FNMA, 5/18/13 .............................. 6,500,000(c) 6,526,390
6.00%, FNMA, 2/18/13 .............................. 7,500,000(c) 7,389,825
6.25%, FNMA Series 1998-M1, Class A2, 1/25/08 ..... 2,000,000 1,993,750
6.50%, FNMA, Series 1992-169, Class J, 3/25/21 .... 3,000,000 2,980,530
6.50%, FNMA, Series 1997-1, Class B, 2/18/04 ...... 3,500,000 3,534,160
8.00%, GNMA, 7/15/26 .............................. 2,677,297 2,780,213
7.50%, GNMA, 12/15/27 ............................. 3,787,930(d) 3,893,272
7.50%, GNMA, 12/15/27 ............................. 1,782,130 1,831,691
9.00%, GNMA, 11/15/21 ............................. 2,895,975(d) 3,123,135
7.00%, GNMA, 12/15/10 ............................. 3,173,991 3,249,373
9.00%, GNMA, 4/15/21 .............................. 2,753,033(d) 2,982,746
</TABLE>

SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.

- ---------------------------------------------------------------------

1998 Semi-Annual Report 21 AMERICAN GOVERNMENT INCOME FUND
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------

AMERICAN GOVERNMENT INCOME FUND
(CONTINUED)

Z-BOND (3.5%):
8.35%, Vendee Mortgage Trust, Series 1996-1,Class
1Z, 2/15/26 ..................................... 3,471,034 3,297,586
------------

Total U.S. Agency Mortgage-Backed Securities ... 103,085,315
------------

U.S. GOVERNMENT SECURITIES (6.4%):
6.13%, U.S. Treasury Note, 9/30/00 ................ 1,000,000 1,011,460
5.63%, U.S. Treasury Note, 11/30/00 ............... 5,000,000 5,000,950
------------
6,012,410
------------

Total U.S. Government and Agency Securities
(cost: $106,326,020) ......................... 109,097,725
------------
SHORT-TERM SECURITIES (3.2%):
Repurchase agreement with Goldman Sachs, acquired
on 4/30/98, interest of $464, 5.50%, 5/1/98
(cost: $3,036,000) .............................. 3,036,000(e) 3,036,000
------------
Total Investments in Securities
(cost: $109,362,020) (f) ..................... $112,133,725
------------
------------
</TABLE>

NOTES TO INVESTMENTS IN SECURITIES
(a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(b) PORTFOLIO ABBREVIATIONS AND DEFINITIONS:
Z-BOND - REPRESENTS SECURITIES THAT PAY NO INTEREST OR PRINCIPAL DURING
THEIR INITIAL ACCRUAL PERIODS, BUT ACCRUE ADDITIONAL PRINCIPAL AT
SPECIFIED RATES. INTEREST RATE DISCLOSED REPRESENTS CURRENT YIELD
BASED UPON THE COST BASIS AND ESTIMATED TIMING OF FUTURE CASH FLOWS.
VENDEE - SECURITIES ISSUED THROUGH THE VENDEE LOAN PROGRAM,
ADMINISTERED AND GUARANTEED AS TO PAYMENT OF PRINCIPAL BY THE VETERANS
ADMINISTRATION (VA). THE VA GUARANTEE IS BACKED BY THE FULL FAITH AND
CREDIT OF THE UNITED STATES GOVERNMENT.
(c) ON APRIL 30, 1998, THE TOTAL COST OF INVESTMENTS PURCHASED ON A WHEN-ISSUED
BASIS WAS $13,939,336.
(d) ON APRIL 30, 1998, SECURITIES VALUED AT $8,265,484 WERE PLEDGED AS
COLLATERAL FOR THE FOLLOWING OUTSTANDING REVERSE REPURCHASE AGREEMENT:

<TABLE>
<CAPTION>
NAME OF BROKER
ACQUISITION ACCRUED AND DESCRIPTION
AMOUNT DATE RATE* DUE INTEREST OF COLLATERAL
- ----------- ----------- ---------- --------- --------- -------------------
<S> <C> <C> <C> <C> <C>
$ 4,500,000 2/17/98 5.56% 5/19/98 $ 50,735 (1)
- ----------- ---------
- ----------- ---------
</TABLE>

* INTEREST RATE AS OF APRIL 30, 1998. RATE IS BASED ON THE LONDON INTERBANK
OFFERED RATE (LIBOR).

- ---------------------------------------------------------------------

1998 Semi-Annual Report 22 AMERICAN GOVERNMENT INCOME FUND
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
<TABLE>
<S> <C>
NAME OF BROKER AND DESCRIPTION OF COLLATERAL:
(1) MORGAN STANLEY;
GNMA, 7.50%, 12/15/27, $3,787,930 PAR
GNMA, 9.00%, 11/15/21, $1,288,404 PAR
GNMA, 9.00%, 4/15/21, $2,753,033 PAR
(E) REPURCHASE AGREEMENT IN A JOINT TRADING ACCOUNT WHICH IS COLLATERALIZED BY
U.S. GOVERNMENT AGENCY SECURITIES. ACCRUED INTEREST SHOWN REPRESENTS
INTEREST DUE AT MATURITY OF THE REPURCHASE AGREEMENT.
(F) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS
UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED
ON THIS COST WERE AS FOLLOWS:
</TABLE>

<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 2,810,027
GROSS UNREALIZED DEPRECIATION ...... (38,322)
------------
NET UNREALIZED APPRECIATION ...... $ 2,771,705
------------
------------
</TABLE>

- ---------------------------------------------------------------------

1998 Semi-Annual Report 23 AMERICAN GOVERNMENT INCOME FUND
<PAGE>
Financial Statements (Unaudited)

<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (note 2)
(including a repurchase agreement of $6,474,000) ......... $ 147,639,834
Accrued interest receivable ................................ 847,297
-----------------
Total assets ............................................. 148,487,131
-----------------

LIABILITIES:
Payable for investment securities purchased on a when-issued
basis (note 2) ........................................... 13,982,891
Reverse repurchase agreements payable ...................... 6,500,000
Bank overdraft ............................................. 3,029
Accrued interest ........................................... 73,284
Other accrued expenses ..................................... 122,235
-----------------
Total liabilities ........................................ 20,681,439
-----------------
Net assets applicable to outstanding capital stock ....... $ 127,805,692
-----------------
-----------------

COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital ............... $ 183,181,191
Undistributed net investment income ........................ 466,813
Accumulated net realized loss on investments ............... (59,697,296)
Unrealized appreciation of investments ..................... 3,854,984
-----------------

Total - representing net assets applicable to capital
stock .................................................. $ 127,805,692
-----------------
-----------------

* Investments in securities at identified cost ............. $ 143,784,850
-----------------
-----------------

NET ASSET VALUE AND MARKET PRICE:
Net assets ................................................. $ 127,805,692
Shares outstanding (authorized 1 billion shares of $0.01 par
value) ................................................... 18,357,911
Net asset value ............................................ $ 6.96
Market price ............................................... $ 6.75
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

- ---------------------------------------------------------------------

1998 Semiannual Report 24 American Government Income Portfolio
<PAGE>
Financial Statements (Unaudited) (continued)
- ---------------------------------------------------------------------

STATEMENT OF OPERATIONS For the Six Months Ended April 30, 1998
................................................................................

<TABLE>
<S> <C>
INCOME:
Interest (net of interest expense of $222,318) ............. $ 4,617,177
Fee income (note 2) ........................................ 77,453
-----------------

Total investment income .................................. 4,694,630
-----------------

EXPENSES (NOTE 3):
Investment management fee .................................. 402,718
Administrative fee ......................................... 134,240
Custodian and accounting fees .............................. 50,913
Transfer agent fees ........................................ 9,150
Reports to shareholders .................................... 42,912
Directors' fees ............................................ 6,207
Audit and legal fees ....................................... 32,773
Other expenses ............................................. 27,955
-----------------
Total expenses ........................................... 706,868
Less expenses paid indirectly .......................... (1,936)
-----------------

Total net expenses ....................................... 704,932
-----------------

Net investment income .................................... 3,989,698
-----------------

NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on investments (note 4) .................. 1,548,550
Net realized loss on closed futures contracts .............. (48,307)
-----------------

Net realized gain on investments ......................... 1,500,243
Net change in unrealized appreciation or depreciation of
investments .............................................. (1,169,348)
-----------------

Net gain on investments .................................. 330,895
-----------------

Net increase in net assets resulting from operations ... $ 4,320,593
-----------------
-----------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

- ---------------------------------------------------------------------

1998 Semiannual Report 25 American Government Income Portfolio
<PAGE>
Financial Statements (Unaudited) (continued)
- ---------------------------------------------------------------------

STATEMENT OF CASH FLOWS For the Six Months Ended April 30, 1998
................................................................................

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and fee income .................................... $ 4,694,630
Net expenses ............................................... (704,932)
-----------------
Net investment income .................................... 3,989,698
-----------------

Adjustments to reconcile net investment income to net cash
provided by operating activities:
Change in accrued interest receivable and principal
receivable on mortgage securities ...................... 398,690
Net amortization of bond discount and premium ............ (39,608)
Change in accrued fees and expenses ...................... (37,831)
-----------------
Total adjustments ...................................... 321,251
-----------------

Net cash provided by operating activities .............. 4,310,949
-----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments ......................... 124,615,713
Purchases of investments ................................... (78,055,733)
Net purchases of short-term securities ..................... (3,086,000)
Net variation margin paid for futures contracts ............ (48,307)
-----------------

Net cash provided by investing activities .............. 43,425,673
-----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments for reverse repurchase agreements ............. (8,000,000)
Retirement of fund shares .................................. (42,354,538)
Distributions paid to shareholders ......................... (4,069,073)
-----------------

Net cash used by financing activities .................. (54,423,611)
-----------------
Net decrease in cash ....................................... (6,686,989)
Cash at beginning of period ................................ 6,683,960
-----------------

Cash at end of period .................................. $ (3,029)
-----------------
-----------------

Supplemental disclosure of cash flow information:
Cash paid for interest on reverse repurchase
agreements ............................................. $ 267,897
-----------------
-----------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

- ---------------------------------------------------------------------

1998 Semiannual Report 26 American Government Income Portfolio
<PAGE>
Financial Statements (continued)
- ---------------------------------------------------------------------

STATEMENTS OF CHANGES IN NET ASSETS
................................................................................

<TABLE>
<CAPTION>
SIX MONTHS ENDED
4/30/98 YEAR ENDED
(UNAUDITED) 10/31/97
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income ...................................... $ 3,989,698 $ 10,255,321
Net realized gain on investments ........................... 1,500,243 109,884
Net change in unrealized appreciation or depreciation of
investments .............................................. (1,169,348) 3,811,323
----------------- -----------------

Net increase in net assets resulting from operations ..... 4,320,593 14,176,528
----------------- -----------------

DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ................................. (4,069,073) (10,277,265)
----------------- -----------------

CAPITAL SHARE TRANSACTIONS (NOTE 6):
Decrease in net assets from capital share transactions ... (42,354,538) --
----------------- -----------------
Total increase (decrease) in net assets .................. (42,103,018) 3,899,263

Net assets at beginning of period .......................... 169,908,710 166,009,447
----------------- -----------------

Net assets at end of period ................................ $ 127,805,692 $ 169,908,710
----------------- -----------------
----------------- -----------------

Undistributed net investment income ........................ $ 466,813 $ 546,188
----------------- -----------------
----------------- -----------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

- ---------------------------------------------------------------------

1998 Semiannual Report 27 American Government Income Portfolio
<PAGE>
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------

(1) ORGANIZATION
................................
American Government Income Portfolio Inc. (the fund) is
registered under the Investment Company Act of 1940 (as amended)
as a non-diversified, closed-end management investment company.
The fund invests primarily in obligations issued or guaranteed by
the U.S. government, its agencies and instrumentalities,
including mortgage-backed securities. The fund may enter into
dollar-roll transactions. In addition, the fund may borrow
through the use of reverse repurchase agreements. Fund shares are
listed on the New York Stock Exchange under the symbol AAF.

(2) SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES
................................
INVESTMENTS IN SECURITIES
Portfolio securities for which market quotations are readily
available are valued at current market value. If market
quotations or valuations are not readily available, or if such
quotations or valuations are believed to be inaccurate,
unreliable or not reflective of market value, portfolio
securities are valued according to procedures adopted by the
fund's board of directors in good faith at "fair value", that is,
a price that the fund might reasonably expect to receive for the
security or other asset upon its current sale.

The current market value of certain fixed income securities is
provided by an independent pricing service. Fixed income
securities for which prices are not available from an independent
pricing service but where an active market exists are valued
using market quotations obtained from one or more dealers that
make markets in the securities or from a widely-used quotation
system. Short-term securities with maturities of 60 days or less
are valued at amortized cost, which approximates market value.

Exchange-traded options are valued at the last sales price on the
exchange prior to the time when assets are valued. If no sales
were reported that day, the options are valued at the mean
between the current closing bid and asked prices.
Over-the-counter options are valued using market quotations
obtained from broker-dealers.

- ---------------------------------------------------------------------

1998 Semiannual Report 28 American Government Income Portfolio
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
Financial futures are valued at the last settlement price
established each day by the board of trade or exchange on which
they are traded.

Securities transactions are accounted for on the date securities
are purchased or sold. Realized gains and losses are calculated
on the identified-cost basis. Interest income, including
amortization of bond discount and premium, is recorded on an
accrual basis.

FUTURES TRANSACTIONS
In order to gain exposure to or protect against changes in the
market, the fund may buy and sell financial futures contracts and
related options. Risks of entering into futures contracts and
related options include the possibility there may be an illiquid
market and that a change in the value of the contract or option
may not correlate with changes in the value of the underlying
securities.

Upon entering into a futures contract, the fund is required to
deposit either cash or securities in an amount (initial margin)
equal to a certain percentage of the contract value. Subsequent
payments (variation margin) are made or received by the fund each
day. The variation margin payments are equal to the daily changes
in the contract value and are recorded as unrealized gains and
losses. The fund recognizes a realized gain or loss when the
contract is closed or expires.

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

- ---------------------------------------------------------------------

1998 Semiannual Report 29 American Government Income Portfolio
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
substantially fully invested. As of April 30, 1998, the fund had
entered into outstanding when-issued or forward commitments of
$13,982,891.

In connection with its ability to purchase securities on a when-
issued or forward-commitment basis, the fund may enter into
mortgage dollar rolls in which the fund sells securities
purchased on a forward commitment basis and simultaneously
contracts with a counterparty to repurchase similar (same type,
coupon and maturity) but not identical securities on a specified
future date. As an inducement to "roll over" its purchase
commitments, the fund receives negotiated fees. For the six
months ended April 30, 1998, such fees earned by the fund
amounted to $77,453.

FEDERAL TAXES
The fund intends to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and not
be subject to federal income tax. Therefore, no income tax
provision is required. The fund also intends to distribute its
taxable net investment income and realized gains, if any, to
avoid the payment of any federal excise taxes.

Net investment income and net realized gains (losses) may differ
for financial statement and tax purposes. The character of
distributions made during the year from net investment income or
net realized gains may differ from its ultimate characterization
for federal income tax purposes. In addition, due to the timing
of dividend distributions, the fiscal year in which amounts are
distributed may differ from the year that the income or realized
gains or losses were recorded by the fund.

DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income are made monthly and
realized capital gains, if any, will be distributed at least
annually. These distributions are recorded as of the close of
business on the ex-dividend date. Such distributions are payable
in cash or, pursuant to the fund's dividend reinvestment plan,
reinvested in

- ---------------------------------------------------------------------

1998 Semiannual Report 30 American Government Income Portfolio
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
additional shares of the fund's capital stock. Under the plan,
fund shares will be purchased in the open market unless the
market price plus commissions exceeds the net asset value by 10%
or more. If, at the close of business on the dividend payment
date, the shares purchased in the open market are insufficient to
satisfy the dividend reinvestment requirement, the fund will
issue new shares at a discount of up to 5% from the current
market price.

REPURCHASE AGREEMENTS
For repurchase agreements entered into with certain
broker-dealers, the fund, along with other affiliated registered
investment companies, may transfer uninvested cash balances into
a joint trading account, the daily aggregate of which is invested
in repurchase agreements secured by U.S. government or agency
obligations. Securities pledged as collateral for all individual
and joint repurchase agreements are held by the fund's custodian
bank until maturity of the repurchase agreement. Provisions for
all agreements ensure that the daily market value of the
collateral is in excess of the repurchase amount, including
accrued interest, to protect the fund in the event of a default.

- ---------------------------------------------------------------------

1998 Semiannual Report 31 American Government Income Portfolio
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
including amortization of discount and premium, other than gains
from the sale of securities or gains from options and futures
contracts less interest on money borrowed by the fund) accrued by
the fund during the month. The monthly investment management fee
shall not exceed in the aggregate 1/12th of 0.60% of the fund's
average weekly net assets during the month (approximately 0.60%
on an annual basis). For the six months ended April 30, 1998, the
effective annualized investment management fee incurred by the
fund was 0.60%. For its fee, the advisor provides investment
advice and conducts the management and investment activities of
the fund.

The administration agreement provides the administrator with a
monthly fee in an amount equal to an annualized rate of 0.20% of
the fund's average weekly net assets. For its fee, the
administrator provides reporting, regulatory and record-keeping
services for the fund.

OTHER FEES AND EXPENSES
In addition to the investment management and administrative fees,
the fund is responsible for paying most other operating expenses
including: outside directors' fees and expenses; custodian fees;
registration fees; printing and shareholder reports; transfer
agent fees and expenses; legal, auditing and accounting services;
insurance; interest; taxes and other miscellaneous expenses.

Expenses paid indirectly represent a reduction of custodian fees
for earnings on miscellaneous cash balances maintained by the
fund.

(4) INVESTMENT
SECURITY
TRANSACTIONS
................................
Cost of purchases and proceeds from sales of securities, other
than temporary investments in short-term securities and dollar
roll transactions, for the six months ended April 30, 1998,
aggregated $70,911,825 and $124,615,713, respectively. Including
dollar rolls, such purchases and sales aggregated $23,620,731 and
$77,324,619, respectively.

- ---------------------------------------------------------------------

1998 Semiannual Report 32 American Government Income Portfolio
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CAPITAL LOSS
CARRYOVER EXPIRATION
------------- ---------------
<S> <C>
$ 26,037,491 2002
30,440,824 2003
4,719,224 2004
-------------
$ 61,197,539
-------------
-------------
</TABLE>

(6) REPURCHASE
OFFER
................................
The fund's board of directors concluded that an offer to
repurchase up to 25% of the fund's outstanding shares would be in
the best interests of shareholders. Accordingly, the board
authorized such an offer as part of a settlement agreement
reached in connection with class action litigation involving the
fund and seven other closed-end investment companies managed by
Piper Capital Management Incorporated.

The repurchase offer was sent to shareholders in October 1997,
and the deadline for submitting shares for repurchase was 5 p.m.
Central Time on November 17, 1997. The repurchase price was
determined on December 1, 1997, at the close of regular trading
on the New York Stock Exchange (4 p.m. Eastern Time). The
percentage of outstanding shares and the number of shares
accepted for tender, the repurchase price per share and proceeds
(including tender fees) paid by the fund were as follows:

<TABLE>
<CAPTION>
PERCENTAGE SHARES REPURCHASE PROCEEDS
TENDERED TENDERED PRICE PAID
---------- ------------- ----------- --------------
<S> <C> <C> <C>
25% 6,111,766 $6.91 $ 42,354,538
</TABLE>

(7) ADVISOR
ACQUISITION
................................
On May 1, 1998, Piper Jaffray Companies Inc., the parent company
of the fund's investment advisor, was acquired by U.S. Bancorp.

- ---------------------------------------------------------------------

1998 Semiannual Report 33 American Government Income Portfolio
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------

U.S. Bancorp is a multi-state bank holding company headquartered
in Minneapolis, Minnesota with a geographic service area spanning
17 states. As of March 31, 1998, U.S. Bancorp was the 15th
largest U.S. commercial bank holding company, with assets of
nearly $70.9 billion. U.S. Bank National Association ("U.S.
Bank"), a wholly owned subsidiary of U.S. Bancorp, currently acts
as the investment advisor to 32 mutual funds (the "First American
Funds"). As of March 31, 1998, U.S. Bank, acting through its
First American Asset Management group, managed more than $65.3
billion in assets, including approximately $23.3 billion in
assets of the First American Funds.

Under the Investment Company Act of 1940, as amended,
consummation of the acquisition of Piper Jaffray Companies by
U.S. Bancorp resulted in the assignment and automatic termination
of the fund's investment advisory agreement with Piper Capital
Management Incorporated. The fund has entered into a new
investment advisory agreement with Piper Capital Management,
which shareholders will vote on at the fund's annual meeting in
August.

(8) REORGANIZATION
OF THE FUND
................................
On April 27, 1998, the fund's board of directors approved the
merger of the fund into an existing open-end fund in the First
American family of funds. Shareholders will vote on the proposal
at the fund's annual meeting in August.

- ---------------------------------------------------------------------

1998 Semiannual Report 34 American Government Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------

(9) FINANCIAL
HIGHLIGHTS
................................
Per-share data for a share of capital stock outstanding
throughout each period and selected information for each period
are as follows:

<TABLE>
<CAPTION>
Six Months
Ended Year Ended October 31,
4/30/98 ----------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
------------ --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ... $ 6.94 $ 6.78 $ 7.08 $ 6.83 $ 10.99 $ 11.00
------------ --------- --------- --------- ---------- ---------
Operations:
Net investment income ................ 0.21 0.42 0.42 0.54 0.90 1.90
Net realized and unrealized gains
(losses) on investments ............ 0.02 0.16 0.04 0.80 (3.50) (0.04)
------------ --------- --------- --------- ---------- ---------
Total from operations .............. 0.23 0.58 0.46 1.34 (2.60) 1.86
------------ --------- --------- --------- ---------- ---------
Distributions to shareholders:
From net investment income ........... (0.21) (0.42) (0.76) (1.09) (1.41) (1.27)
From net realized gains .............. -- -- -- -- -- (0.60)
In excess of net realized gains ...... -- -- -- -- (0.15) --
------------ --------- --------- --------- ---------- ---------
Total distributions to
shareholders ..................... (0.21) (0.42) (0.76) (1.09) (1.56) (1.87)
------------ --------- --------- --------- ---------- ---------
Net asset value, end of period ......... $ 6.96 $ 6.94 $ 6.78 $ 7.08 $ 6.83 $ 10.99
------------ --------- --------- --------- ---------- ---------
------------ --------- --------- --------- ---------- ---------
Market value, end of period ............ $ 6.75 $ 6.56 $ 6.00 $ 7.00 $ 7.25 $ 12.00
------------ --------- --------- --------- ---------- ---------
------------ --------- --------- --------- ---------- ---------
SELECTED INFORMATION
Total return, net asset value (a) ...... 3.35% 8.87% 6.90% 21.40% (25.93)% 18.66%
Total return, market value (b) ......... 6.17% 16.93% (3.48)% 13.46% (29.14)% 28.18%
Net assets at end of period (in
millions) . $ 128 $ 170 $ 166 $ 174 $ 167 $ 261
Ratio of expenses to average weekly net
assets excluding interest expense (c) 1.05%(f) 0.98% 1.06% 1.41% 1.28% 0.95%
Ratio of expenses to average weekly net
assets including interest expense
(c) . 1.38%(f) 1.47% 1.31% 1.41% 2.46% 2.34%
Ratio of net investment income to
average weekly net assets ............ 5.94%(f) 6.19% 6.26% 7.93% 10.84% 17.42%
Portfolio turnover rate (excluding
short-term securities and dollar roll
transactions) ........................ 15% %63 132% 206% 106% %79
Amount of borrowings outstanding at end
of period (in millions) (d) .......... $ 7 $ 15 $ 15 -- -- $ 97
Per-share amount of borrowings
outstanding at end of period ......... $ 0.35 $ 0.59 $ 0.59 -- -- $ 4.06
Per-share amount of net assets,
excluding borrowings, at end of period $ 7.31 $ 7.53 $ 7.37 -- -- $ 15.05
Asset coverage ratio (e) ............... 2,066% 1,272% 1,245% -- -- 370%
</TABLE>

(a) ASSUMES REINVESTMENT OF DISTRIBUTIONS AT NET ASSET VALUE AND DOES NOT
REFLECT A SALES CHARGE.
(b) ASSUMES REINVESTMENT OF DISTRIBUTIONS AT ACTUAL PRICES PURSUANT TO THE
FUND'S DIVIDEND REINVESTMENT PLAN.
(c) INCLUDES 0.06%, 0.38%, AND 0.30% FROM FEDERAL EXCISE TAXES IN FISCAL YEARS
1996, 1995 AND 1994, RESPECTIVELY.
(d) SECURITIES PURCHASED ON A WHEN-ISSUED BASIS FOR WHICH LIQUID SECURITIES ARE
SEGREGATED ARE NOT CONSIDERED BORROWINGS. SEE NOTE 2 IN THE NOTES TO
FINANCIAL STATEMENTS.
(e) REPRESENTS NET ASSETS, EXCLUDING BORROWINGS, AT END OF PERIOD DIVIDED BY
BORROWINGS OUTSTANDING AT END OF PERIOD.
(f) ANNUALIZED.

- ---------------------------------------------------------------------

1998 Semiannual Report 35 American Government Income Portfolio
<PAGE>
Investments in Securities (Unaudited)
- ---------------------------------------------------------------------

<TABLE>
<CAPTION>
AMERICAN GOVERNMENT INCOME PORTFOLIO April 30, 1998
.......................................................................................

U.S. GOVERNMENT AND AGENCY SECURITIES (110.4%):
U.S. AGENCY MORTGAGE-BACKED SECURITIES (B) (101.7%):
FIXED RATE (98.3%):
7.00%, FHLMC, 9/1/10 .............................. $ 3,789,291 $ 3,862,727
6.50%, FHLMC, 2/1/26 .............................. 3,518,074 3,498,302
6.50%, FHLMC, 11/1/25 ............................. 2,241,003 2,229,798
6.50%, FHLMC, 5/1/26 .............................. 4,934,816 4,907,082
9.00%, FHLMC, 3/1/21 .............................. 1,651,719 1,766,827
9.50%, FHLMC, 6/1/21 .............................. 2,015,978 2,187,336
10.00%, FHLMC, 12/1/19 ............................ 2,312,317 2,533,420
7.00%, FHLMC, 9/1/10 .............................. 2,071,862 2,112,015
6.25%, FHLMC, Series 1638, Class E, 4/15/23 ....... 1,000,000 995,710
6.00%, FHLMC, Series 1699, Class TD, 3/15/24 ...... 4,000,000 3,733,440
7.00%, FNMA, 1/1/08 ............................... 635,983 650,490
7.00%, FNMA, 5/1/09 ............................... 1,984,833 2,026,395
7.00%, FNMA, 10/1/25 .............................. 2,980,063 3,025,688
7.00%, FNMA, 5/1/26 ............................... 4,361,715 4,420,336
6.50%, FNMA, 5/1/11 ............................... 4,168,588 4,186,846
6.50%, FNMA, 4/1/11 ............................... 2,445,236 2,456,704
7.00%, FNMA, 4/1/26 ............................... 8,634,855 8,750,908
6.50%, FNMA, 4/1/11 ............................... 1,964,307 1,973,520
6.50%, FNMA, 7/1/26 ............................... 5,171,867 5,130,906
7.50%, FNMA, 10/1/26 .............................. 5,241,189 5,388,571
7.50%, FNMA, 10/1/26 .............................. 4,434,994 4,559,706
6.00%, FNMA, 3/1/13 ............................... 990,000 975,457
6.00%, FNMA, 3/1/13 ............................... 990,001 975,458
6.00%, FNMA, 4/1/13 ............................... 990,000 975,457
6.00%, FNMA, 3/1/13 ............................... 990,000 975,457
6.00%, FNMA, 3/1/13 ............................... 990,001 975,458
6.00%, FNMA, 4/1/13 ............................... 990,000 975,457
6.50%, FNMA, 5/18/13 .............................. 9,000,000(c) 9,036,540
6.00%, FNMA, 2/18/13 .............................. 5,000,000(c) 4,926,550
6.25%, FNMA Series 1998-M1, Class A2, 1/25/08 ..... 2,500,000 2,492,188
6.50%, FNMA, Series 1992-169, Class J, 3/25/21 .... 4,000,000 3,974,040
6.50%, FNMA, Series 1997-1, Class B, 2/18/04 ...... 4,500,000 4,543,920
8.00%, GNMA, 7/15/26 .............................. 981,665 1,019,400
8.00%, GNMA, 7/15/26 .............................. 3,439,907 3,572,137
7.50%, GNMA, 11/15/27 ............................. 6,295,082 6,470,148
9.00%, GNMA, 11/15/21 ............................. 3,422,516(d) 3,690,978
</TABLE>

SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.

- ---------------------------------------------------------------------

1998 Semiannual Report 36 American Government Income Portfolio
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------

AMERICAN GOVERNMENT INCOME PORTFOLIO
(CONTINUED)

<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
7.00%, GNMA, 12/15/10 ............................. $ 2,822,485 $ 2,889,519
9.00%, GNMA, 4/15/21 .............................. 3,916,895(d) 4,243,720
9.00%, GNMA, 10/15/22 ............................. 2,388,434 2,577,264
------------
125,685,875
------------

Z-BOND (3.4%):
8.35%, Vendee Mortgage Trust, Series 1996-1, Class
1Z, 2/15/26 ..................................... 4,628,045 4,396,782
------------

Total U.S. Agency Mortgage-Backed Securities ... 130,082,657
------------

U.S. GOVERNMENT SECURITIES (8.7%):
6.13%, U.S. Treasury Note, 9/30/00 ................ 5,420,000(d) 5,482,113
5.63%, U.S. Treasury Note, 11/30/00 ............... 5,600,000 5,601,064
------------
11,083,177
------------

Total U.S. Government and Agency Securities
(cost: $137,310,850) ......................... 141,165,834
------------

SHORT-TERM SECURITIES (5.1%):
Repurchase agreement with Goldman Sachs, acquired
on 4/30/98, interest of $989, 5.50%, 5/1/98
(cost: $6,474,000) .............................. 6,474,000(e) 6,474,000
------------

Total Investments in Securities
(cost: $143,784,850)(f) ...................... $147,639,834
------------
------------
</TABLE>

NOTES TO INVESTMENTS IN SECURITIES:
(a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(b) PORTFOLIO ABBREVIATIONS AND DEFINITIONS:
Z-BOND - REPRESENTS SECURITIES THAT PAY NO INTEREST OR PRINCIPAL DURING
THEIR INITIAL ACCRUAL PERIODS, BUT ACCRUE ADDITIONAL PRINCIPAL AT
SPECIFIED RATES. INTEREST RATE DISCLOSED REPRESENTS CURRENT YIELD
BASED UPON THE COST BASIS AND ESTIMATED TIMING OF FUTURE CASH FLOWS.
VENDEE - SECURITIES ISSUED THROUGH THE VENDEE LOAN PROGRAM,
ADMINISTERED AND GUARANTEED AS TO PAYMENT OF PRINCIPAL BY THE VETERANS
ADMINISTRATION (VA). THE VA GUARANTEE IS BACKED BY THE FULL FAITH AND
CREDIT OF THE UNITED STATES GOVERNMENT.
(c) ON APRIL 30, 1998, THE TOTAL COST OF INVESTMENTS PURCHASED ON A WHEN-ISSUED
BASIS WAS $13,982,891.

- ---------------------------------------------------------------------

1998 Semiannual Report 37 American Government Income Portfolio
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
<TABLE>
<S> <C>
(d) ON APRIL 30, 1998, SECURITIES VALUED AT $7,296,102 WERE PLEDGED AS
COLLATERAL FOR THE FOLLOWING OUTSTANDING REVERSE REPURCHASE AGREEMENT:
</TABLE>

<TABLE>
<CAPTION>
NAME OF BROKER
ACQUISITION ACCRUED AND DESCRIPTION
AMOUNT DATE RATE* DUE INTEREST OF COLLATERAL
- ----------- ----------- ---------- --------- --------- -------------------
<S> <C> <C> <C> <C> <C>
$ 6,500,000 2/17/98 5.56% 5/19/98 $ 73,284 (1)
- ----------- ---------
- ----------- ---------
</TABLE>

* INTEREST RATE AS OF APRIL 30, 1998. RATE IS BASED ON THE LONDON INTERBANK
OFFERED RATE (LIBOR).

NAME OF BROKER AND DESCRIPTION OF COLLATERAL:
(1) MORGAN STANLEY;
GNMA, 9.00%, 11/15/21, $2,595,895 PAR
GNMA, 9.00%, 4/15/21, $3,916,895 PAR
U.S. TREASURY NOTE, 6.13%, 9/30/00, $250,000 PAR

(e) REPURCHASE AGREEMENT IN A JOINT TRADING ACCOUNT WHICH IS COLLATERALIZED BY
U.S. GOVERNMENT AGENCY SECURITIES. ACCRUED INTEREST SHOWN REPRESENTS
INTEREST DUE AT MATURITY OF THE REPURCHASE AGREEMENT.
(f) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS
UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED
ON THIS COST WERE AS FOLLOWS:

<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 3,893,786
GROSS UNREALIZED DEPRECIATION ...... (38,802)
------------
NET UNREALIZED APPRECIATION ...... $ 3,854,984
------------
------------
</TABLE>

- ---------------------------------------------------------------------

1998 Semiannual Report 38 American Government Income Portfolio
<PAGE>
Financial Statements (Unaudited)

<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (note 2)
(including a repurchase agreement of $2,637,000) ......... $ 133,522,167
Cash in bank on demand deposit ............................. 30,468
Accrued interest receivable ................................ 873,284
-----------------
Total assets ............................................. 134,425,919
-----------------

LIABILITIES:
Payable for investment securities purchased on a when-issued
basis (note 2) ........................................... 15,455,547
Reverse repurchase agreements payable ...................... 5,000,000
Accrued interest ........................................... 56,372
Other accrued expenses ..................................... 113,459
-----------------
Total liabilities ........................................ 20,625,378
-----------------
Net assets applicable to outstanding capital stock ....... $ 113,800,541
-----------------
-----------------

COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital ............... $ 171,728,291
Undistributed net investment income ........................ 91,163
Accumulated net realized loss on investments ............... (62,071,037)
Unrealized appreciation of investments ..................... 4,052,124
-----------------

Total - representing net assets applicable to capital
stock .................................................. $ 113,800,541
-----------------
-----------------

* Investments in securities at identified cost ............. $ 129,470,043
-----------------
-----------------

NET ASSET VALUE AND MARKET PRICE:
Net assets ................................................. $ 113,800,541
Shares outstanding (authorized 250 million shares of $0.01
par value)................................................. 16,990,546
Net asset value ............................................ $ 6.70
Market price ............................................... $ 6.44
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

- ---------------------------------------------------------------------

1998 Semiannual Report 39 American Opportunity Income Fund
<PAGE>
Financial Statements (Unaudited) (continued)
- ---------------------------------------------------------------------

STATEMENT OF OPERATIONS For the Six Months Ended April 30, 1998
................................................................................

<TABLE>
<S> <C>
INCOME:
Interest (net of interest expense of $218,071) ............. $ 4,139,444
Fee income (note 2) ........................................ 81,621
-----------------

Total investment income .................................. 4,221,065
-----------------

EXPENSES (NOTE 3):
Investment management fee .................................. 308,755
Administrative fee ......................................... 119,629
Custodian and accounting fees .............................. 49,489
Transfer agent fees ........................................ 9,052
Reports to shareholders .................................... 44,084
Directors' fees ............................................ 6,207
Audit and legal fees ....................................... 33,094
Other expenses ............................................. 27,766
-----------------
Total expenses ........................................... 598,076
Less expenses paid indirectly .......................... (940)
-----------------

Total net expenses ....................................... 597,136
-----------------

Net investment income .................................... 3,623,929
-----------------

NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on investments (note 4) .................. 1,739,094
Net realized loss on closed futures contracts .............. (43,571)
-----------------

Net realized gain on investments ......................... 1,695,523
Net change in unrealized appreciation or depreciation of
investments .............................................. (1,549,951)
-----------------

Net gain on investments .................................. 145,572
-----------------

Net increase in net assets resulting from operations ... $ 3,769,501
-----------------
-----------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

- ---------------------------------------------------------------------

1998 Semiannual Report 40 American Opportunity Income Fund
<PAGE>
Financial Statements (Unaudited) (continued)
- ---------------------------------------------------------------------

STATEMENT OF CASH FLOWS For the Six Months Ended April 30, 1998
................................................................................

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and fee income .................................... $ 4,221,065
Net expenses ............................................... (597,136)
-----------------
Net investment income .................................... 3,623,929
-----------------

Adjustments to reconcile net investment income to net cash
provided by operating activities:
Change in accrued interest receivable and principal
receivable on mortgage securities ...................... 500,955
Net amortization of bond discount and premium ............ (32,486)
Change in accrued fees and expenses ...................... (102,083)
-----------------
Total adjustments ...................................... 366,386
-----------------

Net cash provided by operating activities .............. 3,990,315
-----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments ......................... 95,708,418
Purchases of investments ................................... (46,025,907)
Net sales of short-term securities ......................... 4,037,000
Net variation margin paid for futures contracts ............ (43,571)
-----------------

Net cash provided by investing activities .............. 53,675,940
-----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments for reverse repurchase agreements ............. (16,000,000)
Retirement of fund shares .................................. (37,895,152)
Distributions paid to shareholders ......................... (3,766,567)
-----------------

Net cash used by financing activities .................. (57,661,719)
-----------------
Net increase in cash ....................................... 4,536
Cash at beginning of period ................................ 25,932
-----------------

Cash at end of period .................................. $ 30,468
-----------------
-----------------

Supplemental disclosure of cash flow information:
Cash paid for interest on reverse repurchase
agreements ............................................. $ 342,691
-----------------
-----------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

- ---------------------------------------------------------------------

1998 Semiannual Report 41 American Opportunity Income Fund
<PAGE>
Financial Statements (continued)
- ---------------------------------------------------------------------

STATEMENTS OF CHANGES IN NET ASSETS
................................................................................

<TABLE>
<CAPTION>
SIX MONTHS ENDED
4/30/98 YEAR ENDED
(UNAUDITED) 10/31/97
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income ...................................... $ 3,623,929 $ 9,549,757
Net realized gain (loss) on investments .................... 1,695,523 (870,592)
Net change in unrealized appreciation or depreciation of
investments .............................................. (1,549,951) 5,150,515
----------------- -----------------

Net increase in net assets resulting from operations ..... 3,769,501 13,829,680
----------------- -----------------

DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ................................. (3,766,567) (10,062,582)
----------------- -----------------

CAPITAL SHARE TRANSACTIONS (NOTE 6):
Decrease in net assets from capital share transactions ..... (37,895,152) --
----------------- -----------------
Total increase (decrease) in net assets .................. (37,892,218) 3,767,098

Net assets at beginning of period .......................... 151,692,759 147,925,661
----------------- -----------------

Net assets at end of period ................................ $ 113,800,541 $ 151,692,759
----------------- -----------------
----------------- -----------------

Undistributed net investment income ........................ $ 91,163 $ 233,801
----------------- -----------------
----------------- -----------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

- ---------------------------------------------------------------------

1998 Semiannual Report 42 American Opportunity Income Fund
<PAGE>
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------

(1) ORGANIZATION
................................
American Opportunity Income Fund Inc. (the fund) is registered
under the Investment Company Act of 1940 (as amended) as a
diversified, closed-end management investment company. The fund
invests principally in mortgage-backed securities including U.S.
government agency securities and privately issued securities. The
fund may enter into dollar-roll transactions. In addition, the
fund may borrow through the use of reverse repurchase agreements.
Fund shares are listed on the New York Stock Exchange under the
symbol OIF.

(2) SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES
................................
INVESTMENTS IN SECURITIES
Portfolio securities for which market quotations are readily
available are valued at current market value. If market
quotations or valuations are not readily available, or if such
quotations or valuations are believed to be inaccurate,
unreliable or not reflective of market value, portfolio
securities are valued according to procedures adopted by the
fund's board of directors in good faith at "fair value", that is,
a price that the fund might reasonably expect to receive for the
security or other asset upon its current sale.

The current market value of certain fixed income securities is
provided by an independent pricing service. Fixed income
securities for which prices are not available from an independent
pricing service but where an active market exists are valued
using market quotations obtained from one or more dealers that
make markets in the securities or from a widely-used quotation
system. Short-term securities with maturities of 60 days or less
are valued at amortized cost, which approximates market value.

Exchange-traded options are valued at the last sales price on the
exchange prior to the time when assets are valued. If no sales
were reported that day, the options will be valued at the mean
between the current closing bid and asked prices.
Over-the-counter options are valued using market quotations
obtained from broker-dealers.

- ---------------------------------------------------------------------

1998 Semiannual Report 43 American Opportunity Income Fund
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
Financial futures are valued at the last settlement price
established each day by the board of trade or exchange on which
they are traded.

Securities transactions are accounted for on the date securities
are purchased or sold. Realized gains and losses are calculated
on the identified-cost basis. Interest income, including
amortization of bond discount and premium, is recorded on an
accrual basis.

FUTURES TRANSACTIONS
In order to gain exposure to or protect against changes in the
market, the fund may buy and sell financial futures contracts and
related options. Risks of entering into futures contracts and
related options include the possibility there may be an illiquid
market and that a change in the value of the contract or option
may not correlate with changes in the value of the underlying
securities.

Upon entering into a futures contract, the fund is required to
deposit either cash or securities in an amount (initial margin)
equal to a certain percentage of the contract value. Subsequent
payments (variation margin) are made or received by the fund each
day. The variation margin payments are equal to the daily changes
in the contract value and are recorded as unrealized gains and
losses. The fund recognizes a realized gain or loss when the
contract is closed or expires.

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

- ---------------------------------------------------------------------

1998 Semiannual Report 44 American Opportunity Income Fund
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
substantially fully invested. As of April 30, 1998, the fund had
entered into outstanding when-issued or forward commitments of
$15,455,547.

In connection with its ability to purchase securities on a when-
issued or forward-commitment basis, the fund may enter into
mortgage dollar rolls in which the fund sells securities
purchased on a forward commitment basis and simultaneously
contracts with a counterparty to repurchase similar (same type,
coupon and maturity) but not identical securities on a specified
future date. As an inducement to "roll over" its purchase
commitments, the fund receives negotiated fees. For the six
months ended April 30, 1998, such fees earned by the fund
amounted to $81,621.

FEDERAL TAXES
The fund intends to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and not
be subject to federal income tax. Therefore, no income tax
provision is required. The fund also intends to distribute its
taxable net investment income and realized gains, if any, to
avoid the payment of any federal excise taxes.

Net investment income and net realized gains (losses) may differ
for financial statement and tax purposes. The character of
distributions made during the year from net investment income or
net realized gains may differ from its ultimate characterization
for federal income tax purposes. In addition, due to the timing
of dividend distributions, the fiscal year in which amounts are
distributed may differ from the year that the income or realized
gains or losses were recorded by the fund.

- ---------------------------------------------------------------------

1998 Semiannual Report 45 American Opportunity Income Fund
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
additional shares of the fund's capital stock. Under the plan,
fund shares will be purchased in the open market unless the
market price plus commissions exceeds the net asset value by 10%
or more. If, at the close of business on the dividend payment
date, the shares purchased in the open market are insufficient to
satisfy the dividend reinvestment requirement, the fund will
issue new shares at a discount of up to 5% from the current
market price.

REPURCHASE AGREEMENTS
For repurchase agreements entered into with certain
broker-dealers, the fund, along with other affiliated registered
investment companies, may transfer uninvested cash balances into
a joint trading account, the daily aggregate of which is invested
in repurchase agreements secured by U.S. government or agency
obligations. Securities pledged as collateral for all individual
and joint repurchase agreements are held by the fund's custodian
bank until maturity of the repurchase agreement. Provisions for
all agreements ensure that the daily market value of the
collateral is in excess of the repurchase amount, including
accrued interest, to protect the fund in the event of a default.

The investment advisory agreement provides the advisor with a
monthly investment management fee in an amount equal to an
annualized rate of 0.20% of the fund's average weekly net assets
and 4.50% of the daily gross income (i.e., income, including

- ---------------------------------------------------------------------

1998 Semiannual Report 46 American Opportunity Income Fund
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
amortization of discount and premium, other than gains from the
sale of securities or gains from options and futures contracts
less interest on money borrowed by the fund) accrued by the fund
during the month. The monthly investment management fee shall not
exceed in the aggregate 1/12th of 0.725% of the fund's average
weekly net assets during the month (approximately 0.725% on an
annual basis). For the six months ended April 30, 1998, the
effective annualized investment management fee incurred by the
fund was 0.52%. For its fee, the advisor provides investment
advice and conducts the management and investment activity of the
fund.

The administration agreement provides the administrator with a
monthly fee in an amount equal to an annualized rate of 0.20% of
the fund's average weekly net assets. For its fee, the
administrator will provide reporting, regulatory and
record-keeping services for the fund.

OTHER FEES AND EXPENSES
In addition to the investment management and administrative fees,
the fund is responsible for paying most other operating expenses
including: outside directors' fees and expenses; custodian fees;
registration fees; printing and shareholder reports; transfer
agent fees and expenses; legal, auditing and accounting services;
insurance; interest; taxes and other miscellaneous expenses.

Expenses paid indirectly represent a reduction of custodian fees
for earnings on miscellaneous cash balances maintained by the
fund.

(4) INVESTMENT
SECURITY
TRANSACTIONS
................................
Cost of purchases and proceeds from sales of securities, other
than temporary investments in short-term securities and dollar
roll transactions, for the six months ended April 30, 1998
aggregated $40,903,784 and $95,708,418, respectively. Including
dollar rolls, such purchases and sales aggregated $94,662,690 and
$149,467,324, respectively.

- ---------------------------------------------------------------------

1998 Semiannual Report 47 American Opportunity Income Fund
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CAPITAL LOSS
CARRYOVER EXPIRATION
------------- ---------------
<S> <C>
$ 5,283,808 2001
27,202,478 2002
25,520,417 2003
4,873,784 2004
886,073 2005
-------------
$ 63,766,560
-------------
-------------
</TABLE>

(6) REPURCHASE
OFFER
................................
The fund's board of directors concluded that an offer to
repurchase up to 25% of the fund's outstanding shares would be in
the best interests of shareholders. Accordingly, the board
authorized such an offer as part of a settlement agreement
reached in connection with class action litigation involving the
fund and seven other closed-end investment companies managed by
Piper Capital Management Incorporated.

The repurchase offer was sent to shareholders in October 1997,
and the deadline for submitting shares for repurchase was 5 p.m.
Central Time on November 17, 1997. The repurchase price was
determined on December 1, 1997 at the close of regular trading on
the New York Stock Exchange (4 p.m. Eastern Time). The percentage
of outstanding shares and the number of shares accepted for
tender, the repurchase price per share and proceeds (including
tender fees) paid by the fund were as follows:

<TABLE>
<CAPTION>
PERCENTAGE SHARES REPURCHASE PROCEEDS
TENDERED TENDERED PRICE PAID
---------- ------------- ----------- --------------
<S> <C> <C> <C>
25% 5,672,927 $6.66 $ 37,895,152
</TABLE>

- ---------------------------------------------------------------------

1998 Semiannual Report 48 American Opportunity Income Fund
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------

(7) ADVISOR
ACQUISITION
................................
On May 1, 1998, Piper Jaffray Companies Inc., the parent company
of the fund's investment advisor, was acquired by U.S. Bancorp.

U.S. Bancorp is a multi-state bank holding company headquartered
in Minneapolis, Minnesota with a geographic service area spanning
17 states. As of March 31, 1998, U.S. Bancorp was the 15th
largest U.S. commercial bank holding company, with assets of
nearly $70.9 billion. U.S. Bank National Association ("U.S.
Bank"), a wholly owned subsidiary of U.S. Bancorp, currently acts
as the investment advisor to 32 mutual funds (the "First American
Funds"). As of March 31, 1998, U.S. Bank, acting through its
First American Asset Management group, managed more than $65.3
billion in assets, including approximately $23.3 billion in
assets of the First American Funds.

Under the Investment Company Act of 1940, as amended,
consummation of the acquisition of Piper Jaffray Companies by
U.S. Bancorp resulted in the assignment and automatic termination
of the fund's investment advisory agreement with Piper Capital
Management Incorporated. The fund has entered into a new
investment advisory agreement with Piper Capital Management,
which shareholders will vote on at the fund's annual meeting in
August.

(8) REORGANIZATION
OF THE FUND
................................
On April 27, 1998, the fund's board of directors approved the
merger of the fund into an existing open-end fund in the First
American family of funds. Shareholders will vote on the proposal
at the fund's annual meeting in August.

- ---------------------------------------------------------------------

1998 Semiannual Report 49 American Opportunity Income Fund
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------

(9) FINANCIAL
HIGHLIGHTS
................................
Per-share data for a share of capital stock outstanding
throughout each period and selected information for each period
are as follows:

<TABLE>
<CAPTION>
Six
Months Two
Ended Year Year Year Year Months
4/30/98 Ended Ended Ended Ended Ended
(Unaudited) 10/31/97 10/31/96 10/31/95 10/31/94 10/31/93
------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ... $ 6.69 $ 6.53 $ 6.66 $ 6.42 $ 10.68 $10.88
------------ --------- --------- --------- --------- ---------
Operations:
Net investment income ................ 0.21 0.42 0.43 0.49 0.85 0.34
Net realized and unrealized gains
(losses) on investments ............ 0.01 0.18 0.07 0.75 (3.53) (0.37)
------------ --------- --------- --------- --------- ---------
Total from operations .............. 0.22 0.60 0.50 1.24 (2.68) (0.03)
------------ --------- --------- --------- --------- ---------
Distributions to shareholders:
From net investment income ........... (0.21) (0.44) (0.63) (1.00) (1.48) (0.17)
In excess of net realized gains ...... -- -- -- -- (0.10) --
------------ --------- --------- --------- --------- ---------
Total distributions to
shareholders ..................... (0.21) (0.44) (0.63) (1.00) (1.58) (0.17)
------------ --------- --------- --------- --------- ---------
Net asset value, end of period ......... $ 6.70 $ 6.69 $ 6.53 $ 6.66 $ 6.42 $10.68
------------ --------- --------- --------- --------- ---------
------------ --------- --------- --------- --------- ---------
Market value, end of period ............ $ 6.44 $ 6.31 $ 5.88 $ 6.13 $ 7.00 $11.63
------------ --------- --------- --------- --------- ---------
------------ --------- --------- --------- --------- ---------
SELECTED INFORMATION
Total return, net asset value (a) ...... 3.33% 9.64% 7.98% 20.98% (27.61)% (0.29)%
Total return, market value (b) ......... 5.39% 15.58% 6.85% 2.16% (28.77)% 1.43%
Net assets at end of period (in
millions) . $ 114 $ 152 $ 148 $ 153 $ 146 $ 232
Ratio of expenses to average weekly net
assets excluding interest expense
(c) . 1.00%(f) 0.92% 1.01% 1.29% 1.39% 1.10%(f)
Ratio of expenses to average weekly net
assets including interest expense
(c) . 1.37%(f) 1.71% 1.42% 1.29% 2.58% 1.62%(f)
Ratio of net investment income to
average weekly net assets ............ 6.06%(f) 6.48% 6.72% 7.74% 10.73% 19.11%(f)
Portfolio turnover rate (excluding
short-term securities and dollar roll
transactions) ........................ 29% 59% 118% 139% 169% 21%
Amount of borrowings outstanding at end
of period (in millions) (d) .......... $ 5 $ 21 $ 21 -- -- $ 87
Per-share amount of borrowings
outstanding at end of period ......... $ 0.29 $ 0.93 $ 0.92 -- -- $ 4.01
Per-share amount of net assets,
excluding borrowings, at end of period $ 6.99 $ 7.62 $ 7.45 -- -- $14.69
Asset coverage ratio (e) ............... 2,376% 822% 804% -- -- 366%
</TABLE>

(a) ASSUMES REINVESTMENT OF DISTRIBUTIONS AT NET ASSET VALUE AND DOES NOT
REFLECT A SALES CHARGE.
(b) ASSUMES REINVESTMENT OF DISTRIBUTIONS AT ACTUAL PRICES PURSUANT TO THE
FUND'S DIVIDEND REINVESTMENT PLAN.
(c) INCLUDES 0.07%, 0.30% AND 0.31% FROM FEDERAL EXCISE TAXES IN FISCAL YEARS
ENDED OCTOBER 31, 1996, 1995 AND 1994, RESPECTIVELY.
(d) SECURITIES PURCHASED ON A WHEN-ISSUED BASIS FOR WHICH LIQUID SECURITIES ARE
SEGREGATED ARE NOT CONSIDERED BORROWINGS. SEE NOTE 2 IN THE NOTES TO
FINANCIAL STATEMENTS.
(e) REPRESENTS NET ASSETS, EXCLUDING BORROWINGS, AT END OF PERIOD DIVIDED BY
BORROWINGS OUTSTANDING AT END OF PERIOD.
(f) ANNUALIZED.

- ---------------------------------------------------------------------

1998 Semiannual Report 50 American Opportunity Income Fund
<PAGE>
Investments in Securities (Unaudited)
- ---------------------------------------------------------------------

<TABLE>
<CAPTION>
AMERICAN OPPORTUNITY INCOME FUND April 30, 1998
.......................................................................................

U.S. GOVERNMENT AND AGENCY SECURITIES (104.8%):
U.S. AGENCY MORTGAGE-BACKED SECURITIES (b) (98.7%):
FIXED RATE (89.5%):
7.00%, FHLMC, 9/1/10 .............................. $ 1,062,664 $ 1,083,259
6.50%, FHLMC, 1/1/26 .............................. 2,527,170(d) 2,512,967
6.50%, FHLMC, 3/1/26 .............................. 106,323 105,725
6.50%, FHLMC, 4/1/26 .............................. 1,427,964 1,418,440
6.50%, FHLMC, 4/1/26 .............................. 3,987,649 3,965,238
6.50%, FHLMC, 4/1/26 .............................. 2,509,064 2,492,328
7.50%, FHLMC, 8/1/25 .............................. 9,035,358 9,306,419
7.00%, FHLMC, 9/1/10 .............................. 3,453,104 3,520,025
6.00%, FHLMC, Series 163, Class F, 7/15/21 ........ 3,037,037 2,892,929
6.25%, FHLMC, Series 1638, Class E, 4/15/23 ....... 3,000,000 2,987,130
6.00%, FHLMC, Series 1648, Class LA, 5/15/23 ...... 4,695,000 4,318,884
6.00%, FHLMC, Series 1699, Class TD, 3/15/24 ...... 3,000,000 2,800,080
7.00%, FNMA, 10/25/21 ............................. 2,000,000 2,010,000
6.50%, FNMA, 12/18/11 ............................. 3,000,000 3,025,781
7.00%, FNMA, 5/1/26 ............................... 3,555,652 3,603,440
6.50%, FNMA, 5/1/11 ............................... 3,334,870 3,349,477
6.50%, FNMA, 4/1/11 ............................... 1,672,795 1,680,122
6.50%, FNMA, 4/1/11 ............................... 785,723 789,408
6.50%, FNMA, 4/1/11 ............................... 4,067,111 4,086,186
6.00%, FNMA, 4/1/13 ............................... 3,030,000 2,985,489
6.00%, FNMA, 4/1/13 ............................... 2,978,207 2,934,457
6.00%, FNMA, 4/1/13 ............................... 2,020,000 1,990,326
6.50%, FNMA, 5/18/13 .............................. 8,500,000(c) 8,534,510
6.00%, FNMA, 2/18/13 .............................. 7,000,000(c) 6,897,170
6.25%, FNMA Series 1998-M1, Class A2, 1/25/08 ..... 3,000,000 2,990,625
6.50%, FNMA, Series 1992-169, Class J, 3/25/21 .... 3,000,000 2,980,530
8.00%, GNMA, 7/15/26 .............................. 3,103,819 3,223,130
7.50%, GNMA, 11/15/27 ............................. 4,621,936 4,750,472
9.00%, GNMA, 11/15/21 ............................. 2,457,191(d) 2,649,933
9.00%, GNMA, 4/15/21 .............................. 3,441,291(d) 3,728,432
9.00%, GNMA, 10/15/22 ............................. 2,047,230 2,209,084
------------
101,821,996
------------
</TABLE>

SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.

- ---------------------------------------------------------------------

1998 Semiannual Report 51 American Opportunity Income Fund
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------

AMERICAN OPPORTUNITY INCOME FUND
(CONTINUED)

<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
Z-BOND (9.2%):
8.34%, FNMA, Series 1996-35, Class Z, 7/25/26 ..... $ 6,779,501 $ 6,657,335
8.35%, Vendee Mortgage Trust, Series 1996-1,Class
1Z, 2/15/26 ..................................... 4,049,540 3,847,184
------------
10,504,519
------------

Total U.S. Agency Mortgage-Backed Securities ... 112,326,515
------------
U.S. GOVERNMENT SECURITIES (6.1%):
7.50%, U.S. Treasury Bond, 11/15/16 ............... 2,000,000 2,327,200
5.88%, U.S. Treasury Note, 2/15/04 ................ 3,000,000 3,030,660
5.63%, U.S. Treasury Note, 11/30/00 ............... 1,600,000 1,600,304
------------
6,958,164
------------

Total U.S. Government and Agency Securities
(cost: $115,365,246) ......................... 119,284,679
------------

PRIVATE MORTGAGE-BACKED SECURITIES (b) (1.8%):
Z-BOND (1.8%):
8.34%, Pacific Collateralized Mortgage Obligation
Trust, Series 3, Class Z, 5/1/17
(cost: $2,037,573) .............................. 2,029,955 2,074,533
------------

CORPORATE BONDS (8.4%):
CONSUMER NON-DURABLES (3.2%):
Coca-Cola Enterprises, 6.70%, 10/15/36 ............ 3,500,000 3,638,005
------------
FINANCIAL SERVICES (2.9%):
Lehman Brothers Inc., 7.50%, 8/1/26 ............... 3,000,000 3,256,710
------------
UTILITIES (2.3%):
Korea Electric Power ADS, 6.38%, 12/1/03 .......... 3,000,000 2,631,240
------------

Total Corporate Bonds
(cost: $9,430,224) ........................... 9,525,955
------------

SHORT-TERM SECURITIES (2.3%):
Repurchase agreement with Goldman Sachs, acquired
on 4/30/98, interest of $403, 5.50%, 5/1/98
(cost: $2,637,000) .............................. 2,637,000(e) 2,637,000
------------

Total Investments in Securities
(cost: $129,470,043) (f) ..................... $133,522,167
------------
------------
</TABLE>

SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.

- ---------------------------------------------------------------------

1998 Semiannual Report 52 American Opportunity Income Fund
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Notes to Investments in Securities:
(a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(b) PORTFOLIO ABBREVIATIONS AND DEFINITIONS:
Z-Bond - represents securities that pay no interest or principal during
their initial accrual periods, but accrue additional principal at
specified rates. Interest rate disclosed represents current yield based
upon the cost basis and estimated timing of future cash flows.
Vendee - securities issued through the Vendee Loan Program, administered
and guaranteed as to payment of principal and interest by the Veterans
Administration (VA). The VA guarantee is backed by the full faith and
credit of the United States government.
(c) ON APRIL 30, 1998, THE TOTAL COST OF INVESTMENTS PURCHASED ON A WHEN-ISSUED
BASIS WAS $15,455,547.
(d) ON APRIL 30, 1998, SECURITIES VALUED AT $7,672,558 WERE PLEDGED AS
COLLATERAL FOR THE FOLLOWING OUTSTANDING REVERSE REPURCHASE AGREEMENT:
</TABLE>

<TABLE>
<CAPTION>
NAME OF BROKER
ACQUISITION ACCRUED AND DESCRIPTION
AMOUNT DATE RATE* DUE INTEREST OF COLLATERAL
- ----------- ----------- ---------- --------- --------- -------------------
<S> <C> <C> <C> <C> <C>
$ 5,000,000 2/17/98 5.56% 5/19/98 $ 56,372 (1)
- ----------- ---------
- ----------- ---------
</TABLE>

* INTEREST RATE AS OF APRIL 30, 1998. RATE IS BASED ON THE LONDON INTERBANK
OFFERED RATE (LIBOR).

NAME OF BROKER AND DESCRIPTION OF COLLATERAL:
(1) MORGAN STANLEY;
FHLMC, 6.50%, 1/1/26, $2,527,170 PAR
GNMA, 9.00%, 11/15/21, $1,327,064 PAR
GNMA, 9.00%, 4/15/21, $3,441,291 PAR

<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 4,398,340
GROSS UNREALIZED DEPRECIATION ...... (346,216)
------------
NET UNREALIZED APPRECIATION ...... $ 4,052,124
------------
------------
</TABLE>

- ---------------------------------------------------------------------

1998 Semiannual Report 53 American Opportunity Income Fund
<PAGE>

THIS PAGE WAS INTENTIONALLY LEFT BLANK.

1998 Semiannual Report 54 AGF, AAF, OIF

<PAGE>

THIS PAGE WAS INTENTIONALLY LEFT BLANK.

1998 Semiannual Report 55 AGF, AAF, OIF

<PAGE>

GLOSSARY OF TERMS***
- --------------------------------------------------------------------------------

BENCHMARK
A benchmark is an established basis of comparison for an investment's
performance. A benchmark may be an unmanaged market index or a group of similar
investments.

EFFECTIVE DURATION
Effective duration estimates how much the value of a security is expected to
change with a given change in interest rates. Longer effective durations
indicate more sensitivity to changes in interest rates. For example, if interest
rates were to increase by 1%, the market value of a bond with an effective
duration of five years would decrease by about 5%, with all other factors being
constant. It is important to remember that effective duration is based on
certain assumptions and has several limitations. It is most effective as a
measure when interest rate changes are small, rapid and occur equally across all
the different points of the yield curve. In addition, effective duration is
difficult to calculate precisely for bonds with prepayment options, such as
mortgage-backed securities, and can be greatly affected by interest rate
changes.

If a fund has an AGGRESSIVE EFFECTIVE DURATION, it means its managers have set a
longer duration posture in comparison to the fund's benchmark. A fund with a
long effective duration is more sensitive to changing interest rates.

If a fund has a DEFENSIVE EFFECTIVE DURATION, it means its managers have set a
shorter duration posture in comparison to the fund's benchmark, to make the fund
less sensitive to changing interest rates.

If a fund has a NEUTRAL EFFECTIVE DURATION, the duration is approximately the
same as that of its benchmark.

*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.

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1998 Semiannual Report 56 AGF, AAF, OIF

<PAGE>

FOR MORE INFORMATION

By Phone [GRAPHIC]

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FOR GENERAL INFORMATION
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TO ORDER LITERATURE
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including a Quarterly Update. You can also request to be put on a mailing list
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BY MAIL [GRAPHIC]

Piper Capital Management
Attn: Mutual Fund Services
222 South Ninth Street
Minneapolis, MN 55402-3804

In an effort to reduce costs to our shareholders, we have implemented a process
to reduce duplicate mailings of the fund's shareholder reports. This
householding process should allow us to mail one report to each address where
one or more registered shareholders with the same last name reside. If you would
like to have additional reports mailed to your address, please call our Mutual
Fund Services area at 800 866-7778, or mail a request to us.

On-Line [GRAPHIC]

http://www.piperjaffray.com/

<PAGE>

[LOGO]

PIPER CAPITAL MANAGEMENT INCORPORATED
222 SOUTH NINTH STREET
MINNEAPOLIS, MN 55402-3804

[LOGO] THIS DOCUMENT IS PRINTED ON PAPER MADE FROM 100% TOTAL RECOVERED
FIBER, INCLUDING 15% POST-CONSUMER WASTE.

#21001 6/1998 132-98

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