<PAGE>
[FPO PHOTO]
[FPO PHOTO]
[FPO PHOTO]
[FPO PHOTO]
AMERICAN MUNICIPAL
INCOME PORTFOLIO
* * *
SEMIANNUAL REPORT
1995
<PAGE>
TABLE OF CONTENTS
AVERAGE ANNUALIZED TOTAL RETURNS . . . . 1
LETTER TO SHAREHOLDERS . . . . . . . . . 2
TAX REFORM PROPOSALS . . . . . . . . . . 9
FINANCIAL STATEMENTS AND NOTES . . . . .10
INVESTMENTS IN SECURITIES. . . . . . . .19
SHAREHOLDER UPDATE . . . . . . . . . . .24
AMERICAN MUNICIPAL INCOME PORTFOLIO
American Municipal Income Portfolio is a diversified, closed-end investment
company. The fund's investment objective is to provide high current income
exempt from regular federal income tax, consistent with preservation of capital.
To realize this objective, the fund invests in a diverse range of municipal
securities rated investment grade or of comparable quality when purchased. These
securities may include municipal derivative securities, which may be more
volatile than traditional municipal securities in certain market conditions. As
with other mutual funds, there can be no assurance this fund will achieve its
investment objective. Since its inception on June 25, 1993, the fund has been
rated Af by Standard & Poor's Corporation (S&P).* Fund shares trade on the New
York Stock Exchange and the Chicago Stock Exchange under the symbol XAA.
*THE FUND IS RATED Af, WHICH MEANS INVESTMENTS IN THE FUND HAVE AN OVERALL
CREDIT QUALITY OF A. CREDIT QUALITIES ARE ASSESSED BY STANDARD & POOR'S MUTUAL
FUNDS RATING GROUP. S&P DOES NOT EVALUATE THE MARKET RISK OF AN INVESTMENT WHEN
ASSIGNING A CREDIT RATING. SEE STANDARD & POOR'S CORPORATE AND MUNICIPAL RATING
DEFINITIONS FOR AN EXPLANATION OF A.
THE FUND ALSO HAS BEEN GIVEN A MARKET RISK RATING BY S&P, WHICH WE CANNOT
PUBLISH DUE TO NASD REGULATIONS. RISK RATINGS EVALUATE VARIOUS INVESTMENT RISKS
THAT CAN AFFECT THE PERFORMANCE OF A BOND FUND AND INDICATE THE FUND'S OVERALL
STABILITY AND SENSITIVITY TO CHANGING MARKET CONDITIONS. THESE RATINGS ARE
AVAILABLE BY CALLING S&P AT 1-800-424-FUND.
<PAGE>
AVERAGE ANNUALIZED TOTAL RETURNS
AVERAGE ANNUALIZED TOTAL RETURNS FOR THE PERIODS ENDED JULY 31, 1995
[GRAPH]
Average annualized total return figures are through July 31, 1995, and are based
on the change in net asset value (NAV) and reflect the reinvestment of
distributions but do not reflect sales charges. NAV-based performance is used to
measure investment management results.
Average annualized total return figures based on the change in market price for
the one-year and since inception periods ended July 31, 1995, were 5.75% and
- -3.01%. These figures also assume reinvested distributions and do not reflect
sales charges.
The Lipper General Municipal Bond Funds: Leveraged Average represents the
average total return, with distributions reinvested, of 64 perpetual and term
trust national closed-end municipal bond funds with preferred stock outstanding,
as characterized by Lipper Analytical Services.
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.
1
<PAGE>
AMERICAN MUNICIPAL INCOME PORTFOLIO
September 15, 1995
Dear Shareholders:
WE ARE PLEASED WITH THE NET ASSET VALUE PERFORMANCE OF AMERICAN MUNICIPAL INCOME
PORTFOLIO FOR THE SIX MONTHS ENDED JULY 31, 1995. During this six-month period,
the fund had a net asset value total return of 14.07%,* which assumes the
reinvestment of distributions and does not include sales charges. This compares
to the Lipper General Municipal Bond Funds: Leveraged Average return of 8.60%
for the same period. This performance is primarily a result of the fund's long
effective duration due in part to its holdings of inverse floating rate
municipal securities which are explained below. The fund's six-month total
return based on market price was 9.18%.* It has maintained a common stock
distribution yield of 5.80% for the same period.** As of the end of July, the
fund had a net asset value of $13.21.* The chart on page 4 shows the history of
the fund's net asset value since inception.
<TABLE>
<CAPTION>
DISTRIBUTION HISTORY
(ON A COMMON SHARE BASIS)
DISTRIBUTIONS PAID IN THE FUND SINCE ITS INCEPTION
ON JUNE 25, 1993, THROUGH JULY 31, 1995
<S> <C>
Total Monthly Income Dividends Paid
to Common Shareholders . . . . . . . $1.74
Capital Gains Distributions
Paid to Common Shareholders. . . . . $0.02
-----
TOTAL DISTRIBUTIONS PER SHARE
PAID TO COMMON SHAREHOLDERS. . . . . $1.76
Total Monthly Income Dividends Paid
to Preferred Shareholders. . . . . . $0.46
Capital Gains Distributions
Paid to Preferred Shareholders . . . $0.01
-----
TOTAL DISTRIBUTIONS PER SHARE
PAID TO PREFERRED SHAREHOLDERS . . . $0.47
</TABLE>
WE CONTINUE TO BELIEVE THE MUNICIPAL BOND MARKET REPRESENTS AN ATTRACTIVE
OPPORTUNITY FOR LONG-TERM INVESTORS. Since early 1995, the municipal bond market
has lagged the Treasury bond market due to ongoing concerns about proposed tax
reforms (see page 9 for more information), the crisis in Orange County,
* THESE TOTAL RETURN AND YIELD FIGURES REPRESENT PAST PERFORMANCE AND WILL
FLUCTUATE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE RETURN AND
PRINCIPAL VALUE OF YOUR INVESTMENT WILL FLUCTUATE SO THAT FUND SHARES, WHEN
SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
** THIS FIGURE REPRESENTS THE ANNUALIZED YIELD FOR THE SIX MONTHS ENDED JULY 31,
1995, BASED ON THE INITIAL OFFERING PRICE OF $15 PER SHARE. ACTUAL YIELDS MAY
DIFFER DEPENDING ON AN INDIVIDUAL SHAREHOLDER'S COST BASIS.
2
<PAGE>
AMERICAN MUNICIPAL INCOME PORTFOLIO
[FPO PHOTO]
DOUG WHITE, CFA, (above)
SHARES RESPONSIBILITY FOR THE
MANAGEMENT OF AMERICAN MUNICIPAL
INCOME PORTFOLIO. HE HAS 12 YEARS OF
FINANCIAL EXPERIENCE.
[FPO PHOTO]
RON REUSS, (below)
SHARES RESPONSIBILITY FOR THE
MANAGEMENT OF AMERICAN MUNICIPAL
INCOME PORTFOLIO. HE HAS 26 YEARS OF
FINANCIAL EXPERIENCE.
California, and competition from a robust stock market. These concerns have
resulted in lower municipal bond prices, making them a relatively good value ---
especially considering the declining supply of new issues. The supply of new
issue municipal bonds decreased by 45% in 1994 compared to 1993 and another 25%
in the first half of 1995 compared to the first half of 1994.
DURING THE PAST SIX MONTHS, THE FUND'S RELATIVELY LONG EFFECTIVE DURATION HAS
PROVED BENEFICIAL AS INTEREST RATES HAVE FALLEN. Typically, fixed income
portfolios with long effective durations tend to outperform comparable funds
with relatively shorter effective durations in bull bond markets (i.e., when
interest rates are falling and bond prices are rising), and tend to underperform
in bear bond markets, such as 1994. Because the fund is managed as a long-term
investment, we believe that a longer effective duration will likely, over time,
benefit shareholders by providing higher tax-free income. Over the short term,
however, this will result in greater net asset value volatility. The past 24
months illustrate the short-term volatility that results from this strategy.
During the 12 months ended July 31, 1994, which was mainly a period of rapidly
rising interest rates, the fund's net asset value total return was -3.74%. Its
net asset value per share fell from $14.20 to $12.83. During the 12 months ended
July 31, 1995, the fund's net asset
3
<PAGE>
AMERICAN MUNICIPAL INCOME PORTFOLIO
value total return was 12.27% and its net asset value per share rose to $13.21.
This was a period of volatile interest rate movements, which ended in a
significant decline.
THE PORTFOLIO HAS BEEN INVESTED IN A SMALL POSITION OF INVERSE FLOATING RATE AND
INVERSE INTEREST-ONLY MUNICIPAL SECURITIES IN ORDER TO ASSIST THE FUND IN
ACHIEVING ITS OBJECTIVE OF EARNING HIGH CURRENT INCOME. We invest in inverse
floating rate and inverse interest-only securities, which currently represent 2%
and 4% of the fund's total assets, respectively, to generate additional income.
These securities also increase the fund's net asset value volatility. When
long-term interest rates rise, as they did in 1994, the value of these
securities will decline to a greater extent than traditional municipal
securities. This will have a disproportionately negative impact on the fund's
net asset value. On the other hand, as interest rates have fallen in 1995, the
increased volatility of these securities has had a disproportionately positive
impact on the fund's net asset value. Although the fund's holdings of inverse
floating rate and inverse interest-only securities have earned significant
additional income for the fund to date, it's important to realize that the
interest rates earned on these securities move in the opposite direction of
short-term, tax-exempt rates. Therefore, if short-term interest rates were to
rise dramatically, there could be a significant reduction in the fund's income.
This, in turn, could increase the likelihood of a reduction in the fund's common
stock dividend.
<TABLE>
<CAPTION>
NET ASSET VALUE SUMMARY PER SHARE
<S> <C>
Initial Offering Price (6/25/93) . . . . . $15.00
Initial Offering and
Underwriting Expenses
(Common and Preferred Stock) . . . . . . . --$1.01
Accumulated Realized
Losses at 7/31/95. . . . . . . . . . . . . --$0.83
-----
Subtotal . . . . . . . . . . . . . . . . $13.16
Undistributed Net Investment
Income/Dividend Reserve
at 7/31/95 . . . . . . . . . . . . . . . . $0.08
Unrealized Depreciation
on Investments at 7/31/95. . . . . . . . . --$0.03
-----
NET ASSET VALUE ON 7/31/95 . . . . . . . . $13.21
</TABLE>
4
<PAGE>
AMERICAN MUNICIPAL INCOME PORTFOLIO
PREFERRED STOCK
Preferred stock pays dividends at a specified rate and has preference over
common stock in the payments of dividends and the liquidation of assets. Rates
paid on preferred stock are reset every seven days and are based on short-term,
tax-exempt interest rates. Preferred shareholders accept these short-term rates
in exchange for low credit risk (shares of preferred stock are rated AAA by
Moody's and S&P) and high liquidity (shares of preferred stock trade at par and
are remarketed every seven days). The proceeds from the sale of preferred stock
are invested at intermediate- and long-term tax-exempt rates. Because these
intermediate- and long-term rates are normally higher than the short-term rates
paid on preferred stock, common shareholders benefit by receiving higher
dividends and/or an increase to the dividend reserve. However, the risk of
having preferred stock is that if short-term rates rise higher than
intermediate- and long-term rates, creating an inverted yield curve, common
shareholders may receive a lower rate of return than if their fund did not have
any preferred stock outstanding. This type of economic environment is unusual
and historically has been short term in nature. Investors should also be aware
that the issuance of preferred stock results in the leveraging of common stock
which increases the volatility of both the net asset value of the fund and the
market value of shares of common stock.
BECAUSE IT APPEARS UNLIKELY THAT INTEREST RATES WILL FALL IN THE SECOND HALF OF
1995 AS MUCH AS THEY DID IN THE FIRST HALF OF THE YEAR, WE ARE TAKING A LESS
AGGRESSIVE POSITION IN THE FUND. We have purchased floating rate municipal
securities to help offset some of the price volatility created by the fund's
holdings of inverse floating rate securities. While we have reduced net asset
value volatility by purchasing floating rate securities, we have also reduced
the fund's income and some of the potential for net asset value improvement
generated by the inverse floating rate securities.
THE FUND'S ISSUANCE OF PREFERRED STOCK HAS BENEFITED COMMON SHAREHOLDERS OVER
THE LIFE OF THE FUND. During the past six months the preferred stock has added
slightly less income than in the past; however, it is still allowing us to pay a
higher dividend than if the fund did not have preferred stock outstanding. This
decrease in income was a result of short-term, tax-exempt interest rates rising
while the rates on the long-term bonds in the fund's portfolio remained fixed.
Typically, the money paid by preferred shareholders to buy preferred stock is
reinvested by the fund at long-term interest rates that are higher than the
short-term rates paid to preferred shareholders. In the past, this has allowed
the fund to earn higher income than the monthly common stock dividend it paid
out and to build up a
5
<PAGE>
AMERICAN MUNICIPAL INCOME PORTFOLIO
dividend reserve. However, as short-term rates have risen, the additional income
provided by the preferred stock has been slightly less than the income required
to both sustain the current common stock dividend level and pay the preferred
stock dividends. For the six-month period ended July 31, on average the fund
earned $0.0937 per share per month, while it paid out $0.0975 per share per
month to common and preferred shareholders (on a common share basis). As a
result, we've had to draw from the fund's dividend reserve to help maintain the
common stock distributions. The fund's ability to supplement the common stock
dividend is a result of the dividend reserve we built up during periods of lower
short-term rates. The remaining dividend reserve, which was $0.0818 per common
share on July 31, will only allow us to maintain the current common stock
dividend for a limited time if the rates paid on the preferred stock remain at
current levels or rise. Thereafter, it is likely that we would need to reduce
the common stock dividend. The average rate paid on the preferred stock was
3.75% on July 31.
AMERICAN MUNICIPAL INCOME PORTFOLIO
PORTFOLIO COMPOSITION
July 31, 1995
General Obligations 23%
Electrical Revenue 8%
Inverse Floaters 2%
Inverse Interest-Only 4%
Floaters 9%
Other Assets 1%
Housing Revenue 11% [PIE CHART]
Leasing Revenue 11%
Education 1%
Multiple Utility 1%
Water/Sewer Utility Revenue 4%
Miscellaneous Revenue 1%
Sales/Excise Tax Revenue 3%
Hospital Revenue 21%
INVESTMENT CATEGORIES REFELCT PERCENTAGE OF TOTAL ASSETS
BECAUSE OF LAST YEAR'S RISE IN INTEREST RATES, WE REALIZED SOME LOSSES IN THE
PORTFOLIO (REFER TO CHART ON PAGE 4). As interest rates rose and the price of
fixed income securities fell, we sold some of the investments in the fund at a
loss in order to reposition the fund. These losses
6
<PAGE>
AMERICAN MUNICIPAL INCOME PORTFOLIO
may be used to offset capital gains the fund may realize in the future. This
would allow the fund to avoid paying capital gains distributions which are
taxable. We are replacing the securities we sold at a loss with higher-yielding
investments that should, over time, increase the earning power of the portfolio.
ALTHOUGH A LARGE PORTION OF THE PORTFOLIO IS INVESTED IN MUNICIPAL REVENUE BONDS
THAT ARE BACKED SOLELY BY REVENUE GENERATED BY THE PROJECT, WE BELIEVE WE HAVE
REDUCED THE CREDIT RISK ASSOCIATED WITH THESE INVESTMENTS. Our strategy of
managing credit risk, or the risk of failure of an issuer to make payment,
involves extensive due diligence and credit analysis prior to purchasing these
bonds, as well as while they are held in the portfolio. This research, which
goes beyond the ratings issued by Moody's or S&P, helps ensure that we maintain
an investment-grade portfolio. For example, if a bond is rated A- by Moody's or
S&P and, after completing our research, we believe it should only be rated BBB+,
we may sell the bond in anticipation of the bond's rating being downgraded. If a
bond's rating is downgraded, not only does it have a higher risk of default, but
the value of the bond will also fall due to its lower rating. While we have not
experienced payment defaults so far, this fund does have credit risk and the
failure of an issuer to make payments could result in a decrease in income
and/or net asset value.
THE FUND'S GEOGRAPHIC FOCUS IS ON THE CENTRAL, SOUTHEASTERN AND SOUTHWESTERN
UNITED STATES WITH INDIANA, TEXAS, GEORGIA, NEW MEXICO AND ILLINOIS REPRESENTING
THE LARGEST STATE CONCENTRATIONS. In addition, we believe certain areas of the
Northeast have seen the worst of their economic problems and we are analyzing
selected investments in this region. We are also looking at other portions of
the Southeast and West -- particularly the Carolinas, Arizona and Nevada --
which have recently shown comparative economic strength. While
7
<PAGE>
AMERICAN MUNICIPAL INCOME PORTFOLIO
we continue to be cautious about the California municipal bond market due to
that state's uncertain fiscal environment, the fund does currently own one
California security which represents 1% of the fund's total assets and is backed
by U.S. government obligations.
GOING FORWARD, WE BELIEVE THE CURRENT MARKET ENVIRONMENT SHOULD CONTINUE TO
PROVIDE MUNICIPAL BOND INVESTORS WITH ATTRACTIVE AFTER-TAX RETURNS. For example,
a 6% tax-exempt yield for someone in the 36% federal tax bracket represents the
equivalent of a 9.37% taxable return.+ This compares favorably to the current
inflation rate of 3%.
Thank you for your investment in American Municipal Income Portfolio. We
consider it a privilege to manage your money and remain committed to serving
your investment needs.
Sincerely,
/s/ Ronald R Reuss
Ronald Reuss
Co-manager
/s/ Douglas J. White
Douglas White
Co-manager
+ THIS YIELD IS USED FOR ILLUSTRATIVE PURPOSES ONLY AND IS NOT INDICATIVE OF AN
INVESTMENT IN THE FUND.
8
<PAGE>
TAX REFORM PROPOSALS
Over the past several years, a number of tax changes have been proposed by
politicians responding to public dissatisfaction. Among these tax reform
proposals are a flat tax, a sales tax, a consumed income tax and a progressive
income tax. Although there is no certainty when or even if these changes would
be enacted, they do have important implications for investors and may have
already had some impact on the tax-exempt municipal bond market.
Among the different tax reforms, the flat tax proposal has generated more
interest and publicity than any of the other proposals. The concept behind the
best-known flat tax proposal by Representative Dick Armey is that a flat tax
recognizes all taxpayers as equal by taxing all wage or salary income at a flat
rate. The flat tax would also do away with current deductions, exemptions and
credits such as interest on home mortgage loans, charitable contributions, state
and local taxes, and medical expenses. Also under this proposal, Social Security
benefits and income from savings and investments would be granted a tax-exempt
status.
While there are many varying flat tax initiatives, they all share some common
elements of which municipal bond investors should be aware. All flat tax
proposals would only tax income from wages and salary and would exempt from tax
the interest, dividends and capital gains earned on investments and real estate.
Proponents of a flat tax argue that this would encourage more people to save
money and would be good for investments. However, opponents of a flat tax say it
would hurt tax-exempt municipal bond investors because municipal bonds currently
have interest yields that are lower than taxable interest yields since the
interest paid on municipal bonds is free from federal income tax. If all
interest income were free of taxes, the advantage of investing in municipal
securities would be eliminated and their prices would likely fall. Some analysts
believe the possibility of a flat tax has already turned away some municipal
bond investors creating a scare in the municipal
bond market.
In spite of tax reform's increasing popularity, many taxpayers --- including
special interest groups, homeowners and municipal bond investors and issuers,
among others --- have too much to lose not to put up a fight. In addition, it
would take several years for any type of tax reform to be enacted and
implemented and many key members of Congress have already said that any major
reform would need to include a provision that would offset the negative impact
on existing municipal bond investors. Until there is evidence that a major tax
reform is closer to reality, we will maintain our current strategy of managing
the fund; however, we will be closely monitoring these tax change proposals. We
encourage investors to keep an eye on the tax reform debate as well, but
strongly suggest they continue to take advantage of the tax-free income they can
earn by investing in municipal bonds.
9
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS (UNAUDITED)
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (note 2) .... $ 118,141,960
Cash in bank on demand deposit ........................... 93,439
Accrued interest receivable .............................. 1,436,654
-----------------
Total assets ......................................... 119,672,053
-----------------
LIABILITIES:
Preferred stock dividends payable ........................ 22,286
Accrued investment management fee ........................ 35,645
Accrued remarketing agent fee ............................ 19,332
Accrued administrative fee ............................... 15,276
Other accrued expenses ................................... 21,642
-----------------
Total liabilities .................................... 114,181
-----------------
Net assets applicable to outstanding capital stock ....... $ 119,557,872
-----------------
-----------------
REPRESENTED BY:
Preferred stock - authorized 1 million shares of $25,000
liquidation preference per share; outstanding, 1,740
shares (note 3) ........................................ 43,500,000
-----------------
Common stock - authorized 200 million shares of $0.01 par
value; outstanding, 5,756,267 shares ................... 57,563
Additional paid-in capital ............................... 80,473,458
Undistributed net investment income ...................... 471,064
Accumulated net realized loss on investments ............. (4,775,405)
Unrealized depreciation of investments ................... (168,808)
-----------------
Total - representing net assets applicable to
outstanding common stock ........................... 76,057,872
-----------------
Total net assets ................................... $ 119,557,872
-----------------
-----------------
Net asset value per share of outstanding common stock (net
assets divided by 5,756,267 shares of common stock
outstanding) ........................................... $ 13.21
-----------------
-----------------
* Investments in securities at identified cost ........... $ 118,310,768
-----------------
-----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS (UNAUDITED)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 31, 1995
<TABLE>
<S> <C>
INCOME:
Interest ............................................... $ 3,688,120
----------------
EXPENSES (NOTE 5):
Investment management fee ................................ 206,296
Administrative fee ....................................... 88,413
Remarketing agent fee .................................... 54,676
Custodian, accounting and transfer agent fees ............ 31,867
Reports to shareholders .................................. 7,341
Directors' fees .......................................... 5,647
Audit and legal fees ..................................... 24,483
Other expenses ........................................... 33,437
----------------
Total expenses ....................................... 452,160
----------------
Net investment income ................................ 3,235,960
----------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized loss on investments (note 4) ................ (778,506)
Net change in unrealized appreciation or depreciation of
investments ............................................ 8,076,928
----------------
Net gain on investments ................................ 7,298,422
----------------
Net increase in net assets resulting from
operations ....................................... $ 10,534,382
----------------
----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended
7/31/95 Year Ended
(Unaudited) 1/31/95
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income .................................. $ 3,235,960 6,553,490
Net realized loss on investments ......................... (778,506) (4,011,796)
Net change in unrealized appreciation or depreciation of
investments ............................................ 8,076,928 (12,831,288)
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations ........................................... 10,534,382 (10,289,594)
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income:
Common stock dividends ................................. (2,503,976) (5,008,184)
Preferred stock dividends .............................. (862,185) (1,326,993)
From net realized gains:
Common stock dividends ................................. -- (134,130)
Preferred stock dividends .............................. -- (25,020)
---------------- ----------------
Total distributions .................................... (3,366,161) (6,494,327)
---------------- ----------------
CAPITAL SHARE TRANSACTIONS:
Payments for retirement of 400 common shares, (note 7) ... -- (4,720)
---------------- ----------------
Total increase (decrease) in net assets ............ 7,168,221 (16,788,641)
Net assets at beginning of period .......................... 112,389,651 129,178,292
---------------- ----------------
Net assets at end of period .............................. $ 119,557,872 112,389,651
---------------- ----------------
---------------- ----------------
Undistributed net investment income ...................... $ 471,064 601,265
---------------- ----------------
---------------- ----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(1) ORGANIZATION
American Municipal Income Portfolio (the fund) is registered
under the Investment Company Act of 1940 (as amended) as a
diversified closed-end investment company. American Municipal
Income Portfolio commenced operations on June 25, 1993, upon
completion of its initial public offering of common stock. The
only transaction of American Municipal Income Portfolio prior to
June 25, 1993, was the sale to Piper Jaffray Inc. of 6,667
shares of common stock for $100,005 on June 14, 1993. Shares of
the fund are listed on the New York Stock Exchange and Chicago
Stock Exchange.
(2) SIGNIFICANT
ACCOUNTING
POLICIES
INVESTMENTS IN SECURITIES
The values of fixed income securities are determined using
pricing services or prices quoted by independent brokers. Open
financial futures contracts are valued at the last settlement
price. When market quotations are not readily available,
securities are valued at fair value according to methods
selected in good faith by the board of directors. Short-term
securities with maturities of 60 days or less are valued at
amortized cost which approximates market value.
Securities transactions are accounted for on the date the
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 computed on
a level-yield basis, is accrued daily.
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.
9
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities that have been purchased by
the fund on a forward-commitment or when-issued 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 fluctuations and may increase or decrease in value prior
to their delivery. The fund maintains, in segregated accounts
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 NAV, to the extent the fund makes such
purchases while remaining substantially fully invested. As of
July 31, 1995, American Municipal Income Portfolio had no
outstanding when-issued or forward commitments.
FEDERAL TAXES
The fund intends to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to shareholders. Therefore,
no income tax provision is required. In addition, on a
calendar-year basis, the fund will distribute substantially all
of 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 primarily because of
market discount amortization and the deferral of "wash sale"
losses for tax purposes. The character of distributions made
during the year from net investment income or net realized gains
may also differ from their ultimate characterization for federal
income tax purposes. In addition, due to the timing of dividend
distributions, the fiscal year in which amounts are distributed
may differ from the year that the income or realized gains
(losses) were recorded by the fund.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income will be made on a
monthly basis for common shareholders and on a weekly basis for
preferred stock shareholders. Common stock distributions are
recorded as of the close of business on the ex-dividend date and
preferred stock dividends are accrued daily. Realized capital
gains, if any, will be distributed on an annual basis.
Distributions are payable
10
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
in cash or for common shareholders pursuant to the fund's
dividend reinvestment plan, reinvested in additional shares of
the fund's common stock. Under the plans, common shares will be
purchased in the open market.
(3) REMARKETED
PREFERRED STOCK
American Municipal Income Portfolio has issued and, as of July
31, 1995, has outstanding 1,740 shares of remarketed preferred
stock (870 shares in class "T" and 870 shares in class "TH")
("RP-Registered Trademark-") with a liquidation preference of
$25,000 per share. The dividend rate on the
RP-Registered Trademark- is adjusted every seven days (on
Tuesdays for class "T" and on Thursdays for class "TH"), as
determined by the remarketing agent. On July 31, 1995, the
dividend rates were 3.70% and 3.80% for class "T" and "TH",
respectively.
(4) INVESTMENT
SECURITY
TRANSACTIONS
Purchases of securities and proceeds from sales, other than
temporary investments in short-term securities, for the six
months ended July 31, 1995, were $30,927,815 and $32,764,136,
respectively.
(5) FEES AND
EXPENSES
The fund has entered into the following agreements with Piper
Capital Management Incorporated (the adviser and administrator):
The investment advisory agreement provides the adviser with a
monthly investment management fee calculated at the annualized
rate of 0.35% of the fund's average weekly net assets (computed
by subtracting liabilities, which exclude preferred stock, from
the value of the total assets of the fund). For its fee, the
adviser will provide investment advice and, in general, will
conduct 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 0.15% of
the fund's average weekly net assets (computed by subtracting
liabilities, which exclude preferred stock, from the value of
the total assets of the funds). For its fee, the administrator
will provide certain reporting, regulatory and record-keeping
services for the fund.
The fund has entered into a remarketing agent agreement with
Merrill Lynch, Pierce, Fenner & Smith (the remarketing agent).
The
11
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
remarketing agreement provides the remarketing agent with a
monthly fee in an amount equal to an annualized rate of 0.25% of
the fund's average amount of RP-Registered Trademark-
outstanding. For its fee, the remarketing agent will remarket
shares of RP-Registered Trademark- tendered to it, on behalf of
shareholders thereof, and will determine the applicable dividend
rate for each seven-day dividend period.
In addition to the advisory fee, the administrative fee and the
remarketing agent fee, 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 and other
miscellaneous expenses.
(6) CAPITAL LOSS
CARRYOVER
For federal income tax purposes, American Municipal Income
Portfolio had a capital loss carryover of $3,996,899, as of
January 31, 1995, which, if not offset by subsequent capital
gains, will expire in the years 2003 and 2004. It is unlikely
the board of directors will authorize a distribution of any net
realized capital gains until the available capital loss
carryover has been offset or expires.
(7) RETIREMENT OF
FUND SHARES
The fund's board of directors has approved a plan to repurchase
shares of the fund in the open market and retire those shares.
Repurchases may only be made when the previous day's closing
market price was trading at a discount from net asset value.
Daily repurchases are limited to 25% of the previous four weeks
average daily trading volume on the New York Stock Exchange.
Under the current plan, cumulative repurchases in the fund
cannot exceed 3% of the total shares originally issued. The
board of directors will review the plan every six months and may
change the amount which may be repurchased. The plan was last
reviewed and reapproved by the board of directors on August 17,
1995. Pursuant to the plan, the fund has cumulatively
repurchased and retired 400 shares as of July 31, 1995, which
represents 0.01% of the shares originally issued.
12
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(8) FINANCIAL
HIGHLIGHTS
Per-share data for a share of common stock outstanding
throughout each period and selected information for each period
are as follows:
AMERICAN MUNICIPAL INCOME PORTFOLIO
<TABLE>
<CAPTION>
Six Months
Ended Period from
7/31/95 Year Ended 6/25/93* to
(Unaudited) 1/31/95 1/31/94
----------- ----------- -----------
<S> <C> <C> <C>
Net asset value, beginning of period ........... $ 11.97 14.88 14.13
----------- ----------- -----------
Operations:
Net investment income .......................... 0.56 1.14 0.58
Net realized and unrealized gains (losses) on
investments 1.26 (2.92) 0.83
----------- ----------- -----------
Total from operations ........................ 1.82 (1.78) 1.41
----------- ----------- -----------
Distributions to shareholders:
From net investment income:
Paid to common shareholders .................. (0.43) (0.87) (0.44)
Paid to preferred shareholders ............... (0.15) (0.23) (0.08)
From net realized gains:
Paid to common shareholders .................. -- (.02) --
Paid to preferred shareholders ............... -- (.01) --
----------- ----------- -----------
Total distributions to shareholders .......... (0.58) (1.13) (0.52)
----------- ----------- -----------
Offering costs and underwriting discounts
associated with the remarketed preferred
stock .......................................... -- -- (0.14)
----------- ----------- -----------
Net asset value per share of common stock, end of
period ....................................... $ 13.21 11.97 14.88
----------- ----------- -----------
----------- ----------- -----------
Market value per share of common stock, end of
period ....................................... $ 12.25 11.63 14.63
----------- ----------- -----------
----------- ----------- -----------
Total investment return, common stock, market
value** ........................................ 9.18% (14.44)% 0.40%
Total investment return, common stock, net asset
value+ ......................................... 14.07% (13.46)% 8.49%
Net assets at end of period (in millions) ...... $ 120 112 129
Ratio of expenses to average weekly net assets ... 0.77%++ 0.74% 0.70%++
Ratio of net investment income to average weekly
net assets ..................................... 5.49%++ 5.72% 4.88%++
Portfolio turnover rate (excluding short-term
securities) .................................... 27% 52% 31%
Remarketed preferred stock, liquidation preference
of $25,000 for each of 1,740 shares outstanding
(in millions) ................................ $ 44 44 44
Asset coverage for remarketed preferred
stock+++ ....................................... 275% 258% 297%
<FN>
* COMMENCEMENT OF OPERATIONS.
** TOTAL INVESTMENT RETURN, MARKET VALUE, IS BASED ON THE CHANGE IN MARKET
PRICE OF A COMMON SHARE DURING THE PERIOD AND ASSUMES REINVESTMENT OF
DISTRIBUTIONS AT ACTUAL PRICES PURSUANT TO THE FUND'S DIVIDEND REINVESTMENT
PLAN. THE PERCENTAGE FOR THE PERIOD FROM 6/25/93 TO 1/31/94 HAS NOT BEEN
ANNUALIZED.
+ TOTAL INVESTMENT RETURN, NET ASSET VALUE, IS BASED ON THE CHANGE IN NET
ASSET VALUE OF A COMMON SHARE DURING THE PERIOD AND ASSUMES REINVESTMENT OF
DISTRIBUTIONS AT NET ASSET VALUE. THE PERCENTAGE FOR THE PERIOD FROM
6/25/93 TO 1/31/94 HAS NOT BEEN ANNUALIZED.
++ ADJUSTED TO AN ANNUAL BASIS.
+++ REPRESENTS TOTAL NET ASSETS DIVIDED BY REMARKETED PREFERRED STOCK.
</TABLE>
13
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(9) QUARTERLY DATA
AMERICAN MUNICIPAL INCOME PORTFOLIO
DOLLAR AMOUNTS
<TABLE>
<CAPTION>
Net Increase
in Net
Net Realized Assets Distributions
Net and Unrealized Resulting from Net
Investment Investment Gains on from Investment
Income Income Investments Operations Income
----------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
4/30/95 $ 1,811,678 1,595,234 5,295,169 6,890,403 (1,677,162)
7/31/95 1,876,442 1,640,726 2,003,253 3,643,979 (1,688,999)
----------- ----------- -------------- ------------ ------------
$ 3,688,120 3,235,960 7,298,422 10,534,382 (3,366,161)
----------- ----------- -------------- ------------ ------------
----------- ----------- -------------- ------------ ------------
</TABLE>
PER-SHARE AMOUNTS
<TABLE>
<CAPTION>
Net Increase in Distributions
Net Net Realized and Net Assets from Net Quarter-End
Investment Unrealized Gains Resulting from Investment Net Asset
Income on Investments Operations Income Value
------------- ----------------- ----------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
4/30/95 $ 0.28 0.91 1.19 (0.29) 12.87
7/31/95 0.28 0.35 0.63 (0.29) 13.21
------ --- --- -----
$ 0.56 1.26 1.82 (0.58)
------ --- --- -----
------ --- --- -----
</TABLE>
14
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES (UNAUDITED)
AMERICAN MUNICIPAL INCOME PORTFOLIO
JULY 31, 1995
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- --------- -----------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
MUNICIPAL LONG-TERM SECURITIES (97.8%):
MUNICIPAL BONDS (82.9%)
ALABAMA (2.3%):
DCH Health Care Authority, 5.70%, 6/1/15 ........... $ 3,000,000 2,784,660
-----------
ALASKA (0.5%):
Municipal Bond Bank, 5.80%, 12/1/11 .................. 600,000 598,062
-----------
ARIZONA (4.8%):
Pima County United School District No. 1, 8.38%,
7/1/13 .............................................. 3,000,000 3,954,150
Salt River Agricultural Project, 5.00%, 1/1/16 ....... 2,000,000 1,774,860
-----------
5,729,010
-----------
DISTRICT OF COLUMBIA (0.8%):
District Columbia, 5.75%, 12/1/05 .................... 1,000,000 947,790
-----------
FLORIDA (2.5%):
Jacksonville Sales Tax Revenue, 5.65%, 10/1/14 ....... 3,000,000 2,934,480
-----------
GEORGIA (1.7%):
Savannah Hospital Authority - St. Joseph Hospital
Project, 6.13%, 7/1/12 .............................. 2,000,000 1,994,640
-----------
HAWAII (2.1%):
State Department of Budget and Finance, 6.40%,
7/1/13 .............................................. 2,415,000 2,506,504
-----------
ILLINOIS (9.0%):
Chicago General Obligation, 5.13%, 1/1/22 ............ 3,000,000 2,629,020
Chicago State University Revenue, 6.00%, 12/1/12 ..... 1,000,000 1,003,160
Health Facility Authority Revenue - Alexian Brothers
Project, 6.80%, 1/1/22 .............................. 1,000,000 1,019,780
Health Facility Authority Revenue - Edward Hospital
Project, 6.00%, 2/15/19 ............................. 1,000,000 928,770
Health Facility Authority Revenue - Lutheran General
Health, 6.00%-7.00%, 4/1/08-4/1/18 .................. 4,205,000 4,216,400
Kane County School District No. 1, 5.75%, 2/1/15 ..... 1,000,000 963,700
-----------
10,760,830
-----------
INDIANA (16.2%):
Brownsburg School Building Corporation, 5.95%,
8/1/10 .............................................. 2,000,000 2,024,920
Hamilton School Building Corporation, 6.00%,
7/1/10 .............................................. 1,575,000 1,590,593
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
15
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES (UNAUDITED)
AMERICAN MUNICIPAL INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- --------- -----------
<S> <C> <C>
Health Facility Authority - Columbus Regional
Hospital, 7.00%, 8/15/15 .......................... $ 2,670,000 3,012,454
Health Facility Authority - Community Hospital
Anderson Project, 6.00%, 1/1/23 ..................... 1,500,000 1,381,200
IPS School Building Corporation, 6.15%, 1/15/16 ...... 2,800,000 2,833,264
Municipal Bond Bank, 6.00%, 2/1/16 ................... 1,000,000 970,200
Porter County Library, 6.25%, 1/1/16 ................. 1,500,000 1,522,410
Terre Haute Vigo High School Building Corporation,
5.80%, 7/1/13 ....................................... 2,150,000 2,109,989
Tippecanoe County School Building, 5.95%-6.00%,
7/15/12-7/15/13 ..................................... 3,920,000 3,916,215
-----------
19,361,245
-----------
IOWA (2.2%):
Sheldon Health Care Facility, 6.15%, 3/1/16 .......... 1,000,000 991,870
Sioux City Hospital Revenue, 5.25%, 8/15/15 .......... 1,775,000 1,611,327
-----------
2,603,197
-----------
KANSAS (2.6%):
Kansas City Utility Systems Revenue, 6.25%, 9/1/14 ... 3,000,000 3,114,030
-----------
KENTUCKY (0.8%):
State Turnpike Authority, 5.63%, 7/1/15 .............. 1,000,000 963,440
-----------
MICHIGAN (2.6%):
Farmington Hills Continuing Care Facility, 5.70%,
2/15/15 ............................................. 1,000,000 960,170
State Hospital Finance Authority, 5.10%-5.40%,
7/1/00-7/1/03 ....................................... 2,245,000 2,176,106
-----------
3,136,276
-----------
NEVADA (2.5%):
Washoe County School District, 5.75%, 6/1/12 ......... 3,000,000 2,964,690
-----------
NEW MEXICO (8.6%):
Mortgage Finance Authority, 6.40%-6.88%,
7/1/15-7/1/25 ....................................... 9,575,000 10,229,540
-----------
NORTH DAKOTA (2.9%):
Mercer County Pollution Control Revenue (AMBAC),
7.20%, 6/30/13 ...................................... 3,000,000 3,497,130
-----------
OKLAHOMA (0.2%):
Tulsa Multi-family Financial Authority Housing -
Breckenridge Project, 6.30%, 10/1/14 ................ 245,000(d) 231,525
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
16
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES (UNAUDITED)
AMERICAN MUNICIPAL INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- --------- -----------
<S> <C> <C>
PENNSYLVANIA (0.8%):
State General Obligation, 5.60%, 6/15/13 ........... $ 1,000,000 985,500
-----------
SOUTH DAKOTA (1.2%):
Housing Development Authority Homeownership Series B,
5.80%, 5/1/14 ....................................... 1,500,000 1,438,665
-----------
TEXAS (11.8%):
Arlington Independent School District, 6.00%,
2/15/15 ............................................. 2,275,000 2,294,633
Brazos County Health Facilities - St. Joseph Hospital
Project, 6.00%, 1/1/19 .............................. 1,000,000 937,930
Cypress-Fairbanks Independant School District, 5.75%,
2/15/16 ............................................. 1,000,000 977,590
Fort Bend Independent School District, 5.00%-5.25%,
2/15/12-2/15/13 ..................................... 1,950,000 1,824,235
Houston Water Conveyance Systems Contract, 7.50%,
12/15/16 . 745,000 895,833
Round Rock Independent School District Series A,
6.10%, 8/1/10 ....................................... 2,000,000 2,066,500
Round Rock Public Improvment Obligations, 6.15%,
6/1/14 .............................................. 1,020,000 1,054,088
Spring Independent School District, 5.80%,
8/15/12-8/15/13 ..................................... 2,425,000 2,436,680
State Department Housing - National Center Housing
Project, 5.70%, 7/1/14 .............................. 1,700,000 1,618,689
-----------
14,106,178
-----------
UTAH (3.5%):
Assisted Municipal Power - San Juan Project, 6.25%,
6/1/14 .............................................. 1,300,000 1,327,560
NEBO County School District, 5.75%, 6/15/14 .......... 3,000,000 2,945,580
-----------
4,273,140
-----------
WASHINGTON (2.3%):
Chelan County Public Utilities, 5.90%, 7/1/13 ........ 1,830,000 1,761,393
Douglas County Public Utility District, 6.00%,
1/1/15 .............................................. 1,000,000 994,270
-----------
2,755,663
-----------
WISCONSIN (1.0%):
State Health Facilities - Beloit Memorial Hospital,
5.80%-5.90%, 7/1/09-7/1/11 .......................... 1,180,000 1,164,691
-----------
Total Municipal Bonds
(cost: $98,326,646) ................................ 99,080,886
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
17
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES (UNAUDITED)
AMERICAN MUNICIPAL INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- --------- -----------
<S> <C> <C>
MUNICIPAL DERIVATIVE SECURITIES (14.9%) (F):
Comstock Park, Michigan, Public Schools, inverse
interest-only, 8.68%, 5/1/11 ...................... $ --(b) 685,296
Duarte, California, Redevelopment Agency, inverse
interest-only, 7.99%, 11/1/11 ....................... --(b) 1,236,036
Duluth, Minnesota, Health Care Trust Certificate
Series F2, inverse floater, 10.02%, 5/1/18 .......... 1,110,000(c) 1,237,949
Georgia Municipal Electric Authority, inverse
interest-only, 9.35%, 1/1/12 ........................ --(b) 352,500
Kent, Michigan, Hospital Finance Authority, inverse
interest-only, 9.55%, 1/15/13 ....................... --(b) 606,480
Minneapolis, Minnesota, SSD #1 Trust certificates
Series 1-2, inverse floater, 7.45%, 2/1/15 .......... 1,345,000(c) 1,146,613
Desoto Parish, Louisiana, Municipal Security Trust
93-B, inverse interest-only, 13.58%, 1/1/19 ......... --(b) 1,396,200
Georgia Municipal Electrical Authority, Floating Rate
Trust Certificates, 4.05%, 1/1/12 ................... 8,500,000(e) 8,500,000
Minneapolis, Minnesota General Obligation, Floating
Rate Trust Certificates, 4.10%, 3/1/13 .............. 700,000(e) 700,000
Richfield, Minnesota, Indepentdent School District,
Floating Rate Trust Certificates, 3.95%, 2/1/12 ..... 500,000(e) 500,000
St. Louis Park, Minnesota, Health Care Facilities,
Floating Rate Trust Certificates, 4.00%, 7/1/05 ..... 1,500,000(e) 1,500,000
-----------
Total Municipal Derivative Securities
(cost: $18,784,122) ................................ 17,861,074
-----------
Total Municipal Long-Term Securities
(cost: $117,110,768) ............................... 116,941,960
-----------
MUNICIPAL SHORT-TERM SECURITIES (1.0%)(E):
ILLINOIS (0.4%):
Development Financing Authority - Council for Jewish
Elderly Hospital, 2.40%, 3/1/15 ..................... 500,000 500,000
-----------
INDIANA (0.6%):
Hospital Equipment Financing Authority, 2.20%,
12/1/15 ............................................. 700,000 700,000
-----------
Total Municipal Short-Term Securities
(cost: $1,200,000) ................................. 1,200,000
-----------
Total Investments in Securities (98.8%)
(cost: $118,310,768) (g) ......................... $ 118,141,960
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
18
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES (UNAUDITED)
NOTES TO INVESTMENTS IN SECURITIES:
(A) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(B) INVERSE INTEREST-ONLY--REPRESENTS SECURITIES THAT ENTITLE HOLDERS TO
RECEIVE ONLY INTEREST PAYMENTS. INTEREST IS PAID AT A RATE THAT INCREASES
(DECREASES) WITH A DECLINE (INCREASE) IN THE MARKET RATE PAID ON A RELATED,
FLOATING RATE SECURITY. INTEREST RATES DISCLOSED REPRESENT CURRENT YIELDS
BASED UPON THE COST BASIS AND ESTIMATED TIMING AND AMOUNT OF FUTURE CASH
FLOWS.
(C) INVERSE FLOATER--REPRESENTS SECURITIES THAT PAY INTEREST AT RATES THAT
INCREASE (DECREASE) IN THE SAME MAGNITUDE AS, OR IN A MULTIPLE OF, A
DECLINE (INCREASE) IN THE MARKET RATE PAID ON A RELATED, FLOATING RATE
SECURITY. INTEREST RATES DISCLOSED ARE IN EFFECT ON JULY 31, 1995.
(D) NON-INCOME PRODUCING SECURITY AS TO PAYMENT OF PRINCIPAL AND OR INTEREST.
(E) VARIABLE RATE NOTE. INTEREST RATE VARIES TO REFLECT CURRENT MARKET
CONDITIONS; RATE SHOWN IS THE EFFECTIVE RATE ON JULY 31, 1995.
(F) SECURITIES SOLD WITHIN TERMS OF A PRIVATE PLACEMENT MEMORANDUM AND MAY BE
SOLD ONLY TO DEALERS IN THAT PROGRAM OR OTHER ACCREDITED INVESTORS.
(G) 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 .... $ 1,893,211
GROSS UNREALIZED DEPRECIATION ...... (2,062,019)
----------
NET UNREALIZED DEPRECIATION .... $ (168,808)
----------
----------
</TABLE>
19
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER UPDATE
ANNUAL MEETING RESULTS
An annual meeting of the fund's shareholders was held on August 17, 1995. Each
matter voted upon at the meeting, as well as the number of votes cast for,
against or withheld, and the number of abstentions with respect to such matter,
are set forth below.
1. The fund's preferred shareholders elected the following two directors:
<TABLE>
<CAPTION>
Shares Voted Shares Withholding
"For" Authority to Vote
--------------- -----------------------
<S> <C> <C>
David T. Bennett 891 40
William H. Ellis 891 40
</TABLE>
2. The fund's preferred and common shareholders, voting as a class, elected
the following six directors:
<TABLE>
<CAPTION>
Shares Voted Shares Withholding
"For" Authority to Vote
------------ ------------------
<S> <C> <C>
Jaye F. Dyer 5,315,964 104,764
Karol D. Emmerich 5,315,964 104,764
Luella G. Goldberg 5,315,964 104,764
George Latimer 5,315,964 104,764
</TABLE>
3. The fund's preferred and common shareholders, voting as a class, ratified
the selection by a majority of the independent members of the fund's Board of
Directors of KPMG Peat Marwick LLP as the independent public accountants for the
fund for the fiscal year ending January 31, 1996. The following votes were cast
regarding this matter:
<TABLE>
<CAPTION>
Shares Voted Shares Voted
"For" "Against" Abstentions
- ------------ ------------- -----------
<S> <C> <C>
5,322,332 22,308 76,088
</TABLE>
20
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER UPDATE
SHARE REPURCHASE PROGRAM
Your fund's board of directors has reapproved the share repurchase program,
which enables the fund to 'buy back' shares of its common stock in the open
market. Repurchases may only be made when the previous day's closing market
price per share is at a discount from net asset value. Repurchases cannot exceed
3% of the fund's originally issued shares.
WHAT EFFECT WILL THIS PROGRAM HAVE ON SHAREHOLDERS?
- - We do not expect any adverse impact on the adviser's ability to manage the
fund.
- - Because repurchases will be at a price below net asset value, remaining shares
outstanding may experience a slight increase in net asset value.
- - Although the effect of share repurchases on market price is less certain, the
board of directors believes the program may have a favorable effect on the
market price of fund shares.
- - We do not anticipate any material increase in the fund's expense ratio.
WHEN WILL SHARES BE REPURCHASED?
Share repurchases may be made from time to time and may be discontinued at any
time. Share repurchases are not mandatory when fund shares are trading at a
discount from net asset value; all repurchases will be at the discretion of the
fund's investment adviser. The board of directors will consider whether to
continue the share repurchase program on at lease a semiannual basis and will
notify shareholders of its determination in the next semiannual or annual
report.
HOW WILL SHARES BE REPURCHASED?
We expect to finance the repurchase of shares by liquidating portfolio
securities or using current cash balances. We do not anticipate borrowing in
order to finance share repurchases.
EFFECTIVE DURATION
Effective duration estimates the interest rate risk of a security, in other
words how much the value of the security is expected to change with a given
change in interest rates. The longer a security's effective duration, the more
sensitive its price is 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.
If is important to understand that, while a valuable measure, effective duration
is based upon certain assumptions and has several imitations. It is most
effective as a measure of interest rate risk 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
especially in the case of a bond that is callable prior to maturity.
21
<PAGE>
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
<TABLE>
<S> <C>
DIRECTORS David T. Bennett, CHAIRMAN, HIGHLAND HOMES, INC., USL
PRODUCTS INC., KIEFER BUILT, INC., OF COUNSEL, GRAY,
PLANT, MOOTY, MOOTY, & BENNETT, P.A.
Jaye F. Dyer, PRESIDENT, DYER MANAGEMENT COMPANY
William H. Ellis, PRESIDENT, PIPER JAFFRAY COMPANIES INC.,
PIPER CAPITAL MANAGEMENT INCORPORATED
Karol D. Emmerich, PRESIDENT, THE PARACLETE GROUP
Luella G. Goldberg, DIRECTOR, TCF FINANCIAL,
RELIASTAR FINANCIAL CORP., HORMEL FOODS CORP.
George Latimer, DIRECTOR, SPECIAL ACTIONS OFFICE,
OFFICE OF THE SECRETARY, DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT
OFFICERS William H. Ellis, CHAIRMAN OF THE BOARD
Douglas J. White, PRESIDENT
Ronald R. Reuss, EXECUTIVE VICE PRESIDENT
Robert H. Nelson, VICE PRESIDENT
Molly J. Destro, VICE PRESIDENT
David E. Rosedahl, SECRETARY
Charles N. Hayssen, TREASURER
INVESTMENT Piper Capital Management Incorporated
ADVISER 222 SOUTH NINTH STREET, MINNEAPOLIS, MN 55402
CUSTODIAN AND Investors Fiduciary Trust Company
TRANSFER AGENT 127 WEST 10TH STREET, KANSAS CITY, MO 64105-1716
LEGAL COUNSEL Dorsey & Whitney P.L.L.P.
220 SOUTH SIXTH STREET, MINNEAPOLIS, MN 55402
</TABLE>
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[caad 214]<PAGE>
================== -----------------
PIPER CAPITAL Bulk Rate
MANAGEMENT U.S. Postage
================== PAID
Permit No. 3008
PIPER CAPITAL MANAGEMENT INCORPORATED Mpls., MN
222 SOUTH NINTH STREET -----------------
MINNEAPOLIS, MN 55402-3804
PIPER JAFFRAY INC., FUND SPONSOR AND NASD MEMBER.
THIS DOCUMENT IS PRINTED ON PAPER MADE FROM
[LOGO] 100% TOTAL RECOVERED FIBER, INCLUDING 15% POST-CONSUMER WASTE.
287-95 XAA-02
STAPLES
