<PAGE>
American Municipal
Income Portfolio
* * *
[PHOTOS]
ANNUAL REPORT
1995
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TABLE OF CONTENTS
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AMERICAN MUNICIPAL INCOME PORTFOLIO
American Municipal Income Portfolio is a diversified, closed-end municipal
bond fund. The fund's investment objective is to provide high current income
exempt from regular federal income tax while preserving investors' 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. THIS RATING IS
AVAILABLE BY CALLING S&P AT 1-800-424-FUND.
<TABLE>
<S> <C>
LETTER TO SHAREHOLDERS..............1
FINANCIAL STATEMENTS AND NOTES......6
INVESTMENTS IN SECURITIES..........15
INDEPENDENT AUDITORS' REPORT.......20
FEDERAL TAX INFORMATION............21
SHAREHOLDER UPDATE.................22
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AMERICAN MUNICIPAL INCOME PORTFOLIO
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March 15, 1995
Dear Shareholders:
THE PAST YEAR HAS BEEN EXTREMELY CHALLENGING FOR THE BOND MARKET. Like the
rest of the fixed income market, the municipal bond market suffered its worst
year of performance in decades. American Municipal Income Portfolio had a net
asset value total return of -13.46%* for the year ended January 31, 1995. The
fund underperformed the Lipper General Closed-End Muni-Bond Funds: Leveraged
Average, which showed a return of -8.05% for the same period. The fund was
able to maintain its common stock distribution yield of 5.80%,** as
short-term, tax-exempt interest rates rose less than their taxable
counterparts in 1994.
TOTAL RETURN PERFORMANCE
YEAR ENDED JANUARY 31, 1995
[CHART]
AMERICAN MUNICIPAL INCOME PORTFOLIO'S TOTAL RETURN IS BASED ON CHANGES IN NET
ASSET VALUE (NAV), ASSUMES ALL DISTRIBUTIONS WERE REINVESTED, AND DOES NOT
REFLECT SALES CHARGES. NAV-BASED PERFORMANCE IS USED TO MEASURE INVESTMENT
MANAGEMENT RESULTS.
TOTAL RETURN, BASED ON THE CHANGE IN MARKET PRICE RATHER THAN NAV FOR THE YEAR
ENDED JANUARY 31, 1995, WAS -14.44%. THIS FIGURE ASSUMES REINVESTMENT OF
DISTRIBUTIONS AND DOES NOT REFLECT SALES CHARGES.
*FIGURES SHOWN REFLECT PAST PERFORMANCE AND DO NOT GUARANTEE FUTURE RESULTS.
THE RETURN AND MARKET VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE AND
SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
**THIS FIGURE REPRESENTS AN ANNUALIZED YIELD FOR THE YEAR ENDED JANUARY 31,
1995, BASED ON THE INITIAL OFFERING PRICE OF $15 PER SHARE. ACTUAL YIELD MAY
DIFFER, DEPENDING ON THE INDIVIDUAL SHAREHOLDER'S COST BASIS. THIS YIELD FIGURE
REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. YIELDS ON
FUND SHARES WILL FLUCTUATE.
THE FUND'S PERFORMANCE DURING THE CALENDAR YEAR 1994 WAS DRAMATICALLY
IMPACTED BY THE VOLATILITY IN FIXED INCOME MARKETS THROUGHOUT THE YEAR. As
the Federal Reserve moved to tighten credit by raising taxable short-term
interest rates six times in 1994 and again in February 1995, the prices of
bonds in general, and municipal securities in particular, fell rapidly. This
volatility caused the municipal bond market to generally underperform the
taxable bond markets through November 1994, as investors responded by selling
their longer-term municipal holdings in favor of
1
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AMERICAN MUNICIPAL INCOME PORTFOLIO
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short-term investments. This excess selling caused longer-term municipal
bonds to become underpriced, creating a buying opportunity. As a result, the
municipal bond market has been outperforming the taxable bond markets since
December 1994.
[PHOTO]
[PHOTO]
Doug White, (above) IS PRIMARILY RESPONSIBLE FOR THE DAY-TO-DAY MANAGEMENT OF
THE AMERICAN MUNICIPAL INCOME PORTFOLIO. HE HAS 12 YEARS OF INVESTMENT
EXPERIENCE.
Ron Reuss, (below) ASSISTS WITH THE MANAGEMENT OF THE AMERICAN MUNICIPAL
INCOME PORTFOLIO. HE HAS 26 YEARS OF INVESTMENT EXPERIENCE.
IN ADDITION TO MAINTAINING COMMON STOCK DISTRIBUTIONS IN THE AMERICAN
MUNICIPAL INCOME PORTFOLIO, WE ALSO HAVE BEEN REGULARLY ADDING TO THE FUND'S
UNDISTRIBUTED NET INVESTMENT INCOME (DIVIDEND RESERVE). This dividend
reserve, which is reflected in the fund's net asset value and will fluctuate,
is available to help maintain common stock distributions in times when the
fund may be paying higher rates on the preferred stock it has issued. Rates
paid on the preferred stock (approximately 3.95% as of March 15, 1995) 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),
high liquidity and low price volatility (shares of preferred stock trade at
par and are remarketed every seven days). The proceeds from the sale of
preferred stock are invested at long-term rates. Because these long-term
rates are normally higher than the short-term rates paid on the preferred
stock, common shareholders benefit by receiving higher dividends and/or an
increase to the dividend reserve as the additional assets from the sale of
preferred stock are invested for their benefit. Because this is a form of
leverage, it can also increase the volatility of the fund. For example, if
short-term interest rates rise higher than long-term rates, the rate the fund
has to pay on its
2
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AMERICAN MUNICIPAL INCOME PORTFOLIO
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preferred stock dividend could be higher than the rate it earns on the
proceeds of the sale of preferred stock. In that case, common shareholders
would receive a lower rate of return than if their fund did not have any
preferred stock outstanding. While this type of economic environment is
unusual and historically has been short-term in nature, it is a risk of
investing in a leveraged portfolio.
PORTFOLIO COMPOSITION
JANUARY 31, 1995
[CHART]
THE FUND'S RELATIVELY LONG DURATION CAUSED GREATER PRICE DECLINES AS INTEREST
RATES ROSE IN 1994. In general, fixed income portfolios with long durations
tend to outperform in bull bond markets (i.e., when interest rates are
falling and bond prices are rising), and tend to underperform in bear bond
markets. For most of 1994 we experienced a bear market, causing the fund to
underperform comparable funds with shorter durations. However, it's important
to remember that the fund is managed as a long-term investment, and we
believe that a longer relative duration will, over time, benefit shareholders
as it may provide higher tax-free income. However, this characteristic will
also increase the portfolio's volatility.
THE PORTFOLIO IS INVESTED IN INVERSE FLOATING RATE AND INVERSE INTEREST-ONLY
MUNICIPAL DERIVATIVE SECURITIES TO A LIMITED EXTENT. These securities currently
represent 8% of the fund's total assets. The interest rates paid on these
securities generally vary inversely to the rate paid on a related floating rate
security. The relationship of the floating rate to
3
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AMERICAN MUNICIPAL INCOME PORTFOLIO
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the inverse rate can be one-to-one or a multiple thereof. Although the
municipal derivatives significantly underperformed more traditional municipal
bonds due to the rapidly rising interest rate environment of calendar 1994,
we believe their long-term total return potential outweighs their short-term
volatility.
THE FUND'S GEOGRAPHIC FOCUS CONTINUES TO BE THE CENTRAL AND NORTHWESTERN UNITED
STATES, WITH ILLINOIS, INDIANA AND WASHINGTON REPRESENTING THE LARGEST STATE
CONCENTRATION. We think certain areas of the Northeast have seen the worst of
their economic problems and have made selected investments in this region. We
also are looking at portions of the Southeast and West -- particularly Georgia,
Utah, Arizona and Nevada -- which have exhibited substantial economic strength.
While we are avoiding investments in California due to the uncertainty of the
state's fiscal environment, the fund does currently own one California issue
which is backed by U.S. government obligations.
THE ECONOMY IS SHOWING SOME SIGNS OF SLOWING IN 1995. The U.S. Gross Domestic
Product grew by an estimated 4% in 1994 -- a rate that we believe is not
sustainable over the long term. This could trigger the Federal Reserve to
continue to raise short-term interest rates to curb inflation. However,
inflation remains low with the Consumer Price Index rising just 2.7% for the 12
months ended December 31, 1994. If the economy slows as predicted, further
action from the Fed could be precluded.
REGARDLESS OF WHAT HAPPENS TO INTEREST RATES, WE BELIEVE FUNDAMENTAL SUPPLY
AND DEMAND PRESSURES MAKE THE MUNICIPAL BOND MARKET ESPECIALLY ATTRACTIVE.
The supply of new issues decreased by 45% in 1994 compared to 1993 and is
expected to be down again slightly in 1995 compared to 1994 levels.
Furthermore, when you take into account all the prerefunded bonds issued in
1985 with 10-year calls that are now due to mature in 1995, other called
bonds,
4
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AMERICAN MUNICIPAL INCOME PORTFOLIO
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and natural maturities, the national municipal bond market is expected
to shrink by slightly less than 1% in 1995. On the demand side, even if
Congress provides a middle-class tax cut, it is unlikely to lower the top tax
brackets. Substantially higher tax rates at the top are expected to generate
continued demand for tax-exempt municipal bonds, one of the few remaining tax
shelters. As a holder of municipal bonds, this fund will benefit from limited
supply coupled with strong demand. Such pressures tend to support prices and
an active secondary market for the fund's bonds.
DESPITE THE VOLATILITY OF 1994, WE BELIEVE THE CURRENT MARKET ENVIRONMENT
SHOULD 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 9.38% taxable yield.* At that rate, you are
earning over 6.5% above the inflation rate of 2.7% -- an appealing after-tax
return. Historically, low inflation combined with high short-term interest
rates has created a situation where municipal investments outperform their
taxable counterparts.
Thank you for your investment in the American Municipal Income Portfolio. We
consider it a privilege to manage your money and to serve your investment
needs.
Sincerely,
/s/ Doug White
Doug White
Manager
/s/ Ron Reuss
Ron Reuss
Co-manager
* THIS YIELD IS USED FOR ILLUSTRATIVE PURPOSES ONLY AND IS NOT INDICATIVE OF AN
INVESTMENT IN THE FUND.
5
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-----------------
PIPER CAPITAL Bulk Rate
MANAGEMENT U.S. Postage
PAID
PIPER CAPITAL MANAGEMENT INCORPORATED Permit No. 3008
222 SOUTH 9TH STREET Mpls., MN
MINNEAPOLIS, MN 55402-3804 -----------------
PIPER JAFFRAY INC., FUND SPONSOR AND NASD MEMBER.
[LOGO] THIS DOCUMENT IS PRINTED ON PAPER MADE FROM
100% TOTAL RECOVERED FIBER, INCLUDING 15% POST-CONSUMER WASTE.
133-95 XAA-01
STAPLES
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FINANCIAL STATEMENTS
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STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (note 2) .... $ 111,979,859
Cash in bank on demand deposit ........................... 109,703
Accrued interest receivable .............................. 1,561,257
----------------
Total assets ......................................... 113,650,819
----------------
LIABILITIES:
Preferred stock dividends payable (note 3) ............... 27,471
Payable for investment securities purchased on a
when-issued basis (note 2) ............................. 1,177,464
Accrued investment management fee ........................ 32,462
Accrued remarketing agent fee ............................ 6,947
Accrued administrative fee ............................... 13,912
Other accrued expenses ................................... 2,912
----------------
Total liabilities .................................... 1,261,168
----------------
Net assets applicable to outstanding capital stock ....... $ 112,389,651
----------------
----------------
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 ...................... 601,265
Accumulated net realized loss on investments ............. (3,996,899)
Unrealized depreciation of investments ................... (8,245,736)
----------------
Total - representing net assets applicable to
outstanding common stock ........................... 68,889,651
----------------
Total net assets ................................... $ 112,389,651
----------------
----------------
Net asset value per share of outstanding common stock (net
assets divided by 5,756,267 shares of common stock
outstanding) ........................................... $ 11.97
----------------
----------------
* Investments in securities at identified cost ........... $ 120,225,595
----------------
----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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FINANCIAL STATEMENTS
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STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
JANUARY 31, 1995
<TABLE>
<S> <C>
INCOME:
Interest ............................................... $ 7,395,965
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EXPENSES (NOTE 5):
Investment management fee ................................ 401,000
Administrative fee ....................................... 171,857
Remarketing agent fee .................................... 110,260
Custodian, accounting and transfer agent fees ............ 55,392
Reports to shareholders .................................. 28,618
Directors' fees .......................................... 11,733
Audit and legal fees ..................................... 34,576
Other expenses ........................................... 29,039
----------------
Total expenses ....................................... 842,475
----------------
Net investment income ................................ 6,553,490
----------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized loss on investments (note 4) ................ (4,011,796)
Net change in unrealized appreciation or depreciation of
investments ............................................ (12,831,288)
----------------
Net loss on investments ................................ (16,843,084)
----------------
Net decrease in net assets resulting from
operations ....................................... $ (10,289,594)
----------------
----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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FINANCIAL STATEMENTS
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<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the
Period from
Year Ended 6/25/93* to
1/31/95 1/31/94
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income .................................. $ 6,553,490 3,362,256
Net realized gain (loss) on investments .................. (4,011,796) 157,516
Net change in unrealized appreciation or depreciation of
investments ............................................ (12,831,288) 4,585,552
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations ........................................... (10,289,594) 8,105,324
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income:
Common stock dividends ................................. (5,008,184) (2,504,150)
Preferred stock dividends .............................. (1,326,993) (460,817)
From net realized gains:
Common stock ........................................... (134,130) --
Preferred stock ........................................ (25,020) --
---------------- ----------------
Total distributions .................................... (6,494,327) (2,964,967)
---------------- ----------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from initial public offering of 5,000,000 shares
of common stock ........................................ -- 75,000,000
Proceeds from issuance of 750,000 shares in connection
with exercising of over-allotment options granted to
underwriters of the initial public offering ............ -- 11,250,000
Underwriting discounts and offering expenses associated
with the issuance of common stock ...................... -- (5,034,570)
Proceeds from initial public offering of 1,740 shares of
preferred stock, net of underwriting discounts and
offering expenses of $777,500 .......................... -- 42,722,500
Payments for retirement of 400 common shares (note 7) .... (4,720) --
---------------- ----------------
Increase (decrease) in net assets from capital share
transactions ......................................... (4,720) 123,937,930
---------------- ----------------
Total increase (decrease) in net assets .............. (16,788,641) 129,078,287
Net assets at beginning of period (note 1) ................. 129,178,292 100,005
---------------- ----------------
Net assets at end of period .............................. $ 112,389,651 129,178,292
---------------- ----------------
---------------- ----------------
Undistributed net investment income ...................... $ 601,265 397,289
---------------- ----------------
---------------- ----------------
</TABLE>
* COMMENCEMENT OF OPERATIONS.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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NOTES TO FINANCIAL STATEMENTS
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(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 INVESTMENTS IN SECURITIES
ACCOUNTING The values of fixed income securities are determined using
POLICIES 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 level-yield amortization of premium and discount, is
accrued daily.
FUTURES TRANSACTIONS
To gain exposure to or protect against changes in the market,
the fund may buy and sell interest rate 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.
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NOTES TO FINANCIAL STATEMENTS
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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
January 31, 1995, American Municipal Income Portfolio has
entered into outstanding when-issued or forward commitments of
$1,177,464.
FEDERAL TAXES
The fund intends to comply with the requirements of the
Internal Revenue Code applicable to regulated investment
companies and to distribute its taxable income to shareholders.
Therefore, no income tax provision is required.
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 therefore 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.
On the statement of assets and liabilities, as a result of
permanent book-to-tax differences, reclassification adjustments
have been made to decrease undistributed net investment income
by $14,337, accumulated net realized loss on investments by
$16,531 and additional paid-in capital by $2,194.
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 shareholders. Common stock distributions are recorded
as of the close of business on the ex-dividend date and
preferred stock
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NOTES TO FINANCIAL STATEMENTS
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dividends are accrued daily. Realized capital gains, if any,
will be distributed on an annual basis. Distributions are
payable 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 American Municipal Income Portfolio has issued and, as of
PREFERRED January 31, 1995, has outstanding 1,740 shares of remarketed
STOCK 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 January 31, 1995, the
dividend rates were 3.85% and 3.83% for class "T" and "TH",
respectively.
The fund's board of directors approved a 2:1 stock split for
the RP-Registered Trademark- effective as of the close of
business on July 12, 1994, and July 14, 1994, for class "T" and
"TH", respectively. Prior to the stock split, outstanding
shares were 435 each for class "T" and "TH", with a liquidation
preference of $50,000 per share for each class.
(4) INVESTMENT Purchases of securities and proceeds from sales, other than
SECURITY temporary investments in short-term securities, for the year
TRANSACTIONS ended January 31, 1995 were $61,030,508 and $63,140,216,
respectively.
(5) FEES AND The fund has entered into the following agreements with Piper
EXPENSES 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
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NOTES TO FINANCIAL STATEMENTS
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liabilities, which exclude preferred stock, from the value of
the total assets of the funds). For its fee, the administrator
will provide 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 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, administrative and the remarketing
agent fees, the fund is responsible for paying most other
operational 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 For federal income tax purposes, American Municipal Income
CARRYOVER 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 expired.
(7) RETIREMENT The fund's board of directors has approved a plan to repurchase
OF FUND shares of the fund in the open market and retire those shares.
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
November 29, 1994. Pursuant to the plan, the fund has
cummulatively repurchased and retired 400 shares as of
January 31, 1995, which represents 0.01% of the shares
originally issued.
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
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(8) FINANCIAL Per-share data for a share of common stock outstanding
HIGHLIGHTS throughout each period and selected information for each period
are as follows:
AMERICAN MUNICIPAL INCOME PORTFOLIO
<TABLE>
<CAPTION>
Year Ended Period from
January 31, 6/25/93* to
1995 1/31/94
----------- -----------
<S> <C> <C>
Net asset value, beginning of period ......................... $ 14.88 14.13
----------- -----------
Operations:
Net investment income ........................................ 1.14 0.58
Net realized and unrealized gains (losses) on investments .... (2.92) 0.83
----------- -----------
Total from operations ...................................... (1.78) 1.41
----------- -----------
Distributions to shareholders:
From net investment income:
Paid to common shareholders ................................ (0.87) (0.44)
Paid to preferred shareholders ............................. (0.23) (0.08)
From net realized gains:
Paid to common shareholders ................................ (.02) --
Paid to preferred shareholders ............................. (.01) --
----------- -----------
Total distributions to shareholders ........................ (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 ..... $ 11.97 14.88
----------- -----------
----------- -----------
Market value per share of common stock, end of period ........ $ 11.63 14.63
----------- -----------
----------- -----------
Total investment return, common stock, market value** .......... (14.44)% 0.40%
Total investment return, common stock, net asset value+ ........ (13.46)% 8.49%
Net assets at end of period (in millions) .................... $ 112 129
Ratio of expenses to average weekly net assets ................. 0.74% 0.70%++
Ratio of net investment income to average weekly net assets .... 5.72% 4.88%++
Portfolio turnover rate (excluding short-term securities) ...... 52% 31%
Remarketed preferred stock, liquidation preference of $25,000
for each of 1,740 shares outstanding (in millions) ......... $ 44 44
Asset coverage for remarketed preferred stock +++ .............. 258% 297%
</TABLE>
* 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.
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(9) QUARTERLY DATA (UNAUDITED)
AMERICAN MUNICIPAL INCOME PORTFOLIO
DOLLAR AMOUNTS
<TABLE>
<CAPTION>
Net Increase
(Decrease)
in Net
Net Realized Assets Distributions Distributions
Net and Unrealized Resulting from Net from Net
Investment Investment Gains (Losses) from Investment Realized
Income Income on Investments Operations Income Gains
----------- ----------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
4/30/94 $ 1,849,220 1,618,970 (12,983,488) (11,364,518) (1,505,812) --
7/31/94 1,861,966 1,649,510 946,773 2,596,283 (1,562,760) --
10/31/94 1,842,612 1,634,453 (8,135,214) (6,500,761) (1,581,136) (159,150)
1/31/95 1,842,167 1,650,557 3,328,845 4,979,402 (1,685,469) --
----------- ----------- -------------- ------------ ------------ ------------
$ 7,395,965 6,553,490 (16,843,084) (10,289,594) (6,335,177) (159,150)
----------- ----------- -------------- ------------ ------------ ------------
----------- ----------- -------------- ------------ ------------ ------------
</TABLE>
PER-SHARE AMOUNTS
<TABLE>
<CAPTION>
Net Increase
Net Realized and (Decrease) Distributions
Net Unrealized Gains in Net Assets from Net Distributions Quarter-End
Investment (Losses) on Resulting from Investment from Net Net Asset
Income Investments Operations Income Realized Gains Value
----------- ----------------- ----------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
4/30/94 $ 0.28 (2.26) (1.98) (0.27) -- 12.63
7/31/94 0.29 0.17 0.46 (0.27) -- 12.82
10/31/94 0.28 (1.41) (1.13) (0.27) (0.03) 11.39
1/31/95 0.29 0.58 0.87 (0.29) -- 11.97
----------- ----- ----- -----
$ 1.14 (2.92) (1.78) (1.10) (0.03)
</TABLE>
<PAGE>
--------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
--------------------------------------------------------------------------------
AMERICAN MUNICIPAL INCOME PORTFOLIO
JANUARY 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 (99.2%):
MUNICIPAL BONDS (91.6%)
ALABAMA (3.9%):
DCH Health Care Authority, 5.70%, 6/1/15 ............ $ 5,000,000 4,361,100
----------
ALASKA (0.5%):
Alaska Municipal Bond Bank, 5.80%, 12/1/11 ............ 600,000 554,448
----------
ARIZONA (3.4%):
Pima County Arizona - United School District No. 1,
8.38%, 7/1/13 ........................................ 3,000,000 3,783,570
----------
DISTRICT OF COLUMBIA (0.8%):
District Columbia, 5.75%, 12/1/05 ..................... 1,000,000 889,640
----------
GEORGIA (1.7%):
Savannah Hospital Authority Revenue - St. Joseph
Hospital Project, 6.13%, 7/1/12 ...................... 2,000,000 1,871,000
----------
HAWAII (2.1%):
Hawaii State Department Budget and Financial, 6.40%,
7/1/13 ............................................... 2,415,000 2,311,783
----------
ILLINOIS (15.2%):
Chicago, Illinois State University Revenue, 6.00%,
12/1/12 .............................................. 1,000,000 972,190
Chicago, Illinois General Obligation Unlimited, 5.13%,
1/1/22 ............................................... 3,000,000 2,468,820
Illinois Development Financial Authority - Pollution
Control, 5.90%, 6/1/28 ............................... 1,000,000 859,730
Illinois Educational Facility Authority Revenue - Art
Institute, 5.80%, 3/1/27 ............................. 2,550,000 2,260,779
Illinois Health Facility Authority Revenue - Alexian
Brothers Project, 6.80%, 1/1/22 ...................... 1,000,000 957,200
Illinois Health Facility Authority Revenue - Edward
Hospital Project, 6.00%, 2/15/19 ..................... 1,000,000 873,980
Illinois Health Facility Authority Revenue - Lutheran
General Health, 7.00%, 4/1/14 ........................ 4,205,000 3,928,866
Illinois Housing Development Authority Multifamily
Housing, 6.65%, 9/1/14 ............................... 3,000,000 2,993,250
University Revenue - Auxiliary Facility Systems, 5.88%,
10/1/21 .............................................. 2,000,000 1,821,300
----------
17,136,115
----------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
<PAGE>
--------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
--------------------------------------------------------------------------------
AMERICAN MUNICIPAL INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
--------------------------------------------------------- --------- ----------
<S> <C> <C>
INDIANA (14.6%):
Hamilton S.E. Indiana SBC, 6.00%, 7/1/10 ............ $ 1,575,000 1,557,754
Indiana Bond Bank, 6.00%, 2/1/16 ...................... 1,000,000 929,130
Indiana Health Facility Authority - Columbus Regional
Hospital, 7.00%, 8/15/15 ............................. 2,670,000 2,883,573
Indiana Health Facility Authority - Community Hospital
of Anderson Project, 6.00%, 1/1/23 ................... 1,500,000 1,305,510
IPS School Building Corporation, 6.15%, 1/15/16 ....... 2,500,000 2,428,325
Porter County Library, 6.25%, 1/1/16 .................. 1,500,000 1,486,080
Terre Haute Vigo High School Building Corporation,
5.80%, 7/1/13 ........................................ 2,150,000 1,998,296
Tippecanoe County School Building, 5.95%-6.00%,
7/15/12-7/15/13 ...................................... 3,920,000 3,786,317
----------
16,374,985
----------
IOWA (2.2%):
Sheldon, Iowa Health Care Facility, 6.15%, 3/1/16 ..... 1,000,000 951,270
Sioux City, Iowa Hospital Revenue, 5.25%, 8/15/15 ..... 1,775,000 1,532,553
----------
2,483,823
----------
KANSAS (2.7%):
Kansas City Utility Systems Revenue, 6.25%, 9/1/14 .... 3,000,000 3,012,060
----------
LOUISIANA (.6%):
Shreveport Housing Authority - Multifamily, 6.10%,
8/1/19 ............................................... 750,000 681,593
----------
MICHIGAN (1.8%):
Michigan State Hospital Finance Authority Hospital,
5.10%-5.30%, 7/1/00-7/1/02 ........................... 1,085,000 981,997
Michigan State Hospital Finance Authority Hospital
Metropolitan, 5.20%-5.40%, 7/1/01-7/1/03 ............. 1,160,000 1,044,397
----------
2,026,394
----------
NEVADA (2.5%):
Washoe County Nevada School District, 5.75%, 6/1/12 ... 3,000,000 2,836,230
----------
NEW HAMPSHIRE (1.7%):
New Hampshire Single-Family Housing Authority, 5.85%,
7/1/10 ............................................... 2,000,000 1,893,060
----------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
<PAGE>
--------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
--------------------------------------------------------------------------------
AMERICAN MUNICIPAL INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
--------------------------------------------------------- --------- ----------
<S> <C> <C>
NEW MEXICO (8.8%):
New Mexico Mortgage Finance Authority, 6.40%-6.50%,
7/1/15-7/1/25 ...................................... $ 3,850,000(d) 3,835,726
New Mexico Mortgage Finance Authority 944, 6.88%,
1/1/25 ............................................... 3,500,000 3,705,485
New Mexico Mortgage Finance Authority TEAMS, 6.75%,
7/1/25 ............................................... 2,225,000 2,298,180
----------
9,839,391
----------
NORTH DAKOTA (2.9%):
Mercer County Pollution Control Revenue (AMBAC), 7.20%,
6/30/13 .............................................. 3,000,000 3,277,770
----------
OKLAHOMA (0.2%):
Tulsa Multifamily Home Financial Authority Housing -
Breckenridge Apartments Project, 6.30%, 10/1/14 ...... 245,000 237,202
----------
OREGON (0.9%):
Western Lane Hospital District - Sisters St. Joseph
Peace, 5.88%, 8/1/12 ................................. 1,000,000 972,860
----------
PENNSYLVANIA (0.8%):
Pennsylvania State General Obligation, 5.60%,
6/15/13 .............................................. 1,000,000 933,620
----------
SOUTH CAROLINA (1.6%):
Greenville Hospital Facility Revenue, 5.50%, 5/1/16 ... 2,000,000 1,748,240
----------
SOUTH DAKOTA (1.2%):
South Dakota HDA Homeownership Series B, 5.80%,
5/1/14 ............................................... 1,500,000 1,370,085
----------
TEXAS (5.2%):
Brazos County Health Facilities - St. Joseph Hospital
Project, 6.00%, 1/1/19 ............................... 1,000,000 871,110
Cypress-Fairbanks Texas Independant School District,
5.75%, 2/15/16 ....................................... 1,000,000 934,130
Fort Bend Independent School District, 5.00%-5.25%,
2/15/12-2/15/13 ...................................... 1,950,000 1,709,380
Houston Water Conveyance Systems Contract, 7.50%,
12/15/16 . 745,000 863,001
Texas State Department Housing - National Center
Housing Project, 5.70%, 7/1/14 ....................... 1,700,000 1,540,658
----------
5,918,279
----------
UTAH (5.7%):
NEBO Utah School District, 5.75%, 6/15/14 ............. 3,000,000 2,807,040
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
<PAGE>
--------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
--------------------------------------------------------------------------------
AMERICAN MUNICIPAL INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
--------------------------------------------------------- --------- ----------
<S> <C> <C>
Utah Single-Family Housing Authority, 6.05%,
7/1/25 ............................................. $ 2,655,000 2,397,146
Utah Assisted Municipal Power San Juan Project, 6.25%,
6/1/14 ............................................. 1,300,000 1,289,782
----------
6,493,968
----------
WASHINGTON (9.4%):
Chelan County Public Utilities, 5.90%, 7/1/13 ......... 1,830,000 1,685,339
Seattle Metropolitan Municipality, 5.65%, 1/1/20 ...... 2,000,000 1,784,700
Washington Public Power Supply - Nuclear Project,
5.70%-5.75%, 7/1/12-7/1/17 ........................... 7,850,000 7,103,906
----------
10,573,945
----------
WISCONSIN (1.0%):
Wisconsin State Health Facilities - Beloit Memorial
Hosp., 5.80%-5.90%, 7/1/09-7/1/11 .................... 1,180,000 1,104,462
----------
WYOMING (0.2%):
Wyoming Municipal Power Supply Agency, 6.13%,
1/1/16 ............................................... 250,000 244,368
----------
Total Municipal Bonds
(cost: $108,455,667) ................................ 102,929,991
----------
MUNICIPAL DERIVATIVE SECURITIES (7.6%)(F):
Comstock Park Michigan Public Schools, inverse
interest-only, 8.68%, 5/1/11 ......................... --(b) 515,811
Duarte California Redevelopment Agency, inverse
interest-only, 7.99%, 11/1/11 ........................ --(b) 772,364
Duluth, Minnesota Health Care Trust Certificate Series
F2, inverse floater, 10.02%, 5/1/18 .................. 1,110,000(c) 1,127,194
Georgia Municipal Electric Authority, inverse
interest-only, 9.35%, 1/1/12 ......................... --(b) 75,850
Kent, Michigan Hospital Finance Authority, inverse
interest-only, 9.55%, 1/15/13 ........................ --(b) 404,200
Minneapolis, Minnesota SSD #1 Trust Certificates Series
1-2, inverse floater, 7.45%, 2/1/15 .................. 1,345,000(c) 967,849
Municipal Security Trust 93-B, Desoto Parish,
Louisiana, inverse interest-only, 13.58%, 1/1/19 ..... --(b) 1,186,600
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
<PAGE>
--------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
--------------------------------------------------------------------------------
AMERICAN MUNICIPAL INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
--------------------------------------------------------- --------- ----------
<S> <C> <C>
Municipal Security Trust W-1, Desoto Parish, Louisiana,
Floating Rate Trust Certificates 3.18%, 1/1/19 ..... $ 3,500,000(e) 3,500,000
----------
Total Municipal Derivative Securities
(cost: $11,269,928) ................................. 8,549,868
----------
Total Municipal Long-Term Securities
(cost: $119,725,595) ................................ 111,479,859
----------
MUNICIPAL SHORT-TERM SECURITIES (0.4%):
INDIANA (0.4%):
Purdue University, 2.75%, 7/1/11
(cost: $500,000) ..................................... 500,000(e) 500,000
----------
Total Investments in Securities
(cost: $120,225,595)(g) ........................... $ 111,979,859
----------
----------
</TABLE>
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 ORIGINAL 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 JANUARY 31, 1995.
(D) ON JANUARY 31, 1995, THE TOTAL COST OF INVESTMENTS PURCHASED ON A
WHEN-ISSUED OR DELAYED SETTLEMENT BASIS WAS $1,177,464.
(E) VARIABLE RATE NOTE. INTEREST RATE VARIES TO REFLECT CURRENT MARKET
CONDITIONS; RATE SHOWN IS THE EFFECTIVE RATE ON JANUARY 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) ON JANUARY 31, 1995, FOR FEDERAL INCOME TAX PURPOSES, THE COST OF
INVESTMENTS WAS $120,173,098. THE AGGREGATE GROSS UNREALIZED APPRECIATION
AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED ON THIS COST WERE AS
FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION .... $ 386,993
GROSS UNREALIZED DEPRECIATION ...... (8,580,232)
----------
NET UNREALIZED DEPRECIATION .... $ (8,193,239)
----------
----------
</TABLE>
<PAGE>
---------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS AND SHAREHOLDERS
AMERICAN MUNICIPAL INCOME PORTFOLIO INC.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of American Municipal Income
Portfolio Inc. as of January 31, 1995, the related statement of operations for
the year then ended and the statements of changes in net assets and the
financial highlights for the year ended January 31, 1995 and for the period from
June 25, 1993 (commencement of operations) to January 31, 1994. These financial
statements and the financial highlights are the responsibility of the fund's
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased but not received, we request confirmations
from brokers, and where replies are not received, we carry out other appropriate
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provides a
reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
American Municipal Income Portfolio Inc. as of January 31, 1995, the results of
its operations for the year then ended and the changes in its net assets and the
financial highlights for the year ended January 31, 1995 and for the period from
June 25, 1993 to January 31, 1994, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 3, 1995
<PAGE>
--------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
--------------------------------------------------------------------------------
Fiscal Year Ended January 31, 1995
Federal tax information is presented as an aid to you in
reporting distributions. Please consult a tax adviser on
how to report these distributions at the state and local
levels.
SOURCE OF DISTRIBUTIONS
During the year ended January 31, 1995, all of American
Municipal Income Portfolio's distributions were derived
from interest on municipal securities and qualify as
exempt-interest dividends for federal tax purposes
except as noted in the footnotes to the tables below.
FEDERAL TAXATION
Exempt-interest dividends are exempt from federal income
taxes and should not be included in your gross income,
but need to be reported on your income tax return for
informational purposes.
American Municipal Income Portfolio
<TABLE>
<CAPTION>
COMMON STOCK
Payable Date Per Share
------------------------------------------------ -----------
<S> <C>
February 23, 1994 ............................ $ 0.0725
March 23, 1994 ................................. 0.0725
April 27, 1994 ................................. 0.0725
May 25, 1994 ................................... 0.0725
June 22, 1994 .................................. 0.0725
July 27, 1994 .................................. 0.0725
August 24, 1994 ................................ 0.0725
September 28, 1994 ............................. 0.0958*
October 26, 1994 ............................... 0.0725
November 23, 1994 .............................. 0.0725
December 28, 1994 .............................. 0.0725
January 13, 1995 ............................... 0.0725
-----------
$ 0.8933
-----------
-----------
* This distribution includes $0.0233 of short-term capital
gains which is classified as ordinary income for federal
tax purposes.
<CAPTION>
PREFERRED STOCK
(at $25,000/share) Per Share
------------------------------------------------ -----------
<S> <C>
Total class "T" .............................. $ 778.88**
-----------
-----------
Total class "TH" ............................. $ 775.16**
-----------
-----------
** This distribution includes $14.38 of short-term capital
gains which is classified as ordinary income for federal
tax purposes.
</TABLE>
<PAGE>
--------------------------------------------------------------------------------
SHAREHOLDER UPDATE
--------------------------------------------------------------------------------
ANNUAL MEETING RESULTS
An annual meeting of the fund's shareholders was held on August 22, 1994. 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. All numbers have been adjusted to reflect the 2:1 preferred
stock split.
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 1,356 58
William H. Ellis 1,356 58
</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 3,401,175 73,420
Karol D. Emmerich 3,405,744 68,851
Luella G. Goldberg 3,405,151 69,444
John T. Golle 3,403,629 70,966
Edward J. Kohler* 3,400,784 73,811
George Latimer 3,404,244 70,351
</TABLE>
-----------------------------------------------------------------------------
*Mr. Kohler resigned as a director of the fund, effective November 30, 1994.
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, 1995. The
following votes were cast regarding this matter:
<TABLE>
<CAPTION>
Shares Voted Shares Voted
"For" "Against" Abstentions
------------ ------------- -----------
<S> <C> <C>
3,339,395 21,418 113,782
</TABLE>
<PAGE>
--------------------------------------------------------------------------------
SHAREHOLDER UPDATE
--------------------------------------------------------------------------------
4. The fund's preferred and common shareholders, voting as a class, approved
the Investment Advisory and Management Agreement dated June 18, 1993, between
the fund and Piper Capital Management. The following votes were cast regarding
this matter:
<TABLE>
<CAPTION>
Shares Voted Shares Voted
"For" "Against" Abstentions
------------ ------------- -----------
<S> <C> <C>
3,273,870 54,366 146,360
</TABLE>
5. The fund's preferred and common shareholders, voting as a class, approved
the Administration Agreement dated June 18, 1993, between the fund and Piper
Capital Management. The following votes were cast regarding this matter:
<TABLE>
<CAPTION>
Shares Voted Shares Voted
"For" "Against" Abstentions
------------ ------------- -----------
<S> <C> <C>
3,264,704 62,589 147,302
</TABLE>
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, and repurchases cannot
exceed 3% of the total shares outstanding.
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, 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 over the next six months and may
be discontinued at any time. We will notify you if the board decides to continue
the
<PAGE>
--------------------------------------------------------------------------------
SHAREHOLDER UPDATE
--------------------------------------------------------------------------------
program beyond the next six months. 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.
HOW WILL SHARES BE REPURCHASED?
We expect to finance the repurchase of shares by liquidating portfolio
securities or using current cash balances. We do not anticipate borrowing in
order to finance share repurchases.
TERMS AND CONDITIONS OF THE DIVIDEND REINVESTMENT PLAN
As a shareholder, you may choose to participate in your fund's Dividend
Reinvestment Plan. It is a convenient and economical way to buy additional
shares of the fund by automatically reinvesting dividends and capital gains. The
plan is administered by Investors Fiduciary Trust Company (IFTC), the plan
agent.
ELIGIBILITY/PARTICIPATION
You may join the plan at any time. Reinvestment of distributions will begin with
the next distribution paid, provided your enrollment card is received at least
10 days before the record date for that distribution.
If your shares are in certificate form, you may join the plan directly and have
your distributions reinvested in additional shares of the fund. To enroll in
this plan, call IFTC at 1-800-543-1627. If your shares are registered in your
brokerage firm's name or another name, ask the holder of your shares how you may
participate.
Banks, brokers or nominees, on behalf of their beneficial owners who wish to
reinvest dividend and capital gain distributions, may participate in the plan by
informing IFTC at least 10 days before each share's dividend and/or capital
gains distribution.
PLAN ADMINISTRATION
Beginning no more than five business days before the dividend payment date, IFTC
will buy shares of the fund on the New York Stock Exchange or elsewhere on the
open market.
The fund will not issue any new shares in connection with the plan. All
reinvestments will be at a market price plus a pro rata share of any brokerage
commissions, which may be more or less than the fund's net asset value per
share. The number of shares allocated to you is determined by dividing the
amount of the dividend or distribution by the applicable price per share.
<PAGE>
--------------------------------------------------------------------------------
SHAREHOLDER UPDATE
--------------------------------------------------------------------------------
There is no direct charge for reinvestment of dividends and capital gains, since
IFTC fees are paid for by the fund. However, each participant pays a pro rata
portion of the brokerage commissions. Brokerage charges are expected to be lower
than those for individual transactions because shares are purchased for all
participants in blocks. As long as you continue to participate in the plan,
distributions paid on the shares in your account will be reinvested.
IFTC maintains accounts for plan participants holding shares in certificate
form. You will receive a monthly statement detailing total dividend and capital
gain distributions, date of investment, shares acquired, price per share, and
total shares held in your account, both certificate-form shares and unissued
shares acquired through the plan.
TAX INFORMATION
Distributions reinvested in additional shares of the fund are subject to income
tax, just as they would be if received in cash. In general, the tax basis of
such shares will equal the price paid by IFTC plus the pro rata share of any
commission. Each January, you will receive IRS Form 1099 regarding the federal
tax status of the prior year's distributions.
PLAN WITHDRAWAL
If you hold your shares in certificate form, you may terminate your
participation in the plan at any time by giving written notice to IFTC. If your
shares are registered in your brokerage firm's name, you may terminate your
participation via verbal or written instructions to your investment
professional. Written instructions should include your name and address as they
appear on the certificate or account.
If notice is received at least 10 days before the record date, all future
distributions will be paid directly to the shareholder of record.
If your shares are in certificate form and you discontinue your participation in
the plan, you (or your nominee) will receive an additional certificate for all
full shares and a check for any fractional shares in your account.
PLAN AMENDMENT/TERMINATION
The fund reserves the right to amend or terminate the plan. Should the plan be
terminated, participants will be notified in writing at least 90 days before the
record date for the next dividend or distribution. The plan may also be amended
or terminated by IFTC with at least 90 days' written notice to participants in
the plan.
Any questions about the plan should be directed to your investment professional
or to Investors Fiduciary Trust Company, P.O. Box 419432, Kansas City, Missouri
64141, 1-800-543-1627.
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DIRECTORS AND OFFICERS
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DIRECTORS David T. Bennett, 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,
NWNL COMPANIES, HORMEL FOODS CORP.
John T. Golle, PRESIDENT AND DIRECTOR, EDUCATION ALTERNATIVES
George Latimer, SPECIALIST CONSULTANT,
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
INDEPENDENT KPMG Peat Marwick LLP
AUDITORS 4200 NORWEST CENTER, MINNEAPOLIS, MN 55402
LEGAL COUNSEL Dorsey & Whitney P.L.L.P.
220 SOUTH SIXTH STREET, MINNEAPOLIS, MN 55402
