<PAGE>
AMERICAN
MUNICIPAL
INCOME
PORTFOLIO
SEMIANNUAL
REPORT
1996
<PAGE>
TABLE OF CONTENTS
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, such as inverse floating
rate and inverse interest-only municipal 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 Mutual Funds Rating Group (S&P).* Fund shares
trade on the New York Stock Exchange and the Chicago Stock Exchange under the
symbol XAA.
AVERAGE ANNUALIZED TOTAL RETURNS . . . . . . . . . . 1
LETTER TO SHAREHOLDERS . . . . . . . . . . . . . . . 2
FINANCIAL STATEMENTS AND NOTES . . . . . . . . . . . 7
INVESTMENTS IN SECURITIES. . . . . . . . . . . . . . 15
*THE FUND IS RATED Af, WHICH MEANS THE FUND'S INVESTMENTS 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.
PLEASE REMEMBER YOU COULD LOSE MONEY. NEITHER SAFETY OF PRINCIPAL NOR STABILITY
OF INCOME IS GUARANTEED.
CALL FOR MORE INFORMATION
If you would like to be put on our mailing list to receive a quarterly update
for American Municipal Income Portfolio (XAA), call our Mutual Fund Services
Department at 1 800 866-7778. In addition, you can call that same number and
listen to a portfolio manager commentary for the fund, which is updated monthly.
<PAGE>
AVERAGE ANNUALIZED TOTAL RETURNS
PERIODS ENDED JULY 31, 1996
[GRAPH]
AVERAGE ANNUALIZED TOTAL RETURN FIGURES ARE THROUGH JULY 31, 1996, 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, 1996, WERE 1.32% AND -
1.63%, RESPECTIVELY. THESE FIGURES ALSO ASSUME REINVESTED DISTRIBUTIONS AND DO
NOT REFLECT SALES CHARGES.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND
MARKET VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT FUND SHARES, WHEN SOLD, MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
THE LIPPER GENERAL MUNICIPAL BOND FUNDS: LEVERAGED AVERAGE REPRESENTS THE
AVERAGE TOTAL RETURN, WITH DISTRIBUTIONS REINVESTED, OF PERPETUAL AND TERM TRUST
NATIONAL CLOSED-END MUNICIPAL FUNDS AS CHARACTERIZED BY LIPPER ANALYTICAL
SERVICES. THE LEHMAN BROTHERS MUNICIPAL LONG BOND INDEX IS COMPRISED OF
MUNICIPAL BONDS WITH MORE THAN 22 YEARS TO MATURITY AND AN AVERAGE CREDIT
QUALITY OF AA. THE INDEX IS UNMANAGED AND DOES NOT INCLUDE ANY FEES OR EXPENSES
IN ITS TOTAL RETURN FIGURES.
THE SINCE INCEPTION NUMBERS FOR THE LIPPER AVERAGE AND LEHMAN INDEX ARE
CALCULATED FROM THE MONTH END CLOSEST TO THE FUND'S INCEPTION THROUGH JULY 31,
1996.
1
<PAGE>
AMERICAN MUNICIPAL INCOME PORTFOLIO
Sept. 15, 1996
Dear Shareholders:
THE NET ASSET VALUE TOTAL RETURN FOR AMERICAN MUNICIPAL INCOME PORTFOLIO FOR THE
SIX-MONTH PERIOD ENDED JULY 31, 1996, WAS -3.24%.* In comparison, the Lipper
General Municipal Bond Funds: Leveraged Average had a return of -1.11%, and the
Lehman Brothers Municipal Long Bond Index had a return of -0.91% during the same
six-month period. Based on market price, the fund's total return for the six-
month period ended July 31, 1996, was -3.99%. Net asset value and market price
total returns assume distributions were reinvested and do not include sales
charges. Throughout the reporting period, the fund had a longer effective
duration and, thus, exhibited more volatility than the benchmarks, which
accounts for its underperformance. (For more information about effective
duration, see page 4.)
WE RECENTLY ADJUSTED THE FUND'S EFFECTIVE DURATION, SHORTENING IT TO A MORE
DEFENSIVE POSITION. To do this, we "hedged" some of the fund's holdings in
inverse interest-only municipal securities by buying short-term floating rate
municipals, which somewhat offset the price and income volatility of the inverse
interest-only securities. The fund's duration, while clearly beneficial over the
past 12 months when interest rates were generally decreasing (see chart on page
1), caused the fund to lag its competition over the past six months. The
[PHOTOGRAPH - FPO 55%]
DOUG WHITE, CFA, (TOP)
shares responsibility for the management of American Municipal Income Portfolio.
He has 13 years of financial experience.
[PHOTOGRAPH - FPO 56%]
RON REUSS, ISFA, (BOTTOM)
shares responsibility for the management of American Municipal Income Portfolio.
He has 27 years of financial experience.
* PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND
MARKET VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT FUND SHARES, WHEN SOLD, MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
2
<PAGE>
AMERICAN MUNICIPAL INCOME PORTFOLIO
adjustment we made moved the duration of the fund closer to that of the Lipper
average and Lehman index. The inverse floating rate and inverse interest-only
securities, which currently represent about 4% of the fund's total assets,
assist the fund in achieving its objective of earning high current income. The
securities also have a disproportionate impact on the fluctuations in the fund's
net asset value and income level. When interest rates rise, the value of and
income from these securities could decline to a greater extent than traditional
municipal securities. However, as rates fall, the increased volatility of these
securities can have a disproportionately positive impact on the fund's net asset
value and income. The fund saw both situations during this six-month reporting
period, and we believe the adjustments we've made were appropriate, given market
conditions.
PORTFOLIO COMPOSITION
JULY 31, 1996
[PIE CHART]
THE FUND'S DIVIDEND REMAINED THE SAME THROUGHOUT THE SIX-MONTH PERIOD. American
Municipal Income Portfolio continued to earn its dividend of 6.275 cents per
share and contribute to its dividend reserve. Shortening the effective duration
to reduce volatility did not impact the income of the fund enough to cause a
reduction in the dividend. In addition, the fund has outstanding floating rate
preferred stock, which also did not affect the common stock dividend. Keep in
mind,
3
<PAGE>
AMERICAN MUNICIPAL INCOME PORTFOLIO
however, that the fund's preferred stock could cause a lower rate of return for
common shareholders under certain market conditions. (For more information about
preferred stock, see page 6.)
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 increased by 1%, the market value of a bond with an effective duration of
five years would decrease by about 5%, with all other factors being constant.
It is important to understand that, while a valuable measure, effective duration
is based on certain assumptions and has several limitations. It is more
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.
THE FUND CONTINUES TO MAXIMIZE CALL PROTECTION TO KEEP ITS INCOME HIGH. This has
always been an important tool in helping the fund meet its objective of high
current income. Long call protection -- the length of time during which a
security can't be redeemed by its issuer -- allows the fund to maintain its
income stream for a longer period of time, since these issues will not be
refinanced during times of falling interest rates. At the same time, a long call
protection leaves more opportunity for a bond's price to increase if interest
rates fall. We've extended the call protection of the securities in American
Municipal Income Portfolio to an average of 11 years.
DURING THIS SIX-MONTH REPORTING PERIOD, BONDS GENERALLY HAD NEGATIVE RETURNS
BECAUSE OF THE RISE IN INTEREST RATES. However, municipal bonds, including those
in this fund, performed better than most of their taxable counterparts.
Municipal prices fell less drastically for three principal reasons: subsiding
concerns about tax reform, a decreased supply of new issues during the period,
and favorable after-tax yields for municipal bonds in comparison to taxable
bonds.
4
<PAGE>
AMERICAN MUNICIPAL INCOME PORTFOLIO
GEOGRAPHICAL DISTRIBUTION
July 31, 1996
[U.S. MAP]
INVESTMENT CATEGORIES REFLECT
PERCENTAGES OF TOTAL ASSETS.
OTHER ASSETS EQUAL 4%.
ON JULY 31, 95% OF THE FUND'S ASSETS WERE INVESTED IN BONDS RATED A OR HIGHER BY
STANDARD & POOR'S OR MOODY'S (OR EQUIVALENT). This exceeds the fund's quality
guidelines, which require at least 65% investment in bonds rated A or higher.
THE FUND REMAINS WELL DIVERSIFIED ACROSS THE UNITED STATES. While it maintains a
focus on the central states, we have increased its holdings in the South and
West as well, including Georgia, Louisiana, New Mexico and Arizona.
5
<PAGE>
AMERICAN MUNICIPAL INCOME PORTFOLIO
WE BELIEVE THE FUND IS POSITIONED APPROPRIATELY FOR THE COMING MONTHS. There is
uncertainty in the market about inflation and the direction of the economy. With
that outlook, we have positioned the fund more defensively, and we believe it
will perform competitively. We don't anticipate making any immediate changes in
strategy; however, we will continue to look for opportunities to increase the
fund's yield, without compromising its credit quality.
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. An inverted
yield curve happens infrequently, and historically has been short term in
nature.
Investors should 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.
Thank you for investing in American Municipal Income Portfolio. We consider it a
privilege to manage your investment and help you achieve your financial goals.
Sincerely,
/s/ Douglas J. White
- ------------------------------
Douglas J. White
Portfolio Manager
/s/ Ronald R. Reuss
- ------------------------------
Ronald R. Reuss
Portfolio Manager
6
<PAGE>
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FINANCIAL STATEMENTS (Unaudited)
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (note 2) .... $ 119,643,280
Cash in bank on demand deposit ........................... 44,481
Receivable for investment securities sold ................ 3,055,679
Other assets ............................................. 8,287
Accrued interest receivable .............................. 1,979,387
----------------
Total assets ......................................... 124,731,114
----------------
LIABILITIES:
Preferred stock dividends payable (note 3) ............... 14,063
Payable for investment securities purchased .............. 3,040,621
Accrued investment management fee ........................ 35,605
Accrued remarketing agent fee ............................ 19,935
Accrued administrative fee ............................... 15,260
Other accrued expenses ................................... 15,259
----------------
Total liabilities .................................... 3,140,743
----------------
Net assets applicable to outstanding capital stock ....... $ 121,590,371
----------------
----------------
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 ...................... 388,058
Accumulated net realized loss on investments ............. (4,883,093)
Unrealized appreciation of investments ................... 2,054,385
----------------
Total - representing net assets applicable to
outstanding common stock ........................... 78,090,371
----------------
Total net assets ................................... $ 121,590,371
----------------
----------------
Net asset value per share of outstanding common stock (net
assets divided by 5,756,267 shares of common stock
outstanding) ........................................... $ 13.57
----------------
----------------
* Investments in securities at identified cost ........... $ 117,588,895
----------------
----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
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FINANCIAL STATEMENTS (UNAUDITED)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 31, 1996
<TABLE>
<S> <C>
INCOME:
Interest ............................................... $ 3,577,761
----------------
EXPENSES (NOTE 5):
Investment management fee ................................ 210,840
Administrative fee ....................................... 90,360
Remarketing agent fee .................................... 54,978
Custodian, accounting and transfer agent fees ............ 39,153
Reports to shareholders .................................. 14,419
Directors' fees .......................................... 5,766
Audit and legal fees ..................................... 23,168
Other expenses ........................................... 18,768
----------------
Total expenses ....................................... 457,452
Less expenses paid indirectly ............................ (3,031)
----------------
Total net expenses ................................... 454,421
----------------
Net investment income ................................ 3,123,340
----------------
NET REALIZED AND UNREALIZED LOSSES ON INVESTMENTS:
Net realized loss on investments (note 4) ................ (123,287)
Net change in unrealized appreciation or depreciation of
investments ............................................ (5,005,164)
----------------
Net loss on investments ................................ (5,128,451)
----------------
Net decrease in net assets resulting from
operations ....................................... $ (2,005,111)
----------------
----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended
7/31/96 Year Ended
(Unaudited) 1/31/96
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income .................................. $ 3,123,340 6,184,840
Net realized loss on investments ......................... (123,287) (786,229)
Net change in unrealized appreciation or depreciation of
investments ............................................ (5,005,164) 15,305,285
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations ........................................... (2,005,111) 20,703,896
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income:
Common stock dividends ................................. (2,167,235) (4,895,706)
Preferred stock dividends .............................. (748,848) (1,686,276)
---------------- ----------------
Total distributions .................................. (2,916,083) (6,581,982)
---------------- ----------------
Total increase (decrease) in net assets ............ (4,921,194) 14,121,914
Net assets at beginning of period .......................... 126,511,565 112,389,651
---------------- ----------------
Net assets at end of period .............................. $ 121,590,371 126,511,565
---------------- ----------------
---------------- ----------------
Undistributed net investment income ...................... $ 388,058 180,801
---------------- ----------------
---------------- ----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(1) ORGANIZATION
American Municipal Income Portfolio Inc. (the fund) is
registered under the Investment Company Act of 1940 (as amended)
as a diversified, closed-end investment management company. 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, such as
inverse floating rate and inverse interest-only municipal
securities. Fund shares are listed on the New York Stock
Exchange under the symbol XAA.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVESTMENTS IN SECURITIES
The values of fixed income securities are determined using
pricing services or prices quoted by independent brokers.
Exchange-listed options are valued at the last sales price, and
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.
10
<PAGE>
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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 fluctuation and may increase or decrease in value prior
to their delivery. The fund maintains, in a segregated account
with its custodian, assets with a market value equal to the
amount of its purchase commitments. The purchase of securities
on a when-issued or forward-commitment basis may increase the
volatility of the fund's net asset value if the fund makes such
purchases while remaining substantially fully invested. As of
July 31, 1996, the fund had no outstanding when-issued or
forward commitments.
FEDERAL TAXES
The fund intends to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and
not be subject to federal income tax. Therefore, no income tax
provision is required. 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.
The character of distributions made during the year from net
investment income or net realized gains may differ from its
ultimate characterization for federal income tax purposes. In
addition, due to the timing of dividend distributions, the
fiscal year in which amounts are distributed may differ from the
year that the income or realized gains (losses) were recorded by
the fund.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income are made monthly for
common shareholders and weekly for preferred 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 at least annually. Distributions are payable in cash
or, for common
11
<PAGE>
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
shareholders pursuant to the fund's dividend reinvestment plans,
reinvested in additional shares of the fund's common stock.
Under the plan, common shares will be purchased in the open
market.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
in the financial statements.
(3) REMARKETED PREFERRED STOCK
American Municipal Income Portfolio has issued and, as of July
31, 1996, has outstanding 1,740 shares of remarketed preferred
stock (870 shares in class "T" and 870 shares in class "TH")
(RP) with a liquidation preference of $25,000 per share. The
dividend rate on the RP 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, 1996, the
dividend rates were 3.50% and 3.35% for class "T" and "TH,"
respectively.
RP is a registered trademark of Merrill Lynch & Company.
(4) INVESTMENT SECURITY TRANSACTIONS
Cost of purchases and proceeds from sales of securities, other
than temporary investments in short-term securities, for the six
months ended July 31, 1996, aggregated $14,815,518 and
$14,723,254, respectively.
For the six months ended July 31, 1996, no brokerage commissions
were paid to Piper Jaffray Inc., an affiliated broker.
(5) 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 equal to an annual 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
provides investment advice and conducts the management and
investment activities of the fund.
12
<PAGE>
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
The administration agreement provides the administrator with a
monthly fee in an amount equal to an annual 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 fund). For its fee, the administrator
provides 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 annual rate of 0.25% of the
fund's average amount of RP outstanding. For its fee, the
remarketing agent will remarket shares of RP tendered to it on
behalf of shareholders and will determine the applicable
dividend rate for each seven-day dividend period.
In addition to the investment management, administrative and
remarketing agent fees, the fund is responsible for paying most
other operating expenses including: outside directors' fees and
expenses; custodian fees; registration fees; printing and
shareholder reports; transfer agent fees and expenses; legal,
auditing and accounting services; insurance; interest; taxes and
other miscellaneous expenses.
Expenses paid indirectly represent a reduction of custodian fees
for earnings on cash balances maintained by the fund.
(6) CAPITAL LOSS CARRYOVER
For federal income tax purposes, the fund had capital loss
carryovers of $4,759,806 as of January 31, 1996, 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.
13
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
(7) FINANCIAL HIGHLIGHTS
Per-share data for a share of capital stock outstanding
throughout each period and selected information for each period
are as follows:
AMERICAN MUNICIPAL INCOME PORTFOLIO
<TABLE>
<CAPTION>
Six
months Year ended January Period
ended 31, ended
7/31/96 -------------------- 1/31/94
(Unaudited) 1996 1995 (e)
------- ------- -------- -------
<S> <C> <C> <C> <C>
Net asset value, common stock, beginning of
period .................................. $ 14.42 11.97 14.88 14.13
------- ------- -------- -------
Operations:
Net investment income ..................... 0.54 1.07 1.14 0.58
Net realized and unrealized gains (losses)
on investments .......................... (0.88) 2.52 (2.92) 0.83
------- ------- -------- -------
Total from operations ................... (0.34) 3.59 (1.78) 1.41
------- ------- -------- -------
Distributions to shareholders:
From net investment income
Paid to common shareholders ............. (0.38) (0.85) (0.87) (0.44)
Paid to preferred shareholders .......... (0.13) (0.29) (0.23) (0.08)
From net realized gains
Paid to common shareholders ............. -- -- (0.02) --
Paid to preferred shareholders .......... -- -- (0.01) --
------- ------- -------- -------
Total distributions to shareholders ..... (0.51) (1.14) (1.13) (0.52)
------- ------- -------- -------
Offering costs and underwriting discounts
associated with the remarketed preferred
stock ..................................... -- -- -- (0.14)
------- ------- -------- -------
Net asset value, common stock, end of
period .................................. $ 13.57 14.42 11.97 14.88
------- ------- -------- -------
------- ------- -------- -------
Market value, common stock, end of
period .................................. $ 11.63 12.50 11.63 14.63
------- ------- -------- -------
------- ------- -------- -------
SELECTED INFORMATION
Total return, common stock, net asset value
(a) ....................................... (3.24)% 28.31% (13.46)% 8.49%
Total return, common stock, market value
(b) ....................................... (3.99)% 15.21% (14.44)% 0.40%
Net assets at end of period (in
millions) ............................... $ 122 127 112 129
Ratio of expenses to average weekly net
assets (c) ................................ 0.76%(f) 0.77% 0.74% 0.70%(f)
Ratio of net investment income to average
weekly net assets ......................... 5.18%(f) 5.13% 5.72% 4.88%(f)
Portfolio turnover rate (excluding short-term
securities) ............................... 12% 54% 52% 31%
Remarketed preferred stock outstanding end of
period (in millions) .................... $ 44 44 44 44
Asset coverage ratio (d) .................... 280% 291% 258% 297%
</TABLE>
(a) BASED ON THE CHANGE IN NET ASSET VALUE OF A COMMON SHARE DURING THE PERIOD
AND ASSUMES REINVESTMENT OF DISTRIBUTIONS AT NET ASSET VALUE
(b) 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 REINVESTMENT PLAN.
(c) BEGINNING IN FISCAL 1996, THE EXPENSE RATIOS REFLECT THE EFFECT OF GROSS
EXPENSES PAID INDIRECTLY BY THE FUND. PRIOR PERIOD EXPENSE RATIOS HAVE NOT
BEEN ADJUSTED.
(d) REPRESENTS TOTAL NET ASSETS DIVIDED BY REMARKETED PREFERRED STOCK.
(e) COMMENCEMENT OF OPERATIONS WAS JUNE 25, 1993.
(f) ADJUSTED TO AN ANNUAL BASIS.
14
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES (Unaudited)
AMERICAN MUNICIPAL INCOME PORTFOLIO
JULY 31, 1996
<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 (93.9%)
Arizona (4.7%):
Pima County United School District, 8.38%, 7/1/13 ... $ 3,000,000 3,935,730
Salt River Agricultural Project, 5.00%, 1/1/16 ........ 2,000,000 1,822,540
-----------
5,758,270
-----------
Colorado (0.4%):
Water Reserve and Power Development, 5.90%, 9/1/16 .... 500,000 505,355
-----------
District Of Columbia (0.8%):
General Obligation, 5.75%, 12/1/05 .................... 1,000,000 956,100
-----------
Georgia (10.8%):
Municipal Electrical Authority, 6.46%, 1/1/12 ......... 10,000,000 11,068,400
Savannah Hospital Authority-St. Joseph's, 6.13%,
7/1/12 ............................................... 2,000,000 2,046,740
-----------
13,115,140
-----------
Hawaii (2.1%):
State Department of Budget and Finance, 6.40%,
7/1/13 ............................................... 2,415,000 2,573,738
-----------
Illinois (8.9%):
Chicago General Obligation, 5.13%, 1/1/22 ............. 3,000,000 2,697,480
Chicago State University Revenue, 6.00%, 12/1/12 ...... 1,000,000 1,027,020
Health Facility Authority-Alexian Brothers Project,
6.80%, 1/1/22 ........................................ 1,000,000 1,037,270
Health Facility Authority-Lutheran General Hospital,
6.00%-7.00%, 4/1/08-4/1/18 ........................... 4,205,000 4,342,279
Kane County School District, 5.75%, 2/1/15 ............ 1,000,000 990,460
Rochelle Electric Systems, 5.20%, 5/1/16 .............. 750,000 696,180
-----------
10,790,689
-----------
Indiana (15.2%):
Brownsburg School Building Corporation, 5.95%,
8/1/10 ............................................... 2,000,000 2,066,080
Hamilton School Building Corporation, 6.00%, 7/1/10 ... 1,575,000 1,625,384
Health Facility Authority-Columbus Hospital, 7.00%,
8/15/15 .............................................. 2,670,000 3,041,344
IPS School Building Corporation, 6.15%, 1/15/16 ....... 2,800,000 2,906,484
Municipal Bond Bank, 6.00%, 2/1/16 .................... 1,000,000 1,007,920
Terre Haute School Building Corporation, 5.80%,
7/1/13 ............................................... 2,150,000 2,162,513
</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>
Tippecanoe County School Building Corporation,
5.95%-6.00%, 7/15/12-7/15/13 ....................... $ 3,920,000 4,004,270
Valparaiso-Porter County Public Library, 6.25%,
1/1/16 ............................................... 1,500,000 1,546,275
-----------
18,360,270
-----------
Iowa (0.8%):
Sheldon Health Care Facilities, 6.15%, 3/1/16 ......... 1,000,000 1,016,920
-----------
Kansas (0.9%):
Kansas City Utility System Revenue, 6.25%, 9/1/14 ..... 1,000,000 1,045,980
-----------
Louisiana (5.6%):
Desoto Parish Pollution Control, 7.56%, 1/1/19 ........ 6,000,000 6,809,160
-----------
Michigan (7.2%):
Comstock Park Public Schools, 7.88%, 5/1/11 ........... 3,145,000 3,856,147
Hospital Financing Authority-Daughters Charity, 5.25%,
11/1/15 3,000,000 2,769,000
Hospital Financing Authority-Metropolitan Hospital,
5.10%-5.40%, 7/1/00-7/1/03 ........................... 2,245,000 2,184,932
-----------
8,810,079
-----------
Nevada (2.5%):
Washoe County School District, 5.75%, 6/1/12 .......... 3,000,000 3,016,500
-----------
New Mexico (8.3%):
Mortgage Finance Authority, 6.40%-6.88%,
7/1/15-7/1/25 ........................................ 9,575,000 10,127,991
-----------
North Dakota (2.9%):
Mercer County Pollution Control Revenue, 7.20%,
6/30/13 .............................................. 3,000,000 3,543,900
-----------
South Carolina (1.2%):
State Highway-Series B, 5.63%, 7/1/15 ................. 1,500,000 1,508,985
-----------
South Dakota (1.2%):
Housing and Development Authority, 5.80%, 5/1/14 ...... 1,500,000 1,467,345
-----------
Texas (11.2%):
Arlington Independent School District, 6.00%,
2/15/15 .............................................. 2,275,000 2,318,271
Fort Bend Independent School District, 5.00%-5.25%,
2/15/12-2/15/14 ...................................... 3,950,000 3,701,357
Houston Water Conveyance System, 7.50%, 12/15/16 ...... 745,000 900,727
Round Rock Independent School District, 6.10%-6.15%,
8/1/10-6/1/14 ........................................ 3,020,000 3,146,847
</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>
Spring Independent School District, 5.80%,
8/15/12-8/15/13 .................................... $ 2,425,000 2,458,151
United Independent School District, 5.00%, 8/15/14 .... 1,150,000 1,061,818
-----------
13,587,171
-----------
Utah (3.6%):
Municipal Power-San Juan Project, 6.25%, 6/1/14 ....... 1,300,000 1,345,708
NEBO County School District, 5.75%, 6/15/14 ........... 3,000,000 3,012,000
-----------
4,357,708
-----------
Washington (3.9%):
Chelan County Public Utilities District, 5.90%,
7/1/13 ............................................... 1,830,000 1,805,826
Douglas County Public Utility District, 6.00%,
1/1/15 ............................................... 1,000,000 1,011,910
Port of Seattle-Series A, 5.50%, 9/1/21 ............... 2,000,000 1,904,620
-----------
4,722,356
-----------
Wisconsin (1.7%):
Health and Education Facilities-Beloit Hospital,
5.80%-5.90%, 7/1/09-7/1/11 ........................... 1,180,000 1,165,755
Health and Education Facilities-Waukesha Hospital,
5.50%, 8/15/15 ....................................... 1,000,000 955,130
-----------
2,120,885
-----------
Total Municipal Bonds
(cost: $111,824,436) ................................ 114,194,542
-----------
MUNICIPAL DERIVATIVE SECURITIES (3.9%) (e):
Duarte, California, Redevelopment Agency, inverse
interest-only, 10.02%, 11/1/11 ....................... --(b) 1,141,087
Desoto Parish, Louisiana, Municipal Security Trust
93-B, inverse interest-only, 19.26%, 1/1/19 .......... --(b) 539,440
Kent, Michigan, Hospital Finance Authority, inverse
interest-only, 12.13%, 1/15/13 ....................... --(b) 616,080
Duluth, Minnesota, Health Care Trust Certificate Series
F2, inverse floater, 10.02%, 5/1/18 .................. 1,110,000(c) 1,202,963
</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>
Minneapolis, Minnesota, SSD #1 Trust Certificates
Series I-2, inverse floater, 7.45%, 2/1/15 ......... $ 1,345,000(c) 1,249,168
-----------
Total Municipal Derivative Securities
(cost: $5,064,459) ................................. 4,748,738
-----------
Total Municipal Long-Term Securities
(cost $116,888,895) ................................. 118,943,280
-----------
MUNICIPAL SHORT-TERM SECURITIES (0.6%):
Indiana (0.6%):
Hospital Equipment Finance Authority, 3.60%, 12/1/15
(cost: $700,000) ..................................... 700,000(d) 700,000
-----------
Total Investments in Securities
(cost: $117,588,895) (f) .......................... $ 119,643,280
-----------
-----------
</TABLE>
<TABLE>
<S> <C>
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 RATE REPRESENTS YIELD BASED UPON CURRENT
INCOME AND COST BASIS.
(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, 1996.
(d) VARIABLE RATE DEMAND NOTE. INTEREST RATE VARIES TO REFLECT CURRENT MARKET
CONDITIONS; RATE SHOWN IS THE EFFECTIVE RATE ON JULY 31, 1996. THE MATURITY
DATE SHOWN REPRESENTS FINAL MATURITY.
(e) SECURITIES SOLD WITHIN THE TERMS OF A PRIVATE PLACEMENT MEMORANDUM AND MAY
BE SOLD ONLY TO DEALERS IN THAT PROGRAM OR OTHER ACCREDITED INVESTORS.
(f) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS
UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED
ON THIS COST WERE AS FOLLOWS:
</TABLE>
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION .... $ 2,817,132
GROSS UNREALIZED DEPRECIATION ...... (762,747)
-----------
NET UNREALIZED APPRECIATION .... $ 2,054,385
-----------
-----------
</TABLE>
18
<PAGE>
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
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, CHIEF EXECUTIVE OFFICER, NATIONAL
EQUITY FUNDS
OFFICERS William H. Ellis, CHAIRMAN OF THE BOARD
Paul A. Dow, PRESIDENT
Robert H. Nelson, SENIOR VICE PRESIDENT AND
TREASURER
Susan S. Miley, SECRETARY
INVESTMENT Piper Capital Management Incorporated
ADVISER 222 SOUTH NINTH STREET, MINNEAPOLIS, MN 55402-3804
CUSTODIAN AND Investors Fiduciary Trust Company
TRANSFER AGENT 127 WEST 10TH STREET, KANSAS CITY, MO 64105-1716
LEGAL COUNSEL Dorsey & Whitney LLP
220 SOUTH SIXTH STREET, MINNEAPOLIS, MN 55402
19
<PAGE>
PIPER CAPITAL MANAGEMENT Bulk Rate
U.S. Postage
PAID
PIPER CAPITAL MANAGEMENT INCORPORATED Permit No. 3008
222 SOUTH NINTH STREET Mnpls., MN
MINNEAPOLIS, MN 55402-3804
[RECYCLED GRAPHIC]
THIS DOCUMENT IS PRINTED ON PAPER MADE FROM
100% TOTAL RECOVERED FIBER, INCLUDING 15% POST-CONSUMER WASTE.
In an effort to reduce costs to our shareholders, we have
implemented a process to reduce duplicate mailings of
the fund's shareholder reports. This householding
process should allow us to mail one report to each
address where one or more registered shareholders with
the same last name reside. If you would like to have
additional reports mailed to your address, please call our
Mutual Fund Services Department at 1 800 866-7778.
Piper Capital Management
Attn: Communications Department
222 South Ninth Street
Minneapolis, MN 55402-3804
#21410 9/1996 192-96
STAPLES
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